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Welcome remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to the GRIPS Academic Conference, Manila, 21 June 2019.
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Benjamin E Diokno: Welcome remarks to the GRIPS Academic Conference Welcome remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to the GRIPS Academic Conference, Manila, 21 June 2019. * * * Mr. Takehiko Nakao, President and Chair of the Board of Directors of the Asian Development Bank (ADB), Dr. Akihiko Tanaka, President of the National Graduate Institute for Policy Studies (GRIPS), distinguished session presenters and discussants, GRIPS alumni, faculty members and staff, ladies and gentlemen, good morning. Welcome to the first ever BSP-GRIPS Academic Conference. With the theme “Public Policy for Sustainable Development Goals,” this conference is a special one as it is, in fact, a triple event. Not only is this conference being held as part of the 70 years’ celebration of central banking in the Philippines, it also commemorates the 20th year anniversary of GRIPS and the 40th year anniversary of its predecessor, the Graduate School of Policy Science (GSPS). For this, let us give ourselves a round of applause (Gov. leads everyone to applause). As the samurai, Yamamoto Tsunetomo, said over 300 years ago in the book Hagakure: The Book of the Samurai, “Wisdom comes from paying attention to wise people.” And this, I believe, is what GRIPS—and its predecessor GSPS—has been doing over the last 40 years. That is helping us achieve wisdom by creating a venue where we can listen to wise people and hone the skills of policymakers worldwide, acquire valuable and innovative ideas to strengthen their knowledge, and formulate research-based studies to support worthwhile policymaking. All this using a comparative perspective and practical approach, with due consideration to Japan’s wide-ranging experience and utmost consideration of country-specific issues and circumstances. Needless to say, there are many wise people in this conference. Browsing through the line-up of the paper presentations, I could also see many timely, relevant, and innovative policy ideas that may emanate from such discussions. From the impact of innovation in achieving inclusiveness; the BSP’s role in the process of state building in the Philippines; to the relationship of financial literacy to achieving financial inclusion—these are rich subject matters worthy of much discussion. I leave this up to all of you to discuss policy and its practical implications in the ensuing sessions. But it is not enough that we discuss and become wise for ourselves. I urge everyone to turn these discussions into actions that would lead to public policy for sustainable development goals of our country, just as our conference theme reflects. Let us use our wisdom to help not just ourselves but others as well. After this conference, I look forward to being with everyone at the alumni homecoming this evening. But I will not keep you any longer. I hope for everyone to have fruitful discussions and meaningful exchanges at this conference. Once again, thank you very much and I wish you all a productive day ahead. 1/1 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 32nd Environmental Scanning Exercise, Manila, 26 June 2019.
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Benjamin E Diokno: Realizing the golden age of infrastructure Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 32nd Environmental Scanning Exercise, Manila, 26 June 2019. * * * Members of the Monetary Board, colleagues from the BSP, guests, ladies and gentlemen, good morning! I am very pleased to welcome all of you to the 32nd BSP Environmental Scanning Exercise (ESE). While this is my first time to address this affair as the BSP Governor, it is certainly not my first time to attend in this event. I was here eight years ago, in 2011, when I was invited to be a resource speaker on the topic Public-Private Partnership (PPP) Program. Over the years, I have come to know that this forum serves as an important platform for the BSP to discuss relevant economic and financial issues with its stakeholders and experts. Today, we have once again gathered experts to listen to their thoughts on a similar and very urgent topic – “Realizing the Golden Age of Infrastructure.” I say very urgent because this so-called “hardware” for economic growth, has been a major challenge to our country’s path to sustained inclusive growth. For instance, the 2018 Global Competitiveness Index of the World Economic Forum (WEF) ranks our public infrastructure at 92nd out of 140 countries. This indicates how far behind the Philippines is compared to other countries. In fact, we could see and experience for ourselves that we need better roads, bridges, airports, seaports, and railway systems that will provide convenient movement of goods and services throughout the country. This is why the government has put in place the “Build Build Build” (BBB) program at the forefront of its economic agenda to address the gaps in the country’s infrastructure sector. This program is expected to boost and expand the economy’s productive capacity and support a sustainable and inclusive economic growth. On our part, the BSP will continue to safeguard an enabling macroeconomic environment that will help facilitate the country’s “golden age of infrastructure,” through the implementation of sound monetary and financial policies. Moreover, we continue to spearhead reforms that promote further deepening of our domestic capital markets. We have also worked on enhancing the quality of competition in the banking system by allowing the entry of new foreign banks and liberalized foreign exchange regulations. All these developments could help increase the availability of funding, as well as provide alternative financing opportunities for infrastructure projects. Of course, the program is not a silver bullet. And if policymakers are not careful, it could also pose challenges in the economy. In the long-run, while infrastructure investments promise to support economic growth and employment, unforeseen large external demand and price pressures that affect the import requirements of infrastructure projects can, in turn, limit the benefits of improving macroeconomic conditions. Other challenges facing policymakers include issues on skilled labor shortage that may cause delay in the infrastructure projects; budget drawdown issues; and possible inequity in resource allocation at the local level. 1/2 BIS central bankers' speeches In this regard, greater policy dialogue and close coordination of relevant government agencies in terms of fiscal planning and budget execution, as well as program planning is a policy imperative. Needless to say that the road ahead requires a lot of work. Let us start today by making this event a fruitful one through the productive and meaningful exchange of ideas on the topic. In particular, our discussions shall revolve around the following: 1. The developments/issues encountered in the BBB program. 2. Funding requirements for the continued and sustainable implementation of the BBB program. 3. Impact of the BBB program in the short and medium-term on macroeconomic conditions, namely, inflation, current account, exchange rate, and growth output; and 4. The possible disadvantageous effects, if any, of infrastructure program on jobs, equity, and the “crowding out” of credit and investments. I look forward to have a meaningful exchange of views and ideas on these issues. Let me also take this opportunity to thank our speakers in advance for your time and contribution in this exercise, which is part of our effect to look at a broad range of economic and non-economic issues that provide useful insights for policymaking. Rest assured, your insights will serve as useful inputs to the BSP’s conduct of monetary policy, as we all strive to build the “hardware” that would propel our country to sustainable and inclusive growth. Thank you and mabuhay tayong lahat! 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ayala Economic and Treasury Summit, Manila, 6 August 2019.
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Benjamin E Diokno: Philippines - weaving an unprecedented growth story Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ayala Economic and Treasury Summit, Manila, 6 August 2019. * * * Jaime, Fernando, other senior Ayala officials, guests, ladies and gentlemen, good morning. I am very pleased to be the keynote speaker in your annual corporate planning and budgeting conference. As former Budget Secretary, I understand the importance of planning and budgeting to the continued growth of an institution. As head of the Bangko Sentral ng Pilipinas—a hat I’ve been wearing for five months now—I remain mindful of how vital forward-looking policies are to the achievement of our respective organizations’ objectives and targets. In the next few minutes, I will be discussing the current state of the Philippine economy, followed by some points on why we believe our economic growth will be sustained in the years ahead. Finally, I will also briefly talk about the BSP’s role in supporting this growth narrative and some of the challenges that we may face going forward. Let me begin with our growth story thus far in the Philippines. Our economy has experienced uninterrupted growth for over 20 years since 1999 despite challenges such as the 2004 fiscal crisis and the 2007 global financial crisis—that is 81 consecutive quarters of continuous growth, with annual growth averaging 6.4 percent in the past five years (2014–2018). Growth in recent years has become more broad-based. On the demand side, private consumption remained robust in the first quarter of 2019, as in the previous quarters through the years. This is further supported by rising contribution from investments from 2010 up to present. On the supply side, services remain the main driver of growth—but the industry sector has also stepped up in recent years. Meanwhile, the government’s economic managers remain optimistic about achieving our GDP growth target of 6 to 7 percent this year despite the lower than expected 5.6 percent growth in the first quarter of this 2019. Private consumption is expected to remain robust, aided by remittance inflows and sustained “cooling” inflation. Private capital formation, on the other hand, should likewise contribute more significantly to economic growth, with construction and investments in durable equipment expected to remain solid in light of the government’s projects and other infrastructure programs. The International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) share these expectations. In fact, all three forecast that the Philippine economy will grow by about 6.2 to 6.5 percent this year. The bold reforms and initiatives in the past three years have prompted the government to capitalize on and sustain these gains. It is because of this that we believe the Philippine growth momentum will be sustained moving forward. First is the government’s ambitious infrastructure program—“Build, Build, Build” which aims to boost the economy’s mobility and connectivity, enabling equitable growth and development. At present, there are 75 high-impact national government infrastructure, with 46 projects (61 1/6 BIS central bankers' speeches percent) already in the implementation stage. The government is expected to invest over PhP 4.6 trillion (or US$90 billion at PhP52:USD1) in public infrastructure from 2019 to 2022. Second, is the recent passage of reforms aimed at strengthening our investment climate. The Ease of Doing Business and Efficient Government Service Delivery Act, the revised Corporation Code, and the Philippine Innovation Act support the government’s agenda of improving competitiveness and ease of doing business in the country, promoting transparency and cutting red tape in the government for a more conducive business environment. At present, the Philippines’ current standing has improved based on different third-party assessors. For instance, the Philippines’ ranking rose from 68th to 56th place under the 2018 Global Competitiveness Report. It also received an upgrade in its sovereign credit rating from Standard & Poor’s to “BBB+” from “BBB.” These favorable standings are also boosted by the improved business sentiment and the stable consumer outlook based on the BSP’s latest round of expectations surveys. Finally, the continued demand for Philippine skills locally and abroad are evident in the growth of our BPO industry and strong remittance inflows. This further highlights the importance of our country’s most prized resource—our labor force. Based on our estimates, production efficiency has improved over the years with the incremental capital-output ratio (ICOR) declining steadily. As you know, the higher the ICOR, the less efficient the production process is. Recognizing the skills of our workforce, the government has invested heavily in various social programs such as the Universal Health Care Act and the Access to Quality Tertiary Education Act (RA No. 10931). You may not know this but 40% of our budget goes to social services. Our growth story has been supported by structural and policy reforms in the economy for around three decades. These reforms enable growth by expanding the role of market forces in key sectors of the economy; encouraging investments and private sector activity; removing bottlenecks to doing business and investments in the country; and strengthening the country’s fiscal position and the financial sector. These, and other structural reforms in the pipeline, will continue to play a significant role in propelling the economy toward a balanced, sustainable, and inclusive growth. In addition, recently approved legislation—such as the BSP Charter Amendments, Philippine Identification System (PhilSys) Act, National Payment Systems Act and the Gold Law—allow us to pursue our mandate with more vigor and in effect, enable us to espouse the interests and uplift the lives of all Filipinos. So what is the role of BSP in the Philippines’ growth narrative? Our mandate is clear: “maintain price stability conducive to a balanced and sustainable growth of the economy and employment.” Our objective in the BSP is to protect the real purchasing power of the peso to support conditions for long-term economic growth. With your presence in this annual corporate planning and budgeting process summit, I know you are fully aware of the importance of efficient allocation of resources. As a central banker, I would argue that price stability is closely linked with financial efficiency. If the prices are low and stable, financial planners are better equipped to allocate resources to their most efficient use. Lesser price volatilities would also enable us to anticipate risks and plan better. And with our amended BSP Charter, we are now in a better position to implement sound policies to promote and maintain price stability, a strong financial system, and a safe and efficient 2/6 BIS central bankers' speeches payments and settlements system. In terms of price developments, we are on track to achieving our inflation target of 2 to 4 percent for 2019. To give you some context, our June inflation declined to 2.7 percent from 3.2 percent in May, the lowest inflation recorded in more than 20 months since August 2017. Later this morning, the Philippine Statistics Authority (PSA) will announce the average percentage of inflation for July. My forecast is that it will settle within the range of 2.2 – 2.8 percent. This sits comfortably within the government’s target band, in line with our forecasts. This is a stark contrast from 2018 when inflation was pushed beyond the target range to average at 5.2 percent. Looking ahead, we expect inflation to remain on a target-consistent path for 2019 and 2020. BSP’s latest baseline forecasts indicate that inflation is projected to average 2.6 percent this year and 2.9 percent next year and 2021. The risks to the inflation outlook appear to be broadly balanced for 2019 and 2020. The main upward risks are the petitions for electricity rates and transport fare adjustments, and the proposed increase in the excise taxes of alcoholic beverages and cigarettes. The risk of a prolonged El Niño episode has gone down. On the external front, the global economic slowdown due to protectionist policies in advanced economies, as well as geopolitical tensions continue to be the main downside risks to inflation. Inflation expectations are also starting to converge with the government’s target range. Based on the BSP’s latest round of expectations surveys, businesses and consumers expect inflation to remain within the 2 to 4 percent target for 2019. Similarly, BSP’s survey of private sector economists for June 2019 showed lower mean inflation forecasts for 2019 and 2021. Likewise, institutions such as the ADB and the IMF are projecting that inflation for 2019 and 2020 will be within the government’s target range for this year and the next. On June 20, the Monetary Board deemed it appropriate to maintain its monetary policy settings unchanged following the 25-basis point cut in the BSP policy rate in May 2019. With better-behaved inflation dynamics, the Monetary Board also decided to cut the reserve requirement ratio by 200 bps phased within 3 months beginning in May up to July. This is to help ease some of the tightness in domestic liquidity. Moving forward, monetary policy has been and always will be data-dependent. To determine whether further monetary easing is warranted, we will first have to see how macroeconomic conditions will unfold. Two days from now (8 August 2019), the Monetary Board will be conducting its regular review of the monetary policy stance. Until then, we will continue to look at the widest possible set of available economic and financial variables. These include the recent inflation numbers to be announced today—if not yet announced, and the second quarter (Q2 2019) GDP growth set to be released on Thursday. Meanwhile, the credit-liquidity dynamics in the country remain consistent with expanding economic activity. Bank lending continues to post double-digit, reflecting sustained demand for loans from various production sectors of the economy. Liquidity conditions, while growing at a 3/6 BIS central bankers' speeches moderate pace, remain sufficient to support economic growth requirements, with the latest ratio at 64.2 percent for Q1 2019. The continued soundness and stability of the Philippine banking system also lend strong support to economic growth. Philippine banks remain robust, well-funded, and adequately-capitalized. As of end-March 2019, the Philippine banking system assets expanded by 11.0 percent year-onyear (YoY) to P17.0 trillion which approximates the size of the domestic economy. The expansion in the banking system’s assets was primarily due to increased lending activities. The observed robust asset growth was supported by expansion in bank branch network to 11,933 as of end-June 2019. Deposit liabilities continue to be the primary funding source of the banking system. These deposits are mostly peso-denominated and sourced from resident individuals and private corporations. Meanwhile, banks’ annualized net profit grew by 8.8 percent to P189.0 billion for the period ended March 2019. Annualized interest income primarily kept the bottomline robust, growing strongly by 27.7 percent for the first quarter of the year. With respect to banks’ capitalization level, the capital adequacy ratios (CARs) of U/KBs on solo and consolidated bases improved to 15.1 percent and 15.8 percent, respectively. As you know, these ratios are well-above the minimum threshold set by the BSP and BIS of 10 percent and 8 percent, respectively. The increase is due to the capital build-up being undertaken by the industry in anticipation of further expansion of the credit portfolio and investment activities. Liquidity remains sufficient as banks maintain adequate high-quality liquid assets. This favorable confluence of strong growth and a manageable inflation environment allows us to be optimistic. Nevertheless, there are still challenges that need to be considered. There is the risk of sluggish global growth. In its July 2019 World Economic Outlook (WEO), the IMF revised its global growth forecast for 2019 from 3.3 percent last April to 3.2 percent. Trade tensions between the US and China continue to be at the forefront with both countries raising tariffs on different imported goods. At the same time, Brexit-related issues continue to be another source of risk. The intensified uncertainties surrounding the external environment have led to weaker global trade. As a result, the IMF revised its growth projections for emerging and development economies downward—by 0.3 percentage point for 2019 and by 0.1 percentage point for 2020. While the Philippines is not directly affected with the tariff impositions, the continued trade friction could take its toll on the country’s external sector. Despite these risks, we have sufficient buffers to help cushion the country against external shocks. For example, we continue to maintain a market-driven foreign exchange (FX) rate, which we complement with FX liberalization measures to facilitate structural FX flows. We continue to have sizeable gross international reserves, built from sustained remittances from overseas Filipinos, robust receipts from business process outsourcing and tourism, and steady foreign investment in the Philippines. As of end-June 2019, gross international reserves (GIR) stood at 85.4 billion dollars, equivalent to 7.4 months’ worth of imports of goods, services and primary income. The recent passage of the Gold Bill will lower the cost of both funding for the country, as well as doing business for the private sector. 4/6 BIS central bankers' speeches Meanwhile, remittances from overseas remained robust in the first five months of the year, increasing by 4.5 percent, which is equivalent to US$12.3 billion. We also continue to take a more cautious assessment of the narrowing current account balance. Here, I should emphasize that this does not mean that all current account deficits should be taken adversely. In our case, strong economic expansion has fueled the need for imports, particularly of capital goods as well as raw materials and intermediate goods. Over time, as investment-led economic activities result in the expansion of the economy’s potential capacity, there can be subsequent rise in goods exports, which would eventually mitigate the current account deficit. We will also continue to initiate reforms in the financial sector. We wish to reiterate our commitment to implement measures designed to enhance and develop the domestic money and capital markets. We will continue to promote greater market efficiency and price discovery through further refinements to our interest rate corridor framework and monetary operations. We will also lower friction costs in the banking sector to foster more efficient financial intermediation, which will be further enhanced by the availability of alternatives offered by FinTech and digital innovation. Likewise, the BSP has recently put in place various enhancements in its arsenal of macroprudential tools to ensure the stability of the financial system. These tools will allow the BSP to manage the build-up of systemic risk in the financial system by requiring banks to set aside additional capital as reserves during good times and as buffer for bad times. All of these initiatives would be meaningless if they are not felt by all Filipinos. Thus, we emphasize the importance of financial inclusion in the country. We have set our sights on digital technology as a catalyst and strategic enabler to ensure that everyone has access to financial services. Ensuring that no one is left behind is critical for achieving inclusive growth. Let me now highlight the priority legislative measures that the BSP will pursue under the 18th Congress. These bills seek to further enhance access to quality financial products and espouse the interests of the general public. These include: the Amendments to the Bank Deposit Secrecy laws; the Financial Consumer Protection bill; and reforms to Agricultural Financing which seeks to amend the Agri-Agra Reform Credit Act of 2009 (Republic Act No. 10000) and allow banks to merge their loan allocation to the farm sector as a measure to improve banks’ compliance rate. We will work closely with officials of both Houses of Congress and other concerned stakeholders as we pursue the enactment of these important legislative measures. Let me end my presentation with these key notes: The Philippine economy has demonstrated uninterrupted economic expansion for over two decades. This growth is expected to be sustained going forward with sound macroeconomic fundamentals complemented by the government’s “game-changing” reforms aimed at bridging infrastructure gaps, strengthening our investment profile, and supporting the future of, as the World Bank called it, our “globally recognized competitive workforce.” However, the external environment has become more uncertain in recent months given trade and geopolitical tensions. Nevertheless, we have a resilient external payments position as cushion against global headwinds. The BSP will remain watchful and vigilant, ready and willing to utilize any and all its analytical and surveillance tools at its discretion for any potential risks to its monetary and financial stability objectives. 5/6 BIS central bankers' speeches As we continue to support the government in its measures to sustain growth, create jobs, and reduce poverty, the BSP will continue to focus on fulfilling its mandate of price stability conducive to a balanced and sustainable growth of the economy. Thank you for your attention. I hope that this presentation has given you all an additional perspective that you can use in your future corporate planning process going forward. I look forward to an engaging discussion with you this morning. 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bankers' Night and Book Launch, Manila, 26 July 2019.
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Benjamin E Diokno: Central banking beyond numbers Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Bankers' Night and Book Launch, Manila, 26 July 2019. * * * Our partners in the banking community and the private sector, members of the diplomatic corps, my colleagues in public service, good evening and welcome to the Bangko Sentral ng Pilipinas. I am pleased to host tonight’s reception for the banking community. This month of July, we celebrate BSP’s 26th anniversary. At the same time, we commemorate an important milestone: the 70 years of central banking in the Philippines. A distinguished heritage Few institutions in the country can claim such a long and distinguished heritage. The book that we will launch shortly—written by career central bankers themselves—stands as a testament to this as we get a glimpse of what the central bank has done through these seven decades: the evolution of ideas, the progression to policies until its fruition to execution of programs and projects that ultimately redound to the benefit of the Filipino people. If we look back on our path from the post-war 1949 central bank headed by our first Governor Miguel Cuaderno, Sr. up to today, we realize that the journey has not been easy. There were twists and turns, bumps and even detours but we held on and stayed on track. The passage of R.A. No. 11211 which amends the BSP charter is very timely as it enables us to cope with constantly evolving challenges. This new law bolsters our capability to safeguard the stability of prices and the financial system. A mandate for all This brings me to my next point—that strong institutions are critical in nation-building and this is true for a central bank. So for us here in BSP, our ability to deal with the risks and challenges of the economy is largely dependent on how well-prepared and pro-active the central bank is. We have our radars. We see the risks, the threats, and even gaps and opportunities. We address all these—and we have our toolkits that we would willingly use as needed. In the process, the numbers change and show good results: inflation is tamed; Philippine banks remain robust, well-funded, and adequately capitalized; the credit-liquidity dynamics in the country are consistent with expanding economic activities; the external payments position is hefty; the exchange rate trends remain consistent with macro fundamentals; and I can continue on and on. But more than the notable statistics, for us in the BSP, the bottom line always is the Filipino people. And for this reason, we are pro-growth. Remember the maxim: A rising tide lifts all boats. An improved economy should benefit all, and so government economic policy should focus on broad economic efforts. Because of this, financial inclusion is on top of the BSP agenda because no one, really, must be left behind. We will go beyond convention and embark on goals outside the ambit of traditional central banking. At the same time, we will remain mindful not to go beyond what we are allowed to do under our charter. We will be decisive and forward-looking as we continue to be timely and data-dependent on our actions. We will continue to communicate our intentions as clearly as possible. We will be transparent. 1/4 BIS central bankers' speeches As most of you know, the old norm is for central banks to be deliberately vague. But ultimately, this is bad for the market, the banks, and the public because it leads to speculative behavior, and we want to avoid that. We will INTENTIONALLY bring the BSP closer to the people. A central bank cannot operate from an ivory tower. It is important that BSP stakeholders understand what we are mandated to do. It is crucial that our stakeholders trust our integrity and our capability to carry out our mandate. Yesterday, we received news reports of the survey results conducted by the Makati Business Club (MBC). The survey results show that businessmen rank BSP first out of 69 government agencies covered in the poll. The respondents were asked if they were/are satisfied with the performance of these agencies. I will not be modest about this—I am happy to say that this is the 25th time the central bank topped this survey since this was first conducted in 1987. This year, 97% of respondents said they are satisfied with BSP’s performance. This seal of confidence and expression of trust in BSP affirms the work that we do here. This recognition will only motivate us to work harder and better. Prospects Having said this, let me share with you briefly what’s on our radar: Global economic growth in 2019 is expected to be weaker than in 2018 with considerable uncertainties in the short term. There are other risks—the protracted US-China trade tensions, the possibility of a no-deal Brexit, and the US-Iran standoff on nuclear deal. On the domestic front, we see challenges arising from severe weather disturbances, and the delays in infrastructure projects. Despite the risks, we remain optimistic that the Philippines provides a unique value proposition that is not short-lived. It is anchored on a dynamic track record of a durable, resilient, and sustainable economic growth. This optimism is not ours alone. This is shared by third-party assessors with the series of favorable assessments released by the International Monetary Fund, the World Bank, the Asian Development Bank1, as well as by international credit rating agencies. In addition, the reform momentum continues. We have seen a number of bills languishing in congress for 2 to 3 decades enacted into law in less than three years under the present leadership. These laws are: 1. Republic Act (R.A.) No. 11211 which amended R.A. No. 7653, the Charter of the Bangko Sentral ng Pilipinas; 2. R.A. No. 11127 or the National Payment Systems Act; 3. R.A. No. 11055 or the Philippine Identification System (PhilSys) Act; 4. R.A. No. 11256 or the “Gold Law”. 5. Personal Property Security Act (PPSA) (Republic Act No. 11057) which boosts access to credit especially of MSMEs by allowing the use of non-traditional collateral and providing clearer priority rules in case of foreclosure. These also include the Islamic Banking Law which has been submitted to the Office of the President and Anti-Bank Hacking legislation which was passed by both houses of the 17th 2/4 BIS central bankers' speeches Congress. Needless to say that the BSP will focus on the strict and prompt implementation of these recently enacted laws that will help the BSP to more effectively perform its mandates. Directions Let me now elaborate further on what the banking community can expect from the BSP moving forward. In terms of monetary policy, rest assured that future policy actions of the BSP will continue to be guided by the following principles: it will be focused on achieving inflation targets, it will be proactive and pre-emptive, and it will be data-dependent and evidence-based. On the financial sector, the BSP is committed to: strengthen risk governance, leverage on technology, achieve greater and broader access to financial services, uphold the integrity of financial system and safeguard the interest of the public, and accelerate capital markets reforms. In addition, BSP also remains committed to maintain a safe, efficient, and reliable retail payments system in the country through the implementation of the National Retail Payments System. With exponential growth of the electronic retail payments through PESONet and InstaPay and the initiatives being rolled out by the BSP and the private sector, the BSP is optimistic that we will achieve our goal of 20 percent of payments through electronic means by 2020. [By the way, PESONet and InstaPay are payment options should you wish to buy the book that we are launching tonight. You may pay using PESONet and InstaPay. The BSP is not only pursuing the delivery of its primary mandates. It recognizes the need to democratize the access of the public to various financial instruments, products and entities. This is the essence of financial inclusion. So alongside these commitments, the BSP will continue to pursue liberalization reforms in the foreign exchange market to foster a more enabling environment for economic activities. Meanwhile, in order to preserve and maintain currency integrity, the BSP is continuously accepting, retiring and replacing unfit currency in circulation; conducting anti-counterfeiting operations; promoting clean note and coin policy; and enhancing economic and financial awareness. I am also pleased to mention that by the first quarter of 2020, our banknotes will have the following security enhancements in our banknotes: upgraded windowed security thread with unique color and design per denomination; anti-copying and anti-scanning features; and incorporation of tactile marks which is meant for the elderly and visually-impaired. Let me now highlight the priority legislative measures that the BSP will pursue under the 18th Congress. These bills seek to further enhance access to quality financial products and espouse the interests of the general public. These include: Amendments to the Bank Deposit Secrecy laws which aims to align our existing law with international standards on transparency to combat both domestic and global tax evasion, money laundering, and other financial crimes.; the Financial Consumer Protection bill which aims to provide a comprehensive financial consumer protection regime that consolidates financial inclusion, financial education, good governance, and effective supervision for the purpose of consumer protection.; and reforms to Agricultural Financing which seeks to amend the Agri-Agra Law and allow banks 3/4 BIS central bankers' speeches to merge their loan allocation to the farm sector as a measure to improve banks’ compliance rate. We will work closely with officials of both Houses of Congress, with you the banking community and other concerned stakeholders, as we pursue the enactment of these important legislative measures. Conclusion And so - as BSP moves into the story of our future, let me reiterate that every thought, every word, every act of Bangko Sentral is an opportunity to make a difference for a better quality of life for every Filipino. We will be steadfast in this pursuit and we will continue to reinvent ourselves through fresh ideas, calculated risks, and game-changing reforms. Supported by the magnanimity and professionalism that have been the hallmarks of the BSP’s service to the nation, the BSP community will remain the vanguard of an independent and credible BSP. Katapatan, talino, at husay para sa bayan, para sa Filipino. Before I end, on behalf of the Monetary Board and the entire Bangko Sentral ng Pilipinas, I would like to thank the leaders of the banking community for supporting the reforms we have pursued through the years and for helping maintain a banking system that is sound and responsive to the needs of the economy and the Filipino people. My bottom line tonight is simple. We will count on your continued support,1……. And…. please continue following the rules. If you do this, we can all sleep soundly at night. Toast To proceed with the next part of the program, let me now call on the members of the Monetary Board to join me on stage: Finance Secretary Sonny Dominguez, Philip Medalla, Juan De Zuñiga, Peter Favila, Tony Abacan, and Bruce Tolentino. Please join us and raise your glasses to the Central Bank for its 70 years of distinguished service… To the banking community and the men and women of the Bangko Sentral ng Pilipinas, that we may all remain strong, stable, and resilient in the face of challenges and be vehicles of growth and development for our ultimate boss – the Filipino People. Cheers! Thank you and have a good evening! 1 IMF, WB, and ADB project the Philippines to grow between 6.2 to 6.6 percent in 2019–2020, broadly in line with the national government’s revised growth targets of 6.0 to 7.0 percent in 2019 and 6.5 to 7.5 percent in 2020. 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ayala Economic and Treasury Summit, Manila, 6 August 2019.
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Benjamin E Diokno: Philippines - weaving an unprecedented growth story Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ayala Economic and Treasury Summit, Manila, 6 August 2019. * * * Jaime, Fernando, other senior Ayala officials, guests, ladies and gentlemen, good morning. I am very pleased to be the keynote speaker in your annual corporate planning and budgeting conference. As former Budget Secretary, I understand the importance of planning and budgeting to the continued growth of an institution. As head of the Bangko Sentral ng Pilipinas—a hat I’ve been wearing for five months now—I remain mindful of how vital forward-looking policies are to the achievement of our respective organizations’ objectives and targets. In the next few minutes, I will be discussing the current state of the Philippine economy, followed by some points on why we believe our economic growth will be sustained in the years ahead. Finally, I will also briefly talk about the BSP’s role in supporting this growth narrative and some of the challenges that we may face going forward. Let me begin with our growth story thus far in the Philippines. Our economy has experienced uninterrupted growth for over 20 years since 1999 despite challenges such as the 2004 fiscal crisis and the 2007 global financial crisis—that is 81 consecutive quarters of continuous growth, with annual growth averaging 6.4 percent in the past five years (2014–2018). Growth in recent years has become more broad-based. On the demand side, private consumption remained robust in the first quarter of 2019, as in the previous quarters through the years. This is further supported by rising contribution from investments from 2010 up to present. On the supply side, services remain the main driver of growth—but the industry sector has also stepped up in recent years. Meanwhile, the government’s economic managers remain optimistic about achieving our GDP growth target of 6 to 7 percent this year despite the lower than expected 5.6 percent growth in the first quarter of this 2019. Private consumption is expected to remain robust, aided by remittance inflows and sustained “cooling” inflation. Private capital formation, on the other hand, should likewise contribute more significantly to economic growth, with construction and investments in durable equipment expected to remain solid in light of the government’s projects and other infrastructure programs. The International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) share these expectations. In fact, all three forecast that the Philippine economy will grow by about 6.2 to 6.5 percent this year. The bold reforms and initiatives in the past three years have prompted the government to capitalize on and sustain these gains. It is because of this that we believe the Philippine growth momentum will be sustained moving forward. First is the government’s ambitious infrastructure program—“Build, Build, Build” which aims to boost the economy’s mobility and connectivity, enabling equitable growth and development. At present, there are 75 high-impact national government infrastructure, with 46 projects (61 1/6 BIS central bankers' speeches percent) already in the implementation stage. The government is expected to invest over PhP 4.6 trillion (or US$90 billion at PhP52:USD1) in public infrastructure from 2019 to 2022. Second, is the recent passage of reforms aimed at strengthening our investment climate. The Ease of Doing Business and Efficient Government Service Delivery Act, the revised Corporation Code, and the Philippine Innovation Act support the government’s agenda of improving competitiveness and ease of doing business in the country, promoting transparency and cutting red tape in the government for a more conducive business environment. At present, the Philippines’ current standing has improved based on different third-party assessors. For instance, the Philippines’ ranking rose from 68th to 56th place under the 2018 Global Competitiveness Report. It also received an upgrade in its sovereign credit rating from Standard & Poor’s to “BBB+” from “BBB.” These favorable standings are also boosted by the improved business sentiment and the stable consumer outlook based on the BSP’s latest round of expectations surveys. Finally, the continued demand for Philippine skills locally and abroad are evident in the growth of our BPO industry and strong remittance inflows. This further highlights the importance of our country’s most prized resource—our labor force. Based on our estimates, production efficiency has improved over the years with the incremental capital-output ratio (ICOR) declining steadily. As you know, the higher the ICOR, the less efficient the production process is. Recognizing the skills of our workforce, the government has invested heavily in various social programs such as the Universal Health Care Act and the Access to Quality Tertiary Education Act (RA No. 10931). You may not know this but 40% of our budget goes to social services. Our growth story has been supported by structural and policy reforms in the economy for around three decades. These reforms enable growth by expanding the role of market forces in key sectors of the economy; encouraging investments and private sector activity; removing bottlenecks to doing business and investments in the country; and strengthening the country’s fiscal position and the financial sector. These, and other structural reforms in the pipeline, will continue to play a significant role in propelling the economy toward a balanced, sustainable, and inclusive growth. In addition, recently approved legislation—such as the BSP Charter Amendments, Philippine Identification System (PhilSys) Act, National Payment Systems Act and the Gold Law—allow us to pursue our mandate with more vigor and in effect, enable us to espouse the interests and uplift the lives of all Filipinos. So what is the role of BSP in the Philippines’ growth narrative? Our mandate is clear: “maintain price stability conducive to a balanced and sustainable growth of the economy and employment.” Our objective in the BSP is to protect the real purchasing power of the peso to support conditions for long-term economic growth. With your presence in this annual corporate planning and budgeting process summit, I know you are fully aware of the importance of efficient allocation of resources. As a central banker, I would argue that price stability is closely linked with financial efficiency. If the prices are low and stable, financial planners are better equipped to allocate resources to their most efficient use. Lesser price volatilities would also enable us to anticipate risks and plan better. And with our amended BSP Charter, we are now in a better position to implement sound policies to promote and maintain price stability, a strong financial system, and a safe and efficient 2/6 BIS central bankers' speeches payments and settlements system. In terms of price developments, we are on track to achieving our inflation target of 2 to 4 percent for 2019. To give you some context, our June inflation declined to 2.7 percent from 3.2 percent in May, the lowest inflation recorded in more than 20 months since August 2017. Later this morning, the Philippine Statistics Authority (PSA) will announce the average percentage of inflation for July. My forecast is that it will settle within the range of 2.2 – 2.8 percent. This sits comfortably within the government’s target band, in line with our forecasts. This is a stark contrast from 2018 when inflation was pushed beyond the target range to average at 5.2 percent. Looking ahead, we expect inflation to remain on a target-consistent path for 2019 and 2020. BSP’s latest baseline forecasts indicate that inflation is projected to average 2.6 percent this year and 2.9 percent next year and 2021. The risks to the inflation outlook appear to be broadly balanced for 2019 and 2020. The main upward risks are the petitions for electricity rates and transport fare adjustments, and the proposed increase in the excise taxes of alcoholic beverages and cigarettes. The risk of a prolonged El Niño episode has gone down. On the external front, the global economic slowdown due to protectionist policies in advanced economies, as well as geopolitical tensions continue to be the main downside risks to inflation. Inflation expectations are also starting to converge with the government’s target range. Based on the BSP’s latest round of expectations surveys, businesses and consumers expect inflation to remain within the 2 to 4 percent target for 2019. Similarly, BSP’s survey of private sector economists for June 2019 showed lower mean inflation forecasts for 2019 and 2021. Likewise, institutions such as the ADB and the IMF are projecting that inflation for 2019 and 2020 will be within the government’s target range for this year and the next. On June 20, the Monetary Board deemed it appropriate to maintain its monetary policy settings unchanged following the 25-basis point cut in the BSP policy rate in May 2019. With better-behaved inflation dynamics, the Monetary Board also decided to cut the reserve requirement ratio by 200 bps phased within 3 months beginning in May up to July. This is to help ease some of the tightness in domestic liquidity. Moving forward, monetary policy has been and always will be data-dependent. To determine whether further monetary easing is warranted, we will first have to see how macroeconomic conditions will unfold. Two days from now (8 August 2019), the Monetary Board will be conducting its regular review of the monetary policy stance. Until then, we will continue to look at the widest possible set of available economic and financial variables. These include the recent inflation numbers to be announced today—if not yet announced, and the second quarter (Q2 2019) GDP growth set to be released on Thursday. Meanwhile, the credit-liquidity dynamics in the country remain consistent with expanding economic activity. Bank lending continues to post double-digit, reflecting sustained demand for loans from various production sectors of the economy. Liquidity conditions, while growing at a 3/6 BIS central bankers' speeches moderate pace, remain sufficient to support economic growth requirements, with the latest ratio at 64.2 percent for Q1 2019. The continued soundness and stability of the Philippine banking system also lend strong support to economic growth. Philippine banks remain robust, well-funded, and adequately-capitalized. As of end-March 2019, the Philippine banking system assets expanded by 11.0 percent year-onyear (YoY) to P17.0 trillion which approximates the size of the domestic economy. The expansion in the banking system’s assets was primarily due to increased lending activities. The observed robust asset growth was supported by expansion in bank branch network to 11,933 as of end-June 2019. Deposit liabilities continue to be the primary funding source of the banking system. These deposits are mostly peso-denominated and sourced from resident individuals and private corporations. Meanwhile, banks’ annualized net profit grew by 8.8 percent to P189.0 billion for the period ended March 2019. Annualized interest income primarily kept the bottomline robust, growing strongly by 27.7 percent for the first quarter of the year. With respect to banks’ capitalization level, the capital adequacy ratios (CARs) of U/KBs on solo and consolidated bases improved to 15.1 percent and 15.8 percent, respectively. As you know, these ratios are well-above the minimum threshold set by the BSP and BIS of 10 percent and 8 percent, respectively. The increase is due to the capital build-up being undertaken by the industry in anticipation of further expansion of the credit portfolio and investment activities. Liquidity remains sufficient as banks maintain adequate high-quality liquid assets. This favorable confluence of strong growth and a manageable inflation environment allows us to be optimistic. Nevertheless, there are still challenges that need to be considered. There is the risk of sluggish global growth. In its July 2019 World Economic Outlook (WEO), the IMF revised its global growth forecast for 2019 from 3.3 percent last April to 3.2 percent. Trade tensions between the US and China continue to be at the forefront with both countries raising tariffs on different imported goods. At the same time, Brexit-related issues continue to be another source of risk. The intensified uncertainties surrounding the external environment have led to weaker global trade. As a result, the IMF revised its growth projections for emerging and development economies downward—by 0.3 percentage point for 2019 and by 0.1 percentage point for 2020. While the Philippines is not directly affected with the tariff impositions, the continued trade friction could take its toll on the country’s external sector. Despite these risks, we have sufficient buffers to help cushion the country against external shocks. For example, we continue to maintain a market-driven foreign exchange (FX) rate, which we complement with FX liberalization measures to facilitate structural FX flows. We continue to have sizeable gross international reserves, built from sustained remittances from overseas Filipinos, robust receipts from business process outsourcing and tourism, and steady foreign investment in the Philippines. As of end-June 2019, gross international reserves (GIR) stood at 85.4 billion dollars, equivalent to 7.4 months’ worth of imports of goods, services and primary income. The recent passage of the Gold Bill will lower the cost of both funding for the country, as well as doing business for the private sector. 4/6 BIS central bankers' speeches Meanwhile, remittances from overseas remained robust in the first five months of the year, increasing by 4.5 percent, which is equivalent to US$12.3 billion. We also continue to take a more cautious assessment of the narrowing current account balance. Here, I should emphasize that this does not mean that all current account deficits should be taken adversely. In our case, strong economic expansion has fueled the need for imports, particularly of capital goods as well as raw materials and intermediate goods. Over time, as investment-led economic activities result in the expansion of the economy’s potential capacity, there can be subsequent rise in goods exports, which would eventually mitigate the current account deficit. We will also continue to initiate reforms in the financial sector. We wish to reiterate our commitment to implement measures designed to enhance and develop the domestic money and capital markets. We will continue to promote greater market efficiency and price discovery through further refinements to our interest rate corridor framework and monetary operations. We will also lower friction costs in the banking sector to foster more efficient financial intermediation, which will be further enhanced by the availability of alternatives offered by FinTech and digital innovation. Likewise, the BSP has recently put in place various enhancements in its arsenal of macroprudential tools to ensure the stability of the financial system. These tools will allow the BSP to manage the build-up of systemic risk in the financial system by requiring banks to set aside additional capital as reserves during good times and as buffer for bad times. All of these initiatives would be meaningless if they are not felt by all Filipinos. Thus, we emphasize the importance of financial inclusion in the country. We have set our sights on digital technology as a catalyst and strategic enabler to ensure that everyone has access to financial services. Ensuring that no one is left behind is critical for achieving inclusive growth. Let me now highlight the priority legislative measures that the BSP will pursue under the 18th Congress. These bills seek to further enhance access to quality financial products and espouse the interests of the general public. These include: the Amendments to the Bank Deposit Secrecy laws; the Financial Consumer Protection bill; and reforms to Agricultural Financing which seeks to amend the Agri-Agra Reform Credit Act of 2009 (Republic Act No. 10000) and allow banks to merge their loan allocation to the farm sector as a measure to improve banks’ compliance rate. We will work closely with officials of both Houses of Congress and other concerned stakeholders as we pursue the enactment of these important legislative measures. Let me end my presentation with these key notes: The Philippine economy has demonstrated uninterrupted economic expansion for over two decades. This growth is expected to be sustained going forward with sound macroeconomic fundamentals complemented by the government’s “game-changing” reforms aimed at bridging infrastructure gaps, strengthening our investment profile, and supporting the future of, as the World Bank called it, our “globally recognized competitive workforce.” However, the external environment has become more uncertain in recent months given trade and geopolitical tensions. Nevertheless, we have a resilient external payments position as cushion against global headwinds. The BSP will remain watchful and vigilant, ready and willing to utilize any and all its analytical and surveillance tools at its discretion for any potential risks to its monetary and financial stability objectives. 5/6 BIS central bankers' speeches As we continue to support the government in its measures to sustain growth, create jobs, and reduce poverty, the BSP will continue to focus on fulfilling its mandate of price stability conducive to a balanced and sustainable growth of the economy. Thank you for your attention. I hope that this presentation has given you all an additional perspective that you can use in your future corporate planning process going forward. I look forward to an engaging discussion with you this morning. 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Exporters Confederation, Inc. (PHILEXPORT) 3rd General Membership Meeting, Manila, 16 August 2019.
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Benjamin E Diokno: The road to financial inclusion and sustainable economy Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippine Exporters Confederation, Inc. (PHILEXPORT) 3rd General Membership Meeting, Manila, 16 August 2019. * * * To Chairman Paterno Dizon, Dr. Sergio Ortiz-Luis, Jr., President, officers and members of PHILEXPORT; colleagues from the government; partners in development; and distinguished guests: good morning. I am pleased to join you for the 3rd General Membership Meeting of PHILEXPORT as we recognize the country’s export industry as a key driver of growth and employment generation. I am equally pleased be invited to speak on financial inclusion and economic growth. By bringing financial products to the unserved and underserved, we can empower them and at the same time, nurture economic activity and invigorate static industries by linking businesses to new and untapped markets. I also believe that financial inclusion is vital in bringing about a sustainable economy. For this occasion, allow me to tell you about the BSP’s financial inclusion journey, which has been filled by highlights, milestones, and interesting developments. It is, however, by no means a smooth sailing one – we at the BSP are aware of the challenges to serving the financially excluded that persist until today. Nevertheless, as I recount BSP efforts and share our current initiatives, I hope you will realize new opportunities for enterprise and collaboration. I also hope to drive the message that our recognition of micro, small, and medium enterprises (MSMEs) lies at the heart of our steadfast push for financial inclusion. The BSP financial inclusion journey started in the 2000s with the adoption of microfinance as a flagship program for poverty alleviation. This was reinforced by the General Banking Law of 2000 that recognized microfinance as a unique banking activity. When the BSP embraced microfinance as an advocacy, it sought to expand access to credit among the entrepreneurial poor (e-poor). The BSP has always believed in the viability of the country’s e-poor as a market segment, especially when they are provided with financial products and services appropriate to their needs and capacities. Such mindset has led BSP to issue over 40 microfinance-related circulars and foster an enabling regulatory environment. The BSP’s microfinance work gradually expanded into financial inclusion. In fact in 2007, the BSP was the first central bank in the world to establish an inclusive finance unit. Today, financial inclusion is not merely an institutional advocacy—it is a strategic imperative. Our amended charter states that we in BSP should increase access to financial services and consider the interest of the general public. But BSP cannot do it alone. BSP has to reach out and collaborate with various stakeholders to synergize all efforts in financial inclusion. BSP is spearheading the implementation of the National Financial Inclusion Strategy (NSFI), an important mechanism for multi-stakeholder coordination of financial inclusion initiatives. 1/5 BIS central bankers' speeches As the principal driver of the NSFI, the BSP serves as Chair of the 17-agency Financial Inclusion Steering Committee (FISC) which adopted MSMEs and agriculture as priority sectors. This is because we recognize the immense potential and unique challenges of MSMEs. Together with agriculture, MSMEs form the backbone of the Philippine economy. In fact, MSMEs account for 99.6% (911,768) of the country’s enterprises and generate 61.6% of employment. Despite having considerable growth prospects and being a source of livelihood for millions of Filipinos, the MSME sector has not realized its potential. MSMEs only account for 3.32% of the country’s gross domestic product (GDP), while their gross value added (GVA) sits at 35.7%. Capital investment remains low, with MSME loans in the banking system accounting for only 6.2% and 9.2% share in total business loans. Knowing that a significant number of members of Philexport are MSMEs, I’m sure you know that the lack of access to credit remains a fundamental obstacle to the further development and sustainability of our MSMEs. . On the supply side, issues include the prevalent perception that MSMEs—compared to the corporate and consumer markets—are low-profit and high-risk. This aggravates the lack of understanding of the MSME segment. It results in the scarcity of appropriate financing products and inability of banks to cater effectively to MSMEs. On the demand side, MSMEs are reluctant to approach banks due to the lack of collateral and credit history needed for loan application. They have limited business capacity and financial management skills to capably meet loan requirements. In addition, the have limited knowledge of alternative modes of financing. Recognizing these challenges, the BSP is set on strengthening the country’s financial infrastructure, supporting innovation, and bridging the information gap. To build the foundation for a robust financial infrastructure, we work in close coordination with government agencies and partners in development. Let me go through each one briefly. The BSP has been working with the Credit Information Corporation (CIC) in building a strong and reliable credit information system. Likewise, we are working with the Government of Japan to establish a Credit Risk Database (CRD) that will produce scoring models predicting the creditworthiness of SMEs to help improve their access to finance through risk-based lending and lessen the dependence of banks on collateral. The BSP also supports law relevant to financial inclusion. One of which is the Philippine Identification System Act (PhilSys Law, RA 11055) passed in August 2018. This will overcome the problem of the lack of verifiable identity documents faced by many Filipinos. Meanwhile, the Personal Property Security Act (PPSA, RA 11057) – also passed in August of last year – will enhance the access of MSMEs to business and consumer credit by enabling the use of alternative collateral such as equipment, inventory, and warehouse receipts. Following these developments, the BSP is also supporting the passage of a new Warehouse Receipts Law, as well as the review and amendment of the Agri-Agra Reform Credit Act of 2009 (RA 10000). The introduction of updated and more flexible provisions in these laws would help MSMEs, especially those that are agriculture-related, to gain access to credit; leverage innovative models; and induce banks to venture into MSME and agriculture financing with better terms and standards for compliance. 2/5 BIS central bankers' speeches In addition to lending legislative support, the BSP implements the Credit Surety Fund (CSF) together with the Cooperative Development Authority (CDA). The CSF program enables cooperatives, businessmen, and MSMEs to boost their credit worthiness by providing surety cover of up to 80% for bank loans. As of September 2018, there are 54 CSFs throughout the country with over 17,000 loan beneficiaries. In 2015, the BSP also launched the National Retail Payment System (NRPS, Circular 980). As part of this, PESONet and InstaPay were launched in 2017 and 2018 with the aim of boosting interoperability among banks and propelling electronic retail payments to at least 20% by 2020. As of December 2018, there are 47 participating institutions for PESONet and 36 for InstaPay. PESONet transactions reached approximately PHP 86.8 billion while InstaPay transactions totaled approximately PHP 8.2 billion. We foresee a healthy rise in these figures with greater use of the funds transfer schemes by the public. And I encourage everyone here to try and make use of these systems. Towards achieving financial inclusion in the country, the BSP likewise continues to champion innovation. In 2014, the BSP issued Circular 855 on risk-based lending, which provides banks the latitude to focus on capacity to pay rather than collateral, waives documentary requirements (e.g., income tax return and financial statements) for microfinance loans, and provides reasonable loan options for start-up businesses. In 2016, the BSP issued Circular 908 on the agriculture value chain financing (AVCF) framework, which identifies guidelines and incentives for banks planning to engage in AVCF. This policy was designed to encourage banks to adopt new financing approaches so that much needed funds can be directed towards enterprises in the ambit of the agriculture sector. As part of the push for AVCF, the BSP has pursued a number of projects in recent years. These include the conduct of a study and forum on AVCF. This year, the BSP will be undertaking a pilot AVCF project for selected banks and value chain commodities, with the aim of building the technical capacity of banks in AVCF and optimizing existing government programs on value chain development. By aligning with priority commodities for this project, we hope that further development can enable the country’s participation in regional and global value chains. The project is set to be launched in September. In the last two years, the BSP has also created a policy package to address the commonly cited barriers to participation in the formal financial system, such as the lack of funds, documentary requirements, and means to travel to financial institutions. These policies aim to help the unserved and underserved establish a financial footprint that would enable them to avail of and maximize products and services in the market. In 2017, the BSP issued a pair of regulations: Circular 940 on cash agent operations and Circular 987 on the establishment of branch-lite units (BLUs). These policies were crafted with the goal of expanding the network of low-cost touch points to efficiently deliver financial products and services to the public. Cash agents and branch-lite units, with their high visibility and convenient setup and functions, allow small business owners and country folk to save on time, travel, and transaction costs. There are currently 1,874 BLUs and over 40,000 cash agents actively operating in the country. In February last year, the BSP issued one of its most pivotal policies for financial inclusion – 3/5 BIS central bankers' speeches Circular 992, which outlines the framework for Basic Deposit Accounts (BDA). By easing financial and documentary requirements, the BDA aims to encourage account ownership among the country’s unbanked and low-income population, and provide them an entryway into the country’s financial ecosystem. Since the issuance of Circular 992, the BDA has garnered considerable interest from the public and key industry players. To date, there are 77 banks offering BDA. We hope and expect an even greater take-up in the coming years as the BDA enters the market mainstream. With the advent of the digital age, the BSP has also turned to innovation to take central banking to the next level. As a regulator, we strive to stay ahead of the curve and keep abreast of industry developments and trends. The BSP was in fact one of the early adopters of the “test-and-learn” approach, which has allowed the entry of pioneering technologies, business models, and products such as e-money into the domestic market. The test-and-learn approach remains a cornerstone of our innovation mindset and enduring pursuit of an enabling regulatory environment. As the BSP leverages on digital technology to fast-track financial inclusion, it continues to open doors to new players such as fintechs that can diversify and transform the market, as well as pave the way for the banking industry to make the technological leap forward by laying the regulatory groundwork for digital financial services (DFS). In 2017, the BSP endorsed the country’s first cloud-based banking project for one of the largest rural banks in Mindanao. I am pleased to share that this project has been very successful. The bank now fully operates on a cloud-based system and has also participated in a crossborder remittance scheme. We see this project as a model for large-scale replication and one that will encourage greater receptiveness to banking innovations. In February this year, the BSP issued Circular 1033 to streamline the licensing requirements of our supervised institutions intending to offer electronic payment and financial services (EFPS). These initiatives, together with the passage of the National Payment Systems Act (NPSA, RA 11127) that grants the BSP with regulatory oversight over payment systems, will significantly advance our digitization agenda. But in order for these developments and initiatives to be relevant, there needs to be a systematic collection and dissemination of relevant data, one that would inform policymaking and lead to a better, deeper understanding of the MSME market. With this in mind, we have embarked on two initiatives designed to bridge the information gap – the national demand side survey on MSME finance and the strategic partnership with the Department of Trade and Industry (DTI), Microfinance Council of the Philippines, Inc. (MCPI), and Alliance of Philippine Partners for Enterprise Development, Inc. (APPEND) to expand the Negosyo Center financing ecosystem. The national demand side survey on MSME finance, which is currently under development, will enable us to address the need for comprehensive data on the MSME sector and formulate responsive policies and programs. Meanwhile, an essential component of the Negosyo Center partnership is the creation of an information database on Negosyo Centers and microfinance institutions (MFIs) nationwide. This database will enable Negosyo Centers to refer clients to various financing options and help microfinance institutions design products and services appropriate to clients’ needs. Finally, let me say this again. Financial inclusion is a necessary condition for a sustainable 4/5 BIS central bankers' speeches economy. To realize this vision means pursuing change and reform however difficult they may be. The BSP’s enduring financial inclusion journey attests to this. We craft our policies not only for the present, but also with the future in mind. I am optimistic that the various financial inclusion initiatives of the BSP that I discussed this morning will help improve access of MSME exporters to financial services, and consequently enhance our country’s export competitiveness. With these thoughts, let me say that the best for all of us is yet to come. Maraming salamat po. 5/5 BIS central bankers' speeches
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Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Research Conference "Inflation Dynamics in Asia and the Pacific", co-hosted with the Bank for International Settlements, Manila, 19 August 2019.
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Benjamin E Diokno: Evolving inflation dynamics Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Research Conference "Inflation Dynamics in Asia and the Pacific", co-hosted with the Bank for International Settlements, Manila, 19 August 2019. * * * A very good morning to all and welcome to this year’s Annual Research Conference. The Bangko Sentral ng Pilipinas (BSP), which is currently celebrating the 70th year of central banking in the Philippines, is pleased to co-host this conference with the Bank for International Settlements (BIS). The theme for this year is “Inflation Dynamics in Asia and the Pacific.” For central bankers, this provides an opportunity to discuss and think about issues that have direct implications on the core mandate of central banks. For academics and research economists, this is a policyrelevant research that may be openly shared and discussed. The global financial crisis (GFC) that started in 2008 challenged conventional monetary policy, pushed many central banks outside of their comfort zones, and dramatically altered the landscape of monetary policy. While it was a challenging time for policymakers, it provided fertile ground for macroeconomic research. A particular topic, which received much attention among macroeconomists and central bankers after and during the financial crisis, was inflation dynamics. An advance Google search for the phrase “inflation dynamics” for pre-crisis period 1997–2007 yielded 4,490 articles. For the postGFC period of 2009–2019, the search generated 13,000 articles – an increase of almost 190 percent.1 Of course, we are all well aware of the challenges faced by central banks in advanced economies after the global crisis; that despite rock-bottom interest rates and massive liquidity injections, inflation in their economies remained muted. Why this was so was the subject of many studies. But perhaps one of the reasons for the rapidly rising of studies on inflation dynamics is the remarkable decline in global inflation, which began even before the GFC. For the advanced economies, this appears to have started in the 1990s, and for the emerging market economies, the trend became apparent in the 2000s. On a regional basis, Asian countries show lower inflation trends among emerging markets. 2 Studies reveal that a confluence of both structural and policy-related factors have contributed to this trend in the region. Among these include the marked increase and changing patterns of international trade, especially with the accession of China in the World Trade Organization; technological innovation; trade and financial market integration; demographic transition; structural reforms in labor and product markets that led to greater competition and lesser price rigidities; and more resilient policy frameworks in some emerging market and developing economies—particularly the successful adoption of inflation targeting as well as the more effective and transparent exchange rate, and monetary and fiscal policy frameworks (World Bank, 2019).3 For central bankers, understanding inflation dynamics in relation to other economic variables is crucial. Most, if not all, central bankers will agree with me that controlling infla¬tion is a demanding task. Yes, the central bank can influence inflation by tightening and easing monetary policy. 1/3 BIS central bankers' speeches However, the transmission process involves long and variable lags and a degree of uncertainty amid the continuously evolving structure of an economy. Add to this is the increasing influence of global and regional factors on domestic inflation. Amid these challenges, central banks need to adopt a robust communication strategy to effectively anchor inflation expectations. Case in point, the Philippines’ headline inflation decelerated from an average of 15.1 percent in the 1980s to 9.7 percent in the 1990s. This slowed further to 3.8 percent from 2002 to 2018, when the country adopted the inflation targeting framework. The implementation of the inflation targeting framework in the last 16 years has enabled the BSP to manage and keep inflation within manageable bounds. This provided support to greater economic activity, despite international and domestic shocks. Moreover, the improved transparency, greater accountability and more effective communication, resulting from the implementation of inflation targeting, have enhanced the BSP’s credibility. This led to the continued anchoring of market inflation expectations to monetary policy decisions. However, in the first few years after the global crisis, the BSP experienced pressure in its monetary operations as short-term market interest rates diverged from the BSP’s policy rate. This was mainly due to strong capital inflows arising from the highly accommodative monetary policies, the extraordinary liquidity support of central banks in advanced economies, the steady stream of remittances from overseas Filipinos, and revenues from Business Process Outsourcing (BPO). To address this divergence, the BSP launched the interest rate corridor (IRC) system in June 2016 to enhance the transmission of monetary policy by guiding money market interest rates towards our policy rate. To date, this objective has already been achieved as the market rate is now moving in line with the BSP’s policy rate. In the long term, recalibrations and additions to the monetary policy tools will strengthen the BSP’s influence on the demand and supply of money. I am pleased to note that the recently enacted amendments to the BSP charter restores our authority to issue our own debt securities (even during normal times) which further enhances our monetary policy tool kit. Further, we will continue to pursue the reduction of reserve requirements from the current 16 percent to single digit by 2023 to promote a more efficient financial system. This is part of the BSP’s broad financial sector reform agenda. We expect that all these will aid in the further development of Philippine capital markets by fostering money market transactions and active liquidity management by Philippine banks. Indeed, the BSP’s monetary policy framework has been an effective tool in mitigating the risks emanating from here and abroad. However, we recognize that as the domestic and world economy evolve, all our tools need to be kept constantly appraised. We continually take measures to further enhance the implementation of our inflation targeting framework by improving our array of models, data, software, and the capability of our technical staff and modelers. We likewise ensure prudent exercise of judgement by using all relevant data in our policy decisions. Moreover, we recognize the value of being able to communicate the basis of the BSP’s policy decisions in a manner that is easy for the public to understand. All these concepts, and more, will be the subject of this conference’s discussions in the next two days. We can rely on an eminent group of economists, who have joined us to present their work and examine issues concerning inflation dynamics and monetary policy. As central bankers and policymakers, we appreciate this effort to continuously expand our 2/3 BIS central bankers' speeches understanding of inflation dynamics and its implications on monetary policy. This is especially so amid the current global economic environment that continues to shift with the ongoing policy uncertainties and structural changes. I wish you all a very fruitful conference and a pleasant stay in Manila. 1 Search excluded patents and citations, conducted on 24 July 2019. 2 2 Based on the International Monetary Fund (IMF) World Economic Outlook April 2019 database. 3 3 Inflation in Emerging and Developing Economies Evolution, Drivers, and Policies, eds. J. Ha, M. A. Kose, and F. Ohnsorge. Washington, D.C.: The World Bank. 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to the Economic Journalists' Association of the Philippines, Manila, 27 August 2019.
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Benjamin E Diokno: The Philippine economy - sustaining resilience amid uncertainties Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to the Economic Journalists’ Association of the Philippines, Manila, 27 August 2019. * * * Good morning, ladies and gentlemen. First, let me thank the Economic Journalists’ Association of the Philippines for inviting me to share the Bangko Sentral ng Pilipinas’ view on the current and future state of the Philippine economy. As we are all aware, the specter of slowing global economic growth looms larger than ever on the horizon as protectionist policies and geopolitical tensions continue to dominate the global growth narrative. Greater global economic uncertainty may lead to higher risk aversion as international investors turn to safe-haven assets, resulting in volatility in our domestic financial markets. When this happens, this could have adverse consequences on our price and financial stability objectives, and ultimately on the country’s growth momentum. Nevertheless, in this presentation, I will show you how the BSP, with our purposeful and meaningful structural reforms, can help support against the impact of these external risk factors. Risk factors identified last year, such as the escalating trade tensions between major economies and geopolitical factors, have either intensified or materialized this year and contributes to weaker global economic prospects. Acknowledging the impact of these on world trade and investment, the IMF have several times downgraded its 2019 and 2020 global growth projections this year. Moreover, the IMF continues to view the balance of risks to the global outlook as being on the downside, with further escalation of trade tensions. In response, central banks around the world, including the Philippines, have responded by easing their respective policy rates to stimulate their domestic economies. In fact, some central banks have surprised the markets by reducing their rates by more than what was expected. This indicates that the global monetary policy easing cycle could gather momentum and last longer and deeper than previously anticipated. Despite all this, we remain optimistic about the prospects of the Philippine economy. As I emphasized earlier, we are well-positioned to deal with these challenges. We now have an encouraging mix of a manageable inflation environment alongside steady economic growth, which affords policymakers sufficient space to respond appropriately to evolving domestic and global conditions. Overall liquidity and credit conditions remain supportive of the country’s growth requirements. We likewise continue to have a fiscal target that both delivers effective government spending while remaining prudent in meeting debt obligations. Our sound and stable banking system is aided by strong prudential regulation and supervision. Finally, our robust external payments position, underpinned by comfortable FX reserves and prudent external debt management, acts as additional cushion against external vulnerabilities. 1/4 BIS central bankers' speeches In terms of the current state of the Philippine economy, the current manageable inflation environment bodes well for sustaining economic growth. Headline inflation slowed down further to 2.4 percent in July, the lowest inflation reading since January 2017. Thus, the year-to-date average inflation rate of 3.3 percent is now well within the Government’s inflation target of 2 to 4 percent. Price pressures eased anew in July 2019, as food inflation slowed down following the summer harvest season and amid liberalized rice importation. Meanwhile, it is not surprising that we had a lower-than-expected GDP growth in the first two quarters of the year. To a large extent, the delay in the passage of the 2019 budget and the election ban significantly weakened government spending and public construction. Nevertheless, we expect catch-up fiscal spending by the Government to buoy the growth momentum in the second half of 2019. We likewise take comfort in the fact that credit and liquidity dynamics in the country remain supportive of growth. The latest reading of credit growth is 10.5 percent as of end-June 2019 while domestic liquidity expanded by 6.4 percent during the same period. Notwithstanding the slower growth in loans for production activities, we continue to see sustained business demand on account of favorable macroeconomic conditions in the country, particularly with the easing of inflation in 2019. Meanwhile, the continued lending activities of Philippine banks indicate their effectiveness in facilitating a smooth flow of funds in the economy, boosting economic growth. Banks remain sufficiently capitalized, while their past due ratios have consistently declined over the years. This enhances their capacity to manage risks and at the same time increase profitability. We expect these improvements to continue given the positive outlook on the macroeconomy. In addition, we continue to have sizeable international reserves to help insulate our domestic economy against external shocks. This is built from sustained remittances, robust receipts from business process outsourcing and tourism, and steady foreign investment inflows. As of end-July 2019, gross international reserves stood at 85.2 billion dollars, equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income. Meanwhile, overseas Filipinos’ remittances remained robust in the first half of the year, increasing by 3.2 percent, which is equivalent to US$14.6 billion. Taking all these into account, the Monetary Board in its most recent meeting on 8 August 2019, deemed it necessary to reduce the BSP’s key policy rate by another 25 basis points to 4.25 percent. This brings the year-to-date monetary policy adjustment to 50 basis points. In doing this, the BSP noted that price pressures have continued to dissipate, while prospects for global economic activity are likely to remain weak amid sustained trade tensions among major economies. Domestically, the outlook for growth continues to be firm on the back of a projected recovery in household spending and the accelerated implementation of the government’s infrastructure spending program. 2/4 BIS central bankers' speeches Looking ahead, we expect inflation to remain on a target-consistent path for 2019 and 2020. The latest baseline forecasts indicate that inflation is projected to average 2.6 percent for 2019 and 2.9 percent for both 2020 and 2021. Inflation expectations have also moderated further to levels consistent with the target based on the BSP’s survey of private sector economists. We assess the balance of risks to the inflation outlook to remain broadly balanced for 2019 and 2020, before tilting to the downside for 2021. Weaker global economic prospects continue to temper the inflation outlook. Going forward, the BSP will continue to monitor price and output conditions to ensure that monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term. In terms of financial stability safeguards, we now have a deeper policy toolkit to deal with external and domestic shocks to the system. These tools will allow the BSP to respond to the formation of imbalances and address the build-up of system risk. First, we continue to implement a flexible exchange rate regime as our first line of defense against external shocks. Such a framework allows the BSP to intervene only if volatility in the foreign exchange market is perceived to adversely affect the inflation outlook. Our policy toolkit now encompasses macroprudential regulations that can be targeted against specific sources of risks, contingency measures such as liquidity-enhancing facilities, and regional firewalls that boost the flexibility and effectiveness of our actions. Aside from this, amendments to the BSP Charter allows the BSP to issue its own securities. The BSP has also expanded its crises surveillance and monitoring toolkit. To name a few, we have the Bank Distress Index, which is used to identify potential banking crisis episodes in the country; the Philippine Composite Index of Financial Stress, which is used to measure the degree of financial stress across markets; and the Early Warning System on currency crisis and on debt sustainability. Likewise, in terms of supervision, we continue to review and align our financial regulations and policies with international standards to enhance risk management and ensure the competitiveness of our banks in view of the ASEAN integration. We intend to further develop our macro-financial surveillance capability by improving coordination and cooperation with other government agencies and regulators. With the rapidly evolving technology and payments landscape, our policy stance in supporting responsible fintech innovation remains anchored on three core principles: 1) Regulations must be risk-based, proportionate and fair. 2) There should be an active multi-stakeholder collaboration. 3) Regulations must ensure consumer protection. Accordingly, please allow me to mention some key policy initiatives that we have implemented: We updated the BSP’s regulatory framework on the operation of money service business to enhance the customer due diligence expectations and re-balance the objectives of financial integrity and financial inclusion. We also established a framework for regulating virtual currency exchanges which subject them 3/4 BIS central bankers' speeches to registration, minimum capital requirements, internal controls, and regulatory reporting, among others. At the same time, we recognize that digital finance delivered through mobile technology alone cannot reach everyone. This is why we have also issued regulations that enable cash agents to provide improved “last mile” delivery of financial services to the unbanked and under-banked among our countrymen. Needless to say that the BSP is committed to the effective discharge of its mandates and policy thrusts—foremost of which is maintaining price stability—to contribute to the country’s favorable growth narrative. Maintaining price and financial stability, as well as an effective and transparent payments systems, will help foster an enabling macroeconomic environment that is conducive to a sustainable economic growth. On monetary policy, the BSP remains committed to a forward-looking approach to pre-emptively address risks to price stability. In every policy decision that we will make, we will always be guided by the evolving conditions for inflation and outlook, while being mindful of developments in the world economy. On financial stability, the BSP will continue efforts to safeguard the domestic financial system and help manage risks attendant to financial market developments. The goal is to strengthen the regulatory regime to ensure responsible risk-taking by financial institutions. We are also stepping up advocacy efforts to promote financial learning and microfinance to more sectors and areas across the country. Finally, in the area of payments and settlements, we will remain proactive in ensuring the safety and timely completion of financial transactions by minimizing systemic risks and enhancing the integrity of financial processes through progressive policies on e-commerce and innovations. The growth narrative of the Philippine economy has gone a long way. The transformation that the domestic economy underwent before achieving its current state, has been arduous, and at times, painful, but nevertheless rooted on solid structural underpinnings and macroeconomic policy discipline. In closing, while the Philippine economy is not immune from risks in the global market, it is well insulated. In a global environment where risk sentiment is fragile and uncertainty is permanent, we are confident to say that the Philippines still provides a unique value proposition that is not fleeting, but anchored on a dynamic track record of changing for the better. At the same time, we need to ensure that this growth performance continues over the longer term so that the next generation of Filipinos will likewise enjoy years of economic prosperity. In this regard, a sustained commitment to pursue the Government’s infrastructure and reform agenda will support high, inclusive, and sustainable growth. For its part, the BSP remains committed to the effective pursuit of its mandates for the country’s continued, balanced, and sustainable growth which ultimately will improve the life of every Filipino people. Thank you and mabuhay! 4/4 BIS central bankers' speeches
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Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Signing of Memorandum of Understanding between the Bangko Sentral ng Pilipinas and Carnegie Mellon University - Australia, Manila, 2 September 2019.
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Benjamin E Diokno: Strengthening the BSP’s collaboration with the academic community Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Signing of Memorandum of Understanding between the Bangko Sentral ng Pilipinas and Carnegie Mellon University - Australia, Manila, 2 September 2019. * * * Prof. Ramayya Krishnan, Dean, Heinz College of the Carnegie Mellon University; Prof. Emil Bolongaita, Head of the Carnegie Mellon University – Australia; my BSP colleagues … good morning. The Bangko Sentral ng Pilipinas has been known as one that continuously ensures the continued learning and capacity building of its people. The need to pursue this has become more relevant given the ever changing landscape of central banking and the growing complexity and increasing demands of the banking and financial industries as it embraces digital transformation. Currently, the Bangko Sentral ng Pilipinas is pursuing the Strategy for Technology Adoption in Regulatory Supervision (STARS) Program, which covers real-time market surveillance, digital supervision and examination, data analytics, data collection, and distribution. We are also pursuing the National Retail Payment System (NRPS) modernization initiatives, Financial Technology (FinTech) innovations to promote financial inclusion, Cashless Purchase Card initiatives, among others. The card production for the Philippine Identification System (PhilSys) and use of Government eReceipts are BSP’s contribution to the e-Government Master Plan of the National Government. Internally, the BSP is strengthening and updating its systems and processes through the Integrated HR Information System and strengthening its information security, including data privacy and cybersecurity. These initiatives — to be successful — would require the up-skilling or re-tooling of BSP staff and the re-engineering of the systems and processes of the BSP. However, we cannot do this alone, and this brings me to our activity, and why we are all here, today. The digital transformation initiatives of the Bangko Sentral ng Pilipinas requires collaborations with leading practitioners and experts and globally recognized centers of excellence like the Carnegie Mellon University (CMU) – Australia, to ensure its success. The campuses of the CMU have all been acclaimed to be leaders in their respective fields of specialization. In fact, the Times Higher Education has ranked CMU as 24th among the thousands of universities in the world. CMU has also been ranked by various organizations to be among the top two universities in the fields of Information and Technology Management, School of Computer Science, Artificial Intelligence, and Information Systems. When I was still Secretary of the Department of Budget and Management, I had the opportunity to work with CMU – Australia when we identified and awarded scholarships to very promising DBM employees. And in a similar context, I am glad to know that the relationship between the Bangko Sentral ng Pilipinas and the CMU – Australia has taken root over a decade ago, and has produced five master’s degree graduates in the fields of Public Policy and Management and in Information Technology. Today, the BSP and CMU-Australia collaborate on another milestone. Through it, we will not just 1/2 BIS central bankers' speeches enhance the knowledge and skills of its employees, but also benefit from the guidance of the CMU-Australia on how we can improve or develop the needed systems and tools to ensure that the BSP’s digital transformation journey will be a productive and a successful one. With this partnership, it is also my hope that through the Memorandum of Understanding, we can strengthen the collaboration of the BSP and the academic community, both here and abroad. Mabuhay ang Carnegie Mellon University – Australia! Mabuhay ang Bangko Sentral ng Pilipinas! Salamat po at Magandang umaga sa inyong lahat! 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2019 Awards Ceremony and Appreciation Dinner for BSP stakeholders in Region III, Subic, Zambales, 13 September 2019.
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Benjamin E Diokno: One team, one goal - resilient partnership towards inclusive economic growth Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2019 Awards Ceremony and Appreciation Dinner for BSP stakeholders in Region III, Subic, Zambales, 13 September 2019. * * * Good afternoon, everyone. It is with great pleasure that I welcome all of you to the 2019 Awards Ceremony and Appreciation Dinner for BSP Stakeholders in Region III. I am pleased that the BSP has been recognizing the invaluable contributions of its partners in central banking for the past 16 years now. The growth in the number and scope of awards given reflects the dynamic support and cooperation you have extended to the BSP’s various initiatives and advocacies, which are all geared toward improving the life of every Filipino. I cannot overemphasize the value of your support as the BSP continues to navigate the country’s economic landscape. By working as one team, we have entered this year from a position of strength and with renewed optimism. Based on the country’s economic performance, the Gross Domestic Product (GDP) grew by 6.2 percent year-on-year in 2018 and remained firm at 5.5 percent in the first semester of 2019. On the production side, economic growth was propelled mainly by the robust performance of the services sectors. Broad-based expansion in household consumption and government spending reinforced growth on the demand side. Meanwhile, January to August 2019 inflation readings have averaged 3.0 percent, well within the announced target range of 2 to 4 percent of the National Government. Last August, inflation slowed down to 1.7 percent. The external position of the Philippines is reflective of an economy driven by solid macroeconomic fundamentals and firm growth prospects. The country’s balance of payments (BOP) position for the first seven months of the year posted a surplus of US$5 billion, a turnaround from the US$3.7 billion BOP deficit recorded in the same period last year. The surplus may be attributed partly to remittance inflows from overseas Filipinos during the first six months of the year, and net inflows of foreign direct investments during the first five months of the year. Sustained inflows of foreign exchange are expected to continue to support the peso. In the first six months of the year, net inflows of foreign direct investments (FDI) reached US$3.6 billion. Meanwhile, foreign portfolio investments (FPI) reversed to net inflows of US$5.3 billion in the first semester of 2019, from US$708 million net outflows in the same period last year. Personal remittances for January to June 2019 totaled US$16.3 billion, higher by 2.9 percent than the US$15.8 billion level recorded in the same period last year. This was achieved despite increasing global efforts to de-risk banks and tighten regulations of money transfer operations. The country’s gross international reserves (GIR) continue to serve as an ample external liquidity buffer. Preliminary data shows that the country’s gross international reserves (GIR) rose to US$85.6 billion as of end-August 2019. At this level, the GIR can cover up to 7.5 months’ worth of imports of goods and payments of services and primary income. The country’s external debt remained manageable. 1/3 BIS central bankers' speeches External debt as a proportion to the country’s GDP increased to 24 percent in the first semester of 2019. Despite this moderate uptick, external debt-to-GDP has remained below 25 percent since 2016. Our financial system remains sound and continues to effectively intermediate funds to productive sectors, thus promoting economic growth. In the first semester of 2019, banks’ balance sheets exhibited steady growth in both assets and deposits. Asset quality also remained stable while capital adequacy ratios stayed well-above international standards. Banks maintained dominance in the financial sector, with universal and commercial banks (U/KBs) accounting for about 91 percent of banks’ total resources. In terms of the number of head offices and branches/agencies, non-bank financial intermediaries have the widest physical network, consisting mainly of pawnshops. From this position of strength, the BSP remains committed to continually uphold the highest standard of excellence in crafting policies to maintain price stability, promote a strong financial system, and foster a safe and efficient payments and settlement system. The ability of the BSP to deliver on its mandates depends significantly not only on its commitment, but also on its credibility, supported by its dynamic engagement with its stakeholders. Indeed, we can rightfully say that credibility is a major part of the institutional capital of the BSP as the country’s central bank. Thus, by establishing and maintaining consistent engagement with our partners, the BSP is able to capture the sentiment of its stakeholders, which helps us formulate and calibrate effective monetary policies. Through the years, your support has become increasingly more important in our various initiatives and advocacies directed toward the fulfillment of our mandates. For instance, in July 2017, the BSP launched the BSP E-Survey Portal that features an online questionnaire, database, and an application for data maintenance and consolidation system. In 2018, the portal’s registered users increased to 1,706 from the 860 registered users in 2017. And, as of end-June of this year, the number of registered users rose to 2019. This is one of the many endeavors of the BSP that highlight the importance of the information support you provide us to aid in our policy formulation. The BSP has, likewise, responded to the call of digitization by pioneering the National Retail Payment System (NRPS). The NRPS is a policy and regulatory framework to establish a safe, efficient and reliable retail payment system in the Philippines. With this initiative, digital payments have become more accessible to every Filipino. We, at the BSP, cannot stress enough how you have taken a pivotal role in helping the financial sector develop in this age of fast-paced technological advancement and integration. Today, as we celebrate our rewarding partnership, we must also reflect on the motivations behind it. This year’s theme, “One Team One Goal: Resilient Partnership Towards Inclusive Economic Growth,” highlights the fact that the BSP cannot do it alone. With your support, the BSP is able to continuously craft policies that are appropriate for the nation. Ladies and gentlemen, by working as a team, we will be more than ready to face the challenges head on and deliver on our common goal of achieving sustainable and inclusive economic growth and development in the Philippines. 2/3 BIS central bankers' speeches Thank you and congratulations to all our outstanding partners! 3/3 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the signing ceremony of MOU between BSP and BCDA, New Clark City, Capas, Tarlac, 13 September 2019.
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Benjamin E Diokno: Message during signing ceremony of MOU between BSP and BCDA Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the signing ceremony of MOU between BSP and BCDA, New Clark City, Capas, Tarlac, 13 September 2019. * * * Honorable Mayor Reynaldo L. Catacutan, of the Municipality of Capas, dear Cabinet members, heads of agencies, and local officials, members of the Monetary Board and fellow workers in government, guests from the private sector, media, ladies and gentlemen… Mayap a abak kakayu ngan! (Good morning to you all!) Before anything else, I would like to thank Mayor Rey for his kind words and warm welcome. On behalf of the Monetary Board and the Bangko Sentral ng Pilipinas, I would like to extend my gratitude to the officials and residents of the municipality of Capas, as well as to our friends from the provincial government of Tarlac, for your hospitality. Second, I would like to thank BCDA President and CEO, Mr. Vince Dizon, for graciously hosting today’s event onsite at the New Clark City. I know this is a busy time for BCDA since preparations for the upcoming Southeast Asian Games are in full-swing. But knowing Vince and his brand of leadership, I am sure that his agile team is well-capable of juggling the many activities taking place in this true “City of the Future.” Dear friends, this ceremony today represents the first of many important milestones, as BSP aims to relocate its Security Plant Complex, or “SPC”. As you well know, the existing SPC, which houses the Bank’s currency production operations, is located on a seven-hectare plot of land along East Avenue in Quezon City. Inaugurated in 1978, the BSP SPC ushered in no less than four generations of banknotes and coins. The SPC is also where we print land titles for the Land Registration Authority, craft presidential medals and commemorative coins, and soon, it will also be where we will print the National ID cards for the Philippine Statistical Authority. After forty years of service, it is now ripe for a major upgrade that will ensure that the Bangko Sentral remains at the cutting-edge of currency production and security printing technologies. It was because of this that led the BSP and the Monetary Board here to the New Clark City. It is worth noting that the BSP follows a very rigorous set of criteria in selecting sites for its facilities. These standards—which include everything from lot configuration, site conditions, to infrastructural support—are intended to ensure that the BSP’s operations are suitably located. After an exhaustive canvass of sites north and south of Metro Manila, it is crystal clear that the New Clark City is the only one that met the requirements of the BSP—with flying colors, might I add. In my previous stint as Budget Secretary, I was fortunate to have a hand in crafting and implementing the “Build, Build, Build” Program of the Government, which is aimed to usher in a “Golden Age of Infrastructure” in the Philippines. One of the key elements of that program is the establishment of a new government center on this very location. Under the leadership of BCDA President and CEO Vince Dizon, the New Clark City is rapidly transforming itself to a resilient metropolis that will drive growth momentum in “Paspas Capas”1, Tarlac, as well as in other nearby provinces in central and northern Luzon. 1/2 BIS central bankers' speeches With the National Government Administrative Center situated just around the corner, as well as the continuing influx of government institutions setting up shop within the complex, the New Clark City is also clearly geared towards responsive governance and public service. Today, as Governor of the Bangko Sentral, I’m gretly honored to lay the groundwork for bringing one of the country’s most trusted government institutions to this most vibrant growth corridor. In the Memorandum of Understanding which we are signing today, the BSP and BCDA agree to work hand-in-hand to facilitate the relocation of the BSP Security Plant to the New Clark City, on the plot of land just outside of this tent. Once the details of relocation are threshed out, BSP and BCDA will formalize its respective commitments under a new Memorandum of Agreement, which will serve as the implementing document for this purpose. From there, we will work unceasingly to complete the development within the shortest timeframe possible, at the highest level of quality and workmanship. We will explore the various modes of procurement available in order to leverage local and international expertise in the design and construction of the new SPC. Speaking of which, in a few moments from now, we will be showcasing the concept design crafted by our very own architects in the BSP Currency Management Sector, to give you a glimpse of the complex that we plan to establish just outside this venue. Consistent with the spirit of the New Clark City, the concept envisions a facility that will serve as a leading benchmark for a smart, green, modern complex, not just within the country, but on the global scale as well. We also envision an industrial facility that will employ state-of-the-art technologies that will foster high-yield production systems, efficient workflows, while maintaining a low energy footprint. Likewise, with the ample area being considered, the facility will feature expansive greenery and natural living spaces – which are short supply in Metro Manila – to exemplify the BSP’s continuing commitment to health, well-being, and environmental preservation. So allow me to end my remarks by calling your attention to the screen in front as we proudly unveil the concept design of the new BSP Security Plant Complex which will rise in the New Clark City. Mabuhay po tayong lahat. Mabuhay ang Bansang Pilipinas. 1 “Paspas Capas” is the municipality’s motto/slogan. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippines Investment Forum (Euromoney), Makati, 24 September 2019.
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Benjamin E Diokno: The Philippine economy - sustaining resilience through transformational reforms Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Philippines Investment Forum (Euromoney), Makati, 24 September 2019. * * * Mr. Tony Shale, Euromoney executives, colleagues in government, stakeholders from the private sector, ladies and gentlemen, good morning. I would like to thank Euromoney for inviting me once again to the annual Philippines Investment Forum. Last year, I addressed the audience as Budget Secretary, and I am happy to speak once again, this time as Governor of the Bangko Sentral ng Pilipinas. Today, I will update you on the Philippine economy through the BSP lens and highlight the favourable performance of the Philippine economy amid external headwinds, aided by a long list of structural reforms that have transformed it into one of the most resilient economies in the region and the world. A summary of basic macroeconomic figures supports the message that the Philippines is on a very sound footing. Economic growth is solid and sustainable. Inflation is manageable. External payments position is comfortable. And, the banking system is strong and stable. I will expound on each of these four points shortly. The Philippines has come a long way from being “Asia’s sick man.” In fact, today the Philippines is recognized globally as among the fastest growing and most resilient economies in the world that enjoys even brighter prospects ahead. The transformation, of course, did not happen overnight. It was gradual and was a product of a long list of structural reforms that started way back in the 1990s. I remember in the 1990s, a group of economist headed by Paul Krugman came to the Philippines and their verdict, the long term growth of the Philippines is at best 3 per cent. We’ve come a long way from there. For instance, we have deregulated oil industry, liberalized the power sector, privatized the water services, and accession to the World Trade Organization—just to name a few—are some of the reforms in the 1990s that have been followed through in the succeeding decades and—if I may stress—more aggressively so in the last three years. Vital reforms from 2016 onwards are expected to unleash more growth potentials for the Philippines. Among these positive game changers are tax reforms, liberalization of rice importation, the national ID system, Universal Healthcare, Universal Access to Tertiary Education, Ease of Doing Business law, relaxation of the Foreign Investments Negative List (FINL), and the revised Corporation Code—just to name a few. As far as the BSP is concerned, the newly amended Charter has strengthened the BSP’s capacity to better safeguard price and financial stability, and to promote an efficient payments and settlements system and public services act, among others. At the moment, the Philippines is on the verge of becoming an upper middle-income economy. And with the continued reform momentum, we are paving the way to become a high-income 1/5 BIS central bankers' speeches status economy by 2040. Now, let me to go back and expound on each of the four points I mentioned earlier. First, solid and sustainable economic growth. As of the second quarter of 2019, the Philippines recorded its 82nd consecutive quarter of uninterrupted economic growth. This shows we have managed to sail through even the toughest external challenges from the Asian financial crisis to the Global financial crisis. Our projection is for the Philippines to continue growing. This is consistent with the lofty goal of becoming a high-income economy in about two decades. In particular, the incremental capital-output ratio has been on a steady decline, dropping from 9.5 percent in 1992 to just 3.9 percent today. In addition, the economy’s total factor productivity has increased, from only half a percent in the 1990s to about 2.0 percent today. These numbers mean that we are now able to produce more goods and services with the same amount of input—thanks to the long list of structural reforms we have implemented in the past. And with the Build, Build, Build program ushering in the country’s Golden Age of Infrastructure, we have additional solid push for the economy’s productive capacity to expand further. At present, the Philippine economy’s potential growth is estimated at 6.5 percent, more than twice what it was in the early 1990s. The potential growth is projected to rise even further in the next three years, matching the government’s growth target of 7 to 8 percent by 2022. The ability of the government to invest more for the country’s future is well supported by a healthy fiscal situation. The budget deficit and the public debt are both manageable. In fact, despite the government’s massive infrastructure investment, debt is sustainable, as reflected by low and declining debt-to-GDP ratio. The Philippines also enjoys improving labor dynamics, with the labor force becoming more educated. This bodes well for attracting more investments that generate higher paying jobs. This means our economy can grow at a much faster pace than decades ago–thereby unlocking more opportunities to pull more people out of poverty – without the risk of stoking up inflation. Without such risk, strong economic growth can be sustained over the long haul. Second, within-target inflation. After being elevated last year due to supply-side factors, inflation has reverted to within the target range of 2 to 4 percent. This is credited to a series of monetary actions by the BSP that addressed brewing secondround effects combined with and non-monetary actions by the government that addressed bottlenecks to food supply. With the BSP’s amended charter, we will ensure that we maximize its provisions to better fulfill our core mandate of price stability. Under the new Charter, the BSP is now allowed to issue its own debt instruments. Being able to issue our own debt instruments allows us to better manage liquidity in the system. With my appointment to the BSP last March coming shortly after the signing into law of the BSP’s amended charter – a legislative reform that was decades in the making – I consider it my primary duty to ensure not just its implementation but also the maximization of its provisions for 2/5 BIS central bankers' speeches the benefit of the economy and the Filipino people. Third, comfortable external payments position. Based on the latest estimates, the country is expected to post a US$3.7 billion surplus in its balance of payments this year. Thanks to solid foreign exchange inflows in the capital and financial account, the deficit in the current account is more than adequately covered. Talking about the current account deficit, this is not something out of the ordinary, especially for a growing economy like ours that is investing vigorously in its future through an aggressive public infrastructure drive. With rising public and private investments, importation of rawer materials, intermediate goods, and capital equipment has also been growing. This explains the current account deficit, which nevertheless, is financeable, given robust foreign exchange inflows in the financial and capital account. Driving the country’s BOP surplus are reliable inflows of Overseas Filipinos’ remittances, business process outsourcing (BPO) revenues, and tourism receipts. Together, the combined amount of these three was equivalent to 17 percent of the country’s gross domestic product (GDP) last year, up from 15 percent in 2010. Foreign direct investments (FDIs), roughly US$10 billion annually in the last 2 years, also lend support to the country’s external account amid rising investor confidence. These steady inflows of foreign exchange have built ample gross international reserves (GIR) to an all-time high of US$86 billion. As of end-August 2019, the GIR could cover 7.5 months’ worth of imports of goods and payments of services and primary income. It was 5.5 times the country’s short-term external debt based on original maturity and 4.0 times based on residual maturity. The latest GIR exceeding the outstanding external debt of US$81.3 billion. Also, external debt as a percent of GDP had dropped to only 23.8 percent as of the second quarter of 2019 from 60 percent in 2005. On to my fourth point which is a strong and stable banking system. Needless to say that the country’s banking sector continues to serve as a stable anchor for the economy. It is sufficiently capitalized, with the capital adequacy ratio (CAR) standing at 15.9 percent in June 2019 on a consolidated basis compared with the BSP’s regulatory minimum requirement of 10 percent and the international standard of 8.0 percent. The industry also enjoys low exposure to bad debts, with the non-performing loans ratio at a mere 1.6 percent as of end-July this year. The industry likewise exhibits robust lending activity, with credit helping boost not only household consumption but also business activities, such as real estate, trade, manufacturing, and construction, among other sectors. In addition, with BSP’s strengthened capability to supervise the financial system, we are also able to supervise money service businesses, credit granting businesses, and payment system operators. Moving forward, we will be even more proactive in promoting a regulatory environment that enables growth and innovation among banks but at the same time enhances their ability to manage risks—all with the Filipino people in mind. 3/5 BIS central bankers' speeches These developments and prospects are all recognized by relevant international observers. In fact, international credit rating agencies further upgraded our credit ratings after giving us the minimum investment grades in 2013. We are currently rated one notch above the minimum investment grade by Fitch and Moody’s, while we are just a step away from securing a Single-A rating from S&P Global. We are keen on hitting the minimum rating within the A territory over the next two years or so. Of course, higher credit ratings are not an end goal in themselves. It is also a means to generate greater benefits for Filipinos through translating economic growth to actual poverty reduction. With higher credit ratings, interest rates on government borrowings drop, which leads to savings on interest payments and, therefore, more fiscal space to fund infrastructure projects and social services. Securing higher credit ratings requires the Philippines to post even better numbers on various metrics on the economy, parallel to those exhibited by higher rated and richer economies. As such, aiming for A ratings goes hand in hand with the goal for the Philippines to graduate into an upper middle income economy over the short term and to a high income economy over the long haul. Then again, this is something no institution can singlehandedly accomplish. This requires concerted effort among all concerned institutions, public and private. As Governor of the BSP, my personal aim is to bring BSP closer to the people. The primary means to do so is to vigorously pursue initiatives geared toward greater financial inclusion. We believe that with easier access to financial products and services, people are accorded more opportunities to pursue savings, investments, and entrepreneurial activities that help augment incomes. We are doing this through the following (1) financial technology, (2) financial education, and capital market development. On financial technology, the BSP continues to enable a regulatory environment supportive of the development of financial technology (fintech), while at the same time ensuring strengthened relevant risk governance and consumer protection systems. We want to advance the country’s digital financial ecosystem in such a way that every individual is able to open a deposit account and use digital financial services through simplified requirements and interoperable payment systems. Under the BSP’s National Retail Payment System (NRPS) framework, we have started implementation of the two interoperable payments systems, particularly the InstaPay for low value payments settled in real time and the PESONet for bigger amounts of payments settled typically within the same banking day. As of April 2019, there are 50 participants in the PESONet and 39 in the Instapay. We expect more over the near term. On financial education, the BSP is partnering with various institutions so that we are able to teach its concepts and principles to our target audience, which includes students, overseas Filipinos and their families, recipients of the government’s conditional and unconditional cash transfers, uniformed personnel, MSMEs, and civil servants. Together with this is consumer empowerment initiatives. Work is now ongoing on the chatbot functionality, which will enable consumers to submit complaints via SMS, webchat, and 4/5 BIS central bankers' speeches messenger applications. At the same time, the BSP is pushing for the Financial Consumer Protection bill, which seeks to strengthen regulations that protect financial consumers. On capital market development, the BSP in collaboration with other financial regulators is pursuing policy reforms and initiatives that will promote a wider array of and accessibility to investment products—so that people from various income groups are able to engage in investment activities. With these initiatives and those of the government, we have a very solid basis to be optimistic about the future. Based on latest government estimates, the country’s macroeconomic fundamentals will continue to paint a positive narrative for the Philippine economy over the next three years. These are led by an even more robust economic growth, stable inflation, and healthy external payments position. Amid this backdrop, we invite the private sector to actively partner with the government by investing more in the Philippines’ future, so that you can ride along the economy’s growth tide. Having said this, there will always be risks to the growth outlook. At the moment, some of the challenges ahead include global economic growth slowdown, the US-China trade war, geopolitical tensions, disruptive technologies, infrastructure gaps, and weather disturbances. Rest assured the BSP will keep a watchful eye on these domestic and external headwinds to help maintain economic stability for the Philippines. With a goal of becoming “closer to the Filipino people,” the BSP commits to proactively using monetary, financial, and payments and settlements channels so that Filipinos feel the benefits of a robustly growing economy. In closing, allow me to give you some key notes: First, the Philippines is expected to remain among the fastest growing economies in the world. Second, the government is committed to its massive infrastructure agenda, which is helping fuel high, sustainable, and more inclusive economic growth. Third, the Philippines is resilient to shocks, and the BSP is committed to continue effectively managing the country’s external accounts to help ensure this resilience is maintained. Fourth, your BSP will continue to maintain a regulatory environment that allows the financial system to remain stable, to flourish, and to further support growth of the economy. Fifth, your BSP will continue to pursue initiatives toward an even more efficient, dynamic, and inclusive financial system. Sixth, your BSP, will remain committed to its core mandate of price stability, and stands ready to use any of its tools, if and when necessary, for effective inflation management. In brief, the BSP will continue to carry out its objectives and mandates for the ultimate benefit of the Filipino people. Thank you and good day. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the eCompareMo.com Finovation Event, Makati, 25 September 2019.
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Benjamin E Diokno: Regulations and policies to empower financial institutions and reach undeserved population through technology and innovation Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the eCompareMo.com Finovation Event, Makati, 25 September 2019. * * * Ladies and gentlemen, good morning. Thank you for inviting me to share with you the BSP’s key policy issuances and initiatives to promote financial inclusion in the Philippines and the regulatory framework on financial technology. This year’s theme “Get all Pinoys #AcceptED!” is aligned with the BSP’s policy objective of building an inclusive financial system for the Filipinos. Through financial inclusion, we aim to cater to the unserved and underserved markets such as the low-income and marginalized, micro, small and medium enterprises, overseas Filipinos and their beneficiaries, agriculture and agrarian reform sectors, indigenous peoples, persons with disabilities, among others. We, at the BSP, recognize the significant role that the fintech plays in driving the transformation of the traditional processes in the financial system through technology-driven innovations to unlock financial inclusion barriers. We aim to develop a digital finance ecosystem that supports the diverse needs of all users in a manner that is secure, sustainable, convenient, and affordable. To support this goal, the BSP established the National Retail Payment System (NRPS), our flagship program for digital finance. NRPS is built on three core principles namely interoperability, inclusiveness and “coopetition”. Through the NRPS, regulated institutions are required to adopt transparent and fair market pricing of electronic payments, transition from exclusive bilateral to multi-party clearinghouse agreements and provide electronic fund transfer facilities in all available channels, among others. It is a critical platform that will establish an interoperable ecosystem allowing seamless electronic fund transfers and payments between and among accounts. It aims to promote a “cash-lite” economy and ultimately improve the country’s economic competitiveness. The NRPS, and the payment ecosystem that is envisioned to arise from it, is positioned to be a platform for fintech innovations. Industry players can utilize fintech solutions and provide services within an organized, commercially-viable and efficient retail payment system. Advances in technology have also enabled the development of solutions that enhance market reach and expand delivery channels. Through technology, people from all walks of life, including those in unbanked and underserved markets, can have access to formal financial services like online bills payments and fund transfers. We cannot discount the crucial role that fintech companies play in this modern ecosystem. Fintech players are not competitors of our supervised financial institutions, but rather, are strategic partners to bring about greater efficiencies in the delivery of financial services. Recognizing the benefits and opportunities from these technological innovations, the BSP aims to provide a regulatory environment that allows innovation to flourish, while at the same time, ensuring a safe and sound financial system that is beneficial to the general public. The BSP’s regulatory approach is shaped by three principles: 1/5 BIS central bankers' speeches One – We ensure that regulation is risk-based, proportionate and fair – This simply means that regulation is calibrated according to the magnitude of risks identified in a defined activity, and not on the type of entity that delivers it. This approach promotes a level playing field and ensures that beneficial innovations are not hampered by unwarranted and excessive compliance requirements. Two – We maintain active multi-stakeholder collaboration – This is necessary in view of the multiplicity of players and multi-layered relationships among fintechs and varied financial sector players. It represents a “whole-of-government approach”, ensuring policy consistency and preventing regulatory arbitrage. Continuing engagement with industry players is also crucial to foster a shared understanding of risks, our financial inclusion goals and market conduct expectations. Three – We ensure consumer protection – By this we mean innovations must work for the benefit of consumers, especially the most vulnerable ones, and those availing of financial services for the first time. Regulations must ensure that issues such as transparency, product suitability, security and confidentiality, are made paramount considerations in the design and deployment of digital solutions. Fintech has immensely contributed to the enhancement of a financial consumer’s experience by transforming the delivery of financial services from branch banking to online banking, paperbased money to electronic money, and face-to-face customer verification to technology-aided know-your-customer process, among others. In addition, Fintech transcends geographical barriers and enhances transparency, and reduces the cost of financial transactions. In line with this, the BSP has identified the responsible promotion of FinTech as a priority agenda, thus, the establishment of a fintech roadmap covering three key areas, namely: Collaborative Engagements, Commensurate Regulations and Capacity Building. By collaborative engagements, we mean maintenance of active multi-stakeholder collaboration – This is necessary in view of the multiplicity of players and multi-layered relationships among fintechs innovators and varied incumbent financial sector players. It represents a “whole-of-government approach”, ensuring policy consistency and preventing regulatory arbitrage. Continuing engagement with industry players is also crucial to foster a shared understanding of risks, our financial inclusion goals and market conduct expectations. In crafting commensurate regulations, the BSP has implemented key policy changes espousing the principle of “proportionality. ” This approach promotes a level playing field and ensures that beneficial innovations are not hampered by unwarranted and excessive compliance requirements. For capacity build-up, the BSP continues to provide training and learning opportunities to fasttrack the development process of our people to ensure that financial supervisors maintain the necessary knowledge, proficiency and competence to keep pace with the fast-evolving innovations. We are also exploring regtech and suptech solutions, including the use of artificial intelligence, machine learning, cloud computing and APIs, to enhance the timeliness and quality of our risk-based decision-making. As part of BSP’s fintech roadmap, I would like to share the BSP’s test-and-learn approach or the regulatory sandbox as part of our supervisory toolkit in dealing with new and innovative technologies in the market. Through the so-called regulatory sandbox, pioneering solutions and technologies can be 2/5 BIS central bankers' speeches deployed in a live but controlled setting. I will not go into each one of the steps but on a very high level, our “test and learn” approach has been proven to be useful in dealing with increasing digital innovations in the market and promoting development and innovation within the financial services industry. It provides an opportunity for innovators to connect to banks and other players with clear authority from the regulators. Such an approach helps the regulators assess potential risks and accordingly decide how to regulate the new market, if needed. Recent examples of entities which approached BSP and devoted time and resources to conduct controlled and calculated experiments of their products include: (i) a pioneering rural bank that engaged a cloud service provider for its core banking system; (ii) a foreign bank which partnered with an electronic money issuer to offer its mobile based deposit product; (iii) a universal bank which explores potential use cases of a tokenized cash; and (iv) a universal bank which utilizes the blockchain platform to push its financial inclusion initiatives. Let me quickly walk you through the five key steps in BSP’s test and learn approach: The first step is to allow for market to develop and innovations to take place. After engaging with fintech players, the BSP determines if the proposed innovation presents major regulatory concerns. This is where the BSP checks the eligibility requirements such as soundness and feasibility of the business model, the proposed solution is innovative and not covered by existing regulations and the proponent demonstrates sound track record as well as resources/capability to successfully launch the pilot. The next step is to proceed with flexibility yet with caution. During this phase, the BSP set certain limits/parameters or safeguards before fintech players fully market their products and services. We allow these pilot projects to run within clear parameters i.e. specific test time periods, localized markets or geography and limited users. Likewise, risk management controls such as those covering cybersecurity risks, money laundering, consumer protection and other operational risks should be in place. The third step is to understand operating and business model. As the product or service is being offered in the market, the BSP can have better understanding of the operating/business models as well as technical considerations. The fourth step is for the BSP to adopt appropriate regulatory approach. Once the BSP fully understands the operating/business model as well as detailed mechanics of the innovative product/service, appropriate regulations are then issued. Lastly, the BSP closely monitors developments and related issues. We continue to monitor developments and introduce supervisory enhancements, when necessary, to address emerging issues and risks. Similar with the BSP’s existing regulatory framework and supervisory approach covering banks and other financial institutions, the BSP also applies the same framework and approach that is commensurate to the FinTech’s risk profile and systemic importance. This framework incorporates the following policy considerations: First is Prudential Objective – In determining how BSP should supervise FinTechs, the safety 3/5 BIS central bankers' speeches and soundness of the individual institution, the stability of the financial system, the advancement of financial inclusion, and the undue regulatory burden are all taken into consideration. Second is the Landscape of the Financial System – In order to draw a holistic supervisory approach, BSP needs to have information on the financial ecosystem, particularly FinTechs. These include: the asset size, business condition like liquidity, profitability, capitalization, among others). Next is the Risks Faced by FinTech – Considering their own business peculiarities, it is very important to also identify the risks specific to FinTech operations, these may include cybersecurity risk and AML risk, among others. And lastly – Once we have identified these important information, we will now employ appropriate risk management standards based on the FinTech’s business model, risk profile and degree of systemic importance. The ongoing challenge for the BSP is how to stay ahead of the curve when it comes to emerging financial technological innovations. In the same way technology is changing the financial industry, the BSP is also adopting innovations to enhance the way we regulate and supervise financial institutions. This is through the use of Regulatory Technology (RegTech) solutions aimed at enabling the BSP to have a more intensive, risk-focused and forward-looking supervision while easing BSFIs’ regulatory compliance burdens. We are exploring regtech and suptech solutions, including the use of artificial intelligence, machine learning, and APIs, to enhance the timeliness and quality of our risk-based decisionmaking. In fact, we are now in the final stages of pilot implementation of two RegTech solutions. The first one is an automated complaint-handling system using a chatbot with the primary objective of improving the way customers lodged complaints against financial institutions. The second is an API system that automates the collection, processing and analysis of data from supervised institutions. Previously, banks were burdened by an extensive and timeconsuming validation process, involving more than 240 Excel-based data entry templates with 100,000 plus data points. The resulting delays and the scope for human error posed complications on our data and statistical compilation operations. With this modern API system, manual intervention is eliminated since data sorting, sanitation and validation processes are fully automated and secured. With the same 7,000 data validation rules still being applied, processing time of filed returns was cut from more than 30 minutes to just 10 seconds each, thereby streamlining the entire end-to-end process of regulatory reporting and validation. On the other hand, for the less sophisticated supervised entities that cannot immediately migrate to the API-based reporting, we developed a central automated reporting environment referred to as the FI Portal. The FI Portal provides a single electronic platform upon which FIs can submit reports, receive feedback on its acceptability, and exchange correspondences with the BSP on matters related to report submissions. It offers a more secure encrypted process of submission through a web facility where supervised entities can upload their reports instead of sending them via regular email. We are also undertaking major organizational reforms and initiatives for a more proactive supervisory stance. We have also recently set up a bigger, better and more agile Financial Technology Subsector to 4/5 BIS central bankers' speeches ensure the operational as well as cyber-resilience of the financial system. The new subsector in-charge of fostering responsible innovation in the financial services and payments industry is composed of two mission critical departments. One is the Technology Risk and Innovation Supervision Department, which is primarily responsible for conducting onsite and offsite IT supervision of regulated entities. It is also in charge of cybersecurity surveillance and promoting digital or fintech innovation through the BSP’s regulatory sandbox. The other department is the Payment Systems Oversight Department, which is mainly responsible for the payments oversight, licensing and policy development for a safe, efficient and reliable national payment system. PSOD is our lead in enforcing a holistic payment oversight framework, including the National Retail Payment System or the NRPS. In conclusion, the BSP adopts an open and flexible approach to financial innovation, given its crucial role in expanding our financial inclusion agenda. We are closely engaging with fintech stakeholders to gain a better understanding of their business models, processes and systems. Our main challenge is to strike a balance between promoting and enabling a policy and regulatory environment for emerging financial innovations and ensuring consumer protection, security, and financial stability. We aim to establish a forward-looking approach to ensure that regulatory and supervisory frameworks are in tune with emerging trends and developments. Ladies and gentlemen, we are in an era where the biggest challenge is to keep up with the rapid pace of technological changes. To stay relevant is to remain proactive and vigilant in monitoring the advancements in technology and develop corresponding innovative solutions that intersects with traditional banking and other financial services and be agile. We need to take full advantage of and effectively harness fintech innovations that can be to used to unlock financial inclusion barriers and facilitate digital financial transactions in ways never imagined before. Finally, the BSP, as your partner in promoting financial innovation and inclusion, will remain committed in supporting beneficial fintech innovations through an enabling policy and regulatory environment. I hope that as we all do our part in this, we keep the convenience, safety, and well-being of the Filipino people in mind. Thank you and I wish everyone a fruitful conference. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MOA Signing between PSA and BSP on the Philippine ID, Manila, 7 October 2019.
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Benjamin E Diokno: Towards the implementation of a robust Philippine ID system Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MOA Signing between PSA and BSP on the Philippine ID, Manila, 7 October 2019. * * * Undersecretary, National Statistician and Civil Registrar General Claire Dennis S. Mapa; fellow civil servants from the Philippine Statistics Authority and Monetary Board Members, Deputy Governors and colleagues from the Bangko Sentral ng Pilipinas; distinguished guests, ladies and gentlemen, good afternoon. The BSP is honored to sign the memorandum of agreement with PSA that starts the implementation of the “Philippine Identification System (PhilSys) Act.” As you know, this is thirty years in the making. The law is universally-beneficial for Filipinos as it provides “a means of simplifying public and private transactions” through a reliable and nationally-accepted proof of identity. Having this proof of identity has far-reaching benefits, especially in promoting financial inclusion. With the “Philippine ID,” unbanked Filipinos will have a proof of identity which is a key requirement in accessing formal financial services. This will enable more of our underprivileged countrymen to enjoy gains from and participate more actively in the country’s growing economy. As such, the BSP is happy to take part in this undertaking. Under the MOA, the BSP shall produce one hundred sixteen million pieces of blank cards for the Phil ID for three years. We will also provide needed equipment and space for the embedding of personal information onto the blank cards, which will be done by the PSA. With this Philippine ID, the BSP widens its area of cooperation with PSA. While our numbercrunching agencies have a long history of interaction on statistics, the production of national IDs is a trailblazing field for both institutions. With this, the BSP looks forward to working with the PSA in bringing the vision of Philsys into reality. Maraming salamat po and good afternoon to all. 1/1 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Asset Philippine Forum, Manila, 8 October 2019.
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Benjamin E Diokno: The Philippine economy - bright prospects ahead Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Asset Philippine Forum, Manila, 8 October 2019. * * * Friends from The Asset, stakeholders from the financial sector and investment community, members of the media, ladies and gentlemen, good afternoon. I would like to thank The Asset for always inviting us to take part in its annual forum, which provides the audience relevant updates on the Philippine economy. In keeping with the theme “Seizing the Opportunity,” my presentation will talk about the bright prospects ahead for the Philippine economy, which I hope would prompt investors to do business here so they can “seize opportunities.” The Philippines is among the fastest growing and most resilient economies in the world. In fact, it grew by 6.2 percent last year and, based on forecasts by the IMF, it is poised to maintain growth in the 6.0-percent territory this year and next. The government is even more bullish, with the official growth targets set at 6.0 to 7.0 percent this year, 6.5 to 7.5 percent next year, and 7.5 to 8.0 percent in 2021. The inflation environment is also favorable. While the economy experienced elevated inflation last year, it was fixed through the prompt implementation of monetary and non-monetary actions. BSP raised policy rates by a total of 175 basis points to arrest brewing second-round effects and to anchor inflation expectations. Other concerned government agencies also implemented measures to boost food supply, including streamlining of processes for food importation. Congress passed, and the President approved, a game-changing law that liberalizes rice importation. As such, after peaking at 6.7 percent in September 2018, inflation continued its downward trend, settling at 0.9 percent in September, the lowest in over three years. Based on these developments, BSP estimates that inflation will settle at 2.5 percent this year, and 2.9 percent in 2020 and 2021, well within the official target of 2.0 to 4.0 percent. Third-party institutions agree that inflation will be within target range up to 2021. With this benign policy environment, the BSP, so far this year has been able to: 1) Cut the key policy rate by a total of 75 basis points and 2) Cut the reserve requirement ratio (RRR) by a total of 300 basis points, 100 basis points of which will be effective at the start of November The favorable growth and inflation dynamics also helped boost business confidence and investments in the country. This is evident in part by the increase in importation of capital and intermediate goods to support an expanding economy. The increase in imports has led to a manageable deficit in the current account (CA). In fact, the 1/5 BIS central bankers' speeches current account deficit is financeable, with robust foreign exchange inflows in the capital and financial account expected to keep the overall balance of payments (BOP) in surplus this year. The country’s balance of payments position is driven primarily by steady inflows of business process outsourcing (BPO) revenues, overseas Filipinos’ cash remittances, and tourism receipts. Combined, these three items recorded an amount equivalent to 17.2 percent of the country’s gross domestic product (GDP) in 2018. Another solid source of foreign exchange is foreign direct investments (FDIs), which amounted to about US$10 billion both in 2017 and 2018. In 2010 and earlier years, FDIs hovered at only less than US$2 billion. Improvements in the macroeconomic and business climate are credited for the rise in FDIs. Looking ahead, we expect FDIs to remain robust, as shown by hefty amounts of investment pledges approved by the country’s investment promotion agencies (IPAs). In the first half of this year, foreign investment applications approved by the IPAs amounted to P95.6 billion, more than twice the P45.2 billion recorded in the same period last year. The economy also enjoys sufficient buffers against external headwinds. Its gross international reserves (GIR) are high while external debt burden is low. As of end-September, the GIR amounted to US$86.2 billion. This is enough to cover 7.5 months’ worth of imports of goods and payments for services and primary income. The received doctrine is that 3 months worth of imports is enough. The country’s external debt is manageable. It is a mere 23.8 percent of GDP as of end-June 2019. Manageability of external debt has improved significantly over the years, with the amount recorded at nearly 60 percent of GDP in 2005. The country’s banking system remains sound and stable. With healthy indicators, including more-than-adequate capitalization and low exposure to bad debts, banks are able to help fund the growing investment requirements in the economy. Credit growth, which has settled in the double-digit territory over the last few years, has benefited the productive sectors of the economy. This bodes well for sustained growth. Robust lending growth has consistently come along maintenance of good quality of loans, reflecting observance of prudent lending standards. We expect lending growth to continue, especially with the BSP’s intention to continue slashing the reserve requirement ratio (RRR). Should the inflation outlook continue to improve, we will further cut the RRR until it reaches single digit by the end of my term in 2023. As you know, we have room and reason to reduce the RRR as it is currently the highest among select peer countries. RRR is a friction cost, and lowering it is consistent with the aim of further enhancing financial intermediation. In the past, the high RRR had served as an important tool to mop up excess liquidity. But now that the BSP, under its amended charter, has the mandate to issue its own debt securities, we can rely less on the RRR for liquidity management. 2/5 BIS central bankers' speeches With lower RRR, the banking sector can then lend more support to the economy’s growth prospects. It is also important to note that economic growth in the Philippines is happening not only in the National Capital Region (NCR) but throughout the country. In fact, growth rates of other regions are outpacing that of the NCR. Growth in the regions is expected to remain robust, driven in part by infrastructure development across regions. This pattern of growth is consistent with the aim to make economic growth more inclusive. Nevertheless, the BSP will continue to adopt measures that will improve the regulatory and operational environment so that banks will be able to support robust and inclusive economic growth. The financial sector can help spur a more inclusive growth through financial inclusion. We have achieved milestones on financial inclusion as far as regulations are concerned. In fact, the Philippines is recognized as having one of the best regulatory environments in the world for financial inclusion. However, many municipalities still do not have banks operating in their areas. A big part of the country’s adult population still do not use formal channels to save or borrow money. To enhance financial inclusion, the BSP has implemented several initiatives and are further strengthening its efforts. For instance, we have issued regulations allowing other entities to serve as cash agents or to perform financial services on behalf of banks, as well as regulations that make it easier for people to open bank accounts. The BSP also spearheads the Credit Surety Fund (CSF) program, wherein pooled funds from various institutions – such as state-owned banks, local governments, and cooperatives – serve as collateral for loans applied for by micro entrepreneurs. We have also implemented the National Retail Payment System (NRPS), which is a framework for interoperable, secure, efficient, and affordable fund transfers. Our regulatory environment also enables the promotion of financial technology (fintech). In a country like the Philippines where mobile phone penetration is high, it is prudent for financial regulators to recognize the potential of fintech to hasten financial inclusion. In fulfillment of the NRPS, two interoperable payment systems have been launched—InstaPay for low-value fund transfers credited real time, and the PESONet for bigger-value fund transfers credited within the same banking day. These payment systems allow funds to be transferred electronically from one financial institution to another. Most of the big banks are already participating in PESONet and InstaPay. Soon, we expect more banks, particularly the smaller ones, to participate and further boost electronic payments. We expect e-payments to hit 20 percent of total financial transactions in the country by next year. We are also keen on hitting the targets of reducing the number of unbanked municipalities from about a third a few years back to only 20 percent by the end of next year, and to have the estimated 20 million unbanked or under-served Filipinos access the formal financial system also by the end of next year. 3/5 BIS central bankers' speeches We can imagine the Philippines becoming a cash-light economy, with e-payments accounting for at least half of total financial transactions in five years. The law amending the BSP charter was signed into law last February. With it, the BSP’s ability to fulfill its mandates of price and financial stability is enhanced. Some highlights of the law include (1) increase in capitalization; (2) authority to issue our own debt instruments; wider supervision to include not only banks but also money service institutions, credit granting businesses, and payment system operators; (4) authority to prescribe minimum risk-based capital adequacy ratios; and (5) protection of concerned BSP personnel against lawsuits arising from the conduct of the BSP’s financial regulation duties. Other important laws concerning the BSP have also been enacted recently, including Islamic Banking law, which provides the framework for regulation and development of Islamic banking in the country; (2) Gold law, which exempts from taxes the sale of gold from small-scale mining to the BSP; (3) the National Payment Systems Act, which formally recognizes the BSP as supervisor of the country’s payments and settlements system; (4) Personal Property Securities Act, which allows use of other assets besides real properties to serve as collateral for loans to boost micro lending; (5) Philippine ID system, which will ensure all Filipinos have proper identification, thus allowing banks to comply with know-your-customer (KYC) rules when they offer financial services to the poor; and (6) Anti-hacking law, which imposes stiffer penalties on hacking, thus better protecting the financial services industry and their customers from IT-related fraud. With my appointment as BSP Governor coming shortly before and after the enactment of these new laws, I consider it my personal mission to oversee the prompt and effective implementation of these game-changing reforms. We are not stopping here. More legislative reforms are in the pipeline, and we are keen to see them being implemented soon. These include (1) amendments to bank secrecy laws, which will support efforts versus money laundering and tax evasion; (2) amendments to the Agri-Agra law, which will relax provisions of mandated lending to the agriculture sector; (3) Financial Consumer Protection bill, which seeks to require financial institutions to have mechanisms in place to protect financial consumers; and (4) amendments to the Warehouse receipts law, which seeks to modernize the warehouse receipts system to better account for assets that can serve as collateral for loans. 4/5 BIS central bankers' speeches Besides the legislative agenda, we are also pushing for a wide range of other reforms, including in the areas of risk governance, fintech, integrity of financial system and safeguarding of public interest; and capital market development. The newly enacted laws and those in the pipeline are a continuation of the Philippines’ long history of structural reforms, which have strengthened the country’s macroeconomic environment over the years. Rest assured that the BSP will be one with the government in continuing the reform agenda to push the Philippines to its next stage of development. At the moment, the Philippines enjoys investment grade credit ratings and is on the cusp of becoming an upper middle income economy. With the reform momentum, we expect the Philippines to become an A-rated economy in the next two years or so, and to become a high income economy by 2040. In closing, allow me to give the following take-away points: First, the Philippines will remain among the fastest growing economies in the region and the world; Second, amid external headwinds, sustained growth will be supported by healthy external payments position and strong domestic demand; Third, robust, sustainable, and more inclusive economic growth will be supported both by “soft” or policy reforms and “hard” or physical infrastructure reforms; and Fourth, the reform momentum will push the Philippines to its next stage of development where it enjoys Single A credit ratings in the next two years or so, and where it becomes a high-income economy in two decades. Amid this favorable backdrop, we invite everyone to seize the growth opportunities that this economy offers. Thank you very much and mabuhay! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Asian Banker's Finance Philippines 2019, Manila, 10 October 2019.
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Benjamin E Diokno: The Philippine economy - moving the financial services industry forward through inclusive technology, green initiatives Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Asian Banker’s Finance Philippines 2019, Manila, 10 October 2019. * * * Officials from The Asian Banker, fellow speakers, representatives from the banking and finance industry, members of the business community, friends from the media, ladies and gentlemen, good morning. I would like to thank The Asian Banker for inviting me today. I am delighted to be here not only because this is a venue to address key stakeholders of the Bangko Sentral ng Pilipinas (BSP) but also because the theme “Embarking on Sustainable Innovation in the Digital Economy” is very close to the heart of the BSP as we aim to bring Central Banking closer to the people. But before I go into our efforts toward “sustainable innovation,” allow me to first give a brief overview of the Philippines’ macroeconomic environment, under which our financial services industry is operating in. As recognized by relevant observers here and abroad, the Philippines is among the fastest growing and most resilient economies in the world today. The Philippines is in a very ‘nice’ place right now. First, economic growth is robust, hitting 6.2 percent last year and expected by the government to remain in the 6-percent territory this year before accelerating further over the next three years. Second, inflation is manageable, settling at 0.9 percent in September—the lowest in over three years. It is projected to remain well within the BSP’s official target range of 2 to 4 percent up to 2021. Third, external payments position is comfortable, serving as a solid buffer for the economy against external headwinds. The gross international reserves (GIR) as of September 2019 stood at $86.2 billion, which is equivalent to 7.5 months of imports and payments for services and primary income. Fourth, fiscal position is healthy, supporting the government’s ambitious infrastructure development agenda and rising investments in human capital development. The budget deficit is programmed to stay at a comfortable 3.2 percent of GDP up to 2022. Government debt, which stood at 43.7 percent of GDP as of end-June 2019, is seen to continue its downward trend as growth of the economy outpaces the increase in the debt stock. Fifth, the banking sector is sound and stable, helping fuel growth of the economy through credit and other financial services. Capitalization is more than sufficient, with the capital adequacy ratio (CAR) of universal and commercial banks staying at 15.9 percent in June 2019. This is higher than the BSP’s minimum regulatory requirement of 10 percent and the internationally prescribed floor of 8 percent. Exposure to bad debts is minimal, with the non-performing loans (NPL) ratio staying at a mere 1/6 BIS central bankers' speeches 1.7 percent in August 2019. Total assets of the banking sector continue to grow, rising by 9.0 percent to ₱17.4 trillion year-on-year as of end-August 2019. Topping all these is a demographic advantage, with the median age of the population at 24 years old. In an ageing world, the Philippines’ young, educated, and vibrant workforce is helping propel robust, sustainable, and more inclusive economic growth for the country. Amid this favorable backdrop, the BSP has served as a pillar of strength for the economy over the years by fulfilling its mandate of price and financial stability. Moving forward, the BSP is committed to playing an even more active role in maintaining economic stability and in helping achieve the economy’s long-term development goals, among which is to reach high-income status by 2040. We will do so by maximizing the provisions of our newly amended Charter, which enhances the BSP’s ability to manage liquidity and supervise the financial sector together with other financial regulators, as well as of the recently signed National Payment Systems Act, which formally recognizes the BSP as supervisor of the country’s payments and settlements system. Now, allow me to focus on “sustainable innovation” in the country’s financial services sector and the BSP’s role in enabling it. When I say the BSP is committed to playing a more active role in helping achieve the economy’s development goals, what I mean is we are doing tasks outside the traditional central banking function of maintaining price and financial stability. We want to contribute more to poverty reduction. This will make the BSP more relevant and closer to the Filipino people—something I consider to be my personal mission. We are doing this through our financial inclusion agenda and ensuring greater access to financial products and services. What better way can we accelerate financial inclusion than by promoting a more extensive use of financial technologies or fintech. With the high penetration rate of mobile phones in the country, where even low-income earners own cell phones—the ability of fintech to accelerate financial inclusion is well recognized. While we are leveraging on fintech, a lot of work still needs to be done before the Philippines becomes a truly financially inclusive economy. Many Filipinos still do not own bank accounts, and so are unable to access loans and other financial services from formal channels. Nevertheless, we are working our way there. First, internet and mobile phone banking. Banks that offer internet and mobile phone banking have increased over the years. This has allowed more people to do online transactions, not only to pay bills and purchase merchandise goods, but also to avail themselves of savings, investments, and insurance products. As of end-2018, there were 48 banks that have already made their financial services accessible through the internet, and 26 banks that have made their services accessible through mobile phones. 2/6 BIS central bankers' speeches Second, interoperable payment systems. In the past, transferring funds from an account in one bank to another account in a different bank required physical movement of cash. Now, following the launch of interoperable payments systems, funds can be transferred electronically through InstaPay, for low-value and real-time fund transfers, and PESONet, for bigger-value fund transfers confirmed within the same banking day. As of end-July 2019, there were 43 financial institutions participating in InstaPay and 51 participating in PESONet, with more to come. Third, the Philippine ID system. Following the signing into law of the Philippine Identification System Act (PhilSys) in August last year, the country will soon have a national identification system. The objective is for all Filipinos to be properly identified using a unified system that gathers basic identification and biometrics information. The BSP has assumed the task of printing the IDs. We are doing this because we don’t want We expect the Philippine ID system to significantly hasten financial inclusion, as this addresses the problem of lack of formal IDs—which are required to open a bank account. Fourth, non-bank electronic money issuers. A recent phenomenon that is significantly boosting financial inclusion in the country is the emergence of non-bank e-money issuers. These are entities other than banks that also allow people to create electronic accounts in their platforms where people can store value in these electronic accounts, and make payments or do a remittance. As of 27 August 2019, there were 14 non-bank e-money issuers supervised by the BSP. Fifth, quick response codes or QR codes. The use of QR codes for payments has started to gain traction. In fact, last month, I was able to buy McDonalds through QR Payment option by PayMaya. We hope to see more of this in the future; we hope that even market vendors, cab drivers, and sari-sari store owners will be able to use QR codes as a means to accept payments. To help move this along, the BSP is working with industry players to put in place a National QR Code Standard that will enable interoperability of QR Code-based payment facilities. Other ongoing initiatives to advance e-payments are digitalization of government collections and disbursement, and the assessment and monitoring of the country’s transition to a more cashlight economy with National Payments Diagnostics. With these updates, we expect to have at least 20 percent of all financial transactions in the country done electronically by 2020. Nevertheless, the BSP is mindful that with innovations come risks. As such, we are keen to make sure the regulatory environment is dynamic and attuned to industry developments. As our regulated entities adopt innovations to enhance delivery of their services to customers, the BSP is likewise embracing technology to improve consumer protection. For instance, the BSP is working to provide an alternative channel for the public to elevate banking-related complaints through an automated Chatbot system, which is targeted to go live by mid-2020. The Chatbot, using artificial intelligence (AI) and natural language processing (NLP), will be able to adequately and efficiently handle consumer concerns coursed through channels including 3/6 BIS central bankers' speeches SMS and social media. In addition, the BSP has developed a prototype that allows machine-to-machine link between the BSP’s system and those of its supervised entities for streamlined transmission, processing, warehousing, and analysis of banks’ prudential reports. Targeted to go live by the latter part of 2020, this innovation will significantly improve timeliness, ease, and integrity of data submission. Because of these initiatives, I am proud to report that BSP won the “Artificial Intelligence Initiative” award and the “Data Management Initiative” award by Central Banking Publications during its Fintech and Regtech Global Awards held in Singapore last month. In any case, the BSP observes the following principles in its regulatory approach to innovations in the financial services sector: (i) risk-based supervision, (ii) active stakeholder engagement; and (iii) consumer protection. “Risk-based” means BSP-regulated entities are enjoined to put up the necessary risk management systems and sufficient capital to cover their respective levels of exposure to technological risks. “Active stakeholder engagement” means the BSP is actively engaging supervised entities to constantly get updates from them on innovation trends that the regulatory environment should capture. “Consumer protection” means financial institutions offering fintech-enabled services are required to have the necessary safeguards to ensure the protection of financial consumers against ITrelated fraud and data compromise. I’ve talked a lot about “innovations” but let me also go into the sustainable aspect in all these. Needless to say that there is an urgent need for the entire world to more vigorously address climate change. I’m sure that by now, we are all familiar with a young environmentalist—a 16year-old girl from Sweden named Greta Thunberg who addressed the United Nations and challenged policymakers worldwide to squarely address the issue. What does this have to do with us in the Philippines’ financial services industry? Well, the BSP recognizes the crucial role it plays in driving investments that promote climate-resilient, green, and sustainable growth. In fact, the BSP has a two-pronged approach to promoting sustainable finance: 1) capacity building and awareness campaigns, and 2) enabling regulations. In capacity building, the BSP takes part in several domestic and international fora on sustainability. One of which is the ASEAN Task Force on the Roles of Central Banks in Addressing Climate and Environment-Related Risks. The task force will conduct a study on the roles of central banks in addressing climate and environment-related risk to monetary, financial, and broader macroeconomic stability. The BSP is also a member of the International Finance Corporation (IFC)-supported Sustainable Banking Network. The BSP, together with IFC, conducted a scoping research to better understand how to best embed environmental and social risk management as well as sustainable finance principles in the business decisions of financial institutions. The BSP is also coordinating with the British Embassy in Manila on the possible capacity building initiatives under the Low Carbon Energy Programme (LCEP) of the UK Prosperity Fund. LCEP can provide support in terms of policy, capacity building, technical assistance and market development. 4/6 BIS central bankers' speeches In enabling regulations, the BSP has come up with a proposed policy framework for sustainable finance, and we are currently in the process of consolidating and evaluating comments from industry players. Some of the highlights of the proposed regulatory framework are as follows: (1) Banks are expected to integrate environmental and social governance (ESG), and sustainability principles in their strategic direction, as well as in their corporate governance and risk management frameworks. (2) Banks shall conduct scenario analysis and stress testing of its business exposures to assess their vulnerabilities over several ESG scenarios. Results shall be taken into account in their capital planning and business strategies. (3) Banks will be required to disclose their sustainability agenda in their annual reports, including risk appetites in the ESG field. The policy framework will be embodied in a circular that we will issue soon—the first of a series of circulars on sustainable finance. In a related development, the BSP, together with the Department of Finance (DOF), co-chairs a newly formed inter-agency task force that is mandated to facilitate green finance initiatives. Members include the National Economic and Development Authority (NEDA), Bureau of the Treasury (BTR), Bases Conversion and Development Authority (BCDA), Department of Energy (DOE), and Climate Change Commission (CCC). The interagency committee is working on a draft executive order – for the signature of the President– that will spell out deliverables and targets in relation to green finance initiatives of the country. Meantime, some banks are already embarking on green finance while regulations on these are under way. In particular, a number of banks have put up Sustainable Energy Finance Desks, which serve as a point of contact in evaluating and monitoring sustainable energy projects. These encourage enterprises to engage in renewable energy projects. In addition, some banks recently issued green bonds and sustainability bonds. Also, governmentowned Land Bank has implemented the Climate SMART (Synergistic, Mitigation, Adaptation, Resiliency, and Transformation) Financing Program, which offers various lending facilities related to environment and sustainable financing. While all these developments in sustainable financing are encouraging, the world is at the beginning of mass extinction due to climate change, and so much more needs to be done. And so I challenge everyone in the financial services industry, including us regulators, to do more. We have to be even more proactive in green financing, especially so that the Philippines is cited as among the highly vulnerable countries to the effects of climate change. In closing, the financial services sector is at an interesting time. Technological innovations in the delivery of financial services are contributing significantly to the Philippine economy’s transformation. But at the same time, with climate related risks threatening not only economic growth but life itself, industry members are also facing a great challenge. Rest assured that we at the BSP will be working together with our supervised entities in stepping up efforts toward sustainable innovations in the financial services industry. We hope that you can also help us in stepping up and speeding up our sustainable innovations—not just for the Filipino 5/6 BIS central bankers' speeches people but with the future of our world in mind. Thank you very much and mabuhay! 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Finance Executives Breakfast Roundtable, Manila, 11 October 2019.
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Benjamin E Diokno: Inclusion and digital transformation - a collaborative approach to regulating fintech Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Finance Executives Breakfast Roundtable, Manila, 11 October 2019. * * * Good morning, ladies and gentlemen. It is always a pleasure to engage with key stakeholders of the finance industry as it gives us the opportunity to advance the BSP’s advocacies. In fact, today’s theme of “Collaborative Approach to Regulating Fintech” is exactly how we envision the landscape of overseeing the increasingly disruptive, yet, vibrant narrative of Fintech developments. Over the past couple of years, innovative solutions through technological advancements have transformed the delivery of financial services by offering alternative and far convenient ways of executing financial transactions. It has empowered the unbanked and underbanked to participate in the economy through easier access to financial services. Indeed, FinTech players are moving ahead of the curve by developing solutions that aim to expand delivery channels and trim unnecessary processes towards providing greater efficiency and convenience for customers. We, at the BSP, emphasize our support for such endeavors. We view innovators as enablers of financial services that help us boost our financial inclusion agenda. The number of FinTech players in the Philippines have gradually been growing in the past three years with most, or around 75% of the total providing payments, alternative financing, and remittance services. 2018, in particular, has been a key period for blockchain and virtual currencie. There has been an increasing amount of BSP Supervised Financial Institutions that have leveraged on FinTech to support their business strategies and manage day-to-day business processes. This prompted us to craft appropriate regulations to safeguard public interest while fully recognizing that these technological innovations can contribute to a more inclusive and safe financial ecosystem. Our approach to regulating FinTechs is shaped by three principles, (a) first, we ensure that regulation is risk-based, proportionate and fair, (b) second, we maintain active multi-stakeholder collaboration, (c) and lastly, we ensure that innovations must work for the benefit of consumers, especially the most vulnerable ones. Guided by these principles, came the rise of our three-lane FinTech roadmap that is crafted to nurture a regulatory environment that allows innovations to flourish, yet still mindful that risks must be effectively managed and that the financial system remains safe and sound. 1/4 BIS central bankers' speeches The first lane refers to Collaborative Engagements. The continuing collaboration with industry players and other financial regulators represents a “whole-of-government approach”, ensuring policy consistency and minimizing, if not fully preventing, regulatory arbitrage. With this in mind, the BSP openly engages with fintech players and innovators through a flexible “test and learn” environment or the “regulatory sandbox” that enables us to fully understand emerging business models while assessing attendant risks. I will not dwell on specifics but generally, the framework consists of five important steps commencing from the enabling stance adopted by the BSP during initial engagement with the applicant, guided and clear rules for implementation, until continuing monitoring of matured services. With such an approach, we are able to timely employ risk-mitigating actions and craft appropriate policies revolving around consumers’ welfare and protection and secure financial system. The middle lane refers to our Capacity Building initiatives. In 2018, we established a dedicated Financial Technology Subsector (FTSS) to institutionalize the operational and cyber-resilience of the financial system. Under FTSS is the Technology Risk and Innovation Supervision Department (TRISD), which is primarily responsible for conducting onsite and offsite IT supervision of regulated entities, as well as maintaining a comprehensive and flexible regulatory framework relating to IT supervision. TRISD is also in charge of cybersecurity surveillance and promoting digital or FinTech innovation through BSP’s regulatory sandbox. Equally important is the Payment Systems Oversight Department (PSOD) which is mainly responsible for the payments oversight, licensing and policy development for a safe, efficient and reliable national payment system. It espouses on the use of technology as enabler of innovation in payment systems and is the lead in enforcing a holistic payment oversight framework, including the National Retail Payment System. We are also in the midst of implementing solutions that make use of artificial intelligence and machine learning for regulatory and supervisory processes. These RegTech and SupTech tools aim to augment areas of risk management, regulatory reporting, consumer complaint oversight and regulatory compliance automation. This includes a chatbot, an automated complaint-handling system which uses predictive analytics to address consumer concerns and an API that automates the collection, processing, and analysis of data from supervised institutions. Supervised entities that cannot immediately migrate to the API-based reporting can use the FI portal in submission of their reports. All of these are aimed at streamlining our manual-intensive processes, thereby enhancing the timeliness and quality of our risk-based decision-making and financial system supervision. The third and final lane refers to Commensurate Regulations. Consistent with the supervisory objectives of the BSP, we apply the same approach to FinTech by considering the soundness of the individual institution, the landscape of the financial system, and the risk peculiarities in individual operations. This ensures that we promote a level playing field for the new entrants and that we will not hamper the innovation with unwarranted and excessive compliance requirements. Some of our recent key issuances include: 2/4 BIS central bankers' speeches (a) Circular No. 1022 which updated rules for validating client identity by accepting the PhilSys ID and allowing the use of technology-aided know-your-customer processes to capture and record personal customer data as well as conduct virtualized face-to-face contact or interview. (b) Circular No. 1033 on the streamlined the process of securing licenses to engage in Electronic Payments and Financial Services, doing away with the tedious approval process of requiring conditional and final approval. (c) Circular No. 1039 on the simplified the documentary or registration requirements for Money Service Businesses and pawnshops operators. Finally, in accordance with the BSP’s authority under Republic Act No. 11127 or the National Payment Systems Act to oversee payment systems in the Philippines, the BSP issued Circular 1049 to provide for a streamlined registration that aims to facilitate and encourage compliance of all concerned entities, particularly those previously unregulated non-financial institutions unfamiliar with regulatory compliance. Soon, a new Manual of Regulations for Payment Systems (MORPS) will be prepared to consolidate all relevant BSP issuances. The manual will be a product of extensive consultations among private and public stakeholders in the payments industry. It will also be part of the phased-in implementation of the NPSA that prioritizes the creation of a baseline inventory of all OPS. We also have the National Retail Payment System (NRPS) which leverages on the principles of interoperability, inclusiveness and “coopetition”. The NRPS, and the payment ecosystem that is envisioned to arise from it, is positioned to be a platform for FinTech innovations where industry players can utilize FinTech solutions and provide services within an organized, commercially-viable and efficient retail payment system. Notwithstanding all of these developments, we recognize that the FinTech narrative goes beyond just the BSP. In fact, more pioneering solutions are cutting across regimes of different regulators of the financial sector. This is why in the 3rd quarter of last year, the Financial Sector Forum, composed of four financial regulators in the country, namely the Securities and Exchange Commission (SEC), the Insurance Commission (IC), the Philippine Deposit Insurance Corporation (PDIC) and the BSP, formed a FinTech Committee aimed at harmonizing regulatory responses to FinTech innovation in the financial sector. Among the priority agenda that the FSF-Fintech Committee undertook was identifying the numerous Fintech use cases and the scope of authorities of each regulators. Through clear understanding and increased collaboration, financial regulators can quickly anticipate changes, assess technological trends across different sectors, and optimize the potential of digital innovations to provide more convenient, and efficient financial services. The cross-cutting nature of FinTech developments has also magnified the importance of shifting to activity-based regulations. Likewise, I am pleased to share that the FSF-Fintech Committee is in the initial stages of crafting a Cooperative Oversight Framework which will institutionalize our collaboration and clarify regulations to all supervised and would be supervised entities. But again ladies and gentlemen, we are just one side of this financial equation and we need your support in striking the balance of ensuring that regulatory and supervisory frameworks are in tune with emerging trends and developments. We hope that you can actively help us shape this narrative into something that is desirable, safe, sustainable, inclusive and rewarding for all stakeholders, most especially the Filipino people. 3/4 BIS central bankers' speeches As we move forward in this collaboration, I hope that we all keep the benefit of the Filipino people in mind. Thank you for the opportunity and I am looking forward to engaging conversations with all of you. Needless to say that the BSP, as your partner in promoting financial innovation and inclusion, will remain dedicated and committed in supporting beneficial FinTech innovations through an enabling policy and regulatory environment. Thank you and I wish everyone a fruitful conference. 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2019 FINEX Conference, Manila, 11 October 2019.
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Benjamin E Diokno: Financial inclusion - a social mandate Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2019 FINEX Conference, Manila, 11 October 2019. * * * Esteemed members of the financial community, it is my pleasure to give this keynote address at your 2019 Conference. Your theme “Riding on the Opportunities of the Next Digital Wave” is very timely as we are in fact in this wave. It is also very relevant to the topic of this keynote address which is “Financial Inclusion as A Social Mandate.” The Fourth Industrial Revolution is upon us. This advent of “cyber-physical systems” represents new ways in which technology has embedded itself within societies and even our human bodies. It affects many aspects of business, society, and even day-to-day life in a significant way. In fact, technology is now in the hands of everyone. Who among you remember the car-based mobile phone service of PLDT in the mid-80s? This technology, which was available to only a few in the 80s, has now grown to 124.2 million mobile connections in the Philippines. Today—because of digitalization—anyone with a smartphone and internet connection can easily access information about almost anything under the sun in a matter of seconds. Many of these technological advancements are now part of our day-to-day reality such as online streaming, electric vehicles, EMV chip cards, and social media. However, despite favorable developments due to technology, many challenges persist. There is uneven access and the people who should benefit the most from new technologies are the ones who are still left behind. We see a similar gap in terms of the state of financial inclusion in the country. Those who are in most need of financial products and services are the ones who are mainly unserved and underserved. Based on the 2017 Financial Inclusion Survey, only 23% of Filipino adults have a formal account. Only 48% of adults save, but 7 in 10 savers keep their savings at home. Of the 22% of Filipino adults who avail loans, 4 in 10 do so through informal sources. As such, it is necessary to bring the unserved and underserved into the national economy. The signing into law of Republic Act (RA) No. 11211 of 2019 amending the BSP charter elevates financial inclusion and its complementary objectives of financial literacy and consumer protection from advocacies to an institutional imperative. Section 3 states: “In the attainment of its objectives, the Bangko Sentral ng Pilipinas shall promote broad and convenient access to high quality financial services and consider the interest of the general public.” In the Philippine Development Plan 2017–2022 (PDP), financial inclusion indicators, such as the level of account penetration, have been incorporated as part of the impact measurement framework. Meanwhile, in the 2030 Agenda for Sustainable Development adopted by the United General 1/5 BIS central bankers' speeches Assembly, financial inclusion is recognized as a key enabler in achieving 13 of the 17 Sustainable Development Goals or SDGs. The SDGs are 17 goals endorsed by 193 nations to end poverty in all its forms, promote prosperity and people’s well-being, reduce inequality, and protect the environment. This brings us to the importance of financial inclusion as a social mandate as it plays a critical role in ensuring that the fruits of prosperity are felt by everyone through increased opportunities and better quality of life. Financial inclusion lays the groundwork for sustainable and equitable national development. The goal of financial inclusion does not end in providing universal access to financial services but in ensuring that these services truly enhance the well-being of their users. Rather than being a mere end in itself, financial inclusion is a means to achieve broader aspirations. When people are financially included and realize their stake in national prosperity, they are empowered to make better, informed choices when it comes to their financial welfare and future. In turn, they are able to make sound decisions that raise their productivity and standard of living. The pursuit of financial inclusion requires an openness to all possible transformative solutions and impactful innovations, such as digital technology, new business models, and cross-sector collaboration. But the pursuit of financial inclusion is not a walk in the park. It requires a concerted and holistic effort. It requires the participation of all key decision makers and stakeholders, from the bank executives to the officers who go out in the field—including those in the expanding fintech industry. Given the promise of emerging technologies and models, we also consider financial inclusion as one of the biggest potential winners of technological advancement and digitalization. Technology can increase the breadth and depth of financial inclusion. It can facilitate massive efficiencies that make it possible – and even strategic – for financial service providers to serve low-income and rural clients viably. For this reason, we are optimizing the applications of technology by directing focus on sectors such as agriculture, as well as countryside development. These sectors encounter the most difficulty in terms of access; these sectors experience the highest poverty incidence in the country. In brief, our goal by 2023, is to ensure that at least 70% of adult Filipinos will have access to formal financial services. Needless to say that digital technology can massively help our financial inclusion agenda. But we need to deliberately and purposefully harness this potential by ensuring that anyone can readily open and use an account through digital channels for various financial transaction. The paradigm is that without a transaction account that can be used for digital payments, an individual will not be able to effectively and fully participate in the gains of digital finance. Thus, in 2016, the BSP has issued a series of policy issuances centered on three imperatives: first was to ensure availability of a transaction account that is tailored specifically for the unbanked; 2/5 BIS central bankers' speeches second, was to enable those with an account to use it to affordably and conveniently send and receive money from any account through their mobile phone; and third was to expand the network of access points. Accordingly, we issued the guidelines and incentives for banks to offer basic deposit accounts that have no maintaining balance and an opening deposit not exceeding P100. We also issued the National Retail Payment System framework which anchored the launch of the PESONet and Instapay to enable faster, safer, and more convenient electronic fund transfers between any accounts held in any participating bank or e-money issuer. To date, there are 53 participating institutions for PESONet and 44 for InstaPay. Lastly, we issued the cash agent regulation which enables banks to use convenience stores, pharmacies, pawnshops, and other retail outlets as low-cost and non-intimidating service points where clients can open an account, make deposits and withdrawals, pay bills and other transactions. For these regulations and other related policy initiatives, the Economic Intelligence Unit in its 2018 Global Microscope Report cited the BSP for its focus to create an inclusive digital finance ecosystem and the regulatory enablers for financial inclusion. In fact, for several years now, the Philippines has been recognized as one of the top five countries that have a conducive regulatory environment for financial inclusion. Yet, despite these developments, financial exclusion remains significantly high—emphasizing that enabling regulations alone are not sufficient to drive financial inclusion. To truly unlock the potential of digital innovations for inclusive finance, we need to build pillars that enable and promote the use of digital finance. The first pillar is the digital infrastructure. Indeed, digital connectivity is a pre-requisite for digital finance. Yet, speed, affordability, and availability of internet connectivity are important factors that determine adoption of digital finance, particularly in the rural areas. Overcoming the barriers to digital connectivity will not only promote accessibility to digital financial products, but will allow innovators to improve the design, enhance security features, and drive down the cost of financial services. Another important infrastructure is the digital ID system which is why the BSP is looking forward to the implementation of the Philippine ID System or the Philsys. Beyond its ability to address the lack of identity documents commonly cited as a barrier by the unbanked, the PhilSys through its electronic KYC feature can significantly reduce the cost of onboarding new clients by as much as 80% based on a study commissioned by the Asian Development Bank. Such a digital ID system can also enable the delivery of innovative end-toend financial services. The second pillar would be the digital payments use cases. It is not enough that people are able to easily open a transaction account. People should see the necessity of an account and be able to use that account for various payment transactions on a regular basis. What can compel people to open a transaction account? For the wage earners and informal workers, receiving wages and social benefits is one. Being able to use a mobile phone to pay market vendors, jeepney drivers, utilities and online purchases is another. 3/5 BIS central bankers' speeches The regular use of transaction accounts will not only catalyze digital payments but also enable the account holder to build a richer digital footprint for his credit profile. This is the focus of our intensified coordination efforts with the Department of Social Welfare and Development, the Department of Labor and Employment, and the Department of Transportation. To provide the public with digital payment options for transactions with government, we are working closely with the payments industry and the Department of Finance and the Department of Budget Management on the development of a bills payment platform and on possible policies to address implementation barriers. The third pillar is user trust and readiness. If people do not trust, understand or know how to use digital financial services, people will not use these products even if they are affordable and convenient. To this end, we are committed to our partnership with various public and private entities to promote financial and digital literacy in the country. We also continue to engage the fintech industry, the Department of Information and Communication Technology and the National Privacy Commission to promote cyber-resilience and data privacy in digital finance. It is also necessary to provide an accessible venue for consumers to engage the regulators for concerns regarding their use of financial services as a way to build confidence in these products. And this is why we have undertaken a chatbot project for consumer complaints and issues handling. I am happy to share that this project, and our regtech project on prudential reporting, have earned the BSP two innovation awards from the Central Banking Publications in Singapore last September 4. Indeed, the imperatives of financial inclusion go beyond enabling regulations and require coordinated programs across the government and private sector. I hope that by explaining these pillars, I was able to give you a sense of the breadth of the work that we need to do and support. I hope that in understanding why financial inclusion matters, you will leave this conference with a genuine interest to find ways on how you and your companies can contribute to financial inclusion. Allow me therefore, before I close, to throw in some ideas. Consider this my call to action for this body. As businesses, you may be operating in a value or supply chain over which you can exert influence. Examine the actors in these chains; you may have as suppliers or buyers the small businesses, microentrepreneurs and farmer groups. Think of how you can leverage your role in the chain so they can access better credit terms from the banks and other lenders. For companies that collect customer data, you can explore ways on how you can empower these customers to use their data for their credit profile so they can access better financing. Empower your customers to use their data for welfare-enhancing pursuits. If there are workers in your supply chain who are paid cash, perhaps you can ensure that they be given a transaction account where they can receive their wages. Another way that your company or even this body as a collective can support financial inclusion is to advocate with legislators for policies and infrastructure that can help promote access to finance of the SMEs and farmers. For instance, the warehouse receipts system bill can support farmers by providing them the tools to manage commodity price risks and to access financing using warehouse receipts as collateral. 4/5 BIS central bankers' speeches There’s also the financial consumer protection bill that provide all financial sector regulators with the necessary powers to ensure responsible and consumer-friendly conduct of financial service providers. This is critical especially as more and more products and services are accessed digitally. Lastly, and I know Finex is already doing this, we all can help improve financial literacy in this country through various means. Maybe you can organize financial literacy training for your employees and clients. Based on BSP’s 2017 survey, only 18% and 3% of adult Filipinos have an insurance and financial investment, respectively. Another way to support financial literacy is to help develop content and materials that can be used by various government agencies in their finlit programs. You can even develop your own finlit programs for your industry. BSP will be happy to assist in facilitating dialogue and partnerships with various stakeholders within and outside government. In closing, allow me to share this quote from Leonardo da Vinci: “I have been impressed with the urgency of doing. Knowing is not enough. We must apply. Being willing is not enough. We must do.” Financial inclusion is our shared social mandate. And there is never a better time to act than now. We all have a stake in the future of our country. May it be prosperous not only for a few but for all. A good day to you all. Thank you and mabuhay! 5/5 BIS central bankers' speeches
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Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Meet & Greet Session with the Philippine Embassy and the US-Philippines Society, Washington DC, 16 October 2019.
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Benjamin E Diokno: The Philippines – structural reforms, macroeconomic performance, moving forward Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Meet & Greet Session with the Philippine Embassy and the US-Philippines Society, Washington DC, 16 October 2019. * * * Ladies and gentlemen, good morning. Let me extend a warm Filipino welcome to all our guests for joining us in today’s Meet and Greet session with the Philippine Embassy and the US-Philippines Society. During the International Monetary Fund (IMF)-World Bank (WB) Annual Meetings in 2016, I addressed this audience as the Philippine Budget Secretary. I am pleased to represent the Philippines, this time, as head of the Bangko Sentral ng Pilipinas —a hat I’ve been wearing for nearly seven months now. Despite this change of roles and mandates for policy formulation, at least two things remain as necessary. First, conversation with and inputs from stakeholders form an important part of the policy making process. As we are all aware, the threat of slowing global economic growth looms larger than ever on the horizon as protectionist policies and geopolitical tensions continue to dominate the global growth narrative. Nonetheless, the Philippines remains on a very sound footing because: (i) economic growth is solid and sustainable; (ii) inflation is low and manageable; (iii) the external payments position is strong; and (iv) the banking system is strong and stable. I will describe briefly each of these four points shortly. MEANINGFUL STRUCTURAL REFORMS The Philippines has come a long way from being the “Sick man” of Asia. In fact, the Philippines is now recognized globally as among the fastest growing and most resilient economies in the world that enjoys brighter prospects ahead. The transformation, however, did not happen overnight. The gradual transformation was a product of a long list of structural reforms that started way back in, the 1990s. It did not happen overnight. I remember in the 1990s when a group of economists headed by Paul Krugman came to the Philippines to assess the economy. Their verdict then on the long-term growth of the Philippines was, at best, 3.0 percent. We’ve come a long way from that dismal assessment. A recent assessment confirm that the Philippine Economy can sustain a long-term growth of 6.5%. We have deregulated the oil industry, liberalized the power sector, privatized the water services, and acceded to the World Trade Organization. These are just some of the reforms implemented in the 1990s that have been followed through in the succeeding decades and—if I may stress— more aggressively so in the last three (3) years under the Duterte Administration. Key reforms from 2016 onwards are expected to unleash more growth potentials for the Philippines. Among these positive game changers have involved tax reforms, liberalization of rice importation, the national ID system, Universal Healthcare, Universal Access to Tertiary Education, Ease of Doing Business law, relaxation of the Foreign Investments Negative List (FINL), and the revised Corporation Code—just to name a few. The newly amended BSP Charter in 2019 has also strengthened the BSP’s capacity to better safeguard price and financial stability, and to promote an efficient payments and settlements 1/4 BIS central bankers' speeches system amidst a growing economy and the increasing sophistication of the financial system. All these reforms should support and sustain the currently favorable conditions of the economy, summarized by the four key observations I mentioned earlier. Let me expound of these at this point. PHILIPPINE MACROECONOMIC PERFORMANCE First, solid and sustainable economic growth. The Philippines recorded its 82nd consecutive quarter or roughly more than twenty years of uninterrupted economic growth in the second quarter of 2019. This shows that we have managed to sail through the toughest external challenges from the Asian financial crisis to the Global financial crisis. On the production side, economic growth was propelled mainly by the robust performance of the services sector. Meanwhile, broad-based expansion in household consumption and government spending reinforced growth on the demand side. The Build, Build, Build program ushers in the country’s Golden Age of Infrastructure, giving additional solid push for the economy’s productive capacity to expand further. Second, domestic inflation is within-target. After posting successive multi-year highs that culminated in a 6.7 percent nine-year peak in September and October, inflation has slowed considerably and reverted to within the target range of 2.0 to 4.0 percent. This is credited to a series of monetary actions by the BSP that addressed brewing second-round effects combined with and non-monetary actions by the government that addressed bottlenecks to food supply. The decelerating trend in inflation, which fell to 0.9 percent in September, has allowed us to reduce the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 75 basis points so far this year to 4.0 percent. The rate cuts were aimed at helping inflation move towards the middle of the target range, in line with the BSP’s flexible approach to inflation targeting. In terms of the BSP’s outlook for inflation, our latest baseline projections in September show inflation settling within the target range of 3.0 percent ± 1.0 percentage point for both 2019 and 2020. Third, the country’s external position is reflective of an economy driven by solid macroeconomic fundamentals and firm growth prospects. Based on the latest estimates, the country’s balance of payments (BOP) position for the first eight (8) months of the year posted a surplus of US$5.5 billion, a turnaround from the US$2.4 billion deficit recorded in the same period last year. For Q2 2019, the current account registered a deficit of US$145 million, a 95.6 percent reduction from the US$3.3 billion deficit registered in the same quarter in 2018. This developed on account mainly of the lower deficit in the trade-in-goods account. Increased net receipts trade-in-services, and secondary and in the primary income also contributed to the improvement of the current account in the second quarter of the year. Driving this surplus includes reliable inflows from Overseas Filipinos’ (OF) remittances and net inflows of portfolio investments during the first half of the year. Foreign direct investments (FDIs) in the last two (2) years have also lent support to the country’s external account along with rising investor confidence. Meanwhile, after falling by 1.8 percent, year-on-year in 2018 exports begun to recover slightly, edging up to $40.391 billion in the first seven (7) months in 2019. July itself marked the fourth straight month of export growth at 3.5 percent. 2/4 BIS central bankers' speeches These steady inflows of foreign exchange helped raise gross international reserves (GIR) to an all-time high of US$86.2 billion in September 2019, providing ample external liquidity buffer. At this level, the GIR can cover up to 7.5 months’ worth of imports of goods and payments of services and primary income. The rule of thumb is that a sufficient GIR level can cover three months’ worth of imports of goods and payments. My fourth and last point – a strong and stable banking system – also offers a sound basis for optimism. Our financial system remains sound and continues to effectively intermediate funds to productive sectors, thus promoting economic growth. The continued strong credit activities demonstrate the effectiveness of Philippine banks in their role as intermediator of funds in the economy. Banks remain sufficiently capitalized and past due ratios have also consistently declined over the years, giving banks greater ability to intermediate funds, manage risk, and maintain profitability. The stability and soundness of the banking system is being supported as well by the financial sector reform agenda of the BSP focusing on areas such as banking supervision; cybersecurity and technology risk management; anti-money laundering; counter-terrorist financing; and capital market development. Our financial system remains sound and continues to effectively intermediate funds to productive sectors, thus promoting economic growth. The banking system likewise exhibits robust financial intermediation activity as its double-digit growth in bank lending helps support not only household consumption but also business activities, such as those in real estate, trade, manufacturing, and construction, among other sectors. MOVING FORWARD In sum, the country has been making considerable progress towards achieving its macroeconomic goals. Looking ahead, prospects for the domestic economy continue to remain favorable as domestic growth fundamentals are expected to remain intact. GDP expansion is expected to continue to pick up in 2019 due to the robust growth in the services and industry sectors. Private demand is expected to remain firm, aided mainly by sustained remittance inflows and stable inflation. As more government infrastructure programs get underway, the positive spillover effects on private capital formation would also contribute to economic growth. From this position of strength, the BSP remains committed to continually upholding the highest standard of excellence in crafting policies, and thereby achieve our mandates. Going forward, the BSP will continue to monitor price and output conditions to ensure that monetary policy remains appropriately supportive of sustained non-inflationary economic growth over the medium term. We will be even more proactive in promoting a regulatory environment that enables growth and innovation among banks and, at the same time, enhancing their ability to manage risks. Admittedly, the Philippine economy is not immune from risks arising from external factors. The global economic slowdown brought about largely by US-China trade tension and growing protection affect us all. But we are confident that the Philippines will be one of the least affected economies because its growth is based on strong domestic demand and the economy is not export-oriented. Many studies support this view that the Philippines will be one of the most resilient economies in this slowing and turbulent global economy. 3/4 BIS central bankers' speeches Having said all these, I am looking forward to a productive and stimulating discussion with you and will be receptive to your insights. Thank you and mabuhay! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Roundtable Discussion on "Championing and Accelerating Good Digital ID for All" during the World Bank Group/IMF Annual Meetings, Washington DC, 17 October 2019.
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Benjamin E Diokno: Philippine identification system - paving the way towards financial inclusion Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Roundtable Discussion on "Championing and Accelerating Good Digital ID for All" during the World Bank Group/IMF Annual Meetings, Washington DC, 17 October 2019. * * * Good morning! It is a privilege and honor to be speaking before a chosen group of eminent dignitaries on a very important and growing topic across the globe. The innovation, development and advancement of technologies has ushered us to a new digital world, and reshaped mindsets, perspectives and decisions of government officials and regulators. Technologies have greatly influenced the way we go about our normal ways and they continue to do so as we speak. The journey for a national ID for the Philippines started 30 years ago. But it failed to pass one Congress after another. Finally last year, the Philippine ID System Act was past last year. And I am happy to announce that on 07 October 2019, we had a milestone as the Central Bank of the Philippines signed the memorandum of agreement (MOA) with the Philippine Statistics Authority that starts the implementation of the “Philippine Identification System (PhilSys) Act. The law, which promulgates the policy of the State to establish a single national identification system, mandates the issuance of a unique, non-transferable card to all citizens or resident aliens registered under the PhilSys. The law is beneficial for all Filipinos as it provides “a means of simplifying public and private transaction” through a reliable and nationally-accepted proof of identity. Having this proof of identity has far-reaching benefits, particularly in promoting financial inclusion. With the “Philippine ID”, unbanked Filipinos will have a proof of identity which is a key requirement in opening a bank account. It will be easier for unbanked Filipinos to open bank accounts and avail of financial services—a win for our financial inclusion agenda. This will enable more of our marginalized countrymen to enjoy gains from and participate more actively in the country’s growing economy. As such, the Central Bank of the Philippines is glad to take part in this game-changing reform as we join the other countries in providing a foundational platform for the delivery of services. The Central Bank of the Philippines, as the national security printer for the Philippine currency, has the capability and integrity to produce high quality and secured materials. Under the MOA, the BSP shall produce one hundred sixteen million pieces of blank cards for the Phil ID for three years. We will print the ID at less than $1 a piece – 60 cents to be exact. We will provide the needed equipment and space for the embedding of personal information onto the blank cards, which will be done by the Philippine Statistics Authority. The card issuance will start in April 2020. I’ll stop here and I look forward to a meaningful conversation regarding the National ID System for all. Thank you. 1/1 BIS central bankers' speeches
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Keynote message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 18th AMLC Anniversary, Kuala Lumpur, 23 October 2019.
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Benjamin E Diokno: Keynote message - 18th AMLC Anniversary Keynote message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 18th AMLC Anniversary, Kuala Lumpur, 23 October 2019. * * * Atty. Jorge S. Brania, head of AML Desk of Insurance Commission, Anti-Money Laundering Council Member and Insurance Commissioner, Atty. Dennis B. Funa. Securities and Exchange Commissioner Javey Paul D. Francisco, who is attending on behalf of AMLC Member and SEC Chairperson, Atty. Emilio B. Aquino. AMLC Secretariat Executive Director, Atty. Mel Georgie B. Racela. Men and women of the AMLC Secretariat, good afternoon and welcome to the 18th Anniversary of the AMLC. Eighteen is a significant number. In the Philippines, like in most countries, the age of majority is 18. It is a coming of age, a transition into adulthood. And this is very fitting for the AMLC as we are also undergoing a transformation. We are doing so by introducing improvements in our policies and operations with the hope that they will be beneficial to our country long after our terms have ended. To be honest, the year has gone by fast, but it has been a productive and exciting one for the AMLC. First. The AMLC adopted the 2018 Implementing Rules and Regulations of the AMLA, as amended. The new rules ensure that covered persons will be held accountable for their violations of the AMLA. It also requires covered persons to adopt robust anti-money laundering and terrorism financing prevention programs. The AMLC also issued the Guidelines on Identifying Beneficial Ownership which seeks to promote transparency in the use of legal persons, legal arrangements, and nominee arrangements. This is to ensure that these types of arrangements will be legitimately used and not for the purpose of distancing one’s identity from the proceeds of crime. Second. The AMLC has strengthened its cooperation and coordination with partner law enforcement agencies in the drive against money laundering and terrorism financing. The AMLC has conducted various workshops with its partners as means to widen their awareness of different money laundering typologies, and to capacitate them in detecting and preventing such activities. In turn, the AMLC continues to benefit from having established relationships with law enforcement partners in the area of development of money laundering and terrorism financing cases. Third. From January 2018 to July 2019, the AMLC was able to produce tangible results of its investigation efforts and cause the freezing of assets with an estimated value of over one billion pesos. It also actively caused the forfeiture of assets with an estimated value of 600 million pesos. All these investigation efforts helped in the development of 11 money laundering complaints, two terrorism financing complaints, 23 applications for bank inquiry for money laundering, and three applications for bank inquiry for terrorism financing. These are only possible through the unrelenting efforts of the competent men and women of the AMLCS. Fourth. The AMLC conducted risk assessment and strategic studies, the latest of which 1/2 BIS central bankers' speeches assessed the Philippines’ exposure to threats linked to child pornography. It was an example of a study that made use of the rich information contained in AMLC’s database based on the submissions of covered persons. Fifth. The Philippines is in the latter stage of the Mutual Evaluation (ME) which gauges the country’s levels of technical compliance with international anti-money laundering/counterterrorism financing or AML/CTF standards as well as effectiveness of the country’s existing AML/CTF system. Prior to the ME Report (MER), the AMLC conducted a self-assessment based on the existing legal framework, operations of competent authorities, and statistics to forecast the evaluation results. On effectiveness, the assessment reflected accurate ratings for seven out of the 11 Immediate Outcomes (IOs), while on technical compliance, the assessment reflected accurate ratings for 34 out of the 40 Financial Action Task Force (FATF) Recommendations. Following the adoption of the MER, the Philippines has entered a 12-month observation period, the completion of which requires the country to submit a comprehensive progress report to the Asia/Pacific Group on Money Laundering (APG) focused on the implementation of its recommended actions. This 12-month observation period gives us an opportunity for the country to remedy identified shortcomings in the MER. As such, I enjoin everyone to work even harder to ensure that the Philippines is able to successfully exit the 12-month observation period. We cannot afford to have the Philippines in the Financial Action Task Force’s list of high risk and non-cooperative jurisdictions. Hence, we should be very strategic in our focus for the next 12 months. With perseverance, a reinforced Secretariat and a closer link with partner agencies, I am confident that we will be able to address the country’s weak AML/CFT areas. As the world continues to evolve, the AMLC and its Secretariat should expect more challenges ahead. We should all heed the call to be better, bolder, and more committed in ensuring that the Philippines will not be used as a money laundering site or a haven for terrorist groups. Today, as we mark 18 years of fighting money laundering and terrorism financing, we acknowledge and celebrate all the hard work that has come to fruition. Allow me to thank everyone for the steadfast support you continue to give the Council. The work before us may be daunting, but with able and spirited people behind the AMLC, I am confident that we can remain agile in the pursuit of our mandate. Thank you and happy anniversary to all 2/2 BIS central bankers' speeches
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Closing remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Financial Inclusion Forum for the Labor Sector, Manila, 18 November 2019.
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Benjamin E Diokno: The importance of transaction accounts for employee Closing remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Financial Inclusion Forum for the Labor Sector, Manila, 18 November 2019. * * * Director Bacay and officials from the Department of Labor and Employment (DOLE), leaders and convenors of the various Tripartite Industrial Peace Councils (TIPCs), representatives of associations of informal workers and kasambahays, our partners from digital financial service providers, my colleagues from the BSP, dear friends from the labor and employment sector, ladies and gentlemen, a pleasant day to all of you. I trust that this morning’s presentations and discussions were informative and productive. To start, we gave everyone an overview of BSP’s financial inclusion agenda and digital payments initiatives to put in context our call to promote the use of transaction accounts for payments of salaries. Our speakers from the financial service providers also shared practical and actionable ideas on how their products can meet the needs of both wage earners and their employers. I hope these presentations have not only armed you with knowledge, but also inspired you to help become our partners in financial inclusion, particularly through the use of transaction accounts for payment of wages and salaries. Nonetheless, allow me to drive home a few more insights on financial inclusion and digital payments. Digitalization is rapidly and significantly transforming the way we do things in so many aspects of our lives. We are now able to shop, book a vacation adventure, get a cab, sell goods, watch a movie, wherever and whenever, without having to leave the house and stepping into a physical store. The mobile phone has become such a powerful tool, an almost all-in-one instant access to any type of service one might need. Based on the September 2019 Global WebIndex Report , there are more than 69 million internet users aged 16–64 years old in the Philippines. Of this number, 91% searched online for a product and 62% made an online purchase via a mobile phone. From the same study, 67% of Filipinos have an active social media account. The digital life is upon us, and we can harness this to make sure internet access and mobile phone ownership do not only lead to better social connections and convenient shopping, but also and more importantly, to greater ability for all Filipinos to use welfare-enhancing financial services. For the BSP, this starts with ensuring more Filipinos have access to a transaction account – in particular, an account that they can use not only to save money, but also to directly send and receive funds to and from anyone; in other words, an account that can be used for digital payments. This is why our financial inclusion and digital payments agenda necessarily go hand-in-hand. One is both an enabler and a requisite for the other. Digital payments – that is, account to account fund transfers – make accounts a valuable and practical tool for anyone, even to those who say they do not have money to save. 1/3 BIS central bankers' speeches A transaction account makes it easy, affordable, and convenient to pay bills, to send money to family wherever they are, pay government fees, and make online purchases. We do not have to take time off our weekends and free time just to fall in line to do these transactions. All we have to do is use our mobile phones. Our vision is to have more market vendors, jeepney, and tricycle drivers accepting digital payments through QR code linked to transaction accounts. This means we do not have to always bring cash with us when we go to work or the market– thereby reducing risk of theft. For the market vendors and drivers, that means they do not have to handle cash which make them less vulnerable to counterfeits aside from theft. The benefit of using transaction accounts extends to the employers. When employers pay salaries directly to the account of their workers through PESONet, it can potentially lower administrative and overhead costs, and reduce risks associated with cash distributions during paydays. As people and businesses use digital payments, they are able to build a rich digital footprint that can be used by banks, Fintechs and other lenders in evaluating and granting credit. This means people can have better and wider financing options. Digital payments also underpin a whole range of innovative digital services requiring the instant transfer of funds between transactors. The use and popularity of apps like Airbnb, Grab and Lalamove are made possible because of digital payments. Clients use their account-linked digital wallet or credit card to pay the service providers- the drivers and the property and food stall owner – which helps build trust and reliability in the transactions in the app. These digital payment-supported apps are not only convenient for users but also gives wider access to business opportunities and markets to our micro entrepreneurs and high-skilled workers. There are even apps that provide home cooks, plumbers and electricians, and house cleaners to market their services and get paid digitally through the platform. This is potentially a great platform for our workers and skilled laborers to augment their income. I hope through these examples you are able to see the benefits of having a transaction account and why financial inclusion matters. When we have a transaction account, we enjoy all the benefits afforded by digital payments and innovations. When we have a transaction account, we are able to meaningfully participate in the gains of an increasingly digital economy. Hindi tayo napag-iiwanan. And so we organized this forum, as we believe that you, the labor and employment sector, have much to gain and can play a big role in advancing financial inclusion. Payment of salaries and wages is a compelling opportunity to open transactions accounts for our workers. And based on existing official data, there are 25.5 million strong workforce in the country—a massive client base that is hard to ignore for both financial service providers and policymakers in our pursuit of our financial inclusion agenda. And so it is my hope that you come out of this forum with an enthusiasm to drive the financial inclusion journey of our country. Use your collective voice to ensure workers can maximize the benefits of their employment through better access to financial services, starting with a transaction account. Having a transaction account is key. We are living in a most remarkable time as we see our country enjoying continued strong economic growth with digitalization becoming a critical enabler of economic and financial inclusion. I hope that together we can seize these opportunities and enable all Filipinos to reap the benefits of our economic growth and achieve prosperity for all. 2/3 BIS central bankers' speeches Before I end my talk, allow me to thank our partners from the DOLE for convening our participants and for working with the BSP to make this forum a reality. DOLE has just recently joined the interagency Financial Inclusion Steering Committee. Yet it wasted no time at all to show its commitment to promote financial inclusion in the labor sector. I would also like to thank our friends from the private sector: Gcash, Paymaya, Union Bank and Cebuana Lhuillier Rural Bank for generously giving their time to talk here in this forum. This forum is evidence of what we in the BSP have been saying all along—that financial inclusion is not just a whole of government but a whole of nation undertaking. Maraming salamat at mabuhay! 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2nd Annual National Business Climate Action Summit, Pasay City, 21 November 2019.
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Benjamin E Diokno: Sustainable finance towards a climate-resilient Philippine economy Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2nd Annual National Business Climate Action Summit, Pasay City, 21 November 2019. * * * Secretary Emmanuel de Guzman of the Climate Change Commission, Ms. Ma. Alegria Limjoco, President, Philippine Chamber of Commerce and Industry, Mr. Titon Mitra, Resident Representative of the United Nations Development Programme (UNDP) Philippines, colleagues from the other government agencies, fellow speakers, friends from the banking industry, development partners, sustainability advocates, esteemed guests, a pleasant morning to all of you! First, let me congratulate the Climate Change Commission, the PCCI, the Philippine Business for the Environment, and the UNDP for organizing this 2nd Annual National Business Climate Action Summit. I am honored to join you in this important gathering as we exchange views on sustainable finance and firm up our commitment in pursuing a low-carbon, climate-resilient, and sustainable development pathway for the Philippines. According to a study made by Climate Central and published on the Nature Communications journal, the impacts of sea-level rise and coastal flooding is seen to become more extensive that could erase coastal cities by 2050. The Philippines is one of the countries identified to be in danger and the National Capital Region could likely be submerged due to climate change. Then, last 8 November 2019, we commemorated the 6th year anniversary of Typhoon Yolanda which is considered to be the strongest typhoon that struck the country in 2013. Lastly, three major earthquakes hit North Cotabato and surrounding provinces in October 2019 alone. Thousands of families were affected and scores of houses and infrastructures were damaged. After what happened, we cannot help but ask ourselves if we are ready to withstand any other form of calamity that may befall on us? If we are uncertain with our answers, all these headlines should serve as a strong wakeup call. We should prepare for threats or risks that may happen any time especially those that have prolonged significant impact such as those resulting from environmental degradation or climate change risk. Several climate vulnerability reports have consistently positioned the Philippines at the top as one of the countries exposed and vulnerable to natural disasters or climate change hazards. These facts provide a strong impetus and sense of urgency for all stakeholders to work together to address environmental issues including climate change. In light of this urgent call for action, global leaders and financial regulators embarked on a mission to understand and manage the potential impact of climate and environment-related risks to the local and global economy. The National Government, on its part, has deployed a number of initiatives which aim to address climate change risks. Through the years, several special laws have been enacted and implemented. These include the Clean Air Act, Clean Water Act, Solid Waste Management Act, Renewable Energy Act, Climate Change Act, among others. The Philippine Development Plan of 2017–2022 outlines the government’s climate-related and other environmental priorities. 1/4 BIS central bankers' speeches Some of the strategies included in the PDP are as follows: (i) promotion of green technology innovations; (ii) institution of appropriate incentives to intensify the use of more energy efficient technologies; (iii) further development and use of renewable energy; (iv) promotion of climatesmart infrastructures and designs; (v) promotion of low-carbon, energy-efficient and environment-friendly urban transport systems; and (vi) promotion of sustainable consumption and production. We understand that the Climate Change Commission has a huge task to coordinate, monitor and evaluate the programs and action plans of the Government to ensure that climate change is mainstreamed into the national and local development plans and programs. With the growing sustainability considerations, a crucial question is what is the role of financial authorities and supervisors? Indeed, central banks can shape their response to climate and environment-related risks in line with their mandates. At the BSP, we have remained steadfast in the pursuit of our core mandates with the end goal of achieving a more globally competitive Philippine economy, and a safe, sound and stable financial system. The BSP’s mandates on price and financial stability and efficient payments system have been strengthened with the amendments to the BSP Charter in February 2019. So, how do we address the effects of climate change? On monetary policy, data on natural disasters, including the damage to the agriculture sector and other industries essentially feed into the BSP’s policy analysis. The potential impact of climate patterns such as La Nina and El Nino episodes and natural disasters are used by the BSP in quantifying the potential impact of adverse weather conditions on the agriculture sector and in turn, inflation trends. On financial stability, the BSP knows the potentially significant impact of climate change and other environmental-related risks to the financial system. In particular, this may affect the credit and operational risk exposures of banks that would, in turn, translate into profitability and solvency concerns. We also recognize that the BSP has a role to play in the process. In line with this, we have rolled out a two-pronged approach in promoting environmental, social and governance (ESG) principles. First, through capacity building and awareness campaign, and second by mainstreaming ESG principles through the issuance of enabling regulations. We deem that this approach will increase the BSP and the banks’ understanding of the risks posed by environment degradation and climate change on the financial sector, enhance capacity to manage these risks, and increase banks’ awareness on the investment opportunities for green or sustainable projects before issuing regulatory expectations on sustainable finance. Meanwhile, operationally, the BSP is already undertaking pockets of activities related to green practices. Just recently, the BSP participated in the open-ended green bond fund launched by the Bank for International Settlements as part of sustainable investing in reserve management. The BSP also implemented the MB Paperlite Facility that resulted in the significant reduction of paper usage during MB meetings, and installed energy-efficient mechanisms such as solar panels and inverter technology in air-conditioning systems. Lastly, the BSP will be issuing ESGrelated regulations in phases. All of these are part of our commitment to adopt a culture that embodies sustainability. Earlier I mentioned the two-pronged approach for sustainable finance. As we build institutional capacity, we argue that sustainable finance is ultimately a public good. When done right, sustainable finance can translate into profitable investments, while at the same time attain environmental and social objectives. 2/4 BIS central bankers' speeches We also subscribe to the idea that financial regulation can be a useful tool to contribute to the achievement of national and international environmental and social objectives. In this regard, the BSP has been actively involved in global and local conversations on sustainability though our membership in the Sustainable Banking Network, Alliance for Financial Inclusion and ASEAN. We also participated on a study on banks’ perceptions on sustainable finance as well as engaged in capacity building initiatives for both internal and external stakeholders in partnership with both local and international development partners. On the regulatory pathway, the BSP believes that the optimal approach remains to be one that is “enabling” – one that provides ample flexibility, sensitive to risk-appetite and business models, and proportionate to the banks’ size, structure and complexity of their operations. This approach aims to shift perspectives from a myopic compliance exercise to a forward looking stance that puts greater weight on the long term financial interest and sustainability of the organization. Following this approach, the BSP will be issuing ESG related regulations in phases. The first phase will provide high level principles and broad expectations on the integration of ESG and sustainability principles in the corporate and risk governance frameworks as well as in the business strategies and operations of banks. The second phase will provide more granular expectations in managing climate change and other environment-related risks in relation to credit, market, liquidity, and operational risks. The third phase may cover potential regulatory incentives. Complementary to the policy issuances is our own research on the impact of natural disasters on the Philippine banking performance. Using existing regional data, we found that episodes of extreme weather conditions have negative impact on financial intermediation (deposits, loans, NPL, provision for NPL, profitability). However, the impact is short-lived given the sound financial position of banks. The damage tapers off after a year or so. It is important, however, to underscore that we are not starting from scratch. The BSP’s existing corporate and risk governance standards serve as the underpinning regulations for our ESG issuance. In particular, since 2012, we have established the accountabilities of the board and senior management in promoting good governance and in adopting effective risk management systems in banks. The BSP regulations also emphasize the adoption of appropriate credit and operational risk management systems, including stress testing framework. This is to ensure that various risks including environmental issues and climate change risks are considered in the banks’ decision-making process and stress testing exercises. The results of the stress testing should feed in the capital planning and business continuity arrangements of banks. Moreover, with the geographical location of the Philippines, banks are prone to physical risks from severe weather condition. It is in this light that the BSP adopted a policy that provides temporary regulatory relief to banks which are located in areas affected by natural calamities. The regulatory relief aims to assist affected banks in their recovery and allow them to resume normal operations. This refers to the risks resulting from climate change which can be event-driven (acute) or longer-term shifts in climate patterns (chronic) that may cause direct damage to assets or indirectly through the disruption of supply chain. Acute physical risks include floods, typhoons, droughts, wildfires, earthquake. Chronic physical risks include changes in precipitation and extreme weather variability, rising sea levels and chronic heat waves. Ladies and gentlemen, there is a sound business case for sustainable finance and this is gradually gaining traction. 3/4 BIS central bankers' speeches At present, Philippine banks are getting more involved into green finance, issuing green or sustainability bonds in order to fund and refinance renewable energy and energy efficiency projects, green buildings and other green assets. Some banks adopted sustainability as part of their corporate social responsibility (CSR) initiatives while others have gone farther to integrate ESG principles and adopt Environment and Social Risk Management (ESRM) into their business operations. There are banks that have adopted voluntary reporting of sustainability performance and established partnerships with international experts to assess and address climate change risks. Some banks even walked an extra mile by providing technical assistance to their clients so they themselves could imbibe sustainability practices. The BSP is just a piece of the puzzle that will advance the country’s climate and sustainability development goals. Aware of the magnitude of multi-faceted challenges surrounding sustainable financing, the BSP is supporting the “whole-of-country” approach in this important undertaking. In this respect, the BSP along with key agencies in the government have collaborated and created an inter-agency group that will institutionalize and facilitate the implementation of a roadmap for sustainable finance. The group is looking forward to adopting enabling policies that will promote sustainable finance. It also aims to facilitate investments in public infrastructure and mobilize funds to finance green or sustainable projects. Apart from the public sector, there is, likewise, a need to increase awareness of the private sector, business enterprises and part of the households on the impact of climate and environment-related risks hopefully with the unceasing support by the development partners and academe. Hence, a ‘whole-of-country approach’ should be adopted in promoting sustainability across the country. All said, let me leave you with some key takeaways: Climate change and environmental challenges can pose risks on the stability of the financial system. A whole-of-country approach is basic and necessary to address such risk and scale up promotion of green/sustainable finance. Initiatives to inclusive green/sustainable finance is yet to pick up. The BSP’s support to sustainable finance is crucial, especially in promoting and signaling with stakeholders. Nevertheless, private sector response is gaining some ground. In closing, I emphasize that sustainability is more than just a buzzword – it is a way of right living and existence. Sustainable finance is a tool to foster environment and social-friendly businesses and communities towards a climate-resilient Philippine economy. Thank you and good morning! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BSP Financial Education Stakeholders Expo, Pasay City, 25 November 2019.
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Benjamin E Diokno: Financial health for Filipinos through financial education Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BSP Financial Education Stakeholders Expo, Pasay City, 25 November 2019. * * * National Economic Development Authority (NEDA) Undersecretary Rosemarie Edillon; Department of Education (DepEd) Undersecretary Ann Sevilla; Philippine Stock Exchange (PSE) Chief Operating Officer Atty. Roel Refran; educators; fellow public servants; development partners; leaders from the financial services industry and non-government sectors; friends from the media; honored guests; good morning. The Bangko Sentral ng Pilipinas (BSP) welcomes you to the 2nd Financial Education Stakeholders Expo. Thank you for joining this annual event for financial education. In 2018, about 1,000 financial education experts, practitioners and advocates gathered here in SMX for the first ever Expo. We envisioned it to bridge different players in the financial education space. We sought to know of their ongoing initiatives, understand challenges, and find opportunities for collaboration and partnerships. We wanted to determine ways forward to achieve shared financial education objectives. In a year, the seeds of collaboration planted in 2018 have started to take root. Today we convene again to showcase the progress we have made, and what more we can do together. Allow me to share what we can expect from the 2019 Expo. The plenary sessions will present how financial education contributes to green and sustainable development. Top financial advisors will impart lessons on responsible financial planning, making our money grow and becoming good financial role models. Similar lessons will be highlighted in a theater production after the lunch break – this is quite interesting so stay tuned. Tomorrow is just as exciting. We will go into breakout sessions, delve deeper into financial education challenges and solutions, and learn more about stock market investing. We will have entertaining sessions like a financial education board game, a financial literacy game show, an awards program, and a raffle draw for all Expo participants. There will be special performances from actor (Mr. Xian Lim) and a percussion group (Batangas Drumbeaters). So you better be here tomorrow to enjoy the fun! We also have 76 exhibit booths (60 Exhibitor Institutions/Entities) in the other room (Function Room 5). Our Expo partners are showcasing their wares, ranging from financial products and services to handicrafts by microentrepreneurs. The two-day Exhibit is open for all Expo participants and the general public – so you may invite your friends to visit the booths. The 2019 Expo activities are anchored on our objective of bringing the BSP closer to Filipinos. Our three strategic advocacies – financial education, financial inclusion and consumer protection – are all means towards this end. Through financial education, we equip Filipinos with the ability to understand, select and prudently use financial services. Through financial inclusion, we enable Filipinos to conveniently, safely and digitally access affordable and fit-for-purpose financial services. With consumer protection, we beget greater trust by Filipinos to transact with formal financial institutions observing customercentric and ethical business practices. 1/4 BIS central bankers' speeches We implement these advocacies not only because they embody the BSP mandate to “promote broad and convenient access to high quality financial services and consider the interest of the general public” (Republic Act No. 11211). We focus on financial education not only because two laws, the Youth Entrepreneurship Act (RA No. 10679) and the Economic and Financial Literacy Act (RA No. 10922), urge government institutions to do so. Rather, we pursue these advocacies because we want every Filipino to be financially healthy. Financial Education Towards Financial Health Financial health happens when an individual makes financial plans and priorities; balances income and expenses; builds and maintains financial reserves; manages existing debt and has access to potential resources; manages and recovers from financial shocks; and uses an effective range of financial tools. Center for Financial Services Innovation, 2017, Financial Health Indicators for a Developing World, Beyond Financial Inclusion: Financial Health as a Global Framework. The BSP vision is a financially healthy citizenry making wise financial decisions and contributing productively to the Philippine economy. This is consistent with Ambisyon Natin 2040 goal of having Filipinos “enjoy a stable and comfortable lifestyle, secure in the knowledge that we have enough for our daily needs and unexpected expenses, that we can plan and prepare for our own and our children’s future.” You are part of this Expo because we know that you share this vision. We are confident that you and your institutions can play significant roles in making this vision a reality. The challenge is great, given the low level of financial literacy of Filipinos. Survey shows that Filipinos have marginal understanding of compounding interest; the effect of inflation on the purchasing power of households; and investment risks, returns and diversification. But there is good news – we’re not starting from scratch. The BSP began the groundwork when we implemented the Economic and Financial Learning Program from 2010 to 2017. We intensified building the foundations in 2018 as we shifted to a partnerships approach. With this approach, we are deepening industry relationships and widening the scope and reach of our financial education programs. We are now leveraging on partners’ competencies and resources, and moving towards scalable, sustainable and measureable financial education programs. Updates on Financial Education Partnerships To date, the BSP has institutionalized financial education partnerships with key government agencies. Department of Education We support DepEd in integrating financial education in the K to 12 curriculum to address learners’ needs; and incorporating personal finance management (PFM) sessions within regular training programs for teachers. We expect to reach 29 million learners and more than 800,000 teaching and non-teaching personnel. Imagine how the country will benefit when every learner who goes through the basic education system imbibes correct money values, and grows up to become financially-savvy citizens, innovators, business owners and political leaders. Under this partnership, we have so far co-developed 10 videos and 24 lesson exemplars as classroom learning tools. We have also developed a personal finance management module for teachers, and capacitated around 300 trainers to cascade the module to their peers and 2/4 BIS central bankers' speeches colleagues nationwide. We also support DepEd in finalizing the policy and roadmap for financial education integration. We will learn more about DepEd’s milestones from Undersecretary Sevilla (last speaker of the opening ceremony), and during the DepEd breakout session tomorrow morning. Overseas Workers Welfare Administration The BSP supports Overseas Workers Welfare Administration (OW WA) to implement the Pinansyal na Talino at Kaalaman (PiTaKa) campaign. Under this campaign, we are developing standard financial education modules fit for OFWs. The modules will be embedded in mandatory orientations that OFWs and their families are required to undertake. To date, we have completed a financial education module for use in Pre-Departure Orientation Seminars (PDOS) and presented it to more than 600 trainers from OW WA-accredited PDOS providers. In turn, they will cascade the module to reach over 2.3 million land-based and seabased OFWs. Standard modules are also being developed for Post Arrival Orientation Seminars (PAOS) and General Orientations for OFW Families. Full roll-out of the PiTaKa campaign would mean an outreach of around 10 million Filipinos living and working abroad. Note that this figure does not yet account for their families in the Philippines. The BSP works with the Civil Service Commission (CSC), the Armed Forces of the Philippines (AFP) and all its branches – the Philippine Army, Philippine Navy and Philippine Air Force. We aim to embed financial education sessions in training programs required for completion by civil servants and AFP personnel. This objective is in line with CSC’s thrust to enhance financial literacy skills of the public sector workforce, and with the AFP Transformation Roadmap which considers financial wellness as integral pillar of personnel’s holistic development. These partnerships will cover an estimated 1.7 million civil servants and 140,000 AFP personnel. We believe that financial education can be an instrument to achieve employees’ financial health as well as enhance public sector productivity. Studies show that financially stressed employees are more likely to miss work, or experience reduced productivity. Aside from these ongoing partnerships, we will soon engage the police force and firefighters, by signing financial education agreements with the Philippine National Police and Bureau of Fire Protection in 2020. We are also targeting financially underserved sectors like MSMEs, beneficiaries of the government’s cash transfer programs, persons with disabilities, and young professionals from the Business Process Outsourcing (BPO) industry. For this purpose, we have initiated discussions with the Department of Trade and Industry (DTI), the Department of Social Welfare and Development (DSW D), the National Council for Disability Affairs (NCDA), and the IT and Business Process Association of the Philippines (IBPAP). Private Sector Support In all these partnerships, we are grateful for private sector support. These stakeholders are deeply committed to carry-out financial education programs as part of their corporate social responsibility and devoid of commercial interests. These include – in alphabetical order – the BDO Foundation, BPI Foundation, Maybank Foundation and Visa Foundation. We thank the Asian Development Bank (ADB) for assisting in the development of a Monitoring and Evaluation (M&E) Framework for all our partnership programs. With an M&E Framework in 3/4 BIS central bankers' speeches place, and an envisioned national financial capability survey in 2020, we hope to see evidence of progress and determine opportunities for future work in financial education. I shared the updates to give a sense of the breadth of the work that still needs to be done, the areas where multi-sectoral support is needed, and the opportunities for partnerships. Consider this my call to action. Consider also the rags-to-riches life stories of “Tatang” Henry Sy, Sr. and “Big John” Gokongwei, Jr. Both left legacies of multi-million business empires. But let us not overlook that both started from small incomes, used their money well, practiced prudent financial and business management, and became the moguls we know them to be. Every Filipino might not reach the same success, but we can try to help them, and ourselves, to achieve comfortable levels of financial health. Through complementary, coordinated and collaborative financial education programs, we must aim to change the life of every Filipino towards a financially healthy future. In this Expo, we hope to generate concrete ideas on how you and your institutions can be financial education champions and agents of change. To end, former U.S. President Harry S. Truman once said, “Actions are the seed of fate. Deeds grow into destiny.” As we act together, and gather critical mass, we can altogether achieve our desired destiny – a financially healthy nation. Good morning again and mabuhay 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 4th International Islamic Finance Conference, Manila, 25 November 2019.
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Benjamin E Diokno: Role of Islamic banking in promoting financial inclusion in the Philippines Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 4th International Islamic Finance Conference, Manila, 25 November 2019. * * * Assala Mualaukum! I wish to thank the National Commission on Muslim Filipinos and the Department of Foreign Affairs for giving the BSP this opportunity to talk about the role of Islamic banking in promoting financial inclusion in the country. It is a timely and relevant topic that we are only happy to discuss in a forum like this. Indeed, for a country with Muslims representing 10% of its people, our financial inclusion narrative would be incomplete without touching on Islamic banking and finance. This statement becomes even more relevant when faced with the inconvenient truth that the three poorest provinces in the country are predominantly Muslim, namely: Lanao del Sur, Sulu, and Basilan. Financial inclusion has become widely recognized as an enabler for inclusive growth and poverty alleviation, offering a path to shared prosperity for all. This is because the ability to use wideranging, well-designed financial services enable individuals to build financial resilience and pursue economic opportunities. As the broader population become more productive participants in the economy, financial inclusion can also reinforce the country’s economic growth. Islamic finance shares the same promise, but focusing in particular to the socioeconomic needs of the Muslim population. If we are to address the needs of our underserved Muslim brethren in Mindanao and elsewhere in the country, we need to deliberately promote both Islamic finance and financial inclusion. Financial inclusion has been a strategic goal of the BSP, even long before it became an explicit mandate under its recently amended charter. Under Republic Act No. 11211 signed in February 2019, BSP is mandated to “promote broad and convenient access to high quality financial services and consider the interest of the general public.” For us in the BSP, this is a strong recognition of financial inclusion as an important national development goal. As you may be aware, account penetration—the basic indicator of inclusion— stood at a low 22.6% based on our 2017 Financial Inclusion Survey. Meanwhile, 40% of adults with loans reported borrowing from informal sources. Right now, financial inclusion in the country may be at a dismal state. But the BSP is optimistic that significant improvement will be seen in the near future. In the last few years, BSP has focused on addressing barriers to access and supporting the development of an inclusive digital finance ecosystem. At the center of all these efforts is wider use of the digital payment system. With an enabling regulation and supporting infrastructure, digital and mobile technologies are making geographical barriers irrelevant and the operations of service providers significantly cost efficient. Serving rural and low-income client, including those in the poorest provinces in Mindanao, can become viable for innovative service providers. For instance, regulations and technology have made it possible for a bank to tap cash-rich outlets such as gasoline stations and pawnshops as a low-cost access point in lieu of a branch through which its clients can do banking transactions like deposits, withdrawals and bills payment. BSP has also incentivized banks to offer basic deposit accounts or BDA with zero 1/4 BIS central bankers' speeches maintaining balance, opening deposit not more than P100 and simplified documentary requirements. The basic deposit accounts product features are designed to meet the need of the unbanked for a low-cost, no-frills, easy to open account. Our goal is not just for people to easily open an account but for them to actually use it on a regular basis so that they can build a transaction history that can be used by banks and other formal lenders as basis for granting credit. This is part of the motivation of the BSP to push digital payments by allowing and encouraging people to use their accounts for various payment transactions. We are doing this through deliberate reforms to promote an interoperable and efficient retail payment system. Thus, we now have PESONet and Instapay which allow accountholders to conveniently send and receive funds to and from any e-money or bank account. BSP continues to work closely with the payments industry and other government agencies on various initiatives to make sure people can use their account-linked mobile wallets to conveniently send money to family, pay bills, pay vendors, public transport and such regular dayto-day transactions. In fact, last week we just launched our EGov payment facility and QR Ph, which is part of efforts towards a cash-lite society. All these are the foundational elements of our envisioned inclusive digital finance, underpinning our effort to ensure anyone whether poor or rich, in a city or in a remote barangay, can open and use and account, and enjoy the conveniences and other benefits of digital payments. While these are indeed noteworthy developments, we know that the work is far from finished. Beyond account ownership, financial inclusion entails the availability of a range of products that meet the diverse needs of the population, particularly the minorities and the vulnerable sectors. To create a truly inclusive financial system, we need to ensure that the needs of the Muslim Filipinos who are excluded due to religious reasons are being addressed. A World Bank study showed that approximately 9% of the population exclude themselves from the formal financial system due to religious reasons in Muslim majority countries. This is where Islamic banking and finance comes in. Islamic finance can deepen financial inclusion not only because it delivers Shari-ah-compliant products for the Muslim communities but also because its very essence is based on the principles of social justice and equality. Islamic finance products are specifically created to support the needs and protect the rights of the poor and underserved. Islamic finance and financial inclusion, therefore, share a common end-goal. As you may know, in Islamic finance, products such as sadaqah, waqf, and qard are called social solidarity instruments because they are designed to uplift the plight of the less privileged through the wealth of those who have more in life. As the name suggests, social solidarity instruments provide wealthy individuals and businesses a channel through which they can financially support the poor in the community. Other Shari’ah compliant products can also support not only individuals but also small business owners such as sale-based contracts (i.e. murabahah, salam etc.), lease-based contracts (i.e. ijarah) or guarantee contracts (i.e. kafalah). Providing the appropriate products and services to the small and medium enterprises is key to broad-based growth. Islamic finance can also help the country attract funds from Islamic investors looking for opportunities to support infrastructure requirements particularly in the Bangsamoro. Poverty alleviation efforts have necessitated development of critical rural infrastructure that can support 2/4 BIS central bankers' speeches the quality of life and the livelihood of the rural folk. Simply put, we cannot afford to overlook the role of Islamic finance in promoting social equity, not when there are still predominantly Muslim provinces—like the Bangsamoro that have poverty incidences as high as 68%. In fact, in the 2018 Bangsamoro Organic Law, the Bangsamoro Government, the BSP, Department of Finance and the National Commission on Muslim Filipinos are mandated to jointly promote the development of an Islamic banking and finance system in the country. This has been further strengthened with the passage of the Republic Act No. 11439 – an Act Providing for the Regulation and Organization of Islamic Banks in 2019. This law marks an important milestone in the country’s Islamic finance journey which started in as early as 1973 with the establishment of the Philippine Amanah Bank. Even back then, the Philippines has been one of the first Muslim-minority countries to recognize the importance of Islamic Finance. The bank eventually became the Al-Amanah Islamic Investment Bank which, to date, is the only Islamic bank in the country. The newly enacted law aims to bring forth the full potential of what the country has started in 1973 as an early mover in Islamic financing – that is to promote real socioeconomic development in Muslim Mindanao through Islamic Financing. Republic Act 11439 is envisioned to facilitate the development of Islamic Financing in the country by allowing other domestic and foreign Islamic banking players, either full-fledge Islamic banks or Islamic banking windows, to operate. As regulator, BSP envisions a system that accommodates Islamic finance within a flexible but secular unitary framework. Licensing framework for Islamic banks will be anchored on that for conventional banks with supplementary prudential requirements that recognize the inherent characteristics of Islamic banking and finance, particularly compliance with Shari’ah principles. To level the playing field and provide an opportunity for more players, the framework provides conventional banks to offer compliant products and services through business units or windows that take into consideration Shari’ah parameters and compliant mechanisms particularly the separation of funds. In addition, this legal framework awards non-Muslim investors the opportunity to invest and diversify their portfolios. BSP, together with the other members of the Interagency Technical Working Group on Islamic Banking and with the support of our development partners, will work toward ensuring that the legal framework is effectively implemented through appropriate rules and regulations. As mandated by the law, government will also endeavor to achieve neutral tax treatment between Islamic banking transactions and equivalent conventional banking transactions. Beyond our regulatory goal of promoting stability and level playing field, BSP is committed to support the growth of the Islamic banking industry in the country. Under its amended charter, BSP is empowered to institute reforms and issue enabling policies to ensure that the Islamic banking industry receives appropriate liquidity and other financial support. With all these developments, I am optimistic about the future of Islamic finance in the country. We now have the much awaited and much needed regulatory framework to usher in a vibrant Islamic Finance industry marked by multiplicity of players. This is not to say our work is done. We could even say that the work has just begun. The seeds for a vibrant Islamic financing industry have been planted. It is now up to us – the government and the industry as a whole – to nurture the seeds with concrete next steps. We all have a stake in the development of Bangsamoro and in the future of our country. Let us waste no time in working toward our shared vision of a prosperous nation for all Filipinos. 3/4 BIS central bankers' speeches Thank you and mabuhay! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launch of the new 20-Piso and enhanced 5-Piso NGC coins, Manila, 17 December 2019.
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Benjamin E Diokno: Launch of the new 20-Piso and enhanced 5Piso NGC coins Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launch of the new 20-Piso and enhanced 5-Piso NGC coins, Manila, 17 December 2019. * * * To the Members of the Monetary Board, BSP Officers, and our friends from the media, good morning. We received great news last October when the International Association of Currency Affairs or IACA recognized the Bangko Sentral ng Pilipinas for Excellence in the Currency 2019 Coin Awards at the biennial Coin Conference in Rome, Italy. Established in 2007, the IACA’s Excellence in Currency Awards Program promotes and recognizes excellence in currency production, processing, management, and distribution. As we recall, the BSP’s New Generation Currency (NGC) Coin Series—which includes the 10Piso, 5-Piso, 1-Piso, 25-Sentimo, 5-Sentimo and 1-Sentimo—was released in circulation starting in March 2018. This NGC Coin Series and the Coin Education Campaign were among the top three finalists awarded in the Best New Circulating Coins and Best Public Education Program categories, respectively. During the awards ceremony, the IACA cited the enhanced aesthetic, cutting-edge security features, and improved wear and corrosion resistance of the NGC coins. On the other hand, our Coin Education Campaign earned praises for utilizing various communication channels such as nationwide briefings, television, radio and social media, which emphasized that these NGC coins are “Matibay”, “Maganda”, at “Mahalaga.” The BSP is honored to be among the best in the world in coin design and production, and to receive a distinction for the education program that came with the successful issuance and circulation of these coins. Aside from the economic value as payment for goods and services, coins play a significant role in a nation’s history, often paying homage to Filipinos with outstanding accomplisgments or worthy of emulation, celebrating momentous events, and promoting with pride the country’s historical sites or natural wonders. Coins also reflect a country’s cultures and traditions, and are powerful tools of communication and identification as a nation. Today, the BSP is proud to present the new 20-Piso coin which will now be the highest denomination in the New Generation Currency Coin Series. Prominently featured on the obverse of the 20-Piso coin is Manuel L. Quezon, the first president of the Philippine Commonwealth who advocated the adoption of the national language; created the National Economic Council, the precursor of the National Economic Development Authority; and worked passionately to regain Philippine independence. The reverse side features the BSP logo and the Malacañan Palace, the official residence of the President of the Philippines. Consistent with the theme of the NGC Coin Series, a native flora is featured in the 20-Piso coin—the Nilad, which is believed to be the origin of the name of the country’s capital city, Manila. It should also be mentioned that President Quezon is the first Philippine president to reside in this proud and iconic Palace. These design elements put emphasis on the cultural and historical significance of coins to 1/2 BIS central bankers' speeches Philippine society. Moreover, the design of this bi-color 20-Piso NGC coin makes it easily distinguishable and highly secure. The BSP is also introducing today the enhanced 5-Piso NGC coin with nine sides to make it more distinct from other denominations in the NGC Coin Series. This reaffirms BSP’s commitment to not only uphold the highest standard of excellence, but also listen to the public’s observations as it endeavors to bring central banking closer to the people. Maraming salamat and mabuhay! 2/2 BIS central bankers' speeches
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Presentation by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Digital Payments Leaders Summit, Manila, 2 December 2019.
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Benjamin E Diokno: Advancing digital payments in the Philippines – achievements and next steps Presentation by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Digital Payments Leaders Summit, Manila, 2 December 2019. * * * Good afternoon everyone. Indeed, this is a celebration of what the Philippines has achieved so far towards a cash-lite society. Clearly, there is more room to get to where we want to be. So, before we leave this room, let me take this opportunity to present to you the key takeaways from this Summit. We are set to take digital payments to greater heights. We now have indisputable mandate to oversee payment systems with the enactment of the National Payment Systems Act (NPSA) and the amendment of the Bangko Sentral Charter. We also have established the governance framework, particularly the National Retail Payment System, which has been crafted as suited to our national conditions. Moreover, we have existing clearing switch operators which are capable of providing the infrastructures that interconnect our payment service providers. Of course, the PhilPaSS, which allows Philippine banks to efficiently pay their clearing obligations to each other, has been there for quiet sometime. Finally, as you’ve seen earlier, we have measurement and monitoring tools that will help us determine our strengths and weaknesses. I am grateful also that the Better than Cash Alliance has generously helped us in determining the following critical payment use cases where further digital-oriented programs are necessary: social benefit transfers, payments to merchants or billers including to the Government, payments to suppliers, and remittances. Now that these are in place, what else can we do to move digital payments forward? It is necessary that we work together in providing a regulatory environment that is conducive to the development of innovative payment technologies and at the same time effective in minimizing the attendant risks. To the payment service providers and operators of payment systems, please continue expanding your networks, leveraging available financial technologies to be able to deliver more digital payment services that reach even those living in the most rural places. To the merchants and billers including our government agencies, you are the “wind beneath our wings,” so to speak. Without your willingness to accept e-payments, the millions of Filipino payers will never realize the economic and social benefits of digital payment services. Equally important are the consumers who benefit most from using digital payments. As we embrace the changes around us, let us look beyond the convenience that e-payment services bring us. Let’s keep in mind that for every digital payment we make, we contribute to transforming this 1/2 BIS central bankers' speeches country to a cash-lite economy where we could reap enormous benefits such as greater efficiencies in funding flows, increased transparency and security of financial transactions, and more inclusive financial system, just to name a few. The road we traverse may be challenging BUT I have no doubt that TOGETHER we will be able to overcome the challenges that will come our way. Instead of letting the challenges blur our sights of the invaluable gains from our strong partnerships, let us be positive. Let us look at the bright side of things and remaining focused on our shared vision of raising the volume of e-payments to the level we desire. With our concerted effort to deepen the penetration of electronic channels and instruments in this country, we will certainly achieve our ultimate goal of having an inclusive payment system where no adult Filipino is left behind in terms of access to payment and other basic financial services. Let’s do our share in uplifting the lives of ordinary Juan and Maria as we build a stronger Philippine economy. I trust in all of you, our strategic partners, to take an active role in our challenging yet rewarding journey. Now is not the time to stop. Together, let’s initiate more electronic payment programs that touch the lives of the unserved and underserved Filipinos. As we renew our commitment to boost digital payments, may I request everyone to please get hold of your mobile phones. And TOGETHER let’s raise our mobile phones to seal the bond we have at this Summit and cheer ‘MABUHAY’. Thank you very much for your generous support! 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Rotary Club of Manila General Assembly, Manila, 9 January 2020.
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Benjamin E Diokno: The Philippine economy in 2020 - looking back, moving forward Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Rotary Club of Manila General Assembly, Manila, 9 January 2020. * * * On behalf of the Bangko Sentral ng Pilipinas (BSP), let me first wish all of you a very happy and prosperous New Year! As an RCM member, I know that it’s a tradition for the Rotary Club of Manila (RCM) to invite the BSP Governor to talk at your first General Assembly of the year. So I’m here to honor that tradition. In the next few minutes, let me flesh out the conversation on the year that was through the BSP’s perspective. In doing so, I have structured my message in four parts: (1) BSP’s views on recent economic developments; (2) BSP’s delivery of its core mandates; BSP’s thrust in bringing the benefits of monetary and financial stability closer to the people; and (4) BSP’s mindset in the new decade. The 2019 Economy in Review We started 2019 with some uncertainty, reflecting the weaker growth performance in major economies. Further, the escalating trade tensions between major economies and geopolitical factors had beset business sentiment and global demand. On the domestic front, the delay in the passage of the 2019 budget and the election ban weakened government spending and public construction. At the outset, let me emphasize that amid global and domestic challenges, the Philippine economy, as it stands today, remains in a position of strength as evident in several metrics. Shown on this slide are the major indicators of recent performance of the Philippine economy relative to the past decade: Real GDP growth remains resilient, driven by strong domestic demand. In addition, our growth continues to be inclusive, with poverty incidence among the population declining to 16.6 percent in 2018 from 23.3 percent in 2015, or a 2.2 percent decrease in poverty incidence annually. This means that nearly 6 million Filipinos were out of poverty during that period. Effective monetary policy contributed significantly to achieving within-target inflation. From a high of 6.7 percent in September and October 2018, average inflation for 2019 settled at 2.5 percent, well within the Government’s target range of 3.0 percent ± 1.0 percentage point for the year. Modest fiscal deficit supports effective government spending and sustainability to meet debt obligations. Ample liquidity continues to support economic activity, while a stable and healthy banking system, aided by strong prudential supervision and regulation, leads to efficient intermediation and management of risks. A strong external position, backed by comfortable FX reserves and prudent external debt management, helped build buffers against external headwinds. The peso has been broadly stable, while the end 2019 level of the Gross International Reserves at $87 billion provides an ample external liquidity buffer. 1/7 BIS central bankers' speeches For the past 83 quarters, the Philippine economy has experienced sustained uninterrupted expansion. The year-to-date GDP growth rate of 5.8 percent for the first nine months of the year underscores the Philippines’ place as one of the most resilient and fastest growing economies in Asia and in the world. The better-than-expected GDP outturn in Q3 2019 of 6.2 percent growth rate was driven by the broad-based expansion of services (i.e., financial intermediation and transportation, storage and communications), industry (i.e., construction and electricity, gas and water supply) and agriculture sectors. The third quarter performance of the agriculture sector represented the fastest growth since Q3 2017. On the demand side, the Q3 GDP growth was driven largely by the strong pick-up in public spending following the passage of the 2019 national budget in April 2019 and sustained household consumption. Meanwhile, unemployment and underemployment rates in the country are both at historic low at 4.5 percent and 13.0 percent, respectively as of October 2019. The country’s strong growth potential can also be seen in the favorable outlook of various institutions. Shown in this slide are the growth projections released by the International Monetary Fund (IMF), the World Bank (WB) and the Asian Development Bank (ADB) in their latest surveillance reports. These third-party assessments are broadly in line with the Government’s target for 2019–2020 with GDP growth target range of 6.0 % – 6.5 % for 2019 and 6.5 % – 7.5 % for 2020 to 2022 (based on 11 Dec 2019 DBCC meeting). Meanwhile, Goldman Sachs EM Outlook 2020 expects the country’s GDP to grow by 5.8 % and 6.5 % in 2019 and 2020, respectively. Such is higher than the GDP growth forecasts for Thailand (2.4 and 2.8 % for 2019 and 2020, respectively), Indonesia (5.0 and 5.2 %), and Malaysia (4.5 and 4.3 %). On inflation, price pressures have been dissipating since late 2018 with average headline inflation at 2.5 % for 2019. This is well within the Government’s 2-4 percent target range for the year. Looking ahead, the latest baseline forecasts indicate that inflation is projected to average 2.9 % for both 2020 and 2021. The balance of risks to future inflation appears to be weighted toward the upside for 2020 but remains tilted to the downside for 2021. Petitions for electricity rates and transport fare adjustments, the proposed increase in excise taxes on alcoholic beverages, the impact of African Swine Fever (ASF) on meat prices, and higher global oil prices are seen as the main upside risks to inflation. Meanwhile, slower global economic growth due to the escalation of protectionist policies in advanced economies as well as geopolitical tensions continue to be the main downside risks to inflation. Equally important, inflation expectations – based on forecast surveys of private sector analysts – have remained manageable and well within the government’s 2-4 % target range. Results of the BSP’s survey of private sector economists for November 2019 showed unchanged mean inflation forecasts for 2019 to 2021. Last year, the Monetary Board (MB) cut the BSP’s policy interest rate by a total of 75 bps and the reserve requirement ratio by a total of 400 bps. The MB believes that prevailing monetary policy settings remain appropriate, supported by the benign inflation outlook and a strong positive outlook for domestic economic growth. In terms of the policy rate outlook for 2020, the BSP will always be data dependent with its decisions. That is, each policy decision will 2/7 BIS central bankers' speeches be based on all the available information to monetary authorities at the time of its decision. For this reason, the BSP will continue to closely monitor economic conditions and on making reasonable assumptions about the future when formulating its monetary policy. While emphasis is given to inflation and inflation expectations, we also consider a wider set of economic variables and their dynamics in deciding on monetary policy. The BSP examines demand conditions, domestic liquidity and credit, financial market variables, and the external landscape in deciding whether adjustments in the monetary policy stance are warranted. Nevertheless, the Phillippines has sufficient policy space, both monetary and fiscal, to deal with external shocks and their spillovers to the domestic economy. Let us not forget that an appropriate mix of monetary, fiscal, and other structural policies is crucial in achieving the government’s macroeconomic objectives. Economic activity in 2020 will be supported by strong household consumption, robust agricultural sector activity, increased government spending following the timely approval of the 2020 national budget, and higher capital spending for the public sector’s build, build, build program and private sector’s capital formation. Nevertheless, even amid external headwinds, the country’s external payments position recently made a turnaround from a negative position in 2018, to a surplus of US$6.27 billion for the period January – November 2019. The surplus in the BOP position may be attributed partly to higher net inflows of foreign direct investments and foreign portfolio investments which was bolstered by favorable investor sentiment on the country’s solid macroeconomic fundamentals. At the same time, the current account balance in the first three quarters of 2019 posted a narrower deficit of US$992 million from US$5.8 billion in the same period in 2018. This positive development was due largely from the lower trade in goods deficit combined with higher net receipts in the trade in services, and in the primary and secondary income accounts. The deficit in the current account is largely a reflection of the rise in investments in the economy over the past few years. This in turn has been due largely to the government embarking on an ambitious, but also long-overdue infrastructure program. The latest outlook for the balance of payments already takes into account the national government’s (NG) planned increase in infrastructure spending over the medium term. The current account is expected to be in deficit in the medium term, reflecting continued imports of capital goods, raw materials and intermediate goods imports as the government ramps up its massive infrastructure program. Nonetheless, fiscal spending is being undertaken prudently. The NG has put a cap on its fiscal deficit to GDP ratio at 3.2 percent for 2019 and 2020, mitigating any pressure on the current account coming from the infrastructure program. Moreover, as public infrastructure investments result in an overall improvement in productivity and overall capacity of the economy, the subsequent boost in manufacturing and export activities as well as the continued strong inflows from OFW remittances, business process outsourcing (BPO) receipts, and tourism receipts, could offset the expected deficit in the current account. The rise in imports needed for sustained growth is expected to remain manageable and financeable. There continue to be structural sources of foreign exchange inflows. While there has been a slowdown in foreign direct investments (FDI) in the country, this is mainly due to ongoing uncertainty in the global environment, which continued to dampen investor sentiment. 3/7 BIS central bankers' speeches Nonetheless, FDIs for the full year are expected to post a net inflow owing to positive developments in the domestic economy in general. We also continue to see strong inflows from overseas Filipinos’ remittances, tourism receipts and business process outsourcing revenues. As of end 2019 shows that the country’s gross international reserves (GIR) stood at US$87.9 billion, which provides an ample external liquidity buffer. This is equivalent to 7.7 months’ worth of imports of goods and services and payment of primary income. It is also equivalent to 5.6 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity. The sustained favorable external debt profile is also another factor supporting the external sector position. The country’s external debt metrics have steadily improved as exhibited in the considerable decline in the external debt-to-GDP ratio to only 23.7 percent as of end-September 2019 compared to about 60.0 percent in 2005, before the onset of the Global Financial Crisis (GFC). A large part of the country’s external debt remains in the form of medium-to-long term borrowings, which implies a manageable debt repayment schedule over the medium-tolong term horizon. On the part of the BSP, its primary contribution to supporting the country’s growth trajectory centers mainly around the effective implementation of its mandates and policy priorities. We remain firmly committed to maintaining price stability and financial stability, and ensuring an efficient payments and settlements system. With these, we help foster an enabling macro-environment that will be conducive to sustainable and inclusive economic growth. For much of its history, the BSP has supported the passage of key laws that have helped strengthen its functions as the central monetary authority and primary banking regulator, further promote financial inclusion, and introduce key reforms in the financial system. Recently passed laws include Republic Act (R.A.) No. 11211 which amended the Charter of the Bangko Sentral ng Pilipinas; R.A. No. 11127 or the National Payment Systems Act; R.A. No. 11055 or the Philippine Identification System (PhilSys) Act; R.A. No. 11256 or the “Gold Law”; and R.A. No. 11439 or the new Islamic Banking law. The Bangko Sentral ng Pilipinas (BSP) has identified its legislative priorities in the 18th Congress to further promote access to quality financial products and espouse the interests of the general public. These bills include amendments to the bank deposit secrecy laws, the Financial Consumer Protection bill, and agricultural financing reforms, among others. Our policy and reform agenda also includes further strategic, complementary and reinforcing efforts in developing deeper money, debt, and FX markets which in turn will help build the country’s resilience against external shocks by reducing its reliance on external funding. At the same time, we are pursuing initiatives to deepen the local debt market including promoting an active repo market, and the issuance of enhanced guidelines on valuation of peso-denominated government securities as well as enhanced rules on bond issuances. These initiatives will go a long way in funding infrastructure projects under the NG’s Build, Build, Build program and other big-ticket investments in the areas of transportation, water, urban development and renewal, information and communications technology, and power. To support our financial inclusion agenda, we are championing an enabling environment for the 4/7 BIS central bankers' speeches digitalization of the payments system. Our flagship project, the National Retail Payments System (NRPS) is expected to boost economic activities by making available an inter-operable, safe, and efficient real-time digital payments system. In fact, a study by the United Nations-based Better than Cash Alliance (BTCA) provides that the Philippines has made great strides in driving up e-payments usage. In 2013, we only had 1% epayments usage; in 2018, we had 10%. In terms of e-payments value, in 2013, it was only 8%; in 2018, 20%. Our target by the end of the year is to have transactions at 20% and value at 30%. By the end of 2023, we hope to have both percentages up by 50%. The passage of Republic Act No. 11211, known as the ‘New Central Bank Act’ (signed on 14 February 2019) is a significant milestone in 2019 for the BSP. The pursuit of the BSP mandates were further strengthened with the expansion of the BSP’s policy toolkit. Specifically, The law restored the central bank’s authority to issue its own debt papers as part of its regular monetary operations, establishes a stronger prudential regulatory framework for the financial system through the expansion of supervisory coverage and authority in line with international standards and practices. The amendment likewise empowers the BSP to oversee the country’s payment and settlement systems (PSS) particularly critical financial market infrastructures that are vital components of consumer, corporate, and financial market payment transactions. Lastly, the amended BSP Charter also restores the central bank’s authority to obtain data from any person or entity from the private and public sectors for statistical and policy development purposes to allow us to better fulfill our threefold mandates. Bringing BSP Closer to the People Beyond the numbers that I have shown you, the BSP believes that economic growth is the one that must also be inclusive. More than ever, the BSP is committed to bringing the benefits of central banking closer to the Filipino public through the pursuit of more inclusive policies. One of the core advocacies of the BSP is financial inclusion. With the gains of its policy initiatives over the years as its bedrock, we are setting our sights on digital innovations. Digital solutions present opportunities for cost savings and efficiency gains that makes the economics of serving the marginalized sector of our economy viable as well as help fill the financial services needs of the unserved and underserved markets on a broader scale. We are continuously refining the regulations on e-banking in ensuring that we keep abreast in the ever-changing dynamics of our times. With regard to financial learning, our partnerships with the Department of Education, the Overseas Workers Welfare Administration, the Armed Forces of the Philippines, and the Civil Service Commission, among others, allow the BSP to reach broader and more diverse audiences. In many of these partnerships, we are also working with the private sector in customizing our programs to the needs of our stakeholders. Aside from financial learning, we support initiatives that would make it easier for Filipinos to have the necessary requirements to apply for new bank accounts or financial services. The BSP is currently collaborating with the Philippine Statistics Authority to implement the Philippine ID System. Under the agreement, the BSP will produce 116 million pieces of cards over the next three years for the Philippine ID system to be issued to all Philippine citizens and 5/7 BIS central bankers' speeches resident aliens registered under the Philippine Identification System (PhilSys). With PhilSys, Filipinos can easily obtain a valid government identification card, which can be used in applying for bank accounts and other financial services, especially for the unbanked. Likewise, the BSP is actively exploring RegTech and SupTech solutions to enhance the timeliness and quality of our risk-based decision making. We have partnered with R2A or the RegTech for Regulators Accelerator, a pioneering project that provides technical assistance for financial sector regulators to develop and test the next generation of digital supervision tools and techniques. As we recognize uncertainties, we are also fully aware of the potential impact of climate and environment-related risks to the local and global economy. At the BSP, we have incorporated climate and disaster-related data in monetary policy analysis forecasting, monitoring, and risk assessment. Moreover, the BSP issued various regulations on corporate and risk governance, including stress testing as well as regulatory reliefs provided to banks affected by natural calamities. At the same time, the BSP, together with the Department of Finance, cochairs a newly formed inter-agency task force that is mandated to facilitate green finance initiatives. The BSP also invested $150 million in the green bond fund launched by the Bank for International Settlements. This bolsters environmentally responsible finance and investment practices. The BSP also recognizes the important role of Islamic banking in strengthening and promoting financial inclusion in the country. The BSP, together with the other members of the Interagency Technical Working Group on Islamic Banking, is committed to support the growth of Islamic banking in the country. We experienced a confluence of steady growth as well as low and stable inflation last year. With that ideal combination, we are cautiously optimistic that 2020 will be an even better year for our economy amidst the lingering sluggish global growth. We set our sights on our goals that are impactful and beneficial to the Filipino people. We continue to push initiatives to ensure that every Filipino has wider access to financial products and services. We expect the share of electronic payments (e-payments) in total payment transactions in the country to rise to about 30 percent of the total by end-2020 and to 50 percent by end-2023. We hope that with the help of our industry players as well as other government agencies, we can achieve our goal of a cash-lite economy, which would enable more Filipinos to reap the benefits of a thriving economy. Related to this, we are targeting to enable 70 percent of the total adult population in the Philippines to have access to financial services through bank accounts by end-2023. Let me now end with the following key take-away points: First, the Philippines is poised to remain among the fastest growing economies in the region and the world. Similar with other countries, the PH economy is exposed to global headwinds and some domestic risks. But we are optimistic that robust domestic demand and healthy external payments position will continue to support our economy and serve as buffers against external headwinds. On the part of the BSP, we are firmly committed in fulfilling our price and financial stability mandates, while advocating for inclusive growth. We continue to remain on top of developments, and stand ready to use all possible tools to address any external and domestic shocks. The BSP is only a piece of this puzzle. An appropriate mix of monetary, fiscal, and other 6/7 BIS central bankers' speeches structural policies is crucial in achieving the government’s macroeconomic objectives of strong and sustainable growth, thereby ensuring a comfortable life for all Filipinos. Finally, let me say that we’re playing good music right now. Let us keep the music playing. Thank you. 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at "Financial Paradigm Shift: FinTech and the Future of Philippine Monetary Policy", a forum with the BSP Governor by Oxford Business Group and V&A Law, Manila, 28 January 2020.
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Benjamin E Diokno: The Philippine economy - towards a more inclusive, A-rated economy Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at "Financial Paradigm Shift: FinTech and the Future of Philippine Monetary Policy", a forum with the BSP Governor by Oxford Business Group and V&A Law, Manila, 28 January 2020. * * * Ladies and gentlemen, good afternoon. I am honored to speak before all of you – organizational leaders and captains of industry. First of all, I would like to thank Oxford Business Group (OBG) for inviting me to this event. For many years, OBG’s annual publication “The Report: Philippines” has provided a comprehensive and high-quality information on the Philippine economy. My talk today will be divided into four parts. First, a quick review of the Philippine economy’s performance in 2019. Second, the outlook on the Philippine economy for 2020 and beyond. Third, the role of the Bangko Sentral ng Pilipinas in achieving the economy’s goals. And fourth, as a conclusion, the Philippines’ potential to be recognized as an A-rated economy on the back of significant milestones achieved in recent years, robust growth prospects, and sustained commitment to critical structural reforms. The Philippine economy in 2019 Amidst a slowing global economy. 2019 was a good year for the Philippines. The economy expanded by 6.4 percent in the fourth quarter of 2019, bringing the full-year growth to 5.9 percent. At this pace, the Philippines remained one of the fastest growing economies and the most resilient in Asia and in the world. Last quarter’s growth marked the Philippines’ 84th consecutive quarter of uninterrupted growth, which shows it has remained resilient since the post-Asian financial crisis years. From an average inflation rate of 5.2 percent in 2018, it averaged 2.5 percent last year — well within the target range of 2.0 to 4.0 percent. External payments position remained strong which served as a buffer for the economy against external shocks. As of end-2019, the gross international reserves (GIR) rose to its highest level ever at $87.8 billion. This is equivalent to 7.7 months’ worth of imports of goods and services and payments of primary income. The received doctrine is that GIR equivalent to 3 months of imports is already sufficient. There was a reversal in the balance of payments (BOP) position: from a deficit of $2.31 billion in 2018 to a surplus of $7.84 billion in 2019. This positive development was due to sustained growth of overseas Filipinos’ remittances, higher receipts from tourism and business process outsourcing (BPO), and net inflows of foreign direct investments. The banking system remained well capitalized and less exposed to bad debts. As such, it was able to further fuel the growth of the economy by financing more productive activities. Capital adequacy ratio (CAR) of universal and commercial banks stood at 15.6 percent on solo basis and 16 percent on consolidated basis as of end-September 2019, well above the BSP’s regulatory requirement of 10 percent and the internationally prescribed floor of 8 percent. Economic growth has become inclusive. That’s welcome news. More and better jobs were created. In particular, the unemployment rate declined to 4.5 percent in October 2019, the lowest 1/5 BIS central bankers' speeches ever in recent Philippine history. Remarkably, poverty incidence dropped to 16.6 percent in 2018 from 23.3 percent in 2015, lifting nearly 6 million people from poverty over the three-year period. Outlook for 2020 and beyond Moving on from an encouraging 2019, we are optimistic that 2020 will be even better. Although external headwinds abound, including trade conflicts, geopolitical tensions and risks due to climate change, the Philippines’ strong domestic demand, healthy external accounts, as well as ample monetary and fiscal space will help the economy withstand shocks. The government has officially set its economic growth targets at 6.5 to 7.5 percent for this year up to 2022. We believe this is achievable. Development partners and private sector economists have forecasted that growth will also accelerate this year from last year’s 5.9 percent. For instance, IMF and ADB expect growth to reach 6.2 percent this year, while the World Bank sees growth at 6.1 percent. Nomura expects growth at 6.7 percent, HSBC at 6.4 percent, and Barclays and Standard Chartered at 6.3 percent. Growth is seen to be driven both by household consumption and investments. Consumption is expected to remain strong, supported by remittances, tamer inflation, and better employment situation. The timely passage of the P4.1-trillion national budget for 2020 will support the government’s drive for higher investments in infrastructure and social services. In turn, this may help encourage the private sector to follow through, particularly by investing more in public-private partnership projects and other capital investments. The Philippines has become an attractive investment destination with its high quality of labor, strides in ease of doing business, as well as the sheer size of its predominantly young and English- speaking population and of the domestic economy. On labor quality, according to Oxford Economics, the Philippines has the highest total factor productivity (TFP) among Asian countries. This means Filipinos are capable of producing the most output for the same amount of inputs. Also, the Philippine population is among the youngest in the region, which bodes well for the economy’s productivity over the long term as we invest more in their education, skills training, and health. The median age of Filipinos is estimated to be 25.7 years this year, younger than the expected median of 30.9 years old globally. Meantime, the rising share of social services in the national budget will help fund newly enacted laws, such as, the Universal Healthcare and Universal Access to Tertiary Education, and will boost funding for the Conditional Cash Transfer Program. These initiatives will help ensure that the Philippines will reap the benefits from its demographic advantage. On enhancing the Philippine economy’s competitiveness, the Ease of Doing Business and Efficient Government Service Delivery Act, or R.A. No. 11032, demonstrates the government’s firm resolve to make the country’s business climate friendlier. Strides in ease of doing business have been recognized by third-party observers. For instance, in the 2019 IMD World Competitiveness Report, the Philippines’ competitiveness ranking climbed four notches to 46th place from 50th the previous year. Also, in the World Bank Ease of Doing Business Report 2020, the Philippines’ ranking leapfrogged to 95th from 124th. For its part, CEO World Magazine recognized the Philippines as the third best country to invest in for 2019. The country scored high in the following factors: skilled labor, institutional framework, 2/5 BIS central bankers' speeches and economic stability. Such good news help improve business sentiment, which hopefully will translate to more foreign investments moving forward. A long list of other structural reforms is also expected to have positive effects on the economy this year and beyond. On top of what I have already mentioned, other game-changing reforms implemented recently include the liberalization of rice imports, which helps ensure price stability of the Filipino staple; tax reforms which will help ensure fiscal sustainability; amendments to the Corporation Code, which make it easier to set up corporations; amendments to the BSP charter, which make BSP more effective in fulfilling its price and financial stability mandates; the National ID System, which will provide official identity cards for all Filipinos and resident aliens, thereby facilitating transactions with government offices and easier access to banking and other formal services; the Innovative Startup Act, which mandates government support for startups; the Personal Properties Securities Act; which allows assets other than real properties to serve as collateral for loans; and the Islamic Banking law, among others. More reforms are in the pipeline. On the part of the BSP, we are pushing for amendments to the Bank Secrecy Act, the Financial Consumer Protection bill, and the Agri-Agra law, among others. The Executive Department is pushing for other structural reforms, such as, the opening up of more sectors to foreign investments, forging of free-trade agreements with more countries, and more tax reforms, among others. Amid the policy reform momentum, the Philippines is expected to graduate into an upper middleincome economy this year. Indeed, the country is expected to move closer toward the 2040 goal of becoming a high-income economy with zero poverty incidence. The role of the BSP Allow me to now focus on the BSP’s contributions to the economy’s performance and prospects. Over the years, the BSP had effectively fulfilled its price and financial stability mandates. With prices relatively stable and the financial system robust, the economy continued to grow despite rough external and domestic headwinds. Moving on, with me at the helm, we intend to bring BSP closer to the Filipino people. In particular, we will more communicate more vigorously what the fulfillment of our mandates mean for the ordinary man on the street. When commodity prices rise sharply, the poor suffers the most, given their limited or zero capacity to augment their incomes. Conversely, the poor benefits the most when prices are stable. Also, when the financial system is properly functioning, it is able to fund productive activities, including those that create jobs for unskilled and semi-skilled workers. As such, financial stability also benefits the marginalized to a great extent. This is something we want the broader public to understand and appreciate. Also, we are focused on enhancing the efficiency of the country’s payments and settlements system—which has officially become one of the BSP’s mandates under our amended charter. In the pursuit of this new mandate, the BSP has actively worked on making the country’s payments system interoperable and on promoting digital payment solutions. With interoperable payments system, electronic payments or fund transfers from one account to another—even if lodged in different banks—is possible. To cite achievements on interoperable payments system, we now have 45 financial institutions participating in InstaPay and 55 participating in PESONet as of 30 November 2019. InstaPay allows real-time electronic transfer of small-value funds, while PESONet allows electronic transfer of bigger funds typically within the same banking day. 3/5 BIS central bankers' speeches To cite milestones on digital payments, a study by UN-based Better-than-Cash Alliance showed that in terms of volume, financial transactions done electronically jumped from 1 percent of total in 2013 to 10 percent of total in 2018. In terms of value, financial transactions done electronically surged from 8 to 20 percent of total over the same period. With the present trajectory, we are confident that the volume of financial transactions will hit or surpass the target of 20 percent of total this year and to reach 50 percent by the end of 2023. Recently, we launched EGov Pay, which will allow more government agencies, such as, for example, the Bureau on Internal Revenues, to accept electronic payments from the public. We also launched the National QR Code Standard, which will pave the way for more extensive use of QR codes as payments. In the future, we hope to see market vendors, tricycle and taxi drivers, and sari-sari store owners, among others, using QR codes as a means to accept payments. Having an efficient payments and settlements system—such as by making them interoperable and by having more digital means to do financial transactions—helps increase the velocity of such transactions. In turn, this leads to rise in economic activities and incomes. As such, the pursuit of an efficient payments and settlements system is in line with the goal of financial inclusion, which is a key agenda of the BSP. Other initiatives toward financial inclusion—or making financial products and services accessible to all—include financial education, as well as regulations that make it easier for the marginalized to access financial products and services. These regulations include those that streamline requirements for opening savings and investment accounts, and those that promote the delivery of financial services through digital means. If low-income earners and those from remote areas have access to savings and investment products as well as capital, this will help accelerate the process of poverty reduction. As of the second quarter of 2019, outstanding microfinance loans from banks amounted to P23.9 billion, up 29.2 percent year-on-year. We expect to see increase in microfinance and other activities involving micro, small, and medium enterprises in the years ahead as we sustain our work on financial inclusion. We are aware that many of our countrymen may still be uncomfortable using financial technology because of perceived risks. But rest assured that the BSP is advocating financial technology while providing a regulatory environment that helps ensure safe and efficient technology-enabled financial transactions. Meantime, the BSP is mindful of climate change. We recognize that climate-related risks, if left unmanaged, can push us off-track of our goals of a more sustainable and inclusive financial system and economy. As such, we continue to enhance the list of climate and disaster related data that we incorporate in monetary policy analysis and forecasting, monitoring, and risk assessment. We have also issued regulations on corporate and risk governance, including stress testing and regulatory reliefs provided to banks affected by natural calamities. At the same time, the BSP, together with the Department of Finance, co-chairs a newly formed inter-agency task force that is mandated to facilitate green finance initiatives. And we walk the talk. Recently, the BSP also invested $150 million in the green bond fund launched by the Bank for International Settlements (BIS). We hope our initiatives bolster a culture of environmentally responsible financial services sector. 4/5 BIS central bankers' speeches As I have mentioned in several past engagements, I intend to do more than the traditional central banking task of conducting monetary policy and banking supervision. With me at the helm, the BSP, through financial inclusion, will play a more proactive role in achieving the country’s poverty reduction goal. Toward an A-rated economy Given the country’s strong economic fundamentals and sustained reform momentum, it is no surprise that the Philippines continued to secure higher credit ratings after it received minimum investment grade credit ratings from major debt watchers in 2013. At the moment, Fitch Ratings, Moody’s Investors Service, Japan’s R&I, Korea’s NICE Investors Service, and Malaysia’s RAM Ratings all assign the Philippines a rating equivalent to BBB, which is a notch above the minimum investment grade. The country’s ratings with Standard and Poor’s Global and Japan Credit Rating Agency (JCR) are even a step higher at BBB+, which is only one notch away from the minimum rating within the A scale. Moreover, JCR assigned a “positive” outlook on this rating in April 2019, which means an upgrade to the A scale from JCR is possible within this year. Under the “Road to A” agenda—an interagency committee (IAC) initiative with the BSP’s Investor Relations Office as Secretariat—the Republic is keen to secure the minimum A scale rating by 2022. We believe this is achievable. In fact, we believe that an upgrade from the debt watchers is long overdue, given the significant milestones achieved over the last three years. On our road to A, we have to remain focused. We have to work unceasingly in our efforts towards infrastructure and human capital development, strengthening of institutions, enhancing the ease of doing business, and financial inclusion, as well as implementing additional structural reforms. Meantime, it is worth emphasizing that achieving an A scale rating is not an end goal. The more important objective is to achieve stronger, sustainable and inclusive growth. An upgrade to an A rating (from BBB) means that a country’s ability to pay its debt has further strengthened because of improvements in any or several of the following rating factors: macroeconomic environment; structural features, such as governance/institutional strength, human development index, GDP per capita, and business environment; public finances; and external payments position. But what does an A-rating mean for the ordinary citizen? It means lower borrowing cost for the government, which in turn can then use the “savings” to fund other expendiutres like roads, bridges, urban transport, mass housing, like education, health and social welfare. Down the road, interest rates on loans might decline, which benefits household or firms securing loans for consumption or investments. *** In closing, I would like to emphasize that achieving the Philippine lofty goals will not be a walk in the park. But these goals are definitely attainable, especially if the government sustains the reform momentum and if the private sector—including all of you—continues to be our active partner. Thank you very much, and I look forward to a productive engagement with all of you during the Q&A. 5/5 BIS central bankers' speeches
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Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the AMLC and Philippine Amusement and Gaming Corporation (PAGCOR) MOA Signing, Manila, 21 January 2020.
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Benjamin E Diokno: Opening remarks - MOA Signing Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the AMLC and Philippine Amusement and Gaming Corporation (PAGCOR) MOA Signing, Manila, 21 January 2020. * * * Ms. Andrea D. Domingo, Chairperson and Chief Executive Officer of PAGCOR. Atty. Alfredo C. Lim, Ms. Carmen N. Pedrosa, Mr. Reynaldo E. Concordia, and Mr. Gabriel S. Claudio, Board Members and Directors at PAGCOR. Chairman Emilio Aquino of SEC, OIC Erickson Balmes of the Insurance Commission. Atty. Mel Georgie B. Racela, Executive Director of the Anti-Money Laundering Council (AMLC) Secretariat. Guests from PAGCOR and colleagues from the AMLC Secretariat. Good morning. It is my pleasure to welcome you all to today’s ceremony as we reinforce the ties between the AMLC and PAGCOR. Collaboration among agencies has always proven to be crucial in preventing and countering the abuse of the financial system domestically and globally. The latest National Risk Assessment notes a high sectoral money laundering threat among designated non-financial businesses and professions—including casinos which are highly vulnerable. Similar to banks and other financial institutions, casinos undertake high-volume and high-speed financial activities but in the gaming context. Being generally large cash-based businesses, casinos are competitive in its growth and susceptible to criminal activity. With internet-based casinos, casino junket operations, and reduced transparency of high-rollers, there is much vulnerability in identifying sources and movement of funds. Thus, this calls for strict enforcement of and compliance to anti-money laundering and counterterrorism financing policies—urging the full cooperation of covered persons during the conduct of examinations—especially with the rise of Philippine offshore gaming operators (POGOs). Both the AMLC and PAGCOR appreciate the necessity of close coordination to accomplish the objectives of the Anti-Money Laundering Act of 2001, as amended, and the Terrorism Financing Prevention and Suppression Act of 2012, thus promoting confidence in the integrity of the Philippine financial system. With the policy of the State to ensure that the Philippines shall not be used as a money laundering and terrorism financing site, the AMLC, as the Philippines’ hybrid financial intelligence unit (FIU), is mandated to receive and analyze suspicious transaction reports; investigate money laundering and terrorism financing; and cause the filing of forfeiture proceedings and cases. PAGCOR, on the other hand, functions under a three-pronged mandate to regulate, operate, authorize, and license games of chance, games of cards and games of numbers, particularly casino gaming in the Philippines; generate revenues for the government’s socio-civic and national development programs; and help promote the Philippine tourism industry. To illustrate the relationship of AMLC and PAGCOR, we have the inverted triangle method of supervision. We have the AMLC on one corner, and the supervising agencies, that is, the Bangko Sentral ng Pilipinas, the Insurance Commission, the Securities and Exchange Commission, the heads of which form the Council, on the other corner. 1/2 BIS central bankers' speeches Then we have PAGCOR as the agency that supervises the casinos’ compliance with their respective Money Laundering and Terrorist Financing Prevention Programs. The AMLC, in turn, ensures that PAGCOR complies with their duties over casinos on anti-money laundering and counter-terrorism financing matters. As one of the government agencies specified in the Casino Implementing Rules and Regulations (CIRR), PAGCOR supervises, assesses, and monitors the compliance of casinos with obligations under the Anti-Money Laundering Act, the CIRR, and other applicable issuances and provides the AMLC with the results of its inspection. In addition, PAGCOR operates nine casino branches and 32 satellite casinos in major cities across the country’s three major islands. Despite our differences in mandates, our agencies have a shared goal: to ensure our country’s safety and stability for the welfare of our people. Interests therefore converge in informationsharing. We share what we know, and you share what you know. The actionable information that we share with each is important in supporting financial investigations. And signing a memorandum of agreement between both agencies makes for a more systematic sharing of information. This MOA then strengthens the feedback mechanism between our agencies to enhance our cooperation. The MOA also features collaboration in the exchange of studies, research, and information on current, new, and emerging trends and typologies in money laundering and terrorism financing; and to undertake capacity-building measures to efficiently address money laundering, terrorism financing, and unlawful activities in the country. The AMLC very much looks forward to a continuing alliance with PAGCOR. Thank you and good morning. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Reception for the Banking Community, Manila, 24 January 2020.
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Benjamin E Diokno: A good 2019, a better 2020 Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Annual Reception for the Banking Community, Manila, 24 January 2020. * * * Ladies and gentlemen, friends from the banking and financial community, good evening. It has become a tradition for us to gather at the beginning of every year, and for good reason. It is a timely opportunity for us to look back at the year that was and look forward to what the coming year may bring. Last year, the BSP commemorated 70 years of central banking in the country. The celebration highlighted BSP’s journey from its creation in 1949 to what it aims to be today—a central bank closer to the Filipino people. 2019 ECONOMY IN REVIEW We started 2019 with some uncertainty—reflecting the weaker growth performance and escalating trade tensions between major economies, and geopolitical factors that affected business sentiment and global demand. On the domestic front, the delay in the passage of the 2019 budget and the election ban weakened government spending and public construction. However, despite these global and domestic challenges, the Philippine economy remains in a position of strength. For the past 83 quarters, the Philippine economy has experienced sustained uninterrupted expansion. The Philippine economy expanded by 6.4 percent in the fourth quarter of 2019, taking its full-year growth to 5.9 percent. This highlights the Philippines’ place as one of the most resilient and fastest growing economies in Asia and in the world. Our country’s strong growth potential can be seen in the favorable outlook of institutions such as the International Monetary Fund, the World Bank and the Asian Development Bank. Their assessments are broadly in line with the Government’s target for 2019 up to 2022. Goldman Sachs EM Outlook 2020 expects the country’s GDP to grow by 5.8 % in 2019 and 6.5 % in 2020. This is higher than the GDP growth forecasts for Thailand (2.4 and 2.8 % for 2019 and 2020, respectively), Indonesia (5.0 and 5.2 %), and Malaysia (4.5 and 4.3 %). BSP’s effective monetary policy contributed significantly to achieving within-target inflation. From a high of 6.7 percent in September and October 2018, average inflation for 2019 settled at 2.5 percent, well within the Government’s target range of 3.0 percent ± 1.0 percentage point for the year. Looking ahead, inflation is projected to average 2.9 % for both 2020 and 2021. The country’s balance of payment (BOP) position recently made a turnaround from a deficit in 2018 to a surplus of US$ 7.84 billion in 2019. The surplus in the BOP may be attributed partly to higher net inflows of foreign direct investments and foreign portfolio investments, bolstered by favorable investor sentiment on the country’s solid macroeconomic fundamentals. The peso has been broadly stable, appreciating by about 4% in 2019. 1/4 BIS central bankers' speeches The end 2019 level of the Gross International Reserves at $87.8 billion is the highest ever. More importantly, our growth continues to be inclusive. Poverty incidence among the population declined to 16.6 % in 2018 from 23.3 % in 2015, exhibiting a 2.2 % decrease in poverty incidence annually. This means that nearly six million Filipinos were lifted out of poverty during that period. As of October 2019, unemployment and underemployment rates in the country are both at a historic low of 4.5 percent and 13.0 percent, respectively. Indeed, 2019 was a very good year for our country. THE BSP’S CORE MANDATES On our part, we at the BSP will continue to effectively implement our mandates and policy priorities to support the country’s growth goals. We will remain firmly committed to maintaining price stability and financial stability, and ensuring an efficient payments and settlements system. With the passage of Republic Act No. 11211, which amended the ‘New Central Bank Act’ or the BSP Charter, we will continue to enhance our policy responsiveness since the law strengthened BSP’s pursuit of its mandates by expanding its policy toolkit. Our policy and reform agenda also include further strategic, complementary and reinforcing efforts in developing deeper money, debt, and FX markets. These will help build the country’s resilience against external shocks by reducing its reliance on external funding. At the same time, we are pursuing initiatives to deepen the local debt market and the issuance of enhanced guidelines on valuation of peso-denominated government securities as well as enhanced rules on bond issuances. These initiatives will go a long way in funding infrastructure projects under the National Government’s Build, Build, Build program and other big-ticket investments in the areas of transportation, water, urban development and renewal, information and communications technology, and power. BSP CLOSER TO THE PEOPLE I have always said that a central bank cannot operate from an ivory tower. It is imperative that our stakeholders understand what we are mandated to do. And today, more than ever, the BSP is committed to bringing the benefits of central banking closer to all Filipinos through more inclusive policies. We are now setting our sights on digital innovations as we pursue one of our most important advocacies, financial inclusion. Digital solutions present opportunities for cost savings and efficiency gains that make the economics of serving the marginalized sector of our economy viable. These innovations will fill the financial services needs of the unserved and underserved markets on a broader scale. Our partnerships with the Department of Education, the Overseas Workers Welfare Administration, the Armed Forces of the Philippines, and the Civil Service Commission, allow the BSP to reach broader and more diverse audiences through financial learning. In many of these partnerships, we also work with the private sector in customizing our programs to the needs of our stakeholders. 2/4 BIS central bankers' speeches We support initiatives that would make it easier for Filipinos to have the necessary requirements to apply for new bank accounts or financial services. The BSP is currently collaborating with the Philippine Statistics Authority to implement the Philippine ID System. Under the agreement, the BSP will produce 116 million pieces of cards over the next three years. Filipinos, especially the unbanked, will be able to easily obtain a valid government ID card, which they can use to apply for bank accounts and other financial services. The BSP is also actively exploring RegTech and SupTech solutions to enhance the timeliness and quality of our risk-based decision making. We have partnered with R2A or the RegTech for Regulators Accelerator, a pioneering project that provides technical assistance for financial sector regulators to develop and test the next generation of digital supervision tools and techniques. As we recognize the impact of uncertainties, we are aware of the potential effect of climate and environment-related risks to the local and global economy. At BSP, we have incorporated climate and disaster-related data in monetary policy analysis, forecasting, monitoring, and risk assessment. We have issued regulations on corporate and risk governance, including stress testing and regulatory reliefs provided to banks affected by natural calamities. We put our money where our mouth is. Consequently, the BSP has invested $150 million in the green bond fund launched by the Bank for International Settlements. This bolsters environmentally responsible finance and investment practices. Together with the Department of Finance, the BSP now co-chairs a newly formed inter-agency task force that is mandated to facilitate green finance initiatives. Lastly, the BSP recognizes the important role of Islamic banking in strengthening and promoting financial inclusion. The BSP, together with the other members of the Interagency Technical Working Group on Islamic Banking, is committed to support the growth of Islamic banking in the country. PROSPECTS FOR 2020 2019 was a very good year. I expect 2020 to be even better. We will continue to pursue goals that will benefit the Filipino people. We will persevere in pushing initiatives that will ensure that every Filipino has wider access to financial products and services. We expect the share of electronic payments, or e-payments, in total payment transactions in the country to rise to about 30 percent of the total by end-2020 and to 50 percent by end-2023. It is our hope that by end-2023, 7 out of 10 adult Filipinos would have access to financial services through bank accounts. It is our hope that with your help, and the help of other industry players and other government agencies, we will enable more Filipinos to reap the benefits of a stronger and more inclusive economy. Toast That said, let me now call on the members of the Monetary Board to join me on stage for the ceremonial toast. Finance Secretary Sonny Dominguez, Philip Medalla, Juan De Zuñiga, Peter Favila, Tony Abacan, and Bruce Tolentino. 3/4 BIS central bankers' speeches Everyone please join us as we raise our glasses to the very good year we had and the even better year ahead! Let us all keep working together for a stronger and more inclusive economy! Salamat at mabuhay tayong lahat! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the First National Summit of CPAs in Commerce and Industry (NSCCI), Manila, 30 January 2020.
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Benjamin E Diokno: Accounting as the language of business - some perspectives from the Bangko Sentral ng Pilipinas Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the First National Summit of CPAs in Commerce and Industry (NSCCI), Manila, 30 January 2020. * * * The Philippine Institute of Certified Public Accountants (PICPA), hardworking accountants, colleagues in the government, distinguished guests, ladies and gentlemen, good morning. It is my honor to deliver the keynote address on the First National Summit of CPAs in Commerce and Industry (NSCCI). The inaugural theme you have chosen – “Reinforcing the Future. Together. Today” – captures the spirit of the times. We see changes in the political and the economic landscapes, continuing regulatory reforms, technological innovations, and more interconnected goods and financial markets. To put things into a wider perspective, let us now try to stand on the shoulder of an accounting giant – Mr. Washington SyCip. Mr. SyCip once said, “Basic credentials are not enough to ensure success in any profession. This means that learning will be, as it should be, a lifelong activity. We need to be open to continue retooling or retraining ourselves to remain competitive. The body of accounting knowledge is not static; it is, on the contrary, exceedingly dynamic, undergoing a rate of growth and change which will demand the best of professional talents in the years to come. The availability of the accounting profession to meet the increasing and changing needs of society is inextricably tied to the strength of its educational base.” Looking at the list of technical sessions for this two-day summit, I am confident that you are in the right direction in rising to the call of was SyCip. But today, as an economist, I wish to impart to the country’s CPAs a different kind of accounting. That is, “growth accounting” or an overview of the macro-financial developments characterizing the Philippines’ recent rise as one of the most dynamic economies in Asia and the world. This economic renaissance stands on many pillars, a major part of which is the banking system, ably guided by decades of painstaking reforms largely implemented by the BSP. I will also talk about the policy direction overlying the BSP’s banking reforms intended to support a strong domestic economy and promote a high quality of life for all Filipinos. At the end of my talk, I will be leaving some takeaways from the BSP that you may consider as you return to your work, plan your businesses, and execute your mandates. The International Monetary Fund (IMF), in its October 2019 World Economic Outlook (W EO), forewarns that the global economy is in a synchronized slowdown. Its forecast for 2019 global growth was at 3 percent, downgraded from the April 2019 W EO forecast, and the slowest since the global financial crisis. The IMF attributed the sluggish growth to rising trade barriers, trade and geopolitical uncertainties, and idiosyncratic as well as structural economic factors in individual countries. For 2020, the IMF forecasts a precarious global growth at a similarly downgraded 3.4 percent. Against this backdrop, our country has posted 85 quarters of uninterrupted economic growth. For seven of the last eight years, we recorded an annual GDP growth of more than 6 percent. These accomplishments helped us achieve our highest credit rating from the S&P Global Ratings of BBB+, two steps above the minimum investment grade rating. The other big global raters – 1/7 BIS central bankers' speeches Moody’s and Fitch, place us a step above the minimum investment grade. Meanwhile, government agencies are coordinating their efforts for the Philippines’ road to A rating. The higher credit ratings enable us to borrow at lower interest rates with the perception of less credit risk as reflected in the rating. Above all these, the Philippines remains among the fastest growing economies, not only in Asia but also in the world. We should take pride that we are actually among the drivers to global growth amid the IMF’s gloomy projections. This economic growth streak will enable the Philippines to achieve an upper-middle-income status by late next year according to the National Economic Development Authority (NEDA). Nonetheless, our economy is not immune from international uncertainties as the country is part of the global economy. Volatility in price levels globally, including oil, impacts the BSP’s mandate to promote price stability conducive to a balanced and sustainable growth of the economy. To achieve this mandate, the BSP has adopted inflation targeting since January 2002. It adjusts its monetary policy instruments, primarily its policy rates, to achieve its inflation target. The BSP’s policy rate hikes in 2018, together with the passage of Law Tarrification Law, effectively brought the inflation from its peak at 6.7 percent in September 2018 to 0.8 percent in October 2018. The easing inflation has enabled the BSP to reduce policy rates since May of last year. The BSP has also reduced the reserve requirements for bank deposits and certain liabilities. This is in line with its broad financial sector reform agenda of promoting a more efficient financial system by lowering financial intermediation costs. The adjustment in reserve requirement ratios is aimed to ensure sufficient domestic liquidity in support of increased economic activity. In more practical terms, the BSP’s moves to reduce interest rates and reserve requirements to manage inflation also provide banks with more incentives to lend to borrowers – such as households and businesses, at lower rates. Global analysts have noted this recent decline of inflation, with Bloomberg citing the Philippines for outperforming other markets in terms of bond yields. More specifically, the interest rates of our bonds, minus inflation, provide greater real interest income for global investors compared to other countries. The relative stability of the Philippine peso likewise showcases our strong macroeconomic fundamentals. Bloomberg data shows that the ratio of the standard deviation to the mean of the daily closing rates of the Philippine peso to the US Dollar last year was relatively stable compared to a sample of Asian countries. The harsh reality is that global uncertainties are not likely to dissipate. However, we have adequate cushions for these uncertainties. Our gross international reserves (GIR) of USD 87.8 billion as of end-December 2019 are enough to pay for the country’s imports for 7.7 months. The GIR is primarily supported by exports, inward foreign investments, business process outsourcing (BPO) and tourism receipts, and remittances from overseas Filipinos (OFs). Next, I would like to share the soundness and stability of the Philippine banking system and bullish outlook for the next two years. Our banking system has been growing alongside the expanding economy. Latest data as of endNovember 2019 show that the Philippine banking system approximates the size of the economy 2/7 BIS central bankers' speeches at 95.7 percent. Our banks’ business model is generally into the traditional banking business of deposit-taking and lending. This explains the dominance of loans in the balance sheets of banks. In fact, loans have generally made up more than half of the PBS assets since 2014, and comprised 58.5 percent of the banks’ assets as of end-November 2019. Investments in securities are the banks’ next biggest asset class. Together with cash and cash assets, these provide ample liquidity for their operations and serve as cushion for market shocks while financing the needs of the growing economy. Meanwhile, banks’ lending activities are generally prudent and are spread across Philippine industries, indicating diversification of risk exposures. The industries that are the biggest bank borrowers include manufacturing, real estate and wholesale and retail trade. Robust household consumption has often been credited as another driver of economic growth, but bank loans have likewise been a significant financier to our households—mostly through credit cards, housing loans, salary loans and motor vehicle loans. As I will discuss later, we are further enhancing our regulations to make bank products such as loans more accessible to the common tao who often fall victim to usurious practices such as the 5-6 and sangla-ATM schemes. How do our banks grow to be able to support the economy and our households? Well, they capitalize on the public’s trust in them. As households, businesses and the government expand, their savings also grow and are entrusted to the banks mainly in the form of deposit. And as the graph shows, deposits have always been the biggest source of funds of the Philippine banking system, averaging more than 75 percent of the industry’s assets for the periods shown. In turn, the owners exhibit commitment to their banks by building up capital that will absorb unexpected losses from their risk exposures. We at the BSP ensure the safety and soundness of the banks by requiring a standard of risk management that is at par with global norms, but at the same time considers domestic conditions and proportionality. In applying the principle of proportionality, the BSP calibrates its regulations in such a way that these remain sensitive to the peculiarities and conditions of different types of financial institutions operating in the country without compromising regulatory objectives. Our banks maintain their ratios of capital to risk exposures, and high-quality liquid assets to possible cash outflows in case of financial stress, at levels way beyond domestic and global standards. This ensures the banks’ ability to continue to finance the growing economy and their resilience in times of stress. How long will our banks’ positive performance last? Majority of the leaders of the banking industry, in their responses to the BSP’s Banking Sector Outlook Survey for the first semester of 2019, forecast double-digit growth in assets, loans, deposits and net income for the next two years. They also project capital and liquidity ratios to be maintained well beyond BSP requirements. These, among other findings, highlight the bullishness in the growth of the economy and the banking system despite global uncertainties. Strategy-wise, the bankers prioritize growing their business by expanding their client base, investing in technology, and developing new products. They also intend to optimize the use of technology in their operations and customer relations to better serve the public and at the same time, achieve strategic efficiencies in their operations. Amid domestic and global uncertainties, the banks plan to reach their growth objectives by 3/7 BIS central bankers' speeches developing new capabilities to cope with the competition and the digital revolution. They also intend to expand market reach across geographical and digital frontiers while leveraging on existing client relationships. The BSP’s strategic reforms in the past decades have been aimed at ensuring the safety, soundness and resilience of the banking system. Specifically, these reforms are being pursued to (1) strengthen risk governance within banks; leverage on technology in finance and the use of artificial intelligence, which encourages digital innovations to flourish while ensuring effective management of risks, including protection of consumers; (3) achieve greater and broader access to financial services to enable most Filipinos to benefit from the growing economy and banking system; (4) uphold the integrity of financial system and safeguard the interest of the public; and (5) accelerate capital market reforms, including foreign exchange initiatives. The amendment of the BSP Charter in February 2019 provided the BSP with, among others, a strengthened mandate to promote financial stability in addition to its existing monetary stability function. The amended Charter also strengthened BSP supervisory function over money service and credit granting businesses and payment system operators. The amended Charter and the National Payment Systems Act provide a solid legal mandate to the BSP over the payment systems. These put the BSP in a strategic position to address potential risks arising from the interconnectedness of banks and these financial entities. Moreover, the new BSP Charter embodies a package of reforms that will further align its operations with global best practices and enhances its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy. The BSP envisions itself as a world-class monetary authority and primary financial system supervisor that supports a strong economy and promotes a high quality of life for all Filipinos. The dynamism of the economy and the strength of the banking system do not mean much if their benefits are not felt by most Filipinos. Thus, the BSP continues to advance its financial inclusion agenda with digital innovations as a catalyst and strategic enabler. Digital financial inclusion refers to digital access and use of formal financial services by the unserved and underserved population. Facilitating digital access means expanding the delivery of basic financial services through mobile phones, cards or the Internet. Such services should be suited to the customers’ needs and delivered responsibly, at a cost affordable to customers and sustainable for providers. Accordingly, the BSP has been gearing up for the development of a digital finance ecosystem that facilitates diversity of players catering to the various needs of the public, particularly the lowincome and financially unserved and underserved segments. Such an ecosystem is built on three pillars: The first pillar deals with democratized access to a transaction account wherein every person is able to open an account and use digital financial services. To realize this, the BSP encourages banks to offer basic deposit accounts (BDA) which meet the need of the unbanked for a lowcost, no-frills account. A basic deposit account features a low opening amount capped at P100, no maintaining balance, no dormancy charges, and simplified identification requirements. More importantly, BSP rules for validating client identity have been eased further by allowing the acceptance of the national ID for the client on-boarding process. The BSP has also allowed covered institutions to implement reduced Know-Your-Customer (KYC) rules for certain low-risk accounts and use technology for face-to-face contact requirements. The second pillar of the digital financial ecosystem refers to the establishment of an expansive network of low-cost touch points to serve the country’s financial intermediation needs. 4/7 BIS central bankers' speeches Notwithstanding the continuing growth of their offices nationwide, banks and other BSPsupervised financial institutions (BSFIs) are hard-pressed to establish physical presence in every location due to the archipelagic geography of our country. Thus, the BSP has allowed banks to serve their clients through ubiquitous retail outlets which act as cash agents. These cash agents accept and disburse cash for, and on behalf of, the bank. The BSP likewise allowed the establishment of branch-lite units which can provide a wide range of products and services depending on the market needs of a specific area or locality. The last pillar is the efficient retail payment system architecture. This is operationalized through the National Retail Payment System (NRPS) framework which promotes interoperability, allowing digital financial transactions to be sent and received from an account to any account, whether held in a bank or an e-money issuer. Circular No. 992 dated 1 Feb 2018. Circular No. 950 dated 15 Mar 2017 and Circular No. 1022 dated 26 Nov 2018. Circular No. 940 dated 20 January 2017. Circular No. 987 dated 28 December 2017. Circular No. 980 dated 6 November 2017, as amended. Allow me to further expound on the NRPS. The slide shows a sample of transactions that can be conducted through the NRPS. Industry players under the framework can utilize financial technology (fintech) solutions and provide services within an organized, commercially viable, and efficient retail payment system. Observance of the underlying principles and standards under the NRPS is expected to result in: (1) safety by ensuring the security of transactions and activities performed in the country’s retail payment system; (2) reliability by ensuring resiliency of operations against disruptive events; and (3) efficiency, which is essentially about speed, convenience and affordability of transactions. A key outcome of the NRPS is to increase the conduct of payments over electronic platforms to 20 percent by 2020, which will help achieve higher economic growth and enhance the overall competitiveness of our economy. In turn, the Philippine government has led by example, becoming the most digitized stakeholder in the ecosystem, with 64 percent of all government transactions carried out digitally. Attainment of the objective is evident in the spectacular growth in volume and value of transactions conducted by the two automated clearing houses (ACHs) handling the clearing and settlement of NRPS transactions, namely the Pesonet and the Instapay. Better Than Cash Alliance, “Country Diagnostic: The Philippines,” Case Study published 2 December 2019. Going back to the BSP’s financial inclusion initiatives, the BSP has identified two frontier credit markets in this endeavor. On one hand, the BSP recognizes that the financial system is an important stakeholder in driving investments to activities that promote climate-resilient, green, and sustainable growth. Therefore, it is deemed that financial regulation can be a useful tool to contribute to the achievement of national and international environmental objectives. In this regard, the BSP has taken a two-pronged approach to sustainable finance: first, in undertaking capacity building and awareness campaigns; and second, in mainstreaming environmental and social governance (ESG) through the issuance of enabling regulations. On the other hand, Republic Act No. 11439, or “An Act Providing for the Regulation and Organization of Islamic Banks” mandates the BSP to exercise regulatory powers and supervision over the operations of Islamic banks. This will unlock the full potential of Islamic financing in fostering inclusive economic growth. With a well-defined legal framework now in 5/7 BIS central bankers' speeches place, the BSP looks forward to seeing greater participation in Islamic financing by both domestic and foreign banks. This is expected to widen opportunities for our Muslim brothers in accessing banking products and services. Technological innovations in the provision of financial services have resulted in a myriad of benefits to consumers, including faster processing of transactions, convenience, security, and efficiency. This promotes a more inclusive financial system. BSP data indicate that there is much to be done in the area of financial inclusion in the country. The BSP is intensifying its efforts on digital and financial literacy as well as consumer protection, aimed at deepening the public’s knowledge of and trust in our banks and digital financial services. Last October 2019, the BSP approved the adoption of the National Quick Response (QR) Code Standard for payments. The QR technology has emerged as the most convenient and costefficient means of moving funds from one account to another. These twin initiatives on QR code standards and the E-Filing and Payments System or the eFPS, among others, ensure the efficiency of payment systems in support of inclusive economic development. The BSP’s current approach to financial education focuses on digital content creation and strategic institutional partnerships to generate greater multiplier effect and promote costefficiency and program effectiveness. Financial education is expected to benefit students with its inclusion in the schools’ K-12 curriculum; overseas Filipinos who attend the Pre-Departure Orientation Seminar (PDOS) and Post-Arrival Orientation Seminar (PAOS); conditional and unconditional cash transfer recipients; uniformed personnel; micro, small and medium enterprises (MSMEs); and civil servants. Meanwhile, the BSP’s consumer assistance mechanism also allows the public to seek redress and grievance against erring BSP-supervised financial institutions or BSFIs. The ongoing work on our chat-bot functionality will enable financial consumers to submit complaints via SMS, webchat and messenger apps (e.g., Facebook Messenger, Viber) for automated acknowledgement and referral to the concerned financial institution. Circular No. 1055 dated 17 October 2019. The BSP views responsible fintech innovation as a critical enabler in unlocking financial inclusion barriers, transformational enhancements, and exciting opportunities for the financial services industry. The BSP’s regulatory sandbox involves launch of new solutions in a live yet controlled environment. With this approach, the BSP is able to evaluate risks and determine appropriate regulations, while allowing BSFIs to realize benefits arising from these innovations. To manage threats to fintech, the BSP is promoting a culture of cyber resilience in the industry. This involves participation in several information sharing fora in both domestic and international fronts. We encourage BSFIs to subscribe to information sharing platforms to enhance situational awareness and threat intelligence capabilities. The BSP regulatory framework eases the banking system’s transition to the digital economy by enabling solutions under the regulatory sandbox. Forthcoming regulatory solutions include cloud computing, enhanced guidelines on e-money, virtual currency, open banking and application programming interface (API) standardization, and cybersecurity. On the part of the BSP, we are building the competency of our bank supervisors to be able to effectively monitor cyber threats and vulnerabilities among banks and implement supervisory measures accordingly. The BSP has set its strategic priorities toward a sound, stable, resilient and inclusive banking 6/7 BIS central bankers' speeches system. A number of reforms have been undertaken and continue to be crafted by the BSP to ensure the soundness and stability not only of the banking system, but also the financial system as a whole. For instance, we are officially incorporating the BSFIs’ organizational conduct and risk culture in our supervisory framework to further reinforce the public’s trust and enhance the banks’ resilience and stability. We are also intensifying collaboration with industry associations, other agencies and global regulators to ensure that our policies are up-to-date and responsive to the evolving dynamics of the economy and the banking system. In closing, let me cite some key take-aways from this presentation: Strong macroeconomic fundamentals enable the Philippine economy to continue through its strong growth trajectory amid domestic and global uncertainties. The Philippine banking system stayed on its growth path in line with domestic economic expansion and positive outlook on the banking system’s performance in the next two years Financial technology and electronic payments are shaping the future landscape of the Philippine banking system. Finally, the BSP will continue to create a supportive and collaborative regulatory and supervisory environment that allows innovations to flourish; ensures that risks are effectively managed; upholds consumer welfare; and promotes financial inclusion, toward ensuring a high quality of life for all Filipinos. If mathematics is the language of nature, accounting is the language of business. Accounting, therefore, has a very important social purpose because it is mainly used for linguistic communication. It is the ultimate goal of CPAs to provide fair financial information that will serve as basis for decisions by relevant stakeholders. Our banks fulfill their financial intermediation role in the economy through the accounting medium. The BSP discharges its mandates concerning money, banking and credit using the same medium. Language is empowering. As we hone our ability to speak and be understood, as well as our ability to listen and understand the accounting language, just as was SyCip enjoins us to do, we are promoting an efficient, sustainable and inclusive economy. Again, thank you very much for having me. Mabuhay ang PICPA! Mabuhay ang BSP! Mabuhay ang Pilipinas! 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting and Economic Briefing, Manila, 6 February 2020.
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Benjamin E Diokno: A strong nation amid a slowing and volatile world Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting and Economic Briefing, Manila, 6 February 2020. * * * Officers and members of the Management Association of the Philippines (MAP) led by its President, Atty. Francisco Ed Lim, ladies and gentlemen, good afternoon. For today, I chose the theme, “A Strong Nation Amid A Slowing and Volatile World,” which encapsulates the BSP’s insights on the country’s economic performance in 2019 and the outlook for 2020 and beyond. Let us have a quick overview of the global economy in 2019 and how major global economic movers – US, the Euro area, Japan and China – are expected to perform in 2020. The International Monetary Fund’s (IMF) January 2020 World Economic Outlook (W EO) Update projects the global economy to post a modest 2.9 percent growth in 2019, before picking up by another modest 3.3 percent in 2020. These numbers both represent a downward revision relative to the October 2019 WEO projections. Global economic activity in 2019 was heavily weighed down by protracted trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies. While some green shoots were seen in the fourth quarter, facilitated by the broad-based shift earlier in the year toward accommodative monetary policy and fiscal easing in some countries (e.g., China and the United States), business sentiment remained generally pessimistic. Over the near and medium term, the IMF sees downside risks, including rising geopolitical tensions, intensifying social unrest; and further worsening relations between the US and its trading partners. The recent growing concern over the Wuhan coronavirus outbreak has likewise weighed down on growth prospects not only in China, but in the entire world. On the domestic front, latest surveillance reports from multilateral agencies such as the IMF, the World Bank (W B), and the Asian Development Bank (ADB) continue to expect the Philippine economy to remain one of the fastest-growing economies in 2020—not only in the region, but in the world as well. They expect the Philippines to grow between 6.1 percent to 6.2 percent during the year. In fact, some market analysts expressed higher growth prospects for the Philippines for 2020. Shortly after the release of the fourth quarter (Q4) 2019 GDP number last January 23, Morgan Stanley, Barclays, HSBC, PNB, and Nomura also released their 2020 growth projections for the Philippine economy, which ranged from 6.0 percent to 6.7 percent. What are the key factors supporting this optimism? First, the Philippine economy continues to be resilient and sustainable Some key economic indicators in 2019 show that the country’s macroeconomic robust fundamentals remained intact. This is evident in the better-than-expected real GDP growth of 6.4 percent it posted in Q4 2019, supported by accelerated government spending. This indicates that 1/5 BIS central bankers' speeches the economy has fully regained its momentum and is now back on track with its medium-term growth targets. The 2019 GDP outturn was close to the lower end of the government’s growth target range of 6.0 percent – 6.5 percent in 2019. Overall, the domestic economy in 2019 continued to be a picture of stability and resilience characterized by: • Sustained growth momentum; • Favorable inflation environment; • Ample liquidity and credit; • Robust external position; • Sound and stable banking system; and • Modest fiscal deficit. Let me expound on these. GDP growth bounced strongly during the fourth quarter, which compensated for the weak expansion registered during the first half of the year. The Q4 2019 GDP outturn of 6.4 percent was driven largely by the ramping up of government spending (18.7 percent), alongside sustained robust household consumption (5.6 percent). Accelerated government spending was evident as public construction rose sharply by 33.8 percent in the fourth quarter of 2019. On the supply side, growth was propped by the 7.9 % growth in the services sector on the back of solid expansion in public administration and defense, financial intermediation, trade, and other services. The industry sector also contributed positively to the Q4 2019 output growth. Second, inflation environment has been generally low and stable. A key factor to the domestic demand in 2019 was the favorable inflation environment in the country, supported by well-calibrated monetary policy actions. Inflation in 2019 settled at average year-on-year headline inflation of 2.5 percent supported mainly by the decelerating food inflation. This was lower than the 2018 inflation average of 5.2 percent amid. The 2019 inflation number was well within the BSP’s 2-4 percent target range for the year. Looking ahead, the latest baseline forecasts indicate that inflation is projected to average at 2.9 percent for both 2020 and 2021. The balance of risks to future inflation appears to be weighted toward the upside for 2020, but remains tilted to the downside for 2021. Petitions for electricity rates and transport fare adjustments, the proposed increase in excise taxes on alcoholic beverages, and the impact of African Swine Fever (ASF) on meat prices are seen as the main upside risks to inflation. Meanwhile, slower global economic growth due to the escalation of protectionist policies in advanced economies as well as geopolitical tensions, and the corona virus outbreak are the main downside risks to inflation. Equally important, inflation expectations – based on forecast surveys of private sector analysts – have remained manageable and well within the government’s target range. Results of the BSP’s 2/5 BIS central bankers' speeches survey of private sector economists for December 2019 showed inflation will continue to remain on a target-consistent path for 2020 and 2021. Third, the credit-liquidity dynamics in the country remain supportive of long term sustained growth. Economic activities in the country has led to increased demand for loans across key economic sectors as reflected in the continued expansion of bank lending. Bank lending also continues to flow into the country’s production sectors, including real estate. Preliminary data show that outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, grew by 10.9 percent in December, faster than the 10.1-percent expansion in November. Nevertheless, loan demand remains healthy across sectors as shown in the table on the right. This is also consistent with the preliminary results of the senior loan officers survey conducted quarterly by the BSP, which showed stable overall demand for loans from both enterprises and households. Fourth, the Philippine banking system, as the lifeline of economic activity, remains vibrant, sound, and compliant with domestic and international standards. This is because of BSP’s continuing financial reform agenda in the areas of banking supervision, financial inclusion, cyber security and technology, risk management, anti-money laundering, counter-terrorist financing, and capital market development. The series of RR cuts implemented in 2019, in addition to the BSP’s support for lending activities, are in line with our broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs. Fifth, another key contributor to the 2019 growth performance was the improving external sector position of the country amid narrower trade deficit. The external sector remains a pillar of strength for the economy given the recorded surpluses in the balance of payments (BOP), along with a lower current account deficit in the first three quarters of 2019. The BOP position made a turnaround—from a deficit of US$ 2.3 billion in 2018, to a surplus of US$7.84 billion in 2019. The reversal was due to higher net receipts of trade in services, personal remittance inflows from overseas Filipinos, and sustained net inflows of foreign direct investments and portfolio investments. At the same time, the current account deficit for the first nine months of 2019 shows narrower deficit of US$992 million from US$5.8 billion in the same period in 2018. This was largely a result of the lower trade in goods deficit, combined with higher net receipts in the trade in services, and in the primary and secondary income accounts. Sixth, the current account deficit is manageable and financeable. A current account deficit is not necessarily a negative for the economy. An economy growing at an average of 6.5 percent annually in the past eight years, like the Philippines, needs to import capital goods and services to expand its absorptive capacity and avoid overheating of the economy. As the government commits to accelerate infrastructure-focused investments, the increased 3/5 BIS central bankers' speeches importation of capital goods, raw materials, and intermediate goods follow. Also, the country’s current account deficit is manageable and financeable given the sustained structural sources of foreign exchange inflows in the economy. These include overseas Filipino remittances, BPO revenues and tourist receipts, as well as net inflows of both foreign direct investments (FDIs) and foreign portfolio investments (FPIs). As of end 2019, the country’s gross international reserves (GIR) reached US$87.9 billion— equivalent to 7.7 months’ worth of imports of goods and services and payments of primary income. This is more than twice the traditional metric used to determine reserves adequacy, that is, equivalent of 3 months worth of imports. The sustained favorable external debt profile, demonstrated by the continued easing of the country’s external debt to GDP ratio, supports the external sector position. The country’s external debt metrics continue to ease significantly with external debt-to-GDP ratio settling at 23.7 percent as of end-September 2019 compared to about 60.0 percent in mid2000s. A large part of the country’s external debt remains in medium-to-long term maturity profile supporting a manageable debt repayment schedule over the medium-to-long term horizon. In addition, majority of the foreign borrowings are also fixed interest rate bearing, which makes it unaffected by any future foreign exchange fluctuations. Seventh, the national government has ample fiscal policy space to support accelerated public investments. The improving fiscal position of the government, supported by the series of fiscal reforms and improved tax administration, provides the government the resources to increase public investments. More importantly, the push for infrastructure development is exactly what the economy needs to expand its productive capacity. The Philippine government’s infrastructure agenda is focused on both hard and soft infrastructure. Pursuing hard infrastructure projects is meant to address decades of neglect, while investments on soft infrastructure ensures that we are able to capitalize on the potential demographic dividends arising from having a young population. Lastly, while I am certain that most of you are aware of the Philippine economy’s growth achievements in recent years, I think many are unaware that the Philippine economic growth story is actually decades in the making. At the core of this narrative is the pursuit of wide-ranging, and at times painful, purposeful policy reforms that have enabled the economy to be nimble, more productive, and more resilient. The BSP is also pursuing its own reform agenda. The new BSP Charter or Republic Act 11211 embodies a package of reforms that will further align its operations with global best practices, improve the BSP’s corporate viability, and enhance its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy. The real essence of nation-building is when the private and public sector build on each other’s productivity. The MAP promotes management excellence while the BSP pursues governance excellence—all in the name of nation-building. 4/5 BIS central bankers' speeches While we emphasize that the strength of the country’s macroeconomic fundamentals and the implementation of the Philippine government proactive measures to maintain our sound fundamentals, we also recognize that there are risks and challenges to both growth and inflation outlook that need to be managed. On the domestic front, addressing infrastructure bottlenecks and enhancing disaster resilience amid increased intensity and frequency of natural hazards are among the key challenges confronting the economy. On the external front, major risks include a synchronized economic slowdown; rising geopolitical tensions; higher tariff barriers between the US and its trading partners, and the recent novel coronavirus outbreak which has now been assigned a “high-impact” global risk assessment by the World Health Organization. Nonetheless, amid these risks and challenges, I am confident that the Philippine economy will remain as one of the bright spots in the region and we expect it to remain so with the support of critical structural reforms. After all, the positive growth story of the Philippines in the past 84 consecutive quarters was not achieved in a risk-free environment. The domestic economy’s proven ability to rise above the challenges is reflective of the kind of growth it has built—rooted in structural transformation and not in mere streak of luck. In conclusion, I believe that the Philippine economy remains in a position of strength to weather uncertainties in the global environment. Sustained commitment to pursue the government’s infrastructure program and reform agenda is key to achieving a high, inclusive and sustainable growth. An appropriate mix of monetary, fiscal, and other structural policies is crucial in achieving the government’s short- and long-term macroeconomic objectives. At the end of the day, we both share one common goal—to help build a nation that promotes a comfortable, secure, and prosperous life, for all Filipinos—now and in the future. Rest assured that the BSP is one with the government and the private sector in this lofty goal. As the country’s central monetary authority, the BSP is committed to stay true to its mandates of promoting price and financial stability, and the attainment of a safe, and efficient payment and settlement system conducive to a strong, sustainable, and inclusive growth of the economy. Thank you. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting and Economic Briefing, Taguig, 6 February 2020.
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Benjamin E Diokno: A strong nation amid a slowing and volatile world Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting and Economic Briefing, Taguig, 6 February 2020. * * * Officers and members of the Management Association of the Philippines (MAP) led by its President, Atty. Francisco Ed Lim, ladies and gentlemen, good afternoon. For today, I chose the theme, “A Strong Nation Amid A Slowing and Volatile World,” which encapsulates the BSP’s insights on the country’s economic performance in 2019 and the outlook for 2020 and beyond. Let us have a quick overview of the global economy in 2019 and how major global economic movers – US, the Euro area, Japan and China – are expected to perform in 2020. The International Monetary Fund’s (IMF) January 2020 World Economic Outlook (W EO) Update projects the global economy to post a modest 2.9 percent growth in 2019, before picking up by another modest 3.3 percent in 2020. These numbers both represent a downward revision relative to the October 2019 WEO projections. Global economic activity in 2019 was heavily weighed down by protracted trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies. While some green shoots were seen in the fourth quarter, facilitated by the broad-based shift earlier in the year toward accommodative monetary policy and fiscal easing in some countries (e.g., China and the United States), business sentiment remained generally pessimistic. Over the near and medium term, the IMF sees downside risks, including rising geopolitical tensions, intensifying social unrest; and further worsening relations between the US and its trading partners. The recent growing concern over the Wuhan coronavirus outbreak has likewise weighed down on growth prospects not only in China, but in the entire world. On the domestic front, latest surveillance reports from multilateral agencies such as the IMF, the World Bank (W B), and the Asian Development Bank (ADB) continue to expect the Philippine economy to remain one of the fastest-growing economies in 2020—not only in the region, but in the world as well. They expect the Philippines to grow between 6.1 percent to 6.2 percent during the year. In fact, some market analysts expressed higher growth prospects for the Philippines for 2020. Shortly after the release of the fourth quarter (Q4) 2019 GDP number last January 23, Morgan Stanley, Barclays, HSBC, PNB, and Nomura also released their 2020 growth projections for the Philippine economy, which ranged from 6.0 percent to 6.7 percent. What are the key factors supporting this optimism? First, the Philippine economy continues to be resilient and sustainable Some key economic indicators in 2019 show that the country’s macroeconomic robust fundamentals remained intact. This is evident in the better-than-expected real GDP growth of 6.4 percent it posted in Q4 2019, supported by accelerated government spending. This indicates that 1/5 BIS central bankers' speeches the economy has fully regained its momentum and is now back on track with its medium-term growth targets. The 2019 GDP outturn was close to the lower end of the government’s growth target range of 6.0 percent – 6.5 percent in 2019. Overall, the domestic economy in 2019 continued to be a picture of stability and resilience characterized by: • Sustained growth momentum; • Favorable inflation environment; • Ample liquidity and credit; • Robust external position; • Sound and stable banking system; and • Modest fiscal deficit. Let me expound on these. GDP growth bounced strongly during the fourth quarter, which compensated for the weak expansion registered during the first half of the year. The Q4 2019 GDP outturn of 6.4 percent was driven largely by the ramping up of government spending (18.7 percent), alongside sustained robust household consumption (5.6 percent). Accelerated government spending was evident as public construction rose sharply by 33.8 percent in the fourth quarter of 2019. On the supply side, growth was propped by the 7.9 % growth in the services sector on the back of solid expansion in public administration and defense, financial intermediation, trade, and other services. The industry sector also contributed positively to the Q4 2019 output growth. Second, inflation environment has been generally low and stable. A key factor to the domestic demand in 2019 was the favorable inflation environment in the country, supported by well-calibrated monetary policy actions. Inflation in 2019 settled at average year-on-year headline inflation of 2.5 percent supported mainly by the decelerating food inflation. This was lower than the 2018 inflation average of 5.2 percent amid. The 2019 inflation number was well within the BSP’s 2-4 percent target range for the year. Looking ahead, the latest baseline forecasts indicate that inflation is projected to average at 2.9 percent for both 2020 and 2021. The balance of risks to future inflation appears to be weighted toward the upside for 2020, but remains tilted to the downside for 2021. Petitions for electricity rates and transport fare adjustments, the proposed increase in excise taxes on alcoholic beverages, and the impact of African Swine Fever (ASF) on meat prices are seen as the main upside risks to inflation. Meanwhile, slower global economic growth due to the escalation of protectionist policies in advanced economies as well as geopolitical tensions, and the corona virus outbreak are the main downside risks to inflation. Equally important, inflation expectations – based on forecast surveys of private sector analysts – have remained manageable and well within the government’s target range. Results of the BSP’s 2/5 BIS central bankers' speeches survey of private sector economists for December 2019 showed inflation will continue to remain on a target-consistent path for 2020 and 2021. Third, the credit-liquidity dynamics in the country remain supportive of long term sustained growth. Economic activities in the country has led to increased demand for loans across key economic sectors as reflected in the continued expansion of bank lending. Bank lending also continues to flow into the country’s production sectors, including real estate. Preliminary data show that outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, grew by 10.9 percent in December, faster than the 10.1-percent expansion in November. Nevertheless, loan demand remains healthy across sectors as shown in the table on the right. This is also consistent with the preliminary results of the senior loan officers survey conducted quarterly by the BSP, which showed stable overall demand for loans from both enterprises and households. Fourth, the Philippine banking system, as the lifeline of economic activity, remains vibrant, sound, and compliant with domestic and international standards. This is because of BSP’s continuing financial reform agenda in the areas of banking supervision, financial inclusion, cyber security and technology, risk management, anti-money laundering, counter-terrorist financing, and capital market development. The series of RR cuts implemented in 2019, in addition to the BSP’s support for lending activities, are in line with our broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs. Fifth, another key contributor to the 2019 growth performance was the improving external sector position of the country amid narrower trade deficit. The external sector remains a pillar of strength for the economy given the recorded surpluses in the balance of payments (BOP), along with a lower current account deficit in the first three quarters of 2019. The BOP position made a turnaround—from a deficit of US$ 2.3 billion in 2018, to a surplus of US$7.84 billion in 2019. The reversal was due to higher net receipts of trade in services, personal remittance inflows from overseas Filipinos, and sustained net inflows of foreign direct investments and portfolio investments. At the same time, the current account deficit for the first nine months of 2019 shows narrower deficit of US$992 million from US$5.8 billion in the same period in 2018. This was largely a result of the lower trade in goods deficit, combined with higher net receipts in the trade in services, and in the primary and secondary income accounts. Sixth, the current account deficit is manageable and financeable. A current account deficit is not necessarily a negative for the economy. An economy growing at an average of 6.5 percent annually in the past eight years, like the Philippines, needs to import capital goods and services to expand its absorptive capacity and avoid overheating of the economy. As the government commits to accelerate infrastructure-focused investments, the increased 3/5 BIS central bankers' speeches importation of capital goods, raw materials, and intermediate goods follow. Also, the country’s current account deficit is manageable and financeable given the sustained structural sources of foreign exchange inflows in the economy. These include overseas Filipino remittances, BPO revenues and tourist receipts, as well as net inflows of both foreign direct investments (FDIs) and foreign portfolio investments (FPIs). As of end 2019, the country’s gross international reserves (GIR) reached US$87.9 billion— equivalent to 7.7 months’ worth of imports of goods and services and payments of primary income. This is more than twice the traditional metric used to determine reserves adequacy, that is, equivalent of 3 months worth of imports. The sustained favorable external debt profile, demonstrated by the continued easing of the country’s external debt to GDP ratio, supports the external sector position. The country’s external debt metrics continue to ease significantly with external debt-to-GDP ratio settling at 23.7 percent as of end-September 2019 compared to about 60.0 percent in mid2000s. A large part of the country’s external debt remains in medium-to-long term maturity profile supporting a manageable debt repayment schedule over the medium-to-long term horizon. In addition, majority of the foreign borrowings are also fixed interest rate bearing, which makes it unaffected by any future foreign exchange fluctuations. Seventh, the national government has ample fiscal policy space to support accelerated public investments. The improving fiscal position of the government, supported by the series of fiscal reforms and improved tax administration, provides the government the resources to increase public investments. More importantly, the push for infrastructure development is exactly what the economy needs to expand its productive capacity. The Philippine government’s infrastructure agenda is focused on both hard and soft infrastructure. Pursuing hard infrastructure projects is meant to address decades of neglect, while investments on soft infrastructure ensures that we are able to capitalize on the potential demographic dividends arising from having a young population. Lastly, while I am certain that most of you are aware of the Philippine economy’s growth achievements in recent years, I think many are unaware that the Philippine economic growth story is actually decades in the making. At the core of this narrative is the pursuit of wide-ranging, and at times painful, purposeful policy reforms that have enabled the economy to be nimble, more productive, and more resilient. The BSP is also pursuing its own reform agenda. The new BSP Charter or Republic Act 11211 embodies a package of reforms that will further align its operations with global best practices, improve the BSP’s corporate viability, and enhance its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy. The real essence of nation-building is when the private and public sector build on each other’s productivity. The MAP promotes management excellence while the BSP pursues governance excellence—all in the name of nation-building. 4/5 BIS central bankers' speeches While we emphasize that the strength of the country’s macroeconomic fundamentals and the implementation of the Philippine government proactive measures to maintain our sound fundamentals, we also recognize that there are risks and challenges to both growth and inflation outlook that need to be managed. On the domestic front, addressing infrastructure bottlenecks and enhancing disaster resilience amid increased intensity and frequency of natural hazards are among the key challenges confronting the economy. On the external front, major risks include a synchronized economic slowdown; rising geopolitical tensions; higher tariff barriers between the US and its trading partners, and the recent novel coronavirus outbreak which has now been assigned a “high-impact” global risk assessment by the World Health Organization. Nonetheless, amid these risks and challenges, I am confident that the Philippine economy will remain as one of the bright spots in the region and we expect it to remain so with the support of critical structural reforms. After all, the positive growth story of the Philippines in the past 84 consecutive quarters was not achieved in a risk-free environment. The domestic economy’s proven ability to rise above the challenges is reflective of the kind of growth it has built—rooted in structural transformation and not in mere streak of luck. In conclusion, I believe that the Philippine economy remains in a position of strength to weather uncertainties in the global environment. Sustained commitment to pursue the government’s infrastructure program and reform agenda is key to achieving a high, inclusive and sustainable growth. An appropriate mix of monetary, fiscal, and other structural policies is crucial in achieving the government’s short- and long-term macroeconomic objectives. At the end of the day, we both share one common goal—to help build a nation that promotes a comfortable, secure, and prosperous life, for all Filipinos—now and in the future. Rest assured that the BSP is one with the government and the private sector in this lofty goal. As the country’s central monetary authority, the BSP is committed to stay true to its mandates of promoting price and financial stability, and the attainment of a safe, and efficient payment and settlement system conducive to a strong, sustainable, and inclusive growth of the economy. Thank you. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 17th Professional Insurance and Financial Advisors Association of the Philippines, Manila, 27 February 2020.
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Benjamin E Diokno: Gearing up for the road ahead - with foresight and purpose Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 17th Professional Insurance and Financial Advisors Association of the Philippines, Manila, 27 February 2020. * * * Officers and members of the Professional Insurance and Financial Advisors Association of the Philippines (PIFAAP), led by its Chairperson, Ms. Esperanza Chong, and President Jeff Gonzales, ladies and gentlemen, good morning. I would like to thank you for this opportunity to talk about BSP’s views on the country’s economic outlook for 2020 and beyond at PIFAAP’s 17th Annual Congress, with the theme, “P2P: From Profit to Purpose.” Most of us know the term “P2P” refers to the transport service that brings you from Point A to Point B. This reminds us of how policymaking works at the BSP, where it is important that we are able to assess where the economy is and to know where we want it to be. As the country’s central monetary authority, the BSP is firmly committed to fulfilling its price and financial stability mandates as a means of supporting economic growth that is strong, sustainable, and inclusive. It is for this reason that I chose the theme of my presentation today, “Gearing up for the road ahead: With foresight and purpose.” Having foresight helps us prepare for the future, in the face of widespread uncertainties. Having a clear purpose enables us to stay the course and not to wobble on our commitment and resolve to move forward amid the challenges that come our way. And there are indeed significant risks and challenges clouding the global and domestic economic environment today. Among the risks currently on our radar screens are the following: On the external front in 2019, the global economy was heavily weighed down by trade policy uncertainties and geopolitical tensions. The IMF, in its World Economic Outlook (WEO) Update released last month (January 20), estimated that the world economy grew by a modest 2.9 percent in 2019. It projects that it would pick up slightly to 3.3 percent this 2020, although it should be noted that this has been revised downward from the October 2019 WEO. This shows that the world economy remains weak. Further on the external front, major risks include: Rising geopolitical tensions, notably between the US and Iran, as well as social unrest in some countries (e.g., Hong Kong, Argentina, Chile, Iran, Iraq, Turkey, and Venezuela), could disrupt activity and hurt already tepid business sentiment; Still high trade barriers between US and China could continue to imperil global supply chains, erode sentiment, and undermine global manufacturing and trade; and Recent coronavirus outbreak which has been declared as “global health emergency” by the World Health Organization (W HO). Growing concern over COVID-19 has likewise weighed down on growth prospects not only in China but globally. 1/7 BIS central bankers' speeches On the domestic front, the major risks include: first, failure to address infrastructure bottlenecks, and second, incapacity to enhance disaster resilience amid increased intensity and frequency of natural hazards. As we prepare to overcome these challenges, we should look for new ways of doing things, pursue structural reforms, and strengthen our institutions along the way. As it stands today, the Philippine economy is poised to sustain its 84 quarters of uninterrupted growth despite increased global uncertainties along with emerging domestic challenges. A quick glance at some of the key economic indicators in 2019 show that the country’s robust macroeconomic fundamentals remained intact. Real GDP growth grew by 6.4 percent in Q4 2019, supported by accelerated government spending, which resulted in full year growth of 5.9 percent. The full-year outturn was close to the lower end of the national government’s growth target range of 6.0 percent – 6.5 percent in 2019. Despite strong headwinds, the domestic economy in 2019 continued to demonstrate resilience and stability, characterized by: Sustained growth momentum; Favorable inflation environment; Ample liquidity and credit; Robust external position; Sound and stable banking system; and Modest fiscal deficit. The 2019 GDP growth rate was a tad lower than the revised official growth target range of the national government of 6.0 to 6.5 percent. But what is impressive is that the country has remained one of the fastest-growing economies, not only in Asia, but in the world. On the demand side, the economy continues to be supported by sustained household consumption and quickened in public spending during the second half of 2019. On the supply side, growth was driven still by broad-based expansion of services and industry sectors supported largely by the strong numbers coming from financial intermediation; public administration and defense, compulsory social security; trade and repair of motor vehicles; and construction. Despite the El Niño phenomenon and the lingering effects of African Swine Fever, the agriculture sector managed to grow by 1.5 percent during the year. In 2019, headline inflation was 2.5 percent, well within the government’s target range of 2.0-4.0 percent, and was supported mainly by decelerating food inflation. The benign inflation is expected to support consumption demand moving forward. This slide shows the series of BSP policy actions pursued in 2019. The much improved inflation dynamics so far alongside the benign inflation outlook have given the BSP space to reduce policy rate by 25 bps each in May, August, and September 2019, respectively, as a pre-emptive move against the risks associated with weakening global growth. In its most recent monetary policy stance meeting on 6 February 2020, the Monetary Board concluded that a further preemptive reduction in the policy rate to support market confidence was necessary and cut policy rate by 25 bps. 2/7 BIS central bankers' speeches It was also noted that the phenomenal spread of the 2019 novel coronavirus could have an adverse impact on the global economy and market sentiment in the coming months. Looking ahead, we expect inflation to gradually rise but remain on a target-consistent path for 2020 and 2021. Inflation expectations also continue to be firmly anchored within the target over the policy horizon. Meanwhile, the risks to the inflation outlook continue to tilt slightly toward the upside in 2020 and toward the downside in 2021. This is depicted in the fan chart on the left-hand side. Upside risks to inflation over the near term arise mainly from potential upward pressures on food prices owing in part to the African Swine Fever outbreak and tighter international supply of rice. Moreover, there continues to be the burden on the economy posed by the ongoing Taal volcano eruption and the aftermath of typhoon Tisoy. However, uncertainty over trade and economic policies in major economies such as China, US and Europe continue to put downward pressure on global demand, thus easing upward pressures on prices of some commodities like oil. Meanwhile, the Philippine banking system remains strong and sound. Philippine banks are sufficiently capitalized and past due ratios have also declined over the years, contributing to greater ability to intermediate funds, manage risk, and increase profitability. The stability and soundness of the banking system is due to a large part to the strategic and progressive financial reform agenda of the BSP in banking supervision, cyber security and technology risk management, anti-money laundering, counter-terrorist financing, and capital market development. We want the Philippine banking system to remain strong in financial intermediation and promoting greater economic activity. The manageable external payments position has provided a strong buffer for the domestic economy against external headwinds. Recently, the balance of payments (BOP) position had a turnaround from a deficit position in 2018, to a surplus of US$7.8 billion for 2019. This may be attributed partly to higher net inflows of foreign direct investments and foreign portfolio investments which was bolstered by favorable investor sentiment. The current account was in a deficit position, in the first three quarters of 2019. But the deficit has narrowed significantly-from a deficit of US$5.8 billion in 2018 down to a deficit of US$992 million in 2019. This development came largely from the lower trade in goods deficit combined with higher net receipts in the trade in services, and in the primary and secondary income accounts. We also have structural sources of foreign exchange, which provide substantial cushion from external shocks. First, foreign direct investments or (FDI) remain resilient. For the period Jan-Nov 2019, it reached US$6.4 billion. It is lower compared to 2018 due to lingering global uncertainty which dampened investor sentiment. Second, overseas Filipino remittances as well as BPO earnings are sustained. Cash remittances reached US$30.1 billion in 2019 an increase of 4.1 percent year-on-year. On the other hand, BPO revenues were recorded at US$16.4 billion for the first three quarters of 2019. 3/7 BIS central bankers' speeches Meanwhile, data as of end-January 2020 shows that the country’s gross international reserves (GIR) stood at US$86.9 billion. This level of GIR is more than enough to finance 7.6 months’ worth of imports of goods and services and payment of primary income. It is also equivalent to 5.4 times the country’s shortterm external debt based on original maturity. The sustained favorable external debt profile is also another factor supporting the external sector position. The country’s external debt metrics have steadily improved. The external debt-to-GDP ratio is 23.7 percent as of end-September 2019, a sharp departure from about 60.0 percent in 2005, before the onset of the Global Financial Crisis (GFC). A large part of the country’s external debt remains in medium-to-long term maturity profile supporting a manageable debt repayment schedule over the medium-to-long term horizon. The Philippine economy not only has ample monetary policy space but also fiscal space to respond to any downside risks to growth. The improving fiscal position of the government, supported by the series of fiscal reforms in both tax revenue generation and tax collection, provides the government the resources to increase public investments and support domestic demand. This fiscal space will also help boost private investment via the infrastructure push, and will consequently expand the country’s productive capacity to ensure a durable and sustainable growth in the years to come. Moving forward, we are optimistic that the Philippine growth momentum will be sustained. The current administration is in a strong position to push for reforms by leveraging on its strong political capital. Results of institutional and governance reform surveys are positively recognized by independent third-party assessors. The country has indeed made important strides in enhancing its competitiveness over the past years. This is the essence of what we are doing on a pro-active basis, and this is to future-proof the Philippine economy. The country’s improved creditworthiness, exemplified by the country’s elevation to investmentgrade territory, has cemented the Philippines’ status as an economy with one of the brightest prospects globally. Our sound macroeconomic fundamentals, supported by structural reforms, have been duly recognized by credit rating agencies. International rating agencies have taken notice of the strides that the country has taken in the areas of economic reform and liberalization that have produced the current growth and stability the country exhibits. Credit rating upgrades mean lower borrowing costs for the country. At investment grade, a country is seen to be fully able to service its foreign debts. Fitch Ratings and Moody’s Investors Service kept the Philippines one notch above minimum investment grade. Meanwhile, the latest credit rating upgrades given by Standard and Poor’s and JCRA in April 2019 and by the Japan-based R&I credit rating agency just earlier this month place the Philippines only a step away from our targeted single “A” grade in the next two years. Having an A-rating will place the Philippines in the radar of more investors, which bodes well for attracting more job-generating investments. The same optimism is shared by third-party assessors such as the International Monetary Fund 4/7 BIS central bankers' speeches (IMF), the World Bank (W B) and the Asian Development Bank (ADB). Not surprisingly, they expect the Philippine economy to remain one of the fastest-growing economies in 2020, not only regionally, but globally. These multilateral agencies expect the Philippines to expand by 6.1 percent to 6.3 percent this year. In fact, some market analysts are even more optimistic. Shortly after the release of the Q4 2019 GDP figure on 23 January, Morgan Stanley, Barclays, HSBC, PNB, and Nomura also released their 2020 projections for the Philippine economy which ranged from 6.0 percent to as high as 6.7 percent. The expectation of sustained growth momentum is not without basis. In fact, there are key structural changes pointing to increased efficiency and productivity of the economy. In these charts we can see the following: 1. the steady improvements in economic efficiency as indicated by the declining incremental capital-output ratio; 2. increasing total factor productivity; and 3. favorable labor market dynamics given the young population and improvements in the education and skill sets of those in the labor force. Another key factor that lends support to the higher growth potential of the Philippine economy is the country’s demographic profile. The IMF predicts the country’s dependency ratio to decline steadily until 2050, considerably lower than its regional peers. This implies that the expanding Philippine economy will not fall short of supply of young, skilled, and educated workers. This should also positively affect savings and innovation, leading to an increase in total factor productivity and to longer periods of economic growth. All told, economic indicators suggest that the country has been making remarkable progress towards achieving its goals. Prospects for the domestic economy continue to remain favorable as domestic growth fundamentals are expected to remain intact. GDP expansion is expected to continue to pick up in 2020 due to the robust growth in the services sector and improved external trade conditions. Private demand is expected to remain firm, aided mainly by sustained remittance inflows and stable inflation. As more “Build, Build, Build” projects get completed, the positive spillover effects on private construction would also contribute to economic growth. So what is the BSP’s role in upholding this positive Philippine macroeconomic narrative? We remain steadfast in our commitment to effectively discharge of our mandates in order for us to gear up for the road ahead. 1. Achieving our primary mandate of price stability through the effective conduct of monetary policy. 2. Upholding financial stability thru banking supervision and regulation and the pursuit of financial reforms. 3. Ensuring an efficient payments and settlement system thru the operation of real-time settlement system to reduce the cost of exchanging good and services. Our policy and reform agenda involve strategic, complementary and reinforcing efforts in developing deeper money, debt, and FX markets that systematically build the country’s resilience 5/7 BIS central bankers' speeches by reducing reliance on external funding and insulating the domestic economy from external shocks. At the same time, we are pursuing initiatives to deepen the local debt market. This will go a long way in funding infrastructure and other big-ticket investments. To support our financial inclusion agenda, we are championing an enabling environment for the digitalization of the payments system. Our flagship project is the National Retail Payments System (NRPS) which is expected to boost economic activities by making available an interoperable, safe, and efficient real-time digital payments system. The passage of Republic Act No. 11211, or an Act Amending Republic Act No. 7653, known as the ‘New Central Bank Act’ (signed on 14 February 2019) is a significant milestone for the BSP. The pursuit of the BSP mandates were further strengthened with the expansion of the BSP’s policy toolkit. The new BSP charter embodies a package of reforms that will further align its operations and global best practices and improve its corporate viability. Specifically, The law restored the central bank’s authority to issue its own debt papers as part of its regular monetary operations, establishes a stronger prudential regulatory framework to promote a safe and sound financial system through the expansion of supervisory coverage and authority to prescribe metrics attuned to international standards and practices. The amendment likewise empowers further the BSP to oversee the country’s payment and settlement systems (PSS) including critical financial market infrastructures that are vital components of the PSS. Moreover, the amended charter strengthens the central bank’s ability to obtain data from any person or entity from the private and public sectors, for policy making and statistical purposes, in line with the pursuit of its mandates. The BSP has identified its legislative priorities in the current 18th Congress. We support amendments to the Bank Secrecy Law to better combat tax evasion and money laundering. We also have the Financial Consumer Protection Bill to consolidate various consumer protection initiatives. And the amendments to Agri-Agra, which are intended to institute agricultural financing reforms, including the expansion of the list of projects and activities that may be financed through bank loans or investments, and broadening of the modes of alternative compliance. In closing, let me leave you with these take-aways. I believe that Philippine economy remains in a position of strength and has built ample buffers to weather volatilities and uncertainties in the global environment. While the Philippines is poised to remain among the fastest-growing economies in the region and in the world, having foresight and being wary of the risks and challenges in the horizon, dictate that we should not be lulled into complacency. It remains prudent that we balance our optimism with a certain degree of caution. We assure you that we at the BSP will endeavor to stay ahead of these domestic and external developments and ensure that its monetary policy framework and policy agenda remain responsive to the very fluid economic environment. We likewise remain focused on our purpose and steadfast in pursuing continuity, preserving our credibility, and in staying committed to undertake bold reforms and continued improvements in carrying out our mandates of price stability, financial stability, and efficient payments and settlements system. This way, we can truly fulfill our role in navigating the country towards a 6/7 BIS central bankers' speeches charted path of sustainable and inclusive economic growth. Again, it is a pleasure to be here this morning. Salamat at mabuhay tayong lahat! 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 13th Annual FMAP Convention, El Nido, 28 February 2020.
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Benjamin E Diokno: Finding opportunities in a borderless world Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 13th Annual FMAP Convention, El Nido, 28 February 2020. * * * To the officers and members of the Fund Management Association of the Philippines (FMAP) led by President Noel Reyes and Convention Committee Chairperson Cristina Arceo, congratulations on your 13th annual convention. I am grateful to FMAP for inviting me to this event. This gives me an opportunity to address a group whose general mission is not too far from what we at BSP pursue—to help uplift the people’s economic well-being through the professional and ethical practice of fund management. This year’s theme, “Anticipating Investor’s Needs in the New Decade Under a Borderless World” speaks of FMAP’s pursuit of advancing the field of fund management in this era of interconnectedness, while keeping investors’ needs and safety of paramount importance. Today, I will provide you some recent economic and financial market developments as well as the BSP’s corresponding initiatives in promoting monetary and financial stability and an efficient payment system. We hope that the FMAP, as an esteemed organization of fund managers, can take advantage of the opportunities these developments offer as we all progress towards what you call a “borderless world.” As we embark on a new decade, let’s look at where we are now. Resilient economy Amid global uncertainties, the Philippine economy remains strong and in fact has been experiencing uninterrupted positive growth for more than two decades. Gross Domestic Product (GDP) posted a year-on-year growth of 6.4 percent in Q4 2019, resulting in the 5.9 percent fullyear growth for 2019. The fourth quarter growth is primarily driven by the catch-up spending of the government and robust household consumption. On the production side, GDP growth was supported by a resilient services sector. This underscores the Philippines’ place as one of the most resilient and fastest growing economies in the region. Positive forecasts for the domestic economy continue to remain firm over the medium term. Private consumption is expected to remain buoyant. Private capital formation is likewise expected to be robust while public construction will remain solid as the government’s BBB program accelerates. At the same time, we are closely monitoring the potential impact of a slowdown in global economic growth due to trade uncertainties, rising geopolitical tensions, the worsening climate-related disasters such as bushfires, typhoons, and flooding across the world and the fast spreading coronavirus on domestic economic activity. Effective monetary policy In 2019, inflation averaged 2.5%, a sharp drop from 5.2% average in 2018. The latest baseline forecasts indicate a broadly steady path of inflation for 2020 and 2021, with average inflation remaining within the target range of 3.0 percent ± 1 percentage point. Inflation expectations also continue to be firmly anchored within the target over the policy horizon. Thus, a few weeks ago, the Monetary Board decided to cut the policy rate by another 25 basis points. This is a preemptive reduction in the policy rate to support market confidence and to defend against the potential spillovers associated with the mentioned external factors. 1/6 BIS central bankers' speeches Strong external position We have hefty Gross international Reserves (GIR), US$86.9 billion as of end-January 2020. This GIR level represents an ample liquidity buffer equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income. It is also equivalent to 5.4 times the country’s short-term external debt based on original maturity. Alongside the growing economy, the banking sector exhibits continued expansion and resilience. The Philippine banking system has grown steadily during the past 18 quarters, expanding its assets to P18.3 trillion as of end-December 2019. Bank deposits were able to sustain growth and spur expansion in loans and investments. Bank deposits registered a 7.1 percent growth in end-December 2019 to P13.7 trillion. Borrowings and bond issuances reached P1.5 trillion and served to complement funds generated from deposits. Despite the rapid expansion of credit, loan quality has remained satisfactory with non-performing loans at only 2.0 percent of the banking system’s total portfolio. The banking system also maintains an acceptable level of liquidity that can be readily utilized during periods of stress. Liquidity of universal and commercial banks (UKBs) and subsidiary banks and quasi-banks remained ample as the liquidity coverage ratio as of end-September 2019 stood at 171.2 percent on a solo basis and 169.0 percent on a consolidated basis. Banks likewise remain well-capitalized as the capital adequacy ratio (CAR) of universal and commercial banks is well-above the 10 percent minimum thresholds set by the BSP and 8% set by the BIS. As of end-September 2019, the CAR of the UKBs slightly improved to 15.6 percent and 15.9 percent, on solo and consolidated bases, respectively. Growth of debt and equity markets While the Philippine economy remains bank-centric at present, the growth path of the Philippine debt and equity markets is promising. Improvement has certainly been noted, as measured by the level of financial assets to GDP. Over the last two years, the equity and debt markets have been growing. Over the past years, the Philippines has been one of the fastest growing local currency bond markets in emerging Asia. Outstanding debt securities stood at P6.6 trillion as of 2019, which is 9.0 percent higher than 2018 data. While government issuances continue to represent the bulk of outstanding debt securities, corporate bond issuances have grown significantly, constantly rising by 14.5 percent from 2018 to 2019. Economic outlook The country’s strong growth potential can also be seen in the favorable outlook of various institutions, such as the International Monetary Fund (IMF), the World Bank (W B) and the Asian Development Bank (ADB) as published in their latest surveillance reports. These third-party assessments are broadly in line with official’s GDP growth target range of 6.5 percent to 7.5 percent for 2020. Meanwhile, Goldman Sachs Emerging Market Outlook 2020 expects the Philippine economy to grow by 5.8 percent and 6.5 percent in 2019 and 2020, respectively. These are higher than the GDP growth forecasts for our neighboring countries. The “Road to A” Agenda If we do the “right” things, in two years, we envision the country to obtain single “A” ratings which 2/6 BIS central bankers' speeches we expect to spur greater investments and faster economic growth. Recently, Japan-based R&I assigned to the Philippines a “BBB+” rating, which is a notch away from the “A” level goal. Also, the recent adjustment in the outlook of Fitch Ratings from investment grade “stable” to investment grade “positive” is an encouraging development. Going Beyond Borders Meanwhile, the economic and financial landscape also continue to rapidly evolve. And if I may refer to your theme again, the changes in the financial landscape are breaking down borders of different types. They offer a breadth of opportunities that are too enormous to not be seen and felt and may, in fact, make us less relevant if we do not adapt. I will focus on two of them tonight. Regional integration First are the developments within ASEAN. In the region, we continue to pursue cooperative efforts. The ASEAN integration framework that is geared toward creating an ASEAN Economic Community means that for financial markets, particularly for foreign exchange and securities, transactions are expected to be more fluid. Hence, capital markets, banking services, and payments and settlement systems are expected to be harmonized by a common set of convention or standards. In a sense, this is breaking down geographic borders. Technological advancements Second are the developments in technology and infrastructure. As you well know, technological innovation is the new frontier and can shape the future of finance and investment. The advent of Fintech is affecting the way financial institutions do business. It is reshaping the way investment products are being distributed, how clients interface with the institutions, and how investment advice is dispensed. The use of technology is considered as a lynchpin in delivering financial services with convenience especially to the unbanked and the underbanked. In this way, we have been able to break through barriers associated with traditional modes of transacting. The next few slides will cover what the BSP has done and what it plans to do to make sure that the gains are sustained and built upon in the future. The ASEAN integration framework – banking and collective investments schemes The BSP demonstrated its commitment and support of financial integration through the passage of the amendment to Republic Act 7721 on the entry of foreign banks in the Philippines in 2013. Since then, we have had a major player in the ASEAN region establish a branch in the country. We have likewise continued to upgrade our banking, supervisory and regulatory framework with a view toward adopting international standards and best practices. We continue to evolve as a financial supervisor and will be embarking on a major change in the framework this year through the adoption of the Supervisory Assessment Framework or “SAFr” (pronounced “safer”), which enhances our existing ratings framework for BSP-supervised institutions. Perhaps one initiative that would be very relevant to the FMAP is the ASEAN Collective Investment Schemes (CIS) framework. This envisions the cross-border offering of CIS that will be beneficial to both investors and market players. For investors, the ASEAN CIS will expand investment options and create opportunities for diversification. For market players, the Framework will provide an avenue to grow the business and provide the impetus to improve processes that will be at par with global standards. There are still challenges that we must hurdle in order to harness the opportunities of the ASEAN CIS. There is a proposed CIS Bill that is currently under review by Congress. The Bill is intended to level the playing field by providing a regulatory framework for all forms of collective investment schemes through the elimination of existing differences in the regulatory treatment among 3/6 BIS central bankers' speeches different forms of CIS. The BSP recognizes the value of pursuing both of these objectives. Sustainable Finance The ASEAN is likewise committed to the promotion of green, social, and sustainable finance. Through the ASEAN Capital Markets Forum, ASEAN Standards on Green Bonds, Social Bonds, and Sustainability Bonds have been issued. The recent issuances of bonds in the Philippines bearing the label of the ASEAN Green Bond Standards is a welcome development as the ASEAN strives towards greening the financial market. There is a huge demand for bonds that are either green, social, or sustainable. Thus, the Working Committee on Capital Markets Development of the ASEAN, where BSP is a member, conducts roadshows that will foster coordination of prospective issuers and investors. While the initiatives in the capital markets are led by SEC, the BSP fully supports the SEC as well as works with other government agencies following a whole-of-government approach. It subscribes to the principle that financial regulation can be a useful tool to contribute to the achievement of national and international environmental objectives. The BSP has undertaken capacity building and awareness campaigns, and is due to issue a Circular on environmental and social governance. Moreover, the BSP hopes to obtain the support of FMAP in considering this asset class in your investment portfolios. Other than direct support to sustainable finance initiatives, the BSP has also embarked on important complementary efforts that would encourage more participation in the capital markets —by issuers, investors, and intermediaries. Technology as Enabler While globalization brings countless opportunities, the immense power of technology can magnify outcomes. In fact, the BSP has supported the use of digital solutions in pushing forward financial inclusion. In this regard, the BSP has provided strong support for enabling infrastructure and standards for interconnectivity. One of the most important perhaps is the National Retail Payment System (NRPS) framework, which aims to provide direction in carrying out retail payment activities in a safe and efficient manner. The NRPS has been transformative. According to the Better than Cash Alliance study released in December 2019, the estimated total monthly volume of digital transactions grew by more than 20 times from 2013 to the end of 2018, with the increase driven by payments made by individuals. The BSP is encouraged by these numbers and expects the percentage of payments transactions done digitally to reach 50 percent by 2023. You may also already know that the BSP has fully supported the passage of RA No. 11055, which established the foundation for the development of the Philippine Identification System or PhilSys. The adoption of verifiable and unique digital identities could pave the way for a broader participation in the financial system, as it will be easier to open accounts and apply for financial services. The BSP is mindful that the openness in the financial services industry and the ease of access to products will not by itself lead to inclusiveness. The risks to the customers and investors and service providers alike are higher if products and modes of delivery are not well understood. Forging trust in the financial services industry is necessary and these can be achieved by promoting financial literacy and consumer protection. This is why the Bangko Sentral advocates these complementary initiatives. Educating Investors 4/6 BIS central bankers' speeches For two years now, the BSP has been organizing financial education expos. In the November 2019 expo themes included responsible financial planning, becoming good financial role models, stock market investing, and mainstreaming financial education in school curriculums. The BSP has consciously targeted the younger population in order to inculcate early on, the value of saving and knowledge on money and finance. We have partnered with the Department of Education more than once and has supported private sector programs geared at developing tools for the delivery of important messages. As our economy continues to grow and such growth translates into higher incomes for consumers, the challenge is to make sure the consumers imbibe the discipline of saving and that they are armed with the proper information so that they can eventually migrate into retail investors. Consumer Protection Now I turn to our other advocacy, which is consumer protection. While the underpinning principle is very simple––not to take undue advantage of users of financial services––it has taken on many dimensions because of developments in products and service delivery. For instance, the use of technology has added another layer of risk to transactions with customers. A client could have issues on data privacy, security, or those relating to simple downtimes in systems. The BSP has issued sets of regulations on consumer protection for its supervised institutions. More specific guidance appear in the in the sales and marketing guidelines for financial products as well as the Basic Standards in the Administration of Trust, Other Fiduciary and Investment Management Accounts. At the core of these standards is the expectation that financial institutions must know their clients and remain focused on what products and services your investors really need. I know that as members of the FMAP, you continuously hold yourselves to a high standard. You already have the Asset Management Code in place. I am also encouraged by your theme this year – anticipating investors’ needs in a borderless world. This tells me that the industry is aware that in order to move forward, the customer’s need must always be met. He or she must feel safe to transact by any mode and he or she must be satisfied with the product or service availed of. In this, the BSP and the FMAP’s objectives are aligned. Conclusion To recap, the current state of the economy provides many opportunities. The continued growth and positive outlook on the Philippines may mean that the financial industry will need to step up to meet the demands of future savers and investors. The potential to meet financial inclusion objectives are likewise spurred by the elimination of borders through regional integration and technological developments. Meanwhile, gains can only be sustained through education and a conscious effort to protect the welfare of consumers. I am reminded of a quote from US President John F. Kennedy: “Change is the law of life, and those who look only to the past or present are certain to miss the future.” Ladies and gentlemen, we are in the era where finance and provision of services to investors are transformed from the conventional approach into a “borderless world.” We can only ably embrace change if we prepare ourselves well. 5/6 BIS central bankers' speeches Thank you and good evening! 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Manila Times 11th Business Forum, Makati City, 3 March 2020.
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Benjamin E Diokno: Staying on track in 2020 - sustaining positive PH growth inflation dynamics Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at The Manila Times 11th Business Forum, Makati City, 3 March 2020. * * * The Manila Times President and CEO, Mr. Dante Ang II, my co-speakers and colleagues in the government service; distinguished speakers from the business community as well as The World Bank; ladies and gentlemen, good morning. It is a pleasure to be joining today’s Business Forum to share the BSP’s views on the macroeconomic developments and prospects for the Philippine economy at a time when the domestic economy is seeing both low inflation and robust economic growth. In line with the conference theme and given that the other economic team members are here – allow me to share my insights on the economy’s outlook for the year from the perspective of a central banker. High and volatile inflation is undesirable because it leads to slower real economic growth and lower social welfare for most Filipinos, especially the poor. Until recently, the Philippines is characterized as high inflation and low growth. In 2002, onward this trend was reversed. This development happened when BSP adopted the inflation targeting framework. In recent years, we are seeing the generally sustained positive alignment of strong growth and low inflation which is what is needed to ensure that the economy can continue growing without having to worry about overheating. The BSP, being the country’s central monetary policy authority with the core mandate of promoting price stability, is committed to ensure that this noninflation growth is sustained. Manageable inflation along with expectations of within-target inflation over the policy horizon is expected to boost consumption demand, which has been consistently one of the key growth drivers of the domestic economy. In 2019, headline inflation eased significantly, averaging 2.5 percent, lower than the 5.2 percent inflation in 2018. The deceleration was largely driven by slower price increases of rice and other selected food and energy items. Food inflation dropped to 1.8 percent year-on-year in 2019 from 6.6 percent in 2018 due to improving supply conditions. Rice prices declined in 2019 largely due to the Rice Tariffication Law and the continued arrival of rice imports. At the same time, inflation rates for meat, fish, oils, and fats, vegetables, as well as sweeteners posted slower price increases during the year. Likewise, non-food inflation also fell in 2019 due largely to easing energy prices. The pursuit of prudent and well-calibrated monetary policy by the BSP continues to support favorable inflation dynamics in the country. In 2019, as a pre-emptive move against the risks associated with lingering sluggish global growth, the Monetary Board (MB) decided to reduce the policy rate by 25 bps in May, August, and September 2019, respectively. And in its most recent monetary policy stance meeting on 6 February 2020, the MB cut the policy rate by another 25bps. The Board was of the view that a tame inflation environment, there is a room for a further preemptive reduction in the policy rate to support market confidence. The MB 1/5 BIS central bankers' speeches noted the possible adverse impact of the spread of the 2019 novel coronavirus on global market sentiment as well as on domestic economic activity in the coming months. Latest baseline forecasts indicate a target-consistent path of inflation for 2020 and 2021, with average inflation remaining within the target range of 3.0 percent ± 1.0 percentage point. The balance of risks to the inflation outlook continue to tilt slightly toward the downside in 2020 and in 2021. Forecasts by other institutions generally convey similar expectations. Capital Economics forecasts 2.8 percent inflation for 2020; Oxford Economics, 2.9 percent; Asian Development Bank, 3.0 percent; and IMF, 2.6 percent. We have also seen continued improvement in the growth of both domestic liquidity and credit activities in line with the needs of the economy. Latest data show that domestic liquidity (M3) expanded by 11.4 percent year-on-year to about ₱13.0 trillion in December 2019, faster than the 9.8-percent growth in November. Demand for credit remained the principal driver of money supply growth. On the other hand, preliminary data show that outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, grew by 10.9 percent in December, faster than the 10.1-percent expansion in the previous month. Loans for production activities—which comprised 87.4 percent of banks’ aggregate loan portfolio, net of RRPs—expanded at a rate of 9.1 percent in December, higher than the reported growth in November at 8.1 percent. These loans continued to be driven by lending to key sectors such as real estate activities; financial and insurance activities; electricity, gas, steam and air conditioning supply; construction; and information and communication. Loans for household consumption increased due to faster growth in credit card and salary-based consumption loans during the month. The series of reduction in both policy rates and reserve requirement ratios of banks since last year are anticipated to support both credit conditions and overall economic activity moving forward. Meanwhile, Philippine banks remain robust, well-capitalized, and sound. The banks’ capital adequacy ratios, both on a solo and consolidated bases, continue to be well above the standards set by the Bank for International Settlements (BIS) of 8 percent, as well as the BSP”s standard of 10 percent. The quality of lending continues to improve. The gross non-performing loans (GNPL) and nonperforming assets (NPA) ratios of Philippine universal and commercial banks (UKBs) have been falling since the early 2000s. The sustained health and soundness of the country’s financial sector have been supported by the continuing financial reform agenda of the BSP in the areas of banking supervision, financial inclusion, cybersecurity and technology risk management, anti-money laundering, counterterrorist financing, and capital market development. The country’s external payments position also continues to provide buffers particularly amid the recently recorded surpluses in the balance of payments position along with a lower current account deficit for the first three quarters of 2019. We expect this trend to continue on the back of the continued bright prospects of the domestic economy, implementation of major infrastructure 2/5 BIS central bankers' speeches projects, and improved global perception of the Philippines as an investment destination. While the current account is expected to post a deficit over the medium term, it remains manageable and financeable. The domestic economy continues to have a steady and stable structural sources of foreign exchange inflows that are more than enough to finance the country’s foreign exchange requirements without resorting to excessive foreign borrowing. The stable structural foreign exchange inflows from overseas Filipino (OF) remittances, tourism and IT-BPO receipts continue to buoy the external sector. Foreign direct investments or (FDI) for the first eleven months of 2019 reached US$6.4 billion, inching closer to the full-year projection of US$6.8 billion. We expect FDI to continue to slowdown due to mounting uncertainties in the global environment which continue to dampen investor sentiment, both externally and domestically. FX inflows from OF remittances as well as BPO earnings continue to contribute significantly to the country’s GIR. Cash remittances reached US$30.1 billion in 2019 while BPO revenues were recorded at US$16.4 billion for the first three quarters of 2019. Preliminary data as of end-January 2020 shows that the country’s gross international reserves (GIR) stood at US$86.4 billion, which provides an ample external liquidity buffer that is equivalent to 7.6 months’ worth of imports of goods and services and payment of primary income. This is way above the traditional 3 month-import cover. We will continue to monitor recent developments that could pose as risks to these inflows (tourism, remittances, exports), such as the lingering weak external demand, the impact of Corona virus outbreak in China and the continued uncertainty surrounding the trade deal between the US and China, among others. The sustained build-up of the country’s foreign exchange reserves continues to lend strong support for the stability of the Philippine peso. The current movement of the peso reflects a confluence of factors from both the external and domestic environment. We continue to adopt a market-determined exchange rate which allows the value of the Philippine peso to move along with the demand for and supply of foreign exchange in the economy. Nevertheless, the we are ready to act to prevent excessive peso volatility and overshooting due to speculative activities. Fitch Ratings recent revision of the Philippine’s outlook from stable to positive, R&I’s upgrade of the Philippines’ credit rating from “BBB” to “BBB+”, the BSP’s decision to cut policy rates by 25 bps as well as reports of an all-time high remittances and tourism in the Philippines in 2019 provided a calm ground for country’s financial markets.. The equities market continues to perform strongly in the second month of 2020 as the PSEi continued to trade above the 7,100 benchmark, hitting a peak of 7,507.20 index pts. on 11 February before closing at 7,413.0 pts on 20 February 2020. Meanwhile, the bond market, as of 19 February 2020, the Emerging Market Bond Index Global (EMBIG) Philippines spread, stood narrower at 68 bps from the end-January level of 83 bps. Similarly, the country’s 5-year sovereign credit default swap (CDS) spread decreased to 34 bps from the end-January level of 42 bps. Against other neighboring economies, the Philippine CDS traded the same with Malaysia’s 34-bps spread, and narrower than Indonesia’s 58-bps spread, but wider than Thailand’s and Korea’s 26-bps and 22-bps, respectively. Overall, these numbers demonstrate investors’ confidence in the country’s creditworthiness. 3/5 BIS central bankers' speeches Portfolio flows to emerging markets (EMs) continued their recovery, supported by monetary easing by major central banks and a US-China phase one trade deal.1 However, BSP-registered foreign portfolio investments continued to yield net outflows due to : continuing geopolitical tensions between the US and Iran; (ii) ongoing trade negotiations between the US and China; (iii) renegotiation of the contracts of the country’s water concessionaires; and (iv) investor concerns on the spread of the novel coronavirus originating from Wuhan, China. The favorable external debt profile of the country serves as cushions against external shocks. The country’s external debt metrics exhibited a significant improvement as the country’s external debt-to-GDP ratio settled at 23.7 percent as of end-September 2019 compared to about 60.0 percent in the mid-2000s. Given that the bulk of the country’s external debt remains in medium and long-term maturity profile and are fixed interest rate bearing, debt repayment schedule is more manageable and financially viable. Ladies and gentlemen, the best is yet to come for the Philippine economy. Prospects for the economy in the near and medium-term continue to be bright. Robust monetary, financial and external sectors are expected to continue to lend support to the country’s growth despite external threats and domestic challenges. External risks to the country’s growth and inflation outlook in 2020 and over the mediumterm include: the threat of a synchronized global economic slowdown; retreat to multilateralism; rising geopolitical tensions, notably between the US and Iran; adoption of protectionist policies in major economies (still high trade barriers between US and China, Brexit, etc.); and the recent coronavirus outbreak which has been declared as “global health emergency” by the World Health Organization (WHO). In the domestic front, the failure to enhance disaster resilience amid increased intensity and frequency of natural hazards and the failure deliver the planned Build. Build. Build projects are among the key challenges that are on our radar screen. In the greater scheme of things, where does the BSP enter in the picture? What are the BSP’s policy thrusts to contribute in the collective goal of ensuring that the Philippine economy stays on track – sustaining the growth and inflation dynamics – in 2020 and beyond? The answer is simple. The BSP will continue to pursue necessary policy measures and structural reforms to ensure that it will be able to deliver on its mandates. That is, to promote and maintain price stability, a strong financial system, and a safe and efficient payments and settlements system conducive to a sustainable and inclusive growth of the economy. And with the passage of Republic Act No. 11211, or the ‘New Central Bank Act’ last year, you can be assured that we will remain steadfast to its expanded mandates. We will ensure the implementation the reforms provided in the Act to improve BSP’s corporate viability and to align its operations with global best practices in central banking. For instance, the restoration of the central bank’s authority to issue its own debt papers too, has provided the BSP an additional policy instrument at its disposal. The BSP is already in the final 4/5 BIS central bankers' speeches stage of crafting the policy framework for its debt securities issuances which is scheduled to begin in the third quarter of the year. In addition, the restoration of the BSP’s authority to obtain data from any private person or entity, from the public and private sectors, for policymaking purposes establishes a stronger prudential regulatory framework which helps promote a safe and sound financial system The amendment likewise empowers further the BSP to oversee the country’s payment and settlement systems (PSS) including critical financial market infrastructures that are vital components of the Payments and Settlement Systems. Looking ahead, the BSP will continue to pursue the achievement of its mandates and objectives particularly in the advent of the “fourth industrial revolution”. Our goal is to continue to leverage on emerging digital innovations –use of blockchain technology, fintech, mobile payments, and digital currencies, among others– to promote a more efficient and inclusive financial system. We want to foster an enabling ecosystem, bound by parameters set by BSP as a financial regulator, where responsible innovations are encouraged to thrive and expand. In doing so, we also engage other central banks who are keen on pursuing similar policies. Recently, on February 3, 2020, the BSP signed a Memorandum of Understanding (MoU) with the Bank of Indonesia on cooperation in the area of payment systems and digital financial innovation. The MOU aims to provide a framework for closer cooperation between the two central banks to achieve a more secure, efficient, and reliable payment system, and to promote digital financial innovation. The BSP believes that promoting safe, innovative and affordable financial products and services through digitalization promotes greater financial inclusion. In turn, this will enhance economic growth as millions of Filipinos will now have access to various online financial products and services. In closing, let me leave you with some key take-aways. The Philippine economy in 2020 is expected to sustain its strong growth – stable inflation dynamics that it has been posting in recent decade. The domestic economy has sufficient buffers from possible external shocks that may arise from recent global uncertainties. Robust monetary, financial, and external sectors are expected to continue to support economic growth in 2020 and over the medium term. The BSP is committed to promote and maintain price stability, a stable financial system, and a safe and efficient payments and settlements system conducive to a strong sustainable and inclusive growth of the economy. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at an investor call with Standard Chartered Bank, Manila, 22 April 2020.
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Benjamin E Diokno: The Bangko Sentral ng Pilipina's response to the Covid-19 pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at an investor call with Standard Chartered Bank, Manila, 22 April 2020. * * * Good day, everyone. Thank you for the opportunity to share the central bank’s views on the macroeconomic developments and prospects for the Philippine economy amidst the ongoing pandemic. As aptly explained by Finance Secretary Dominguez, the Philippines was on a positive rating trajectory before the global health crisis started. Its strong track record of prudent policymaking has led to robust external balance sheet, healthy public finances, and positive macroeconomic performance seen in recent years. The country’s strong fundamentals has provided a degree of resilience during the current pandemic shock. The Development Budget Coordination Committee estimates real GDP growth would be flat or would contract slightly in 2020, incorporating the adverse effects of COVID-19 on the supply and demand sides of the economy. However, domestic activities are expected to resume once containment measures are lifted and a full recovery is expected in 2021. The extension of the enhanced community quarantine measures until April 30 will have a negative impact on domestic economic activity. Likewise, the spillovers from slower global growth, tourism, foreign investments, trade, and overseas Filipino (OF) remittances are expected to further worsen domestic growth. All in all, the BSP expects a U-shaped recovery with growth accelerating once the community quarantine is lifted and the necessary measures intended to stem the spread of the virus are fully implemented. GDP could also recover more strongly once the fiscal and monetary stimulus gain traction and workers and firms resume operations. The BSP has undertaken an aggressive monetary policy response to address the adverse spillovers associated with the ongoing pandemic. With a manageable inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for an assertive reduction in the policy rate to cushion the country’s growth momentum and uplift market confidence amid stronger headwinds. The monetary policy easing is also aimed at ensuring adequate domestic liquidity and credit in the financial system as well as lowering borrowing costs for affected firms and households. Following the implementation of liquidity-provision measures by the BSP, domestic liquidity has improved in recent weeks as shown by oversubscriptions in the latest T-bill and T-bond auctions of the BTr on 13 and 14 April, respectively, as well as in the term deposit facility (TDF) auction on 15 April. At the same time, the infusion of funds has resulted in lower weighted average interest rates (WAIR) in the interbank market. Moreover, GS purchases by the BSP in the secondary market helped improve GS market activity. To date, BSP has purchased a total of P62B worth of GS from the secondary market. The BSP is prepared to use the full range of its monetary instruments and to deploy monetary policy and regulatory relief measures as needed in fulfilment of its price and financial stability objectives. The Monetary Board has already approved the granting of temporary regulatory and rediscounting relief measures to BSP Supervised Financial Institutions (BSFIs). (MB Resolution No. 397 dated 13 March 2020) 1/2 BIS central bankers' speeches The BSP recognizes that the outbreak of COVID-19 has potential significant impact on the operations of BSFIs in terms of risks related to exposures to borrowers and/or industries or businesses severely disrupted or affected by the COVID-19 as well as disruption in operations due to measures implemented to control the spread of virus such as the lockdown situation, localized work suspension, and heightened health and safety risks faced by BSFIs’ employees and customers. Moreover, the BSP has implemented extraordinary liquidity measures to complement the National Government’s broad-based health and fiscal programs in mitigating the impact of COVID-19. These measures include the ₱300 billion repurchase agreement with the BTr as well as launching a package of measures to support lending to micro, small, and medium enterprises. Loans granted to MSMEs shall be counted as part of banks’ compliance with reserve requirements. At the same time, the BSP continues to monitor the developments arising from the pandemic. In calibrating its monetary policy settings, the BSP will continue to be data-dependent, guided by its assessment of the inflation outlook over the policy horizon and the risks surrounding such outlook as well as data on demand conditions. The BSP has responded swiftly and decisively to mitigate economic and financial fall-out form the COVID-19 pandemic through its monetary instruments and regulatory relief measures. Moreover, evidence suggests that the BSP’s liquidity-provision measures have improved system liquidity in the past weeks and stabilized broad funding conditions. However, risks to the growth outlook continue to be tilted to the downside and currently a Ushaped recovery is expected. The challenge, therefore, is to provide tangible boost to the economy through the appropriate combination of fiscal response and monetary measures. Rest assured, macroeconomic policy measures are in place to address downside risks associated with the COVID-19 pandemic. In line with this, the BSP will continue to work with market participants and relevant government agencies to ensure that its policy responses remain timely and appropriate particularly during these challenging times. Thank you. 2/2 BIS central bankers' speeches
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Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), of the UBS conference call, 24 April 2020.
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Benjamin E Diokno: UBS conference call opening statement Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), of the UBS conference call, 24 April 2020. * * * To our stakeholders from the financial markets, my colleagues from the Bangko Sentral ng Pilipinas (BSP), and to other participants of this conference call, good afternoon. The BSP would like to thank UBS for inviting us to speak to its clients to discuss pressing issues that concern the markets at this time. The entire world is confronted with one of the most difficult challenges to mankind in the last 100 years. The COVID-19 pandemic has led to many deaths and has forced many economies into sharp fall. The Philippines is no exception. Given the uncertainty as to when the pandemic will subside, the estimated impact of COVID-19 on the domestic economy, in a worst-case scenario, is estimated to be between negative 1 percent and zero. The more upbeat scenario is a growth of between one and two percent. As you know the Philippines was in a strong position going into this pandemic. The reforms we implemented in the past and our prudent management of the economy created fiscal and monetary space, which we are putting to good use as we address the challenges from COVID-19. Other countries are not as well positioned. We are taking an all-of-government approach to deal with the pandemic, with the primary focus set on addressing public health needs. Measures to ease the adverse impact of the crisis on incomes of households and firms are also being undertaken. The Bangko Sentral ng Pilipinas (BSP) is one with the national government and the entire nation in mitigating the impact of the outbreak on livelihoods and lives—that is, in a manner that is decisive, prompt, and efficient. Indeed, extraordinary times call for extraordinary measures. As you may have already read in news reports, the BSP has implemented many unprecedented measures to soften the blow of the pandemic on the economy, and we stand ready to do more if necessary. Among these measures, which help ensure much needed liquidity at this critical time and shore up confidence, are the following: A cumulative 125-basis-point reduction in the monetary policy rate since February 2020; Purchases of government securities in the secondary market; Reduction in the Overnight Reverse Repurchase (RRP) Volume Offering—this encourages counterparties to lend in the interbank market or re-channel funds into loans or GS; P300 billion worth of repurchase agreement with the national government; A 200-basis-point cut in the reserve requirement ratios of universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions (NBQBs); Counting of loans to micro, small, and medium enterprises (MSMEs) as part of banks’ compliance with reserve requirements; Suspension of the term deposit facility auctions for certain tenors; Temporary reduction to zero in the term spread on the peso rediscounting loans relative to 1/2 BIS central bankers' speeches the overnight lending rate; Time-bound relaxation of various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits; and The BSP stands prepared to use its full range of monetary instruments and to deploy regulatory relief measures as needed in line with its price and financial stability mandates. With all these measures, the BSP, as the country’s monetary authority, together with fiscal authorities and other departments, aim to manage a soft landing for the Philippines and to ensure that an economic takeoff begins quickly once the pandemic fades. The market seems to be responding favorably. The peso is fairly stable, the stock market has bounced back from recent lows, and CDS spreads of Philippine government bonds remain competitive. If financial markets — which are sometimes inclined to have kneejerk reaction — are showing some signs of confidence at this challenging time, then there is basis for everyone to be (cautiously) optimistic as well. In closing, I would like to highlight that the Philippines has entered this difficult time with sufficient tools and buffers. We have sound macro economic fundamentals, a stable banking sector, and the much needed fiscal and monetary space, which allow us to roll out significant relief and mitigating measures while keeping the economy afloat. These buffers, plus the relief and mitigating measures from the BSP and the national government, allow us to look forward to the time when the Philippines will be firing on all cylinders again. Thank you very much, and I look forward to answering your questions. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the celebration of Association of Certified Public Accountants in Public Practice's (ACPAPP), Accountancy Week, Manila, 14 July 2020.
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Benjamin E Diokno: Banking as a "Going Concern" in the time of pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the celebration of Association of Certified Public Accountants in Public Practice’s (ACPAPP), Accountancy Week, Manila, 14 July 2020. * * * To the officers and members of the Association of Certified Public Accountants in Public Practice (ACPAPP), under the leadership of National President Anita C. Rodriguez, good afternoon. I hope everyone is staying healthy and safe throughout this time. I am pleased to join you today in celebration of ACPAPP’s Accountancy Week as you rise in solidarity, stand in the gap, and work as hard amidst this COVID-19 pandemic. For CPAs in public practice, it is ensuring that the opinions expressed on financial statements are reflective of the true state of the business. The “going concern” assumption of CPAs is being used by investors and the public in making important decisions. This principle assumes that during and beyond the next fiscal period, a reporting entity will complete its current plans, use its existing assets and continue to meet its financial obligations. Simply put, there is no doubt that business entity will go on, and if I may say it casually, exist indefinitely. The COVID-19 pandemic is posing threats to economies and financial systems around the world, including the Philippines. This challenge the principle of “going concern” in several businesses across different industries. But we are confident that the banking system will emerge from this crisis standing strong. This is all because of the reforms implemented over the years reflecting the lessons learned in the 1997 Asian Financial Crisis. Today, I will talk about the state of health of the Philippine banking system amid the crisis. Next, I will discuss the extraordinary measures that the BSP has implemented to ensure the liquidity of the system and the continuous flow of credit to the economy to support households and firms— including the micro, small, and medium scale enterprises. I will then talk about the developments on the use of digital platforms, and how digital payments have surged as a consequence of the pandemic. I will then discuss the potential risks in the financial system. In the concluding section, I will then leave you iwth some takeways. The Philippine banking system is in a strong financial position going into the crisis. The banking system grew impressively as of end-April 2020, posting 9.3 percent increase in total assets yearon-year (YoY) reaching P18.7 trillion. This sum represents more than 90.0 percent of the country’s gross domestic product (GDP). The sustained asset growth was on the back of the 11.3 percent YoY growth in deposit, indicating the unabating confidence of the public in the banking system. The total loan portfolio of the banking system expanded by 7.8 percent YoY as of end-April 2020. Banks maintained a diversified portfolio as credit was extended to various economic sectors, led by real estate at 18.2 percent. The quality of the loan portfolio remained satisfactory as of end-April 2020 with NPL ratio of 2.3 percent. But we do recognize that with the unprecedented health crisis, NPLs could build up 1/5 BIS central bankers' speeches over time. And this is why the BSP is closely monitoring the exposures of banks. The current strength of the banking system is likewise anchored on the presence of sufficient buffers to meet liquidity and capital requirements. The liquidity of the universal and commercial banks and their subsidiary banks and quasi-banks was more than ample as the high liquidity coverage ratio (LCR) of the industry shows their ability to manage short-term shocks in their liquidity position. Meanwhile, the universal and commercial banks’ net stable funding ratio (NSFR) indicates availability of stable funding to serve customers in the medium term. Moreover, the minimum liquidity ratios of stand-alone thrift banks (TBs), rural banks (RB), and cooperative banks (CBs) significantly exceeded the 20 percent minimum. Importantly, the banks remained well-capitalized: as their capital adequacy ratios (CAR) are wellabove the minimum thresholds set by the BSP at 10 percent and the Bank for International Settlements (BIS) at 8 percent. The banks’ capital adequacy ratios is primarily made up of high quality Common Equity Tier 1 capital. The banking system’s profitability was sustained. For the period ended-March 2020 annualized net profit increased by 22.1 percent. Note that the growth in annualized profit was achieved despite the hefty increase in credit provisioning on account of the pandemic’s impact to the paying capacity of some borrowers. Core income from net interest was the primary source of bank profit. No doubt, the COVID-19 pandemic has affected households, businesses, economies and financial systems all over the world. But there is greater uncertainty in its impact. Central banks and regulatory authorities around the world have each taken the extraordinary measures to cushion economic activity and stabilize financial systems amidst the pandemic. And in response to this, the BSP issued monetary and prudential relief measures to assist the BSP supervised financial institutions endure the crisis as well as to support households and business enterprises. All these initiatives are intended to ensure that the Filipino people may continue to have uninterrupted access financial services and products even during this time of crisis. Specifically, here are some of the key prudential and monetary measures that the BSP has adopted and implemented to mitigate the adverse impact of COVID-19. First, BSFIs were given a set of regulatory relief package to enable them to grant equivalent financial relief to their borrowers in the form of more flexible and favorable lending terms, or restructure loan accounts. Another set of the BSP’s prudential measures incentivized banks to assist strategic borrowers such as the micro, small, and medium enterprises sector and critically affected large enterprises to carry on with their business during the COVID-19 crisis, as well as hasten recovery and sustainability of their operations, during the post-crisis period. Third, we put in place policies to ensure access to formal financing channels by financial consumers, particularly retail clients, who would be deeply affected by the community quarantine arrangements. We highly encouraged the use of safe and efficient information technology in carrying out legitimate financial transactions during the lockdown. Fourth, the BSP granted operational relief measures to assist BSP-Supervised financial institutions in focusing their limited resources on the delivery of financial services and support their subsequent recovery efforts. 2/5 BIS central bankers' speeches Lastly, monetary policy measures were also adopted to support domestic liquidity and National Government finances in the battle against COVID-19. As the pandemic halted the economy, the BSP noticed that financial consumers have shifted to digital transactions. Based on available data, the average volume and value of cheque transactions and ATM withdrawals substantially fell during the lockdown. By contrast, the average InstaPay and PesoNET transactions soared. This indicates the shift of consumers’ preference to conduct their financial transactions thru digital platforms. We expect this behavioral change to continue as consumers adapt to what we call as the “new economy”. Moving forward, we are monitoring developments and preparing additional measures to ensure the soundness, stability, resilience and inclusivity of the banking system. To complement our regulatory and supervisory initiatives to mitigate the adverse effect of the COVID-19 pandemic, the BSP sees the need to implement the following legislative measures: The enactment of the Financial Institutions Strategic Transfer (FIST) Act. It will assist the financial system in managing the levels of non-performing assets in the industry. The proposed amendment of the New Central Bank Act. This will further strengthen our supervision over financial conglomerates. A deeper understanding of conglomerate risk is important for regulators to be able to mitigate the impact of material issues on the financial system. A law on recovery and resolution planning for banks. This will align the Philippine legal framework with international standards The BSP is also strongly supporting measures to accelerate the use of digital platforms to deliver financial services. The use of digital technology in the country will support the government’s advocacy on financial inclusion by providing safe and efficient access to essential financial services. Lastly, we need to sustain information campaign and strengthen collaboration with stakeholders to combat financial crimes and cyber threats related to the increased use of digital platforms. With the massive shift to digital financial services by clients, as well as work-from-home arrangements in response to COVID-19 pandemic, financial crime and cyber threat levels have surged. As such, the BSP has started on key initiatives to better guide BSP-supervised financial institutions and the public against financial crime and cyber threats. In any case, we need to be mindful of the potential risks. With the rise in unemployment and reduced economic activity, the paying capacity of some household and business borrowers are adversely reduced. Thus, we expect some banks to have issues on their credit portfolio. Banks are aware of the consequences, which prodded higher provisioning on their loans. Rest assured though, that the banks’ comprehensive risk management systems implemented under close BSP guidance provides the banks with the resources to effectively manage underlying credit risk. The BSP also intensified the monitoring of banks’ liquidity positions particularly during the 3/5 BIS central bankers' speeches lockdown period as the uncertainties during the community quarantine might trigger clients to withdraw their deposits. We are happy to report that the public continue to trust the banking system. This may be seen from the observed increase in deposit liabilities based on their reports as of end-April 2020. At the same time, banks showed strong liquidity position by ably servicing cash withdrawals and providing needed financing to the economy. The operational risks from possible disruptions in the delivery of financial services was also a concern duly mitigated by the comprehensive business continuity management (BCM) system that banks are required to have. Finally, the financial consumers’ shift to digital payments amidst the need to maintain physical hygiene intensified global cyber- and money-laundering- related risks. Nevertheless, the BSP, in coordination with other regulators such as the Anti-Money Laundering Council, is prepared to conduct investigations and information awareness campaigns to address cyber threats and financial crimes. The volatility, uncertainty, complexity and ambiguity (VOCA) in the economy and financial system has intensified due to this once-in-a-generation crisis. This has further muddled the task of forecasting and budgeting amongst businesses and policy makers. However, we are confident of the banking system’s ability to emerge out of this crisis stronger and more resilient. This optimism is shared by the Japan Credit Rating Agency (JCRA), which gave the country’s first ever ‘A’ credit rating amid global ratings downgrades. Among other factors, JCRA underscored the strength of the banking system for its ‘A-’ rating and stable outlook. Non-performing loans (NPL) is edging up but remain manageable. The adverse impact of the pandemic on borrowers is expected to exert pressure to the current quality of bank loan portfolio. However, we expect the impact to be manageable due to the banking system’s sound risk management systems and financial strength built over decades of strategic reforms implemented by the BSP. Another factor is the relatively low leverage of the biggest recipients of the banks’ loans – the corporate borrowers. In fact, the moderate level of private sector debt in the country is one of the reasons why the Philippines retained the S&P Global Ratings’ Banking Industry Country Risk Assessment (BICRA) of 5 (with rating of 10 as extremely high risk) in 2020. This rating is among the best in South East Asia. Stressed CARs meeting regulatory standards. Our simulation exercises reinforce the banking system and the banking groups’ capability to weather assumed stressed scenarios with a postshock CAR of the system and banking groups easily hurdling the 10 percent regulatory minimum. This was achieved as the banking system and banking groups entered the pandemic with high pre-shock CARs, which enable them to maintain the minimum CARs even after the stress test exercises. Sufficient liquidity. Similarly, our simulations show that post-shock liquidity coverage ratio (LCR) would hurdle the 100 percent LCR requirement. Banks continued to support their clients’ credit needs during the lockdown despite the implementation of moratorium on loan repayments. While the level substantially reduced banks’ leeway to fund client requirements, it is encouraging that a buffer remains notwithstanding the reported outflows during the lockdown. In addition, the BSP’s liquidity measures ensure availability of funds for the banks to sustain their operations. Sustained profitability. Profitability may weaken, but will be sustained. Philippine banks’ credit 4/5 BIS central bankers' speeches costs will increase as asset quality weakens but sound credit risk management systems will mitigate its adverse effects. In closing, let me cite some key takeaways from this presentation: First, the Philippine banking system is among the strongest and most stable in the region going into the crisis. This is exhibited in the sustained growth of core deposits that finances loan and asset expansion. The banking system is expected to be resilient because of its robust liquidity position, improved asset quality, strong capitalization, and satisfactory risk management systems. Second, the BSP remains committed to its monetary, price, and financial stability mandates. We are ready and able to deploy the full range of our monetary instruments to safeguard financial stability, maintain price stability and ensure the efficient functioning of the domestic financial market. Third, the BSP will continue to undertake regulatory and market reforms, and even stay ahead of the game, to effectively respond to the prevailing needs of the financial system and the economy even after the ongoing COVID-19 pandemic. Fourth, the BSP will also strengthen its collaborations with stakeholders here and abroad as a means to improve the delivery of our mandate. Along this line, we hope that the ACPAPP remains an ally in promoting integrity in financial reporting that will further enhance the public’s confidence in the financial system. Last, and most importantly, despite the adverse impact of the current health crisis on the domestic financial system, the Philippine banking system is expected to remain stable, sound, resilient and inclusive now and in the future. Former US President John F. Kennedy once said, “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.” The COVID-19 crisis is so unprecedented that we shouldn’t let it go to waste. We should derive important lessons from this crisis moving forward. Let us see this as an opportunity to strengthen collaboration and accelerate the shift to a stronger and technologically savvy financial system that will enable a sound, sustainable, and inclusive new economy for all. Thank you very much and Mabuhay! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the WWF and BAP CEO Breakfast Forum on BSP Sustainable Finance Framework, Manila, 21 July 2020.
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Benjamin E Diokno: Opportunities for banks in pursuing a green, sustainable economy in the current pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the W W F and BAP CEO Breakfast Forum on BSP Sustainable Finance Framework, Manila, 21 July 2020. * * * My fellow speakers, Mr. Edgardo E. Tongson, Chief of Party of the W W F Philippines; Mr. Cezar P. Consing, President of the Bankers Association of the Philippines; Ms. Yuki Yasui, Asia Pacific Region Coordination Manager of UNEP-FI, and to all the participants, friends and colleagues in the industry, good morning! On behalf of BSP, I would like to thank W W F and BAP for this opportunity to our pursuit of a green, inclusive, and sustainable agenda and how it can lead to opportunities amid the pandemic. We are indeed facing a devastating period. This health crisis and its impact on the economy are unlike any we have encountered before. As a result of this health crisis, the IMF projected that the global economy would plunge by 4.9 percent in 2020. Based on Philippine authorities, the economy will contract by 2.0 to 3.4 percent this 2020. ed sustained economic growth, averaging at above 6 percent for the past eight years. We entered into this crisis from a position of strength. Inflation was low and stable. Our external payments position was robust, gross international reserves were at a record-high, debt-to-GDP was low, public finances was healthy, and macroeconomic performance was positive. Philippine banks continue to be well-capitalized, stable, and well-functioning across all metrics. But no one could have imagined the impact of COVID-19. GDP growth declined slightly by 0.2 percent in the first quarter of 2020. It is the first negative real GDP growth since 1998’s El Nino and the Asian Financial Crisis. The government imposed a lockdown in an effort to curb the transmission of the disease. This, however, comes with a price. The restrictions in the movement of people and the stoppage of big part of business operations dampened domestic demand. Its impact on tourism, manufacturing, livelihood, and employment was severe as the lockdown extended up to the second quarter of 2020. To address the dual impact of the pandemic in the health and economic sectors, the government launched its 4-pillar socio-economic strategy. The first two pillars deal with the urgent needs of the vulnerable sectors and the medical industry, while the second two pillars provide the enabling environment to support the funding needs for emergent initiatives and economic recovery. At the same time, the BSP launched its Sustainable Finance Framework, an enabling regulation anchored on the BSP’s risk-based approach to supervision that mainstreams sustainability principles, and includes Environmental, Social and Governance considerations in the governance framework, risk management system, strategies, and operations of banks. It also follows the United Nations Environment Program’s (UNEP) schematic diagram of sustainable development. The issuance of the Framework is timely as the impact of the pandemic covers a broad range of Environmental, Social and Governance issues that are rightly high on the country’s Sustainable 1/3 BIS central bankers' speeches Development Goals. Most of the problems highlighted are socio-economic issues such as poverty due to income loss, lack of access to food and nutrition, and unemployment. As we look closer, we see that the issues prioritized in the 4-pillar strategy intersect with the areas covered in the Sustainable Development Goals. This is a sign that the path to recovery from the pandemic is consistent with efforts towards building a green and sustainable economy. For banks, it means that it must refocus its strategy towards sectors and activities that support sustainable recovery. By harmonizing sustainability with recovery efforts, banks can seize various opportunities. First, banks can step up its social and sustainability bonds issuance. The health crisis put an enormous brunt on the country’s health, educational, food security and Micro, Small, and Medium Enterprises (MSMEs). Channeling funds to support these sectors can help boost the country’s response to the pandemic and fast-track our recovery. In other jurisdictions, international banks like the Nordic Investment Bank issued a “Response Bond,” and European Investment Banks issued a Sustainability Awareness Bond, which both aim to alleviate the social consequences of COVID-19 by financing healthcare systems and labor market solutions. The Philippines is poised to do the same with the “Guidelines on the Issuance of Social Bonds under the ASEAN Social Bond Standards” released by the Securities and Exchange Commission (SEC) in 2019. On June 17, the country welcomed the first issuance to use the ASEAN Social Bond label. SEC approved the Bank of the Philippine Islands (BPI) COVID Action Response (CARE) Bonds, which is intended to finance and refinance Micro, small, and medium enterprises (MSMEs). This initiative complements the measures rolled out by the BSP to support MSMEs and contribute to accelerating economic recovery. Second, banks can drive digital banking and financial inclusion. During the lockdown, households and businesses resorted to online shopping platforms, which tremendously increased the usage of and applications for digital accounts. Recent data shows that an estimated 4.115 million digital accounts were opened among banks and e-money issuers at the height of the lockdown. This sends a strong signal to the banking sector to develop products and strategies that cater to the increasing appetite of financial consumers towards digital payment solutions. One development in this field is that many Filipinos turned to online selling as a way of making up for loss of income. Several existing businesses, whether large or small, shifted to online platforms to keep the business afloat during the lockdown. Borrowers’ ability to sustain cashflow in the face off restrained economic activity can ease concerns on banks’ potential credit losses. Third, is the opportunity for banks to develop and strengthen their Environmental and Social Risk Management (ESRM) system by applying the lessons learned from this global health crisis. The ESRM provides a broader approach to banks in identifying, assessing, and managing its risk exposures. E&S risks arising from the health crisis offers a glimpse of how severe and longlasting other potentially systemic risks such as climate change may drag the banks’ performance and long-term growth. The pandemic has features akin to climate and other environment-related risks. It requires science-based data and have underlying physical and transition risks. 2/3 BIS central bankers' speeches Physical risk refers to the direct threat of the pandemic to human life and society. This may include increased mortality and susceptibility to other diseases. Transition risks, on the other hand, arise from the inevitable shift of the economy towards minimal or contactless systems and processes to minimize the transmission of the disease. This may result in losses in sectors that rely heavily on face-to-face transactions or service delivery. Developing and implementing E&S risk management systems will allow banks to better understand and manage these risks and will enable them effectively respond to future similar threats. This highlights the importance and timeliness of the issuance of the Sustainable Finance Framework. As we recognize the challenges of the banking sector amid this crisis, we emphasize banks’ flexibility in adopting the principles espoused in the Framework. Banks may integrate sustainability principles proportionate to their risk appetite as well as their size, nature, and complexity of operations. In championing the sustainability agenda, the BSP also launched the Sustainable Central Banking program. This strategic plan aims to integrate environmentally responsible and sustainable policies and work practices within the BSP. We have identified key initiatives to embed sustainability principles in our operations beginning with capacity building activities for our people. Our team will also conduct a study on the impact of climate and environment related risks to BSP branches in the regions. I always believed that we should not put a good crisis to waste. In this regard, I call on my colleagues in the banking industry and our strategic partners to further strengthen our collaboration in accelerating our adoption of sustainability principles. Let use the lessons from this unprecedented crisis in reshaping our strategies and priorities for the future. Let me end with a quote from Former US President John F. Kennedy. “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.” That said, we shouldn’t let this once-in-a-lifetime crisis go to waste. We should derive important lessons from this crisis moving forward. Let use the lessons from this crisis in reshaping our strategies and priorities for the future. Thank you and Good morning to all! 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at House Committee on Economic Affairs, Manila, 23 July 2020.
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Benjamin E Diokno: Re-anchoring and securing economic resilience Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at House Committee on Economic Affairs, Manila, 23 July 2020. * * * Members of the House Committee on Economic Affairs, ladies and gentlemen, good afternoon. The current pandemic has adversely affected not only the Philippines, but the rest of the world as well. However, our economy was able to absorb the shock, owing to the strong macroeconomic fundamentals that have already been in place, even before the onset of the crisis. To sustain this strength, the Bangko Sentral ng Pilipinas has instituted several initiatives, which we strongly believe, will anchor the country’s economy as it rides the waves of the pandemic. We can say that the Philippines entered the pandemic in a position of strength. The Philippines, with the collaboration of the legislative and executive branches of government, went through years of difficult but essential process of economic reform. Our country already had a manageable inflation environment, sound external payments position with low external debt burden, ample international exchange reserves, and manageable balance of payments. In addition, the Philippines’ robust growth, good fiscal performance, and strong external and financial sector positions have helped us mitigate the impact of the crisis. We have a sound and stable banking sector. The banking sector’s assets, the bulk of which are deposits, continue to expand, hitting a record high of PHP17.9 trillion as of May 2020. Non-performing loans ratio of universal and commercial banks was at a mere 2.0 percent as of May 2020. The capital adequacy ratio of universal and commercial banks stood at 15.4 percent on solo basis and 16.0 percent on consolidated basis as of end-2019. The BSP’s regulatory threshold is 10; the Bank for International Settlements is 8. Moreover, BSP estimates show that banks will continue to post capital adequacy ratio at above the 10-percent regulatory requirement across plausible scenarios on write-off of loans and volatilities in interest and forex rates. All these have given the Philippines ample fiscal and monetary space to implement massive and extraordinary response measures without fear of a debt blowout. In 2019, inflation declined and settled at an average rate of 2.5 percent, down from 5.2 percent in 2018. In the first six months of 2020, inflation averaged at 2.5 percent, which is within the national government’s target of 2.0 – 4.0 percent for this year. Latest BSP baseline forecasts indicate that inflation could settle at 2.3 percent which is at the lower end of the national government’s target range of 2.0 to 4.0 percent for 2020 and 2021. Our robust external payments position, which provides adequate buffers against global risks and shocks, is another source of strength. 1/7 BIS central bankers' speeches The country’s balance of payments (BOP) position recorded a surplus of US$7.8 billion in 2019, a turnaround from the US$2.3 billion deficit registered in 2018. From January to May 2020, the BOP position posted a surplus of US$4.0 billion. The peso has been broadly stable supported by the Philippines’ strong external payments position. While most regional currencies have depreciated against the US dollar, the peso has appreciated. The peso, which closed at 49.56 on 16 July, appreciated by 2.17 percent on a year-to-date basis against the US Dollar. As a consequence of the Asian Financial Crisis in 1997, the Philippines gradually accumulated foreign reserves as a self-insurance against a currency crisis. As of end-June 2020, the country’s gross international reserves (GIR) stood at an all-time high of US$93.3 billion, the highest ever in Philippine history. This is enough to cover 8.4 months’ worth of imports of goods and payments for services and primary income. It is also equivalent to 7.3 times the country’s short-term external debt based on original maturity. The country’s favorable external debt profile likewise supports the external payments position. As of end-March 2020, the Philippines’ external debt stock stood at US$81.4 billion, lower by US$2.2 billion compared to end-December 2019 level. Note that the Philippines’ external debt-to-GDP ratio was 59.7 percent progressively fallen to 21.4 percent as of end-March 2020. in 2005. It has Our debt-to-GDP ratio remains as one of the lowest among ASEAN member countries. We are also fortunate that the BSP and the industry stakeholders have already laid the groundwork for a safe and efficient payments and settlements system in the country. The National Retail Payment System is a policy and regulatory framework for the carrying out of retail payment activities through the BSP-supervised financial institutions. Through the NRPS, the BSP endeavors to create a safe, reliable, affordable, interoperable, and efficient retail payments system, while encouraging the use of electronic payments to enhance the speed, convenience, and affordability of financial transactions. The increasing importance of digital transactions was highlighted during the lockdown period. The volume and value of the combined transactions of PESONet and InstaPay during the lockdown surged, while the volume and value of check payments and ATM withdrawals declined. The volume of InstaPay transactions from April to May grew by 57 percent while the volume of PESONet surged significantly by 325 percent. As of May 31 2020, PESONet has 58 participating institutions while InstaPay has 45. The number of participating institutions for both are expected to further increase in the coming years. 2/7 BIS central bankers' speeches We would like to take this opportunity to thank our partners in the Congress that crafted laws throughout the years that helped the BSP to better pursue its mandates and objectives. In 2019, several landmark legislations have been passed to strengthen the BSP’s capacity to perform its mandates. • Republic Act No. 11211, An Act Amending Republic Act No. 7653, Otherwise Known as the ‘New Central Bank Act’, and for Other Purposes, was signed into law by President Rodrigo Duterte on 14 February 2020. This is the culmination of more than 20 years of legislative work to amend the BSP Charter. • RA No. 11256, An Act to Strengthen the Country’s Gross International Reserves, was approved by Congress and signed by President Duterte on March 29, 2019. The new law exempts from excise and income tax the sale to the BSP of gold sourced from small-scale mining activities. • RA No. 11439, or An Act Providing for the Regulation and Organization of Islamic Banks was signed by the President on August 22, 2019. • The BSP plays a supportive role in the promotion of inclusive economic and social development objectives of the government through its advocacy programs aimed at promoting financial inclusion. The National Strategy for Financial Inclusion (NSFI) provides the national vision for financial inclusion and a platform for public and private sector coordination to ensure synergy of efforts in achieving shared objectives. Meanwhile, the range of microfinance loans offered by banks broadened from regular microloans to microcredit for agriculture, housing and business, as well as micro-insurance in line with the growing needs and strengthened capacities of banks’ clients. The Credit Surety Fund program is a credit enhancement scheme that allows micro, small and medium enterprises, which are members of cooperatives, to borrow from banks using the CSF surety cover as security for the loan in lieu of conventional collateral. The Economic and Financial Learning Program of the BSP aims to help the public acquire the knowledge and develop the skills needed to make well-informed economic and financial choices and decisions. Since 2000, the BSP has conducted a total of 638 public information campaigns that were attended by a total of 43,943 participants from different sectors of society and from all the regions of the country. Amid the sustained uncertainties brought about by the COVID-19 pandemic, the BSP promptly implemented measures to complement the national government’s broader health and fiscal programs in mitigating its impact. The list is already exhaustive but we intend to do more, if needed. In February, we cut policy rates by 25 basis points as a pre-emptive move to cushion the effects of COVID-19. This made us among the first central banks in the world to ease policy settings as the pandemic was gaining traction. Since then, we had continued to ease monetary policy. The latest move was the 50-basis-point reduction on June 25, which brought the policy rate to 2.25 percent, making the cumulative rate cuts this year to 175 basis points. Aside from cutting the policy rate, we also reduced the reserve requirement ratio, temporarily suspended term deposit facility auctions for certain tenors, and temporarily reduced the volume 3/7 BIS central bankers' speeches offering for the daily overnight reverse repurchase facility to encourage banks to lend more. The second category is the implementation of extraordinary liquidity measures that will complement government programs. These include, among others, the PHP300-billion (or approximately US$ 6 billion) repurchase agreement with the national government, opening of a window for purchases of government securities in the secondary market, and advance remittance of PHP20 billion in dividends to the national government. The estimated BSP liquidity injection to the financial system is about PHP1.3 trillion, equivalent to 6.7 percent of the country’s GDP. The implementation of these measures has helped ensure ample liquidity as well as the proper functioning of the financial system during the lockdown. The BSP’s policy responses complement the national government’s own massive relief and mitigating measures— which amount to hundreds of billion pesos—to save lives and livelihood at this critical time. Additionally, the BSP approved a package of measures to further reduce the financial burden on loans to micro-, small-, and medium-scale enterprises. In particular, loans granted to MSMEs and large enterprises that are not part of conglomerate structure shall be counted as part of banks’ compliance with reserve requirements. These measures likewise complement earlier monetary actions taken by the BSP to shore up market confidence and cushion domestic economic activity, along with various time-bound relaxation of various regulations (e.g. calculation of penalties on required reserves and single borrower limits, among others). There has been positive response on the part of banks with respect to this relief measure, especially on the use of loans to MSME as alternative compliance with the reserve requirements (RR). In fact, around 90 banks (mostly rural banks) have started using loans to MSMEs as an alternative mode of compliance with the RR. Latest data show that around PHP71.0 billion in MSME loans were used as compliance with the RR. Banks have also been active in extending financial relief to their customers through loan renewals and restructuring arrangements. I know there are concerns over the potential non payment/delinquent payment of loans coming from both business and household sectors. Thus, to ensure stability of the financial system, the BSP deployed a range of regulatory relief measures to encourage BSP-supervised financial institutions to grant a temporary grace period for loan payments or to restructure the loan accounts of their borrowers. To encourage BSFIs to offer safe, efficient, and reliable digital channels, the Monetary Board in April 2020 approved the waiving of fees related to the provision of electronic payment and financial services. As well as other initiatives to ensure continued access to financial services, including managing 4/7 BIS central bankers' speeches risks related to the increase of digital financial services. The BSP has implemented measures to ease operational requirements on banks to ensure continued delivery of financial services. With the combined extraordinary measures by the BSP and the national government, we are projecting a strong recovery in 2021 from the contraction this year. Let me cite some figures on our outlook. On GDP, latest government estimates show that the Philippine economy will likely shrink by anywhere between 2.0 and 3.4 percent this year as the pandemic disrupts a wide range of industries. But by next year, we expect a strong bounce-back with a growth of 8.0 to 9.0 percent. On inflation, BSP estimates for this year up to 2022 show that it will stay within the target range of 2.0 to 4.0 percent, thus providing an enabling environment for businesses to recover. On external accounts, latest BSP estimates show that our overall balance of payments position (BOP) will stay in surplus this year in the amount of US$0.6 billion, equivalent to 0.2 percent of GDP, and then increase to US$2.4 billion next year, equivalent to 0.6 percent of GDP. Our gross international reserves (GIR) are projected to settle at US$95 billion by the end of this year. This will be the highest year-end figure on record and will provide 8.5 months’ worth of import cover. Foreign direct investments (FDIs) are expected to still post net inflows this year in the amount of US$4.1 billion, and then increase to US$6.5 billion next year. Foreign portfolio investments are also seen to continue posting net inflows in the amount of US$2.4 billion this year and US$3.4 billion next year. Remittances, which support consumption of many Filipino households, are expected to contract by 5.0 percent this year as the COVID-19 crisis forces layoffs in host economies. But by next year, we expect remittances to rebound to a growth of 4.0 percent as economic activities in various parts of the world gradually recover. The high quality of labor that Filipinos provide make them highly in-demand across the globe, and so the contraction in remittances forced by the pandemic is expected to be short-lived. On the banking sector, our banks remain strong and stable, and they continue to play a significant role in cushioning the impact of headwinds and fuelling economic growth for the Philippines. Banks are able to keep credit growing in support of consumption and production activities—all the while keeping their bad debts low and capitalization levels high. Our financial and economic resilience has been recognized and affirmed by several external organizations. The most recent was Moody’s Investor Services affirming the Philippines’ credit rating of “Baa2” with a “stable” outlook on July 16, 2020. In June, Japan Credit Rating Agency upgraded our credit rating to A- from BBB+. Earlier, S&P and Fitch have affirmed their rating of BBB+ and BBB, respectively. 5/7 BIS central bankers' speeches The prestigious publication, The Economist, also acknowledged the Philippines’ relatively strong financial strength based on four metrics, namely public debt, foreign debt, cost of borrowing, and reserve cover. It assessed the Philippines as the 6th best among 66 emerging economies, and number one among its Southeast Asian peers. This slide shows the rating actions of the three global credit rating agencies – Fitch, Moody’s, and S&P. As of 30 June 2020, 39 countries have been downgraded while there had been 101 negative outlook revisions. Viewed in this light, Moody’s confirmation of the Philippines’ credit rating of “Baa2” with a “stable” outlook should be seen as a resounding vote of confidence for the country. The BSP reiterates its commitment to use its entire arsenal of policy tools and instruments in a timely and prudent manner to help cushion the economy from the potential fallout. The relatively benign inflation outlook in the policy horizon provides space for monetary policy adjustments to complement the national government’s efforts in mitigating the adverse impact of the public health crisis. The pandemic highlighted the need to expand the reach of digital payments. Efficiency in retail payments is really about speed, convenience and affordability, which can clearly be supported by a shift to electronic payments. Thus, a key outcome of the National Retail Payment System is to increase adoption of electronic retail payments to 50 percent by 2023, if not sooner. The BSP envisions an accelerated uptake of e-payment services, through digital platforms like the InstaPay and PESONet, in the next three years. We have gained significant strides in this direction through the adoption of the national QR code standard, as well as the use of online payment facilities for government transactions. We have gained significant strides in this direction through the adoption of the national QR code standard as well as the use of online payment facilities for government transactions. On the legislative front, the BSP will push for the passage of the following priority bills: • Amendment to Republic Act Nos. 1405 and 6426, the laws pertaining to the secrecy of bank deposits; • Amendment to Republic Act No. 9510 or the “Credit Information System Act; • Amendment to Republic Act No. 10000 or the “Agri-Agra law”; • Financial Consumer Protection Bill; • Financial Institutions Strategic Transfer (FIST); • Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE); and • Bayanihan II or to Recover as One Act 6/7 BIS central bankers' speeches The road to recovery from the pandemic may be marred by potential headwinds that may hamper faster growth of Asian economies, including the Philippines: 1. Slower growth in trade. Asia is heavily dependent on global supply chains and cannot grow while the whole world is suffering. Asia’s trade is expected to contract significantly due to weaker external demand, with total trade (exports plus imports) projected to decline by about 20 percent in 2020 in Japan, India, and the Philippines. 2. Longer than expected lockdowns. Even when lockdown measures are fully relaxed, economic activity is not likely to return to full capacity, due to changes in consumer behavior and measures put in place to maintain physical distancing and reduce contagion. 3. Rising inequality. Inequality had already been rising in Asia, and research shows how past pandemics led to higher income inequality and hurt employment prospects of those with limited education. 4. Weak balance sheets and geopolitical tensions. Weakened household and corporate balance sheets in many Asian countries can weigh negatively on investor sentiment and amplify the effect of increasing uncertainties associated with geopolitical tensions. However, let me assure everyone that our decision to unwind COVID-19 responses will be gradual, prudent, and evidence-based. While the timing for the end of the pandemic remains uncertain, the BSP is committed to do whatever is necessary to help the Philippine economy recover from the COVID-19 crisis and to build its resilience against future crises. Thank you and a pleasant afternoon to all! 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launch of enhanced NGC banknotes, Manila, 29 July 2020.
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Benjamin E Diokno: Launch of enhanced NGC banknotes Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Launch of enhanced NGC banknotes, Manila, 29 July 2020. * * * To the members of the Monetary Board, BSP officers, our friends from the BSP Press Corps, ladies and gentlemen, good afternoon. Today, we unveil the enhanced set of banknotes under the New Generation Currency series. These banknotes are equipped with the latest anti-counterfeiting technology and embedded with tactile marks that will make it easier for the elderly and persons with disabilities to differentiate each denomination. As you may remember, the Bangko Sentral ng Pilipinas released in circulation the New Generation Currency Banknotes Series in December 2010. As a matter of practice, central banks regularly change the design and security features of currency to protect its integrity every 10 years, on average. While digital payments are on the rise, there are still some sectors in our society that use cash to purchase goods and pay for services. And it is equally our priority to ensure that banknotes and coins are accessible, recognizable, and easily authenticated. Irish poet Oscar Wilde once said that when bankers get together for dinner, they discuss art. When artists get together for dinner, they discuss money. As a central banker, I consider our money as a piece of art—an artistic creation that reflects the soul of its nation. And the enhanced NGC banknotes are so art-fully made that even the security features are cleverly incorporated to become part of the overall design theme. For these enhanced NGC banknotes, we adopted four security enhancements that would help protect the public from counterfeiters and uphold the bills’ integrity. The windowed security thread, which runs vertically across the banknote and shows the movement of designs and color when viewed from different angles, has an indegenous weave design. The thread also bears the alphanumeric denominational value and the text “BSP” in a repeated series. The 1000-Piso adopted the T’nalak weave design with the movement of design patterns, color, and micro-optic features. On the other hand, the 500-Piso took its weave design from the southern Philippines. When viewed at a different angle, the color of the thread shifts from gold to jade, and vice versa. Following an indigenous textile design from the Visayas region, the security thread of the 200Piso banknote changes colors from green to blue. Lastly, the 100-Piso was designed after an indigenous textile from the Bicol region and with colors that shift from violet to bronze. All these banknotes also have three-dimensional and holographic features. In addition, the 1000-Piso and the 500-Piso banknotes feature design elements that use optically variable ink, which enables change in color when viewed at a different angle. The value panels of these two banknotes were added with a rolling-bar effect when tilted from left to right, and vice versa. Finally, a distinct security feature will help us achieve our mission of bringing BSP closer to Filipinos. We added tactile marks to the banknotes specifically intended to help the elderly and 1/2 BIS central bankers' speeches visually impaired to quickly identify the value or denomination of the banknote. Pairs of short horizontal bands are printed in intaglio or engraved at the extreme right and left sides of the note. A 1000-Piso has five pairs of this tactile mark; the 500-Piso will have four pairs; three pairs for the 200-Piso; two pairs for the 100-Piso; while a 50-Piso will have one pair of tactile marks. Through this distinguishing feature, the elderly and the visually impaired will be more confident in using the banknotes for their transactions, paving the way for financial inclusion. Needless to say, our banknotes are the treasure of our nation—as we always remind the Filipino public, “Ingatan natin ang ating salapi, salamin ito ng ating yamang lahi.” Let us all do our part in preserving and safeguarding its value. Maraming Salamat at magandang hapon sa ating lahat! 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Forum on "2020 Midyear Economic Review", Manila, 29 July 2020.
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Benjamin E Diokno: Securing economic resilience amid the pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Forum on “2020 Midyear Economic Review”, Manila, 29 July 2020. * * * Manila Times President and CEO Dante “Klink” Ang II, Ambassador and PCCI President Benedicto Yujuico, Metrobank Senior Executive Vice President Fernand Antonio Tansingco, other Manila Times officers and staff, members of the media, ladies and gentlemen. Thank you for inviting me to the Manila Times Online Forum on the “2020 Midyear Economic Review.” This morning, I will fill you in on where the economy stands midway into a very interesting year, including the latest developments in the country’s monetary, financial, and external sectors. I will also discuss some of the recent BSP policies, initiatives, and measures to help the Philippine economy during this trying time. As you know, the Philippines went through years of difficult but necessary economic reform. The result of this process provided steady anchor for the country’s economic resilience. Our economy has weathered different economic crises, political changes, and natural calamities. Still, the current COVID-19 pandemic is a crisis like no other. This pandemic has morphed into a full-blown global economic crisis. Yet, the Philippines has had strong economic fundamentals such as robust growth, good fiscal performance and strong external and financial sector positions—which provided relative stability in the face of the COVID-19 pandemic. In the first six months of 2020, inflation averaged at 2.5 percent. Monthly inflation has been on a decline since the start of 2020 — from 2.9 percent in January to 2.5 percent in June. Year-onyear food inflation decelerated while non-food inflation also declined due in part to lower domestic petroleum prices. Latest BSP baseline forecasts indicate that inflation could settle at 2.3 percent which is at the lower end of the national government’s target range of 2.0 to 4.0 percent for 2020 and 2021. The stability of the Philippine banking system is also a source of strength for the domestic economy. As of end-December 2019, universal and commercial banks posted a capital adequacy ratio of 15.4 percent on solo basis and 16.0 percent on consolidated basis. This means that banks’ financing activities are supported by adequate capital which is composed mainly of common equity and retained earnings. Quality of capital remains intact as universal and commercial bank industry posted higher leverage ratio at 9.4 percent (solo basis) and 9.9 percent (on consolidated basis) from its threshold of 5.0 percent. 1/6 BIS central bankers' speeches In addition, the banking industry has had low exposure to bad debts with the non-performing loans ratio of universal and commercial banks at a mere 1.9 percent and non-performing assets ratio at 1.6 percent as of end-April 2020. We also have a robust external payments position which provides adequate buffers against global risks and shocks. In 2019, the country’s balance of payments position recorded a surplus of US$7.8 billion, a turnaround from the US$2.3 billion deficit registered in 2018. For the first five months of 2020, the balance of payments position posted a surplus of US$4.0 billion. The balance of payments surplus is due mainly to the foreign borrowings by the national government in April and May as well as improvements in the current account balance, which countered the net foreign portfolio investment outflows and lower foreign direct investments inflows. For the first quarter of 2020, the current account posted a surplus equivalent to 0.1 percent of GDP due to the lower merchandise trade deficit and sustained net inflows of personal remittances from overseas Filipinos, which offset the impact of lower trade in services receipts. The peso has also been broadly stable—supported by the Philippines’ strong external payments position. The peso in fact appears to buck the trend as most regional currencies have depreciated against the US dollar. The peso closed at 49.25 on July 27, 2020. Year-to-date, the peso appreciated by 2.81 percent. One of the lessons we learned during the Asian Financial Crisis is the need to accumulate foreign reserves as self-insurance against a currency crisis. As of end-June 2020, the country’s gross international reserves stood at an all-time high of US$93.3 billion. This is enough to cover 8.4 months’ worth of imports of goods and payments for services and primary income. It is also equivalent to 7.3 times the country’s short-term external debt based on original maturity. The country’s favorable external debt profile supports the external payments position. As of end-March 2020, the Philippines’ external debt stock stood at US$81.4 billion, lower by US$2.2 billion than its recorded level in end-December 2019. The decline in the debt level in the first quarter of 2020 was largely due to the net repayments made by the private sector (mostly by banks). It is worth noting that the Philippines’ external debt metrics have steadily improved with the significant decline in the external debt-to-GDP ratio from 59.7 percent in 2005 to 22.2 percent in 2019 and further to 21.4 percent as of end-March 2020. Our debt-to-GDP ratio remains one of the lowest among ASEAN member countries. International rating agencies affirm that the Philippines is likely to come out of the pandemic with little economic damage. Last July 16, 2020, Moody’s gave a vote of confidence on the Philippines by affirming its Baa2 2/6 BIS central bankers' speeches rating and maintaining its outlook as “stable.” In June, the Japan Credit Rating Agency upgraded our credit rating to A- from BBB+. Another Japanese credit rating agency, R&I, upgraded the Philippines’ credit rating to BBB+ from BBB in February. Both ratings are assigned a stable outlook. S&P and Fitch, on the other hand, have affirmed their rating of BBB+ and BBB, respectively. The prestigious publication, The Economist, also acknowledged the Philippines’ relatively strong financial strength based on four metrics, namely public debt, foreign debt, cost of borrowing, and reserve cover. It assessed the Philippines as the sixth best among 66 emerging economies, and the first among its Southeast Asian peers. This slide shows the rating actions of the three global credit rating agencies – Fitch, Moody’s, and S&P. As of end of June 2020, 39 countries have been downgraded while there had been 101 negative outlook revisions. Viewed in this light, Moody’s confirmation of the Philippines’ credit rating of “Baa2” with a “stable” outlook should be seen as a resounding vote of confidence for the Philippines. Nevertheless, the country’s sound fundamentals will lend support to our response to this pandemic and propel the economy into a strong recovery in 2021 and 2022. One of the pillars of central banking is a safe and efficient payments and settlements system. On December 9, 2015, the BSP and industry stakeholders launched the National Retail Payment System (NRPS), a policy and regulatory framework for the carrying out of retail payment activities through the BSP supervised financial institutions. Through the NRPS, the BSP endeavors to create a safe, reliable, affordable, interoperable, and efficient retail payments system in the country. Under the NRPS, BSP also encourages the use of electronic payments or modern financial technologies to enhance the speed, convenience and affordability of financial transactions. This method of electronic payments will be at the forefront as the country transitions into the “New Economy.” As of May 31, 2020, PESONet has 58 participating institutions while InstaPay has 45. Both are expected to have more participating institutions in the coming years. The BSP is also encouraging the wide adoption of the national QR code standard as well as the use of online payment facilities for government transactions. The launching of the EGov Pay facility to digitize government collections and disbursements will lead to more efficient government collection, better audit, and enhanced transparency. It also aims to eventually plug revenue leaks. EGov Pay will be expanded to enable ordinary citizens to digitally pay government tax, fees and charges. The BSP plays a supportive role in the promotion of inclusive economic and social development objectives of the government through its advocacy programs aimed at promoting financial inclusion. The National Strategy for Financial Inclusion provides the national vision for financial inclusion and a platform for public and private sector coordination to ensure synergy of efforts in achieving shared objectives. Meanwhile, the range of microfinance loans offered by banks has broadened from regular microloans to microcredit for agriculture, housing and business, as well as micro-insurance in 3/6 BIS central bankers' speeches line with the growing needs and strengthened capacities of banks’ clients. As of end-2019, a total of 154 banks with microfinance operations had been serving more than 2.4 million micro-entrepreneurs. The total value of microfinance loans extended as of end-2019 amounted to PHP27.3 billion, 20.7 percent higher than its level in 2018 at PHP22.6 billion. Meanwhile, Credit Surety Fund (CSF) program is a credit enhancement scheme that allows micro, small and medium enterprises, which are members of cooperatives, to borrow from banks using the CSF surety cover as security for the loan in lieu of conventional collateral. From its inception in 2008 until end-2019, a total of 55 CSFs located in 34 provinces and 21 cities have been established nationwide. Correspondingly, cumulative approved loans for 17,424 MSME-beneficiaries reached PHP5.7 billion. Amid this crisis, central banks around the globe are at the forefront to help their respective economies get through the uncertainties of this pandemic. The BSP responded by proactively implementing measures to ensure sufficient liquidity in the financial system, even as health and fiscal measures were seen as frontline responses to the pandemic. The BSP’s liquidity-enhancing policies are intended to reassure markets, restore business confidence, and support recovery once the lockdowns are lifted. In the medium to long run, containment of the virus should lead to the resumption of business activities and economic growth which should, in turn, encourage private sector investment and lending activities. The liquidity injection from BSP measures is estimated at about PHP1.3 trillion, equivalent to 6.7 percent of GDP. Furthermore, the BSP approved a package of measures to further reduce the financial burden on loans to MSMEs. In particular, loans granted to MSMEs shall be counted as part of banks’ compliance with reserve requirements. These measures likewise complement earlier monetary actions taken by the BSP to shore up market confidence and cushion domestic economic activity, along with various time-bound relaxation of various regulations (e.g., calculation of penalties on required reserves and single borrower limits, among others). With concerns of potential souring of loans coming from both businesses and households, the BSP deployed a range of regulatory relief measures that include approaches that could support the treatment and management of affected loans. The regulatory relief measures aim to encourage BSP-Supervised Institutions to grant a temporary grace period for loan payments or to restructure the loan accounts of their borrowers. As we face the challenges and uncertainties from this continuing pandemic, the BSP reiterates its commitment to use its entire arsenal of policy tools and instruments in a timely and prudent manner to help cushion the economy from the potential fallout. The relatively benign inflation outlook in the policy horizon provides space for monetary policy adjustments to complement the national government’s efforts in mitigating the adverse impact of the COVID-19 public health crisis. Moreover, the BSP remains vigilant in monitoring domestic and international developments for any other emerging risks to the outlook for both inflation and economic activity. 4/6 BIS central bankers' speeches Our experience with COVID-19 highlighted the increasing importance of digital transactions. The volume and value of the combined transactions of PESONet and InstaPay surged during the lockdown. A comparison between the two-and-a-half months duration prior to the lockdown from January 1 to March 16 and the period under lockdown from March 17 to May 31 indicates that the combined transactions of both PESONet and InstaPay rose by over 70 percent in volume and 42 percent in value. By contrast, the volume and value of check payments and ATM withdrawals declined. Needless to say that looking forward, we will not only expand the reach of digital payments, but enhance its efficiency. Efficiency in retail payments is really about speed, convenience and affordability, which can clearly be supported by a shift to electronic payments. The BSP envisions an accelerated uptake of e-payment services, through digital platforms like the InstaPay and PESONet, in the next three years. It is our goal to have half of financial transactions—in volume and value—be in digital form by 2023, if not sooner. We have gained significant strides in this direction through the adoption of the national QR code standard, as well as the use of online payment facilities for government transactions. On the legislative front, the BSP will push for the passage of the following priority bills: Amendment to Republic Act Nos. 1405 and 6426, the laws pertaining to the secrecy of bank deposits; Amendment to Republic Act No. 9510 or the “Credit Information System Act; Amendment to Republic Act No. 10000 or the “Agri-Agra law”; Financial Consumer Protection Bill; Financial Institutions Strategic Transfer (FIST); Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE); and Bayanihan II or to Recover as One Act To summarize, allow me to highlight three main points from the presentation: First, the Philippines entered into the global pandemic with stronger macroeconomic position compared with its regional peers. The country is well-situated to re-start its economic growth and development process. Second, in response to the COVID-19 pandemic, the BSP implemented policy measures intended to reassure markets, restore business confidence, and ensure quick recovery once the lockdowns are lifted. However, the decision to unwind COVID-19 policy responses will be gradual, prudent and evidence-based. A well-thought-out disengagement strategy is necessary. Lastly, the BSP remains committed to deploy the necessary policy measures and reforms to help the Philippine economy recover from the COVID-19 crisis and to build its resilience against 5/6 BIS central bankers' speeches future crises. Let me close with an optimistic note. All the numbers I’ve cited earlier are true. Numbers don’t lie. The ratings agencies agree. The international observers agree. I foresee a “hockey stick” like recovery, with the lowest point in the second quarter. But the third quarter will be better, and the fourth quarter will be even better. We expect a strong rebound in 2021 and 2022. The worst is over. But while we’re not out of the woods yet, we have to look beyond this crisis. What else can we do to make the Philippines more robust and resilient? How do we prepare for the next crisis? Let me remind you again that we entered this crisis from a position of strength. Do I become hopeful or fearful? What can I do to calm the market, live with the virus, and prepare for a better tomorrow? I choose to be hopeful. Once again, thank you and a pleasant morning to all! 6/6 BIS central bankers' speeches
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Welcome remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Webinar on "Combating Money Laundering During Pandemic", 21 July 2020.
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Benjamin E Diokno: Welcome remarks - “Combating Money Laundering During Pandemic” Welcome remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Webinar on “Combating Money Laundering During Pandemic”, 21 July 2020. * * * A pleasant day to everyone! I am happy to welcome all of you to the Webinar Series 2020 that the Bangko Sentral ng Pilipinas Institute is conducting in partnership with the International Monetary Fund – Singapore Training Institute. This collaboration emphasizes the need for organizations and institutions like the Bangko Sentral ng Pilipinas and the International Monetary Fund to continuously work together to discuss timely and relevant economic and financial issues with a view to developing a better appreciation of these issues and finding solutions that adhere to international good practices. The first topic of the Webinar Series, Combating Money Laundering During Pandemic, highlights the serious challenges that money laundering is creating among financial institutions and economies of the world during this difficult period. The discussion is timely as we often witness that money launderers and fraudsters thrive during crisis periods as they take advantage of the vulnerability of the world economy. While the global economic activities have slowed down sharply during the current pandemic, money laundering activities are continuously being reported, which give us reason to believe that opportunistic threats abound. In the case of the Bangko Sentral ng Pilipinas, we issued Memorandum 2020–036, dated April 29, 2020, directing all banks to pay close attention to new forms of money laundering and terrorism financing risks. Aside from phishing or spear phishing campaigns and other cases of fraudulent activities highlighted in our advisories, BSP-Supervised Institutions have been warned to be on their guard against illegal schemes that exploit the changes in work arrangements, lifestyles or behavior of the public due to Covid-19. These new illegal schemes include donations or charity scams, impostor investment, product scams, money mules, online sex trafficking and exploitation, veiled donations for terrorism financing, which are usually coursed through financial transactions through fund or wire transfers and deposits. BSP-Supervised Financial Institutions are also advised to consider these kinds of criminal activities and typologies in their anti-money laundering and counter terrorism financing controls and compliance processes and to report suspicious transactions to the Anti-Money Laundering Council. They are also encouraged to prudently leverage on technology to reinforce their controls against fraud or financial crimes. Criminals and money launderers never “sleep.” They are unfazed by the virus. The Bangko Sentral ng Pilipinas therefore continues to be pro-active, alert, and determined to keep watch against financial crimes and money laundering activities. As BSP Governor and Chairman of the Anti-Money Laundering Council, I assure you that we will 1/2 BIS central bankers' speeches continue to work for an internationally compliant and effective anti-money laundering regime, which will provide the Filipino people with a sound, dynamic, and strong financial system in an environment that is conducive to the promotion of social justice, political stability, and sustainable economic growth. In closing, let me thank our speakers from the International Monetary Fund, Bank de France, and the Anti-Money Laundering Council Secretariat who have graciously shared their time and expertise to be with us in this webinar. They have been carefully chosen to help webinar participants learn how international institutions have developed a protective and responsive infrastructure against money laundering activities. Thank you very much and stay safe always! 2/2 BIS central bankers' speeches
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Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Public Release of the Macroprudential Policy Strategy Framework: The Case of the Philippines, 22 July 2020.
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Benjamin E Diokno: Macroprudential Policy Strategy Framework the case of the Philippines Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Public Release of the Macroprudential Policy Strategy Framework: The Case of the Philippines, 22 July 2020. * * * Good morning to all our friends from the financial market, multilateral agencies and the media. Three weeks ago, the FSCC held a press briefing with two important messages: First, that 2019 coronavirus disease (COVID-19) is different from prior crises because it is a direct shock to the real economy, to supply chains, and to the welfare of families and individuals. Second, based on our reading of a wide array of indicators and our own surveillance of what is happening on the ground, We do not see any indications as of yet that our financial market has been impaired irreparably. As the Council convened after the Global Financial Crisis, our task has always been about ensuring the health of the financial system so that it remains a pillar for the financial consumer. Financial authorities have come to understand that there is something about the risk behaviors of various financial market stakeholders that creates outcomes for the system that cannot be tracked by simply overseeing the balance sheets of individual market stakeholders. As I mentioned at our last press briefing, that “something” is the way risk behaviors connect, complement, and correlate with each other, creating new channels of risks through contagion. Today, the Council is again with you to share another milestone. Just as we had the opportunity three weeks ago to launch the Financial Stability Report on its maiden semestral release, we have invited you today for the public release of the country’s Macroprudential Policy Strategy Framework. That is a bit of a tongue-twister but at its core, the framework reflects how your financial authorities define systemic risks, how we are monitoring changes in risk behaviors, and how we are moving forward in managing this policy concern. The overarching concern is that of Financial Stability which is specifically about managing systemic risks. These risks, in turn, are specifically defined, consistent with global understanding and practice. And the means for taking action are what we refer to as Macroprudential Policy. To help put all of the different components, the framework document includes a Scoping Statement that defines the perimeter of our work on systemic risk management. We remain crystal clear that price stability as well as the safety and soundness of banking institutions are important policy objectives. But we are as clear that cash, capital, and contingent markets, together with clearing and settlements, should be collectively considered when talking about the financial system. Macroprudential policy does not take away from any existing objective. It adds another facet to our desire for the financial market to be a value proposition. Ultimately, 1/2 BIS central bankers' speeches the goal is to ensure that our financial system “works” for us and facilitates in improving the welfare of individuals, from savers to borrowers, to investors and issuers, to intermediaries, to infrastructure operators, and digital service providers. Speaking as a central banker, we understand the added challenges that macroprudential policy put forward. But we are also committed to the value proposition of finance and to making the financial system increasingly resilient to different forms of shocks. We are proud to take on the mantle of financial stability as part of our mandate under Republic Act No. 11211, the amended Charter of the BSP which President Duterte signed into law in February 2019. We also recognize that financial stability is a collective effort and thus, the FSCC principals are here with you today. Collectively, the FSCC is thankful that a review of our Macroprudential framework is central to the Financial Sector Assessment Program, or FSAP, currently being completed by the International Monetary Fund (IMF) and the World Bank (WB). With this framework, we are joining the list of nations who subscribe to the global best practice of releasing to the public their Macroprudential Policy framework. We look forward to the insights from the FSAP expert panel so that our macroprudential policy framework best contributes to a well-functioning financial system. This should include the work on our Systemic Risk Crisis Management Framework. This framework represents the Council’s enduring commitment to manage systemic risks at the highest level of policy. While we are happy to announce the strategy framework today, getting to this point certainly has been a journey. From the initial efforts of Governor Tetangco, to the developments introduced by Governor Espenilla, it is now my honor to take the baton in this never-ending relay of making the Philippine financial system an enabler for the Filipino people. Maraming salamat po. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Online Forum, 29 June 2020.
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Benjamin E Diokno: Road to recovery - turning crisis into opportunities Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Online Forum, 29 June 2020. * * * Manila Times President and CEO Dante “Klink” Ang, Chief Operating Officer Blanca Mercado, other Manila Times officers and staff, members of the media, ladies and gentlemen. Good afternoon and thank you for inviting me to this Manila Times Online Forum. I adopted your theme, “Road to Recovery: Turning Crisis into Opportunities” as the title of my presentation today. We are three and a half months into the lockdown. Cautiously but surely, we are getting back on our feet. Even as the COVID-19 uncertainty continues, I am optimistic that we can overcome this crisis. Let me share BSP’s views on growth and recovery after this pandemic. This is a snapshot of the terrain after the outbreak of COVID-19. The domestic financial markets were racked by heightened volatility following the outbreak of the COVID-19 pandemic. We saw a sharp decline in portfolio inflows in the first two months of 2020. The stock market index noted on March 19 its lowest year-to-date record since October 11, 2011. We have had serious exogenous shocks in the first quarter — the Taal volcano eruption, USChina trade tensions, African swine fever. But nothing comes close to the COVID-19 pandemic that has brought the global economy to a halt. The confluence of these shocks resulted in the contraction of the economy by 0.2 percent in the first quarter of 2020. This is the first negative real GDP growth since 1998 when the economy wrestled with El Nino and the Asian Financial Crisis. In its latest assessment, the Development Budget Coordination Committee forecasts a full-year contraction of – 2.0 to – 3.4 percent (NEDA, 13 May 2020). On a positive note, the peso appears to buck the trend as most regional currencies have depreciated significantly against the US dollar. The peso is the least depreciated currency among its peers. We have hefty gross international reserves estimated at US$93.3 billion in May. We forecast that the year-end GIR will reach US$95 billion. Despite the bleak global picture, there is reason to be optimistic about the future of the Philippine economy. The long reform agenda that the government has consistently pursued across administrations has allowed the country to achieve a more broad-based growth. The volatility of real GDP and inflation considerably declined over time. Aggregate demand in the post global financial crisis period expanded at an average rate of 6.4 percent annually, comparable to the growth rates of China and India. We have a hefty foreign exchange reserves, low public sector debt, manageable external payments position, and a solid credit profile. The country’s external debt-to-GDP ratio is only 21.4 percent as of end-March 2020 down from about 60.0 percent in 2005. Philippine banks are well-capitalized. Their liquidity positions are strong, and non-performing 1/4 BIS central bankers' speeches loans are low – proof of the effectiveness of progressive banking regulatory reforms we have implemented over the years. In a recent survey released just this May by The Economist, among 66 emerging economies, the Philippines is ranked the 6th most robust on the basis of four measures of financial strength, namely, public debt, foreign debt, cost of borrowing, and reserve cover. When the coronavirus crisis broke out in the country, the government had, and continues to have, adequate fiscal and monetary policy space which it immediately deployed to calm down the market and ease liquidity pressures. For its part, the BSP promptly implemented measures to ease liquidity and sustain the flow of credit that have calmed down market jitters. Recognizing the importance of MSMEs in the economy, the BSP allowed banks to include new MSME loans as part of their compliance with the required reserve ratio. The credit risk weight of MSME loans that are current in status was temporarily reduced while MSME loans with government guarantee were assigned zero weight. These policy measures are aimed at encouraging more lending to MSMEs. However, our optimism is also tempered by a sense of realism that there are still much work to be done. We have a good head start with the economic and regulatory buffers we built over the years. But these can be easily eroded given the huge resource requirement of the crisis response measures. As we restart the economy, we remain vigilant because the risk of COVID-19 remains high. We continue to maintain a disciplined approach to policy coordination and decision-making. The crisis has exposed the vulnerabilities and gaps in existing processes and systems that we need to swiftly deal with to recover lost momentum because of this pandemic. Let me expound on four critical structural reform imperatives that I believe are opportunities for growth that we should seize. First is the modernization of the country’s health system to ensure efficient public health infrastructure and resilient crisis preparedness framework. This would require giving incentives for the use of science and technology in health policy decision making. It would require overhauling of the healthcare supply chain management. The government must also initiate the formulation of a national preparedness and response framework for disease outbreaks and pandemics, taking into account coordination gaps across different levels of government. Second is the need to upgrade the Information and Communication Technology (ICT) infrastructure system and processes. Technology will play a pivotal role in reshaping the means of production and the delivery of goods and services in the post-COVID world. Digital technology will also be critical in enabling simpler and more efficient transactions with government agencies. Business transactions such as online retail, online banking, online medical consultations, and digital payments will become a necessity. All these need to be supported by a safe and reliable digital infrastructure system with robust and dependable cybersecurity protection. 2/4 BIS central bankers' speeches Third is the modernization of Philippine agriculture and the government’s supply chain management system with the aid of digital technologies. This will help ensure that food and other essential goods and services are available, accessible, and affordable. Fourth is the development of a highly skilled and resilient workforce by strengthening the educational system, sustained upskilling, and adequate health protection to future-proof our workforce. In this way, the country’s productive capacity can benefit more strongly from its favorable demographics. The structural reform imperatives I have outlined are outside the ambit of BSP. Yet they have profound impact on the realization of the BSP’s policy thrusts. Against this backdrop, what else can the BSP do? The BSP’s policy space remains sufficient. The BSP has yet to exhaust the conventional monetary instruments in its toolkit to support the liquidity requirements of the economy, should conditions warrant. Given the possibility of higher defaults and non-performing loans, there may be scope to offer more debt restructuring measures. We agree in principle with the goals of the proposed Philippine Economic Stimulus Act of 2020. The act seeks to ease the plight of workers, families and businesses who were adversely affected by the COVID-19 pandemic. It also aims to facilitate recovery and preserve the country’s economic growth. As in any measure providing support using public funds, prudence has to be observed to rein in excessive moral hazards that may arise. Human behavior is expected to change with physical distancing as the new norm. People are expected to prefer using electronic payment and financial services to face-to-face and over-thecounter transactions. To expand the reach of digital transactions, we need to increase contactless payment facilities, such as PayMaya and GCash. Their use can be expanded to include wet markets, retail stores, and public utility vehicles (jeep, taxis, tricycle, bus). We need to quicken the adoption of the National QR code standard (“QR Ph”) to enable interoperable payments for person-to-person (P2P) and person-to-merchant (P2M) transactions. The scale of the recently launched EGov Pay Facility can be expanded to enable ordinary citizens to digitally pay government taxes, fees, and charges. The speedy implementation of the national ID system will enable inclusive and innovative digital finance and ensure reliable database for the design and impact assessment of policies, including those for taxation and social support purposes. With the increased usage of non-bank channels to send and receive money, the BSP has been improving channels of remittances with the approval of new technologies in remittance transfers (mobile phones, internet, cash cards). Admittedly, insufficient IT infrastructure leading to the slow internet connection, data privacy and cybersecurity risks, and lack of knowledge on new technologies may pose challenges in the implementation of financial digital services. Promoting financial literacy and ensuring good market conduct are likewise important to deepen the public’s trust in digital financial services. Moving forward, more measures should be taken to reduce external vulnerabilities. 3/4 BIS central bankers' speeches Congress, meanwhile, must provide additional measures to reduce the costs of doing business in the Philippines; streamline the investment process; and increase business confidence by improving the business climate, fostering competition, and boosting productivity growth via the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)and amendments to the Public Services Act. Former US President John F. Kennedy once said, “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.” The COVID-19 pandemic may be unprecedented in scale, but as in most global economic crises, it provides important lessons to governments in terms of preparing for similar challenges and seizing opportunities to move forward. The pandemic emphasizes the importance of building sufficient buffers during good times and the need to speed up the modernization of the country’s ICT infrastructure and policies. The list of reform possibilities is longer than what I have offered. There are deep learnings that we should collectively heed if we are to rise above the crisis and forge ahead towards the goal of a stronger and more inclusive society. Thank you and good day 4/4 BIS central bankers' speeches
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Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Press Conference on Macroprudential Policy Direction and Public Release of the April 2020 FSR, Manila, 23 June 2020.
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Benjamin E Diokno: Remarks of the Governor Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Press Conference on Macroprudential Policy Direction and Public Release of the April 2020 FSR, Manila, 23 June 2020. * * * Colleagues, friends from the media, good morning. Thank you for joining us at this press briefing of the Financial Stability Coordination Council or FSCC. The other members of the Executive Committee of the FSCC are with us online and we are happy to dialogue with you today and in many more occasions in the future. We are holding this briefing to share with you our view on the emerging risks, amidst the COVID19 pandemic. Indeed, the world is facing the deepest global recession whose effects the IMF says have not been seen since the 1929 Great Depression. Yet, our present situation is different because it was not caused by a stock market crash like “Black Tuesday” in 1929 or from excessive credit as was the case in 1997 and 2007. Rather than financial market vulnerabilities affecting the macroeconomy, COVID-19 has directly impacted the macroeconomy itself. While we address the public health issues, we want to ensure that these difficulties do not contaminate our financial system and trigger a negative feedback to the real economy. Ensuring the continued health of the financial system requires a whole-of-market approach. This is where the FSCC plays a critical role in bringing together the Department of Finance, the Securities and Exchange Commission, the Insurance Commission, the Philippine Deposit Insurance Corporation, the Bureau of the Treasury and the Bangko Sentral ng Pilipinas to collaborate and address disruptions to and by the financial system which can adversely affect the rest of the economy. We do this by assessing the risk behaviors of those in the financial market, looking at how they interact with one another, identifying the channels through which they interact and, appraising how the outcomes at the level of the overall system can be very different from the simple sum of the parts. You will hear us talk about “macroprudential policies” which refer to our interventions for managing systemic risks. I should emphasize that the “systemic-ness” of risks is not defined by the size of the initial shock but rather by the pervasiveness of its full effects. We are as mindful of the big shocks as we are of small shocks that can morph into bigger and more extensive risks to the system. Let me use COVID-19 as an analogy. COVID-19 may have started with infected individuals, but it has spread so massively that we are now treating both individuals and economies. This epitomizes systemic risk. For the same reason, the FSCC looks at the interactions of risk behaviors throughout the financial system. The system is a network of connected chains and any chain is only as strong as its most vulnerable link. The FSCC is where we assess vulnerabilities and strengths in contextualizing the collective network. As chairperson of the FSCC, I want to assure the public that the health of the financial system – the details of the underlying interlinkages – is a continuous concern at the highest level of policy. We want to ensure the sustained health of the financial system to serve the financial needs of 1/2 BIS central bankers' speeches the public as well as be an anchor for our ongoing recovery efforts. As a sign of our commitment and our responsiveness to the times, the FSCC is proud to announce that today, we are launching the maiden semestral issue with the April 2020 release. I will ask our Technical secretariat to provide more details later in the press conference. I also want to take this opportunity to share with you two other important initiatives. We will be releasing the national Macroprudential Policy Strategy Framework. This document provides a clear narrative of the policy mindset that we have in place when thinking of systemic risk issues. Also, our work is underway in formalizing a Systemic Risk Crisis Management framework. This organizes the efforts of the financial authorities to assess and act should a systemic disruption to financial markets occur. We are pursuing this not because we see any imminent vulnerability that rises to the threshold of being “systemic”. Rather, the framework is a pre-emptive initiative, fully cognizant that its best use is when it is not in use but fully prepared nonetheless when the times call for it. Allow me also to thank the FSCC-member agencies whose principals – Finance Secretary Dominguez, SEC Chairperson Aquino, Commissioner Funa of the IC, and PDIC President Tan – make time from their busy schedules to engage in candid conversations and agree on the appropriate next steps. At the FSCC, we all understand that the continued health of the financial system is critical. But we also know that the value of a strong and resilient financial system is not the ultimate goal. Rather, the ultimate goal is a thriving economy. This is where a whole-of-market collaboration – from finance to fiscal to national development, entrepreneurship, industries, infrastructure, among others – is a value proposition for the general public. This is why mitigating systemic risks is all about public welfare. Thank you and once again, good morning. 2/2 BIS central bankers' speeches
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Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Virtual Roadshow on the Economic Recovery Program, 28 May 2020.
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Benjamin E Diokno: The new economy - redefining resilience amidst a pandemic Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Virtual Roadshow on the Economic Recovery Program, 28 May 2020. * * * Good afternoon, everyone. It is my pleasure to meet with you all virtually to discuss with you the macroeconomic outlook and outline the government’s policy responses to the global health crisis. In this presentation, I will give a brief overview of the country’s macroeconomic fundamentals going into the crisis, and move on to the policy actions pursued by the BSP, in support of the government’s overall strategy, to mitigate the impact of COVID- 19 pandemic on the domestic economy. I will also provide you with the measures and reform initiatives that the BSP intends to pursue under post-lockdown conditions. The country entered this crisis equipped with strong macroeconomic fundamentals. Last year, real GDP grew by 6.0 percent, continuing the record of over 20 years of uninterrupted broadbased growth. Headline inflation eased to 2.5 percent and was within the government’s target range in 2019. We have maintained a robust external payments position, with a surplus in the balance of payments (BOP), record-high international reserves, and external debt to GDP ratio. At the same time, the Philippine banking system remained sound and stable. Banks were adequately capitalized and the quality of their loans and assets were maintained. These provides sufficient cushions going into the crisis. These sound fundamentals have put the Philippines on a favorable footing relative to its peers. Earlier this month, the prestigious publication, The Economist surveyed 66 emerging economies and concluded that the Philippines is the 6th most robust country when the health crisis started, as characterized by ample level of foreign exchange reserves and relatively lower debt-to-GDP ratios. The health crisis has considerably altered our near-term growth narrative. In the first quarter of 2020, real GDP declined by 0.2 percent with full-year GDP projected to contract between 2.0 to 3.4 percent. Meanwhile, latest baseline forecasts indicate that inflation could settle at the low end of the government’s target range of 2.0 percent to 4.0 percent. We expect inflation to average 2.0 percent for 2020 due to the decline in global crude oil and non- oil prices and the impact of COVID-19 on global and domestic growth prospects. To mitigate the impact of the pandemic and ensure economic recovery post-COVID, the NG laid out its 4-pillar socioeconomic strategy. The BSP’s contributions to the overall stabilization efforts fall under the third pillar. We expect that the economy will recover more strongly once fiscal and monetary stimulus gain traction and workers and firms resume operations. On the part of the BSP, our focus is ensuring that we pursue all necessary monetary actions under the third pillar to ensure that we are able to deliver on our mandate of promoting price and financial stability. 1/4 BIS central bankers' speeches Cognizant of this, we have been decidedly proactive in pursuing policy measures to support credit activity and domestic demand as well as ensure the continuous and smooth functioning of domestic financial markets by easing monetary policy settings and providing liquidity to the financial system as well as relaxing regulatory rules. Consistent with a manageable inflation outlook and well-anchored inflation expectations, the Monetary Board undertook an assertive policy response through a reduction in the overnight policy interest rate by a cumulative 125 basis points to cushion the country’s growth momentum and uplift market confidence amid stronger headwinds. The BSP has likewise provided liquidity boost to the financial system by reducing the reserve requirement ratio (RRR), suspending the term deposit facility auctions for certain tenors, ensuring availability of the overnight lending facility (OLF) to counterparties to cover temporary day-to-day liquidity needs, and scaling down of RRP operations to help provide sufficient liquidity in the interbank loan and government securities markets. Meanwhile, global uncertainties owing to the COVID-19 outbreak heightened risk aversion in BSP supervised financial institutions (BSFIs). To encourage them to continue their intermediation activities, the Monetary Board approved the granting of temporary regulatory and rediscounting relief measures to these institutions. These measures include relaxation of BSP regulations such as the single borrower’s limit, penalty for reserve deficiencies, compliance period with BSP supervisory requirements, and know your customer (KYC) requirements to facilitate access to financial services. Meanwhile, prudential accounting relief measures were also implemented to reduce the impact of Mark- toMarket (MTM) losses on the financial condition of supervised financial institutions. In addition, the BSP has implemented extraordinary liquidity measures to complement the National Government’s programs in mitigating the impact of COVID-19. These measures include: (a) ₱300 billion repurchase agreement with the Bureau of the Treasury, and (b) launching of a package of measures to support more lending to micro-, small-, and mediumsized enterprises (MSMEs), such as allowing banks to include new MSME loans as part of their compliance with the required reserve ratio; temporarily reducing credit risk weight of MSME loans that are current in status; and assigning zero weight to MSME loans with government guarantee. All these measures show the BSP’s unwavering commitment and readiness to deploy its full range of instruments to provide liquidity and ensure an efficient financial system. But we know that we are not far enough yet with this fight. The uncertainty surrounding the resolution of the pandemic remains quite high and even the long-term growth path may also change in the post-pandemic world. What else can the BSP do as the economy reopens? Since operational capacity remains constrained even under the general community quarantine phase, the liquidity support and regulatory relief measures will remain, subject to the general conditions of the economy and the financial sector. In calibrating future monetary policy stance, the BSP will continue to be guided by the inflation outlook over the policy horizon and the risks surrounding such outlook, as well as data on demand conditions. At the same time, when domestic developments warrant a scale-down of policy support as 2/4 BIS central bankers' speeches economic recovery gains traction, the BSP will ensure a smooth transition in winding down its time/state-bound measures. Exit strategy essentially entails reversion to policies that are consistent with long-run economic growth path. Nonetheless, we note that the winding down of support policies and regulatory measures too early or too late may be harmful and may significantly dampen economic recovery. With this in mind, we will remain data-dependent in our assessment of monetary and economic conditions. In addition, we will remain watchful of external developments that could impact on domestic monetary and liquidity conditions. Moreover, in fostering a smooth exit process, the BSP works under the principle of policy coordination. The disciplined approach to macroeconomic policy coordination has kept the country in good stead. We will continue to work closely with market participants and the economic planning and fiscal authorities in monitoring the situation and preparing for appropriate policy responses. Moving forward, additional measures are being crafted and studied by the BSP to ensure the sustained soundness, stability, resilience, and inclusivity of the banking system amidst the ongoing health crisis. First, we need to ensure the long-run health of the banking system during and beyond the pandemic. Thus, we are gathering data on the actual impact of the pandemic on the banks and on their clients. Hence, we will review the use of regulatory buffers. The use of these buffers enables banks to absorb losses, expand lending operations and meet the liquidity needs of their clients, including MSMEs and people living in rural communities, without unduly impairing banks’ long-term viability. Second, to complement our regulatory and supervisory initiatives to mitigate the adverse effect of the CoVid-19 pandemic, the BSP acknowledges the need to implement the following legislative measures: Enactment of the Financial Institutions Strategic Transfer (FIST) Act. This will assist the financial system in performing its role of efficiently mobilizing savings and investments for the country’s economic recovery as well as its sustained growth and development. Amendment of the New Central Bank Act for purposes of strengthening supervision over financial conglomerates. The domestic financial system is dominated by financial conglomerates (FC) that span several financial sectors, including banking, insurance and securities. A better understanding of conglomerate risk is important for regulatory agencies to be able to mitigate impact of material issues on the financial system. Strengthening of Resolution Powers to Align with International Standards. There is also a need to enact a law on recovery and resolution planning for banks to align the legal framework with international standards. Lastly, with the continuous implementation of physical distancing and concern for safety, it can be expected that people will have greater preference to use electronic payment and financial services than conduct face-to-face transactions. Hence, we need to adopt measures to quicken the use of digital platforms to deliver financial services. To expand the reach of digital transactions, we need to increase contactless payment facilities, such as PayMaya and GCash, which can be expanded to include wet markets, retail stores, and public utility vehicles (jeep, taxis, tricycle, bus). The adoption of the National QR code standard (“QR Ph”) must be expedited to enable interoperable payments for person-to-person (P2P) and person-to-merchant (P2M) transactions. 3/4 BIS central bankers' speeches The scale of the recently launched EGov Pay Facility can be expanded to enable ordinary citizens to digitally pay government taxes, fees, and charges. These measures will not only facilitate continued flow of financial transactions during and post-crisis but will also enhance efficient distribution of financial assistance to beneficiaries aside from furthering the inclusion initiatives of the government. Lastly, physical distancing as the new norm, we expect that people would prefer to use electronic payment and financial services than conduct face-to- face transactions. Hence, we need to adopt measures to quicken the use of digital platforms to deliver financial services. To expand the reach of digital transactions, we need to increase contactless payment facilities, such as PayMaya and GCash, which can be used for transactions in wet markets, retail stores, and public utility vehicles (jeep, taxis, tricycle, bus). The adoption of the National QR code standard (“QR Ph”) must be expedited to enable interoperable payments for person-to-person (P2P) and person-to- merchant (P2M) transactions. The scale of the recently launched EGov Pay Facility can be expanded to enable ordinary citizens to digitally pay government taxes, fees, and charges. These measures will not only facilitate continued flow of financial transactions during and postcrisis but will also enhance efficient distribution of cash assistance to select citizens. In addition, they will push forward financial inclusion. Let me conclude my presentation with the following take-aways: First, the COVID-19 pandemic, though a health crisis, highlighted the importance of sound macroeconomic policies. The Philippine economy entered the COVID-19 pandemic in a position of strength, brought about by years of structural reforms and prudent macroeconomic management. The crisis has likewise reinforced the need to accelerate digital transformation. For the financial system, the BSP is at the forefront of promoting the use of electronic payment and financial services. Nonetheless, we should unceasingly work to improve the use of these innovative digital technologies to support economic activities. Second, the immediate challenge is to provide tangible boost to the economy through the right combination of fiscal and monetary measures. Having already implemented a host of measures to build upon liquidity and keep companies afloat, the BSP’s policy space remains sufficient. The BSP has yet to exhaust the conventional monetary instruments in its toolkit to support the economy, should conditions warrant. Third, the decision to unwind COVID-19 policy responses must be done in a gradual, prudent and informed manner. Complete risk assessment based on all available data must support the decision and timing of unwinding. Likewise, appropriate communication must accompany the decision to unwind. Finally, we will continue to work as one with market participants and the relevant government agencies in carrying out appropriate responses in a timely manner, in support of the National Government’s broader efforts to address the impact of the pandemic on the economy. Thank you and good day. 4/4 BIS central bankers' speeches
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Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Wednesday Roundtabe @ Lido, 27 May 2020.
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Benjamin E Diokno: Transitioning towards the new economy postCovid Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Wednesday Roundtabe @ Lido, 27 May 2020. * * * Good morning Melo and to everyone joining us in today’s virtual Wednesday Roundtable @ Lido. While nothing beats face-to-face interactions, I think we all are gradually getting used to the fact that virtual meetings are now becoming the norm. The COVID-19 pandemic has significantly changed our lives. Not only in the way we do things at present, but also in the way we view the future. Indeed, this crisis is not like anything we have seen in the past. As such, individual economies and business entities respond in ways that reflect how they perceive the continued uncertainty over the path, magnitude, and duration of the impact of the global health crisis. I take this opportunity to briefly share the BSP’s views on latest developments and prospects on the Philippine economy as we face today’s circumstances. I will also discuss policy actions pursued by the BSP, in support of the government’s overall strategy, to mitigate the impact of COVID-19 pandemic and help stabilize market conditions and restore confidence. Let me first highlight that when this global health crisis broke out the Philippine economy had been in a position of strength, with GDP growth averaging at above 6 percent over the past eight years. The robust growth of the domestic economy in recent years has been achieved in an environment of generally stable inflation and has been anchored on purposeful structural reforms. The country’s strong track record of prudent policymaking has likewise led to robust external payments position, record-high international reserves, improved external debt metrics, healthy public finances, and positive macroeconomic performance. At the same time, Philippine banks continue to be sound, stable, and well-functioning across all metrics. Just as the country’s strong macroeconomic fundamentals have provided a degree of cushion during past crises, we remain cautiously optimistic that the same factors will serve as the country’s first line of defense and continue to keep the economy afloat amid the current crisis. Nevertheless, we are also equally mindful that the outlook for both global and domestic economic growth in 2020–2021 remains bleak and clouded with uncertainty. The International Monetary Fund (IMF), in its April 2020 World Economic Outlook (WEO) report, expects global economic activity to shrink radically in 2020 given widespread disruptions caused by COVID-19. While a partial recovery is anticipated in 2021, global GDP level is expected to remain below the pre-COVID trend. The IMF projects global economic growth to contract sharply by 3.0 percent in 2020 before inching up to 5.8 percent in 2021. Nine out of ten countries in the IMF’s 189-country membership are expected to see their economies contract in 2020, including the Philippines. The Development Budget Coordination Committee (DBCC) has recently announced the national government’s revised Gross Domestic Product (GDP) growth forecast range of –2.0 percent to – 3.4 percent for 2020, a sharp departure from the 6.5 percent to 7.5 percent growth target range 1/3 BIS central bankers' speeches before the pandemic For 2021, the DBCC expects the domestic economy to recover strongly with a GDP growth forecast range of 7.1 percent to 8.1 percent, This strong rebound is based on the assumption that there is no serious second wave of the disease and that the government would be able to craft and implement a robust economic recovery program. In this slide we show that OF remittances have been on a steady growth path in recent years and have contributed as well to domestic economic expansion. For the first two months of 2020, cash remittances still grew by 4.6 percent to reach US$5 billion. With its strong contribution to consumption expenditure, we understand the growing concern on how the COVID-19 pandemic will impact on future remittances flows into the country. In this regard, the BSP closely monitors the latest reports from the Philippine Overseas Employment Administration (POEA), Department of Labor and Employment (DOLE), and the Department of Foreign Affairs (DFA) on OF workers’ deployment, displacement, and repatriation status. OF remittances could contract in 2020 due mainly to the large repatriation of workers and economic disruptions in host countries. The World Bank projects a decline in global remittances by about 20 percent in 2020, with remittance inflows to East Asia and the Pacific expected to decline by 13 percent, driven mainly by declining inflows from the US, the largest source of remittances to the region. However, it is important to point out that crisis or no crises, Filipinos abroad continue to send remittances to their families at home. It would appear that OFW remittances have an altruistic character. Furthermore, the adverse impact of COVID-19 on remittances may be temporary. To mitigate the impact of the pandemic and ensure economic recovery post-COVID-19, the NG laid out a 4-pillar socioeconomic strategy. The BSP’s contributions to the overall stabilization efforts fall under the third pillar. We expect that the economy will recover more strongly once fiscal and monetary stimulus gain traction and workers and firms resume operations. We expect a U-shaped recovery for the Philippine economy once the fiscal and monetary stimulus measures gain traction over the next few months. In support of the government’s efforts toward a rapid economic recovery, the BSP implemented a package of extraordinary measures to ensure sufficient liquidity in the system as well as provide regulatory relief to financial institutions. These measures include: 1) reduction in the monetary policy rate by 125- basis points since the start of the year; 2) reduction in the reserve requirement ratio by 200 basis points; 3) purchases of Government Securities (GS) in the secondary market; 4) reduction in the overnight reserve repurchase (RRP) volume offering; 5) engaging in repurchase agreement with the National Government amounting to P300 billion; and 6) approval of a package of measures to further reduce the financial burden on loans to micro, 2/3 BIS central bankers' speeches small and medium enterprises (MSME), which would help hasten the sector’s recovery. The assistance directed to MSMEs could also enable these entities to extend support to displaced OFWs who are planning to shift and engage in business operations. In addition, the BSP has remitted P20 billion as advanced dividends to the National Government (NG). Under our newly-amended charter, the BSP is no longer required to remit at least 50% of its net income as dividends to the National Government, But we decided to do so in the spirit of being part of the Government. The Monetary Board has also approved the granting of temporary regulatory and rediscounting relief measures to BSP Supervised Financial Institutions (BSFIs). Some of these measures include relaxation of BSP regulations such as the single borrower’s limit (from 25% to 30%) to allow BSFIs to lend more; penalty for reserve deficiencies and compliance period with BSP supervisory and reportorial requirements to allow banks to focus on delivery of financial services; and know your customer (KYC) requirements to facilitate access by the public to financial services. Meanwhile, prudential accounting relief measures were also implemented to reduce the impact of Mark-to- Market (MTM) losses on the financial condition of supervised financial institutions. Moreover, the BSP has implemented extraordinary liquidity measures to complement the National Government’s programs in mitigating the impact of COVID-19. These measures include a ₱300 billion repurchase agreement with the Bureau of the Treasury as well as the launching of a package of measures to support lending to micro-, small-, and medium-sized enterprises (MSMEs). Recognizing the importance of MSMEs in the economy, the BSP allowed banks to include new MSME loans as part of their compliance with the required reserve ratio. BSP temporarily reduced the credit risk weight of MSME loans that are current in status from 75% to 50% and zero weight for loans with government guarantee. These policy measures are aimed at encouraging more bank lending to MSMEs. In closing, let me emphasize that the BSP has responded swiftly and decisively to mitigate economic and financial fall-out from the COVID-19 pandemic through its monetary instruments and regulatory relief measures. But there remains risks to our growth outlook even as a strong recovery is expected in 2021. The challenge for policymakers, therefore, is how to boost the economy through the appropriate mix of fiscal and monetary measures. And even as we enable the economy to gradually regain its footing, we should continue with our efforts to make the economy nimbler to adapt to the new economy. In particular, the BSP is committed to pursuing a 3-year digital payments transformation roadmap that includes priority initiatives such as open banking. I believe the ongoing changes to the domestic economy are a good opportunity to accelerate the BSP’s call towards greater digitalization to promote a more efficient and inclusive financial system The BSP will continue to work with market participants and relevant government authorities to ensure that its policy responses and reform initiatives remain timely and appropriate for these challenging times. Thank you. 3/3 BIS central bankers' speeches
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Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Knowledge Series on "Recovery Resilience: Rethinking Growth Post Covid-19", 22 May 2020.
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Benjamin E Diokno: Riding out the COVID-19 crisis - reform imperatives for recovery and resilience Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Knowledge Series on “Recovery Resilience: Rethinking Growth Post Covid-19”, 22 May 2020. * * * Good day, everyone. Thank you for inviting me to share BSP’s views on growth and recovery after the COVID-19 crisis. We are now two months into the quarantine. And I must say that I am amazed at the breadth and speed of the virtual policy coordination and multi-sectoral consultation process that are taking place as we fight the pandemic. Even as the COVID-19 uncertainty continues, I am cautiously optimistic that we can overcome this crisis. Let me now proceed by first providing a snapshot of the terrain after the outbreak of COVID-19. The domestic financial markets were racked by heightened volatility following the outbreak of the COVID- 19 pandemic. We saw sharp decline in portfolio inflows in the first two months of 2020. The stock market index recorded on March 19 its lowest year-to-date record since 11 October 2011. We have had serious exogenous shocks in the first quarter– the Taal volcano eruption, US-China trade tensions, African swine fever. But nothing comes close to the COVID-19 pandemic that has brought the global economy at a standstill. The confluence of these shocks resulted in the dismal contraction of the economy by 0.2% in the first quarter o 2020. This is the first negative real GDP growth since 1998 when the economy wrestled with El Nino and the Asian financial crisis. In its latest assessment, the Development Budget Coordination Committee forecasts a full-year contraction of – 2.0 to – 3.4 percent (NEDA, 13 May 2020). On a positive note, the peso appears to buck the trend as most regional currencies have depreciated significantly against the US dollar. The peso is the least depreciated currency among its peers. We have hefty gross international reserves estimated at US$89 billion. We forecast that the year-end GIR will reach US$93 billion. Despite the gloom, there is reason for optimism on the prospects of the Philippine economy. The long reform agenda that the government has consistently pursued across administrations has allowed the country to achieve a more broad-based growth. The volatility of real GDP and inflation considerably declined over time. Aggregate demand in the post GFC period expanded at an average rate of 6.4 percent annually, comparable to the growth rates of China and India. We have ample FX buffer, low public sector debt, manageable external payments position, and a solid credit profile. The country’s external debt metrics have steadily improved. The external debtto-GDP ratio to only 23.3 percent as of end-2019 compared to about 60.0 percent in 2005. Philippine banks are well-capitalized, liquidity positions are strong, and non-performing loans are low – demonstrating the effectiveness of progressive banking regulatory reforms we have implemented over the years. In a recent survey released just this May by The Economist among 66 emerging economies, the 1/4 BIS central bankers' speeches Philippines is ranked the 6th most robust on the basis of four measures of financial strength, namely, public debt, foreign debt, cost of borrowing, and reserve cover. When the coronavirus crisis arrived, the government had and continue to have adequate fiscal and monetary policy space which it immediately deployed to calm down the market and ease liquidity pressures. On its part, the BSP promptly implemented measures to ease liquidity, and sustain flow of credit that have calmed down market jitters. Recognizing the importance of MSMEs in the economy, the BSP allowed banks to include new MSME loans as part of their compliance with the required reserve ratio. The credit risk weight of MSME loans that are current in status was temporarily reduced while MSME loans with government guarantee were assigned zero weight. These policy measures are aimed at encouraging more lending to MSMEs. However, our optimism is also tempered by a sense of realism that there are still much work to be done. We have a good head start with the economic and regulatory buffers we built over the years. But these can be easily eroded given the huge resource requirement of the crisis response measures. As we prepare for the reopening of the economy, we should remain vigilant because the risk of COVID-19 remains high. We should maintain disciplined approach to policy coordination and decision-making. The crisis has exposed the vulnerabilities and gaps in existing processes and systems that we need to swiftly deal with to cover lost momentum because of COVID-19. However, our optimism is also tempered by a sense of realism that there are still much work to be done. We have a good head start with the economic and regulatory buffers we built over the years. But these can be easily eroded given the huge resource requirement of the crisis response measures. As we prepare for the partial operations of some economic sectors, we cannot relax our vigilance because the risk of COVID-19 remains high. We should maintain disciplined approach to policy coordination and decision-making. The crisis has bared the vulnerabilities and gaps in existing processes and systems that we need to swiftly deal with to cover lost momentum because of COVID-19. Let me expound on four critical structural reform imperatives. First on the list is the modernization of the country’s health system to ensure efficient public health infrastructure and resilient crisis preparedness framework. This would require giving incentives for the use of science and technology in health policy decision making. It would require overhauling of healthcare supply chain management. The government must also initiate the formulation of a national preparedness and response framework for disease outbreaks and pandemics, taking into account coordination gaps across different levels of government. Second is the need for massive upgrading of the ICT infrastructure system and processes as technology will play a pivotal role in reshaping the means of production and the delivery of goods and services in the post-Covid world. The demand for digital technology will increase, driven by companies, schools, and government 2/4 BIS central bankers' speeches agencies implementing work from home arrangements and virtual meetings. Digital technology will also be critical in enabling simpler and more efficient transactions with government agencies. Business transactions such as online retail, online banking, online medical consultations, and digital payments, will increasingly become a necessity. All these need to be supported by a safe and reliable digital infrastructure system with robust and dependable cybersecurity protection. Digital technology is also key to strengthening the government’s monitoring and evaluation systems for policy responses and actions. Without these capacities, governments may not adequately assess how its policies affect the people and risk having the vulnerable bear a disproportionate burden of the consequences. Third is the modernization of Philippine agriculture and government’s supply chain management system with the aid of digital technologies. This will help ensure that food and other essential goods and services are available, accessible, and affordable. For example, an efficient logistics system for agriculture facilitates the transport of agricultural inputs including farm equipment and machinery to farmers to keep food production uninterrupted. Consequently, it will ensure that farm produce reaches the markets and are made available to Filipino consumers and provide Filipino farmers their rightful share in the gains from production. Fourth is the development of highly skilled and resilient workforce by strengthening the educational system, sustained upskilling, and adequate health protection to future-proof our workforce. In this way, the country’s productive capacity can benefit more strongly from its favorable demographics. According to the United Nations, the Philippines has one of the youngest labor force relative to other Southeast Asian countries and the rest of the world even until 2060. The median age of Filipinos is estimated to be 25.7 years old in 2020, younger than the expected median age of 30.9 years old globally. The structural reform imperatives I have outlined are outside the ambit of BSP. Yet they have profound impact on the realization of the BSP’s policy thrusts. Against this backdrop, what else can the BSP do? The BSP’s policy space remains sufficient. The BSP has yet to exhaust the conventional monetary instruments in its toolkit to support the liquidity requirements of the economy, should conditions warrant. The COVID-19 pandemic has affected various industry sectors where banks may have substantial exposures to. As the economy gradually moves beyond quarantine, the amplification of strains in the whole financial system have yet to be revealed. Adjustment in operations undertaken by businesses as a consequence of the community quarantine as well as changes in capacity to pay off creditors may have adverse balance sheet and employment effects. Given interlinkages across sectors, these may have significant financial stability implications. Given the possibility of higher defaults and non- performing loans, there may be scope to offer more debt restructuring measures. The BSP supports the Financial Institutions Strategic Transfer (FIST) bill that creates asset management corporations. The measure seeks to reinstate time-bound fiscal incentives for relieving the balance sheets of banking institutions of soured loans that may impair lending to the productive sectors of the economy. We agree in principle with the goals of the proposed Philippine Economic Stimulus Act of 2020. The stimulus act seeks to ease the plight of workers, families and businesses who were adversely affected by the Covid-19 pandemic and to facilitate recovery and preserve the 3/4 BIS central bankers' speeches country’s economic growth. As in any measure providing support using public funds, prudence has to be observed to rein in excessive moral hazard that may arise. Human behaviour is expected to change with social distancing as the new norm. People are expected to prefer using electronic payment and financial services to face-to- face and over-thecounter transactions. To expand the reach of digital transactions, we need to increase contactless payment facilities, such as PayMaya and Gcash. Their use can be expanded to include wet markets, retail stores, and public utility vehicles (jeep, taxis, tricycle, bus). We need to quicken the adoption of the National QR code standard (“QR Ph”) to enable interoperable payments for person-to-person (P2P) and person-to-merchant (P2M) transactions. The scale of the recently launched EGov Pay Facility can be expanded to enable ordinary citizens to digitally pay government taxes, fees, and charges. The expeditious implementation of the national ID system will enable inclusive and innovative digital finance and ensure reliable database for the design and impact assessment of policies, including those for taxation and social support purposes. With the increased usage of non-bank channels to send/receive money, the BSP has been improving channels of remittances with the approval of new technologies in remittance transfers (mobile phones, internet, cash cards). Admittedly, insufficient IT infrastructure leading to the slow internet connection, data privacy and cybersecurity risks, and lack of knowledge on new technologies may pose challenges in the implementation of financial digital services. Promoting financial literacy and ensuring good market conduct are likewise important to deepen the public’s trust in digital financial services. Moving forward, more measures should be taken to reduce external vulnerabilities. Congress, meanwhile, must provide additional measures to reduce the costs of doing business in the Philippines; streamline the investment process; and increase business confidence by improving the business climate, fostering competition, and boosting productivity growth via the Corporate Income Tax and Incentives Rationalization Act (CITIRA) and amendments to the Public Services Act. Concluding thoughts The Covid-19 pandemic is unprecedented in scale. Nonetheless, as most of the global economic crises, it provides important lessons to governments in terms of preparing for crisis of the same scale in the future. The pandemic underscores the imperative of building sufficient buffers during good times and the need to speed up the modernization of the country’s Information and Communication Technology (ICT) infrastructure and policies. The list of reform possibilities is longer than what I have offered. There are deep learnings that we should collectively heed if we are to rise above the crisis and forge ahead towards the goal of a stronger and more inclusive society. Thank you and good day. 4/4 BIS central bankers' speeches
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Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at FinTech Alliance, virtual, 20 May 2020.
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Benjamin E Diokno: The role of Fintech in pump-priming the digital economy in post COVID-19 Remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at FinTech Alliance, virtual, 20 May 2020. * * * Thank you, Fintech Alliance Ph, for inviting me to give the Keynote speech in this virtual forum on the Fintech’s Role in Pump-Priming the Economy. I would say that this topic is not just timely but also inevitable as we transition to a new economy thrusted upon us by the COVID –19 crisis. Renowned for their agility, adaptability and digital fluency, Fintechs are uniquely positioned to support the country’s bid to shape a new economy that is more resilient, inclusive and technology-enabled. The pandemic has been widely described as unprecedented. Others have likened it to a war – decimating the economy and the society in its wake. These are not exaggerated portrayals. The Development and Budget Coordination Committee is projecting a worst-case scenario of minus 3.4% GDP growth, the deepest contraction since 1985. Unemployment rate, from its historical low of 5.3%, is feared to go double digit with the looming economic slowdown. An unprecedented crisis calls for unprecedented response. With livelihoods and lives of millions at stake, the national government and the Bangko Sentral ng Pilipinas acted swiftly and boldly. Fortunately, we entered the crisis with solid macroeconomic fundamentals which afforded us sufficient fiscal and monetary policy space to do so. The BSP immediately undertook a series of monetary policy and financial sector regulatory adjustments to mitigate the economic impact on people and firms. By March 19, just days into Luzon’s enhanced community quarantine, the BSP has already made a year-to-date cumulative 125-basis points policy cut rate. This was shortly followed by a 200 basis points cut in the reserve requirement ratio. We complemented these monetary policy adjustments with other liquidity-enhancing measures, including the temporary suspension of term deposit facility auctions, the reduction in reverse repurchase volume, and purchases of government securities in the secondary market. To support the government’s health and fiscal programs, the BSP purchased 300 billion pesos of government bonds under a repurchase agreement with the national government, which can be increased to P500 billion pesos if necessary. On top of this was the BSP’s 20 billion pesos remittance to the national government as advance dividends. An important aspect of BSP’s financial sector regulatory interventions are the micro, small and medium enterprises (MSMEs) and the informal sector which are among the most vulnerable in this pandemic. MSMEs generate two-thirds of our country’s employment and represent 99% of the total number firms. To stimulate bank lending to the sector, the BSP has included new MSME loans as part of 1/3 BIS central bankers' speeches the banks’ compliance with the reserve requirements. We also issued temporary reduction in the credit risk weights of current loans to MSMEs, and the assignment of a zero risk weight for MSME exposures that are covered by guarantees from the Philippine Guarantee Corporation (PhilGuarantee), the Agricultural Guarantee Fund Pool (AGFP) and the Agricultural Credit Policy Council (ACPC). The BSP likewise lengthened the period of relief on the reporting of past due and non-performing loans of borrowers affected by the COVID-19 to December 31, 2021 from the original timeline of March 8, 2021. These measures are designed to free up bank resources to expand their MSME loan portfolio. Meanwhile, the national government under the Bayanihan to Heal as One Act launched key programs to support the adverse impact of the pandemic on MSMEs and informal sector. These included the P205 billion social amelioration program covering informal sector workers, the P51 billion wage subsidies for employees of small businesses; a P1.2 billion guarantee fund for MSME loans under the PhilGuarantee; and soft loan program for MSMEs under the DTI and ACPC (P2 billion). All these measures supported the country’s survival and containment response geared to keep the economy afloat amidst the crisis. The first round of immediate response was primarily about winning the war. That was Act One. With the government now preparing to lift movement restrictions, we are moving to Act Two where we are called to rebuild for the post-COVID world. The pandemic has revealed and brought urgency to necessary reforms around public health, social safety nets, disaster response, and countryside development. But what reinforces all these reforms is the digital imperative. There is no arguing that the new economy is digital. Our aspirations for a more inclusive and prosperous post- COVID world necessitate putting in place the critical pillars of a digital economy, including robust digital infrastructure, digital skills, e-government, digital ID, and an enabling legal and regulatory framework. All these have given new immediacy to BSP’s long standing financial inclusion and digital transformation agenda for the financial sector. The BSP is committed to achieve by the end of my term at least 50% of retail payment transactions shifted to digital and 70% of adult Filipinos having and using a transaction account. Towards this end, the BSP has drawn up a 3-year digital payments transformation roadmap outlining our priority policy initiatives, including open banking. From where I stand, Fintechs as an innovative provider and enabler of digital financial services will find compelling opportunities in this digital transformation agenda. Now is a good time to act. Congress has moved to file proposals for structural reforms and massive economic stimulus package targeting MSMEs, among others. Government agencies and banks need digital solutions to efficiently deploy funds to target recipients of these billion-peso support measures and loan programs. Fintechs can be and can provide the needed solutions. For instance, Fintechs can offer turnkey loan origination and underwriting platform for the government’s direct lending programs. Another could be digital solutions for MSMEs pivoting to e-commerce. 2/3 BIS central bankers' speeches Some fintechs can serve as digital payment channels while others can offer last-mile lending conduits like cooperatives and microfinance institutions a shared digital platform to better serve and reach more clients. These are just some of the Fintech solutions for the post- COVID measures that come to mind. I am sure there are many others that the Fintech Alliance members will be able to offer There is no playbook for how Fintech can pump-prime the economy, but we can perhaps be guided by basic principles for success. To me, that would be seeking strategic partnerships, innovating solutions for impact, and never losing sight of our mission. Rahm Emanuel, the former mayor of Chicago and Chief of Staff of President Obama, has famously said that we should never let a serious crisis go to waste. This is a useful reminder for this pandemic which has made digital transformation a clear and urgent national agenda. I wish it were under better circumstances that I will say this, but the Fintech community has a lot to look forward to and even more to contribute in the shaping of the new economy – one defined by shared and sustainable prosperity. With our collective efforts, may we be able to look back at this crisis with no regrets for wasted opportunities. May you have a fruitful and insightful discussion ahead. Maraming salamat at mabuhay kayong lahat. 3/3 BIS central bankers' speeches
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Welcoming remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Nomura Virtual Investor Conference, 24 August 2020.
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Benjamin E Diokno: The Philippines - becoming an economic champion in the post-COVID world Welcoming remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Nomura Virtual Investor Conference, 24 August 2020. * * * Good afternoon everyone. It is my pleasure to speak with local and international investors and share updates on the Philippine economy at this time. But first let me thank Nomura for sponsoring this webinar. It’s been nearly six months since the World Health Organization (W HO) declared the corona virus disease as a pandemic. Since then, lockdowns of varying degrees and durations have been implemented in different territories of the world, some more successful than others. But while a few countries have reported some successes in fighting the spread of the virus, surge in COVID-19 cases continues to be seen in many parts of the globe. Consequently, business activities have been disrupted, and the global economy is set to contract this year. The International Monetary Fund, in its report released in June, said it expects the global economy to shrink by 4.9 percent this year, worse than the negative 3.0 percent projection made in April. The Philippines is not spared. Its economy plunged into recession in the second quarter. Yet, we’re confident that the economy will bounce back strongly within the near term. Amid the uncertainty, countries with decisive leadership and the right policy responses to the pandemic will be the economic champions in the post-COVID era. Based on what we have done so far, I am confident the Philippines will be among them. There are three prerequisites for an economy to post a strong recovery. First is the ability to craft and implement measures that squarely address the crisis and its impact. Second is adoption of a unified and coordinated approach among concerned entities. And third is the recognition and seizing of opportunities behind the challenges. Let me briefly discuss each. First, crafting and implementation of measures that address the problem head on. 1 / 13 BIS central bankers' speeches We cannot simply wait for things to get better on their own. We have to craft the appropriate actions and implement them. As author Victoria Addino aptly puts it, “Never run from the enemy; tackle them.” Focusing on the Philippines, the Bangko Sentral ng Pilipinas together with the national government, has implemented a wide range of measures within the ambit of monetary policy and banking supervision that squarely address four key necessities at hand: (i) ensure sufficient liquidity, in part to support government programs for saving lives and livelihoods; (ii) maintain stability of the financial system; (iii) ensure continued delivery of financial services to the public; and (iv) shore up confidence and cushion economic activity. On the first item – injecting liquidity – the BSP has advanced P300-billion (approximately 6 billion US dollars) to the National Government through a repurchase agreement. We also cut the reserve requirements for banks by 200 basis points, releasing some P200 billion into the financial system. We also remitted in advance dividends of P20 billion to the National Treasury. Such actions have provided readily available money to the government to fund critical measures to mitigate the impact of the pandemic on Filipino households and businesses. The BSP also purchased government securities in the secondary market. This helped boost market liquidity—cash that may eventually be used by banks to lend to consumers and businesses affected by the pandemic. Speaking of liquidity, the BSP, as allowed under its recently amended charter, will start issuing its own debt instruments in the third quarter. This will help us better manage liquidity in the system, a timely development given the present situation. 2 / 13 BIS central bankers' speeches Last month, National Treasurer Rosalia de Leon and I signed a memorandum of agreement linking the BSP’s Monetary Operations System (MOS) and the BTr’s National Registry of Scripless Securities (NRoSS). On the second item – maintaining stability of the financial system – the BSP recognizes the crucial role banks and other financial institutions play in keeping the economy afloat and in fueling recovery. At the same time, we recognize the potential losses that financial institutions may endure because of the crisis. As such, we have implemented a long list of regulatory relief measures to ensure stability of the financial system. In particular, the BSP: (i) allowed banks to draw down from their regulatory buffers; (ii) relaxed the terms for our financing facilities; (iii) reduced penalties for reserve deficiencies; (iv) counted loans to micro, small and medium enterprises as part of compliance to the reserve requirements; (v) We have also reduced the credit risk weights of MSME loans; (vi) assigned zero risk weights to loans guaranteed by select government institutions; (vii) and allowed reclassification of debt securities to reduce the impact of mark-to-market losses; (viii) allowed temporary exclusion of debt securities acquired from market making activities from the single borrower’s limit (SBL). Let me stress that going into the crisis, the Philippine banking sector has been strong and stable. Now, with the regulatory measures put in place, we intend to maintain the banking sector’s strength amid the crisis. As of March 2020, the capital adequacy ratio (CAR) of the country’s universal and commercial banks stood at 15.3 percent on a solo basis. 3 / 13 BIS central bankers' speeches This is higher than the BSP’s minimum requirement of 10 percent and the Bank for International Settlement’s prescribed 8 percent. As of March 2020, their liquidity coverage ratio was at 171 percent, higher than the regulatory requirement of at least 100 percent. Their assets continue to grow, rising to P17.2 trillion in June 2020 from P15.8 trillion in the same period last year. The banking system’s gross total loan portfolio (TLP) rose by 7.3 percent year on year to P9.9 trillion as of end-June 2020, slower than the 10.5 percent growth rate in June 2019. The quality of the universal and commercial banks’ loan portfolio remained satisfactory. The nonperforming loan (NPL) ratio stood low at 2.1 percent as of end-June 2020, slightly higher than the 1.6 percent ratio as of end-June 2019. Meantime, the crisis has led to concerns that banks may suffer from a sharp rise in nonperforming loans. But based on our assessment, this will not be the case. We expect any increase in NPLs to be modest. A BSP survey conducted in April among top 20 universal and commercial banks, top 20 thrift banks, and top 20 rural and cooperative banks showed that, on average, these banks expect their NPLs to increase from 2.4 percent last March to 4.6 percent to December 2020. This likely increase is manageable. We have implemented numerous relief measures. And more are being considered. In particular, we are looking at additional regulatory enhancements that will enable our regulated entities to focus their resources on addressing the impact of the pandemic on their operations and the financial consumers. We will announce the additional relief measures once finalized. Meantime, we are happy to note that following the implementation of regulatory relief measures, 4 / 13 BIS central bankers' speeches banks are up to their task. In particular, we have seen a significant increase in loans, more so to micro, small, and medium enterprises. The average daily loans to MSMEs jumped 750 percent. From P9.9 billion in April 2020 to 84.2 billion in July 2020. This is a big relief for small businesses. On the third item – ensuring continued delivery of financial services to the public – such is crucial in making sure people are able to continue buying things, more so the basic necessities, and businesses continue to replenish their inventories. Toward this end, we have done the following: (i) urged banks to suspend fees on the use of electronic banking; (ii) raised the single borrower’s limit; (iii) allowed temporary relaxation of know-your-customer (KYC) requirements to facilitate delivery of welfare funds; (iv) directed banks to ensure availability of ATM and online platforms and to be vigilant against cyber threats; and (v) continue to service cash withdrawals of banks nationwide, as well as ensure unhampered operations of Philpass, peso-US dollar trading, and monetary operations. The fourth item – shoring up confidence and cushioning economic activity – is indispensable. Every recovery story starts with the people, including market players like you, believing in the ability of governments and central banks to engineer economic recovery. All the BSP measures I have mentioned have helped build market confidence. On top of these, we temporarily suspended auctions for our term deposit facilities for certain tenors and reduced the volume offering for our overnight RRP facility. More importantly, our move to implement a series of policy rate cuts, totaling 175 bps, and to reduce the reserve requirement, by 200 bps for big banks and 100 bps for small banks, so far this year have sent a strong signal that the BSP, is leading the Philippines toward a strong recovery over the near term. 5 / 13 BIS central bankers' speeches In the latest policy meeting held last Thursday, the BSP’s Monetary Board decided to keep policy rate steady following the rate cuts earlier this year. The decision was based on our view that monetary policy settings remain appropriate for the time being, with global economic growth remaining subdued on one hand, and early signs of recovery in domestic economic activities on the other. Indeed, the BSP has done quite a lot. Even so, our tool kit is far from being exhausted. With the policy rate at 2.25 percent and inflation well within target, there is room for further adjustment in the key rate. Also, there is room to further reduce the reserve requirement. The Monetary Board earlier this year gave me authority to implement a 400-bps cut in the reserve requirement for 2020. So far I have done a 200-bps of cut in the RR for universal and commercial banks. Let me be clear: the BSP is prepared to do more if warranted. The BSP remains committed to a disciplined- and evidenced-based monetary policymaking as it pursues its price stability objective. With the liquidity enhancement measures the BSP has implemented, we have so far injected over P1.25 trillion – equivalent to 6.4 percent of GDP – in liquidity to the financial system. Still on market confidence, major indicators suggest that financial markets are responding well to our policy responses. The peso is the strongest currency in Asia, recording a year-to-date appreciation of 4.30 percent against the US dollar as of August 19. The Philippine Stock Exchange Index (PSEi) has rebounded from a low in the 4,600 territory in March to 6,042 on August 19. The Philippines’ 5-year credit default swaps spread settled at 49.2 bps as of August 19, much tighter than those of peers. Confidence on the Philippines is further cemented by favorable actions by credit rating agencies. 6 / 13 BIS central bankers' speeches Japan-based debt watchers Japan Credit Rating Agency and R&I raised the country’s credit rating by a notch to A minus, and Triple B plus respectively. Amid a wave of rating downgrades they have implemented worldwide, S&P, Fitch, and Moody’s affirmed the Philippines’ investment-grade credit ratings of Triple B plus, Triple B, and Baa2, respectively, all with a stable outlook. Let us now proceed to the second prerequisite to thrive in a crisis: adoption of a unified and coordinated approach among concerned entities. The timeless quote from Helen Keller perfectly captures the idea: “Alone we can do so little; together we can do so much.” In the case of the Philippines, on a national level, there is a whole-of-government approach in addressing the pandemic and its effects. On top of this, we also have a very active private sector that is carrying out various altruistic initiatives to alleviate the plight of affected Filipinos. On the part of the BSP, we coordinate well with the National Government in addressing the needs of the country in saving lives and livelihoods, even as we continue to strictly observe our independence. We have maintained pro-active relations with regional forums as well as with multilateral institutions. Together with other central banks, we pursue mutual objectives and initiatives that, in general, contribute to economic growth and financial stability. The pandemic has provided us with an opportunity to widen our engagement and intensify our policy dialogues. The dialogues zeroed in on economic developments amid the pandemic, the policy responses, availability of financing assistance and other means of support, and the way forward in the new economy. 7 / 13 BIS central bankers' speeches Two important lessons from these discussions. First, the pandemic has adversely impacted the global economy, though the impact is uneven. Second, while many central banks responded quickly by providing liquidity, other equally important measures, such as fiscal and social, are needed to cushion the impact of the crisis. Through our participation in international fora, the BSP may learn from our peers. In turn, they may also learn from us. On a regional level, the Philippines, through the BSP, continues to be an active member of various initiatives that provide member-countries with support in case of balance of payments difficulty. For instance: Under the Chiang Mai Initiative Multilateralization (CMIM), the Philippines has committed US$9.104 billion. As a contributor to this facility, the Philippines will (1) be able to provide liquidity assistance to another member experiencing liquidity difficulty; and (2) as a recipient, the Philippines may be able to borrow up to US$22.76 billion to help avert an impending or actual balance of payment problem. Under the ASEAN Swap Agreement—for which the Philippines recently renewed its participation for another two years up to November 2021—the country’s commitment is US$300 million, which allows us to draw up to an equivalent of US$600 million when the need arises. Also, the BSP has a Bilateral Swap Agreement with the Bank of Japan. The agreement enables the Philippines to swap its local currency against Japanese Yen in addition to US dollars with the facility size of up to US$12 billion equivalent for the Philippines and US$500 million for Japan. Let us move on to the third and final prerequisite to thrive in this unprecedented crisis, which is recognition and seizing of opportunities. As Albert Einstein said,“In the middle of difficulty lies opportunity.” There are silver linings in every crisis. The same is true for the COVID-19 crisis. The sooner we recognize the silver linings from this crisis, the quicker for us to implement the right responses and to recover. 8 / 13 BIS central bankers' speeches The Philippines is putting to good use the lessons that this unprecented crisis brings, and we are seizing the opportunities it presents. As far as the BSP is concerned, the crisis helps put the spotlight on additional legislative measures that we are pushing. These measures are meant to aid the Philippines’ recovery in the short term and propel its transition toward becoming an upper-middle income and high-income economy over the medium- to long term. In particular, we are pushing for the immediate enactment of the following legislative proposals: -Amendment to laws pertaining to secrecy of bank deposits -Amendment to the Credit Information System Act, to further improve accessibility of financial services to MSMEs -Amendments to the Agri-Agra law to help the banking sector become more responsive to the needs of the agriculture sector -Financial Consumer Protection bill to better safeguard the interest of consumers of financial products and services • Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery – or GUIDE – bill, which seeks to provide financial assistance to distressed enterprises that are critical for economic recovery; • Financial Institutions Strategic Transfer (FIST) bill, which seeks to help banks and other financial institutions recover from potential losses arising the current crisis. Allow me to expound briefly on the FIST bill, which I believe many financial market players are keen to learn about. The bill, if enacted into law, will allow the creation of asset management corporations which we call Financial Institutions Strategic Transfer Corporations, or FISTCs, to which banks may sell their non-performing assets. FISTCs are similar to special purpose vehicles (or SPVs) created in the aftermath of the Asian Financial Crisis to help banks get rid of their bad assets. Under the proposed bill, tax exemptions and other incentives will be granted to encourage the creation of FISTCs. 9 / 13 BIS central bankers' speeches Tax incentives include exemptions from capital gains, documentary stamp, creditable withholding, and value-added taxes. FISTCs, once their business plans are approved by the Securities and Exchange Commission, will be allowed to issue their own securities – called “investment unit instruments” – to potential investors. Once bad assets have been sold to the asset management corporations, they will have the authority over these assets, and they may either lease, sell, or, in case of NPLs, restructure these assets. They have a life of two years from the start of the law’s effectivity, but this can be extended for another two years if deemed necessary. Moving on… Another way we are seizing opportunities from this crisis is by further promoting financial digitalization. It is one of the fastest ways to increase access to financial services, particularly in remote areas where banks do not have branches. Digitalization also enables quicker capital turnaround, thereby accelerating income growth. The BSP has been a firm supporter of financial digitalization. And with the crisis-induced lockdowns having boosted the use of digital banking, we are seeing more industry players being up to the task. My twin goals is that by end June 2023, first, 50 percent of all financial transactions in the Philippines will be done electronically and second, that 70 percent of all Filipino adults will have bank accounts. But with the spike in usage of online banking due to the lockdown, these goals may be achieved earlier. Four million new digital accounts were created from March 17 to April 30 this year. Even before the pandemic, there are two existing major platforms that allow funds to be transferred electronically from an account in one bank to an account in another bank – the PESONet and InstaPay. As a result of the pandemic the use of both platforms has increased exponentially. The use of InstaPay surged by 740 percent year-on year in volume, from 2.9 million to more than 24 million transactions in July. 10 / 13 BIS central bankers' speeches The use of PESONet, on the other hand, rose by 137 percent year-on-year in volume — to 2.6 million transactions in July 2020, up from 1.1 million transactions in July 2019 Indeed, as a result of the pandemic, the shift to digital payment options is phenomenal. Complementing financial digitalization is the implementation of the Philippines’ National Identification system (PhilSys), which will happen soon. The crisis has highlighted the importance of having a comprehensive and reliable database of citizens. For one, it is imperative for the effective rollout of welfare benefits and other services. Once the national ID system is in place, all Filipinos will have a reliable and nationally accepted proof of identity. With the “Phil ID”, unbanked Filipinos will have a proof of identity, which is a KYC requirement in opening a bank account. As such, access to financial services will be easier and more people can actively participate in the country’s economic activities. In brief, the national ID system supports our financial inclusion objective. With the three prerequisites for strong recovery having met, the Philippines is poised for a solid rebound. Having said this, allow me to put proper context to the Philippines’ economic performance in the first half. Like many economies across the globe, the Philippines contracted in the first semester. Nevertheless, our latest contraction is not like in previous crises—such as the 1984–85 preEDSA crisis and the 1997–98 Asian Financial Crisis—wherein the peso depreciated, interest rates rose, debt-to-GDP ratio expanded, gross international reserves thinned, and banking industry wobbled. In previous crises, there were inherent weaknesses in the economy. But today, the Philippine economy contracted only because of our self-imposed, strict nationwide lockdown to save lives and to allow the buildup of health facilities and testing capacities amid the 11 / 13 BIS central bankers' speeches pandemic. The Philippine economy at present is robust, characterized by strong fundamentals: low interest rates, appreciating peso, sound external sector with a record-high GIR, low debt ratios, withintarget inflation, and robust banking industry. Based on latest government projections, GDP will rebound from a 4.5 to 6.6 percent contraction this year to a solid growth of 6.5 to 7.5 percent next year and in 2022. Agriculture, the massive public infrastructure projects, and revitalization of industry and services sectors will lead this recovery. We expect Inflation to remain benign, thus providing an enabling environment for jumpstarting economic activities. We expect inflation to settle within the range of 1.75 to 2.75 percent this year, and 2.0 to 4.0 percent next year and in 2022. Trade will also recover. Following contractions this year, we expect exports to grow by 5 percent and imports by 8 percent next year and in 2022. Remittances are expected to contract by 5 percent this year. But we expect remittances to rise by 4 percent next year. Moreover, we expect the GIR to reach $90 billion by the end of this year, the highest year-end figure. We expect the GIR to remain robust in the medium term, with exports, remittances, and investments rebounding as global economic activity picks up. Our projections are supported in part by initial signs of recovery. For instance, manufacturing activity is recovering, with the volume of production index improving to –19.0 percent in June from –39.0 percent in April. Exports improved to –13.0 percent in June from –50 percent in April. Exports to China, our top trading partner, was up 2.8 percent in June, a reversal from negative 12 / 13 BIS central bankers' speeches 55.0 percent in April. As China’s economy improves in the second semester, so will our exports. With the indicators of recovery, I am confident the Philippines will soon go back to its path toward becoming a more inclusive upper middle-income economy over the medium term. As market participants, all of you are probably looking for new safe havens as the world continues to grapple with the COVID-19 crisis. With all the points I have just narrated, there is basis to consider the Philippines among them. The challenge posed by the COVID-19 crisis is enormous, but our institutions and economic fundamentals are stronger than ever. The BSP is one with the government and the entire nation in shaping the Philippines to become an economic champion of tomorrow, in the post-COVID world. Thank you very much for listening. I look forward to our Q&A. 13 / 13 BIS central bankers' speeches
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Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Senate Hearing of Financial Institutions Strategic Transfer Bill, Manila, 2 September 2020.
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Benjamin E Diokno: Opening statement - Hearing of Financial Institutions Strategic Transfer Bill Opening statement by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Senate Hearing of Financial Institutions Strategic Transfer Bill, Manila, 2 September 2020. * * * We thank the Senate Committee on Banks, Financial Institutions, and Currencies for giving Bangko Sentral ng Pilipinas (“BSP”) the opportunity to share its insights and position on the legislative measures relating to the enactment of Financial Institutions Strategic Transfer Act (“FIST Bill”). BSP appreciates the time and effort this committee has poured into the FIST Bills in order to facilitate the timely enactment of this economic recovery intervention. BSP recognizes the objectives of FIST Bill to help financial institutions (“FIs”) in their bad debt resolution and non-performing assets (“NPA”) management in response to the adverse impact of the COVID-19 pandemic on their financial operations. BSP supports the laudable objectives of FIST Bill to induce economic activity and improve the liquidity of the financial system, enabling FIs to respond to the looming increase in NPAs, and therefore, propel economic growth. The enactment of the FIST Law will assist the financial system perform its role of efficiently mobilizing savings and investments for the country’s economic recovery as well as its sustained growth and development. The banking system has built-in buffers which provide it with the capacity to internalize losses on their exposures as well as continue with their lending and investment activities. There is, however, a limit to this risk-bearing capacity of FIs; thus, the establishment of resolution frameworks, such as the FIST Law, will ensure that distressed FIs have a mechanism to strengthen their balance sheet. The enactment of the FIST Law can help ease banking system stress through a jointgovernment and private sector undertaking. It encourages the private sector, government financial institutions and government-owned-or-controlled corporations to help in the rehabilitation of distressed businesses. Through the sale of NPAs: a. Banks will not have to incur costs related to the management and administration of NPAs, activities that are best left to asset management companies; b. Liquidity within the banking system will increase since this will no longer be tied up in NPAs; and c. Bank capital will be freed-up, thereby increasing the system’s risk-bearing capacity and ability to expand investment and lending activities. Later on in my presentation, I will discuss the FIST Bill Business Model, the necessity of enacting FIST Bill, and the improvements from the Special Purpose Vehicle Act (“SPV”) of 2002, as amended, introduced in FIST Bill which aim to address the issues and difficulties encountered during the implementation of SPV Act and to cater to the present needs of financial institutions, especially in this pandemic. Again, we thank the Committee for giving BSP the opportunity to participate in the passage of this landmark legislation. 1/1 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Executive Briefing on Digital Transformation, Manila, 8 September 2020.
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Benjamin E Diokno: Promoting retirement savings through digital PERA - Convenient and Affordable Retirement Savings (CAReS) through Digital PERA #PERACAReS Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Executive Briefing on Digital Transformation, Manila, 8 September 2020. * * * Ladies and gentlemen, good morning. It is a pleasure to welcome you all, as we bring together the government and private sectors to celebrate this important milestone—the virtual launching of digital PERA, or the Personal Equity and Retirement Account. Today’s event takes place in an unprecedented time. Needless to say, the COVID-19 pandemic continues to disrupt economies and societies around the world. The pandemic has changed the way we live, work, and communicate. But the crisis also presents an opportunity to rethink our priorities and to prepare for our next steps moving forward. Through this event, we hope to encourage more Filipinos to plan and save for the future amid these challenging times. This aspiration can be made possible through digital PERA—a convenient and affordable program that aims to boost retirement savings. PERA was established under Republic Act No. 9505 as a means to help Filipinos build funds which they can use upon retirement. Preparation is key when thinking about retirement, and there is no better time to prepare than when you are still able and productive. After all, we deserve to sit back and enjoy our retirement after years of hard work. Unfortunately, this is not the case for many of us. In fact, most Filipinos do not expect to receive a pension in their old age. Based on the latest report of the Philippine Statistics Authority, the Philippines has around 7.6 million Filipinos aged 60 years old and above. Of this group, only 20 percent are covered by either SSS or GSIS, leaving 80 percent of senior citizens with no mandatory pension at all. Retirees who are fortunate enough to be covered by state-sponsored retirement systems receive an average monthly pension of P5,123 for SSS and P18,525 for GSIS. Depending on the lifestyle you would like to have in your senior years, this pension may or may not be enough to meet all your needs. According to a recent survey, we Filipinos tend not to prepare for their own retirement. Specifically, Filipinos only set aside 3.6 months’ worth of income for retirement––way below the regional average of 2.9 years. In terms of expectation, Filipinos believe that savings equivalent to 2.1 years’ worth of personal income would be enough for retirement. This is the lowest expectation in Asia compared with the regional average of 12 years. PSA reported that the share of social security benefits to Gross Domestic Product also remained relatively low at around 2.0 percent from 2012 to 2017. Security benefits include retirement and survivorship pensions, sickness, disability, death, and other related allowances or benefits. As such, voluntary retirement savings plans such as PERA are crucial in supplementing the 1/4 BIS central bankers' speeches state-based pension plans to meet retirement needs. We at the BSP support the twin objectives of PERA, which are: first, complementing existing pension and retirement benefits, and second, promoting capital market development. On a macro perspective, PERA plays a pivotal role in capital market development and in driving economic growth by accumulating long-term savings. This, in turn, contributes sustainability by increasing the availability of funds for long-term investments. Currently, PERA is underutilized. Since its implementation in December 2016, the PERA industry has not gained significant momentum. As of July 29, 2020, only 1,586 Filipinos had been investing in PERA, with total contributions of P137 million. Of the total contributors, 1,099 or 69 percent are locally employed, 273 or 17 percent are Overseas Filipino Workers (OFWs), and 214 or 14 percent are self-employed. On average, OFWs have higher contributions at P110,000; local employed workers at P82,000; and the self-employed at P76,000. These figures remain regrettably low. To bring PERA closer to the Filipino people, the BSP—together with relevant regulatory agencies and market participants—embarked on a collaborative effort to bring convenient and affordable retirement savings through digital PERA. Leveraging on digital technology, we revolutionized the PERA investment process by creating a one-stop shop digital experience for investor education, client on-boarding, settlement of transactions, and monitoring of PERA investments. With this platform, Filipinos can now conveniently open or access their PERA account and invest 24/7, anywhere in the world using a mobile gadget. You can immediately start investing from the comfort of your own home, without worrying about getting COVID-19. At the same time, the cost of online transaction is relatively cheaper. PERA contributors can send funds via InstaPay and other digital means. The digital platform also promotes integration and interoperability. It will connect various PERA market participants and products that will facilitate a more efficient processing of PERA transactions. Consequently, this could then easily expand the PERA ecosystem and provide opportunity for more banks and other financial institutions to join the PERA ecosystem as product providers or even as administrators. For the less technology savvy or those who find it challenging to transact online, traditional investment schemes for PERA are still available. This digitalization initiative would not be achieved without our reliable partners. Allow me to express my gratitude to the Asian Development Bank (ADB) for funding the development and upgrade of the PERA registry system or PERASys. The PERASys version 2.1 provides API connectivity to PERA administrators and allows real-time processing of transactions. Phase 2 of the ADB-funded project is the development of the ePERA system for the Bureau of Internal Revenue (BIR). The BIR ePERA system will facilitate processing and generation of electronic tax credit certificates (eTCCs) and acceptance of electronic reports from PERA administrators. This completes the end-to-end digitization of PERA. Along with the digital transformation, a series of reforms were instituted to support an enabling environment for the digital PERA. First, we introduced the self-custody arrangement for PERA funds. This basically allows the contributor to customize his or her own PERA funds and thereby reduce transaction cost. This initiative is enabled by the amendment of the PERA Implementing Rules and Regulations and issuance of BSP Circular No. 1081 dated March 4, 2020. 2/4 BIS central bankers' speeches Second, the PERA examination curriculum for the accreditation of individual PERA administrators was streamlined. Lastly, tax and other regulations were issued to provide further guidance on the implementation of the PERA Act and promote operational efficiencies. We are grateful to our partner agencies such as the BIR, Securities and Exchange Commission, Insurance Commission, and the Department of Finance for supporting these initiatives. At the same time, let me recognize the efforts of the industry, particularly the Trust Officers Association of the Philippines (TOAP), for assisting us in this digitalization journey. I know that you have been working hard with the BSP PERA Technical Working Group to reach where we are today—but there is still much work to be done. After laying the foundation of a digital ecosystem for PERA, we are targetting to reach 5 million Filipinos in a period of 5 years, or what we call 5 in 5. The target seems ambitious. But with more than 40 million locally employed Filipinos prior to the pandemic and around 2.2 million overseas Filipino workers, I am optimistic that this goal is easily attainable. While the pandemic rendered many Filipinos jobless, we nevertheless expect the Philippine economy to bounce back and create more job opportunities for displaced workers. We recognize that achieving this target needs commitment from all stakeholders. We, at the BSP, together with other relevant government agencies, will continue to promote a conducive regulatory environment for PERA. I encourage the market players to provide convenient and affordable PERA experience to your customers. I also hope to see more market players participate in the digital PERA ecosystem, such as insurance companies and mutual funds. To all the attendees today, may you promote the value of PERA in your organization, with your colleagues, and your families. At the end of the day, saving for retirement is a necessity. But this is just the beginning. We look forward to continuing our partnership with you to achieve a more convenient and affordable retirement savings for every Filipino. After laying the foundation of a digital ecosystem for PERA, we are targetting to reach 5 million Filipinos in a period of 5 years, or what we call 5 in 5. The target seems ambitious. But with more than 40 million locally employed Filipinos prior to the pandemic and around 2.2 million overseas Filipino workers, I am optimistic that this goal is easily attainable. While the pandemic rendered many Filipinos jobless, we nevertheless expect the Philippine economy to bounce back and create more job opportunities for displaced workers. We recognize that achieving this target needs commitment from all stakeholders. We, at the BSP, together with other relevant government agencies, will continue to promote a conducive regulatory environment for PERA. I encourage the market players to provide convenient and affordable PERA experience to your customers. I also hope to see more market players participate in the digital PERA ecosystem, such as insurance companies and mutual funds. To all the attendees today, may you promote the value of PERA in your organization, with your colleagues, and your families. At the end of the day, saving for retirement is a necessity. But this is just the beginning. We look forward to continuing our partnership with you to achieve a more convenient and affordable retirement savings for every Filipino. 3/4 BIS central bankers' speeches Once again, I welcome you all to this event, and I hope you enjoy today’s program. Thank you and stay safe. 4/4 BIS central bankers' speeches
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Speech (via webcast) by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Standard Chartered Bank ASEAN Webinar Series, 18 September 2020.
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Benjamin E Diokno: Laying the groundwork for the post COVID-19 era Speech (via webcast) by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Standard Chartered Bank ASEAN Webinar Series, 18 September 2020. * * * Good afternoon, everyone. It is my pleasure to join you today in the Philippines leg of Standard Chartered Bank’s ASEAN Webinar Series. My address this afternoon will focus on three main points. First, I will discuss the policy measures deployed by the BSP in response to the coronavirus pandemic. Second, I will elaborate on the legislative measures we are pushing for, as we lay the foundation for a more resilient economy in the medium term. These proposed laws will strengthen the financial sector and enable the BSP to deliver more inclusive services to the Filipino people. Finally, I will conclude by sharing our vision for the Philippines as we usher in the “New Economy.” First, on the BSP’s policy response. As you know, the coronavirus pandemic called for aggressive, timely, and unprecedented responses from governments across the globe. In the Philippines, when the COVID-19 virus appeared towards the end of the first quarter, we knew that we have to take decisive actions. For the BSP, we identified four critical functions within our area that are imperative to keep the economy afloat: Ensure that there is sufficient liquidity in the system Shore up market confidence and cushion slowdown of economic activity Sustain financial stability and extend relief to financial institutions; and Promote access to and delivery of financial services The BSP swiftly deployed an initial set of measures meant to help maintain stability and ample liquidity in the financial system. First, BSP entered into a PHP 300 billion repurchase agreement with the National Government and advance remittance of PHP 20 billion worth of dividends to augment the government’s funds for COVID response. Second, BSP purchased government securities in the secondary market. Third, BSP temporarily suspended term deposit facility auctions, and reduced the overnight reverse repurchase volume offering to encourage market participants to channel funds to loans or government securities. From the onset of the pandemic, the government has been firm: its topmost priority is to save lives and protect livelihoods. In line with this, the government imposed stringent lockdown measures in mid-March. The move disrupted businesses and constrained mobility and caused the economy to contract in the first half of the year. But it helped delay the spread of the virus as it allowed for the gradual expansion of the country’s healthcare capacity. To help stimulate the economy, the BSP’s Monetary Board cut the policy rate by a total of 175 basis points in a span of five months, bringing the key policy rate to an all-time low of 2.25 percent. 1/4 BIS central bankers' speeches In addition, the Monetary Board gave me authority to cut the reserve requirement ratio by a total of 400 bps this year. So far, I have cut it by 200 bps to 12 percent. These actions are meant to encourage banks to increase lending to households and businesses, and, consequently, pump additional liquidity to stir economic activity. As a result, from April to August 2020, we have seen a 1,040 percent growth in the average daily balance of banks’ loans to MSMEs. In sum, the total amount of additional liquidity injected into the system from these collective measures is estimated at PHP 1.4 trillion, equivalent to 7.3 percent of GDP. Still, our toolkit is far from exhausted, and we stand ready to do more if needed. Speaking of toolkit, the BSP is set to issue our own debt securities starting today.This will be an additional monetary policy instrument under the Interest Rate Corridor (IRC) framework. The use of BSP Securities for liquidity management supports the shift to more market-based monetary operations. It also allows the BSP to conduct monetary operations in line with international central banking practice. To say that the past six months have been challenging is a gross understatement. But we cannot be fixated with the here and now of the current crisis if we want the Philippines to be one of the leading emerging economies in the post-COVID era. The right attitude is that while the national leaders and health authorities worry about the pandemic, we must look beyond the challenges of the present situation. This early, we must lay the groundwork for stability and prosperity in the medium and long run. Accordingly, we are working hard for the passage of various legislative measures that will provide support and relief to industries that are heavily affected by this pandemic and help the economy rebuild better. The Financial Institutions Strategic Transfer Bill (FIST) shall provide for the creation of a system that will insulate banks from a buildup of distressed assets as a result of the pandemic by selling banks’ non-performing assets to asset management entities called Financial Institutions Strategic Transfer Corporations. Offloading these items from banks’ financial statements will support the financial intermediary functions of banks and facilitate the circulation of liquidity within the system. The Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery Act (GUIDE), on the other hand, legislates the provision of financial aid to critical industries that are affected by the pandemic. In addition, the BSP is advocating for the following measures: Amendments to the Agri-Agra law, which will steer lending to agricultural, fisheries, and rural development in the Philippines; Amendments to the Credit Information System Act, which will improve accessibility of financial services to micro, small, and medium enterprises; Amendments to laws on secrecy of bank deposits, which will put more teeth to efforts against money laundering and tax evasion, and further promote integrity in governance; and The Financial Consumer Protection bill, which will better safeguard the interest of financial consumers, thereby promoting savings and investments. 2/4 BIS central bankers' speeches Reinforcing the country’s solid economic fundamentals with carefully crafted reforms is the best way to strengthen the economy’s prospects. Speaking of prospects, we remain optimistic that when the dust has finally settled, the Philippines’ attractiveness as an investment destination will shine through. We will unceasingly pursue the Build, Build, Build infrastructure program (which Presidential Adviser Vince Dizon will elaborate on). The BBB program is expected create a lot of jobs in the near term, generate economic activities in the countryside, and expand the productive capacity of the economy moving forward. Besides these, we are equipping our economic sectors for the transition to the so-called “New Economy” – an economy that is stronger, more technologically-savvy, and more inclusive. In the New Economy, we shall harness the full growth potential of the economy. In the New Economy, we shall also see a nation that is more technologically savvy. Even prior to the pandemic, financial technology has already been at the forefront of BSP’s agenda. The BSP has put in place a “test and learn” environment or what we call the “regulatory sandbox” approach, which allows us and the fintech players to learn more about the operations as well as the risks that come with technology at its nascent phases. This approach enables us to craft consumer-centric policies that allow customers to fully enjoy easier access and increased efficiency to financial services while being guarded by the highest level of security measures. Our target is for at least half of financial transactions to be conducted via digital media by 2023. The lockdown measures have expedited the shift towards digitalization. As a result, we are confident that our goal to have at least half of all financial transactions be done digitally by 2023 will be met sooner. Just recently, the BSP and the trust industry also launched the Digital PERA, which stands for Personal Equity and Retirement Account. With this, Filipinos may invest for their retirement using their mobile devices. Also, the BSP is working with other government agencies for the use of fintech in their engagements with the public. The BSP is excited about the prospects of fintech given the multiplier effect of technology on economic development. Finally, the New Economy is an economy that is more inclusive. In connection with having a more technologically savvy population that is comfortable with using digital platforms to conduct their financial transactions, we are committed to reach more remote and far-flung areas through digital alternatives. Our target is that by 2023, at least 70 percent of Filipino adults will have financial accounts. The country’s National ID System will also be fully operational soon. With this, unbanked Filipinos will have a proof of identity, which is a KYC requirement of banks. Access to financial services will be easier and more people can actively participate in the country’s economic activities. In closing, I would like to leave you with these key points. First, from the onset of this pandemic, the Philippine government has demonstrated swiftness, decisiveness, and aggressiveness in combatting the socioeconomic repercussions of the 3/4 BIS central bankers' speeches pandemic. While the lockdown imposed by the government may have caused the economy to stall in the first half of the year, we believe that this is a necessary but temporary measure in order to save lives and protect livelihoods. Second, amid challenging economic environments, the Philippine economy has always shown its resilience. This time is no exception. The Philippine economy is fundamentally strong — a result of over two decades of implementation of critical structural reforms. We have low interest rates manageable inflation and healthy external position—with record-high gross international reserves (GIR) and low external debt. Philippine banks entered the pandemic with healthy balance sheets and high levels of capital. And they remain strong and stable. The banking system’s capitalization and liquidity exceed the BSP’s regulatory requirements. The government’s fiscal position is sound, with manageable fiscal deficit and low levels of government debt. But we are not complacent. Rather, we committed to lay the groundwork for a post-COVID economy that is well prepared and better-equipped to transition toward—and surpass its past achievements under—the “New Economy” a stronger, more technologically savvy, and inclusive economy. In closing, I invite you to embark on this journey with us and be our partners for growth in the post-COVID era. Good day and thank you for your time. 4/4 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), 15 September 2020.
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Benjamin E Diokno: Message from the Governor Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), 15 September 2020. * * * Mr. Justo Ortiz – PPMI Chairman, Mr. Abraham Co – PPMI President, Ms. Carmelita Araneta – PPMI General Manager, other PPMI officers, ACH Steering Committee Heads, payment service providers, and distinguished partners in our digital transformation journey, good morning. In these extraordinary times, let me begin with the story of “Maria”. Maria is a kasambahay whose excellent work ethic endeared her to her employer. When the government imposed lockdown measures at the onset of COVID-19 cases in the country, Maria could not go to work due to the suspension of public transportation services. Knowing that Maria was the breadwinner of her family, her employer wanted to assist by advancing her bonus. But, Maria had no experience in using digital financial services. She was faced with a choice of going out to get the money from her employer or abiding by the lockdown even if she wouldn’t be able to provide for her family. Maria decided to walk for over an hour from her home to her employer’s house to receive the money, and another hour going back to her residence. While this story may tug at our heartstrings, this shouldn’t be the case for our people, especially with digital payments on our hands. This pandemic has indeed magnified the limitations of traditional financial services. Electronic funds transfer services, which were previously seen as an alternative mode of payment for those who favor convenience, have now become a “necessity”. But we want to make it the norm in this new economy. So how has the PPMI and BSP strategic partnership been progressing in terms of promoting digital payment services? Ladies and gentlemen, I am happy to share with you that the recent statistics is heartening as the numbers show that the initiatives we pursued have prepared us well for this pandemic. The combined transactions of PESONet and InstaPay increased by 122 percent in volume and 59 precent in value from the first quarter to the second quarter of 2020. The limited mobility and shortened operating hours of business establishments during the lockdown pushed many to turn to digital payments. The waiver of fees for PESONet and InstaPay was a big catalyst for this change in behavior. This is why I, in behalf of fellow Filipinos, would like to thank you, PPMI leaders as well as PESONet and InstaPay payment service providers, for extending the (2 CLICKS) waiver of fees. Your altruism has helped break a major barrier for the first-time users of e-payment services. The realized savings from the waiver of fees matter to millions of Filipinos, especially the underprivileged. The PPMI’s partnership with the BSP also brought into fruition an important payment facility for government institutions—the EGov Pay. Over the past nine-months, the number of government billers enrolled in this facility rose 1/3 BIS central bankers' speeches exponentially from just two when it went live in November 2019 to 277 as of June 2020. I would also like to thank the Landbank of the Philippines for hosting the Linkbiz portal through which the EGov Pay can be conveniently accessed by users. Another laudable accomplishment where the PPMI served as BSP’s indispensable partner was the adoption of the National QR Code Standard or “QR Ph” via InstaPay. Your efforts to make the QR Ph for person-to-person or P2P payments available shortly after we have conceptualized having interoperable QRs must be commended. With the help of PPMI, we have likewise persuaded other government regulatory bodies to promote our automated clearing houses. I would like to specifically mention that the Department of Labor and Employment has already issued Labor Advisory No. 26 series of 2020, encouraging employers to pay wages and other monetary benefits through transactions accounts maintained with PESONet-participating banks and e-money issuers. Indeed, this is the beginning of a growing appreciation among the government agencies of the benefits of digital payments. Of course, I will not miss to stress how our PESONet ACH has come to aid in ensuring that the vulnerable sectors efficiently and safely received the government’s financial assistance during the lockdown. In particular, the PESONet was used by the Development Bank of the Philippines to distribute the SSS Small Business Wage Subsidy (SBW S) to 3.4 million employees who were affected by the lockdown. In recognition of the critical role of the PPMI in achieving our vision of having a safe and efficient payment system, the BSP formally accredited the PPMI as a Payment System Management Body pursuant to the National Payment Systems Act and the recently issued Payment System Oversight Framework which implements this Act. Needless to say that the BSP views the PPMI as an important ally in reshaping our payments landscape. But this is not the time to rest on our laurels. There is still much to be done. (2 CLICKS) Now that the “ber” months have begun, I made sure that my Christmas wish list includes further developments in this path we take together. Firstly, I wish that the PPMI make greater strides in expanding the EGovPay by persuading more banks and e-money issuers to take part in the EGovPay ecosystem. We can optimize the use of EGov Pay only if there are more payment service providers offering this facility. Secondly, I urge the PESONet participating-institutions to support the electronic transmission of the Social Security System (SSS) benefits and loans. Please ensure that the end-to-end payment process will run smoothly. There are close to 3 million pensioners who will depend on PESONet to safely and efficiently receive their SSS benefits starting next month. Let’s take it upon ourselves to ensure that our countrymen get what they deserve, especially throughout this pandemic. I understand that PPMI is working with the BSP in improving the frequency of the PESONet clearing and settlement cycle from presently, once a day to multiple times a day including weekends, if feasible. 2/3 BIS central bankers' speeches I welcome this initiative as it will not only speed up the payment process for high-value transfers, but also support the funding requirements for business firms which are the among the critical movers of the economy. The next one I have been looking forward to is the establishment of a bills pay facility. As you may know, currently, the country has a fragmented bills payment mechanism where a biller typically must make a bilateral arrangement with a PSP if the biller wants to electronically collect from the clients of said PSP. This inefficiency calls for the establishment of an integrated Bills Pay facility, where a biller can collect from the payers even if the PSPs of the payers are different from that of the biller. On QR Ph, I hope to see micro and small merchants accepting payments using the Person-toMerchant or P2M QR Ph. I understand that the pandemic has placed some operational constraints. But I am confident that with your commitment and ingenuity, you can move the P2M QR Ph initiative forward quickly. Another thing on my wish list is the debit pull or direct debit service. This is of great help to customers who, currently, have no choice but to bear the cumbersome process of issuing numerous checks covering their recurring payments such as monthly rental, insurance premium, and other fixed installments. On the part of the payees, this direct debit arrangement will enable them to streamline collection efforts and realize expected cash inflows on time. The last but not the least in my wish list is—like I mentioned earlier—is to make digital payments as the norm. The surge in the volume of PESONet and InstaPay these past few months indicates the convenience and speed of digital payments. But wait, there’s more. I appreciate opportunities for us to exchange updates, views, concerns, and any matter that we need to discuss in a more spontaneous manner to facilitate the achievement of our targets. I look forward to having a periodic dialogue with the PPMI leadership. Together, let’s transform our payments system into a digital world. Let’s keep working together to ensure that “Maria” never has to make that choice ever again— pandemic or no pandemic. I hope Maria story tugs at your heartstrings in a different way. May her story push us to continue to find ways to make a difference in the lives of our countrymen. At a time where our country is struggling to rise above this once-in-a-lifetime pandemic, the PPMI has the power to ensure that no Filipino is left behind. Mabuhay ang PPMI! Thank you very much! 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Citibank's Perspectives Event, Manila, 16 September 2020.
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Benjamin E Diokno: Digitization developments and initiatives Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Citibank's Perspectives Event, Manila, 16 September 2020. * * * Distinguished leaders and visionaries of Citibank, officers from different multinational and top-tier local corporates, fellow speakers, ladies and gentlemen, good afternoon. The Bangko Sentral ng Pilipinas recognizes that the road to digital economy for the Philippines is bright and auspicious. Given the country’s strong macro-economic fundamentals, fascinating advancements in technology, and influx of engaging clients, it is undeniable that we are ready to partake in a digital transformation journey. For one, technological innovations if channeled the right way, can curtail financial inclusion barriers. Accordingly, the BSP advocates the promotion of financial products and services that are suitably designed, priced, and tailored to diverse market segments, including the unbanked and underserved markets, through pioneering delivery channels. We continue to encourage digital innovation alongside key mandates of maintaining monetary and financial stability and the efficiency and safety of payments and settlements systems. This digital transformation is made more significant given that this global health crisis has caused a reduction in physical banking touchpoints, compelling clients and industries to traverse and discover financial activities through virtual avenues. Nonetheless, the BSP has prepared solutions within its regulatory purview which support the new economy set up and ensure that the pace of digital transformation proceeds hand in hand with caution and adequate risk management. Truly, in order to sustain growth of the whole economy and the banking system, we need to ensure that secure, reliable and robust infrastructures and systems are in place to facilitate various economic activities. Going back to financial inclusion, it has always been one of the BSP’s top advocacies. The harsh r elaity is that majority of Filipinos continue to have no formal bank accounts. Hence, financial inclusion remains a strategic objective, which must run in parallel with financial stability, integrity and consumer protection objectives. This pursuit, alongside rapidly evolving technologies and changing customer demands, paved the way to a global phenomenon called mobile revolution. One that is greatly evident in our country, as the Philippines is expected to reach a 70% smart phone penetration rate by the end of 2020. However, there are two main barriers that the financial industry must overcome to leverage on this number: first of which is the struggle of opening an account given our country’s geographical landscape; and second is the high capital expenditures for necessary infrastructures. In light of this, financial institutions have decided to leverage on technology in order to reach a broader customer base and deliver immediate, on-demand financial services aligned with market needs. Opening an account with a financial institution is the first step towards financial inclusion as it opens opportunities for a wider range of financial products and services. Thus, the BSP supports the use of electronic Know-Your-Customer (e-KYC) verification process, as this intends to address long-standing constraints. Through online customer registration, selfie submission, and technology-aided face-to-face 1/7 BIS central bankers' speeches verification, among others, the financial system has been transformed offering a more seamless customer onboarding and risk profiling process while lowering costs and rationalizing operations. Another barrier that banks and non-bank financial institutions alike need to address is the high cost of building and maintaining new infrastructures. Taking note of this predicament, most BSFIs have decided to utilize cloud computing. The use of cloud-based services has allowed even the smaller institutions to have access to affordable, elastic, convenient, and attested computing capabilities. Cloud-based technology allows rapid experimentation and innovation owing to its support for on-demand and scalable computing resources. Another pivotal benefit is the cloud computing’s role in business continuity and disaster recovery arrangements given the automatic replication of data and elimination of the need for acquiring and maintaining duplicate devices and infrastructures. In effect, redundancy and high-speed replication can be achieved without resorting to substantial costs and investments. Another continuing trend that presents great significance is the entry of BigTechs in finance. These entities have greatly benefitted from their gigantic customer base through collection and analysis of customer data that fueled their accelerated growth in the past decade. Accordingly, the role and exposure of BigTechs in the financial system have also begun to prominently increase. Their large network and data exposure allow BigTechs to navigate the financial services industry, particularly in the field of credit, insurance and payment products. In the Philippines, firms such as GrabPay and AirPay, affiliated with Grab and Shopee respectively, have been granted licenses to operate as Electronic Money Issuers (EMI). BigTech firms in the financial services industry present numerous benefits driving modernization, diversification and efficacy, and potential to contribute to financial inclusion. Given their usual long financial runway, they can be aggressive in going for previously untapped markets, which could benefit small to medium enterprises (SMEs). PesoNet and InstaPay Amid these trends, cash still plays a big part in our country’s payment ecosystem. Nevertheless, digital innovation, combined with changing customer expectations, is expected to drive the reduction in cash-based transactions. Entities from both the private and public sector are starting to invest in digitalization initiatives, slowly tilting their client-based transactions from cash payments and remittances to electronic payments, via electronic money, peer to peer (P2P) and interbank transfers or even virtual currency transfers. Relative thereto, the two priority payment schemes launched under the National Retail Payment System (NRPS), PESONet and InstaPay, continue to show promising exponential growth in terms of volume and value, and have paved the way for Filipinos to have convenient and secure retail payment options for moving funds across participating financial institutions via electronic delivery channels. What makes the PESONet and InstaPay appealing is that the recipients are not charged for the electronic crediting of the funds to their accounts, allowing them to receive the amount transferred in full. Instead, senders pay for the fees which are competitively priced by the participating institutions. In particular, PESONet facilitates faster and more efficient mobilization of funds across businesses by enabling digital settlement of various payments such as merchant payments, payments to suppliers and government disbursements. PESONet supports the country’s journey 2/7 BIS central bankers' speeches towards being a cash-lite economy since it is strategically promoted as a viable alternative to checks and may be used for settlement of recurring bulk payments. As 31 August 2020, PESONet has 61 participating institutions. There has been a surge in the use of PESONet during the lockdown period that began in midMarch 2020. This is on the back of restricted mobility, shortened operating hours of business establishments, and the necessity of avoiding face-to-face transactions during the lockdown. The adoption of PESONet has also been supported by the Philippine Payments Management, Inc. (PPMI). Its member institutions have responded to the call of the Bangko Sentral to provide relief measures, including waiving fees for PESONet transactions, in order to help ease the adverse impact of the pandemic to the general public and deepen the use of digital payments in the country. Fee waiver on PESONet transactions has since been extended by PPMI member institutions until end-September 2020 or until end-December 2020, depending on the participating institution. Hence, the greater use of PESONet is evident with the remarkable rise in the volume and value of associated payments from July 2019 to July 2020. Over this twelve-month period, PESONet payments more than doubled with volume surging by 122 percent year-on-year and value rising by 119 percent over the same period. Aside from aiding businesses in mobilizing funds during the pandemic, PESONet was also employed for social transfers made through the Social Security System’s Small Business Wage Subsidy (SBW S) Program. This shows the facility’s potential as a viable means for the efficient and speedy distribution of welfare benefits to indigent citizens. Similarly, we have also observed the sustained adoption of InstaPay. Year-on-year increase in transactions, from July 2019 to July 2020, exhibited a drastic upward trend in volume and value of transactions by 739 percent and 442 percent, respectively. In 2020 alone, the volume of InstaPay transactions have more than doubled, with an increase of 122 percent, from first to second quarter of 2020. The same behavior is observed in the value of transactions with an increase of 93 percent for the same period. As 31 August 2020, InstaPay has 47 participating institutions, 36 of which have Sender/Receiver functionality, while the remaining 11 are Receivers only. EGov Pay Transactions In November 2019, the PPMI with the guidance of the Bangko Sentral, launched the EGov Pay to serve as a payment solution for streamlining and digitization of government collections and disbursements. EGov Pay is envisioned to curb government revenue leaks through efficient collection means and enhanced transparency. In terms of disbursements, the facility can hasten prompt delivery of social services to concerned stakeholders. Since its launch, EGov Pay transactions exhibited a 688% rise in volume, from 162 to 1,277 as of June 2020. Likewise, the value grew by 799%, from Php 1.429 million to Php 12.848 million over the same period. The gradual surge in EGov pay transactions reflects the deepening public awareness of this digital facility as a safe and efficient means of payment for taxes, licenses, permits, and other obligations to the government. The Bureau of Internal Revenue (BIR) has been the top biller followed by the Philippine National Police (PNP), Environmental Management Bureau, and Overseas Workers Welfare Administration (OWWA). QR PH Adoption 3/7 BIS central bankers' speeches In an effort to encourage ease of use of electronic payments, the BSP also drives to further streamline the digital payments landscape in the country. While customers have long supported the use of the traditional debit and credit card, more recently, Quick Response (QR) for payments has been gaining more attention from end-users. This technology has emerged as the most expedient means of payment since it merely entails code scanning which is faster and easier than the usual procedures associated with the use of payment cards. The Bangko Sentral required all payment service providers (PSPs) to adopt the national QR code standard developed by the Philippine Payments Management, Inc. (PPMI), as provided in BSP Circular No. 1055, in order to revolutionize the fragmented QR-driven payment solution into an interoperable payment mechanism. Adoption of the same eliminates the need for the merchants and customers to maintain several accounts and for the merchants to display numerous QRs. Launched in November 2019, the QR Ph which serves as the National QR Code has provided touchless payment convenience and encouraged the usage of the Person-to-Person (P2P) QR Ph through the InstaPay rail, and now it has exhibited significant increase in volume and value of transactions since its inception and likewise, for the first half of 2020. BSP Initiatives Test and Learn / Regulatory Sandbox With all these ongoing developments and milestones in fintech and payments, the BSP remains attentive to potential avenues by which we can further respond to the dynamic technology landscape while at the same time, adopting industry best practices. As the BSP is tasked to promote and maintain price and financial stability, the benefits and risks of digitalization are carefully assessed and examined. Hence, it has established and maintained a regulatory environment that allows innovations to flourish while ensuring that risks are properly mitigated, through the “test and learn” or more commonly known as the “regulatory sandbox”. In this environment, innovative financial services are permitted to operate in a live but controlled setting while the BSP takes initiative to fully understand business model’s peculiarity and assess the attendant risks. Central Bank Digital Currency On another note, the BSP is currently navigating research on the creation of Central Bank Digital Currency (CBDC). As published by the Bank of International Settlement in 2018, CBDCs are a new form of digital central bank money that can be distinguished from reserves or settlement balances held by commercial banks at central banks. Hence, CBDCs may be considered legal money and should not be intertwined with cryptocurrencies, which are decentralized digital currencies based on blockchain technology. The BSP formed a technical working group (TW G) that is tasked to conduct an in-depth study on the feasibility and policy implications of issuing a BSP CBDC. Cloud Outsourcing As mentioned earlier, financial institutions have been leveraging on the benefits of cloud computing technology for quite some time, as guided by BSP Circular No. 808 on Information Technology Risk Management and BSP Circular No. 899 on Outsourcing. 4/7 BIS central bankers' speeches Given the technological changes that have occurred in the past years, amendments to the outsourcing framework is already in progress, considering the increased maturity of the industry of BSFIs and to benchmark with international leading practices. Open Banking Another progressive action from the BSP is the formulation of the Open Banking framework. The BSP recognizes the benefits of Open Banking for the financial services industry as this espouses greater financial transparency options to consumers through wider access and control over their own data. As this progresses, it will become a strategic solution to drive digital transformation since banks and non-banks will be driven to provide more customer-focused products and services. Ongoing Amendments to VCE and EMI Framework Lastly, the accelerated growth on the use of EMIs and VCEs has driven the BSP to amend BSP Circular No. 649 and BSP Circular No. 944, respectively, to be aligned with the fintech industry’s best practices. As such, updates to BSP Circular No. 649 is currently ongoing, while the amendments for BSP Circular No. 944 is in its final phase. The proposed circular focuses on the guidelines for Virtual Assets (VA) and Virtual Asset Service Providers (VASP), as it aims to enhance the BSP’s regulatory and supervisory response to money service business activities harnessing the technology of virtual currencies (VC), in line with international standards for anti-money laundering (AML) and countering the financing of terrorism (CFT). This will ensure that activities relating to VASP are executed within an unbroken chain of regulated entities. Once issued, the aforementioned circular will address identified gaps by the Financial Action Task Force Guidance for a risk-based approach on VASPs. Updates on other initiatives of the BSP under the National Retail Payment System On top of the aforementioned developments, the Bangko Sentral and the payments industry, led by the PPMI, continue to work on the following initiatives aimed at transforming our payments environment from a cash-heavy to a cash-light ecosystem: 1. QR Ph for P2M Payments The QR Ph will further penetrate the market with the availability of the Person-to-Merchant (P2M) QR Ph in the near term. This facet of the QR Ph adoption is expected to advance financial inclusion since it will attract the small unbanked vendors and their customers to own a transaction account to be able to enjoy P2M QR Ph which is a breakthrough in the country’s e-payment development. 2. Bills Payment Currently, the country has a fragmented bills payment mechanism where a biller typically has to make a bilateral arrangement with a payment service provider (PSP) if the former wants to electronically collect from the clients of the latter. The bills payment initiative aims to eliminate inefficiencies in the bills collection process, by ensuring that a biller can collect from its customer without requiring both parties to transact through a common PSP. 3. Direct Debit 5/7 BIS central bankers' speeches A direct debit will enhance customers’ management of recurring payments such as monthly rents by simply authorizing the payees to pull funds directly from their accounts. Likewise, having a direct debit arrangement would help payees streamline collection efforts and provide assurance that expected cash inflows are settled on time. 4. Affordable Fees on Micro Transactions Together with PPMI, the Bangko Sentral is working on reducing the cost of doing digital payments to encourage the consumers to shift from cash-based to digital transactions. Recent Issuance of The Payment System Oversight Framework (PSOF) The Bangko Sentral’s continuing thrust to develop the national payment system comes along with its mandate under the National Payment Systems Act (NPSA) to promote financial stability by adopting reforms for strengthening governance and risk management over payment systems. Such reforms are envisioned to be designed and implemented through the enforcement of an institutionalized Framework which was issued in July 2020 with BSP Circular No. 1089. The salient features of the Framework include the following: Cooperative Oversight – The responsibilities of the Bangko Sentral interrelates with those of other regulators. For instance, there are financial activities which involve two linked settlements, such as the delivery of a security against payment of cash, where the security settlement is under the regulatory ambit of the Securities and Exchange Commission (SEC) while the money settlement is subject to oversight by the Bangko Sentral. In this context, the Framework allows the Bangko Sentral to engage in cooperative oversight to address the need for comprehensive regulation over interrelated financial market infrastructures (FMIs). Designation of Payment Systems. Through the adoption of a risk-based oversight approach, the framework focuses supervision over designated payment systems. Designation of payment systems shall be conducted by the Bangko Sentral through the key information gathered from its monitoring activities. The operator of a designated payment system and its participants which include banks, nonbank e-money issuers and critical service providers, are all subject to closer oversight and enforcement action, as necessary. The Bangko Sentral can revoke the designation of a payment system under justifiable circumstances. Measure to Avert Disruption in Payment Systems. When a threat to the safety, efficiency and reliability of a designated payment system exists due to weaknesses in governance by the operator of a designated payment system, the Bangko Sentral shall appoint without need for prior court hearing, a manager of recognized competence in the payments field, to administer the operation of a designated payment system. Ladies and gentlemen, the changing digital landscape is here and now. To stay relevant is to remain vigilant and agile to these changes. This should compel us to be open-minded and hopefully, through these new ways of thinking, we are able to fully harness fintech innovations to unlock financial inclusion barriers and facilitate digital financial transactions in ways never been seen before. The BSP, as your partner in promoting financial innovation and inclusion, shall remain steadfast in supporting beneficial innovations through an enabling policy and regulatory environment. We are excited to witness the financial sector take on the power of innovations to provide better lives for all Filipinos. Thank you and I wish you all a wonderful afternoon! 6/7 BIS central bankers' speeches 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at IBC Business Webinar Series, 29 September 2020.
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Benjamin E Diokno: Philippine banking system - forging path towards sustainable economic recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at IBC Business Webinar Series, 29 September 2020. * * * Distinguished officers and members of the IBC led by Mr. Juan Jose Zamora III, esteemed guests and partners in the financial services industry, ladies and gentlemen, ma-ayong hapon sa indo nga tanan! It is always a pleasure to engage with our stakeholders and partners, and discuss our shared goals and development aspirations for our country. This coronavirus crisis is unlike any of the previous crises that we have experienced. It did not originate from financial sector vulnerabilities like the 1980 Debt Crisis, the 1997 Asian Financial Crisis, or the 2007–2008 Global Financial Crisis. But the effects are strongly felt nonetheless. My presentation this afternoon will focus on key developments and updates on how the banking system is faring during the pandemic, the crucial role of banks as catalysts of economic recovery, and the BSP’s strategies and relief measures to cushion the adverse effects of COVID-19 pandemic on the economy particularly on individuals and businesses. Let me stress this: The Philippine economy is fundamentally strong. This is the result of over two decades of implementation of critical structural reforms. We have a sound fiscal position, with manageable fiscal deficit and low levels of government indebtedness. We have low interest rates, manageable inflation, healthy external accounts—with record-high gross international reserves (GIR) and stable peso. In a sea of downgrades, rating agencies maintain the country’s investment grade status. S&P, Moody’s and Fitch affirmed our investment grade sovereign rating Japan Credit Rating Agency upgrade the Philippines to an ‘A’ status, the same with R&I which upgraded the Philippines to BBB+ Also, The Economist ranks the Philippines 6th among 66 emerging market economies, and the first in Asia. The Philippine banking system is sound. Banks are well-capitalized with high capital adequacy ratio above the BSP minimum regulatory requirement and the BIS international standard. Asset quality remained manageable during the pandemic as BSP survey revealed a low NPL ratio of 2.4 percent as of end-July 2020 and projection of 4.6 percent by end-December 2020. This is manageable by any standards and unlikely to grow to the levels we have seen during the 1997 Asian Financial Crisis. In particular, total deposit liabilities reached P14.2 billion as of end-June 2020, 10.8 percent higher than year ago’s level. And here’s a silver lining: the COVID-19 pandemic has become the unexpected catalyst for the accelerated digital transformation of the banking system. 1/4 BIS central bankers' speeches During the lockdowns, over 4 million digital accounts were opened and digital financial transactions grew exponentially. As of end-August 2020, total PESONet transactions reached 2.7 million with total value of P252.9 billion. This represents a growth of about 120 percent in volume and 70 percent in value, respectively from the baseline end-March 2020 level. Meanwhile, InstaPay-related transactions reached 29.5 million with total value of P141.2 billion as of end-August 2020. This represents huge respective growths of 312.2 percent in volume and 206 percent in value compared to the end-March 2020 level. Total assets of the banking system reached P18.6 trillion as of end-June 2020 with an average growth rate of 11.5 percent in the last 10 years. The banking system’s credit support for the financing requirements of individuals and businesses also continued during the pandemic. Total loan portfolio (TLP) stood at P10.8 trillion as of end-June 2020. This represents a 13.2 percent average growth rate in the last decade. Bank loans comprised 58.2 percent of the banking system’s total assets and 57.4 percent of the country’s nominal gross domestic product (GDP). Amid the pandemic, loan quality remained satisfactory as the banking system’s non-performing loan (NPL) ratio was at 2.5 percent as of end-June 2020. Given the inherent resilience and positive correlation of financial sector development with economic growth, how can banks help in economic recovery? As the surge of COVID-19 cases around the world continues, business activities have been disrupted. The International Monetary Fund (IMF) expects the global economy to contract by 4.9 percent this year. The Philippines is not spared. The local economy declined by 9.0 percent in the first half of 2020. The great fall was not because the economy was weak. It was because there is a need to shut it down to buy time, to delay the spread of the virus while building the country’s health capacity. Amid this challenge, the domestic banking system can be harnessed to support economic recovery. Specifically, they provide cash flow support to individual clients and micro, small and medium enterprises. Banks are also our conduits in the accelerated promotion of digital banking and electronic payments transactions of our countrymen during the pandemic. On this note, our strategy of combatting the COVID-19 pandemic with the help of the banking system is focused on four critical areas. First, to provide sufficient liquidity to support Government’s efforts of saving lives and livelihoods. Second, to maintain the stability of the financial system. Third, to ensure the continued delivery of financial services to the public. Lastly, to shore up confidence and cushion economic activity. 2/4 BIS central bankers' speeches In fact, the BSP has injected a total of P1.5 trillion to the financial system, equivalent to about 7.6 percent of gross domestic product (GDP), as part of its liquidity-easing measures to address the impact of COVID-19 pandemic. At this juncture, allow me to briefly discuss our various regulatory and operational relief measures to assist the BSP supervised financial institutions endure the health crisis as well as to support households and business firms. First, we provided BSFIs with regulatory reliefs to enable them to grant equivalent financial relief to their borrowers in the form of more flexible and favorable lending terms, or restructure loan accounts. Second, they were given incentives for lending to assist the micro, small and medium enterprises and large enterprises carry on with their business during the COVID-19 crisis, as well as hasten recovery and sustainability of their operations, during the post-crisis period. One of our more innovative incentives is that new loans to MSMEs, and certain large enterprises that were critically impacted by the pandemic but not part of a conglomerate will now be recognized as forms of alternative compliance with banks’ reserve requirements, which I’ll discuss further in the next slide. Third, is the promotion of continued access to financial services through key policies. This includes the relaxation of Know-Your-Customer (KYC) requirements, temporary suspension of all fees and charges covering online banking transactions, licensing and fund transfers, operational relief for FX transactions and financial assistance in the form of loans, advances or other credit accommodations granted to BSFIs. Lastly, is support for Continued Financial Services Delivery. These include relaxed reporting requirements, temporary suspension in the imposition of monetary penalties, use of legal reserves for liquidity needs, accounting relief measures, and the deferred adoption of the SAFr framework. Based on the latest BSP data, loans to MSMEs amounted to P106.0 billion, in August 20, 2020 up from Php 9.3 billion in April 30, 2020, or by a whopping 1,039 percent. Meanwhile, loans to enterprises reached P13.6 billion, growing by 17 times since we started monitoring from the effectivity of BSP Memorandum No. M-2020–046 on 29 May 2020. To address concerns about loan defaults, credit and debt collection, we have extended for another 30 days grace period for loan payments the 30-day grace period under Bayanihan 1. Under Bayanihan 2, we will implement the mandatory one-time, non-extendable 60-day grace period for loans on current status. Apart from this, the BSP has extended regulatory relief to banks so they can extend relief to their clients in the form of more flexible and favorable lending terms, or restructuring/rediscounting of loan accounts, staggered booking of allowance for credit losses and moratorium on the imposition of interest charges, fees and penalties on loans during the grace period. Lastly, on the impact of COVID-19 on Overseas Filipino Remittances. Overseas Filipino remittances in 2019 was US$30.1 billion. Original projection before coronavirus crisis is that OF remittances will increase by 5 percent. Revised forecast as of June 2020, post Covid-19, was that Overseas Filipino remittances will fall by 5 percent. 3/4 BIS central bankers' speeches But year to date, or from January to July, OF remittances fell by just 2.4 percent; rose by 7.7 percent and 7.8 percent in June and July after declines in March, April and May. This is welcome news. This development is much better than the gloomy forecasts of some international agencies that Overseas Filipino remittances will plunge by more than 20 percent. Filipinos abroad are truly altruistic. That said, we have to learn to live with the virus. We can’t – and we shouldn’t – wait for the vaccine before we act. All of us have an individual and collective responsibility to win this war against the coronavirus and move the country forward. Individually, we have to observe the right health protocols – wear our masks, wash our hands, and watch our distance. Meanwhile, the National Government has to provide the leadership, set national standards, and communicate clearly and consistently the overall strategy. LGU officials, on the other hand, should implement national rules and provide the necessary personnel, supplies, and health facilities to control the spread of the virus. Ladies and gentlemen, even as we are occupied by the present challenges, let us not lose track of where we want to go as a nation. This is the best time to embrace structural reforms so that when the dust finally settles, the Philippines will be a better, safer, more equal, and more competitive nation. Thank you everyone and congratulations to the IBC on its 30th anniversary! Mabuhay! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Citi Macro Conference, Philippines, 4 October 2020.
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Benjamin E Diokno: Moving from crisis to a stronger, tech-driven, more Inclusive Philippines Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Citi Macro Conference – Philippines, 4 October 2020. * * * Good afternoon to all the participants of this virtual investor roundtable organized by Citi. It is my pleasure to speak to all of you. The COVID-19 pandemic is unprecedented in many ways. It affects all. Yet, it affects individuals, businesses, and countries differently. In the case of the Philippines, policymakers are keen to make the country an economic champion in the post-COVID era. In a true cooperative spirit, there is a whole-of-government approach with strong private sector participation to save lives, livelihoods, and businesses. We intend to turn this once-in-a-lifetime pandemic into a springboard to a new Philippines, one that is economically stronger, more technologically advanced, and more equitable. There are three critical factors, in my view, that will spell the difference among economies in terms of speed and quality of recovery from the COVID-19 crisis. These are: (i) first – pre-crisis fundamentals; (ii) second - emergency response; and (iii) third – a new wave of structural/development reforms. The Philippines, I believe, is faring well in all three factors. Let me explain. First, pre-crisis fundamentals. There is a saying that goes, “When the crunch comes, you better be ready.” The Philippines entered this crisis in a position of strength. In the recent years leading to the pandemic, the Philippines is recognized as among the most resilient and fastest growing economies in Asia and the world. It had low debt to GDP ratio, healthy external accounts, manageable inflation, ample domestic liquidity, and stable banking system. All of these provided enough fiscal and monetary space to roll out massive response measures without causing debt woes. We learned our lessons from the Asian financial crisis. As a result of that crisis, there was a deliberate and conscious effort to gradually transform the Philippines from the region’s laggard to one of its brightest spots. Hence, our strong fundamentals today are the result of a long and varied list of structural reforms implemented in the past twenty years. 1/6 BIS central bankers' speeches Second, emergency response. In the Philippines, the way we responded to the crisis can be described in three words: quick, appropriate, and united. Quick. As early as March, the National Government imposed a strict lockdown for three months, which saved lives and allowed the buildup of the country’s healthcare capacity. Since the initial lockdown, we have significantly increased the country’s capacity for daily COVID testing, contract tracing, and patient care, which allowed us to shift to less stringent lockdown measure starting in June. Also, Congress was quick to pass critical bills supportive of the government’s initiatives to safeguard lives, livelihoods, and businesses. The first “Bayanihan” Act was signed into law in March, and the succeeding version, or “Bayanihan II,” was signed last month. “Bayanihan,” by the way, is a word that describes the Filipino spirit of cooperation and helping hand. P1.7 trillion was made available by the National Government—aided in part by the first Bayanihan law—to support the most vulnerable sectors and to fight COVID-19, as well as by the Bangko Sentral ng Pilipinas (BSP) as liquidity injection through the financial system. Under Bayanihan II 9, P165.5 billion worth of additional relief and mitigating measures was earmarked. On the monetary front, the BSP was among the first central banks in the world to respond to the crisis before it became full-blown. We cut policy rates by 25 basis points as early as February as a pre-emptive move against the impact of the pandemic. This was followed by three successive 50 bps cut in less than 4 months. This pre-emptive move also helped maintain confidence on the country’s central bank, which is resolute in its intention to provide timely and sufficient support to the economy, as needed. Appropriate. The whole-of-government response to the crisis mainly targeted the hardest hit groups: The micro, small, and medium enterprises, their employees and other low-income earners, repatriated overseas Filipino workers, and members of the health sector. The BSP did the heavy lifting in terms of ensuring ample liquidity in the financial system and providing regulatory relief to banks. In turn, we expect banks to help their hard-hit customers cope with the crisis as well. Extraordinary times call for extraordinary measures. The BSP decisively implemented a wide range of policy responses, including unprecedented ones, to squarely deal with the crisis. Besides cuts in the policy rate and the reserve requirement ratio—which are typical central bank actions to support an economy—the BSP also did quite a lot of bold measures to cushion the impact of the crisis, such as the following: (i) P540 billion worth of provisional advances to the National Government, after the previous P300-billion repurchase agreement was settled [in full in September]; (ii) Advance remittance of P20 billion worth of dividends to the National Treasury; 2/6 BIS central bankers' speeches (iii) Purchase of government securities in the secondary market (iv) Counting of loans to MSMEs as part of banks’ compliance to the reserve requirement; (v) Reduction of risk weight of loans to MSMEs; (vi) Increase in the single borrower’s limit; (vii) Assignment of zero risk weights to loans guaranteed by government institutions; (viii) Relaxed terms for financing facilities; (ix) Waived fees on electronic fund transfers; and (x) Increased limit to real estate loans of banks from 20 to 25% of loan portfolio; With the measures we have implemented, the BSP has so far injected P1.5 trillion in liquidity to the financial system, equivalent to 7.6 percent of the country’s gross domestic product (GDP). United. In the Philippines, there is strong coordination between fiscal and monetary authorities to ensure that our policy responses are in sync. Moreover, local government units and national government agencies worked as one to ensure a holistic approach to the government’s crisis response. In addition, Congress passed two “Bayanihan” laws promptly showing strong bi-partisan support for the Executive Department’s crisis initiatives. Also worth noting is the active private-sector response, evidenced in part by the altruistic actions of many corporations. The BSP recognizes the significant contribution of banking industry members. Their willingness to comply with the call for loan payment extensions, as well as their overwhelming response to the call for the temporary waiving of fees on electronic fund transfers have provided significant relief to households and businesses. Finally, structural and development reforms. To reiterate, the Philippines aims to become an economic champion in the post-COVID era, and the BSP will work tirelessly to help make this happen. To get to the “New Economy” that we envision—that is, a Philippines that is economically stronger, more technologically advanced, and more equitable—pushing for new laws, rolling out innovative programs, and building new infrastructure to strengthen and make more competitive the Philippine economy. The bills we are pushing are the following: (i) Financial Institutions Strategic Transfer, or FIST, which will allow banks to unload their nonperforming assets to asset management entities; (ii) Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery, or GUIDE, which will provide assistance to important distressed firms that are critical for economic recovery; (iii) Amendments to the Agri-Agra law, which will expand the list of industries that banks may lend to in order to meet quotas for support to agricultural development; 3/6 BIS central bankers' speeches (iv) Amendments to the Credit Information System Act, to further enhance accessibility of credit to MSMEs; (v) Amendments to laws on deposit secrecy, to put more teeth to anti-money laundering and tax regulations, as well as to further improve good governance; and (vi) Financial Consumer Protection bill, to improve protection of consumers of financial products and services. The BSP also supports the CREATE bill or Corporate Recovery and Tax Incentives for Enterprises, as well as additional tax reforms pushed by the Executive Branch. The CREATE bill seeks to accelerate economic recovery by cutting the corporate income tax and modernizing the fiscal incentives system to attract more job-generating investments. The other proposed tax reforms are those related to (i) real property valuation, (ii) passive income and financial intermediaries, and (iii) mining regime, among others. Innovation is high in the Philippines’ “New Economy” agenda. Last year, President Duterte signed the Philippine Innovation Act, which seeks to enhance government support for innovation initiatives of MSMES to boost their competitiveness; and the Innovative Startup Act, which spells government support for research and development of startup companies. Rolling out of programs under these laws are underway as we lay the foundation for our future. The BSP is one with the government in the innovation agenda. We actively promote financial technology (FinTech), and we adopt technology-driven means to engage with our supervised entities and the general public. Two of my personal goals related to digitalization are the following: (i) at least half of financial transactions in the country be digital, and (ii) at least 70 percent of Filipino adults have financial accounts. The original plan is that we accomplish both goals by 2023, the end of my term. With the pandemic, I’m confident that we will achieve both sooner—perhaps by the end of 2022. Amid quarantine measures, we have seen an exponential increase in the use of e-payments platforms Instapay and Pesonet. We have launched mobile apps for savings and investments—including those that allow people to invest for their retirement and to invest in Retail Treasury Bonds (RTBs). We have rolled out programs that allow fees for government transactions to be paid digitally. This paves the way for a more extensive use of the QR code system for payments in the future. The BSP also embraces regulation technologies or “RegTech,” which facilitate efficient and effective delivery of regulatory requirements. The last July, BSP pilot-tested a chatbot called “BOB”, which stands for “BSP Online Buddy.” BOB can handle questions and concerns—sent by consumers via sms, Facebook Messenger, and web chat—with the use of artificial intelligence. The Philippines’ efforts toward innovation are recognized internationally. The Philippines made it to the Top 50—ranking 50th out of 131 economies—of the Global Innovation Index this year. This is our best rank to date following sustained improvements since 4/6 BIS central bankers' speeches 2014. Another important way the Philippines is using this crisis to swing to the New Economy is via infrastructure development. There are P6.65 trillion worth of projects under the “Build, Build, Build” program and construction for many of these projects is ongoing. Bright prospects are ahead for the Philippines as we see these vital projects completed in the post-COVID era. In closing, I would like to underscore that as we did well in the three critical factors—pre-crisis fundamentals, emergency response, and structural/development reforms—I am confident about the future of the Philippines and the Filipino people. Over the short term, we expect GDP to swing from contraction this year to growth ranging from 6.5 to 7.5 percent next year and in 2022. Inflation is expected to remain within the 2.0 to 4.0 percent target range this year and until 2022. Exports will rebound from negative 16 percent this year to a growth of 5 percent next year. Imports will reverse from negative 18 percent this year to a growth of 8 percent next year. Foreign direct investments will improve from US$4.1 billion this year to US$6.5 billion next year. Remittances will swing from a 5-percent contraction this year to 4-percent growth next year. Year-to-date, overseas Filipino remittances fell by only 2.4 percent. Our external accounts will remain robust, with the gross international reserves (GIR) hitting US$100 billion this year. At the moment, we are already at an inflection point. Early signs of recovery include growth in remittances in June and July from declines the previous months, as well as growth in FDIs in May and June following contractions the previous months. The purchasing managers index improved from 27.5 in April to 50.2 in September. The value and volume of production for the manufacturing sector also improved from March to July. Year-on-year, contraction of imports have slowed down from 65.3 percent in April to 24.4 percent in July. And, the decline in exports eased to 9.6 percent in July from a sharp 49.9 percent fall in April. Speaking of inflection point, the BSP is mindful of the need for careful disengagement of our COVID response measures. We recognize that doing so either too late or too early may have serious repercussions on the economy. Last month, the BSP started the issuance of our own securities, as allowed under our recently amended charter. This adds to our policy toolkit and will help us better manage liquidity moving forward. Over the medium term, the Philippines is poised to become one that is stronger, technology driven, and much more inclusive. The intention is for all Filipinos to reap the benefits of economic development. I believe all the necessary conditions for achieving these lofty goals are satisfied. As such, I’m 5/6 BIS central bankers' speeches optimistic about tomorrow—even as we continue to work hard amid the crisis to protect lives, livelihoods, and businesses today. Thank you very much for listening, and I look forward to our discussion. 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 52nd Annual FINEX Week Conference, virtual, 4 October 2020.
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Benjamin E Diokno: Philippine economic outlook - positioning for recovery and growth Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 52nd Annual FINEX Week Conference, virtual, 4 October 2020. * * * To the officers of the FINEX, led by FINEX President Jose Jerome Pascual III, Executive Vice President Michael Guarin and Gaudencio Hernandez, Jr. of the FINEX Technical Sub-Committee, other esteemed guests in today’s webinar, ladies and gentlemen—good morning. This forum is quite timely. The worst of the pandemic is behind us. Industries and households are slowly adjusting to new ways of doing things. As a community, we share a common resolve to regain our economic momentum in the aftermath of this health crisis. My presentation this morning is organized in three parts. First, I will briefly discuss where the Philippine economy and our financial system currently stand, and then expound on the course that we will chart. Second, I will share the BSP’s initiatives which helped strengthen the economy. Lastly, I will leave you with concluding thoughts to frame your discussions as you go through the rest of the conference. To begin, our current situation is best explained by saying that we are at a turning point from the deep zone brought about by the COVID-19 crisis. The turning of the wheel, of course, is a gradual process as we are not out of the woods yet. The pandemic has hit us hard. Our economy contracted in the first half of this year, following 21 years of uninterrupted growth. This is mainly due to the strict lockdown implemented in March to June purposely to save lives and to boost the country’s healthcare capacity. The sharp contraction in the first half of this year is not in any way a reflection of our fundamentals, which remain strong. But now, we are seeing early signs of recovery. For instance, the manufacturing purchasing managers index has improved from 27.5 in April to 47.3 in July and to 50.2 in September. The value and volume of production for the manufacturing sector also improved from March to July. Overseas Filipino remittances have rebounded with a year-on-year growth of 7.7 percent in June and 7.8 percent in July, after the declines in the March, April and May. Similarly encouraging is the swing of foreign direct investments (FDIs) to a growth of 39.1 percent in May and 7.1 percent in June. Imports made some headway, with the year-on-year contraction slowing down from 65.3 percent in April to 24.4 percent in July. Lastly, recording a similar trend, the year-on-year decline in exports eased to 9.6 percent in July from 49.9 percent in April. We expect our recovery process to continue as more industries re-open following the relaxation of the quarantine measures. 1/5 BIS central bankers' speeches Six months into the pandemic, we are learning how to live with the virus. That is, we are learning how to strike the delicate balance between saving lives and protecting livelihoods and businesses. Let us now turn to the path that we will chart in terms of the following key areas: On growth, we expect the gross domestic product (GDP) to swing from a range of negative 7.0 to negative 9.0 percent this year, to a range of positive 6.5 to 7.5 percent next year and in 2022. On prices, we expect inflation to remain manageable and settle within the government’s 2.0-4.0 percent target range by next year and in 2022. Inflation is expected to average at 2.3 percent for 2020, 2.8 percent for 2021, and 3.0 percent for 2022. BSP has injected hefty liquidity into the financial system to soften the impact of the COVID-19 crisis on the economy. This liquidity injection will be aided in part by the BSP’s newest liquidity management tool of the BSP—securities issuance. With it, we will be able to further improve our ability to manage liquidity in the system, consistent with our price stability mandate. On FDIs, we expect net inflows to improve from US$4.1 billion this year to US$6.5 billion next year as more industries will have reopened and as business confidence globally will have started to bounce back. On overseas Filipino remittances, we forecast a turnaround to 4 percent growth next year from a decline of 5 percent this year. Year-to-date, overseas Filipino remittances contracted by 2.4 percent. On external accounts, we expect these to remain robust. As of end-August, the gross international reserves (GIR) stood at a historic high of $99.0 billion, equivalent to 10 months of imports cover. Meanwhile, the Philippine banking system entered the crisis with sound fundamentals and strong risk governance. This is evidenced by the sustained growth in assets, loans, deposits, capital and profit across banking groups. In fact, the banking system grew alongside our expanding economy with bank assets to GDP ratio of 101.3 percent as of end-June 2020. Total bank assets as of end-July 2020 stood at P18.8 trillion as of end-July 2020, up by 8.4 percent year-on-year. The sustained increase in bank assets was on the back of the 10.5 percent growth in deposits as of end-July 2020. Meanwhile, the capital market reforms are bearing fruit. Bonds have emerged as a major source of funding for banks registering year-on-year growth of 58.3 percent. The total loan portfolio of banks expanded by 5.1 percent year on year in July 2020. The quality of the loan portfolio remained satisfactory as of end-July 2020 with NPL ratio of 2.7 percent. Bank buffers are more than adequate. Banks’ liquidity coverage ratio (LCR) of 171.4 percent remained relatively stable and above the regulatory minimum of 100 percent as of end-March 2020. Further, the U/KBs net stable funding ratio (NSFR) of 129.1 percent as of end-March 2020 indicate availability of stable funding to serve their customers in the short- to medium term. The minimum liquidity ratios of stand-alone thrift banks (TBs), rural banks (RB), and cooperative 2/5 BIS central bankers' speeches banks (CBs) exceeded the 20 percent minimum. Moreover, banks remained well-capitalized with capital adequacy ratio of 15.9 percent, well above the BSP’s regulatory threshold of 10.0 percent and the international standard of 8.0 percent. In any case, the BSP’s policy toolkit is comprehensive and forward-looking. At the height of the pandemic, the BSP acted swiftly to ensure domestic liquidity. On top of the 1.75 percent cut in the policy rate and the 2.0 percent reserve requirement, we have been buying government securities in the secondary market. We extended a P300-billion loan to the government under a repurchase agreement. And we advanced remittance of P20 billion worth of dividends to national treasury. In all, we have so far injected P1.5 trillion in liquidity into the financial system, equivalent to 7.6 percent of GDP. The BSP’s crisis response toolkit also includes a long list of time-bound regulatory relief measures meant to help banks withstand the crisis. We did all these so that they, in turn, can help vulnerable sectors cope with the crisis as well. As the economy recovers, we intend to further strengthen our existing surveillance systems to gain a sharper and more nuanced view of developments in the economy. In the pursuit of the BSP’s objective of promoting financial stability, the BSP utilizes economic and financial surveillance dashboards and models to inform policy-making. As a complement to these tools, the BSP recently launched two important projects which will enable us to gain more access to high-quality and granular information. These are the (1) FI portal which is an online secure web-based facility that will replace email submission of reports, and (2) BOB or the BSP Online Buddy which is a chatbot designed to respond to consumer concerns. Apart from this, the BSP also regularly conducts ad hoc surveys and actively participates in industry forums to ensure that we are informed of important developments in a timely manner. The BSP’s toolkit goes beyond short-term fire-fighting measures. To ensure that the green shoots materialize into balanced and sustainable economic growth, the BSP has actively advocated for and worked on the implementation of structural reforms. We see three key reform areas which are crucial to reinforcing the country’s strong macroeconomic fundamentals. These have the capacity to revolutionize the ways by which consumers, enterprises and financial markets operate in a manner that promotes the principles of responsible leadership and environmental stewardship. These are the enactment of enabling legislation and infrastructure, the promotion of digitalization and sustainability initiatives. The BSP is working with both houses of Congress on the enactment of the following key legislation: The Financial Institutions Strategic Transfer (FIST) Act will assist the financial system in performing its role of efficiently mobilizing savings and investments toward productive sectors of the economy. 3/5 BIS central bankers' speeches The Government Financial Institutions (GFIs) Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Bill seeks to strengthen the capacity of Government Financial Institutions, including: the Land Bank and the DBP in providing the needed assistance to MSMEs, and other strategically important companies. The Agri-Agra Bill aims to strengthen rural development by providing for a holistic approach in addressing the financing needs of the broader agricultural financing ecosystem. It also provides opportunities for private sector financing to be directed to activities that will promote capacity-building and improve welfare and well-being of agricultural households in rural communities as well as green finance projects. The BSP is also working with the Japanese Government on the development a Credit Risk Database for MSMEs. This is expected to be an important market infrastructure which will lessen the dependence of banks on collateral and increase MSME access to financing. The increased use of digital financial services during the pandemic provides an opportunity for the BSP to advance initiatives aimed at accelerating digitalization in the financial industry. During the community quarantine period, there was sustained momentum in the volume and value of electronic fund transfers via PESONet and Instapay. A total of 13.7 million transfers worth Php 325 billion of combined PESONet and InstaPay transactions were recorded for the first 45 days under ECQ. These numbers represent a substantial upswing by 18 percent in volume and by 25 percent in value compared with the same time span before the ECQ. We also saw a remarkable rise in the volume and value of payments made from August 2019 to August 2020. Over this twelve-month period, InstaPay registered a growth rate of 820 percent in volume, from 3.2 million to 29.0 million transactions, and 499 percent in value, from Php 24 billion to Php 141 billion. PESONet transactions more than doubled with the volume surging from 1.1 million to about 2.7 million, i.e., by 143 percent year-on-year. Total value rose from Php 118 billion to Php 253 billion, or by 114 percent over the same period. Aside from aiding businesses in mobilizing funds during the pandemic, the PESONet was also used to distribute welfare benefits from the Social Security System’s Small Business Wage Subsidy (SBWS) Program. It is because of these developments that we are pursuing the BSP’s three-year digital payments transformation roadmap. These are: (1) Digital banking, (2) Open banking, (3) Data Governance and Ethical Use of Data for Banks, and (4) Open Architecture/Cross-selling. We are in the process of laying the enabling framework that will encourage the establishment of digital banks that will largely offer financial products and services through digital platform or electronic channels with minimal reliance on physical touchpoints. The BSP is looking into the adoption of an Open Banking ecosystem which espouses consentdriven data portability, interoperability and collaborative partnerships among incumbent financial instiutions and new third party players. Through open banking, third parties such as fintechs will be allowed to access financial information needed to develop innovative applications and services and provide account holders with greater financial options. Since a digital ecosystem is heavily dependent on the transferability and use of electronic data, the BSP’s third priority is the setting of policies on data governance and the ethical use of data. 4/5 BIS central bankers' speeches Finally, an open architecture on the sale and provision of financial services is being designed to allow financial institutions to market and offer financial products of other financial institutions in their own app or website. This will support the propagation of digital financial products and broaden the range of institutions that can serve as touch points for offerings of different providers. Lastly, the BSP is embracing the principles of sustainable development. The BSP launched the Sustainable Central Banking program as part of our strategic objectives. This program aims to integrate environmentally responsible and sustainable policies and work practices within the BSP. The BSP will also be issuing enabling regulations on sustainability or Environmental, Social and Governance (ESG) -related guidelines in phases to encourage the financial industry to invest in activities that will promote climate-resilient, green, and sustainable growth. The BSP has initially issued the Sustainable Finance Framework which sets forth high level principles on the integration of sustainability principles in the corporate and risk governance frameworks as well as in the business strategies and operations of banks. That said, BSP will continue to remain vigilant and monitor impact of relief measures on banking system as well as market conditions for any emerging risks to our outlook for both inflation and economic activity. We are committed to using our entire arsenal of instruments, in line with the provisions of our Charter, in a timely manner to address the macroeconomic impact of the COVID-19 pandemic. We are actively working on laying the enabling framework that will encourage private sector participation in the attainment of a balanced and sustainable growth of the Philippine economy. Theodore Roosevelt, who is regarded as one of the greatest US Presidents, a prolific creative writer and a man of action, once said that “Great thoughts speak only to the thoughtful mind, but great actions speak to all mankind”. This pandemic is going to test our humanity. The actions that we will take today will define the future of this country. As leaders in your respective fields, you have the ability and the means to take swift and purposeful action; thus, we should take advantage of this window of opportunity to transform the green shoots of today into a greener, better and sustainable future. Thank you and I wish everyone a productive and successful conference. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Chamber of Thrift Banks Convention, Manila, 12 October 2020.
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Benjamin E Diokno: Thrift banks in the next decade - navigating the digital future Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Chamber of Thrift Banks Convention, Manila, 12 October 2020. * * * On Incentivized Lending. We have reduced the credit risk weights of loans granted to MSMEs that are current in status to 50 percent from 75 percent for qualified MSME portfolio and 100 percent for non-qualified MSME portfolio. Moreover, new peso-denominated loans to MSMEs, and certain large enterprises that were critically impacted by the pandemic shall be recognized as forms of alternative compliance with thrift banks’ reserve requirements against deposit liabilities and deposit substitutes. As of end-July 2020 (latest data), thrift banks were able to provide a total of P80.0 billion loans to MSMEs. These were used as alternative compliance of thrift banks with the reserve requirements as of end-September 2020. To enable stand-alone thrift banks to continue to support their rural community-based clients, the BSP deferred the implementation of the revised risk-based capital framework applicable to stand-alone thrift banks. The revised capital adequacy framework will now take effect on 1 January 2023 instead of 1 January 2022. We listened to CTB’s request that the minimum liquidity ratio of stand-alone TBs and R/CBs be reduced from 20 percent to 16 percent until end-December 2020. On Promotion of continued access to financial services. This ensures access to formal financing channels by retail clients, who would be deeply affected by the community quarantine arrangements. We have relaxed the KYC requirements like the presentation of valid IDs by retail clients and micro-business owners to facilitate their access to formal financing channels. The BSP granted operational relief measures for foreign exchange transactions of thrift banks authorized to engage in foreign exchange transactions to facilitate the public’s access to foreign exchange resources for financing of legitimate transactions. On Support for Continued Financial Services Delivery. The BSP granted operational relief measures to assist BSP-Supervised Financial Institutions in focusing their limited resources on the delivery of financial services and support their subsequent recovery efforts. The BSP also provided relief on the non-imposition of penalties on legal reserve deficiencies for a period of six months subject to BSP approval. Moreover, the penalty that may be imposed for reserve deficiencies was relaxed and subjected to a reduced maximum limit until 31 March 2021. Also, the notification requirements related to changes in banking days and hours and temporary closure of bank units and supervised financial institutions offices/service units and submission of documentary requirements for Type C licenses were further relaxed. Moving forward, we reaffirm our continued partnership with CTB in the pursuit of remaining financial sector reforms. 1/3 BIS central bankers' speeches Our ‘test and learn’ approach or regulatory sandbox remains useful in dealing with increasing digital financial innovations in the market. One of the significant outcome of our ‘test and learn’ approach that has graduated to full implementation involved a pioneering rural bank that engaged a cloud service provider for its core banking system. Indeed, one critical transformation already taking place in the banking industry is the move towards going “cloud-based” as more than 20 financial institutions have transitioned towards hosting their core banking solutions in the cloud. However, there has been an uneven take up of cloud banking among the industry as rural banks represent a disproportionately larger share of cloud adopters. This is something that we hope to understand more through discussions with the industry. For thrift banks, this should mean two things. First, shifting to the cloud must be seen as an opportunity, as even rural banks have maximized the benefits of scalability of financial services, from mobile and electronic banking to near field communication (NFC) payments. Second, thrift banks must embrace the change of mindset from a “brick and mortar” thinking to embracing the promise of digital transformation in providing crucial banking services to its clients. Moreover, smaller thrift banks can take advantage of these available digital technology to lower operational costs. The opportunities are limitless, but risks, business synergies and contribution to growth have to be carefully considered. The COVID-19 pandemic has also accelerated the digitalization of financial services to support resilience. Innovative solutions could support the reopening of the economy while minimizing resurgence of the virus. Widely reliable and affordable access to internet will be critical to ensure business continuity under the new normal. The shift to e-commerce, digital financial services, digital public service and social protection delivery which started during the lockdown will likely to continue even after the relaxation of lockdowns. Under its Digital Payments Transformation Roadmap, the BSP aims to shift at least 50 percent of retail payment transactions to digital, and to have at least 70 percent of adult Filipinos owning a transaction account by 2023. The thrift banking industry has to embrace and be ready for the opportunities and realities under the new economic arrangements. Allow me also to commend the 12 thrift banks that are offering PESONet payment transactions and the eight thrift banks offering the InstaPay platform for sending and receiving payment services and the four thrift banks that provide receiving payment services. You are among the movers under the Digital Payments Transformation Roadmap. Nevertheless, we are also mindful of the attendant risks and the unintended consequences of these developments. In this area, we rely on our long-standing partnership with the Chamber of Thrift Banks to help us 2/3 BIS central bankers' speeches in mitigating the effects of technology-related risks, in promoting financial integrity and transparency in financial transactions while working towards sustaining the resiliency and stability of the banking system. Ladies and gentlemen, disruptive technology and the COVID-19 pandemic are drastically changing the future of financial services industry. There are rough seas and strong headwinds coming from these two realities. But we must not lose track of our collective goal of keeping the banking system on even keel so it remains supportive of economic recovery and growth over the long-term. Together, we can work towards developing a safer, more dynamic, more digital, and more inclusive banking system for the banking public. Mabuhay ang Chamber of Thirft Banks and I wish you all a meaningful convention ahead! Thank you all! 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the U.P. Alpha Phi Beta Fraternity Alphan Thought Leaders Webinar Series, 9 October 2020.
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Benjamin E Diokno: Supporting MSMEs and the economy in the new economy arrangement Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the U.P. Alpha Phi Beta Fraternity Alphan Thought Leaders Webinar Series, 9 October 2020. * * * To all participants of this Alphan Thought Leaders Webinar Series, good morning. I thank my fellow brothers of the U.P. Alpha Phi Beta Fraternity for organizing this webinar series in order to raise public awareness of the current challenges, opportunities, and innovations that we are facing as the result of the COVID-19 pandemic. Let me start by providing a macroeconomic perspective on the estimated impact of the coronavirus pandemic. The COVID-19 pandemic raised uncertainty and affected economic activity of all nations though the its impact is uneven. Based on the June 2020 IMF World Economic Outlook, the global economy is projected to contract by 4.9 percent in 2020 to be followed by a mild recovery of 5.4 percent in 2021. In the Philippines, economic output contracted by 16.5 percent in the second quarter of 2020, after exhibiting 84 consecutive quarters of growth. This is the lowest recorded quarterly contraction since the 1981 series. The decline was primarily attributed to our lockdown measures to slow down the spread of the virus and help prepare our public health sector and local communities respond to the health crisis. By sector, only Agriculture was able to post growth of 1.6 percent. Industry plunged by 22.9 percent while Services contracted by 15.8 percent. In the Industry sector, two major subsectors were worst hit: construction and manufacturing, which contracted by 33.5 percent and 21.3 percent, respectively. In the Services sector, the top three sub-sectors that suffered the most were the following: 1/ 1. Accommodation and food service activities 2. Other services , that is, Arts, entertainment and recreation; and 3. Transportation and storage. Fortunately, we were prepared when the pandemic hit us. This slide shows the strength of our macroeconomic fundamentals in 2019. Two decades of sustained economic and structural reforms served as well and enabled us to build buffers and widen policy space. Our GDP growth averaged 6.4 percent in the last 10 years. The robust growth of the domestic economy was achieved in an environment of generally stable inflation and was anchored on purposeful structural reforms. The country’s strong track record of prudent policymaking has likewise led to a robust external payments position, larger international reserves, improved external debt metrics, and healthy public finances. At the same time, Philippine banks continue to be sound, stable, and well-functioning based on all metrics. 1/4 BIS central bankers' speeches It is from this strong position that the BSP acted swiftly and decisively to inject liquidity into the system to calm the market. At the same time, it communicated its priorities and policies well. We reduced policy rate by a cumulative 175 bps – by 25 bps even before the pandemic became full=blown, followed by a series of three 50 bps cut in 4 months. We cut reserve requirements by 200 bps for universal and commercial banks and by 100 bps for thrift banks and rural and cooperative banks. We entered into a repurchase agreement with national government through the Bureau of the Treasury (BTr);1 we also opened a daily one-hour window to purchase government securities in the secondary market (open market operations); We remitted dividends amounting to ₱20 billion to support the NG programs, even if the BSP is no longer required under our new Charter to remit cash dividends to the National Government.2/ Moreover, we expanded the set of eligible instruments as compliance with the BSP’s reserve requirement to include newly granted loans to MSMEs and critically impacted large enterprises that do not belong to conglomerates; We also issued time-bound and targeted regulatory and operational relief measures to encourage BSP-supervised financial institutions to continue their support to the economy, particularly the MSME sector. These measures include: extension of financial relief to borrowers, incentivized lending, promotion of continued access to financial services, support for continued financial services delivery, and support for sufficient level of domestic liquidity and economic activity. In sum, we have injected approximately P1.9 TRILLION PESOS in liquidity into the financial system, equivalent to 9.6 percent of GDP. Why help the MSMEs? Because this sector is a huge part of our economy. The MSMEs account for about 99 percent of total establishments in Philippines, 63 percent of total employment, and 36 percent of total value added. The sector is also a major contributor to the country’s current account, generating one-fourth of our total export earnings. The banking system has responded positively to these relief measures as we can see from banks’ lending behavior and activities towards the sector. First, banks continued to extend loans to MSMEs even during the lockdown period. In fact, as of end-August 2020, credit allocated to MSMEs reached P527.2 billion. Second, banks granted new MSME loans as well as re-financed existing loans. Third, loans to MSMEs as compliance with the reserve requirements have likewise increased and banks’ lending rates for MSMEs have generally declined. 1/ The pandemic has given us this opportunity to further accelerate the digital transformation of the financial services sector. The BSP encourages the use of electronic payments to enhance the speed, convenience and affordability of financial transactions. Now, we have the PESONet and Instapay, the current two Automated Clearing Houses. The BSP is promoting the use of PESONet as a viable alternative to checks and recurring bulk payments while the InstaPay as a substitute for coins and cash. 2/4 BIS central bankers' speeches The existence of the PESONet and InstaPay was crucial in facilitating two key milestone initiatives of the National Retail Payment System: the Government e-Payments (“EGov Pay”) facility via PESONet; and the National Quick Response Code Standard (“QR Ph”) via InstaPay. The pandemic has shown the critical role of digital platforms in financial transactions and in the economy in general. As a result of the pandemic and the consequent lockdowns, more consumers shifted from cash payments to digital payments. The evidence is crystal clear: the use of PESONet and InstaPay zoom exponentially. For the first eight months of 2020, the value of InstaPay rose by 388.7 percent, while that of PESONet jumped 100.7 percent. year-on-year. By volume of transactons, InstaPay and PESONet soared by 623.8 percent and 129.6 percent, respectively. Personally this is music to my ears. One of my personal goals as Governor of BSP is to have not less than 50 percent of transactions, by volume and value, should be done digitally rather than by cash payments by 2023. With the pandemic, I’m optimistic that this goal will be met sooner. Of course, this is consistent to my other vision of having a cash heavy to a cash lite economy. Indeed, the speed and breadth of the digitalization are gaining momentum. And we want to push harder. On September 8, 2020, the BSP, jointly with the Trust Officers Association of the Philippines, launched the Digital PERA (Personal Equity Retirement Account). It utilizes a digital platform where investors can open, access, and invest 24/7 through their PERA account anywhere in the world using their mobile gadgets. This breakthrough project is in addition to an array of digital-enabled investment outlets such as the Unit Investment Trust Funds and Mutual Funds, which are now available for retail clients. At any rate, the BSP shall sustain the momentum for the adoption of digital payment services during the pandemic to ensure the smooth transition into the New Economy. These services will further respond to the increasing need for contactless payment means between consumers and businesses engaged in e-commerce. The demand and supply of QR-enabled payment services have been showing promise. In addition to the existing Person-to-Person (P2P) national quick response code standard (QR Ph), Filipinos will soon enjoy the QR Ph for Person-to-Merchant (P2M). On the other hand, EGov Pay is an e-payment facility that allows individuals and businesses to pay taxes, permits, fees, and other obligations to the Government (P2G) through the PESONet rail. Operational for only seven months, the number of government agencies enrolled in this facility expanded considerably from just 2 when it went live in November 2019 to 277 as of June 2020. The BSP is also pursuing a direct debit facility, which will allow customers to better manage their recurring payments such as monthly rental by simply authorizing the payees to pull funds from the account of the payors. Another exciting initiative in the pipeline is the availability of a bill payment service. This initiative aims to eliminate inefficient bills collection process, ensuring that a biller can collect from the payers even if their payment service providers (PSPs) are different from each other. The BSP is also looking forward to the electronic transmission of the SSS benefits and loans via 3/4 BIS central bankers' speeches PESONet. In addition, the BSP is working with the industry, which is led by the Philippines Payment Management, Inc. (PPMI), to reduce the costs of doing digital payments (particularly for micro transactions) in order to incentivize consumers to convert cash-based transactions into digital form. In fact, we just recently announced a number of banks who have extended their waiver of fees for use of InstaPay and PESONet till the end of the year. The BSP is also implementing a Digital Literacy Program to understand the new financial landscape. This initiative is part of the BSP’s financial education advocacy, which aims to increase public trust and confidence in the digital finance ecosystem and encourage massive usage of digital financial services by consumers across all sectors. In light of these developments, the BSP enhanced its Financial Consumer Protection (FCP) Framework. The enhancements are meant to fundamentally strengthen market conduct practices of BSFIs by establishing guidelines that institutionalize consumer protection as an integral component of corporate governance and culture, as well as risk management. Let me also add that the BSP takes a more active role in pushing for the implementation of the Philippine National ID System in collaboration with the Philippine Statistics Authority and other agencies. The National ID system seeks to establish a verifiable digital identity for Filipinos which will enable them to open bank accounts, use financial services more efficiently, and gainfully participate in an increasingly digital economy. And in the case financial consumers may want to bring up any concerns against banks or financial institutions, they may get in touch with us through our Chatbot, “BOB.” BOB is short for BSP Online Buddy. BOB can communicate in English, Tagalog and Taglish through webchat, Facebook messenger, and SMS. This is part of our overall strategy for financial consumer protection. As you can see, decades of strategic structural reforms are taking fruit. As this crisis presents the significance of forward planning, let me assure you that the BSP is strongly committed to implement necessary reforms, within its mandate, to help the Philippine economy recover and build it resilience against future crisis. Let me end with a quote from Former US President John F. Kennedy. “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.” That said, we shouldn’t let this once-in-a-lifetime crisis go to waste. We should derive important lessons from this crisis moving forward. Let us use the lessons from this crisis in reshaping our strategies and priorities for the future. Thank you and good morning! Back 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Moody's Credit Rating Call, 13 October 2020.
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Benjamin E Diokno: Measures implemented by BSP in response to the COVID 19 pandemic and outlook of economy Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Moody’s Credit Rating Call, 13 October 2020. * * * Good afternoon to those joining us from the UK, and good evening to the Moody’s team in Asia and also to the rest of my colleagues in government here in Manila. In the interest of time, I will briefly discuss first, the measures implemented by BSP in response to the COVID 19 pandemic and second, the performance and outlook of the monetary, external and banking sectors. The BSP has responded to the crisis in a timely and decisive manner. We acted quickly by providing ample monetary stimulus to mitigate tightening liquidity conditions, boost business and consumer confidence, and ensure the continued orderly functioning of the financial system. The BSP was among the first central banks in the world to respond to the crisis before it became full-blown. We cut policy rates by 25 basis points as early as February as a pre-emptive move against the impact of the pandemic. To date, we have cut policy rates by a cumulative 175 basis points. In addition, we cut reserve requirements by 200 basis points. Aside from the traditional monetary tools, the BSP has implemented other extraordinary measures, to the extent that our charter and other enabling laws allow, befitting this once in a life time crisis. Last October 1, the Monetary Board approved the short-term provisional advance to the National Government worth Php540 billon (approximately US$11.1 B) in order to beef up National Government finances after the initial Php300 billon (approximately US$6.2 B) repurchase agreement which was settled last September. Besides these monetary measures, we also implemented a long list of time-bound regulatory and operational relief measures to help BSP supervised financial institutions withstand the crisis. In turn, we expect them to support businesses and households by giving them access to credit. With the measures we have deployed, the BSP has so far injected P1.9 trillion (about USD 39.2 billion) in liquidity to the financial system, equivalent to 9.6 percent of the country’s GDP. With the huge amount of liquidity injected into the system, we are fully aware of the need to carefully assess the appropriate timing of the unwinding of all these measures. Doing it too late or too early may have serious repercussions on the economy. In addition, I am pleased to inform you that last September, the BSP started issuing its own securities, as allowed under our recently amended charter. This new instrument will help us better manage liquidity moving forward. Let me now provide brief updates on the monetary, external and banking sectors: 1/2 BIS central bankers' speeches On the monetary front, inflation remains manageable. We expect inflation to settle within the target range of 1.75 – 2.75 percent this year, and 2.0 – 4.0 percent in 2021 and 2022. Low inflation gives us room for monetary easing when needed. On the external front, we continue to have a comfortable external payments position with gross international reserves at an all-time high of around US$ 100bn. External debt ratio/GDP remained low at 23.7 percent at end-June 2020, even with the recent increase in external borrowing to fund additional government spending to address the pandemic. Both our current account and BOP remained in surplus in the first semester. We project a current account surplus equivalent to 1.6 percent of GDP this year, up from a deficit of 0.5 percent of GDP as of May 2020. We expect BOP to post a surplus of around 2.2 percent of GDP, up from 0.2 percent of GDP as of May 2020. Overseas Filipino Remittances have started to recover in recent months. We expect OF remittances to expand by 4 percent next year from a contraction of 2 percent this year. Year to date, OF remittances have contracted by 2.4 percent. The Philippine peso has been an outperformer this year, appreciating 4.7% against the USD, year-to-date, to its highest level since late-2016. The appreciation is due mainly to the country’s external position, itself driven by a narrowing in the trade deficit and a rebound in remittances in recent months. The Philippines’ banking system remains fundamentally sound and resilient despite the health crisis. The regulatory measures mandated by the BSP through the years have prepared banks to build enough buffers going into this crisis. Banks are well capitalized with high capital adequacy ratio, well above both the BSP and BIS regulatory requirements. Asset quality remains good and loan quality remains satisfactory. The BSP’s stress test exercises and simulations point to favorable banking system prospects even with risks to the outlook. Moving forward, we expect non-performing loans to remain manageable, CARs to stay above the 10-percent requirement, liquidity to be sufficient, and profitability to stay intact. We are confident that the worst is over. We have started to open up the economy as lockdown measures have resulted in flattening the curve and allowed the government in building the necessary health capacity. The BSP will continue to monitor developments as they unfold. Further policy responses will be dependent on how the data evolves. Going forward, the BSP is prepared to use the full range of its monetary instruments and to deploy additional measures, as needed, in fulfilment of its price and financial stability objectives. Even as the BSP maintains its independence, we will continue to work hand-in-hand with the National Government to ensure that the coronavirus pandemic will leave little permanent scar on the Philippine economy and its people. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the receipt of the Asian Banker "Best Systemic and Prudential Regulator in Asia Pacific" Award, 14 October 2020.
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Benjamin E Diokno: Asian Banker Acceptance Speech Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the receipt of the Asian Banker “Best Systemic and Prudential Regulator in Asia Pacific” Award, 14 October 2020. * * * Good day, ladies and gentlemen. I am honored to receive the Asian Banker “Best Systemic and Prudential Regulator in Asia Pacific” Award in a year filled with challenges brought about by the COVID-19. The BSP was among the central banks in the world which swiftly responded to the crisis through the deployment of a comprehensive set of measures. The BSP continues to be front and center of the Philippines’ COVID-19 economic response by ensuring ample liquidity in the financial system and providing regulatory relief to banks and implementing policies to assist Filipino businesses and households weather and recover from the crisis. Without doubt, the COVID-19 is unprecedented in scale. Its reach is global, and its impact, disproportionate, especially, on the poor. It is for this reason that the BSP’s toolkit also covers measures that incentivize lending to vulnerable sectors of our society. Part of the BSP’s strategy is making sure that the Philippines is able to get back on its balanced and sustainable growth path as soon as possible. In this regard, the BSP is working closely with the National Government and the private sector on structural reforms in line with a whole-ofnation approach. On our part, we would like to transform the financial landscape through legislation, digitalization and environmentally sustainable practices. I thank the Asian Banker for recognizing the BSP’s efforts towards nation building. I share this honor with the BSP’s 5,500-strong workforce who continuously strive to fulfill our mandate. This award is a testament to their dedication and commitment to our mandates all in pursuit of uplifting the quality of life for all Filipinos. Ms. Martha Beck, a well-known American author, once said that “Any deep crisis is an opportunity to make one’s life extraordinary in some way”. Indeed, this once-in-a-lifetime crisis requires extraordinary responses. It is, therefore, a privilege and an inspiration for me to be among leaders and promising young bankers who have chosen to be extraordinary, while operating in this difficult environment. 1/1 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SCB Sovereign Investor Forum, 14 October 2020.
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Benjamin E Diokno: The Philippines beyond survival - becoming an economic outperformer post-pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SCB Sovereign Investor Forum, 14 October 2020. * * * Chief Executive Bill Winters, other Standard Chartered Bank Officials and all attendees of this virtual roundtable, a pleasant day to all of you. My presentation is divided into three parts. First, I will discuss Philippine macroeconomic updates. Second, I will talk about how the country’s banking sector is faring. And third, I will share insights on where we see the domestic economy is headed post pandemic. First, macroeconomic updates… At this point, I can report that the worst is over. While we’re not out of the woods yet, there has been progress as the economy gradually opens up from the strict lockdown in March to June to less stringent quarantine measures. We’re learning to live with the virus. Now, we’re at an inflection point. For instance: The Purchasing Managers’ Index (PMI) moved past the growth threshold of 50, settling at 50.1 in September. Net inflow of foreign direct investments already posted growth rates starting in May, with the latest at 35.2 percent growth in July. This points to favorable job-generation prospects ahead. Speaking of jobs, the unemployment rate improved from a record high of 17.7 percent in April— which was the height of the lockdown—to 10 percent in July. Contraction of imports slowed down from 65.3 percent in April to 22.6 percent in August. And, the decline in exports eased from 49.9 percent in April to 18.6 percent over the same period. Major indicators suggest that financial markets are responding well to our policy responses. And, the peso is among the strongest currencies in this part of the world, recording a year-todate appreciation of 4.36 percent against the US dollar as of October 13. With all these positive trends as backdrop, we expect an even firmer economic recovery by next year. Based on official government projections, GDP will swing from a contraction of 4.5 to 6.6 percent this year to a growth of 6.5 to 7.5 percent next year. The International Monetary Fund’s latest GDP forecast for the Philippines for next year—at 7.4 percent—is close to the high end of the government’s projection. Inflation is manageable at 2.5 percent in the first nine months of the year, and is seen to settle between 1.75–3.75 this year, and 2.0 to 4.0 percent next year and in 2022. Favorable inflation provides an enabling environment for growth. 1/5 BIS central bankers' speeches This gives room for the BSP to further ease monetary policy, in case needed. Exports and imports will rebound from negative territory this year to 5.0-percent and 8-percent growth, respectively, next year. FDIs will rise to USD 7.0 billion next year. Overseas Filipino remittances will rebound from a contraction of 2 percent this year—an improvement from our previous forecast of 5 percent contraction—to a growth of 4 percent next year. Year-to-date, remittances dropped by only 2.6 percent as of August. Our overall external position will stay healthy. The balance of payments will post a surplus of USD 8.1 billion this year and USD 3.4 billion next year. The current account will also remain in surplus, at USD 6.0 billion this year and USD 3.1 billion next year. Meanwhile, the gross international reserves will continue to hit new highs of USD 100 billion this year and USD 102 billion next year. Our recovery prospects are supported by a whole-of-government approach to addressing the crisis. The National Government has rolled out massive relief and mitigating measures, and boosted the country’s healthcare capacity. Congress immediately passed critical bills to support the government’s COVID response. For our part, the Bangko Sentral ng Pilipinas (BSP) has been quick and decisive in responding to the crisis. Our actions were meant to, first, boost market confidence and cushion economic activity; second, provide liquidity to complement government programs; third, sustain financial stability; and fourth, support continuous delivery of financial services. In total, the BSP has already injected P1.9 trillion (about USD 39.2 billion)—equivalent to 9.6 percent of GDP—into the financial system. Besides cuts in the policy rate and the reserve requirement, we have implemented an extraordinary measure, but within the scope of our mandate. Last October 1, the Monetary board decided to provide a short-term provisional advances to the national government in the amount of P540 billion—approximately US$11.1 billion. This is came after the initial P300 billion or US$6.2 billion advances was fully settled last month. We also purchased government securities in the secondary market. This has helped keep investors confident about the liquidity situation in the domestic capital market. Our targeted measures have benefited the vulnerable sectors. For example, loans to micro, small, and medium enterprises (MSMEs)—which account for over 60 percent of employment—now count as part of banks’ compliance to the reserve requirement. As such, we have seen a quantum jump in loans to MSMEs. 2/5 BIS central bankers' speeches The suspension of fees on registration of digital payment services—plus the moral suasion for banks to waive fees on electronic fund transfers (a call that has been overwhelmingly responded to)—have aided digital financial transactions of the public amid quarantine. The increase in the single borrower’s limit and the limit on real estate loans are seen encouraging banks to lend, in support of economic recovery and growth. Our latest move is put a cap on credit card charges. This will help ensure that consumers will not be burdened by higher interest rates on credit card consumption, especially during this difficult time. The BSP has done a lot. But our toolkit is far from exhausted. We are prepared to do more, if and when necessary. Having said this, the BSP is mindful of the need for careful disengagement of our COVID response measures. We recognize that doing so either too late or too early may have serious repercussions on the economy. Moving on to the performance of the banking system. Our banking system entered the crisis with sufficient buffers, which will help it remain stable amid the crisis. The capital adequacy ratio (CAR) of banks stood at 15.3 percent on solo basis and 15.9 percent on consolidated basis as of end-March, well above the 10 percent minimum requirement of the BSP and the 8 percent prescribed by Basel. This shows banks have ample capacity to absorb shocks. Bank’s liquidity coverage ratio (LCR) stood at 171.4 percent as of end-March, well above the regulatory minimum of 100 percent. Also, the net stable funding ratio of universal and commercial banks, which stood at 129.1 percent as of end-March, indicates stable funding to serve customers in the short to medium term. Outstanding loans of banks as of end-August grew by 4.4 percent year-on-year. This shows that despite the effects of the pandemic, there is still substantial demand for loans and appetite among banks to lend. The non-performing loans ratio remained modest at 2.8 percent as of end-August. We may see an uptick in the NPL ratio in the coming months as a result of the crisis, but we expect the increase to be manageable. Worth noting is that banks have been beefing up their provisioning for bad debts, with the NPL coverage ratio standing comfortably at 107.4 percent as of end-August. Despite the increase in loan-loss provisioning, banks stayed profitable as of end-June, with annualized net profit growing year-on-year by 1.8 percent. The BSP’s stress tests point to favorable banking system prospects amid risks. Results show NPLs will remain manageable, CARs will stay above the 10-percent requirement, liquidity will be sufficient, and profitability will stay intact. Moving on to the final part of my speech, which is where we are steering the Philippine economy. 3/5 BIS central bankers' speeches The entire government and the BSP are exerting enormous effort not only to help the economy and the Filipino people survive this crisis but for us to be even better, stronger, more inclusive, technologically prepared, and more competitive than before the coronavirus pandemic. Allow me to briefly expound on how the BSP is working toward this goal. The BSP is pushing for laws that will accelerate recovery and improve the structural makeup of the economy. Among the laws we are pushing are: (i) the Financial Institutions Strategic Transfer or FIST bill, which will help banks unload bad assets; (ii) the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE bill, which will provide assistance to distressed firms that are critical for economic recovery; (iii) amendments to the Agri-Agra law to rationalize the way banks can support agriculture development; (iv) amendments to bank secrecy laws to aid anti-money laundering and anti-tax evasion efforts, and promote integrity in governance; and (v) amendments to the Credit Information System Act to ease credit access of MSMEs. Meantime, the BSP continues to refine monetary policy and banking regulations. In relation to price stability, the BSP last month started issuing our own securities, as allowed under our recently amended charter. This will help us better manage liquidity. On financial stability, we are committed to a dynamic regulatory environment that reflects an ever-changing landscape for our supervised entities. We will continue to refine regulations, taking into account good corporate governance, sound risk management, efficient financial intermediation, and effective customer service. The BSP is actively promoting financial technology, which helps speed up payments and capital turnaround and therefore boosts income and economic growth. My personal goal is that half of financial transactions in the country should be digital by 2023, the end of my term. But with enabling regulations and the pandemic, this may be achieved sooner— perhaps by the end of 2022. In fact, we have seen an exponential increase in the use of e-payments platforms Instapay and Pesonet. We have launched mobile apps for savings and investments. We have rolled out programs that pave the way for an extensive use of the QR code system for payments. The BSP embraces regulation technologies or “RegTech,” which facilitate efficient delivery of regulatory requirements. The BSP has also pilot-tested a chatbot that can handle questions and concerns sent by the public through digital platforms with the use of artificial intelligence. Amid these encouraging developments, the BSP has kept a sober eye on risks accompanying the use of electronic data. In line with this, the BSP has launched a three-year Digital Payments Transformation Roadmap, which is anchored on promoting access to financial products through digital platforms, with appropriate safeguards. The roadmap has three pillars: (i) development of digital payment streams; (ii) establishment of interoperable digital payments ecosystem; and (iii) implementation of digital governance 4/5 BIS central bankers' speeches standards for consumer protection. With the roadmap, we expect digital banks to play a key role in expanding access to a broad range of financial services. The BSP will be introducing digital banks as a distinct bank classification. All these initiatives put the BSP at the forefront of the Philippines’ goal of becoming a more technologically driven economy. The goals of a stronger and more technologically advanced economy become meaningful if these translate to faster poverty reduction. We want all Filipinos to benefit from the fruits of development and technological innovation. The BSP is helping achieve a more inclusive economy via financial inclusion. If the poor are able to access credit, savings, and investment instruments, their chances of getting out of poverty will increase. As such, we continue to issue regulations toward financial inclusion. Last month we issued a regulation allowing trust companies to distribute their products using third parties. Previously, they could only do so via their main offices. This new regulation will broaden access points to financial products and services. Our initiatives promoting FinTech also aid financial inclusion. FinTech allows financial products and services to become accessible to a greater number of people, including those from lowincome households and remote areas. Our goal is that at least 70 percent of Filipino adults should have a bank account by 2023. But with the pandemic, we’re optimistic that we can meet this goal as early as December-2022. The BSP is also working with the Japanese Government on the development a Credit Risk Database for MSMEs. This is a comprehensive statistical reference tool for risk-based lending. This will lessen the dependence of banks on collateral, hence increase MSME access to financing. In closing, I would like to stress that the BSP is keen to help realize all the characteristics of a New Economy in the post-COVID era: stronger, more technologically savvy, and more inclusive. As shown by our strong macroeconomic fundamentals, we’re prepared for this crisis. When the coronavirus pandemic fades, I expect the Philippines to be an economic champion, outperforming other emerging economies in its class. Thank you very much for listening. I look forward to our discussion. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Anti-Money Laundering Council's 19th Anniversary, 20 October 2020.
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Benjamin E Diokno: Fighting money laundering and terrorism financing Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Anti-Money Laundering Council's 19th Anniversary, 20 October 2020. * * * Ladies and gentlemen of the AMLC Secretariat. Good afternoon to everyone. I am delighted to be with you today on the occasion of the 19th anniversary of the AMLC. This year, we celebrate under unprecedented circumstances. Not only are we allies in fighting money laundering and terrorism financing, but, along with the rest of the world, we are fighting an invisible but deadly virus. The COVID-19 pandemic has caused us grief and fear, both as individuals and as a nation. But it has also compelled us to address our weaknesses and to shift our assumptions and biases toward fresh, if not better, possibilities. Though the pandemic has brought the world to a slowdown and even to a halt, during the first few months, the AMLC soldiered on against money laundering and terrorism financing. And we have the following milestones to show for it. First—as the pandemic has presented an opportunity for money launderers and other criminals —the AMLC initiated and conducted an analysis of the financial crime landscape,covering a period of the pandemic and using suspicious transaction reports (STRs) submitted by covered persons. The AMLC’s “Covid-19 Financial Crime Trend Analysis and Typologies Brief” has since been disseminated to supervising agencies, appropriate government agencies, law enforcement agencies, several financial intelligence units, and Public-Private Partnership Program partners. The report has also been shared with the Asia Pacific Group on Money Laundering and the Financial Action Task Force (FATF); and a redacted version has been made available online. An update of the study, which expands the data set, will soon be released as well. It is interesting to note that one of the top reasons for STR filing, based on the study, are associated with violations of the Anti-Child Pornography Act of 2009. Child exploitation-related STRs increased in 2020 compared to the same period in 2019. This increase may be primarily due to the AMLC’s 2019 study on online child sexual abuse and exploitation (CSAE). The AMLC’s supplemental study on the online sexual exploitation of children observes that its 2019 study on CSAE has prompted covered persons to proactively report STRs, which led to the identification of an additional 700 persons of interests. AMLC’s study on CSAE also paved the way for the creation of the Egmont Information Exchange Working Group (IEW G) on CSAE, bringing together the United Kingdom Financial Intelligence Unit, Australian Transaction Report and Analysis Centre, and the AMLC as project leads. In view of the increasing risk of online CSAE during the pandemic, the group completed the “Combatting Child Sexual Abuse and Exploitation through Financial Intelligence: Project Report,” producing a consolidated list of financial indicators and keywords that can be used by financial 1/2 BIS central bankers' speeches intelligence units to identify financial transactions likely to be linked to the online streaming of CSAE. A public version was released last September, sharing the report’s overarching conclusions and key findings. Second. Despite the pandemic, the AMLC continues to strengthen its ties with other government agencies to further effective and efficient coordination. In fact, the AMLC enhanced its partnership with the Philippine Drug Enforcement Agency (PDEA), reinforcing the ability of each agency to forfeit assets related to drug trafficking through criminal forfeiture by the PDEA and through civil forfeiture by the AMLC. The AMLC and the Department of Finance (DOF) also stepped up their firm commitment against money laundering and terrorism financing. Information exchange has become more strategic as the AMLC now works directly with the Revenue Integrity Protection Service, which is the anti-corruption arm of the DOF. Apart from the inclusion of terrorism financing, the scope of cooperation between the agencies now specifies unlawful activities under the AMLA, as amended. In addition, the AMLC signed MOAs on information exchange and capacity building with Philippine Amusement and Gaming Corporation, which regulates casinos; and with the Philippine National Police (PNP) – Directorate for Intelligence, which manages all intelligence and counterintelligence of the PNP and serves as the link of the PNP to all foreigners with official transactions with the chief of the PNP. Further collaboration is attained through the implementation of the National Anti-Money Laundering and Countering the Financing of Terrorism Strategy for 2018 to 2022 (NACS), which adopts a whole-of-government and a high-level approach against money laundering and terrorism financing. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the PRU Life UK Online Investment Briefing, 22 October 2020.
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Benjamin E Diokno: The role of investments in reshaping the future of financial inclusion in the country Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the PRU Life UK Online Investment Briefing, 22 October 2020. * * * To the agents, stakeholders, and partners of Pru Life UK Investments, congratulations on your first anniversary. The theme: “The Role of Investments in Reshaping the Future of Financial Inclusion in the Country” could not be more timely. While it remains a vital means to uplift people’s welfare and provide social protection, financial inclusion has become a compelling strategy for sustainable growth. Investments are especially critical to realizing financial inclusion, as these lead to greater market participation and enterprise opportunities. Today, let me share with you recent developments, as well as insights on the way forward, in promoting financial inclusion in the country. I hope that officers and clients alike of Pru Life UK Investments will be able to ponder and capitalize on the prospects offered by these developments. The early groundwork for an inclusive financial system has borne fruit. In fact, as you can see on the slide, our pre-pandemic findings have shown developments that can serve as precedent for a more significant positive movement in the long-term and aid in post-pandemic recovery. Based on our 2019 Financial Inclusion Survey (FIS), account ownership increased to 29% from 23% in 2017. The six-percentage point increase translates to 5 million new accounts in just two years. Among the poorest, account ownership hit 27%, closer to the national average and nearly double the 14% previously reported. E-money accounts drove the overall growth in account ownership, increasing to eight percent from a mere one percent. Account usage more than doubled to 39% from 18%. Uptake of other financial services also increased in the same two-year period of 2017–2019: formal credit rose to 19% from 14%; insurance to 23% from 18%; and investment to 25% from 23%. There is also an increasing appreciation for insurance as more Filipinos avail of it to bolster their financial resilience. But much still needs to be done to get more Filipinos into investing. Seventy-five percent or 54 million of Filipinos do not have investments. While this figure may be disappointingly low, it shows, however, immense room for growth in the investment market. The key is to fortify the foundations that will facilitate entry into the formal financial system. This will encourage active participation, and in turn serve as building blocks for a robust investment market. In recent years, the BSP has taken the necessary steps to ensure that it will be easier for Filipinos, especially the unbanked and underserved, to be financially included by leveraging on technology. As you can see from the slide, we have three regulatory initiatives serving as pillars of the 1/4 BIS central bankers' speeches inclusive digital finance ecosystem, namely: (1) democratization of account ownership; expansion of networks of low-cost touchpoints; and (3) efficient retail payment system. Allow me to discuss each one. Democratization of account ownership It is essential to ensure that anyone, regardless of economic or social standing, is capable of owning a transaction account. A transaction account serves as the gateway to financial services. With it, a user can store funds and electronic payments then eventually avail of more products such as credit, insurance, and investments. In fact, we issued the policy on the no-frill basic deposit account (BDA, Circular 992). The BDA framework eases requirements of account ownership by reducing opening costs, eliminating maintenance fees, and paring down documentary requirements to the bare minimum. Likewise, our amendments on anti-money laundering rules aim for wider adoption of streamlined and risk-based KYC procedures. BSP-supervised financial institutions (BSFIs) can offer a restricted account to micro-entrepreneurs and informal sector workers without a primary ID card. Amendments also allow reduced, deferred, and technology-based KYC; thus expediting onboarding of the unbanked. Expansion of networks of low-cost touchpoints Complementing these efforts is the expansion of networks of low-cost touchpoints. Our policy on cash agent operations (Circular 940) enable accredited third-party establishments, such as pharmacies and convenience stores, to perform basic banking operations. These function as familiar and highly accessible transaction channels, as well as bridge cash-based and digital transactions. There is clearly public appetite for account ownership – BDA ownership as of first quarter 2020 increased to 4.64 million from 428,000 in 2018. During the pandemic, over 4 million new accounts were opened via digital platforms, along with new online sign-ups and app downloads for digital financial services (DFS). Meanwhile, there are at least 17,000 active cash agents to date, attesting to their ubiquity across the country. Financial services providers (FSPs) such as yourself can foster market growth by exploring the potential of this client base, as well as new modes of delivering financial services. Efficient retail payment system The digital finance ecosystem, of course, cannot be without an efficient retail payment system. Our National Retail Payment System (NRPS) framework is aimed at establishing a safe, affordable, reliable, and efficient retail payment system in country. To encourage the adoption of digital payments, we established PESONet and InstaPay. PESONet is a electronic funds transfer scheme and InstaPay, on the other hand, is a and realtime, low-value push payment schemes. Our goal in establishing the National Retail Payment System is to promote interoperability. In practical terms, this means that a customer can conduct financial transactions, ranging from deposits to payments, with anyone in the system by just maintaining a single account. PESONet and InstaPay came in handy during the pandemic. Both saw a surge in both volume and value as people turned to digital platforms for daily financial activities. Transaction volumes for PESONet and InstaPay jumped by 143% and 820% respectively in August 2020. Through the NRPS and our other regulatory initiatives, we seek to usher in innovative financial 2/4 BIS central bankers' speeches products, including retail investment products designed for small-value, high-frequency transactors. Digital platforms today can offer investment opportunities to low-income earners for as little as PHP 50 and micro-insurance for PHP 39. We advance these strides with the implementation of our Digital Payments Transformation Roadmap (DPTR) 2020–2023. Let me expound on this centerpiece plan. The Roadmap is BSP’s centerpiece plan to support its goal of moving the country from being cash heavy to cash-lite by 2023. Our goal is that at least 50% of retail payment transactions is made digitally. Our other goal is our target of 70% of adult Filipinos should have a transaction account. The achievement of these strategic outcomes building a digital payments ecosystem that facilitates inclusivity, innovation, and efficiencies benefitting individuals, businesses and the economy as a whole. Such an ecosystem is shaped by the adequacy of infrastructure, responsiveness of regulations and standards, and the strength of multi-sectoral collaborations. In addition, we continue our legislative support and collaboration with national government on initiatives to strengthen our digital infrastructure, such as the implementation of the Philippine National ID System or PhilSys. The e-KYC feature of the PhilSys is envisioned to be a game-changer in the way financial institutions like Pru-life UK onboard clients and deliver financial services. We are also championing reforms to improve digital connectivity in underserved communities and accelerate financial inclusion. Digital connectivity is a critical enabler and a necessity, especially in the new economy. With policies, regulations and digital infrastructures in place, a wider range of financial products and services can be made more accessible to a greater number of Filipinos. Aside from deposit accounts, loans and payment services, affordable retail investment products should be among a regular Filipino’s arsenal of financial tools. As stated earlier, investments remain low, growing only 2% (from 23% to 25%) between 2017 and 2019. Many Filipinos perceive investing to be costly, and have yet to realize its value as an additional income source. According to the Philippine Statistics Authority (PSA), there are 7.6 million Filipinos aged 60 and above, of which only 20% are covered either the Social Security System (SSS) or Government Service Insurance System (GSIS). The harsh reality is that eight out of 10 Filipinos aged 60 and above, and in many cases, retirees do not receive sufficient pension to fully cover their living expenses. Investments provide people the means to enhance their financial health, as well as to protect their welfare against economic risks and sudden downturns, such as this ongoing pandemic. Our latest efforts, as you will see, are aimed at putting investments within reach of the ordinary Filipino. Just this month, we issued Circular No. 1097 allowing trust corporations to distribute their Unit Investment Trust Funds (UITFs) through third parties, specifically individual and institutional agents. In addition to this issuance, we recently launched the digital Personal Equity Retirement Account (PERA). PERA was established 12 years ago under Republic Act No. 9505 to help Filipinos build funds for retirement. The Duterte administration is implementing the PERA for the first time. In fact, the number of investors as of end-July this year has only reached 1,586, with contributions amounting to PHP 137 million. 3/4 BIS central bankers' speeches PERA presents an opportunity for small investors to grow their retirement funds. Harnessing technology, PERA can now be accessed digitally. This digital PERA was launched as a one-stop shop digital experience for investor education, client onboarding, settlements, and investment monitoring. This platform allows investors to open, access, and invest in a range of funds through their PERA account anytime, anywhere, here and abroad, through their mobile devices. Creating a community of investors require industry players to adopt a financial inclusion mindset. And I urge you to take this to heart. But creating a community of investors requires a financially literate public and strong market conduct reinforced by sound consumer protection mechanisms. Thus, financial education is a significant part of BSP’s efforts .We have entered into partnerships with the government and industry counterparts to institutionalize financial literacy training for target segments. These partnerships are facilitated through our National Strategy for Financial Inclusion (NSFI). Our financial education partnerships with institutions like the Department of Education (DepEd) can reach 29 million learners and over 800,000 teachers; and with the Overseas Workers Welfare Administration, 2.3 million OFWs and 14 million overseas Filipinos. Our financial education advocacy has also expanded to include digital literacy, which is timely given the massive digital shift driven by the pandemic. The objective of our digital literacy program is to build trust and confidence in the digital finance ecosystem by increasing the public’s knowledge and capability to reduce risks and vulnerabilities arising from use of digital financial services. To enrich our customer insights and as a way of bringing our services closer to the people, we have launched the BSP Online Buddy (B.O.B.). B.O.B. harnesses machine learning and artificial intelligence (AI) to answer queries and concerns from the public and improve efficiency in our consumer assistance mechanism (CAM). That said, growing the market for investments to support financial inclusion requires a concerted effort among stakeholders. I encourage Pru Life UK Investments to explore ways to enrich customer experience and bring its financial services closer to Filipinos. I hope you take advantage of the opportunities our recent initiatives offer. In closing, let me quote the “Oracle of Omaha”, renowned investor Warren Buffet: “Never depend on a single income, make an investment to create a second source.” Through our recent initiatives, we aim to encourage more Filipinos to try available investment products that can benefit and help them build a solid financial future. We hope that you convey the same message when serving your clients. Lastly, I would like to acknowledge Pru Life UK Investments’ role as a partner in providing financial services through investments. We hope that you continue to contribute and support our efforts in enhancing the promotion of financial inclusion in the country. Again, my congratulations to you on your first anniversary. Thank you very much. 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Makati Business Club, 27 October 2020.
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Benjamin E Diokno: BSP’s digital payments transformation roadmap for 2020-23 Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Makati Business Club, 27 October 2020. * * * Ladies and gentlemen, good afternoon. Let me start by drawing your attention to the BSP’s Digital Payments Transformation Roadmap for 2020 to 2023. This roadmap sets out our initiatives and strategies for achieving an efficient, safe, and inclusive payments ecosystem. The roadmap has two key strategic objectives. Firstly, it aims to strengthen customers’ preference for digital payments by converting 50 percent of the total volume of retail payments into digital form. This first objective includes expanding the proportion of financially included to 70 percent of Filipino adults. To help us assess how well our policy interventions contribute to the transformation into digital payments, the Better than Cash Alliance or BTCA is helping us in building a simulated model, which will estimate the potential change in the level of e-payments volume and value driven by policies initiated by the BSP. The second objective is to encourage innovations which will boost real-time payments velocity. In particular, we intend to have more available innovative digital financial products and services that cater to the needs of consumers. These services will be enabled by the National ID System. It will also be and supported by the availability of modern payment services that will facilitate real-time processing of financial transactions. These BSP objectives hinge on a triad of critical pillars that are seen to build an environment that is conducive to digital transformation. One of the pillars relates to the development of payment streams. At present, we have an instant payment stream called the InstaPay, and a batched payment stream called PESONet. I will talk more about payment streams in a while. The next pillar relates to the establishment of digital infrastructure which facilitates interoperability of payment services. Interoperability allows seamless transaction processing which is necessary for achieving efficiency. The last pillar is the implementation of digital governance standard. The goal is to maintain public trust in the payment systems. This will be done by protecting the integrity of consumer data and ensuring appropriate management of digital products and services. With this roadmap, we have achieved significant progress in collaboration with our strategic partners including the Philippines Payments Management, Inc. or PPMI, USAid, BTCA, United Nations Government Programme, and other concerned government agencies. 1/4 BIS central bankers' speeches The usage of PESONEt and InstaPay has grown sharply, especially during the lockdown periods. Clearly, the trajectories of the PESONet and InstaPay volume and value reflect increasing consumer trust in these fund transfer services. For businesses, the InstaPay has been useful in the settlement of low-value yet urgent financial obligations. It is even more convenient to use with the availability of interoperable Person-to-person or P2P QR codes, which follow the BSP-prescribed National QR Code Standard or “QR Ph”. Instead of keying in the account details of the payee, a payer simply scans the code generated by the payee’s bank or e-money issuer, and the funds transfer happens in seconds. Likewise, the PESONet has been instrumental in providing a safe and efficient channel for business payments, including salary disbursements, supplier settlements, dividend distribution, investments, and any other financial transaction of firms and institutions. In fact, the PESONet is a better alternative to checks. This is because the PESONet clears on the same day, while the check clears on the following banking day. Under E-Gov Pay, citizens may pay taxes, permit fees, license charges, and other government bills. PESONet is the rail that serves as the backbone of the EGovPay Linkbiz portal. To date, there are over 280 national government agencies and local government units enrolled as billers. Currently, PESONet transfers are done once, that is, at the end of a banking day. To further address the demand of the business community for shorter clearing intervals, we are pushing for multiple batches of crediting, that is, not only during banking days but also on weekends and holidays. With the success of PESONet and InstaPay, we are set to pursue more digital payment initiatives in the near term. First, we want to extend the QR Ph use case. From only person-to-person or P2P when it was launched in November 2019, QR Ph will soon include person-to-merchant or P2M payments. This initiative is expected to benefit not only large business organizations but also the small unbanked vendors such as peddlers, sari-sari store owners, and other entrepreneurs. This is because accepting payments via QR is simple and affordable. It simply involves printing out the QR Ph code that will be generated by banks and electronic money issuers for consumers to scan. With one bills payment facililty, we will remove the inefficiencies associated with the current fragmented bills payment mechanisms. With this facility, the billers will be capable of collecting from their customers even if the payment service providers of the billers are different from those of the customers. Through the request to pay service, we will provide a more flexible way for businesses and consumers to make payments. The payee will only need to send an electronic request for payment to the payer, showing how much is being requested for payment and when it falls due. 2/4 BIS central bankers' speeches The request offers flexibility by presenting several options, which are: to pay in full, to pay in part, to make a counteroffer for extension, or totally decline the payment. In any instance, the payee is notified of the choice of the payer. This facility will surely be useful for countless business transactions. Another initiative in the pipleline is the Direct Debit use case. Here, the payer sends the payee an electronic authority or mandate to draw funds directly from the payer’s account on a regular basis. This payment use case is ideal for recurring payments such as monthly rentals, periodic loan amortizations, and quarterly insurance premiums. With digital financial services emerging as the “new norm”, the BSP proactively builds a regulatory environment that is conducive to digital innovations. In this regard, we are finalizing an enabling policy for fully digital-oriented banks, establishing “digital banks” as a new bank classification. This new and upcoming bank classification is distinct from the other bank types. Digital banks will have minimal or zero-reliance on physical touchpoints, since they will conduct end-to-end processing of financial products and services through digital platforms and electronic channels. Instead of putting up a branch or a branch-lite unit, these banks shall only be allowed to establish an office dedicated to receiving and addressing customer concerns. The BSP shall emphasize “quality vs quantity” when issuing digital bank licenses. This means that we shall continue to adopt prudential standards when granting a digital bank authority, permitting only applicants meeting our financial and risk management requirements. We are now refining our digital banking framework, based on comments received from both internal and external stakeholders. With the establishment to digital banks, we have embedded security standards in our regulatory frameworks for the protection of both the BSP-supervised financial institutions and their customers. Based on our surveillance, cyber incidents rose during the lockdown as financial consumers conduct more transactions online. Cyberthreats were predominantly carried out through phishing and links to malicious websites. Most of which were promptly addressed by BSPrequired layers of detective and preventive security defenses adopted by our supervised financial institutions. To ensure that these institutions remain vigilant against cybersecurity risks, we advocate a “zero trust” model. BSP-Supervised Financial Institutions must treat any access to their digital infrastructure a suspicious access, such that it undergoes verification and security screening, which may involve biometric technologies or multi-factor authentication procedures. Nevertheless, we are aware that the most effective means to overcome cyberthreats is consumer literacy. Hence, the BSP, itself, has embarked on cybersecurity campaigns. We have issued advisories to warn the public on emerging cyberthreats and scams. Indeed, the path towards digital transformation is like an uphill journey. 3/4 BIS central bankers' speeches Each step requires collaborative engagement among stakeholders, including you as members of the Makati Business Club. Being prominent business leaders, you should spearhead wider adoption of digital payments in the business community. Realistically, the road ahead is long and bumpy. Yet with your unceasing support, I have no doubt that we will be able to sustain the momentum and eventually transform our payments ecosystem into one that is safe, efficient, and reliable. Maraming Salamat at Mabuhay tayong lahat! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting BMAP, 26 October 2020.
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Benjamin E Diokno: The Philippines beyond survival - becoming an economic outperformer post-pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting BMAP, 26 October 2020. * * * Mr. Miguel Angelo Villa-Real, current President of the Bank Marketing Association of the Philippines (BMAP), directors and officers of the BMAP, distinguished colleagues from the banking industry, fellow speakers, guests, ladies and gentlemen, good morning to all of you! My presentation is divided into three parts. First, I will discuss Philippine macroeconomic updates. Second, I will talk about how the country’s banking sector is faring. And third, I will share insights on where we see the domestic economy is headed post pandemic. First, on macroeconomic updates. At this point, I can report that the worst is over. While we’re not out of the woods yet, there has been progress as the economy gradually opens up from the strict lockdown in March to June to less stringent quarantine measures. We’re learning to live with the virus. Now, we’re at an inflection point. For instance: The Purchasing Managers’ Index (PMI) moved past the growth threshold of 50, settling at 50.1 in September. Foreign direct investment (FDI) net inflows likewise sustained its uptrend in July 2020 (latest data), registering an increase of 35.2 percent year-on-year to US$797 million. The unemployment rate improved from a record high of 17.7 percent in April—which was the height of the lockdown—to 10 percent in July. Contraction of imports slowed down from 65.3 percent in April to 22.6 percent in August. And, the decline in exports eased from 49.9 percent in April to 18.6 percent over the same period. Major indicators suggest that financial markets are responding well to our policy responses. Yesterday, the PSEI reached 6,941.19. The strength of the Philippine Peso remains market-driven and supported by sound macroeconomic fundamentals. The peso opened at P48.40/US$1 today. The peso is the strongest currency in Asia. The peso’s strength was supported by positive market view given the country’s strong macroeconomic fundamentals, which include the manageable inflation environment, a strong and resilient banking system, prudent fiscal position, and a high level of international reserve buffer. With all these developments as backdrop, we expect an even firmer economic recovery next year. Based on official government projections, GDP will swing from a contraction of 7-9 percent this 1/5 BIS central bankers' speeches year to a growth of 6.5 to 7.5 percent next year. The IMF’s latest GDP forecast for the Philippines for next year—at 7.4 percent—is close to the high end of the government’s projection. Inflation is manageable at 2.5 percent in the first nine months of the year. It is seen to settle between 1.75–3.75 this year, and 2.0 to 4.0 percent next year and in 2022. Favorable inflation gives room for the BSP to further ease monetary policy, in case needed. Exports and imports will rebound from negative territory this year to 5.0-percent and 8-percent growth, respectively, next year. FDIs will rise to USD 7.0 billion next year. Overseas Filipino remittances will rebound from a contraction of 2 percent this year—an improvement from our previous forecast of 5 percent contraction—to a growth of 4 percent next year. Year-to-date, remittances dropped by only 2.6 percent as of August. Our overall external position will stay healthy. The balance of payments will post a surplus of USD 8.1 billion this year and USD 3.4 billion next year. The current account will also remain in surplus, at USD 6.0 billion this year and USD 3.1 billion next year. Meanwhile, the gross international reserves will continue to hit new highs of USD 100 billion this year and USD 102 billion next year. Our recovery prospects are supported by a whole-of-government approach to addressing the crisis. The National Government has rolled out massive relief and mitigating measures, and boosted the country’s healthcare capacity. Congress immediately passed critical bills to support the government’s COVID response. For our part, the Bangko Sentral ng Pilipinas (BSP) has been quick and decisive in responding to the crisis. Our actions were meant to, first, boost market confidence and cushion economic activity; second, provide liquidity to complement government programs; third, sustain financial stability; and fourth, support continuous delivery of financial services. In total, the BSP has already injected P1.9 trillion (about USD 39.2 billion)—equivalent to 9.6 percent of GDP—into the financial system. Besides cuts in the policy rate and the reserve requirement, we have implemented an extraordinary measure, but within the scope of our mandate. Last October 1, the Monetary board decided to provide a short-term provisional advances to the national government in the amount of P540 billion—approximately US$11.1 billion. This is came after the initial P300 billion or US$6.2 billion advances was fully settled last month. We also purchased government securities in the secondary market. This has helped keep 2/5 BIS central bankers' speeches investors confident about the liquidity situation in the domestic capital market. Our targeted measures have benefited the vulnerable sectors. For example, loans to micro, small, and medium enterprises—which account for over 60 percent of employment—now count as part of banks’ compliance to the reserve requirement. As such, we have seen a quantum jump in loans to MSMEs. The suspension of fees on registration of digital payment services—plus the moral suasion for banks to waive fees on electronic fund transfers (a call that has been overwhelmingly responded to)—have aided digital financial transactions of the public amid quarantine. We increased the single borrower’s limit and the limit on real estate loans. These moves are meant to encourage banks to lend more. Our latest move is put a cap on credit card charges. This will help ensure that consumers will not be burdened by higher interest rates on credit card consumption, especially during this difficult time. The BSP has done a lot. But our toolkit is far from exhausted. We are prepared to do more, if and when necessary. Having said this, the BSP is mindful of the need for careful disengagement of our COVID response measures. We recognize that doing so either too late or too early may have serious repercussions on the economy. Moving on to the performance of the banking system. Our banking system entered the crisis with sufficient buffers. The capital adequacy ratio of banks stood at 15.3 percent on solo basis and 15.9 percent on consolidated basis as of end-March, well above the 10 percent minimum requirement of the BSP and the 8 percent prescribed by Basel. This shows banks have ample capacity to absorb shocks. Bank’s liquidity coverage ratio (LCR) stood at 171.4 percent as of end-March, well above the regulatory minimum of 100 percent. Also, the net stable funding ratio of universal and commercial banks, which stood at 129.1 percent as of end-March, indicates stable funding to serve customers in the short to medium term. Outstanding loans of banks as of end-August grew by 4.4 percent year-on-year. This shows that despite the effects of the pandemic, there is still substantial demand for loans and appetite among banks to lend. The non-performing loans ratio remained modest at 2.8 percent as of end-August. We may see an uptick in the NPL ratio in the coming months as a result of the crisis, but we expect the increase to be manageable. Worth noting is that banks have been beefing up their provisioning for bad debts, with the NPL coverage ratio standing comfortably at 107.4 percent as of end-August. Despite the increase in loan-loss provisioning, banks stayed profitable as of end-June, with annualized net profit growing year-on-year by 1.8 percent. The BSP’s stress tests point to favorable banking system prospects amid risks. 3/5 BIS central bankers' speeches Results show NPLs will remain manageable, CARs will stay above the 10-percent requirement, liquidity will be sufficient, and profitability will stay intact. Moving on to the final part of my speech, which is where we are steering the Philippine economy. The entire government and the BSP are exerting enormous effort not only to help the economy and the Filipino people survive this crisis but for us to be even better, stronger, more inclusive, technologically prepared, and more competitive than before the coronavirus pandemic. Allow me to briefly expound on how the BSP is working toward this goal. The BSP is pushing for laws that will accelerate recovery and improve the structural makeup of the economy. Among the laws we are pushing are: (i) the Financial Institutions Strategic Transfer or FIST bill, which will help banks unload bad assets; (ii) the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE bill, which will provide assistance to distressed firms that are critical for economic recovery; (iii) amendments to the Agri-Agra law to rationalize the way banks can support agriculture development; (iv) amendments to bank secrecy laws to aid anti-money laundering and anti-tax evasion efforts, and promote integrity in governance; and (v) amendments to the Credit Information System Act to ease credit access of MSMEs. Meantime, the BSP continues to refine monetary policy and banking regulations. In relation to price stability, the BSP last month started issuing our own securities, as allowed under our recently amended charter. This will help us better manage liquidity. On financial stability, we are committed to a dynamic regulatory environment that reflects an ever-changing landscape for our supervised entities. We will continue to refine regulations, taking into account good corporate governance, sound risk management, efficient financial intermediation, and effective customer service. The BSP is actively promoting financial technology, which helps speed up payments and capital turnaround and therefore boosts income and economic growth. My personal goal is that half of financial transactions in the country should be digital by 2023, the end of my term. But with enabling regulations and the pandemic, this may be achieved sooner— perhaps by the end of 2022. In fact, we have seen an exponential increase in the use of e-payments platforms Instapay and Pesonet. We have launched mobile apps for savings and investments. We have rolled out programs that pave the way for an extensive use of the QR code system for payments. The BSP embraces regulation technologies or “RegTech,” which facilitate efficient delivery of regulatory requirements. The BSP has also pilot-tested a chatbot that can handle questions and concerns sent by the public through digital platforms with the use of artificial intelligence. Amid these encouraging developments, the BSP has kept a sober eye on risks accompanying the use of electronic data. 4/5 BIS central bankers' speeches In line with this, the BSP has launched a three-year Digital Payments Transformation Roadmap, which is anchored on promoting access to financial products through digital platforms, with appropriate safeguards. The roadmap has three pillars: (i) development of digital payment streams; (ii) establishment of interoperable digital payments ecosystem; and (iii) implementation of digital governance standards for consumer protection. With the roadmap, we expect digital banks to play a key role in expanding access to a broad range of financial services. The BSP will be introducing digital banks as a distinct bank classification. All these initiatives put the BSP at the forefront of the Philippines’ goal of becoming a more technologically driven economy. The goals of a stronger and more technologically advanced economy become meaningful if these translate to faster poverty reduction. We want all Filipinos to benefit from the fruits of development and technological innovation. The BSP is helping achieve a more inclusive economy via financial inclusion. If the poor are able to access credit, savings, and investment instruments, their chances of getting out of poverty will increase. As such, we continue to issue regulations toward financial inclusion. Last month we issued a regulation allowing trust companies to distribute their products using third parties. Previously, they could only do so via their main offices. This new regulation will broaden access points to financial products and services. Our initiatives promoting FinTech also aid financial inclusion. FinTech allows financial products and services to become accessible to a greater number of people, including those from lowincome households and remote areas. Our goal is that at least 70 percent of Filipino adults should have a bank account by 2023. But with the pandemic, we’re optimistic that we can meet this goal as early as December-2022. The BSP is also working with the Japanese Government on the development a Credit Risk Database for MSMEs. This is a comprehensive statistical reference tool for risk-based lending. This will lessen the dependence of banks on collateral, hence increase MSME access to financing. In closing, I would like to stress that the BSP is keen to help realize all the characteristics of a New Economy in the post-COVID era: stronger, more technologically savvy, and more inclusive. As shown by our strong macroeconomic fundamentals, we’re prepared for this crisis. When the coronavirus pandemic fades, I expect the Philippines to be an economic champion, outperforming other emerging economies in its class. Thank you very much for listening. I look forward to our discussion. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to members of the Tax Management Association of the Philippines, 27 October 2020.
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Benjamin E Diokno: Philippines - on the road to economic recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), to members of the Tax Management Association of the Philippines, 27 October 2020. * * * A pleasant good afternoon Atty. Duran and the members of the Tax Management Association of the Philippines. Thank you for the opportunity to share the BSP’s programs aimed at stimulating business activity and help businesses recover from the COVID-19 crisis. We recognize that this engagement is critical because it serves as a platform to discuss the mutually reinforcing role of monetary, prudential, and fiscal policy in the achievement of our shared goal sustainable and inclusive growth. Thus, it is my hope that this brief keynote will set the tone for discussions on the design of TMAP’s plans of action in the coming months. My presentation for this afternoon will be organized as follows: First, I will provide an overview of our current economic and financial landscape. Next, I will briefly describe the BSP’s COVID-19 crisis response plan. This will be followed by a discussion on some of the BSP’s key structural reform initiatives. Finally, I will conclude with some thoughts on areas of policy convergence which would be useful for the task moving forward. According to the IMF, all countries are facing a “Long Ascent” that is “long, uneven, uncertain and prone to setbacks.” The IMF projects that the global economy will contract by –4.4 percent this year before bouncing back in 2021 and 2022. The Philippines has not been spared. The Philippines’ GDP fell by 9.0 percent in the first half of 2020 after 21 years of uninterrupted growth. But we expect the economy to bounce back next year. In fact, there are early signs of recovery. Manufacturing indices have registered an uptick. The PMI improved from a low of 27.1 in March to 50.1 in September. The value and volume of production for the manufacturing sector are also showing signs of improvement. Year-to-date inflation of 2.5 percent remains manageable and within the target range of 2.0 to 4.0 percent for 2020. The government has maintained its fiscal prudence with a debt-to-GDP ratio below 50 percent. Foreign direct investments grew to USD3.8 billion as of end-July 2020. Imports made some headway, with the year-on-year contraction slowing down from 65.3 percent in April to 22.6 percent in August. Similarly, the year-on-year decline in exports eased to 18.6 percent in August from 49.9 percent in April. 1/5 BIS central bankers' speeches As of end-August, the gross international reserves stood at a hefty USD100.5 billion, the highest ever in Philippine history. Overseas Filipino remittances rebounded, settling at USD19.3 billion as of end-August 2020, much better than originally forecasted.The Philippine also banking system entered the crisis with strong fundamentals and sound risk governance. During the first eight months of 2020, banks managed to report sustained growth in assets, loans and deposits. Total bank assets stood at P18.6 trillion as of end August funded by sustained growth in deposits. The total loan portfolio of banks stood at P10.7 trillion, with a growth rate of 4.4 percent (YoY) in August. The quality of the loan portfolio remained satisfactory at 2.8 percent as of end-August 2020. Meanwhile, banks remain profitable posting P85.8 billion in net income as of end-June 2020. Bank capital and liquidity buffers also continue to be sufficient. Banks remained well-capitalized with capital adequacy ratio of 15.3 percent on solo basis as of end-March 2020. The bank’s capital was also made up of the highest quality of capital, with a Common Equity Tier 1 ratio of 14.7 percent. Banks’ liquidity coverage ratio of 171.4 percent remained stable and above the regulatory minimum of 100 percent as of end-March 2020. Meanwhile, the net stable funding ratio of 129.1 percent indicates availability of stable funding to support bank operations. The BSP’s roadmap to recovery consists of a suite of policies which fall under two categories based on their intended objective. At the height of the lockdown period, the BSP moved to cushion the immediate impact of the COVID-19 on households, businesses, and financial institutions by activating its short-term crisis response plan. The second phase of our roadmap includes interventions meant to support recovery. The BSP’s short-term crisis response plan is a long list of regulatory relief measures which were adopted to assist financial institutions carry on with their operations and provide financial services to their clients. In particular, the time-bound actions undertaken by the BSP intend to: Maintain domestic liquidity, Incentivize lending, especially to important sectors of the economy such as MSMEs, Grant financial relief to their customers, and Ensure continued access by households and enterprises to financial services. The numbers show that the BSP’s short-term measures have started to gain some traction. 2/5 BIS central bankers' speeches Following the BSP’s infusion of P1.9 trillion in liquidity into the system, total bank deposits grew by 10.6 percent year-on-year, as of end-August 2020. Banks’ funding costs have declined. In turn, this has translated to lower lending rates across almost all types of loans. Total loan portfolio of banks expanded by 4.4 percent, YoY, as of August 2020. Similarly, consumer loans grew by 14.1 percent, YoY, as of end-June 2020. The BSP’s measures to incentivize lending to MSMEs and critically impacted large enterprises have resulted in the grant of new loans or in the renewal or restructuring of loan to MSME borrowers. This is reflected in data on banks’ utilization of MSME loans as compliance with the BSP’s reserve requirements. As of the reserve week ending October 1, 2020, an average of P120.9 billion in MSME loans was used as compliance with the BSP’s reserve requirements, a substantial increase from the P8.7 billion in MSME loans reported in April 2020. Data also show that restructured loans of banks grew by 158.7 percent as of end-August 2020 year-on-year. This growth is significantly higher than the average growth rate of restructured loans of 36.0 percent for the past five years. Meanwhile, the volume and value of electronic payments surged in the past months. From August 2019 to August 2020: InstaPay transactions posted a growth rate of 820 percent in volume, from 3.2 million to 29.5 million transactions, and 499 percent in value, from P24 billion to P141 billion. Meanwhile, PESONet transactions more than doubled with the volume rising from 1.1 million to about 2.7 million, and the value climbing from P118 billion to P253 billion, or by 114 percent over the same period. Apart from the Philippines’ solid macroeconomic fundamentals, the country’s other strengths remain intact. On the BSP’s part, three areas are key to our path to progress: good governance, digital transformation, and MSMEs First, enterprises should be held accountable to a higher standard of good governance and should adhere to sustainability principles. The BSP’s initiatives in this space include alignment of our policies and work practices towards environmentally responsible and sustainable approaches. BSP has issued guidelines that will encourage financial institutions to incorporate sustainability in their risk governance frameworks. Future policy will cover incentives which will encourage the financial sector to invest in activities that will promote climate-resilient, green, and sustainable growth. Second, there is a need to support digital transformation within the economy and the acceleration of digitalization in the financial industry. The results of the BSP’s 2019 Financial Inclusion survey revealed that there is a wide gap in smartphone ownership and internet access depending on locality, geography, and income. 3/5 BIS central bankers' speeches This basic constraint needs to be addressed so that our objectives can be achieved. In this regard, the BSP has expressed its strong support for programs that will hasten the establishment of reliable internet infrastructure across the country. These include the passage of the Open Access in Data Transmission Act and the issuance of amendments to the Executive Order to Liberalize Access to Satellite Technology for Internet Services, which will allow the operation and use of international satellite communications in the country. Third, given the vital role played by the MSME sector in reinforcing the country’s growth prospects, the BSP is working on the establishment of market-enabling infrastructure that will sustain recovery of the MSME sector. These include: the establishment of a Credit Risk Database which will enable MSMEs to readily access low-cost and collateral- free lending. Towards this end, the BSP is working with the Japanese Government on the development of this Credit Risk Database for MSMEs. This is a comprehensive statistical reference tool for riskbased lending. This will lessen the dependence of banks on collateral, hence increase MSME access to financing. The BSP also strongly supports the passage of the GUIDE Bill which proposes measures to strengthen capacity of government financial institutions to provide financing to MSMEs and other strategically important companies. Let me now share some thoughts as to how the TMAP can contribute to our national efforts, especially in the crucial areas to our growth. The country entered the crisis with a strong fiscal base which enabled the Philippines to bridge the massive funding needed to finance the government’s social amelioration programs at the height of the pandemic. Moving forward, we need to ensure that our tax system will be able to mobilize the needed revenues to finance the requirements of the country. Tax professionals can contribute to this objective by promoting tax compliance and transparency in financial reporting by individuals and enterprises. Tax policy may also be enhanced to direct private sector investment towards: 1. Activities that will promote digital transformation as well as “greening” of our economy, and 2. Companies that demonstrate good governance and sustainability in their corporate footprint. The support of the TMAP in advocating for tax reform in these areas will align with our strategic initiatives. I hope that TMAP can be a partner in our efforts to overcoming this crisis. To close, I’d like to share this nugget of wisdom from Martin Luther King, Jr. “The ultimate measure of a man is not where he stands in the moments of comfort and convenience, but where he stands at times of challenge and controversy”. Let ours, therefore, be the generation which history will judge as responsible for shaping a more resilient, inclusive, and sustainable future for the Philippines beyond this crisis. Thank you and I wish everyone a productive meeting ahead. 4/5 BIS central bankers' speeches 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Institute of Corporate Directors (ICD) Corporate Governance Advocacy Webinar "Pilipinas: Aspire, Rise, Sustain Series", 28 October 2020.
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Benjamin E Diokno: Integrating sustainability in corporate strategy BSP sustainable finance framework Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Institute of Corporate Directors (ICD) Corporate Governance Advocacy Webinar “Pilipinas: Aspire, Rise, Sustain Series”, 28 October 2020. * * * Deputy Speaker Loren Legarda, ICD Chairman Rex Drilon, Chief Executive Officer Leonardo Jose Berba, ladies and gentlemen, good afternoon! On behalf of the Bangko Sentral, I would like to thank the Institute of Corporate Directors for the opportunity to share the BSP’s strategy and initiatives in advancing the country’s goals on sustainable development. Indeed, the COVID-19 pandemic has highlighted sustainability issues. And while the worst of the pandemic is over for the Philippines, we need to embrace sustainability as our guidepost in rebuilding the “new economy”. As such, it is crucial that sustainability principles be part of how institutions are governed. We should think not only climate change, but also the broader environmental, social and governance issues that could test the resilience of the financial system. Allow me to backtrack and recall the BSP’s governance reform agenda that lead to the “maturity” of our supervised financial institutions. We first focused on strengthening the “fit and proper” requirements for the board of directors and senior management. This was reinforced with the issuance of standards for checks and balances systems, as well as a series of policy reforms geared towards ensuring strengthened risk governance in the financial sector. The existing principle-based governance and risk management guidelines provide financial institutions with the flexibility to develop corporate strategies and risk management processes that integrate sustainability principles. Particularly, the credit and operational risk management frameworks paved the way for strengthening of climate risk governance and provide guidance for supervised financial institutions to consider environmental factors in the conduct of stress testing exercises and in the business continuity arrangements. This governance agenda has set the stage for the issuance of the BSP’s Sustainable Finance Framework in pursuit of corporate sustainability. The board of directors’ and senior management’s commitment and understanding of these principles is critical in the pursuit of corporate sustainability in your institutions. The board can set the appropriate tone that would guide the business activities and work practices of personnel across the organization. In fact, corporate governance has been shifting from a compliance-centered approach to a more holistic and profound one where social and governance considerations are integrated in the discussions of strategic directions. 1/4 BIS central bankers' speeches Clearly, the board of directors has a key role in embedding sustainability into the business’ overall strategy and risk appetite and this is what is embedded in the BSP’s corporate governance policy. This is embodied in the Sustainable Finance Framework under Circular No. 1085, dated April 29, 2020. The Framework emphasizes the role of the board of directors in leading and institutionalizing the adoption of sustainability principles. In addition, it highlights the key elements of board and senior management responsibilities encompassing company culture, risk management oversight, accountability, and transparency. The Framework expects the board of directors to promote a culture that fosters environmentally and socially responsible business decisions and ensure that sustainability implications are considered in the overall decision-making process. This way, banks may also inspire their clients and other stakeholders in making the same environmentally- and socially responsible business decisions. Likewise, the Framework prompts banks’ board and senior management to take a broader view on risk management by looking beyond the traditional sources of financial risks. In relation to this, broad principles on environmental and social risk management are set out in BSP Circular No. 1085. A different perspective on risks would entail enhancing the understanding and technical skills of bank personnel to enable them to navigate through the multi-dimensional and scientific aspects of sustainable finance. In the same vein, the Framework stresses accountability. The board or a designated board level or management committee may take the lead in monitoring the bank’s progress in attaining sustainability objectives and ensuring that operations and personnel performance are consistent with these set objectives. Appropriate measures may be taken in case of breaches or noncompliance. The Framework also highlights transparency as sustainability objectives and policies should be clearly communicated across the institution. This is also conveyed to investors, clients and other stakeholders through adequate disclosures in the Annual Report or other documents published and made readily available to facilitate informed investment or credit decision-making. Prior to the release of the Framework, several banks have taken the first steps towards integrating and implementing sustainability principles in their business operations, including the following: 1. Adoption of Environmental and Social Risk Management (ESRM) – which provides banks with confidence to support green or sustainable projects while effectively managing the related credit, compliance and reputational risks; 2. Adherence to sustainability reporting - with increasing efforts on this area, stakeholders are more empowered to make decisions using appropriate disclosures on banks’ financial and social and governance performance; 3. Development of sustainability framework – serves as the embodiment of banks’ commitment towards green or sustainable efforts. Some institutions have even adopted strong 2/4 BIS central bankers' speeches environmental mission statements to consciously remind them of their responsibilities in environmental stewardship and leadership; and 4. Issuance of green, social or sustainability bonds – proceeds of which were used to fund and refinance renewable energy and energy efficiency projects, among others. During trying times, social bonds were also issued to fund the needs of eligible small and medium enterprises which are greatly affected by the current health crisis. While large banks are considerably ahead in the green or sustainable finance front, we are optimistic that others will soon follow suit. The banks’ participation in the green or sustainable finance market can send a powerful message of sustainability to the business community, thereby generating greater momentum in this space. The BSP will continue to proactively engage banks during the three-year transition period under the Framework to ensure that sustainability principles are incorporated into their strategy resetting exercise, particularly in view of the ongoing pandemic. In championing the sustainability agenda, the BSP is walking the talk. This led us to the adoption of the Sustainable Central Banking Program as part of the BSP Strategy Map for 2020–2023. This will culminate with the development of the Sustainable Central Banking Roadmap which will provide the milestones, plans, and strategies towards the adoption of sustainability principles in the key operations or functions of the BSP. With the “New Economy”, the acceleration of payments digitalization is a must. Thus, complementary to the Sustainable Central Banking Program is the BSP’s Digital Payments Transformation Roadmap. Our goal is to convert at least 50 percent of the total retail transactions to digital form and onboard 70 percent of Filipino adults to the formal financial system through the ownership of a transaction account. The BSP also launched several green initiatives. One such initiative is the Monetary Board Paperlite Facility that aims to cut paper usage with the shift to a digital agenda. We are also pursuing the BSP’s own transformation into a digital native enterprise with largely technology-abled processes. Meanwhile, as part of sustainable investment and reserve management, the BSP invested in the Bank for International Settlements (BIS) green bond fund in the amount of USD350 million. The BSP is committed to working closely with other financial regulators and authorities to accelerate progress towards sustainable development and put in place cohesive reforms to safeguard the Philippine financial system from the impact of climate change and other environment and social risks. Indeed, the financial sector holds a unique position in advancing the sustainability agenda. Clearly, we can no longer afford to ignore climate change or sustainability issues as a governance priority. By deciding to finance sustainable projects, you create more value for the company’s stakeholders while preserving the environment and humanity. The current COVID-19 pandemic also offers a window of opportunity for re-shaping the industry’s 3/4 BIS central bankers' speeches future. Let’s not put this crisis to waste and build a climate-resilient, green, and sustainable economy. Thank you and good afternoon! 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the ESCOM Webinar, 10 November 2020.
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Benjamin E Diokno: Accelerating digital transformation in the COVID-19 era; digital transformation in the financial services and navigating through the pandemic Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the ESCOM Webinar, 10 November 2020. * * * Ladies and gentleman, good morning. As you know, the coronavirus pandemic has forced us to embrace the digital realm. And we can harness this to make sure Internet access and mobile phone ownership do not only lead to better social connections and convenient shopping, but also welfare-enhancing financial services. Even before the crisis, the Bangko Sentral ng Pilipinas or BSP had already been pushing for the digital transformation in the country’s financial services because we believe that the promotion of financial technology and digitalization will lead us toward achieving financial inclusion. Today, we continue to stand firm on this advocacy today, not only for financial inclusion, but for our survival and recovery. Fortunately, the Philippines was prepared when the pandemic hit us. This slide shows the strength of our macroeconomic fundamentals in 2019. Two decades of sustained economic and structural reforms served us well and enabled us to build buffers and widen policy space. Our GDP growth averaged 6.4 percent in the last 10 years. The strong growth was achieved in an environment of generally stable inflation and was anchored on purposeful structural reforms. The country’s strong track record of prudent policymaking has likewise led to a robust external payments position, hefty international reserves, improved external debt metrics, and healthy public finances. At the same time, Philippine banks continue to be sound, stable, and well-functioning based on all metrics. It is from this strong position that the BSP acted swiftly and decisively to inject liquidity into the system to calm the market. At the same time, it communicated its priorities and policies well. We reduced policy rate by a cumulative 175 bps—by 25 bps even before the pandemic became full-blown, followed by a series of three 50 bps cut in 4 months. We cut reserve requirements by 200 bps for universal and commercial banks and by 100 bps for thrift banks and rural and cooperative banks. We entered into a repurchase agreement with the national government through the Bureau of the Treasury (BTr). We remitted dividends amounting to ₱20 billion to support the national government’s programs, even if the BSP is no longer required under our new Charter to remit cash dividends to it. Moreover, we expanded the set of eligible instruments as compliance with the BSP’s reserve requirement to include new loans to micro, small, and medium and critically impacted large enterprises that do not belong to conglomerates. We also issued time-bound and targeted regulatory and operational relief measures to encourage BSP-supervised financial institutions to continue their support to the economy, 1/5 BIS central bankers' speeches particularly the micro, small, and medium enterpresis. These measures include extension of financial relief to borrowers, incentivized lending, promotion of continued access to financial services, support for continued financial services delivery, and support for sufficient level of domestic liquidity and economic activity. In sum, we have injected approximately P1.9 TRILLION PESOS (approximately $US 39.2 billion) in liquidity into the financial system, equivalent to 9.6 percent of GDP. Indeed, the pandemic has given us an opportunity to further accelerate the digital transformation of the financial services sector. In fact, we have encouraged the use of electronic payments to enhance the speed, convenience, and affordability of financial transactions. Particularly, PESONet—as a viable alternative to checks and recurring bulk payments; and InstaPay—as a substitute for cash. The existence of the PESONet and InstaPay was crucial in facilitating two key milestone initiatives of the National Retail Payment System: the Government e-Payments (“EGov Pay”) facility via PESONet; and the National Quick Response Code Standard (“QR Ph”) via InstaPay. As a result of the pandemic and the consequent lockdowns, more consumers shifted from cash payments to digital payments. The evidence is crystal clear: the use of PESONet and InstaPay zoomed exponentially. For the first eight months of 2020, the value of InstaPay rose almost 400 percent, while that of PESONet jumped 100 percent year-on-year. By volume of transactions, InstaPay and PESONet soared by 624 percent and 130 percent, respectively. This is truly excellent news. As Governor of the BSP, one of my personal goals is to have not less than 50 percent of transactions, by volume and value, to be done digitally by 2023. With the pandemic, I am optimistic that this goal will be met even sooner. Of course, this is consistent with my other vision of shifting from a cash-heavy to a cash-lite economy. Indeed, the speed and breadth of digitalization are gaining momentum. And we want to push harder. On September 8, 2020, the BSP, together with the Trust Officers Association of the Philippines, launched Digital PERA, which stands for Personal Equity Retirement Account. Digital PERA utilizes a digital platform where investors can open, access, and invest 24/7 through their PERA account anywhere in the world using their mobile gadgets. This breakthrough project is in addition to an array of digital-enabled investment outlets such as the Unit Investment Trust Funds and Mutual Funds, which are now available for retail clients. The BSP is also implementing a Digital Literacy Program. This initiative is part of the BSP’s financial education advocacy, which aims to increase public trust and confidence in the digital finance ecosystem and encourage massive usage of digital financial services by consumers across all sectors. As we now steer the Philippine economy back to its previous position, the entire government and the BSP are exerting enormous efforts to not only restore the economy and help the Filipino people survive this crisis but for the Philippines to be even better, stronger, more inclusive, 2/5 BIS central bankers' speeches technologically prepared, and more competitive than before the pandemic. The BSP’s Digital Payments Transformation Roadmap for 2020 to 2023 sets out our initiatives and strategies for achieving an efficient, safe and inclusive payments ecosystem. It has two key strategic objectives. First, it aims to strengthen customers’ preference for digital payments by converting 50 percent of the total volume of retail payments into digital form. IN addition, it aims to expand the proportion of financially included to 70 percent of Filipino adults. To help us assess how well our policy interventions contribute to the transformation into digital payments, the Better than Cash Alliance or BTCA is helping us build a simulated model which will estimate the potential change in the level of e-payments volume and value driven by policies initiated by the BSP. The second objective is to encourage innovations which will boost real-time payments velocity. In particular, we intend to make available more innovative digital financial products and services. These services will be enabled by the National ID System. It will also be supported by the availability of modern payment services that will facilitate real-time processing of financial transactions. These BSP objectives hinge on a triad of critical pillars that are seen to build an environment conducive to digital transformation. One of the pillars relates to the development of payment streams. At present, InstaPay serves as the instant payment stream, while PESONet is a batched payment stream. The next pillar relates to the establishment of digital infrastructure which facilitates interoperability of payment services. Interoperability allows seamless transaction processing which is necessary for achieving efficiency. The last pillar is the implementation of digital governance standard. The goal is to maintain public trust in the payment systems. This will be done by protecting the integrity of consumer data and ensuring appropriate management of digital products and services. Aside from the establishment of the Digital Payments Transformation Roadmap, we are set to pursue more digital payment initiatives in the near term. We want to extend the QR Ph use case. From only person-to-person or P2P when it was launched in November 2019, QR Ph will soon include person-to-merchant or P2M payments. Since accepting payments via QR is simple and affordable, it is expected to benefit not only large business organizations but also the small unbanked vendors such as peddlers, sari-sari store owners, and other entrepreneurs. Another initiative is the one bills payment facility, which aims to remove the inefficiencies associated with the current fragmented bills payment mechanisms. The billers will be capable of collecting from their customers even if the payment service providers of the billers are different from those of the customers. We will also provide a more flexible way for businesses and consumers to make payments through the request to pay service. The payee will only need to send an electronic request for payment to the payer, showing how much is being requested for payment and when it falls due. A fourth initiative in the pipeline is the direct debit use case. Here, the payer sends the payee an electronic authority or mandate to draw funds directly from the payer’s account on a regular basis. This case is ideal for recurring payments such as monthly rentals, periodic loan amortizations, and quarterly insurance premiums. 3/5 BIS central bankers' speeches Aside from the establishment of the Digital Payments Transformation Roadmap, we are set to pursue more digital payment initiatives in the near term. We want to extend the QR Ph use case. From only person-to-person or P2P when it was launched in November 2019, QR Ph will soon include person-to-merchant or P2M payments. Since accepting payments via QR is simple and affordable, it is expected to benefit not only large business organizations but also the small unbanked vendors such as peddlers, sari-sari store owners, and other entrepreneurs. Another initiative is the one bills payment facility, which aims to remove the inefficiencies associated with the current fragmented bills payment mechanisms. The billers will be capable of collecting from their customers even if the payment service providers of the billers are different from those of the customers. We will also provide a more flexible way for businesses and consumers to make payments through the request to pay service. The payee will only need to send an electronic request for payment to the payer, showing how much is being requested for payment and when it falls due. A fourth initiative in the pipeline is the direct debit use case. Here, the payer sends the payee an electronic authority or mandate to draw funds directly from the payer’s account on a regular basis. This case is ideal for recurring payments such as monthly rentals, periodic loan amortizations, and quarterly insurance premiums. With digital financial services emerging as the “new norm,” the BSP proactively builds a regulatory environment that is conducive to digital innovations. In this regard, we are finalizing an enabling policy for fully digital-oriented banks, establishing “digital banks” as a new bank classification. This new and upcoming bank classification is distinct from the other bank types, since they will conduct end-to-end processing of financial products and services through digital platforms and electronic channels. These banks shall only be allowed to establish an office dedicated to receiving and addressing customer concerns. With an envisioned minimum capitalization of P1 billion, digital banks are expected to contribute to the greater efficiency in the delivery of financial products and services, and in expanding reach to the unbanked market segments. The BSP shall also continue to adopt prudential standards when granting a digital bank authority, permitting only applicants meeting our financial and risk management requirements. We envision a minimum P1 billion capitalization for digital banks. We constantly remain vigilant and proactive against cyberthreats, which soared during the lockdown as financial consumers conducted more transactions online. The BSP advocates the ”zero trust model,” directing its supervised financial institutions to subject any access to their digital infrastructure to verification and security screening. The BSP has also embarked on cybersecurity campaigns, issuing advisories to warn the public on emerging cyberthreats and scams especially during this unprecedented health crisis The COVID-19 era has indeed changed the way we live, work, and play. It has challenged us to try things we have never done before or were afraid to do, to quickly adapt to changes, to take unprecedented moves, and to take a step toward a world of new possibilities. The digital transformation has indeed increased our resiliency. This brings to mind a Japanese proverb about the bamboo tree: “The bamboo that bends is stronger than the oak that resists.” In times like these, raw strength is important, but equally important is the ability to bend and adapt. Digitalization is part of the new normal, and the rate and speed of how we get used to it 4/5 BIS central bankers' speeches will determine our chances of bouncing back and standing tall and strong again. Maraming salamat at mabuhay tayong lahat! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SAP Financial Services Live, 16 November 2020.
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Benjamin E Diokno: Supervision in challenging times Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the SAP Financial Services Live, 16 November 2020. * * * Thank you, Peter for the introduction. Good day to everyone. It is with great pride that I welcome you all to the central bank stream of SAP Financial Services Live 2020. I understand that while this global flagship event has been regularly held for more than a decade, this is the first time that it is having a central bank stream. With this, I am very pleased. Financial supervision has always been a challenging undertaking. While it is continuously made more exciting by the rapid pace of digital transformation all over the world, it is also made much more complicated by the COVID-19 pandemic. That said, digital transformation has affected the Philippine financial system and is profoundly changing bank supervision. Just like in other countries in Asia and around the world, the digital transformation of the Philippine financial system has started long before this pandemic. As we speak, Asia’s high-income economies, for example, continue to leverage long-standing strengths in information and communications technology policy vision and implementation in accelerating fiber deployment, cementing plans for 5G rollout and advancing AI development. Based on the 2018 Asian Digital Transformation Index, Asian countries continue building supportive environments for technology-led change, such as the availability of open data and investment in infrastructure. The COVID-19 pandemic, however, has served as an unexpected catalyst for digital transformation’s rapid acceleration by encouraging the use of digital financial services such as cashless payments and electronic fund transfers. When the Bangko Sentral ng Pilipinas (BSP) conducted a baseline survey of the impact of COVID-19 pandemic on Philippine banks, we found out that while the big banks are generally on pace with their digitization initiatives, smaller banks are yet to catch up. The discrepancy is because of the lack of right technology, insufficient in-house skills, lack of budget, and over-reliance on legacy technology. However, despite these challenges, the pandemic has forced all financial institutions in the Philippines to fast track their digitization initiatives to cope with movement restrictions and social distancing measures. Banks which fail to keep up with this digital transformation face the risk of losing a significant part of their client base and market share. Clearly, during the lockdown, from March 17 to May 31, 2020, we saw a sharp consumer shift to digital payments. Our National Retail Payment System (NRPS) grew by 74 percent in volume and 42 percent in value from the beginning of 2020 to March 16, 2020. Prior to the lockdown, NRPS transactions stood at 18.43 million in volume and Php428.23 billion in value. By contrast, during the lockdown, transactions rose to 32.05 million in volume and 1/3 BIS central bankers' speeches Php607.92 billion in value. We expect this dramatic shift to digital payments to continue even after the pandemic. Increased digitalization however came with its own set of problems, such as a significant increase in the number and variety of cyberthreats and cyberattacks. While these heightened cyberthreats declined towards the end of the lockdown because of the countermeasures that were timely and carefully deployed by the BSP and our supervised financial institutions, heavy-reliance on automated systems and third-party technological firms can nevertheless raise the risk of cyber incidents with possible systemic impact to the financial system. In the coming years, we expect more supply of new and more sophisticated financial products and services that can attract customers without them realizing the risks involved and raising serious consumer protection issues. With new risks and challenges continually emerging from technological innovations, we know that central bankers can never be passive. Part of our strategy to remain agile and well positioned to respond to risks and challenges before and as they materialize is embracing and harnessing the potential of technology, in the form of supervisory technology or “suptech”, in fulfilling our mandate. Broadly speaking, the BSP’s suptech initiatives are classified into three categories: first – data acquisition, where BSP receives data and information from the BSP-supervised financial institutions (BSFIs). Second – data analytics wherein the acquired information gets analyzed and third – data dissemination wherein processed and analyzed information are sent out to other government agencies, internal users, and the public. Data is at the heart of any effective supervision. Hence, the acquisition of relevant data and its analysis and dissemination to the right parties is crucial. While we are still in our early stages of our own digital transformation as a supervisor, our initial experience with suptech has been positive. We have seen that suptech applications support faster and more flexible data capture compared with traditional template-based approach. In turn, this leads improved off-site monitoring and earlier detection of potential risks. This has proven to be beneficial during the pandemic when social distancing rules limited our physical ability for off-site monitoring and the resources of our supervised institutions have to be channeled to cope with the changing circumstances. As we progress into the new normal—or what I like to call the new economy—we expect suptech initiatives to become part of the business as usual stance in bank supervision. This is especially so as we welcome the entry of digital banks as a new category of banks in the Philippines. We are looking forward to fully reaping the other benefits of suptech, such as reduced costs for doing away with laborious manual data validation and increased capability towards a predictive and proactive risk and compliance monitoring. Suptech, however, no matter how technologically advanced it may become, remains a tool in the 2/3 BIS central bankers' speeches hands of human supervisors. Hence, it becomes a great challenge to central banks to continually upgrade their financial supervisors’ technological skills to ensure that their capabilities remain up to date and able to tackle the increasing complexities of financial supervision. I suspect that this process is currently creating a new breed of technologically savvy financial supervisors that are able to make evidence-based decisions and formulate data-driven strategies at a faster pace than ever before. At the same time, these supervisors are poised to act quickly, proactively, prudently, and mindfully to maximize the benefits of these technologies while minimizing the attendant risks to the financial system. As the financial system continues to rapidly develop because of technology, you can expect the central banks and financial supervisors to also evolve as necessary. While we virtually see each other today in the central bank stream of SAP Financial Services Live 2020, a nagging questions comes to mind – what is in store for us in the next year’s SAP Financial Services Live? As I ponder upon this question, I end confident that you will find the talks in this stream interesting and useful. Thank you very much for your attention. 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MART General Membership Meeting, 16 November 2020.
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Benjamin E Diokno: Philippine banking system - the green shoots of recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the MART General Membership Meeting, 16 November 2020. * * * MART President Genevieve Faye A. Del Rosario, members and officers of the MART, ladies and gentlemen, good afternoon to all. I wish to thank MART, our reliable partner in capital market development, for inviting me to share the BSP’s initiatives towards economic and financial recovery in the new economy. As we all know, the of the COVID-19 pandemic, is truly global. It affected all countries— developed, emerging, and third-world. The Philippine economy contracted by 10 percent in the first three quarters of the year, following 21 years of uninterrupted growth. But this sharp contraction is not fully reflective of the country’s strong fundamentals or prospects moving forward. The BSP expects the recovery process to commence sooner as more industries re-open following the gradual easing of restrictions throughout the country. On growth, we expect real gross domestic product (GDP) to swing from a range of negative 7.0 to negative 9.0 percent this year, to a range of positive 6.5 to 7.5 percent next year and in 2022. We anticipate interest rates to remain low, inflation to be manageable, the peso to be stable, and external accounts to be robust, with record-high gross international reserves. We expect inflation to remain manageable at a range of 1.75 to 2.75 percent this year, and within the 2.0-4.0 percent target range by next year and in 2022. Headline inflation averaged 2.5 percent from January to October 2020, still within the Government’s target range for the year. The strength of the Philippine Peso remains market-driven and supported by sound macroeconomic fundamentals. The peso averaged P48.24/US$1 as of 11 November 2020 and one of the strongest currencies in the region. The peso’s strength is attributable of the country’s low inflation, a strong and resilient banking system, low debt-to-GDP ratio, and a hefty gross international reserve. Overseas Filipino remittances are expected to bounce back next year. From a contraction of 2 percent this year—a surprising improvement from our previous forecast of 5 percent contraction —OF remittances are projected to rise by four percent next year. On the external front, the overall external position will remain healthy. The balance of payments will post a surplus of USD 8.1 billion this year and USD 3.4 billion next year. The current account will also remain in surplus, at USD 6.0 billion this year and USD 3.1 billion next year. Meanwhile, the country’s gross international reserves reached US$103.8 billion as of end October 2020. At this level, the GIR remains more than adequate as it can cover 10 months’ 1/7 BIS central bankers' speeches worth of imports of goods and payments of services and primary income. The received doctrine is three months’ worth of imports cover is enough. While the impact is still unfolding, the good news is that the financial system is in a strong position to both weather the adverse effect of the COVID-19 pandemic and support the country’s economic recovery. At the outset of the pandemic, the banking system had significant capital and liquidity buffers, built up due to both the strict BSP regulatory requirements and many years of favorable banking conditions. Interestingly, the result of our stress tests suggest that banks can continue to lend and prosper through a broad range of adverse scenarios. To assess the impact of the pandemic, the BSP conducted a Comprehensive Baseline Survey in April 2020 and intensified its off-site surveillance of all its supervised financial institutions. The results of these BSP initiatives proved useful for our Supervision Departments. As the financial sector supervisor, the BSP needs to strike a balance between enabling banks to lend to the firms and households, on one hand, and ensuring the promotion of safe and sound practices to contain the risk exposures of banks on the other hand. The BSP’s relief measures are classified in five (5) main objectives: Extension of Financial Relief to Borrowers. BSFIs were given regulatory relief to enable them to grant equivalent financial relief to their borrowers, including MSMEs, in the form of more flexible and favorable lending terms. Incentivize Lending. The BSP’s prudential measures aim to promote financing to MSMEs and enable these enterprises to carry on with their business during the COVID-19 crisis, as well as hasten recovery and sustainability of their operations, during the post-crisis period. Promotion of Continued Access to Financial Services. Policies were placed to ensure access to formal financing channels by retail clients, including MSMEs, during the crisis. The use of information technology in carrying out financial transactions was highly encouraged during the lockdown. Support for Continued Financial Services Delivery. The BSP granted operational relief measures to assist BSFIs in focusing their limited resources on the delivery of financial services to financial consumers, including MSMEs, and support their subsequent recovery efforts. Support for Sufficient Level of Domestic Liquidity and Economic Activity. Monetary policy measures were also adopted to support domestic liquidity and extend cheaper financing to borrowers, including MSMEs. Following these time-bound, strong and swift measures, a crucial question is how Philippine banks are holding up through the pandemic. Based on our recent assessment, our key findings suggest that: a. Core funding remains relatively strong following COVID-19 outbreak; b. Bank lending slightly rises; c. Loan quality slightly weakens as borrowers experience cash flow interruptions and sustain 2/7 BIS central bankers' speeches losses due to the pandemic; We don’t see this trend to extend in the long-run, however. d. Financial assets continue to grow but a slower pace as banks opted to reduce Treasury activities to be liquid; e. Net income declines as additional provisioning rises. However, this is likely to be offset by lower operating expenses and deferment of capital expenditures and non-essential expenses; and f. Liquidity and capital buffers are intact. The banking system’s credit growth continued amidst the pandemic. The banking system’s gross total loan portfolio grew year-on-year by 1.6 percent to P10.7 trillion as of end-September 2020. From the funding side, the banking system’s total deposits rose by 10.0 percent as of end September 2020 to reach P14.4 trillion. Outstanding deposits are mainly composed of savings deposits (47.0 percent of total deposits) followed by demand and NOW deposits (26.9 percent) and time deposits (24.1 percent). Savings deposits increased by 14.0 percent as depositors prefer to hold on to cash following the lockdown in Luzon in March 2020. In any case, there has been a surge in the use of digital platforms during the lockdown that started in mid-March 2020. The use of PESONet rose remarkably, both in volume and value from September 2019 to September 2020. Payments made through PESONet more than doubled with volume surging by 264 percent year on year and value rising by 160 percent, over the same period. Aside from aiding businesses in mobilizing funds during the pandemic, the PESONet was also used for social transfers made through the Social Security System’s Small Business Wage Subsidy (SBWS) Program. This shows that this facility is a viable and efficient means of distributing welfare benefits to indigent citizens. Similarly, since its launch in April 2018, InstaPay exponentially grew, registering over 1 million percent increase in volume and over 700 thousand percent in value as of September 2020, with the volume rising to 30.3 million from 1,740 transactions and the value growing to Php143.2 billion from Php 19.1 billion. The performance of InstaPay from September 2019 to September 2020 was spectacular. It grew by 758 percent in volume, from 3.5 million to 30.3 million transactions, and 466 percent in value, from Php25.3 billion to Php 143.2 billion. Based on the Baseline Survey, the banking system may grow by 3.6 percent by end-December 2020. This expected growth, however, represents the top 20 banks across universal banks, thrift banks and rural and cooperative banks. We expect loans to the MSME to soar. Based on the BSP data, the Philippine banking system continued to support the MSMEs during these difficult times. 3/7 BIS central bankers' speeches In particular, the banking system’s new MSME loans used for compliance with the reserve requirements have averaged PhP127.5 billion as of the reserve week of 22 October 2020 from Php9.3 billion as of 30 April 2020. The loan quality remained satisfactory amid continued loan growth. The quality of the banking system’s loan portfolio remained satisfactory. The non-performing loan (NPL) ratio was manageable at 3.4 percent as of end-September 2020, slightly higher than the 2.1 percent ratio as of end-September 2019. Loan loss reserves have been generally increasing since the start of this year but inched down as of end-September 2020, resulting to a lower NPL coverage ratio of 91.7 percent. We expect the banking industry to book additional provisions as they continue to reassess the quality of the loan portfolio. The year-on-year growth of financial assets (aside from loans) sharply fell from 15.2 percent in September 2019 to 2.9 percent in September 2020 as banks opted to reduce Treasury activities to be liquid. Based on the survey, BSFIs will maintain their strategy as the duration of their investments was reduced to maximize portfolio returns. The top universal and commercial banks did not introduce major changes in the composition of their portfolios as they assess liquidity risk. Exposures are mostly concentrated in highly-liquid and investment grade instruments. As a natural consequence, profitability declines. Banking operations were affected by the COVID-19 pandemic as the (annualized) net profit of the banking system shrank by 14.3 percent YoY for the semester-ended September 2020. We however expect that other operating expenses will likely be reduced due to lower business volume and capital expenditures and non-essential expenses, will be deferred. Based on the BSFIs’ survey, full year target for net interest income, other fees, operating expenses will drop while provisioning will rise. To mitigate the adverse impact of the pandemic on profitability, banks plan to impose cost-cutting measures (e.g. deferred capital spending and freeze hiring of non-critical positions); intensify loan collection activities, stricter in loan monitoring; exercise prudence in loan releases; reduce cost of funds and boost marketing campaigns for new loans and deposits. Universal and commercial bank salso intend to reduce their exposures to vulnerable sectors and to increase ancillary or fee-based business. Meanwhile, thrift banks and rural and cooperative banks want to fast track digitization initiatives to reduce operating expenses. Nevertheless, banks remained well-capitalized as the capital adequacy ratios (CARs) at 15.3 percent as of March 2020. This is well-above the minimum thresholds set by the BSP at 10 percent and the Bank for International Settlements (BIS) at 8 percent. Meanwhile, the banking system maintained sufficient buffers to meet liquidity and funding requirements. 4/7 BIS central bankers' speeches Liquidity of universal and commercial banks and their subsidiary banks and quasi-banks was ample as the liquidity coverage ratio (LCR) remained relatively stable in the first quarter of 2020. The universal and commercial banks’ solo LCR of 171.4 percent as of end-March 2020 was above the regulatory minimum of 100 percent. The minimum liquidity ratios (MLRs) of stand-alone thrift banks, rural banks, and cooperative banks surpassed the 20 percent minimum. As of end-December 2019, the MLRs of stand-alone TBs, RBs and CBs improved to 32.6 percent, 54.8 percent and 37.1 percent, respectively, from the previous quarter’s ratios. The BSP also prioritizes other supervisory areas moving forward to ensure the soundness, stability, resilience and inclusivity of the banking system amid the ongoing health crisis. This slide shows the key supervisory areas that we are considering – Improvement of the Board and Management; Asset quality deterioration; Liquidity; Declining profitability; Capital adequacy; and Banking operations. We also fully support the two major legislations being deliberated at the Senate and House of Representatives – The Financial Institutions Strategic Transfer (FIST) bill. This Bill is expected to assist the financial system in performing its role of efficiently mobilizing savings and investments for the country’s economic recovery by disposing bad loans; and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Bill which aims to strengthen the capacity of government financial institutions (GFIs) Philippine Guarantee Corporation (PGC), Land Bank of the Philippines (LBP), and the Development Bank of the Philippines (DBP) — to provide the needed assistance to MSMEs, and other strategically important companies. Let me now move on to the three major reforms which we are pushing for. First, with the passage of R.A. No. 11439, the BSP is clothed with clear authority to issue broader set of rules and regulations on Islamic banking. The supervisory and regulatory powers of BSP over Islamic banks are also reiterated in the law. Further, establishment of IBUs by conventional banks is expressly allowed. The BSP has a Task Force on Islamic Banking which serves as its arm in drafting rules and regulations on Islamic banking and coordinating efforts on Islamic Banking matters. Second, the BSP is committed to promote sustainable growth by fostering environmentally responsible and sustainable policies and work practices. We believe that, “leading by example” is one of the best ways to usher the transition and shape the behavior of supervised institutions towards the adoption of sustainability principles in their corporate governance, risk management systems, strategic objectives and operations. 5/7 BIS central bankers' speeches These are embedded in the recently BSP-issued Sustainable Finance Framework. Several pockets of green initiatives have been launched prior to the formalization of the Sustainable Central Banking Program. These include, among others, the BSP’s participation in the Green Bond Fund launched by the Bank for International Settlements (BIS). The BSP also implemented the Monetary Board (MB) Paperlite Facility that resulted in the significant reduction of paper usage during MB meetings. In addition, the BSP installed energy-efficient mechanisms such as solar panels and inverter technology in air-conditioning systems. The BSP is now a member of the Network for Greening the Financial System (NGFS), a group of central banks and supervisors organized to enhance the role of the financial sector in managing climate and other environment-related risks and mobilize capital to support the transition towards a sustainable economy. The NGFS membership is expected to strengthen BSP’s collaboration with counterpart regulators in building awareness and contributing to the effective management and mitigation of the impact of climate and other environment-related risks in the financial sector. Moreover, we have a lot to share with respect to the country’s experience in coping with calamities and natural disasters. Our recent experience with Typhoon Ulysses again reminds us that we should act fast and we should act now to address climate change. As a tropical country in the Pacific, we should expect more destructive typhoons in the years to come. We have to be critical of our actions and decisions now as they shape the future of the country and the next generations. Finally, complementary to the Sustainable Finance initiative is the Digital Payments Transformation Roadmap. The roadmap has these twin goals by 2023. First, driving the share of digital payments to 50 percent of total retail transactions by offering faster, more affordable, and secure payment options that provide greater convenience. Second, expanding the financially included to 70 percent of Filipino adults by onboarding them to the formal financial system through the use of payment or transaction accounts. The BSP’s priority policy initiatives aim to broaden the use of digital payment platforms as well as ensure that these are supported by robust infrastructure and governed by sound data standards. In closing, allow me to reiterate some key points: The banking system is in a strong financial condition going into the crisis. It remains resilient amid the pandemic. Supervisory priority areas moving forward include monitoring of asset quality, declining profitability, liquidity and capital positions. Financial sector reforms will be important in economic recovery such Islamic Banking, Sustainable Finance, and Digital Transformation as well as the timely enactment of FIST and GUIDE. Lastly, and most importantly, despite the adverse impact of the current health crisis on the 6/7 BIS central bankers' speeches domestic financial system, Philippine banking system is poised to remain stable, sound, resilient and inclusive in years to come. Thank you very much and we wish the MART more success moving forward! 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the presentation of the 2nd semester 2020 Financial Stability Report, Manila, 17 November 2020.
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Benjamin E Diokno: 2nd semester 2020 Financial Stability Report Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the presentation of the 2nd semester 2020 Financial Stability Report, Manila, 17 November 2020. * * * Ladies and gentlemen, friends from the media, good morning. Your Financial Stability Coordination Council is proud to release today the 2nd semester 2020 Financial Stability Report or the FSR. As you know, we made the decision early this year to shift from an annual publication to a twicea-year release, despite the difficulties to produce such a report. In fact, if I may just share with you a bit of trivia, we were about to release the FSR in late February only to completely re-do everything to put COVID-19 as the centerpiece. Five months removed from our first semestral release in June, we thank you for joining us for our 2nd semester report. We all recognize the complications that COVID-19 has brought upon the Philippine economy, and more so to our households, friends, and loved ones. But while our daily lives have changed since the pandemic, we should look beyond our current circumstances and prepare for tomorrow. Doing so will give us direction and purpose, understanding the recent past but be better for the future. This is a central theme of the FSR that we issue today—that businesses and households are in a different situation than in 2019. Nevertheless, the FSR offers a distinct vision of tomorrow, which we have crafted after considerable reflection. We believe that the future will continue to carry a premium on physical space and the trend towards digitization is irreversible. We also believe that there will be more granular changes in risk behaviors and consumer preferences. As simple as this sounds, this has significant effects on how products and services are produced and consumed. Changes will be nuanced across different economic activities. This is because it is the distribution of purchasing power that matters. What can be bought, how and where things are consumed, the immediate preferences for investments, all these are likely affected by the income and risk aversion shocks which we outline in the FSR. We offer our vision for the New Economy to serve as an anchor towards which stakeholders may transition. This New Economy is not just a “post-COVID” world. Rather, we expect it to be defined by a different set of market arrangements, changed business models, and distinguished by new behaviors. And for the authorities, it also means adjusting our lens to account for systemic risks when we oversee the functioning market. 1/2 BIS central bankers' speeches The details of all these are in the FSR and I invite everyone to download a copy. Our goal is to reduce the uncertainties so that all stakeholders can make well-informed decisions. Systemic risk is a complex topic to decipher and discuss but I am confident that you will find this FSR edition useful. Thank you. 2/2 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launching of the Citi Micro Entrepreneurship Awards 2020, Manila, 1 December 2020.
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Benjamin E Diokno: Launching of the Citi Micro Entrepreneurship Awards 2020 Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the launching of the Citi Micro Entrepreneurship Awards 2020, Manila, 1 December 2020. * * * Citi Philippines CEO, Mr. Aftab Ahmed; members of the CMA National Selection Committee (NSC); partners from the Microfinance Council of the Philippines, Inc. (MCPI) headed by Mr. Eduardo C. Jimenez; colleagues in the BSP; fellow microfinance advocates; and friends from the media: good afternoon. Welcome to the virtual launch of the 18th Citi Microentrepreneurship Awards (CMA). This year is a landmark for the CMA program, for being launched amid the COVID-19 pandemic and showcasing the determination of Filipino microentrepreneurs to succeed at this trying time. A critical sector of our country, MSMEs account for 99.5% of business enterprises, 62.4% of total employment, and 35.7% of gross value added (GVA). The pandemic disrupted MSMEs in unprecedented ways. More than ever, it is vital to sustain our microentrepreneurs, who provide essential products and services in the “last mile.” Predominant in low-income areas and serving as engines driving local economies, microentrepreneurs also nurture swathes of the Filipino population depending on them for postpandemic recovery and rebuilding. Hence, the BSP is pulling out all the stops to support microentrepreneurs and SMEs. To stimulate lending to the sector, the BSP has included new loans granted to MSMEs as part of industry compliance with reserve requirements; reduced the credit risk weight of current loans granted to MSMEs; and assigned zero percent risk weights for loans covered by government guarantee programs. To broaden usage of digital payment streams, the BSP encouraged financial service providers (FSPs) to waive fees for PESONet and InstaPay transactions. Likewise, the benefits of digitization initiatives supporting our Digital Payments Transformation Roadmap (DPTR) are expected to redound to MSMEs as they adopt and utilize digital financial services (DFS). The BSP is also implementing several projects to facilitate credit flows to the MSME sector. Our agri value chain financing (AVCF) pilot project aims to improve industry capacity and interest for this innovative financing approach to benefit not just smallholder farmers, but also agri-based MSMEs. We are also building a Credit Risk Database (CRD), which uses a variety of data to build statistical scoring models to sharpen credit assessment of banks and promote risk-based SME lending. The BSP continues to support the Cooperative Development Authority (CDA) in capacity development for credit surety fund cooperatives providing credit enhancement for bank loans of cooperatives and their member-MSMEs. 1/2 BIS central bankers' speeches Forthcoming initiatives include developing a standard loan application form (SLAF) for small business loans to address sector preference for simplified and streamlined loan application requirements. We have an upcoming study to inform strategic interventions towards developing a supply chain finance (SCF) market in the country. We are supporting an MSME demand-side survey to better understand the sector’s needs and challenges. These initiatives, like the CMA, are conducted in partnership with various stakeholders. The CMA, our two-decade long partnership with Citi Foundation, and MCPI, fits well with the BSP’s advocacy to raise awareness on the opportunities and impact of microentrepreneurship on inclusive development. Through CMA 2020, we highlight the creativity and internal fortitude of our microentrepreneurs to serve as a great inspiration. Congratulations to the COVID-19 category winners for demonstrating innovation and selflessness. We also extend our gratitude to our partners and the NSC in making CMA 2020 possible. Let us remain steadfast in collectively shaping a brighter, rosier future for our microentrepreneurs. Thank you and good afternoon. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the virtual launch of the Credit Risk Database (CRD) project, 9 December 2020.
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Benjamin E Diokno: Virtual launch of the Credit Risk Database (CRD) project Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the virtual launch of the Credit Risk Database (CRD) project, 9 December 2020. * * * Ms. Kawabuchi Kiyo, Senior Representative of JICA, officers of the CRD project participating banks, ladies and gentlemen, good afternoon! I am pleased to have this virtual launch today. As you may know, MSMEs are the backbone of our economy. They account for 99.5 percent of business enterprises in the country and are responsible for two-thirds of its total employment. But, the lack of access to credit remains a major barrier to the further development and sustainability of MSMEs. As of end-December 2019 or prior to the onset of the COVID-19 pandemic, MSME loans of the Philippine banking system only account for 8.8 percent of total business loans and 6.1 percent of total loans. This is mainly attributed to two factors. First, MSMEs are often reluctant to approach banks due to lack of credit history and acceptable collateral typically required for loan application. Second, banks tend to perceive MSMEs in general as high-risk due to limited understanding and visibility into this market. As they navigate through the pandemic, MSMEs have been heavily devastated. During the lockdowns implemented to curb the spread of COVID-19, most MSMEs closed totally and some operated on a highly limited basis. The harsh reality is that the pandemic added to the existing challenges encountered by MSMEs and therefore undermine progress towards inclusive economic growth. Clearly, both the government and private sector should support to MSMEs to help them withstand this crisis and eventually recover and thrive beyond this pandemic. As such, it is timely that the Bangko Sentral ng Pilipinas (BSP) and the Japan International Cooperation Agency (JICA) have embarked on a project to establish a Credit Risk Database (CRD) for small and medium enterprises (SMEs). As a brief background, the feasibility study on the establishment of a CRD here in the Philippines was conducted in 2016 by JICA and the Department of Finance. The study showed encouraging results and the project became a joint initiative of the BSP and JICA under a Technical Cooperation Program between the Philippines and Japan from 2019 to 2022. Today, we are officially launching the CRD project. The project aims to improve access to finance among SMEs by promoting risk-based lending which uses credit scoring models to assess the capacity of SMEs to repay their loan. The project is a tangible step in building a sustainable financing ecosystem for SMEs. Banks, on the other hand, will benefit from the robust credit scoring models built on the database to supplement or to validate their internal scoring models. This will particularly be useful to those without a credit scoring model. The CRD will enhance the credit risk management system of banks. 1/2 BIS central bankers' speeches As we usher in the new economy and steer towards a strong post-pandemic economic recovery, we expect the CRD to contribute to providing stimulus for inclusive economic development. As the CRD will augment the access of SMEs to credit, it will lead to their enhanced productivity and competitiveness and also generate much-needed jobs and source of income for many Filipinos. Indeed, the project will provide long-term support to SMEs. I want to thank the Government of Japan and JICA for their commitment towards socio-economic development in the Philippines. I also wish to thank the 17 pioneer participating banks : Land Bank of the Philippines, Development Bank of the Philippines, Security Bank, Rizal Commercial Banking Corporation, Philippine Business Bank, Sterling Bank of Asia, China Bank Savings, Malayan Bank, Philippine Savings Bank, UCPB Savings Bank, Producers Savings Bank, Queen City Development Bank, Wealthbank, Sun Savings Bank, AllBank, CARD SME Bank and First Consolidated Bank. Their participation and commitment in the CRD project is crucial in the development of the sector. MSMEs have taken steps to continue their businesses amid the pandemic. The BSP, in cooperation with JICA and the Philippine financial institutions, will do our part. Together, we will create a sustainable and vibrant financing ecosystem in the country. Thank you and mabuhay! 2/2 BIS central bankers' speeches
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Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Tuesday Club Press Event, 4 January 2021.
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Benjamin E Diokno: Opening remarks - Tuesday Club Press Event Opening remarks by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Tuesday Club Press Event, 4 January 2021. * * * Good morning, officers and members of the Tuesday Club! It has become a tradition for us at the Bangko Sentral ng Pilipinas to spend our first Tuesday of the year with you. 2020 was an extraordinary year because of the COVID-19 pandemic which, by the way, is more than a health crisis, as the country also felt its debilitating impact on lives, livelihoods, and inequality. But this once-in-a-lifetime crisis, it is unlike other crises we have faced in the past. Previous economic crises in the Philippines had always been accompanied by rising interest rates and a weakening peso. The Central Bank of the Philippines—the BSP’s predecessor— deliberately raised interest rates to contain peso depreciation and control inflation. But it was different this time for two main reasons. First, the Philippines was in a position of strength when the pandemic hit us. The Philippines’s strong macroeconomic fundamentals prior to the pandemic—manageable inflation, a strong and resilient banking system, a prudent fiscal position, and a hefty level of gross international reserves—cushioned the economy from the impact of the crisis. Second, the BSP was among the central banks in the world that immediately responded to the crisis by deploying a set of comprehensive measures. The Monetary Board cut the policy rate by 200 basis points and the reserve requirement by another 200 basis points. As a result of this bold, timely, and decisive action, the country’s interest rates hit a historic low. To calm the market and inject liquidity into the system, we also adopted a wide range of measures that deployed almost two trillion pesos, equivalent to about 10 percent of the 2019 GDP. The peso appreciated by approximately 5.67 percent—from P50.74 to the US dollar as of end 2019 to its current rate at P48.021. As of end November 2020, the country’s gross international reserves, or GIR, hit an all-time high of US$105 billion, which is three times the import requirements of the country. In addition, the peso was supported by the gradual recovery in external accounts such as foreign direct investments (FDI) and overseas Filipino remittances. It also helped that the Philippines received its highest credit ratings in history before the pandemic began. Such favorable assessment enabled the country to access financing with low-interest rates and a long repayment period. 1/3 BIS central bankers' speeches We are continuously receiving affirmation and even upgrades from international rating agencies. In February 2020, R&I upgraded the Philippines’ credit rating from “BBB” to “BBB+” with a “stable outlook.” In May, Fitch Ratings and S&P Global affirmed the Philippines’ credit rating of “BBB” and “BBB+” respectively. In June, Japan Credit Rating Agency upgraded Philippine sovereign debt to A- (Stable), citing strong economic fundamentals. And in July, Moody’s affirmed the Philippines’ “Baa2” rating with a “stable” outlook. The BSP has also worked hand in hand with the country’s economic team and the Congress on mandating grace periods for debt payments in May and September. We likewise made loans to micro, small, and medium enterprises (MSMEs) count against banks’ reserve requirement ratio (RRR). This move directed capital to this important sector that employs two-thirds of Filipino workers’ and increased the volume of loans to MSMEs by almost 1,400 percent from April to November 2020. Speaking of banks, the country’s banking sector entered the crisis with adequate capital. The average capital adequacy ratio hovers in the 15 percent territory, higher than the BSP’s minimum requirement of 10 percent and the 8 percent prescribed by the Bank for International Settlements. Bad debts remain manageable, with the non-performing loans (NPLs) of banks settling at 3.7 percent as of October 2020. Embracing digitalization and financial technology has helped most of us adapt to these changing and challenging times. Even before the pandemic, the BSP actively promoted financial technology and the shift to digitalization. The fruits of this advocacy have become a survival tool during the lockdown and enabled us to continue with our transactions within the safety of our homes. Hard macro and micro economic data suggest that the worst is behind us. Based on available information, we expect the economy to bounce back by 6.5 to 7.5 percent next year. With the further easing of restrictions, improvements in the healthcare system, and the full cooperation from each one of us to do what it takes to keep viral transmission under control, this growth target is easily attainable. With the expanding economic activity, we are also expecting the unemployment rate to fall from a record-high 17.6 percent in April—the height of the lockdown—to 7 percent in 2021. Indeed, deep into the pandemic and even during the strictest part of the lockdown, we have exhibited fortitude and resilience as individuals and as a nation. But resilience is not enough. We must collect and harness significant lessons from this experience, so when we find ourselves in a similar situation in the future, we will be more prepared and know exactly what to do. 2/3 BIS central bankers' speeches We ought to keep in mind that famous quote: tough times don’t last; tough people do. Finally, as with any other significant disruption in our history, it is my fervent hope that this crisis will usher in a new economy—one that is more robust, more inclusive, more technologicallysavvy. As soon as this pandemic fades, I expect that the Philippines to become nothing less than an economic champion. Thank you very much and cheers to a promising and bright 2021! 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Kapihan sa Manila Bay, 5 January 2021.
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Benjamin E Diokno: The BSP’s role in economic recovery and lessons in monetary policy Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at Kapihan sa Manila Bay, 5 January 2021. * * * Ladies and gentlemen, good morning. The Bangko Sentral ng Pilipinas (BSP) welcomes this opportunity to discuss its role in cushioning the adverse impact of the COVID-19 crisis. We are indeed pleased to help the National Government in steering the country towards a gradual and sustainable path to recovery. I will also share key lessons in monetary policy, which, I believe, will serve the country in good stead moving forward. The shock from the COVID-19 pandemic is unprecedented. After exhibiting 84 consecutive quarters of growth, real GDP declined by 0.7 percent year-on-year for Q1 2020. By the second quarter of 2020, real GDP contracted by 16.9 percent. In Q3 2020, real GDP also declined but at a slower rate of 11.5 percent. Year-to-date, real GDP growth is at –10.0 percent. The slower pace of GDP contraction is expected to continue in Q4 2020. Allow me to point out that crafting swift, timely and well-calibrated policy responses requires a clear understanding of the nature of the shock. What we are experiencing is a public health crisis. As such, the primary response of policymakers should be towards containing the virus and providing adequate care for the infected. The shock called for a bold and coordinated response from the National Government. To mitigate adverse effects of the pandemic, fiscal and monetary policy authorities must play distinct yet complementary roles. In particular, fiscal policy plays a crucial role as it can respond in a more targeted manner to the most affected sectors of the economy. Meanwhile, the role of monetary authorities has been to ensure the proper functioning of credit and financial markets, and that there is ample liquidity to support domestic demand. Given the abruptness and scale of the pandemic, the BSP deemed it necessary to provide additional emergency support to the government’s broad-based health and fiscal programs related to COVID-19. The BSP has deployed a wide range of monetary instruments and extraordinary liquidityenhancing measures to support the economy. BSP reduced the policy rate by a cumulative 200 basis points (bps). The cut in the policy rate is aimed at uplifting market confidence amid stronger headwinds owing to the pandemic. We also reduced the reserve requirement (RR) ratios by 200 basis points to calm the markets and support bank lending to both retail and corporate sectors. In line with whole-of-government efforts, the BSP has extended provisional advances to the NG on a time-bound basis and within the limits prescribed by law. In March 2020, the BSP entered a short-term repo agreement in the amount of ₱300 billion with the Bureau of the Treasury (BTr). 1/4 BIS central bankers' speeches The arrangement was fully settled in end-September 2020. A fresh provisional advance of ₱540 billion was again extended in October 2020 and was fully settled in 18 December 2020. Meanwhile, the BSP has also been purchasing government securities (GS) in the secondary market. This is part of BSP’s immediate monetary policy response to help shore up domestic liquidity, and restore market players’ confidence to continue participating in primary GS auctions. These measures have helped address temporary volatilities in the GS market, by maintaining market interests to continue to hold GS, which in turn assisted the NG in meeting its funding requirements for its COVID-19- related programs. In total, the BSP’s policy and liquidity-easing measures has injected into the financial system about ₱2 trillion in liquidity, equivalent to about 10 percent of the country’s 2019 nominal GDP level. BSP also implemented a wide range of regulatory relief measures aimed at: extending financial relief to borrowers of BSP-supervised financial institutions, incentivizing bank lending; promoting continued access to credit and financial services; and supporting continued delivery of financial services. We have also allowed new loans to micro, small and medium enterprises (MSMEs) to be counted towards banks’ compliance with reserve requirements. This is to encourage banks to continue lending to smaller businesses and critical large enterprises. This will also ensure sufficient domestic liquidity and credit in support of economic activity amid lockdown measures. MSME loans used as alternative compliance with reserve requirement (RR) reached 134.8 billion as of 26 November 2020 . This represented a 9.8 percent share of total RR while Large Enterprises (LE) loans used as compliance reached ₱29.1 billion (or 2.1 percent of total RR). The BSP has also approved a limit on loans to MSMEs and large enterprises used as alternative compliance at P300 billion and P425 billion, respectively. Supported by liquidity-enhancing measures of the BSP, latest data suggest that there is ample liquidity in the financial system. Domestic liquidity expanded by 11.8 percent (y-o-y) to about P13.5 trillion in October 2020 from 12.2 percent in September. Domestic liquidity dynamics and market function have improved as a result of the BSP’s liquidityenhancing measures. The Monetary Board (MB) believes that keeping an accommodative stance has been critical in ensuring favorable financing conditions to support economic activity and market sentiment. With adequate liquidity in the financial system, domestic interest rates have gradually declined over the past several months. In line with its financial inclusion initiatives, the BSP also continued to push for the use of digital financial platforms. This is consistent with our vision to shift from a cash-heavy to a cash-lite economy. Under the Digital Payments Transformation Roadmap for 2020 to 2023, the BSP aims (1) to strengthen customers’ preference for digital payments by converting 50 percent of the total volume of retail payments into digital form; and expand the proportion of financially included to 70 percent of Filipino adults and (2) to encourage innovations which will boost real-time payments velocity. We also supported digital payment initiatives such as the use of electronic fund transfers via Instapay and PESONet, as well as the expansion of low-cost access points through cash agents 2/4 BIS central bankers' speeches or third-party outlets. In the near term, we are set to pursue more of these digital payment initiatives. Allow me to underscore that implementing measures to address the impact of the pandemic has provided valuable lessons. First, the crisis experience has required central banks, including the BSP to be more agile. This pandemic differs from other crises episodes in the sense that it has had a solid and fast influence on domestic and global demand. The COVID-19 crisis has also taught us that there are limits to what monetary policy can do. When interest rates are low and private demand are persistently weak, the transmission from financing conditions to private spending might be reduced. Thus, it is crucial that monetary policy ensures favorable financing conditions for the whole economy. This limitation to monetary policy highlights the critical role of the targeted fiscal policy responses and underscores the need for a whole-of-government approach to combatting the pandemic. Meanwhile, persistent bank risk aversion and bleak loan demand continue to contribute to weak credit activity. Preliminary data show that growth in outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, eased to 1.9 percent in October from 2.6 percent (revised) in September. The overall slowdown in bank lending growth points to muted business confidence and elevated uncertainty amid continued disruptions in business operations. This phenomenon of weak credit activity amid the crisis is similarly observed in other economies. Results of the Q3 2020 Senior Bank Loan Officers’ Survey (SLOS) show that the majority of respondent banks continued to report tighter overall credit standards in Q3 2020, although they are fewer compared to Q2 2020, based on the modal approach. Based on the diffusion index (DI approach), banks reported a net tightening of overall credit standards for both loans to enterprises and households in Q3 2020. Respondent banks attributed the tightening of credit standards largely to (1) less favorable economic outlook, (2) deterioration in the profitability of bank’s portfolio and profiles of borrowers, and (3) reduced tolerance for risk, among other factors. Nonetheless, improvements in mobility indicators indicate that firms and households are beginning to adjust to the post-pandemic operating environment. This could support resurgence in economic activity in the near term. In this slide, we show mobility changes as monitored by Google for the entire country. From the charts, we can see that as of 29 December 2020, visits to places such as grocery and pharmacy and parks have approached their pre-COVID levels Visits to retail and recreation also continues to show improvement. Meanwhile, mobility in transit stations is still flat given that transport options have remained limited. For 2021, the economy is expected to bounce back, growing by 6.5 – 7.5 percent. This is based on projections by the Development Budget Coordination Committee as of December 2020. Growth is expected driven by higher government spending and the passage of structural reform programs such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill and the Financial Institutions Strategic Transfer (FIST) bill. The BSP remains cognizant of economic developments and financial conditions, including the potential impact of a prolonged COVID-19 health crisis. In view of this, BSP reaffirms its 3/4 BIS central bankers' speeches commitment to complement government’s broader efforts to address the pandemic. BSP continues to have ample monetary policy space to deal with potential risks to liquidity and growth owing to the health crisis. We shall continue to provide support to the government while recognizing the crucial role of sustained and targeted fiscal interventions in reviving demand. Moreover, let me assure you that when domestic developments warrant a recalibration or withdrawal of policy support, the BSP will ensure a smooth normalization of its time-bound measures. The BSP shall continue to adhere to disciplined and evidenced-based policymaking. In the face of this pandemic, we shall continue pursuing our mandate of promoting price and financial stability conducive to sustainable growth and employment. Thank you very much. 4/4 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 24th Membership Meeting of the Rotary Club of Manila, 6 January 2021.
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Benjamin E Diokno: Philippines economic outlook - toward a solid recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 24th Membership Meeting of the Rotary Club of Manila, 6 January 2021. * * * Mr. Robert Joseph, Jr., president of the Rotary Club of Manila (RCM); Mr. Herminio Esguerra, chairman of the program committee; the board of directors; officers, members and guests; ladies and gentlemen, good afternoon. I have been invited today to talk about financial forecasts for 2021 amid the pandemic. But before I present the economic prospects over the near term, let us briefly step back and take a look at the past year. First, I will go through recent economic developments and trends. Second, I will share some views on the likely path of the economy, keeping in mind the highly uncertain environment we are in now. Finally, I would like to take this opportunity to update the RCM members on the BSP’s initiatives and advocacies. The year 2020 began with the Philippine economy in a position of strength. Real GDP growth had averaged at above 6 percent over a 10-year period, or a 6.4 percent average from 2010 to 2019. The robust growth of the domestic economy in recent years was achieved in an environment of generally stable inflation and was anchored on purposeful structural reforms. The country’s strong track record of prudent policymaking has likewise led to a robust external payments position, record-high international reserves, improved external debt metrics, and healthy public finances. At the same time, Philippine banks continue to be sound, stable, and well-functioning based on all metrics. These robust fundamentals gave us the monetary and fiscal space to navigate the first few months of this crisis. The COVID-19 pandemic had required the government to impose stringent lockdown measures to save lives and help both the public health sector and LGUs respond effectively to the health crisis. Unfortunately, our economy, like many other economies around the world, suffered from the lockdowns. After exhibiting 84 consecutive quarters of growth, the Philippine economy contracted in the first three quarters of 2020, amounting to an average real GDP decline of 10 percent. We must note, however, that the COVID-19 pandemic has constrained economic activity not only in the Philippines, but across the globe. Nevertheless, we are seeing early signs of recovery. The manufacturing purchasing managers index has risen to 49.9 in November, close to the 50point expansion threshold. At the same time, the manufacturing volume of production index has also improved. The gradual easing of lockdown measures and promising developments regarding vaccines 1/5 BIS central bankers' speeches have contributed to improvements in business operating conditions. Latest surveys indicate improved optimism of businesses and consumers, however. The overall business confidence index reverted to positive territory at 10.6 percent in Q4 from – 5.3 percent in Q3. This optimism in the last quarter of 2020 was attributed to the reopening of businesses amid the “new normal,” easing of community quarantines nationwide, seasonal factors such as an uptick in demand during the holiday season and the start of the milling season, and the increase in volume of sales and orders. Meanwhile, the overall consumer confidence index was more optimistic at –47.9 percent in Q4 from –54.5 percent in Q3. The improved outlook during the current quarter was brought about by expectations of more jobs and permanent employment; additional and high income; effective government policies and programs such as the Social Amelioration Program and the Plant, Plant, Plant Program; reduced community restrictions, the reopening of businesses, and the expected end of the COVID-19 pandemic when vaccines are made broadly available. Another cause of optimism are the results of the Google Mobility report, which provides insights on how people’s movements have changed throughout the pandemic. The report details how activities for retail, recreation and workplaces continued to improve for the Philippines, suggesting a rise in economic activity. Notably, grocery and pharmacy figures were shown to come close to the baseline period, approaching pre-quarantine levels. Consequently, numbers under “residential” gradually declined to 18 percent as of December 7, 2020—compared to their peak of 43 percent in April 2020—implying that people are staying less at home. However, transit station activities remained subdued at –46 percent given the limited public transportation options at present. The unemployment rate moderated to 8.7 percent in October 2020 from a high of 17.7 percent in April, during the strictest period of lockdown. The unemployment rate moderated to 8.7 percent in October 2020 from a high of 17.7 percent in April, during the strictest period of lockdown. Price pressures remained manageable in 2020, with headline inflation averaging at 2.6 for the entire year. This is within the government inflation target of 2 to 4 percent. In December, inflation rose to 3.5 percent from 3.3 percent in November, driven mainly by adverse weather-related disturbances and higher international oil prices. Meanwhile, the Philippine banking system has remained resilient and stable, with sufficient capital buffers to withstand shocks. As of end-June 2020, the capital adequacy ratio of universal and commercial banks was at 16.3 percent on a solo basis and 16.7 percent on a consolidated basis, well above the 10 percent regulatory requirement of the BSP and the international standard of 8 percent. Liquidity conditions remain ample, supported by the liquidity-enhancing measures of the BSP. 2/5 BIS central bankers' speeches Domestic liquidity continues to grow at a double-digit pace, rising by 11.8 percent to around ₱13.5 trillion in October, albeit slightly slower than the 12.2-percent growth in September. Meanwhile, growth in outstanding loans of universal and commercial banks eased to 1.9 percent in October from 2.6 percent in September. The overall slowdown in bank lending growth reflects the combined effects of muted business confidence and the banks’ stricter loan standards attributed mainly to continued disruptions in business operations. On a year-to-date basis, the Philippine Peso appreciated against the US dollar by 5.37 percent, to close at 48.06 pesos to the US dollar on December 28, 2020 from its end-December 2019 closing rate of 50.64 pesos to the US dollar. The peso has appreciated along with the Taiwan dollar, Chinese yuan, South Korean won, Japanese yen, Singaporean dollar, and Malaysian ringgit. Let us now turn to the macroeconomic prospects over the near term. The prevailing view is a “long, uneven, and uncertain ascent” toward global economic recovery. There remains considerable uncertainty if and how global trade and supply chains will evolve. The IMF, in October 2020, forecasted that world output would contract by 4.4 percent in 2020 and revert to an expansion of 5.2 percent in 2021. Beyond 2021, world output is projected to decelerate to (growth of?) around 3.6 percent by 2024, indicating a delayed return to the growth trajectory before the pandemic. In any case, some recovery is already being seen as major economies open up further, supported by the optimism brought about by the gradual deployment of COVID-19 vaccines. On the domestic front, economic prospects are expected to improve as infrastructure and social programs, health capacities, and fiscal policies gain traction. While the real domestic GDP could contract by 8.5–9.5 percent in 2020 amid the community quarantines, economic activity in the country is projected to recover and expand by 6.5–7.5 percent in 2021 and by 8–10 percent in 2022, as global and domestic economies gradually reopen. Moreover, the DBCC, in consultation with the BSP, decided to retain the current inflation target range for 2021 to 2022 at 2 to 4 percent and retain the same inflation target band for 2023 to 2024. Amid all the uncertainty, the national government’s inflation target remains an important anchor for guiding the economy through the downturn and recovery stages. This inflation target serves as an important guidepost for the BSP. Monetary authorities could continue to provide support to the economy after the health crisis through a resolute commitment to deliver low and stable inflation. Latest forecasts indicate that inflation will remain within target in 2020 until 2022. BSP forecasts suggest that inflation could average at 2.6 percent for 2020, 3.2 percent for 2021, and 2.9 percent for 2022. The balance of risks to the inflation outlook also leans toward the downside from 2020 to 2022, owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic. Similarly, inflation expectations appear to be well-anchored to the target range. 3/5 BIS central bankers' speeches In response to the pandemic, the BSP has taken decisive policy measures to support domestic liquidity, bolster economic activity, and boost market confidence. The cumulative cut in the policy rate by 200 basis points was complemented by decisive liquidityenhancing measures and regulatory relief to banks’ borrowers experiencing financial difficulty amid the lockdown. In an effort to assist the national government’s funding requirement for COVID-19-related programs and consistent with its liquidity enhancing policies, the BSP has also bought government securities in the secondary market, provided short-term provisional advances, and remitted 20 billion pesos in advance dividends to the national government. In sum, the BSP has injected some Php2-trillion into the financial system, equivalent to 10 percent of 2019 GDP. The BSP’s policy measures complement the government’s expansionary fiscal policy stance to boost demand and limit the adverse effects of the COVID-19 pandemic. The government’s accommodative fiscal policy aims to fund priority expenditures to help rebuild the economy as well as invest in social services and infrastructure. Similarly, the recent approval of the 4.5-trillion peso General Appropriations Act for 2021, which prioritizes health-related response programs and infrastructure projects, could help facilitate the strong rebound of the economy and its transition to the “new normal.” In addition, let me stress that the BSP recognizes micro, small and medium enterprises as a vital component of the Philippine economy. In fact, the BSP has approved a number of measures to assist MSMEs during this crisis as well as hasten their recovery and ensure sustainability of operations in the post-crisis period. These measures include allowing banks to report MSME loans as part of their compliance with the BSP’s reserve requirement. The BSP also implemented amendments to the regulatory capital treatment of exposures to MSMEs, which would free up capital and enable BSP’s supervised financial institutions to extend more credit to the MSME sector. In particular, the BSP approved a temporary reduction in the credit risk weights of loans granted to MSMEs that are current in status, and the assignment of lower risk weight for MSME exposures that are covered by government guarantees. Overall, these measures are expected to channel liquidity to the MSME sector while ensuring the health and safety of the financial system. The BSP—as overseer of the payments system—likewise endeavors to provide an enabling environment for a safe, reliable, affordable, interoperable, and efficient retail payments system in the country. In fact, even before the pandemic, we had advocated for the shift to a more cash-lite economy through increased use of digital payment platforms under the National Retail Payment System Framework or NRPS. This has proven to be very useful, with physical distancing becoming the norm during this pandemic. In fact, a welcome development brought about by the new norm is the spike in PESONet and InstaPay transactions, the two automated clearing houses (ACHs) formed under National Retail 4/5 BIS central bankers' speeches Payment System Framework. In addition, the BSP’s issuance of the National QR Code Standard or QR PH has helped address the country’s fragmented QR-driven payment system. This new system can assist the economy in further leveraging on the efficiency, safety, and affordability of QR technology for payments. We have also supported the digitalization of payments to the government through EGov Pay, a payment channel that allows individuals and businesses to pay taxes, permits, fees, and other obligations to the government through an electronic portal. Ladies and gentlemen, the past year has been turbulent and challenging. Our economy, and the economies of other countries across the globe, have been seriously hit by this unprecedented health emergency. However, the Philippines’s robust macroeconomic fundamentals have helped us navigate through the crisis. And our fundamentals remain strong. Price pressures are manageable. Domestic liquidity remains ample. And the banking sector remains stable and resilient. There are also some early signs of recovery as we see some improvements in the manufacturing index, market sentiment, as well as mobility reports. As we learn to live with the virus and adapt to the “new normal,” domestic economic activity is expected to rebound this year with inflation remaining well-anchored to the target range. For our part, we at the BSP have deployed timely and appropriate policy initiatives to support domestic liquidity and the country’s economic comeback. We will implement a prudent and data-driven disengagement from the BSP’s COVID-19 policy responses, in support of the whole of government and the Filipino people on our way to a solid recovery. Indeed, we are all aware that this path to recovery is tough. But this pandemic, as with other challenging periods in our history, has once again shown our resilience and fortitude as a nation. We will use this resilience to continue working hard in ensuring that our country will sustain a stable recovery from the pandemic. I am certain that each of us gathered virtually in today’s meeting has a contribution to make in our collective fight against the COVID-19 pandemic. Thank you and I wish everyone a safe and prosperous new year! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at "Reuters Next" Conference "Rethink, Rebuild, Recover: A New Vision for a Better Tomorrow", 12 January 2021.
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Benjamin E Diokno: The Philippines - seizing opportunities for a better tomorrow Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at “Reuters Next” Conference “Rethink, Rebuild, Recover: A New Vision for a Better Tomorrow”, 12 January 2021. * * * A pleasant day to all the participants of “Reuters Next.” As we start the new year, it is apt to share ideas on recovery given the unprecedented COVID-19 crisis that mostly defined 2020. The theme of this conference—“Rethink, Rebuild, Recover: A New Vision for a Better Tomorrow”—highlights the pursuit of a stronger world economy, which is a fitting top agenda for all nations. As an international community, we have to “rethink” the way we deal with key issues—such as inward-looking policies, equity, and climate change, among others—if we are to “rebuild” the global economy toward meaningful “recovery.” We must step up international cooperation to achieve recovery soon. As individual nations, we have to apply the lessons from the crisis that are peculiar to our respective economies to move forward. In the case of the Philippines, we expect a much brighter 2021. Besides government pronouncements that vaccines will be rolled out toward the end of the second quarter, the fact that the entire government, the BSP included, did our homework last year allows us to expect better days ahead. We worked hard not just to survive the crisis, but to ensure faster and smoother transition to our envisioned “New Economy“, which is stronger, more technologically savvy, and more inclusive than how we were prior to the pandemic. Appropriate measures were implemented to address the impact of COVID-19 on lives, livelihoods, and the economy. Vital laws (Bayanihan I and II) to support front-liners and small businesses were passed on time. Other bills critical for economic recovery are expected to be implemented soon. One will slash corporate income tax and rationalize fiscal incentives (CREATE)—this is now up for bicameral deliberations by Congress; and another will help banks dispose bad assets (FIST)—this is now with the President for signing. As for the Bangko Sentral ng Pilipinas (BSP), we implemented a long list of response measures. We injected nearly P2 trillion, equivalent to about 10 percent of gross domestic product (GDP), in liquidity to the economy. We implemented policies for micro, small, and medium enterprises (MSMEs), such as counting loans to this sector as part of banks’ compliance with the reserve requirement. We rolled out time-bound regulatory relief measures to manage the impact of the crisis on banks’ balance sheets. And, we implemented liquidity-enhancement measures to keep the financial system stable, boost 1/3 BIS central bankers' speeches market confidence, and allow the National Government to promptly fund its response measures. When domestic developments warrant, the BSP will move toward smooth normalization of our time-bound measures, consistent with our data-driven approach to monetary policy. Latest baseline forecasts show inflation – which averaged 2.6 percent in 2020 – will remain within the 2.0-4.0 percent target range this year and in 2022. This will provide an enabling environment for investments and consumption growth, and space for the BSP to further support growth, if necessary. Last year, we cut policy rates by a cumulative 200 basis points. The BSP was in fact among the first central banks to respond to the crisis by cutting rates as early as February last year. Last month, the BSP’s Monetary Board maintained the key policy rate at 2.0 percent. Accommodative monetary policy, together with fiscal initiatives, should quicken the economy’s recovery. Looking ahead, we see solid rebound in 2021. We expect: • The economy to grow anywhere between 6.5 and 7.5 percent; we have started to see some green shoots, including growth in remittances and foreign direct investments; • Inflation to remain within target; • Exports and imports to grow; • Net inflow of FDIs to increase; and • Remittances to rise. I would like to highlight that remittances had demonstrated resilience, declining by a mere 0.9 percent in the first ten months of 2020, hence our optimistic forecast for this year. • External accounts to remain healthy—with the gross international reserves staying above USD 100 billion and a current account surplus. In addition, the banking sector—which enjoyed regulatory relief measures from the BSP and with an enabling law to get rid of bad assets (FIST)—will remain strong and stable. The Philippine banking system continues to have capitalization and liquidity levels well above the regulatory requirements, while non-performing loans (NPLs), albeit slightly higher, remain manageable. The NPL ratio stood at 3.2 percent as of October 2020, way better than the double-digit NPLs we saw in the aftermath of the Asian financial crisis. Meantime, we have embarked on a reform momentum toward the “New Economy.” This is our way of helping ensure the crisis—which has given a sense of urgency for reforms—is put to good use. Our legislative agenda include: (i) a bill that will expand the list of sectors that banks can lend to, in compliance with the mandated lending for agriculture development; 2/3 BIS central bankers' speeches (ii) a bill that will lift secrecy of bank deposits, which will help efforts against tax evasion and money laundering; (iii) a bill meant to enhance accessibility of credit to MSMEs through a comprehensive credit database, and (iv) a bill that will improve the protection of consumers of financial products and services. The BSP also has stepped up efforts toward financial digitalization—side by side our efforts to improve cyber security supervision. Last October, we launched the Digital Payments Transformation Roadmap. This will aid faster economic growth and usher an era of a more financially inclusive Philippines. With financial technology (fintech), credit, as well as savings, investments, and insurance products become accessible to more people. Also, since it hastens payments, fintech increases the velocity of capital turnaround, thereby boosting income growth. Also, we have issued frameworks for open banking, for the creation of digital banks, and for enhanced risk management. With our efforts, the Philippines is recognized for having one of the best regulatory environments for financial inclusion. Prior to the pandemic, the Philippines had made significant strides in the economic and social fronts. Poverty incidence had fallen from 23.5 percent in 2015 to 16.7 percent in 2018. Unemployment rate had dropped to 5.1 percent in 2019 from 7.5 percent in 2009. And, we were about to become an upper-middle income economy. The COVID-19 crisis has caused setbacks for us. To return to our growth trajectory, medical and macroeconomic interventions should go hand in hand to protect public welfare, which is crucial to boost consumer and business confidence. Having enough monetary space and tools, the BSP will continue to coordinate with the other government agencies as it shares in the heavy lifting to quicken economic recovery. With our whole-of-government approach to recovery, we expect the Philippines to move back to our pre-COVID development path soon. The worst is behind us. The recovery phase has begun. Now, the Philippines is starting to write its post-COVID narrative, which in the near future will speak of a remarkable rebound. As an active member of the international community, we are happy to share the things that we do to thrive, as much as we are willing to learn from and work with the rest of the world. Thank you very much for listening. I wish everyone a productive conference. 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 53rd Anniversary Financial Executives of the Philippines, 14 January 2021.
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Benjamin E Diokno: Philippine banking system - “Crossing the threshold” for economic and financial recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 53rd Anniversary Financial Executives of the Philippines, 14 January 2021. * * * FINEX President Atty. Francisco Ed. Lim, members and officers of FINEX, colleagues in the financial services industry and the Government, esteemed guests, ladies and gentlemen, a pleasant good afternoon to all. I wish to thank FINEX, our reliable partner in financial deepening and capital market development, for inviting me to be a part of your 53rd Anniversary celebration. Before I share with you the BSP’s initiatives towards economic and financial recovery in the New Economy, allow me to wish you all a Healthy and Prosperous New Year, as well as, to congratulate both the outgoing and incoming officers of FINEX for leading the organization in these trying times. We now find ourselves in what I call the “crossing the threshold” moment. In the world of myths and movies, “crossing the threshold” occurs when the Hero leaves his or her ordinary world and enters a new, dangerous world. Your theme – Transcending New Frontier, Leading Beyond Recovery – speaks volumes of this “crossing the threshold” stage in the Hero’s journey arch. In the real world, we acknowledge that the COVID-19 pandemic continues to pose threats to economies and financial systems around the world, including the Philippines. The Philippine economy contracted by an average of 10.0 percent in the first three quarters of 2020, following 21 years of uninterrupted growth. However, said economic contraction was not reflective of the country’s strong fundamentals or prospects moving forward. The BSP expects the recovery process to commence sooner as more industries re-open following the gradual easing of restrictions throughout the country combined with stimulus measures rolled out by the government. On growth, we expect real gross domestic product to swing from a range of negative 7.0 to negative 9.0 percent for the full-year 2020, to a range of positive 6.5 to 7.5 percent this year and an even faster growth in 2022. We anticipate interest rates to remain low, inflation to be manageable, the peso to be stable, and external accounts to be robust, with record-high gross international reserves. We expect inflation to remain manageable and within the 2.0 to 4.0 percent target range this year and in 2022. The strength of the Philippine Peso remains market-driven and supported by sound macroeconomic fundamentals. The peso averaged P48.02/USD1 as of 4 January 2021, considered as one of the strongest currencies in the region. This is attributable to the country’s low inflation, a strong and resilient banking system, low debt-to-GDP ratio, and a hefty gross international reserve. Overseas Filipino remittances are expected to rebound from a contraction of 1.0 percent in 2020 to a growth of 4.0 percent this year. 1/7 BIS central bankers' speeches On the external front, the overall external position will stay healthy. The balance of payments will post a surplus of USD3.4 billion this year. The current account will remain in surplus, at USD3.1 billion this year. Meanwhile, the country’s gross international reserves reached USD104.5 billion as of end November 2020. At this level, the GIR remain more than adequate as it can cover 11 months’ worth of imports of goods and payments of services and primary income. This is more than the three months’ worth of imports cover requirement. While the full impact of the pandemic is still unfolding, the good news is that the Philippine banking system is expected to withstand the impact of the pandemic. The financial system is in a strong position to both weather the significant economic effect caused by the COVID-19 pandemic and support the country’s economic recovery. The domestic banking system is expected to remain relatively stable in the next two years. Majority of the Banking Sector Outlook Survey respondents projected that real gross domestic product growth will return to a range of less than 6.0 percent to 6.3 percent. Likewise, 69 percent of the respondent banks projected a stable Philippine banking system. Further, majority of the respondent banks projected growth between 10.0 percent and 15.0 percent in their loan portfolio over the next two years. Banks also anticipate a more active participation in the money and capital markets in the next two years as growth in financial assets (excluding loans) is projected to not exceed 10.0 percent by more than half of respondents. The remaining banks estimated a double-digit growth. A double-digit deposit growth is also expected by most banks. Majority of the respondents expect the non-performing loan to exceed 3.0 percent in 2021 and 2022, while the ratio of restructured loans to total loans is estimated to be at a range of more than 3.0 percent to more than 5.0 percent by almost half of banks. The banks retained their upbeat expectations on returns as 71 percent of the respondents for the second semester of 2020 forecasted double-digit net income growth for the next two years. At the onset of the pandemic, the banking system had significant capital and liquidity buffers built up due to both regulatory requirements and several years of favorable banking conditions. Likewise, the result of our stress tests suggests that banks can continue to lend and prosper through a broad range of adverse scenarios. To assess the impact of the pandemic, the BSP rolled out a Comprehensive Baseline Survey in April 2020 and intensified our off-site surveillance of all our supervised financial institutions. The results of these proved useful inputs for our Supervision Departments. As the financial sector supervisor, the BSP needs to strike a balance between enabling banks to lend to the production sectors, including the micro, small, and medium enterprises sector, on one hand, and ensuring the promotion of safe and sound practices to contain the risk exposures of the industry on the other hand. This is the rationale for the time-bound nature of the prudential measures introduced by the BSP. This approach provides the BSP with the opportunity to assess whether the relief measures require further calibration, given the health of the banking industry. The BSP’s relief measures are classified into five (5) main objectives: 2/7 BIS central bankers' speeches ● Extension of Financial Relief to Borrowers. The BSP supervised financial institutions were given regulatory relief to enable them to grant equivalent financial relief to their borrowers, including micro, small, and medium enterprises, in the form of more flexible and favorable lending terms. ● Incentivize Lending. The BSP’s prudential measures aim to promote financing to micro, small, and medium enterprises and enable them to carry on with their business during the COVID-19 pandemic, as well as hasten recovery and sustainability of their operations, during the post-crisis period. ● Promotion of Continued Access to Financial Services. Policies were placed to ensure access to formal financing channels by retail clients, including micro, small, and medium enterprises, during the crisis. The use of information technology in carrying out financial transactions was highly encouraged during the enhanced community quarantine period. ● Support for Continued Financial Services Delivery. The BSP granted operational relief measures to assist its supervised financial institutions in focusing their limited resources on the delivery of financial services to financial consumers and support their subsequent recovery efforts. ● Support for Sufficient Level of Domestic Liquidity and Economic Activity. Monetary policy measures were also adopted to support domestic liquidity and extend cheaper financing to borrowers, including micro, small, and medium enterprises. Following these strong, time-bound, and timely measures, the crucial question pertains to how Philippine banks have been holding up through the pandemic. Based on our recent assessment, our key findings suggest that: a. Core funding remains relatively strong following COVID-19 outbreak; b. Bank lending slightly rises; c. Loan quality slightly weakens as borrowers experience cash flow interruptions and sustain losses due to the pandemic; We don’t, however, see this trend extending in the long-run. d. Financial assets grow but a slower rate as banks opted to reduce Treasury activities to be liquid; e. Net income declines as additional provisioning rises. However, this is likely to be offset by lower operating expenses and deferment of capital expenditures and non-essential expenses; and f. Liquidity and capital buffers remain intact. The banking system’s credit growth continued amidst the pandemic. The banking system’s gross total loan portfolio grew year-on-year by 1.2 percent to P10.6 trillion as of end-October 2020. From the funding side, the banking system’s total deposits rose by 9.5 percent as of endOctober 2020 to reach P14.4 trillion. There has been a surge in the use of digital platforms during the ongoing community quarantine period that started in mid-March 2020. The greater use of PESONet is evident with the remarkable rise in the volume and value of payments made through the same from November 2019 to November 2020. Over this twelve3/7 BIS central bankers' speeches month period, payments made through PESONet more than doubled with volume surging by 349.0 percent year-on-year and value rising by 133.0 percent over the same period. Aside from aiding businesses in mobilizing funds during the pandemic, the PESONet was also used for social transfers made through the Social Security System’s Small Business Wage Subsidy (SBW S) Program. This shows that this facility is a viable and efficient means of distributing welfare benefits to indigent citizens. Likewise, since its launch in April 2018, InstaPay exponentially grew, registering over 1.5 million percent increase in volume and over 700 thousand percent in value as of November 2020, with the volume rising to 26.3 million from 1,740 transactions and the value growing to P144.4 billion from P19.1 billion. The performance of InstaPay for the pandemic year 2020 has also been impressive with a year-to-date growth rate of 446.0 percent in volume, from 4.8 million to 26.3 million transactions, and 325.0 percent in value, from P34.0 billion to P144.4 billion as of endNovember 2020. Based on the BSP Lending Rates Survey, quoted annualized bank lending rates of all the 46 universal and commercial banks have been generally declining particularly the lower limit. This, in turn, makes loans relative to nominal gross domestic product to rise by October 2020. Based on the Baseline Survey, the banking system may grow by 3.6 percent by end-December 2020. This expected growth, however, represents the top 20 banks across universal and commercial banks, thrift banks, and rural and cooperative banks. As the Philippine banking system continues to support our micro, small, and medium enterprises during these difficult times, we expect loans to this sector to rise further. In particular, the banking system’s new micro, small, and medium enterprise loans used for compliance with the reserve requirements have averaged P143.8 billion as of the reserve week of 17 December 2020. Bank loan quality remained satisfactory amid continued loan growth. The non-performing loan ratio was manageable at 3.7 percent as of end-October 2020, although higher than the 2.2 percent ratio as of end-October 2019. Loan loss reserves have been generally increasing since the start of last year but inched down as of end-October 2020, resulting to a lower non-performing loan coverage ratio of 89 percent. We expect the banking industry to recalibrate provisions as banks continue to reassess the quality of their respective loan portfolios. The year-on-year growth of financial assets (aside from loans) moved from 15.2 percent in October 2019 to 9.4 percent in December 2019, and up again to 12.0 percent in October 2020 as banks pegged their Treasury activities on liquidity positions. Based on the survey, the BSP supervised financial institutions will maintain their strategy as the duration of their investments was reduced to maximize portfolio returns. The top universal and commercial banks did not introduce major changes in the composition of their portfolios as they assess liquidity risk. Exposures are mostly concentrated in highly-liquid and investment grade instruments. As a natural consequence, profitability slides. Banking operations were affected by the COVID-19 pandemic as the (annualized) net profit of the banking system shrank by 15.8 percent year-on-year for the semester-ended September 2020. We however expect that other operating expenses will likely be reduced due to lower business volume and capital expenditures and non-essential expenses will be deferred. 4/7 BIS central bankers' speeches Based on the BSP supervised financial institutions’ survey, the full year target for net interest income, other fees, operating expenses will drop while provisioning will increase. To mitigate the adverse impact of the pandemic on profitability, banks plan to impose cost-cutting measures (e.g. deferred capital spending and freeze hiring of non-critical positions), intensify loan collection activities, be stringent in loan monitoring, exercise prudence in loan releases, reduce cost of funds and boost marketing campaigns for new loans and deposits. The universal and commercial banks also intend to reduce their exposures to vulnerable sectors and to increase ancillary or fee-based business while thrift banks, and rural and cooperative banks want to fast track digitization initiatives to reduce operating expenses. Moving on, banks remain well-capitalized. The capital adequacy ratio of the universal and commercial bank industry hovers at 15–16%, well-above the minimum thresholds set by the BSP at 10.0 percent and the Bank for International Settlements at 8.0 percent. Meanwhile, the banking system maintained sufficient buffers to meet liquidity and funding requirements. Moving forward, the BSP will prioritize the following supervisory areas to ensure the soundness, stability, resilience and inclusivity of the banking system amid the ongoing health crisis. This slide shows the key supervisory areas that we are looking into – ● Involvement of the Board and Management; ● Asset quality; ● Liquidity; ● Profitability; ● Capital adequacy; and ● Banking operations. We also fully support the two major legislations. ● The Financial Institutions Strategic Transfer (FIST) bill is expected to assist the financial system in performing its role of efficiently mobilizing savings and investments for the country’s economic recovery by disposing bad loans. This bill has been approved by Congress and is now pending with the Office of the President. ● The Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Bill aims to strengthen the capacity of government financial institutions – Philippine Guarantee Corporation, Land Bank of the Philippines, and the Development Bank of the Philippines — to provide the needed assistance to micro, small and medium enterprises and other strategically important companies. We will also continue to push for three major reforms. First, pertains to Islamic banking. With the passage of Republic Act 11439, the BSP is clothed with clear authority to issue broader set of rules and regulations on Islamic banking. Second, the BSP is committed to promote sustainable growth by fostering environmentally responsible and sustainable policies and work practices. Likewise, “leading by example” is one of the best ways to usher the transition towards the adoption of sustainability principles in their corporate governance, risk management systems, 5/7 BIS central bankers' speeches strategic objectives and operations. These are embedded in the recently-issued Sustainable Finance Framework. Several pockets of green initiatives have been launched prior to the formalization of the Sustainable Central Banking Program. These include, among others, the participation in the Green Bond Fund launched by the Bank for International Settlements as part of sustainable investing in reserve management. The BSP also implemented the Monetary Board Paperlite Facility that resulted in the significant reduction of paper usage during Monetary Board meetings, and installed energy-efficient mechanisms such as solar panels and inverter technology in air-conditioning systems. The BSP is a member of the Network for Greening the Financial System, a group of central banks and supervisors organized to enhance the role of the financial sector in managing climate and other environment-related risks and mobilize capital to support the transition towards a sustainable economy. This Network for Greening the Financial System membership will strengthen BSP’s collaboration with counterpart regulators in building awareness and contributing to the effective management and mitigation of the impact of climate and other environment-related risks in the financial sector. Moreover, we have a lot to share with respect to the country’s experience in coping with calamities and natural disasters. Late last year’s experience with Typhoon Ulysses reminds us of the need to act fast in order to address climate change. Destructive typhoons are becoming the norm, and more destructive ones may come in the future. We have to be critical of our actions and decisions today as they shape the future of this country. Finally, the Digital Payments Transformation Roadmap. You may have noticed the big shift towards the use of digital payments which started during the enhanced community quarantine and is expected to continue under the “New Economy” environment. The BSP has designed a three-year digital payments transformation roadmap with twin goals by 2023. The first goal is to drive the share of digital payments to at least 50.0 percent of total retail transactions by offering faster, more affordable, and secure payment options that provide greater convenience. The second goal is to expand financial inclusion to cover at least 70.0 percent of adult Filipinos by onboarding them to the formal financial system through the use of payment or transaction accounts. In closing, allow me to reiterate some key points: ● The banking system is in a strong financial condition going into the crisis. It remains resilient amid the pandemic. ● Supervisory priority areas moving forward include monitoring of asset quality, declining profitability, liquidity and capital positions. ● Financial sector reforms will be important in economic recovery such Islamic Banking, Sustainable Finance, and Digital Transformation as well as the legislations on Financial Institutions Strategic Transfer and Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery. ● Lastly, and most importantly, despite the legacy risks and challenges of the current health crisis on the domestic financial system, the Philippine banking system is poised to remain stable, sound, resilient and inclusive in years to come. 6/7 BIS central bankers' speeches Thank you very much and we wish the FINEX more success in your undertakings! 7/7 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ulat ng BSP sa Bayan, 18 February 2021.
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Benjamin E Diokno: Speech at the Ulat ng BSP sa Bayan Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Ulat ng BSP sa Bayan, 18 February 2021. * * * Members of the banking community and the diplomatic corps, esteemed leaders and partners from the public and private sectors, colleagues from the Bangko Sentral ng Pilipinas, good afternoon. There is a saying in Latin attributed to the Roman philosopher Seneca:ignis aurum probat. Fire tests gold. Disruptions and upheavals, while uncomfortable and painful, are opportunities to re-examine old ways, give birth to new ideas and try exciting new strategies—undertakings that would otherwise be impossible when lulled by the comfort of the status quo. Indeed, it was in the middle of one of the most formidable health and economic challenges in recent memory that we were tested as an institution, particularly in the effective delivery of our mandates. But it was also in this darkest of periods that we were able to realize our mission. We acted in the interest of the Filipino people. To mitigate the impact of the pandemic, we acted quickly by providing monetary stimulus to ease tightening liquidity conditions, boost business and consumer confidence, and ensure the continued orderly functioning of the financial system. Aside from traditional monetary interventions and regulatory relief measures, we also implemented extraordinary measures. For instance, the BSP entered into an initial P300-billion repurchase agreement with the Bureau of the Treasury at the onset of the pandemic in March 2020 to provide the national government added flexibility in dealing with the public health crisis. After the repo was settled in September, the BSP extended short-term provisional advances worth 540 billion pesos to the national government in October. This was followed by a fresh advance of 540 billion pesos to the national government in January 2021, after the borrowing in October was settled in December. In sum, the BSP has so far injected approximately 2 trillion pesos in liquidity to the financial system, equivalent to about 11 percent of the country’s GDP. With this amount of liquidity, we are carefully assessing the appropriate timing of the unwinding of all these measures. Doing this too late or too early may have serious repercussions on the economy. In September 2020, the BSP started issuing its own securities which helped us manage liquidity better. On the regulatory front, we issued time-bound and targeted regulatory and operational relief measures to encourage BSP-supervised financial institutions to continue their support to the economy in the following ways: 1/5 BIS central bankers' speeches Counting of loans to micro, small, and medium enterprises as part of banks’ compliance to the reserve requirement; Higher single borrower’s limit; and Increased limit to real estate loans. We also supported the passage and implementation of legislation aimed at helping the economy recover and move forward from the pandemic, specifically Bayanihan 1 and 2, and the recently passed Financial Institutions Strategic Transfer or FIST and the Corporate Recovery and Tax Incentives for Enterprises or CREATE laws. It is worthy to note that both FIST and CREATE were passed during the pandemic. FIST aims to help banks unload bad assets; while CREATE seeks to accelerate economic recovery by cutting the corporate income tax and modernizing the fiscal incentives system. Both measures are meant to attract more job-generating investments. We will continue to support the passage of the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE bill, which aims to strengthen the capacity of government financial institutions—Philippine Guarantee Corporation, Land Bank of the Philippines, and the Development Bank of the Philippines— to provide needed assistance to micro, small and medium enterprises and other strategically important industries. In addition, our continuing support for landmark legislation such as the Islamic Banking Law will help promote real socioeconomic development in Muslim Mindanao and boost efforts to help our countrymen move forward from the economic effects of the pandemic. For our actions to mitigate the impact of COVID-19, we received the “Best Systemic and Prudential Regulator in Asia Pacific” award from the Asian Banker in October 2020. We also received the 2020 Gold Standard Award for Country and Trade Promotion for our efforts in ensuring that the international investment community sees a truthful and transparent picture of the Philippine economy. The research arm of The Economist Group, which focused on financial inclusion in the COVID19 response, likewise recognized the country’s initiatives to mitigate the adverse economic impact of the current global health emergency. Financial inclusion is a state wherein there is effective access to a wide range of financial services for all. It is clear that the crisis, which subjected us to extraordinary challenges, has also given us the rare chance to accelerate our efforts in bringing the BSP closer to the Filipino people. This day is yet another proof of that opportunity. As part of the BSP’s tradition, we set aside a day at the early part of each year to celebrate our friendship with around 300 members of the country’s banking community. While the pandemic has prevented us to gather in historic Fort Abad like we did last year and the years before technology has allowed us to actually make history today as we interact with each other in a virtual platform for the first time. Best of all, we are now able to expand this venue of camaraderie to include thousands more of our colleagues, partners and stakeholders—kayong mga kababayan natin na kasama natin ngayon sa Facebook live. From our usual friends from the banking and diplomatic communities, we are now joined by youth groups and coalitions, MSMEs and fintech groups, and various non-government and industry associations. 2/5 BIS central bankers' speeches Salamat sa mga social media platforms, kasama namin kayo ngayon habang patuloy nating ipinagdiriwang ang tradisyong ito. Such, indeed, is the beauty of digitalization. With a gadget and an Internet connection, a regular person is able to do more with a few clicks or taps—anytime, anywhere. It saves that person valuable time, allowing him or her to spend it on more important matters. Digitalization is among a few things that helped us continue with our daily lives during the pandemic. Imagine the risk of exposure if one had to physically pay bills and buy food, medicines, and other essential supplies. It is a good thing that the country had been gradually embracing financial technology even before the pandemic hit. For me, it prepared us for the worst. In 2020, the volume of PESONet transfers surged to 15.3 million, up by 376 percent year-onyear. On the other hand, the value of PESONet transactions rose by 188 percent, year-on-year, to reach nearly 951.6 billion pesos—equivalent to about 5.3 percent of the country’s GDP. In the same period, the number of payments made through InstaPay reached 86.7 million, up by 459 percent year-on-year. Said transactions were valued at 463.4 billion pesos, which was a 340-percent increase year-on-year. This amount of InstaPay transactions is equivalent to about 2.6 percent of GDP. From January to April 2020, new online sign-ups and app downloads for digital financial services increased by 100 percent, year-on-year. With Filipinos more mindful about their health and safety amid the lockdown, there was also a significant decline in the value, o yung halaga, and volume of, o yung dami ng, check payments and ATM withdrawals between the first half of March 2020 and from the second half of March to May 2020. Likewise, coin demand in 2020 fell by 57 percent in volume and 60 percent in value compared to 2019. More accessible and more convenient e-payment options may have partly contributed to the decline, aside from softer economic activities during the said period. The expanded role of digital payments in 2020 is worthy of note. While it kept the economic gears running during the community quarantines, it was also instrumental in distributing welfare benefits from the Social Security System’s Small Business Wage Subsidy (SBWS) program. Under the SBW S program, the SSS, the Department of Finance, and the Bureau of Internal Revenue worked, hand in hand, to provide a wage subsidy for affected employees of small businesses. Government agencies partnered with the Development Bank of the Philippines and leveraged on technology via PESOnet for beneficiaries with bank accounts and through 2,500 partner outlets nationwide for beneficiaries who had no bank accounts. This resulted in the effective and efficient implementation of the program—from application to processing to the distribution of wage subsidies direct to more than three million beneficiaries. The COVID-19 pandemic has indeed unexpectedly catalyzed the rapid acceleration of digital 3/5 BIS central bankers' speeches transformation. The BSP took this opportunity to advance initiatives to push digitalization in the financial industry further. To chart the BSP’s current initiatives and strategies in advancing an efficient, inclusive, safe, and secure digital payments ecosystem, we launched the Digital Payments Transformation Roadmap last year. The roadmap identifies two critical strategic objectives. The first objective, also my personal goal as BSP Governor—is that at least 50 percent of the country’s total financial transactions be done digitally, and at least 70 percent of Filipino adults have financial accounts. The second objective involves the availability of more innovative digital financial products and services. These products and services, designed to be responsive to consumers’ needs, will be enabled by a digital PhilSys ID and supported by a next-generation payment and settlement system that facilitates the real-time processing of financial transactions. The realization of these objectives depends mainly on three critical pillars. First of these pillars is the development of digital payment streams. Second is the establishment of necessary digital finance structures that will facilitate interoperability in the digital payments ecosystem. The third critical pillar is the implementation of digital governance standards and regulation of digital products and services to safeguard the integrity and privacy of consumer data. We know that for digital payments to flourish in our society, we need to have reliable and stable Internet connectivity. Digital connectivity is a critical enabler and a necessity in the new economy. That is why the Financial Inclusion Steering Committee (FISC), of which the BSP is a member, endorsed the Open Access to Data Transmission Bill as priority legislation to the LegislativeExecutive Development Advisory Council. The bill aims to address Internet infrastructure gaps by bringing in more players to the broadband sector. In December 2020, the FISC also endorsed to the Office of the President a proposed Executive Order that aims to liberalize access to satellite technology for broadband services and fast-track the expansion of Internet infrastructure to improve connectivity in underserved communities and rural areas as well as accelerate financial inclusion. All these fit in nicely in our 2020–2023 Strategy of bringing the BSP closer to the people—to become the central bank that understands their needs and helps them achieve their aspirations in life. And one of the ways we intend to do this is by advocating the digital transformation of financial services in the country. Through digitalization, we help create opportunities for people to improve their lives and participate in the economic and financial system. Through digital payments, we also promote financial inclusion. Digital payments help consumers engage in easier and safer economic activities. On a wider scale, it also helps reduce poverty and hunger; promote good health and well-being; ensure quality education, decent work, and gender equality; develop sustainable communities, and a lot more. 4/5 BIS central bankers' speeches At the end of the day, it is not simply about what we innovate but why we do it and to whom we are doing it for. The current crisis has given us an opportunity to think out of the box and be bold, as we work to protect the interests of the people we serve. It showed us what to focus on, as a BSP closer to its people. Isang Bangko Sentral ng Pilipinas para sa bawat Pilipino. Before I end this message, let me share with you a famous quote about evolution. “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change." And so while the future remains clouded with unusual uncertainty, our eyes are focused on green shoots in front of us as we remain ever-vigilant in addressing the what-ifs. Times are changing and we are geared up for it. Let us all evolve with the times. Let’s reform, innovate and transform. Before we proceed to the next part of the program, nais po nating iparating sa ating mga kababayan na maaari nang bumili ng Lapu-Lapu commemorative banknotes at medals simula ngayong araw na ito. And now let me call on the members of the Monetary Board to join me on stage: Finance Secretary Sonny Dominguez, Philip Medalla, Peter Favila, Tony Abacan, Bruce Tolentino, and Annie Aquino. Please join us and raise your glasses to a BSP for the Filipino people. To the banking community and the men and women of the Bangko Sentral ng Pilipinas, nawa’y maging tapat tayo sa ating tungkulin na pagsilbihan ang bawat Pilipino nang buong katapatan at kahusayan. Mabuhay tayong lahat! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Economic Forum, 25 February 2021.
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Benjamin E Diokno: The ASEAN and the philippine economyinsights for 2021 Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Manila Times Economic Forum, 25 February 2021. * * * The Manila Times President and CEO, Mr. Dante Ang II; my co-speakers DOF Secretary Dominguez, Lito Camacho of Credit Suisse, and Eduardo Francisco of BDO Capital; and everyone joining us online, good morning. What a difference a year makes! In the same forum at about the same time last year, I spoke about sustaining the dynamics of robust economic growth and low inflation for the Philippine economy in 2020. Weeks later, the pandemic happened and by year-end, the Philippine economy contracted into its lowest GDP outturn since World War II. The old saying, “this too shall pass,” is a hopeful reminder as we enter the economic recovery phase. Expectedly, the revival of the economy could be gradual, uneven and arduous. Yet, keeping the balance between growth and inflation remains the overarching goal of our policy actions, especially as we work to ensure that economic scarring from the COVID-19 crisis will not be as deep and wide as expected. Let me share some insights on the ASEAN and Philippine economic outlook for 2021, focusing on the BSP’s policy actions to support the national government’s whole-of nation approach in addressing the current crisis. To start, the International Monetary Fund (IMF), in its World Economic Outlook (W EO) Update released in January, sees the global economy is projected to grow by 5.5 percent in 2021, a 0.3 percentage point upward revision from the previous forecast. This reflects additional policy support in advanced economies and expectations of a vaccine-supported economic recovery. Despite these, the pace of global growth is expected to be well below the pre-COVID rate. On the upside, accelerated vaccine distribution and its effectiveness, and higher fiscal stimulus are expected to further lift global activity. The downside risks, however, include potential virus surge, including infection caused by new COVID-19 variants, and premature withdrawal of policy support before recovery is firmly rooted. On the regional front, the latest surveillance reports of multilateral agencies such as the IMF, the World Bank (W B), and the Asian Development Bank (ADB), see the ASEAN-5 economies rebound in 2021 following significant contractions in 2020. The IMF, in particular, projects the ASEAN-5 to grow by 5.2 percent this year. This is reflective of the broad-based recovery seen for the Philippines, Indonesia, Malaysia, Vietnam, and Thailand. On the domestic front, these multilateral agencies expect the Philippine economy to expand by 5.9 percent to 6.6 percent this year. These are broadly in line with the national government’s forecasts of 6.5 percent to 7.5 percent for 2021. Meanwhile, some foreign analysts have rosier forecasts for the year, with growth projections ranging from 6.1 percent to as high as 9.6 percent. 1/5 BIS central bankers' speeches What are the key factors supporting this shared optimism? A quick look at some of the key economic indicators in 2020 show that even at the peak of the pandemic, the Philippines’ macroeconomic fundamentals remained broadly intact. These indicators include the following: the quarter-on-quarter improvements in GDP outturntowards year-end; better business and consumer outlook; within-target inflation; ample liquidity in the system; sound and stable banking system; robust external payments position; and manageable fiscal deficit. Let me briefly expound on some of these factors. Let me discuss the first indicator, which refers to improving quarterly GDP outturn. By reallocating resources to sectors which needed help the most, the economy was able to register sustained improvements on a quarter-on-quarter basis. From the 16.9 percent contraction recorded in the second quarter of 2020, which was at the peak of the lockdown, the Philippine economy managed to post slower declines of 11.4 percent and 8.3 percent in Q3 and Q4, respectively. This is expected to continue in the succeeding quarters of 2021 with the calibrated reopening of businesses and mass transportation, the relaxation of age group restrictions, and the planned roll out of COVID-19 vaccines. While the –9.5 percent cumulative GDP outturn in 2020 broke the 21 year-record of uninterrupted growth for the Philippines, it was within-expectations given the unprecedented nature of the pandemic. The contraction in 2020 could have easily hit double-digit levels had the Philippine economy entered the crisis in a weak position. Second is the encouraging consumer and business sentiments. Early indicators show improved economic activities in the last quarter of 2020. Business confidence on the economy turned positive in Q4 2020 as overall confidence recovered from previous quarters’ decline. For Q1 2021, business confidence further improved, rising by 37.4 percent from the previous quarter’s 16.8 percent. On the same note, business outlook on the economy was more optimistic for the next 12 months rising to 57.7 percent from 37.5 percent. Consumer outlook was also less pessimistic for Q4 2020 as the overall confidence index eases to –47.9 percent from –54.3 percent. For Q1 2021, consumer confidence further improved to 4.3 percent from the previous quarter survey of –4.1 percent. For the next 12 months, consumer sentiment remained optimistic at 23.6 percent. Third indicator is the favorable inflation environment. The benign inflation environment for most of 2020 helped mitigate the impact of the pandemic on both consumer confidence and business sentiment. Inflation settled at an average of 2.6 percent in 2020, well-within the 2 percent to 4 percent inflation target range for the year. Last January, we saw inflation rise to 4.2 percent, slightly breaching the upper-bound of the 2/5 BIS central bankers' speeches BSP’s forecast range of 3.2- 4.1 percent for the month. Nevertheless, this is consistent with the BSP’s prevailing assessment of a transitory uptick in inflation in the first half of the year, largely reflecting supply-side pressures related to the African Swine Fever, weather-related disturbances, higher global oil prices, and positive base effects. The BSP reiterates its support for urgent and coordinated efforts with government agencies in implementing nonmonetary interventions to ease the impact of supply-side stresses. Fourth is within-target inflation outlook and well-anchored inflation expectations. Latest baseline projections show inflation returning within the target range of 2-4 percent over the policy horizon. While inflation is projected to accelerate above the high-end of the target range from Q1 to Q3 2021, inflation is seen to decelerate below the midpoint of the target range by Q4 2021 and Q1 2022 due to negative base effects before settling close to the midpoint by the second half of 2022. Risks to the inflation outlook appear to be broadly balanced for 2021 but could remain on the downside in 2022. Primary upside risks to inflation include supply-side price pressures from oil and meat prices, along with the impact of an earlier rollout of COVID-19 vaccines on domestic economic activity. While primary downside risks to inflation are the potential impact on global and domestic economic prospects due to delays in mass vaccination and the spread of new variants of the virus. Meanwhile, inflation expectations remain anchored to target for 2021–2022. Results of the BSP’s survey of private sector economists for January 2021 showed higher mean inflation forecast for 2021 at 3.4 percent from 3.0 percent based on the December 2020 survey. Mean inflation forecast for 2022 was unchanged at 3.0 percent. In any case, analysts expect inflation to remain benign and within the target. Their assessment of risks to the inflation outlook are tilted to the upside owing to supply disruptions and improvement in domestic demand. The country’s external position is the fifth indicated and is another source of optimism for the economy’s prospects. Despite weak global demand in 2020 amid the synchronized recession of our major trade and investment partners, the country’s external position held up well. The Philippines’ overall balance of payments (BOP) position posted a surplus of US$4.24 billion in December 2020, bringing the full-year 2020 BOP surplus to an all-time high of US$16.02 billion. Higher net foreign borrowings by the national government and lower merchandise trade deficit, along with sustained net inflows from personal remittances, foreign direct investments, and trade in services accounted for the external sector performance in 2020. The BOP position translated into an increase in the gross international reserves (GIR) level to US$110 billion by end- 2020, equivalent to almost a year’s worth of import cover. The latest GIR level remains more than sufficient to cover the economy’s foreign exchange requirements. Sixth is the ample fiscal space to tap further international financing, as needed. The country’s external debt, which increased to 25.3 percent of GDP in end-September 2020 due to the national government’s pandemic-related financing needs, remains at prudent levels. 3/5 BIS central bankers' speeches Notably, a large portion of the country’s external debt has medium- and long-term maturity profiles, supporting a manageable debt repayment schedule. In addition, majority of these foreign borrowings carry fixed interest rates, rendering them unaffected by foreign exchange fluctuations. Last indicator is the sound and stable banking system. The capital and liquidity buffers that the Philippine banks built in compliance with the BSP regulatory requirements and years of favorable banking conditions, proved to be useful. The banks’ capital adequacy ratio of 16.3 percent and 16.7 percent on solo and consolidated bases, respectively, are well above the BSP’s and international standards. Meanwhile, the rise in bad debt remains manageable. Non-performing loans (NPL) and nonperforming assets (NPA) ratios were modest at 3.1 percent and 2.1 percent, respectively, as of end-2020. These numbers compared well with the double-digit levels recorded during the Asian Financial Crisis. Given these indicators, the Philippine economy has the essential elements to post a strong recovery this year. The robust structural characteristics and sustained policy discipline are the most effective tickets out of this pandemic. Rest assured that the BSP stands ready to extend the same set of policy measures implemented in 2020 to support the economy, as needed. As this crisis is unprecedented, the measures we have implemented in 2020 were just as unprecedented. We are one with the government in our commitment to push forward measures to soften the impact of the COVID-19 pandemic on the economy and our fellow Filipinos. As of January 12, 2021, the BSP’s policy and liquidity easing measures had injected close to 2 trillion pesos in liquidity into the financial system. This amount is equivalent to about 11 percent of the country’s 2020 nominal GDP level. Moving forward, the BSP’s actions and policy thrusts will continue to be anchored on its core mandates of promoting price and financial stability. O n monetary policy: the BSP will remain vigilant over the current inflation dynamics and operating environment with a forward-looking perspective to ensure that the monetary policy stance continues to support economic recovery and address any risks to our price stability mandate. On the financial sector: the BSP will intensify its monitoring and surveillance over its supervised institutions to ensure that they remain responsive to emerging risks and to promote the continued soundness, stability, resilience, and inclusivity of the banking system, particularly through the pursuit of enhanced digitalization. Third, on the external sector: the BSP will continue to adopt policies that will help strengthen the economy’s resilience to external shocks. These will include maintaining a market-determined exchange rate, sustain a comfortable level of reserves, and keep the country’s external debt manageable. In closing, I leave you with these key take-aways: 4/5 BIS central bankers' speeches The ASEAN-5 economies, including the Philippines, are expected to rebound in 2021, though downside risks continue to dominate. Improved global economic growth prospects and country-specific improvements amid vaccine developments and sustained fiscal policy support are expected to lend support to these economies’ growth prospects for the year. Consensus view expects Philippine economic recovery to be broadly in line with the national government’s outlook for 2021. Sources of optimism on the economy’s growth prospect in 2021 stem from the quarter-on-quarter progress in the GDP outturn; improved business and consumer confidence; within-target inflation; ample liquidity in the system; sound and stable banking system; and sustained robust external payments position. The BSP remains committed to staying the course: (a) maintaining price stability; (b) ensuring financial sector soundness; (c) strengthening resilience against external shocks; and (d) supporting the national government’s inclusive growth objectives. Thank you. 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the OMFIF-DZ Bank Sustainability Symposium, 3 March 2021.
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Benjamin E Diokno: The role of capital markets in championing the sustainability agenda Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the OMFIF-DZ Bank Sustainability Symposium, 3 March 2021. * * * Distinguished guests, esteemed officials of the OMFIF and DZ Bank, participants, ladies and gentlemen, a pleasant morning, afternoon and evening to all – as I understand this event spans over different time zones. First, I would like to thank the organizers from OMFIF and DZ Bank for inviting me to join this virtual sustainability symposium. The theme, “the role of capital markets in championing the sustainability agenda”, is timely and relevant as the world continues to wage the battle against the COVID-19 pandemic. On top of the economic costs due to the pandemic, the risks emanating from unchecked climate change puts a tragic toll on the environment. There are also social inequalities and injustices that give rise to poverty and starvation in some parts of the world. So, what is the role of capital markets amidst these emergency situations we are in? When we talk about capital markets, the first thing that comes to mind is financial intermediation. The capital market works as a link between those that have unused surplus savings and end-users who are in search of funds to support their operations. While a capital market enables the channeling of funds among different parties for varying reasons, it is important to emphasize that those funds are directed to critical and responsible use. The phrase “critical and responsible use”, pertains to utilizing those funds for a “right purpose”. As such, the driving force behind financing through the capital market is not only directed towards economic growth and financial stability, but more so on incorporating sustainability goals. At this point, let us look more closely at sustainability principles and goals. Why are they relevant and is there really a compelling reason to leverage the capital markets towards meeting a sustainability agenda? I am very sure that all of us will agree that the answer is YES! Indeed, capital markets have the power to mobilize capital to fund innovation and ideas that would help create a more sustainable environment. According to the Bank for International Settlements data, as of end-January 2021, the amount of outstanding sustainable bonds was about US$1.5 trillion, of which 75 precent are green, 13 percent are social, and 12 percent are sustainability-labelled bonds. These numbers are noticeably higher than the amount outstanding a year ago, totaling US$915 billion. Yet, the size of the sustainability bond market still proves to be small relative to conventional comparators, which has a total outstanding size of US$127.6 trillion. Meanwhile, in terms of issuers of sustainability bonds, financials account for 41 percent, followed by non-financial corporates with 29 percent, and the official sector including supranational with 21 1/2 BIS central bankers' speeches percent share. This profile suggests that the sustainable debt market is still dominated by nonsovereign government institutions. Thus, the challenge now is how to further promote wider participation from various sectors of the economy to facilitate the transition to a sustainable environment. As a response to this challenge, a great deal of policy and regulatory initiatives, on a national, regional, and global scale, are already underway. These measures have been adopted to promote sustainability awareness across the different sectors of the economy. OMFIF, under its Sustainable Policy Institute, has been tracking these developments. These initiatives show the growing recognition of sustainability principles in one’s strategy and processes. The objective of these initiatives is to strengthen resiliency against any kind of risk, be it financial or non-financial, and contribute to the long-term well-being of the economy. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Foreign Chambers of the Philippines Webinar, 8 March 2021.
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Benjamin E Diokno: Philippine banking system- transforming for economic recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Foreign Chambers of the Philippines Webinar, 8 March 2021. * * * To all the members of the Joint Foreign Chambers of the Philippines led by the European Chamber of Commerce of the Philippines (ECCP), our strategic partners and allies in the business sector, and everyone joining in this webinar, good morning. Thank you for inviting me to be the keynote speaker in today’s event. This is an opportune time to share with you the BSP’s insights, policy perspectives and initiatives as we navigate the path towards economic recovery. They say that tough and desperate times spark the creativeness and innovativeness in people. It is true, as some of the world’s greatest discoveries and inventions took place during wartime or crisis. For instance, Isaac Newton unraveled the Law of Universal Gravitation and laid the foundations of his works in calculus and optics, while doing his 1665 version of work from home and social distancing during the Bubonic Plague in England. This is likewise an uncertain time. But like Newton and his apple, we can use this extraordinary crisis to reform, innovate and transform and emerge from it better, stronger, and more resilient. For today, allow me to present the macroeconomic landscape, which has been the country’s source of strength going into the crisis. This will be followed by the Philippine banking sector’s performance, which has been the steady anchor of financial system’s stability and resilience amid the pandemic. I will then share some insights on the current trend which drives our policy perspectives as well as the BSP’s key policy issuances and initiatives in the pipeline. Finally, I will leave with some thoughts to ponder regarding our way to move forward. As you know, the global economy continues to grapple against the COVID-19 crisis. In its 2020 Annual Report, the International Monetary Fund dubbed the pandemic as “a crisis like no other,” which is worse than the Great Depression. The Philippines is not an exception. Its economy contracted by 9.5 percent in 2020—the sharpest decline since 1946. Yet, this is not reflective of the country’s strong fundamentals. After all, before 2020, the Philippines had a record 21-year uninterrupted growth. In fact, the economy has started to bounce back as businesses reopen following the easing of restrictions and the onset of the vaccination program. Higher consumer spending, infrastructural push, accommodative monetary policy, and global recovery will be the main sources of the recovery. Government authorities forecast that the economy will grow within the range of 6.5 to 7.5 percent for this year and 8-10 percent in 2022. While inflation will be elevated in the first half of 2020 due to supply side factors, we see it settling 1/5 BIS central bankers' speeches within the target range by the end of 2021 as the impact of supply-side factors subside. Overall external position remains healthy. The country’s gross international reserves (GIR), which totaled USD108.7 billion as of endJanuary 2021, are hefty. They are equivalent to 11.6 months’ worth of imports of goods and payments of services and primary income. This is well above the ideal three months’ worth of imports cover requirement. Domestic liquidity or M3 posted a 9.0 percent annual growth to about ₱14.0 trillion in January 2021. The money supply increased mainly on account of the simultaneous expansion in domestic claims and net foreign assets (NFA) by 5.0 percent and 21.8 percent, respectively. While remittances from Overseas Filipinos posted a contraction of 0.8 percent in 2020, the same is actually good news since it is much better than the two-digit decline forecasted by many analysts. We expect OF remittances to grow by 4.0 percent this year. The Philippine Peso recorded an average of ₱48.65/USD1 as of 1 March 2021, making it one of the strongest currencies in the world amid the pandemic. The country’s strong macroeconomic fundamentals, low debt-to-GDP ratio, build-up of gross international reserve, and resilient banking system are expected to further boost the strength of the local currency. In sum, these numbers suggest a resilient Philippine economy. Even before the pandemic, we had a long history of structural reforms and prudent macroeconomic policies, which paved the way for the build-up of ample capital and liquidity buffers in the banking sector. During the pandemic, the National Government and the BSP worked hand-in-hand in providing strong to the entire nation through the grant of stimulus, relief measures and moratoria. For its part, the BSP issued time-bound regulatory and operational relief measures to BSPsupervised financial institutions to aid them in carrying out their vital role in the economy. We supported the National Government through the grant of short-term provisional advances. We injected approximately ₱2 trillion pesos or approximately US$ 42 billion amount of liquidity to the financial system. Let me highlight the three core strengths of the Philippine banking system: First, the banking industry’s strong capital position. It posted stable capital adequacy ratios (CAR) at about 15.0 percent in the past 10 years, which is well above the 10.0 percent minimum threshold set by the BSP and 8.0 precent minimum set by the Bank for International Settlements. In particular, the risk-based capital adequacy ratio of the universal and commercial banking industry stood at 17.2 percent on consolidated basis as of end-September 2020. Second, is the banks’ ample liquidity buffers, which enable banks to withstand short-term liquidity shocks and to provide adequate stable funding in the medium term. In particular, the liquidity position of universal and commercial banks remained relatively stable as of end-November 2020 with liquidity coverage ratio (LCR) of 201.0 percent, which is double the regulatory minimum of 100.0 percent. 2/5 BIS central bankers' speeches Meanwhile, the minimum liquidity ratios (MLR) of stand-alone thrift, rural and cooperative banks continued to exceed the regulatory minimum requirement. Third, is the expanding assets of banks on the back of increasing deposit liabilities. As of endDecember 2020, the banking system assets grew by 6.1 percent year-on-year to ₱19.4 trillion. All in all, these contributed to the sustained strength and resilience of the banking sector. Yet, we observe slower bank credit growth as a result of the pandemic. Gross loans fell by 0.9 percent year-on-year as of end-December 2020, in sharp contrast to the 8.8 percent growth rate recorded in December 2019. Bank lending growth continues to wane as the pandemic dampens consumer spending and limits business activities. BSP’s survey indicates a net tightening of banks’ overall credit standards for both loans to enterprises and households. There is a glimmer of hope, however. Consumer outlook is positive for Q1 2021 and remains optimistic for the next 12 months based on our latest Consumer Expectations Survey. This is a natural reaction to the risks heightened by the crisis. In fact, results of the Banking Sector Outlook Survey (BSOS) for the Second Semester of 2020 showed that majority of the respondent banks projected loan portfolios to expand between 10.0 percent and 15.0 percent over the next two years—a crucial element of the recovery process. As the government takes measures to address the effects of COVID-19, we expect economic activity to pick up, especially, as we welcome the roll-out of COVID-19 vaccine in the country. We are also careful in taking the next steps, particularly in unwinding COVID-19 regulatory relief measures to limit the potential scarring effects of the pandemic. The unwinding shouldn’t be too early, nor too late. But to the credit of the Philippine government authorities, even during the darkest days of the pandemic, we continue to be laser-focused on important structural reforms. One of which is the recently enacted Financial Institutions Strategic Transfer or FIST Act. The law will help banks sell or transfer their non-performing assets to FIST Corporations or Special Purpose Vehicles to free up their capital. This could further increase liquidity in the financial system and channel such funds to more investment and lending activities to support the country’s economic recovery and sustained growth. We support the proposed Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill, which will improve the capacity of government financial institutions to provide necessary financing for the continued operations of micro, small, and medium enterprises (MSMEs), and other strategically important industries. We support the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill which will reduce corporate income tax and rationalize the fiscal incentives system, making it performancebased, transparent, and time bound. We also support the legislation of laws that will further strengthen our effective supervision of banks in order to ensure the safety of depositors’ money and soundness of the banking system: 3/5 BIS central bankers' speeches The amendment of the Bank Secrecy Laws that will grant the BSP with unimpaired access to information on depositors for prudential purposes; The Financial Consumer Protection Bill, which will set a clear legal mandate and a comprehensive financial consumer protection framework; And the Agri-Agra Bill, which will address the existing challenges of the agricultural sector on access to finance. This important legislation will nurture economic recovery and provide a more stable financial system. Indeed, the pandemic has rapidly reshaped, not only the financial system, but most importantly the way we interact and how we do business. As a result of the pandemic, we have seen an increased use of digital platforms. We are fortunate to have started the digitalization process even before the pandemic. The PESONet and InstaPay platforms have proven its value and reliability, especially at the height of strict movement restrictions, as it allowed a safe and convenient environment for interbank fund transfers and payments. In fact, we have seen a dramatic surge in the volume and value of PESONet and InstaPay transactions in 2020. The volume of PESONet transactions surged by 1,582 percent while the value of transactions increased to P366.6 billion as of end-2020. Similarly, the volume of InstaPay transactions rose exponentially to 30.6 million as of endDecember 2020 from just 1,740 in April 2018. The total value of InstaPay transactions reached P176.5 billion in December 2020 from P20 million in April 2018. We also launched the Digital Payments Transformation Roadmap with the twofold objectives of (1) increasing the share of digital payments to at least 50.0 percent of total volume of retail transactions, and (2) onboarding 70.0 percent of Filipino adults to have formal financial accounts by 2023. The BSP joins the international community in its call for climate change and sustainable finance and is championing the promotion of the sustainability agenda in the financial system. We have issued the Sustainable Finance Framework for banks in April 2020. This emphasizes the role of the board of directors in leading and institutionalizing the adoption of sustainability principles across the organization. Aside from the broad principles set out in the said Framework with respect to the adoption of an Environment and Social (E&S) Risk Management System, we will be issuing more granular expectations covering the interplay of E&S risks and the key risk areas such as credit, market, and operational risks. Internally, we are embracing sustainability principles as we formally launched the Sustainable Central Banking Program. This is, in fact, one of the strategic priorities of the BSP from 2020– 2023. BSP will advance the sustainability agenda by fostering environmentally responsible and sustainable policies and work practices, as well as integrating Environmental, Social and Governance aspects in the BSP’s key operations or functions. But even before this, we have participated in the Green Bond Fund launched by the Bank for International Settlements as part of sustainable investing in reserve management. The BSP also adopted mechanisms that resulted in the reduction of paper usage and increase 4/5 BIS central bankers' speeches of energy efficiency. The BSP is also active in both regional and global conversations on climate change and sustainable finance. BSP is a member of the Network for Greening the Financial System (NGFS)—a group of central banks and supervisors organized to enhance the role of the financial sector in managing climate and other environment-related risks and mobilize capital to support the transition towards a sustainable economy. Lastly, to facilitate the mobilization of funds towards green or sustainable projects, the BSP collaborated with Department of Finance and other key government agencies, coined as “Green Force”, that is embarking on the development of a principles-based taxonomy. In these trying times, the way to move forward is to TRANSForm. We will continue to rethink and reimagine ways on how to better improve our policy, tools, and capacity as a central bank and supervisor. We will remain steadfast and committed to the fulfillment of our mandates as we continue to: 1. Transcend the wave of digitalization 2. Rally and champion the cause for sustainable finance. The BSP has embarked on a journey towards a more resilient financial future driven by our sustainability agenda. 3. Advocate and appeal for the legislation of critical pieces of laws in support of economic recovery and financial stability. 4. Navigate with sustained effective risk governance and management systems. We have laid the groundwork for a sound risk management system of our BSP supervised institutions and as we continue to craft meaningful reforms, we will consider and keep tab of the evolving risks, international standards and best practices. 5. Sustain the momentum and 6. FORM the future towards a more stable, sound, resilient and truly inclusive Philippine financial system. As we take on this path, we hope that the business sectors will join us in this journey to recovery. Let us TRANSFORM together towards a better future. Thank you! 5/5 BIS central bankers' speeches
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Address by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the virtual Signing Ceremony for the MOU with British Embassy of Manila on the Prosperity Fund for the ASEAN Economic Reform Programme (AERP) and the ASEAN Low Carbon Energy Programme (ALCEP), Manila, 17 March 2021.
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Benjamin E Diokno: Virtual Signing Ceremony for the MOU with British Embassy of Manila on the Prosperity Fund for the ASEAN Economic Reform Programme (AERP) and the ASEAN Low Carbon Energy Programme (ALCEP) Address by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the virtual Signing Ceremony for the MOU with British Embassy of Manila on the Prosperity Fund for the ASEAN Economic Reform Programme (AERP) and the ASEAN Low Carbon Energy Programme (ALCEP), Manila, 17 March 2021. * * * Ambassador Pruce, Secretary Dominguez thank you for inviting me to be part of this important occasion. Today, the Philippine financial agencies and our UK partners committed to cooperate on areas of mutual interest through this Memorandum of Understanding. Let me extend our appreciation to the UK government for the technical support extended to the Philippines, especially to the BSP, on the development of green finance, and open banking. The continuous capacity-building of our staff, as well as the enhancement of our policies and methodologies in these areas including capital market and fintech development, will certainly support our primary objective of maintaining a stable monetary and financial system. Financial inclusion is also one of BSP’s top advocacies, and the collaboration on fintech and open banking as envisioned under the MOU, is also expected to advance the BSP’s thrust to promote greater access to financial products and services. As we pursue the various programs under the MOU, we take this opportunity to also share our knowledge and regulatory perspective to contribute to the development of innovative approaches in risk-based supervision, sustainable banking, and fintech solutions. We look forward to working closely with our UK and Philippine partners and supporting the successful implementation of the MOU. Thank you. 1/1 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the Trust Officers Association of the Philippines General Membership Meeting, Manila, 25 March 2021.
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Benjamin E Diokno: Old partnerships and renewed beginnings Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the Trust Officers Association of the Philippines General Membership Meeting, Manila, 25 March 2021. * * * To the directors, officers, and members of the Trust Officers Association of the Philippines (TOAP), guests, ladies and gentlemen, good evening! It is a pleasure to address the TOAP once again, this time, at your General Membership Meeting. It was in November 2020 when I joined your summit. I recall that I challenged your organization to be adaptable, to take advantage of opportunities, so your institution will reach its goals. With the accomplishments of the association, I commend the incumbent officers of TOAP under the leadership of Atty. Bobbie Conception for ably steering the industry in 2020. 2020 was an extremely difficult year. But don’t despair. We are on the way to recovery. We can look to 2021 with guarded optimism. Performance of the trust industry Nevertheless, the performance of the trust industry in 2020 was impressive. While the level of assets under management (AUM) for trust and investment management activities did not show significant growth, it is encouraging to note that the AUM of unit investment trust funds (UITFs) rose by a hefty 22 percent year-on-year by the end of the third quarter of 2020. This development must have been made possible by the online accessibility of UITFs as the number of UITF participants also surged by around 32 percent year-on-year. UITF clients seem to prefer funds that are more liquid and whose products they are more familiar with. As we move forward, we hope that the UITF participants can progress, particularly with respect to the choice of underlying investments, and that in due time UITFs can be an effective vehicle for retail investors to actively participate in the Philippine capital markets. Apart from UITFs, the BSP expects growth of trust assets to continue this year. Following the industry’s proposal, the BSP issued Circular No. 1109 on February 4, 2021, which lowered to the minimum amount required to maintain an investment management account (IMA) and to participate in commingled funds to P100 thousand. The Circular also expanded the financial assets that a commingled fund can invest in. This is expected to fuel an increase in the industry’s investment management activities as new clients with lower amounts of investible funds can now be tapped. Financial inclusion was a major consideration in crafting this policy amendment. We want to make investing more accessible, while providing retail investors with a greater degree of protection. We are confident that these investors will benefit from the expertise of trust entities and that trust entities would continue to exercise prudence in the way they offer their services. Economic update To provide a big picture on what lies ahead, let me proceed with an update on the economy and the banking system. 1/4 BIS central bankers' speeches The economic, social and health effects of COVID-19 are unprecedented. They disrupted economic activity globally. The Philippines was not spared: its economy contracted by 9.5 percent in 2020, its first fall since the 1998 Asian financial crisis. But one can argue that the contraction could have been worse had the Philippine economy not entered the crisis in a strong position. The uninterrupted economic growth for over two decades prior to the Covid-19 pandemic, the timely structural reforms, the generally manageable inflation, and the hefty gross international reserves – all these have helped cushion the adverse effects of the health cum economic crisis on the domestic economy. Our key economic indicators remain encouraging. Inflation Inflation is manageable and inflation expectation remains anchored. While inflation rates have risen in recent months, they were driven mainly by faster price increases of key food items and higher domestic oil prices. But the upticks in inflation are consistent with BSP’s assessment that inflation will remain elevated in the coming months before decelerating in the fourth quarter of the year. Inflation is projected to return within the government’s target range of 3.0 percent ± 1.0 percentage point over the policy horizon. Monetary policy will continue to support the various interventions of the National Government to alleviate the impact of supply-side factors on consumer prices. Balance of Payments (BOP) The country’s external position has caught up well despite the weak global demand in 2020 amid the synchronized recession of our major trade and investment partners. For full-year 2020, the overall balance of payments (BOP) position was at an all-time high of US$16.02 billion. For 2021, we project the balance of payments to be US$6.2 billion or 1.6 percent of GDP. Gross International Reserves (GIR) Meanwhile, the country’s gross international reserves (GIR) level remains sufficient— an external liquidity buffer for cushioning the domestic economy against external shocks. We project gross international reserves this year to be around US$114.0 billion, up from US$110.1 billion as of end 2020. This buffer is equivalent to almost a year’s worth of imports of goods and payments of services and primary income. Domestic Liquidity Furthermore, the financial system has ample domestic liquidity. M3 posted a 9.0 percent annual growth to about P14.0 trillion in January 2021. The increase in money supply was mainly driven by the simultaneous expansion in domestic claims and net foreign assets by 5.0 percent and 21.8 percent, respectively. Remittances Overseas Filipino remittances continued to be resilient. They defied the global crisis. While the pandemic has caused more than 300,000 overseas Filipino workers to be repatriated last year, yet OF remittances decreased by only 0.8 percent, contrary to many analysts’ forecasts that overseas Filipino remittances would contract by double-digit levels. For 2021, overseas Filipino remittances are expected to grow by 4.0 percent. 2/4 BIS central bankers' speeches Consumer and business confidence BSP’s recent surveys show that consumer and business confidence are improving. For the first quarter of 2021, the consumer confidence index increased to 4.3 percent from the previous quarter’s survey of negative 4.1 percent. Similarly, business confidence improved in the first quarter, with the index rising to 37.4 percent from the previous quarter’s 16.8 percent. And for the next 12 months, consumers’ and businesses’ outlook remained optimistic, with the respective indices at 23.6 percent and 57.7 percent. The International Monetary Fund, World Bank and Asian Development Bank estimate that the economic activity in the country will rebound by 5.9 percent to 6.6 percent in 2021. Other foreign analysts have higher growth projections for the Philippines, which are broadly in line with the national government’s forecasts of the gross domestic product of 6.5 percent to 7.5 percent for 2021, and 8.0 percent to 10.0 percent for 2022. We remain confident that despite the recent surge in cases, the government’s vaccination program will take shape as planned, and the economy can take off significantly toward the end of the year. The Banking System The Philippine banking system remains strong and well capitalized. We’ve learned our lessons from the Asian Financial Crisis. As of end-2020, the Philippine banking system (PBS) has exhibited sustained growth in assets, adequate liquidity buffers, strong capital position, and ample loan loss reserves. The assets of the banking system managed to grow from 2019 by 6.1 percent to P19.4 trillion as of end-2020. The growth was mainly driven by higher deposits, which rose by 8.9 percent in 2020. The liquidity coverage ratio (LCR) of universal and commercial banks as of end-November 2020 was comfortably high at 201.0 percent, twice the regulatory minimum of 100.0 percent. Similarly, the system’s net stable funding ratio (NSFR) indicates its ability to provide stable funding in the medium term. As of end-September 2020, the capital adequacy ratio of universal and commercial banks was at 16.8 percent on a solo basis, and 17.2 percent on a consolidated basis. This is much higher than the BSP’s 10 percent standard and the Bank for International Settlement’s 8 percent standard. On the other hand, credit growth of universal and commercial banks decelerated by 2.4 percent year-on-year as of January 2021 as banks tightened their overall credit standards for both loans to enterprises and households. Non-performing loans and non-performing assets ratios rose to 3.6 percent and 2.6 percent, respectively, in December 2020. However, these ratios remain manageable and are much lower than the double-digit levels recorded during the Asian Financial Crisis. While lower consumer spending and business activities continue to dampen bank lending growth, the government is taking measures to propel economic recovery in the country. This may be one of the basis for the banks’ projections of increases in their loan portfolios by 10.0 percent to 15.0 percent over the next two years, These projections are based on the latest BSP’s Banking Sector Outlook Survey. Meanwhile, the enactment of the Financial Institutions Strategic Transfer Act will aid in the 3/4 BIS central bankers' speeches industry’s management of non-performing loans. In brief, the country is poised for a strong recovery, supported by years of longstanding structural reforms, as well as new measures that are being put in place to prepare for a postpandemic economy – one that is better, greener, more inclusive, and more technology-based. Challenge to TOAP new leadership Ladies and gentlemen: the trust industry has a significant role to play moving forward. Hence, BSP will unceasingly look for better ways of helping the industry. We would continue to relax certain regulations that would support your industry’s growth while promoting accountability and good governance. In turn, I enjoin the trust industry, under the new leadership, to continue to support the BSP’s advocacies on digitalization, financial inclusion, and sustainable capital markets. We hope that trust entities can fully harness the benefits of digitalization, not only through speedy transactions, but also through the delivery of better services. The move toward digitalization also goes hand in hand with financial education. With the easier access to financial products, customers should be made aware of the risks that they may be exposed to due to digitalization. Lastly, we hope that the trust industry can take part in the ecosystem for green and sustainable finance in the country. In the region, the Association of South East Asian Nations (ASEAN) has been prioritizing the work on setting of ASEAN standards that would boost capital markets that address climate change. The Securities and Exchange Commission, the BSP and the Department of Finance are actively involved in these initiatives. I am glad to note that a number of banks have already issued products in this space in the past few years and even during the pandemic. Let’s help build a green and sustainable finance ecosystem for the generations to come. In closing, I commend the new set of officers of TOAP for accepting this challenge. Leading a key financial industry like the trust institutions is not a walk in the park. It requires agility to ensure that all member-institutions, no matter how big or small, are consulted and empowered. It also requires focused and firm leadership that will make sure that the goals and aspirations of your organization will be achieved. As Alexander Graham Bell said, “Great discoveries and improvements invariably involve the cooperation of many minds.” There are many great minds here. And I look forward to your great discoveries and improvements in the industry. Rest assured that BSP will continue to collaborate with you to achieve our common goal to maintain a stable financial system that enjoys the trust and confidence of the investing public. Have a productive membership meeting. Thank you. Mabuhay tayong lahat! 4/4 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the 2021 PDS Award, Manila, 25 March 2021.
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Benjamin E Diokno: Message for the 2021 PDS Award Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the 2021 PDS Award, Manila, 25 March 2021. * * * To the women and men behind the Philippine Dealing System Holdings Corporation, my heartfelt greetings and congratulations for organizing this 2021 PDS Awards. Your theme for this year’s awards, “Strength in Adversity,” is very timely and relevant. The ongoing global health and economic crisis has spared no one. We are now being tested to the core. Yet the struggles we face have allowed us to discover a strength that would enable us to rise above everything, to think of better ways and more effective solutions, and to help those who need our help the most. Today’s awardees have achieved all these and more. The Bangko Sentral ng Pilipinas salutes their outstanding performance, leadership, and innovation, especially during this very trying time. Mabuhay kayong lahat! The BSP is likewise extending its gratitude to the PDS Group for the services you have rendered despite the pandemic. Your collective selflessness has formed part of the foundation that continues to uphold the economy while it runs on a limited capacity. We are not out of the woods yet. The future remains clouded with uncertainty. But we are not discouraged. We remain focused and committed nurture the economy back to its growth trajectory in the face of the current crisis. Let me share some insights on the Philippine economic outlook for 2021 and the BSP’s policy actions to support the national government’s whole-of-nation approach in addressing the current crisis. Multilateral agencies such as the International Monetary Fund, the World Bank, and the Asian Development Bank expect the Philippine economy to expand by 5.9 to 6.6 percent this year. These are broadly in line with the national government’s forecasts of 6.5 to 7.5 percent for 2021. Meanwhile, some foreign analysts have rosier estimates for the year, with growth projections ranging from 6.1 percent to as high as 9.6 percent. This shared optimism is based on the Philippines’ macroeconomic fundamentals, which have remained broadly intact, despite the pandemic. These fundamentals include improving quarterly GDP outturn, better business and consumer outlook, ample liquidity in the system, a sound and stable banking system, robust external payments position, and a manageable fiscal deficit. The Philippine economy has the essential elements to post a strong recovery this year. Moving forward, the BSP’s actions and policy thrust will continue to be anchored on its core mandates of promoting price and financial stability. 1/2 BIS central bankers' speeches The BSP will remain vigilant over the current inflation dynamics and operating environment with a forward-looking perspective to ensure that the monetary policy stance supports economic recovery and addresses any risks to our price stability mandate. It addition, BSP will intensify its monitoring and surveillance over its supervised institutions to ensure that they remain responsive to emerging risks and to promote the continued soundness, stability, resilience, and inclusivity of the banking system. Lastly, the BSP will continue to adopt policies that will strengthen the economy’s resilience to external shocks. These will include maintaining a market-determined exchange rate, sustaining a comfortable level of reserves, and keeping the country’s external debt manageable. I said this before, and I’ll say it again: We should not let this unprecedented crisis go to waste. Let us learn from it. Let us all continue to discover and tap into our inner strengths. Our shared fortitude as a nation will enable us to withstand all adversities and come out of this pandemic as economic champions. May our award-winning members never tire of leading the capital market in conceptualizing and implementing new and bold strategies for the industry and for our country. Continue to reform, innovate, and transform. Again, congratulations to our awardees and to the PDS Group. 2/2 BIS central bankers' speeches
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Keynote speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2nd Philippines-Singapore Business and Investment Summit; Manila 25 March 2021.
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Benjamin E Diokno: Keynote speech – 2nd Philippines-Singapore Business and Investment Summit Keynote speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 2nd Philippines-Singapore Business and Investment Summit; Manila 25 March 2021. * * * Philippine Ambassador to Singapore Joseph del Mar Yap, Ambassadors Francis Chua and Benedicto Yujuico of the Philippine Chamber of Commerce and Industry, my fellow Philippine government officials, and all the participants of the 2nd Philippines-Singapore Business and Investment Summit, a pleasant day to all of you. I’m glad to know that this event is now on its second year. It shows the interest among Singapore-based audience to learn more about the Philippines. The COVID-19 pandemic caused unprecedented health, economic, and social crisis globally. For the Philippines, we entered the crisis in a position of strength. We were armed with strong macroeconomic fundamentals, which were a result of over 20 years of structural reforms. With ample monetary and fiscal space, crisis-response measures were implemented swiftly and decisively. Together with the National Government, the Bangko Sentral ng Pilipinas implemented crucial measures to mitigate the pandemic’s impact on livelihoods and the economy. The BSP has so far injected PHP2.0 trillion (USD42 billion) in liquidity to the financial system, equivalent to 11 percent of the country’s GDP. Our unprecedented measures fell under three categories: First were measures to boost market confidence, such as cuts in the policy rate and the reserve requirement (RR). Second were extraordinary liquidity measures, such as provisional advances to the National Government and purchases of government securities in the secondary market. Third were regulatory and operational relief measures to sustain the stability of the financial system and ensure access to financial services at a critical time. For instance, we counted loans to micro, small, and medium enterprises (MSMEs) as compliance to the reserve requirement, increased the single borrower’s limit, and raised the limit for real-estate loans. That said, the BSP recognizes that the timing for the unwinding of our response measures is crucial. We will carry out disengagement strategies in a manner that avoids risks associated with early or late implementation. Now is the right time to talk about “disengagement strategies” because the world—the Philippines included—is in the recovery phase. And while countries are preoccupied with the rollout of vaccine programs and recovery efforts, I am pretty sure many investors are in search of business opportunities and destinations that will provide great value for shareholders over the long haul. 1/5 BIS central bankers' speeches The Philippines is a smart investment destination. Let me explain why. First, amid a sea of credit-rating downgrades and negative rating outlooks, the Philippines has maintained its investment grade credit ratings, all of which are assigned a “stable” outlook. Debt watchers are one in saying that the Philippines has strong pre-crisis fundamentals, has robust medium-term growth prospects, and is inclined to return to its fiscal-consolidation path post COVID. Second, we have encouraging macroeconomic prospects ahead. For 2021, we expect: • The economy to grow by 6.5 to 7.5 percent; • Exports and imports to rebound to a growth of 5.0 and 8.0 percent, respectively; • Remittances from overseas Filipinos to grow by 4.0 percent. Worth noting is that the 0.8 percent drop in remittances last year—vs. third-party projections of a double-digit drop—shows resilience of this vital foreign exchange source for the Philippines; • Net inflow of foreign direct investments to rise to USD 7.5 billion from last year’s USD 6.5 billion; and • External accounts to remain healthy, with hefty gross international reserves and surpluses in the current account and the balance of payments (BOP). And third, despite the pandemic, the Philippines has been able to sustain the reform momentum. For instance, Congress has passed, and the President has signed into law, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill. This law will slash corporate income tax from 30 to 20 percent and rationalize the fiscal incentives system, making the system performance-based, transparent, and time-bound. On the infrastructure front, the National Government continues to ramp up the “Build, Build, Build” program, the country’s most ambitious infrastructure development agenda. For this year, the government has allotted a record PHP1.17 trillion (US$23 billion) for infrastructure projects, equivalent to 5.9 percent of GDP. And, as far as the BSP is concerned, we continue to implement measures that enhance the Philippines’ competitiveness as an investment destination. These measures may be classified into three themes, namely: (i) financial digitalization, (ii) legislative agenda, and (iii) monetary and financial sector reforms. Allow me to discuss each in brief detail. First, on financial digitalization….. The BSP is at the forefront of efforts to digitize the Philippine economy. Last October, we launched the Digital Payments Transformation Roadmap. This is in line with our goal to become a cash-lite economy. By 2023, we want to see half of financial transactions in the country done electronically. We also expect a surge in the number of digital banks and in the use of electronic payment platforms, including the QR code system, over the near term. 2/5 BIS central bankers' speeches Through financial digitalization, we expect a boost in economic growth and development as digitalization makes payments easier and quicker, and helps improve working capital efficiency. We recently issued frameworks for enhanced risk management, open finance, and the creation of digital banks—all of which help further strengthen the financial system and hasten the digitalization of the Philippine economy. The pandemic has been a catalyst in the exponential rise in the use of electronic payment channels. Volume of transactions via PesoNET and InstaPay—the platforms for large- and small-amount fund transfers—grew year-on-year last January by 293 and 396 percent, respectively. Digitalization also accelerates financial inclusion to those unserved and underserved by traditional bank branches. This results in more economic activities and, therefore, faster economic growth. With an enabling regulatory environment, we have seen an increase in digital financial accounts. From only 9.4 million in the first quarter of 2016, the number of e-money accounts in the country rose to 37.5 million in the first quarter of 2020. The BSP has also launched a program called Digital PERA or the Personal Equity and Retirement Account. This will allow Filipinos to save and invest for retirement using their mobile devices. Complementing the BSP’s efforts to promote financial digitalization is our drive to improve the Filipinos financial literacy. Through various financial education activities and materials, we are building the foundation for an investment-savvy population. With the efforts toward financial digitalization and financial literacy combined, we are setting the stage for a “New Philippine Economy”—that is, stronger, digitalized, and more inclusive. Let’s move on to the BSP’s legislative agenda. The BSP is pushing for legislative measures that will help catapult the Philippines toward its next stage of economic development. These measures seek to: • Expand the list of sectors that banks can lend to, in compliance with the mandated lending for agriculture development; • Lift secrecy of bank deposits, which will help efforts against tax evasion and money laundering; • Enhance access of Micro, Small, and Medium Enterprises to credit through a comprehensive credit database; • Improve the protection of consumers of financial products and services; and • Strengthen the capacity of government financial institutions to provide assistance to Micro, Small, and Medium Enterprises and other strategically important companies. The BSP likewise supports National Government efforts to push for laws that will further enable foreign investments to the Philippines. These bills include: 3/5 BIS central bankers' speeches (i) Amendments to the Foreign Investment Act; (ii) Amendments to Retail Trade Liberalization law; and (iii) Amendments to Public Service Act. Finally, on the BSP’s monetary and financial sector reforms… Amid an ever-changing landscape, BSP constantly looks for ways to improve our conduct of monetary policy and financial sector supervision. On the monetary front, for instance, the BSP started issuing its own debt securities last September. This increases BSP’s set of tools to manage liquidity in the economy, consistent with our price stability mandate. Latest estimates by the BSP showed that inflation will average 4.0 percent this year and 2.7 percent next year— both within the official target range of 2.0 to 4.0 percent. On financial supervision…We issued circulars that keep our regulatory framework attuned to the times. Circular 1108 enhances the know-your-customer rules for virtual asset providers. This is in line with our efforts to improve cyber security as we promote financial digitalization. Circular 1109 scraps the P1-million minimum balance requirement for investment management accounts. With this, investment products become accessible to more Filipinos, consistent with our financial inclusion objectives. Circular 1111 relaxes the implementing guidelines of the Agri-Agra law. With this, banks may extend loans to more types of enterprises, in compliance with the mandated lending for agriculture development. Amid a dynamic regulatory environment, our banking system has been resilient to shocks. Banks remain well capitalized. Their assets continue to grow. Banks are also able to keep their bad debts manageable—far from levels seen in the aftermath of the Asian Financial Crisis. Speaking of bad assets, the Financial Institutions Strategic Transfer (FIST) bill was signed into law last month. This allows banks to dispose of their bad assets via asset management companies, thereby easing NPLs down the road. We estimate that the law can help reduce the NPL ratio of banks by 0.63 to 0.71 percentage points. To further improve efficiency of BSP’s operations, we created the Payments and Currency Management Sector. With it the BSP now has a group totally dedicated to supervising the country’s payments and settlements system, consistent with National Payments System Act. In closing, I would like to highlight two things: 4/5 BIS central bankers' speeches First, the adverse impact of the COVID-19 pandemic on the Philippines will be transitory. Our macroeconomic fundamentals remain sound, and our medium-term growth prospects are bright. And second, the reform momentum will help fuel the Philippines’ recovery, address structural issues, and continue to enhance the Philippines’ competitiveness as a leading investment destination. You’re all welcome to do business with us and be part of our exciting post-COVID narrative. Thank you very much for listening. I look forward to the panel discussion. 5/5 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Trust Officers Association of the Philippines General Membership Meeting, Manila, 25 March 2021.
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Benjamin E Diokno: Old partnerships and renewed beginnings Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Trust Officers Association of the Philippines General Membership Meeting, Manila, 25 March 2021. * * * To the directors, officers, and members of the Trust Officers Association of the Philippines (TOAP), guests, ladies and gentlemen, good evening! It is a pleasure to address the TOAP once again, this time, at your General Membership Meeting. It was in November 2020 when I joined your summit. I recall that I challenged your organization to be adaptable, to take advantage of opportunities, so your institution will reach its goals. With the accomplishments of the association, I commend the incumbent officers of TOAP under the leadership of Atty. Bobbie Conception for ably steering the industry in 2020. 2020 was an extremely difficult year. But don’t despair. We are on the way to recovery. We can look to 2021 with guarded optimism. Performance of the trust industry Nevertheless, the performance of the trust industry in 2020 was impressive. While the level of assets under management (AUM) for trust and investment management activities did not show significant growth, it is encouraging to note that the AUM of unit investment trust funds (UITFs) rose by a hefty 22 percent year-on-year by the end of the third quarter of 2020. This development must have been made possible by the online accessibility of UITFs as the number of UITF participants also surged by around 32 percent year-on-year. UITF clients seem to prefer funds that are more liquid and whose products they are more familiar with. As we move forward, we hope that the UITF participants can progress, particularly with respect to the choice of underlying investments, and that in due time UITFs can be an effective vehicle for retail investors to actively participate in the Philippine capital markets. Apart from UITFs, the BSP expects growth of trust assets to continue this year. Following the industry’s proposal, the BSP issued Circular No. 1109 on February 4, 2021, which lowered to the minimum amount required to maintain an investment management account (IMA) and to participate in commingled funds to P100 thousand. The Circular also expanded the financial assets that a commingled fund can invest in. This is expected to fuel an increase in the industry’s investment management activities as new clients with lower amounts of investible funds can now be tapped. Financial inclusion was a major consideration in crafting this policy amendment. We want to make investing more accessible, while providing retail investors with a greater degree of protection. We are confident that these investors will benefit from the expertise of trust entities and that trust entities would continue to exercise prudence in the way they offer their services. Economic update To provide a big picture on what lies ahead, let me proceed with an update on the economy and the banking system. 1/4 BIS central bankers' speeches The economic, social and health effects of COVID-19 are unprecedented. They disrupted economic activity globally. The Philippines was not spared: its economy contracted by 9.5 percent in 2020, its first fall since the 1998 Asian financial crisis. But one can argue that the contraction could have been worse had the Philippine economy not entered the crisis in a strong position. The uninterrupted economic growth for over two decades prior to the Covid-19 pandemic, the timely structural reforms, the generally manageable inflation, and the hefty gross international reserves – all these have helped cushion the adverse effects of the health cum economic crisis on the domestic economy. Our key economic indicators remain encouraging. Inflation Inflation is manageable and inflation expectation remains anchored. While inflation rates have risen in recent months, they were driven mainly by faster price increases of key food items and higher domestic oil prices. But the upticks in inflation are consistent with BSP’s assessment that inflation will remain elevated in the coming months before decelerating in the fourth quarter of the year. Inflation is projected to return within the government’s target range of 3.0 percent ± 1.0 percentage point over the policy horizon. Monetary policy will continue to support the various interventions of the National Government to alleviate the impact of supply-side factors on consumer prices. Balance of Payments (BOP) The country’s external position has caught up well despite the weak global demand in 2020 amid the synchronized recession of our major trade and investment partners. For full-year 2020, the overall balance of payments (BOP) position was at an all-time high of US$16.02 billion. For 2021, we project the balance of payments to be US$6.2 billion or 1.6 percent of GDP. Gross International Reserves (GIR) Meanwhile, the country’s gross international reserves (GIR) level remains sufficient— an external liquidity buffer for cushioning the domestic economy against external shocks. We project gross international reserves this year to be around US$114.0 billion, up from US$110.1 billion as of end 2020. This buffer is equivalent to almost a year’s worth of imports of goods and payments of services and primary income. Domestic Liquidity Furthermore, the financial system has ample domestic liquidity. M3 posted a 9.0 percent annual growth to about P14.0 trillion in January 2021. The increase in money supply was mainly driven by the simultaneous expansion in domestic claims and net foreign assets by 5.0 percent and 21.8 percent, respectively. Remittances Overseas Filipino remittances continued to be resilient. They defied the global crisis. While the pandemic has caused more than 300,000 overseas Filipino workers to be repatriated last year, yet OF remittances decreased by only 0.8 percent, contrary to many analysts’ forecasts that overseas Filipino remittances would contract by double-digit levels. For 2021, overseas Filipino remittances are expected to grow by 4.0 percent. 2/4 BIS central bankers' speeches Consumer and business confidence BSP’s recent surveys show that consumer and business confidence are improving. For the first quarter of 2021, the consumer confidence index increased to 4.3 percent from the previous quarter’s survey of negative 4.1 percent. Similarly, business confidence improved in the first quarter, with the index rising to 37.4 percent from the previous quarter’s 16.8 percent. And for the next 12 months, consumers’ and businesses’ outlook remained optimistic, with the respective indices at 23.6 percent and 57.7 percent. The International Monetary Fund, World Bank and Asian Development Bank estimate that the economic activity in the country will rebound by 5.9 percent to 6.6 percent in 2021. Other foreign analysts have higher growth projections for the Philippines, which are broadly in line with the national government’s forecasts of the gross domestic product of 6.5 percent to 7.5 percent for 2021, and 8.0 percent to 10.0 percent for 2022. We remain confident that despite the recent surge in cases, the government’s vaccination program will take shape as planned, and the economy can take off significantly toward the end of the year. The Banking System The Philippine banking system remains strong and well capitalized. We’ve learned our lessons from the Asian Financial Crisis. As of end-2020, the Philippine banking system (PBS) has exhibited sustained growth in assets, adequate liquidity buffers, strong capital position, and ample loan loss reserves. The assets of the banking system managed to grow from 2019 by 6.1 percent to P19.4 trillion as of end-2020. The growth was mainly driven by higher deposits, which rose by 8.9 percent in 2020. The liquidity coverage ratio (LCR) of universal and commercial banks as of end-November 2020 was comfortably high at 201.0 percent, twice the regulatory minimum of 100.0 percent. Similarly, the system’s net stable funding ratio (NSFR) indicates its ability to provide stable funding in the medium term. As of end-September 2020, the capital adequacy ratio of universal and commercial banks was at 16.8 percent on a solo basis, and 17.2 percent on a consolidated basis. This is much higher than the BSP’s 10 percent standard and the Bank for International Settlement’s 8 percent standard. On the other hand, credit growth of universal and commercial banks decelerated by 2.4 percent year-on-year as of January 2021 as banks tightened their overall credit standards for both loans to enterprises and households. Non-performing loans and non-performing assets ratios rose to 3.6 percent and 2.6 percent, respectively, in December 2020. However, these ratios remain manageable and are much lower than the double-digit levels recorded during the Asian Financial Crisis. While lower consumer spending and business activities continue to dampen bank lending growth, the government is taking measures to propel economic recovery in the country. This may be one of the basis for the banks’ projections of increases in their loan portfolios by 10.0 percent to 15.0 percent over the next two years, These projections are based on the latest BSP’s Banking Sector Outlook Survey. Meanwhile, the enactment of the Financial Institutions Strategic Transfer Act will aid in the 3/4 BIS central bankers' speeches industry’s management of non-performing loans. In brief, the country is poised for a strong recovery, supported by years of longstanding structural reforms, as well as new measures that are being put in place to prepare for a postpandemic economy – one that is better, greener, more inclusive, and more technology-based. Challenge to TOAP new leadership Ladies and gentlemen: the trust industry has a significant role to play moving forward. Hence, BSP will unceasingly look for better ways of helping the industry. We would continue to relax certain regulations that would support your industry’s growth while promoting accountability and good governance. In turn, I enjoin the trust industry, under the new leadership, to continue to support the BSP’s advocacies on digitalization, financial inclusion, and sustainable capital markets. We hope that trust entities can fully harness the benefits of digitalization, not only through speedy transactions, but also through the delivery of better services. The move toward digitalization also goes hand in hand with financial education. With the easier access to financial products, customers should be made aware of the risks that they may be exposed to due to digitalization. Lastly, we hope that the trust industry can take part in the ecosystem for green and sustainable finance in the country. In the region, the Association of South East Asian Nations (ASEAN) has been prioritizing the work on setting of ASEAN standards that would boost capital markets that address climate change. The Securities and Exchange Commission, the BSP and the Department of Finance are actively involved in these initiatives. I am glad to note that a number of banks have already issued products in this space in the past few years and even during the pandemic. Let’s help build a green and sustainable finance ecosystem for the generations to come. In closing, I commend the new set of officers of TOAP for accepting this challenge. Leading a key financial industry like the trust institutions is not a walk in the park. It requires agility to ensure that all member-institutions, no matter how big or small, are consulted and empowered. It also requires focused and firm leadership that will make sure that the goals and aspirations of your organization will be achieved. As Alexander Graham Bell said, “Great discoveries and improvements invariably involve the cooperation of many minds.” There are many great minds here. And I look forward to your great discoveries and improvements in the industry. Rest assured that BSP will continue to collaborate with you to achieve our common goal to maintain a stable financial system that enjoys the trust and confidence of the investing public. Have a productive membership meeting. Thank you. Mabuhay tayong lahat! 4/4 BIS central bankers' speeches
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Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the 2021 PDS Awards, Manila, 25 March 2021.
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Benjamin E Diokno: Message for the 2021 PDS Awards Message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), for the 2021 PDS Awards, Manila, 25 March 2021. * * * To the women and men behind the Philippine Dealing System Holdings Corporation, my heartfelt greetings and congratulations for organizing this 2021 PDS Awards. Your theme for this year’s awards, “Strength in Adversity,” is very timely and relevant. The ongoing global health and economic crisis has spared no one. We are now being tested to the core. Yet the struggles we face have allowed us to discover a strength that would enable us to rise above everything, to think of better ways and more effective solutions, and to help those who need our help the most. Today’s awardees have achieved all these and more. The Bangko Sentral ng Pilipinas salutes their outstanding performance, leadership, and innovation, especially during this very trying time. Mabuhay kayong lahat! The BSP is likewise extending its gratitude to the PDS Group for the services you have rendered despite the pandemic. Your collective selflessness has formed part of the foundation that continues to uphold the economy while it runs on a limited capacity. We are not out of the woods yet. The future remains clouded with uncertainty. But we are not discouraged. We remain focused and committed nurture the economy back to its growth trajectory in the face of the current crisis. Let me share some insights on the Philippine economic outlook for 2021 and the BSP’s policy actions to support the national government’s whole-of-nation approach in addressing the current crisis. Multilateral agencies such as the International Monetary Fund, the World Bank, and the Asian Development Bank expect the Philippine economy to expand by 5.9 to 6.6 percent this year. These are broadly in line with the national government’s forecasts of 6.5 to 7.5 percent for 2021. Meanwhile, some foreign analysts have rosier estimates for the year, with growth projections ranging from 6.1 percent to as high as 9.6 percent. This shared optimism is based on the Philippines’ macroeconomic fundamentals, which have remained broadly intact, despite the pandemic. These fundamentals include improving quarterly GDP outturn, better business and consumer outlook, ample liquidity in the system, a sound and stable banking system, robust external payments position, and a manageable fiscal deficit. The Philippine economy has the essential elements to post a strong recovery this year. Moving forward, the BSP’s actions and policy thrust will continue to be anchored on its core mandates of promoting price and financial stability. 1/2 BIS central bankers' speeches The BSP will remain vigilant over the current inflation dynamics and operating environment with a forward-looking perspective to ensure that the monetary policy stance supports economic recovery and addresses any risks to our price stability mandate. It addition, BSP will intensify its monitoring and surveillance over its supervised institutions to ensure that they remain responsive to emerging risks and to promote the continued soundness, stability, resilience, and inclusivity of the banking system. Lastly, the BSP will continue to adopt policies that will strengthen the economy’s resilience to external shocks. These will include maintaining a market-determined exchange rate, sustaining a comfortable level of reserves, and keeping the country’s external debt manageable. I said this before, and I’ll say it again: We should not let this unprecedented crisis go to waste. Let us learn from it. Let us all continue to discover and tap into our inner strengths. Our shared fortitude as a nation will enable us to withstand all adversities and come out of this pandemic as economic champions. May our award-winning members never tire of leading the capital market in conceptualizing and implementing new and bold strategies for the industry and for our country. Continue to reform, innovate, and transform. Again, congratulations to our awardees and to the PDS Group. 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Virtual Credit Rating Agency (CRA) Meetings/IMF-WB Spring Meetings, 11 April 2021.
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Benjamin E Diokno: Update on key developments under BSP’s area of responsibility Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Virtual Credit Rating Agency (CRA) Meetings/IMF-W B Spring Meetings, 11 April 2021. * * * Alistair, Marie, Gene, Christian, Claire, a good day to all of you. I would like to thank you for this opportunity to update you on key developments under BSP’s area of responsibility. I would like to thank Moody’s for affirming the Philippines’ Baa2 rating and stable outlook during your July 2020 committee review meeting. Our good ratings have helped maintain market confidence on the Philippines amid these challenging times as shown in the successful fund-raising activities of the Government last year and earlier this year. Let me now update you on key developments under BSP’s purview. The unprecedented challenges from the pandemic revealed how critical it was that we diligently and deliberately pursued key structural reforms in the last two decades. We pursued these reforms as a result of tough lessons learned from past crises in the last few decades. Thus, the Philippines entered the crisis in a position of strength, with sound fundamentals and ample policy space. In line with the whole-of government response to the pandemic, the BSP acted swiftly and decisively by adopting measures to mitigate the pandemic’s impact on lives and livelihoods. We have, so far, injected more than PHP2.0 trillion (or US$43 billion) in liquidity to the financial system, equivalent to 11 percent of the country’s GDP. These measures fall under three categories: First, were measures designed to boost market confidence. These included cuts in the policy rate and the reserve requirement. Second, were extraordinary liquidity measures, which included provisional advances to the Government and purchases of government securities in the secondary market. As mandated by enabling laws, these measures are time-bound and temporary and, as such, there should be NO concerns about debt monetization risks in the Philippines. Third, were regulatory and operational relief measures to sustain the stability of the financial system and to provide easy access to financial services at a critical time. That said, the BSP recognizes that the timing for the unwinding of our response measures is crucial. We will carry out disengagement strategies in a manner that avoids risks associated with early or late implementation. Yet, while we are responding to the pandemic, we remain laser-focused busy in pursuing further reforms to improve our conduct of monetary policy and financial sector supervision. 1/3 BIS central bankers' speeches On the monetary front, for instance, the BSP started issuing its own debt securities in September last year. This increases BSP’s set of tools to manage liquidity in the economy, consistent with our price stability mandate. With the BSP at the forefront of efforts to digitize the Philippine economy, we launched the Digital Payments Transformation Roadmap last year which is expected to help propel boost economic growth. We also recently issued frameworks for enhanced risk management, and the creation of digital banks—all of which help further strengthen and enhance the financial system. Moving to the latest updates on prices, external accounts and the banking system. On price stability, latest estimates by the BSP showed that inflation will average 4.2 percent this year, a little above the high end of the 2 to 4 percent target range. But inflation will return to within target band next year at 2.8 percent. The elevated inflation seen over the past three months is transitory; it is due to weather-related disturbances on the supply of key food items, the effects of African Swine Fever, as well as higher global oil prices. The Department of Finance, the Department of Agriculture, and the Department of Trade and Industry are implementing measures to ease the impact of supply-side pressures on inflation and thereby prevent them from spilling over as second-round effects. Meanwhile, demand-side pressure remains subdued. The BSP’s Monetary Board is of the view that prevailing monetary policy settings remain appropriate to support the Government’s broader efforts to facilitate economic recovery. The BSP, nonetheless, stands ready to use the full range of its instruments, as appropriate, to ensure that the monetary policy stance continues to support the BSP’s price and financial stability objectives. On the external front, we continue to have adequate buffers against shocks. As of end-February, Gross international reserves continue to be hefty at US$105 billion. Our external debt remains prudent at 27.2 percent of GDP. Remittances from overseas Filipinos remain resilient. After contracting by 0.8 percent in 2020, it is expected to rebound by 4 percent this year. We expect surpluses in the current account and the balance of payments at 2.3 percent and 1.6 percent of GDP, respectively for this year. The Philippine banking system remains sound and stable. Banks are well capitalized and also able to keep their bad debts manageable— much lower than levels seen in the aftermath of the Asian Financial Crisis. Speaking of bad assets, the newly signed law – Financial Institutions Strategic Transfer or FIST will help banks manage non-performing loans down the road by allowing banks and other financial institutions to dispose of their NPLs to asset management firms. In closing, I would like to highlight three things: First, the adverse impact of the pandemic on the Philippines will be transitory. Our macroeconomic fundamentals remain sound, and our medium-term growth prospects remain strong. 2/3 BIS central bankers' speeches Second, we have shown throughout this pandemic our commitment to the reform agenda and pursuing responsive policies in a timely manner. The reforms and policies we have painstakingly pursued amid the challenging circumstances will help ensure there will be no permanent scarring on the economy; and Third, the reform momentum will help fuel the Philippines’ recovery, address structural issues, enhance long-term growth potential as well as improve the Philippines’ credit profile. Thank you. 3/3 BIS central bankers' speeches
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Keynote message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the QR-PH Event: Payment-to-Merchant (P2M) Pilot Launch, 29 April 2021.
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Benjamin E Diokno: QR-PH Event - Payment-to-Merchant (P2M) Pilot Launch Keynote message by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), during the QR-PH Event: Payment-to-Merchant (P2M) Pilot Launch, 29 April 2021. * * * Good afternoon to our esteemed guests from the payments industry, to our colleagues from the government, to our partner institutions, ladies and gentlemen. We are very pleased that you are with us today, to witness yet another momentous event in our digital transformation journey. The BSP’s deliberate approach to further digitalization is always motivated by evidence-based policy formulation. In 2019, five priority use-cases were identified in a national diagnostic study jointly undertaken by the Bangko Sentral and the Better Than Cash Alliance. These 5 use cases account for 97% of retail transactions in the country. These 5 use cases were identified for prioritization. Payments to merchant tops the list as it captures over 70% of the total payments in the country. As such, it is important to strategically address the challenges and issues that impede this critical sector. With such a large base and low penetration of merchants utilizing and accepting digital channels, the potential is huge. To address some of the key challenges in digitalizing merchant payments, the Bangko Sentral embarked on initiatives that promoted the widespread use of QR codes for payments. The simplicity of QR code-enabled payments gives it the potential to reach even the smaller players which require less expensive infrastructure to implement. Only a smartphone and the internet are needed. The value proposition of paying through QR code was bolstered with the issuance of the National QR Code Standard, dubbed as “QR Ph”. QR Ph transformed the fragmented QR-driven payment services into interoperable payment solutions. The full implementation of QR Ph can likewise contribute towards the attainment of a coinless state as QR Ph-enabled payments may be a viable alternative to coins. It was on 20 November 2019 when we launched the QR Ph for person-to-person payments or “QR Ph P2P” which primarily catered to remittances and payments within the informal sector. From only 6 pilot participants then, now we now have 20 participants as of end March 2021. From November last year to March this year, transactions have likewise grown exponentially. The volume surged by almost 13,000 percent while value surged by more than 40,000 percent. Today we are launching the pilot of the expanded use cases for QR Ph which now covers person-to-merchant payments or P2M. Use cases under QR Ph P2M would include payments to merchants for purchase of goods and services in department stores, pharmacies, supermarkets, hardware stores, and restaurants. Later on, QR Ph P2M may also be used to making paying bills more convenient and faster. 1/3 BIS central bankers' speeches Under the QR Ph P2M pilot run, the facility will initially be made available to a limited number of InstaPay participants consisting of banks and non-bank e-money issuers. Only a select few merchants would be participating in the pilot run to familiarize the market with the use of QR Ph and promote public awareness on how convenient and easy it is to use. The pilot period of QR Ph P2M will run for several months. We believe that this gradualist approach will help effect a smooth transition of QR-enabled payment services into the QR Ph P2M when it is fully launched by September of this year. By then, we can expect many of the key payment service providers to be on-boarded and improved features to deliver enhanced consumer experience. The InstaPay participants joining the pilot run today include (1) AllBank Inc., (2) Asia United Bank, (3) China Banking Corporation, (4) PayMaya, (5) RCBC, (6) Robinsons Bank, (7) UnionBank. With the implementation of the QR Ph P2M, we seek to further saturate the business sector by providing yet another means for even smaller businesses to digitize. I myself was able to experience, how easy it was to conduct QR code-enabled payments. As shown in the demo we just shared, I had the opportunity to try QR Ph. Indeed, it is as simple as scanning a code using your mobile phone. It is hassle-free because you need not worry about having to bring any cash or card with you, nor would you need to get the account information of the merchant. After experiencing the convenience of QRPh, I can’t help but share it with you. I’m truly excited for our fellow kababayans to experience the same convenience when they use the QR Ph in their daily business transactions. We understand that to encourage the wider adoption of QR Ph P2M, it must be affordable, ubiquitous and accessible even in the remote areas. Thus, the BSP and the payments industry, led by the Philippines Payments Management, Inc., will continue to closely work together in ensuring that payment products and services remain useful and relevant to help Filipinos reap the benefits of using digital payments. This pilot launch of the QR Ph P2M provides the perfect occasion for another positive report. We are pleased to announce the Philippines boosted its digital payments adoption in 2019. This is based on the most recent e-payments measurement conducted by the Bangko Sentral with the assistance from the Alliance. The volume of monthly digital payments in the Philippines grew from 10% in 2018 to 14% in 2019. This corresponds to a 27% increase in volume, driven primarily by high-frequency, lowvalue retail transactions, like merchant payments. Meanwhile, the value of monthly digital payments grew to 24% of all transactions in 2019, up from 20% in 2018. All these happened before the COVID-19 pandemic. Early estimates from the first half of 2020 also provides encouraging results where digital payments rose to 17% of all monthly payments. In both results, the P2M and P2P use-cases proved to be driving the expansion of digital payments in the country. This only confirms that we are on track in providing the necessary interventions to promote digitalization of consumers and merchants alike. We’ve seen very promising growth in digital payments in the last two years – we now must ensure that this growth is inclusive and that digital payments are serving all Filipinos. 2/3 BIS central bankers' speeches In order to continue our transformation to a cash-lite economy, we need to keep up and strengthen our whole-of-government approach and collaboration with relevant stakeholders both from the public and the private sector. Another key requirement is having the robust measurement and monitoring system that would allow us to regularly track indicators to assess our progress on the deepening of digitization. All these vital components were unified and harmonized in the recently issued BSP Digital Payments Transformation Roadmap, sstrategically anchored on three critical pillars: 1. digitalizing the payment streams; 2. enhancing the robustness and resilience of the digital finance infrastructures; and 3. strengthening governance by having an enabling policy and regulatory environment. The Roadmap is envisioned to successfully transform the Philippines from a cash-heavy into a cash-lite economy. Seen from a broad perspective, the QR Ph P2M will help empower our small economic actors to take part in the digital payments ecosystem, and more importantly, in the formal financial system. Rest assured that the BSP remains committed in ensuring our nation’s smooth transition into the New Economy where every Filipino stand to benefit from a universal access to safe, convenient, affordable and inclusive digital payments. Truly, this era has proved that digital transformation has become an imperative. While the road to digital transformation may seem challenging, we are optimistic that it is achievable with our proactive regulatory stance and our openness to leverage on technological innovations. Through the support of our industry partners, the BSP is optimistic that we can build pathways towards a cash-lite Philippine economy, and enable more Filipinos to reap the benefits of a growing digital economy. Thank you. 3/3 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Eastern Communication E-Huddle Webinar Series "Making Remote Work and Creating Opportunities", 4 May 2021.
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Benjamin E Diokno: Philippines - traversing the path to economic recovery Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Eastern Communication E-Huddle Webinar Series “Making Remote Work and Creating Opportunities”, 4 May 2021. * * * Good afternoon to all the participants and to my fellow speakers! It is an honor to be part of this E-Huddle virtual webinar series organized by Eastern Communications. The BSP always welcomes the opportunity to engage with industries and share its views on recent Philippine economic developments as well as the BSP’s policy thrust towards helping banks and corporates recover and adapt to the emerging new normal environment. Allow me to highlight the following points in my keynote presentation: First, I will start with a discussion on the state of the Philippine economy amid the pandemic. It has been a year since the onset of COVID-19 in the country, and like other economies across the globe, the country’s economy has been affected by the shocks from the health crisis. Second, I will highlight the BSP’s policy initiatives in helping the country weather the economic and financial headwinds from the pandemic. As you are aware, the BSP together with the national government, has put in place extraordinary measures to ensure stability and minimize the scarring effects of the pandemic on the financial system and the economy. I will also touch on some of the BSP’s digitalization efforts that support economic recovery. Third, I will discuss how banks are incorporating sustainable finance efforts to ensure business continuity, given the long-term social and economic effects of the pandemic and climate change. The year 2020 has been particularly challenging for the Philippine economy due to the unprecedented COVID-19 crisis. Yet, some of the key economic indicators in 2020 show that the country’s macroeconomic fundamentals remained broadly intact, even at the peak of the COVID-19 crisis as evidenced by: the quarter-on-quarter improvements in GDP outturn towards year-end; within-target inflation; ample system liquidity; sound and stable banking system; robust external payments position; and manageable fiscal deficit. Like many other countries, the Philippines was severely affected by the coronavirus pandemic in 2020. During the year, we saw the country’s GDP drop to a historic low of –9.6 percent. After a 16.9 percent contraction in Q2 2020 due to the imposition of lockdown and containment measures, the domestic economy quickly showed some signs of improvement as the contraction eased to –11.4 percent and –8.3 percent in Q3 and Q4 2020, respectively. 1/5 BIS central bankers' speeches Going forward, GDP is expected to rebound starting the second quarter 2021, as the domestic and the global economy gradually reopens. This resiliency can be attributed to two things. First, the country entered the crisis in a position of strength. This insulated the domestic economy to more adverse economic and financial shocks from the pandemic. Second, the timely and extraordinary monetary and fiscal policy measures that were put in place ensured financial stability and helped minimize scarring effects on the economy. In response to the COVID-19 pandemic, the BSP has implemented measures to ensure adequate domestic liquidity and sustain the flow of credit, restore financial market functioning, and shore up market confidence. These include a mix of decisive monetary policy adjustments and regulatory relief and forbearance measures. The BSP acted swiftly and decisively. It reduced the policy rate by a cumulative 200 basis points (bps) since February 2020. The cut in the policy rate is aimed at cushioning the country’s growth momentum and uplifting market confidence amid stronger headwinds brought about by the pandemic. The BSP has also reduced the reserve requirement ratios (RRR) by 200 basis points effective in April 2020. The lower reserve requirement is intended to calm the markets and support bank lending to both households and businesses. As part of the whole-of-government response to the COVID-19 pandemic, the BSP has extended provisional advances to the national government on a time-bound basis and within the limits prescribed by law. The BSP has also been purchasing government securities in the secondary market to help shore up domestic liquidity and restore market confidence to continue participating in the primary auctions for government securities. These measures have helped address temporary volatilities in the market. By maintaining market interests to continue to hold government securities, the national government was able to meet its funding needs for its COVID-19- related programs. In addition to liquidity enhancing measures, the BSP has also relaxed prudential and regulatory standards to soften the impact of the pandemic on the economy and improve the prospects of a faster recovery. These measures are summarized into four (4) categories: 1.Extension of financial relief to borrowers. Banks were given regulatory relief to enable them to grant equivalent financial relief to their borrowers in the form of more flexible and favorable lending terms, or to restructure loan accounts. 2. Incentivized lending. The BSP allowed new peso loans to micro, small and medium enterprises or MSMEs, and large enterprises that were critically affected by the pandemic, as alternative mode of compliance to reserve requirements. 2/5 BIS central bankers' speeches 3.Promotion of continued access to financial services. Policies were put in place to ensure access of deeply affected retail clients to formal financing channels. The use of information technology in carrying out financial transactions was highly encouraged during the lockdown. 4.Support for continued financial services delivery. The BSP granted operational relief measures to the BSP-supervised financial institutions. These measures aim to assist BSFIs in focusing their limited resources on the delivery of financial services and support their subsequent recovery efforts. The BSP also supports the passage of key structural reforms which will help propel the economy to a more solid path to recovery. RA No. 11519 or “An Act Extending the Availability of Appropriations of Bayanihan 2” was signed into law on December 29, 2020 and is valid until June 30, 2021to ensure the continuity and implementation of response measures in Bayanihan 1, which granted loans to micro, small and medium enterprises (MSMEs). Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE). The law reduced the corporate income tax outright from 30 percent to 25 percent for big firms and 20 percent for small firms. The law also rationalized the tax incentives structure, making it performance-based, time-bound, targeted and transparent. This will be the biggest stimulus package for businesses. With the resulting tax savings, MSMEs can continue to fund their operations and retain employees. Republic Act No. 11523 or the Financial Institutions Strategic Transfer Act, popularly known as the FIST Act, aims to strengthen the financial sector by allowing banks and other financial institutions to efficiently dispose of their non-performing assets (NPAs) and non-performing loans (NPLs) to asset management firms, known as FIST corporations, thereby enabling banks to extend credit to more sectors. The FIST law can possibly free up 1.9 trillion worth of loans from the sale by banks of their non-performing assets. The FIST law is expected to improve the banking systems’ NPL ratio by 0.63 to 0.71 percentage points. Pending in Congress is House Bill NO. 7749 or the Government Financial Institutions Unified Initiative to Distressed Enterprises for Economic Recovery or GUIDE Bill. This seeks to expand the loan assistance, rediscounting, and other credit facilities of government financial institutions—Development Bank of the Philippines and Land Bank of the Philippines, to help MSMEs cope with the effects of COVID-19. Lastly, the Agri-Agra Bill,will strengthen rural development by providing for a holistic approach in addressing the financing needs of the broader agricultural financing ecosystem. Aside from these broad-based pandemic policy responses, the BSP has also been seizing new opportunities and ramping up its digitalization efforts to support economic recovery. The pandemic has been the catalyst for the exponential rise in the use of electronic payment channels. With the precautionary health measures associated with the pandemic, digital channels for conducting financial services have become imperative. 3/5 BIS central bankers' speeches Fortunately, the BSP has embraced digitalization even before the pandemic. But to further strengthen its digitalization efforts, the BSP launched the Digital Payments Transformation Roadmap 2020 – 2023 last October. This roadmap is in line with the BSP’s goal to shift from a cash-heavy to a cash-lite economy. Targeted outcomes of this roadmap include shifting at least 50% of the total volume of retail payments into digital form and having at least 70% of Filipino adults onboarded to the financial system through the ownership and use of transaction account by 2023. The BSP believes that financial digitization will ensure the resurgence of businesses and boost economic growth as digitalization makes payments easier and quicker and helps improve working capital efficiency. Digitalization also accelerates financial inclusion to those unserved and underserved by traditional bank offices. The Philippine banking system remains sound and stable. The banking system consistently posted capital adequacy ratios (CAR) at about 15.0 percent in the past 10 years, which is well above the 10.0 percent minimum threshold set by the BSP, and 10 percent international threshold set by the Bank for International Settlements (BIS). As of end-September 2020, the risk-based capital adequacy ratios of the universal and commercial banking industry stood at 17.2 percent on consolidated basis. Banks also continue to have ample liquidity buffers, which allow them to provide adequate and stable funding in the medium term. Further, domestic banks’ assets continue to grow robustly. As of end-December 2020, the banking system assets expanded by 6.1 percent year-on-year to ₱19.4 trillion. This was largely funded by deposits which grew annually by 8.9 percent. This suggests that the banking system continues to enjoy the confidence of the public amid the pandemic. Sustainable finance will play a big part in the economy’s recovery. The BSP has heeded the global call for climate change and sustainable finance initiatives by championing the promotion of the sustainability agenda in the financial system. We issued the Sustainable Finance Framework for banks in April 2020, which emphasizes the role of the banks’ board of directors in leading and institutionalizing the adoption of sustainability principles across the organization. Aside from the broad principles set out in the said framework as regards the adoption of an Environment and Social (E&S) Risk Management System, we will be issuing more granular expectations covering the interplay of Environment and Social risks and key risk areas such as credit, market, and operational risks, as well as potential enhancements to existing prudential reporting and disclosure requirements. Within the BSP, we have also embraced sustainability principles with the formal launch of our Sustainable Central Banking Program. This program, which will run from 2020–2023 will advance the sustainability agenda by fostering environmentally responsible and sustainable policies and work practices, as well as integrating Environmental, Social and Governance aspects, in the BSP’s key operations and functions. 4/5 BIS central bankers' speeches The BSP is also active in both regional and global conversations on climate change and sustainable finance. Our recent membership to the Network for Greening the Financial System (NGFS) has elevated our initiatives in this area, particularly on climate stress testing. At the local level, BSP is collaborating with the Department of Finance and other key government agencies to pursue the development of a principles-based taxonomy. Let me wrap up my presentation with two key take-aways. First, the Philippine economy is on its way to a sustainable recovery. The recovery is supported by the country’s sound macroeconomic fundamentals and timely implementation of appropriate policies, including regulatory and operational relief measures. Recently passed legislation will also provide support to growth. Second, the BSP will continue to seek new opportunities to further support the domestic economy’s growth under a new economic environment. We will remain steadfast in our digitalization efforts to expand our digital finance ecosystem. And we will continue to champion the promotion of the sustainability agenda in the financial system. Thank you! 5/5 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Investment Forum on Energy Transition, 19 May 2021.
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Benjamin E Diokno: Unlocking opportunities at the local level Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Investment Forum on Energy Transition, 19 May 2021. * * * His Excellency Daniel Robert Pruce, British Ambassador to the Philippines, Department of Finance (DOF) Secretary Carlos G. Dominguez, Department of Energy (DOE) Secretary Alfonso G. Cusi, Governor Dakila Carlo Cua, National President of the Union of Local Authorities of the Philippines (ULAP), distinguished speakers, expert panelists, and participants, good afternoon! I would like to take this opportunity to thank the British Embassy Manila, the DOF, DOE, ULAP and Securities and Exchange Commission, for co-organizing this dialogue among our key stakeholders and leading the discussion on how the country can address the challenges in its energy transition and accelerate the action moving forward. This dialogue comes at an opportune time as the country has recently submitted its Nationally Determined Contributions (NDC)1 to the UN Framework Convention on Climate Change, vowing to reduce its projected carbon emissions by 75 percent by the year 2030. Indeed, this development provides us a clearer direction and a greater impetus to work together in combatting climate change and ensuring sustainable development for the Filipino people. In the same light, the BSP joined the “Green Force” to support the creation of a harmonized and cohesive plan in mainstreaming green and sustainable finance in the country. Last March 15, 2021, the Philippine financial sector regulators and authorities led by the DOF signed a Memorandum of Understanding with the British Embassy to collaborate on the implementation of proposed interventions under the United Kingdom Prosperity Fund’s ASEAN Economic Reform Programme and the ASEAN Low Carbon Energy Programme. Respectively, these programs aim to promote economic and sustainable development as well as improve energy security and access to clean energy in the country. The program likewise supports the Green Force’s initiatives in building capacity of relevant government agencies and industry players with regards to sustainable finance implementation and in crafting a Sustainable Finance Roadmap and principles-based taxonomy. The development of the taxonomy is a key initiative aimed at providing guidance on identifying economic activities that contribute to sustainable development, with special focus on addressing climate change impact. Central to the climate change mitigation goal is the need to reduce greenhouse gas concentrations by shifting fossil fuels to renewable sources. We should note, however, that a successful transition is not just a matter of isolated changes in the energy sector. We must also consider the potential risks associated with this transition given the interplay among economic activities. According to some experts, “transitions are systemic in nature, characterized by coevolution between different actors, institutions, supply and distribution chains,” among others. A low-carbon transition could trigger a chain reaction that might affect the performance and viability of various loan and investment portfolios, which eventually could pose risks to the stability of the financial system and to the real economy. In this light, a progressive approach to transition must be considered without compromising environmental sustainability. The finalization of the principles-based taxonomy will play a critical part here, particularly in opening the door for the inflows of capital to relevant economic activities. The BSP’s Sustainable Finance Framework which was released in April 2020 encourages the offering of green and sustainable finance instruments to support such economic activities. But at the same time, the Framework safeguards the stability of the financial system against potentially 1/2 BIS central bankers' speeches significant and protracted impact of climate change and other environment related risks. Leveraging on good governance and effective risk management systems, the Framework also expects banks to embrace sustainability principles and take strategic, concrete, and progressive actions in response to the climate call. The BSP will be issuing its second-phase regulation to enable the banking industry to make safe and sound response to risks arising from the transition to a low-carbon economy. This supplementary issuance will provide granular expectations on the integration of climate change and other environmental and social risks in banks’ credit and operational risk management frameworks. Banks may gradually consider the future implications of “stranded asset risk” in their credit portfolio. No doubt, the energy transition is a complex issue and comes with both risks and opportunities. We are, however, fortunate to have a remarkable set of expert panelists who are at the frontlines of energy transition to provide us with insights on the opportunities, challenges, and potential solutions to accelerate renewable energy and energy efficiency in the country, including financing thereof. On this note, allow me to end this remark by wishing you a successful and meaningful conversation. Thank you and stay safe. 1 www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Philippines%20First/Philippines%20-%20NDC.pdf 2/2 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 31st Bankers Institute of the Philippines, Inc. (BAIPHIL) Virtual Convention, 20 May 2021.
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Benjamin E Diokno: Moving ahead and embracing change under the new normal Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the 31st Bankers Institute of the Philippines, Inc. (BAIPHIL) Virtual Convention, 20 May 2021. * * * Distinguished officials of the Bankers Institute of the Philippines or BAIPHIL, guests, friends and colleagues in the industry, ladies and gentlemen, good afternoon. I am privileged to be your keynote speaker on the third and final session of BAIPHIL’s 31st virtual convention. Let me take this opportunity to share some insights on the regulatory landscape of the Philippine banking sector under the “new normal,” or what I would rather refer to as the “new economy.” Today’s theme, “Moving Ahead and Embracing Change Under the New Economy,” underpins two notions that are indispensable in today’s challenging environment. First, embracing the changes stemming from the COVID-19 pandemic is paramount to keeping businesses afloat. Second, capitalizing on factors that enable our banks to face the recent headwinds will help boost resilience and allow them to move ahead of the game. With these in mind, my keynote address will cover five central topics, namely: (1) outlook on the Philippine banking sector, (2) leveraging on BASEL standards for a more resilient banking system, (3) forging a digital economy, (4) gearing towards a sustainable new economy, and (5) responding to the present workforce challenges. Let me start with updates on the financial condition and performance of the banking industry. The Philippine banking system is sound and stasble as shown by sustained growth in assets, strong capital position, adequate liquidity buffers, ample loan loss reserves, and profitable operations. Total assets of the banking system registered at Php19.3 trillion as of end-February 2021, posting a 6.5 percent year-on-year growth rate. As of end-December 2020, the risk-based capital adequacy ratio of the universal and commercial banking industry on solo and consolidated bases stood at 16.6 percent and 17.1 percent, respectively—well above the minimum thresholds set by the BSP and the Bank for International Settlements. As of end-December 2020, the universal and commercial banking industry’s liquidity coverage ratio and net stable funding ratio remained higher than the minimum 100 percent threshold which indicate banks’ ability to fund requirements during short- and long-term liquidity shocks. For smaller banks such as the stand-alone thrift banks, rural banks and cooperative banks, the 1/6 BIS central bankers' speeches minimum liquidity ratios surpassed the 20 percent minimum. As to asset quality, indicators weakened but remained manageable. The banking system’s nonperforming loan ratio rose to 4 percent as of end-February 2021 from 2.2 percent in the same period last year. Meanwhile, banks’ non-performing loan coverage ratio decreased to 87.3 percent as of end-February 2021, from 91.2 percent a year ago. On profitability, banks recorded positive bottom line in spite of higher provisioning. Net income of the banking industry dropped by 32.8 percent year-on-year to Php155.0 billion for the year-ended December 2020. Nonetheless, the positive bottom line was mainly driven by earnings from core business activities, complemented by improved cost-to-income ratio from streamlined operations. The BSP expects the banking system to remain stable with adequate capital and liquidity buffers to support the financing requirements of their clients. The impact of the pandemic on the overall condition and performance of the banking system has been manageable. This was largely due to the calibrated fiscal and prudential initiatives to address the impact of the pandemic as reinforced by the BSP’s timely implementation of time-bound and crucial regulatory relief measures in the first half of 2020. The BSP has conducted stress test exercises and ad hoc simulations to assess the banking system’s resiliency amid the COVID-19 crisis. Overall, the results reinforce that the banking system is reasonably well-capitalized and could continue lending to support the economy. However, the current challenges in the financial performance of the hardest-hit sectors and highly vulnerable banks warrant closer coordination and monitoring to ensure the banking system’s financial stability and continuing resilience. The BSP estimates that the non-performing loan ratio of the banking sector will remain manageable and will settle at slightly above 6.0 percent by end-December 2021. This view is also consistent with the feedback gathered from the industry through the Banking Sector Outlook Survey conducted in the second semester of 2020. With the operationalization of the Financial Institutions Strategic Transfer or FIST Act, the level of non-performing loans of banks will be managed through the transfer or sale of banks’ nonperforming assets to FIST Corporations, Special Purpose Vehicles and eligible individuals. The stable outlook of the banking system is echoed by the banking industry, based on the results of the Banking Sector Outlook Survey. In sum, we are optimistic that the Philippine financial system is capable of withstanding the risks and challenges of the COVID-19 pandemic. Yet, as considerable economic uncertainty remains, the BSP continues to monitor relevant risks and vulnerabilities arising from banks’ activities through enhanced surveillance mechanism. The Philippines has already made significant strides in adopting the Basel reform package. The pace and sequencing of the reforms have taken into account local market conditions, as well as the risk profiles of banks by applying the principle of proportionality. The Basel reform agenda has reinforced local processes by enjoining banks to increase their 2/6 BIS central bankers' speeches holdings of core equity capital and to favor more stable sources of funding. Domestic banks likewise recognize the benefits of the Basel reforms as they become more risksensitive, prudent in managing their risk-taking activities, and improved their governance and internal controls. Currently, regional forums in ASEAN such as the Executives’ Meeting of East Asia Pacific Central Banks Working Group on Banking Supervision serve as venue to discuss the progress of adoption of the Basel III standards and COVID-19 developments and the related policy responses. Recently, the policy direction of standard-setting bodies is geared towards supporting the COVID-19 responses of national authorities. In fact, the Basel Committee on Banking Supervision or the BCBS has officially announced the deferral of the implementation date of Basel standards by one year to 1 January 2023. Such deferral provided both banks and regulators with some space and flexibility to devote their available resources for essential operations in responding to the impact of the global pandemic. With regard to the implementation of Basel standards in the Philippines during the pandemic, the BSP has given leeway to covered banks and quasi-banks by allowing them to utilize the built-up Capital Conservation Buffer and Liquidity Coverage Ratio buffer during the COVID-19 crisis. This move is consistent with the BCBS’ pronouncement that a measured drawdown of the buffers in order to absorb losses and liquidity-related shocks, as well as to support the real economy should be deemed appropriate during periods of stress. Meanwhile, for smaller banks (such as stand-alone thrift banks, rural banks and cooperative banks), the required implementation of the revised risk-based capital framework or Basel III was deferred to 1 January 2023. The minimum liquidity ratio was temporarily reduced to enable these banks to continue to support their rural community-based operations and to respond to the crisis. The BSP also conducts onsite and offsite supervision, data analytics, and thematic reviews to identify and gauge the risks faced by supervised institutions and the banking system as a whole. Rest assured, the BSP remains steadfast in rolling out the essential policy reforms aimed at aligning its policies, rules and regulations with the Basel and other international standards. The BSP recognizes the catalytic role of digital payments in accelerating financial inclusion and in spurring economic growth and recovery from the COVID-19 crisis. To sustain the impetus for wider adoption of digital payments, we launched a three-year Digital Payments Transformation Roadmap last October outlining the priority initiatives and strategy in advancing an efficient, inclusive, safe and secure digital finance ecosystem. Under this Roadmap, we envision to achieve the goals of shifting at least 50 percent of the total volume of retail payments into digital form and having at least 70 percent of Filipino adults onboarded to the financial system through ownership and use of a transaction account by 2023. To attain the strategic outcomes, the Roadmap is anchored on three key pillars: First, the digital payment streams, which focus on exploring digital payment use cases that will fuel wider acceptance and use of digital payments services; 3/6 BIS central bankers' speeches Second, the digital finance infrastructure, which supports the boost in digital payments adoption to ensure security, efficiency and interoperability within the ecosystem; and Third, the digital governance standards, which will ensure that the expansion of use cases is bound by sound standards that safeguard the integrity and privacy of consumer data. The BSP endeavors to provide an enabling policy and regulatory environment that allows these innovations to flourish while at the same time, preserving financial stability and upholding consumer welfare. As such, the BSP, in the near term, is pursuing key enabling policy initiatives to maintain the momentum towards digital transformation of the financial sector. In fact, the BSP recently introduced digital banks as a distinct bank classification. In the postCOVID era, digital banks will play a pivotal role in the growth and development of the economy. We expect Filipinos to benefit from new digital banks offering more affordable financial products and customized financial solutions that are responsive to the diverse and changing needs of the market. The BSP is also developing a framework for the adoption of an open finance ecosystem which espouses consent-driven data portability, interoperability and collaborative partnerships among incumbent financial institutions and third-party players. Through open finance, incumbents and third parties will be allowed access to financial information needed to develop innovative products and services that are suited to the changing consumer needs. As pursuing digital transformation could help reduce the barriers to financial inclusion, spur innovation and promote competition in the financial sector, the financial consumers are also exposed to cyberthreats which could undermine the public’s trust and confidence in the safety of digital financial transactions. In this regard, the BSP continues to strengthen its cybersecurity awareness and digital finance literacy programs to increase trust and confidence in the security of the digital payments ecosystem and other technology-enabled financial transactions. The BSP is at the helm of enabling the financial industry to embrace the principles of sustainable development and drive investments to activities that will promote climate-resilient, green, and sustainable growth. Financial regulation can be a useful tool to achieve these objectives. To this end, the BSP issued enabling regulations to promote green finance through the Sustainable Finance Framework for banks., This framework emphasizes the role of the banks’ board of directors in leading and institutionalizing the adoption of sustainability principles across the organization. As part of the full implementation of Circular No. 1085, the BSP will continue to engage banks in discussions during the three-year transitory period. Within that period, banks are expected to identify and execute specific actions on how to implement the board-approved strategies and policies on the integration of sustainability principles into their strategic objectives, corporate governance, risk management systems, and in their operations. Our banks will be required to establish an Environmental and Social Risk Management System and accordingly, disclose their sustainability initiatives in the annual reports. We recognize that tone at the top is of vital importance in materializing a bank’s sustainability initiatives. “Leading by example” is one of the best ways to usher the transition and shape the behavior of supervised institutions towards the adoption of sustainability principles. 4/6 BIS central bankers' speeches As such, the BSP has launched the Sustainable Central Banking Program as part of its strategic programs for 2020–2023. This program aims to foster environmentally-responsible and sustainable policies and work practices as well as integrate environmental, social and governance or ESG aspects in its key functions and operations. The BSP currently conducts a vulnerability assessment to assess the potential impact of climate change and other environmental risks in BSP offices and branches. At present, the BSP, in collaboration with several development partners and interest groups, conducts a series of capacity building activities to deepen understanding and to equip banks to better manage environmental and social risks. The BSP is also working closely with the Department of Finance and other key government agencies to embark on the development of a principles-based taxonomy in order to facilitate the mobilization of funds towards green or sustainable projects. Meanwhile, the industry associations, in collaboration with the Worldwide Fund for Nature Philippines, are developing an analytical framework to assess the impact of climate physical risks on the loan portfolio of banks. Cognizant that an efficient and skillful workforce is the lifeblood of any organization, the BSP has again raised the bar in advancing human capital when it earned the Civil Service Commission’s Gold Award for Human Resource Management. This award is exclusively given to a government agency that achieved the highest maturity level or ‘Level 4’ of the Civil Service Program which denotes that the BSP’s operations and internal processes are designed to continually improve performance through incremental and innovative enhancements. In providing a safe, healthy and future-proof workplace that will ensure the physical and mental well-being of our people, promote work-life balance, and provide opportunities for professional development, the BSP has rolled out a customized annual health check, an occupational health program, on-site gym facilities and virtual physical fitness courses, activities for retiring staff, and a Mental Health Program which include awareness campaigns, counseling, psychotherapy, and external referral. The BSP also rapidly shifted to new work arrangements such as work-from-home and flexible work hours, with the imposition of community lockdowns and travel restrictions. Through the BSP COVID-19 Task Force, our organization continues to bolster its preventive measures to combat the adverse impact of pandemic in the workplace. The BSP conducts quarterly COVID-19 tests screening and provides additional medical coverage for affected employees. The BSP will also roll out a COVID-19 Vaccination Program for its employees and their dependents. The BSP has also implemented various programs when it comes to providing continuing professional development for its employees such as competency trainings, mentoring arrangements, and scholarships. We have recently launched the “Mentoring and Inspiring Learning Experiences Program” or BSP MILEs Program, which aimed to help personnel who are groomed to take on new functions. Last year, we also started our program called “Building a Digital Mindset,” in coordination with the Carnegie Mellon University–Australia. The training program, which was attended by all BSP employees, is aimed to transform and inculcate a digital work culture in the BSP. 5/6 BIS central bankers' speeches This year, the BSP will introduce an artificial intelligence (AI)-powered learning knowledge cloud called the “BSP Education in the Digital Generation” or BSP ‘EDGe’, which provides learning and development through an online on-demand platform. Going forward, the BSP will remain proactive in assessing and responding to the needs of its most important resource – its employees. Before I end, allow me to leave you with a famous quote from the late UK Prime Minister Harold Wilson on progress and embracing change: “He who rejects change is the architect of decay. The only human institution which rejects progress is the cemetery.” Undeniably, embracing and adapting to the changes in the new economy is key, not only to recover from the effects of the COVID-19 pandemic, but also to move ahead of the game. Thus, gearing towards a digital economy and sustainable banking, and ensuring that the risk management systems, regulatory and human capital remain fundamentally sound may be indispensable in transitioning to the new economy. On behalf of the BSP, I would like to commend the BAIPHIL for its initiatives that reinforce governance and promote capability enhancements in pursuit of banking excellence. BAIPHIL can count on the full support of the BSP for its future endeavors. Thank you and I wish you all a productive afternoon. 6/6 BIS central bankers' speeches
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Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Foreign Chambers Economic Briefing, 15 July 2021.
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Benjamin E Diokno: Bangko Sentral ng Pilipinas’ monetary policies amid the pandemic and vision beyond Covid-19 - journey through digitalization and financial inclusion Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the Joint Foreign Chambers Economic Briefing, 15 July 2021. * * * To the esteemed members of the diplomatic corps, and Board Directors and members of the organizing group, as well as to my other colleagues in government, and to all guests, a pleasant day. Thank you for this opportunity to speak in this economic briefing for the foreign chambers of the Philippines. As delivered to Joint European Foreign Chambers of Commerce 1. Advantage Austria 2. Australian - New Zealand Chamber of Commerce 3. British Chamber of Commerce of the Philippines 4. Dutch Chamber of Commerce in the Philippines 5. European Chamber of Commerce of the Philippines 6. French Chamber of Commerce and Industry in the Philippines 7. German-Philippine Chamber of Commerce and Industry 8. Nordic Chamber of Commerce of the Philippines 9. Philippines-Swiss Business Council (PSBC) 10. Polish Investment and Trade Agency (PITA) 11. Spanish Chamber of Commerce in the Philippines (La Camara) After the World Health Organization (W HO) declared COVID-19 as a pandemic about 1 year and 4 months ago, we can now say that the worst is behind us. The development and global distribution of vaccines within such a relatively short period since the start of the pandemic has proven once again the great crisis-coping ability of mankind. But with the uneven vaccine rollout globally, risks persist. After an estimated contraction of –3.3 percent in 2020, the IMF expects the global economy to grow at 6 percent in 2021 and then moderate to 4.4 percent in 2022. The growth forecast for the global economy by other institutions are also shown in this slide. In the case of the Philippines, we have started to see green shoots as early as the third quarter of last year. Foreign direct investments (FDIs) surged by 45.1% percent for the first three months of the year. Further, investment pledges with the Board of Investments increased by 65.6% percent in Q1 2021 and with the Philippine Economic Zone Authority (PEZA) by 53.9% percent in Q1 2021 from a year ago. As you know, investment approvals are a good leading indicator for actual investments, two or more years down the road. 1/7 BIS central bankers' speeches The passage of CREATE is expected to help attract more investments, both foreign and local, moving forward. Further, investment pledges with the Board of Investments increased by 65.6% percent in Q1 2021 and with the Philippine Economic Zone Authority (PEZA) by 53.9% percent in Q1 2021 from a year ago. As you know, investment approvals are a good leading indicator for actual investments, two or more years down the road. The passage of CREATE is expected to help attract more investments, both foreign and local, moving forward. Further, investment pledges with the Board of Investments increased by 65.6% percent in Q1 2021 and with the Philippine Economic Zone Authority (PEZA) by 53.9% percent in Q1 2021 from a year ago. As you know, investment approvals are a good leading indicator for actual investments, two or more years down the road. The passage of CREATE is expected to help attract more investments, both foreign and local, moving forward. Trade has picked up. In the first four months of this year, exports and imports expanded by 19 percent and 21.9 percent, respectively, from the same period last year. Meanwhile business confidence weakened for Q2 and Q3 2021, primarily due to concerns on the surge of COVID-19 cases in March and April this year. Country’s consumer sentiment, on the other hand, continued to improve citing expectations of more jobs and permanent employment, additional/higher income as government continues to ease mobility restrictions amidst accelerated vaccine rollout and the sustained implementation of measures to address the challenges from the pandemic. Remittances jumped by 4.8 percent for the first four months of the year from a year ago. This highlights the sustained resilience of overseas Filipino remittances. Last year, they declined by a mere 0.8 percent versus the double-digit decline projected by private sector analysts. The contraction in our gross domestic product (GDP) is on a decline, and according to the National Economic and Development Authority (NEDA), we an look forward to a positive GDP growth in the second quarter of this year despite the stricter quarantine restrictions due to the recent virus surge. Crisis Response from the BSP Going into the crisis, the Philippines had ample fiscal and monetary buffers to deal with shocks— and these have been used extensively and wisely to aptly respond to the crisis. On the monetary front, manageable inflation allowed the BSP to cut the overnight borrowing rate by 200 basis points from 4.0 percent to a record low of 2.0 percent. The BSP also cut the reserve requirement further to 12 percent from 14 percent, thus freeing up more funds for lending to businesses and households. On top of these conventional monetary actions, the BSP implemented unprecedented measures to squarely respond to the crisis. 2/7 BIS central bankers' speeches We granted provisional advances worth Php540 billion (US$ 11.2 billion) to the National Government to augment its resources for COVID response. The BSP’s charter allows us to extend lifeline support to the government in times of crisis, with proper safeguards. This facility, which allows short-term financing, does not serve as a long-term source of funds for the government because they are temporary, time-bound, and capped. The BSP has also purchased government securities in the secondary market to lift market confidence. However, this activity has been scaled down, as the economy recovers. In sum, the BSP has so far injected Php2.2 trillion (US$45 billion) into the financial system, equivalent to about 12 percent of GDP (as of June 10, 2021). Domestic liquidity has remained ample through the liquidity-easing measures of the BSP. Preliminary data show that domestic liquidity expanded by 4.7 percent year-on-year to about ₱14.3 trillion in May 2021. Bank lending growth, however, remains tepid. Preliminary data show that outstanding loans of universal and commercial banks fell by 4.0 percent in May following a 5.0-percent decline in April. The BSP also implemented various time-bound regulatory relief measures so banks and their customers can manage the impact of the crisis on their balance sheets and finances, and so there is more room for lending. Among these are grace periods for loan payments, capping of interest rates on credit card usage, staggered booking of loan losses, counting of loans to micro, small, and medium enterprises (MSMEs) as compliance to the reserve requirement, increase in the single borrower’s limit, and higher limit on real-estate loans. Meantime, on top of the time-bound regulations to help manage the impact of the pandemic, the BSP also continues the task of enhancing the regulatory environment for financial sector and overall economic development. One of our most recent initiatives is the enhancement of the Know Your Employees (KYE) guidelines to enhance operational risk management of banks. Another is the set of amendments to regulations on securities custodianship and securities registry operations, consistent with the aim of strengthening investor protection and developing the domestic capital market. We also recently launched the Rural Banking Strengthening Program (RBSP), under which an Interagency Working Group (IAW G) chaired by the BSP was created to help fulfill the objective of rural banking development. An initial package of proposed policies, programs and reforms for the rural banking industry will be submitted to the BSP’s Monetary Board by the end of 2021 Exit Strategy Meantime, given the enormous stimulus from the BSP, the question on unwinding always surfaces. We recognize that economic recovery is still in its nascent phase. As such, we will keep our 3/7 BIS central bankers' speeches monetary policy supportive of growth and allow previous monetary easing to work its way to the economy. The BSP will withdraw monetary support only when there are indisputable signs of solid economic recovery amid a manageable inflation environment, as well as a sustained downtrend in community transmission of the virus. When it comes to exit strategy, the BSP recognizes the necessity of carefully balancing the need to ensure sustainability of recovery and the need to guard against risks to the BSP’s price and financial stability objectives. Build Back Better For the Philippines, the theme that has resonated amid the pandemic is “Building Back Better.” This means we do not merely aim to recover from the crisis; instead, we want to have a “New Economy” that is stronger, more technologically advanced, and more inclusive than before the COVID crisis. When talking about building back better, two things come to fore: digitalization and sustainability. Digitalization Last October, the BSP launched the “Digital Payments Transformation Roadmap.” With it, we aim to transform from a cash-heavy into a cash-light society where at least half of financial transactions are done digitally and where the presence of digital financial services increases the number of Filipinos with financial accounts to at least 70 percent of the adult population by 2023. The rationale of financial digitalization is simple: it makes financial transactions easier and faster, thereby accelerating income growth. It also makes financial products and services accessible to a greater number of people, thereby enhancing financial inclusion. Financial transactions done via the digital platforms InstaPay and PesoNet jumped 155.4 percent and 22.0 percent year-on-year, respectively, in May 2021 vs. May 2020. Also, more than 8 million electronic money accounts were created since last year. We expect further growth in electronic money accounts, especially with the BSP’s recent approval of three license applications of three digital banks, namely Overseas Filipino Bank, Tonik Bank, and UNO Bank. The recently issued Open Finance Framework will also help accelerate digitalization and inclusion. Under this framework, consent-driven data portability, interoperability, and collaborative partnerships between financial institutions and fintech players are promoted. Consumers will have the power to grant access to their financial data that will shape a customer-centric product development objective. The framework covers different financial institutions and a broader array of financial products such as, but not limited to, banking products and services, investments, pensions, and insurance. We have also launched programs that will allow more extensive use of QR codes for payments. Soon we will see QR codes being used for various retail payments. 4/7 BIS central bankers' speeches Given all our efforts toward digitalization, we envision a Philippines where everyone is empowered with financial accounts and will be able to make us of a wide range of financial transactions through digital means. Sustainability The Philippines recently submitted its “Nationally Determined Contributions” to the UN Framework Convention on Climate Change. Under its commitment, the Philippines aims to reduce its projected carbon emissions by 75 percent by 2030. The BSP is one with the entire Philippine nation in stepping up efforts toward sustainable economic development. Our work on sustainability falls on various areas: First, capacity building. The BSP has joined global and regional networks that aim to promote sustainable finance for capacity-building purposes. Such networks include Sustainable Banking Network (SBN) and the Network for Greening the Financial System (NGFS), Association of Southeast Asian Nations (ASEAN), Executives' Meeting of East Asia and Pacific Central Banks (EMEAP), and the Alliance for Financial Inclusion – Inclusive Green Finance (AFI-IGF).] Second, enabling regulations. In April last year, the BSP issued the Sustainable Finance Framework (Circular No. 1085), which forms the first phase of our enabling regulations on sustainability. The framework sets out broad supervisory expectations on the integration of sustainability principles in the corporate and risk governance systems, as well as in the business strategies and operations of banks. The second phase of regulations – for which a draft is already out for industry comments – will focus on more specific expectations on the integration of climate change and environmental and social risks to the enterprise-wide risk management frameworks of banks. The third phase will include potential incentives to banks to accelerate the process of adopting sustainable principles. The BSP has also strengthened governance on treasury activities and streamlined processes to allow for more bond issuances of BSP-supervised financial institutions and contribute to the growth of capital markets. More than USD 1.0 billion and PHP 85.4 billion worth of green, social, and sustainability bonds have been issued by “first mover” banks since 2017. Third, collaboration with other government entities. The BSP collaborated with key government agencies through the Green Force. The group aims to institutionalize and facilitate the implementation of a roadmap for sustainable finance. It also aims to facilitate investments in public infrastructure and mobilize funds to finance SDGrelated projects such as clean energy. The inter-agency group is currently reviewing the draft principles-based taxonomy and finalizing 5/7 BIS central bankers' speeches the sustainable finance roadmap for the Philippines. Fourth, internal program. The BSP launched its internal Sustainable Central Banking Program, which fosters environmentally responsible and sustainable policies and work practices within the BSP. Among which, we have started prohibiting single-use plastics within our premises. This should help instill environmentally sound habits among our employees—ahead of the anticipated nationwide ban on single-use plastics that comes along our commitment on carbon emission reduction. Other initiatives. Meantime, the BSP invested $350 million in the Green Bond Fund launched by the Bank for International Settlements (BIS) as part of sustainable investing on reserve management. Also, our financial digitalization agenda—besides the obvious goals of enhancing financial inclusion and faster economic growth—will help significantly reduce the country’s carbon footprints. Various reports have said that amid the pandemic, air, and water quality in various parts of the world has considerably improved. However, as economies start to recover whether the environmental improvements are sustainable remains questionable. The lesson from COVID-19 is loud and clear: The world needs urgent and drastic actions toward sustainability. The quest for economic progress should go hand in hand with the goal of environment protection. Central banks are able to help achieve the desired change through regulations that encourage the financial sector to adopt sustainable practices. The BSP is up to this task. And we enjoin our regulated entities and the entire public to join us in this pressing and worthy cause. Moving on to the outlook on the Philippine economy. For 2021, ● The Development Budget Coordination Committee expects the economy to grow by 6.0 to 7.0 percent this year. ● Inflation to settle at the high end of the target range of 2-4 percent; The risks to the inflation outlook remain broadly balanced around the baseline projection path. The uptick in international commodity prices amid supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation. However, downside risks to the inflation outlook continue to emanate from the emergence of new coronavirus variants, which could delay the easing of lockdown measures and temper prospects for domestic growth. ● Goods exports and imports to rebound to a growth of 10.0 and 12.0 percent, respectively; ● Remittances to grow by 4.0 percent. 6/7 BIS central bankers' speeches ● Net inflow of foreign direct investments to rise to USD 7.5 billion from last year’s USD 6.5 billion; ● External accounts to remain healthy, with hefty gross international reserves and surpluses in the current account and the balance of payments (BOP); and ● The peso to continue reflecting emerging demand and supply conditions in the foreign exchange (FX) market as well as external developments, including increasing availability of antiCOVID vaccines, recovery of remittances, foreign investment inflows, and exports rebound as world economic conditions improve. The expected growth drivers on both the demand and supply sides are shown on this slide. The banking sector have also kept the impact of the crisis manageable. Among other indicators, capital adequacy ratio (CAR) remains well above the regulatory requirement, non-performing loans ratio remains manageable and far from levels seen in the aftermath of the Asian financial crisis. The implementation of the FIST Act is projected to reduce average NPL ratio of the banking system by 0.6 to 5.8 percentage points for the years 2021 to 2025. Liquidity coverage ratios also are above regulatory requirements. We expect the banking sector to continue supporting the Philippine economy, through financial intermediation, toward recovery and further to the New Economy. In closing, I would like to highlight three take-away messages: • First, the Philippine economy is on the mend and is expected to revert to robust pre-pandemic growth levels by the middle of next year. • Second, the BSP will continue to support the economy. The BSP recognizes that the timing for the unwinding of our response measures is crucial. We will carry out disengagement strategies in a way that avoids risks associated with early or late implementation; and • Finally, before the pandemic, the Philippines was on its way to become an upper middleincome economy. But we do not simply aim to recover. In the post-pandemic era, we want to be stronger, more technologically advanced, and more inclusive than ever before. Strong economic Indicators are showing we are headed there. As such, we hope to have you as our partners as we build back better and endeavor to reach new heights in the post-pandemic era. Thank you. 7/7 BIS central bankers' speeches
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Keynote speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BSP Research Fair "Central Banking in the Time of Pandemic", organized by the BSP Research Academy, virtual, 12 July 2021.
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Benjamin E Diokno: Bangko Sentral ng Research Fair “Central banking in the time of pandemic” Keynote speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the BSP Research Fair “Central Banking in the Time of Pandemic”, organized by the BSP Research Academy, virtual, 12 July 2021. * * * Good morning to our speakers and participants. Thank you for gracing this milestone event for the BSP, a timely testimonial of the BSP’s support for robust and evidence-based research, especially as we celebrate 72 years of central banking in the Philippines, and 28 years as the Bangko Sentral ng Pilipinas. This Research Fair represents many firsts for the BSP: It is our first International Research Fair organized by the recently established BSP Research Academy. As you know, we have a Main Conference for Day 1 and a less formal Research Café for Day 2, co-hosted with The SEACEN Centre. It is also the first completely virtual international conference organized by the BSP, where various researchers from local and international institutions are presenting their papers. This is also the first international conference of this nature we have organized since the onset of the pandemic. This year’s theme, “Central Banking in the Time of Pandemic” is the most pressing issue facing central banks today. The repercussions of the COVID-19 pandemic are unprecedented in our global economic history, even when compared to the Spanish Flu of 1918—the most devastating pandemic of all time in terms of the number of deaths. This is also because the COVID-19 pandemic has, in effect, caused a trio of shocks—a supply shock, a demand shock, and a shock to financial systems, as well. The COVID-19 pandemic is the first epidemic in the world’s history that has caused significant damage not only to people, the health sector and the macroeconomy, but also posed a considerable potential threat to the stability of financial sectors. Financial market reaction to the uncertainty and risks during the acute stages of the COVID-19 outbreak have led to significant strains in global financial markets. In the first quarter of 2020, there were sharp downfalls in the equity markets in advanced economies, as well as in emerging market economies. The speedy and substantial monetary and fiscal responses of policymakers have prevented a liquidity crisis, which would have had dire and pervasive economic and financial stability implications. Specifically, central banks reacted rapidly to market turmoil starting in March 2020 by adopting a wide-ranging set of emergency liquidity facilities and engaging in long-term government asset purchases. While monetary policy only plays a complementary role, it is a critical one. The BSP was among the central banks to be the first to respond to the crisis through the enactment of liquidity-enhancing measures. In fact, our policy rate cuts have amounted to a total of 200 basis points since March 2020. 1/4 BIS central bankers' speeches BSP’s accommodative monetary policies were aimed at alleviating any expected tightness in liquidity conditions, uplift business and consumer confidence, and help maintain the orderly functioning of the Philippine financial system. We also implemented some extraordinary measures including provisional advances to the National Government (NG) and the purchase of government securities in the secondary market. On the regulatory front, we implemented time-specific and well-targeted regulatory and operational relief measures to encourage BSP-supervised financial institutions to continue supporting the domestic economy. Specifically, the BSP reduced the reserve requirement rate and provided for alternative reserve compliance for lending to Micro- and Small and Medium Enterprises or MSMEs. We treated loans to MSMEs as compliance to the reserve requirement, increased the single borrower’s limit, and raised the ceiling for real-estate loans. We also allowed a grace period for loan settlement and restructuring of rediscounted loans. Such moves provided relief to banks and their borrowers. IMF Chief Economist Gita Gopinath, at the 3rd APEC Structural Reform Ministerial Meeting last June 16, 2021, in fact commended the Philippines as among the ASEAN-6 economies which effectively provided liquidity support to firms, including through loan moratoria and government guarantees. These various policies, she continued, have “…helped preserve future living standards, and benefit disproportionately lower-skilled workers and SMEs that would have been worse off otherwise.” Just as the BSP acted quickly to mitigate the economic and financial impact of the pandemic, and we are now carefully assessing the appropriate timing for the transitioning from our accommodative stance. We realize that doing this too late or too early could have serious repercussions on the economy. Success on the public health front combined with carefully targeted fiscal support will help boost consumer and business sentiment and lead the economy to its sustainable growth path. Building confidence in the fundamental strength of the Philippine economy in an environment of uncertainty and volatility requires skillful handling of our policy levers. Moving forward, we anticipate the communication challenges related to the scaling back of the accommodative monetary policies, when necessary, as economic recovery gets underway. Monetary policy needs to be flexible to shifts in economic and market conditions. As the BSP closely monitors any emerging risks to financial stability, various macroprudential measures and monitoring tools remain in place. We also look at external risk factors, including global economic growth and shifts in monetary policy in major economies, as we assess how they can impact domestic financial and growth conditions. More importantly, an integral part of the BSP’s policy agenda is making sure that the Philippines is able to get back on a balanced and sustainable growth path as soon as possible. In this regard, the BSP is working closely with the national government to advance the structural reform agenda, including transforming the financial landscape so that it is future-ready through digitalization and environmentally sustainable practices. Digital payments transformation has been helping us cope with the mobility restrictions put in 2/4 BIS central bankers' speeches place. It is a good thing that the country had been gradually embracing financial technology even before the pandemic hit. The rapid acceleration of digital transformation was in fact catalyzed by the COVID-19 pandemic. In 2020, the volume of PESONet transfers surged to 15.3 million, up by 376 percent year-onyear. The value of PESONet transactions rose by 188 percent, year-on-year, to reach nearly 951.6 billion pesos—equivalent to about 5.3 percent of the country’s GDP. In the same period, the number of payments made through InstaPay reached 86.7 million, up by 459 percent year-on-year. Said transactions were valued at 463.4 billion pesos, which was a 340-percent increase year-on-year. This amount of InstaPay transactions is equivalent to about 2.6 percent of GDP. The BSP took this opportunity to advance initiatives that would push digitalization in the financial industry even further. To this end, launched the Digital Payments Transformation Roadmap last year. The roadmap identifies two critical strategic objectives. The first objective, also my personal goal as BSP Governor—is that at least 50 percent of the country’s total financial transactions be done digitally, and at least 70 percent of Filipino adults must have financial accounts. The second objective involves the availability of more innovative digital financial products and services. These products and services, designed to be responsive to consumers’ needs, will be enabled by a digital PhilSys ID and supported by a next-generation payment and settlement system that facilitates the real-time processing of financial transactions. All these measures are integral parts of the strategy to become the central bank that understands the needs of the Filipino people and help them achieve their aspirations in life. While the ongoing crisis has subjected us to extraordinary challenges, it has also given us the opportunity to accelerate our efforts in bringing the BSP closer to the Filipino people. Through digitalization, we help create opportunities for them to improve their lives and participate in the formal sectors of the macroeconomy and the financial system. This way, we also promote financial inclusion, as digital payments help consumers confidently engage in economic activities with ease and security. In fact, in a report titled “Global Microscope 2020: The role of financial inclusion in the Covid-19 response” by the research arm of The Economist Group, the BSP was recognized for its initiatives to mitigate the adverse economic impact of the current global health emergency. In closing, I would like to highlight three strengths that we are pitting against the trio of shocks we are facing: • First, we continue to maintain strong macroeconomic fundamentals. Together with carefully thought-out public health responses and an efficient rolling out of the vaccination program, these will carry the Philippine economy toward sustainable recovery. Monetary policy will remain accommodative until domestic demand and overall macroeconomic activity recovers, keeping in mind our price and financial stability objectives. • Second, targeted fiscal support remains central to the COVID-19 response during the pandemic, and these are meant to minimize any permanent scars on the Philippine economy. • And third, we reiterate our continued support for structural reforms that are aimed at raising the country’s competitiveness and helping transform the financial landscape so that it is future-ready 3/4 BIS central bankers' speeches through digitalization and green finance. In this time of the pandemic, we realize more than ever before that the production of objective and comprehensive research and the promotion of the research culture in the BSP is important. Central banks have long benefitted from academic contributions to monetary policymaking and many other aspects of central bank practice. Academics and independent researchers, and the institutions that they come from, provide guidance in theoretical foundations as well as in the actual conduct of policy. It is, therefore, a privilege and an inspiration for me to be among the distinguished researchers today who have conducted top-caliber and rigorous research on the impact of the pandemic amid these difficult times. A total of ten research papers would be presented over the next two days of our Research Fair. Just to mention a few, the paper titled ‘Stay at Home! Macroeconomic Effects of PandemicInduced Job Separation Shocks’ to be presented by Dr. Batu examines the importance of monetary policy in limiting the economic damage caused by labor market uncertainties related to the COVID-19 pandemic; their empirical evidence finds that there is indeed a link between uncertainty in the job separation rate and macroeconomic variables. Meanwhile, based on the empirical evaluation utilizing a Disaster Index rooted on four health and economic indicators by Drs. Mariano and Ozmucur in the paper ‘Fighting COVID-19: Patterns in International Data’, Singapore is among the best performers in the sample. Our very own Dr. Basilio of BRAc will be sharing with us the empirical results from an application of the S-I-R Pandemic Model in the case of the Philippines, where he is able to estimate the macroeconomic impact of this pandemic under various scenarios. I am just as eager to listen to the presentations from our institutional and junior researchers during the Research Café tomorrow, which we are conducting in collaboration with the SEACEN Centre. Our promising authors will be discussing equally relevant central banking issues such as the analysis of the Fintech model for PESONet, the impact of the digital payments system to financial inclusion indicators, and an empirical analysis of the evolution of market interest rates during the pandemic, to name some of them. I am looking forward to the research paper presentations for this year’s Fair. In the words of Leonardo da Vinci: “Learning never exhausts the mind.” When you look at history, innovation comes from creating environments where ideas can connect, where there is an exchange of ideas. It is, in fact, the father of Economics John Maynard Keynes who said: “Ideas shape the course of history.” Thank you everyone and good morning. 4/4 BIS central bankers' speeches
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