Evergrande’s debt crisis is unlikely to affect the Philippine financial system

Ramon Royandoyan – Philstar.com

September 22, 2021 | 6:46 p.m.

MANILA, Philippines – Real estate developer Evergrande’s multibillion-dollar debt mess, which threatens to wreak havoc on China’s economy, is unlikely to have a significant impact on the Philippines’ financial system, the central bank and officials said. economists.

In a statement on Wednesday, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Philippines is immune to shocks that could stem from the possible collapse of Evergrande, which is tackling more debt. $ 300 billion, equivalent to 2% of China’s gross income. domestic product.

“Evergrande’s default would have no direct impact on Philippine banks and its economy. Philippine banks are largely domestically focused with cross-border exposures or counterparty claims in other countries at 9.4% of total banking system assets, ”Diokno said.

“In terms of exposure to China, the claims of counterparties based in China and its special administrative regions are minimal at 0.86% of total banking system assets,” he added.

With two bond payments due Thursday, Evergrande is struggling to repay its bonds accumulated from a borrowing spree to fund business expansion – a widespread habit among Chinese real estate companies that regulators are trying to tackle. brake. In a report released earlier this week, ratings from global debt observer S&P indicated they believed authorities in Beijing would step in if they believed large-scale fallout was likely to materialize.

According to Diokno, Philippine banks “should not have significant investments in Chinese real estate.”

“Banks are only allowed to invest in real estate for two purposes. First, they can own real estate for their own use or as bank premises. Secondly, they are authorized to hold real estate assets acquired in settlement of claims or seized real estate, ”explained the head of the BSP.

Jun Neri, chief economist at the Bank of the Philippine Islands, agreed with Diokno. “I don’t think we can anticipate potential contagion in our currency, bond or equity markets, but it seems to be negligible so far. A quick survey of the big banks also shows that there is no direct exposure among them to Evergrande bonds, ”Neri said.

For Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, the country could feel the impact of the Evergrande mess on the trade front, especially if the collapse of the company causes an economic collapse that crushes the demand in China, a major trading partner of The Philippines.

“But since Evergrande has so far secured payment of its immediate obligations, the markets have calmed down for now,” Asuncion said.

On Wednesday, Evergrande said it had reached a deal with domestic bondholders that should allow the conglomerate to avoid defaulting on one of its interest payments.

As it stands, the situation has raised fears of a repeat of the collapse of US banking giant Lehman Brothers in 2008. Global markets have wavered this week over fears that the company’s woes could have a negative impact. training on the world’s second largest economy and beyond.

But as the Philippines is seen to be less exposed to the China Evergrande debt crisis, Rastine Mercado, research director at China Bank Securities, said local stocks “have in fact shown relative resilience over the course of time. of the last two days compared to the rest of the world markets “.

“However, volatility is expected to remain elevated over the next few weeks, as other risky events (eg US and Philippine central bank policy decisions, US debt ceiling issues) are also likely to keep investors on the wire, ”Mercado added. – with AFP

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Don F. Davis

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