An executive of Union Bank of the Philippines (UnionBank) wants to remain optimistic in spite of the global economic slowdown caused by the COVID-19 pandemic and believes that Philippine banks “remain in a good position to survive the pandemic at least in the foreseeable future.”

Almost half a year on and the world is still living in the middle of the COVID-19 pandemic. Countries have reported recessions and as reported many economies are failing big time.

In a recent webinar conducted by financial services firm Moody’s Investors Service, Jose Emmanuel Hilado, chief financial officer and treasurer, UnionBank, said the Philippine banking industry’s resiliency is due to a number of reasons, among these is the fact that the banks are strongly capitalized.

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“The total capital adequacy ratio is about 15.8% for the whole industry,” Hilado explained. “The average tier 1 capital of the top 10 banks is 13.6%. Compare that to the minimum required by the BSP (Banko Sentral ng Pilipinas) of 10%-11% depending on your status. So, there is a lot of buffer.”

He added that the country’s banking system is buoyed by consistent leverage ratios in the last decade or so, which is an indication that “banks have been able to bring in additional capital every so often.”

Loan growth

“If you look at the historical record for the past 12 to 13 years, roughly, it would be 12.6%. If you look at the loan growth of the banks for that period, loan growth has gone up by about five times, yet the leverage ratio has remained the same throughout,” he said.

Another critical factor contributing to the strength of banks in the country, according to Hilado, is the way the BSP has been governing them, highlighting the institution’s strict enforcement of relevant guidelines and how these have served the country’s economy in the long run.

“The BSP has always been one of the leading regulators when it comes to implementing rules, and they have always been very conservative, and sometimes in the past, we would complain that they were too conservative. But now that we’re undergoing a crisis, we already know that their conservatism was necessary,” Hilado said.