PH financial market still strong — BSP
With a global recession, the central bank and the inter-agency Financial Stability Coordination Council (FSCC) remains confident that the local financial market is strong despite that the health crisis has stalled economic activity and will derail growth this year.
The virus outbreak “has been a direct hit on the economy and is already causing systemic dislocations,” said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno in an online press briefing on Tuesday.
Diokno said the BSP and the FSCC will try to contain emerging market “difficulties” and that these will not “spillover into our financial system.”
COVID-19, said Diokno, already “epitomizes” systemic risk.
In response, the FSCC is soon releasing a national Macroprudential Policy Strategy Framework for a “clear narrative of the policy mindset that we have in place when thinking of systemic risk issues” and another initiative is the formalization of a Systemic Risk Crisis Management Framework, said Diokno, to assess and to take action if a systemic disruption is detected.
“We are pursuing this not because we see any imminent vulnerability that rises to the threshold of being ‘systemic. Rather, the framework is a pre-emptive initiative, fully cognizant that its best use is when it is not in use but fully prepared nonetheless when the times call for it,” said Diokno.
The FSCC on Tuesday released its first semestral Financial Stability Report (FSR), previously an annual release, to make it more responsive to the requirements of the banking sector. The April 2020 FSR has recognized the global recession and expects “further dislocations”. Still, despite the “increase in risk premiums and heightened risk aversion” the FSR said that there is “no reason to believe that the local financial market is in a state of instability. Not yet.”
Head of FSCC Technical Secretariat, BSP Assistant Governor Johnny Noe E. Ravalo, who presented the highlights of the FSR, said the global economy has been in a struggle for the last two years. “COVID-19 actually exaggerated this slowdown and created a new layer of complications,” said Ravalo.
Between the pandemic and the global recession is the financial markets. “When you have a public health issue that requires governments around the world to suspend economic activitiy, incomes are lost and supply chain are actually magnified and that creates financial risks and therefore elevates risk aversion which would then eventually effect output as well. We see these linkages as the ones driving the financial market scenarios,” he explained.
Ravalo said when there are income loss, and economic activity needs to be rebooted while obligations need to be refinanced, risks need to be re-priced, where do FSCC comes in? “We feel at the FSCC that the capital market has a particular role to play (of) mitigating systemic risks.” He also said that the group’s “ability and commitment to look at the inter-linkages between markets, transactions and players, allow us to have a wholistic view of the various channels of risk so that we can intervene early… We take comfort that our financial market is strong but the key initiative of the FSCC is to make sure we remain vigilant to what may be.”