The Philippine banking system will only suffer a limited impact from the Brexit, the United Kingdom’s exit from the European Union, according to the results of a recent stress test, the central bank said on Tuesday.
“We expect that if there is any Brexit impact on the Philippine banking system, it is going to be minimal,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on Tuesday.
Tetangco explained that this is because the claims of Philippines banks on the UK and the EU account for only 0.6 percent of the total assets of the Philippines banking system.
“These same claims also account for only 5.4 percent of total capital of the Philippine banking system,” he added.
The BSP chief said the central bank conducted a stress test that assumed there is a 100-percent write-off of all claims of Philippine banks on UK and EU.
“The stress test revealed that the 14 DSIBs will still be able to meet the minimum capital requirement and for most of them, their earnings will be sufficient to cover potential losses. But of course, these are extreme scenarios,” Tetangco said.
DSIBs or domestic systemically important banks are banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.
They are required to have a higher minimum Common Equity Tier 1 (CET1) ratio, which is on top of the existing CET1 minimum of 6 percent and the capital conservation buffer of 2.5 percent.
Earlier, the BSP said that sound macroeconomic fundamentals are seen likely to limit any larger negative impact of Brexit on the Philippine economy.
Tetangco said that even as direct Philippine exposure to the UK is relatively small, the central bank would be watching the impact on the local economy via contagion from moves in US dollars.