Hanjin loan exposure to hurt, but not cripple banks — DOF

Hanjin loan exposure to hurt, but not cripple banks — DOF
Mary Grace Padin - January 14, 2019 -

MANILA, Philippines — The Department of Finance (DOF) has expressed confidence there will be no significant impact on the stability of five banks due to their P21 billion loan exposure to Hanjin Heavy Industries and Construction Philippines (HHIC) after the shipbuilder filed for corporate rehabilitation last week.

“It’s going to hurt, but it’s certainly not going to end up hampering them,” Finance Secretary Carlos Dominguez told reporters when asked on the impact of Hanjin’s debt default to the five involved banks.

The finance chief has not indicated yet if the government would help in attracting new investors for Hanjin, but said banks, which include state-run Land Bank of the Philippines, have agreed to work together to recover their loan exposure.

“We don’t know yet. We’re not the lead bank. The lead bank is RCBC (Rizal Commercial Banking Corp.). We will work along with all the other banks,” Dominguez said.

“The real important thing is what are the prospects in that industry? Are there good prospects in the industry?” he said.

HHIC, the biggest foreign investor and top employer at the Subic Bay Freeport, filed on Tuesday last week a petition for rehabilitation at the Olongapo City Regional Trial Court after defaulting on over $400 million loans owed from local banks, on top of another $900 million in debts with lenders in South Korea.

The country’s largest banks BDO Unibank, Metropolitan Bank & Trust Co., LandBank, Bank of the Philippine Islands, and RCBC have a combined exposure of more than P21 billion in HHIC.

For his part, Landbank president and chief executive officer Alex Buenaventura has expressed confidence that the bank can cover its $85 million loan exposure to HHIC, given that the assets weigh higher than the liabilities.

“We’ll have to address the problem. But the good news is we can recover the assets. The shipyard is worth $1.2 billion and the total exposure of the creditors is $400 million. Down the road, we hope to recover our exposure,” Buenaventura said.

The Landbank chief said that Hanjin would be deemed attractive by investors, given the importance of the shipping industry in the global economy.

“The shipping industry is a very important industry supporting global development. The only problem with Hanjin is the shipbuilding industry encountered a big problem. But the global economy is improving. There’s a lot of moving goods through ships,” he said.

Earlier, Bangko Sentral ng Pilipinas (BSP) officer-in-charge Diwa Guinigundo said the P21 billion exposure of big banks to HHIC is “very negligible.”

He said the exposure of Philippine banks to HHIC only represents 0.24 percent of the total loans and 2.48 percent of the total foreign currency deposit unit (FCDU) loans of the banking industry.

Furthermore, Guinigundo said Philippines banks are well capitalized with a capital adequacy ratio (CAR) of between 15 and 16 percent, while their non-performing loan (NPL) ratios remain below two percent.