Philippine banks can absorb potential losses despite PAL bankruptcy

Lawrence Agcaoili – The Filipino Star

September 7, 2021 | 00h00

MANILA, Philippines – Philippine banks have sufficient capital to absorb any potential loss resulting from the filing of the bankruptcy application by Philippine Airlines Inc. (PAL), headed by Lucio Tan, according to Bangko Governor Sentral ng Pilipinas , Benjamin Diokno.

In a text message to STAR, Diokno said the Philippine banking system’s exposure to PAL is manageable. “Banks have sufficient capital to absorb any potential loss,” he said.

Late last week, PAL filed for Chapter 11 bankruptcy in the United States after months of anticipation as the airline seeks to recover from the devastation wrought by the pandemic on travel in the United States. the world.

The pre-arranged Chapter 11 petition was filed in the United States following a series of agreements with key stakeholders, allowing the national carrier to restructure and reorganize its finances.

Subject to court approval, PAL’s restructuring plan calls for more than $ 2 billion in permanent reductions in existing creditors’ balance sheets, allowing the airline to reduce its fleet capacity by a quarter or 25 %.

It also includes the injection of $ 505 million in equity and long-term debt financing from PAL’s majority shareholder, as well as $ 150 million in additional debt financing from new investors.

“In addition, this is a pre-established restructuring plan so that creditor banks are informed in advance and ready to manage their exposure to PAL,” Diokno said.

In a speech ahead of the 80th anniversary of the Bankers Institute of the Philippines Inc. (BAIPHIL) last month, Diokno said Philippine banks remain well capitalized.

The head of BSP said that the capital adequacy ratio (CAR) of the universal and commercial banking sector stood at 16.8% and 17.4% on individual and consolidated bases at the end of March, respectively, against 15.3% and 15.8% the previous year.

In addition, Diokno also said that banks maintain sufficient reserves to meet liquidity and funding requirements, as the liquidity coverage ratio (LCR) of large banks reached 198% at the end of May in solo, nearly double the regulatory minimum of 100%.

Likewise, he said that the net stable funding ratio (NSFR) of the major banks stood at 143.6% on an individual basis, well above the BSP regulatory threshold of 100%. This indicates the availability of more stable funding to serve bank customers in the medium term.

For small banks, the minimum liquidity ratio (MLR) of autonomous savings banks, as well as rural and cooperative banks, exceeded the minimum of 20% by the end of March 2021.

“We owe the lasting security and soundness and continued resilience of the banking system to the reforms implemented by both the BSP and the banking sector over the years,” he said.

The latest central bank data showed that the total resources of Philippine banks rose 6.9 percent to 20.41 trillion pesos at the end of June, from 19.09 trillion pesos in the same month last year.


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