There is life after SDA

May 18, 2013

I was confronted recently by a good friend following the latest reduction of the Special Deposit Account (SDA) rate to 2 per cent across all tenors.   “At the rate the Monetary Board is slashing the SDA rate, there will be nothing left for us retirees,” he moaned.   I could only sympathize with him, and other fixed income earners,  as I explained to him the true purpose of the SDA.   -That the SDA  is not primarily an investment vehicle, as many have come to believe. -And that in fact, the SDA is a monetary tool principally used by the Bangko Sentral to manage excess peso liquidity.   In line with the Bangko Sentral’s mandate of maintaining  price stability, the BSP has engaged in open market operations. The BSP buys or sells government securities, as circumstances dictated, to maintain liquidity at target levels.   (If the BSP buys securities, peso liquidity would go up. If the BSP sells securities, peso liquidity would go down.)   This was well and good until the BSP ran out of government securities to buy or to sell.  Note that  the limited availability of government securities - in the amount required  for its open market operation - is one of  the reasons cited by the BSP for the need to amend the BSP charter. The BSP is seeking legal authority for it to be able to  issue its own debt securities and bonds.   Pending such legislation,  a  substitute mechanism  had to be  devised by the BSP  which would have the effect of removing excess pesos from the system.  This was  the Special Deposit Account or SDA.   Shortly after the introduction of the SDA, banks  went to town, marketing the SDA as a “risk free” investment outlet with comparatively high yields.   Naturally, a lot of money, local and foreign, went to  SDAs.  The SDA became specially attractive to foreign money seeking higher and safe yields in this part of the world.     From a year-ago level of under P1 Trillion, Special Deposit Accounts, now lodged with the Bangko Sentral, have ballooned to P1.9 Trillion!   This is costing the Bangko Sentral a lot – and I really mean a lot!  So  the Monetary Board thought it was time to rationalize the Special Deposit Account.   The Monetary Board  initially responded by barring the entry of foreign money into SDAs. The Monetary Board also  started gradually reducing the SDA rate 50 basis points at a time. Of late, the Monetary Board also instructed Trust entities to ensure that only funds from trust accounts are placed in the SDA. This move will effectively block off so-called Investment Management Accounts or IMAs from the SDA.   With these moves, hopefully the SDA will eventually  go down to a more manageable level.   Now going back to my retiree friend. His main concern was beating inflation. Correctly, he has been advised that his retirement fund should earn more than the inflation rate.   So if the inflation rate, for example is 3 pct, his money should earn more than 3 per cent for him to stay ahead.  Therefore,  the SDA  is not the way to achieve his objective.   Fortunately, there are now bank products which just might answer his needs.  He may inquire from his friendly bank investment counselor about Unified Investment Trust Fund or Mutual Funds.  Among the array of these financial products,  I am almost sure there will  be a product  or two which will suit the size of his resources as well as  his risk appetite.   Definitely, there is life after SDA.

Filipina “Food Heroes”

March 22, 2013

 Oxfam is an international humanitarian and development confederation of 17 organizations networked together in more than 94 countries. It aims to “build a future free from the injustice of poverty.”             “Food Heroes” is part of Oxfam’s GROW campaign, which pushes for better ways to grow, manage and consume food. It features 10 remarkable women, five of whom we read about in last week’s Speaking Out. However, while this list shows that women have indeed gone a long way in improving their status in society, Oxfam points out that “challenges remain.” “In particular, governments must recognize the crucial role women play in feeding the world by ensuring women are in positions of leadership in institutions where agricultural, food security and climate change decisions are made,” Joseph Edward Alegado, Oxfam in the Philippines media and communications officer, explained. Here are the remaining five women food producers on the “Food Heroes” list:   Gloria Bolando, Vegetable and Abaca Farmer, Lanuza Surigao del Sur ·      Nanay Gloria, a Manobo, divides her time between two family farms, making sure she visits at least one every day. On one farm she grows kamote (sweet potatoes), while in another, abaca and bananas.  Harvesting abaca happens only once every three months, so Nanay Gloria and her family rely on the vegetables and root crops for daily food needs. She manages the Yuha tu Banwa, a community health and food bank where women can deposit surplus food and herbal plants (which they can then borrow during lean months and in times of disasters). The Yuha is a traditional community practice that has been revived with the help of Oxfam to prepare Nanay Gloria and her village for climate change impacts.   Zenaida ‘Zeny’ Mansiliohan, Vegetable Farmer, Agusan del Sur ·      Nang Zeny, an indigenous woman leader from Agusan, sees the benefit of flood-resistant rice and vegetable varieties. As the vice president of the National Congress of Rural Women, she has advanced the rights of rural women who produce half of the country’s food. Oxfam brought Nang Zeny to meet with women leaders from around the world to discuss the failing food system and other economic issues confronting poor women at the Association of Women’s Rights in Development (AWID) Forum in Istanbul, Turkey in 2012.   Aida Fernandez, Seaweed Farmer, Isla Cabgan, Surigao del Sur ·      Nanay Aida, a seaweed farmer, lives on Isla Cabgan in Hinatuan, Surigao del Sur. Seaweed farming requires intensive work. In Nanay Aida’s case, her entire family – her husband and two sons living close to her – all help out from preparing the seaweed seedlings to “planting” them and harvesting them. Aside from this, Nanay Aida, like most women, takes care of her family as she prepares dinner, cleans up and attends to other household tasks. There is no electricity on the island so there is very little diversion. They maintain a motor battery at home for lighting the house. The battery is recharged regularly for 60 pesos. Using it to run the television would mean having the battery run out in three days time and would have been very costly. So, at 8:00 P.M. Nanay Aida retires to bed. She rises up again at 5:00 the following morning to attend to her many roles.    Dolores ‘Dory’ Cabato, Vegetable and Rubber Farmer, Esperanza, Agusan del Sur  ·      Nanay Dory raises all her six children by herself. She tends a small vegetable farm, selling her harvest around the village and supplying local eateries. She earns extra income as an agriculture para-technician, giving advice on planting to other farmers, and as a hired laborer on her neighbors’ farms. She also worked as a household helper for one year and used her earnings to start a rubber farm that she hopes would make money in five years.   Nida Rizalado, Shell Gleaner, Mahaba Island, Surigao del Sur  ·      Oxfam and the National Coalition of Rural Women have a continuing project called the Women’s Market where women farmers and fishers come to sell their sustainably grown produce. One of these women is Nida Rizalado, a shell gleaner from the island of Mahaba in Surigao. Nanay Nida and her other companions go out to glean at low tide. Using a paddleboat, they go to a nearby sandbar and spend two to three hours collecting as much as four kilos of seashells on a good day. This would earn her around 200 pesos, enough to buy basic necessities such as soap for laundry, sugar and salt. 

Reaching out to the unbanked and under-banked

March 8, 2013

Financial inclusion means that the BSP, through its enabling and empowering policies, wants more Filipinos—who are currently classified as unbanked or under-banked—to have access to banking services. The BSP believes that economic growth will not be meaningful if this significant segment of our population is not given the opportunity to participate in, and to benefit from, economic development.             According to Pia Bernadette Roman Tayag, head of the BSP Inclusive Finance Advocacy Staff (IFAS), the Philippine banking system is a strong and stable one. However, she pointed out, the challenge of increasing access to financial services remains daunting.  “Aside from the lack of banks in a large percentage of the country’s municipalities (37% have no banking office), concentration of banking services are generally biased toward higher income areas leaving much of the low income areas significantly underserved,” Tayag said.   For example, more than 40% of the country’s deposit accounts are found in the National Capital Region. In addition, the 2009 Consumer Finance Survey revealed that only 2 out of 10 households have access to simple deposit accounts. To address this issue, the Bangko Sentral ng Pilipinas has taken deliberate steps to build a more inclusive financial system that is responsive to the needs of the Filipino people— especially those who are underserved and “unserved.” “A strong and stable banking system can be more meaningful if it services the needs of majority of the population,” Tayag said. The BSP’s initial foray into financial inclusion involved the creation of an enabling policy and regulatory environment for sustainable microfinance to flourish in the banking system. This provided a framework and opportunity for our banks to service the needs of millions of our country’s unbanked yet bankable micro entrepreneurs. As of September 2012, over 180 banks have been serving over a million micro entrepreneurs with an outstanding loan portfolio of P7.9 billion and an equally impressive savings portfolio of P4.2 billion. The BSP’s regulations, which have since then expanded the range of microfinance products (i.e. micro housing, micro insurance, micro deposits), have also made the banks more responsive to the needs of their clients.  “We have also created the necessary space that has allowed continuous innovations in business models and the use of technology-driven process improvements (i.e. e-money, mobile banking) which hold the promise of reaching more of the unserved markets at lower costs and higher efficiencies,” Tayag said. In the latest Economist Intelligence Unit Survey of Microfinance Business Environments of over 50 countries, the Philippines has been named—for the fourth year in a row—as having the best policy and regulatory environment for microfinance in the world. In addition, a Steering Committee on Inclusive Finance was created in February 2012 with the BSP Governor as Chair—a clear indication of the high priority given to financial inclusion and a recognition that is a key strategic initiative to further the BSP’s mandate of economic and financial stability.  The creation of the Committee further ensures that the many initiatives that the BSP has incrementally taken toward financial inclusion form part of a clear, coherent and sustainable vision of a truly inclusive financial system in the country. 

A fair warning to wayward bankers

March 1, 2013

A former president of a closed rural bank learned this well-known legal adage the hard way after the Supreme Court declared his earlier conviction for estafa through falsification “final and executory.”              Hilario P. Soriano, former Chairman/President of the closed Rural Bank of San Miguel (Bulacan),  had been convicted of estafa through falsification— in a case filed by his own brother Antonio—before the Manila Regional Trial Court.             Instead of applying for probation, Soriano appealed his conviction before the CA, which affirmed the conviction.             When said conviction was appealed before the Supreme Court, the conviction was again reaffirmed. The SC decision became final and executory on September 17, 2012.             Soriano is now imprisoned at the New Bilibid Prisons in Muntinlupa City, where he is serving a term of four months to four years. He was also ordered to pay a fine of P5,000.             But his woes wont end there. Soriano is actually facing a slew of estafa cases filed by the Bangko Sentral ng Pilipinas. The criminal cases stemmed from his “fraudulent misappropriation” of the proceeds of the Rural Bank of San Miguel’s emergency loans from the BSP—prior to the bank’s declaration of a bank holiday.             Investigation conducted by the BSP’s Office of Special Investigation, headed by Atty. Gene Penaco,  revealed that part of the emergency loan proceeds eventually ended up in  Soriano’s Valle Verde residence.             In a decision dated April 3, 2007, the Malolos Regional Trial Court Branch 11 convicted Soriano on all four counts of estafa filed by the BSP.             He was sentenced to suffer imprisonment of 10 to 14 years for each count, and to pay the BSP and co-complainant Philippine Deposit Insurance Corporation an approximate amount of P33.6 million.             The following year, another Malolos RTC branch convicted Soriano of one count of estafa.             The Malolos RTC Branch 15 sentenced the former rural bank president to imprisonment of 10 to 12 years. He was also ordered to pay the BSP the amount of P360,000.             Soriano then appealed both convictions before the Court of Appeals (CA). However the appellate court affirmed both convictions.                                        The CA also modified the judgment of the earlier conviction: Soriano was sentenced to suffer imprisonment of four to 20 years—instead of 10 to 14 years—for each count.             Soriano has elevated both convictions before the Supreme Court, which has yet to resolve both appeals.             In the meantime, the BSP had filed six more criminal cases of the same nature against Soriano.             The estafa cases, filed in 2000, are now pending before the RTC-Malolos Branches 17 and 83.                This should serve as fair warning to wayward bank officers who  violate their fiduciary responsibility that requires high standards of integrity and performance. Note: My book, Central Banking for Every Juan and Maria, is now available at the following outlets: Fully Booked – Bonifacio Global City, Powerplant Mall (Rockwell), Katipunan.  Power Books – Alabang Town Center, Greenbelt 4, Serendra. National Book Store – Greenbelt 1, Powerplant Mall (Rockwell), Cash and Carry, Market Market, SM Mega Mall. 

Special Banking Laws Annotated

February 15, 2013

 In line with this advocacy, the Bangko Sentral ng Pilipinas just recently published the “Special Banking Laws Annotated” to educate and enlighten academicians, bankers, and the public on the provisions of various special banking laws.             This book, researched and written by an illustrious group of more than 30 lawyers of the BSP’s Office of the General Counsel and Legal Services or OGCLS,  is the latest addition to the series on the country’s banking laws. OGCLS is headed by Deputy Governor Juan de Zuniga, Jr.             The first book entitled, “The New Central Bank Act Annotated,” was launched in July 2010, while the second book, “The General Banking Law Annotated,” was launched in August 2011.             The “Special Banking Laws Annotated,” or the so-called Book III, provides authoritative vantage points and commentaries on special banking laws such as the Thrift Banks Act, Rural Banks Act, Special Provisions on Cooperative Banks from the Cooperative Code, Non-Stock Savings and Loan Associations Act, Philippine Deposit Insurance Corporation Charter, Secrecy of Bank Deposits  Law, Foreign Currency Deposits Act, Truth in Lending Act, Usury Law, and Unclaimed Balances Law.             In the book’s foreword, Ret. Chief Justice Reynato S. Puno said he was not aware of any central bank authority in the world that has undertaken the intellectual endeavor of coming out with the “Special Banking Laws Annotated.”             “But more than path-breaking, its impact in our expanding economy will be immeasurable,” Puno pointed out.             For one, the retired chief justice said, the book gives the public easy access to the country’s scattered laws on banking—available only to those with special interest on the subject.             “This lack of access by the people is crucial for it drives away many of them from patronizing the services of banks which are the primary engines of our economic growth,” Puno said, He added, “The annotations are reader-friendly and guaranteed to remove the scales of ignorance from the eyes of the unknowing.” BSP Governor Amando M. Tetangco, Jr. shared that the book’s discussions promoted understanding not only of the laws that govern particular banking institutions and consumer rights, but also of their policy implications and operational context. “To us, the completion of our three legal books constitutes a major step forward in our continuing program to promote understanding of banking laws and regulations not only among banks, government institutions, business, legal practitioners and the academe, but also among bank customers and the public in general,” Tetangco said. With this week’s launch of “Special Banking Laws Annotated,” I am one with the BSP officials and the book’s editorial board in hoping that this legal book project will promote better comprehension of, and hopefully better compliance with,  banking laws and regulations among all sectors of our society. Just like the raison d'être in the publication of my book, “Central Banking for Every Juan and Maria,” I believe that proper knowledge and understanding of our banking laws play an indispensable role in building a strong and vibrant Philippine economy which will provide a better life for all Filipinos.

Growing your small business (Concluded from last week)

February 8, 2013

These businessmen and women have been recipients of the Citi Micro-entrepreneur of the Year Awards (CMA) in the last 10 years since the program was created.             The CMA Program, according to Microfinance Council of the Philippines, Inc. Chairperson Mila Mercado- Bunker, is “a celebration of economic triumph amidst great odds at the grassroots level.”             “We have seen the transformation of these micro-entrepreneurs—from budding handicraft-makers to producers of world class quality products,” Mercado-Bunker said.             She added: “They have become responsible employers and role models of good citizenship—local economic heroes in their own right.”             Here are more great tips from these local economic heroes:   ·      Carina Gonato, lumpia seller o   Update yourself on what customers think and like about your product. o   Strive to learn how to improve your business. o   Read books and surf the Internet for pointers on how to be successful. o   Keep pursuing your goals.   ·      Felicidad Kalalo, copra products dealer o   Without trust and honesty, your business will never grow. o   If you borrow money, you must pay it back. Be regular with your payments so you can borrow again to grow your business. o   Be alert to how your business is going. If it is too slow and you’re losing money, look for another business. o   Do not be afraid of starting over. o   Most important, work hand-in-hand with your spouse.   ·      Ester Lumbo, pandan products entrepreneur o   With or without competition, work hard on your business and never give up. o   Make sure that production is on schedule and all orders are delivered on time. o   Give your customers beautiful and original designs to choose from. o   Careful planning is the key to a successful business.   ·      Consuelo Valenzuela, sabutan products entrepreneur o   Never borrow what you cannot afford to pay back. o   Do not take too many loans at one time, especially if your business is seasonal. o   Know when it is the right time to make a loan. o   Follow your repayment schedule strictly. o   Keep a list of things you have to do and complete each day.   ·      Cherry Yack, Sr., cassava cake businessman o   Avoid all vices because they take away from your time, your health, and your money. o   Do not let your workers do all the work for you, but make sure the people you hire are as hardworking as you. o   Always persevere and believe that God will lead you to your goal.


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