RP seeks $120-M ADB loan for non-bank financial sector

The Philippine government and the Asian Development Bank (ADB) have begun negotiations for a $120-million program loan to finance programs for the non-bank financial sector as well as the implementation of the Anti-Money Laundering Act.

ADB country director for the Philip-pines Thomas Crouch said the program loan would also cover the implemen-tation of reforms in the insurance sec-tor, pre-need industry and the contin-uing policy reforms of the Securities and Exchange Commission (SEC).

According to Crouch, the $120-million program loan is the only program loan scheduled for the Philippines this year and the facility should be available before the end of the first semester.

Crouch said the ADB board is scheduled to meet in July. Once approved by the board, he said the first tranche of the loan would be ready for drawdown.

The loan will be negotiated under the Second Non-bank Financial Governance Program Loan following the completion of the first loan where the ADB granted a total of $150 million.

The appraisal meetings for the loan were handled by Ayumi Konishi, director of the ADB’s Southeast Department whose Governance, Finance and Trade Division made the preparations for the start of the formal negotiations.

The program is intended to strengthen the governance and enforcement capacity of the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) as more transparency is introduced in the market along with enforcement of rules and regulations.

Phase 1 of the program involves the enhancement of SEC, modernization of the Philippine Stock Exchange (PSE) and strengthening market oversight, compliance and enforcement by developing market governance, strengthening prudential regulation of NBFIs, preventing misconduct and market abuse; and improving financial management.

Phase II will consist of policy actions which, when agreed between the government and ADB, may form the basis of future ADB assistance to the Philippines in the nonbank financial sector.

According to the ADB, the agenda for Phase II included discussions on the demutualization of PSE; strengthening market regulation; strengthening market governance and compliance; and facilitating diversification and innovation in corporate financing.

According to the ADB, the Asian crisis has highlighted the risk associated with narrow and vulnerable financial structures in the financial system stemming from excessive reliance on bank financing, poor corporate and financial regulations and weak governance including poor compliance with accounting and auditing standards and inadequate disclosures.

The ADB said the Philippines withstood the crisis well but its financial and corporate structure do not conform to high governance standards and lack risk diversification.

"Given the weak policy and regulatory environment, the Philippines exhibits high bank dependence and has not been able to develop well its nonbank finance (NBF) sector," the ADB said. "To lay the foundation for a strong and robust NBF sector, the government needs to launch more broad-based financial and corporate governance reforms."

The ADB said these reforms would include the strengthening of governance and enforcement; introduction of more competition and a level playing field among market financial intermediaries and improvements in financial management, reporting and disclosure.

The program loan, according to the ADB, would support the process of capital formation through improved corporate governance in the nonbank financial sector.