The Governor’s Report

February 03, 2019

TRADIONALLY, the governor of the Bangko Sentral ng Pilipinas delivers a periodic report on the state of banking in the country similar to the President’s SONA.

Unlike the SONA, however, the Governor’s Report is delivered in two installments: the first in January during a meeting with the banking community  and the second in July, during the founding anniversary of  the BSP.

Last January 25, BSP Governor Nestor A. Espenilla, Jr.,  delivered his first report before representatives of the banking community, business, the diplomatic corps and the media in the historic Fort San Antonio Abad.  

Also invited to  the occasion were three former governors -- Armando M. Tetangco, Jr., Jose L.  Cuisa, Jr.,  Jaime C. Laya,  the current members of the Monetary Board -- Finance Secretary Carlos G. Dominguez III, Peter B. Favila, Felipe M.  Medalla, Juan D. de Zuniga, Jr.,  Antonio S.  Abacan,  Bruce J. Tolentino -- and former members of the Monetary Board.

In a speech read for him by Deputy Governor Chuchi Fonacier, Espenilla described the challenges faced by the BSP in the year that was, how BSP decisively rose to meet all of them, and what to expect in the year ahead.

2018 started, Espenilla said, with guarded optimism amid signs of a global economic upswing and expansion.

Before mid-year, however, challenges to steady growth started to surface.

These challenges included, among others,   the escalating trade tensions between the United States and China, elevated policy uncertainty, dampened business and financial market sentiments, financial market volatility, and  a slowing down of investment and trade.

These factors negatively  affected the Philippines in a variety of ways: portfolio adjustments, upward exchange rate movements, reduction of capital inflow,  rising inflation and  decrease in the gross international reserves.

To rein in inflation expectations, Espenilla said, the Monetary Board of the BSP raised its policy rate decisively four times by a cumulative 175 basis points beginning in May 2018.

This, together with other non-monetary actions taken by government, has resulted in gradual deceleration in the inflation rate which is now estimated to fall within the target range by late this year and through next year.

Despite the drop in the gross international reserves, mainly as a result of BSP’s actions to stabilize the exchange rate, Espenilla said,  GIR remained at healthy levels.

Despite all the challenges, the Philippine economy continued to grow, albeit at a slower pace.

Anchoring this growth is a sound and stable banking system -- a product of prudent regulation, risk-based supervision and earnest cooperation from the banking sector. 

Espenilla reported that assets of the Philippine banking system continued to expand to P16.4 trillion by end-November 2018, attributed mainly to deposit growth.

Moreover, Philippine banks continued to be well capitalized, well above  BIS and BSP norms.

The  BSP implemented measures to further develop the domestic capital market. These include enhancement of rules to facilitate bank bond issuance, paving the way for more private bond issuances.

If I may just add, the Bank of the Philippine Islands (where this writer sits in the board) issued last December a P25 billion bond. It was the biggest bond ever issued by a single borrower in PDEx history, according to PDEx CEO Nino Nakpil.

The BSP also issued enhanced guidelines on marking-to-market of financial instruments in response to the adoption of a valuation  methodology for peso-denominated government securities.

Espenilla talked of continuing reforms in the horizon including the  following:  phased, gradual reduction of reserve requirement ratios, further refinement of the interest rate corridor system, further liberalization of foreign exchange rules, adapting to the rapid expansion and reach of technological innovation and deployment of digital financial solutions.

In closing, Espenilla thanked the administration of President Duterte for the enactment of  the much-awaited  law -- 25 years in the making -- amending the charter of the Bangko Sentral ng Pilipinas.

The amendments -- foremost of which is the four-fold increase of BSP’s capitalization  to P200 billion --  are expected to  further strengthen the Bangko Sentral in the performance of its mandated responsibilities concerning money, banking and credit.

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