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Wednesday, September 27, 2023

About time BSP charter is amended

Last July 3, the Bangko Sentral ng Pilipinas observed its 21st anniversary.  When  the architects of our legislature enacted R.A. 7653, which was signed into law by then President Fidel V. Ramos, they envisioned   “an independent central monetary authority”  that would discharge its  mandated responsibilities concerning money, banking and credit”.

R.A. 7653, defined  the primary objective of the Bangko Sentral as follows: to maintain price stability conducive to a balanced and sustainable growth of the economy. BSP was also tasked topromote and maintain monetary stability and the convertibility of the peso. 

Over the years, BSP has performed its legal responsibilities well above  expectations. The awards conferred on Governor Amando M. Tetangco, Jr. (and even his predecessors Gabriel Singson and Rafael Buenaventura) and the BSP as an institution are a testament to how well the BSP has discharged its mandate.

But 21 years later, the financial landscape has significantly changed. Even our legislative leaders acknowledge that …the economic milieu in the Philippines has changed, globalization has increased the integration of financial markets and the scope of operations of financial institution has evolved.

With these in mind, both Speaker Feliciano Belmonte Jr. and Senate President Franklin Drilon have introduced proposed separate amendments to the BSP charter. It is additionally re-assuring that President Aquino has included the amendment of the BSP charter as one of the priority bills during the second regular session of the 16th Congress.

In a nutshell, the proposed amendments seek to:

1.     Strengthen BSPs monetary stability function

2.     Strengthen BSPs financial stability function, and

3.     Strengthen BSPs corporate and financial viability.

Space limitations do not allow me to tackle all of these proposed amendments in this article. So let me just focus on what I think should be the top priority.

Foremost would be the proposed additional capitalization of the BSP of P150 billion, payable in three years. Under the 1993 charter, the BSP capitalization was supposed to be P50 billion. Unfortunately, the BSP had to subsist for a very long time  on the initial tranche of P10 billion released in 1993.

It is to the credit of  President Aquino  that the short-fall of P40 billion was finally  fully paid. (I guess with a little prodding from Finance Secretary Cesar Purisima who sits in the Monetary Board as national government representative. )

The balance was paid up in four tranches as follows: P10 billion in 2011, P20 billion in 2012 and P10 billion in 2014.

Hopefully, under the proposed amendment, the additional capitalization would be automatically appropriated yearly.

Just last Thursday, the Monetary Board announced a 25 basis points increase in its policy interest rate. One need not be a financial wizard to estimate how much that would translate into in terms of interest expense of the BSP. And yet, the BSP, unlike a commercial bank, has to absorb huge interest expenses while it performs its mandate of stabilizing prices.

Another important amendment is one that gives flexibility to the BSP to establish adequate loss allowances and create reserve buffers against future risks and contingencies.

Also, it is important to put the BSP on equal footing with most international central banks by restoring  tax exemptions which the old Central Bank previously enjoyed.

While they are at it, perhaps our legislators should also  consider a provision that will enable the BSP to develop regulations for the extension of financial facilities to Islamic banks.

While there is a law which created the Amanah bank, the said law (and even subsequent laws such as the General Banking Law)  did not provide the legal framework for the existence of other Islamic banks.

According to Atty. Arifa Ala of  the BSP, Islamic banking in the Philippines has a large market to serve. The Philippine has a sizeable Muslim population, most of whom live in unbanked areas.

With peace in the horizon after the signing of the ground-breaking agreement between the national government and the Bangsamoro, Islamic banking could have renewed bright prospects.

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