Amando M Tetangco, Jr: Pushing the island's boundaries
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the Institute of Corporate Directors (ICD) Program for
Islands of Good Governance, Manila, 20 October 2015.
* * *
An island of good governance. When I think of an island, isolation first comes to mind. I
imagine the island's exposure and triumph over harsh elements. After all, physical islands
are themselves products of struggle. They break away from origins, and establish new
foundations. But an island can also be tranquil. A source of verdant prosperity.
An island's account is not unlike the story of the Bangko Sentral. When the BSP was
established by law in 1993, it took over the then Central Bank. A redefinition was
necessitated as the worldwide trend was for central banks to be independent and focused on
price stability.
As the country's sole and independent monetary authority, the BSP is similar to an island
indeed. It has weathered violent waters and storms. But it remains resilient and stable. And it
has, as I will later on narrate, made a positive impact on its environs.
Then there is good governance. Governance is a relational concept. To be good, and even to
be better, is the objective. Implied is a positive influential authority over the island's
inhabitants, over resources, over its supervised and regulated entities, and even beyond that.
While the concept of "good governance" is a noun, its essence is dynamic. There is action
toward a goal.
The vision is a high quality of life for all Filipinos.
All 5,321 "inhabitants," if you would, officers and staff of "island BSP" from our Manila Office,
Security Plant in Quezon City, three regional offices, and our nineteen branches nationwide,
are committed and united in THIS objective. We are guided by our strategy that has four
themes: Good Governance, Operational Excellence, Engaged Stakeholders and
Organizational Readiness.
We also know that an island cannot be insular. It must cooperate and collaborate. The BSP
deeply values its stakeholders and partners, domestic and international. This July, the BSP
convened 13 government agencies to launch the National Strategy for Financial Inclusion,
with the goal of providing a platform for coordinating work to build an inclusive financial
system. In a good governance archipelago, we benefit from an exchange of ideas, sharing of
competencies, and strengthening of linkages.
For most, the BSP's functions are esoteric: controlling inflation, effective banking supervision,
and ensuring a safe and efficient payments and settlements system. As proof of their
successful accomplishment, there are numbers and graphs. There are also awards and
international recognition.
But these do not drive the island's narration. While we are proud of the figures and
commendations, the real story lies in opportunities created and actual Filipino lives improved.
When the BSP adopted the inflation targeting framework in 2002, it became more effective in
upholding a low and stable inflation environment. For the last six years, it has met the
inflation target. Inflation expectations are well-anchored. Economic growth is supported.
Uncertainty is reduced. On a micro-level, informed decisions on consumption, investment,
saving, and production can be made. Traders may hedge against risks related to the
fluctuating cost of raw materials and finished goods. Income equality is promoted as the
purchasing power of the poor is protected. Because of the country's strong economic
fundamentals, there is positive differentiation by global investors. Investments are sustained.
Our solid fundamentals create buffers against uncertainties, preserving macroeconomic
gains.
Credit rating agencies1 and international financial institutions2 have recognized the country's
inflation performance. Growth projections are favorable. Last December, Moody's raised its
rating a notch above minimum investment grade. It cited the government's efforts to sustain
relatively low and stable inflation. In 2013, the BSP was named Best Macroeconomic
Regulator in the Asia Pacific Region by The Asian Banker.
To thrive in a fluid and interconnected world, the BSP adopts a foreign exchange rate policy,
which is essentially market-determined. Official action only limits excessive price
movements.
To achieve financial stability, we pursued progressive and prudent banking reforms. We
aligned the regulatory framework to international standards, while maintaining sensitivity to
domestic conditions. Among others, we adopted Basel 3 capital reforms. We set higher risk
management and governance standards for our supervised financial institutions. We
institutionalized more effective examination and off-site monitoring processes. The industry's
risk exposures are better monitored through stress tests of banks' balance sheets and stress
test limits for real estate exposures.
In 2014, The Asian Banker granted us the "Best Conduct of Business Regulator Award." And
we are happy to report that from 2012 to 2014, the Philippine banking system was the ONLY
ONE with a POSITIVE outlook from Moody's, from among the nearly 70 jurisdictions it rates.
Ladies and gentlemen, the Philippine banking system is strong. Our consolidated capital
adequacy ratio is Basel 3 compliant at 16.1 percent. This is well-above the BSP regulatory
threshold of 10.0 percent and international minimum of 8.0 percent. As of second quarter
2015, total deposit liabilities stood at P6.8 trillion, 8.2 percent higher than last year's level. It
cannot be overemphasized that a well-functioning banking system supports expansionary
business activities and consumption spending. It is crucial to economic growth.
At "island BSP" we practice and export good governance. We issued guidelines reminding
board of directors of supervised financial institutions to exercise objective judgment and put
strong systems of checks and balances in place. Areas like independent director
requirements, membership in board committees and specific duties and responsibilities of
the board are covered. Supervised entities are motivated to see that good governance works
to their own benefit.
Never in the history of Philippine Central Banking has there been a greater interface with the
Filipino public. The BSP is eager to push the island's boundaries until they reach the
peripheries through financial inclusion. The goal is to allow more people to save, to borrow
for productive uses, avail of investment and insurance products, and send and receive
payments securely and efficiently. For this purpose, the BSP adopts proportionate regulation.
Innovation and creativity of the private sector is encouraged as heavy handedness is not
consistent with the goal of financial inclusion.
Access and usage are key. Ladies and gentlemen, before the year 2000 there were no
microfinance oriented banks. Now3, there are 173 banks with microfinance operations
serving 1.3 million microentrepreneurs. We also now have 531 operating micro-banking
offices or MBOs reaching over 337 municipalities. Of these 337 municipalities, 64 have no
bank except for an MBO. We have also leveraged on technology to increase financial access
and usage. We expanded the virtual reach of banks through the e-money framework,
allowing greater cost-effective financial access touch points.
The video featured the Credit Surety Fund. It provides an alternative to traditional collateral.
Once unbankable MSMEs can now access bank credit facilities. They need not resort to
informal sources of lending at unconscionable interest rates. Jobs are created and
businesses have expanded. Beneficiaries report an improved quality of life. Some even
relayed that their children can now go to school. These are real results. We are also happy to
report that the bill recognizing the CSF as a legal entity passed bicameral conference just
last week in Congress.
Through our PhilPass Remit, overseas Filipino workers can send money remittances to their
families through the BSP's real time gross settlement system. This enabled a fixed back-end
processing fee of Php 50 per transaction. The resulting significant reduction in fees
influenced other non-bank remittance companies to lower their own remittance fees.
The video also featured our Economic and Financial Learning Program. The EFLP is
important, as we believe that a well-informed citizenry in economics and finance can
contribute meaningfully to development, and can benefit more from the opportunities it
brings. To date, the program has reached 79 out of the 81 provinces. We also have financial
learning campaigns for OFWs. This September, we sent financial education materials to
embassies and consulates abroad to disseminate to OFWs.
The video also mentioned our focus on consumer protection. In a recent diagnostic review,
the World Bank described this focus as "impressive". It noted the BSP's regulations on Truth
in Lending, credit cards, e-banking, investment products, lending practices, confidentiality,
data protection, product cross-selling and compliance systems.
But what is the backstory behind these breakthrough results? Again, it began with a vision: to
be a catalyst for a globally competitive economy and financial system that delivers a high
quality of life for all Filipinos. We recognized the need for strategic direction to ensure
effective mandate delivery. Our supporting and enabling governance mechanisms
significantly contributed to present successes. They are essential too in sustaining them.
We believe good governance is not just about complying with the law. Rather, it is a value
adding proposition. It makes us very intentional in how we deliver on our mandates. We
commit to the principles of integrity, accountability and transparency, ownership and voice,
strategic direction, and responsiveness. We believe this creates trust and credibility. We
believe this whole-heartedly.
For the opportunity to share the BSP's breakthrough results, we thank the Institute of
Corporate Directors and the Institute for Solidarity Asia. On behalf of the Monetary Board and
officers and staff of the BSP, we thank you for ensuring productive exchange and
interconnectivity within our archipelago of good governance islands. Indeed this is an
effective way whereby we can learn, improve, push the boundaries of our islands further and
adapt to any change in the currents that surround us. It also enables us to together, enjoy the
waters' calm.