# **6 The impact of typhoons on the stability of the Philippine banking system**

There are important caveats to our main empirical results from a large cross-country sample, and hence we complement the main results with a country-specific example using the same methodology and more granular data. Using cross-country data on banking sector indicators ensures comparability, consistency and maximal sample coverage, but it limits our data at the country level. Identifying a disaster in the particular geographical area where it occurred would permit more precise identification. Further, we use official declaration and multiple types as proxies for identifying the severity of the disasters, as the available cross-country damage figures are limited and unreliable, which is open to criticism that these disasters may not be that severe. Therefore, we present empirical results from a country-specific example from the Philippines where we focus on a severe disaster, typhoon, alone and use geographical NPL data. This exercise was conducted between 2020 and 2021 as part of the joint World Bank-IMF Financial Sector Assessment Program (FSAP) for the Philippines (see the World Bank FSAP technical note (Regelink, 2021) and joint WB-IMF research paper (Hallgatte et al., 2022)).

The Philippines is among the most disaster-prone countries in the world. At least 60 percent of its total land area and close to 74 percent of its population are exposed to multiple natural hazards, many exacerbated by climate change, including typhoons, floods, storm surges, tsunamis, and landslides.6 In the past thirty years, 33,000 people have died and 120 million people have been adversely affected by disasters.7 For instance, the 2013 Super Typhoon Yolanda (Haiyan)—the strongest typhoon to ever make landfall in the world— was a tragic reminder of the devastating impact natural disasters can have in the Philippines. Over 6,000 people lost their lives and more than 16 million were affected, with 2.3 million people falling below the poverty line. Over 1.1 million houses were damaged or destroyed. The typhoon also had a devastating impact on public infrastructure, including roads, bridges, water and power utilities, hospitals and schools, government buildings, and agricultural and irrigation facilities. Damages were estimated at Php571.1 billion (USD12.9 billion), or 4.6 percent of GDP.8

**Figure 4: NPL components (2011–2018)**

<!-- Start of picture text --> (a) Non-performing loans (b) Total loan portfolio<br>(in billions, PHP) (in billions, PHP) (c) Non-performing loan ratio<br>14.0 %<br>600<br>10 12.0 %<br>500<br>8 10.0 %<br>400<br>6 8.0 %<br>300<br>6.0 %<br>4<br>200 4.0 %<br>2 100 2.0 %<br>0 0 0.0 %<br>2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018<br><!-- End of picture text --> Source: Bangko Sentral ng Pilipinas.

- 6GFDRR (Global Facility for Disaster Reduction and Recovery) and World Bank. 2011. “Climate Risk and Adaptation Country Profile: Philippines,” World Bank, Washington DC.

- 7World Bank. 2019. "Country Partnership Framework for the Republic of the Philippines 2019-2023."

- 8National Economic and Development Authority (NEDA). 2013. "Reconstruction Assistance on Yolanda (RAY): BuildBack-Better."

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