"There is no reason to panic. The banking system is sound and stable," said Amando Tetangco, governor of the Philippine central bank BSP.

Tetangco said the exposure of local banks in the troubled Lehman Brothers, which filed bankruptcy on Monday in the United States, was "very small," Philippine TV GMA reported.

"The exposure is estimated to be about 0.3 to 0.4 percent, so it's less than one-half of one percent of the total assets of the banking system," he said.

With the Philippine banking system estimated to be worth 5 trillion pesos (106 billion U.S. dollars) in total assets, the Lehman exposure is seen to be at around 15 billion pesos (318 million dollars).

The country's top two banks, Banco de Oro UniBank, Inc. (BDO) and Metropolitan Bank and Trust Co. (Metrobank) on Tuesday announced their respective exposures to Lehman investments.

BDO is setting aside provisions totaling 3.8 billion pesos (80.7 million dollars) to cover its exposure to the said entity while Metrobank has "made provisions equivalent to 14 million dollars" for the 20.4 million dollars worth of Lehman-issued bonds it held. The two leading banks both said they expect to be in the black at the end of the current calendar year.

"I think these (disclosures) should be taken as a positive sign. It shows these banks have the resources to absorb a drop in the price of their investments in Lehman Brothers," Tetangco said.

He also said the BSP was also not as concerned over Merrill Lynch's condition since it has already found safe harbor when it was taken over by the Bank of America.

At the worst, the Philippine banks would only face a minimal reduction to their incomes with very little impact on their capital base even if their Lehman investments were declared completely worthless.

"We do not see this as a solvency issue, just a little erosion in the income of banks," said BSP deputy governor Nestor Espenilla, who is also head of the central bank's Bank Supervision and Examination Sector.

"These exposures are not likely to be uncollectible. At most, banks would probably have to absorb some discount but they would not be completely worthless," Espenilla added.