Banks in the Philippines remain strong but the industry must continue to comply with international standards and promote financial inclusion to safeguard the gains they have achieved so far, the central bank said.
The statement was made by Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. during his speech at the 50th Anniversary of the Bankers Association of the Philippines held in Makati City on Wednesday.
“The Philippine banking sector today stands on solid ground. We have a well-capitalized banking system where deposits continue to climb and loans continue to increase and are directed to production sectors that have strong multiplier effects,” he said.
Tetangco noted that as of June 2014 all the figures for consolidated assets, loans, deposits and capital of banking industry stood uniformly at record high levels.
Banks’ assets stood at P10.28 trillion, loans at P5.2 trillion, deposits at P7.9 trillion and capital at P1.2 trillion.
Despite the development, Tetangco mentioned that there are important issues that the industry must face to move forward.
“While we have moved forward significantly on platforms and systems, there are several policy and structural issues that still need to be addressed,” he said.
One of the structural issues the BSP governor is referring to is the industry’s compliance with the Principles for Financial Market Infrastructures (PFMIs).
In April 2012, PFMIs were established as a result of the joint efforts of the Bank for International Settlements-Technical Staff of the Committee on Payment and Settlement System and the International Organization of Securities Commissions to strengthen core financial infrastructures and markets.
The principles were harmonized to come up with a single set of standards that will cover all relevant financial market infrastructures: payment systems, central securities depositories, central counterparties ad trade repositories.
“We have initiated the process of evaluating the Philippines against global standards. It should be a critical development and we look forward to the assessment,” Tetangco said.
That being the case, the Bangko Sentral governor pointed out that the Philippine banking system need to take a hard look at the design of its market infrastructure, its potential for systemic risks, and its regulatory oversight including liquidity.
Payments system needs reform
Tetangco also said that one of the important issues in the FMIs is the country’s retail payment system.
The BSP governor said the retail payments system in the Philippines should be subject to careful consideration and meaningful reform.
Tetangco cited a recent study which estimates that for about 2.5 million payment transactions made by Filipinos per month, only 1 percent were done through electronic retail systems while the balance were still made by cash and check payments.
Tetangco, however, said that the challenges of improving the country’s retail payments system also present an opportunity.
“A robust and transparent electronic retail payments system can lower business cost and increase consumer expenditure—both drivers of economic growth. One study found that a 10 percent increase in the share of electronic payments correlated to a 0.5 percent increase in consumer spending,” he said.
Another important element is that an efficient and robust electronic payments system promotes financial inclusion. Through innovative channels, the banking system can effectively and efficiently deliver more financial services to markets that are unserved or poorly served by the traditional channels, he said.
“While we are making progress in financial inclusion program, we have a long way to go in terms of providing choices and empowering consumers to make important decisions. We should continue to strive, therefore, to be more financially inclusive,” Tetangco concluded.