The International Monetary Fund urged Philippine regulators to closely monitor banks’ exposure to the manufacturing sector.
The IMF warned that pressure from global trade developments could weaken local producers’ financial performance and their ability to repay loans.
In its latest country report, the multilateral lender flagged bank lending to factories as among the areas where pockets of vulnerability ‘warrant close monitoring.’ This is due to their potential to create systemic risks.
The IMF also pointed to elevated vacancies in the commercial property market after the exit of offshore gaming operators. It also noted a fast-growing consumer credit segment amid low household savings.
‘The earnings in the manufacturing sector have been weak and the soundness of manufacturing and wholesale and retail loans could be affected by adverse global trade developments,’ the IMF said.
a gauge of manufacturing activity-sliding to 47.4 in November from 50.1 a month earlier. This marked the sharpest deterioration in operating conditions in four years. Companies cited weak customer demand, which dragged down output, new orders and export sales.
Despite the vulnerabilities, the IMF said the overall systemic financial risks remain moderate and broadly unchanged since last year. It noted that the local banking system is well-capitalized, liquid and profitable, supported by ‘generally conservative lending standards and a stable deposit base.’
The IMF added that local authorities consider financial-sector risks to be well contained. It noted that BSP stress tests show banks have sufficient capital buffers to absorb potential deterioration in asset quality, including in real estate, household and manufacturing exposures.
‘The BSP should accelerate efforts to refine macroprudential policy,’ the fund said. ‘Progress to strengthen crisis management and resolution, and financial oversight, should continue.’