Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla has reassured the public early Thursday, March 16, that the Philippine banking system is safe, sound and resilient amid the collapse of the three big US banks.
Medalla said the latest stress testing exercises conducted on the local banks prove their current strength in cases of distressing and “extreme” scenarios.
He said the stress tests “affirm the strength” of the industry based on results which showed that “banks’ capital would hold even under extreme stress scenarios.” Medalla has always said that local banks are well-buffered even before the pandemic with adequate capital and liquidity ratios and constantly assessed under stress scenarios simulated in the BSP’s stress test exercises.
“The BSP likewise recognizes that the actions taken by the US Fed (Federal Reserve) have addressed the potential contagion risk resulting from the SVB (Silicon Valley Bank) failure. Nonetheless, the BSP will continue to monitor the developments both in the international and domestic markets as part of its surveillance activities,” said Medalla.
On Thursday, the BSP chief reiterated that no banks in the Philippines have reported exposures in the California-based SVB which was the first US bank to crumble due to bankruns as depositors withdrew their money on fears the technology-centric lender was insolvent.
Medalla said the domestic banking system “continue to exhibit safety, soundness, and resilience amid the collapse of SVB and two other banks in the US.”
Besides SVB, the New York-based Signature Bank and another California bank, Silvergate Bank, which deals in cryptocurrency were all declared problematic this month by US regulatory agencies.
Medalla said the BSP “has actively partnered with the industy in the execution of best practices in managing risks” and is confident in their ability to safeguard the interests of the Filipino public.
The BSP uses stress test results to assess and manage banks’ potential and current risk exposures especially large lenders and domestic systematically important banks (D-SIBs) which are banks that are too big to fail.
The BSP, similar with all central banks, employ stress testing excercises to determine a bank’s health in terms of adequate capital and liquidity and the industry’s ability to withstand uncertainties and negative financial shocks.
The BSP implements the Uniform Stress Test Exercise and the Real Estate Stress Test, plus several surveillance and early warning systems. Based on BSP’s stress tests, banks continue to show resilience to credit risk shocks, as well as market risks namely interest rate and foreign exchange risks.
For its systemic risk assessments, the BSP in 2021, as part of the Financial Stability Coordination Council, implemented the macroprudential stress test (MaPST) to help financial regulators to have a more granular assessment of emerging systemic risks.
The MaPST is an effective pre-emptive and system-wide stress tests for
financial stability monitoring. It takes on a whole-of-market approach to
handle external pressures in the financial system and the results are expected
to be very different from the BSP’s existing bank-related stress testing.
The BSP currently supervises 45 universal and commercial banks or the big banks, 43 thrift banks, 400 rural banks and cooperative banks, and six digital banks.
The BSP does not disclose which of the 45 big banks are the D-SIBs. Banks considered as D-SIBs are those whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy. In the Philippines, most D-SIBs are part of conglomerates with mixed conglomerate structures.