More Banks and Non-Banks Bailouts: BSP Grants Regulatory Relief to Portfolios Exposed to COVID-19 and the African Swine Flu!
Unknown to most, the Bangko Sentral ng Pilipinas (BSP) has been furtively bailing out the banking and financial system.
From the sharp cuts in Reserve Requirement Ratios in 2018 to 2019, the BSP has embarked on providing a countercyclical buffer, allowing the lowering of capital requirements to banks and non-bank financial institutions pressured by mounting credit delinquencies.
In 2019, not only have the cuts in RRRs been applied to banks but non-bank financials were also beneficiaries of the liquidity injection measures from the BSP.
Regulatory Bailout 2.0: BSP Launches Countercyclical Capital Buffer (CCyB) Intended to Ease Capital Reserves! December 16, 2018
The Insurance Commission has also provided regulatory relief programs to pre-need companies in 2018.
Insurance Commission Launches Regulatory Bailout of Pre-Need Firms, The Twin of Unbridled Fiscal Spending is High Inflation, The Coming Stagflation November 18, 2018
The Bangko Sentral ng Pilipinas (BSP) has made available a grant of regulatory relief to banks and quasi banks (QBs) that have sustained losses due to exposures to borrowers, industries and sectors severely affected by the African Swine Flu (ASF) and the Coronavirus Disease 2019 (Covid 19).
“This is in recognition of the potentially crippling impact of these events on key industries. We believe that the grant of regulatory and rediscounting relief measures is also applicable to financial institutions whose clients have suffered from adverse effects of these crises,” BSP Governor Benjamin E. Diokno said.
The BSP has institutionalized the grant of regulatory relief to banks and QBs impacted by calamities under Circular No. 1071 on the Adoption of Policy Framework on the Grant of Regulatory Relief to Banks/Quasi-Banks Affected by Calamities dated 10 October 2018. While the circular is aimed at providing a framework to systematically grant relief to banks affected by calamities and to support their recovery efforts, its coverage may be extended to the ASF and Covid 19 events even without a declaration of a state of calamity in specific areas of the country.
Temporary regulatory relief measures that may be granted include, among others, staggered booking of allowance for credit losses, non-imposition of penalties on legal reserve deficiencies, and non-recognition of certain defaulted accounts as past due.
Banks that will avail of the relief measures will be evaluated by the BSP on a case-by-case basis.
Under the guise of the ASF and COVID19, the BSP has once again extended bailouts to the financial community!
While the Treasury boom camouflaged mounting liquidity strains on the banking system by handing the industry paper profits, non-bank financials were not as fortunate.
Non-Bank Quasi-Banks (NBQB) posted a mild 2.82% loss in the 4Q 2019, an extension of the 3Q’s 3.01% deficit. With interest income also in the red (-7.32%) in the 4Q, leasing income has become the most significant source of income, accounting for 113.9% of the sector’s operating income!
The 5.31% loss incurred by the financing firms have dragged the sector’s profits down in the 4Q, as investment earnings growth of 16.09%, which was slower than 3Q’s 38.16%, had been unable to offset the former’s shortfall. Financing firms accounted for 91% of the sector’s operating income in the last quarter of 2019.
Such losses have accelerated the sector’s bad assets.
Distressed assets of NBQBs jumped by a multi-year high rate of 35.7% in the 4Q to a record Php 11.54 billion! And the data constitutes the declared delinquents.
Thus, the escalating credit woes have sapped up the industry’s cash reserves, which fell by a staggering 29.3% in the 4Q, another milestone! In nominal terms, cash and due from banks fell to Php 28.3 billion, echoing levels of 2014.
With loan and cash in stagnation, the sector’s total assets registered a DEFLATION (-.99%), the first since 2013 (taper tantrum)!
NBQBs were also beneficiaries of the BSP’s debt monetization. In the 3Q, the sector’s net claim on central government intermediated by the BSP ballooned 21% YoY to Php 1.471 billion.
Not only has the BSP been injecting liquidity to the NBQB through the lowering of RRRs, and through acquiring Treasury holdings held by the sector, now to allow the sector to accommodate increasing stress, macroprudential measures are being eased or thrown under the bus.
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