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BSP: China’s Evergrande collapse impact minimal

In terms of exposures to China, claims from counter-parties based in China and its Special Administrative Regions is minimal at 0.86 percent of total banking system assets

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EVERGRANDE headquarters in Shenzhen, China. / Photograph courtesy of cnet

The spillover crisis of China’s real estate giant Evergrande’s collapse will have a limited impact on local banks, an executive from the Bangko Sentral ng Pilipinas (BSP) assured.

“In terms of exposures to China, claims from counter-parties based in China and its Special Administrative Regions is minimal at 0.86 percent of total banking system assets,” BSP Deputy Director Cynthia Sison explained in a virtual press conference on Wednesday.

“(Local) banks are not expected to have significant investments in Chinese real estate,” she added.

China’s already “highly distressed” real estate space is at risk of a new crisis as a domino effect from the Evergrande Group defaulting from its debt payment. AllianceBernstein’s Jenny Zeng warned the Evengrande collapse could become a systematic problem for China.

Years of uncontrolled expansion piled Evergrande’s trouble as debt amounts to more than $300 billion that the company is now unable to repay.

However, Sison said Philippine banks have minimal exposure to Evergrande as they can only own real estate for two purposes. One is for their use as banking premises and to hold as assets, and another if they acquired the property in settlement of claims or foreclosed real estate property.

However, foreclosed properties should be disposed of within five years under the law, Sison said.

“Philippine banks are largely domestic-oriented with cross-border exposures or claims from counter-parties in other countries at 9.4 percent of total banking system assets,” she said.

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