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NEWS UPDATES Asean Affairs                      10  August 2011

Philippines banks see no harm from US downgrade

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Philippine banks see Standard & Poor's downgrade of the US' credit rating resulting in some decline in the value of their assets, but expect their strong balance sheets and ample liquidity to help them weather the looming global economic storm.

Alberto Villarosa, Security Bank Corp. president, said the US downgrade has no impact on local banks' capital adequacy since credit risk weighting after the downgrade will remain the same for US treasuries.

"To the extent that banks hold on to US treasuries, there may be some trading losses. Although it seems that the prices of the US treasuries have not deteriorated significantly as funds that exited the US and European stock markets sought the perceived safety of the US treasuries and currencies such as the Swiss franc and Japanese yen," he said.

"Banks particularly in Asia are well capitalized especially in the case of Philippine banks. Moreover, while we have seen some domestic credit expansion year-to-date, do note that we are coming from a period of relatively slow credit growth over the last few years. So the banking sector should manage this okay. There is a significant amount of domestic liquidity that can still be directed towards the investment or credit demands locally," Villarosa said.

Aurelio Montinola 3rd, BPI president, agreed that the domestic banking sector could better cope with a less hospitable external environment.

"For the banks per se, we're well diversified here. Many people, over the past few years, have seen the attractiveness of Asian credits so they don't have much reliance on US treasuries. So I don't know what it is for the industry, but I would suspect that the total amount of Treasury bills is as high as it is, say, 10 years ago," Montinola said.

Marcelo Ayes, senior vice president at RCBC, said he "sees no significant impact on the banking sector aside from expected re-pricing of overall assets."

Since events are still unfolding in the US, volatility in the markets should be expected as the risk of recession is now much higher, he said.

Tony Cripps, HSBC Philippines president, said the recent bout of volatility was triggered more by a lack of market confidence in the US and EU policymakers than by a change in global growth fundamentals.

Should market turbulence continue unabated and the negative impact spills over into the real economies in the West, "then the Philippines growth outlook could be affected," he said.

In a commentary, Marc Bautista, Metrobank head of research, however said, "all is not lost since emerging economies are still expected to provide the fuel to the sputtering global recovery."

"Moreover, the US credit downgrade is not seen to have a significant impact on emerging markets' vast US Treasury debt holdings since US Treasuries have not lost their safe-haven appeal. And if anything, the central banks of some emerging economies have already gradually diversified their portfolios to minimize the impact of external shocks," he added.

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