The Bangko Sentral ng Pilipinas (BSP) has achieved so much in terms of keeping a stable financial system, sound monetary policy and regulations that are in line with international standards, during outgoing Governor Amando Tetangco’s 12-year leadership, according to analysts.
Being the governor of the BSP is a position he has held since July 2005. He also serves as chairman of the Monetary Board, the BSP’s principal monetary policy-making body.
A career central banker, Tetangco has been in the service of the BSP for over four decades.
Prior to his first appointment as governor, he was deputy governor in charge of the Banking Services Sector, Economic Research and Treasury of the BSP.
He also served as alternate executive director of the International Monetary Fund in Washington, D.C., from 1992 to 1994.
Rajiv Biswas, Asia Pacific chief economist for IHS Markit, said Tetangco has had an outstanding record at the helm of the BSP, presiding over a long period of financial stability in the Philippine banking system with sound management of monetary policy.
“Inflationary pressures in the Philippines have been well contained since the global financial crisis, while the banking sector has achieved steadily declining non-performing loan ratios that fell to just 1.4 percent in 2016,” he said.
At its latest monetary policy meeting, the Monetary Board decided to keep its key rate unchanged as inflation is expected to remain manageable this year and 2018 despite risks tilted toward the upside.
Since 2014, the BSP has ordered universal and commercial banks in the Philippines to comply with Basel III’s 10-percent capital adequacy ratio standards with Tier 1 common equity and Tier 1 capital ratios of 6 percent and 7.5 percent, respectively.
Overall, Biswas said, sound management of the banking sector and monetary system under Tetangco has created a strong financial climate for the sustained rapid growth of the Philippine economy during the past decade.
Marc Bautista, Metrobank Research head, lauded Tetangco’s guidance in monetary policy through the great global recession of 2008 and its aftermath with distinction.
Under his leadership, he said, the markets have seen continued stability and professionalism in BSP action that has enhanced the credibility of the BSP as an institution.
“As we all know, credibility is the stock in trade crucial to central banking and the numerous accolades that Tetangco has received has enhanced even more the credibility of the BSP and makes it more effective in guiding monetary polic,” he said.
In terms of financial-sector reforms, Bautista said the transitioning of the Philippines to Basel III standards in light of the great recession of 2008 along with a heavy reliance on macroprudential regulation on top of effective inflation targeting would be one of the key reforms that can be attributed to Tetangco’s guidance and leadership.
Land Bank of the Philippines market economist Guian Angelo Dumalagan said there was greater transparency and foresight in the conduct of monetary policy during Tetangco’s term.
He noted that the BSP openly shared its policy direction and made preemptive moves that helped minimize volatility in the financial markets.
Dumalagan said the reforms and programs implemented during the term of Tetangco were aligned with the BSP’s mandates of manageable inflation, stable banking system and inroads on financial inclusion.
Under Tetangco’s leadership, the BSP made great progress in fulfilling its mission by adopting a new interest rate corridor (IRC) system and by implementing a risk-based banking supervision framework that puts focus not only on capital requirements, but also on the way banks do business, he added.
In June last year, the BSP shifted to IRC–a system for guiding short-term market rates toward the BSP policy interest rate, which is the overnight reverse repurchase (RRP) rate.
The BSP also made strides when it comes to financial inclusion by liberalizing the opening of branches and allowing the entry of more foreign banks and investors into the Philippine banking industry, Dumalagan said.
Since Republic Act (RA) 10641, or the Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines, was made into law in July 2014, numerous foreign banks have shown interest in the Philippines.
To date, the central bank’s policy-making Monetary Board (MB) has approved the local operations of nine foreign banks, including four Taiwanese banks, namely Cathay United Bank, Yuanta Commercial Bank, First Commercial Bank and Hua Nan Commercial Bank Ltd.
The others are South Korea’s Woori Bank, Industrial Bank of Korea and Shinhan Bank; Singapore’s United Overseas Bank Ltd.; and Japan’s Sumitomo Mitsui Banking Corp.
“The communication and execution of these reforms and programs were swift, as the BSP worked in close coordination with stakeholders. The initial results of Tetangco’s initiatives are promising, even as their full results are yet to be seen,” Dumalagan said.
Gundy Cahyadi, DBS economist, said under Tetangco, the BSP has managed monetary policy well, maintaining stability on the growth-inflation fronts.