The dynamism of the domestic capital market provides the proverbial silver lining amid the deep recession triggered by the COVID-19 pandemic. Structural reforms have evidently taken root, especially in the fixed-income securities market.
The Bangko Sentral ng Pilipinas (BSP) has noted two auspicious developments. First are the oversubscribed bond issuances by four domestic banks: Bank of the Philippine Islands, China Banking Corporation Land Bank of the Philippines and Union Bank of the Philippines. Secondly, the number of participants in investment trust funds grew by 33 percent in 2020 and 24 percent in the first quarter this year.
Continuing reforms on other fronts give further impetus. The House of Representatives recently gave its thumbs-up to the enactment of the proposed Capital Market Development Act that creates a new private retirement and pension system that is fully funded and portable. An employee pension and retirement income (EPRI) account will be managed and maintained by the employee, regardless of changes in employment venue or status. All employers and employees in the private sector shall be covered compulsorily, while professionals and self-employed persons may participate voluntarily.
A Capital Markets Development Council will also be institutionalized, an upgrade from the memorandum of agreement between the government and the private sector.
On a broader context, this measure seeks to address the yawning gap between savings and investments. According to Philippine Statistics Authority data (2015), the savings rate is 30 percent of gross domestic product while the investment rate is only at 18 percent. Creation of more investment vehicles will narrow this gap at a faster pace.
Resilience of the financial system has also been enhanced by recent developments. The broadening and deepening of capital markets facilitates the efficiency of funds allocation in the economy. Beyond accessing bank credit, investors may now avail themselves of a broader array of financial products — a most auspicious development for boosting financial inclusion, as noted by the BSP Governor.
The BSP is working closely with the Department of Finance, the Bureau of the Treasury, and the Securities and Exchange Commission (SEC), on “a calibrated, deliberate, and sequenced program consisting of immediate to medium-term action plans” that ensures “synergy in policy direction at the national level as well as the smooth execution of the necessary reforms by concerned regulatory authorities,” according to the BSP Governor.
Five key policies have been put in place by the BSP to strengthen capital market development. These are: amendments to the rules on Securities Custodianship and Securities Registry Operations; amendments on the Personal Equity and Retirement Account or PERA rules; updated rules on Investment Management Activities or IMA, which reduces the minimum account opening amount for IMA from P1 million, subject to a floor of P100,000; circulars on the exclusion of debt securities held by market makers from the single borrowers limit; and circulars on Expectations on London Inter-Bank Offered Rate or LIBOR Transition.
The other half of capital market development, the equities market, should also be explored vigorously.