The "crisis of confidence" in the local financial system is the most pressing challenge this year amid the financial crisis overseas, stakeholders and key experts in the banking industry said Tuesday.

In a forum hosted by the Bank Marketing Association of the Philippines (BMAP), representatives from the Bangko Sentral ng Pilipinas (BSP), the Bankers Association of the Philippines, and the media were quick to reassure that there is no crisis in the country's financial system technically.

However, they admitted that the issue of confidence is an entirely different story.

"It is important for the banks now to be guided by fairness, accountability and transparency. It benefits no one if the depositors are unsure of their deposits," BSP Governor Amando Tetangco Jr. said.

In the coming months, Tetangco said the banking industry is set to face the impact of the crisis on export demand as well as flat growth of remittances from Filipino migrant workers, which will ultimately affect domestic consumption.

He added that the potential weakening of corporate (particularly exporters) and household (including beneficiaries of migrant workers) balance sheets could lead to some deterioration in the quality of banks' loan portfolios.

"Individually, local banks have taken logical defensive action by being more cautious in lending and boosting their liquidity levels. The risk is that this could result in less credit for productive purposes, which would add to the pressure on the real economy players. This could lead to a negative feedback loop between the real and financial sectors," Tetangco explained.

Given these challenges, Tetangco stressed the need for local banks to stay on their toes and avoid complacency: "The global crisis brings with it serious challenges. It would be cause for alarm, therefore, if we remain complacent. We need to plan; we need to act pre-emptively to create buffers that will protect us from the headwinds that will come our way."

PS Bank President Pascual Garcia agreed with Tetangco, saying that the crisis would also affect the borrowers' ability to service their loans, leading to a higher Non-performing Loan Ratio in the coming months. He said, however, that the important thing is for banks to be well-prepared to handle the situation.

"We say to everyone, stay calm," Garcia said.

For his part, BMAP President Ferdie Lachica said banks must strengthen their foundations and work to prepare for growth after the crisis: "We were in this position before, during the Asian Financial Crisis, when we were proud that we weren't as affected. But later on, we became laggards. We have to be like a vehicle going uphill this time, and keep the speed, the momentum when the landscape finally plateaus."

Meanwhile, ABS-CBN Senior Vice President for News Maria Ressa pointed out the importance of media's role to mitigate panic during such a crisis, stressing that banks should keep an open line with the media and interact more to ensure accuracy when threshing out issues.

"The reality is that the perception of instability creates that reality," she said. Report from Michelle Orosa, ABS-CBN News