FSCC tightens monitoring of Philippine financial system amid global risks
The Financial Stability Coordination Council is taking preemptive steps to cushion the Philippine financial system against shocks from the Middle East war and volatile global markets. Measures include stricter oversight of nonbank lenders and enhanced risk monitoring, even as banks' property exposur
The Financial Stability Coordination Council (FSCC) is pursuing preemptive actions to cushion the Philippine financial system against vulnerabilities and shocks emerging from global risks. In a statement following its latest executive committee meeting held earlier this month, the interagency body noted the financial system remains resilient even as uncertainties tied to the Middle East war and volatile global markets persist.
“Global risks remain elevated, with geopolitical tensions in the Middle East and volatile financial markets,” FSCC Chairman and Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said. “Nonetheless, our financial system remains well-positioned to absorb shocks.” Still, the council said it is implementing tighter preemptive monitoring of the financial system and the developments surrounding it to mitigate potential threats and ensure its continued stability.
Among the measures being pursued include stricter oversight of nonbank financial intermediaries to promote their sustainable growth, along with enhanced evaluation of liquidity, leverage, concentration, interconnectedness, and the linkages among banks, nonbank intermediaries, corporates, and financial markets. The council is likewise streamlining its data collection and information sharing within its network.
Meanwhile, results of the FSCC’s latest Survey of Salient Risks showed that respondents continue to see threats to the financial system from geopolitical tensions, cyberattacks, and global supply-chain disruptions. These risks, according to the respondents, should prompt close monitoring. The survey, conducted annually, gathers the outlook of BSP-supervised institutions, other financial institutions, industry and market players, and the academe on risks over the near (one to two years) and medium (three to six years) terms.
Still, the FSCC noted that financial institutions hold strong capital and liquidity positions, with their prudent risk management serving as an additional buffer against looming shocks. Based on latest data from the central bank, universal and commercial banks extended P2.062 trillion in consumer loans as of July, 17.1% higher than the P1.761 trillion logged a year earlier. Loans for residents’ production activities went up by 9.8% year on year to P12.624 trillion.
However, Philippine banks and trust entities’ exposure to the property sector plunged to its weakest in nearly seven years in the second quarter as tighter economic conditions strained market sentiment. BSP data showed the industry’s real estate exposure ratio fell to 18.72% as of end-June from 19.07% in the first quarter and 19.61% a year ago. This was the lowest ratio since the 18.65% as of end-December 2018. Nonperforming loans rose to P585.081 billion in July, bringing banks’ gross NPL ratio to a two-month high of 3.35%.
In its latest Financial Stability Report released in June, the FSCC warned that risk-off sentiment due to uncertainties arising from the Middle East war may take a toll on the financial system. However, it reaffirmed that banks’ direct financial exposure to the conflict remains limited and that overall risks are still manageable. “The Council stressed that early identification of risks supports stronger preparedness,” the FSCC said. “It allows financial authorities and market participants to improve safeguards, refine contingency arrangements, and limit the impact of shocks on households, firms, and financial institutions.”
