Thursday, 24 December 2009

IMF, WB say RP banks stress-free amid crisis

Jun Vallecera
Business Mirror

THE International Monetary Fund (IMF) and its sister firm the World Bank (WB) have given the Philippine banking system a clean bill of health, pronouncing it stress-free from the debilitating impact of the global economic slowdown.

Bangko Sentral ng Pilipinas Governor Amando Tetangco announced this development at a forum he hosted on Tuesday for the Foreign Correspondents Association of the Philippines (Focap).

According to Tetangco, the IMF/World Bank tandem conducted a so-called stress test on the banking system to try to determine the areas rendered weak or troubled by the economic woes of countries including the United States, Japan and much of Europe.

“The results have been positive. Philippine banks were found to be in position to weather the stress created by the global economic downturn,” Tetangco said of the tests conducted under IMF/WB’s Financial Sector Assessment Program.

 The series of probes was conducted in the weeks just before a team of IMF economic experts subjected the Philippines to a review under Article IV of the Agreements in November.

Member-countries agree under Article IV to open their macroeconomic books to IMF analyses at least once a year, for monitoring and compliance purposes.

In the areas of bank nonperforming loans (NPLs) and capital adequacy, for example, the IMF found no reason to be concerned.

According to Tetangco, none of the double-digit NPL rates prevalent in the wake of the 1997 region wide financial crisis was uncovered during the tests.

This means Philippine banks continued to lend to the productive units of the economy and optimize local output; and yet the quality of those loans remained well within the 8 percent minimum set by the Bank for International Settlements and the 10 percent set by the BSP.

Latest data show the banks’ NPLs averaging 3.3 percent in October, the 13th month in a series when the incidence of bad loans averaged lower than 4 percent.

The banks’ capital-adequacy ratio, an indication of capacity to withstand the erosion of capital as a consequence of bad loans and other operational hazards without falling by the wayside, stands 4- or 5-percentage point higher to around 14 percent to 15 percent at present.

The BSP requires Philippine banks to observe a minimum capital adequacy ratio of 10 percent or risk regulatory penalties such as a status downgrade or denial of access to interbank credit privileges to encourage compliance.

“Philippine banks were found to have a good mix of declining NPLs and better capital levels during the tests,” Tetangco said.

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