Philippine banks told not to be complacent

Remain cautious and not be complacent.

This is the admonition of Bangko Sentral ng Pilipinas Deputy Governor Nestor A. Espenilla Jr. to banks to amid the seeming strength of the banking system.

Espenilla points to the global and even regional cross-border financial conditions as glaring warning signs to watch out for.

He noticed indication of borrowing from overseas at near zero rates and bringing these funds on-shore, presumably for deployment at the Philippines' higher nominal yields.

“The capital flows into Asia in general, and the Philippines in particular, are causing revaluation pressure on the Philippine Peso by the sheer volume of the flows. If these capital flows are to end up as new factories or new machines, we are at least assured of expanding productive capacity in the real sector. (However) if they only remain as financial flows looking for higher yields in on-shore investment outlets, one must be wary that

there is no permanency to such flows and the possibility of abrupt reversal remains,” said Espenilla.

As yields remain low and local liquidity is augmented by inflows, there is always that pressure and temptation on banks to alter their asset-liability management to perk up the bottom line, the BSP official emphasized.

Regional economists and market analysts say that the Philippine banking sector is one of the strongest in the region.

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