Could it happen here?

THE RECENT failure of Silicon Valley Bank followed by Signature Bank begs the question as to whether the possibility of contagion, in which many banks around the world will become problematic, could affect the Philippines.

President Marcos asked this question of Felipe Medalla, governor of Bangko Sentral ng Pilipinas. Without being complacent, Medalla was able to provide a reassuring reply.

Banking is deceptively straightforward. There is a deposit-taking activity where we place funds in our accounts. Secondly, banks provide a money transmission service which we use to make payments. Thirdly, banks provide credit facilities in which its customers may obtain loans.

Following the demise of US Banks, Signature and Silicon Valley, there was the existential problem of the Swiss bank, Credit Suisse. The other main Swiss bank, the Union Bank of Switzerland, baled out Credit Suisse.

It’s not over.

Hopefully, there will be no more bank failures. But the stock market is not kind to organizations that show weakness. Late last week, the main German bank, Deutsche Bank, received a vote of limited confidence from its shareholders. On Friday, Deutche Bank initially and quickly lost 14 percent of its value. Later in the day there was a partial rebound, so that at the close of the trading day, “only” 8 percent of the value 24 hours earlier had been lost.

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Following from BSP Governor Medalla’s reassuring opinion of the domestic Philippine scene, we have a knowledgeable response from British banking giant HSBC. At a time when other foreign banks are leaving the Philippines, HSBC is sounding an upbeat but realistic tone. It is keeping its wealth and personal banking operation here. This is for the well-heeled.

I agree that the Philippine domestic banking scene is buoyant, though not necessarily for the right reasons. BDO’s profit for 2022 was P50 billion. It took full advantage of the market’s stingy approach to its hapless depositors, but at the same time was able to glean good profits from prudent lending.

One important performance statistic that we regularly see here is the non-performing loans (NPL) ratio. In January 2022, it stood at 4.1 percent, whereas a year later, it had dropped significantly to 3.3 percent. This means that our banks have built up a loan portfolio which is reasonably safe. In other words, banks’ clients are generally successful at repaying their loans. I believe that immediately prior to its demise, the NPL situation in Silicon Valley Bank would have been distressingly worse than that of the Philippines. For a bank to rely excessively on one market segment, such as IT projects, shows naivete which is unacceptable in the banking sector.

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We hope the 2023 banking scene in the Philippines will continue to show good profits. But let us see more generosity shown by banks to its depositors./PN