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Banks ‘too big to fail’ stable, BSP stress test shows

FINANCIAL institutions in the country that are deemed “too big to fail” are stable based on the Bangko Sentral ng Pilipinas’ recent stress tests, BSP Governor Benjamin E. Diokno said in a recent news briefing.

Diokno said during Thursday’s briefing that “Domestic Systemically Important Banks,” or D-SIBs, remained stable during the pandemic as they continued to post growth and remained well-capitalized since the global health crisis started.

D-SIBs are characterized as banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.

Under BSP regulations, a bank’s systemic importance is measured by its potential impact on the domestic economy in the hypothetical event of its failure. The BSP, however, does not disclose the names of the banks to the public.

“D-SIBs remain on solid footing amid the health crisis,” Diokno said. “We see this contributing to the overall soundness of the domestic financial system and the country’s financial stability.”

The central bank chief said D-SIBs’ assets grew 6.2 percent in the first quarter of 2021 while deposits grew 8.5 percent.

The average asset growth of the entire Philippine banking system during the period was at 5.6 percent while the average deposit growth was 7.8 percent.

The capital buffers of D-SIBs were also above regulatory minimum and were higher compared to levels a year ago. In particular, the capital adequacy ratio (CAR) of D-SIBs rose to 15.8 percent at end-2020 from its year-ago level of 15.3 percent.

D-SIBs’ loans, meanwhile, contracted by 3.6 percent, lower than the 3.9 percent decline in the banking system’s loan portfolio in the first quarter of the year.

The non-performing loan (NPL) ratio of D-SIBs increased to 3.3 percent in the first quarter of 2021. Their NPL coverage ratio is at 99.4 percent.

In April this year, the Monetary Board issued a circular amending the guidelines on the recovery plan of D-SIBs.

The circular requires D-SIBs to separately submit their “internal capital adequacy assessment process” document and recovery plan to ensure comprehensive and adequate assessments of said documents across banks. The BSP said amendments to the guidelines of the recovery plan will offer an additional layer in strengthening resilience of D-SIBs and financial stability without the direct need for increasing capital and liquidity buffers.

“The issuance aims to tightly embed the recovery planning work in the broader crisis preparedness framework, as the importance of crafting a viable and sound recovery plan has been highlighted in this health crisis,” Diokno said.

Read full article on BusinessMirror

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