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IMF Country Report No. 22/155
PHILIPPINES
FINANCIAL SECTOR ASSESSMENT PROGRAM
June 2022
TECHNICAL NOTE ON RISK ASSESSMENT OF BANKS, NON-FINANCIAL CORPORATES, AND MACRO-FINANCIAL LINKAGES
This technical note on Risk Assessment of Banks, Non-Financial Corporates, and Macro-Financial Linkages was prepared by a staff team of the International Monetary Fund in the context of a joint IMF-World Bank Financial Sector Assessment Program (FSAP). It is based on the information available at the time it was completed on February 2021.
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Title page
PHILIPPINES
FINANCIAL SECTOR ASSESSMENT PROGRAM
May 5, 2022
TECHNICAL NOTE
RISK ASSESSMENT OF BANKS, NON-FINANCIAL CORPORATES, AND MACRO-FINANCIAL LINKAGES
Prepared By
Monetary and Capital Markets Department, IMF
This Technical Note was prepared in the context of a joint IMF-World Bank Financial Sector Assessment Program (FSAP) missions in the Philippines during June 2019-October 2020 led by Hiroko Oura, IMF and Ilias Skamnelos, World Bank, and overseen by the Monetary and Capital Markets Department. IMF, and the Finance, Competitiveness and Innovation Global Practice, World Bank, World Bank, and is based on data available at the time it was completed (February 2021). The note contains the technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at http://www.imf.org/external/np/fsap/fssa.aspx.
Contents
Glossary
EXECUTIVE SUMMARY
MACROFINANCIAL SETTING
A. Financial System Structure
B. Macro-financial Development
ASSESSMENT OF VULNERABILITIES
A. Key Risks
B. Assessment Method
C. Scenarios
CORPORATE SECTOR STRESS TEST
A. Methodology
B. Results
C. Recommendations
BANK SOLVENCY STRESS TEST
A. Methodology
B. Results
C. Recommendations
MACRO-FINANCIAL LINKAGE
A. Second-Round Effects
B. Counterfactual Policy Simulation
C. Recommendation
BANK LIQUIDITY STRESS TEST
A. Liquidity Risk Profile of Banks
B. Methodology
C. Results
D. Recommendations
LOAN MORATORIUM AND BANK-NFC LIQUIDITY LINKAGE
A. Methodology
B. Results
C. Recommendation
FIGURES
1. Financial Sector Development: Philippines and Selected Economies
2. Business Model of the Banking System
3. Financial Linkage Among Banks and Conglomerates
4. Financial Linkage Map
5. Macro-Financial Indicators
6. Risks from Non-Financial Sectors
7. Financial Soundness Indicators
8. Financial Soundness Indicators by Bank Type
9. Non-financial Corporate Stress Test Results
10. Credit Risk
11. Bank Solvency Stress Test Results
12. Second-Round Effects and Policy Effects Simulation
13. UKB Liquidity Stress Test Results
14. Liquidity Coverage Ratio—Results by Banks
15. Funding and HQLA of UKBs
16. Bank-NFC Liquidity Linkages—Framework
17. Bank-NFC Liquidity Linkage—Results
TABLES
1. Recommendations—Risk Analysis
2. Financial System Structure
3. The Philippines Selected Economic Indicators
4. Financial Soundness Indicators
5. Main Policy Measures to Mitigate the Impact of COVID-19
6. Risk Assessment Matrix
APPENDICES
I. Stress Testing Matrix
II. Non-Financial Corporate Sector Stress Test
III. Technical Details of Bank Solvency Stress Test
IV. Macro-Financial Linkage
Glossary
| AFC | Asian Financial Crisis |
| ASEAN | Association of Southeast Asian Nations |
| AfS | Available for Sale |
| BI | Bank Indonesia |
| BHC | Bank Holding Company |
| BOE | Bank of England |
| BOJ | Bank of Japan |
| BOT | Bank of Thailand |
| BSP | Bangko Sentral ng Pilipinas—Central Bank of the Philippines |
| CAR | Capital Adequacy Ratio |
| CBC | Counterbalancing Capacity |
| CCAR | Comprehensive Capital Analysis and Review |
| CET1R | Common Equity Tier 1 Ratio |
| CFST | Cash-Flow Based Stress Test |
| D-SIB | Domestic Systemically Important Bank |
| DSGE | Dynamic Stochastic General Equilibrium |
| DSTI | Debt Service to Income |
| ECL | Expected Credit Loss |
| ECB | European Central Bank |
| EM | Emerging Markets |
| FCU | Foreign Currency Unit |
| FSAP | Financial Sector Assessment Program |
| FRB | Federal Reserve Board |
| FX | Foreign Exchange |
| GDP | Gross Domestic Product |
| G-SIB | Global Systemically Important |
| HfT | Bank Held for Trading |
| HQLA | High-Quality Liquid Asset |
| HtM | Held to Maturity |
| ICAAP | Internal Capital Adequacy Assessment Process |
| ICR | Interest Coverage Ratio |
| IFRS | International Financial Reporting Standards |
| IMF | International Monetary Fund |
| IRRBB | Interest Rate Risk on the Banking Book |
| JFSA | Japan Financial Services Agency |
| LCR | Liquidity Coverage Ratio |
| LGD | Loss Given Default |
| LLP | Loan Loss Provision |
| LTV | Loan to Value |
| MSMEs | Micro, Small and Medium Enterprises |
| NBFI | Non-Bank Financial Institution |
| NFC | Non-Financial Corporate |
| NPL | Non-performing Loan |
| NSFR | Net Stable Funding Ratio |
| OCI | Other Comprehensive Income |
| OJK | Otoritas Jasa Keuangan |
| PD | Probability of Default |
| PHP | Philippine Peso |
| RAM | Risk Assessment Matrix |
| RCB | Rural and Cooperative Bank |
| ROA | Return on Assets |
| RR | Reserve requirement |
| RWA | Risk-Weighted Asset |
| SEC | Securities and Exchange Commission |
| SME | Small and Medium Enterprise |
| SRB | Systemic Risk Buffer |
| STeM | Stress Testing Matrix |
| SVAR | Structural Vector Autoregressive |
| TB | Thrift Bank |
| UKB | Universal and Commercial Bank |
| USD | United States Dollar |
| WB | World Bank |
| WEO | World Economic Outlook |