APD | Philippine banking system's stability and soundness became pillar of economic strength

By APD writer Melo M. Acuna

MANILA, Jan.29(APD) – Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla said while 2018 began with much optimism coupled with the International Monetary Fund’s confidence of a strong cyclical upswing, the resurgence in world trade and improvements in investments in advanced and emerging economies, the latter part of the year’s downside risks have become more pronounced.

In his remarks before the Tuesday Breakfast Club read by Deputy Governor Cyd Tuaño-Amador, the governor said the IMF downgraded its global growth forecast in its October World Economic Outlook.

“Despite challenges, the domestic economy posted GDP growth of 6.2 percent in 2018,” he said.

He admitted global developments including the increase in international crude oil prices, accompanied by domestic supply-side pressures amidst firm demand conditions, “pushed inflation beyond the upper bound of government’s target range.”

Governor Espenilla said the BSP decisively raised policy rates by a cumulative total of 175 basis points “to anchor inflation expectations and to prevent second-round effects” as headline inflation began to decline.

“Latest inflation forecasts stand at 3.2 percent this year, and 3.0 percent in 2020,” Governor Espenilla explained.

He reported as end-November 2018, total banking system resources rose to P16.7 trillion with a 10.3 percent increase year-on-year which he went on to describe as “historic high.” Bank lending reached P9.1 trillion with an expansion of 15.5 percent year-on-year, channeled mostly to productive sectors with strong forward linkages.

He added asset quality improved with non-performing loan (NPL) and non-performing assets (NPA) continuously declined from 2001. NPLs declined from 16.9 percent to 1.9 percent while NPAs declined from 14.6 percent to 1.8 percent as of end-November 2018. Capital adequacy ratios (on a solo and consolidated basis) remain “well above international standards.”

The country’s most senior bank official said these developments reflect the growing trust in the banking system, prudence in banking operations and the critical role of banks in propelling economic growth.

“Ample buffers helped the country weather external headwinds,” Mr. Espenilla added.

He said while the (Philippine) peso experienced some depreciation pressures while serving as a shock absorber amidst external sector developments, this came to be due partly to strong demand for imports of capital goods, raw materials and intermediate products which reflected in turn the requirements of a growing economy.

With the country’s gross international reserves (GIR) at US$79.2 billion as of end-December 2018, the amount is sufficient to cover seven months of imports.

He said the country’s economy has remained resilient in the face of volatility.

“There is therefore basis for cautious optimism this 2019. But while we are sanguine about the future, vigilance is warranted,” he explained. He mentioned the uncertainty in the timing, pace and magnitude of the US Federal Reserve’s policy rate hikes. He said the continuation of US monetary policy normalization could have short-term knock-on effects on the global economy which include the potential capital flow reversals in emerging economies.

He added with rising populist sentiment world-wide, “there is greater inclination towards ‘inward-looking’ economic policies which is a shift from the trade and cooperation-based world order.”

He said an escalation of trade tensions between the US and China “could threaten global trade and growth as well as dampen business sentiment.”

Governor Espenilla cited the rapid technological innovation, while the Fourth Industrial Revolution which brings benefits, the velocity and depth of transformation could have disruptive effects.”

Given all the existing conditions, the Bangko Sentral ng Pilipinas, Governor Espenilla said will remain steadfast in safeguarding price and financial stability as policies will continue to be responsive to the changing environment with decisive and careful reforms.

“Data dependent monetary policy, guided by inflation forecasts, will be timely and prudent,” he assured his audience as he underscored their commitment to fine-tuning monetary operations as they consider further refinements of Interest Rate Corridor (IRC) framework.

Forward-looking, the BSP will continue to pursue measures to further deepen the domestic capital and foreign exchange markets.

“Lastly, the BSP has been expanding its surveillance tools to better monitor systematic risks which involves exploration of Big Data applications and machine learning algorithms to enhance current macro-financial surveillance, economic research and policy evaluation,” Governort Espenilla concluded.

(ASIA PACIFIC DAILY)