Congress prodded on BSP charter amendments
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. is urging Congress to approve – finally – amendments to the central bank charter within the year to give more power and protection to the independent institution.
Espenilla renewed his call to prioritize BSP charter amendments after credit watcher S&P Global Ratings’ move to upgrade the domestic banking sector’s rating on the back of improved fundamentals and better response to risks.
Espenilla said they could further enhance Philippine banks’ capacity to handle financial risks and bank-related stress if they are given additional regulatory teeth once changes to the BSP law is passed. Proposals to amend the charter has been pending for almost two decades.
“We hope Congress will pass before the end of 2018 the proposed legislation amending the BSP charter as this will pave the way for an even stronger banking industry,” according to Espenilla. “This will help BSP fulfill its mandates more effectively and will ensure the banking system remains a pillar of strength for the Philippine economy amid evolving trends and external challenges.”
Espenilla said the improved S&P banking sector rating – based on its latest Banking Industry Country Risk Assessment (BICRA) of “6” from “7” indicating a higher score in terms of strength – reflects the sustained robust performance of the local industry amid a sound regulatory environment.
He vows to pursue additional regulatory banking reforms. “The BSP remains committed to maintaining stability and supporting further growth of the banking sector through effective supervision. Looking ahead, we expect the domestic banking system to strengthen further as the BSP continues to refine regulations to make them more responsive to constant changes in industry and economic landscape,” he said.
One key change being proposed is the amendment in the provision of legal protection to BSP personnel in the course of performance of official duties. With it, the BSP can better perform its banking supervision function, such as by imposing corrective actions against unsound banking practices, without being hampered by lawsuits, said the BSP.
In its report, S&P said: “The central bank has a history of independence and a sound record in keeping inflation low. We believe the BSP’s recent monetary policy measures will improve effectiveness of monetary policy transmission and note
that a revised BSP charter with added protection for the bank’s officials could further strengthen independence.”
On the regulatory environment, S&P said banking regulations in the Philippines are at par with, and in some cases even more stringent than, international standards. With the kind of regulations in place, S&P added, the risk of a credit-fueled asset bubble in the country is low.
“Pre-emptive prudential measures to control banks' real estate exposures have led to moderation of credit growth in this segment, which mitigates the build-up of economic imbalances. We expect that credit losses will remain low, supported by robust economic growth and healthy corporate balance sheets…” it added.
S&P also cited a host of other factors seen to have reduced credit risks in the Philippine banking sector. These include their low exposure to bad debts, with the non-performing loans ratio standing at a mere 1.7 percent as of end-2017, conservative underwriting standards and well established credit approval process of banks, as well as low exposure to foreign currency denominated debt.
In upgrading the banking sector’s BICRA score, S&P cited the favorable economic environment that is supportive of growth of banks, sound regulations, and improving industry fundamentals and trends. “The Philippine government is enacting increasingly effective fiscal policies, marked by improvements to the quality of expenditures, still-limited fiscal deficits, and low levels of general government debt. At the same time, the economy continues to achieve consistently robust growth. In our view, the Philippines' institutional capacity has started to improve, as seen in its increasingly sustainable public finances.”
In addition, the credit watcher said the country’s external payments position “forms the cornerstone of (the Philippine) credit strengths.”