MACTAN, Cebu —The Bangko Sentral ng Pilipinas may ask local conglomerates to report on their foreign currency-denominated debt as this may cause instability in the country’s banking system, such as when the peso depreciates against the US dollar.
BSP Governor Felipe M. Medalla said they may ask some of the country’s largest conglomerates to submit to them the exact foreign debt exposure as the central bank may not have the complete data.
“Right now, we wish we had even more complete data. And under the law, we can actually ask them, how much they have borrowed from abroad and in what currency, and what the maturity is. But we are not doing it,” Medalla said.
Shanaka Jayanath Peiris, division chief of regional studies, Asia and Pacific department of the International Monetary Fund, said household debt is not a problem but regulators may want to focus on corporate debt.
Peiris said that for the Philippines on average, the corporate debt level is quite manageable.
“But there are some sectors where it’s probably higher than others, including in real estate, which tends to historically be an area where you need to watch out for those kind of things,” Peiris said.
“And what we’ve done in our report is like corporate stress testing. Everybody is talking about stress-testing banks, for the last few decades. But we got to stress-test the corporates as well, and what does that mean for the banking and financial institutions,” he explained at the sidelines of Financial Sustainability Conference.
Medalla, during the conference, said someone asked him if he was worried about a major financial instability happening in the next six months.
“I do worry that one big conglomerate makes a huge mistake. And then it turns out that it also affects the views about the others. And then that may add to their worry, of course…that the conglomerates are a lot more exposed to foreign debt than we think we know. And therefore, if any, there’s a very large shock to the exchange rate, it may affect the conglomerates,” he said.
Still, Medalla said if the exchange rate changes dramatically, it can only affect the growth of the company and may not cause instability in the system.
“A friend of mine says, well, you’re building two airports Bulacan and Sangley. What if both of them turn out to be money losers, what’s the implication in the financial system,” he said.
Medalla revealed he gets all sorts of questions like that, i.e., the extent to which conglomerates might be the source of the next shock in the financial system.
“But then the fact that the bank is also embedded in that conglomerate…is also a quite a big source of worry. And so in other words, we were asking more or less the correct questions in our financial stability meeting,” Medalla said.
He expressed hope these people would realize that the central bank is not targeting them.
“This is part of our regular exercises. We’re not really saying a conglomerate X will fail but we have to be ready. And so the thing to do is do these exercises for every conglomerate, so that they do not think that somebody’s being singled out. I think if you do that, then we are fine,” he said. Many local conglomerates, such as Jollibee Foods Corp., the Gokongweis’ food and other units, are going international and these source their funding offshore, mostly dollar-denominated.