FITCH SOLUTIONS Macro Research on Tuesday added its voice to expectations that debt woes of Hanjin Heavy Industries and Construction Philippines, Inc. (HHIC-Phil) will not likely shake the Philippines’ financial sector, as four of the affected local banks disclosed some details of their exposure to the troubled Korean shipbuilder.
The Bangko Sentral ng Pilipinas was cautious in its remarks after the disclosures, with Deputy Governor Chuchi G. Fonacier saying in a mobile phone message that “[i]f the creditor-bank is proactive in monitoring the developments in Hanjin, then the bank should have already provided for an allowance for credit losses… the bank would be able to cushion the impact of this default on its profit.”
In separate disclosures to the bourse on Tuesday, four of the country’s biggest lenders — BDO Unibank, Inc.; Metropolitan Bank & Trust Co. (Metrobank); Bank of the Philippine Islands (BPI) and Rizal Commercial Banking Corp. (RCBC) — gave a few details of their exposure to HHIC-Phil, saying they did not project significant negative impact on their operations.
An Olongapo City court on Monday gave the green light for HHIC-Phil’s rehabilitation proceedings to begin.
The shipbuilder’s debts to the four listed local banks as well as to state-owned Land Bank of the Philippines (LANDBANK) have been estimated to total some $412 million.
Financials were one of the four sectoral indices that ended Tuesday with gains despite losses earlier in morning trading. But the day’s outcome was mixed for the affected listed banks, with RCBC and Metrobank shares closing flat at P27.15 and P80 apiece, respectively; BPI climbing 2.07% to end P93.80 and BDO slipping by 0.53% to finish P130.90 each.
In its disclosure on Tuesday, RCBC said its exposure to HHIC-Phil totaled some $145 million — the biggest among the affected banks — involving four shipbuilding contracts.
That compares to RCBC’s P614-billion assets and P387-billion total net loans.
“The bank’s net NPL (nonperforming loan ratio) of 1.2% as of September 2018 will increase as a result of this exposure and corresponding provisions will be made based on accounting standards and regulatory guidelines,” RCBC said in its disclosure, noting that its P84-billion capital as of September last year put it “in a strong position to absorb these provisions.”
“Even with this default, the bank’s capital adequacy ratio of 17.3% as of September 2018, remains very strong, well above regulatory minimum and can still support medium-term loan growth.”
Metrobank, which is estimated to have the third-biggest exposure to HHIC-Phil at $70 million — after LANDBANK’s estimated $80 million — did not confirm the reported amount but said its “exposure is low relative to our total assets of P2.1 trillion”.
Hence, it said, “[w]e have adequate provisions and we do not see any significant impact on our operations.”
BDO, whose exposure to the troubled shipbuilder has been estimated to amount to $60 million, said in its disclosure that its “Hanjin exposure represents only 0.15%” of its total loan portfolio, hence, did “not expect the above-cited exposure to have a material effect on the bank’s business, operations and/or financial condition.”
BPI said its exposure to HHIC-Phil amounted to $52 million, and not $60 million as earlier reported, accounting for “approximately 0.2% of our total loan book”.
“We have partially provisioned for this and additional provisions in 2019 is manageable,” BPI said in its disclosure.
In a note published Monday, debt watcher Moody’s Investors Service said huge loan exposures to Hanjin could pull down credit ratings for the five Philippine banks concerned as this would translate to narrower bottom lines in order to absorb possible defaults. At the same time, Moody’s — which has a “Baa2” rating, a notch above the minimum investment grade, for the banks concerned, said it expects “the affected banks’ loss-absorbing buffers to remain robust”.
The central bank has estimated total Philippine bank exposure to HHIC-Phil to account for 0.24% of total gross loans in the banking system and 2.48% of foreign currency loans.
Fitch Solutions, in a Jan. 14 commentary e-mailed to journalists on Tuesday, said “[t]he loan default by Hanjin is unlikely to materially impact the stability of the financial system in the Philippines”, partly since “Philippine banks, in general, boast healthy capital buffers and low nonperforming loans”.
Fitch Solutions — sister company of debt watcher Fitch Ratings — said it believes HHIC-Phil’s debt trouble “is not a systemic problem and is unlikely to threaten the financial stability of the country in the near term” even as it was “the biggest in the Philippines’ banking history.
It said it expects “little fallout for the banking system as a whole” since bank exposures were minimal compared to total assets, the affected lenders have agreed to work together to take control of the shipbuilder’s assets in the Philippines and the entire banking system, as a whole, boasts robust capital and liquidity buffers.
That said, Fitch Solutions said it expects Philippine banks’ operating environment to “become more challenging going forward”.
“… [W]e maintain our expectation for credit growth to slow and asset quality to weaken over the coming quarters, as the operating environment becomes more challenging due to slowing economic growth momentum and tightening monetary conditions,” Fitch Group’s research unit added.
HHIC-Phil has maintained a shipyard at the Subic Bay Freeport Zone in Central Luzon since 2006 and had hired over 22,000 workers. Issues on worker safety have also hounded the shipbuilding firm since it started operations here.
Also on Tuesday, Labor and Employment Secretary Silvestre H. Bello III said that his department will make sure that HHIC-Phil’s remaining 3,800 workers will get their separation benefits.
“We would like to assure the workers of Hanjin Heavy Industries that they will get separation benefits in accordance with the provisions of the Labor Code,” Mr. Bello said in a press conference. “Workers will get separation pay equivalent to one month salary per year of service.”
He added that the Labor department will provide re-employment assistance in jobs related to the workers’ skills, and will meet with the departments of Trade and Industry, of Public Works and Highways and of Transportation regarding the possible hiring of workers for government projects. — M. L. T. Lopez, K. A. N. Vidal and G. M. Cortez