Oct 24, 2008 - services receipts from business process outsourcing, reduced imports of ... to exchange rate overshooting and liquidity management problems.
CONTENTS The Governor’s Foreword Introduction About the BSP Our Vision and Mission The Monetary Board The Management Team List of Acronyms, Abbreviations and Symbols Part One: The Philippine Economy Domestic Economy Aggregate Output and Demand Labor, Employment and Wages Prices Operations of the National Government
1 1 3 4 5
Monetary and Financial Conditions Monetary Conditions Monetary Aggregates Interest Rates Exchange Rates Box Article 1: Addressing the Effects of the Global Financial Crisis Financial Conditions Performance of the Banking System Stock Market Developments Debt Securities Market Developments Credit Risk Assessment
6 6 6 8 11 14 16 16 22 25 30
External Sector Balance of Payments International Reserves External Debt
33 33 36 37
Part Two: The Operations and Policies of the BSP Monetary Stability Financial System Stability Box Article 2: Macro- and Micro-prudential Tools for Financial Stability Payments and Settlements System Box Article 3: Innovations in the Philippine Payments System Key Operations of the BSP Loans and Credit Asset Management International Reserves Management International Operations Notes and Securities Printing Mint and Refinery Currency Issuance and Retirement Economic Research, Statistical and Information Dissemination Activities Box Article 4: The 2009 Philippine Consumer Finance Survey Supervisory Policy Development and Banking Statistical Activities Branch Operations
40 42 46 49 51 55 55 57 58 59 60 60 60 61 67 68 69
Advocacy Programs Institutional Building International Economic Cooperation
70 76 84
Part Three: Financial Condition of the BSP BSP Balance Sheet BSP Net Income
List of Statistical Tables
The Governor’s Foreword While the Philippine economy was buffeted by the spillovers from the global economic slowdown, signs of recovery have emerged in the second half of 2009. The Philippine economy managed to hold its ground through the worst global recession in post-war history as it entered the crisis from a position of relative strength, underpinned by strong macroeconomic fundamentals. Providing further support to the economy were the limited exposure of the banking system to troubled structured financial products, much improved bank soundness, comfortable international reserves level, and lower public debt due to fiscal consolidation pursued in the preceding years. Moreover, resilient remittances and timely policy responses helped cushion the impact of the global financial crisis on the domestic economy. The Philippines posted a respectable GDP growth of 0.9 percent in 2009, avoiding a recession and making it one of the few countries in Asia whose growth remained in positive territory. While this figure was lower than the 3.8 percent GDP growth posted in 2008, it was within the government’s forecast growth of 0.8-1.8 percent in 2009. Expansions in public and private consumption buoyed up the country’s GDP. Providing support to the growth in consumer demand was the marked decline in inflation. Favorable developments in food and energy-related items led to the sustained inflation downtrend in the first three quarters of 2009. Despite the significant uptick in food inflation toward the end of the year due to weather disturbances, inflation averaged 3.2 percent in 2009, well within the 2.5-4.5 percent target range for the year and lower than the 9.3 percent average in the previous year. The sustained slowdown in inflation for much of 2009 allowed the BSP to adopt an appropriately accommodative monetary policy stance. Liquidity-easing measures were undertaken in 2008 and 2009, including the reduction in bank reserve requirements by two percentage points, opening of the US dollar repurchase window, increase in the peso rediscounting budget to P60 billion, and provision of greater accessibility to these facilities to banking institutions. Moreover, the Monetary Board (MB) reduced the BSP’s policy rates by a total of 150 basis points in 2009 to provide liquidity for the orderly functioning of the financial markets and help support the economy against possible fragilities in the operating environment. The corresponding decline in bank lending rates had provided a clear indication that the banks have been passing on the interest rate reductions of the BSP to their borrowers. Starting in August, however, the MB opted to maintain the policy rates noting that inflation expectations have remained within target. The MB also allowed the substantial monetary stimulus measures to work their way fully through the financial system. The country’s external payments dynamics have also remained favorable. The overall balance of payments position recorded a surplus of US$5.3 billion in 2009 as the current account registered net inflows during the year. Although exports, particularly of electronics, were severely affected by the global downturn, the current account balance remained positive, cushioned by resilient remittances, increased services receipts from business process outsourcing, reduced imports of capital and intermediate goods and the significant decline in food and commodity prices. The healthy external liquidity condition has allowed the BSP to build up its gross international reserves (GIR) to a record-high level of US$44.2 billion at year end. At this level, the end-2009 GIR was sufficient to cover nine months’ worth of imports. The corresponding reserve adequacy ratios were around ten times the country’s
short-term external debt based on original maturity and five times based on residual maturity. The record accumulation of foreign exchange reserves provided a sufficient level of resources to service external debt. Moreover, the strong external liquidity position has kept the Philippine peso generally competitive. The peso appreciated by 2.4 percent on a year-to-date basis following the return of risk appetites in the second half of 2009. Strong dollar inflows from overseas Filipinos’ remittances also buoyed up the peso. The banking system has weathered the global financial crisis relatively well because of its low exposures to securitization and off-balance sheet activities. Moreover, critical reforms instituted over the years to clean up banks’ balance sheets, strengthen bank capitalization, improve governance structures, enhance risk management systems, and adhere to international accounting standards, have been successful in steadily expanding and strengthening the system. Growth indicators such as asset levels, loans and deposits continued to post robust increases. Bank earnings also improved during the first half of 2009 as global financial conditions stabilized. The capital adequacy ratio remained high at 15 percent and nonperforming loans also remained generally low at 3 percent of total loans. By all accounts, it seems that the worst of the crisis has passed and economic activity has been gaining traction. Nevertheless, the BSP is mindful of the potential sources of vulnerabilities that could affect the durability and strength of the global recovery. First is the uneven pace of recovery across the globe. The unsynchronized nature of the upturn could potentially lead to sub-par global growth over the medium term. The challenge is to sustain growth and time the exit strategies very carefully. Second, the potential heavy influx of capital flows, as risk appetites perk up, can lead to exchange rate overshooting and liquidity management problems. There is, therefore, a need to explore the use of other tools, including macroprudential tools, to complement monetary policy to address this type of problem without having to complicate the disengagement from the liquidity-enhancing measures implemented during the crisis. Third, the rebound of the global economy, and in turn, global demand, could create upward pressure on commodity prices. And lastly, is the timing of the exit strategy itself. This process needs to be carefully laid out and wellcoordinated across sectors to prevent unwarranted market volatility. Against such a challenging backdrop, the BSP will continue to pursue initiatives across a broad front to nurture a self-sustaining recovery, and beyond that, to enable the economy to realize its full development potential. The BSP will remain attentive to emerging risks to the inflation outlook and reexamine policy settings to ensure that these remain consistent with the goal of safeguarding price stability, while being supportive of economic growth. The BSP has already laid out its disengagement plans – its exit strategies – for the monetary measures implemented during the crisis. These include the alignment of the peso rediscount rate to the BSP’s policy rate, reduction of the peso rediscounting budget from P60 billion to P40 billion, restoration of the loan value of all eligible rediscounting papers from 90 percent to 80 percent of the borrowing bank’s credit instrument, and restoration to two percentage points from ten percentage points of the non-performing loan ratio requirement for banks wishing to avail of the rediscounting facility.
The BSP will also remain supportive of policies that will help cushion the economy from external vulnerabilities. Thus, the BSP will continue to maintain a marketdetermined exchange rate, keep a comfortable level of reserves as self-insurance, and ensure a manageable external debt profile. While supportive macroeconomic conditions are necessary for financial stability, they are, however, not sufficient in ensuring financial stability. The BSP will therefore continue to pursue banking reforms that will further improve the regulatory and supervisory framework, enhance risk management systems, improve banks’ corporate governance structures, strengthen disclosure practices, and enhance macroprudential surveillance capabilities to help minimize the build-up of systemic risks in the financial system. The payments and settlements system will continue to be enhanced. To strengthen the BSP’s ability to achieve monetary and financial stability, the BSP is working for the passage of proposed amendments to its charter. These amendments are aimed at providing the BSP the operational flexibility and adequate legal framework to adapt to changes in the economic environment. The BSP is also involved in key advocacies such as microfinance, credit surety fund, and financial education and learning through the Economic and Financial Learning Center (EFLC) network. These programs aim to empower the citizenry by, among other things, encouraging the efficient flow of information and credit. Through these advocacies, the well-being of Filipinos is uplifted and beyond that, the economic and social fabric of the nation is also strengthened. In sum, the Philippine economy had exhibited resilience during the turbulent period in 2009, primarily because its economic fundamentals had stayed intact going into, during, and moving out of the global downturn. However, there are still obstacles along the way. While downside risks to sustained growth remain, the BSP is steadfastly committed to continue calibrating its monetary policy actions, taking into consideration the inflation outlook, and pursuing financial reforms in order for the recovery to take root more firmly and growth to thrive more robustly.
AMANDO M. TETANGCO, JR
31 March 2010
ABOUT THE BSP “The Congress shall establish an independent central monetary authority… (which) shall provide policy direction in the areas of money, banking and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.” Section 20, Article XII, 1987 Philippine Constitution “The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy. Section 1, Article 1, Chapter 1 Republic Act No. 7653 (The New Central Bank Act)
The BSP’s Legal Mandate The BSP is the central bank of the Republic of the Philippines. It was established on 3 July 1993 as the country’s independent central monetary authority, pursuant to the Constitution and the New Central Bank Act. The BSP replaced the old Central Bank of the Philippines, which was established on 3 January 1949, as the country’s central monetary authority. A government corporation with fiscal and administrative autonomy, the BSP is responsible, among other things, for: • • •
Maintaining price stability conducive to a balanced and sustainable growth of the economy; Formulating and implementing policy in the areas of money, banking and credit; and Supervising and regulating banks and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.
Powers and Functions The BSP’s Charter also provides that, as the country’s central monetary authority, the BSP performs the following functions: •
Liquidity management. The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective of maintaining price stability.
Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins issued by the BSP are fully guaranteed by the Government and are considered legal tender for all private and public debts.
Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.
Financial supervision. The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions.
Management of foreign currency reserves. The BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies in order to preserve the international stability and convertibility of the Philippine peso.
Determination of exchange rate policy. The BSP determines the exchange rate policy of the Philippines. Currently, it adheres to a market-oriented foreign exchange rate policy such that its role is principally to ensure orderly conditions in the market.
Other activities. The BSP functions as the banker, financial advisor and official depository of the Government, its political subdivisions and instrumentalities, and Government owned and controlled corporations.
The New Central Bank Act imposes limitations and other conditions on the exercise of such powers by the BSP. Among others, the Charter limits the circumstances under which the BSP may extend credit to the Government and prohibits it from engaging in development banking or financing.
Our Vision The BSP aims to be a world-class monetary authority and a catalyst for a globally competitive economy and financial system that delivers a high
quality of life for all Filipinos.
The BSP is committed to promote and maintain provide
bringing about a strong financial system conducive to a balanced and sustainable growth of the economy. Towards this end, it shall conduct sound monetary policy and effective supervision
institutions under its jurisdiction.
The Monetary Board
Amando M. Tetangco, Jr. Chairman and Governor Peter B. Favila1 Member Raul A. Boncan2 Member Juanita D. Amatong Member Nelly F. Villafuerte Member Alfredo C. Antonio Member Ignacio R. Bunye Member
Monetary Board (MB) Member Favila was appointed cabinet representative to the MB on 21 July 2008 and took his Oath of Office on 4 August 2008. MBM Favila was appointed as full time MBM on 9 March 2010 (to serve the unexpired term of MBM Raul A. Boncan) and he took his oath of office on 15 March 2010. 2 Retired as member of the MB effective 8 March 2010.
The Management Team Amando M. Tetangco, Jr. Governor
Monetary Stability Sector
Juan De Zuñiga, Jr. Assistant Governor and General Counsel
Vicente S. Aquino Executive Director II
Ma. Ramona Gertrudes D.T. Santiago Managing Director
Diwa C. Guinigundo Deputy Governor
Ma. Cyd N. Tuaño-Amador Assistant Governor
Ma. Aurora L. Cruz1 Managing Director
Wilhelmina C Mañalac Managing Director
Resource Management Sector
Pedro P. Tordilla, Jr. Managing Director 2
Armando L. Suratos Deputy Governor
Willie S. Asto Managing Director
Violeta F. Mejia
Supervision and Examination Sector
Gerardo S. Tison Managing Director
Nestor A. Espenilla, Jr. Deputy Governor
Manuel H. Torres Managing Director
Ma. Corazon J. Guerrero Assistant Governor
Teresita S. Bulseco Acting Managing Director
Ma. Dolores B. Yuvienco Assistant Governor
Johnny Noe E. Ravalo
Security Plant Complex
Leny I. Silvestre Evelyna C. Avila
MD Cruz’s reached the mandatory age of retirement on 4 November 2008, but her service to the BSP as Managing Director was extended for one year, which ended on 3 November 2009. She was designated as a BSP Consultant for six (6) months effective 4 November 2009. 2 Assumed the position of Sub-Sector-In-Charge on 4 November 2009 and concurrent Director, Cash Department.
LIST OF ACRONYMS, ABBREVIATIONS AND SYMBOLS AOAMS AFF ASTD ADDIE AMLC AONCR ACBF AEC AFAS ASEAN+3 AMRO APEC ABMI ABS ADB ADF ASEAN ALs ABPMs BOP BSP BSPI BDI BIS BPR BSPD BCBS BSPI-IMS BOC BIR BTr BES BPS BPI CAR CPPS CD CEMLA CMFP CAS CMI CMIM CTRM CES CDIS CPIS
Acquired and Other Assets Management System Agriculture, Fishery and Forestry American Society for Training and Development Analysis, Design, Development, Implementation to Evaluation Anti-Money Laundering Council Areas outside National Capital Region ASEAN Central Bank Forum ASEAN Economic Community ASEAN Framework Agreement on Services ASEAN plus China, Japan and Korea ASEAN+3 Macroeconomic Research Office Asia-Pacific Economic Cooperation Asian Bond Markets Initiative Asset-Backed Securities Asian Development Bank Asian Development Fund Association of South East Asian Nations Auto Loans Automated Banknote Processing Machines Balance of Payments Bangko Sentral ng Pilipinas Bangko Sentral ng Pilipinas Institute Bank Distress Index Bank for International Settlements Bank Performance Rating Banknotes and Securities Printing Department Basel Committee on Banking Supervision BSPI Integrated Management System Bureau of Customs Bureau of Internal Revenue Bureau of the Treasury Business Expectations Survey Business Partnership Survey Business Process Improvement Capital Adequacy Ratio Career Plan Preference Survey Cash Department Center for Latin American Monetary Studies Center for Monetary and Financial Policy Central Accounting System Chiang Mai Initiative Chiang Mai Initiative Multilateralization Committee on Tariff and Related Matters Consumer Expectations Survey Coordinated Direct Investment Survey Coordinated Portfolio Investment Survey
COCOPEA CMC CCRs CDS CGIF CSFP CBTS DMFAS DSB DSR DDA DBCPs DER DES DepEd DOF DFA DLC DMB DCS DM DBCC DSGE EWS EIU EFLC e-DvP EFTIS EMBI ESEs EOH&SMS EMEAP EFCDU EDC XGSI FECs FIE FLC FLP FRP FRPTI FSF FSI FSR FOF FBT FCDU FDI
Coordinating Council of Private Educational Associations Corporate Monitoring Committee Credit Card Receivables Credit Default Swap Credit Guarantee and Investment Fund Credit Surety Fund Program Cross-Border Transactions Survey Debt Management and Financial Analysis System Debt Service Burden Debt Service Ratio Demand Deposit Account Departmental Business Continuity Plans Department of Economic Research Department of Economic Statistics Department of Education Department of Finance Department of Foreign Affairs Department of Loans and Credit Deposit Money Banks Depository Corporations Survey Deputies Meeting Development Budget Coordinating Committee Dynamic Stochastic General Equilibrium Early Warning System Economist Intelligence Unit Economic and Financial Learning Center Enhanced Delivery-versus-Payment Electronic Fund Transfer Instruction System Emerging Market Bond Index Environmental Scanning Exercises Environmental, Occupation Health and Safety Management System Executives' Meeting of East Asia and Pacific Central Banks Expanded Foreign Currency Deposit Unit Export Development Council Exports of Goods and Receipts from Services and Income Financial Education Campaigns Fixed Income Exchange Financial Learning Campaign Financial Learning Program Financial Reporting Package Financial Reporting Package for Trust Institutions Financial Sector Forum Financial Stability Institute Financial Stability Report Flow of Funds Food, beverage and tobacco Foreign Currency Deposit Unit Foreign Direct Investment
FX FTA FAQs GATS GTz GIMF GOCCs GS GSED GDP GIR GNP HFT HRDD IQA ITSS ISD IPSMMS IACFDIS IACLIPS IACTS ICAAP I-CSS IRAs IAS IASB IFC IFRS IIP IMF IMC IMP JPEPA KM LFPR LBP LTV LDR LAN LGUs MFSO MS MORB MORNBFI MLT MTPDP MOA MOU
Foreign Exchange Free Trade Agreement Frequently Asked Questions General Agreement on Trade in Services German Technical Cooperation Global Integrated Monetary and Fiscal Model Government Owned and Controlled Corporations Government Securities Government Securities Eligible Dealers Gross Domestic Product Gross International Reserves Gross National Product Held for Trading Human Resource Development Department Independent Quality Assessments Information Technology Sub-Sector Instructional Systems Design Integrated Property Supplies and Materials Management System Inter-Agency Committee on Foreign Direct Investments Inter-Agency Committee on Labor, Income and Productivity Statistics Inter-Agency Committee on Trade Statistics Internal Capital Adequacy Assessment Process Internal Customer Satisfaction Survey Internal Revenue Allotment International Accounting Standards International Accounting Standards Board International Finance Corporation International Financial Reporting Standards International Investment Position International Monetary Fund Investment Management Committee Internally-Managed Portfolio Japan-Philippines Economic Partnership Agreement Knowledge Management Labor Force Participation Rate Land Bank of the Philippines Loan-To-Value Loans-to-Deposits Ratio Local Area Network Local Government Units Macroeconomic and Finance Surveillance Office Management System Manual of Regulations for Banks Manual of Regulations for Non-Bank Financial Institutions Medium and Long-Term Medium-Term Philippine Development Plan Memorandum of Agreement Memorandum of Understanding
MSMEs MROD MB MFSC MEM MSS MIPS NPCC NCR NG NHA NSM NSO NDA NFA NIR NBFIs NPAs NPLs OCR OECS ODNA OHS ODCs ODCS OTC OFWs OFs PMS PRS PCE PAS PCHC PCFS PDIC PDDTS PES PFRS PPS-FES PSA PSS PSE PSEi PSALM P/E PM PCA PICs
Micro-, Small- and Medium-Scale Enterprises Mint and Refinery Operations Department Monetary Board Monetary and Financial Stability Committee Multiple-Equation Model Monetary Stability Sector Multi-transaction Interbank Payments System National Price Coordinating Council National Capital Region National Government National Housing Authority National Statistics Month National Statistics Office Net Domestic Assets Net Foreign Assets Net International Reserves Non-bank Financial Institutions Non-Performing Assets Non-Performing Loans Ordinary Capital Resources Organization Enhancement and Capability Strengthening Organizational Diagnosis and Needs Assessment Organizational Health Survey Other Depository Corporations Other Depository Corporations Survey Over-The-Counter Overseas Filipino Workers Overseas Filipinos Performance Monitoring System Performance Review Sessions Personal Consumption Expenditure Philippine Accounting Standards Philippine Clearing House Corporation Philippine Consumer Finance Survey Philippine Deposit Insurance Corporation Philippine Domestic Dollar Transfer System Philippine Economic Society Philippine Financial Reporting Standards Philippine Payments System-Front End System Philippine Statistical Association Philippine Statistical System Philippine Stock Exchange Philippine Stock Exchange Index Power Sector Assets and Liabilities Management Corporation Price-Earnings Project Management Prompt Corrective Action Public Information Campaigns
PPS QBs QMS ROPA REER RTGS RMASS RP Repo RFPs RRELs RMS RTBs RRP RWA SPC SPEI ST SEM SEANZA SEACEN SDA SDR SRF STEP SME SES SRP SIPS TF TCPS TWGs TBs TLP T-bills UITFs UNCTAD U/KBs WB WTO WC-CMD WC-FSL WDIs
Public Perception Survey Quasi-Banks Quality Management Systems Real and Other Properties Acquired Real Effective Exchange Rate Real Time Gross Settlement Regional Monetary Affairs Subsector Repurchase Rate Repurchase Agreement Requests for Proposals Residential Real Estate Loans Resource Management Sector Retail Treasury Bonds Reverse Repurchase Risk Weighted Assets Security Plant Complex Selected Philippine Economic Indicators Short-Term Single-Equation Model South East Asia, New Zealand and Australia South East Asian Central Banks Special Deposit Account Special Drawing Rights Standardized Reporting Format Structured Team Enhancement Program Subject Matter Expert Supervision and Examination Sector Supervisory Review Process Systemically Important Payment Systems Task Force Technical Committee on Price Statistics Technical Working Groups Thrift Banks Total Loan Portfolio Treasury Bills Unit Investment Trust Funds United Nations Conference on Trade and Development Universal/Commercial Banks World Bank World Trade Organization Working Committee on Capital Market Development Working Committee on Financial Services Liberalization Workplace Development Interventions
PART ONE: THE PHILIPPINE ECONOMY Domestic Economy The domestic economy continues to grow
The domestic economy continued to grow amidst the global economic turmoil in 2009. Economic expansion was led by the services, and agriculture, fishery and forestry (AFF) sectors. On the demand side, government consumption and personal consumption expenditure (PCE) were the main growth drivers. In particular, real Gross Domestic Product (GDP) grew by 0.9 percent in 2009, within the government’s growth target of 0.8-1.8 percent in 2009. However, this was lower than the 3.8 percent GDP growth posted in 2008. Real Gross National Product (GNP) likewise grew by 3.0 percent in 2009, although lower than the 6.2 percent posted in 2008 (Table 1). Real Gross Domestic Product and Real Gross National Product Annual growth in percent
10 Real GDP
8 7 6 5 4 3 2 1 0 2003
Aggregate Output and Demand The services and AFF sectors are key contributors to output growth
The services and AFF sectors were the key contributors to the expansion of the Philippine economy in 2009. The services sector, which constituted half of the total GDP, rose by 3.2 percent in 2009. This translated to a 1.5 percentage point contribution to the 0.9 percent GDP growth in 2009. Finance led the growth of the services sector due to the upswing in consumer finance and micro-, small- and medium-scale enterprise (MSME) loans as well as trading of securities. Notable expansions were also registered in private services, trade, and transportation, communication and storage. In the services sector, only ownership of dwellings and real estate posted a decline in 2009.
Real GDP, By Industry Annual growth in percent
Agricu lture, F is hery an d Fo restry In du stry Services
6 4 2 0 -2 -4 2003
The industry sector, which accounted for 31.8 percent of total GDP, contracted by 2.0 percent in 2009 after growing by 5.0 percent in 2008. This sector contributed negative 0.6 percent to the 0.9 percent 2009 GDP growth rate. Nonetheless, growth was recorded in mining and quarrying, and construction supported mainly by higher government spending in public infrastructures. However, manufacturing, and electricity, gas and water both posted contractions during the year in review. Decreased demand for Philippine-made products weighed down manufacturing in 2009. Meanwhile, the AFF sector registered a modest growth of 0.1 percent in 2009, lower than the 3.2 percent growth in 2008. The AFF sector, which accounted for 18.1 percent of overall GDP, contributed 0.01 percentage point to the 0.9 percent GDP growth in 2009. Despite the damage and losses caused by tropical typhoons in the latter part of 2009, the AFF sector managed to post growth due to its strong performance in the first and third quarters of 2009. Government consumption leads demand-side growth
On the demand side, growth was supported by government consumption, which grew by 8.5 percent in 2009 from 3.2 percent in 2008. The robust expansion in government consumption was due to the higher spending by the government to mitigate the effects of the global economic slowdown. Construction also grew by 3.9 percent in 2009, owed chiefly to the various public infrastructure projects in the country. Likewise contributing to the growth of the economy, PCE accelerated at a rate of 3.8 percent during the year in review as a result of an increase in consumer spending. In contrast, exports contracted in 2009 due to the decline in demand as the global financial crisis curbed consumption, especially in advanced economies.
Labor, Employment and Wages Employment growth remains stable amidst crisis
Employment conditions remained generally stable in 2009 amidst the global financial crisis and the extreme local weather disturbances that occurred in the second half of the year. Employment growth averaged 2.9 percent in 2009, based on the four rounds of the Labor Force Survey of the National Statistics Office (NSO) during the year. This is an improvement from the 1.6 percent growth recorded in 2008 (Table 2). The growth of employment translated into about a million (972,000) employed persons to reach 35.1 million in 2009. Employment growth was driven mainly by the services sector (5.4 percent) with modest gains in the industry sector (0.9 percent), while the AFF sector remained almost flat (0.1 percent). Classified by status of employment, wage and salary workers, which comprised the bulk of employed persons, grew by 4.7 percent, while unpaid family workers, employers and self-employed workers rose by 1.3 percent, 0.8 percent and 0.7 percent, respectively. 1 Meanwhile, the average unemployment rate in the four survey rounds in 2009 increased marginally by 0.1 percentage point to 7.5 percent in 2009. The level of unemployed persons grew by 115,000 from the year-ago level, to reach 2.8 million in 2009. This developed as the growth in the labor force outpaced that of employment. The labor force grew by 3 percent, representing an influx of 1.1 million new entrants and re-entrants during the year. This was nearly a two-fold increase from the 592,000 posted in 2008 and was also reflective of the rise in the labor force participation rate (LFPR) to 64 percent in 2009 from 63.6 percent in the previous year. The underemployment rate continued to decline to 19.1 percent in 2009 from 19.3 percent in 2008. Meanwhile, the total number of overseas Filipino workers rose by 11.7 percent to 1,284,133 workers for the period January-November 2009 from 1,149,429 workers in the same period last year.
Employer is defined as a person working in his own business, farm, profession or trade who has one or more regularly paid employees, including paid family members. Domestic helpers, family drivers and other household helpers who assist in the family-operated business, regardless of time spent in this activity, are not hired employees in the enterprise/business. A retail store operator who is wholly assisted in the operation of his store by unpaid relatives living with him and who employs carpenters to construct a new building for his store (with store operator supervising the work) is not an employer. However, if an operator happens to be the owner or partner of a big firm which has its own construction unit to take care of its needs, the operator is an employer. (source: http://www.bles.dole.gov.ph)
Prices Inflation for 2009 falls within target
Inflation averaged 3.2 percent in 2009, well within the 2.5-4.5 percent target range for the year and lower than the 9.3 percent average in the previous year (Table 3). Despite the uptick in prices in the fourth quarter of 2009, favorable developments in food and energy-related items in the first three quarters of 2009 sustained the inflation downtrend which started in the fourth quarter of 2008.
Food and non-food inflation rates slow down
The average inflation for food, beverage, and tobacco (FBT) also decelerated to 5.8 percent in 2009, cutting the previous year’s 12.9 percent price increase by more than half. Food prices followed a continuous downtrend from March 2009 to July 2009 due mainly to favorable supply conditions, particularly the sustained growth in agriculture and lower global food prices year-on-year. However, food inflation went up significantly toward the end of the year as weather disturbances drove the prices of agricultural products upward. Non-food inflation likewise went down in 2009 to 0.8 percent, from 6.0 percent in the previous year with negative inflation for fuel, light, and water (-2.6 percent) and services (-0.2 percent). However, similar to food inflation, non-food inflation, which was negative from July to October, started rising in November as fuel prices increased due largely to the lifting of the price ceiling on these items in the middle of the month. On a geographical basis, headline inflation in both the National Capital Region (NCR) and in areas outside NCR (AONCR) went down to 1.6 percent and 3.9 percent, respectively. These were significantly lower than the average inflation of 6.9 percent in the NCR and 10.4 percent in AONCR recorded in the previous year.
Core inflation also decelerates
Core inflation, an indicator of the long-term trend of inflation, also eased, averaging 4.1 percent during 2009 compared to 6.2 percent in the previous year. Alternative measures of core inflation estimated by the BSP also went down during the year.
Core Inflation Measures
Year-on-Year Change 2000=100 2008 2009 6.2 4.1 7.6 3.6 7.3 3.7 7.8 2.9
Official Measure 2 Trimmed Mean 3 Weighted Median Net of Volatile Items4
1 The official definition excludes 18.4 percent of the CPI basket as follows: rice, corn, fruits and vegetables, and fuel items (gas, LPG, kerosene, gasoline and diesel). 2 The trimmed mean represents the average inflation rate of the (weighted) middle 70 percent in a lowest-to-highest ranking of year-on-year inflation rates for all CPI components. 3 The weighted median represents the middle inflation rate (corresponding to a cumulative CPI weight of 50 percent) in a lowest-to-highest ranking of yearon-year inflation rates. 4 The net of volatile items method excludes the following items: educational services, fruits and vegetables, personal services, rentals, recreational services, rice, and corn. These items represent 37.6 percent of the total items in the CPI basket. The series has been recomputed using a new methodology that is aligned with NSO's method of computing the official core inflation, which re-weights remaining items to comprise 100 percent of the core basket after excluding non-core items. The previous methodology retained the weights of volatile items in the CPI basket while keeping their indices constant at 100.0 from month to month.
Sources of Basic Data: NSO, BSP-DER
Operations of the National Government NG’s operations yield a larger deficit
The National Government’s (NG) deficit rose to P298.5 billion in 2009, equivalent to 3.9 percent of GDP, from a shortfall of only P68.1 billion in 2008. This deficit was higher by P48.5 billion than the programmed deficit of P250 billion for the year. Revenues declined by 6.6 percent to P1,123.2 billion, falling short of the target by 9.4 percent. At the same time, expenditures increased to P1,421.7 billion during the year, about 4.5 percent below the programmed level (Table 4). National Government: Cash Operations In billion pesos 1600 Revenues
1200 1000 800 600 400 200 0 -200 -400 2 003
The tax collections of the Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and other offices, declined by 6.4 percent to reach P981.6 billion during the period January-December 2009, about 90.7 percent of the programmed level of P1,082.6 billion. Non-tax revenues, notably of the Bureau of the Treasury (BTr), declined by 7.9 percent to P141.6 billion during the same period. Likewise, the total non-tax revenues was below the programmed level by 9.6 percent to reach P141.6 billion for 2009. Total NG expenditures increased by 11.9 percent, although lower than the programmed level. Contributing to the increase in expenditures were the special shares of local government units (LGUs) from proceeds of specific national taxes. Meanwhile, interest payments increased by 2.4 percent to P278.9 billion during the review period. The deficit was financed mainly from domestic sources, which covered 56 percent of the total financing requirement of the NG. The share of domestic borrowings was lower than the targeted 68 percent of the financing mix. Moreover, net repayments by the NG of its foreign borrowings amounted to P152.5 billion for 2008.
Monetary and Financial Conditions Monetary Conditions Monetary Aggregates Domestic liquidity growth remains strong
Domestic liquidity (M3) growth remained strong in 2009, supported by liquidity-enhancing measures implemented by the BSP in view of the global financial turmoil. M3 as of end-December 2009 was 8.3 percent higher than a year ago (Table 5). M3 growth rate averaged 13.2 percent in 2009, from 8.1 percent in the previous year, fueled by the sustained growth in net foreign assets (NFA), at 24.2 percent from 14.5 percent in 2008. The growth in net domestic assets (NDA), on the other hand, was more modest, averaging 2.3 percent in 2009, from 3.1 percent in the previous year.
Domestic Liquidity (Depository Corporations Survey * Concept) In billion pesos
annual growth rate (%)
15 2500 2000 10 1500 1000
0 'Dec- 'Dec- 'Dec- 'Dec- 'Dec- 'Dec- 'Dec02 03 04 05 06 07 08
* Depository Corporations Survey (DCS) is a consolidation of the balance sheets of the depositgenerating financial institutions namely the Monetary Authorities (MA) or the BSP and the Other Depository Corporations (ODCs) composed of banks.
Sustained foreign exchange inflows from remittances of overseas Filipinos (OFs) and foreign investments (direct and portfolio) underpinned the growth in NFA. The rise in NFA in turn allowed the BSP to build up its international reserves, and deposit money banks (DMBs) to settle a significant portion of their foreign liabilities. Meanwhile, NDA growth followed a general downtrend in 2009. From a high of 9.4 percent at the start of the year, NDA growth decelerated to negative 4.5 percent in December. This was due largely to the more negative balance of the net other items account, which diluted overall domestic liquidity growth. Net domestic credit, meanwhile, remained strong as the growth in credit extended to the public sector averaged 13.3 percent in 2009 from 5.6 percent in the previous year. Private sector credit reflected double-digit growth from January to July 2009 to average 16.4 percent during the 7-month period. However, the growth in private sector credit started to slow down in August 2009 to reach 5.7 percent in October 2009, before posting moderate recovery in the last two months of 2009. The slowdown in credit extended to the private sector could be due partly to the continued contraction in manufacturing and construction loans, given the still weak global demand for the country’s exports and the ongoing corrections in the property sector.
Monetary System (DCS Concept): Net Domestic Credits Annual growth in percent
20 15 10
Public sector 5 0 -5 -10 ' Dec - 'De c- 'D ec- 'Dec- 'Dec- 'D ec- 'D ec02 03 04 05 06 07 08
Interest Rates Interest rates on government securities show marked easing
Domestic interest rates declined across all tenors in the primary market during the year, reflecting the easing of risk aversion among investors as global economic and financial conditions showed signs of recovery from the crisis, and inflation slowed down markedly (Table 6). The downtrend in domestic interest rates could also be attributed to the significant monetary easing undertaken by the BSP. It may be recalled that the BSP reduced its key policy rates by a cumulative of 200 basis points between December 2008 and July 2009. Similarly, secondary market interest rates decreased across a wide range of maturities, except for the 7- and 10-year tenors, due mainly to improved investor sentiment resulting from the favorable inflation outlook, the upgrade of the country’s credit rating by Moody’s Investors Service, and expectations of further policy rate cuts by the BSP, particularly in the first half of the year. Domestic Interest Rates
14 12 Lending rate- High 10 Lending rate- Low
Overnight RRP rate 4 91-day T-bill rate 2 J
M M J
M M J
S eco ndar y M ar ket Y ield Curv e E nd-of -period, in per cent
12 11 10 9
End -December 20 08 8 7 6
End-December 20 09
5 4 3 -m o
Lending and deposit rates decrease in nominal terms but increase in real terms
6 -m o
1 -y r
2 -y r
3 -y r
4 -y r
5 -y r
7 -y r
1 0 -y r
2 0 -y r
2 5 -y r
Bank lending and borrowing rates decreased during the year in review. The decline in bank lending rates reflected the pass-through to bank borrowers of the BSP’s policy rate cuts. In real terms however, the same lending and borrowing rates increased relative to their rates a year ago due mainly to low inflation. Real Lending Rates: Philippines Ave rag e ban k len ding ra te less CPI In flation, in perc ent
10 8 6 4 2 0 -2 -4 -6 J
20 0 4
The Monetary Board reduces the BSP policy rates significantly
2 00 5
The Monetary Board (MB) reduced the BSP policy rates from January until July 2009 by a total of 150 basis points. The decision to reduce the BSP policy rates was on account of the marked downward tilt in the balance of risks to the inflation outlook, as shown by the low core inflation, moderate global and domestic demand, and well within-target inflation expectations. In August, the MB opted to maintain the BSP policy rates at 4 percent and at 6 percent for the reverse repurchase (RRP) rate and the repurchase (RP) rate facilities, respectively. The MB deemed the monetary policy settings to be appropriate and noted that inflation expectations remained within target. The MB also allowed the substantial monetary stimulus undertaken in the early part of the year to work its way fully through
the financial system. This was in view of the lagged impact on the real economy of monetary policy actions. The MB continued to maintain the BSP policy rates in October, November and December 2009, as inflation expectations remained well-anchored and inflation forecast remained within target range. BSP RRP Rate (%) 5.00 5.00 4.75 4.50 4.25 4.25 4.00 4.00 4.00 4.00 4.00 4.00
2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
The differential between domestic and foreign interest rates increases
US Fed Funds Rate (%) 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Differential (basis points) 475 475 450 425 400 400 375 375 375 375 375 375
The differential between the BSP’s policy rate and the US federal funds target rate decreased during the year due to the decline in the BSP RRP rate while the US federal funds target rate stayed constant. Meanwhile, the before- and after-tax differentials between the 91-day RP T-bill rate and US interest rates widened significantly during the review period due to the relatively larger decline in the 90-day US LIBOR and the 90-day US T-bill rate over the substantial easing in the 91-day RP T-bill rate. BSP Policy Rate vs. US Federal Funds Target Rate 2009, in percent
9.00 8.00 7.00 6.00
BSP Overnight RRP Rate
5.00 4.00 3.00 2.00
US Federal Fu nds Target
1.00 0.00 Jan
Domestic and Foreign Interest Rate Spreads 2009, in basis points
RP 91-day T-bill (net of tax) vs. US 90-day T-bill RP 91-day T-bill (net of tax) vs. US 90-day LIBOR
500 400 300 200 100 0 Jan
Exchange Rates The peso depreciates in terms of yearly averages, but appreciates in terms of end-ofperiod levels
The peso averaged P47.64/US$1 for the period 5 January-29 December 2009, depreciating by 6.6 percent from the P44.47/US$1 2008 average, as the full impact of the global financial turmoil and the continued risk aversion against emerging market economies was felt (Table 7).2 However, in terms of end-of-period levels, the peso appreciated by 2.4 percent to P46.36/US$1 at endDecember 2009, from the P47.49/US$1 end-December 2008 level. The resiliency of the domestic economy, along with the continued inflow of OF remittances, contributed to the peso’s appreciation. Av erage Peso Dollar R ate 2008 2 - 009
50. 0P/ US$1 49. 0 48. 0 47. 0 46. 0 45. 0 44. 0 43. 0 42. 0 41. 0 40. 0
0 0 8 2
J F M AM J
2 0 0 9
J A S ON D J F M AM J
J A S ON D
The peso appreciated by 1.4 percent to average P47.75/US$1 in the first quarter of 2009 from P48.44/US$1 in the last quarter of 2008. However, the peso depreciated by 14.2 percent compared with the P40.95/US$1 average in the first quarter of 2008. Sustained OF remittances as well as generally improving market sentiment provided support to the peso during the quarter. Concerns though on deep contractions in major 2
Dollar rates or the reciprocal of the peso-dollar rates (based on reference time data) were used to compute for the percentage change.
economies and the effect of weak global demand on the export-driven Asian economies dragged down the peso during the quarter. In the second quarter, the peso depreciated slightly by 0.3 percent to average P47.88/US$1 from P47.75/US$1 in the previous quarter. The peso depreciated at a faster pace of 8.9 percent when compared with the P43.61/US$1 average in the second quarter of 2008. Concerns about the prospects of a weaker growth, widening fiscal deficit, possible credit downgrades and the political noise created by the prospects of amendments to the Philippine constitution, dragged the peso down during the review quarter. For the third quarter, the peso continued to depreciate by 0.6 percent to average P48.15/US$1 from P47.88/US$1 in the previous quarter. The peso depreciated by 5.5 percent when compared with the P45.51/US$1 average in the third quarter of 2008. The peso continued to weaken in the early part of the third quarter on doubts about the sustainability of the global recovery and the health of the global financial system. As investor sentiments improved, the peso appreciated by 3.0 percent to average P46.77/US$1 in the fourth quarter of 2009 from P48.15/US$1 in the previous quarter. Yearon-year, the peso appreciated by 3.6 percent to P48.44/US$1. The peso strengthened against the U.S. dollar during the review period on improved risk appetite for high-yielding assets due to expectations that the global economy is starting to recover. Strong dollar inflows from OF remittances as well as sustained foreign direct and portfolio investments likewise provided support to the peso. Year-to-date movements saw most Asian currencies appreciating vis-à-vis the US dollar as of 29 December 2009, led by the Indonesian rupiah’s 18.2 percent gain, followed by the South Korean won’s 8.2 percent appreciation.3 Meanwhile, the Japanese yen depreciated by 2.6 percent.
Based on the last done deal in the afternoon.
Selected Asian Currencies
Appr/Depr(-) 29 Dec 2009 vs 24 Dec 2008
Indonesian Rupiah South Korean Won Indian Rupee Thailand Baht Philippine Peso New Taiwan Dollar
18.2 8.2 4.9 4.1 2.9 2.5
On a real, trade-weighted basis, the peso lost some external price competitiveness in 2009 as measured by its real effective exchange rate (REER) indices (Table 7a).4 For the REER index of the peso against the broad5 and narrow6 basket series, both indices increased by 1.2 percent and 0.2 percent, respectively, indicating that the peso lost some price competitiveness against its competitor countries in the Asian region. However, the peso gained some external price competitiveness as the REER indices of the peso against major trading partner (MTP) currencies decreased by 3.2 percent. 7
The REER index represents the Nominal Effective Exchange Rate (NEER index) of the peso, adjusted for price differentials with the countries whose currencies comprise the NEER index basket. The NEER index, meanwhile, represents the weighted average exchange rate of the peso vis-à-vis a basket of foreign currencies. 5 The broad basket of competitor countries is composed of the Singaporean dollar, South Korean won, New Taiwan dollar, Malaysian ringgit, Thai baht, Indonesian rupiah and Hong Kong dollar. 6 The narrow basket of competitor currencies include: the Malaysian ringgit, Thai baht, and Indonesian rupiah. 7 The MTP currency basket consists of the US dollar, Japanese yen, Euro, and UK pound.
Box Article 1: Addressing the Effects of the Global Financial Crisis The global financial crisis posed considerable challenges to policymakers in both advanced and emerging economies, initially because of the widespread volatility that occurred in financial markets, and subsequently because of the broader impact exerted on economic activity in most countries by the turbulence. In the Philippines, the immediate impact of the current global turmoil was felt largely in the domestic financial markets, while the effect on the banking system had been modest. It also became clear to policymakers, however, that there would also be negative effects on real sector activity. The crisis interventions made by the BSP consisted mainly of policy rate reductions and liquidity support (Table 1). Policy rate reductions (to the extent that the inflation outlook permitted) were implemented to bring down the cost of borrowing, reduce the financial burden on firms and households, and shore up business and consumer confidence for economic expansion. The BSP reduced its policy interest rates by a total of 200 basis points from December 2008 to July 2009, bringing down the overnight reverse repurchase (RRP) or borrowing rate to 4 percent and the overnight repurchase (RP) or lending rate to 6 percent. At the same time, liquidity support measures were put in place to provide sufficient liquidity to keep the financial markets functioning smoothly and able to fund the growth requirements of the economy, amidst the global credit crunch. In November 2008, the BSP reduced the regular reserve requirement by 2 percentage points and doubled the rediscounting budget to P40 billion. In March 2009, the BSP further raised the rediscounting budget to P60 billion and liberalized the rediscounting guidelines as well. The BSP also launched the Credit Surety Fund (CSF) program in the second half of 2008 to provide micro, small-, and medium-scale enterprises with access to credit from banks without the need for collateral by means of a surety cover. To address dollar liquidity sourcing concerns, the BSP opened a US dollar repo facility to enhance dollar liquidity in the foreign exchange market and ensure the availability of credit for imports and other legitimate funding requirements. Likewise, the limit for the foreign exchange swap facility was increased to provide additional dollar liquidity. Apart from implementing policy rate reductions and liquidity provision measures, the BSP’s responses to the global financial crisis included regulatory forbearance, intensified surveillance and communication and provision of legislative support to the proposal to increase the maximum deposit insurance. In terms of regulatory forbearance, financial institutions were allowed to reclassify financial assets from categories measured at fair 1 value to those measured at amortized cost. The BSP also approved an adjustment in the items eligible as asset cover for purposes of the calculation of the 100 percent asset cover requirement for banks’ foreign currency deposit units. At the same time, the BSP sought to continually reassure financial markets of the banking system’s stability and of the BSP’s readiness to address any potential tightness in liquidity that may result from increased risk aversion among investors.
Table 1. Monetary Policy Measures Implemented by the BSP 1/ during the Global Financial Crisis Policy rate reductions 18 December 2008 29 January 2009 5 March 2009 16 April 2009 28 May 2009 7 July 2009 Liquidity support 17 October 2008
7 November 2008 14 November 2008 2 March 2009
50 bps reduction 50 bps reduction 25 bps reduction 25 bps reduction 25 bps reduction 25 bps reduction • Opening of US dollar repo facility • Enhancement of the existing peso repo facility through relaxed valuation and broader acceptable collateral • Increase in rediscounting budget (from P20B to P40B) • Decrease in reserve requirement by two percentage points • Increase in rediscounting budget (from P40B to P60B) • Aligning the rediscounting rate with the RRP rate • Easing the NPL ratio requirement and increasing loan value of all eligible rediscounting papers2/
A 50 bps reduction in the RRP rate facilitated the transition from the use of the 91-day T-bill rate as reference rate. 2/ Other measures to liberalize rediscounting guidelines (such as the dispensing of the requirement of execution of a surety agreement by any stockholder owning more than 50 percent of the voting stocks and imposing a ceiling on the NFA papers that a bank can rediscount) were introduced but need not be included because the basis for the introduction of these measures were not necessarily related to the global financial crisis.
The combined policy responses of policymakers worldwide helped to calm down financial markets and provide support to economic activity. In addition to putting up stimulus packages, governments, particularly in advanced economies, crafted measures to avert a potential systemic collapse of their financial systems. These measures included deposit and debt guarantees as well as the recapitalization and clean-up of huge levels of toxic assets held by troubled financial institutions. These actions were broadly successful in providing a much-needed boost to market and business confidence. Financial strains in both the advanced and emerging economies (as measured for example by the International Monetary Fund’s (IMF) financial stress index) gradually receded from levels observed in the early months of 2009. In the Philippines, investor sentiment significantly improved, facilitating the recovery of domestic financial markets. The peso began to stabilize by April 2009 and share prices in the Philippine Stock Exchange moved up and hurdled past the 2,900 resistance level in early October. Philippine government bond spreads also narrowed as the perception on the country’s credit risk improved. At the same time, economic activity began to recover in Q4 2009 as the risk of a prolonged global slowdown due to the crisis receded. Endnote: 1
BSP Circular No. 628 dated 31 October 2008 allowed the reclassification of non-derivative financial assets from categories measured at fair value (held for trading) to those measured at amortized cost, but excluding those that are designated at fair value through profit or loss (available for sale/held to maturity or unquoted debt securities classified as loans). Reclassification was allowed to be done only in rare circumstances and if there was a change in intention. Retroactive reclassification was not allowed.
Financial Conditions Performance of the Banking System Philippine banking system remains sound and stable
The Philippine banking system remained fundamentally sound and stable in 2009 amid the global financial crisis. Growth indicators such as asset levels, loans and deposits continued to post robust increases. The banking sector’s asset quality also exhibited sustained improvement as shown by the continued decline in the non-performing loan (NPL) ratio while the capital adequacy ratio (CAR) remained above global standards and the BSP’s regulatory requirement. Selected Banking Indicators Assets (P Billion) Annual growth (%) Deposits (P Billion) Annual growth (%) Loans Outstanding (P Billion, Gross of RRPs) Annual growth (%) Number of Banking Institutions (Head Offices) NPL to Total Loans (%) Capital Adequacy Ratio (%) Return on Assets (ROA) Return on Equity (ROE)
2009 p/ 6,421.5 7.5 3,428.6 7.7 2,378.9
2008 5,973.8 13.9 3,182.4 14.4 2,181.1
3.7 15.7 (Jun) 1.1 (Sep) 9.4 (Sep)
4.1 18.8 0.8 6.9
Resources Total resources of the banking system post an uptrend
The total resources of the banking system rose by 7.5 percent to P6.422 trillion as of end-December 2009 from its year-ago level of P5.974 trillion (Table 8). The increase was due mainly to the rise in debt securities. Universal/Commercial banks (U/KBs) continued to account for almost 90 percent of the total resources of the banking system.
Banking System: Total Resources In billion pesos
7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2002
Deposit Generation Savings and demand deposits increase
The banking system’s outstanding deposit liabilities as of end-December 2009 increased by 7.7 percent to P3,428.6 billion from P3,182.4 billion during the same period in 2008 (Table 9). Savings deposits, which continued to account for almost half of the banks’ funding base, increased by 13.8 percent relative to its year-ago level. Demand deposits posted a year-on-year growth of 19.1 percent but time deposit contracted by 6.6 percent.
Lending Operations Lending expands
Outstanding loans of U/KBs (net of RRP placements) continued to grow and expanded by 10.0 percent year-onyear at end-December 2009, albeit slower than the 20.5 percent recorded during the same period in 2008. Bank lending including RRPs likewise expanded by 9.1 percent, but was also slower compared to the 17.5 percent growth posted at the end of the previous year. Preliminary data showed that both production and consumption loans grew by 9.9 percent and 11.0 percent, respectively. Loans Outstanding: Universal/Commercial Banks Annual growth in percent
30 25 20 15 10 5 0 -5 -10 2003
The growth of lending was pulled down by the contraction in other sectors led by manufacturing and construction. Sectors which contributed significantly to the growth of production loans were transportation, storage and communication (85.2 percent); financial intermediation (45.5 percent); electricity, gas and water (28.1 percent); health and social work (25.9 percent); and public administration (25.8 percent). Manufacturing loans, which accounted for 13.8 percent of total loans, contracted by 16.7 percent amid the still weak global demand for exports.
Residential real estate loans expand
Growth in credit card receivables continues
As of end-December 2009, the combined residential real estate loans (RRELs) of U/KBs and thrift banks (TBs) rose by 5.7 percent to P162.6 billion from last year’s P153.9 billion, while the ratio of RRELs to total loan portfolio (TLP) remained unchanged at 6.0 percent. TBs accounted for the bigger slice of the total residential real estate exposure at 55.4 percent (P90.0 billion) while U/KBs held the remaining 44.6 percent (P72.6 billion). In terms of loan quality, the ratio of non-performing RRELs to total RRELs of U/KBs and TBs went down to 6.7 percent from 7.0 percent during the same period in 2008. The combined credit card receivables (CCRs) of U/KBs and TBs, inclusive of credit card subsidiaries as of end-
December 2009 rose by 4.5 percent to reach P136.6 billion compared to the level during the same period in 2008, reflecting modest growth in consumer spending. The ratio of CCRs to the TLP remained unchanged at 5.0 percent while the non-performing CCRs of U/KBs and TBs, inclusive of credit card subsidiaries grew by 13.0 percent to P17.3 billion from P15.3 billion in 2008. Meanwhile, the ratio of non-performing CCRs to total CCRs settled at 12.6 percent from 11.7 percent in the previous year as the increase in non-performing CCRs outweighed the expansion in total CCRs. Auto loans increase following aggressive marketing schemes of banks and car financing firms
The combined auto loans (ALs) of U/KBs and TBs, inclusive of non-bank subsidiaries amounted to P94.6 billion as of end-December 2009, an increase of 20.4 percent from that P78.6 billion registered in December 2008. The aggressive marketing strategy of banks and other car financing firms in promoting car loans may have encouraged purchases of cars. The proportion of total ALs to TLP, exclusive of interbank loans (IBL), went up to 3.4 percent from last year’s 3.0 percent. In terms of loan quality, the non-performing ALs to total ALs rose slightly to 5.2 percent from last year’s 4.9 percent.
Institutional Developments Consolidation in the banking industry continues
The number of banking institutions (head offices) fell further to 785 as of end-December 2009 from the yearago level of 818, indicating the continued consolidation of banks as well as the exit of weaker players in the banking system. By banking classification, banks (head offices) consisted of 38 U/KBs, 73 TBs, and 674 rural banks (RBs). Meanwhile, the operating network (including branches) of the banking system increased to 8,620 from 8,448 during the same period last year, reflecting mainly the increase in commercial and rural banks’ branches/agencies (Table 9a).
Number of Financial Institutions
950 No. of Fin'l Institutions (LHS) Head offices(RHS)
7750 850 7650 800 7550 750
Asset quality continues to improve as NPLs decline while total loan portfolio increases
The banking system’s asset quality continued to improve as the NPL ratio eased further to 3.7 percent as of endDecember 2009 compared to 4.1 percent a year ago. The continued adoption of prudent lending standards helped banks in maintaining minimal levels of bad debts. The lower NPL ratio was attributed to the 1.4 percent decline in NPLs combined with the 7.4 percent expansion in the industry’s TLP. NPL levels further dropped to P116.2 billion from the previous year’s level of P117.9 billion, while TLP expanded to P3,118.1 billion from P2,902.2 billion for the same period last year. Banking System: Non-Performing Loans End of period, In percent
Meanwhile, the NPL ratio of U/KBs fell further to 3.0 percent as of end-December 2009, an improvement from the 3.5 percent ratio posted during the same period in 2008. This NPL ratio was the lowest recorded since it peaked at 18.8 percent in end-October 2001. Moreover, the real and other properties acquired (ROPA) of U/KBs dropped by 6.1 percent to P135.4 billion as of December 2009 compared to the same period last year. The lower NPLs and ROPA during the year translated to an improvement in the non-performing assets (NPAs) ratio,
which shrank to 3.9 percent as of December 2009 from 4.5 percent a year ago. However, the Philippine banking system’s NPL ratio of 3.7 percent was higher than Malaysia’s 1.8 percent and Korea’s 1.5 percent, but lower than Indonesia’s 3.8 percent and Thailand’s 4.8 percent.8 The lower NPL ratios in Malaysia and South Korea may be traced to the creation of publicly-owned asset management companies (AMCs), which purchased the bulk of their NPLs, a practice which was not resorted to in the Philippines. The loan exposure of banks remained adequately covered as the banking system’s declining NPLs pushed up the NPL coverage ratio to 92.4 percent as of endDecember 2009, from 87.1 percent in the same month of the previous year. The ratio was indicative of banks’ continued compliance with the loan-loss provisioning requirements of the BSP to ensure adequate buffers against unexpected losses. CAR remains above statutory floor
Meanwhile, the banking system remained adequately capitalized as of end-September 2009, with the average CAR remaining strong at 14.8 percent on a solo basis and 15.8 percent on a consolidated basis, higher than the comparable December 2008 ratios. The slight improvement in the banking system’s CARs was driven by the almost matching growth rate of qualifying capital and risk weighted assets (RWA). The industry’s CAR continued to exceed the statutory level set by the BSP at 10.0 percent and the BIS standard at 8.0 percent. Banking System: Capital Adequacy Ratio In percent 20.0
Statutory f loor: 10% 10.0
BIS: 8% 8.0 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 2004 2005 2006 2007 2008 2009
Sources: Various central bank websites and GFSR October 2009, Indonesia (Banking system, December 2009); Malaysia (Banking system, December 2009); Thailand (Financial institutions, December 2009); and Korea (Financial system, March 2009).
The Philippine banking system’s CAR remains comparatively higher than those of Malaysia (14.7 percent), and Korea (12.9 percent) but lower than that of Indonesia (17.4 percent). Meanwhile, Thailand posted the highest CAR in the region at 18.7 percent. 9
Stock Market Developments Stock trading rebounds as risk appetites improve
The local bourse rebounded in 2009 as the global economy began to show signs of recovery resulting from the extraordinary fiscal and monetary stimulus measures introduced to support economic growth amidst the global crisis. With recovery seemingly underway, investors’ risk appetite returned and the Philippine equities market subsequently rallied, especially since mid-March 2009. However, towards the end of the year market sentiments were partly dampened by growing uncertainty over the sustainability of global economic recovery. Daily Philippine Stock Exchange index
(January 2008 – December 2009 ) In index points 3,700 3,500 3,300 3,100 2,900 2,700 2,500 2,300
In index points
2,100 1,900 1,700 1,500
Composite index rises sharply
Benefiting from the return of global risk appetite, the PSEi climbed by 63.0 percent (year-on-year) to close at 3,052.7 index points in end-December 2009 (Table 10). Compared to pre-crisis levels, however, the market has yet to reach its peak performance of 3,873.5 index points posted in October 2007. All sub-indices outperformed their 2008 levels, with the mining and oil sector leading the rally as it rose by over 230 percent due to rising prices of gold and base metals in the world market. This was followed by the industrial index (115.7 percent), holding firms index (79.6 percent), property index (72.6 percent), financials index (46.6 percent) and the services index (31.9 percent).
Sources: Various central bank websites and GFSR October 2009, Malaysia (Banking System, December 2009); Korea (Banking System, March 2009); Thailand (Average Full Branch, December 2009) and Indonesia (KBs, December 2009).
PSEi and Sectoral Indices In ind ex points 12,000.0
8,000.0 6,000.0 4,000.0 2,000.0 0.0
Foreign investors resume net buying
Mining & Oil
Foreign investors posted net purchases in the local bourse amounting to P14.9 billion in 2009, reflecting the decline in risk aversion. This was a reversal of the net selling of P22.2 billion registered in 2008, indicating the shift from investments in safer havens such as US Treasuries towards the high-yielding assets of emerging markets like the Philippines. However, foreign transactions as a proportion of total value traded continued to decline from 48.7 percent to 32.5 percent during the period in review. This underscored domestic investors’ growing involvement in the stock market.10 Net Foreign Transactions and Stock Market Capitalization (in billion pesos)
8,500 75.0 65.0 55.0
Net Foreign Transactions LHS Stock Market Capitalization RHS
25.0 4,500 15.0 5.0
-5.0 2,500 -15.0 -25.0
Other stock market indicators pick up
With improving trading sentiments vis-à-vis the previous year, total market capitalization, which measures the aggregate value of the issued shares of listed firms in the
10 From 2003 to 2006, foreign transactions as a percent of the total value traded averaged at 55.3 percent, highlighting foreign investors’ significant contribution to the development of the local stock market.
PSE, rose by 48.2 percent to P6,029.1 billion in 2009. 11 Market turnover also jumped, with the average daily volume turnover up by 46.6 percent to 2.2 billion shares and the average daily value turnover rising by 31.7 percent to P4.1 billion. Further attesting to the improvement in investor confidence is the rise in the price-earnings (P/E) ratio from an average of 11.7 times in 2008 to 13.0 times in 2009. 12 This indicates that investors may be expecting higher earnings growth in the future compared to year-ago expectations. Market Turnover and P/E Ratio 2004 - 2009
In billion s ha res /pe sos
P/ E ratio
20 Avg. Daily Volume Turnover (In million share s), LHS 18
Avg. Daily Value Turnover (In PhP million), LHS 5,500
Avg. P/E ratio, RHS
0 200 4
Regional stock markets also rally
The rebound in the local bourse mirrored developments in other exchanges across the globe. In Asia, the rebound was led by the Jakarta Composite, which increased by 87.0 percent from year-ago levels. This was followed by India’s Sensex at 81.0 percent, the Shanghai composite at 80.0 percent, Singapore’s Strait Times at 64.5 percent, Thailand’s SET index at 63.2 percent, the PSEi at 63.0 percent, Hong Kong’s Hang Seng at 52.0 percent, Korea’s KOSPI at 49.7 percent, Malaysia’s KLSE composite at 45.2 percent and the Nikkei 225 at 19.0 percent. Typically, countries with a faster pace of recovery led the stock market rally.
Only three firms were listed at the PSE in 2009. Of these, two were by way of introduction, namely Agrinurture, Inc., and Century Peak Metal Holdings Corporation. Listing by way of introduction refers to an application for listing of securities that are already issued or will be issued upon listing, where no public offering will be undertaken. Listing by way of introduction may be appropriate in the following circumstances: (1) where securities for which listing is sought are already listed or traded or will simultaneously be listed on another stock exchange or, subject to the approval of the Exchange, is listed on another trading market; (2) where the securities of an unlisted issuer are distributed by way of property dividend by a listed issuer to shareholders of that listed issuer; (3) where a holding company is formed and its securities are issued in exchange for the securities of one or more listed issuers and the listing of the listed issuer or issuers is withdrawn at the same time as the securities of the issuer are listed; or (4) where listing of securities in an exchange [or public offering of securities] is mandated by law. 12 The P/E ratio is computed as the ratio of market capitalization over the last four quarters’ net income. It is a financial ratio used for valuation. A higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.
Selected Asian Stock indices
(in index points) 24,000 22,000
Dec-0 8 Jun-09
Sep-0 9 Dec-0 9
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 BSE Sensex
Hang Se ng Shangha i
Nikkei 22 5
Debt Securities Market Developments Size and Composition Domestic bond market shows robust growth
The country’s local bond market displayed robustness in 2009 as the combined bond issuances by the government and corporates grew by 23.0 percent to P1,291 billion, a turnaround from the contraction in 2008. Corporate issuances amounted to P150.9 billion, which more than doubled compared to the previous year’s level. Government bond issuances likewise posted a 16.6 percent growth to P1,140 billion, on a year-on-year basis.13 The rise in bond market issuances was driven primarily by the higher corporate financing requirement to fund ongoing infrastructure and energy projects. The increase in government borrowings to support its fiscal stimulus programs also contributed to the higher bond issuance in 2009. Domestic Debt Securities Issuances
By Issuer (As of end-December 2009)
This led total outstanding government bonds to amount to P2,540 billion as of end-2009, up by 2.6 percent from the previous year. Data for outstanding corporate bonds were unavailable as of this writing.
In terms of market share, government securities (GS) continued to dominate the domestic bond market, accounting for 88.3 percent of total bond issuances. Government issuances were mostly in the form of Treasury Bills (T-bills), Benchmark Bonds, and FixedRate Treasury Bonds (T-bonds), accounting for 44.9 percent, 30.2 percent, and 13.0 percent, respectively. Retail Treasury Bonds (RTBs), Zero Coupon T-bonds, and other special and guaranteed corporate issues comprised the rest of government bond issuances during the year. Private sector issuances accounted for 11.7 percent of total bond issuances and were mostly in the form of bonds and notes, asset-backed securities, and Tier-2 bonds. The growth in corporate issuances during the year was led by San Miguel Brewery, Energy and Development Corp., SM Investment Corp., and by various commercial banks. 14 Primary Market15 Demand for GS in the primary market remains substantial
In the primary market, the NG raised its programmed borrowings for 2009 to P354 billion from P303 billion in 2008. However, the NG did not award fully its offerings as dealers quoted high bid rates in some of the T-bills and T-bond auctions. During the year, the NG awarded 81 percent (P132.3 billion) of the programmed amount for T-bills and 74 percent (P141.1 billion) for T-bonds. Nonetheless, the demand for GS remained substantial as tenders were oversubscribed for both short- and longterm dated GS. Market tenders reached P393.4 billion for T-bills and P370.7 billion for T-bonds against their corresponding programmed amount of P162.5 billion and P191.5 billion.16
14 Data for corporate issuances for this report were sourced from Bloomberg. Previous issue of annual reports used data from PhilRatings. They exclude bonds issued by government-owned and controlled corporations (GOCCs) and private corporations’ foreign currency denominated bond issuances. 15 The discussion covers the primary market for government issuances only. 16 Oversubscription is the gap between the amount tendered and the amount offered for a given instrument.
Results of GS Auctions, 2009 In billion pesos Quarter
Accepted Rejected Bids Bids
T-bills First Quarter Second Quarter Third Quarter Fourth Quarter
162.5 42.0 38.5 49.5 32.5
393.4 94.0 61.1 144.9 93.5
132.3 29.1 26.8 45.5 30.9
261.1 64.9 34.3 99.4 62.5
T-bonds First Quarter Second Quarter Third Quarter Fourth Quarter
191.5 40.5 51.0 67.5 32.5
370.7 88.4 99.2 141.2 42.0
141.1 39.9 40.5 47.7 13.0
229.6 48.5 58.6 93.5 29.0
Source: Bureau of the Treasury
Improving market sentiment brought about by the country’s better-than-expected economic growth in 2008 and the low interest rate environment amid easing inflation levels revived investors’ appetite for Philippine debt papers. The increase in market liquidity as well as expectations of a further reduction in the BSP’s key policy rates led to a drop in government bond yields during the year. 17 The decline in bond yields was evident in the short- to medium-term GS, reflecting investors’ preference for short-term (ST) dated securities. For instance, investors swamped the issuance of the RTBs in September as tenders for the P15.0 billion programmed RTBs amounted to P70.4 billion or about five times oversubscribed. This led the NG to award more than the programmed RTBs at P25.0 billion. Government’s cost of borrowing increases due to rising fiscal concerns
However, the downturn in bond yields was tempered by investors’ concern over the long-term fiscal implications of the current economic stimulus program as well as concerns over the reversal of the monetary easing measures by the BSP. From August to December, the market started demanding higher premiums for mediumand long-term government bonds as concerns on the government’s fiscal health persisted following increased NG spending arising from the rehabilitation effort in the aftermath of a string of typhoons in September and October. The additional supply of debt papers coming from the corporate sector also pushed rates higher as market players tend to flock to new issuances and sell their current holdings.
For the period January-July 2009, the BSP reduced its key policy rates five times or by a total of 150 basis points. It has kept key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility during the remainder of the year.
Secondary Market Trading at the secondary market rises substantially
Trading of both government and corporate securities at the secondary market increased by 33.4 percent to P2,582 billion in 2009, surpassing last year’s P1,935 billion. The rise in the volume of transactions at the Fixed Income Exchange (FIE) was driven largely by the increase in corporate listings during the year. Joining the list of PDEx tradable corporate debts were San Miguel Brewery’s P38.8 billion fixed-rate bonds and similar issuances from Energy Development Corporation at P12.0 billion and SM Investment Corporation at P10.0 billion, among others. The listings of these corporations brought the total volume of corporate debt traded in the PDEx to P438.8 billion by the end of 2009. The increase in new listings likewise enabled investors to achieve liquidity, price transparency, and market order in trading corporate bonds at the secondary market. The listings also reflected local issuers’ increasing confidence in the Exchange’s infrastructure. PDEx Trade Volume (In billion pesos)
3,000 2,500 2,000 1,500 1,000 500 0 2005
Government bond turnover in the secondary market rose to 1.06x in 2009 from 0.85x in the previous year.18 On a monthly basis, the ratio remained less than 1.0x but this was a modest improvement compared to 2008. Activity in the secondary market was relatively high during the first half of the year due to the low interest rate environment. However, bond turnover started to slowed down in the second half as the market priced in a possible central bank rate hike on the back of rising inflationary pressures. Talks of exiting from an accommodative monetary policy led market players to reduce transactions at the secondary market as 18
The ratio only covers turnover for government bonds. This excludes corporate bonds due to lack of available current data on outstanding corporate bonds. The bond turnover ratio is computed as the ratio of the volume of sales of T-bonds and T-Bills over the average amount of T-bonds and T-bills outstanding at the end of the previous and current year.
expectations of an increase in interest rate would reduce bond prices, thereby discouraging trade among dealers. PDEx Government Bond Turnover Ratio 0.20 0.16 0.12 0.08 0.04
Ja nM 08 ar M 08 ay -0 Ju 8 lSe 08 pNo 08 vJa 08 nM 09 ar M 09 ay -0 Ju 9 lSe 09 pN 09 ov -0 9
International Bond Market Government issuances of global dollar bonds wellreceived
Private sector corporations tap international bond market
The National Government (NG) successfully issued a total of US$3.5 billion global dollar bonds in the international market in 2009. In January, the government issued US$1.5 billion worth of 10-year dollardenominated bonds to fund the NG’s capital expenditures needed to sustain growth amid the effects of the global financial crisis on the domestic economy. This was followed by a US$750 million, 11-year dollar bond issuance in July. The NG returned to the global bond market in October issuing US$1.0 billion 25-year US dollar bond which fetched a record-low interest rate, more favorable than the two previous issuances. The proceeds were channeled to the rehabilitation of public infrastructure ruined by the typhoons that hit the country going into the 4th quarter. Meanwhile, government owned and controlled corporations (GOCCs) issued a total of US$2.3 billion during the year to fund various development projects. The GOCC issues were led by Power Sector Asset and Liabilities Management (PSALM) Corp. and Land Bank of the Philippines, issuing US$2.2 billion and US$107.5 million dollar denominated bonds, respectively. Private sector corporations likewise tapped the international bond market in sourcing funds for their development projects. The issues were led by SM Investment Corporation at US$500.0 million followed by RCBC at US$85.0 million.
Credit Risk Assessment Credit watchdogs upgrade Philippine sovereign debt
The credit ratings and outlook of the country’s sovereign debt were upgraded in 2009 on the back of the relatively high degree of resiliency exhibited by the country’s financial system and external payments position amid the global financial and economic crisis. On 23 July, Moody’s Investors Service upgraded the Philippine’s long-term foreign and local credit ratings from B1 to Ba3, three notches closer to investment grade. The country’s outlook was likewise changed from positive to stable, indicating little chance of a rating change within the next 12 months. Moody’s discounted the country’s fiscal shortfall as this was a result of an economic slowdown which was not exclusive to the Philippines. However, the credit rating agency noted the country’s debt overhang which was higher than those of others rated Ba3 and emphasized that a return to a path leading to fiscal consolidation remained critical. Meanwhile, Standard and Poor’s (S&P) and Fitch Ratings reaffirmed the country’s foreign and local currency ratings during the year. These rating agencies have noted that any risk of a credit downgrade, especially with regard to the country’s fiscal situation, was offset by its strong external position. Liquidity in the country’s external position has underpinned the improvement in the ratings in 2009 despite it being a difficult year. By end of 2009, the Philippine long-term foreign currency sovereign debt was rated BB- by Standard & Poor’s, three notches below investment grade, with a stable outlook. The rating was at par with Moody’s Ba3 while Fitch’s rating on Philippine debt stood at BB, two rungs below investment grade and with a stable outlook. Philippine Sovereign Credit Ratings As of December 2009 Rating Agency
S&P Moody's Fitch
Local Currency LT/ST
Foreign Currency LT/ST
Source: S&P, Moody's, and Fitch Ratings
Spread on Philippine sovereign bonds and CDS narrows
The improvement in the country’s credit ratings was also reflected in the general narrowing of the Philippine sovereign debt spreads. The extra yield investors demand to hold Philippine bonds instead of US Treasuries, as indicated by the JP Morgan EMBI+ Philippine spread, which has steadily narrowed from the year’s high of 547 basis points (bps) to 198 bps at end-2009. This was tighter by 75 percent or 598 bps than the peak of 796 bps registered on 24 October 2008 and 343 bps narrower than the end-2008 level. The EMBI+ Philippine spread remained below the JP Morgan EMBI+Global spreads which track the extra yield investors demand to own developing nations' bonds instead of US Treasuries. After reaching a historic high in October 2008, the EMBI+Global spreads narrowed sharply by 68 percent to 274 bps by end-2009, or 591 bps lower than the 865 bps posted on 24 October 2008.19 JP Morgan EMBI+ Sovereign Bond Spreads (In basis points) 900
700 EMBI+ Philippines EMBI+ Global 500
n07 Se p07 De c07 M ar -0 8 Ju n08 Se p08 D ec -0 8 M ar -0 9 Ju n09 Se p09 De c09
Also reflecting improved sentiment, the Philippine credit default swap (CDS) spreads, or the cost of protecting the country’s bonds against default, narrowed to 173 bps by the end of the year. 20 Against neighboring economies, the Philippine CDS has remained below Indonesia’s CDS level which stood at 192 bps but higher than Malaysia’s 88 bps and Thailand’s 95 bps. The significant decline in sovereign spreads was driven by a steady stream of positive macroeconomic news. In 19
Emerging Market Bond Index Plus (EMBI+) Global, as calculated by JPMorgan, tracks total returns for traded external debt instruments in the emerging markets. The index comprises a set of broker-traded debt instruments widely followed and quoted by several market makers. Instruments in the EMBI+ must have a minimum face value outstanding of $500 million and must meet strict criteria for secondary market trading liquidity. 20 A credit default swap (CDS) is an insurance-like contract that protects against default or restructuring. In this case, it costs an average of US$173,000 to protect holdings of US$10.0 million of Philippine sovereign debt from default. The buyer of a CDS will be paid with the face value or the cash equivalent in exchange of the underlying securities should a company/government fail to adhere to its debt obligations. An increase indicates deterioration in the perception of credit quality.
particular, investors’ expectations of a faster recovery and stronger growth prospects for the country coupled with the low inflation environment, public expectations of sustained low interest rate in the medium-term, robust remittances by OFs, and improved corporate earnings, all contributed to the tightening of the country’s credit spreads. Moreover, the commitment of advance economies that they would maintain their stimulus measures until recovery is on a firm footing alleviated market concerns of a reversal in stimulus policies. These developments reassured investors that the global economy had in fact turned around, thereby fueling demand for higher-yielding emerging market assets.
Senior 5-year CDS Spreads (In basis points)
1,000 800 600 400 200
Ju n0 Ju 7 lS e 07 pN o 07 vJa 07 nM 08 ar M -08 ay -0 Ju 8 lS e 08 pN o 08 vJa 08 nM 09 ar M 09 ay -0 Ju 9 lS e 09 pN 09 ov D e 09 c09
Despite the general narrowing of sovereign debt spreads, average spreads for 2009 remained broadly higher than in 2008, although close to levels observed prior to the collapse of the Lehman Brothers in September 2008. This reflected that emerging markets were still vulnerable to a sudden change in global economic growth. The spreads likewise point to the rising burden of sovereign financing, raising concerns on the sustainability of public sector finances. Apprehensions on reduced bank lending and weak labor sector in both advanced and developing economies also contributed to the negative investor sentiment. Reports on the Philippine fiscal position exceeding the target and “supply overhang” from a stream of prospective new debt offerings, both locally and abroad, also weighed down the country’s debt spreads.
External Sector Balance of Payments BOP surplus surges
The full year 2009 balance of payments (BOP) surplus rose significantly to US$5.3 billion from the year-ago surplus of only US$89 million (Table 11). Propelled by the robust performance of the current account, the country’s external payments position improved as the global economic recovery gains headway and as the relative strength of the country’s underlying macroeconomic fundamentals encouraged capital inflows into the domestic economy.
Current account performs robustly
The current account recorded a higher surplus of US$8.6 billion for 2009, equivalent to 5.3 percent of GDP. The more-than-twofold increase over the US$3.6 billion surplus recorded in 2008 was brought about by the favorable performance of all the components of the current account, except the income account. Net current transfers receipts rose year-on-year by 4.7 percent to US$16.0 billion, mainly on account of the 4.2 percent growth in remittances of non-resident OFs to US$15.1 billion in 2009.21 The merchandise trade deficit narrowed to US$8.9 billion, a notable improvement (31.1 percent) relative to the US$12.9 billion shortfall recorded last year. This developed as the drop in imports exceeded the contraction in exports. With weak global trade prevailing until October 2009, exports of goods for the full year 2009 contracted by 22.3 percent as all major export commodity groups posted declines, except for sugar and products (Table 11a). Meanwhile, imports fell by 24.1 percent due to the contraction in all major commodity groups given weak global prices of most commodities, particularly mineral fuels and lubricants, and raw material inputs for electronics exports (which comprised 30.4 percent of total import payments), following the soft demand for electronic products for the most part of the year (Table 11b). The trade-in-services account recorded net receipts of US$1.5 billion in 2009, 32.7 percent higher than the US$1.2 billion surplus recorded in 2008. This developed due largely to the gains registered in BPO-related transactions as reflected in higher net receipts from
21 Total cash remittances coursed through the banking system from all OFWs (residents as well as nonresidents) totaled US$17.3 billion.
miscellaneous business, professional and technical services as well as computer and information services which expanded by 16.0 percent and 11.0 percent, respectively. On the other hand, lower net payments for transportation and insurance services also contributed to the strong performance of the trade-in-services account. The decline in net payments for transportation services was due primarily to the lower payments for freight as a result of reduced merchandise imports. By contrast, the income account reversed to a deficit of US$69 million compared to the year-ago surplus of US$111 million. The reversal was caused by higher net income payments by residents to affiliated enterprises (by 19.9 percent) and to portfolio investors (by 35.6 percent), as well as lower net interest income receipts on currency and deposit placements by the monetary authorities and corporations due to the decline in global interest rates. These developments negated the 12.0 percent growth in earnings of resident OFWs which reached US$4.6 billion during the year. Capital and financial account posts higher net outflows
Net outflows in the capital and financial account widened to US$2.0 billion in 2009 from US$1.8 billion in 2008. This developed as the other investment account reversed to a net outflow from a net inflow recorded a year ago, notwithstanding the robust gains posted by direct and portfolio investments. The direct investment account in 2009 continued to record a net inflow of US$1.6 billion, 23.7 percent higher than the level posted a year ago. Non-residents’ investments grew year-on-year by 26.2 percent as all direct investment components recorded positive balances. The country continued to attract foreign investments in 2009 as investors recognized the relative strength of the country’s underlying macroeconomic fundamentals, with inflation continuing to be low and falling within target, the external payments position remaining favorable and economic growth showing resilience as a result of the strength in domestic demand. In particular, net equity capital flows reached US$1.8 billion, nearly 50 percent higher than the year-ago level. Reinvested earnings also posted net inflows of US$84 million as investors opted to plough back corporate earnings to local enterprises given clearer signs of a global economic rebound. Meanwhile, the other capital account recorded net inflows of US$58 million. The level, however, was lower by almost 80 percent compared to 2008 mainly on account of higher trade credits extended by local subsidiaries/affiliates to their parent companies abroad.
The portfolio investment account reversed to a net inflow of US$1.4 billion from a net outflow of US$3.8 billion in the same period a year ago. This positive development resulted from a combination of transactions by: a. Non-residents, particularly: subscription to the bond flotation by the NG (US$3.3 billion), PSALM (US$2.2 billion), and private corporations (US$500 million); placements in government securities (US$1.2 billion); and b. Resident banks’ maturing bonds/notes placements abroad (US$279 million). However, a number of factors softened the favorable impact of these inflows: a. Bond repayments by the NG (US$936 million), private corporates (US$417 million), and other corporations (US$708 million);22 b. Net withdrawal by non-residents of their equity securities placements with private corporations (US$1.1 billion); and c. Net purchase by residents through secondary market trading of Philippine debt papers originally issued abroad by the NG (US$721 million) and some private corporations (US$716 million). Meanwhile, the other investment account posted a net outflow of US$5.1 billion in 2009, a turnaround from the US$771 million net inflow in 2008. Contributory factors to the net outflow include: a. Net loan repayments by local banks (US$1.0 billion) and some private corporates (US$740 million);23 b. Non-residents’ net withdrawal of currency and deposit placements in local banks (US$134 million) and some private corporations (US$404 million); and c. Loans extended abroad by resident banks to nonresidents (US$2.2 billion).
The amount includes prepayment of bonds made by the public (US$585 million) and private (US$88 million) sectors. 23 The amount Includes loan prepayments made by the private sector amounting to US$454 million.
International Reserves GIR continues to increase
The gross international reserves (GIR) of the BSP, including its reserve position in the International Monetary Fund (IMF), rose to US$44.24 billion as of end-December 2009 (Table 12). This was higher by about 18 percent than the US$37.6 billion posted in the previous year. At this level, the end-2009 GIR was sufficient to cover about 9 months’ worth of imports of goods and payments of services and income during the review period. Likewise, the corresponding reserve adequacy ratios at this level are around 10 times the country’s short-term external debt based on original maturity and 4 times based on residual maturity.24 The continued accumulation of reserves over the 12-month period was due mainly to inflows from the net foreign exchange operations of the BSP and income from its investments abroad, deposits by the NG and the PSALM of proceeds from their bond issues and other foreign borrowings, as well as revaluation gains on the BSP’s gold holdings on account of the increase in the price of gold in the international market during the year. Also contributing to the higher year-end GIR level were the allocations of Special Drawing Rights (SDRs) which were made available by the IMF to its member countries including the Philippines in August and September 2009 to boost reserves and provide liquidity to the global financial system. These receipts were, in turn, offset by outflows arising mainly from payments of maturing foreign currency-denominated obligations of both the NG and the BSP. Composition of Reserves Composition of Reserves Percent share, end-December 2009 Percent share, end-December 2004
RPF & SDR 3%
Foreign Exchange 2% Foreign Inves tments 83%
24 Residual maturity refers to outstanding short-term debt based on original maturity plus principal payments on medium- and long-term loans of the public and private sectors falling due in the next 12 months.
Gross International Reserves In billion US dollars
46 42 38 34 30 26 22 18 14 2003
The bulk of the reserves were held in foreign investments, which accounted for about 83.0 percent of total GIR, and gold holdings (12.0 percent of total GIR). The combined holdings of foreign exchange as well as SDR of the BSP and its reserve position in the IMF made up the balance of 5.0 percent. The net international reserves (NIR), including revaluation of reserve assets and reserve-related liabilities, rose to US$44.23 billion from the year-ago level of US$36.03 billion. The NIR refers to the difference between the BSP’s GIR and total ST liabilities.
External Debt External debt declines
The country’s outstanding external debt reached US$53.3 billion as of end-2009, down by US$601 million or 1.1 percent from its year-ago level of US$53.9 billion (Table 13). External Debt
By maturity In billion US dollars
80 70 60
Medium- & long -ter m Sh ort-te rm
50 40 30
20 10 0
Year-on-year, the decline in the debt stock was on account of net repayments of banks (including BSP) and
other private sector borrowers (US$3.8 billion), as well as increased resident investments in Philippine debt papers issued abroad (US$1.2 billion), which negated the higher borrowings of non-bank public sector (by US$4.4 billion). Maturity profile remains predominantly medium to long term
The country’s medium and long term (MLT) loans rose by US$2.4 billion to US$49.3 billion during the period under review from the previous year’s US$46.9 billion. The expansion was due mainly to increased borrowings of the non-bank public sector, specifically the NG (US$2.6 billion). These MLT loans have a weighted average maturity of 20.2 years in 2009. Public sector loans registered longer average of maturities of 21.7 years compared to 11.8 years of private sector loans. Meanwhile, the share to total external debt of MLT loans reached 92.5 percent in 2009 from 87.0 percent in 2008. By contrast, short-term obligations declined by US$3.0 billion to US$4.0 billion from year-ago level of US$7.0 billion. The decrease was due largely to (1) BSP’s payment of US$1.5 billion loans; and (2) lower liabilities reported by banks (US$1.5 billion). As a result, the share of ST obligations to total debt stock dropped to 7.5 percent as of end-2009 from 13.0 percent as of end2008. Medium and Long-Term External Debt By maturity profile As of end-2009 No. of Years Total MLT Debt 20.2 Public Sector 21.7 Private Sector 11.8
Public sector debt rises
Public sector debt rose by US$1.5 billion to US$41.8 billion in 2009. Similarly, the share to total borrowings by the public sector climbed to 78.5 percent as of end-2009 from 74.9 percent as of end-2008. The expansion was attributed mainly to net availments amounting to US$2.8 billion, which was offset partly by the increase in residents’ holdings of Philippine debt papers (US$1.4 billion). By contrast, private sector debt dropped by US$2.1 billion to US$11.4 billion from US$13.5 billion in 2008. Likewise, the share to total borrowings of debt owed by the private sector declined to 21.5 percent from 25.1 percent in 2008.
Creditor profile shows official lenders account for nearly 46 percent of the total external debt
By creditor profile, official lenders (multilateral institutions and bilateral creditors) accounted for 45.7 percent of the total debt, followed by foreign holders of bonds and notes (36.6 percent) and foreign banks as well as other financial institutions (12.2 percent). The rest of the creditors (5.5 percent) were mostly foreign suppliers. More than US$26 billion (49.2 percent) of the total debt stock were denominated in US dollars while US$15.2 billion (28.6 percent) were in Japanese yen. US dollardenominated multi-currency loans from international financial institutions comprised 12.0 percent of the total external debt stock while the remaining 10.3 percent of the total external debt were denominated by 18 other currencies led by the euro. External Debt
By currency, percent share, end-2009
Japanese yen 28.6%
DSR is below international benchmark indicating sufficient foreign exchange earnings to service debts
US dollar 49.2%
The external debt ratio, or outstanding external debt as a percentage of aggregate output or GNP rose slightly to 29.2 percent in 2009 from 29.0 percent in 2008. Similarly, the ratio of external debt-to-GDP climbed to 33.1 percent for the period under review vis-à-vis 32.3 percent in 2008. In 2009, the country’s debt service burden (DSB) reached US$6.8 billion (i.e., principal amortizations and interest payments) as against US$7.4 billion in 2008 (Table 14). The debt service ratio (DSR), computed as the percentage of the DSB to the country’s total exports of goods and receipts from services and income (XGSI) reached 10.4 percent vis-à-vis 9.7 percent in 2008. The current DSR is below the 20-25 percent international benchmark, indicating that the country has sufficient foreign exchange earnings to service maturing principal and interest payments during the current period.
Selected External Debt Indicators 2008-2009, in percent
External debt to GNP External debt to GDP DSB to XGSI DSB to CAR DSB to GNP
29.0 32.3 9.7 9.2 4.0
29.2 33.1 10.4 9.8 3.7
Source: Department of Economic Statistics
PART TWO: THE OPERATIONS AND POLICIES OF THE BSP Monetary Stability The BSP’s inflation targeting framework is disciplined by the inflation outlook but is flexible enough to allow authorities to respond to external shocks that could threaten the domestic economy. Supported by a manageable inflation environment, the BSP was able to respond to the unprecedented challenges posed by the global financial crisis by pursuing liquidity-enhancing measures and interest-rate easing measures while remaining faithful to its core mandate of maintaining price stability. BSP reduces policy rates …
Given a favorable inflation outlook over the policy horizon and easing demand-side pressures, the BSP reduced its policy rates by 150 basis points in the first seven months of 2009, bringing the cumulative monetary easing to 200 basis points since December 2008. The rate reductions were intended to help stimulate economic growth and/or dampen the slowdown in economic activity by reducing the cost of borrowing, thereby reducing the financial burden of firms and households. Lower policy rates also helped mitigate the negative feedback loop between weakening economic conditions and a more cautious financial sector. The action also helped support business and consumer confidence.
…puts in place liquidity- enhancing measures to help ensure smooth functioning of financial markets …
At the same time, the BSP implemented additional liquidity-enhancing measures to provide additional liquidity that will help ensure the orderly functioning of financial markets should global financial conditions worsen. The rediscounting budget ceiling was also
increased further to P60 billion from P40 billion.25 In addition, the Monetary Board (MB) also approved changes in the rediscounting guidelines that would further liberalize banks’ access to the BSP’s rediscounting facility, effective 2 March 2009. In particular, the rediscounting guidelines were revised to: (a) increase the loan value of all eligible rediscounting papers to 90 percent (from 80 percent) of the borrowing bank’s credit instrument, but not to exceed 70 percent of the appraised value of the underlying collateral; (b) align the rates for the peso rediscounts with the BSP’s RRP rate, less 50 basis points; (c) increase the NPL ratio requirement ceiling to ten percentage points above the latest available industry average from the current ceiling of two percentage points above the industry average.26 …and subsequently keeps policy rates steady
Policy rates were kept unchanged since August 2009 with the assessment that the prevailing monetary settings were appropriate given the manageable inflation outlook and the encouraging signs of an economic rebound. In addition, the MB noted that the substantial monetary easing that has been implemented since the latter part of 2008 will continue to provide support to domestic economic activity. Maintaining the current policy stance was considered to be appropriate and would allow prior substantial monetary stimulus measures to fully work their way through the system. Meanwhile, the MB also noted that while forecasted inflation remains manageable, upside risks have slowly started to tilt upward. In particular, upside risks to the inflation outlook have persisted while downside risks have diminished. Risks to domestic inflation were assessed to be slightly tilted upwards given the supply tightness in key agricultural products due to the impact of the major calamities that hit the country in the fourth quarter. The impact of the El Niño weather condition on domestic food supply was also expected to put additional pressure on inflation in the near term. Meanwhile, downside price pressures were expected to stem from the modest improvement in domestic demand, and well-contained inflation expectations. Large foreign exchange inflows, including from overseas Filipinos’ remittances and foreign investments, also helped stabilize the value of the peso, in the process containing price pressures from imported
On 7 November 2008, the rediscounting budget was increased from P20 billion to P40 billion. There were other changes made to the rediscounting guidelines but only the above measures pertained to improving access to the facility and/or increasing the amount of rediscounting loans that could be availed during the crisis period. The other changes were: (1) the lifting of the requirement to execute a Surety Agreement (SA) by any single stockholder, natural or juridical, owning more than 50 percent of the voting stocks of a bank with approved rediscounting lines with the BSP; and (2) the imposition of a ceiling on the outstanding papers that a bank may rediscount equal to the rediscounting bank’s single borrower’s limit (25 percent of its net worth) or P3 billion, whichever is lower. 26
commodities. Given this assessment, the MB maintained the RRP and RP rates at 4.0 and 6.0 percent, respectively.
Financial System Stability BSP sustains reform initiatives
The BSP sustained its reform initiatives to ensure that the financial system remains responsive to the challenges brought forth by the global financial crisis. During the year, policy reforms were focused on promoting market discipline by improving financial reporting, further strengthening prudential and regulatory standards and improving safeguards in banking services, while providing the needed incentives to sustain lending activities. Streamlined and aligned financial reporting standards with international standards
BSP amends financial reporting consistent with international standards…
The BSP amended the Financial Reporting Package for Trust Institutions (FRPTI) issued under BSP Circular No. 609 dated 26 May 2008 to include the following salient features: (a) refinement of the manual of accounts and line item instructions; (b) revision of the additional information sections; and (c) blocking and unblocking of the cells in the reporting template. (BSP Circular No. 641 dated 22 January 2009) The BSP likewise simplified the Financial Reporting Package report format for rural and cooperative banks. The simplified report format consists of the balance sheet, income statement and schedules reflecting the accounts and transactions within the generally authorized activities of rural and cooperative banks, whether in solo or consolidated basis. (BSP Circular No. 644 dated 10 February 2009) The BSP amended the guidelines governing the preparation of audited financial statements (AFS) for trust institutions. The new guidelines required trust institutions to adopt the provisions of the Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) Package, among others. The transitory rules and regulations to govern the accounting treatment of specific accounting items in line with the preparation of the AFS for the financial reporting period beginning 1 January 2008 include: (1) application of the provisions of PFRS/PAS to accounts outstanding as of endDecember 2008; (2) prohibition against reclassification of previously recognized financial instruments, except those allowed under existing regulations; and (3) allowing the use of fair value of ROPA and Investment Properties as of the date of transition to PFRS/PAS as the deemed cost of
said properties. The deadline for filing the AFS of trust institutions for the financial reporting period beginning 1 January 2008 with the BSP is extended up to 30 June 2009, in view of the longer time period needed to prepare the AFS due to the adoption of the new accounting standards. (BSP Circular No. 653 dated 5 May 2009) Strengthened prudential and regulatory standards … introduces new guidelines on ICAAP and SRP
The BSP issued new guidelines on internal capital adequacy assessment process (ICAAP) and BSP’s supervisory review process (SRP) which shall apply to all universal and commercial banks on a group-wide basis. The new guidelines aims to ensure that banks maintain appropriate level and quality of capital commensurate with the risks covered by the framework and all other material risks to which banks are exposed. (BSP Circular No. 639 dated 15 January 2009)
… amends FRP on e-money transactions
The BSP amended the Financial Reporting Package (FRP) on the creation of accounts for electronic money (e-money) transactions issued under BSP Circular No. 512 dated 3 February 2006.27 Electronic money issuer or EMI-banks are required to report their outstanding e-money issued in the FRP report format (both solo and consolidated basis) under BSP Circular No. 512 dated 3 February 2006, as amended, as well as in the simplified FRP report format issued under BSP Circular No. 644 dated 10 February 2009 for rural and cooperative banks starting with the reporting period ending 30 September 2009. (BSP Circular No. 658 dated 23 June 2009)
… includes passports issued by foreign governments as valid identification document
The BSP amended BSP Circular No. 608 dated 20 May 2008 to include passports issued by foreign governments as valid identification document when engaging in any financial transaction with covered institutions to strengthen “banks’ know-your client policy” in support of the anti-money laundering drive. (BSP Circular No. 657 dated 16 June 2009) The BSP amended BSP Circular No. 523 dated 23 March 2006 to require a bank, upon initiation of prompt corrective action (PCA), to enter into a Memorandum of Understanding (MOU) committing to the PCA plan. The MOU will be subject to the approval of the MB. (BSP Circular No. 664 dated 15 September 2009)
The amended FRP defined the following accounts: (1)accounts payable arising from purchase of financial assets under the trade date accounting – refers to the payable arising from the purchase of financial asset under trade date accounting pending actual settlement/receipt of the underlying securities which shall require corresponding asset/liquid asset cover; and (2) accounts payable - electronic money (E-Money) – refers to obligations arising from the issuance of e-money by authorized electronic money issuer-Banks (EMI-Banks).
Put in place safeguards on activities involving derivatives and UITFs …issues guidelines to promote expanded and safe activities involving derivatives and UITFs
Guidelines on derivatives activities of non-bank financial institutions with quasi-banking authority were relaxed to provide quasi-banks (QBs) with expanded opportunity to enter in any financial derivatives solely for hedging purposes, provided that the QB: 1) understands, measures, monitors and controls the risks associated with such activities; 2) adopts effective risk management practices whose sophistication are commensurate to the risks being monitored and controlled; and 3) maintains capital commensurate with the risk exposures assumed. Moreover, QBs may apply for prior BSP approval of additional derivatives authority to engage in all other financial derivatives as long as the QB has and maintains a risk management system commensurate to the additional authority/ies. (BSP Circular No. 668 dated 02 October 2009) Guidelines on the allowable investments of unit investment trust funds (UITFs) as enumerated in Subsection X410.9 and 4410Q.9 of the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), were further expanded to include the following: 1) loans arising from repurchase agreements which are transacted through an exchange recognized by the SEC, subject to the condition that the repo contracts may be pre-terminated lawfully by the trust institutions administering the UITF and acting as lender, with due notice to its counterparty and the market operator; and 2) other tradable investments outlets/categories as the BSP may allow. (BSP Circular No. 675 dated 22 December 2009) Eased foreign exchange requirements of banks The BSP extended the effectivity of BSP Circular No. 629 on the treatment of net unrealized losses in the Foreign Currency Deposit Unit (FCDU)/Expanded Foreign Currency Deposit Unit (EFCDU) Book for purposes of determining compliance with the FCDU/EFCDU asset cover requirement until 30 September 2009. (BSP Circular No. 651 dated 1 April 2009)
Strengthened rules on corporate governance …revises regulations governing qualifications and appointment/ designation of trust officers
The BSP revised the regulations governing the qualifications and appointment/designation of trust officers to include the following additional requirements: at least 5 years experience in trust operations; or at least 3 years of actual experience in trust operations and completed at least 1 year training program in trust operations acceptable to the BSP; or at least 5 years of actual experience as an officer of a bank or related activities with at least 1 year training program in trust operations acceptable to the BSP. The appointment/designation of trust officers, regardless of rank, requires prior approval of the MB. (BSP Circular No. 665 dated 4 September 2009)
…and amends rules and regulations on the selection of external auditors
The BSP amended the rules and regulations on the selection of external auditors and/or auditing firms of covered entities subject to BSP supervision to include only those in the BSP list. Under the amended rules and regulations, the external auditor should be changed, or the lead and concurring partner should be rotated every 5 years or earlier. The rotation of the lead and concurring partner shall have an interval of at least 2 years. (BSP Circular No. 660 dated 25 August 2009)
Box Article 2:
Macro- and Micro-prudential Tools for Financial Stability The recent global financial crisis brought to fore the need to strengthen existing microprudential tools and policies and develop a complementary macro-prudential framework to achieve financial stability. As early as 2000, the Bank for International Settlement (BIS) already recognized that there is a need to “complement the micro-prudential perspective of promoting financial stability with increased awareness of, and attention to, the macroprudential facet” to improve the resilience and stability of the financial system.1 Recent policy debates suggest that the adoption of an operational macro-prudential framework combined with stronger and enhanced micro-prudential policies will help in the mitigation of systemic risk and moderation of the procyclicality of the system. The vulnerability of the financial system affects consumption and investment decisions whenever there are misalignments in prices, a consequence of financial distress. When financial markets are problematic, the flow of funds from savers to ultimate users is weakened and the capacity of the financial sector to generate credit is impaired. The resulting impact on economic activity can be severe and long lasting, and can undermine the effectiveness of traditional macroeconomic policy tools, such as monetary and fiscal levers (Crockett, 2000). These highlight the widespread call to utilize both macro- and micro-prudential policy instruments to minimize financial instability. A macro-prudential framework incorporates new supervisory tasks and bodies responsible for the macro-prudential regulation of systemic risk that would dampen or limit the inherent procyclicality of the financial system. Among the objectives of a macroprudential approach is to limit the risk of episodes of system-wide financial distress so as 2 to contain their cost to the macro-economy. In contrast, the micro-prudential approach seeks to limit the risk of failure of individual institutions, regardless of their impact on the overall economy (such as size, and the degree of leverage and interconnectedness with the rest of the system). Thus, on the one hand, peer group analysis is micro, and seeks to identify outliers, without regard if average performance is appropriate (Borio, 2009). On the other hand, a macroprudential perspective includes tailoring prudential oversight to the systemic importance of institutions or limiting risk concentration across the system. Basel II: A Micro-prudential Framework The Basel II risk-based capital framework, which aims to address the risk-taking behavior of firms, is a micro-prudential framework already in operation. In particular, the Basel II framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, specifically one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with the advances in markets and risk management practices. Concerns about the Basel II have surfaced as it undermines borrowers’ creditworthiness in recessions when the capital requirement increases significantly for banks and, in turn,
might lead to a severe contraction in the supply of credit. This could contribute significantly to the pro-cyclicality of the financial system. The Basel Committee on Banking Supervision (BCBS) approved a final package of measures to strengthen the 1996 rules governing trading book capital and to enhance the three pillars of the Basel II framework at its 8-9 July 2009 meeting. The package is part of the Basel Committee's broader programme to strengthen the regulatory capital framework. The programme aims to introduce new standards to: (1) promote the buildup of capital buffers that can be drawn in periods of stress; (2) strengthen the quality of bank capital; and (3) introduce a leverage ratio as a backstop to Basel II. The Philippines has adopted the Basel II in August 2006 and the implementing guidelines addressing Pillars 1 and 3 as contained in BSP Circular No. 538 (Revised Risk-Based 3 Capital Adequacy Framework). This Circular states that the risk-based capital adequacy ratio (CAR) of universal banks (UBs) and commercial banks (KBs) and their subsidiary banks and quasi-banks, expressed as a percentage of qualifying capital to risk-weighted assets, shall not be less than 10 percent. The Pillar 2 guidelines on Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review Process (SRP) under BSP Circular No. 639 will take effect on 1 January 2011. The said guidelines are applicable to all U/KBs and their subsidiary banks and quasi-banks, though the latter is applied at the group/consolidated level. Stand-alone TBs, rural and cooperatives banks (RBs/Coop Banks) and quasi-banks shall remain covered by the old risk-based capital adequacy framework. BSP Circular No. 639 requires banks to have a process for assessing their capital adequacy relative to their risk profile. The ICAAP is expected to form an integral part of a bank’s risk management processes to enable the board and senior management to assess the risks inherent in their activities and material to the bank. The ICAAP should be reviewed by the board and senior management at least once a year or as deemed necessary. It should be submitted to the BSP every 31 January of each year. The BSP is expected to amend the provisions of BSP Circular No. 538 to incorporate some of the recent enhancements to the Basel II. Existing Macro-prudential Policy Instruments in the Philippines The Philippines is still in the process of developing its own macro-prudential framework. Discussions on the design and operationalization of a macro-prudential framework are still ongoing. Nonetheless, the BSP has already begun utilizing its own macro-prudential policy instruments to stabilize the financial system. The measures used by the BSP to influence directly the credit cycle include among others: (1) imposing limits on different forms of credit exposures (by borrowing sector and by instrument), which include a 20 percent ceiling on banks’ loans to the real estate sector; (2) requiring prior approval of the BSP for borrowings denominated in foreign currency if borrower is public sector and/or to be serviced using foreign currency purchased from the banking system; and (3) placing a ceiling equivalent to a loan-to-value (LTV) ratio of 70 percent for real estate loans, which is aimed at mitigating the adverse impact of sudden and sharp declines in real estate prices on banks’ loan portfolio. Specific measures were also put in place to limit the build-up of systemic risk, as follows: (1) implemented a target capital ratio of 12 percent, which is a prerequisite for banks that want to open a new branch; (2) restricted the distribution of bank profits made, by requiring prior approval of the regulators; (3) required banks to maintain a 100 percent asset cover for their foreign exchange liabilities, with 30 percent in the form of liquid
assets; and (4) imposed limits to open foreign exchange net positions and foreign assets of banks. The BSP is likewise considering the adoption of several measures to reduce interconnectedness in the financial system, including the adoption of: (1) maximum leverage ratio applicable to all banks; and (2) liquidity ratio to be included in the liquidity guidelines currently under development. Furthermore, the BSP utilizes tools to aid macro-prudential risk assessments, such as: (1) the Financial Stability Report, which enhances understanding of financial stability risks and vulnerabilities; (2) macro-stress tests, which assess the vulnerability of banks to shocks; and (3) Senior Bank Loan Officers’ Survey, which monitors changes in overall credit standards of banks. The BSP also maximizes its membership at the Financial Sector Forum (FSF) with regard to the coordination of supervision and regulatory policies. The Governor of the BSP chairs the FSF and the members of the FSF include the heads of the Securities and Exchange Commission, the Philippine Deposit Insurance Corporation and the Insurance Commission.
Crockett, Andrew (2000). ‘Marrying the micro- and macro-prudential dimensions of financial stability’. Remarks to the Eleventh International Conference of Banking Supervisors. Basel, Switzerland. 20-21 September 2000. 2 Borio, Claudio (2009). ‘Implementing the macroprudential approach to financial regulation and supervision’. Banque de France Financial Stability Review No. 13: 31-41. 3 Pillar 1 covers regulations on minimum capital requirements while Pillar 3 covers market discipline.
Payments and Settlements System The BSP continues to provide intermediary services through PhilPaSS
The BSP continued to provide intermediary services to financial institutions through its operation of the Philippine Payments System (PhilPaSS) which provides for the safe, efficient and timely delivery of large value financial transactions in real time. Volume and Value of PhilPaSS Transactions 2009 vs 2008 Annual 2009 2008 Change (%) Volume 610,440 574,022 6.3 Value 188.3 222.6 -15.4 (In trillion pesos) Transaction Fees 133.3 113.6 17.3 (In million pesos) Source: Payments and Settlements Office
Volume of PhilPaSS transactions rises
In 2009, the volume of transactions that passed through the Philippine Payments System totaled 610.4 thousand, 6.3 percent higher, but valued 15.4 percent lower, than the previous year’s level to reach P188.3 trillion. The rise in the volume of transactions for 2009 was due largely to the significant increase in the BSP Cash Department’s (CD) transactions following the direct routing to PhilPaSS of CD’s deposit transactions, representing a 3-month value of cash deposits. This expansion in the volume of transactions however, was not accompanied by an increase in value following the decline in the value of transactions that passed through the following arrangements: interbank (22.9 percent); Treasury (18.2 percent); and Electronic Fund Transfer Instruction System (EFTIS) (8.6 percent). Gross revenue from PhilPaSS amounted to P133.3 million derived mainly from transaction fees, system/ software reinstallation, EFTIS user-registration and other miscellaneous fees.
BSP continues to enhance the efficiency of the existing system
During the year, the BSP continued to enhance the efficiency of the existing system by engaging in various projects and in-house support activities/initiatives. These include: • •
Inclusion of rural/thrift banks (that were formerly nonPhilPaSS members) in PhilPaSS operations; Rationalization of the tax fees charged on PhilPaSS transactions;
• • •
Allowing of online deposits and payments of maturing loan obligations to the Department of Loans and Credit (DLC) of the BSP; Changing of the transaction code/s description to enable banks to use EFTIS as a PhilPaSS back-up facility; and Studying of the possibility of using the PhilPaSS as the settlement arm of OFW remittances.28
There are still pending projects lined up which are expected to improve further the country’s payments system. These projects intend to: • • • • • • • •
Course the electronic payments of claims through the Payee-Thrift Banks; Adopt the use of electronic cash order slip (eCO); Activate EFTIS as a back-up facility for PhilPaSS in times of contingencies; Adopt intraday transfer of Real Time Gross Settlement (RTGS) transactions to core Financial Accounting System (cFAS); Install automatic alert notice of transaction for thrift and rural banks; Extend delivery-versus-payment (DvP) settlement window from 2:00 PM to 4:00 PM; Enhance the capability of the Philippine Payment System – Front-End System (PPS-FES) users to transmit instructions; and Improve program routing.
A Memorandum of Agreement was signed on 2 December 2009 by the Bankers Association of the Philippines, Chamber of Thrift Banks, Association of Bank Remittance Officers Inc., and Rural Bank Association of the Philippines with the BSP with respect to the use of PhilPaSS for the settlement of banks’ OFW remittances.
Box Article 3: Innovations in the Philippine Payments System I. Introduction The Philippine Payments and Settlements System is a vital component of the country’s economic and financial infrastructure. It serves as an avenue through which financial obligations/transactions arising from economic activities between parties involved, are safely settled/delivered on time. The payments and settlements system’s safe and efficient functioning contributes to the promotion of financial stability and the sustainability of economic growth. The passage of Republic Act No. 7653 or the New Central Bank Act, on 10 June 1993 provided, among others, the establishment of efficient facilities for payment services in the country. Like any other central banks, the BSP plays a key role in ensuring the smooth functioning of the payments system. It owns and operates the RTGS system, commonly known as the Philippine Payments and Settlements System (PhilPaSS). The RTGS was implemented on 12 December 2002 to improve the delivery of large-value transactions and financial services in the country. Since the introduction of the RTGS, innovations and systems enhancements continued to be implemented, making the payments and settlements services in the country more efficient, effective and time saving. II. The Philippine Payments and Settlements System (PhilPaSS) A. Interbank Settlement Payments The primary function of a payments and settlements system is to provide for an arrangement that will facilitate fund transfers between members. In order to perform this task, a payments system requires: 1) a mechanism for transmitting payment messages between members; 2) arrangements for settling claims within members/participants; and 3) common operating procedures and rules. The main providers of the country’s payment services are the banking institutions. Currently, there are three systemically important payment systems (SIPS) in the country namely: Multi-transaction Inter-bank Payments System (MIPS, which was later upgraded to MIPS2); check clearing system; and the Philippine Domestic Dollar Transfer System (PDDTS)-U.S. dollar gross systems. •
Multi-transaction Interbank Payments System (MIPS)
The Bankers Association of the Philippines, in coordination with the BSP and the Philippine Clearing House Corporation (PCHC), conceived and developed the Multitransaction Interbank Payments System (MIPS), a delivery system with secure and 1 electronically-transmitted instructions. MIPS was adopted for the settlement of interbank loan transactions in October 1995, replacing the previous paper-based instructions. Large value interbank transactions and bank transfers, which include overnight interbank lending/borrowing and bank-to-bank transfers, are cleared through this system. With MIPS, payments instructions no longer pass through the clearing house but are instead debited directly against local-banks’ demand deposit accounts maintained with the BSP. The BSP launched the initial phase of the RTGS in March 2001 and had its full implementation on 12 December 2002. Currently, the RTGS operates through an 2 upgraded, electronic MIPS2. MIPS2 allows a more direct interface to the BSP’s own
computer and accounting systems and achieves settlement finality through the gross settlement transactions, thus, reducing systemic risks. The transactions were limited to interbank call and term loans and GS under the repurchase agreements with the BSP, which are settled on a gross, trade-by-trade basis (BSP Circular No. 266 of 2002), subject to the availability of balances in the deposit reserves maintained by banks with the BSP. The operation of the system involves counterparties in putting their transactions through the MIPS terminal provided by PCHC. The PCHC is responsible for verifying and authenticating the transactions prior to its electronic transmission to the BSP for settlement. Banks/financial institutions secure a status report of the transactions from MIPS2 while the balances of their demand deposits were being advised through an hourly electronic broadcast by the BSP/Comptrollership Department. Banks and nonbanks performing quasi-banking functions (NBQBs) with demand deposit accounts (DDA) with the BSP can participate in MIPS2 for their interbank transactions by executing the Participation Agreement. As of 2009, the number of PhilPaSS participating-members have expanded to 35 commercial banks, 37 thrift and savings banks, 3 specialized banks, 12 NBQBs, 11 rural banks, third-party system providers (Megalink, Philippine Clearing House Corporation, Philippine Securities and Settlement Corporation, Philippine Dealing System Settlement Highway, and the Bureau of the Treasury), PDTC depository account and custody account, and BSP Departments and Offices (namely, Payments System Office, Provident Fund, and Treasury Department). This is an expansion from only 85 member-participants in 2004. •
Intra-day Liquidity Facility (ILF)
The Intra-day Liquidity Facility (ILF) was established in support of BSP Circular No. 266. The ILF is intended to prevent failed settlements through the MIPS2 for interbank transactions not covered by BSP Circular No. 266 and which are still being settled on a net basis. These interbank transactions include primary auctions and secondary trading of GS; peso netting for USD-PHP swaps; and lending activities including collections and repayment. The ILF, which is considered part of the BSP’s open market operations, operated like a repurchase arrangement backed up by eligible, peso-denominated securities issued by the NG. •
Philippine Domestic Dollar Transfer System (PDDTS)
The Philippine Domestic Dollar Transfer System (PDDTS), which replaced the foreign exchange (FX) clearing and settlement system, is a local clearing and electronic communication system operated by the BAP, the PCHC and Citibank, Manila. Under this facility, US dollar funds are allowed to move from one Philippine bank to another on the same day without the need to go through correspondent banks in the U.S. It is primarily designed to handle OF remittances. B. Securities Settlement System Following the transfer of the fiscal agency functions from the BSP to the Department of Finance (DOF), the conduct of auction, over-the-counter (OTC) sale and book-entry of GS were transferred to the Bureau of the Treasury through the Registry of Scripless Securities (RoSS) effective 4 November 1996. The RoSS handles the transfer of ownership or encumbrance on the scripless securities from the securities account of the Government Securities Eligible Dealers (GSED) to the securities account of the counterparty GSED or non-GSED.3 Securities that were floated since 20 November 1995 were registered in the RoSS. All banks/financial institutions with DDA with the BSP may
act as settlement banks in connection with the government securities trade transactions of RoSS account owners. C. Recent System Innovations With the continued advancement in information technology, changes in the governing laws, regulations and institutions in the global economy, new payment instruments as well as delivery and processing arrangements for small- and large-value financial transactions that are time-critical, have evolved. Innovations have become inevitable for any country desiring to keep pace with the growing economic and financial transactions brought about by e-commerce. Since the installation of the RGTS through PhilPaSS in 2002, system enhancements and developments have been implemented by the BSP to achieve greater efficiency and security. These system enhancements are, as follows: • • • •
• • • • • •
Implementation of the Electronic Cash Withdrawal System (ECWS) in the BSP Cash Department to eliminate the use of checks by banks when withdrawing from their DDAs with the BSP; Inclusion of withdrawals via ECWS in the Daily PhilPaSS Summary Report to help in classifying/identifying ECWS transactions of banks; Improvements in the reports generation of the ECWS to provide information on the nature/reason for a transaction’s rejection; Automation of the End-of-Day processing and posting of PhilPaSS fees in the respective core Financial Accounting System-Demand Deposit Accounts (cFASDDAs) of PhilPaSS participants to allow for the immediate processing of transactions at the end of the day; Enhancement of the Electronic Fund Transfer Instruction System Demand Deposit Account (EFTIS DDA) Module to provide banks an online-access to details of quarterly interest payments credited to their DDAs; Update of the PhilPASS Front-End System (PPS-FES) with SWIFT’s validation rule regarding message types in order to eliminate manual intervention over transactions of SWIFT and non-SWIFT user banks; Switch to the use of the AS400 DDA Inquiry Module in order to hasten the monitoring and confirmation of balances that are transferred from cFAS to the Central Accounting System (CAS); Adoption of a direct settlement of the BSP’s Cash Department deposit transaction in PhilPaSS; Rationalization of the PhilPaSS pricing structure based on the amount of transaction and the automatic collection of annual supervisory fees; and Reduction of payment risks through: a. implementing strict membership criteria; b. restricting high risk members; c. applying caps or limits on intra-day exposures to the system by participants along the lines of counterparty exposure limits; d. setting-up built-in system limits to prevent single party from breaching any limit, delaying the availability of funds until settlement is reached with finality; and e. establishing risk-sharing arrangements, which allow liquidity sharing or loss sharing with appropriate contributions from the members.
These enhancements have contributed to the improvement of the performance of PhilPaSS since the RTGS was implemented in 2002. Financial transactions that passed through PhilPaSS grew by more than a hundred fold to 610,440 transactions in 2009
from 5,685 transactions in 2002. Similarly, the value of transactions grew by more than 78 times from P2.4 trillion to P188.3 trillion during the same period. D. Policy Outlook The BSP will continue to take the lead in enhancing further the country’s payments system. In the near term, PhilPaSS will be used as the settlement arm of OF remittances since it can provide a safer and more cost-efficient channel for the delivery or deposit of funds to intended beneficiaries with accounts maintained with a bank. A Memorandum of Agreement has been signed by the Bankers Association of the Philippines, Chamber of Thrift Banks, Association of Bank Remittance Officers Inc., and Rural Bank Association of the Philippines with the BSP on the use of PhilPaSS for the settlement of banks’ OF remittances in December 2009. The project is expected to be completed and operational within the second quarter of 2010. Other projects in the pipeline which are intended to improve further the current payments system include: 1) coursing the electronic payments of claims through the Payee-Thrift Banks; 2) using electronic cash order slip (eCO); 3) activating EFTIS as a back-up facility for PhilPaSS in times of contingencies; 4) adopting intraday transfer of RTGS transactions to core Financial Accounting System (cFAS); 5) installing automatic alert notice of transaction for thrift and rural banks; 6) extending delivery-versus-payment (DvP) settlement window from 2:00 PM to 4:00 PM; 7) enhancing the capability of the PPS-FES users to transmit instructions; and 8) improving program routing.
The PCHC is a private corporation established by Bankers Association of the Philippines on 10 March 1977 with the primary objective of conducting automated cheque clearing operations. It is responsible for receiving, processing and sorting clearing items delivered by all participating banks through its designated carriers, and providing the BSP with the exchange results for settlement. Its Board of Directors is drawn from participating banks and institutions represented by their bank presidents and senior officers. 2 On 13 October 2000, the BSP Monetary Board amended the rules governing the settlement of transactions involving interbank loans and government securities under the repurchase agreements with the BSP, whereby, transactions are settled gross, on a trade-for-trade basis with finality subject to the availability of balances in the deposit reserves maintained by banks with the BSP. 3 Non-GSED are institutions allowed to engage in the buying and selling of securities but only limited from and to GSED. These institutions have applied as members of the RoSS and have accomplished an Oath of Undertaking that they will abide by all the rules and provisions of the system.
References: Lamberte, Mario B., “The Philippine Payment System: Efficiency and Implications for the Conduct of Monetary Policy”, Philippine Institute for Development Studies, Research Paper Series No. 2002-05. Lamberte, Mario B., “Payment System in the Philippines: Recent Developments”, Asian Development Bank Institute, 10 February 2009. Annual Reports (2004-2009), Payments System Office, BSP, Payments and Settlement System, BSP website at www.bsp.gov.ph
Key Operations of the BSP Loans and Credit BSP increases rediscounting budget and further liberalizes rediscounting guidelines…
On 2 March 2009, changes were made in the BSP’s rediscounting facility to ensure the orderly functioning of the financial markets and avert a possible tightening in domestic liquidity conditions due to the global financial crisis. The BSP’s rediscounting budget was raised to P60 billion, after a similar adjustment to P40 billion on 6 November 2008. Likewise, the rediscounting guidelines were liberalized in March 2009 to improve banks’ access to the rediscounting window. The interest rate for the peso rediscounts was also aligned to the BSP’s RRP or borrowing rate, less 50 basis points. The rediscounting guidelines that were liberalized to improve access to the facility included: (1) raising the ceiling of the NPL ratio requirement to ten percentage points above the latest available industry average from the current ceiling of two percentage points above the industry average; and (2) increasing the loan value of all eligible rediscounting papers from 80 percent to 90 percent of the borrowing bank’s credit instrument, but not higher than 70 percent of the appraised value of the underlying collateral. As of 31 December 2009, the total loan portfolio of the BSP reached P141.1 billion, P15.3 billion or 12.1 percent higher than the previous year’s P125.9 billion. Similarly, the total loans outstanding under the regular rediscounting facility was also higher at P55.8 billion from P33.0 billion in 2008. Total loans granted for 2009 amounted to P193.5 billion, with P185.1 billion granted under the regular rediscounting facility. Out of the P185.1 billion released to banks for both peso rediscounting and the exporters’ dollar and yen rediscount facility (EDYRF), loans granted to commercial banks, thrift banks, and rural banks reached P170.3 billion, P11.5 billion, and P3.3 billion, respectively. Total loan collections for the year reached P178.3 billion with the bulk or P162.4 billion accounted for by rediscounting. Meanwhile, total gross income from lending operations of the BSP Head Office reached P4.6 billion in 2009.
… and undertakes projects for the timely and effective delivery of credit to productive sectors
The BSP undertook special projects to enhance the timely and effective delivery of credit to all productive sectors of the economy through the banking system. Among the projects undertaken were: 1) The approval of the Integrated Management System (IMS), including the timeline for its implementation. The IMS is a knowledge-based management system that captures the processes and linkages from the time the electronic rediscounting line of a bank is established and the other loan windows are availed of, up to the time payments are completed. 2) The spearheading of an initiative to increase the awareness of economic players on the importance of access to credit amid the global financial turmoil through the organization of a banking forum. The forum, entitled “Sustaining Growth Through Better Access to Credit”, provided a venue for the productive exchange of ideas concerning the economy, the existing structures that are in place to address liquidity problems, the measures taken by the BSP to prevent a credit crunch, and the necessity of putting in place dynamic linkages between fiscal and monetary policies. 3) The launching of the Credit Surety Fund (CSF) program in ten (10) more provinces and cities in 2009 following the initial launch in Cavite in 2008. The CSF program is a credit enhancement scheme that allows micro-, small- and medium-scale enterprises (MSMEs) that are members of cooperatives to borrow from banks even without collateral. Loans granted by banks under the program are eligible for rediscounting with the BSP through the DLC. 4) The participation of the BSP in the Strengthening Program for Rural Banks (SPRB) to promote mergers, consolidations and acquisitions through the grant of financial assistance and regulatory support to eligible rural banks. The incentive program was jointly conceptualized by the BSP and the Philippine Deposit Insurance Corporation.
Asset Management The BSP continues to fine-tune its framework for administering, monitoring, and preserving its acquired assets…
The BSP continues to administer, maintain, and preserve its acquired assets to enhance their value prior to eventual disposal. Private banks, when availing of the loan facilities of the BSP, mortgage their real properties or assign to the BSP their receivables, including collaterals in the form of real properties. Upon failure of these banks and mortgagors to pay their loans, borrower banks may opt to execute dacion en pago agreement29 with the BSP. Without such arrangement, the BSP forecloses these real properties. The management of said properties are then transferred to the BSP for proper disposal.
To improve the administration of foreclosed properties, the BSP modified the guidelines in the disposition of acquired assets to include the following: 1) Amendment of the Negotiated Sale Rules and Procedures on Installment Sales with: (a) The adoption of the P5,000 deposit policy for the sale of BSP properties falling under the Housing and Urban Development Coordinating Council (HUDCC) socialized housing category to government employees holding permanent appointments and setting the payment period to 25 years or up to the retirement age of the government employee, whichever comes earlier; and (b) The acceptance of payments through availment of Pag-IBIG Fund housing loan or bank loan and Community Mortgage Program of the Social Housing Finance Corporation, subject to certain terms and conditions; 2) Amendment of the Guidelines on Accreditation and Grant of Commission on Real Estate Brokers granting a fixed amount of P2,500 broker’s commission for the sale to government employees of properties qualified under the socialized housing program and payment thereof only after the deposit of P5,000 has been remitted and the Contract to Sell has been executed; and 3) The adoption of the 90-day or 3-month deadline for the purchaser to submit the signed Contract to Sell in 29
“Dacion en pago” refers to a payment scheme whereby property, whether real or personal, tangible or intangible, is alienated in favor of the creditor, which could either be a financial institution or a special purpose vehicle, in satisfaction of a non-performing loan.
the negotiated sale of acquired properties. Noncompliance with said deadline shall automatically cancel the Notice of Approval and the forfeiture of the downpayment. The BSP also set up valuation reserves for acquired assets for which the accumulated allowance for market decline stood at P2.0 billion as of end-2009. Meanwhile, the Acquired and Other Assets Management System (AOAMS), which is an integrated computer system that aims to address the operational requirements of the BSP in the management of acquired assets and in the monitoring of income, expenses, and receivables, is scheduled to be operational by mid-2010. … continues to dispose acquired assets through various schemes
The book value of the BSP’s acquired assets as of endDecember 2009 stood at P11.9 billion, P0.5 billion or 4.2 percent lower than the previous year’s level. Meanwhile, the total number of acquired real property titles decreased by 2.6 percent or 873 titles to 33,228 titles in 2009. In 2009, the BSP disposed of 1,645 acquired properties with a total price of P454.0 million. These properties were disposed of through the following schemes: 1) Public auction; 2) Sale of acquired assets on a negotiated basis; 3) Sale through the BSP’s Provident Fund Office; 4) Redemption/Repurchase; 5) Participation in housing fairs sponsored by the National Government through the Housing and Urban Development Coordinating Council; and 6) Sale through the Community Mortgage Program (CMP) of the Social Housing Finance Corporation (SHFC) of properties occupied by informal settlers.
International Reserves Management Gross international reserves sustain double-digit growth
The GIR of the BSP sustained its double-digit growth in 2009. The increase in reserves was supported by resilient OF remittances as well as the steady inflow of foreign investments on prospects of a global economic recovery, along with relatively low interest rates in advanced economies, which drove investors’ appetite for risky assets. The significant inflow of foreign exchange allowed the BSP to repay both its short-term advances from the BIS and its maturing gold financial swaps.
The BSP continued to fine-tune its risk management initiatives to safeguard its assets amidst changing global financial conditions. The key strategies executed during the year were as follows: (1) more stringent parameters for securities lending; (2) weekly update of counterparty limits; (3) temporary suspension of selected counterparties; (4) minimization of risks under the BSP’s External Fund Management Program; (5) compliance monitoring; and (6) BSP-wide initiative for risk management. To enhance further the management strategy for international assets, the Investment Management Committee (IMC) of the BSP confirmed on 3 February 2009 the appropriate benchmark levels and currency composition of the internally-managed portfolio (IMP).30 The active management of the investment portfolio was started in March 2009 while the liquidity portfolio was managed passively throughout the year. The BSP continued to manage its gold reserves in compliance with existing guidelines, allowing it to realize robust gains towards the end of 2009.
International Operations Evaluation of foreign borrowing proposals continues
The BSP continued to evaluate foreign borrowing proposals from both the public and private sectors to help manage the country’s foreign debt. The BSP’s external debt management framework aims to maintain the stock of foreign debt at a sustainable level, ensure that loan proceeds are utilized for priority activities, and service maturing obligations in a timely manner.
BSP implements capacity building/systems improvement program
Moreover, as part of its capacity building/systems improvement program, the BSP continued to implement the Debt Management and Financial Analysis System (DMFAS) project, which was developed by the United Nations Conference on Trade and Development (UNCTAD). The DMFAS is a computerized external debt monitoring system aimed at making the country’s external debt monitoring system at par with most countries. The project is on Phase II with the signing of the project document on 4 February 2008. Technical trainings for BSP users and IT staff were conducted in 2009 in view of the implementation of Phase II of the project. As of end2009, the bulk of BSP data on external debt was migrated from the old system to the DMFAS. The review on the
30 In 2008, the MB approved the creation of the IMC, tranching of reserves and change in currency composition, redefinition of the benchmark and revision of investment guidelines for the IMP.
completeness and accuracy of external debt data that were migrated to DMFAS is ongoing. Further enhancements to the computerized systems for BSP-registered foreign direct and portfolio investments were likewise implemented in 2009. These systems aim to improve the generation of reports on external debt by the BSP as well as the monitoring and analysis of transactions on investment accounts.
Notes and Securities Printing The BSP’s Banknotes and Securities Printing Department (BSPD) delivered a total of 1,994.7 million pieces of banknotes in 2009 to the BSP’s Cash Department. Meanwhile, a total of 2.992 million passport booklets were delivered to the Department of Foreign Affairs (DFA).
Mint and Refinery The BSP’s mint and refinery operations in 2009 delivered a total of 1,322.1 million pieces of circulation coins to the BSP’s Cash Department. The mint also produced and delivered 101 and 4,900 sets of presidential medals and state decorations and commemorative medals, respectively. The refinery produced a total of 2,332 pieces of “good delivery” gold bars, containing 0.933 million troy ounces of gold. Each bar had a minimum assay of 99.61 percent. A total of 903.51 thousand troy ounces of gold in 2009 were purchased by the BSP gold-buying stations from various sources, including small-scale miners, in accordance with Section 17 of Republic Act (R.A.) No. 7076, otherwise known as “People’s Small-Scale Mining Act of 1991.” The BSP continued to maintain its five existing buying stations located in Quezon City, Baguio City, Davao City, Naga City and Zamboanga City.
Currency Issuance and Retirement Currency Issuance Currency notes issuance rises
Total currency notes issued by the BSP amounted to P676.2 billion (2,830.2 million pieces) as of 31 December 2009, 15.0 percent higher than the year-ago level of P588.0 billion. Meanwhile, total coins issued stood at P17.7 billion (15,816.8 million pieces) reflecting an increase of 9.9 percent from the year-ago level of P16.1 billion.
Currency Retirement The number and amount of unfit notes retired through ABPMs increase
A total of P15.0 billion (341.0 million pieces) verified cancelled unfit notes were retired in 2009, lower by P2.7 billion or 15.3 percent compared to the previous level of P17.7 billion (368.7 million pieces). Meanwhile, a total of P108.1 billion (303.3 million pieces) were retired on-line through the Automated Banknote Processing Machines (ABPMs), higher by P23.6 billion or 27.9 percent compared to the previous year’s level of P84.5 billion (254.3 million pieces).
Economic Research, Statistical, and Information Dissemination Activities In 2009, there were sustained efforts to provide highquality economic research, generate and report relevant and timely statistics, and improve the public’s access to information through the initiatives and projects of various departments and offices in the BSP. These undertakings aided the monetary authorities in making better-informed decisions; assisted economists, statisticians, and analysts in their research; improved data availability, quality and transparency; and promoted a better public understanding of the role of the BSP in the economy. Research activities to support monetary policy-making expand
During the year, policy papers reviewing the BSP’s monetary policy stance were prepared every six weeks for the Advisory Committee and the Monetary Board of the BSP. These policy papers contained analyses of the economic and financial developments as well as prospects here and abroad, assessment of the inflation outlook in line with the inflation targeting framework for monetary policy, and their implications for the BSP’s monetary policy stance. Technical notes, position papers, policy briefs, and other research papers produced in 2009 covered a wide range of issues. Topics included capital flows; asset prices; financial stability implications of household credit accumulation; reserve management; monetary transmission mechanism; inflation measurement; equilibrium real interest rate; effects of inflation news announcements on interest and exchange rates; impact of and policy responses to the global financial crisis; global recovery and imbalances; international monetary and financial system reforms; review of the BSP’s monetary policy instruments; proposed amendments to the BSP Charter; tax status of central banks; the BSP’s capitalization program; pending bills on tourism and international money transfers; the BSP’s role in payments and settlements; financial market developments;
macroprudential indicators; financial system stress testing; regional financial integration and cooperation; trade policy and development; establishment of special economic and tourism zones; and public finance and debt management. As one of the BSP’s initiatives to mark the 60th anniversary of central banking in the Philippines, the DER launched the publication of the BSP Economic Newsletter in May 2009. The newsletter, which is issued monthly, features short essays on current and relevant economic and financial topics. It aims to provide to the BSP community and the public a readily accessible, up-todate, concise and reader-friendly compendium of studies on current economic and financial issues. The articles featured in the Economic Newsletter were drawn from the various research papers by the Department of Economic Research (DER), the Center for Monetary and Financial Policy (CMFP), and the Department of Economic Statistics (DES). Enhancement of econometric modeling and forecasting capability continues
To support monetary policy formulation and macroeconomic analysis, the BSP expanded its econometric modeling and forecasting activities by improving its existing models and utilizing new ones. In 2009, the re-estimation of the single-equation model (SEM) for forecasting inflation was completed and parallel runs of the old and new SEM started. The BSP continued to refine its multiple-equation model (MEM), updated its Dynamic Stochastic General Equilibrium (DSGE) model, and conducted policy simulations using these models.
Environmental scanning exercises on relevant economic developments continue
During the Environmental Scanning Exercises (ESEs) conducted in 2009, resource persons from the banking community, private sector and the academe participated actively in the exchange of knowledge on timely issues which could influence monetary policy-making. The two ESE topics for 2009 were the following: (1) Lessons from Past and Present Financial Crises: How to Survive the Great Economic Downturn, which aimed to come up with strategies that will allow the Philippine economy to survive the current financial turbulence, ride out the economic headwinds and move onward to a more durable, longterm economic growth; and (2) Moving Beyond the Crisis: Development of an Operational Framework for Macroprudential Policies in the Philippines, which aimed to develop a macro-prudential approach to regulation and supervision to broaden the coverage of prudential management, focusing less on individual entities and more on the interconnectedness of the components of the financial system.
Risk assessment toolkit expands
Results of the Early Warning System (EWS) on currency crisis and the EWS on Debt Sustainability were reported regularly to the Advisory Committee and the Monetary Board during their meetings on the monetary policy stance. The BSP also started using the Bank Distress Index (BDI) to identify the banking crisis episodes in the country and to anticipate possible systemic risks that could arise from liquidity constraints faced by certain banks. The BSP continued to regularly measure and monitor the Philippine business cycle as part of its efforts to manage the risks in the economy. The BSP used various leading indicators of income, spending, services and production to help track the country’s business cycle on a quarterly basis.
Conduct of regular surveys continues
The BSP continued to conduct its regular surveys which provide valuable information to policymakers and researchers. Surveys related to intercompany accounts, bank accounts abroad and transactions using the buildoperate-transfer schemes were conducted on a monthly basis through the Cross-Border Transactions Survey (CBTS). On a quarterly basis, the Business Expectations Survey (BES), Consumer Expectations Survey (CES), and the Foreign Direct Investment (FDI) and Related Data Survey were conducted. For the BES, the sampling frame was updated and the regional coverage was expanded to include Region III. Annual surveys such as the Coordinated Portfolio Investment Survey (CPIS) and the Survey on IT-Enabled Services were likewise carried out.
BSP introduces new surveys and prepares for new initiatives
In 2009, the BSP finalized the questionnaire of the Philippine Consumer Finance Survey (PCFS). Consequently, PCFS surveys were conducted in four regions in the country, the results of which are expected to be published in April 2010. The PCFS is the first household-based survey on consumer finance in the Philippines. The BSP also conducted the following surveys in 2009: the Business Partnership Survey (BPS) which aims to gather the views on the quality of BSP’s relationship with its business partners; and the 2009 Public Perception Survey (PPS) which seeks to obtain the public perception of the BSP’s performance in terms of effectiveness, integrity, responsiveness and transparency. The BSP prepared for the conduct of the Coordinated Direct Investment Survey (CDIS) which targets to improve the quality of direct investment position statistics in the
international investment position and by the immediate counterpart economy. … constructs new time series data
The BSP constructed a time series on monetary statistics in accordance with the IMF’s Standardized Reporting Format (SRF). Specifically generated were the Report Form for the Central Bank Balance Sheet and the Report Form for the Central Bank Analytical Accounts for the period 2001 to September 2009. The BSP also constructed the SRF of the other depository corporations for the period 2007 to September 2009. The SRF, in an IMF-prescribed reporting format, shows the different types of financial instruments, currency denominations of accounts, residency classification and type of asset/liability, and identifies the financial instruments as components of broad money.
… strengthens further its working relationship with stakeholders and various organizations
The BSP held the 2009 Stakeholders’ Awards in appreciation of its partners from the business and government sectors who continued to support the BSP’s statistical undertakings and information needs. Other endeavors to support the statistical awareness of the public included the conduct of the 14th BSP-Department of Education (DepEd) Oratorical Contest, the grant of monetary support for the conduct of the Philippine Statistics Quiz and the National Statistics Month (NSM), and the creation of a Special Committee to review the Philippine Statistical System (PSS). In addition, the BSP reinforced its working relationship with the academe and other organizations by organizing the BSP Professorial Chair Lecture Series, as well as hosting the Philippine Economic Society (PES) annual meeting and some events of the Philippine Statistical Association (PSA). To enhance public awareness on the role of the BSP in the Philippine economy, six Public Information Campaigns (PICs) were conducted in various cities nationwide.31 The BSP also provided resource speakers to universities, colleges and other institutions that requested briefings on the economy and the BSP’s policy thrusts.32 Meanwhile papers on the “Dynamic Stochastic General Equilibrium (DSGE) Model for the BSP” and “Economic Crisis in the Philippines (1950s-1970s)” were presented to BSP employees to help them gain broader understanding in the assessment
Three PICs were held in the BSP’s regional offices in Davao, La Union and Cebu as part of the related activities/events during the re-launching of EFLCs in these offices. The remaining three sessions were organized in Bacolod, Lucena and Dumaguete. 32 These included universities, colleges and other institutions as follows: National Wage and Productivity Commission (NWPC), Filipino Association for Mariners Employments, Inc. (FAME), Philippine Association of Realtors, Financial Executive Institute of the Philippines (FINEX), Professional Regulation Commission (PRC), UP School of Economics (UPSE), University of Santo Tomas (UST), Electronic Financial User’s Circle, Inc., Manulife Investors, and Council of Economic Educators (CECON).
of the BSP’s economic models and the country’s economic situation. … introduces new publications and continues to publish reports and studies in support of its transparency and learning objectives
… and participates actively in intergovernment agency committees and international conferences
In line with the BSP’s mandate of fostering greater transparency in its operations and enhancing public awareness to support price stability, the BSP introduced new publications and continued to publish its regular and special reports on the economic and financial developments of the country. 33 To mark the 60th anniversary of central banking in the Philippines, a BSP book project was started covering topics on Financial Cooperation in East Asia: Why Facing the Global Turmoil Together Makes Sense and Economic Crises in the Philippines 1950s-1970s. Another initiative to mark the 60th anniversary of central banking in the Philippines was the monthly publication of the BSP Economic Newsletter which featured short essays on current and relevant economic and financial issues. Meanwhile, the Bangko Sentral (BS) Review continued to serve as a key venue for publication of the research being done by BSP staff. The BS Review issue for 2009 contains articles on inflation persistence, the monetary policy transmission mechanism, the recent history of central banking in the Philippines, and IMF reforms on voice and participation. The BSP Working Paper Series aims to stimulate discussions and solicit comments and suggestions from the public through peer review or refereeing. The 2009 issue of the BSP Working Paper Series included the Macroeconomic Model for Policy Analysis and Insight: a DSGE Model for the BSP. The BSP also contributed to international publications to ensure the dissemination of BSP staff’s research to the public. In line with this, the BSP prepared a South East Asian Central Banks (SEACEN) collaborative research project on Investment in SEACEN countries in the Post-Asian Crisis Period. The BSP participated actively in inter-agency committees such as the various committees under the Development Budget Coordination Committee (DBCC), the National Price Coordinating Council (NPCC), the Committee on Tariff and Related Matters (CTRM), and the Export Development Council (EDC).
33 These included yearly reports such as the BSP Annual Report, Philippine Flow of Funds (FOF), Coordinated Portfolio Investment Survey (CPIS), Financial Stability Report (FSR), Year-End Report to the President, and Survey of IT-Enabled Services; semestral reports on the BS Review, Status of the Philippine Financial System and Regional Economic Developments in the Philippines; quarterly reports on the BOP, BES, CES, Inflation Report, Report on Economic and Financial Development, Report to ABMI on the Movement and Progress of the Bond Market for the Philippines; monthly reports on Selected Philippine Economic Indicators (SPEI); monthly press releases on inflation, domestic liquidity, and bank lending; Highlights of the Monetary Board Meetings on Monetary Policy every six week; and BSP Working Paper Series, International Investment Position and BSP Economic Newsletter.
The BSP was also involved actively in the activities of various committees on statistics such as: the Technical Committee on Price Statistics (TCPS); the Inter-Agency Committee on Trade Statistics (IACTS); the Inter-Agency Committee on Foreign Direct Investment Statistics (IACFDIS); the Inter-Agency Committee (IAC) on labor, income and productivity statistics (IACLIPS), the technical working group (TWG) on OF statistics, realized investments, IT and IT-enabled services, revised arrival/departure card, CPI, and related indices; IAC and TWG on tourism statistics, BSP-DTI working group on data exchange, and various committees of the PSA. The BSP organized an inter-agency committee that coordinated the launching of the financial learning campaign (FLC) international road shows for OFs and their beneficiaries, and sent representatives for the interagency consultative meetings on the Global Forum on Migration and Development. The BSP also participated actively in the discussion on the proposed amendments to the BSP Charter. In the international front, the BSP participated in conferences and meetings organized by regional and multilateral organizations to discuss economic and financial developments and policy issues. In selected conferences, the results of BSP research were presented. The study on Determinants of House Prices in Nine AsiaPacific Economies, which the BSP co-authored, was highlighted as one of the contributions to policy issues concerning the Asian Consultative Council (ACC) during a wrap-up conference held in Shanghai, China. The BSP presented the BIS publication entitled Measurement of Inflation and the Philippine Monetary Policy Framework during the Annual Meeting of the Deputy Governors in Basel, Switzerland. The BSP also organized international conferences and workshops such as the 2nd Asian Research Network in cooperation with the BIS, the BSP International Research Conference on Remittances, the Workshop on DSGE Modeling and Econometric Techniques as supported by SEACEN-CCBS/BOE-BSP, and Seminar-Workshop on Inflation Measurement: Central Bank Perspectives in collaboration with SEACENBIS-IFC. The BSP also provided technical support to the Philippine delegation in various regional and multilateral meetings, conferences, and international road shows, particularly in the areas of monetary policy, banking and finance.
Box Article 4: The 2009 Philippine Consumer Finance Survey Micro data on the finances of individual households have increasingly gained importance over the past few years, particularly during the height of the subprime mortgage crisis in the US. In response to the growing need for quantitative measures of household finances, the Bangko Sentral ng Pilipinas (BSP) embarked on a project in 2007 that will provide data on the current financial situation of consumers in support of monetary policy formulation and financial system stability. The Philippine Consumer Finance Survey (PCFS) was developed with technical assistance provided by the US Federal Reserve Board through Dr. Arthur B. Kennickell and Dr. Kevin B. Moore. The PCFS is the only household-based survey in the Philippines that collects data on wealth, debt, savings and investments of Filipino families. Wealth data being covered by the survey are: ownership of residence and other real estate property; peso and foreign currency deposits; investments in stocks, bonds, unit investment trust funds, and mutual funds; and ownership of consumer durables like cars and other motor vehicles, appliances, and jewelry. The survey also gathers information on household debt such as mortgages, credit cards, and uncollateralized loans. From these data, the net worth of Filipino families could be estimated. Savings as a flow data could be derived from data on income and expenditures of households, which are also included in the survey. The income data covers wages from employment, profits and other earnings from businesses owned by households, and domestic and foreign assistance/transfers from abroad. Other sources of financial security of households like pensions and insurance are likewise covered by the survey. Demographic and cultural characteristics such as family size, education, and health, including savings and investment preferences of Filipinos, are also included in the PCFS. Data from the PCFS will provide relevant inputs to monetary policy, particularly on the impact of shocks, different inflation regimes and interest rate policies on households’ financial conditions. It could also be used as inputs in the development of more relevant banking and financial policies to increase the public’s demand for and utilization of banking and other financial services. Specific information that can be culled from the survey would likewise be useful in formulating policies and programs on pension and social security, insurance and tax, consumer financial literacy and a range of other policy issues. Thus, the PCFS is of immense importance not only to the Monetary Board but also to other government institutions, the private sector, the academe and research institutions, and the general public who stand to benefit from the wealth of information available from the survey. The PCFS, which will be released by the third quarter of 2010, collects information from a total sample of 10,000 households covering NCR (5,000) sample households, Region I (1,500 sample households), Region VII (2,000 sample households) and Region XI (1,500 sample households). Using a probability sample of households, the National Statistics Office (NSO) provided the list of sample households from the 2003 Master Sample of housing units in the Philippines. Taking into account its sensitive and technical nature, the survey benefited from an earlier pilot study done by the BSP in cooperation with the Ateneo-Economic Policy Reform and Advocacy Project and the Asia Pacific Policy Center that successfully pre-tested the questionnaire and demonstrated the likelihood of enlisting respondents’ participation in the survey.
Supervisory Policy Development and Banking Statistical Activities The BSP continues to align regulatory and supervisory frameworks with internationally accepted standards and best practices…
The BSP continued to review existing rules and regulations as well as banking practices to progressively align BSP’s regulatory and supervisory frameworks with internationally accepted standards and best practices. Consistent with this objective, the policies implemented in 2009 were geared towards the following: 1) Continued adoption of international standards through the issuance of guidelines on banks’ Internal Capital Adequacy Assessment Process (ICAAP) and the BSP’s Supervisory Review Process (SRP); 2) Promotion of corporate governance through approval of rules on interlocking directorship; 3) Enhancement of supervisory tools through refinements in the Financial Reporting Package for trust institutions, rural and cooperative banks, and accounts for electronic money transactions; 4) Adoption of prudential regulations on: the grant of authority to thrift banks to issue foreign letters of credit and transact import/export drafts/bills of exchange, adoption of a separate individual limit of 25 percent of the net worth of the lending bank/quasibank to loans of said financial institutions to their subsidiaries and affiliates engaged in energy and power generation; Loan Collection and Disbursement Points of Microfinance-Oriented Banks and Microfinance/Barangay Microbusiness Enterprise (BMBE)-Oriented Branches of Banks; and equity investments; 5) Support of market transparency through issuance of guidelines in the preparation of audited financial statements for trust institutions and in the accounting treatment of securities offered and accepted in debt exchange offerings of Government-Owned and Controlled Corporations; 6) Adoption of regulatory forbearance to help financial institutions through the global crisis by extending the effectivity of the treatment of net unrealized losses in the foreign currency deposit unit/expanded foreign currency deposit unit (FCDU/EFCDU) and suspension for one year of the requirement on the use of the audited financial statement (AFS) by accredited
external auditors for banks’ internal credit rating system;34 7) Promoted investor protection by prescribing the allowable investments of Unit Investment Trust Funds; and 8) Continued to implement anti-money laundering regulations through the issuance of regulations on the use of valid identification cards. … publishes various reports on the condition and performance of the banking system
Apart from the continuing enhancements of the existing regulatory and supervisory frameworks, the BSP also published various reports on the condition and performance of the banking system, provided technical assistance to BSP officials (i.e., preparation of policy speeches, presentation materials and briefing notes), served as secretariat to the Financial Sector Forum (FSF) and Bank Supervision Policy Committee (BSPC), actively participated in various industry working groups and international conventions/seminars and training initiatives, both local and foreign, to be in step with the developments in the financial services industry.
… and develops further the financial system databases
Likewise, the BSP developed further the financial system databases to support the increasing demand for real-time access to varied banking information and for a more indepth analysis of banking trends and developments.
Branch Operations The BSP continues to ensure timely delivery of banking services and effectively conducts its advocacies in the countryside
The BSP, through its three regional offices and eighteen branches facilitated the timely delivery of banking services and effective conduct of BSP’s advocacies in the countryside. The BSP ensured proactively that sufficient banknotes and coins were available in the region, especially during unusual demands for currency arising from seasonal requirements. The regional offices and branches continued to assist in the implementation of the BSP’s credit program. Credit Surety Fund, which was launched in several provincial areas, was actively supported and assisted by the regional offices and branches of the BSP. The BSP likewise sustained its proactive stance in economic and financial learning campaign by enhancing further the operation of the Economic and Financial
34 Banks were given the flexibility not to deduct unrealized mark-to-market losses in computing for the 100 percent asset cover of their FCDUs, to reduce the need for banks to source US dollars from the foreign exchange market to cover their mark-to-market losses. Suspension of requirement on the use of AFS gave corporate borrowers a reprieve in their expenses since the accredited/selected external auditors charge a higher fee for their services.
Learning Centers (EFLC) in the regional offices and branches. The EFLC, which serves as an effective learning hub for students and researchers, was relaunched in Davao, La Union and Cebu in 2009.
Advocacy Programs The BSP remained committed in pursuing its advocacy campaigns in the areas of microfinance, consumer protection and economic and financial education in 2009. Microfinance ….BSP’s microfinance regulatory framework earns international recognition
The Philippines topped the Economist Intelligence Unit’s (EIU) First Annual Global Microfinance Index in terms of microfinance regulatory framework, along with Cambodia. This index measured the state of regulatory framework, investment climate and institutional development of 55 countries. In terms of the overall microfinance index, the Philippines ranked third in the world following the usual microfinance leaders, Peru and Bolivia. The progress achieved in aligning to international standards the country’s microfinance regulatory framework was owed to the BSP’s continued effort to institutionalize microfinance and proactively pursue initiatives for sustainable microfinance development. This policy thrust paved the way for further efforts to build an inclusive financial system that aimed to expand access to financial services by mainstreaming the unserved and underserved population in the financial system. The end goal is to increase the availability of a wider range of financial services to greater number of Filipinos, including those who were previously excluded and unbanked. For 2009, the BSP’s initiatives and programs were threepronged, namely: 1) provide the enabling policy and regulatory environment, 2) increase the capacity of the BSP and the banking sector in microfinance and SME finance operations, and 3) promote and advocate for development of a sound sustainable and truly inclusive financial system. The policy and regulatory initiatives in 2009 demonstrate a dynamic and progressive approach in addressing the various innovations and changes that took place in the microfinance industry. Circulars were issued to address technological and product innovations, while initiatives focused on areas of financial learning and consumer protection. This approach hopes to further create a sustainable policy and regulatory environment for financial inclusion in the country.
The BSP remains committed to increasing the skills, capacity, understanding and appreciation of its end-users and the banking sector on microfinance. Cooperation agreement with the International Finance Corporation (IFC) and German Technical Cooperation (GTz) was signed to provide the framework for the technical assistance aimed at further strengthening the foundation of SME lending in the Philippines. The agreement covers the design and conduct of appropriate training program and the development of a manual of examination procedures for SME lending to complement the existing manual. Financial Learning Seminars for all banks and clients were likewise conducted around the country which covered the following topics: benefits of financial learning to banks, budgeting and planning, savings and investment, roles and responsibilities of clients in the use of credit and consumer protection. The BSP provided support, inputs and relevant assistance to various groups (e.g., local and international private institutions, foundations, policy makers, regulators and microfinance clients) interested in microfinance, financial inclusion and mobile banking. As of 30 September 2009, there were 214 banks (largely dominated by rural banks) with microfinance operations. These banks were reaching more than 894,855 borrowers with outstanding loan portfolio of more than P6.4 billion.
Consumer protection Financial education campaigns focus on consumer rights awareness and greater access to financial services
The BSP continued to conduct financial education campaigns (FECs) which aim to enhance consumer rights awareness for better protection of the general public and expanding access to financial services, particularly for the small and medium entrepreneurs which remained unreached by the existing banking network. The BSP handled eight FECs on credit card awareness, investments and consumer care, in La Union, Cebu and Davao BSP Regional Offices, Polytechnic University of the Philippines and Marinduque Dental Society in 2009. Participants of the FECs included government employees, students, teachers and university officials and staff, OFs and their beneficiaries. The BSP likewise distributed flyers, frequently asked questions (FAQs), brochures, primers on consumer assistance, special deposit account, bank charges, credit card, common types of fraud and scams and safety measures to avoid becoming victims of fraud and scams. Apart from the local activities, the BSP also took part in international roadshows and conferences.
Economic and financial education Economic and Financial Learning Center (EFLC) EFLC opens door to the public
The BSP’s EFLC, which was inaugurated on 3 October 2008, opened its door to the public in March 2009, providing full public access to all the facilities of the Center. The EFLC is the BSP’s focal point of contact with the public on information concerning economic and financial matters. The EFLC aims to provide information services, programs and materials to introduce the work of the BSP and its role in the Philippine economy and to promote greater understanding of essential economic and financial concepts and issues. As the BSP’s in-house communication channel, it maintains a collection of books and other reference materials, electronic resources, audio-visual materials and other learning tools, exhibits and information kiosks to service the information requirements of researchers. The EFLC houses the BSP library and Statistical and Learning Center and features interactive learning tools and facilities for the public. The EFLC received nearly 2,000 researchers including students, teachers and other members of the academe as well as employees from the public and private sectors during the period in 2009. It also received an average rating of 4.7 percent (in a scale of 1 to 5, with 5 being the highest rating) based on the results of the client feedback/satisfaction survey conducted during the last quarter of the year. The survey’s areas of evaluation included adequacy of resources to meet client requirements, environment, convenience of operating hours, staff and the overall visit. The EFLC conducted outreach information dissemination and advocacy programs which include the public information campaigns on the role of the BSP in the Philippine economy and the users’ forum for BSPproduced statistics. Re-launching of EFLCs in BSP’s Regional Offices
The BSP relaunches its regional EFLCs in Davao, La Union and Cebu
The regional EFLC situated in the BSP’s offices in Davao, La Union and Cebu were re-launched in 2009. The facilities and operations of these regional EFLCs were enhanced while closer coordination with EFLC-Manila was established to enable them to develop, implement and deliver information, programs and services customized to the needs of their respective stakeholders. This is to improve the coverage and effectiveness of the
BSP’s information dissemination programs and activities. Aside from pursuing the physical improvement and standardization of the library and education facilities of the regional EFLCs, the EFLC-Manila expanded its information technology network capabilities to ensure that all online materials and databases in the BSP headquarters are also made available at the regional offices/branches. Moreover, the inventory of reading materials and references in these regional EFLCs were beefed up to improve the information delivery to local stakeholders. Public Information Campaigns (PICs) on the Role of the BSP in the Economy PICs in schools and key economic sectors continue
As part of the effort to promote greater transparency of monetary policymaking in the Philippines, enhance public awareness on the role of the BSP in the Philippine economy, and help manage inflation expectations and reputational risks, the BSP conducted a series of PICs on recent economic and financial developments in the country and the role of the BSP in the economy. The PICs also provided opportunity to obtain feedback on how to improve the delivery of the BSP’s services in various cities nationwide. The BSP conducted six PICs in 2009. In particular, the BSP collaborated with Carlos Hilado Memorial College (Bacolod City), Southern Luzon State University (Lucena City) and Negros Oriental State University (Dumaguete City). PICs were also conducted in Davao City, San Fernando, La Union and Cebu City which included participants from various sectors (i.e. media, business, government, banking and the academe). The BSP has conducted 72 public information briefings all over the country since 2000. These briefings have been attended by more than 5,300 representatives from the academe, business and labor sectors, the banking community, government and non-government organizations, as well as members of the press. Users’ Forum for BSP-Produced Statistics
Conduct of Users’ Forum continues for better appreciation of BSPproduced statistics
The BSP conducted the annual Users’ Forum in October 2009 in celebration of the 20th National Statistics Month. The Users’ Forum aims to: (a) raise the level of public appreciation in current economic and financial issues; and (b) educate the public and enhance appreciation on BSPproduced statistics and their uses. In 2009, the BSP conducted the Users’ Forum of BSP-Produced Statistics
in the cities of Tuguegarao and Dagupan. The Forum reached out to a diverse audience, namely, the academe, members of media, government, banking and business sectors. PICs on currency familiarization and counterfeit detection Conduct of information campaigns on maintenance of currency integrity continues
The BSP sustained its intensified/expanded information campaign to preserve and maintain currency integrity. In 2009, 348 lectures/seminars on currency familiarization and counterfeit detection of Philippine/other acceptable foreign currencies were conducted for 12,374 cashiers/tellers/cash handlers of banks and other establishments. The BSP likewise conducted 38 briefings on the features of genuine BSP notes and coins, Clean Note Policy, Coin Re-circulation Program and Reward System across sectors covering 3,005 treasurers, cashiers and collection agents of government offices, law enforcers, students and school officials, tellers and the general public in 13 provinces (i.e., NCR, Isabela, Cagayan, Ilocos Norte, Quezon, La Union, Palawan, Camarines Sur, Negros Oriental, Bohol, Iloilo, Leyte, Cotabato and Davao). Financial Learning Campaign (FLC) for Overseas Filipinos and their Beneficiaries.
BSP intensifies FLCs overseas
The BSP continued to conduct FLCs for OFs and their beneficiaries locally and overseas to: (1) cultivate financial education among OFs and their beneficiaries; and (2) promote financial planning, savings, and investments among OFs/their beneficiaries by informing them of alternative uses of their remittances, including savings, investments in financial instruments and business ventures. By providing them with appropriate financial information, the FLC hopes to empower OFs and their beneficiaries to make the right economic and financial decisions with respect to their savings and investments. In 2009, FLCs were conducted in 10 locations in the Philippines, namely, Manila, Calamba (Laguna), Tagaytay, Cebu, Bacolod, Tacloban (Leyte), Iloilo, Kalibo (Aklan), San Jose (Antique), Davao. Likewise, the coverage of the FLCs was expanded to include major OFs destination in the Middle East (Riyadh and Jeddah, Kingdom of Saudi Arabia), Europe (Milan and Rome, Italy) and Asia (Seoul, South Korea). More than 6,000
OFs and their beneficiaries have attended FLCs since 2006. Financial Education Schoolchildren BSP distributes teaching guides to more than 60 percent of elementary schools
The BSP sustained its efforts to promote financial education among the schoolchildren in partnerships with other government agencies and the private sector. After the completion of printing of teaching guides in 2008, a private sector partner of the BSP on the FEC delivered/distributed these teaching guides to more than sixty percent of the public elementary schools in 2009. Meanwhile, the BSP through the assistance of Regional Directors of DepEd from Regions 1, 4-A, 7, 11, NCR and CAR, visited 13 sample schools in six regions to monitor/evaluate their use of the teaching guides on financial literacy. A financial education program survey for teachers was likewise conducted in three of the 17 regions to assess the effectiveness of the program. On 23 June 2009, a Memorandum of Agreement (MOA) was signed with the Coordinating Council of Private Educational Associations (COCOPEA) to assist in the implementation of the FEC. COCOPEA is the biggest umbrella organization of private schools associations consisting of 1,300 member schools. Compact disks (CDs) copies of the teaching guides were provided to all member schools of COCOPEA in 2009. The target is to teach financial education to around 1 million students in private schools for the school year 2009-2010. Moreover, the BSP, in coordination with the DepEd’s Bureau of Elementary Education, finalized and implemented the guidelines on the “Search for Outstanding Financial Education Teachers”. The awarding ceremony is scheduled in 2010. On 3 July 2009, a MOA was signed with partner banking institutions to implement “Banking on your Future Program”, a savings promotion campaign targeting public elementary school children for school year 2010-2011. The program aimed to augment classroom learning via extracurricular activities initiated by the banking sector.
Outreach Programs Tulong Barya Para sa Eskwela. The BSP, in coordination with private sector partners and stakeholders, continued its promotion of Tulong Barya Para sa Eskwela, a component of the National Coin Recirculation Program. This program was extended until February 2010. As of 18 September 2009, the number of coins recirculated totaled 4,508,916 pieces based on the report of the DepEd. The BSP turned over 12 houses for St. Paul Gawad Kalinga Village. It organized meal-for-a-cause program for the purchase of bassinets, droplights, weighing scales and other equipment for the nursery section of Dr. Jose Fabella Memorial Hospital. The BSP also conducted summer workshop on arts and solicited donations for the benefit of the home for the elderly and an orphanage. Likewise, it coordinated with its employees’ associations in the conduct of relief operations and debriefing sessions for the victims of typhoons Ondoy and Pepeng that ravaged the country during the latter part of the year.
Institutional Building Corporate Planning
BSP completes the first full cycle of its performance monitoring review
The year 2009 marked the completion of the first full cycle of the BSP’s performance monitoring review with the conduct of the 2008 4th quarter Sectoral Performance Review Session (PRS) on 23 January 2009 and the BSP’s 2008 Year-end Organizational PRS on 20 February 2009. This year’s 1st, 2nd and 3rd quarter sectoral PRS were conducted on 28 April, 24 July and 28 October 2009, respectively, while the 2009 first semester organizational PRS was held on 14-16 August at the Baguio Country Club. The Corporate Governance Framework. The BSP integrated corporate governance initiative under the project “Strengthening Good Governance in the Bangko Sentral ng Pilipinas" (approved under MB Resolution No. 494 dated 2 April 2009), resulted in the undertaking of the following activities in 2009: 1) Formulation of the Governance Assessment tool (Survey Questionnaire); 2) Training for the Governance Assessors in Tagaytay on 7-10 September 2009; 3) Conduct of survey in the Head Office, Security Plant Complex, 3 regional offices and six branches (Lucena, Dagupan, Bacolod, Iloilo, General Santos, Zamboanga) between 23 September-1 October 2009. Response rate
for the survey was 85 percent (target number of respondents: 1,155 employees); and 4) Conduct of Documents Review for governance-related processes and policies. BSP Project Management Framework. In its Resolution No. 243 dated 12 February 2009, the Monetary Board approved the BSP Project Management (PM) Excellence Program which aims to promote a culture of excellence in the Bank to ensure that projects deliver consistently on their business objectives. The key components of the program are the development of a PM methodology, conduct of in-house training program for the project managers and team members (targeted at 1,000 employees and officers of BSP) and deployment of a project portal to facilitate the effective management of PM knowledge and promote project visibility. On the Promotion of Strategic Management Thinking. The 2009 BSP annual planning activities commenced with the conduct of a Discussion Forum on 05 June 2009, with the theme “Key Challenges to Central Banking in the Midst of the Global Financial Crises”. The forum provided a venue for planning participants to discuss with the external experts the emerging patterns and signals in the domestic and global environment that may impact on the BSP’s value propositions and operations with the end in view of understanding the forces of change and developing effective responses to change. In addition, the year 2009 saw the BSP’s continued implementation of a program to cascade its vision and mission statements, with a special session on values and culture through the quarterly week-long Induction Course for New Employees. Information Technology
BSP implements inhouse application systems and considers outsourced projects
The BSP implemented in-house application systems and considered outsourced projects as follows: 1) Sixteen (16) in-house application systems and 11 outsourced projects were considered. Of the 16 in-house application systems, two projects were implemented, three projects are for implementation in 2010, and nine projects are currently under systems development, while two projects were deferred. For the 11 outsourced projects, the Information Technology Sub-Sector (ITSS) provided support in the definition of business requirements, preparation of Requests for Proposal (RFPs), and deployment, among others.
2) Fifty six (56) application systems on production were managed, most of which were enhanced based on user requests. 3) Host computers, hardware, communications and network infrastructure were managed to ensure their availability, capacity and system performance. 4) IT Security Awareness briefings were conducted, with total attendees of 4,996 officers and staff as of end-December 2009. 5) ITSS was certified on ISO 9001 and ISO 14001 on 26-27 March 2009 and OHSAS 18001 on 2 April 2009 covering IT infrastructure, security, operations and support management. 6) The 2010-2014 BSP Information Systems Strategic Plan (ISSP) was presented to and approved by the Computerization Steering Committee (CSC) on 11 December 2009. 7) The MB approved the reorganization of ITSS on 18 December 2009 under MB Res. No. 1842. Bangko Sentral ng Pilipinas Institute BSPI focuses on reviewing its policies and processes to ensure the quality of the services it provides
For 2009, the BSP Institute (BSPI) focused on reviewing its policies and processes in order to ensure the quality of the services it provides. 1) Guidelines on the Subject Matter Expert (SME) accreditation of the BSP were approved on 18 September 2009. The accreditation process provides a set of standards on the SMEs who will be engaged to conduct the BSPI’s in-house training programs. This ensures that only SMEs who pass the training standards of the BSPI would qualify to conduct training at the Bank. 2) A review of the BSP’s internal processes was started, with the objectives of streamlining them and eliminating lags by means of the Value Stream Map. The results of this undertaking would then be used in the creation of the BSPI Integrated Management System. 3) During the fourth quarter of 2009, a planning workshop was conducted to cascade the RMS and BSPI Balanced Scorecard to all personnel. Aside from raising awareness on the sectoral and department scorecards, another objective of the workshop was to aid the BSPI personnel in creating a division and individual scorecards
that are linked to the goals of the department and the sector. 4) The BSPI also continued to strengthen its relationship with the Carnegie Mellon University and its new partner, the Boston University. In particular, it conducted interface/briefings of interested applicants to various scholarships offered by the Bank with officials of foreign schools on the academic and acceptance requirements of the following universities or academic institutions: National University of Singapore; JICE-JDS, Manila Office; Williams College, USA; and Carnegie Mellon University, Australia. The BSP was also able to negotiate a 70 percent-30 percent sharing arrangement in the cost of tuition fees for BSP scholars who will pursue MS Public Policy and MS Information Technology at the Carnegie Mellon University in Australia under the South Australian Government Scholarship Program. Three scholarship slots under this program were given to BSP. 5) In line with the thrust to further increase access training by employees, a computer training room was built at the Security Plant Complex (SPC). This ensured the participation of a greater number of SPC personnel in computer training programs. 6) In keeping with the goal of raising the bar of excellence in the BSP and being at par with global standards, the BSPI facilitated the review and/or examination of twenty-seven (27) bank personnel on various global certifications. 7) In support of the core competency requirements of the training staff, the BSP continued to implement competency development program, based on the framework adopted by the American Society for Training and Development (ASTD) of Analysis, Design, Development, Implementation and Evaluation (ADDIE). The conduct of the competency development program consisting of five modules aims to produce staff that are adept in the Instructional System Design in accordance with the said framework. At the end of 2009, the BSPI has already completed the conduct of the various phases of ADDIE modules for 32 personnel. All participants were required to submit projects that have relevance to their respective areas of assignments, or would lead to the improvement of the course design and implementation, or would provide significant information for strategic decision on training-related matters by way of innovations of the current system.
Human Resource Development Department
BSP implements holistic approach in reinforcing its capability in building strategic business partnerships
Human resource development activities in 2009 were geared towards a holistic approach in reinforcing the BSP’s capability in building strategic business partnerships. Innovative programs were initiated to address the career and development concerns of BSP employees. A dualcareer track progression system for employees was jumpstarted to provide wider career options within the BSP by looking into other possible career paths of employees, apart from the conventional upward movement. The value of workplace development interventions (WDIs) was highlighted by introducing non-formal types of learning, such as Development Movies and Development Hour, and meeting employees outside regular office hours to discuss and share ideas on a featured movie or book. The WDIs were initially intended to focus on the five core values of BSP to enable employees, especially the new hires, to apply these values in the workplace. Alongside the micro approach to development, 2009 also marked the strengthening of a culture-building program by the Organizational Health Survey (OHS). The OHS paved the way for the establishment of baseline data that was cascaded on a top-down approach so that everybody would be apprised of the current health and organizational climate in the Bank. During the fourth quarter, the Organization Development (OD) Committee engaged the services of an OD consultant who would be tasked to develop a framework that would steer the BSP towards a value-based and performance-driven culture. Organization Planning and Design ¾ Reorganization Studies Three reorganization studies were completed and approved by the MB in 2009, namely: (i) the Department of Loans and Credit; (ii) the Information Systems Technology Sub-sector, which included the renaming of the Information Systems Support and Development Department into the Applications Systems Management Department; and (iii) the International Department, which is now a Sub-sector composed of two (2) new departments: the International Operations Department and the International Relations Department (MB Res. Nos. 457 dated 19 March 2009, 675 dated 30 April 2009, and 1842 dated 18 December 2009, respectively).
The reorganization of the Anti-Money Laundering Council Secretariat, Internal Audit Office, Procurement Office and the Payments and Settlements Office were also completed in 2009. These proposed reorganizations will be submitted to the MB once their budgetary implications have been finalized. ¾ Staffing Studies The study of request for staffing changes by the different departments/offices of the Bank has been completed, which led to the creation of 10 positions, including the realignment of positions in the Administrative Division of the Management Services Sub-sector, and additional positions in the Office of the Governor, Manpower Pool, Provident Fund Office and the Facilities Engineering and Management Department. ¾ Special Studies Special studies on streamlining personnel requirements were also completed, including: • • •
Review of Positions Identified For Abolition Upon Vacancy; Consolidation of the Procurement of the Bank’s Requirements for Outsourced Personnel; and Evaluation of Requests for Hiring/Re-hiring of Outsourced Personnel.
Competency Modeling and Job Analysis ¾ During the first quarter of 2009, 11 competency models were approved by the MB for various job families in the Bank: architectural, engineering and facilities management, asset management, financial services, human resource development services, human resource management services, information technology services, medical and dental services, legal services, provident fund services, security, investigation, and transport services, and training services. ¾ A review of the BSP’s internal qualification standards for certain positions in the Monetary Stability Sector was conducted with a view to rationalize them. Moreover, the performance evaluation system was revised and cascaded to the staff of the BSP.
Selection and Placement ¾ Some 1,741 requests/proposals from different departments/offices in the BSP for the filling of vacancies by way of promotion, lateral transfer, new appointment, reinstatement or reemployment were received and evaluated. Moreover, some 1,314 positions were filled, of which 394 were contractual. Applicants to these filled positions came from a pool of 5,168 candidates from within and outside the BSP, whose qualifications were assessed against the requirements. Likewise, 1,079 applicants were referred to pertinent departments/offices from a pool of 1,713 applicants Talent Development ¾ In the area of talent development, the revised Individual Development Plan and the Competency Assessment Form were initially rolled-out to HRDD staff. Simultaneously, individual talent interviews and validation with heads of divisions were conducted. Reinforcing the idea that talent development could be effective in both classroom and non-classroom settings, WDIs, such as the Development Movies and Development Hour, were introduced to highlight the BSP’s core values. ¾ Other interventions to support WDIs included the Handbook of Development Activities, guidelines on job-rotation and cross-posting program, coaching and mentoring program, catalog of training opportunities per position, i-learn online (e-coaching) and management development program. Concept papers were started on incentive scheme for WDIs, qualification standards, BSP scholarship program, talent development framework, linkages between individual development and performance, impact of qualification standards in the implementation of competency-based HR system. Career and Succession Management Successful execution and provision of the following career management related events and programs: • •
One Breakfast with the Governor – the first ever in the Bank – for 214 new employees as part of the Bank’s on-boarding activities; Two career fairs (My BSP, My Career: Explore the Possibilities) promoting awareness on internal career
mobility in the Head Office and the SPC, attended by 1,496 employees, 172 of whom submitted their applications for vacant positions within the Bank; Three Second Level/Professional Review Classes for 115 BSP employees in the Head Office and Regional/Branch Offices to address their need for this eligibility; One Third Level Eligibility Review Class for 47 BSP Officers, 16 of whom successfully passed the first onsite Written Exam administered by the Career Executive Service Board in BSP; One run for the Career Plan Preference Survey (CPPS) participated in by 290 employees in support of the Bank’s Succession Management Program; Weekly new employee orientation/briefing in support of the Bank’s on-boarding initiatives to facilitate a smooth integration of new talents to the organization and for them to have the right BSP-values at the start of their career. A total of 284 employees were oriented by CSMD in 2009; Career management briefing to all participants of the New Employee Induction Course in close coordination with BSPI; Career guidance and counseling services to 114 employees affected by various reorganizations as well as those who faced varied career concerns due to transition, performance, personal issues; and Issuance of communication materials on career – - Six Career Breakthrough Stories featured in the HRDD website; and - 22 Career broadcasts on clear vacancies.
BSP continues to mount activities towards effective crisis leadership
The BSP continued to mount activities towards effective leadership, ensuring the continuity of business, especially time-sensitive operations, as follows: 1) Continuous bank-wide education and awareness initiatives on topics related to business continuity and emergency management through regular Lotus Notes broadcast, Disaster Preparedness Training for Disaster Brigade Teams, briefings and workshops that resulted in the preparation and testing of the Departmental Business Continuity Plans (DBCPs); and 2) Participation in various international conferences, seminars and workshops on crisis management, business continuity and disaster recovery.
Systems and Methods
BSP continues to institute service excellence at par with world class standards
In pursuit of the BSP’s commitment to institute service excellence at par with world class standards, various programs were completed/pursued in 2009 towards this end. 1) Design and development of three quality management systems (QMS) of several departments and offices, in accordance with the international standards of ISO 9001, namely: (1) Facilities Management and Engineering Department, (2) Corporate Affairs Office, and (3) DLC; 2) Two bank-wide certified management systems, namely, the Environmental, Occupation Health and Safety Management System (EOH&SMS) and Administrative Operations QMS (AO QMS) passed certification audits under the ISO 14001 standards and Occupational Health and Safety Assessment Series (OHSAS) 18001 and ISO 9001, respectively; 3) Conducted Independent Quality Assessments in the Head Office and three Regional Offices and Branches; 4) Conducted Work Environment Measurements as part of maintaining a healthy work environment in the BSP; 5) Conducted EOH&SMS; and
6) Embarked on a training on business process improvement (BPI) and business process reengineering (BPR) to equip its personnel with the knowledge and skills to perform process improvement and reengineering projects.
International Economic Cooperation BSP continues to participate actively in international economic cooperation activities
The BSP continued to participate actively in international cooperation activities, including bilateral, regional and multilateral fora in 2009. These meetings discuss ways on how to address the global financial turmoil, promote regional and financial cooperation and integration, improve economic surveillance, support regional bond market development and negotiate free trade agreements. The BSP also promoted its position on various issues and proposals emanating from the IMF and the World Bank.
Economic Surveillance and Policy Dialogue BSP spearheads the continuing enhancement of EMEAP’s surveillance mechanism
As the current Chairman of the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) Monetary and Financial Stability Committee (MFSC),35 the BSP spearheads the continuing enhancement of EMEAP’s surveillance mechanism through coordination of initiatives for closer monitoring of global and regional economic and financial developments, as well as preparation of weekly tables and charts on financial market developments in EMEAP economies. The BSP also participated actively in the discussion in the ASEAN and ASEAN+3 (consisting of the 10 ASEAN member states plus China, Japan and Korea) Finance Ministers’ Meeting on the establishment of the ASEAN Macroeconomic and Finance Surveillance Office (MFSO) and the ASEAN+3 Macroeconomic Research Office (AMRO). The MFSO will be a new highlevel surveillance unit of the ASEAN that is expected to take the lead in producing quality surveillance output and discussing on surveillance and financial integration, while the AMRO will be established as an independent regional surveillance unit of the ASEAN+3 process that will monitor and analyze regional economies and support decision-making under the ASEAN+3 Chiang Mai Initiative Multilateralization. Regional Financial Arrangements
Call to stronger regional cooperation efforts results in the adoption of an agreement among ASEAN+3 countries
The MFSC, in promoting vulnerabilities management,
The call to stronger regional cooperation efforts, particularly in the area of short-term liquidity support amid the global financial turmoil resulted in the adoption of an agreement among the ASEAN+3 countries to accelerate the establishment of an advanced framework for regional liquidity support arrangement in the form of the Chiang Mai Initiative Multilateralization (CMIM). In accordance with the agreement on the main components of the CMIM during the ASEAN+3 Finance Ministers’ Meeting on 3 May 2009 in Bali, Indonesia, the Finance Ministers and Central Bank Governors of the ASEAN+3 and the Monetary Authority of Hong Kong, China, signed the CMIM Agreement on 24 December 2009, outlining the terms and conditions of the multilateral swap facility amounting to US$120 billion. The multilateralization of the Chiang Mai Initiative (CMI) is considered to be a major step forward in the efforts to strengthen official financial cooperation in the Asian region. The Philippines has
which is composed of EMEAP Deputies, was established in 2007 to assist the EMEAP Governors monetary and financial stability in the region by highlighting issues, identifying areas of and recommending broad policy options in the areas of regional macro-monitoring, risk crisis management and crisis resolution.
committed US$4.55 billion36 to the CMIM and may avail of up to US$11.6 billion in US dollar swaps under the facility. The CMIM agreement is expected to take into force in March 2010. Regional Bond Market Development The BSP helps pursue actively efforts to develop efficient and liquid bond markets in Asia
The BSP is actively involved in pursuing efforts under the Asian Bond Markets Initiative (ABMI), which aims to develop efficient and liquid bond markets in Asia, enabling better utilization of Asian savings for Asian investments and contributing to the mitigation of currency and maturity mismatches in financing. Currently, the ABMI is focused on facilitating access to bond markets and enhancing market infrastructure for local and regional bond market development through initiatives in the following areas: • • • •
facilitating issuance of local currencydenominated bonds; promoting the demand of local currencydenominated bonds; improving regulatory framework; and improving related infrastructure for the bond markets.
In 2009, relevant progress was achieved by the four ABMI taskforces that were established to implement specific initiatives on the following key areas: (a) Task Force (TF) 1: Facilitating Issuance of Local CurrencyDenominated Bonds; (b) TF 2: Promoting the Demand of Local Currency-Denominated Bonds; (c) TF 3: Improving the Regulatory Framework; and (d) TF 4: Improving the Related Infrastructure for Bond Markets. The BSP participated in the activities under the TF 1 particularly in the discussion of the Articles of Agreement and Operational Policies that will implement the Credit Guarantee and Investment Fund (CGIF). The CGIF, as endorsed during the 12th ASEAN+3 Finance Ministers’ Meeting on 3 May 2009 in Bali, Indonesia, by the Finance Ministers will be a trust fund of the Asian Development Bank (ADB) with an initial capital of US$500 million. The objective of the CGIF is to support the issuance of local currency-denominated corporate bond in the region, thereby contributing to the development of the regional bond markets.
36 Consisting of an initial commitment of US$3.68 billion and US$870 million when the level of the country’s GIR reaches US$45.5 billion.
In parallel, the BSP, along with the Korea Ministry of Strategy and Finance co-chairs TF 4, which covers the following areas of cooperation: (a) developing infrastructure for securities settlement; (b) increasing the liquidity of bond markets; (c) fostering credit culture; and (d) developing the professional services of financial analysts, with priority being given to the first two activities in 2009. Support to Financial Services Liberalization The BSP remains active in the initiatives towards financial integration
The BSP remained active in the initiatives towards financial integration under the ASEAN Finance Ministers’ Process. The BSP participated in the discussions of the Working Committee on Financial Services Liberalization (WC-FSL) under the ASEAN Framework Agreement in Services (AFAS), including the fifth round of financial services negotiations under the AFAS. The ratification of the 4th Protocol to implement the Fourth Package of Commitments on Financial Services under AFAS, including submission of instrument of notification, was completed by all ASEAN Member Countries in 2009. The BSP also participated in free trade area (FTA) agreement negotiations with ASEAN dialogue partners. In 2009, negotiations of different FTAs, including those with China, Japan, the Republic of Korea, India (Trade in Goods Agreement), Australia and New Zealand have been completed. Negotiations on the Trade in Services Agreement of the ASEAN-India and second round of offers under the ASEAN-China Trade in Services Agreement are ongoing. The BSP assumed chairmanship of the ASEAN Working Committee on Capital Account Liberalization, which oversees the implementation of the strategic schedule for capital account liberalization under the ASEAN Economic Community Blueprint. Under the BSP’s chairmanship in 2009, the Working Committee on Capital Account Liberalization (WC-CAL) completed the assessment and identification of rules for the liberalization of foreign direct investment and formulated the guidelines/format for accomplishing the assessment and identification of rules for the liberalization of portfolio investment. The BSP also participated in the discussions/activities of the Working Committee on Capital Market Development (WC-CMD), which oversees capital market development initiatives in the ASEAN towards achieving financial integration. During the 13th ASEAN Finance Ministers’ Meeting in April 2009, the Ministers endorsed the
Implementation Plan to Promote the Development of an Integrated Capital Market to Achieve the Objectives of the ASEAN Economic Community (AEC) Blueprint 2015, which offers a comprehensive set of strategic initiatives and specific implementation actions and milestones on the three broad themes which include creating an enabling environment for regional integration, creating market infrastructure and strengthening the implementation process. The BSP co-chairs with Bank Negara Malaysia the Task Force on Milestones towards ASEAN Monetary and Financial Integration (TF Milestones), a task force under the ASEAN Central Bank Forum (ACBF) aimed at helping develop milestones for further financial integration. The TF Milestones spearheads the conduct of preparatory activities for a study which will provide a thorough and critical assessment of the current state of financial services liberalization, capital market development, and capital account liberalization in the ten ASEAN countries which is expected to be completed by the end of 2010. The BSP also participated in the First ASEAN Seminar on Financial Integration and Brain Storming Session, which provided a venue for consultations with the private sector, exchanging views and providing updates on the progress of activities in relation to the proposed study. Under the multilateral trading negotiations, the BSP also participated in World Trade Organization (WTO)-related activities by providing inputs on queries on banking services of other WTO member-economies as well as those of other government agencies. The BSP continued to support efforts toward the Philippines’ ratification of the WTO 5th Protocol, which embodies the results of the 1997 negotiations on financial services in the WTO. The BSP also participated in the implementation of the Japan-Philippines Economic Partnership Agreement, which came into force on 11 December 2008. The BSP co-chairs the Working Group on Financial Services (WGFS) with the Financial Services Agency of Japan. The WGFS is expected to promote regulatory cooperation in the field of financial services. Research and Training Initiatives under the South East Asian Central Banks (SEACEN) BSP continues to support regional cooperation in human capital management…
The BSP also continued to support regional cooperation in human capital management to strengthen domestic capacity in central banking. The BSP supported strongly the training and research activities of the SEACEN Research and Training Center, focusing on
macroeconomic and monetary policy management, bank supervision and financial stability, payment and settlement management systems, and central bank governance and support services. The BSP co-hosted the following learning activities with the SEACEN Centre: (i) SEACEN-Centre for Central Banking Studies (CCBS)/ Bank of England (BOE) Workshop on Macroeconomic Modeling for Monetary Policy and Management on 23-28 March 2009, Manila; (ii) SEACEN/International Finance Corporation (IFC)/BIS Workshop on Inflation Measurement: Central Bank Perspective on 12-16 October 2009, Tagaytay City; and (iii) SEACEN/CCBS/BOE-BSP Workshop on DSGE Modeling and Econometric Techniques on 23-27 November 2009 in Manila, Philippines. Participation in International Forums and Initiatives The BSP participated in a wide range of international activities, contributing to policy discussions on emerging issues in the regional and global forums. Asian Development Bank (ADB) … provides inputs to various ADB Board discussions
The BSP acts as the Alternate Governor to the ADB Board of Governors. The BSP actively provided inputs to various ADB Board discussions, particularly on the vote to triple ADB's capital base from US$55 billion to US$165 billion. The 200 percent increase allows ADB to respond quickly and proactively to the immediate needs of its developing member-countries while maintaining a focus on long-term development objectives. The BSP participated in the 42nd ADB Annual Meeting in Bali, Indonesia, wherein various initiatives were approved to tackle the crisis, namely: the approval of an additional US$10 billion of ADB assistance in 2009-2010, bringing the total ADB assistance for these two years to about US$32 billion; the inclusion of a new US$3 billion Countercyclical Support Facility to disburse funds quickly and efficiently for urgent needs and are available to member countries who qualify for Ordinary Capital Resources (OCR) loans; and front-loading of Asian Development Fund (ADF) resources to provide US$3.4 billion in 2009 for low-income countries. International Monetary Fund (IMF)
…maintains close dialogue with the IMF
The BSP represents the Government of the Philippines in the IMF Board of Governors. The BSP continues to participate actively in the South East Asia Voting Group by providing technical comments and position papers on
issues related to the quota reform process, liquidity measures and credit instruments, and Fund governance, among others. The BSP participated in the IMF-World Bank (WB) Annual Meeting from 30 September-7 October 2009 where issues on the global economic outlook, crisis response and governance reforms were discussed. The series of meetings and seminars highlighted the ongoing recovery of the global economy, with particular focus on the strong recovery in the Asian region. As the global economy is now starting to recover, exit strategies from extraordinary policy support were also discussed. The Government of the Philippines maintains close dialogue with the IMF under the framework of the annual Article IV consultations. The Article IV consultations, which are required in connection with the surveillance role of the IMF under Article IV of the IMF Articles of Agreement, are held annually between the IMF staff and Philippine economic managers to review economic developments and policies, and assess the impact of global trends and events on the domestic economy. The Philippines’ Article IV consultation mission for 2009 was held on 16-25 November 2009. In its assessment, the IMF mission noted the gaining economic recovery of the country. Leading indicators suggest further expansion in the period ahead where Fund staff projects growth to reach ¾ percent in 2009 and accelerate to 3¼ percent in 2010, led by private consumption. The Fund also noted the timely and decisive measures undertaken by the BSP to ease monetary policy which provided support to growth and ensured healthy liquidity conditions consistent with the inflation-targeting framework. Lessons learned during the Asian financial crisis have set in place the necessary reforms to promote bank soundness and provided the needed cushion for the financial system to weather the current turmoil, as capitalization remained high while NPLs remained low. The IMF also remarked on the improved strength of corporations as they entered the global crisis with lower leverage and short-term debt. The BSP also successfully nominated a Filipino, Ms. Amelia Cabal, to the three-member External Audit Committee, in charge of oversight of the IMF’s external audit, internal audit, financial accounting and reporting, risk management and internal control functions.
Bank for International Settlements (BIS) …participates in the BIS meetings and conferences on the latest financial developments
In 2009, the BSP participated in both the Annual BIS Governors’ and Deputy Governors’ meetings (June and February, respectively) and in the BIS Conference on the Asian Research Program (August). The meetings discussed, among others, issues related to risks and challenges of the global financial crisis, exit strategies from extraordinary policy support and reform of the global financial system. In line with the Asian Research Program to tackle topics on exchange rates, microstructure of financial markets, lessons from the financial crisis, forecasting, monetary policy and financial stability, the BSP hosted the BIS Asian Office and the Financial Stability Institute Workshop of the Asian Research Network on Financial Markets and Institutions on 19 January 2009, Workshop of the Asian Research Network on Monetary Policy and Exchange Rates held in Cebu on 20 January 2009 and the Financial Stability Institute (FSI) - Southeast Asia, New Zealand, Australia (SEANZA) Seminar on Liquidity Risk in Banking Organizations on 5-7 May 2009. The BSP has been a member of the BIS since 2003. Asia-Pacific Economic Cooperation (APEC)
…supports APEC efforts to facilitate economic growth, cooperation, trade and investment in the Asia-Pacific region
The BSP continued to support APEC efforts to facilitate economic growth, cooperation, trade and investment in the Asia-Pacific region. The BSP participated in the ineconomy visit of the review team for the Philippines’ Individual Action Plan and joined the Philippine delegation during the APEC Peer Review in 2009. The APEC Peer Review is an activity wherein APEC member-economies submit to the APEC their respective current capital and trade regimes as well as plans for liberalization or improvements for trade facilitation. The results of the review revealed that the Philippines has made good progress in the areas of trade facilitation, government procurement, investment facilitation, business mobility, tariff liberalization and implementation of WTO commitments. Executives’ Meeting of East Asia Pacific Central Banks (EMEAP)
…hosts meetings of the EMEAP
The BSP hosted the 36th EMEAP Deputies’ Meeting (DM) and related meetings on 15-17 May 2009 in Manila to discuss the: (i) continuing refinement of the Global Integrated Monetary and Fiscal (GIMF) Model and other surveillance-related issues; (ii) establishment of the EMEAP integrated crisis management framework;
(iii) progress in the areas of financial markets, banking supervision, payment and settlement systems and information technology; and (iv) updates on the performance of the Asian Bond Fund portfolio. The BSP also hosted the 5th EMEAP Monetary and Financial Stability Committee (MFSC) Workshop on 12-13 October 2009 which covered updates on ongoing surveillance works and progress of Working Groups and MFSC Study Teams in various initiatives relating to regional cooperation and financial stability. The 37th EMEAP Deputies’ Meeting (DM) and other related meetings were concluded on 13-15 November 2009 in Chiang Mai, Thailand and were attended by a BSP delegation headed by the Deputy Governor of the Monetary Stability Sector. The 6th MFSC Meeting, which was held on 14 November 2009, marked the inaugural meeting of the MFSC under the new chairmanship of Deputy Governor Diwa C. Guinigundo. As the current MFSC Chair, the BSP plays a lead role in monitoring key financial indicators and identifying relevant issues for discussions and other initiatives for EMEAP. Center for Monetary Studies in Latin America (CEMLA) …and participates in CEMLA meetings on latest economic issues
The BSP participated in the Meeting of the Central Bank Governors of Asia, Latin America and the Caribbean (LAC) held in Istanbul, Turkey on 2 October 2009. The Governors had an extensive discussion on the experience and policy responses of Asian and LAC central banks on important issues relevant to the two regions, including: (a) Commodity Prices and Monetary Policy Impact; and (b) Challenges to Central Banks in Emerging Markets in the Aftermath of the Global Financial Crisis. The BSP also took part in the 45th Meeting of the IMF and International Bank for Reconstruction and Development (IBRD) Governors of Latin America, Spain and the Philippines, the 88th Meeting of the Central Bank Governors of Latin America and Spain and the CEMLA Assembly, which were held on 2-3 October 2009 in Turkey.
PART THREE: FINANCIAL CONDITION OF THE BSP The BSP Balance Sheet (as of end-November 2009) The BSP’s net worth increases following expansion in assets
Based on preliminary and unaudited financial statements, the BSP’s assets as of end-November 2009 reached P2.6 trillion, 11.1 percent or P260.0 billion higher than the yearago level, while its liabilities grew by P249.9 billion or 11.8 percent year-on-year to P2.4 trillion. With higher growth in assets, the BSP’s net worth went up to P242.1 billion or 4.4 percent higher compared to the year-ago level of P231.9 billion. The year-on-year expansion in BSP assets was mainly due to the continued growth in international reserves, which accounted for 79.8 percent of total assets. The expansion in international reserves amounting to P284.2 billion was largely a result of higher earnings coming from foreign deposits and investments. The higher asset balance was likewise attributed to the P17.3 billion rise in loans and advances. The same period also saw a rise in BSP’s liabilities, owing primarily to the P221.2 billion rise in deposit liabilities and the P62.8 billion expansion in currency issued during the period under review. The expansion in liabilities was also traceable to the increases in higher balances in its special deposit facilities as part of its liquidity management measures.
The BSP Net Income (January-November 2009) The BSP posts net operating income
Based on preliminary and unaudited data, the BSP yielded a net income of P10.3 billion during the period January to November 2009, slightly lower compared to the P12.6 billion gain reported during the same period in the previous year. This was primarily due to the P6.9 billion loss in foreign exchange rate fluctuations compared to the P8.3 billion gains posted during the same period in 2008. Total revenues reached to P91.1 billion, P8.2 billion higher than the P82.9 billion posted a year ago. Miscellaneous income, which is the major source of revenue for this review period increased by P16.1 billion compared to the previous year’s level due to higher trading gains. Meanwhile, total interest earnings were lower than the year-ago level by P8.0 billion, largely on account of reduced interest earnings from international reserves. During the same period, total expenditures amounted to P74.0 billion, which was P4.2 billion or 5.4 percent lower than the level posted in the same period in 2008. The year-on-year contraction in the total expenses of the BSP was due mainly to lower interest expense, which declined by 14.3 percent, owing to decreased interest payments on special deposit accounts, NG deposits and reverse repurchase agreements, following the significant reduction in the policy rates during the first half of the year.
List of Statistical Tables 1 1a 2 3 4 5 6 7 7a 8 9 9a 10 11 11a 11b 12 13 14 15 16 17 18
Gross National Product by Industrial Origin Gross National Product by Expenditure Shares Selected Labor, Employment and Wage Indicators Consumer Price Index in the Philippines, Metro Manila and All Areas Outside Metro Manila Cash Operations of the National Government Depository Corporations Survey Selected Domestic Interest Rates Cross Rates of the Peso Effective Exchange Rate Indices of the Peso Total Resources of the Philippine Financial System Outstanding Deposits of the Depository Corporations Number of Financial Institutions Stock Market Transactions Balance of Payments Exports by Major Commodity Imports by Major Commodity Gross International Reserves of the Bangko Sentral ng Pilipinas Total External Debt Selected Foreign Debt Service Indicators Balance Sheet of the Bangko Sentral ng Pilipinas Income Position of the Bangko Sentral ng Pilipinas Condensed Statement of Condition of the Bangko Sentral ng Pilipinas Condensed Statement of Income and Expenses of the Bangko Sentral ng Pilipinas
2 SELECTED LABOR, EMPLOYMENT AND WAGE INDICATORS for periods indicated
Percent Change 2008 2009
36,213 33,560 2,653 6,757 92.7 7.3 20.1
36,805 34,089 2,716 6,579 92.6 7.4 19.3
37,892 35,061 2,831 6,692 92.5 7.5 19.1
1.6 1.6 2.4 -2.6
3.0 2.9 4.2 1.7
1,284,133 986,666 297,467
17.0 23.2 -1.5
11.7 8.8 22.5
Employment Status 1 Labor Force (In Thousands) Employed Unemployed Underemployed Employment Rate (%) Unemployment Rate (%) Underemployment Rate (%)
January -November Overseas Employment (Deployed) Land-Based Sea-Based
982,286 735,772 246,514
1,149,429 906,680 242,749
January -September Strikes Number of new strikes declared Number of workers involved
Agricultural NCR Plantation Non-Plantation
ONCR Plantation Non-Plantation
Non-Agricultural National Capital Region (NCR) Regions Outside NCR (ONCR)
Agricultural NCR Plantation Non-Plantation
Legislated Wage Rates 2 In Nominal Terms Non-Agricultural National Capital Region (NCR) Regions Outside NCR (ONCR)
In Real Terms (at 2000 prices)
Regions Outside NCR (ONCR) Plantation Non-Plantation
1 Explanations on the employment status data are as follows: a) all figures comprise the average of four quarterly data for the year b) Starting 2006,
figures are based on the new definition of unemployment per NSCB Resolution No. 15 dated October 20, 2004 and the 2000 census based population was adopted to the the labor force statistics as per NSCB Resolution No. 1 series of 2005. 2 p ..
Includes basic minimum wage, Cost of Living Allowance (COLA). Data are of the highest ranges and as of December for all years. Preliminary Not available
Sources: BLES, NSO, NCMB, POEA,NWPC
157.6 130.1 139.6 193.9 180.5 126.1
Housing & Repairs
Fuel,Light & Water
Food, Beverages & Tobacco
for periods indicated
Philippines Percent Change 2009 2008 2009
Metro Manila Percent Change 2009 2008 2009
CONSUMER PRICE INDEX (CPI) IN THE PHILIPPINES, METRO MANILA AND ALL AREAS OUTSIDE METRO MANILA
All Areas Outside Metro Manila CPI Percent Change 2008 2009 2008 2009
6 SELECTED DOMESTIC INTEREST RATES
for periods indicated In percent per annum
Nominal Interes t R ates 2008 2007
R eal Interes t R ates 7 2009 2008 2007
B orrowing R ates of B anks Interbank Call Loans 2 S avings Depos its 2 Time Depos its (All Maturities ) Manila R eference Rates (All Maturities )
8.7570 9.4519 7.5425
8.6790 8.5903 6.8475
5.3720 6.0470 4.1105
-0.5430 0.1519 -1.7575
5.8790 5.7903 4.0475
6.6098 6.6777 4.3897 4.4468 3.9230
7.7968 7.8833 5.4405 5.7038 4.7960
7.9956 8.3960 6.7690 7.1932 3.7320
3.4098 3.4777 1.1897 1.2468 0.7230
-1.5032 -1.4167 -3.8595 -3.5962 -4.5040
5.1956 5.5960 3.9690 4.3932 0.9320
4.4560 4.1860 4.3950 4.5910
6.3550 5.3890 6.1930 6.4920
4.2100 3.4060 4.1840 4.9170
1.2560 0.9860 1.1950 1.3910
-2.9450 -3.9110 -3.1070 -2.8080
1.4100 0.6060 1.3840 2.1170
Government S ecurities in the S econdary Market 8 3 Months 4.2769 6 Months 4.4119 1-Year 4.8104 2-Years 5.1077 3-Years 5.6058 4-Years 6.1115 5-Years 6.3615 7-Years 7.3923 10-Years 8.1115 20-Years 9.1477 25-Years 9.3846
5.7523 6.0981 6.2142 6.4385 6.5962 6.7269 6.8135 7.2038 7.4365 10.9673 11.4635
4.1885 4.9088 5.6654 5.7615 5.8569 5.9550 6.0396 6.1385 6.5827 8.3288 8.4500
1.0769 1.2119 1.6104 1.9077 2.4058 2.9115 3.1615 4.1923 4.9115 5.9477 6.1846
-3.5477 -3.2019 -3.0858 -2.8615 -2.7038 -2.5731 -2.4865 -2.0962 -1.8635 1.6673 2.1635
1.3885 2.1088 2.8654 2.9615 3.0569 3.1550 3.2396 3.3385 3.7827 5.5288 5.6500
L ending R ates All Maturities 5 High Low 6
8.5720 9.2470 7.3105
B ang ko S entral R ates R/P (Overnight) R/P (Term) RR /P (Overnight) RR /P (Term) Redis counting
R ate on Government S ecurities Treas ury Bills (All Maturities ) 91-Days 182-Days 364-Days
All figures are weighted average rates , unles s s tated otherwis e Covers all commercial banks
Refers to the New MR R bas ed on combined trans actions on time depos its and promis s ory notes of s ample banks
Ratio of all commercial banks ' total interes t incomes to their total outs tanding pes o-denominated loans
Refers to the average of all highs quoted by reporting commercial banks
Refers to the average of all lows quoted by reporting commercial banks
Nominal interes t rate les s inflation rate
E nd of P eriod P reliminary S ource: BS P p
CROSS RATES OF THE PESO
47.6372 47.2072 47.5846 48.4580 48.2165 47.5242 47.9053 48.1460 48.1607 48.1394 46.8513 47.0324 46.4211
2009 Ave Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0.3794 0.3793 0.4080 0.4078 0.4116 0.4142 0.4211 0.4107 0.4376 0.4800 0.5074 0.5269
0.5099 0.5228 0.5150 0.4964 0.4884 0.4924 0.4962 0.5096 0.5068 0.5262 0.5189 0.5261 0.5202
40.9381 40.6711 41.2524 41.8196 42.9020 44.2806 44.9563 44.8769 46.6922 48.0252 49.1862 48.0942
74.5944 68.3791 68.6566 68.7991 70.8814 73.2826 78.3786 78.8394 79.7093 78.6075 75.7799 78.2038 75.6159
80.6191 79.8763 82.6259 82.8476 84.3039 87.0966 89.4501 85.1592 84.1501 81.3420 75.3922 71.9729
period averages pesos per unit of foreign currency
2008 Ave Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
6.1458 6.0863 6.1374 6.2502 6.2217 6.1318 6.1811 6.2127 6.2141 6.2116 6.0456 6.0690 5.9884
5.2452 5.2160 5.3011 5.3681 5.5010 5.6717 5.7638 5.7480 5.9949 6.1897 6.3461 6.2054
43.9625 41.9307 40.9202 41.9488 42.0289 42.9126 44.3482 44.6167 45.0516 46.2807 45.8379 46.4707 45.2026
37.1439 37.2736 40.6703 41.3067 41.0905 42.6721 43.8001 41.5585 42.1640 42.0732 41.3617 41.5021
41.8951 38.5783 38.3061 38.3577 39.2999 41.2267 42.6001 42.7801 44.2948 44.4555 44.4608 44.4452 43.9356
40.5200 40.6790 41.2956 41.2532 42.9183 43.6120 44.3744 42.6804 44.1509 40.8528 40.4029 38.8501
32.7944 31.6926 31.4078 31.6871 32.0682 32.5209 32.9966 33.2248 33.4091 33.8202 33.5153 33.8758 33.3148
28.5977 28.8042 29.8056 30.6768 31.4236 32.3776 33.0921 32.0244 32.6927 32.5491 32.6794 32.3452
37.6693 31.9690 30.9305 32.1378 34.4199 36.2725 38.3961 38.6618 40.1519 41.4127 42.4340 43.2589 41.9865
36.0445 37.0259 38.1629 38.8830 40.7345 42.0844 43.2706 39.8032 38.3280 32.9715 32.3399 32.0015
Canadian Singapore Australian Dollar Dollar Dollar
126.3797 125.2496 126.2495 128.5719 127.9166 126.1061 127.0813 127.7212 127.7601 127.7048 124.2858 124.7635 123.1458
108.9997 108.1905 109.5017 110.9591 113.8311 117.4882 119.2674 119.0496 123.8610 127.3956 130.5041 127.6113
12.7028 12.5869 12.6869 12.9211 12.8574 12.6732 12.7747 12.8389 12.8434 12.8368 12.4939 12.5420 12.3779
10.9184 10.8481 11.0085 11.1505 11.4395 11.8083 11.9911 11.9670 12.4482 12.7950 13.1308 12.8227
32.6818 31.5865 31.3044 31.5838 31.9619 32.4100 32.8833 33.1105 33.2936 33.7018 33.3958 33.7543 33.1956
28.4982 28.7026 29.6983 30.5647 31.3090 32.2597 32.9707 31.9105 32.5786 32.4392 32.5712 32.2367
0.0046 0.0043 0.0040 0.0041 0.0044 0.0046 0.0047 0.0048 0.0048 0.0049 0.0049 0.0050 0.0049
0.0044 0.0044 0.0045 0.0046 0.0046 0.0048 0.0049 0.0049 0.0050 0.0049 0.0043 0.0043
1.3888 1.3530 1.3502 1.3543 1.3613 1.3723 1.4038 1.4148 1.4163 1.4234 1.4031 1.4140 1.3989
1.3241 1.2462 1.3114 1.3254 1.3383 1.3360 1.3428 1.3278 1.3622 1.3963 1.4037 1.3698
12.9717 12.8531 12.9563 13.1945 13.1279 12.9421 13.0506 13.1094 13.1133 13.1079 12.7575 12.8052 12.6422
11.1483 11.0767 11.2354 11.3874 11.6814 12.0566 12.2405 12.2184 12.7126 13.0761 13.3921 13.0956
66.3788 62.6701 60.9572 63.2114 63.5988 64.8667 67.1473 67.7776 68.6511 70.0747 69.3940 70.1715 68.0249
60.2229 59.9526 63.9347 65.9431 66.7637 68.8648 70.8947 67.4100 67.2060 63.9365 62.6132 64.2812
PHILIPPINES: BALANCE OF PAYMENTS for periods indicated in million U.S. dollars 2008 r/
-11,725 57,970 69,695
-7,339 47,611 54,950
37.4 -17.9 -21.2
Goods Credit: Exports Debit: Imports
-12,885 48,253 61,138
-8,878 37,510 46,388
31.1 -22.3 -24.1
Services Credit: Exports Debit: Imports
1,160 9,717 8,557
1,539 10,101 8,562
32.7 4.0 0.1
Income Credit: Receipts Debit: Disbursements
111 5,973 5,862
-69 5,712 5,781
-162.2 -4.4 -1.4
Current Transfers Credit: Receipts Debit: Disbursements
15,247 15,780 533
15,960 16,637 677
4.7 5.4 27.0
Capital and Financial Account
Capital Account Credit: Receipts Debit: Disbursements
53 114 61
104 170 66
96.2 49.1 8.2
Financial Account Direct Investment Debit: Assets, Residents' Investments Abroad Credit: Liabilities, Non-Residents' Investments in the Phil.
-1,855 1,285 259 1,544
-2,065 1,589 359 1,948
-11.3 23.7 38.6 26.2
Portfolio Investment Debit: Assets, Residents' Investments Abroad Credit: Liabilities, Non-Residents' Investments in the Phil.
-3,798 -619 -4,417
1,449 882 2,331
138.2 242.5 152.8
Financial Derivatives Debit: Assets, Residents' Investments Abroad Credit: Liabilities, Non-Residents' Investments in the Phil.
-113 -541 -654
32 -403 -371
128.3 25.5 43.3
Other Investment Debit: Assets, Residents' Investments Abroad Credit: Liabilities, Non-Residents' Investments in the Phil.
771 -4,334 -3,563
-5,135 3,077 -2,058
-766.0 171.0 42.2
Net Unclassified Items
Overall BOP Position
Current Account Goods and Services Export Import 1/
Debit: Change in Reserve Assets
Credit: Change in Reserve Liabilities Use of Fund Credits Short-term
1,508 0 1,508
-1,510 0 -1,510
-200.1 0.0 -200.1
r/ - Revised to reflect: a) late reports; b) post-audit adjustments; and c) final data from companies. p/ - Preliminary 1/ - Data on goods import for 2008 and 2009 were adjusted to reflect preliminary adjustments on the valuation of raw materials for electronics and garments exports. Technical Notes: 1. Net balances in the current and capital and financial accounts are derived by deducting debit entries from credit entries. 2. Overall BOP position is determined by deducting change in reserve liabilities from change in reserve assets. 3. Net unclassifed items is an offsetting account to the overstatement or understatement in either receipts or payments of the recorded BOP components vis-à-vis the overall BOP position. 4. Change in KBs NFA as a BOP entry is derived by deducting foreign assets from foreign liabilities, consistent with the principle described in technical note No. 1. 5. Basic balance represents a BOP position that excludes transactions that are volatile and are in the short run susceptible to being reversed. It is derived using the following formula: Overall BOP position less (Net portfolio investments + net short-term liabilities) less errors and omissions. In the old BOP series, all transactions in assets and liabilities of commercial banks were deemed to be long-term. With the refinements in the new series on the maturity structure of KBs' transactions, short-term financial transactions of KBs are now excluded from the basic balance. Source: BSP
EXPORTS BY MAJOR COMMODITY GROUP for periods indicated volume in 000 metric tons; unit price in U.S.$/m.t.; fob value in million U.S. dollars January-December C om mod it i es
Coconut Products Copra 0 Coconut Oil 850 Desiccated Coconut 143 Copra Meal/Cake 437 Others Sugar and Products Centrifugal & Refined 202 Molasses 113 Others Fruits and Vegetables Canned Pineapple 190 Pineapple Juice 72 Pineapple Concentrates 32 Bananas 2152 Mangoes 21 Others Other Agro-Based Products Fish, Fresh or Preserved 106 Of which: Shrimps & Prawns .. Coffee, Raw, not Roasted 0 Abaca Fibers 13 Tobacco,Unmanufactured 24 Natural Rubber 36 Ramie Fibers, Raw or Processed 0 Seaweeds, Dried 13 Rice 0 Others Forest Products 1/ Logs .. Lumber 215 Plywood 39 Veneer Sheets/Corestocks 3 Others Mineral Products Copper Concentrates 84 Copper Metal 181 Gold 2/ 130 Iron Ore Agglomerates 4569 Chromium Ore 230 Nickel Others Petroleum Products Manufactures Electronic Products Other electronics Garments Textile Yarns/Fabrics Footwear Travel Goods and Handbags Wood Manufactures Furnitures & Fixtures Chemicals Non-Metallic Mineral Manufactures Machinery & Transport Equipment Processed Food and Beverages Iron & Steel Baby Carr., Toys, Games & Sporting Goods Basketwork, Wickerwork, & Other Articles of Plaiting Materials Misc. Manufactured Articles, n.e.s. Others Special Transactions TOTAL EXPORTS, as per NSO Foreign Trade Statistics Conceptual and coverage adjustments TOTAL EXPORTS, BPM5 .. Less than one thousand metric tons -- Less than one million US$ P Preliminary Components may not add up to total due to rounding Source: NSO
1348 0 1040 240 58 10 80 67 11 3 735 135 31 28 406 20 116 612 308 3 0 22 63 53 0 25 0 140 34 -12 19 2 1 2498 134 1309 116 114 12 0 813 1240 40999 28502 1426 1952 194 31 95 918 221 1130 211 2116 943 263 143
0 1223 1685 133
709 435 859 188 940
2906 6935 0 1659 2647 1448 0 1887 0
87 55 494 548
1599 7226 893 25 52
42 331 2480 1530 49077 -824 48253 1 2
.. 833 116 400
708 714 1252 120
169 79 36 1664 20
815 527 907 207 784
91 8 0 44 30 25 0 11 0
2968 6624 0 234 3219 1003 0 1178 0
.. 293 33 1
51 33 658 679
153 151 128 3097 471
977 4542 904 30 23
801 -594 146 48 13 112 87 22 3 684 137 41 32 344 16 113 530 269 54 0 10 97 25 0 13 0 116 33 -10 22 1 -1469 150 688 116 92 11 0 413 293 33523 22173 1417 1536 147 22 66 821 138 973 156 1889 987 124 128 38 291 2617 890 38335 -825 37510
Growth Rates (%) 2009 Volume Price Value
-2.0 -18.9 -8.5
-41.6 -25.7 -9.8
-11.1 9.7 12.5 -22.7 -4.8
15.0 21.1 5.6 10.1 -16.6
-14.2 238.5 25.0 -30.6 -15.4 -
2.1 -4.5 -85.9 21.6 -30.7 -37.6 -
36.3 -15.4 -66.7
-41.4 -40.0 33.2 23.9
82.1 -16.6 -1.5 -32.2 104.8
-38.9 -37.1 1.2 20.0 -55.8
-40.6 -42.9 -39.2 -17.2 30.0 40.0 29.9 100.0 0.0 -6.9 1.5 32.3 14.3 -15.3 -20.0 -2.6 -13.4 -12.7 1700.0 -54.5 54.0 -52.8 -48.0 -17.1 -2.9 -16.7 15.8 -50.0 -41.2 11.9 -47.4 0.0 -19.3 -8.3 -49.2 -76.4 -18.2 -22.2 -0.6 -21.3 -24.2 -29.0 -30.5 -10.6 -37.6 -13.9 -26.1 -10.7 4.7 -52.9 -10.5 -9.5 -12.1 5.5 -41.8 -21.9 -0.1 -22.3
Volume in 000 cubic meters; unit price in US$/ cu.m. Volume in 000 troy ounces; unit price in US$/oz t.
11b IMPORTS BY MAJOR COMMODITY GROUP for the periods indicated volume in 000 metric tons; unit price in U.S.$/mt; f.o.b. value in million U.S. dollars January - December
Commodities Volume Capital Goods Power Generating & Specialized Machines Office & EDP Machines Telecommunication Eqpt. & Elect. Mach. Land Transport Eqpt. excl. Passenger Cars & Motorized Cycle Aircraft, Ships & Boats Prof. Sci. & Cont. Inst.; Photographic Eqpt. & Optical Goods Raw Materials & Intermediate Goods Unprocessed Raw Materials Wheat Corn Unmilled cereals excl. rice & corn Crude materials, inedible Pulp & waste paper Cotton Syn. fibers Metalliferous ores Others Tobacco, unmanufactured Semi-Processed Raw Materials Feeding stuffs for animals Animal & vegetable oils & fats Chemical Chemical compounds Medicinal & pharmaceutical chemicals Urea Fertilizer excl. urea Artificial resins Others Manufactured goods Paper & paper products Textile yarn, fabrics & made-up articles Non-metallic mineral mftures. Iron & steel Non-ferrous metals Metal products Others Embroideries Mat/Acc for the mftr. of elect. eqpt. Iron ore, not agglomerated Mineral Fuels & Lubricant Coal, Coke Petroleum Crude 1/ Others 1/ Consumer Goods Durable Passenger cars & motorized cycle Home appliances Misc. manufactures Non-Durable Food & live animals chiefly for food Dairy products Fish & fish preparation Rice Fruits & vegetables Others Beverages & tobacco mfture. Articles of apparel, access. Special Transactions Articles temporarily imported & exported Others 2/
5281 66 73.23 102.40 42.23 107.66
262 159 2433
2679 679 733
Growth Rates (%) 2009 Price Value
9309 2607 2804 1978
7637 2119 2278 1801
-18.0 -18.7 -18.8 -8.9
664 760 497
662 313 463
-0.3 -58.8 -6.8
31518 1910 637 23 11.00 1040 56 19 68 402 495 199 29608 619 229 4794 1260 657 201 356 1090 1230 4370 523 665 274 1610 609 432 257 812 18732 52 12395 349 7499 4547 6614 2392 1312 282 798 4222 4064 703 108 1782 245 1226 65 93 719 257 462
5614 49.66 53.62
66 66.45 68.34
293 240 1755
1558 614 538
25252 2351 711 95 8.00 1353 48 21 68 850 366 184 22901 602 152 4163 1129 723 168 149 766 1228 3243 475 467 275 918 435 438 235 637 14091 13 7335 371 3300 3664 5405 2332 1289 275 768 3073 2936 456 147 944 227 1162 53 84 586 265 321
6.3 -32.2 27.0
0.0 -35.1 -36.5
11.8 50.9 -27.9
-41.8 -9.6 -26.6
-19.9 23.1 11.6 313.0 0.0 30.1 -14.3 10.5 0.0 111.4 -26.1 -7.5 -22.7 -2.7 -33.6 -13.2 -10.4 10.0 -16.4 -58.1 -29.7 -0.2 -25.8 -9.2 -29.8 0.4 -43.0 -28.6 1.4 -8.6 -21.6 -24.8 -75.0 -40.8 6.3 -56.0 -19.4 -18.3 -2.5 -1.8 -2.5 -3.8 -27.2 -27.8 -35.1 36.1 -47.0 -7.3 -5.2 -18.5 -9.7 -18.5 3.1 -30.5
TOTAL IMPORTS Conceptual and Coverage Adjustments 3/
TOTAL IMPORTS, BPM5
Volume in million barrels; unit price in U.S.$/barrel
Include valuation adjustments to NSO data.
Include deductions for aircrafts acquired under operational lease agreement.
Revised based on the adjustments made by NSO that was released on 14 May 2009.
Note: Valuation adjustments include: a.) Adjustments to NSO's raw material imports for electronics exports for 2008 and 2009. b.) Adjustments to NSO's raw material imports for garments for 2008 and 2009. Components may not add up to total due to rounding Source: NSO
35,466 36 35,430
3,056 305 2,751
35,466 36 35,430
4,877 1,805 3,072
830 600 230
37,294 27 37,268
2,845 209 2,636
September 30, 2009 Short-term Medium Non& LongTrade Trade Term
e Obligations under various capital lease agreements; Loans without BSP approval/registration
d Due to Head Office/Branches Abroad accounts of branches and offshore banking units of foreign banks operating in the Philippines
b Accounts restructured under CB Circular No.1179 c Liabilities of private development bank and rural banks Exclusions
Dec 31, 2008 124
Sep 30, 2009 215
Dec 31, 2009 178
37,294 27 37,268
3,675 809 2,866
debt covers BSP-approved/registered debt owed to non-residents, with classification by borrower based on primary obligor per covering loan/rescheduling agreement/document.
Starting March 2004, debt stock is adjusted to exclude holdings of residents of Philipppine debt papers booked under the Trust Department of commercial banks. Total external
External debt data were revised from 1990 onwards to reflect the reclassificatiion of offshore banking units (OBUs) from non-resident to resident entities for statistical purposes.
1,821 1,500 321
2 Inclusions a Cumulative foreign exchange revaluation on US dollar-denominated multi-currency loans from Asian Development Bank and World Bank
Foreign Bank Branches
Non-Banks CB-BOL NG and Others
Banks Bangko Sentral ng Pilipinas Others
December 31, 2008 Short-term Medium Non& LongTrade Trade Term
as of dates indicated in million US dollars
13 TOTAL EXTERNAL DEBT 1
38,647 26 38,621
2,862 201 2,660
December 31, 2009 Short-term Medium Non& LongTrade Trade Term
38,647 26 38,621
3,170 201 2,968
INCOME POSITION OF THE BANGKO SENTRAL NG PILIPINAS for the periods indicated in billion pesos u
63.4 45.7 13.1 3.4 1.2 19.2
55.4 34.9 14.5 4.2 1.8 35.3
-12.6 -23.6 10.7 23.5 50.0 83.9
12.4 27.8 8.2 12.7 3.5 0.4 0.8 3.0 9.5
13.4 25.7 3.9 8.5 3.8 0.0 1.1 3.8 13.8
8.1 -7.6 -52.4 -33.1 8.6 -100.0 37.5 26.7 45.3
Net Income Before Gain/(Loss) on FXR Fluctuations
Gain/Loss(-) on FXR Fluctuations
Provision for Income Tax
Revenues Interest Income International Reserves Domestic Securities Loans and Advances Others Miscellaneous Income Net income from Branches Expenses Interest Expenses Reserve Deposits of ODCs and OFCs 1 Special Deposit Accounts National Government Deposits Reverse Repurchase Agreements Loans Payable Other Foreign Currency Deposits Other Liabilities Cost of Minting Other Expenses
Net Income Capital Reserves Net Income Available for Distribution Note: 1
Percent Change (%)
Breakdown may not add up to totals due to rounding. ODCs are deposit generating institutions other than the BSP such as universal and commercial banks (UB/KBs), specialized government banks (SGBs), thrift banks (TBs), rural banks (RBs) and non-banks with quasi-banking functions (NBQBs) while OFCs are trust units of banks.
Based on the unaudited BSP income statement as of November 2009 prepared by the Financial Accounting Department of the BSP. Source: Bangko Sentral ng Pilipinas