Thursday, March 30, 2023
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Banks seen to deal with SVB contagion

THE ASIA-PACIFIC banking sector, together with within the Philippines, has affordable buffers to deal with doable contagion results from the failure of Silicon Valley Financial institution (SVB), S&P International Rankings mentioned.

“Asia-Pacific banks are well-placed to soak up potential contagion results emanating from the SVB collapse. Direct exposures are negligible, and secondary impacts are manageable,” S&P mentioned in a observe launched on Thursday.

S&P mentioned it believes the fallout from SVB could be manageable at present score ranges throughout Asia-Pacific banks. Of round 380 banks and nonbank financial establishments it charges within the area, S&P mentioned it doesn’t anticipate any score actions immediately associated to the SVB default.

SVB grew to become the most important financial institution in america to fail because the international financial disaster in 2008. Its sudden closure rattled markets, elevating concern over its doable affect on the worldwide banking sector.

Of the 18 banking jurisdictions it covers in Asia-Pacific, S&P mentioned financial threat developments are secure in 17 jurisdictions, together with the Philippines. Solely New Zealand’s financial threat developments are adverse.

“Whereas the failure of SVB has no instant affect on the scores on Asia-Pacific banks, the knock-on results might but have an effect. Stresses that banks can comfortably take of their stride might morph into greater issues which are difficult to foretell. They might additionally join or mix with different stresses inflicting a confluence of adverse developments that might but take a look at buffers throughout the Asia-Pacific banking sector,” S&P mentioned.

Not like SVB, securities held usually by Philippine banks might have been as excessive as one-third of their books in 2020 and 2021 when rates of interest have been extraordinarily low, S&P Director and Lead Analyst for South and Southeast Asia Ivan Tan mentioned. This was larger in contrast with the common South and Southeast Asian banks.

“So, when 2022 got here round, and simply earlier than the Bangko Sentral ng Pilipinas (BSP) began to hike charges, you may see the holdings of funding securities come down. So, on common if you happen to have a look at the banking system now, it’s round 15-20% of their books,” Mr. Tan mentioned.

He famous that SVB had funding securities make up near 55% of its whole stability sheet.

In a webinar, S&P Senior Director and Sector Lead Gavin Gunning mentioned banks within the Asia-Pacific area are well-placed to soak up any contagion effects from the SVB collapse resulting from sure macro and sector-wide funding and liquidity indicators.

“Deposits from home households represent a significant portion of whole deposits within the Asia-Pacific banking sector. And additional to that, liquidity ranges are not less than ample throughout each one of many prime 60 banks in Asia-Pacific,” he mentioned.

Within the Philippines alone, the capital adequacy ratio of massive banks stood at 16.5% whereas the frequent fairness tier 1 ratio hit 15.4% as of end-June 2022, based mostly on the central financial institution’s newest report on the Philippine financial system.

Each figures have been properly above the BSP minimal necessities of 10% and 6% respectively. In the meantime, banks’ liquidity protection ratio reached 192.5% as of end-June final yr, nearly double the 100% minimal regulatory requirement of the central financial institution. 

Nonetheless, Mr. Gunning mentioned they acknowledge buffers could also be challenged if contagion effects worsen.

“If contagion threat stemming from SVB default could be extra complicated or could be extra troublesome than we presently envisage, then Asia-Pacific banking techniques, regardless of being well-buffered, could possibly be challenged,” he mentioned.

He additionally famous that nonbank monetary establishments (NBFIs) could possibly be negatively affected rapidly if contagion dangers have been amplified. 

“We observe that the NBFI sector is weaker than the banking sector and usually entails smaller, extra concentrated and fewer systemically vital entities,” he mentioned. 

However governments within the Asia-Pacific could lend extraordinary help for many banking techniques if a disaster happens, he added. 

Earlier this week, BSP Governor Felipe M. Medalla has assured markets that Philippine banks don’t have any direct publicity to the SVB collapse.

The Bankers Affiliation of the Philippines additionally mentioned that developments within the US financial system don’t have any “substantial or materials affect” on the Philippine banking business. — Keisha B. Ta-asan



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