By Lee C. Chipongian
The creditor banks of Korean shipbuilder, Hanjin Heavy Industries and Construction Philippines, will seek assistance in any form from the Bangko Sentral ng Pilipinas (BSP) while they are resolving more than $400-million in combined loans to the beleaguered Korean shipbuilder.
There have been feelers sent to the BSP of the banks’ intention to ask for the BSP’s help, said sources. The government-owned Land Bank of the Philippines and the Yuchengcos’ Rizal Commercial Banking Corp. (RCBC) have the largest share of the Hanjin loans.
RCBC is said to be exposed by about $140 million and “will therefore be most affected,” according to a Moody’s Investors Service commentary (“Philippines: Banks’ exposure to troubled Hanjin will attract higher provisions, a credit negative”).
Moody’s, citing reports, said Landbank has about $80 million exposure in Hanjin, while Metropolitan Bank and Trust Co. and BDO Unibank has $72 million and $60 million, respectively. Bank of the Philippine Islands said it has $52 million exposure and not $60 million as being reported, bringing the total to $404 million.
The BSP, which has yet to receive a formal request from any of the involved banks, could tap several measures to extend reprieve to the five banks while restructuring the Hanjin loans.
BSP Deputy Governor Chuchi G. Fonacier, however, said that for now, the banks have guidelines and safety nets to handle Hanjin’s debt problems.
“The banks are already aware of BSP’s expectations when it comes to their credit risk management system,” she said over the weekend.
Fonacier is not aware of any other government assistance that will be extended to the banks. “If it’s from the government other than BSP … I think I am not in a position to comment on that,” she said.
As disclosed by Fonacier earlier, the creditor banks and Hanjin were scheduled to meet last week to discuss rehabilitation plans. She said liquidation or petition for bankruptcy, however, was not on the table.
Fonacier said that there was a good chance that Hanjin and the five banks will recoup financially since the banks’ exposure is small compared to the size of the banking sector and are well-capitalized enough to absorb losses.
BSP Deputy Governor Diwa C. Guinigundo said that the loan exposure of the five banks is just 0.24 percent of total industry loans and about 2.49 percent of the foreign currency deposit loans. He said the central bank is confident of the banks’ “ability to handle negotiations on this corporate restructuring while remaining compliant with prudential regulations.”
Credit watcher Fitch Ratings said that “risk mitigation, such as corporate guarantees and claims on assets, may help improve recoverability.”
Moody’s said that while bank profit will be reduced by additional credit costs, it expects the banks’ loss-absorbing buffers will “remain robust.” Still, it said that the exposures are credit negative since the problematic loans will lower their profits, particularly RCBC.
Moody’s said RCBC’s gross non-performing loan ratio will increase to 4.3 percent from 2.2 percent based on 2017 financials. It also estimated that credit costs in a “worst-case scenario” as a percentage of the banks’ pre-provision income will go up to 20 and 140 basis points (bps), from six to 26 bps based on their September 2018 financials.
“The biggest negative effect on profitability will be at RCBC,” added Moody’s, as it will likely reduce its capital ratio by 50 bps.