Wednesday, 4 March 2009

Philippine central bank preparing for rebound

Jun Vallecera
Business Mirror

THE banks may not have realized it at once, but the Bangko Sentral ng Pilipinas (BSP) is even now preparing the industry for when the turbulent financial headwinds shall have died down and profits and loan activities push upward once again, Deputy BSP Governor Nestor Espenilla Jr. said on Tuesday.

He told bank executives attending the public forum organized by the Bank Marketing Association of the Philippines, or BMAP, at the Hotel InterContinental that as regulator, the BSP cannot but help the industry prepare for this.

“What’s a regulator to do? We keep building foundations. That’s where we come from in terms of new regulations, in terms of strengthening further the industry’s capital adequacy, in terms of advocating for improvements to our legal and supervisory framework,” he said in remarks at the open forum.

He said the banks’ burden of soured or nonperforming loans were to increase a bit as the full impact of the global economic downturn begins to bite. “I think it likely the level will stay firm or a little down due to the modest deterioration in asset quality at these times. But this is counterbalanced by bank effort at recapitalization, which is a conscious effort. But declining profitability will diminish their capacity to generate capital internally,” Espenilla said of commercial bank NPLs averaging lower to 3.78 percent of total portfolio as of November last year.

Philippine Savings Bank president Pascual Garcia III acknowledged at the forum that bank NPLs this year would likely inch up.

But in the end, the industry as a whole should continue to lend more and profits could still be expected, albeit at lower levels than previous, according to Garcia.

Espenilla also said the BSP was not too keen on the proposal of some banks to suspend the marking-to-market (M2M) rule, an accounting mechanism that compels banks to report or reflect in their book of accounts the market value of all their holdings as part of a broad effort to make bank dealings more transparent to both investor and depositor alike.

“We are wary of suspending the M2M for the simple reason that it has an important role in making banks transparent. It is important for people to continue to trust in the banks’ balance sheets, that this really says what it claims it says,” he said.

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