By LEE CHIPONGIAN
The sound and stable condition of the domestic banking sector, “a product not only of prudent regulation and risk-based supervision, but of earnest cooperation from the sector itself,” according to Bangko Sentral ng Pilipinas (BSP), has supported the growing economy, which has had 81 quarters of uninterrupted GDP growth.
BSP deputy governor Chuchi G. Fonacier, the head of the BSP’s Financial Supervision Sector (FSS), says the FSS will always provide an enabling regulatory and supervisory environment to advance financial inclusion, and as a “response to widespread poverty with a large segment of the population that still has little or no access to formal banking and financial services.”
The FSS, along with the Monetary and Economics Sector (MES), is behind the rules and regulations that expand banks’ geographical and digital footprints for financial inclusion. The goal, according to the BSP, is to bring the financial system closer to all Filipinos, especially to the financially underserved and unserved.
‘The overall vision is to build an inclusive financial system where there is an effective access to a wider range of appropriate financial products and services.’
“The expansion is deemed possible through the establishment of regular branches, branch-lite units, and digital access points,” says the BSP.
Keeping inflation predictable: MES
BSP deputy governor Diwa C. Guinigundo, who retired last July 2, headed the MES. During his 41 years in the sector, eventually becoming its deputy governor in 2005, the MES took care of ensuring there were price stability, stable inflation, and manageable domestic liquidity.
“First, in the last decade and a half, I hope I contributed in my own way to the cause of keeping inflation stable, our primary mandate as a public institution,” says Guinigundo.
The MES, formerly called the Monetary Stability Sector, pioneered the use of inflation targeting framework, he says, and this “helped stabilize inflation in the Philippines and establish the credibility of monetary policy.” They also promoted financial literacy through the Economic and Financial Learning Center, which now has regional offices and branches all over the Philippines. “(This is) in an effort to enhance our communication to the grassroots level of the intent of monetary policy,” says Guinigundo.
Guinigundo notes that on the economic and financial surveillance, his sector successfully instituted the Economic Environmental Scanning Exercise during and after the Global Financial Crisis. “Earlier, we put up the Business Expectations Survey and the Consumer Expectations Survey to get the pulse of both business and consumers as an early predictor of economic activities and national output,” he says. Both of these surveys helped anchor inflation expectations.
He adds that his sector initiated the conduct of early warning systems, including on the currency pressure, external debt sustainability, bank distress index, and financial distress index.
“On monetary operations, we put up the interest rate corridor system that succeeded in minimizing the volatility of market interest rates,” says Guinigundo. “We set the metrics to consider in migrating to more market based mopping up instruments rather than allowing the BSP to be bewitched by market sirens. This mechanism further cemented discipline in monetary policy to prevent it from being eroded by alchemy and guesswork. We were not always exact but we were always consistent with our inflation targeting framework that has helped us attain price stability in the last 17 years.”
Guinigundo, who also headed the loans, credit, and asset management for many years, says they have codified into an omnibus credit manual all the BSP’s credit and lending operations and established guidelines on asset disposal. “We intensified the establishment of Credit Surety Funds (CSF) with local government units, the DBP (Development Bank of the Philippines), Land Bank and IGLF (Industrial Guarantee and Loan Fund) as donors and cooperatives and NGO’s as our partners as a concrete measure to enhance the access to bank credit of micro, small, and medium enterprises and helped make a dent to poverty in the Philippines,” he says.
Initiated by the BSP in August 2008, the CSF program is a credit enhancement scheme designed to increase the creditworthiness of cooperatives, businessmen, and micro, small, and medium enterprises (MSMEs) that are encountering difficulties in getting access to bank credit due to lack of acceptable collaterals and credit information. It is created by the pooling of cash contributions from participating cooperatives, local government units, and partner institutions, which will then serve as security for loans extended by banks to MSMEs in lieu of acceptable collaterals.
In 2016, Republic Act 10744 (CSF Cooperative Act) institutionalized the Credit Surety Fund Program, granting the CSF a separate juridical personality as a special type of cooperative.
Looking after banks and depositors: FSS
Fonacier says the BSP has always been mindful of what she calls the rapid pace of technological change. She considers this as one of her sector’s main challenge. “We continue to expand and strengthen collaboration between industry players and regulators where information exchange on technological trends is important to determine how the benefits of emerging technologies can be optimized while the risks are kept at manageable levels,” she says.
While deliberate measures have been undertaken by the BSP to address the reported barriers such as high cost of financial products and services, absence of documentary requirements, distance to financial service providers, and low-level of financial literacy and capability, Filipinos continue to cite these same challenges, explains Fonacier.
“A better understanding of consumer behavior necessitates the development of new policies and new products based on what people do and how they decide while taking into account their behavioral biases. The BSP will also continue its collaboration and partnerships of financial education and consumer protection. Moreover, on its part, the BSP is undertaking capacity building initiatives and major organizational reforms for a more proactive supervisory and regulatory stance,” says Fonacier.
Digitizing financial services is another FSS effort in support of financial inclusion.
Fonacier says digital finance agenda is focused on digital innovations as “a catalyst and strategic enabler for financial inclusion.”
“Digital technology can significantly bring down transaction costs and expand reach—making it not just possible but even compelling BSFIs (BSP supervised financial institutions) to serve the hugely untapped, small value but high-volume market,” says Fonacier. “The e-money, along with other electronic financial payment services, enable low-income people, particularly those in the rural to access financial services which are necessary in carrying out their economic activities,” she added.
Some of the key regulations that FSS has done to help more Filipinos achieve financial empowerment include
*Guidelines allowing the use of cash agents as a cost-efficient service delivery channel.
*Risk-based KYC (Know Your Customer) which allows covered institutions to implement reduced KYC rules for low-risk accounts and to use face-to-face contact requirements.
*Framework for Basic Deposit Accounts which allows simplified KYC requirements; opening amount of less than P100 with no maintaining balance, and no dormancy charges to meet the need of the unbanked for low-cost, no-frills deposit account.
*Rationalization of branching guidelines, which give banks more flexibility to reach the underserved and unbanked areas with the establishment of branch-lite units.
Closer communication with financial public: CSS
Deputy Governor Maria Almasara Cyd Tuaño-Amador, head of the Corporate Services Sector (CSS) and formerly assistant governor of the MES, has been part of policies that enabled the BSP to have closer ties with its stakeholders such as banks, non-bank financial institutions, corporates, and schools.
“To enhance the impact of said policies, the BSP continues to strengthen its strategic partnerships with its stakeholders,” says Tuaño-Amador. “The BSP coordinates closely with banks and financial technology proponents to foster an enabling policy and regulatory environment for digital financial inclusion.”
Tuaño-Amador stresses what she calls a “perceptible shift” in the BSP’s communication strategy over the past years in efforts to better inform Filipinos of what they do, which is protecting price and financial stability, and in overseeing the country’s payments systems. The strategy also includes advocacies on economic and financial learning, financial inclusion and consumer protection, she adds.
“This trend toward better communication and enhanced openness,” says Tuaño-Amador, “is driven in large part by the central bank’s recognition that its policy actions and programs will be more effective if its mission is clearer to the public and if the public understand it better.”
She also says that the BSP “listens more and to more voices in its public outreach programs.” They do this by issuing regular press releases, face-to face engagements, social media, video, info graphics, comics and similar engagements. “These various initiatives to promote financial learning have helped bring the BSP closer to the people,” she adds.
Tuaño-Amador says that at its core, the central bank’s financial learning programs “rests on the belief that a citizenry that is well informed about economic and financial matters is a more effective partner in promoting price stability and in ensuring strong and safe banking and payments systems.”