Like a car, the Philippine commercial banking system is bullet-proof.
Like an appliance or even a kitchen, the local banking system is industrial-grade. And just like the economy, the Philippine banking system is resilient.
Philippine banks have survived the worst of times, like the Asian Financial Crisis of 1997 and the Lehman Brothers meltdown of 2008.
Not only did they survive. They became bigger, stronger and hugely more profitable, with plenty of loans, plenty of deposits, plenty of cash to spare.
So huge are the banks’ cash pile, their deposits with the Bangko Sentral hit as high as P1.9 trillion this year—about 15.8 percent of the size of the economy, which is P12 trillion.
So when markets went into a tailpin in mid-June—the stock market crashed 27 percent from its end-2012 closing while the peso depreciated eight percent against the dollar, from P40.70 to P44—bank executives and fund managers reacted with remarkable calm and prescience.
For his part, Bangko Sentral Governor Amando Tetangco could afford to be flippant when he addressed bankers and businessmen at The Asset and Philippine Stock Exchange forum on June 26. The Asset is edited by Daniel Yu.
He related to them his so-called Three As:
1. Appreciate the knowns—what is in my arsenal.
2) Anticipate the unknowns—what are the risks that my arsenal can’t handle now. And finally,
3) Act on the known, mindful that there are unknowns – or how can I be creative to address the potential impact of what could transpire when the knowns become entangled with the previously unknown?
Frankly, I don’t know what he meant. But the governor’s cool demeanor conveyed quiet confidence. The same afternoon, stocks recovered almost 6 percent—their best single day jump since 2007 while the peso recovered somehow to P43.30.
Indeed, the banking system displays resilience that shines like arrogance. For every P100 of risk, the system has P18 of capital. Yet, non-performing loans are less than P2 for every P100 of loan.
“The Philippine economy and banking system are stronger than ever,” asserts Marvin Fausto who heads the biggest managed fund in the country at $20 billion as BDO’s chief investment officer. “We have had no losses, only market value decline,” he says with glee.
“I advise ordinary people not to panic. Stay the course,” he says.
“This market downturn is a great opportunity to buy (stocks) and participate in the growth momentum of the country.” “We see above average GDP growth and loan growth,” Fausto adds.
For his part, Ayala Land President Tony Aquino notes that “Economic fundamentals continue to be strong. The equity market has just gone through a correction and retraced its gains in the last six months. Our banking system also continues to be conservative and strong.” He adds though: “There will be less funds from the developed economies going to emerging markets like the Philippines.”
Fortunately, he hastens, “the Philippine financial position is strong. Hopefully the BSP will continue with its accommodative policies so that Philippine economy will continue to grow. This way, Filipinos will be insulated from the extreme volatility, which should normalize in a few weeks.”
Says BDO Chair Tessie Sy: “My simple advice is to hold on. This is just correction.”
That view is reflected by BSP Deputy Governor Diwa Guinigundo: “To us, this constitutes some healthy and timely correction. The market appears to have corrected itself in terms of tempering capital inflows, peso dollar movement and sharp bull run in the equities market. We do expect that market players would even be more circumspect, more diligent in their decision that should prolong a more sustainable run in the financial markets consistent with the Philippines’ very strong macroeconomic fundamentals.”
Just how strong is the Philippine economy?
Replies economist Bing Icamina of the Wallace Forum:
“Based on macroeconomic fundamentals, it can be considered strong.
“Inflation is low (three percent ); gross international reserves can cover almost one year of imports (safe coverage is three-six months); non-performing loans is just 2 percent of total loans; budget deficit is less than 3 percent of GDP, etc.”
“These are more robust figures than during the boom years of the Ramos administration. This means high rate of economic growth can be sustained for a few more years without the economy overheating,” Icamina recalls.
BDO President and CEO Nestor Tan sounds like a broken record: “The Philippine economy remains strong. The fundamentals remain sound despite the uncertainties in the market. Likewise, the Philippine banking system remains strong. Banks are well capitalized and liquid, and we do not see any stress on the credit yet. The QE tapering is expected to raise interest rates. As long as it is gradual it should not have a negative impact. Besides, the liquidity in the local market should temper any rise in interest rates.”