Govt on alert for banks that bought hedging facilities

MANILA, Philippines - The Philippines’ financial regulator is on alert, monitoring domestic lenders that may have bought hedging facilities to protect themselves from American creditors who failed to settle debts. Also known as a credit default swap, the hedging mechanism allows a buyer to secure credit protection in case of a default. The transaction also enables the seller to guarantee the credit worthiness of a product. In this case, the product is a collateralized debt obligation (CDO), or a debt paper representing a home loan bought and sold in the US’ secondary markets. Majority of these loans turned sour, causing the current credit crisis. Latest data from the Bangko Sentral ng Pilipinas (BSP) indicate that the banking industry’s exposure to credit default swaps increased. Previously estimated at a mere 0.4 percent of the Philippines’ total banking assets worth P5.078 trillion, the industry’s investments in credit-linked swaps now reached nearly one percent, or P50 billion. “We scoured all the banks' books to begin to understand what is really happening and found that their exposure is very limited and well within their capacity to service," BSP deputy government Nestor Espenilla Jr said in Tuesday interview. These updated figures include domestic lenders’ exposure in financial markets in the US and Europe, Espenilla said. Amando M. Tetangco Jr, the central bank’s chief, refused to comment. Despite the increased exposure, the Philippines remains protected from complications arising from events in both the US and Europe. Besides saying that the investment remains limited, the banking industry continues to be awash in cash, Espenilla said. Domestic financial institutions secure funds from local sources instead of international capital markets as what was the practice of foreign banks, Espenilla said. “The exposure is limited only to a few banks and there are no rural or thrift banks involved at all," Espenilla stressed. - GMANews.TV