2014 Annual Report for the Layman
2014 Annual Report for the Layman
2014 Annual Report for the Layman
CONT E N T S
BSP Vision and Mission
About the BSP
The New BSP Logo
Foreword
The BSP’s Three Pillars of Central Banking
First Pillar: Price Stability
Second Pillar: Financial Stability
Third Pillar: Efficient Payments and Settlements System
The BSP’s Various Responsibilities Banker of Banks
Manager of International Reserves Overseer of Exchange Rate Policy
Issuer of Philippine Banknotes and Coins Main Bank to the Philippine Government
Financial Inclusion Programs
Microfinance Economic and Financial Education
Financial Education for Schoolchildren Consumer Protection
Financial Condition of the BSP
BSP Awards
Financial Statements
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Vision
The BSP aims to be a world‐class monetary authority and a catalyst for a globally competitive economy and financial system that delivers a high quality of life for all Filipinos.
Mission
The BSP is committed to promote and maintain price stability and provide proactive leadership in bringing about a strong financial system conducive to a balanced and sustainable growth of the economy. Towards this end, it shall conduct sound monetary policy and effective supervision over financial institutions under its jurisdiction.
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ABOUT THE BSP
“The Congress shall establish an independent central monetary authority… (which) shall provide policy direction in the areas of money, banking and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.”
Section 20, Article XII, 1987 Philippine Constitution “The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government‐owned corporation, shall enjoy fiscal and administrative autonomy.
Section 1, Article 1, Chapter 1 Republic Act No. 7653 (The New Central Bank Act)
THE NEW BSP LOGO
The new BSP logo is a perfect round shape in blue that features three gold stars and a stylized Philippine eagle rendered in white strokes. These main elements are framed on the left side with the text inscription “Bangko Sentral ng Pilipinas” underscored by a gold line drawn in half circle. The right side remains open, signifying freedom, openness, and readiness of the BSP, as represented by the Philippine eagle, to soar and fly toward its goal. Putting all these elements together is a solid blue background to signify stability. The BSP adopted the new logo on 18 June 2010 in compliance with the New Flag Act of 1998, which prohibits any objects to hang over the Philippine flag. In the old logo, the picture of the flag is below the mountains and the sun. The new logo is the fourth seal for the central bank since its inception 66 years ago in 1949.
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Foreword
The BSP’s 2014 Annual Report for the Layman is the story of how the BSP carried out its mandate during the period 2012‐2014. It is written with the Filipino layman in mind to help increase the public’s awareness of the role that BSP plays in the Philippine economy. To help better appreciate what the BSP does, this Report has been structured following the three pillars of central banking. These are Price Stability, Financial Stability and Efficient Payments and Settlements System. The BSP’s primary responsibility, under Section 3 of Republic Act (RA) 7653 or the New Central Bank Act, is to maintain stable prices conducive to a sustainable growth of the Philippine economy. It uses inflation targeting as its framework for conducting monetary policy. The BSP adjusts its policy rate and other relevant interest rates to influence the cost of money and
ensure the stability of domestic inflation. Using other monetary instruments, the BSP also influences the volume of money in circulation for greater monetary stability. During the period covered by this Report, the BSP was able to maintain the average inflation rate within the target range set by the National Government. The BSP is also responsible for ensuring that the banking system is sound and stable. The BSP fulfills this role by putting in place banking policies and regulations that help guide the banks in conducting their business safely. If the public sees that banks are managed well, its confidence in the banking system improves and it is encouraged to put its money in banks. In turn, the banks are able to lend these funds to businesses and other borrowers for productive uses. Over the period covered in this Report, the banking system’s resiliency was maintained despite challenges in other parts of the world. The BSP also operates the PhilPass, which is the national electronic system that settles funds among local banks and financial institutions. The BSP implements policies that ensure that these payments are processed on time in a secured environment. This Report also describes the BSP’s efforts to promote financial inclusion in the country. It shares the BSP’s leading role in the areas of improving access to financial products, enhancing financial consumer protection and deepening economic and financial education. The Report also shares how the BSP aspires to strengthen its institutional framework while ensuring its corporate viability. We trust that after reading this Report, the reader will be able to appreciate how the Filipino people directly benefit from the BSP’s efforts. It is our hope that by raising the public’s awareness and understanding of the BSP and its role in the economic life of the Filipino people, the general public and the BSP will further strengthen their partnership in nation building through the promotion of a sound macroeconomy and a stable and safe banking system.
AMANDO M. TETANGCO, JR. Governor May 2015
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first pillar The BSP’s Three Pillars of Central Banking The Bangko Sentral ng Pilipinas (BSP) is the Philippines’ central bank. Its predecessor, the Central Bank of the Philippines (CBP), was founded in 1949 but ceased operations in 1993. That same year, the BSP was established by Congress pursuant to Republic Act (R.A. No.) 7653 or the New Central Bank Act. The BSP’s new logo, adopted in 2010, features the Philippine eagle—which symbolizes the BSP’s aspiration to soar toward becoming a world‐class monetary authority. It has three stars representing the three pillars of central banking. The first pillar is PRICE STABILITY. This entails keeping inflation low and stable to encourage higher level of savings and investments, promote greater productive activities and job opportunities and in the process, help improve the well‐being of Filipinos. This is the primary duty of the BSP. The second pillar is FINANCIAL STABILITY. The BSP seeks to maintain the health of the banking system so that it can effectively promote better consolidation of savings and grant of credit. The BSP enforces rules and regulations to ensure that banks conduct business in a safe and sound manner. The third pillar is an EFFICIENT PAYMENTS AND SETTLEMENTS SYSTEM. This helps ensure the safe, timely and accurate payment and settlement of financial transactions.
Price Stability The primary objective of the BSP, as mandated by R.A. No. 7653, is to maintain price stability. Through its monetary, banking and credit policies, the BSP maintains stable prices by influencing the cost and volume of money circulating in the economy. Inflation is the rate of increase in the prices of goods and services.
High inflation hurts nearly everyone, except those who are wealthy and have the capacity to buy assets that appreciate faster than the increase in the price of goods and services. It also increases uncertainty and reduces capital expenditures which are necessary for future production and employment growth. Moreover, when inflation is high, policies that must be undertaken to reduce it inevitably result in lower growth in both production and employment. Too little money and credit will reduce demand, and consequently, reduce productive activities. When credit is scarce and people have less money to spend, they will tend to demand less goods and services which will have a dampening effect on the production of goods and services. On the other hand, too much credit and excessive money supply growth, will increase demand, and consequently will result in higher inflation and might result in less than prudent lending by banks. The BSP does its best to make sure that there is neither too much nor too little credit and money in circulation.
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Stable prices are necessary to create an environment conducive to a balanced and sustainable economic growth. Unstable prices distort decisions we make about consumption, investment, saving and production. Conduct of monetary policy To achieve its primary objective, the BSP implements monetary policy that supports non‐inflationary growth, or economic growth that does not lead to higher inflation. Since 2002, the Monetary Board (MB), the policy‐making body of the BSP, has used inflation targeting as a framework for conducting monetary policy. With this approach, the BSP announces an explicit inflation target and promises to achieve it over a given period. Meeting the inflation target (to achieve price stability) becomes the main goal of monetary policy. All other indicators (e.g., foreign exchange rate, interest rate, etc.) are monitored as to their effect on the inflation outlook or forecast. Given its forward‐looking framework, the BSP uses monetary tools to keep the inflation outlook within the target range. These tools either promote an appropriate level of interest rate or regulate money supply to a level that is enough to meet the needs of an expanding economy. Monetary policy decisions of the BSP, and its outlook for future inflation, are communicated to the public. For an inflation‐targeting central bank such as the BSP, communication and credibility are crucial in anchoring inflation expectations. If the BSP is credible as a central bank, its monetary policy decisions will influence the public’s expectations in a way that boosts confidence that inflation will be kept within target or will be brought in line with the target. In turn, lenders will settle for lower long‐term interest rates, and producers of goods and services and people who lease out property are less likely to demand large increases in the prices and rent that they charge if they have well‐anchored expectations that inflation will be within BSP’s target. The interest rates for the BSP’s overnight reverse repurchase (RRP) and overnight repurchase (RP) facilities signal the monetary policy and serve as the Bank’s primary monetary policy instruments. (RRP and RP transactions have maturities ranging from overnight as well as two weeks to one month.)
In an RRP transaction, the BSP borrows money from banks using government securities as collateral (the borrowing rate is referred to as the RRP rate). The BSP’s borrowing has a “contractionary effect” on liquidity or money supply—“removing” the money from the banks and “parking” it with the BSP. Conversely, in an RP transaction, the BSP lends money to banks with government securities as collateral (the lending rate is referred to as the RP rate). Money parked at the BSP is moved to the banks and, eventually, to the public. This has an “expansionary” effect on money supply and credit. To contract or expand the money supply in the financial system, the BSP can also do the following: • increase or decrease the reserve requirement
(the mandatory deposits that banks need to maintain with the BSP);
• increase or decrease the interest rate on the special deposit account (SDA) facility by banks and trust entities of BSP‐supervised financial institutions;
• increase or decrease the rediscount rate on loans extended by the BSP to banking institutions on a short‐term basis against eligible collaterals of banks’ borrowers; and
• conduct outright sales/purchases of the BSP’s holdings of government securities.
What is SDA? The SDA is a fixed‐term deposit account open to banks and trust entities under BSP supervision. It was introduced in November 2008 to enable the BSP to expand its toolkit in the management of money supply. Both RRP and SDA serve as the BSP’s monetary tools in promoting appropriate level of money in the local economy and help achieve price stability.
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Initial Results of Inflation Targeting In 2012, a decade after the BSP first adopted inflation targeting, inflation averaged 3.2 percent—well within the official target range of 3‐5 percent that year. In 2013, inflation even slowed down to 3.0 percent, which is the low end of the target range, owing largely to lower electricity rates and slower price increases for gasoline and diesel. In 2014, inflation quickened by 4.1 percent due to higher food inflation. The higher prices of food items—particularly rice, meat, fish and vegetables—were brought about by problems in domestic supply (e.g., weather‐related production disruptions, failed bidding in rice imports, and port congestion and changing transportation policies) during the first three quarters of the year. Despite the increase, inflation remained within the government’s 2014 target range of 3‐5 percent. This was also the sixth consecutive year that the average inflation rate was kept within the government target.
The BSP monetary stance is based on several factors, particularly the BSP’s inflation outlook and its assessment of both the global and domestic economies. In 2012, the MB cut policy interest rates by a total of 100 basis points. The decision was based on its assessment of a benign inflation outlook, as weaker global growth prospects were expected to temper the rise in commodity prices. By bringing the rates for the overnight borrowing (RRP) and the overnight lending (RP) down to 3.5 percent and 5.5 percent, respectively, the BSP aimed at stimulating spending and other economic activities. With a “manageable inflation environment” in 2013, the MB was able to keep policy rates steady (RRP and RP at 3.5 and 5.5 percent, respectively) throughout the year. In 2014, the MB brought up its policy rates to manage inflation expectations – with the 2015 inflation “at risk” of going above the target range. With higher interest rates, people will tend to spend less and save more, putting downward pressure on inflation. As of end‐December 2014, the RRP rate stood at 4.0 percent, while the RP rate was at 6.0 percent. What are inflation expectations? Inflation expectations refer to people’s expectations or forecasts of rates of increase in the prices of goods and services in the future. Measures of inflation expectations include survey‐based consumer and business expectations of inflation and inflation forecasts of private analysts, among others.
Having more money in circulation could lead to higher inflation, which adversely affects all Filipinos—whether an exporter, overseas worker or domestic producer. To ensure continued low and stable inflation, the BSP implements measures to remove these excess pesos from the financial system.
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second pillar
Financial Stability
Banking is a business that thrives on public trust. Banks have an obligation to prudently manage deposits entrusted to them by the public. To protect the interest of the public and improve the financial system of the country, the BSP is also mandated by law to supervise and regulate banks and quasi‐banks. The Philippine banking system remained resilient in 2012–2014, against a backdrop of fragile global economic environment. Significant challenges in major advanced economies (e.g., uneven global growth prospects, with the economic momentum in the United States taking root as opposed to the slow recovery in the euro area and Japan) and the softening of economic activity in key emerging markets such as China and India due to structural bottlenecks and relatively tight financial conditions added uncertainty to global economic prospects. Healthy growth rates were sustained in deposits, lending and profitability. From P4.5 trillion in 2012 and P6.1 trillion in 2013, the banking system’s total deposits increased to P6.7 trillion as of end‐December 2014. The expansion in deposits, which remained the banks’ primary source of funds, was indicative of sustained depositor confidence in the banking system.
Outstanding loans of commercial banks continued to expand, posting a 16.2 percent year‐on‐year growth as of end‐December 2012, 16.4 percent in 2013, and 19.9 percent in 2014. The continued growth in bank lending, particularly in the productive sectors, supported the growth momentum of the economy. The Philippine banking system’s gross non‐performing loans (GNPL) ratio continued to improve. From 3.4 percent as of end‐December 2012, it sustained its downward path in the next two years—easing to 2.8 percent as of end‐December 2013 and 2.3 percent as of end‐December 2014. Banks’ initiatives to improve asset quality along with prudent lending regulations helped in keeping the ratio below pre‐Asian crisis levels. The banking system’s capital adequacy ratio (CAR) of over 15 percent remained comfortably above the BSP’s and the Bank for International Settlements’ (BIS) minimum requirements of 10 percent and 8 percent, respectively. As of end‐June 2014, the average CAR of universal and commercial banks (U/KBs) under the Basel III framework stood at 15.9 percent on solo basis (the parent bank or quasi‐bank only) and at 16.7 percent on consolidated basis (parent bank or quasi‐bank plus subsidiaries and affiliates).
What is quasi‐banking? Quasi‐banking refers to the act of obtaining funds from the public other than deposits, through the issuance, endorsement or acceptance of debt instruments for the borrower’s own account for the purpose of relending or purchasing of receivables and other obligations.
What is NPL? A non‐performing loan, also called a “bad debt” or a “soured loan,” is a loan that has remained unpaid for 30 days or more after the due date. The banking system reflects a strong loan quality if it has low NPLs. Low NPLs are essential in sustaining the viability of individual banks and in maintaining the overall stability of the domestic financial system.
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The negative impact of global developments on banks was limited as reforms implemented in the past helped cushion the financial system against external and domestic shocks. The BSP has continued to pursue reforms to align its regulatory and supervisory frameworks with internationally‐accepted standards and best practices. For example, the BSP has required U/KBs to adopt the capital adequacy standards under Basel III beginning 1 January 2014. While the Basel Committee on Banking Supervision (BCBS) had allowed a staggered implementation of Basel III until end‐2018 to enable internationally‐active banks to raise capital internally, the BSP decided to accelerate the implementation—exhibiting the strength of Philippine banks vis‐à‐vis international banks in struggling parts of the globe.
What is Basel III? In December 2010, the Basel Committee on Banking Supervision (BCBS) introduced a set of reforms otherwise known as the Basel III. The standards include strengthening the definition of regulatory capital and introducing capital buffers to enable banks to withstand economic and financial shocks. Key issuances in 2014 include the further alignment of regulations to current Basel requirements; strengthening of corporate governance; introduction of measures to promote banking stability; provision of the implementing rules and regulations of the law allowing the full entry of foreign banks in the Philippines (Republic Act No. 10641); adoption of a consumer protection framework to protect the welfare of financial consumers (see section on Consumer Protection for details); enhancement of the BSP’s operational efficiency to keep prudential reports reflective of the amendments to regulations; sustained consultations with industry associations, other regulators and government agencies, and global and regional partners to ensure the responsiveness of the BSP’s reform agenda; and improvement in its supervision of financial institutions.
What is CAR? Capital adequacy ratio (CAR) is an indicator of a bank’s ability to absorb a reasonable amount of loss. The minimum CAR requirement is a means to protect a bank’s depositors and promote stability in the banking system at the same time. The BSP requires banks to maintain capital that is at least 10 percent (the international benchmark is 8 percent) of the risk‐weighted value of their risk assets, composed mainly of loan receivables.
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third pillar
Efficient Payments and Settlements System
One vital service banks render to their customers is their handling of payments, ranging from the settlement of regular monthly bills to the settlement of large amounts for various obligations. In 2002, the BSP launched the PhilPaSS in line with its objective to limit systemic risks, or risks that affect our payments system as a whole, and align it with international best practices. PhilPaSS is an automated facility that settles fund transfers between participant banks and financial institutions that maintain deposits with the BSP. It uses a real‐time gross settlement system (RTGS) that allows payments and settlements to be processed and posted as they happen. This system minimizes risks in high‐value payments between banks because transactions do not require exchange of actual cash. The PhilPaSS also serves as a settlement arm for overseas Filipinos (OFs) to ensure the safe and immediate transfer and settlement of their remittances from banks and remittance agencies abroad to their beneficiaries’ accounts maintained in Philippine banks. Transactions processed and settled in PhilPaSS in 2012‐2014 were broadly steady: from 1.33 million in 2012, they increased to 1.36 million in 2013, then dropped slightly to 1.35 million in 2014. The value of transactions, which exceeded P300 trillion each year during the review period, likewise showed a similar pattern: from P349.6 trillion in 2012, it increased to P351.8 trillion in 2013, then dropped to P337.8 trillion in 2014. The lower volume of RP/RRP/SDA transactions contributed significantly to the decrease in the number and value of PhilPaSS transactions in 2014. While the volume and value of PhilPaSS transactions showed mixed trends, total revenues from transaction fees declined over the review period from P164.2 million in 2012 and P154.9 million in 2013 to P145.3 million in 2014.
The BSP’s Various Responsibilities Aside from maintaining price stability, supervising all banks, and ensuring a smooth payments and settlements system, the BSP has other responsibilities: as the banker of banks, manager of international reserves, overseer of exchange rate policy/framework, issuer of Philippine banknotes and coins, and main bank to the Philippine government. Banker of Banks The BSP is the banker of banks. As the lender of last resort, it can provide loans and financial assistance to banks when necessary. The total loans granted by the BSP during the review period significantly decreased from P53.8 billion in 2012 to P22.6 billion in 2013 andP1.9 billion in 2014. Most loans were released through the BSP’s rediscounting facility. What is rediscounting? Rediscounting is a facility where banks may borrow funds from the BSP, in return for depositing eligible collateral like loans backed by real estate, trade bills, government securities, and commercial papers issued by top‐rated corporate names. It helps banks meet temporary liquidity needs by refinancing the loans they extend to clients. Rediscounting is also one of the BSP’s tools to regulate money supply. In 2013, the BSP rationalized the guidelines on its rediscounting facility. Two rediscounting windows were established, one for U/KBs and another for thrift (TBs), rural (RBs), and cooperative (CBs) banks, with higher lending rates applicable to the first window. The second window will close after five years for TBs and after 10 years for RBs and CBs (only the first window will remain thereafter).1
1 Upon its effectivity on 15 November 2013, Circular No. 806 has given TBs
until 15 November 2018 to access Rediscounting Window II, while RBs and CBs have been given until 15 November 2023. By 16 November 2013, all banks shall access only Rediscounting Window I.
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Following the rationalization of the rediscounting facility, the profile of borrowers shifted. While U/KBs were granted the bulk of the loans in 2012 and 2013—almost 80 percent and 76 percent, respectively—TBs got most of the loans in 2014 (about 61 percent). Manager of International Reserves Foreign exchange is needed to pay for the country’s imports and foreign debts. To be able to meet these obligations when they fall due, there should be enough foreign exchange or other foreign/external assets that are highly marketable and readily convertible to foreign exchange. These are called international reserves. Since international reserves have been traditionally linked with imports, the most familiar measure of adequacy of international reserves is import cover. Import cover refers to the months of imports of goods and payment of services and income that could be covered by the country’s international reserves. An import cover of three (3) months is the rule‐of‐thumb benchmark of a comfortable reserve adequacy.
The country’s gross international reserves (GIR) remained ample to cover foreign obligations during 2012‐2014. Import cover at the end of 2012 was 12 months, with GIR at US$83.8 billion. In 2013, import cover remained at 12 months, with GIR at US$83.2 billion. The end‐2014 reserves level, which stood at US$79.5 billion or an import cover of 10.4 months, was lower than the level at the end of the previous year—mainly due to payments by the NG of its maturing obligations, revaluation adjustments, and the BSP’s foreign exchange operations. The BSP is responsible for maintaining enough international reserves that are needed to pay maturing external debt. It monitors not just the timetable of the maturity of existing foreign exchange obligations, but also the impact of new debt on such timetable. The level of foreign debt is a sensitive issue to some sectors of society. But what is more important is that debts should be used for
worthwhile and intended purposes and that they are paid when they fall due. External debt continued to be manageable during the three‐year review period—from US$79.9 billion in 2012 and US$78.5 billion in 2013, it further decreased to US$77.7 billion in 2014. These figures are based on a new reporting framework for external debt data. Overseer of Exchange Rate Policy As it is tasked to maintain the convertibility of the peso, the BSP sets the country’s foreign exchange rate policy. A market‐oriented foreign exchange policy continued to be maintained throughout the review period 2012‐2014 as in the previous years. Under this policy, the BSP allows market forces, basically supply and demand for foreign exchange, to determine the exchange rate, stepping in only to smoothen sharp fluctuations. From a relatively strong peso in 2012, which averaged P42.20 to a dollar, it depreciated over the next two years to an average of P42.45 to a dollar in 2013 and P44.40 to a dollar in 2014. The peso started to weaken in 2013 on prolonged concerns over the euro zone’s debt crisis, the US budget impasse, and the timing and phasing of the tapering of the US Fed’s bond purchases program. This trend continued in 2014 amid diverging global growth prospects.
Migrant workers and their families, who have a lot at stake in the prevailing exchange rate, learn ways on how to productively manage their remittances through the BSP’s Financial Learning Campaign for Overseas Filipinos and their Beneficiaries.
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Issuer of Philippine Banknotes and Coins The most popular function of the BSP, currency issuance, is also a major operation. A whole complex, the Security Plant Complex (SPC), was set up more than three decades ago specifically to help discharge this function. It produces banknotes and coins, as well as refines gold. The facilities and operations of the SPC are world‐class. Consistent with its role of regulating money supply, the BSP oversees the production, issuance, distribution, and retirement of banknotes and coins. While the SPC produces the country’s banknotes and coins, the BSP’s Currency Management Sub‐Sector (CuMSS) issues, distributes and eventually retires these currencies. Production of banknotes and coins steadily increased from 2012‐2014. Banknotes produced increased from 1,167.4 million pieces in 2012 to 1,455.2 million pieces in 2013 and 1,511.5 million pieces in 2014. Coins produced increased from 1,400.5 million pieces in 2012 to 1,646.1 million pieces in 2013 and 2,049.9 million pieces in 2014. The BSP issues notes and coins for circulation in the Philippines, as well as commemorative notes and coins that could also be used in ordinary financial transactions. However, currency production (including outsourced) is not equal to currency issuance. Production for the year is not meant to supply only that year’s requirement. If production is more than issuance, the balance increases BSP’s buffer stock of unissued currency. If issuance is more than production, the difference will come from, and thereby reduce, the buffer. Issuance of banknotes and coins also steadily increased from 2012 to 2014. Banknotes issued increased from 2,864.4 million pieces in 2012 (worth P741.4 billion) to 3,178.9 million pieces in 2013 (worth P827.1 billion) and 4,085.7 million pieces in 2014 (worth P1,128.0 billion). Coins issued increased from 19,427.6 million pieces in 2012 (worth P22.6 billion) to 21,085.5 million pieces in 2013 (worth P25.0 billion) and 22,729 million pieces in 2014 (worth P26.7 billion).
How is currency issued to the public? The SPC delivers new BSP banknotes and coins to the Currency Issue and Integrity Office (CIIO), a unit under CuMSS, for issuance to the Cash Department (CD), also of CuMSS, and the Regional Monetary Affairs Sub‐Sector (RMASS). While CD services bank withdrawals of notes and coins in Metro Manila, RMASS takes charge of banks’ cash requirements in the regions through the BSP’s 22 Regional Offices/Branches. Currency notes and coins are eventually issued to the public when the public—as depositors and clients—withdraw their deposits (or receive their loan proceeds) from banks. Main Bank to the Philippine Government The BSP is the banker, financial advisor, and official depository of the Philippine government. As such, the cash balances of the national government (NG) are deposited with the BSP. On the other hand, when the government needs to repay its foreign debts or release money to pay expenses, it withdraws from its deposits with the BSP. Since these government funds form a significant portion of the total deposits in the financial system, coordinating the timing of government deposits and withdrawals is a key factor in the BSP’s overall management of money supply. It is for this same reason that all government entities, including the NG, need to secure the concurrence of the BSP before availing foreign loans or guaranteeing the same. In the case of domestic loans, at the very least, prior opinion from the BSP regarding the loans’ monetary implications is required.
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Financial Inclusion Programs In addition to the three pillars of central banking and its other roles and responsibilities, the BSP has implemented financial inclusion programs in the areas of microfinance, economic and financial education for the public, and consumer protection. Financial inclusion is a state wherein there is effective access to a wide range of financial services for all. The BSP is presently spearheading the crafting of a National Strategy for Financial Inclusion to coordinate efforts of all stakeholders for better results. Microfinance Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low‐income households for their microenterprises and small businesses, to enable them to raise their income levels and improve their living standards. Microfinance is not charity or dole‐out; it is good business when conducted properly. “Helping the poor help themselves” is the essence of microfinance. The Philippines has been recognized globally for its microfinance and financial inclusion initiatives. For five years in a row (2009‐2013), the Economist Intelligence Unit’s global survey has ranked the Philippines as number one in terms of policy and regulatory framework for microfinance.
As its flagship program to alleviate poverty, the BSP provided a conducive environment for the development of microfinance in the banking sector. Regulations were refined during the review period to better address the needs of the entrepreneurial poor. In 2013, refinements included redefining “low‐income households” and improving procedures in the approval of housing microfinance loans and micro‐agri loans. In 2014, the general features of microinsurance products were aligned with the provisions of the new Insurance Code and microfinance reporting requirements were amended to distinguish “microfinance loans” from “small‐ and medium‐enterprise (SME) loans,” and microdeposits from other types of deposits to improve the capture of data on microfinance. Regulations affecting the general banking system, but with particular impact on microfinance and financial inclusion, were also issued, including those amending the guidelines on sound credit risk management practices and salary loans, and the implementation guidelines on the issuance of Europay, Mastercard and Visa. As of end‐September 2014, there were 179 banks with microfinance operations. These banks served 1.2 million borrowers with an outstanding loan portfolio of P9.4 billion. From 2009 to 2013, the Philippines was consistently ranked as the best in the world in terms of regulatory environment for microfinance. In the broader field of financial inclusion, the Philippines was named by the Economic Intelligence Unit (EIU) as the top country in East and South Asia and third in the world with the most conducive environment for its development in 2014. Aside from being a regulator, the BSP also plays the role of facilitator in linking SMEs with credit providers. The BSP spearheads the implementation of the Credit Surety Fund (CSF), a fund generated from: 1) contributions of well‐capitalized and well‐managed cooperatives/ non‐government organizations (NGOs); 2) a counterpart contribution from the local government unit (LGU) in the province where the contributing cooperatives/ NGOs are operating; and 3) voluntary contributions from donor institutions.
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15 May 2012. BSP Deputy Governor Diwa C. Guinigundo and City Mayor Darlene Magnolia R. Antonino‐Custodio led the signing of the MOA and the launching of the 22nd CSF in the country at the Executive Ballroom of Family Country Hotel and Convention Centre, Mateo Road, Lagao, General Santos City.
The CSF is used to provide a maximum of 80 percent surety cover for loans granted by banks to financially‐ challenged entrepreneurs, who would otherwise find it difficult to access such credit facilities due to insufficient collateral, limited credit history, or inadequate financial records. As of end‐December 2014, 37 CSFs have been organized in different provinces all over the country. Economic and Financial Education Through its Economic and Financial Learning Program (EFLP), the BSP continued to promote inclusive and proactive economic and financial education among its stakeholders. In 2012‐2014, the EFLP was conducted in 19 cities/municipalities in various provinces nationwide. In addition, Financial Education Expos were also conducted in two other cities in 2012. Financial Education for Schoolchildren The BSP continued to take an active role in promoting the habit of saving, particularly among schoolchildren. In 2012, the BSP hosted the Asia and the Pacific Regional Meeting for Child and Youth Finance in Manila in partnership with the Child and Youth Finance International (CYFI), an organization which is at the forefront of the global movement to promote saving among schoolchildren. The meeting attracted participants from more than 20
countries and provided an avenue for sharing lessons learned and best practices that have been developed—basic ingredients for crafting a regional agenda that would provide child and youth finance education and access to financial services. The CYFI has described the BSP’s program with DepEd as “an international best practice model” which institutionalizes finance education in schools. The organization also praised the development of affordable and child‐friendly bank products through the Kiddie Account Program by selected banks. The BSP partnered with the Department of Education (DepEd) in the yearly search for best financial education teachers in public elementary schools, called Gantimpala para sa Ulirang Pagtuturo ng Pag‐iimpok at Araling PanSalapi (Guro ng Pag‐Asa). Started in 2012, the program recognizes the best teachers who have integrated lessons on savings, money management, and basic entrepreneurship in the elementary curriculum. Elementary teachers use teaching guides on financial literacy (selected subjects) developed by BSP and DepEd. The BSP also partnered with the Bank Marketing Association of the Philippines (BMAP) to promote the Kiddie Account Program which makes it easy for children to open bank accounts. The Kiddie Account Program encourages children to open their own accounts with an initial deposit of only P100 (or less than US$2.50). The Kiddie Account Program has 12 participating banks that own about half of the bank branches in the country.
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Consumer Protection The BSP continued to provide an accessible venue for consumer assistance and redress through the Financial Consumer Protection Department (FCPD), which attends to complaints on BSP‐supervised institutions and their products or services. In its more than eight years of operation (including the time when FCPD was not yet a Department), it has been assisting in resolving complaints, inquiries and requests from financial consumers. This is in line with the BSP’s commitment to protect the rights and welfare of financial consumers. In 2012 and 2013, the BSP sought to improve the implementation of the Truth in Lending Act (R.A. No. 3765) to ensure that consumers make informed decisions when they avail of loans. Aside from requiring the full disclosure of all bank fees and charges related to the extension of credit, the BSP also required all credit‐granting institutions to use a standard and simple format of disclosure. This would ensure that borrowers are provided with the information they need to better understand their loan transactions. In 2013, with technical assistance from the World Bank, the BSP participated in reviewing consumer protection in the banks. The review assessed whether existing legal, regulatory, and institutional systems and practices pose significant barriers to effective consumer protection. Subsequent actions to further improve the BSP’s consumer protection policies and programs have benefitted from the results of this review. In 2014, the BSP institutionalized consumer protection as an integral component of banking supervision in the country through the adoption of the Financial Consumer Protection Framework, which sets standards on: 1) disclosure and transparency; 2) fair treatment; 3) respect of client’s privacy; 4) financial education and awareness; and 5) effective recourse.
Financial Condition of the BSP The BSP’s assets reached P3,976.4 billion as of end‐December 2012, increased to P4,202.1 billion as of end‐December 2013, and settled at P4,087.5 billion as of end‐December 2014 (unaudited). Lower international reserves accounted for lower assets in 2014. The BSP’s liabilities reached P3,911.1 billion as of end‐December 2012, increased to P4,161.3 billion as of end‐December 2013, and settled at P4,043.2 billion as of end‐December 2014 (unaudited). Lower liabilities in 2014 were mainly due to lower bank placements in the BSP’s SDA facility. The BSP’s net worth, or assets less liabilities, reached P65.3 billion as of end‐December 2012, decreased to P40.8 billion as of end‐December 2013, and increased to P44.4 billion as of end‐December 2014 (unaudited). Net worth increased in 2014 due to the P10‐billion capital infusion of the NG during the year. The BSP registered declining losses from operations during the review period: losses went down from P95.0 billion in 2012 to P25.1 billion in 2013 and P11.3 billion in 2014 (unaudited). Lower interest expense due to lower interest rates on the SDA facility and lower SDA placements contributed to the lower losses in 2014.
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From numerous recognitions on its stellar performance as a central bank, to accolades on its various advocacy programs, the BSP has proven
time and again that it is indeed world‐class.
1. 2013 Child and Youth Finance International Country Award 2. 2012 Lingkod Bayan Award for PhilPaSS REMIT System 3. Best Macroeconomic Regulator Award, 2013
Asian Banker Leadership Awards 4. Finalist, Department of Health’s Search for Outstanding Healthy Lifestyle Advocacy Awards 2013 5. Grand Champion, Civil Service Commission’s 2013 Government Chorale Competition
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6. Management Excellence: Financial Inclusion Award, 2013BizNews Asia
7. Best Conduct of Business Regulator Award in Asia Pacific, 2013 15th Asian Banker Summit
8. Maya Declaration Award and AFI Honorary Award for the BSP Governor, 2014 Alliance for Financial Inclusion
9. Global recognition for best practices on financial inclusion, 2014 10. BSP Governor Amando M. Tetangco, Jr.
One of the “World’s Best Central Bankers” Global Finance, 2013
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Financial Statements
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The Bangko Sentral ng Pilipinas
Monetary Board
1 MB Member De Zuñiga took his Oath of Office on 24 July 2014 2 MB Member Araneta took his Oath of Office on 30 July 2014 3 Retired as member of the Monetary Board effective 15 February 2014 4 Retired as member of the Monetary Board effective 03 July 2014
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