A right balance between bank credit and access to capital markets is a must in order to properly manage systemic risks that could lead to a financial crisis, the top official of the Bangko Sentral ng Pilipinas (BSP) said.
In a speech in the recently concluded Euromoney Philippines Investment Forum, BSP Governor Amando Tetangco Jr. said that the Philippine economy remains to be bank-centric, rather than a capital market-oriented financial system.
The BSP governor noted that the distribution of total assets suggests that 80 percent are held by banks. Last year, about P84 billion in corporate securities were issued and listed while loans outstanding of the banking system increased to P663 billion over the same period, he added.
“What we wish to underscore, instead, is that having the right balance between bank credit and access to capital markets is essential in order to properly manage systemic risks. This has been the key lesson from the recent global crisis. The new prudential norm of financial stability requires that we take a holistic view of how and where risks develop, keeping in mind that markets are all inter-connected,” he said.
Tetangco added that challenges could arise for being heavily dependent on one funding vehicle to raise needed capital.
“For example, as global interest rates are expected to normalize and trend higher, those who have relied on bank credit to raise long-term funding face increased pressure on their cashflows to handle the requirement of higher debt servicing,” he said.
“In addition, with limited private sector securities plying the market, savers do not have sufficient means to migrate themselves into investors, keeping available funding to the shorter-term tenors,” Tetangco further said.
The BSP governor announced that the central bank has been working toward the development of a benchmark yield curve that has depth and breadth, to create a healthy balance between bank lending and capital market as a source of funding for the corporate sector.