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ADB urges RP to control risk taking by banks |
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(December 16, 2003 - Tuesday, The Philippine Star)
By Ted P. Torres The Asian Development Bank (ADB) strongly urged the Philippine economic and monetary authorities to ensure the accelerated growth of credit into the system if the Philippine economy is to move at a higher growth path next year. |
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"With the benign inflation environment, there may be room for further easing monetary policy. The SPV (special purpose vehicle) law is a positive step toward providing a framework to resolve the bad debt problem, and to encourage banks to resume lending. In addition, the monetary authorities must closely supervise the financial system to prevent excessive risk taking," it said in its quarterly report released recently.
The problem of credit is particularly magnified in the rural areas where non-government organizations (NGOs) have been forced to fill-in the shortage of reasonable access to credit. The timely development of the microfinance sector has also somewhat eased the problem of access to legitimate credit. One of the major reasons for the credit "shortage" is the debt hole that most financial institutions have been trapped. The non-performing loan (NPL) ratio stood at 15 percent at the start of the year, increased slightly through the first half, then improved to 14.5 percent in September. The SPV law was enacted at the start of the year designed to address the accumulation of bank’s huge bad debts. The law aims to speed up disposal of non-performing assets (NPAs) without directly using public funds or creating a state-owned asset management company. Tax incentives and fee abatements will encourage banks to sell bad assets and attract investors to set up SPVs. A two-year window, which began in April, allows banks to transfer as much as 50 percent of their eligible NPAs into SPVs. The Bangko Sentral ng Pilipinas (BSP) reportedly approved four certificates of eligibility to transfer such assets late this year. But the establishment of SPVs has been slow, with the Securities and Exchange Commission (SEC) approving the registration of only one since the law was passed. There have been few takers and the asset management companies (AMCs) that took a shot at forming SPV have been unsuccessful. Majority of the financial institution’s would prefer to work out their bad assets and debts. Still another factor for the country’s financial constraints is the high cost of borrowing making it a poor investment site for both local or foreign business groups. Capital formation in the Philippines remains among the lowest in the region that its economic growth and productivity followed suit. The country thus came out as having the lowest gross domestic product (GDP) per capita growth likewise resulting in the slowest poverty reduction rate. Low productivity was reflected in the country’s labor productivity. From P38,000 in 1981, it slipped to P32,000 in 1985, and it has remained in that level till the present. Meanwhile, the BSP plans to introduce several measures to reduce risky lending, including tightening the rules for lending to a bank’s own directors, officers, and stockholders. The banking system remains healthy in terms of capital, with its risk weighted capital adequacy ratio (CAR) at 16.6 percent at end 2002, well above the eight percent of the Bank for International Settlement (BIS) norm. Bank’s return on assets increased to 0.8 percent in June from 0.6 percent a year earlier. The Philippine peso has been volatile and weak for the most part of 2003. Early this year, market concerns over the Iraq war and the budget deficit kept the currency soft against the dollar. Monetary tightening, seasonal inflows of remittances, and the better fiscal performance helped the peso recover from the late March to early June, while downgrades in sovereign debt ratings eroded the gains. The July mutiny attempt stated another run on the peso and further political uncertainties and the resignation of the finance secretary kept it weak. The currency depreciated four percent by late November from the start of the year, the ADB reported. The BSP introduced measures such as limiting the tenor of forward contracts to reduce currency speculation and imposed sanctions against banks violating BSP foreign-exchange regulations. The peso depreciation, however, did allow the country to maintain its competitiveness, with the real effective exchange rate index showing a real depreciation of 8.3 percent on average during the first three quarters. To improve corporate governance, the Securities and Exchange Commission (SEC) issued the Code of Corporate Governance. This code requires that financial statements of listed companies and other issuers of public securities be audited by an accredited external auditor. The SEC plans to extend this requirement to companies holding secondary franchises from the SEC, including brokers, dealers, and investment houses. The multilateral agency had forecast that the Philippines would grow by four percent in terms of GDP this year and by 4.5 percent in 2004. In terms of current account balance as a percentage of the GDP, the country slipped from five percent last year to a project two percent this year and 2.5 percent next year. |
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