amando m tetangco, jr : a job well done, all things considered closing remarks by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the bsp ’ s mid - year organizational performance review session, manila, 23 august 2008. * * * members of the monetary board, fellow central bankers, good afternoon. during last year's planning session in baguio, we agreed to adopt the scorecard as our means of setting targets and measuring performance. this is therefore our first mid - year organizational performance review using the commitments forged last year as basis for our assessment. i trust that you find it a useful and effective gauge of where we stand relative to our mission, how our stakeholders perceive us, and how our business, learning and growth processes fared in terms of responding to our desired results. the question is how exactly did we fare, over all? well, i am sure everyone here has an answer to this question. the way i look at it, we did well, all things considered. if you recall, we set our commitments last year at a time when our economy was on its way to hitting its best gdp growth rate in 31 years and inflation eventually averaging out at 2. 8 %, the lowest annual rate in 21 years. at that time, we used the word benign to describe inflation. how fast things changed : in july 2008, inflation rate hit 12. 2 %, the highest in 17 years. as cyd described it, asia is at the epicenter of the surge in inflation. nevertheless, ours is far better than inflation rates of over 20 % in other asian countries. while we have our share of detractors, it is a fact that the bangko sentral continues to be recognized for its ability to temper inflation despite severe supply shocks. in the field of banking, we continue to reap the benefits of remaining faithful to our reform agenda. in fact, philippine banks have emerged stronger and better - capitalized, at a time when even global financial giants are crippled by severe losses from the continuing turmoil in the financial market. this is the result of political will on the part of the monetary board and the rest of the bangko sentral to ensure that our banks adhere to prudential standards. comprehensive and thorough examination reports prepared by our examiners provide solid underpinnings for our decisions and actions and they are able to produce such

##preciated when talk of lehman ’ s difficulties took center stage. this is evident the day after lehman filed for bankruptcy protection as market uncertainty set in. yet in the same vein, that uncertainty abated and the peso appreciated once the rescue plan of the us fed and treasury was announced. looking at check clearing activity for that particular week, we find no evidence of either abnormal or sharp reactions. in fact among universal and commercial banks, there was a net check deposit of roughly php970 million on the 16th and 17th of september – the period of lehman ’ s filing for chapter 11 – followed by a net check withdrawal of basically the same amount on the 18th. in effect, resources were not withdrawn on balance as a result of lehman ’ s difficulties and commercial / universal banks even closed the week with further additions. over at the interbank market, average rates remained relatively the same as well throughout the same period. where the market response was most evident was in the pricing of the credit risk. one can see from the chart that the embi + indices, both global and for the philippines, rose immediately after september 16. the same pattern is evident in our 5 - year credit default swaps, suggesting that it became more expensive to hedge against the possibility of a philippine default. however, we would like to stress that those spikes have likewise abated, again once the market absorbed the information on the rescue plan. assessing our market landscape what we are suggesting mr. chairman is that our own market ’ s reaction has been relatively subdued despite the otherwise historic developments offshore. we attribute this to our own structural make - up specifically. a banking system where institutions are well - capitalized relative to the risks they take on their balance sheet. our latest capital adequacy ratio ( car ) for universal and commercial banks is practically 50 percent higher than our prudential standard of 10 percent which is itself higher than the international standard of 8 percent set forth by the basel accord. the continued asset clean - up of banks, accomplished through market - oriented schemes and without the use of public funds, has boosted the banking system ’ s overall asset quality. the banking system ’ s npl ratio is now closer to the pre - crisis level of around 4. 0 percent. furthermore, return to equity continues to improve, currently at 10. 8 percent as of end - 2007 investing in banking reforms these strengths have been made possible because we have invested in previous reforms. while recognizing that change is itself difficult, we