The Philippines needs to have broader coverage when it comes to monitoring corporate debt, according to International Monetary Fund (IMF).
But the Bangko Sentral ng Pilipinas (BSP) still sees a stable Philippine banking system despite the expected rise in interest rates.
“Philippines is a country where corporate leverage has increased like [in]many emerging markets, but the Philippines is a clear case. That’s also causes a reason we should monitor closely,” said Shanaka Jayanath Peiris IMF Resident Representative to the Philippines.
“You need to enhance the monitoring but it’s also good to have a legal mandate to it. It’s definitely clear that you need regulators who have the broader coverage,” the IMF representative said.
Peiris said that the authorities must have to look at the overall picture and regulatory framework. Included in these are nonbank institutions, for example, are real estate firms offering financing terms to retail property investors.
“It’s critical. In most countries in the world, central banks have the power to look into affiliated enterprises. And especially the lesson learned about [the recent]global crisis is that there must be a regulator with powers to ensure financial stability and to avoid regulatory gaps,” he said.
“And to be able to look at institutions related with each other, including other financial and nonfinancial entities. So that’s the most important aspect,” Peiris said.
Last year, the IMF warned that the Philippine government that the economy faces risk from a highly-leveraged conglomerate potential debt problems.
In connection to this, the Bangko Sentral ng Pilipinas (BSP) said that it wants to look into the heavy volume of transactions between banks and their parent firms or subsidiaries.
Peiris said the timing of the BSP request to expand its powers to look into nonbank institutions “was very appropriate,” since as leverage rises it is becoming more important.
Stable banking system
The BSP still sees a stable Philippine banking system despite the expected rise in interest rates.
“Interest rate is something we always review. We always encourage banks to boost capital in good times. We’re quite comfortable with the things are. Even with the taper, they are stable,” BSP Deputy Governor Nestor Espenilla Jr. said.
Analysts are expecting interest rates to go up this year on the account of rising inflation. Inflation rate is one of the factors that the central bank takes into account in its policy-setting mandate, which influence the rates that local banks charge on their loans.
Espenilla said that some banks will experience lower than projected income because of the movement of interest rates, but that does not have a bearing on the fundamental strength of the bank as credit will continue to grow strongly and profitable, on the account of good asset quality and minimal debt losses.
Recently, BSP Governor Amando Tetangco Jr. reported that the country still has a sound and stable banking system that continues to grow and remains profitable, and is creating the environment to sustain a strong external position.
“Monetary and financial stability is the central objective of our policy actions. While we can all appreciate the intent of stability, its execution is very complex. Given our current operating environment where markets, institutions, and agents are interconnected, risks will always co-mingle and therefore difficult to contain,” Tetangco said during the BSP’s annual reception to the banking community.
“We will continue to systematically liberalize and open up the banking and financial markets and leverage off technology and innovation to maximize the opportunities for better access and service,” he added.
For its part, debt-watcher Moody’s Investors Service said that the overall credit quality of nonfinancial corporates and financial institutions in South and Southeast Asia will be stable over the next 12 months.
“In terms of individual banking systems, the outlook for banks in India, Vietnam and Singapore is negative, while that for Philippine banks is positive. All the other banking systems in South and Southeast Asia have stable outlooks,” the debt watcher added.