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Shadow banking a “moderate” risk issue in PHL
By JOANN SANTIAGO
Authorities have warned against the possible systemic risk shadow banking presents to the global financial environment.
This, as volatilities remain given the developments in advanced economies and its impact to other territories among others.
Shadow banking refers to regulated institutions’ unregulated activities such as the issuance of asset-backed commercial papers and money market mutual funds.
The threat of shadow banking became more pronounced in the aftermath of the 2007-08 subprime mortgage crisis in the US, which along with the recession in the world’s largest economy resulted to the global economic crunch.
The sub-prime mortgage crisis in the US was traced to the rise in household debts that were financed by mortgage-backed securities and collateralized debt obligations (CDO), which failed to deliver attractive rates it promised, thus, resulting to defaults.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. told PNA that this unregulated financial activities have many forms and is different from country to country.
He assured the public that its threat on the domestic banking system is limited.
”In the Philippines, we think it's just a moderate risk issue since most credit still originate from the banking system which is already well regulated,” he said.
Espenilla said the central bank is closely monitoring its regulated institutions’ activities to prevent any unauthorized activities and ensure that the domestic financial system remain strong and resilient.
”Having said that BSP is being pro-active by closely tracking sources of unregulated credit intermediation to real estate development, our main potential risk area,” he added.
The central bank has taken a closer look on banks’ real estate exposure to monitor signs of possible asset bubble, which, the BSP maintains, remains far from happening in the country.
In end-2014, real estate exposures (REEs) of universal and commercial banks (U/KBs), thrift banks (TBs) and banks’ trust departments amounted to Php 1.221 trillion, up by 5.2 percent against the Php 1.159 trillion in end-September 2013.
The expansion was traced to banks’ real estate loans (RELs), which grew by 6.8 percent quarter-on-quarter to Php 1.043 trillion.
Bulk of the banks’ RELs were extended to land developers, construction firms and other corporate entities while the balance of 40 percent is for individual households for occupancy.
In the second half of 2014, the BSP conducted stress tests to Philippine banks to monitor among others their real estate exposure and their ability to cover these debts.
Under the said test, U/KBs and TBs have to meet the 10 percent regulatory requirement for qualifying capital after they have been put under the test.
Also, these banks should have a Common Equity Tier 1 that is at least six percent of their qualifying capital after the test.
Similarly, stand alone TBs has to have a Tier 1 ratio that accounts to six percent of their qualifying capital.
Failure of the banks to meet the requirements and explain this would result to the slapping of correction actions.
If the central bank is not satisfied with the explanation it will send the financial institution a notice to submit within 30 calendar days an action plan that will enable it to meet the regulatory requirements.
BSP Governor Amando Tetangco Jr. earlier said Philippine banks remain compliant to regulatory requirements and are generally strong.
”They remain above the minimum capital requirement,” he said but noted that capital of some banks are already near the minimum.
Discussions and consultations between the BSP and the banks continue to address issues and help improve the system, he added. (PNA)


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