Hanjin default to ‘hurt’ but won’t hamper banks

Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Sun, 13 Jan 2019 16:43:34 +0000

Local banks with loan exposures to a bankrupt Korean-owned shipbuilder will be working together to address the potential impact of a looming multimillion-dollar default, a Cabinet official said.

“It’s going to hurt but it’s certainly not going to end up hampering them,” said Finance Secretary Carlos Dominguez 3rd, who also chairs Land Bank of the Philippines (Landbank) — one of the five local banks affected by the insolvency of Subic-based Hanjin Heavy Industries and Construction Philippines.

Hanjin, which last Tuesday filed for corporate rehabilitation, reportedly owes Landbank — along with BDO Unibank, Inc., Rizal Commercial Banking Corp. (RCBC), Metropolitan Bank & Trust Co. (Metrobank) and Bank of the Philippine Islands (BPI) — around $412 million in addition to another $900 million to South Korean creditors.

“The banks have agreed to work together and to see how we can move forward from here,” Dominguez said.

LandBank’s $85-million loan exposure to Hanjin will not affect the state-owned lender’s stability going forward, he added.

“I don’t know the exact exposure of the other banks but definitely we are not the largest,” he said.

LandBank President and Chief Executive Officer Alex Buenaventura, meanwhile, expressed confidence that the lender would get its money back.

“The shipyard is worth $1.2 billion dollars. Down the road, we hope to recover our exposure,” he said.

LandBank is the country’s third biggest lender in terms of assets — at P1.771 trillion — as of September 30, 2018 based on central bank data.

BSP Deputy Governor Diwa Guinigundo last week said that the five local banks’ exposure to Hanjin, relative to both total loans and total foreign currency deposit unit (FCDU) loans of the banking system, was “very negligible.”

The central bank late on Friday said that the Hanjin loans represent only 0.24 percent of total banking system loans and 2.49 percent of FCDU loans

“With its robust capitalization, the Philippine banking system is well-positioned to manage about $400 million in loan exposure to Hanjin…,” the BSP said in a statement.

It also said that the local banking industry was well-capitalized with a capital adequacy ratio of 15.35 percent as of June 2018, well above the international standard of 8.0 percent and the Philippines’ 10.0 percent.

Total assets of the banking system continued to grow by 11.0 percent year-on-year while non-performing loans (NPLs) remained low at 1.83 percent of its total loans as of October 2018, the BSP continued

Loan loss reserves were equivalent to 109.9 percent of NPLs during the same period.

“The BSP is confident about the local banks’ ability to handle negotiations on this corporate restructuring while remaining compliant with prudential regulations,” the central bank stressed.

News of Hanjin’s insolvency battered share prices of the affected banks on Friday, with RCBC dropping 9.12 percent or P2.65 to close at P26.40 apiece.

BPI lost 4.76 percent or P4.50 to P90 per share, Metrobank fell 4.82 percent or P3.95 to P77.95 and BDO fell to as low as P127.80 during intraday trading but ended flat at P131.30.

Landbank is not listed.

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