• Toward a stronger banking system


    The country’s financial sector this year showed significant progress in terms of inclusiveness. Just this month, the Philippines was recognized by the Economist Intelligence Unit as the third most conducive environment for financial inclusion in the world. The ranking was based on several indicators, which include government support and effectiveness of financial inclusion regulations. The country was also recognized as having the highest microinsurance coverage in East Asia in 2013 with 28.62% penetration ratio, study by Munich Re Foundation showed.

    In a bid to sustain this upward momentum, the Bangko Sentral ng Pilipinas (BSP) has rolled out a series of reforms to further strengthen the country’s financial sector.

    Among the developments is the hike in minimum capitalization requirements for all banks, which increased the minimum by as much as P200 million in the case of rural banks. The move, BSP said, is to make certain that banks maintain a strong capital base that would efficiently support its operations and allow it to withstand future financial shocks.

    Although rural banks initially reacted against the amendment, they fully understand the benefits that higher capitalization can provide to the industry. Apart from boosting the business of banks, bigger capital accounts likewise prepare the country’s financial sector, especially the small players, to scale up in time for the integrated Southeast Asian market.

    The central bank also recently approved the enhanced credit risk management regulations of banks, which has been aligned with international standards and the Basel Core Principles for effective bank supervision.

    The new regulations stress the need for a comprehensive credit risk management structure with clear delineation of roles and tasks. Banks are also required to develop an internal rating system and loan loss methodology commensurate to their scale and level of exposure. The field of banking is inherently risky, thus the institution—including its officers and employees—must be fully knowledgeable and capable in the aspect of risk management.

    Meanwhile, to further empower institutions, powers and authorities of thrift, rural and cooperative banks have been expanded to cover foreign exchange transactions. Income opportunities like this could not come at a better timing, especially for banks looking for another source of lifeline in a challenging and competitive environment.

    BSP’s reforms were not limited to internal bank operations, though. The latest pronouncement from the BSP focused on protecting the interest and safety of the financial consumer. This is one of the facets of banking that require attention, given the context of almost 2,500 complaints from bank clients in 2013.

    Under the newly established Financial Consumer Protection Framework, banks are encouraged to uphold transparency in dealing with customers and confidentiality in handling their personal information.

    All these reforms are just steps as the central bank strives to increase the competency of the financial sector and level the playing field for domestic and foreign banks. Since the regulators have consistently done their part to maintain an enabling environment, banks are likewise expected to perform their end on the initiative.


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