Amando M Tetangco, Jr: Banking on social safety nets
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central
bank of the Philippines), at the Balikat ng Bayan Awarding Ceremonies and the launching of
the Personal Equity and Savings Option Fund of the Social Security System, Quezon City,
25 September 2014.
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On behalf of the Bangko Sentral ng Pilipinas, I congratulate the SSS for making its
57th anniversary truly meaningful for two things: first, by recognizing its partners in the
challenging task of bringing social security services to its members; and second, by
introducing service enhancement to its members through the SSS Personal Equity and
Savings Option or what you call the PESO Fund.
As an institution that has accumulated 31 million members over 57 years, the SSS has its
hands full not only in preparing its members for retirement, but also in helping members face
intermittent financial challenges from maternity, sickness, disability and other contingencies.
In this connection, the SSS PESO Fund provides a viable option for members with excess
earnings to contribute more to this tax-free fund to receive higher benefits in the future.
With such a big customer base, the SSS and its PESO Fund could be a game-changer in
terms of promoting the habit of saving and investing regularly among Filipinos.
The BSP's Consumer Expectations Survey released early this month indicated that 26.9% of
our households have savings. Of these households with savings, 67 percent have bank
deposit accounts; 10 percent put their money in cooperatives, paluwagan and other
credit/loan associations; while 23 percent kept their savings at home.
It is also interesting to note that 35 percent of households said they could set aside money
for savings during the third quarter this year. Moreover, one-third of these households said
they could save 10 percent or more of their monthly gross family income.
According to the respondents, they save money for the following reasons: for emergencies;
retirement; health & hospitalization; education; and business capital & investment.
In other words, there remains a lot of opportunities for scaling up savings mobilization. What
magnitudes are we looking at?
Well, as of March 2014, the Philippine banking system had 37.8 million depositors who had
saved 7.7 trillion pesos in 46 million deposit accounts.
On banking and pension
It may not be pronounced, but there is a significant convergence between banking and
pension planning. Several aspects stand out.
First, both reinforce the value of saving on a regular basis. After all, preparing for life after
retirement is the prudent thing to do. The ideal situation is to have sufficient funding of our
own after we retire. In the absence of private capacity, it is essential for countries to have
effective public pension services. This underscores the importance of a strong SSS. Without
a doubt, pensions are important. They epitomize the value of preparing for your future - a
validation of the significance of our lifelong career.
Second, each time SSS extends benefits to its members, they are reminded of the value of
regularly setting aside part of their income for the rainy days. This is important for the
banking industry as well. It is the accumulated savings of our people that allow our banks to
lend for economic activities that create and keep jobs.
Third, banks are essential channels for the collection of SSS premiums as well as for the
distribution of the benefits to its members and their beneficiaries. This synergy between the
SSS and our banking system is bound to continue moving forward.
Fourth, is the importance of the capital market to both the banking sector and to the SSS.
From the accumulated contributions of its members as well as earnings derived from its fund
management, SSS has become a significant market player.
I understand that as of July this year, 38 percent of the total investments of SSS is in
government securities, 26 percent in equities, and 5 percent in corporate notes and bonds.1
This portfolio structure of the SSS is important because you accumulate assets today but
your liabilities are in the future. You need a market that bridges the idea of "today" with that
of the "future" and that is the capital market. In this connection, the BSP's initiatives to help
develop and deepen the domestic capital market will present the banking sector and the SSS
with more opportunities for investment diversification.
Because of the fiduciary role of the SSS, your ability to manage both sides of your balance
sheet is crucial. In particular, investing your reserves prudently, while being mindful of the
short and long-term financial requirements of your membership.
The SSS needs to be strong to service the social need for our pension system - to take care
of us when we are past our retirement age. In an economy where not everyone is born with
enough resources, we need a social safety net when we are no longer working.
Finally, the state of the economy, employment, and capital markets are vital factors for both
the banking system and the SSS in charting their course.
Let me therefore spend the next few minutes to speak about our macroeconomic
environment.
The Philippines has been experiencing strong growth in a low inflation environment. In
particular, we have had 62 quarters of consecutive positive real economic growth and five
consecutive years of within target inflation. In the second quarter this year, our GDP grew
6.4 percent, making the Philippines, together with Malaysia, the second best performing
economy in Asia, next only to China. At the same time, inflation was 4.9 percent in August,
still within the 3-5 percent target band for this year.
Having said these, I will be the first to say that risks to growth remain. External factors
- including the uneven growth in major economies, uncertainties surrounding monetary
policy in the advanced countries, and geopolitical concerns - could impact the Philippine
economy through trade and volatilities in domestic financial markets. Here at home, weather
disturbances and recurring concerns about power rates and supply could also affect growth.
Still, I believe the Philippines will overcome these challenges and continue its growth
trajectory. Our economic fundamentals remain sound and solid. This is because we have
been instituting purposeful reforms; we have been keeping our own house in order, so to
speak. Sure, we are far from perfect, but our continuing reform agenda has served us in
good stead in this highly interconnected global environment.
Among others, we have a sound, stable, well-capitalized and liquid banking system that
continues to attract record high deposits and provides credit to our productive sectors.
We have a strong external position that provides sufficient buffers from possible external
shocks. For instance, our gross international reserves amount to $80 billion, enough to
support 11 months of imports and payments of services and income; in the past, three
months was good enough. Sustained strong remittances from overseas Filipinos, export
earnings, BPOs and tourism are behind this strong external position. In this period of external
volatility, this is an anchor for stability.
Final thoughts
Ladies and gentlemen, if banking is about taking care of our financing needs, pension is
about taking care of us when we are no longer working. As has been said, "Banking is saving
... pension is the reward for saving."
In this context, we look forward to a stronger and self-sustaining SSS. For the SSS,
sustained economic growth can only mean more members and better yields on its funds.
In the case of SSS and the BSP, we share a common goal of financial education to empower
and help improve the lives of Filipinos. The BSP has a national economic and financial
learning program that reaches out to all age groups starting from Grade I to college students
to young professionals as well as overseas Filipinos and their families.
The capability of SSS to reach out to millions of its members gives it tremendous advantage
in promoting financial education. We are confident that SSS, under the leadership of
Chairman Santos and Pres. De Quiros will not pass on this chance to nurture financial
literature and more financially-stable Filipinos.
We can work on this together. The BSP and SSS. In the process, we will help maintain the
stability of our financial system and promote sustained economic growth that is truly
inclusive.
Once again, congratulations to the women and men of the SSS on your 57th anniversary.
Mabuhay ang SSS! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa
inyong lahat.