This study explores the interconnectedness of the Philippine banking system, focusing on how 481 banks supervised by the Bangko Sentral ng Pilipinas (BSP) are linked through credit, liquidity, and payment channels. Using interbank network data, it introduces two metrics—the Overall Interconnectedness Index (OII) and the Strong Connected Component Index (SCCI)—to measure these connections.
The findings suggest that in a 481-nodes network, interbank payments channel shows stronger ties than loans or deposits, but overall interconnectedness is low (0.06 – 0.65 percent). For universal and commercial banks, interconnectedness rises to 2.64 – 6.55 percent yet remains sparse compared to a fully connected network (100 percent). While low interconnectedness may reduce contagion risk from small shocks, it may also limit risk-sharing capacity and lessens the system's ability to absorb larger shocks effectively.