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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines, at the Induction of the Board of Directors & Gen. Membership Meeting of the Bank Marketing Assoc. of the Philippines (BMAP), Manila, 6 February 2007.
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Amando M Tetangco, Jr: BSP & BMAP – continuing partnership for a stronger banking system Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Induction of the Board of Directors and General Membership Meeting of the Bank Marketing Association of the Philippines (BMAP), Manila, 6 February 2007. * * * Distinguished board of directors, officers and members of the Bank Marketing Association of the Philippines (BMAP), colleagues in the banking industry, friends, ladies and gentlemen: Good evening! First, I wish to congratulate the BMAP board of 2006 for a job well done. As your President reported, much was accomplished during the year, even as you had fun as well. Let us therefore give all of you a well-deserved round of applause. I especially thank BMAP members for your support for the National Coin Recirculation Program of the Bangko Sentral ng Pilipinas and the “Tulong Barya Para sa Eskwela” campaign. Clearly, it was a successful campaign as both the public and your banks are now more conscious of recirculating our barya. We also thank the BMAP members who provided promotional support for the campaign. Equally important, banks cooperated fully by accepting millions of coin donations and by making direct contributions to “Tulong Barya.” If we are to combine the donations raised and the production savings of the Bangko Sentral ng Pilipinas, “Tulong Barya” generated benefits worth P13 million for our public elementary schools! Let us therefore give another round of applause for this successful partnership between the Bangko Sentral ng Pilipinas and the BMAP! Moving forward, I am very pleased to know that the 2007 Board of BMAP is unique, and possibly a trendsetter, insofar as representations are concerned: you have universal banks (Metrobank and RCBC), commercial banks (Security Bank, PBCOM, Phil. Veterans), a thrift bank (World Partners Bank), a government bank (DBP) a private development bank (Plantersbank), an ATM consortium (Bancnet) and, for the first time, a rural bank (Green Bank in Mindanao)! I am confident therefore that BMAP, in 2007, will be able to implement its programs in a more comprehensive and responsive manner. To us at the Bangko Sentral ng Pilipinas, this is good news indeed. As one of several core organizations in the banking sector, BMAP’s continuing advocacy for banking reforms and for strengthening consumer information and protection….is certain to strengthen our partnership in working toward a responsive and globally competitive banking system. With the economy on the rise and savings rate on the upswing, this is the perfect time for BMAP members to take the lead in ensuring that marketing of bank products and services are done in accordance with the good governance tenets of fairness, accountability and transparency. You and I know a bad egg can unfairly spoil and soil the well-guarded reputation of banks. It is imperative therefore that BMAP does its share in policing its own ranks in accordance with the standards set in your brainchild that is the “Service Code for Consumer Banking in the Philippines.” This is the only way we can sustain public confidence in the banking system. As BMAP itself said: “bank-client relationship is based on mutual trust, and fair banking practices produce optimum results for both parties. Therefore, adherence to high service standards remains to be the primary concern of members of the banking industry.” I hope therefore that BMAP will sustain its efforts in providing truthful, useful information, and responsive service to its clients. I am pleased to note that some of our recommendations are being implemented by some banks. For instance, several ATM machines now indicate its fees before a transaction is initiated. I hope that within the year, we would see all ATM machines doing the same. As a public service, I also recommend that all banks and its branches prominently display in their premises the names and contact details of bank officers they can call or write to for concerns that remain unattended. I say this because the Bangko Sentral ng Pilipinas has been receiving more and more complaints against banks which do not respond to their queries or request for clarification. Ladies and gentlemen of the banking community. Listen to your clients….take care of them…fulfill the promise of service you gave them when you marketed your products and services. You have it in you to facilitate the deepening of our capital markets by nurturing public confidence in the banking system. Economic Trends To anchor your marketing efforts, I will give you a brief overview of our economy in general and our banking sector in particular. As you all know, our economy continues to expand, with the services sector, to which banks belong, remaining as the main engine of growth, supported by the agriculture and the manufacturing sectors. On the demand side, resilient household spending and robust exports were the key drivers of growth. Other positive indicators are the strengthening peso; the steady decline in inflation – 3.9% as of January 2007; and generally stable food prices. Fundamental improvements in the fiscal sector resulting from higher revenue collections and prudent spending have been instrumental in shaping this much better economic picture. The external sector likewise significantly improved, with overall balance of payments (BOP) yielding a surplus of US$3.7 billion in 2006. In addition, gross international reserves (GIR) rose to a new recordhigh level of US$23 billion as of end-December 2006 on the back of strong dollar inflows from overseas Filipino workers remittances and from foreign investments. Banking system performance These positive economic trends augured well for the sustained growth and stability of the banking system. Financial indicators as of end-November 2006 revealed key strengths of the banking system: doubledigit growth in resources and deposit base; strong capital position; and enhanced profitability. We also achieved positive results in the ongoing asset cleanup in the banking system. The level of non-performing loans (NPLs) in the banking system as of November 2006 was at P171 billion, an almost 50 percent reduction from its peak of P306 billion in December 2001. Consequently, NPL ratio of the banking system further improved to 7.3 percent. Meanwhile, non-performing assets (NPAs) have dropped to 7.8 percent after peaking at 14.6 percent in December 2001. This improvement in asset quality was complemented by a steady increase in provisioning for probable losses, demonstrating banks’ resolve to strengthen their balance sheets. We also saw an expansion in lending activity in 2006, with total loan portfolio increasing by 8.4 percent year-on-year to P2.0 trillion as of end-November 2006. Given its intrinsic function as an intermediary of funds, the banking system should continue to be at the forefront of channeling resources to the productive sectors of the economy that can, in turn, provide a solid basis for a more balanced and sustainable economic growth. With these sound fundamentals as base, we can look forward to brighter prospects for the banking system in 2007. Nevertheless, let me emphasize that these prospects also rely heavily on the banking system’s sustained ability to rise to the challenge of a rapidly changing financial landscape. While the profitability of the banking sector has been on the rise, these are not exactly easy times for the banking industry. Given an increasingly integrated financial world, the banking system is up against a scenario that, on the one hand, holds fresh opportunities and on the other, presents a myriad of complex challenges. Policy directions Ladies and gentlemen of the BMAP. This year, the banking system’s flexibility to adapt to market changes will again be put to the test. That means you have a lot of work to do. We are in for another hectic agenda as we move onward with our task of implementing substantial reforms that would ensure basic safety and soundness and promote greater efficiency of the banking system. Foremost in our agenda is the ongoing asset cleanup in the banking system. We are now implementing the second phase of the cleanup process as an aftermath of the approval of the twoyear extension of the SPV Law in May 2006. To date, asset disposition under SPV II has reached 31 billion, involving the sale/transfer of NPAs to SPVs. In the coming months, we expect more transactions to be completed as an estimated P51 billion of applications are now in the pipeline. Equally important in our reform agenda is our continuing initiative to upgrade domestic prudential standards in line with international best practices, specifically in the areas of corporate governance, risk management and capital adequacy. A highly anticipated development is the forthcoming transition to Basel II in July 2007. Unlike the existing BSP risk-based capital adequacy framework, the new Basel II-based framework will not only focus on the computation of the appropriate level of capital given a certain level of exposure, but will also highlight the need for more market disclosures by banks on their risk management exposures and practices. Preparatory regulations have been laid down to ensure a smoother implementation of the Basel II framework. Another major policy thrust of the BSP is to foster a strengthened environment with the full implementation of consolidated and risk-based supervision. The aim is to provide a more comprehensive assessment of the policies, processes, personnel, and control systems of banks rather than on regulation compliance audit. We believe this is a more dynamic and forward-looking approach that is more compatible with modern banking practices. This is being complemented with enhanced regulations on risk management as a way of developing appropriate standards suited to banks’ risk-taking activities. These include: (1) guidelines for the development and implementation of banks’ internal credit risk rating systems; (2) guidelines on the supervision by risk; (3) guidelines on technology risk management; and (4) guidelines on market risk management and liquidity risk management. Another related issuance of the BSP is the revision of the prompt corrective action (PCA) framework. The aim is to encourage banks to take early action to align capital with actual risk exposures, implement business improvement measures through better risk management and strengthen corporate governance. We will also carry on with our task of fostering the development of our financial markets through support for various legislative measures, such as the creation of a centralized credit information system. A centralized credit information system will further strengthen our efforts to improve the quality of financial information available to investors, enhance private sector access to credit, and minimize exposure to risks of financial intermediaries. On other key fronts, the BSP will also give priority to the development of the domestic capital market, in partnership with the private sector and other government agencies. We will continue to work toward creating a sound market infrastructure, enhancing transparency and market discipline mechanisms, promoting greater investor protection, and supporting the passage of key legislative measures. As supervisor of the banking system, the BSP is also deeply committed to ensure there is adequate consumer protection when it comes to banking and other related financial services. In fact, we remain steadfast in promoting financial literacy nationwide. Our primary objective is not only to enhance awareness of the basic consumer rights but also the inherent responsibilities of all market participants. Hence, we have been conducting briefings for special interest groups and local authorities in selected provinces. Let us therefore work together on more projects to promote financial literacy. Meanwhile, our internal capacity building initiatives included the creation of a “Consumer Affairs Unit” in our Supervision and Examination Sector to have a more focused, efficient and consistent handling of consumer complaints. However, to more directly address the problems, we strongly encourage banks to strengthen their customer care efforts and be more responsive to your clients in dealing with their issues. After all, goodwill is the long-run key to your success as financial institutions. As bank marketing professionals, we will be relying on your continued assistance in promoting greater consumer protection and upholding financial literacy in the banking system. As the umbrella organization of bank marketing professionals, BMAP is expected to be at the forefront of these initiatives. These reforms all form an integral part of the BSP’s continuing reform agenda geared toward further strengthening the financial sector and improving overall confidence in the banking system. Ladies and gentlemen of the BMAP, we are counting on your support in reaching this goal. We can do no less in ensuring the continuous development of our country and in improving the quality of life of all Filipinos. Again, my congratulations to BMAP. Maraming salamat po sa inyong lahat. Mabuhay!
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Inspirational message by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the induction of ARBEX Officers, Central Bank of the Philippines, Makati City, 21 February 2007.
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Amando M Tetangco, Jr: Meeting the challenges of a rapidly changing supervisory and regulatory landscape Inspirational message by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the induction of ARBEX Officers, Central Bank of the Philippines, Makati City, 21 February 2007. * * * Fellow Central-Bankers, good afternoon! I am pleased to be your inducting officer and guest speaker on this important occasion. First of all, let me congratulate the incoming officers of ARBEX led by Mr. Alexander G. Cera. I commend the sustained united efforts of your Association in promoting goodwill and understanding among bank examiners as well as in enhancing the well-being and dignity of your members. Noteworthy also are your initiatives aimed at spearheading development programs and activities directed towards the active support of good governance and other related programs for nation building. Let me also take this opportunity to encourage you to continue to face with vigor and passion the challenges that we all have to face in the rapidly changing supervisory and regulatory landscape. Being the primary supervisor and regulator of banks, we continue to promote safety and soundness of the financial system by providing effective and efficient bank supervision and regulation. This is consistent with our policy objective of maintaining a stable and efficient financial system. We are now in the mid-to-end-stream of transition from the traditional approach to the new globally accepted best practice risk-based approach to supervision and examination of financial institutions, which is designed to sharpen the supervisory focus on areas that pose the greatest risk to banks. The shift will allow for a more effective assessment and evaluation of the adequacy and effectiveness of the risk management system of the banks. You, as examiners, therefore, are challenged to further raise the level of your knowledge in risk-based supervision and improve your skills in conducting risk-focused examination. Rest assured that the Management is doing its part by providing adequate technical trainings like the structured training for the examiners and other trainings being offered through the BSP Institute to equip you with sufficient knowledge and skills in performing your job. The regulatory reforms in central banking are inevitable across all categories of banks. While these reforms look overwhelming, with your dynamic support, we will be able to attain our objectives. Moreover, with the commitment of the ARBEX leadership and cooperation of all the members, you will be better equipped to face the challenges ahead. As you strive to enhance the well-being and dignity of your members and improve their professional status, you also magnify the values essential in attaining the BSP vision and mission. Let us therefore join hands as we embrace the changes in the way world-class central bankers perform their tasks! Thank you and good day!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Central Bank of the Philippines, Makati City, 20 February 2007.
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Amando M Tetangco, Jr: A tipping point and a rising tide is lifting up the Philippine economy Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Central Bank of the Philippines, Makati City, 20 February 2007. * * * Thank you Rene. Ladies and gentlemen, welcome and good afternoon. Last year, the Government set out to “make things happen” and in the end, as you all know, it did. Many positive things happened. And while I wish I could be publicly swept up by what former Fed Chairman Alan Greenspan famously called "irrational exuberance," in my button-down role as Central Bank Governor, I have to settle for "rational exuberance" instead! I'll leave any irrational comments to others who feel less constrained… but let me say this… 2006 was a good year, and 2007 promises to be even better. I believe our economy has reached a tipping point and, to mix metaphors, the rising tide will lift up, not capsize, our boat. With some of the most stable macroeconomic fundamentals we have seen in a decade, including a much improved fiscal position, single digit rate of inflation with a downward trajectory – despite volatility in oil prices – a healthy external position, a strong peso and a substantial level of foreign exchange reserves, the rising tide of economic and fiscal reforms paired with sound monetary and external sector policies will continue to lift the boat of the Philippine economy. Last year, these efforts earned us five credit rating outlook upgrades, double digit growth in portfolio and foreign direct investment and new heights for investor confidence. Most importantly, it is a clear sign that we are on our way to achieving further economic progress that will benefit domestic and foreign investors alike. But the tide has not been raised enough to benefit all sectors of our economy. Our goal for 2007 is to build on our macroeconomic strengths to allow a broader base of the economy to experience the positive impact of our economic gains. But the Government’s efforts alone are not enough. As reflected in the theme of this year’s economic briefing, ensuring the sustainability of economic momentum is a shared responsibility between the public and private sectors. This collaboration should focus on the exchange of new ideas to propel our economy forward, which is why we have invited business leaders to join us today in an open discussion to explore the areas where we can work together to build a stronger nation. But actions speak louder than words. We call on the Philippine business community to take a bigger stake in the country’s development. …Build on the reform platform and favorable economic environment that we have worked hard with the Government to create by taking the next steps where entrepreneurial dynamism drives greater economic gains. In summary, economic and fiscal achievements in 2006 have created a positive momentum for our country. A consistent implementation of reform measures by the Government, particularly in the area of revenue generation and debt and expenditure management, coupled with a stable monetary environment and healthy banking sector, will support the government’s fiscal, growth and other macro and microeconomic targets for 2007. The tide is rising and I believe it will continue to do so for some time. Now we must all row together in the same direction to ensure steady progress and a forward direction, even if the currents try to move us in a different direction or hinder our forward progress. We have a unique opportunity to make sure the tipping point lifts the boat, not tips it over. I am confident we are sailing in the right direction. Thank you.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Regional Experts' Consultation Meeting "Overcoming Obstacles to Agricultural Microfinance in Southeast Asia", Manila, 1 March 2007.
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Amando M Tetangco, Jr: Overcoming obstacles to agricultural microfinance Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Regional Experts’ Consultation Meeting "Overcoming Obstacles to Agricultural Microfinance in Southeast Asia", Manila, 1 March 2007. * * * President Corazon Aquino, Dr. Balisacan, distinguished resource persons, special guests, and participants to the Regional Experts' Consultation Meeting on "Overcoming Obstacles to Agricultural Microfinance in Southeast Asia." Good morning. It is a distinct honor to be part of this Consultation Meeting to discuss and identify strategies to accelerate the development of agricultural microfinance in our part of the world. In a region like ours where the agriculture sector continues to have a significant impact on our economy and the lives of our people, this Consultation Meeting is indeed most welcome, and necessary. In the Philippines, the agriculture sector accounts for 20% of our Gross Domestic Product, employs around 40 percent of our country's labor force, and provides most of the food requirements of our total population of 86 million. Given its importance, policies and programs continue to be crafted and implemented to support and transform our agriculture sector into a modern, productive, efficient, and competitive sector. In 1975 for instance, Presidential Decree 717 was issued to ensure the flow of credit to the agriculture sector. In particular, it mandated banks to set aside 25% of their loanable funds for agricultural agrarian reform credit. For a number of years, bank compliance to this law exceeded 25% of their loan portfolio. This changed with the implementation of the Agrarian Reform Program, as the profile of farm land ownership shifted from vast tracts of land held by a few owners, to many small landholdings owned by numerous farmers. Thus, while the number of credit transactions increased with more farm owners, the size of the loans was significantly smaller. For small farm owners, as well as landless agricultural workers, microfinance is the key to acquiring much-needed working capital. In the Philippines, microfinance services are provided mainly by banks, NGOs and cooperatives. The national framework for regulation, which encompasses all types of microfinance institutions, focuses on portfolio quality, outreach, efficient and sustainable operations, and transparent information. The basic premise of the framework is that all deposit-taking institutions, particularly banks and cooperatives, are subject to prudential regulation, while microfinance NGOs which collect savings greater than the compensating balance should be subject to regulation and supervision. Circular 272 issued January 2001 by the Bangko Sentral ng Pilipinas provided the enabling policy and regulatory framework for microfinance in the banking sector. Parallel to this, Bangko Sentral mounted capacity building programs and sustained information campaigns. Microfinance has flourished since then. Today, 223 banks are involved in microfinance with a combined loan portfolio of about P4 billion lent out to over 660,000 borrowers. Nevertheless, there is still much more that we can do. It is fitting therefore that we are addressing the obstacles to gaining access to agricultural credit through microfinance, a methodology and technology that has been proven successful. It is important to remember that the success of microfinance is anchored on the following fundamental principles: First, microfinance is typically linked to households and their microenterprises. The household is seen as one with diverse activities and multiple streams of income and expenditures. Microfinance therefore looks at the regular cash flow of the household and the microenterprise – not the loan use, in determining the size, term and repayment structure of the loan. As a result, microfinance loans are primarily short term loans with frequent repayments. Second, microfinance loans are characteristically used for additional capital to grow an existing business. The loan amounts are not very large. Some microfinance institutions even use a growth-loan process where the clients start off with a very small loan and can only access larger loans incrementally after showing a good repayment record. This has been proven successful in mitigating risks and in establishing credit discipline among the borrowers. There are several other basic principles of microfinance, but I have focused on these 2 characteristics as they are the features that seem fundamentally incongruent to the financing needs of the agriculture sector. In particular, cash flow lending and frequent repayments do not fit the seasonal nature of agricultural incomes. In addition, short term financing, as well as the relatively small loan amounts, result in a lack of term financing which is important to particular types of agricultural activities. The risks for both types of financing are also very diverse. Agriculture finance bears unique risks such as price and yield risks. Having said this, it does not mean we are dismissing the possibility of combining some of the best practices of microfinance with salient features of agriculture finance to create a product that addresses the needs of the agriculture sector, specifically the poor farming households. Definitely, there is room for complementation. First, many clients of microfinance are also engaged in agriculture activities. In the Philippines, it has been proven that those who are involved in small agricultural activities also manage other forms of enterprises. These agricultural workers usually maintain microenterprises to meet consumption needs and other short term expenses of the household. In this regard, microfinance may be extended to this worker, with some modifications on the proven methodology and technology of microenterprise lending. For instance, traditional client selection using character and cash flow analysis… may be supplemented by technical criteria relating to the particular agricultural activity. This way, the selection process is more attuned to the intricacies of the household, its microenterprise, as well as its agricultural activity. Second, the basic feature of flexibility in microfinance can be similarly applied to agriculture finance. Flexibility in terms of repayment schedules, delivery channels and even collateral requirements is very important. Some microfinance institutions that have successfully catered to the agriculture market have created flexible repayment schedules and payment options that attract a wide range of agricultural activities. Clients are still expected to have frequent repayments with the option of having a certain percentage of the loan as bulk payment. While these schedules take the crop cycle and produce sales into consideration, they still emphasize that repayment is expected regardless of the results at the end of the crop cycle. Flexibility in delivery channels can also be very beneficial for agriculture finance. Microfinance institutions, both in the bank and non-bank sector, continue to expand their branching networks, thereby enhancing access to finance. Innovations in technology are also increasing delivery channels for microfinance. In the Philippines, for instance, the development of mobile phone banking and electronic cash platforms have provided the opportunity for both enhanced access and lower costs. Finally, flexibility insofar as collateral requirements is also an option for agriculture finance. Microfinance institutions have proven that collateral substitutes such as group guarantees, peer pressure or even the use of personal property have been effective in reducing reliance on traditional capital and in ensuring repayment. This may be studied further to see what arrangements could be flexible, yet prudent enough for agriculture loans. Risk mitigating factors that are applied by microfinance institutions such as portfolio diversification, inclusion of savings and insurance products may also be effective for agriculture finance. It is important that we remain innovative and open to new ideas to see where we can introduce further refinements that we could apply for the agriculture sector. Nevertheless, it is equally important that we continue to be prudent in the use of microfinance in the agriculture sector which has its own intricacies, uniqueness and particular risk profile. The Bangko Sentral approved the Micro-Agri Product last year is a case in point. With this, we have allowed banks with microfinance operations to extend credit to those with small agricultural activities using microfinance methodologies. In doing so, these micro-agri loans are given the same regulatory treatment as microfinance loans, even as we set parameters to ensure that risks associated with agriculture finance are properly managed. With this initiative, we expect to see more banks serve the unmet needs of small farmers. Indeed, we at the Bangko Sentral ng Pilipinas continue to find more and better ways of providing access to credit to our agricultural farmers and workers. We are therefore looking forward to the success of this Consultation Meeting so that our respective countries will be able to facilitate the growth and development our agriculture sector. In this manner, we shall meet the food requirements of our people and uplift the quality of life of our agricultural workers. Thank you and good morning to all of you.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 13th Meeting of the World Savings Bank Institute Asia-Pacific Regional Group, Manila, 15 March 2007.
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Amando M Tetangco, Jr: Migration, remittances, economic development and the role of banks Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 13th Meeting of the World Savings Bank Institute Asia-Pacific Regional Group, Manila, 15 March 2007. * * * Distinguished organizers led by Mr. Jose Antonio Olavarrieta Arcos of the World Savings Bank Institute, WSBI Asia Pacific Group President Mr. Asvinvichit, Mr. De Noose, Chairman of the Management Committee, Undersecretary Jun Paul of the Department of Finance, guests and participants to the 13th Meeting of the WSBI Asia-Pacific Regional Group, good morning and to our foreign guest, welcome to the Philippines! I must say that the decision of WSBI to hold this year’s meeting in our country is most timely indeed, given the conference theme “Economic Development and Migration: A new Challenge for Savings Banks.” I therefore congratulate the Philippine Postal Savings Bank headed by its Chairman, Justice Lapeña, and its President & CEO Rolando Macasaet for taking the lead in hosting this event. Indeed, migration and remittances are significant factors in our economy. According to the World Bank, the Philippines ranks fifth globally in terms of remittances received from its overseas workers. The World Bank report was based on 2004 figures, with India reported to have received $22 billion, China $21 billion, Mexico $18 billion, France $13 billion and the Philippines $10 billion. Latest available data from the Bangko Sentral ng Pilipinas indicate that in 2006, remittances of overseas Filipino workers coursed through banks reached a record high level of $12.8 billion. Another $1.2 billion was estimated to have been remitted through informal channels. The total amount is equivalent to 10.9% of our Gross Domestic Product! This is a huge resource that offers a lot of opportunities. The increase is due mainly to higher deployment of Filipino workers, abroad more and more in the skilled and professional categories, and a more aggressive campaign to encourage a greater number of overseas workers to channel their remittances through our banking system. To our banking sector in general and savings banks in particular, remittances averaging $1 billion a month from our 8 million overseas Filipinos represent tremendous opportunities. As of Sept 2006, for instance, the country’s 85 thrift banks had total deposits of roughly $6.1 billion, up 19.8% from the year ago level. This is about 15% of consolidated deposits of the banking sector. If our savings bank can capture more deposits, it will have more funds for lending, and have better opportunities to improve its profitability. The first challenge for our banks, therefore, is to find innovative and more cost-efficient ways to provide financial services as well as to expand their network and upgrade their infrastructure to reach an even greater number of our workers and their beneficiaries. Most of our workers’ remittances come from the United States, Saudi Arabia, Canada, Italy, the United Kingdom, Japan, the United Arab Emirates, Hong Kong, Singapore, and Taiwan. So far, so good. Banks and non-bank remittance companies have been heeding our challenge to have faster, safer and more efficient remittance delivery. In fact, the Philippines is credited to have launched one of the world’s first mobile phone-based remittance service. Specifically, we now have improved platform for remittances through the adoption of advanced systems and new technologies such as internet/on-line banking, phone banking and through short messaging. Furthermore, we now have enhanced and expanded financial products and services including bills payment arrangements, international money/cash cards, remittance network expansion, as well as new correspondent remittance agreements with host countries. To promote the efficient delivery of competitively-priced remittance services by banks and other remittance service providers, the BSP issued a circular requiring banks and non-bank financial institutions to post the charges for their various remittance products, including classification of costs. This disclosure requirement also provides the necessary information for the worker or his/her beneficiary to make a more informed decision in bank selection. The OFWs as bank clients also benefited from the improvements in the country’s payments and settlement systems, such as the full interconnection of the three major automated teller machine (ATM) networks; and the continuing approval by the Bangko Sentral of alternative mechanisms for sending money, such as SMS-based applications for remittances. The interconnection of the three networks facilitates greater accessibility as more ATMs can now serve the withdrawal needs of depositors. More importantly, it reduces the cost of transactions since it eliminated fees associated with the use of international “switch” to connect the three networks. Moving forward, our goal is to have further improvements so that we will have a remittance system based on transparency, efficiency, security and fair prices. The second challenge for our banks is to help in the national effort to encourage overseas workers and their beneficiaries to channel a higher percentage of their money to deposits and other productive activities possibly linking this to microfinance and small enterprise lending. As other speakers mentioned earlier, there is a full range of banking services that can be offered to overseas workers and their families. In line with its ongoing advocacy programs, the Bangko Sentral is undertaking a nationwide financial literacy campaign to help channel remittances to development activities and to promote a culture of saving among OFWs and their families. The financial literacy program emphasizes the importance of savings and introduces the participants to alternative opportunities for their remittances, such as placements in financial instruments and investments in business ventures. In summary, the Philippine central bank’s initiatives to further improve the environment for overseas Filipino workers’ (OFWs) remittance flows will continue to be anchored on five principles, namely: 1. enhancing transparency and promoting competition in the remittance market to lower remittance charges; 2. improving the country’s payments and settlement systems to facilitate faster, safer and more efficient transfer of funds to beneficiaries; 3. improving access to financial services; 4. encouraging OFWs and their families to increase savings and investments; and 5. promoting advocacy programs to cultivate financial literacy among OFWs and their families. Ladies and gentlemen. The BSP recognizes the valuable contribution of OFWs in expanding the foreign exchange available for meeting the economy’s requirements, as well as the efforts of institutions that help improve the remittance environment, including remitting banks, private remittance companies, and other government agencies. We are therefore looking forward to a fruitful exchange in this meeting of the WSBI to help us provide better, faster and more cost-efficient services to our overseas workers who have helped empower our countries to grow at a healthy rate, on a more sustained basis. May you have a successful conference and a happy stay in our country. Thank you all and Mabuhay!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the First Gen. Membership Meeting of the Trust Officers Association of the Philippines (TOAP) for the year 2007, Manila, 30 March 2007.
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Amando M Tetangco, Jr: Trust reforms – positioning the business for growth Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the First General Membership Meeting of the Trust Officers Association of the Philippines (TOAP) for the year 2007, Manila, 30 March 2007. * * * Distinguished directors and members of the Trust Officers Association of the Philippines; fellow bankers, special guests, friends. Good evening. The invitation of TOAP President Ma. Lourdes de Vera declared that you are adopting the Hawaiian theme tonight. I was also advised that if I chose to come in my usual business attire, I will be given a lei. Naturally, I became curious. I remembered this wise woman who said: When a man brings his wife flowers for no reason, … there’s a reason. Tonight, you chose to bring the full bloom of flowers to this ballroom. Clearly, this is a celebration! Well …, if the practitioners in our trust and fund management industry are celebrating, then we at the Bangko Sentral are here to congratulate you. TOAP has been … and continues to be… a dependable partner of the Bangko Sentral in promoting the development of our financial system…and in upgrading the quality and variety of financial services to the public. This is the reason why I readily accepted your invitation for me to join you in your first general membership meeting this year. In particular, I appreciate the fact that our trust practitioners specifically requested that I discuss banking reforms as they relate to the trust industry. But first, I shall give you an overview, so that you can appreciate the context of our reform agenda. Economic prospects and financial stability We are all witnessing a markedly more positive sentiment on our economy as manifested in higher investment flows from abroad into both direct equity and portfolio securities. Not surprisingly, domestic investor activity has likewise perked up. These developments have re-energized our domestic financial markets. To a major extent, the phenomenon is being driven by global liquidity conditions, relatively benign global capital markets and generally stable world economic conditions. These factors have made international investors more willing to look at a broader array of investment opportunities, outside of the traditional favorites. But it is also true that smart money does not get into markets if the fundamentals are not right. So, what are the positive things that investors are seeing in the Philippines today? Well, you and I know that foremost of these is the sea-change in our fiscal management. Fiscal discipline, prudence and political will….have made a fiscal turnaround possible and a balanced budget attainable within two years. Investors also appreciate our ability to keep the lid on inflation and maintain expectations well anchored….even in the face of challenges posed by volatile oil prices, unpredictable weather conditions affecting food supply, and periodic shifts in global market sentiment. Already, headline inflation has dropped to less than 3 percent, boosting our credibility to achieve our medium-term inflation targets in a consistent manner. The significant strides in micro-level structural reforms have also not gone unnoticed in such critical sectors as power, transport and communications, agriculture, and of course, services including banking and financial services. In banking, much progress has been made to clean up the stock of non-performing assets that built up since the 1997 Asian financial crisis…. and banks have stepped up the pace in their re-capitalization efforts. Operational improvements have likewise been introduced to strengthen risk management processes and to achieve more efficient operations. As a result, domestic bank balance sheets are stronger than they have ever been since 1997 and profitability has been restored. All of these developments are generating a positive chemistry that goes hand-in-hand with windfall gains from our ever-growing remittance flows and robust merchandise exports. This combination has resulted in unprecedented surplus in both the current account and overall balance of payments, record-setting international reserve levels, and…. external debt pre-payments. If we continue to play our cards right, I believe there is a good chance that we can sustain this happy convergence. For BSP, the emerging challenge to monetary management and prudential supervision is the steady delivery of financial stability, even as domestic liquidity growth may temporarily accelerate under benign fundamentals that we now have. We realize that the economy itself is undergoing structural change. Therefore, we are conscious that our policy reaction should not be dogmatic. The financial community that watches every move of the BSP must understand this evolving dynamic, carefully analyze the situation, and not irrationally contribute to any potential instability. Having said that, there are guideposts that remain clear. One is the principle of avoiding conditions of prolonged negative real interest rates that distort investment and consumption signals. The BSP is very focused on this issue and is committed to adjust its policy settings, its instruments, and its tactics with agility…… as circumstances warrant. I hope these general remarks on emerging economic prospects and the challenges they pose to BSP…. are useful to your own decision-making processes. As professional managers and advisers to the public on the management of their steadily growing stock of financial savings, you play critical economic roles, in your own right. As interest rates moderate to lower level equilibrium, they will be in search of alternative ideas with acceptable return…. versus risk profile. This is apparent in the way deposits have grown vis-à-vis trust accounts in the last five years: a growth rate of 47% for trust accounts versus 61% for deposits. As of end-2006, banks reported P3.8 trillion deposits liabilities vs. P860 billion trust accountabilities. In that sensitive role, you share the responsibility to educate the investing public on the nature of their potential choices and to uphold the integrity and stability of our evolving domestic financial markets. After all, this is the ultimate foundation of investor confidence in these markets. This brings me to the subject of the reform agenda that we believe can move the trust industry to even greater heights…. and allow it to take its rightful place in our financial system. The harsh lessons of the bond and equity market sell-off in May 2006 that hit hard UITFs should not be so readily forgotten. Yes….there has been significant recovery since then, for those who held their ground as markets rebounded as expected,…. but it cannot be denied that investors who panicked got hurt from that unfortunate episode. On hindsight, the initial rapid expansion of UITFs amid the exuberance of the time….swept in investors who were not prepared for the higher attendant risks that are the natural corollary of higher returns. Yes, all the essential warnings were there both in regulations and in customer documents that were duly signed. But it is equally clear, we still have some work to do in weaning “investors” from a depositor mind set and form more realistic expectations….if we are to develop the domestic capital market as the second major pillar of our financial system. Recent developments make us more confident of a bright future for our domestic capital market and the important role to be played by the trust industry. This includes the final approval by Congress of the long-awaited PERA bill which provides generous tax incentives to encourage individuals to voluntarily set-aside long-term savings: up to a maximum of P50,000 per year over their working life, up to at least age 55 to supplement their retirement income. This is a great opportunity and challenge for the trust industry to design product choices that conform faithfully to the laudable objective of this new law. Further, the improving economic prospects also set the stage for progressive liberalization of our foreign exchange regime to allow for greater flexibility in overseas investing. This should provide professional fund managers the necessary room to maneuver the diversification of their portfolios and to access a richer variety of qualified assets…. for the benefit of their customers. Ladies and gentlemen. The reform agenda must be pursued vigorously…. if we are to secure the opportunities. At the financial market level, the BSP is closely collaborating with key market players through their respective industry associations, as well as with our fellow regulators particularly the SEC…..to achieve more transparent and investor-friendly markets. It is in this context, that we welcome the recent launch of the new government securities benchmark system that can promote fair price discovery, more effectively. We expect the trust industry to work within this new system so we can achieve full transparency and comparability of performance. The new benchmark should also assist in properly valuing debt securities and other financial products like derivatives, repos, as well as securities borrowing and lending arrangements… and thus promote their acceptability to the market. As the galaxy of available domestic capital market assets expands and the market deepens….it is the trust industry that will be a clear winner. We are also working hard to constantly improve the payments and securities settlement systems. It is basic that we aspire to fully achieve efficient DVP settlement in all securities transactions…. in line with global standards in the area. This is critical to both investor protection and market stability. We also need to work closely to reform the trust industry itself. In that spirit, we are devoting dedicated resources at the Bangko Sentral… through our newly formed trust supervision group…to work closely with TOAP. Their priorities include (1) basic trust department operating standards; (2) risk management guidelines; (3) trust department rating system; (4) specialized examination procedures; and (5) improvements to UITF regulations. At a more fundamental level, we are also reviewing the basic governance arrangements of the trust department….as an entity within the bigger banking organization….to minimize potential conflicts of interest, while preserving natural business synergies. This includes a closer look at the composition of the trust committee and a clearer articulation of their duties and responsibilities for good governance. Also in scope are the qualifications of trust officers and the proper definition of their duties and responsibilities. The basic operating standards are designed to ensure consistency in the administration and operation of trust and other fiduciary business and investment management activities to better promote investor protection. The standards cover significant areas of trust operations and set forth the minimum array of procedures – from account acceptance to termination, aimed at further professionalizing business conduct across all practitioners. On the other hand, the risk management guidelines will be formulated to identify, manage, and control specific risks in the trust business. In tandem with the basic standards, the risk management guidelines will enjoin trust entities’ total adherence to the cardinal principles of prudence and utmost care. A rating system for the trust unit… analogous to the CAMELS rating system for bank proper....is being formulated to independently assess their performance, given their special fiduciary responsibilities. To tie everything up, new specialized examination procedures are being drafted for trust operations…. to basically align these with the risk-based approach and to incorporate compliance with the basic standards and risk management principles. Finally, the UITF regulatory framework will be reinforced to cover the following: (1) improved certification program for UIT marketing personnel; (2) additional guidelines to standardize UIT performance reporting for marketing purposes; (3) enhanced risk disclosures and client suitability profiling; (4) updating of major template documents like the declaration of trust to incorporate amendments to the regulatory framework; and (5) corporate governance structure of UITs such as the possible separation of trustee and fund manager functions or alternatively, the strengthening of present combined function arrangement….as these matters have evolved in global best practice. Ladies and gentlemen. All these trust reforms are building blocks that should help us nurture a truly competitive and dynamic trust industry that is responsive and supportive of a growing economy. This we owe to our country and our people. Let us therefore take heart that even as we continue to face challenges…the opportunities ahead give much promise, especially to those who will adhere faithfully to the tenets of good governance. Remember: fairness, accountability and transparency. On this upbeat note, I greet you all…. Aloha! Thank you all and good evening.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the MOA signing on the DepEd-BSP-EPRA Financial Literacy Project, Manila, 12 April 2007.
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Amando M Tetangco, Jr: Nurturing financially literate Filipinos Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the MOA signing on the “DepEd-BSP-EPRA Financial Literacy Project, Manila, 12 April 2007. * * * Secretary Jesli Lapus, Dr. Cielito Habito, our partners from the Department of Education and EPRA, special guests from the Bankers Association of the Philippines and the Chamber of Thrift Banks, fellow central bankers. Magandang umaga po sa inyong lahat! On behalf of the Members of the Monetary Board, I thank our partners at the Department of Education and EPRA for sharing our goal to teach money management to our elementary students and to transform them into net savers. Specifically, our program involves the incorporation into the elementary curriculum lessons in saving and money management, as well as the values of pagka-masinop (prudence/avoiding waste), pagkamatipid (thrift), and pag-iimpok (saving). A survey indicating that less than 5% of our youth regularly save money lends urgency to our program. If we can turn the tide with our present crop of elementary pupils, this will have long-term benefits for them and, ultimately, our country. Add to this the potential influence they can wield in their homes and in their communities as change agents. Actually, there are other initiatives that are underway under our Economic and Financial Literacy Program. In particular, the Bangko Sentral is at the forefront of a money management program for OFWs and their families; microfinance for the entrepreneurial poor; continuing economic and financial education for journalists; and consumer protection for bank customers. We are also set to establish economic and financial literacy centers in BSP offices in the province. Of course nurturing a new generation of savers and financially literate adults entails a lot of work and unflagging commitment from all of us. For this, we need all the help we can get. This is the reason why we at the Bangko Sentral are very pleased that no less than the heads of our principal partners are here with us this morning. Ladies and gentlemen, let us give a big hand to the Honorable Secretary of Education Jesli Lapus who is known for his ability to transform institutions and their human resources into models of excellence! Let us also give a round of applause to our other hardworking partners from the Department of Education! Bigyan din po natin ng masayang palakpakan si former Socioeconomic Planning Secretary Dr. Ciel Habito who continues to be deeply involved in making our country a better place! Palakpakan din po natin ang ibang EPRA representatives who are here. We are also pleased that we have with us today representatives from the Chamber of Thrift Banks headed by Executive Director Suzanne Felix; and the Bankers Association of the Philippines represented by its Executive Director Topper Coronel. Let us also give our banker guests a big hand for they continue to work with us closely on our economic and financial literacy programs, including our successful and award-winning “Tulong Barya Para sa Eskwela” project. Ladies and gentlemen. “Tulong Barya Para sa Eskwela” generated more than P6.5 million in cash donations for public elementary schools and savings of more than P8 million for the Bangko Sentral. This national lesson in saving proved beyond any doubt to our school children, that every little amount we can save will eventually add up and even be the start of wealth creation! As our slogan says: “Ang Barya Mahalaga, Lalo na Kapag Pinagsama-sama.” With the incorporation of money management into the elementary curriculum, we move to the next step and formalize the education of our children on this vital subject. Indeed, today marks a high point in our continuing program to educate and inform our people on basic economic and financial concepts. Again, thank you to all our partners and to all others with us today who share our commitment to economic and financial literacy programs. Together, let us help Filipinos manage their personal finances well, transform them into net savers and help them identify options that can ultimately lead to wealth creation. Maraming salamat po sa inyong lahat! Mabuhay ang mga Pilipino!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 75th anniversary of Credit Management Association of the Philippines, Manila, 19 April 2007.
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Amando M Tetangco, Jr: Harnessing credit for a better life for all Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 75th anniversary of Credit Management Association of the Philippines, Manila, 19 April 2007. * * * Senator/Governor/Sec. Joey Lina, President Marlo Cruz, ladies and gentlemen of the Credit Management Association of the Philippines, special guests. Good morning. On behalf of the Bangko Sentral ng Pilipinas, I congratulate the Credit Management Association of the Philippines on its diamond anniversary. There are few organizations that can claim such longevity. This is, indeed, admirable! And while your organization may be old, your members definitely are not. I believe that your longevity is due to a clear vision of what your organization can and should do. As President Marlo earlier mentioned, your organization was officially incorporated as the Association of Credit Men (Phils.) Inc. in 1932, exactly seventy-five years ago today, when our country was still under American rule, and our population was roughly about 15 million. Since then, the Philippines has won its independence; your association has changed its name to the Credit Management Association of the Philippines – a recognition of the equally important role women play in credit management; while our population has multiplied 5 ½ times to 84 million! Through all these changes, CMAP’S reason for being has remained constant: credit information exchange. It is a tribute to your founding fathers’ vision that they identified this vital cooperative undertaking very early in our economic history. With the significant growth of our economy since then, and the associated demand to finance it, effective credit management has become today’s imperative to sustain our country’s development. For this, we need a comprehensive and unified approach to credit information. This is the reason why the Bangko Sentral ng Pilipinas is a strong supporter of the proposed legislation that would create a centralized credit information bureau that will provide comprehensive information on credit histories. As envisioned, this centralized credit information bureau will improve the quality of financial information available to creditors; enhance credit access of institutions and individuals; lower interest rates and facilitate loan processing particularly for borrowers with good credit record; minimize exposure to risks of financial intermediaries; and lower intermediation costs that will benefit both the creditors and the borrowers. A recent World Bank study covering 51 countries showed that having a credit bureau resulted in the following: First, a marked increase in the volume of lending, particularly to previously excluded sectors like the micro, small and medium enterprises. It said that with a credit bureau, the probability of a small firm obtaining a bank loan increased from 28% to 40%; and Second, lower default rates from stronger credit discipline. In Brazil, for instance, complete reporting of credit information lowered default rates from 3.37 percent to 1.84 percent. In the Philippines, a centralized credit bureau could further reduce non-performing loans, which as of last February stood at 5.6 percent for universal and commercial banks. Clearly, a credit information system that will generate such benefits will boost our country’s economy and our global competitiveness. I find it fitting therefore that the theme for your 27th National Credit Congress is “Credit Management: Key to Philippine Global Competitiveness.” Ladies and gentleman. As of February this year, total outstanding loans of commercial banks, thrift banks and rural banks have reached P1.97 trillion. Compared to a year ago, this is higher by 7.7 percent. Considering that our country’s economy, as measured by Gross Domestic Product, is targeted by the government to increase by 6.1%-6.7% this year, it is likely that demand for loans will continue to rise as well. Economic growth drivers are expected to be exports, agriculture and the services sectors. Relatively low borrowing rates should also spur demand for loans, housing included. Access to credit is an important element of economic development. The Bangko Sentral therefore is committed to the “democratization” of credit to ensure fair access to credit by all sectors of our economy – from blue-chip companies, to the man on the street, to start-up micro-enterprises. Ladies and gentlemen. One of the challenges before us is to ensure that our microenterprises gain more access to credit. Already, we have made big strides in encouraging banks to do microfinance. Today, more than 200 banks are providing microfinance services to over 650,000 micro borrowers, with a total loan portfolio of over P4 billion. If we factor in the microfinance activities of cooperatives and NGOs, nearly two million Filipino households now enjoy access to microfinance services. Nevertheless, with millions of Filipinos still living in poverty, we have to work harder and faster in terms of empowering our entrepreneurial poor. There is one important lesson we have learned from microfinance: our borrowers may be poor, but they have good paying habits! Repayment rates for microfinance loans in the Philippines are hitting as much as 98%! Nobel Peace Price awardee Muhammad Yunus of Bangladesh is another case in point. If you recall, Mr. Yunus parlayed his microfinance model into the successful Grameen Bank, with a total loan portfolio of $6 billion for 7 million borrowers. In other words, he has proven repeatedly… that the entrepreneurial poor are bankable. He said: “Conventional banks look for the rich; we look for the absolutely poor. All people are entrepreneurs, but many don't have the opportunity to find that out.” Providing credit access to SMEs is another challenge. According to the UPS survey of SME competitiveness in Asia, Philippine SMEs consider access to funding and working capital as obstacles to their competitiveness. I hope therefore that CMAP will find ways to help address these concerns. On our part, we at the Bangko Sentral ng Pilipinas have launched electronic rediscounting to spur lending activities down to the countryside and also to lower transaction costs of banks. With eRediscounting, banks may conduct their rediscounting transactions with the BSP in an online, realtime basis from their own bank premises. At the same time, the system allows BSP to process rediscounting applications within 10 minutes, release loan proceeds on line, and accept online payments for banks’ rediscounting obligations. In addition, the BSP is advocating the passage of the Corporate Recovery Act to update the Insolvency Law by putting in place procedures for liquidation, and thereby strengthen the framework for quick resolution of financially-distressed enterprises. This should balance the rights of creditors visà-vis debtors. I hope CMAP will support this as well. Another area for cooperation with CMAP is financial education. In this regard, I am pleased to inform you that the Bangko Sentral and the Department of Education are principal partners in the incorporation of money management in elementary curriculum. The earlier children can learn about money management, the better. The Bangko Sentral is also conducting money management seminars for OFWs and their dependents. We believe that learning the basics of money and credit management can help Filipinos make smart decisions that will transform them into net savers and investors, fostering in the process, a more selfreliant and more efficient economy. I hope therefore that consumer education will be an important agenda item in CMAP’s program as well. Ladies and gentlemen. CMAP’s celebration of its diamond anniversary, brings to mind how diamonds have evolved into symbols of wealth, strength and staying power. It is my hope that CMAP will take on these characteristics of diamonds so that it will continue to play a pivotal role in helping bring about a better life for our people, in our country. Again, our congratulations! Mabuhay ang CMAP! Mabuhay ang Pilipino!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the Microentrepreneur of the Year Awards Program, Manila, 11 May 2007.
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Amando M Tetangco, Jr: The 5th Microentrepreneur of the Year Awards Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the Microentrepreneur of the Year Awards Program, Manila, 11 May 2007. * * * Magandang umaga po sa inyong lahat! Ladies and gentlemen. The video we just watched and the inspiring message of our 2006 National Winner Ms. Jennilyn Antonio serve as further validation of the power of microfinance to liberate people from poverty and to transform them into industrious and self-reliant microentrepreneurs. These are microentrepreneurs who overcome challenges to become employers themselves and in the process become agents for economic development in their respective communities. Again, let us give them a big hand! Today’s event is special therefore as this is a gathering of our microentrepreneurs and advocates of microfinance, including the members of the board of judges of the Citi Microentrepreneur of the Year Awards, representatives from the Microfinance Council of the Philippines headed by Ms. Mila Mercado-Bunker, executives of Citi – Mr. Sanjiv Vohra and Mr. Robert Morse, fellow central bankers, my colleagues at the Monetary Board, our guests from the media, and other special friends of the microfinance sector. This is the fifth Microentrepreneur of the Year Awards (MOTY) and the third time I am participating as co-Chairman of the National Selection Committee. Together with the other members of the board of judges, I have had a front row seat, so to speak, in watching microenterprises evolve and develop in various ways, in the different parts of our country. I have also seen this Awards program evolve and improve in accordance with its objectives of recognizing outstanding microentrepreneurs and highlighting the role of microfinance and entrepreneurship in poverty alleviation and economic development. Now, we have higher prize awards, more nominees, wider geographical representation and new award categories. Credit for this goes to Citi, the Citi Foundation, the Microfinance Council of the Philippines and the Bangko Sentral ng Pilipinas. Friends, let’s give them a well-deserved round of applause! Much like this Awards program, the microfinance industry in the Philippines also continues to evolve, grow and break new grounds. At the Bangko Sentral, the challenge is for us be responsive to the changing demands of the industry, specifically in areas of policy, supervision and regulation. Last year, for instance, the Bangko Sentral approved the Micro-Agri Product (MAP) to address the financing needs of small farmers. Under this program, banks with microfinance operations are allowed to extend credit to clients with small agricultural activities using microfinance methodologies. In effect, these micro-agri loans are given the same regulatory treatment as microfinance loans, including the no-collateral provision. Nevertheless, while the Bangko Sentral is open to innovations, it continues to be prudent as the agriculture sector has its own unique intricacies and risk profile. Accordingly, we have set in place certain parameters to ensure that risks associated with agriculture finance are properly managed. There is also growing interest in providing housing microfinance and even micro-insurance, using microfinance methodologies and technologies. For instance, one of the country’s leading microfinance institutions – the Center for Agriculture and Rural Development or CARD – has formed a Mutual Benefit Association which offers micro-insurance to over 300,000 clients. This is yet another tool that minimizes vulnerabilities from poverty. I have been informed that the Insurance Commission has recognized CARD for its significant contribution in increasing the number of insured Filipinos. In addition to product development, the microfinance industry is also working on more efficient delivery channels to lower costs and increase its reach. One delivery channel that is gaining much interest is the use of mobile phones for selected microfinance transactions. Through electronic cash platforms – such as Smart Money and Globe G Cash – mobile phones are able to make payments and transfers, send remittances, or make purchases. This bears much potential for a country like ours…where the mobile phone sector serves practically all income groups and where the number of mobile phone users and usage are among the highest in the world. New technologies present a unique opportunity to reach a wide range of clients including the lower income segments of our population, who are traditionally marginalized and “unbanked.” For instance, the Rural Bankers Association of the Philippines-Microenterprise Access to Business Services (RBAPMABS) has a joint project with Globe Telecom to provide banking services using the G-cash platform. At present, select banks are offering products such as Text A Payment and Text A Deposit. These products allow clients to pay their microfinance loan amortizations and make deposits without going to the bank branch or waiting for the field collectors. Indeed, this is a revolutionary solution for low value payments which has dramatically lowered transaction costs for both the bank and the client, increased the productivity of account officers, decreased cash-on-hand risk, and increased access to financial services. Through all these innovations, the regulatory focus of the Bangko Sentral is to ensure the underlying soundness of banks with appropriate risk management measures. In this regard, the Bangko Sentral has set in place the necessary regulations and procedures that cover electronic banking risk management, security procedures, internal controls, anti money laundering and consumer protection. We have even created, within our Supervision and Examination Sector, a Core Information Technology Supervisory Group to keep abreast of the latest developments in electronic banking. Together with the BSP’s liberalized branching regime, these technological innovations should enable banks to widen their reach to unserved and underserved clients in both rural areas and urban areas. Another positive development is the increasing participation of large commercial players in the microfinance industry. More and more commercial banks and social investors are seriously looking at providing loans, equity, or assistance to retail microfinance institutions. These new linkages and partnerships should lead to a wider range of products, broader distribution systems, development of local currency capability and ability to hedge foreign currency by MFIs, capital market development for microfinance, and finally put microfinance in the economic mainstream. At the Bangko Sentral, we continue to explore ways to strengthen and sustain these partnerships. Among others, we conduct networking meetings between commercial banks and retail institutions. And just two weeks ago, the Monetary Board approved the classification of commercial banks’ microfinance loans to non-bank microfinance institutions as alternative compliance to the mandatory credit allocation of 6% to small enterprises. This is a significant incentive for banks to provide wholesale loans that will increase the microfinance operations of retail institutions. Indeed, exciting developments are happening in the Philippine microfinance sector, indicative of the dynamism and creative energy that have characterized it in the last few years. Those of us who have seen the microfinance sector evolve and grow, are justifiably proud of where it is today. We have witnessed hope grow in the midst of poverty, seen lives change for the better, and communities grow in the process through the transformative power of microfinance. I am pleased to report to you that as of December 2006, total outstanding loans of 212 banks to more than 650,100 microfinance borrowers had exceeded P4 billion. Also as of December last year, these borrowers had accumulated modest savings averaging P2,000 (two thousand pesos) each or a total of about P1.4 billion! But, ladies and gentlemen, you and I know there is still so much more that needs to be done. Millions of Filipinos still live in poverty, without access to financial services that could empower them to better their lives. There is therefore an urgency to sustain our momentum, to bring microfinance to where it is needed the most, and thereby make a difference in uplifting the quality of life of our entrepreneurial and industrious poor. In this regard, we thank all those involved in the Microentrepreneur of the Year Awards for providing our future microentrepreneurs the hope, and the inspiration, that they, too can have better lives with their families and with other members of their community through microfinance. Mabuhay ang Microfinance! Marami pong salamat sa inyong lahat.
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Opening remarks by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), at the Eighth Environmental Scanning Exercise: Basel II and Risk Management, Central Bank of the Philippines, Manila, 6 June 2007.
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Amando M Tetangco, Jr: Basel II and risk management in the Philippines Opening remarks by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), at the Eighth Environmental Scanning Exercise: Basel II and Risk Management, Central Bank of the Philippines, Manila, 6 June 2007. * * * Members of the Monetary Board, distinguished speakers, colleagues at the Bangko Sentral, good afternoon. This is the 8th in our series of Environmental Scanning Exercises (ESEs). For the information of our guests, it may be helpful to note that we have been holding ESEs since 2004. I would like to begin by expressing my appreciation for our speakers who will share with us their insights on the topic of Basel II and Risk Management. The implementation of Basel II is expected to have significant implications on the stability of the banking system as well as the conduct of monetary policy. In particular, the new capital adequacy standards under Basel II should lead to enhanced financial stability as banks are able to: (1) provide capital commensurate to their risk-taking activities; (2) properly assess the risks they are taking while supervisors should be able to evaluate the soundness of these assessments; and (3) appropriately disclose pertinent information. In turn, the greater resiliency in the banking system is expected to increase the credit and lending activities of banks and thus contribute to a more efficient transmission of monetary policy actions. Our discussion today is meant to provide inputs for the assessment of policies that could help improve the banking system’s risk management processes and efficiency as well as provide a leverage to stimulate the diagnosis of, and improvements in, the supervisory framework. I take a special interest in today’s topic for two main reasons. The first reason is that next month will mark the beginning of the process of aligning our existing supervisory framework with the standardized approach of Basel II by Philippine banks, which is a shift in bank capitalization standards approved by the Monetary Board in June 2006. This makes true our expressed commitment to be among the countries that are expected to implement Basel II between 2007 and 2010 . The implementation of Basel II sets a new dimension in the supervision of the financial system. This is a major step in the groundwork for the revision of risk-based capital adequacy framework of the BSP, some of the initial preparations of which started even before the Asian financial crisis. Moreover, we are aware that our effectiveness as supervisor of banks is as important as the skills available in the banks to implement Basel II. Hence, we have invested heavily in enhancing our supervisory capacity to keep up with the task. This we have done continuously and in line with international best practices. Second, this new framework is relevant to our aim of promoting and maintaining monetary and financial stability in the country. As I have stated earlier, Basel II strengthens the link between regulatory capital and risk management as it will help us ensure that banks will maintain capital appropriate to their risk-taking activities. Banks are also expected to properly assess and manage the risks. Moreover, banks would be required to disclose pertinent information necessary to enable market mechanisms to complement the BSP’s supervisory oversight function. These intensified efforts to deepen and accelerate the evaluation, measurement, and disclosure of risks under Basel II are expected to strengthen the financial system. In this regard, risk management is consistent with the greater transparency and forward-looking nature of Inflation Targeting (IT), which is the monetary policy framework that the BSP has been using since 2002. As in the IT approach, a wider set of information and disclosure requirements are used to enhance risk management. There is also more emphasis on anticipation of risks over a longer horizon and on greater sensitivity to market views. As a major channel for monetary policy, a stable financial system is a necessary condition for inflation targeting to work well in this country. Let me now pose some questions that our experts may want to consider for discussion. 1. What are the key challenges encountered by commercial banks in their preparations? 2. What are the implications of the new supervisory framework on intermediation activities of banks and their financial stability, government borrowing, investment and capital flows, and the conduct of monetary policy? 3. Will Basel II increase procyclicality as there are arguments that adopters may tighten credit standards in response to rising capital requirements in the event of a deterioration in credit conditions? Will current developments such as reserve accumulation and rising liquidity in Asia affect the adoption of Basel II in the country? 4. Will the change in the supervisory framework lead to further restructuring of the banking system through mergers and consolidations? 5. How extensive will be its impact on bank lending for the country, and for developed and emerging economies? The implementation of Basel II underscores the BSP’s commitment to deep and far-reaching reforms to promote the stability and soundness of the banking system. It also reflects our confidence in the ability of the banking industry to adapt to new operating standards. The challenges posed by these new standards will allow for the transformation of bank practices over time, and thus, provide greater financial resiliency and sustainability in the economy. I am confident that banks will, beyond compliance, remain supportive in their stance to facilitate a more collaborative implementation of Basel II as we both continue to learn and adapt. The issues tabled for discussion for today’s environmental scanning exercise are varied. I am certain that we all look forward to a fruitful discussion and exchange of insights with our speakers. Thank you.
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Keynote address by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), at the PSA (Philippine Statistical Association) Summer Conference, Central Bank of the Philippines, Manila, 5 June 2007.
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Amando M Tetangco, Jr: Overseas Filipino Workers – impact on economic and social dynamics Keynote address by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), at the PSA (Philippine Statistical Association) Summer Conference “OFWs: Bagong Bayani, Ilan Ba Talaga Kayo?”, Central Bank of the Philippines, Manila, 5 June 2007. * * * PSA President Isidoro David, MBM Valdepeñas, other officers and members of the Board of Directors of PSA, Heads of the various statistical agencies, Resource Persons and Reactors, my colleagues in BSP and fellow workers in government, sponsors, ladies and gentlemen, good afternoon. The Bangko Sentral ng Pilipinas is pleased to co-host with the Philippine Statistical Association (PSA) this year’s summer conference on the theme: “OFWs: Bagong Bayani, Ilan Ba Talaga Kayo?”. Over the past few decades, OFW deployment has had a profound impact on our economic and social dynamics. Research and statistics pertaining to OFWs are becoming increasingly indispensable in establishing and assessing these effects. It is thus critical that various agencies and institutions and producers and users alike of OFW-related statistics are convening today: first, to clarify the official headcount of OFWs, given various sets of data; and second, to provide accurate measures of OFW remittances. The best way to start our consultation today is to recognize that the onset of globalization has heightened trade and investments across countries. Equally important, labor migration and crossborder employment have also increased. As a result, both the issues of migration and cross-border remittances have attracted growing attention from a greater number of policymakers, academicians, international organizations, and market practitioners, over the years. At this stage, however, there is still a lot of ground to cover on the statistical front. We have yet to update and strengthen our database to fully satisfy the needs of policy and program formulators . How important is the information? We need to regularly monitor overseas employment as basis for policy and program formulations for advancing the cause of protecting our overseas workers and enhancing their welfare and of their families. Another key issue is the impact of international movement of persons on our demographic structures, expenditure patterns, social structures and poverty levels. Likewise, we recognize the importance of overseas employment in helping ease the pressure of unemployment and in boosting the national economy by helping increase the foreign exchange reserves. There are of course second-order effects of higher foreign exchange inflows, including the impact on the domestic currency and external competitiveness. But to me, it is fundamental to first address the current challenges and measurement issues that have very important analytical and policy bearings. This conference will hopefully help pave the way to clarify such issues. First, let us look at the statistics on the number of OFWs. Our theme for today, “OFWs: Bagong Bayani, Ilan Ba Talaga Kayo?”, suggests that we are not yet certain exactly how many are our OFWs, and more generally, how many Filipinos are overseas. Accuracy in this aspect may really be a challenge because what we want to monitor are people who are always on the move. At present, there are various agencies producing OFW-related statistics. The Philippine Overseas Employment Administration (POEA), the Overseas Workers Welfare Administration (OWWA) and the Commission on Filipinos Overseas (CFO), on the one hand, maintain statistics based mostly on administrative records as an offshoot of their functions. On the other hand, the Bureau of Labor and Employment Statistics and the National Statistics Office, have data based on labor force surveys and census of population and housing. We need to understand how these data from various agencies are interrelated. The first key question is: is there a uniform definition of what an OFW is?. For instance, in the Census of Population of Housing, overseas workers are defined as those who had been away for not more than five years from date of last departure. Do the other agencies producing OFW statistics adopt the same definition?. Is it possible to integrate and reconcile these sets of data from various sources to come up with one, uniform, comparable set of data on OFWs and overseas Filipinos?. The next question is: how are the definitions linked or reconciled with definitions in other macroeconomic statistical frameworks such as the 1993 System of National Accounts (1993 SNA) and the 5th edition of the balance of payments manual (BPM5), which adopt a one-year residency criterion for determining who are the residents of a particular economy?. What are the implications of adopting different sets of definition in our economic statistics and in economic analysis?. While there are efforts in the Inter-Agency Technical Working Group (TWG) on Overseas Filipino Statistics to formulate the operational framework, concepts and definitions for overseas Filipinos, this conference could clarify the differences in the sets of data currently available. Second, on the remittance data. We have already seen the size of OFW remittances doubling within the last five years. With its growing importance to our economy, we need to place emphasis on its accurate measurement. We are aware that remittances are by themselves already inherently difficult to measure, since they are composed mostly of numerous small, frequent transactions, carried out by a multitude of transactors through a complex structure of originating and delivering agents here are also other measurement concerns including appropriately capturing remittances of non-resident OFWs which are invested in financial instruments or physical assets such as real estate. Moreover, a certain amount of remittances still flow through informal channels, which should be measured to determine the amount of global remittances. Given the present range of remittance channels, and the expected increased complexity of the structure of service providers in the near future, accurate measurement of remittances remains a challenge for statisticians. We therefore need to collectively consider and design the best approach that will measure remittances in the most accurate and timely manner, going forward. This will not necessarily be an easy task. Even at the international level, the conventional wisdom is that there is no unique “best” source of data, or collection approach, due to the complexity of the phenomenon. Therefore, from a purely technical standpoint, a reasonable strategy would be to appropriately combine different sources and methods, e.g., bank reports data, household surveys, other administrative-based data, even econometric and demographic models, that will allow for integration, cross-checks and reciprocal confirmations. Moreover, data on remittances should not be considered in isolation from data on stock of workers and deployment of overseas workers, as well as wage rates, wage increases and inflation in host countries. At the end of the day, there have to be reasonably explainable patterns and links among these variables that will allow for more informed economic analysis, decision making and policy-making by the government. On this note, highly commend the Philippine Statistical Association for organizing this conference on the subject. We hope that this forum will serve as a catalyst for further statistical research and studies on the OFW phenomenon. We also thank the sponsors of this conference for their support. For its part, the Bangko Sentral ng Pilipinas remains committed to its objective of improving the remittance environment for the benefit of our OFWs – particularly by facilitating the reduction of remittance costs in the Philippines and in host countries, and by helping channel foreign exchange savings to microenterprises and other investment opportunities. The BSP also fully supports the statistical improvement efforts that will help ensure that the government will formulate its policy decisions based on solid statistical ground. Maraming salamat po, at magandang hapon sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching Program for the BSP e-Rediscounting System (ERS), La Union, 14 June 2007.
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Amando M Tetangco, Jr: The Central Bank of the Philippines’ e-Rediscounting System Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching Program for the BSP e-Rediscounting System (ERS), La Union, 14 June 2007. * * * Members of the Monetary Board, distinguished officers of the various associations of rural banks, other bankers, staff of the participating banks coming from La Union and other parts of Regions I, II, III and the Cordillera Administrative Region (CAR), colleagues at the BSP, distinguished guests, friends from media, ladies and gentlemen, good morning. It is indeed a great pleasure for all of us from the BSP to be here in La Union today. The members of the Monetary Board are here to witness the launch of the e-Rediscounting System and allow me to acknowledge them (again): MBM Vicente Valdepeñas, Jr., MBM Raul Boncan, MBM Juanita Amatong (who was introduced earlier), MBM Nelly Villafuerte and MBM Alfredo Antonio, Alternate Member Marge Songco. Aside from this launching of the e-Rediscounting System, the Monetary Board will also be holding its regular meeting here this afternoon. We likewise have our senior management with us: DG Diwa Guinigundo (who was introduced earlier), DG Armando Suratos, DG Nestor Espenilla, Jr. and Gen. Counsel/Asst. Gov. Juan de Zuniga, Jr. Our presence here shows the importance that we attach to understanding and getting better appreciation of local conditions so that we can respond more appropriately and effectively to the needs and requirements of the community. So let’s all take advantage of this opportunity, we’d appreciate any suggestion or feedback that you might wish to give us, perhaps over lunch. Since the unveiling of the BSP’s e-Rediscounting System in Manila in December 2006, then in Cebu City in March 2007, the banking industry and the business community have responded positively to this online, internet-based system. Indicative of their strong interest to participate, a total of 112 banks consisting of 21 commercial banks, 9 thrift banks and 82 rural banks have already qualified and participated in the e-Rediscounting System in just about five (5) months since the initial unveiling in Manila. We expect to expand the number of participating banking institutions by 7 more banks today here in La Union and by an additional 11 banks in Davao when we launch this system next month. These should bring the overall number of participating entities to 130 banks. In terms of volume of e-rediscounting loans (as of 31 May 2007), we are pleased to report that loans released by the BSP Head Office in Manila already amounted to P10.6 billion. In addition, the BSP Regional Offices had released some P700.5 million e-rediscounting loans during the period. Today’s launch of the BSP’s e-Rediscounting System here at the La Union Convention Center is expected to break new ground in BSP lending. The introduction of a real-time loan refinancing facility to help banks in La Union and in the neighboring areas of Regions I, II, III and the CAR is expected to scale up their lending capability and help pump-prime the local economy. In the process, this innovation in refinancing technology is expected to significantly improve the credit access for exporters and small, medium, and micro-enterprises in this part of the country. These liberalized rediscounting guidelines, together with the requirement under the Electronic Commerce Act of 2000 for government offices to integrate electronic data documents and processes in their transactions, provided the basis for the development of the e-Rediscounting System. The preparatory work for the paperless rediscounting scheme began in March 2006, with the issuance of BSP Circular No. 515. Aligned with the objective of maintaining price stability, new policy guidelines were established under the circular towards a more consistent, transparent, and efficient BSP rediscounting facility. The main objective of the e-Rediscounting System is the simplification, standardization, and automation of loan processes and payment procedures. The front-end system of e-Rediscounting allows qualified banks to conduct their rediscounting transactions with the BSP through the Internet. The back-end system automates the processing of loan applications, crediting of loan proceeds, debiting of the demand deposit accounts of banks with BSP for loan payments and generating account entries– all in less than 10 minutes. This paperless rediscounting facility allows banks to file or send loan applications and payments with the BSP on a real-time basis, and is a landmark improvement from the manual system which takes at least three days to process before the loan proceeds are released to borrower-banks. At this point, let me take this opportunity to thank the officers of the pilot and participating banks. They have made their resources available in the conduct of the test runs of the system and have provided us important information in the process. Equally essential in the smooth operations of the e-Rediscounting System is the participation of the officials and staff from the BSP, particularly from the Department of Loans and Credit and the Information Technology Sub-sector. Ultimately, our shared vision is to deliver fast, adequate, and affordable credit to the public, particularly to our small- and medium-sized borrowers from the countryside. I am confident that this vision is now more attainable with the help of the business and banking sectors as collegial partners of the BSP. Working together towards the realization of this vision, we become more mindful of our common goal, which is to promote the sustained and robust growth of the economy. This we endeavor to attain by empowering each and every Filipino as enterprising and dynamic agents of overall economic growth. Thank you and good day.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the celebration of the Rural Banking Industry's 10 Years of Success in Microfinance under the RBAP's MABS Program, Manila 13 June 2007.
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Amando M Tetangco, Jr: RBAP-MABS – providing wider and deeper access to microfinance Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the celebration of the Rural Banking Industry’s 10 Years of Success in Microfinance under the RBAP’s MABS Program, Manila 13 June 2007. * * * Hon. Secretary Cerge Remonde, Ambassador Kristie Kenney, General William Hotchkiss, members of the Rural Bankers Association of the Philippines, fellow central bankers, special guests, good morning. On behalf of the Bangko Sentral ng Pilipinas, I congratulate the rural banks, the USAID, and other enabling institutions represented here today as we celebrate ten years of success in providing microfinance services under the Microenterprise Access to Banking Services Program. Indeed, the RBAP-MABS partnership is a successful empowering program that continues to bring much needed financial services to clients in the countryside. For a country like ours where roughly 99% of total enterprises are micro, small and medium enterprises or MSMEs, which in turn employ about 70% of our workforce, a successful program such as MABS is bound to have a significant impact. Beginning with the first loan disbursed by the Rural Bank of Sto. Tomas ten years ago, MABS banks have since disbursed more than a million loans to over 350,000 borrowers, spurring the growth and development microenterprises and, in the process, transforming lives and communities for the better. Surely, we should celebrate milestones such as this. At the same time, this ten-year milestone compels us to assess how we can deliver appropriate microfinance services in an even better and more cost-efficient manner to more of our country’s entrepreneurial poor. Fortunately, recent developments in the industry are opening new opportunities and presenting us with interesting possibilities that can lead to revolutionary ways of providing better microfinance services. First among these developments is the changing face of microfinance itself. Gone are the days when microfinance was synonymous only to microcredit or small loans. Today, microfinance institutions are providing a wide range of financial services to their clients such as savings, remittances, transfers and, increasingly, micro-insurance. In addition, microfinance institutions are also capitalizing on proven technologies and methodologies of microfinance to conceptualize, design and deliver other types of financial products. One example of such product is the micro-agri product, or MAP, which was designed and pioneered by the MABS member banks present here today. You recognized the possibility of combining the best practices of microfinance with the salient features of agricultural finance, to develop a product that is responsive to the needs of the agriculture sector, specifically the poor farming households. The Bangko Sentral supported this innovation and, after a thorough product evaluation, allowed microagri loans to be classified as microfinance loans. In so doing, micro-agri loans today enjoy the same benefits as microfinance loans… including no collateral requirements, cash flow and character based lending, small and frequent amortizations, as well as simple documentary requirements. Through MAP, therefore, we have addressed the hurdle typically faced by small farmers when accessing financial services to grow their production and expand their economic activities. Advances in technology are also providing new vehicles for the delivery of microfinance services. The use of mobile phones in select microfinance transactions is a specific example. Once again, our rural banks are at the forefront of this undertaking, developing a revolutionary solution for low value payments that characterize microfinance loans, through linkage with electronic cash platforms of telecommunication companies. In fact, as of end March 2007, there were already 43 rural and cooperative rural banks offering electronic banking services particularly mobile phone banking. This lowers transaction costs, increases productivity, minimizes cash-on-hand risk, and increases over all accessibility of financial services. In a country like ours where mobile phone usage is one of the highest in the world relative to population, the potential for revolutionizing electronic banking in the countryside could be dramatically significant. In fact, a concept paper of the MABS and Globe Telecom outlining the expansion and rollout of mobile banking applications to microfinance clients of MABs participating banks has been selected for support under the Consultative Group to Assist the Poor Technology Program. The President of the Global Development Program at the Bill and Melinda Gates Foundation said that by “… supporting pilots with new technologies that have the power to dramatically change the business model of delivering financial services, we can help expand access to financial services for hundreds of millions of poor people.” As proposed, the mobile phone banking applications will convert mobile phones into “virtual wallets” for receiving and paying loans, depositing and withdrawing money, sending and receiving remittances, purchasing and selling goods and services and making bills payments. The MABS-Globe Telecom proposal was one of nine selected from more than 70 projects submitted from 38 countries. Nevertheless, even as the Bangko Sentral is responsive to these new developments and technological innovations, it continues to ensure that attendant risks are properly managed. Thus, the Bangko Sentral has set in place the necessary regulations and procedures that cover electronic banking risk management, security procedures, internal controls, anti money laundering regulations, know your client requirements, as well as consumer protection. We have even created, within our Supervision and Examination Sector, a Core Information Technology Supervisory Group (CITSG) to keep abreast with the latest developments in electronic banking. In parallel with the BSP’s liberalized branching regime, these technological innovations should enable banks to widen and deepen its reach to unserved and underserved bank clients in both rural areas and urban centers. There are other products using microfinance methodologies and technologies that are gaining interest. In our case, we at the Bangko Sentral ng Pilipinas are reviewing the provision of housing microfinance, which can boost the financing needs of the low cost housing sector. Finally, we recognize the increasing participation of large commercial players in the microfinance industry. We are seeing commercial banks and social investors providing loans, equity or assistance to retail microfinance institutions. These new linkages and partnerships should lead to a wider range of products, broader distributions systems, development of local currency capability and ability to hedge foreign currency by MFIs, local capital market development for microfinance, and finally put microfinance in the economic mainstream. At the BSP, we are looking at various ways through which these partnerships can be fortified. We have conducted networking meetings between commercial banks and retail institutions; we have also responded positively to requests from various interested parties to learn more about the intricacies of microfinance operations. And late last month, we issued Circular 570 which recognizes microfinance loans of commercial banks to non-bank microfinance institutions as alternative compliance to the mandatory credit allocation of 6% to small enterprises. This is an important incentive for banks to provide more wholesale loans that will increase the microfinance operations of retail institutions. Indeed, exciting developments are happening in the microfinance sector. I am pleased to note in particular that MABS banks have kept in step with the dynamism that has characterized this industry in the last decade. Together, you have achieved much; but you should not rest on your laurels. We still have a long way to go in terms of reaching out to many more of our entrepreneurial poor. The challenge for rural banks, therefore, that are at the forefront of our microfinance movement, is to further widen and deepen the reach of microfinance to liberate our industrial entrepreneurial poor from poverty. This challenge can be surmounted by strong and vibrant banks that are committed to continuously upgrade their capacity, uphold performance standards, and adhere to best practices at all times. Key areas of governance, efficiency, risk management, sustainability and quality of operations should be continuously developed and strengthened. This should lead to sound and well-managed institutions that can take advantage of market opportunities while adequately managing associated risks. In this regard, MABS banks seem well positioned to take on this challenge. Anchored firmly on your commitment to sustainable microfinance, we have seen how your policy of zero tolerance to delinquency, emphasis on adequate internal controls and investments in systems and human capacities have resulted in positive gains for your member banks. On the part of the BSP, we will continue to look at ways in which banks can have a wider scope for their microfinance operations. We will remain responsive to the changing demands of the industry by maintaining a positive enabling policy and regulatory environment for microfinance. In addition, we will continue with our major reforms toward a more robust financial system and in fostering greater competition aligned with international standards within our banking sector. Our regulations will continue to focus on critical areas of strengthening board and institutional governance, improving bank’s balance sheets and upgrading risk management systems. We at the Bangko Sentral look forward to continuously working with RBAP to achieve our common goal of local economic development by creating opportunities for entrepreneurship, nourishing local enterprises and building prosperity in the countryside through microfinance. Thank you all and good morning. Mabuhay ang microfinance!
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Opening speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2007 Awarding Ceremony for BSP Stakeholders, Bangko Sentral ng Pilipinas, Manila, 4 July 2007.
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Amando M Tetangco, Jr: The cornerstones of a thriving economy Opening speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2007 Awarding Ceremony for BSP Stakeholders, Bangko Sentral ng Pilipinas, Manila, 4 July 2007. * * * Members of the Monetary Board, distinguished guests; heads, chief executive officers and personnel of our partner firms; my colleagues at the BSP; ladies and gentlemen: Magandang umaga po sa inyong lahat! On behalf of the members of the Monetary Board as well as the men and women of the Bangko Sentral ng Pilipinas, I thank all our stakeholders, the media, and other special guests for joining us this morning. Today, we give recognition to our partners from the business and government sectors who regularly invest time and effort to provide complete and reliable information to us. These are vital statistics and information that guide the Bangko Sentral ng Pilipinas in formulating appropriate and timely policies and programs. Indeed, one cannot overemphasize the importance of having complete and accurate information as basis for making decisions that can significantly affect a big number of our people. In fact, the cornerstones of a thriving economy are reliable, timely and complete information. Otherwise, it would be garbage in, garbage out. Gaining public recognition for the importance of statistics and information that we produce, monitor and disseminate therefore is a continuing undertaking with you as our information providers. I am pleased to report that the dividends from our partnership have been highly encouraging. Among others, this partnership has allowed the Bangko Sentral to be forward-looking and information-intensive in the formulation of monetary and financial policies. As a result, we have been doing quite well insofar as our monetary policy is concerned. In fact, even as oil prices are hitting historic high levels, we manage to tame inflation at low and stable rates: in June 2005, for instance, our inflation rate was 7.6%; last May, it had dropped to 2.4%, a level comparable to those in developed countries. It is also significant to note that even as we continue to experience solid and broad-based economic growth, we have been able to keep the lid on inflation, maintained interest rates at low levels, and the peso stronger. Meanwhile, the Bangko Sentral this year gave a grant of P50 million to the export sector to enhance its competitiveness; this is our second grant to the export sector. I am also pleased to report that our banking system continues to strengthen, while our domestic capital market continues to develop and deepen as a result of our reform agenda. Ladies and gentlemen, these happened because your cooperation as information providers empowers the Bangko Sentral to craft responsive policies that, in turn, benefit you as well. In other words, we have good synergy at work here. For this reason, we are committed to elevate our partnership with you to a deeper engagement, to include consultations on your needs, both as data providers and users of official statistics. This is the fourth year of our Stakeholders Awards Program which rewards best respondents to BSP surveys such as the: 1) Business Expectations Survey; 2) Cross Border Transactions Survey; 3) Foreign Direct Investment Survey; and 4) Coordinated Portfolio Investment Survey. Our Awards Program also recognizes exporters that generate significant net foreign exchange earnings, as well as commercial banks that facilitate the reporting and inflow of overseas Filipinos’ remittances. This year, the BSP will start giving awards to institutional partners that provide valuable information support for the BSP’s analysis on monetary developments and policies. I am also pleased to report that two survey respondents who are three-time awardees will be elevated to the Hall of Fame. They become our first Hall of Famers. Our awardees will receive trophies, aptly given the name “Ambition”, that symbolize our partnership and joint commitment to foster a better economic environment for our country. To the awardees, our congratulations. To all our stakeholders, we thank you for your continuing support and cooperation for the Bangko Sentral ng Pilipinas and our economy. Remember, our partnership is a critical element in weaving the success story of our country’s balanced and sustained economic growth. Marami pong salamat. Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 14th Anniversary, Bangko Sentral ng Pilipinas, Manila, 3 July 2007.
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Amando M Tetangco, Jr: The BSP @ 14 – moving with the power of one in the service of the Filipino people Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 14th Anniversary, Bangko Sentral ng Pilipinas, Manila, 3 July 2007. * * * Members of the Monetary Board, fellow central bankers, special guests. Magandang umaga po at maligayang anibersaryo sa inyong lahat! We are celebrating the 14th birthday of our institution. Kaya naman, dapat bati-in muna natin ang Bangko Sentral ng Pilipinas ng malakas at masayang, Happy Birthday!!! Ladies and gentlemen of the Bangko Sentral, there are, indeed, many reasons why we should be happy. Ang pinaka-mahalaga po dito ay ang matagumpay nating pagtupad sa ating tungkulin bilang central bankers ng ating bansang Pilipinas! To be objective about it, let us evaluate how we performed on the basis of each of the three pillars of central banking. First, on monetary policy. Did we have a responsive and effective monetary policy? In the last two years, we sharpened our inflation targeting framework and stayed true to our mandate to maintain price stability. We enhanced our capacity to analyze information, increased transparency in our communication with markets, and aligned our policy framework with international norms. By any standard, we did quite well insofar as our monetary policy is concerned. In fact, even as oil prices breached record high levels, we managed to tame inflation at low and stable rates: In June 2005, our inflation rate was 7.6%; last May, it had dropped to 2.4%, a level comparable to those in developed countries. Second, on banking supervision. As the central monetary authority of the country, our responsibility is to provide pro-active leadership to bring about a “strong financial system conducive to a balanced and sustainable growth of the economy.” Effective banking supervision as well as responsive policies and programs are key to this task. Overall, we continue to perform well in this regard. The banking system has been projecting overall soundness: better capitalization; lower non-performing loans; steady expansion in deposits; and better profitability resulting from more efficient bank operations. For instance, return on equity of banks moved up to 10.6% in 2006, compared to 8.8% in 2005. In addition, bank lending is now expanding at double-digit rates. Beyond banking reforms, the BSP has also actively promoted the development of the domestic capital market to provide alternative and more diversified funding sources for the economy’s growth requirements. Our efforts to promote microfinance also continues to bear fruit. Latest available data indicate that outstanding loans of banks engaged in microfinance have reached P4 billion spread out to around 650,000 microentrepreneurs. Even more uplifting is the fact that industrious microentrepreneurs have become bankable, transforming into savers that have accumulated more than P1.4 billion in bank savings! Third, on our payments and settlements system. The Bangko Sentral has been operating a real-time gross settlements system – which we call PhilPass – that continues to efficiently serve the country’s growing financial system. The value of transactions handled by PhilPaSS was P54 trillion in 2005, doubled to P122 trillion in 2006, and is set to reach a new record this year, if the first quarter figure of P48 trillion is annualized. Our PhilPass therefore is a vital infrastructure for ensuring the credibility and continuous development of our financial sector. In other words, fellow central bankers, in spite of some lapses and omissions, we did quite well overall, in terms of our principal mandates. In addition, continuing profits allowed us to remit, as of May 31 this year, P2.5 billion in cash dividends to the National Government. Of course, all these did not happen by chance. We were successful because we maintained our focus, we were committed to do our best, and we were united in serving our key stakeholder – the Filipino people. Such is the Power of One. Fellow central bankers, let us therefore give a big round of applause to the members of our Monetary Board! the Executive Management Sector! the Monetary Stability Sector! the Resource Management Sector & the Security Plant Complex! and, finally, the Supervision and Examination Sector! Ladies and gentlemen of the Bangko Sentral. Our economy continued to grow in 2006 and expanded by 6.9% in the first quarter of this year, the highest in 17 years! This record growth was accompanied by a strong peso as well as historic low inflation and interest rates. We can rightfully claim, therefore, part of the credit for our sustained economic growth. In fact, the positive performance of the Bangko Sentral ng Pilipinas has been rightly recognized and commended by third parties. Among others, the Bangko Sentral continues to top the Makati Business Club survey of top performing government agencies; the GSIS gave us an award to recognize Bangko Sentral’s pioneering advocacy of good governance; the International Association of Business Communicators gave us an award for communications management for our advocacy program “Tulong Barya Para sa Eskwela”; and in the annual assessment of central bank governors by Global Finance of New York, we received a rating of A minus, one of only six given an A rating. These are clear milestones. Nevertheless, this should not give us cause for complacency; rather, this should inspire us to work on our goal to become a world-class monetary authority so that we can provide even better service to our country and our people. But how do we get there? The answer to this question was forged at the Strategic Planning Conference held two weeks ago. We agreed to set strategic objectives and key targets on how we can best respond to the needs of our stakeholders – the Government, banks and other financial institutions, business firms, foreign investors and creditors, as well as households. In the process of setting these objectives, we matched our central banking pillars with what is relevant to our stakeholders. Addressing the first pillar, we shall continue to implement a forward-looking monetary policy anchored on credible forecasts and risk assessments. With inflation targeting as our framework, we shall keep sharpening our forecasting capability through further enhancements of our inflation forecasting models and understanding better the transmission mechanism for monetary policy in a world marked by globalization and financial innovation . For the second pillar, our thrust is proactive regulation and effective supervision of banks as well as other supervised and regulated industries. We will continue with risk-based and consolidated supervision, while maintaining a flexible and responsive regulatory framework. We will also promote healthy competition in the delivery of banking and other financial services to have a wide array of financial products and services accessible to the public. We will also foster competition among banks to reduce remittance charges as well as transparency to encourage overseas Filipinos to use the banking system. We will continue to push for the development of the capital market, the expansion of microfinance, and the promotion of financial literacy. In this regard, we will continue to work on legislation that are important to the Bangko Sentral – including amendments to our charter and the Credit Information System Act. For the third pillar, we will continue to ensure that our PhilPass remains a safe, sound, reliable, and efficient payments system. We have also set strategic objectives to address BSP’s operational efficiency and maintain the public’s trust and confidence. We are of course aware of the challenges facing us on our way to achieving our objectives. For instance, inflation risks remain, in part due to relatively high liquidity growth, as remittances remain strong and growing confidence in the economy brings with it a steady inflow of foreign investments. This is the same “problem of plenty” that faces other countries in Asia. To address this, we need to be creative and use non-traditional instruments. Last May, for instance, we adopted preemptive measures to absorb liquidity. While it is too early to assess the effect of these measures, initial results are encouraging, and the inflation outlook remains benign even as the economy continues to power ahead. There is also no let-up in our campaign to encourage banks to strengthen their balance sheets through asset cleanup, capital buildup, and consolidation. This month, in parallel with other countries, the Bangko Sentral starts implementing Basel II, which requires that regulatory capital reflect the risks the banks are exposed to. We will also continue to innovate and adapt to the changing environment. For instance, electronic rediscounting has reduced processing time for credit applications of banks, including fund releases, from 3 to 5 days to just 5 minutes. We will also continue to implement our economic and financial literacy program to educate and empower more Filipinos to benefit from the opportunities economic development brings. Our program aims to cover millions of our entrepreneurial poor through our microfinance advocacy; millions of students through the integration of saving and money management in our elementary curriculum in cooperation with the Department of Education; millions of OFWs and their families on growing their money through investments or entrepreneurship; and the general public through a network of economic and financial literacy centers that the Bangko Sentral shall set up. Later today, we will have the symbolic launch of our first economic and financial center at the lobby of our Five-Storey building. Indeed, we at the Bangko Sentral ng Pilipinas have a long list of things we need to do in the service of our people. But beyond central banking, I am particularly proud of the men and women of the Bangko Sentral who have always been generous with their time and resources to help others who are in need. One central banker who exemplified this generosity of spirit and genuine concern for others was Governor Rafael Buenaventura. To honor him and the qualities that make a good BSPer, the Monetary Board has approved a donation of P5 million to the Rafael B. Buenaventura Foundation which will support early detection and treatment of indigent cancer patients. The generosity of the men and women of the Bangko Sentral is also the reason why, this morning, we are able to turn over to the Gawad Kalinga more than P3 million in donations from the hearts and pockets of BSPers. And because you have been a blessing to the Bangko Sentral ng Pilipinas, to our country, and to our people, I will now give you the good news you have been waiting for! First, we now have new facilities for BSPers and a new exhibit at our Money Museum. Please take time to enjoy all these. Second, I am pleased to announce that yesterday, the Monetary Board approved the institutionalization of an annual Performance and Salary Review in lieu of the Merit Increase Award starting 2007, with two components: Component 1 – annual one step adjustment in the salaries of all employees and officials with performance rating of at least “Satisfactory” in previous year effective January 1 of the year. Component 2 – Performance bonus in the form of a one-time cash award for those with at least “Commendable” rating in the previous year. In addition, the Monetary Board also approved the grant of two steps adjustment in salary effective 1 January 2007, in addition to Component 1 of the Performance and Salary Review, limited to the year 2007 grant. I suggest you call your friendly HR personnel to help in your computation. Ladies and gentlemen of the Bangko Sentral ng Pilipinas. One thing I can say is this: the Monetary Board and senior management will always be fair in terms of granting the compensation and benefits you deserve as central bankers imbued with the values of patriotism, integrity and excellence. Keep the faith in your management.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the opening of the Layon Exhibit at the BSP Money Museum, Manila, 3 July 2007.
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Amando M Tetangco, Jr: Layon – money as vision of a nation Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the opening of the Layon Exhibit at the BSP Money Museum, Manila, 3 July 2007. * * * Monetary Board Members, officers and directors of the Philippine Numismatic and Antiquarian Society, Mr. and Mrs. Angel Cacnio, Mrs. Fely Asuncion and other members of the Asuncion family, fellow central bankers, ladies and gentlemen, good morning. The 14th anniversary of BSP finds us celebrating on several fronts – we have new facilities, an exciting exhibit at our main building lobby, and the grant of support for various social projects. Another cause for celebration is the “coming home,” so to speak, of the designs for Philippine currency that were proposed in the 1940s to the 1950s. These never reached Philippine shores, had never been in private hands, and were seen by the public only for the first time when these were included in the catalogue of the American auction house H. R. Harmer. Interestingly enough, it was Dr. Benito Legarda, the Central Bank official who started the Money Museum, who called our attention to the auction. I therefore ask all of you to join me in acknowledging Dr. Legarda by giving him a round of applause. While Dr. Legarda cannot join us today, we are assured he is celebrating this moment with us as well. Dr. Legarda retired from the Central Bank more than two decades ago, but the central bank remains close to his heart. As they say, once a central banker, always a central banker. The Monetary Board was quick to realize the significance of these pieces in the history of the BSP and indeed, of our country, and readily approved our participation in the auction. I therefore ask all of you to join me in thanking the Members of the Monetary Board here with us today by giving them a round of applause. Canadian numismatist Douglas Andrews describes the pieces as “stunning in their use of proposed color schemes, vignettes, and different designs, many of which look contemporary even by present standards.” He considers the bound volume containing an assortment of 3,500 different trial and proof notes from the late nineteen-forties and early fifties as the largest single offering of color proof notes ever. Other currency designs in this exhibition are those made by Italian company Istituto Poligrafico dello Stato as well as by Filipino artists Angel Cacnio and Rafael Asuncion. They prove that the artistic talent of the Filipino is indeed world class, as their works join the foreign works in this exhibition. Mr. Cacnio allowed us to reproduce his designs for the exhibition, and we thank him, especially as he joins us today with his wife Mrs. Amelia Cacnio. On the other hand, Mr Asuncion has passed on, but we thank his wife Mrs. Fely Asuncion and her family for lending his works and for joining us today. The exhibition conceptualized by museologist Ino Manalo proposes that currency design embodies the vision and aspirations of a nation and its leaders. We can see in the proposed designs for instance the focus on power generation, the importance of agriculture, and excitement over the development of Mindanao. Layon, the exhibition title, refers in our native language to objectives, goals and visions. But I understand that it can also mean the deep part of the river, referring to the role of money as currency, as a current that flows through our economy and our lives. Through this exhibit, let us explore the convergence of art and the economy that is established by currency design; the relationship between currency design and the vision of national economic development. Thank you all and good morning.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the ING-FINEX Search for CFO of the Year Award, Makati, 10 July 2007.
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Amando M Tetangco, Jr: The ING-FINEX search for CFO of the Year Award – a search for inspiring leadership Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the ING-FINEX Search for CFO of the Year Award, Makati, 10 July 2007. * * * Good evening ladies and gentlemen. I am pleased to be here at the launching of the INGFINEX Search for CFO of the year. It is a matter of public knowledge that the Philippines breeds world-class finance executives. Through their vision and leadership in financial management, they create wealth for their institutions and stakeholders. This award program therefore will identify role models who can inspire and motivate financial executives to do better. In the process, we can look forward to generating an even wider pool of dynamic, internationally competitive and highly ethical chief financial officers in our country. For an institution such as the Bangko Sentral ng Pilipinas which fosters the development of a dynamic, professional and healthy financial system for sustained economic growth the launching of the CFO of the Year Award is welcome news indeed. Ladies and gentlemen. The magazine Institutional Investor said there is now growing appreciation for CFOs who transcend the traditional number-crunching, cost-controlling role and embrace responsibility for improving operations, driving revenue growth and executing big acquisitions. CFOs more and more have been called on to analyze the potential risks and returns of strategic decisions so companies can avoid critical mistakes. And as companies have sought to become leaner and less centralized, many have eliminated the position of chief operating officer, opening the door for CFOs to assume some of these critical responsibilities. This is no small matter. It is time therefore that we honor the best CFOs in our midst. On behalf of the Bangko Sentral therefore, I congratulate the organizers of this program: FINEX, ING, the AIM-Gov. Jose B. Fernandez Jr. Centre for Banking & Finance, IAFEI, the CFA Society of the Philippines. Let us give them a big hand! Let us also thank the media groups who share our belief in the significance of this award program, in alphabetical order now: ANC Business Channel of the ABS-CBN Group, Business World, Philippine Daily Inquirer and Philippine Star. Personally, I am already looking forward to meeting the first awardee of the ING-FINEX CFO of the Year! Who will it be? Is she or he in this room? A member of FINEX or not? Let’s wait and see. Again, congratulations to FINEX and ING! Thank you all and good evening. Mabuhay po ang bansang Pilipinas!
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Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Second IMF Regional Seminar on Central Bank Communications, Makati, 8 July 2007.
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Amando M Tetangco, Jr: The role of communication in ensuring effective central banking Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Second IMF Regional Seminar on Central Bank Communications, Makati, 8 July 2007. * * * Mr Ariyoshi, Mr. Reza Baqir, members of the BSP Monetary Board, distinguished speakers, fellow central bankers around the region, other officers of the IMF, good morning. On behalf of the Bangko Sentral ng Pilipinas, I bid our guests a warm welcome to our country! You have traveled far for this Second IMF Regional Seminar on Central Bank Communications. This conveys, in very strong terms, the significance you attach to the role of communication in ensuring effective central banking. No doubt, the sea changes in global finance and markets as well as in the domestic macroeconomy have posed significant effects in the conduct of monetary policy. In particular, we have seen the rapid evolution of monetary policy towards increased transparency. I share the general observation that secrecy or deliberate obfuscation are no longer the buzzwords in central banking circles. 1 In sharp contrast to the past practice of reticence among monetary authorities, greater emphasis on effective communication is now a best-practice policy among central banks around the world. In fact, in the last two decades or so, we were witness to an expansion in disclosure mechanisms employed by central banks. Moreover, there has been a dramatic change in the nature and quality of information that monetary authorities are now willing to disclose. This morning, I will share some of my thoughts on central bank communication in general and provide you with an overview of the communication strategy that we employ at the Bangko Sentral, with focus on our framework for communication with other government agencies. I. The importance of central bank communication The move toward greater transparency is a key element of good corporate governance. Central banks have become increasingly independent so there is scope for greater accountability. After all, a central bank is a public office whose policy decisions have an important bearing on the direction of the economy. Thus, the central bank should be able to clearly define its goals and provide a compelling explanation behind its policy actions. In turn, transparency allows for an honest assessment of central bank performance, given the goals it has pledged to achieve. The emphasis on better transparency practices also recognizes the idea that transparency makes monetary policy generally more effective, in part by ensuring that market expectations are formed efficiently. See for example: Blinder, Alan, Charles Goodhart, Philipp Hildebrand, David Lipton and Charles Wyplosz (2001) How Do Central Banks Talk? Geneva Reports on the World Economy 3, Geneva: International Center for Monetary and Banking Studies As central bankers, we are aware that the potency of monetary policy actions can be strengthened if markets understand the overall intention behind the central bank’s policy decision and the results it expects to achieve. Indeed, the emergence of “open mouth” operations as a policy tool outside of the traditional channels of monetary policy has been recognized by central bankers. As pointed out by Ehrmann and Fratzccher (2005): “Central banks have direct control over a single interest rate, usually the overnight rate, while their success in achieving their mandate requires that they are able to influence asset prices and interest rates at all maturities” . In the case of the Bangko Sentral, we typically adjust our overnight policy rate, when necessary, by increments of as low as 25 basis points. If we really think about it, we do not expect that such a marginal adjustment in a very short-term instrument will do the job for us. Rather, we rely on the markets to interpret our signals properly and allow for appropriate adjustments in the prices of financial assets that really matter, including the longer-term tenors. In general, central banks now avoid surprising the market since this could generate unwarranted volatility. This is where communication comes in: it increases the predictability of policy decisions and helps the market anticipate how the central bank might react to a particular situation, event or development. Indeed, good transparency practices promote greater market efficiency. For an inflation targeting central bank such as the Bangko Sentral, communication is crucial in anchoring inflation expectations. To help guide public expectations, it is incumbent upon an inflation targeting central bank to disclose its outlook for future inflation. Managing the expectations channel is, therefore, critical. Apart from influencing the market with its policy actions, communication also allows the central bank to obtain useful feedback from its stakeholders, which in turn is an important input to policy formulation. Given these arguments in favor of communication, the next critical issue is the extent of transparency. How transparent should central banks be? My view is that central banks should take a pragmatic approach to communication. While transparency is a good policy, excessive transparency could hamper the effectiveness of monetary policy and potentially harm market stability. Specifically, extensive disclosure requirements about internal policy discussions on money and exchange market operations might disrupt markets, constrain frank discussion by policymakers, or prevent adoption of contingency plans. In other words, good transparency practices should allow for flexibility to take into account country-specific circumstances. After all, there is no one-size-fits-all formula for central bank communication. II. Communication between the central bank and other government agencies Let me now turn to the importance of communication between the central bank and other government agencies. While most central banks enjoy independence from other branches of government, continuing coordination with other government agencies for macroeconomic policy formulation remains an imperative. Inter-agency arrangements should be in place to ensure consistent and coherent economic policies. After all, monetary and fiscal policies, along with other government policies, are interlocking elements of the country’s overall macroeconomic strategy. The consensus among economists and policymakers is that well-coordinated policies are integral to durable, broad-based and strong economic growth. As such, fiscal and monetary authorities, as well as other economic managers in government, should share information and be aware of their agencies’ respective policy intentions and decisions. A silo approach to government policy formulation, where one agency formulates policy on its own without consultation, does not and will not work. In fact, the absence of coordination among policymakers could undermine the credibility of the country’s macroeconomic policy. As Worrell (2000) argued in his paper: “the invariable consequence of any appearance of conflict among the authorities is an increase in uncertainty in financial markets, a loss of credibility of macroeconomic policies and an increased probability of price and output instability”. Thus, good communication with other economic managers is of prime importance in macroeconomic management. The same principle applies in the field of financial supervision. Even in central banks with financial supervision functions such as the Bangko Sentral, jurisdiction over the financial sector is often shared with other government supervisory agencies. In the Philippines, for instance, supervision over non-bank financial institutions without quasi-banking functions is shared by the Bangko Sentral, the Securities and Exchange Commission and the Insurance Commission. This underscores the need to maintain close coordination among these agencies to ensure consistency of policies, as well as access to timely and accurate information. An important caveat in communication between the central bank and other government agencies is the responsibility to respect the confidentiality of sensitive information being shared. III. The BSP’s communication strategy The Bangko Sentral, like many other central banks, continues to enhance its communication strategy to reach all its stakeholders. Our adoption of inflation targeting in 2002 served as an additional stimulus for us to work on improving our transparency practices. In dealing with the press and the market, the Bangko Sentral employs a wide range of disclosure mechanisms. One of these mechanisms is the BSP website which carries our press statements, statistical releases and our advocacies. In the area of monetary policy, a press statement is issued immediately after each monetary policy meeting. Typically, each policy statement contains the reasons behind the Monetary Board decision, along with a brief discussion on the outlook for future inflation. The highlights of our policy meetings are also made public after a predetermined lag of four weeks. The highlights were initially published with a lag of six weeks but we shortened it to four weeks, beginning July last year, to further improve transparency in monetary policymaking. We also publish a quarterly Inflation Report to document the rigorous economic analysis behind the conduct of monetary policy and inform the public of the overall thinking behind our decisions. The release of the Inflation Report for each quarter is accompanied by a briefing for the media and market analysts. In cases of a breach of the inflation target, the BSP issues an open letter to the President to account for the reasons behind it and to outline the actions that will be undertaken to bring inflation back to the target range. Further, we conduct public information campaigns across the country to foster better understanding and support for the central bank’s policies and programs. The Bangko Sentral also conducts regular dialogues with the press and periodic engagements with its various constituencies. In the Philippines, the generation of macroeconomic assumptions and formulation of government’s medium-term budget strategy is done by the Development Budget Coordinating Committee, which is composed of the Department of Budget and Management, and the Department of Finance, the National Economic and Development Authority and the Office of the Executive Secretary. The BSP used to be a member of this committee but, in recognition of its administrative and fiscal autonomy, was re-assigned as a resource institution. Under the inflation targeting framework, the inflation targets are set by the Committee in coordination with the BSP. This effectively commits the Government as a whole to the inflation target. Equally important, this ensures that our monetary policy actions remain consistent with the Government’s economic policy agenda, even as we maintain our independence. In the field of financial supervision, the Bangko Sentral has cooperative arrangements with other financial regulators. Among others, the Bangko Sentral chairs the Financial Sector Forum which includes the members of the Securities and Exchange Commission, the Insurance Commission and the Philippine Deposit Insurance Corporation It focuses on three broad areas: harmonization of supervisory and regulatory policies in the Philippine financial system; information exchange; and consumer education or financial literacy. In addition, the Bangko Sentral is in various stages of negotiations with foreign supervisory authorities for the adoption of minimum ground rules on information sharing involving crossborder financial institutions under their supervision . Through this initiative, we hope to strengthen cooperative arrangements with our foreign counterparts. Another important dimension of our interface with the government is our interaction with the Executive and Legislative branches of Government. As mandated in our charter, we submit regular reports to the President and both houses of Congress. These include a report on economic and financial conditions, a report on the central bank’s financial condition, and a review on the state of the Philippine financial system. The BSP is also required by law to report to the President and Congress any unusual movements in monetary aggregates, credit and price levels, as well as the remedial measures undertaken by the Bangko Sentral to correct them. In addition, the Bangko Sentral engages in a variety of informal interactions with the other branches of government through appearances in committee hearings in both houses of Congress and its participation in various government inter-agency committees and working groups. In other words, we invest time and resources to communicate our policies and programs with other branches of government. IV. Concluding remarks This IMF seminar, therefore, comes at an opportune time when central bank communication has emerged as a potent policy tool, rather than a mere channel to transmit information. As an institution that recognizes the significance of communication in making our operations more effective, we at the Bangko Sentral are pleased to co-host this Second IMF Regional Seminar on Central Bank Communication. This seminar should build on the IMF’s initiative, which started in Mumbai, to provide a forum to discuss emerging issues in central bank communications and gain insights from one another’s experiences. We thank the IMF and their representatives who are here with us this morning…for setting up this forum for central bank communication in this region. Finally, I wish this seminar on central bank communication will be fruitful and highly successful, not only in terms of generating fresh perspectives but also in fostering regular exchange and cooperation among the participants. Have a wonderful stay in our country. Thank you and Mabuhay!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Induction of Officers and Annual General Membership Mtg of the Bankers Inst of the Philippines (BAIPHIL), Makati City, 24 July 2007.
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Amando M Tetangco, Jr: Strengthening the foundation for effective governance Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Induction of Officers and Annual General Membership Meeting of the Bankers Institute of the Philippines (BAIPHIL), Makati City, 24 July 2007. * * * The newly elected officers and directors of BAIPHIL led by its President and BSP Assistant Governor Ms. Ma. Dolores B. Yuvienco, my colleagues at the MB (MBM Valdepeñas, Boncan, Villafuerte, Antonio) Prime Minister Virata, Gov. Laya, Gov. Cuisia, SEC Chairman Barin, members of the Institute, bank chairman, vice-chairman, presidents, other distinguished guests, fellow BSPers, ladies and gentlemen. First of all, let me thank you for inviting me to be your inducting officer and guest speaker in this year’s general membership meeting. It is an honor to be here. I am very pleased to be here today for your annual general membership meeting for several reasons. First, we at the Bangko Sentral ng Pilipinas look at the Bankers Institute of the Philippines more popularly known as BAIPHIL s our partner in strengthening our banking system through research, information exchange and education. In fact, BAIPHIL is one of only seven institutions accredited by the Bangko Sentral to conduct mandatory corporate governance seminars for bank directors. Second, the theme chosen by BAIPHIL’s new set of officers and directors for the fiscal year 2007 to 2008 echoes our own focus at the Bangko Sentral, which is: “ Enhancing Internal Governance a Continuing Journey.” Indeed, good corporate governance is a must for banking institutions, whether they are private or government. You can say that we at the Bangko Sentral walk the governance talk. While I will be the first to say that we are not perfect, it is not for lack of trying. In fact, it is a continuing topic in our planning sessions. Like BAIPHIL, we at the Bangko Sentral believe that for as long as the environment where we operate remains dynamic, there will always be room to enhance governance; it is a continuing journey with no finish line. We at the Bangko Sentral ng Pilipinas are also pleased that Assistant Governor Dolly Yuvienco has been elected President of BAIPHIL at a time when the banking sector made the crucial transition to Basel II. But before I go into the details of our ongoing corporate governance reforms, I will give an overview of the performance of the banking system before and after the Bangko Sentral institutionalized the corporate governance framework, to put things in proper perspective. Philippine banking system: an assessment Prior to the institutionalization of corporate governance reforms, the growth rates of key balance sheet accounts of the banking system were minimal at single-digit levels of about 5 per cent. Bank earnings and returns to shareholders were also moderate. In 2002, the Bangko Sentral institutionalized corporate governance within the banking system, beginning with the Mandatory Seminar on Corporate Governance and the issuance of the Bangko Sentral Handbook on Corporate Governance. Since then, the practice of good corporate governance at individual banks has played a major part in strengthening the foundations for growth and stability of the Philippine banking system. As of May 2007, key performance indicators of the banking system reflected overall soundness: double-digit growth rates in assets, deposit liabilities and capital accounts. Likewise, asset quality has significantly improved with preliminary NPL/NPA ratios of 5.8 percent and 6.6 percent, respectively, moving closer to their pre-crisis levels of 4 percent. If you recall, we had double-digit NPL/NPA ratios of 17 percent and 15 percent, respectively, in 2001. It is also worth noting that unlike our neighboring countries, the asset cleanup of our banking system did not require huge government bailouts. What we had were incentives to remove some friction costs. Meanwhile, banks remain well-capitalized with capital adequacy ratio of 18.1 percent (vs. 14.2 percent in 2001), on a consolidated basis, still above the BSP regulatory requirement of 10 percent and the international standard of 8 percent. Banks also sustained their profitability as annualized consolidated net income after tax stood at P17.3 billion. Higher bank profits likewise resulted in bigger returns for banks’ shareholders as annualized Return on Equity stood at 10.4 percent, versus 5.8 percent in 2001. In other words, the Philippine banking system remained resilient and in a much stronger position on sustained implementation of financial sector reforms. With our banks on a sound footing, the bigger challenge lies in the sustainability of its growth momentum. In this area, corporate governance continues to play a crucial role and we, at the BSP, remain committed in working with industry players, industry associations such as BAIPHIL, and other financial regulators to further strengthen the foundation of corporate governance for our supervised financial institutions. Rationale for corporate governance reforms On a global level, adherence to good corporate governance also plays a key role in sustaining the overall health of the financial system and ensuring its ability to withstand crises. To recall, fundamental weaknesses in corporate governance have been identified as among the factors that triggered the 1997 Asian crisis and other financial catastrophes in recent years. In the case of the Asian crisis, financial systems in the region became vulnerable to external shocks arising from excessive concentration of risk, poor credit policies, and inadequate risk management systems. The international response, which emerged as a consensus was to move toward best practices particularly on corporate governance. On our part, we at the Bangko Sentral rationalized the regulatory framework to closely align prudential standards with practices that promote the good governance tenets of transparency, accountability and fairness. Let me now highlight these initiatives. BSP’s corporate governance initiatives Bangko Sentral’s corporate governance agenda is anchored on the practice of effective corporate directorship, sound audit and compliance systems, and enhanced disclosure in financial reporting. In this regard, we have issued several regulations intended to reinforce these critical elements of good governance. At the core of these regulatory initiatives is the leading role to be played by the board of directors in the overall corporate governance agenda. Clearly, Board oversight is key to effective bank governance and ultimately, to achieving overall stability within the organization. Toward this end, we have emphasized the collective responsibility of the banks’ board of directors and senior management to ensure the soundness and stability of their respective banks. One way to instill such accountability to the board of directors is through director education. Since 2002, the BSP has been requiring bank directors and trustees of non-stock savings and loans associations (NSSLAs) to undergo the mandatory seminar on corporate governance to familiarize them with their duties and responsibilities as corporate decision makers. As of end-March 2007, a total of 6,856 directors and trustees or 84.7 percent of the 8,094 directors/trustees of banks, quasi-banks and NSSLAs have attended corporate governance courses. Let me take this opportunity to remind those who have yet to take the governance course to get their schedule as soon as possible. This is mandatory. We have also enforced and strengthened our fit and proper standards for directors and officers of financial institutions. In this regard, we also support continuing director education and training particularly on qualification/disqualification standards (Circular No. 513 dated 10 February 2006). Similarly, we have highlighted the role of independent directors in protecting the broader public interest and the creation and empowerment of critical board-level committees on corporate governance, risk oversight and audit. To promote fairness and transparency further, we have enforced stronger safeguards against connected party transactions. Another related issuance of the BSP is the revision of the prompt corrective action or PCA framework following the issuance of Circular No. 523 dated 23 March 2006. This was done to compel banks to take pre-emptive action against what may constitute as threats to financial stability and thereby, ensure that they continue to operate in a safe and sound manner. As part of the PCA framework, banks are encouraged to align capital with actual risk exposures, implement business improvement measures, and institute corporate governance reforms. And in the interest of accountability, we have required banks to establish a sound compliance system. The aim is to ensure a bank’s identification of relevant laws and regulations, analysis of risks of non-compliance, and prioritization of compliance risks. The Bangko Sentral also recognizes the critical role that external auditors play in providing an independent and objective assessment of financial institutions’ condition and performance. In connection with this, we have further rationalized the guidelines governing the selection, appointment and the reporting requirements for external auditors of banks. As a further measure, we have issued new guidelines on internal audit function. The standards define the status and scope of the internal audit, prescribe the minimum qualifications for bank internal auditors, and highlight the importance of the audit committee in establishing appropriate mechanisms for reporting financial improprieties or malpractices. Shift to international accounting standards The BSP also spearheaded the full adoption by the banking system of prescribed international financial reporting standards (IFRS) and international accounting standards (IAS) for enhanced risk disclosure and better market discipline. The implementation of the Philippine Financial Reporting Standards (PFRS) and the Philippine Accounting Standards (PAS) is expected to improve the quality of financial information to be disclosed to market participants. In relation to this, we have issued the new financial reporting package (FRP), in accordance with the provisions of PFRS/PAS. The new FRP will facilitate an enhanced off-site surveillance by Bangko Sentral of its supervised entities. Corporate governance and Basel II Moreover, improved governance in banks and other financial institutions remains an integral aspect of our continuing agenda to promote a sound and stable banking system. This will be highlighted further as we begin to fully implement the revised risk-based capital adequacy framework under Basel II this year. The new Basel II-based framework will not only focus on the computation of the appropriate level of capital given a certain level of exposure, but will also underscore the need for more market disclosures by banks on their risk exposures and risk management practices. The required disclosures to the public of bank capital structure and risk exposures are aimed at promoting greater market discipline in line with the so-called Pillar 3 of the Basel II recommendations. These reform initiatives should go a long way in establishing a sound governance regime at the institution level for a more effective and stronger financial intermediation. Ultimately, this will help preserve overall integrity and stability of the banking system. In fact, there are already a number of success stories on governance at the institution level. Let me briefly highlight some of them. One universal bank was able to exit from its 5-year rehabilitation program, partly due to improvements in corporate governance and oversight. This generated positive results, highlighted by a reduction in the Bank’s NPA ratio, strengthening of its capital position and improvement in the Bank’s profitability and liquidity. Another bank was able to achieve progress in building up its capital. The bank successfully raised its capital through issuance of tier 1 capital (common shares, preferred and hybrid tier 1 capital), thereby increasing its CAR from 14 percent as of end-September 2005 to 27 percent as of end-March 2007! Still another universal bank launched a major bank-wide initiative designed to restructure its whole credit delivery process and resolve the increasing volume of its non-performing loans. This program, embedded under the Bank’s credit excellence thrust, includes technical infrastructure and system enhancements, policy reviews and credit organization alignment. Coupled with good governance principles, the Bank was able to achieve a significant decrease in its NPL ratio from 8.68 percent to 3.99 percent in March 2007. Its risk management system also significantly improved, enabling the Bank to allocate capital among the various businesses more appropriately and building its capabilities to engage in derivatives activities. The examples set by these banks demonstrate the crucial beneficial role of good corporate governance in ensuring and sustaining a strong foundation for growth and profitability. I hope their stories will inspire other banks to take the path of good governance in word and in deed. In closing, I would like to thank BAIPHIL for its steadfast support for BSP’s reform initiatives, particularly, in championing corporate governance. Congratulations to the newly elected officers, directors and committee chairpersons! I am confident that you will lead BAIPHIL in a professional manner and exemplify the very ideals of good governance. Thank you all. Mabuhay ang BAIPHIL! Mabuhay ang Philippine banking sector!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of E-Rediscounting in Mindanao, Davao City, 20 July 2007.
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Amando M Tetangco, Jr: Improving lives through better access to credit Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of E-Rediscounting in Mindanao, Davao City, 20 July 2007. * * * Maayong udto sa inyong tanan! Honrable Members of the Monetary Board; fellow bankers; business leaders of Mindanao as represented by the Chamber of Commerce and Industry, the Small and Medium Enterprise Development Council and Micro-finance Council; special guests; government officials who are here today, Mayor Lobrigat; my colleagues at the Bangko Sentral ng Pilipinas; friends; Ladies and Gentlemen – I am very pleased to lead the launching here today of the BSP’s Electronic or e-Rediscounting System. Only a few weeks ago at the Mindanao Peace and Security Summit in Cagayan de Oro City the President identified two key priority programs for Mindanao, which is particularly relevant to our program today. The first priority is to increase the funding for key government economic programs in Mindanao. The second is to strengthen the institutions of government to promote economic prosperity in the region. Given this, the launching of the Bangko Sentral’s e-Rediscounting System here in Mindanao is indeed very timely and appropriate. With this electronic loan refinancing facility, we expand and facilitate access to credit of countryside areas in Mindanao where there are micro, small and medium enterprises, as well as exporters. This should stimulate economic activities in the local communities here. So far, the seven-month track record of our e-rediscounting system has been positive. Since its initial launching in Manila in December, the number of participating banks in our eRediscounting System has increased from 88 to 129 while the total loans processed and released during this period has reached an unprecedented level of over P14 billion. The importance that the Monetary Board attaches to this initiative is clearly demonstrated by the presence of our Monetary Board members in this launching today and let me acknowledge them: First, MBM Vicente Valdepeñas, Jr., MBM Raul Boncan, MBM Juanita Amatong, MBM Alfredo Antonio, and earlier today MBM Nelly Favis-Villafuerte was also here. The BSP Top Management is here with us as well today we have DG Diwa Guinigundo, DG Armando Suratos, DG Nestor Espenilla, Jr. and General Counsel and Asst. Governor Juan de Zuñiga, Jr. What makes e-Rediscounting attractive to banks? Well, as an online rediscounting facility, banks file loan applications through the Internet and – if their application is approved -receive the loan proceeds within minutes, through their demand deposit accounts with the Bangko Sentral. In other words, they same time, incur lower transaction costs and are spared the inconvenience of physically filing their applications and going through manual processing. On the other hand, bank customers can look forward to lower borrowing costs when their banks start sharing the cost benefits of e-rediscounting. At this point, let me also take the opportunity to acknowledge the dedication of the officers and staff of the pilot and participating banks who made their resources available for the success of this project. We also wish to thank the officials and staff of the BSP, particularly from the Department of Loans and Credit and the Information Technology Sub-sector. Of course, we would also like to acknowledge the assistance and participation of the Davao Regional Office. Let me assure our colleagues from the banking community and the business sector here in Mindanao that we shall continue to explore ways to enhance our operations so as to facilitate the greater flow of credit in the countryside. In line with this strategy, the BSP has approved a new project that will compliment the e-rediscounting system. We call this project the Collateral Information and Management System or CIMS. The CIMS is envisioned as a system by which the BSP can monitor, control and manage collaterals submitted by banks as security for their loans. The CIMS is expected to enable authorize users to electronically obtain information on the status of collateral documents particularly the collateral positions of borrower banks and end-user borrowers. This system will also further facilitate loan processing as well as ensure the BSP’s protection against potential credit risk. Phase I of the CIMS is targeted for completion by the end of this year. Indeed, the Monetary Board and the Bangko Sentral are committed to continuously find better ways of serving our country through the delivery of fast, adequate, and affordable credit, particularly to small- and medium-sized borrowers from the countryside. We hope therefore that our partners from the banking community and the business sector will continue to work closely with us in ensuring sustained and balanced growth of our economy. Together, let us create more economic opportunities that will liberate our people from poverty and make our country a better place for all Filipinos. Daghan Salamat sa inyong lahat, Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Inaugural Blessing of the newest branch of One Network Bank in Sasa, Davao City, 20 July 2007.
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Amando M Tetangco, Jr: Leading the way toward growth and development Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Inaugural Blessing of the newest branch of One Network Bank in Sasa, Davao City, 20 July 2007. * * * Archbishop Capalla, Mayor Duterte, the officers and staff of One Network Bank (ONB), fellow bankers, special guests, Maayong gabi-i sa inyong tanan! On behalf of the Bangko Sentral ng Pilipinas, I congratulate ONB on the inaugural of its Head Office Branch, the 65th in its network of branches within Mindanao. These 65 branches exclude the five new branches that have just been approved by the BSP. Now a leading rural bank, ONL has positioned itself as a catalyst for economic growth in Mindanao, with a presence bigger than other private banks. One Network Bank: making a difference in Mindanao In particular, ONB’s support for the agriculture sector including small farmers is most commendable. I understand that ONB’s loan exposure to agriculture is among the highest in the industry and it continues to grow: it was P1.1 billion in March 2006 and by March this year it had reached P1.5 billion! We also recognize the Bank’s contribution in financing the development of the education, health and services sectors in Mindanao through credit facilities that are made available to various institutions such as schools, hospitals, and local government units. In addition, ONB has responded positively to Bangko Sentral’s policy to encourage technological innovations that translate to more efficient and convenient ways of facilitating access to banking services. For instance, ONB paved the way for the investments by rural and cooperative banks in Automated Teller Machines. In addition, ONB’s focus to expand its remittance services resulted in partnerships with commercial banks and money transfer companies. ONB has also applied for its own FCDU license. This is aligned with Bangko Sentral’s policy to encourage more overseas workers to transact through the banking system. The way forward Indeed, judging from its involvement in countryside banking, ONB has become a model among rural banks in terms of both financial soundness and social responsibility. Tonight, therefore, I ask the men and women of ONB to sustain ONB’s performance and enhance the bank’s status as an agent of economic growth. Ladies and gentlemen. The BSP has been fostering a more liberal regulatory environment, built on strong prudential supervision foundation to promote a more inclusive and accessible financial system. Among others, we have liberalized branching to boost the efficient delivery of financial services, including microfinance, to areas with minimal access to banking services. Altogether, these regulatory measures should give rural banks scope to participate more fully in economic development. Now, more than ever, we shall be relying on the collective support of industry players in working toward a stronger and more efficient rural banking system – one that is fully capable of mobilizing savings for a robust rural economy. To achieve this, let us work together to continue the reforms we have started to create greater confidence in the integrity and dependability of the country’s banking system. Let us therefore resolve to strengthen our partnership for a more efficient, competitive and resilient banking system as a service to our people and our country. Again, our congratulations to the officers and staff of ONB! Daghan Salamat sa inyong tanan.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines, at the Ceremonial Turn Over to DepEd of Computers under "Tulong Barya Para Sa Eskwela" and Teachers' Guides on Saving & Money Management, Manila, 31 July 2007.
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Amando M Tetangco, Jr: Strengthening the bonds of partnership for better education Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Ceremonial Turn Over to DepEd of Computers under “Tulong Barya Para Sa Eskwela” and Teachers’ Guides on Saving & Money Management, Manila, 31 July 2007. * * * Secretary Jesli Lapus, Monetary Board Members Juanita Amatong and Alfredo Antonio, Dr. Cielito Habito, our other partners from the Department of Education, fellow central bankers – good morning and welcome to our turnover ceremony with the Department of Education. I am very pleased that you all took the time to join us in this simple but significant event. A warm welcome to all! Today, we see, in very concrete terms, the results of the successful partnership of the Department of Education and the Bangko Sentral ng Pilipinas. First, we have the symbolic turnover of more than 500 brand new computers from Bangko Sentral to public elementary schools under the Department of Education. These computers were funded from the award-winning “Tulong Barya Para sa Eskwela” the joint program of the DepEd and the Bangko Sentral to promote efficient recirculation of our coins by encouraging coin donations for public elementary schools. If you recall, schoolchildren were at the forefront of the campaign, serving as agents of change in their homes and communities in the proper appreciation of the value of coins. Over a six-moth period, “Tulong Barya Para sa Eskwela” generated benefits worth P14.88 million: P6.65 million in cash donations from the public which have been turned over to DepEd and P8.23 million in coin production savings for Bangko Sentral. In recognition of the schoolchildren’s role in the successful campaign, the members of our Monetary Board unanimously approved the donation of Bangko Sentral’s entire savings of P8.23 million through the purchase of computers for public elementary schools. Ladies and gentlemen, let us thank our schoolchildren and our Monetary Board with a round of applause! Based on our initial estimates, we would be able to donate 472 computer units from our savings. But because of the close cooperation of our IT Department, the Corporate Affairs Office, and our Bids & Awards Committee we are getting a total of 512 brand new and branded computer sets. I understand that this number may go up further to about 540 units if we generate additional savings. Let us therefore give these groups as well a well-deserved round of applause! But beyond the computers we are turning over to the Department of Education today, I am so inspired by the change in the public mindset about the barya. When we started our coin recirculation program, our slogan simply declared: “Ang Barya Mahalaga, Huwag Bale-wala-in gamitin.” When we launched “Tulong Barya Para sa Eskwela” our slogan changed to “Ang Barya Mahalaga, Lalo na Kapag Pinagsama-sama.” I believe this national lesson in saving proved to our schoolchildren that every little amount saved adds up and can be the start of wealth creation. Such is the power of barya! “Tulong Barya” therefore is a perfect introduction to the integration of saving and money management into our public elementary school curriculum. I am pleased to announce that today, we are turning over a total of 104 lesson plans on saving, money management, and basic economics to be incorporated in three subjects: social studies, character education and work education. I understand lessons on entrepreneurship are featured extensively in the teachers’ guides for the work education subject. The development of these teachers’ guides, the first step in the integration process, was completed by DepEd’s lesson exemplar writers from Luzon, Visayas and Mindanao last April here in Manila under the collaborative work of Economic Policy Reform and Advocacy or EPRA, Bangko Sentral and the DepEd. To continue the integration process, the Monetary Board unanimously approved the budget for the pilot-testing of the teachers’ guides. Today, try-out teachers with their principals and supervisors are in Mandaluyong to complete a two-day launching and orientation for pilottesting in Luzon. Similar programs will be held in the cities of Angeles, Cebu and Davao within the next two weeks. Overall, pilot-testing for saving, money management and basic economic concepts will be conducted from August to September and will cover 9 regions, 15 provinces, 18 towns and cities, 36 schools, 180 teachers and approximately 9,000 pupils. This morning, therefore, we turn over to the Department of Education, 484 copies of teachers’ guides that will be used for the pilot-test phase. From October to November, we shall be evaluating the results of our pilot lessons, make adjustments if necessary, and prepare for the final production of materials in time for its full launching in the schoolyear 2008-2009. Through this, we hope to raise a new generation of savers and financially literate Filipinos. Maraming salamat po. Mabuhay ang Pilipinas!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Graduation Ceremony for Basic Security Training, Central Bank of the Philippines, Manila, 27 July 2007.
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Amando M Tetangco, Jr: Ensuring a well-trained security force Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Graduation Ceremony for Basic Security Training, Central Bank of the Philippines, Manila, 27 July 2007. * * * The Members of the Monetary Board, distinguished lecturers and resource persons, our graduates and their respective families, special guests, fellow central bankers, magandang umaga po sa inyong lahat! I have a question for our graduates: Mahirap ba ang two-month training ninyo? Parang hindi masyadong maliwanag at sabay-sabay ang sagot ninyo. Again: Mahirap ba ang training ninyo? Mabuti naman! Dapat talaga mahirap ang training ninyo. Afterall, your training should prepare you to provide the best security for the Bangko Sentral ng Pilipinas. As you are aware, the Bangko Sentral was created in accordance with the provisions of the 1987 Philippine Constitution to ensure stable prices and a sound banking system. In other words, the Bangko Sentral helps provide a stable environment for our economy to grow and provide a better life for Filipinos. Therefore, if the premises and human resources of the Bangko Sentral itself are not stable safe and secure, we will not able to serve our country in the best way we can. Your ability to provide excellent security service to the Bangko Sentral, your fellow central bankers, as well as our guests is therefore very important! The Basic Security Training Program you have just completed has been designed to make sure that our security personnel have the appropriate physical, mental and psychological aptitude. This is a job meant only for those committed to do excellent security service 100% of the time. You and I know the times call for vigilance against security risks. If you are committed only 99% of the time, a security lapse could happen within that 1% window when you lower your guard, so to speak. The Greek philosopher Aristotle once said that “we are what we repeatedly do. Excellence, then, is not a singular act, but a habit.” I hope therefore that you will focus on your assigned task at all times. Mayroon pa akong isang paalala: mahalaga rin na marunong kayong kumi-latis ng tao at magbigay galang. It is not enough that you have physical stamina, it is also important that you deal with your co-workers and our legitimate visitors with courtesy. They should feel safe even in the presence of armed personnel; let them know that you are there to protect them. Always remember to work with vigilance, diligence, intelligence, and courtesy. These are the trademarks of excellent security personnel of the Bangko Sentral ng Pilipinas. And so, on behalf of the Bangko Sentral, I congratulate all our graduates today for completing their rigorous training. Palakpakan po natin sila! I also congratulate the SITD led by Col. Ed Gatumbato, Managing Director Noli Torres, and Deputy Governor Andy Suratos for contuining these training programs for our security personnel. Palakpakan din po natin sila! Keep up the good work! Mabuhay ang SITD! Mabuhay ang Bangko Sentral ng Pilipinas! Maraming salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines, at the signing ceremony among members of the Countryside Financial Institutions Enhancement Program Task Force of the MOA, Manila, 14 August 2007.
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Amando M Tetangco, Jr: Providing critical support to disaster-striken areas through the Calamity Assistance Program Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the signing ceremony among members of the Countryside Financial Institutions Enhancement Program Task Force of the MOA to implement the Countryside Financial Institutions-Calamity Assistance Program, Manila, 14 August 2007. * * * Landbank President Gilda Pico, PDIC OIC Imelda Singzon, fellow bankers, co-workers in the BSP, our friends from the media, special guests, good morning. What we just signed this morning is the P200 million Countryside Financial Institutions Calamity Assistance Program – a crucial support program for countryside rural banks, cooperative banks and thrift banks to help fund early recovery and reconstruction activities in calamity-stricken areas. This is a joint initiative of the Countryside Financial Institutions Program Task Force which counts as members the Bangko Sentral ng Pilipinas, Philippine Deposit Insurance Corporation and the Land Bank of the Philippines. As indicated in our guidelines, qualified banks are rural banks, thrift banks or coop banks in areas affected by typhoons, disasters and other natural calamities – as declared by the Office of the President or the National Disaster Coordinating Council. Each qualified financial institution can borrow a maximum amount of 90% of its affected existing portfolio or P 5million, whichever is lower, provided the loan amount does not exceed the bank’s borrowing capacity. The loan is payable in seven years with an interest rate of 9% and post-dated checks as collateral. The loans may be availed of from Land Bank branches within one year from the date of the declaration of the calamity by the NDCC or the Office of the President. Given our country’s history, this calamity assistance program will be most helpful to countryside areas where many of our poor reside. Among others, the Philippines lies along the Western Pacific Basin – which is the world's busiest typhoon belt. We are also part of the circum-Pacific seismic belt ringed by major tectonic plates and volcanoes. In fact, a World Bank study indicated that calamities which destroy crops, properties and infrastructure have been a major cause for poverty, especially in the countryside. We hope therefore that this calamity assistance program will empower countryside financial institutions to help fund early recovery and reconstruction in affected areas. The members of the Task Force appeal to all of you to support this program. Together, let us get this program going! Marami pong salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2006 BSP Praise Awarding Ceremony, Manila, 25 July 2007.
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Amando M Tetangco, Jr: The 2006 BSP praise awards – a harvest of excellence Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2006 BSP Praise Awarding Ceremony, Manila, 25 July 2007. * * * Members of the Monetary Board, Civil Service Commission Field Officer Eva Olmedillo, our 2006 Bangko Sentral PRAISE Awardees, fellow central bankers, magandang umaga po sa inyong lahat! I am very pleased to know from Deputy Governor Andy Suratos and Director Dong Asperilla that this morning we have a total of 460 awardees under our 2006 Praise Program. These are awardees who scaled the bar of excellence within the Bangko Sentral ng Pilipinas! Ladies and gentlemen, let us congratulate and thank our awardees by giving them another well-deserved round of applause! Excellence is what we strive for at the Bangko Sentral ng Pilipinas. Excellence in the pursuit of our mandate to ensure stable prices and a sound banking system. Excellence in the way we do things. We should be conscious of this at all times, for our actions here at the Bangko Sentral affect the lives of millions of Filipinos. Filipinos we have pledged to serve to the best of our abilities. Arthur Schelesinger, Jr., the American historian and social critic, once said “excellence is the eternal quest. We achieve it by living up to our highest intellectual standards and our finest moral intuitions.” I hope therefore that excellence will be the constant standard at the Bangko Sentral. While the Bangko Sentral is consistently regarded as a top performing government agency, you and I know there are still many areas we can improve on. This is the focus of our ongoing strategic planning sessions. I challenge our awardees as well to expand the circles of excellence in their respective areas, to become good role models, and to serve as constant inspiration to their colleagues. Never lose sight of what your awards stand for: Bangko Sentral’s commitment to excellence in serving the Filipino people. Muli, bigyan po natin ng mainit na palakpakan ang ating mga awardees! Finally, let us acknowledge the significant contributions of the following to the continuing success of the Bangko Sentral ng Pilipinas with a big round of applause: the members of our Monetary Board including Dr. Vicente Valdepenas, Jr.; Atty. Raul Boncan, Sr.; Mrs. Juanita Amatong; Atty. Nelly Favis-Villafuerte; Mr. Alfredo Antonio; and Socio-Economic Planning Secretary Romy Neri. Let us also acknowledge our three hardworking Deputy Governors, in alphabetical order – Nesting Espenilla, Diwa Guinigundo and Andy Suratos; Assistant Governors Jun de Zuñiga, Vic Aquino, Dolly Yuvienco, Eve Avila, Tessie Hatta; and finally, all the other officers and staff of the Bangko Sentral ng Pilipinas! You all make me proud to be a central banker! Marami pong salamat sa inyong lahat! Mabuhay ang Bangko Sentral ng Pilipinas!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Signing of the MOA on the Intercon. of PDS Settlem. Highway (PSH) & BSP PhilPaSS, Bangko Sentral ng Pilipinas, Manila, 29 Aug 2007.
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Amando M Tetangco, Jr: Efforts to provide an integrated national payments and settlements system Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Signing of the MOA on the Interconnection of PDS Settlement Highway (PSH) and BSP PhilPaSS, Bangko Sentral ng Pilipinas, Manila, 29 August 2007. * * * Monetary Board Members; Mr. Vicente Castillo, CEO, Philippine Dealing System Holdings Corp; Mr. Ramon Sy, President, Bankers Association of the Philippines; guests from our partners in the banking sector; BSP officials; our friends from the media; ladies and gentlemen, good afternoon! Today’s MOA signing is another landmark in our joint efforts to provide an integrated national payments and settlements system. As partners in the financial reform agenda, we have all vigorously worked together to have the various pieces of the payments puzzle be put together. In the process, we continue to work towards the establishment of the infrastructure that would allow the secure and timely completion of transactions to reduce systemic risk in the financial markets and thereby enhance the integrity of financial transactions. In the course of the last five years, the BSP’s PhilPaSS has been interconnected with the check and peso clearing results of the PCHC, the Delivery vs. Payment of Government Securities transactions of the Bureau of the Treasury, the ATM transactions of the Megalink member banks, and the Payment vs. Payment (Foreign Exchange) transactions of the Philippine Dealing Exchange. To date, all the commercial banks and 50% of the thrift and savings banks and some non-banks performing quasi-banking operations settle these various transactions in the PhilPaSS. With the signing of the Memorandum of Agreement for the Interconnection of the Philippine Dealing System Holdings Corporation’s Settlement Highway with PhilPaSS, all the payment instructions for transactions that would be done through the PDS Group could now be transmitted directly to the BSP-PhilPaSS and effected in the DDAs of the counterparties who are PhilPaSS member banks or through the DDAs of the PhilPaSS member bank in their capacity as Settlement Banks for non-PhilPaSS members. These transactions include foreign currency transactions, interbank and interdealer repo transactions, and interbank fund transfers. It is also worthy to note that this interconnectivity comes at very minimal cost. This is because the infrastructure is already in place; all that needed to be done was minimal reconfiguration of the existing systems to capture these additional types of financial transactions. The Bangko Sentral ng Pilipinas, in fulfilling the third pillar of its mandate, will continue to work to improve the operations of the PhilPaSS to better address all the concerns of our stakeholders. We are well aware, however, that we cannot do this alone. We look forward to your continued support and partnership. Thank you!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the International Conference on the Safety and Efficiency of the Financial System, Mandaluyong City, 27 August 2007.
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Amando M Tetangco, Jr: Promoting the safety and efficiency of the financial system – a steady commitment to reforms Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the International Conference on the Safety and Efficiency of the Financial System, Mandaluyong City, 27 August 2007. * * * UP College of Business Administration Dean Dr. Erlinda Echanis; banking and finance educators from the University of Limoges, the University of Poitiers and the University of Birmingham, University of the Philippines; Prime Minister Virata; other distinguished members of the academe; colleagues from BSP, guests, ladies and gentlemen: A pleasant morning to all of you! I am deeply honored to be invited to this conference and keynote the discussion on the theme, “The Safety and Efficiency of the Financial System.” But first, let me commend the conference organizers for putting together this event that touches on a broad spectrum of issues on the financial system. I would also like to give credit to the team of university professors and researchers representing the four aforementioned universities who will walk us through the various topics covered in this conference. In fact, one of them happens to be a BSPer – Ms. Thea Josefina Natalia Santos. I would also like to acknowledge the presence of the panel of experts led by Bankers Association of the Philippines’ President Mr. Ramon Sy, UP Diliman Chancellor Dr. Sergio Cao and First Philippine Consultants, Inc. President Dr. Conchita Manabat all of whom will join us later in the session. I am certain we can look forward to a meaningful and engaging dialogue. The promotion of the safety and efficiency of the financial system forms part of our mandate at the Bangko Sentral ng Pilipinas to uphold the integrity and stability of banks and other financial institutions that we supervise. Admittedly, this is no simple task, particularly since we have to contend with the challenges brought about by globalization which has significantly altered the course of the international financial system. To respond to this challenge, we have intensified our structural reform efforts to ensure that banks and other financial institutions continue to operate safely and efficiently. It is this steady commitment to financial reforms that has helped contribute to a stable and resilient financial system. The banking system, in particular, has managed to perform creditably amidst a complex and rapidly changing environment. Performance of the banking system In more concrete terms, key financial indicators as of end-June 2007 reflected overall soundness of the banking system. • Bank resources sustained expansion, posting a growth of 8.6 percent to reach P4.9 trillion from the end-June 2006 level of P4.5 trillion. • Asset expansion was underpinned by increased deposit mobilization and buildup in capital. Deposit liabilities grew by 11.0 percent to P3.6 trillion. Capital accounts, on the other hand, grew by 11.6 percent. • The banking system’s capitalization remained more than adequate relative to international norms and the statutory floor. As of end-December 2006, the system’s capital adequacy ratio (CAR) stood at 16.9 percent on a solo basis and 18.1 percent on a consolidated basis. These ratios are well above the BSP’s 10 percent regulatory floor and the international benchmark of 8 percent. • The banking system has achieved notable gains in cleaning up their bad assets, helping bring down the NPL ratio to 5.7 percent as of end-June 2007 from its peak of around 18 percent at end-December 2001. For universal and commercial banks, the NPL ratio was recorded at 5.2 percent. This is much closer to the pre-crisis level of about 4.0 percent. • With a healthier balance sheet, banks have also now been able to post a steady uptick in loan growth. As of end-June 2007, total loans, gross (exclusive of interbank loans) stood at P2.0 trillion (vs. P1.9 trillion at end-June 2006) or a growth of 5.1 percent. • Profitability is also returning to the banking system. Net income after tax (NIAT) increased by an estimated 10.2 percent for the first six months of 2007 over the same period last year. Annualized return on equity (ROE) and annualized return on assets (ROA) also recovered to a respectable 11.1 percent and 1.3 percent, respectively. Notwithstanding its resilience and efficiency, the Philippine banking system cannot afford to be complacent and rely on these sound fundamentals alone if it is to continue to stand its ground amidst a challenging financial environment. It needs to sustain the path to reforms. Reforms and policy directions In the pursuit of these objectives, we will carry on with our work in the following areas: reinforce asset cleanup through asset disposition under the amended SPV Law; improve the risk management process through effective enforcement of risk-based supervision; promote better governance and market discipline; and establish an appropriate capital adequacy framework for banks. At this point, let me give you an overview of where we are now in the reform process and what still remains to be done. Ongoing asset cleanup The asset cleanup process remains a priority. Here, we expect banks to unload more bad assets under the amended SPV Law. The BSP has so far approved Certificates of Eligibility (COE) amounting to P31.7 billion SPVrelated transactions under phase II of the amended SPV Law. Combined with the P97 billion worth of NPAs disposed under Phase I, this brings the total amount of NPAs sold to roughly P128.7 billion. We expect this to reach up to P200 billion. Full implementation of risk-based supervision We are also fostering a strengthened environment through full implementation of consolidated and risk-based supervision. To keep pace with the increasing sophistication and complexity of the financial environment, we have directed our policy thrust toward acceptable risk management practices that enable financial industry participants to better assess and manage risks without unduly hampering the ability to innovate. In effect, we have assumed a more liberal approach to bank supervision in the sense that we do not instruct banks to avoid risks that seem too high, which is the way traditional bank supervision is done. Instead, the approach being used is to favor assessment of the quality of risk management practices by giving banks greater flexibility to respond to changing opportunities and allowing them to take risks so long as they demonstrate the ability to manage and price for those risks. This is being complemented with enhanced regulations on risk management as a way of developing appropriate standards suited to banks’ risk-taking activities. More recently, we have issued general guidelines on supervision by risk, setting forth the broad expectations of the BSP with respect to the conduct of risk management by financial institutions under its jurisdiction. We followed this up with the issuance of specific guidelines on technology risk management, one of many envisaged to cover strategic areas, which is aimed at ensuring effective management of technology-related risk by financial institutions. We have since come up with specific guidelines on market risk management and liquidity risk management, which set forth BSP’s expectations on the management of these key risks by banks. Another related issuance of the BSP is the strengthening of the prompt corrective action (PCA) framework. This was done to compel banks to take pre-emptive action against what may constitute as emerging threats to their financial viability and thereby, ensure that they continue to operate in a safe and sound manner. As part of the PCA framework, banks are guided to align capital with actual risk exposures, implement business improvement measures, and institute corporate governance reforms. Corporate governance and disclosure To complement the above initiatives, the BSP has also been keen on promoting a culture of good corporate governance in the banking system. We have correspondingly issued appropriate regulations anchored on effective corporate directorship, sound audit and compliance systems, and enhanced disclosure in financial reporting. Shift to IFRS/IAS A related initiative is our move toward the adoption of prescribed International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) in 2005. This was a major step that we had to take in order to firmly establish meaningful and reliable standards for financial reporting in the banking system. With the implementation of the Philippine Financial Reporting Standards (PFRS) and the Philippine Accounting Standards (PAS), we expect to derive benefits in terms of improving the quality of financial information to be disclosed to market participants. This should contribute to enhanced risk disclosure and better market discipline in the banking system. Risk-based capital adequacy framework In the time that we are building on these reform initiatives, we are simultaneously working on strengthening the risk-based capital adequacy framework. Essentially, the shift to risk-based capital adequacy framework is much more than the application of mechanical risk weighting rules. The real challenge and benefit is actually greater in motivating banks to more deeply understand their risk exposures, develop models to capture the essence of those risks, and, consequently, fine-tune their business models to manage their risks to maximize value. We expect our domestic banks to rise to this challenge, particularly now that we are implementing tougher standards under Basel II. What makes the new Basel II-based framework even more challenging is that it will not only focus on the computation of the appropriate level of capital given a certain level of exposure, but will also underscore the need for more market disclosures by banks on their risk exposures and management practices. The required disclosures to the public of bank capital structure and risk exposures are aimed at promoting greater market discipline in line with the so-called Pillar 3 of the Basel II recommendations. This is a challenge that our banks must not underestimate. We are maintaining the prescribed minimum CAR of 10 percent. However, consistent with Basel II recommendations, we have begun implementing major methodological revisions to the calculation of minimum capital that universal banks, commercial banks and their subsidiary banks and quasi-banks should hold against actual credit risk exposures. This significantly amends BSP Circular No. 280 dated 29 March 2001 (for banks) and BSP Circular No. 400 dated 1 September 2003 (for quasi-banks). Meanwhile, stand-alone thrift banks, rural banks and quasi-banks will continue to be covered for now by existing regulations (i.e., Circular Nos. 280 and 400) insofar as credit risk measurement is concerned. However, we are studying enhancements to make the applicable capital regulations more attuned to Basel II principles. Moreover, the guidelines for allocating minimum capital to cover market risk (BSP Circular No. 360 dated 3 December 2002) have also been amended to some extent, primarily to align specific market risk charges on trading book assets with the revised credit risk exposure guidelines. A completely new feature is the introduction of capital charge for operational risk. This reflects recognition of the potentially significant costs emanating from this critical risk area that actually encompasses all facets of bank operations. Complementary reform initiatives On other key fronts, we will also carry on with our task of fostering the development of our financial markets through support for various legislative measures, such as the enactment of the Credit Information System Act (CISA) that will be pivotal in helping establish a reliable and comprehensive credit information system in the country. We will also continue to foster the creation of stronger and globally competitive financial institutions that can be an asset to the financial system. Lately, we have been witnessing a growing trend toward mergers and consolidations among domestic banks and we expect this to further hasten in the next two years. This is driven in part by the increasing market competition as a result of liberalization and the adoption of more stringent global standards. However, we are not discounting the role that smaller specialist banks play in the evolving financial landscape. Definitely, we need smaller specialist players that can more effectively cover important niche markets that have their own unique needs. Under this scenario, the smaller specialist players are able to complement the services offered by bigger banks. Simultaneous with the ongoing process of reform in the banking system, the BSP has also actively engaged in initiatives to promote a deep domestic capital market that will complement the presence of a resilient banking system by having an alternative pillar to cushion against external shocks. We have pursued cooperative efforts to (1) improve the market infrastructure, particularly the establishment of the FIE to promote efficient and transparent price discovery of debt securities, (2) enhance securities and payment settlement mechanism to achieve DVP/PVP, (3) develop securities borrowing and lending and repo markets to deepen GS market, (4) develop the domestic derivatives market especially for interest rate, currency and credit products to support risk management, and redistribution of risk to those best able to bear them. Final note I have just presented to you the essential items in the comprehensive financial reform package. The BSP will continue to take a proactive role in the pursuit of genuine reforms that will reduce vulnerability of the financial system in these complex times and contribute to the overall financial health of the country. As pillars in the academe, you help build the foundation for excellence and integrity. I challenge you to let this spirit transcend to the community outside your own sphere. The academic community can make significant contributions in this area, not just in training (which is of course very important) but also in research and mass advocacy to broaden financial literacy. A key target for literacy are directors who serve in the boards of banks and other FIs. It is important that the culture of risk management be institutionalized at embraced at the corporate governance level. This means going beyond regulatory compliance and willingly embracing risk management principles as a value-creating and value-preserving undertaking just as important as earning profits. With your continuing support and that of the other reform-minded professionals in the industry, we can collectively address the most fundamental challenge of achieving and maintaining a strong domestic financial system that can effectively respond to the demands of the times. Thank you!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Makati City, 12 September 2007.
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Amando M Tetangco, Jr: The constellation of monetary challenges and responses Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Makati City, 12 September 2007. * I. * * The current economic constellation Both the domestic and international business communities affirm that the Philippines is now experiencing the most stable macroeconomic environment in a decade. The inflation rate has been low and stable, with the outlook for inflation benign. This has allowed monetary authorities to maintain interest rates at low and stable levels also. Our balance of payments remains in surplus, bolstered by the current account, which is also in surplus, in fact for four (4) consecutive years now. We have built up our international reserves to a record-high of $30.3 billion, adequate to more than cover our short-term liquidity requirements. Our strong external position enabled the BSP and the NG to prepay foreign debts amounting to US$ 2.1 billion in 2006 and another $0.9 billion in the first half of 2007. These have markedly improved our external debt ratios. Included in these payments was the prepayment in full of the country’s outstanding obligations to the IMF in December 2006, a milestone in the Philippines’ relationship with the IMF since it effectively ended the country’s use of IMF resources after nearly four and a half decades. Our banking system is growing at double digit rates in both asset size and deposit base, improving in profitability and continues to be capitalized well-above international standards. Investor attention and responses to the current constellation of economic data have been significantly positive as evidenced by the following developments, particularly during the first half of the year: • The stock market reached seven-year highs • The peso appreciated on account of strong export earnings and sustained overseas remittances. • Our sovereign credit spreads compressed. • Yields on domestic securities fell to record lows. The questions, however, that may be in your minds now are: Can these gains be sustained? Will the economic momentum be able to weather the recent domestic and global market adjustments and volatilities? My quick answer is yes. Our macroeconomic fundamentals are sound. Because our underlying fundamentals are the result of the fiscal, macroeconomic, banking and financial sector reforms that have been undertaken vigorously and continue to be pursued, I believe we are resilient and therefore less vulnerable to domestic and external uncertainties. II. The challenges to monetary policy formulation On the part of the BSP, we formulate monetary policy against an assessment of global and domestic economic issues and developments. We are mindful of the range of circumstances in recent times which draws important challenges for Philippine monetary policy. Plentiful global liquidity. The strong foreign exchange inflows into Asia. The build-up of international reserves. The marked appreciation of regional currencies against the US dollar. Financial innovations. Yield-seeking activities of agents, and now more recently, a reassessment of risk appetite and repricing of risks. A possible further tightening of global credit conditions. The fragility of US growth. Volatile oil and commodity prices. All these challenge us as we endeavor to provide a sound monetary policy environment, while advancing reforms that promote growth and respond to changes in global financial conditions. Our resolve to follow good governance and international best practices in our reform agenda has provided us the discipline necessary to craft appropriate responses and avoid steps that could distort rational market behavior. III. The courses of action Let me put forward three essentials in response to these challenges. One, we will remain focused on achieving our inflation target. Our monetary policy will continue to be responsive and forward-looking. Our inflation targeting approach has proven to be effective as a monetary anchor and provides us with an array of policy tools against turbulent economic and financial conditions. Two, we will maintain our market-determined exchange rate policy, while complementing this with a liberalization of our foreign exchange regulations to allow greater access to foreign exchange for outward investments. We have already put out the “first wave” of FX liberalization measures, a “second wave” will be implemented before the end of the year. Third, we will continue to undertake steps to strengthen the domestic financial system and help manage risks attendant to financial market developments. In the banking sector, we are focused on good governance, asset-clean up, capital build-up and industry consolidation. We want to see stronger, well-governed, better-capitalized banks that would be effective channels of monetary policy. In other words, stable financial institutions that perform the intermediation function between the sources and users of funds, fully cognizant of the risks attendant to this role. As driven by the changing profit dynamics brought about by our adoption of international accounting and the Basel II capital adequacy standards, we are encouraging banks to look for ways to capture economies of scale. This would make them more capable of investing in the required technologies (i.e., risk-based technologies) thereby making them more competitive in an increasingly challenging local and global environment. These and other long-term structural reforms will continue to support a favorable investment climate and enhance productivity through investments in our growth sectors. IV. The clever response from you We are aware that the core investor is always in search, not just of higher and higher returns, but rather of “quality” returns. We are also aware that countries with good governance frameworks, wide-ranging structural reforms and appropriate macroeconomic policies are always on such investors’ shortlist in their search for high effective returns. I believe, the Philippines’ macroeconomic fundamentals as well as the reforms that have been instituted in the banking sector make us a clear choice for the core investor. The recent volatilities related to the US subprime mortgage market are not likely to have a direct significant impact on our banking system. Philippine banks’ exposure to the CDO market is a minuscule 0.2 percent of the total banking system’s assets, none of which have subprime mortgages as underlying assets. Apart from this, sufficient liquidity in the domestic financial system, as well as the increased tapping by corporates of long-term domestic funding for their expansion needs, will help reduce the influence or effects of external developments on our markets. As always, should there be need for more liquidity in the system, the BSP will act to maintain order and stability in the markets. As the country pursues further reforms that support growth and reduce our vulnerabilities to external shocks, I ask investors to focus on our fundamentals. I am confident that this pattern of strong macroeconomic fundamentals will be sustained and favor a constellation of bullish opportunities and expectations for the Philippine economy.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the ACI Phils-IHAP-Mart-TOAP Joint Gen. Assembly, Manila, 9 October 2007.
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Amando M Tetangco, Jr: Sustaining the country’s economic gains through monetary stability Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the ACI Phils-IHAP-Mart-TOAP Joint Gen. Assembly, Manila, 9 October 2007. * I. * * Introduction Distinguished officers and members of The Financial Markets Association (ACI Phils), Investment Houses Association of the Philippines (IHAP), Money Market Association of the Philippines (MART), and the Trust Officers Association of the Philippines (TOAP), Colleagues from the Bangko Sentral, friends from media, ladies and gentlemen, good evening. I thank ACI, IHAP, MART and TOAP for this invitation to speak at your joint general membership meeting on the topic “Sustaining the Country’s Economic Gains through Monetary Stability”. Its an interesting topic as it suggests movement, evokes a sense of continuous motion in the right direction. Indeed, the economy has chalked up impressive gains this year and the Philippines is experiencing its most stable macroeconomic environment in a decade. II. Current state of economic gains Let me begin by having a few cracks at describing the headway that has been made in consolidating macroeconomic gains this year. • The economy has been expanding quite briskly. In the second quarter of 2007, GDP expanded by a faster-than-expected rate of 7.5 percent, outperforming the 5.5 percent growth achieved in the same quarter in 2006 and bringing the first semester 2007 growth to 7.3 percent. • This strong growth has been achieved against a generally benign inflation environment. The headline inflation rate was 2.7 percent in September, bringing the average inflation rate for the first nine months to 2.6 percent, lower compared to the 6.8 percent recorded during the same period last year. • Lower inflation meantime has allowed interest rates to decline. The average 91-day T-bill rate was at 3.3 percent in September, lower by 2 percentage points compared to its year-ago figure. • The NPL ratio of U/KBs at 5.18 percent (July 2007) has been in single-digit territory since June 2005 and is close to the pre-1997 crisis level of 4 percent. (For banks, the latest NPL ratio for July was at 5.6 percent.) Essentially, I’d say, so far, so good. Which brings to my mind Newton’s First Law of Motion: Does anyone recall? Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it. This is often termed simply the "Law of Inertia". We are all hopeful that our macro fundamentals will continue to be in the same state. That is, that our fundamentals would remain sound, with all the indicators pointing in the right direction, and the economy experiencing steady growth. But, many of you have been in the market long enough a quick sweep of the room tells me I am correct indeed, many of you have been around long enough to know that markets are never really at inertia for very long periods there are always agents who are constantly looking for opportunities, driven by what Adam Smith called “animal spirits” (although these days, the politically appropriate characterization for this is that “there is always an incentive to do better for oneself.”) In addition, there have recently been events in the global arena which, as they continue to unfold, pose risks to any steady and uniform pace of economic growth and decelerating inflation which we may wish for or be envisioning. Let me extend the analogy to Newton’s second law of motion, by suggesting that these global events could be the forces (F), which could alter the velocity of the moving object. Recall that Newton’s second law states that F = ma, where m is mass, and Force F and acceleration a are vectors that go in the same direction. By extension, we can say that any external force that is applied to a moving object could alter the latter’s direction to coincide with that of the force. In our analogy, this force could alter the path of an economic variable, such as inflation. There are several of these recent global forces. Tonight, however, allow me briefly to talk only about two of these: 1. the increase in global liquidity, and 2. the changing nature of financial risk. III. Increase in global liquidity Over the last few years, a significant contributor to global growth has been the expansion in the real GDP of the Emerging Market Economies. The large surpluses generated by the phenomenal growth in emerging markets, particularly in Asia, have contributed to the rise in global liquidity. In Asia alone, foreign reserves excluding gold have risen from just over $680 billion at end 1997 to almost $3.4 trillion as of latest available 2007 data. Add to this, the dramatic increase in both trade and financial integration in the Asian region. Intra-regional trade in Asia has gone up from 43 percent in 1990 to over 55 percent in 2005. Together, these have facilitated cross border flows in the region. At the same time, halfway around the globe, the Fed (and the other major economies) set out on an easing mode. This, coupled by greater global financial integration caused the movement of capital across borders, raising global liquidity. Recently, moves of major central banks to help stabilize the markets during the height of the subprime mortgage problem in the US, have also served to further increase global liquidity. These official moves seem to have produced their intended effects by halting further sell-offs in the markets, which subsequently showed a recovery. At the same time, we also know that, what I sometimes refer to as “liquidity upon liquidity” or the rising wall of liquidity, may eventually find its way again into emerging economies as investors search for higher yields, causing the cycle to continue. Further, we need to watch out for the scenario when this wall of liquidity would have risen to the point that it begins to negatively impact on inflation in the US and other countries. How the Fed and other major central banks would deal with that scenario; more precisely, the speed and extent of any change in their monetary policy stances, would definitely have an impact on liquidity and interest rates in the rest of the world. A possible slowdown in the US would also affect global liquidity. On the one hand, a slowdown could trigger a further round of easing from the Fed, which could again raise liquidity. On the other hand, it could also cause a slump in demand for goods from this part of the world, depressing current account surpluses here. A study by the ADB, however, shows that the impact of a downturn or recession in the US is likely to be modest and short-lived. This is expected to trim growth in developing Asia by 1-2 percentage points. Nevertheless, economic policy makers have to closely monitor any potential impact of the financial turmoil on the growth of the real economy. Given the Philippines’ improved macro fundamentals, the upshot of the dramatic increase in global liquidity for our country has been a strong external position, which has allowed us to build up our international reserves to an all-time high of $30.7 billion as of end September and, consequently prepay over US$3 billion in debt in 2006 and the first half of 2007. This has also resulted in an appreciation of the peso, which in turn has helped to temper inflation. The challenge brought about by strong foreign exchange inflows, however, is the increase in domestic liquidity which, if unchecked, could undermine the inflation process including inflation expectations of agents. Capital inflows are often seen as a “mixed blessing”. Foreign direct investments provide an opportunity to boost long-term growth and portfolio flows may allow a global diversification of risk. Hot money flows, however, are prone to sudden reversals, especially in the short-term when the changing conditions of perceived risk reversal could outweigh the fundamentals of the recipient economy. Central banks of emerging economies, including the BSP, should therefore find the appropriate mix of measures to maximize the benefits and minimize the costs brought by these capital inflows. IV. Changing nature of financial risk Let me now go to the second “force” I wish to discuss. In this era of financial globalization, risks transcend national borders. The international rules of the game are changing. Financial innovation, for instance, has created credit risk transfer instruments that allow banks to offload credit risk without affecting their relationship with borrowers. Banks no longer have to keep in their books loans which they originated. These can now be offloaded to final investors, depending on investors’ risk appetite. The complexity of some, if not many of these, new credit instruments, however, renders the assessment of their riskiness rather complicated. Blurred risk pricing, enveloped by complacency and topped by the need for greater and greater yield is the perfect combination for the cycle to feed on itself. Clear examples are the financial products that evolved because of the growth of the subprime mortgage market in the US. As the issues surrounding the subprime market unraveled, and risk had to be repriced, aversion towards other higher-yielding and less transparent issues/credit increased. It is important to realize that just because banks and other financial agents are able to offload risk, doesn’t mean that the overall risk in the market has diminished. The risk is just redistributed to those who are willing, and hopefully, equally able to take on such risk. Market discipline becomes very important for the orderly unwind of not just a few of these structures and to avoid widespread contagion to other markets. Effective risk management, therefore, now requires a better understanding of risks by the borrower and lender, the recipient and investor, as well as the supervisor. V. BSP’s policy responses These global forces necessitate action from central banks. This leads me to Newton’s third law of motion, which states that “For every action there is an equal and opposite reaction.” A. Monetary policy For the Philippines, the first of the two forces I mentioned, i.e., increased global liquidity, poses a risk to BSP’s inflation target. If a force is threatening to alter the course of a variable under the BSP’s control, in this case, inflation, it is incumbent upon the BSP to act in order to keep inflation in check and the public’s inflation expectations well-anchored. Let me briefly trace our monetary policy action during the course of this year, to see how we have responded to our assessment of the risk of global liquidity. The period December 2006 to May 2007 was marked by six consecutive months of domestic liquidity growth of more than 20 percent y-o-y. Continued foreign exchange inflows from export receipts, foreign investments and OF remittances fanned the surge in domestic liquidity. Understanding that if unchecked domestic liquidity growth could stoke inflation, the BSP implemented additional liquidity management tools in May this year. These included the expansion of the coverage of entities that could access our SDA window. Indicators show that these tools are producing the desired effects as M3 growth has slowed down to below 20 percent in the last three months, with the latest figure at 14.9 percent as of August. To improve the transparency of our monetary tools, the BSP implemented, in July, two complementary moves which effectively kept the monetary policy stance neutral. The tiering system on placements with the BSP was lifted and the BSP’s key policy interest rates were adjusted to 6.0 percent for the overnight borrowing or reverse repurchase (RRP) rate and 8.0 percent for the overnight lending or repurchase (RP) rate. Just last week, the Monetary Board decided to reduce key policy rates by 25 basis points effective October 5, 2007. With the risk coming from liquidity moderating, benign inflation readings over the policy horizon provided room for a reduction in policy rates. The continued appreciation of the peso, meanwhile, provides a buffer against rising global commodity prices, including food and oil. The move can also be expected to help support domestic demand, increase lending to productive activities, and shield the economy from any potential slowdown in global output growth that could occur as a result of the correction in the global financial markets. Earlier moves by the BSP were also geared toward coping with the surges in capital inflows as well as easing the pressure on the exchange rate. These included the liberalization of the foreign exchange regulations to allow the markets greater access to foreign exchange for outward investment and over-the-counter transactions. B. Financial sector reform With regards the second global force, that of the changes in the nature of financial risk, we believe that our suite of banking and financial sector reforms would equip the banking system to better appreciate, monitor and mitigate risks. Among the most critical of these, are: 1. The continued drive towards speedy asset clean-up; 2. The implementation of the Basel II capital adequacy framework, with the steady enhancements from the standardized approach to the use of internal models; 3. The adoption of international accounting standards; 4. the enhancement of corporate governance structures, particularly in developing oversight capacity of the Board of Directors to promote proper risk management environment; 5. The enhancement of the transparency of the system through improved disclosure requirements; 6. The implementation of risk-based supervision and continuous capacity building. We will also continue to support the development of the financial markets, including the derivatives market, and we will be unwavering in our push for legislative reforms, particularly the Credit Information System. An important lesson that could be learned from recent crises, including the risk aversion that resulted from the subprime mortgage fall out in the US, is that in order to minimize contagion, transparency is a key principle. When markets become frantic and fear dominates, the absence of transparency could foster a herd behavior and could considerably magnify the initial impact of the disturbance. VI. Conclusion I have only briefly touched upon two of the risks that challenge the sustainability of our economic gains. To address these as well as the other challenges we face, the BSP’s policy thrusts will remain as follows: 1. To nurture a resilient economy by ensuring this is anchored on sound macroeconomic fundamentals; in particular, we will stay focused on achieving our inflation target while maintaining a policy of flexible exchange rates; 2. To build a strong financial system that is flexible in the face of global competition and innovation; in particular, we will continue to ensure that the banking system is adequately capitalized, well-governed, profitable and efficiently managing its risks. Let me end by answering the question, can the country’s economic gains be sustained? The answer is YES. Our macroeconomic fundamentals are sound. We have undertaken significant macroeconomic, fiscal, banking and financial sector reforms which make the economy more resilient to domestic and global uncertainties. We are mindful though that there are risks to this outlook. Thus, even as our assessments show that the risks are manageable and moderating, we continue to monitor these carefully. Going forward, the challenge lies in continuing the reform process to sustain the growth momentum and improve the country’s competitiveness. I continue to look to all of you, our partners in this endeavor, for your support as we move this country forward. Thank you very much.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the regular membership meeting of the Rotary Club of Manila, Manila, 3 January 2008.
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Amando M Tetangco, Jr: Pushing ahead through headwinds Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the regular membership meeting of the Rotary Club of Manila, Manila, 3 January 2008. * * * Distinguished officers and members of the Rotary Club of Manila led by your President Benny Laguesma, my colleagues from the Bangko Sentral led by Monetary Board Member Raul Boncan, friends from the media, ladies and gentlemen, good afternoon. Thank you for this opportunity to address your group on your first Membership Meeting in 2008. I know it is customary, having just moved into a new year, to begin a speech like this by looking back at the year past and taking stock of the positive outcomes that we had achieved. But for today’s remarks, I thought I would begin by considering instead the year ahead and anticipating the challenges we face amidst the uncertainty in the global arena. I liken this beginning to how one would probably wish to commence a round of golf on a course one has never played before. (I hope you would pardon my reference to golf. But I know many here share my passion for the game.) “Know your course. What hazards are around the corner? At midday, in which direction does the wind blow? etc, etc. In other words, let’s first consider the “lay of the land” ahead of us. Then, after a quick review of these challenges, which I see to be manageable, let me put forward reasons why I believe the Philippine economy would be able to ride out the headwinds that threaten to confront us and the steps we have taken and intend to take toward this end. Challenges Since the third quarter of last year, a good deal of attention has been focused on the turmoil in the financial markets in the US and Europe and the sudden plunge in credit market confidence triggered by the US sub-prime mortgage crisis. Since then portions of the underlying forces at work have been revealed – the complex nature of derivatives used, the high degree of leveraging on poor (or even absent) collateral, the underestimation of risk that had been prevalent in the financial markets and the surprisingly sizeable exposures of large financial institutions to some of the debt instruments and derivatives in question such as CDOs. Much, however, still needs to be uncovered for the general public to appreciate the full import of these recent events. What has been evident so far, however, is that this crisis has been more financial than macroeconomic in character and effect. Let me illustrate. In the US, despite all the concern with the subprime woes, the real GDP growth in 2007 looks to be 2.6%, the same as in 2006. In Asia (ex India and China), the region is expected to grow at 5.9 % in 2007 compared to 5.7% in 2006. And in the Philippines, as you know, we are expecting 2007 full year GDP growth to be around 7 percent, our highest rate in three decades. The financial impact of the crisis, on the other hand, has been increased volatilities in ALL the equity markets and spread widening ACROSS credit markets. Nonetheless, more market analysts now believe that the risks are tilted to an outcome in 2008, particularly in the US, wherein the financial market volatilities would begin to more noticeably filter through to the non-financial portion and non-housing portion of the economy. As the real sector becomes affected, this is an event that could prove to be critical to the Asian growth story. The region has become less dependent on the US, but it is still not immune to a US slowdown. Clearly, intra-Asian trade has grown, but most of the growth in intra-Asian trade has been an increase in trade with China and India, a portion of whose imports from the region are also re-exported to the US. The success of the US, and the other major economies, in avoiding a prolonged economic slowdown therefore becomes of particular importance to Asia. The concern goes beyond merely whether the major economies succeed in containing the slowdown, but also the speed and manner in which this is accomplished – whether this is done through market prices or through structural reforms. Which instruments are chosen could, in turn, impact whether there would be an orderly adjustment in capital flows and exchange rate movements as well as the behavior of asset and equity prices. As you must be aware, the region, including the Philippines, has been grappling with the impact on exchange and interest rates of the tipping of liquidity into our region. In the Philippines, the BSP had to put in place our own policy package (that includes the build up of reserves, prepayment of external debt and the liberalization of the foreign exchange system) to contain the impact on the peso of the strong foreign exchange inflows into the country. A further challenge from the global front is the elevated price of oil and other non-oil commodities. Several market analysts share the belief that inflation this year would be higher than in 2007, primarily because of volatilities in global commodity prices due to supply constraints. Impact on the Philippine economy The unraveling of the impact of subprime on financial markets, the growing prospect for a slowdown in the US and other major economies, the uncertainty of how monetary authorities will react to arrest the economic slowdown, volatilities in oil and commodity prices. These are just a few of the potential challenges that could determine the complexion of macroeconomic policies in the Philippines this year. The manner by which we will calibrate our response to these challenges will define how much the economy will grow, how much we will be able to limit inflation and up to what extent we can maintain the stability of our financial markets. Are we up to these tasks? I certainly believe we are. For two reasons. First, while the challenges appear staggering and mainly beyond our control, the Philippines is in the best macroeconomic shape it has been in two decades as a result of the significant structural and policy reforms undertaken over the recent years, making it more resilient in the face of global challenges. Inflation has been on a trend decline, with average headline inflation for the first 11 months of 2007 at 2.7%, way below last year’s 6.2% as well as the target of 4-5%. The external position is in substantial surplus of around $8.5 billion, more than double last year’s level, due mainly from the continued strength of the current account. The GIR, at an all-time high of $32.7 billion, remains adequate and within internationally accepted benchmarks. The peso, supported by the strong external position, has been one of the top performing Asian currencies. The banking sector in the meantime continues to improve as evidenced by near pre-crisis NPL and NPA ratios, double-digit growth in assets and profitability, and capital adequacies way above the international standards, even after we implemented Basel II in July last year. Economic outlook Is the recent performance a short-term phenomenon? Is the country’s reduced vulnerability a passing episode? I don’t believe so. Our model on the Philippine business cycle shows that the downward phase of the country’s business cycle reached its turning point in the last quarter of 2006. Thus, we are now in the continuing upward phase of the business cycle, as validated by the strong growth of the economy posted in the first three quarters of 2007. Moving forward and barring any unforeseen risks, economic growth is expected to continue. This will be driven by the combined acceleration of the industry and services sectors on the production side and consumption and investments, both private and government, on the expenditure side. Average inflation was below the target of 4-5 percent in 2007, is projected to fall within the 4 percent ± 1 percentage point target for 2008 and within the 3.5 percent ± 1 percentage point target for 2009. This benign inflation outlook would in turn allow us to maintain an environment of low interest rates. The external payments position is seen to remain as a source of strength for the economy over the near term. Dollar inflows particularly from remittances and foreign investments are likely to remain robust. This should enable us to further build up our cushion of international reserves, and continue to provide support to the peso. We also envision a more resilient and profitable banking system as banks improve their ability to anticipate and manage risks, perform their functions of intermediating funds to the broadest set of users, and providing alternative investment vehicles to savers. Policy directions This brings me to the second reason why I am convinced we are up to the task – Ladies and gentlemen, we are focused on our reform agenda. The BSP’s main policy thrusts in 2008 will involve nurturing a resilient economy by ensuring that this is anchored on sound macroeconomic fundamentals and building a strong financial system that is flexible in the face of growing global integration and innovation. Managing risks to inflation and inflation expectations will remain the key policy priority of the BSP. In this regard, the BSP will maintain an appropriately prudent monetary policy stance supportive of non-inflationary growth. This will require relentless environmental scanning, continuous surveillance of key macroeconomic variables and regular sharpening of our inflation forecasting models. On the external front, our policies will be geared toward: (1) ensuring sustainability of the country’s external debt, (2) maintaining a market-determined exchange rate, with scope for occasional official action in cases of sharp movements in the peso, and (3) maintaining a comfortable level of reserves as market opportunities will allow. Reforms in the financial sector will be aimed at maintaining a strong banking system and a vibrant capital market, with the support of other government agencies and the private sector. This should help spur credit and investments, and contribute in providing the basis for a more sustainable economic activity in the medium term. I am confident that when the National Government goes full swing into the implementation of its “Ready to Go” infrastructure projects, the banks would be at the center of that endeavor. We will also continue to push for the passage of key legislations intended to develop a deep and efficient capital market, including the Credit Information Systems Act. This will make credit more accessible to a broader set of users and ensure a more efficient mobilization of resources. Ladies and gentlemen, the biggest challenge before us is to sustain the country’s strong economic performance. And we will be able to do this by continuing to focus on our reform agenda, while at the same time ensuring that this agenda remains relevant in the face of the changing global landscape. We are aware that headwinds from the uncertainties in how the global financial market volatilities would unravel still remain. To help contain these, the Monetary Board approved, just last month, two important reform packages. First, the second phase of reforms in the foreign exchange regulatory framework, aimed at promoting greater integration with international capital markets and enhancing risk diversification in support of an expanding economy with global linkages. The idea is to ensure that both corporates and individuals are given more latitude in accessing foreign exchange and expanding their portfolio of options. By making the FX environment more open, some of the pressure on the exchange rate could also be alleviated. The other set of reforms approved by the Board covers the amendments to BSP regulations governing derivative activities of banks and trust entities, including the guidelines on risk management and sale and marketing of derivatives. The amendments seek to provide a framework whereby banks could expand opportunities for financial risk management and investment diversification through the prudent use of derivates. It would also help promote growth in the domestic capital market by expanding the range of available derivatives which a bank can originate, distribute or use, without need for prior BSP approval. Both these reform packages are intended to help make the domestic market more able to quickly adapt to any further changes in the global financial markets. Concluding remarks In closing, our experience in the past year has demonstrated that sound monetary and fiscal policies, complemented by key structural reforms, have a salutary effect on the economy. Today, the Philippine economy stands on solid fundamentals that have been strengthened in recent years. These will serve us well in withstanding the “pockets of vulnerability” coming from the global financial markets. The key challenge will be to lock in the recent gains while steering the economy in riding out the current uncertainties, and then moving on to a higher and more sustainable growth path. The commitment to fiscal prudence and appropriate monetary policies and the intention to tackle policy challenges boldly through purposeful reforms should ensure that this path is sustained. This we hope to eventually translate to a reduction in poverty and improvement in the living standards of our people. I began these remarks by saying that a good strategy in playing a golf course for the first time is to know the “lay of the land”. But information about it is not sufficient to ensure that you win the game. To secure victory, you must play well. Nay, you must play consistently and hopefully, better than others. All winners know that to have a consistently good golf swing, there are two important things to remember – 1. keep your eye on the ball, and, 2. follow through. Don’t lose sight of your objective and make sure you execute a good follow through to deliver a successful outcome. Do this throughout the game and you could guaranty a victory (or at least a pleasing outcome). 2006 was a good year, 2007 was an even better year. What do we foresee in 2008? I predict that we will continue to push ahead, despite significant headwinds. We have shored up an ample buffer in terms of our sound macro fundamentals and stable banking system that we are now more resilient and able to meet challenges. In the last few minutes, I hope I have been able to show you our roadmap for the new year and into the medium term. We hope to ride out this route together with you, confident that with solid economic fundamentals, we will prevail in our journey to a higher ground. Thank you and good day.
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New Year¿s message by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), to BSPers, at the BSP Flag Raising Ceremony, BSP Complex, Malate, Manila, 7 January 2008.
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Amando M Tetangco, Jr: The Central Bank of the Philippines in 2008 – one dynamic team New Year’s message by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), to BSPers, at the BSP Flag Raising Ceremony, BSP Complex, Malate, Manila, 7 January 2008. * * * Magandang umaga at maligayang bagong taon sa inyong lahat! Fellow central bankers. I am very pleased that I am the first speaker this year for our traditional weekly flag-raising ceremony. Alam po ninyo, gusto ko pong magpasalamat muli sa inyong lahat dahil talagang maganda ang naging resulta ng 2007 para sa atin sa Bangko Sentral ng Pilipinas. We were able to keep inflation at low and stable rates, our banking system is stronger, we have record high international reserves, record high balance of payments surplus, and our peso is the best performing currency in Asia. For this, let us give ourselves a well-deserved round of applause! If you recall, the Monetary Board improved our salary scheme and incentives program in 2007 in recognition of our good performance. Kaya ba nating ulitin ito?!!! Kaya!!! I agree with you; especially if we resolve individually and collectively to find even better ways of doing things in our respective sectors. While we have been performing well in terms of our mandate, you and I know there is always room for improving our performance. It can be as simple as using recycled paper for our draft reports, completing our assignments well ahead of time, conserving water and electricity, finding more cost-effective ways of doing our work, setting higher standards for the quality of work we do, and contributing to the overall effort to transform the Bangko Sentral ng Pilipinas into a world-class monetary authority. Fellow BSPers. The months and years ahead hold a lot of challenges that demand new and better ways of doing things. Our operating environment continues to evolve and change. Therefore, it is not feasible to remain static and continue to depend on old systems and procedures. Thus, while we have become good inflation targeters, we still continue to seek third party expert evaluation of the tools we use to craft and implement responsive monetary policies. The Monetary Stability Sector will also implement more streamlined cash management operations system this year, among others. At the same time, we are reorganizing our Supervision and Examination Sector to adopt to a rapidly changing environment and implement reforms that will make our banking system stronger, more efficient, at par with international standards, and more responsive to the needs of our economy and our people. The Resource Management Sector, on the other hand, will ensure that BSPers are properly equipped with the appropriate skills and expertise required by our institution. 2008 also marks our shift to a more meaningful appraisal system in accordance with our merit system for salary adjustments and promotions. Even the way we estimate and produce our currency requirements at the Security Plant Complex is undergoing review to make it more efficient and responsive to the needs of the economy. Indeed, change is happening around us. Now, more than ever, we need to be open to change, to be flexible to be dynamic to achieve the goals we have set under our Medium Term Development Program. Nevertheless, even as we welcome change, we should, at all times, remain faithful to the five core values of our institution, which are: patriotism, integrity, excellence, dynamism and solidarity. These core values should serve as our enduring and lasting guides as we deal with the opportunities and challenges ahead of us. Ladies and gentlemen of the Bangko Sentral ng Pilipinas. By tradition, this is the time of year when we commit to do better through what we call New Year’s resolution. As our joint New Year’s resolution therefore, let us commit to be guided by our core values, at all times, wherever we may be. Muli sa ngalan po ng ating Monetary Board at nang aking pamilya kasama na ang aking maybahay na si Elma at tatlong anak, ako po ay nagpapasalamat sa inyong lahat at humihiling na sana ay maging masaya, malusog, masagana, at matagumpay ang 2008 para sa ating lahat, at sa ating mga kababayan! Mabuhay ang Bangko Sentral! Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at a breakfast meeting for the Tuesday Club, Manila, 8 January 2008.
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Amando M Tetangco, Jr: The Central Bank of the Philippines’ expectations for business and the economy Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at a breakfast meeting for the Tuesday Club, Manila, 8 January 2008. * * * I would like to greet everyone at this breakfast meeting a happy, though perhaps a more challenging, new year! As we move over to this new year, let me take a general stock of our positive achievements in the past year, which ended with the economy experiencing one of the best macroeconomic fundamentals in two decades. We achieved the ideal convergence of high growth and low inflation: GDP growth rate of 7.1% in the first three quarters last year, the highest in 30 years, while inflation rate remained at low levels (3.2% as of November 2007), comparable to those in developed economies. The Philippine peso continued to rise against the US dollar, thereby shielding the economy from the inflationary impact of record high oil prices and generating significant savings for government in terms of debt service. We also had a healthy external position with GIR at an unprecedented high level of $33.7 billion as of December 2007, as well as the highest recorded BOP surplus at $7.8 billion for January to November 2007. Interest rates remained on a generally downward trend, with the 91-day T-Bill full-year average rate at its lowest ever. Equally important, our banking system continued to be sound with record high resources and deposits. What do we foresee for 2008? We anticipate some headwinds, but they are likely to be manageable. Given the current relative strength of our economy, the primary risks emanate from external developments including 1) the ongoing sub-prime related financial market turbulence; 2) the continued surge in foreign capital inflows; and 3), the elevated prices of world crude oil and other non-oil commodities. Let me quickly go through each of these. The global financial markets appear to have stabilized from their gyrations in the third quarter last year. Still, the full impact of the US subprime mortgage market woes on the real sector has yet to be felt. This could affect us in two ways: 1) on the trade side: as the US economy, which still accounts for about 18 percent of our total foreign trade, slows down, and; 2) on movements in economic prices, e.g., exchange and interest rates: as the response of the US and other major central banks to the expected global economic slowdown unfolds. The latter could result in further risk aversion against emerging markets, including the Philippines. The second challenge emanates from continued strong capital inflows to the country as a result of an important pull factor: the Philippines’ favorable macroeconomic performance. You may have heard me refer to this as the problem of plenty. I would like to emphasize that while these inflows provide an opportunity to boost long-term growth, they also pose substantial short-term macroeconomic challenges. It is the lag between the inflow of foreign exchange and corresponding domestic liquidity infusion and its eventual utilization that is critical. How that lag is managed could spell the difference between an inflationary situation and a manageable one. A further challenge is finding the appropriate mix of measures so this liquidity is channeled to more productive investments, particularly into infrastructure. Lastly, the high and volatile international prices of oil, particularly if they remain high for a protracted period of time, continue to be a challenge. Given the headwinds in the global arena, the challenge for policymakers is to craft sound macroeconomic policies that will further strengthen the domestic economy. On the part of the BSP, our policy thrusts in 2008 are to maintain a stable macroeconomic environment that is supportive of a growing economy, and to build a more resilient financial system that is flexible in the face of growing global competition and innovation. Managing risks to inflation and inflation expectations remains a key policy priority of the BSP. On the external front, our policies will be geared toward: (1) ensuring sustainability of the country’s external debt; (2) maintaining an essentially market-determined exchange rate with scope for occasional official action to smoothen sharp movements in the rate; (3) maintaining a comfortable level of reserves; and (4) further improving the foreign exchange environment through FX deregulation. Reforms in the financial sector will be geared toward maintaining a strong banking system and a vibrant capital market. The BSP remains committed to strengthening the banking system through continued structural reforms and speedier disposition of non-performing assets. The asset clean-up of banks should help spur credit and investments, and contribute in providing the basis for more sustainable economic activity in the medium term. To further develop the domestic capital market, the BSP will continue to work actively with other government agencies and the private sector for the completion of critical market infrastructure to enhance system integrity and overall market confidence. We will continue to push for the passage of key legislations intended to accelerate the development of the domestic capital market. In particular, we shall push for the implementation of a centralized credit information bureau to improve the availability and the quality of financial information to investors, expand private sector access to credit, and minimize exposure to risks of financial intermediaries. On the basis of these policy directions, and looking ahead, the outlook for the monetary, external and banking sectors continues to be favorable. Average inflation fell below the target of 4-5 percent in 2007. It is expected to settle within the target in 2008 of 4 percent ± 1 percentage point. The external payments position is expected to remain a source of strength for the economy over the near term. Dollar inflows from remittances and foreign investments are expected to remain robust and will continue to provide support for the peso. This should enable us to further build up our cushion of international reserves. On the banking system, we expect to see a further expansion of bank assets and capitalization, as well as a further improvement in bank asset quality. These are the broad strokes of the economic picture of the year just past and for 2008. I am now ready for a discussion of specific questions and issues of interest to you.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Reception fo rthe Banking Community, Central Bank of the Philippines, Manila, 15 January 2008.
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Amando M Tetangco, Jr: Moving the economy forward to a higher growth path Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Reception fo rthe Banking Community, Central Bank of the Philippines, Manila, 15 January 2008. * * * Honorable Justices of the Supreme Court, Honorable Members of the Philippine Congress, Members of the Cabinet, leaders of the Philippine banking sector, representatives of our partner organizations, fellow workers in government, special guests good evening. On behalf of the Members of the Monetary Board, I welcome all of you to our traditional Annual Reception for the Banking Community. Ladies and gentlemen. As you have noticed, while we hold this event for the banking community, we do invite representatives from other sectors. This is in recognition of the important role the banking industry and these sectors play in moving our economy forward. While we decide and act independently of each other, at the end of the day, our policies, programs, and activities are bound to affect the others. In other words, no one acts in a vacuum; we are interrelated. It is in this spirit that we bring you together within the storied and historic walls of our Fort San Antonio Abad. And now, let me give you a brief overview of how our economy performed in 2007, our common report card in other words and how our future is shaping up, 2008 in particular. I am pleased to report that 2007 was indeed a remarkable year for the Philippine economy, as it showed its resilience and ability to sustain its growth momentum, in the face of severe volatilities in global financial markets and record world oil prices. Our economy, as measured by GDP, turned in its best performance in 30 years by expanding at a faster-than-expected rate of 7.1 percent in the first three quarters last year. There are indications that this strong performance was carried through the fourth quarter last year, based on preliminary reports on agricultural output as well as the services sector which includes telecommunications and tourism. Noteworthy is the fact that we achieved in 2007….the ideal convergence of high economic growth with low inflation, which at 2.8% is our lowest in 20 years. In turn, low inflation kept interest rates on a downtrend, led by the bellwether 91-day T-Bill rate which averaged 3.4% in 2007, the lowest level ever. For our business sector, including banks, this generally meant lower cost of doing business. As an industry, our banks continued to gain strength, achieving faster growth in terms of resources, capitalization, and profitability in 2007. At the same time, our external position continued to be strong, with our gross international reserves at end December registering an all-time high of $33.7 billion, while our Balance of Payments for the first eleven months of 2007 a surplus of $7.8 billion, also a record high level. As such, the peso ended stronger versus the weakened US dollar in 2007, claiming once again the distinction as one of Asia’s best performing currency. This effectively minimized the impact of record-high oil prices on our economy and generated billions of pesos in savings for the government in terms of debt service. We know that the 18.8% appreciation of the peso against the dollar in 2007 adversely affected many exporters and overseas Filipinos. What I can say is that the Bangko Sentral and other agencies of government are addressing this concern, as we do recognize the vital contributions to the economy of these two important sectors. In the financial sector, our reform efforts in 2007 remained directed towards building a resilient banking system and promoting a vibrant domestic capital market. On other key fronts, the BSP continued to adopt measures to further broaden access of SMEs and the microfinance sector. And in support of the full development of the domestic capital market, we have taken an active role in creating a sound market infrastructure that will enhance system integrity and promote overall market confidence. In retrospect, our much-improved economic conditions are the result of significant structural and policy reforms implemented in recent years by the institutions represented here tonight. Now, after hearing our good macroeconomic and banking performance, you may be thinking, what does 2008 hold in store for the banking system, for the economy, for each of us? What is the forecast? Clear? Sunny? Partly sunny? Partly cloudy? What do you think? I think, “sunny with patches of thunderstorms”. Why do I say this? Well, with the reform agenda – which we crafted over the last three, four years – in full swing and our macroeconomic fundamentals at their strongest in 2 decades, I believe that we are now better equipped to handle disturbances than we were, say, ten, even five years ago. And as we continue on the reform path, I am confident we can look to sunny skies but that is not to say that it will always be sunny for I see patches of clouds nearby. I see potential financial disturbances from the yet unfolding subprime mortgage problem in the US, the now-growing consensus for a deeper-than-first-expected slowdown in the US, as well as the elevated and more volatile oil and commodity prices. These risks, although essentially out of our control, are real and could threaten our outlook. We therefore need to build on what we have so far achieved. We will continue to sharpen our tools for implementing sound monetary policy. We will also continue to reinforce sound structural reforms in the banking system to ensure its overall safety and efficiency as well as its adaptability and inclusiveness, as evidenced by our substantial strides in propagating sustainable microfinance in increasingly innovative forms. Moreover, with the infrastructure and instruments of the domestic capital market now mostly in place, our challenge is to make the capital market a truly potent alternative source of funding and investments for domestic industry. We are already seeing growing evidence of this. And in support of the financial reform agenda, we will continue to cooperate with institutions concerned on the passage of key legislations such as the amendment of the BSP Charter, the PERA Bill, and the CISA. I believe we all agree that the creation of a comprehensive and reliable credit information system is key to unlocking credit flows at more affordable rates that will benefit the micro, small and medium enterprises that dominate our economy and employ most of our people. One crucial challenge that we face, and for which I earnestly request your support, is to help ensure that we improve the economy’s absorptive capacity – either through improving access to credit, by providing better risk management products and tools that would allow for project financing to flourish and, ladies and gentlemen by actually extending credit! This is the way, I believe, that the PROBLEM of PLENTY, which you have time and again heard me say, would no longer be a problem of plenty, but be a POT of PLENTY for the MANY. Indeed, our responsibility to the community extends beyond ensuring that the macroeconomy is stable, and that the banking community is sound. In this context, we believe that part of our role is to enhance financial literacy and education as well. Hence, we have partners and collaborators beyond the circle of banks and financial institutions. Our financial education program targets our key stakeholders, including overseas Filipinos and their dependents as well as students, starting with our Grade I pupils. In this regard, we are inviting our banks and other institutions to join our financial education program by reproducing the materials we have developed to ensure its widespread dissemination. For your information, the groundbreaking joint program of the Bangko Sentral and the Department of Education calls for the incorporation of lessons in saving and money management for all elementary students – from Grade I to Grade VI – starting this June, for schoolyear 2008-2009. I call on all of you, therefore, to help make this a success. We believe that through this program, we shall be on the right path to nurturing a new generation of Filipinos who are adept in managing their personal as well as their county’s finances. Ladies and gentlemen, these reforms and initiatives will continuously propel our economy forward to ever higher growth paths. With your strong support and cooperation, we can continue to fortify the economy, making it more resilient to ride out unpredictable winds of change and able to deliver another productive year. Together, let us continue to lay a solid and strong foundation for our country’s future. Thank you all. And now, let us offer a toast to a better and strong year for our economy and the Philippines as a whole. Mabuhay!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 'Bank Marketing Summit' & Induction of BMAP of Officers, Manila, 29 January 2008.
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Amando M Tetangco, Jr: Breakthroughs and break through Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the “Bank Marketing Summit” & Induction of BMAP of Officers, Manila, 29 January 2008. * * * The officers and members of the Bank Marketing Association of the Philippines (BMAP), colleagues in the banking industry, special guests. Good morning! I am pleased that BMAP has chosen a challenging and exciting theme for this year’s Bank Marketing Summit: Breakthroughs & Break Through. To me, this signifies a strong commitment to raise the bar of service to bank clients; to set the pace for responsive and responsible marketing; to be more innovative and efficient in the way you communicate and LISTEN to your clients; and to incorporate social responsibility objectives in your marketing programs. You must realize that I have high expectations insofar as the BMAP is concerned. I will explain why. Ladies and gentlemen of the BMAP. 2007 represents a significant turning point for our economy, with our economic fundamentals described as the best in two decades. In fact, our economy as measured by GDP is the best we had in three decades! Inflation has been maintained at a low level; so have interest rates. At the same time, the banking sector had one of its best years in 2007. That we achieved this in the face of many challenges… including record high oil prices makes this economic breakthrough truly exceptional. Of course this did not happen overnight. I will not go into details because as responsible bankers I am sure you keep abreast of economic developments. I will therefore focus on the breakthroughs we have achieved in the banking sector. The Bangko Sentral in close coordination with banks and other institutions continued to work on key reforms to ensure adherence to the tenets of good governance for fairness, accountability and transparency; we continued to align our practices with global standards, including international accounting and financial reporting; we started implementing Basel II prescriptions for risk-based capitalization; and we continued to expand the reach of our banking system to make it accessible and meaningful to the unbanked. The Bangko Sentral has also relaxed the rules governing derivatives activities of banks. The aim is to provide a framework where banks and trust entities could expand opportunities for financial risk management and investment diversification through prudent use of derivatives. This is consistent with the BSP’s continuing thrust to give banks greater flexibility to respond to changing market opportunities and allow them to take risks so long as they demonstrate the ability to manage and price for those risks. As members of a key organization in the banking community, your work as marketing professionals as front liners is vital to the continuity of our financial reform agenda. It is important to remember this. For even as we achieved a significant breakthrough in our economy, with Moody’s validating this with an upgrade in our outlook from stable to positive, there will always be challenges we have to deal with. The global economy for instance continues to be adversely affected by the lingering effects of the sub-prime mortgage crisis and an economic slowdown in the US, the world’s biggest economy. This year, therefore, we expect BMAP to be more deeply involved in building on these reforms to further enhance the risk management process, corporate governance, disclosure standards, and capital adequacy. One of our continuing priorities is to broaden access of SMEs and the microfinance sector to credit. BSP’s recent reform initiatives toward this end include liberalized branching; expansion of FCDU and trust license to include qualified rural banks; and the re-opening of quasi-banking license. We also continue to work on a sound market infrastructure to ensure secure and timely completion of transactions, thereby minimizing systemic risk and enhancing the integrity of financial transactions. This is being implemented through the promotion of progressive policies on e-commerce and payments system innovation. You can expect that our policy thrusts will remain geared toward acceptable risk management practices that enable financial industry participants to better assess and manage risks without unduly hampering the ability to innovate. The BSP will also continue to take a proactive role in accelerating development of the domestic capital market. While we have made significant strides in speeding up the reform process, there is still a lot of work to do. The biggest challenge right now is to make the domestic capital market a truly potent alternative source of funding and outlet for investments for corporates and other entities. The synergy between the banking system and a vibrant capital market should create much more opportunities for service and product innovation. Another crucial challenge that we face, and for which I earnestly request your support, is to help ensure that we improve our economy by actually promoting and extending credit! This is the way, I believe, that the PROBLEM of PLENTY – strong dollar inflows, for instance – which you have time and again heard me say would no longer be a problem of plenty, but be a POT of PLENTY for the MANY. In other words, ladies and gentlemen of the BMAP, there is so much going on in the banking sector and you are in a position to help your respective banks and our economy benefit from it. Nevertheless, I must remind you that even as you get involved in the sometimes complex details of these reforms you must not forget your customers. I mean, the basic requirements of your customers. I remember that I have asked BMAP before to take the lead in informing their ATM customers of their service fees. Sure, there has been compliance, but I wish there would be more active and visible compliance. My other request is for BMAP to initiate the posting of the contact details of their high level officers who can receive customer feedback that are often overlooked at the branch level. I hope to see more bank premises with this simple guide. As it is, the Bangko Sentral continues to receive complaints about bank services. This tells us that some of your customers are not getting the attention they need and they do not know the bank officers they can call or e-mail. Again, this is a challenge that I am sure BMAP can manage quite effectively. Finally, I invite all of you to participate actively in our financial education program. Our financial education program targets our key stakeholders, including overseas Filipinos and their dependents, students, and the general public. I know that BMAP officers have been meeting with our Corporate Affairs Office on how they can support this important advocacy. In particular, a joint program of the Bangko Sentral and the Department of Education calls for the incorporation of lessons in saving and money management for all elementary students – from Grade I to Grade VI – starting this June, for school year 2008-2009. I call on all of you, therefore, to help make this a success. You can do this by helping print the materials we have developed to ensure its widespread dissemination. You can also help by developing parallel campaigns that will develop the habit of saving and investing. For your information, we have about 14 million students in the elementary levels, 12.8 million of whom are in public schools. This is a big and solid critical mass! This also represents a big base of potential customers for your banks. Equally important, if we are successful, we shall be on the right path to nurturing a new generation of Filipinos who are adept in managing their own resources and in strengthening the country’s financial system. Let us cooperate therefore in implementing this breakthrough program. Indeed, it should be another busy year for all of us. I therefore call on the officers and members of BMAP to assist the Bangko Sentral in ensuring the successful implementation of these reforms and advocacies. We will again count on your support and commitment to these programs. Together, let us forge an even stronger partnership as we continue to foster stability in the financial system and secure more sustainable and higher growth path for our economy. Finally, I thank your outgoing officers – led by Bobby Banaag – for a job well done and congratulate the new set of BMAP officers – headed by Mike Villareal – on the successive breakthroughs they will set during their term. Mabuhay ang BMAP! Mabuhay ang Pilipinas! Maraming salamat sa inyong lahat!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), for the FOCAP Forum, Makati, 12 February 2008.
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Amando M Tetangco, Jr: Current economic issues in the Philippines Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), for the FOCAP Forum, Makati, 12 February 2008. * * * Ladies and gentlemen of the Foreign Correspondents Association of the Philippines, special guests, good morning. I have been requested to discuss current economic issues this morning. Since you monitor our economy very closely, by the minute in some cases, I will not bore you with the details. Instead I will present the big picture, so to speak, so you will understand where I am coming from. Then I shall focus on the monetary and banking policies of the Bangko Sentral ng Pilipinas. As you know, the Philippine economy chalked up impressive gains on various fronts in 2007. Our GDP growth was the highest in three decades while our inflation rate was the lowest in twenty years. As I have said, we achieved the ideal convergence of high growth amidst 20year low inflation in 2007. We also had a healthy external position, ending 2007 with record high gross international reserves and unprecedented balance of payments surplus. At the same time, our banking system is stronger, with record high resources and deposits as well as capitalization way above the standards set by the Bangko Sentral and the Bank for International Settlements. As a result, we are experiencing a very stable macroeconomic environment that is validated by market confidence in the Philippines. This is the big picture. Let me now discuss the challenges that the BSP faces in the pursuit of its mandate of ensuring stable prices and a sound banking system. The first challenge is the anticipated US economic slowdown. There is a consensus among multilateral institutions, investment banks and credit rating agencies that the US economy will slow down in 2008. However, there is no consensus yet on whether the recent problems in the US subprime markets will push the US economy into a mild slowdown or usher in a recession. Either way, a weaker US economy is expected to slow down global growth, although growth in emerging markets could temper this. In the case of the Philippines, the projected US slowdown is not seen to have a significant immediate impact. However, we recognize that a longer-than-expected US recession could take its toll on the economy. Given this, the BSP will continue to monitor global developments to ensure that appropriate measures are implemented, when warranted. The second challenge is global risk emanating from high and volatile international prices of oil. In the absence of a change in OPEC’s quota policies or a major global slowdown, international oil prices are likely to remain high due to continued geopolitical and supply risks coupled with strong global demand and continuing speculation in the futures prices of oil. For the Philippines, prolonged high oil prices is a threat to our inflation outlook. The third challenge is the global financial market turbulence that could result in increased risk aversion towards emerging markets like the Philippines. We saw in the third quarter last year that – as a result of subprime problems in the United States – the reassessment, repricing and adjustment of risk positions affected not only the US market, but also equity bond and exchange markets across the globe. Although the global financial markets appear to have stabilized, the full impact of the US subprime mortgage market woes has yet to be felt. This could affect the Philippines in two ways. First, growth in the export sector could soften as the US economy, a major trading partner of the Philippines, slows down. Second, movements in economic prices, e.g., exchange and interest rates, could result from further risk aversion against emerging markets, including the Philippines. The fourth challenge for the Bangko Sentral is a possible resurgence in domestic liquidity from sustained strong capital inflows on account of our favorable macroeconomic performance. While domestic liquidity growth has declined to more manageable levels after our policy action in May, we still foresee strong foreign exchange inflows in 2008. Since this may threaten our inflation target, the Bangko Sentral will need to continue to monitor this and ensure that the liquidity level is consistent with the inflation objective. At first blush, these challenges may seem formidable. Yet, the Philippine economy has time and again shown its resilience. I believe therefore that these challenges are, ultimately, manageable. On the whole, Bangko Sentral’s main policy thrusts in 2008 and beyond will focus on maintaining sound macroeconomic fundamentals and a strong financial system that is flexible, innovative, and globally competitive. A key priority is to maintain our inflation target by maintaining a prudent monetary policy stance supportive of non-inflationary growth. Average inflation is expected to settle within the target of 4 percent ± 1 percentage point in 2008 and within 3.5 percent ± 1 percentage point in 2009. The external payments position is expected to remain a source of strength for the economy over the near term. Dollar inflows from remittances and foreign investments are expected to remain robust. This should enable us to further build up our cushion of international reserves. On the external sector, our policies will be geared toward: (1) ensuring sustainability of the country’s external debt; (2) maintaining a market-determined exchange rate with scope for occasional official action in cases of extreme movements in the peso; (3) maintaining a comfortable level of reserves; and (4) improving the foreign exchange environment further through forex deregulation. Reforms in the financial sector will be geared toward maintaining a strong banking system and a vibrant capital market. The BSP remains committed to strengthening the banking system through structural reforms and speedier disposition of non-performing assets. At the same time, continuing asset clean-up of banks should help spur credit and investments, thereby generating support for more sustainable economic activity in the medium term. Other regulatory reforms will be aimed at the further strengthening of corporate governance, risk management, and capitalization through a more effective and efficient enforcement of standards and codes. In particular, prudential regulations shall continue to be aligned with international standards and best practices. To further develop the domestic capital market, the BSP will continue to work actively with other government agencies and the private sector to complete critical market infrastructure that will enhance system integrity and overall market confidence. We will continue to push for the passage of key legislations intended to accelerate the development of the domestic capital market. In particular, we shall push for the implementation of a centralized credit information bureau to improve the quality of financial information to investors, expand private sector access to credit, minimize risks exposure of financial intermediaries, and lower borrowing costs. Ladies and gentlemen. On the basis of these policy directions, the outlook for the monetary, external, and banking sectors continues to be favorable. I am now ready to discuss the issues of particular interest to you. Thank you.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the oath-taking of the officers and directors of the Economic Journalists Association of the Philippines, Makati, 11 February 2008.
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Amando M Tetangco, Jr: The Philippines – macroeconomic outlook for Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the oath-taking of the officers and directors of the Economic Journalists Association of the Philippines, Makati, 11 February 2008. * * * President Donna Gatdula, other distinguished officers and members of the Economic Journalists Association of the Philippines, special guests, friends, good evening. It is a great pleasure for me to address this induction ceremony and this gathering of highly informed watchers of the Philippine economy. As economic journalists, you continue to be a major channel for transparency and provider of key economic information for the business community. From the point of view of the BSP, you have also played a vital role in our efforts to communicate the basis and implications of monetary policy to the markets and the general community. I am doubly pleased because I see many familiar faces, including the relatively new reporters on the beat and those I met long before I became governor. But don’t worry – I will not disclose how long ago that was. Instead, I will focus on the topic you have asked me to discuss tonight: the macroeconomic outlook for 2008. To put things in perspective and to provide context for our outlook, I will begin my presentation with a review of the past years. Economic developments I am sure you have read or heard in fact some of you have written that the Philippines is now experiencing the most stable economic environment in more than two decades. This is not just a “tale”. The numbers support this story. The Philippine economy grew at the highest GDP growth rate of 7.3 percent in three decades in 2007. This growth rate was above the Government’s target of 6.1-6.7 percent set for 2007. This was boosted by the expansion of services and the impressive performance of both agriculture and industry. On the demand side, growth was driven by government consumption and investments. This strong growth was achieved in a period of benign inflation. Headline inflation last year stood at 2.8 percent, the lowest in 20 years. This is now comparable to developed economies. In turn, low inflation has resulted in lower interest rates, again the lowest in 21 years. This has brought down the cost of money for borrowers, whether personal or corporate. In this respect, we achieved a good convergence of high growth and low inflation. In addition, our external position was at its best in 2007. The overall BOP position closed 2007 with a surplus of US$8.6 billion, the highest on record. This reflects improved market sentiment as evidenced by higher foreign investment as well as continued vibrancy of overseas remittances and other services receipts. This helped raise the country’s gross international reserves (GIR) to a record high of $34.4 billion as of end-January 2008. And with the weakening dollar, the peso emerged as one of Asia’s stronger currencies. These developments were matched by positive indicators pointing to a stronger Philippine banking sector. Bank deposits were up while bank capitalization exceeded both domestic and international standards. Bank lending to most sectors of the economy expanded last year and bank asset quality improved with NPL ratio closer to its single digit, pre-crisis level. Another positive development on the domestic front was the solid gains in the National Government’s fiscal consolidation program. Revenue collections improved while deficit and debt levels dropped. Indeed, by many performance measures, 2007 was a most auspicious year for the Philippine economy. Outlook and challenges Looking forward, can we sustain this positive momentum? What do we see in 2008 and beyond? Well, we expect economic growth to continue, driven by a broad-based expansion led by the services sector as well as robust growth in aggregate demand. In fact, as reckoned by the Development Budget Coordination Committee (DBCC), GDP likely to grow at a healthy pace of about 6.3-7.0 percent in 2008. On the monetary front, emerging BSP forecasts continue to indicate a manageable inflation path. We expect to see average inflation settling within the 2008 target of 4 percent, plus or minus one percentage point. This target is supported by slowing growth in domestic liquidity, a strong peso, moderate risks to agricultural production, and well-anchored inflation expectations. For 2009, we see inflation within the 3.5 percent plus or minus one percent point range. Likewise, the external payments position is expected to remain a source of strength for the economy over the near term. In particular, dollar inflows from remittances and foreign investments are expected to remain strong. This should enable us to further build up our cushion of international reserves. We also expect to see a stronger banking system in 2008 as banks further increase their capitalization and improve their ability to anticipate and manage risks. Ladies and gentlemen of EJAP, this general outlook is dependent of course on how we manage the challenges that we face. The first is slower world economic growth. This emanates from expectations of subdued growth in the US due to difficulties in the mortgage market and weaker consumption spending stemming from high energy prices and falling house prices. For the Philippines, this could mean weaker exports and lower remittance receipts. However, we expect that sustained strong domestic demand and increased investments will help temper the impact of the global slowdown. The second is volatile and high global prices of oil and other commodities. If these commodity prices remain high for a protracted period of time, it could threaten our inflation outlook. The third is the global financial turbulence. Although the global financial markets appear to have stabilized, we have yet to see the full impact of the US subprime mortgage crisis. Its impact on the Philippines has been limited; however, an economic slowdown in a major trading partner such as the US could adversely affect our export sector, while movements in interest rates could generate risk aversion against emerging markets including the Philippines. So far, there has been limited impact on the Philippines but we need to keep watch of these developments. The fourth is plentiful domestic liquidity from sustained strong foreign exchange inflows. While liquidity growth has slowed down as a result of the Bangko Sentral’s efforts to siphon off excess funds from the market, emerging trends in monetary aggregates still need to be checked, in line with expectations of sustained foreign exchange inflows. Policy directions These are serious challenges that we face: the first three are beyond the control of domestic policy while the last can be influenced by both monetary and fiscal policies. Nevertheless, we believe that, ultimately, they are manageable. On the part of the Bangko Sentral our policies will be focused on the following: A. Monetary policy will remain focused on managing the risks to inflation such as the likelihood of second-round effects and closely monitoring developments in liquidity conditions. B. On the external sector, our policies will be geared toward: C. • ensuring sustainability of the country’s external debt; • maintaining a market-determined exchange rate with scope for occasional official action in cases of sharp movements in the peso; • maintaining a comfortable level of reserves; and • improving the foreign exchange environment further through forex deregulation. Banking policy, on the other hand, will continue to focus on three main objectives: • promoting a stronger and more stable financial system; • developing the domestic capital market to make it more supportive of investments growth; and • providing easier access to funds by small and medium-sized businesses as well as micro enterprises. In addition, the Bangko Sentral will continue to foster an environment that will facilitate further disposal of banks’ non-performing assets. Other key financial reforms will be focused on aligning prudential regulation of the banking system with international standards and best practices, enhancing our payments system, as well as strengthening corporate governance standards and market discipline mechanisms. Meanwhile, microfinance shall continue to be the BSP’s program for poverty alleviation, with collateral-free loans providing the entrepreneurial poor (e-poor) with much needed capital to start a micro enterprise. The BSP will also continue to push for the passage of key legislative bills to accelerate the development of the local capital market and further strengthen the regulatory authority. In particular, we shall push for the implementation of a centralized credit information bureau to improve the quality of financial information to investors, expand private sector access to credit, minimize exposure to risks of financial intermediaries, and lower cost of borrowing. We will likewise work actively with other government agencies and the private sector for the completion of critical market infrastructure to enhance system integrity and overall market confidence. At the same time, we will intensify our economic and financial education program so that Filipinos can participate in, and benefit from, our economic gains. In this advocacy, I earnestly ask for your support. Other Filipinos can participate in opportunities that economic development brings if such are brought to their attention and they are made to understand its potential. This is the reason why we have been conducting nationwide lectures on investment options for Overseas Filipinos and their dependents. And starting June this year, 11 million public elementary students will be taught lessons on money management to help them develop the habit of saving and investing. With this, I hope we can nurture a new generation of financially literate Filipinos. Conclusion Ladies and gentlemen, let me close this message by saying that the Philippine economy is likely to weather the challenges it faces, both domestic and external. I believe that with the fundamental strength of the economy backed by the government’s firm commitment to continue to pursue needed reforms, there exists a sound basis for a sustained noninflationary growth in the country. Finally, I congratulate EJAP for its continuing program to professionalize business reporting in our country. I hope your efforts to develop and upgrade the skills of your members will be successful. In this regard, you can count on us at the Bangko Sentral for support. Doris, in her introduction of me, referred to my Chinese zodiac sign so let me now complete that by wishing you all a Happy New year of the Earth Rat! It is my understanding that the 2008 Rat begins a new 12-year cycle as such it promises change, new beginnings and new attitudes. On behalf of the Bangko Sentral, therefore, I wish all the new officers of EJAP, as you face a new “year”, a fruitful and successful term. Mabuhay ang EJAP! Thank you all and good night.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Fund Managers Association of the Philippines¿ Induction of Officers, Makati, 13 February 2008.
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Amando M Tetangco, Jr: Recent economic developments – challenges and policy implications Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Fund Managers Association of the Philippines’ Induction of Officers, Makati, 13 February 2008. * * * President PJ Garcia, other officers and members of the Fund Managers Association of the Philippines, friends, ladies and gentlemen, good afternoon. I am pleased to join you today during your general membership meeting. The FMAP has a unique role in mobilizing investments of institutional investors, particularly at this time of ample liquidity in the system. The BSP continues to look forward to your support in helping to channel these resources to funds that will support economic development. I also welcome from you initiatives that would enhance and promote professional standards of fund management in ensuring that the funds are managed in accordance with the tenets of fairness, accountability and transparency. As fund managers, you play a significant role in the development of the domestic capital market. I have been requested to share with you today our macroeconomic outlook for 2008. In the process, I will try to provide policy insights on the current domestic and global developments, what their implications are for the BSP’s monetary policy, and how these will affect the country’s economic outlook. Recent economic developments 2007 was marked by what I have called as the “convergence of high growth and low inflation.” The Philippine 7.3 percent growth rate for 2007 is the highest growth achieved in 31 years. At the same time, this broad-based economic expansion was realized in an environment of low and stable inflation, with full year inflation at 2.8 percent, the lowest in 21 years. Meanwhile, foreign investment was strong due to upbeat investor sentiment on the country’s improving macroeconomic fundamentals. There was also positive news coming from the external sector. The country’s balance of payments posted a record surplus of US$8.6 billion in 2007, buoyed by the sustained strong remittance of overseas Filipinos as well as higher net services receipts, and capital inflows. The country’s gross international reserves (GIR) also continued to post record highs. At the end of January 2008, it amounted to US$34.4 billion, which could cover 6.0 months’ worth of imports of goods and payment of services and income. The external debt situation has likewise improved and remained manageable. The peso remains firm, providing a mitigating effect on inflation, while broadly maintaining its external competitiveness. The banking sector has remained fundamentally sound. The banking system sustained a steady asset expansion for the last seven years supported by continued growth in deposit base. The continued asset clean-up of banks, accomplished through market-oriented schemes and without the use of public funds, boosted the banking system’s overall asset quality. The banking system’s NPL ratio is now closer to the pre-crisis level of around 4.0 percent. Banks also remained capitalized at levels above both the BSP-regulatory requirement and the BIS standard. The banking system’s capitalization is expected to improve further with banks’ increased issuance of hybrid financial instruments to strengthen their capital base. As a footnote to banking performance last year, I would like to mention that the banking system was not significantly affected by US subprime mortgage market problems. First, because Philippine bank exposure to the CDO market was only 0.2 percent of total bank assets as of mid 2007, and none of these have subprime mortgages as underlying assets. Second, the country has been less dependent on external borrowing and has, therefore, become less vulnerable to external shocks. Third, there is ample liquidity in the system and hence, any credit squeeze could be manageable. The fiscal sector likewise performed well, with the National Government posting a P9.4 billion budget deficit in 2007, its lowest in ten years. This was achieved through enhanced revenue collections and privatization efforts. Moreover, for the first time in more than a decade, the consolidated public sector financial position registered a surplus in 2006. This continued on in the first nine months of 2007 with the public sector posting a surplus of P52.7 billion. Gains brought about by the government’s fiscal consolidation efforts were evident in the material reduction in the public debt burden. All in all, one could say, 2007 has been marked by an auspicious alignment of the stars – what should be going up, went up, what should go down, went down. Key challenges ahead While we have implemented in recent years prudent macroeconomic policies and structural reforms, which allowed us to achieve these important milestones in the previous year, the Philippine economy continues to face challenges from both the global and domestic fronts. These include: (1) the US economic slowdown; (2) further disruptions in the global financial markets; and (3) continued volatility in oil prices and the uptrend in non-oil commodity prices. One of the major challenges is the slowdown of the US economy. There is consensus that the US economy is poised for a downturn in 2008. The current tightening of credit conditions in the US could exert downward pressure on investment and consumption. The sharp decline in US real estate market could also weigh in on consumption via wealth effects. What does this mean for the Philippine economy? A slowdown of the US economy could directly impact the Philippines via two key areas: the country’s export receipts; and (2) remittances from overseas Filipinos. The Philippines is not immune to a US slowdown, although there are factors that may limit any adverse impact. For instance, although the US is still one of the country’s top trading partners, US dominance in Philippine trade has diminished. The share of Philippine exports to the US decreased from 30 percent in 2000 to 17 percent in 2007. The IMF has also found that the sensitivity of Philippine growth to US growth has declined overtime. However, the sensitivity is still palpable. The IMF estimates that a 1 percentage point reduction in US growth reduces Philippine growth by 0.5-0.6 percentage points. Moreover, the persistent reliance of the Asian region on US trade and the increasing relative dependence of the Philippines on Asian trading partners, indicate the absence of full decoupling. The net impact of a US downturn on Philippine growth will depend on how the Philippines’ other major trading partners are affected by developments in the US. Remittances are another important channel through which the US economic slowdown could manifest itself in the Philippines. Latest data show that about 1/3 of our land-based workers are in the US. The diversification in deployment in terms of destination and quality of skills, could temper any expected slowdown in remittances from a weakening of the US economy. A second major concern for us is the possibility of further global financial market turbulence. The IMF has noted that while coordinated credit operations by the major central banks, together with rate cuts, have helped ease liquidity tensions, wider problems in the financial system still persist. These include problems in the valuation of complex products, credit deterioration, counterparty mistrust, and balance sheet pressures. Of great concern, however, is that a possibly deeper economic slowdown in the US or elsewhere could serve to widen the crisis beyond the subprime sector. Problems in the financial sector have started to spill over to the real sector via reduction in domestic demand particularly in the advanced economies. The third key challenge is the continued volatility in oil prices and the uptrend in non-oil commodity prices. The elevated price of oil, particularly if this continues for a protracted period of time, would be a concern as this could threaten our currently within-target inflation outlook. However, crude oil price forecasts indicate a moderate downtrend in prices in 2008-2009, albeit to levels higher than the average seen in 2007. In addition to the forecast of tapering oil prices in the second half of this year, a more structural shield against a surge in high oil prices is the country’s reduced dependency on imported oil. Our dependence on imported oil has steadily declined from over 50 percent in the mid-1990s to 37.3 percent of the total energy consumption as of 2006. Meanwhile, the increase in global food prices could continue due to a number of factors, such as the rising incomes in China, India, and other emerging market economies that could drive up further the demand for food products, and increased biofuel production. Implications for monetary policy Against these risks, monetary policy will need to maintain the right balance in order to address inflationary risks while allowing the economy’s growth momentum to continue. With the BSP’s adoption of the inflation targeting framework, the achievement of price stability becomes its ultimate objective in the conduct of monetary policy. An inflationtargeting central bank, therefore, should not be bound by multiple objectives unless these are necessary to achieve the goal of price stability. Nonetheless, the BSP is firmly committed to promoting price stability that is conducive to a balanced and sustainable economic growth. In particular, monetary policy needs to be watchful of the emerging risks to inflation and inflation expectations. The BSP needs to be on the lookout for second-round effects of supply-side pressures, particularly on wages, utility rates and transport fares. BSP’s policy thrusts Against these major developments and challenges, the BSP will continue to pursue initiatives aimed at maintaining sound macroeconomic fundamentals supportive of a vibrant economy. We will, thus, remain focused on our inflation target. As you are aware, a low and stable price environment allows economic agents to plan better. It also allows us to maintain a low interest rate environment that would help support domestic demand. Relative to the external sector, our policies are: to ensure the sustainability of the country’s external debt; maintain a market-determined exchange rate with scope for occasional action in cases of extreme movements in the exchange rate; maintain a comfortable level of reserves; and improve further the foreign exchange environment. On the financial sector, our policy thrust shall be to continue our reform efforts towards further strengthening the banking system. Our banking sector reforms shall focus on: further enhancing the regulatory framework through the implementation of the BASEL II roadmap; improving corporate governance by promoting compliance with international accounting and financial reporting standards; accelerating implementation of risk-based supervision technology; encouraging the development of the domestic capital market; and strengthening ties with other financial regulators. In line with these thrusts, you may recall that towards the end of last year, the BSP approved two important reform packages: The further liberalization of outward investments of residents. Highlights that may be relevant to the FMAP are: (1) allowance of outward investments by residents funded with foreign exchange purchased from the banking system not exceeding US$30 million per year no longer need prior BSP approval; and (2) qualified investors may now apply for a higher annual outward investment limit. QIs include, among others, insurance and pre-need companies, collective/pooled funds such as mutual funds, unit investment trust funds and variable insurance. The amendments to BSP regulations governing derivatives activities of banks and trust entities, including guidelines on risk management and sale and marketing of derivatives. Both these reform packages are intended to help make the domestic market more able to quickly adapt to any further changes in the global financial markets. Philippine economic outlook On the basis of these policy directions, the outlook for the macroeconomy continues to be favorable. Average inflation is expected to be within target in 2008 and 2009. The volatility in world oil prices and uptrend in non-commodity prices remain the key risks to the inflation outlook. Nevertheless, these potential risks to inflation are seen to be tempered by some downside risks such as the firm peso and reduced dependence on imported energy sources. Meanwhile, the fiscal positions of the National Government and the entire public sector are expected to continue to improve, taking off from their performance in 2007. Finally, we expect the BOP to continue to be in surplus although at a level that is smaller compared to the previous year. The liquidity impact of the external surplus will have to be managed such that the amount of money in the system remains consistent with the inflation objective. Concluding remarks Ladies and gentlemen, the Philippine economy’s current fundamentals are at the strongest they have been over the past two – three decades, providing us reasons to be optimistic about the future. But there are headwinds, mainly coming from external developments. This time around, we believe that the Philippines is better able to withstand the shocks due to the following reasons…”buffers” as I would like to refer to these: the underlying growth momentum due to improving fundamentals; we have a stronger external liquidity position; we have gained dividends from our structural reforms in the areas of fiscal policy, power, banking, and capital market; and we have better information disclosure, which encourages markets to look at Philippine-specific risks and not be prone to herding behavior. But we cannot afford to be complacent. Even as we have built up “buffers”, we must continue to be mindful of the potential risks, particularly the possibility of unforeseen ones that could impede our path to further progress. The primary task ahead of us is to focus on strengthening the economy while also preserving the momentum for economic reforms to ensure sustained growth in the long run. The implementation of appropriate reforms by the government and active participation of the private sector, in promoting economic development will be powerful forces in the fulfillment of this challenging task. In this endeavor, the BSP looks forward to FMAP’s continued support. Maraming salamat at magandang hapon sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Management Association of the Philippines' Economic Briefing, Manila, 27 February 2008.
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Amando M Tetangco, Jr: On the road to sustaining economic stability and growth Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Management Association of the Philippines’ Economic Briefing, Manila, 27 February 2008. * * * MAP President Edgar Chua, MBC, other distinguished officers and members of the Management Association of the Philippines and the Makati Business Club, friends, ladies and gentlemen, good afternoon. It is a pleasure to join you on the occasion of the induction of MAP’s new members and Joint Economic Briefing. To the newly inducted members of MAP, congratulations! While you look forward to breaking new ground within this organization, the Philippine economy appears to be moving toward a more challenging environment – One, which on several occasions, I have characterized as fraught with headwinds. The rough patches that surfaced in the second half of last year, appear to have intensified. You may have heard it asked: “Can the Philippines ride out these rough patches and push past the headwinds?” Our assessment at the BSP is that, NOW more than at any other time in at least a decade, the Philippine economy COULD. Quite a number of analysts, rating agencies, market players even Ciel himself (or shall I say, ALSO Ciel) agree with the BSP on this. 2007 was a remarkable year for the Philippines. Can we do a repeat? With the patchy road ahead, we may not see the same “highs” (and “lows”), but we certainly have built up “buffers” that would allow us to press on the road ahead of us. Let me quickly run through some of the “patches” or challenges that I see ahead of us. First, further turbulence in global financial markets. SUBPRIME. There is probably none here in this room who hasn’t yet heard of the term. You were all witnesses to the volatilities it created in the second half of 2007. I won’t go into the genesis of the problem, but clearly, what began as a home-grown housing mortgage market problem in the US has become a global problem and what was first manifested as difficulties in the financial market is starting to seep into the real economy. The coordinated credit operations by the major central banks and policy rate cuts have helped ease credit tensions, but wider problems in the financial system still persist. At the heart of this problem is uncertainty. First, there is continued uncertainty about the size of losses from defaults on US subprime mortgages that the global financial system will eventually have to absorb. Second, there is uncertainty about where these exposures will end up. Third, this lack of information breeds fear of ratings downgrades, of steep sell-offs and of other unknown consequences. In sum, the global financial turbulence stoked by the subprime mortgage problem in the US has intensified and is expected to be protracted. While the Philippines has limited direct exposure to CDOs, none of which have subprime mortgages as underlying assets, we do not expect a significant direct impact on the local financial system. However, the ongoing global financial volatility could affect the market via a rise in risk aversion. A general retreat from risks by global investors could affect the direction of capital flows. The second challenge is the slowdown in the US economy. The current tightening of credit conditions in the US due to risk reassessment in financial markets and the sharp decline in the US real estate market threaten to exert further downward pressure on investment, consumption, and, consequently, output growth. Many economists have adjusted their US growth forecasts for 2008 downward. Some have made downward adjustments by as little as 0.4 percentage point or as much as 2.4 percentage points. What is unknown, really, is the length and depth of this slowdown. Some have characterized this is possibly SHORT and SHALLOW, others SHORT and SHARP. Nonetheless, we continue to monitor developments in the global growth picture as the weakening of domestic demand in the US and other advanced economies could create significant spillovers into developing and emerging economies such as the Philippines. There are at least two channels through which a sharper-than-expected slowdown in the US could directly affect the domestic economy. One, through the trade channel. The prospect of decoupling from the US is not clear cut. Even as our dependence on the US has diminished as shown by the drop in our direct exports to the US in recent years, and that trade with China, India and other emerging markets has increased, we must remember that portion of our increased exports to these new markets is really re-exported to the US. Thus, as economic activity slows in the US, our exports would possibly show a decline also. One significant mitigant, however, is if, indeed, as expected by many analysts, the domestic demand in emerging markets holds up. This situation could result in the country maintaining or even increasing the level of our exports to these markets. Such could thus prop up the overall exports. Remittances is a second important channel through which a slowdown in the US economy could impact on the domestic economy. Latest data show that 1/3 of our land-based overseas Filipinos are in the US. The diversification in deployment in terms of destination and quality of skills could, however, temper any slowdown in remittances. Let me now turn to the third major risk that we face: the rise in global food and energy prices. Food prices have gone up as a result of strong demand from China, India, and other emerging market economies that are experiencing rising incomes. Poor harvests due to adverse weather conditions and increased biofuel production have also ratcheted demand for certain related food items. Furthermore, just recently we saw oil price breach the $100-a-barrel level. Geopolitical tensions in the Middle East, refinery bottlenecks, speculative activity, the weak US dollar, and the continued strong demand for crude oil all exerted an upward pressure on global oil prices. However, as global growth slows, we may see commodity price volatilities abate in the second half of the year. With these risks that I have just described being primarily global and largely not directly within our control, why do we believe that the Philippine economy will be able to ride out these patches? The short answer is we have built up domestic buffers. What are these? One, we have built up buffers in our domestic financial system. The Philippine banking system’s asset base has grown steadily over the last 6-7 years. The overall asset quality of banks continued to improve as well, with the NPL ratio now moving closer to the pre-crisis level of around 4 percent. Banks’ overall capital adequacy ratio was also maintained well above regulatory and international standards, shored up by the increased issuance of hybrid financial instruments to strengthen their capital base. Last year, we rolled out two reform packages aimed at improving the system’s ability to manage risks and competitiveness in a more globally integrated market environment – here I refer to the further liberalization of our FX market and the new derivatives circular. Amid the heightened risks in the global financial markets last year, the banking sector has showed resilience. Two, the fiscal picture has improved considerably. The National Government posted a P9.4 billion budget deficit in 2007 equivalent to less than 1 percent of GDP, its lowest in ten years. Moreover, for the first time in more than a decade, the consolidated public sector financial position registered a surplus in 2006. This has continued on in the first three quarters of 2007 with the surplus reaching P52.7 billion. Gains brought about by the government’s fiscal consolidation efforts were also evident in the material reduction in the public debt burden. Three, our external position is strong, making us less vulnerable to external shocks. The country’s balance of payments posted a record surplus of US$8.6 billion in 2007, buoyed by strong inflows of overseas remittances, higher net services receipts, and direct and portfolio investments. This has allowed us to build up the country’s gross international reserves to record highs. Consequently, we were able to prepay external debt. In fact, in the BSP, we have prepaid all that we could. The NG, other GOCCs and the private sector have all taken advantage of our strong BOP and prepaid external debt. Thus, the country‘s external debt and debt service burden have also gone down. At the same time, the steady inflow of foreign exchange has kept the peso firm, broadly maintaining its competitiveness in real effective terms over this period, and providing a mitigating effect on inflation. Finally, the sturdier policy framework and broad-based structural reform that we have put in place, have helped promote a more coordinated and productive economic environment. This is evidenced by the economy achieving in 2007 the highest GDP growth rate in 31 years of 7.3 percent against a backdrop of low and stable inflation. The 2007 full year average inflation of 2.8 percent was the lowest in 21 years. This combination has allowed market interest rates to generally trend downward. Those, in brief, ladies and gentlemen, are our buffers. How can we further build these to ensure that we can ride out any unforeseen bumps in the road? Well, my friends, like any good driver, we must keep our eyes on the road and follow the map that we have set out on. This brings me to the BSP’s policy thrust for 2008. The BSP’s monetary policy thrust will involve a balancing act between managing the risks to inflation and inflation expectations, and seeing to it that the economy’s growth momentum continues over the policy horizon. We will continue to focus on our core mandate of promoting price stability. This will require intensified environmental scanning and continuous surveillance of key macroeconomic developments, particularly those that indicate emerging risks to the inflation outlook. Relative the external sector, our policies will be geared toward: ensuring the sustainability of the country’s external debt; maintaining a market-determined exchange rate, with scope for occasional action to keep orderly market conditions; and maintaining a comfortable level of reserves as market opportunities will allow. Reforms in the financial sector will be aimed at maintaining a strong banking system and a vibrant capital market. Specifically, we will focus on: further enhancing the regulatory framework through the implementation of the BASEL II roadmap; improving corporate governance by promoting compliance with international accounting and financial reporting standards; accelerating the implementation of risk-based supervision technology; and continuing support for the development of a deep and efficient capital market, including by supporting necessary legislative reforms. In sum, we will continue to be focused on our primary mandate. ”More of the same” is what you may have heard me say before. More of these which have served us well in the past. On the basis of these policy directions, the outlook for the macroeconomy continues to be favorable. Although we are seeing a hump-shaped inflation path in the first half of 2008, whereby monthly inflation rates are expected to rise to around the top end of the target range, we forecast full year average inflation to be within target in both 2008 and 2009. The volatility in world oil prices and uptrend in non-commodity prices remain the key risks to the inflation outlook. Nevertheless, the emerging scenario is for commodity prices to taper towards the end of this year. This within-target outlook will allow us to maintain a low interest rate environment. We expect the BOP to continue to be in surplus, although at a level that is smaller compared to the previous year. The liquidity impact of the external surplus will have to be managed such that the amount of money in the system remains consistent with the inflation objective. Ladies and gentlemen, the Philippine economy has travelled a remarkable distance in recent years. Responsible economic policies and purposeful reforms have resulted in significant economic dividends for the country. But equally significant patches are now threatening the sustainability of the gains we have achieved thus far. Yes, we have built up “buffers”, but we cannot afford to be complacent. Much is yet to be known about the size and depth of the patches that lie on the road ahead. The critical task for us now is to preserve the momentum for economic reforms so as to ensure sustained growth in the long run. Just as important to sustaining growth is delivering growth that casts a wider net. These require focus as well as commitment. To this end, it is my hope that the MAP and MBC community will continue to be our partner in the thrusts and the reform agenda that I had outlined. I look forward to your support as together we tread the road to sustained economic growth. Thank you and good day to all!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the ILF MOA Signing Ceremony, Manila, 25 March 2008.
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Amando M Tetangco, Jr: Banking sector developments in the Philippines Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the ILF MOA Signing Ceremony, Manila, 25 March 2008. * * * Members of the Monetary Board, Undersecretary Roberto Tan, BAP President Ramon Sy, Mr. Paul Favila, fellow bankers, special guests, good morning. I am glad we now have this Memorandum of Agreement for the Enhanced Intraday Liquidity Facility. This MOA will help the Philippine banking sector adapt and respond better and faster to increasingly dynamic and challenging developments in the financial markets. Congratulations are therefore in order to all those involved in the process that has led to this MOA signing today. Let us give everyone a well-deserved round of applause. Indeed, operational adjustments in the ILF provide participants greater flexibility in the use of their securities. For instance, instead of earmarking the securities for ILF use for the whole week, participants can now make daily changes in their securities pool. In addition, availments will be made only when the need arises. Furthermore, availment costs have been reduced to encourage more participation to the ILF. Ladies and gentlemen. These are challenging times and now, more than ever, we need to close ranks to address the issues that concern the banking sector in a coordinated and comprehensive manner. On our side at the Bangko Sentral, we assure you that our lines of communication are kept open at all times for discussions and consultations. I expect the same from your end, particularly when it concerns programs that will benefit the financial system in particular and our economy in general. I will be the first to say that we have done a lot to strengthen our banking sector. This has been validated and repeatedly acknowledged here and overseas. However, we should continue our reform agenda to keep in step with global developments. Let us choose innovation, over stagnation. United, we can make further improvements in our banking sector as well as our payment and settlements system to make it stronger, more efficient, and consistently aligned with worldclass standards. Mabuhay ang Philippine banking sector! Maraming salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at RCBC's (Rizal Commercial Banking Corporation) re-launching of its program for Small and Medium Enterprises, Makati City, 26 March 2008.
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Amando M Tetangco, Jr: RCBC – banking on emerging corporates Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at RCBC’s (Rizal Commercial Banking Corporation) relaunching of its program for Small and Medium Enterprises, Makati City, 26 March 2008. * * * Ambassador Yuchengco, Chairman Dee, President Tan, other officers and staff of RCBC, special guests, good evening. In many countries, including the Philippines, small and medium enterprises constitute the backbone of the economy. As such, initiatives that provide meaningful support to SMEs represent welcome news indeed. It is in this context that I view RCBC’s re-launch of its SME Lending Program. Through the years, consolidated lending of the banking sector to SMEs has shown considerable growth. In 1991, the year Republic Act No. 6977 or the Magna Carta for Small Enterprises took effect, credit to SMEs amounted to P17 billion. By December 2007, or 16 years later, total loans extended to SMEs have reached P352 billion. This is roughly 21 times more than the 1991 total. We at the Bangko Sentral ng Pilipinas acknowledge the banking sector’s commitment to support SMEs. As a whole, the banking sector has consistently exceeded the mandatory credit allocation for SMEs under the Magna Carta for Small Enterprises. Although this law lapsed in August last year, Congress has already ratified the bill extending and enhancing the SME law. We expect this to be signed into law in the very near future. In the meantime, the Bangko Sentral ng Pilipinas encourages banks to continue supporting SMEs. It is in this light, that we commend RCBC for taking a leadership role in promoting and allocating resources for its SME lending Program. As one of the major banks in our country, RCBC is bound to influence others to take a similar stance. To me, support for SMEs translates directly to a vote of confidence for our people and our country. Recognized as the biggest employers in our country, SMEs account for about 80% of employment generation. If, therefore, we are able to keep the SME sector on a consistent growth track, we would be able to accomplish broad-based and sustained growth for our country. Equally important, we would have a strong domestic economy that is less vulnerable to global economic shocks. Ladies and gentlemen. Last year our economy posted the best GDP growth in 31 year. One of the reasons for this is strong investor confidence in our country, as a viable emerging economy. This was coupled with the 2.8 average inflation rate in 2007, which was the lowest in 21 years. Other indicators likewise exhibited stronger economic positions such as the country’s balance of payments, which posted a record surplus of USD 8.6 billion in 2007 and our all-time high level of international reserves. As for the banking sector, it remains fundamentally sound with the average capital level well above the minimum regulatory requirement and the NPL ratio that is now almost back to the 1997 pre-crisis level of around 4.0 percent. The RCBC group in particular, has shown marked improvement in performance as it posted a net income for the year ended 2007 which was 50 percent better than the previous year’s level. Further, we take the Bank’s recent issuance of P7 billion worth of Unsecured Subordinated Debt as a sign of bank’s commitment to further strengthen its capital base as it assumes new risk exposures. RCBC’s SME Lending Program is anchored on the theme “Banking on Emerging Corporates.” This signals the belief and confidence of RCBC’s leadership in the future of SMEs to become growth drivers of the Philippine economy. I believe you are on the right track. I hope this will steer the tempo of competition in the banking industry as it opens diversification of possible sources of income for banks. Indeed, the challenge of setting a footprint on SME lending is a milestone RCBC and other banks should take, as its contribution in providing a strong foundation for sustained and broad-based economic growth for our country. Again, my congratulations to RCBC. Mabuhay!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Housing Microfinance Product Launch, Manila, 15 May 2008.
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Amando M Tetangco, Jr: Housing microfinance in the Philippines Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Housing Microfinance Product Launch, Manila, 15 May 2008. * * * DBP SVP Brillo Reynes, HUDCC Assistant Secretary Celia Alba, fellow workers in government, representatives from the microfinance and the housing sectors, special guests, good morning. On behalf of the Monetary Board, I welcome all of you to the Bangko Sentral ng Pilipinas. Today is a busy day for the microfinance sector. Earlier this morning, we launched the 2008 Microentrepreneur of the Year Awards to kick off our search for the country’s outstanding microentrepreneurs. Now, we are launching the housing microfinance product. This coming together of housing finance and microfinance has been cited by practitioners as a development breakthrough that combines the best practices and principles of microfinance with the peculiarities of housing finance. Ladies and gentlemen. These two events underscore the holistic approach that we are adopting in addressing social and economic objectives through microfinance. Housing as a shelter is a necessity. And as a sector, it has the potential to generate employment across its supplier groups and keep the economy growing. It is important therefore that we support it. However, the housing sector has yet to reach its full potential. Housing backlog persists due to lack of available and affordable housing especially for those who are not members of pension funds. With today’s launching of housing microfinance, our 3 million entrepreneurial poor will have access to housing finance under this pioneering program. This pioneering program started when Vice President Noli De Castro, concurrent chair of HUDCC led the crafting of this program with the Development Bank of the Philippines with assistance from Asian Development Bank’s social housing and community development program – the Development of Poor Urban Communities Sector Project. This was subsequently presented to the Bangko Sentral. After careful consideration, and bearing in mind its positive impact on the country’s social and economic objectives, the Monetary Board approved housing microfinance products as a type of microfinance loan. As approved, the maximum loanable amount for home improvement loans is 150,000 pesos, while the maximum for house construction and acquisition is 300,000 pesos. The approval of the housing microfinance product as a type of microfinance loan is important as it will enjoy the same incentives as regular microfinance loans. Among others, housing microfinance does not require collateral and documentary requirements are much simpler. In other words, this housing microfinance addresses the usual barriers that the poor face in accessing housing finance. There are also built-in incentives for creditor banks. For instance, housing microfinance loans are eligible as alternative compliance to mandatory credit allocation to agrarian reform and other agricultural credit. In addition, housing microfinance loans shall have an assigned riskweight of as low as 0% (zero) when guaranteed by the Home Guarantee Corporation or a 50% risk-weight if it is not guaranteed. Nevertheless, even as we work to promote housing microfinance, risk management features are embedded in the product design for banks follow. This includes the use of cash flow analysis to determine the clients’ ability to pay and requiring a good track record as a microfinance client. In this connection, the BSP entered into a Memorandum of Agreement with HUDCC last month to set the standards and criteria for the accreditation of banks that can go into housing microfinance. Under this MOA, banks that wish to participate in this particular housing microfinance should first be accredited by HUDCC and the DBP to confirm if they are following the features approved by the BSP. Other banks that want to provide housing microfinance under a different scheme should get BSP’s prior approval. The ideal market for this product are microfinance clients who have proven their creditworthiness to their banks. With about three million active micro-borrowers, the market for housing microfinance looks promising indeed. I am confident therefore that we will see a significant increase in affordable housing finance that caters to the needs of the poor in a sustainable and non-subsidized manner. Let us therefore congratulate those who worked with dedication on this housing microfinance product that will empower microentrepreneurs to improve their quality of life and productivity through affordable housing. On this happy note, I thank all of you for joining today’s launching of the housing microfinance. Mabuhay ang microfinance housing program for the poor! Maraming salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Microentrepreneur of the Year (MOTY) Awards 2008 Launch, Manila, 15 May 2008.
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Amando M Tetangco, Jr: Microentrepreneurial success in the Philippines Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Microentrepreneur of the Year (MOTY) Awards 2008 Launch, Manila, 15 May 2008. * * * Fellow workers and advocates in microfinance, special guests, good morning. On behalf of the Members of the Monetary Board, I welcome all of you to the Bangko Sentral ng Pilipinas for the launching of the 2008 Microentrepreneur of the Year Awards. Ladies and gentlemen. This is the sixth year we are mounting this search for the best microentrepreneurs in our country. Through all these years, I have felt that the role of the judges in selecting the winners have become increasingly difficult. Don’t get me wrong; I am not complaining! The difficulty lies in the fact that there are now so many inspiring success stories in the microfinance sector to choose from. This tells me that we are successful in providing a nurturing environment for microenterpreneurs. Today is therefore a happy occasion as friends and colleagues involved in microfinance come together once again. Let us therefore take this opportunity to thank our partners for making the MOTY a muchanticipated event. Friends, let us give a big hand to Citi Philippines and Citi Foundation under Mr. Sanjiv Vohra, the Microfinance Council under Mr. Rollie Victoria and Mr. Ed Garcia, as well as the members of the National Selection Committee. During the first five years of the MOTY, we met exceptional microentrepreneurs who proved access to responsive microfinance services can empower them to break out of poverty and build a better life for themselves, their families, and even their communities. We are happy that our past winners continue to shine and to be a source of inspiration. For instance, 2004 winner Leticia Rosas, a handloom weaver from Marinduque, had the unique experience to address a big crowd of microfinance practitioners in the historic halls of the Malacanan Palace. 2006 winner Jennilyn Antonio, a former factory worker turned peanut butter manufacturer, now supplies SM Supermarkets, the country’s largest retail chain. We of course thank one of our committed judges, Mrs. Tessie Sy-Coson, for this. And just recently, we learned that one of our winners was able to access a 2 million peso loan from the Development Bank of the Philippines without collateral. Other winners have become newsworthy celebrities, invited to guest in television and radio programs or featured in newspapers and magazines. Clearly, MOTY’s value goes beyond the incentives it provides deserving microentrepreneurs; it has also evolved as a vehicle for showcasing microfinance as a potent tool for poverty alleviation and microentrepreneurs as responsible, accountable and creditworthy bank clients. Ladies and gentlemen. These milestones are the results of the collective and coordinated efforts of many institutions and individuals, the key movers of which are represented here today. Indeed, MOTY is one tangible example of successful and meaningful cooperation among different institutions working toward a shared goal. Today, as our country’s poor grapple with the challenges of rising prices of basic commodities, the call for coordinated efforts to fight poverty has never been stronger. Let us therefore resolve to work more closely together to build stronger financial institutions that provide responsive service to microenterprises, sow the seeds of entrepreneurship, nurture local enterprises, and build prosperity in our country through microfinance development. I am confident this can be done. I say this on the basis of our track record. Before the year 2000, for instance, there were only a handful of banks into microfinance. Since then, this has grown significantly. Today, 229 banks are into microfinance with a total client base of 780,000 and loans outstanding of 6 billion pesos. Significantly, our micro-borrowers have also become net savers; their deposits with banks as of December 2007 have reached close to 2 billion pesos! Not only have they been liberated from the cycle of poverty, they are attaining financial security for themselves and their families. Let us therefore resolve to continue to work together to nurture and expand our base of microenterpreneurs all over the country. Thank you all. Mabuhay ang microfinance!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 15th Anniversary, Manila, 3 July 2008.
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Amando M Tetangco, Jr: 15th anniversary of the Central Bank of the Philippines Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 15th Anniversary, Manila, 3 July 2008. * * * Magandang umaga sa inyong lahat! Fellow central bankers, on behalf of the Monetary Board, I greet all of you a happy 15th anniversary! By any measure, this is a milestone we should celebrate and be proud of. Why do I say this? Well, you and I know that the first 15 years of the Bangko Sentral ng Pilipinas has been fraught with challenges. As an institution starting afresh, we had to reorganize and align our policies in accordance with the clear mandate given to the Bangko Sentral: to stabilize prices and ensure a sound banking system. Soon after, we had to contend with the fallout from the Asian financial crisis, political upheavals, natural calamities, and the threats, as well as opportunities, that globalization brings. Nevertheless, we always pulled through and emerged the better for it. In the process, we have been able to provide stability to the economy and the country through responsive monetary and banking policies. For this we thank all of you – ladies and gentlemen of the Bangko Sentral ng Pilipinas. Let us therefore give ourselves a well-deserved round of applause. Once again, let us acknowledge the contributions of former MB Members Dr. Vicente Valdepenas, Jr. and Atty. Raul Boncan by giving them a big hand. Let’s also give a round of applause for our present MB members: Secretary Romulo Neri; former Finance Secretary Juanita Amatong; Atty. Nelly Favis-Villafuerte; Mr. Alfredo Antonio; and our brand-new MB member Atty. Ignacio Bunye. Palakpakan din po natin ang dalawang na-unang gobernor ng Bangko Sentral ng Pilipinas: si Governor Gabriel Singon at si Governor Rafael Buenaventura! Ladies and gentlemen. The collective efforts of central bankers, past and present, have generated recognition for Governor Singson, Governor Buenaventura and myself and most of all, for our beloved institution – the Bangko Sentral ng Pilipinas. These are well-deserved recognition that we should be proud of. In fact, 2007 was a banner year for the Bangko Sentral as we were able to tame inflation to 2.8%, the lowest in 21 years, even as high global oil prices were hitting record high levels. That we achieved this low rate of inflation rate as the economy posted its best growth rate in three decades made for an ideal convergence of high growth and low inflation. We also ended 2007 with record high gross international reserves, balance of payments surplus, higher foreign investments, and a strong peso that emerged as one of Asia’s top performing currencies. And even as a strong peso had an adverse effect on our income last year, we remain financially strong and solid. Our capital base is now roughly 15 times the P10 billion we started out with 15 years ago. Thus, while imported inflation from record high food and oil prices has started to affect local prices this year, we are still able to anchor expectations. We are take pride in the fact that we were able to nurture our banking system back to health from the depths of the Asian financial crisis without the massive government bailouts that other countries in the region resorted to. Our solution: to improve the quality of supervision and implement far-reaching structural reforms in cooperation with the Executive and Legislative branches of government. Today, bank profits are better and capital base deeper, while NPA and NPL ratios are nearly back at pre-crisis levels. As a result, our banking sector is recognized as strong and able to withstand the fallout from the global financial turmoil. Furthermore, banks are consolidating into stronger institutions even as their delivery of banking services and new financial products now extend well beyond urban centers and deep into the countryside and islands. A stable, secure and efficient payments and settlements system is another source of pride for us. In addition, we are happy that our advocacy in sustainable microfinance has energized smaller banks, especially rural banks, into bringing in more people within the banking system, not just for a working capital loan, but also for deposits and remittances. In fact, we are leading the way for central banks in product innovation for microfinance and garnering international recognition for it in the process. We have also made much progress in broadening available alternatives for overseas Filipinos in sending remittances to their beneficiaries. Greater competition has led to lower remittance cost, better accessibility, quicker delivery, and generally better services that facilitates the inflow of remittances into the economy. We also continue to register gains in our economic and financial education program for the general public. Our goal is to provide economic empowerment and to protect them from financial frauds. Ladies and gentlemen. I have given you the broad picture of the impact of the Bangko Sentral ng Pilipinas on our economy and on our people’s lives. No doubt about it: we have a crucial and critical role in improving the lives of Filipinos. And so far, we have been doing quite well. However, the challenges ahead are increasingly complex. Oil price has breached $140 and central banks all over the world are concerned about inflation. We do need to exert more effort to be even better. For this, we need to strengthen cooperation within our institution, we need to work closer, to unite as One Dynamic Team! Tama ba? Very good! Now, let us ask the different sectors: MSS under DG Diwa Guinigundo, are we one dynamic team? RMS under DG Armando Suratos, are we one dynamic team? SES under DG Nestor Espenilla, are we one dynamic team? EMS, are we one dynamic team? May video streaming nga pala na ginawa ang ITSS kaya napapanuod din tayo ng live sa SPC at sa regional offices and branches natin. Kumusta kayo? Tatanungin ko rin kayo ha at irereport ni Asst. Gov. Eve Avila at ni Managing Director Pete Tordilla kung malakas din ang sagot ninyo. SPC, are we one dynamic team? RMSS, are we one dynamic team? Now, everybody, is the BSP Family one dynamic team?!!! OK! Fellow central bankers, we need to continue to re-invent ourselves and position our personnel for all the challenges that may lie ahead. The first 15 years of our journey has led us to reorganize ourselves; upgrade employee compensation and benefits; strengthen our strategic planning and budgeting process; improve our facilities and equipment; align our training programs to world-class standards; send our best and brightest staff to the best universities; unveil progressive wellness programs; and open our doors to recruitment of fresh talents. Moving forward, you can be sure, we will continue to invest in our people. After all, at the end of the day, good central banks are all about having good people. And you – ladies and gentlemen of the Bangko Sentral ng Pilipinas – you are our most valuable assets. Mabuhay ang Bangko Sentral! Mabuhay ang Pilipinas! Happy anniversary to all.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 15th Anniversary Dinner, Manila, 3 July 2008.
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Amando M Tetangco, Jr: The Central Bank of the Philippines @15 Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP 15th Anniversary Dinner, Manila, 3 July 2008. * * * Senator Angara, Representative Jaime Lopez, fellow bankers, co-workers in government, members of the media, special guests, good evening. On behalf of the Members of the Monetary Board, I welcome and thank all of you for joining us in celebrating this important milestone: the 15th anniversary of the Bangko Sentral ng Pilipinas. As central banks go, you may say that at age 15, we belong to Generation Y. But youthful as we are as an organization, we are really standing on the shoulders of our richly experienced forerunner that is the Central Bank of the Philippines. This enables us to leverage the freshness of our eyes with a vantage point progressively built from accumulated experience. In other words, we have the vitality of youth as well as the stability and resiliency that come with maturity. This represents a remarkable combination of strengths we can draw from as we face the ever-changing and never-ending challenges that are the burdens of honor of a central bank. As the central bank in a developing country where millions of people still live in poverty, the Bangko Sentral ng Pilipinas is fully cognizant of its crucial empowering role in improving lives of Filipinos through the formulation and implementation of responsive monetary and banking policies. As we can all sense from the anxious urgency of today’s headlines, we will need all that strength and agility as we once again gird for battle against an old adversary of central banks – INFLATION. As you are aware, its underpinnings are complex and the dimensions global. This is not the occasion to discuss this looming challenge in depth, however. What is clear is that we can ill-afford the luxury of underestimating this problem. What I will say at this time is that we stand ready to engage it with quiet confidence. We do have a track record of performance to back us up. Our first 15 years has given us the opportunity to help strengthen our economic foundation even as we build up institutional capacity, reputation, and credibility through sound policy-making and effective implementation. We will be the first to say ours is not a perfect 15 years; but we can tell you that the source of our collective confidence in our ability to face up to the challenges ahead. First, we have financial strength. We hold international reserves of more than 36 billion dollars, a historic high. Our capital base is now over P150 billion versus the original P10 billion we started out with when the Bangko Sentral was created 15 years ago. Our balance sheet is strong with most of our foreign debts paid up. We enjoy a successful track record of solid contributions to macroeconomic stability as evidenced by a lengthening record of relative monetary stability, balance of payments surplus, and meaningful economic growth. We have nurtured the banking system back to health from the depths of the fallout from the Asian financial crisis in the late 1990’s without the massive government bailouts that characterized other countries in our region. We did it by improving the quality of supervision and instituting far-reaching structural reforms in cooperation with the Legislative, represented here tonight by Sen. Angara and Cong. Lopez, and the Executive Branches of Government. Today, bank profits are higher, capitalization deeper, and NPA and NPL ratios down to nearly pre-1997 crisis levels. Banks are consolidating into stronger institutions even as branch networks and other delivery channels expand well-beyond urban centers and deep into the countryside and islands. We have also witnessed the unveiling of new financial products to meet the growing need and sophistication of the public – from the wide array of credit cards, cash cards, to structured investment products, to unit investment trust funds, to tailor fitted loan products. Products that cater to the top end of the market and all the way down to microfinance customers. We are especially proud of our advocacy in sustainable microfinance that has energized our smaller banks, particularly the rural banks, to bring more people within the reach of a banking system not just for a working capital loan, but also for deposits and remittances. And among central banks, we lead in microfinance advocacy and regulation. This has led to creative product innovation as well as international recognition. We have also made much progress in broadening the array of alternatives available to overseas Filipinos in sending their remittances back home to their beneficiaries. Greater competition has led to lower remittance cost, broader access, quicker delivery, and generally better services. It has also facilitated the inflow of remittance into the economy that now amount to approximately $16 billion per year and grows at double-digit growth rates. Our desire to develop a more inclusive financial system that caters to all sectors of society has also led us to yet another major advocacy – that of promoting financial learning down to the grass roots level. If you recall, our Tulong Barya Para sa Eskuwela Program was successful because we had the banking sector with us as partners led by the Chamber of Thrift Banks, Rural Bankers Association of the Philippines, the Bankers Association of the Philippines, as well as the Philippine Retailers Association particularly SM and Robinsons, ABSP-CBN and GMA7 among others. Many of you are here and we take this opportunity to thank you again. I also wish to invite you to support this program which is being launched in partnership with the Department of Education. We also thank our partner-banks who share our goal of teaching our 12 million public elementary students regular lessons on saving and money management. Our screen is now flashing the banks who are now on board with us for the integration of financial lessons in the elementary curriculum. We are keeping the doors open for other banks and institutions to support this breakthrough project. For your information, the Bangko Sentral has a comprehensive financial education program that covers schoolchildren to college students to adults, including overseas workers and their dependents. We are also setting up economic & financial literacy centers in Bangko Sentral’s regional offices and branches across the country because we believe that education is a powerful empowering means for developing responsible and productive citizens. In this connection, we are also pleased to announce that the Bangko Sentral is expanding its scholarship program to include deserving students in urban centers and in the provinces for courses associated with economics and banking. Ladies and gentlemen. The last 15 years has provided us the opportunity for introspection and to re-invent ourselves as well as our institution for the challenges that lie ahead. You who are here tonight have been with us in our journey. We thank you for this. It is in this spirit that the Monetary Board approved the scrapping of certain fees of the Bangko Sentral’s real time gross settlement system – the PhilPass. You may get more details about this from Deputy Governor Andy Suratos who is here with us. I also take this opportunity to remind you that we at the Bangko Sentral stand ready to continue our dialogue with you so that we can identify more areas of concern, formulate solutions, and thereby move forward together. Ladies and gentlemen. The Bangko Sentral is a work-in-progress. And, as always, much remains to be done. The journey ahead is bound to be challenging, and inspiring. As we gear up for this, let us continue to nurture the ties that bind us in our common search for a better future for our people, our economy, and our country. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang mahal nating bansang Pilipinas! Thank you all for accepting our invitation. Enjoy the rest of the evening.
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Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the inaugural reception of RBAP Board of Directors and Officers, Manila, 8 July 2008.
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Amando M Tetangco, Jr: The growing significance of rural banking in the Philippines Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the inaugural reception of RBAP Board of Directors and Officers, Manila, 8 July 2008. * * * Secretary Arthur Yap, Mr. Tomas Gomez IV, board of directors and officers of the Rural Bankers Association of the Philippines (RBAP), our friends in rural banking, good evening. I am delighted to have this opportunity to keynote the inauguration of the new directors and officers of the RBAP. It is, indeed, an auspicious new day for the rural banking industry. Seeing the new set of directors and officers at RBAP’s helm, I am certain that you will provide the impetus needed for the rural banking sector to once again forge ahead. Rural banks have an important and challenging role in our country’s economic development. In the law that created rural banks, they were envisioned to be catalysts for comprehensive rural development, channels of equitable distribution of opportunities and wealth, and support for expanded productivity in rural communities. The end goal was to raise the quality of life for all, especially the underprivileged. This task of great magnitude is relevant today, as it was then. In fact, with the shifts in the economic landscape, the increasingly changing needs of the market, the advent of new technologies and channels, it may be said that the demand on rural banks today is even greater than it was then. Rural banks must commit to continuously upgrade their capacity, efficiency and sustainability. Rural banks must uphold good governance and management practices to ensure that they are sound and well managed. Finally, rural banks must be dynamic and progressive to keep in step with these changes and developments. I am happy to note, that by all measures, the rural banking sector has geared up to face the challenges and to seize the economic opportunities they present. Year on year, rural banks are exhibiting robust asset growth and strong capital build-up. As of end 2007, the sector’s total assets reached PhP 149.5 Billion, an 18% increase from the previous year. Total capital accounts have also shown double digit growth of 13.4% from PhP 18.4 Billion in 2006 to PhP 20.9 Billion in 2007. The Capital Adequacy Ratio (CAR) has remained above the minimum 10% required by the Bangko Sentral at 15.7%. The business of rural banking has also continued to show viability and profitability. Net Income After tax (NIAT) increased by 20% from PhP 2.3 Billion in 2006 to PhP 2.8 Billion in 2007. Return on Assets and Equity also continue to increase. Savings mobilization and lending activities have also been on an uptrend. Deposit liabilities in 2007 were at PhP 108.1 Billion, a 21.5% increase from the previous year. Similar double digit increases were seen in the sector’s lending activities. Total loan portfolio of rural banks increased to PhP 93.3 Billion from only PhP 77.1 Billion in 2006. While lending activities expanded, the high quality of the portfolio was maintained. As of the 4th Quarter of 2007, the Non Performing Loans (NPL) Ratio was 9.67% which is an improvement from the 11.11% for the same period for the previous year. Using these indicators, rural banks are faring equally or even better than its universal, commercial and thrift bank counterparts while remaining true to its core mission of serving the needs of the countryside. Rural banks alone cover around 80% of the total municipalities in the Philippines with nearly 730 banks and over 2,000 branches nationwide. The real value added of rural banks, however, does not lie solely on their broad geographical presence but just as importantly on their deep understanding of the character, peculiarities and needs of the rural customers. At the Bangko Sentral, we have no doubt that rural banks are the ideal partners in invigorating local economies. Toward this end, we are working assiduously to ascertain that abundant opportunities are available for rural banks to ensure their institutional viability, expand their businesses and more importantly improve their products and services. The issuance of the revised branching guidelines last December 2005 (Circular 505) aimed to enhance competition in the banking system and maximize the delivery of financial services especially in underserved areas. The new guidelines enable existing banks to further increase the depth and breadth of their outreach and better serve more and more clients both in the rural and urban areas. The benefits of such policy to the rural banking sector are immediately evident. As of end 2007, number of rural and cooperative bank offices increased to 2,133 offices from 2,075 in the previous year. While the number of banks decreased by 12, the number of branches and other offices increased by 58 from end 2006 to end 2007. What we are seeing is a consolidation of the sector where we are seeing stronger rural banks confidently expanding their operating networks. To complement the liberalized branching regime, the Bangko Sentral has provided further opportunities for rural banks to expand their outreach beyond the brick and mortar structure of their head offices and branches. In 2007, we issued Circular 563 which granted rural banks the authority to invest in ATM networks. As of end 2007, the number of rural banks with ATMs reached 83 from 73 units in 2006 and just five ATMs in 2005. In addition, rural banks may provide electronic banking services, particularly mobile phone banking. As a result, a number of rural banks have already ventured into electronic banking to beef up their delivery of financial services. As of end 2007, a total of 46 rural banks started offering ebanking services such as cash card and mobile banking. Again, this is a significant increase from no rural banks with electronic banking in 2005. What I am happy to see is that rural banks are not just simply using these new virtual networks and branches, as they are now available to them. They are going the extra mile in finding ways that are practical, as they are innovative, to make these new channels more attuned to the needs of their rural clients. Some banks are using available technology to place ATMs in hard to reach areas that do not even have telephone lines. Other banks, through a partnership with RBAP-Microenterprise Access to Banking Services (MABS) and G-Cash, have taken mobile phone banking to another level. The participating rural banks are now using the electronic cash platform in delivering financial services like deposits, withdrawals and loan payments. Indeed, mobile phone banking has the unique opportunity to reach a wider spectra of clients and tap those who are traditionally marginalized and “unbanked” – the lower income segments of the population. The successful experience, thus far, of the rural banks, mobile phone companies and the BSP have caught the attention of the international community who are lauding our efforts in using technology to increase access to finance. The BSP will continue to keenly monitor and support these innovations with a dynamic regulatory environment. The Bangko Sentral is also expanding the products and services that rural banks can competitively provide. In 2006, through Circular 522, the BSP granted rural banks the authority to operate FCDUs. Rural banks have a distinct advantage to compete in the remittance business at the final mile by virtue of their close contact with countryside customers. In addition, recent product approvals of the BSP such as the Micro-Agri Product and the Housing Microfinance Product provide rural banks with opportunities to expand the range of services they can provide to their clients. In particular, rural banks with microfinance operations are now provided with the opportunity to complement their present microfinance operations by offering these new products, to further diversify portfolios and reduce the risk of business loans being applied to agriculture or housing. Further, by recognizing the microfinance component of these loans, they will now enjoy the same benefits of microfinance such as no collateral requirements or the acceptance of collateral substitutes, cash flow and character based lending, small and frequent amortizations as well as simple documentary requirements. In the last two years, qualified rural banks were further granted the authority to engage in a wider range of activities. Through Circular 583, issued in 2007, rural banks may engage in limited trust activities. Just this year, rural banks have been allowed to participate in selected derivative activities. With the revised rules governing derivative activities of banks under Circular 594, rural banks that want to transact as end-user may apply for a Type 3 or Limited User Authority. Meanwhile, those rural banks that wish to facilitate derivative transactions of customers may apply for a Type 4 or Special Broker Authority. Just two weeks ago, the Monetary Board approved the abolition of some fees charged for the participation in the Philippine Payments and Settlements System (PhilPaSS). The abolition of the annual license fee collected from the non-SWIFT members banks for the use of the Philippine Payment System – Front End System (PPS-FES) and the monthly access fee for the third party systems providers will allow free and open participation in PhilPaSS, by rural banks. By inter-connecting, rural banks may more readily participate in clearing with the Philippine Clearing House Corporation (PCHC), managing its government securities investments, participating in the exchange market, as well as participating in ATM networks and in the interbank market. Rural banks will also be able to instruct their depository bank to augment their demand deposit accounts (DDA) maintained in the BSP through PhilPaSS. Truly the potential for rural banks to be mainstreamed in the country’s payment system is being realized. Our policy stance is a clear indication that we consider rural banks to be ready, effective and important channels for economic development. We also recognize the crucial role that rural banks play in building a truly inclusive financial system. A system where there is not just universal access to financial services, but one where financial institutions provide responsive and competitively priced products and services to all, including those who were previously unbanked. Access to such services can invigorate local economies and improve the overall quality of life. This cuts to the heart of why rural banks were established. It is indeed a gargantuan task. But with an enabling policy and regulatory environment, strong rural banking fundamentals, and a new and vibrant RBAP board of directors and officers, I am confident that it can be achieved. Good evening and more power!
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Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2008 Awarding Ceremony for BSP Stakeholders, Manila, 11 July 2008.
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Amando M Tetangco, Jr: Implementing responsive monetary and banking policies Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2008 Awarding Ceremony for BSP Stakeholders, Manila, 11 July 2008. * * * Distinguished partners from the private and the government sectors, special guests, good morning! On behalf of the Members of the Monetary Board, I thank all of you for joining us today as we honor our partners who continue to support the Bangko Sentral ng Pilipinas in its various initiatives. Ladies and gentlemen. We cannot overemphasize the value of your support and cooperation. Inflation targeting, which serves as framework for the formulation of our monetary policies, is information intensive. Information from our partner institutions in government and the private sectors are key inputs when we assess the economy and decide on the most appropriate monetary policy stance, moving forward. It is imperative therefore that the information you provide us is comprehensive, accurate, and timely. The insights from our collaboration, coupled with the information from our surveys and other available statistics have helped sharpen the basis of our policy decisions. This is important in ensuring we make well-grounded decisions, so to speak. These are challenging times given strong inflationary pressures from record high oil and food prices. We need to forge stronger links of cooperation among different segments of our economy to ride out the rough patches. Let me be specific. The BSP’s business and consumer expectations surveys help us assess the current and near-term prospects of the economy. Even if the information you provide can be considered indicative and directional, they are important and valuable. In essence, BES data provide up-to-date qualitative indicators of economic performance in real time; this facilitates prompt and precisely calibrated monetary policy actions on our part. For instance, inputs regarding business and spending plans have enhanced the forward-looking flavor of inflation targeting in our country. On the other hand, our surveys pertaining to external sector statistics provide key economic indicators for the Bangko Sentral, particularly in relation to our balance of payments position. Ladies and gentlemen. Exponential growth in cross-border economic and financial transactions has resulted from continuing innovation, deregulation, and globalization. As a result, we need to continually conduct surveys such as the Cross Border Transactions Survey, the Foreign Direct Investment Survey, the Coordinated Portfolio Investment Survey, and more recently, the Survey on IT- and IT-enabled Services, to help us better capture the broad picture of current developments. Our Department of Economic Statistics has used these surveys to more effectively monitor our transactions with the rest of the world. This, in turn, has enabled the Bangko Sentral to assess current and prospective developments in both capital flows and exchange rate movement, as well as the country’s vulnerability to possible external shocks. On the other hand, universal and commercial banks remain our reliable partners in monitoring foreign exchange transactions, including remittances, that pass through their channels. Finally, we also acknowledge our partners who provide valuable support to our various advocacy programs on financial literacy for microfinance entrepreneurs as well as overseas Filipinos and their families. At the end of the day, our economy stands to benefit from our fruitful partnership – the same partnership that helps us keep the Philippine financial system resilient in the midst of global financial turmoil and economic slowdown. Let us therefore resolve to find new ways to enhance and strengthen our partnership so that together, we can further improve the quality of Philippine statistics that provide the basis for national policies and programs. On behalf of the Bangko Sentral, I thank all of our respondents and stakeholders who have been our faithful partners through these years. All of you can rightfully claim that you have also served our people and our country by sharing your time and information with us. With your support, the Bangko Sentral will continue to craft and implement responsive monetary and banking policies. Maraming salamat po and congratulations to all awardees! Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BAIPHIL's Induction of Officers, Directors and Committee Chairpersons and the General Membership Meeting, Makati, 15 July 2008.
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Amando M Tetangco, Jr: Turning challenges into opportunities – the key to sustainable growth Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BAIPHIL’s Induction of Officers, Directors and Committee Chairpersons and the General Membership Meeting, Makati, 15 July 2008. * * * Distinguished officers and members of BAIPHIL (led by outgoing President Dolly Yuvienco and incoming President Lydia King), fellow bankers, co-workers in the BSP, special guests, good afternoon! I am pleased to join BAIPHIL today on the induction of its new set of officers. I do welcome the opportunity to meet BAIPHIL’s officers and members, as you count among the partners of the Bangko Sentral ng Pilipinas in our continuing pursuit of reforms for a strong and vibrant banking system. In addition, BAIPHIL has emerged as one of the Bangko Sentral’s consistent partners in corporate social responsibility projects that directly benefit our marginalized sector. Among others, I remember that BAIPHIL organized other financial industry associations in providing financial support, as well as sweat equity, for the BSP-St. Paul GK Village in Paranaque City. You will be happy to know therefore that over the weekend, we turned over 16 GK units to new homeowners in our Paranaque GK village. For this, ladies and gentlemen of the BAIPHIL, you all deserve a long round of applause! Salamat sa inyong tulong. To the newly inducted officers, directors and committee chairpersons, I offer my congratulations! We at the Bangko Sentral ng Pilipinas look forward to working with you as our banking sector deals with domestic and global challenges. In my previous meetings with members of the financial community early this year, I discussed the outlook for the economy and the banking sector in 2008. I remember having said that the Philippine economy is headed for a more challenging environment – one that is fraught with headwinds. Indeed, our economy has to contend with “rough patches” emanating primarily from the turbulence in global financial markets, the slowdown in the US and other economies, and the unprecedented rise in global food and energy prices. While we continue to see challenges and risks arising from adverse global developments, we remain optimistic and confident that we can ride out this turbulence and sustain the economic gains achieved in recent years. Why do I say this? Well, because we do our homework; together, we have built up domestic buffers that should continue to help us withstand headwinds which are mainly external in origin. Let me cite some of these buffers and how exactly these have insulated the economy from external risks. First, we have fortified our domestic financial system. In terms of resources, for instance, the Philippine banking system’s asset base has grown steadily from P3.4 trillion in 2001 to P5.1 trillion as of the first quarter of 2008 on the back of sustained increases in deposits and capitalization. This is equivalent to a 50% increase. In addition, overall asset quality of Philippine banks has made a dramatic turnaround, with the NPL ratio dropping from 16.9 percent in 2001 to 5 per cent as of March 2008. Meanwhile, banks’ capital adequacy ratio on both solo and consolidated bases remained well above the regulatory minimum of 10 percent and the international benchmark of 8 percent. We also have in recent years put in place structural reforms in the banking system, such as the adoption of international accounting standards and the enforcement of stricter corporate governance standards, which have made it more resilient and able to withstand volatilities in financial markets. Ladies and gentlemen, all these indicators point to a fundamentally sound banking system. Yet another strong buffer we have going for us is the country’s favorable external position. Among others, our first quarter 2008 balance of payments yielded a surplus of US$1.7 billion. This is 20.8 percent higher than our surplus in the same period last year, as both the current and the capital and financial accounts continued to post surpluses. While the merchandise trade deficit widened due to higher oil and food costs, the current account was in surplus of about 3 percent of GDP mainly as remittances sustained their expansion. Based on the latest figures, in May this year, remittances amounted to $1.4 billion or a 15.6 percent increase year-on-year. Total remittances for the first five months of 2008 reached $6.8 billion or 14.7 percent up from the same period last year. As a result of the BoP surplus, the country’s gross international reserves (GIR) continued to reach peak levels, hitting a new record high of US$36.7 billion in June this year. At this level, our GIR can cover 6 months of imports of goods and payments of services, way above the global standard. Similarly, the country’s major external debt ratios have been improving, an indication of the country’s enhanced capacity to service its maturing foreign obligations. These positive indicators make us confident about the prospects for our economy in general and our banking sector in particular. Moreso, if we are to continue our efforts to strengthen the banking sector and our economy. It is in this context that I find BAIPHIL’s theme for this occasion as a most appropriate rallying point: “Turning challenges into opportunities.” I believe we are in a position to continue to fortify our buffers by remaining proactive in our response and deeply committed to pursue our reform agenda. In this connection, our key policy thrusts at the Bangko Sentral ng Pilipinas are as follows: First, our monetary policy will continue to focus on our core mandate of maintaining stable prices. We will keep our eye on the inflation ball, being mindful that as we do this, we are able to foster an environment conducive to sustained economic growth. In recent months, we have seen inflation moving up steadily on account of record high oil and food prices, hitting 11.4% in June this year, the highest in more than 14 years. This brought the year-to-date average inflation to 7.6 percent. Although this is still consistent with the BSP’s view of a hump-shaped path for inflation in 2008 and 2009, we cannot afford to underestimate this old adversary of central banks. Inflation is at the very top of the BSP’s policy priorities. We will continue to intensify environmental scanning and surveillance of key macroeconomic developments to ensure that our assessments of the inflation outlook and the risks to inflation remain fresh. The Monetary Board will take the necessary and decisive action to address the threat of high inflation. Second, on the external sector, our policies will be geared toward ensuring the sustainability of the country’s external debt and maintaining a comfortable level of reserves. In recent months, we have witnessed a depreciation in the peso’s value. This has not been unexpected, given the significant upmove last year and the changing environment we operate in this year. We believe that the current exchange rate levels reflect a healthy correction in the market, and market players should take advantage of this. As we expect to still have a surplus in the balance of payments for the year, the peso should be supported, particularly in the last quarter of this year when remittances are traditionally strong. Third, reforms in the financial sector will continue to be directed toward maintaining a strong banking system and a robust domestic capital market. Specifically, we will focus on: further enhancing the regulatory framework through the implementation of the BASEL II roadmap; improving corporate governance by promoting compliance with international accounting and financial reporting standards; accelerating the implementation of risk-based supervision technology; and continuing support for the development of a deep and efficient capital market, including support for necessary legislative reforms. Moving on, another priority for the BSP is our continuing efforts to broaden access to credit of micro, small and medium enterprises or what we call MSMEs. BSP’s recent reform initiatives toward this end include liberalized branching; expansion of foreign currency deposit unit (FCDU) and trust licenses to include qualified rural banks; the re-opening of quasi-banking license; and the introduction of the breakthrough housing microfinance product. We will also continue to work on a sound market infrastructure that will promote secure and timely completion of transactions, thereby minimizing systemic risk and enhancing the integrity of financial transactions. This is being implemented through the promotion of progressive policies on e-commerce and payments system innovation. Summing up, the critical task ahead of us is to preserve the momentum for economic reforms. This way, we can be assured of the economy’s sustained growth in the long run. As in the past, we will continue to rely on BAIPHIL’s steadfast support in terms of providing training assistance to bank professionals to ensure that they are better skilled and equipped to handle the demands of a sophisticated and competitive financial arena. Ladies and gentlemen, equal measures of challenges and opportunities abound in the banking sector. I am confident that with your newly-elected officers and directors, BAIPHIL is in a strong position to take on the challenges upfront and turn these into opportunities that will benefit your respective banks and the economy as a whole. Together, we can pursue a higher growth path for the economy, even in the face of formidable challenges. Again, my congratulations to BAIPHIL and its new set of officers led by its President Lydia King Mabuhay ang BAIPHIL! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat.
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Foreign Correspondents Association of the Philippines (FOCAP), Manila, 23 July 2008.
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Amando M Tetangco, Jr: Overview of the Philippine economy against the background of a difficult global environment Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Foreign Correspondents Association of the Philippines (FOCAP), Manila, 23 July 2008. * * * Ladies and gentlemen of the Foreign Correspondents Association of the Philippines, special guests, good morning. Thank you for inviting me again to speak before you today. The last time I was here in February, I discussed with you the challenges that the Philippine economy would be facing this year. These challenges include the US economic slowdown, the global financial market turbulence and the rising and volatile prices of oil and other commodities. Since we are now in the middle of the year, allow me to provide you with an update of how the economy is doing in the midst of an admittedly more difficult global environment. Indeed the economic environment has turned more challenging for reasons that are wellknown. Global growth has decelerated as a result of a weak US economy, the credit crunch, and the high and unstable oil and food prices. Official statistics on 1st quarter GDP of the US showed a 1 percent expansion, higher than previously expected but still below par. Meanwhile, the strains in global financial markets have persisted and are likely to continue for some time. The coordinated credit operations by the major central banks and the policy rate cuts by the US have helped ease market tensions, but wider problems in the financial system have remained. This makes the operating environment difficult. The main problem is uncertainty. First, there is continued uncertainty about the size of losses from defaults on US subprime mortgages that the global financial system will eventually have to absorb. Second, there is uncertainty about where these exposures will end up. Third, this lack of information breeds fear of ratings downgrades, of steep sell-offs, and of other unknown consequences. The biggest and most immediate challenge is the sharp spike in global oil and food prices. World oil prices continue to be volatile at elevated levels. Global food prices remain high though the increases have moderated. These concurrent and interrelated shocks to the economy have contributed to the acceleration of domestic inflation. As a result, as with most – if not all – countries, the domestic inflation environment has become more challenging. In June 2008, inflation stood at 11.4 percent compared to 2.3 percent in the same period last year, bringing the average inflation for the first six months of 2008 to 7.6 percent. Of late, we have started to see stronger signs of second-round effects, with core inflation rising and inflation expectations trending upwards. To prevent these inflation pressures from further feeding into the price- and wage-setting behavior of economic agents, we raised our policy rates by 25 basis points on 5 June and 50 basis points on 17 July. In both instances, the BSP’s baseline inflation forecasts showed more elevated inflation numbers for 2008 and 2009. Sustained high inflation can unseat inflation expectations and potentially create a repeating cycle of lingering inflation and wage pressures that could prove costly to the economy. In response, we believe that the series of policy adjustments will help in steering inflation towards its desired path for the medium term. It is important to note that the challenges facing us are largely external in origin. A key issue therefore is the Philippines’ ability to weather these shocks. On the upside, the country was able to build up cushions that serve as sources of resilience for the economy against potential shocks. Let me cite some of these buffers and how exactly these have insulated the economy from external risks. First, the Philippine economy continued to grow notwithstanding the tougher operating environment. In the first quarter of 2008, GDP grew by 5.2 percent, led by the strong performance of services on the production side, and by consumption spending, on the expenditure side. The strong growth of net factor income from abroad (NFIA) pushed GNP to grow by 7.3 percent. There is resilience here because growth is broad-based and notwithstanding the difficult times, the magnitude of growth is quite respectable. Second, the banking sector has become stronger as a result of the reform measures that have been implemented over the past years. There is resilience here because our major financial intermediaries have remained strong enough to continue channeling savings into investment, and therefore supporting production and more sustainable employment. The Philippine banking system’s asset base has grown steadily. The overall asset quality of banks continued to improve as well, with the NPL ratio now moving closer to the pre-crisis level of around 4 percent. With healthier balance sheets, banks have been able to post a steady growth in lending. The banking system’s overall capital adequacy ratio remained strong, shored up by the increased issuance of hybrid financial instruments to bolster their capital base. The average CAR of the banking system was maintained well above regulatory and international standards despite some decline caused by the new requirements of the revised capital framework which is patterned after the Basel 2 Accord. The revised framework is considered a more risk-sensitive measure of a bank’s solvency position. However, we continue to closely monitor developments, particularly on the spillover effects from the slowdown in the US and the global economy as well as higher risk aversion brought about by the financial market turmoil in the West. These could pose downside risks to output growth that could impact negatively on the banking system’s growth. Lastly, the country’s external payments profile remains a major source of strength for the economy. For the first six months of 2008, the BOP surplus has been sustained at US$1.9 billion. There is resilience here because the existence of a BOP surplus provides space to accommodate the volatilities of both the export and investment markets. We acknowledge that there are risks given the increase in the trade deficit but remittances and income receipts from services coming from a vibrant BPO industry should provide the needed support. For the first quarter of 2008, the current account remained in surplus of about 3 percent of GDP despite a wider merchandise trade deficit due to higher oil and food costs. The stability of the current account is due to the sustained expansion in remittances. Latest data show remittances for Jan-May 2008 totaled US$6.8 billion, growing year-on-year by 14.7 percent from the comparable period a year ago. As a result of the BOP surplus, our gross international reserves (GIR) increased further to US$36.7 billion as of end-June 2008. At this level, the GIR is equivalent to 6.0 months’ worth of import cover and 2.9 times short-term external debt based on residual maturity. The external debt ratio has also improved. With the build-up in the GIR, the BSP, together with the National Government as well as private corporations, were able to prepay some obligations. This has led to the appreciable decline in the country’s total external debt to 35.5 percent of GDP as of end-March 2008 from 72.9 percent in 2001. What is the outlook in the near-term? Reflecting the impact of the slowdown in the US economy and the higher oil and food prices, economic targets have been revised. The government now projects GDP to grow by 5.7-6.6 percent while the forecast for inflation is at 9-11 percent. The BOP surplus will reach US$2.5 billion. Exports are seen to grow by 5 percent while imports will expand by 10 percent due to higher prices of oil and food imports. What can you expect in terms of the BSP’s policy thrusts? The policy thrust of the BSP is aimed at ensuring that the headway that we have achieved in nurturing a resilient economy and a strong banking sector will continue. The BSP’s key monetary policy thrust will remain focused on promoting price stability. In its latest policy move, the BSP recognized the need for a more decisive monetary action to reduce the risks to inflation expectations and the long-term cost to output growth from prolonged high inflation. So our eye is on inflation because price stability is critical to sustained, durable economic growth. In the external sector, our policies will continue to be directed at maintaining a marketdetermined exchange rate with scope for occasional official action to address sharp volatilities in the exchange rate; maintaining a comfortable level of reserves as selfinsurance; and ensuring the sustainability of our external debt. In the financial sector, we remain firmly committed to institute key reforms that will lead to greater efficiency, effective risk management, stronger capital base and improved corporate governance standards in the banking system. Given these reforms, we expect to see the continued expansion of bank resources and capital, as well as a further improvement in bank asset quality. We also envision a stronger and more resilient banking system as banks improve their ability to anticipate, price and manage risks. We will also continue to push for the passage of key legislations intended to develop a deep and efficient capital market as a complementary source of funds. This will make credit more accessible to a broader set of users and ensure a more efficient mobilization of resources. In summary, the BSP is prepared to take all necessary actions to address the threat of high inflation and promote price stability. We also continue to be mindful of the impact of any policy action on the economy’s growth momentum. The resiliency of our economy allows us to have greater flexibility in responding to the challenges that come our way. I am now ready to discuss the issues of particular interest to you. Thank you.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Conference on Microfinance: Powering Innovations in Microfinance, Asian Development Bank, Manila, 24 July 2008.
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Amando M Tetangco, Jr: Building a stronger economy through microfinance Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Conference on Microfinance: Powering Innovations in Microfinance, Asian Development Bank, Manila, 24 July 2008. * * * Microfinance Council of the Philippines President Rolando Victoria, ADB Vice President Lawrence Greenwood, ADB ED Marita Magpili Jimenez, Mr. Barry Hitchcock, other officers of ADB, fellow advocates and workers in microfinance, distinguished participants, representatives from the banking community, special guests, good morning. This two-day conference organized around the theme “Powering Innovations in Microfinance” is truly a special event. Ten years ago, one would not associate the words power and innovations with microfinance in the Philippines. While some of today’s leading microfinance NGOs were already around at that time, microenterprises did not have access to formal financial services and had to resort to informal lenders with very high cost of funds. Formal financial institutions were cautious of this market due to high credit risk and transaction costs. What a difference a decade makes! Today, microfinance is no longer a mere buzzword but part of the financial mainstream, with 229 banks actively engaged in the sector. As of December 2007, these banks had an outstanding loan portfolio of P6 billion, extended to nearly 800,000 clients or an average of 7,500 pesos per borrower. Significantly, our microborrowers have also become net savers; as of end 2007, their combined deposits with banks have reached close to 2 billion pesos. Indeed, microfinance has firmly established a track record across our country for nurturing successful microentrepreneurs who have attained financial security for themselves and their families. Equally important, microentrepreneurs serve as catalyst for development in their respective communities. What triggered the mainstreaming of microfinance in our country? Well, to put it briefly, it resulted from the convergence of the need to find ways to liberate millions of our entrepreneurial poor from the cycle of poverty; innovations, of course; and the willingness of key stakeholders to adopt new ways of doing business. I will now share the story of Bangko Sentral and how we responded to the challenge of mainstreaming microfinance within our financial system. The Bangko Sentral was mandated by the General Banking Law of 2000 to recognize microfinance as a legitimate banking activity. As a start, we studied the practice of microfinance around the world and engaged practitioners in many discussions. Next, we set in place regulations that recognized and built on best practices; this included using group support or liability, cash flow-based lending, and providing for frequent amortizations . We also created an environment that allowed for new entrants into the market, particularly microfinance-oriented banks which are licensed as regular banks but dedicate at least 50% of their loan portfolio to microfinance. This became an ideal vehicle for microfinance NGOs that wanted to transform into a formal financial institution. In addition, we liberalized branching regulations and paved the way for innovations in products and service delivery using information and communication technology (ICT) and other similar means. I should emphasize that even as we make room for innovations in the banking system, we make a point to balance this by instituting prudent standards for the conduct of microfinance operations. Among others, this includes prescribing the use of portfolio-at-risk to monitor and measure portfolio quality. Likewise, we have instituted reporting requirements for banks with microfinance operations. This enabling policy and regulatory environment has allowed microfinance to flourish within the banking sector. Today, banks are considered one of the main players in the country’s microfinance industry. This commercialization is a reflection of global trends. Today, global financial giants are setting up dedicated offices for microfinance. We also know of some microfinance institutions that are publicly listed. And loan portfolios are being securitized. The range of players involved in the industry is also becoming more diverse. Private equity firms, commercial banks, and even cement and real estate companies are investing in microfinance institutions around the world. Even mobile phone manufacturers are looking at microfinance as a means to increase mobile phone penetration in several countries . The entry of new players into the sector should drive the introduction of even more new products and services, as well as new ways of doing business. At present, we see microfinance institutions offering a whole menu of services that covers not only microcredit but also microsavings to microinsurance. This is definitely a significant leap from institutions previously offering only microcredit. The technology and methodology of microfinance has also been used to provide financing needs in the areas of agriculture and housing, among others. In the Philippines, practitioners have developed the Micro-Agri Product and more recently the breakthrough Housing Microfinance Product which the Bangko Sentral recognizes as variations of a microfinance loan. Indeed, we continue to innovate because the financing needs of microfinance clients go beyond simple business loans. With more appropriately designed loan products, microfinance institutions are now able to respond to the varied needs of their clients, diversify their portfolios, and reduce the risk of business loans applied to agriculture or housing. Parallel to the development of products offered by microfinance institutions, significant changes are also taking place in their delivery channels. Microfinance institutions are increasingly recognizing how information and communication technology can provide revolutionary channels to better serve existing clients or an opportunity to reach new ones. These new channels – such as mobile phones, automated teller machines (ATMs) and point of sale (POS) card readers – have also brought with them significant improvements in efficiency and convenience, while lowering costs for both the microfinance institutions and their clients. In the Philippines, for instance, rural banks have tied up with mobile phone companies to facilitate microfinance loan payments, deposits, and withdrawals through a simple SMS or text message. In other words, the microfinance landscape in our country continues to evolve… in step with client needs and innovations in technology and the regulatory framework. The challenge before us is to further broaden and deepen the reach of microfinance in the Philippines. At the Bangko Sentral, we accept this challenge and commit to uphold an enabling policy and regulatory environment that will allow microfinance to flourish further. We will continue to monitor the many developments and innovations taking place in the world of microfinance so that we can maximize the benefits we can derive from it. To strengthen our capacity in this regard, we have organized a special unit which we call Inclusive Finance Advocacy, to explore and facilitate the development of new options to improve and increase access to financial services of our people. We have also created a MicroSME Finance Specialist Group in our Supervision and Examination Sector for banks with significant exposure to Micro and SME lending. This group has been trained on riskbased supervision and the peculiarities of lending to the MSME sector. I should add that these initiatives of the Bangko Sentral toward broader financial inclusion will continue to be guided by a high-level Microfinance/ Inclusive Finance Committee. Actually, our objective to have a more inclusive financial system is embedded in the other policy initiatives of the BSP. We are continuously working on reforms for a more robust banking sector. We are also working toward increasing the scale and scope of bank operations to support the needs of the market, particularly those in the countryside. What is clear is that banks now have more opportunities to provide a wider range of services and products to their clients on the basis of the following: a liberalized branching regime; Bangko Sentral’s receptiveness to various product and technological innovations in banking services; Bangko Sentral’s support to further improve bank efficiencies by allowing, among others, the outsourcing of some functions; and the expanded range of services and opportunities that qualified rural banks can undertake, such as foreign currency deposit accounts and equity investments in ATM networks. Through these initiatives, we envision stronger banks with a broader geographical presence providing competitively-priced and well-designed products for all market segments, including the previously unserved. With these in place, I am confident that we will continue to see further innovations toward greater financial inclusion. In this context, I am reminded of Bill Gates who once said that “Never before in history has innovation offered promise of so much to so many in so short a time”. It is in this spirit that I ask all of you who are participating in this conference…and other microfinance practitioners as well to continue to take advantage of the opportunities innovations bring, to broaden and sustain the liberating and empowering force of microfinance in improving the lives of our entrepreneurial poor and their families. Finally, on behalf of the Bangko Sentral ng Pilipinas, I thank all of you for your continuing support as we move forward to build better lives and a solid bedrock for a stronger economy through microfinance. Thank you and I wish you all a fruitful and successful conference. Mabuhay ang microfinance!
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Closing remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP's Mid-year Organizational Performance Review Session, Manila, 23 August 2008.
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Amando M Tetangco, Jr: A job well done, all things considered Closing remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP’s Mid-year Organizational Performance Review Session, Manila, 23 August 2008. * * * Members of the Monetary Board, fellow central bankers, good afternoon. During last year's planning session in Baguio, we agreed to adopt the Scorecard as our means of setting targets and measuring performance. This is therefore our first mid-year organizational performance review using the commitments forged last year as basis for our assessment. I trust that you find it a useful and effective gauge of where we stand relative to our mission, how our stakeholders perceive us, and how our business, learning and growth processes fared in terms of responding to our desired results. The question is how exactly did we fare, over all? Well, I am sure everyone here has an answer to this question. The way I look at it, we did well, all things considered. If you recall, we set our commitments last year at a time when our economy was on its way to hitting its best GDP growth rate in 31 years and inflation eventually averaging out at 2.8%, the lowest annual rate in 21 years. At that time, we used the word benign to describe inflation. How fast things changed: in July 2008, inflation rate hit 12.2%, the highest in 17 years. As Cyd described it, Asia is at the epicenter of the surge in inflation. Nevertheless, ours is far better than inflation rates of over 20% in other Asian countries. While we have our share of detractors, it is a fact that the Bangko Sentral continues to be recognized for its ability to temper inflation despite severe supply shocks. In the field of banking, we continue to reap the benefits of remaining faithful to our reform agenda. In fact, Philippine banks have emerged stronger and better-capitalized, at a time when even global financial giants are crippled by severe losses from the continuing turmoil in the financial market. This is the result of political will on the part of the Monetary Board and the rest of the Bangko Sentral to ensure that our banks adhere to prudential standards. Comprehensive and thorough examination reports prepared by our examiners provide solid underpinnings for our decisions and actions and they are able to produce such, even when they are being subjected to pressures and threats. Indeed, we are fortunate to have world-class and courageous central bankers – people of integrity. I will say this again: while there are still many areas for improvement at the Bangko Sentral, our circles of excellence continue to expand and grow, at MSS, at SES, at RMS, at SPC and at the EMS. I hope this positive trend will continue at a more accelerated pace. If we accomplish this, then we can serve our public better. Among others, the results of NSO’s public perception survey on the BSP provide us useful guides on where we can further improve our services, using the regional breakdown as starting point. Indeed, continuously finding better ways of doing things is one attribute we should nurture at the Bangko Sentral. The CPO is one such example. This year, it added a new dimension to our environmental assessment: a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis with a "twist" the Strategy Cafe. Helen characterized it as a series of "no holds barred" conversations around specific questions that were formulated to generate fresh perspectives on where we are and the way we do things. For me, there were two things that stood out from Helen’s recounting of the highlights of the Strategy Café discussions. First, the consensus among the participants that the best asset of the BSP is its people; and Second, that we are making progress in addressing long-standing concerns including slow hiring and procurement. We should communicate these improvements to our people and stakeholders, so that perception and reality will be aligned. Of course, even as we continue to make progress, our work never really ends as the environment where we operate is never static; rather, it is dynamic and constantly changing. At times like this, “doing more of the same” does not cut it. We need to be strategy-focused and results-oriented. I know there is so much work we have to do. That you and your staff sometimes or many times forego family time because of work. We should be able to discern which process or strategy works and discard those that have become a burden. Nurture the spirit of teamwork and collaboration. Of solidarity. Together, set clear priorities. By doing so, we also protect the well-being of our people, our most important resource. Let us foster a supportive working environment in the BSP that is based on trust and collegial respect, grounded on the conviction that everyone has something to contribute to the organization. At the same time, let us always be mindful of protecting and strengthening our institution through risk based management and ensuring efficient resource management, among others. We should work on strengthening our financial position so we can pursue our mandate more effectively. The RMS sector under Andy Suratos has led the way by implementing a bankwide energy conservation program for which we have been awarded a five-star rating of 97%. Think BSP. Fellow workers at the Bangko Sentral. You have within you, we have within us, the capacity to make things better for our institution and for our country. Our mandate empowers us to serve through responsive monetary and banking policies. Let us therefore remain united in working on our vision of a better life for all Filipinos. Finally, on behalf of the Members of the Monetary Board, I thank all of you for a job well done in the first half of the year, all things considered. Let us also congratulate and thank CPO for organizing this insightful midyear organizational performance review session, and acknowledge all the other departments and offices that have provided support to this undertaking. Mabuhay ang Bangko Sentral! Mabuhay ang ating bansang Pilipinas! Maraming salamat sa inyong lahat! Let’s enjoy the rest of the evening.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the Credit Surety Fund Program, Trece Martirez City, Cavite, 27 August 2008.
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Amando M Tetangco, Jr: The Credit Surety Fund – sustaining economic growth through increased credit flows Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Launching of the Credit Surety Fund Program, Trece Martirez City, Cavite, 27 August 2008. * * * Governor Ayong Maliksi, distinguished Board Members of the Sangunihang Panlalawigan ng Cavite and other officials from Cavite’s local government units – mga Mayors at Vice Mayors, officers and members of Cavite’s cooperatives, our partners from the Micro, Small, and Medium Enterprises Sector or what we call MSMEs, representatives from the Industrial Guarantee Loan Fund, representatives from the banking sector, fellow workers in government, special guests. Magandang umaga po sa inyong lahat! Kami po sa Bangko Sentral ng Pilipinas ay natutuwa dahil ngayon ang panimula ng isang mahalagang programa na tinatawag nating Credit Surety Fund. At dahil mahalaga ito, karamihan sa mga opisyal ng Bangko Sentral ay nandirito ngayon. Ipakikilala ko po sila, umpisa sa mga miyembro ng ating Monetary Board: Kasama po natin si Monetary Board Member Alfredo Antonio, dating Chairman ng Development Bank of the Philippines; at si Monetary Board Member Ignacio Bunye, dating Press Secretary at Presidential Spokesman. Kasama ko rin po ang management team ng Bangko Sentral, kabilang si Deputy Governor Diwa Guinigundo, si Assistant Governor & General Counsel Juan de Zuñiga, Jr., at si Assistant Governor Rene Carreon, at iba pang mga opisyal ng BSP. The level of our participation in this event speaks volumes about the way we at the Bangko Sentral ng Pilipinas value our MSMEs. The MSME sector represents the backbone of our economy as 99 per cent of registered firms belong to this sector. A recent report of the International Finance Corporation of the World Bank Group indicated that loans to MSMEs comprise twenty-five percent (25%) of the total loans of the banking system. Malaking bahagi po ito ng pautang ng ating mga bangko. Kaya masasabi natin na mahalaga rin ang MSMEs sa banking sector. Kaya lamang, kulang pa rin ito sa tutuong panga-ngailangan ng ating MSMEs. Estimates indicate that roughly 60% of the credit needs of MSMEs remain unserved. Simple ang dahilan nito: Marami sa ating MSME’s ay walang collateral na maiharap para maka-utang sa mga bangko, maliban sa kanilang proven track record as successful and responsible small entrepreneurs. Dito po pumapasok ang Bangko Sentral at ang Credit Surety Fund. Sa ilalim po ng Credit Surety Fund Program ay mapapabilis ang pagbibigay ng pautang sa ating mga MSMEs dahilan sa pag-tutulungan ng LGUs led here in Cavite by Governor Ayong Maliksi, ng ating mga kooperatiba, at ng IGLF na itatag ang Credit Surety Fund. With this as underlying surety, MSME entrepreneurs without collateral can now borrow from the banks. This program therefore directly addresses the MSME’s lack of collaterals. In other words, the program will democratize access to bank credit and help level the playing field for our MSMEs. Ito pong Credit Surety Fund ang magiging susi ng ating MSMEs para maka-utang sa mga bangko. At the heart of this program is the spirit of “BAYANIHAN”. To our mind, the foundation and success of the program will depend ultimately on the cooperation and collaboration of all the participants in this multi-sectoral program: the national government through IGLF, the local government led by its Governor, MSMEs under the cooperatives, the banks that will provide the loans, and the Bangko Sentral which will provide rediscounting for up to 80% for the MSME loans. Later, we shall have an audio-visual presentation that will explain the rationale, the process, and the objectives of this important public-private sector collaboration. Sa ngalan po ng Bangko Sentral, binabati po namin ang lalawigan ng Cavite sa pamumuno ni Gobernor Ayong Maliksi (talaga pong magaling at maliksi ang inyong gobernador!) dahil kayo po ang first province na nag-launch ng groundbreaking program na ito. Kaya po mahalaga ang inyong malakas na suporta sa credit surety fund program at sa pagtatayo ng Cavite Coopreneurs Surety Fund. Your pioneering efforts to implement the program will be the challenge to other provinces in the Philippines for them to establish their very own surety fund. On the part of the BSP, you can be assured that we will continue to advocate and make room for future innovations that will further benefit our entrepreneurs and help uplift the lives of our people. Sana po ay magka-isa tayo sa pag-sulong ng ating bansa sa pamamagitan ng ating credit surety fund program. Mabuhay ang Cavite! Mabuhay ang ating bansang Pilipinas! Maraming salamat po sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Makati City, 17 September 2008.
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Amando M Tetangco, Jr: The Philippines – addressing the challenges. Staying the course Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Philippine Economic Briefing, Makati City, 17 September 2008. * * * Good morning. Thank you for joining us in this mid-year economic briefing. I am pleased to speak before you on the developments in the monetary, external and banking sectors. After providing you with an overview of recent economic developments, I will discuss the outlook for the next two years which takes into account the challenges that our economy is facing. Then, I will walk you through how the BSP has responded to these challenges. I will close with the BSP’s policy thrusts going forward. Let me start with the latest price developments. Inflation averaged 8.8 percent for the first 8 months of the year, rising to 12.5 percent in August from 4.9 percent in January 2008. Core inflation, which measures the underlying trend in inflation by excluding specific food and energy prices, climbed to 7.0 percent yearon-year in August, from 3.4 percent in January. Price pressures have been building up since early this year. Initially the price increases were due to supply-side factors, specifically from elevated international oil and non-oil commodity prices. However, second round price pressures subsequently became apparent, as evident in the rise in core inflation and the adjustments in the pricing of services as well as wages. These have resulted in a more challenging inflation environment. Meanwhile, the country’s external payments profile remains a major source of strength for the economy. The BOP remained in surplus for the first eight months of 2008 at US$2.0 billion. Remittances from overseas Filipinos continued to boost the BOP, reaching US$9.6 billion for the first seven months of 2008, higher by 18.2 percent relative to the year-ago level. The sustained BOP surplus resulted in the continued build-up of the country’s gross international reserves (GIR), which stood at US$36.7 billion as of end-August 2008. At this level, the GIR is equivalent to 6.0 months’ worth of import cover, 2.9 times the country’s short-term external debt based on residual maturity. The strong external position has allowed both the public and private sectors to prepay some of their FX obligations, resulting in further improvements in the country’s external debt ratio. As of end March 2008, the external debt ratio stood at 35.6 percent, less than half its level in 2001 of 72.9 percent. The peso has weakened in recent months. On a year-to-date basis, the peso depreciated against the US dollar by 12.3 percent as it closed at P47.09/US$1 on 15 September 2008. This is on account of rising risk aversion due to worries over global economic slowdown and credit tightening. Concerns over rising inflation further added pressure against the peso. For the period 2001-2008 (to-date), the peso appreciated by 9.1 percent, generally in tandem with most currencies in the region. The Philippine peso has been generally competitive against our major trading partners and competitors in real terms. If we take 2001-2002 as the comparator period given both good GDP and inflation numbers, coupled with the manageable external payments position, the end points remain broadly on the same level. On the financial sector, the banking system remains generally sound and stable. The banking system’s asset base has been expanding steadily. The continued asset clean-up of banks, accomplished without the use of public funds, has enhanced asset quality, bringing the NPL ratio closer to the pre-Asian crisis level of around 4.0 percent. Banks remained capitalized at levels above both the BSP-regulatory requirement and the BIS standard. Owing to reforms earlier instituted, the Philippine banking system has not been significantly affected by the financial stresses experienced from the US subprime mortgage market. Furthermore, the Philippine domestic banks’ exposure to structured products, such as CLNs and CDOs, issued by investment houses like Lehman Brothers has been limited and are well cushioned by banks’ capital base. However, we continue to closely monitor developments in the global financial markets, including further risk aversion against emerging markets including the Philippines, as these may adversely impact the growth of the banking sector. Where are we heading? The inflation path is expected to be hump-shaped, with the peak around Sept/Oct this year, after which we expect a gradual leveling off. We expect to see the single-digit level again by late Q1/early Q2 next year. Nevertheless, the forecasts still indicate that inflation could exceed the 2008 and 2009 targets. The BOP surplus by end 2008 is estimated at around US$2.0 billion. This would result in a GIR level of US$37 billion by the end of 2008. What are the challenges that we face as we try to achieve these projections? The Philippines – like many emerging countries – is faced with the challenge of rising inflation and slower economic growth. The slowdown in US and global growth could result in a deceleration of Philippine export growth and a decline in foreign investments. While global commodity prices have started to show some easing, world oil prices are expected to remain volatile due to low global production capacity and rising demand in emerging economies. Non-oil commodity prices may take longer to unwind because of strong demand from growing consumption of emerging countries and as inputs for biofuel production. The risk of high inflation remains present. Meanwhile, the strains in global financial markets continue to persist and have heightened risk aversion. While emerging markets, including the Philippines, have been fairly resilient to the global credit turmoil, they could face greater risks because of higher borrowing costs and reversals in capital flows How has the BSP addressed these? Consistent with our primary mandate, we have responded through policies appropriately aimed at sustaining price stability. We believe this is essential in ensuring sustained long-term economic growth. As I mentioned earlier, the BSP noted that the spikes in prices in early 2008 were supplyside in origin. These had mainly global roots and were expected to be largely transitory. As is well accepted, such supply-side shocks are best addressed by non-monetary measures. Acknowledging that the impact of monetary policy under that scenario would be limited, the BSP followed a prudent approach by accommodating these first-round effects. In other words, BSP treated the resulting rise in prices as a shift in relative prices, and allowed it to go through. Thus, BSP kept its policy settings steady during our March and April meetings. Subsequently, however, we noted changes in the inflation dynamics. First, inflation expectations were rising. More specifically, consumer and business expectations surveys began to show more respondents expecting headline inflation to go up in the coming months. BSP’s survey of private sector economists/analysts showed higher inflation forecasts for both 2008 and 2009. Moreover, the term spreads on secondary market yields for government securities were on the rise, reflecting market sentiment for a continued rise in the future. Second, real interest rates continued to be in negative territory. This would pose some complications to making decisions on savings, investment and production, which over time could weigh down on capital flows, exchange rate and ultimately, inflation. Given the new information, the BSP responded with a combination of policy rate hikes and careful communication of BSP’s inflation-fighting resolve. During its policy meetings in June, July and August, the BSP gradually raised its policy rates from 5 percent to 6 percent. The cumulative 100 basis points hike was a recognition that it was necessary to act promptly and preemptively to: 1) address price pressures that were coming more evidently from secondround effects; 2) guide inflationary expectations, to arrest self-perpetration into higher actual inflation; and 3) rein in inflation and allow it to fall within the target range over the policy horizon. Latest indicators show that inflation is losing speed but risks remain. Global commodity prices are now starting to show some easing. However, we still need to remain cautious given the inherent volatility in commodity prices. The BSP remains confident that its current monetary policy stance could be accommodated by resilient demand conditions. The buoyancy of domestic demand suggests room for measured interest rate action without causing serious effects on the real sector. Meanwhile, we have continued to institute reforms to further strengthen the banking system and deepen the domestic capital market. These reforms are focused on further enhancing the regulatory framework through the continued implementation of the BASEL II framework; accelerating the implementation of risk-based supervision; improving corporate governance, including by promoting compliance with international accounting and financial reporting standards; continuing to promote microfinance lending to improve small businesses’ access to credit; and supporting the deepening of the domestic capital market. What can you expect from the BSP going forward? The policy thrusts of the BSP are aimed at ensuring that the headway that we have achieved in nurturing a resilient economy and a sound banking sector will continue even in the face of the challenges we all face. First, monetary policy will continue to be sufficiently cautious and vigilant to the emerging balance of risks. It will continually reassess the evolving situation as price pressures show initial signs of slowing down and as demand conditions moderate. This will ensure a responsive conduct of appropriate monetary policy. In the external sector, our policies will continue to be directed at maintaining a marketdetermined exchange rate with scope for occasional official action to address sharp volatilities in the exchange rate; maintaining a comfortable level of reserves as selfinsurance; and ensuring the sustainability of our external debt. These policies will continue to promote strong fundamentals that will help reduce the economy’s vulnerability against global economic risks and support the needs of a more dynamic and globally integrated economy. In the financial sector, we remain firmly committed to sustain key reforms that will lead to greater efficiency, effective risk management, stronger capital base and improved corporate governance standards in the banking system. These financial and banking sector reforms will continue to raise savings and help boost financing for productive activities. In summary, let me assure you that the BSP is prepared to take all necessary action to address the threat of high inflation and promote price stability. We stress here that high inflation erodes the community’s purchasing power, reduces their consumption expenditure and slows down economic growth. We are therefore mindful of the impact of our monetary policy action on the economy’s growth momentum. The resiliency of our economy allows us to have greater flexibility in responding to the challenges that come our way. Thank you very much.
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Speech by Mr Amando M Tetangco, Jr, Governor of the CB of the Philippines (Bangko Sentral ng Pilipinas), at the closing ceremonies of the EU-RP Anti-Money Laundering Project-Philippines, Central Bank of the Philippines, Manila, 12 September 2008.
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Amando M Tetangco, Jr: Strengthening our fight against money laundering & terrorist financing Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the closing ceremonies of the EU-RP Anti-Money Laundering Project-Philippines, Central Bank of the Philippines, Manila, 12 September 2008. * * * Ambassador Alistair MacDonald; Congressman Jaime Lopez; Anti-Money Laundering Council Members – SEC Chairman Fe Barin and Insurance Commissioner Eduardo Malinis; Honorable Members of the Monetary Board and the Judiciary, Honorable Members of the European Commission, Members of the Diplomatic Corps, Representatives from our multilateral partners including the IMF/ World Bank and the ADB, Dr. Ferdinando Buffoni, fellow workers in government, special guests, good morning. Today, we celebrate a significant milestone: the successful completion of the joint program of the Philippine Government and the European Commission in strengthening our capacity to fight money laundering. Two years, ten months and six days ago, we launched the “Training the Trainers Program.” I am pleased to announce that the evaluation indicated that this program accomplished its objectives of strengthening the institutional capacity of agencies and institutions involved in the implementation of AML/CFT strategies and of raising the awareness of the Philippine civil society on AML/CFT issues. My understanding is that the participants took full advantage of this training program and lived up to its challenges. Altogether, we have 20 successful trainers from the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, the Insurance Commission, the Anti-Money Laundering Council Secretariat, the Philippine National Police, the Court of Appeals and the Regional Trial Court. May I request all the participants to the “Training the Trainers Program” to stand up and be recognized. Ladies and gentlemen, let us give them a well-deserved round of applause! Congratulations program participants! You have completed the first step. The next challenge is to use the training skills you have acquired in sharing the knowledge you have gained with the stakeholders tasked to implement AML/CFT measures. The objective is to empower them to fully respond to evolving challenges in our fight against money laundering and terrorist financing. I am also impressed by the stronger cooperation that has taken root among the agencies of government represented in the program: from the supervisory authorities to the judicial and law enforcement agencies. For us at the Anti-Money Laundering Council, training and educational programs are important initiatives under the Philippines’ AML/CFT regime. The Anti-Money Laundering Act of 2001, as amended, mandates the AMLC to develop educational programs on the harmful effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. Ladies and gentlemen. The Philippines has been making big strides in having a robust legal AML/CFT framework. Following the enactment by our legislators of the Anti Money Laundering Act, we have: • criminalized money laundering • created the Anti-Money Laundering Council as the Philippines’ Financial Intelligence Unit • established the mandatory obligations for covered institutions relative to the requirements on customer due diligence, record keeping, and the reporting of covered and suspicious transactions • enforced mutual legal assistance and cooperation; and finally, • instituted a civil forfeiture system In addition, the Supervising Authorities have issued circulars and guidelines to covered institutions regarding correspondent banking, politically exposed persons, wire transfers, alternative remittance systems, as well as cross border transportation of currency, and UN Security Council resolutions on designated terrorist individuals and organizations. As of today, we have one successful money laundering conviction and 37 money laundering cases pending before the Regional Trial Courts, the Ombudsman, and the Department of Justice. And there are other charges we are preparing to file in our courts. However, we do face new challenges from globalization and the internationalization of money laundering and terrorist financing techniques. In addition, new and evolving technologies and financial systems are being used by money launderers to weave a complex trail that is difficult to find and unravel. As money launderers continue to refine their techniques and find new avenues for their illicit operations, so must we work together to fortify our defenses to prevent or stop them. Otherwise, we risk having a threat to the reputation and viability of our financial system. It is in this context that we have been proactive in the Philippines. The Anti Money Laundering Council, which I chair, has taken important initiatives to broaden the Philippines’ AML/CFT strategy, to intensify its position as a partner of the global community in the fight against money laundering and terrorist financing, and to align our AML/CFT regime with the international standards of the FATF. On the other hand, as the international watchdog on AML/CFT issues, the Financial Action Task Force, has issued the FATF 40 + 9 Recommendations and continuously monitors AML/CFT compliance by its member countries through peer reviews and assessments. Accordingly, the Anti Money Laundering Council submitted for consideration of the Congressional Oversight Committee – which Representative Jaime Lopez co-chairs – proposed amendments to the AMLA in line with the Revised FATF 40 recommendations and 9 Special Recommendations on Terrorist Financing. These amendments, intended to give more teeth to the Anti Money Laundering legislation, are as follows: • the addition of more predicate crimes such as trafficking in persons, bribery, counterfeiting, frauds and other illegal exactions, malversation, forgery, environmental crimes and terrorism and its financing; • the inclusion of an appropriate regime for designated non-financial businesses and professionals, such as casinos, real estate agents, dealers in precious metals and stones, lawyers, and accountants; • provision for a system of incentives and rewards; and • retention by the AMLC of a percentage of civilly forfeited funds. I am pleased to report that our House of Representatives is similarly proactive in terms of strengthening our fight against money laundering. There are now two pending bills on proposed AMLA amendments: • House Bill 3053 sponsored by Representative Rufus Rodriguez; and • House Bill 4784 sponsored by Speaker Prospero Nograles and Representative Jaime Lopez, who is the Chairman of the Committee on Banks and Financial intermediaries and the Co-Chairman of the Congressional oversight Committee on anti-money laundering. Ladies and gentlemen. Another important event in our fight against money laundering is going to take place in a few days. From September 22 to October 6, 2008, the Philippines’ AML/CFT regime will be assessed by the World Bank and the Asia Pacific Group on Money Laundering (APG). When the assessment is finalized, we will know how we rate in terms of implementing our AML/CFT regime. In preparation for this, the AMLC has been conducting meetings and consultations with relevant government agencies and financial institutions to ensure that the Assessment Team is provided with necessary information for its on-site mission. The completion of our program on “Training the Trainors” therefore comes at a most opportune time. Implemented with technical assistance provided by the European Commission, this program underscores the trust and confidence of our European allies in our country as a capable, reliable, and enduring partner in the increasingly challenging war against crimes and its financing. Of course, declaring war against money laundering and terrorist financing is only the beginning. To win this war, we must be united, committed, focused, and vigilant. We are fighting for security, peace, and stability of our nations, the safety of our people, and the future of our children. The stakes are simply too high; losing is definitely not an option. This is the one big fight we should invest in to win. On behalf of my colleagues at the Anti Money Laundering Council therefore, I thank the European Commission represented by Ambassador MacDonald (let us give them a big hand) for their valuable support. And once again, let us congratulate all the participants to the “Training for Trainors Program” for their commitment to broaden the network of people fighting money laundering and terrorist financing in our country. Together, let us continue to broaden support and fortify our position in the fight against money laundering and terrorist financing. Thank you all and good day. Maraming salamat and Mabuhay!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Public Hearing of Senate Committee on Banks, Manila, 29 September 2008.
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Amando M Tetangco, Jr: Recent market volatility – implication for the Philippine economy and banking system Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Public Hearing of Senate Committee on Banks, Manila, 29 September 2008. * * * Mr. Chairman, members of the Committee, Senators. Good morning. The Bangko Sentral ng Pilipinas is thankful for the opportunity to discuss what is undoubtedly the most talked-about issue in the world today. Indeed, the international financial architecture has been irrevocably remodeled by events over the past two years. To understand what all of these events mean and to situate the Philippines in all these, it is quite important that we undertake a clinical diagnosis of what exactly has transpired and outline a roadmap, if you will, of where the drifts of change may take us. In today’s briefing Mr. Chairman, we share with your Committee our analysis, beginning with a brief discussion of the events that led to what is now euphemistically referred to as the Sub-prime mortgage crisis. After presenting the broad outline of the current turmoil, we go directly to how all these are affecting the Philippines. It is in this section, Mr. Chairman, that we reiterate our earlier pronouncements that our exposures are limited and that our hardearned financial market stability continues. At the request of the Chairman, we have also prepared a separate short presentation of the more technical details of the typical transactions and the financial instruments involved. The genesis of the current financial difficulties in the US market Allow me Mr. Chairman to raise 4 themes that in our view give context to what is currently transpiring in the market – The Great Moderation, Market Psychology, Financial Innovation and Globalization. The “Great Moderation” refers to the period where there was low volatility in inflation and output. By the early part of this decade, this was supported as well by an environment of low interest rates. This is an essential development since it fueled the boom in mortgages, aided no doubt by the traditional market psychology that real estate prices – particularly housing values – would perpetually rise. The same market psychology encouraged investors to seek new avenues to enhance portfolio yields within this low interest rate environment. The financial market responded to this by introducing so-called structured products. These instruments are designed to repackage the traditional risks related to mortgage out of the balance sheet of banks while providing newer means to handle the financing of the mortgage. These structured products were made available to a wide spectrum of investors across different jurisdictions allowing for new opportunities in a more diversified portfolio. Unfortunately, Mr. Chairman, when mortgage defaults became prevalent, the same links that diversified risks to a broader web of stakeholders are precisely the very same links through which we find some contagion effect that is now reflected by the present difficulties. The role of information, Mr. Chairman, in all of these simply cannot be understated. When times are good, there is the overwhelming tendency to ride the bandwagon, oftentimes sacrificing the need to validate all information as prudence dictates. However, when times are bad, it is precisely the dearth of information that drives institutions and the general public towards panic. To see this in better detail, we begin with what is arguably one of the most followed market rate, the Effective Fed Funds rate. Soon after the onset of the new millennium, the Effective Fed Funds rate was moving downwards, eventually reaching its lowest levels in the 3rd quarter of 2003. The low interest rate regime was intended to spur lending and indeed one sector that benefited was the mortgage markets. Housing prices were experiencing a pronounced appreciation and the low interest rate regime served to further fuel a boom in mortgages. In ages past, banks simply took the tenor mismatch of short-term liabilities funding long-term assets such as mortgages. This business model however exposes the bank to considerable long-term risks. Under the Basel Accord framework – the de facto international best practice for bank supervision – these risks must be mitigated by corresponding capital charges. It is the long-term nature of the mortgage that makes it relatively “expensive” to maintain from the standpoint of allocating a fixed amount of bank capital. The process of securitization offers an alternative since US financial institutions could take out much of the traditional mortgage-related risks from their balance sheet. Essentially, this is what occurred as housing equity loans (HELs) were securitized, providing FIs both fresh funds and balance sheet leeway to extend new loans, particularly mortgages. The securitized HELs became what is referred to as mortgage-backed securities (MBS) and, with further structuring, eventually fed into another instrument which is called Collateralized Debt Obligations or CDOs. The conversion of mortgages into Mortgage-backed securities (MBS) and Collateralized Debt Obligations (CDOs) may seem complicated but in reality these are fairly straightforward transactions. To provide the Committee a rough schematic, we start with those who take out amortizing housing loans from banks. For the bank, this is a long-term asset which ties up resources and is prone to market and credit risks. To mitigate these risks, the bank may pool the amortizations expected from the mortgage and create a security which can be sold to investors. The coupon payment of the new security is funded by the amortizations of the housing loan. This security is referred to as the MBS and the transaction is oftentimes is handled through a Special Purpose Vehicle. To the bank, the effect is an improvement in the asset quality of its balance sheet because the traditional mortgage risks are mitigated. Investors welcome this because it affords them another instrument that they can consider for their portfolio. The SPV earns from being a conduit while the mortgagor is unaffected because he/she has already received the proceeds from the original loan. Taking this a step further, Collateralized Debt Obligations may also be created and likewise offered to investors. There are technical differences between CDOs and MBS but for purposes of situating the current market conditions, it is perhaps sufficient to suggest that the two instruments are similar in that they pool underlying assets and sell an instrument that represents these underlying assets. The Effective Fed Funds rate subsequently reversed course. Housing prices also began to fall significantly and mortgage defaults began to rise. Since the home was typically the collateral of the mortgage, falling housing prices also eroded the value of the collateral supporting the loan. In the past, a loan default would have simply meant foreclosing on the home. However, since the mortgage was already “converted” into a security (MBS and CDOs) held by investors worldwide, the combination of rising mortgage defaults and falling collateral values translated into losses for the MBSs and the CDOs (either through outright defaults, missed coupon payments and loss in market value of the security). These factors sparked the widespread dilemma that we now find ourselves in. If memory serves us right, it was in February 2007 that the term “subprime mortgage” was publicly alluded to in a disclosure by an international financial institution. The subprime difficulties began to take explicit shape as mortgage institutions take their losses into their financial books. In April 2007, New Century Financial files for Chapter 11 protection and less than a year after, Bear Stearns is acquired with Fed support. The Philippine situation You may wonder Mr. Chairman what this unfortunate situation has to do with a small archipelagic economy half-way across the globe. If they are affected, why are we? The answer to that Mr. Chairman is the realities of macrofinancial economics. The funds market is indeed global; investors seek the most competitive terms without necessarily being confined within national borders while issuers are free to raise capital across different jurisdictions and under different currencies. Exchange rates are always bilateral in nature but eliminating arbitrage requires that adjustments are inevitable once bilateral rates are linked, i.e., from euro to pound to dollar to peso. On top of this, there is our longstanding economic ties with the US and this would easily manifest itself in many of our mainstream economic indicators such as the BOP (both current and financial accounts), inflation, employment and OFW remittances. It is also important to bear in mind Mr. Chairman how innovation plays a role here. With funding markets more global than any other point in history, new products and new transactions are routinely developed to address evolving needs. We earlier provided a schematic that essentially converted housing loans from long-term illiquid assets held by banks and into marketable securities held by the investing public. Without altering the basic cash flows (i.e., the amortization of the loan), the market has altered the character of the instrument and allowed the product to be available to the public. This is intrinsic to the changes in the market landscape and as we will see later, is essential to understanding how our own banks became involved with Lehman Brothers exposures. The extent of exposure of Philippine banks Going to the actual exposures of Philippine based banks to Lehman Brothers, we have already stated publicly that the magnitude is roughly 0.3 percent to 0.4 percent of total assets. In other words, the extent is less than one-half of 1 percent of total assets. This marginal exposure is spread over a limited number of banks and involves transactions arising from Special Purpose Vehicles as well as the direct investment in Lehman-issued financial instruments. Banking market remains stable Apart from the limited exposure, we find that our market’s reaction has been contained as well. The Peso, for example, depreciated when talk of Lehman’s difficulties took center stage. This is evident the day after Lehman filed for bankruptcy protection as market uncertainty set in. Yet in the same vein, that uncertainty abated and the peso appreciated once the rescue plan of the US Fed and Treasury was announced. Looking at check clearing activity for that particular week, we find no evidence of either abnormal or sharp reactions. In fact among universal and commercial banks, there was a net check deposit of roughly Php970 million on the 16th and 17th of September – the period of Lehman’s filing for Chapter 11 – followed by a net check withdrawal of basically the same amount on the 18th. In effect, resources were not withdrawn on balance as a result of Lehman’s difficulties and commercial/universal banks even closed the week with further additions. Over at the interbank market, average rates remained relatively the same as well throughout the same period. Where the market response was most evident was in the pricing of the credit risk. One can see from the chart that the EMBI+ indices, both Global and for the Philippines, rose immediately after September 16. The same pattern is evident in our 5-year Credit Default Swaps, suggesting that it became more expensive to hedge against the possibility of a Philippine default. However, we would like to stress that those spikes have likewise abated, again once the market absorbed the information on the rescue plan. Assessing our market landscape What we are suggesting Mr. Chairman is that our own market’s reaction has been relatively subdued despite the otherwise historic developments offshore. We attribute this to our own structural make-up specifically. A banking system where institutions are well-capitalized relative to the risks they take on their balance sheet. Our latest Capital Adequacy Ratio (CAR) for universal and commercial banks is practically 50 percent higher than our prudential standard of 10 percent which is itself higher than the international standard of 8 percent set forth by the Basel Accord. The continued asset clean-up of banks, accomplished through market-oriented schemes and without the use of public funds, has boosted the banking system’s overall asset quality. The banking system’s NPL ratio is now closer to the pre-crisis level of around 4.0 percent. Furthermore, Return to Equity continues to improve, currently at 10.8 percent as of end-2007 Investing in banking reforms These strengths have been made possible because we have invested in previous reforms. While recognizing that change is itself difficult, we have nonetheless moved forward in putting in place a risk-based supervisory approach where minimum prudential standards are set, behavior and conduct are monitored but the day-to-day strategic & operational decisions are clearly vested on the banks in the context of their fiduciary responsibilities and their governance mandate as good corporate players. We have earlier shown the committee Mr. Chairman the capital adequacy position of our universal & commercial banks, setting the bar higher than the Basel Accord. Over and above that, we now have a core of dedicated specialists who are individually assigned to oversee specific institutions and have the technical expertise & training required for this critical function. We are instituting a new reportorial system – the FRP – that is fully compliant with International Accounting Standards. Perhaps most critically, we have regular and open discussions with our stakeholders so that issues can be thoroughly ventilated and a common understanding reached. The broad overlying issues All of these developments on the ground eventually mesh with the broad overlying issues. We have strengthened ourselves internally because we recognize that funding markets are irrevocably global where ups and downs necessarily cascade to everyone. The market no longer distinguishes where perturbations emanate; it only appreciates how the contagion may be transmitted. In this respect, the current problems in the United States are certainly not an isolated “US issue”. There is no other stronger proof of this than the fact that various central banks have been working in concert to provide the necessary liquidity to prevent systemic dislocations. Moving forward though, information will always remain to be the key ingredient so that appropriate measures can be calibrated for differentiated difficulties. Information though is a two-way street: we will continue to oversee covered-institutions based on our risk-based supervisory framework while stakeholders need to remain faithful to the tenets of transparency and disclosure. Macro-economic landscape We would like to reiterate that the country’s macro fundamentals remain sound and the economy has proven to be resilient. Despite a general slowdown worldwide and skyrocketing oil prices, we continue to generate growth. Our inflation numbers have indeed moved upwards and we recognize the difficulties that this brings. However, based on present commodity market conditions, we may soon see some relief. Our international reserves continue to rise, reaching $36.7 Billion as of end-August. This represents 6 months worth of imports and the payments of goods and services, doubling our previous norm. And considering all the external volatilities, our Balance of Payments position still shows encouraging news with a surplus of $2 Billion after the first 8 months. All these Mr. Chairman auger well for us. The Bangko Sentral ng Pilipinas fully appreciates the historic implications of the most recent shock but we also note the very marginal exposures from our end. The good news then is not only the limited exposures but perhaps more so that it validates our prior collective investments in macro-financial reforms. This could only suggest that the financial stability that we have achieved can be expected to further continue. Legislative landscape On this note, we thank the Senate for its support and the passage of the PERA and CISA bills. These are essential tools as we move further in developing the capital market and institutionalizing credit information. If there is a lesson from the current turmoil though, it must certainly be that markets are constantly evolving and that prudential oversight must likewise keep in step. Given the vast array of possible influences that bear upon market conditions, the general public must be afforded greater protection which is itself possible through more effective means of supervision. With the support of the Senate, we would like to move forward on existing proposals so that we can effectively institute the principle of consolidated supervision. Among others, the market conditions provide a compelling reason to consider the regulator’s ability to direct existing shareholders to infuse additional capital, accept new investors or consolidate with qualified financial institutions when deemed necessary. This pro-active move would certainly minimize potential resolution costs. These, as well as others, are provided for in the proposed amendments to Republic Act No. 7653. Other legislative initiatives such as the Corporate Recovery Act, the Payments System Act and the Collective Investment Schemes Law are also essential in our on-going efforts to strengthen our market as well as in the light of the current market issues. Mr. Chairman, the Bangko Sentral ng Pilipinas thanks you, the Committee and the Senate for this opportunity to provide our views and analysis on the issues at hand. We trust that we have comprehensively addressed your concerns and we look forward to our continuing collaboration to ensure that our financial market sustains its development.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the launching of the Economic and Financial Learning Center, Manila, 3 October 2008.
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Amando M Tetangco, Jr: A comprehensive financial education program for Filipinos Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the launching of the Economic and Financial Learning Center, Manila, 3 October 2008. * * * Members of the Monetary Board, our partners in the financial and business communities, special guests, fellow central bankers, good afternoon. We thank you for being here with us at the launching of the Bangko Sentral’s Economic and Financial Learning Center which includes the BSP Library as well as the Statistical and Learning Center. This center, which we call EFLC, symbolizes Bangko Sentral’s commitment to institutionalize and sustain a comprehensive financial education program for Filipinos – our primary stakeholders. We believe that persons literate in basic economic and financial concepts… stand to benefit more from opportunities that development brings. They also become better partners in ensuring that we have a sound banking system and a more efficient transmission mechanism for our monetary policy actions. In the process, they help sustain balanced economic growth. This is the philosophy that underpins our economic and financial education program. It is in this context that today, we are implementing a comprehensive economic and financial education program that covers children, teenagers, and adults. I will discuss its components briefly. For Filipino children, we have Bangko Sentral’s joint program with the Department of Education and the banking community, where lessons on saving and money management are now being taught as part of the curriculum for 12 million public elementary pupils. For overseas Filipinos and their dependents here and abroad we conduct lectures and dialogues, to help them make sound financial decisions and investments to grow their money. For our entrepreneurial poor, we continue to preach the gospel of microfinance that has helped improve the quality of life of millions of Filipinos. For small and medium-scale entrepreneurs, we guide them on how and where to access credit. For banks, we teach them how to align with and benefit from our technological innovations such as the award-winning electronic rediscounting. For those engaged in the remittance business, we let them know how they can benefit from using our real-time gross settlement system or PhilPass. For bank customers, we empower them by educating them on their rights and responsibilities in dealing with banks. For maintaining the quality of our policies, we have professorial chairs in top academic institutions to improve economic policy formulation and education. For the general public, we conduct lectures and seminars for them to understand the role of the Bangko Sentral in the Philippine economy; we also teach them how to recognize counterfeit currency; and through the highly successful “Tulong Barya Para sa Eskwela” we teach our public the value of small things, including the barya, as the start of wealth creation. And of course, we respond to requests for information and resource persons from schools, institutions, and civic groups. With our EFLC, we have created a one-stop center where researchers, students, visitors, and BSP staff may access data and information produced and acquired by the Bangko Sentral in the areas of central banking, economics and finance. We have a briefing room here where we can host various visitor groups. Incorporating today’s technology, the EFLC will provide information not only through conventional books and magazines, but also in various electronic formats such as CDs, digitized books, and interactive learning modules. EFLC will coordinate with other sectors and departments at the Bangko Sentral to consolidate materials for our economic and financial education program under this one-stop center. This will include digital archives of BSP video materials to make them accessible to the public. Visitors may also buy Bangko Sentral publications and commemorative items here at the EFLC. Through the interactive modes of learning, including computer-based games and multi-media learning tools, EFLC should inspire and excite visitors to learn more about economics and finance. It is possible, some of our visitors may even decide to become central bankers. But beyond the books and multi-media resources here, we envision EFLC to serve as a regular forum for intellectual discourse that will inspire higher learning in the field of economics and finance. Ladies and gentlemen. I am pleased to inform you that this EFLC is just the first of a series; our plan is to set up EFLC’s at Bangko Sentral’s regional offices and branches. This is to provide equal opportunity for our people in the countryside equal access to our material and resources. Actually, work has already started in operating the regional centers but we will expand their scope and services in the form of traveling exhibits and operation of regional hubs to ensure that our electronic resources are accessible to our visitors in the regions. Expanding our network and enhancing regional facilities will ensure that timely economic and financial learning benefit those in the countryside as well. Ladies and gentlemen. I cannot overemphasize the importance of ensuring the success and sustainability of our economic and financial education program. If we are effective in teaching saving and money management to our 12 million public school pupils, we would be on track to raise a new generation of financially-independent Filipinos who will lift our country from its traditional deficit-spending mode. If we are able to educate our public to recognize legitimate investment vehicles from pyramiding scams, then we can truly harness public savings to finance productive ventures. If we are able to inspire Filipinos to save, invest more, or to become entrepreneurs, then we have done our country a great service in terms of sustaining its growth and development. I hope therefore that we will continue to work together on our economic and financial education program. Finally, I congratulate the EISG headed by Marah Angka and her staff for finally getting the EFLC off the ground. Let us give them our full support and cooperation. And so, ladies and gentlemen, let us now begin our tour of the EFLC. Mabuhay ang EFLC! Mabuhay ang Bangko Sentral ng Pilipinas! Thank you all and enjoy the rest of the day.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Joint Membership Meeting of MART, TOAP, ACI and IHAP, Makati City, 3 October 2008.
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Amando M Tetangco, Jr: Recent market developments – impact on the Philippine banking and finance sector Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Joint Membership Meeting of MART, TOAP, ACI and IHAP, Makati City, 3 October 2008. * * * Distinguished officers and members of the Money Market Association of the Philippines (MART), Trust Officers Association of the Philippines (TOAP), Association Cambiste Internationale (ACI) Philippines, the Financial Markets Association, Investment House Association of the Philippines (IHAP), esteemed guests, ladies and gentlemen, good evening. Thank you for inviting me to be your guest speaker at tonight’s joint general membership meeting. It’s always good to engage the prime movers of the country’s financial markets in an open discussion such as this. But especially during these times of great financial turmoil in major markets overseas. I would certainly welcome the questions and your comments during the open forum after my brief talk. As you are well aware, the BSP’s approach to supervision and reform has always been consultative. About the same time last year, if you recall, I was also your guest speaker at your general membership meeting. At that time, I spoke about the increase in global liquidity and the temptations that it introduced. I alluded to the changing nature of financial risk and how in this era of financial globalization, risks have transcended national borders. I also said that the international rules of the game are changing. Ah... the time we live in is indeed interesting, isn’t it? The rules of the game are further evolving. This time around, there seems to be a crunch in global dollar liquidity as the US market has rapidly de-leveraged. And events are showing that the magnitude of financial risks that have crossed national borders has been beyond most market participants’ and regulators’ expectations. Stunningly, we are witnessing rapid turnover in some of the marquee names in the global financial stage. In fact, the market developments are moving so fast that the observations that I will be sharing with you tonight are not the same as those that I would have shared with you, had I delivered my talk on Tuesday as was originally scheduled. But I want to assure all of you here tonight, that my overarching message remains the same – that is, • First, our financial system is fundamentally sound and relatively insulated given its more largely domestic orientation, • Second, our exposure to the troubled foreign financial institutions is minimal and quite manageable from a capital and liquidity standpoint, and • Third, our past investments in banking and other financial reforms have helped shield us from catastrophic fallouts that the other jurisdictions have seen. How did I come to these conclusions? Let me quickly run through the following points with you: a) What has just happened? b) How’s our banking system faring? c) Is our macro stability sustainable? d) What are the BSP’s thrusts going forward? I. Recent market developments We are all in the market, although coming from different perspectives, so I won’t delve too much into the details of the events since mid-September. We have all witnessed that our domestic markets have followed, albeit somewhat mutedly, the movements in the global financial markets. What is interesting to note, however, is that our markets’ reactions have at times merely been “knee-jerk”. On quite a few days over the last 2 weeks, we saw the peso and the stock market, for instance, recovering most of any day’s trading losses by the close of the day’s trading session. What I would like to highlight with you, is this – “The rules of the game are changing.” 1) Financial markets have become very closely interrelated allowing for contagion to be easier and speedier; 2) The financial transactions that we thought would diversify risk may be the very same ones that have led to unhealthy risk concentrations; 3) Information is most critical, when you are least mindful of it ; and 4) As much as many would not want to believe it, regulation and markets must coexist – the trick is to craft good regulations that would allow markets to work. Financial integration has allowed the movement across borders not only of goods but also of funds. The funds market has indeed become global. Yield-seeking by investors as well as capital raising activities of users of funds ceased to be confined to their own borders because of globalization. So called "securitization structures” have made it easier to transfer traditional on-books risks of banks to off-books accounts, therefore freeing up capital which allowed banks to lend more. “Structured products” have also allowed the enhancing of yield on traditional investment instruments. With these financial innovations, the objectives of the investors and the users of funds were therefore seemingly “happily married”. But alas, the party has abruptly ended and the music has stopped playing. In the flurry of these financial innovations, the value of transparency seemed to have been understated or even casually brushed aside. And as the market in the US was largely deregulated, the market grew larger and larger. Some are predicting that what we may see, as an aftermath of this turmoil, is a highly concentrated and increasingly regulated financial system in the major economies. Policy makers and regulators in emerging markets, including in the Philippines, will then have to evaluate their own market structures to see how they can best position themselves in this changing environment. II. The Philippine banking system Against the backdrop of recent events, how have our banks fared? You have heard me say that our banks’ collective exposure to the failed Lehman Brothers was 0.3-0.4 percent of the banking system’s total assets. We hope that there will be no other Lehman’s type problems down the road, and this seems to be a fair hope given that US and even European authorities have now boldly stepped in to rescue the other large and potentially systemic financial institutions in their jurisdictions. Nonetheless, our latest survey of banks shows the exposure of Philippine banks to potentially “at risk” international financial institutions is only around 1 percent of total assets at most. And this level of exposure by a few banks is definitely well within the ability of these banks to absorb should they become actual losses given their strong capital base and liquidity. Our monitoring of banks’ activities continues to reveal no abnormal actions by or against banks. In addition, the interbank market continues to function in an orderly manner given fairly stressed global conditions. Where we have seen some “friction” is in the swap market, possibly in step with tightness in global dollar liquidity. But as I understand it, that has abated in the last couple of trading days. Ladies and gentlemen, our banking system remains fundamentally sound. Capital is still well above both the BSP 10% minimum prudential requirement and the BIS standard of 8%. Asset quality is as close to the lowest level seen since the Asian Crisis as it has ever been. Return on equity has also been improving. And there is ample liquidity system-wide. This stable banking system has been critical in underpinning a stable macroeconomic environment. And sustained stability in our macroeconomic environment in the last few years has also avoided the build up of dangerous imbalances that could have led our banking system astray. III. Macroeconomic stability Now, a question that may be in your minds is this – Is the macroeconomic stability that we have so far enjoyed in danger, given the global financial turmoil further threatening world economic growth? You can’t have a more direct question than that, can you? Well, I will also try to be as forthright. As you aware, we have lowered our growth expectations to a range of 4.4 to 4.9 percent. I believe that given the unfolding environment, such a range would still be decent. On inflation, our base scenario for a hump-shaped inflation path remains. The inflation peak may be nearing, if we haven’t yet seen it. After that, we see some leveling off, then entry into single digit territory by Q1 2009. Now, if the downtrend in global oil and non-oil commodity prices is sustained, we should see the leveling off period shorter, and inflation being within the target range before the end of 2009. We are cognizant that the global slowdown could further weaken our exports but possibly tempered by lower oil prices and other commodity imports. Remittances actually are very strong and above forecasts so far, but they may also be eventually affected. Prolonged risk aversion could also change the direction of capital flows. However, we are also keenly aware that the global economies are not all slowing down at the same rate. In addition, not all the economies are seen to grind to a halt. There will continue to be opportunities for growth. There will always be value investors, given all the liquidity that will have been shored up because of the ensuing “clean up” in the financial turmoil. We are thus expectant that markets such as the Middle East and China will be resilient. We see these markets as taking up much of the slack that will be created by the slowdown in the US and Europe. We therefore still consider our $2 billion BOP surplus target this year as reasonable and doable. Given all these and as we sustain the reform effort, I believe our macroeconomy stands an excellent chance of maintaining its stable course. IV. BSP thrusts going forward What can you expect from the BSP going forward? We will remain focused on our mandate of price stability. We believe that inflation at manageable levels is essential to ensuring sustainable economic growth. We will maintain our policy of a market-determined exchange rate, with official action only to keep volatilities at bay. We will stick to the policies that have allowed us to sustain a strong external position. We will continue to review our banking reform agenda. The banking system strength that we have seen thus far has been made possible by the reforms that we have put in place. We will continue to enhance risk management standards, improve corporate governance and accelerate compliance with Basel 2 principles. The recent events in the financial markets highlight the critical importance of efficient price discovery, transparency and investor protection. In line with this, our issuance of regulations aimed at further broadening the array of financial products available in the market will continue to include a review of existing rules to ensure that appropriate risk disclosure and client suitability procedures are in place for new risk-taking activities. In addition, the BSP will continue to work together with the private sector and other government agencies to further enhance both the infrastructure and the regulatory framework for capital market transactions to further promote efficiency in trading, settlement and delivery of government securities. Finally, we will pursue our legislative agenda. As you must be aware, the Credit Information System Act and the Personal Equity and Retirement Account Act have both recently been approved. These are two very important pieces of legislation, particularly as we face the challenges brought about the current financial turmoil. The CISA will help address the lack of comprehensive and credible credit-related information. This will in turn improve access to credit and reduce its cost. PERA, on the other hand, is expected to promote voluntary savings and therewith provide a new base for stepping up capital market development. It is also expected to be complementary to our public pension system. The BSP will continue to work with Congress on key legislation that would further enhance protection for investors, improve BSP’s oversight capabilities and minimize costs of resolutions. Concluding remarks Ladies and gentlemen, the challenges that we face are enormous. Although much has already been revealed in terms of the problem areas of the global financial market turmoil, we are very much aware that more could be forthcoming. I said earlier, “the rules of the game are changing”. Fortunately, at the UAAP, the rules have not changed, the best still prevails. I can almost hear some of you say underneath your breaths – if indeed that is the case, then we should “throw the playbook out the window.” My advice to all of you – instead of doing that, be watchful. At this critical point, it is more important that we remain focused on the strategy and the reform agenda that have so far allowed us to be resilient. On the part of the BSP, we will remain vigilant in our assessment of developments. We will ensure that we are flexible to promptly and decisively take action when necessary. We will be forthright in our communication to our stakeholders. To steer the market from a further and deeper impact of this turmoil, the BSP continues to look to the active cooperation and support of all of you in the market. As they say, we are in this game together. I take note of the passionate and unwavering support pledged here by all the associations present tonight. In order for all of us to finish the course we laid out, we must work together as a team. Magandang gabi po sa inyo, at maraming salamat. Mabuhay tayong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP UP Centennial Professorial Chairs Launching Ceremony, Quezon City, 7 October 2008.
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Amando M Tetangco, Jr: The Central Bank of the Philippines – supporting academic excellence Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BSP UP Centennial Professorial Chairs Launching Ceremony, Quezon City, 7 October 2008. * * * Senator Angara, President Roman, Chancellor Cao, our friends from the UP community, fellow supporters of UP, special guests, good afternoon. On behalf of the Bangko Sentral ng Pilipinas, I am here to launch the seven BSP-UP Centennial Professorial Chairs. We believe that setting up professorial chairs is the best way to institutionalize our support to academic excellence that is the hallmark of the University of the Philippines. As I said before, the concentration of UP alumni in legal, political and government circles as well as in the scientific pool speaks volumes about the university’s central role in nationbuilding. By helping mold the minds of the nation’s best and brightest or what we call iskolars ng bayan, by stoking the engine of innovation, and by providing an intellectual compass and healthy critique to public policymaking, UP has contributed and continues to contribute to the advancement of our country. The BSP-UP Centennial Professorial Chairs managed by the UP Foundation Inc. are professorial chairs donated by the Central Bank of the Philippines in 1982-1983 during UP’s Diamond Jubilee celebrations. The original endowments for these chairs was P150,000 each. We raised each endowment to P1,500,000 by donating an additional P1,350,000 per chair. Meanwhile, the BSP UP Centennial Professorial Chair in Business Administration has an endowment of P1.5 million from several donations made by the CBP and the BSP since 1981. We raised the endowment to P3 million through an additional donation of P1.5 million. The terms also have been enhanced to maximize the benefits to the chairholder. Since 1983 when the professorial chairs were first awarded, they have been held by distinguished scholars whose research and public service have contributed significantly to the shaping of policy decisions, the enactment of landmark legislation and the formation of institutions, both in the government and private sectors. The decision of the Bangko Sentral to establish additional professorial chairs namely, the BSP Sterling Professorial Chair in monetary and Banking Economics at the UP School of Economics and the BSP Sterling Professorial Chair in Government and Official Statistics at the UP School of Statistics, manifests the satisfaction of the Bangko Sentral ng Pilipinas in the contribution of the chair holders. Therefore, when UP President Roman and Dean Echanis approached the BSP for upgrading the old CBP/BSP chairs to UP Centennial Professorial Chairs, they found ready support within the Monetary Board. In awarding the chairs, the BSP affirms the academic excellence and freedom that makes the University of the Philippines what it is today. The professorial chairs provide funding support for research but the chair holders are free to set the research agenda within the sphere covered by the professorial chairs. On the whole, the gains to the UP exceed the obvious opportunity to retain and upgrade its most important resource, its faculty. It provides a chance to generate research and facilitate extension activities among the major units of the UP system. For its part, the BSP benefits through improvements in the existing body of policy-oriented social science research, of which it is both a producer and user. Our partnership with the University will allow us to further avail of intellectual assets to generate ideas, evolve good practices, access good vetting and generate competitive advantage in a difficult policy environment. I must say that the establishment of the BSP UP Centennial Professorial Chairs is also in recognition of the role of the University of the Philippines as the alma mater of the many professionals among its staff. Through these offerings, we hope to continue to provide UP’s community of academics and scholars the opportunity to generate ideas and applications that uphold the long-standing UP tradition of academic rigor, intellectual freedom, and practical relevance. More importantly, we hope that the research generated through the professorial chairs will be of benefit to policymakers at the BSP and in government who are engaged in the quest for socioeconomic development, one that will truly meet the development aspirations of Filipino society. The BSP UP Centennial Professorial Chairs also serve as a challenge for UP’s community of academics to continue to serve as catalysts for meaningful change in our society. Once again, the Bangko Sentral celebrates with you the first 100 years of the University of the Philippines and look forward to the next one hundred years of excellence in research and education at UP. Maraming salamat at magandang hapon sa inyong lahat!
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Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Consular Corps of the Philippines' Monthly General Luncheon Meeting, Makati City, 29 October 2008.
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Amando M Tetangco, Jr: The Philippine economy – building resilience in a time of uncertainty Remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Consular Corps of the Philippines’ Monthly General Luncheon Meeting, Makati City, 29 October 2008. * * * Minister and Consul General Sobashima, Acting Dean of the Consular Corps of the Philippines, honorable consuls-general, officers and staff of the Philippine Consular Corps, ladies and gentlemen, good afternoon. It is a pleasure to finally address the diplomatic community. Your organizers would recall that we have been trying to get our schedules “together” since January this year. In fact, we were first set to meet in February, but something came up on my side. Then in August, but something came up on your end. Then, today. (I suppose the “stars” have all finally aligned today, so to speak, so here we are.) What’s interesting is during all this time, the markets have moved quite significantly. Consider the table shown. I’ve compared some important financial indicators for Feb 27, Aug 27 – the two previously scheduled dates – and yesterday. You will note that all of these have turned “south” as they say. But more dramatically so in the last two months. The peso dollar exchange rate has moved from P40.33 to P45.73. Yesterday it was quoted at P49.105. At close of morning trade today, the peso stood at P49.14. The 5-year credit default swap spread, which is a measure of the market’s perception of the country’s credit worthiness, has more than doubled from 248 to 660 bps. The same can be observed on the spread over the ROP30, which moved from 260 to 649 bps. The PSEi, on the other hand, lost close to half its value from 3,105 in February to 1,704 pts at yesterday’s close. The regional financial markets followed the same trends – regional currencies weakened, credit spreads widened, and stock markets declined. Before any, or all of you cry “the sky is falling” – like the little chicken in that children’s fable who got hit on the head by a falling acorn, – let me share with you some good news: • Even as the numbers I showed you earlier appear to have “run away” or fallen sharply, there has been some reprieve in them. In other words, what we are experiencing is not a “free fall”, rather there has been some “traction” in the markets lately. • Our macroeconomy has remained fairly resilient and stable, owing to the buffers we have built up over the past years. • Our banking system continues to be sound, despite some contagion – as reflected in the deterioration of the financial indicators since the beginning of the year. • Our policy structure has so far been flexible. We have instituted significant reforms in the past, and we continue to fine-tune our policy tool kit to ensure our policies are responsive, targeted and therefore effective during these difficult times. So, hold that urge to cry “the sky is falling” lest you meet the same fate as that chicken, who got fooled and eaten by the wily fox. My presentation will be of four parts. I will begin with a brief discussion of recent events in global financial markets. I will then focus the major part of my discussion in assessing the Philippine economy’s resilience in the face of what the former Fed Chairman Alan Greenspan calls the “credit tsunami”. In particular, I will discuss how these external developments impact on the Philippine economy, why I believe the Philippines is well-positioned to withstand the crisis and what the Bangko Sentral’s policy responses are to bolster the economy’s foundations in the face of the enormous strains in the global financial markets. I. Recent developments in the global financial market I will no longer go into the genesis of the financial turmoil, as I am sure you have already heard a number of expositions on that. But I think it is important to highlight that this crisis has evolved and continues to do so in its FORM. It began as a liquidity seizure in the financial markets when the credit boom came to an end after the subprime mortgage collapse, leaving US investment banks heavily strapped for cash. Then moved on to be more of a solvency crisis, when we began to see the rapid turnover of marquee names in the global financial stage. Then a confidence crisis. Increasingly, investors and creditors are losing confidence in the ability of certain firms to meet their obligations leading to a general distrust in the global financial markets. The financial market turmoil has further changed its FACE. It has moved from its epicenter in the financial markets in the US and has begun to affect the US real economy. Its impact has also now crossed to the financial centers in Europe, as well as the European real economy. Now we are seeing it impact the Emerging Markets. So far, the effect on emerging markets has mostly been on the financial sector, and generally indirect through risk aversion. Indeed, the financial market turmoil has changed into a wider-spread contagion. Nonetheless, the three-pronged approach of the US and European governments aimed at: (1) repairing damaged financial systems through capital infusion; (2) providing a liquidity lifeline; and (3) enhancing deposit insurance, appears to have some effect in terms of shoring up confidence. This has been evident in the recent improvements in the LIBOR-OIS and TED spreads. The LIBOR-OIS and TED spreads are viewed as an indirect measure of funds availability in the market. A decrease in spreads typically signals an increased willingness to lend. A similar slowdown in the widening of CDS spreads in Asia has recently occurred as certain regional central banks also lowered policy rates and injected liquidity to their markets through repurchase facilities. These are “tractions” that we are seeing in the markets. I believe these will eventually constrain markets from doing a “free-fall”. Pockets of the financial markets are slowly adjusting, perhaps in confident response to the recent display of concerted, collaborative and cooperative action from officials of both the major and emerging economies. If these tractions continue and broaden in scope, we may begin to see a further unfreezing of credit and a muting of the negative feedback from the financial turmoil to the real economy. Having said that, however, much depends on whether the slowdown in the US and other major economies would be shorter or shallower than first expected.. II. Impact on the Philippines How do all of these developments impact on the Philippine economy? The Philippine financial markets have not been spared from the ripple effect of the worsening global financial strains. As I noted in my introduction, the peso has weakened, credit spreads have widened and the stock market has fallen, like in the other countries. What concerns us now is that a negative feedback loop from the financial markets to the real economy cannot be fully discounted. In the Philippines, the macroeconomic impact of the current turmoil will depend, in part, on the linkages between the Philippine economy and that of the US. These linkages are in the areas of trade, remittances and investments. • Trade. There is no decoupling. The US accounted for about 17 percent of total RP exports in 2007. Although this is lower than the 30 percent in 2000 and has been declining since, the US slowdown poses a downside risk to the country’s export earnings as some exports to other countries are subsequently redirected to the US market. • Remittances. Remittances are another important channel through which the US economic slowdown could manifest itself in the Philippines. More than 30 percent of overseas Filipinos (OFs) were based in the US as of 2007. • Investment. Moreover, more than 30 percent of net foreign direct investment (FDI) in the Philippines came from the US (in 2007). Slower US economic activity may, therefore, cause a reduction in inward foreign direct investment. The expected slowdown in other advance economies, including those in Europe and Japan, dampens further the country’s FDI prospects. III. Sources of resilience of the Philippine economy While the Philippines is not immune to the contagion from the global financial turbulence, underlying strengths or buffers in the economy remain that can help it ride out the storm. The Philippines is in a good position to withstand the crisis for the following reasons: • First, the country’s macroeconomic fundamentals are sound and the economic growth potential remains good; • Second, domestic demand remains a major contributor to growth; • Third, the external payments position is stable; • Fourth, dividends from structural reforms adopted by financial institutions since the Asian crisis have helped mitigate the impact of external shocks; and • Fifth, information disclosure practices have improved. Let me highlight some of these factors in greater detail… Favorable growth dynamics The economy has continued to expand despite a difficult external environment. In the second quarter of 2008, gross domestic product (GDP) grew by 4.6 percent on the back of relatively strong performances of manufacturing, agriculture and fishery, trade, private services and construction. On the expenditure side, the main drivers of growth have been private consumption and, to some extent, investments. Domestic demand has proven to be fairly resilient in previous episodes of global slowdowns and should be helpful once again in buttressing the economy from the fallout of the ongoing global slowdown. Stable external payments position The country’s external payments position remains favorable. The balance of payments – although it is beginning to come under pressure from global developments – has remained in surplus for the first nine months of 2008 at US$1.5 billion. The continued strength of the BOP is underpinned by the sustained strong remittances of overseas Filipinos as well as higher services receipts, particularly from business process outsourcing. Let me go into some specifics: • Remittances. Overseas Filipino remittances reached US$11 billion in the first eight months of 2008. OF remittances are expected to grow on the back of improvements in the quality of workers deployed. In addition, the geographical diversification of our deployments as well as the relatively inelastic demand for our growing deployed workers in the medical related fields, should form a buffer against a global economic downturn. • BPO revenues. Revenues from BPO services also provide some lift (actual revenues for 2007 reached US$5 billion according to the BP Association of the Philippines). The BPO industry is poised to grow by 39 percent for 2008 on account of strong demand for back office, engineering and financial services. In a period of slowdown, our BPO centers may benefit as they remain cost-competitive relative to the other regional centers. The country also continued to build up sufficient international reserves to cover import payments and to service external debt. The current GIR level of US$36.7 billion as of endSeptember 2008 covers about six months of imports of goods and payments of services and income and is equivalent to nearly three times the country’s short-term external debt based on residual maturity. Stable banking system Going to the banking sector. You must have heard me say that direct exposure of Philippine banking system to the financial institutions currently in trouble is limited. Our banks continue to be innately conservative, domestically-oriented, and have not moved to the business model of “originate and distribute”, which has propelled the popularity of structured products in the major economies. In addition, the reforms implemented to clean up bank balance sheets, strengthen bank capitalization through Basel II, improvements in governance structures, enhancements in risk management systems and adoption of international accounting standards have all come together to create a steadily growing, adequately capitalized, significantly stronger banking system. In particular – • Banks remained capitalized at levels above both the BSP-regulatory requirement and the BIS standard. This provides a buffer to banks to absorb more “shocks” going forward. • NPL Asset-quality has been enhanced – NPL ratio has been going down and is at its best level since the Asian crisis level. As of Aug, NPL ratio for UKBs stood at 3.88%. The asset clean-up of banks was accomplished without the use of public funds. • Profitability has been sustained. As of 2007, return-on-equity and return-on-assets were posted at 10.8 percent and 1.3 percent, respectively, and were on increasing trend since the post-1997 Asian financial crisis period. During this period, however, there may be a dent in banks’ profitability as banks provision for potential losses from affected investments. IV. Policy response to the turmoil Despite these buffers, the BSP has not remained complacent in the face of the turmoil. What have been the BSP’s responses to the current turmoil? The BSP’s approach to the financial turmoil has consisted of the following: 1. 2. Shoring up confidence through timely communication and transparency. • Immediate release of information on bank exposures to troubled financial institutions. • Continuous messaging on developments and policy changes. Ensuring that there is adequate peso and dollar liquidity. • Enhancing existing peso repo facilities through relaxed valuation and broader acceptable collateral. • Establishing the US$ repo Facility. • Maintaining a presence in the spot and swap markets by selling dollars. • Keeping the e-rediscounting facilities and emergency loan facilities open. 3. Providing directed relief to banks by allowing reclassification of financial assets from categories measured at fair value to those measured as of 1 July 2008. 4. Engaging with its regional peers to share information, discuss emerging developments, and pool resources, particularly foreign exchange reserves. • BSP has supported the proposal in the ASEAN+3 to enhance the existing swap arrangements as a means of boosting confidence in the region. The BSP is also considering other possible measures to help stabilize the financial markets, including a possible reduction in bank reserve requirements. We are also in constant touch with the Bankers Association of the Philippines to discuss other steps that can be taken under the evolving market conditions. Further, the BSP supports the proposed legislation that seeks to increase the maximum bank deposit guarantee to be provided by the Philippine Deposit Insurance Corporation, although under the context of a general restructure and recapitalization of the PDIC. V. Conclusion Ladies and gentlemen, While the Philippines is not immune to the impact of the financial market turmoil, it is relatively better insulated now to ride out the crisis. The continued resilience of the economy and soundness of the banking system, buttressed by gains achieved from purposeful reforms (past and present), puts us in a good position to deal with adversities in the global environment. In addition, we are seeing pockets of improvement in the financial markets, which can help to build confidence and prevent a “free fall”. Nevertheless, there is no room for complacency. We must continue to be mindful of the risks that could impede the growth of the Philippine economy. We can learn a lesson from the little chicken in that children’s fable – like the chicken, we must be watchful of our surroundings. But, unlike the chicken, we must take courage. These are difficult times. If, however, we are armed with the correct information and an appropriate plan of action, we should be able to get out of this crisis stronger. In this endeavor, the BSP looks forward to the continued support extended by the Consular Corps. Your work of promoting the dissemination of correct information about our country takes on a more critical dimension as we try to cope in these very trying times. Thank you very much and Mabuhay tayong lahat!!
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Welcome remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 46th Annual Meeting of the Philippine Economic Society, Manila, 14 November 2008.
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Amando M Tetangco, Jr: Competitiveness, growth, and equity in a globalizing economy – a central banker’s view Welcome remarks by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 46th Annual Meeting of the Philippine Economic Society, Manila, 14 November 2008. * * * The distinguished officers and members of the Philippine Economic Society led by Dr. Aldaba, fellow central bankers, our friends from the media, special guests, good morning. On behalf of the Monetary Board, I welcome all of you to the Bangko Sentral ng Pilipinas, the venue of the 46th Annual Meeting of the Philippine Economic Society(PES). To us, the annual meetings of the PES have always served as an invigorating collegial setting among professional economists in the Philippines for the dissemination of research, incisive debate, and careful consideration of critical policy issues. This year’s meeting is being held in conjunction with the 11th International Convention of the East Asia Economic Association or the EAEA. This marks the first time that our country is hosting EAEA. It is therefore with keen anticipation that we look forward to the discussions ahead, especially in light of the timeliness of this year’s PES theme of “Competitiveness, Growth, and Equity in a Globalizing Economy.” At the same time, EAEA’s theme of “Regional Risk Management in East Asia” is particularly relevant given the present global financial crisis that is likely to be the deepest in decades. Given the broad-ranging impact of the financial market turmoil, the scope of the conference papers addresses varied issues: this includes the need for complementary interventions in the areas of energy and infrastructure; human capital investments; governance; competition policy; and the need to integrate the poor into the mainstream of development. In other words, there would be much food for thought along these lines in subsequent discussions. On my part, I will focus on the conference theme from the point of view of a monetary policymaker. Globalization and the Great Moderation Ladies and gentlemen. Prior to the current economic and financial turmoil, the world had experienced a prolonged period of above-trend growth. An important driving force behind this is globalization – as manifested by an unprecedented increase in the trade in goods and services around the world, coupled with an even greater expansion in the cross-border movement of capital flows. In fact, between the 1990s and the current decade, global trade grew almost twice as fast as world GDP, while the stock of foreign direct investment grew almost five times faster than GDP growth. For emerging market economies (EMEs), in particular, foreign trade rose from 40 percent of GDP in 1990 to almost two-thirds of GDP by 2006, while private capital flows to EMEs increased tenfold during the same period. Globalization has also meant the relocation of many production processes to the most costefficient firms across countries, so that the contestability of domestic production is now greater than what appears from the trade figures alone. The dampening of price pressures as a result of increased competition has worked synergistically with a major transformation in monetary frameworks that was also taking place at the same time. In particular, central banks have come to focus on price stability as their primary policy objective and on the role of the monetary framework in establishing the credibility of policy. This shift in monetary policy – along with globalization, productivity gains, and complementary institutional factors such as increased central bank independence – helped bring about a period of decreasing inflation, above-average economic growth, and the dampening of the business cycle that has come to be known as the “Great Moderation.” The hope then was that this benign weather would continue, that the global imbalances would be resolved with soft landings, and that EMEs could now focus and turn their attention from macroeconomic management toward ensuring more meaningful participation in the economic mainstream of all the segments of the population, no matter the income levels. Since then, talk has shifted from the “Great Moderation” to what a senior IMF executive describes as a “financial storm of historic proportions”. What went wrong? Crisis and rethinking As events continue to unfold in the global arena, it may be too early to draw conclusions. Nevertheless, the ongoing crisis should be a catalyst for change. It is imperative that we try to distill even at this stage some fundamental lessons from this episode with a view to strengthen the underpinnings of the economy, reduce its vulnerabilities and rigidities, and unlock its productive potentials. This will also help us avoid the same policy missteps that contributed to the environment of increased risk-taking that has severely bruised the stability of financial systems worldwide. It is in this context that I will discuss some important policy issues. First, the crisis underscores the importance of flexibility in the implementation of monetary policy, and inflation targeting in particular. The need to cast a broad eye on the horizon was emphasized in a cautionary note made by US economist Hyman Minsky more than a decade ago. Minsky – as you may remember – has written extensively on financial market fragility, and is well known for the phrase “Minsky moment”, which refers to the slow movement of financial systems from stability to crisis. He said that economic stability and prosperous times can encourage excessive leverage and risk-taking, eventually setting the conditions for a financial crisis. Related to this, there is renewed debate on whether monetary policy should react directly to changes in asset prices. The majority view is it should not. For example, US Federal Reserve Chairman Ben Bernanke wrote that changes in asset prices should affect monetary policy only to the extent that they affect the central bank’s forecast of inflation. After all, central banks are not likely to have informational advantage over the market in assessing to what extent asset price movements are due to fundamentals and to what extent they are following what is called a “pathological path.” Moreover, central bank stabilization of asset prices can generate moral hazard problems; that is, the implicit “safety net” created by the central bank could provide an incentive for greater risk-taking in pursuit of returns. Furthermore, monetary policy tends to have a weak linkage with many asset prices. We know for instance that most fluctuations in equity prices occur for reasons unrelated to monetary policy. Nevertheless, recent events support the need for flexibility in this thinking. Preemptive measures against the build up of asset price bubbles need not be incompatible with inflation targeting, which is an information-intensive approach. The need to monitor a broad range of variables is supported by the possibility that globalization may have further complicated the role of the Consumer Price Index as an indicator of price pressures. For instance, increased competition from abroad can dampen the prices of tradables, so that the first symptoms of an overheating economy can show up in the prices of some non-tradables – including real estate – that may not be reflected in the CPI basket. In this respect, a flexible exchange rate can help maintain the proper balance of relative prices. Second, there is a need to carefully examine present incentive structures to minimize, if not avoid, the emergence of moral hazard that can abet inappropriate risk-taking behavior. For example, analyses of the roots of the expansion of the US subprime mortgage market have focused on the confluence of several driving factors, including a loosening of US monetary policy at the beginning of the decade; an easing of standards for mortgage lending, encouraged in part by a range of legislative and policy changes that aimed to make home ownership more accessible to households that had been historically underserved by mortgage lenders; the rise of complex structured products, the overall riskiness of which proved to be difficult to properly monitor and assess; fragmented and loose supervision of financial institutions which, among other things, kept US investment banks outside Fed oversight; and the inaccurate ratings of credit rating agencies. In the case of the Philippines, the restructuring of our banking system in the aftermath of the Asian financial crisis was achieved without the infusion of public funds. This helped avoid moral hazard issues mentioned earlier and actually promoted greater prudence in banking activities. And since most of our financial institutions were still in the process of strengthening their balance sheets when securitization began to be popular among investors abroad, their exposure to these structured products is relatively limited. Thirdly, I cannot overemphasize the importance of a strong supervisory and regulatory framework. The fundamental rationale for banking regulation is to guard against moral hazard, as banks use and lend out funds sourced from deposits. In the Philippines, the banking system has benefited from our continuous efforts to better monitor, mitigate, and manage risks. A package of banking reforms was implemented in the areas of risk management, corporate governance, capitalization, and information disclosure practices – such as rules to disclose detailed information on banks’ restructured and nonperforming loans. Going forward, our focus will be on further enhancing the regulatory and supervisory framework; promoting market discipline in financial markets through enhanced reporting and disclosure requirements; improving corporate governance through promotion of compliance with international accounting and financial reporting standards; enhancing the implementation of risk-based supervision; strengthening ties with other regulators; continuing support for the development of a deep and efficient capital market, as well as the passage of necessary legislative reforms. Globalization and financial liberalization Much as the “Great Moderation” has highlighted the benefits of globalization, the recent global turmoil has also highlighted its challenges. There is no question that freer trade in financial products and services confers significant benefits – direct as well as collateral ones – to those countries that are prepared for it. These benefits come in the form of – among other things – portfolio diversification, greater access to foreign exchange, financial depth and technological transfers. At the same time, however, global financial integration has also enabled the cross-border trading of complex and potentially risky financial assets. It also brings about the possibility of sudden stops in capital flows in times of market stress. Excessive financial openness therefore raises important policy concerns relating to the monitoring and surveillance of the flow of capital, as well as the formulation and implementation of appropriate policy responses. The latter concern provides important food for thought as we pursue efforts to reform our foreign exchange regulatory framework. As we noted earlier, economic literature holds that the freer flow of capital confers several important benefits to the economy. However, the realization of these benefits depends critically in part on threshold effects related to the level of development of domestic financial markets, the quality of institutions and corporate governance, the nature of macroeconomic policies, and the extent of openness to trade. In other words, reaping the growth and stability benefits of financial globalization requires prudent macroeconomic policies, appropriate prudential regulation, and sound institutions. The BSP therefore must remain vigilant on all these fronts when pursuing financial openness. Monetary policy imperatives For us at the BSP, vigilant and sound policymaking necessitates keeping a watchful eye on price developments, since price stability is the BSP’s primary mandate. The BSP will therefore remain vigilant against the threats to inflation and inflation expectations. To the extent that risks to inflation are reduced by easing supply-side pressures, we will have more flexibility in determining appropriate monetary policy settings that will promote price stability that is conducive to balanced and sustainable economic growth. We will watch closely for future signs of easing inflationary pressures as well for price pressures that are still in the pipeline, since their pass-through is expected to continue for sometime. The challenge is to ensure that monetary policy settings are calibrated as appropriate so that there is sufficient confidence that inflation would be on a declining path over the near- and medium-term to keep inflation expectations well anchored. At the same time, the BSP also remains strongly committed to provide necessary liquidity in the financial system for banks that may need funds to ensure the normal functioning of credit and financial markets. Conclusion Indeed, important lessons have emerged from the ongoing global crisis. Nevertheless, Asian economies continue to face difficult policy questions on how best to manage risks, individually and collectively. This represents fertile area for research, particularly on what Asian economies can do outside of existing institutional arrangements. Similarly, the region’s economies continue to grapple with questions of how best to achieve competitiveness, growth, and equity amidst the tide of globalization. As economists, we must use every opportunity not only to ask the important questions but also to try to piece together answers that would help our economies. But while attempting to do so, and as we engage in elegant and animated discussions in the days ahead, let us be mindful that no one has a monopoly over wisdom. Even the venerable Alan Greenspan now projects newfound humility, admitting to a lapse in judgement. And so, fellow economists, let us ask the questions – as we should, keeping in mind that it is the collective wisdom of this group that we should mine. Let us live up to the challenge before the participants to this 46th annual meeting of the PES: to have a fruitful meeting on “Competitiveness, Growth, and Equity in a Globalizing Economy.” May this PES annual meeting be remembered as a complete success. On this optimistic note, I welcome all of you, once again, to the Bangko Sentral ng Pilipinas. Mabuhay ang Philippine Economic Society! Mabuhay ang Pilipinas! Salamat sa inyong lahat!
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Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Microentrepreneur of the Year (MOTY) Awarding Ceremony, Manila, 19 November 2008.
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Amando M Tetangco, Jr: The importance of microentrepreneurship Keynote address by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Microentrepreneur of the Year (MOTY) Awarding Ceremony, Manila, 19 November 2008. * * * Magandang hapon sa inyong lahat! Ladies and gentlemen, we are gathered once again to celebrate, honor, and give recognition to our outstanding microentrepreneurs. Their collective success in overcoming the difficulties inherent in microentrepreneurship serves as a powerful inspiration for all of us. Their stories remind us that with vision, courage, passionate commitment, a persevering spirit, we can pursue and reach seemingly impossible goals even in the midst of a global economic slowdown and financial turmoil. And so, friends, let us show our appreciation for all our awardees by giving them a long round of applause. Palakpakan po natin ang ating mga awardees! Let us also thank the officers and staff of Citi Philippines headed by Country Officer Sanjiv Vohra for initiating and sustaining the Citi Microentrepreneur of the Year Awards which is now on its 6th year. With Citi, this annual recognition of outstanding microentrepreneurs has been institutionalized. A round of applause please for Citi. Of course, we also salute the members of the working groups from the Microfinance Council of the Philippines headed by Rollie Victoria, from the Bangko Sentral, from Citi, and from other partner institutions. Palakpakan din po natin sila. They had the privilege of seeing our successful microentrepreneurs up close and personal, but I am sure they had a difficult time narrowing down the list. I can say this with certainty because we who compose the National Selection Committee devoted long deliberations on each of the finalists. Given the remarkable accomplishments of our finalists, it was a tough choice indeed. And so, this year, the members of the National Selection Committee decided to give three special awards on top of our eight major winners. Friends, let us also reward the hardworking members of the National Selection Committee with a round of applause. Ladies and gentlemen. The stories of our winners become even more significant when viewed against the backdrop of an increasingly difficult operating environment. These exceptional microentrepreneurs not only survive they thrive! Their stories give us confidence that our micro, small and medium enterprises (MSMEs) will continue to be a vital, resilient, and viable foundation for sustaining economic growth throughout our country. It is noteworthy that one of the country’s pioneer MFIs – CARD-MRI – is a 2008 awardee of the prestigious Ramon Magsaysay Award Foundation for Public Service under its theme “Pathfinders in a Changing Asia.” It was honored for its "successful adaptation of microfinance in the Philippines, providing self-sustaining and comprehensive services for half a million poor women and their families." Indeed, real-life success stories of microentrepreneurs and hard data on hand prove beyond reasonable doubt that microfinance truly has the power to liberate our entrepreneurial poor from poverty and to give them a better life. As of June 2008, there were 802,092 microfinance borrowers who have accessed loans worth P6.5 billion from 230 banks. These borrowers have also accumulated roughly P1.6 billion in deposits with the banks. It is also evident that our banks have successfully taken their strategic place in providing financial services to the previously unbanked. Since 2006, rural banks have consistently accounted for a significant portion of the winners. In fact, both of our national winners this year are clients of rural banks. I believe this trend will continue as more banks provide microfinance services. I also see more successful microentrepreneurs being nominated in the years ahead as partner institutions who have become fierce advocates of microfinance get more supporters and more microentrepreneurs on board. Synergies developed between and among partner institutions should result in a further broadening and deepening of the microfinance sector. The case of Citi awardees are a case in point. I understand our 11 awardees have attended financial education lectures to boost their ability to sustain profitable operations. The members of our National Selection Committee have also been generous in terms of giving guides to growing their business and providing marketing outlets for consumer goods. On our part, the Bangko Sentral will continue to provide a policy environment conducive to broader participation of banks in the microfinance sector. Rediscounting of microfinance loans will also continue. And so, ladies and gentlemen, let us continue working together to ensure the continuing success of microfinance, to expand its reach, and to lift millions more of our countrymen from poverty to a better quality of life through microfinance. Again, my congratulations to all our awardees, to Citi and all those involved in this annual search for outstanding microentrepreneurs. Mabuhay ang Pilipinas! Salamat po sa inyong lahat.
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Statement by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Tuesday Club Breakfast Meeting, Manila, 6 January 2009.
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Amando M Tetangco, Jr: Macroeconomic prudence – a review of the Philippine economy in 2009 Statement by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Tuesday Club Breakfast Meeting, Manila, 6 January 2009. * * * Let me begin by wishing everyone a “calmer”, hopefully “not too” challenging 2009 ahead of us. Last year, I was also your guest around this time. Then, I greeted you a “happy, though perhaps more challenging year!” If you recall, we were then coming out of 2007, which saw the country experience the “ideal convergence of high growth and low inflation”. But on the heels of 2007, we began to feel some of the impact of the US subprime mortgage problem. Subsequent market events have certainly proven me correct, haven’t they? In fact, the country faced two major challenges. First, volatile international prices of oil and non-oil commodities which caused inflation to accelerate globally, particularly in the first half of the year. Second, the broadening of the reach of the impact of the US subprime mortgage problem – from the US subprime market alone to the US financial market, to the global financial markets and then to the US and major REAL economies, and now the global real economy. These challenges translated to lower-than-first-forecasted real GDP growth and higher-thantargeted inflation. Nevertheless, the country still ended 2008 on much better footing than most of our Asian counterparts. Specifically, Philippine growth for the first 3 quarters of 2008 stood at 4.6 percent, significantly lower than the NG’s initial target but still within the country’s long-term growth trend and quite respectable compared to our ASEAN neighbors. Inflation, on the other hand, peaked at 12.4 pct in August from a level of 4.9 pct at the start of the year. The average inflation for the first 11 months of 9.4 was significantly higher than the target range of 4 pct +/- 1 percentage point. This upswing in inflation was, however, not unique to the Philippines in 2008, given that this trend was largely due to elevated and highly volatile international oil and food prices. On the exchange rate, the peso lost much of the gains it tucked in 2007, due principally to heightened risk aversion towards emerging markets including the Philippines as the global financial turmoil spread. The peso depreciated 13.3 pct against the US dollar in 2008 against an 18.8 pct appreciation in 2007. This loss in value was, nonetheless, in line with movements of other currencies in the region, which also depreciated against the US dollar. In addition, in terms of the Real Effective Exchange Rate over the past eight years, the peso has largely maintained its competitiveness against a basket of currencies of our major trading partners and competitor countries. In the meantime, we have been able to keep the Gross International Reserves at comfortable levels. GIR stood at $36.8 B at end November 2008, an increase of about $3 B over the end 2007 level. The build-up in GIR has allowed us to keep the BOP in surplus in 2008. At almost $37 B, GIR is 5.8 months’ of imports and 2.5 times short-term debt based on residual maturity. These ratios are at least twice the international benchmark levels of 3 months of imports and 1 time the debt ratio. The banking system remains sound. The series of banking reforms put in place over the last five years, and among others, the inherent conservatism and the domestic orientation of banks, as well as the BSP’s phased-in approach to embracing financial innovation, have resulted in minimal exposure of the banking system to the troubled international financial institutions. In addition, banks continue to be capitalized above the BIS standard and BSP regulatory requirement; bank balance sheets are at their strongest since the 1997 Asian financial crisis; and assets continue to grow. What do we foresee for 2009? 2009 will be a critical year. It could define how we will perform when the markets turn around. If you read most analyses of the US and major economies’ downtrend, the expectation is these could last about 18 months. Therefore, depending on when you begin your count, recovery in the US and maybe globally could begin in 2010. No one, however, can say for certain how deep and how long the global downtrend would be, nor how far markets would retreat. Therefore it is incumbent upon us to continue to brace for further uncertainty in the global financial markets, recessionary trends that would spread to regions beyond the developed world; and volatilities in commodity prices, particularly oil. How shall we respond to the unfolding environment? Monetary policy in 2009 will continue to be anchored on inflation targeting. The discipline of the inflation-targeting framework that we adopted in 2002 has helped the BSP focus more on its primary mandate of price stability. More specifically, as inflation risks moderate, BSP will carefully consider opportunities for monetary policy easing amidst tightening financial conditions. We will continue to ensure appropriate levels of market liquidity to maintain confidence in and the efficient functioning of the financial markets. We will calibrate monetary policy to protect our people’s real income and purchasing power. We will endeavor to keep inflation at manageable levels as this creates the environment for sustainable long-term growth. The BSP’s external sector policy will remain focused on ensuring our external vulnerabilities are limited. More specifically, we will beef up reserves for insurance; maintain a marketdetermined (thereby externally competitive) exchange rate and we will continue to review our FX regulatory environment. Banking sector policies will revolve around buttressing the banking system’s soundness. The reforms we have so far put in place have created the environment which has resulted in the system’s minimal exposure to the global financial market turbulence. We will continue on this track. Conclusion I began these brief remarks declaring we have ended 2008 on a much sounder footing than most of our Asian neighbors. So far, we have not been as affected by the global financial turmoil. I also said that 2009 would be critical in crafting policy that would allow us to be ready take to advantage of the upturns in the global slowdown when they do materialize. As we concluded 2008 and now look forward to 2009, we reflect upon how we have been able to remain fairly resilient in the face of the challenges we faced in 2008 – macroeconomic prudence. That is, consistently building buffers during the good times to provide us a shield during the bad times. As 2009 rolls in, we will press on with this strategy that has so far kept us in good stead.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 1st Membership Meeting of the Year of the Rotary Club (Manila Polo Club), Manila, 8 January 2009.
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Amando M Tetangco, Jr: Preparing for what lies ahead Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 1st Membership Meeting of the Year of the Rotary Club (Manila Polo Club), Manila, 8 January 2009. * * * RCM President Romeo Batino, Monetary Board Member Rtn. Raul Boncan, Esteemed members of the Rotary Club of Manila, Friends from the media, Ladies and gentlemen, good afternoon. Thank you once again for this opportunity to address the Rotarians on your first Membership Meeting of the year. If I am not mistaken, this is the fourth year I am doing this as BSP governor. Time flies, doesn’t it? And taking a quick sweep of this room, it doesn’t seem like many of you have added on another year! (I don’t want to soil my welcome mat at the Rotary Club) Every year is different, but each year always brings with it renewed hope. The conclusion of one and the beginning of a new year is often a time to reflect – on the events of the year just past and the expectations for the year that is upon us. You may have read the headlines yesterday, which quoted me as describing 2009 as a critical year. Yes I believe 2009 is critical. To ensure we are prepared for what lies ahead. 2008 was a challenging year. It saw the ideal convergence of low inflation and high growth, that characterized our 2007, get dissipated by high oil prices and the spread of the subprime market woes from the US to global financial markets, with marquee financial names falling one by one. It also was witness to major economies, including the US; Germany and Italy in Europe; Japan, Singapore and Hongkong in Asia descending into recession. Forecasts for world growth from the private sector as well as multilateral agencies continue to be reviewed and revised downward as more information becomes available. When I say 2009 is critical – it is not to create fear. But quite the opposite. I want you to be hopeful. You hold among your membership many of the most prominent in business and industry. To many of you, darkness is not darkness for its sake, but rather the absence of light. Because many among you have developed the “killer instincts”, when the dark gets bleaker, you see opportunities. Therefore, I encourage you to be the light so darkness will be dispersed. I encourage you further to create more opportunities that will sustain the light. Many pundits say that the worst is yet to come in the local and international financial markets. I say, no one knows how much deeper or how much longer this downturn will be. So there will continue to be challenges. But I want to add, this won’t go on forever. What we need to do now is to make the best of what we can at this time, try to ease some of the “pain” currently experienced, build up safeguards, and prepare for the eventual upturn. This is why I say 2009 is critical. Our actions and policies this year will help define how prepared we would be when the upturn does come about. Several relatively optimistic analysts forecast a recovery among the major economies could occur as soon as 18 months. So, depending on when you begin to count, and because time does fly, the upturn could be just around the corner! We ended 2008 on a much sounder footing than most in the region. Philippine growth for the first 3 quarters of 2008 stood at 4.6 percent, quite respectable compared to our ASEAN-5 neighbors. Inflation was on an uptrend and elevated due mainly to highly volatile oil and nonoil commodity prices. We take comfort, however, in that this trend was not unique to the Philippines. At an average inflation for the year of 9.3%, this still compares favorably against ASEAN-5 range of 5.5 to 10.3%. Also, inflation has started to recede faster than expected. We found ourselves better-situated than others at the end of 2008 precisely because we came into that downturn prepared and with buffers, including a forward-looking monetary policy framework; a healthier reserves level for insurance; and a sound banking system. 2008 – what buffers have we stored? Let me quickly run through these buffers with some detail. First of all, the resilience of domestic demand. In previous crises, it was internal activity that kept the economy going. Last year, real growth was broad-based. The major domestic sectors, including agriculture, industry, and services, provided positive contributions to growth. In addition, government spending for infrastructure as well as private consumption supported by steady remittances helped sustain domestic demand. Second, the discipline of inflation targeting has helped us focus on our primary mandate of price stability. That we were able to maintain inflation at manageable levels helped to create a calmer environment that sustained domestic business. Third, because we kept to our policy of a market-determined exchange rate, the peso broadly maintained its competitiveness against a basket of currencies of our major trading partners and competitor countries Although it lost much of the gains of 2007 as the country wasn’t spared from the heightened risk aversion towards emerging markets, the peso’s fall was nevertheless in line with the movement of other currencies in the region, which also fell against the US dollar. Fourth, with an appropriate FX regulatory environment and a natural pool of talent, we were able to attract FX investments particularly in the BPO sector. Remittances also kept flowing. These allowed us to continue to build our Gross International Reserves to comfortable levels, above international benchmark levels, and therewith continue to register a surplus in the BOP. Fifth, the banking reforms we had put in place during earlier years have caused the banking system to be only minimally exposed to the troubled global financial institutions and thus remain sound. In addition, the inherent conservatism and the domestic orientation of banks, as well as the BSP’s phased-in approach to embracing financial innovation helped to keep our exposure to the global financial turmoil limited. Our banks continue to be capitalized above the BIS standard and BSP regulatory requirement; bank balance sheets are at their strongest since the 1997 Asian financial crisis; and assets continue to grow. Sixth, through the series of reforms instituted, our monetary and regulatory frameworks have become more flexible. These now allow us to quickly respond to changes in our working environment. For instance, at the time when there was perceived tightness in liquidity and some friction in distribution of both peso and dollar funds at the height of the uncertainty from the global financial turmoil, the BSP was able to expeditiously adopt measures to address these market concerns. Among the measures put in place to address peso and dollar liquidity were a) the relaxation of valuation and collateral requirements for the existing peso repurchase facility, b) the creation of a new dollar repurchase facility and c) the doubling of the budget for e-rediscounting. In the meantime, to address distribution issues, the BSP a) reduced reserve requirements on bank deposits by 2 percentage points and b) maintained a presence in spot and swap FX markets. In addition, to address temporary concerns due to the difficulty in valuation of emerging market debt assets, the BSP allowed the reclassification of certain debt holdings of banks from their trading accounts to their held-tomaturity accounts. Seventh, we have put a premium on communication strategy. At all times, but particularly during a period of uncertainty, accurate and timely information is vital. The BSP heightened its consultation with stakeholders by holding more frequent dialogues and conducting periodic surveys to capture consumer and business sentiments. We realize that having an open two-way communication makes for more effective, efficient and responsive policy making. Seven is a “complete” number as they say, so I will end my list here. Let me summarize by saying the BSP has endeavored to create and maintain an environment supportive of our objectives of stable prices and sustainable long-term growth. 2009 – what’s in store? With these buffers in place but at the same time mindful of the challenges that are still upon us, how must we be in 2009 so we could limit the adverse impact of the crisis and be prepared for the expected upturn? Just like the eagle on a prey, we need to sharpen our senses – we need to be sensitive to the signals around us – sights sounds and scents. We need to be aware not only of our immediate surrounding but also of what may lie around. We need to not only be presentthinking but forward-looking also. You can’t be complacent. You need to be prescient. I do not particularly espouse the Darwinian theory. But Mr. Darwin may have been on to something when he said, “that which will survive is the species which is most adaptable to change.” (Please pardon literary freedom for my paraphrase). I declared earlier that we ended 2008 fairly unscathed from the global financial turmoil, but real risks are still lurking. Further uncertainty in the global financial markets; recessionary trends that could spread to regions beyond the developed world; and volatilities in commodity prices, particularly oil. Policy thrusts for 2009 How shall we translate into policies for 2009 both the need to be anticipatory (like the eagle) and adaptable to change (as Dr. Darwin posited)? Let me quickly run by some specifics: Monetary policy in 2009 will continue to focus on our primary mandate of price stability. As inflation risks moderate, the BSP will carefully consider opportunities for monetary policy easing amidst potential tightening financial conditions. We will also continue to ensure appropriate levels of market liquidity to maintain the efficient functioning of the financial markets. Through this, we hope to provide the necessary conditions that will allow economic growth to continue. We will at the same time endeavor to keep inflation at manageable levels as this creates the environment for sustainable long-term growth. The BSP’s external sector policy will remain focused on ensuring our external vulnerabilities are limited. We expect to continue to post a surplus in our BOP, mainly still due to steady OF remittances and receipts from the BPO sector. This will give us the opportunity to further beef up reserves for insurance. We will continue to pursue a market-determined exchange rate to allow us to maintain external competitiveness. We will also engage in policies that would sustain a manageable external debt profile. Banking sector policies will continue to reinforce the banking system’s soundness. Most analyses point to the lack of regulation as one of the root causes of the US subprime market crisis, it is tempting therefore to swing to the other extreme of over regulation. I don’t believe BSP would move towards that direction, given our gradualist and consultative approach to regulation. Instead what I believe may occur is a move towards greater accountability coupled with greater granularity of regulation. I have always believed that markets and regulation can and must co-exist. The trick is to craft regulation that would make the markets work. We will therefore remain committed to sustaining key financial and banking sector reforms that would lead to greater efficiency, risk management, stronger capital base, improved disclosure practices and transparency, and enhanced corporate governance standards in the banking system. Realizing that the current crisis has taken on a global nature, we will further strengthen engagements with regional peers to share information, discuss emerging developments, and pool resources, if necessary even foreign exchange reserves. It’s interesting that the current financial turmoil took on a turn for the better once the major economies began to act in concert. Confidence had been quickly eroding until then. The coordinated and cooperative policies, that were put in place by the US and European central banks and finance ministries beginning October last year, helped to restore some traction in the markets and subsequently improve market confidence not only towards the major economies, but also towards emerging markets. Conclusion 2008 was a difficult year, to say the least. The global economies reached some highs and lows not seen in over a hundred years. Philosopher George Santayana, who I just found out traces some historical associations to the Philippines, said “Those who do not remember the past are condemned to repeat it.” The Philippines is not a newbie in terms of crisis, we have faced quite a number of those in the past. Each crisis we encountered was unique in its roots and causes. But we have learned from each, every time. It’s too early to make prescriptions, given that much is still to unfold. But as I end today’s remarks, I’d like to share some themes we may pick up even at this stage from this current crisis. I take these from our own acronym – BSP. Some of you may have read this from a previous interview but I thought it would be appropriate for this audience. I repeat it hear with some slight modification. B – Be prepared, keep your tools sharp (Review cost structures, enhance product offerings) S – Stay alert to spot opportunities (Consider trends and structural changes, enlarge market scope, do research) P – Push ahead! As I scan this audience, I see a wealth of experience that covers the breadth and depth of the crises the Philippines has gone through in the last three decades. So I know, what I have just shared as lessons with you is not news to you. The BSP is doing its part to limit the impact of the crisis and to anticipate the upturn, but we cannot do this alone. We need the full support and cooperation of the private sector and those among your ranks to make us and the whole nation ready for that upturn. Let us preserve what we have stored in 2008 and, together, let us build further on these in 2009. Thank you for the opportunity to share these thoughts with you. I wish you and your loved ones all the best possible for 2009!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bank Security Management Association, Inc. (BSMA) Induction, Central Bank of the Philippines, Manila, 16 January 2009.
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Amando M Tetangco, Jr: Security management – a challenging balancing act Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bank Security Management Association, Inc. (BSMA) Induction, Central Bank of the Philippines, Manila, 16 January 2009. * * * The officers and directors of the Bank Security Management Association, Inc. (BSMA) led by President Edwin Ermita, special guests, fellow central bankers, good morning. I am very pleased to meet the leadership of the Bank Security Management Association and engage you in a dialogue. You and the members BSMA are responsible for providing the highest level of protection to Philippine banking institutions in general and to bank employees and clients in particular. For the Bangko Sentral ng Pilipinas therefore, you represent a vital component of our continuing efforts to ensure the health and stability of our banking system. Through the years, securing a bank has evolved from the traditional watchdog concept to the use of state-of-the-art security devices and gadgets. Given the rising violence we have seen in recent bank robberies, you have to ensure that you develop in parallel with your operating environment. Your additional challenge is to provide effective security to bank properties and most especially to the people within your premises while making sure that customers do not feel intimated or threatened by security personnel. You and I know that bank clients are civilians who are not used to armed personnel. Therefore, they may complain or, worse, move their account if they feel that your security men are somewhat threatening. I know it is easier said than done but your objective should be for security personnel to remain courteous while being visible, firm, and alert as security personnel. Director Ed Gatumbato, the head of Bangko Sentral’s security department, is constantly challenged by this balancing act. I am sure you will have a lot to talk about. Last year, September 3 to be exact, I signed Bangko Sentral ng Pilipinas (BSP) Circular 620, the revised rules and regulations on bank protection pursuant to Monetary Board Resolution No. 1057 dated August 14, 2008. The objective of this circular is to strengthen and broaden the security of banks to cover not only physical security but also on other crimes perpetrated against the banking institutions such as external and internal frauds, cash in transit operations as well as the conduct of investigation of such cases. This means that the concept of bank security management now goes beyond guard force deployment and monitoring. Broader authority and responsibility for security management personnel clearly requires reorientation and training of both officers and staff of your departments. For at the end of the day, even with the most expensive security gadgets, it is the training of your personnel, their ability to discern potential danger or fraud, and skills honed through constant practice that will spell the difference between success and failure for your security management. Now is the best time therefore for BSMA to take the lead in this direction by keeping your association united and constantly engaged in dialogues to keep up to date with the industry best practices. And so, once again, I congratulate the BSMA and its leadership for having a proactive stance in dealing with bank security management. I wish you all the success in keeping the banking community and its clients safe and secure. Mabuhay ang BSMA! Salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Reception for the Banking Community, Manila, 16 January 2009.
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Amando M Tetangco, Jr: Sustaining partnerships in a year of challenges Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Reception for the Banking Community, Manila, 16 January 2009. * * * Members of the judicial, legislative, and executive branches of government; leaders of the Philippine banking community; special guests from the diplomatic community, the private sector, the academe, and the media; fellow central bankers; ladies and gentlemen, a pleasant good evening to all of you. On behalf of the Monetary Board, I thank you all for taking the time to join us tonight for our traditional Reception for the Banking Community. That we are celebrating 60 years of Central Banking in the Philippines in 2009, makes this reception doubly meaningful. We are happy therefore that we have with us tonight former deputy governors and members of the Monetary Board; two former governors under the Central Bank of the Philippines – Governor Jaime Laya and Governor Jose Cuisia, Jr.; and one former governor of the Bangko Sentral ng Pilipinas – Governor Gabriel Singson. Ladies and gentlemen, let us acknowledge all central bankers – past and present – on this 60-year milestone with a round of applause. We have 60 years of central banking behind us and we move forward to the future with confidence having learned many lessons along the way. We therefore look forward to more opportunities for us to shape a better future for ourselves, our families, our communities, and our country through sound and responsive monetary and banking policies. Take the year just past, for instance. No doubt about it, 2008 was challenging given the difficulties we had to face. But it was also the same difficulties that allowed us to confirm.. that our collective reform efforts have put our financial system in better shape. Indeed the irony of financial markets is that crises invariably occur despite the best intentions; yet, it is in facing the next challenge in relative strength that we can truly say we have learned from the past. Ladies and gentlemen, we are fully cognizant of the difficulties that the current global financial crisis has created and the spillover effects that it would certainly generate. Our continuing efforts to clean up our domestic banking system and root out malpractices that particularly victimize the most vulnerable customers and our financial safety nets may also be creating short-term anxiety alongside global turmoil. But I stand before you tonight to affirm that our banking system, in all its vital components – rural and cooperative banks, thrift banks, and commercial and universal banks, is in much better shape today than it was during the last crisis we faced. And I can tell you, the Monetary Board and the rest of the Bangko Sentral ng Pilipinas family remain confident that our banking system can work through these challenges. I assure you, this is not meant to be a self-acclamation. Rather, it is our tribute to the collective efforts we have invested in our shared future. As a community of stakeholders, it is this common future that requires of us.. shared responsibilities to take on challenges together in order to grow and gain as one. I refer specifically to the Bankers Association of the Philippines, the Chamber of Thrift Banks and the Rural Bankers Association of the Philippines. The Bangko Sentral ng Pilipinas thanks you and salutes your efforts in sustaining economic activities not only in urban centers but also in the countryside through responsible and responsive banking. Ladies and gentlemen, let us give a round of applause to the Philippine banking sector. There is a saying that it is okay to build sand castles in the sky for as long as our feet are well planted on the ground. What is the context, what do I mean by this? There are three points I wish to make. First, the best strategy is always to move forward as one. This is not an inspirational punch line but the hard reality of market dynamics. We appreciate that banks are inherently business concerns, but protecting the institutional bottom line requires nurturing sustainable relationships in a thriving environment. What is not too obvious is that the financial system as a whole moves forward only when we work together. Ultimately, it is this stability from working together that gets us through the business cycles, even as this starts from a position of competing interests. As competitive elements within one system, we can always agree to disagree but we cannot fall into the trap of disagreeing to agree. Second, it is critical that any lingering risk aversion from whatever source does not spill over into our ability to provide needed financial services for our real economy. Global conditions will be challenging. But in the same breath, let us not allow fears of off-shore conditions to pre-judge our on-shore actions, when and where such links are not warranted. If we are to consolidate our position of relative strength, we need to seize opportunities when they present themselves, while mindful of our basic fiduciary responsibilities and our mandate to act prudently. This is a call for active participation at a time when the real economy needs us the most. We have seen how successful partnerships between the Bangko Sentral and the banking sector generated positive results for our people, our economy, and our country. I refer specifically to the banking sector as effective and responsive transmission channel for the Bangko Sentral’s policies concerning money, banking and credit. And now, to pro-actively move forward, I also ask for a re-affirmation of our partnership across a spectrum of initiatives – from expanding access to and improving the quality and cost of our services especially to the poor, to small enterprises, and to our overseas Filipinos; to building and deepening financial awareness and literacy; to promoting better consumer protection; to structuring organized and transparent financial markets. The times are challenging but they are as much a test of our own resolve; this will prove to be the first hurdle in building sustainable relationships in a thriving environment. Third, the global financial architecture is broken because less attention was given to the details as markets moved faster, forward, and further. There was over reliance on market pressures to instill market discipline and global institutions – from multilaterals to regulators to market players – took comfort from the on-going work on best international practices. As we are now reminded, market failures happen at a painful cost to the displaced and that best international practices will mitigate domestic risks only if the supervisory framework evolves with market dynamics. Moving forward, I believe that the need is not necessarily for more complex and rigorous new regulations but for greater accountability. Much more would therefore be required of the Board of Directors of banks and of the technical expertise of the line functions that relate to prudential management of risks. This is the form of market-driven accountability that I believe will be needed in restructuring the financial landscape – and it is quite different from just simply having more regulations. Let us therefore work more closely together in crafting regulations that would make markets more efficient and dynamic. Will 2009 be a difficult year? Given the downward trajectory of the global economy, volatile commodity prices, and the continuing financial turmoil, conventional wisdom says that it will be. Nevertheless, I believe that together we have the capacity to ride out the challenges before us. The key is to manage the factors that are within our control, to maintain a positive mindset, and to capitalize on our time-tested resiliency and ability to innovate amidst challenging times. And don’t forget, our economic fundamentals continue to be a source for optimism. This includes sustained economic growth, slowing inflation, declining interest rates, record high international reserves, balance of payments surplus, a competitive peso and a stable banking system. In the end, the challenge in 2009 for the banking sector is to quickly act on the painful lessons of the global financial crisis. It is simply far too convenient to point at the complexities of structured products, the over-leveraging, or the fundamental dilemma with market greed. All these were necessary inputs but together they are not sufficient to explain where the world is today. More importantly, debating the whys and wherefores will have its place, but at this juncture we need to act decisively with conviction, in unison, and move forward. Ladies and gentlemen, while the global prognosis for 2009 is daunting, the Bangko Sentral continues to believe that the Philippines remains in a position of relative strength as we navigate through these difficult times. What we do to consolidate our gains rests squarely on us. In the case of the Philippine banking community, I am confident it will prevail and remain sound and stable. On behalf of the Members of the Monetary Board, I thank all the sectors represented here tonight for their continuing support: the banking community; the legislative, executive and judicial branches of government; the private sector, the diplomatic corps, the academe, the media, our special guests, and our partners in bilateral and multilateral agencies. Together, let us offer a toast to our continuing partnership in sustaining economic growth in our country and improving the quality of life of Filipinos. Cheers! Finally, before it becomes totally unfashionable, let me take this opportunity to wish all of you blessings of good health, success, and prosperity this New Year. Mabuhay! Thank you all and enjoy the rest of the evening.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the CES Circle Forum, Manila, 26 January 2009.
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Amando M Tetangco, Jr: Career executives in government – making lives better for Filipinos Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the CES Circle Forum, Manila, 26 January 2009. * * * Executive Director Allones of the Career Executive Service Board, distinguished panelists, the elite corps of government employees who make up the Career Executive Service Officers and Eligibles, colleagues in government service, special guests, good afternoon. On behalf of the men and women of the Bangko Sentral ng Pilipinas, I welcome all of you to our head office for the inaugural CES CIRCLE Forum. CIRCLE, which stands for Creative Innovations and Reforms for Committed Leadership and Effectiveness, is a most appropriate symbol for this program that aims to nurture thought leadership in government: a circle is never-ending and so should our efforts to learn and continuously find better and more efficient ways of doing things. I also find the timing for this new program for CESOs and CES eligibles quite auspicious. This is the first month of the year and, coincidentally, the celebration of the Chinese New Year – the beginning of the year of the Ox, one of the most hardworking and productive creatures on earth. Ladies and gentlemen, for its resolute efforts to strengthen and broaden professional competence in government let us give the CES Board a well-deserved round of applause! The theme for this Circle Forum is thought-provoking and challenging: Bagong Taon, Mga Bagong Hamon, CESO’t Eligibles, Paano Ka Tutugon?” Earlier, you heard about the labor situation as well peace and national security issues. On my part, I cannot overemphasize that this will be a particularly challenging year for us as a country as we grapple with the impact of the ongoing global financial crisis. What began with the market turmoil surrounding U.S. subprime mortgages, has become an economic and financial crisis that threatens the global community in magnitudes reminiscent of the 1930s “Great Depression”. No economy has been unscathed by the global headwinds. And the crisis has landed on our shores as well. As leaders and managers in our respective government agencies and offices, the burden is upon us to craft and implement policies and measures that will enable our country and our people to ride out this economic and financial storm. Current situation How should we respond to the challenges before us? The first step is to recognize where we stand at the moment. Thus, allow me to share with you some insights on the impact of the global financial crisis on the Philippine economy. As we all know, 2008 has turned out to be one of the most challenging years we’ve had, as we coped with two major challenges. In the first half of the year, we were confronted by surging prices of oil and non-oil commodities which caused inflation to accelerate globally. In the second half, we faced the international financial turmoil that was ignited by the U.S. subprime mortgage problem and, which subsequently, turned into a global financial meltdown. While the Philippine economy has remained generally resilient and has been described by a ratings executives as an “island of calm”, it does not mean that we are totally immune to adverse global developments. As in most other countries, our currency has generally weakened, credit spreads have widened, and the stock market has fallen. Some economists believe that 2009 could even be tougher than 2008 once the impact on the real economy is felt. Nevertheless, it is not all gloom and doom for us. The Philippines has buffers that can help us through the current global economic crisis. Our output growth continues to be demand-driven, led by consumption as well as capital spending. Moreover, the country’s GDP growth for the first three quarters of 2008 is still within the country’s long-term growth trend. Compared against our neighbors, this growth performance is quite respectable. Meanwhile, easing prices of oil and other non-oil commodities in the world market and moderating inflation expectations have reduced inflation pressures and protected the people’s purchasing power. Easing inflation pressures provide flexibility for the BSP to formulate policies supportive of the real economy while keeping an eye on the risks to stable prices. Recent adjustments in fiscal targets also provide some policy space to support growth. The postponement of the balanced-budget objective to 2010 should provide additional resources to government to boost infrastructure spending and enhance social safety nets that will protect the vulnerable segments of our population. The country’s stable external payments position also provides additional buffer against the global economic slowdown. The country’s balance of payments, although significantly lower than in 2007, has remained in surplus in 2008 with our Gross International Reserves at an all-time high. Finally, the banking system remains sound due to continuing policy and structural reforms. Our banks have limited exposure to structured credit and related derivative products which were the main cause of the large losses of crisis-affected international institutions. Liquidity in our banking system remains adequate and bank lending operations continue to expand at a healthy pace. Furthermore, our banks are capitalized above the global standards and BSP regulatory requirement. Moving forward The next question is how do we move forward? First, given the buffers I have mentioned earlier, we should face the global headwinds with an underlying belief in the resilience of the Philippine economy. The message is that 2008 has been a tough year and 2009 will most likely be tougher – but our economy is in a better shape to weather this global storm. This is not our first crisis, nor will it be the last. This time around, we are entering the crisis from a position of relative economic strength. The key is to manage the factors that are within our control, to maintain a positive mindset, and to capitalize on our time-tested resiliency and ability to innovate amidst challenging times. This brings me to my second point. We should press on with the strategy that has so far kept us in good stead – macroeconomic prudence. Sound macroeconomic fundamentals are the first line of defense during these trying times. Our experience in the past years has demonstrated that sound monetary, fiscal and structural policies have a salutary effect on the economy. The key challenge is to continue to have a consistent and coordinated monetary, financial and fiscal policy response to the ongoing crisis. The commitment to tackle policy challenges boldly through purposeful reforms to strengthen institutional underpinnings, improve productivity and boost international competitiveness should ensure a steady anchor to the country’s economic prospects amidst the inevitable global storms. On the part of the BSP, we will continue to craft monetary and financial policies that will support broad-based economic growth while keeping prices stable. In other words, the BSP’s monetary policy will continue to focus on achieving price stability while allowing room for the economy to grow. The BSP will also continue to stabilize financial conditions through reforms that will foster healthy financial balance sheets. We will guard against systemic failures through liquidity provision when necessary, while keeping inflation under control. This will ensure the effective functioning of transmission channels for monetary policy. In turn, this should reinforce confidence in the financial markets and in the economy as a whole. The ultimate goal is to have a more balanced and inclusive economic growth and development that will sustain durable wealth creation. However, you and I know that improved frameworks and policies will be useless if we don’t have competent and dedicated professionals to implement them. Beyond policies therefore, what we should nurture in the career executive service is the drive for excellent leadership. This, to me, is the value of the CIRCLE Forum. Indeed, this is what we need in our government: innovative and committed leaders, trailblazers in their fields and effective in the way they do things, wherever they are. Given the hard times that confront us, our challenge is to find opportunities for productive and innovative activities. This is a call for active participation at a time when the economy needs us the most. Now, more than ever, we should be conscious that as civil servants, our actions or inaction affect the lives of millions of our countrymen the Filipinos we have pledged to serve to the best of our abilities. Concluding remarks Ladies and gentlemen. One of the many positive traits associated with us as a people is resiliency the Filipino can-do spirit. Thus, even as we look at 2009 as a serious challenge for our country, I am confident that as long as we remain united, we can ride out this crisis and emerge stronger and better prepared to benefit from the opportunities that the next global economic upturn shall bring. As leaders and managers in our respective agencies, let us look for opportunities where we can improve our services and inspire confidence in the government and in our economy. Let us strive for constant change for the better. Together as one team in the civil service, let us work with vigor and dynamism as we face the challenges ahead confident that we can make a difference in making lives better for Filipinos. Mabuhay ang Pilipinas! Mabuhay po tayong lahat! Maraming salamat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the FINEX-CITI Rafael B Buenaventura Outstanding Finance Educators Awards Night, Manila, 28 January 2009.
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Amando M Tetangco, Jr: Nurturing successful & ethical finance professionals Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the FINEX-CITI Rafael B Buenaventura Outstanding Finance Educators Awards Night, Manila, 28 January 2009. * * * Members of the Monetary Board, the family and friends of Governor Rafael Buenaventura, the organizers of the Finex-Citi Rafael B. Buenaventura Outstanding Finance Awards led by Mr. Sanjiv Vohra of Citi and Mr. Eduardo Francisco of Finex Foundation, distinguished finalists, my colleagues at the Bangko Sentral ng Pilipinas, special guests from the academic, banking and finance communities, good evening. I am very pleased to be here today to join you in honoring our outstanding finance educators. As a career central banker for more than three decades now, I was fortunate to have good mentors; Governor Rafael Buenaventura stands out in particular. He never lectured, he mentored. He never preached, he showed by example. Thus, his six-year term as head of the Bangko Sentral ng Pilipinas will be remembered for the world-class expertise and wisdom which he generously shared. It is fitting therefore that our awards tonight are given in honor of a great mentor – former BSP Governor Paeng Buenaventura. Ladies and gentlemen, let us celebrate the memory of Gov Paeng with a long round of applause. Teaching is a vocation; it requires intellectual, emotional, and spiritual commitment. It is therefore proper for us to reward outstanding educators. To me, the discipline, intellectual rigor, and moral values that good educators engender are priceless gifts that empower their students to become effective catalysts for economic and social advancement in our country. Given the hard and painful lessons from the ongoing global financial crisis, we cannot overemphasize the importance, the value of instilling good moral principles and good governance in the process of educating our youth, the future leaders of our nation. For instance, we have seen the destructive effects, on a global scale, of the greedy and senseless race to have ever fatter bottomlines at all cost, in total disregard of its consequences. We have seen many supposedly finance experts lose their perspective when it comes to money. Think subprime, Madoff, and the German billionaire, one of the 100 richest men in the world, who committed suicide when his investments soured. What is clear is that having piles of money that would allow them to live in luxury was not enough. The chase for money became the end goal. This is where the value of good and ethical finance educators comes in. Educators who will provide their students solid grounding on what financial success means and the ethical parameters for achieving it. Helping your students develop the ethical compass and the moral fortitude to adhere to doing things the right way should help them find their way in a challenging world. For as we know, doing the right things is not necessarily the easiest path to follow. American civil rights leader Martin Luther King, Jr. once said that “Intelligence plus character – that is the goal of true education.” That is the challenge before our educators. As finance educators I hope you will always be mindful that sitting before you in your class are the future leaders of our banking and finance institutions. That you have the power to nurture leaders who can truly make a difference in improving the quality of life of our people. This is the same philosophy that underpins the economic and financial education program of the Bangko Sentral ng Pilipinas: improving lives through literacy programs that will empower them to benefit from opportunities that development brings. As you and I know, there are millions of Filipinos who still live in poverty. If we can harness the liberating effects of financial know-how, even at its most basic, then we would be able to help millions of Filipinos help themselves. Empowerment is the key. This is the reason why economic and financial education is at the heart of Bangko Sentral’s advocacies. It is a social good, whose value to society is considerably much more than the personal gains. Financial learning empowers the citizenry as it helps the public acquire knowledge and develop skills in making well-informed economic and financial decisions necessary to ensure well-functioning markets that, in turn, support economic growth and development. And when consumers and producers understand financial issues, they are less vulnerable to fraudulent practices and scams. As they grow in their understanding of financial products, whose variety and complexity have grown in leaps and bounds, they will be able to prepare and chart their financial future based on their preferences for risks and rewards. Just as financial learning helps to protect the public from unsafe financial practices, it also affords the public better opportunities for financial advancement and wealth creation. The importance of education to one’s financial future highlights the need to start the process of education as early as possible. Many of you here are parents like myself. So I’m sure many of us would also be happy to see our children learn the importance of saving, investment and budgeting, as well as other aspects of personal financial management, to set them on the right path to a secure and stable financial future. On the macroeconomic level, financial education also ensures the efficient transmission of macroeconomic policies. It also facilitates the anchoring of expectations as the public is better able to understand and respond to policy actions of the various economic agencies of the government and the Bangko Sentral. It is for these reasons that the Bangko Sentral and many other central banks in the world consider economic and financial education as a key advocacy. The private sector also plays a major role in raising the general level of financial and economic education. Tonight’s awarding ceremony to honor our outstanding finance educators is a testament to the commitment of our organizers, FINEX and Citi Foundation, to this advocacy. In particular, FINEX has been at the very forefront of the development and advancement of knowledge and skills related to the financial field. On the other hand, Citi Foundation is proactive in its own educational campaign to help consumers better understand credit, savings and investment. We are, therefore, natural partners in broadening the reach of our economic and financial education programs. I look forward to an ever-expanding network of similar-minded individuals and institutions who will cooperate with us to reach out to broader segments of our society: from school children, students, young adults and professionals, overseas Filipinos, and members of the business sector, academe, media and public service. To those who wish to identify possible areas of cooperation with the Bangko Sentral, our initiatives include the launching of Economic and Financial Learning Centers in different regions; out-reach programs to teach financial management to overseas Filipinos and their families; in-house education activities to enhance economic education even among BSP staff; advocacy of microfinance as a tool for poverty alleviation for entrepreneurially-inclined but capital-challenged Filipinos; in partnership with the Department of Education the integration of savings and money management lessons in the grade school curriculum; and teaching the value of small things including the barya for wealth creation through fund-raising projects such as the award-winning Tulong Barya Para sa Eskwela. Ladies and gentlemen. The overall success of financial and economic education rests on the concerted efforts of the BSP, our educators and our partners in the private sector. Aside from the various programs and initiatives of the BSP, our contributions to this advocacy lie in providing support to similar efforts of individual organizations. That is why we are particularly happy to host this awards night, together with FINEX and Citi Foundation. Both the private sector, as well as the BSP, stand to gain from a citizenry that better understands economics and finance, and we pledge our support to programs and initiatives that will help us attain this end. For FINEX and Citi Foundation, we look forward to building upon our collaboration and partnerships in the area of promoting financial and economic education. For our educators, nominees and winners all, I salute you for your dedication to an ideal that we at the BSP and the banking community as a whole, hold dear. I know that you do all these things not for personal glory or monetary reward. However, your actions should be recognized because they serve to inspire others to do better and to continue the work at hand. I challenge our educators to develop new and innovative methods of reaching our students, and to continue to inspire and enkindle in the hearts of the youth, the thirst and zest for knowledge you hope to impart. Once again, thank you for your dedication and congratulations to our winners! Mabuhay ang Pilipinas! Salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Sixth Sec. Alfonso Yuchengco Policy Conference, Makati City, 2 February 2009.
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Amando M Tetangco, Jr: Antecedents of the global financial crisis – a multi-factorial phenomenon Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Sixth Sec. Alfonso Yuchengco Policy Conference, Makati City, 2 February 2009. * * * Secretary Alfonso Yuchengco, distinguished guests and fellow stakeholders from the business sector, the government and the academe, ladies and gentlemen good morning. First, let me thank the Board of Trustees and Secretary Yuchengco for inviting me to your sixth policy conference. It is my pleasure to be able to share with you today some thoughts on a subject which has occupied global attention, especially since the last four months of 2008 – when marquee financial institutions in Wall Street started to crumble, and “bailout” became a buzzword in global financial markets. Let me put in a nutshell the Philippines’ economic situation in 2008. What we had seen as an ideal convergence of low inflation and high growth in 2007 was clearly disrupted by the highly volatile oil and food prices, the spread of the subprime mortgage woes of the US to international financial markets, and the recession in some key advanced economies and economic slowdown elsewhere. Forecasts for this year and 2010 continue to be revised downward, as more concrete data become available. A bleaker outlook is in the offing, with the impact of the crisis trickling down to the real and external sectors, affecting trade, investment and consumer demand. But before we get into the details of the extent and implications of the crisis on our country’s development momentum, I suppose it is important to ask the question: How did the current global financial crisis occur in the first place? What led to the creation of “bubbles”? I believe that there are two layers to the reasons for the crisis. The first layer I will refer to as the “superstructure” or the physical – what is happening and visible to the naked eye. The second layer is the “microstructure” or the psychology – what is underlying those that can be seen. Let me talk about the “superstructure” first. The roots of the US financial crisis can be traced back to the early years of this decade when the United States aggressively eased its monetary policy to facilitate recovery from the dotcom bubble and the September 11 terrorist attacks. If you will recall, the US Federal Reserve began a cycle of cuts in the Fed funds target rate from 6.5 percent in May 2000 to as low as one percent by June 2003. On the fiscal front, large public deficit spending beginning in 2001 was pursued to prop up the economy which was then on the brink of recession. The low interest rate regime fueled a boom in mortgages, including among borrowers with doubtful credit histories or those fancifully called NINJA loans – that is, loans to No Income, No Job or Assets loans. Thus, house prices in the US began rising in 2000, surpassing the growth of disposable income. The excessive lending itself would not have brought in such great financial distress because if the borrowers turned out to be poor borrowers, then foreclosures would just have followed. However, what made this risky behavior turn into a crisis event was the bundling of mortgages by various financial institutions into complex securities such as collateralized debt obligations (CDOs) which were largely unregulated. These complex transactions were designed in search for yield and new markets. The securitized products were sold to banks, Wall Street firms and overseas investors. The continued appreciation of house prices ensured attractive returns for these mortgage-related securities. With too much liquidity in the US economy and with the price level creeping up, the US Federal Reserve started to rein inflation in. In June 2004, the Fed began a cycle of hikes in the Federal funds target rate, lifting the Fed funds target rate from one percent to as high as 5.25 percent just two years later (or by June 2006). When interest rates were raised, an asset bubble burst became imminent. The elevated interest rates discouraged availments of mortgage loans, which led to a build up in unsold homes. This precipitated the steep descent in house prices from their peak in 2006. As of end-November 2008, the S&P/Case-Shiller index of 20 major metropolitan areas showed that home prices in the US had fallen by around 25 percent below their July 2006 peak. The immediate damage was felt in sub-prime mortgages – not only the most highly leveraged sector in the economy but also that with the weakest capital support, least transparency, and on which the poorest due diligence had been done. Initially, market participants and policymakers felt the damage was an isolated case that could be “fixed”. This belief partly mirrored the (over) reliance on the most modern risk management techniques related to derivatives and structured products. It also partly reflected inadequate information on the extent to which sub-prime exposures had infected the balance sheets of financial institutions. With the glut in supply and as housing prices fell, the value of the collaterals supporting mortgage loans eroded. Higher delinquency rates on sub-prime mortgage loans triggered a wave of bankruptcies of sub-prime mortgage lenders. As bankruptcy filings by mortgage lenders mounted, unnerved investors began draining liquidity from financial markets. With banks holding on to their cash to cover losses, credit markets started to seize up. Even creditworthy borrowers began experiencing difficulty in borrowing. Firms/ households cut back on investment and consumption, causing a slump in economic activity, precipitating a recessionary cycle. Moreover, since the loans were securitized and sold to other investors as credit derivatives, the defaults in the mortgage lending market spread to the wider credit markets, multiplied several-fold by leverage. Eventually, losses in subprime mortgage lending and credit derivatives would spill over to the broader financial markets and to financial institutions elsewhere that invested in US mortgage bonds and structured products. There were other factors that could have contributed to the credit crisis. Mark-to-market accounting standards exacerbated selling pressures during the period of deflating house prices as banks were forced to recognize valuation losses in their balance sheets. The fragmented supervision in the United States led to lack of regulation over segments of the financial system. Even credit rating agencies have gone under scrutiny for giving investment-grade ratings to securitization transactions that were backed by sub-prime mortgage loans. These high credit ratings encouraged the flow of investor funds to these securitized instruments. Critics claim that conflicts of interest were involved, as rating agencies were paid by firms, such as investment banks, that originated and sold the debt to investors. However, beneath what can be seen by the naked eye is the "micro structure" or the underpinning of the crisis. There is a quote from Robert Shiller. He said "too little attention has been paid to the most fundamental cause (for the housing crisis): the contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising. Bubbles are primarily social phenomena; until we understand and address the psychology that fuels them, they're going to keep forming". I am a believer that all these over-structures could be explained by underlying market psychology – Greed. Ignorance. Herd mentality. Disregard for or misuse of information. Exuberance. Irrationality. If we look back at the 1997 Asian financial crisis, and the other crises during the last three decades, the pattern seems to be quite similar: crisis was preceded by rapid credit expansion, which manifested itself in asset prices. These gains, of course, provided the collateral to justify even more lending. The euphoria generated by such gains also seemed to affect both the perception of risk and the appetite for risk-taking, on the side of both lenders and borrowers. As a result, leveraging increased even as the general quality of credits deteriorated – unfortunately, this was commonly “not perceived” at the time. And, as we realize now, the so-called “Minsky moment” invariably comes. At a certain point, usually when earlier expectations about profits or future income growth begin to look unrealistic, the whole endogenous process goes into reverse. In effect, boom turns to bust, with the stress in the financial system commonly, but not universally, aggravating the economic damage on the downside. Together, the superstructure and the microstructure of the crisis would explain the bubble that just burst. In hindsight, it is clear that global financial activities had outpaced the financial systems’ ability to manage these activities in an orderly manner. Thus, the air of uncertainty and vulnerability as well as a general sense of eroded confidence now looms in both industrial and emerging market economies. One could even call this a Black Swan Event – a large-impact, hard-to-predict and rare event beyond the realm of normal expectations. While the epicenter of the financial turmoil is in the US, tremors have been felt worldwide. The slowdown in growth spread to Europe, amid weak business and consumer sentiment, terms of trade losses, and tightening credit conditions. The impact on Asia has come through risk aversion as evidenced by: 1) the reversal of equity capital inflows; 2) widening of sovereign credit spreads; and 3) heightened volatility in exchange rates. Apprehension has also risen in the Asian economies, particularly in terms of reduced production, and weaker consumer demand. These developments necessitated coordinated policy actions among major advanced economies to support the global financial system on a scale not seen for decades. Many central banks have taken strong actions to cut interest rates and expand liquidity provision both in local and foreign currencies. Other measures taken include capital injections into financial institutions, expansion of deposit insurance and purchase of distressed assets. On fiscal policy, many countries have announced and are already implementing sizeable stimulus packages. Evidently, there is no “one-size-fits-all” policy mix. Some countries have more fiscal and monetary space than others. This brings me to the next – and to most of us here – the central question – how will the Philippine economy fare amid this highly challenging global economic turmoil? Admittedly, we are not immune to what is happening around the world, but there are insulations, cushions, buffers that can serve the Philippine economy in good stead in this challenging period. Let me provide some details on these buffers. Output growth has continued at a respectable pace and it continues to be demand-driven. The 4.6 percent GDP growth for 2008 was a respectable growth performance vis-à-vis those of our Asian neighbors. It is noteworthy that the country’s GDP growth for 2008 is within the country’s long-term growth trend. Domestic demand continues to be the main driver of growth in the economy, specifically personal consumption. Demographics – particularly in the form of the Philippines’ young and economically active population – underpins the view that consumption will continue to propel economic growth even in these difficult times. Moreover, income levels are such that majority of the population has a greater propensity to consume. Weakening global demand is causing commodity prices to retreat. Reflecting the global economic downturn, oil prices began to ease starting July 2008. Partly because of this, headline inflation dropped sharply lower in December 2008 to 8.0 percent year-on-year. This brought the average inflation in 2008 to 9.3 percent. Lower fuel prices and slower price increases of food and light, as well as of transportation and communication services accounted for the retreat of inflation. With the easing in the prices of oil and other non-oil commodities in the world market and given moderating inflation expectations, inflation in the Philippines is expected to further decelerate – and be within the target range – in 2009 (2.5-4.5%) and 2010 (3.5-5.5%). This gives some flexibility to monetary policy to support growth and stabilize financial conditions, while being highly attentive to price pressures. Fiscal reforms, particularly the VAT reform, have strengthened the Philippines’ ability to cope with externally-induced challenges, as fiscal consolidation has improved our debt profile and markets’ view about the commitment of our authorities to difficult but much-needed fiscal rectitude. Recent adjustments in fiscal targets could also provide policy space to support growth. The postponement of the balanced-budget objective due to the expected slowdown in the global economy will provide countercyclical fiscal space for the government to boost infrastructure spending and enhance social safety nets to support the most vulnerable segments of the population. The fiscal stimulus – provided that it adheres to best principles of what some would call the 4 T’s (spending that is timely, targeted, transparent and temporary) or as some would say “spending that gives the most bang for the buck” – should be supportive of durable, robust growth. On the external front, we have continued to build up our international reserves for selfinsurance to reduce our vulnerabilities to the inevitable moods and swings of international financial markets. At year-end 2008, our reserves rose to US$37.6 billion. This suffices to cover about 6 months of imports of goods and payments of services and income, or alternatively, it could cover our short-term external debt based on residual maturity about three times over. We were able to do this because our external position remained in surplus in 2008, supported by remittances of overseas Filipinos as well as higher services receipts (including from tourism & business process outsourcing). Meanwhile, the Philippine financial system remains stable notwithstanding the challenges brought about by the global financial crisis. The Asian financial crisis of 1997 had imprinted valuable lessons which provided the needed cushion for our banking system to weather the current turmoil. For instance, we regulated the real estate sector in relation to housing and mortgage markets; we implemented stronger bank supervision anchored on managing risk exposures; we reduced non-performing loans via asset vehicles; we implemented macro-prudential surveillance with due diligence in implementing internationally accepted standards via the Basel II accord; and we participated actively in implementing collaboration among Asian neighbors for coordinated responses and information-sharing to mitigate contagion effects and spillovers. Importantly too, the Philippines is relatively well-insulated from key transmission channels of the global financial strains that are affecting other emerging market economies (EMEs). This is so for the following reasons: Reasons: • Philippine financial institutions have relatively limited exposure to structured credit and related derivative products which were the main cause of the large losses of crisis-affected international banks. It is helpful to point out that derivatives licenses in the Philippines have been given out prudently. • Philippine banks are more domestically oriented, and rely more on traditional banking services such as deposits than on complex products like derivatives as sources of funds. Corporate sector bond financing is also minimal and private sector reliance on external loans is limited. • Lastly, while credit growth has been steady and significant, it has not fueled concerns of overheating or asset price booms. What should we expect in 2009? Even though we could lay claim to the “island of calm” status mentioned by economists in evaluating the Philippine economic situation amidst the crisis, and even though we have buffers that we could rely upon as we brave the current financial storm, we should not rest on our laurels for the effects of the crisis are just beginning to show their fangs and just starting to bite into our pockets. The real and external sectors are yet to experience tougher challenges so let me share the policy thrusts of the BSP this year: Monetary policy in 2009 will continue to focus on our primary mandate of price stability. As inflation risks moderate, the BSP will carefully consider opportunities for monetary policy easing amidst a possible tightening in financial conditions. We will also continue to ensure appropriate levels of market liquidity to maintain the efficient functioning of the financial markets. Through these, we hope to provide the necessary conditions that will allow economic growth to continue. We will at the same time endeavor to keep inflation at manageable levels as this creates the environment for sustainable long-term growth. The BSP’s external sector policy will remain focused on ensuring our external vulnerabilities are reduced. We expect to continue to post a surplus in our BOP, mainly due to steady OF remittances and receipts from the BPO sector, coupled with a reduced level of imports. This will give us the opportunity to further beef up reserves for self-insurance. We will continue to pursue a market-determined exchange rate to allow us to maintain external competitiveness. We will also engage in policies that would sustain a manageable external debt profile. Banking sector policies will remain geared towards the financial system’s soundness in terms of greater risk management, stronger capital base, bolder disclosure mechanisms, and better corporate governance standards. Since most of the experts point to the lack of regulation as one of the root causes of the US subprime market crisis, it is therefore tempting to swing to the other extreme of over regulation. I don’t believe that we should move towards that direction. Instead, what I believe should occur is a move towards greater accountability. Thus, the BSP will sustain its reforms that would lead to improved disclosure practices, better risk management and higher standards of governance in the banking system. We will continue to pursue regulation that would make the markets work more efficiently and advance consumer protection. Realizing that the current crisis has taken on a global nature, we will further strengthen engagements with our regional peers to share information, discuss emerging developments, and pool resources, if necessary even foreign exchange reserves. It’s interesting that the current financial turmoil took on a turn for the better once the major economies began to act in concert. Confidence had been quickly eroding until then. The coordinated and cooperative policies that were put in place by the US and European central banks and finance ministries beginning October last year, have helped restore some traction in the markets and subsequently improved market confidence not only in the major economies, but also in emerging markets. Ladies and gentlemen, 2009 will be a critical year for our economy. But we should look at this crisis as like the gift of fire of old. Fire is important in all facets of our lives including the need for light, power and heat. Yet fire is not without risks to life and property. What is important is to be able to master it and harness it to serve human needs. Thus, this crisis should pose a challenge to us to put together and implement policies this year and beyond that would enhance the resilience and the flexibility of our economy. Without a doubt, this crisis shall test our resiliency and character, and it shall determine whether our buffers would keep us afloat amidst troubled waters. The Philippines is not a newbie in terms of facing crises, for we have hurdled quite a number of these in the past. Each crisis we encountered was unique in its roots and causes. But we have learned from each, every time. It’s too early to make prescriptions and judgments, given that much is still to unfold. I trust that the audience could share my vision in seeing a glass half-filled with water as “half-full” rather than “half-empty”. Let us also remain vigilant and prepared for any circumstances that could come our way. Let me end my remarks this morning with a quote from John D. Rockefeller. He said "These are days when many are discouraged. In the years of my life, depressions have come and gone. Prosperity has always returned and will again." Thank you very much. Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Economic Forum "Philippine Economic Outlook - Prospects and Challenges", hosted by Security Bank, Manila, 11 February 2009.
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Amando M Tetangco, Jr: The Philippine economy – building resilience in a time of uncertainty Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Economic Forum “Philippine Economic Outlook – Prospects and Challenges”, hosted by Security Bank, Manila, 11 February 2009. * * * Distinguished officers and staff of Security Bank led by its Chairman Mr. Frederick Y. Dy, President and CEO Mr. Alberto S. Villarosa, other distinguished speakers, guests, ladies and gentlemen: good afternoon! It is my pleasure to join you for today’s economic briefing. I laud the efforts of Security Bank for making this gathering possible. I welcome opportunities such as this to help shed light on our current economic and financial environment, from the vantage point of the central bank, which I hope is not far removed from how it is in the “real” world. Much has already been said and written about the current environment we are in – it has been described as being “a tsunami of historic proportions” to being the “the worst crisis since the 1930s”. Every writer or speaker seems to want to paint a picture direr than the one before. Today, I don’t want to be included in that list – rather, I hope I can more candidly share with you a balanced (realistic) view. Let’s begin with what we now know against what is still uncertain. Three things stand out. First, we have clearly seen that, on the one hand, the crisis has moved from its epicenter – the US and Europe – and has begun to manifest itself in Emerging Markets, including our part of the world. On the other hand, however, we don’t know how much further or deeper the crisis’ reach and breadth would be once the dust, as they say, finally settles. Second, so far the policy prescriptions from the major economies have been “unconventional” – untested (so to speak) in these unchartered territories we now trek. Unfortunately, the very nature of these prescriptions requires patience not only from those in the major economies but also from those at the periphery such as the Philippines. The policy prescriptions clearly need time to filter to the markets and achieve the necessary effects. Question is, how much patience and tolerance do the markets have? Other questions that are perhaps racing in stakeholders’ minds are: What is the exit strategy? How would all these new policy tools be unwound? How would any exit strategy impact other economies, including the Philippines? Third, the impact on the Philippines of the global financial crisis has (so far) been limited, but we know we are not totally immune. We know the potential channels for weakness – exports and remittances (then consequently consumption). Yet again, we don’t know how deeply these could and would be penetrated by external factors. I arrived yesterday from Kuala Lumpur, after attending a series of meetings with other central bank governors in the South East Asian Central Banks (SEACEN) and the Bank for International Settlements (BIS) including the heads of the International Monetary Fund (IMF) and the BIS. The assessment was unanimous – the crisis we are in is unlike any other we have so far faced. Why so? 1. It is the first truly global crisis. Earlier crises were generally localized with the contagion fairly limited to nearby regions. For example, the debt crisis in the Latin Americas in the 1980s and then the foreign exchange crisis in Asia in the 1990s – neither affected the major economies in any significant way. This time, however, it is the developed economies that were first affected with the claws of the crisis reaching the rest of the world. 2. The linkages are now more enmeshed, more difficult to define and therefore more difficult to disentangle. The crisis began as a US subprime mortgage market problem that US policymakers first considered a situation which could be “fixed” with a single stimulus package. The mortgage problem, as we now understand it, was triggered by search for higher yield and new markets and perpetrated by the opacity in financial markets that resulted from rapid financial innovation. This has since evolved into a seizing up of liquidity in major financial centers, rapid deleveraging by banks and other financial institutions, generally lower asset values, unprecedented wealth destruction and therewith a significant decline in consumption and contraction in global trade. The turmoil in the financial markets has indeed translated into a slowdown in the real sector. More recently, the downturn in the real sector is adversely impacting on the availability of domestic and international credit. I share these assessments by the major central banks with you, not to show you how “bad” things are but to show you that there is now among global policy makers a better appreciation of what has happened and what is happening, including a fostering of a higher level of coordination and cooperation. Let me now move on to where we are now and what we have done so far. The Philippine banking system was not significantly directly impacted by the global financial crisis. This is because the direct exposure of Philippine banks to the troubled international financial institutions was minimal. Nevertheless, the BSP moved preemptively to ensure the Philippines didn’t experience the situation of credit markets seizing up and liquidity in the financial system drying up that characterized the international financial markets at the height of the crisis in September 2008. The BSP was aware that there was ample liquidity in the system even at the height of the crisis. That was evident from the fact that credit growth was still at double digit (even up till now) and that interbank markets continued to operate smoothly with no prolonged periods of high interest rates. What the BSP witnessed, however, were some kinks in the distribution of the liquidity. To address these, the BSP expanded the allowable collateral for its repo facility; relaxed the valuation on these collaterals, increased the budget of its e-rediscounting window, reduced reserve requirements, and provided dollar liquidity in the spot and swap FX markets. We believe these moves, in tandem with extensive and comprehensive communication of our policy intent to key stakeholders, helped to shore up confidence in the financial markets during that critical period. That relative stability exhibited by the financial markets then was critical in cementing the environment that allowed the economy to post a within-trend GDP growth and single digit inflation in 2008. Understandably the numbers are nowhere near the ideal convergence of historic high growth and historic low inflation that we saw in 2007, nevertheless these were respectable especially when pitted against those in our region. The Philippine economy continues to be resilient. The 4.6 percent GDP growth rate for 2008 was broad-based with the major domestic sectors providing positive contributions to growth. I am confident that both domestic private and public consumption on the expenditure side, and services and agriculture on the demand side would continue to lift the economy in 2009. For this year, the GDP is expected to grow between 3.7 to 4.7 percent. Inflation continues to decline. For January this year, inflation went down further to 7.1 percent from 8 percent in December 2008. This supports our view for within-target inflation rates for both 2009 and 2010, and provides the BSP with room for monetary policy maneuvering to counter the effects of the global financial crisis on the domestic economy. The external position continues to be strong. As of end January, the country’s international reserves registered almost $40 billion, equivalent to six months’ of imports of goods and service and three times external debt based on residual maturity. We are still projecting a surplus in the BOP for this year, supported by steady remittances and BPO receipts as well as a lower import bill due to the significant decline in international oil prices. The banking system remains stable with very robust solvency. The industry’s capital adequacy ratio (CAR) as of end-June 2008 stood at 15.3 percent. Moreover, results of stress-testing done by the BSP showed that despite adverse shocks to asset quality and income, banks’ CAR would still be well above both the international standard of 8 percent and the BSP’s minimum regulatory requirement of 10 percent. The banking system as a whole also remains very liquid. Proof of this is that bank lending continues to post significant growth. As of end-November 2008, bank lending, inclusive of interbank loans, registered a year-on-year growth rate of 22.9 percent. We expect some slowdown in credit expansion going forward as banks tighten credit standards. Nevertheless, loan growth could still be at double-digit, if banks remain keen to spot lending opportunities. Avoiding the negative feedback loop What do all those numbers and data mean? How do they fit into our daily lives? We all know there is a key link between a stable macroeconomy and a sound financial system. On one side of this link, we know that an efficiently functioning financial system is critical to the effective transmission of monetary policy and fuels economic activity and growth. On the other side of this, we know that a vibrant real economy encourages the further development of the financial system. In essence they “feed” on or reinforce each other. [I leave the discussion of the direction of causation for another day!] The numbers and data I walked you through show that both our macroeconomy and our financial system have remained sound and stable against the tide of the financial turmoil. But there is risk that if one of these weakens, perhaps due to further external stress, it could drag the other one with it. In other words, the feedback loop is negative. This is now occurring in the major economies – the financial turmoil has caused economic recession in the US, UK, Europe, Singapore, Hong Kong and Australia, to name a few. And we have also seen the credit markets in these economies freezing up. We haven’t come to this yet and we will make sure that we don’t. How shall we manage that? The BSP can contribute by: 1. Calibrating monetary policy to ensure that there is ample liquidity in the system. The trend decline in inflation and our within-target inflation outlook have given the BSP room to be accommodative. We will, therefore continue to look for opportunities to be supportive of economic growth. 2. Keeping our banking system safe. Our banks have benefited from the series of reforms implemented in recent years, which have included cleaning up of banks’ balance sheets, the strengthening of bank capitalization through Basel II, and the improvements in governance structures. We will continue to enhance our macrosurveillance capabilities and further improve supervisory oversight of risk management. To operationalize these, the BSP recently approved the guidelines for Internal Capital Adequacy Assessment Process (ICAAP). The ICAAP provides a prudent framework that would force banks to consider their own assessments of business lines and the prospects for these, determine their risk profile and then actively decide the appropriate level of capital to hold. This formalizes the requirement for banks to have a more-forward looking approach to risk management and make them directly link risk to capital. This would improve accountability on the part of banks for their actions and hopefully avoid the situation of poor appreciation of risk that was at the heart of the financial turmoil in the US. 3. Creating a stable macro environment, i.e., stable interest rates and exchange rates. This would encourage long-term business planning and lending by banks. Economic agents and banks need to continue to be keen to seize opportunities during this downturn and be ready for the upturn. 4. Continuing to encourage financial innovation and capital market development. I am often asked whether the BSP would clamp down on financial derivatives and financial innovation, given pundits are pointing to their proliferation as one of the reasons for the current financial turmoil. My answer to that is this – I believe there is a place for financial innovation in market development. Its presence provides avenues to address varying risk requirements of investors and users of funds. What I always emphasize, however, is that embracing financial innovation must be coupled with appropriate prudential regulation, including appropriate disclosure and transparency standards. These would ensure that all stakeholders are fully aware of the risks that they are taking on. As I have said, we shouldn’t go to the extreme of over regulation. Rather, we should move towards greater accountability for our actions. How do we see things going forward? I had made a point earlier of saying that no one knows how deep or how much longer this crisis would last. But I want to stress now, this will not go on forever. There will be an upturn – sooner or later. (As they say, the light at the end of the tunnel.) What is crucial is we must be ready for that time. Slowly, we are seeing some traction in the markets. The most visible manifestations of these are: the exchange rate level consolidating, the credit spreads narrowing, the stock market steadying. At the meetings I attended in Kuala Lumpur. The IMF analysis showed that recovery in Asia could be faster – given our relatively stronger position coming into the crisis. They point to lessons on building up reserves for insurance, managing debt levels, setting up prudential standards and cleaning up bank balance sheets – all lessons astutely learned from and implemented by the Asian economies since 1997 Crisis. However, in the same breath, the IMF admitted that an Asian recovery may not occur without a recovery in the US. The recent events have indeed debunked the myth of Asia decoupling from the U.S. I see a three-fold hope in that irony. First, the strong and aggressive policy actions by the US could move it closer to a recovery than without such action. Second, individual economies outside of the US are also doing their part to shore up confidence in their own economies. Third, there is a heightened desire to improve the coordination and cooperation among national governments to resolve the current global financial crisis, including more openly sharing information and the thinking behind policy actions. This would help fuel policy actions forward. The current crisis has brought to fore that, with its good points, globalization also brings many challenges. The world’s economies and financial markets have become highly integrated that any solution to the problems we currently face must necessarily also be of a global nature. Conclusion I tried to bring into my remarks this afternoon a more international/regional flavor. I have also tried to share the risks we face, our policy moves and our outlook – both the bad and the good that at the same time envelope this crisis. I have emphasized that the resolution strategies necessary to address the current crisis must have an international dimension. But this is not to say that, that is where it ends. Indeed the difficulties we are experiencing are broadly external (global) in origin. But building resilience against external vulnerabilities resides in all of us. Building resilience in a time of uncertainty is not just BSP’s task. Even as I outlined actions that BSP is undertaking to avoid the negative feedback loop, avoiding this is not just BSP’s task. If there is anything that this crisis has taught us, it is that there should be greater accountability among all market players. On the part of the banks, there needs to be a better appreciation of the risk of their businesses and true diligence in disclosure and transparency to stakeholders, while at the same time remaining adept at seizing lending opportunities. On the part of the corporate sector, there needs to be a broader, more critical long-term view of their operating environment, realizing that is necessary to ensure their own viability. On the part of the financial consumers, there needs to be a move to be better informed. The BSP has been actively undertaking its financial literacy campaign. The long-term goal is to instill among the financial consumers the responsibility of informing themselves about the risks involved in financial decisions. Better informed consumers would mean lesser instances of market instability caused by loss of market confidence due to failed investment schemes. Indeed, building resilience of our financial system, and the economy in general, requires appropriate action from the government, the central bank, the financial institutions, businesses, down to the individual private citizens. By doing our respective responsibilities, we can build a financial system and economy that can withstand not only the impact of the current crisis, but also of other future crises. Thank you very much for your attention.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Forum of the Central Bank of the Philippines on 'Sustaining Growth Through Better Access to Credit', Manila, 2 March 2009.
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Amando M Tetangco, Jr: Sustaining growth through better access to credit Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Forum of the Central Bank of the Philippines on “Sustaining Growth Through Better Access to Credit”, Manila, 2 March 2009. * * * Magandang umaga po sa inyong lahat! On behalf of the Members of the Monetary Board and my fellow central bankers, I welcome all our special guests and viewers to the Forum of the Bangko Sentral ng Pilipinas on “Sustaining Growth Through Better Access to Credit”. We have with us today representatives from the different sectors of our economy including the Philippine Chamber of Commerce & Industry and other industry associations; companies of various sizes; entrepreneurs from the micro, small, and medium enterprises or what we call MSMEs; other government institutions; the academe which helps shape policies through rigorous research and studies; NGOs; the media which serves as our link to the general public; and, finally, the banks which remain the principal conduit or source of funds for those who do business in our country. In other words, ladies and gentlemen, we can look forward to a productive exchange concerning our economy; where and how credit can be accessed; addressing barriers to credit; why achieving and maintaining good credit standing is good for your business; and the role of the Bangko Sentral ng Pilipinas insofar as money, credit, and banking are concerned. Of course, we have no illusion that this Forum will be able to address all the issues and concerns that will be raised today. In fact, we expect that there will be differences of opinions, of strategies. After all, the shifts in the economic landscape affect industries differently; but if we keep an open mind, and agree to work on these issues, we can move forward together. But, there is cause for optimism. Ladies and gentlemen, your participation in this Forum is already a clear indication that while we may come from different segments of our society, we share the same goal – to keep economic activities going and growing through better access to credit. To celebrate this coming together of those who have taken the time to participate in our Forum today, including those who are watching NBN Channel 4’s live coverage at Bangko Sentral’s regional offices and branches and the general public, let us give ourselves a round of applause! Indeed, given the global economic slowdown resulting from the continuing financial crisis, it is important that we remain united in our efforts to minimize its adverse impact on our country and our people. Ensuring the availability of market liquidity is a critical element in a comprehensive approach to avoiding a severe slowdown. In this connection, the Bangko Sentral ng Pilipinas has been implementing a series of moves in accordance with this overall thrust to provide better access to credit. Among others, we have done the following: • First, we have reduced policy interest rate twice since December 2008 by a total of 100 basis points. In effect, we have lowered the cost of money for banks. This paves the way for banks to charge lower interest rates for their loans and in effect reduce the overall cost of borrowing and doing business; • Second, we have reduced the deposit reserve requirements for banks by 2 percentage points. This should infuse roughly P60 billion in additional liquidity. Latest information reveal that demand for money remain strong: in December 2008 domestic liquidity grew by 15.6 percent from the previous year. This double-digit growth in domestic liquidity indicates that there are funds available in the system which could be tapped for investment and other productive activities; • Third, we have opened a US dollar repurchase facility. This is a preemptive move on our part to provide liquidity to the market, not only in pesos but also in dollars. Relevant to this, I wish to report that our country’s gross international reserves is at an all-time high of $39.2 billion as of end-January 2009; • Fourth, through the “Credit Surety Fund (CSF)” program which it conceptualized, the Bangko Sentral ng Pilipinas has provided leadership in addressing the problem of our MSMEs or our micro, small, and medium entrepreneurs in getting loans for lack of collateral. The Credit Surety Program brings together well-managed and wellcapitalized cooperatives with local government units and other donors to provide surety cover, in place of collateral, to guarantee MSMEs’ bank loans. The Credit Surety Fund operates at the provincial level and has been launched in Cavite, Aurora, and Bohol. I am happy to report that more provinces have expressed interest in joining this CSF program. • Fifth, to provide banks better access to additional funds which they can relend to the public, we have increased the budget for our Peso Rediscounting Facility from P20 billion to P60 billion liberalized. Equally important, we have liberalized our rediscounting guidelines. Among others, we have raised the loan value of eligible papers for rediscounting from 80% to 90%. Later on, Deputy Governor Diwa Guinigundo will have a power point presentation that will explain our liberalized guidelines. Please note that our rediscounting facility also covers microfinance loans, in accordance with our inclusive banking policy. In particular, I am pleased to report that as of September 2008, outstanding microfinance loans of over 220 banks to about 886,000 households have reached nearly P7 billion. Indeed, our policy to provide better access to credit covers the entire spectrum of our economy. Ladies and gentlemen, the Bangko Sentral ng Pilipinas has implemented these measures to ensure continued normal operation of the Philippine credit markets. What we have done is to act pre-emptively to avoid the credit crunch in the US and Europe that has cut-off companies – big and small – from their traditional fund sources. In our case, you will be pleased to know that Philippine banks remain liquid and continue to increase their lending in healthy double-digit growth rates. For instance, outstanding loans of commercial and universal banks as of December 2008 were up 17.5 from the previous year. In particular, loans for production activities drove the expansion in bank lending, growing by 18.3 percent in December while consumption loans grew by 13.4 percent. In other words, the Philippine banking system, which remains the primary source of funds for our business sector, is functioning normally and remains stable in the midst of the ongoing global financial turmoil. And so, we have the liquidity and enhanced access to credit. What we need to do now is to work together to sustain growth by stimulating economic activity and thereby avoid the negative feedback loop from the global crisis. We want to see firms continue to sell, households continue to spend, banks get their loans paid, and Government sustains its fiscal efforts to support investments on infrastructure and social safety nets. While our economic fundamentals here in the Philippines remain sound, there is great urgency in addressing the possible fall-out from the global economic and financial turmoil. In the US, President Obama’s government promptly put together the first tranche of their economic stimulus package amounting to $787 billion. Ladies and gentlemen, losing to time was one of the greatest lessons in public finance of the Great Depression in the United States: when public expenditures were finally in high gear, the four-year Great Depression was about to end. In hindsight, the deep and painful dislocations of the Great Depression could have been mitigated if the government had responded more quickly. Thus, other countries familiar with this lesson from the Great Depression are moving alongside the US Government to shore up their respective economies, because delayed responses could prove very costly. This includes the Philippines. In particular, our government has defined a P330 billion economic stimulus program to sustain market confidence and get the economy moving more robustly. But government alone cannot achieve this. Let us therefore work together to support government’s initiatives to keep our economy growing, to continue to grow your business, to protect jobs and to create new employment opportunities for our people. Let us be mindful of the possible effects of a downturn to millions of Filipinos, especially to those who continue to live in poverty. And even as we come to terms with the reality of a global economic crisis, let us not forget the positive Chinese point of view that sees opportunities in every crisis. Sure, the challenges are big, but there are equally big opportunities in riding them out. At the end of the day, if we remain united, we shall be able to reap the dividends from our concerted, cooperative efforts together. And so, ladies and gentlemen, today let us renew our commitment to sustain the growth of our economy through better access to credit. Once again, on behalf of the Members of the Monetary Board – Monetary Board Juanita Amatong, Monetary Board Member Raul Boncan, Monetary Board Member Nellie FavisVillafuerte, Monetary Board Member Alfredo Antonio, Monetary Board Member Ignacio Bunye and Monetary Board Member Peter Favila, we thank all of you for accepting our invitation to this Forum. Mabuhay ang Pilipinas! Mabuhay tayong lahat! Maraming salamat po!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bank Marketing Association of the Philippines (BMAP): Banking and Business Forum, Manila, 3 March 2009.
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Amando M Tetangco, Jr: The crisis in perspective – is there really cause for alarm? Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bank Marketing Association of the Philippines (BMAP): Banking and Business Forum, Manila, 3 March 2009. * * * The officers and members of the Bank Marketing Association of the Philippines (BMAP) led by President Ferdie LaChica, distinguished speakers, fellow bankers, our friends from the media, special guests, good morning! I congratulate the leadership of the BMAP for taking the initiative to gather members of the financial community and the media to discuss the global financial crisis and its possible impact on the domestic front. Indeed, we should welcome activities such as these which promote open exchange that lead to better understanding of critical issues. After all, we cannot move forward together.. if we are not on the same page and able to engage the cooperation of our stakeholders at this crucial point in time. In this year’s forum, BMAP’s theme asks this NON-TRIVIAL question: “Is there really cause for alarm?” Well, let me share some information that will help you respond to this question. Among others, key economic and banking metrics indicate the following: • The domestic economy has remained resilient, posting a 4.6% growth last year. This year, the Philippine economy is still expected to grow at a respectable range of 3.7% to 4.4%. That we are able to sustain growth under stressed global conditions with major economies undergoing contraction makes these figures particularly encouraging. • Inflation continues to decline and is expected to further decelerate with the easing in the price of oil and other non-oil commodities in the world market. As of January 2009, inflation stood at 7.1% from 8% in December 2008. • Our currency remains competitive. Even as the peso lost much of the gains of 2007 due to heightened risk aversion towards emerging markets, the peso’s fall was nevertheless in line with the movement of other currencies in the region which also lost ground against the US dollar. • The country’s external position remains favorable. As of end-January 2009, the balance of payments yielded a surplus of US$1.7 billion while our gross international reserves stood at US$39.2 billion. The current GIR level is sufficient to cover six months of imports of goods and payments of services and income, double the international standard of three months and three times the size of debt falling due within a year. • The banking system sustained its asset expansion with total resources growing by 9.8% to reach P5.6 trillion as of end-November 2008. Among bank assets, loans (gross, and exclusive of interbank loans) posted a significant growth of 23.5%. This asset expansion was supported by a continued rise in deposit base which registered a 15.9% growth as of end November 2008. • Worth noting is that this continued asset expansion has been accompanied by the steady improvement in asset quality as measured by both non-performing loans and non-performing assets. From a peak of 16.9% at end-2001, banks’ NPL ratio has since dropped to a low single-digit level of 4.2% while NPA ratio improved to 5.5% as of end November 2008. • The banking system also maintained its strong solvency position. As of end-June 2008, banks’ capital adequacy ratio (CAR) stood at 15.3% on a consolidated basis, comfortably above both the international standard and the BSP’s minimum regulatory requirement. If there is one lasting lesson from past crises, it must be that capital sufficiency is a primordial concern. It is reassuring then that the present Capital Adequacy Ratio of our banks is at this level. Moving forward, what then are the challenges that we face? For our economy, the channels of vulnerabilities are exports and remittances. The impact on Philippine exports has already started to show with a 40.4% drop in December of last year. Remittances are holding up but there are concerns that it will eventually reflect the global slowdown. These two fronts ultimately affect consumption spending, which plays a big part in domestic economic growth. In the financial market, the potential weakening of corporate (exporters) and household (OF beneficiaries) balance sheets could lead to some deterioration in the quality of banks’ loan portfolios. Individually, local banks have taken logical defensive action by being more cautious in lending and boosting their liquidity levels. The risk is that this could result in less credit for productive purposes, which would add to the pressure on the real economy players. This could lead to a negative feedback loop between the real and financial sectors. In other words, ladies and gentlemen, even as our economy remains on a growth track, the global crisis brings with it serious challenges. It would be cause for alarm, therefore, if we remain complacent. We need to plan; we need to act pre-emptively to create buffers that will protect us from the headwinds that will come our way. Among others, our Government has prepared a P330 billion economic stimulus program that includes higher infrastructure spending and enhanced social safety nets to support the most vulnerable segments of our population. The stimulus package, designed to adhere to the socalled best principles of 4 T’s: spending that is timely, targeted, transparent, and temporary — should be supportive of sustainable and robust growth. In addition, the Bangko Sentral ng Pilipinas has implemented a series of measures to ensure continued normal operation of the Philippine credit markets. The objective is to avoid the crippling credit crunch in the US and Europe that has triggered widespread dislocations in both business and households. Is there a specific role for BMAP? Yes, absolutely. As the marketing and communications experts in your respective banks, BMAP members can spearhead a concerted effort to ensure that bank stakeholders are kept abreast of market situation so that they can discern factual realities from fictional representations. The objective is to inform the general public so that stakeholders ─ your depositors and borrowers as well as your employees and stockholders ─ can make informed choices. The challenge is to keep working on this patiently and faithfully because markets continue to evolve and transform. It is not enough that you do it once or twice; it should be a continuing commitment on your part. Among others, explain the fine print, provide clear directions on how they can maximize the benefits from the services you render, make your banks accessible literally and figuratively, and be guided at all times by the good governance tenets of fairness, accountability, and transparency. It benefits no one if our depositors are unsure of their savings. Long-term savers, those who manage funds for their retirement or for future expenses such as our children’s educational needs or medical funding, these are but some of our constituents who can always benefit from better financial information. For your borrowers, continuing dialogues are always useful and productive in terms of avoiding unwarranted shocks. Consumer rights must be protected. I therefore request the BMAP to take the lead in making sure that appropriate systems are in place to address complaints with utmost urgency. To me, one yardstick for BMAP’s success in this area is a decline in the number of complaints against banks that we receive at the Bangko Sentral. I look forward to stronger cooperation between us in this regard. I also count on BMAP to continue supporting Bangko Sentral’s various initiatives on economic and financial education covering our 12 million schoolchildren, our youth, our Overseas Filipinos and their dependents, and the public in general. This includes “Tulong Barya Para sa Eskwela” and the integration of lessons in saving and money management in our public elementary school curriculum. One of our objectives is to make saving a regular habit and expand our deposit base to include children, the youth and unbanked adults. While our savings rate (or gross savings as a percent of GNP) has been on a steady uptrend – from 22.7 in 2000 to 27.9 as of 2007, we are behind other countries in the region. I ask the BMAP members therefore to apply your marketing and communications skills to move this program forward. Ladies and gentlemen. In good times and in bad, taking care of your clients and consciously growing your customer base are challenges BMAP members face. This being the case, I believe there should be no cause for alarm if you have properly anticipated and planned for crisis, long before the onset of the global financial turmoil. Remember Noah? It wasn't raining when he built his ark. He hoped for the best, but prepared for the worst. As professionals in your field, I am confident BMAP members are prepared to tackle new concerns emerging from the global crisis, individually and collectively. Once again, congratulations to BMAP for organizing this forum. Mabuhay ang BMAP! Mabuhay ang Pilipinas! Maraming salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Convention of the Chamber of Thrift Banks, Makati City, 13 March 2009.
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Amando M Tetangco, Jr: Thrift banks – moving forward through responsive, responsible banking Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Annual Convention of the Chamber of Thrift Banks, Makati City, 13 March 2009. * * * Ambassador Alfredo Yao, Immediate Past President, Mr. Pascual Garcia III, Incoming President of the Chamber of Thrift Banks, Distinguished officers and members of the Chamber, colleagues from the BSP, members of the media, special guest, ladies and gentlemen, Good morning. It is always a pleasure to keynote the Chamber’s annual convention. This year, you have certainly chosen a very appropriate and constructive theme – “Thrift Banks: Moving Forward Through Responsive, Responsible Banking”. I see being responsive and responsible as two sides of the same coin – one side balances and completes the other. To illustrate, if you were only reactive to changes around you but not mindful of the impact of your actions on those around you, that could lead to discord. If, on the other hand, you are fully aware only of your own obligation, without being sensitive to changes in your surroundings, that could lead to stagnation. You have to be both – responsive and responsible – to be able to push forward. A convention’s theme is only as good as the actions that will spring forth from it. So I ask the question, what can the public expect from a responsible and responsive thrift banking industry? The thrift banking industry should be able to make the convention theme come to fruition, despite the distractions of the current crisis. Ladies and gentlemen, you have a gem of an opportunity to build upon a stable foundation. Through the difficult reforms that together we had put in place over the last few years, our banking system has remained sound, considering the scope and enormity of the current global financial crisis. In particular, • The banking industry’s balance sheet grew in 2008, despite stressed global conditions, while both NPL and NPA ratios remained relatively stable. This is critical when one recalls what it was like in the early months of the Asian Financial crisis when comparable ratios were rising in large discrete increments. • While profitability has and could be under further pressure, the capital of the banking system as a whole is considerably well above international norms and our own prudential standards. • In addition, our real GDP growth of 4.6% in 2008 was not only notable vis-à-vis other economies, it was further supported by the continuing deceleration in inflation, which in February stood at 7.3%. • On the external front, our Gross International Reserves is growing (all-time high of $39.3 billion in February), the BOP was in surplus in 2008 and will also be in surplus in 2009, and remittances from overseas Filipinos continue to flow, even though the Peso has lost some ground since last year. In sum, the banking system continues to be fundamentally sound and stable, and operates in a macroeonomic environment that has stood resilient. Given these, the material question that needs to be asked is: what do all of these banking and economic indicators mean for your public? Perhaps, it would be useful to go back to the law which created thrift banks. The Thrift Bank Act of 1995 says that thrift banks are supposed to “promote agriculture and industry and at the same time place within easy reach of the people the medium to long-term credit facilities at reasonable cost”. In other words, it is about developing a targeted economic activity and providing term financing. Building on this mandate, the thrift banking industry has developed itself, so as to offer far more services and products to its banking public. Today, under clear guidelines and appropriate approvals, thrift banks can perform trust operations, act as a Foreign Currency Deposit Unit (FCDU), open domestic and foreign letters of credit, engage in quasi-banking activities and undertake, where allowed, derivative activities. These new functions are proof of the continuing progress of the industry, led by your hardworking officers and directors of the Chamber. Recently, the Monetary Board approved the lifting of the requirement to execute a Surety Agreement by any single stockholder, natural or juridical, owning more than 50 percent of the voting stock of a bank with an approved rediscounting line with the BSP. This was with the expressed intent of facilitating the faster processing of rediscounting loans. Thee total rediscounting budget has also been trebled to P60 billion and the loan value increased from 80 to 90 percent. Herein lies the real challenge of your convention theme. To provide responsible and responsive banking services, different types of banks must be able to cater to the varied needs of differentiated constituents. It’s not simply a matter of having access to as many product types, but how one maximizes that privilege to serve his public best. In the context of our financial infrastructure, we have commercial banks, thrift banks, rural banks, and cooperative banks. We have do-it-all institutions like universal banks. In terms of products, we have created curious concoctions like a “quasi-bank” which in the vernacular translates to “parang bangko” and “deposit substitutes” which some have described as “deposito na rin”. Clearly, thrift banks share many of the facilities and services that your commercial bank brethren can employ. In fact all of the recently-BSP approved functions and products that you could enter into are similarly possible for your counterparts in the commercial and universal banking industry. Thrift banks are also like rural banks, in that thrift banks remain positioned for the financing requirements of the general public across the archipelago. Now, however, with commercial banks positioned at the corporate high end and the rural banks addressing the needs of the countryside, that leaves the “viable middle” as your natural market. Ladies and gentlemen, you are well-positioned to take the cudgels for the MSME sector, including the microfinance sector. I urge you to appreciate that you are much closer to SMEs which represent the backbone of the Philippine economy. Instead of seeing a disadvantage in allowed and disallowed activities, I encourage you to see the advantage of your target market. This is not to be taken as a response to the on-going crisis. It goes beyond the challenges of the current environment. It is to clearly define your target market, and towards that be responsive and responsible. Where does this leave you from a strategic and tactical stand point? One easy option is to continue what you are already doing. As of September 2008, about 59 percent of the industry’s loan portfolio was in real estate, business activity and loans to individuals. Another option, is for you to increase your loan portfolio for manufacturing and construction, two vital industry segments that could help ensure that our domestic economy continues to grow above long-term trend. What is really critical for thrift banks at this juncture is to determine how to incorporate the new facilities and offer new services to your public. With newer tools and more opportunities, I expect that beyond improving your loan industry mix, the thrift banking industry would expand its balance sheet and continue the improvement in your NPL ratios. As of September 2008, I see P482 billion in total assets, P334 billion in peso deposits and an NPL ratio (inclusive of IBL) of 6.6 pct. These provide useful benchmarks against which we envision significant improvements this time next year. Ladies and gentlemen, I will not pretend that the road that lies ahead is free and clear for all of us. We live in a global market that is experiencing a global shock and to a large extent then, achieving improvements in our balance sheets is something we have to work for. Perhaps, the biggest threat for us moving forward is if we persist to traverse the road of financial risk without having a clear idea of our target market. If we try to become everything to everyone, we become lost in a sea of look-alikes. However, if we specialize too much, we narrow our target markets that it may become untenable for us to continue. Let me then ask you the same question: what do all of these challenges mean to your banking public? In answering this question, the key lies not with the public, your customers, your clients. Instead, it remains with you and your ability to balance yourselves within myriad needs. The way forward is for your institutions to develop core competencies in various facets to allow you to co-exist with other financial institutions in a competitive world. There too is no denying that each one of us needs to define and live within our target market. For thrift banks, let me once again encourage you to focus on MSMEs even though in many respects the label of “SME” is itself a simplification of complex requirements from evolving clients. Going back to the convention theme, I felt it was necessary to ask the difficult question: What do all these mean for your public, your customers, your clients? If our financial market is to make headway with the banking public, this is the question that always and continuously should be asked. Remember, the evolution of the structure of our financial market must constantly be guided by the best interest of the public that this market serves. I realize that we can all move forward more expeditiously only within the confines of a strong and stable financial and macroeconomic environment. This is why the BSP endeavors through its policies to create an operating framework where financial markets could efficiently function. It will, however, be important to remember that the relative strength and stability that our markets enjoy today have come about through the lessons from our own past. The BSP together with the banking industry will remain steadfast in our reform effort. If we are to serve our public, we must continue to be responsive to their needs and to ensure that we act responsibly, mindful of the trust bequeathed by our public on us. The term “fiduciary responsibility” is not just a mantra that is conveniently brought out as the need arises but it is instead a social contract with our most basic constituent. This is the way forward and this is the high bar that must be set if we are to see responsive and responsible banking bear fruit. I have seen our market rise with resiliency when it was down. I have every bit of confidence to know that it will find the answer to the difficult questions when our present position is that of relative strength. It is after all, all about who we are who we serve, and, now is the time to show what we are made of. Thank you very much and good morning.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Insurance Congress of Developing Countries (ICDC) 2009, Makati City, 25 March 2009.
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Amando M Tetangco, Jr: Financial stability through collaboration and understanding Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Insurance Congress of Developing Countries (ICDC) 2009, Makati City, 25 March 2009. * * * Atty. Eduardo Malinis, Insurance Commissioner and Chairman of the Organizing Committee of the Insurance Congress of Developing Countries 2009, other distinguished speakers, distinguished delegates to this Insurance Congress, ladies and gentlemen, good morning. To our visiting delegates, Welcome to Manila! Welcome to the Philippines! I hope you’ve had or you will have the chance to partake of the many options to help further “stimulate” our domestic economy. I am sure all of us in this room have heard about the different financial stability and fiscal stimulus packages, being pursued by economies across the globe, to help stem the impact of the current global financial and economic crisis. I am certain the organizers of ICDC Manila 2009 have also put together their “own” version of a post-meeting stimulus package to complement the many interesting conference breakout sessions. For my part, I’d like to encourage all of you to participate as actively in that endeavor as you would in the different sessions in the next three days. Let me begin my remarks this morning by thanking Commissioner Ed Malinis and the Congress organizers for inviting me to speak before you today. At first blush, the keynote message for a gathering of insurers to be delivered by the governor of a central bank that supervises only the banking sector, may be a bit peculiar. But if one seriously looks at the situation, it is indeed quite reflective of the theme of the Congress, which is Financial Stability through Collaboration and Understanding. Ladies and gentlemen, at no other time than now has the need for promoting financial stability been more imperative. As we are all keenly aware, the current financial turmoil has gone beyond the borders of the epicenter of the financial crisis – the US and the major economies – and has reached the shores of emerging markets. More importantly, the global financial turmoil has transcended the bounds of the financial realm and has crossed over to the real sector of most economies, including several represented here today. You will be pleased to know that my remarks this morning will be brief. I only have two messages that I wish to bring across, in light of our desire for financial stability. First is that, information efficiency must be created and maintained among financial regulators. As we have witnessed in this current crisis, the lines delineating the financial institutions that make up the financial system have become at times blurred, making improved collaboration among financial regulators exigent. Second, there must be a conscious effort among regulators to devote more resources to the regulation of the conduct of business. There is often the temptation during a large-scale (global) crisis, such the one we are in at the moment, to speak only about systemically important institutions. Ladies and gentlemen, I believe we must be careful not to forget the public that ultimately we serve. We must remember that the financial sophistication of the investing public may not necessarily coincide with the pace of financial innovation. This creates a gap that could result in the public not fully appreciating the products and new structures that they are investing in, thereby unduly exposing them to risk. I. The need for information efficiency In discussing my first point, which is the need for information efficiency, I’d like to highlight two recent developments in the global financial markets. First, the convergence among different types of financial institutions. And second, the convergence in the framework for financial regulation and supervision. A. Convergence among different types of financial institutions The financial crisis in the US, as we now understand it, is partly explained by the relatively loose regulation of entities heavily involved in financial innovation, including the oversight of the sale of these products to the wider public. Financial markets have developed in recent years so that the same financial products are sold across different financial sub-sectors – from banks to insurance companies, to securities firms, with several cross-combinations thereof. In addition, the emergence (through common ownership) of financial conglomerates that encompass the different types of financial institutions has eroded the long-standing barriers that kept these business lines apart. With these changes, it has become important that financial regulators clearly understand the mechanisms for passing on of risks among these different sub-sectors. Let me illustrate. The distress certain insurance companies currently face can be directly traced to their exposure to risks that originated in the banking system, including structured products and derivatives whose underlying assets were sub-prime mortgages. This further highlights the fact that the risks to financial soundness of insurance firms may now also arise from the asset side of their balance sheets, a clear departure from the traditional insurance firm risk management practice that focused exclusively on the underwriting risks associated with insurance liabilities. Indeed, the barriers that used to separate the analysis of risks in different lines of business have slowly been breaking down. To give you another example, unlike in their old (standard) business models, banks are now paying more attention to the adequacy of pricing risk exposures so as to at least cover expected losses. In many business models, this is called the probability function for loss given default. Curiously, this is central to and is a long-standing practice among insurance firms. As we are now able to appreciate, this product and financial structure convergence has been driven by financial liberalization and advances in information and financial technology. Developments in risk management and in valuation methodologies also helped to heighten convergence. These factors nurtured convergence, particularly during the extended lowinterest rate environment – referred to as The Great Moderation – when market participants sought to enhance yield and “offload” or spread risk. B. Convergence in the framework of prudential regulation and supervision A second major development in the financial market, which makes information efficiency among regulators urgent, is the convergence in the framework of prudential regulation and supervision. Just as in banking, for instance, a set of core principles now lays out the broad prudential framework in insurance too. The International Association of Insurance Supervisors (IAIS) has released just two weeks ago an Issues Paper on Group-Wide Solvency Assessment and Supervision. This sets out the future IAIS work on the development of a comprehensive suite of supervisory papers on group-wide solvency assessment and supervision. One could look at this as the international insurance industry’s version of the capital adequacy framework under Basel II for banks. It is not only, however, the framework for prudential regulation and supervision that has converged. At the national level (counting over 30 countries now), there has also been a physical convergence of the different financial supervisory bodies – more specifically the establishment of “integrated supervisors” (i.e., supervisors that are responsible for at least two (2) types of financial institutions). Internationally though, the convergence has not really been physical but only intellectual, with the creation of the Joint Forum. The Joint Forum is composed of international financial supervisory organizations, namely, the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO), and the IAIS. The Forum has been performing a valuable role in identifying differences in prudential arrangements across sectors and in considering the ever larger set of issues of common interest across the different supervisory communities. C. The Philippine case In the Philippines, we do not have an integrated supervisor for the financial system although, as I will explain later, there are existing collaborative arrangements among the different financial supervisory agencies in order to achieve our goal of a stable financial system. Supervision of the Philippine financial system follows a “silo” approach, i.e., each supervisory agency is responsible for supervision of a certain segment of the system – (1) the Bangko Sentral ng Pilipinas (BSP) for banks and quasi-banks, their financial allied subsidiaries and affiliates; non stock savings and loan associations, and pawnshops; (2) the Securities and Exchange Commission (SEC) for investment houses, financing companies, securities dealers/brokers, investment companies, and pre-need companies; and (3) the Insurance Commission (IC) for insurance and reinsurance companies, insurance brokers, and mutual benefit associations. While the BSP supervises the largest financial groups holding the bulk of the financial system’s resources, in some instances, the existing mandates of the three supervisory agencies result in overlaps in supervisory jurisdictions. These overlaps are, however, remedied by our continuous collaborative efforts. Most notable of these collaborative efforts is the establishment in 2004 of the Financial Sector Forum (FSF), which is similar to the Joint Forum but only on a national scale. The FSF is comprised of the three supervisory agencies – the BSP, the SEC and the IC – together with the Philippine Deposit Insurance Corporation (PDIC). The members of the FSF are the heads of the four member agencies, with the BSP Governor as the Chair. FSF is essentially a cooperative effort without any legal mandate lest it be construed as being an integrated supervisory body. A quick survey among the participants in this Congress will show that there is no clearly identifiable single optimal model for supervision. There are motivations commonly cited for establishing consolidated supervision, although no standard has been established for its design. These motivations include 1) regulatory consistency and coordination to harmonize rules and standards, 2) the difficulty that hybrid financial instruments and presence of financial conglomerates pose to separate regulators, and 3) the value of economies of scale given limited financial and human resources. What is evident in all discussions, however, is the need to share information efficiently, regardless of the form of supervision structure present in the economy. Ladies and gentlemen, what is incumbent among financial supervisors in order to facilitate and strengthen financial stability at this time, is to create and maintain an information sharing structure that will allow all to react swiftly and preemptively to changes in the operating environment. This will certainly help prevent the occurrence of a crisis of the magnitude and breadth we’re seeing today. II. Conduct of business supervision Let me now move on to my second message which, I believe is an issue that is of particular interest to developing countries. One characteristic of developing countries is the relatively weaker financial sophistication of their consumers, which makes the customers quite vulnerable to financial scams, including relatively simple ones. I believe therefore that financial supervision in developing countries should not only focus on setting prudential standards, but also on strengthening conduct of business oversight of financial institutions (i.e., supervision of the business practices, including dealings with customers). The increased globalization of the financial industry presents a further complication as globalization improves the availability of and access to complex financial products across developing countries, without necessarily discriminating among levels of sophistication of the target markets. Ensuring that financial institutions conduct their business in a proper and transparent manner should therefore be a primary concern for financial supervisors in developing countries. Failure to ensure proper business conduct by financial institutions would have adverse implications on market confidence, which, in turn, could threaten the viability of the financial markets as source of funds that could support the productive capacity of the economy. This point could not be more apparent in the developments in the global financial markets we are witnessing right now. The fallout from the global financial crisis left many investors in financial products with substantial losses, and exposed some investment schemes as economically unsound if not totally fraudulent. The immediate impact was the weakening of confidence in financial markets, which played a key role in stoking the crisis. Restoring market confidence through conduct of business supervision is therefore essential in order to restore the smooth functioning of financial markets. In the Philippines, financial supervisors, independently and in collaboration with the Financial Sector Forum, have already undertaken initiatives and issued rules to improve the conduct of business by financial institutions, especially those relating to complex products and services. The BSP, for instance, came out with circulars requiring banks and trust entities to take a more pro-active responsibility in marketing their derivative and trust products by conducting client suitability tests. Under these rules, the bank/trustee shall perform a client profiling process under the general principles on client suitability assessment to guide the client in choosing investment outlets that are best suited to his objectives, risk tolerance, preferences and experience. In addition, the BSP has tightened disclosure requirements covering the interest structure on credit cards, fees paid on loans and deposits, and the management and custody fees for trust funds. The FSF, for its part, has also intensified the release of advisories against fraudulent and unsound corporate financial practices. Concluding remarks Ladies and gentlemen, allow me to conclude my remarks this morning by recapping my two points. The increasing convergence of the different types of financial institutions and financial products calls for closer collaboration among the different financial supervisory agencies or units in order to ensure financial stability. For the developing countries, however, another important issue is the refocusing of financial supervision to include not only the oversight role of supervisors in the safety and soundness of financial institutions, but also the oversight role of supervisors in the conduct of business of these institutions. I trust that these would be food for thought among you, as you consider the many different issues that surround financial stability during these very difficult and challenging times. I wish you all a productive and meaningful Congress. Thank you very much for your attention, and good day.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Australian-New Zealand Chamber of Commerce Philippines Annual General Membership Meeting, Makati-City, 14 April 2009.
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Amando M Tetangco, Jr: Philippines – navigating through the global financial turmoil Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Australian-New Zealand Chamber of Commerce Philippines Annual General Membership Meeting, Makati-City, 14 April 2009. * * * Introduction President Richard Barclay, distinguished members of the Australian-New Zealand Chamber of Commerce, ladies and gentlemen good evening. First, let me thank ANZCHAM for inviting me to your monthly members’ meeting. If I remember correctly, the last time I graced a similar event of ANZCHAM was in July 2005 – as I was just beginning my term as central bank governor. Much has transpired during the nearly four years since then. As this particular slide shows, our economies have experienced ups and downs – riding on record growth rates, and now recessionary trends, historic low inflation, and then some episodes of highly unstable prices, stock market gyrations, as well as periods of volatility in our exchange rates. Our journey in the last four years has taken us through good roads, so to speak. But we also went through road blocks and speed bumps along the way. Now, the global financial and economic turmoil presents our economies with, perhaps, our biggest challenge yet. The current crisis has been described as a “crisis unlike any we have seen in our lifetime”. We have seen much of the crisis’ adverse effect on our economies, but we know that much is still to unfold. For my remarks tonight, I thought I would follow the outline flashed on the screen right now. I will begin by quickly running through three themes that I have seen surrounding the current crisis: First, that “the law of unintended consequences” has been at work in this crisis. Second, that a global crisis needs global responses. Finally, that no economy is immune from the effects of this crisis, but those which have built up buffers are more likely to fare better than others. I shall then conclude my remarks with a description of the policy actions and initiatives that the BSP has so far implemented to allow us a less bumpy ride to the not-so-distant period of economic recovery. Unintended consequences evident in the crisis I am sure many of you have heard of the term “law of unintended consequences”. Some have defined this as “the proposition that every undertaking, however well-intentioned, is generally accompanied by unforeseen repercussions that can overshadow the principal intention.” Let me illustrate, continuing with my road analogy. In road development, one option to deal with a traffic-congested road is to build a bypass or an alternate road. Unfortunately, building a bypass may decongest the existing road, but as often happens, with new developments in the area of the bypass, we would now have, instead of just one congested road, two traffic congestions. Many analysts have said that “the law of unintended consequences” was working spectacularly in the run up to this current crisis. One evidence of this is the benign macroeconomic environment created by the low interest rate regime prevalent during the first half of this decade. This should be a good thing. However, this environment led to the search for higher yields, that fueled unprecedented asset price increases and at rates faster than the growth in household incomes. This further led to a loss of rationality (individuals believing house prices would never fall) and extension of credit by financial institutions to sectors of the economy that normally would not qualify to borrow (in other words, the so-called “subprime” borrowers). Sounds familiar? This was what transpired in the United States – low federal funds rate fueling a boom in mortgages with borrowers having doubtful credit histories, housing prices bubbled and burst, with the negative feedbacks affecting both the U.S. domestic economy and financial markets. Another example is in line with risk spreading through financial innovations. The ability to spread risk should also be a desirable goal. However, the fast-paced evolution of financial products and services, along with the seemingly “loose” financial regulation – later on gave way to the unfortunate reality that risks were eventually “concealed”. Through securitization and deleveraging, those hidden risks were effectively multiplied in the process. Thus, while financial innovations have good intentions, they also have some side effects… if not prudently monitored or given appropriate form of regulation. These developments, together with a host of other factors, fueled the current crisis, which from all angles, can be considered our first truly global crisis. From what was first believed to be a US-centric subprime mortgage problem, the crisis has since transformed into financial turmoil and further into an economic growth crisis. From the US and Europe, it has spread to the rest of the world. Economies in the periphery suffered market failures characterized by sudden stops as sentiment turned, despite sound policies. Even countries that did not have strong financial links with the core nations are now being affected through real flows and financial losses on trade activities. Global crisis requires a global responses This brings me to my second theme – “A global crisis requires a global response.” When it had become evident that the economic events were not going to remain localized at the epicenter, advanced and emerging economies implemented policies and strategic actions, in concert and at the national level. Some economies that have more monetary space have eased policy interest rates, reserve requirements and credit facilities. Some that have more fiscal space boosted spending via stimulus packages and prioritization of important infrastructures. Many have pursued both expansionary monetary and fiscal policies. Some countries like Australia and New Zealand have implemented unlimited but temporary deposit guarantees and opened up US dollar swap lines with the Fed. Finding the right policy mix poses a continuous challenge, as economic managers and policymakers would have to deal with varying conditions, magnitude and depth of the crisis’ effects. Thus, the worldwide crusade to mitigate the impact of the current global financial and economic crisis continues its experimentation but with utmost caution for a wrong policy could eventually take its toll on the economy over the long-term horizon. No economy is immune, but buffers and cushions help lessen the impact The crisis has shown that no one is immune. This leads me to my third theme. No economy is immune but some economies fare better because of buffers built from past reforms and behavior. While our countries have been affected, it is noteworthy that the cushions we have painstakingly put in place before the current crisis unfolded have helped us weather the blows. Allow me to name a few of these buffers. In the case of Australia and New Zealand, these economies have grown strongly for the past 10 years and inflation has been largely within the 1 to 3% target band; this has resulted in low unemployment, and a strong fiscal position. They also have good institutions. They scored highly on measures of ease of doing business, as well as measures of corruption/transparency. They also have flexible labour markets. They both have an established track record for transparency in regulatory institutions, sound management of the public accounts, and a forward-looking monetary policy are well-regarded internationally. Finally, their banking system remained sound and well-capitalised. The large Australian banking groups, of which the major New Zealand banks are a part of, are now among the largest and highest-credit-quality banks in the world. Australian parents of the big 4 NZ banks are some of the best-rated in the world (4 of the remaining 13 AAs and in the top 20 biggest). The openness of your economies has indeed left you quite vulnerable during this crisis, but your strong institutions have certainly helped to mitigate the crisis’ adverse impact. How about in the Philippines? What are the buffers we have built? With the easing of oil and other non-oil commodity prices in the world market and the moderation in inflation expectations, inflation is now expected to further decelerate – and be within the target ranges – in 2009 and 2010. Actual headline inflation has decreased to 6.4 percent in March from 7.3 percent in February 2009. (Core Inflation in March also declined to 5.6 percent from 6.4 percent in February 2009) These developments opened the opportunity for BSP, during its last three policy meetings, to cut its policy rates by a total of 125 basis points. The reduction in rates makes more funds available for lending to corporations, including small and medium business enterprises, as well as for consumer loans. We will continue to monitor developments to ensure that our policy settings remain appropriate. In October 2008, at the height of the uncertainty surrounding this crisis, the BSP implemented several measures to boost liquidity. We were witnessing at the time the freezing of credit markets in the major economies. So, even as we were aware there was ample liquidity in the system then, the BSP took preemptive steps to avert a similar situation developing here. These measures, which I will discuss shortly, have helped to raise domestic liquidity and allowed banks to continue to extend loans. The continued liquidity and credit growth is shown in this slide. Demand for money remained strong in February as domestic liquidity or M3 grew by 14.6 percent year-on-year, higher than the 6.8 percent expansion during the same month a year ago but lower than the 16.1 percent growth in January 2009. The continued strength of domestic liquidity indicates that there are funds available in the system which could be tapped for investment and other productive activities. Outstanding loans of commercial banks including reverse repurchase agreements (RRPs) increased in February 2009 by 22.5 percent year-on-year, an acceleration from the previous month’s growth of 18.8 percent. Net of RRP placements with the BSP, lending also increased by 22.6 percent year-on-year in February, slightly slower compared to the 24.5 percent expansion in the previous month. We have allowed liquidity to grow faster than we would normally tolerate since we see that these funds are being used in productive sectors. Nonetheless, we are mindful that while liquidity fuels economic growth, excess liquidity could fan inflation. In view of this, we always keep in mind that balance is necessary to ensure that we are able to support growth in an environment of stable prices. One of the lessons we learned from the 1997 Asian Financial Crisis was the value of managing external debt and building up FX reserves for self insurance. This chart shows that we have indeed learned this lesson well. Based on preliminary data, as of end-March 2009, our reserves have remained broadly steady and close to record level at US$38.9 billion. This suffices to cover about 6.2 months of imports of goods and payments of services and income, or alternatively, it could cover our short-term external debt based on residual maturity about 2.9 times. (What's interesting to note is this level of reserves is more than fourfold our reserves level in 1997 of $8.8 billion!) We were able to continue building reserves because our external payments position has remained in surplus in 2008 (in fact for nearly 5 years now). The healthy external balance has been supported by remittances of overseas Filipinos as well as higher services receipts particularly from business process outsourcing. In February 2009, our balance of payments position posted a surplus of US$ 469 million, resulting in a year-to-date surplus of US$2.2 billion in 2009. Thus, even as we face a slowdown in external demand and capital flows, the stronger external liquidity position that we currently enjoy will make us less vulnerable to the moods and swings of international financial markets. This slide shows that (1) The banking system’s asset base has been expanding steadily, supported by sustained growth in deposits. Our banks have continued to perform their central role of efficiently channeling funds to productive uses and managing and distributing risks; (2) Banks have been offloading their non-performing assets and problem loans. As a result, the NPL ratio is now at the pre-Asian crisis level of around 4.0 percent. Furthermore, the profitability of the banking system has continued to increase, although with some moderation as of late. Banks have remained capitalized at levels above both the BSPregulatory requirement and the international (BIS) standard. In addition, let me also assure you that the rural banking industry remains strong and healthy despite the recent closures of some rural banks which have been found to have been suffering from severe solvency problems. BSP initiatives and policy thrusts Amidst this global crisis, the Philippines has indeed remained resilient and steadfast. How have we been able to accomplish this? Let me quickly go over the BSP’s initiatives to mitigate the impact of the crisis. And then conclude with our policy thrusts going forward. To ensure liquidity in the financial system, the BSP opened the US dollar repo facility to augment dollar liquidity in the foreign exchange market and ensure the ready availability of credit for imports and other legitimate funding requirements. The BSP also increased the budget for the peso rediscounting facility to P60 billion. Regular reserve requirements on bank deposits and deposit substitutes were reduced by two percentage points. To ensure continued access to financing of small businesses, the BSP launched its Credit Surety Fund (CSF) Program which provides guarantee to small cooperatives with good track record but without credit history. The BSP was also quick in bolstering confidence in the financial system, through timely communication with financial institutions and market participants on the minimal exposure of the banking system to troubled financial assets, such that the impact of the global financial crisis on the Philippines has not been significant. Monetary policy in 2009 will continue to pursue prudent rate movements mindful of price stability as the primary mandate. With the easing in the prices of oil and non-oil commodities in the world market, inflation is expected to further decelerate and be within the target range of 2.5-4.5 percent in 2009. This will give some flexibility to monetary policy to support growth. An accommodative monetary policy stance is expected to help ensure greater availability of credit and reinforce market confidence. However, given possible upside risks to inflation, a more measured adjustment of policy rates is appropriate. Banking sector policies will be geared towards improving the regulatory framework, mindful of the need to protect consumers and investors. Key financial and banking sector reforms will be sustained in pursuit of greater efficiency, better risk management, stronger capital base, improved disclosure and transparency practices, and enhanced corporate governance standards in the banking system. The BSP’s external sector policy will remain focused on ensuring our external vulnerabilities are limited. We expect to continue to post a surplus in our BOP, mainly still due to steady OF remittances and receipts from the BPO sector. This will give us the opportunity to further beef up reserves for self-insurance. We will continue to pursue a market-determined exchange rate to allow us to maintain external price competitiveness. We will also engage in policies that would sustain a manageable external debt profile. The current turmoil underscored the importance of comprehensive and globally coordinated policy responses. Recognizing this, the BSP has been actively consulting with its regional peers to share information and discuss emerging developments and policy alternatives. Conclusion As I mentioned when I began my remarks, an overarching theme of this crisis is the law of unintended consequences. Is it possible to avoid this going forward? Frederic Bastiat, a 19th century French economic journalist, once said, “there is only one difference between a bad economist and a good economist: the bad economist confines himself to the visible effect; the good economist takes into account the effects that can be seen and those effects that must be foreseen”. It may be difficult to perfectly foresee things but this should not discourage us from trying. Thus, I encourage all of us in this venue to remain positive, yet vigilant for any circumstances that could come our way. The BSP, for its part, will remain committed and continue to put forth monetary policy actions and banking reforms that will allow our economy to withstand the road blocks comprising panics, crises and other changes in the horizon. Let us keep our eyes steady on the road ahead and gear up. The BSP looks forward to continued partnership with the Chamber. This will certainly help enable our economies navigate the global financial crisis towards an economic recovery of renewed confidence and regained trust in markets. Thank you very much.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2009 RBAP-MABS National Roundtable Conference, Manila, 12 May 2009.
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Amando M Tetangco, Jr: Microfinance – the bright spot in these challenging times Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2009 RBAP-MABS National Roundtable Conference, Manila, 12 May 2009. * * * Mr. Francis Ganzon, Chairman, Rural Bankers Research and Development Foundation; the officers and members of the Rural Bankers Association of the Philippines (RBAP); our partners from the USAID led by Christian Hougen and John Owens; fellow advocates in the microfinance sector; special guests, ladies and gentlemen, good afternoon. We at the Bangko Sentral ng Pilipinas are happy that the the National Roundtable Conference of RBAP – Microenterprise Access to Banking Services (MABS) has chosen for its theme “Microfinance: The Bright Spot in These Challenging Times”. Indeed, we believe that microfinance is an effective countercyclical tool for softening the negative effects of economic crises, particularly to the most vulnerable segment of the economy. Former United Nations Secretary General Kofi Anan once said that microfinance recognizes that poor people are remarkable reservoirs of energy and knowledge; that while the lack of access to financial services may be a sign of poverty, it is also an untapped opportunity to create markets, bring people in from the margins and give them the tools with which to help themselves. Especially during challenging times, it is microfinance that can provide much-needed support for our entrepreneurial poor. But before I discuss microfinance, I will give a brief overview of our present operating environment and why we live in challenging times. The current global economic crisis is a source of worry. Even countries that do not have strong financial links to the US, Europe or the other markets that have been most affected are now seeing effects through real flows and financial losses on trade activities. As the global economy slows down, jobs are jeopardized and unemployment figures in the directly affected countries tend to rise. In fact, there are Filipino workers here and overseas that have been laid off. We have learned that no economy is immune from the effects of the present global crisis, described as the most serious since the Great Depression. However, economies with sound economic fundamentals are likely to fare better than others. Given the structural and market reforms we had painstakingly put in place since the Asian Financial Crisis, it can be said that the present crisis came at a time when the Philippine economy is in a position of relative strength. Indeed, our sound macroeconomic fundamentals have served us well. In the face of this crisis, the Philippine economy remains resilient, relative to our peers in the region. Let me quickly run thru some numbers to show the “buffers” we have built. Our domestic economy has remained steady. In 2008, GDP grew by 4.6%, still within our long-term trend growth rate, and quite respectable when compared against our neighbors. The outlook for this year remains positive, although at a slower pace of growth. Nevertheless, this is not bad at all considering that the Philippines is one of the few Asian countries seen to grow and ride out this severe global economic recession. Our inflation rate continues to decelerate. Headline inflation in April was reported at 4.8 pct from 6.4% the previous month. Core inflation has similarly slowed down (to 5pct from 5.6 pct). The forecast average inflation for 2009 is at 3.4 pct, well within our set target range of at 2.54.5%. Our Balance of Payments is expected to continue to be in positive territory through the year. We continue to see a current account surplus from sustained remittances and receipts from the BPO sector. Because of our healthy external position, we have been able to build up our gross international reserves to a record-high level of $39.5 billion in April, enough to pay for more than 6 months’ worth of imports of goods and services. The positive external surplus will continue to support the peso. With our policy for a market-determined exchange rate, the peso is expected to remain competitive as this moves in tandem with the other currencies in the region. Our banking system remains sound. Thanks to the innate conservatism of our banks and the phased-in approach by the regulator to financial innovation, Philippine banks’ exposure to toxic assets has been minimal. Also due to reforms implemented in earlier years to clean up bank balance sheets, strengthen bank capitalization through Basel II, improve governance structures, enhance risk management systems, and adhere to international accounting standards, the banking system remains sound and stable. Our asset base continues to expand, asset quality has greatly improved with NPL ratio now at pre-1997 crisis level, and capital adequacy has remained above national and international standards. And we did not see a freezing of credit markets similar to what was happening in the US and Europe then. Given all these indicators, one could say “so far, so good”. Nevertheless, we are aware that risks remain. Thus, in October 2008, at the height of the uncertainty surrounding this crisis, the BSP implemented preemptive measures to boost domestic liquidity. The following are among these measures: • Enhancement of the BSP’s standing peso repo facility by expanding allowable collateral and relaxing valuation on these; • Creation of a US dollar repo facility to augment dollar liquidity in the foreign exchange market and ensure the ready availability of credit for imports and other legitimate funding requirements; • Increase in the budget for our peso rediscounting facility to P60 billion; and • Reduction in the regular reserve requirements on bank deposits and deposit substitutes by two percentage points. In addition, the BSP took the opportunity to reduce policy rates in the light of easing inflation expectations. During the last four policy meetings, the Monetary Board cut BSP’s policy rates by a total of 150 basis points. Combined, the lower cost of money and increased liquidity should support continued economic growth. We will continue to monitor developments to ensure that our policy settings remain appropriate and balanced. Nevertheless, while there has been monetary easing, the BSP remains unrelenting in its pursuit of reforms. We will continue to pursue greater efficiency, better risk management, stronger capitalization, improved disclosure and transparency practices, and enhanced corporate governance standards in the banking system. So far, the reforms we have implemented have allowed our banks to efficiently perform their central role of channeling funds to productive uses, as well as in managing and distributing risks. Having a more efficient and liquid Philippine banking sector has helped mitigate the risk of what is called the negative feedback loop from the global financial crisis. Having said these, there is a critical question that we have to face: Will the global financial crisis affect the world’s microfinance sector? Microfinance scholars have grappled with the first question. Unfortunately, the results from their initial studies remain inconclusive. One study by the United States Agency for International Development (USAID), published in March 2009 and entitled “Will the Bottom of the Pyramid Hit Bottom?” 1 states that (and I quote) the crisis may ultimately lead to a squeeze in MFIs’ profitability. Due to the credit crunch, MFIs, especially those with limited deposit taking facilities, will have reduced access to commercial wholesale funds to finance their loan portfolios. Scarce private credit and higher borrowing costs would likewise stunt their portfolios. MFIs would also be competing for fewer and more expensive funds for their operations and expansion. The relative increase in prices and an overall slowdown in economic activities will also affect the profitability of clients’ businesses, thus constraining their household incomes. As a result, leading MFI clients may fall back on loan obligations or withdraw their savings. On the other hand, a paper entitled “The global financial crisis and its impact on microfinance” 2 written for the Consultative Group to Assist the Poor (CGAP) last February 2009, claims that the effects of the crisis on microfinance are actually well-managed. Authors of the paper claim that while there may be some anecdotal evidence, there have been no major negative changes in the profitability or risk profiles of MFIs. Their study was based on the 2008 4th Quarter figures of Symbiotics 50 Benchmark which tracks large microfinance institutions worldwide. The authors however recognize that microfinance as it is today, given greater links to domestic and international financial markets, may still be affected by the financial crisis. However, they iterate that past investments in building a sound foundation for the sector and the vast untapped market of credit worthy clients will ensure that microfinance remains resilient amidst this current crisis. Given these, the next question is whether the global crisis will impact Philippine microfinance. Will it have adverse effects or darken the prospects and opportunities of Philippine MFIs? Will the Bottom of the Pyramid Hit Bottom? The Effects of the Global Credit Crisis on the Microfinance Sector”. Barbara Magnoni and Jennifer Powers, produced for review by the United States Agency for International Development (USAID). March 2009. The Global Financial Crisis and its Impact on Microfinance”. Elizabeth Littlefield and Christoph Kneiding for the Consultative Group to Assist the Poor (CGAP) Focus Note No. 52. February 2009. We at the Bangko Sentral believe that as our macroeconomy has proven resilient to crisis, we can expect the same resiliency in our microfinance industry. In fact, bright spots abound in Philippine microfinance. For instance, since microfinance in the country has been increasingly led by banks, the risks to the liability side of microfinance institutions remain more manageable. Banks, as deposit taking institutions, are less reliant on external sources of funds and therefore less vulnerable to any reversals in foreign capital flows and shifts in investor preferences as a result of the crisis. While the diversification and commercialization of sources of funding has been seen as a positive industry development, retail deposits remain significant as a stable core funding base. Further, our microfinance institutions, especially banks with microfinance operations, have demonstrated the necessary commitment to institutional strengthening. More and more, we are seeing banks upgrading their risk management systems to be able to adequately and appropriately identify possible risks, such as credit and liquidity risk; and how they will be managed. Commitment to maintaining the quality of your microfinance loan portfolios has also been evident. I am happy to note that a culture of zero tolerance for delinquency and vigilance in monitoring of portfolio at risk is clearly evident among MABs banks. These are practices you must sustain, in good times and in bad. On the part of the Bangko Sentral, we will continue with our policy approach of enabling banks, particularly rural banks, to increase the scale and scope of their microfinance operations. • Our regulations for microfinance have created the enabling environment for its practice to fully flourish within the banking sector. • We have also liberalized the branching regime, and we will continue to review this as conditions warrant. Our branching regulations also provide particular incentives for microfinance-oriented banks such as the ability to branch out even in the restricted areas of Metro Manila as well as the ability to collect savings from microfinance clients through other banking offices. • The BSP has also been receptive to various product and technological innovations in banking services. • We have also allowed the outsourcing of some banking functions to help improve your operating efficiency. • Rural banks now have more opportunities to provide a wider range of services and products to their clients such as electronic money, FCDUs, and investments in ATM networks. Moving forward, I propose that we make these bright spots brighter. In this, we have our own roles to play. On the part of the BSP, we shall remain unrelenting in our commitment to strengthen the banking institutions through improvements in capital positions and enhanced capacities to manage risks. Our commitment to broaden financial inclusion is undiminished; in fact, it has been heightened by the financial crisis. Given its importance, we will be more proactive in exploring ways to increase access to financial services, particularly for those who remain unbanked and unserved by the financial system. I believe that all of you, as our partners, share these goals. I therefore take this opportunity to thank the 91 rural banks participating in MABS, including their nearly 500 banking offices, for being at the forefront of delivering microfinance services to millions of Filipino microentrepreneurs. Ladies and gentlemen, let us give our MABS-participating rural banks a well-deserved round of applause! Indeed, you are the crucial channels for countryside development and the catalysts for promoting a truly inclusive financial system. You can therefore count on Bangko Sentral’s continuing support in this important task. While banks have accomplished much, you cannot be complacent nor rest on your laurels: Clearly, more needs to be done! You must continuously monitor the quality of your loan portfolios and vigilantly maintain low portfolio at risk (PAR). Of course, this must be balanced with your commitment to continuously serve your microfinance clients. I am certain you have realized that microfinance clients who repay their loans faithfully are motivated in part by their desire to promptly access follow-on loans. This ensured access to finance is very important for our microentrepreneurs. Another important commitment is for banks to maintain strong capital positions. Capital adequacy is central to ensuring that banks have sufficient buffer whenever risks turn into losses. Remember that our banking sector’s strong capital position is one of the main reasons why it has remained resilient amidst the continuing global financial crisis. I do look forward to banks becoming more proactive, rather than reactive, in terms of strengthening their capital positions. Finally, I wish that microfinance institutions will look at this crisis as an opportune time to push for reforms to further strengthen the microfinance industry to find ways to improve efficiencies, to strengthen governance structures to enhance the quality of its management to diversify funding, to become more transparent and to strengthen consumer protection. Microfinance institutions may also continue to expand and tap new markets, of course with appropriate caution and preparation. For instance, some microfinance institutions see market growth potential from returning overseas Filipinos who begin to engage in various entrepreneurial activities. From current indications, the global economic crisis has not negatively impacted Philippine microfinance. However, it is imperative that we all remain vigilant in these challenging times. We have seen how microfinance has improved the lives of millions of our entrepreneurial poor. The yearly Microentrepreneur of the Year Awards program, where MABS banks always have a winner, is a regular reminder to us that access to financial services coupled with hard work, ingenuity and perseverance are powerful empowering tools for breaking out of poverty and building a better life not only for the microentrepreneurs themselves, but for their families and communities as well. You and I know of many Filipino success stories rooted in microfinance. The success of our microentrepreneurs continues to inspire and bring hope that it can be replicated throughout our country and liberate more Filipinos from poverty. This is the reason why we are all here today. This is the reason why we commit to work together to broaden and deepen the reach of microfinance. I hope therefore that this RBAP-MABS roundtable conference will be fruitful and successful in transforming our microfinance sector to be stronger, better, and even more responsive to the needs of our microentrepreneurs. Again, my congratulations to all those involved in our microfinance sector a truly bright spot in these challenging times. Mabuhay ang microfinance! Mabuhay ang Pilipinas! Salamat sa inyong lahat! Thank you and good day!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Rural Bankers Association of the Philippines (RBAP) 2009 National Annual Convention, Manila, 15 May 2009.
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Amando M Tetangco, Jr: Banking on governance for growth and stability Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Rural Bankers Association of the Philippines (RBAP) 2009 National Annual Convention, Manila, 15 May 2009. * * * Ladies and gentlemen of the Rural Bankers Association of the Philippines led by Mr. Tomas Gomez IV, outgoing President, and Mr. Omar Andaya, incoming President of RBAP, supporters and advocates of our rural banking sector, colleagues from the Bangko Sentral, special guests, members of media, ladies and gentlemen, good morning. We at the Bangko Sentral ng Pilipinas join you in celebrating 56 years of rural banking in the Philippines. This is 56 years of partnership with local communities in invigorating countryside development – a fruitful partnership that has seen our rural communities grow and develop alongside rural banks. Indeed, key indicators for the rural banking sector show steady growth even in the midst of the global financial crisis and the closure of a number of rural banks engaged in unsafe and unsound banking practices. Among others, the operating network of rural banks continues to increase. As of end December 2008, the network of rural and cooperative rural banks, consisting of head offices and branches, was at 2,148, higher than 2,133 in 2007. While there was a net decline in the number of head offices from 727 to 703 as a result of closures and mergers, this was more than offset by the increase in the number of branches. The net effect is a larger network capable of delivering banking services directly to a wider market. In addition, rural banks are exhibiting greater innovation and dynamism by seizing opportunities presented by technology. The industry enhanced its banking services delivery with the installation of more Automated Teller Machines (ATMs): from only 83 in 2007 to 113 as of end December 2008. A number of rural banks have also ventured into electronic banking to beef up delivery of financial services: the number of rural banks offering e-banking services such as cash cards and mobile banking have increased to 47 in 2008, from only 5 banks in 2005. It is important to note that the increasingly broader and deeper reach of rural banks, comes at a time when bank deposits in all but one of the regions were on the rise. Consolidated deposits of 6 million savers with rural banks as of end December 2008 reached more than P 107 Billion, allowing the rural banking sector to provide more loans for agriculture as well as micro, small and medium enterprises. Our figures indicate that nearly half of the rural banks’ total loan portfolio of P106.6 billion in December 2008 went to agri-gra loans. I am also pleased to note that loans granted by rural banks in 2008 went up in 13 of our 17 regions. The business of rural banking has likewise been profitable with net income after tax at more than P 3 Billion in 2008, slightly higher than the 2007 level. A clear indicator of the rural banking sector’s strength is its strong capital position: its capital adequacy ratio at 13.8% as of September 2008 remains well above the BSP’s mandatory standard of 10%. Of course, your CAR remains a bit lower than that for our thrift banks and universal/commercial banks. Still, 13.8% CAR of rural banks compares well with the overall CAR of the banking sector in Malaysia with at 12.6% and Korea with 11.2%. And so, ladies and gentlemen, let us celebrate the continued growth and development of the Philippine rural banking sector with a long round of applause! Nevertheless, these positive indicators must not lull us into a false sense of complacency. The rural banking industry achieved these by maintaining business discipline. And clearly, rural banks stand to perform even better if all members of RBAP will work on having even stronger capital positions, become more vigilant in managing liquidity and credit risks, and faithfully adhere to the good governance tenets of fairness, accountability and transparency. I am happy to know therefore that we are on the same page, so to speak, as your convention theme this year is “Banking on Governance.” As declared by the Organization for Economic Cooperation and Development (OECD), good corporate governance is key not only to the integrity of corporations, financial institutions and markets it is also central to the health and stability of our economies. Further, an OECD study released this year entitled “Corporate Governance Lessons from the Financial Crisis” concluded that to an important extent, the current financial crisis can be attributed to failures and weaknesses in corporate governance arrangements. The choice of governance as the central theme for your convention is therefore timely as it is compelling. I take this as a message of the deep commitment of rural banks to good governance principles, strong capital buildup, and better liquidity and risk management. Surely, if you walk your talk, rural banks will continue on a growth track. Indeed, we can learn a lot from the current global financial turmoil and economic downturn. While it has become evident that no economy is immune from its effects, we are also seeing that economies that had the political will to pursue much-needed reforms and built up buffers are more likely to fare better than others. Among others, the Philippines is in a relatively better position today in terms of growth prospects compared to many other economies, including advanced economies. Our resiliency springs from the continuous implementation of reforms calibrated to strengthen our banks, our financial system and our economy. Thus, while other countries have sunk in recession, our domestic economy still expanded at a respectable 4.6% growth rate in 2008. The outlook for this year remains positive, although at a markedly slower pace. In fact, some analysts believe the Philippines will be one of only three or four countries in Asia that will grow this year. A key factor that could sustain the country’s growth is the strength of domestic demand. Personal consumption, which accounts for more than two-thirds of the Philippine economy, has been historically firm, with private spending resilient across business cycles. As you know, the Bangko Sentral’s monetary policy, as measured by recent benchmark policy rates, is supportive of sustained growth. Easing inflation also provides a welcome boost to households’ purchasing power. Inflation as of April this year was at 4.8%, down from 6.4% in March. Our forecast for average inflation this year is projected at 3.4%, which is well within our inflation target range of 2.5-4.5%. In addition, our remittance figures are holding up. Remittances coursed through banks reached a record high US$1.47 billion in March 2009, representing a 3.1% year-on-year growth. This brought the cumulative remittances in the first quarter to US$4.1 billion, or an annual growth of 2.7 percent. Remittances are expected to be resilient as workers with permanent resident status continue to rise; this suggests a welcome shift from yearly contract renewals to more long-term employment. Based on actual data for January-February, the deployment of both skilled and professional workers has remained on the uptrend, generating with it higher consolidated earnings for overseas Filipinos. And while there have been reported layoffs, the numbers are quite small compared to the total number of overseas Filipinos. We also expect further growth for the business process outsourcing sector in 2009 as recession in the global economy is seen to encourage outsourcing to streamline costs. This scenario should challenge our rural banks to work better on growing your business and clientele so that you can capture a bigger share of our expanding economy, particularly in the resilient countryside. How, then, should rural banks move forward? In our view, it is critical for rural banks not to waver in their resolve to pursue reforms that would ensure strength and stability of your banks. In this context, your banks’ risk infrastructure is a key component that will allow you to identify and act on risks that may arise; credit risks and liquidity risks are particularly important. In the case of risks, a proactive approach is preferable over remedial management. For instance, credit risk can be mitigated by generating high quality information and acting prudently based on this information. On the other hand, it is important in managing liquidity risk to strike the appropriate balance between actively deploying funds through loans and investments and in retaining enough of a defensive position so that liquidity is available when the need arises. Again, this poses its own challenges for rural banks because of the narrower exposures from focused lending to a local community. Another important aspect is your commitment to maintain strong capital positions not simply for compliance but for prudent control of leverage. Management should ensure that your banks have sufficient buffer whenever risks turn into losses, through careful allocation of scarce capital to alternative exposures. While we will not dictate your allocation, your adherence to maintain capital adequacy above our regulatory floor rate of 10% reflects commitment toward prudential control and financial governance. On our part, we at the Bangko Sentral will continue with banking reforms that will encourage improvement of capital positions and broaden the avenues for better risk management. We will move forward with the implementation of consolidated and risk-based supervision; the enhancement of corporate governance and disclosure standards; and fostering transparency in financial reporting. If you recall, these initiatives which we have vigorously implemented in recent years are instrumental in instilling order and depth in the banking system ahead of the onset of the global financial crisis. The Bangko Sentral will also maintain its policy approach of enabling banks, particularly rural banks, to increase the scale and scope of their operations. This is a win-win strategy: first, it will enhance your banks’ bottom lines and, second, it will support Bangko Sentral’s inclusive banking policy to reach out to the unbanked and those who remain unserved by the financial sector. This is the rationale behind Bangko Sentral’s liberalization of bank branching; receptiveness to product and technological innovations in banking services; and approval of a broader range of services for rural banks such as FCDUs and investments in ATMs to provide more services and products to their clients. The recent issuance of the E-money Circular (Circular 649) is another significant step toward inclusive financial services. This Circular provides the regulatory framework for the electronic money business, promotes innovations in fund transfer mechanisms, and paves the way for competitive growth in the industry. To build on this clear framework for electronic money facility, we are reviewing regulations for third party agent networks to ensure the success, efficacy, safety, and soundness of the system. Here, we envision a vast network of retail agents that will provide broad access to financial services even to the previously unbanked. I see rural banks playing a significant role in this very exciting development. Apart from your branches, other banking offices, and ATMs, you will be able to leverage this vast network of outlets to deliver your financial services to a broader market. This is one area we should consciously develop together. Once fully developed, this system should be a cost-effective and efficient channel to serve the many bankable yet unbanked Filipinos. Indeed, the future holds much promise and opportunities for rural banks. With our coordinated efforts and joint commitment to good governance, integrity and stability, rural banks are certain to take a competitive and strategic place as effective channels for a truly inclusive financial system and catalysts for sustaining balanced growth and development in the countryside. Again, my congratulations to the distinguished ladies and gentlemen of our rural banking sector. United under RBAP, may you continue to grow and develop as efficient empowering channels for enhancing economic activities and improving the quality of life in the countryside. Mabuhay ang ating mga rural banks! Mabuhay ang Pilipinas! Maraming salamat po sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 16th Anniversary of the Central Bank of the Philippines, Manila, 3 July 2009.
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Amando M Tetangco, Jr: BSP@16 – riding out the winds of change and weathering the turbulence Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 16th Anniversary of the Central Bank of the Philippines, Manila, 3 July 2009. * * * Magandang, magandang umaga po sa inyong lahat! Fellow central bankers there is every reason to celebrate and to be happy today! Today, we mark the convergence of two important events: the 16th anniversary of the Bangko Sentral ng Pilipinas and the 60th year of central banking in the Philippines. At sixteen, the Bangko Sentral ng Pilipinas is a relatively young institution; but its foundation runs deep. That is because central banking, as a function directly linked with the development of our economy and our nation, marks its 60th year in 2009. And so, today, in celebrating our 16th year as Bangko Sentral ng Pilipinas, we also pay homage to six decades of central banking as well as to the men and women who served our people and our country as central bankers. This is the reason why our celebration has for its theme: "Ako at ang Bangko Sentral: Noon, Ngayon, at Bukas." My understanding from Managing Director Pete Tordilla, the chairman of our 16th anniversary celebration, is that almost 500 BSPers are involved in the exciting presentations this morning! Marami talagang showbiz at magaling dito sa Bangko Sentral. Fellow central bankers, palakpakan po nating muli ang magagaling nating performers and the creative team behind these presentations on 60 years of central banking! Salamat sa inyo. You really brought back old memories! Parang kaylan lang ano! Of course, special occasions such as this are not an excuse to miss our deadlines. As central bankers, we know that even as we complete tough assignments in an excellent manner, there are always many more programs that we need to work on, asap! Thus, we sometimes miss the opportunity to say thank you, as we immediately move on the next assignment. In fact, one of our favorite phrases here at the Bangko Sentral is moving forward! Tama ba?! Tama! And so, today, let us pause and take the time to say thank you to our fellow central bankers. Ladies and gentlemen, let us express our thanks and appreciation with a well-deserved round of applause to the Resource Management Sector headed by Deputy Governor Andy Suratos; the Supervision and Examination Sector headed by Deputy Governor Nesting Espenilla; the Monetary Stability Sector headed by Deputy Governor Diwa Guinigundo; the Security Plant Complex headed by Assistant Governor Eve Avila; and the Executive Management Sector headed by yours truly with strong support from Assistant Governor and General Counsel Jun de Zuñiga. And finally, let us also thank the hardworking members of the Monetary Board of the Bangko Sentral ng Pilipinas, MBMs Amatong, Villafuerte, Antonio, Bunye, Boncan and Sec. Favila. Palakpakan po nating lahat ang mga BSPers! Ladies and gentlemen. We saw through the presentations the challenges central bankers faced in the last 60 years. There is no better time than today to look back at the global financial turmoil over the past 12 months and mark the lessons that punctuated the difficult episodes of what is now described as the deepest economic descent since the Great Depression. If you recall, last year I spoke about how we succeeded in reaping the fruits of low inflation and high growth. This year is completely different, to say the least. The global financial turmoil has spawned deep economic slowdown or recession, dysfunctional financial markets, precipitous drop in trade, bearish equities market and continued risk aversion. Through the last 12 months, there has been massive wealth destruction while deleveraging continues at a dizzying pace. In substance and in various forms, these have characterized both developed and emerging markets alike. Ladies and gentlemen, to say that the past year has been a challenging one is clearly an understatement. The crisis that began half a world away has reached our shores. Thus, even as the Philippines entered the period of turbulence from a position of relative strength. We have felt the bumps and bruises in financial markets, trade, and the real sector. Already, the global crisis has severely slowed output growth in our country. Nevertheless, the Philippines continues to distinguish itself for having one of the most resilient economies around. Moving forward, we are optimistic that positive growth will be sustained this year, that the balance of payments will continue to yield a healthy surplus, and that our banking system will remain solid through the turbulence. Still, we need to be vigilant in guarding the economy against the spillover effects of the global crisis. You may well ask, how is the Bangko Sentral responding to the global financial and economic crisis? Well, the BSP has been providing ample liquidity to keep the financial markets functioning and able to fund the growth requirements of the economy, amidst the global credit crunch. The monetary actions we have taken since the fourth quarter of 2008 include the following: first, the opening of the US dollar repurchase facility to augment dollar liquidity in the foreign exchange market; second, the enhancement of the existing peso repurchase facility through relaxed valuation and broader acceptable collateral; third, the reduction in the reserve requirements on bank deposits by two percentage points; fourth, the increase to P60 billion of the peso rediscounting budget to ensure adequate peso liquidity; and fifth, the launching of the Credit Surety Fund Program to provide financing to small businesses through guarantees to small cooperatives with good track record. The BSP has also reduced its policy rates by 175 basis points since December 2008, given favorable inflation outlook and well-anchored inflation expectations. This historical series of five rate reductions brought our overnight borrowing or reverse repurchase (RRP) facility to 4.25 per cent, the lowest in over 17 years. The intention is to help bring down the cost of borrowing and reduce the financial burden on firms and households. Lower policy rates would also shore up business and consumer confidence for economic expansion. The Bangko Sentral has also ensured that banks and other financial institutions have risk management systems in place, that banks adhere to safe and sound banking practices, and that accounting and supervisory rules are calibrated to adjust to the new financial circumstances. Well, how are our scorecards in relation to these initiatives? Evidence suggests that these initiatives have been effective. Our policy actions have provided a steady supply of liquidity that has allowed banks to continue lending and performing their role as fund intermediaries. Market interest rates have trended downward following the policy rate cuts by the BSP, as banks pass on lower lending rates to their borrowers. Inflation, meanwhile, continues to be subdued, and we continue to expect favorable inflation dynamics going forward. Equally important, our banking system has remained sound and stable. Other segments of the financial sector – including the money, bond and equities markets as well as the foreign exchange market – have showed signs of stabilization if not recovery. Ladies and gentlemen, our sustained efforts at capacity building has empowered us to be effective at monetary policy and bank supervision. We have strengthened our strategic planning and budgeting processes to continue sharpening our vision. We have also sustained our BEST program by sending the best and the brightest of our staff to the best universities here and abroad, to ensure excellence and a global outlook among the future leaders of the Bangko Sentral. We want them to think big, to think new, and to think ahead while being immersed in the deep structure of their creative potential. We have persevered in our wellness programs to keep our staff going strong and motivated. We have streamlined our recruitment process by opening our doors more widely to promising prospective employees. We have also continued to review our benefit package to ensure that we are able to attract and retain our most valuable resource: our professional, competent, and dedicated staff. As we review our score card for another year of central banking in the Philippines, I would like to believe that we have provided the leadership and the vision for maintaining macroeconomic stability yesterday, today and tomorrow. We continue to receive recognition for this and we continue to raise the bar further. For instance, I am very pleased that 17 more departments and offices will be receiving ISO certifications next week, proof of our sustained program to align our processes with international standards. Palakpakan po natin ang mga bagong ISO-recipients natin! Ladies and gentlemen of the Bangko Sentral. Our pledged stewardship of the Philippine monetary and financial system is of central value to the country's economic development. We have kept prices low, interest rates reasonable, the financial system sound and stable, and the payments and settlement system functioning efficiently. These are key elements in the resilient performance of the Philippine economy. What more should be done? Well, it is not enough that we succeeded last year and the years before that. For as long as millions of Filipinos continue to live in poverty, we cannot rest we cannot stop. As we continue our work to achieve our mandate, we need to ensure that we possess the expertise and competence in all phases of central banking; we need to develop greater sensitivity to signals which we should answer with better and more responsive actions; we need to be swift-footed in adjusting to a dynamic environment; and we need to further fine tune our ability to plan ahead. We also need to work on amendments to the New Central Bank Act (R.A. No. 7653) to further strengthen our ability to achieve monetary and financial stability. The proposed amendments will allow the BSP to float its own bonds, enhance the supervisory and regulatory capabilities of the BSP with additional powers and greater legal protection. We will redouble our efforts to push for these amendments when the Congress resumes its session. BSP has a comprehensive program to advance ordinary Filipinos' understanding of basic economic and financial concepts to empower them to benefit from opportunities that development brings. In the last three years, for instance, the BSP been to 24 locations to bring its financial education lectures to overseas Filipinos and their families. The program has since been expanded and brought overseas to countries which have large concentrations of overseas Filipino workers (OFWs). The integration of lessons on saving and money management in the curriculum of public elementary schools beginning schoolyear 2008-2009 is a major step forward in raising a new generation of savers in our country. This joint project of the Bangko Sentral ng Pilipinas and the Department of Education is targeted at 12 million public elementary pupils. With the signing last week of a Memorandum of Agreement by the Bangko Sentral with the Coordinating Council of Private Educational Associations, we can look forward to the integration of lessons on saving and money management in the private elementary schools' curriculum as well. The launching this afternoon of the savings promotion program which we call "Banking on Your Future" brings the banking sector on board our financial education program for millions of Filipino children. We will also develop financial education modules for out-of-school youths and adults to complete our program. Parallel to these proactive initiatives, the BSP has also set up Economic and Financial Learning Centers or EFLCs in our regional offices and branches where researchers can access economic and financial data series produced and monitored by the BSP. It also has a wide collection of books, journals and periodicals on banking, finance and economics, as well as electronic research system. Indeed, BSP continues with its efforts to institutionalize and promote an inclusive program for the economic and financial education for Filipinos. This supports our program on inclusive banking and reaching out to the unbanked. Ladies and gentlemen, my fellow central bankers, I am sure that this time of global economic and financial turmoil will surely rank as one of the defining moments in economic history. It will have a profound impact on all countries. Its economic toll so far has been unprecedented and, in some cases, has exacted painful social consequences including job and income losses. But I know that we shall be equal to the challenges. Let us therefore commit to work together with greater vigor and dedication as we navigate our economy through turbulence to the safety of enduring balanced economic growth, for the benefit all Filipinos. For now, let us walk our talk by saying thank you to one another as fellow central bankers who work with patriotism, excellence, integrity, dynamism and solidarity, our guiding values here at the Bangko Sentral ng Pilipinas. Together let us stand proud as BSPers who can truly make a difference in improving the lives of all Filipinos. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang mahal nating bansang Pilipinas! Maraming salamat at masayang anibersaryo!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 16th Anniversary of the Central Bank of the Philippines, Manila, 3 July 2009.
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Amando M Tetangco, Jr: Developing a new generation of savers with the program "Banking on Your Future" Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 16th Anniversary of the Central Bank of the Philippines, Manila, 3 July 2009. * * * Former BSP Governor Gabriel Singson, Monetary Board Members, our partners from the banking community, our guests from the Aurora A. Quezon Elementary School, fellow central bankers, members of the media, special guests, good afternoon. On behalf of the Monetary Board, I thank all of you for joining us today as we celebrate the 16th anniversary of the Bangko Sentral ng Pilipinas. With the signing of our agreements this afternoon, we are on track to institutionalize our economic and financial education program for Filipino children. This program is important to us. We at the Bangko Sentral believe that persons literate in basic economic and financial concepts stand to benefit more from opportunities that development brings. And we believe that our elementary education system is the best place to start. With our Memorandum of Agreement with the Department of Education, lessons on saving and money management have been incorporated into the curriculum of 12 million public elementary students where 90% of our elementary pupils study, beginning schoolyear 20082009. Last week, the Bangko Sentral ng Pilipinas signed a Memorandum of Agreement with the Coordinating Council of Public Educators Association also for the inclusion of economic and financial concepts in private elementary school curriculum. Today, the launching of this savings promotion program "Banking on Your Future" brings the banking sector fully on board our financial education program for millions of Filipino children. Actually, we are looking at generating synergies from this program. We believe that saving as a habit can best be developed among schoolchildren who wield a strong influence in their homes and communities. Through the children, therefore, we hope to reach out to their parents, including the unbanked. Equally important, we believe that informed Filipinos make for better partners in ensuring that we have a sound banking system and a more efficient transmission mechanism for our monetary policy actions. They also wise up to financial scams. In the process, they help sustain balanced economic growth. This is the philosophy that underpins our economic and financial education program. We all know how resilient we Filipinos are. Given the right tools, there is much more we can do. The program “Banking on your Future” is therefore an important component of our economic and financial education program. The support of the Banking Sector for this program is essential as you are the practitioners and therefore the ideal mentors to work with the youth regarding financial education. The key is knowledge sharing. We do look forward to banks and its branches to get involved in their neighbor elementary schools to mount parallel financial education activities and to reward best performing schools and students with prizes including savings account. The idea is to make it hip and cool for our students to have savings account that they can nurture and grow. This way, they develop the habit of saving on a regular basis. Aasahan po nang ating mga kabataan ang programang ito, kasama na ang ating mga bisitang mag-aaral mula sa Aurora A. Quezon Elementary School. There are about 38,000 elementary schools there are about 7,000 bank offices and branches. I hope we can cover most, if not all of these schools. Ladies and gentlemen. The 16th anniversary of the Bangko Sentral ng Pilipinas also coincides with the celebration of National Savings Consciousness Week. For this year, our theme is particularly appropriate: “Kinabukasan Siguruhin, Pag-iimpok Ugaliin.” It is only fitting therefore that together we launch the program “Banking on Your Future” on this auspicious day. Mabuhay ang Philippine Banking Sector! Mabuhay ating mga kabataan! Maraming salamat po sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the inaugural dinner for the newly elected RBAP Officers and Board of Directors, Manila, 14 July 2009.
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Amando M Tetangco, Jr: RBAP – sustaining reforms for an economically vibrant countryside Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the inaugural dinner for the newly elected RBAP Officers and Board of Directors, Manila, 14 July 2009. * * * The leadership of the Rural Bankers Association of the Philippines (RBAP) led by President Omar Andaya and immediate past president Mitch Gomez, the officers and members of RBAP, good evening. I am delighted to be part of this inaugural dinner celebrating your new set officers at RBAP. To me, this seamless transition in the association’s leadership is a strong indication that the rural banking sector will continue the many significant initiatives that have characterized the past year. United, your initiatives under RBAP have kept the rural banking sector resilient in the midst of a particularly challenging environment. Let us therefore give the RBAP leadership a well-deserved round of applause! Indeed, the past year was full of challenges, for the economy in general and for the rural banking sector in particular. And yet, latest available figures indicate that the rural banking sector continues to perform relatively well. It appears that our rural bankers have turned this period of challenges as an opportunity to further strengthen your institutions. Thus, even with the series of bank closures affiliated with one group, total capitalization of the rural banking sector actually improved further from P24.8 billion in December 2008 to P25.4 billion as of March 2009. Less measurable, but no less important, is RBAP’s success in maintaining public confidence in rural banks in the face of successive bank closures. Through vigilance and proactive measures, RBAP ensured that your clients understood that these high profile bank closures basically involved a single group that is not representative of the management of other rural banks. I also wish to acknowledge RBAP’s pioneering work on inclusive banking through technological and product innovations, as well as your continuing efforts to be more responsive and efficient in serving your clients. In particular, the rural banking sector continues to expand its operating network to reach more clients. What we have today, therefore, is a more solid and more inclusive rural banking industry. And so, once again, ladies and gentlemen, let us celebrate our rural banking sector with another round of applause! However there is much more that we have to accomplish and we are looking at RBAP’s new set of officers and members of the board of directors to provide leadership for this. Among others, it is important to sustain reforms we have started. In this context, your banks’ risk management infrastructure should be a priority. This is the infrastructure that allows you to identify risks and to act on these in a responsive manner. In the case of rural banks, particular focus must be given to credit risks and liquidity risks, because your position as community-based financial institutions magnifies these risks. Equally important is your commitment to maintain strong capital positions. Banks must fully appreciate that capital adequacy is not merely a compliance issue, but is central to the prudent control of leverage. Banks must have sufficient buffer for risks which could turn into losses. While we will not dictate your specific allocation decisions, maintaining capital adequacy above the BSP’s regulatory floor rate of 10% is itself reflective of a bank’s commitment towards prudential control and financial governance. I am sure you have heard me discuss these key reform issues in other occasions. However, for as long as we have not reached our desired destination, I assure you, you will continue to hear from me on these issues. You can also be sure that the Bangko Sentral will continue to do its part toward creating the appropriate policy and regulatory environment that enables more innovations, greater efficiency, better risk management, stronger capitalization, improved disclosure and transparency practices, and enhanced corporate governance standards in the banking system. High on our agenda is to open doors for you in housing microfinance and microinsurance, as well as possibly grant you more flexibility to use non-bank agents as a way to expand your reach. We are also looking at the use of independent rating agencies to attest to your inherent strength and secure market credibility. We are also designing a program with PDIC to encourage mergers and acquisitions through targeted financial incentives to would-be “white knights” of rural banks. Ladies and gentlemen. The rural banking sector has stood up well to the difficult challenges of the past. Now, I look forward with optimism to the future of our rural banks. While I am sure rural banks will be facing new challenges moving forward, I am heartened by the fact that we are on the same page insofar as the need, and the wisdom, of adhering to good governance principles; of implementing appropriate policies for credit and liquidity risks management; and of working on having stronger capital positions. We all know, the path toward these goals will be complex; but if our rural banks remain committed in serving their role as catalyst and enabler of productive activities in the countryside, I am confident that the rural banking sector will contribute a lot toward ensuring balanced and sustainable economic growth in our country. This calls to mind how the great artist Michelangelo responded to comments about this genius in completing his Sistine Chapel masterpiece. He said: “If you knew how much work went into it, you would not call it genius.” Ladies and gentlemen. A lot of work is clearly ahead of us. But if we are committed and focused, it will be a matter of time before our coordinated efforts create a strong and lasting foundation for a healthy, resilient and vibrant rural banking sector. Together, let us continue to walk the path of sustained reforms. Again, my congratulations and best wishes to the leadership of RBAP. Mabuhay ang ating rural banks! Mabuhay ang Pilipinas! Thank you all and good evening.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Stakeholders Awards and Appreciation Lunch for 2009, Central Bank of the Philippines, Manila, 14 July 2009.
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Amando M Tetangco, Jr: The BSP and its partners – standing up to the global challenges today Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Stakeholders Awards and Appreciation Lunch for 2009, Central Bank of the Philippines, Manila, 14 July 2009. * * * Distinguished partners and special guests from the private and government sectors, good morning. On behalf of the Monetary Board and my colleagues at the Bangko Sentral ng Pilipinas, I thank all of you for joining us today for our Stakeholders Awarding Ceremony and Appreciation Lunch. As you can tell, this event is important to us. This is the time of the year when the Bangko Sentral ng Pilipinas honors its partners who provide outstanding support to our information and statistical requirements, as well as to our advocacy programs. This year's Stakeholders Awards is made more special by the fact that our partnership has gone through a particularly challenging period that saw the worst global financial crisis and the most severe economic downturn in decades. While the epicenter of the financial turmoil is in the US, shockwaves are being felt worldwide, even in emerging economies such as the Philippines. Thus, the theme for our 2009 awarding ceremony is most appropriate: "The BSP & its Partners: Standing Up to the Global Challenges Today." Indeed, we are here today standing up together because we kept our partnership strong and fully functioning even in the midst of a global crisis. You honored your commitment to the Bangko Sentral, stood by us, and never failed to send us your comprehensive reports on time. Thus, the Bangko Sentral ng Pilipinas and our economy benefited from receiving your complete and reliable information on which to base our policy decisions. For this, we give all of you your initial award today: a well-deserved long round of applause. Ladies and gentlemen, the first group of stakeholders we will recognize today are the outstanding respondents to the following BSP surveys: the Business Expectations Survey; Cross-Border Transactions Survey; Foreign Direct Investment Survey; Coordinated Portfolio Investment Survey; and Survey on IT and IT-Enabled Services. We will also give awards to other institutions that provide valuable information for the formulation of monetary policy in accordance with the BSP's key mandate to promote price stability conducive to balanced and sustainable economic growth. The framework for our monetary policy is inflation targeting – a forward-looking and information-intensive approach. Thus, it is imperative that the information and statistics we receive are comprehensive, timely, and accurate. We cannot overemphasize the importance of keeping prices stable; this allows households and businesses to plan over a longer horizon and make informed decisions on consumption, investment, savings, and production. In case some of you are wondering how we have fared in terms of stabilizing prices. The answer is: with your help, we have done quite well. Headline inflation has been on a downtrend, dropping from 3.3 percent in May to 1.5 percent year-on-year in June, the lowest in more than 22 years. Our external accounts have also remained healthy, with a balance of payments surplus and a record-high gross international reserves of US$39.6 billion. These are positive results from our collaboration. Palakpakan po natin ito! Today, we will also recognize the best commercial banks that facilitate the inflow, and reporting, of remittances from overseas Filipino. We all know that this is a service that is important not only to overseas Filipinos and their families but also to our economy. On the average, remittances represent 10-11% of our GDP. Therefore, let us also congratulate our banks that provide efficient and secure handling of over one billion dollars in monthly remittances from our overseas Filipinos. Palakpakan din po natin sila! We will also give special recognition to institutions that have given their unqualified support and cooperation for the BSP's economic and financial education program. Let us also give them a round of applause! Once again, on behalf of the Bangko Sentral, I thank all of our respondents and stakeholders who have been our faithful partners through these years. With your steadfast support, the Bangko Sentral will continue to craft and implement effective and responsive monetary and banking policies that will empower us and our partners to face up to the challenges that come our way. Finally, let us keep in mind what the physicist Albert Einstein once said about information. He said… and I quote: "Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit". End of quote. Ladies and gentlemen. As partners of the Bangko Sentral ng Pilipinas who have generously shared your time in giving us accurate, comprehensive, and timely information with us, you have also served our country and our people. For this, we are grateful and we thank you. We do look forward to many more productive collaboration with all of you in the years to come. Again, my warmest congratulations to all the awardees. Mabuhay ang Pilipinas! Mabuhay po tayong lahat! Magandang umaga at maraming salamat po sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BAIPHIL's Induction of Officers and General Membership Meeting, Manila, 15 July 2009.
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Amando M Tetangco, Jr: Transforming potential into reality Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the BAIPHIL's Induction of Officers and General Membership Meeting, Manila, 15 July 2009. * * * Distinguished officers and members of the Bankers Institute of the Philippines led by Incoming President Susan Uranza and Outgoing President Lydia King, SEC Chairman Fe Barin, MBM Ignacio Bunye, PM Cesar Virata, fellow bankers, colleagues from the BSP, special guests, good afternoon! On behalf of the Bangko Sentral ng Pilipinas, I congratulate BAIPHIL’s new set of officers led by President Susan Uranza. Ladies and gentlemen, let us wish them well and cheer them on with a long round of applause! To the Bangko Sentral ng Pilipinas, the BAIPHIL is a long-standing partner in strengthening the Philippine banking sector by enhancing productivity through research, information exchange and education. Indeed, through its continuous development and conduct of appropriate training programs, BAIPHIL has been upgrading the knowledge and expertise of banking professionals. In other words, BAIPHIL plays a major role in keeping Philippine bankers abreast of global bank standards and practices. This is a very important function. The banking sector is the pillar of our financial system as it remains the primary source of funds for our business sector, drawing, in turn, from funds entrusted to it by investors, creditors, and depositors. It is essential therefore that our bankers are able to adapt and respond appropriately to a constantly changing and ever challenging environment. This is particularly true today when the global financial landscape continues to be redefined by the ongoing financial crisis and the most severe global economic downturn in decades. New challenges have emerged, even as new opportunities surface. It is crucial, therefore, that bankers should be ready to take on these new challenges and opportunities. For instance, it is important to note that while other countries struggle with tight credit, our banking sector remains liquid and able to sustain lending at double-digit growth rates. As of May 2009, outstanding loans of commercial banks, including reverse repurchase agreements, reached P2.1 trillion, over 10% higher than the year-ago level. This is a positive trend that indicates continuing support from the banking sector for productive activities that sustain economic growth. Having said this, banks must make sure that appropriate risk management systems are in place to guard against potential credit and liquidity risks, among others. There should be no room for complacency insofar as risk management is concerned. I believe BAIPHIL’s training programs on risk management will go a long way in addressing this need. Ensuring the quality of your training programs on good governance is also important, as this counts as compliance to the BSP’s mandatory requirement for bank directors and key officers. As you are aware, weak governance and lack of transparency have been cited as among the causes of the continuing global financial crisis and economic downturn. There are other programs that I know BAIPHIL can take on quite effectively, which are aligned with our special advocacies at the Bangko Sentral ng Pilipinas. One of these is economic and financial education for Filipinos. So far, we have institutionalized the integration into the public elementary school curriculum lessons on saving and money management starting schoolyear 2008-2009. This joint program of the Bangko Sentral with the Department of Education targets 12 million students, from Grade I to Grade VI, or nearly 90% of Filipino children in the elementary schools. This number will increase further as last month, the Coordinating Council of Private Educators Association or COCOPEA also expressed its intent to teach saving and money management lessons to elementary students in private schools estimated at over 1.5 million. We are therefore planting the seeds for nurturing a new generation of Filipinos who save regularly and manage their finances properly. They are the future of our nation. They deserve our support. The Bangko Sentral has also started financial education programs on saving, money management, and investment options for overseas Filipinos and their dependents. With BAIPHIL’s support, we can cover more ground and extend our reach. This is one way we can express our appreciation to overseas Filipinos whose remittances have kept the Philippine economy resilient in the midst of the global recession. Their monthly remittances have remained above $1 billion since 2006 and reached an unprecedented annual level of $16.4 billion in 2008. In 2000, remittances for the whole year were just over $6 billion. Latest data show that for May 2009, remittances coursed through the banking system reached a record high of $1.48 billion or a YOY growth of 3.7 percent. Total or cumulative remittances for the first 5 months of 2009 amounted to $6.98 billion, representing a YOY increase of 2.8 percent. Together, let us help Overseas Filipinos and their families put their money to optimal use, so that they can allocate their cash flows not only for consumer goods and leisure but also for smart spending and savings such as education, housing and investments. Banks should also explore new products and services for overseas Filipinos as well as guide them on the type of savings pattern and investments that are suitable for them. Finally, BAIPHIL can help develop teaching modules on saving, investment, and money management for adults and out-of-school youths in cooperation with the Bangko Sentral and the Department of Education’s Bureau of Alternative Education. I am very pleased therefore that BAIPHIL through President Susan Uranza, signed a Memorandum of Agreement with the Bangko Sentral last week to support our economic and financial education program including our savings promotion campaign which we call “Banking on Your Future.” Other organizations that have signed up as our partners for this program are the Rural Bankers Association of the Philippines, the Chamber of Thrift Banks, the Bank Marketing Association of the Philippines and the Bankers Association of the Philippines. The BSP has also set up Economic and Financial Learning Centers in our regional offices and branches where researchers can access economic and financial data generated and monitored by the Bangko Sentral. Indeed, the BSP in coordination with the banking sector has taken a proactive stance to institutionalize an inclusive program for the economic and financial education of Filipinos anchored on the theme, “Financial Education: Building Blocks for a Stronger Economy”. Ladies and gentlemen. The BSP recognizes the need to continuously raise the bar of competency for banking professionals. At a macro level, the depth of skills of the entire banking sector workforce will be a crucial factor in building a stronger banking system. In this regard, I recognize that BAIPHIL has been and will continue to provide support in strengthening the human capital base of our banks. The BSP, for its part, will remain committed and continue to craft appropriate monetary policies and banking reforms that will allow our economy to ride out the crisis. We will also move forward with reforms to protect consumers and investors. These initiatives, which we have vigorously pursued in recent years, are instrumental in instilling order and depth in the banking system, ahead of the onset of the global financial crisis. Nevertheless, considering all that is happening in the global arena, we are in a relatively good place. Among others, our inflation rate in June is at its lowest in 22 years, we are looking at a balance of payments surplus this year, and our gross international reserves are at its highest level ever. This is not to say that we will have smooth sailing moving forward. In this imperfect world, we are bound to meet unexpected bumps along the way. However, if BAIPHIL continues to be successful in fulfilling its mission to enhance productivity through research, information exchange and education, then the banking sector would be better equipped to hurdle the challenges that will come its way. And given its commitment to participate actively in expanding the reach of our economic and financial education programs, BAIPHIL should also make a big impact in promoting wealth creation among Filipinos. Susan, your president at BAIPHIL, describes this process as teaching Filipinos proper lifestyle management. I agree with this practical approach. We at the Bangko Sentral are therefore looking forward to a fruitful collaboration with BAIPHIL that will result in a continuously growing pool of trained bankers as well as financially literate Filipinos who will help build a better and stronger Philippines. Again, my congratulations to the distinguished ladies and gentlemen of the BAIPHIL, your past set of officers led by Mrs. Lydia King and the freshly-inducted new officers under the leadership of President Susan Uranza. Mabuhay ang BAIPHIL! Mabuhay ang Pilipinas! Maraming salamat po sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at a meeting, Makati, 11 August 2009.
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Amando M Tetangco, Jr: The Philippine economy – facing up to the challenges Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at a meeting, Makati, 11 August 2009. * * * Executive Director Robert Sears, executives of the American Chamber of Commerce of the Philippines, distinguished guests, ladies and gentlemen, good morning to all of you. It is a pleasure to be here this morning to share with you the experience of the Bangko Sentral ng Pilipinas in responding to the challenges posed by the recent global financial crisis, taking into consideration the current global and domestic scenarios and emerging outlook. My short presentation will basically cover three parts: • First, a quick look at the global and domestic economic situations; • Second, the latest outlook for the economy and some key challenges; and • Lastly, the responses that the BSP undertook to mitigate the impact of the crisis and the BSP’s policy directions moving forward. Let me start with a quick review of what is happening globally and domestically. In its latest World Economic Outlook (WEO) Update released in July 2009, the International Monetary Fund reported that the world economy is stabilizing, helped by unprecedented macroeconomic and financial policy support by fiscal and monetary authorities worldwide. However, the recession is not yet over and the recovery is likely to be sluggish. As a result, global economic growth during 2010 is now projected to be about 0.5 percentage points higher than projected in the April 2009 issue of the WEO. However, the advanced economies as a group are projected to show a sustained pickup in activity only beginning the second half of 2010. A closer examination of some high-frequency indicators like industrial production and merchandise exports point to a return to a modest growth in global GDP beginning in the 2nd quarter of 2009. Similarly, we also see a favorable outlook for prices in general. The continued weakness of the global economy for the past several months has put a downward pressure on prices. Measures of both headline and core inflation are on a downward trajectory, for the global economy as a whole as well as for advanced economies and emerging market economies. Although there are stronger disinflationary forces in some regions of emerging economies, the risk of a sustained deflation is expected to be small, as core inflation and inflation expectations in most major economies are still holding in the 1-2 percent range. Any sharp movements in commodity prices bear some watching if sustained. To date, food prices have been subdued so far, oil has been range-bound but metal prices are still surging. Based on a composite index which captures credit conditions in three financial market segments (banking, securities markets, and exchange markets), there has been a marked decline in financial stress for advanced and emerging economies since the beginning of 2009. Across Asia, output growth performance was mixed, with more open economies – such as Taiwan and Singapore – experiencing the brunt of the global economic downturn. Domestically, the story has been that of economic resilience. The slowdown in economic activity in the Philippines thus far has been moderate relative to that of some other economies in the region. This resilience has been acknowledged by ratings agency Moody’s Investors Service when it upgraded the Philippines’ credit rating by one notch, citing the country’s healthy financial system and resilience against the impact of the global recession. The country’s outlook was also changed to "stable" from "positive.“ The slowdown in the growth of domestic output to 0.4 percent, in the first quarter of 2009, was due to lower growth in private spending, coupled with a contraction in exports and capital formation (year-on-year). Inflation has continued to ease. The slowdown in global demand has led to lower international oil and food prices, which have dampened inflation pressure domestically as well. Headline inflation had fallen to 0.2 percent in July, the lowest since March 1987. This brings the year-to-date average down to 4.3 percent which is within the target range for 2009. Similarly, core inflation, which excludes specific food and energy items to measure broader price pressures, also declined to 3.6 percent (July 2009) from 6.9 percent in January 2009. The downward trajectory of inflation was driven primarily by two factors: (1) base effects due to record-high prices of commodities last year and (2) relatively subdued demand. This trend may have reached its trough in July, as inflation is expected to rise gradually during the remaining months of this year and the next, but still remain within target ranges for the policy horizon. Our external payments position continues to be manageable. The healthy external balance has been supported by steady levels of remittances of overseas Filipinos as well as higher services receipts, particularly from business process outsourcing. In turn, this has allowed us to build up our dollar reserves. One of the lessons we learned from the 1997 Asian financial crisis was the value of building up our international reserves for self insurance. Based on revised data, as of end-July 2009, our reserves have risen to US$40.0 billion. This is enough to cover about 6.9 months of imports of goods and payments of services and income, or alternatively, it could cover our short-term external debt payments about three times over. Thus, even as we face a slowdown in external demand, the stronger external liquidity position provides us some cushion against shifts in capital flows. Our financial markets are showing some signs of recovery. Credit spreads have narrowed, the peso has stabilized and its volatility has decreased, and the stock market is on an upswing. Our banking system has remained sound and stable. The banking system’s asset base has been expanding steadily, supported by sustained growth in deposits. As of end of April 2009, the total resources of the banking system stood at P5.8 trillion. Banks have been offloading their non-performing assets and problem loans. As a result, the NPL ratio is now at the pre-Asian crisis level of around 4.0 percent. Furthermore, the profitability of the banking system has remained resilient, although with some moderation of late. Banks have remained adequately capitalized at levels above both the BSP-regulatory requirement of 10 percent and the international (BIS) standard of 8.0 percent. Bank lending growth has remained healthy, in part reflecting the easing of monetary policy since the fourth quarter of 2008. Credit flows continued to support the productive sectors of the economy even against the backdrop of tight liquidity conditions in global financial markets. It is the BSP’s commitment to ensure that liquidity conditions are supportive of the spending and investment needs of firms and households, while keeping a watchful eye on price stability. The recent lowering of the risks to inflation allowed the BSP to cut its policy rates by a total of 200 basis points since December 2008. The BSP’s decision to ease the monetary policy stance was based on the Monetary Board’s assessment that inflation would stay within target over the course of the policy horizon. This 200 basis-point cumulative reduction in the policy rate will help stimulate economic growth or help moderate the slowdown by bringing down the cost of borrowing and reduce the financial burdens on firms and households. This will help us avoid or at least mitigate the negative feedback loop from weakening economic conditions to the functioning of the financial sector. Lower policy rates would also have the effect of shoring up business and consumer confidence. The latest inflation forecasts continue to show subdued price pressures, with headline inflation expected to settle at around the middle of the target range for 2009 and at the lower bound of the target range for 2010. On balance, downside pressures on prices predominate due mainly to expectations of a marked deceleration in global economic activity, which is expected to continue to dampen imported inflation and inflation expectations, and weaker domestic demand conditions. In addition to the reduction in its policy rates, the BSP also moved to ensure that there is sufficient liquidity in the system. The BSP: 1. Enhanced the existing peso repurchase agreement (repo) facilities through relaxed valuation and a broader list of acceptable collaterals; 2. Established a US dollar repo facility to augment dollar liquidity in the foreign exchange market and ensure the ready availability of credit for imports and other legitimate funding requirements; 3. Reduced the regular reserve requirement by two percentage points on 14 November 2008; 4. Liberalized rediscounting guidelines which include increasing the rediscounting budget to P40 billion in 14 November 2008 and to P60 billion on 02 March 2009, aligning rediscounting rate with the RRP rate, easing the NPL ratio requirement and increasing loan value of all eligible papers; and 5. Launched the Credit Surety Fund (CSF) Program which provides guarantee to small cooperatives to ensure continued access to financing of small businesses. The BSP has also acted swiftly to bolster confidence in the financial system, through timely communication and greater transparency. Moreover, to safeguard the confidence in the banking system, the Monetary Board approved on 30 October 2008 the guidelines allowing financial institutions to reclassify financial assets from categories measured at fair value to those measured at amortized cost. Financial institutions were allowed to reclassify their investments in debt and equity securities from their Held for Trading or Available for Sale categories to the Held to Maturity or the Unquoted Debt Securities Classified as Loans. The BSP also allowed banks not to deduct unrealized mark-to-market losses in computing for the 100 percent asset cover for FCDUs, effective until 30 September 2009). This reduced the need for banks to source dollars from the foreign exchange market. What lies ahead for the Philippine economy? In the succeeding frames, we examine the outlook for this year and the challenges ahead of us. This table shows the domestic outlook for 2009, based on the macroeconomic assumptions agreed upon by the Development Budget Coordination Committee. With the bottoming out of the crisis, the economy is forecast to grow moderately at a range between 0.8 and 1.8 percent in 2009 (GDP) to provide the backdrop for the improvement in growth prospects in the coming year. As mentioned earlier, inflation is expected to further decelerate in 2009. This has given some flexibility to monetary policy to support economic activity, as long as inflation remains on target. In 2009, the BOP is expected to again post a surplus, supported in part by three factors: • Remittances which are expected to stay at the 2008 level, or possibly even surpass it a bit; • Revenues from BPO services which will also provide some lift to the current account (actual revenues for 2008 reached US$6 billion). The BPO industry is poised to grow on account of strong demand for back office, engineering and financial services; and • Export revenues, while still expected to contract, are showing some signs of life, i.e. the book to bill ratio has increased since February 2009. The GIR as of end of July 2009 has already surpassed the target range for 2009. The peso which is assumed to stay at an average of between P46 to P49 per US dollar will be supported by the favorable external payments position. Inflation expectations remain well-anchored. The BSP survey of private economists indicates that the mean inflation forecasts to be at 3.5 percent for 2009, 4.8 percent for 2010 and 4.8 percent in 2011. These were all lower than the forecasts in the previous quarters. Broadly, similar numbers are yielded by the Asia Pacific consensus forecasts: at 3.6 percent for 2009 and 4.4 percent for 2010. Given this scenario, what are the likely directions of the monetary policy going forward? The BSP’s policy thrusts will continue to be aimed at ensuring that the headway achieved in nurturing a resilient economy and a sound banking sector will be sustained even in the face of the challenges. First, on monetary policy, we will maintain vigilance over price developments, since this is the BSP’s primary mandate. As the risks to the domestic economy move away from inflation toward economic growth, we have had more flexibility in our policy settings. The BSP will continue to pay close attention to signs of global demand recovery as well as to a possible build-up in commodity price pressures over the medium term, with a view to undertaking timely action towards a non-inflationary recovery in economic activity. Moreover, the BSP stands ready to undertake policy actions that will strengthen the public’s confidence in the financial system. We will sustain key reforms that will strengthen capitalization, supervision and market discipline for greater efficiency, more effective risk management, stronger capital base and improved corporate governance standards in the banking system. In the external sector, our policies will continue to be directed at maintaining a marketdetermined exchange rate with scope for occasional official action to address sharp movement in the exchange rate; maintaining a comfortable level of reserves as selfinsurance; and ensuring the sustainability of our external debt. Let me add a few notes on the likely path of monetary policy in the near term. As the global economy recovers, the eventual strengthening in domestic economic activity will require a controlled shift in the direction of the policy stance from the current easing mode. The timing and speed of the shift to a tighter or less accommodative policy stance will depend on the inflation outlook as well as on the sustained pick-up in real sector activity, as the full impact of prior fiscal and monetary stimulus takes effect. It is important to remember that the type of monetary easing undertaken so far by emergingeconomy central banks like the BSP has been more conventional compared to that by the central banks of advanced economies. Central bank balance sheets in advanced economies have grown more sharply in the past year as a result of unprecedented "quantitative" easing and significant credit measures. By contrast, we relied largely on conventional easing measures such as lower policy interest rates and reserve requirements – although we did implement liquidity enhancing measures as well. Looking further ahead, however, one important risk that we are seeing for monetary policy – apart from the volatility of commodity prices – is the potential resumption of cross-border capital flows, which may complicate the shift to a tighter policy stance. The emerging signs of stabilization of global financial markets and economic conditions are expected to encourage the gradual return of capital flows to Asia. With the ongoing realignment in risk perceptions, flows to emerging economies – particularly those with sound macroeconomic policy and good growth prospects – are expected to improve in the second half of 2009 and in 2010. Capital inflows help relax the foreign exchange financing constraint of the domestic economy. For this reason, they can have a positive impact on the external accounts, contribute to liquidity expansion and help lower domestic interest rates. However, policymakers will also need to be prepared to face the possibility of exchange rate appreciation and increased liquidity growth, along with associated concerns. The key challenge is to conduct monetary policy so as to ensure that the additional resources provided by rising foreign capital inflows do not lead to inflationary pressures or to asset price bubbles. As economic conditions improve and we enter another phase of the business cycle, policy imperatives come into the fore. The challenge is to address the inherent procyclicality of the financial system by strengthening the macro-prudential framework for monetary policy. The long-term commitment to price and financial stability imposes the need to require better risk management within the financial system. On its part, the BSP has already issued its Internal Capital Adequacy Assessment Process (ICAAP) guidelines which aim to strengthen the risk culture within banks. Likewise, the BSP is in the process of beefing up its macro-surveillance capabilities. Mindful of the lessons brought by the global financial turmoil, the BSP has stressed the need to operationalize the guidelines on liquidity risk management. Moreover, the BSP will continue to monitor proposed further enhancements* and adjustments in the Basel II framework to make capital requirements countercyclical. Another challenge is to sharpen the central bank’s communication toolbox to include not only management of expectations but also management of risk aversion. The key point is to maintain and enhance the credibility of the monetary and financial policies such that expectations are well-anchored and concerns of risk aversion do not become self-fulfilling. Finally, I want to conclude my presentation by emphasizing that: • The full recovery of the global financial system may take some time; • With the global economy likely to be going at a sub-par rate for some time, the key challenge is to continue to provide support domestic demand. As monetary policy has eased, fiscal policy will also play a key role in sustaining domestic economic activity. • The BSP will continue to calibrate its actions appropriately to help achieve faster recovery of the domestic economy always taking into consideration the inflation outlook. --------------- - Moody’s Investors Service upgraded the Philippines’ foreign and local currency government ratings to Ba3 from B1, the country ceiling for foreign currency bank deposits to Ba3 from B1 and the country ceiling for foreign currency bonds to Ba1 from Ba3. The change in the foreign currency bond ceiling is based on a revised assessment of the risk of an external payments moratorium to low from moderate. - The outlook on the ratings is stable. The upgrade was prompted by the relatively high degree of resiliency exhibited by both the country’s financial system and external payments position in the face of the global financial and economic crises. International reserves of the central bank are at a historic high and exceptional policy measures have not been required to shield the banking system from global shocks.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the SSS anniversary celebration, Quezon City, 1 September 2009.
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Amando M Tetangco, Jr: BSP and SSS – moving towards a common vision Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the SSS anniversary celebration, Quezon City, 1 September 2009. * * * Social Security Commission Chairman Thelmo Cunanan, SSS President and CEO Sec. Romulo Neri, Former SSS President and CEO Corazon de la Paz-Bernardo, Distinguished Members of the Social Security Commission, past and present, COA Chairman Rey Villar, other officers and staff of SSS, fellow workers in government, special guests, members of the press, ladies and gentlemen, good morning. It is a pleasure to be part of the 52nd anniversary celebration of the SSS, the Philippine institution that has 28 million members or nearly one-third of our country’s population! Indeed, the SSS is one of the most important institutions in our country: it is the institution that has been providing support and protection to millions of its members who face financial challenges from sickness, disability, death, maternity, and other contingencies for 52 years now. This tells us that SSS has been faithful in fulfilling its responsibilities to its members and that, in turn, its members continue to trust SSS with their hard-earned money. For this, the men and women of the SSS, past and present, deserve our appreciation and a long-round of applause! Let us also give a big hand to all the Balikat ng Bayan awardees who are the exceptional bank partners and top employers that help the SSS achieve its objectives and provide good service to its members. Palakpakan din po natin sila! Ladies and gentlemen, the continuing stability and strength of the SSS is important not only for its members and employees but also for the economy as a whole. Among others, each time it extends benefits to its members, the SSS, in effect, reminds them of the value of regularly setting aside part of one’s income for the rainy days. This is important as it is the accumulated savings of our people that enable our banks to sustain lending for economic activities that generate and keep jobs. In turn, the new additions to the labor force keep on expanding the membership base of the SSS. Banks are also important conduits for the collection of SSS premiums as well as for the distribution of benefits to its members. Clearly, there is synergy between the SSS and our banking system. Synergy also exists between the SSS and the capital market. From the accumulated contributions of its members as well as earnings derived from its funds management, SSS has become a major market player. I understand that the investment portfolio of SSS as of the first quarter of this year had reached P220 billion. In addition, it has outstanding housing and salary loans of about P3 billion to its members as of March 2009. These are investments that have multiplier effects on the economy. The SSS is also responsible for the entry of many new individual investors in the stock market when it extended loans to its members for investments in listed stocks. Moving forward, the state of the economy, employment, the capital markets and the banking system are important factors for the SSS in planning for its future. I will therefore give a brief overview of how these are developing. Recent global developments Let me start with the global economy that is still grappling with the financial turmoil that has triggered the most serious economic downturn since the 1930’s. In the US and in Europe, in particular, this has been a period of significant external shocks, financial stress, and, for some, massive loss of wealth and investments. Fortunately, coordinated response among governments and central banks to address the global financial crisis and the economic recession has been producing positive results. In its latest assessment, the International Monetary Fund noted that the world economy is stabilizing and that there are clear signs that global growth prospects are reviving. However, the improvements are far from uniform across markets and countries. Furthermore, the recovery is likely to be sluggish, in part because while global financial markets are improving, it is still not back to normal. Thus, global economic recovery will likely remain subdued or muted for some time. For Asia, there is a growing consensus that growth is likely to solidify going forward. Against this global backdrop, how is the Philippine economy doing? Philippine experience: sustained resiliency In the case of the Philippines, the picture is of sustained resiliency. Compared to other Asian countries, the economic slowdown in the Philippines has been relatively moderate. In fact, while neighboring countries slipped into recession, our economy continued to grow, although at a markedly slower pace: 0.6 percent in the first quarter this year to 1.5 percent in the second quarter. At the same time, inflation continued to ease. From an average of 9.3% in 2008, inflation slowed to 7.1% in January 2009 and declined further to 0.2 percent in July 2009, as prices started to normalize from the spikes experienced in the previous year. Demand remains steady and is expected to pick up. Inflation is seen to stay within its target range of 2.5 to 4.5 percent in 2009 and in 2010 generally in line with the 3.5 to 5.5 percent target. The continuing benign inflation outlook has allowed the BSP to cut its policy rates by a total of 200 basis points since December 2008. These rate reductions are aimed at bringing down the cost of borrowing and reducing the financial burdens on firms and households. Further, lower policy rates enhance business and consumer confidence that should sustain the momentum for economic expansion. The BSP is happy to know therefore that the SSS has been lowering its interest rates as well. For instance, I have been informed that interest rates for your business and social loan programs were reduced last July by 0.5% to 1%. In addition to the cuts in its policy rates, the BSP also moved to ensure sufficient liquidity in the banking system. These liquidity enhancing measures include the reduction in bank reserve requirements by two percentage points and an increase in our peso rediscounting budget from P20 billion to P60 billion. This helped sustain bank lending at double-digit growth rates. At the same time, continued reforms implemented as lessons learned from the past have kept the Philippine banking sector stable through the ongoing financial turmoil. These include capitalization build-up to levels above international standards, asset clean-up that saw nonperforming loans improve to low single-digit figures, and better risk-management practices particularly credit and liquidity risks. Overall, the consolidated asset base of Philippine banks continues to expand, supported by sustained growth in deposits. Our banking system will therefore remain as a safe and stable partner of the SSS in reaching out to its members across the Philippines. The country’s external payments position also remains a fundamental source of strength to the economy. One important lesson learned from the 1997 Asian financial crisis is the value of building up our international reserves for self insurance. As of end-July 2009, reserves have risen to a record high level of US$40.0 billion, enough to pay for seven months of imports; this is more than double the global standard of 3 months. This strong external position – supported by robust remittances of overseas Filipinos as well as higher receipts from business process outsourcing -- makes the Philippine economy less vulnerable to the moods and swings of the international financial markets. The financial markets have also stabilized. Credit spreads have narrowed compared to levels at the height of the financial turmoil; the peso continues to be broadly stable; and foreign buying has boosted the stock market. Investor confidence has been enhanced further by Moody’s upgrade of the country’s outlook from “stable” to “positive”. BSP’s policy actions Going forward, the BSP’s monetary policy stance will remain appropriately calibrated to support domestic economic activity, but will always be mindful of emerging risks to inflation. The BSP will also pursue the banking reform agenda to ensure that the banking system remains sound and globally competitive. Key financial and banking sector reforms that would lead to greater efficiency, more effective risk management, stronger capitalization, and enhanced corporate governance standards in the banking system will be sustained. We are also working for the passage of amendments to the BSP Charter to strengthen BSP’s ability to ensure stable prices and a sound banking system and financial stability in the country. Ladies and gentlemen, the credibility of institutions is anchored on their commitment and ability to pursue their mandate and objectives. For the SSS and the BSP, the convergence of some of our objectives provides room for collaboration. Financial education is one such area. The BSP is actively involved in promoting lessons in saving, money management, and investments to help more Filipinos benefit from opportunities development brings and to protect them from getting victimized by scams. Equally important, having more financiallyeducated Filipinos make for a stronger and more stable banking system, an objective shared by both the BSP and the SSS. The ability of the SSS to reach out to millions of its members makes it a vital partner for financial education. I hope therefore that we can explore areas for cooperation in expanding the reach of our financial education program. This will provide added support for the efforts of the SSS to improve the quality of life of its members. And since banks remain the principal channel of the SSS for its premium collections, pension disbursements and other financial transactions, the BSP’s efforts to continuously strengthen our banking system will benefit the SSS and its members as well. In addition, the BSP’s initiatives to help develop and deepen the domestic capital market will help provide SSS with wider opportunities for investment diversification. Finally, the BSP’s commitment to price stability will be key in preserving the purchasing power of pensioners and other SSS stakeholders. We look forward therefore to closer collaboration between the SSS and the BSP. I also wish the SSS and its other stakeholders a successful partnership that will continue to bring timely and meaningful benefits to its members. Once again, congratulations to the men and women of the SSS on its 52nd anniversary and its continued success in providing social security for 28 million Filipinos. Mabuhay ang SSS! Mabuhay ang Pilipinas! Maraming salamat sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Asian Roundtable on Corporate Governance, Manila, 9 September 2009.
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Amando M Tetangco, Jr: Corporate governance reform in the Philippines – progress and challenges Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Asian Roundtable on Corporate Governance, Manila, 9 September 2009. * * * This roundtable conference on corporate governance is indeed timely as the world now moves to redefine the global corporate, financial and regulatory architecture with the view to prevent the recurrence of a similar crisis in the near or distant future. Many have concluded that this crisis was to an important extent the result of poor adherence to the core tenets of good governance. Decisions overstepped the principles of good governance either due to excessive risk-taking, conflicts of interest and or opacity of transactions. In the BSP, we take governance of banks seriously because we know banks are key in keeping the economy well functioning and growing. One of the main reasons our economy has weathered the crisis relatively better than most in our region is that our financial system has continued to function normally even at the height of the crisis in the last quarter of 2008. In this regard, please allow me to walk you through BSP’s initiatives to strengthen good governance in the financial industry and our continuing efforts to ensure that good governance principles are woven into the organizational culture and operations of our supervised institutions. BSP initiatives on corporate governance Setting the tone from the top At the BSP, we believe that the corporate governance principles of Fairness, Accountability and Transparency should complement our banking reform advocacies. When we were trying to flesh out the implementation of these tenets to banks, we asked ourselves where better to set the tone of good governance than at the corporate top? Indeed we wanted to ensure that only those deemed “fit and proper” for the jobs are confirmed to assume their posts. To accomplish this, we issued regulations that set out standards on the qualifications of directors and key officers of financial institutions, putting as much weight on competence as on integrity. The BSP likewise required the members of the board to attend a seminar on corporate governance to formally structure the learning on the ethos of good governance. For this undertaking, the BSP accredited seven (7) training providers, which include the Institute of Corporate Directors. We have also made explicit our expectations from the board of directors of our supervised financial institutions. We have issued regulations clearly identifying the duties and responsibilities that the board itself and the members of the board, in their individual capacity, should carry-out. Responsibilities of the board that have been established include the selection of officers and personnel to the adoption and implementation of adequate risk management policies. Also, consistent with the General Banking Law, the BSP has required that banks have at least two independent directors on their boards. In addition, we have prescribed that risk management, corporate governance and audit committees be created in the board. All these may be considered as parts of an internal line of defense against excessive risk taking or attempts to cut corners that may result in unsafe and unsound practices. Enhancing transparency, disclosure and financial reporting Our campaign for good corporate governance didn’t only cover determining “fit and proper” officials, but also included equipping the officials with the necessary tools for making informed decisions and for relaying the same to stakeholders. In this respect, the BSP adopted the International Accounting Standards. This aligns our financial reporting principles with the global standards and substantially improves the amount and quality of information disclosed by financial institutions to the public, beyond published audited financial statements and annual reports. Along the line of promoting transparency and disclosure in financial reporting, we have established an accreditation process for external auditors. This raises the bar for adherence to control standards and ensures that financial institutions will be audited only by external auditors who adhere to such quality control standards. I am pleased to report that to further cement this move, the BSP signed (just last month) together with the Securities and Exchange Commission (SEC), the Insurance Commission (IC) and the Board of Accountancy a Memorandum of Agreement (MOA) to provide a working framework to harmonize the different accreditation processes of the regulatory agencies and allow mutual recognition of external auditors that they have individually accredited for certain types of institutions. Enhancing supervisory tools Many of us may have heard that this crisis was brought about by individual actions that have necessitated correction by collective action. Market participants have been seen to manage their risks effectively up to the point where the cost of doing so makes sense from their own point of view only. This presents a challenge to regulators. To avoid stifling appropriate credit activities and risk taking, the regulator must find the suitable balance when crafting banking regulation and enforcing supervision. The regulator must ensure that risks are well understood and appreciated by all concerned economic agents. In addition, the appropriate incentive structures must be present so that market discipline operates effectively in the future. The BSP, as an overseer of good governance in the financial system, therefore recognizes the need to constantly enhance its supervisory tools if it is to effectively perform this balancing act. A step towards this goal is the issuance of the guidelines on Pillar 2 of the Basel 2 capital adequacy framework or the Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review Process (SRP). This would give the BSP a better handle on how well the board of directors and senior officers understand their own risk management systems and capital allocation policies, as the ICAAP is bank-determined and should provide rules for implementing the bank’s risk appetite. In sum, the BSP has created an environment of good governance among banks by 1) setting the tone of governance from the top by choosing only fit and proper directors; 2) equipping the board of directors to make smart risk decisions through appropriate information and disclosure tools; and 3) allowing bank management to implement those risk decisions in a framework that protects the stakeholders. By creating this environment, we hope that banks would move from “mere compliance, to performance”. Corporate governance scorecard for banks Before I conclude my remarks this morning, allow me to share with you the issuance by the BSP of the Corporate Governance Scorecard (CGS) for Banks. I am quite pleased to mention this, as I have been told this is the first of its kind in the world. The CGS for banks initially covers universal and commercial banks and their subsidiary and affiliate banks. It was made possible through our partnership with the ICD and representatives from the banking industry. The CGS for banks was broadly patterned after the scorecard for publicly listed companies, which was customized and refined to make it suitable for banks. In addition to the five corporate governance categories that we have adopted from the Organization for Economic Cooperation and Development (OECD), the CGS for banks includes a category on Control Environment and Processes in recognition of the importance of risk management in banks. The 20 U/KBs involved in this project were asked to rate themselves using the questionnaire issued by the BSP. The “person-on-the-street” approach was adopted in evaluating the corporate governance practices of the concerned banks. This takes on the perspective of a depositor or investor that has no other access to information aside from those available to the public, including those posted in banks’ website. Based on the evaluation of the submitted CGS of U/KBs, the industry charted a high average score of 84%. Although this did not come as a surprise, we are nevertheless pleased as we take this as an indication that the banking industry is indeed embracing the principles of good governance. I would also like to share with you, that among the six (6) corporate governance categories, the U/KBs registered the highest score in Control Environment and Processes at 89%. The top three (3) U/KBs had an average score of 94% while the bottom three had an average score of 66%, or a margin of 28%. However, if we look at the average scores of the top three (3) and bottom three (3) on a per group basis the margin narrowed down to 15% as the top three (3) of the thirteen (13) universal banks received an average score of 94%. The same margin was maintained for the seven (7) commercial banks, as their top three posted an average score of 85%. The BSP intends to continue the CGS for banks on a yearly basis and eventually expand its coverage so as to include all types of banks under our supervision. We believe that this endeavor will take us a step closer to strengthened investor confidence and capital market development. Roadmap for the future Moving forward, the BSP will continue to maintain its stance of being a step ahead in initiating reforms for good governance in the financial industry. For example, we recently conducted a study on whether we should impose a limit on the number of institutions wherein an individual may serve as an independent director. Based on our assessment, there is no immediate need to change existing regulations, we will, however, monitor any development in the industry that may indicate an abuse of the existing regulatory leeway. Also, we are proposing an amendment to the BSP Charter that would require our prior approval for the transfer of substantial equity holdings in banks. We believe that this additional measure would help in ensuring that only those with indubitable integrity, capacity and competence would have a stake in the banking industry. The BSP has also started planting the seeds for increased financial literacy in the country as we believe that the financial sector and ultimately the Philippine economy will benefit from increased public awareness. This will strengthen the confidence of the market in the financial system and at the same time, foster a more transparent way of doing business. The BSP created a group dedicated solely to advancing financial literacy and we have also tied-up with the Department of Education to include in the curriculum of grade school students basic topics on savings and money management. Concluding remarks To conclude, governance is a reflection of the values of individuals within an institution. The initiatives we have started to promote good governance are only as good as the people observing them. This is similar to the art of making ceramics. Different potters shaping the clay will come out with different interpretations of the same pattern, although each one of them followed the same process and used the same tools. The challenge for us, in this case, is to ensure that the potters have the skills, the right values and perspective in shaping the delicate piece of art. Thank you and good day.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bloomberg Conference "Gearing for 2010. Ensuring Profitability. Containing Risk", Makati, 4 November 2009.
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Amando M Tetangco, Jr: Prospects and challenges in 2010 – the bond market in the context of the Philippine economy? Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bloomberg Conference "Gearing for 2010. Ensuring Profitability. Containing Risk”, Makati, 4 November 2009. * * * A few days ago, I had the occasion to speak before an international body of Asian bankers. There, I shared my views about the future of the regional banking market and specifically raised product and policy issues that confront Asia today. These are the concerns that arise if we are to move forward as a banking hub underpinned by the region’s vast economic potential. I join you this afternoon to focus in particular on the Philippine situation. Instead of providing you with the usual parameters that come with a macro prognosis, allow me instead to discuss the bond market in the context of our broad macro-financial situation. This would be our natural recourse given the inherent relationship between interest rates and fixed-income valuation on one hand and between economic activity and capital-raising on the other. When structure translates into operations To talk about the Philippine bond market necessarily means talking about the Philippine government securities (GS) market. In addition, it is probably not much of an exaggeration to argue that the local bond market is inherently linked to fiscal policy. Over the last 5 decades, the national government has found itself in a budget deficit position, with the exception of 5 fiscal years. The NG funds the deficit principally by the issuance of domestic GS. Of course, as the country’s macroeconomic fundamentals improved, the NG has also been able to tap the international capital market for portion of the budgetary requirement. Nevertheless, domestic funding remains the primary funding source to a ratio of more than two-thirds of total borrowing mix. Relative to the size of the economy, outstanding GS accounted for about one-third of nominal GDP as of end 2008. This basic structure translates into a challenging operating framework. To be sure, the national government has every interest to bring down its cost of borrowing. Yet in the same token, it is also the most active borrower in the market. One added feature that can readily be seen from the data of the BTr is that GS issues thru ADAPS have been predominantly in the form of Treasury Bills, accounting for 58% on average since 2000. This significant amount of short-term debt invariably puts pressure on managing liquidity and fiscal authorities have to fund frequently maturing obligations. The shorter-term debt profile also helps explain lower trading activity. As of June 2009, calculations by the ADB show a turnover ratio of 0.37 which literally means a recorded trade value of only 37 centavos per peso of outstanding government security. At the other end of the tenor profile, many institutional participants choose to immunize their long-term obligations with long-term assets. Even those who may not have such long-dated obligations often prefer to hold Treasury Bonds to term because of the steady stream of coupons over the long-term. The net effect of both of these is that our long-term treasury issues tend to be rather illiquid. One can readily check that the long-end of the PDST-R2 series is often the “best bid” of benchmark bonds rather than actual done deals. The irony then is that sheer volume has really not nurtured a liquid GS market. Asset price liquidity can be problematic to establish for certain issues. For some tenor buckets and specific issues, funding liquidity may also be a concern from time to time. The point has been raised that the market dominance of GS may in fact be absorbing funding liquidity away from other market instruments, curtailing the development of the latter product lines. Market development and policy Moving forward then, the clear mantra is to jump-start and nurture liquidity in GS. The recent launch of the trading platforms for repos and Securities Lending Transactions (SLT) separately should go a long way in institutionalizing organized secondary markets. The case of the inter-professional repo platform, for example, gives us high hopes of what lies ahead. From an outstanding amount of Php5.4 Billion as of year-end 2008, it is now at Php36.3 billion as of October this year. What we would like to encourage is for trading activity and turnover to increase without mandating holders of long-term issues to liquidate their positions. This is of course possible only if the various tenors maintain sufficient depth while generating credible and transparent market prices. In this way, we provide investors with the level of comfort that they can exit their positions in an orderly manner without having to absorb significant distortions in valuation. This basic approach provides an essential ingredient, that of credible prices where trades can and do occur. The BSP had previously issued in 2006 guidelines on what we deem to be acceptable benchmark prices. What we would like to see is more depth and more activity across the benchmark tenors precisely to assure investors that market prices reflect consummation of demand and supply pressures. This is the only yield curve that would eventually matter. We understand that international accounting standards rely on “bid” rates to establish fixed income benchmark rates. In a liquid market, there would be no debate that buy-side rates would be sufficient since this would generally reflect the short-side that defines equilibrium. However, if we are starting from a fragmented market where both funding and asset price liquidity are not uniformly established, it is less clear that “done” rates are of less reference value than “bid” rates. The yield curve is essential for policy because it allows us to eventually price corporate issues. Since GS would still enjoy the least of credit risk, the prices that come out of this market reflect the market’s premium for time. In other words, it is the pure premium for waiting. With that on hand, corporate issues can be priced then for their tenor and credit quality. The transparency of this dichotomy makes the market more efficient for investors who can now choose the combination they are prepared to absorb as an investment risk. To this end, the BSP is quite pleased to see the debt issues being listed at the fixed income exchange. These are not only straight bonds but more recently includes two bank issues of unsecured subordinated debt. As I have remarked at a previous occasion, the listing of these corporate issues reflect the willingness of the issuer to be eventually judged by the market on the market’s terms. The fact that the last two listings are bank issues gives the BSP added pleasure because this is aligned with our stated objective of broadening the ownership base of banks while enhancing the capital market with newer instruments. The bond market and the needs of the Philippine economy Of course, a deep and liquid bond market that generates credible pricing has always been the plan. The real question then is what else needs to be done to put the bond market within the specific context of the Philippine economy. I already mentioned the valuable contribution that the repo and SLT platforms can provide. These are a good start because these platforms can unlock trapped liquidity in the long-term issues for which we expect to improve on both liquidity and market turnover. Beyond trading venues however, four initiatives come to mind. First, it may be useful to revisit the issue of having 11 benchmark tenor buckets. It should be evident by now that having so many benchmark tenors does not necessarily improve the ability of the market to price off-the-run issues. Stated differently, the major economies typically have 4-6 benchmark tenor buckets only and this has not weighed against liquidity and the pricing of off-the-run issues. Recent initiatives to exchange short-for-long-term issues help to consolidate depth but a significant potential remains untapped. Second, the bond market can be a more active vehicle for raising long-term capital. The fact that the GS market is as big as a third of GDP is itself not a binding constraint. Economies such as Hong Kong, Korea, Malaysia and Singapore all have significant corporate bond markets that complement their respective GS market. This would be a healthy next step for the Philippines as it broadens the financing options for corporations while reducing the gapping pressure on bank credits. Third, we need to recognize that the Philippines is an archipelago. The implication is that the market needs to bridge the gap in space to provide real-time opportunities. Two credits cannot be priced differently if all that distinguishes them is location. Unless there is economic value to location, any such difference is simply arbitrage. Worse, the same credit cannot be priced differently as an investment opportunity in two different locations at the same time. That is simply blatant inefficiency, if not market bias. Fortunately, technology has moved forward to allow us to fill gaps in time and space. Some time back, the BSP entered into a partnership with market stakeholders on the National Settlement Highway. The NSH is the technological backbone that will allow the public to efficiently clear and settle good funds across entities in different regions. More recently, the FI-BIOS was launched to provide retail investors in different regions with the capability to place investment orders on real time basis. These are the type of technological innovations that help us address the unique situation of the Philippines. I trust that we can maximize the use of such facilities and make further innovations where needed. Fourth and final initiative, the development of the bond market, whether GS alone or inclusive of corporate issues, will not be self-sustaining unless there is a financially-aware investing public. This is not a trivial task but the onus of providing the public with relevant information must be shared by all stakeholders, both regulator and the regulated. The recent passage of the PERA law together with its attendant IRR is a prime example of the type of financial awareness campaign that must be pursued. PERA itself is encompassing given the wide variety of products that may be offered. This can therefore be the linchpin for a concerted campaign and eventually extended beyond PERA. Final thoughts Ladies and gentlemen, I have covered quite a bit of ground here this afternoon. Some may choose to see this as an indication that there is much that is impaired with the Philippine bond market, particularly that of the government securities. I beg to differ since I have seen the strides that have been taken particularly in more recent times. Thus, I choose to see the vast potential this market can offer to the Philippines as a necessary vehicle to promote further economic development. It would be a grave mistake however if we see the market simply as government securities. While it is true that in the Philippines the GS market in inherently linked to our fiscal situation, the broader development initiative cannot be held hostage by such limited concerns. Fiscal consolidation is a continuing commitment and our collective efforts to address our fiscal position may soon come to fruition. Between now and the point of a sustainable national budget, the bond market needs to develop so that it moves beyond a largely fiscalcentric tool to one that can provide opportunities for both business initiatives and the investing public. From the regulatory end, our commitment is to provide the enabling environment for the broad fixed income market to thrive. That will include the prudential framework that is needed for effective oversight and to protect the interests of the public. It will have to also include a stable macroeconomic environment where expectations on market prices and economic activity can be reasonably ascertained. This combination of a prudential framework and the ability to mitigate volatilities is certainly at the heart of a thriving fixed income market. I will submit to you this afternoon, ladies and gentlemen, that indeed we have such an enabling macroeconomic environment before us. The outlook remains that of manageable inflation expectations, “within-target” inflation rates for 2009 and 2010, continuing remittances from overseas Filipinos, a surplus BOP position, market-driven peso value and interest rates that are responsive to our market’s needs. Already the current low interest rate environment provides an interesting market backdrop for this point. Between a fixed coupon rate payable over the long-term and bank credit that is re-priced annually, the current environment appears to favour the former than the latter. Certainly, we have seen a number of debt issues structured of late and I am told that a few more are in the realm of the possible. Ladies and gentlemen, I have no doubt that the GS market can very well serve as the catalyst for further reforms. The goal is to transform the market from a basic fiscal tool to a broader venue that migrates savers into investors while raising capital for productive initiatives. Instead of tapping foreign saving, entrepreneurs can very well raise funds locally without the complications of cross-currency cross-border risks. Instead of crowding out private saving, the GS market can act as the necessary base from which corporate credit can be properly priced and sourced. Instead of seeing its limitations, I see what the Philippines can do in this market and hold high hopes for its eventual success. With that, ladies and gentlemen, I bid you all a pleasant afternoon.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 14th Technical Meeting of Mints in ASEAN (TEMAN), Manila, 23 November 2009.
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Amando M Tetangco, Jr: Ensuring efficient & eco-friendly ASEAN mints Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 14th Technical Meeting of Mints in ASEAN (TEMAN), Manila, 23 November 2009. * * * Distinguished members and participants to the 14th Technical Meeting of Mints in the ASEAN, special guests, good morning! On behalf of the Bangko Sentral ng Pilipinas and our Security Plant Complex, it is with pleasure that I welcome all of you to the Philippines for the 14 TEMAN Conference. As you may have noticed, the conference theme we adopted is SPCwhich stands for “Strengthening Partnership and Cooperation.” I understand that in Indonesia, the abbreviated word TEMAN means friends. What better way to move forward with friends therefore than to strengthen partnership and cooperation. The Organizing Committee envisions the conference to be a catalyst for new and dynamic ideas, for critical thinking, and for open discussions on issues affecting the minting industry. Among others, we want to create more value for our products, to facilitate advancements and enhancements in our systems, and to contribute ultimately in the broader and lofty task of building up our respective nations. Indeed, TEMAN plays a vital role in empowering its member Mints to provide quality products and services to their people. Given the global financial crisis that had triggered a global economic slowdown, TEMAN must take appropriate steps to work out a common agenda that will promote process and cost efficiencies, while addressing urgent issues such as the need to adopt more environment-friendly processes. Ladies and gentlemen. The world has realized that there is no progress to speak of if this is made at the expense of the environment; because in the end, it is a step backward not forward if the environment suffers as a result of our operations. We have seen how industrialization made for the benefit of human beings has been generating toxins and pollutants which now threaten the very same human beings. The challenge for TEMAN therefore is to align itself with the goals of the Association of Southeast Asian Nations which is committed to continue sustainable development or the pursuit of a green and eco-friendly economy. Afterall, the 10 TEMAN members have one thing in common: we are all members of ASEAN. That goes for Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Union of Myanmar, Singapore, Thailand, Socialist Republic of Vietnam, and the Philippines. I hope therefore that clean and green topics will be very much a part of your discussions. In words and in deeds, let us help take on the case for a cleaner and better environment in our respective mints, in our homes, and in our communities. Our own Security Plant Complex has already taken meaningful steps in this direction. I hope that this TEMAN conference will give it more new ideas to implement as an eco-friendly mint. I am counting on it. Finally, I wish to congratulate the members of the 14th TEMAN Organizing Committee – my colleagues at the Bangko Sentral ng Pilipinas – for all their efforts in ensuring the success of this conference. Please stand up so we can acknowledge you with a round of applause! To our foreign guests, I advise you to find time to explore and know more about our country, our culture, and our people. You will find that this is a great place which is worth coming back for. Once again, I wish you all a successful and fruitful conference! Thank you all and Mabuhay!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), on the occasion of the PHILPASS-ABROI MOA signing, Manila, 2 December 2009.
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Amando M Tetangco, Jr: Supporting overseas workers thru lower remittance fees Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), on the occasion of the PHILPASS-ABROI MOA signing, Manila, 2 December 2009. * * * Magandang umaga sa inyong lahat! On behalf of the Members of the Monetary Board and my fellow central bankers, I congratulate all the institutions and all those involved in this important undertaking for making this a reality. This is important because with our signing ceremony today, we take another significant step forward in our continuing program to support millions of our overseas workers. Together, we shall be able to lower the fees paid by our overseas workers to send money to their beneficiaries. The principal players who collaborated with the Bangko Sentral’s Department of Economic Statistics and the Payments and Settlements Office on this project are the Association of Bank Remittance Officers, Inc. more popularly known as ABROI, and the different bank organizations including the Rural Bankers Association of the Philippines, the Chamber of Thrift Banks, and the Bankers Association of the Philippines. Let us acknowledge them with a well-deserved round of applause. In particular, we commend ABROI under the leadership of its president Carmelita Araneta and its 11 member banks, in alphabetical order: Allied Bank, Asia United Bank, Banco de Oro, Bank of Philippine Islands, China Bank, Development Bank of the Philippines, Land Bank of the Philippines, Metrobank, Philippine National Bank, RCBC and Union Bank. Ladies and gentlemen, let us give them a well-deserved round of applause. Under our agreement, the 11 member banks of ABROI who handle remittances of overseas Filipino workers will use the Bangko Sentral’s real-time gross settlement system – which we call PhilPass – as their link to send remitted money to the beneficiaries’ accounts in other banks. As a payments system infrastructure, PhilPass primarily settles high value payments from accounts maintained by banks with the Bangko Sentral, thereby eliminating settlement risks. With our MOA, PhilPass will also serve as a local clearing facility for the settlement of remittances for credit to other banks. Given the delays as well as incidents of theft and robbery involving some couriers used by banks to deposit remittance funds to beneficiary accounts, PhilPass emerges as a safer, faster, and more efficient option for remitting overseas workers. Another highlight of this project is the agreement by participating banks to charge a significantly lower standard back-end processing fee of 50 pesos per remittance transaction. The back-end processing fee normally charged ranges from a low of P100.00 to a high of P550.00 per transaction. In other words, overseas Filipinos will be saving at least P50 to P500 per transaction in remittance fees whenever ABROI members forward the money to beneficiary accounts in other banks. Estimates indicate that remittance transactions average 66 million per year, of which transmission through “credit-to-other banks” accounts for 8% or an average of more than 5,000 transactions daily. This means savings of at least P75 million in annual remittance fees for overseas Filipinos. At least P75 million. For our overseas workers, this represents additional money that can benefit their families and other beneficiaries. For the Bangko Sentral and our banks, this represents yet another way for us to express our support for our overseas workers who continue to play a pivotal role in keeping our economy sound and stable. I understand that systems integration of ABROI member banks with the Bangko Sentral’s PhilPass will be completed before the end of this year, with test runs expected to begin in January 2010. Given this timeline, the PhilPass-ABROI linkage should be fully operational by late February or early March next year. Once again ladies and gentlemen, I thank everyone involved in this important undertaking that will benefit millions of our overseas Filipino workers and their families. Let us consider this as our joint Christmas gift to them. Mabuhay ang ating overseas workers! Mabuhay ang Pilipinas! Maraming salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bangko Sentral ng Pilipinas flag-raising ceremony, Manila, 4 January 2010.
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Amando M Tetangco, Jr: Team BSP – gearing up for an even better year in 2010 Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bangko Sentral ng Pilipinas flag-raising ceremony, Manila, 4 January 2010. * * * Ladies and gentlemen of the Bangko Sentral ng Pilipinas, magandang umaga at masayang bagong taon sa ating lahat! On behalf of the Members of the Monetary Board, I stand before you today to lead the start of our first working day at the Bangko Sentral ng Pilipinas in 2010. Now, I want to ask all of you: are we ready to do the best we can as central bankers in 2010!? I am very happy to hear that! Like you, I also believe that the men and women of the Bangko Sentral ng Pilipinas are prepared to meet the challenges that will come our way in 2010. I say this because we have statistics and the data to back me up. Fellow central bankers. I want to say this for the record. Given one of the most difficult years for central banks across the globe, we did quite well in terms of the three pillars of central banking: a stable price environment marked by low and stable inflation; a safe and sound banking system that has kept credit flowing to productive sectors; and a secure and reliable payments and settlement system that has minimized systemic risks and enhanced confidence in our financial system. In turn, manageable inflation has given us ample leeway to maintain low interest rates that support continued economic growth. We also implemented liquidity-enhancing measures to help relieve possible stresses in the financial system coming from the global downturn. At the domestic front, we helped ease the destructive effects of typhoons “Pepeng” and “Ondoy” with a special rediscounting facility and a set of temporary regulatory relief measures for affected banks and bank borrowers. In addition, our external position remains favorable with a surplus in our balance of payments and record high gross international reserves. And the peso is firm and stable. In other words, responsible, timely, and disciplined monetary and financial policies helped keep our economic engines rolling and growing amidst global turbulence. Ladies and gentlemen of the Bangko Sentral ng Pilipinas. Lahat tayo, all of us contributed to this success. Sure, it was not a perfect year, but it was successful, nevertheless, based on our key metrics. We focused on our priorities, worked long hours, and remained united as a team. We did not drop the ball, so to speak. And so, fellow central bankers, let us celebrate the success of Team BSP in 2009 with a well-earned long round of applause. But beyond traditional central banking functions, Team BSP also made remarkable accomplishments. Let me cite a few: The BSP in cooperation with local banks successfully worked on further reductions in bank remittance charges for overseas Filipinos and their dependents; The BSP’s pioneering regulations for mobile money transfers have gained international recognition for its potential to reach out to the unbanked and become a useful and efficient channel for inclusive banking; The BSP’s regulatory environment for the microfinance sector has been recognized as the best in the world; The BSP’s Credit Surety Fund program enhanced access of micro, small, and medium enterprises to collateral-free loans; Our continuing and full commitment to global standards under various certification programs; The BSP’s legal breakthroughs in its fight against erring banks and bankers which gained support from the Department of Justice and the Supreme Court; and The BSP’s consumer protection and financial education program continues to broaden and deepen its reach, attracting global recognition in the process. Ladies and gentlemen, we have been able to carry out all these and more, because we have world-class central bankers and various human resource development programs that continue to enhance the capabilities and expertise of more BSPers. We have also streamlined our organization, improved our work processes, re-engineered our planning and budgeting processes, and adopted a BSP Citizens Charter and a Code of Ethics for BSP Personnel. What makes me even prouder is that BSPers are not only excellent central bankers, you are also socially responsible Filipinos. For instance, in the wake of the destruction wrought by “Ondoy” and “Pepeng,” BSPers immediately went into action to share their time and resources to prepare and bring relief to thousands of displaced families. BSPers also chose to cancel the annual bank-wide Christmas celebration to donate its budget to Filipinos who are in need. This is, indeed, a little sacrifice for a big cause. Ladies and gentlemen. This is what I call sama-samang pagpu-punyagi. The collective drive to succeed, to excel, tenacity in the face of challenges, the constant striving based on the firm belief that honest work will get its just reward. I believe this is the reason behind BSP’s success. This is the same theme of BSP’s 2010 wall and desk calendars, copies of which have been distributed to all of you. Pagpu-punyagi. Let us keep this to heart as we start serving our country and our people in 2010 through the Bangko Sentral ng Pilipinas. Fellow central bankers. Today, we are halfway in the commemoration of National Banking Week – which is from January 1 to January 7. This weeklong celebration was declared to honor the anniversary of central banking in the Philippines which started on January 3, 1949. Thus, today, January 4 is not only our first working day in 2010, it is also the first working day as we begin 61 years of central banking in the Philippines. 60 years in 2009, 61 years in 2010. Indeed, the Bangko Sentral ng Pilipinas is what it is today because of the collective efforts of central bankers of the past and the present. To celebrate the first 60 years of central banking in the Philippines and to share the lessons we have learned along the way, we have published a book entitled “Central Banking During Challenging Times: The Philippine Experience.” We will launch this book on Friday, January 8. I hope you will take the time to read this book written by present-day central bankers and edited by Dr. Valdepenas, who served as Member of the Monetary Board for a total of 14 years. Fellow central bankers, as we make a fresh start in 2010, let us always be mindful of the weight of both responsibility and history upon us. And to guide us, let us always remember the values we have committed to live by as BSPers: patriotism, integrity, excellence, dynamism and solidarity. While we came to our institution as individuals, we have come together as professional central bankers under Team BSP united to fulfill our mandate in the service of our economy, our country and our people. For this, I and the other Members of the Monetary Board thank all of you. And because we are united, I am confident that we will overcome the challenges that will come our way in 2010. Finally, on behalf of the Members of the Monetary Board as well as my wife and family, I take this opportunity to greet all of you a successful, happy, and prosperous 2010! Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ating bansang Pilipinas! Maraming salamat sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bangko Sentral ng Pilipinas' 2010 reception for the banking community, Manila, 14 January 2010.
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Amando M Tetangco, Jr: Forging ahead toward higher ground Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the Bangko Sentral ng Pilipinas’ 2010 reception for the banking community, Manila, 14 January 2010. * * * Leaders of the Philippine banking community, fellow workers in government, special guests from the private sector, the diplomatic corps, the multilateral agencies, the academe and the media, good evening. The members of the Monetary Board thank all of you for accepting our invitation tonight. This Annual Reception hosted by the Bangko Sentral is tradition we look forward to, as it is an opportunity to gather thought leaders and the movers of the economy within this historic Fort San Antonio Abad. In other words, it is a fascinating fusion of history and those who make history. It is also an opportune time to reflect on the year just past, and to train our eyes on what lies ahead. Standing firm in the midst of a global downturn First, let us have a brief overview of 2009: the year of the worst global recession in 80 years and one of the most difficult years for central banks around the world. As a country, the Philippines came out of this difficult period with a positive growth. Sure, our economy expanded by a modest 0.7 percent for the first three quarters of 2009; nevertheless, this is remarkable given that only a handful of economies escaped recession in 2009. And while Bangko Sentral ng Pilipinas implemented liquidity enhancing measures at the height of the global credit crunch, these were non-inflationary. Domestic liquidity growth as of October last year was 12.5%. On the other hand, full-year inflation at 3.2 percent was well within our target range of 2.5 to 4.5 percent. This indicates that we made appropriate decisions taken 18–24 months ago, the estimated time lag for monetary policy to have full impact. Our external position remained strong, with a confidence-building balance of payments surplus of $4.1 billion for the first 11 months and record high gross international reserves at a preliminary $45 billion by year-end. Equally important, our banking system remained sound and stable. We also avoided a credit freeze as banks continued to lend to the productive sectors of the economy. In addition, Bangko Sentral received last year international recognition for having the best regulatory environment conducive for microfinance and for our pioneering regulations for mobile money transfers that promote inclusive banking. This is not to say that 2009 was perfect for us. But we are proud that the reforms we have implemented together with the banking community and other stakeholders served us in good stead and empowered us to stand firm in the midst of a global economic storm that crippled many economies. This is the broad picture of 2009 that make us hopeful moving forward into 2010. Diffusing the odds in 2010 Indeed, we have reasons for optimism. While rain clouds linger, the worst of the global storm is over. The consensus is that the global economy has seen the worst and is on a recovery phase. At the same time, the global financial markets reflect growing stability that whets the risk appetite of investors. Still, questions remain. First, no one knows for certain the final shape and speed of the global recovery. Second, as the pace of recovery across countries varies, national authorities have to carefully calibrate the timing for unwinding the support and stimulus mechanisms they had put in place. Premature unwinding could put recovery at risk; on the other hand, delayed response could stir up inflation and create destabilizing asset bubbles. What I can tell you is that the exit strategy of the Bangko Sentral will be done gradually and in stages as we have monetary policy space. As we execute our exit, we will always be mindful of our underlying domestic conditions, with particular focus on the outlook for inflation. For the broader financial system, proper focus should be on how to avoid the financial crisis that triggered the global economic shocks. In forum after forum, we hear of the need to modify operating standards and guidelines. Only last month, the Bank for International Settlements released new guidelines on international standards for liquidity while focus on large exposure risks and amendments to accounting standards continues. Ladies and gentlemen. We did not build our banking system by chasing one change after another. Instead, we made a collective decision to effect meaningful and appropriate structural reforms that were far from easy. This includes risk-based supervision that is central to our reform agenda. Together, we must continue to move forward along this path that will allow us to identify and manage risks to the banking system. Developing strong pillars for 2010 and beyond Ladies and gentlemen. 2010 is not only about challenges and changes; it is also about the chances and opportunities that lie ahead. Sure, our conditions are far from ideal, but our economic fundamentals remain firm. Inflation is expected to be manageable and is forecast to fall within the target range of 3.5 to 5.5 percent. In other words, we do not see drastic changes in our policy rate settings. At the same time, our external position will remain in surplus, with the BOP surplus expected to range between $3–4 billion by yearend. This means that the peso will have fundamental support. Consequently, there will be occasion for the BSP to build up its international reserves to temper exchange rate volatilities. I foresee that the banking system will remain sound and will continue to intermediate credit to the productive sectors of the economy. This will create more opportunities for lending, particularly to micro, small and medium enterprises of MSMEs. And as the economic recovery goes into full swing, there will be greater prospects for fee-based activities in the capital markets in support of infrastructure and expansion projects. Final thoughts Ladies and gentlemen, we avoided the worst global recession in decades because together we forged the political will to implement challenging reforms long before the crisis struck. Moving forward, let us commit once again to move forward together to ensure an even stronger and more responsive banking system. Finally, I have one more good news to share. This year, we are launching the Bangko Sentral ng Pilipinas Art Competition which we call “Tanaw.” This is the first time we are launching a national painting competition. Our objective is to support the development of Philippine art by providing incentives for excellence to Filipino artists. Bangko Sentral has one of the most extensive collection of Philippine paintings and pre-historic gold in our country today. This is due principally to the vision of Dr. Jaime Laya, former governor of the Central Bank of the Philippines. Ladies and gentlemen, let us thank Dr. Laya for this legacy with a round of applause. For your information, Dr. Laya has agreed to chair the BSP Cultural Properties Acquisition Advisory Committee which counts as members National Museum Director Corazon Alvina, Art Educator Deanna Ongpin-Recto, Art Critic Cid Reyes, BSP Deputy Governor Diwa Guinigundo, BSP Director Fe de la Cruz and Monetary Board Members Raul Boncan and Juanita Amatong as advisers. With this art competition, we broaden Bangko Sentral’s involvement in the preservation and promotion of Philippine arts and culture. In the process, we create more reasons to be proud as a Filipino. To all our guests, we thank you once again for your support to the Bangko Sentral ng Pilipinas as we continue to serve our people and our country through better policies and programs that keep our banking system sound and stable, in a fast-changing world. Let us therefore offer a toast: to our continuing partnership in sustaining economic growth and improving the quality of life for all Filipinos. Mabuhay! Thank you and do enjoy the rest of the evening.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2010 Microentrepreneur of the Year official launch, Manila, 21 May 2010.
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Amando M Tetangco, Jr: Empowering entrepreneurial Filipinos thru microfinance Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2010 Microentrepreneur of the Year official launch, Manila, 21 May 2010. * * * Fellow advocates of the microfinance sector, good afternoon and congratulations! Yes, ladies and gentlemen, we have many reasons to celebrate. First, this annual national search for outstanding Filipino microentrepeneurs is on its 8th year. This speaks well of the commitment of those involved in this program. And so, let us give a big hand to Citi Philippines headed by Sanjiv Vohra; the Microfinance Council of the Philippines headed by Mr. Ruben de Lara; the Bangko Sentral ng Pilipinas and my fellow central bankers; and finally my hardworking co-members at the National Selection Committee which includes Philippine Daily Inquirer Chairperson Marixi Rufino-Prieto; SM Investments Vice Chairperson Tessie Sy-Coson; former MBM Antonino Alindogan; GMA Network CEO Atty. Felipe Gozon; Go Negosyo Movement Head and RFM Corporation CEO Joey Concepcion; Chair of the Leadership and Strategy Department of the Ateneo de Manila University and Finance Educator of the Year Dr. Darwin Yu; and Ayala Corporation President Fernando Zobel de Ayala. They are not only hardworking judges, they are also deeply engaged in supporting microentrepreneurs. Palakpakan po natin silang lahat. Another reason to celebrate is the continued growth and development of the microfinance sector in the Philippines that has produced so many inspiring success stories. This has allowed us to sustain our annual search across the country. Of course, this has made the work of the National Selection Committee members more difficult but ultimately more satisfying. Let us therefore celebrate the transformative power of microfinance with a round of applause. I am also pleased to report that our efforts to promote microfinance and financial inclusion in our country have placed us in the international radar screen. In particular, survey results of the First Annual Global Microfinance Index and Study – which was conducted by the Economist Intelligence Unit of The Economist Group – measured the state of the regulatory framework, investment climate and institutional development. Overall, the Philippines ranked 3rd out of 55 countries, next to usual leaders Peru and Bolivia. Further, the Philippines ranked 1st overall in the area of regulatory framework. Ladies and gentlemen, the survey results reflected the gains we have made together in microfinance. Let us therefore give ourselves a well-deserved round of applause! With the continuing support of all stakeholders, the new policies and programs we have crafted are bound to further expand and deepen our microfinance sector. I refer in particular to the following circulars the Bangko Sentral ng Pilipinas issued this year: Circular 678 on Housing Microfinance and Circular 680 on Micro-Agri Loan Products which address the needs of microfinance clients beyond enterprise loans. These circulars give banks the opportunity to expand the range of services they provide their clients, even as they maintain microfinance privileges. This includes no collateral requirements or the acceptance of collateral substitutes, cash flow and character based lending, small and frequent amortizations, as well as simple documentary requirements. In March, the Bangko Sentral issued Circular 683 which allows thrift, rural and cooperative banks – subject to certain rules and regulations – to sell, market, and service approved microinsurance products by licensed insurance providers. Thrift, rural and cooperative banks are ideal distribution channels for microinsurance products as they are the trusted financial institutions in the countryside and have a deeper understanding of the low income market. Recent calamities from flooding and destructive typhoons underscore the importance of having adequate insurance protection especially for the poor who are more vulnerable to various risks. For thrift, rural and cooperative banks, therefore, microinsurance is a groundbreaking initiative that allows them to participate in a business that was once limited only to universal and commercial banks. On the other hand, Bangko Sentral’s Circular 685 provides the rules for the recognition of Microfinance Institution Rating Agencies or MIRAs. This should improve access to financing and capital as ratings have proven effective in enhancing the quality of microfinance institutions in terms of transparency, discipline, and overall governance. This should also promote investments in the Philippine microfinance industry. These are the circulars the Bangko Sentral issued this year to promote the further development of our microfinance sector. With the support of all stakeholders, we should start seeing positive results from these initiatives. I also look forward to the participation of more banks in the microfinance sector. As of December 2009, there were more than 200 banks engaged in microfinance with total loans outstanding of about P6 billion lent out to about 900,000 borrowers. By any yardstick, these are good numbers. However, with millions of Filipinos still living in poverty, we should commit to do more together to do better in spreading the gospel of microfinance and how it can uplift and transform individuals, families, as well as communities. We have seen these transformations happen, year after year, in the hundreds of entries to our annual search under the Microentrepreneur of the Year Awards and even Joey’s Go Negosyo program. This year, we are bound to learn more inspiring stories we can share and many more role models we can follow. I hope that our banks will also be more proactive in spreading the inspiring stories of our awardees so that many more Filipinos will realize that viable and sustainable business can start from micro loans. Fellow advocates of microfinance, let us continue to work together in providing a truly inclusive and empowering financial system for our people. Mabuhay ang microfinance! Mabuhay ang Pilipino! Marami pong salamat sa inyong lahat.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 57th Annual National Convention and Corporate Meeting of the Rural Bankers Association of the Philippines (RBAP), Manila, 31 May 2010.
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Amando M Tetangco, Jr: Strengthening financial inclusion and social protection Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 57th Annual National Convention and Corporate Meeting of the Rural Bankers Association of the Philippines (RBAP), Manila, 31 May 2010. * * * Ladies and gentlemen of the Rural Bankers Association of the Philippines, fellow advocates of the rural banking sector, special guests, good morning! I am happy to be here at the 57th Annual National Convention of the Rural Bankers Association of the Philippines, for several reasons. First, it is always good to meet rural bankers from different parts of the country to learn about operating conditions in our local communities, as well as the opportunities new government policies present. To us at the Bangko Sentral ng Pilipinas, this signifies a continuing commitment on your part to provide responsive banking services by investing time and effort to understand and adapt to an environment that is constantly shifting and changing. For this, we salute all the officers and members of the RBAP who have taken the time to participate in this annual convention. Let us give all the RBAP members here today a well-deserved round of applause. Second, your conference theme “Towards Greater Financial Inclusion and Social Protection” communicates very clearly that once again the RBAP and the Bangko Sentral ng Pilipinas are on the same page, insofar as our quantitative and qualitative aspirations are concerned. Indeed, bank programs to grow the business should be balanced with efforts to educate and protect bank customers. As responsible bankers, this win-win strategy is the way to go and grow. For this, I commend RBAP under the leadership of President Joseph Omar Andaya and the members of your board of directors. Palakpakan po natin sila! Ladies and gentlemen of the rural banking sector. You are the natural front liners in our national program to broaden and deepen the reach of responsible and empowering financial services to local communities. Aside from your proximity to the clients in the countryside, your deep understanding of their needs makes you effective catalysts for financial inclusion and social protection. In addition, rural banks as a sector continue to hold the lion’s share of the banking industry’s network in the countryside. For instance, while the ongoing consolidation in the banking sector reduced the number of rural banks by 4% – from 658 in 2008 to 631 in 2009 – the branching network showed a significant 45% increase – from 1,362 to 1,974 branches. Equally important, rural banks continue to expand their non-traditional service delivery channels. Between 2008 and 2009, the number of rural banks with Automatic Teller Machines – or ATMs – increased from 113 to 119 while rural banks providing electronic banking services moved up from 47 to 52. Through rural banks, therefore, we expect that more unserved and underserved Filipinos will gain access to responsible and dependable financial services. It can be a simple savings account, a time deposit, an efficient way to pay bills, an insurance product, a microfinance loan, or even just a safe channel to send and receive money. After getting clients through your doors, it is important that in words and in deeds your customers are assured that their trust in you and your bank is well-deserved. The challenge therefore is to ensure that the Filipino’s confidence in the banking system and in rural banks in particular continues to grow and strengthen. What are the magnitudes involved in working on financial inclusion? Well, rough estimates indicate that at the most, only one-third of our households have bank accounts. In other words, at least two out of every three households in the Philippines do not maintain bank accounts. This means an untapped market of about 11 million households! Some sceptics maintain that many households have no means to maintain bank accounts. That may be true; but we maintain that there are millions more households that can open and maintain bank accounts given enough information, attention, incentive, and protection. In fact, these new customers could very well boost the profitability of rural banks. There is also the added potential of engaging both new and existing customers to have multiple transactions with your bank to further deepen their financial inclusion. Ladies and gentlemen. “Financial Inclusion” became a global buzzword with the launching in 2005 of the United Nations International Year of Microcredit. Since then, the resounding success of microfinance proved, beyond any doubt, that an activity once seen as marginal or even charitable could in fact be undertaken in a sound, sustainable and profitable manner. This success catalyzed the push to look beyond microfinance and find ways to further expand the reach and scope of financial services. The concept gained further traction in light of the recent global financial and economic crisis. There is now a growing acceptance in global debates that the crisis reinforced the adverse effects of financial exclusion, resulting in increased burden for those segments of the population that are already vulnerable. Thus, influential bodies such as the Group of 20 major economies more popularly known as G20 have incorporated financial inclusion in their agendas. In fact, the recent G20 Leaders Meeting resulted in the creation of a Financial Inclusion Experts Group to work on broadening access to a full range of financial services as a strategy to provide the foundation for sustainable growth worldwide. Here in our country, we have been putting policies and programs in place to provide both financial inclusion and social protection. In fact, you will be pleased to know that the Bangko Sentral ng Pilipinas is one of the first central banks in the world to have an office dedicated to the pursuit of financial inclusion. As a result, we now have policies that empower strong and capable banks to have a wider scope and scale of operations to make them effective and meaningful providers of financial services to more Filipinos. In 2006, for instance, the Bangko Sentral issued Circular 522 authorizing rural banks to offer FCDUs or Foreign Currency Deposit Unit accounts so that you can take a strategic and active role in the growing remittance business that has since grown into a 17 billion-dollar industry. In 2007, the Bangko Sentral authorized rural banks to make equity investments in ATM networks through Circular 563 and engage in limited trust activities under Circular 583. In 2008, qualified rural banks were even allowed to participate in select derivatives activities under Circular 594. In 2009, the Bangko Sentral issued Circular 649 or the electronic money circular which provides the regulatory framework for the fast-growing electronic money business, where rural banks play a central role. With a wider network of cash in/out agents, you will be able to leverage your existing offices and deliver your financial services to an even broader market with potentially greater efficiency and lower costs. So far this year, we have issued new regulations that significantly broaden business opportunities for rural and cooperative banks. In the first two months, we approved Circulars 678 and 680 covering Housing Microfinance and the Micro-Agri Loan Product under which banks are able to manage their microfinance operations better, with a more diversified portfolio and lower risk of business loans applied to agriculture or housing. To further expedite the provision of these services, just two weeks ago, the Monetary Board approved the RBAP-MABS housing microfinance program. Through this approval, the RBAP will take a leadership role in the qualification or screening process of participating banks that wish to offer housing microfinance. This develops a strong sense of product ownership and makes the process more efficient. Also this year, we issued Circular 683 authorizing rural banks to market, sell and service micro insurance products, subject to certain prudential rules and regulations. This enables rural banks to deliver a full range of financial services needed by your clients, which may include protection against injury, loss of property, and other contingent events. This is a groundbreaking policy that places rural banks on the same footing as universal banks which previously held this business. The Bangko Sentral has also issued this year Circular 685 covering the rules and regulations in recognizing Microfinance Institutional Rating Agencies. This is important as the use of objective, credible, and competent third-party ratings of microfinance institutions enhances transparency and possible inflow of resources into the industry. Altogether, this should facilitate the further growth and development of microfinance in the Philippines which has proven to be an effective medium for liberating millions of Filipinos from poverty. Ladies and gentlemen of the RBAP, all these policies are in place and the opportunities this brings are well within your reach. All you need to do is to continue to strengthen your institutions by aligning governance practices with global standards, strengthening your capital positions, putting in place a proactive risk management system, improving business operations and following industry best practices. I also wish to say that the Bangko Sentral ng Pilipinas remains responsive to issues raised by RBAP, including those pertaining to the implementation of certain policies. Take for instance Circular No. 688 issued only last week – May 26 to be exact – implementing the Revised Risk Based Capital Adequacy Framework for Stand-alone Thrift, Rural and Cooperative Banks or the so-called Basel 1.5 framework. Unlike the full Basel 2 framework for universal and commercial banks and their subsidiary banks and quasi-banks, the Basel 1.5 framework involves only a few key changes on the existing framework under Circular No. 280 dated March 29, 2001, as amended. The main changes include the increase in risk weight from 0% to 100% for foreign currency denominated exposures to the Philippine National Government and the Bangko Sentral. The increase in risk weight shall be phased-in over a three year period: that is, 1/3 of the applicable risk weight shall be applied by January 2, 2012; 2/3 by January 1, 2013; and the full risk weight by January 1, 2014. Another major change is the increase in risk weight for Real and Other Properties Acquired exposures from 100% to 150%, which shall also be applied gradually for three years: 115% risk weight shall be applied by January 1, 2012; 130% by January 1, 2013; and 150% by January 1, 2014. This revision is consistent with the BSP’s thrust of reducing the level of non-performing assets of banks to strengthen the overall asset quality of the banking system. Another new feature in the revised framework is the capital requirement for operational risk which is based on 12% of the average positive gross income of the bank for the past three years. The new guidelines also require important items to be disclosed in the Annual Reports and the Quarterly Published Balanced Sheet to enhance market discipline and transparency. The Bangko Sentral has considered delaying the effectivity of this new Circular to 1 January 2012 to give concerned banks ample time to adjust to this new capital adequacy framework. And to make the transition more manageable, the implementation is on a staggered basis. Ladies and gentlemen of the rural banking sector. It is important that you see these circulars not as mere issues of compliance undertaken to satisfy the regulator; rather, it is our hope that there is a clear understanding and appreciation on your part that these measures are crucial to your growth and viability as a business. Ultimately this will benefit your customers in terms of stronger social protection and your shareholders in terms of better returns. As it is, the rural banking sector as a whole is already on the right track, as far as operational bottom line is concerned. I base this on 2009 consolidated figures. In fact, even with the global financial crisis and isolated closures of some banks, consolidated return on equity of the rural banking sector in 2009 reached 12.12 centavos for every one peso equity investment, even better than the commercial banking sector which posted an aggregate ROE of 11.38 centavos per peso of equity. Total assets of the rural banking sector also continued to expand, rising from P146 billion in 2008 to P157.4 Billion in 2009. Yearend 2009 figures also showed that rural banks’ gross total loan portfolio was more than P98 Billion, while deposits stood at over P105 Billion. By any measure, these are respectable figures posted at a time when the global financial crisis triggered the most serious world recession since World War II. Ladies and gentlemen, let us celebrate the accomplishments of the rural banking sector with a well-deserved round of applause! To the Bangko Sentral, all these represent concrete evidence that our rural banks are indeed ready to take on a more strategic and competitive place in the Philippine financial system. We are confident therefore that in cooperation with our rural banks through the leadership of RBAP we can work toward greater financial inclusion and social protection for Filipinos. Mabuhay ang RBAP! Mabuhay ang Pilipinas! I wish you all a successful convention. Maraming salamat sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2010 BSP Stakeholders' Awards and Appreciation lunch, Manila, 7 July 2010.
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Amando M Tetangco, Jr: Moving forward through stronger partnerships Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2010 BSP Stakeholders’ Awards and Appreciation lunch, Manila, 7 July 2010. * * * Our esteemed awardees and partners from both private and government sectors, special guests, ladies and gentlemen, good morning. On behalf of the Members of the Monetary Board and my fellow central bankers, I thank all of you for attending this year’s Awards Ceremony and Appreciation Lunch for BSP Stakeholders. Today, we continue the tradition of recognizing our stakeholders who faithfully support the BSP’s statistical activities and advocacy programs. As you can tell, this event is important to us. Last Monday, we celebrated the BSP’s 17th anniversary; two days later, we are holding today’s event – our 7th Stakeholders Awards. In other words, our Stakeholders Awards ceremony now represents one of the highlights of our anniversary celebration. For better measure, awarding ceremonies are held not only in Metro Manila but also in other parts in Luzon, Visayas and Mindanao. We have also increased the number of awards this year to reflect BSP’s broader and deeper alliances. This year, we added outstanding respondents to our Business Expectations Survey in three regions, namely: Region V or the Bicol area; Region IX or the Zamboanga Peninsula; and Region XII or the SOCSARGEN area. Today, we will also recognize the contribution of selected public and private entities as valuable sources of information for our balance of payments projections. The changes in this year’s ceremony extend to the awards we shall be handing out today as created by Filipino artist Sajid Imao, one of the leading sculptors in the country today. Even the BSP logo has changed to reflect the changes that continue to take place in our organization and the environment where we operate. The principal element of our new logo is the Philippine Eagle, the world’s largest. It symbolizes strength, freedom, and clear vision the qualities we aspire for as a central bank. Three golden stars represent the three pillars of central banking: price stability, stable banking system, and a reliable payments system. These elements are rendered on a blue background to represent stability. Our logo has a round shape, to symbolize our unending quest to become an excellent monetary authority committed to improve the quality of life of Filipinos. It is fitting that we are implementing these changes just a week after the assumption into office of President Benigno Aquino III. He stood for change and received an overwhelming mandate from our people with a landslide win. Palakpakan po natin si Presidente Benigno Aquino III! Ladies and gentlemen, let us unite and join President Aquino in making the changes our country needs to become a better place for all. As our theme says, let us keep “Moving Forward through Stronger Partnerships.” Indeed, we should take our theme to heart, given the many challenges and uncertainties ahead. Why do I say this? First, we are looking at varying and uneven pace of recovery across the globe. Given global interdependencies and linkages, it could lead to slower growth over the medium term. Second, the potential heavy influx of capital inflows, as risk appetites perk up, can also complicate monetary management. Additionally, the rebound of the global economy could create upward pressures on commodity prices and fan inflation. There could be positive surprises to investor confidence, which could foster a stronger-than-expected improvement in market sentiment and prompt a strong rebound in investment and demand. Third, there are risks to the inflation outlook. For these reasons, the BSP is watchful of emerging signs of inflation that could be disruptive to consumption and investment, and ultimately have a corrosive impact on the economy. One clear strategy in addressing these challenges is to forge and nurture greater partnership between the BSP and its stakeholders, through open communication. This is where your inputs, through your responses in the Business Expectations Survey, come in. Your responses enable us to discern public expectations on the general direction of economic indicators, particularly inflation, a crucial element in the BSP’s monetary policy settings. As in a jigsaw puzzle, each institution represents a piece whose absence will leave gaps that could adversely affect our proper appreciation of particular scenarios. This could potentially lead to weak or even wrong policies. It is important therefore that we keep on working together to gain clear perspectives that give rise to appropriate and timely policies. Indeed, sound macroeconomic policies provided our economy with some insulation against the worst global crisis in post-war history. Among the key elements that enabled the BSP to calibrate well-informed and well-guided policies during the crisis was the constant supply of information from you, our partners in the BSP’s programs. For this, we thank and applaud you. Palakpakan po natin ang lahat ng respondents and partners ng BSP! Thus, today, the inflation environment remains benign while bank lending continues to expand. This enabled the Philippine financial system to avoid the credit gridlock which paralyzed other financial markets overseas. Meanwhile, our external position remains healthy, with a balance of payments surplus, and Gross International Reserves reaching record levels of roughly $48.4 billion in June 2010. In particular, the data you share with us – through the Cross Border Transactions Survey, Foreign Direct Investment Survey, and Coordinated Portfolio Investments Survey – allowed us to derive sound baseline estimates critical in enhancing compilation of our external accounts and in calibrating well-anchored balance of payments projections. These projections are vital in estimating forecasts for inflation and in crafting our monetary policy formulation. Let us thank our respondents with a round of applause! At the same time, remittances from overseas Filipinos coursed through banks have been hitting unprecedented levels and helped raise our international reserves to record high figures as well. This was made possible by our banks who have efficiently handled the billion dollar remittances of overseas Filipinos. In effect, your reliable service provides significant benefits not only to our hardworking overseas Filipinos and their families but to our economy as well. Let us give our banks a well-deserved round of applause. We also thank all our partners who have joined us in our economic and financial education programs as we push for a better-informed public. Your unqualified support and cooperation are valuable to the success of the BSP’s economic and financial education programs. Let us give our partners in our education programs a big hand! Once again, ladies and gentlemen, we at the Bangko Sentral ng Pilipinas thank and congratulate all of you for being our active partners. You have empowered us to craft and implement responsive policies that promote balanced and sustainable growth of our economy. Growth that empowers and improves the quality of life of Filipinos. Moving forward, all we have to do is to act as a single force and move forward as one. Henry Ford once said: “If everyone is moving forward, then success takes care of itself.” Ladies and gentlemen. Today, therefore, let us commit to work more closely together and act in solidarity to be a single force and to move forward as one so that we can achieve the change we need, sooner rather than later. Maraming salamat sa inyong lahat! Mabuhay ang Pilipinas!
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Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2009 BSP Praise Awarding Ceremony, Manila, 27 July 2010.
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Amando M Tetangco, Jr: In praise of BSP’s top performers Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines (Bangko Sentral ng Pilipinas), at the 2009 BSP Praise Awarding Ceremony, Manila, 27 July 2010. * * * Magandang tanghali sa inyong lahat! Fellow central bankers and special guests, it is my pleasure to be part of today’s Praise Awarding Ceremony where we celebrate service excellence at the Bangko Sentral ng Pilipinas! In particular, we should be proud of our rich harvest: this year we have more than 400 awardees and nominees. Indeed, our initiatives to advance employee performance continue to pay off. Once again, therefore, let us salute all the nominees and winners under our 2009 Praise Awards with a well-deserved round of applause! Let us also congratulate for a job well done all those who worked on our 2009 selection process under the Praise Committee headed by Deputy Governor Andy Suratos and Assistant Governor Juan de Zuñiga! Palakpakan din po natin sila. I understand that the interviews and evaluation of the nominees for all award categories have been quite intensive. That is because we truly have many BSPers who deserve recognition and awards. Tama ba ako? Tama! Let us also salute our ISO awardees and reward them with a round of applause! Ladies and gentlemen of the BSP. I have been a BSPer for 36 years now. In my 3 ½ decades as a central banker, it has always been clear to me that the singular source of strength of the Bank is its people. In fact, long before the lifting of the salary standardization, many BSPers could be depended upon to render excellent work. And so, ladies and gentlemen, let us also salute central bankers past and present who under the salary standardization regime rendered praiseworthy service! Palakpakan po natin sila! Clearly, the commitment to serve our people and our country in the best way possible is a constant and strong motivation goal for all BSPers. And now, with better incentives, better employee development programs, and continuously improving work conditions we are seeing broader and deeper commitment to always excel. I see this all around at the BSP: whether it is related to the performance of our core functions, institutional celebrations, employee activities, social programs, and even fundraising projects by the BSP Employees Association! Just to be sure, let me ask you: nag-level up na ba tayo? Tama! In other words, ladies and gentlemen, we at the BSP remain faithful to the continuous improvement process. This is as it should be. As a wise person once said, the path to excellence has no finish line. The moment we become complacent the moment we stop trying to improve ourselves is the moment when we start deteriorating. As the institution mandated to provide stability to our economy through appropriate monetary and banking policies, we at the Bangko Sentral ng Pilipinas have the responsibility to make sure we render excellent work, at all times. This means we have to be prepared to work well in all types of operating environment in good times and in bad. We have to retool and reinvent the way we do things as we work in a constantly changing and challenging surroundings. In this connection, let us acknowledge the members of the Monetary Board. They have been supportive of our continuing efforts to enhance employee performance through various incentives and employee development programs. Palakpakan po natin sila. This is the rationale that underpins our awards theme: “Embracing Change, Empowering People.” And so ladies and gentlemen, let us once again commit to work together to provide excellent service to our country and our people. Let this be our unifying goal! BSPers, maraming salamat sa inyong lahat! Mabuhay ang Bangko Sentral! Mabuhay ang Pilipinas!
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Keynote message by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas the central bank of the Philippines, to the Philippine Deposit Insurance Corporation PDIC, Makati City, 8 August 2010.
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Amando M Tetangco, Jr: Launch of the Strengthening Program for Rural Banks (SPRB) Keynote message by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), to the Philippine Deposit Insurance Corporation (PDIC), Makati City, 8 August 2010. * * * PDIC President Jose Nograles, Members of the PDIC Board, Ms. Cora Miller and other officers of the Rural Bankers Association of the Philippines (RBAP), fellow workers in government, distinguished guests, friends from media, ladies and gentlemen, good morning to all of you. First, let me thank you for inviting me to deliver a message in this milestone event – the launching of the Strengthening Program for Rural Banks (SPRB). It is indeed a pleasure for me to affirm today the BSP’s commitment, support and partnership with the PDIC and the rural banking industry in this important undertaking. Rural banks are, what I often refer to as, the “natural frontliners” in our national program to broaden and deepen the reach of responsible… and empowering… financial services to local communities. It is therefore incumbent upon the regulators to ensure that the strength and viability of this critical segment of our banking system is sustained, particularly during these challenging times that we face. The SPRB is specifically expected to achieve this goal of creating a stronger rural banking system as it promotes mergers and consolidations between or among rural banks and eligible strategic third party investors (STPIs) under a specific set of guidelines. There are two prongs to the SPRB – one, the capital augmentation component, and two, the regulatory relief package. The capital augmentation and direct loan component is to be made available through financial assistance from the PDIC. To flesh out the regulatory relief package, the Monetary Board approved a set of incentives that include the conversion and opening/relocation of head offices, branches and extension offices, the waiver of penalties and other incentives pertaining to rediscounting and emergency loans. In addition to the financial strengthening of the resulting entities, the grant of these incentives is expected to allow such entities to achieve economies of scale, attract more skills, and better manage their liabilities. Furthermore, through mergers and consolidations, the resulting banks will achieve higher capitalization, which would then enable them to diversify their portfolios to reduce risk, fund growth and innovation and expand their presence and their reach throughout the country. As you can tell, this is consistent with our objective of strengthening the rural banking system so it can more effectively serve the countryside and better contribute in promoting balanced and sustainable growth for our nation. In this regard, the RBAP plays an important role in ensuring the success of this program, jointly with the PDIC and the BSP. Beyond the SPRB, however, the BSP shall continue to ensure that a sound regulatory framework is in place that would enable Philippine banks, including RBs, to cope with both domestic and global challenges. The BSP will also continue to pursue reforms to further strengthen the capitalization of banks and improve the supervisory oversight of risk management of banks. In addition, we will also continue to implement reforms geared towards improving the corporate governance structures of banks, including RBs. Sustaining and ensuring the strength of the rural banking sector is not, however, just the role of the regulators. It is a partnership with the regulated. As in the past, we therefore look to the solid support of the rural banks, through the RBAP, in effecting important reforms and initiatives that would improve the resilience of our banks, including the RBs, and our financial system as a whole so they will continue to withstand the impact of domestic and global crises and remain important channels for investment, credit and overall economic development. On this note, I wish to congratulate all those who have been instrumental in putting together this program. The BSP looks forward to the success of this program in close partnership with PDIC and RBAP. Thank you and good day!
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Closing remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas the central bank of the Philippines, at the 2010 Mid-Year Organizational Performance Review Session, Manila, 8 July 2010.
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Amando M Tetangco, Jr: Organizational performance review Closing remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2010 Mid-Year Organizational Performance Review Session, Manila, 8 July 2010. * * * We may have missed the splendid view of the beaches of Cebu, or the pine-scented Baguio breeze, or the gentle winds of Tagaytay but I was captivated by your display of the same diligence and hard work during this past day and a half as we paused and pondered on what is essential to effectively deliver our mission. In 2007, we committed to regularly review our scorecard to ensure that we sustain BSP’s credibility and relevance in the context of the new global, regional and domestic landscape. Celebrating our successes Meeting our targets At this point, I wish to commend the hard work and dedication of the BSPers in meeting our performance targets. Evidently, we are on track. We have met and even surpassed some of our targets for the year. I extend my congratulations and thanks to the collective efforts of management and staff of the Monetary Stability Sector; the Supervision and Examination Sector; the Resource Management Sector; the Security Plant Complex; and the Executive Management Services. On our institutional mandates, we are on course as actual inflation for the first semester is well within our target for 2010; and while actual values of our performance have yet to fully reflect our achievements, we continue to make progress in addressing operational gaps in our supervisory actions and examination related deliverables. Our pursuit for operational excellence is driven by our continuing efforts to align our business processes with international standards and best practices. We have pushed for innovative approaches to managing and developing our people. Receiving stakeholder affirmation We believe that our good performance eventually reached the minds of the public we serve. Our stakeholders have spoken and we are happy to be affirmed that we have their trust and confidence as evidenced by a high net approval index of 76.6% and a qualitative rating of “good” based on the 2009 BSP Public Perception Survey Report. Similarly, in a survey among our business partners we garnered a high net approval rating of 83%, which shows that BSP is a good business partner and our integrity is highly regarded by them. Laying the groundwork in good governance and in organizational enhancement We have also focused on efforts to improve our enabling processes in strengthening good governance and enhancing our corporate culture. With our frameworks for governance, risk management and organizational enhancement in place, assessments on where we stand in these areas are nearly completed. We are finalizing our roadmaps toward a Bangko Sentral that exhibits governance principles which are highly integrated in our policies, systems, processes and practices; a Bangko Sentral that exemplifies a values-based culture, with men and women of inspiring leadership, dynamic, achievement-oriented, and acting as one team. Revisiting the fundamentals – BSP’s mandate As the end of our strategic plan draws near, fundamental questions emerge as we respond to new challenges relating to our mandate. During this past day and a half, we also engaged in a strategic dialogue on how we would like to position BSP, the country’s lone monetary authority, in the next medium term. Our engaging dialogue on the assessment of seventeen years of monetary policy at the BSP highlighted key issues such as the financial stability dimension of price stability, the operating environment and practice of inflation targeting in emerging market economies like the Philippines, and the approach in responding to asset price bubbles. We also had a spirited discussion on the complexity, impact and requirements of pursuing financial stability in bank supervision, BSP’s relationships with other regulators, monetary policy and payments and settlements. In this connection, we also looked into the challenges in the payments and settlements system in the context of meeting our goals of monetary and financial stability, as well as in achieving economic efficiency. Focusing on the homestretch We are on the final leg of the journey. Apart from the sense of urgency this evokes, this reality prompts us to heighten our teamwork and to collaborate more to guarantee our strategic success. Looking at our scorecard, the “reds” and “yellows” pointed out the areas of concern that need the attention of the entire organization – the Monetary Board, management and staff. We said that we are a strategy-focused and results-oriented organization, and we are determined to prove this true. Let us focus our energy to the implementation of the strategic initiatives that will contribute to the attainment of our targets in the medium-term plan. Let us continue our efforts in closing the gaps and in addressing the overlaps to achieve the synergy we desire within the organization and in our relationships with external partners. We will deliver on our promise. In staying true to our commitment for continuous improvement, let us keep in mind what our stakeholders have expressed in terms of areas that still fall short of their expectations. Let us draw up measures to effectively address these gaps in our roadmap. Fortifying the BSP team for the next medium term As we set our minds on the immediate tasks at hand, let us not lose sight of the future, which we need to plan for strategically. We end our planning exercise today with a question: “Is the BSP poised to face the advent of a new period in central banking, both in the global and regional fronts?” With our ideals as an institution encapsulated in our new BSP logo, we usher the next medium-term with our continuing pursuit of becoming a world-class monetary authority, with high degree of professionalism and open mindedness to the changes that comes with the evolving demands for best practices in governance and service delivery. On behalf of the Monetary Board, I affirm our support to management. Pursuing our mandate is not an easy task as it requires not only the high-level of competence the BSP is known for, but also strength of character and a courageous heart to protect and contribute to a better quality of life for Filipinos. We may have our share of disappointments and discouragements in the conduct of our work, but at the end of the day, we find fulfillment in the fact that we have served our stakeholders well. I urge everyone to continue to help one another in doing our task and with God’s blessing see it though its completion. I congratulate all of you and the organizers of this year’s performance review and planning event for a job well done. Thank you and enjoy the rest of the weekend.
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas the central bank of the Philippines, at the Philippine Mid-Year Economic Briefing 2010, Makati City, Metro Manila, 18 August 2010.
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Amando M Tetangco, Jr: The Philippines – creating opportunities through effective governance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Philippine Mid-Year Economic Briefing 2010, Makati City, Metro Manila, 18 August 2010. * * * Members of the governments’ economic team, other Cabinet members, excellencies of the diplomatic corps, our partners from the private sector and multilateral institutions, our friends from the media, colleagues from government, ladies and gentlemen, good morning. Thank you for joining us in this economic briefing. Over the next few minutes, allow me to share with you the BSP’s legal mandate, the key reforms we have implemented and our assessment of the macroeconomic opportunities that have been created in the process. I would also like to share with you our thoughts on the challenges that lie ahead and the BSP’s policy strategies to meet these challenges with a view to creating more opportunities to achieve more durable and inclusive growth for the Philippine economy. Let me start with a review of the major reforms that the BSP has adopted in pursuit of its mandated responsibilities. First, on monetary policy – the BSP has adopted the inflation targeting framework that has provided us with a disciplined approach to safeguarding price stability. The forward-looking perspective under the framework as well as the associated transparency and accountability practices have helped better anchor the inflation expectations of the markets and the public. This, in turn, has contributed to improved inflation management and to well-contained inflation dynamics. Let us look at the numbers. Stable food prices have helped temper inflation pressures, despite the occurrence of the El Niño phenomenon early this year. From January to July 2010, headline inflation fluctuated between 3.9 percent and 4.4 percent, staying within the Government’s target range of 3.5–5.5 percent for 2010. The benign inflation environment has given the BSP the flexibility to keep policy rates steady. With stable domestic financial conditions, the BSP also started a measured and paced unwinding of its accommodative monetary policy stance in the first half of the year. Second, on external sector policy – the BSP adheres to a flexible exchange rate system and to an appropriately designed foreign exchange regulatory framework. The BSP also has in place an external debt management strategy that helps promote debt sustainability. As a result, we have seen the emergence of strong external payments dynamics, providing comfortable buffers against external shocks. Reflecting these prudent external sector policies, the country’s balance of payments (BOP) position posted a surplus of US$3.2 billion in the first half of the year. The resilience of OF remittances and the sharp recovery of exports contributed largely to the country’s favorable external payments dynamics. The country’s external debt profile continues to improve. Six years ago, our external debt-to-GDP ratio was around 70 percent. As of March 2010, this ratio was down to 33 percent. The long-dated maturity structure of our foreign currency debt, helps limit rollover and foreign exchange risks. The country’s debt service burden as percent of GDP, which had previously hovered around 10 percent [2001–2003], eased to 6 percent as of March 2010. International reserves have climbed to new highs, providing strong coverage for both imports and short-term external debt. At end-July 2010, the GIR stood at US$48.6 billion. At this level, the GIR can cover 9 months of imports and is equivalent to 9.3 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity, thus providing a strong cushion against external shocks. As a result of the strong external liquidity position, the Philippine peso has remained broadly stable. The trends in the real effective exchange rate (REER) show that the peso has generally maintained its international competitiveness over the last ten years. With generally lower inflation rates, the Philippine peso has accommodated some appreciation, but without undermining external price competitiveness. Third, on financial sector policy – the BSP has put in place critical reforms geared toward maintaining a healthy banking system. The package of reforms includes the disposal of banks’ bad assets, the promotion of good corporate governance and transparency practices, and the upgrading of risk management standards. As a result, we have today an efficient, sound, and competitive financial system. These critical reforms have been successful in steadily expanding and strengthening the banking system. Indicators of the health of the banking system continue to post favorable readings, with asset levels and bank earnings continuing to improve. The capital adequacy ratio remained high at 16 percent and non-performing loans also remained generally low at less than 4 percent of total loans. The favorable performance of the domestic financial markets reflects the upturn in the country’s economic prospects. Thus, despite global market volatility following sovereign debt concerns in Europe and uncertainties regarding the depth and breadth of the global economic recovery, the spillovers on our domestic financial markets have been limited. With continued improvements in domestic economic conditions and a broadly favorable global outlook, we foresee a firmer growth path for the Philippine economy in 2010. Inflation is expected to stay within the target range of 3.5 to 5.5 percent for 2010. The outlook for the BOP position and the GIR level continues to be favorable, with the current account projected to remain in surplus. While we expect the economy to continue to perform strongly, we remain conscious of the risks and challenges that lie ahead. First is the multispeed recovery across the globe. Growth in emerging countries is outpacing growth in advanced economies. Given global interdependencies and linkages, this could result in sub-par global growth over the medium term. Second, the potential heavy inflow of capital into the country, as risk appetites perk up, can lead to liquidity management problems which could pose inflationary risks. Third, the rebound of the global economy could create upward pressures on commodity prices and fan inflation. The BSP’s responses to these challenges are, as always, founded on its primary mandate of promoting monetary and financial stability. In particular, our focus in the area of monetary policy will be on addressing the risks to price stability and re-examining policy settings when warranted. On the external front, our priority is to promote policies that will help shield the economy against adverse shocks. On the financial sector, the BSP will endeavor to maintain a well-functioning banking system that will efficiently mobilize funds and channel them to productive uses. The BSP’s policy commitments, going forward, are supportive of the Government’s agenda of creating an enabling environment for durable, sustainable and inclusive growth and broadbased development, including through the pursuit of far-reaching and meaningful structural reforms and disciplined macroeconomic policies. Ladies and gentlemen, the fundamental strengths of the Philippine economy, which saw us through a tough period, provide a huge opportunity for us to consolidate the gains we have achieved thus far and allow us to create an environment that will propel the economy forward. The BSP, together with the other government agencies, are firmly committed to continue pursuing sound macroeconomic management and structural reforms to address the challenges ahead. To this end, let us be guided by our shared commitment to serve the general good and by our common desire to make better things happen for the Philippines. Thank you.
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Speech by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas the central bank of the Philippines, at the launch of the Albay Mayon Credit Surety Fund CSF, Legaspi City, Albay, 12 August 2010.
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Amando M Tetangco, Jr: Launch of the Albay Mayon Credit Surety Fund Speech by Mr Amando M Tetangco, Jr, Governor of the Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the Albay Mayon Credit Surety Fund (CSF), Legaspi City, Albay, 12 August 2010. * * * Governor Joey Salceda, distinguished leaders of the various sectors in Albay, members of cooperatives in Albay, fellow workers in government, special guests, marhay na aga sa indo gabos! Good morning. On behalf of the Members of the Monetary Board and my colleagues at the Bangko Sentral ng Pilipinas, we welcome Albay province under the leadership of Governor Salceda to the Credit Surety Fund movement or what we call CSF. With today’s launch, the Albay Mayon Credit Surety Fund becomes the 12th CSF to be created since 2008. With CSF, entrepreneurs gain access to bank loans even without collaterals. Before CSF, financially-challenged entrepreneurs source funds from informal lenders at very high interest rates. CSF is also a positive for banks. Even without collaterals, bank loans made under CSF are effectively insured against default by the surety fund set up jointly by the LGUs and other partner organizations. You may ask, does it really work? Well, based on our experience from the first 11 CSFs it works! I will share some CSF updates with you: As of 31 July 2010, the eleven (11) CSFs set up ahead of Albay are in the Provinces of Aurora, Bohol, Cavite, Compostela Valley, Davao del Norte, Davao Oriental, Negros Occidental, Negros Oriental and North Cotabato as well as in the Cities of Cebu and Iloilo. The combined assets of the cooperatives and NGOs who are members of the first eleven (11) CSFs is valued at P8 billion, about P2.6 billion of which represents equity. These eleven CSFs are made up of one hundred seventy-three (173) cooperatives and three (3) NGOs with total membership of close to 200,000. The sheer financial muscle and reach of the CSFs speak of the tremendous potential of the Program. The total trust fund of the eleven (11) CSFs have reached P98 million, including P51 million contributed by the cooperatives and NGOs. This translates to a total potential loan of P511 million at any one time. Total loans booked under the program reached P53 million. These loans not only helped end-user borrowers finance the needs of their businesses but helped their immediate communities as well. Loan applications amounting to P156 million are in various stages of processing and approval. Given these numbers, it is safe to say that CSFs have gained traction. For this, we thank our LGU partners, as well as our institutional partners that includes the Land Bank of the Philippines, the Development Bank of the Philippines and the Industrial Guarantee and Loan Fund. We also acknowledge IGLF’s support for the training of contributing cooperatives on credit appraisal and monitoring, basic accounting, marketing, and credit risk management. The University of the Philippines’ Institute of Small Scale Industries has already conducted ten runs of these training courses which have benefited 243 cooperative and NGO members. Nevertheless, we will be the first to say that CSF is not perfect. In this imperfect world, there is always room for improvement. The key is to have all parties involved follow procedures faithfully, starting with those who will screen and evaluate the loan applications. In the case of Albay, we see a perfect fit with CSF. Based on our monitoring, loans to deposit ratio in the entire Bicol Region remains low. For instance, while deposits have reached P53 billion in 2009, loans were at P14 billion. Clearly, you have a loyal and growing base of depositors and yet your loans to deposit ratios are low. Possibly, the guarantee provided by the credit surety fund for bank lending could well be the catalyst that will move lending forward here in Bicol. With the dynamic leadership provided by Governor Salceda and other Albay LGU officials, I am confident Albay Mayon CSF will serve as a positive catalyst that will further accelerate the development of the Bicol Region. As reported earlier, Bicol’s 2009 GDP already increased by an impressive rate of 8.2%, the highest among the 17 regions in the Philippines. We can look forward to a repeat performance. With the CSF in place, we hope Albay’s MSMEs will develop at a more balanced and sustained pace. This should exert a positive influence on the continuing development of the Bicol Region. And so, once again, we welcome Albay and Governor Salceda to the CSF movement. We also look forward to learning much from your CSF as you start implementation of this empowering collateral-free credit program for micro, small, and medium enterprises. Mabuhay ang Albay! Mabuhay ang mahal nating bansang Pilipinas! Maraming salamat sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas the central bank of the Philippines, at the launching of the point of sale interconnection, Manila, 27 October 2010.
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Amando M Tetangco, Jr: The POS interconnection – giving better banking services together Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launching of the point of sale interconnection, Manila, 27 October 2010. * * * The officers and staff of the country’s three biggest ATM networks, fellow bankers, special guests, good morning! I am very pleased to witness the launching of this much-anticipated project: the point of sale (POS) interconnection of Bancnet, Expressnet and Megalink. This is another milestone in the Philippine financial system as it is certain to open gateways for further expansion of financial services in the country through a convenient, secure and reliable channel. For this, let us commend the leadership of our three networks: Expressnet led by its Chairman Aurelio Montinola III, Bancnet led by its Chairman Ricardo Chua, and Megalink led by its President Benjamin Castillo. Let us give them a well-deserved round of applause! Indeed, the POS system in the Philippines has come a long way from its initial introduction by the Bank of the Philippine Islands in 1987, followed by Megalink in 1993 and Bancnet in 1994. Today, we have over 37,000 POS terminals serving around 30 million ATM cardholders in malls, restaurants, hotels and even small specialty shops. In other words, your market covers roughly one-third of our country’s population of about 92 million! The cooperative efforts that have led the three biggest ATM networks in the country to institutionalize the interconnectivity of their respective POS systems are therefore a most welcome development. This should lead to even improved efficiencies and better services, while enabling customer payments in a faster but simpler manner. We at the Bangko Sentral knew it was just a matter of time before this project became a reality. After all, the three ATM networks already worked together in 2006 to achieve full interconnection of their ATM services to provide more accessible and efficient services at much lower costs to the banking public. This time around, the interconnection of the POS systems of the ATM consortia should increase the touch points for client interface and enhance the value of your services to your customers. The value proposition for retailers is likewise enhanced. With this POS interconnection, retailers will no longer have to deploy multiple card-accepting devices, thereby simplifying operations and minimizing costs. Ultimately, millions of Filipinos will enjoy the convenience, efficiency and lower costs of transactions from your POS interconnection. We at the Bangko Sentral also welcome this initiative because it presents enormous potential for creating a truly inclusive financial system where strong and vibrant institutions provide efficient financial services to more people including the underbanked and those who remain unbanked or unserved by our financial system. Crucial in developing this system is the creation of a network of access points where customers can conduct their transactions through a multi-channel approach for customer interface. This is where an interconnected POS system can play an important role. Since POS terminals entail relatively minimal investment, are easier to deploy and are less costly to maintain, it is likely that more and more financial institutions will be inclined to adopt this technology as a channel for their services. The growth in electronic or e-money business is another area that may fortify the role of POS systems further. Bangko Sentral’s Circular 649 which set the regulatory framework for e-money and e-money issuers promotes innovations in fund transfer mechanisms and paves the way for a competitive growth in the industry. Under this framework, authorized e-money issuers can build a network of cash in/cash out agents that can serve as gateway for the previously unbanked to access financial services. Financial institutions can create linkages and leverage this vast network of agents to deliver financial services to a broader market using the e-money platform facilitated by either a mobile phone or a POS terminal. We have seen promising results so far. I understand that the next phase of development for the system is to allow fund transfers, another welcome innovation. As of March 2010, for instance, we have monitored 7.4 million e-money transactions valued at roughly 11.3 billion pesos using ATM and POS channels. Once this POS network interconnection is fully developed, therefore, it will provide even more efficient and costeffective ways to serve the many bankable yet unbanked Filipinos. Nevertheless, it is prudent to remember that while technology presents us with many opportunities, we must also remain vigilant of its attendant challenges and risks. System downtimes, breach of consumer information confidentiality, unclear charges and fees are among the issues that can erode public confidence in the POS system. We therefore enjoin our ATM consortia, as well as other financial institutions, to adopt appropriate measures and controls to mitigate such risks. One of your priorities should be an information campaign to ensure that customers are properly informed on how they can perform POS transactions safely and securely, as well as the possible risks involved. Customers must also be informed about all applicable fees associated with the use of other networks’ POS terminals, in accordance with existing BSP regulations on e-money and consumer protection. On our part, we at the Bangko Sentral will continue to create a policy and regulatory environment that will enable innovations to flourish while ensuring that appropriate controls and safeguards are in place. Ladies and gentlemen. Changes in our financial landscape and innovations in technology represent both challenge and opportunity for all of us. I believe however that if we remain united by our common goal to provide better service to Filipino consumers, we will find the way forward. While we have our respective roles to play, we should find ultimate convergence in working for a better, stronger, and more inclusive banking system; a banking system that supports balanced and sustainable growth for our country and our people. And so, once again, I congratulate Bancnet, Expressnet and Megalink for proving, once again, that public service is alive and well in the banking sector. Mabuhay! Maraming salamat sa inyong lahat!
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Bankers' Reception hosted by the BSP, Manila, 20 January 2012.
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Amando M Tetangco, Jr: The Bangko Sentral ng Pilipinas and the banking community – partners in sustainable development Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Bankers’ Reception hosted by the BSP, Manila, 20 January 2012. * * * Distinguished guests from the banking community, the government, the private sector, the diplomatic community, the multilateral agencies, the media, dear friends, ladies and gentlemen. On behalf of the other Members of the Monetary Board, I bid you all good evening…. and welcome… to the traditional reception of the Bangko Sentral ng Pilipinas for the banking community. We thank all of you for accepting our invitation to recognize one important pillar of our economy – the banking sector, a key channel for the transmission of Bangko Sentral’s monetary policy. Sound, …stable,… and liquid,… the Philippine banking sector provides valuable support to our economy… helping sustain its growth trajectory, through varied challenges. This was particularly true in 2011… a year considered as one of the most challenging for central banks across the globe. We had to deal with the consequences of a slowing global economy affected by global developments. In the US, the underlying drift is still for below-trend growth even as employment has somewhat improved. In Europe, the deleveraging among banks has deepened, which has led to a contraction in bank credit, thereby heightening recession risks. Some analysts have called this the “deleveraging doom loop”. In the Middle East, the threat of supply chain disruptions has become amplified. Here at home, we had to grapple with destructive typhoons, floods, and other calamities. Notwithstanding a fluid environment in 2011, we successfully kept inflation within our target range; this gave us room to lower our key policy rates yesterday, our first rate cut in 2 ½ years. At the same time, steady inflow of funds kept our external position strong, with our international reserves hitting record levels; this provides us buffers for potential external shocks. 2011 was also characterized by robust bank credit that continued to underpin economic activities. For instance, lending as of November 2011 was up 22%, with the productive sector claiming four-fifths of total loan portfolio. And while we closed banks in violation of banking laws, continued public confidence in our banking system kept bank deposits at all-time high levels. Along the way, our gains in the monetary sector contributed to the upgrades that both the country and the banking sector received in 2011. Indeed, global and domestic challenges notwithstanding, 2011 emerged as another good year for the banking industry: balance sheets kept growing, asset quality continued to improve, and bank profitability continued to strengthen. This is because we made significant headway in improving our risk management systems, strengthening the supervisory process, instituting good financial governance, enhancing coordination among financial regulators, and aligning our accounting rules with international standards. BIS central bankers’ speeches Our challenge is to sustain our momentum in pursuing our reform agenda. Wisdom has it that the best time to pursue and invest in reforms is during good times. Given that 2011 was an even better year for banks than 2010, we are committed to continue our reform process. In this connection, you can say we hit the ground running in 2012. Starting this month, stand-alone thrift banks, rural banks and cooperative banks are covered by the Basel 1.5 framework that upgrades them to higher capital adequacy standards. This month also marks the start of higher capital charge on nondeliverable forwards or NDFs for “net open positions” – from 10% it is now 15%. We now require banks to set aside more funds to cover NDFs to reduce potential systemic risk and curb speculation. For universal and commercial banks, we declared early this month that we are adopting the more stringent standards of Basel 3 in 2014, four years ahead of the timeline set by the Basel Committee on Banking Supervision. Essentially, Basel 3 introduces reforms that will improve the ability of bank capital to absorb losses, extend the coverage of financial risks, and have stronger firewalls against periods of stress. Similar Basel 3 implementation plans have been announced by China, Australia, Hong Kong SAR and Singapore. Ladies and gentlemen, we are able to accelerate our timetable because of the present strong capital position of the banking industry. Our confidence also springs from the track record of our banks that have… through the years… shown the maturity and the capacity to undertake far-reaching reforms that ultimately redound to the benefit of our economy and our people. This afternoon, the Monetary Board approved a new set of enhanced standards on corporate governance in banks, as well as rules to strengthen banks’ compliance systems. Indeed, we continue to reap benefits from years of collaboration between the Bangko Sentral and the banking community in pursuing reforms to strengthen our banks and make the system more responsive to the demands of a constantly changing environment. Moving forward, we shall continue to stamp out unsafe and unsound practices, encourage mergers to bolster the strength of our banks, and build an infrastructure for a vibrant and inclusive financial system. While bank lending has been on a steady rise, credit delivery to the underbanked and the unbanked also deserves a serious closer look. Bear in mind that, the Bangko Sentral’s regulatory framework for the development of microfinance has been rated as the world’s best, for three years in a row. In other words, we are acknowledged as a pioneer in advocating use of responsible microfinance while ensuring adherence to safe and sound banking practices. In fact, 28 central banks visited us last year to learn from our experience in microfinance. Outstanding microfinance loans now average P7 billion. Considering that the average term of microfinance loans is two months, we can assume that microentrepreneurs can access as much as P40 billion a year in short-term credit. Ladies and gentlemen. Our success in developing an inclusive financial system is a crucial empowering element in liberating millions of Filipinos from poverty. We have witnessed so many inspiring success stories in microfinance across our country. We have seen how households and communities have been transformed by successful microfinance ventures. But we need to do more; we need to further broaden and deepen its reach. At the same time, we also need to ensure access to credit of viable small and medium enterprises who do not have sufficient collateral. One solution is through the Credit Surety Fund organized by the BSP and financed by the LGUs, the Industrial Guarantee and Loan BIS central bankers’ speeches Fund, DBP and Land Bank. As designed, SMEs that receive credit surety guarantee from the Fund can present this to banks as collateral for their loans. This is a relatively new program and so far, we have created 20 Credit Surety Funds: in four cities and in 16 provinces. Ladies and gentlemen. The Micro, Small and Medium Enterprises are important to our economy and our people: combined they represent more than 90% of registered businesses and employ about 70% of our labor force. In the banking industry, financial inclusion, consumer protection and financial education are the three-in-one policy agenda. We need to think out of the box in mobilizing savings in the region, providing extended financial access through non-mainstream channels and creating alternative sources of financing for borrowers and entrepreneurs. We need to make our financial system more inclusive. If we move forward together on these fronts, we can truly make a positive difference in the lives of many more Filipinos. The link between the real economy and our banking market must stay firm so that liquidity in the latter can translate into new productive capacity in the former. As it is, we see sustained growth for our economy in 2012 even as global growth continues to weaken. While the debt crisis in the Eurozone persists there are, on the other hand, welcome signs … such as the strengthening of the US economy. Here at home, we derive comfort from the fact that the Philippine economy has stronger foundations to see us through the global headwinds, thanks to home-grown sources of resilience and reforms we continue to pursue. We also see benefits from the simultaneous running of both monetary and fiscal engines. As early as this month, the Department of Budget and Management has practically released the 2012 budget to implementing agencies. Other sources of optimism are the BSP’s expectations surveys showing that both business and consumer sentiment remains generally upbeat. Ladies and gentlemen. It is providential that the Philippines is hosting this year’s 45th annual meeting of the Asian Development Bank at a time when our economy is primed for growth. Finance Secretary and Monetary Board Member Cesar Purisima is the head of the Philippine delegation. The meeting will take place from May 2 to May 5 and we expect about 4,000 delegates to participate. The preparations are in full-swing and we call on your full support to make the event a success. And so, ladies and gentlemen, on this optimistic note, let us wish our banking community, our economy and our country a happier, healthier and more prosperous 2012 where good governance prevails and growth is truly inclusive. Mabuhay ang Pilipinas! Cheers! Thank you everyone and let’s enjoy the rest of the evening. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), to the Financial Sector Forum at the Asian Development Bank, Manila, 7 February 2012.
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Amando M Tetangco, Jr: Financial stability and financial inclusion – two facets of the same policy objective Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), to the Financial Sector Forum at the Asian Development Bank, Manila, 7 February 2012. * * * Officials of the Asian Development Bank, resource persons, forum participants, my colleagues in government and in the financial market, ladies and gentlemen, good afternoon. I am happy to join you this afternoon and have this opportunity to discuss two policy issues which command prime attention today. For this reason, this session is a timely intervention, providing us a venue to further our appreciation of the dynamics between inclusion and stability. Let me start with financial inclusion. Our foray into this policy objective has been driven by our socio-economic profile. Spread over 17administrative regions, the Philippine archipelago is prone to physical fragmentation. With the population typically drawn along ethnocentric lines, we have as much diversity as distinction. The economics of this divide is evident in our income distribution. Data from our Family Income and Expenditure Surveys (FIES) will show that on average only 20 percent of family saving is generated by 80 percent of families. This disparity was the case in the 1997 FIES and it still is the case in the latest (2009) FIES. In the banking market, limited family saving is validated by the metric of having 3 deposit accounts per 5 Filipinos nationwide. This is quite low in absolute terms specially when compared with the rest of the region. What is worse though is that only 26% of the adult population use banking services. This suggests that the 3 deposit accounts likely belong to repeat customers. To compound matters, about 37% of municipalities still do not have banking offices. Quite expectedly, the majority of banking offices are in the cities and first and second class municipalities. These information are significant because they reflect the basic gap in the footprint strategy of the banking community vis-à-vis the population. Left as they are, the numbers do give us strong reasons to intervene with a formal policy on financial inclusion. This call for intervention is premised on socio-economic diversity. This is again another important consideration because it is a reminder that it is diversity which financial inclusion must precisely address. From this perspective, financial inclusion is about tailor-fitting a response for a defined problem. It is about advancing the financial, social and economic well-being of those who are otherwise “excluded”. The same supervisory principles as those in the mainstream market continue to apply but the execution allows for the proportionate application of regulatory requirements. In this way, we provide for flexibilities in policy aspects where rigidities would deter the creation of markets. This is precisely what we have done in the Philippines. To-date, we have crafted 20 regulatory issuances specific to the financial inclusion framework. These 20 fall under 5 key aspects: 1. Wider range of products; BIS central bankers’ speeches 2. Expanded physical network; 3. Extended virtual reach; 4. Enhanced transparency and disclosure; 5. Lower barriers to customer acquisition 1 We believe these ensure effective implementation of financial inclusion. In providing for a wider range of products, for example, we recognize that the financial service needs are quite varied. Toward this end, the BSP has recognized credit facilities of up to Php300,000 for such instruments as micro-enterprise loans, micro-agri loans and, housing microfinance loans. To make this micro ecosystem thriving, we complement the credit facilities with needed auxiliary products such as micro-deposits and micro-insurance product lines. The combination of all these product lines allows for a free flow of funds within an environment that is specifically structured for small-ticket item transactions. We recognize that access is a major concern, particularly with 37% of municipalities not having a banking office. To address this, we introduced the concept of microfinance banking office (MBO). MBOs are operationally attached to a full-service branch but can be established in hard-to-reach areas. On their own, they serve as a launch pad for a range of product lines from loans, to savings, remittances, to e-money conversion, bills payment, pay out services and even foreign exchange purchases on a limited basis. MBOs are separate from the electronic money ecosystem which we introduced a couple of years ago. Using technology that is readily accessible by the retail market, we are able to bridge the physical gaps in banking with a technology-driven network. This covers several facets including fund transfer facilities, retail payments and even partnerships with merchants. Pricing is certainly another key element. Contrary to some perception, financial inclusion operates on market terms and does not require any special pricing concession. To make this effective, we believe it to be important that the financial consumer is provided with accurate information on pricing. By expanding the provisions of the Truth in Lending Act, the pricing approach has been standardized to avoid possible misrepresentation. Beyond pricing, we are also of the belief that the consumer would be better protected if he is informed of the different investment options available to him as well the macro and microeconomic factors that are likely to impact on the value of his chosen investments 2. None of the above would be possible, however, if specific regulatory barriers are not addressed. Through the recent issuance of updated Anti Money Laundering rules and regulations, we are able to strike a balance between prudential requirements and realistically not having direct knowledge of those in under-served areas. To address this difficulty, our new rules rely on 3rd parties already embedded in the communities to fulfil the face to face requirements of the Know-Your-Customer threshold 3. A specific example would be allowing banks to rely on customer identification by agents that are located in underbanked communities. There is decreased transaction cost in customer retention and record keeping. To date, the BSP has conducted under its BSP Economic and Financial Learning Program 90 Public Information Campaigns, 48 local and 11 international Financial Learning Campaigns for OFWs and their families, 9 Financial Expos, 11 Financial Learning conferences for Microfinance Clients and the Unbanked. An example of authorized third parties under the new rules are covered institutions such as money changers, pawnshops and remittance agents which have been accredited by specific banks in the head offices to perform KYC functions for them in the underbanked communities. BIS central bankers’ speeches The net effect is an enabled environment. Today,188 banks provide microfinance services. We estimate that one million households are serviced with an outstanding portfolio of about Php 7 billion as of September 2011. When compared with the Php 7.17 trillion total resources of the banking system as of November 2011, the portfolio for financial inclusion is modest. However, this same portfolio was not formally in existence only a decade ago and it is in that context that we measure the strides taken, which then reflect greater significance. With all of the above initiatives and changes, a natural question to ask is whether financial inclusion impinges upon financial stability. After all, inclusion requires specialized rules for a specialized market constituency. However, the link between inclusion and stability – or more appropriately, between reducing exclusion and increasing instability – may not be unique. This makes it difficult to be precise. Nonetheless, two possibilities may be considered. First, financial market failures are often premised on information asymmetries. Incorporating new agents into the formal market will likely increase information asymmetries. This is more so the case with stakeholders whose access to and use of information is not the same as those in the mainstream market. Second, there is regulatory arbitrage. The “tailor fitting” of guidelines that is inherent to financial inclusion may create an unintended imbalance in incentives. This becomes a point of arbitrage, if not market pressure. These two scenarios are certainly possible. As we evaluate these possibilities, it bears repeating that the tailor-fitting of regulations observed for the inclusion framework is not meant to compromise governance standards. What it simply does is introduce flexibilities so that we can impose proportionate oversight where and in the manner that this is needed. Beyond this, it does become an empirical issue. At the most basic level, the risks in financial inclusion are transactional, of smaller value and often specific to a target constituent. For the Philippines, the concern is the extent to which the financial inclusion portfolio can affect the banking system which is currently 100x its own size. The answer lies in the concept of contagion. This is largely idiosyncratic to a jurisdiction and empirical in nature more than anything else. Different jurisdictions will face different parameters and different pressures due to contagion. Where then do all of these take us? Should we not pursue inclusion when the numbers say so? Should stability be the primordial concern around which all other policy objectives must subsist? If we go back to first principles, markets are made when two parties with opposing views and different needs come together to agree to transact with each other. It is for this fundamental reason that markets thrive on servicing the needs of savers versus borrowers and those of depositors versus investors. However, when the markets are too fragmented and their constituents are effectively segmented, instead of offering a venue for disinterested counterparties to come together, market failures could arise. Moving forward then, it would stand to reason that financial stability would thrive when the market framework allows for the different stakeholders to participate. Financial stability can thrive when different needs are recognized, but addressed as appropriate and governed under the same overarching core principles of market governance and prudential oversight. This is nothing more than financial inclusion. Stripped to its core, inclusion is a participatory framework to work toward a holistic market and break down barriers between bankable and BIS central bankers’ speeches unbanked, serviced and under-served. Once such a holistic market is upon us, we would have created the environment where stability can more likely be sustained. More than nice words, the Philippines stands by this framework. First, on inclusion, we are proud of our humble achievements and the recent pronouncements from external institutions give us reason to move further and forward. For three years in a row (2009–2011), the Economist Intelligence Unit’s global survey on microfinance has ranked the Philippines as number one in the world in terms of policy and regulatory framework for microfinance. The World Economic Forum and other international bodies have also recognized our strides in using innovation to increase access to financial services. Second, on stability, we believe that our financial system has performed well under the most difficult global conditions in recent memory. Beyond the positive review from our recent FSAP and the analyses from various other external agencies, including credit rating bodies, the fact remains that the Philippine financial system has been consistently expanding through the past decade. It is our view that the strength and stability of the financial system and the expansion and development of our financial inclusion program are not merely co-incidental but rather complementary. They do not just run in silent parallel, but they run as a shared purpose. From only Php 2.6 billion in December 2002 serving around 390,000 borrowers, the financial inclusion portfolio as of September 2011 is over Php 7 billion with nearly a million borrowers. What makes this impressive is not its nominal amount. Rather, it is the fact that the portfolio growth translates to an annualized expansion of 12% per annum. In contrast, banking system resources over the same exact period have grown by 8.4% per annum [from Php 3.48 trillion in December 2002 to Php 7.04 trillion in September 2011]. Though much remains to be done, we have moved forward to make economic activity much more participatory through inclusion. In the process, we have broadened the coverage of the financial net by not limiting it to those who are already naturally bankable. The process does not end here. Financial inclusion and financial stability can and do complement each other and we will continue to stand by this framework. Well beyond the numbers, we believe that the Filipino public is definitely better for it. Thank you very much and good day. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the Foreign Loan Approval and Registration System (FLAReS), Manila, 20 March 2012.
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Amando M Tetangco, Jr: Managing external debt, a move to ensure economic growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the Foreign Loan Approval and Registration System (FLAReS), Manila, 20 March 2012. * * * I wish to thank everyone for joining us today for the launch of FLAReS or the Foreign Loan Approval and Registration System. This is the newest BSP electronic innovation and is part of our continuing efforts to enhance the delivery of services to our stakeholders. The vision Through the years, the BSP has consciously and progressively adopted measures to move towards a paperless system. Taking advantage of the prevalence of the internet and the robustness of the PhilPass, the FLAReS project certainly takes us another step closer to this vision. As you saw from the presentation of the operational highlights, FLAReS will facilitate the submission of applications for approval and registration of loans via the internet… Payment of processing fees will likewise be more convenient, using the branch network of participating banks…. Finally, participants will be able to monitor the status of applications online… It is our expectation therefore that FLAReS… in addition to improving operational efficiency… will also move us towards greater transparency in our delivery of services to stakeholders. Today, FLAReS is realized because of the active partnership of a select group of banks – Banco De Oro, Bank of the Philippine Islands, Land Bank of the Philippines and the Philippine National Bank. …. I would also like to express our appreciation to the public and private sector borrowers who provided useful feedback and cooperated in the pilot testing of FLAReS. ….Of course, this project would not be possible without the creative ideas and critical support of the officers and staff of the Bangko Sentral ng Pilipinas who collaborated to see the project to its completion, particularly the International Operations Department under the International Sub-Sector, the Information Technology Sub-Sector, the Payments and Settlements Office, and the Financial Accounting Department. The reason The launch of FLARes is indeed quite timely, in light of all the developments in external debt dynamics across the globe. While I don’t believe the Philippines is about to enter any kind of external debt crisis… any time soon….I believe now is a good time to take stock… and be reminded (through the experiences in other jurisdictions) of the possible consequences – both intended and otherwise – of a country’s cumulative decisions and actions with respect to debt… It is also wise for a country to institutionalize governance practices that would precisely avoid such a crisis… during a time when such is the least of the country’s concerns. The season The Philippines is in a good spot today. As can be gleaned from major external debt indicators, the BSP has been successful in its debt management efforts. Key ratios such as Gross International Reserves to Short-term Debt, Outstanding Debt to Gross National Income and Debt Service to Foreign Exchange Receipts have consistently strengthened, BIS central bankers’ speeches indicating the country’s sustained and improving ability to meet maturing obligations. We have recently announced that our gross international reserves have reached an all-time high of US$77.7 billion as of February 2012. Relative to short-term debt, our current GIR can cover nearly 11 times our short-term debt under the original maturity concept, and about 7 times using the residual maturity concept. At 27.5pct, our external debt to GDP has been on a downtrend during the past decade. It is now less than half its high over the 10-year period of 68.6pct in 2003. Likewise, the maturity of our external debt has been lengthened, with close to 90 percent of our external debt being long-term. .. The average maturity is now about 22 years. The debt service ratio (or the amount of principal and interest payments due relative to exports of goods and receipts from services and income) has droppedfrom 15.7 percent in 2001 to only 8.4 percent by November 2011, or less than 10 cents per dollar of income. By all indicators, therefore, the Philippines is well-positioned to adopt these changes. The champion You may ask, why is the BSP taking on FLAReS? Well, quite simply, external debt management is part of our mandate as the central monetary authority. The Bangko Sentral is mandated by the Philippine Constitution and other pertinent laws to manage the country’s external debt. Our objective is to keep outstanding obligations at prudent levels so that these can be comfortably serviced by the economy in an orderly and timely manner. In pursuit of this mandate, the Bangko Sentral coordinates with other government agencies, and employs various debt management tools. These tools include an approval and registration process which is being implemented by the International Operations Department, and is instrumental in directing externally-sourced funds to priority areas for development and influencing the impact of borrowings on the profile and structure of total external debt. A continuing review of Bangko Sentral regulations governing external debt and other foreign exchange transactions is likewise undertaken to keep our rules attuned with current global and domestic conditions and to foster a regulatory environment that supports the objective to achieve inclusive growth for the country. In all these undertakings, a good monitoring system is indispensable. FLAReS allows us to perform all these with relative ease and accuracy. Conclusion I have, on a number of occasions in the past, said that the Philippines managed to “survive” today’s crisis, because we purposed to invest in the reforms yesterday…. And today, ladies and gentlemen, we add FLAReS to the list of governance reforms we have instituted. As we enlist public and private sector entities to enroll in FLAReS and encourage more banks to participate, it is my hope that FLAReS would indeed help us better manage our external debt. In turn, I hope this will ensure and protect our desired trajectory of sustained higher economic growth. Maraming salamat sa inyong pagdalo at pakikinig. BIS central bankers’ speeches
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