Business News

Philippine banks set aside funds after Lehman collapse

Sep 17, 2008, 10:11 GMT

Manila - Two top Philippine banks have set aside 94.7 million dollars in provisional funds to cover possible losses arising from the collapse of the US investment bank Lehman Brothers Holdings Inc.

Both the Metropolitan Bank and Trust Co (Metrobank) and Banco de Oro have exposure in Lehman Brothers.

The central bank also offered emergency lending to banks that might need funds but stressed that it was not worried because it believed Philippine banks could weather the crisis after implementing reforms after the 1997 Asian financial crisis.

Central bank Deputy Governor Diwa Gunigundo on Wednesday urged depositors not to panic.

'We have to trust our banking system,' he said. 'Some people might be afraid that their banks would be affected, and that is normal.'

'But our banking system is strong now,' he added. 'Non-performing loans are down, capitalization is higher than the statutory requirement and banks with exposure are taking steps to protect their depositors.'

Metrobank, which set aside 14 million dollars in provisional funds, said it has 20.4 million dollars' worth of bonds issued by Lehman Brothers and 2.4 billion pesos (51.28 million dollars) in loans to a Philippine-based subsidiary of the US investment bank.

Banco de Oro allocated 3.8 billion pesos as a buffer for its Lehman-related exposure. It assured that it was 'adequately covered from potential losses.'

Turmoil related to the plunging subprime US mortgage market has caused this week not only Lehman Brothers' collapse but also a US government bailout of the insurer American International Group Inc and the sale of another Wall Street titan, Merrill Lynch and Co. In addition, the US government seized control two weeks ago of mortgage giants Fannie Mae and Freddie Mac.

Analysts in the Philippines warned Lehman's collapse only showed that 'the worst in the US financial sector is not yet over.'

While domestic banks have limited exposure to Lehman, 'the worry is the tail end of the domino effect of such a fallout,' said Astro Del Castillo, managing director of First Grade Holdings Inc.

'If this is prolonged, businesses will be affected, exporters will suffer,' he said. 'Consumption will slow down in the US, and if that happens, then Philippine exports will also slow down not only to the US but also to Japan and China as well.'

'Business will try to sit it out and wait,' he added. 'It's hard to raise money for now.'