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The Bangko Sentral ng Philippines (BSP) claimed on Monday that domestic banks are still robust despite the new difficulties caused by the failure of two American banks, pointing to their reduced exposure to market risk and diverse lending base.

BSP Governor Felipe Medalla provided a copy of the central bank’s Notes for the President to journalists, which discussed the stability of the domestic banking system. The central bank noted that Philippine financial institutions are “less susceptible to changes in fair value,” whereas SVB’s security holdings were “larger in relation to their capital.”

SVB, a financial institution situated in California, had certain financing-related concerns, making it one of the two banks that failed more than a week ago as a result of a bank run. The second-largest bank failure in US history is this one.

Following the announcement about SVB, depositors at New York-based Signature Bank withdrew substantial sums of money, causing the bank to fail.

Despite these changes, the BSP claimed that domestic banks are more resilient than US banks because their losses, “including estimated nett unreleased losses on security holdings due to the rising interest rate environment, are expected to be smaller (as a percentage of assets),” are anticipated to be lower for the former.

This was ascribed to a number of things, one of which was the higher increases in the key rates of the Federal Reserve, which came from lower levels than the BSP rates.

Since March 2022, the Federal Reserve has raised its benchmark interest rate by 450 basis points, putting it in a range of 4.50 and 4.75 percent as of February 1, 2023.

Since May 2022, the BSP has increased its benchmark rates by a total of 400 basis points, bringing the overnight reverse repurchase (RRP) rate to 6 percent.

In order to encourage lending and lessen the impact of the epidemic on the domestic economy, the RRP rate was lowered to a record-low 2 percent last year.

The Supervisory Policy and Research Department (SPRD) of the central bank stated in the notes that the yield curve in the Philippines “did not invert similarly to the US yield curve” and that the maximum bond tenor held by domestic banks is 15 years, whereas the maximum bond tenor held by US banks is 30 years.

According to the report, domestic banks “keep sufficient capital to absorb unanticipated losses from policy rate rises” and also have effective risk governance and risk management systems.

It added that domestic banks “do not have major exposure to the collapsed banks” and noted that Philippine banks “are very liquid and tend to rely on a wide depositor base compared to American banks.”

The domestic banking system is resilient, but the BSP stated that it “would continue to closely watch developments, assess their impact on the banking system and respond accordingly.”

A global banking catastrophe is reportedly being avoided by the banking behemoth UBS’s agreement to acquire rival Credit Suisse for roughly $3.25 billion.

Prior to the decline in its shares, Credit Suisse announced it would borrow up to USD54 billion (50 billion francs) from the Swiss National Bank to help resolve the situation and reassure its investors and clients.

The agreement, according to Medalla, “means that Credit Suisse Group AG is too big to fail.”

The impact on the global economy (and consequently the Philippines) will not be considered, he continued, assuming other Globally Systemically Important Banks (GSIBs) do not have the same issue.

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