Evergrande’s woes shouldn’t shake the Philippine banking system

Lawrence Agcaoili – The Filipino Star

September 24, 2021 | 00h00

MANILA, Philippines – The possible collapse of Evergrande, China’s second-largest real estate company, struggling with debt, is unlikely to shake the Philippine banking sector, a Bangko Sentral ng Pilipinas (BSP) official said.

Maman Cynthia Sison, deputy director of the Supervisory Policy and Research Department at BSP, said cross-border exposures of local banks or claims on counterparties in other countries accounted for 9.4% of the system’s total assets. banking.

“The Philippine banks are largely focused on the domestic market,” she said.

In terms of exposure to China, Sison said claims from counterparties based in China and its special administrative regions are minimal at 0.86% of total banking system assets.

“Banks shouldn’t have large investments in Chinese real estate. Banks are only allowed to invest in real estate for two purposes, ”Sison said.

According to the head of the BSP, Philippine banks can only invest in China if they own real estate for their own use or as banking premises, or if they are allowed to hold real estate assets acquired in settlement of debts or property. foreclosed real estate.

Additionally, Sison said banks are required by law to dispose of foreclosed real estate within five years.

Citi Markets & Securities Services head of Asia-Pacific, Stuart Staley, said the Evergrande mess will not turn into contagion because the Chinese government won’t allow it to get out of hand.

“So I think in the short term we don’t expect contagion. But it has the high potential to affect the rate of economic growth in China, and it will have a second-order effect not only on the Philippines, but on all economies that are strongly linked by business interactions in Asia, ”said Staley.

For his part, Citi Philippines National Treasurer Paul Favila said there had been very little impact on the currency or even on the volatilities encountered in local equity markets since the explosion of the Evergrande broadcast.

“I guess we could say that the Philippines has always been an internally oriented economy, again very consumer driven,” Favila said.

Evergrande (formerly Hengda Group) founded by Xu Jiayan in 1996, is struggling to repay its creditors as its debt has reached more than 305 billion dollars.

BSP Governor Benjamin Diokno said earlier that the Philippine banking system remained stable amid the COVID-19 crisis and well positioned to meet the financing needs of the recovering economy.

“The positive performance of the Philippine banking system is evidenced by sustained growth of its assets, deposits and capital, as well as ample capital and liquidity cushions and loan loss reserves,” he said. -he declares.

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