BIG BANKS in the Philippines and other major Asia-Pacific economies can be assured of “extraordinary” state support like bailouts in times of distress, faring better than peers elsewhere, S&P Global Ratings said in an April 5 report.
The global debt watcher said that economies in Asia and the Pacific are more likely to provide “extraordinary government support” for big banks during crisis.
“In our view, Asia-Pacific governments remain supportive for private sector systemically important banks in a majority of jurisdictions. What’s more, we consider Asia-Pacific governments to be more supportive toward systemically important banks than governments in other regions,” the credit rater said in a report released last week.
S&P’s country risk assessments show 14 of 20 jurisdictions in Asia and the Pacific tend to be “highly supportive” for too-big-to-fail banks in their respective economies: the Philippines, Vietnam, Thailand, Malaysia, Indonesia, Taiwan and Brunei in Southeast Asia, as well as larger economies China, South Korea, Japan, India, Singapore, Indonesia and Australia.
Overall, 65% of Asia-Pacific governments declared themselves “highly supportive,” five percent were identified as “supportive” of bailouts, while 30% said they were uncertain.
“For most ASEAN systems, governments have a track record of interventionism, including providing timely support during times of exceptional stress,” S&P said in its report, even as it noted that “[w]hile Singapore and Indonesia have made some progress, Malaysia, Thailand, Philippines and other countries in the Association of Southeast Asian Nations (ASEAN) are yet to initiate tangible changes on the resolution front.”
In contrast, the same level of white-knight intervention cannot be expected from governments in Western Europe and in North America, where only eight percent said they were “supportive” towards systemically important banks. About 92% of respondents in these two regions said they were “uncertain” about providing a bailout.
Instead, governments there are seen relying heavily on the additional loss-absorbing capacity of the lenders to weather episodes of funding crunch.
In February, S&P upgraded the Philippines’ banking industry country risk assessment (BICRA) score one notch higher to group 5, citing a stronger institutional framework following the signing of a law that boosts the powers of the central bank.
Republic Act No. 11211, signed into law on Feb. 14, provides full indemnity to central bank officials and employees as they carry out their mandate in inspecting and penalizing banks and other supervised financial firms. That law also restores the BSP’s authority to float debt papers, adds P150 billion to the central bank’s working capital, and broadens supervisory powers to include payment system operators and even money service firms. These measures were designed to better arm the BSP to “address potential risks” in the financial system. — Melissa Luz T. Lopez