Message from the BSP Governor
Distinguished officers and members of the Bank Marketing Association of the Philippines led by its newly elected President Mr. Allan Tumbaga and outgoing President Mr. Ferdinand La Chica, distinguished officers of the Bankers Association of the Philippines, the Chamber of Thrift Banks and the Rural Bankers Association of the Philippines, friends from the media, guests, ladies and gentlemen: Good evening.
It gives me great pleasure to speak before you in tonight’s induction ceremony.
BMAP is a key partner of the BSP in pushing for initiatives that seek to promote high service standards in the banking system and protect the interests of consumers through financial education. We therefore continue to count on BMAP’s steadfast and strong support for initiatives that promote the safety and stability of the banking system and raise the awareness of the public about financial products and services. This partnership—which is important during normal times—assumes greater importance during these challenging times. While these are welcome signs of broad stabilization in the global financial markets, there remain potential sources of vulnerabilities that could cast a shadow of uncertainty on the durability and strength of the economic recovery. We all need therefore to remain extra vigilant and attentive to possible sources of tensions and vulnerabilities, with a view to addressing them promptly and decisively. Toward this end, there are synergies that we can exploit to marshal our resources to educate the public about issues and changes that affect the financial system, particularly the banking industry which performs the critical roles of intermediating the flow of funds in the economy and managing risks intrinsic to the development process.
Where We Stand
The past year was a tough year for the Philippine economy and elsewhere in the world. Yet, our economy managed to hold its ground against the backdrop of the worst global recession in post-war history. This was due to the country’s underlying sound macroeconomic fundamentals, strong external payments dynamics, and dividends from structural reforms, including banking reforms that have strengthened the economy’s resiliency and flexibility.
More particularly, the Philippine economy posted a respectable growth of 0.9 percent in 2009, making it one of the few countries in Asia whose growth was in the positive territory. Inflation was kept low at 3.2 percent, well within the inflation target for 2009. The subdued inflation environment allowed the BSP to cut its policy rate by a historic 200 basis points and to provide liquidity support to prop up the economy amidst possible fragilities in the operating environment. The country’s external position remained strong against the backdrop of external strains, with the balance of payments (BOP) in surplus and the gross international reserves (GIR) at an all-time high of US$45.4 billion at year-end. Resilient remittances from overseas Filipinos, amounting to US$17.3 billion in 2009, helped to support the healthy external payments position.
The banking system remained sound and stable, with the steady improvement in asset quality. As of end-November 2009, the NPL ratio of universal/commercial banks (U/KBs) further eased to 3.3 percent. Banks also remained adequately capitalized. Banks’ CAR stood at 15.7 percent on consolidated basis as of end-June 2009, comfortably above both the international standard and the BSP’s minimum regulatory requirement.
Bank lending did not stop to grow throughout the crisis period. Bank lending in fact picked up in the last two months of 2009 as financial and economic conditions began to stabilize, with loans outstanding expanding by 10.0 percent in December 2009.
Our sound macroeconomic fundamentals, together with the financial reforms we have painstakingly adopted in recent years, have given us the confidence and the optimism to navigate the road ahead.
How is 2010 Shaping Up to Be for the Global Economy?
By all accounts, this year promises to be better than 2009. The global economy entered the year on a more stable footing compared to a year ago. In part, this is due to the size and speed of the stimulus packages as well as the global coordination and synchronization of the support measures. These have helped stem panic in financial markets and lift confidence, in the process propping up domestic demand and keeping the wheels of the global economic engine well oiled for the upturn.
As a result, growth expectations have turned more favorable. Just last month, the IMF—which is the institution that has the comparative advantage in multilateral surveillance—upgraded its forecast of global growth in 2010 to 3.9 percent, considerably higher than its earlier forecast of 3.1 percent. Growth in the advanced economies will be supported by the pick-up in the inventory cycle and the strength in US consumption while the growth in emerging economies will be underpinned by strong domestic demand and exports as well as inventory adjustments.
By all accounts therefore it seems that the worst seems to be behind us and global economic activity appears to be gaining traction once again. Nevertheless, concerns linger as to whether strength of the global economic recovery will be such as to return economic conditions to where they were prior to the crisis or whether the world is now entering into a period of what has been called the “new normal” of sub-par growth, given the massive wealth destruction, the rise in structural unemployment and the still-ongoing process of deleveraging. .
What are the Implications for the Philippine Banking System
Against such an uncertain backdrop, a critical aspect of the recovery process is in ensuring that the domestic banking system can support the turnaround in economic activity. A more pointed question is, how do we ensure that the Philippine banking system is able to meet not only the demands of the ongoing process of recovery but also the needs of a more dynamic economy that has become—and will continue to become—even more globally integrated?
In seeking to answer this question, we need to be mindful that banks and financial intermediaries operate within a given macroeconomic environment. Stable macroeconomic conditions are therefore a necessary condition, a prerequisite, a sine qua non, for the health and the stability of the banking system.
So how is 2010 shaping up to be on the macroeconomic front insofar as the Philippines is concerned?
We foresee continued growth for the Philippine economy in 2010. Inflation is expected to remain manageable and to fall within the target range of 3.5-5.5 percent. Remittances are projected to remain strong, providing the wherewithal for the economy’s foreign exchange needs and helping drive domestic demand. The balance of payments is expected to be comfortably in surplus, as exports pick up and as other growth drivers such as tourism and the BPO sector gain a better foothold. The healthy payments position should enable the further build-up of our buffer of international reserves, which will in turn help the economy better withstand external shocks.
Despite these indications of clearer skies ahead, we at the BSP continue to be very mindful of potential pitfalls. That is why we pursue initiatives across a broad front to nurture a more sustainable recovery—and beyond that—to enable the economy to realize its full development potential.
We therefore continue to have our eye firmly on the price stability objective. The BSP is steadfastly committed to its mandate of promoting stable and low prices. Toward this end, we will continue to be attentive to potential price pressures and emerging risks to the inflation outlook, consistent with our forward-looking perspective. As you may already know, we have carefully laid out our disengagement plans—our exit strategy—for the monetary measures that we adopted during the crisis period. We have started with the alignment of the rediscounting rate to the BSP’s policy rate, in view of continued stability in domestic liquidity conditions and the reduced risk of contagion from global financial market strains. We will continue to revisit our monetary policy settings to ensure that these remain consistent with our price stability objective while at the same time being supportive of economic growth. We are also considering the use of macroprudential measures to complement monetary policy especially in areas that could spawn asset price inflation.
We are also mindful that while supportive macroeconomic conditions are necessary for financial stability, they are not sufficient in ensuring financial stability. We will therefore continue to forge ahead with reforms to strengthen our regulatory and supervisory framework and with measures to promote responsible risk management on the part of financial institutions. What we want is a safer, more stable financial system, but without stifling financial innovation that is necessary in a dynamic market economy. Towards this end, we will continue to reinforce the effective implementation of structural reforms focusing on risk-based supervision, effective market discipline through greater transparency and disclosure, and improvement in governance across all financial institutions. We will also continue to prioritize the further strengthening of bank capital and the improvement of banks’ balance sheets, including by examining ways to dampen procyclicality in capital provisioning. Furthermore, we will pursue efforts to strengthen the capital market with a view to developing alternative and efficient vehicles for mobilizing long-term funds for investments. We will also continue to promote consumer protection and make sure that consumer complaints and queries are effectively addressed. We will also continue to advocate for amendments to our charter to better empower the BSP as it pursues its objectives of promoting price stability, financial stability and an efficient payments and settlement system. To reiterate, there has also been considerable interest in promoting macroprudential measures as another plank in ensuring financial stability. At the multilateral level, regulators and supervisors are increasingly encouraged to adopt a macroprudential orientation, and the BSP has started to work in this direction, By focusing on the stability of the financial system as a whole, as much as on the viability of individual institutions, this approach would reduce the probability of joint failures that arise from common exposures and at the same time moderate the procyclicality that is inherent in the financial system. This is the marriage of macroeconomic policies and regulation. For monetary policy, this means that policymakers need to take better account of asset prices and credit booms. Macroprudential policy must therefore be part and parcel of regulatory reform.
Making a Commitment
Ladies and gentlemen, I mentioned earlier that all the signposts seem to be showing that the domestic economy is on the rebound. However, we need to keep the ground fertile with deeper and more broad-based reforms so that the Philippine economy can realize its full potential and meet the development aspirations of Filipinos, with a view to promoting the much sought-after inclusiveness of growth and development. We need to build strong alliances in the face of challenging times. Obviously, the BSP cannot do the work alone. We need the support of reform-minded agents like you who are committed to go the extra mile. The worst of the crisis may be over but we cannot afford to be complacent. The process of recovery may take some time and if we are to sustain the growth momentum we need to act collectively and proactively to consolidate and build upon the reforms we have instituted in the previous years.
Role and Relevance of BMAP as An Industry Association
As an organization of bank marketing professionals, BMAP has time and again supported the various policy initiatives and advocacies of the BSP. We thank BMAP for its continuing support of all our initiatives.
I call on your membership once again to continue to work with us in promoting a safe and stable banking system that generates the trust and confidence of the public. Banking is all about building public trust and confidence – and earning that trust rightfully. We know that this can only be achieved through the good governance principles of fairness, transparency and accountability.
As the mortgage difficulties unfolded and spiralled into an outright systemic crisis, we witnessed some of the most hallowed names in finance crumble. The pursuit of profits, aided by layers of complex transactions, became the primordial concern without due consideration of the underlying risks. In the end, these actions and the flawed incentive structures proved to be at the expense of public trust and confidence.
This is where your role as marketing and communications experts comes into sharp relief. I expect BMAP to take the lead in ensuring that our banks maintain a good relationship with the public based on mutual trust, integrity and transparency.
In other key areas, I also expect BMAP to support our continuing efforts to provide timely, reliable and adequate information to clients about vital financial products and services.
Financial learning, is one advocacy that we, at the BSP, are passionate about. This is why we have an inclusive economic and financial education program that aims to reach out to the public, including schoolchildren, the youth, and the overseas Filipinos and their dependents. We hope BMAP will sustain Ferdie La Chica’s savings-deposit program. That is why we have devoted extensive resources to help our public make responsible and well-informed financial decisions. We believe that doing so empowers the ability of Filipinos to participate in the economic mainstream, such that their personal welfare is uplifted and beyond that, the economic and social fabric of the nation is strengthened as well.
Let us therefore continue to do our share in promoting a truly depositor- and consumer-friendly banking system.
My warmest congratulations to the new officers! I am confident that your leadership and commitment to fulfill BMAP’s goals and vision and to support the BSP’s pursuit of meaningful reforms in the banking industry will shepherd our nation to a stronger growth trajectory in the years ahead.
Mabuhay po kayo! Thank you and let’s enjoy the rest of the evening!
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