##scores the enormity of the remaining clean - up task ahead. the incentives under the spv law expire on april 8, 2005. there isn ’ t much time left. there is a possibility of an extension on the basis of strong representations being made by the banking industry. as a practical matter, the bsp will not object to an extension, but candidly speaking, we will have serious concerns over an overly long extension that will only likely weaken the resolve to face the music. another year should be reasonable. if this results in another p100 billion in transactions, then we can see the npl ratio going down further to around 7. 5 percent in 2005. whatever extension is given by congress, all our banks that still carry large npas in their portfolio are well advised to bite the bullet soonest and clean up their balance sheets. don ’ t do it because the bsp says so. do it because it is primarily in your interest to do so. going forward, that burden can only become heavier especially as regulations evolve to force fair valuation of all financial assets in the context of migration to ias in reckoning accounts. the implementation of basle ii will also lead to heavier risk weighting on npas. in general, the prudential standards on the banking system will continue to keep rising as we seek closer alignment with international standards. we have already announced that banks should be ias compliant by end - 2005. we really have no choice on this. our ratings cannot afford it. we have likewise defined the roadmap to make the banking system compliant with basle ii by 2007. given the complexity and deep impact of these changes, it is necessary to begin preparations right away. the ultimate success of the banking reform agenda depends to a very large extent on congressional action to amend the bsp charter primarily to strengthen the institutional arrangements for banking supervision. this especially pertains to providing better legal protection to bsp personnel in the course of the performance of their official duties. other countries protect their regulators which make them more effective. hopefully, the necessary legislation will be finally delivered this year. we are also keenly advocating the enactment of a law that will enable us to establish a strong credit information bureau that will anchor a comprehensive credit information system. the benefits of this are enormous in providing wider credit access especially to small borrowers, in lowering the cost of borrowing of responsible borrowers, and in reducing the credit risk exposure of the banking system. you are also

’ s monetary operations with international central banking practices, encourage active and dynamic liquidity management by banks, and afford the bsp with more operational flexibility. consultations on the proposed irc refinements shall continue. we now see scope for further reduction on the rrr as we see inflation returning firmly to within target and with inflation expectations stabilizing. second, we stay committed to the micro and macroprudential measures we implemented to ensure financial stability. recently, the monetary board approved the adoption of the countercyclical capital buffer ( ccyb ) on universal and commercial banks, as well as their subsidiary banks and quasi - banks to prevent excessive credit growth. this policy expands our toolkit for systemic risk management. it is specifically designed to provide a steadying hand to counter the common occurrence of boom - and - bust periods within the financial cycle. banks are to set aside additional capital as reserves during good times to prepare us for bad times. we are also pursuing enhancements on operational risk management standards. two key reforms in this area include issuance of standards on model risk management and reputational risk management. we will also be issuing guidelines on risk - based approach to pricing to help ensure that exposures of banks / financial institutions to risks associated with lending / financing activities are adequately compensated. third, the bsp recognizes the fundamental need to create a secure, reliable and efficient digital financial ecosystem where all these innovations can come together to achieve the greatest synergy. as such, after the operationalization of pesonet and instapay, the bsp is now exploring further enhancements to the large value payment system. we do this even as the private sector contemplates other automated clearing houses ( achs ) for other useful retail payment schemes. current efforts also include development of an inter - operable national quick response ( qr ) code standard to accelerate the digitalization of merchants to close the loop on the digital payment system. in relation to this, we at the bangko sentral ng pilipinas, thank you in the banking and the non3 / 4 bis central bankers'speeches bank financial community for going beyond just complying with financial regulations. you proactively responded to emerging developments and challenges such as our transition from being a cash - heavy to a cash - lite economy with the implementation of the national retail payment system ( nrps )! salamat sa inyo. fourth, we remain on course in promoting financial deepening, with measures