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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 annual convention of the Chamber of Thrift Banks, Manila, 21 March 2012.
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Amando M Tetangco, Jr: The thrift banking industry amid an evolving global landscape Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the annual convention of the Chamber of Thrift Banks, Manila, 21 March 2012. * * * The officers and members of the Chamber of Thrift Banks under the leadership of President Patrick Cheng, distinguished leaders of the banking community, fellow workers in government, special guests from the media, ladies and gentlemen, good morning. On behalf of the Bangko Sentral ng Pilipinas, I commend the CTB for the choice of its convention theme this year. It is simple and straightforward: “Thrift Banks: Partner in National Development”. There is a clear understanding of the role you play in our economy. Indeed, by accumulating savings of depositors to finance small and medium enterprises… as well as consumer loans,… thrift banks continue to help the economy grow and generate employment. The resources of thrift banks deposits, loans and capital have all grown substantially. A review of industry figures indicate that increases in deposits in thrift banks were matched by similar increases in loans to consumers… as well as to micro, small, and medium enterprises… or what we call MSMEs. As a result, thrift banks in general are comfortably above the minimum threshold …mandated for MSME lending. Nevertheless, given that our banks remain quite liquid, thrift banks can help more deserving MSMEs. The importance of MSMEs in our country cannot be overemphasized. The MSME sector provides employment for most Filipinos; it is, in fact, the backbone of our economy. This is where the members of the Chamber of Thrift Banks can make a lot of difference in terms of moving our economy forward. Ladies and gentlemen. Our country is poised to achieve solid growth this year … with both our monetary and fiscal engines running. The BSP’s recent monetary policy decisions have kept our interest rates at low single-digit levels. This keeps the cost of money down and provides stimulus for our economy. At the same time, Government has been raising more revenues and will be spending more this year for infrastructure, education, and other public services. Steady investment inflows provide additional impetus for growth. Thus, while the global economy continues to grapple with the adverse impact of the debt crisis in Europe and slower growth in developed countries, the Philippines continues to generate good macro-economic numbers. Among others, our economy grew 3.7 percent last year; the stock market is touching record high levels; inflation rate dipped to 2.7 percent in February; overseas remittances remain strong and continue to beat expectations; and our strong external position is underscored by gross international reserves that set a new record high of $77.7 billion in February 2012. Nevertheless, even with these positive indicators on hand, much still needs to be done if we are to sustain our growth momentum. This is the reason why the Bangko Sentral continues to pursue a reform agenda that encompasses different facets of market conduct and the enabling prudential environment. Our reform agenda includes continuing capital-buildup… for our banks to prepare for the challenges that lie ahead. BIS central bankers’ speeches For stand-alone thrift banks, the era of Basel 1.5 is upon you. The rest of the thrift bank industry is under Basel 2, but for those with parent universal and commercial banks, the window for Basel 2.5 and Basel 3 has likewise been opened. It is easy to get lost in all the technical nuances of the Basel versions. We have in-between standards like 1.5 – our local variant – and 2.5 of the Bank for International Settlements. We can discuss its finer details later …but I trust that its fundamental message is not lost on the thrift banking industry: the Basel core principles and the Basel Accord itself…regardless of version… have always been about recognizing the risks in the banking business as a protection to our ultimate constituents. Indeed, banks must not only redirect the flow of depositors’ savings into investments and loans, they must also manage the risks that arise as a consequence. This is not a trivial task. Whether your focus is consumer or corporate finance, the stakes are high. Bank failures always have adverse consequences: whether to the depositors who have invested their faith and funds in the bank, the bank employees who lose their jobs, and the community which depends on the economic activities funded by the savings of others. For this reason, we have been active proponents of the Basel framework. This is not mere adherence to the letter of provisions …but rather a commitment to what it stands for: risk awareness and risk management. For the same reason, we have pushed the frontier with recent issuances on the compliance program under Circular 747… and on corporate governance under Circular 749. We want banks to put in place a compliance system that is best suited to their needs. While the circular establishes the senior role of the Chief Compliance Officer, it is the compliance system that is truly the central feature of the policy direction. We are not interested in citing one-off deviations; rather, we want to nurture a culture of compliance among our banks. This dovetails with the revised corporate governance framework… as approved recently by the Monetary Board. As you know, corporate governance is about managing the potential conflicts of interest that will invariably arise. The Board of Directors, board-level committees… as well as senior management … all have distinct roles to play in managing the conflicts of interest between handling public funds and deploying the same at a margin. Independent directors, in particular, are increasingly critical components of a check and balance system that can oversee any breaches in agreed protocols … and maintain an appropriate system of compensation and rewards. At this point, I also wish to cite the valuable contribution of some members of the CTB to the Bangko Sentral’s stress testing program. By participating in this exercise, you provide us with a holistic view of potential system-wide effects from extreme events. We understand that tests – especially those conducted by regulators – can be daunting exercises. However, the gains we stand to make… are considerable. We look forward therefore to increased participation of more thrift banks in due course. Ladies and gentlemen. The Basel framework, the new circulars on compliance and governance, … and the stress tests…. will serve as catalysts for change in your banks. Certainly, change is not easy; on the other hand, standing still is not an option. We either innovate… or stagnate. Today, in your convention, I hope you will maximize the opportunities available to you to identify possible areas for improvement, … for streamlining, … for upgrading,… and for innovation. As I look around, I see many familiar faces. To me, this is a welcome sight: it tells me that the industry is in capable hands. At the same time, I also see new faces who should bring fresh perspectives to the sector. This mix of seasoned and fresh bankers is bound to keep the thrift BIS central bankers’ speeches banking sector innovative, exciting and dynamic. Yes, innovative, exciting and dynamic – the opposite of complacent. Indeed, there should be no room for complacency in banks… and bankers. Filipinos trust you with their money. You are accountable to them. Shape up, …level up, … and never betray their trust. If you are faithful to your clients, they will be faithful to you. Then you can grow together as partners. On our part, we at the Bangko Sentral will continue to work with you in actively pursuing our reform agenda …. and in crafting policies and programs that will empower thrift banks to become more effective partners... for national development and growth. Growth that is sustained, and growth that is inclusive. Mabuhay ang thrift banks! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat at taus pusong pagpati sa inyong bagong Board of Director. BIS central bankers’ speeches
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Remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the signing of the Memorandum of Agreement between the Commission on Filipinos Overseas (CFO) and the Bangko Sentral ng Pilipinas on the Remittance for Development Council, Manila, 26 March 2012.
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Amando M Tetangco, Jr: Maximising the benefits of remittances from overseas Filipinos Remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the signing of the Memorandum of Agreement between the Commission on Filipinos Overseas (CFO) and the Bangko Sentral ng Pilipinas on the Remittance for Development Council, Manila, 26 March 2012. * * * Secretary Imelda Nicolas; officers and staff of the Commission on Filipinos Overseas; fellow advocates in promoting the interest of overseas Filipinos and their families; distinguished stakeholders; fellow BSPers; special guests; friends from the media; ladies and gentlemen, good afternoon. Welcome. What we have today is a short and simple ceremony for the signing of the Memorandum of Agreement between the Commission on Filipinos Overseas and the Bangko Sentral ng Pilipinas covering the Remittance for Development Council. Short and simple; …. but full of significance. To the Bangko Sentral, this partnership with the CFO on the Remittance for Development Council, is yet another step forward in our continuing efforts to maximize the benefits from remittances from overseas Filipinos…. not only for themselves and their dependents in particular, … but also for our country in general. As a multi-stakeholder advisory and policy recommending body, the Remittance for Development Council can address the matter of channeling individual and collective remittances to productive use and … at the same time…..serve as a venue for discussing issues related to the remittance environment affecting overseas Filipinos. Over the past decades, the steady growth of migrant remittances has become a dependable and major source of foreign exchange for the Philippines. In fact, the World Bank reports that in 2011… the Philippines ranked as the world’s fourth largest remittance-receiving country. Remittances from overseas Filipinos coursed through banks was up 7.2 percent in 2011 and reached over $20 billion; this is equivalent to about 9 percent of the country’s Gross Domestic Product. Clearly, remittances from overseas Filipinos are a major driver of consumption activity in the Philippines, which in turn has supported economic growth. Nevertheless, while remittances boost domestic consumption, their impact on the financial security of households and on the country’s long-term economic development has not been utilized to its full potential. An IMF study in 2009 finds that remittances indeed help lift people out of poverty; in most countries, however, its potential as driver for investment and economic growth has yet be fully explored. Together with other members, stakeholders, and partners of the Remittance for Development Council, we can explore new projects and expand our existing initiatives to create a more enabling environment to harness remittances for more savings and productive investments. For your information, the Bangko Sentral continues to work on lowering bank remittance charges further…. and to provide an environment for safer and faster remittance services through our banking system. At the same time, the Bangko Sentral has been conducting lectures on saving, investing and money management for overseas Filipinos and their dependents in the last three years. This financial education program has brought us to places with heavy concentration of overseas Filipinos – such as Japan, Europe, and the Middle East – in cooperation with the Department of Foreign Affairs. In the Philippines, our partnership is with the Department of BIS central bankers’ speeches Labor and Employment and its agencies in prioritizing areas where many dependents of overseas Filipinos reside. We look forward therefore to forging new avenues of cooperation and deeper alliances within the Remittance for Development Council to realize our shared goal of delivering a better quality of life for our modern day heroes – our overseas Filipinos and their dependents. In the meantime, palagi nating tandaan ang sumusunod na tula: Perang padala, talagang mahalaga Ipunin, palaguin, pag-yamanin Para magkasama-sama muli pamilya natin At patuloy lumakas ang mahal natin … ang bansang Pilipinas Mabuhay ang ating overseas Filipinos! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat. 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 2012 RCBC SME Initiatives, Makati City, 16 May 2012.
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Amando M Tetangco, Jr: Effective lending to SMEs in the Philippines Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the 2012 RCBC SME Initiatives, Makati City, 16 May 2012. * * * The officers and staff of RCBC under the leadership of President Lorenzo Tan; entrepreneurs from the SME sector; fellow advocates in promoting access to credit; special guests, good evening. It is my pleasure to join this launch of innovative and customer-friendly initiatives of RCBC ...in support of small and medium enterprises: the Phone-a-Loan service and the Women’s Enterprise Loan Program. These two programs join the internet-based loan self-assessment service introduced in 2009. Indeed, RCBC deserves commendation for these services that enable SMEs to find out early on – by telephone or internet – if their business fits in …with RCBC’s SME initiatives. This is… therefore… a win-win program that saves time... for both the entrepreneurs seeking credit and the bank offering credit. The Women’s Enterprise Loan program is also noteworthy for addressing the need of Filipina entrepreneurs… not only for credit, … but also for incorporating other financial services, training and business networking. In other words, this program is designed to support the growth of SMEs managed by Filipinas. This is a good decision. In the microfinance world, it has been proven... repeatedly... that women make exceptional entrepreneurs and have good credit discipline. That you are launching the Women’s Enterprise Loan program on the week of the celebration of Mother’s Day… makes your program even more meaningful. Ladies and gentlemen. We need our financial system to reach out to underserved and the presently unserved. Together, we should work on having an inclusive financial system that brings about inclusive growth… in our country. This is the value of your SME program. As it is, the 2010 Financial Access Survey indicated that only around 20% of our small firms access loans from financial institutions. The figure is higher in our neighboring countries; in Malaysia, for instance, the comparable figure is 60%. The impact of micro, small and medium enterprises on our economy and our people cannot be overemphasized. Together, our MSMEs are estimated to employ roughly 61% of Filipino workers and contribute 32% of our Gross Domestic Product. In fact, MSMEs are considered as a seedbed for nurturing entrepreneurial skills and new ideas. MSMEs therefore are critical engines of economic growth and development. The entry of large banks to the SME sector therefore ...is a most welcome development. Globally, providing SMEs access to finance is gaining renewed momentum. For instance, the association of the world’s biggest economies... under the so-called G20... has created a Global Partnership for Financial Inclusion... which is working on principles for innovative financial inclusion... as well as SME finance. While the Philippines is not a member of the G20, the Bangko Sentral ng Pilipinas has been invited to join this important global undertaking. At first glance, the MSME sector may not seem to be a natural market for large banks, given the high transaction costs relative to small loans and their lack of familiarity with the MSME landscape. Nevertheless, we have seen many jurisdictions address these concerns ... in a timely and cost-effective manner. BIS central bankers’ speeches The Philippine microfinance sector is one such success story. Developing innovative product design and delivery channels have proven to be a viable and sustainable model to serve a sector.... previously seen as difficult to serve. RCBC itself has made inroads into microfinance. Moving forward, we at the BSP will continue to create an enabling policy and regulatory environment that will allow both the financial institutions and the MSMEs to grow... on a sustained basis. To achieve this, the BSP will develop and adopt more market-oriented solutions to promote SME lending. So far, the BSP has instituted certain regulatory incentives, among which, are the reduction in the risk weight for SME loans from 100% to 75% and the extension to December 31, 2014 of the exemption of micro- and small- enterprises from the submission of additional documentary requirements, such as income tax return and/or audited financial statements ...when they apply for bank loans. Within the BSP, we are implementing a capacity building program for BSP examiners to familiarize them with the many methodologies and technologies banks can use to effectively lend to SMEs. The BSP also actively supports the development of a comprehensive credit information bureau and the creation of a collateral registry to spur the growth of MSME lending. Finally, the BSP is deeply committed to further broaden the reach of our economic and financial learning program to strengthen MSMEs. I am pleased to know therefore that RCBC is doing its part in promoting financial education. Indeed, as a bank named after our national hero, We can expect no less. After all, Dr. Jose Rizal was an ardent advocate of education as the way to improve the lives of Filipinos. Empowering our people through financial education and supporting the MSME sector gain access to credit are, therefore, truly worthy pursuits for RCBC... both as a business enterprise and as a responsible corporate citizen. In his novel El Filibusterismo, Dr. Jose Rizal wrote.. and I quote: “The greatness of a man is... in understanding his time’s desires, in responding to its needs, and in guiding its way forward.” Ladies and gentlemen, the programs RCBC launched today respond to the needs of our time: to help Philippine MSMEs move forward; to help MSMEs prosper into viable ventures that will employ more Filipinos; and to help MSMEs become viable partners in promoting inclusive and sustainable growth across the Philippines. We therefore wish total success for RCBC’s SME programs. Marami pong salamat sa inyong lahat. Mabuhay ang ating mahal na bansang Pilipinas! 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 induction ceremonies of BAIPHIL's 2012-2013 officers, Makati City, 11 July 2012.
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Amando M Tetangco, Jr: Capacity-building and the Bangko Sentral ng Pilipinas’ reform agenda Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the induction ceremonies of BAIPHIL’s 2012–2013 officers, Makati City, 11 July 2012. * * * To the incoming and outgoing officers of BAIPHIL, led by Mr. Buddy Serrano and Ms. Agnes Brillantes-Santos, members of the organization, MB members Ignacio Bunye and Armando Suratos, SEC Chair Tess Herbosa, PDIC President Val Araneta, fellow bankers led by BAP President Abet Villarosa, distinguished guests, my colleagues at the BSP, ladies and gentlemen, good afternoon. It is a pleasure to join you today to induct your incoming officers. Of all the organizational activities, the passing of the baton is truly meaningful. Similar to the relay races in athletic competition, moving the baton typifies continuity as the next leg takes over from the last one. On this basis, I would like to laud the outgoing officers for completing yet another successful, activity-laden chapter in the story of BAIPHIL. I also congratulate your incoming officials for accepting the challenge of leadership and for taking their turn in carrying the baton. Reaping the fruits of investing in ourselves Managing change is certainly not alien to any of us here. From the persistent difficulties we endured in the past through one financial crisis after another, we now find ourselves in a position of strength. For some time, we referred to this as a mark of our resilience. Perhaps, it may be more appropriate to simply describe it as “investing in ourselves” but with a clear view of the changes that we would like to effect. The net result is open for everyone to see. With total assets of Php 2.95 trillion in 1999, the Philippine banking system has grown to Php 7.33 trillion as of the end of 2011. This expansion has of course been accompanied by a corresponding increase in both deposits and loan levels. However, what is striking is not just the increase. Rather, it is that we have been actually growing faster in this time of global difficulties than in the years of relative global calm. Deposit balances have grown by 13.40% per year between 2007 and 2011 even though it is only growing by roughly 8% annually between 1999 and 2007. The loan book is more impressive, expanding at 10.62% per year in the last 4 years which is much higher than the 3.67% p.a. growth in the 8 years from 1999. With a strong banking core firmly in place, the economy grew by 6.4 percent year-on-year in the first quarter. Prices have remained stable with inflation averaging 3.0 percent during the first semester. The country’s balance of payments position also remains healthy. During the first five months of this year, the country posted a BoP surplus of USD 1.3 billion. This has contributed to record level of gross international reserves which as of end-June now stood at USD 76.3 billion. Capacity-building: a key to reforms These positive macro-financial indicators should not be taken as simply the “aggregate view”. They are the result of and not independent of the inputs of stakeholders on the ground. BIS central bankers’ speeches To be sure, BAIPHIL is one of those stakeholders. Through the years, you have been a vital institutional partner in ensuring a healthy banking industry. Not only have your initiatives been essential in extending the competencies of your member institutions, you have likewise reached out to other constituents to broaden awareness towards saving and financial literacy. Your corporate governance course is now part of our market landscape, together with other trainings such as Forgery Detection and various aspects of risk management. Of equal importance are the activities that you have pursued with other constituencies in mind. Our partnership on the “Banking on your Future” kiddie account program as well as the financial literacy program for teachers and students are high marks that deserve the public’s gratitude and commendation. It may not have been front-page news, but your recent undertakings in Bayambang, one for the Tugatog Elementary school, and another in Barangay Highway Hills in Mandaluyong certainly take front-and-center stage in making a difference. And with your donation for the victims of typhoon Sendong and the earthquake in Negros, BAIPHIL has truly made a difference in the lives of people. These are all efforts towards expanding the core competencies of different target audiences. I cite them because they are critical to the future of our financial market and our reform agenda. We do understand that without the adequate retooling of existing skills and the buildup of new ones, policy initiatives would not have much of an anchor from the constituents who either must execute or those that can benefit from these reforms. It is for this reason that I truly appreciate your theme for the coming fiscal year of “Levellingup: Linking Action with Vision”. In a short phrase, you emphasize the need for direction through vision but likewise realize that success requires affirmative action. Towards this end, the BSP values the efforts of BAIPHIL to step up its capability-building initiatives. We also welcome BAIPHIL’s move to thoroughly align its varied activities with its vision of providing excellent banking support at par with the best in the Asia Pacific. Achieving this singular goal alone will demand unity of purpose throughout the organization. Down the road, we see that this will result not only in a rise in the number of seminars for bank personnel. More importantly, we expect this to translate to responsive training programs that enable bankers to keep up with the fast-changing global environment. It is clear to us that today’s financial market norms are markedly different compared to practices just a decade or two ago. We now live in an era of stricter capital requirements, steeper yardsticks of governance and higher standards of consumer protection. We certainly expect banking practices to evolve as global markets grapple further with the lingering global financial crisis. Indeed, the only thing that remains constant is change itself. But financial markets rarely give us the opportunity to pause and dictate the changes that are evolving before us. Banks – with all the formalities of an organization and its brick and mortar structures – must always be ready to adjust if they are to meet the changing needs of their own publics. This is a hurdle…but not an impossibility. To be able to put themselves in a position to be this flexible, banks must ensure that both skills and knowledge are already in place before change takes root. The reform agenda as a training guide This seems to be an oxymoron: to ask banks to have skills and knowledge in place well before these competencies will be demanded by the changes in front of us. BIS central bankers’ speeches However, this investment in capacity is precisely what is dictated by today’s market landscape. We need to anticipate change and by doing so, we allow ourselves the opportunity to parlay the uncertainties of change into opportunities that come with vigilance. There is then a convenient nexus between the agenda of reform and the dictates of capacitybuilding. From our perspective, nothing is more urgent than the policy agenda of pursuing financial stability and mitigating systemic risks. Regulators talk of this continuously and we have set this as a threshold of prudential policy moving forward. Many may argue however that financial stability is best left to regulators. After all, each bank is well aware of its own actions, its balance sheet and performance metrics but certainly not of each and every other bank out in the market. Should you not then focus on the bottom line and leave the “big picture” to the prudential authority? This is an easy argument to make. But I believe it to be only half true. While regulators need to understand and take action on what can impair the system as a whole, this cannot be simply a task of one stakeholder. How can the greatest good be achieved if not all stakeholders assume collective responsibility? We believe that it is useful for all other stakeholders to have a working appreciation of that same big picture that regulators routinely worry about. From a capacity-building standpoint, this is ground zero. All other training initiatives will emanate from this. Capital market issues such as products and markets, pricing and valuation, and market infrastructure easily emanate from the same framework. All these training topics are quite technical in their own regard but there is a direct way to make them part of one common objective. Training opportunities in the Basel Accord, ICAAP, stress testing, risk management, good governance, compliance framework, among others, can then be brought to bear on this singular prudential goal of achieving stability. Final thoughts Ladies and gentlemen, while we have made strides, we should not rest on our laurels. To say that much more needs to be done is an understatement. The truth is that a lot more than “much more” must be done if we are to continuously move forward. But the tasks ahead are not independent strands but should instead be seen as part of a single process. Just like the relays in athletics, each stakeholder plays a unique role so that the baton is faithfully passed on from one leg to the next. Those of you who know the 4-by-100 relays understand that the winning team is not always made up of the four fastest runners. Relays are not only about sheer speed. Rather, most races are won – and lost – in the baton hand-off. Capacity-building is just like these competitive relays. The skill set that one develops is the speed that allows us to be in this race. But it is knowledge – that keen perspective of when and how things fall into place – that generates results and ensures eventual success. Relays are about continuity in motion so that momentum is not impaired but actually built upon in a coordinated and smooth passing of the baton. This continuity in motion is how we evolve from simply building capacities to becoming enablers of change. BIS central bankers’ speeches Make no mistake about it; we are in the midst of a relay in instituting change. We led off with a strong start and despite the staggered positions, we can see some early gains. Our second runner has taken the baton and built momentum in the straight-away leg. Now comes the harder part of this relay. We have the speed and momentum but we must now run the next leg while navigating a curve. Only after we get through that can we hand-off to the anchor who must then take this race home to the finish line. I ask you now: with the investments of your previous and outgoing boards plus the unbridled potential of the incoming board, has BAIPHIL built enough future capacity so that our industry can take this race home? Thank you very much and good afternoon to all of you. 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 Philippine Financial Market Forum "The way forward: building opportunities - riding on the wave of emerging market growth", Makati City, 18 June 2012.
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Amando M Tetangco, Jr: Taking the next steps at a time of change Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Philippine Financial Market Forum “The way forward: building opportunities – riding on the wave of emerging market growth”, Makati City, 18 June 2012. * * * Distinguished guests, my colleagues in the financial market, friends from media, ladies and gentlemen, good afternoon. I am happy to join you again and have this opportunity to discuss the prospects of our financial market. Forums such as this seem to be occurring more frequently these days. To me, this is a strong indicator of interest in the Philippines. This interest is not without basis. Consider this…. despite the volatility in oil prices and global uncertainties, domestic inflation has remained manageable. Interest rates have been at historic lows. This has had the upside of sustaining consumption expenditures which in 2011 accounted for 70.8% (in real terms) of GDP. Government spending has since picked up while the fiscal deficit has remained under tight control. With the balance of payments remaining positive and remittances sustained, we now find gross international reserves at record highs. Such an economic environment translated to a 3.7% growth in GDP for 2011. Building on this, our first quarter GDP growth rate has been reported at 6.4% year-on-year. This is the highest in Southeast Asia thus far and second only to China’s 8.1 percent in all of Asia. It is important to point out that these are not one-off gains. The sovereign rating and the accompanying outlook have been upgraded by various rating agencies in the last two years, re-affirming the consistency of our economic gains. We are likewise heartened to read of recent public comments by a number of analysts who see the Philippines getting another upgrade this year. I believe we would all be in agreement when I say that, these favorable indicators have come from our collective investments in focused policy reform and implementation, post-1997. As policy makers kept their eyes on the inflation ball and sustained the will to reduce our dependence on external debt, the private sector also remained engaged in policy development and prudently sought growth opportunities. For certain, this partnership has brought our country to its current position of relative economic strength. You have aptly chosen as your theme “The Way Forward: Building Opportunities – Riding on the Wave of Emerging Market Growth”. Data from the BIS shows that the growth pattern in the EMEs has changed since the height of the crisis. Overall, exports and industrial production are weakening while household consumption continues to hold up well. In emerging Asia, consumption contributed 4.25% and investment 2.75% to growth last year. The Philippine experience certainly reflects this. The shift in focus to stimulating domestic demand has certainly made emerging markets more resilient than advanced economies. This is not to say, however, that we should be complacent. Markets can turn quickly and difficulties can be protracted. Was it not only 48 months ago that the sale of Bear Stearns was finalized (on May 30, 2008) to stem the tide of market collapse? Yet when Lehman Brothers announced nine days later that it incurred a USD2.8 billion loss for its second quarter results, the chain of ensuing global difficulties could not have been rationally foreseen by any model or analysis. In other words, ladies and gentlemen, things can quickly change. If institutions and the sovereign are to be best positioned at a time of change, we need to be cognizant of what’s driving the momentum for change…From our perspective, three main themes stand out. BIS central bankers’ speeches First, liquidity. In thinking about the growth agenda, we need to pay particular attention to both the potential capital flows and the movements in domestic liquidity, as these are closely related to maintaining stable monetary conditions. Europe is said to be deleveraging. As central Europe deleverages away from peripheral Europe, it is likely that at least some of the funds would be headed towards Asia. However, if core Europe deleverages absolutely, then we might see a liquidity squeeze, not only in Asia but across the globe as well. Capital flows impact exchange rates, interest rates, trading volumes and future demands on currency withdrawals. These are not small concerns, as these can quickly become the stimuli for systemic risk. The BSP is thus always watchful. On the other hand, there is sufficient domestic liquidity. You may have heard me say this on a number of occasions in the past. As I see it therefore, the issue of a liquidity squeeze and contraction of trade credits because of deleveraging in Europe is not our primordial concern. The strength of the Philippine banking system at the height of the global financial crisis was precisely the ability to source deposits, create loans while at the same time continuously improving the quality of the credit portfolio. There is always of course that temptation to deploy funds to cover costs. Ultimately, it is an issue of credit underwriting for banks. So, I say to our banks, now is not the time to put our avowed strength at risk. What I would, however, encourage our banks to do at this time is to seriously consider channeling liquidity to productive investments, such as the PPP program, instead of simply placing funds in financial instruments or engaging, even indirectly, in activities like shadow banking. Communication lines, roads, bridges and airports… these are the kinds of investments that affect the quality of growth and define our competitiveness. Second, financial stability. Through the crisis, we managed continued real GDP growth because our financial markets were broadly in order. This is why financial stability is now the overarching policy issue. Instead of looking at growth only as a higher number, we need to go beyond the bottom line and the balance sheet. Specifically, we must appreciate how things relate to one another, arresting any buildup of system-wide risks that may be brewing underneath. This leads to an agenda that oversees corporate leverage, nonbank sources of credit, real estate expansion, and corporate governance as much as it does for managing liquidity, yield curves, loans, and bank capital. For banks in particular, your relationship with other financial institutions and with nonbank corporates will be under increased scrutiny under Basel 3. Consistent with the stability agenda, the new Basel Accord covers a lot of ground on counterparty risks and systemic connectedness. While many have complained that this will likely increase the cost of doing business, we must remind the market that there is a price for taking on more risk, because ultimately, the costs of a financial blow-out are borne not just by the banks, but by the economic community as a whole. The third theme is the issue of economic integration, which is high on the agenda of Asia. ASEAN is consolidating to take a collective approach from capacity building to capital markets to liberalization. One may wonder why this should be high on the Asian agenda, given the experience in the Eurozone. The answer is simple – we need to learn from others in the region, we need to understand how individual markets work, so we can better appreciate what opportunities (and threats) reside in our own backyard. Integration is not just the usual line that markets will be extended or that market guidelines will be harmonized. Rather, this goes to the heart of regional policy cooperation. During a time of crisis possible conflicts could arise between sovereign policy packages and regional stability efforts. It is therefore imperative that before that time comes, practicable regional safety nets are already in place. Often, the problems an individual country faces are the same problems faced by the region as a whole, regardless of the individual country circumstance. The efforts to strengthen regional cooperation in Asia are steady. The recent enhancements in the CMIM, of which the Philippines is a part, certainly move the region closer to this goal. BIS central bankers’ speeches Friends, these three themes comprise a full list of things to consider as we mull the way forward. While there are a number of clear opportunities that the country’s current position of relative strength affords us, there remain serious storm clouds in the external environment. Europe continues to struggle to find the appropriate policy balance – between the short-run remedy to stop the contagion and the long-term cure to ensure sustainable growth. Today, the market welcomed the results of the Greek vote. But participants remain cautious and watchful of the next steps of the ECB, other major central banks, as well as the IMF towards reaching a credible resolution to the EU debt crisis. As for the US, the economic fortunes there are just as unclear. These two are not inconsequential jurisdictions. Taken together, the US and the EU represent 14% of incremental global GDP between 2007 and 2011, increasing to 16% if measured in purchasing power parity terms. As Europe and the US face increased financial market difficulties, the feedback loop will take the Philippines through episodes of volatile capital flows, adjustments in liquidity, stresses in credit underwriting – all of which could affect economic growth. Ladies and gentlemen, this simply highlights that the challenges in offshore markets should be onshore concerns. In our role as bank regulator, our concern is with respect to the potential ramifications of all these developments on banks. We have been doing a lot of pencil pushing. Under different simulated stress scenarios, the banking system CAR falls but still remains above the national standard of 10%. The numbers may be reassuring, but these should not lead to complacency. Friends, while uncertainties surround us today, there are many things that are looking up… Business confidence is rising… Private consumption continues to be resilient… Unemployment remains low and is declining… Inflation expectations continue to be firmly anchored, with the forecast close to lower end of target range of 3–5%, so interest rates can be seen to be stable… BoP is seen to post a surplus of $2.6 billion. Foreign reserves are projected to continue to rise to about $77.5 – 78 billion in 2012 while debt service is expected to remain stable, or even decline… With these, the peso can be expected to trade within reasonable ranges.… Banks are seen to remain in good health. Ladies and gentlemen, if you are to build opportunities and ride on the wave of our current position of strength, you need to recognize that the choices you make today will have lasting consequences…. This was what your policy makers did in 1997. We took on the difficult reforms to correct structural vulnerabilities then. Thus we developed the defenses that ensured resilience through the crisis of today. It hasn’t been easy getting to where we are today. So your role in this uneven operating environment is to safeguard the gains so far, for it is these hard-earned gains that will allow you to take advantage of the opportunities going forward. In support, you can be assured that the BSP will craft the requisite enabling monetary, external and banking sector policies. There is no magic formula that will allow us to accomplish all these effortlessly. The key, however, remains to think of the bigger picture – no longer just in terms of individual pay-offs but rather on how our respective actions can produce the shared goal of a strong, steady and upward economic growth trajectory that benefits the greater majority. BIS central bankers’ speeches
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Keynote remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the FinanceAsia 4th Annual Corporate Treasury & CFO Summit, Manila 23 August 2012.
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Amando M Tetangco, Jr: Policy actions and risks going forward Keynote remarks by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the FinanceAsia 4th Annual Corporate Treasury & CFO Summit, Manila 23 August 2012. * * * Ladies and gentlemen, good afternoon. Let me begin by thanking the organizers and sponsors of this Summit for this opportunity to connect more closely with those directly involved in our financial markets – the CFOs, corporate treasurers and senior treasury professionals… Treasury professionals are always an interesting audience to address… You are known to be sharp and analytical. It is in your DNA to be direct in your communication… You use very few words and yet everyone understands. You say “yours”, “mine”, “give”, “take”. …You follow simple rules. For instance, in fixed income, you buy high (in terms of yields) and sell low… in foreign exchange, you buy the swap points in your favor… and in origination, you dot every I and cross every T… In this respect, there are no two camps of treasury professionals. But when it comes to patience, there are generally two diametrically opposed groups among treasury professionals – 1) the notoriously impatient and 2) the unflappably patient. Some of you coolly follow trends (the trend is your friend!), while some either calmly or feverishly wait for the inflection points (this is where you make the one-time big bucks), and yet quite a few trail blaze and themselves radically create the trend. Knowing this, I thought that for this afternoon, I shall try to speak squarely on the issues that interest you – from the perspective of the BSP – Where do we think interest rates are headed? Will we see further peso appreciation? Is there an asset bubble? Are banks safe? What can you expect from the BSP in terms of policy when dealing with these issues? This approach is for the impatient side of this Summit… However, it is in my nature as a central banker to provide an appropriately balanced operating environment… Therefore to equally address the patient constituents of the Summit, I shall first provide the fundamental basis for our policy actions including the risks that we see going forward. I hope this broad outline works for everyone here. I was quite pleased to see that in the sessions preceding this, particularly the one at 9.30 am, there would already have been discussions of the macro trends that can be expected—strong economic growth, manageable inflation, robust external position, sound banking system…. So I shall no longer repeat those. Instead, I shall deal directly with the risks in our operating environment that fall from those trends. The first risk… Global headwinds will continue to be formidable. Despite collective efforts to address systemic weaknesses, Europe continues to struggle with economic and socio-political obstacles to the implementation of much-needed rehabilitation and reform measures… The economic outlook in the US is also uncertain, as unemployment remains elevated and private sector demand continues to be weak… and the so-called “fiscal cliff” continues to limit the room for fiscal stimulus. Even for Asia, less-than-favorable indicators in major emerging Asian economies as of late – in particular, slowing growth in China and India – suggest a vulnerability to the global slowdown, as weak external demand from advanced economies exerts its impact across the region. As a result, the IMF, in its World Economic Outlook update in July, cut its global economic growth projections for both 2012 and 2013 to 3.5 pct and 3.9 pct, respectively. BIS central bankers’ speeches For the Philippines, however, it is of some comfort that the economy has been resilient against the global downturn. Growth continues to be driven by a vibrant services sector, robust private demand, and accelerating government consumption… The Q2 GDP is expected to be released at the end of the month (30 August). Let us therefore see if the second-fastest growing economy in Asia would continue to beat market expectations. Second risk… Europe’s apparent deleveraging – or the shrinkage of assets in light of the current stream of global regulatory reform – may result in squeezes in the rest of the world, particularly Asia. For instance, in response to Basel 3, some international banks, instead of raising more capital, have resorted to reducing their risk-weighted assets as a way of increasing their capital adequacy ratio or CAR. In the CAR build-up recently required by the European Banking Authority (EBA) on 71 banks, this form of deleveraging seems to be recurring. It is thus no surprise that some quarters estimate that complying with Basel 3 alone will reduce bank profitability and/or impair GDP. The 2011 study of the OECD led to a result that Basel 3 implementation would mean up to a 15 basis point drop in GDP growth per year due to higher interest rates passed on to borrowers. McKinsey (2011), on the other hand, suggests that the return on equity of US banks can fall by as much as 320 bps as a result of Basel 3. These are not very encouraging thoughts but the upside is that we do not believe right now that such is the case for Philippine banks. With industry CAR of between 16% and 17% of which Tier 1 capital is 13% to 14%, there should be no reason to deleverage for the sake of hitting the capital standards of Basel 3. All these notwithstanding, the weaknesses in the US and the eurozone as well as the displayed strength of the Philippine banking industry will have capital flow implications as investors seek destinations for the freed up assets, or for funding sources, as a result of deleveraging. This brings us to the third risk. Third risk… Capital inflows to EMEs, including the Philippines, could continue in light of prolonged easy monetary policy in the advanced economies and as growth prospects and financial markets remain relatively healthier in EMEs. Yesterday, we reported a US$3.2 billion surplus in BoP in July 2012, a large part of which was due to portfolio inflows on top of the current account surplus. From a macro perspective, the broader concern with continued foreign inflows is that it could encourage more leveraging or risk-taking activities beyond the economy’s absorptive capacity for risk. This complicates monetary policy and more particularly, strong and rapid inflows of capital are often associated with asset price bubbles that could potentially undermine financial stability. What are BSP’s policy thrusts in light of these three risks? To answer this question, let me first give you four lessons from the recent past. One key lesson we, at the BSP, have drawn from the last few years is that achieving price stability is no longer enough to ensure macroeconomic stability. As we witnessed during the “Great Moderation”, an extended period of price stability can also plant the seeds of future distress by causing agents to take on a disproportionate amount of risk. In short, price stability must go hand-in-hand with financial stability. Another lesson we have learned is this – Capital can move freely across borders. Thus, policymakers must maintain a delicate balancing act between ensuring a relatively stable currency and sustaining the use of independent monetary policy to offset macroeconomic shocks. Together, these two lessons have taught us that it is prudent to use a wide set of available policy instruments to achieve low and stable inflation, prevent undue volatility in the exchange rate, and maintain broad financial stability. Our policy toolkit has till now encompassed, in addition to the policy rate and bank reserve requirements, mechanisms to better understand the nature of the flows, international reserve accumulation and the associated liquidity management, financial and foreign exchange reforms, and BIS central bankers’ speeches macroprudential regulations. By employing this strategy, the BSP has thus far been able to keep inflation in check while containing the risks associated with strong capital inflows. A third lesson we have learned is that policy responses must be oriented towards preventing a build-up of system-wide risks that may be brewing underneath the growth momentum. We need to keep an eye on the broader objective of maintaining financial stability. The regulator can no longer simply look at transactional risks, but we need to also consider how these individual transactions impact on other financial transactions. Our commitments to the Basel 3 Accord exemplify this belief as we have placed greater scrutiny on linkages between our financial institutions and the non-banking corporate sector. This now brings us full circle. For financial stability to translate fully to solid and durable economic growth, the BSP must continue to enable different stakeholders to participate confidently in the financial system. This is where our continuing reform initiatives toward greater consumer protection come in. The fourth lesson we can draw from recent experience is that consumer protection complements financial stability. These twin goals ultimately help address the expanding needs of the growing economy. I have given you the lay of the land, so to speak…Clearly, the coming months are likely to continue to prove to be challenging for the Philippines… As such, our strategy in addressing potential threats to the economy continues to revolve around using a broad-based policy tool kit that aims to bolster our domestic sources of resilience. Ladies and gentlemen, I have noted that many of you (the patient side of the Summit) have been listening intently… But for the “other side” of the Summit, you may anxiously ask, what do all these mean for the economic variables that matter to us? Quickly, three guideposts: 1. On the policy rate – We continue to see the average inflation rate falling within the lower half of the target range. With this relatively favorable inflation outlook and our still-positive real interest rate structure, we continue to have the policy space to, should it be needed, respond to sudden changes in the global and domestic environment. 2. On the exchange rate – We will continue to pursue the policy of a market-determined exchange rate. But while we don’t expect drastic moves, the market should bear in mind that the exchange rate is no longer a one-way bet. The BSP is carefully monitoring market behavior. So the market would be the wiser if it acknowledges that the BSP has several tools up our sleeve to ensure that market dynamics do not result in misalignments in the fundamental value of the exchange rate. 3. On asset prices – We don’t see stretched asset valuations at this time, but we will continue to watch out for build-ups in asset price pressures. The experiences in the US sub-prime and in the European debt crisis have given rise to the “lean” vs. “clean” debate. We now know that it could be expensive to “clean up” after an asset price mess. Therefore, the market could expect the BSP to cautiously “lean against” such price pressures. The BSP will carefully calibrate policy rates, being cognizant that our first line of defense is still the use a mix of macroprudential tools to address potential excessive risk taking among market participants. Just last week, the Monetary Board approved the introduction of a more comprehensive method of measuring the real estate exposures of banks. This measure will include, among others, not only bank loans but also investments in debt and equity securities, the proceeds of which are intended to finance the activities of real estate companies. The objective is to get a more complete picture of the amount of funds going to the property sector. If you have been observing the BSP, one thing should be pretty clear to all of you by now… The BSP considers any situation with circumspection and addresses it in a gradualist and market-consultative fashion. We always aim to provide clear guidance to the market. I hope BIS central bankers’ speeches over the past few minutes, I have been able to convey to you that the BSP will continue to craft policy with the broader objective of financial stability in mind. The theme that you have chosen for this Summit is “Excellence in Optimizing Your Treasury”. This is a point worthy of discussion. The phrase “Optimizing Treasury” brings to mind the debate between the efficient market hypothesis proponents and the advocates of behavioral finance. To believers of efficient markets, the price contains all relevant information to make a decision and market forces will trade away arbitrage opportunities. Believers of behavioral finance, on the other hand, look at a trader’s psychology and how he values “prospects” and “gambles” as the drivers of prices. To its supporters, behavioral finance explains market overshooting, over/under-reaction and loss aversion. Well, the jury is still in out on this debate… but whether you believe in one school of thought or the other, one thing is clear – to be able to maximize your treasury potential, you need information… correct and timely information. I hope that by having distilled our current market environment into three risks, four lessons and three policy guideposts, I have moved this discussion further to help you optimize your potential. As I close, let me point out that your chosen theme is not limited to parochial bottom-line optimization. Your theme calls for “Excellence”. To me, that is a call for you to be responsible stakeholders. If you are on the sell-side, sufficient disclosure and transparency are central in your dealings. If you are on the buy-side, bounded risk taking is relevant in your investments. As you perform your jobs, I hope you appreciate that you are an invaluable partner of the BSP in transmitting the impact of our policies to the real economy….I hope also that you bear in mind that as participants in the financial market, you have a responsibility to the broader community that you are in… Finally, I trust that you will remember that your reason for being is to finance activities in the real sector. On that note, let me once again thank the organizers of this conference and wish all of you a productive and rewarding afternoon. Good day to all! 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 2nd Asian Banker Philippine International Banking Conference, Makati City, 6 September 2012.
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Amando M Tetangco, Jr: Philippine banking – reaping the rewards from prudent reforms Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2nd Asian Banker Philippine International Banking Conference, Makati City, 6 September 2012. * * * Colleagues in banking, fellow stakeholders, ladies and gentlemen, good morning. Let me begin by thanking the organizers for holding the 2nd Asian Banker Philippine International Banking Conference…. When you have a 2nd (after a 1st) you create a series…It’s like the Rocky Series (for those who can still remember), or Harry Potter (to those of this generation), or Batman Series or the Ipad… the 1st one was a good experience and you want to have more of the same… The organizers did a good job the first time around… Today, they again provide a venue for us to take a closer look at the issues that confront us, as they relate to the Philippine banking system. And, we look forward, perhaps to a broader Asian Summit in the Philippines at an opportune time in the near future. Let me therefore now focus on today’s agenda. I will not give you a litany of numbers to prove that the Philippine banking system has remained strong in contrast to other jurisdictions. The positive performance indicators are quite familiar to you. For instance, you all know that system resources have been growing, funded by increased balances of deposits and more loans extended to borrowers. Let me, however, share with you storylines that are not cited often enough… On the deposits side, growth was faster in the years after the height of the crisis than the years before. Between 1999 and 2007, deposits grew a little over 8% per year. But from 2007 – at the time that the mortgage crisis was already unfolding in the US – Philippine system-wide deposit balances increased by 13.40% per year all the way to 2011… On the loan side, the numbers are even more dramatic. Loans have been growing at a 10.62% pace per year in the last 4 years (2007 to 2011) when it was growing by only 3.67% p.a. in the 8 years from 1999. Add to this, the fact that increased loan portfolio was not a case of liquidity chasing after every credit exposure. A simple look at the numbers will show that the NPL ratio has actually been falling since the turn of the century just as the coverage ratio has been rising. For universal and commercial banks, our latest number is an NPL ratio of 2.06% and a coverage ratio of 135%. All of these metrics converge into the capital adequacy ratio which is the central, though not exclusive, metric under the Basel Accord. The often-cited statistic is that our banks have consistently maintained, on average, capital ratios well above the regulatory thresholds. On a consolidated basis, system CAR is hovering at 17%, of which 14 percentage points pertain to the Tier 1 ratio. Most will leave the system review to the measures that I just shared. However, it is important for the BSP to make a point about access to the banking market because financial inclusion is much more than just a buzz word to us. Today, we have a wider reach not only from the significant increase in physical banking officers (which surged from 21,394 at end 2007 to 26,057 at end 2011) but also through ATMs (which grew from 7,155 to 10,659 over the same period) and the active use of technology through our mobile banking framework. Indeed, it can be said that we now have a wider footprint of banking services that caters to the needs of our differentiated public. Ladies and gentlemen, all of these positive developments neither happened overnight nor happened on their own. We believe that they reflect the enabling environment which we have invested in with the active support of and coordination with market stakeholders. While we BIS central bankers’ speeches can itemize each and every circular and policy prescription we have issued, I believe that we can categorize them into six main areas. • I would start with governance. This is most critical because without these overarching guidelines, the conflicts of interest inherent in finance would prove to be untenable. • Risk management comes to mind next because of our deliberate shift from transactions review to a risk-based supervisory framework. • Microfinance and financial inclusion are advocacies which we have pursued well before it became popular to do so. • To complement the prudential framework, there needed to be improvements in the delivery of banking services. • We certainly could not and would not neglect contributing to the development of the capital market. • As the other facets involved direct improvements of market components, we have not forgotten the needs of the banking public either for redress mechanisms or for financial education. Each facet is a critical component without which our prudential framework will have major deficiencies. Taken collectively, they represent the foundations upon which we envision a thriving banking market that is responsive to the evolving needs of its public. This of course begs the question. If we have a prudential framework in place, which appears to have withstood the most intense of global shocks, is there anything else that needs to be done? The answer is… definitely, there is still much more that needs to be done. And as in the past, we look to those of you in the market to join us in the work ahead. There are, however, challenges. First, the policy questions before us are evolving. Second, conduct and the performance standards that market participants must adhere to are also shifting. Then, traditional financial relationships aren’t necessarily still true. Finally, time-honored policy transmission mechanisms no longer seem to hold in the past. In response to these challenges, BSP has had to realign our own policy framework – to go beyond considering price stability as a sole objective to one that nurtures financial stability alongside price stability. We have also had to view banking policy not only from the perspective of ensuring the soundness of individual banks but also the soundness of the system as a whole. We are deliberately developing capacity so that we are able to weigh issues holistically, with the view to achieving the broader objective of financial stability. Falling from this, we put in place a suitable governance structure. First, we adopted a formal definition of financial stability to get our work agenda moving. Our definition essentially focuses on four areas: (1) governance (2) market infrastructure, (3) functioning financial system and (4) thriving economic growth. These four have to be in place, symbiotic of one another for stability to be achieved. Second, to execute this agenda, we created a Financial Stability Committee which I have the pleasure to directly oversee. With me in this committee are six of our most senior BSP officers. The work itself is run through specific committees. Key to our success is our capacity to think of the issues comprehensively even though we are traditionally structured along the three established pillars of Philippine central banking. I can tell you right now that making this new paradigm work is not a superficial challenge. We understand the difficulties this early but we nonetheless persevere. Having the governance structure in place is certainly not a panacea. We recognize that the work agenda is complex and far reaching. Key reform initiatives that we have identified include Basel 3, Corporate Governance, Consumer Protection and Financial Education, Financial Market Infrastructure BIS central bankers’ speeches and Crisis Preparedness. These initiatives are on our radar screen today in the context of unifying the prudential architecture of financial stability. None of these is trivial, each one of these requires a keen eye for details and a broader appreciation of how each interconnects with another, and each is essential in the pro-active management of any underlying pressure points that may be brewing. Let me also say that we do not underestimate how weaknesses in the West will leave their imprints upon Asia, upon us. Although better off than other jurisdictions, economies in our region are also experiencing an economic slowdown. Coupled with the deleveraging in Europe, Asia will feel some of the repercussions, either from re-leveraging, capital inflows and/or stronger local currencies. These are not insignificant macroeconomic policy issues and they certainly will be formidable macro-prudential policy concerns. For us there is that added issue of domestic liquidity that is building up and looking for suitable outlets. Some say it’s a positive problem that is preferable to the case of liquidity drying up. That may be true, but to central bankers, it is still a concern, positive or otherwise. In retrospect, we believe that the Philippine banking system is in a position of strength. Such strength has been achieved through the reforms that we have invested in the past and whose benefits have come to fruition. Moving forward, we expect to further evolve with the needs of the public at large as well as the institutions that we oversee. Ladies and gentlemen, let me reiterate – there is a role for the market in this framework. BSP does not expect to do the work alone. We stand not only as your banking regulator or monetary policy authority. We are your partner, and as in any partnership, we expect the different stakeholders to bear their proportionate load. Whether it is in managing financial risks or in exemplifying acceptable conduct in market operations, the market has a definitive role. Stability is easier to achieve if we consider the bigger picture and not be shortsighted by our own bottom lines. Capital market development is certainly a shared responsibility because it is a collective gain. And providing for an inclusive financial market, with appropriate support for financial consumers, is itself a clear winning bet for tomorrow. Together, we have taken what was perennially a difficult financial market situation in the late 90s into an environment that has withstood global shocks. Ladies and gentlemen, today, OUR market is on every investor’s radar screen. I ask all of you: where do you want this market to be as we hold the 3rd, 4th and 5th Philippine International Banking Conference and perhaps the 1st, 2nd and 3rd Asian Banking Summit? I have every reason to believe that we all share the same answers. Let us then do our part as we lift the Philippine banking system further forward as a responsive platform for the needs of the Filipino in the Asian, if not global, platform. Thank you very much. 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 Joint General Assembly of ACI Phils, FMAP, IHAP, MART, NASBI and TOAP, Makati City, 19 September 2012.
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Amando M Tetangco, Jr: Managing risks in a financial stability world – how different is this prudential world? Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Joint General Assembly of ACI Phils, FMAP, IHAP, MART, NASBI and TOAP, Makati City, 19 September 2012. * * * The Officers and Members of ACI Phils led by Coco Martin, FMAP led by Mike Ferrer, IHAP led by Manny Tordesillas, MART led by Raul Victor Tan, NASBI led by Roderick Dones, and TOAP led by Raffy Ayuste, colleagues from the BSP, ladies and gentlemen, good evening. It is a pleasure to be joining here tonight six (6) organizations… Since your last General Membership Meeting, I am told two organizations have been added to the Meeting. In other words, the “Clan” has gotten bigger. Among your six organizations, you cover a very broad spectrum of the market activities which we oversee… from the cash market, to the foreign exchange market, to securities underwriting and brokering and then to trust. This gathering is impressive for its sheer breadth of operating interests, all falling under the purview of the banking regulator…This Assembly therefore presents a unique opportunity for the BSP to share its views with several different organizations at the same time. I would therefore like to thank you for the invitation. The operating environment As I have done for a few years now during your General Membership Meeting, I shall begin my remarks by touching on our targets and expectations over our policy horizon. If you attended our Mid-Year Economic Briefing last Monday (17 September) at the PICC, I think you would agree with me that, as in the immediately preceding Economic Briefing hosted by the BSP-IRO, the public’s interest in our economy is palpable. The excitement about our economic prospects remains high. The presenters on the government side were optimistic, while the reactors on the private sector side were upbeat. Our current growth rate is already at the doorstep of the National Government’s announced real GDP growth target for 2013 of 6–7 pct…Inflation is expected to be benign with the targets for headline inflation still set at 3–5 pct through 2014… The country’s external position is seen to remain robust. In fact, our current BOP and GIR are already at levels where they are forecast to be by 2013, if not higher. Indeed, it would seem that the economic policies and reforms we have invested in over the years are converging towards solid high economic performance…But, in taking all these in, we need to be prudent… Let us not overvalue these better prospects lest we become complacent… You in the markets, of all, are most familiar with the still fragile global environment we operate in. Over the past two weeks, both the ECB and the Fed announced new asset purchase programs – the OMT (although with some conditionality) and the QE3…Central bankers do know how to use acronyms also, don’t we? Both of these were much awaited by the market…both seemingly open-ended… both signalling prolonged easy monetary policy in the advanced economies…And, your reaction has so far been, as expected… To take on added risk, as layers of policy uncertainty are peeled away. At the BSP, we are watchful of these developments. If these programs still don’t produce the desired effects on growth and unemployment in the US and Europe, the risks are clearly to the downside. Of particular concern to us is the adverse feedback loop between the financial BIS central bankers’ speeches sector and the real sector due to 1) the interlocking sovereign debt and banking crisis in the euro zone…2) the overhang of the fiscal cliff in the US, and…3) the softening Chinese economy. The 2007/08 financial crisis graphically illustrated to us that this feedback loop can be very strong and could take a non-trivial length of time to unwind…It also taught us that although focus on price stability is necessary, it is not a sufficient condition to protect economic growth… Furthermore, we should remember the lesson that looking only at the health of individual financial entities would not safeguard the system as a whole…Indeed, the recent crisis has taught us many things – but most importantly, it taught us that policies to ensure monetary stability and financial stability must go hand in hand. I know that when market players listen to a speech from the BSP Governor, you have your radars up, hoping to hear “directionals”… On the peso you hope to hear about where the peso is going. Have we hit the top yet?... On interest rates, you hope to hear where these are headed. Have we hit the bottom yet?... Are we at the top? bottom? Is the BSP holding steady?... These are important concerns, of course, because where the peso is and where interest rates are, feed directly and quite concretely into the everyday lives of Filipinos. But, I don’t have to speak about directionals tonight… Everyday you come across some quote from me on these financial prices… So I am certain you already know the stance of the BSP… One, that, the exchange rate will remain market-determined… although, Folks, be very aware that the BSP is watching how you conduct yourselves in the market… Two, that the policy interest rates will always primarily be dictated by the inflation outlook…but balanced off against concerns on excesses in other segments in the market such as real assets and capital flows. You know that our current assessment is – that inflation over the policy horizon will remain well within our target range of 3–5 percent. You must also know that the implication of this on interest rates is that interest rates will remain low over this period. Many of you already have a good handle on how the BSP conducts monetary policy and our exchange rate policy. I can say that we have had some success in communicating monetary policy to the market. But we still need to work on conveying the nuances when it comes to financial stability. So, instead of one-dimensional directionals, I would like us to spend the next few minutes discussing financial stability. In the BSP, we believe it is important to pursue financial stability because financial stability makes the transmission of other policies (including monetary policy) more effective… Moreover, we pursue it because financial stability helps financial institutions better allocate resources. When the risk/return tradeoffs are known and steady, returns are more “predictable” even when the risks are relatively higher. In other words, financial stability benefits both the policy makers and the market. So what’s new about financial stability? The original draft of this speech contained the BSP financial stability framework…Our definition of financial stability…The governance framework in the BSP…And how we are pushing the agenda to go past the BSP borders. But in the interest of time, let me just focus on a couple of points (well, five points to be precise) to help you better appreciate what we mean in the BSP when we talk about financial stability, and hopefully along the way, this discussion will help you also understand what all these mean for you and the institutions you represent. Let me begin with capital. The BSP is now more “focused” on capital adequacy – but from the perspective of strengthening the ability of capital to absorb losses. Lest I be misunderstood, I want to emphasize that our regulations in the past were never just simply BIS central bankers’ speeches about exacting compliance to a specific ratio. What is different today is the focus. Now the goal is to make capital more efficient in mitigating potential losses from the type of bailouts we saw in other jurisdictions. Today, we are (in a sense) being “stricter” about what goes (or does not go) into both the numerator and the denominator of that ratio. By doing this, we are broadening the risks that are accounted for by such capital. This is the BSP view on CAR from a financial stability perspective. The CAR should not keep only your compliance officer awake at night… It should concern everyone here, including you who are in the confines of your trading rooms…. Ladies and gentlemen, the types of transactions and risks you can undertake will now be defined by the amount and kind of capital your institutions have… But you already know that… from the example of the 15pct risk weight on NDF. It is this kind of policy framework that drives the new regulations we have been putting out… And this is my second point…We now view regulation using the “systemic” lens. After the additional NDF risk weight, you must have noted that the BSP has become more visibly concerned with issues that have systemic implications. These are reflected in, among others, the refinements to SDA trading, which have been intended to contain possible carry trades funding SDAs, and initiatives to improve reporting on real estate exposures, which are expected to ensure that all possible exposures are contained in the net and accounted for in the limits set. These reforms are some of the most recent that we put out… but many more lie ahead – from the money market to the capital market and to the derivative market. Some in the pipeline are 1) defining the benchmark yield curve so that pricing is transparent and independent of one large market participant’s rejections (I meant actions) in the auction market, 2) awakening the moribund repo markets so that liquidity is improved and one-sided quotes will be a thing of the past, 3) standardizing OTC derivatives so that structured products would have more legs to stand on, and 4) obtaining the components of shadow banking so that the unregulated activities are brought to the surface. While I am listing forthcoming reforms, let me also share with you that there are talks in the regulatory circle that consumer protection will be elevated to a core banking function and not simply an advocacy… You should keep this in mind because when this happens, it would materially impact your product development, disclosure practices and marketing efforts, on one hand, and trading and settlement infrastructure, on the other. This brings me to my third point. Market infrastructure … The perennial elephant in the room… Friends, new international guidelines are being introduced. Let me rattle off a few more acronyms. I am afraid it’s not only central bankers who love acronyms. Regulators have an even bigger penchant for these!… CSDs (for central securities depositories), SSS (for securities settlement systems), CCPs (for central counterparties) and TRs (for trade repositories). I am not saying BSP will take all these in…. But once these guidelines are in place, we will have to consider how we can adopt these best practice guidelines to our domestic operating context. I assure you, the BSP will be consultative in rolling out the guidelines... but at the same time, the BSP will not allow parochial motivations to cloud what is best for the market and financial stability. Moving on to my fourth point… In considering financial stability, the BSP has pushed changes in the financial governance framework so it starts with the financial institution itself. I realize this point may seem at odds with what I just said about parochial motivations…. But having solid governance structures in the banks would precisely help the institution veer away from such insular thinking. Governance was never meant to be the reactive function of the regulator. Our recently released revised compliance framework highlights the accountability of banks with actions and processes that they undertake. We have also just issued the new corporate governance and risk management guidelines for trusts (I am told the latter had undergone considerable discussion and coordination…Is this is indicative of how tough Trust practitioners are?) BIS central bankers’ speeches Finally, it would be a serious oversight if I do not touch on the monetary policy aspects of financial stability. Our calibration of monetary policy rates is towards price stability but it clearly will have real economy implications. In addition, the interest rate benchmarks that monetary policy sets will directly impact the cost of leverage and the volume of credit exposures. Obviously, the use of one policy lever (in this case, policy interest rates) would not always be able to address – at the same time – two policy objectives (price stability vs. financial stability) without conflict. Hence, the use of enhanced policy tool kit and policy coordination are imperative. To operationalize all these at the BSP, we have recently created the BSP Financial Stability Committee (or FSComm) in addition to the BSP Advisory Committee (which recommends monetary policy to the Monetary Board). From the five items I enumerated earlier, it is clear that financial stability crosses the three pillars of central banking. To close that “divide”, the FSComm is set at the highest level at the BSP, with the main committee manned by the three deputy governors and 3 of the most senior officers of the BSP… I have the pleasure of directly overseeing this committee. Closing remarks: market conduct ensures reform success I have given you some of the guideposts, or mile markers on the road to financial stability – as we see it in the BSP. The BSP can put out regulations and create the enabling regulatory environment… but, after everything is said and done, it is the market that will execute transactions. A wise man once warned that when dealing with the market, one should anticipate that it is not so much about the destination, as it is about the ride itself. Financial targets tell us where we want to go but it is risk-taking and risk management that get us there. No doubt, the ride can be enjoyable and give you a high, but if you don’t manage the risks well, then you – dragging everyone else with you – might end up in one big traffic jam, if not in the gutter. Ladies and gentlemen, I am not about to ask everyone here – for lack of a better term – to “behave”… As Michael Corleone said to Sonny, “It’s not personal, it’s strictly business.” Acceptable behaviour is a given because that is what collective responsibility requires. And our collective responsibility are prudential concerns. Turned on its head, prudential concerns are our collective responsibility because the gains (as well as the losses) are always shared. This applies as much to the cash market, to the foreign exchange market, to securities underwriting and brokering, to trusts and other fiduciary activities and certainly to banking. I therefore ask the organizations and institutions here tonight, let us effectively partner with one another because... the stakes are far too great for the bottom line of any single balance sheet… the stakes far outweigh the high of the ride…. Ladies and gentlemen, we are in this together. 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 2012 FINEX National Conference, Manila, 5 October 2012.
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Amando M Tetangco, Jr: Crafting policy in a shifting operating environment Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2012 FINEX National Conference, Manila, 5 October 2012. * * * It is a pleasure to join you on your 44th National Conference. FINEX is unique in our market because you are an organization of professionals – rather than of specific institutions. In your vision/mission statement you declare you are the “leading national organization of financial professionals and practitioners”. As such, you represent the financial expertise across several industries. Let me underscore the term ...“expertise”. Therefore, it can be said that the “psyche” that moves financial markets is determined among your membership. I use the term psyche here to refer to both the “expert knowledge” accumulated through facts and figures and the “raw gut” that brings those facts and figures to life in the financial world... The trader instinct. The hunt for the gain. The “animal spirits” as John Maynard Keynes refers to. Risk taking behavior complicates policy I was reflecting on your chosen topic – “Driving Growth and Competitiveness Through Innovation”. Three big words… Growth, competitiveness and innovation. At first I thought of how broad the topic was, especially when taken against the very specific mandate of the BSP. And then it dawned on me that because market innovation is driven by your members’ “animal spirits”, this topic squares quite well with the motivation to our work as a central bank…which has to do with the channels of transmission of monetary policy. Let me explain. The better known or more familiar channels of transmission of monetary policy are – interest rate, exchange rate, credit, asset prices and expectations. But there is one more channel that is less-talked-about but which has recently become prominent both in the literature and in global real world practice. This is the “risk taking channel of policy”, which has gained ground during this prolonged period of low global interest rates. Let me illustrate why this has been so. First, the low interest rate environment encourages agents to take more risk than they normally would…just to enhance yield on their portfolio. Second, low interest rates affect asset valuations… and therefore modify credit worthiness of some corporates. These in turn encourage the structuring of financial products (through derivatives) for projects that may not normally meet credit standards. A global example of the risk taking channel is the now-familiar story of the mortgage crisis in the US. While a bank that securitized its mortgages freed up liquidity trapped in its non-tradable long-term receivables, the value chain of continued securitization and re-securitization proved to be very vulnerable to price shocks. Nobody quite imagined that the loss in the value of that single underlying collateral could become wholesale. Nobody quite foresaw that we would get a global crisis, the socio-economic dislocations arising from which would not have yet fully abated nearly five years since it began. Closer to home, the example we can cite is market behaviour reflected in the magnitude and speed of capital flows into the country. Accommodative monetary conditions in advanced economies, the weak US employment picture, and the still-unresolved European crisis continue to direct investors to re-balance their portfolios... And, Emerging Markets (including the Philippines) are currently an attractive target. This puts the peso under pressure of sharp swings against global currencies. BIS central bankers’ speeches Using the right tools for the job The peso appreciation has been recent topic of interest in news columns of academics and former government technocrats. A few have encouraged the BSP to “print more money” instead of sterilizing, as a response to capital inflows. They would like the BSP to be more “resolute in our pushback” on the exchange rate lest we lose more jobs to competitor countries like India. My response to this is that doing so would be inflationary. “Printing money” to absorb the expected capital flows would lead to a tremendous expansion in domestic liquidity that would fan price pressures. In addition, the peso’s strength is largely fundamentally supported. So, official BSP action should only be to reduce excessive volatility in the rate movements. Capital flows are fickle and crafting monetary policy to address them is even trickier. It seems quite simple to prescribe monetary easing. But that seemingly simple construct could fan inflation pressures, lead to asset bubbles and create more “problems” beyond what we thought we were trying to solve to begin with. It is easy to let money lose, but it is not easy to “clean up” afterwards. Ladies and gentlemen, let me emphasize that risk taking complicates monetary policy formulation and implementation. To address this, the BSP has had to use a menu of policy actions. We have not limited ourselves to the policy rate. But we have used an enhanced policy tool kit. The kit includes allowing some exchange rate appreciation to account for the structural inflows and macroprudential regulations such as the increased risk weight on NDF transactions. The toolkit also includes a careful build-up of our reserves. Reserves are for insurance. But it is not easy to determine an “optimal level” as some have suggested. The risks we are now insuring against are also evolving. That said, our experience in the recent crisis and its aftermath has taught us that it is critical to use the right tools for the job. Competitiveness is more than the price Moving to the second big term in your theme – Competitiveness. The BSP’s contribution to competitiveness is maintaining a stable macroeconomic environment and banking regulatory framework. Within these, the market can plan well ahead, consider expansion, innovate and find market-based solutions to address risks. The BSP’s primary mandate is price stability. It’s noteworthy that since 2009, the BSP has been successful at keeping inflation well-within the Government’s official target range. And it appears that we would be able to do the same in 2012 and 2013. Our forecast for inflation is that over the policy horizon, inflation should be manageable. Therefore our current policy stance remains appropriate. In other words, you can expect interest rates to remain low over this period. But we will make adjustments should circumstances warrant, including, among others, in the event tensions in the Middle East escalate and more weather-related supply chain disruptions occur. On the external front, the country’s external position is likely to remain robust, which in turn should fundamentally support the peso. Our experience has taught us that allowing the market room to determine the exchange rate is equitable and efficient. So far, (looking at the REER), the peso has maintained its competitiveness and volatility has just been in line with the region. Ladies and gentlemen, the BSP fully appreciates that when finance executives consider the macroeconomic operating environment, your ultimate unit of analysis is the corporate bottom line. You consider every transaction and how it would increase the value of the firm. This is well and good. But the complication arises when these individual “animal spirits” do not behave as the “invisible hand” of Adam Smith would have determined. Oftentimes, an act that may be beneficial to a firm may actually turn out to be harmful when all other firms are engaged in the same transaction. BIS central bankers’ speeches This is a newer appreciation of the complexities of financial markets. In order to create a stable macro operating environment, the BSP must now go beyond stable interest rates and exchange rates. The BSP must now also ensure that the financial market accounts for how risk exposures interact with one another. In other words, ladies and gentlemen, monetary stability must now be pursued alongside financial stability. So far, through the series of reforms we have instituted, we have been able to keep the banking system in a position where its capital is able to absorb significant external shocks… and we are ready for the adoption of Basel 3 capital standards starting 2014. But this is not enough. At the BSP, we have formally taken on financial stability as a prudential task. A high-level committee has been operating for this purpose, working on an agenda consistent with international reform initiatives. Although still at the early stages, we have already initiated some prudential policies and built quantitative models for the singular purpose of mitigating the build-up of systemic risks. At the national level, the Financial Stability Coordinating Council or FSCC has been convened as well. Composed of the DOF, IC, SEC, PDIC and the BSP, the FSCC is to identify areas of brewing pressures and to take pro-active measures before these risks spillover. The agreed upon agenda of the FSCC covers quite a bit of ground. Many elements of the agenda are of direct relevance to the financial executive, regardless of whether you are in banking, securities, insurance or in the corporate field. Growth has to be inclusive The final big word in your theme is Growth. In every forum I have been invited to speak, I am always asked the question, what can BSP do to sustain growth, alleviate poverty and improve income distribution? These questions and similar comments indicate that much is expected of the BSP... perhaps too much. Let me remind everyone that the mandate of the BSP is price stability, and we are now moving more towards price and financial stability. We have the tools to pursue these. But, monetary and financial stability cannot be expected to do everything. It has been said, one cannot push on a string. There are other government agencies that are more specifically geared for stimulating and maintaining growth. What we have done so far is endeavour to make credit and funding accessible at reasonable prices, commensurate to the risks agents are willing to take. For the needs of Main Street, we are in partnership with other government agencies on the capital market agenda. On servicing the unbanked and marginalized, the BSP has 1) put together a regulatory environment that has encouraged banks to design suitable financial products, and 2) expanded our financial education and enhance consumer protection efforts. Innovation, competition, growth – role for Finex? Putting all three big words together – innovation, competition, growth – there is clear recognition that the government agencies cannot possibly handle the tasks alone. We need the private sector to be our active partner. Here is where FINEX can play a major role. I mentioned at the onset that you are unique in your representation. As such, FINEX should be called upon to drive growth and competitiveness by pushing innovations that go beyond the bottom line, that consider the bigger picture, that contribute to financial stability. There are many ways by which you can pursue this in your own work. • You can avoid the temptation of leveraging finance through carry trades. The pay-offs may look enticing but compounded risk exposures are created in the process which often cannot be unwound without significant loss. BIS central bankers’ speeches • Credit underwriting standards need to be kept high. This ensures that credit is allocated based solely on the merits of the prospective economic activity and the counterparty’s ability to pay. • Binding market conventions and redress mechanisms should be pursued. Such conventions set the bar on market conduct which then translate to uniformity in behaviour and practice. Other avenues may be considered. When your individual creativities are pooled together under the FINEX umbrella, the opportunities are limitless. Final thoughts I have covered quite a bit of ground this morning. But much of the breadth has been dictated by the call of the times. Ladies and gentlemen, the best financial investments today are those that build bigger markets in the future. Markets wherein stakeholders are better aware of financial opportunities. Markets that are best able to withstand the build-up of system-wide risks. This, in my view, is the unique opportunity that is presented to a unique organization of financial executives. Will FINEX rise to this challenge? Thank you and good morning to all of you. 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 14th Inter-Collegiate Finance Competition, Manila, 22 October 2012.
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Amando M Tetangco, Jr: Nurturing world-class finance leaders Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 14th Inter-Collegiate Finance Competition, Manila, 22 October 2012. * * * Good afternoon everyone! On behalf of the Bangko Sentral ng Pilipinas, I congratulate all the students and the schools that participated in this 14th Inter-Collegiate Finance Competition of the Financial Executives, Inc. and its partner JP Morgan Chase. I have personally witnessed a number of previous years’ final rounds and I can tell you this competition is tough and definitely not for the faint-hearted. Participants only have a few minutes to solve difficult questions; these are questions patterned after the notoriously challenging Chartered Financial Analyst examination for experienced finance practitioners. Let us therefore give a well-deserved round of applause to all the students, their mentors, and supporters from about 90 schools who entered the competition. I am happy to note that the finalists come from 20 schools scattered in Luzon, Visayas and Mindanao, proving once again that academic excellence is present across the Philippines. Let us also thank the delegates from the Assumption University of Thailand, the University of Guam, and the National University of Singapore for joining this event and giving it a regional scope. FINEX President Ramon Opulencia explains that this competition aims to expose students and schools to world-class finance education standards, as well as to promote exchange of ideas, cooperation, networking and friendship among the participants. We at the Philippine central bank support FINEX in this program for a number of reasons. Ladies and gentlemen, you and I know the value of keeping our financial system healthy on an institutional, national, regional, and global level. For better or for worse, financial systems affect economies and the lives of millions even billions of people. It is important to ensure therefore that the people responsible for running the finances of our institutions in particular and our financial system in general meet the high standards required by their job. FINEX deserves our recognition therefore in engaging students and schools to raise the bar of excellence in financial education year after year. Let us thank the hardworking members of FINEX for their undiminished commitment to this program with a round of applause. In this connection, I am looking forward to seeing FINEX work with our schools to make sure that ethical practices and social responsibility complete the education of our students. It would be helpful to discuss the consequences of bad or good ethical and social responsibility practices in particular institutions, here and overseas. Of course, running after a healthy bottom line is a valid and natural pursuit. However, this should be done within the parameters of ethical and social responsibility standards, if the intention is to stay in business for the long haul. In fact, studies have repeatedly shown that given a choice, customers, particularly the youth, support companies they perceive as more trustworthy and socially responsible. Another reason why the Bangko Sentral supports this annual event is our belief that fair and open competition elicits the best possible performance from market players which in turn benefits their customers. As such, I look forward to this competition where the final 20 teams will apply their holistic competence in crafting their answers. BIS central bankers’ speeches Ladies and gentlemen, the students here today remind us that with good mentoring and support from their school, family, friends, and industry groups they will be prepared for the challenges they will face in the market place. For us in the central bank, we derive considerable pleasure in the thought that we are nurturing world-class and responsible financial leaders. A word of advice to our young competitors: a wise man once said, winning is a great reward but preparing for the future is the greater prize. I wish therefore that all of you will continue to maintain the high standards of discipline that have brought you here. I also wish that you will apply your learnings to achieve financial health for yourself and mentor your family, friends and your larger community to achieve the same. This is the same rationale that underpins the Bangko Sentral’s economic and financial education program. Our objective is to empower our people to improve their financial wellbeing by making informed decisions on saving, investing and managing their resources. In addition, having a well-informed population on basic economic and financial concepts contributes to financial stability as more Filipinos become participants in our financial mainstream. For your information, latest available figures indicate that only about 20% of Filipino households have bank accounts. Nevertheless, we are optimistic that given our ongoing national campaign to broaden and deepen the reach of our financial education program, this indicator is bound to improve. Our economic and financial education program covers students starting from Grade I to college, to teachers and parents, to overseas Filipinos and their dependents, and the general public. Of course we implement this in partnership with other institutions such as the Department of Education, the Department of Labor, NGOs, private sector organizations such as FINEX, the banking community and multilateral agencies. Indeed, by working with a broad network of partners to promote financial education and to develop an inclusive financial system, we can achieve our national goal of sustained and inclusive growth for all. Ladies and gentlemen, these are not mere buzzwords. Be mindful that while our economy continues to grow and expand, at least 20% of our population still live in poverty. Sure, we are making progress but we need to work on accelerating the process of improving our peoples’ quality of life. As a people, we are great. Among many other positive traits, we are talented, creative, flexible, fun, hardworking and innovative. It is our hope therefore that our students here will continue their journey to become leaders in our economy leaders who are world-class, ethical, and socially responsible. My understanding is that FINEX will continue to monitor your development, whether you are in the private sector or in government agencies such as the Bangko Sentral ng Pilipinas. Yes, if you have the aptitude and the desire to become world-class civil servants, we need you to apply with us here at the Bangko Sentral. Again, to all the students, the schools you represent, the mentors who have taught you well, the organizers- JP Morgan Chase and FINEX, our congratulations for a job well done. And to the winners of the 14th Inter-Collegiate Finance Competition, we salute you for being at your best among our country’s best. Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat. BIS central bankers’ speeches
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Keynote address by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the Banking Code for Consumer Protection, Bank Marketing Association of the Philippines General Membership Meeting, Manila, 24 October 2012.
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Amando M Tetangco, Jr: Protecting the consumers of financial services in the Philippines Keynote address by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launch of the Banking Code for Consumer Protection, Bank Marketing Association of the Philippines General Membership Meeting, Manila, 24 October 2012. * * * Mr. Allan Tumbaga, President of the Bank Marketing Association of the Philippines (BMAP); Mr. Patrick Cheng, President of Chamber of Thrift Banks; Mr. Edward Garcia, President of the Rural Bankers Association of the Philippines; Mr. Cesar Virtusio, Executive Director of the Bankers Association of the Philippines; officers and members of BMAP; MBM Peter Favila; former BAP President Gigi Montinola; friends in the banking sector; colleagues from the BSP; ladies and gentlemen, good afternoon. It is my pleasure to join you in launching the new Banking Code for Consumer Protection. The Bangko Sentral commends BMAP, as well as the rest of the industry associations for working together in updating the Code. This is tangible proof of your responsiveness and commitment to provide the best service possible to your clients. It is also evidence of your recognition that the lifeblood of the banking system comes from client deposits and investments, and that their trust is something that banks must strive to preserve. This is why bankers, from top management down to the frontline staff, must exercise prudence and vigilance in ensuring that banking operations are optimally carried out. The preservation of public trust is likewise the underlying imperative for the Bangko Sentral’s policy and regulatory actions. This drives us to constantly emphasize that the business of banking requires serious effort to keep operations within the bounds of safety, soundness and professional management. This practice, in itself, is already equivalent to protecting the consumers of financial services. However, responsible banking is more than just business savvy and prudent risk management. Responsible banking means a conscientious focus on clients by putting their best interest at heart. It means recognizing that they deserve the highest standards of service. Client-centered banking entails embedding consumer protection in business operations. Products and services must be designed, priced and delivered in ways that match client needs. Adequate measures must be in place to ensure that the consumers are not unduly disadvantaged by business processes. The credit approval process should, for example, prevent over-indebtedness. The features and conditionalities of financial products should be clearly communicated. Transparency in information and pricing should be the key principle in marketing and client dealings. Client-focused banking further means treating consumers, regardless of their economic standing, with fairness, dignity and respect in all phases of transactions. This requires ensuring the integrity and confidentiality of client information. It also necessitates measures that prevent fraud or abuse. For example, staff training in good customer service is important. Incentivizing ethical behavior can positively reinforce staff honesty and reliability. Treating clients with respect at all times, of course entails quite a lot of patience and tolerance, but this will surely endear you more to your clients. Another important element of client-focused banking is a straightforward mechanism for complaints resolution. We at the Bangko Sentral, encourage banks to institutionalize a system of redress that immediately addresses customer concerns. It is essential that your clients know where or who to complain to within your institution. BIS central bankers’ speeches Complaints should be viewed in a positive light. The complaints or negative comments that you receive provide insight to what might be amiss in your products or policies, or to what you might be doing wrong in your operations. Providing a formal avenue for complaints, even just a humble “suggestion box” in a corner of your branches, is one way for the bank to listen and learn directly from clients. Information from complaints often carry implications or suggestions for the improvement of product design, delivery, branding, marketing, communications, even for governance and decision-making. As Bill Gates once said, “Your most unhappy customers are your greatest source of learning.” When you make your unhappy customers happy, you ultimately benefit from preserving a reputation that your bank cares. The Bangko Sentral has established a dedicated unit that attends to complaints against our supervised institutions, the Financial Consumer Affairs Group (FCAG). Among the complaints that FCAG has received is on credit cards, because clients misunderstood or were unaware of the “fine prints” about the fees and charges on their credit card contracts. Thus BSP Circular 702 dated 15 December 2010 was issued to address, among others, the disclosure of all fees linked to credit card transactions. This is just a simple example of how customer complaints can inform policymaking. Your institutions too, can leverage on complaints information in the same way. While you implement institutional procedures to ensure consumer protection and provide excellent customer service, do not forget that dealing with clients often require some form of financial education. It need not be an elaborate training program or a formal classroom discussion on financial literacy. When bank staff explain the features of a savings or investment product, they are already pointing out the importance of setting aside a portion of the clients hard-earned money into productive use. It is the Bangko Sentral’s dream that financial education also become embedded in the customer relations of financial institutions. Many have said that the most effective form of financial education happens at the point of transaction. For our part, we will do our share in promoting economic and financial awareness through our Economic and Financial Learning Program (EFLP). While the EFLP is comprehensive, we know that the Bangko Sentral alone cannot promote financial literacy to the whole Philippine population. In this advocacy, we hope that the market players such as yourselves, can do their share, or even partner with us to make the average Filipino citizen a well-informed financial decision-maker. Financial education becomes extremely important when you tap new markets, particularly those that are traditionally unserved by the banking system. Earlier today, the Bangko Sentral’s financial inclusion initiatives and the opportunities that arise from these initiatives were discussed. As you take advantage of these opportunities and bring into the financial system the currently excluded – for example the small businessmen, farmers, and low-income sectors – bear in mind that this market will be less informed and is more vulnerable. You will need, not only to innovate products that fit their needs, but also to exercise greater diligence in adequately informing and protecting these clients. It is noteworthy to see that the new Banking Code already embodies the basic principles of consumer protection and education that I have mentioned. The challenge now is translating this Code into actual standard practice. The greater challenge is to get the whole banking sector, all the big and small players, to consistently uphold the highest standards of customer service and responsible finance. I am confident that the industry will again rise to the challenge. Be likewise confident that the Bangko Sentral is ready to provide the environment that allows the industry to become stronger, more stable and more client-focused. We are united in the view that the clients are our ultimate stakeholders, and that their well-being as a result of what we do, is of primary consideration. Thank you and good afternoon. 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 First National Convention of the Capital Market Institute of the Philippines, Manila, 30 October 2012.
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Amando M Tetangco, Jr: Capital market education – a tool for market development and financial stability Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the First National Convention of the Capital Market Institute of the Philippines, Manila, 30 October 2012. * * * Capital Markets Institute of the Phils. (CMIP) Chairman- Reynaldo Nograles, President- Leo Quinto, officers and members; distinguished speakers; special guests; fellow workers in government and in BSP; ladies and gentlemen, good morning. At the outset, allow me to congratulate the Institute for holding its 1st National Convention. Anyone who has tried to push an idea or an initiative forward realizes early on the great difficulties one endures to start off. Many good ideas have perhaps fallen by the wayside, unable to remain viable in a market of competing ideas and differentiated approaches. Yet as one gets to that first milestone of success, there is that immediate realization that moving beyond the last success is in fact the enduring challenge. It may be hard to start but it is more difficult to stay relevant by keeping on moving forward. As I look around this national convention, I must say that the Capital Market Institute of the Philippines has indeed moved well past your initial milestone of success. This day no longer stands simply as a reunion of your past graduates of the Investment Teaching Accreditation Program. It manifests how far and how wide your efforts have had an impact. Let me then congratulate the leadership of the CMIP, the members and the graduates of the Capital Markets Investment Teaching Accreditation Program. Challenges of financial education in capital markets Having gone this far, the task now is to set our sights forward. In thinking about the financial education needs of capital markets and investments, the hurdles ahead do take on specific dimensions. Foremost of these challenges is the fact that our targeted constituents cut across 17 administrative regions, are of different faiths and speak several dialects. That diversity should surely tell us that the learning interventions for Apayao up north may be different from those which will be extended to the Zamboanga Peninsula down south. In addition, there are capacity and needs differences across the regions. The latest Family Income and Expenditure Survey (FIES 2009) provides us with useful lens through which we can view the saving – and thus investing – capacity of families. It tells us for example that roughly 90 percent of the total saving is generated by only 30 percent of families. The numbers then paint a rather narrow base since nearly 13 million families out of the estimated 18.4 million families could only provide 10 percent of total saving. In practice, this means that the cash flows are different across regions, and the preferences differ from person to person. These hurdles may seem daunting but I assure the CMIP that you are not alone. The BSP faces the same challenges in our own Economic and Financial Learning Program. Like you, we believe in the advocacy of financial learning. And like you, we appreciate the difficulties of pursuing such a learning campaign within the context of the nuances of our market and our stakeholders. BIS central bankers’ speeches Capital market development and financial stability Although the difficulties are defined, the consequences from not pursuing a financial education campaign are even less enticing. Financial education creates the platform for raising responsible market agents, who are able to look beyond their own bottom lines. Without an appropriate national financial education program, the development of stakeholders who can make well-informed financial decisions who can then take the “the next step” from being cash hoarders to become savers and ultimately to become investors who will form the capital base for sustained economic growth will be a slooooww process. And if our country is to take advantage of opportunities at this time and move up the global economic ladder, we need to accelerate this process! But while financial education is a challenging objective on its own, there are equally important goals that must be considered as well. These objectives include the development of the capital market and achieving financial stability. We all know that developing the capital market provides both the “buy side” and the “sell side” of the market with choices. For the “buy side”, choices to reflect its longer-term investment needs. And for the “sell side”, choices to adjust product offerings to where there is felt need. Developing the capital market, alongside financial education, makes the meeting of an informed risk-responsive investor and a responsible product provider efficient. The development of the capital market is also critical because it relieves the pressures off the spot market. The capital market is the anchor that filters the intra-day and the day-to-day volatilities of the cash market into underlying longer-term trends. Investors, providers and regulators need not react to every market blip. Instead, decisions can be premised on longterm signals, filtering all the shorter-term noise in the process. A well-developed capital market provides this avenue for users and sources of long-term funds. But capital market development is itself not the end goal. That delicate balance between servicing needs in a dynamic cash market and the developmental nature of a thriving capital market creates a measure of financial market stability. In a narrow sense, the absence of forces that can instigate financial market instability is certainly always welcome. However, under today’s prudential framework and policy perspective, the term “financial stability” takes on the broader context of mitigating the build up and spread of systemic risk. This elevates the issues to a much higher plane because the recent and on-going global difficulties as well as the ensuing international reform agenda are all about the ability of economies to contain systemic risks. At the BSP, we take financial stability quite seriously. We have created a high-level Financial Stability Committee (FSComm) which I have the pleasure to chair. With me in this committee are six of the most senior officers of the Bangko Sentral. In this committee, we pro-actively look into possible pressure points that may be brewing but are still not evident in the headline data. From the ability of banks to take on stressed conditions, to potential channels of risk from internal and external shocks as well as the impact of international reforms, all of these are taken up at the Financial Stability Committee. Conferences on financial stability are constantly being run and the agenda can take several days. We can certainly do that here in the Philippines as well and we look forward to engaging all stakeholders. But let me reserve that for another time and another place. For now, I simply wish to point out that neither developed capital markets nor mitigated systemic risks are possible unless we have a well-informed public and market agents who look beyond the bottom line. Both of these must stem from a financial education campaign that nurtures the awareness of the general public while developing responsible market agents. BIS central bankers’ speeches Final thoughts Ladies and gentlemen, I have deliberately painted on a larger canvass the various big dots which we believe currently define the market landscape. The dots must and do connect. But unlike the pictures that we used to draw by connecting the dots many, many moons ago, we collectively have the ability to shape the landscape that make up the dots. With the favourable sentiments towards the Philippines and its financial market, it is tempting to be lost in the glory of the accolades. While we have worked hard and over long hours to achieve these developments, the real challenge for all of us must be in providing a better tomorrow to future generations. The BSP has long held the view that financial education, financial inclusion and consumer protection form the triumvirate that holds the key. Each mutually reinforces the other. While financial inclusion and consumer protection do require regulatory intervention, financial education will have to be a commitment that all of us puts forward. CMIP has already invested itself into this agenda by pursuing a passion that became an advocacy that is now a program. The Institute has taken great steps but it cannot end here. Let us use this 1st National Convention as a springboard for setting milestones of performance going forward. Will you simply want to have more graduates of the CMITAP? Or will you measure yourselves against what the graduates themselves can do individually and collectively as part of the CMIP family? How do you pay forward the investment that you have made for yourself? How does this investment pay off when working with your students, interacting with office colleagues or operating with fellow market practitioners? How can CMIP contribute to the development of the Philippine capital market in resolving longstanding issues? How will you ensure financial stability knowing that your individual actions may have macro-prudential consequences? There are many questions that can be raised. What is clear is that the answers must come from you, just as other stakeholders must have their own answers. Pause and take time to recognize what you have already achieved. But I enjoin all of you to use that success as a commitment to a better tomorrow. I do not have any doubt in our collective ability to make a better tomorrow for future generations. I also am firm in my belief that financial education is a key element in developing markets and instilling systemic stability. CMIP has taken major strides forward to-date. And I look forward to hearing, seeing and being part of your future successes. Maraming salamat po. Mabuhay ang CMIP. Mabuhay ang ating bansang Pilipinas. 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 Asia and the Pacific Regional Meeting on "Child & youth finance", Manila, 4 December 2012.
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Amando M Tetangco, Jr: Crafting a regional agenda for child & youth finance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Asia and the Pacific Regional Meeting on “Child & youth finance”, Manila, 4 December 2012. * * * Secretary Imelda Nicolas of the Commission on Filipinos Overseas; CYFI Managing Director Jeroo Billimoria; distinguished resource persons; child and youth representatives Callista (12 years old) from Indonesia, Sam (11 years old) from Uganda and Jessie from the Philippines; fellow advocates of financial inclusion from Asia and the Pacific; our media partners; special guests, good morning and welcome to the Bangko Sentral ng Pilipinas, the Philippine central bank. We at the Bangko Sentral are happy that you have come to the Philippines to discuss child and youth finance in Asia and the Pacific – where it is said roughly 60% of the world’s youth reside. Here in the Philippines alone, about half of our total population are young. It is important for our country therefore to ensure that our youth are given proper basic education that will allow them to grow into responsible self-reliant adults. Indeed, to us at the Bangko Sentral, finance education is for everyone. Thus, when a 2006 survey indicated that less than 5% of the Filipino youth save regularly, we made a decision to place child and youth finance education high on our agenda. This is important to us. After all, we have roughly 25 million students in both elementary and high school levels. And as Philippine National Hero Dr. Jose Rizal once said “Ang kabataan ang pag-asa ng ating bayan”. The youth are the hope of our future. Furthermore, the 2006 Citibank Financial Quotient Survey indicated that Filipinos have a financial intelligence quotient of 47.8 points, less than half the maximum score of 100. While there were other countries that had lower scores, the result was disturbing for us nevertheless. It was an indication that over the long term our countrymen may miss out on the opportunities that development brings or worse, be unprepared to weather financial uncertainties that may arise in the future. These results provided us with the strong resolve to broaden and deepen our financial education program. Since then, the Bangko Sentral ng Pilipinas has been implementing an integrated economic and financial learning program that covers different segments of our society – from students to young adults to overseas Filipinos and their families to teachers and parents as well as the unbanked and the underbanked. Our ultimate goal is to make people part of our financial system while giving them protection. In other words, we want to develop an inclusive financial system that will generate inclusive growth through financial education and protection. In this connection, I am pleased to report that the development of the Philippine microfinance sector is one success story in our continuing efforts to develop a more inclusive financial system. In fact, the Philippines has been cited for the fourth consecutive year for having the world’s best regulatory environment in promoting microfinance. Millions of Filipino microentrepreneurs and their families have been liberated from poverty through microfinance which gives access to credit without collateral. As of June 2012, banks have an outstanding microfinance loan portfolio of P 7.7 Billion and an equally impressive savings portfolio of P4.3 Billion from microentrepreneurs. BIS central bankers’ speeches Indeed, the success of many microentrepreneurs is proof of the empowering benefits of gaining access to financial services. This is the reason why we are optimistic about the impact of having lessons on entrepreneurship taught to our elementary students. Using language and concepts that are easy for children to understand, the Bangko Sentral and the Department of Education produced teaching guides to instill in children an understanding and consciousness of financial issues. This is at the heart of the BSP-DepEds finance education program. The lessons range from telling the difference between needs and wants to undertaking income-generating ventures to the concept of inventory to acquiring the qualities of a successful entrepreneur. All these with the aim to hone their financial decision-making skills that will serve them well into adulthood. Ladies and gentlemen. In this journey, we have met many challenges; but we also gained partners along the way. One of our partners was the Learning Section of the local newspaper Philippine Daily Inquirer. Supported by Citi and the Bangko Sentral, it published a six-week series designed for high school students: “Money Matters for Teens: You Can Bank on It”. It eventually earned the top prize from the World Association of Newspapers for “excellence in efforts to engage the youth”. Another partner is The Bankers Institute of the Philippines which conducts personal finance management lectures for teachers and parents of elementary school pupils. Schools now request this program which runs parallel to the classroom teachings of elementary pupils. At the same time, 12 banks joined hands to launch the Kiddie Account Program. While these banks were no stranger to children’s accounts, they all agreed on the need to make saving affordable, accessible and convenient to attract more kiddie savers. After negotiations that took nearly two years, the 12 banks agreed on a common denominator: children are welcome to open accounts with them with a minimum deposit of only 100 pesos or less than US$3.00. And to further help make saving a habit, bank representatives also go directly to schools to service children’s deposits. So far, so good: thousands of new accounts are being generated by the Kiddie Account Program and withdrawals are minimal. Since children exert influence in household decisions, we hope that their habit of saving will rub off on other members of the households, including the adults. Based on the results of the BSP’s Household Finance Survey, only 20% of Philippine households maintain bank accounts. We are therefore looking at this program as a way to help raise the savings rate in the Philippines. I understand that yesterday many of our foreign delegates visited the Aurora Quezon Elementary School to observe how financial lessons are taught and to hear how banks are implementing their Kiddie Account Programs. Did you find it useful? That is good to know. Ladies and gentlemen, our continuing journey takes us through uncharted territory. Nevertheless, we are encouraged by positive feedback – from the pupils who start saving regularly, to the teachers who say they learn life lessons from the program. Also a positive is the 2011 Citi Financial Quotient Survey where the Philippines showed sustained improvements in its score. Nevertheless, we have a long way to go and a lot more to learn. It is for this reason that we look forward to this Regional Meeting on Child and Youth Finance for Asia and the Pacific. I hope therefore that our conference today will be successful and fruitful. Finally, we thank the Child and Youth Finance International for bringing this regional meeting to Manila ...and for taking the lead in the global movement to promote the habit of saving among schoolchildren. We also commend their design props today – the multi-colored BIS central bankers’ speeches balloons and throw pillows. It reminds us that while we are tackling a serious subject, we should not forget that our intended beneficiaries should find it fun to find ways to grow and manage their own money. We also thank all the speakers and delegates from here and overseas who have come to contribute to the crafting of the regional agenda for child and youth finance. And to our foreign delegates, we hope you enjoy your stay here in the Philippines. Thank you all and Mabuhay! 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 Citi-FT Financial Education Summit, Makati City, 5 December 2012.
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Amando M Tetangco, Jr: Financial capability as a 21st century life skill Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Citi-FT Financial Education Summit, Makati City, 5 December 2012. * * * Mr. Michael Zink, Head of ASEAN and Singapore Citi Country Officer; Mr. Sanjiv Vohra, Citi Country Officer for the Philippines; Secretary Imelda Nicolas, Chairperson, Commission on Filipino Overseas; Ms. Brandee McHale, Chief Operating Officer, Citi Foundation; Mr. David Pilling, Financial Times Asia Editor; Ms. Kathy Hurley, Executive Vice President, Education Alliances, Pearson Foundation; distinguished resource persons; experts and practitioners in financial education; friends who have traveled from other countries; my colleagues in the BSP; ladies and gentlemen, good morning everyone! Finally, this annual financial education summit is in the Philippines. Now on its 9th year, it continues to enjoy such high level of interest and support for its relevance to the times. Congratulate and thank Citi and FT and the other sponsors and organizers of this gathering. For starters, its forum theme “Financial Capability as a 21st Century Life Skill” … is an outright declaration that financial capability is a must-have-skill. I agree with this statement. Indeed, the ability to make sound financial choices and decisions is essential… to ensure one’s financial well-being. And yet, most people are sorely lacking in this necessary skill. The summit’s keynote session pushes the envelope further: it raises the social, economic and moral imperatives of bridging the financial capability gap. Discussions are also bound to be thought-provoking on the topic “The Ultimate Financial Education Challenges – Impact, Scale and Sustainability.” Ladies and gentlemen. The organizers of this summit have brought together world-class finance education experts and advocates to tackle these important issues. The Bangko Sentral ng Pilipinas is therefore pleased that it is a host partner in this Financial Education Summit. For your information, the BSP was also co-host... in the last two days... of the Asia and the Pacific Regional Meeting on Child and Youth Finance organized by the Child and Youth Finance, International. And three months ago, the BSP co-hosted with the OECD in Cebu the Asian Seminar on Financial Literacy and Inclusion. It must be obvious, financial education is important to the Bangko Sentral ng Pilipinas. Both Mr. Zink and Mr. Pilling have given us a useful and comprehensive background on the objectives, issues, efforts being made towards expanding financial education and inclusion. I would like to tell you about our experience at the BSP. The vision of the BSP as the country’s monetary authority and supervisor of the banking system is to be a catalyst for a globally competitive economy and a financial system that delivers a high quality of life for all Filipinos. While financial education may not immediately be considered a core function of a monetary authority or a supervisor of the banking system, it is actually quite intrinsically linked to our overarching goal and vision. To us, financial education empowers people to manage their resources with prudence, instills the discipline of saving regularly, and safely grow their money. Thus, we believe that financial education empowers the citizenry to become effective partners of the BSP as productive economic agents and improves people’s lives. With the importance we attach to financial education, the Bangko Sentral is implementing a nationwide economic and financial learning program. We follow a multi-dimensional strategy BIS central bankers’ speeches covering 1) the learning sector... including schools, public and private sector research work, and 2) the transacting public. For the “learning” sector, we created Economic and Financial Learning Centers at our head office, three regional offices and 18 branches across the country. These are our primary inhouse communication channels and the public’s focal point of contact in the BSP on information concerning economic and financial matters. The BSP also conducts outreach activities, such as targeted seminars and expos to promote greater awareness and understanding of essential economic and financial issues. For the transacting public, the BSP created the Financial Consumers Affairs Group (FCAG), a unit dedicated to assisting consumers who have concerns related to banking and financial services. We have also forged partnerships to broaden and deepen our reach. Among others, we are in partnership with the Department of Education for the integration of lessons on saving and money management into the elementary education curriculum of our 14 million elementary pupils. Parallel to this, we forged partnerships with the Bank Marketing Association of the Philippines for the development of affordable child-friendly bank products including savings account with a minimum opening balance of P100 or less than US$3.00. We have also partnered with international organizations to help us benchmark our practices, share our learnings and exchange ideas. These include: 1) the International Network for Finance Education (INFE) created by OECD to promote and facilitate international cooperation on global financial education issues; and 2) the Group of the Alliance for Financial Inclusion (AFI), which counts as members policy makers and regulators in the developing world who are committed to financial inclusion. Ladies and gentlemen. In scaling up its activities for consumer protection, the BSP is also intensifying its information campaign to ensure that intended benefits actually accrue to financial consumers. For instance, we have been working on enhancing transparency in credit transactions to make sure people are not overcharged with “flat” interest rates and similar misleading methods. To ensure proper and immediate dissemination of such consumer protection measures, no less than our deputy governors explain the issues through mass media, including radio. This may not mean much to some, but for tricycle drivers, for instance, who pay their motorcycles on installment, .... the right to demand correct pricing translates to higher income for him and his family. It is not enough therefore to craft responsive policies. We need to communicate and educate the people on what these means for them. On the other hand, we also need our people to be responsible and vigilant in protecting their rights. Indeed, financial capability is a life skill that can lead to a better life. I wish all of you therefore a fruitful and successful financial education summit. Thank you and Mabuhay! 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 Rotary Club of Manila's First Membership Meeting for 2013, Manila, 3 January 2013.
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Amando M Tetangco, Jr: Review of 2012 plus global and domestic developments shaping 2013 Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Rotary Club of Manila’s First Membership Meeting for 2013, Manila, 3 January 2013. * * * Introduction Officers and members of the Rotary Club of Manila (RCM), led by President Obet Pagdanganan, who are joined by the officers and members of the Rotary Club of Leon Guinto headed by President Lody Garcia and of the Rotary Club of Manila-Sta Ana led by President Marci Bautista and of the Inner Wheel Club of Manila, led by Pres. Dolly Gupit, esteemed guests, ladies and gentlemen, let me begin by greeting you all a Peaceful and Prosperous 2013. It is a pleasure, once again, to be part of the Rotary Club of Manila’s first Membership Meeting of the year and to have the opportunity to share with Rotarians the BSP’s views on the year just past and the expected global and domestic developments that could help shape the year ahead of us. Having done this for five or six years now, I’ve lost count, I feel like I am a member of this jolly group already. Although I know I have to put in more time to earn one of those metal badges of honor. I am told that to deserve that golden metallic nameplate will take decades. Unfortunately, the BSP Charter has imposed a two-term limit to the central bank governor. Before I digress any further, I hope you will not mind if I, as one who feels part of the group already, would go directly to the meat of my remarks this afternoon. 2012 – A year of transition for the global economy 2012 has been described by economic analysts as a year of transition. The year began with economic policy makers in the advanced economies wrapped with uncertainty about whether their politicians would be able to deliver the required votes on economic reforms essential for the resolution of the European sovereign debt crisis and the aversion of the US fiscal cliff. Markets were jittery and credit spreads were high. In the meantime, emerging market (EM) economies policy makers on the other side of the globe while doing relatively better, had become increasingly concerned with “spillover” to their economies, given the relative importance of Europe and the US as trading partners to these economies. In meeting after meeting among EM central bankers, the questions we asked of each other were: “How could we avoid any adverse effect on our own economies? How much would any spillover be?” Crisis prevention and mitigation had thus become the mantra of policy makers across the globe. In a major way, central bankers stepped in while the markets waited for the political resolution to the twin issues. Central bankers became the catalysts for preventing another global financial crisis from erupting. Among others, the ECB’s OMT (or Outright Monetary Transactions Program) and the Fed’s QE3 (or its third offering of Quantitative Easing) provided the financial markets with BIS central bankers’ speeches both the “actual” liquidity and the “psychological” calm that they needed to break their crisis mentality. Now, Europe seems to be getting closer to a resolution to its debt problems. The US economic growth appears to be gaining some traction, although it is still a work in progress. Even as the medium-term implications are still unclear, the fact that the US fiscal cliff has been avoided over the weekend provided support to the markets when they opened yesterday. Risk appetite has again emerged. And as one commentary I read said, “Happy New Year – Risk on!” In our own backyard and in response to these dual concerns, the BSP calibrated domestic monetary conditions by cutting our policy rates by a cumulative 100 basis points. This move reduced our borrowing rate from 4.5 percent to 3.5 percent. The BSP was able to reduce its policy rates by this much because the domestic inflation outlook continues to be manageable. The easy monetary policy encouraged banks to also reduce their lending rates, thereby supporting domestic investment and consumption. The Philippine banking system remained sound and stable in 2012, allowing it to effectively intermediate funds to productive uses even during times of global uncertainty. Our banking system continued to experience solid asset growth, improve the quality of its assets, and keep its capitalization above international norms and national standards. As events unfolded, the projected weak growth in the advanced economies didn’t spill over to all emerging markets in the form we thought they would. As you are aware, the Philippine economy grew stronger-than-expected in the first three quarters of 2012. The 6.5 percent growth posted during the period surpassed the national government’s (NG) target range of 5.0–6.0 percent growth for the year. In fact, the country’s growth in the third quarter of 2012 of 7.1 percent was the highest among the ASEAN countries, which all posted positive growth. Indonesia grew at 6.2 percent, Malaysia 5.2. percent, Vietnam 4.7 percent, Thailand 3.0 percent, and Singapore 0.3 percent. In addition to easy monetary conditions, the timely increases in government spending and increased private sector activity helped the Philippines stay on this uptrend. The robust output growth was achieved in a low inflation environment. Headline inflation during the first eleven months of 2012 of 3.2 percent remains well-within the government’s inflation target range of 3.0–5.0 percent for the year. This would make 2012 the fourth consecutive year that the BSP is able to keep inflation to within the government’s target range. With this continued benign inflation outlook, businesses could expect the BSP to keep interest rates at low levels in 2013. In other words, ladies and gentlemen, the Philippines has again achieved the sought-after alignment of strong growth and low inflation… This could lead one to ask: Is the Philippine economy a super economy that it appears to have been immune from any adverse impact from global developments? The answer – ladies and gentlemen – is no, it isn’t. BIS central bankers’ speeches 2012 – A year of continued strong capital flows for the Philippines. A year that tested institutions Global developments did spill over to the Philippines but not in the form of slower economic growth. Global developments spilled over to the Philippines in the form of surges in capital flows to the economy. Which have been manifested in volatilities in the financial markets. Take the exchange rate. This slide shows that in 2012, the peso has been on an appreciating trend. Take a look at the stock market. This slide shows an appreciating trend also for the stock market. Take a look at the Tbills market, where yields have been on a downtrend. All these point to strong investor interest in our currency, our stock market and our GS market. In this year of transition, our better growth prospects have continued to make the economy a magnet for capital flows. With investment grade status just around the corner, we could continue to see more foreign capital come into our domestic financial markets. How has the BSP addressed these surges in capital flows? BSP follows a pragmatic approach. We employ a menu of policy options – our enhanced policy tool kit. First, our use of policy tools is targeted. For structural flows (such as strong remittances and other current account receipts), we allow for some currency appreciation. It would be imprudent to go against a trend supported by fundamental flows. But for the speculative kind, we impose market-based regulations aimed at providing the incentive structure for market participants to correctly price their transactions, taking into account associated risks. Second, we use tools to address systemic risks. As we showed through earlier graphs on the movements in the peso, PSE and GS, capital flows have not only impacted the exchange rate. They also affected the other financial markets and economic prices. During this crisis, we learned that monetary policy tools are not enough to contain the broad-based impact of capital flows. During this crisis, we learned that there is a need to complement monetary policy with macroprudential policy tools. The BSP has never targeted an exchange rate level nor mandated specific price levels for specific market transactions. Instead, our policy has been to craft regulations that would help ensure that market participants appreciate the inherent risks of the transactions they enter into. In the case of capital flows, the market must be aware that flows which come in quickly into the economy, could also just as quickly flow out. This is often referred to as sudden stop or capital flow reversal. So far, this policy has resulted in containing the volatility in exchange rate movements to within the middle of the range of other regional currencies, although the peso has performed relatively more strongly than in previous years. In an environment where the movement of the exchange rate determines the financial wealth of different economic sectors and affects different sectors differently, this policy has been determined as fair. Beyond capital flow management policies, the economy has been successful against shocks from external volatilities because of past reforms that have built stronger institutions. What are some of these? BIS central bankers’ speeches First, a disciplined monetary policy framework, with a clear focus on our mandate. Second, sound and stable banking system, as reflected in well-capitalized and better-governed banks. Third, a robust external position and payment dynamics characterized by continued build-up in foreign exchange reserves and a lower external debt-to-GDP ratio. The NG is targeting a GDP growth of 6–7% in 2013 while for inflation, its 2013 target range is 3–5%. Clearly, the Philippines performed quite well in 2012. While 2012 was a year of transition for the global economy. For the Philippines, I believe, 2012 could more appropriately be characterized as a year of consolidation, when all the outcomes, as desired from reforms instituted, have essentially fallen into place and fitted together. Sound macroeconomic policies and structural reforms have led to investor confidence and steady economic growth in a non-inflationary environment. 2013 – Are we out of the woods yet? No, continued vigilance is needed amid relative stability Going into 2013 in a state of relative calm, is the global economy out of the woods? With the confluence of strong domestic growth and low inflation, is the Philippines in a clearing? While we expect the Philippines to be resilient, we are also aware that the country is not fully immune to the volatilities in the external front. While there seems to be relative global stability at the moment, risks remain. What are some of these risks? • There may be delays in further political reforms needed for dealing with the euro area sovereign debt crisis. • The US still faces sizable medium-term fiscal tightening. • These two risks are highly politically-related problems, which again may require central banks in advanced economies to keep easy monetary conditions. • In turn, these could lead to more capital flows to emerging economies. • We are also monitoring developments in China, to see if we would see a slowdown or a return to strong growth that together with a recovery in the US, could push global commodity prices higher. • We are also watchful of geopolitical developments in the Middle East as these could impact on the supply chain for oil. These are some of the risks that we keep an eye on. Given the highly integrated nature of economic and financial transactions today, external developments such as these, could impact on our domestic growth and inflation processes – including on domestic utility and gas pump prices. BSP’s policy thrusts moving forward The BSP welcomes the seeming respite from crisis which we are now experiencing, but we continue to keep our ears close to the ground to identify looming pressures. More specifically: On monetary policy, we will sharpen economic surveillance of shifts in the domestic and global inflation dynamics, including any brewing asset price pressures. On financial sector policy, we continue to improve the microprudential supervision of banks and pursue macroprudential regulation with equal vigor to address potential systemic risks. In line with this, we will implement the Basel 3 capital requirements for universal and commercial banks (U/KBs) by January 2014. BIS central bankers’ speeches Beyond the preservation of monetary and financial stability, the BSP will also continue its advocacies to support local enterprises, promote inclusive growth and help alleviate poverty. Thus, the BSP will sustain its advocacies on microfinance, financial inclusion, consumer protection and financial education with greater energy. On the external front, the BSP will continue to maintain a market-determined exchange rate; keep a comfortable level of reserves; and continue to promote external debt sustainability by keeping the country’s outstanding external debt manageable. In 2013, as policies further engender a sound domestic macroeconomy, we foresee continued solid economic growth amidst stable prices, a relatively stable exchange rate, and a responsive banking system that is able to withstand significant external shocks. Conclusion Ladies and gentlemen, 2012 was a year of transition for the global economy and a year of further strengthening and consolidation for the Philippine economy. In the face of the relative economic stability we have gained during this transition, and the support of domestic policy makers in our period of consolidation, it is my hope that Rotarians would make 2013 a year of expansion. A year when all of you would seek – more actively – every opportunity to create a better life not only for yourselves, but for a greater majority of our countrymen. Transition brings a traveler from one point in his journey to the next. Consolidation strengthens his foothold at every point. Expansion provides the traveler with more options during his journey. The private sector represented by Rotarians, and the government are all travelers on this economic journey. It is my hope , therefore, that as you and the BSP take on the challenges that our path throw at us, we would be able to continue working together to bring our country to the next point. One that is prosperous for more, if not for all, Filipinos. 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 Asia and the Pacific regional meeting on "Child & youth finance", Manila, 4 December 2012.
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Amando M Tetangco, Jr: Crafting a regional agenda for child & youth finance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Asia and the Pacific regional meeting on “Child & youth finance”, Manila, 4 December 2012. * * * Secretary Imelda Nicolas of the Commission on Filipinos Overseas; CYFI Managing Director Jeroo Billimoria; distinguished resource persons; child and youth representatives Callista (12 years old) from Indonesia, Sam (11 years old) from Uganda and Jessie from the Philippines; fellow advocates of financial inclusion from Asia and the Pacific; our media partners; special guests, good morning and welcome to the Bangko Sentral ng Pilipinas, the Philippine central bank. We at the Bangko Sentral are happy that you have come to the Philippines to discuss child and youth finance in Asia and the Pacific – where it is said roughly 60% of the world’s youth reside. Here in the Philippines alone, about half of our total population are young. It is important for our country therefore to ensure that our youth are given proper basic education that will allow them to grow into responsible self-reliant adults. Indeed, to us at the Bangko Sentral, finance education is for everyone. Thus, when a 2006 survey indicated that less than 5% of the Filipino youth save regularly, we made a decision to place child and youth finance education high on our agenda. This is important to us. After all, we have roughly 25 million students in both elementary and high school levels. And as Philippine National Hero Dr. Jose Rizal once said “Ang kabataan ang pag-asa ng ating bayan.” The youth are the hope of our future. Furthermore, the 2006 Citibank Financial Quotient Survey indicated that Filipinos have a financial intelligence quotient of 47.8 points, less than half the maximum score of 100. While there were other countries that had lower scores, the result was disturbing for us nevertheless. It was an indication that over the long term our countrymen may miss out on the opportunities that development brings. or worse, be unprepared to weather financial uncertainties that may arise in the future. These results provided us with the strong resolve to broaden and deepen our financial education program. Since then, the Bangko Sentral ng Pilipinas has been implementing an integrated economic and financial learning program that covers different segments of our society – from students to young adults to overseas Filipinos and their families to teachers and parents as well as the unbanked and the underbanked. Our ultimate goal is to make people part of our financial system while giving them protection. In other words, we want to develop an inclusive financial system that will generate inclusive growth through financial education and protection. In this connection, I am pleased to report that the development of the Philippine microfinance sector is one success story in our continuing efforts to develop a more inclusive financial system. In fact, the Philippines has been cited for the fourth consecutive year for having the world’s best regulatory environment in promoting microfinance. Millions of Filipino microentrepreneurs and their families have been liberated from poverty through microfinance which gives access to credit without collateral. As of June 2012, banks have an outstanding microfinance loan portfolio of P 7.7 Billion and an equally impressive savings portfolio of P4.3 Billion from microentrepreneurs. BIS central bankers’ speeches Indeed, the success of many microentrepreneurs is proof of the empowering benefits of gaining access to financial services. This is the reason why we are optimistic about the impact of having lessons on entrepreneurship taught to our elementary students. Using language and concepts that are easy for children to understand, the Bangko Sentral and the Department of Education produced teaching guides to instill in children an understanding and consciousness of financial issues. This is at the heart of the BSP-DepEds finance education program. The lessons range from telling the difference between needs and wants to undertaking income-generating ventures to the concept of inventory to acquiring the qualities of a successful entrepreneur. All these with the aim to hone their financial decision-making skills that will serve them well into adulthood. Ladies and gentlemen. In this journey, we have met many challenges; but we also gained partners along the way. One of our partners was the Learning Section of the local newspaper Philippine Daily Inquirer. Supported by Citi and the Bangko Sentral, it published a six-week series designed for high school students: “Money Matters for Teens: You Can Bank on It.” It eventually earned the top prize from the World Association of Newspapers for “excellence in efforts to engage the youth.” Another partner is The Bankers Institute of the Philippines which conducts personal finance management lectures for teachers and parents of elementary school pupils. Schools now request this program which runs parallel to the classroom teachings of elementary pupils. At the same time, 12 banks joined hands to launch the Kiddie Account Program. While these banks were no stranger to children’s accounts, they all agreed on the need to make saving affordable, accessible and convenient to attract more kiddie savers. After negotiations that took nearly two years, the 12 banks agreed on a common denominator: children are welcome to open accounts with them with a minimum deposit of only 100 pesos or less than US$3.00. And to further help make saving a habit, bank representatives also go directly to schools to service children’s deposits. So far, so good: thousands of new accounts are being generated by the Kiddie Account Program and withdrawals are minimal. Since children exert influence in household decisions, we hope that their habit of saving will rub off on other members of the households, including the adults. Based on the results of the BSP’s Household Finance Survey, only 20% of Philippine households maintain bank accounts. We are therefore looking at this program as a way to help raise the savings rate in the Philippines. I understand that yesterday many of our foreign delegates visited the Aurora Quezon Elementary School to observe how financial lessons are taught and to hear how banks are implementing their Kiddie Account Programs. Did you find it useful? That is good to know. Ladies and gentlemen, our continuing journey takes us through uncharted territory. Nevertheless, we are encouraged by positive feedback – from the pupils who start saving regularly, to the teachers who say they learn life lessons from the program. Also a positive is the 2011 Citi Financial Quotient Survey where the Philippines showed sustained improvements in its score. Nevertheless, we have a long way to go and a lot more to learn. It is for this reason that we look forward to this Regional Meeting on Child and Youth Finance for Asia and the Pacific. I hope therefore that our conference today will be successful and fruitful. Finally, we thank the Child and Youth Finance International for bringing this regional meeting to Manila and for taking the lead in the global movement to promote the habit of saving among schoolchildren. We also commend their design props today – the multi-colored BIS central bankers’ speeches balloons and throw pillows. It reminds us that while we are tackling a serious subject, we should not forget that our intended beneficiaries should find it fun to find ways to grow and manage their own money. We also thank all the speakers and delegates from here and overseas who have come to contribute to the crafting of the regional agenda for child and youth finance. And to our foreign delegates, we hope you enjoy your stay here in the Philippines. Thank you all and Mabuhay! 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 Citi-FT Financial Education Summit, Makati City, 5 December 2012.
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Amando M Tetangco, Jr: Financial capability as a 21st century life skill Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Citi-FT Financial Education Summit, Makati City, 5 December 2012. * * * Mr. Michael Zink, Head of ASEAN and Singapore Citi Country Officer; Mr. Sanjiv Vohra, Citi Country Officer for the Philippines; Secretary Imelda Nicolas, Chairperson, Commission on Filipino Overseas; Ms. Brandee McHale, Chief Operating Officer, Citi Foundation; Mr. David Pilling, Financial Times Asia Editor; Ms. Kathy Hurley, Executive Vice President, Education Alliances, Pearson Foundation; distinguished resource persons; experts and practitioners in financial education; friends who have traveled from other countries; my colleagues in the BSP; ladies and gentlemen, good morning everyone! Finally, this annual financial education summit is in the Philippines. Now on its 9th year, it continues to enjoy such high level of interest and support for its relevance to the times. Congratulate and thank Citi and FT and the other sponsors and organizers of this gathering. For starters, its forum theme “Financial Capability as a 21st Century Life Skill” is an outright declaration that financial capability is a must-have-skill. I agree with this statement. Indeed, the ability to make sound financial choices and decisions is essential to ensure one’s financial well-being. And yet, most people are sorely lacking in this necessary skill. The summit’s keynote session pushes the envelope further: it raises the social, economic and moral imperatives of bridging the financial capability gap. Discussions are also bound to be thought-provoking on the topic “The Ultimate Financial Education Challenges – Impact, Scale and Sustainability.” Ladies and gentlemen. The organizers of this summit have brought together world-class finance education experts and advocates to tackle these important issues. The Bangko Sentral ng Pilipinas is therefore pleased that it is a host partner in this Financial Education Summit. For your information, the BSP was also co-host in the last two days of the Asia and the Pacific Regional Meeting on Child and Youth Finance organized by the Child and Youth Finance, International. And three months ago, the BSP co-hosted with the OECD in Cebu the Asian Seminar on Financial Literacy and Inclusion. It must be obvious, financial education is important to the Bangko Sentral ng Pilipinas. Both Mr. Zink and Mr. Pilling have given us a useful and comprehensive background on the objectives, issues, efforts being made towards expanding financial education and inclusion. I would like to tell you about our experience at the BSP. The vision of the BSP as the country’s monetary authority and supervisor of the banking system is to be a catalyst for a globally competitive economy and a financial system that delivers a high quality of life for all Filipinos. While financial education may not immediately be considered a core function of a monetary authority or a supervisor of the banking system, it is actually quite intrinsically linked to our overarching goal and vision. To us, financial education empowers people to manage their resources with prudence, instills the discipline of saving regularly, and safely grow their money. Thus, we believe that financial education empowers the citizenry to become effective partners of the BSP as productive economic agents and improves people’s lives. With the importance we attach to financial education, the Bangko Sentral is implementing a nationwide economic and financial learning program. We follow a multi-dimensional strategy BIS central bankers’ speeches covering 1) the learning sector including schools, public and private sector research work, and 2) the transacting public. For the “learning” sector, we created Economic and Financial Learning Centers at our head office, three regional offices and 18 branches across the country. These are our primary in-house communication channels and the public’s focal point of contact in the BSP on information concerning economic and financial matters. The BSP also conducts outreach activities, such as targeted seminars and expos to promote greater awareness and understanding of essential economic and financial issues. For the transacting public, the BSP created the Financial Consumers Affairs Group (FCAG), a unit dedicated to assisting consumers who have concerns related to banking and financial services. We have also forged partnerships to broaden and deepen our reach. Among others, we are in partnership with the Department of Education for the integration of lessons on saving and money management into the elementary education curriculum of our 14 million elementary pupils. Parallel to this, we forged partnerships with the Bank Marketing Association of the Philippines for the development of affordable child-friendly bank products including savings account with a minimum opening balance of P100 or less than US$3.00. We have also partnered with international organizations to help us benchmark our practices, share our learnings and exchange ideas. These include: 1) the International Network for Finance Education (INFE) created by OECD to promote and facilitate international cooperation on global financial education issues; and 2) the Group of the Alliance for Financial Inclusion (AFI), which counts as members policy makers and regulators in the developing world who are committed to financial inclusion. Ladies and gentlemen. In scaling up its activities for consumer protection, the BSP is also intensifying its information campaign to ensure that intended benefits actually accrue to financial consumers. For instance, we have been working on enhancing transparency in credit transactions to make sure people are not overcharged with “flat” interest rates and similar misleading methods. To ensure proper and immediate dissemination of such consumer protection measures, no less than our deputy governors explain the issues through mass media, including radio. This may not mean much to some, but for tricycle drivers, for instance, who pay their motorcycles on instalment, the right to demand correct pricing translates to higher income for him and his family. It is not enough therefore to craft responsive policies. We need to communicate and educate the people on what these means for them. On the other hand, we also need our people to be responsible and vigilant in protecting their rights. Indeed, financial capability is a life skill that can lead to a better life. I wish all of you therefore a fruitful and successful financial education summit. Thank you and Mabuhay! 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 annual reception for the banking community, Manila, 18 January 2013.
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Amando M Tetangco, Jr: Vigilance amid stability and growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the annual reception for the banking community, Manila, 18 January 2013. * * * Distinguished guests from the banking community, the government, Philippine business, the diplomatic corps, multilateral institutions, NGOs, the media, special guests, good evening and a happy new year. The Bangko Sentral ng Pilipinas and its Monetary Board welcome all of you to this traditional annual reception for the banking community. This annual ritual provides us the opportunity to come together to review the past and to share our roadmap moving forward. But first, allow me to call on my co-hosts tonight, the other members of the Monetary Board: Finance Secretary Cesar Purisima, MBM Alfredo Antonio, Ignacio Bunye, Peter Favila, Felipe Medalla, and Armando Suratos. As you may have noticed, the high-rise BSP building behind us greets everyone “masaganang bagong taon.” In English, this means wishes for “A prosperous new year.” Our collective wish, here at the BSP, is for balanced, sustainable and inclusive growth that brings prosperity to Filipinos. We at the BSP believe that if we unite and work together, this is not impossible. Ladies and gentlemen. While global headwinds continued to challenge economies around the world home-grown sources of resilience enabled the Philippine economy to grow with a 6.5% increase in GDP in the first nine months in 2012. This surpassed growth projections and earned for the country the distinction of posting one of the fastest growth rates in Asia. This strong economic growth was achieved with inflation remaining low and stable. At 3.2% in 2012, inflation was well within the target range set by the National Government. This tells us that our monetary policy settings remain supportive of non-inflationary growth. At the same time, the Philippines continued to have a strong external position with, based on the latest figures, a balance of payments surplus of $9.2 billion for full-year 2012 and Gross International Reserves at $83.8 billion as of year-end. This continues to enhance confidence in our ability to meet potential shocks. Another source of resilience for our economy is our strong and responsive banking sector. As of November 2012, aggregate gross lending of universal and commercial banks was around P3.4 trillion, 13% higher than the year before. In fact, lending of universal and commercial banks has been growing at double-digit rates since January 2011. Indeed, the Philippine banking sector continues to underpin our country’s economy, as adherence to good governance becomes the norm and risk management standards align with global benchmarks. For instance, it is noteworthy that even as bank lending sustained double-digit growth, the quality of loans continues to improve, with non-performing loans dropping further to 2% in October last year, compared with over 18% in the aftermath of the 1997 Asian financial crisis. At the same time, banks have always kept their capitalization above the regulatory threshold, largely through the retention of earnings and a conscious build-up of capital. Also assets of the banking sector as of last October were about P7.6 trillion, our highest on record. The same can be said of deposit levels, profits and bank capitalization. Now, our challenge is dealing with the consequences of this “apparent” success. In particular, surges in capital flows. As Fed Reserve Chairman Ben Bernanke stated, emerging markets have been attracting capital because we have remained resilient even at the height BIS central bankers’ speeches of the recent crisis. Essentially he was saying we are the victims of our own success. Of course, the near-zero interest rate regimes in the advanced economies have also been a factor behind the strong capital flows going to emerging markets. The ideal scenario is to convert these surges in capital flows into real economic assets, such as factories in the manufacturing sector or storage facilities in the agricultural sector. In doing so, we would have leveraged the financial resources into added productive capacity. However, if these resources remain financial in nature and in search of better returns for risks they deem acceptable, then the onus shifts once again to the Bangko Sentral ng Pilipinas. More than ever, monetary policymaking requires great care and balance – Balance to contain speculative actions but not to discourage investments and balance to maintain financial and macroeconomic stability but not to stifle competition and growth. As the central monetary authority, we need to find this delicate point of policy equilibrium when the potential impact of policy on key market parameters such as on exchange and interest rates won’t outweigh the economic virtues of an open market. The issue here is not individual risks of products and transactions. Instead, it is about the risks to the system from the possible build-up of risks. Risks that could eventually spill over across stakeholders, products, transactions and sub-markets. We need therefore to be attentive to the possibility of downstream risks even when the picture upstream looks overtly robust and rosy. This is the challenge of prudently asking ourselves constantly “What can go wrong?” and to prepare accordingly for such possibilities. To us at the Bangko Sentral ng Pilipinas, this is at the heart the very essence of ensuring financial stability. And, as complex a challenge as it may be, it represents our central policy framework moving forward. The environment we operate in is not static. And we envision that our reform agenda will remain dynamic as policy developments emerge and market needs arise. But, even as the components of this agenda can change, the ultimate and driving goal remains the same. Our agenda will cover the Basel Accord on capitalization and other financial standards, as well as policy reforms on OTC Derivatives and financial market infrastructures. We also encourage banks to become more proactive in doing their part to broaden the reach of financial education. On its own, the BSP implements finance education programs across different age groups to empower Filipinos to save, invest and manage their resources with prudence, to avoid scams and to protect their rights as bank customers. To us, financial education is valuable not only for empowering our people but also in enhancing the stability of our financial system. This should also lead to improvements in the savings rate in our country which lag behind that of our neighbours. Certainly, our agenda moving forward calls for a collective effort as the ramifications and accountabilities cut across different financial institutions and regulatory agencies. In this period of change, it is important that we agree on the direction we want to take the system. And having agreed, the stakeholders must collaborate on working on such changes in ways and forms as may be required by circumstances, for the greater good. Ladies and gentlemen. We have seen how successful cooperation between the BSP and the banking sector generated long-term benefits for our country and our people. For this, the BSP and the Members of the Monetary Board thank the leaders, the management and the staff of the Philippine banking community. Maraming salamat sa inyong lahat! We also thank our guests from other sectors of our country for taking time to join us tonight. We are heartened by your show of support. As the economist Adam Smith once said, and I quote: “civilized society stands at all times in need of the cooperation and assistance of great multitudes.” BIS central bankers’ speeches It is our hope therefore that the same spirit of cooperation and collaboration will characterize our pursuit of continuing reforms in 2013 and the years ahead. And now, let us offer a toast to all of us coming together for an even stronger, more responsive, more inclusive, and more successful Philippine banking system that will underpin a strong and vibrant Philippine economy that will bring prosperity and a better quality of life to our country and our people. Cheers! 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 launching of the BSP's book on "Special Banking Laws and annotated", Bangko Sentral ng Pilipinas, Manila, 13 February 2013.
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Amando M Tetangco, Jr: Promoting the rule of law in the financial sector Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the launching of the BSP’s book on “Special Banking Laws and annotated”, Bangko Sentral ng Pilipinas, Manila, 13 February 2013. * * * Former Chief Justice Reynato Puno, members of the Monetary Board, former BSP Governors Laya and Singson, Prime Minister Virata, advocates of the rule of law from the government and the private sector, fellow BSPers, distinguished guests, good afternoon. We at the Bangko Sentral ng Pilipinas are deeply honored by your presence, Chief Justice Puno, at this simple launching ceremony for the Book on Special Banking Laws Annotated. This book covers the laws that govern particular financial institutions such as thrift, rural and cooperative banks as well as non-stock savings and loan associations. These financial institutions play a unique and pivotal role: they broaden the reach of our financial system down to the countryside and encourage savings, loans and investments that grow the economy, generate employment and promote inclusive growth. Equally important are annotations to laws on the rights and protection of consumers, borrowers and depositors that are discussed in this book. This book completes the three-volume series on Banking Laws of the Philippines published by the Bangko Sentral ng Pilipinas. As mentioned earlier, the first book is The New Central Bank Act Annotated while the second is The General Banking Law Annotated. Deputy Governor and General Counsel de Zuñiga tells us that this will probably be not the last; his team is now looking at the possibility of coming up with another book, possibly on financial transaction and products. With this groundbreaking undertaking, we have consolidated in three books the legal framework within which we operate complete with annotations as to its applications including its historical and philosophical underpinnings. We have been asked: why is the Bangko Sentral publishing these books? Well, we learned it was difficult for lawyers, researchers and the academe to access laws and annotations relevant to the financial sector in a timely fashion. And since we also subscribe to the legal maxim that “Justice delayed is justice denied” the BSP’s Monetary Board decided to take on the challenge of publishing these three books. It is a source of pride for us that these landmark books represent the collective output of the Bangko Sentral’s in-house team of lawyers from the Office of the General Counsel and Legal Services under the leadership of Deputy Governor Juan de Zuniga, Jr. Without question, they have no equal in terms of combined expertise and experience in the application and interpretation of banking laws and regulations. But beyond their expertise, it is their passion to serve our people that gave them the adrenalin to work on these legal books alongside their regular assignments. You can see the portraits of our writers and editors around this hall. And they will be happy to autograph your books. We also thank the former Chief Justice of the Supreme Court, The Honorable Reynato Puno who graciously and generously accepted our request for him to write the foreword for the Book on Special Banking Laws Annotated and to be our Guest of Honor in this book launch. It is our distinct honor and privilege to have with us today the man described by the magistrates at the Supreme Court as a “transformational leader”, “an intellectual aristocrat” and “one of the greatest Chief Justices of the Supreme Court of the Philippines.” His book entitled “Equal Dignity and Respect the Substance of Equal Protection and Social Justice” was launched only last month. In other words, he continues his crusade for a level playing field and equality in our country. Maraming salamat Mr. Chief Justice. BIS central bankers’ speeches And so today, ladies and gentlemen, we present the complete set of the Bangko Sentral’s three books on Banking Laws of the Philippines which we are certain will help fortify the foundation for the rule of law to flourish in the Philippine financial sector. This should benefit our people, our economy and our country. Once again, our congratulations to our lawyers who made these books a reality and our appreciation to Chief Justice Puno and all of you who have joined us today for this legal milestone. Mabuhay po tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas! Thank you and 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), at the Euromoney Philippine Investment Forum, Manila, 12 March 2013.
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Amando M Tetangco, Jr: The Philippine economy – primes for a sustainable and solid growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Euromoney Philippine Investment Forum, Manila, 12 March 2013. * * * Secretary Cesar Purisima, other government officials, Mr. Tony Shale, CEO of Euromoney Institutional Investor Asia, distinguished leaders and members of the business and investor community, honored guests, ladies and gentlemen, good afternoon. Over the recent period, there has been a welcome spate of rosy and positive commentaries on the Philippine economy. We have been described as an emerging Asian tiger. The venerable New York Times has labeled the Philippines as the economic bright spot in Asia. The World Bank has observed that macroeconomic stability is now the new normal in the Philippines. The IMF has singled out the Philippines for being the only country whose growth forecast it has upgraded. The IMF 2013 growth forecast was set at 4.7 percent earlier on but was revised twice to reach 6 percent this January.1 The IMF is not the only multilateral financial institution that has upgraded the growth forecast of the Philippine economy. The World Bank upgraded its outlook on the Philippines’ 2013 economic growth from 5 percent (October) to 6.2 percent (December).2 The Asian Development Bank likewise raised its earlier 2013 forecast of 4.8 percent (April 2012) to 5.5 percent 6 months later (October).3 These assessments are consistent with the series of sovereign credit rating upgrades received by the Philippines even as the credit ratings of many other countries have been downgraded. In fact, it could be said that the financial markets have already voted the Philippines as investment grade as evident in the pricing of our credit default risk in the same range as investment grade economies. All these assessments were driven mainly by the solid performance of the Philippine economy across various metrics. These include: • Robust and broad-based economic growth; • Low and stable inflation; • Strong external payments position; IMF Statement at the Conclusion of the 2013 Article IV Consultation Mission to the Philippines, Press Release No. 13/21, January 23, 2013 The World Bank East Asia and Pacific Economic Update December 2012 Asian Development Outlook 2012 BIS central bankers’ speeches • Sound and stable banking system; and • Much improved fiscal performance. These macroeconomic conditions did not happen by chance. Far from it. In fact, these trends are all the more noteworthy in that they are happening against a backdrop of persistent and strong headwinds in the global economy. The progress in the economic front is the outcome of prudent and disciplined monetary and fiscal policymaking. And these conditions are sustainable because of strong and wellgrounded policy frameworks in place. These include: 1. The government is committed to sound fiscal policy. The government is appropriately focused on strengthening the quality of fiscal adjustments. It has increased spending for critical social priorities and economic infrastructures while keeping a watchful eye on the medium-term objective of fiscal consolidation. 2. The government continues to pursue a reform agenda that is aimed at raising the economy’s flexibility and unlocking the country’s growth potential. 3. A forward-looking monetary policy framework that has helped strengthen our commitment to non-inflationary economic growth. We have met our inflation target for the past consecutive four years (2009–2012), even as the economy’s engines have powered ahead; 4. An enhanced policy toolkit that is geared to respond to the challenges brought about by strong capital inflows; 5. Finally, supervisory and regulatory practices that are benchmarked against international best practices. This is reflected in well-capitalized and better-governed banks that are able to efficiently perform financial intermediation and risk management. There are therefore fundamental reasons to believe that continued macroeconomic discipline and reforms can push the growth trajectory further to a path that will allow the economy to not only survive the global headwinds but to adapt and to thrive in a more challenging operating environment. As we are aware of the headway that has been made, we are equally mindful of the challenges and the risks to the favorable economic outlook. I can assure you that there are a lot of “responsible adults” in the room. These are policymakers who are attentive to the overt as well as the underappreciated risks to the Philippine growth story. What are the challenges? What are the latent pressure points in the economy? Let me cite three major ones, from the BSP’s standpoint: 1. Managing capital flow surges – an issue repeatedly mentioned this morning 2. Ensuring financial stability 3. Going the distance with structural reforms In this challenging period of very strong capital flows and expectations of continuing strong capital flows, or as one economist has called it the whipsaw of huge capital movements, the question is – do monetary authorities still have the firepower and yet be market-friendly in their policy responses? To this, my response is yes. The BSP has recognized long ago the need to deploy a deep toolkit in addressing the contemporary challenges confronting emerging market central banks that are at the receiving end of strong capital flows. It has used a variety of instruments to achieve low and stable inflation, prevent excessive volatility in the exchange rate and maintain broad financial stability. BIS central bankers’ speeches As a result of BSP’s signature circumspection, the evidence suggests that the sizable FX inflows have not led to significant adverse macroeconomic and financial consequences. • Reserve accumulation in response to the surges in capital inflows does not appear to have led to excessive money creation. • The limited impact of capital flows on monetary aggregate growth suggests that sterilization policies have been broadly effective. • Credit growth has not contributed to macroeconomic imbalances, as inflation has remained low. A second – and related – challenge is the need to ensure continued financial stability. The recent global financial crisis showed that sole focus on price stability is not sufficient to attain macroeconomic stability. Policymakers need to deliver more than stable prices if they are to achieve sustained and stable growth. Price stability does not guarantee financial stability. The BSP, therefore, is attentive to pressure points that could impact on both price stability and financial stability. To ensure financial stability we have utilized prudential measures to manage capital inflows and moderate, if not prevent, the build-up of excesses in specific sectors and in the banking system. Prudential policies are the instrument of choice and employed as the first line of defense against financial stability risks. Given the current regime of low interest rates – driven in large part by the surge of foreign capital into domestic financial markets and the limited absorptive capacity of the economy in the short term – the BSP is keeping a watchful eye on developments in the asset markets. We pay particular attention to what is happening in the equity and property markets, as these markets are interest-rate sensitive and could be prone to bubbly behavior. We see that while activity in these markets has been buoyant, the key indicators are growing broadly within trend, reflecting both cyclical as well as structural or fundamental forces. It is also important to note that indebtedness in the Philippines is still quite low. Domestic creditto-GDP ratio at 50.4 percent (Q4 2012) still ranks one of the lowest in the region.4 This would suggest that the risk of excessive leverage is less and the threat to financial stability is likewise lower, should asset prices correct. The third challenge involves going the distance in the pursuit of the reform agenda. 1. We are implementing the capital adequacy framework of Basel III in January 2014. We will also be closely studying the other building blocks of the Basel III reform agenda to see how and when we can incorporate these into domestic regulatory environment. 2. Capital market reform will be a priority. This will include ensuring that an appropriate market infrastructure is in place. The infrastructure will not only improve the quality of markets, which will help mitigate financial stability risk. But infrastructure will also promote the absorption of the inflows, which will ultimately lead to an expansion of the economy. By improving financial intermediation in the system, a well-functioning capital market will help unlock the economy’s productive potential and strengthen its capacity to withstand shocks. Right now, we see an economy that is on an even keel, on surer footing, poised for higher growth, riding on a momentum of change that offers the promise of not only stronger growth but also one that is more inclusive and more durable. Note: Latest available: Indonesia 40.2; Malaysia 133.3; Singapore 151.8; Thailand 129.4; Japan 221.2; China 153.1; Korea 104.1 BIS central bankers’ speeches The challenge is to keep the momentum of positive change strong. The appropriate response to current favorable winds is not to sit back and relax, not to pop champagne corks as William asked this morning, but to treat them as an ideal opportunity to strengthen the underpinnings of the economy’s foundations. The BSP will strive to have monetary policy that will provide an environment where credit and liquidity growth will remain supportive of economic growth while maintaining price stability. We will also continue to work on reforms that will deepen the financial system. We will continue to monitor financial and asset markets and be responsive to emerging risks. We will continue to work with the government in pushing the agenda for reforms to ensure macroeconomic stability. 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 Annual Convention of the Chamber of Thrift Banks, Makati City, 20 March 2013.
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Amando M Tetangco, Jr: Building broader horizons in 2013 Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Annual Convention of the Chamber of Thrift Banks, Makati City, 20 March 2013. * * * The officers and members of the Chamber of Thrift Banks, under the leadership of outgoing president, Patrick Cheng, and incoming president, Jose Teodoro Limcaoco, Members of the Monetary Board, Fellow BSPers, my colleagues in the banking industry and in government service, ladies and gentlemen, good morning. The Bangko Sentral ng Pilipinas is pleased to once again take part in your annual convention. As I begin my remarks this morning, let me take this opportunity to thank the outgoing officers and members of the board for your efforts. I am pleased that we were able to move forward on several fronts, even as we still have a full plate of reforms. Let me also congratulate your incoming officers. Indeed, to be elected to the CTB board shows the confidence that your peers have in you. More importantly, your accepting such a challenge underscores your commitment to work for the greater good. A part of the tradition of your convention that I appreciate is the row of display booths one has to pass through as one enters the ballroom. Stalls of the various companies that have grown because of partnership with the industry. To me, the variety and quality of the displays have been an indicator of the state of the thrift banking industry. If this year’s display continues in that tradition, I believe it is telling us that good things are in the offing for the CTB and our economy. What is in the horizon? This brings me to your chosen theme. “Building a Broader Horizon for 2013.” Horizon is an interesting word. It has a couple of meanings and evokes several feelings. One meaning of horizon is that it is the “apparent intersection of the earth and sky.” We’re coming into the summer months. And I am sure, if you find yourself on the beach in the next few weeks, you will discover that it is hard to escape the temptation to stand on the shoreline, maybe barefoot, and then fix your gaze towards the vastness of the ocean – just to see where the ocean and sky seem to meet the horizon. Another meaning of horizon in the Webster dictionary is that it is the “range of one’s perception and experience”. Putting these two meanings together suggests to me that when you chose this topic for this year’s convention, you were actually asking your members to find ways of enlarging “what the industry knows about what it can experience and what it is able to do”. You were, in a sense, asking your members to find ways to enlarge these things to the point where the sky and earth seem to meet. I wish to tell you even now, that in this journey you have chosen, the industry can expect the BSP to provide an operating environment that would allow you to traverse this path, but in a way that makes you also mindful of the impact of your actions – not only on yourselves but also on the rest of the members of the financial eco-system you are in. How shall we broaden the horizon? Your goal for 2013 is clear – to broaden the industry’s horizon. But how would you achieve this? In geometry and in nautical science, I am told practitioners have derived a mathematical formula for calculating the distance to the visible horizon. The exact equation BIS central bankers’ speeches will depend on whether adjustments for refraction, i.e., the distortions due to light, are done or not. But the common element in any of the equations is this – that the distance to the horizon is a function of the height from which you are taking your view. More specifically, the visible horizon will be further from you, the higher you are above the ground. This natural law is quite interesting in that it also applies to the laws of economics. If I were to apply this law to your chosen goal, I would paraphrase as follows. If the CTB wishes to broaden its horizon, the Chamber needs to raise its vantage point. The stage is set Using 2012 as our gauge, I believe you will agree with me that the country has certainly raised its vantage point. When we consider our markets, the environment is indeed more favourable now than it has been in the recent past. The economy expanded by 6.6 percent in 2012 and this growth was matched by generally stable prices as inflation averaged 3.2 percent last year. The high growth-low inflation scenario was further supported by our robust external position. The country’s balance of payments remains in surplus due to investment growth, business process outsourcing receipts and the steady rise in remittances. This led to the further buildup in our Gross International Reserves, which stood at 83.8 billion dollars at end-February. This is about one year’s worth of imports of goods and services, more than adequate by any of the standard measures of adequacy. These positive developments have heightened investor confidence in the country while further expanding the financial services extended by our banks. For the thrift banking industry, your assets rose to Php 666.17 billion last year (up from Php 607.43 billion in 2011 or a growth rate of about 9.7 percent). This was on the back of Php 529.80 billion in deposits and matched by Php 449.27 billion in loans. Given this starting point for 2013, I ask the officers and members of the CTB, can we broaden our horizon? I think the answer should be a resounding yes. We have entered 2013 from a position of strength, and with some momentum. The onus is on you, on us, to make the most of this advantage, to bring you forward in your chosen objective. Opportunities abound – some specific directions I’d like to spend the rest of the time allotted on some specific suggestions for broadening your horizon. A quick review of the industry’s loan portfolio shows that about a third of the industry’s total lending continues to be towards the Real Estate and Construction Businesses. In addition, while such lending remains concentrated toward the acquisition of residential property, there has been an improvement in the take up of loans for commercial purposes, principally from the BPO sector. These trends make the recent approval of the BSP of prudential reference standards for Contract-to-sell (CTS) financing important . Furthermore, against the backdrop of low interest rates and the constant temptation among banks to chase after higher yields, this market approach dovetails quite well with the prudential thrust of the BSP to strengthen credit underwriting practices for real estate activities. The BSP has not yet moved to formal prescriptive regulations at this stage. But, it appreciates the fact that the market itself sought to define the guidelines to streamline market practice since no common standards have been recognized to date. In the context of this year’s convention theme, a market approach such as this can be seen as the industry’s way of broadening its horizon, with financial stability specifically in mind. As we have already taken the steps forward on mortgage finance, perhaps the Chamber can BIS central bankers’ speeches likewise consider similar standards for auto loans in order to ensure that banks don’t end up financing “lemons”. We would also like to see the Chamber actively contributing towards an equivalent effort for credit card receivables and other modes of consumer financing. Business cycles come and go, and therefore it is important that we have the rules of the game squarely in place, so that any market inflection points will not cause instability in the market. As market opportunities expand, we need to also work together so we can maintain strong credit discipline and avoid imprudent lending and investments. Ladies and gentlemen. We are an economy of 96 million Filipinos spread over 7,101 islands. It stands to reason that consumer-related financing, your bread and butter, will be a major factor in the economy. Hence, the BSP’s push to improve credit underwriting standards for consumer loans. But in parallel with this, we believe thrift banks should also actively participate in the culture and practice of financial education and consumer protection. These are not just fancy buzz words. In fact, in the BSP, we take these twin advocacies seriously. Through our economic and financial learning centers (EFLCs) in our head office and 21 regional offices and branches, we undertake outreaches to raise the awareness of the financial consumer so that each of them can make informed saving and investment choices. The BSP has partnered with the Chamber on some of these programs and we look forward to engaging the Chamber even more. We would also like to see individual members of the Chamber embark on your own literacy programs. As a complement, we have created a specialized department in BSP called the Financial Consumer Affairs Group (FCAG). It is set up as a clearing hub for complaints and as a redress mechanism so that those who have clearly been victimized through no fault of their own do not have to suffer the added penalty of delayed attention. Furthermore, the BSP is in the early stages of formalizing specific standards for consumer protection, including how banks should handle consumer complaints. This move is aimed at elevating consumer protection to a stature of a core bank function, and not simply an ancillary advocacy. Let me now leave the world of real estate and consumer finance. And turn to another sector that the Chamber is well-equipped to support. Here I mean the world of Micro, Small and Medium Enterprises. The Philippines is traditionally an MSME market. And if we are to raise our national economic vantage point and take advantage of the momentum coming into 2013, thrift banks need to consider lending more to this economic segment. I say this because MSMEs provide great employment opportunities. A healthier MSME sector will help ensure our economic growth is broad-based and inclusive. Thrift banks, however, must not just lend more in terms of nominal amounts. The challenge to the industry really is to ensure that such lending continuously creates further opportunities. In this way, MSMEs can be assured of viability, regardless of mandated credit programs. Final thoughts Friends, you want this convention to be a discussion on broadening your horizon, our horizon. In trying to look ahead, I took us through the more scenic route of our recent past. The numbers tell us an encouraging story of growth and consistency of economic and financial stability. However, the paradox of financial stability is that we may just be at our weakest when we believe we are at our strongest position. Complacency often sets in when positive news is continuous and this is reinforced by encouraging market parameters. If we fall into this trap of complacency, we risk losing our focus. For the thrift banking industry, the growth trajectory that many are anticipating suggests even better times ahead. It is therefore in our collective interest, if we wish to truly broaden our horizon, to agree on a common vision where thrift banks have a definitive role to play. BIS central bankers’ speeches In my remarks, I have suggested specific action points you may consider in order to accomplish just that, and over time broaden your horizon. I challenge the industry to 1) further improve credit underwriting standards for real estate and consumer loans and raise your vantage point by looking at your processes with the lens of financial stability, 2) interact with your clients and raise your vantage point by enhancing your practices with the heart of consumer protection and financial education, and 3) increase lending to MSMEs and raise your vantage point by lending with the mind to create greater value. But much more can be done. As the old Board takes its place in CTB lore, your new Board is now at the helm to guide the industry forward. It is never an easy task to move forward but rest assured that the Bangko Sentral ng Pilipinas will be with you as we take that journey together into broader horizons. Thank you very much and good day to all of you. 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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), for the opening ceremony of the 29th Biennial Convention of the Federation of Filipino-Chinese Chambers of Commerce and Industry, Inc. (FFCCCII), Manila, 22 March 2013.
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Amando M Tetangco, Jr: Promoting good governance and corporate social responsibility in the Philippines Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), for the opening ceremony of the 29th Biennial Convention of the Federation of Filipino-Chinese Chambers of Commerce and Industry, Inc. (FFCCCII), Manila, 22 March 2013. * * * Introduction Officers and Members of the Federation of Filipino-Chinese Chambers of Commerce and Industry Incorporated (FFCCCII), led by its President, Mr. Tan Ching and Chairman Emeritus, Mr. Lucio Tan, distinguished leaders and members of the business community, honored guests, ladies and gentlemen, good afternoon. It is a pleasure to grace the 29th Biennial Convention of the FFCCCII and address an audience representing the largest organization of Filipino-Chinese businessmen. The theme of today’s event, “Tuwid na Daan Towards Peace, Unity and Prosperity”, is very much aligned to the thrust of government which is centered on good governance – a governance environment marked by transparency, accountability and enhanced citizens’ participation to attain sustainable and inclusive growth. The BSP also shares this vision. Good corporate governance encourages investments which allow the expansion of the economy with minimal inflation pressures. Good governance is also the foundation of a safe, stable, and sound financial system. It is most welcome that the private sector, like the FFCCCII, fully supports the government’s programs and thrust on good governance. Indeed it is easier to reach a destination by passing a “tuwid na daan” rather than “daan na madaming liko at baku-bako”. This means, time and resources well spent, especially for businessmen like you. Di po ba? Favorable economic growth prospects by multilateral institutions 2012 was an auspicious year for the Philippine economy. Notwithstanding the risks arising from a volatile global economic environment, the Philippines emerged stronger-thanexpected. With the continued resilience demonstrated in recent years, some are even beginning to consider the Philippines as an emerging tiger economy in Asia. A decisive transformation from being once tagged as “The sick man in Asia”. The complimentary reviews are reflected in the upward revisions made by multilateral institutions such as the International Monetary Fund (IMF), the World Bank (WB) as well as the Asian Development Bank (ADB) on the Philippines’ GDP growth forecasts for 2013. All these favorable assessments and bright growth prospects were driven by the solid performance of the Philippine economy across various indicators. Let me cite four: Robust and broad-based economic growth. The stronger-than-expected growth performance in 2012 was supported by broadening growth drivers. All major economic sectors advanced during the year. BIS central bankers’ speeches On the supply side, transportation, telecommunication, real estate, and construction business activities pushed the economy forward. Meanwhile, on the demand side, growth was boosted by consumer expenditure and government spending. Favorable inflation environment and well-anchored inflation expectations. I should point out that the increased activity has not caused the general price level to rise. Inflation has generally remained low, and prospects appear to be equally subdued in terms of price. Indeed, we expect this scenario of high growth-low inflation to be sustained going forward. Sound and stable banking system. The strong economic performance is itself anchored on a sound and stable banking system. Deposits continue to build up, allowing loans to similarly expand. Much like inflation, our banks’ Capital Adequacy Ratio shows no sign of vulnerability. This encouraging situation supports our assessment that our banks are ready for the implementation of Basel 3. We will roll out the capital adequacy framework of Basel 3 in about nine months from today. Robust external payments position. A robust external position completes our position of strength. Whether we look at the overall BOP position or its sub components, we see positive balances. Remittances from OFs continue to bolster domestic liquidity while BPO estimated receipts continue to be a positive factor. All these eventually led us to a GIR level that is just below US$84B. 2013 Macroeconomic outlook The macro financial numbers provide us some momentum. Nothing in the first quarter gives us reason to take pause. Instead, the outlook continues to be encouraging. Given available data, we expect growth to further accelerate but this time aside from the growth drivers in 2012, we anticipate a more pronounced contribution from the external trade sector. In addition, remittances from our OFs will continue to be a steadying factor. The BOP is also seen to remain in surplus, which in turn will support an even higher level of international reserves. At end 2013, the GIR is projected to reach $86.0B. Challenges to the economic outlook But while we expect the Philippine economy to continue to show resilience, given its solid macroeconomic fundamentals so far and the ample policy space these provide us, we are not immune to the continuing volatilities in the external front. The risks that we are currently monitoring closely include the following: 1. Intensification of the euro-area debt crisis. Just when we thought the European authorities are on the way to a resolution, the problem in Cyprus crops up. 2. Any further delay in the resolution of fiscal issues in the US. BIS central bankers’ speeches 3. Continued surge in capital flows to the EMEs, including the Philippines, resulting from the continued low interest rates and weak economic prospects in Europe and the US. Friends, let me assure you that the BSP stands ready to pursue policy measures to deal with these downside risks from external sources. But the BSP and the Government cannot do this alone. The Government needs the support of the private sector of an organization such as this Federation. FFCCCII and the Government: Forging stronger ties toward sustaining growth momentum How can the FFCCCII help? Just as I have mentioned four major sustainability factors that support economic growth in the country, let me mention four key areas where the members of your Federation can help in sustaining the momentum of high growth-low inflation. 1. Participation in the infrastructure program of the government, particularly the Public-Private Partnership (PPP). Given the relatively wide scope of industry sectors that FFCCCII members belong to, the FFCCCII could encourage more of its members to engage with the government in pursuing vital infrastructure projects for the country. Enhanced infrastructure would boost the country’s business climate, which in turn would help generate more jobs. More jobs mean improved spending capacity for more Filipinos which would lead to higher consumption. Indeed, a win-win situation for both the private and the public sectors. 2. Investments in the export sector. There have been concerns that the Philippines may be over-reliant on remittances from overseas Filipinos in terms of financing its foreign exchange needs. One of the strategies that is needed for this country to promote a sustainable external position is through increasing investments in the export sector and enhancing competitiveness as well as innovativeness in this sector. Given the widely diversified and geographically dispersed profile of FFCCCII members, the Federation could definitely encourage more of its members to invest in developing new export-viable products. 3. Development of a strong industrial base. Another project that the FFCCCII could further promote is the development of a strong industrial base in the country. With a well-represented industry sector, FFCCCII could easily push for a roadmap toward a stronger and more diversified industry sector across various lines and regions nationwide. This project could certainly lend support to one of the government’s key concerns: employment generation in the domestic economy. 4. Investment in human capital. I know that the FFCCCII has been keen on pursuing programs and projects aimed at promoting education. These include construction of barrio schools and provision of scholarship programs to elementary and high school students in Chinese-Filipino schools. I encourage you to expand existing programs in this area. BIS central bankers’ speeches These are only a few of what I have in mind, but I am sure that the FFCCCII could contribute a lot more in terms of programs and projects geared toward nation-building, on top of what the Federation has already been doing in the past. BSP’s policy directions going forward Ladies and gentlemen. We are seeing many positive developments but the agenda is definitely not done yet. We need to take a holistic view and pursue the prudential path towards financial stability. I realize that to many of you, financial stability may sound to be such a high-level objective that is detached from the ground. In reality, this prudential objective has a direct bearing on all of us. Financial stability means that we will continue to set monetary policy with an inflation anchor that is consistent with the needs of the broader macroeconomy. In particular, the BSP sees interest rates remaining low over the policy horizon, given a manageable inflation outlook. Foreign exchange inflows are expected to continue, although we see flows coming in at a slower pace than before. Therefore we expect the peso to remain well-supported. Financial stability also means a stable and sound banking sector that actively promotes inclusion, provides for non-traditional delivery channels of financial services, and protects the interests of the saving public. In particular, the BSP will continue with the banking reform agenda, including the adoption of Basel 3 capital adequacy standards in January 2014. Finally, financial stability must then mean that we have an efficient payments system that is responsive to the business needs of the community as well as in providing the needed market infrastructure for investors. Conclusion Ladies and gentlemen, the 2012 macroeconomic performance of the Philippine economy has set a significant standard for the country. While challenges remain and continue to pose risks to the economy, the BSP is optimistic that with an even stronger partnership between the private sector represented by business organizations like the FFCCCII, the Philippines could do a repeat, if not better, performance this year. With stronger partnership with the private sector, the government will also be able to facilitate smoothly its pursuit of sustaining good governance reforms to ensure a sustainable and inclusive growth for the Philippines. I salute the FFCCCII for its almost six decades of uniting the Chinese-Filipino community to promote the growth of business and implement social welfare projects that help bring about economic development and progress for the country. In the next decade and beyond, may you continue to inspire more leaders in the business community to share your “tradition of service” to the Filipino people. As we embark on another journey this 2013, it is my hope that there will be more partnerships forged and bounded with the same mission as the FFCCCII. That is, “to devote time, talent and resources to projects that will contribute to the country’s economic, social and cultural development”. This for me, is the true essence of corporate social responsibility and nation-building a business organization which commits itself as a partner of the government in alleviating poverty and promoting economic prosperity for the entire nation. Thank you and good afternoon. 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 20th Anniversary of BSP, Manila, 3 July 2013.
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Amando M Tetangco, Jr: Bangko Sentral ng Pilipinas at 20 – past progressive, future perfect Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 20th Anniversary of BSP, Manila, 3 July 2013. * * * Magandang umaga sa inyong lahat! And Happy Anniversary to everyone! Fellow BSPers, today marks the 20th year since the creation of the Bangko Sentral ng Pilipinas. And the theme for our simple celebration is “Past Progressive, Future Perfect.” This echoes the familiar saying of our wise forefathers. Ang sabi nga ng ating matatanda: “Ang hindi marunong lumingon sapinang-galingan, hindi makara-rating sa paro-roonan.”1 Today’s occasion therefore is not only a tribute to the history of central banking in the Philippines; it is also an invitation for us to reflect on what we have accomplished together and how to move team BSP forward. A clean slate2 Central banking in the Philippines dates back to 1949 with the creation of the Central Bank of the Philippines or the CBP. It was given several mandates: to conduct monetary policy; to supervise financial institutions; to foster credit and exchange conditions conducive to economic growth; and to administer special development financing programs to help promote economic activity. In the 1980s, the CBP bore the staggering cost of restoring market confidence from a severe balance of payments crisis; losses from the administration of special development financing programs for what were considered priority growth sectors; and the difficulties of high and rising inflation amid ballooning government budget deficits. It was then that policy makers realized that macroeconomic stabilization will be better served if the central bank is not burdened with too many mandates. Thus, in 1993, Republic Act No. 7653 created the Bangko Sentral ng Pilipinas and mandated it to pursue one primary objective: to maintain price stability, consistent with the promotion of balanced and sustainable economic growth. In addition, the BSP was given fiscal and administrative autonomy. The country reaped early dividends from the change. Under its monetary aggregate targeting framework in the 1990s, the BSP ensured that liquidity and credit remained adequate to support economic activity. This was complemented with initiatives to further deregulate financial markets and liberalize bank branching. Consequently, GDP growth accelerated steadily, while inflation eased gradually from the double-digit rates of the seventies and eighties. And the Philippines started to be recognized as one of the new tiger economies of Asia. But the good times did not last. In 1997, the Asian Financial Crisis came. Fortunately, the Bangko Sentral had instituted structural and banking reforms by then. These reforms sustained Philippine banks through the crisis in spite of higher problem loans. “He who does not look back to where he came from will never see his destination.” Various CBP and BSP Annual Reports; Lamberte, M. (2002) “Central banking in the Philippines: Then, now and the future”. PIDS Discussion Paper 2002–10. BIS central bankers’ speeches The 1997 crisis taught the BSP three important lessons: one, that a transactional approach to banking supervision that emphasizes individual bank compliance to regulations is not sufficient to mitigate system-wide risks; two, that interest rate deregulation and financial innovations eroded the traditional link among money, output and inflation; and three, that a strong financial system needs to be supported by an efficient payment system. Thus, in the years that followed, the Bangko Sentral pursued with great vigor more banking and structural reforms. These have resulted in what we now know as risk-based supervision, inflation targeting and real-time gross settlement or the Philpass. Fast forward to 2013, and we see just how far the Bangko Sentral and our economy have come. The economy has more than doubled in size from 20 years ago. In the first quarter this year, the economy expanded at a rate of 7.8 percent – the fastest in the region. At the same time, inflation has fallen to historic lows and within-target levels for four consecutive years now. The gross international reserves at more than $82B can now cover almost one year of imports of goods and services. The banking system’s NPL ratio is less than 2 percent and capital at 17 percent is more than double the international standard of 8 percent. The payment system is robust, processing an average of P1.5T worth of transactions daily, 11 times more than the daily value just 10 years earlier. In addition, the Bangko Sentral’s financial inclusion and financial education program continues to inform, protect and empower Filipinos. In fact, our regulatory framework and various initiatives for microfinance continue to earn recognition as among the best in the world.3 Meanwhile, our economic and financial learning programs reach out to the general public, including our OFWs and the youth, to encourage them to save, invest and become financially secure. And by the way, similar programs on personal finance are being offered to BSPers. Given the stakes involved, your management continues to make investments in our people, infrastructure, processes and technology. As approved by the Monetary Board, support is given to BSPers for further studies here and overseas as well as international professional accreditation to develop required competencies and increase our corps of world-class experts. The program to improve the work environment of BSPers across the country continues to show visible results. I also hear of many success stories concerning our health and wellness programs. And we are proud that we continue to align our internal process with global best practices. For instance, we now have 25 BSP units whose management systems are certified under ISO standards. Fellow central bankers, we have been able to achieve all these as a result of the collective work of each and every employee of the Bangko Sentral, past and present. For this, let us thank the two Governors who came before me. Individually, they were recognized as among the world’s best governors. Together, they strengthened the foundation that has allowed us to develop the Bangko Sentral ng Pilipinas into what it is today. Fellow BSPers, let us salute and honor Governor Gabriel Singson and Governor Rafael Buenaventura. For four years in a row (2009–2012), the Economist Intelligence Unit’s global survey has ranked the Philippines as number one in the world in terms of policy and regulatory framework for microfinance. The Philippines is also consistently ranked at the top ten for having a good microfinance business environment. The survey also noted the initiative of the microfinance industry to establish Microfinance Data Sharing System (MiDaS), which is a microfinance credit bureau that identifies delinquent borrowers with the ultimate objective of client rehabilitation. BIS central bankers’ speeches Let us also thank the Members of our Monetary Board for their wisdom, patience and admirable sense of fairness: Finance Secretary Cesar Purisima; Alfredo Antonio; Ignacio Bunye; Peter Favila; Felipe Medalla; and Armando Suratos. Let us also recognize our inspiring and brilliant Deputy Governors: Nestor Espenilla from the Supervision and Examination Sector; Diwa Guinigundo from the Monetary Stability Sector; and Vicente Aquino and his immediate predecessor Juan de Zuñiga, Jr. from the Resource Management Sector. Finally, I thank all of you my fellow BSPers for doing your work with responsibility, integrity and tenacity. Whatever we have achieved, we achieved as members of team BSP. Fellow BSPers. As we continue our journey amid constant shifts in the national and global landscape, the path before us seem challenging. Nevertheless, with the lessons learned and the expertise we have gained in our first 20 years, I am confident that we will continue to deliver on our mandate. This is the reason why I accepted a second term as your Governor, two years ago. I have faith in the capability of BSPers. At that time, I laid out before you a 6-point agenda that would enhance the BSP’s credibility and effectiveness as a monetary authority and with it help chart a smoother course for the economy to sustain balanced growth. How have we fared? Well, we have achieved some measure of success in each of these, as evidenced by our strong macrofundamentals. Nevertheless, these tracks remain relevant; we should continue to work on them. Briefly, our 6-point agenda is as follows: 1. A well-informed and grounded monetary policy framework. 2. A responsive and adaptive banking regulatory and supervisory framework. 3. An efficient and effective payment and settlement infrastructure. 4. An empowering and sustainable financial inclusion program that includes relevant financial access, wide-reaching financial education and strong financial consumer protection. 5. Thought leadership in the regional and international fora; and 6. Operational efficiency and effectiveness. Ladies and gentlemen. The environment we operate in is not static; it is dynamic. Among others, we are faced with the unwinding of easy monetary policy in advanced economies, which if it becomes disorderly could have serious spillover effects on our economy. At the same time, the threat of unbridled market exuberance could create imbalances in asset markets that could adversely impact the banking system’s ability to effectively intermediate funds. On the other hand, advances in information technology have encouraged the emergence of newer payment channels such as mobile banking, that if not regulated properly could undermine the credibility of our payments and settlements infrastructure. Meanwhile, population growth continues to challenge our programs on financial inclusion, education and consumer protection. The challenge before us is to translate our gains at the macro level down to the grassroots. Fellow BSPers, all these measures and courses of action are bound to weigh heavily on the resources of the Bangko Sentral. We need therefore to find more efficient ways to use our resources in the pursuit of our mandate. More fundamentally, some of the provisions of our Charter could be revisited to make it more relevant and responsive to present conditions. The BSP will continue to work with Congress in this regard. BIS central bankers’ speeches Looking ahead Fellow BSPers. Our journey has not been without its challenges, but together we have managed to transform the BSP closer into a truly world-class central bank. The signs say we are on the right path: Just this April, the BSP was hailed at the Asian Banker Leadership Achievement Awards as the Best Macroeconomic Regulator in the Asia Pacific Region. Of course, our pursuit of excellence is not motivated by public recognition or awards. We pursue excellence because it is THAT level of public service that will help improve the lives of Filipinos, our ultimate stakeholders. Tama ba?! I am glad you agree. And now, for my final question. BSPer ka ba? Ako rin. I am a proud BSPer. To me, BSPer stands for Bangkero Sa Pilipinas na Excellent and Resilient! Ladies and gentlemen. You all make me proud to be a BSPer. On behalf of my wife Elma, and the rest of our family I thank all of you for making my journey as a BSPer truly worthwhile and deeply fulfilling. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! 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 Citi Microentrepreneurship Awards (CMA) 2013 media launch, Bangko Sentral ng Pilipinas, Manila, 8 July 2013.
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Amando M Tetangco, Jr: Championing microentrepreneurship Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Citi Microentrepreneurship Awards (CMA) 2013 media launch, Bangko Sentral ng Pilipinas, Manila, 8 July 2013. * * * Good afternoon everyone and welcome Microentrepreneuship Awards or CMA. to the launching of the Citi In the ten years of CMA, we have met many microentrepreneurs who lifted themselves from poverty, transformed into net savers in banks, and served as catalysts for development in their respective communities. Today, as we launch the 2013 CMA, we look forward to hearing more inspiring stories of how access to collateral-free credit can be so empowering. Indeed, we have witnessed the power of microfinance to improve lives across the country. As a member of the CMA board of judges for 8 years now, I have witnessed how this Awards program has also evolved. For instance, in response to the increasing difficulty of the board of judges to select the winners from such a rich field, the CMA made a simple win-win decision- it developed new award categories. In addition, CMA has made the prizes more meaningful: aside from cash rewards, winners also get insurance coverage, entrepreneurship training, and support for expanding their partnership networks. In other words, CMA keeps pace with the developments in the microfinance industry. The development of the Philippine microfinance industry has been phenomenal. Ten years ago, microfinance was limited to microcredit provided by leading NGOs, cooperatives and a handful of banks. Since then, there has been a significant increase and diversification of microfinance players, products and services, as well as delivery channels. The Bangko Sentral ng Pilipinas provides leadership in the development of the microfinance sector through appropriate policies, regulations and programs. So far so good. In fact, the Philippines has been cited to have the best regulatory framework for the development of microfinance for four consecutive years now. As of March 2013, there were 186 banks with microfinance operations reaching out to more than 1 million clients. Their combined savings have reached 8.2 billion pesos, higher than the 8 billion pesos they have borrowed. This is the first time that total microfinance loan portfolio is exceeded by the savings component. This suggests that while microfinance clients take out loans, saving is sustained. For microentrepreneurs, savings help them survive through emergencies or take advantage of a business opportunity. As a further support to microentrepreneurs, the Bangko Sentral issued last January Circular 782 which expanded the scope of qualified microinsurance clients and increased their risk protection. The Rural Bankers Association of the Philippines (RBAP) reports that there are over 500,000 clients of rural banks that now enjoy microinsurance coverage. This supports the report from the Insurance Commission that the number of Filipinos with microinsurance coverage has doubled in just two years. Ladies and gentlemen. Earlier we heard the testimonial of Floraiwin Cainglet, the 2012 CMA National Winner. Flor and her husband Rommel started with only two pigs and now have a thriving and innovative hog raising business worth P2.5 million. In addition, they support a daycare center and feeding programs in their community. These microentrepreneurs are at the forefront of improving lives in their community. Again, let us give them a big hand! BIS central bankers’ speeches The success stories of more than 80exceptional microentrepreneurs that the CMA has recognized in the past decade tell us that we are successful in providing a nurturing environment for microenterprises. These stories lend a face to the data and serve as validation that our efforts and initiatives in microfinance are effective and sustainable. Fellow advocates of microfinance, let us continue to work together therefore to strengthen and sustain partnerships for microfinance. In October this year, the Microcredit Summit Campaign will hold its 16th summit in Manila in partnership with the MCPI and with support from the BSP. The theme for this year’s conference revolves around Partnerships against Poverty. The conference will discuss some of the most advanced and successful examples of public-private partnerships in microfinance. I hope you will join the conference. The CMA itself is one tangible example of a successful and meaningful partnership against poverty with Citi, the Citi Foundation, the MCPI and the Bangko Sentral working together toward a shared goal. Together, we celebrate the success of our microentrepreneurs. They strengthen our belief that many more Filipinos can have a better life through microfinance. Again, my congratulations to everyone involved in CMA: Citi and the Citi Foundation under the leadership of Country Officer Batara Sianturi, the Micro Finance Council of the Philippines headed by chairperson Mila Bunker, my fellow members in the National Selection Committee, my colleagues at the Bangko Sentral ng Pilipinas and our special guests from the media who help spread the good news about microfinance in our country. Mabuhay ang microfinance! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! 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 2013 Awards Ceremony and Appreciation Lunch for BSP stakeholders, Manila, 16 July 2013.
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Amando M Tetangco, Jr: Bangko Sentral ng Pilipinas’ Stakeholders’ Awards – a celebration of solid partnership Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2013 Awards Ceremony and Appreciation Lunch for BSP stakeholders, Manila, 16 July 2013. * * * Magandang umaga sa inyong lahat! On behalf of my colleagues at the Monetary Board and the Bangko Sentral ng Pilipinas, I thank all of you for accepting our invitation today to our Stakeholders Awards Ceremony and Appreciation Lunch for BSP Stakeholders. As in years past, this ceremony takes place during the Bangko Sentral’s anniversary month. This year however, is more special: this month – July 3 to be exact – we commemorated the 20th anniversary of the Bangko Sentral ng Pilipinas. And today, we mark the 10th year of our Stakeholders Awards, the annual celebration of our fruitful partnership and collaboration. Ladies and gentlemen. In observing these milestones, we take the opportunity to express our deep appreciation to all our guests in this hall and to our other stakeholders across the country for helping us craft policies and implement programs that make lives better for our people. Among others, the continuous improvement in the quality of our surveys provides a good anchor for the monetary policies of the Bangko Sentral ng Pilipinas, the main objective of which is to keep prices low and stable. With your support, we continue to be successful in this effort. We have tamed inflation at low single digit levels – 2.8% as of June 2013, with year-to-date inflation at 2.9 percent. One of the monetary tools used by the Bangko Sentral to influence inflation is its policy rates, the benchmark used by banks to transact with their own customers. Under the Bangko Sentral’s inflation targeting framework, policy rates are adjusted appropriately and pre-emptively to ward off inflation threats. In general, it takes policy rate decisions from 18 to 24 months to work their way through the economy. Thus, the BSP’s Monetary Board ensures that its policy rate settings are based on accurate informationintensive studies such as business and consumer outlook. This includes the quarterly Business Expectations Survey which covers the top 7,000 corporations in the country and the quarterly Consumer Expectations Survey which covers 5,000 households. We are happy therefore that when we tracked the correlation between the results of our expectation surveys with actual data on the GDP, inflation, interest rates and foreign exchange we found high overall convergence. Ladies and gentlemen, we continue to achieve high correlation because you provide us accurate, comprehensive and timely survey inputs. Thank you! As a result, the Bangko Sentral’s policy decisions continue to provide the stability that preserves the public’s purchasing power and creates a planning environment conducive to strong and sustainable growth. With BSP’s policy rates now at record low levels, average interest rates charged by banks to their customers have also dropped to single digit levels. This has benefitted consumers in terms of access to more affordable credit while business is able to expand and create new jobs with lower financing costs. BIS central bankers’ speeches Moving forward, therefore, the Bangko Sentral will continue to focus on fighting inflation and safeguarding price stability to achieve sustained and inclusive growth. The Bangko Sentral also needs your support for other surveys including Cross Border Transactions, Coordinated Portfolio Investment, Information Technology-BPO Outsourcing Services, and Foreign Direct Investment. Among others, these surveys help us determine our Balance of Payments position, a closelywatched indicator of our transactions with the rest of the world. We are pleased to report that our external accounts remain robust, providing much-needed insulation from external shocks. External payment dynamics remain strong on the back of rising foreign exchange reserves, sustained influx of overseas Filipino remittances and BPO receipts, and declining external debt to GDP ratio. I am also happy to note that our network of committed partners continues to expand. From seven in 2004, we now have 71 awardees, 42 of whom are in areas outside the National Capital Region. Ladies and gentlemen. As we take stock of our achievements, we also take note that the resiliency of our economy strongly reflects the efficient performance of our information sharing initiatives. Indeed, our partnership continues to generate synergies that lead to transformational growth. And while recent developments in the external front have made economic conditions more challenging, we have been able to ride out these headwinds to economic growth. We attribute these largely to the strength of our partnerships and to the buffers that the Philippine economy has built through the years. Another source of strength of the Philippine economy is our sound and stable banking system. Deposits continue to increase to record levels, in tandem with healthy growth in lending. And the quality of loans continues to improve even as non-performing loan ratios drop to record low levels. Equally important, banks continue to build strong buffers against systemic shocks and have kept their capitalization well-above the regulatory threshold. Against this favourable backdrop, major multilateral financial institutions have upgraded their outlook on the Philippine economy. Credit rating agencies such as Fitch and Standard & Poor’s acknowledge the Philippines’ strong economic and fiscal gains by raising the country’s credit rating to investment grade. Nevertheless, given the constant shift in the global landscape, we continue to face challenges. Over the last month, we have seen great volatility as global financial markets react to the Federal Reserve’s announcement on the unwinding of its accommodative monetary policy. Foreign exchange and equity markets gyrated as investors searched for safe havens and higher returns in developed economies. On the upside, the current market movements may help reduce the build-up of asset valuations that could contribute to financial market imbalances. We can also be assured that recent market volatility notwithstanding, our economy’s growth remains firm, underpinned by strong macroeconomic fundamentals, broad-based economic growth, manageable inflation, strong external payments position, sufficient fiscal space, as well as a sound and stable banking system. Ladies and gentlemen. The resilience of our economy brings us to the heart of this year’s celebration, which has the theme: “Hand in Hand in Sustaining a Steadfast and Strong Economy.” This is a timely reminder that by working together we can and shall overcome the challenges and uncertainties faced by our economy. Among others, we acknowledge the support of banks who work with the Bangko Sentral in handling remittances of our overseas Filipinos efficiently at significantly lower costs. Your BIS central bankers’ speeches reliable service not only benefits our overseas Filipinos and their families, but our economy as well. Ladies and gentlemen, your support in empowering Filipinos through the development of a more inclusive financial system is also important to us. Together, let us work to extend the delivery of a broader range of financial services to the unbanked and underbanked segments of our population. Imagine the benefits a microentrepreneur and his family can derive from gaining access to a lower-priced bank loan in place of a 1,000% loan from non-bank sources. Finance education and consumer protection are equally important components of financial empowerment. In this connection, we salute the Department of Education for being our active partner in bringing financial education to millions of our schoolchildren. We also acknowledge the banks who help our youth develop the habit of saving and give lessons on personal finance to teachers and parents. So far, we have made significant strides in the development of the Philippine microfinance sector that has liberated millions of entrepreneurial Filipinos from poverty and transformed them into net savers in banks. In fact, our latest data indicate that for the first time consolidated bank deposits of microentrepreneurs at over P8 billion have now exceeded their total bank loans. I also thank all the industry groups, all companies – big and small, our partners from both public and private sectors for your support in Bangko Sentral’s advocacies that promote coin recirculation and clean banknotes, as well as protection against counterfeit money and financial scams. Once again, ladies and gentlemen, we at the Bangko Sentral ng Pilipinas thank and congratulate all of you for being our active partners in the pursuit of our mandate and in making lives better through better policies and programs. Together, let us steer the economy toward balanced, sustained and inclusive growth. Maraming salamat sa inyong lahat! Mabuhay ang ating mahal na bansang Pilipinas! 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 Asset Forum, Makati City, 26 June 2013.
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Amando M Tetangco, Jr: Upgrades and strong growth – dealing with the short-term to get to the end goal Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at The Asset Forum, Makati City, 26 June 2013. * * * These are interesting times… As I survey this ballroom, I see that in our midst are some of the individuals most affected by the global and domestic developments over the last few weeks. I was on my way – literally on the road – to a Governors’ meeting in Switzerland on Thursday when news of the market’s reaction to the Fed’s statements hit my blackberry. The divergence in what the guidance the Fed meant to convey about its policy and how the market interpreted Mr. Bernanke’s statements and his assessment of the state of the US economy has created some furor across financial markets around the globe, including our own local financial markets. I have been asked what I thought about the recent market movements. I say, this market price action is a good thing. It is good because it helps put a brake somehow on the exuberance, and thereby help reduce some of the risks from bubble formation in certain asset classes that could lead to more financial market imbalances. Have the movements been excessive? Well, rather than answering that question, I would say, the recent market movement can help separate the “wheat” from the “chaff” – or to those who enjoy a good glass of beer, help raise the “head” to the top of the glass. When these separations are completed, the process could actually create opportunities for those who keep their eye on the ball. Let me therefore repeat… we live in very interesting times. Times like this remind me of the one clear fact I have learned, first as head of BSP’s Treasury and now as BSP Governor – “There is always volatility on the way to recovery. The road to recovery is never a straight path.” And the one clear lesson I have learned from periods of volatility is this: “Keep the main things, main.” In other words, focus on your goal and don’t be distracted because volatility is inevitable. I hope you will indulge me when I say that my nearly four decades of central banking experience bear me on this assertion. To help me keep the main things main when I am faced with any situation, I follow three simple steps, “my triple A's” which will essentially be the outline of my remarks this afternoon: 1) Appreciate the knowns – what is in my arsenal. 2) Anticipate the unknowns – what are the risks that my arsenal can’t handle now. And finally, 3) Act on the known, mindful that there are unknowns – or how can I be creative to address the potential impact of what could transpire when the knowns become entangled with the previously unknown? First, let’s appreciate the knowns. Ladies and gentlemen, the events of the last couple of weeks notwithstanding, these are what we undeniably know: 1. The Philippine fundamentals are intact. Friends, this is not a cliché. It is not meant to be a bumper sticker. It is a statement that I hope you would not take lightly. On one hand, Q1 2013 GDP grew at 7.8 percent. Divorcing from the fact that this was the highest Q1 growth in the region (better even than China’s), this growth was supported by capital formation and public spending on infrastructure. In other words, the economy is being buoyed by expenditures that would cement the growth to a sustainable level. At the same time, year-todate average inflation of 3.0 percent is at the lower end of our inflation target range. Over the policy horizon, the BSP expects inflation to fall well-within the government’s official target range of 3-5 percent. Clearly, the Philippine fundamental story remains solid as we continue to enjoy the positive convergence of high growth and low inflation. BIS central bankers’ speeches 2. The Philippine banking system is sound. Again, this is not to be taken as a trite phrase. The banking system is growing steadily, creating a solid base for domestic retail funding. It is also more than adequately capitalized and the BSP does not foresee any major difficulties for the system to meet the requirements of the early adoption of the capital requirements of Basel 3 in January 2014. 3. The Philippine external position is robust. The GIR at over $82B has been supported by strong current account receipts that are not easily affected by changes in the global operating environment. At about 12 months’ worth of imports of goods and services, the GIR provides a hearty cushion to external shocks. 4. The Philippines’ liquidity conditions are adequate and credit growth is robust. Together, these two support healthy economic growth. Ladies and gentlemen, these statements are undeniable. And these developments have led to the country achieving investment grade rating from two of the three major western credit rating agencies. In fact, the organizers of this event have built this forum on the theme of the country’s investment grade rating, which I will come to shortly. So, then you might ask, if it is all good, then why have the domestic financial markets sold off in the last few days? To answer this, let’s now move to the second step: Anticipate the unknowns. Our financial markets have been affected by the recent global developments because financial markets have become increasingly integrated. We pushed hard to achieve investment grade rating precisely because, in a globally integrated market, the independent rating of a credit rating agency helps market participants distinguish between good and better investment destinations. Add to this, the combination of the accommodative monetary policy in the advanced economies, on one hand, and the good growth prospects in emerging market economies (such as the Philippines), on the other. The confluence of these elements has indeed made the Philippines a magnet for capital flows, i.e., portfolio flows that are looking for better yields. Still, the good story behind the investment grade rating and strong capital flows begs the question, why the sell off? I’m afraid given our collective years of market experience, you would agree with me when I say that there are three specific risks an integrated financial market faces – Capital flow reversal, market overshooting, and the loss of market confidence. If we are able to scope these risks, our problems would possibly go away. To scope these risks, however, both policy makers and market participants must measure two things – 1) speed and 2) magnitude. We must find answers to the questions of – by how much and how fast could capital flow reverse? By how much and in which direction will market overshoot? By how much and in what form would loss of market confidence manifest itself? The problems would go away even faster, if there is a convergence in the assessments of policy makers and the market in all of these. But these variables are not easily quantifiable with any measure of accuracy. To address this problem, the BSP has therefore had to constantly sharpen our market surveillance skills, enhance our forecasting models, and widen the breadth of our regional cooperation efforts. I hope the market is able to appreciate this fact and see that we have achieved some amount of success in all these fronts. Which brings me to the third step – Act on the known, but be mindful of the unknown. This is a policy that the BSP adheres to with diligence and circumspection. Our recent monetary policy actions, responses in the form of macroprudential measures and refinements to the manner in which we conduct our open market operations are examples of this. Ladies and gentlemen, the Philippines, in part through the efforts of the BSP, has sufficient cushions to ride out the recent bout of financial market volatility and take advantage of the opportunities that would present themselves as the Fed-forecasted US economic growth indeed gains more solid traction. Liquidity – both peso and dollar – remains ample and the BIS central bankers’ speeches BSP is prepared to ensure that the financial system remains adequately lubricated during this period of global normalization. I know that was quite a mouthful and from the perspective of treasury players, perhaps too broad and macro. I know that what the market really wants to hear from the BSP governor is this – where are the exchange and interest rates headed? I don’t want to suffer the same fate as Bernanke had. So I will make it clear – my message today is this: the Philippine fundamentals are solid, and we have built up safeguards to ride out the volatilities. Therefore, at the moment, there is no need for us to deviate from our current policy stance. The exchange rate will continue to be market-determined, and the BSP will maintain its strategic market presence to avoid excesses in volatilities and to provide appropriate market guidance. Monetary policy will continue to be conducted in consideration of the inflation outlook and mindful of any financial stability pressures, which in our current assessment are benign. The challenge for all of us is preparedness. The BSP will continue to work towards an operating environment that would help businesses and consumers plan for the medium and long-term. In the near-term, however, we look to you in the market to help mitigate market volatilities so that those whom we both serve could cross through, get past these volatilities and in the end reach their ultimate goals of a better life ahead. Maraming salamat. 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 induction of new officers and general membership meeting of the Bankers Institute of the Philippines, Makati City, 17 July 2013.
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Amando M Tetangco, Jr: Fostering a culture of good governance and compliance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the induction of new officers and general membership meeting of the Bankers Institute of the Philippines, Makati City, 17 July 2013. * * * The officers and members of the Bankers Institute of the Philippines under the leadership of President Francis Puzon, SEC Chairperson Tess Herbosa, my colleagues at the Monetary Board Ignacio Bunye and Armando Suratos, former PM Cesar Virata, friends from the banking community, fellow BSPers, distinguished guests, ladies and gentlemen, good afternoon. It is always a pleasure to join events of the BAIPHIL, a partner of long standing of the Bangko Sentral ng Pilipinas. In particular, today is special as we witnessed a transition of leadership. This gives me the opportunity to thank the previous set of officers led by immediate past president Salvador Serrano for a job well done and to congratulate brand new BAIPHIL President Francis Puzon and his fellow officers on winning the confidence of their peers to lead them for the fiscal year 2013–2014. I learned that by tradition, incoming BAIPHIL leaders should have served earlier as an officer or in working committees. This is a good practice: it reflects a long-term commitment to serve BAIPHIL and the interests of the industry. In your case, the baton is passed on to runners who have run previous legs of the relay. This represents a great opportunity to leverage from the experience of the past and to apply this perspective to what lies ahead. As we all know, industry association work is never easy; but it can be most fulfilling and quite educational – literally and figuratively. BAIPHIL as a Partner for Good Governance Francis and his team have chosen as their underlying theme “Fostering a Culture of Governance and Compliance”. For us at the Bangko Sentral ng Pilipinas, this is a good theme. It is simple and direct. It shows clarity of vision. And it is aligned with the continuing thrust of the Bangko Sentral. Indeed, having a culture of good governance and compliance not only within the banking system but across all sectors as well is what we should aspire for. Over the years, the Bangko Sentral has been working on ensuring good governance and compliance systems in banks. We benchmark against international standards and adapt to emerging challenges. In January last year, for instance, the Bangko Sentral adopted revised guidelines under Circular 749 and 757 to strengthen governance standards that have been largely patterned after the paper on “Principles for Enhancing Corporate Governance” by the Basel Committee on Banking Supervision (BCBS). The BSP also adopted rules under Circular 747 to strengthen banks’ compliance systems. Only last May, the BSP deployed its Compliance Rating System (CRS), an assessment tool that we developed to comprehensively evaluate during an on-site examination the effectiveness of a supervised institution’s compliance system in mitigating business risk. In crafting new policies on governance and compliance, the Bangko Sentral adheres to the principle that good governance is the primary responsibility of the particular bank’s board of BIS central bankers’ speeches directors and its senior management. We respect the mandate of the leadership of each bank to make strategic decisions and it is the risk choices in these decisions that differentiate one bank from another as a business proposition. Thus, when the BSP intervenes in the conduct of any bank, governance has broken down and remedial action is needed. For the record, we intervene in the conduct of a bank only to protect the broader public interest. It is critical for a bank therefore to embrace a mandate on good corporate governance. Having a pool of officers who can preach, practice and promote good corporate governance is clearly an essential facet of success. Two challenges to the BAIPHIL as Partner in Governance On this point, BAIPHIL is faced with two challenges. First, data culled from the BAIPHIL Secretariat show that 2,273 individuals have taken your governance course between August 2002 and June 2013. A quick work on the numbers tells us that it comes out to about 17 course participants per month or a little over 200 on average every year. I believe these numbers can be significantly improved and the new board may want to look into this as a key result area. In an industry of over 140,000 officers and staff, we need to find ways to ensure that good governance is not only a nice-to-have training but a must-have perspective among bankers. The governance perspective that we seek must be fundamentally entrenched as a core competency of any banker. Banking is about mobilizing other people’s savings. Intermediating these funds to borrowers... only to be faced with collection issues gives rise to conflicted interests. We can point to internal checks and balances but what better mitigant is there than practitioners who shun unacceptable behavior and practices. In my view, developing a broad and deep pool of practitioners should mean more than the 200 individuals completing governance courses a year. Not only is this a game of numbers for an industry that is growing both in size and complexity, governance standards themselves are central to the on-going reforms of global best practices. Thus, not only should there be many more advocates of good governance, there is much to re-learn of governance standards in the first place. The second challenge is the natural consequence of the first. If we are to develop training programs for corporate governance in banking, there must be a way to evaluate whether the training is itself an “effective” intervention. Is the program content reflective of the modified global norms? Is the training itself making a difference? These questions must be addressed. The metric, in our view, is properly developed at the bank-level since it is bank leaders who have the appropriate perspective of the extent to which conflicts of interest arise and how these are resolved. Banks also possess the needed information to directly assess progress. Governance and Consumer Protection As an intermediary, you serve the interests of the saving and investing public as much as you look to meet the needs of those borrowing and raising funds. You provide great service as you are able to regularly do as an institution what individuals and entities will find very costly to do on their own. In an ideal world, this symbiotic relationship will generate benefits mutually agreeable to all parties. Left to its own, however, the subsequent results may not always be positive. As defined in academic literature and repeatedly confirmed in practice, finance in general is fraught with conflicts of interest. BIS central bankers’ speeches This is the reason why good governance and the general ambit of consumer protection must be inherently intertwined. The ultimate measure of success cannot be simply summarized either by a Capital Adequacy Ratio that is above regulatory norms or by the extent of profits banking operations generate. Instead, banking must be about addressing the financial needs of various stakeholders. Not only are we talking about making the system more inclusive, we need to step up to protect the financial consumer, from improved awareness to redress mechanisms. The mantra of good corporate governance therefore cannot be just about the bank or its personnel. It has to go beyond compliance with regulatory directives. It must consider fair and acceptable behavior, among others, to those who are more vulnerable, even if it means accruing less to the bottom-line. This is the very essence of why banking is imbued with public interest. In this connection, the Bangko Sentral is preparing to release a Consumer Protection Framework (CPF) that is applicable to its covered institutions. Built upon the pillars of consumer empowerment, market conduct and collective responsibility, the governance standards put into practice by each BSP-covered institution will play a central role within the CPF. The introduction of the CPF is a milestone for us. Consumer protection is now part of the core practices for which the BSP exercises supervision and regulation. In this initiative, I expect that BAIPHIL will again be one of our key partners. What Lies Ahead: A Challenge to BAIPHIL Ladies and gentlemen, we can always talk of governance at length. The challenge, however, is not in extolling the virtues of good corporate governance. Rather, it is what happens after THAT is the key challenge. If a “culture of good governance” is meant to define our set of values, beliefs and practices on governance, then we are clearly along the proper path. This cannot be delineating the shades of grey between “acceptable” and “unacceptable”. When it involves the interests of several stakeholders, we need to be categorical about what is “right” and “wrong”. The challenge is measuring how far we moved forward. I am not referring to specific instances of compliance or breaches. What we want to achieve is having that comfort that values, beliefs and practices are fully in place and updated even when no one is looking. Certainly, it is this last part that is at the core of the issue. BAIPHIL has always been the advocate of training and capacity building. The industry benefits from your course offerings and capacity building programs. But BAIPHIL’s mandate cannot and should not stop when the courses end or when we choose to mount a new training. Is BAIPHIL up to this critical task? Abangan! Actually, given your track record, I trust that BAIPHIL will find new and creative solutions to meet these challenges. Finally, I thank and commend BAIPHIL for its continuing commitment to support the Bangko Sentral’s financial education program for parents and teachers in our public schools. This is a parallel program that complements the lessons on saving, money management and entrepreneurship being taught in public elementary schools under a joint program of the Bangko Sentral ng Pilipinas and the Department of Education. As the members of your education committee and other BAIPHIL volunteers can attest, the learnings on personal finance are deeply appreciated by teachers and parents, some of whom are moved to tears when they share what they go through to make both ends meet. BIS central bankers’ speeches It means a lot to them that BAIPHIL and the Bangko Sentral spend time with them to help improve their lives. Think about it. Education Secretary Brother Armin Luistro has learned of our joint project and is interested in scaling it up to help teachers get out of debt and handle their finances properly. I remember that this BSP-BAIPHIL financial education program has been in place under four consecutive BAIPHIL presidents. It started with Susan Uranza-Alcala who signed a MOA with the Bangko Sentral in 2009 under the Banking on Your Future Program which was launched when we celebrated 60 years of central banking in the Philippines. BAIPHIL continued the program under Emmanuel Barcena, Agnes Brillante-Santos and Salvador Serrano. I have been informed Francis has been joining the group that goes to public schools. I am optimistic therefore that Francis and his board will continue this program that is already being requested in elementary schools and by some NGOs. Ladies and gentlemen of BAIPHIL. You are used to training bankers. Now, you are reaching out to the underbanked and the unbanked. Truly, I can say that BAIPHIL is aligned with the Bangko Sentral’s goal of promoting good governance and the development of a financial system that is inclusive and able to sustain inclusive growth. Mabuhay ang BAIPHIL! Mabuhay ang ating mahal na 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 a dinner with bankers, Bangko Sentral ng Pilipinas, Manila, 19 July 2013.
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Amando M Tetangco, Jr: The Bangko Sentral ng Pilipinas and the banking community – forging a strong partnership that benefits the country Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at a dinner with bankers, Bangko Sentral ng Pilipinas, Manila, 19 July 2013. * * * Sec Cesar Purisima, ADB President Takehiko Nakao, SEC Chair Teresita Herbosa, the leaders of the Philippine banking community, former Members of the Monetary Board, Heads of international agencies in the Philippines, fellow public servants, members of the media, distinguished guests, friends, ladies and gentlemen. On behalf of the Members of the Monetary Board, we thank you for accepting our invitation to recognize the banking community one of the most important channels for the transmission of the BSP’s monetary policy and one of the reasons why our country finally earned investment grade this year. While our partnership is not perfect, our partnership is a success as it generates incalculable benefits for our people and our country. If this were a wedding anniversary, porcelain would be our theme. The story of porcelain as works of art started over 2,000 years ago. What is amazing is that some of these ancient pieces still exist; they have endured. Like the porcelain of old, the Bangko Sentral is rich in history. While we are distinct from the Central Bank of the Philippines, we value its legacy and traditions that connect us to the history of central banking in the Philippines. And in tandem with its partners in government and the private sector including the banking community, the Bangko Sentral continues to make history, enduring the heat of national and global challenges and coming out better and stronger from it. Two decades of moving forward Indeed, we have the metrics to show the progress we have made in pursuing our mandate of providing stability to prices and the banking sector through our monetary and banking policies and programs. Republic Act 7653, the law that created the Bangko Sentral ng Pilipinas in 1993 was passed by Congress during the term of then Governor Jose Cuisia of the Central Bank of the Philippines and signed into law by President Fidel Ramos. That was 20 years ago. Since then, price movements as measured by inflation have been limited to single-digit levels: it hit a high of 9.3% in 1998 during the Asian financial crisis and has dipped to 2.8% in June this year. And together, the Bangko Sentral ng Pilipinas and the banking sector have successfully evolved to meet the growing and changing needs of our country and our people. Total resources of the banking system for instance increased from more than P1 trillion in 1993 to over P8 trillion in 2012, deposits from P649 billion to P5.8 trillion, and loans from P553 billion to P4.1 trillion. Over the same period, our gross international reserves soared from $5.3 billion to $81.6 billion as of June this year, giving us the ability to provide the foreign exchange needs of our growing economy and to minimize the possible impact of external shocks. Our healthy BIS central bankers’ speeches GIR levels also allowed us to prepay our debts to the IMF and end more than forty years of our country’s dependence on IMF loans in 2006. Thus, when the 2008 global economic crisis came around, we were able to ride it out. In fact, while credit freeze became the norm in developed countries, Philippine banks remained liquid and able to sustain double-digit growth in lending. And non-performing loans of commercial and universal banks dropped from double-digit levels to 1.87% in May 2013, even better than the pre-Asian financial crisis figures. Looking back, I think it is because we have a good balance of prudential regulations from the Bangko Sentral on one hand and on the other adherence to sound banking practices by our banks. In other words, the sound and stable Philippine banking system that we see today is the dividend from our continuing reform agenda to clean up bank balance sheets, strengthen bank capitalization, improve governance structures, enhance risk management systems, and align with international standards. Many take comfort that we have been in a position of strength as we traversed recent and ongoing global turbulence in financial markets. That may be so but we cannot be complacent: new challenges are before us and we need to address these now. Indeed, there will be no shortage of issues to confront. Financial markets are never static and we must be able to respond accordingly. From our perspective as industry regulator, two challenges deserve particular mention. Financial stability as the prudential cornerstone With the global economic turmoil in the last five years far from over, the first challenge must be to maintain financial stability, which ladies and gentlemen, goes beyond the Basel 3 agenda. New standards will be introduced for leverage, liquidity, the handling of market risks that lead to credit risks, the treatment of securitization and inter-financial exposures, and mitigating counterparty risks, among others. Beyond the Basel Accord, the distinction between OTC and exchange-traded derivatives is effectively being removed to ensure price transparency and improved governance. Payment systems are now governed by new principles set for providers of so-called Financial Market Infrastructures (FMIs) while the use or non-use of these FMIs by market players will have consequences. There are many other reform initiatives that could be cited. At the end of the day though, all of these are geared to the common purpose of achieving financial stability. We will have every opportunity to discuss how high to set the prudential bar but the principles behind the change in the global standards are difficult to ignore. Capital market development: moving beyond the usual rhetoric Apart from the global initiatives, we do have our own set of concerns. Capital market development has been in and out of vogue through the years. However, many unresolved issues remain and this is our second major challenge. The Capital Market Blueprint prepared under the auspices of the Securities and Exchange Commission headed by Chairperson Herbosa is the take-off point. I urge the stakeholders to look carefully at the Blueprint and commit to the deliverables within their purview. From the perspective of the BSP, a few specific issues are most critical. Who will disagree with the proposition that benchmarks are central to our market and its operations? Whether it is to price a new issue or value/re-value an existing exposure, the role of benchmark rates simply cannot be over-stated. Despite many initiatives and formulations, we remain well-short of a viable yield curve that properly reflects credit and BIS central bankers’ speeches liquidity risks. We have all heard of OIS, implied zero rates and single price as the latest round of initiatives towards an acceptable yield curve. We look forward to having these initiatives come to fruition, hopefully by end-year. The role of clearing entities and similar dis-interested 3rd parties will also be critical. A part of this goes back to the issue of valuation. At this juncture, we do need to think about the broader policy framework for our market infrastructure. To execute our capital market agenda, these are the areas that need to move beyond rhetoric. Taking the challenges forward Ladies and gentlemen, the past 20 years has been all about transformation. As we mold ourselves and the financial markets through the last two decades, we have always had the banking community as a partner. From the term of Gov. Gabriel Singson to Gov. Rafael Buenaventura, and up to now, we have always nurtured a consultative process. I assure you that while we may not always agree on every policy detail, we will continue to find ways to address these issues together. Moving forward, we expect to continue relying on the consultative process. We cannot afford a unilateral approach. We ask the banking community therefore to take an active role in addressing the issues that lie before us. Ladies and gentlemen. With your support and cooperation, the Bangko Sentral has had a good track record in its first 20 years. And while our record of accomplishments is far from perfect, we are reassured by the recognition the Bangko Sentral continues to receive here and overseas. We are also heartened by our progress in developing a more inclusive financial system, the implementation of our nationwide economic and financial learning program, and enhancing protection for finance consumers. We need to think out of the box in mobilizing savings in the region, providing extended financial access through both mainstream and non-mainstream channels and creating alternative sources of financing for borrowers and entrepreneurs. Toward this end, the Bangko Sentral looks forward to more partnerships with the banking community in ensuring sustained and inclusive growth for all. Once again, we at the Bangko Sentral ng Pilipinas thank the banking community and other sectors represented here tonight for your continuing support and cooperation. Mabuhay po tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat. 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), at receiving the International Association of Business Communicators (IABC) 2013 CEO Excel Lifetime Achievement Award, Manila, 25 July 2013.
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Amando M Tetangco, Jr: Excellence in communication at a strategic level Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at receiving the International Association of Business Communicators (IABC) 2013 CEO Excel Lifetime Achievement Award, Manila, 25 July 2013. * * * The officers and members of IABC under the leadership of Chair Elpi Cuna and IABC President Ritzi Ronquillo, distinguished fellow awardees, special guests, friends, good evening. I am deeply honored to receive the 2013 CEO Excel Lifetime Achievement Award and for this I thank the IABC. In your letter informing me of this award, you described the awardees as belonging “to the select group of outstanding national and industry leaders who epitomize management competence and excellence in communication at a strategic level; a leader for good governance and responsible corporate citizenship who inspires others to serve for the greater good.” Ladies and gentlemen. I have been a central banker for 39 years now, of which eight years have been spent at the helm of the Bangko Sentral ng Pilipinas as Governor and Chairman of the Monetary Board. And to this day, I still find my work challenging, meaningful and fulfilling. Indeed, I have always felt it is a privilege being given the opportunity to serve our people and our country as a public servant. Across the country, the commitment to serve runs deep at the BSP – from our 18 branches, three regional offices to our Security Plant to our Manila Head Office. I therefore share this award with my colleagues, whose drive to excel is motivated by the singular vision of achieving a better life for Filipinos through sound monetary and banking policies. At all times, we are conscious that what we do or what we say can affect millions of Filipinos for the better or not. In this connection, we make sure that two-way communication is maintained with our various constituents. Among others, the Bangko Sentral has maintained a consultative process given that concerns of financial markets have become broader in breadth and deeper in consequence. Clearly, we cannot afford a unilateral approach; even if we do not agree on every policy detail, we continue to find ways to address issues together. With open channels of communication the Bangko Sentral and the banking sector continue to evolve in response to the needs of our growing economy. Today, our banking sector is sound, stable and liquid. In fact, the stability of our banking system in the midst of global turmoil has been a factor in our country finally getting out of junk status and receiving investment grade from S&P and Fitch credit rating agencies. This is important. A higher credit rating generally enables a country and its corporations to have access to international capital markets at lower rates. Similarly, our continuing efforts to involve and engage our stakeholders on key policy issues have produced positive results. For instance, our quarterly Consumer Expectations Survey of 5,000 households and Business Expectations Survey of our top 7,000 corporations help us formulate sound policy decisions. The continuous improvement in the quality of our surveys and our consultative approach provide a good anchor for the monetary policies of the Bangko Sentral ng Pilipinas, the objective of which is to keep prices low and stable. In fact, when we tracked the correlation BIS central bankers’ speeches between the results of our expectation surveys with actual data on the GDP, inflation, interest rates and foreign exchange we found significantly high overall convergence. As a result, the Bangko Sentral’s policy decisions continue to provide the stability that preserves the public’s purchasing power and creates a planning environment conducive to strong and sustainable growth. In particular, we continue to be successful in taming inflation at low single digit levels – 2.8% as of June 2013, with year-to-date inflation at 2.9 percent. And with BSP’s policy rates now at record low levels, average interest rates charged by banks to their customers have also dropped to single digit levels. This has benefitted consumers in terms of gaining access to more affordable credit while business is able to expand and create new jobs with lower financing costs. We are also heartened by our progress in developing a more inclusive financial system, the implementation of our nationwide economic and financial learning program, and enhancing protection for finance consumers. Ladies and gentlemen. The ability to make informed financial decisions is now recognized globally as a life skill needed if one is to be successful. Again, how to communicate finance lessons across different sectors, regions and age groups is a challenge the Bangko Sentral has taken up. Finally, we observe that the resilience of our economy strongly reflects the efficient performance of our communication exchange with key stakeholders. To us at the Bangko Sentral therefore, efficient communication leads to transformational growth. Of course, you and I know communications is always fraught with challenges. Wittingly or unwittingly, statements from the Bangko Sentral move markets. The same is true of other central banks. We have also witnessed how global markets – big or small – can rise or fall sharply in reaction to statements from central bank heads. US Federal Reserve Chairman Ben Bernanke today and Alan Greenspan before him come to mind. In the same vein, the European Central Bank said credibility and effectiveness of monetary policy come with effective communication. Indeed, as much as credible policy actions, effective communication is of fundamental importance to central banks. And for this reason, this Lifetime Award on Communication Excellence from the IABC is truly meaningful and deeply appreciated. I also thank my fellow central bankers at the Bangko Sentral ng Pilipinas who have been part of my journey as a public servant. And finally, I take this opportunity to thank my family, particularly my wife Elma and my children, for their unconditional love and support. I can say I am truly blessed. Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Signing of the Memorandum of Agreement on Bank Examination between the Bangko Sentral ng Pilipinas and the Philippine Deposit Insurance Corporation (PDIC), Manila, 27 August 2013.
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Amando M Tetangco, Jr: The Philippine Deposit Insurance Corporation and the Bangko Sentral ng Pilipinas – continuing a partnership for stability Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Signing of the Memorandum of Agreement on Bank Examination between the Bangko Sentral ng Pilipinas and the Philippine Deposit Insurance Corporation (PDIC), Manila, 27 August 2013. * * * Thank you for joining us this afternoon to witness the signing of this Amended Memorandum of Agreement on Bank Examination between the Philippine Deposit Insurance Corporation and the Bangko Sentral ng Pilipinas. Our signing ceremony is brief and simple … but also significant and meaningful. The MOA we have signed today underscores the continuing efforts of the PDIC and the BSP to enhance our respective regulatory and policy frameworks. Equally important, this amended MOA reflects our continuing cooperation to ensure that our joint working arrangements are responsive to the changes taking place in the operating environment of our supervised and regulated institutions. Indeed, the PDIC and the BSP have a long history of partnership and cooperation to achieve and maintain a sound and stable banking system. In particular, the PDIC and the BSP signed the original MOA on Bank Examination on October 11, 2005… which created the overall framework for our institutions to supervise banks through, among others, … the conduct of on-site examinations, jointly or independently. While the original MOA has served us well, we recognized the need to align it with current supervisory procedures, practices and requirements. The joint review committee created for this purpose was headed by PDIC Executive Vice President Imelda Singzon and BSP Managing Director Chuchi Fonacier with support from their respective groups. And so today, we have this amended MOA. Let us give our review committee a big hand. As amended, the MOA harmonizes our examination procedures to avoid overlapping of functions and efforts, enhances data-sharing arrangement, and maximizes the use of reports and resources. The amended MOA also provides the PDIC more flexibility in terms of the types of banks it can jointly examine with the BSP, defines the specific findings/information that the BSP examiners can share with PDIC examiners, and considers the provisions as well as rules and regulations of Republic Act No. 9576 which amended the PDIC Charter. With these amendments, we look forward to the PDIC and the BSP being able to address examination findings and violations with expediency… especially those involving unsafe and unsound banking activities. This is consistent with the thrust of the BSP and the PDIC to promote and strengthen good governance practices in supervised banks to ensure the stability of the banking system at all times. We look forward therefore to exploring new projects and expanding existing initiatives with the PDIC to realize our shared goal of delivering a better quality of life to Filipinos through a sound and responsive banking system. Mabuhay ang BSP at ang PDIC! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2013 Microcredit Summit "Partnerships against poverty", Manila, 9 October 2013.
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Amando M Tetangco, Jr: Partnerships against poverty Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2013 Microcredit Summit “Partnerships against poverty“, Manila, 9 October 2013. * * * Good morning! The Philippines is pleased to welcome all of you to the 2013 Microcredit Summit: Partnerships Against Poverty. That the summit is being held in this part of the world at this time is deeply appreciated. According to the Asian Development Bank, two-thirds of the world’s poor are in Asia and the Pacific. Indeed, while economic growth has improved lives by the millions, many still live in poverty. Clearly, there is a need for intervention to accelerate the process of bringing down the benefits of growth to the grassroots. Organized broad-based programs... such as this summit address this need. This is where stakeholders across the world can learn from each other and benchmark with international best practices. Empowering people to get out of poverty by giving them access to microcredit from formal financial service providers is a winning strategy. How to reach out to the teeming millions who live in poverty is the challenge before us. This is where partnerships against poverty come in. We are fortunate therefore that we have hundreds of participants here at the summit who will share what they have learned: in challenging times as well as in good times. In particular, we are honored that we have with us leading champions and enablers of microfinance, led by: Nobel Laureate Professor Muhammad Yunus; Minister Syarief Hasan of Indonesia, Ambassador Jorge Domecq Fernandez of Spain, Director Larry Reed of the Microcredit Summit Campaign; Chair of the Microfinance Council of the Philippines Mila Mercado-Bunker; and no less than Philippine Budget Secretary Florencio Abad. Here in the Philippines, the Bangko Sentral ng Pilipinas, which is the central bank of the Philippines, plays a key role in the development of the microfinance sector. As a central bank, our principal mandate is to ensure the stability of prices and the banking sector. In this connection, one of our principal thrusts is to develop a financial system that is inclusive and reaches out to the unbanked. To us, an inclusive financial system makes for a more stable financial system; equally important, it enables us to help improve the lives of our people. This is particularly true for microfinance, our flagship program for poverty alleviation which we have been nurturing since 2000. Thirteen years hence, we have issued over 40 policies and regulations to guide the operations of banks that have made the business decision to engage in microfinance. So far, so good. For five consecutive years – from 2009 to 2013 – the Economist Intelligence Unit has consistently ranked the Philippine regulatory environment for microfinance as one of the best in the world. Thus, delegations from other countries have been visiting our central bank to learn about microfinance development. And as a pioneer in developing prudential regulation of microfinance, the Bangko Sentral is part of the working group responsible for drafting the guidance paper on “Microfinance activities and core principles for effective banking supervision” issued by the Basel Committee on Banking Supervision. But more than these, we take pride in the actual results that we see on the ground. As of end-June 2013, for instance, there were 186 banks with microfinance operations, from just a BIS central bankers’ speeches handful in 2000. These banks now serve over a million clients with consolidated outstanding loans of over 8 billion pesos. Even better, the combined savings of the banks’ microfinance clients have reached 8.9 billion pesos, an amount surpassing their total loans. This tells us that these microfinance clients have attained a level of financial independence from gaining access to microcredit. I can personally attest how successful Filipino microentrepreneurs are able to increase household income, send children to school, improve their health and housing condition, generally lead a better life and serve as catalyst for community development – all because they were able to access a microfinance loan. Indeed, microcredit empowers the poor to start or expand their microenterprise. At the same time, our banks find that their bottom line is getting better from microfinance. Today, an increasing number of microfinance banks offer a wider range of products including housing microfinance, micro-agri loans and the distribution of microinsurance. Microfinance therefore is a win-win program. In the Philippines, this did not happen overnight. The policymaking process evolved from dialogues with our regulated entities, as well as consultations with other stakeholders in the microfinance industry. We institutionalized such meetings with bank associations... to discuss emerging regulatory and market issues. We also expose draft regulations prior to their issuance, and administer feedback surveys. We maintain open lines of communication with associations of microfinance institutions and other concerned regulators and policymakers. And key officers of the central bank go on exposure visits to see how our policies are implemented on the ground, and to find ways to make the program more effective. Ladies and gentlemen. We do all these because every stakeholder is a valuable partner in the policymaking process. This participative process has surely enriched our understanding and appreciation of the needs of the poor, the unbanked and the financially excluded. It has also made us more aware of our strategic role in enabling market players to best serve these needs. The result is a regulatory environment which recognizes that the financial needs of the poor and the unbanked are as varied as those of the regular financial consumer. Regulations also provide a good level of market contestability where new players and innovative business models can enter and flourish. NGOs have a clear path to formalization, should this be their desired track. New players, such as electronic money (e-money) issuers, can be part of an ecosystem that delivers financial services. Our regulatory environment also empowers banks to expand their coverage and reach out to underserved markets through scaled-down branches called micro-banking offices (MBOs), or through the e-money platform. These allow banks to increase their efficiency and lower costs, enabling them to reach markets which are otherwise not economically feasible to serve. Regulations also reduce the barriers for the poor to transact with banks. Aside from the expansion of possible financial service access points, we have also expanded the range of acceptable IDs that may be used to open a bank account. This addresses one of the key obstacles faced by the poor and excluded to transact with a formal financial institution. In addition, we have developed a regulatory environment which ensures that consumers are informed, educated and protected. Among others, the Bangko Sentral has issued regulations that promote true price transparency and disclosure to allow clients to compare similar loan products. We have also institutionalized a consumer assistance mechanism to address complaints against BSP-supervised institutions. We are also in the process of crafting a BIS central bankers’ speeches rating system that will assess financial institutions’ compliance to various consumer protection laws, rules and regulations. To complement these regulations, the BSP implements a comprehensive Economic and Financial Learning Program (EFLP). One component of this program is a financial literacy session for microfinance clients and beneficiaries of the government’s conditional cash transfer (CCT) program, many of whom are unbanked. The sessions are designed to enhance their capacity to manage resources and make wise financial decisions that would eventually benefit their household, their community, and eventually the larger economy. These sessions are conducted in partnership with our Department of Social Welfare and Development, the lead administrator of our CCT program. Indeed, we continue to view multi-stakeholder partnership as an important strategy to facilitate the expansion and deepening of our financial system. Moving forward, we see the value of collecting evidence and data that conclusively affirms what we believe to be true: • that access to financial services empowers households to better manage their resources and improve the quality of their lives; and • that broad-based access to finance and financial inclusion support financial stability and facilitate inclusive growth. Aside from anecdotal evidence, it would be ideal to have metrics that will give us solid data on how we are doing and how we can make things even better. To implement this commitment, we will engage various institutions in further consultations... to develop a national financial inclusion strategy. With a unified vision, synergy of action and complementarity of initiatives, we should make financial inclusion a reality across our country. Our ultimate goal is to provide every Filipino the opportunity to benefit from having access to appropriate financial services. Ladies and gentlemen. We are here because we share the same vision: to fight poverty and improve lives across the world. Let us therefore leverage on each others’ competencies and expertise by forging effective partnerships, and moving in unison toward our common goal of poverty reduction, financial inclusion and inclusive growth. Together, we can cover a lot of ground. Once again, I welcome all of you to the Philippines for the 2013 Microcredit Summit on Partnerships Against Poverty. Thank you! And as we say in the Philippines: Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Third Annual Asian Banker Philippine International Banking Convention 2013, Manila, 25 October 2013.
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Amando M Tetangco, Jr: Philippine banking – responsive and responsible Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Third Annual Asian Banker Philippine International Banking Convention 2013, Manila, 25 October 2013. * * * Good morning everyone. I am pleased to join you at this 3rd Asian Banker Philippine International Banking Convention. This provides us the platform to share the continuing transformation of our banking industry in the midst of global challenges, the start of our compliance with Basel 3 in 2014, and issues related to expansion and competition. Ladies and gentlemen. In our view, there are four Rs that define our banking community today: robust, resilient, responsive and responsible. For instance, the three major international credit rating agencies that gave the Philippines investment grade status this year, acknowledged our sound and stable banking industry as a contributing factor. They view the Philippine banking system as well capitalized, profitable, and liquid, with deposit-funded balance sheets and sound loss-absorption capacities. In fact, the Philippines is the only country whose banking sector is on positive outlook at Moody’s; it raised the outlook to positive in December 2012. In January 2013, Moody’s said it sees “positive credit trends in the Philippine banking system, one that has been and will stay relatively immune to global economic shocks, and is benefiting from steady credit growth and growing diversification opportunities.” On the other hand, Standard & Poor is in its February 2013 report said it believes that “the Philippine banking system is reasonably resilient to an external slowdown.” As the regulator of the banking system, we at the Bangko Sentral ng Pilipinas value such positive third party assessments which are of course, corroborated by relevant indicators. But more than being robust and resilient, our banking sector has become more responsive to the varied needs of differentiated stakeholders. Most of all, responsible behavior by our banking sector in handling the savings of our people continues to underpin the continued growth of our banks to record levels. A responsive banking industry Indicators clearly show a growing industry. But that cannot be the only measure of success. For the Bangko Sentral, it is the banks that must respond to the needs of their constituents, not the other way around. But let me make one thing clear: this is not meant to be a relaxation of standards; rather, it is a necessary calibration to ensure that the financial needs of the public are truly met by the industry. The critical issue to determine then is how inclusive our banking system has become. Our ultimate goal is for banks to cover even the underbanked, the unbanked, and those that have been mis-labeled as “unbankable.” This is quite a challenge in a country of 7,107 islands with a total population of 100 million and where only 20% of households have bank accounts. Nevertheless, we continue to make progress in this area. While consolidation continues to reduce the number of our banks, the industry’s network and reach continue to grow and deepen through branch banking, ATMs, ebanking, and innovations in marketing and service delivery. Our initiatives to develop an inclusive financial system through financial education, consumer protection and providing access to financial services also continue to generate positive results. BIS central bankers’ speeches For the 5th straight year, the Economist Intelligence Unit ranked the Philippine regulatory environment for microfinance as the best in the world. We now have 186 banks with microfinance operations, microfinance loans have more than tripled from 2002 to June 2013 at eight billion pesos, while the number of microfinance borrowers have also tripled to over one million. Even better, the combined savings of the banks’ microfinance clients have reached 8.9 billion pesos, an amount surpassing their total loans. This tells us that these microentrepreneurs attained a level of financial independence because they gained access to microcredit. Indeed, the socio-economic impact of developing an inclusive banking system cannot be overemphasized. Moving forward, there is one point about our population structure that should be highlighted. Based on 2015 population estimates, the median age of Filipinos nationwide would be at the upper end of the 20–24 years old bracket. By the years 2020 and 2025, the average age of Filipinos is estimated to move up to 25 years and 26 years old, respectively. This information should matter to the banking industry. It reflects a steady but young core of the population whose main financing needs lie 10 to 15 years ahead. On the other hand, there is also the more mature half of the population who are today already savers, investors, borrowers and entrepreneurs. Indeed, the needs of your market vary considerably across constituents, across geographical communities and across the dimension of time. This presents challenges as well as opportunities if banks are to be responsive to the needs of the public. Nevertheless, while having an array of products and services is necessary, this is also not sufficient. The diversity across constituents calls for consumer protection and customer care to be on top of our agenda. This is the responsible path to take. At the Bangko Sentral, the drive to promote financial inclusion is balanced with programs to institutionalize redress mechanisms and financial education. Today, this balanced approach is part of global standards. Nevertheless, the Bangko Sentral is taking consumer protection a notch higher. Soon, our supervised institutions will also be examined on how they provide consumer protection. Up for consideration by our Monetary Board is a consumer protection framework that outlines the modes of behavior and practices that should be adhered to by BSP-supervised institutions. Responsible market conduct: a credit perspective A central tenet of the financial consumer protection framework is the aspect of responsible market conduct. This, extends beyond consumer protection and is a critical pillar of our market. I am pleased to share therefore that even with the high level of liquidity in the banking system and our own push towards a more inclusive banking industry, our banks, in general, adhere to high standards of credit discipline. For instance, we note that while total loan portfolio increased by over a trillion pesos between December 2009 and March 2013, the amount of non-performing loans over the same period actually declined by over 11 billion pesos. And even with this improvement, banks further increased their allowance for credit losses on loans by more than 11.6 billion. The result is a declining NPL ratio and an NPL coverage ratio above 100 percent. Likewise, the country’s credit-to-GDP ratio does not show any sign of unwarranted expansion. In fact, within ASEAN-5 we remain at the low end of the spectrum on this measure, suggesting that there is room to grow within the tenets of sound credit standards. In addition, stress tests, which we conduct every semester, tell us that the balance sheet of banks can absorb extreme credit shocks. Even at a 50 percent write off, capital positions are sufficient to take on the magnitudes of such losses. Ladies and gentlemen, all of these BIS central bankers’ speeches indicators suggest that Philippine banks manage their credit exposures quite well. They observe a degree of conservatism needed to stay within the so-called “discipline of target markets.” This is evident by the declining levels of NPLs, high coverage ratio and moderate credit exposures vis-à-vis GDP. What makes these numbers even more impressive is the fact that banks have available liquidity that they can deploy, if they so choose. The pursuit of financial stability Perhaps, the crux of the matter lies in those last four words: “if they so choose”. In a market that seizes opportunities, making the appropriate choices is critical, particularly since funds being deployed belong to the public. The BSP sees these choices not only in the numerical indicators… but also in the ICAAP (Internal Capital Adequacy Assessment Program) document which universal and commercial banks submit annually. Indeed, risk management cannot be the domain of a few specialists in the bank. Strategic risk decisions must emanate from bank management and from there it should become everyone’s business within the bank. On our part, the Bangko Sentral does not hesitate to act accordingly in the event remedial and corrective actions are needed at the bank level. Ladies and gentlemen. To us, the prudential objective for the industry is not only about banks being individually safe and sound; a clear lesson from the financial crisis of 2007–2009 is that the condition of the whole cannot be the simple sum of the respective parts. Moreover, the bigger picture is defined not just by the complexities of finance. Rather, it is about the web of inter-connectedness between transacting parties, across products as well as the channels of risk that underpin the activities in the market. This is the new prudential world of financial stability. It is not just about banks being safe and sound. For this reason, the norms for financial stability go beyond those of financial system stability. There are technical and policy nuances to consider under financial stability but these can be discussed at another opportunity. For now, let us be mindful that all of us must bear collective responsibility for the actions each of us take in the market, day in and day out given that inter-connectedness is a central tenet of financial stability. Final thoughts: managing change and moving forward Moving forward, it is wise to remember that market conditions continue to evolve, opportunities are never permanent, incentives change and macro-financial situations can reverse. We need therefore to continuously invest in ourselves as a market, if we are to sustain the banking sector’s position of strength and adhere to the new prudential mandate of financial stability. This means that change is inevitable, at the national, regional and global scale. A case in point is Basel 3, the new global standard for managing banking-related risks. In this connection, the Bangko Sentral has made clear repeatedly that we subscribe to the underlying principles espoused by the Basel 3 Accord. However, we have taken steps to calibrate its implementation here to align with local conditions. At the Bangko Sentral, we do not instigate change for the sake of change. Rather, our policy initiation is calibrated to make the industry stronger against potential waves of shocks. The same principle applies to other reform strands. The new framework for OTC derivatives, financial market infrastructure, changes in corporate governance standards, consumer protection, accounting and even the recent issue on the integrity of financial benchmarks are all in the context of addressing identified weaknesses under a financial stability mandate. BIS central bankers’ speeches They represent global reforms that are meant to revise the international financial architecture and the market’s intrinsic landscape. At the regional level, the reforms emanate from the policy decision to pursue integration. For the banking community, this will be the ASEAN Banking Integration Framework or ABIF. The framework takes us to 2020 at which time we expect that the ASEAN banking community would be semi-integrated. While this is six years away, the work under ABIF is well underway. Banks can choose to retain a domestic focus or choose to become a regional player. However you position your bank, be aware that either of the two choices has critical competition policy consequences. If one is to survive and thrive, international competitiveness is the way to go. This is because so-called Qualified ASEAN Banks (QABs) will operate within ASEAN. In the end, the size and strength of each bank’s balance sheet as well as the quality of its management will become crucial factors under regional integration. Ladies and gentlemen, we have covered quite a bit of ground in describing the Philippine banking industry in terms of both its current standing and its prospects. I can say that while we are in a clear position of strength today, calibrated reforms will continue to be a necessity. At the end of the day, the real measure of strength and success is the ability to withstand difficulties that will arise in the future. We know that change will always be at a cost; consider this as investment for the future. For today, your prospective strength will be difficult to quantify. Nevertheless, you can count on the Bangko Sentral in defining our shared vision of the future under the principle of collective responsibility. I believe we all want a banking system that is robust, resilient, responsive and responsible. How to achieve these in the midst of a constantly shifting and changing landscape is the challenge before us. I look forward therefore to this International Banking Convention of The Asian Banker to provide some answers for us. Thank you all and Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Foreign Correspondents Association of the Philippines (FOCAP) Media Forum, Manila 29 November 2013.
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Amando M Tetangco, Jr: The Philippine economy – amidst global headwinds, leveraging on domestic tailwinds to stay the course Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Foreign Correspondents Association of the Philippines (FOCAP) Media Forum, Manila 29 November 2013. * * * Good morning. In the American tradition, today, the day after Thanksgiving Day, is called “Black Friday” – the “official” first day of Christmas shopping. Picture herds of early birds lining up retail stores to catch the biggest sales. Consumer watchdogs in America would be detailing on Monday whether this year’s Black Friday recorded a larger sales number than previous years. Undoubtedly, the result of the surveys would provide the Fed with additional input as they decide whether to taper sooner rather than later. The numbers could also help answer the question of whether the Fed has been successful in steering domestic consumption enough to sustain positive economic growth. So far, so good… In the last few years, external factors, particularly, the Fed signals have exerted greater impact on the domestic market. This has been the case on two fronts – 1) financial market volatility and, 2) external trade. The other external risks we have been watchful of are the tepid recovery in Europe, the impact of Abenomics, and the growth story in China. So far, our calibrated use of our economic policy tool kit – both traditional policy tools and macroprudential measures – has been successful in taming financial market volatility and in supporting domestic aggregate demand to help make up for any weaknesses in external trade. Just to cite some indicators. Q3 2013 growth at 7.0 percent is the 59th consecutive quarter of positive GDP growth since 1999. The last five consecutive quarters all registered growth rates of 7 percent or more. This is not a fluke. The Philippine growth story has structural roots. Inflation has been within target for the last four years. Our current account has consistently been in surplus for over a decade now. Our gross international reserves have been at record highs. And our banking system balance sheets remain strong, with NPL ratios continuing their decline to levels lower than pre-1997 crisis. Shall we, however, continue to live in this Goldilocks world – where everything seems to be just right – where the porridge is not too hot, or too cold. Where the bed is neither too hard nor too soft. Where the chair is not too big or not too small? Are there other risks that lurk? How do we intend to respond to these? Would we be surprised like Goldilocks was when the Bear family arrived and found Goldilocks sleeping in one of the beds? Then came the storm… In a way, Yolanda can be considered as a “surprise” that hit us. Regions 6, 7, and 8 account for about 12.7 pct of 2012 GDP. Latest estimates from the NDRRMC, put damage to property, industry and agriculture in these regions at P24.5B (as of 26 Nov 2013). What is the impact of Yolanda on domestic growth? On domestic inflation? Current assessments show that the impact on overall GDP in 2013 would be manageable. The expected expenditures for relief, rehab and reconstruction should help keep GDP in 2013 and 2014 within the NG target. Inflation, on the other hand, will likely increase in November and December from the October level of 2.9 pct. But given that the weight of the affected regions in the national CPI is relatively small, the impact of the regional price increases over the two month period on the BIS central bankers’ speeches overall inflation in 2013 should also not be that significant. Over the balance of the policy horizon, inflation is expected to stay around the middle of the target range. Risks remain… Before Yolanda, BSP had been keeping a close watch on the spillover effects of global developments. Specifically, 1) rapid domestic liquidity growth, 2) strong domestic credit growth; and 3) potential asset bubbles. I am often asked the questions – Is the BSP not worried about strong liquidity growth, which tipped 30 percent in August and September? Is the BSP not concerned with credit growth, which has been growing at double digit for over a year now? Does the BSP see an asset bubble? Let me consider each briefly. On liquidity growth – The uptick in liquidity growth will only be for a short transition period, as banks adjust to operational refinements to the access to the BSP’s SDA facility. With banks rebalancing portfolios to take these changes into consideration, banks could be expected to more expeditiously and effectively channel the SDA funds to the productive sectors. On credit growth – In our assessment, the banks have made very deliberate choices to continue to lend bulk of their funds to the relatively capital-intensive productive sectors of the economy, i.e., the manufacturing and real estate sectors. Our surveys show also that even as banks have increased their lending activities, they have not relaxed their lending standards. We are confident that given the current regulatory environment and the banks’ observed risk appetite, banks will continue to be discriminating in the projects they will fund. Indeed, there is room to grow further in this respect, given our ratio of credit to GDP remains below that of our peers in the region. On strong asset prices – We do not yet see asset bubbles forming. But developments bear watching. Our assessments show that demand for real property assets continues to be based on fundamentals, i.e., there is real demand from OFWs, expatriates, and the BPO sector. The demand is also indicative of the increase in the incomes of these sectors, as well as the growing young professional segment of the economy. The changing lifestyle of these workers has led to an increase in requirements for housing near the workplace during the week as they go home to the province only on weekends. The BSP has been “criticized” as fuelling a credit and asset bubble through low interest rates. I would say, this view is rather narrow. The BSP has reduced its policy rates to support growth to the extent the inflation outlook has allowed it to. In addition, we have deployed macroprudential measures during the early stages of strong capital inflows and even earlier to help tighten regulatory screws. These include concentration limits on real estate lending, limits on open FX positions, and higher risk weight for NDF transactions. The BSP is mindful that there are many moving parts to the economic equation, and we will always consider the financial stability implications of our policy actions. What is our game plan for dealing with these issues and their attendant risks? The country has sufficient policy space to deal with external shocks and their spillovers to the domestic economy. For one, the benign inflation environment affords the BSP the flexibility to fine-tune policy settings, as necessary, to support the domestic economy. The emerging estimates over the policy horizon continue to show within-target inflation. Therefore at this time, policy settings appear to continue to be appropriate. Even as inflation is within our comfort zones, we have it at the front burner. Our commitment to price stability is not only for its own sake but because this lays down the conditions for sustainable and balanced growth. BIS central bankers’ speeches At the same time, prudent fiscal management has enabled the NG to keep the fiscal deficit within target and on track with fiscal objectives.1 The NG has gained fiscal space that could be utilized to boost the economy, when necessary. In addition, the BSP has also enhanced its policy toolkit to include macroprudential measures that would address the financial stability pressures of external factors such as capital flows. The BSP will continue to maintain a flexible exchange rate policy that allows the market essentially to determine the exchange rate, but with scope for official action to ensure against excessive volatilities. We have also been actively pursuing banking sector reforms that will enhance the soundness of the system, engender healthy domestic competition while enabling our banks to level up against peers in the region. Alongside beefing up the banking sector, we will continue to broaden our efforts at financial literacy and inclusion. Conclusion: While the country is exposed to global headwinds, and some domestic storm surges, we are focused on our price and financial stability mandates. In the presence of global headwinds, we have the tools that would allow us to capitalize on domestic tailwinds. Warren Buffet once said, “You only find out who is swimming naked when the tide goes out”. Well, ladies and gentlemen, I am confident that when the tide does go out, the Philippines will be found well-clothed. Jan–Sept 2013 Programmed deficit is P144.5B vs. Actual deficit of P101.2B. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 9th Forum on Asian Insolvency Reform, Manila, 3 December 2013.
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Amando M Tetangco, Jr: Sustaining growth through insolvency reforms Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 9th Forum on Asian Insolvency Reform, Manila, 3 December 2013. * * * Distinguished resource persons and participants to this 9th Forum on Asian Insolvency Reform, special guests from the government and the private sectors, our co-organizers from the World Bank, the United Nations Commission on International Trade Law (UNCITRAL), and the International Association of Restructuring, Insolvency & Bankruptcy Professionals (INSOL) good morning and welcome to the Philippine International Convention Center. And to all our Forum participants from overseas, I welcome all of you to our country on behalf of the Bangko Sentral ng Pilipinas and other Philippine institutions represented here today. Ladies and the gentlemen, this is the first time the Philippines is hosting this Forum on Asian Insolvency Reform, and we are privileged to do so. We thank all of you for joining this important event where experienced policy makers, legal luminaries, thought leaders from the academe and experts from the government and private sectors come together to address the need to strengthen our insolvency systems as a means to foster and sustain growth and development in our constituencies. Indeed, weak insolvency systems have been identified as one of the key shortcomings of the Asian markets. The Asian financial crisis of 1997–1998 focused a glaring spotlight on this weakness. Unprecedented expansion fuelled speculation that eventually led to a collapse of institutions, compelling governments to step in and putting a drag on economies that took years to shake off. In its aftermath, many Asian jurisdictions carried out reforms to improve their insolvency mechanisms. However, most of the initiatives eventually ended up promoting the pace of restructuring rather than the quality of restructuring. This had unintended consequences. Primarily, the widespread financial restructuring that followed resulted in masking underlying long-term weaknesses that were not immediately given the attention these deserved. A decade later, what initially started as a home mortgage crisis that adversely affected or displaced homeowners in the US eventually developed into a global financial crisis. The lesson is clear: efficient and effective insolvency systems are necessary in ALL constituencies, no matter their level of economic development. Having a well-developed insolvency law is important for the development of an effective insolvency system. But this is not enough, as we have seen in countries that have modernized their laws. We need to ensure its proper, effective and timely implementation. It is equally important therefore to focus on developing strong institutions that would interpret and implement the laws. Combined, a well-developed insolvency law and strong institutional capabilities provide a good foundation for a smoothly functioning insolvency system. Among others, we need appropriate accounting and auditing standards; transparent and accountable court systems and better insolvency administrators; enhanced corporate governance in corporations and financial institutions; and effective regulatory oversight. In this connection ladies and gentlemen, we will highlight in this Forum the key stakeholder roles in insolvency reforms as part of the development of a strong institutional insolvency infrastructure. It is structured around two basic themes which are critical goals of modern and efficient insolvency systems: these are financial stability and responsible access to finance. BIS central bankers’ speeches In this Forum, therefore, discussions will cover the following: • the design of an optimum financial institutions resolution regime; • the development of modern insolvency systems for natural persons; • the determination of whether special treatment in insolvency for state-owned enterprises is warranted; • the on-going international dialogue concerning recovery and resolution framework for non-bank financial institutions; • loan reclassification and restructuring practices in various jurisdictions; • market conduct regulation; • consumer protection measures to mitigate the risks of consumer over-indebtedness and consumer insolvency; • treatment of SMEs in distress; • resolution proceedings for financial institutions; • the role of the court in insolvency proceedings; and • national updates on insolvency systems. Ladies and gentlemen. We have a full and rich agenda for this gathering. And with everyone here actively participating in the discussions, I am confident that this 9th Forum on Asian Insolvency Reform will be successful in helping us move toward a strong insolvency regime that promotes sustainable growth and development, financial stability and investor confidence. Finally, in the spirit of ensuring a healthy balance in everything that we do, I also invite our foreign delegates to take the time to get to know our people, our culture and our country better after our Forum. I hope you will have fond memories of your stay here. Thank you all and Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the ACI Phils-FMAP-IHAP-MART-NASBI-TOAP Joint General Assembly, Manila, 24 September 2013.
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Amando M Tetangco, Jr: Bangko Sentral ng Pilipinas’ policy directions in a challenging landscape Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the ACI Phils-FMAP-IHAP-MART-NASBI-TOAP Joint General Assembly, Manila, 24 September 2013. * * * Ladies and gentlemen, good evening. Let me begin by thanking the organizers of this event for the opportunity to speak before your membership. I sometimes have the chance to speak individually with a number of the associations and I always welcome those one-on-one exchanges, which are often very informative and insightful. But your Annual General Meeting is a clear upside for everyone. By holding a joint general assembly, we benefit from not having to repeat messages across several forums. We also benefit from coming together as a market with a commitment towards ensuring that we continue to build on the gains we have made so far. Introduction Let me take you to a quick game of WORD ASSOCIATION. Is everyone familiar with this game? For example, when I say BLUE. What comes to your mind? I debated whether I should use words or the Rorschach Test of inkblots. In the end, I concluded “words” would be easier for a crowd like this. It should be easier to find some kind of consensus in a room full of traders than it would among economists. [Two-handed economist.] Here goes: Uncertainty, Communication, Volatility, Normalization, P44.00, Maintain, Spread Narrowing, Market Infrastructure, Client Suitability, Client Protection, Real Growth, Inclusive Growth. As expected there are differing appreciations/meanings associated with words. Our associations are defined by where we are right now (in dealer parlance, your current “POSITION”) and what we’ve learned from the past (Ika nga nila – kailan, kung saan at gaano kalaki ang talo or panalo mo!) In other words, ladies in gentlemen, your associations and ultimately your behavior are defined by facts and perception. Tonight I’d like to lay down some “facts” before you. After which, I’ll briefly touch on some of the “risks” that could color our perception. My goal tonight is to help ensure that there is a convergence between your appreciation and the actual intent of the BSP’s policy thrust. A strong positive consonance between the two will certainly make our monetary and banking policies even more effective. In the end, our hope is that the resulting market conditions would create wealth and prosperity not only for you, as intermediaries, but also for the Filipino people, who are, after all, the BSP’s and your ultimate stakeholder. Fact 1: We have buffers against known vulnerabilities. First, our strong macrofundamentals yield solid growth and low inflation. GDP growth (left slide) BIS central bankers’ speeches • GDP grew robustly by 7.5 percent in Q2 2013, supported by strong household and government spending, as well as increased investments in capital formation on the expenditure side. These drivers of growth offset the negative contribution from exports. On the production side, GDP growth was led by the services sector. • 4th consecutive quarter of above 7 pct growth, 58th consecutive quarter of positive growth. Inflation (right slide) • Inflation pressures remain manageable. Headline inflation expected to fall within the 4.0 percent + 1.0 percentage point target range for 2013–2014 and the 3.0 percent + 1.0 percentage point target range for 2015. Second, we have a comfortable cushion of FX reserves which buffers the country against external shocks • • The country’s GIR stood at US$83.2 billion as of end-August 2013. – adequate to cover 12 months’ worth of imports of goods and payments of services and income; – equivalent to 8.0 times the country’s short-term external debt based on original maturity; – 5.5 times based on residual maturity. Comfortable margins from historical and international standards. Third, the BSP’s consultative style and clear effort to understand market behavior have helped us calibrate regulation appropriately. The graphs prove that this proactive approach to oversight of the banking sector contributes to healthy asset quality and credit growth. KB Lending (left slide) • The Philippine banking system has been exhibiting strong lending growth since 2011. As of July 2013, bank lending growth stood at 12.3 percent. • Growth in bank lending has been fueled by both supply and demand factors: – Supply side: encouraged by steady growth in domestic liquidity and improved asset quality – Demand side: explained by increased financing needs of businesses and households, plus Relatively low interest rates Attractive terms of financing offered by banks GNPL Ratio (right slide) • The Gross NPL (GNPL) ratio of U/KBs has broadly declined and remains low at 2.68 percent as of June 2013. While GNPL ratio has been on a downtrend, the Net NPL (NNPL) ratio has remained nearly constant. As of end-June 2013, the NNPL ratio was at 0.39 percent and the year-to-date ratios have been within a very narrow band between 0.43 percent and 0.45 percent. Fourth, the BSP has the surveillance tools to allow us to respond pre-emptively to emerging threats. A review of our indicators shows that none of these indicators have breached set critical thresholds. None of these are emitting signals that raise alarm bells. BIS central bankers’ speeches A. Indicators 1. The EWS on currency crisis utilizes a set of macroeconomic indicators to assess the probability of a currency crisis. Deviations of these variables from their normal threshold levels (estimated based on previous crises) are taken as warning signals of a possible crisis occurring within a specified time frame. 2. The Philippine Financial Stress Index (PFSI) measures the degree of stress in the financial system with the use of 10 high-frequency data on bonds, foreign exchange, equities markets in both external and domestic markets. A positive PFSI thus indicates that the level of financial stress is above the historical average, while a negative value signifies that the level of financial stress is below the historical average. 3. The BES Confidence Index (CI) presents the prospective outlook of the business sector on the macroeconomy. It depicts entrepreneurs’ views of the general business situation in the Philippine economy. 4. The Consumer Expectations Survey (CES) is a quarterly nationwide survey of a random sample of 5,000 households in the Philippines. Results of the CES provide advance indication of consumer sentiment for the current and next quarters and the year ahead as reflected in the overall CI, as well as in selected economic indicators. 5. Senior loan Officers Survey 6. Business Cycle Analysis provides an indication of on turning points of economic activity from an expansion to a contraction and vice versa. B. Committees 1. The Advisory Committee was established as an integral part of the institutional setting for inflation targeting. It is tasked to deliberate, discuss and make recommendations on monetary policy to the Monetary Board. Starting in 2012, the Committee will hold eight monetary policy meetings in a year. 2. The Financial Stability Committee (FSC) was created in September 2010. The FSC is tasked to determine the appropriate market vision and work plan to adequately mitigate the build-up of systemic risks in the financial system. 3. The BSP believes in a holistic and well-coordinated approach in pursuing its financial inclusion agenda. Toward this end, a high-level Inclusive Finance Steering Committee was constituted on 27 February 2012. The Committee provides direction and oversight in all BSP policies and programs related to financial inclusion. 4. BSP’s membership in EXTERNAL committees includes the FSF and FSCC, both of which broadly endeavor to strengthen and protect the country’s financial sector. C. Reports 1. The Inflation Report is published quarterly as part of the BSP’s efforts to improve the transparency of monetary policy under inflation targeting and to convey to the public the thinking and analysis behind the Monetary Board’s decisions on monetary policy. 2. The Quarterly Report on Economic and Financial Developments (Letter to the President) outlines the major developments in the real, monetary and fiscal sectors of the Philippine economy. 3. The Financial Stability Report is published two times a year. It provides a comprehensive assessment of the robustness as well as vulnerabilities of the domestic financial system against emerging economic and financial developments both in the global and domestic environment. Fact 2: We are reform-minded and have a strong reform agenda in place. BIS central bankers’ speeches We are geared up for the Basel 3 Capital Framework. This slide shows a comparison of the minimum requirements under our old Basel 2 framework, the Basel 3 framework of the BIS and our own requirements in 2014. You will see that our minimum CAR has not changed. It is still 10 pct. What has changed, however, is the composition of qualifying capital. From a requirement of minimum Tier 1 of 5 pct under Basel 2, we will now be requiring at least 6 pct of Common Equity Tier 1 (CET1). The minimum Tier 1 shall now be 7.5 pct. It's not on the slide, but we will also be requiring a 2.5 pct Capital Conservation Buffer, all of which must be CET1. In other words, ladies and gentlemen, what has changed is the composition of capital to improve its loss absorbing capacity. I have been asked why we appear to be in a hurry to implement Basel 3. It’s true we are ahead of the Basel timeframe of 2019, but we are actually behind our EMEAP counterparts. (Australia and NZ have implemented in full in 2013.) Are we being stricter than other jurisdictions? Not really, when you consider that our minimum CAR remains at 10 pct. I am also asked what’s the benefit of implementing this now instead of later. 1) To reduce regulatory uncertainty, 2) Minimal impact on banks, because banks are ready, 3) It’s a credit positive. In addition, we are gearing up for the rest of the reform Agenda under Basel 3. This slide gives a quick view of the packages of Basel 3 reforms in the pipeline What will come into play in Jan 2014 is part of the capital framework in Basel 3. The other major reforms will fall under Liquidity Standards and Systemic Risk and Interconnectedness. Experience has taught us that when it is crunch time, often what becomes the binding constraint is liquidity. Bank failures often result from a lack of liquidity. Moreover, this crisis has taught us that looking at individual firms is not sufficient. Interconnectedness is at times even more important. As you can see from this slide, the capital market reform agenda is a full topic by itself that deserves its own treatment. I’ll leave that as a topic for a future speech. Another part of our reform agenda covers the ongoing efforts towards regional integration. The BSP is supportive of the AEC 2015 and ABIF 2020 dialogue. The benefits of technology transfer and broadening of markets and market access are clear. But of course there are costs, including perhaps loss of market share and volatility if one thinks of the region as a zero sum game. We don’t believe this is so. The principles are clear. The key principles are: 1) acknowledgement of various initial conditions of member states, 2) agreement on milestones, and 3) agreement that compliance with milestones is state-dependent. At the end of the day, we see this as a window of opportunity. It’s a cooperative effort. Fact 3: There is a strong show of faith from third-party recognition. The stable macrofundamentals and sound banking system have not gone unnoticed. Our investment grade credit rating clearly reflects these. In addition, the institutionalization of our governance reforms continues to be reflected in improvements in our international competitiveness. Based on the results of the Global Competitiveness Ranking of the World Economic Forum, marked improvements were noted in the areas of management of our fiscal position, financial market regulation, and a turnaround in the area of labor market efficiency. Clearly, ladies and gentlemen, the BSP has its eyes on the ball and its ears to the ground. Importantly, we have policy space to respond to the brewing pressures we observe. Often times, however, it is in the perception of the brewing pressures where the BSP and the market could have a conceptual difference. BIS central bankers’ speeches Let me just cite three risks that we see as possible points of pressure: 1) What comes after the Fed Action (or No Action)? 2) Liquidity and Credit Growth post IMA – Are there inflationary and financial Stability concerns? 3) Should we be concerned with the Rest of the World? Risk 1: How prepared are we for a Fed Tapering? The Fed taper is an issue that is quite familiar to the market. And I am sure you have read with critical interest all the analyses by eminent Fed watchers of the recent Fed pronouncements. I don’t want to stir that pot of confusion and I also don’t want to comment on what the Fed should or shouldn’t have done. But one thing I know is clear, and I can attest to this: the BSP is ready to respond to “excessive” market exuberance or disappointment (whichever case will apply) to any surprise action (or the lack thereof) of the Fed. I know I don’t need to remind you, that we are watching market conduct very carefully, closely, and critically. Should market reaction/sentiment lead to a loss of overall business confidence or a disanchoring of inflation expectations, the BSP has the room to adjust policy interest rates or other monetary policy tools, as appropriate. Should market action lead to instability in the non-financial (or the real asset) markets, we can further tweak existing macroprudential measures or release new ones, as appropriate to target problem asset areas. In other words, ladies and gentlemen, our policy actions will always be guided by our price and financial stability objectives. Barring any unforeseen threats, I think we have room to keep policy rates steady for the balance of the year. Risk 2: Should domestic liquidity growth be a concern? And the flip-side of this, should we be concerned with credit growth? Our assessment is that both liquidity and credit are rising consistent with the growth in the economy and financial deepening. Strong liquidity and credit growth feeds the economy’s growth potential. Structural reform milestones that began in the early 1990s and 2000s and continue to gather stronger pace today have translated to productivity gains over time, as reflected in higher potential output growth. If the current investment-led growth and institutional reforms are sustained, a 5 to 7 percent potential output growth for the medium-term is highly feasible. There is sufficient liquidity to fuel this, and banks are able to intermediate these funds safely. You could also ask should the market be concerned post-SDA IMA? If the market concern is on the headline liquidity growth number of over 30 percent, my answer would be no. The BSP has always anticipated there will be some liquidity growth after the funds under SDA- IMA are “released”. That was, after all, the game plan. We fine-tuned the SDA operations so the funds could find more productive homes in industry, manufacturing and other sectors of the economy. In addition, our anticipation is that the period of high liquidity growth coming from SDA-IMA will not persist. If the concern is whether the liquidity will fuel an asset bubble, the answer again is no. BIS central bankers’ speeches And I think you, who know your SDA clients well, will agree with me on this one. The profile of an SDA investor is very different from the profile of a real estate investor. Finally, Risk 3: The Rest of the World? Because of 1) trade ties with, 2) workers deployed to, and 3) tourists expected from Europe, Japan, China, we watch these countries with great interest. At the moment, the consensus seems to be that 1) Europe can possibly keep its growth rate level, 2) Japan will calibrate its stimulus, learning from the experience of the Fed on the problems of exit from unconventional monetary policy, and 3) China will continue to grow at a steadier pace. We are monitoring these economies, but we are also mindful that our own domestic demand conditions, particularly consumption and capital formation, remain quite strong. Concluding remarks Ladies and gentlemen, I’ve laid out for you the “facts” and the “perceived risks” – three buffers against three vulnerabilities. I know I’ve gone thru a lot of information. I am not worried though because I know dealers are experts at multi-tasking, and are able to filter thru a lot of information quickly! My bottom line is this: the country has what it takes to move forward amidst the uncertainty in the short-term, because we have put up buffers. I know you have heard this said over and over and over but ladies and gentlemen, this is not a trivial matter. It is the very presence of these buffers that has enabled you to enjoy the positions that you are currently in. We are where we are because we did our homework. To you, the vital players in the market, my message is – Do NOT get stuck in the short-term. Just because we have the buffers, doesn’t mean it should be “business as usual” You should always look to enlarge your business opportunities, and not just go for the quick trade. I encourage you to think “long-term”. I know LONG-TERM TRADER (unless natatalo yung position) is an oxymoron. But think about it, to survive in this business, you NEED to think long-term. The BSP has a full market reform agenda. The agenda, as you will learn quickly enough, is not a mechanical duplication of the international reforms. Our agenda is a calibrated adoption of the principles of the international agenda to suit our idiosyncratic requirements as an economy. It is also informed by lessons learned from years of dealing with earlier crises. The BSP needs you, the market, to partner with us, in the full development of this agenda, and in its eventual implementation. Reform will work only if we work on it together. I avoided using “ink blots” at the beginning of my remarks. But I think for my conclusion, I shall put one up. This picture is the word “CRISIS”, written in Chinese. It is said that one character represents danger, the other opportunity. I am not an expert, but I don’t think the Chinese meant to say that “Opportunity plus Danger equals Crisis”. Although to an undisciplined trader, working in a dealing room without the appropriate controls, he might see an “OPPORTUNITY” which could then bring “DANGER “to the firm, and result in CRISIS. As a true market, we don’t ever want to find ourselves in a “FIX” like this. The BSP is always ready to sanction such activities to the full extent of regulations and the law. But I digress, what I hope we all will come away with from this picture is this: that with every crisis comes an opportunity to grow. In the Philippines, we can achieve that if we look beyond the short-term volatilities, and consider the bigger picture of what lies ahead. I hope I can count on all of you, as we work from the same page, of the same game plan. Thank you, and have a pleasant evening. BIS central bankers’ speeches BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2013 Citi Microentrepreneurship Awards (CMA) Awarding Ceremonies, Manila, 3 December 2013.
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Amando M Tetangco, Jr: Empowering entrepreneurs through responsive microfinance programs Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2013 Citi Microentrepreneurship Awards (CMA) Awarding Ceremonies, Manila, 3 December 2013. * * * Magandang hapon sa inyong lahat! We are gathered once again to celebrate a happy event: the awarding of our top achievers in the Philippine microfinance sector. I can tell you that it took a lot of work: we had to go through evaluation, discussions and validation. But in the end, we are very pleased that we continue to see many inspiring success stories of Filipino microentrepreneurs. Let us therefore acknowledge all those involved in this Citi Microentrepreneurship Award: Citi Philippines represented by Country Officer Batara Sianturi; Microfinance Council of the Philippines (MCPI) represented by Chairman Mila Banker; the officers and staff of the Bangko Sentral ng Pilipinas; and finally, our amazing and committed members of the board of judges under the National Selection Committee which include: Mr. Batara Sianturi, Mr. Antonino Alindogan, Jr. and Ms. Marixi Rufino-Prieto. Atty Felipe Gozon is represented by Ms. Teresita Pacis of GMA. We also acknowledge the presence of Mr. Michael Zink, Head of ASEAN and Singapore Country Officer of Citi, as well as MBM Felipe Medalla, Adviser to the BSP Microfinance Committee. And most of all, we congratulate all the finalists and all the winners of the 2013 Citi Microentrepreneurship Awards for continuing to surprise us with your creativity, your discipline, and your humility even as you achieve your goals in the face of many challenges that come your way. Congratulations po sa inyong lahat. Through you, we are reassured again and again that microfinance is a viable option for entrepreneurial Pinoys. Eleven years na po tayo and counting. Our family of awardees keep growing and you continue to make us proud. Ipinagma-malaki namin kayo. Dahil po dito, we continue to find ways to enhance our annual awards program. This year for instance, we are giving a Special Award for Microenterprise Leadership. This will be awarded to a previous winner whose success continues to bring it to another level of growth and expansion. Ladies and gentlemen. Seeing our microentrepreneurs graduate into the next level as a small enterprise is a milestone we look forward to. In this connection, we have developed support programs to make this happen. Among others, the regulation of the Bangko Sentral ng Pilipinas on “microfinance plus” increases the ceiling of microfinance loans from one hundred fifty thousand (P150,000.00) to three hundred thousand pesos (P300,000.00) to support further growth that will employ more people, create wealth, and contribute to broad-based, inclusive growth. As it is, we are already seeing positive results from providing microentrepreneurs access to finance. As of end-June 2013, 186 banks with microfinance operations were serving over one million clients with combined outstanding loans of 8 billion pesos. And these microentrepreneurs have become net savers… with consolidated bank deposits of 8.9 billion pesos, an amount that easily surpasses their total loan. It is clear, these microentrepreneurs are on the road to attaining a certain level of financial independence. BIS central bankers’ speeches We also continue to implement programs to provide more Filipinos access to financial services that would empower people to improve their lives. For instance, there are now 391 micro-banking offices that provide a broad range of financial services in new areas. In addition, a retail electronic payments system through e-money and mobile banking is in place with 30 e-money issuers working alongside a network of more than 12,000 cash-in and cash-out agents. Indeed, we continue to post gains in our program to develop a more inclusive financial system that will promote inclusive growth. Ladies and gentlemen. This year’s CMA is taking place on the heels of super typhoon Yolanda that devastated parts of Leyte, Samar and other islands in the Visayas. Some of our previous CMA winners were not spared. Our regional winners from Bantayan and Malaspacua Islands in Cebu reported that the typhoon wiped out everything they owned. Also affected are our previous winners living in Iloilo, Negros and Leyte. Destructive natural calamities underscore the importance of having adequate insurance protection especially for the most vulnerable. In particular, microinsurance can protect the hard-earned gains of our microentrepreneurs. For this reason, starting in 2011, the prizes of CMA winners include microinsurance. Indeed, challenging times call for stronger partnerships. And to show our support and solidarity to our microentrepreneurs, we conducted here at the Bangko Sentral last week a three-day event which we called Microfinance Partnerships during Challenging Times. Fellow advocates of microfinance, let us continue to enhance and strengthen our partnerships in support of our microentrepreneurs who have improved the lives of their families and generated employment for millions of Filipinos. It is also noteworthy that our microentrepreneurs are also known for their generosity in helping other would-be entrepreneurs. They would readily share their stories and mentor others. Last month for instance, the Bangko Sentral’s financial education lectures for 1,700 teachers and principals of the Department of Education in Kabankalan, Negros Occidental was made more memorable and inspiring by the sharing of local microentrepreneurs from Negros. Indeed, our microentrepreneurs have developed a culture of sharing. In words and in deeds, they inspire others who aspire to better their lives through microfinance. Across our country, our microentrepreneurs prove that humble beginnings can lead to success beyond their dreams and sometimes even beyond our borders. Once again, congratulations to our CMA winners this year. Mabuhay ang microfinance! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Meeting of the Rotary Club of Manila and the Rotary Club of Makati-Forbes Park, Manila, 9 January 2014.
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Amando M Tetangco, Jr: Continuing growth amidst recurrent risks and uncertainty Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Meeting of the Rotary Club of Manila and the Rotary Club of Makati-Forbes Park, Manila, 9 January 2014. * * * Rotary Club of Manila (RCM) President Rudy Bediones, Rotary Club of Forbes Park (RCFP) President Ruben Torres, other officers and members of RCM and RCFP, ladies and gentlemen, good afternoon. Thank you for the invitation to be part of the Joint Meeting of the Rotary Club of Manila and the Rotary Club of Forbes Park. It’s always a privilege to be included in your New Year tradition and your celebration of the Rotary Awareness Month, which I understand is commemorated in all Rotary Clubs across the globe. Today isn’t really the first Thursday of the year, which is when you normally invite me to speak. But January 2 would have been too close to New Year’s day, and most of you would still have been in the holiday mood. Today, I think everyone is on rev mode and ready to tackle the challenges of 2014. Quite a few things happened in 2013 that have elevated the potential challenges of 2014. Of these, the one most felt by the country is the trilogy of natural and man-made events – the earthquake in Bohol and Cebu, the armed conflict in Zamboanga and from Yolanda – which we experienced in the second half of 2013. While these three events literally changed the landscape of the country, I think these events also, in the process, showed the best in the Filipino – our resilience and how we are at our very best when we work together. In this spirit of working together, the BSP also did its part to help ease the impact of Yolanda by putting in place regulatory relief for banks in the affected areas, so they could extend the same to their customers. Among others, the temporary relief measures include the following: For all banks Allowing banks to provide financial assistance to their officers and employees who were affected by the calamity including those types of assistance that may not be within the scope of the existing BSP-approved Fringe Benefits Program. For thrift banks/rural banks/cooperative banks: Excluding existing loans of borrowers in affected areas from the computation of past due ratios provided these are restructured or given relief; and Reducing the 5-percent general loan-loss provision to 1 percent for restructured loans of borrowers in the affected areas. For all rediscounting banks Granting of a 60-day grace period to settle the outstanding rediscounting obligations as of 8 November 2013 with the BSP of all rediscounting banks in the affected areas; and Allowing banks to restructure with the BSP, on a case-to-case basis, the outstanding rediscounted loans of borrowers affected by the calamity. For quite a few other reasons, besides the calamities, 2013 has been described as a year of challenges, due to: BIS central bankers’ speeches 1. Failing to reach a consensus on a fiscal legislation, the US government shut down for several days. 2. Eurozone recovery remained weak and uneven across the member-countries. 3. China had to deal with growing shadow banking and rapid credit growth. 4. Market anticipation of the Fed’s policies added uncertainty in the financial markets and led to greater volatility of capital flows. Nonetheless, the Philippine economy was able to ride out turbulence in the global financial markets due to significant sources of strength. Notwithstanding the slowdown in global economic growth, the Philippine economy continued to have vibrant growth. For the first three quarters, GDP increased by 7.4 percent, higher than the 6.7 percent in the same period in 2012. Growth was boosted by the strong performance of services, manufacturing and construction. On the expenditure side growth came mainly from consumer and public spending buttressed by increased investments in Fixed Capital; exports contributed in the third quarter. This was supported by a benign inflation environment. The full-year 2013 average inflation rate of 3.0 percent was at the low end of the Government’s inflation target range of 3–5 percent for 2013. This is the fifth consecutive year that the country has been able to keep inflation within the Government’s target inflation range. Moreover, the Philippines has substantial cushions to ride out potential turbulence in the global financial markets: Our gross international reserves reached US$83.7 billion as of end-December 2013. – can adequately cover 12.1 months’ worth of imports of goods and payments of services and income – equivalent to 8.4 times the country’s short-term external debt based on original maturity and 5.8 times based on residual maturity We enjoy a current account surplus owing to structural sources – BOP position yielded a surplus of US$4.7 billion for January-November 2013. The current account surplus was mainly on account of increased net receipts of primary and secondary income and in other services accounts. Our banking system is stable and strong with capital adequacy ratios well above international standards. As of end-June 2013, the capital adequacy ratio (CAR) of UK/Bs stood at 18 percent on solo and 19.3 percent on consolidated bases. External debt dynamics are favorable – external debt-to-GDP ratio decreased to 21.9 percent in the third quarter (2013) from 25.6 percent in September 2012 and 24.1 in December 2012. Moreover, more than four-fifths of our external debt has medium- to long-term maturities.1 The Philippines’ strong economic performance has been validated internationally. 1) Credit Rating Upgrades. The year 2013 saw the Philippines achieve investment grade credit rating – not just from one, but from all the three major credit rating agencies. These rating agencies have cited the disciplined fiscal management with the declining reliance on foreign currency debt, strong external position, and low and stable inflation levels as bases for the score. In a recent report, Moody’s maintained its positive outlook on the Philippine banking system. In fact, in that report, Moody’s stated that the Philippines’ banking sector is the only one in the Asia-Pacific region which they have given a “positive” outlook. Average Maturity: Public Sector: 20.1 years Private Sector: 9.8. BIS central bankers’ speeches 2) The IMF. An IMF mission report in September 2013 cited that the country’s strong fundamentals would enable it to deal with any capital outflows when the U.S. Federal Reserve cuts its stimulus program. 3) Doing Business 2014. In the latest World Bank and International Finance Corporation report (October 2013), the Philippines was ranked among the top 10 countries that made the biggest improvement in business regulation. The report took note of the government’s regulatory reforms in three areas: introduction of a fully operational online tax filing and payment system, simplified occupancy clearances for construction, and new regulations that guarantee borrowers’ right to access credit information. While most of the sources of risks have dissipated, in particular with clearer forward guidance from the US Federal Reserve (Fed), resolution efforts in Eurozone gaining broad agreement, and accommodative policies in Japan bearing fruit, risks still remain. First, due to these lingering concerns, global economic growth remains subdued. As a whole, the world economy is projected to have higher growth in 2014 but as the IMF puts it, global growth is “in low gear.” Of course, just yesterday, the IMF said it would raise its economic growth forecast. According to the IMF’s World Economic Report of October 2013, advanced economies are showing signs of gradual, but steady, growth. Although emerging market economies, particularly those in Asia, continue to do better than advanced economies, China is seen to have slowing growth. In addition, ASEAN-5 countries’ projected growth rates, while projected to be higher for 2014 than in 2013, these rates are still lower than those registered in 2012.2 Second, market reaction to the Fed’s actions. The Fed has consistently pointed out that their decisions on these matters will be dependent on incoming data, particularly US employment data. The Federal Reserve has announced a reduction of its monthly bond purchases to US$75 billion from US$ 85 billion as the start of its exit from the stimulus measures, beginning January this year. Accompanying the reduction is the Fed’s commitment to maintain accommodative policy. The withdrawal of the stimulus (including QE tapering) could impact on global markets in a number of ways: On one hand, policy normalization in the US could mean that the major driver of the global economy – and trade partner to many EMEs – is indeed seeing growth renewal, which would in turn be positive for EMEs, including the Philippines. On the other hand, as markets expect interest normalization, this could lead to global portfolio rebalancing. Should this happen, a weakening of capital flows to or even a pull-out of capital from emerging markets could ensue. And, the financial stability implications of global funds movements could prove stressful for less resilient economies – those with weak external positions and those with less developed financial systems. For the Philippines, the Fed taper may lead to greater volatility in domestic financial markets. But given sound fundamentals, we expect the price movements to be broadly manageable. Across the other part of the globe, efforts to improve Europe’s debt position as well as the discussion towards completing the EU banking union continue. The full banking union reform deal includes a single supervisory mechanism, a single resolution mechanism and common deposit insurance. The single supervisor has been approved by the EU Parliament, and the ECB will perform this role. The single resolution mechanism has received broad agreement Emerging Asia includes China, India, and the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam). BIS central bankers’ speeches at the finance and EU leaders level, but this is still for ratification in the EU Parliament in May. Market volatility may heighten as markets carefully watch how the issues will be resolved. In the face of these risks, the BSP has a menu of options that could be deployed: We have standing facilities to ensure adequate domestic liquidity for banks should funding sources dry up. We would maintain a strategic presence in the FX market, while keeping the value of the exchange rate essentially market-determined. We could implement targeted macroprudential measures. In addition: 1. Timely and clear communication with market players would quell anxieties. 2. The careful and regular surveillance of risks would allow for prompt and appropriate responses. 3. In the event of liquidity problems, there are regional financial arrangements that the Philippines can use. In light of all these, the outlook on Philippine growth and inflation remains favorable. The economy is expected to grow between 6.5 to 7.5 percent in 2014, despite the chain of untoward incidents. Recovery and rehabilitation efforts are expected to bolster growth. For the medium-term, growth would be supported by stronger performance from the construction, manufacturing, business process outsourcing and private services. The country’s attainment of investment grade status may attract foreign direct investments that would in turn generate jobs. Inflation is expected to remain within the target range over the policy horizon. In 2014, inflation is seen to be slightly higher than the mid-point of the target range of 3–5 percent, due mainly to higher food prices and possible increases in utility rates but comfortably within the target range. Moving forward, the BSP will remain committed to staying the course toward sustained growth, while firmly adhering to its mandate of safeguarding price stability and ensuring the financial system remains resilient. On monetary policy, we will ensure that liquidity remains adequate to support economic growth with manageable inflation. On financial sector policy, the BSP commits to maintain the stability of the financial system by continuing to craft banking regulations that are responsive, consistent with best practice and in line with the international market reform agenda. On the external front, the BSP remains supportive of policies that will help cushion the economy from external shocks. We will continue to maintain a marketdetermined exchange rate and a comfortable level of reserves. The BSP will also continue to promote external debt sustainability by keeping the country’s outstanding external debt manageable and within the economy’s capacity to service its debt in an orderly manner. We will continue to monitor developments to keep ahead of emerging risks. Before I conclude, I would like to spend a couple of minutes on an advocacy of the BSP that we believe helps to translate the positive macroeconomic developments into the overarching goal of inclusive growth. Here, I refer to efforts towards financial inclusion that are within the area of the BSP. This advocacy is of particular importance now, in light of recent calamities, BIS central bankers’ speeches as these calamities have resulted in a number of families losing their savings and needing vital access to financial services to rebuild their lives. The BSP financial inclusion framework is built on three areas: 1. broad access to appropriate credit at reasonable rates through responsible and proportionate regulation that encourages market innovation, 2. timely and relevant economic and financial learning, and 3. well-founded financial consumer protection. How have we impacted the macroeconomy? Let me cite some examples: First, financial access. Our policies on simplified or scaled down branches called microbanking offices (MBOs) have enabled banks to have a presence in areas that were previously unbanked. There are now 50 municipalities from 37 in 2011, an increase of 35 pct, that are served by MBOs alone. We have also continued to leverage off mobile technology by enabling alternative financial service providers (FSPs) as effective touch points to banking services. FSPs, including pawnshops, remittance and e-money agents, which tend to be available even in areas with small population and have high incidence of poverty, now total over 46,200 from about 38,400 in 2011, or a growth rate of 20pct. If we consider only banks (including MBOs), thirty-seven pct of municipalities would be without such presence. But if we now include FSPs, only 13.2 pct of municipalities would not have any form of access to financial services. Second, financial education. Since we revitalized this program in 2008 we have conducted numerous domestic and international roadshows and financial expos. Our international roadshows have targeted cities where most of our OFWs are deployed, including those in Asia, Europe and the United States. We have a number of advocacy programs, including the Credit Surety Fund, the savings programs for the youth, i.e., Kiddie Savings Program, Bamboo to Bangko, Tulong Barya Para sa Eskwela, among others. This year, we plan to leverage on this strength to reach out to more sectors and regions across the country. Finally, financial consumer protection. We have strengthened our financial consumer protection efforts by creating a consumer redress mechanism within the BSP. We are also in the final stages of completing a consumer protection framework that will formally rate the CP efforts of banks, and provide specific guidance on how banks can scale their efforts up. We are strong advocates of financial inclusion because in this way, we are able to empower our citizens, and therewith make them more effective partners in nation-building. Concluding remarks As I mentioned at the beginning of my remarks, the recent natural calamities once again proved the Filipino is resilient thru the Bayanihan spirit which we saw work so excellently during our natural calamities. I know Rotarians know this very well… for you follow your motto is “service above self.” The painting by national artist Botong Francisco illustrates this point quite exquisitely. As we appreciate this masterpiece, we also appreciate each stroke of the brush that was skillfully made… how deliberate Botong was in building one brush stroke over the other to bring to life what he had imagined in his mind to do. Think about what we have done in 2013… And then imagine, what more we can do in 2014, if we continue to work together with the same purpose and goal. BIS central bankers’ speeches The BSP, national and local governments, and you, the private sector – we are all called to step forward and do our share in the rebuilding, not merely houses or even communities, but precious lives of our people. I salute you, ladies and gentlemen of the Rotary Club of Manila and the Rotary Club of Forbes Park, for your service to the Filipino people. May your productive work continue this and the coming years. Thank you very much. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Financial Stability Co-ordination Council (FSCC) MOA signing, Manila, 29 January 2014.
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Amando M Tetangco, Jr: The pursuit of financial stability – a daunting but necessary prudential agenda Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Financial Stability Co-ordination Council (FSCC) MOA signing, Manila, 29 January 2014. * * * Securities and Exchange Commission Chairperson Teresita Herbosa, Insurance Commissioner Emmanuel Dooc, Philippine Deposit Insurance Corporation President Valentin Araneta, National Treasurer Rosalia De Leon, representing DoF Secretary Cesar Purisima, members of the Monetary Board, our partners from the various government institutions, my colleagues from the Bangko Sentral ng Pilipinas, members of the media, ladies and gentlemen, good morning. The BSP is honored to host this signing of the Memorandum of Agreement formalizing the creation of the Financial Stability Coordination Council. Today, the five agencies represented here – the DoF, SEC, IC, PDIC, and the BSP – publicly affirm our collective resolve to pursue financial stability as the norm for prudential policy. With that resolve comes the commitment to identify, monitor and mitigate the build-up of system-wide financial risks and deploy as necessary so-called macroprudential measures. The bigger picture This is certainly not the first time that we have publicly mentioned financial stability and our desire to make it the pillar of financial market oversight. However, financial stability is prone to being misunderstood, if not under-appreciated. Perhaps, it is the sheer enormity of the tasks ahead that creates confusion. Or perhaps, it is the absence of a holistic and formalized textbook framework that makes the journey to financial stability and maintaining it quite daunting. The financial stability agenda talks of co-mingled risks, and systemic consequences. This is not the type of language or focus that we have been used to in organizing our prudential oversight of our respective segments of the financial market. Yet, the dislocation that comes with financial instability has been very evident for everyone to see and, unfortunately, for many jurisdictions to experience. From the breakdown of Wall Street to the difficulties in the Eurozone and general weaknesses in consumer protection, we saw for ourselves how previously unmonitored and unrecognized risks could create system-wide consequences that are a burden borne ultimately by financial consumers. The global reform agenda is thus designed precisely to prevent the recurrence of dislocations whose magnitudes are felt worldwide. The Basel 3 Accord, Financial Market Infrastructures, systemically important financial institutions, corporate leverage, liquidity, shadow banking, large exposures, interconnectedness, managing capital flows, OTC derivatives, consumer protection. These are but some of the components of the evolving global reform agenda. The change institutionalized by each one of these is structured precisely to better achieve financial stability. The significance of the MoA This is why today’s event is nothing short of a milestone. BIS central bankers’ speeches The five institutions represented here publicly recognize that financial stability matters. We appreciate that the task is extensive and challenging but we are driven by our common commitment to nurturing the gains that we have already achieved by recognizing the intricate nature of financial risks. This healthy respect for financial risks balances the rewards that we can reasonably expect from such exposures as against the need to remain prudent in taking on acceptable risks. We likewise fully appreciate that each of the institutions will continue to oversee their respective markets and/or pursue their respective mandates. But the financial system is certainly much more than the collective sum of the parts. This synergy brings forth the risks and rewards that are at the heart of financial stability. The progress thus far Ladies and gentlemen, we mark a historic day for the financial system by signing a document that binds five financial authorities towards pursuing the financial stability agenda. The truth is that our work on financial stability does not only start today. The various committees have invested their time and effort for over a year now. They have been evaluating global, regional, local developments, with the end in view of pro-actively positioning our financial market for evolving challenges. For the silent but diligent work that the five workstreams, our steering committee and the administrative team have put forward to-date, we in the Executive Committee sincerely thank you. We recognize the enormous challenge before you and as a small token of our appreciation of your efforts, may I call on everyone to give these men and women a hearty round of applause. With a collective commitment and a shared responsibility to implement the financial stability agenda, I am sure that we will be able to rise to this challenge. Thank you very much and I wish you all a pleasant day. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Security Bank's Annual Economic Forum, Makati, 28 February 2014.
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Amando M Tetangco, Jr: What lies ahead? Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Security Bank’s Annual Economic Forum, Makati, 28 February 2014. * * * Members of the Board and management of Security Bank, distinguished guests, ladies and gentlemen. What lies ahead? This is a question that unfortunately not too many people ask themselves enough before embarking on an endeavour. Some barrel on to action, full speed and then do not ever look back. And yet there are some, like those of you here today, who ask listen and weigh. Then those who ask, fall under two categories those who stop and after listening turn back and never move ahead. And then there are those who, having appreciated the consequences of possible actions, move forward nevertheless, while being ready to make adjustments as needed. I hope that those present today, would fall in this second category because it is only from among those in the ranks of “forward movers” that the economy can leap ahead. In the case of the BSP, we do ask this question of “what lies ahead” many, many times, at every turn and even when we have already acted, we ask again. What lies ahead? The BSP surveys the global environment, I am glad that you have a speaker on this topic. We survey domestic conditions, and we consider the general public and those factors that affect overall welfare. What do we see so far? And I will be brief here. • We see inflation inching up, but still remaining manageable over the policy horizon. • We see credit continuing to go to the productive sectors of the economy, particularly to sectors with strong forward linkages to other sectors • We see improvement in the country’s potential output with increased production efficiency. • We see our external payments dynamics continuing to be favorable, with ample international reserves, and current account surpluses driven by structural flows including OF remittances, BPO revenues, and tourism receipts. • We see the banking system remaining well-capitalized and able to withstand significant external shocks that could result from global interest rate normalization. • We see ample fiscal headroom for social/economic infrastructure. • There is policy space on the monetary side, albeit slightly narrower than last year, but the bottom line is. There is room to maneuver for us to address the risks that lie ahead. While we see the sound macroeconomic fundamentals continuing, we see some risks, particularly on the global front that could raise market volatility in the near-term: 1. We see that the Fed will continue to drive global market sentiment which may, depending on how market interprets the Fed’s forward guidance, translate to market volatility and BIS central bankers’ speeches 2. We see growth becoming uneven across Asia which could impact on intra-Asian trade capital outflows and then market volatility. However, while these could lead to near-term heightened financial market volatility, these could also translate to an increase in global growth as economic powers rebalance. These, in the medium term, would be positive for Philippine growth prospects. Because we have constantly asked ourselves “What lies ahead” and have acted accordingly, we now find the Philippine economy with buffers to meet these challenges. I will be remiss if I conclude my brief remarks today without speaking about our host, Security Bank. It is obvious that Security Bank has also been asking the question – What lies ahead? And their response to this question is a focus on retail banking. Indeed, going back full circle to the retail customer is commendable. It is my hope and expectation, however, that as you execute your retail banking strategy, you will, in parallel, strengthen your consumer protection and education efforts. Growing a retail base that is well-informed will help us move closer to our goal of economic growth that is truly inclusive. Good morning and thank you for your attention. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippines Investment Forum, organised by Euromoney, Manila, 18 February 2014.
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Amando M Tetangco, Jr: A responsive capital market – a step on the road beyond investment grade Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippines Investment Forum, organised by Euromoney, Manila, 18 February 2014. * * * I am pleased to join you for this Philippines Investment Forum. Events such as this organized by Euromoney bring together the main stakeholders of our economy. Through the various panel sessions, we are able to hear and exchange views, giving us a good sense of where the market pulse lies. It was certainly a privilege for all of us to have listened to no less than the President deliver the official Keynote Address. This shows you how serious the country’s policy makers are in reaching out to you who are among our economy’s main stakeholders. Your work is central in enabling the public sector to effect true, broad-based and lasting change that supports the country’s continued development. The President’s address and the session before this one laid the groundwork for us to set our sights “Beyond Investment Grade”. Investment grade – how did we get here? Indeed, we have seen that the road to Investment Grade was not easy... it was long and marked by reforms. Reforms which include, first, a critical diversification of our growth sources and drivers to exploit and take advantage of our favourable demographics... Second, a purposeful shoring up of our external position and strengthening of our banking system… knowing that a robust external position and strong bank balance sheets would allow us to ride out the turbulence from external financial shocks... And third, a resolute management of our fiscal house by steadily reducing our external debt, maintaining a healthy government debt profile, and firmly committing to reforms that would allow us to meet our intergenerational needs. Investment grade – the near-term challenges Our current operating environment continues to be very sensitive to global developments. Of late, we have witnessed what some analysts called the “rout” in Emerging Markets, following uncertainty in the next steps of the Fed. Since the beginning of the year, investors have indiscriminately sold EM debt, and the Philippines was not spared. We saw the peso decline, the stock market index drop and government securities yields rise in the secondary market. Alongside the fear of contagion from EM sell-offs, some analysts are also beginning to wonder if the Philippines isn’t already overheating. Let me address the overheating concern first. Looking behind the numbers, current trends in liquidity and credit growth do not appear to be worrisome. The strong growth in domestic liquidity has been due mainly to the operational adjustments in the BSP’s Special Deposit Account (SDA) facility which were completed in November 2013. This rapid growth is therefore seen as only temporary and is not expected to translate into significant inflationary pressures or asset price misalignments. The growth in bank credit, on the other hand, continues to be channelled to the productive sectors of the economy. The higher bank lending growth rates are reflective of the economy’s higher growth trajectory and increased financial deepening. In addition, there is fundamental support for the growth in the real estate sector with real demand from end-users including from the growing young professionals and BIS central bankers’ speeches the BPO sector. Finally, data from Colliers International Philippines Research (Colliers) as of Q4 2013 show that property prices are not significantly out of line with their long-term trends. As for the rout in the financial markets, I would say, some calm has returned with the market’s better appreciation of the forward guidance from the Fed. Our view has always been that after the initial nervousness, markets would regain their bearing and distinguish between economies with good fundamentals (such as the Philippines) and those with more structural concerns. In the case of the Philippines, we have actually observed some funds returning to our financial markets. At the beginning of each new calendar year or each Chinese new year, I am often asked for my “fearless” economic forecasts. There are those who ask me with such earnestness that I sometimes feel they think I have an infallible crystal ball! Friends, I don’t have one. And neither am I one to pursue luck. Although before this forum, someone told me that in the year of the Chinese Wooden Horse, the numbers 2, 3 and 7 are considered lucky… Interestingly, today is the 2nd day of the 3rd week of the Year of the Horse and 7th full week of the year 2014! What a coincidence, right? Thankfully, we don’t have to leave things to coincidences. We can instead have the confidence to weather hiccups in market sentiment by planning judiciously and working earnestly. More specifically, the gains we have achieved on the run up to investment grade have taken root. Above-trend growth, low and stable inflation within target, current account surpluses funded by structural inflows, fx reserves that are more than adequate against traditional standards, a sound banking system, banking sector regulations that are line with global best practices and comprehensive fiscal consolidation. These are all expected to continue… and that, ladies and gentlemen, is not wishful thinking… neither is it a matter of luck… Because the reform agenda and the policy focus to support these are clearly in place. The Philippines’ track record has shown that even in good times, reforms have been sustained. Beyond investment grade: does it matter? But is going beyond investment grade a goal we should pursue? Clearly, going beyond investment grade of itself would truly matter if it translates to real investments. For our ultimate stakeholder, investment-led economic transformation is necessary not just for sustainable growth, but also to develop a competitive middle-class group that further boosts our domestic demand. Recognizing this, the NG has accelerated the bidding and awarding of crucial infrastructure projects and raised public investment. In addition, the government’s targeted social spending, especially in education, is expected to yield broader growth in the long run by improving our human capital. These initiatives should help both our investment to GDP ratio and our national income to continue their upward trend. Beyond investment grade: role of capital markets To move beyond investment grade requires deliberate steps, just as we saw on the road to investment grade. One of the critical steps on this road is creating a thriving capital market in an environment of stable prices. The latest numbers tell us that our economy remains to be bank-centric, rather than a capital market-oriented financial system. The distribution of total assets suggests that 80 percent are held by banks. In 2013, some Php84 billion in corporate securities were issued and listed while loans outstanding of the banking system increased by Php663 billion over the same period. BIS central bankers’ speeches Being heavily dependent on one funding vehicle to raise needed capital can present challenges. For example, as global interest rates are expected to normalize and trend higher, those who have relied on bank credit to raise long-term funding face increased pressure on their cashflows to handle the requirement of higher debt servicing. In addition, with limited private sector securities plying the market, savers do not have sufficient means to migrate themselves into investors, keeping available funding to the shorter-term tenors. Short-tenors are not the natural match for the longer-term funding needs of entrepreneurs and corporate borrowers. Our idea of capital market reform is not a question of the dominance of one product over the other. Also, we do not expect an overnight shift in the funding structure from bank credit to market securities. There are good reasons why we would like to see more securities issued relative to loans just as there are reasons why the system is currently heavily reliant on bank loans over any other funding source. What we wish to underscore, instead, is that having the right balance between bank credit and access to capital markets is essential in order to properly manage systemic risks. This has been the key lesson from the recent global crisis. The new prudential norm of financial stability requires that we take a holistic view of how and where risks develop, keeping in mind that markets are all inter-connected. To help create that healthy balance between bank lending and capital market as a source of funding for the corporate sector, the BSP has been working towards the development of a benchmark yield curve that has depth and breadth. Related initiatives also cover, among others, price-related initiatives such as the Overnight Index Swap (OIS), the calculation of implied zero rates, the oversight of repos and the introduction of STRIPS. We are also looking at the financial infrastructure requirement for the capital markets. From data capture within a price discovery function to the repository of all trade transactions and to auxiliary services such as central counterparties, securities settlement, trading platforms and central securities depository. These initiatives are but a portion of a long “to-do” list. The capital market reform agenda is huge and the barriers are formidable… but… as the characters in the Broadway play, Wicked, would sing, we must go beyond our limitations and… “defy gravity.” Concluding thoughts Moving ahead does not happen on its own. Progress has to be moulded, packaged and timed. If we are to sustain the momentum of growth and expansion in our bid to move beyond investment grade, capital market reform must be integral to this strategy. If tomorrow is to be better and brighter, we must ensure that we have the overall support system to reap future rewards. We have to instil real change. Only then can we really obtain the benefits of going “beyond Investment Grade”. On that note, I wish everyone a productive conference. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the IIF (Institute of International Finance) Conference entitled the G20 Agenda under the Australian Presidency, Sydney, 21 February 2014.
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Amando M Tetangco, Jr: Enabling market-based solutions toward financial inclusion Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the IIF (Institute of International Finance) Conference entitled the G20 Agenda under the Australian Presidency, Sydney, 21 February 2014. * * * It is an honor and a great pleasure to participate in this High-Level Public-Private Sector Conference. I thank the organizers – the Institute of International Finance (IIF) and Australia as President of the G20 – for inviting me to this event. Ladies and gentlemen, as mentioned earlier, there are an estimated 2.5 Billion1 people living without access to financial services, according to the World Bank and other sources. Three quarters of the world’s poor are unbanked. Traditional financial products and delivery channels have not been able to address the needs of this market. There is therefore a need for new business models and fresh thinking on how this market can be best served. This presents a large untapped market and a source of vast opportunities. The private sector, with its inherent agility, is well placed to respond to such opportunities with commercial potential. It has the capacity to innovate and develop new and sustainable business models. Microfinance is a good example. The large numbers of low income micro entrepreneurs were once thought to have very high credit risk to which commercial financial institutions have traditionally been averse. With appropriately priced and designed products, microfinance institutions have proven the profitability of serving a market that was previously viewed as unbankable. In the last ten years, some microfinance institutions have gone public2 and mainstream financial service providers are now in the microfinance space. In microfinance, commercialization was seen as an accepted prerequisite to viable and sustainable microfinance operations.3 More recently, the interest of mobile telecom operators in playing a role in the delivery of financial services has ushered in a wave of innovative business models. According to a McKinsey study (Beshouri and Gravråk, 2010), bringing financial services to the unbanked is a strategic shift for mobile operators as it presents significant commercial potential. Research4 shows that about one billion people in emerging markets have a mobile phone but no access to banking services. The study therefore estimated that in just two years $5 billion could be generated annually in direct revenue, primarily from fees for financial services such as transactions and cash out, and an additional $3 billion annually in indirect revenue, including reduced churn and higher average revenues per user for traditional voice and short message service (SMS). In 2012, GSM Association reported over 200 mobile money deployments globally in 83 countries. These solutions can only flourish within an enabling policy and regulatory environment that allows innovation and new ideas to thrive rather than stifle them. There is a need for policy makers and regulators to fully understand the new business models to be able to provide the appropriate and proportionate guidance. World Bank, 2012 Note: Adult Population is at 4.7 Billion. Initial Public Offering of Compartamos Mexico in 2007 and SKS India in 2010. Commercialization of Microfinance: Philippines, Asian Development Bank, 2003. Covering 147 countries conducted by the GSM Association (GSMA) and the Consultative Group to Assist the Poor (CGAP). BIS central bankers’ speeches This approach has characterized the way the Bangko Sentral ng Pilipinas crafted our policies on microfinance and more recently on electronic money and mobile financial services. In microfinance, our approach is to mainstream its practice in the banking system. Integral to this approach is the safety and soundness of the bank which we believe will allow it to viably innovate and serve new markets. With this, the application of prudential standards is not compromised but instead tailor fitted to better address the risks in the given activity. In our mobile financial services framework, we developed an electronic money ecosystem. We clearly differentiated e-money from a deposit which allowed a proportionate approach toward electronic money issuers. These efforts paved the way for an efficient retail payment system upon which various use-cases can be developed. Examples include electronic payment of the government conditional cash transfers (G2P) and the electronic payment of taxes to the government (P2G). There remains vast potential for other functionalities. Indeed, progress has been made in financial inclusion. The challenge now is to continue to take the agenda forward by leveraging on strategic partnerships and linkages: 1) Linkages in-country which are important to ensure a coordinated approach. Alignment of the policies and activities of relevant agencies and institutions will be necessary to optimize linkages and reduce duplications. 2) Partnerships across countries that enable sharing of experiences and the ability to leapfrog in developing policy solutions. Peer learning platforms such as those enabled through the Alliance for Financial Inclusion (AFI) network make such exchanges possible. 3) Engagement with global bodies such as Standard Setting Bodies and international agencies as a productive means to promote a cohesive and consistent financial inclusion global framework. Financial inclusion brings to fore innovative models, new products and new players. While international standards are designed to be applied flexibly in all country contexts, the application has tended to be focused on traditional constructs and activities that cater to the “already served” market. There is therefore a need for a commensurate evolution in thinking on proportionality – the acceptable points of balance between the policy objectives of financial stability, inclusion and integrity. This concept of proportionality has been aptly identified as one of the G20 Principles of financial inclusion. The BSP has been involved in the G20 Global Partnership for Financial Inclusion particularly in the Sub-Group on Principles5 and Standard Setting Bodies Our involvement has allowed the sharing of experiences particularly on balancing the risks and benefits of financial inclusion through the application of internationally accepted prudential and supervisory standards. Financial inclusion is a gargantuan task which can only be achieved through well-coordinated and meaningful partnerships. We are already seeing some evidence of success... In Kenya, seventeen million6 are able to send and receive money through their Safaricom mobile phones using M-PESA, a small-value electronic payment and store of value system.7 In Brazil, commercial banks have banked each of the 5,564 municipalities through their banking agents.8 A state-of-the-art biometric enabled smart card and battery operated Principles – Leadership, Diversity, Innovation, Protection, Empowerment, Cooperation, Knowledge, Proportionality and Framework. Out of a population of 40.5 million (World Bank FIndex, 2012). Safaricom Limited Annual Report, Year Ended 31 March 2013. Branchless Banking in Brazil, CGAP, 2010. BIS central bankers’ speeches authentication devise has allowed ICICI to provide micro-savings accounts to the unbanked in India.9 In the Philippines, banks are providing microfinance loans and deposit products to over a million clients, majority of whom claim to have never had the opportunity to save in a formal financial institution in their lives. At the end of the day, we are starting to see more people participate in the financial system. With this access to finance, households are better able to manage their finances, guard against shocks and take advantage of economic opportunities. The financial system is able mobilize broader based savings and channel such funds to productive activities. These can contribute not only to financial resiliency, and stability but also to inclusive growth. There is a growing body of literature on the benefits of financial inclusion. It is therefore important that policy makers and regulators pay serious attention to financial inclusion side by side our traditional objective of maintaining financial stability. A stable financial system will gain more meaning if it serves the needs of the majority, especially the three quarters of the world’s poor that have been unserved too long. Thank you very much and good morning. Financial Inclusion Efforts of the Group, ICICI website. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Islamic Banking and Finance Workshop, Bangko Sentral ng Pilipinas, Manila, 11 March 2014.
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Amando M Tetangco, Jr: Islamic banking and finance in the Philippines – opportunities and challenges Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Islamic Banking and Finance Workshop, Bangko Sentral ng Pilipinas, Manila, 11 March 2014. * * * Hon. Cesar Virata, Ms. Amina Rasul Bernardo, Mr. Warren Hoye, Mr. Saffrullah Dipatuan, distinguished resource persons, special guests from the private sector, and multilateral institutions, colleagues in government, ladies and gentlemen, good morning to all of you and a warm welcome to the Bangko Sentral ng Pilipinas. I join our co-organizers, the Philippine Center for Islam and Democracy and the Foundation for Economic Freedom, in welcoming you to this Islamic Banking and Finance Workshop. This is a valuable opportunity, an occasion where experts from government, private sector and international institutions can share insights, perspectives and ideas on the timely and nationally significant topic of Islamic Banking and Finance. The underpinnings of Islamic finance Islamic banking is a bit of a mystery to many, particularly in the Philippines. While a good number of Filipinos may already have an appreciation that Islamic Finance is not limited to those who are of the Muslim faith. Not many have a clear understanding of Islamic finance being founded on the principles of Shariah or Islamic Law. Also, not many know that the Shariah is based on the principles of justice, fair dealings and harmony through the equitable distribution of wealth. The most known characteristic of Islamic banking is that the Shariah prohibits the payment and receipt of a predetermined rate of return. To those who are familiar only with conventional banking, the concept of “no interest paid or received” is difficult to comprehend. This construct could lead the purely conventional bankers to think that there are no opportunities to be gained in such an environment. That such a system could also encourage a reversion to an all-cash or barter economy and discourages wealth creation. As I understand it, however, these concerns are farthest from the principles of Islamic banking. Foundational in Islamic finance is the principle of risk sharing. Risk sharing is the justification for the fundamental requirements of profit and loss sharing. Guarantees or assurances of return of capital and return on capital, rewards without commensurate risk and preferential awards are all not permissible in Islamic finance. Trading and partnership or joint venture arrangements are thus the appropriate risk-reward paradigms. Another underpinning of Islamic finance is the tenet that financial transactions should be supported by genuine productive economic activity that subscribes to the ethics of the Islamic faith. Notably, this principle can serve to reinforce links between finance and the real sector, reducing the perils of unbridled innovation excessive and risk taking. In this context, it contributes to financial stability in the system. Together, these two principles help to ensure a more equitable distribution of wealth, where the only acceptable form of investment is ethical investing. Ladies and gentlemen, reflecting on these principles would lead one to the conclusion that at the end of the day, similar prescriptions should govern a good banking framework. More specifically, that the goal of financial transactions should be to improve a country’s overall economic activity, raise the level of its shared economic prosperity and promote the wellbeing of individual economic agents. BIS central bankers’ speeches Opportunities in Islamic finance Is there a place for Islamic banking in the Philippines? I believe the answer is yes. Although Islamic banking could also cater to those outside the Islamic faith, we can begin looking at market needs and opportunities in the millions of Muslims in the Philippines today. They mostly reside in the Autonomous Region in Muslim Mindanao (ARMM). Conventional banking has been slow to cover the ARMM. With just 20 banks and 28 ATMs present, only 8% of the municipalities of the ARMM have a banking presence. This is an unfortunate state of affairs, considering that the ARMM is a resource-rich area with vast potential. It is one of the country’s top sources of marine and fish products. It also holds large mineral deposits, including of copper and gold. There is therefore a significant untapped market opportunity, not just for conventional banking but also and more importantly for Islamic banking. The latest available regional GDP data (2012) puts the real GDP growth in the ARMM at only 1.2 pct. But when we consider broader Mindanao, the number rises about sevenfold to 8.2 pct. This tells us, that there is an enormous potential in the Mindanao region in general, and the ARMM in particular. Challenges to Islamic finance in the Philippines At present, there is only one Islamic bank in the Philippines, the Al-Amanah Islamic Investment Bank of the Philippines. Al-Amanah Bank was established in 1973. While it has been over four decades since the creation of the first Islamic Bank, Islamic banking itself has not grown in large part because of legal constraints. The Al-Amanah Charter created the Bank but not a framework for Islamic banking per se. No such enabling law has so far been passed. In fact, the General Banking Law of 2000 defines Islamic bank as specifically pertaining to Al-Amanah Bank only. The GBL does not provide for the creation of other Islamic banks. If we are to create a truly responsive system of Islamic banks, from a BSP standpoint, certain principles will be important. First, the system must allow for a critical mass of market players under a competitive but well regulated environment. The public must be provided with appropriate choices to suit their risk appetite and financial needs. Second, appropriate linkages, including inter-bank markets that cater to the unique characteristics of Islamic banking, must be present. Third, the regulatory and supervisory framework must encourage a level playing field where the Islamic banking system can operate alongside conventional banking. There must be a coherent, consistent and comprehensive set of regulations and standards that would appropriately apply to all banks. In other words, the privileges that are available for conventional banks must also be available to Islamic banks. In the same vein, the prudential requirements that cover conventional banks, must also apply to Islamic banks. The design and implementation of standards, of course, would need to take into account, the particular characteristics of Islamic finance. Fourth, the regulatory environment must encourage the provision of innovative products and services to address the distinctive needs of Islamic finance. Islamic financial players should be encouraged and not inhibited from introducing Islamic finance products. The regulatory framework could consider the substance [more than the form] of the Islamic products, assess the economic risks involved and use that assessment as basis for regulation. To support this approach, the system must allow for the development of a pool of experts on Islamic finance. BIS central bankers’ speeches Fifth, the regulatory framework must help build a broader customer and asset base by increasing investor awareness and acceptance, while ensuring consumer protection. While the BSP would like to promote an increase in the number of Islamic banks that operate alongside conventional banks, the BSP is also looking at an “open approach” whereby conventional banks can operate Islamic banking windows, if they so desire, as long as the principles outlined just now are followed. Fortunately, there is growing literature on how these principles can be realized. We can learn from the research and expertise of the Islamic Financial Services Board, of which the BSP is an associate member, other international organizations and friendly governments which have signified interest in supporting BSP in this initiative, as well as from the rich experiences of outstanding practitioners of Islamic banking. To achieve all these objectives, the BSP intends to work towards attaining a suitable legal framework for Islamic banking in the Philippines. We are currently in the very early stages of drafting a general law for the creation and regulation of Islamic banks. Consistent with this, we have included in our list of proposed amendments to our charter, a provision that will enable the BSP to develop regulations for the extension of financial facilities to Islamic banks. Concluding thoughts Ladies and gentlemen, there is much work for all of us to do. The task requires strong partnerships among key stakeholders in the government and the private sector and the support of key international organizations and friendly governments. Today’s workshop is another important step for all of us to work together, share ideas and mobilize support toward promoting Islamic banking and finance in the country. Indeed, a well-crafted framework for an Islamic banking and finance system would ensure that our goal of stretching the coverage of our financial system [so it casts a wider net] is attained. In addition, Islamic finance with the vast opportunities it offers could potentially trigger inflows of foreign investments. Investments, which in turn, could be deployed towards building the necessary infrastructure and other projects to accelerate and sustain economic growth. For certain, an appropriate Islamic banking and finance framework would help ensure that the Philippines’ financial system would truly be a more effective catalyst of broad-based and inclusive growth. On that note, let me wish you a most productive Workshop. Thank you and good morning. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Year-end Philippine Economic Briefing, Manila, 18 March 2014.
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Amando M Tetangco, Jr: Enhancing resilience to sustain inclusive growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Year-end Philippine Economic Briefing, Manila, 18 March 2014. * * * Reflection of resilience Quite often the picture that we associate with the word “resilience” is that of the bamboo tree that sways to the violent winds and yet is not broken. It rustles. But doesn’t snap In medicine, we think of resilience as the body’s ability to recover quickly from illness In psychology, we conjure a state of being able to “bounce back”. Such pictures do characterize the Philippine economy, especially when we consider the events of last year. We were buffeted from both the global and domestic fronts. But the economy remained resilient. Globally, the Fed’s pronouncements and actions with respect to its withdrawal of accommodative monetary policy (or the Fed tapering) brought heightened volatility to our financial markets. The resulting market uncertainty and portfolio rebalancing got reflected in a reversal of the strong capital inflows of previous periods. This led to depreciation pressures on the exchange rate decline in our stock market and widening of spreads on our debt papers. While all of these were happening in the financial markets, the country was hit by natural disasters, which threatened to weaken our growth prospects and unsettle inflation expectations. Against this backdrop, the resilience of the economy was evident. The economy continued to grow by 7.2 percent in 2013. This performance beat market expectations and the Government’s target of 6–7 percent for the year. Inflation was at the low end of the Government’s target range of 3–5 percent. Meanwhile, our banks remained a source of strength as the system’s balance sheets stayed solid. Our external accounts continued to be robust, buoyed by strong structural flows such as remittances and receipts from BPO and tourism. Our GIR remained more than adequate by most yardsticks. And, prudent fiscal management provided the policy space for re-building and stepped-up government spending on infrastructure that is expected to form the base for sustained economic growth. Risks to the resilience story Can we expect this strong performance to continue? What are the risks to this resilience story? Let me quickly run through some threats to resilience. On the global front. First, we see continued uneasiness among global investors from uncertainty in the next steps of the Fed. This may cause capital outflows and with that, greater financial market volatility. Second, many analysts also predict the slower growth in Asia to continue. This could have an impact on intra-Asian trade, which had compensated for weakness in trade with advanced economies in the recent periods. Third, the risk that recent political turmoil, including in Ukraine, may escalate. This could affect international commodity prices, global financial markets, and undermine global growth prospects. Closer to home. we need to be watchful, among others, of our own disaster risk management efforts that could affect sustainability of our growth performance; and potential upward adjustments in domestic utility rates that could affect inflation expectations; as well as any risks to financial stability. BIS central bankers’ speeches Responses to sustain resilience Given these risks, how can we sustain resilience? On the part of the BSP, we will continue policies that strengthen our macrofundamentals. First, we will closely track monetary conditions to ensure that our stance of monetary policy is appropriate. Based on our assessments, inflation remains manageable. Our forecast runs show that, over our policy horizon, average annual inflation will settle within the government’s target range. Therefore, there continues to be room to keep rates steady. although the room for keeping stance of policy has narrowed, given the aforementioned global and domestic risks. Second, the BSP will continue to closely monitor movements in the exchange rate. Our assessment shows that the peso will remain fundamentally supported by robust economic growth and the BOP surplus. Given the moods and swings of the financial markets, we will continue our flexible exchange rate policy, but at the same time, keep a strategic presence in the foreign exchange market to limit excessive exchange rate volatilities. Third, we will remain watchful of potential sources of vulnerability to our banks. Risks that can directly affect individual banks, and those that co-mingle and can affect the system as a whole will be given attention. In other words, we will sharpen the financial stability perspective of our bank surveillance. We will also align our regulations with the international reform agenda. Banks will be supervised so they stay sound and therefore able to sustain effective and efficient intermediation of funds to the productive sectors of the economy. In other words, ladies and gentlemen, the BSP will continue to build resilience that would lead to stable prices, a relatively competitive exchange rate, and a sound banking system. The ASEAN Banking Integration Framework could also help us achieve improved resilience. We believe the Philippines stands to benefit from this regional integration effort. Apart from seeing a much larger investor base, greater integration could also open up opportunities to mobilize resources toward a diverse array of productive investments. Greater competition also promises to help us capitalize on technology and innovation, while pushing our financial institutions to enhance their efficiency. But resilience is not enough But resilience of itself is not enough. What would be ideal is that, while our economy is able to withstand harsh conditions, we should also be able to move forward and achieve our objectives of sustained broad-based economic growth in a stable macro environment. This is the second part of today’s theme. Enhancing Resilience to Sustain Inclusive Growth. “Inclusive Growth” has become such a buzz word – everyone (even the IMF) now talks about it. I am afraid, if we just keep on speaking about it, without much action, there is a risk that the buzz will simply drone. We need to make sure that our exhibited resilience, which has given us this strong macroeconomic base from which to leap, translates to a palpable improvement in the welfare of more, if not all, Filipinos. A larger economic pie for more Resilience helps to enlarge the economic pie. But, it would be more desirable if the larger pie is shared by more. Ladies and gentlemen, we all need to do more if we would like economic growth to cast a wider net and cascade through the broader society. On the part of the BSP, we believe our efforts to intensify financial inclusion would help ensure that more of the stakeholders are able to enjoy the now larger pie. These initiatives are in the form of crafting regulations to improve access to financial services, expanding our economic financial and learning programs, and strengthening our financial consumer protection efforts. BIS central bankers’ speeches We are fully aware, however, that BSP and the government cannot do this alone. We need the strong partnership of the private sector. We hope that this briefing will provide a venue for meaningful information sharing and dialogue between the public and the private sectors on the competitive challenges and opportunities posed by our current operating environment. But more than this, we hope that this briefing would be a venue for us to confirm our readiness to meet these challenges and move forward, with the good of the greater majority in mind. We trust that today’s proceedings will encourage all to work together towards the shared goal of inclusive growth – the only growth that truly matters and the only growth that transforms. Thank you and a pleasant day to all. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Chamber of Thrift Banks (CTB) Annual Convention, Makati City, 19 March 2014.
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Amando M Tetangco, Jr: The strength of retail – in a wider ASEAN economy Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Chamber of Thrift Banks (CTB) Annual Convention, Makati City, 19 March 2014. * * * Every year, your industry comes together to exchange views on the prospects for the year ahead. With your theme this year “Thrift Banks: Preparing for 2015 ASEAN Integration”, the thrift banking industry is recognizing a development that has quietly evolved through the years and will soon crystalize. ASEAN integration – broadly through the ASEAN Financial Integration Framework or AFIF and more specifically through the ASEAN Banking Integration Framework or ABIF – will come to fruition in line with the ASEAN 2020 vision that was enunciated way back in 2007. It is, in this sense, imminent and the Chamber is being responsive by preparing for this eventuality. In fact, for this Convention, the organizers have lined up experts to tackle different facets of integration. My role this morning is to describe the broad economic landscape, including the challenges and opportunities, that the thrift banking industry currently faces against the backdrop of ASEAN integration. The Chamber is being strategic in this way, for clearly, understanding one’s starting point and initial conditions is just as important as defining one’s final destination. The economy at large Let me begin therefore with the economy at large. It is tempting to simply cite the array of indicators that show that the macro-economy is strong. In 2013, we again saw the convergence of high growth and stable prices as the country posted a real gross domestic product growth rate of 7.2 percent amid an inflation of three percent. This is on top of the real GDP growth of 6.8 percent and a 3.2 percent inflation rate in 2012. We need to appreciate these numbers not just because they are better than the performance numbers that came out of 2011 (which were 3.6% real GDP growth and 4.6% inflation rate). Instead, these are excellent numbers because of the calamities that befell us during the period.1 On the external front, the balance of payments position was at USD5.1 billion for 2013. And the Gross International Reserves at almost 12 months’ worth of imports of goods and payments of services continues to provide ample cushion against external vulnerabilities. We should certainly point out that the growth of the real economy is supported by and feeds into a banking industry whose strength is well documented. Standard & Poor’s latest banking outlook (February 2014) notes that “Philippine banks will likely continue to benefit from the country’s buoyant economic prospects in 2014”. And in Moody’s own banking report (2014 Outlook dated December 2013), the Philippines is the only jurisdiction whose banking system they rate to have a positive outlook. Thrift banks as an industry may be small when compared to its universal and commercial bank peers. But it is by no means left behind. Peso deposits mobilized grew by 22 percent in Typhoon Pablo is the strongest tropical cyclone to ever hit Mindanao. The Zamboanga crisis was a 30-day stand-off. The earthquake in Bohol was the deadliest earthquake the Philippines has experienced in 23 years while Typhoon Yolanda is the most devastating typhoon on record. BIS central bankers’ speeches 2013, loans expanded by 13 percent, total resources rose by 16 percent, while profitability increased by 18 percent. The challenges that lie ahead All these should be more than enough reason to be optimistic about the future of the banking industry. But financial markets can swiftly change course… Everyone here is more than aware that the saving that takes a long time to put together could be the investment that loses value in a “mark-to-market” second. And when financial markets get shocked, the impact leaves a mark in both depth and breadth. As an industry then, your stereotypical challenge is to maximize your strengths while addressing your weaknesses… This brings us to the question of what a thrift bank represents… This is a question of “character” which would define the path that you will take as well as those side roads that you ought to avoid. As I look at your Asset-Liability structure, I note that 86 percent of your liabilities are peso deposits and 66 percent of assets are in loans. Although your universal and commercial bank peers have peso deposits at roughly the same magnitude (72 percent), U/KBs only have 47 percent of their assets in loans. This fact is material. Without another avenue for generating revenues, the viability of the thrift bank model must rest in the balance between sourcing retail saving and deploying the same as loans. And as you dig deeper into the loan portfolio, it becomes readily evident that the bulk of the credits lie in consumer finance. From this perspective, consumer finance is therefore at the very crux of what defines thrift banks. The promise of the Filipino consumer The good news is that several indicators suggest that the prospects of our consumer finance market remains promising. Like all other jurisdictions in ASEAN, our population growth has actually slowed substantially from 3.35 percent per annum in 1960 to 1.72 percent in 2012.2 Despite this, some 35 percent of Filipinos are younger than 15 years old as of end-2012. This percentage is much higher than the rest of ASEAN which averages at only 25.8 percent. It is also much higher than those of China, Japan and South Korea which average 17.7 percent, that of North America at 19.3 percent and the euro area at 15.3 percent. What these numbers mean is that the Philippines will see a greater proportion of its population becoming consumers in the next few decades. This leaves the future market for consumer needs very potent. This is not to say that the current consumer market is not already attractive. World Bank data show, for example, that cellular subscriptions per 100 individuals is already at nearly 107 in the Philippines, higher than the 94 subscriptions average for the BCLMV countries (Brunei, Cambodia, Lao, Myanmar and Vietnam), and the 66 subscriptions for China, Japan and Korea. Our internet penetration rate is not that far off, where we have about 36 internet users per 100 individuals versus the 40 on average in China, Japan and Korea and the 45 users for Singapore, Thailand, Malaysia and Indonesia collectively. But as we develop our young population to be more tech-savvy, one surely expects our numbers to keep on rising. I really do not have to mention the bigger ticket items since this is your area of focus. But to put it on record, we have seen outstanding auto loans, credit card receivables and residential All the data in this section are taken from the World Bank’s World Development Indicators 2013 edition. BIS central bankers’ speeches real estate loans booked by thrift banks increase by Php 33 billion, Php 253 million and Php 29 billion respectively over the past three years alone. This translates to annualized growth rates of 15 percent, 14 percent and nine percent respectively. ASEAN integration and the consumer market Ladies and gentlemen, clearly, demographics favor you. Furthermore, ASEAN integration opens up a bigger regional market. After all, the economic prospects of ASEAN as a whole have always been premised on its retail market. ASEAN has a base of over 600 million individuals in 10 jurisdictions whose collective GDP in 2012 amounted to USD2.27 trillion. While this amount only represents 3.13 percent of the world’s nominal GDP, ASEAN as a collective aggrupation would be the world’s 8th largest economy, only following the US, China, Japan, Germany, France, UK and Brazil.3 Prospects for Philippine thrift banks On the whole then, an integrated ASEAN is a natural treasure trove for the consumer finance market. With ASEAN gross saving as a percentage to GDP just above 30 percent while the world is at under 22 percent, the potential for ASEAN is not just its size but also its saving.4 As an industry structured to mobilize retail saving and generate credit exposures to the consumer finance market, the prospects seem tailor-fit for you. In fact, within that framework, the Philippines does stand out even further because of the specific demographic profile that I described earlier. Does this mean then that your corporate future is secured? Unfortunately, the potential that is ASEAN and our own demographic advantages do not, on their own, create balance sheets. There are still strategic decisions to be made and tactical plans to be executed for these identified positives to be reflected as reality on your balance sheets. What is clear at this juncture is that market competition is changing the traditional niches. Internally, the larger banks are extending their network into areas where smaller banks traditionally operate while banks have increasingly tapped into the consumer finance space. Externally, ASEAN is poised to further integrate under the mantra of an ASEAN that is for ASEAN. Just as we will be exposed to the opportunities of a bigger regional market, our economic prospects will also be targeted by interested regional entities. In both cases, they create competitive pressure for TBs and this, in our view, presents the main strategic issue for thrift banks. Despite all the gains achieved in recent years, you and I will agree that status quo cannot be an option. The ideal solution is to “right size”, getting bigger so that you are better equipped to handle competitive risks while getting smaller in risk exposures where the bank cannot develop a competitive advantage within a reasonable period. This is all about managing risks, a familiar point that the BSP has raised at every opportunity. The difference between today and last year’s convention, however, is that the financial market has re-calibrated towards higher interest rate levels… the much awaited Fed taper has begun and the normalization in easy money conditions has commenced… Furthermore, the ASEAN’s collective resolve to transform into an economic community is upon us. Based on nominal 2012 GDP denominated in USD. The ranking is consistent across tables provided separately by the United Nations, the IMF and the World Bank. Raw data from the World Development Indicators. BIS central bankers’ speeches Ladies and gentlemen, the prospects for thrift banks in the Philippines indeed appear to be very strong. But the attractiveness of those prospects is also catching the attention of other banks in the Philippines and most likely, also of banks in the region. You simply have to get stronger to compete in this evolving market. How you become stronger and in what form remains the critical issue before you. I would like to believe that a thriving domestic economy, supportive demographics and your traditional strength in consumer finance should give you a healthy level of confidence as you find your place under the ASEAN sun. These, along with the innate Filipino ingenuity and talent in thriving amid challenges, should serve you well in this journey. I am sure that your resource speakers today will provide various insights and direction during their respective presentations. I then wish you a very productive convention and I thank you for your attention. Maraming salamat po sa inyong lahat. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Inaugural Philippines Investment Summit, organized by the Financial Times in partnership with First Metro Investment Corporation, Makati City, 19 May 2014.
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Amando M Tetangco, Jr: Policy challenges amid an evolving investment environment Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Inaugural Philippines Investment Summit, organized by the Financial Times in partnership with First Metro Investment Corporation, Makati City, 19 May 2014. * * * Good afternoon. Let me first thank the Financial Times and First Metro Investment Corporation for inviting me to address this inaugural Philippine Investment Summit. The Summit couldn’t have come at a better time. Today, emerging market economies, including the Philippines and other Asian countries, face a “new wave of market volatilities”. In the first quarter of this year, many EMEs saw large capital outflows, which resulted in EME currencies depreciating, bond yields rising, and equities coming under pressure. Although some of these trends have somewhat dissipated in the last few weeks, risks from the underlying reasons for the volatilities remain. I therefore welcome this opportunity to share some of our thoughts on the remaining risks. Against this background, I will discuss the outlook for the Philippine economy as well as financial market concerns and the BSP’s approach to safeguard against financial instability. This new wave of market volatilities Let me begin by considering what I see are the principal sources of the impulses for this “new wave” of market volatilities. First, the series of Fed announcements and actions. Go back to May 2013 and the “taper tantrum”. Flash forward to Fed Reserve’s announcement in December the same year of the start of taper. And then the eventual commencement of the taper in January this year. With additional Fed asset purchases now down to only $45B from $85B at the end of 2013, and the taper seen to be fairly on course, the market has found itself at a stage where the betting has turned to when the “lift off” would happen. In other words, markets are speculating when the Fed would begin to hike the Fed Funds target rate. Indeed, markets would like to find the next reason to put on a new trade! A second source of impulses is the still-patchy structural reform-dependent growth paths of key trading partner Asian economies, particularly Japan and China. Although growth in Japan has picked up as the first two arrows of Abenomics have found their target, the third arrow of structural reforms still has to be firmly in place for the economy to successfully transition to self-sustained, deflation-free growth. For China, while the scenario of a hard landing is not high on many economists’ radar screens, the full implementation of the reform agenda that would help accelerate economic rebalancing toward private consumption and deliver more sustained growth is yet to materialize. Third source of volatility impulses is Europe. The markets continue to watch what the ECB would actually do to fight deflation and curb the strong euro, whether it would in fact unleash its own version of QE. Analysts say Super Mario isn’t “bluffing”. There are a number of other impulses, including geopolitical concerns, but in the interest of time, let me just round out this list with this – market differentiation within the EME debt space. Differentiation is really the market manifestation of the aforementioned macro impulses. Because the current breed of market participants are hard-wired as binary – either risk is “on” or “off”, market volatility could be amplified depending on which of the earlier impulses would BIS central bankers’ speeches be stronger at a point in time. Capital flows could shift from AEs to EMEs, in general, and more strongly into specific EMEs, in particular. And depending on the news, we may see a rebalancing within the EME space, a return of flows to AEs, and the cycle could continue where funds would flow back to EMEs. EME policy focus: how do we guard against the new wave? Amid this “new wave of volatilities”, therefore, the key priority of policymakers in EMEs, including those in Asia, should be to continue focusing on promoting macroeconomic stability by strengthening buffers against potential risks to financial stability, and equally to the outlook for inflation and growth. In a word, in the uncertainty created by market reaction to AEs, EMEs must develop an internal anchor. For this, there is no substitute for sound domestic macrofundamentals. Our assessment: how would we fare during the new wave? For the Philippines, our assessment is that the economy remains well-positioned to deal with these challenges. In the years following the global financial crisis, the confluence of strong economic growth, low and stable inflation, ample liquidity, and broad market confidence has allowed policymakers to pursue structural reforms to strengthen our buffers against external and domestic sources of headwinds. Disciplined fiscal policy has also yielded good dividends, as the government now has wider headroom to undertake critical social and physical infrastructure that could in turn improve the investment climate for more enduring growth over the long haul. Further, prudent monetary policy has helped safeguard non-inflationary growth and financial stability, creating a predictable environment for growth in consumption and investment, thus fueling the economy’s momentum. Indeed, the underlying story of the economy’s sound growth prospects remains intact. Policy prescriptions: how did we get here? In the next few minutes, allow me to briefly describe some of the principles underlying the BSP approach in dealing with the (external) volatilities the country faces. First, to avoid policy confusion, we use tools from our enhanced tool kit distinctly. For instance, we carefully calibrate policy rates to respond to inflationary pressures. At the same time, we use macroprudential tools selectively to address financial stability pressures, including those related to potential exchange rate volatility. To illustrate, in our last two policy meetings, we raised the reserve requirements because we needed to pre-emptively address strong liquidity growth that could lead to potential asset bubbles. Meanwhile, even as the balance of risks remained tilted to the upside, we kept policy rates steady because the assessment is that inflation over the policy horizon would still be manageable. Together, these moves would make any future monetary policy move more effective. Second, in addition to keeping our regulations in step with the global regulatory reform agenda, we work with other government agencies, like the SEC, to curb market conduct in economic transactions that are not under BSP supervision, such as those by real estate companies, other non-financial entities and asset managers. Examples of the latter are the frameworks for good governance of institutions and consumer protection that we have put in place in collaboration with co-regulators under the ambit of the Financial Sector Forum. As for the former, an example is our full shift to Basel III capital adequacy requirements – as with other countries in the region. Third, we sharpen market surveillance. For instance, we have refined some of our reportorial requirements to allow us to see things somewhat differently, with emphasis on financial BIS central bankers’ speeches stability implications of specific activities. We recently expanded the definition of real estate exposures that banks would report to us to help us better appreciate the real estate sector, particularly in relation to the financial sector. Finally, we aim to keep our communication simple. Not too much guidance to avoid confusion, not too little either so as to enhance credibility. Just like Goldilocks. Right now our message to our markets is that we prefer early, measured action – as opposed to chunky reactions to global developments as they happen. We believe this strategy is less disruptive, and will help insulate us from the toggle of AE normalization. The availability of good information is of course crucial in this regard. Keeping the house in order with integration in mind Our own goal has always been to keep our own house in order and strengthen it so that when shocks do occur, we have buffers to shield us. Recently our efforts to keep our house in order have gained more urgency in light of our preparations for ASEAN economic and financial integration. The BSP recognizes the potential of integration but we likewise remain cognizant of the challenges that this initiative entails. We support the underlying principles of “readiness and reciprocity” espoused under the ASEAN Banking Integration Framework or ABIF. But there is need to ensure that the implementation of the principles is fair and balanced. The BSP has prepared the groundwork by creating a stable macroeconomic environment and putting in place a sound regulatory framework consistent with the global reform agenda. We have also proposed amendments to RA 7721 (i.e., the law that liberalized entry of foreign banks into the country) that would open up the window again for the entry of foreign banks to establish their own branches or subsidiaries here. The BSP has also started discussions with the various banking organizations, which should provide further clarity and level expectations among their member-banks and give them the chance to craft their respective forwardlooking competition strategy. In response to BSP’s actions, some Philippine banks have already expanded their branch networks, especially in underserved markets, to build up their domestic presence in preparation for the potential entry of foreign banks. Some are also shoring up their capital positions, further improving their risk management practices, or considering merger and acquisition opportunities to support their expansion plans. In lock-step, the BSP will continue to maintain a regulatory environment that supports growth while at the same time remaining mindful of potential systemic risks. Concluding remarks Ladies and gentlemen, the ongoing rebalancing of growth across the globe as well as the challenge of preparing for greater integration with our ASEAN neighborhood will require continued vigilance on the part of the BSP and more active involvement from our banks. Most of the policy directions I have outlined are geared to sustain what we have started even before the global financial crisis. We believe that this strategy remains appropriate amid heightened volatility in the market. Today’s Summit issues a timely notice for us to be flexible and adaptive to shifting market dynamics. For investors in particular, a good strategy is to recognize and seek out new opportunities. The Philippines offers a host of them, and it is our hope that you also see and positively respond to their great, untapped potential. Thank you, and have a pleasant afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Retail Investment Conference, hosted by the Chartered Financial Analyst (CFA) Society of the Philippines, Taguig City, 28 May 2014.
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Amando M Tetangco, Jr: The Philippine economy – gearing up for the challenges ahead Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Retail Investment Conference, hosted by the Chartered Financial Analyst (CFA) Society of the Philippines, Taguig City, 28 May 2014. * * * To the organizers of the Retail Investment Conference, led by Ms. April Lynn Tan, President of the Chartered Financial Analyst (CFA) Society of the Philippines, guests, ladies and gentlemen, good morning. I am delighted to welcome you to the CFA’s first Retail Investment Conference. Coming after the country’s successful hosting of the World Economic Forum last week, and before that the country’s receipt of the one-notch further credit rating upgrade from Standard and Poor’s, this conference dedicated to the Filipino retail investor could not have come at a more opportune time. With the WEF and the rating upgrade, we could expect greater interest from foreign investors in the country‘s potential as an investment destination. That being the case, we should not allow the domestic retail investor to be left “too far behind”. The CFA Institute, which organized this conference, is often thought of as an organization of math wizards and nerds who dabble in the rocket science that is called finance. Looking around the room, I think there are quite a few of you who are also investment geniuses. But to the majority of us, “commoners”, who are not as “gifted”, it is the discipline in informed decision-making that evens out the equation. Whether you are in the former group, or in the latter, the fact that you are here indicates to me that you have interest in the Philippine economic story. I hope that at the end of the day, you will find yourselves armed with the correct information and able to make the right decisions to suit your personal financial objectives. I’ve structured my remarks this morning, following this outline. I’ll start with the developments and outlook in the Philippines, go through some challenges – from both the domestic and global fronts – that face us and how the BSP is helping to address these challenges. I would like you to focus on the top chart – this is the country’s quarterly GDP performance. This chart tells us that since 1999 (or nearly 15 years ago), the Philippines has posted 60 quarters of consecutive, positive economic growth. Not even at the height of the Global Financial Crisis in 2008/9 did we register negative GDP growth. What is even more noteworthy is the fact that in the last 8 quarters, GDP has consistently grown above 6 percent (with an average of 7 percent). This has led many during the WEF to call the Philippines a country turning the tide from being the sick man of Asia to the next Asian miracle. To be perfectly frank though, I do not relish that we are called a miracle. The evidence will show that we are where we are now because of hard-fought reforms. Analysts have described the Philippine economy as being in the “pink of health”. And this rosy picture is expected to continue through 2014–2015. The charts in the bottom half of the screenshow that domestic aggregate demand – consumption and capital formation – continue to be the main drivers of growth. Our growth story has been underpinned by solid anchors – low and stable inflation due to credible monetary policy and a sound banking system maintained through responsive regulation. Inflation has remained within target for 5 consecutive years. Meanwhile, Philippine banks continue to be well-capitalized. On both solo and consolidated bases, the capital adequacy ratio of our banks remains well-above the BSP’s standard of 10 percent BIS central bankers’ speeches and the BIS’s standard of 8 percent. Likewise the adoption of Basel 3 in 2014 is expected to strengthen further the financial system. The country’s external sector position and payments dynamics have continued to help shield the economy and the domestic financial market amid recent financial market volatilities following the start of the Fed tapering. The favorable external sector dynamics is also manifested through improvements in the country’s external liability management. The country’s current account has been in surplus for 11 consecutive years now. Our gross international reserves remain more than adequate to meet the country’s foreign exchange requirements. The country’s external debt has been on the decline from around 60 percent in 2004 to just over 20 percent in 2013. The strong macroeconomic fundamentals of the country have also been reflected in strong positive sentiment among retail investors. As we all know, favourable sentiment is a positive multiplier. Both consumers and businesses continue to express upbeat views about the Philippine economy’s growth trajectory. The positive sentiments of both consumers and businesses are indicative of the broad support to the general direction of economic policies, and this is expected to fuel the momentum of reforms moving forward. With the sustained positive developments in almost all sectors of the economy, the outlook in 2014 remains upbeat. We are optimistic that GDP growth will reach the government’s growth target of 6.5 to 7.5 percent for the year. We also expect inflation to settle within the target of 3–5 percent for 2014. In 2015, the inflation target is lowered to 2–4 percent, which is consistent with our desired disinflation path. External sector dynamics will remain favorable, as trade is expected to rebound in light of expected global turnaround while remittances are seen to remain on a steady growth path. Let me now go to the second part of my presentation: macroeconomic issues. Actual developments and prospects all look and sound like it is all good, doesn’t it? Yes, so far… All positive trends. But just like any shrewd investor, the BSP is mindful about the pockets of risks that could impinge on the country’s economic growth momentum. As they say, “the trend is your friend until it bends.” Let me focus on three issues: 1. Risks to price stability; 2. Impact of the gradual tightening of US monetary policy; and 3. Concerns raised on the rapid growth in domestic liquidity and credit which, nevertheless, remain consistent with fundamentals. The first issue is: what are the risks to price stability? We’ve been able to keep inflation within the government’s target for 5 consecutive years now. Is that a trend we can keep? I know many of you are used to looking at charts and trends. The chart on the right side of the screen is something which you may not be that familiar with. It’s called a fan chart. It shows the projected path of inflation and the likely area this can stray about, given certain levels of confidence. Inflation is seen to be manageable over the policy horizon, even as the inflation path has somewhat moved higher. The left hand side of the screen lists the potential price risks. Potential price pressures are still coming mostly from the supply side, notably potential increases in power rates and higher food prices resulting from an expected BIS central bankers’ speeches El Niño episode in the second half of 2014. These factors highlight the continued risk of second-round effects, which are thus far, not yet evident. The downside risks to inflation are associated with the potential growth slowdown in key emerging markets and risk of deflation in some advanced economies. Going forward, to help ensure that the BSP is able to sustain the “trend” of meeting the inflation target, we will continue to watch developments. We will deploy appropriate measures as needed to ensure sustainable, non-inflationary, and inclusive economic growth. I know that many of you are aching to find out, “when is the BSP going to raise its policy rates?” No one has a crystal ball, even Nostradamus missed. Instead of giving you a day and date, let me give you principles. 1. The BSP is focused on inflation. 2. We will not hesitate to act pre-emptively if we believe the inflation target is at risk. 3. We are not wedded to a pre-set course of action. We will use available tools in our enhanced tool kit, as appropriate…. Now does that answer the burning question in your mind? A second issue is the Fed taper. As sanguine as the future of the country may sound, we remain watchful of potential risks that could arise from the Fed’s actions. I am sure you have been following the issue of the Fed taper quite closely. As shown in the charts, movements of domestic financial instruments in May 2013, Q4 2013 and Q1 2014 exhibited volatility. Nonetheless, the spill-over effect of the US monetary policy normalization has gradually tapered off. In particular, we could see that portfolio investments are now posting inflows following outflows registered during the latter part of 2013 to the first three months of 2014. With the Fed taper of asset purchases in place, markets are now watching developments in growth and unemployment in the US, to see if the Fed will change the perceived path of the taper, and when the “lift-off” (or when Fed would raise rates) would be. In this period of uncertainty and market volatility, good surveillance is key. The BSP will not hesitate to deploy contingency measures in response to sharp volatility in capital flows. With an expanded monetary policy toolkit and a broad-range of macroprudential measures to help ensure financial stability, we are optimistic that we are equipped to deal with potential market volatility. I can sense in the room, a second burning question at the back of your minds. – will the exchange rate go below P43? Will it go past P45 again? When? Again, I do not have a crystal ball. But let me describe to you our policy. The BSP will continue to allow the FX rate to be broadly determined by the market… But because market participants often go ahead of themselves, we will be present in the market if needed to help keep a lid on these excesses. This policy has worked well, and we observe this whether the exchange rate is on an appreciation or a depreciation trend. The country’s external sector remains robust, and we are confident we will be able to absorb significant shocks originating from external sources. The movements in the domestic financial assets – including the stock market and exchange rate – will continue to be dominated, in the near-term, by changes in the global investor sentiment. The global investor is hard-wired to be binary – he is either risk ON or risk OFF. Depending on the balance of risks between AEs and EMEs, funds can move across markets swiftly and in surges. It is these shifts in global sentiment that we are mindful of… because often, it is the retail investor who is the most at risk when the larger investment houses go in or out of specific markets. This is why good, credible, timely information to retail investors is critical. BIS central bankers’ speeches The slide lists some of these risks. Risks coming from advanced economies include: a) weak domestic activity amid sustained ultra-low inflation/deflation; b) sustainability of key reform measures in the euro area amid improving growth prospects; and c) a faster than expected pace of US monetary policy normalization. Possible risks emanating from emerging market economies (EMEs) include: a) protracted weak growth in certain EMEs; b) economic slowdown in China; and c) geopolitical risks. A third risk is the build-up of financial stability pressures from high liquidity and credit growth that could lead to potential asset bubbles. To backtrack, in 2010–12, the country experienced strong surges of capital inflows, as the country became a magnet for capital that was looking for a home that had both good yield and excellent growth potential. As the dollars were converted to buy domestic assets, peso liquidity in the system grew. Since 2011, we have been instituting a series of macroprudential measures – including adjustments in the capital risk weights on NDF, refinements in our SDA facility and increases in reserve requirements. All these have been calibrated so that while we try and limit speculative activity, we do not stifle legitimate inflows to the economy. The use of macroprudential measures has so far been effective. By and large, volatilities in the financial markets have been contained. We can use our enhanced tool kit to ensure that volatility in financial and real asset prices is kept at manageable levels. Before I move on to the next slide, I know some of you may have this nagging question – are we in an asset bubble? The indicators, as of now, show that we are not in one – but because it is our job to worry, we are mindful that pressures from excessive market exuberance can lead to a bubble. Thus, we have been more closely monitoring the real estate sector (e.g., through the expanded definition of real estate exposures, stress testing on REE.) Earlier, I had alluded to the phenomenon that when global asset managers move, there is a risk that the retail investor could bear the “heat” of the shifts. Global asset managers often move in herd – partly because they use the same benchmarks, have similar risk management systems, and are very competitive. Also, partly because the retail investor does not necessarily have the same set of information that global asset managers have. The classic dilemma of information asymmetry. Hence, the saying “It is better to be incorrect and be with the herd, than to be correct and be trampled upon by the market.” In order to help reduce that “risk” to the retail investors, the BSP is ardent in pursuing measures to promote further the development of our country’s capital market by broadening available investment alternatives for you. Amended guidelines on rules governing Long-Term Negotiable Certificates of Time Deposits (LTNCTDs).More liberal rules on issuance and trading of LTNCDs in an exchange to enhance transparency and price discovery. Liberalized the framework for the cross-selling of financial products by banks. Allowing banks to use their premises to market and sell the financial products of their related parties under a banking group or a financial conglomerate provides a broader array of financial products using the existing branch network of the banking system. Created the environment to encourage availability of derivative products for banks and clients. We continue to enhance the regulatory environment [e.g., refinement of BIS central bankers’ speeches benchmarks, trading rules] so that banks can offer instruments to help hedge risk and provide ways of portfolio diversification [e.g., FX options, swaps, credit derivatives, IRS] Also contributing to efforts to deepen the country’s capital market is the BSP’s Economic and Financial Learning Program (EFLP) which brings together under one flagship program the key economic and financial learning programs of the BSP. It embodies the BSP’s thrust to promote economic and financial education among the public. Increasing awareness about the financial system and the financial services it offers will certainly increase retail investor participation. As much as we are committed to promoting financial services and products, and providing financial education, we are also equally keen on ensuring that consumer rights are being protected. This is something we take seriously in the BSP. Just two weeks ago, the Monetary Board (MB) approved the adoption of the Financial Consumer Protection Framework of the BSP to institutionalize consumer protection as an integral component of banking supervision in the country. Banks should no longer see consumer protection as a “nice to have” CSR or advocacy, but we will be rating banks in terms of the systems and procedures they have for consumer protection. Much earlier on, the BSP already “put its money where its mouth is”, so to speak. In the BSP, we institutionalized consumer protection by creating one department which sole function is to be a redress mechanism for consumer grievances and complaints. Being in the BSP’s Financial Consumer Affairs Group (FCAG) is not an easy day job, as you can imagine. But it is something that we believe has been effective in giving reprieve to consumers and also bringing complaints to banks so they could make appropriate changes in their own processes. Part of consumer protection is also giving them information. So, in addition to the EFLP of the BSP, we have worked with other members of the Financial Sector Forum (FSF), i.e., SEC, PDIC, IC, to develop “Protect Your Money” (PYM) and other advisories to raise public awareness on financial products and services, the basic responsibilities of depositors and investors, and the things to look out for when depositing or investing. Consumer protection, financial education, and developing the domestic capital markets are all part of the BSP’s strategy to help ensure that the retail investor is equipped and protected. But more broadly and to the rest of the economy, the BSP works towards creating a stable macroeconomic environment where you can plan, participate, and help propagate the creation and enlargement of wealth, not just for yourselves, but for the greater majority. In particular, The BSP remains committed to staying the course:(a) sustain appropriate monetary policy stance to maintain and promote price stability; (b) continue to initiate key reforms to promote financial stability, including financial inclusion advocacies; and (c) pursue measures (e.g., maintaining a market-determined exchange rate, keeping an adequate level of FX reserves, and managing our external debt profile) to strengthen resilience against external shocks. The BSP will remain as a catalyst for further development of sustainable and inclusive growth: We will continue to adopt purposeful reforms, aligning our own processes with international benchmarks, while making sure these reforms are relevant to our own domestic needs. As you may have heard me say on numerous occasions in the past weeks,…“So far, so good.”…. We have weathered the GFC, the Fed taper tantrum, the onset of the Fed taper, Yolanda and a host of other natural calamities…. We have even weathered geopolitical risks. BIS central bankers’ speeches But this should not lead us to be complacent. The situation could, as they say, “turn on a dime”. Which is why you and the BSP have to remain vigilant. I mentioned our buffers, I also mentioned the risks. But I want to end these remarks by saying, the BSP will continue to be watchful, implement appropriate and timely reforms and draw from our strengths in confronting the challenges ahead. Our support for the development of the country’s financial market will not waver… We will continue to be guided by a framework that will not stifle innovation but rather promote market discipline. This is our word, and to borrow investors’ dictum: “Our word is our bond.” Thank you. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Media Launch of the 2014 Citi Microentrepreneurship Awards (CMA), Manila, 18 June 2014.
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Amando M Tetangco, Jr: Citi Microentrepreneurship Awards – more than an awards program Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Media Launch of the 2014 Citi Microentrepreneurship Awards (CMA), Manila, 18 June 2014. * * * Citi Philippines CEO Batara Sianturi; our 2013 Citi Microentrepreneurship Awardees; colleagues from the BSP; fellow advocates of microfinance; our special guests from the media; ladies and gentlemen, good morning! I am pleased to confirm the good news: the microfinance sector continues to grow and empower more microentrepreneurs across the Philippines. As of September 2013, 183 banks provided 8.1 billion pesos in microfinance loans to over a million borrowers – 1,017,351 Pinoys to be exact. This translates to an average bank loan of eight thousand pesos per borrower. Seven years ago – in December 2006, the total microfinance loan portfolio of banks was 4 billion pesos for 650,000 borrowers or an average of 6,150 pesos per borrower. In other words, bank loans to microenterprises increased by 102% in seven years, while the number of microentrepreneurs who accessed micro loans from banks increased by 56%. Over the same period, average micro loans increased by 30%. Equally significant, the accumulated bank savings of microentrepreneurs jumped from P1.4 billion in 2006 to P8.8 billion, an increase of 525%. This means the average deposit per microentrepreneur increased from two thousand pesos in 2006 to 8,650 pesos in 2013, an improvement of 332% in seven years. We realize these are cold figures. However, the stories behind these figures prove the power of microfinance to transform and improve lives. As co-chair of the selection committee for CMA for 10 years now, I have personally witnessed how microentrepreneurs survived scarcity by making their business a reliable source of family income – all because they accessed and sensibly used microfinance loans. As a regulator, it is a joy to see tangible proof that our microfinance policies and regulations have such a powerful impact on families and communities. And so today, we are pleased to present to you the 2013 CMA winners who will share their unique stories, challenges, and how they finally found the road to success. They are the latest batch of inspiring good role models for other entrepreneurial Pinoys. So far, this annual search for outstanding microentrepreneurs has generated 93 winners since it was jointly launched in 2002 by the Bangko Sentral ng Pilipinas, the Microfinance Council of the Philippines and Citi. Since then, this award-winning program has been replicated by Citi in 32 other countries. I am also pleased to announce that even as the global survey of Economic Intelligence Unit consistently ranks the Philippines as having the best regulatory framework for the development of microfinance, the Bangko Sentral ng Pilipinas continues to work on regulatory enhancements in response to changing market needs and developments. Among others, the BSP has done the following: • raised the average daily balance of microdeposits to promote higher savings rate among microfinance clients; BIS central bankers’ speeches • enabled microinsurance providers to expand coverage to families of microfinance clients; • improved procedures in the product approval of housing microfinance loans and micro-agri loans to simplify the process by which banks can offer innovative microfinance products; • allowed the acceptance of alternative Identification Documents (IDs) to open bank accounts, including those issued to persons with disability or under government welfare; & • institutionalized a Consumer Protection Framework to provide comprehensive protection for all financial consumers, including microfinance clients. Ladies and gentlemen. While we celebrate our milestones, we know that there is so much more that we can do to improve the lives of Filipinos, particularly those who live in poverty. We can help them help themselves by showing them the opportunities microfinance can provide. As we launch this year’s search for new CMA awardees, we hope we can gain the interest of more Filipinos to join the microfinance sector. Let us therefore continue to spread the word about microfinance and the stories of our CMA winners some of whom are with us today. Through them, we are reassured again and again that microfinance is a viable option for entrepreneurial Pinoys. Mabuhay ang microfinance! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the induction ceremonies of the Rural Bankers Association of the Philippines officers for 2014-2015, Pasay City, 1 July 2014.
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Amando M Tetangco, Jr: Navigating the new rural banking landscape – challenges and opportunities Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the induction ceremonies of the Rural Bankers Association of the Philippines’ officers for 2014–2015, Pasay City, 1 July 2014. * * * The members of the Rural Bankers Association of the Philippines, headed by newly sworn in President Jose Misael Moraleda, members of the Monetary Board, PDIC President Valentin Araneta, colleagues from the BSP, fellow advocates of rural banking, distinguished guests, good evening! Once again, on behalf of the Bangko Sentral ng Pilipinas, I congratulate the new officers and directors of RBAP led by President Moraleda. Let us also thank the previous board and officers of RBAP under the leadership of Mr. Vittorio Almario. Rural Banking in Broad Strokes Ladies and gentlemen. You will be pleased to know that the Philippine rural banking sector continues to grow and expand as indicated by key performance indicators including consolidated assets, deposits, and loans. As of March this year, the total resources of rural banks stood at 209.4 billion pesos, representing a year-on-year growth of 8.8 %. At the same time, total loan portfolio increased by 6.5% to 138 billion pesos… while deposits climbed 10.6% to 145 billion pesos. That these figures were achieved even as natural calamities devastated wide areas in the Visayas is unquestionably commendable. Indeed, the story of our rural banks has been one of resilience. Challenges and Opportunities Moving forward, what does the future hold for our rural banks. Well, we see new challenges as well as opportunities emerging from the ongoing changes in the environment where rural banks operate. Among others, rural banks face increasingly stiffer competition from both smaller and bigger players. More cooperatives and non-government organizations (NGOs) now operate in the countryside with relatively lower costs than most rural banks. As such, these entities may acquire portions of your market – not only from frontier areas but possibly even those you have nurtured through time. We also see the increasing presence of larger financial institutions in various municipalities. While larger banks may have their own reasons for expanding their branching footprint, the net effect is that rural banks now face more competition. Furthermore, the passage of legislations allowing the infusion of foreign equity in rural banks is also bound to be a game changer. Ladies and gentlemen. All these call for decisions on the part of your rural banks. Do you want to continue operating on your own? Will you consider taking in new investors – whether local or foreign? Are you looking at possible mergers? Is there a good fit? In making your decision, it is important to remember that size is not the only determinant in facing competition. You may not be the biggest in your area, but you certainly know the countryside better than anyone. Indeed, your expertise and knowledge should translate into a premium on efficiency, a definite advantage over your competitors. Let me give you an example. Compared to Indonesia, Malaysia, Singapore and Thailand the Philippine banking system is smaller. Nevertheless, among 72 jurisdictions monitored by BIS central bankers’ speeches Moody’s, a major international credit rating company, only the Philippine banking sector was given a “positive” outlook. Indeed, in assessing your rural bank or your potential partners/investors for that matter, there are many factors to consider. These are: right-sizing which is crucial, efficiency, risk management, good governance, capitalization, and the ability to adapt to a constantly shifting environment. Interventions Given all these, it is only logical to ask this question: is the industry ready to face up to the challenges of a changing market landscape? Well, an objective assessment leads us to conclude that much has been done to prepare the industry. Our banking reform agenda in the past 20 years has been structured to strengthen our local banks and to be more responsive to the needs of stakeholders. In particular, our efforts to bolster risk management systems, enhance corporate governance standards, build-up capital and adopt international best practices are intended to improve the efficiency and competitiveness of our banks. The Bangko Sentral is mindful that in aligning ourselves with global best practices, we at the same time should take local conditions into consideration. Thus, while commercial banks are required to be Basel III compliant starting January 2014, the BSP’s requirement for rural banks is the less stringent Basel 1.5. Another program tailor-fit for rural banks is the Strengthening Program for Rural Banks, a joint undertaking of the BSP and the PDIC. Launched in 2010 to strengthen rural banks and to minimize bank closures, the program has been extended as SPRB Plus until December 2014 to encourage more mergers, consolidations and acquisition of eligible rural banks and thrift banks by strategic third party investors. As of 30 June 2014, seven merger/consolidation applications involving fifteen (15) banks have been approved by the PDIC and are being processed by the BSP. In addition, there are five (5) other applications for consolidation/acquisition that are in the pipeline. Capacity building is another area we have focused on. In particular, the BSP’s Supervision and Examination Sector developed a completely new four-day training program targeted for the Board of Directors and senior officers of rural banks which we now refer to as the Rural Bank Management Course. The BSP worked with RBAP on the coverage of such a program. After a series of pilot and early runs we are now ready to hand over to RBAP the course materials and the conduct of this well-received and highly rated course. If needed, the BSP is prepared to extend further assistance on this program to RBAP. Redefining a Strategic Direction While these programs are meant to enhance the operations of rural banks, we recognize that there is still a lot more that can and should be done. A good starting point is a fundamental review of your banks’ strengths and weaknesses. After this is completed, identify the needs of your constituents in the context of the competition that has emerged. Such a review is likely to show that different communities require different forms of access and delivery of financial products and services. This is the direct result of having an archipelago where demographic differences across localities are significant. This may seem like a stumbling block but this also represents opportunities for rural banks. For instance, our experience in microfinance and financial inclusion shows that alternative delivery channels are viable. You can therefore find a balance between alternative delivery mechanisms vis-à-vis the brick and mortar approach of traditional branching. BIS central bankers’ speeches As you move from one locality to another, you will discover that one approach is more viable than the other, depending on the economics of the locality itself. For other areas, it may be economically feasible to offer both approaches to the community. In the current environment, we do see a silver lining: in the face of rising competition, we see the market growing as the benefits of development programs and fresh investments increasingly find their way to the countryside. We see for instance the positive impact of infrastructure development, tourism and even the conditional cash transfer program. In small communities, such inflows can serve as catalysts for sustainable and inclusive growth. Microfinance presents another growth opportunity for rural banks, with microentrepreneurs emerging as both depositors and investors who generate jobs. The Crucial Steps Moving Forward Ladies and gentlemen, the unfolding scenarios certainly create opportunities for those who are determined to pursue the path of success. For rural banks, this is an impetus to boost operational efficiency, expand product lines, reach out to more markets, increase diversity, lower operating cost and simply right-size the way you do business. After long discussions on such concepts as regionalization, market integration and global reforms, these buzzwords are now a reality. The broad strokes are evident. Now you have to decide where to take your bank and how to achieve your vision. You can be proactive or you can simply maintain the status quo. It is all up to you. One thing is certain. The BSP stands ready – as it always been – to be the partner of the rural banking sector in responding to the financial needs of the Philippine countryside to reach out to those who remain unserved and to promote sustainable and inclusive growth across our country. Maming salamat sa inyong lahat! Mabuhay ang ating mahal na bansang Pilipinas! 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 2014 Stakeholders Awards Ceremony and Appreciation Lunch, Manila, 9 July 2014.
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Amando M Tetangco, Jr: 2014 Stakeholders Awards Ceremony and Appreciation Lunch Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2014 Stakeholders Awards Ceremony and Appreciation Lunch, Manila, 9 July 2014. * * * Magandang umaga sa inyong lahat! On behalf of my colleagues at the Monetary Board and my fellow central bankers, I thank all of our special guests from the private and the government sectors for joining our traditional stakeholders awards and appreciation ceremony. This annual event is important to us at the Bangko Sentral ng Pilipinas; thus, we always make it a point to celebrate our anniversary with our stakeholders from the different sectors of our economy. Because of you, ... we have partners we can rely on to provide timely and comprehensive information crucial in crafting responsive policies; we have responsible partners who help us maintain price and banking stability; and we have dynamic partners who help us develop a better... and a more inclusive financial system that promotes inclusive growth. For this, we thank all of you who are here with us today... as well as our other partners across the country. At a time when the global economy remains in a state of flux... at a time when uncertainty is the norm, .... it is our strong partnership that counts among our sources of guidance in choosing the way forward. Among others, we credit the quality and timeliness of the information you share... in helping the Bangko Sentral calibrate its decisions that would influence inflation and interest rates – two important factors that affect the economy and ultimately... everyone. Thus, we are seeing the ideal convergence of higher economic growth and stable prices. In 2013, for instance, our GDP expanded by 7.2 % amid an inflation rate of 3.0 %. It is in this context that for our 2014 awards... we adopted as the most appropriate theme... “Forging Stronger Alliances, Propelling Sustainable Growth.” In particular, we thank respondents to the Business Expectations Survey who keep us sharply attuned to perceptions on the movement of prices. On the other hand, respondents to surveys such as the Cross Border Transactions, Coordinated Portfolio Investment, Information Technology-BPO Services, and Foreign Direct Investment... help us to broadly assess the country’s transactions with the rest of the world. These are important in assessing significant developments in exchange rates and vulnerability to external shocks. We also recognize our stakeholders who regularly provide us with a diverse range of inputs for our monetary policy formulation, our balance of payments projections, and regional reports on economic developments. All these are crucial to the formulation of responsive and forward-looking policies. We also thank our banks that have been our steady partners in facilitating the safe transfer of billions of remittances from overseas Filipinos. In 2013, cash remittances of overseas Filipinos reached a record high of almost $23 billion ($22.968B). We also recognize that the efforts of banks at enhancing competition and transparency in the remittance market has benefitted millions of overseas Filipinos and their families in terms of lower charges. Finally, we thank all our partners who help Bangko Sentral ng Pilipinas become better in providing other services to our people: whether it is developing a more inclusive financial BIS central bankers’ speeches system; promoting the development of microfinance; enhancing access to credit; enhancing financial consumer protection; supporting our banknotes and coin distribution and information programs; participating in financial education programs; or promoting the habit of saving regularly. Ladies and gentlemen. We have learned that our partnership yields beneficial dividends. With your support, the Bangko Sentral ng Pilipinas is able to execute well-informed policies grounded on comprehensive, accurate and timely information. In turn, you benefit from these policies that provide an enabling environment for businesses to continue to grow... and to thrive... even through challenging times. In the process, employment is generated and inclusive growth is achieved. So, what does the future hold for us? Well, across the globe economic growth has started to gain traction, albeit at varying speeds. Advanced economies led by the US, have started to crawl out of recession.... while activities in emerging markets remain uneven. Amidst these uneven patches of recovery in the global arena, the Philippine economy continues to be fertile ground for growth, given its strong macroeconomic fundamentals. For the first quarter of 2014, our economy grew by 5.7 percent year-on-year on the back of the steady growth of the services sector. On the expenditure side, consumption and capital formation continue to drive growth. Notably, the economy has consistently expanded by more than 5 percent in the last 9 quarters. This positive trend has prompted analysts to describe the Philippines as “Asia’s rising star” – with the economy also gaining reputation as one of the fastest growing in Asia. Indeed, the economy has been resilient, exhibiting both price and financial stability. Inflation has been kept low and stable. For 5 consecutive years, inflation has been kept well-within our target due to timely and responsive monetary policies. At the same time, the banking system remains sound and stable with assets continuing to expand, funded mainly by a healthy growth in deposits. Moreover, banks are well-capitalized while asset quality continues to improve, with banks’ non-performing loan ratios at all-time lows. Another source of strength is our strong external position... supported by the continued surplus in our current account. Our gross international reserves as of June 2014 reached 80.7 billion dollars, enough to cover 11 months’ worth of imports of goods and payments of services. In other words, we have enough buffers against possible external shocks. This is not to say the road ahead will be smooth. There are bound to be surprises, bumps and risks ahead; but we have also shown remarkable strength and resilience in meeting tough challenges. I am confident therefore... that as we benefit from even better and stronger support from you... our stakeholders... we will be able to sustain our growth objectives and achieve more inclusive growth across our country. Muli, maraming salamat sa inyong lahat.... and congratulations... to all our awardees! Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! 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 Bloomberg?s Foreign Exchange Forum, Makati, 13 August 2014.
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Amando M Tetangco, Jr: Sustaining growth while riding the uncertainty Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Bloomberg’s Foreign Exchange Forum, Makati, 13 August 2014. * * * Introduction – caution in a time of uncertainty Good afternoon. Seeing all of you here once again validates my theory that indeed there is a strong correlation between volatility and attendance in a forum like this one – to listen to the central bank talk about uncertainty. From a smaller function room downstairs where we used to hold this forum, we have been kicked upstairs to this ballroom. Holding this discussion now also shows Bloomberg’s knack for getting the timing right. Your interest confirms that the most common reaction to uncertainty is caution. Think about it, if you are about to undergo your annual physical, don’t you modify your eating habits and hold off on that last piece of “lechon”? However, how long you feel you need to deprive yourself depends on your “initial conditions”. If you are in fairly good health, maybe you would only skip one craving for that savory bite and you would still be confident to walk into the doctor’s office. The same reality applies to the financial market. 1) When market participants sense uncertainty, they proceed with caution and 2) The impact of uncertainty on your behavior will depend on initial conditions. If uncertainty finds you at a time of high market volatility, you are likely to be more nimble, than when uncertainty finds you at a time of low volatility. Right now we are in a low volatility environment. Some analysts say volatility is “eerily” low. There is even an assessment that markets have become “too” complacent. Is that the case among market participants in the Philippines? I hope not. See, the thing with “uncertainty” is that the degree of uncertainty is itself uncertain. Therefore, we really cannot, and should not be complacent. Because however quiet markets seem to be now, risks remain. Risks remain What are these risks that we face today? Let me name four that are top of mind: 1) Monetary policy normalization in advanced economies. The consensus, as I understand it, is that the Fed would continue with its current pace of tapering. The operative question now therefore is when will the Fed “lift off” be? Will it be mid-2015, as many market analysts project? Or earlier? The next critical question we must ask ourselves is – how far should we take the “risk on” trade? Unfortunately, because of possible spillovers and contagion, the answer to this question may actually depend on the answer to yet another question, i.e., how far will the global investor take the “risk on” trade? As price takers in the global market, we are often at the mercy of how the global asset managers behave. Indeed, the behavior of global asset managers has caught the attention of central banks in all jurisdictions, particularly, how their “herd” behavior tends to amplify volatility. Quite often, because 1) they hold superior information to that of retail investors, 2) they have similar risk management frameworks, and 3) they have a common goal to outperform their benchmarks, global asset managers are able to (and often do) get out of trades more quickly and nearly at the same time, leaving the small institutional investors and retail investors “holding the bag”, when the music stops. BIS central bankers’ speeches If global investor sentiment shifts because of a misappreciation of Fed pronouncements, as what happened during the “taper tantrum”, the current low volatility in the market could quickly turn to a high volatility environment. 2) We should also consider the monetary policies in the ECB and BOJ. These central banks have both said they are willing to extend accommodative monetary policy longer than the Fed. While this asynchronous exit could help assure the market that global central bank liquidity would not suddenly dry up, a prolonged QE from these two central banks could also present a drag to global trade, if the QE in these jurisdictions is perceived to be ineffective in stimulating growth. Furthermore, prolonged QE could create distortions in financial risk assessments. 3) Geopolitical risks Happenings in the Middle East, retaliations between the West and Russia – all these could raise the volatility in commodity prices, affect global trade as sanctions continue to be hurled from both sides, and quite possibly, economic activity. In addition, geopolitical risks could lead to “flight-to-quality” trades, which could adversely affect EMEs. 4) Natural disasters These could affect the domestic supply chain of food and other important commodities and exacerbate supply of power. These can directly feed into our inflation and growth dynamics. Normalization of monetary policies in advanced economies, geopolitical risks, and natural disasters – these are some of the major risks that bring about uncertainty in our operating environment. How these could ultimately impact all of us, depends on our initial conditions. Initial conditions and what has the BSP done so far This snapshot is not unfamiliar to you, so let me just quickly run thru these: On monetary policy – As you know, the BSP has carried out a series of actions. Each to address an evolving condition. First to contain domestic liquidity that continued to be very high in the system through two 100 bps increases in our reserve requirements; then an increase in our SDA rate of 25 bps to help contain financial stability pressures from the excess liquidity, and finally 25 bps increase in our RRP rate, to help manage inflation expectations. These show our shift to a tightening bias. Our view is that it is important to guide the market to better appreciate market risk in the context of normalization. Because continued low volatility in the financial markets may promote further undue risk-taking attitudes. Equally important, the series of policy actions helps ensure that inflation expectations do not get disanchored. Now you may ask, would you be seeing further action from the BSP? Let me just say that all the tools available to us in our “expanded tool kit” remain on the table. I reiterate that the BSP is fully committed to the inflation target and is prepared to deploy all policy tools as warranted. At the same time, we will continue to coordinate with other agencies of government to address pressures from the supply side, including the timely importation of certain food products and tighter price monitoring to prevent speculative trading, to help ease price pressures. Other measures include: lowering logistics and shipping costs, increasing agricultural productivity. On the exchange rate – The exchange rate will continue to be market-determined. But BSP will not hesitate to come into the market if there is a need to smooth out too much volatility in exchange rate movements. BIS central bankers’ speeches On the banking sector – The Philippine banking system continues to maintain a strong performance. We will remain on track in adopting international standards, taking into account domestic market conditions, to ensure that the banking system becomes more resilient and is able to intermediate funds safely, efficiently, and effectively. On external liquidity dynamics – We will retain a pragmatic approach to handling foreign exchange so that our current account continues to be in surplus, supported by overseas Filipino remittances, business process outsourcing (BPO) revenues, tourism receipts and exports. We will also manage international reserves as appropriate. Our strong external liquidity position will continue to provide a cushion against external shocks. All these would help enable the Philippines to remain competitive and be able to hurdle the challenges as well as reap the benefits from the numerous opportunities of the forthcoming ASEAN integration of financial and goods markets. Granted, much more needs to be done to make the ASEAN story “whole”, we find the initial conditions and our policy thrusts conducive to make this story come true. Assessment: Given such sound initial macroeconomic conditions, should we/you worry? Would any uncertainty rock us/you? And the million dollar question – What can you expect from the BSP? A tilting in any/or all of the risks I enumerated could tip the balance of volatility from low to high. For certain, the sound macro conditions we walked through earlier would help to temper the impact of a significant and sudden shift to greater volatility. But, how each of your individual bottom lines would ultimately be affected would depend on your specific circumstances. Clearly, the Philippines is in a good spot, and the prospects are bright. Our sound fundamental story is intact. This should not, however, lull us to complacency. I admonish each of you to use this time of low volatility wisely – take stock of your positions and carefully reassess these against the risks. It is a fundamental truth – in everything we face, there are two circles of concern that confront us: 1) those concerns that are within your control, and 2) those outside of your control. Quite often, the latter circle is larger than the former. As market practitioners, you need to be mindful of these two circles. What can you control? Certainly your risk appetite. Controlling this when greed gets the better of you is very difficult. So in a period of low volatility such as what we have been experiencing, practice the discipline of setting limits. This discipline will not only help you to avoid the pitfalls of “chasing the market”. More importantly, this discipline will help you take advantage of the obvious opportunities, as well as unearth those that are hidden. Discipline set during the sober low volatility period will guide you when you are confronted with factors that are not within your control, especially during a frenzied high volatility period. The BSP practices the same discipline. For the things that are under the BSP’s control, the BSP takes conscious effort to act on these. For those that are not – we sharpen our surveillance, monitoring and analysis. We also coordinate with other government agencies which may have influence over the situation and dialogue with our peers in the region and beyond. You can therefore expect the BSP to continue to 1) keep our ears on the ground for inflation impulses and changes in inflation dynamics, 2) act preemptively as appropriate when we see financial stability pressures rising, 3) keep a market-determined exchange rate, and 4) use all monetary and macroprudential tools under our disposal to shield the gains we have achieved so far. BIS central bankers’ speeches The BSP will also continue to work to strengthen the consumer protection practices of banks. I believe it is incumbent upon you, particularly those on the marketing side, to fully disclose the risks of transactions or products to your clients – making it clear that price history is not necessarily a predictor of future price behavior. Related to this, we are about to roll out a new comprehensive consumer protection framework, which will cover what is expected of financial professionals such as yourselves with respect to the public whom you serve. You have heard me say, on numerous occasions – the best policy is “to keep your own house in order”. This is what you can expect the BSP to do. And that is also what we expect each of you to do. It is our hope that the BSP’s actions and policy intentions are clear enough to you and that I have helped to articulate these better this afternoon. The BSP’s objective is to help you plan better, prepare and ultimately prosper even in times of uncertainty. Our vision is for the BSP to be, consistent with our mandate, the “tide that lifts all boats”. 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 Quezon City Credit Surety Fund lunch, Manila, 18 August 2014.
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Amando M Tetangco, Jr: Setting a milestone with the Quezon City Credit Surety Fund Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Quezon City Credit Surety Fund lunch, Manila, 18 August 2014. * * * Good morning everyone! On behalf of the Bangko Sentral ng Pilipinas and our partner institutions – the DBP, Land Bank and IGLF – we thank Quezon City under the distinguished leadership of Mayor Herbert Bautista, Vice Mayor Ma. Josefina Belmonte-Alimurung, and the members of the Sangguniang Panlungsod for launching its own Credit Surety Fund or CSF. The Quezon City CSF is the first at the National Capital Region. This is therefore a significant milestone in our program to promote CSFs across the country. This tells us that the local government in Quezon City continues to find ways to support the further growth and development of local micro, small and medium enterprises – or what we call MSMEs. We know that through its Sikap Buhay Entrepreneurship and Cooperative Office, the city government is pro-active in promoting access to credit, particularly for microfinance. This time, by setting up its own CSF, Quezon City is scaling up to help more members of cooperatives gain access to bank credit. With the CSF, coop members with good credit standing can avail of bank credit even if they still lack collateral and sufficient credit history. On the part of the banks, CSF is a welcome program, as it provides opportunities to comply with the mandatory 8pct credit allocation required under the law – RA 6977, as amended, also known as The Act to Promote, Develop and Assist SMEs – under a more manageable risk framework. As a whole therefore, the CSF is a win-win program for coop members, banks and our national goal to have a more inclusive financial system that will support inclusive growth. Indeed, we have seen the initial benefits from our partnerships under the CSF. As of May this year, roughly P1.1 billion in loans have been granted by 30 CSFs to nearly 10,000 MSMEs. With Quezon City, we now have 31 CSFs: 14 in Luzon, 7 in the Visayas and 10 in Mindanao. We look forward to seeing the benefits of CSF in Quezon City, our country’s biggest city in terms of population. The importance of MSMEs to our country and our people cannot be overemphasized: they account for 35.7% of our economy as measured by GDP, constitute 99.6% of registered firms and employ 62% of our workforce. In other words, additional support granted to MSMEs will have strong multiplier effects. We are happy to learn therefore that Quezon City-based coops in cooperation with the Office of the Mayor initiated discussions with the Bangko Sentral for the creation of its own CSF. Thus today, we have 12 cooperatives who have initially contributed P3.95 million to the CSF while the Quezon City government will give a counterpart contribution of P5 million. Additional contributions will also come from DBP, LandBank and the IGLF. Let us therefore thank Land Bank as represented by its President Gilda Pico; the Development Bank of the Philippines represented by Chairman Jose Nuñez, Jr.; and the Industrial Guarantee and Loan Fund represented by its Chief Executive Officer BenelLagua. BIS central bankers’ speeches On our part, you can count on the Bangko Sentral’s continued support to make this collaboration sustainable. We will continue to advocate and introduce more innovations, promote capacity building, and provide liquidity support through our rediscounting facility. Finally, I can share that the Bangko Sentral is in final stages of discussions on new partnerships with other LGUs and cooperatives to set up additional CSFs in the country. Indeed, the spirit of cooperation of Bayanihan is alive and well in our country. If we sustain this momentum, we can truly achieve sustained, balanced and inclusive growth. Muli, maraming salamat. Mabuhay ang MSMEs! Mabuhay ang Quezon City! Mabuhay ang ating mahal na bansang Pilipinas! 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 Asian Bankers' Philippines International Banking Convention. Makati City, 29 August 2014.
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Amando M Tetangco, Jr: Seizing opportunities amid a growing banking environment Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Asian Bankers’ Philippines International Banking Convention. Makati City, 29 August 2014. * * * The theme of your convention this year is “The Drive for Growth and Sustainability in the Philippine Banking System”. This is quite timely in light of the government’s goal to push the real economy onto a sustainable upward growth trajectory. Given that an essential component to achieving this goal is a resilient, responsive and responsible banking system, today’s convention presents a good platform for discussing the state of the Philippine economy and the banking system. We hope the different sessions would help bring to fore ways by which we can harness the power of the banking system to raise economic growth so that it would deliver a higher quality of life for more. Opportunities Let me begin therefore with an overview of the opportunities that could drive growth. Well, the Philippines is listed as the world’s 12th largest in terms of population. We are a country of 100 million people, mostly young, with a median age projected to stay around 30 years in the next two decades. Ours is a growing and consuming population which transacts about 2.5 billion payments per month in cash and check payments with electronic transactions at only 1% of the total. This represents opportunities to technology innovations that will extend the reach of efficient and competitive payments systems across our country. After all, our people embrace technology and mobile communications in a manner that has raised our mobile phones to around 110 million, more than our population. In the last nine quarters, we saw deposit accounts grow by nearly 7 million or 17.5% to nearly 47 million. About 93% of the new accounts have outstanding balances of about one hundred thousand pesos or less. This shows sustained expansion of the retail base of savers. This is a base that represents those who have learned the value of safekeeping their hard-earned savings and who perhaps aspire to migrate from savers to investors in the future. Ladies and gentlemen, these are just a few figures and trends that define opportunities. Macroeconomic perspectives Indeed, the Philippines is a land of opportunity and growth. And the opportunities here go beyond the consumer market. For a better perspective, let us take a macro-point of view. First, the country’s GDP growth continues to be above its long-term average. Although there has been some moderation in growth, the country’s GDP continues to prove resilient against external and domestic headwinds. Philippine economic growth accelerated to 6.4 percent in the second quarter of 2014, the second fastest among major Asian countries tied with Malaysia. This growth trend supports the view of the BSP that the economy has the capacity to absorb the recent tightening in monetary policy settings. Second, inflation has been within the national government’s target ranges in the last five years and is expected to remain so over the policy horizon, albeit closer to the upper end of our target range. This, notwithstanding risks to the inflation outlook that include price BIS central bankers’ speeches pressures from higher food prices short-term volatility in international oil prices and pending petitions for adjustments in power rates and transport fares. The BSP is closely monitoring these risks and their impact on inflation. Third, the country continues to enjoy a healthy external liquidity position, which should provide a strong buffer against potential external shocks. The current account continues to perform well due to resilient remittances from Overseas Filipinos, sustained rise in BPO revenues, and higher tourist receipts. Cash remittances from OFs coursed through banks for the period January to June 2014 reached US$11.4 billion, higher by 5.8 percent compared to the same period a year ago. The country’s Gross International Reserves stood at US$80.6 billion as of end-July 2014, enough to cover 11 months’ worth of imports of goods and payments of services and income. That level is also equivalent to 7.7 times the country’s short-term external debt based on original maturity, and 5.6 times based on residual maturity. These figures are above commonly used standards for these metrics. Fourth, our banking sector’s scorecard as of June 2014 shows consolidated figures for assets, loans, deposits and capital at uniformly record high levels. In particular: assets were at P10.28 trillion; loans stood at P5.2 trillion; deposits climbed to P7.9 trillion; capital registered at P1.2 trillion. In addition, our semestral stress tests validate that our universal and commercial banks are in a position to withstand extreme but plausible shocks in credit and market risks. Credit conditions, on the other hand, remain supportive of economic growth. Double-digit growth in bank loans continues, rising by 20% in June 2014 for universal and commercial banks. The sustained expansion in bank lending reflects the strong underpinnings of the domestic economy. Nevertheless, as in other jurisdictions, we are on guard for any possible build-up of asset price bubbles and its implications for the system and the economy, especially in the context of monetary policy normalization. At this juncture, we are pleased to note that the NPL ratio of universal and commercial banks remains low at only 2.1% as of June 2014. This is a good indication that sustained loan growth has not come at the expense of credit quality. Given all these, it can therefore be said that the financial pie has expanded and is getting even bigger as the real economy continues to expand. Policy tracks towards strengthening the banking system Even as we say this, however, economic literature presents evidence that for an economy to continue to expand, it is essential to have a well-functioning banking and financial system. Indeed economic growth helps to grow the financial sector, just as the finanical sector supports economic growth. Consistent with this, the BSP has adopted essentially five tracks to strengthen our own banking system: 1. First, we have adopted regulations that would help ensure that our banks continue to operate soundly. In particular, we adopted the principles of the capital requirements for Basel 3, in “one go” and at a higher level than Basel standards starting January 2014. Basel 3 is meant to reduce the risk of systemic banking crisis, with the quality of capital further improved to ensure its ability to absorb losses. Based on March 2014 Basel 3 CAR report, Philippine banks remained above the regulatory minimum requirement. On solo basis, CAR stood at 15.45%, of which Common Equity Tier 1 ratio accounts 13.44%. The BSP and the banking sector are collaborating on the forthcoming implementation of the other components of the Basel 3 framework. BIS central bankers’ speeches 2. Second, we continue to refine regulations to achieve greater financial inclusion, particularly leveraging off of technology by optimizing the use of electronic money. To illustrate, it took more than 160 years before the number of local bank offices reached 9,884 yet it only took 4 years before the number of e-money agents reached 10,620. At the same time, the BSP continues to strengthen consumer protection with the release of a comprehensive consumer protection framework. 3. Third, we have worked to strengthen the governance in banks. In particular, we have imposed fit and proper criteria on directors, while clearly articulating their duties and responsibilities, including the expectation for each board member to exercise objective judgment at all times. Banks also have to institutionalize a Compliance System to reinforce checks and balances in the institution. Further, we have highlighted the importance of having an effective risk management system. All these are accompanied by regular monitoring and strengthened enforcement actions. 4. Fourth, we have fully supported the further liberalization of the entry of foreign banks into the Philippine market. 5. Fifth, we are committed to the timely and appropriate adoption of international banking reforms to our domestic economic conditions. We subscribe to the general principles and objectives of the international reform agenda, but we are also pragmatic in our approach to their adoption. While we are in agreement with the goals, we believe that implementation must follow the principle of proportionality to country-specific circumstances. One such reform concerns Financial Market Infrastructures or FMIs, the piping that allows trades to be processed and critical risk information to be properly monitored. For a market such as the Philippines, this is critical but it is also a clear challenge. Certainly, we need FMI pipelines to execute market transactions, provide transparency, ensure price discovery, introduce risk mitigation, and generate efficiencies. Nevertheless, many of the FMIs identified by global reforms may not be in synch with the scale of market activity and associated risk in most Asian jurisdictions. Central counterparties, trade repositories and exchanges for OTC derivatives, among others, require a fair amount of investment and a lot of preparation. This is work that does not only involve the BSP, but other financial market regulators as well. This is the reason why the financial market infrastructure as well as the other international reforms are being discussed at the Financial Sector Forum, which is composed of the BSP, the Insurance Commission, the Securities and Exchange Commission, and the Philippine Deposit Insurance Corporation. Quality Improvement among our banks Ladies and gentlemen, we have followed these policy tracks to strengthen our banking system. Within this framework, our banks could generally have the leeway to take on more risk exposures, if they so choose. In addition, the regulatory framework is such that it would allow banks to be able to withstand added, if not healthy, competition. There are evolving competitive forces expected to come from banks outside the region which have an interest to service activities in the country as well as future Qualified ASEAN Banks (QABs) who exemplify ASEAN integration. I am confident in the ability of our banks to be up to these challenges. Yes, we may not be a big market with big banks but our continuing reform agenda has made our banks stronger and more stable. And we have an economy whose prospects attract the interest of not just a few. In Moody’s recent publication on banking system outlooks covering 67 jurisdictions, the Philippines was the only banking jurisdiction rated positive. Add to this the fact that the BIS central bankers’ speeches Economist Intelligence Unit (EIU) has rated our micro-finance policy framework as the best in the world for the past five years. Indeed, there is something to be said about the quality of our banking environment and of the institutions that operate in it. With ample funding liquidity, the challenge for our banks is to identify those initiatives in the real economy, which can reasonably absorb available funding. Challenges Today, the Philippine banking industry is vastly different from what it was during the Asian Financial Crisis. We have achieved sizeable gains since then. Moving forward, part of the challenge is to recognize that gains are never absolute. In this imperfect world, there is always something that can be made better or something that market needs to change in time especially since we operate in a global environment that is in constant change. Among others, heightened financial and trade integration make our own domestic operations vulnerable to external factors. The most significant of these factors is the speed and degree of normalization of monetary policies in advanced economies and how these would impact their own growth prospects. Geopolitical risks that could impact trade and prices of international commodities add to our list of challenges. On the domestic front, as I mentioned near the top of my remarks, the risks that tilt future inflation to the upside are mainly weather and supply side-related, as well as those stemming from volatilities in the financial markets. The BSP has acted pre-emptively to ward off these inflation threats through calibrated tightening of policy stance. We have earlier raised RR and increased SDA and the policy rates. We have opted to act in this manner so that banks and other stakeholders would be guided in their own assessments of the risks they face in their transactions. We will not hesitate to make further adjustments, if these are needed, in order to keep inflation expectation well-anchored and therewith limit the occurrence of second round effects. We will also continue to work with other agencies of government to address supply bottlenecks that affect movement of good and services. We will likewise remain vigilant that none of these effects pose risk to financial stability. We will continue to be involved in initiatives in implementing governance reforms in the country, including our initiatives for AEC 2015. Finally, we will continue to work on a more inclusive financial system that that will sustain and promote inclusive growth. Final thoughts Ladies and gentlemen, I have shared my assessment of our prospects and flagged some key challenges. At the end of the day, we have to nurture the gains we have achieved through time and address the pending issues which we believe can only make us better. Markets will always evolve, just as they are changing right now. But Philippine banks, in general, have proven themselves to be resilient while remaining responsive to the needs of stakeholders. This is the mark of a strong banking industry, one which can tap growth opportunities while acting responsibly in managing the public’s savings. In the end, it boils down to choices we make. And thus far, our record in the banking system speaks for itself. Ladies and gentlemen, thank you for your attention. Mabuhay! 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 40th anniversary celebration of the Bank Marketing Association of the Philippines, Manila, 5 September 2014.
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Amando M Tetangco, Jr: Building a collective brand for the banking industry Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 40th anniversary celebration of the Bank Marketing Association of the Philippines, Manila, 5 September 2014. * * * Congratulations on your 40th anniversary! For most individuals, forty years of service is already a full career. And in a sense, this is where the Bank Marketing Association of the Philippines stands today: the point where the success of your past meets the eagerness to address the challenges that lie ahead. If we think back to what it was in early 1974, it was certainly a time of change and challenges. The oil crisis had triggered steep oil price hikes, oil rationing, brownouts and a global recession. And the country was under Martial Law. Amidst this socio-economic climate, BMAP was established. The objective was to bolster bank marketing which was in its early stages of development. Back then, there were no online products for the retail market or structured notes for selected clients. Minimum deposit balance was as low as possible and we had those blue shaded 2-peso bills in circulation. Today, we have found success in institutionalizing the “e” in e-banking while banks offer a multitude of differentiated products for a continuum of differentiated clients. One can now easily pay bills online, withdraw from teller-less machines, just as routinely as transacting across currencies through money changers. And while we no longer have the 2-peso bill, we have 5 and 10-peso coins to go with our New Generation Banknotes. Certainly, there have been so many changes over the past 40 years. But through it all, one thing has remained constant – the objective of banks to actively market their offerings to the retail and corporate markets. What has evolved is the menu of products and services that banks offer. These now come in variants that differ in currencies, investment objective, lot size and, cash flow requirements. We talk of defining differing Investment Policy Statements (IPS) for clients who may be assessed as equally suitable for exposure to certain types of risks. All these reflect a wide variety of bank offerings that are structured to respond to the banking public’s broad range of financial requirements. After all, in a country of 100 million individuals, Philippine demographics signifies opportunities in diversity. In other words, the marketing message and the delivery of those messages to the banking public can never be static and must continue to evolve. This is your area of expertise. The work of the important-but-behind-the-scenes individuals who craft the message and design the means of delivering those messages to your target markets. Bank marketing executives form the backbone of the industry’s marketing machinery. And through innovations in marketing financial products and services, you as marketing experts and BMAP as the industry association deserve recognition for contributing to the growth of our banking system. And indeed, the industry has sustained its growth trend. What is most telling is how much we have become stronger even during the recent period of global financial difficulties. Among others: total assets of our banking sector have grown by 11.9% a year between 2009 to June 2014, much higher than the 8.2% growth rate between 2001 to 2008. We see the BIS central bankers’ speeches same pattern with peso deposits: from an annual growth of 11.4% for the period 2001 to 2008, deposit growth rate from 2009 to June 2014 accelerated to 14.3% a year. The difference is even more pronounced with loans outstanding: it grew 7.6% a year between 2001 and 2008 and moved up at a faster rate of 11.9% annually from 2009 to June 2014. Trust activity also experienced a sharp expansion in recent periods: from Php1.22 trillion in 2008, assets under management of trust entities increased 165% to Php3.24 trillion by March 2013. The growth rates in both the deposit base and in trust activity tell us that the saving public has confidence in our banks for safekeeping and/or investing their hard-earned personal savings. This growth is best appreciated when we consider that 6.87 Million new deposit accounts were added in the nine quarters between March 2012 and June 2014. Of this total, 92.4% are accounts with outstanding balances of One Hundred Thousand pesos or less. This highlights the very retail nature of this expansion. In the end, one can aptly characterize this expansion as public confidence built through targeted messaging and awareness campaigns. Simply put, it is an expansion that cannot unfold by itself without proper marketing of banking products and services. On this basis, I can say that our banks are successful in marketing their products and services. This is surely a cause for celebration. Congratulations members of BMAP! Towards One Towards one brand I believe that what makes our banking products and services marketable are a set of characteristics that distinguish us from others. This is inherently a “branding issue.” As more financial products are made available and technology allows us to move beyond national borders, we need to be clear about who we are and what the Philippine banking system stands for. I believe that this will be a vital component of our efforts to prepare for an integrated ASEAN banking community and the further entry of new foreign banks and foreign investors into our banking sector under Republic Act 10641 and Republic Act 10574 respectively. The branding characteristics that I have in mind do not pertain to specific facets of products. Instead, I would like to highlight how risk management, good corporate governance and consumer protection can and have made a real difference in ensuring the stability of our banking system. It is this stability that underpins our banks’ value proposition to savers, while providing a viable counterparty for borrowers. The value of risk management cannot be overstated. In a market where uncertainty and risks are hallmark issues, a bank can only be viable as a two-way agent between savers and borrowers if it is able to effectively manage its risk exposures. This certainly matters to depositors who rely on banks to keep their savings safe. Products you offer may have bells and whistles; but in the end, they are only as good as your promise to make the underlying funds available when depositors need them. It matters as well to your borrowers. Your ability to keep the bank operating in a safe and sound manner allows them to build a lasting relationship that supports their entrepreneurial initiatives, services their payment requirements, handles personnel accounts and manages their own corporate savings and investments. In the end, effective risk management is the skill that allows market stakeholders to operate as a going-concern. This is a skill unique to banks and it must be a success factor that distinguishes the Philippine banking brand from the rest. BIS central bankers’ speeches Actually, we have achieved such distinction. In the December 2013 report of Moody’s, the Philippines was the only banking system rated with a “positive outlook” from among the jurisdictions it reviews. In a recent press statement, Moody’s declared that it “maintains positive outlook on Philippine banking system in line with our expectation that GDP growth will remain one of the strongest among emerging-market economies over the next 12–18 months.” For its part, Fitch said that the fundamentals of our banking sector “remain stable as capitalization is high, funding and liquidity is healthy and loan-loss reserves are rising”. This is echoed by Standard & Poors which said that “Philippine banks are well positioned to meet the new Basel III requirements, with capital ratios that are comfortably above the regulatory minimum.” Nevertheless, as gratifying as these external views may be, the challenge is still to maintain our strengths and address weaknesses that have been identified. Risk management may provide the technical on- and off-book expertise but this has to be complemented by a strong and unwavering culture of corporate governance. To different entities corporate governance can mean several things; but for banks it may simply boil down to mitigating conflicts of interest. There are conflicts because savers entrust their savings to the banks while banks must deploy these funds productively. In the end, it is the bank’s corporate governance culture that will protect the public’s savings from excessive and unwarranted risk-taking. We accept that banking is a business where products are designed and marketed to the public. But banking is more than just marketing and sales. Its power lies in the information that banks possess. Thus, the crux of the business is, in fact, protecting the integrity of the pre-sale process and a solid commitment to after-sale support. Banking is a promise to and a relationship with stakeholders. This is built by instilling confidence that the bank is operating prudently. If the business of banking is to be a going concern, the public must believe that the products and services which you market will provide them a better future. While we know that bankers do not have the unique ability to read tea leaves and accurately predict the future, you are expected to think beyond bottom lines. This should be another hallmark of the Philippine banking brand: a corporate governance culture bar none. This is a perpetual call for leadership, exercising sound judgement so that the public’s interests are not compromised… and displaying excellence through responsive service. This is where the expansion in both the deposit and trust books matters significantly. We take these as signs of continuing confidence in the banking system and we look to BMAP to sustain this trend. The skill of effective risk management and a commitment to a corporate culture of governance lead us to the third aspect of the Philippine banking brand: that of empowering the financial consumer. This is an area which does not need much further elaboration before an audience like BMAP. Last year, for instance, you launched the revised “Banking Code for Consumer Protection” which reflects your own commitment to our financial consumers. This should be taken in parallel with the “Consumer Protection Framework” which the Monetary Board recently approved. Together, these two initiatives suggest that we do not pay lip service to consumer protection. Instead, we now have live frameworks that institutionalize market conduct standards, strengthen the redress mechanism, cultivate financial literacy as an active element of financial well-being and hold stakeholders accountable for their behaviour. The bar is set deliberately high but I know we are all fully committed. BIS central bankers’ speeches BSP support Moving forward, the BSP will sustain its collaboration with the industry in crafting policies that raise the bar for banking excellence. We shall pursue this through an environment that enables the development of a distinct brand for the Philippine banking industry. From our perspective, effective risk management, a unwavering culture of good corporate governance and the empowerment of the financial consumer are the fundamental aspects of our brand of banking. For sure, there are many challenges that lie ahead, but what you have achieved so far gives us confidence moving forward. Among others, I urge BMAP to sustain its socio-economic service of enhancing the financial literacy of seafarers. This is an important undertaking: to help our modern heroes who faithfully send money to their families here. I also encourage BMAP and its members to continue promoting the gospel of saving across the country. In particular, I look forward to the continuing promotion and expansion of BMAP’s “Kiddie Account Program.” I understand that around 526,000 kiddie savings accounts have been opened as of March 2014. I am happy that more children are developing the habit of saving but the challenge is to promote the program to more areas and to reach out to more children. I hope BMAP will continue to push this program forward with greater vigor. If you recall, we received the country award in 2013 from the Amsterdam-based Child and Youth Finance International or CYFI for having the best financial education program for children that combines curriculum integration of lessons on saving and money management with actual bank campaigns to encourage children to save in banks. If you recall, BMAP members from BDO, BPI and RCBC Savings briefed foreign delegates from CYFI on their respective marketing campaigns under the Kiddie Account Program. This has made such a positive impression that CYFI considers our integrated program an international best practice model. We therefore share this award with the Department of Education and BMAP. Thank you. Ladies and gentlemen. Financial education that leads to responsible personal finance management is now considered a life skill everyone must have, like reading and writing. Ultimately, everyone handles money, whatever station in life one has. I hope therefore that BMAP will employ its creativity and ability to reach out to millions of financially unserved Filipinos who represent a big untapped market. We are happy that BMAP has initiated its own Bank Marketing Awards for best practices in brand and product marketing in the industry. This is aligned with our objective of creating a distinct brand for the industry – a brand marked by both competence and excellence. Certainly, these efforts can go a long way in making our banking industry truly responsive to the needs of our people. The task ahead Ladies and gentlemen, much has been gained by and in Philippine banking. From a marketing perspective, it may be beneficial if banks integrate their individual marketing plans into an industry marketing approach for branding purposes. For instance, if Philippine tourism has “It’s more fun in the Philippines” tagline, the banking sector may also consider developing a program that embodies its collective aspirations. Competence and excellence founded on effective risk management, an unwavering corporate culture of good governance and the empowerment of the financial consumer. These are the essential brand elements we see of the Philippine banking system. I have no doubt that BMAP can harness your collective expertise to make this happen and to boost the overall competitiveness of the Philippine banking industry. I believe this is a BIS central bankers’ speeches challenge worthy of BMAP – an association that has 40 years of track record behind it. With the liberalization of the entry of foreign banks to the Philippines and the forthcoming ASEAN Integration, developing a distinct brand for Philippine banking is a goal worth pursuing. If BMAP is successful in developing this as a legacy, the next generations of bank marketing professionals can look back and celebrate this milestone as the game changer that raised the quality of bank marketing in the Philippines. I know BMAP is up to this challenge. It is said that life begins at 40. This is the perfect time therefore to start on this legacy project. And to add more context and perspective to BMAP’s 40th anniversary, I wish to share that this year, I am celebrating my 40th year – I am not referring to my birthday and certainly not to my waistline. This year, I mark my 40th year as a central banker. Ladies and gentlemen of BMAP. To me, this is a sign that good things will continue to develop as we continue our partnership. A partnership for a stronger, more responsive, and more responsible banking system that promotes sustained and inclusive growth. Together, let us work on this legacy. Finally, I thank BMAP for its continuing support to the BSP’s programs. Again, my congratulations to BMAP as well as its leaders and members, past and present. Mabuhay ang BMAP! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat. 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 Alliance for Financial Inclusion Annual General Meeting "Independence, Host Country and Governance", Port-of-Spain, Trinidad and Tobago, 9 September 2014.
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Amando M Tetangco, Jr: Moving forward together Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Alliance for Financial Inclusion Annual General Meeting “Independence, Host Country and Governance”, Port-of-Spain, Trinidad and Tobago, 9 September 2014. * * * It is a great privilege for me to welcome all of you to the Annual General Meeting (AGM) of the Alliance for Financial Inclusion (AFI). I feel distinct pleasure in seeing familiar pioneers of financial inclusion, and new faces gathered in this hall. We have a weighty agenda that includes landmark issues for AFI and its membership. A key focus of today’s discussions is AFI’s progress toward becoming an international, independent organization and the important next steps that we will all be taking together. As is the usual practice, we are having the AGM before the Global Policy Forum (GPF), AFI’s centerpiece event where financial inclusion stakeholders gather. A members-only AGM taking place before the GPF allows us to make collective decisions and have a unified voice before we set out to collaborate with our external stakeholders. Let us make use of this AGM as a venue that has, time and again, provided us with a collegial and enriching environment to discuss and find solutions to important matters facing us. This general meeting allows us to bring up our relevant individual and institutional concerns, to hear out our peers, and to share and leverage on our best practices and knowledge toward building a stronger network of nations championing financial inclusion. In the past two AGMs, we reached agreement and started the initial work to be a fully independent institution. In Cape Town, members reasoned that the aspiration for independence will foster a stronger policy-enabling environment for the members, and will strengthen AFI’s leadership standing in financial inclusion. Key considerations surrounding our pursuit of independence, such as legitimacy and fiscal sustainability, were underscored. Also, last year in Kuala Lumpur, the AFI host country bidding was officially launched. The adoption of this bidding process offered transparency that further fortified AFI as a credible organization. Today, we continue laying the foundation of our work toward our independence. In this meeting: Members will be provided with an overview of the AFI independence process, with a presentation to be made by Superintendent Daniel Schydlowsky of Peru. Our resolve to achieve independence will not only advance our sense of ownership, but also assure ourselves that we are building together a member-governed and member-driven organization that is sustainable. As such, crucial and practical issues such as the membership fee structures and related recommendations on membership rights and participation will be discussed. Secondly, the rigorous work of the Sub-committee on Host Country Evaluation will be presented to us for our appreciation. The choice of the future home of AFI is a crucial milestone in our journey to become an independent institution. Thus, it is with a sense of excitement that I inform you that the newly selected AFI host country will be announced shortly. Thirdly, the Independence Sub-committee Chair, Governor Njuguna Ndung’u of Kenya will outline the governance recommendations that will determine how the independent AFI will be steered toward our collective mission of adopting and expanding effective, inclusive financial policies in developing nations. BIS central bankers’ speeches With these, all members are encouraged to be proactive in the discussions. Your insights and contributions to the many important issues will enrich the process and ultimately strengthen AFI. The important agenda I have just outlined – charting our way toward independence, governance issues, and the conferment of the new AFI host country – will allow us to advance our strength as one body and our partnership for the ultimate betterment of the poor people we target to serve. On a final and a more personal note, let me take this opportunity to thank all of you for your personal commitment and individual contribution to AFI over the years. After this forum, I will be stepping down as the Steering Committee Chair – a role which has been a privilege and a joy to hold, in large measure due to all your support. Warm thanks to my colleagues at the Steering Committee who have shared their expertise in building and providing strategic guidance to AFI; to the Management Unit – the team that has made our AFI work seamless and efficient; to all the members – the bright minds behind our financial inclusion policies and various programs that are truly making a difference; to all those who made AFI programs and initiatives a success through their effective organization of activities and events; our sincerest gratitude to all of you. I am pleased to announce that Superintendent Daniel Schydlowsky of Peru is the incoming chairman of the Steering Committee. I will, of course, stay on as an active member of AFI and will remain committed in sharing our institutional knowledge, and, being a personal advocate of financial inclusion, in advancing AFI’s global mandate. My colleagues and friends, let us all remain committed in being responsible stewards of this global policy network on financial inclusion. Together, let us note that stewardship is not merely an obligation but a proactive response and opportunity for us to develop further what has been entrusted to us. We are all called to foster this global connection and move forward together toward institutional independence. Thank you and more power to all of us. 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 2014 Alliance for Financial Inclusion Global Policy Forum, Port-of-Spain, Trinidad and Tobago, 10 September 2014.
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Amando M Tetangco, Jr: The three Cs of Alliance for Financial Inclusion’s success Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the 2014 Alliance for Financial Inclusion Global Policy Forum, Port-of-Spain, Trinidad and Tobago, 10 September 2014. * * * Salutation Governor Jwala Rambarran; Governor Zeti of Bank Negara Malaysia, host of AFI’s future headquarters; ministers; fellow governors; Dr. Alfred Hannig; distinguished delegates; AFI partners; ladies and gentlemen, good morning. It is a privilege to speak at the opening of the 2014 Alliance for Financial Inclusion (AFI) Global Policy Forum (GPF) – which has quickly evolved into the world’s major gathering of policymakers, regulators, prime movers and advocates of financial inclusion. Today, we have a record number of over 400 participants, a 300 percent increase from the first GPF in 2009. Let me thank Central Bank Governor Jwala Rambarran for hosting the 2014 GPF. We can say that it is appropriate to hold this event here in the paradisical Trinidad & Tobago, a firmly committed member of AFI. Moreover, Trinidad and Tobago is the birthplace of calypso music. 1 After all, the GPF is quite an upbeat, fun and engaging assembly of AFI members and friends. Holding this GPF here on the 50th anniversary of the country’s central bank, the 100th member of AFI, lends added color to this gathering. Brief overview of AFI independence As outgoing chair of the Steering Committee, I am privileged that my last opportunity to open the GPF comes at this point in AFI’s history. The past two years have been crucial to set in motion the transformational processes that have driven the AFI journey to independence. Now we are about to cross the proverbial Rubicon – as AFI leaves its “project” status and becomes an international organization. We are embarking on a fundamental change that requires our solid resolve as a global network. AFI’s transformation as an international organization with juridical identity will strengthen its DNA – the member-driven, equitable, and inclusive nature of AFI’s governance, membership, and activities. This DNA has set AFI apart as a policy-driving network. It has effectively mobilized financial sector policymakers, regulators and international organizations, to proactively confront the challenges of financial exclusion. The Cs of AFI’s success The success of AFI can be attributed to what we can call three Cs: (1) commitment, (2) collaboration, and (3) concrete results. Commitment is an important first step in the attainment of any goal. As one of the pioneer members, the Bangko Sentral ng Pilipinas (BSP) can attest to the steadfast engagement of AFI members and partners in activities and programs toward financial inclusion. We have benefitted from the commitment of visionary funding partners who believed in the concept of AFI and sustained us in our journey toward increasing access to financial services for the poor. The trust and support of the Bill and Melinda Gates Foundation, German A kind of West Indian (originally Trinidadian) music in syncopated African rhythm, typically with words improvised on a topical theme (Oxford Dictionary). BIS central bankers’ speeches International Cooperation (GIZ), Federal Ministry for Economic Cooperation and Development (BMZ) and other donors like the Australian Agency for International Development (AUSAID), facilitated the exponential growth of AFI. Within six short years, it is now a network of 120 member institutions from 95 developing countries. Future commitments from like-minded donors will surely fortify AFI’s ability to continuously undertake its important mission. AFI would not be what it is now without the commitment of members who devoted substantial time, resources and expertise to make AFI activities fruitful and successful. If we count just the face-to-face meetings of the seven AFI working groups 2, we get a total of 57 meetings from 2010 to 2014. Steering Committee meetings, and those of the Subcommittees on Independence, Host Country Evaluation and Global Standards, are not yet accounted in this number. If “time is gold”, then it is clear that the membership definitely invested so much in the AFI journey. Underpinning this investment in time and resources is AFI members’ commitment to achieving our shared vision of a financially inclusive world. AFI members firmly supported the Maya Declaration in 2011 and the consequent Sasana Accord in 2013. These declarations are documentary proof of members’ dedication to implement concrete and measurable policies and programs that expand inclusion in their respective jurisdictions. To date, 47 out of 120 member institutions have publicly articulated their own Maya commitments. While targets and accomplishments vary from country to country on account of domestic contexts, the most significant outcome of the Maya Declaration is increased institutional accountability. By AFI’s count, a total of 71 measurable policy improvements have been made by Maya countries. The second C is a blend of collaboration and cooperation, which describe (1) how AFI members interact with each other, and (2) how the AFI network engages with external stakeholders. Collaboration and cooperation is inherent in the design of AFI’s signature platforms – the working groups and the knowledge exchanges. The working groups, with a membership total of at least 194 individuals, function as “communities of practice”. As peers on equal footing, they share and discuss ideas to produce outputs that are relevant in policymaking and program development. These outputs include guideline notes, discussion papers, surveys, data indicators, case studies and peer reviews – which we collectively call knowledge products. These products constitute majority of the AFI library, and serve as useful references for AFI members and external interested parties. Like other AFI members, the BSP benefited from the working groups, as we implemented various aspects of our financial inclusion agenda. For example, our national baseline survey on financial inclusion was enriched thru peer reviews by CNBV Mexico and Bank of Tanzania in the Data Working Group. Our regulatory perspective on digital financial inclusion was constantly deepened thru the interactions in the Mobile Financial Services Working Group. These are just a few examples, considering that the BSP is an active member in all the working groups, save for the regional group of Pacific Islands. On the other hand, the knowledge exchange (KX) – one of the most availed of grants by AFI members – is a structured, purposive and onsite study visit. As recipient of one, and host of 20 AFI knowledge exchanges since 2010, the BSP can attest that the KX is mutually AFI has six working groups with thematic focus on consumer empowerment and market conduct; financial inclusion data; global standards and proportionality (originally financial integrity); mobile financial services; small and medium enterprises; financial inclusion strategy. The seventh working group is focused on financial inclusion in the Pacific islands. BIS central bankers’ speeches beneficial to the visitor and the host. It facilitates open, candid dialogue among regulators facing similar issues, but operating in different domestic situations. Many policy solutions are informed by lessons learned from knowledge exchanges. For example, our consumer protection framework and financial education program were inspired by what we learned, in no small measure, from a KX with Bank Negara Malaysia. We shared our regulatory experience with colleagues from the Bank of Tanzania, and later provided insights on their draft electronic money regulations. I am sure that other AFI members also have interesting stories to tell about their KX experiences. Collaboration and cooperation likewise characterize AFI’s engagement with external stakeholders. This approach has resulted in rewarding partnerships and increased global attention on financial inclusion. Let me cite some examples: We have initiated, and will continue to deepen the engagement with Standard Setting Bodies (SSBs) thru a structured peer learning program. Global standards greatly affect the level of exclusion, as well as the range, quality and affordability of financial products available to clients at the bottom of the pyramid. AFI is in a unique position to contribute value to the SSB discussions; given the wealth of experience that the membership has in practicing the proportionality principle; in a manner that is conducive for financial inclusion. Presently, the BSP chairs the Basel Consultative Group Workstream on Financial Inclusion. This working group aims to form an overall risk picture on financial inclusion that would be of particular relevance to banking supervisors around the world. AFI members provided invaluable inputs to the workstream thru their participation in the Range of Practice Survey. As implementing partner of the G20 Global Partnership for Financial Inclusion (GPFI), AFI has gained stature as the voice of the developing world in the area of financial inclusion. We significantly contributed to the development of the G20 Principles for Innovative Financial Inclusion. Finally, AFI’s regular collaboration with the G24 in conducting policy forums, continues to deepen awareness on financial inclusion issues, and inspire action among G24 member countries. Commitment, collaboration and cooperation are necessary, but insufficient to beget success. These factors must translate into a third C – concrete results. The results-oriented culture of AFI ensures that policy solutions, regulatory enhancements and program interventions always benefit the ultimate stakeholder whom we all target to serve: the financially-excluded. To date, we have seen policy solutions that resulted in: • 16.7 million mobile money accounts for 15 percent of adults, achieved within 2.5 years in Bangladesh • 7 million mobile money accounts for 67 percent of adults, achieved within 7 years in Kenya • 19.4 million basic bank accounts for 27 percent of adults, achieved within 5 years in Mexico • 26.7 million mobile money and cash card accounts, achieved within 4 years in the Philippines • 1.7 million savings accounts for 25 percent of adults, achieved within 4 years in Rwanda This sampler data from selected AFI members reinforce the importance of impact measurement and monitoring. As responsible policymakers and program implementers, we must verify that our actions are indeed achieving inclusion objectives. We can only claim true success if we have incontestable proof that global partnerships and national goals adequately empower our ultimate stakeholders. BIS central bankers’ speeches Conclusion As I end my term as Chairman of the Steering Committee, allow me to extend deep appreciation to my distinguished colleagues in the Committee, all member institutions, our strategic partners and donors, and the AFI Management Unit, for your unwavering support. Your active and thoughtful participation in the Committee, and in AFI processes, has made our work much more manageable and gratifying. I am pleased to announce that the Steering Committee will be led by incoming Chair Daniel Schydlowsky of Peru. As I contemplated an appropriate end to my opening remarks, TNT came to mind; not only because it resembles the initials of our host country Trinidad “n” Tobago; but also because of the massive force of change that we want to take place in our respective countries. Let us all keep the three Cs of AFI aglow to see forceful initiatives in AFI’s future – to catapult financial inclusion to greater heights around the world. Thank you and good morning. 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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 ACI Phils-FMAP-IHAP-MART-TOAP Joint General Assembly, Makati, 23 September 2014.
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Amando M Tetangco, Jr: Convergence in a divergent world Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the ACI Phils-FMAP-IHAP-MART-TOAP Joint General Assembly, Makati, 23 September 2014. * * * Introduction Last time I addressed your General Assembly, I did a little “word association” game with you. I don’t know how many of you recall that, but I did that last year to highlight the fact that often, the same words we hear have different meanings to us. Often, this is so because of our individual “positions” in the market. In other words, that adage “where we stand depends on where we sit” is very true among you. Last time, I highlighted the BSP’s desire to get everyone on the same page, wherein the same words would mean the same thing. Because clearly that ideal situation of common understanding makes for more effective and efficient BSP policy implementation. This year, I will not do that game anymore. Rather, let me focus on just two words. Can anyone hazard a guess as to what these two words would be? Any guesses? The first word The first word is DIVERGENCE. I chose this word because of late, it has become quite an important word that describes some of the remarkable features of the current global economic environment. First. Divergence in the growth paths among major economies. We have seen that in the US there continues to be a sprinkling/sputtering of positive economic indicators, while both the EU and Japan are still struggling for their economic growths to gain traction. Second. Divergence between the current growth path of emerging market economies and the previous forecasts for the growth path of these economies. EME growth has broadly slowed down from the earlier anticipated growth trajectories. Together, these two “divergences” have important implications for the speed and manner of global growth rebalancing and policy normalization. Third. Divergence in the monetary policy stances among the AEs. Major central banks’ policy rates have remained at historic lows. But while the Fed has kept the phrase “considerable length of time” in its statement, it raised its expectations on the future path of the target rate (i.e., those infamous dots). It also reiterated its exit plan – stating that depending on data developments, it could raise its target rates sooner than earlier expected. My sense is that the markets have taken these statements from the Fed to be of a relatively hawkish tone, and therefore USD supportive. Particularly so when the market would contrast these statements against: 1. the ECB action of offering liquidity directly to banks under its TLTRO (which, subsequently received only a weak take-up by banks), and, 2. the BOJ preparing for further QE. BIS central bankers’ speeches This apparent divergence in the monetary policy postures among AEs is not necessarily a bad situation. It should give you in the market some comfort that global liquidity will not be drying up anytime soon. In the BSP, we refer to these as “countervailing forces”. But it should also give us cause to pause… as this sentiment could very well lead to the perpetuation of low volatility in the financial markets. For while there is disparity in the expected directions of policy among the AEs, this disparity is transpiring at very, very low levels of interest rates. With the forward guidance provided by the Fed, EU as well as Japan, helping to reduce some of the uncertainty about interest rate changes, the low volatility may actually lead to further investor complacency. This leads to a Fourth Divergence. The possible divergence in the “true state” of the global economy and the financial system against that which the low volatility in financial markets is portraying. Those of you have been “around the block” a few times and (I see a number of you in the front row!)… You have witnessed that serious episodes of market stress are often preceded by unusually low volatility, which oftentimes signal the gradual build-up in risk-taking. What then does this current global backdrop of divergence mean for us? For our domestic markets? Our monetary policy stance – the reasons behind Our last policy action speaks to this issue. Keenly aware of how our domestic market, i.e., your industry associations, is extremely reactive to US rate movements, the BSP acted “pre-emptively” against the expected rise in US interest rates. Ladies and gentlemen, I have maintained for some time now that, early, measured action is superior to belated, large, discrete re-actions. The latter could create more volatility in the markets in general, and on your own P/L in particular. Therefore, as we prepare for the eventual Fed “lift-off”, you may wish to also consider making only gradual, non-chunky adjustments in your own portfolios. Let me now spend just a few more minutes to speak about our current stance of monetary policy. The BSP has done a number of things over the past few months. We have raised reserve requirements, hiked the SDA rate, the RRP rate and then, recently, both the SDA and the RRP rates together. These we did in response to various factors to achieve the following results: 1. To rein in domestic liquidity growth. M3 growth is now down from above 30 percent to just above 18 percent in July this year. We expect M3 growth to continue on its deceleration path and reach more normal levels later this year.; 2. To help manage the financial stability risks of the over-all low interest rate environment. While we have not seen broad-based asset mis-valuations, the BSP remains cognizant that keeping rates low for too long could result in mis-appreciation of risks in certain segments of the market, including the real estate sector and the stock market as markets search for yield. So far, coupled with changes in reportorial requirements and macroprudential measures, the monetary policy actions appear to have achieved some success in moderating the buildup of “irrational exuberance” in certain market segments.; 3. To help steer inflation expectations. BIS central bankers’ speeches Our most recent Business Expectations Survey showed that the number of those who expected inflation to go up in the current and next quarters has increased. In addition, our survey of private sector economists shows inflation forecasts that are precariously close to the upper end of our target range. This is particularly true of forecasts for 2015, for which the NG target is lower at 2–4 percent. Further, our own forecasts are also now higher. We now see 2014 inflation to average 4.48 pct, up from previous 4.33 pct, and 2015 inflation to average 3.79 pct, up from previous 3.72 pct. While most of the reasons cited for the heightened inflation expectations are due to supply side pressures, elevated expectations need to be addressed sooner rather than later. These could fuel second-round effects, which may be more difficult to arrest once they have set in; and 4. To reduce the possible financial stability impact of extended periods of negative real interest rates. Right now because of excess liquidity in the system, the industry doesn’t seem to mind much that real interest rates are negative. But ladies and gentlemen, when the tide turns, those projects that you may have “approved” based on a specific expected value may not provide you the “return” you anticipated. With this in mind, our policy actions have been aimed at helping you manage your own risk appetites. Given all these fundamental reasons for the series of BSP actions so far, what can the market expect from the BSP going forward? As I have always said, the BSP will remain watchful. We will keep our ears to the ground while we have our eyes on our price and financial stability mandate. And we will remain flexible to use all available tools in our now enhanced tool kit, including our strong external liquidity position. Validating our position of strength Indeed, in addition to: a disciplined monetary policy framework, a deep enhanced policy tool kit, a healthy level of gross international reserves, and ample monetary policy space we have built other buffers that make us confident we would be able to withstand the impact of the “divergences” in the external environment that I had just outlined. Of significance among these other buffers is our sound banking system. We have had numerous occasions over the last few years to point to the strength of our banking industry. Even before the sovereign attained investment grade, the Philippine banking system had already been cited for its resilience in the midst of global dislocations. Total assets held by universal and commercial banks increased by a little over two trillion pesos from end-2012 to July 2014. This translates into an annualized double-digit growth rate of 16.9% over this 19-month period. The same two trillion-peso increase can be seen in deposit liabilities, equivalent to an annualized growth of 23.1%. Asset-side accounts have also increased, with Loans growing at an annual rate of 14.3% and another 10.6% for Financial Assets. BIS central bankers’ speeches What is most impressive is that universal and commercial banks have continuously strengthened their balance sheet for possible exigencies. The Capital Account of U/KBs has increased by around Php156 billion in the past 19 months, driven by improvements in Retained Earnings (Php94 billion) and Paid-In Capital (Php46 billion). To top it all, our U/KBs appear to be purposely leaning on the side of caution. The account “Cash and Due From Banks” has significantly increased. Since end 2012, U/KBs have recorded an increase of Php867 billion or a staggering annualized growth of 37%. Reforms: How strength can be further enhanced As these numbers validate, there is definitely every reason to believe that we are in a position of strength and finding ways to sustain it. This is a feather on our cap. But we also must be circumspect enough to accept that strength is neither absolute nor eternal. Financial markets continuously evolve and the same position of strength can be a marked weakness at another time and under different market circumstances. This is why the BSP has made it clear that we support the principles underlying the espoused global reforms. We believe that there is reason to the global reforms. But we are open to both the timing and execution of the reform details. Bank capital – the very core of banking supervision principles – must always have the capacity to absorb losses from risk taking behavior. These are no longer from your plainvanilla credit, market and operational risks. Instead, we need to be more cognizant of such issues as liquidity pressures, excessive leverage, interconnectedness, and the bar of governance applicable to each entity with a public franchise to operate as a bank, including and especially for those which are deemed systemic by virtue of their operations, market reach and the unique products and services that they provide. These are all enshrined in the Basel 3 reform agenda. And while we support the basic prudential intent of these reforms, we have also been very deliberate in our roll out of the reform components. Within the ASEAN-5, we were the last to implement the capital reforms for Basel 3. To-date, we have issued exposure drafts for the treatment of counterparty credit risk, domesticallyoperating systemically important banks, the data aspect of OTC derivatives and of leverage. And while the exposure draft for liquidity risk has yet to be issued, this too has been simulated, much like our prior efforts on capital, D-SIBs and leverage. Apart from the global reforms, we have quite a bit in the pipeline for things that we consider home-grown issues. It is a long wish list, and I shall not go through each of them here. I am fully aware that your industry associations are in constant conversation with the BSP on these topics through the BSPC. For all these to “work”, we need the plumbing. Just like in a house, the financial markets need to have efficient plumbing. This is why the BSP is currently reviewing, not just Philpass, but the whole financial market infrastructure as well. In market infrastructure, the BSP is a vested stakeholder – for whether it is wholesale or retail payments, securities transactions or the transfer of liquidity from one account to another, the backroom of our banks must ultimately meet at PhilPass to effect final and irrevocable settlement. For the BSP this goes well beyond the issue of efficiency. For us, it is about ensuring the flow of financial transactions through the appropriate management of liquidity across financial institutions and for the system as a whole. BIS central bankers’ speeches Do we really need all these now? Ladies and gentlemen, I just went through 5 compacted slides of reforms... There is much that is already on the table as far as change is concerned. And the honest truth is that the market should expect more. We have been asked quite often: Do we really have to do all these now? In response, I ask those who can remember what it was a decade and a half ago. I believe quite a few of those on the presidential table were already here then! A few years removed from the immediate impact of the Asian Financial Crisis, the Philippines was strong enough to be as devastated as some jurisdictions around us but not strong enough to be deemed resilient. Before then was the so-called Tequila crisis and the Philippines figured in several publications as among the “most likely jurisdiction” to fall next. During those years, changes were also introduced. Back then, the question was also raised: Do we have to do these reforms now? The point of the matter is that reforms are inconvenient because they introduce change and change needs to be managed. The strength that we see around us in the industry is the byproduct of calibrated change. And as the Central Monetary Authority, we have every intention to continue enabling the operating environment within the context of a pro-active culture of risk management and financial governance. The point, ladies and gentlemen, of all these is that the “position of strength” that we so cherish today is the result of reforms. This is the reward for introducing the facets of change that we needed, even when it was unpopular to do so. But in the end, it cannot be just the standards that have made a difference. Instead, we do recognize that the market has – to a large extent although not absolutely always – conducted itself in a prudent and professional manner. It is this combination of prudential governance and market conduct that has gotten us this far. As a community, we clearly value it. It is to our best interest to sustain and also find ways to enhance it. Final thoughts At the beginning of my remarks, I said I had TWO words… I have only given you one – DIVERGENCE. Let me conclude with the second word – CONVERGENCE. In this divergent world, where each is driven by his own bottom line considerations, we come to realize that there is no exercise that does not leave us short of breath. Whether it is a proactive effort or an intervention to address parochial concern, the intention to make us better requires deliberate effort. There is no short cut to this and there cannot be easy wins if it is longer term competitiveness that is our objective. Strength is achieved, not granted. Reforms are consciously laid out, not wantonly enforced. Our efforts therefore need to CONVERGE towards purposeful reforms. If we value what we see around us in the industry today, let us actively find ways to improve ourselves and our operating environment. We are all vested parties and the future is a collective interest. This is the message I would like to share with all of you today. Be part of the pro-active change. Reforms are never convenient. But, with the right mix, they make us better. Indeed, we must find convergence in this divergent world we operate in. 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 Financial Sector Forum on ASEAN Corporate Governance Scorecard, Manila, 24 September 2014.
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Amando M Tetangco, Jr: Working on ASEAN governance standards Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Financial Sector Forum on ASEAN Corporate Governance Scorecard, Manila, 24 September 2014. * * * Good morning everyone and welcome to the Bangko Sentral ng Pilipinas. On behalf of the other members of the FSF – the heads of SEC, IC and PDIC – I also welcome everyone to this Forum on the ASEAN Corporate Governance Scorecard or what we call ACGS. The Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, the Insurance Commission and the Philippine Deposit Insurance Corporation are pleased that representatives from various sectors have joined us this morning to know more about the ACGS. This tells us that you and the institutions you represent similarly value corporate governance. As you and I know, good corporate governance is key to ensuring sustainable long-term growth. In this context, ACGS is important – it deserves our time and full attention. A joint initiative of the ASEAN Capital Markets Forum and the Asian Development Bank, the ACGS evaluates the top publicly listed companies in five categories, based on the following weights: 10% for rights of the shareholders; 10% for role of stakeholders; 15% for equitable treatment of shareholders; 25% for disclosure and transparency; and 40% for responsibilities of the Board. Benchmarked against international best practice, the ACGS provides a standard rigorous methodology that can generate comparable information crucial to investors, fund managers, the private sector, the regulators and governments. At present, the ACGS counts six participating ASEAN countries: Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines. This program is being done in parallel with other efforts to promote ASEAN as a competitive growth region. While the ACGS country reports and assessments for 2013–2014 said the performance of ASEAN publicly listed companies in applying recommended corporate governance principles is commendable, continuing improvements are called for. We agree. And all of us should strive to do so in our respective institutions, industries and sectors. Good governance has to be a culture not only within institutions but across our country. At this point, I will share a number of our initiatives at the Bangko Sentral. Over the years, we at the Bangko Sentral have been working on strengthening governance standards in banks. Among others, proposed directors of banks are subject to the confirmation requirements of the BSP. Our “fit and proper” standard covers not only competence, education and experience but makes specific reference to integrity, probity, as well as physical and mental fitness. In addition, we have mandated the creation of Board-level committees that will oversee Risk, Audit and Governance. We have also institutionalized a compliance system that should have the authority and independence to address the bank’s business risks. These are check-and-balance type structures which are integral to a bank’s governance, alongside its own culture on the management of articulated risks. Equally important, disclosure and transparency requirements continue to be enhanced. Among others, disclosure requirements cover potential conflicts of interest, Basel 3-eligible capital instruments with loss-absorbency features and cross-selling. In other words, ensuring good governance is never-ending; it is always a work in progress. BIS central bankers’ speeches Ladies and gentlemen. The strategic nature of corporate governance has tactical elements which are inherently actionable. This is what we aspire for: on one hand, we want to institutionalize the public’s awareness of the value of corporate governance; on the other, we want corporate entities to practice what is globally preached and to build a Philippine brand that can stand side by side with other corporates in the region. To do just that, we need to monitor the execution of these standards at the institutional level. This is where we are today. I trust therefore that this forum can contribute towards greater understanding of the ACGS. We in the FSF also would like to see our corporates – banks and non-banks, listed and not listed – to be able to apply best practice standards and to hold themselves against the bar of providing a value proposition to the general public. While the Philippines has made big strides to move our economy forward and achieve investment grade rating, certainly we should strive for high standards of governance to ensure sustained and inclusive growth for our people. Ladies and gentlemen, having a successful and productive forum today on the ASEAN Corporate Governance Scorecard is one more step forward in our continuing efforts to make the Philippines fulfil its full potential in the midst of regional integration. Thank you all for joining our forum. Mabuhay po tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! 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 Philippine Economic Briefing, Manila, 30 September 2014.
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Amando M Tetangco, Jr: Infrastructure, inclusiveness, institutions – raising the Philippines to the next level Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Philippine Economic Briefing, Manila, 30 September 2014. * * * Honorable members of the Economic Team, Cabinet members, members of the Diplomatic Corps, our partners from the private sector and multilateral institutions, colleagues from government, friends from media and civil society, ladies and gentlemen, good morning and welcome to the 2014 Mid-year Philippine Economic Briefing. The theme for today’s economic briefing is “Shaping our Future”. We have chosen this theme to help bring to mind that we can proactively define our direction and goal as a country. It is also a call for us not to merely look back to the past or to leave the future to chance. Our Investor Relations Office has designed today’s briefing so we would all come to appreciate a future that we can all aspire for – that is, a more open, robust, dynamic and inclusive economy. Solid macroeconomic environment Let me first note that aggregate demand conditions continue to be solid. In the first half of this year, the Philippines grew at 6 percent. This growth has been fueled by a broader set of growth drivers and continues the streak of consecutive quarters of positive growth since 1998. Inflation (actual and forecast) remains within target. Although inflation has been elevated and risks to future inflation have remained tilted to the upside, the outlook continues to be manageable. Meanwhile, we have seen strong structural flows, including remittances and receipts from BPO and tourism. These have allowed us to build up ample international reserves and support our external sector dynamics. Our banking system remains a vital lynchpin for growth. It continues to be characterized by sound metrics such as growing deposits and assets, strong capitalization, ample liquidity, favorable funding profile and solid lending growth. Risks that can challenge the ongoing narrative Even as our fundamentals show strength and we have built buffers against external shocks, we remain cognizant that there are risks that could challenge this positive narrative. For instance, there is the uncertainty over the timing and magnitude of the US Fed policy shift into more normal mode. This headwind could take many forms, among others: financial stability pressures from repricing of credit; sharp downward adjustments in prices of real and financial assets; and, capital flow volatility that could re-emerge as global investors react to news. If these risks are not managed well and result in unwarranted tight financial conditions, fragilities in EME financial markets could be exposed. In turn, these could negatively feedback to the real economies of EMEs. On the part of the BSP, although our series of monetary tightening actions in the past few months have been principally aimed at managing inflation expectations, these have also been put in place to help guide the domestic financial market to a smooth transition as monetary policy begins to normalize in the US. In the case of the domestic economy, the key challenges over the medium term are likely to relate mainly to addressing potential supply-side bottlenecks, bridging identified gaps in existing infrastructure, minimizing the impact of natural calamities, and promoting greater economic inclusion by, among other things, generating more employment. BIS central bankers’ speeches What can bring PHL to the next level? Our economy’s resilience has been supported by sound macroeconomic policy. Even so, the reform agenda remains very much a work-in-progress. The challenge now lies in sustaining our good performance and consolidating our gains, even through difficult times. As I indicated at the top of my remarks, our main priority is to achieve sustained, stronger, durable, and more inclusive growth. This priority could be promoted by three I’s – Infrastructure, Inclusiveness and Institutions. These three will be tackled in greater depth during the panel sessions throughout this morning. But allow me now to just quickly run through each one. The need for the first “I” – infrastructure – is straightforward. The Philippines has serious need for more infrastructures. First, to deliver important services and facilities to the people. These include well-ordered affordable mobility within the urban areas, efficient transport/delivery of goods and services between our islands, and the provision of low-cost and reliable (electric) power to the whole archipelago. Second, to enhance the attractiveness of the country as an investment destination by improving the local business climate and reducing the cost of doing business in the country. The Philippines boasts of a highly skilled workforce. To be able to deploy more of this workforce into well-paying value-added jobs, we need to bring in more foreign direct investments that will build industry. With the performance of the fiscal authorities, the National Government has been able to broaden its fiscal space. This gives it room to elevate public spending on infrastructure and foster public and private partnership. It is also imperative that we focus our efforts on Inclusiveness, the second I. We must create an environment that not only enables more of our countrymen to enjoy prosperity as the economy grows… but also one where they can actively participate in making the economy grow. Indeed, durable economic growth is one that is inclusive. It must cast a wider employment net in a broader set of industries, while remaining entrepreneur-friendly. On the BSP’s part, we continue to strengthen our initiatives to promote greater financial inclusion through regulations that broaden access to financial services and programs that deepen financial learning. Finally, we must foster responsible and responsive political and economic institutions, the third “I” – Institutions that are anchored on ethical and transparent governance systems. Institutions that would engender a sound and upright policy framework… that would enforce the nation’s laws and regulations faithfully and consistently that would ensure the smoother functioning of the economy. The ongoing efforts to establish such institutions should help promote a stable and dependable business environment where entrepreneurial activity – particularly of the SME variety – can flourish. On the part of the BSP, we continue to support the country’s macroeconomic fundamentals by firmly adhering to our mandate of safeguarding price stability and ensuring that the financial system remains resilient. The BSP will continue to draw upon its policy toolkit to ensure that liquidity remains adequate to fuel the economy’s requirements in an environment of low and stable prices. We will also continue to maintain a flexible exchange rate policy that allows the market to essentially determine the exchange rate, but with scope for official action to ensure against any excessive volatility. The BSP will likewise continue to pursue banking reforms, in line with the global financial reform agenda, that would help further strengthen banks, individually, and the system as a whole. Let me conclude on this note – The positive transformation of the economy that we now enjoy is the result of critical structural reforms, along with careful macroeconomic management. While we have amply demonstrated that we are capable of instituting critical reforms, we at the same time, continue to be mindful that the operating environment is evolving, and therefore we need to carefully move in step. And this is what we are doing. Reforms will continue to play a significant role in further propelling economic activity going forward. As we are well aware, government cannot craft and implement reforms alone. We BIS central bankers’ speeches need your partnership. We need your support. For it is only if we work together that any structural reform agenda would be truly transformative towards durable and inclusive economic growth. Thank you and a pleasant day to all. 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 Balikat ng Bayan Awarding Ceremonies and the launching of the Personal Equity and Savings Option Fund of the Social Security System, Quezon City, 25 September 2014.
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Amando M Tetangco, Jr: Banking on social safety nets Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central bank of the Philippines), at the Balikat ng Bayan Awarding Ceremonies and the launching of the Personal Equity and Savings Option Fund of the Social Security System, Quezon City, 25 September 2014. * * * On behalf of the Bangko Sentral ng Pilipinas, I congratulate the SSS for making its 57th anniversary truly meaningful for two things: first, by recognizing its partners in the challenging task of bringing social security services to its members; and second, by introducing service enhancement to its members through the SSS Personal Equity and Savings Option or what you call the PESO Fund. As an institution that has accumulated 31 million members over 57 years, the SSS has its hands full not only in preparing its members for retirement, but also in helping members face intermittent financial challenges from maternity, sickness, disability and other contingencies. In this connection, the SSS PESO Fund provides a viable option for members with excess earnings to contribute more to this tax-free fund to receive higher benefits in the future. With such a big customer base, the SSS and its PESO Fund could be a game-changer in terms of promoting the habit of saving and investing regularly among Filipinos. The BSP’s Consumer Expectations Survey released early this month indicated that 26.9% of our households have savings. Of these households with savings, 67 percent have bank deposit accounts; 10 percent put their money in cooperatives, paluwagan and other credit/loan associations; while 23 percent kept their savings at home. It is also interesting to note that 35 percent of households said they could set aside money for savings during the third quarter this year. Moreover, one-third of these households said they could save 10 percent or more of their monthly gross family income. According to the respondents, they save money for the following reasons: for emergencies; retirement; health & hospitalization; education; and business capital & investment. In other words, there remains a lot of opportunities for scaling up savings mobilization. What magnitudes are we looking at? Well, as of March 2014, the Philippine banking system had 37.8 million depositors who had saved 7.7 trillion pesos in 46 million deposit accounts. On banking and pension It may not be pronounced, but there is a significant convergence between banking and pension planning. Several aspects stand out. First, both reinforce the value of saving on a regular basis. After all, preparing for life after retirement is the prudent thing to do. The ideal situation is to have sufficient funding of our own after we retire. In the absence of private capacity, it is essential for countries to have effective public pension services. This underscores the importance of a strong SSS. Without a doubt, pensions are important. They epitomize the value of preparing for your future – a validation of the significance of our lifelong career. Second, each time SSS extends benefits to its members, they are reminded of the value of regularly setting aside part of their income for the rainy days. This is important for the banking industry as well. It is the accumulated savings of our people that allow our banks to lend for economic activities that create and keep jobs. BIS central bankers’ speeches Third, banks are essential channels for the collection of SSS premiums as well as for the distribution of the benefits to its members and their beneficiaries. This synergy between the SSS and our banking system is bound to continue moving forward. Fourth, is the importance of the capital market to both the banking sector and to the SSS. From the accumulated contributions of its members as well as earnings derived from its fund management, SSS has become a significant market player. I understand that as of July this year, 38 percent of the total investments of SSS is in government securities, 26 percent in equities, and 5 percent in corporate notes and bonds.1 This portfolio structure of the SSS is important because you accumulate assets today but your liabilities are in the future. You need a market that bridges the idea of “today” with that of the “future” and that is the capital market. In this connection, the BSP’s initiatives to help develop and deepen the domestic capital market will present the banking sector and the SSS with more opportunities for investment diversification. Because of the fiduciary role of the SSS, your ability to manage both sides of your balance sheet is crucial. In particular, investing your reserves prudently, while being mindful of the short and long-term financial requirements of your membership. The SSS needs to be strong to service the social need for our pension system – to take care of us when we are past our retirement age. In an economy where not everyone is born with enough resources, we need a social safety net when we are no longer working. Finally, the state of the economy, employment, and capital markets are vital factors for both the banking system and the SSS in charting their course. Let me therefore spend the next few minutes to speak about our macroeconomic environment. The Philippines has been experiencing strong growth in a low inflation environment. In particular, we have had 62 quarters of consecutive positive real economic growth and five consecutive years of within target inflation. In the second quarter this year, our GDP grew 6.4 percent, making the Philippines, together with Malaysia, the second best performing economy in Asia, next only to China. At the same time, inflation was 4.9 percent in August, still within the 3–5 percent target band for this year. Having said these, I will be the first to say that risks to growth remain. External factors – including the uneven growth in major economies, uncertainties surrounding monetary policy in the advanced countries, and geopolitical concerns – could impact the Philippine economy through trade and volatilities in domestic financial markets. Here at home, weather disturbances and recurring concerns about power rates and supply could also affect growth. Still, I believe the Philippines will overcome these challenges and continue its growth trajectory. Our economic fundamentals remain sound and solid. This is because we have been instituting purposeful reforms; we have been keeping our own house in order, so to speak. Sure, we are far from perfect, but our continuing reform agenda has served us in good stead in this highly interconnected global environment. Among others, we have a sound, stable, well-capitalized and liquid banking system that continues to attract record high deposits and provides credit to our productive sectors. We have a strong external position that provides sufficient buffers from possible external shocks. For instance, our gross international reserves amount to $80 billion, enough to support 11 months of imports and payments of services and income; in the past, three months was good enough. Sustained strong remittances from overseas Filipinos, export Investments and Assets as of July 2014. Fact and Figures. Social Security System. BIS central bankers’ speeches earnings, BPOs and tourism are behind this strong external position. In this period of external volatility, this is an anchor for stability. Final thoughts Ladies and gentlemen, if banking is about taking care of our financing needs, pension is about taking care of us when we are no longer working. As has been said, “Banking is saving … pension is the reward for saving.” In this context, we look forward to a stronger and self-sustaining SSS. For the SSS, sustained economic growth can only mean more members and better yields on its funds. In the case of SSS and the BSP, we share a common goal of financial education to empower and help improve the lives of Filipinos. The BSP has a national economic and financial learning program that reaches out to all age groups starting from Grade I to college students to young professionals as well as overseas Filipinos and their families. The capability of SSS to reach out to millions of its members gives it tremendous advantage in promoting financial education. We are confident that SSS, under the leadership of Chairman Santos and Pres. De Quiros will not pass on this chance to nurture financial literature and more financially-stable Filipinos. We can work on this together. The BSP and SSS. In the process, we will help maintain the stability of our financial system and promote sustained economic growth that is truly inclusive. Once again, congratulations to the women and men of the SSS on your 57th anniversary. Mabuhay ang SSS! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Pension and Investment Summit, Makati City, 20 October 2014.
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Amando M Tetangco, Jr: From saving to investments and to retirement – the role of inclusive growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Pension and Investment Summit, Makati City, 20 October 2014. * * * I am pleased to join you today for the “Philippine Pension and Investment Summit.” This Summit is yet another venue to discuss, strengthen and see how best to employ the synergies that link banking, trust and pension fund professionals. At the outset, let me say that at the level of the macro-economy, we urge our consumers to develop the discipline of saving. To move further forward, however, we would want these savers to eventually migrate into retail investors. This transforms the paradigm from protecting principal only (saving) to building capital (investing). While it is understood that investments carry financial risks, it is also well appreciated that preparing for the uncertainties of the future cannot be fully addressed by protecting principal alone. It is likewise accepted that preparing for the future cannot be properly done without an organized approach. Such an approach requires setting viable financial targets for each saver-cum-retail-investor in a way that responds to their own unique situation. That in turn means managing financial risks within the realm of what can be tolerated by each of those financial consumers. This is why banking, trust, and pensions are inherently interconnected and symbiotic. But this does not mean that they are interchangeable. Instead, each has a distinct role to play, offering savers a value chain that they may want to consider. The same symbiotic relationship must also exist between individuals, the financial market and the real economy. The expansion of the macro-economy must ultimately translate to welfare gains for individual consumers, broadening the economic base which financial markets can service both as depositors and as borrowers. This measure of inclusiveness – in the form of the general public’s access to financial products and services as well as the ability of growth to reflect and reward collective effort – is the hallmark of stability. This is what we aspire to achieve as a nation, the same norms which the BSP has consistently been advocating and working on for some time now. Underpinnings of quality growth An interesting question does arise: Can we not allow growth to simply define the prospects and fortunes of each individual? The answer to this query is a definitive “NO” and it goes back to the socio-economic profile of our economy. Official data 1 show that 69.3% of saving can be attributed to 20% of families while the bottom 50% of Filipino families can only generate 6.2% of total saving. We also know that 37% of our 1,634 cities and municipalities do not have even one banking office. 2012 Family Income and Expenditure Survey. BIS central bankers’ speeches These data suggest that there is much that needs to be done. It is not just growth but the quality and inclusiveness of such growth that will allow our financial consumers to better prepare for their future. Perhaps, before I go any further, it is useful to take a quick look at the broad indicators of economic and financial well-being. Certainly, the economy continues to grow. To-date, we have had 62 consecutive quarters 2 of positive economic growth which has been achieved while keeping prices stable. Inflation has been within the government’s target range for the last five consecutive years. We expect this year to be the sixth year of within–target inflation. These alone suggest that opportunities are being created through the real economy and these gains are not being dissipated by inflation. Moreover, we have sizeable buffers for external shocks. As of end-September this year, the country’s gross international reserves stood at US$80.43 billion, enough for 11 months’ worth of imports of goods and payments of services and income. While economic endowments often dictate our external trade dynamics, our current level of reserves do tell us that the flow of goods and services will not be immediately at risk if unforeseen external shocks arise. The financing of this growth and expansion likewise show strength. As of June this year, the total loan portfolio of banks reached Php5.21 trillion, continuing its double-digit growth trajectory over the past five years. Banking data confirm inclusiveness All of these data confirm that we have been experiencing not just growth but rather increasingly participative growth. Let me take a look at developments in the banking sector. True enough, the numbers speak for themselves. Bank deposits, for instance, sustained their growth both in value and number of accounts. As of June this year, the industry posted outstanding deposits of Php 7.9 trillion after growing annually by about 13 percent for five years. Supporting the view of inclusiveness, data from the BSP indicate that there are about 47 million deposit accounts held by 38.4 million accountholders in June 2014. This is a considerable increase from the 40.1 million accounts in the name of 31.1 million depositors that was recorded as late as March 2012. The number of unbanked municipalities has also dropped, mainly due to a rise in alternative channels that target low-income clients. We have seen a rise in the use of electronic money; an increase in the number and reach of automated teller machines; as well as the expansion of the microfinance portfolio of the banking industry. This last point is critical because we are aware that microfinance responds to its stakeholders by calibrating related products and services to meet the idiosyncratic needs of its constituents. Exciting times – synergies These banking indicators point to a rise in retail savers – the very segment who we believe can migrate into investors as they prepare for their future through trust and pension products. These are clearly very encouraging developments. They reflect growth and portend of opportunities while institutionalizing the synergies among financial institutions and professionals in banking, trust and pensions. Derived from 62 quarters of consecutive growth ending Q2 of 2014, “Banking on Safety Nets,” Gov’s Speech during the SSS Balikat ng Bayan Awarding Ceremonies and PESO Fund, 25 Sept. 2014. BIS central bankers’ speeches It is not enough to preserve these gains. Rather, we need to build upon them so that we continue to dynamically prepare for the uncertainties facing differentiated individuals. Fortunately, we see some points of convergence that we can focus on: First, the country’s widening banking network can provide more access points for the convenient collection of premiums and the distribution of pension benefits. Second, BSP-supervised trust entities can broaden their participation in the pension system by managing the employee benefit funds of private firms as well as the trust funds of preneed companies. As of end-June this year, only 13.7% of assets under management of BSP-supervised trust entities are those of employee benefit programs as well as individual retirement and pension funds. This is an area where improvements can be made, especially when you consider the very nature of the trust business. Third, under the IRR of the Personal Equity and Retirement Act, trust entities are allowed to serve either as product provider, administrator, investment manager or securities custodian of retirement funds that are over and above those that the GSIS and the SSS provide. Fourth, the amended Insurance Code now allows insurance companies to engage in limited trust business by becoming a trustee for employee benefit and pre-need plans such as pension. Fifth, there are individual initiatives which clearly manifest an interest to help out a broader spectrum of financial consumers. The SSS, for example, launched in 2012 its “Al-kanSSSya” program for the self-employed and informal sector workers. The program reaches out to such people as farmers, fisher folks, market vendors and tricycle drivers who are precisely the target of the BSP’s microfinance initiatives. There is another innovative scheme in micro-pension, which will be discussed later in the forum today. Let me not pre-empt the discussions on this point but suffice it to say that the BSP would like to see those outside of the formal market to likewise benefit from a pension system specifically designed for their needs. Consumer protection All of these five points of convergence are indeed actionable today. But I trust that we also do not overlook that facet which is underpinning all of them. Heightening financial inclusion necessarily requires high standards of financial consumer protection. Connecting saving with retail investments and trust products as a way to organize one’s preparation for retirement certainly leaves uncertainty on the table. There is uncertainty across products, across risks and across time. Since financial institutions are expected to have more and better information than saverscum-retail-investors, FIs must be given a specific responsibility towards consumer protection. The BSP’s consumer protection framework supports this policy objective. The framework requires BSP-supervised institutions to adhere to identified global best practices such as disclosure and transparency, treatment of clients, protection of client information and dispute settlement. Our end in view with the framework is to set a standard for market conduct, empower the financial consumer through financial awareness while providing for the means of protection and redress. This approach should ensure for better balance, the type of balance between stakeholders and between competing interests that allow markets to thrive and be selfsustaining. BIS central bankers’ speeches Pension sustainability The issues before us are certainly critical because much is at stake. But before we proceed with today’s discussions, it may be useful to consider where we are in the area of pensions. A recent study by the Asian Development Bank 3 notes that “expanding the economy” is integral to the sustainability of the Philippine pension system. This is a validation of the virtuous cycle where a growing economy is expected to generate employment, foster higher collection of premiums and enhance the growth potential of the domestic pension system. At the same time, economic growth reflects the inputs of stakeholders – both labor and capital – that allow such growth to materialize. But growth alone – as I have been suggesting – cannot be the only factor. If you review the recent rankings of the Melbourne Mercer Global Pension Index, Singapore is the only Asian economy that ranks within the top 10 (ie, ranked 10th in 2014). China, Indonesia, Japan, South Korea and India have the same qualitative result and are ranked 21st to 25th. Singapore’s score – which is better than that of the US, Germany and France – falls under the category that describes a “sound structure with many good features but has many areas for improvement”. On the other hand, the five other Asian jurisdictions I cited are categorized as having “some desirable features but also has major weaknesses”. What this tells me is that we have a lot of things that we can work on. But we also have our peers as guide and reference. We can learn from them and I am sure that we can make such a journey forward. Final thoughts Ladies and gentlemen, I have repeatedly said this morning that there are synergies between banks, trust entities and pension funds. There is likewise that symbiotic relationship between different facets of the financial market and the real economy. These different means of interconnectedness will ultimately converge upon our financial consumers. A more inclusive financial market allows each individual to become a saver and a responsive financial market nurtures individual savers to become retail investors. As the economy grows, it is the inclusiveness of such growth that provides opportunities that loop back to our consumers, first as economic agents and then ultimately as financial consumers. It is only with these interconnected parts that a saver can properly prepare for the uncertainties of the future. And while we have shown that we can grow despite global shocks and with a growth path that portends of quality and inclusiveness, we also know that there is much more that needs to be done. Perhaps it is a dream. That dream is for the Philippine pension system to rank high up in the Mercer Index while sustaining the current momentum on financial inclusion and achieving a more inclusive economic growth. It may sound like a dream but much like the Philippines achieving sovereign investment rating, dreams are meant to be pursued, collectively and in an organized manner. I trust that all of us can dream the same dream. And I trust that the pursuit of such dream starts today. Thank you very much and have a good day. Pension Systems in East and Southeast Asia: Promoting Fairness and Sustainability, edited by Donghyun Park, published 2012 BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 16th Inter-Collegiate Finance Competition of the Financial Executives Institute of the Philippines, Manila, 20 October 2014.
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Amando M Tetangco, Jr: Nurturing excellence in finance education Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 16th Inter-Collegiate Finance Competition of the Financial Executives Institute of the Philippines, Manila, 20 October 2014. * * * Good afternoon everyone and congratulations to all the students and mentors who are part of the FINEX-JP Morgan Chase 16th Inter-Collegiate Finance Competition or ICFC. I learned that 100 teams from finance schools across the country competed to join the 20 finalists this year. This year therefore had the highest school participation in ICFC’s 16-year history. That you made it here today tells us that the hours, weeks and months you have dedicated in preparation for this event have been time well spent. You stepped up the plate and accepted the challenge of being part of a team under the guidance of your mentor to represent your school and your locality. Your school, your parents and your friends must be proud of you. Well done! I am also happy to note there is fair geographical representation at ICFC: Mindanao has four teams in the finals; Visayas has three; NCR has five; and the rest of Luzon has eight. Indeed, we can say circles of excellence for finance education can be found across our country. I am also glad that ICFC maintains its cross-border linkages – the University of Guam is part of today’s competition. This is one way of preparing our students to develop a global perspective. Indeed, with ASEAN economic integration just around the corner, it is a must to develop not only a national but also a regional and global mindset. With economic integration, market opportunities expand beyond Philippine borders and our 100 million population to the 10-nation ASEAN with a combined population of over 600 million. The ability to transform these opportunities into reality will go to those who are best prepared to meet competitive challenges. In this context, our finalists are already on the right track. I am positive you will succeed as professionals if you will continue to nurture the discipline, the drive to excel, the strong team spirit, the mental toughness, and grace under pressure that have brought you here. Indeed, many of the world’s greatest achievers could not have reached their level of success without learning how to stay calm under pressure and to sustain a particular psychological readiness and mental preparedness when the need arises. Equally important, it is necessary that you become exemplars of integrity and fairness. As a wise man once said, it is the convergence of knowledge and proper values that improve the lives of many. Ladies and gentlemen, all of us know the importance of keeping the financial system in the pink of health since it affects the economy and the lives of the people as well. To give you an idea of the magnitudes involved, data as of June 2014 reveal that consolidated deposits in the banking system reached a record high of P7.9 trillion, as confidence in our banks remain strong. It is essential therefore to ensure that the people responsible for running the finances, whether of a single institution or the financial system as whole, meet the high standards of their job. In the Philippines, development policies and programs have led to over 15 years of uninterrupted economic growth; this has improved the lives of many Filipinos. However, we have to exert more effort as today, one out of four or over 20 million Filipinos still live in poverty. BIS central bankers’ speeches This is the reason why the Bangko Sentral ng Pilipinas is implementing a nationwide economic and financial learning program that provides lessons on saving, investing, and money management for students, for overseas Filipinos and their dependents, for entrepreneurial individuals who venture into microfinance, and for our small- and mediumscale entrepreneurs who are looking for credit to finance their business. We aim to provide an equal chance for our people to gain access to the empowering effects of financial education. When empowered, a knowledgeable citizenry effectively contributes to the productive activities that drive economic growth and development. Our strategy is to develop an inclusive financial system that promotes inclusive growth. In this connection, the continuing program of FINEX to raise the quality of finance education across the country through its mentoring program and through ICFC are steps in this direction. This is capacity building in different areas in our country for people who will man our financial system in the future. Indeed, we need highly capable financial people all over the country to manage banks and financial institutions that keep our economy growing. This is the reason why the BSP- FINEX partnership endures. In fact, this is the seventh year that ICFC is being held here at the Bangko Sentral ng Pilipinas. I also acknowledge all the schools, teachers, students and parents who give importance to the ICFC through their active and dedicated participation. For instance, I learned that not even typhoon Mario stopped the elimination rounds for the best finance teams. Equally important, we value the agreement of the schools and FINEX to include ethical practices and social responsibility in the education of our finance students. I highlight this point because the natural pursuit of fostering a healthy bottom line should always be within the parameters of ethical and social responsibility standards. At work, market practitioners, leaders of banks and financial institutions have the power and the responsibility to strengthen the value of good governance among their employees by walking their talk. For institutions to be able to stay in their respective businesses for the long haul – whether they are private or government, three attributes are indispensable: excellence, integrity and good corporate governance. Indeed, excellence, integrity and good values should constantly be a part of our life wherever we are, whether we are at home, in school, or at work. Again, to the finalists in this 16th ICFC, I salute you for being the best that you can be. While prizes go to those who top this competition, in my book, you are all winners. Serve our country and our people well by developing into world-class leaders who are ethical and socially-responsible. I also thank the organizers from FINEX, JPMorgan Chase and the other partners for making finance education and this annual ICFC a truly exciting event for our schools and students across the country. This event reminds me of what the late American President John F. Kennedy once said, and I quote: “Let us think of education as the means of developing our greatest abilities, because in each of us there is a private hope and dream, which, fulfilled, can be translated into benefit for everyone and greater strength for our nation.” Ladies and gentlemen, it is in this spirit that I ask that we continue to work together to nurture excellence in finance education. Hanggang sa muli! Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Foreign Correspondents Association of the Philippines (FOCAP) Media Forum, Makati City, 29 October 2014.
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Amando M Tetangco, Jr: Keeping the house in order amid mounting uncertainties Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Foreign Correspondents Association of the Philippines (FOCAP) Media Forum, Makati City, 29 October 2014. * * * The last time I joined you in this Forum was at end November 2013. Since then, the Fed taper had become a reality – this week, the Fed is expected to announce the end of its asset purchase program. The market frenzy about the onset of the taper was replaced by an eerie calm as soon as it actually commenced. In the six months or so that followed the beginning of taper, the 10-year US Treasury as well as the DXY traded in a relatively narrow band. The second half of the year, however, was not as calm. The market moved from a belief that the Fed would raise its target rate sooner than earlier anticipated (because of strong US data releases), to a belief that the Fed would still keep rates low “for a considerable time”. In either case, the strong USD dollar story had begun to form a solid base – market caused the DXY to start to ratchet up and the 10-year Treasury yield to begin falling precipitously.1 This fundamental story was not, however, without challenge. There were bumps along the way as the ECB brought short-dated interest rates to negative territory, as tensions in Ukraine increased, and as multilateral bodies continued to predict weak global growth (the IMF described it as “mediocre”.) Throughout this period, our own peso GS curve flattened while peso tracked the DXY movements. Such irregular shifts in global market behavior confirm the need for economies to insulate themselves from spillovers from these external volatilities. In the BSP, we have long subscribed to the idea that the best way to do this, is to make the difficult and tough choices that would keep our own house in order. This reminds me of the classic children’s story about the Three Little Pigs. The first two pigs took the easier way of building their houses, using straws and sticks, while the third little pig built his house using bricks. On the day the Big Bad Wolf attacked, only the house of bricks stood unscathed. The moral of the story is simple: there is no substitute for conscientious preparation and hard work to guard ourselves against the Big Bad Wolf. Analogous to the construction of the brick house in the story, the Philippine economy was built through the pursuit of wide-ranging, and at times difficult, policy reforms over several years which allowed the economy to endure several Big Bad crises. Building the house of bricks 1. The output expansion we have realized for the past two decades has been built on purposeful structural reforms supported by disciplined macroeconomic policymaking. This paved the way for the economy to increase investments, pursue fiscal consolidation and reduce debt, improve labor dynamics, and enhance competitiveness, all of which contributed to the Philippines becoming one of the fastest growing economies in emerging Asia. 2. Our efforts toward maintaining price and financial stability also bore fruits. Last year marked the fifth straight year that the inflation target has been achieved. Inflation in the first nine months of 2014 at 4.4 percent is also well within the government’s full year target of 3–5 percent. On the other hand, amid bouts of financial market volatilities, ample liquidity in the system granted domestic borrowers with continued access to domestic financing to support economic activities. The 10-year US Treasury traded at 2.137 pct. on 15 October 2014. BIS central bankers’ speeches 3. The country’s current account remains in surplus, supported by sustained increase in overseas Filipinos’ (OFs) remittances, business process outsourcing (BPO) revenues, as well as tourism receipts. Our foreign exchange (FX) reserves are adequate to meet the country’s FX liquidity requirements. 4. Sustained structural reforms have kept our banking system in good shape, demonstrated by improved quality of banks’ assets and loan portfolios, profitability metrics as well as adequacy of capital. The BSP is also on track with the requirements under the ASEAN Financial Integration Framework (AFIF) with the recent approval of the amendments to the Foreign Bank Entry Liberalization Law. 5. Meanwhile, in support of the national government’s (NG) overarching goal of achieving inclusive growth, the BSP ardently pursues the implementation of its financial inclusion program. We are further inspired with the increase in the number of participants in the BSP’s programs on microfinance, credit surety fund, and economic and financial learning. The potential Big Bad Wolves The Philippine economy also faces potential threats, the so called Big Bad Wolves. We remain mindful of the risks that could threaten the strength of the economy. Risks to price stability. On top of our watchlist is any possible dislodgement of inflation expectations should strong second round effects (transport fare adjustments and power rate hikes) appear because of possible price pressures emanating from any short-term volatility in international oil prices on the back of geopolitical tensions. Risks to financial stability. We are mindful of market behavior in reaction to the monetary policy divergence across major advanced economies – timing of US Fed tightening and prospects of further easing by the ECB and BOJ. We are watchful of possible increased financial market volatility as market agents price/or mis-price risk based on their interpretation of the actions of authorities. There could be shifts from market complacency to panic. We are also closely monitoring household debt levels and corporate leverage and comparing these against bank lending standards. Risks to growth outlook. We monitor growth developments in our trading partners – US, Japan, China. In our domestic radar screen, we are monitoring possible spikes in commodity prices, delays in infrastructure and reconstruction projects, natural disasters as well as logistics bottlenecks. Keeping the house of bricks in order We cannot accurately predict when these Bad Wolves will attack… but we can build buffers. Let me focus on three strategies to keep our house in order: investing for the future, enhancing our policy tools, and putting the synergy principle in action. Investing for the future 1. The National Government is committed to investment-led growth. The NG will ramp up infrastructure spending, from 2.7 percent of GDP in 2013 to 5.0 percent of GDP by 2016. Higher allotment for infrastructure is doable now because we have sufficient fiscal space to do so. BIS central bankers’ speeches 2. The BSP, for its part, remains steadfast in maintaining price and financial stability to provide a macroeconomic environment supportive of investments. We will also continue to strengthen our regulatory framework for financial inclusion.2 Enhancing our policy tools 1. The BSP will continue to proactively use its enhanced tool set. We are well aware that the deployment of these tools is just as (if not even more important) than the tools themselves. You can therefore expect the BSP to balance timing and calibration of the use of its policy levers. This approach should have been evident in the recent series of adjustments in our monetary tools, which were calibrated and timed so as to 1) rein in domestic liquidity growth, 2) pre-emptively arrest possible second-round effects of supply shocks and 3) anchor inflation expectations.3 So far, the numbers reflect that these moves have achieved what they were set out to do. With the latest Fed communications pointing to a more dovish approach to its tightening plan, the BSP may be able to bide some time to allow these policy adjustments to pass through to the economy. 2. The BSP also issued several regulatory reforms to further strengthen risk management practices in the banking system and enhance capital buffers against possible unforeseen shocks. These measures include: (a) implementation of real estate stress test (REST); (b) approval of enhanced regulation on credit risk management of banks and quasibanks; (c) approval of guidelines for determining so-called “D-SIBs” or banks which are deemed systemically important within the domestic banking industry; and (d) increase in the minimum capital requirement for all bank categories, on top of the capital requirement under Basel 3. Putting the principle of synergy into action 1. The BSP recognizes the importance of the synergy principle in dealing with risks to price and financial stability. Thus, we coordinate with other agencies such as the National Food Authority and Department of Agriculture on issues related to prices of rice and other crops; Energy Regulatory Commission on power rates; and Land Transportation and Regulatory Board on public utility vehicle fares. 2. The BSP is also an active member of external committees that broadly endeavor to strengthen and protect the country’s financial sector. These include the Financial Sector Forum (FSF) and the Financial Stability Coordination Council (FSCC).4 The main goal of the FSF is to harmonize financial regulations and address any financial regulatory gaps, while the FSCC aims to identify, manage and mitigate the build-up of systemic risks. These are consistent with the overall prudential objective of financial stability. We are pleased to note that as of end-2013, we have recorded 1.5 million micro-deposit accounts and a total of P8.7 billion microfinance loans availed. We have also recorded about 837 thousand MSMES with outstanding loans from banks amounting to P385 billion. These include: (a) increasing key policy interest rates by a total of 50 bps to 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and to 6.0 percent for the overnight lending or repurchase (RP) facility (25 bps each on 31 July 2014 and 11 September 2014); (b) increasing the rate on the Special Deposit Account (SDA) facility by a total of 50 bps to 2.5 percent across all tenors (25 bps each on 19 June 2014 and 11 September 2014); and (c) raised banks’ reserve requirement rate by one percentage point to 19 percent effective 4 April 2014 and further to 20 percent effective 30 May 2014. The FSF is composed of the BSP, the Securities and Exchange Commission (SEC), the Insurance Commission (IC) and the Philippine Deposit Insurance Corporation (PDIC). The FSCC is composed of the BSP, Department of Finance (DOF), IC, PDIC, and SEC. The BSP chairs both the FSF and the FSCC. BIS central bankers’ speeches Let me conclude by saying that with continuous pursuit of meaningful policy actions and reforms, I am confident that the Philippine economy can withstand the Big Bad Wolves along the way and remain sturdy as the house of bricks in the story. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SharePHIL's (Shareholders' Association of the Philippines) 7th General Membership Meeting and Forum on "Improving Financial Literacy and Increasing Financial Inclusion to Sustain Economic Growth", Manila, 5 November 2014.
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Amando M Tetangco, Jr: Improving financial literacy and increasing financial inclusion to sustain economic growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SharePHIL’s (Shareholders’ Association of the Philippines) 7th General Membership Meeting and Forum on “Improving Financial Literacy and Increasing Financial Inclusion to Sustain Economic Growth”, Manila, 5 November 2014. * * * I am delighted to join you for your 7th General Membership Meeting. For this afternoon, I have been asked to speak on improving financial literacy and increasing financial inclusion. These are critical advocacies of the BSP and I would be more than happy to share my thoughts on these intertwined issues and how these could translate to sustaining economic growth. But before I get to this topic, let me also express how much I truly welcome the efforts of SharePHIL in making the investing public aware of their rights, duties and responsibilities as stockholders of corporations and institutions. One cannot overemphasize how valuable this agenda is. After all, the rights to information, to speak and be heard, and for redress are inherent rights of all shareholders – whether majority or minority. This agenda therefore makes inclusiveness, or more specifically, financial inclusiveness, a desired public good. Challenge of execution Economics tells us that public goods are socially desirable outcomes for which private funding is limited. As such, the real challenge to the public good that is “financial inclusion” must certainly be one of execution. Financial inclusion is a key advocacy of the BSP as it is complementary to our mandate of maintaining price and financial stability. Financial inclusion carries with it the potential to equalize opportunities across segments of society and reduce the economy’s vulnerability to financial distress. In the BSP, we define our financial inclusion agenda around a three-pronged framework – Access to Financial Products and Services, Financial Education and Literacy, and Financial Consumer Protection. Each of these has a distinct contribution to achieving our objective just as each one is inherently intertwined with the others. The actual execution of our financial inclusion agenda can be likened to that of a ladder. Broadening access to financial products and services: At the first level/step, we would want to bring in more savers into the formal financial system. This is Financial Access. We achieve this principally by strengthening the banking/financial regulatory framework. This includes our efforts in terms of: 1. broadening stakeholder access specifically by rationalizing the requirements for establishing financial access points [for example, access is not limited to full banking offices or brick and mortar establishments… we now have Micro-Banking Offices and Financial Service Providers ] 2. improving the mix of financial products through the application of proportionate regulation [for example, allowing micro-insurance, microagri-loans and relaxed disclosure and other requirements, including partnering with industry associations to come up with new products such as the Kiddy Account Program], and 3. leveraging off technology to aid in creating more financial access points and products [for example, mobile and internet banking]. BIS central bankers’ speeches Such efforts are a calibrated intervention. We believe that financial markets should be made strong not because they are the exclusive domain of those who can save. Rather, their strength must rest on their ability to be responsive to the needs of stakeholders … all stakeholders. In this connection, I am happy to share with you that we now have fewer cities and municipalities that are considered unbanked. At the end of 2012, about 37 percent of cities/municipalities had no banking presence (either in the form of banks or MBOs). However, if we consider the increased presence of other financial service providers like ATMs, e-money agents, pawnshops, savings and loan associations, remittance agents and money changers, the percentage of cities/municipalities that remains unserved is lower at 12.6 percent. In what could very well be one of the most significant gains we have achieved as a community that remains not well reported, we have seen a sizeable increase in the number of deposit account holders. As of June 2014, we had 46.9 million deposit accounts versus the 39.7 million deposit accounts as of two years before. What is most notable of this increase of 7.2 million accounts is the fact that nearly 6.6 million of these accounts are those with balances of less than Php100,000. These are developments that do not normally catch the headlines or even the business pages. But they are tangible gains nonetheless which we need to sustain and further enhance. Deepening roots of financial education As the second level/step of this ladder, we want to encourage savers to migrate and become investors. As the BSP has consistently advocated, saving is much more than just income versus expenses. It is a discipline and a process. And central to that process is financial education so that individuals can safe-keep their principal while building up the capacity to set aside a portion for risk-taking and financial gains. It is this underlying shift in risk awareness that allows savers to make well-informed decisions and become retail investors. Along these lines, the BSP pursues financial literacy as an advocacy with fervent passion through various undertakings. Under our Economic and Financial Literacy Program (EFLP), we conduct briefings, seminars and expos across the country. We have offerings for the economic and financial consumer, shedding more light on economic statistics as well as sharing learnings on personal finance, including retirement. We discuss the basics of saving and money management, and make participants understand that financial products carry different risks, and help them appreciate their own risk appetites. We have been conducting different components of our EFLP since 2000 across the country and in areas around the globe where there is a concentration of OFWs. So far, the BSP has conducted various outreach learning activities in 54 percent of our 81 provinces nationwide, from as far as Laoag City in the north to General Santos City in the south. We have also brought our information campaigns to Hong Kong, Singapore, South Korea, Bahrain, Brunei Darussalam, Qatar, Saudi Arabia, Italy and the United Kingdom. We target our initiatives to varied audiences and for differentiated needs – students, professionals, families of our OFWs. We also partnered with the DepEd to develop teaching guides on saving and money management and incorporated these into the curriculum of public elementary schools. Interestingly, we have the Money Matters for Kids (MMK), which is for our young schoolers just as we have launched our AlertoAko exhibit to heighten awareness against financial scams and fraud. In other words, ladies and gentlemen, our financial education programs run the scale of a person’s economic life cycle. While it remains a challenge (in economic literature) to attribute improvements in economic and financial well-being to any financial literacy campaign, it stands to reason that financially BIS central bankers’ speeches well-informed individuals should make better decisions for their families, increasing their economic security. Secure families, in turn, are better able to contribute to their communities, further fostering economic development. Indeed, a financially educated citizenry is better able to navigate an economic crisis, when it hits them. And this is the philosophy behind our own EFLP… we believe that: “A citizenry that is well informed in economics and finance is a more effective partner of the BSP in maintaining the effectiveness of monetary policy as well as in ensuring a stronger and safer banking and payments system. At the same time, a knowledgeable citizenry is able to contribute more meaningfully to economic development and benefit better from the opportunities that development brings”. Extending the scope of financial consumer protection At each of the steps, the BSP recognizes that risks and opportunities can transfer between the consumers of and the providers of financial services – between the borrower or investor and the financial intermediary. Therefore part of our framework is to ensure that financial consumers are amply protected. To walk this talk, the Monetary Board approved earlier the adoption of the Financial Consumer Protection (FCP) Framework to institutionalize consumer protection as an integral component of banking supervision in the country. The new framework has been crafted based on the fundamental tenets of consumer empowerment, market conduct and collective responsibility. The Framework reflects the BSP’s own commitment to ensure that BSP-supervised financial institutions develop a culture of fair and responsible dealings while continually protecting the welfare of financial consumers. Our FCP framework embodies five consumer protection standards of which (1) Fair Treatment and (2) Disclosure and Transparency are consistent with the core values of SharePHIL. We hold our covered institutions to a standard of market conduct which similarly aligns to your vision of accountability. And certainly not the least, financial education is another of the five standards which aligns with the investor education initiative of the current leadership of SharePHIL. Translating financial inclusion to economic growth I hope I have been able to illustrate to you that the BSP framework on financial inclusion is a holistic process that goes beyond providing information. But we do not kid ourselves. We realize that it is, as the OECD principles of financial literacy say, “a lifelong, on-going, and continuous process that needs to take account of the increased complexity of markets, varying needs at different life stages, and increasingly complex information”. One should not be surprised then that the changes may seem “incremental” in nature. This does not suggest that the process is not taking hold. Instead, it does show that the change is taking shape and that these small changes may have much larger effects than we can immediately see. More broadly, we would like to see this financial ladder get wider as more of our citizenry are able to hop on … and reach greater heights as the resulting economic pie increases and more are able to share in the pie. We hope to see economic growth that empowers more of the citizens to be in charge of their financial future. This is our goal. More narrowly, what we hope to see is the maturation of the consumer into a saver and then to an investor. As these investors gain financial awareness and risk sophistication, we may actually find some of them to be the shareholders that we all focus on here today. Zeroing in on SharePHIL’s advocacy For this afternoon, I think it is clear that one cannot think of promoting the shareholder’s rights and empowerment without due consideration for the advocacies of financial inclusion BIS central bankers’ speeches and financial literacy. For clearly, the motivation behind these two advocacies is to level opportunities and attract even more investors into our financial markets. Going beyond lip service: the shareholder’s handbook Your core values neatly coined as “Faith to the Investor” speaks of fairness, accountability, independence, transparency and honor. These are essential, indispensable values. Who can detract from the need for transparency or the basic value of fairness? But while all of these are good and true, we also cannot be caught paying homage to its lip service. These are not mere governance concepts. Instead, they are actionable items with tangible desired deliverables. This is why SharePHIL deserves commendation for the launching of the Shareholders Handbook. It represents to me a concrete manifestation of transforming concepts into sharable ideas for the benefit of the public. As the handbook categorically states, it is for the prospective shareholder, the small and minority shareholder as well as the investor community, among others. It is noteworthy that the handbook talks of financial reports and ratios in both chapters 5 and 6. This is useful as one prepares for the stockholders meeting, for example. Chapter 8 of the handbook goes through great lengths to discuss details, even pointing to some questions that shareholders may which to ask. The items raised in chapter 4 on choosing a stockbroker and the due diligence issues in chapter 3 will certainly be of value. All of the above materials are not exactly basic fare for someone just starting out from being a saver to a would-be investor. This is why the information in chapters 1 (Invest Intelligently) and 2 (Know Your Duties, Responsibilities, and Rights as a Shareholder) matter because they provide for the transition that one needs to take for the succeeding chapters. Capital market development: the overarching objective Ladies and gentlemen, while we have already covered much ground, there is still much more that needs to be done. In the end though, all our actions towards protecting minority shareholders nurture a culture of cooperation and symbiotic partnership among stakeholders. In turn, all that will eventually converge to the development of our capital market. This is explicit in SharePHIL’s vision and it remains one of the country’s overarching priorities. But, if we look inwards objectively, it will become clear that there remain key challenges ahead of us as we reach for the goal of a more developed capital market. Capital market actions require “big” changes whose ramifications are even “bigger” and more widespread. The “big change” here is that we are looking out for those who participate in this market but who will otherwise not have the collective position to instigate needed corporate reforms. This is about molding the corporate culture so that it is not about the majority versus the minority, but one of collective action on what needs to be done. “FAITH to the Investor”. This is your core value. This is what makes SharePHIL a market mover – one who is willing to work with others while at the same time be passionate in pursuing and enacting change when and where needed. Thank you very much and good afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 12th Citi Microentrepreneurship Awarding Ceremony, Kuala Lumpur, 3 December 2014.
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Amando M Tetangco, Jr: Microfinance improves lives and bank profits Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 12th Citi Microentrepreneurship Awarding Ceremony, Kuala Lumpur, 3 December 2014. * * * It is always a pleasure to celebrate yet another milestone year in the presence of the best among the best of our microentrepreneurs and the institutions and individuals who have remained faithful advocates and cheerleaders of the Philippine microfinance sector. I refer, among others, to the Citi Philippines headed by Country Officer Mr. Batara Sianturi; the Microfinance Council of the Philippines headed by Chairperson Ms. Maria Anna Ignacio; the Bangko Sentral ng Pilipinas; and the members of our CMA National Selection Board – we have with us today Secretary Imelda Nicolas, Chairperson, Commission on Filipinos Overseas; former Monetary Board Member Antonino Alindogan, Jr; Ms. Marixi Rufino-Prieto, Chairman of Philippine Daily Inquirer; Mr. Jose Maria Concepcion III, President and CEO of RFM Corp; Dr. Darwin Yu, Dean of the School of Management of Ateneo de Manila University. We also thank the people who patronize the goods and services of our microentrepeneurs and the members of the media who report the inspiring success stories of our CMA awardees. Indeed, we continue to see how microfinance empowers, transforms and uplifts individuals, families… even communities. In particular, the stories of our CMA finalists and awardees attest how humble beginnings can grow to progressive businesses with higher incomes because they gained access to finance, to microcredit. Equally important, we have seen how microfinance has improved bank operations and profitability. In the last four years for instance, the return on equity of rural banks with microfinance operations was higher by an average of 3 percentage points compared to that of the rural banking sector. In addition, from 2010 to 2012, the non-performing loans (NPL) ratio of rural banks engaged in microfinance was lower by an average of 0.33 percentage points from the industry-wide average. As of June 2014, microentrepreneurs have outstanding loans amounting to 9.3 billion pesos. It is clear: microfinance has become a viable proposition for banks. In fact, we can say that microfinance as a medium for financial inclusion, has strengthened the institutional stability of banks by generating reliable business opportunities. This is because the microfinance industry has evolved from a narrow focus on microcredit to a more holistic, sustainable and “value-adding” provision of financial services to our target market. For example, 69 of the 183 banks with microcredit operations now hold 1.7 million microdeposit accounts. In early 2012, there were only 22 such banks. In addition, 86 of these banks have decided to offer microinsurance to their clients. Furthermore, 26 of these banks now provide e-banking services, including mobile money – a more cost-efficient transactional platform for both banks and clients. Ladies and gentlemen. The availability, accessibility and affordability of these financial products have drawn more microentrepreneurs to do business with banks. From this, we have learned that developing appropriate products and delivery channels enable financial institutions to serve markets that were previously marginalized. This is a solid foundation to build on for our broader financial inclusion program. BIS central bankers’ speeches It appears therefore that in the case of the Philippine microfinance sector, we have achieved convergence in the delivery of positive financial results and social performance management. Congratulations everyone! The Bangko Sentral is pleased to contribute to the success of microfinance in our country. We deliberately crafted our regulations to fully support the safe and sound development of microfinance. We believe that financial inclusion, through microfinance, complements our financial stability objectives. Thus, our regulatory environment is conducive to expand financial access while preserving financial stability and integrity, deepening financial education, and ensuring consumer protection. Congratulations BSP! Credit should also be given to our microfinance institutions including banks and NGOs who took advantage of this enabling regulatory environment to magnify their outreach. They are the ones directly catalyzing change on the ground – in small businesses, in poor households. Finally, I am pleased to share the good news that the survey on financial inclusion conducted by Europe-based Economist Intelligence Unit gave the Philippines high scores on account of strong leadership, highly capable regulators, optimal credit regulation and effective dispute resolution. Overall, the Philippines is ranked as the top country in Asia, and third in the world, with the most conducive environment for financial inclusion. The EIU notes that countries like the Philippines, with a long tradition of microfinance, have better institutional and financial infrastructures, which can be leveraged to provide a wider range of services, and cater to more clients at the “bottom of the pyramid”. Ladies and gentlemen. This happened because we have dedicated and creative microentrepreneurs like our CMA finalists and winners, responsive microfinance institutions, a consultative regular, and people who patronize the goods and services from our microentrepreneurs. Moving forward, let us continue to find ways to maximize the opportunities and benefits we can derive from microfinance. I look forward to seeing our CMA winners take advantage of the mentoring program organized by Citi, guidance from the Microfinance Council and even better products from microfinance institutions. At the same time, you can count on the Bangko Sentral to keep working with industry players and advocates to nurture the development and maturity of the microfinance sector. We look forward to innovations that can target financially-excluded segments of our population, with affordable and accessible financial services. At the same time, we will ensure that our regulations will keep providers and products safe, sound, and responsive to diverse needs of our microfinance clients. Once again, congratulations to all our winners and all those involved in this this 12th CMA! Mabuhay ang ating microfinance sector! Mabuhay ang ating mahal na bansang Piilipinas! Maraming salamat, at magandang hapon sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Membership Meeting of the Rotary Club of Manila, Makati City, 8 January 2015.
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Amando M Tetangco, Jr: The Philippine economy going forward Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Membership Meeting of the Rotary Club of Manila, Makati City, 8 January 2015. * * * On behalf of the Bangko Sentral ng Pilipinas, I wish all of you a successful, meaningful and prosperous New Year! Now, what are the chances these wishes will come true? Well, it depends largely on the choices you will make as professionals, businessmen, as family men and as members of the community living up to the Rotary Club of Manila’s brand of public service. From the point of view of the Bangko Sentral, what do we see? As your speaker in January last year, I described 2014 as a year to be marked with “continuing growth amidst recurrent risks and uncertainty.” Ladies and gentlemen, all these came to pass. In retrospect In retrospect, we faced national and global difficulties – we had typhoons, uneven growth in the world economy, political unrest in the Middle East and Russia, and market uncertainties from divergent moves in the global markets. But because we have done our homework and continued to implement our reform agenda, the Philippine economy stayed the course and continued to grow above trend. In particular, for the first three quarters of 2014 the economy grew by 5.8 percent, in an environment of low and stable price movements. Full year inflation averaged 4.1 percent, marking 2014 the 6th consecutive year that inflation was within the target range of the Government. Ladies and gentlemen, this was achieved because we were vigilant and took timely calibrated responses to unfolding events. In mid-2014, for instance, inflation edged higher on market talk of possibly tighter monetary conditions in the US. At the same time, inflation expectations began to rise while real and financial assets continued to climb. To forestall a situation where our inflation target could be breached and to prevent potential asset bubbles, the BSP implemented a series of pre-emptive, calibrated monetary measures to tighten monetary conditions. Among others, we raised reserve requirements, our policy rate and also our SDA rate. We did these in steps to help guide the market’s inflation expectations and to help the market better appreciate the risks inherent in the shifts in the monetary policy stances of major central banks, especially the US Fed. We also carefully communicated our policy intent to the market. At the same time, international oil prices started to drop. Subsequently, inflation started to moderate and fall to the middle of the target range of 3–5 per cent inflation. We are pleased about this outcome. Inflation management is a crucial function of the BSP as it provides the stability that our economy and its stakeholders need. Even as uncertainties in global markets led to some capital flow reversals and depreciation pressures on the peso, we were able to maintain a strong external liquidity position. The current account sustained its surplus because remittances, receipts from the tourism and BPO industries remained strong. As a result, our gross international reserves settled at a robust $79.8 billion in December 2014, providing us buffers from possible external shocks. The reserves are enough to cover 10.2 months’ worth of imports of goods and payments of services and income; it is also equivalent to 8.4 times the country’s short-term external debt based on original maturity and six times based on residual maturity. BIS central bankers’ speeches Our strong external position continues to be a source of confidence for our creditors and investors. Another source of strength for the Philippine economy is our sound, stable and liquid banking system as public confidence has kept deposits growing to record-high levels. Among others, this has sustained double-digit growth rates in lending, particularly to the productive sectors of the economy. Overall, our banks have strong balance sheets, solid asset growth, low NPL ratios and above-standard Capital Adequacy Ratios as a result of good governance practices and adherence to international best practice in risk management. Thus, our banking sector continues to be highly rated by third party assessors. In particular, the Philippines received the only positive outlook among 69 jurisdictions assessed by Moody’s, a major international credit rating agency. Indeed, our banks are fully engaged with us in our efforts to help ensure that our system is sound, that its operations are aligned with international standards, and that its reach covers more of the previously unbanked or unserved areas. In 2014, we endorsed Republic Act 10641 that allows the full entry of Foreign Banks in the Philippines and prepared the IRR for its implementation. With the approval of the IRR, additional foreign banks can now apply to operate in the Philippines either as a branch or as a wholly-owned subsidiary. There are clear economic benefits for us from this new law: first, foreign banks can serve as vehicles for foreign direct investments into the Philippines; transfer of technology is second; and enhancement of human resource skills is third. All these will strengthen our banking system at a time when we are gearing up for the ASEAN Banking Integration Framework. The IRR of this law reflects enhancements in the entry criteria for foreign banks – in particular, the new law focuses on the demonstrated expertise of a potential entrant as an established, reputable and financially sound bank. In addition, foreign banks interested to enter the Philippines are required to be widely-owned and publicly-listed in their home country. In evaluating the entry applications of foreign banks, the Monetary Board shall also consider strategic relationships and reciprocity rights. This should reassure some sectors who fear that this law opens the floodgates to foreign entry. Indeed, there are requirements foreign banks have to meet and standards they have to hurdle. I am also pleased to share that our regulations and programs enabled us to gain more ground in our goal to develop an inclusive financial system. In this connection, we continued to widen the reach of our financial learning program. We have also started the groundwork for a formal National Financial Inclusion Strategy that will pull together the efforts of various government agencies for a holistic approach to inclusive growth. In other words, ladies and gentlemen, against a backdrop of solid growth, stable prices and a strong banking system, the Philippine economy is entering 2015 well-placed to face challenges from both domestic and external sources and move on to sustain growth amidst new challenges. Independent credit rating agencies affirm this. In October 2014, Moody’s joined Standard and Poor’s in rating the Philippines one notch above the minimum investment-grade credit rating. In raising the rating, Moody’s cited the government’s ongoing efforts to reduce debt, improve fiscal management, and minimize vulnerability to external developments. Risks moving forward in 2015 Moving forward, what do we see in 2015? What I can tell you with certainty is that 2015 will be a year of challenges and opportunities. BIS central bankers’ speeches Externally, we see global growth continuing to be uneven – strong in some countries and fragile in other economies. As a consequence, monetary policies across the globe will continue to diverge as their economies move into opposite directions. We see, on one hand, the US Federal Reserve and the Bank of England taking steps toward monetary policy normalization, as growth in their jurisdictions gain traction. On the other hand, the European Central Bank and the Bank of Japan are weighed down by their struggling economies and therefore anticipated to continue or accelerate their unconventional monetary policies or stimulus measures. China is in the same boat, as it is anticipated to go through a process of reforms in its financial sector, to prop its slowing economy. To us, having protracted uneven global growth is a cause for concern as this could have significant implications for our own growth dynamics and impact trade and the service industry. At the same time, policy divergence among advanced economies would also have an impact on our own domestic financial markets. Should the US economy continue to strengthen, yields on US dollar assets could also continue to rise. The growing difference in policy stances among major economies could result in polar destinations of capital flows and in the process…heighten volatilities in our own financial markets – including the peso, equity prices and yields on bonds. BSP’s policy thrusts Given this scenario, we at the BSP, will continue to be watchful and ready to deploy appropriate policy actions in a timely manner to minimize potential adverse impact of volatile capital flow movements. In the meantime, our earlier decisions to act preemptively to address potential risks to price and financial stability have given the BSP sufficient policy space to consider measures that may be required by emerging monetary conditions. Ladies and gentlemen. What I have given you so far is the big picture. At this point, I wish to share the process we go through in operationalizing our policies. This should reassure you that the BSP does NOT rely on a crystal ball nor does it craft policy in a vacuum. We coordinate with various government agencies. For instance, the BSP is a resource agency of the Development and Budget Coordination Committee (DBCC). With the inputs of the DBCC members and the BSP, the DBCC formulates growth projections and approves inflation targets for the country. The BSP then incorporates the growth targets into our own inflation forecasts, and makes appropriate adjustments to our policy rates to ensure that inflation would be within the approved target over the policy horizon. For 2015, the DBCC is projecting that the economy would grow 7–8 percent within an inflation target range of 2 to 4 percent. The way we see it, the risks to inflation in 2015 are broadly balanced. Higher utility rates and LRT fares will be counterbalanced by lower international oil prices, which fell to around $50 per barrel this week, the lowest since 2009. For 2015, therefore, we expect inflation would be well-within the target range. This should provide the BSP the flexibility to keep policy rates at low and stable levels in support of economic growth. On the exchange rate, another metric the BSP is always asked about, I can tell you that our policy remains the same. This means we will allow the exchange rate to be essentially determined by market forces. As I mentioned earlier, we expect some volatility in the market in the near-term because of the growing consensus for a strong US dollar. But as in previous episodes of volatility and BIS central bankers’ speeches portfolio outflows, there will be core investors who will remain invested in the Philippines because of our positive growth prospects and sound fundamentals. During these periods of volatility, you can expect the BSP to maintain a presence in the forex market to keep the movements aligned with fundamentals and with those of our peers in the region. Aside from working on monetary stability, the BSP will continue its banking reform agenda appropriate to our own operating environment. These reforms will impact on the way banks do business with you, but these are calibrated to enhance the protection of bank clients and to ensure the stability of the financial and the economic system as a whole. Conclusion Ladies and gentlemen of the Rotary Club of Manila, whatever the Philippines has achieved in the past years is a result of close coordination between the public sector and the private sector. As the monetary policymaker, the BSP will continue to promote an enabling environment for business and develop a more inclusive financial system that supports sustained and inclusive growth. You will be happy to know therefore that from 2009 to 2013, the Philippines was consistently ranked as the best in the world in terms of the regulatory environment for microfinance. In 2014, the Economist Intelligence Unit (EIU) named the Philippines as the top country in East and South Asia and the third in the world, with the most conducive environment for financial inclusion. But beyond these recognitions, what we value is the impact of our gains in improving the lives of millions of Filipinos through financial inclusion, and particularly through microfinance. Nevertheless, we are mindful that there are so many more that we need to reach out to. This is where successful professionals such as yourselves and organizations such as the Rotary Club of Manila can help make a difference. The actual use of financial resources to create jobs and generate production for our country’s economic growth are in your hands. We at the BSP also look forward to working with you on financial inclusion programs that will attract more Filipinos to be part of the financial mainstream where money would be more widely available at prevailing commercial rates. Rates that are significantly lower than the 1,000% a year rate in the informal sector. Imagine the beneficial impact this can bring to millions of our microentrepreneurs. Let us therefore continue to work together to keep the Philippine economy growing and make lives better for Filipinos. This is very much in keeping with the Rotary Club’s two mottos: “Service Above Self” and “He Profits Most… Who Serves Best.” Ladies and gentlemen of the Rotary Club of Manila, together, may we have a successful, meaningful and prosperous New Year! Thank you for your attention. Mabuhay ang Pilipinas! Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Reception for the Banking Community, Malate, 23 January 2015.
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Amando M Tetangco, Jr: The BSP and the banking industry – weaving a story of growth and development Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Reception for the Banking Community, Malate, 23 January 2015. * * * On behalf of the members of the Monetary Board, your other hosts for tonight: Finance Secretary Cesar Purisima (who is currently on official mission abroad), Freddie Antonio, Phillip Medalla, Andy Suratos, Juan de Zuniga and Val Araneta, I thank all of you for accepting our invitation. This marks the 10th year that I am welcoming you to the Fort San Antonio Abad for the BSP’s Annual Reception for the Banking Community. This is the only time in a year that the BSP hosts in one event, the leadership of the Philippine banking industry – from the universal and commercial banks to the thrift banks and the rural banks – in a multi-sectoral gathering. After all, the banking industry serves the cross section of our society. In other words, all of us here have a stake in the banking sector, a very important pillar of our economy. As in the past, I will briefly review how we fared last year, discuss how we see the operating environment for this year, and share how we can move forward together to achieve even better results. Review of 2014 Well, 2014 certainly turned out to be a good year for the Philippine economy in general and for the banking sector in particular, although it did not start this way. About this time last year, we were faced with significant capital outflows and as a result, the peso came under strong depreciation pressures. In May to August, inflation spiked to levels that threatened the attainment of the government’s inflation target. In addition, losses from a series of natural disasters slowed our economy. GDP grew 5.8% in the first three quarters last year, slower than in the comparable period in 2013. Even so, the Philippines still emerged as one of the fastest growing economies in the region. Indeed, our country’s underlying story of resilience remained intact through the challenges of 2014 with continuing economic and governance reforms keeping us on the growth track. On our part, the Bangko Sentral implemented preemptive and sequential monetary and macroprudential policies that helped keep inflation expectations in check and financial market exuberance at bay. As a result, average inflation settled at 4.1 percent – this is the sixth year in a row that we kept inflation within the government’s target range. The peso remained relatively stable. And while our Balance of Payments showed a deficit due to capital outflows influenced by the Fed’s decision to end quantitative easing, our current account remained in surplus from strong remittances and receipts from exports and BPOs. This brought our foreign exchange reserves to nearly $80 billion, sufficient to cover over 10 months’ worth of imports of goods and payment for services. This provides a critical buffer against potential external shocks. Underpinning the sustained growth of the Philippine economy is the strong performance of our banking system. Double-digit growth rates in lending continued to support economic activities, as public confidence in banks sustained the rise in deposits to record high levels. BIS central bankers’ speeches The confidence is well deserved. For instance, even as lending continued to grow, commercial and universal banks maintained the quality of their loans, with NPLs as of September at 2.04% – the lowest since December 2009. Certainly, we are seeing better governance, better management and more investments in technology and capacity building from Philippine banks. Equally important, our stress tests indicate that our banks have enough capital to withstand extreme shocks in credit and market risks. Indeed, the accelerated adoption of Basel 3 capital requirements beginning January last year is a measure not only of the strength of our banks – it is a measure of the commitment and the readiness of our banks to help foster overall financial stability. Philippine banks are also becoming more financially inclusive. We are witness to their increasing involvement in financial education, the growing number of new deposit accounts starting with children, the greater use of electronic money, the expanding size of the country’s microfinance portfolio and the wider coverage of our automatic teller machines or ATMs.1 I am happy to share the good news that next week, the Bankers Association of the Philippines, Bancnet and Megalink will formalize the consolidation of the two ATM networks. This is a milestone we have been looking forward to on the way to the greater goal of establishing a National Retail Payment System (NRPS) that will achieve inter-operability, efficiency, security and inclusiveness in the way we settle financial transactions. Indeed, the Bangko Sentral ng Pilipinas is pleased that the banking community is fully engaged with us in the implementation of prudent and systematic banking reforms. I can say that today, our banking system is sound, profitable and stable; it is responsive to the needs of the economy; it is responsible in managing the funds entrusted to them by their customers; and it is increasingly inclusive. Ladies and gentlemen of the Philippine banking sector, well done! Congratulations! Our banks are also highly rated by independent analysts. In 2014 for instance, Philippine banks received awards and recognition for various categories that are just too many to mention here. In the interest of fairness therefore, I will desist from naming any such awards. Suffice it to say, that people take note of these awards which should help define your bank as we prepare for the opportunities and challenges that come with ASEAN Integration. In addition, it is a source of pride for us that when Moody’s assessed 69 jurisdictions in 2014, it concluded that only the Philippine banking system deserved a positive outlook – only one out of 69. Outlook Given all these, what is in store for us in 2015? As policymakers of the National Government see it, our economy will grow by 7–8 percent in 2015 while the inflation target is at 2 to 4 percent.2 Other institutions and analysts project lower numbers for growth. But there is one thing they have in common – the view that the Philippines will continue to be comparatively buoyant. However, there are risks that cloud the future. The continuing uncertainty in the global financial markets is a concern as geopolitical tensions go on and economic performance among major economies remains divergent. June 2014 Data for Financial Inclusion. DBCC Macroeconomic Assumptions (2013–2017), as of 20 June 2014. BIS central bankers’ speeches For instance, US economic growth continues to gain traction. With this, the market anticipates the Fed will raise the Fed Funds target rate this year. As a result, the US dollar has been strengthening against other currencies. Apart from the US, however, other major economies are slowing down weighed by debt, unemployment, weak demand and/or geopolitical concerns. These economies are moving toward stimulus programs or quantitative easing. This divergence in monetary policy between strong and weak economies could unsettle markets. While all of this was happening, the balance of supply and demand in the oil market has triggered a precipitous decline in oil prices. I have been asked how a stronger dollar and cheaper oil will affect us. Well, a stronger dollar would make our foreign exchange obligations more expensive but, this will be countered by a smaller oil (import) bill from lower oil prices. The drop in oil prices will also ease inflation and benefit consumers. Nevertheless, we need to be mindful of the risk of a sudden reversal in the trend. If low oil prices persist, the economies of oil-producing countries may eventually weaken and adversely affect the global economy. For certain, there will be pluses and minuses. We could see sporadic market volatility in the interim. Nevertheless, from our experience and track record, it can be said that we are equipped to deal and handle these issues. Let us also remember that we start 2015 with a credit rating that is two notches into investment grade territory. Higher state spending on infrastructure and the implementation of projects under the public-private partnership program should also provide stimulus for growth moving forward. I believe, therefore, that even as episodes of stormy weather develop, the Philippine banking community can face 2015 with confidence given its strong balance sheet, solid capital base that exceeds global standards, product innovations, and adherence to international standards for governance and risk management. Of course, we still need to continue working together on our reform agenda to achieve a more inclusive financial system that promotes inclusive growth, strengthen consumer protection, forestall emerging risks, and ensure financial stability at all times. This is the philosophy that underpins our reform program. Together, let us craft the way forward to an even better, stronger and more inclusive banking system. Only by doing so can we preserve the gains we have achieved so far. And we do have a long way to go, given that 25% of Filipinos still live in poverty. Of course, there is so much more that our banks have empowered and continue to support – from the cities to the countryside. Ladies and gentlemen. I have learned in my almost 10 years as governor of the Bangko Sentral that each year is different. While our mandate remains the same, our operating environment is constantly shifting and changing. Sometimes, it turns on its head. So, how do we navigate in uncharted waters? Well, with extreme care: we have to make sure that we are in shipshape condition, that we are properly equipped for the journey ahead, and that we remain watchful of possible risks. Ladies and gentlemen, I believe we are ready to take on the challenges and opportunities that lie ahead. Let us now offer a toast: May I request the members of the Monetary Board to please join me on stage… To our continuing partnership in making our banking industry a dynamic story of growth and development that benefits our people and our country. Cheers!... Mabuhay ang Pilipinas! Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Security Bank Economic Forum "Economic & Business Forecast 2015", Makati City, 30 January 2015.
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Amando M Tetangco, Jr: Working together towards a stronger economy Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Security Bank Economic Forum “Economic & Business Forecast 2015”, Makati City, 30 January 2015. * * * The presentation this afternoon will start with a discussion on the global economic and financial developments and their possible implications for the Philippine economy. Then we will look at the growth experience of the Philippine economy and the underlying factors that form the bases for the economy’s resilience. A look back to 2014 I was looking at the new logo of Security Bank. It shows two halves – just like the yin and the yang. Two parts working and coming together. It’s an interesting depiction although of course, on the “hard-court” (as in the basketball, or even in volleyball courts), it would be a stretch to say that the Greens would be above the Blues for long periods. I must have a conversation with Abet about his choice of corporate colors. The old Security Bank color was already the perfect one – Blue! But seriously, two things coming together and being integral parts of each other. These are very similar to the themes that pervaded our global operating environment in 2014. In 2014, there were two themes that dominated the global operating environment – 1) uneven global growth and 2) divergent monetary policies in advanced economies. As the US economic growth continued to gain traction and the US Fed subsequently ended its asset purchase program in October last year, markets began to interpret the Fed’s statements to mean that it would begin “lift off” (or raise the Fed Funds target rate) sometime this year. In contrast, EU and Japan remained barely able to eke out growth. By the ECB’s and the BOJ’s own pronouncements, they were willing to further expand easy monetary conditions to stimulate growth in their jurisdictions. ECB President Mario Draghi even pledged to do “whatever it takes”. So, in one part of the globe, you had the Fed poised to tighten monetary conditions, and in another, you had the ECB and BOJ committing to provide more liquidity as needed. This combination ushered the shift in market sentiment – capital flowed out of EME assets (the long-standing darling of investors) toward US financial assets. This resulted in a strong appreciation of the US dollar. While this was happening, oil prices began to tumble. By year end, Brent had lost half its value, dropping from a high $115/bbl to $55/bbl. How did the Philippines fare in all of these? Well, the Philippines stood its ground. We continued to show healthy growth in a low inflation environment. The fourth quarter GDP number was released yesterday and it showed the underlying strength of the economy. In Q4, the economy grew 6.9 percent, faster than the 6.3 pct in the same quarter in 2013 and 5.3 pct in Q3 of 2014. For full-year 2014, GDP grew by 6.1 pct. On a full-year basis, the Philippines ranked second among selected Asian economies, next to China’s 7.4 pct. In the meantime, with the right monetary policy settings and some help from lower oil prices, full-year inflation tipped at 4.1 pct, marking 2014 as the 6th consecutive year that inflation has been kept within the government’s target range. This robust performance was supported by a sound banking system that continued to be profitable, well-capitalized and able to intermediate funds to the productive sectors of the economy, while maintaining good credit standards. In addition, the country continued to sustain surpluses in its current account, enabling us to keep our GIR at about $80B at end 2014. BIS central bankers’ speeches The outlook for 2015 Ladies and gentlemen, clearly, we have entered 2015 – as we did in 2014 -from a position of relative strength. Can we expect this strength to be sustained throughout 2015? My answer to this question is a YES. Shortly, I will provide you four reasons why. But before that, let me give you some perspective by walking you through the operating environment that we see for 2015. The global themes coming into 2015 were rather clear – uneven growth and divergent monetary policies and a strong USD arising from this combination. This was so until oil prices began to drop – like falling knives – as one analyst put it. It is notable that no one has yet, very definitively called the oil price decline as being “overdone”. Although the IMF forecasts as of 6 January 2015 show an uptick in oil prices in the second half of this year. The steep decline in oil prices has complicated the market appreciation of the outlook for monetary policy in 2015. Some analysts say, the Fed would be hard-pressed to hike rates by any significant measure (as in June this year) if oil prices continue to drop because inflation in the US will be soft. In addition, low oil prices increase the risk of deflation in the EU and Japan, raising the likelihood that more easing measures would be put in place. In other words, ladies and gentlemen, whereas markets used to have the confidence in the trend of monetary policies, this new uncertainty from oil price movements is now seen to heighten volatility in financial markets by unsettling investor risk appetite and unseating inflation expectations. Further, a continued decline in oil price could also change the balance of global growth prospects. There will be winners and losers if low oil prices persist. While the decline in oil is a dampener to inflation and could raise purchasing power for oil importers, it could also result in a loss of revenues for oil producers and lead to weak aggregate demand. With overall global growth still fragile, the significant drop and the weak prospects in oil prices have gotten more analysts discussing the risk of deflation in recent weeks. The Philippines in focus: How do we see all these impacting the Philippines? For us, low oil prices represent disinflation pressures. Fuel and fuel-related items account for nearly 9 pct of our CPI basket. We have also seen transport fares being adjusted downward. In addition, the fall in oil prices could benefit us through an increase in household real income as well as the lower cost of production. I have been asked whether we are worried about deflation (due to the substantial decline in oil prices). Well, deflation effects in the AEs can spillover to our economy through lower trade. However, trade as a percentage of GDP is still relatively lower than those of our peers in the region. 1 So the risk here is probably only of a relatively small magnitude. As for deflation materializing in the Philippines, the risk is not significant. For one, our demand conditions are firm. Services and industry remain strong. And on the demand side, consumption is seen remaining robust. We heard Sec. Balisacan say yesterday that “the worst is over on underspending” and that the government is committed to ramping up spending. There are other factors that lead us to say that deflation is remote – or that Note: Trade value (exports plus imports) relative to GDP is low for the Philippines as compared to most of our regional peers. Average (2005–2012): Philippines – 52.2; Malaysia – 144.6; Singapore – 290.6; Thailand – 123.6; Indonesia – 44.3; Taiwan (PRC) – 118.7; South Korea – 84.6. BIS central bankers’ speeches inflation would remain positive. These are wage rigidities and the upside risks from pending petitions for utility rate adjustments (electricity) and potential power shortages. Given this scenario, what would the monetary response of the BSP be? Our initial projections using lower oil prices show that inflation would still be within the target range for 2015, which is now lower at 2–4 percent compared to the previous year’s target of 3–5 percent. Indications of easing inflationary pressures owing in part to the decline in international oil prices as well as signs of robust domestic economic growth allow the BSP some room to maintain its current monetary policy stance. Even so, we do not pre-commit to a set course of action. As I have always said, the stance of monetary policy will remain data-dependent. One thing we keep in the back of our minds is that prices can reverse and often very quickly. If you have been in this market long enough – as I believe some in the audience have – you know that markets tend to get ahead of themselves. So, we continue to watch developments in the oil market carefully and how these affect inflation and growth dynamics, to see if there is any need to make adjustments in the stance of policy. While volatilities in oil prices have complicated the balance of growth prospects, there are the other underlying other risks that we see in the horizon. These include a bumpy growth path for China, delays in the needed structural reforms in the EU and Japan, and geopolitical risks that could arise from a worsening of the situation in Russia or the Middle East – all of which can heighten financial market volatilities. Can we remain steadfast in 2015? Going back to the earlier question of whether we will be able to sustain our position of strength in 2015. Let me share that, in the areas under the purview of the BSP, we believe we will be able to withstand headwinds in the global economy. And I have four reasons. One, our monetary policy is focused. While we are mindful of developments externally, we will always adjust policy in consideration of domestic demand and supply dynamics as reflected in our forecasted inflation path. The focus has served us well throughout the period of the Great Moderation through the Global Financial Crisis and in the aftermath of the GFC. So you should not expect that we will necessarily move in synch with and in the same magnitude as the Fed or other central banks. Two, we have maintained a strong external position. We expect current account surplus to be sustained by remittances, receipts from the tourism and BPO industries. We will continue with our policy of a market-determined exchange rate, while allowing for some scope for official action given that the exchange rate can be an effective tool for absorbing shocks from external sources. Three, we have a sound, stable and liquid banking system. The Philippine banking system is the only one, out of the 69 jurisdiction that it rates, which Moody’s judged as having a positive outlook. This sound performance of the banks was due to progressive implementation of deep reforms and prudent risk-taking activities of banks despite the ample liquidity in the global economy. Over the years we pursued reforms to enable our banks to respond to the evolving requirements of their stakeholders, just as it has to adapt to a changing market environment. We do not anticipate a specific market scenario. Rather, we want our banks to be in a strong position regardless of how markets swing or stakeholder needs evolve. In effect, we envision a banking community that is not just resilient but one that is fundamentally responsive to stakeholder needs and where banks act responsibly. So in 2014, for instance, we raised the minimum required level of bank capital, recognizing that the new normal of banking treats conventional risks more aggressively while constantly identifying newer forms of risks. We also achieved fairly significant milestones, for example, BIS central bankers’ speeches in re-writing our credit risk framework, in crafting the implementing guidelines for Republic Act 10641 and introducing a Financial Consumer Protection Framework. Four, we are unrelenting in our commitment towards a more inclusive financial market and an empowered economic and financial consumer. This is not just about providing access but having the wherewithal to make markets where there are none yet, investing in the future rather than be content with the limitations of today. Our commitment Going forward, the BSP will remain on the lookout for potential risks to price and financial stability. We will be vigilant to be able to provide timely and calibrated responses to unfolding events. But just as in the Security Bank logo, you have the yin and the yang, the BSP needs your partnership. For only as we come together and work towards the same goal, can we preserve what we have achieved and ensure that our economy sustains its position of strength. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the signing of the Memorandum of Agreement on the Consolidation of ATM Networks, Manila, 30 January 2015.
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Amando M Tetangco, Jr: Building an efficient and inclusive national payment system Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the signing of the Memorandum of Agreement on the Consolidation of ATM Networks, Manila, 30 January 2015. * * * We at the Bangko Sentral ng Pilipinas are happy to join you to witness the start of the consolidation of our ATM networks under the umbrella of the Bankers Association of the Philippines. This is the second significant program that we are launching today to move our financial system forward. Two hours ago, the BSP launched the electronic trading platform for the BSP’s Reverse Repurchase Electronic Trading System. This time, it is the private sector that is launching its own milestone: the consolidation of our Bancnet and Megalink ATM networks. While the BAP and our ATM networks describe this event as inspired by the BSP, to us the credit for implementing this milestone program properly belongs to our banks. Indeed, it has been our position that the BSP receives recognition for its regulatory framework because it works; and it works because our banks are part of the consultative process. Thus, our banks are able to respond and implement programs accordingly. I have said this before and I will say it again: I believe that the BSP and the banking community work well together simply because we are on the same page – we both want to make our banking system better, stronger and more inclusive so that we can help keep our economy growing and improve the lives of Filipinos. In particular, this coming together of our ATMs under a single network is the important first step toward an efficient and inclusive retail payment system. In this connection, I am pleased to note that our ATM network has been expanding steadily – it increased from 6,200 units in 2005 to over 16,000 in 2014. And over this period, you have expanded the use of the ATMs beyond deposit withdrawals, to bills payment, to making donations and even to selling e-loads to pre-paid cellphone users. Ladies and gentlemen. Today, the Philippines average 2.5 billion payments per month which correspond to a value of over PhP 3.2 trillion – 99% of these payments are cash-based. This is an expensive way of transacting as the cost of producing, transporting, protecting and even retiring cash is quite high. This high cost poses a barrier to inclusion. Greater access to payment or transactional accounts can be an effective on-ramp to a broader range of financial services and boost our efforts toward financial inclusion. In addition, a shift to electronic payments will facilitate efficiency, which is convenience at the right cost. This will lead to lower business costs and higher consumer expenditure, a driver of economic growth in many economies. In fact, a cross country study found that a 10% increase in the share of electronic payments was correlated with a .5% increase in consumer spending. 1 This efficiency will also drive business innovation and promote greater transparency in transactions. All these are also crucial in preparing for a more integrated ASEAN Economic Community. Le Sar, Porteous, Introduction to National Payments System, National Payments System Institute, 2013. BIS central bankers’ speeches Nevertheless, while we celebrate this milestone today, we realize that this is just the beginning. There are still things to do and bear in mind as we take this journey forward. Let me focus on three: First, it is important to establish well-defined rules, policies and processes to set the stage for areas of cooperation and areas of competition. This will facilitate the entry of new players, create a level playing field and provide the framework for inter-operability. Second, there is a need to upgrade current arrangements to enable the participation of payment service providers, including non-banks. This will support the environment for innovation and efficiency in payment channels and the development new and inclusive business models. Third and last is to always have the customer in mind. The retail payment system should provide each of its users with transparency, certainty and reliability. These are the critical steps in this journey; which will surely lead us to a destination that will benefit all – a truly inclusive and efficient national retail payment system that promotes electronic payments in the country. These benefits reveal the very purpose of this journey. I have no doubt that the members of our banking community will all continue to work together toward this end of providing better payment services to our people. Our next step is to collaborate on how to best implement not only the merger of ATM and POS or point of sales operations, but the overall integration of our payments system. Finally, I thank and congratulate everyone responsible for this milestone event. Mabuhay ang banking system! Mabuhay po tayong lahat. Maraming, maraming salamat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the signing ceremony of the BSP s Reverse Repurchase E-Trading System, Manila, 30 January 2015.
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Amando M Tetangco, Jr: Moving forward with financial infrastructure integration through the BSP’s Reverse Repurchase E-Trading System Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the signing ceremony of the BSP’s Reverse Repurchase E-Trading System, Manila, 30 January 2015. * * * I am pleased to see that the partnership between the Bangko Sentral ng Pilipinas and the banking industry continues to grow, strengthen and deepen. Today, the signing of a Memorandum of Understanding for the BSP’s Reverse Repurchase Electronic Trading System marks yet another milestone in our efforts to promote financial market operations underpinned by strong and secure infrastructure and well-designed rules. Over the years, the BSP has launched initiatives to address the growing needs of its stakeholders and to adapt to the changing times. These include the implementation of realtime gross settlement system which BSP operates today as the PhilPASS, the Intraday Liquidity Facility, the BSP e-Rediscounting System, and the REMIT System for OFW remittances, just to name a few. Ladies and gentlemen. These initiatives form important building blocks towards a domestic financial market infrastructure that efficiently and effectively responds to the needs of the real sector. With this goal in mind, our latest initiative is the RRP E-trading system, a web-based electronic platform… where overnight and term RRP agreements between financial institutions and the BSP’s Treasury Department may be transacted and settled. With built-in security access procedures, the new E system will replace the manual queuing of the RRP trade orders that are posted via a combination of telephone and stand-alone trading platforms, e.g., Reuters or Bloomberg. It will also eliminate the unintended consequence of manually collating transactions from different order sources. Another benefit that users of the e-trading system will enjoy is straight through processing where reporting of interbank call loan transactions will be done electronically. In sum, therefore, the system should heighten the security of the full dealing, settlement and reporting cycle of RRP transactions. But more than the benefits of automation, the creation of this system opens up for the BSP new horizons for enhancing the way it conducts open market operations or OMO. This electronic trading system provides the BSP the flexibility to use different methods to allocate RRPs to participating banks, including possibly an auction system. In turn, the option to auction RRPs will give the BSP the means to implement a full interest rate corridor for OMO in the future. Presently, our OMO is conducted with the RP as the ceiling and the SDA as the floor. The electronic reporting of transactions will also expedite the calculations for another important initiative in progress – the OIS, which is a determinative component in completing the benchmark yield curve. We can see, therefore, some interesting times ahead. We look forward to continue working closely with the leaders of our financial system in building financial market infrastructure and systems that are safe, secure and responsive to its stakeholders. Thank you for your continuing support. Finally, let us congratulate the BSP’s Treasury Department under the leadership of Assistant Governor Winnie Santiago who worked with the BSP’s Payments System Office, Information Technology Sub-Sector, and Legal Office in setting up this trading platform. BIS central bankers’ speeches We look forward to more joint undertakings that will continue to move us forward toward a better, bigger and stronger financial market that will keep our economy growing and increasingly inclusive. Thank you all and Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the induction ceremony for the new officers of the Economic Journalists Association of the Philippines (EJAP), Makati City, 20 February 2015.
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Amando M Tetangco, Jr: Keeping the economy on the right track – key challenges for monetary policy Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the induction ceremony for the new officers of the Economic Journalists Association of the Philippines (EJAP), Makati City, 20 February 2015. * * * Let me begin by congratulating the new set of officers of EJAP, led by its new president, Mr. Paolo Montecillo, who is a member of the BSP press corps. I wish to reaffirm the BSP’s belief in the essential role of EJAP in promoting high quality economic news reporting in the country. Rest assured that your organization will continue to have the support of the BSP in your activities that help achieve the “responsible and thorough” coverage of economic events. In the days leading up to the celebration of the Chinese New Year yesterday, we have been reading and hearing many and varied predictions concerning the Year of the Sheep or the Goat or the Ram. Tonight, I will contribute my share – from the perspective of emerging market economy central banks, in general, and the Bangko Sentral ng Pilipinas, in particular. The issues that confront EME central banks these days include the following: Whether disinflation pressures could lead to breaches in official inflation target bands. Whether there is a risk of domestic deflation or whether some collateral damage could be imported from deflation elsewhere. Whether there will be further monetary easing (in the AEs in one part of the globe) or whether there will be a shift in the perception of the timing of monetary tightening (at the Fed, across the other side of the globe). Whether huge dips in oil prices are a positive or a negative. Whether we will see currency wars or we will see currency peace. Whether new tools would need to emerge to ensure financial stability during this period of divergence in economic trends and monetary policy. There are no absolutes in dealing with these issues. There are many ifs and buts. And, a number of factors and variables, including concerns related to technology and geopolitics, would need to be considered. Friends, there is no crystal ball for these things. So, as we continue to navigate a challenging economic landscape this year, it is imperative that the intent of policies from central banks and other authorities is clearly understood by the public. Statements by the central bank and other authorities can influence people’s expectations and, ultimately, their economic decisions. Sound and accurate reporting by the media therefore is necessary to help bring our message across to financial markets and the general public. We understand that covering the economic beat is quite challenging. Unfortunately, it is also at times, thankless. Rarely would you go home to your families and see them jumping up and down to ask “so what happened in the world of economics today?” Economic news isn’t riveting, unlike political news or news about crime. But what you do requires just as much vigilance, patience, and diligence, if not more. Economic numbers rarely tell the complete story when taken at face value. Therefore, a responsible journalist who seeks to offer readers a fuller appreciation of the information will examine the figures within a broader context or against an array of other relevant indicators. Given the facts on hand, a good reporter will know which leads to chase, and which to set aside, perhaps for another day, for another story. The objective is to understand what is happening – and why – so that the facts can be pieced together into a sensible and useful news report for their publics. BIS central bankers’ speeches Indeed, we thank the media and, more specifically, EJAP member for playing a crucial role in helping the public understand and stay abreast of current economic issues. With this in mind, let me briefly share two key issues in current discussions of monetary policy stance. Disinflation The first is disinflation pressures. The overall impact of the significant decline in international oil prices will vary in direction and scope across the globe. While there were recent upticks, oil prices remain well below their levels in mid-2014. In general, low oil prices represent disinflation pressures for oil importing countries like the Philippines. We have already seen this in the slower inflation outturns in recent months. Many have wondered why, given it has already lowered its own inflation forecasts for 2015 and 2016, the BSP stood pat on its policy rates and didn’t follow the other central banks that had earlier eased their policy settings. Two reasons. First, unlike in some economies, the risk of inflation falling below zero or to negative levels in the Philippines appears to be minimal. In fact, while our latest forecasts show a lower inflation path, we expect inflation to stay within the government’s target range over the policy horizon. This outlook is supported by firm domestic demand conditions. Our latest expectations surveys show that market sentiment remains broadly favorable, which should in turn drive up spending and investment. Wage levels, potential increases in utility rates and possible power shortages also lead us to expect that inflation is likely to remain positive, rather than reach or fall below zero. Second, consistent with our symmetric approach to inflation targeting framework, we have room to wait for additional data to see if the lower end of our target range will be breached for a persistent period. We are mindful of the uncertainty over the path of oil prices moving forward. As the recent hike in fuel pump prices shows, oil prices can rise just as quickly as they have fallen. Keeping an eye on possible turning points, therefore, will help us see if there is any need to recalibrate monetary policy. As always, the key is to make the necessary adjustments in a timely and calibrated manner. Divergence This ties in closely with our second key issue: divergence in economic prospects across economies, and consequently, divergence in monetary policies. We have been talking about this topic since early last year, and it has retained its relevance to the present. In fact, the disinflationary effect of the steep decline in oil prices has served to complicate our own views of the outlook for 2015, especially with regard to overseas monetary policies and their potential implications for financial stability. More specifically, a robust recovery is underway in the US. As a consequence, financial markets largely expect the Federal Reserve Bank to raise its policy rates sometime in 2015 as it moves to normalize its monetary policy settings. However, if inflation in the US softens considerably, then the increase in interest rates may come later than anticipated, keeping in mind the Fed’s forward guidance on its inflation objective. By contrast, low oil prices increase the risk of deflation in the Euro area and Japan, which could further stall their economic recovery. At the moment, even with substantial monetary easing measures already in place, economic activity in these two jurisdictions continues to struggle for traction. This raises the likelihood of an extended period of monetary accommodation by their respective central banks. BIS central bankers’ speeches There is a benefit to this, as this could provide some counterbalance to the potential decline in global liquidity and increase in interest rates resulting from tighter monetary policy in the US moving forward. On balance, these contrasting prospects underpin the risk of capital flow volatility and financial market turbulence. Market volatility could be fuelled by a prolonged period of low interest rates and liquidity enhancement measures, as investors continue to search for higher yield. Fortunately, even amid the volatility, investors tend to go back to assessing the merits of individual economies. For the Philippines, these merits include ample fiscal policy space, a sound and responsive banking system, an increasingly inclusive financial system, and a healthy external position, all of which contribute to a solid outlook for growth. Indeed, the country’s solid macroeconomic fundamentals continue to give confidence to investors and creditors. Moving forward, we will continue to invest in sound and prudent policies to ensure both price and financial stability. With our wide menu of policy tools and options, we stand ready to deploy appropriate measures as needed to ensure that liquidity stays adequate and that our financial system remains resilient against volatility in capital flows. For instance, will continue to pursue reforms in the banking sector. Our objective is to enable our banks to better withstand stresses of external origin and to compete in a more integrated regional arena. To this end, we have already adopted several measures – including raising the minimum capital requirements for banks and implementing a comprehensive credit risk management framework. Other measures in the pipeline include those related to Basel 3 reforms. The BSP will also remain alert to possible threats to financial stability, including those associated with the build-up of leverage among households and firms, as well as banks’ exposure to the real estate sector. To mitigate these risks, the BSP will continue to its mix of micro- and macro-prudential tools as well as surveillance mechanisms, taking in consideration their potential impact on liquidity and overall financial conditions. Concluding remarks Ladies and gentlemen, disinflationary pressures and divergence are just two of the key economic issues that are likely to pose challenges for central bank like the BSP. I have discussed some of the main factors that we have considered and will continue to look into in the formulation of our monetary policy stance. I hope this provides additional guidance as you continue your coverage of Philippine economic developments. In closing, I wish to reiterate that while other emerging markets have begun to ease their monetary policy settings in view of their own domestic considerations, we believe that our prevailing monetary policy stance remains appropriate. Supported by robust credit growth and ample liquidity, current inflation and output growth dynamics in our country do not at this time warrant a reversal of the preemptive tightening measures we did in 2014. Moreover, there is still some measure of uncertainty hanging over global markets, the implications of which have to be continuously monitored closely. Nevertheless, should the need arise, we have ample fiscal headroom to provide further stimulus to the economy. In other words, ladies and gentlemen, while 2015 is likely to bring continued economic challenges for the Philippines, our country appears to be well-placed to deal with them. The economy’s manageable inflation environment and firm growth momentum provide policymakers ample space to respond appropriately to evolving domestic and global conditions. BIS central bankers’ speeches Once again, I congratulate EJAP and its new set of officers under the leadership of President Paolo Montecillo. On behalf of the Bangko Sentral ng Pilipinas, I wish EJAP continuing success in all its undertakings, particularly its programs concerning professional development, sports, cultural activities, and health protection. We have seen how EJAP has evolved as a professional organization in its first 29 years. Many of its members have moved on to assume greater responsibilities as senior journalists and editors, here and overseas. Indeed, EJAP has set the bar for covering the economic beat with depth, discipline, fairness and responsibility. Congratulations and thank you EJAP! On our part, you can be assured that the BSP will continue to engage economic journalists with professionalism and respect. Mabuhay ang EJAP! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MAP Gen Membership Meeting (GMM) and First MAP Economic Briefing for 2015 with the theme "Innovative Leadership for Sustained Growth?", Makati City, 24 February 2015.
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Amando M Tetangco, Jr: Sustaining economic growth Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MAP Gen Membership Meeting (GMM) and First MAP Economic Briefing for 2015 with the theme “Innovative Leadership for Sustained Growth?”, Makati City, 24 February 2015. * * * “Innovative Leadership for Sustained Growth”. Strong, Simple, Spirited. It’s a confident statement and direct to the point, quite like what we have come to expect from MAP President, Popoy Del Rosario. This theme, which MAP, has chosen for 2015 reminds me of that management principle – Innovate or Stagnate. “Innovate or stagnate” is direct and simple to remember, and has a nice ring to it. But when you put “innovation” in the context of the broader concept of “leadership” (as MAP has done here), the resonance of that ring becomes deeper and applying it within our organizations becomes more challenging. While it is difficult to put into practice, “Innovate or stagnate” is not impossible to do so. Think of a company like Google. Our local telcos, our local conglomerates, even our banks. They constantly reinvent themselves to gain a bigger share of the pie or create new markets where there previously were none. All these, while taking care of their people. I have spent about two-thirds of my life as a central banker, with the last 10 years of that as the BSP governor. And I can tell you for a fact that, that mantra of innovation has never been more relevant in central banking than it has in the last eight years. Why do I say that? Simple. The 2007/08 Global Financial Crisis (or the GFC) happened. The GFC led us to uncharted territory as it was a crisis unlike any in the recent past. Let me illustrate. Unlike in 1997/98, when the financial crisis originated from the emerging markets in Asia, the GFC was a crisis that started from the advanced economy world. In 1997/98, central banks and economies had to fix exchange rate valuations and develop capital markets. Painful. But nothing extraordinary because contagion was localized to the region. During the GFC recession was deep in the advanced economy world. And because of highly interconnected markets, that economic weakness spread to the rest of the globe. There also was no clear way out of the room for the debt crisis in Europe. Market confidence (and in some jurisdictions, even political confidence) was very low, if not non-existent. During the GFC, major central banks had reached the zero bound of the policy curve. Interest rates had gone so low, there was hardly any wiggle room to use interest rates for stimulating the economy. We could therefore no longer rely on the familiar channels of transmission of monetary policy. At the time, new transmission channels emerged such as the “expectations channel” and the “risk-taking channel”. So, advanced economy central banks needed to employ non-conventional monetary tools. Even central banks in some emerging market economies had to deploy non-traditional tools because of contagion. As a result – Asset Purchase Programs in all letters of the alphabet some of which you would normally throw away in a game of Scrabble came into vogue. Q-E-1, QE2 (with operation twist) in the US, OMT [or Outright Monetary Transactions] and TLTRO [or Targetted LongTerm Refinancing Operations] in Europe, and Q-Q-E (Quantitative and Qualitative Easing – the three arrows) in Japan. BIS central bankers’ speeches Furthermore, central banks needed to be sharper and more pointed in their communication of policy intent. As you now know, “forward guidance” has come to be a specific central bank technique for managing market expectations. In addition, financial stability and the systemic nature of risks became the driving forces for the global financial reform agenda. “Too big to fail” was no longer going to be the bottom line. Even as we speak, ladies and gentlemen, financial reforms are being put in place so that those defined to be “systemically important institutions” would not have to be bailed out by taxpayer money. These SIFIs would instead be mandated to meet a higher capital standard. SIFIs have to have more “skin in the game”, so to speak. And the game, ladies and gentlemen, has changed. Micro prudential regulations, while necessary, are no longer sufficient. It may be recalled that micro prudential measures are meant to improve individual institutions’ resilience to risks. Central banks must now also have macroprudential measures in place. Macroprudential measures look to address the interconnected nature of the system and help ensure safety at the system level. In truth, some have said that at the height of the GFC, Central Banking was the “only game in town”. Monetary policy was made to bear the brunt of the heavy lifting in responding to the effects of the crisis because there was very little fiscal policy space, particularly in the AEs. You may ask, eight years from the GFC, how do we see the operating environment? What is the global outlook now? How does that translate to the Philippines? With these in mind, let me structure the rest of my presentation as follows: Since I began with the GFC, let me continue with our global outlook and the risks and challenges we see from global impulses. Then I’ll move to our own domestic market dynamics, and conclude with the policy thrusts of the BSP to address these concerns. The consensus at the moment is that global growth will continue to be uneven. If you look at the slide closely, you could see, global growth is MULTI-SPEED. In the most recent forecast of the IMF, the US was the only major economy for which the Fund raised its growth projections. The growth forecasts for EU and Japan, as well as for Emerging and Developing Asia (which includes India and China) were downgraded. An offshoot of the growing relative strength of the US economy has been the parallel strength in the US dollar, based on the US dollar Currency Index as of 23 February 2015. Further, due to this weak and uneven global economic growth, central banks are seen as adopting differing paths in their monetary policy stances. On one end of the spectrum, the Fed Reserve (central bank of the US) is widely expected to begin to raise its interest rates (“lift-off”) this year, while on the other end, the ECB has announced its own version of quantitative easing last month and Japan had earlier further increased its monetary base. The upshot of this divergence is that one end of the spectrum provides a counterbalance to the other, giving the market the confidence that global liquidity will not just dry up with policy normalization in the US. However, some market participants have recently begun to reassess the strength of the divergence among central bank policies, with the steep drop in oil prices. The drop in oil prices has: 1) heightened deflation pressures in the EU and Japan, 2) led to reduction in capital expenditures in the US that now threatens to soften economic growth and inflation in the US, and, 3) caused some emerging markets to also be leery of the adverse growth effects if deflation becomes more pervasive. BIS central bankers’ speeches With these, the Fed may not tighten as previously expected, and even other central banks may ease further. If we add to these factors the unquenchable thirst for yield by investors, we can expect some capital flow volatility as market participants rebalance their portfolios. In sum, ladies and gentlemen, we see three major trends in the global operating environment. 1) Multi-speed global growth, 2) Policy divergence among advanced economies, and 3) Bouts of financial market volatility as global markets rebalance positions in the face of US dollar strength and volatility in commodity markets. Notwithstanding this fluid external backdrop, the resilience of our economy is expected to continue. In the aftermath of the GFC, the Philippines has been tagged as “the” bright spot in Asia. For 64 successive quarters, the Philippines has been marking positive growth. In 2014, the full year growth of 6.1 put the Philippines second to China among select Asian economies. This growth performance is being underpinned by the sustained contributions of the services sector, the recent rebound in manufacturing, and favorable improvements in labor dynamics as we stand at the cusp of what the United Nations calls the “demographic sweet spot”. Indeed, the numbers reflect resiliency. It bears noting that this sustained output growth of the Philippine economy was attained in a stable inflation environment. The 2014 full year inflation averaged 4.1 percent, marking it as the 6th consecutive year that inflation is within the target range of the Government. The latest headline inflation was posted at 2.4 percent in January 2015, well within the target range for 2015 of 2–4 percent. Meanwhile, money supply continues to be sufficient to support the sustained demand for credit, the bulk of which continues to be channeled to the key production sectors. Intermediation of these funds has been safe and efficient owing to our sound and stable banking system. It’s worth noting that of the 69 jurisdictions rated by Moody’s, it was only the Philippine banking system which Moody’s gave a “positive outlook” rating to. Indeed, our banks have strong balance sheets. Banking system CAR is above both the national and Basel standards. The quality of banks’ loan portfolios (UKBs) also continues to be healthy with NPL ratio at 1.98 percent as of November 2014. On the external front, we have been able to sustain current account surpluses since 2003, due to strong structural flows from remittances, BPO receipts and tourism. This has allowed us to build up our GIR to $80 billion, which is more than 10 months’ worth of imports of goods and payment for services. Ladies and gentlemen, with these macroeconomic indicators, it would seem that the Philippines was not severely affected by the GFC. This is true. We believe this was because we have “kept our own house in order”. Keeping one’s own house in order entails putting together policies that are responsive. However, what can be considered responsive today, may not necessarily be what is responsive in the future. Keeping one’s house in order, therefore, requires creativity and innovativeness. Ladies and gentlemen, in the areas that are under the purview of the BSP, keeping our house in order has meant: 1. Being focused on our primary goal of keeping prices stable. BIS central bankers’ speeches We have done this by ensuring that our monetary policy framework is well calibrated and appropriately flexible. We constantly improve our surveillance capabilities, fine-tune our econometric models, perform scenario building, and engage the market and our regional counterparts to make sure the inputs to policy are always fresh. To illustrate, during our last policy meeting, we kept our policy rates steady, even as some in the region have lowered their policy rates. Our assessment then was that inflation would remain within the government’s target range of 2 to 4 percent over the policy horizon and that the risks to this forecast are balanced. FOR NOW, therefore, we deem the stance of monetary policy to be APPROPRIATE. 2. Being deliberate in adopting the global financial reform agenda. While we agree with the goals of the global reforms, our adoption of these has been based on our unique domestic market conditions. For instance, we adopted the capital requirements of Basel 3 in January 2014 because our banks were already above the new requirements anyway. Meanwhile, we have decided to phase in the adoption of the other components of Basel 3, including those related to liquidity and leverage. Our approach to reform has always been pragmatic. But we do not subscribe to the view of others that “if it ain’t broke why fix it”. There is always a better way of doing things, but one needs to have a macro view in adopting change. There will always be those who would be negatively affected by change. So, we are consultative in adopting reforms. This way, the market could understand that the short-term pain of reforms will be balanced by long-term safety for the whole system. 3. Being open to liberalizing the FX environment and keeping a flexible exchange rate system. We have found that transparency and flexibility in FX transactions helps the market plan better. We are on our 7th wave of FX liberalization measures. We have also allowed the exchange rate to be determined by market forces. From experience, these policies have helped us to better manage external vulnerabilities. 4. Being creative in our surveillance and monitoring An example here is our adoption of stress testing. We stress the bank balance sheets for extreme but plausible scenarios. One specific form of stress test is the Real Estate Stress Test (REST). Based on the results of these stress tests, our banks are seen to be able to withstand plausible stresses. 5. Finally, being strong advocates of financial inclusion. We are firm believers that policy must translate to an improvement in the quality of life of every Filipino. I find this consistent with INNOVATIVE LEADERSHIP. As Cardinal Tagle reminded as during the last induction of MAP officers and directors, we must always consider the interest of others (our people and others who may need assistance) in our entities’ corporate strategy. While keeping inflation stable already helps the Filipino maintain his purchasing power, we believe that more can be done. Our approach to financial inclusion is three-pronged. 1) Access to reasonably-priced financial services through proportionate regulation; 2) Financial education that is targeted; and 3) Financial consumer protection that is institutionalized. There is so much ground to cover in financial inclusion and what we do in the BSP is but part of it. This is why we have spearheaded the drafting of a National Financial Inclusion Strategy, to bring together the financial inclusion work in other government agencies, interested NGOs BIS central bankers’ speeches and the private sector into a comprehensive, holistic plan. We hope to be able to launch this year. As a result of these initiatives, the Philippines has been recognized as having one of the most conducive regulatory environments for financial inclusion. I hope that in the last 25 minutes or so, I have been able to paint a fair picture of the economy as we move forward in the context of the global environment we operate in. The Philippines is expected to remain resilient and grow above trend (Govt target of 7–8 pct), in a low inflation environment (Govt target of 2–4 pct), supported by a sound banking system, and able to withstand reasonable external shocks. I also hope that you now have a better appreciation of what to expect from the BSP. The BSP can lead in the initiatives I mentioned, but we cannot do it alone. You, in the corporate world, are the ones who bring to life the policies we espouse. As you can see from the slide, the goal is to have everyone rowing in synch and towards the same goal. In the areas under our purview, the BSP has tried to be an innovative leader. 1. We try to be unconstrained by the past, even as we learn from it 2. We always ask the relevant questions and try to find the appropriate answers, and 3. We continue to believe that, in partnership with the market and corporate world, there is always a better way of doing things. As we push forward in 2015, I hope that the MAP and the BSP can work more closely together towards our shared goal of a stable macroeconomy and sustained economic growth. Thank you and again, good afternoon to everyone. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SharePHIL's Seminar "All You Need to Know About Financial Rehabilitation and Insolvency Act", Manila, 17 March 2015.
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Amando M Tetangco, Jr: Financial rehabilitation and insolvency regime in the Philippines – progress and remaining challenges Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SharePHIL’s Seminar “All You Need to Know About Financial Rehabilitation and Insolvency Act”, Manila, 17 March 2015. * * * Good afternoon ladies and gentlemen. Let me begin by thanking the organizers for this privilege to share with you the thoughts of the BSP on an important legislative initiative – the Financial Rehabilitation and Insolvency Act (also known as FRIA). We all know that FRIA became a law in 2010. What perhaps most of us do not know is: when then Senator Juan Edgardo J. Angara sponsored the bill on the Senate floor in 2009, it was the 100th year anniversary of the Insolvency Act of 1909, its precursor law. Talk about long gestation! It was therefore not surprising that the good Senator clamored for its passage, arguing that it could no longer be postponed. But more than the length of time since its precursor law, the prevailing mood of global financial insecurity then demanded its enactment. The same mood of global financial insecurity still prevails today, albeit to a lesser extent. While the rest of the world continues to grapple with the global financial crisis and its aftermath, the Philippines is in a better place. Thanks to economic reforms we have undertaken thus far. However, now is not the time to sit back and rest on our laurels. Indeed, we need to remain proactive and adopt reforms that would allow us to withstand the inevitable challenges that a growing economy such as ours faces. When former Senator Angara spoke at the Senate in 2009, he noted that, in our country, the chances of a claimant to recover his investments from a failed enterprise are a nightmarish 4.4%. In sharp contrast, the recovery rate in Japan for failed enterprises is a whopping 92.5%. Where we are now? With the passage of FRIA and the FR Rules in 2013, however, our recovery rate now stands at 21.2%. Furthermore, the World Bank Group in its June 2014 Doing Business report ranked the Philippines as #50 in the Resolving Insolvency Index in a pool of 189 countries. Not bad you may think, but we clearly still have quite a long way to go. Beyond the metrics, ladies and gentlemen, we should focus on the real goal: that of reaping the advantages of an effective insolvency regime. The FRIA is a major reform designed to promote investor confidence and contribute to financial stability and sustained growth in our economy. However, the passage of the FRIA is really just the jump-off point in achieving that goal. What are the benefits of an effective insolvency regime? To say that the presence of an effective insolvency regime is a pillar of market confidence seems contradictory, doesn’t it? Especially because we do not expect real investors to embark on a business or an economic endeavor with failure in mind. However, part of a sound business plan is knowing what you are up against – including what would happen to you and your investment, should your business turn sour. Indeed, market exit (even if it is “forced upon you”) is an integral part of the business life cycle. The principle is this – if investors (and banks) know that there are clear rules that govern recovery, they become more willing to take on new ventures and businesses. BIS central bankers’ speeches When you extend this principle across the many current and potential investors across markets, it then becomes intuitive and easy to appreciate that a sound insolvency regime builds confidence and is economic growth-enhancing. In addition, it also supports financial stability. Let me illustrate. From the point of view of the investor, an effective insolvency regime provides a framework for the terms on which they can be willing or prepared to lend. More particularly, the predictability and confidence in loan recovery upon default give the investors specific parameters, including price points, for their lending. In several cases, this has led to increased credit availability, lower cost of credit, or both at the same time. The experience in Brazil shows that the broad bankruptcy reform in 2005 that established greater protection to credit had led to a significant increase in the total amount of total debt (a reported 10-17 percent increase) and in the total amount of long-term debt (23 to 74 percent increase). In other words, there was also a lengthening of debt maturities. The same study also reported a 7 to 17 percent reduction in the cost of debt financing for Brazilian firms. From the broader macro point of view, a clear insolvency regime encourages entrepreneurship, when this provides a safety net for entrepreneurs, especially those who commit personal assets to start a business and personally guarantee loans to the new venture. A 2008 study that compared self-employment in 15 countries in Europe and North America between 1990 and 2005 found that more forgiving personal bankruptcy laws combined with ready access to limited liability protections, enhance entrepreneurial activity. Furthermore, when the laws also provide for a well-managed redeployment of assets to more productive firms, jobs are preserved. A corporate reorganization code in Colombia enacted in 1999 dramatically improved the efficiency of reorganization proceedings, its duration fell from an average of 34 months to 12 months. Effective reorganization in countries such as Colombia allowed a company’s workforce to remain employed and productive. From a financial stability perspective, effective insolvency laws help to reduce market disruption. In Chile, for instance, the introduction of economic insolvency advisors – who were tasked to first determine the viability of firms in financial distress as basis for insolvency proceedings to commence – laid a foundation for the smooth processing of insolvency proceedings. It allowed Chile to improve the recovery rate of distressed firms’ creditors from 19 cents on the dollar in 2004 to 30 cents in 2013. What is the relevance of FRIA to central banking? Some of you may be wondering – why the central bank governor is speaking at a seminar on insolvency and recovery. Particularly given that, the resolution processes for banks is covered under another set of laws and regulations, not the FRIA. I asked your president, Atty. Lim the same question when he invited me. He reminded me of the ardent support of the BSP during the deliberations of the law. I guess, the answer to that question therefore is – as both Francis and I agreed – the FRIA is important to the BSP as well, just as it is to you. In fact, while deliberations in Congress on the FRIA were on-going, the BSP did parallel work on formally adopting financial stability as a policy objective. You may ask, how is financial stability related to FRIA? I submit [as I alluded to earlier] that, if FRIA is well implemented, it will help promote and advance financial stability in our country. There is no textbook definition for financial stability. But in the BSP, we define financial stability as that desirable state that is achieved when the governance framework of the market and its financial infrastructure enable and ensure the smooth functioning of the financial system conducive to sustainable and equitable economic growth. Effective insolvency regimes, by saving struggling firms when possible, or by reallocating assets of failing firms more productively, contribute to the smooth functioning of the financial system. They help minimize market disruptions. Banks and investors are also more willing to lend when they know they can recover at least some of their investment when businesses BIS central bankers’ speeches fail. Entrepreneurs, particularly those involved in small and medium scale enterprises, will be more willing to enter the market when they do not have to put their entire personal resources at risk. Effective insolvency regimes enable transacting parties to take calculated risks in their investment decisions. I am sure you will agree with me when I say that such an empowerment to take calculated risks is what fuels innovation. In turn, innovation is that which is at the heart of economic growth. The current Philippine growth trajectory is on an uptrend. To sustain this, we need more investments, especially from real money funds from abroad that are accompanied by new technology for innovation. While it helps that the country is now rated two notches into investment grade territory, we should be mindful this alone won’t bring in investors. Good growth prospects and higher credit ratings are undoubtedly important contributors to improving the investment environment. But they may not be enough to entice the full range of investors to come in, build businesses and create jobs for Filipinos. We should always recognize that investment decisions are highly influenced by investors’ confidence in our domestic legal system, the quality of our laws governing private and property sectors and how effective our laws are upheld and enforced. Investors look for consistency and predictability in their commercial affairs. They would want to maximize and preserve the value of their assets or ensure that their claims are upheld, prioritized or equally treated if they become creditors of insolvent debtors. It is their confidence in our legal system that will encourage them to make use of court processes should rehabilitation and insolvency issues confront them. The FRIA provides us with a menu of remedies for distressed debtors and new approaches to rehabilitation and insolvency. And because it expressly adopts the UNCITRAL Model Law on Cross-Border Insolvency and accordingly, FRIA gives foreign creditors in liquidations and rehabilitation proceedings direct access to Philippine courts. Thus, opportunities for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings are available. What more needs to be done? Over the past 15 minutes or so, I went through a laundry list of the benefits of an effective insolvency regime. Clearly, we all appreciate that the FRIA is our take off point for reaping these benefits. However, in the 2013 Forum on Asian Insolvency Reform that the Philippine Government hosted through the Bangko Sentral ng Pilipinas, one session exhaustively deliberated on the proposition that, in the implementation of insolvency regimes, fixing the insolvency statute is not sufficient to create a well-functioning insolvency regime. I cannot agree more. Recent studies have shown that the critical success factor in effective insolvency regimes globally is: the continuation of reforms after laws are enacted. The failure of insolvency systems in countries that have already modernized their laws is due to inadequate implementation. The implementation of the law is as important as the law itself. Our distinguished audience knows all too well that the successful implementation of the FRIA can only come about through a clear understanding and consistent application of the FRIA and FR Rules by our judges and insolvency administrators. Given the special and technical competence required in liquidation and rehabilitation processes, suitable and sufficient capacity building is a necessary component. Thus, we cannot stress enough the benefit of specialized training for members of our judiciary, industry practitioners, and other stakeholders. This should include basic business and accounting training, especially for those who have neither. With the growing internationalization of finance and other businesses, we can anticipate the application of insolvency laws and rules on international corporations doing business in the country. Our courts are therefore continually called upon to be more dynamic and responsive to such economic and financial developments. We are hopeful and confident of the response BIS central bankers’ speeches of our judiciary to this call, so as to give spirit to the more expeditious rehabilitation proceedings mandated under the FRIA and FR. This will help in ensuring that no delay will derail implementation of rehabilitation plans. Conclusion Ladies and gentlemen, at the core of it, the challenge to us is to help sustain the business confidence in our country and achieve financial stability. This we can do by actively playing our role in creating an environment with an adequate and functioning legal framework, where laws and rules are clear and well-defined, thereby enabling a consistent application by the members of our judiciary. It is evident that through FRIA we have the cornerstone for an effective insolvency regime. We can build on this foundation to ensure that the advantages of such an insolvency regime are achieved. As I close, let me congratulate the SHAREPhil let by its President, Atty. Francis Lim, and its Chairperson, Ms. Evelyn Singson, for organizing this very important seminar. I urge everyone to continue to take full advantage of this learning opportunity, to validate his/her knowledge on rehabilitation and insolvency matters, to share insights or experiences, or even to challenge ideas concerning financial rehabilitation and insolvency. Let us make this forum not just a venue to learn but also as a place to think of new ways by which we can effectively contribute in moving rapidly to an effective rehabilitation and insolvency regime and a more financially stable Philippine economy. Ladies and gentlemen, we know our end-goal. Let’s not wait another century to get there. Good afternoon and I wish this seminar great success. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Euromoney Philippines Investment Forum, Manila, 24 March 2015.
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Amando M Tetangco, Jr: Sustaining the economy’s growth saga through the 3Ps of policymaking – proactive, pre-emptive, and prudent Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Euromoney Philippines Investment Forum, Manila, 24 March 2015. * * * I see from the conference agenda that you have already covered critical topics this morning. Our place in the ASEAN Economic Community, our prospects in the mass market and our infrastructure are certainly key issues for the Philippines today. Before you take on capital market issues and the rest of the forum topics, I thought it would help in the discussion of these sectoral issues, if I would spend the time allotted to me to speak on the broader economy that we operate in. In particular, I would like to speak briefly on the risks to the macroeconomy that the BSP sees in the horizon, and how we, from a monetary and banking policy framework, intend to address these. First, the risks: The risks we face come mainly from the external side. Here I mean the interplay of three key factors: (1) the uneven global economic growth; (2) the uncertainty of the oil price path and the ambiguity of the underlying drivers of the oil price decline; and (3) the resulting divergence in monetary policy stance among major advanced economies. In the last year and a half, these factors have manifested themselves in the movement of global capital into US assets (away from core Europe and emerging markets), an appreciating trend in the US dollar and a decline in global long-term interest rates. The rebalancing in global portfolios, as funds search for better yields, has surfaced in our domestic financial markets as volatility in the peso/dollar exchange rate, and in the local bond and equity markets. Going forward, should the uneven global growth scenario persist, we may see this translate into more pronounced changes in trade patterns. Monetary policy thrusts: In response, the BSP has opted to use a mix of monetary policy tools over the last year. These actions included increases in reserve requirements on bank deposits, upward adjustments in policy interest rates, a strategic presence in the FX market, alongside a clear communication plan, and other macroprudential measures. The BSP did these to allow it to: 1) better manage credit and liquidity growth, 2) anchor inflation expectations, and 3) ward off any potential build up of excesses in some segments of the market that may be overly-reliant on the historically low interest rates for their growth and exuberance. The BSP will continue this strategy of using what it deems as appropriate from the whole range of tools available in its enhanced tool kit. I believe the domestic markets have come to understand this. They now appreciate that the BSP’s approach to responding to challenges is really to be Pro-active, Pre-emptive and Prudent. Three P’s. Banking reforms: Given the central role of banks in the transmission of monetary policy, the BSP is also strategic in ensuring the resiliency of the banking system. We have repeatedly said that our handling of the banking system is premised on striking a balance between the needed prudential limits and the ability of banks to make sound BIS central bankers’ speeches business decisions based on the idiosyncrasies of their operations and the realities of their market. In practice, this translates into specific actions under two facets. 1) Regulatory framework, and 2) Access to financial products. The first facet is crafting a regulatory environment that encourages innovation while adequately mitigating unwarranted financial risks. I want to be clear though that it is not just about Basel 3, although we consider Basel 3 as a primary safety net. There was much apprehension surrounding our adoption of the capital requirements under Basel 3. In fact, I note that one of the topics for discussion in the session following my talk is whether the capital regulatory reforms are affecting banks’ ability to lend. Not to preempt the later discussion, let me just share that, the initial fear over the implementation of the Basel 3 framework is unfounded. Today, our universal and commercial banks continue to have capital levels that can withstand credit stress tests of 20 to 50 percent write-offs. In addition, credit continues to grow at healthy levels. Equally worth noting is that the quality of loans has been improving, with NPLs continuing to fall. It will be interesting to find out the perspectives of the Conference on this issue. I won’t attempt to list all the regulatory reforms, but just to illustrate, let me cite a couple. We have amended the credit risk framework for banks to align this with the global best practice of highlighting the factors that go into a sound credit decision, without relying only on the collaterals pledged against the credit. We have also streamlined the minimum capital requirement for banks so that it is tiered with the extent of their branch network. At the same time, liberalization of bank branching was undertaken so that banks can better make the business decision of how and where they wish to serve their target constituents. To round this out, we have likewise pursued the longstanding objective of developing our capital markets. Recent amendments to our regulations address gaps, particularly in arriving at market rates for purposes of marking-to-market. These new interest rate benchmarking regulations should make pricing of bonds for capital build-up more transparent. All of these are done with the objective of making the regulatory environment more open to the business decisions of service and product providers. They broaden what can be achieved within the banking industry without unduly compromising the regulatory oversight for risks and conflicts of interest. This dovetails with the second facet of how we strike the balance between prudential limits and banks’ decision-making ability. This is – liberalized access to the banking market. It is critical that our market is “financially inclusive” given the structure of the Philippine archipelago. This means that access, products and policy have to generate the desired synergies so that we can equally respond to the needs of those traditionally underserved or underbanked. This is a key advocacy of the BSP, for which we could easily devote another forum. Even if I limit myself today to the traditional banking market, so much has already happened of late. With the enactment of Republic Act 10641, we have increased the ownership ceiling of foreign banks to 100 percent from 60 percent, liberalized branching requirements and allowed foreign banks to participate in foreclosure proceedings of real estate properties. With capital infusion and market presence, the expectation is that the Law would bolster the local banking industry through greater competition, and the benefits from the transfer of skills and technology. This liberalization of the entry of foreign financial institutions positions us well for the ASEAN Banking Integration Framework. But more than just ABIF, we have pursued and supported these legislative initiatives because a competitive globally-oriented banking industry is an essential portal for foreign investments. This, in turn, feeds off the investment grade rating we have obtained from international credit rating agencies. BIS central bankers’ speeches While liberalization has its advantages, we recognize that there may be potential issues such as the relaxation of credit standards in the pursuit of larger market share, the risk of contagion and volatile capital flows. Financial stability lens: Ladies and gentlemen, when the BSP considers the effects of potential risks, we do not merely look at the impact on individual firms. Rather, through the lens of financial stability, our concern becomes the bigger picture, examining the interaction among institutions, transactions, products and markets. It is through this new prudential norm that we address the contagion of risks, including those that may potentially arise from any liberalization initiative. Outlook: Against this monetary and banking sector policy backdrop and in light of the risks we anticipate, how do we see the operating environment going forward? Very broadly, we see the country continuing to grow in a stable inflationary environment. We believe liquidity is sufficiently calibrated and that it would support broad-based growth without fuelling inflation which we monitor particularly in view of policy normalization in the US. More specifically, the government’s target of 7–8 percent is attainable as domestic demand conditions remain firm and supported by improving production efficiency and robust labor market dynamics. Meantime, inflation expectations will remain well-anchored. Latest inflation forecasts, based on surveys by the BSP and the Consensus Economics, remain close to the mid-point of the target band of 2–4 percent for 2015–2016. On the banking side, we see that this will remain a reliable intermediator of funds. Given the reform agenda, the system will continue to be characterized by solid asset growth, improved quality of loans and assets, strong capitalization, and better risk management practices. We see the external current account remaining in surplus as exchange inflows from overseas Filipinos (OFs) remittances, business process outsourcing (BPO) revenues, as well as tourism receipts are seen to continue to grow. Finally, ladies and gentlemen, given the positive alignment between inflation and growth, and augmented government resources as a result of fiscal consolidation, both the monetary and financial sectors have sufficient room to make policy adjustments, as may be warranted. Conclusion: You may ask, will the Philippine economy be able to sustain its successive years of strong growth performance over the medium term? I believe so. Apart from the country’s strong fundamentals, the government’s commitment toward sustaining its structural reform agenda would lend critical support to achieving our growth potential. The BSP shares the same commitment. After all, we follow the framework of the Three P’s. I am confident that we will be able to attain our goal of an upward economic growth trajectory, in an environment of price and financial stability because we will remain Proactive in policy dialogue with stakeholders such as yourselves. Pre-emptive in putting in place forward looking policies, and Prudent in adopting reforms. Ladies and gentlemen, even as the outlook remains favorable, now is not the time for complacency. As the genius behind Intel, Andy Grove, once said, “Only the paranoid survive.” I wish therefore that your conference would be peppered with just the right amount of paranoia and balanced with enough openness for finding suitable solutions. Good afternoon and thank you for your attention. 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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2015 annual convention of the Chamber of Thrift Banks, Makati, 7 April 2015.
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Amando M Tetangco, Jr: Strategic challenges ahead for banking and for thrift banks Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2015 annual convention of the Chamber of Thrift Banks, Makati, 7 April 2015. * * * A Growing economy and a steady banking industry The Philippine economic story remains one of growth. The macroeconomy has had 64 consecutive quarters of expansion which has been achieved while keeping prices stable. On the external front, we have been able to sustain current account surpluses for more than a decade due to strong structural flows from remittances and BPO receipts. As a result, our GIR has increased to USD 81.3 billion as of end-February 2015. Buoyed by investors’ confidence on the country’s sound macroeconomic fundamentals, the Philippines attracted a record-high of USD 6.2 billion last year in foreign direct investments. The success of the Philippines thankfully has not gone unnoticed. We cherish the investment grade status bestowed by international credit rating agencies because it opens opportunities for the country as an investment destination. This is one major reason why we pushed for what later became Republic Act 10641 and we are now seeing the strong interest of foreign banks to enter into our market. They serve as potential catalyst of more investments from their home countries. Alongside the favorable macroeconomic environment has been the expansion of the banking industry. The numbers do change but we have seen the resources 1 of the Philippine banking industry grow at a steady pace due to the continuous increase in deposits from the public. This build up in deposits is critical in two respects. First, it reaffirms the confidence of the public to entrust their savings into the banking system and also shows the improved economic condition of the population that eventually translates into saving. The second reason is that it of course fuels the availability of more loanable funds and we have noted that the increased credit exposures have been without deterioration in asset quality. Re-positioning thrift banking in a changed environment All the positive developments have certainly put us in a good position. They provide us the momentum to move forward but they will not necessarily guarantee further success. Markets are constantly in a flux and the strengths of the past need to be further enhanced to meet the challenges of the future. This is why we continuously amend and upgrade our regulatory environment. The BSP has always been an ardent supporter of global best practices. But we have equally been careful to apply the substance of the reforms and not just be bound to the form of the changes. We stand ready to make the difficult decisions when and where we have to, while committing to continuous dialogue to mold and manage the reform agenda. The banking landscape is itself under a phase of major remodelling, the “new normal” as many refer to it. This new normal, where newer risks are being identified and mitigated while older risks are being approached in a different manner, really calls for a strategic re-thinking The total resources of the Philippine banking system rose by 11.91 percent to Php 11.2 trillion as of endDecember 2014 from Php 9.8 trillion in 2013. BIS central bankers’ speeches of what is possible, what is likely, and how these can be effectively pursued under more stringent norms of risk management, corporate governance, and consumer protection. From what we see, each and every bank must invest in this re-thinking process. Thrift banks, however, face the unique situation of being confronted with a question of both scale and scope. If you choose to differentiate yourself from other banks via scale, this certainly raises the intriguing question of how a thrift bank competes alongside the bigger universal/commercial banks or the smaller rural/cooperative banks. If you offer similar products and services as those of U/KBs, the conventional thinking is that they would have the advantage of scale and scope economies. Within the framework of allocating risk capital to various risk exposures, this difference in scale and scope would be particularly telling. If you position yourselves against rural and coop banks, one expects that they would have the advantage of being more entrenched with the community at a scale that is aligned with community needs. Either decision has a direct bearing on your cost structure, your profitability and, therefore, your viability. Being smaller in markets where size (i.e., capital) and footprint (i.e., network) matter makes it very difficult to compete. And yet, choosing to be bigger may also not serve you well if you operate in those markets where grass root relationships matter most. Re-focusing on a niche All these notwithstanding, there is a strategic issue facing thrift banks besides size of operation and this one is about the choice of target markets. If we revert to the Thrift Bank Act of 1995 , it says there that TBs are supposed to: “Promote economic development, and expand industrial and agricultural growth. At the same time, TBs should place within easy reach of the people the medium to long-term credit facilities to businesses engaged in agriculture, services, industry, and housing at reasonable cost.” Parsing through this mandate, it talks simply of lending term funds to various economic sectors, whether in the agriculture, industry or services sector. One can argue that this is true of any bank, whether universal, commercial, thrift, rural or coop banks. If this is the case then, the distinctive feature of thrift banking as provided by law is that of mortgage financing. Taking a more general view, the niche of Philippine thrift banking is consumer finance and MSMEs. By targeting specifically these markets, TBs should have a better sense of the amount of risk capital that is needed for a projected level of risk exposure. It also allows for more focused consideration via specific regulatory issuances. In Circular 855, for example, the BSP talks of underwriting credit without being locked into specific forms of collateral. Our periodic stress tests have a specific section on consumer finance vulnerabilities while the recent introduction of REST sets our own framework on the credit risks of real estate exposures. Consumer protection issues – redress mechanisms, financial literacy initiatives and outright better disclosures – are equally relevant. Our Circular 857 provides the minimum standards of conduct we expect from market players while setting the framework for a periodic review and complaints handling. These are all critical as you consider your niche. But ASEAN integration is certainly another key consideration. The ASEAN Banking Integration Framework or ABIF was formally launched only a couple of weeks ago. This means that we now enter the phase of administering the guidelines so that BIS central bankers’ speeches Qualified ASEAN Banks (QABs) can operate within the region in the next couple of years. There will be other occasions where we can fully elucidate the details and operation of ABIF. But central to the framework is the idea of developing ASEAN for ASEAN for which consumer finance appears to be a key facet. About a tenth of the world’s population resides in ASEAN. While the global life expectancy rates have increased from 66 years old in 1990 to 71 years old in 2012, ASEAN has extended this to 73 years old on average. With 30 to 35 percent of ASEAN population at or younger than 15 years old, this extra 2 years becomes even more material over the next few decades. In addition, ASEAN saves nearly 31 percent of its GDP. This rate is 11 percentage points higher than the rest of the world. This extra 11% in saving is not small as it is larger than the GDP of many countries. As time moves forward, ASEAN’s young population provides a rich opportunity for increasing demand for financial services. The same population will require financing for consumer requirements in housing, auto loans, credit cards and other personal needs – the very market that the Philippine thrift banking industry currently defines as its “space”. Finally, the MSME sector, which accounts for 99.6 percent of the total number enterprises in the country and more than one-third (or 35 percent) of our GDP and employs 65 percent of our workforce, is without a doubt vital to our economy. By positioning yourselves to grow this sector, the dividends will go beyond yourselves. Growth in this sector will have significant multiplier effects in generating employment and raising the standard of living of more of our people. By positioning to serve this sector, TBs can be true catalysts of broad-based and sustainable inclusive growth. Strategic directions and final thoughts Ladies and gentlemen, I started my remarks by stating that ours remains a story of growth. I suggested, however, that we need to be strategic in facing the new normal of banking. Banks have to look carefully at the evolving environment, including the reforms, and how they can strategically position themselves in a changing market environment. The banking mindset today and five years hence are not the same as those from a decade ago. Banks must adopt the best practice standards, adapt to the changing market conditions, and adjust their strategic mindset accordingly. This strategic landscape of adopt-adapt-adjust is, however, not a game of absolute size but one of relative fit. In other words, finding your niche. You asked me to comment on the state of thrift banking in the Philippines. The reality of course is that the industry is a dichotomy. Those that are part of a banking group enjoy the scale that the group offers. This route offers a way to create a wider footprint and carves out the consumer finance business line from the U/KB parent to the TB subsidiary/affiliate. For the TBs that are stand-alone, you are effectively much more geared to your community market. The concept of a community can readily be defined more liberally in both product line and counterparty. But the crux is that the discipline of target market must take precedence. And it takes precedence by taking particular cognizance that you are typically smaller than the TBs which are part of a banking group. Ladies and gentlemen, what all this says is that the future rests with your choices. While we have, as a country and as a banking industry, done well, we are at that proverbial fork in the road where strategic decisions will have to be made. Resources have always been relatively scarce but our new banking framework requires of us to be more conscious of the unseen risk, the allocation of scarce risk capital, and remaining competitive as a corporate entity but with a heightened sense of governance. These are the strategic issues. BIS central bankers’ speeches Eleanor Roosevelt once said that “Great minds discuss ideas; average minds discuss events; small minds discuss people”. The likely “events” have crystalized before our eyes. It is now time to venture into the market of strategic ideas, not only to discuss but more so for the greater minds to lead the way towards a better banking future. Thank you and good morning. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 62nd Annual National Convention and General Membership Meeting of the Rural Bankers Association of the Philippines, Manila, 18 May 2015.
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Amando M Tetangco, Jr: Rural banks – portals of inclusiveness for Juan and Juana dela Cruz Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 62nd Annual National Convention and General Membership Meeting of the Rural Bankers Association of the Philippines, Manila, 18 May 2015. * * * Today, we gather to kick off your 62nd Annual National Convention and General Membership Meeting. You have set “New Vision, One Direction, Stronger Organization” as your theme for this conference, the same title as your 5-year strategic plan. This is certainly a welcome initiative. It reflects the intent of the RBAP to look ahead, define your strategic path and communally decide on the tactical actions needed to get you to your desired destination. The vision for rural development But to move forward and reach our destination, it will be useful to pause and also look back. For some, this suggestion may seem counterintuitive. Prudence dictates that in creating a vision of what you wish to become, it would be useful to revisit the purpose for which the rural banking system was set up in the first place. Republic Act 7353 is categorical in that it speaks of “the establishment of a rural banking system designed to make needed credit available and readily accessible in the rural areas on reasonable terms.” Ladies and gentlemen, the operative words here are: “needed credit that is accessible on reasonable terms”. In the simplest of words, this is the vision of the rural banking system. It is quite straightforward. But it is a vision that has turned out to be quite elusive to fully realize. Shifting financial markets As we review the current markets we operate in, I would like us to consider two things. First, the broader and larger macroeconomic picture, and second, a more focused view of the improvements in technology and how we can harness this to our advantage. The big picture and technology I will not delve into the macroeconomic indicators that you traditionally hear me speak of during your events. Instead, for today, what I would like us to appreciate is that our constituents’ needs are changing. And these changes are reflecting rather fundamental shifts. With 64 consecutive quarters of economic growth to-date, one should expect to find some structural improvements at the grassroots. Indeed, latest data seem to confirm such an improvement. In the Global Findex for 2014, the World Bank noted that the percentage of Filipino adults with formal accounts increased to 31.3% from the 26.6% baseline figure in 2011. These accounts refer to those held in banks, cooperatives or microfinance institutions or as mobile money. On the other hand, the percentage of the poorest 40% of Filipino adults who have a formal financial account stood at 17.8 percent in 2014, a rise of 7.1 percentage points from the figure in 2011. These are not small improvements especially when you consider that 37 percent of our LGUs (604 out of 1,634) are still unserved by any bank. While banking reach and financial access continue to be fundamentally challenging because of our archipelagic landscape, the BSP’s innovations in banking regulations have helped reduce this gap. We have augmented the presence of the 514 rural banks headquartered in BIS central bankers’ speeches our 17 regions by licensing other financial service providers (FSPs) such as e-money agents. With the operation of FSPs, the percentage of LGUs that remains without any form of financial access point falls from 37 percent to 13 percent. Ladies and gentlemen, indeed, economic growth is being reported and financial access is broadening. Amidst these shifts, every financial institution is looking for newer frontiers to explore. The following simple numbers provide richer flavor for the opportunities that lie ahead. At a gross domestic saving rate of 20.8% in inflation-adjusted terms for 2014, that translates to Php 1.49 trillion in real terms or Php 2.12 trillion in nominal savings that can be mobilized. That is 2014 savings alone, quite distinct from the Php 1.80 trillion in 2013 and another Php 58 trillion the year before. And perhaps what is most telling is that the great bulk of this has been generated by half of the population since the other half is literally still in school. The bet really is that our future rests with the economic fate of our young population. They provide the demand that will drive consumer finance. And they represent the future where preferences are molded by technology and product choice. This brings me to my second point. The availability of technology at the retail level is rapidly changing the business model of community banking. We are not talking only about more ATMs and e-banking services. Instead, it is really the basic fact that information and communications technology is now relatively affordable and is scalable to make your operations more efficient and reliable. There’s also greater capability to communicate through long distances with a simple email or social media posting and to reduce dependency on physical offices to reach out to a wider customer base through mobile banking technology. This means that the information technology frontier just keeps on extending and extending and extending. Your options on rural banking then become largely an issue of how you deliver banking products and services using the IT choices you have made. The competitive landscape of the rural banking market has also seen major shifts in recent times. From what was then nearly the exclusive domain of rural banks, we have now seen universal and commercial banks venturing into the countryside, in part because of the phenomenon of technology. Fundamental choices These are the broad strokes of change. Sustained economic growth that is becoming reflected in the consumers’ financial choices. Greater market competition – from both within and without as we have become more open to foreign ownership of our banks. Financial technology that is moving at the speed of light. Where do all these changes leave the rural banking industry? As you embark on your visioning exercise, each one of your members must make the hard choices in terms of the “scope” and the “scale” of your operations. A rural bank’s fundamental strength is its familiarity with the grassroots, the community it serves. But as the market evolves, familiarity – even as it is an advantage – may not be sufficient to guarantee the operational viability of a rural bank. As the local community being served grows, so must the rural bank which is invested into that community. But, even as I say this, the causality must go both ways. For the local community to grow faster, the rural bank must also continue to be the stimulus for the community. This is at the very ideal of what rural banking should be in the Philippines. There will always be a need for financial services and it is incumbent upon the RB to develop products and services that can address the requirements of its constituents. This is the issue of “scope” and this reflects the responsibility of banks to be portals of economic improvement. Financial consumers are made better-off by banks because financial well- BIS central bankers’ speeches being is improved by banking products and services which then also translate to improvements in the community. Then there is a question of “scale” so that the rural bank stands ready to grow – in size and core competencies – with the communities it serves. In the end, buzzwords like “right sizing” and “streamlining” need specific context. It seems obvious that there is no universal standard – or “magic number” that is out there. What is clear though is that as you make your decisions on what you deem is the right size for you, you must continue to be guided by the BSP’s regulations on the appropriate governance structures and risk management frameworks. In the process of determining the scale and scope of your operations, it is my hope that you will be able to deliver the needed financial services to your clients at reasonable terms – just as it has been envisioned in the Rural Banks Act. What the future brings Rural banks must remember that you are yourselves stakeholders in the community. You are, in effect, a financial consumer – as an institution and as individuals – in the community that your bank also operates as a financial provider. As I close, I want to inform you that the BSP has spearheaded the formulation of a national strategy for financial inclusion, the National Strategy for Financial Inclusion (NSFI). We are set to launch this in July this year. It’s a multi-sectoral endeavor that sets out the coherent framework on how all our efforts, those of the public sector and the private sector, can be closely and systematically coordinated to bring about financial inclusion that leads to broadbased and inclusive growth. Rural banks are an integral part of that strategy. It is a great opportunity. I urge you to closely engage with us on this grand endeavor. Friends, change is everywhere and perhaps none more so than in the present times. You talk of a “new vision” because we need to accept that there is a new normal in banking. It is still very much a business activity but one which is held to a very high social standard. This important qualification is necessary to protect the financial consumer from conflicts of interest, to instill corporate governance standards, to enforce global best practices for managing risks and ultimately, to sustain public trust. We have seen during the global crisis what a banking market becomes in jurisdictions where public trust becomes eroded. It would be an over-simplification to argue that their problems are unique and could not arise in Asia or in the Philippines. These problems have not manifested themselves here because we took early steps to prevent the build-up in risk and we continue to invest in a regulatory environment that nurtures your creativity as product providers while mitigating the ill effects of unwarranted risks. There is a need for “one direction” to strengthen commonality in purpose in addressing the challenges of the future. Yes, there is diversity in the different situations that invite different approaches. But those different approaches need to be anchored by common principles and shared aspirations. Finally, a strong organization is always a must and a stronger organization must be responsive to the changing times, that new normal we approach with common purpose. We need to continue to be a value proposition to the financial consumer, especially those in the countryside. RBAP is certainly equipped to do just that under a new vision that accepts the new normal in banking, having one direction to approach the challenges with a common purpose, having a stronger organization that has the strength and agility to withstand the uncertainties, and having the boldness and courage to innovate and re-invent. I wish all of you well for this national convention and the BSP stands ready to be your continuing partner in rural development. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Luzon Regional Consultation on the National Strategy for Financial Inclusion, Manila, 20 May 2015.
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Amando M Tetangco, Jr: Acting together for financial inclusion Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Luzon Regional Consultation on the National Strategy for Financial Inclusion, Manila, 20 May 2015. * * * Today is a milestone in our process of crafting a National Strategy for Financial Inclusion (NSFI). This is important because our objective is to act and work together to improve the quality of life of millions of Filipinos. Ladies and gentlemen, you and I know that economic reforms and better governance have given momentum to our country’s economic growth that is now at levels regarded as among the fastest in Asia. However, we also need to ensure that across the country our people are able to identify, gain and prosper from opportunities that such development brings. We can achieve this through financial inclusion – where there is access to a wide range of financial products and services that are responsive to the needs of all Filipinos and supports broad-based and inclusive growth. While the trickle-down approach to spread the benefits of development is good, it is not enough; we want to be more proactive. Among others, we want our people to save, invest and know personal finance management to be financially secure and independent. We want our people to be part of the financial mainstream where they can access bank loans that will help them grow their own business. We want our people to have options other than informal lenders with prohibitive rates and onerous conditions. And we want our people to be able to protect themselves against scams and to know their rights as financial consumers. Working on financial inclusion is one clear way to ensure sustained and broad-based inclusive growth, a principal goal of our Government. And so, we have gathered today to discuss our draft National Strategy for Financial Inclusion or NSFI. You have been especially selected as key stakeholders to craft our way forward to achieve financial inclusion in the Philippines. This process of consultation is structured to give ample opportunity for you to articulate your insights as co-authors and implementing partners of our NSFI. This is the first in a series of regional consultations. Next week, we will have similar consultations in Cebu and and in Davao. As we go thru the workshops for the rest of the day, let us keep in mind the Filipino public who we want to serve and the challenges before us. Among others: • About 12 percent of our 1,634 cities and municipalities of remain unserved by authorized financial service providers while 36 percent have no banks at all ; • Only 4 out of 10 Filipino adults set aside money to save, and 68 percent of them keep their savings at home ; • 47 percent of Filipino adults borrow, but mostly from sources like family and friends (62 percent) and informal lenders (10 percent) ; • Only 39 percent of households receiving Overseas Filipino remittances allocate a portion to savings ; and • Insurance penetration is only 1.8 percent . BIS central bankers’ speeches With your inputs and support to the NSFI process –we look forward to seeing significant changes in these numbers. Ladies and gentlemen. I am confident that our NSFI will generate positive results… for a number of reasons: first, because its implementing mechanism is inclusive; second, it ensures interactive engagement among stakeholders; and third, it promotes synergy of initiatives. The experience of other countries inspires us to have our own NSFI. In particular, the World Bank has noted that countries which have national strategies for financial inclusion have recorded higher average growth rates for financial access compared to others. I have been repeatedly asked – why is an NSFI important? Well, the NSFI provides a platform for coordination among the many stakeholders with important roles in financial inclusion. It provides the blueprint useful in designing and implementing financial inclusion policies and programs that focus on four areas: (1) policy, regulation and supervision, (2) financial education and consumer protection, (3) advocacy programs and (4) data and measurement. In addition, the NSFI fulfills the Philippine Development Plan (PDP), which commits to “establish a national strategy that defines financial inclusion, the strategies undertaken to achieve it, and the accountabilities of all stakeholders”. It is the result of different agencies, with varied mandates, working together because of a shared recognition that – financial inclusion is essential to achieve the government’s overarching goal of inclusive growth. These agencies include: • Bangko Sentral ng Pilipinas (BSP) ; • Commission on Filipinos Overseas (CFO) • Cooperative Development Authority (CDA) • Department of Budget and Management (DBM) • Department of Education (Dep-Ed) • Department of Finance (DOF) • Department of Social Welfare and Development (DSWD) • Department of Trade and Industry (DTI) • Insurance Commission (IC) • National Economic and Development Authority (NEDA) • Philippine Deposit Insurance Corporation (PDIC) • Philippine Statistics Authority (PSA) and • Securities and Exchange Commission (SEC) These agencies are involved, directly or indirectly, in promoting an inclusive financial system and in serving unserved and underserved markets. As participants in the NSFI crafting process, these agencies commit to pursue financial inclusion alongside their respective mandates. The BSP, as initiator of this process, is committed to make the NSFI a living, relevant and useful document for all stakeholders. Our commitment to financial inclusion began as early as year 2000 when we mainstreamed microfinance as a banking activity. Since then, we have been fine-tuning policies and regulations to enable our supervised institutions to serve unconventional markets such as low-income households and microentrepreneurs. Experience taught us that such markets, like regular consumers, can be provided with suitable financial products and services by regular financial institutions. Hence in 2007, we BIS central bankers’ speeches progressed our advocacy from microfinance to financial inclusion. The BSP was among the first central banks to create a unit dedicated to promoting financial inclusion. Our agenda has since expanded because of the conviction that financial inclusion, when done right, supports the BSP’s primary mandates of price and financial system stability. We have also put equal focus on consumer protection and financial education. In 2012, the BSP institutionalized financial inclusion as a corporate objective with the creation of the Inclusive Finance Steering Committee (IFSC), which I chair. This Committee serves as a seamless mechanism for internal coordination and synergy of various inclusionrelated initiatives that are being implemented by different operating units. These initiatives revolve around the same four areas that the NSFI focuses on. To institutions therefore who wish to support or promote financial inclusion, the NSFI serves as guide – the SONAR or GPS that ensures policy cohesion and coordination, and prevents duplication of initiatives. Sceptics may think that our NSFI is merely another document. We believe NSFI will work thru the implementation of tactical plans that form the acronym SMART: specific, measureable, achievable, realistic and time-bound. As per our timeline, by July this year, the heads of the agencies represented here today will sign a Memorandum of Understanding as a formal commitment to the NSFI objectives, principles and tactical plans. Ladies and gentlemen. We realize that the 13 agencies that drafted this NSFI have limited mandates, capacity and resources to implement the many possible interventions contemplated in the document. We are confident however that the NSFI can be fully implemented with ownership and support from a wide spectrum of public, private and even international stakeholders. I am glad therefore to see a good mix of institutions represented today. Together, let us ACT: Agree on a vision of financial inclusion, and align institutional, or even personal, objectives to this vision; Collaborate on the SMART tactical plans; and Take action to implement these plans. Ladies and gentlemen, in the service of all Filipinos, let us make financial inclusion and inclusive growth, a reality in our country. Maraming salamat sa inyong lahat. Mabuhay ang ating mahal na bansang Pilipinas! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the FT-First Metro Philippines Investment Summit, Makati, 20 May 2015.
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Amando M Tetangco, Jr: Geared up for global reform and regional integration Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the FT-First Metro Philippines Investment Summit, Makati, 20 May 2015. * * * I am pleased to have this opportunity to share my thoughts with you this afternoon. At last year’s Summit, we tackled the “new wave of volatilities” that we were then experiencing. You may recall that the markets (both global and our own) were at that time still internalizing the “reality” of Fed taper. In the interim, however, a more upbeat outlook on the US economy has surfaced as well as significantly lower oil prices. Recently, improvements have also been noted in Europe and Japan. Domestically, there have also been quite a number of positive developments. Private consumption has remained buoyant, inflation has been kept within target, current account surpluses have been sustained and the banking system has stayed sound. Against this backdrop, the IMF, the World Bank and the ADB have all projected strong GDP growth for 2015 and 2016 for the Philippines. Moody’s backed these up by describing our banks as being “well positioned to manage unexpected downward pressures”. While we await an update from S&P after its recent due diligence, Fitch has highlighted the “sound liquidity, high capital buffers and stable asset quality” of our banks. All things considered, the Philippine financial system is in a good place today. But we can’t afford to be complacent. Not at all. For this afternoon, let’s consider two things that are top-of-mind of the market that could change the situation: 1) the global reform agenda, and 2) regional financial integration. First, the global reform agenda. We have seen the reform agenda take shape – from banking to securities, insurance, infrastructure, governance and market conduct. All these reforms are meant to institutionalize a “new normal” under a revised set of global best practices and minimum standards. We all appreciate how different this new normal is against the “older” ways of doing thing. I fully understand that making this transition is a challenge for stakeholders, regulators and the regulated alike. The principles underlying the various reform components, however, make a clear case for why there is a need for change. As responsive and responsible agents, it is incumbent upon us to adopt and adapt. We adopt the higher norms prescribed for good governance, risk management, market conduct and consumer protection since these define our new market architecture. However, we are equally practical and pragmatic in recognizing idiosyncratic conditions that require us to adapt the global standards in ways that better serve our prudential purposes. Moving on to the second issue. We are seeing regional financial integration materialize into a defined reality. What was perhaps a faint prospect at an earlier time and was hardly discussed publicly, we now hear of promises of improved well-being for financial consumers and prospects of larger markets for service providers under the certainty of enhanced competition. The integration timelines have been set and how we handle ourselves against those milestone dates will greatly determine the macro-financial landscape for generations to come. In banking, we have a few short years before Qualified ASEAN Banks (QABs) may enter our market. The integration of ASEAN insurance markets has a more assertive timeline BIS central bankers’ speeches while capital market development has a definitive vision for a harmonized framework for cross-border securities transactions. None of these integrated markets could exist, however, without the necessary pipelines and so interoperable and/or interlinked trading, clearing and settlement systems are likewise a necessity. As you can see, ladies and gentlemen, there is much that lies ahead of us. The new normal has set the bar higher in the manner regulators supervise the financial market and how market participants conduct themselves. Against the certainty of change, are we ready? Thankfully, the Philippine financial system has the advantage of being in a position of strength. But, we have repeatedly argued that this strength is neither permanent nor absolute. Change is a certainty because the needs of financial consumers evolve with time. Markets, in turn, offer a richer menu of products and services that address the evolving broader needs of financial consumers. And on top of these, we have seen in recent times that markets sometimes need a fresh-but-major reboot and that too will certainly call for change. These changes are most apparent in the recent legislative and policy initiatives to further open our banking market to foreign interests. I am often asked whether the Philippines is ready for banking integration. Although it is not as often raised, the accompanying question is why we should be part of such integration efforts. Let me address the latter question first as a prelude to the former. The answer really may just boil down to two numbers: 600 and 31. The latest figures suggest that the world generally saves at a rate of roughly 20% of GDP. ASEAN, however, has a Gross Domestic Saving rate of 31%. Applying these figures to the USD2.395 trillion GDP of ASEAN in 2013 , we have ASEAN saving at USD742.5 billion of which USD263.5 billion (i.e., 11% of GDP) can be seen as a saving that is higher than the norm for the rest of the world. These are not small numbers, a good portion of which is invested outside of ASEAN. When combined with the estimated ASEAN population of over 600 million individuals, a more organized ASEAN financial market does seem to make its own case. Preparing for new foreign interests and added competition This brings me back to the first question: how do we prepare for the new foreign interests coming into our banking industry? Perhaps, with one eye equally focused on trying to mobilize a portion of the USD742.5 billion in ASEAN saving in 2013 alone? Unfortunately, there is no switch that we can conveniently toggle between “on” and “off” for this. The best preparation is simply to have each bank operate with due recognition of the impact of financial risks on its own balance sheet and that of the system as a whole. This combines 1) the effective management of risk exposures and the enforcement of a binding governance culture at the bank level and 2) the regulatory oversight and mitigation of systemic pressures that may be developing. This is the specific context of what we euphemistically refer to as an “enabled environment”. It is simply a regulatory framework that deliberately nurtures the creativity of providers to deliver innovative product and services while giving regulators enough leeway to intervene to address conflicts of interests, including the possibility that what may be good for individual banks may not necessarily be beneficial to the system at large. In the capital market, we need to strengthen and finalize our pricing conventions so that there are no material gaps between reference rates and market valuation. We strongly subscribe BIS central bankers’ speeches to price discovery and we aspire to implement the principles on financial benchmarks soonest. Market infrastructure, of course, plays a central role for the efficient transfer of funds and settlement of obligations, whether onshore or offshore. The BSP is playing a very prominent role in regional and global discussions to calibrate the global OTC Derivatives infrastructure requirements to better reflect the less active markets in Asia. Currently, financial regulators are actively reviewing our payments and settlement system so that a harmonized domestic structure puts us in a viable position to be a strong node within the ASEAN network. Indeed, to the extent possible, we lend our voice in global and regional forums where market reforms are either being designed or discussed for cross-border application. To be sure, we will not forget our financial consumer. The Financial Consumer Protection Framework recently approved by the Monetary Board is a milestone in what can prudentially be expected by consumers and of financial service providers. The fact that a recent World Bank-funded review describes our consumer protection framework as one of the best in the world is a major strength as we move forward. Collaboration and cooperation Ladies and gentlemen, much has already been put on our collective plate but the reality is that much more can be expected ahead of us. It is not our intention to push all of these to our supervised entities for them to deal with on their own. Critical collaboration and cooperation is necessary because these are major developments that will dictate the market landscape for decades ahead. This extent of collaboration is an essential facet of how we got to this position of strength. Now, we have to build upon that collaboration and that position of strength for us to move forward. The winds of change have brought both the global reforms and regional integration into their respective mature stages and it is now the challenge of execution that is before us. We may not always agree with the specific form of the global and regional changes but, perhaps, we can agree on the principles for which change is being espoused. Borrowing from the website of the Financial Stability Board, we continuously need to build resilient financial institutions, make markets safer, instill more effective supervision and institutionalize more effective resolution regimes. In other words, we need to uphold transparency, be mindful of contagion and concentration, and monitor simple risks that can subtly transform into systemic vulnerabilities. Ladies and gentlemen, vigilance has been the seed for which we are now reaping the fruit of macro-financial strength. Being continually cognizant of the need for such vigilance and adhering to the discipline of governance are the keys to continued resilience. These are the responsible investments we need to make and with contributions from all stakeholders, we can expect a better and stronger financial market ahead. Thank you and good afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Luncheon Meeting of the American Chamber of Commerce of the Philippines, Manila, 3 June 2015.
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Amando M Tetangco, Jr: Progress and challenges in the Philippine financial system Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Luncheon Meeting of the American Chamber of Commerce of the Philippines, Manila, 3 June 2015. * * * It’s a pleasure to address the Chamber during your General Membership Meeting, at a time such as this, when we are seeing US economic growth continuing to gain traction, US labor conditions improving and the USD sustaining its appreciating trend. Even in Europe, there is emerging optimism that economic conditions are beginning to show improvement. Will all these developments, there is indeed much to discuss regarding the implications of recent events for the Philippines. I’ve been requested to share with you my thoughts on the progress and challenges in the Philippine Financial System. Let me start by saying macroeconomic stability hinges on the strength of the financial system. This is for certain. You cannot have a strong macroeconomy when your financial system is in disarray. In the most basic of modern economics, the financial sector is the lifeforce of any economy. It allocates resources to productive sectors and in the process, promotes investment and job creation. In the advent of increased cross-border transactions and heightened interconnectedness of economies, however, this very same financial system which enables economic growth could also be the channel for transmitting vulnerabilities. Financial systems have become a way by which contagion is amplified. Indeed, this feedback loop relationship has never been more evident than during the Global Financial Crisis and its aftermath. As we all know, the Philippine economy survived the GFC relatively unscathed. That, in large part, was due to our sound and stable financial system. Seven years since the GFC, the Philippine banking system continues to stand strong. And, since 2012, the Philippines has been the only jurisdiction whose banking system has been given a positive rating outlook by Moody’s Investor Ratings Services. In fact, the only one from among the 69 jurisdictions it rated in 2014. The metrics that describe the banking system which are shown in this slide are among those often cited by credit rating agencies – steady growth of resources, healthy balance sheets with NPL ratios for U/KBs down to under 2 percent, capital at 16.2 percent that more than meets the national requirements of 10 percent and is more than 2x the Basel standard of 8 percent, and healthy increase in loans going to the key productive sectors which stands at around 15 percent. Our survey of Senior Loan Officers has consistently indicated also that the lending standards of banks have not been weakened by the global trend toward “search for yield.” Friends, this position of strength which we now enjoy did not materialize overnight. It is the product of a firm commitment to progressive structural reforms that include the institutionalization of risk-based banking supervision, the calibrated adoption of global reforms, the raising of the standards for disclosure, risk management and governance of banks especially with respect to the expectation for the banks’ boards of directors. At the same time, we are also fully aware that this strength is not absolute nor is it permanent. Therefore we continue to be watchful and anticipate changes that are likely to occur moving forward. With this in mind, I’d like to spend the next few minutes to look at three key risk factors that could challenge our position of relative strength: 1) divergent monetary policy in advanced economies, 2) weaker growth prospects in Asia, and 3) volatility in oil prices. BIS central bankers’ speeches First risk is the market interpretation of the Fed’s actions. Of course the Fed’s action is important. But often, it is the knee-jerk reaction by the market that complicates matters. The US Federal Reserve will raise interest rates. The market, analysts and other policy makers are in agreement on this. However, as markets vacillate between 1) complacency as data releases are mixed, raising the specter that the Fed might hold off raising rates and 2) “waiting-game fatigue” as the market sees the Fed shifting from forward guidance towards greater flexibility and data dependence. This could trigger higher market volatility, raising the risk of disorderly adjustments, and the possibility of a sudden liquidity squeeze wherein markets retreat during the transition period. Our experience from the taper tantrum episode of May 2013 was that fickle funds can quickly retreat away from EMEs (including the Philippines) with even the slightest hint of Fed tightening. The QE by the European Central Bank (ECB) and the Bank of Japan (BOJ) could somehow mitigate the resulting tight conditions. Nevertheless, these liquidity infusions from the other AE central bank are not expected to fully offset the impact of Fed tightening, given the dominant share of USD in trade and external debt financing, and the soft pegs of many EM currencies to the USD. As portfolios rebalance, EMEs, including the Philippines, can experience capital flow reversals, strong currency depreciation pressures, and a shake in market confidence. This is the first major risk our financial system faces. Second, the possibility of getting stuck in what the IMF calls the “New Mediocre” referring to economic growth. As China has become central in Asian trade, any significant slow down in the Chinese economy would cast a cloud on its trading partners’ growth. China’s economic slowdown could have a knock-on impact on Asia (including the Philippines) through trade, investment and financial linkages with the region. Although the People’s Bank of China (PBOC) has announced a series of easing measures, financial conditions in China appear to remain fairly tight due to the effects of reforms on credit growth. Third, the uncertainty in the path of oil prices. Lower oil prices have provided a boost to Asia’s overall growth (including that of the Philippines’) because most countries in the region are net oil importers. But a prolonged period of cheap oil combined with an already low global inflation environment begets expectations of increased deflationary risk. Such a scenario could render global economic recovery difficult. On the other hand, there is also the risk that oil prices could reverse in the same speed at which they fell. If the reversal is rapid, that could dislodge inflationary expectations. Like most economies in Asia, the Philippines is in a good position to withstand these risks, particularly, should the market respond by way of capital outflows. Our mantra in the BSP, particularly since the GFC, has been to “keep our own house in order”. To operationalize this, we have kept our ears close to the external world, and our eyes on our primary mandate. In other words, we are mindful of what is happening in our neighborhood, but at the same time vigilant to watch out for stresses within. Our improved fundamentals and ongoing reform efforts have anchored investor confidence, and helped us achieve investment grade status. As you can see from the slide, we have been able to manage our external liquidity position. We’ve been running current account surpluses for over 10 years now. We have FX reserves that are ample by traditional yardsticks. And short-term external debt-to-foreign reserve ratios have remained healthy in recent years. All that said, you may be asking yourself, what can go wrong? Friends, the Philippines has come a long way and we want to go farther, higher. We want to be a stronger, more inclusive economy. Surely, the report on the 5.2 percent Q1 GDP growth came as a surprise to many of us here – is this cause for worry? I would tend to agree with what Sec. Balisacan said that it’s too early to abandon our 7–8 percent growth target. After all this is just one data point. From the side of the BSP, we see that with sufficient liquidity, and as domestic credit remains healthy, there are developments that should boost economic performance going forward. For BIS central bankers’ speeches instance, spending for the forthcoming election should boost growth. The government initiatives to mitigate El Niño can push agriculture, FDI inflow associated with liberalized entry of foreign banks and their corporate investors should boost manufacturing, construction. The government has also vowed to utilize the fiscal space that is available to it and ramp up investments in infrastructure. And on the demand side, sustained growth in remittances should support domestic consumption. Let’s not forget that despite this surprise to the downside, the reality is, the economy continues on a sound growth path and we remain one of the faster growing jurisdictions in Asia. What is even more noteworthy is that this growth has been happening in a low inflation environment. A positive convergence indeed. This slide shows that in the last 6 years, the BSP has been able to keep average inflation within the government’s target range. This year, we are again looking at within-target inflation. With inflation expectations well-anchored, and the risks to this forecast broadly balanced, we foresee average inflation at lower than the midpoint of our target range of 2–4 percent. What more can the Chamber expect the BSP to do to lessen our vulnerability and ensure that we are on a higher growth trajectory? The BSP will continue to utilize the tools in its expanded toolkit and sharpen its surveillance capacity. Over the course of the crisis, we learned that relying on the interest rate instrument alone could lead to perverse results and unintended consequences. For example, keeping rates low for too long could lead to excesses in certain segments of the market. While, we will make sure policy rate settings are pre-emptive and calibrated, we will also continue to use the full range of macroprudential measures available to us to enhance the economy’s resilience against systemic shocks and deter the build-up of aggregate risks. At the moment, our assessment is that there is no compelling reason to shift the stance of monetary policy, with growth still on a positive path and inflation expectations well anchored. The BSP will continue to be reform-minded, adopting global standards as appropriate to the unique domestic conditions and pushing forward with the capital market reforms that are already in the pipeline. The BSP will vigorously leverage off technology to improve the reach of our financial services, strengthen consumer protection and deepen financial education. After all they say, “technology is the great equalizer”. Next month, we will launch the National Strategy for Financial Inclusion, which is envisioned to be a platform for inter-agency collaborative work between the public and the private sectors to achieve a truly inclusive eco-system. We are excited about this, and we hope that when we begin to invite the private sector to pledge its support, we would see the Chamber among those who would partner with us in this endeavor. Ladies and gentlemen, I said earlier on that the financial sector provides the life-blood for economic growth. In reality, however, the sound/solid macroeconomic picture I presented also supports the development of the financial sector. Clearly, the causality is two-way. I also said at the top of my remarks that the financial system has a double-edged role. The main challenge therefore that faces us right now is ensuring that the wheels of the Philippine financial system continue to run smoothly and that the economy stays in the course of healthy expansion. Key to this is striking a balance between encouraging financial innovation, which is critical for economic advancement, and curtailing excessive financial risk-taking. There are no rule books for this, however, for this is both an art and a science. The BSP has laid down some of the groundwork in this area through years of pursuing relevant reform initiatives. But despite the gains achieved thus far, there is always room for more and better things to do to ensure that the domestic financial system remains responsive to an ever-evolving financial landscape. It is our hope that in this effort of building a more BIS central bankers’ speeches inclusive and stable economy, we could continue to look to the strong support of the AMCHAM. Thank you for your attention and good afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launch of the 2015 Citi Microentrepreneurship Awards, Manila, 22 May 2015.
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Amando M Tetangco, Jr: Generating more winners in microfinance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launch of the 2015 Citi Microentrepreneurship Awards, Manila, 22 May 2015. * * * Today we launch the 2015 Citi Microenterpreneurship Awards or CMA, a groundbreaking program that has allowed us to discover the creativity, tenacity and generosity of Filipino microentrepreneurs across our country. We just heard the testimony of Ms. Teresita Valdez, one of about a hundred CMA awardees so far. Their stories inspire, inform and motivate those who want to go into business. The challenges they faced and how they overcome seemingly insurmountable odds strengthen the resolve of other entrepreneurial Filipinos that they too can succeed in the microfinance sector. Indeed, our microentrepreneurs represent a gold mine of lessons and information that has been helping us transform and improve the lives of millions of Filipinos through microfinance. Ladies and gentlemen. A significant factor in our growing harvest of successful microenterprises stories is a regulatory environment that enables microfinance institutions or MFIs to provide appropriate products and services. Microentrepreneurs succeed when the regulatory framework is well-defined; enables various MFIs – whether banks, coops and NGOs – to deliver a range of microfinance services to their niche markets; and encourages institutions under our supervision to cater to microentrepreneurs, a market which “traditional” bankers tend to sidestep due to perceived high credit risks and transaction costs. In this connection, the Bangko Sentral ng Pilipinas has issued clear guidelines and codes of conduct, so that banks can viably provide an array of products designed to fit the peculiarities of microfinance clients. I can say we are on the right track. The Philippine regulatory framework for microfinance has been consistently ranked as one of the best in world by the Economist Intelligence Unit (EIU). More recently, the EIU ranked the Philippines as the top country in Asia, and the 3rd in the world, with the most conducive environment for financial inclusion. The EIU further notes that countries like the Philippines with a long tradition of microfinance have better institutional and financial infrastructures – which can be leveraged to financiallyinclude more clients at the “bottom of the pyramid”. Back in 2000 when the BSP started issuing microfinance-related regulations, hardly any bank was into microfinance. Today, we have 176 thrift and rural banks serving over 1.2 million microfinance clients with outstanding loans of PhP 11.4 billion – or an average of nine thousand five hundred pesos. These microfinance loans now include different types – for starting and growing microenterprises; for micro-agriculture ventures; and for housing. These are all designed for low-income households with varied financing needs. At the same time, microfinance banks have opened 2 million microdeposit accounts with nearly four billion pesos in deposits. In addition, 39 banks licensed as microinsurance agents are now serving 1.4 million clients. Big banks, on the other hand, are participating in the microfinance market by providing wholesale loans to retail MFIs or to MSMEs through their subsidiaries. I am also pleased to report the progress being made by other MFIs outside the BSP’s supervision in moving the industry forward. Among others, a survey indicated that BIS central bankers’ speeches 16 microfinance NGOs with a combined network of 2,190 branches have P11.6 billion in outstanding loans served to 2.5 million borrowers – or an average of P4,640.00 per borrower. On the other hand, data from the Cooperative Development Authority (CDA) indicate that 67.9 percent of the 10,675 reporting coops are providing financial services to 6.5 million members. It is clear: there is great potential for MFIs to accelerate the development of microfinance with appropriate, effective and responsive services. We have been monitoring this. Among others, 35 banks have set up 517 micro-banking offices (MBOs) in 334 municipalities; 64 of these municipalities are served only by an MBO. BSP regulations issued in 2010 enabled the creation of MBOs – these are small banking units where microfinance clients can conveniently access a range of banking services, including loans, microdeposits and microinsurance. The e-money regulations issued by the BSP in 2009 have also produced positive results: 52 microfinance oriented banks now provide e-banking and e-money services. They see the value of e-money as a transactional platform for faster, cost-efficient and convenient transfer of funds. Among others, e-money can be used by microfinance clients to purchase goods, pay bills or loans, and move value to their deposit accounts. Indeed, the e-money ecosystem offers opportunities for MFIs as our regulatory framework allows banks and non-banks – such as telco subsidiaries and e-money agents – to participate as issuers or delivery channels. Today, this ecosystem consists of more than 24,000 agents which complement over 10,000 banking offices and over 15,000 ATMs as financial service access points. MFIs can tap into this infrastructure, in response to clients’ need for easier access and other convenient functions. Please note that the number of e-money accounts opened over a period of five years has reached 26.7 million. This represents exponential growth compared with the 47.4 million deposit accounts that took our banks 100 years to generate. While e-money accounts are just transactional accounts, it can be the first step or an “onramp” to more valuable financial services such as savings, credit, even microinsurance. It is a fact – MFIs that keep finding ways to serve clients thru efficient, sustainable business models can help nurture more successful microentrepreneurs. Strong support from public and private sector partners can provide more impetus to grow more success stories in the microfinance sector. One prime example is CMA itself, made possible by mutual support and collective diligence of the Microfinance Council of the Philippines, Inc. (MCPI), Citibank, Citi Foundation, and the BSP itself. At the same time, the participation of distinguished members of the CMA National Selection Committee provides prestige and valuable linkages that generate long-term benefits for CMA winners. Let’s give them a big hand. Networks such as bank associations and cooperative federations also play unique roles in providing support to their MFI members. The role of media is also important – you raise public awareness of microfinance, prompt discussions about its promise and opportunities, and even make microfinance a “trending” topic. Ladies and gentlemen, let us keep in mind that with appropriate enabling regulations, responsive MFI services, and multi-sectoral support for microentrepreneurs, we can help improve the lives of millions of Filipinos. BIS central bankers’ speeches Through our collective efforts, we can help inspire more microentrepreneurs, generate more success stories from their ranks, and realize our goal of achieving balanced and sustained growth that is truly inclusive. Thank you all for joining today’s launch of the 2015 CMA. Mabuhay ang microfinance sector! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 117th Anniversary of Philippine Independence, Guam, 26 June 2015.
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Amando M Tetangco, Jr: Celebrating freedom and responsibility Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 117th Anniversary of Philippine Independence, Guam, 26 June 2015. * * * I am deeply honored to be with you here in Guam to celebrate the 117th Anniversary of the Independence of the Philippines. This is a time of reflection. A time when we look back to honor the people who dedicated their lives to secure our freedom as a nation. A time to remember the significant events that define us as a people and as a nation. Indeed, we must celebrate, commemorate, and value our heroes and their legacy of freedom. We are happy to note that this is well recognized by the Government of Guam with the proclamation signed by Gov. Calvo declaring June 2015 as Philippine Independence month. This brings me to the subject I wish to share with you tonight. In the Philippines, we are working on developing an economy where growth is sustained, balanced and one that promotes inclusive growth. Growth that improves the quality of life. Growth that empowers. Growth that breeds financial independence among our people similar to what you have here in Guam. Indeed, with the freedom to set our own course, the Philippines is on track to achieve sustained long-term growth. Among others, we have registered 16 years of uninterrupted economic growth. And time and again, the Philippines has demonstrated a level of resilience that can withstand the effects of global financial distress or the devastating impact of natural calamities. In 2013, for instance, central Philippines was struck in succession by a 7.2 magnitude earthquake and by Typhoon Haiyan, considered the most powerful storm to make landfall in recorded history. Thousands died, millions were adversely affected, properties and infrastructure were destroyed and heritage sites ruined. Nevertheless, with overwhelming outpouring of international support, including from Guam, and with growth momentum on our side, our economy still expanded by 7.2%, the second highest in Asia, next to China. The Bangko Sentral ng Pilipinas – which is the Philippine central bank - plays a crucial role in laying the appropriate foundation to help keep our economy growing. In line with our mandate, the Bangko Sentral works on providing an operating environment where stability is the hallmark of price movements and the financial system. The objective is to create conditions that are conducive to a balanced and sustainable growth of the economy. Promoting macroeconomic stability is crucial because it serves as a solid springboard for households and businesses to flourish. As US President Franklin D. Roosevelt famously declared in his State of the Union address in 1944, and I quote: “True individual freedom cannot exist without economic security and independence.” Indeed, ensuring economic stability and security is in the best interest of a nation. I am pleased to report therefore that we continue to register solid gains in providing a stable environment for our economy to grow and for our people to benefit from opportunities that development brings. Among others, Philippine inflation in May was 1.6%, our lowest in 20 years. At this rate, we are able to preserve and protect the purchasing power of our people. By comparison, our inflation reached its highest at 50% in 1984 or three decades ago, when problems related to politics and economics converged. We had a debt crisis: with our gross international reserves insufficient to meet our overseas obligations, we declared a moratorium on foreign debt payments, which in turn triggered a credit freeze. As a consequence, government had BIS central bankers’ speeches to ration scarce foreign exchange by prioritizing importation of critical commodities such as oil, medicines, and dairy products. The credit squeeze also pushed domestic interest rates higher, with housing loans going for over 30%. It was during this period when many Filipinos went overseas to find better opportunities. Today, things are so much better in the Philippines. We now have ample international reserves that have enabled us to fully prepay our loans to the International Monetary Fund, after 45 years of indebtedness. And we have liberalized foreign exchange transactions. Among others, with minimal documentation, individuals can purchase as much as one hundred twenty thousand dollars ($120,000.00) per transaction from banks. Interest rates have also been lower, with some housing loans going for 5% per year. The banking system is sound, stable and liquid, with bank capitalization more than compliant with global standards. In fact, last year, in a field of 69 jurisdictions, the Philippine banking system earned the distinction of receiving the only positive outlook rating from Moody’s. Moving forward, we are confident that our banks can hold their own when ASEAN Banking Integration takes place by 2020, as part of the wider implementation of the ASEAN Economic Community (AEC) by the end of 2015. In preparation for this, a new law was passed last year - Republic Act No. 10641 – allowing 100% foreign ownership of banks in the Philippines. We believe this will encourage healthy competition that will benefit Filipino consumers in terms of having broader and better choices of bank products and services. It will also bring in more foreign investments into the Philippine economy. We hope that these favorable business conditions in the Philippines will prove attractive for increased investments from Guamanians to partner with us in exploiting such opportunities. Parallel to this, we are taking a proactive approach to ensure that Filipinos across the country are able to identify, gain and prosper from the fruits of economic progress. Our way forward is through financial inclusion. We want our people to save, invest and learn proper personal finance management to be financially secure and independent. We want our people to be part of the financial mainstream where they can access bank loans that will help them grow their own business. We want our people to have options other than informal lenders with prohibitive rates and onerous conditions. And we want our people to be able to protect themselves against scams and to know their rights as financial consumers. We are therefore working with other agencies and institutions to develop and implement a national strategy for Financial Inclusion to achieve sustained and broad-based inclusive growth. The upward trajectory of economic freedom in the Philippines is reflected in the 2015 Index of Economic Freedom published by the Wall Street Journal and The Heritage Foundation where we ranked as 76th freest among 186 countries. We had one of the 10 best score improvements in this 2015 Index, with notable improvements in financial freedom, freedom from corruption, and labor freedom. While the report pointed out areas of remaining concern, it acknowledged that wide-ranging reforms have put greater emphasis on improving regulatory efficiency, enhancing regional competitiveness, and liberalizing the banking sector. In terms of overall economic freedom, the score of the Philippines is above average, relative to the world and the regional benchmarks. Ladies and gentlemen, the declaration of Philippine independence 117 years ago was a decisive step toward building a free and prosperous nation. BIS central bankers’ speeches Today, more than paying respect to our forefathers and heroes, let us reflect, as beneficiaries of this freedom on our responsibilities in moving our country and our people forward wherever we may be. The current generation has the obligation to carry on with the task of nation-building to ensure that future generations continue to have the rights and privileges that we enjoy today as free and independent citizens as Filipinos or as Guamanians. At the core of this shared mission is the spirit of community that we also celebrate tonight-the Filipino values of bayanihan and malasakit - both of which are underpinned by concern and caring for others, out of compassion, or a sense of duty. We observe this, for instance, in the consistent flow of remittances from Guam to the Philippines. According to data collated by the Bangko Sentral ng Pilipinas, cash remittances through banks by overseas Filipinos in Guam reached a total of $85 million in 2013 and $87 million in 2014. The strong ties that bind us are also evident in the number of tourists from Guam who visit the Philippines. In 2014 for instance, we recorded 38,000 tourists from Guam - equivalent to roughly 23% of your population. And preference for products from the Philippines is on the rise. This includes dried mangos, shrimps and other food items and automotive vehicles. Philippine exports to Guam reached $13 million in 2013 and increased to $19 million in 2014. This is not surprising. Guam and the Philippines have many things in common – being a former colony of Spain and the United States and under Japan during World War II. Indeed, Guam is part of our history. Filipino revolutionary heroes were exiled here. This included Melchora Aquino who was 84 when the Philippine revolution against Spanish rule broke out. Popularly named as “Tandang Sora” she provided shelter and resources to freedom fighters and became known as the Mother of the Philippine Revolution. The other Filipino hero exiled here was Apolinario Mabini who was recognized as the Brains of the Philippine Revolution. He was the first Prime Minister of the Revolutionary Government and the first Foreign Affairs Secretary of the Republic of the Philippines. He was 38 when he died, shortly after returning from exile. Indeed, no one is too young nor too old, to fight for freedom. As fate would have it, we recently celebrated milestones of these two heroes: Melchora Aquino’s 200th birth anniversary in 2012, and Apolinario Mabini’s 150th birth anniversary in 2014. The Bangko Sentral ng Pilipinas minted special coins and medals to commemorate the role of these two heroes in our fight to gain independence for our country and our people. Ladies and gentlemen, we are donating a number of these commemorative coins and medals to the Filipino Community of Guam and to the Philippine consulate here as a reminder of how Guam figured in the lives of these two heroes. And now, Filipinos come to Guam, not as exiles but as citizens of the world, who exercise their freedom to choose where they can be productive members of the economy and live better lives with their families. I understand that the number of tourists from the Philippines is also on the rise, as we have been learning good things about Guam and Guamanians. In other words, the Filipinos here have been actively promoting Guam in our country. I therefore congratulate the Filipino Community of Guam (FCG) in fostering and nurturing Philippine-Guam relations. And most especially, I commend FCG for being responsible members of the community here for over 60 years now. I understand FCG channels its efforts and resources to respond to emerging needs in health care, education, as well as in disaster relief and mitigation. This is BIS central bankers’ speeches as it should be – paying back to the island of Guam, which, for many of you, has become your new home. I believe the members of FCG have made the right choice. Guam is economically active and has a bright future ahead of it. Among others, Guam is an exciting and popular destination for tourists who number over a million. In short, tourists easily outnumber the local population (est. at over 165,000). And projections of more active US military presence is bound to create more jobs and better opportunities here. I take this opportunity therefore to congratulate the leaders of Guam who are here tonight, for providing a clear roadmap to sustaining growth and a better life for Guamanians and its other residents. Ladies and gentlemen, the task of nation-building begins when we gain our freedom, our independence. This privilege comes with an obligation to nurture our freedom by working together to create better lives for our people. As French writer and philosopher Albert Camus once said: “Freedom is nothing else but a chance to be better.” Once again, I congratulate the members and officers, the Board of Directors, and the Board of Trustees of the Filipino Community of Guam under the leadership of President Baldovino for this successful celebration. Maraming Salamat! To my Kabalens, dacal a salamat! Thank you for your invitation and your kind attention. Mabuhay! Hafa Adai. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the IHAP Membership Meeting and Induction Ceremonies, Manila, 10 June 2015.
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Amando M Tetangco, Jr: Developing the Philippine capital market – leveraging policy intentions into concrete actions Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the IHAP Membership Meeting and Induction Ceremonies, Manila, 10 June 2015. * * * I join you this afternoon to once again share my thoughts on the prospects of our financial market. I have been asked specifically to talk about the issues confronting the capital market and identify policy directions. From where we came Everyone in this room is well aware that this issue is neither new nor novel. The path that we have traversed on this issue has been long, to say the least, if not scenic. At the risk that they might deny their years of market service, I see colleagues in this room who will remember the major reforms in the late 1970s that eventually led to the introduction of universal banking by 1981. We did not only aspire to have bigger banks, we also wanted them to be one-stop FIs that could offer a slew of products. Thus, we brought investment banking into the fold of merchant banking nearly two decades before the US Congress repealed the venerable Glass-Steagall Act in favor of the Gramm-Leach-Bliley law of 1999. Responding to market requirements, we saw the development of Commercial Papers, although not of the 6–9 month tenor. LTCPs provided a means of funding while addressing peculiar local features. As the Asian Financial Crisis curtailed longer-term funding, the market’s creativity once again became evident with the introduction of Non-Deliverable Forwards. NDFs provided a hedge for eligible transactions, anchoring expectations on the dollar-peso rate. We introduced structural changes such as having a Real-Time Gross Settlement (RTGS) system through PhilPass. We insisted on the standard of Delivery-versus-Payment (DvP) and even signed a cooperative agreement with the market to initiate the Philippine Settlement Highway (PSH). From practically non-existent a decade ago, there are now more corporate debt securities. Investors have a fairly broad range of choices over the 175 that are listed, with maturities extending to over 18 years remaining. Government securities of course has been a staple and from a trading volume of PHP437.7 billion in 2005 on the exchange, we now have PHP1.93 trillion for the first five months of 2015, following the full-2014 trading volume of PHP4.40 trillion. To where we need to go Our numbers will be rather modest by global standards but it cannot be denied that we have indeed come far in the last 15 years. For that, allow me to congratulate all the stakeholders of the Philippine capital market. With the applause, one can almost hear people murmur, so let me say it aloud. Yes, ladies and gentlemen, there is a “but”. We have come this far but there is much that still lies ahead. Our rapidly growing economy needs a deep and active domestic debt market more than ever, both to provide the more stable funding for infrastructure and other long-term needs as BIS central bankers’ speeches well as the investment outlets of a quality and variety that meet the diverse requirements of our savers. But it will not come about of its own without our active collaboration to build a market that inspires trust and confidence. It requires the cooperation and commitment of government as major issuer, of the financial regulators, of the tax authority, and you, the market players. Together we must build a public good that advances the welfare of all. At the very core, we need to maintain transparency and adhere to strong standards of governance. We desire prices to be efficiently discovered. As a market, we have experienced the dangers of purely bilateral trades, uncontrolled leverage and inefficient settlement. We need a yield curve that reflects active trade across a broad range of activities to serve as the sensitive and critical reference point to properly price risk and guide the market through changing conditions. We need competent and responsible market intermediaries and reliable and robust infrastructure that can provide the desired efficient access to the markets from wherever they are in our archipelago. Changing market incentives Ladies and gentlemen, the issues I just raised comprise a long enough list, but as you know, they are not exactly new either. With all the challenges, we remain a bank-based financial market. I believe however that three developments are pushing the pace of real reforms in our capital market. First, banks today face a “new normal” - one that demands a “fresh perspective on risk”. Necessarily, this means banks must define a new strategic path moving forward. Although capital adequacy ratios have been kept above the regulatory minimum, capital is as much a scarce resource as any. In this sense, banks may be very liquid but they cannot and should not chase every credit option that comes their way. In other words, in building their portfolios, banks must not sacrifice their credit underwriting standards. For users of funds, therefore, the capital market should present a real alternative. Second, bank balance sheets have been under intense global scrutiny. As a result, the global reform agenda is calibrated to “making more resilient financial institutions”. That simply means that the prudential bar has been raised, both for capital adequacy and the quality of risk management . The Single Borrowers Limit on banks will be an increasingly binding constraint as bigger projects are put into play. But the remedy is not in relaxing established prudential standards that help us manage excessive credit risk concentration and protect financial stability. The constructive response is for the capital market to step up and seize the opportunity. This brings me to the third point. There is now a perceptible shift from banking to capital markets. Regulatory authorities are actively discussing this evolving phenomenon. Not that it is a negative development, but more to dimension its potential implications. To be sure, low global rates have encouraged this shift but I would think that the fundamental drivers precisely relate to the strategic allocation of risk capital and the new mindfulness to the interrelatedness of risks in banking. These three drivers I just mentioned augur well for the capital market. The real question however is: are we ready to take full advantage of them? Getting to a Better and Desired State Everyone in this venue appreciates that we could better tap these opportunities if critical reforms can be addressed. And these issues are precisely the object of the regulatory BIS central bankers’ speeches reforms we have been pursuing, essentially to enhance price discovery, promote responsible market conduct and enable product innovation. Our market infrastructure – from pre to post-trade activities, for both payments and transfers – is yet another area which regulators have been focusing on. While there are ongoing crossborder initiatives, the main policy driver is still efficiency within an integrated market. Thus, we look to harmonize applicable processes across products and define standards, as may be warranted. Developing the proper market infrastructure is now high on the priority of the Financial Sector Forum and the Financial Stability Coordination Council. The BSP is also set to consider a major reform of how we conduct monetary policy. We are developing new approaches to enhance open market operations and start to move away from a high reserve requirement regime in the context of establishing an Interest Rate Corridor System. The objective is to achieve greater efficiency in the conduct of monetary policy but it should also pave the way for the full development of the domestic money market that is the anchor of real price discovery and better liquidity management for the broader market. Final thoughts As you can see, ladies and gentlemen, the issues that confront our capital market are not new. Neither are we at the nascent stages of reforms. In fact, we have made significant strides towards a more organized market. But to take us forward and further, we need to take key reforms to their logical conclusion. I would not say that this is the last mile because there will always be more reforms as markets evolve. But we are at the cusp of critical change. As important as these reforms are, we can never underestimate the value of governance. What makes this industry so unique is not just the blocks of funds that move from stakeholder to stakeholder. Instead, it is the fact that we are able to serve the interests of those stakeholders even if their interests may be competing. The anchor is governance so that risks are fully priced to generate reasonable returns to the risk-taker. We need established governance principles too so that we can manage conflicts of interest which are inherent in financial markets. We need those same governance standards as a guide for executing the reforms that we have lined up for our market. Ladies and gentlemen, we have always pursued the development of our capital market as a policy agenda. We are yet at another cusp where we can make significant change. Anchored on good governance and a clear vision of what we desire of the capital market, it would be quite an achievement for all stakeholders if we see the changes come to fruition. Wouldn’t it be such a feat for us to stop talking of pursuing capital market development and instead talk of sustaining a developed capital market? Thank you and good afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launch of the National Strategy for Financial Inclusion, Manila, 1 July 2015.
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Amando M Tetangco, Jr: National Strategy for Financial Inclusion – our platform to provide better lives Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launch of the National Strategy for Financial Inclusion, Manila, 1 July 2015. * * * Welcome to the beginning of our collective journey to change Filipino lives for the better through financial inclusion. In this journey, the National Strategy for Financial Inclusion (NSFI) which we are launching today, shall serve as our road map. About the NSFI: Overview For the Philippine government, financial inclusion is an enduring vision – financial inclusion that supports inclusive growth, one that promotes shared economic development, upholds social cohesion and reduces income inequality. This is explicit in the Philippine Development Plan. Indeed, inclusive growth is the ultimate goal. This is the reason why many agencies are engaged in development activities. With the NSFI, we focus on achieving financial inclusion that promotes inclusive growth, consolidate our efforts to avoid overlaps, and together set priorities to maximize use of our resources. The NSFI covers three fundamental points: (1) Why we are pursuing financial inclusion, (2) Who we are targeting to include, and (3) What we should do to translate the vision into reality. Let me expound on these more fully. Why pursue financial inclusion We are pursuing financial inclusion because we want Filipinos to have better lives – similar to those whose inspiring stories highlight our Exhibit. Indeed, with a small loan, or some savings, a microinsurance cover, steady remittance from abroad sent through formal channels and access to other financial services, more and more Filipinos are lifting themselves and their families out of poverty toward higher incomes, riskprotected assets, and brighter futures. Surveys indicate that roughly 25 percent of Filipinos still live in poverty. One can say therefore, that we have millions of “reasons” to do our best in building an inclusive financial system. The timing is right. The Philippines is in a bright spot, with GDP growth averaging 6.6 percent in the last three years, one of the highest growths in Asia and the world. This has been achieved in an environment of within-target inflation, a desirable combination indeed. At the same time, the Philippine financial system is in a position of strength, with steady growth in resources, healthy balance sheets, and capitalization that is well-above national and international requirements. In other words, economic opportunities abound across the country today at a time when the financial system is sound, stable and liquid. This is fertile ground indeed for proactive work on financial inclusion. Who should be financially included Our goal is to mainstream Filipinos across the country as regular clients of our financial system, particularly (1) MSMEs, (2) overseas Filipinos and their beneficiaries, (3) agriculture BIS central bankers’ speeches and agrarian reform sectors, (4) indigenous peoples and cultural minorities, (4) women, (5) the youth, (6) and persons with disabilities. These sectors are typically unserved or underserved by conventional financial service providers. We want to provide effective access to a wide range of financial products and services. This broadly encompasses a multitude of target sectors and inclusion issues. It also indicates the multi-dimensional financial needs of these sectors – needs that can be addressed by a variety of financial service providers and support institutions. What should we do to achieve financial inclusion Given a clear vision and target market, the next step is to implement the National Strategy for Financial Inclusion. The NSFI spells out high-level principles and systematic strategies; guides coordination across government and private sectors; ensures policy and program cohesion; and promotes multi-sectoral synergies. In particular, the NSFI lays down precise objectives: (1) Financial products that are diverse, well-designed, suitable and relevant to different market segments; (2) Providers and business models that are diverse, responsible, responsive and innovative; and (3) A citizenry that is financially-learned and adequately protected. The NSFI strategic statements and clear objectives serve as guide to all stakeholders when designing and implementing financial inclusion policies and programs. Moving Forward to Implementation and Progress Measurement Later in the program, the government agencies that crafted the NSFI will sign a Memorandum of Understanding. These are the agencies that will spearhead the implementation of our NSFI: • Department of Finance (DOF) • Department of Education (Dep-Ed) • Department of Trade and Industry (DTI) • Department of Social Welfare and Development (DSWD) • Department of Budget and Management (DBM) • National Economic and Development Authority (NEDA) • Insurance Commission (IC) • Commission on Filipinos Overseas (CFO) • Securities and Exchange Commission (SEC) • Philippine Statistics Authority (PSA) • Philippine Deposit Insurance Corporation (PDIC) • Cooperative Development Authority (CDA) and • Bangko Sentral ng Pilipinas At the same time, we have invited multi-sectoral representatives here today because we believe that you can play a significant role in the successful implementation of our NSFI. Ladies and gentlemen, we need your cooperation, collaboration and overall support to ensure that financial inclusion becomes a reality throughout the Philippines. Equally important, we hope that you will help us in measuring and monitoring the progress of our financial inclusion initiatives. Moving forward, we need data to guide and inform us if we BIS central bankers’ speeches are on the right track; to evaluate if we need to refine our tactical plans; to help us prioritize our resources; and to help us calibrate our policies and programs accordingly. Indeed, the importance we ascribe to data and measurement is underscored by the simultaneous launch today of the result of our maiden National Baseline Survey on Financial Inclusion. The survey, completed this year, showed the following results: • 25% of Filipino adults have never saved, 32% used to save, and only 43 % presently have savings. • Of those with savings, only 32% save in banks while 68 % keep their savings at home. • 65 % of unbanked adults cited lack of money as the main reason for not having a bank account. • About 47 % of adults have outstanding loans. The main source of borrowing is informal – 62% borrow from family, relatives or friends while 10% borrow from informal lenders. • In the past six months, about 44 % of adults sent or received money while 42 % made payments. • Only 3.2 percent of adults have microinsurance coverage. • Clients rated themselves as only “somewhat satisfied” with how issues were resolved in most financial service access points. The survey results tell us we have a long way to go to achieve financial inclusion. The survey also tells us that there are plenty of opportunities for those looking to expand their business or to introduce game-changing innovations. Clearly, we will need broad-based cooperation from local and international institutions to address these gaps. Together, I believe we can make substantial gains on our financial inclusion targets. Conclusion We look forward therefore to work with you in our journey to achieve inclusive finance that supports inclusive growth. We want to ensure that Filipinos across the country are able to identify, gain and prosper from the fruits of economic progress. In particular, we want our people to be part of the financial mainstream where they can access financial services and to have options other than informal lenders with prohibitive rates and onerous conditions. And we want our people to be able to protect themselves against scams and to know their rights as financial consumers. Let us therefore forge partnerships that will empower more Filipinos to improve their lives through access to responsive, responsible and fair financial services. Finally, we thank Her Majesty Queen Maxima, for making a special visit to the Philippines to express her support for our financial inclusion initiatives and our National Strategy for Financial Inclusion. We take inspiration from your work in countries like ours. Indeed, we support your efforts to promote financial inclusion in the global arena as a means to achieve development goals. With your support, and the commitment of everybody in this hall as co-implementers of the National Strategy for Financial Inclusion, I believe that we are on our way to a meaningful and fruitful journey toward financial inclusion for all Filipinos. Thank you all for joining us on this auspicious day. Maraming salamat at Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Wealth Watch Book Launch, Manila, 3 July 2015.
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Amando M Tetangco, Jr: We are all wealth watchers Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Wealth Watch Book Launch, Manila, 3 July 2015. * * * This is the second time this week that we are launching a document related to financial empowerment. Just two days ago, we launched the National Strategy for Financial Inclusion, the document signed by 13 government agencies (including the BSP) which sets the strategic map for a unified national financial inclusion landscape. It is a living document that is meant to be populated by tactical plans of each of the agencies involved. And it is envisioned that following the launch, significant partnerships among government agencies as well as with the private sector would ensue. As you know, we had the Queen of the Netherlands, the UN Secretary General’s Special Advocate for Financial Inclusion for Development, Queen Maxima, witness that occasion as our special guest. While we do not have a queen with us today, we are most privileged to have you our most significant partners in this journey of financial literacy and education and consumer protection to share this occasion with us. Today, we launch a different document. A book. In fact, a “wealth book”. Unlike the NSFI, this Wealth Watch Book is not authored by 13 government agencies, but the book is authored by those “closer to home” – by our very own BSPers from the Financial Consumer Protection Department (FCPD). The book is not for those who have no access to financial products and services but, it is for those who have a little bit more than others well, perhaps significantly more but who may need to be just as “watchful” In many respects, however, this book and the NSFI are about the same. Because like the NSFI, our Wealth Watch Book deals with information, and how you can make that information “work” for you. It is about stewardship of what you have. It is about preparing for unexpected events. It is about growth and growing what you have so you can have more. Our launch today brings to mind the NBA Draft. At each draft, media would focus on how those towering “boys” who’ve been drafted would now move from “living within tight college budgets” to becoming and I quote from Yahoo Sports “money making machines”. Sadly, however, we so often hear of stories of athletes with successful careers but who experience financial ruin when their careers end. Fortunately, among all these sad stories, there is one about an NBA superstar who retired a few years back. His spending habits were legendary – he is rumored to have spent one million dollars, in less than half an hour! His wise banker supposedly warned him to “get it together” or else he end up broke like many other former successful athletes. As the story would have it, the NBA superstar decided to become educated in money and finance. He went back to school, got his bachelor’s degree, a Master of Business Administration and eventually went on to earn his Doctor of Education in Human Resource Development. This is the story of Dr. Shaquille O’Neal. As we know of him today, he has several restaurants, car washes, fitness centers, a shopping center, a movie theater while he continues to be a product endorser and NBA TV analyst. By all accounts then, he is financially secure and if the popular story is accurate, it all goes back to his early “turnaround” and eventual commitment to manage his finances. BIS central bankers’ speeches I share this story not to say that the value of financial literacy is for those fortunate enough to become millionaires. Instead, I use it to highlight that even for those who have much, financial literacy matters also. But financial literacy is not just for them. Financial literacy is also for the Juan and Juana Dela Cruzes who, even if they do not have million-dollar paying jobs are conscious of preparing for a future that offers no guarantees. If we accept that tomorrow always holds some uncertainty, we have to accept as well that there is no switch that we can turn “on” or “off” to rectify an unexpected development. The issue before us is whether or not we are sufficiently aware and adequately empowered to manage our personal finances today. While the BSP already has several financial education outreaches, we know that much more can be done towards empowering our financial consumers. And we are committed towards this goal. This afternoon’s book launching is a concrete manifestation of this commitment. For this endeavor, let me thank the authors of the articles. The readers of our Wealth Watch Book will certainly benefit from your “wealth” of experiences as practitioners in the field of finance. Let me also thank our Financial Consumer Protection Department that always tries to think outside of the box in designing new and innovative means of delivering our key financial literacy messages. Ladies and gentlemen. I hope you will find answers to your many questions on wealth management in this book. I hope also that you will find new insights and practical tips on how you can make money work for you. The Wealth Watch book is not just a compilation of individual writings. It is a collective output that is far larger than its parts. Thank you all for joining us today. Happy Anniversary. Thank you and good afternoon. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BAIPHIL Induction of Directors and Officers and First General Membership Meeting, Makati, 21 July 2015.
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Amando M Tetangco, Jr: Opportunities in financial inclusion and financial integration Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BAIPHIL Induction of Directors and Officers and First General Membership Meeting, Makati, 21 July 2015. * * * This is an auspicious time to be involved in BAIPHIL. Your term covering fiscal year July 2015-June 2016 coincides with BAIPHIL’s 75th anniversary! By any measure, this is a significant milestone. Congratulations BAIPHIL! And congratulations to your officers and members, past and present! By tradition, diamonds symbolize 75th anniversaries. This is because diamonds represent a highly prized quality – which is, enduring fidelity. Faithfulness. Commitment. I am pleased to know therefore, that the theme you selected for this year’s Induction of Officers is – “Building Capacity for Financial Inclusion and Integration.” The industry is in the midst of so many facets of change that the concept of “capacity building” takes on new dimensions. It is no longer enough that you position yourself as a trainor for your peers. BAIPhil itself must navigate through a fast-evolving market landscape, appreciate and relate all the strands of change, if you are to become an effective venue for continuing education. Training and education cannot be just about holding lectures and workshops. It is more akin to telling a good story with different chapters. In financial inclusion, we see the dimension of access and calibration so that the financial system itself is responsive to the diverse needs of differentiated stakeholders. How much more appropriate can this be than in an archipelago such as the Philippines. This literally forces us to think out of the box, that comfort zone that we refer to as “traditional banking”. In financial integration, we bring together the collective aspirations of a regional community. This materially changes the landscape but more importantly, it does so at the same time that global best practices are themselves being re-set to a higher and more prescriptive bar. This forces us to think within the box, examining what we have, how we wish to position ourselves in this sea of change and what we need to do to remain competitively in the service of our respective constituents. In each of these two facets, we have a lot that needs to be covered. Taken together, the strategic and tactical implications are significant. At the level of each bank, choices must be made today so that you can maximize competitive advantages that you expect will be your strength in the future. At the level of the industry, this requires an unwavering commitment to continuing education, to appreciate nuances without losing sight of the overall policy agenda of institutionalizing change that can strengthen the system and its institutions. Indeed both financial inclusion and financial integration pose challenges as well as vast opportunities. To dimension what exactly lies ahead of us, perhaps we need to step back a bit. Let me share some indicative figures that came out of our national baseline survey on financial inclusion done early this year. I am sure you will find these useful in crafting your way forward: • Only 4 out of 10 Filipinos save. Of those who save, roughly 30% save in banks while nearly 70% keep their money at home. BIS central bankers’ speeches • 6 out of 10 adults with bank accounts indicated that the bank’s reputation is their number one consideration in opening a deposit account. Around 50% of respondents mentioned interest rates as another major consideration, followed by minimum maintaining balance ( for info only – 45.9%), proximity of the banking office (39.8%) and the way the bank employees treat their clients (34.8%). • 47% of Filipinos borrow money, of whom 72% borrow from family, friends and informal lenders. Banks as source of borrowing stood at only 4.4%, lower than lending/financing companies (12%), cooperatives (10.5%), microfinance NGOs (9.9%) and government entities (6.1%). • The main purpose for borrowing money is to buy food (59.5%), school related expenses (38%) and to finance emergencies (32.7%). • The primary considerations in borrowing money are interest rates (57.5%), loan amount (41.7%), period to pay for the loans (35.0%), ease of loan application (33.1), reputation of the credit institution (24.5%), amortization (14.9%), collateral (14.3%), fees and other charges (11.4%), and processing time (11.0%). • More than 50% of adults who have transacted with banks and ATMs are just somewhat satisfied with their transactions; and • More than 85% of respondents indicate that they want to access financial services from formal institutions. Ladies and gentlemen of the banking community, these are some of the gaps we need to address in our financial inclusion program. The survey also gave us insights into what Filipinos look for in financial service providers. We can therefore move forward with our financial inclusion programs with clearer and more specific objectives. Actually, many sectors – in government and in the private sector – are joining hands to advance the cause of financial inclusion. For your information, 13 government agencies, including the BSP, launched last July 1 at the PICC, the National Strategy for Financial Inclusion or NSFI. The agencies who crafted the NSFI envision a financial system that is accessible and responsive to the need for various financial services, including credit, savings, remittances and payments, insurance and investments. The objective in implementing the NSFI is to support broad based and inclusive growth. The Strategy recognizes the important role of the private sector in 1) recognizing the commercial potential of the vast unserved market and 2) developing innovative solutions to viably cater to these markets that are replete with opportunities. Let me now tackle the matter of financial integration. Similar to financial inclusion, integration also poses challenges and opportunities for our banks. Under the ASEAN Banking Integration Framework – which is a key element of the ASEAN financial integration – Qualified ASEAN Banks or QABs will be awarded equal treatment as domestic banks in the host country. This may lead to increased competition in the financial system as QABs may venture into markets which our banks have been comfortably serving in the past. It is important to note, however, that this arrangement for QABs is made under the principle of reciprocity. Our banks will also have the opportunity to expand to other countries in the region and find new markets. Added competition will challenge banks to further improve their operations and venture to new markets. In addition, the reduction of barriers and cost to trade as a result of integration will catalyse economic activities which could be funded by our banks. For instance, our small and medium enterprises will have the opportunity to be part of the regional value chains of technology giants, leading car manufacturers, and garment producers, among others. With the right interventions and appropriate financing, we can BIS central bankers’ speeches deepen this regional participation for our traditionally domestic-oriented SMEs that are unable to take advantage of available overseas markets. At this point, I want to share the story of a small food producer who was able to grow her home-based business with the help of a microfinance loan. Her business was able to put food on their family’s table, send her children to school and improve the overall quality of life of their family. We met at an awards program for microentrepreneurs. What I distinctly recall is that a year after she won the award, she was given the opportunity to export her goods. Sadly, she was unable to meet the order due to lack of capacity and additional financing from her microfinance institution. In short, she lost the opportunity to expand her business, to earn more for her family, to generate more employment and to add to her community’s income. Ladies and gentlemen, this is a poignant story of a success half-realized. On one hand, we saw how access to credit made such a huge positive impact on the life of a microentrepreneur from the marginalized sector. On the other, we saw how capacity limitations and the inability to access additional financing prevented her from realizing the full potential of offshore markets for her products. Multiply this story many times over and you can imagine the countless missed opportunities for improving the lives of many more Filipinos. Sayang. As the training arm of the banking industry, BAIPHIL’s role is crucial in building the capacity of our banks to transform into opportunities, the challenges from financial inclusion and integration. Toward this end, I would like to share my three-fold challenge to BAIPHIL, and we have another acronym B.I.G. B is for Build. Build our banks’ capacity so that they can compete under regional banking standards. What comes to mind are corporate governance, appropriate risk management and internal controls, commensurate capital structure, and clear business plans with track record, among others. The regulations of the BSP support this objective, particularly our recent landmark issuances and those in the pipeline, such as the Credit Risk Management Framework, the Supervisory Enforcement Policies, and the Operational Risk Management. They provide fundamental principles that empower banks to determine their business model, the markets they want to serve, the products they want to develop and the risks they are willing to take and manage. The I in BIG stands for Improve. I ask BAIPHIL to help improve our banks’ ability to develop responsive products that are suited to the needs of the markets they want to serve. This will entail systematic market research, as well as an innovative mindset. The G in BIG is for Guide. Guide your banks in navigating through this dynamic and constantly shifting operating landscape. Banks will need to keep abreast of developments and adjust to the changing demands of the market. Ladies and gentlemen. This is my BIG challenge to BAIPHIL. With BIG in place, I believe our banks will be able to drive and optimize the benefits and opportunities that financial inclusion and integration stand to generate. Finally, I thank BAIPHIL once again for its continuing support to the BSP in promoting good money habits among teachers, parents of our schoolchildren and other adults from the marginalized sector, through your personal finance management lectures. We have been receiving good feedback for this BSP-BAIPHIL program. Therefore, let us commit to continue working together, let us be faithful to what we set out to do – big or small, and then we can look forward to BIGger and better things that are yet to come. For your information, this is the 11th time I have attended BAIPHIL’s induction ceremony. I have been faithful and consistent to BAIPHIL. The BSP has been faithful and consistent to BIS central bankers’ speeches BAIPHIL. Therefore, insofar as staying true to your theme of “Building Capacity for Financial Inclusion and Integration”, we, at the BSP expect nothing less than enduring commitment from BAIPHIL. Ladies and gentlemen. You have it in you to help unlock the growth potential in our people, in our economy, and in our country, if you continue to pursue financial inclusion and integration with unwavering dedication. If we succeed, then the market for banking services expands, deepens and strengthens the Philippine banking industry in the process, even as we help improve lives, liberate millions of Filipinos from poverty, and bring prosperity to Filipino homes. Let this be our goal and our enduring legacy. I look forward therefore to BAIPHIL remaining faithful and steadfast, like a diamond, in its pursuit of capacity building for financial inclusion and integration. Thank you for your kind attention. Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! Maraming salamat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BANCNET 25th Anniversary, Makati City, 24 July 2015.
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Amando M Tetangco, Jr: BANCNET 25th Anniversary Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BANCNET 25th Anniversary, Makati City, 24 July 2015. * * * I am delighted to be with you tonight to celebrate Bancnet’s 25th Anniversary. Silver Anniversaries are always important. You have come so far, and the future beckons with exciting opportunities. And so, happy anniversary and congratulations to all the members, officers and staff of Bancnet. From the point of view of the Bangko Sentral ng Pilipinas, there are many reasons for you to celebrate. Let me cite a million reasons why: • 113 member institutions as of end-2014 represent an ATM cardholder base of over 73 million. By March this year, the number had increased to nearly 78 million cardholders. • The high volume of switched transactions reached almost 500 million in 2014 or an average of 1.36 million transactions per day. With the on-going integration of Megalink into Bancnet, you are creating a unified ATM switch network in the Philippines. Finally, this is happening. These are significant milestones indeed but the story is not complete. Our eyes are now set on creating a National Retail Payment System or NRPS and Bancnet should be part of this grand journey. What is NRPS? Well, NRPS envisions Filipinos to have easy access to financial services and have accounts to make payments, and receive or transfer funds to other accounts anytime, anywhere, at a reasonable price from any digital device. Efficient retail payments contribute to the stability and efficiency of the financial system and the economy as a whole. Studies have shown that shifting from paper based to electronic-based payment system can generate an annual savings up to 1% of gross domestic product (GDP). How can this potential market impact your business? Based on country diagnostics conducted by the Better Than Cash Alliance (BTCA), of which the Philippines is a member, Filipinos make about 2.5 billion payment transactions per month worth US$74 billion, but only 1% are transacted electronically; 99% of the transactions are paid either in cash or checks. NRPS will allow us to start reversing this ratio. In other words, you have the option to have a bigger slice of this huge pie. Indeed, while implementing the NRPS is most challenging, it also represents vast opportunities from the business point of view. Equally significant, digitization of payments can promote greater financial inclusion. Our National Baseline Survey in Financial Inclusion showed that only 4 out of 10 Filipino adults currently have savings, of whom only 32.7% put their money in banks. The survey also indicated that 47% of Filipinos have debts but banks contribute only 4.4% of their borrowings; the rest are from family, relatives, friends and informal lenders. Ladies and gentlemen, the NRPS initiative is a rare opportunity for all of us to work together to do something that can be a real positive game changer for the economy and for our people. BIS central bankers’ speeches I call upon the Bancnet community therefore to give your full support to establish a safe, efficient, and reliable national retail payment system. As Albert Einstein once said, it is not enough to be a success, strive to be of value. Once again, congratulations to Bancnet on its 25th Anniversary. Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Press Launch of the Asia Society Gold Exhibit, New York City, 7 August 2015.
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Amando M Tetangco, Jr: Philippine history wrought in gold Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Press Launch of the Asia Society Gold Exhibit, New York City, 7 August 2015. * * * The Bangko Sentral ng Pilipinas is pleased to be part of this pioneering exhibit of Philippine pre-colonial gold in New York with the Asia Society and the Ayala Museum. For the first time, we will showcase in the United States the exquisite centuries-old gold ornaments crafted by our ancestors, some pieces of which are over 1,000 years old. If we look at our history books, we find that one thousand years ago, the colonization of the Americas by Europeans had not even started. Ladies and gentlemen. Our pre-colonial collection provides insights into a glorious past we Filipinos can be truly proud of: • first, that we had a distinct culture and art tradition that resulted from a fusion of indigenous and diverse foreign influences; • second, that our ancestors had both the artistry and the technical ingenuity to craft these magnificent and complex gold pieces that remain much-admired by contemporary artisans; and • third, that we had a flourishing economy with active domestic and international trade conducted through barter and gold payment. Among the BSP gold pieces to be exhibited in New York is a “piloncito”, a gold nugget believed to be part of an early form of coinage system, whose value was determined by its weight. In addition, two “kandits” or royal gold belts will be on exhibit, one of which weighs more than one kilo. Looking at these gold objects, we can conclude that before Westerners came to our shores, we already had a thriving cosmopolitan trading center doing active trading with neighbouring kingdoms and islands. Today, the Philippines is on the international radar screen as one of the exciting emerging economies on the basis of its remarkable positive economic performance and growth potential. This is therefore the most opportune time for the world to know more about our country and our people through our history wrought in gold. Thus, the exhibit presents an excellent opportunity to showcase our remarkable heritage in that part of the world. For your information, part of the BSP’s Gold Collection has been shown in Europe twice: the first was in the 1990s and the second in 2013 at the Museé du quai Branly in Paris in partnership with the French Government. In Paris, visitors were amazed at the sophistication and artistry of our precolonial gold ornaments. Indeed, we at the BSP believe that our cultural properties promote better understanding and appreciation of our evolution as a nation. Among Filipinos, this serves as a powerful catalyst for instilling a strong sense of national identity and love of country, attributes that foster social stability and economic growth. Thus, the BSP ensures that outstanding examples of Filipino genius in its gold, art, and numismatic collections are shared with the people through exhibits, books, CDs, social media, and provincial lectures. In the Philippines, it is the Bangko Sentral ng Pilipinas and the Ayala Foundation that had the vision to acquire and preserve these priceless golden legacy from our ancestors. BIS central bankers’ speeches Thus, while some precolonial gold pieces found by people unaware of their historical value have been irretrievably lost to melting, we can take comfort from the fact that we have two museums in Metro Manila where our people can visit golden treasures from our past – at the Met Museum at the BSP Head office along Roxas Boulevard and the Ayala Museum where we are gathered today. So please help protect, preserve and promote our cultural heritage. And take the time to visit our museums with your family and friends. Starting September this year to January next year, the people in New York and its visitors will have the same opportunity to experience the golden history of our country. Please invite your family and friends to visit and to spread the word about this rare exhibit. Once again, I thank the Asia Society and the Ayala Museum for inviting us to be part of this exhibit on “Philippine Gold: Treasures of Forgotten Kingdoms.” Thank you for your kind attention. Maraming salamat at mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bank Marketing Awards of the Bank Marketing Association of the Philippines, Makati City, 28 August 2015.
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Amando M Tetangco, Jr: Scaling up for a more inclusive and more responsive financial system Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bank Marketing Awards of the Bank Marketing Association of the Philippines, Makati City, 28 August 2015. * * * The officers and members of the Bank Marketing Association of the Philippines under the leadership of President Mike Villareal, colleagues in the banking industry, distinguished guests, ladies and gentlemen, good evening. In its website, BMAP describes itself as “an organization of banking institutions which seeks to upgrade the practice of bank marketing in the country.” On its 41st year, BMAP remains true to its mandate. Tonight, with the Bank Marketing Awards, BMAP rewards the best bank marketing programs and inspires its members to aspire for award-winning excellence. I am therefore pleased to be with you tonight to congratulate BMAP and tonight’s awardees. You have raised the bar of excellence and henceforth will serve as benchmark in the years to come. After all, it is said that we do not forget our “firsts.” This means that the next batch of winners must be truly exceptional to be equally memorable. I hope therefore that BMAP succeeds in sustaining this drive to excel that stands to benefit your banks, your customers, and ultimately our economy. Your timing is perfect. Last month, we launched our National Strategy for Financial Inclusion or what we call NSFI as well as the results of our National Baseline Survey for Financial Inclusion. I am positive that both will help you craft marketing programs with optimum results. The NSFI integrates the financial inclusion programs of 13 government institutions including the Bangko Sentral ng Pilipinas. It also provides a platform for government-private partnerships for financial inclusion as a means to achieve inclusive growth. To see how is relevant to you and your bank, you may visit our website at www.bsp.gov.ph. For now, let me share some of the highlights of our National Baseline Survey on Financial Inclusion which was completed early this year: 1. Ninety-seven percent (97%) of Filipino adults believe that it is important to save money and to have the way or means to save money. And yet, our survey indicated that only 4 out of 10 Filipinos actually save money. 2. Of those who save, 70% keep their money at home; while only 30% of savers keep their money in banks. 3. Six out of ten adults with bank accounts indicated that the bank’s reputation is their main consideration in opening a deposit account. Other considerations are interest rates, minimum maintaining balance, proximity of the bank branch, and quality of client service. 4. Forty-seven percent of Filipinos borrow money. While more than 85% of respondents indicate that they want to access financial services from formal financial institutions, majority of them still borrow from family, friends and informal lenders. Banks as source of borrowing stood only at 4.4. 5. The primary considerations in borrowing money are: interest rates, loan amount, period to pay for the loans, ease of loan application, reputation of the credit institution, amortization, collateral, fees, and processing time. BIS central bankers’ speeches Ladies and gentlemen. These survey results provide useful insights on how to serve your customers better and how to expand your market. Indeed, there is so much untapped potential that bank marketing experts such as yourselves can reach, develop, and grow with. As we move toward ASEAN integration, growing and protecting your market will become more challenging. It is best to work on this now. In selecting tonight’s awardees, I understand BMAP selected as criteria four key factors in making a marketing program successful: these are strategy, creativity, execution and results. Applying these factors to your products and programs should help you develop solid and excellent marketing programs. In general, a product can be upgraded when it is no longer in its prime. In our industry, however, the ultimate product is public trust. It is a product that is fragile, demands constant care and requires special packaging. And while public trust may seem to be generic, we must also recognize the socio-economic diversity of our archipelago. The point is, that it will take marketing savvy and creativity to make all these details come to life in a holistic and integrated manner. Ladies and gentlemen. The challenge is not one of sales; it is about marketing. By that, I mean the ability to package specific products to those who need the specific features of the product. This is important in banking where we adhere to a fiduciary responsibility and must constantly meet the bar of client suitability. As banking and finance is typically too esoteric to the general public, this is where creativity is a must. You need to bridge the demands of a differentiated public to the array of products and services that are available and possible. You need to distill the complexities of banking to messages that the broad public can relate to and base their decisions on. This should help you build a lasting relationship with your clients. This lasting relationship is the ultimate measure of public trust; it validates the value proposition that your bank presents to the general public. And if the growth of the banking industry and the increased state of financial inclusion are to be used as measures, then we certainly must recognize the efforts of the best in bank marketing programs. This initiative underscores the convergence in the goals of BMAP and the BSP which is to enable more Filipinos to benefit from banking services. I am therefore pleased that your awards cover best financial inclusion program, best kiddie savings program, best program in social media, best product program, best brand program and best electronic delivery channel. Ladies and gentlemen, we continue to reap the benefits of a strong banking industry. Not only are we expanding, the banking industry has remained a pillar of strength in our economy in the face of new volatilities in the global financial landscape. That said, we do have to recognize that we need to address the gaps in our financial inclusion goals. This is where BMAP can play a significant role. Our ultimate stakeholder, our ultimate market in our efforts is the Filipino financial consumer. We want Filipino financial consumers to develop good money habits that will them achieve financial independence. Indeed, the triumvirate of financial access, financial education and consumer protection makes perfect sense because there is a clear message that is defined for a particular audience. Again, here is another case of marketing: targeting specific products and calibrated interventions for specific audiences under specific conditions. Given this, I am already looking forward to next year’s set of Bank Marketing Award winners. BIS central bankers’ speeches At this point, I want to thank BMAP for continuing to expand its partnership with the BSP – the latest being with our FCPD on the Project BRO campaign (BSP Reaches Out) to emphasize the value of developing saving as a habit at a young age. The “alkansya” gives us that cultural backdrop for this effort and I thank BMAP for providing the alkansya and shouldering the freight cost to Davao, Digos, Dipolog and Iloilo for this campaign. I also look forward to BMAP finally reaching our goal of opening one million (1,000,000) kiddie accounts within the next few months. Supported and empowered by our major banks, the BSP-BMAP Kiddie Account Program has generated for us international recognition and award as a best practice model that other countries admire but till now could not implement. I am also pleased to share that our reward program for the best financial teachers in public schools is now on its third year under the DepEd-BSP Guro ng Pag-Asa (Gantimpala Para sa Ulirang Pag-tuturo ng Pag-iimpok at Araling Pansalapi). The objective of the program is to continue to raise the level of excellence in teaching saving, money management and entrepreneurship to millions of our schoolchildren starting from Grade I. Secretary Luistro has issued a memorandum circular to public school teachers across the country about our third Guro ng Pag-Asa. With financial lessons taught well in schools, we can look forward to raising a new generation of Filipinos who have developed the habit of saving and managing their personal finances successfully. Ladies and gentlemen, we all want a bright tomorrow, not only for ourselves but for our children and their children’s children. We know that this means we have to invest today to shape the future. The awards that you launch today is a step in the right direction. We should make time to recognize those who excel and continue to raise the bar of excellence within the banking industry. Once again, congratulations to all the awardees. Your peers have gathered here tonight to celebrate your success and commit to do better in the years ahead. Finally, let us congratulate BMAP and its leadership for serving as a catalyst for positive change and for its continuing collaboration with the BSP in the areas of financial inclusion, financial education, and consumer protection. Mabuhay ang BMAP! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bloomberg FX Forum, Makati City, 2 September 2015.
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Amando M Tetangco, Jr: Animal spirits in a period of volatility Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bloomberg FX Forum, Makati City, 2 September 2015. * * * Good afternoon ladies and gentlemen. Fortuitous or Good Planning? Someone in Bloomberg must be psychic, to have chosen “Hedging World Volatility” as theme for its 2015 FX Forum and at the same time to have scheduled the Forum in Manila during this precise week. Was that sixth sense or “bread and butter” excellent market reading? How do you hedge in a volatile market? Indeed, market volatility of late has not been contained to just a few countries or jurisdictions. It has neither been restricted to just either advanced or emerging markets, but it has spanned all categories of countries. And volatility has not been concentrated in one market or asset class alone, but it has crossed over from the commodity to the financial, and to some extent, the real goods market as well. With the variable forms of feedback loops and the uneven transmission mechanisms in the macrofinancial system, the relationships and correlations – as predicted by traditional models – appear to no longer be valid. Therefore, the question of how to “hedge” world volatility – as intimated by the theme of this Forum – is quite well timed. For those of you who have been in the market for a while now. A quick look around the room tells me, there aren’t too many of you around today. Perhaps, a sign of the changing times? Those of you who have already seen a number of episodes of volatility in “your day”, may be saying, this is a “healthy” correction. To a degree, I’ll have to agree with that. This “correction” is one good positive that is falling out of the recent market price action. We needed a tap on the brakes, so to speak, because the markets had been following one strong underlying trend for a while now, seemingly oblivious to other factors. Each time we come to a crossroads such as this, analysts would say we are in “uncharted” territory. I also cannot disagree with that. For certain, no one can be absolutely sure about a few things: 1. The convergence between the recent pronouncements of various Fed officials and what the Fed will ultimately end up doing. Over the Jackson Hole weekend, Bill Dudley of the New York Fed said in an unscheduled interview that a September hike is “less compelling” now. For her part, Esther George of the Kansas City Fed who has repeatedly called for a hike, said “it’s too soon to say that recent market developments have altered the fundamental view” that the economy is prepared for normalization. Then Stan Fischer, Fed Vice Chair, spoke at a panel saying “there is good reason to believe inflation will move higher”, thus keeping the door open for a September hike. Can anyone really tell with certainty when and by how much the Fed will tighten? Some are of the view that while a September lift off may not seem prudent, given market volatility, it may just be what the market needs in order to eliminate one element of uncertainty, after all, monetary policy has significant lags. 2. The next steps of Chinese authorities – whether they will continue to intervene, to what extent, in what form, and how such intervention will be funded. Some analysts put the cumulative decline in Chinese reserves since July to be over $300B. Question is, will they sell more US Treasuries to fund intervention? And if so, how will that impact on the US yield curve, and the Fed’s projected path of normalization? BIS central bankers’ speeches 3. What the ECB still has up its sleeves – how dependent these next moves would be on the behavior of its members, such as Greece. 4. How the combination of these factors will be accounted for in the reaction functions of the other central banks and how these will ultimately all work themselves out in the currency, bond and commodity markets, and 5. What would happen to global growth if China slows down significantly, and if the touted US growth ends up to be a “false” start. What or where then would be the engine for global growth? What concerns BSP the most? I have been asked, what is it that the BSP is most concerned about. Of all the risks I’ve listed just now, which would influence monetary policy the most? Ladies and gentlemen, it is very hard to say, with any degree of certainty, which factor would affect domestic monetary policy more, because, all these factors are interrelated. Therefore, for the rest of the time that has been given to me, let me – instead of singling out one risk – consider each item on the list and try to address what I believe are burning questions in your mind. Let’s start with the Fed moves. You may ask, will the BSP follow the Fed’s cue in terms of the timing and magnitude of the lift-off? My answer – not necessarily. We won’t have to sing the same tune, but we will certainly have to sing in harmony. What do I mean? Recall Q2 last year when we embarked on a series of monetary tightening actions. The Fed had not yet moved, but markets were certainly talking about it at the time. A number of factors were at play during that period last year. 1) Domestic inflation was threatening to breach the inflation target on the upside, and 2) M3 had been growing over 30 percent as a result of the operational adjustments in our SDA facility that we put in place to account for capital inflows. Fortunately, the economy was growing robustly then, and therefore there was no need to provide any monetary stimulus. In other words, it was our assessment that the economy could withstand some tightening in financial conditions at that time. You will recall that in our communication then, we further indicated that the moves were also motivated by the anticipation of Fed normalization. It was pre-emptive monetary tightening in order to help guide the domestic markets and break any tendency to under value/appreciate risks. Our concern was that an acute/unabated undervaluation of risks would create financial stability pressures, particularly in the real asset markets. While the risk of overhearing in the asset markets has since dissipated, we are not about to reverse that course of action yet. We will, however, consider 1) the actual and expected capital outflows that may result from the current global financial market rout and their impact on M3 growth, and, 2) carefully review the balance sheets/portfolios of the banking system to see if there is a need to adjust policy settings or tweak macroprudential measures. We will also, and more importantly, monitor inflation expectations. We have shared with you that for 2015, inflation is likely going to be lower than the government’s target band. Even so, inflation is seen to move higher and into target range in 2016 and 2017. Mindful therefore of the significant lags of monetary policy, we will be careful in making adjustments to policy settings going forward. Now let’s talk about China. You may ask, shouldn’t we also devalue the peso, after all a currency war seems to be in play? BIS central bankers’ speeches Textbooks describe competitive devaluation as a “beggar thy neighbor policy”. But that said, we know that policy makers will always do what they believe would be best for their own specific needs, sometimes without much concern for the impact of their actions on other jurisdictions. This brings to mind a higher policy consideration – the principle of “enlightened self-interest” as espoused by the Bank for International Settlements. BIS General Manager Jaime Caruana said that while it may seem that “keeping one’s house in order” is good defense, having a policy mindset of also taking into account spillovers of one’s actions may lead to improved overall welfare. After all, we share the same space, so to speak, and the same spillovers may “spill back” to one’s economy. My own appreciation of this principle is that seeking only one’s own goals may lead us to sub-optimal results. Given the size of our domestic market, we don’t think there is compelling reason to deviate from our current FX policy of allowing the markets to broadly determine the exchange rate. Just as we did during the period of strong capital inflows in earlier years, we will allow the exchange rate to adjust to market conditions also during this period when the potential for capital outflows may increase. The BSP will not go against the fundamental trend in the FX market, but we reserve scope for official action to smoothen volatilities that could disrupt business planning and dislodge inflation expectations. This policy is both efficient and equitable because the exchange rate affects different sectors of the economy, differently. Depreciation benefits exporters and other dollar earners, while it weighs on the debt burden of borrowers in foreign currency and increases the input cost of importers. I hear some murmurs, even see some quizzical looks. Well, let me borrow a phrase from Stan Fischer when he spoke at Jackson Hole over the weekend. I don’t wish to “disappoint your rational expectations” that I won’t tell you whether a breach of a certain exchange rate level would worry the BSP or not. Actually, the BSP has no “magical” exchange rate. As I have repeatedly said, the BSP doesn’t target specific exchange rate levels. But, we would be concerned if the rate is going too fast in one direction or the other, in a manner that is not consistent with fundamentals. As you may be aware, the Philippines enjoys a current account surplus. In fact, our current account has been in surplus for over a decade now supported by remittances, which continue to be “volatility-proof” and receipts from BPO services. This is important to bear in mind – because, at the end of the day, investors will discriminate. And, it has generally been the case that economies with strong external liquidity positions have been better able to minimize the impact of external shocks on their domestic economy and financial markets. Moving on to oil price developments. The most often asked question in relation to oil is – Is the BSP concerned with deflation, especially given the latest inflation outturns have been below 1 pct. and the fact that our forecast for August inflation is 0.2 to 1 pct.? With global growth prospects weakening, global oil prices may remain soft. Fuel and fuelrelated items account for about 9 pct. of the items in the CPI. It stands to reason therefore that domestic inflation can be expected to also be soft going forward. That said, we see upside factors to inflation. These include: 1) that domestic wages are rigid downward (especially the mandated minimum and related benefits); 2) El Nino is projected to be prolonged, and may likely intensify; and 3) that potential economic output is estimated at around 5.5 to 6.5 pct. Current actual (1H 2015) output is at a respectable 5.3 pct. In other words, there are countervailing factors against low oil prices. Our assessment therefore is that the risks to deflation are contained. But we remain watchful of the supply/demand conditions in the international oil markets. BIS central bankers’ speeches Closer to home, let’s talk about GDP. Q1 was revised downward to 5 pct. Q2 was announced to be 5.6 pct., driven by consumption. Government spending accelerated in Q2 and contributed positively to growth. With these, full-year growth is looking to be more modest than the government’s growth target of 7–8 pct. A question you may have in the back of your minds – Is there a need for the BSP to loosen policy settings to support growth, especially with the prospect of lower global growth? From indications, there may be no need at this time for economic stimulus from monetary policy. The government has fiscal space. As they did in Q2, government should step up spending on the vital infrastructure needed for economic growth to be sustainable. The forthcoming election spending, though a one-time shot in the arm, could also provide economic stimulus. What the BSP will do to help raise the growth trajectory – in addition to ensuring a low and stable inflation environment – is to further enhance banking sector policy to cement the strength of the banking system. The BSP will also continue to pursue market reform to help establish the financial market infrastructure for the efficient intermediation of funds between fund sources and users. NEDA projects that a more realistic economic growth rate for 2015 is 6–6.5 pct. It is comforting that even at these levels, the Philippines would likely still be among the fastest growing economies in the region. Conclusion Ladies and gentlemen, I’ve covered a lot of ground this afternoon. Let me summarize by saying: The BSP is watchful of domestic and external conditions. And, we are ready to take the appropriate policy actions, as and when needed, to minimize the potential adverse impact of risks to the economy. In the pursuit of creating growth opportunities for the economy, the BSP continues to look to the whole market’s continued support. I know market players live for volatility. It is what gets your juices going. But let me just provide some words of advice: These are not your typical “vols.” There is not necessarily any historical price action that you could confidently go back to, to calculate your VARs. Therefore, be very careful of any new products and markets that you are looking to deal in. Be sure you understand these well. Have the necessary credit, market and operational risk mitigants in place. Finally, this is not a bout of volatility that is likely to go away quickly. So, if you are in this game for the long haul, you need to temper animal spirits with a healthy dose of reflection and humility. I think I’ve said enough for now. Let me end here. I wish you all well. Thank you for your attention. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr: Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the CMDC (Capital Market Development Council) Inaugural Consultative Forum, Manila, 16 September 2015.
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Amando M Tetangco, Jr: Consultation, collaboration and cooperation – moving the capital market agenda forward Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the CMDC (Capital Market Development Council) Inaugural Consultative Forum, Manila, 16 September 2015. * * * Today’s forum provided us another opportunity to take stock and look ahead. The major difference is of course that the CMDC has invited all stakeholders – and not just the members of the Council – to be here and openly discuss the issues. With this broad audience, we aspire to take a more holistic view of the issues and take a collective stand. Introspection A critical need in this regard is to have coordination and collaboration, which I was told, the presentations this morning clearly emphasized. The issues that confront us do so as a market and no matter how we see them through the lens of our own respective views, the consequences of any action or inaction will always be felt collectively. This is the direct consequence of being a market. We may offer different products and services but we certainly operate together as a collective basket of choices and alternatives for our constituencies. It is the very nature of financial markets that our products and services compete with one another as substitutes, but it is also in having this array of alternatives that we complement each other. This balance between substitutes and complements nurtures a stable market. This state of competitive parity also reminds us that in pursuit of such a thriving market, we need to recognize that there are larger issues before us beyond competition at the product level. If we can step back for a moment, available data tells us exactly where we are. • We remain what analysts refer to as a bank-centric market, with the bulk of financing emanating from our banks rather than the capital market. • For the equities market, we have 262 publicly-listed companies with a market capitalization amounting to USD 279.5 billion. • For the securities market, the turnover ratio of our government bonds is reported to be 0.49 with the corporate bond market growing but still in its nascent stage of development. • In terms of FDI, the Philippines received USD 78.6 million in flows in 2014 originating within ASEAN. • With respect to pricing and valuation benchmarks, price-discovery across all tenor buckets remains work-in-progress; and • On financial market infrastructure, this too is very much work-in-progress. Do any of these really matter? If we are going to talk about ASEAN integration, we certainly need to have a thriving market that can connect and compete with the rest of the region. While many jurisdictions in ASEAN – and Asia for that matter – remain bank-centric, the pressure on the banking books needs to be mitigated when 15, 20 and 25 year loans are generated from a funding base largely made up of savings deposits. The gapping risk is significant and the global focus on liquidity risk makes this issue even more stark. BIS central bankers’ speeches But being bank-centric cannot be taken independently of the other financing alternatives. While we have 262 publicly-listed companies with a market cap of USD 279.5 billion, the average for the rest of ASEAN-5 is 612 listed companies with a market cap of USD 406.9 billion. Our GS turnover ratio of 0.49 is also lower than the average for the rest of ASEAN-5 which is at 0.69. The lower trading activity could be attributed to several factors. The net effect however is that we have less liquidity in the secondary market and with that comes our challenges with benchmarks. Renewed reform agenda Ladies and gentlemen, the numbers are available for everyone to see. But beyond the figures, I trust that today’s forum is a call to action, highlighting where we are and what needs to be done. From today’s proceedings, allow me to offer my own thoughts on four issues. First, the Capital Market Development Blueprint is our guidepost in terms of three facets: price, volume and infrastructure. We strive for price discovery to develop a robust yield curve. We should do this by trading on exchanges or electronic platforms, premised on Government Securities that have depth across the curve. We should also be unrelenting in upgrading the financial infrastructure to ensure competitive and efficient markets, enhance market discipline and protect investors. Second, ASEAN integration of capital markets provides both investors and issuers new opportunities. We can only effectively reap these opportunities by ensuring that our own market is competitive. Thus, the challenge is to appreciate what needs to be done, first for our market but with an eye towards the regional market. This agenda is massive because we need to focus on trading and post-trade infrastructure (from CCPs to CSDs, to SSS, TRs) to applying established standards (RTGS for large value payments and securities settlements to viable forms of deferred net settlement for the more retail payments) to streamlined processes (DvP and the settlement cycles), and to acceptable products and the requisite policies and regulations to address financial risks. Third, tax reform is always going to be a slippery slope. We recognize the need for the State to define and manage its fiscal position. We also believe that financial choices must be based on the intrinsic value of the products rather than on the friction costs that arise from one transaction to another. Thus, what is needed is to strike a balance between fiscal and developmental initiatives. We must ensure to avoid tax arbitrage while being cognizant that we may need the legislative process to find a solution for some of the issues. Last, but not the least, all our efforts fall short if we are not able to improve the financial wellbeing of our financial consumer. We need to be clear that this cannot simply be a matter of delivering off-the-shelf lectures on technical concepts and sophisticated products. The effort here needs to cultivate behavior and attitudes as well. And to ensure sustainability, hew financial education initiative needs to be complemented by a robust and effective redress mechanism for stakeholders who feel that their rights have been compromised. This is in keeping with our desire to develop a thriving market. Final Words Ladies and gentlemen, there are many initiatives, both onshore and at the regional level, that are being pursued under the name of capital market development. For sure, the road towards a deep domestic and an integrated ASEAN capital market will not be without its challenges. But these challenges cannot be our binding constraints and I trust that creating the four new sub-committees in CMDC moves us forward. BIS central bankers’ speeches What is also clear is that we must intensify our collaboration and ensure that the governance of the domestic market is not compromised. Through concerted efforts, I have high hopes that we will surpass our challenges and the rewards of capital market deepening will be ours for the taking. Thank you. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine International Banking Convention 2015, Makati City, 2 October 2015.
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Amando M Tetangco, Jr: Prospects for and developments in the Philippine banking system Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine International Banking Convention 2015, Makati City, 2 October 2015. * * * I am pleased to be joining you again for this Philippine International Banking Convention. For five years now, we have gathered to consider the pressing issues of the time as a way for us to take an inward look at how the Philippine banking system is positioned. For today’s conference, the organizers have chosen for us to look at the Philippine financial system through the lens of ASEAN financial integration. I particularly like the operative word of today’s theme – “transforming”. The word evokes movement over time, change, reaction, adaptation. In other words – dynamism. This is what really is needed in a time of flux. But perhaps what we need to be reminded of is that our regional operating environment has already been changing even before recent times when ASEAN Economic Community (AEC) and ASEAN integration have become more talked about. Prospects of an integrated regional financial market The reason possibly why ASEAN integration has become more elevated in public consciousness lately is that the AEC will be “formally” launched at year-end. But, we should not be misled to believe that end December represents a “switch-on” for regional integration. The reality is, even if we count only the AEC, integration efforts have been unfolding under an AEC Blueprint since 2008. The Blueprint contains four pillars, 17 core elements, 176 priority actions and 414 targeted measures. Based on the most recent scorecard, ASEAN has completed 80.7% of its economic integration program (i.e., 334 out of 414 measures completed as of end 2014). For those of us in the financial markets, however, the more critical target is 2020 at which time the ASEAN Financial Integration Framework or AFIF is expected to be in place. This initiative has many moving parts and perhaps the best way to appreciate it is to understand the underlying philosophy behind an integrated ASEAN. It is actually a rather simple story with a compelling business case. Instead of 10 separate economies, a single market provides an enormous base within which consumers and providers can operate. Measured by GDP, this single base is significant. In addition, ASEAN has a track record of strong growth. At the end of 2014, ASEAN (at $2.57 trillion GDP) was just smaller than France and the United Kingdom but larger than Brazil, Russia and India.1 The expectation, however, is that ASEAN will continue to outpace the rest of the world. In fact, in a May 2014 report2, McKinsey & Company projected that ASEAN will be eventually the 4th largest economy in the world by 2050. To achieve this single base, however, barriers to trade have to be minimized to the fullest extent possible. This allows the economics of “comparative advantage” to take over, effectively unbundling distribution of goods and services from their production. In other words, not every jurisdiction needs to produce each and every good that it requires. Already, At end 2014, ASEAN GDP stood at $2.57T. France and UK were are $2.829T and $2.942T, respectively while Brazil, Russia and India were at $2.346T, $1.861T and $2.067T, respectively. “Understanding ASEAN: Seven things you need to know”. McKinsey & Company. May 2014. BIS central bankers’ speeches ASEAN is home to 227 of the world’s largest companies, ranking us 7th in the world by that metric.3 This “unbundling”, in turn, is important if ASEAN is to service its diverse population with differentiated needs. This demographic detail is key. With 81 million households already in 2013, this is projected to double to 163 million households by 20304, creating an engine that naturally fuels further demand and further growth. Creating and sustaining this growth will of course require more labor resources. Simulations from the joint work5 of ADB and the ILO show that high-skill employment in Cambodia, Indonesia, Lao, Philippines, Thailand and Vietnam could grow by 41% between 2010 and 2025. With Mutual Recognition Arrangements (MRAs) in place and intended to be expanded, labor mobility will all the more be enhanced. Financial markets will certainly play a critical role within this vision. This is because financing is needed by the entrepreneurial initiatives in that single market, augmenting what the respective jurisdictions can provide on their own. For the financial consumer, more choices present themselves under integration. The idea is that under integration, a Filipino investor would be able to take on financial instruments out of Hanoi nearly as seamlessly as investing in Manila itself. Financial markets, however, come in different colors and rich hues. To make an integrated market come alive, we need the breadth and depth of capital markets. The ability to raise capital is necessarily premised on having thriving fixed income and equity markets so that surplus funds can be invested on those willing to take an entrepreneurial risk. Doing so requires a payments and settlements system that is holistic and efficient, from large-value to retail payment systems and securities settlements. This must be supported by the necessary financial market infrastructures – CCPs, CSDs, TRs – run under uncompromising standards of good governance and risk management. All of these must be in place in each jurisdiction and then linked and aligned with the rest of the ASEAN jurisdictions6. As I understand, there is still much work to be done in this area, particularly in light of the global market reform agenda. We need a functioning insurance market so that stakeholders can either hedge their risk exposures or transfer the risks to those who are better positioned to manage them. The notion of an “insurable event” for both property and finance has shifted through time and the same dynamism is necessary if we are to adapt to a fast evolving market landscape. And certainly, we need indigenous ASEAN banks to bridge markets, offer products and services and meet the varied needs of consumers and producers. ASEAN’s saving – at 31% of GDP and 11 percentage points higher on average than the rest of the world – needs a repository before these can be intermediated or invested. With collective GDP at USD2.57 trillion7 in 2014, the amount of economic saving is not trivial. ASEAN banks must have the depth of risk capital and the breadth of expertise if they are to handle cross-border banking. This is for a region that has consistently grown but is also defined by the diversity of its member states. Ibid. “Southeast Asia at the Crossroads: Three Paths to Prosperity”. McKinsey & Company. November 2014. “ASEAN Community 2015: Managing integration for better jobs and shared prosperity”. ADB & ILO. 2014. The current linkage is the ASEAN Trading LINK – on equity exchanges of Thailand, Malaysia and Singapore. Data from ASEAN website. BIS central bankers’ speeches Market “Surprises”: what we learned For all ASEAN’s current strength and potential, recent global developments have had an impact. One would surmise that ASEAN trade exposures to Greece would not be that significant. Yet, when the prospect of a “Grexit” heightened, global financial markets recoiled. ASEAN was not spared from the contagion even though the impact was not protracted. When China devalued the Renminbi, this was, literally, closer to home and the impact was more pointed. The devaluation on August 11 was itself a significant surprise but to see it done on three consecutive days raised considerable concern over the potential extent of a slowdown of the Chinese economy. And certainly, we have all talked about the “normalization of US monetary policy” for a considerable period now. We went through the taper tantrums in 2013 – 2014 and then anticipated the lift off in 2015, only to find ourselves still reading between the lines of Fed pronouncements. The impact that these developments have had on ASEAN does not reflect in any way on any potential weakness of ASEAN itself. Instead, the lesson that I take away is the reminder that we – either as a collective bloc or as individual jurisdictions – are deeply integrated to the ebb and flow of the global financial markets. The Philippine boat may not be the large vessel of other jurisdictions but the fact that we have been able to steer through the turbulent and uncertain waters of the last decade is itself the testament of our resolve and our strength as a market. In part, we have been able to steer the economy through these disturbances because over the years we have built the foundations of a strong macroeconomy. In 2002, we adopted a rigorous framework for monetary policy formulation – inflation targetting. The discipline that this framework requires has caused us to be focused on maintaining stable prices, which has in turn been central in building market confidence. That said, we constantly also find ways of doing things better. For instance, just last week, the Monetary Board approved the adoption of an interest rate corridor system for the conduct of monetary policy. This operational change is expected to make the signals from monetary policy more effective, strengthen price discovery and therefore make the transmission of monetary policy more efficient. We have also consciously crafted market-based banking regulations consistent with the evolving international reform agenda. This has created an operating environment that encourages our banks to innovate while being conscious of risks. In line with this, we have also sustained a foreign exchange rate policy wherein the exchange rate is allowed to be essentially market-determined, with scope for official action only to limit excessive price movements. Are we ready? This brings me to my point today: are we ready for what lies ahead? If we go by mainstream indicators, the Philippine banking industry remains to be in a position of strength. Total resources of universal and commercial banks (whose share dominates the industry) grew by 11.6% between 2010 and June 2015 while their July NPL ratio was at 1.9%. The capital adequacy ratio of these banks was at 15.1% with stress test results confirming that there is enough capital buffer in the event of extreme shocks. Beyond these traditional measures, I want to focus on how financial technology or FinTech has positively transformed our banking industry. Today’s banking experience is more personal in the sense that it is driven by FinTech. Those of us in Generation X may find that to be a contradiction in terms because we grew up not BIS central bankers’ speeches equating “service” with “gadgets”. Yet, this is precisely the world of the “millennials” who capture thoughts and experiences in gigabytes. Over the counter withdrawals now run in parallel to online banking services where the speed of transactions is limited only by bandwidth. ATMs are no longer just cash-dispensing machines since the networks offer a full range of consumer and corporate banking services. The widespread use of e-money means that payment systems can clear and settle the most retail of transactions without cash physically moving from wallet to wallet. Yes ladies and gentlemen, this is the banking landscape of today and our banks have, by and large, redirected their attention to these facets. From a policy perspective, this was the wherewithal for crafting Circular 854 which adjusted the minimum capital levels required of banks. It is a recognition that banking has moved on from the folders and filing cabinets of old to the systems and interfaces of today. We put in place an IT Risk Management framework (under Circulars 808 and 859) so that all of these are governed by appropriate standards. To instil continuing credit discipline, Circular 855 provided for credit risk management practices that, among others, de-emphasize reliance on collaterals and nurture verifiable credit underwriting decisions of banks. And to protect the consumer, the BSP has issued the landmark Consumer Protection Framework (under Circular 857) that sets our expectations on the behaviour and actions of covered institutions. All these matter because our own demographic profile points to half of the population at younger than 25 years old, precisely the millennials. We are also an archipelago and we need to bring banking to the people rather than expect people to adjust to banking. Thus, it should come as no surprise that the BSP has pushed actively on our financial inclusion campaign. Financial inclusion literally binds all our efforts because it creates a sustainable link between economic activity, financial products and services as well as the universal aspiration for a better future through economic growth and financial well-being. Stronger onshore conditions provide better offshore links Ladies and gentlemen, if you are wondering how inclusion, fintech and millennials relate to ASEAN financial integration, the connection is not complicated. To be able to compete in the broader offshore market of ASEAN, Philippine banks need to establish what their comparative advantages are onshore. It would be difficult to imagine how a bank can actively engage in the potential of ASEAN integration if it cannot be competitive in its own domestic market. This issue becomes even more significant in light of the passage in 2014 of legislation (RA 10641) which fully liberalized our domestic banking system, allowing for 100% foreign ownership of our banks. Is the Philippine banking system ready? We are clearly in a position of strength as an industry and, individually our banks have been enlarging their domestic footprint – constructing brick and mortar branches outside of the greater metropolis, creating “other banking offices”, which are scaled-down bank operations, and capitalizing on e-banking technology. While the biggest of the ASEAN banks can indeed penetrate smaller jurisdictions, the diversity of ASEAN suggests there are niche markets that can be realized, different needs that can be explored and pockets of expertise that can be harnessed. This is an important reality to bear in mind. And as you can appreciate, this “distinctiveness” of ASEAN is the pressing motivation why our banks are currently focused on fortifying their BIS central bankers’ speeches domestic franchise in a variety of modes. We can, however, only surmise that this insular perspective will not be the norm for long. The peculiar diversity of ASEAN ensures that banks across the 10 jurisdictions will have a role to play in the ASEAN. This also ensures that the gains from regional banking integration will not only accrue to the biggest of ASEAN banks. That said, competition creates fluidity and the possibility of external shocks is a constant. As we scan the horizon, the waters may appear to be relatively calm for us now, but there are shifts in the currents. We have to be able to adapt to the market flows and we cannot make the mistake of being oblivious to the under-currents. In the end, as they say, if each member jurisdiction is successful in shielding itself from the currents of change, if together we are successful in transforming ourselves within the context of an integrated market, then ASEAN may just prove the case that the whole would indeed exceed the sum of its parts. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2015 Annual Joint General Membership Meeting of ACI, FMAP, IHAP, MART, NASBI and TOAP, Manila, 29 September 2015.
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Amando M Tetangco, Jr: Navigating thru the waters of change... and butterflies Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2015 Annual Joint General Membership Meeting of ACI, FMAP, IHAP, MART, NASBI and TOAP, Manila, 29 September 2015. * * * I hope you share my view that meeting the six industry associations in a single general membership meeting such as this one is not only efficient but it is also hopefully more effective in developing: 1) a holistic view of events and developments – both here and abroad – and 2) a clearer common understanding of BSP policies. In the end, meetings like this should help us more expeditiously attain our shared goal of sustaining the strength and responsiveness of our financial market. Your officers had asked me to share my views on the impact on emerging markets and the Philippine policy framework of the recent developments in China. This topic choice is quite focused. While your interest in China is understandable, I think you will concur that it is also difficult to isolate this from other developments in the global market. In any case – let me try to zero in on two things about China – its growth prospects and the recent devaluation of the Yuan. Chinese growth: First, growth. Some have argued that the slowdown in the Chinese economy is neither recent nor a surprise. China’s GDP growth has been decelerating over the past 5 years, from 10.6% in 2010 to 7.4% in 2014. This is projected by the IMF to decline to 6.8% in 2015 and 6.3% in 2016. Yet, the IMF’s August 2015 Article IV report1 in fact states that China is moving towards a new normal of slower yet safer and more sustainable growth. There is also the case being made about base effects to explain the slowing growth rates.2 Since China passed Japan in 2009 in terms of economic size, China has expanded by the equivalent of “1 ¼ Japans to its output”. The bigger base then will require substantially increased economic activity if the growth rate is to be maintained. But even if the GDP growth rate is closer to 5% in 2015 – a significant drop from currently reported rates – the increase in output “will add almost one and a half Thailands to China’s economy this year”. These arguments simply remind us that China is already a large economy whose economic engine happens to be traditionally stronger than most. Simulations therefore of a “hard landing” are important to track. Euromonitor International reports that ten jurisdictions most at risk from a hard landing in China include HK, Taiwan, large economies like South Korea, India and Japan, as well as the 4 biggest ASEAN economies (Indonesia, Malaysia, Singapore and Thailand) plus Vietnam. What does this mean for the Philippines? China is an important trading partner and has been, in fact, the third major export market of the Philippines since 2011, with an average share of about 12 percent from 2010 to 2014. Based on NSO data, in 2014, our exports to China reached US$8.5 billion or 13.6 percent of our total merchandise exports. IMF. (August 2015). People’s Republic of China Staff Report for the 2015 Article IV Consultation. IMF Country Report No. 15/234, Washington, U.S.: International Monetary Fund. The following follows the points raised in “China economy: Weakened but still growing” by Joe McDonald, Associated Press. September 23, 2015. BIS central bankers’ speeches While the Philippines is not among those listed in the Euromonitor International study, it is significant to note that almost all those countries listed are important trading partners of the Philippines. The simulated impact is a decrease in GDP growth. And the results are not trivial, ranging from just under two percentage points (Japan and Indonesia) to above 3.5 percentage points (Vietnam, Taiwan and HK which is nearly at 4.5 percentage points). So, while the impact on our GDP may not be strong and direct, the “second-round” effect through the “other” trading partners bears watching. What about the effect on domestic inflation? Slow Chinese growth could lead to lower global demand for commodities, including oil, which could in turn be a positive for reducing overall domestic inflation pressures. That said, where the chips will fall, so to speak, on the balance of global inflation will really be determined by country-specific dynamics. There are other areas wherein our economy may be adversely impacted. And let me just highlight two for now – tourism and remittances. For the moment, our assessment is that the negative impact on tourism is expected to be moderate, while on remittances, it should only be negligible.3 Fortunately, a hard landing scenario for the Chinese economy appears to be a low probability scenario for now but, I want to emphasize, this development is worth monitoring. The Yuan devaluation: Let’s now look at currency movements. Media reports that August 11 saw the largest single day move in 20 years for the Yuan. The same media reports point to the slowing economy and a sharp drop in exports as the factors underlying the move. There are other analysts, however, who say the action was really more political. They believe the expected currency movements are actually too small to materially impact exports. They say, Chinese actions were really meant to accelerate the acceptance of the Yuan into the SDR. They point to the fact that the IMF has been calling for Chinese authorities to move to a more market-based financial system and monetary policy framework. Regardless of the motivation, the decision to devalue has already had its effect on markets and jurisdictions. The impact on Chinese exports will be known in due course but the effect on the export of others is already taking shape. Commodity prices have decreased on fears of a slowing China which happens to be a significant importer of commodities. Either coincidentally or as a result of the Yuan devaluation, we know that equity indices have seen a significant decline. Currencies could not be far behind and in the region the Vietnamese Dong, the Indonesian Rupiah and the Malaysian Ringgit have weakened. How has the movement in the Yuan translated to our domestic markets? Since August 11, the peso has lost almost 2% (1.8 %) in value, and the Phisix has fallen almost 10 % (9.97%). These are not small numbers, but they are also not the largest moves among the markets in the region. Should we take comfort in that? Full effect? What I have described over the last ten minutes or so is not news. You follow the markets closely. What is certain, however, is that despite all that we have already seen and know, the On tourism, China provided the fourth largest number of visitors in the country from January to July 2015, equivalent to about 8.3 percent of the total visitors. China was also the third biggest contributor of visitor earnings in July 2015 (Ph. 1.3B). On remittances, OF remittances from China (Mainland only) amounted to US$10.1 million, or about 0.1 percent of the total OF remittances, from January to July 2015. BIS central bankers’ speeches full effect of China’s slowdown and the weakening of the Yuan will likely remain to be unknown in advance. In the overall scheme of things, the linkages are difficult to assess because they involve expectations, a lot of rebalancing of financial portfolios as well as round-after-round of auxiliary consequences that are not known ex-ante. This reminds me of how “chaos theory” is often described. As everyone here is aware, CHAOS THEORY is the study of nonlinear relationships where events that appear logically random are actually linked. It is said, a butterfly flapping its wings in the Amazon will affect the time of formation, exact location, and path of a hurricane several weeks later in North America. This “butterfly effect” is formalized in various fields like risk management, that’s why this audience knows it, right? It underpins the very framework of Financial Stability used by the BSP but, in its simplest form, it is more commonly referred to today as “contagion”. What this means for the Philippines Ladies and gentlemen, it is clear that there is already some impact on EMEs, including the Philippines. And the possible consequences of a hard landing could be significant to many jurisdictions. There are layers of nonlinear and changing linkages that make the prediction of full effects an impossible task. But it is precisely an evolving situation such as that in China which should provide us a good platform to think about the possible issues that prudential policy may consider. The Philippines does not have the market impact of Greece or the presence of either China or the United States. But that does not mean that we will lie idle as market conditions are clearly shifting. We have our own butterflies to consider, not because we want to create hurricanes elsewhere but rather because we want to mitigate the contagion impact upon us and within our market. For monetary policy, this has meant keeping a close eye on inflation and allowing the exchange rate to remain broadly market-determined. You are quite familiar with our approach to keeping economic prices stable and the factors that we consider in policy formulation. You therefore also know that we put a premium on communicating our policy actions. In this regard, I am pleased to share with you that last week the Monetary Board approved the adoption of an interest rate corridor (IRC) system for the conduct of monetary policy. Many of you have been asking about this since I first mentioned that BSP is considering a shift to IRC. I believe you’ve heard bits and pieces of it, here and there. So, just to be sure we are on the same page, let me spend the next few minutes on this important shift in how we will conduct open market operations. Let me begin by clarifying our objectives. In the most basic of terms, we are adopting the IRC to: 1) improve the signalling effect of the BSP policy rate, and 2) to create a means for better market price discovery. Having more market-based policy instruments under the IRC can also be expected to reduce reliance on blunt policy tools like the reserve requirement for sterilization. In the end, the IRC should strengthen the transmission of monetary policy. How will this work? The IRC is a system for steering money market rates towards the central bank (CB) target/policy rate. It consists of a rate at which the central bank will lend reserves to commercial banks (CB lending rate) and a rate at which it will take deposits from them (CB deposit rate). Typically, the lending rate will be above, and the deposit rate below, the target/policy rate, forming a corridor around it. We also intend to use a common tool of central banks for liquidity management. This is the Term Deposit Auction Facility (TDF). TDF is suitable for shorter maturities and is not supported by tradable securities. Auction results of the TDF could provide indicative shortterm benchmark for the money market and will be invaluable in price discovery in the market. BIS central bankers’ speeches By mopping up the “structural liquidity” from the system through the TDF and also through the standing deposit facility which is the SDA, we hope to see market rates moving not only within limited latitude but also inching towards the BSP’s policy rate (which is the RRP). This will increase the potency of the BSP’s policy rate in guiding market rates given the dynamics of inflation and monetary conditions in the economy. BSP staff have been carefully studying the operational elements of IRC, and it is the Board’s considered judgement that our current benign inflation environment, historic low interest rate levels, steady aggregate demand, and ample liquidity give us the room to make these operational adjustments at this time. As I have described, the IRC will be a sustantial change from how we currently do OMO but you will continue to transact OMO with our Treasury Department. The BSP will conduct consultations and briefings with you and other stakeholders (possibly starting next month) before we commence conducting OMO using the IRC system in the second quarter of 2016. In our pursuit of financial stability, we will continue to actively assess evolving market conditions while performing stress tests and network analysis. We have an uncompromising policy focus on mitigating the build-up of what we refer to internally as “C2L2” (C-L-2) or the risks of contagion, concentration, leverage and liquidity. We put ourselves to be thought leaders in global and regional initiatives. This includes work on financial inclusion, financial literacy, and consumer protection as well as the integration of the regional financial market, including the requisite capacity building initiatives. We support the principles espoused by global and regional reforms but we do so in the form that is best suited for our requirements. We continue to actively engage other government agencies through the Financial Sector Forum and the Financial Stability Coordination Council, and pursue interagency collaboration, for example, with DA/DAR and HLURB for Agri-Agra and housing issues, while openly collaborating with private sector entities such as the six organizations represented tonight. Final thoughts It is clear that we all desire to be stronger in this increasingly interconnected yet fluid world. In doing so, however, we need to go beyond the confines of trade blotters, budgets, and bottom lines because financial markets “draw” a much more intricate picture on a canvas that is much larger than one’s balance sheet. For certain, how things “hang on balance” is not a trivial quest because there are many stakeholders and because financial risks evolve, comingle and recast themselves in a dynamic form. You have heard me say, year after year, at your General Assembly that the overall picture is not simply the sum of each market player’s position. There are material risks that knowingly or unknowingly fall in between desks or may look benign on everyone’s balance sheet. But when these risks fester, they eventually materialize as systemic difficulties. In this light, I want to assure you that regulatory interventions do not simply serve the purpose of making the days of market players challenging. Contrary to rumors, the BSP takes pains in crafting an enabling environment because we are able to see the intricacies of the picture that may not be apparent to each stakeholder and their balance sheet. That said, we also encourage innovation by product providers as a strategic means of furthering the interests of the general public and the financial consumer. Indeed, prudential policy is always dictated by higher-order objectives. In your more focused request, you asked me what the impact is on us of the slowdown of the Chinese economy. My reply – So far, it’s been on the whole, benign. We’ve so far managed well but we are not immune should Chinese growth slow more steeply and financial market volatilities intensify further. BIS central bankers’ speeches I encourage the organizations here therefore to work as a community and create a thriving market that is premised on governance, transparency and risk management. I encourage you to join us in the pursuit of communal objectives (such as financial system stability and consumer protection). I encourage you to be fully aware that in the hunt for what matters to you, you invariably affect others, and those ripples could someday come back to haunt you. I encourage you to be driven by “enlightened” self-interest. Ladies and gentlemen, when you are guided by these higher-order objectives you would have a better chance of covering any “blind spots”. We may not be the butterfly that defines the next hurricane but I would like us to be a butterfly that can chart its own flight. Thank you and good evening. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Institute of Corporate Directors (ICD) Program for Islands of Good Governance, Manila, 20 October 2015.
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Amando M Tetangco, Jr: Pushing the island’s boundaries Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Institute of Corporate Directors (ICD) Program for Islands of Good Governance, Manila, 20 October 2015. * * * An island of good governance. When I think of an island, isolation first comes to mind. I imagine the island’s exposure and triumph over harsh elements. After all, physical islands are themselves products of struggle. They break away from origins, and establish new foundations. But an island can also be tranquil. A source of verdant prosperity. An island’s account is not unlike the story of the Bangko Sentral. When the BSP was established by law in 1993, it took over the then Central Bank. A redefinition was necessitated as the worldwide trend was for central banks to be independent and focused on price stability. As the country’s sole and independent monetary authority, the BSP is similar to an island indeed. It has weathered violent waters and storms. But it remains resilient and stable. And it has, as I will later on narrate, made a positive impact on its environs. Then there is good governance. Governance is a relational concept. To be good, and even to be better, is the objective. Implied is a positive influential authority over the island’s inhabitants, over resources, over its supervised and regulated entities, and even beyond that. While the concept of “good governance” is a noun, its essence is dynamic. There is action toward a goal. The vision is a high quality of life for all Filipinos. All 5,321 “inhabitants,” if you would, officers and staff of “island BSP” from our Manila Office, Security Plant in Quezon City, three regional offices, and our nineteen branches nationwide, are committed and united in THIS objective. We are guided by our strategy that has four themes: Good Governance, Operational Excellence, Engaged Stakeholders and Organizational Readiness. We also know that an island cannot be insular. It must cooperate and collaborate. The BSP deeply values its stakeholders and partners, domestic and international. This July, the BSP convened 13 government agencies to launch the National Strategy for Financial Inclusion, with the goal of providing a platform for coordinating work to build an inclusive financial system. In a good governance archipelago, we benefit from an exchange of ideas, sharing of competencies, and strengthening of linkages. For most, the BSP’s functions are esoteric: controlling inflation, effective banking supervision, and ensuring a safe and efficient payments and settlements system. As proof of their successful accomplishment, there are numbers and graphs. There are also awards and international recognition. But these do not drive the island’s narration. While we are proud of the figures and commendations, the real story lies in opportunities created and actual Filipino lives improved. When the BSP adopted the inflation targeting framework in 2002, it became more effective in upholding a low and stable inflation environment. For the last six years, it has met the inflation target. Inflation expectations are well-anchored. Economic growth is supported. Uncertainty is reduced. On a micro-level, informed decisions on consumption, investment, saving, and production can be made. Traders may hedge against risks related to the fluctuating cost of raw materials and finished goods. Income equality is promoted as the purchasing power of the poor is protected. Because of the country’s strong economic fundamentals, there is positive differentiation by global investors. Investments are sustained. BIS central bankers’ speeches Our solid fundamentals create buffers against uncertainties, preserving macroeconomic gains. Credit rating agencies 1 and international financial institutions 2 have recognized the country’s inflation performance. Growth projections are favorable. Last December, Moody’s raised its rating a notch above minimum investment grade. It cited the government’s efforts to sustain relatively low and stable inflation. In 2013, the BSP was named Best Macroeconomic Regulator in the Asia Pacific Region by The Asian Banker. To thrive in a fluid and interconnected world, the BSP adopts a foreign exchange rate policy, which is essentially market-determined. Official action only limits excessive price movements. To achieve financial stability, we pursued progressive and prudent banking reforms. We aligned the regulatory framework to international standards, while maintaining sensitivity to domestic conditions. Among others, we adopted Basel 3 capital reforms. We set higher risk management and governance standards for our supervised financial institutions. We institutionalized more effective examination and off-site monitoring processes. The industry’s risk exposures are better monitored through stress tests of banks’ balance sheets and stress test limits for real estate exposures. In 2014, The Asian Banker granted us the “Best Conduct of Business Regulator Award.” And we are happy to report that from 2012 to 2014, the Philippine banking system was the ONLY ONE with a POSITIVE outlook from Moody’s, from among the nearly 70 jurisdictions it rates. Ladies and gentlemen, the Philippine banking system is strong. Our consolidated capital adequacy ratio is Basel 3 compliant at 16.1 percent. This is well-above the BSP regulatory threshold of 10.0 percent and international minimum of 8.0 percent. As of second quarter 2015, total deposit liabilities stood at P6.8 trillion, 8.2 percent higher than last year’s level. It cannot be overemphasized that a well-functioning banking system supports expansionary business activities and consumption spending. It is crucial to economic growth. At “island BSP” we practice and export good governance. We issued guidelines reminding board of directors of supervised financial institutions to exercise objective judgment and put strong systems of checks and balances in place. Areas like independent director requirements, membership in board committees and specific duties and responsibilities of the board are covered. Supervised entities are motivated to see that good governance works to their own benefit. Never in the history of Philippine Central Banking has there been a greater interface with the Filipino public. The BSP is eager to push the island’s boundaries until they reach the peripheries through financial inclusion. The goal is to allow more people to save, to borrow for productive uses, avail of investment and insurance products, and send and receive payments securely and efficiently. For this purpose, the BSP adopts proportionate regulation. Innovation and creativity of the private sector is encouraged as heavy handedness is not consistent with the goal of financial inclusion. Access and usage are key. Ladies and gentlemen, before the year 2000 there were no microfinance oriented banks. Now 3, there are 173 banks with microfinance operations serving 1.3 million microentrepreneurs. We also now have 531 operating micro-banking offices or MBOs reaching over 337 municipalities. Of these 337 municipalities, 64 have no bank except for an MBO. We have also leveraged on technology to increase financial access Moody’s, Standard and Poor’s and Fitch Ratings. International Monetary Fund, World Bank and Asian Development Bank. As of June 2015. BIS central bankers’ speeches and usage. We expanded the virtual reach of banks through the e-money framework, allowing greater cost-effective financial access touch points. The video featured the Credit Surety Fund. It provides an alternative to traditional collateral. Once unbankable MSMEs can now access bank credit facilities. They need not resort to informal sources of lending at unconscionable interest rates. Jobs are created and businesses have expanded. Beneficiaries report an improved quality of life. Some even relayed that their children can now go to school. These are real results. We are also happy to report that the bill recognizing the CSF as a legal entity passed bicameral conference just last week in Congress. Through our PhilPass Remit, overseas Filipino workers can send money remittances to their families through the BSP’s real time gross settlement system. This enabled a fixed back-end processing fee of Php 50 per transaction. The resulting significant reduction in fees influenced other non-bank remittance companies to lower their own remittance fees. The video also featured our Economic and Financial Learning Program. The EFLP is important, as we believe that a well-informed citizenry in economics and finance can contribute meaningfully to development, and can benefit more from the opportunities it brings. To date, the program has reached 79 out of the 81 provinces. We also have financial learning campaigns for OFWs. This September, we sent financial education materials to embassies and consulates abroad to disseminate to OFWs. The video also mentioned our focus on consumer protection. In a recent diagnostic review, the World Bank described this focus as “impressive”. It noted the BSP’s regulations on Truth in Lending, credit cards, e-banking, investment products, lending practices, confidentiality, data protection, product cross-selling and compliance systems. But what is the backstory behind these breakthrough results? Again, it began with a vision: to be a catalyst for a globally competitive economy and financial system that delivers a high quality of life for all Filipinos. We recognized the need for strategic direction to ensure effective mandate delivery. Our supporting and enabling governance mechanisms significantly contributed to present successes. They are essential too in sustaining them. We believe good governance is not just about complying with the law. Rather, it is a value adding proposition. It makes us very intentional in how we deliver on our mandates. We commit to the principles of integrity, accountability and transparency, ownership and voice, strategic direction, and responsiveness. We believe this creates trust and credibility. We believe this whole-heartedly. For the opportunity to share the BSP’s breakthrough results, we thank the Institute of Corporate Directors and the Institute for Solidarity Asia. On behalf of the Monetary Board and officers and staff of the BSP, we thank you for ensuring productive exchange and interconnectivity within our archipelago of good governance islands. Indeed this is an effective way whereby we can learn, improve, push the boundaries of our islands further and adapt to any change in the currents that surround us. It also enables us to together, enjoy the waters’ calm. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launching of the Paranaque City Credit Surety Fund, Manila, 3 November 2015.
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Amando M Tetangco, Jr: Launching of the Paranaque City Credit Surety Fund Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launching of the Paranaque City Credit Surety Fund, Manila, 3 November 2015. * * * This is truly a happy event. Today, we launch the Paranaque City Credit Surety Fund with Mayor Olivarez. Paranaque is the 3rd city in Metro Manila to have its own CSF – after Quezon City and Marikina (both in 2014); it is also the 22nd in Luzon and the 44th CSF in the country. This CSF is bound to benefit the Paranaque-based Micro Small and Medium Enterprises or what we call MSMEs. Indeed, our CSF program has come a long way from 2008 when we launched the 1st CSF in the Province of Cavite. It has been a challenging but fruitful seven years. We have seen how MSMEs that lack collateral, gain access to bank loans and grow their business with the support of the credit surety fund program. As of August 2015, the 43 operating CSFs in the country have benefitted 14,600 MSME borrowers who received a total of P1.7 billion in bank loans. But more than these aggregates, we are particularly proud that past due ratio has been at a minimal 0.93%. Clearly, CSF leaders across our country implement the program with care and due diligence, to ensure that MSMEs given bank guarantees are viable and have a good track record of paying their obligations. In this manner, many more MSMEs and cooperatives stand to benefit from the CSF program. In this connection, the total trust fund of CSFs has also continued to grow – it now stands at P515 million, 8% higher than last year. In other words, the CSFs as a whole, can guarantee more bank loans. And so, we welcome the City of Paranaque to the growing CSF community. Actually, simple lamang po ang gusto nating marating sa CSF – ang mapa-buti ang kabuhayan ng ating mga kababayan sa MSMEs sa pama-magitan ng pa-utang mula sa bangko. Traditionally, MSMEs who lack collateral turn for funding to informal lenders with onerous conditions and interest rates that can reach over 1,000 percent a year. With the CSF providing guarantees to banks for loans extended to their coop members, MSMEs gain access to bank loans at much lower interest rates. As monitored by the Bangko Sentral ng Pilipinas, loans granted under the CSF program range from 8–12% a year, a fraction of the cost of borrowing from informal lenders! This is the reason why the BSP has been working on promoting financial inclusion across the country for over ten years now. In July this year, the BSP and 12 other government agencies launched the National Strategy for Financial Inclusion (or NSFI). Our objective is to avoid duplication and to ensure optimum results from our collective efforts and deployment of resources in extending the reach of our financial system to the unserved and the underserved. This milestone event was also highlighted by the visit of Queen Maxima of the Netherlands who attended the launching with a commitment of assistance and partnership not only from the Netherlands, but also from the United Nations, in her capacity as the designated UN Secretary General’s Special Advocate for Inclusive Finance for Development. As described by Queen Maxima, “the Philippines should be the voice on financial inclusion.” Indeed, our BIS central bankers’ speeches financial inclusion program is considered an international best practice model. Through the NSFI, we envision a regionally-responsive, development-oriented and inclusive financial system that provides for the evolving needs of a diverse Filipino public. One of the priority areas of concern in the NSFI is access to credit, which is being addressed through this CSF program. Our survey early this year indicated that about 47 percent of Filipino adults borrow money and most of them access loans from informal sources such as family members and informal lenders. Only a few obtained credit from formal institutions such as lending/financing companies (12%), cooperatives (10.5%), microfinance non-government organizations (NGOs) (9.9%), and banks (4.4%). Nevertheless, more than 85% of respondents indicate that they want to access financial services from formal financial institutions. One restrictive consideration in borrowing money is the lack of collaterals. This can now be addressed through the Credit Surety Fund, which serves as an alternative security in place of conventional collaterals. You will be pleased to know that our CSF program is on the agenda of the APEC summit. During the APEC SME Financing Forum in Iloilo City last September, one of the key priorities of the summit is “Fostering SMEs Participation in Regional and Global Markets.” One of the proposals is the promotion of inclusive growth through sustainable and resilient SMEs with support from the CSF program. Similarly, the CSF has advocates in Congress who seek to institutionalize the CSF program. At the Senate, Senator Bam Aquino is its principal author and Congressman Cresente Paez at the House of Representatives. Their bills were unified during the Bicameral Conference Committee meeting last month and will be submitted for approval by President Benigno C. Aquino III. And so, ladies and gentlemen, the story of our CSF program continues to evolve and produce positive results for our MSMEs, their owners and their employees. With Paranaque joining our CSF community, we look forward to generating more benefits from financial inclusion, this time within Metro Manila. Congratulations to Paranaque under the leadership of Mayor Olivarez, for taking this major step forward to empower MSMEs in their city, to help improve lives through entrepreneurship and in generating jobs in their community. Maraming salamat sa inyo at Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Asia Pacific Financial Inclusion Summit, Makati, 27 October 2015.
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Amando M Tetangco, Jr: Scaling up inroads in financial inclusion for a quantum leap Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Asia Pacific Financial Inclusion Summit, Makati, 27 October 2015. * * * We at the Bangko Sentral ng Pilipinas welcome and thank all of you for participating in this first Asia Pacific Financial Inclusion Summit. In particular, we are pleased that this maiden summit is being held here in our country. For this we thank the organizers– Financial Times (FT), led by MD Angela Mackay, the Foundation for Development Cooperation (FDC), led by Exec. Governor Stephen Taylor, and Citi led by Asia Pacific Chairman Shengman Zhang and Citi Philippines Country Head Aftab Ahmed. Indeed, for a country such as the Philippines where financial inclusion is deemed necessary to achieve inclusive growth, this summit of thought leaders on financial inclusion is both timely and essential. For your information, the Philippines has been able to sustain uninterrupted economic growth for 66 quarters now. Economic opportunities abound across our country therefore at a time when our financial system is sound, stable and liquid. This makes for fertile ground for proactive work on financial inclusion. This is exactly what we have been doing in the last ten years – broadening and deepening the reach of our financial system to get to the unserved and the underserved. Sure, we had hits and misses. But along the way, our central bank has been receiving awards and recognition for its success in providing one of the world’s best regulatory framework for promoting the development of microfinance and financial inclusion. Indeed, we have witnessed how successful microentrepreneurs lifted their families from poverty along with others in their community toward higher incomes, risk-protected assets, and brighter futures. We have also seen increases in our savings rate. Nevertheless, millions of our people still live in poverty. That the Philippines is an archipelago of 7,107 islands with a population of 100 million makes financial inclusion quite challenging for us indeed. This is the reason behind our move to link up with 12 other government agencies to craft and implement our National Strategy for Financial Inclusion or NSFI which was launched last July. Secretary Nicolas of Commission on Filipinos Overseas under the Office of the President is a strong supporter of the NFSI. With the NSFI as our road map, we focus on achieving financial inclusion that promotes inclusive growth, consolidate our efforts to avoid overlaps, and together set priorities to maximize use of our resources. The NSFI spells out high-level principles and systematic strategies; guides coordination across government and private sectors; ensures policy and program cohesion; and promotes multi-sectoral synergies. In particular, the NSFI lays down precise objectives: (1) Financial products that are diverse, well-designed, suitable and relevant to different market segments; (2) Providers and business models that are diverse, responsible, responsive and innovative; and (3) A citizenry that is financially-learned and adequately protected. The goal is to mainstream Filipinos across the country as regular clients of our financial system, particularly (1) MSMEs, (2) overseas Filipinos and their beneficiaries, (3) agriculture and agrarian reform sectors, (4) indigenous peoples and cultural minorities, (4) women, BIS central bankers’ speeches the youth, (6) and persons with disabilities. These sectors are typically unserved or underserved by conventional financial service providers. Indeed, we have set high expectations. Nevertheless, while I am optimistic these can be achieved, I am also realistic that there are challenges we need to address. For this keynote address, I will not focus on these challenges; rather, I will highlight three elements which I believe are essential in overcoming challenges and in achieving a quantum leap in financial inclusion. First is research and measurement; second is purposeful action and innovation informed by research; and third is convergence of objectives and actions across domestic, regional and international arenas. Building up Research, Data and Measurement Let me expound on the first of these three elements-- building up research, data and measurement. Ladies and gentlemen. Time and again, we have seen that rigorous research can lead to breakthrough knowledge and innovations. This is also true for financial inclusion. Among others, present research in behavioral economics, psychometrics, big data analytics, virtual mapping and imaging technology are allowing us to understand the excluded: who and where they are, what they need, and how they want to be served. The new information is opening up opportunities for new players, giving rise to exciting platforms and more efficient channels with the potential to positively “disrupt” the financial inclusion landscape. I am glad to note therefore that our summit will tackle new trends and technology that could catalyze a quantum leap in lowering financial exclusion levels around the world. R&D also makes regulators and practitioners more responsive and effective. At the Philippine central bank, we use research extensively to design and implement regulations and programs that target barriers to financial inclusion. Data and measurement, on the other hand, enable us to see the results of our initiatives -- it provides evidence on whether our initiatives are bearing fruit, whether further enhancements are needed, or whether our program is plainly unable to achieve intended objectives. More importantly, it provides guidance on what we are doing wrong, which should push us back to the boardroom to re-calibrate regulatory approaches and refine program operations. Let me cite a few examples: Our National Baseline Survey on Financial Inclusion which was completed early this year, indicates that only 43% of Filipino adults have savings, and that majority or 68% of those who save, keep their money at home. This data now challenges us to find more effective ways to encourage Filipinos to open bank accounts, and fully address the barriers that prevent them from doing so. A report from BSP-supervised E-Money Issuers gives us additional food for thought. They report that 27 million e-money accounts have been opened since we issued e-money regulations in 2009. Yet increases in the volume and value of transactions are minimal. To drive up usage and make the system more efficient for consumers, the BSP is working with the industry to set up a National Retail Payment System. We envision a digital, interoperable infrastructure and ecosystem for low value, high volume payment transactions. The second possible trigger for speeding up the pace of financial inclusion is Purposeful Action and Innovation Informed by R&D Ladies and gentlemen. Research behind the mobile phone would have been futile if it was not applied to create the practical, usable, and affordable gadget that it is today. Similarly, in financial inclusion, research and measurement results must be intentionally used to inform concrete action and generate innovations that push frontiers in financial inclusion. BIS central bankers’ speeches For example, the BSP is currently undertaking policy research to examine the linkages of financial inclusion regulations with the objectives of financial stability, integrity and consumer protection (also known as I-SIP method ). We hope to use the research results in optimizing positive linkages, maximizing synergies and minimizing trade-offs among these policy considerations. Research tools also inform the development of our financial education materials. For instance, using research on the type of messaging that appeals to the youth, the BSP developed animated videos to encourage students to spend wisely and save regularly. To date, thousands have viewed these videos on social media. R & D provides good value for the private sector as well – it can be used for product innovations, targeting niche markets, business model development and strategic decisionmaking. Indeed, regulators and providers alike can invest in R&D and leverage on the growing body of financial inclusion research to challenge what we currently know, inspire innovation and propel the speed of financial inclusion across the globe. Convergence of Local/International Objectives/Actions The third element that could accelerate the spread of financial inclusion is the convergence of objectives and actions across local, regional and international arenas. We see more and more players and a variety of entities engaged in different aspects of financial inclusion. It is imperative to converge on a common understanding and shared vision so that different actors can move in unison to attain inclusion objectives. The BSP realized the importance of convergence in the course of our financial inclusion work. Thus, within our central bank, we have done the following: • Established an Inclusive Finance Steering Committee, which I chair, to provide common direction and oversight on the BSP financial inclusion agenda. • Established an enabling regulatory environment for financial inclusion in the area of Policy, Regulation & Supervision. Among others, our issuances on microfinance, micro-banking offices, electronic money, transparent lending, and reduced customer due diligence are inclusion-friendly regulations. These regulations allow banks and non-banks to deliver a range of services to underserved market segments like microenterprises, SMEs, overseas Filipino workers (OFWs), among others. • In the area of Financial Education, we implement a nationwide economic and financial learning program (EFLP) for targeted audiences starting with students, the employed, overseas Filipinos and their beneficiaries, and participants in the government’s conditional cash transfer program. Underpinning this initiative is our belief that a citizenry knowledgeable in practical economics and finance is a better partner in ensuring monetary policy effectiveness, banking system stability and payment system efficiency. • In terms of Consumer Protection, we institutionalized a consumer assistance mechanism so that consumer concerns are addressed by BSP-supervised institutions. We are implementing a Financial Consumer Protection Framework to enforce compliance with market conduct rules and consumer protection principles so that all financial consumers, including the less-sophisticated and vulnerable, are safe-guarded from deceitful practices. • We also conduct Advocacy Activities thru strategic partnerships. One good example is the Citi Microentreneurship Awards that the BSP has been carrying out annually with Citi Foundation, Citibank and the Microfinance Council of the Philippines. This BIS central bankers’ speeches awards program highlights inspiring success stories of microentrepreneurs across the Philippines. Ladies and gentlemen. The Philippine National Strategy for Financial Inclusion (NSFI) brings the central bank and 12 other government agencies together thru a highly consultative process to achieve convergence. It also sets a framework for government and the private sector to systematically collaborate, ensure cohesion and promote synergy. Agency Tactical Plans are being finalized with specific policies, programs and progress indicators which will be shared thru dialogues to jumpstart convergence of multi-sectoral actions, and identification of concrete areas for partnership and collaboration. It is pleasing to note therefore that 8 countries in Asia Pacific are at varying stages of implementing their own NSFIs, while 9 other countries are currently formulating theirs. Evidently, we all aim to facilitate domestic convergence and quantum leaps thru a national strategy. Indeed, convergence across regions and with international partners is necessary in the light of cross-cutting issues that may impact financial inclusion objectives. These issues include the cost of cross-border remittances, the potential impact of economic integration on small businesses, and international standards that may adversely affect institutions providing financial services in rural areas, to name a few. These all require concerted global attention and strategic convergence. Fortunately, such a convergence is beginning to happen. APEC and ASEAN have committed to promote financial inclusion. And financial inclusion is already being discussed in international bodies such as the G20, the United Nations, the World Bank and the IMF, as well as standard setters like the Basel Committee on Banking Supervision and the Financial Action Task Force. In addition, about 95 developing countries are now members of the Alliance for Financial Inclusion. Conclusion Ladies and gentlemen. We have before us the opportunity to catalyze a quantum leap for financial inclusion in Asia Pacific and the world. Clearly, it is an ambitious goal; but the 1.2 billion people who remain unserved in our part of the world represent a billion compelling reasons to continue to escalate our efforts to bring financial inclusion to the excluded, to those who continue to live in poverty. Together in this Summit, I hope we can craft an action plan that would help make the AsiaPacific a better place -- where levels of financial inclusion are high; where markets offer innovative products that are affordable; where marginalized sectors get access to financial services that improve their economic status; and where economic growth generates benefits all the way down to bottom-of-the pyramid. Finally, I hope that everyone will participate actively in our first Asia-Pacific Financial Inclusion Summit to accomplish what we set out to do – to help improve lives through financial inclusion. Thank you all and good morning. Mabuhay! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Awarding Ceremony for "MAP Management Man of the Year 2015, Makati City, 24 November 2015.
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Amando M Tetangco, Jr: Steer toward true north Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Awarding Ceremony for “MAP Management Man of the Year 2015, Makati City, 24 November 2015. * * * They say receiving the MAP Management Man of the Year award is like winning Best Director in the Oscars… When I look at the roster of past winners… I guess they have a point … But also, when I look at the roster, Best Director for a particular film pales in comparison… Because everyone before me had been judged for the consistency in his whole body of work… And so it is with pride and, at the same time, humility that I address you this afternoon… Since I became BSP Governor in 2005, a frequently used idiom to describe my position is that I am “at its helm.” I find this analogy to an ocean-going vessel very appropriate, both from the technical and from the operational-management side of central banking. Central banking has, after all, often been described as a navigational act of directing… easing, tightening, reining-in … balancing. Slight changes on the wheel can alter the ship’s direction. Thus, captain and crew must be in sync. With this in mind, for the last 10 years, 4 months and 20 days I have approached my duties with great respect: First, I must know the course with certainty. Many navigational tools can be consulted for geographical direction. In my readings, I learned that the compass is limited. It often does not point to “the true north” that does not change. Rather, it directs to a magnetic north that varies because of fluctuations in the earth’s fields. Thus, for accurate direction one must know where the “true north” is. For the BSP, our true north is spelled out in our mandates. We are committed to maintaining price stability; a stable banking system; and a safe, sound and efficient payments and settlements system. We choose the course that leads to them despite possible trade-offs or even criticism, sometimes, lawsuits. In this commitment, we value our independence as we cannot be carried by changing currents or tossed by the waves. Our direction determines our destination. Let me first talk about adherence to our second mandate. Something about going through a crisis makes one think long and hard about the direction one is taking. The traumatic 1997 Asian Foreign Exchange Crisis and then ten years later, the 2007/8 Global Financial Crisis were valuable learning experiences that shaped our thinking on how we should approach bank supervision and promote overall financial stability. These defining moments have led us to embrace, champion, and implement wide-ranging financial reforms. The financial reform agenda is exceptionally challenging and complex… Significant progress has been achieved but… more can still be done. It began with a long, painstaking, and painful post-1997 crisis clean-up of the banking system. We followed through with decisive adoption of relevant global banking reforms particularly those advocated by the Basel Committee and other international standard setting bodies. Running parallel to this are the implementation of regulations to raise the bar for the governance and risk management of banks, on one hand, and the risk-based approach that we are now employing to supervise them, on the other. BIS central bankers’ speeches Our goal was behavioral change in how banks are run. This, while consciously and deliberately nurturing a more dynamic environment that encourages healthy competition, financial innovation, consumer protection, and financial inclusion. As a result, ladies and gentlemen, our banking system is robust. It supports expansionary business activities and consumption spending, effectively becoming a truly reliable pillar of economic growth. Second, as captain, I must have an intimate understanding of the vessel and its equipment. Our primary mandate, controlling inflation is often likened to operating a big ship. Slight movements in the monetary policy rudder can cause big changes in economic course. We must be focused, precise and deliberate in our decisions. In 2002, the BSP adopted the inflation targeting framework. Inflation targetting or IT is an exhaustive policy framework where thoughtful econometric modelling and forecasting, grounded market surveillance, and sound judgement come together. And I am happy to report that since we’ve become more adept at IT, we have also become more effective in keeping prices low and stable. Economic growth is supported. Income equality is better promoted. But the operating environment is evolving. So, again learning from the Global Financial Crisis, the BSP enhanced its tool kit to include macroprudential measures to address, among others, any unintended financial stresses… that could potentially arise from changes in market risk perception... because of monetary policy actions or other related causes. Macroprudential tools can be targetted towards areas for which traditional monetary policy tools are not suitable. Third, I must delegate to, and trust the ship’s officers. In the book, True North by Bill George and Peter Sims, there was insight that as one travels to the true north, a greater appreciation for “the We” instead of “the I” is developed. A difficult journey is best undertaken with a capable team. In this regard, I am fortunate that among my three deputy governors and myself, we have clocked-in about 130 years of central banking experience. I wish to acknowledge them this afternoon. Deputy Governor Nesting Espenilla of our Supervision and Examination Sector, Deputy Governor Diwa Guinigundo of our Monetary Stability Sector, and Deputy Governor Vic Aquino of our Resource Management Sector. I am grateful for the experience and expertise of these men, and the excellent and dedicated officers of the BSP, past and present, which combined through the years, illuminated a wider and brighter path for us to charter. I would also like to acknowledge another significant source of illumination: our highest policy making body – the Monetary Board. I benefit much from the wisdom and technical knowledge possessed and shared, always so selflessly, by the highly accomplished men that comprise it. The Monetary Board is not involved in the day-to-day running of the “BSP Ship.” To my mind, the Monetary Board is like a lighthouse… guiding toward our true north… warning of perilous areas, and marking safe entries to harbors. I wish to acknowledge the presence of those who are here today. MBMs Cesar Purisima, Freddy Antonio, Philip Medalla, Andy Suratos, Val Araneta and Jun de Zuniga. The fourth duty of a captain is to take care of the crew. At present, the BSP has 5,321 officers and staff across the country. While we have varied experiences and expertise, we are all central bankers. We are taught and trained not just to do routine tasks. Rather, we live out our shared mission and vision, which is to be a world-class monetary authority, and a catalyst for a globally competitive economy that delivers a high quality of life for all Filipinos. We take to heart, core values of integrity, patriotism, solidarity, excellence and dynamism. These values are sustained by quality recruitment, training, succession and mentorship programs. We are committed to capacity building. It is the skillful sailing by all crew members that assures a successful voyage. BIS central bankers’ speeches Fifth, I must provide clear and active communication internally, and lead coordination externally. Internally, a strong knowledge management system and enterprise wide communication policy are being implemented and continually refined in the bank. We also give importance to and deeply value our domestic and international stakeholders and partners. Last July, together with 12 other government agencies, we launched the National Strategy for Financial Inclusion to build an inclusive financial system. We also chair the voluntary inter-agency body, the Financial Sector Forum comprised of the BSP, SEC, Insurance Commission and the PDIC. Our Bank Supervision Policy Committee regularly conducts meetings with 15 industry associations for the continuous rationalization of regulations and so that supervisory policy remains relevant and responsive. Our Payment and Settlement Steering Committee regularly consults PhilPaSS stakeholders who are given the opportunity to raise concerns, grievances, as well as recommendations to improve PhilPaSS operations. The BSP also actively participates and holds chairmanship positions in international fora such as the Alliance for Financial Inclusion, the G-20 Global Partnership for Financial Inclusion, Bank for International Settlements Asian Consultative Council, Financial Stability Board Regional Consultative Group for Asia, and the BIS Meeting of Governors from Small Open Economies. As Governor, I represent the country in the Executive Meeting of East Asia and Pacific Central Banks (EMEAP), ASEAN and ASEAN +3; and South East Asia Central Banks (SEACEN), among others. We are represented in the IMF, the World Bank and ADB. We benefit from a continued exchange of ideas, sharing of competencies, and strengthening of linkages. Sixth, laws and regulations must be complied with. I understand that common carriers have the legal duty to observe extraordinary diligence. In Philippine law, the banking community is the only other industry required to observe this highest degree of diligence when acting in a fiduciary capacity. And for good reason, given its key role. In the BSP, we are mindful of this principle and strive to follow both the letter and the spirit of legal provisions. Seventh, the journey must be inclusive. The BSP is continually increasing its interface with the Filipino people, our ultimate stakeholder. The phrase “inclusive growth” is now cutting across the global reform agenda. The BSP has been doing its part to promote financial inclusion. And we have done so following three pillars, namely: access and usage, financial literacy and education, and increased financial consumer protection. Policy and regulatory efforts are designed and directed toward allowing more of our countrymen effective access to a wide range of financial services, equipping them with know-how to appreciate which financial service suits them best, and creating an environment where they are essentially protected from unscrupulous elements. We believe that for economic development and progress to be meaningful, more must participate in and benefit from the journey. Finally, a strong moral and internal compass is essential. It is difficult to find direction when one relies only on external aids. Instead, one must listen closely to the dictates of his own conscience – his true north - doing his best in each endeavor. In its simplest form, this is how one genuinely moves forward: by listening to his inner compass, trusting in God, and doing what, in his mind, is his very best, never settling for less in the day-to-day. For me, as a young central bank statistician in the 1970s, this meant ensuring that each report submitted to my supervisor was accurate and timely. All the numbers had to add up. In the 1980s, this entailed carefully preparing correct and complete documents for the next external debt negotiation. It also required that as Director of the Research Department, my interviews be faithful to our mandate. As Deputy Governor in the late 1990s and early 2000s, this translated to basing each policy recommendation only on meticulous academic research sensitive to market reactions. BIS central bankers’ speeches As Governor, it demands attention to consistency and appropriateness of policies, and to consider paramount, the BSP’s mandate and public welfare. In closing, I recap what for me, are the core responsibilities at the helm. There must be commitment to the BSP’s true north- its mandates. There must be expert familiarity with the vessel and its equipment. Delegation to, and trust in the ship’s officers is essential. The crew must be cared for and continously prepared for the journey. Clear and active communication must be provided internally, and there must be strong coordination externally. There must be compliance with laws and regulations – to the standard of “extraordinary diligence”. To be meaningful, the journey must be inclusive. And most importantly, a strong moral and internal compass is essential. Today, I am humbled and honored that the Management Association of the Philippines (MAP) has recognized that under my watch, the BSP has stayed steady on its course. I am honored to join an illustrious roster of awardees that includes previous central bank governors, from whom I have learned a lot. My predecessor, Governor Rafael Buenaventura was Management Man of the Year in 2004; Governor Gabriel Singson in 1998; Governor Jose Cuisia, Jr. in 2007; and Governor Jobo Fernandez in 1989. Another former CB Governor, Jimmy Laya was once the President of MAP. For this award, and for consistently demonstrating trust in the Central Bank and the role it plays, maraming salamat po sa MAP. I cannot receive this honor without sharing it. With my wife, Elma; my children Patrick and Miko, Eula and Mia, whose support and encouragement allowed me to seek out my own true north even amidst trying times. I share this too with my grandchild Zara who gives us much joy in the family. I pray that they would each continuously listen to their own internal and moral compass. With the men and women who with me, serve in the BSP with integrity, excellence and honor – members of the Monetary Board, officers and staff, past and present, who have ensured that the BSP stay its course, maraming salamat sa inyo. Thank you all for listening. To the Management Association of the Philippines, it is with deep gratitude and honor that I accept the award you have bestowed on me; my family; and ultimately, on the magnificent team that comprises the Bangko Sentral ng Pilipinas. Mabuhay at maraming salamat muli. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Cybersecurity Summit for the Financial Services Industry, Manila, 24 November 2015.
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Amando M Tetangco, Jr: Evolving cyber threats – are we prepared? Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Cybersecurity Summit for the Financial Services Industry, Manila, 24 November 2015. * * * Good morning everyone and welcome to this first Cybersecurity Summit for the Financial Services Industry. We at the Bangko Sentral ng Pilipinas together with our Summit co-organizers BancNet and the Information Security Officers Group are pleased that you have joined us today to tackle the matter of cybercrimes. It is a fact: cybercrimes are being committed and financial institutions and financial consumers are being targeted. Questions are being asked: Is it widespread? Can we stop cybercrimes? How can we protect financial institutions and financial consumers from cybercrimes? Distinguished representatives from the financial services industry, technology partners, stakeholders in our financial sector, we need to address these issues together. Digital transformation in the financial services industry In this digital age, the transformative power of technology is evident in almost all aspects of human undertakings - from modern science, education, health care, financial markets, to personal interaction. Technology has likewise revolutionized banking and the manner it provides services and products. Financial customers can now perform banking transactions anytime, anywhere, at their convenience. We have also seen the adoption of technology by BSP supervised financial institutions or what we call BSFIs in offering innovative products and in the delivery of fast and efficient service at affordable prices. And through technology, financial institutions tap a new breed of costumers who expect top-of-the-line services, financial solutions and products with the flick of a finger. Based on our records as of December 2014, around 22 million users of electronic banking services and channels were being serviced by over one hundred banks across the country. Indeed, we have seen the volume and the value of transactions using e-money and ebanking channels grow steadily over the years. Clearly, technology innovation has become an integral part of the business that it is now considered a “must” for BSFIs to survive and thrive in the digital world. However, as in other fields, there is a downside that comes with innovations in technology criminal elements have likewise evolved. While it is far from widespread, cybercrimes exploit advances in technology to expand, conceal and perpetrate their criminal activities from the real world to the cyber realm. BIS central bankers’ speeches The cyber landscape Indeed, cybercrimes have spawned a global industry with skilled hackers-for-hire, terrorists and syndicates that target critical institutions, infrastructure or economies. The Philippines has not been spared from cybercrimes. Considered the social media capital of the world, the Philippines is on the radar screen of cyber criminals who try cyber attacks of varying complexities. Nevertheless, industry cooperation has enabled us to stop and capture cybercriminals. For instance, authorities have arrested foreign nationals associated with cyber syndicates who were involved in ATM skimming, credit card fraud, and phishing incidents. Can we stop cybercrimes? Well, studies indicate that cyber attacks and similar fraudulent activities against the financial services industry are likely to continue. But we can manage the risks related to cybercrimes. Ladies and gentlemen. Our proper response should be to broaden, deepen and escalate our own anti-cybercrime programs and activities together. The stakes are high: institutional and personal losses resulting from cybercrimes could undermine the public’s trust and confidence in financial institutions and ultimately our financial system. The right mindset So, what can we do to ensure industry-wide cyber security? How do we benefit from technology innovations while managing attendant risks and vulnerabilities? Well, according to a SEACEN paper , the right mindset and a holistic multi-stakeholder approach for managing cyber security must be adopted. At the Bangko Sentral, we have reduced these to three major themes that form the acronym PIN. As you know, PIN refers to the personal identification number that must be kept secure at all times by its owners, to prevent unauthorized access to their accounts. Allow me to share what PIN means to the BSP in terms of fighting cybercrime: P is to be proactive, not reactive; I is for information sharing and collaboration; and N is a constant reminder that cybercrime is NOT a technical issue. I will now briefly discuss each of these themes. P is to be “proactive, not reactive” Given a dynamic technology landscape, there is no room for complacency, one has to be proactive. While it may take years to develop a robust and effective security infrastructure, it may only take minutes or even seconds for cyber criminals to breach its defenses. And if criminals gain access to sensitive and critical information, they could trigger financial losses, business disruptions, damaged reputation, and even threaten the viability of the institution itself. This calls for a continuing cycle of rigorous assessments of the institution’s security versus emerging threats and risks. Cyber security controls, processes and procedures must be BIS central bankers’ speeches continuously enhanced to mitigate weak points and achieve a higher state of resilience and maturity. This is the same rationale that underpins the Bangko Sentral’s policy to continuously enhance its supervisory framework through the issuance of guidelines, public advisories and memoranda, as well as the adoption of a robust and dynamic supervisory program. For instance BSP Circular No. 808 issued in August 2013 provides the framework for technology risk management which takes into account robust and multi-layered security controls for cyber-risk prevention, detection and response. The BSP has also introduced various initiatives and supervisory enhancements for a more proactive approach to cybersecurity supervision and oversight. These shall be discussed in detail later by BSP Deputy Governor Nestor A. Espenilla, Jr. I is for “information sharing and collaboration” With the increasing sophistication and coordination of attacks, cyber security is no longer confined within the boundaries of each firm or organization; it is rightfully a shared concern by legitimate users of the cyber-environment. We believe information sharing and collaboration among various stakeholders is an effective, if not the best, antidote to the threat of cybercrimes. When attacks occur, early warning can spell the difference between business continuity and business catastrophe. While industry-wide collaboration efforts and initiatives are already in place - in coordination with industry associations, namely the Inter-Network Anti-Fraud Committee (IAFC) through the BancNet and ISOG– the ideal would be to expand it to include all stakeholders, such as technology service providers, law enforcement agencies, regulators and relevant government institutions. Ladies and gentlemen. In the fight against cybercrimes, let us remember to be inclusive, let us involve all stakeholders. In particular, financial consumers should be informed about cyber threats and how they can evade cyber attacks to protect their accounts. Indeed, cyber security is a shared responsibility, and each of us has a role to play in making our cyber landscape safer, more secure and resilient. N is for “not a technical issue” Ladies and gentlemen, cybersecurity is not achieved merely by deploying state-of-the-art security appliances and devices. In fact, a number of organizations with the most secure defenses have been subjected to cyber-attacks. More than a technical issue, cyber security should be a top priority concern by the Board and senior management. Cyber security initiatives and investments must be supported at the highest level of management to ensure their sustainability and adoption across all processes within organizations. As a wise man once said, it is the “tone at the top” that defines an institution’s cyber security culture. Given the crucial role that the Board and senior management play in creating a safe and sound cyber security regime, I am pleased to see that we have CEOs, members of the Board and senior management at this Summit. This speaks of executives walking the talk BIS central bankers’ speeches on ensuring cyber security; this also reflects a high degree of cyber governance in the financial services industry. You all deserve a round of applause. Parting shots Ladies and gentlemen. We are fortunate to have with us at this summit, distinguished experts on dealing with cybercrimes. Also with us are industry players deeply involved in ensuring cyber security who will discuss current and emerging cyber threats confronting the financial services industry. Also up for discussion are international best practices on cyber security management. Let us therefore maximize the opportunities to be proactive, to inform and collaborate, and to remember that cybercrime is Not merely a technical issue. These are the lessons of PIN. Indeed, there are many cyber challenges ahead of us. With this summit, I hope we can put our collective wisdom and expertise together to collaborate and develop comprehensive and united solutions for a safe, secure and healthy cyber environment. Together, let us fight cybercrimes. Our ultimate goal is to propel our financial sector forward to an environment where robust financial institutions reach out to the unserved and the underserved to achieve financial inclusion that promotes inclusive growth. Maraming salamat. Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the First ASEAN Corporate Governance Conference and Awards Governance Transformation in ASEAN: Reform and PrioritiesŽ, Manila, 14 November 2015.
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Amando M Tetangco, Jr: Of ironies and synergy Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the First ASEAN Corporate Governance Conference and Awards “Governance Transformation in ASEAN: Reform and Priorities”, Manila, 14 November 2015. * * * Can self-interest lead to the greater good? Prior to Adam Smith1 it was counter-intuitive to say, “Yes.” Human nature, in its narrowest sense, if you must, is anathema to the proposition that individuals naturally uphold the common good. But proceeding from Smith’s theory, we tap individuals’ natural inclination to pursue their own interests. We motivate them to see that good governance works to their benefit. Self-interest therefore is channelled to nationally desirable ends. Another “irony” results - supervised entities are now competing to adopt good governance principles! In doing so, there is cooperation with regulated entities. Competition toward cooperation. This provokes another thought: Can the regulator partner with the regulated? I believe so. When standards are merely imposed from the top-down, results can be unsustainable. To have sustainability, interests of the regulator and the regulated must converge. Can more granular measurement lead to unlimited possibilities? In the ASEAN Capital Markets Forum (ACMF), I believe the answer is “yes”. Since its initiation four years ago under the ACMF Implementation Plan, the ASEAN Corporate Governance Scorecard (ACGS) has raised awareness for tangible benefits of good governance practices among publicly listed companies. The Scorecard has become increasingly more than a compliance metric or tickbox. Rather, it is now a tool to achieve organizational alignment and focus.2 OECD studies show that investors have greater confidence in firms whose governance standards are measured and clearly understood, consequently allowing better access to equity and debt finance3, leading to reduced cost of capital4, and thus translating to improved share value5. These are goals both regulators and the regulated desire. Since the initiative began in 2011, regulators have championed good governance principles. It is for “your own good,” we say. And, we have not been off-the-mark in our pronouncement. Our advocacy has been heard. McKinsey has found that boards of directors of corporations are increasingly “more confident in their knowledge of the companies they serve and more strategic in their approach.” And we know that strategy formulation is the first step to good governance.6 Also, as shown in an ADB study7, PLCs have begun to voluntarily adopt best practices. There is greater appreciation that a balanced scorecard can generate firm-level Paraphrasing an idea in Adam Smith’s The Theory of Moral Sentiments (1759). “Robert S. Kaplan and David P. Norton, The Strategy Focused Organization: How a Balanced Scorecard Companies Thrive in the New Business Environment.”2001 Harvard Business School Publishing Corporation, p. 8. http://www.oecd.org/daf/ca/corporategovernanceprinciples/43654500.pdf.The Tangible Benefits of Good Governance. Last accessed 11 November 2015. OECD. Ibid. Ibid. Improving Board Governance: McKinsey Global Survey results. August 2013. Available at http://www.mckinsey.com/insights/strategy/improving_board_governance_mckinsey_global_survey_r esults last accessed 12 November 2015. Asian Development Bank, ASEAN Corporate Governance Scorecard, Country Reports and Assessments, 2013–2014. BIS central bankers’ speeches governance improvements8 and attract foreign investments. Ultimately, these enhance the region’s visibility, integrity and “branding” as an asset class. The impact of good corporate governance is not just on the micro. It is also on the macro. There is evidence that improvements in corporate governance of firms positively affect aggregate economic activities at the country, and in our case, regional levels. Studies show this is especially so when firms improve transparency. When firms are better governed, interests of the firm and of stakeholders are more closely aligned. This gives firms stronger incentives to achieve high productivity and efficiency, thereby raising “economy-wide” productivity growth.9 Success inspires more success and good governance results in the whole being greater than the sum of its parts. In terms of corporate governance, ASEAN has certainly come a long way since the 1997 financial crisis. OECD reports that many key financial and corporate institutional reforms here have translated to “stronger regulation, better resourced regulators, new institutions and an increasingly involved shareholder base.” A key facet of this positive development is corporate governance reform.10 Moreover, as the ACMF effort has reached its fourth year, we have a better understanding of corporate governance standards across the region. As regulators, we now have a common diagnostic tool to help us improve corporate governance standards. Each country in the region is expected to build on these standards to create their own corporate governance framework, which should clearly articulate expectations on (among others) the fitness and propriety of the board, checks and balances, and transparency. The fundamental principle is that the tone of good governance should be set and come from the top. It should remain the highest priority as it emphasizes the importance of having “fit and proper” standards for individual board members. These standards, we believe, should put as much weight on integrity, as on knowledge, expertise and competence. Fitness and propriety are also displayed in the exercise of independent and objective judgment. The “state” of independence is defined by parameters on term limits, a cap on the number of concurrent independent directorships and the challenge of a seemingly limited number of qualified independent directors. Systems of checks and balances should likewise be deeply embedded across all levels in the company. Unquestionably, an environment that fosters transparency should be the new norm. A system for cooperation and collaboration among government bodies, regulators, and supervisors should be in place to ensure reasonableness of disclosure requirements. We must display the will and capacity to implement standards and take enforcement actions, if needed. A business model that often draws discussion and one that is almost always associated with our region – is related party interest. While we recognize that such a corporate structure has inherent risks, we must also be mindful that synergies can lead to success of individual companies. It would therefore be beneficial to set higher oversight and control standards. This, to address conflict of interest concerns and propriety of related transactions. Our own efforts at the Bangko Sentral ng Pilipinas with respect to our supervised entities follow the global thrust closely, while at the same time being mindful of emerging domestic industry concerns and unique situations in our legal and regulatory environments. However, regulation Chris Razook, Corporate Governance Challenges Facing Southeast Asia, The Ethical Boardroom, Spring 2015. In www.ifc.org last accessed 11 November 2015. Gianni De Nicolò, Luc Laeven, and Kenichi Ueda, Corporate Governance Quality: Trends and Real Effects IMF Working Paper Series WP/06/293. December 2006. OECD, Reform Priorities in Corporate Governance in Asia: Taking Corporate Governance to a Higher Level (2011), http://www.oecd.org/corporate/ca/49801431.pdf last accessed 11 November 2015. BIS central bankers’ speeches alone is not enough. A culture that induces appropriate/proper behavior, even when nobody is watching, is needed. Ladies and gentlemen, the scope of governance must be broad. Our initiatives must not begin and end with PLCs only. The financial environment where PLCs operate is made up of many moving parts. Efforts must extend to financial market segments as well. In particular, we must promote orderly financial markets that feature real price discovery and enforce responsible market conduct. From the perspective of a central bank, we view good corporate governance as the foundation of safe and sound banking operations. It embodies principles of fairness, accountability and transparency. The Basel Committee on Banking Supervision emphasizes that since banks have an important financial intermediation role in the economy, the public and the market must be highly sensitive to any difficulties potentially arising from any corporate governance shortcomings in banks.11 Clearly, the financial industry thrives on public trust to sustain resiliency. But I believe these principles are true not just for the banking sector but for all commercial endeavors as well. We should also recognize that SMEs make significant contributions to regional growth. Thus, they should be included in our continuing transformation process. This transformation should also not leave consumer protection behind. Ladies and gentlemen, governance must be inclusive. For certain, we give credit to ACMF for identifying good corporate governance as a prerequisite for economic and financial integration. In doing so, ACMF strategically built a strong foundation for our single market of ten separate economies. Good corporate governance as a bedrock is essential for an economy whose combined GDP is expected to grow 4 times to US $10 trillion by 203012 and is projected to become the 4th largest in the world by 2050.13 With this forecast, we are therefore beginning strong with that trajectory in mind. Diversity in ASEAN is a good thing. It suggests availability of niche markets that can be tapped. Different needs can be explored and met. Pockets of expertise can be harnessed.14 Each nation has a comparative advantage that will benefit the others. Regardless of our differences, we should work together to continually make the Scorecard reflect internationally recognized good practices in a manner that remains relevant and applicable to ASEAN. This can be done through systematic collaboration, to ensure cohesion and promote synergy. As each nation is here represented, I am confident we are off to an auspicious and productive start. But can there be constancy amidst change? The answer, I would say, is “yes.” This year, the Philippine SEC celebrates its 79th Founding Anniversary. Its core functions endure, yet it also makes history by launching the Philippine Corporate Governance Blueprint. In crafting the plan, I understand that the SEC convened a multi-sectoral consultative working group, which considered past, present and changing requirements of corporate governance, while remaining sensitive to nuances of the domestic market. For this endeavor, we congratulate the Philippine SEC and its proactive and tireless Chairperson, my friend and colleague, Honorable Teresita Herbosa. We look forward to the Blueprint’s introduction. Basel Committee on Banking Supervision,Consultative Document. Principles for Enhancing Corporate Governance. Published in October 2010. http://www.bis.org/publ/bcbs176.htm last accessed 12 November 2015. Institute of Corporate Directors. ASEAN CG Scorecard and Best Practices. “Understanding ASEAN: Seven things you need to know”. McKinsey&Company. May 2014. Amando M. Tetangco, Jr. Prospects for and Developments in the Philippine Banking System, Philippine International Banking Convention 2015, 2 October 2015, Shangri-La Makati. BIS central bankers’ speeches My final thoughts for this morning. For sustainability of the corporate governance initiative, achieving synergy among seeming ironies is the challenge. Self-interest toward the greater good, Competition toward cooperation, Partnerships between regulators and the regulated, Unity in diversity, Consistency amidst change. In addressing these seeming ironies, balance is key. Balance in choosing a firm regulatory stance, while respecting and giving a wide berth to what motivates PLCs and individual firms. I believe we are on the right track. As we fulfill our mandate as the country’s central monetary authority, and as member of the Philippine Financial Sector Forum – comprised of financial regulators, we stand one with you in the vision to make ASEAN an “asset class” of its own. On behalf of the Monetary Board and the officers and staff of the BSP and the Financial Sector Forum, I congratulate the ACMF, and the fifty PLCs of the region, inaugural award recipients of the ASEAN Corporate Governance Award. For being exemplar in your way of governance, and being the elite first of many batches that will bring more investments and growth into our region, we warmly applaud you. As we say in the vernacular, maraming salamat and mabuhay po tayong lahat. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Meeting between Rotary Club of Manila and Rotary Club of Forbes Park, Makati City, 7 January 2016.
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Amando M Tetangco, Jr: Looking back to move ahead in 2016 Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Meeting between Rotary Club of Manila and Rotary Club of Forbes Park, Makati City, 7 January 2016. * * * Distinguished officers and members of the Rotary Club of Manila under the leadership of President Eusebio Tan and the Rotary Club of Forbes Park represented today by Immediate Past President John Toing, special guests, ladies and gentlemen, good afternoon. Thank you for inviting me to this joint membership meeting of the RCM and its younger counterpart RCFP. As the oldest Rotary Club in Asia, dating back to 1919, RCM will turn 97 years old this year. Few organizations last for nearly a century, much less remain dynamic, relevant and influential, like RCM. For this, the men and women of the RCM deserve our congratulations! In this connection, I am delighted that you have made me a part of your history by inviting me every year since I became Governor of the Bangkok Sentra ng Filipinas to share my assessment of our economy – its past, present and future. In addition, since I have always accepted your invitation every year, I am marking today my 11th year as RCM’s January speaker. Thank you RCM. Now, what can I tell you about the Philippine economy? Well, I can say that if the first seven days of this year is any indication, 2016 will be far from boring – it will be riveting and challenging. Last Monday, in the first trading day of the year, stock markets across the globe did not simply drop; they plunged – in the US, in Europe and in Asia. In particular, China shut down trading for the day under its new circuit breaker rule when stocks tumbled beyond seven 7%. This has been described as the worst opening day for a new year in China, the world’s second largest economy. This rattled currency markets as well. Today, Chinese stock market was shut down again. Meanwhile, geopolitical concerns in the Middle East add to fears of volatility. Analysts warn of more wild price swings as the global economy slows down. On the other hand, these are early days – just the first week in the year. It is way too early to tell if this trend will last. As the Greek philosopher Aristotle once said “one swallow does not a summer make.” From the Philippine perspective, we move forward in 2016 with cautious optimism. We are cautious – because we are mindful of the challenges ahead and of the possibility that our operating environment can change so swiftly at a scale we may not have anticipated. Yet we are optimistic because we start from a position of strength, having managed to address obstacles we encountered in 2015 and the great financial crisis in 2007–2008. At this point, it will be helpful if I give an assessment of 2015 and then move on to 2016. After I complete my narrative, you can make your own judgment on the state of our economy. Recalling 2015 2015 brought with it, its own challenges and opportunities. Global growth remained uneven, resulting in a divergence in policy responses from major central banks– the US Fed finally went ahead with its much-awaited “lift-off” and raised interest rates; China devalued its currency; while the European Central Bank provided further stimulus to its economy with interest rate cuts and an expanded bond purchase program. BIS central bankers’ speeches These external headwinds made for some rough sailing for the Philippines in 2015 due to higher risk aversion among investors. Some capital flowed out particularly in the second half of the year, the Philippine stock market took a hit and the peso depreciated. There were similar shifts in financial markets across emerging Asia. Nevertheless, domestic sources of resilience kept the Philippine economy on a steady noninflationary growth. Low and stable inflation – 1.4% in 2015, the lowest since the BSP adopted the inflation targeting framework in 2002 – continued to encourage investments and business expansion. In the third quarter of 2015, our economy grew at an accelerated pace of 6.0 percent. This made the Philippines one of the fastest-growing economies in Asia in the first nine months last year. At the same time, the country’s sound, stable and liquid banking system provided solid support to our economy in 2015, with bank lending continuing to grow in double-digit rates, with credit flowing particularly to the productive sectors. And as a result of the continuing cooperation between the BSP and the banking sector to continue to enhance governance and risk management practices of banks, industry profitability improved further with return on equity rising from 9.67% in September 2014 to 10.04% in September 2015; asset quality got even better with gross NPL ratio improving to 2.32% in September 2015 from 2.56% in September 2014; while deposits reached record-high levels, increasing by over 9% year-on-year to nearly P 8.8 trillion as of September 2015. Meanwhile, the country’s strong external position continued to inspire confidence among investors and creditors, with the current account remaining in surplus, given the steady inflow of remittances from overseas Filipinos and receipts from BPOs, and a healthy level of gross international reserves that can support a robust economy. I am pleased to inform you that preliminary GIR at end-December 2015 was reported at US$80.6B, over US$1B more than the level at end-December 2014. At $80.6B, the reserves can cover 10.3 months’ worth of imports and payment for goods and services. Third-party sentiment on the domestic economy’s prospects also remained bullish. The international credit rating agency Fitch upgraded its outlook on the Philippine economy to “positive” from “stable” in September 2015. This is an indication of possibly yet another credit rating upgrade within 18 months. In other words, ladies and gentlemen, the Philippines remained stable in 2015 and went on to post 67 quarters of uninterrupted economic growth against a harsh external environment. Looking ahead to 2016 Looking ahead to 2016, there are at least three challenges that the BSP should focus on. We can summarize them into three key words – stability, liquidity, and opportunity. Let us start with stability. In 2016, the BSP’s primary concern will be to continue to provide a stable environment where inflation is low, stable and within target. Our latest forecasts show that the path of inflation will be consistent with the National Government’s target range of 2 to 4 percent in 2016–2017. However, there are potential upside pressures to inflation. Food prices are likely to be affected by El Niño, other weather disturbances, and increases in utility rates. On the other hand, downside risks could come from slower-than-expected global economic activities that could further lower oil and commodity prices. The BSP will continue to monitor national and global developments to ensure that our monetary policy stance remains appropriate. In addition, the BSP will continue to find ways to further enhance the effectiveness of our monetary policy. Among others, we will adopt by the second quarter this year, what we call the interest rate corridor or IRC system. This is calibrated to keep interest rates within a reasonable range around the BSP’s benchmark policy rates. BIS central bankers’ speeches The second challenge we see in 2016 is liquidity and financial stability. Discussions on financial stability often revolve around liquidity. Where it comes from and where it goes, will determine its impact on the financial system and, ultimately, on the real sector. As we have learned from recent episodes of financial crises, too much liquidity can cause potentially dangerous asset price bubbles; too little and the economy could contract. The ideal is when liquidity is adequate and it is channeled toward productive uses and opportunities. Indeed, we need to ensure that the liquidity that is already in the financial system is channeled effectively toward productive uses. Another concern is how domestic liquidity conditions could be affected by the US Fed’s decision to raise interest rates, by the weakening Chinese growth prospects and by the heightened volatility in their financial markets. Nevertheless, we have reasons to believe that the overall impact on our economy would be manageable due in large part to the “pull factor” of the Philippines’ strong macroeconomic fundamentals. At the end of the day, the move by the US Fed to raise rates also signals a relatively more vibrant outlook for the US economy which could have positive spillover effects through revitalized trade flows. Meanwhile, a more market-oriented Chinese market could also have positive long-term effects on the global economy by ushering in a more sustainable growth path. It is also important to note that the BSP has policies and measures to help cushion the economy from external shocks. These include (1) upholding a market-determined exchange rate with an option to maintain its presence in the foreign exchange market to minimize volatility; (2) keeping a comfortable level of reserves and managing them prudently; and (3) providing access to domestic and foreign exchange liquidity through various facilities. We will also align our supervisory policies with international standards, to provide a more level playing field for our local banks. This is crucial as we prepare for the entry of more regional and international banks under the ASEAN economic and financial integration program. Indeed, we need to do much more to be competitive in the region. – we need be able to handle more complex financial transactions and instruments; and we need to strengthen our pricing conventions and price discovery mechanisms, so that reference rates and benchmarks accurately reflect market valuation. The BSP has been consulting with industry stakeholders, other government regulatory agencies and our counterparts overseas, to help nurture the country’s growing money and capital markets. These efforts tie in closely with our third challenge: opportunity and financial inclusion. Given the healthy growth of our economy, there are many opportunities in the Philippines today. Our challenge is to bring these opportunities to the people who stand to benefit the most from them. The National Strategy for Financial Inclusion provides us the platform to reach out to the unbanked and the underbanked by delivering suitable financial products to different market segments through responsible and innovative business models, while providing the citizens with adequate education and protection as clients of the financial system. To be implemented by the BSP with 12 other government agencies, NSFI serves as the country’s road map for catalyzing inclusive growth through the development of a more inclusive financial system. To give you an idea of the challenges we face in our financial inclusion program, I will share some highlights of our maiden National Baseline Survey on Financial Inclusion. The survey, completed in 2015, showed the following results: BIS central bankers’ speeches • 25% of Filipino adults (those aged 15 years and above) have never saved, 32% used to save, and only 43 % presently have savings. • Of those who save, only 33% keep it in banks; the rest keep their savings at home. • About 47 % of adults have outstanding loans. The main source of borrowing is informal – from family, relatives, friends and informal lenders. The share of bank loans is only 4.4% of the total. • Only 3.2 percent of adults have microinsurance coverage. • Clients rated themselves as only “somewhat satisfied” with how issues were resolved in most financial service access points. Ladies and gentlemen. The survey results tell us that we have a long way to go to achieve financial inclusion and that there are plenty of opportunities for those looking to expand their business or to introduce meaningful game-changing innovations to help improve the lives of Filipinos. Clearly, we need broad-based cooperation from local and international institutions to address these gaps. With more institutions as partners, we can make substantial gains on our financial inclusion targets. Concluding remarks Ladies and gentlemen of the RCM and the RCFP. In 2016, both external and domestic developments will compel us to remain watchful in guarding against threats to growth and stability. These challenges will revolve around promoting price stability through prudent and responsive monetary policy; channeling liquidity toward productive uses while maintaining financial stability; and delivering opportunities for growth and investment through financial inclusion and literacy. We see continued economic challenges for the Philippines moving forward. Nevertheless, our success in keeping our economy on the growth path in the midst of global volatility gives us confidence that we have what it takes to deal with the challenges that will come our way. Among others, our economy’s non-inflationary growth momentum, sound banking system, and favorable external liquidity position provide your policymakers, including the Bangko Sentral ng Pilipinas, enough flexibility to respond appropriately to evolving domestic and global conditions. We can look forward therefore to 2016 with cautious optimism. Let us also take heart from third party assessments that continue to give us high marks. In the past, the Philippines was called the sick man of Asia. In recent months, we have been described as a star among emerging economies. More recently, we were described by analysts as the region’s economic strongman due, among others, to our resilient growth. This is well and good. But we can make it better. Let us work together on spreading the benefits from sustained economic growth with those who need it the most. RCM and RCFP lead the way in such programs. Hopefully, we can get more advocates to work on financial inclusion that supports sustained inclusive growth. If you are interested, we can provide a briefing on the National Strategy for Financial Inclusion so that you can assess how to support it as private sector partners. With the collective wisdom, expertise and influence of the members of the RCM and RCFP, I have no doubt, you can increase your sphere of influence to benefit more areas and more people. BIS central bankers’ speeches Finally, on behalf of the Bangkok Sentra ng Filipinas, I wish all the officers and members of the Rotary Club of Manila and the Rotary Club of Forbes Park, a happy, healthy, and prosperous 2016! Mabuhay nag RCM and RCFP! Mabuhay nag Pilipinas! Mabuhay pop toying lama! Maralinga salaam as into. BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the annual reception for the banking community, Manila, 19 January 2016.
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Amando M Tetangco, Jr: The Bangko Sentral ng Pilipinas and the Philippine banking sector – sustaining financial stability amid global volatility Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the annual reception for the banking community, Manila, 19 January 2016. * * * On behalf of the Members of the Monetary Board, I thank all of you for joining us tonight for our annual reception for the banking community which brings together leaders and movers of our economy within this historic 400-year old Fort San Antonio Abad. This is a cherished tradition at the BSP – to recognize the value of our partnership in sustaining the growth of the Philippine economy. This Fort, an enduring symbol of centuries past, provides us a most fitting venue to reflect on the year just past and what lies ahead as we continue to move forward together. The year that was Ladies and gentlemen, the Philippine banking sector was again a source of strength and stability for our economy in 2015. Sound, stable and liquid, our banks continued to be a major source of funding for our productive sectors and thereby helped generate jobs that support inclusive growth across the country. As of the third quarter in 2015, the asset base of the banking industry had reached over P11 trillion, growing over P1 trillion in 12 months, while continuously achieving higher prudential standards by keeping non-performing loans at low single digit-levels. (2.3% as of September 2015). The combined resources of the banking industry are sufficient to finance the requirements of the real economy. And with a continuing build-up in capitalization, our banking sector more than meets national and international standards. In fact, our semestral stress tests confirm further that bank capitalization stands resilient, even against extreme tail events. Indeed, the numbers do speak for themselves. Ladies and gentlemen. The sustained growth and stability of our banking sector in 2015 happened amid global financial turmoil. The much-anticipated Fed lift-off finally took place last December, with interest rates moving up on signs of a gradual revival of the US economy. Other concerns that made for a challenging 2015 were slowing inflation in the Eurozone and Japan, economic restructuring in China, and the sharp drop in oil prices. But despite all that, it was, on balance, another good year for our economy in general, and the banking sector in particular. The Philippine economy continued to expand, with 2015 inflation settling at 1.4%, our lowest in 20 years. Our external position is robust and offers buffers against possible external shocks, with a Balance of Payments surplus, healthy level of Gross International Reserves that could pay for over 10 months worth of imports of goods and services, and remittances through banks from overseas Filipinos that continue to grow year after year. Indeed, for our banks, 2015 was a year that tested their resilience but they came out of it stronger and more stable. Continuity amid change Now, we start 2016 from a position of strength. This is a good place to start. We have done our homework. BIS central bankers’ speeches We should be able to manage external risks that may arise from continuing volatility and possible contagion and closer to home avoid excessive leverage and imprudent practices. In particular, we anticipate that 2016 will continue to test the resilience of our banking system, with market volatility that can heighten market liquidity and credit risks. We therefore need to stay firmly committed to the pursuit of financial stability as the overarching prudential norm. It is a public good that benefits us all and gives us the space to pursue growth and profit opportunities. Moving forward, there are game changers we have to contend with. Among others, regional integration will happen. This means that we have to be ready for the challenges that are sure to come with it and more important, to ensure that we reap the benefits we stand to gain from integration. Certainly, the BSP will actively pursue bilateral arrangements to designate Qualified ASEAN Banks or QABs under the ASEAN Banking Integration Framework but much work must be done in parallel on payments and settlements, market infrastructure and capital market development. To further enhance the effectiveness of monetary policy, we shall have the Interest Rate Corridor in the next few months. Aside from enabling smoother market rate adjustments relative to BSP policy rates, we see that the IRC will contribute to having more active and efficient financial markets.1 And in support of the national goal of inclusive growth, we will pursue with 12 other government agencies the implementation of our National Strategy for Financial Inclusion. Our objective is to make our financial system more inclusive, responsive and more accessible to the Micro, small and medium enterprises, as well as to the underbanked and the unbanked. There is room for banks and other institutions to participate in this program. I hope therefore to see more banks and other institutions support this crucial undertaking not only as a matter of corporate social responsibility, but as a legitimate and sustainable business opportunity that should make our economy stronger. We also know that an inclusive financial system makes for greater stability. Ladies and gentlemen of the banking community. I also call on you to make sure that your banks and all your branches serve the public by exchanging old banknotes identified for demonetization with new generation banknotes even if they are not your regular clients, even if they are sidewalk vendors exchanging just a handful of old banknotes. This is financial inclusion at its best. The BSP also pins its hope on gaining mileage on its financial inclusion targets with the launch of our National Retail Payments System Project. The NRPS is envisioned to provide an accessible, inclusive and safe electronic payments system using inter-operable payments network that financially links the country – from Batanes to Sulu – 24/7. Amid all these exciting developments, we have also introduced the Financial Consumer Protection framework to ensure that new participants to the financial system are provided sufficient guidance and protection. This calls for pro-active programs for consumer education, transparency and providing necessary information for redress mechanisms. I look forward to the active participation of banks in this activity. Indeed, we have a full agenda that will help maintain the strength and stability of our banking sector. “How central banks influence interest rates” Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME) / BI Norwegian Business School, Oslo, 1 October 2015. http://www.bis.org/review/r151002b.htm BIS central bankers’ speeches In this connection, the entry of new foreign banks under our liberalized regime should further enhance the quality of competition among our banks and nurture innovations that will ultimately benefit the general public. This reminds me that during our co-chairmanship of the Financial Stability Board Consultative Group for Asia, then Vice Minister Masamichi Kono of the Japan FSA, advised that we should enjoy a cup of matcha or green tea to get us going through the day and that we should take mugicha at night to relax. In the same spirit, we can all enjoy Ginseng tea or Maesil cha from South Korea, Oolong tea from Taiwan or Teh Tarik from Singapore. All of these are said to help our internal juices flow and rejuvenate our body. You may ask, why am I mentioning tea from Japan, South Korea, Taiwan and Singapore? Well, it is because the Philippine banking community is going to be even more dynamic with the entry of six banks from these jurisdictions. Like the tea that is good for our body, the entry of these six banks to the Philippines could catalyse further innovations in our banking sector. We expect more to come in. What else do we see in 2016? The consensus forecast for 2016 is for modest and uneven global economic growth. Certainly, we are not immune to adverse external developments. We will have to deal with their ramifications, the bumps on the road, so to speak. Nonetheless, we believe that our sources of resilience will sustain our growth momentum. Private consumption continues to be buoyant while the services and industry outputs remain firm. And Government spending is expected to further increase in line with continuing efforts to address issues on spending bottlenecks, especially for public infrastructure. Thus, while 2016 will test the resilience of our banking system, we can rely on the quality of our preparations to manage evolving risks from volatility as market tide shifts. This is also evident even to external analysts. Fitch Ratings has given the Philippine banking system a positive rating outlook for 20162, the only one for Asia-Pacific. Among others, Fitch noted the “generally healthy profile of local lenders, sound operating environment and the Philippines’s strong economic fundamentals.” Congratulations to our Philippine banks! Final thoughts Ladies and gentlemen. We will continue to pursue our reform agenda to ensure stability for the long-term. We are unfazed by the challenges that will come our way because we are prepared, because we have been doing our homework. And we embrace continuing reforms because that is the key to stability and to more opportunities moving forward. Finally, we at the Bangko Sentral ng Pilipinas thank the members of the banking community for your active support and cooperation, in implementing policies and programs in pursuit of our mandate to provide stability to prices and the banking sector – stability that sustains economic growth for the long-term; stability that promotes inclusive growth. At this point, may I request the other Members of the Monetary Board to join me onstage. Secretary Cesar Purisima, Freddie Antonio, Phillip Medalla, Andy Suratos, Jun de Zuniga and Val Araneta. Together, let us offer a toast to the Philippine banking industry– may you continue to be sound, stable, liquid, and responsive to the needs of our economy, our country and our people. And Business World “Fitch upgrades outlook of Philippine banking industry to ‘positive’” 16 December 2015. BIS central bankers’ speeches may all of us here at Fort San Antonio Abad be blessed with a happy, healthy and prosperous New Year. Cheers! Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! Maraming salamat sa inyo! BIS central bankers’ speeches
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Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2016 General Assembly of the League of Municipalities of the Philippines, Manila, 10 February 2016.
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Amando M Tetangco, Jr: Sustainable inclusive growth and good governance Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2016 General Assembly of the League of Municipalities of the Philippines, Manila, 10 February 2016. * * * Distinguished officers and members of the League of Municipalities of the Philippines (LMP) under the leadership of National President Sandy Javier, fellow workers in government, special guests, magandang hapon sa inyong lahat! Thank you for inviting the Bangko Sentral ng Pilipinas to your general assembly with the theme “2016 and Beyond: Promoting Good Governance and Sustainable Inclusive Growth.” This is the first time for me to speak before an association of local government executives. Some of you may be wondering why a Central Bank governor is addressing municipal governments. Well, two reasons. First, LMP National President Javier is a former classmate in college and two, BSP shares your objective of postering sustainable inclusive growth. Pareho po tayo. Clearly, our government – at the national and local levels – believes that promoting sustainable inclusive growth and good governance go hand in hand. In this connection, I am pleased to report that our track record shows that we continue to achieve major gains in both fronts. Just the other week, the National Economic and Development Authority reported that that our economy expanded by 6.3 percent in October to December last year. Ladies and gentlemen, this means that the Philippines has achieved 68 quarters of uninterrupted or sustained economic growth. This brought the average full year economic growth of the Philippines to 5.8% in 2015, among the highest in Asia after India, China and Vietnam. Our growth would have been better if we did not have to deal with the adverse effects of El Nino, other weather disturbances and adverse external conditions. In fact, analysts describe Philippine economic growth as remarkable, as it is taking place when the global economy is slowing down as a result of financial and geopolitical challenges. NEDA said this level of growth (in the last five years) has not been seen in the past four decades as this is based on public and private investments in areas that create jobs, increase incomes, and improve people’s wellbeing. In other words, these are investments that promote sustainable inclusive growth. On the part of the BSP, we continue to be successful in providing stability to prices through our monetary policies and in keeping our banking sector sound, stable and liquid. All these give us cause to be optimistic about sustaining inclusive growth in 2016 and beyond,... particularly if adherence to good governance becomes the norm from the national agencies as well as to the local government units. Members of the LMP, good governance is also the rationale that underpins the requirement by government to get prior opinion of the BSP’s Monetary Board (MB) on all government loans, including those from LGUs to ensure that borrowings are consistent with overall state financial goals. This requirement is essentially based on the 1987 Constitution (Article 12) that mandates the BSP to provide policy direction in the areas of money, banking and credit. Furthermore, Republic Act No. 7653 or the BSP Charter (Section 123) provides that the BSP functions as financial advisor on official credit operations of the Government, its political subdivisions and instrumentalities. BIS central bankers’ speeches The objective is to enable the BSP to monitor public sector borrowings and to assess their impact on monetary aggregates, the price level and the balance of payments in fulfillment of its role and mandate to promote and maintain monetary and financial stability. As you may know, requests for MB opinion on planned borrowings may be submitted directly to the BSP by the LGUs or through the lending banks. The BSP recognizes the importance of credit to LGUs, particularly municipalities. Thus, the BSP has issued circulars to streamline the documentary requirements and facilitate the review process on how LGUs can secure MB opinions on LGU loans. We have since registered a significant increase in LGU’s engagement with the BSP. In 2015, the BSP received a total of 347 requests for MB opinion, an increase of 35 percent from the 257 requests in 2014. The cooperation of the LGUs and lending banks enabled the BSP to render MB opinion on 334 or 96 percent of these requests. About 76 percent of the requests we received in 2015 came from municipalities, involving a total of P12.2 billion. It is notable that the majority of the loans for which BSP rendered an opinion in 2015 were used for infrastructure projects such as farm-to-market roads, public markets and multi-purpose halls. These purposeful spending by local governments provide a boost not only to community development but also to broader national growth. Indeed, in the context of governance, local government units play a significant role in ensuring that investments made translate to better infrastructure, employment generation and sustainable inclusive growth. The BSP continues to review its procedures to further refine and facilitate the process of securing an MB opinion, as well as to address issues concerning the length and the validity of the MB opinion. These efforts constitute BSP’s support for LGUs in delivering critical economic and social services to your constituents. In addition, the BSP continues to develop an inclusive financial system that supports sustainable inclusive growth. This covers economic and financial education, consumer protection, as well as access to credit through microfinance or the Credit Surety Fund program. As of January this year, there were 45 operational Credit Surety Funds across the country. Together, they have granted more than P2 billion in loans to Micro, small and medium enterprises or what we call MSMEs. Under this program, collateral-challenged MSMEs that are members of cooperatives gain access to bank loans with credit guarantees issued by the Credit Surety Fund. In some provincial CSFs, certain municipalities share in the pooling of contributions of cooperatives, banks and NGOs to provide surety cover or guarantees for credit-worthy MSMEs. You will also be happy to know that the BSP and 12 other government agencies are now working together to implement the National Strategy for Financial Inclusion, a common platform to reach out to the unbanked and the underbanked sectors of our society so that they can benefit from being part of the formal financial system. We hope to partner with the LMP and its members to make this a truly successful grassroots program. For your constituents and your municipalities, financial inclusion means being part of the mainstream where financial services such as deposits are safer and where loans are infinitely more affordable (from 15 to over 20%), compared to informal lenders who charge as much as over 1,000 percent in interest per year. This should generate tremendous benefits for those who remain outside our financial mainstream. Finally, we seek the support of the LMP to continue to inform your constituents about our demonetization program. That while the old banknote series can no longer be used to pay for goods and services, they can still be exchanged for the new generation banknotes at banks or at the BSP branches and regional offices across the country until December 2016. BIS central bankers’ speeches Ladies and gentlemen of the LMP. Sustaining the momentum of the Philippine economic success story lies on the decisions we make and the actions we take today; they provide the foundation on which to sustain economic activities that generate jobs and improve the lives of Filipinos. The task before us therefore is to secure this position of strength and deliver on our commitment to our constituents, amidst continuing change and challenges. Let us continue to work on our common goal: to promote sustainable inclusive growth and good governance in 2016 and beyond. Marami pong salamat sa LMP. Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat! BIS central bankers’ speeches
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