Philippine universal banks are braced enough with sufficient buffer funds and strong balance sheets to stand against external headwinds this year, a former central bank governor said in an interview with MBI.
Former BSP Governor Felipe Medalla, now a member of the Board of Directors of Asia United Bank (AUB), emphasized that sufficient capital and liquidity ratios enable banks to support lending and investing activities while absorbing potential losses from portfolios.
“Philippine banks have more capital than is required by the BSP (Bangko Sentral ng Pilipinas),” he told Malaya Business Insight (MBI) in an online interview.
Off property ‘danger zone’
Medalla pointed out the importance of ensuring banks’ exposure to the property sector remains outside the “danger zone.”
Property asset bubbles, marked by sudden increases in demand and prices, are closely monitored by the BSP, especially since most large lenders are linked to conglomerates with significant real estate holdings, he said.
Recent BSP data for the end of March showed that real estate exposure by banks and their trust units had fallen to 19.4 percent from 20.3 percent a year earlier. This figure remains below the BSP’s 25 percent real estate loan limit for banks.
“Exposures to real estate are also compliant with regulations” Medalla affirmed, citing the latest BSP stress tests, which indicate the banking system’s capacity to absorb credit, market and real estate-related shocks.
To enhance monitoring, the BSP in June announced a new Residential Property Price Index, designed to “accurately capture market trends” and provide more stable values and growth rates, even during market disruptions.
Ready vs trade, geopolitical woes
Trade and geopolitical conflicts, Medalla said, are unlikely to affect the credit ratings of Philippine banks, despite posing some challenges.
He pointed out that Philippine goods exports to the United States are less significant compared with the amount of exports to the US by other Asian economies.
The S&P Global view
His comments echoed a recent S&P Global report that assessed the state of Philippine banks against tariff threats, concluding that large banks are on solid footing for such tests.
The report attributed this resilience to the local economy’s low reliance on exports. However, S&P Global also cautioned about the indirect effects of tariff and geopolitical tensions, such as lower global growth, volatility, and uncertainty, which could “lead to some pain” for Philippine banks.
“Banks’ strong capitalization and liquidity provide a buffer against unexpected risks,” credit analyst Nikita Anand stated in the S&P Global report.
Central bank data for 2024 showed that banks’ total capitalization grew 9.8 percent year-on-year to P3.4 trillion, bolstered by retained earnings and a reported combined net profit of P391.3 billion.
As of the end of December last year, the banking sector’s solo and consolidated capital adequacy ratios stood at 16.2 percent and 16.6 percent, respectively. These figures surpass the minimum regulatory threshold of 10 percent set by the BSP and the Bank for International Settlements’ 8 percent.
Common equity tier 1 ratios were 15.1 percent on a solo basis and 15.6 percent on a consolidated basis.
Medalla, an economist, served as the BSP’s sixth governor.
Before his appointment as central bank governor in June 2022, he was a Monetary Board member for 11 years. He retired in June 2023, succeeded by the incumbent Governor Eli Remolona Jr.
Last week, AUB announced that Medalla rejoined the AUB Board as an independent director during its annual stockholders meeting on June 27.
AUB stated that he would reassume his previous position, replacing Romero Quimbo, who ran for reelection in May as Marikina’s second district representative.
