Diokno: Philippine impact from Russia-Ukraine conflict limited with ‘minimal’ exposure, ‘negligible’ trade relations

Russia’s invasion of Ukraine is expected to have only a “limited” impact on the Philippine economy and its banking system given its small exposure to the area both geographically and in terms of business, the central bank said Monday.

In a mobile message to reporters, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno downplayed the possible impact of the ongoing conflict on the Philippines.

“The economic fallout from the Russia-Ukraine [conflict] on the Philippine economy is limited for three reasons: first, the country’s geographic distance from the conflict area; second, the country’s limited economic and business links with Russia and Ukraine; and third, its strong macroeconomic fundamentals,” he said.

Just last week, Ukraine warned of a new offensive by Russian forces, as it evacuated trapped civilians in the east and south of the country.

Officials say Russian forces have been regrouping for a new offensive, with Moscow reportedly eyeing to take over as many areas as it can in the Donbas area bordering Russia.

Ukrainian President Volodymyr Zelensky earlier this month presented a somber video of casualties to the UN Security Council, calling for accountability for atrocities made by Russian forces.

Diokno on Monday said local lenders have “minimal” financial exposure to both countries, and trade relations with them are “negligible.”

Exports to Russia amounted to $120 million or 0.2% of the total exports in the past year, while exports to Ukraine stood at $5 million.

Cross-border deposit liabilities to Russia stood at $672,000 and at $969,000 to Ukraine as of end-September, which Diokno said was cumulatively less than 1% of the local banking system’s total deposit liabilities.

Two Philippine banks also have exposure in Russian banks — VTB Bank Public Joint Stock Company and the Russian Agricultural Bank — equivalent to P254.12 million as of December 2021.

“This represents less than 1% of their total assets under management,” Diokno told reporters.

In terms of remittances, the governor said inflows from both countries were equivalent to less than 1% of the total remittances in the past year.

“Nevertheless, BSP is aware that the crisis could indirectly affect the flow of remittances of overseas Filipinos from the two warring countries,” Diokno said.

Diokno last month said the tensions between the two countries is expected to drive global and domestic crude prices even higher, pushing inflation forecasts above the government’s target range.

Domestic pump prices have been on an uptrend in 12 out of the past 14 weeks, which the Department of Energy (DOE) has repeatedly attributed to the ongoing conflict between Russia and Ukraine that has hit global supplies and drove global prices higher.

The Monetary Board of the BSP now expects inflation to average 4.3% this year, higher than the 3.7% outlook in February, and above the 2% to 4% target range. — RSJ, GMA News