By Lee C. Chipongian
Credit watchdog S&P Global has raised the Philippine banking sector’s credit rating by a notch, noting that the amended New Central Bank Act will further strengthen and stabilize the financial system.
Based on a report, S&P moved the country’s Industry Country Risk Assessment (BICRA) score from “6” to “5,” following the signing into law of the amended central bank act last February 14. BICRA scores range from 1 to 10, with 10 assessed as having the highest risk.
According to S&P, “we view these amendments as a positive step toward greater independence (of) and more effective implementation of prudent policies and measures (by the Bangko Sentral ng Pilipinas),” S&P said.
In a statement, the BSP said Republic Act No. 11211 “affirms and strengthens existing frameworks and practices of the BSP in carrying out its supervision mandate. It supports the application of risk-based principles in allocating examination resources and in setting out capital requirements in banks.” It said the BSP has long shifted to the risk-based approach to supervision and has crafted policies that are not only commensurate to the risk exposures of its supervised financial institutions but are also suited to domestic conditions. The new law now provides a legal anchor to said approach, it added.
S&P also highlighted other provisions in the amended law such as more legal teeth to protect BSP officials against lawsuits that prevent them from exercising their duties and functions. “These provisions address the long-standing problem of vulnerability of the BSP and its officials to law suits filed by either erring or weak banks that are penalized or ordered closed by the BSP. Notwithstanding said limitation in the past, the BSP has established an enforcement framework that promotes consistent handling of supervisory issues including closure of banks,” said the BSP.
The amended BSP charter also now has regulatory coverage of monetary service businesses, credit granting businesses, and payment system. “We believe the expansion of coverage of institutions under BSP supervision… bolsters BSP’s position to address potential risks arising from the interconnectedness of entities in the financial system,” S&P said.
BSP Deputy Governor Chuchi Fonacier said: “We are pleased to learn about the quick recognition by S&P of the significant benefits of the New Central Bank Act, which the BSP deems as an important game-changing policy reform.”
She said that the amended law “unleashes a new and more progressive era of financial sector supervision in the country, further enhances the ability of the BSP to serve as a pillar of strength for the Philippine economy.
S&P also said that the Philippine banking system is “expected to withstand various risks — such as currency volatility and higher interest rates, among others — given sufficient capitalization and strong domestic franchise that supports growing deposit base,” said the BSP.
One of the most important features of the charter changes is that the BSP can now issue its own bonds which “enhances the ability of the BSP to manage liquidity in the economy” and it also has a higher capitalization of P200 billion from P50 billion.