THE Bangko Sentral ng Pilipinas (BSP) has not received an application for the merger of the LandBank of the Philippines (LBP) and the Development Bank of the Philippines (DBP).
In a briefing with reporters on Wednesday, BSP Governor Eli M. Remolona Jr. said the merger of the two government financial institutions (GFIs) will require a new license from the BSP.
Remolona, however, said the merger of GFIs would make the new financial institution a “big bank.” Still, it remains to be seen whether the new institution can be classified as a domestic systematically important bank (DSIB) even if one of the banks has that classification.
“I think one of them is a DSIB, not both. DSIBs are selected based on well-understood criteria, size, complexity, the interconnectedness between the bank and other entities,” Remolona explained.
“Based on those criteria, we designate—I won’t tell you the number, in the Philippines we don’t reveal which ones are DSIBs. But you can more or less tell which are the DSIB. Once you’re a DSIB, there’s extra capital buffer. There’s more intense supervision. That’s how it works,” he explained.
Based on the Manual of Regulations for Banks (MORB), BSP monitors DSIBs “to ensure that [their] capital adequacy framework is consistent with the Basel principles.”
Banks that are identified as DSIBs will be required to have a Higher Loss Absorbency (HLA) to ensure that DSIBs have a higher share of their balance sheets funded by instruments that increase their resilience as a going concern.
This is especially the case since the failure of a DSIB is expected to have a greater impact on the domestic financial system and economy.
“The broad aim of the policies is to reduce the probability of failure of DSIBs by increasing their going-concern loss absorbency and to reduce the extent or impact of failure of DSIBs on the domestic/real economy,” the MORB said.
Maharlika
IN relation to the GFIs, the BSP confirmed that at least one of these institutions has sought the approval of the Monetary Board for regulatory relief in relation to the Maharlika Investment Fund (MIF).
Remolona said the regulatory relief is crucial since the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) will be providing capitalization for the MIF.
“[For now, they’re still] compliant…even after the contribution to the Maharlika. In principle, we can provide forbearance, which allows them not to comply for a period of time. But they will be expected to comply at some point. Forbearance is always temporary,” Remolona said.
According to BSP Supervisory Policy and Research Department Director Maria Cynthia Sison, on the part of these banks, asking for regulatory relief is part of their efforts to be compliant with BSP regulations.
She said if and when these banks are “under forbearance” it will also have to be disclosed, as investors neeed to be informed of their situation.
Risks
REMOLONA said while the banking sector—particular big banks—“is in very good shape,” the BSP is still watching out for various risks that could affect the current stability of the sector.
One of these risks, Remolona said, is the debt levels of major corporations. The “elevated debt level” of these corporations, while very manageable at this point, is still being watched by the BSP.
Remolona said the BSP is monitoring the developments, especially if banks need emergency liquidity in light of these elevated debt levels.
“We’re also making sure,” he said, “that we will be in a position to provide the emergency liquidity” should there be a need by the banks for such, although “we don’t see any need at the moment for emergency liquidity.”
Remolona said, “We are having conversations all the time with foreign central banks.”
The BSP said it is constantly in contact with the US Federal Reserve, the European Central Bank, the Bank of Japan, and Asean banks such as the Bank of Thailand.
They have regular meetings and compare notes. Some of these meetings are conducted through the Executive Meeting of East Asia Pacific (EMEAP) central banks.
“So the different central banks compare notes. EMEAP is a strange name, it stands for Executive Meeting of East Asia Pacific central banks. I would say it’s the most intelligent meeting among Asian central banks. The discussions are very serious. So it’s very helpful,” Remolona said.
Based on BSP data, Remolona said the banking system remains on solid footing with its assets expanding to P23.5 trillion as of the end of August 2023. Philippine banks have lent P13 trillion to customers and deposits have reached P17.9 trillion during the same period. Net profits of banks reached P182.8 billion as of the end of June 2023.
In terms of Non-Performing Loans, the ratio sits at 3.4 percent and banks have an NPL Coverage Ratio of 103 percent as of the end of August 2023.
Remolona also said the banks’ capital adequacy ratio is at 16 percent at the end of March 2023, and that the country had “highly-liquid” banks, with the liquidity ratio reaching 183.1 percent as of the end of June 2023.