PHL banks’ exposure to Chinese assets minimal

LOCAL BANKS have minimal exposure to China as they are largely domestic-oriented, a central bank official said amid the debt crisis faced by Chinese real estate giant Evergrande Group.

“In terms of exposures to China, claims from counter-parties based in China and its Special Administrative Regions is minimal at 0.86% of total banking system assets,” Ma. Cynthia M. Sison, Deputy Director at the Supervisory Policy and Research Department of the Bangko Sentral ng Pilipinas (BSP), said at an online briefing on Thursday.

Ms. Sison said BSP regulations safeguard banks from overexposure to real estate as they are only allowed to invest in these kinds of assets for two purposes.

“First, they can own real estate for their own use or as banking premises. Second, they are allowed to hold real estate assets which are acquired in settlement of claims or foreclosed real estate property,” she said.

In the case of the latter, Ms. Sison said banks are legally required to sell foreclosed real estate property within five years.

Due to these rules, she said local lenders are unlikely to have significant investments in Chinese real estate. She added that banks have generally limited cross-border exposures.

“Philippine banks are largely domestic-oriented with cross border exposures or claims from counter-parties in other countries at 9.4% of total banking system assets,” she said.

BSP data showed total assets of the banking industry stood at P19.795 trillion as of end-July. Banks’ assets in the form of gross real and other properties acquired amounted to P129.648 billion in the same period.

Evergrande, China’s second-biggest developer and a key player in the country’s housing boom, is facing liabilities worth more than $300 billion. This is equivalent to 2% of China’s gross domestic product.

The People’s Bank of China last month summoned Evergrande officials to order them to reduce debt risks and prioritize stability.

Several projects were left unfinished by the developer due to cash crunch, leaving homebuyers looking for assurance regarding their properties.

Evergrande’s main unit, Hengda Real Estate Group, on Wednesday said it would make a coupon payment on its domestic bonds on Sept. 23, providing some relief to markets that were concerned over a possible default, Reuters reported.

Earlier this week, Finance Secretary Carlos G. Dominguez III said they are assessing if Chinese contractors involved in the country’s infrastructure program are affected by Evergrande’s situation. — L.W.T. Noble

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