THE war in the Middle East and debt risks could threaten the Philippine financial system even as the banking sector remains resilient, regulators said.
The ongoing conflict, corporate debt vulnerabilities and rising household borrowings were among the risks identified by the Financial Stability Coordination Council (FSCC) during its quarterly meeting last week, the Bangko Sentral ng Pilipinas (BSP) said on Monday.
The FSCC is an interagency body composed of the heads of the BSP, Department of Finance, Securities and Exchange Commission, Insurance Commission, and Philippine Deposit Insurance Corporation.
The national treasurer is also a special member.
First convened in 2011 in the wake of the 2007-2009 global financial crisis, the council is tasked with identifying, monitoring, managing and mitigating systemic risks within the Philippine financial system.
“Geopolitical risks remain a key source of uncertainty,” BSP Governor and FSCC Chairman Eli Remolona Jr. said in a statement.
“We are watching global developments closely to spot and address potential systemic risks,” he added.
The FSCC said that a prolonged conflict in the Middle East could push global oil prices higher, tighten financial conditions, and dampen both global and domestic economic activity.
As for corporate debt, the council flagged exposures to energy- and interest rate-sensitive sectors and valuation pressures from higher bond yields.
“Higher energy costs and tighter financing conditions could raise debt-servicing burdens and compress firm margins,” the FSCC said.
“That, in turn, could affect bank asset quality.”
Rising bond yields, meanwhile, could lead to valuation losses for banks, which could eventually pressure capital buffers.
The FSCC also saw the need to closely monitor household debt levels and borrowers’ repayment capacity, noting that borrowing costs and debt levels were rising among both households and corporates.
“Nonetheless, the financial system remains on solid footing,” Remolona said.
“Banks have adequate capital and liquidity buffers to absorb shocks and keep lending to households and firms,” he added.
The BSP said that the FSCC was also strengthening oversight of non-bank financial institutions, which include quasi-banks, investment houses, non-stock savings and loans associations, pawnshops and trust corporations.
It is also “working to improve how it monitors system-wide risks and interlinkages,” the central bank added.
