Banks healthy, ready to compete in Asean
The Philippine banking sector is probably the most prepared sector to face the incoming regional economic integration.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. says the series of reforms implemented in the past have strengthened local banks and will enable them to compete head-on with their bigger foreign counterparts in Southeast Asia.
The banking regulator adopted the principles of the capital requirements for Basel 3, in what Tetangco said was a “one go” and at a higher level than the international standards starting January this year.
Basel 3 is meant to reduce the risk of systemic banking crisis, with the quality of capital further improved to ensure its ability to absorb losses.
Based on March 2014 Basel 3 CAR (capital adequacy ratio) report, Philippine banks remained above the regulatory minimum requirement. On solo basis, CAR stood at 15.45 percent, in which common equity Tier 1 ratio accounts for 13.44 percent.
The Bangko Sentral and the banking sector are currently collaborating on the forthcoming implementation of the other components of the Basel 3 framework.
Second, the Bangko Sentral is refining regulations to achieve greater financial inclusion, especially leveraging off of technology by optimizing the use of electronic money.
“To illustrate, it took more than 160 years before the number of local bank offices reached 9,884. Yet it only took four years before the number of e-money agents reached 10,620,” Tetangco said before Asian bankers in a recent event in Makati City.
“At the same time, the BSP continues to strengthen consumer protection with the release of a comprehensive consumer protection framework,” Tetangco said.
The third reform was the strengthening of the governance in banks. The Bangko Sentral imposed a fit-and-proper criteria on directors, while clearly articulating their duties and responsibilities, including the expectation for each board member to exercise objective judgment at all times.
Banks also have institutionalized a compliance system to reinforce checks and balances in the institution. The central bank highlighted the importance of having an effective risk management system. All these are accompanied by regular monitoring and strengthened enforcement actions.
Fourth, the Bangko Sentral fully supported the further liberalization of the entry of foreign banks into the Philippine market.
President Benigno Aquino III in July this year signed into law Republic Act 10641, which allows the “full entry” of foreign banks into the country in preparation for the Asean regional economic integration in late 2015.
Tetangco says development will further strengthen the banking system and attract more foreign direct investments.
Fifth is the timely and appropriate adoption of international banking reforms to the domestic economic condition.
“We subscribe to the general principles and objectives of the international reform agenda, but we are also pragmatic in our approach to their adoption. While we are in agreement with the goals, we believe that implementation must follow the principle of proportionality to country-specific circumstances,” Tetangco said.
He said one such reform concerned Financial Market Infrastructures or FMIs, the piping that allows trades to be processed and critical risk information to be properly monitored. He said this is critical and a clear challenge for a market such as the Philippines.
“Certainly, we need FMI pipelines to execute market transactions, provide transparency, ensure price discovery, introduce risk mitigation, and generate efficiencies. Nevertheless, many of the FMIs identified by global reforms may not be in synch with the scale of market activity and associated risk in most Asian jurisdictions,” Tetangco said.
Tetangco cited evolving competitive forces from banks outside the region.
“I am confident in the ability of our banks to be up to these challenges. Yes, we may not be a big market with big banks but our continuing reform agenda has made our banks stronger and more stable. And we have an economy whose prospects attract the interest of not just a few,” Tetangco said.