MANILA: Seven banks in the Philippines have a total of $386 million in exposure to bankrupt US investment banking giant Lehman Brothers, according to the central bank’s estimates, but the banking system is widely believed to be in a good position to withstand the world’s worst financial shake-out.
Even assuming zero recovery of their exposure to Lehman, the fallout for the seven banks is not expected to exceed one percent of their total assets.
According to estimates by the central bank, Bangko Sentral ng Pilipinas (BSP), obtained by the Philippine Daily Inquirer, the retail tycoon Henry Sy’s Banco de Oro Unibank has the biggest exposure to Lehman at $134 million, followed by state-owned Development Bank of the Philippines (DBP) at $90 million.
The BSP data show Metropolitan Bank and Trust Co. (Metrobank) has an exposure of $71 million, Rizal Commercial Banking Corp. (RCBC) $40 million, Standard Chartered Bank’s Manila branch $26 million, Bank of Commerce $15 million, and United Coconut Planters Bank (UCPB) $10 million. As a percentage of total assets of the individual banks, the exposures are as low as 0.5 percent and as high as 1.7 percent, according to the estimates, which were discussed at a meeting of the BSP policymaking body, the Monetary Board, on Thursday.
Banco de Oro, Metrobank and RCBC reported earlier this week that they had made provisions for their soured exposures to Lehman.
The BSP data show Banco de Oro had set aside a buffer equivalent to 60 percent of its exposure and Metrobank and RCBC had provided for 70 percent and 52 percent of their exposures, respectively. DBP has put up a provision of about P3 billion for its exposure to Lehman, its spokesperson said. “So we are fully provided for,” the DBP spokesperson said. “Of our exposure, $10 million represents debt papers issued by Bank of America and arranged by Lehman, while $80 million represents notes issued by a local subsidiary of Lehman.”
Bank of Commerce President Raul de Mesa said the bank’s exposure was fully provided for.
“There’s no impact on earnings this year. We’ll equal or hopefully make better than last year’s net income of P520 million,” he said last night.
Sources said UCPB, a government-sequestered bank, would provide for 100 percent of its exposure to Lehman.
No cause for concern
Credit watchers and private analysts agree with the BSP pronouncement that the Philippine banks’ exposure to Lehman was no cause for concern.
The potential cost to Philippine banks is estimated to be much lower than that in the more sophisticated Asian countries like Japan, South Korea and Taiwan.
Exposure to Lehman by financial systems in South Korea and Taiwan are estimated at $720 million and $2.5 billion, respectively. Global credit watchdog Standard & Poor’s said on Thursday the direct exposures of banks in Asian emerging markets to Lehman were not expected to be significant enough to cause a downgrade in credit ratings.
“A few Taiwanese, Philippine and Chinese banks appear to have more direct exposure to Lehman Brothers entities,” said S&P credit analyst Ritesh Maheshwari.
“However, Asian banks’ strengthened balance sheets, as a result of healthy profits over the vibrant economic environment during the past half a decade, can withstand the impact of likely losses from direct exposure, without rating downgrades.”
