amando m tetangco, jr : the strength of retail – in a wider asean economy speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the chamber of thrift banks ( ctb ) annual convention, makati city, 19 march 2014. * * * every year, your industry comes together to exchange views on the prospects for the year ahead. with your theme this year “ thrift banks : preparing for 2015 asean integration ”, the thrift banking industry is recognizing a development that has quietly evolved through the years and will soon crystalize. asean integration – broadly through the asean financial integration framework or afif and more specifically through the asean banking integration framework or abif – will come to fruition in line with the asean 2020 vision that was enunciated way back in 2007. it is, in this sense, imminent and the chamber is being responsive by preparing for this eventuality. in fact, for this convention, the organizers have lined up experts to tackle different facets of integration. my role this morning is to describe the broad economic landscape, including the challenges and opportunities, that the thrift banking industry currently faces against the backdrop of asean integration. the chamber is being strategic in this way, for clearly, understanding one ’ s starting point and initial conditions is just as important as defining one ’ s final destination. the economy at large let me begin therefore with the economy at large. it is tempting to simply cite the array of indicators that show that the macro - economy is strong. in 2013, we again saw the convergence of high growth and stable prices as the country posted a real gross domestic product growth rate of 7. 2 percent amid an inflation of three percent. this is on top of the real gdp growth of 6. 8 percent and a 3. 2 percent inflation rate in 2012. we need to appreciate these numbers not just because they are better than the performance numbers that came out of 2011 ( which were 3. 6 % real gdp growth and 4. 6 % inflation rate ). instead, these are excellent numbers because of the calamities that befell us during the period. 1 on the external front, the balance of payments position was at usd5. 1 billion for 2013. and the gross international reserves at almost 12 months ’ worth of imports of goods and payments of services continues to provide ample cushion against external vulnerabilities

over 600 million individuals in 10 jurisdictions whose collective gdp in 2012 amounted to usd2. 27 trillion. while this amount only represents 3. 13 percent of the world ’ s nominal gdp, asean as a collective aggrupation would be the world ’ s 8th largest economy, only following the us, china, japan, germany, france, uk and brazil. 3 prospects for philippine thrift banks on the whole then, an integrated asean is a natural treasure trove for the consumer finance market. with asean gross saving as a percentage to gdp just above 30 percent while the world is at under 22 percent, the potential for asean is not just its size but also its saving. 4 as an industry structured to mobilize retail saving and generate credit exposures to the consumer finance market, the prospects seem tailor - fit for you. in fact, within that framework, the philippines does stand out even further because of the specific demographic profile that i described earlier. does this mean then that your corporate future is secured? unfortunately, the potential that is asean and our own demographic advantages do not, on their own, create balance sheets. there are still strategic decisions to be made and tactical plans to be executed for these identified positives to be reflected as reality on your balance sheets. what is clear at this juncture is that market competition is changing the traditional niches. internally, the larger banks are extending their network into areas where smaller banks traditionally operate while banks have increasingly tapped into the consumer finance space. externally, asean is poised to further integrate under the mantra of an asean that is for asean. just as we will be exposed to the opportunities of a bigger regional market, our economic prospects will also be targeted by interested regional entities. in both cases, they create competitive pressure for tbs and this, in our view, presents the main strategic issue for thrift banks. despite all the gains achieved in recent years, you and i will agree that status quo cannot be an option. the ideal solution is to “ right size ”, getting bigger so that you are better equipped to handle competitive risks while getting smaller in risk exposures where the bank cannot develop a competitive advantage within a reasonable period. this is all about managing risks, a familiar point that the bsp has raised at every opportunity. the difference between today and last year ’ s convention, however, is that the financial market has re - calibrated towards higher interest rate levels … the much awaited fed taper has begun and the normalization in easy