PH banks not ‘under threat’: BSP responds to World Bank report

Warren de Guzman, ABS-CBN News

Posted at Feb 16 2022 03:01 PM | Updated as of Feb 16 2022 04:17 PM

MANILA - The Bangko Sentral ng Pilipinas said Philippine banks are not “under threat” following a World bank report warning that global economic recovery was at risk due to hidden debt. 

In a report released Tuesday, the World Bank cited the Philippines as an example of countries where bad or unpaid debt is becoming a problem. 

The multilateral lender said that in the Philippines, the nonperforming loan ratio is expected to double to 8.2 percent in 2022.

Diokno however played down the World Bank report. 

“I think the World Bank is referring to emerging economies in general, I think the Philippines does not belong to that group. I think we have prepared our banks and MSMEs, we have helped them during this crisis, so I don’t see them under threat at the moment,” Diokno said. 

The BSP has said that the Philippine banking system is sound and stable, with the non-performing loan ration even declining to 4.3 percent in November 2021 from 4.4 percent in the preceding month. 

Diokno added that the country’s debt to GDP ratio remains manageable. 

“It is long term and most of it is based on fixed terms, so we don’t see any problem with the Philippines," Diokno said. 

World Bank Chief Economist Carmen Reinhart meanwhile warned that the data points regulators are looking at may not have captured the true financial standing of lenders, or even borrowers. 

Reinhart said this was because of concessions made during the pandemic allowing for more debt restructuring and leniency in debt repayment.

“Let me say this, having studied financial crises for decades, it is often what we don’t see that really triggers a crisis,” she said. 

Reinhart noted that in the Global Financial Crisis, Greek debts were much bigger than initially thought. 

In the Asian Financial Crisis of 97, Thailand’s central bank was assumed to have much higher level reserves than was the case. 

“Now the concern we put forth is be very careful, take stock quickly, do stress testing, get a handle on non-performing loans because I think the forebearance policies that have been so helpful in providing support to households and firms during the pandemic, have had unintended consequences of making much more opaque the balance sheet of banks, and that could be a very negative surprise."

Philippine economic managers are projecting growth of between 7 to 9 percent this year. 

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