BSP downplays effect of Hanjin default on banking industry

Font Size


By Melissa Luz T. Lopez, Senior Reporter
and Denise A. Valdez, Reporter

LOCAL banks’ exposure to embattled firm Hanjin Heavy Industries and Construction Philippines (HHIC-Philippines) is “negligible,” a senior central bank official said, noting that local lenders are well-placed to weather these loan defaults.

The South Korean shipbuilder’s unit based in Subic Bay filed for corporate rehabilitation last Jan. 8, leaving some $412 million in outstanding loans from Philippine banks in limbo.

Bangko Sentral ng Pilipinas (BSP) Officer-in-Charge Deputy Governor Diwa C. Guinigundo said they have received a report about Hanjin’s fallout, but an initial assessment by the regulator shows that the banking industry can weather this blow.

“Based on our initial assessment, some banks are exposed to Hanjin but relative to both total loans of the banking system and total FCDU (foreign currency deposit units) loans of the banking system, their exposure is very negligible,” Mr. Guinigundo said in a text message when sought for comment.

A report claimed that the Rizal Commercial Banking Corp. (RCBC), the state-owned Land Bank of the Philippines, Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI), and BDO Unibank, Inc. are now working together to cover their combined loan exposure to the Korean conglomerate. The lenders are said to be working to take control of Hanjin’s property in Zambales, with assets estimated at $1.6 billion.

This did not prevent investors to take caution, with bank stocks at the Philippine Stock Exchange seeing the biggest plunge during Friday’s session. By market close, the financials sub-index slipped by 2.54% amid the PSEi’s 1.02% decline and the broader all shares-index’s 0.73% dip.

Stock prices of three of the listed banks slid in the wake of the news. Shares at RCBC suffered the steepest blow as it dropped by 9.12% on Friday, while Metrobank and BPI stock prices went down by 4.82% and 4.76%, respectively. Meanwhile, BDO shares steadied from Thursday’s close.

The involved banks are among the 10 biggest lenders in the Philippines.

“The banks in compliance with the BSP’s regulations have risk management systems in place, they are very liquid and their profitability has been sustained. Their loan loss provisioning is more than a hundred percent. They can very well handle and manage this specific case,” Mr. Guinigundo added.

The central bank has long introduced a set of standards to manage credit risks by asking big banks to maintain capital buffers worth at least 10% of their assets, as well as maintaining a 25% single borrower’s limit (SBL) to manage exposures.

In particular, the SBL caps credit lines extended to a single person or firm to ensure that the banks will not fold even if that borrower will suddenly default.

However, Mr. Guinigundo declined to give further comments, noting that Hanjin’s fate is now pending before a regional trial court in Olongapo. Overall, he said that local banks are “very strong” and adequately capitalized overall.

In a separate statement, BDO President Nestor V. Tan admitted that they have an exposure to Hanjin but they are “more than adequately provided for” in terms of potential losses.

Meanwhile, two shipbuilders from China have expressed interest in acquiring HHIC-Philippines, according to an official of the Department of Trade and Industry (DTI).

“Over the past two days, we have gotten in touch again with the mga pumuntang investors dati [investors who visited before]. Sinabi natin situation and malaki interest nila [We told them about the situation and they’ve shown great interest]… Dalawa from China [Two from China],”

Ceferino S. Rodolfo, DTI undersecretary and Board of Investments (BoI) managing director, said during a DTI press briefing in Makati City on Friday.

While naming the companies, Mr. Rodolfo described them as big shipyard operators in China. He said representatives from the Chinese companies have asked him for more information about HHIC’s Subic shipyard operations.

Last Tuesday, South Korean news agency Yonhap reported the Philippine unit of Hanjin filed for corporate rehabilitation almost 13 years after it was established.

In a statement, Subic Bay Metropolitan Authority (SBMA) said “serious financial trouble” pushed Hanjin to file for corporate rehabilitation with the Regional Trial Court of Olongapo City.

SBMA Chairman Wilma T. Eisma said Hanjin officials informed her that the company’s debts reached around $400 million from Philippine banks, and around $900 million from South Korean lenders.

“The bottomline is that the company said it does not have enough cash to repay its loans, and that it cannot continue with its operations under these circumstances,” Ms. Eisma was quoted in the statement as saying.

Mr. Rodolfo said while a number of investors have already been looking at opportunities in the Philippines for shipbuilding and repair — some of which have also visited Hanjin in Subic — the recent news sparked interest from investors.

“If you look at the assets of Hanjin, it’s very specialized for the very big vessels, international vessels. Very few companies would have that capability to produce those kinds of ships and market,” he said, noting that the two Chinese companies are in the business of building big ships, and the other one in producing roll-on, roll-off (RoRo) ships too.

“From an industry development perspective, our interest in the Philippines is to produce the smaller ones, those that would provide to us the RoRo ships. So we’re looking at all possibilities,” Mr. Rodolfo added.

The BoI official also recalled that around two to three investors visited the Subic shipyard last year, but HHIC-Philippines was valued then at $2.6 billion. Right now, he said the enterprise value of HHIC-Philippines is estimated at $1.6 billion.

Mr. Rodolfo noted the company has reduced its pool of workers to 3,800 from around 40,000 workers when it was at its peak.

SBMA said in its Wednesday statement the company is still working on six multi-million building projects.

Trade Secretary Ramon M. Lopez said the DTI is eager to find a white knight for HHIC-Philippines.

“The first objective natin [of DTI] is ma-replace siya ng [to replace it with] another shipbuilder that will take over,” he said during the briefing.

“Their problem really is the working capital, cash flow that is basically hampering their operation. So ang kailangan masuportahan [where support is needed] is first, to assist in the possible strategic investor coming from the industry to be the one doing, taking over. In other words, buying that business,” Mr. Lopez added.

HHIC maintains a shipyard at the Subic Bay Freeport Area since 2006 and has hired over 22,000 workers prior to this week’s shutdown.