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BSP starts review of pandemic’s hits on banks

By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has began a comprehensive baseline survey on all of its supervised financial institutions to evaluate how it could assist and tailor fit guidelines to help the financial sector during and post-health crisis.

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)

BSP Governor Benjamin E. Diokno said the survey will assess the financial and operational impact of the COVID-19 pandemic on banks and other monitored financial institutions.

“The survey will cover information on asset quality, liquidity position, profitability, (and) capital position following the COVID-19 outbreak,” Diokno said. “The state of digital transformation of supervised institutions will likewise be assessed,” he added.

Diokno also noted that as the lockdown period has been relaxed, the BSP could continue to closely monitor data on domestic liquidity, credit, and bank loans. “This will help us determine the need for further monetary adjustments if necessary,” he said.

To assess and to determine the impact of the law, “Bayanihan to Heal As One Act” on the banking system, the BSP performed simulations to test for capital adequacy ratio (CAR). The emergency law mandated grace periods and prohibited lending institutions from charging interests on interests, fees and charges such as late payment fees on all loan payments falling due within the community quarantine period.

Diokno said the simulation exercise yielded encouraging results. “(It) tested the banking system’s and the banking groups’ capability to withstand an assumed write-off of interest income on total loans and non- interest income from fees and commission up to three months. Results showed that the banking system and all banking groups will easily meet the required minimum CAR of 10 percent. This is expected as banks consistently posted high CARs built up over the years,” said the BSP chief.

Diokno added that the simulations also showed these early indications — that a “higher NPL (non-performing loan) over a short run (could happen) but not as high as the peak during the Asian Financial Crisis” of 1997-1999.

“The banking system’s NPL ratio ranged from three to 3.4 percent in the first half of 1997 and peaked at 18.7 percent in 2001. COVID-19 may exert pressure on the quality of bank loan portfolio, but we expect the impact to be manageable,” he said.

So far, after the BSP’s liquidity-improving measures, Diokno said there is also sufficient liquidity. These pandemic response measures provided P1.2 trillion of extra cash in the financial system.

“Simulations show that post-shock Liquidity Coverage Ratio (LCR) will still hurdle the 100 percent LCR requirement,” he noted. “Banks have generally shown strength in their liquidity position, guided by BSP’s liquidity risk management framework.” The LCR requires banks to have available High Quality Liquid Assets to meet anticipated net cash outflow for a 30-day period under stress conditions, he added.

For now, based on current data (end-April), the banking system’s total loan portfolio grew by 7.8 percent year-on-year to P11 trillion, and this is amid the lockdown period which started March 17.

“Prudent credit standards also kept the quality of bank loans satisfactory,” said Diokno. At the end of April, NPL stood at 2.3 percent which the BSP chief said is a manageable level. “Loan loss reserves have also been increasing since the start of this year, and, at end-April, the industry’s NPL coverage ratio stood at 94.3 percent,” he said. NPLs are unpaid loans for more than 30 days or more after due date.

Diokno said earlier that as the economy is slowly re-opened, the BSP may also have to review the gradual removal of regulatory relief measures they have extended to banks to cope with the adverse impact of the pandemic.

He, however, assured banks that they will “carefully manage the winding down of the regulatory relief measures” and that “proper timing” is crucial to “help protect banks throughout the economic recovery phase.”

Diokno said the BSP will conduct a “comprehensive assessment” for a “data-driven, evidence-based policy on winding down and its timing.”

Source: Manila Bulletin (

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