The Philippine economy is well positioned for a sharp rebound after the coronavirus pandemic, thanks to structural reforms implemented after previous crises, especially in the banking system, according to the country’s chief financial regulator.
In particular, Philippine banks are strong enough to weather the downturn brought about by the COVID-19 crisis due to their sufficient equity and conservative balance sheets that make them resistant to soured assets.
“The regulatory reforms over the past 20 years have made the Philippine banking system resilient to shocks,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said in an online speech delivered during a recent government forum.
“Banks are adequately capitalized and have low exposure to bad debts,” he added. “They can support the economy, including micro, small, and medium enterprises, through credit and other financial services.”
Intervention
Despite the combined strength of the country’s banks, the central bank chief said the substantial adverse impact of the pandemic— which caused the economy to contract by the largest margin in recorded Philippine history —had required the regulator to step in.
“The BSP needed to provide regulatory relief measures to help banks navigate the crisis,” he said.
In particular, Diokno said the favorable inflation outlook and well anchored inflation expectations allowed the central bank to inject money into the economy without fear of causing unmanageable spike in consumer prices.
“There was enough room to ease monetary policy in support of the economy, with the latest policy rate at 2 percent, even after a series of rate cuts last year,” he said.
P2T infused
Since the onset of the pandemic, the BSP has infused over P2 trillion in liquidity to the financial system, equivalent to 11 percent of gross domestic product.
Among the BSP’s long list of COVID-response measures were the series of policy rate cuts last year totaling 200 basis points. These moves were meant to influence banks to lower their lending rates as well, thereby encourage credit taking to support economic activities.
The BSP also cut the reserve requirement for universal and commercial banks, as well as for smaller banks last year.
The economy contracted by 9.6 percent in 2020 as a result of the necessary quarantine measures, which restricted mobility.
Earlier, Diokno said the central bank would keep interest rates low for as long as possible to support the country’s economic recovery from the COVID-19 pandemic, adding that the economy was already at the tail-end of the crisis, with the rollout of vaccination program ongoing.
At the same time, he said the BSP recognized that economic recovery was still in its early stage and, as such, expansionary monetary support remained warranted.
“We recognize that the economy is still in its nascent recovery phase,” he said. “The accommodative monetary policy settings provide significant stimulus to demand and should be allowed to continue to work their way through the economy to bolster recovery in private consumption and investment.”
