Tetangco sees more policy reforms

MANILA, Philippines -  While the country’s banking system is benefiting from the prudential frameworks adopted following the global financial crisis, the Bangko Sentral ng Pilipinas (BSP) is not letting its guards down.

“There is still much more that needs to be done. And as in the past, we look to those of you in the market to join us in the work ahead,” BSP Governor Amando Tetangco Jr., said during the just-concluded 2nd Asian Banker Philippine International Banking Conference.

Tetangco said policy questions are evolving as global and domestic conditions are evolving.

“Second, conduct and the performance standards that market participants must adhere to are also shifting. Thus, traditional financial relationships aren’t necessarily still true. Finally, time-honored policy transmission mechanisms no longer seem to hold in the past,” the monetary regulator said.

Tetangco said that the work agenda is complex and far reaching, with key reform initiatives, which includes Basel 3, corporate governance, consumer protection and financial education, financial market infrastructure and crisis preparedness.

“These initiatives are on our radar screen today in the context of unifying the prudential architecture of financial stability. None of these is trivial, each one of these requires a keen eye for details and a broader appreciation of how each interconnects with another, and each is essential in the pro-active management of any underlying pressure points that may be brewing,” he added.

Nevertheless, the regulator stressed that the Philippine banking system remained in a position of strength, which was a direct result of the prudential framework.

“We expect to further evolve with the needs of the public at large as well as the institutions that we oversee,” Tetangco added.

Deposits grew faster in the six years after the height of the crisis than the years before. Between 1999 and 2007, deposits grew a little over eight percent annually. But from 2007 – at the time that the mortgage crisis was already unfolding in the US – Philippine system-wide deposit balances increased by 13.4 percent per year all the way to 2011.

On the loan side, the numbers are even more dramatic. Loans have been growing at a 10.62-percent pace per year in the last four years (2007 to 2011) when it was growing by only 3.67 percent yearly in the eight years from 1999.

Tetangco noted that increased loan portfolio was not a case of liquidity chasing after every credit exposure.

The non-performing loan (NPL) ratio has been falling since the turn of the century just as the coverage ratio has been rising. Universal and commercial banks reflect an NPL ratio of 2.06 percent and a coverage ratio of 135 percent.

The regulator said that all of these metrics converge into the capital adequacy ratio (CAR), which is the central, though not exclusive, metric under the Basel Accord.

The often-cited statistic is that banks have consistently maintained, on average, capital ratios well above the regulatory thresholds.

On a consolidated basis, system CAR is hovering at 17 percent, of which 14 percentage points pertain to the Tier 1 ratio.

Even more significant, the banking system has made financial inclusion a reality.

“Today, we have a wider reach not only from the significant increase in physical banking officers – which surged from 21,394 at end 2007 to 26,057 at end 2011 – but also through ATMs – which grew from 7,155 to 10,659 over the same period – and the active use of technology through our mobile banking framework.

“Indeed, it can be said that we now have a wider footprint of banking services that caters to the needs of our differentiated public,” he added.