NBFIs defy tough industry challenges
Some of the risks that NBFIs in the country are exposed to, besides concentration risk, include currency risk, liquidity risk, credit risk, interest rate risk, contagion risk and cybercrime.
“Cur renc y r i sk is most likely to be experienced by the ma r k e t t h rou g h offshore investment price and exchange rate volatility. For instance more than 50 percent of the pension fund are currently invested in offshore market,” reads part of the annual report.
Over the years, before the recent amendment of the Re t i reme nt Ac t , retirement funds were allowed to invest a minimum of 30 percent in local markets and a maximum of 70 percent in the offshore markets.
Ac c o r d i n g t o NBFIRA 2022 annual report, in 2021 offshore investments amounted to P80 billion or 67 percent and local assets accounted for P40 billion or 33 percent of total retirement funds assets.
NBFIRA has also bemoaned that there are top two life insurers accounting for 87 percent of the subsector assets while in the lending activities, 92 percent of the assets accounted to the top five micro lenders.
“Nonetheless these risks remain contained owing to effective riskbased regulatory and supervisory approach ap p l i e d by t h e regulatory authority,” said NBFIRA’s latest annual report.
The report also highlights that the
NBFIs’ increase to 823 was mainly pushed by the lending activities industry that recorded the largest increase of 8.6 percent from 347 in 2022 to 377 in 2023, while the number of retirement funds increased from 87 to 88 and capital market recorded an increase from 115 to 116 entities.
The number of insurance entities decreased by 3.2 percent from 250 in 2022 to 242 in 2023, on the other hand. Despite the insurance entities decrease, NBFIRA has noted that the number of individual representative engaged by the market to sell insurance increased by 18 percent from 2927 to 3463. “This could be due to insurers and intermediaries’ efforts to recover lost business and growth strategies to acquire new business,” said NBFIRA.
Meanwhile, some notable regulatory developments in the sector included the commencement of the Non- Bank Financial Institutions Tribunal ( N B F I T ) w h o s e mandate is to review the Regulatory Authority and regulated entities decisions to ensure that there is fair, equitable and t r a n spa r ent marke t c onduc t , Collective Investment Undertakings Act 2022 which amongst othe r s i n c re a s e s product scope and enhanced supervision and oversight and Retirement Funds Act 2022, which enhanced regulation of fund administration and s t reng thened the regulator’s oversight responsibilities.