Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the central bank, which has provided P2 trillion in liquidity to the financial system in 2020, will continue to be the game changer in the country’s anti-COVID-19 pandemic response.

 “The BSP shall continue to be front and center of the country’s COVID-19 economic response by ensuring ample liquidity in the financial system, providing regulatory relief to banks, and implementing policies to help Filipino businesses and households recover from the crisis,” said Diokno during his now weekly virtual “GBED Talks” with the press.

Diokno is also reiterating the BSP’s readiness to provide cash advances to the National Government (NG) under existing laws including the BSP Charter and the second Bayanihan law. “This is in line with BSP’s commitment to support whole-of-nation efforts to ease the adverse impact of the pandemic,” he said. 

The BSP, for a limited time under the Bayanihan law, has a revolving cash on-hand for NG pandemic response of up to P820 billion, of which P540 billion is a permanent provision under the central bank law. He clarified though that these are not a form of debt monetization but are just bridge financing from BSP to the NG.

Last year, BSP policies centered on six key issues as pandemic response such as: ensuring there is market confidence by providing adequate liquidity and credit; to complement the NG’s broad-based health and fiscal programs through extraordinary liquidity measures; extend financial relief to borrowers; incentivize lending; promote continued access to financial services; and support continued financial services delivery.

 “We gained headway in bringing the BSP closer to Filipinos. We did this through a wide array of initiatives aimed at easing the adverse impact of the pandemic,” said Diokno. He stressed that “reaching out” to the public is an “overarching BSP objective, because ultimately, all our actions are meant to enhance the economic and financial wellbeing of Filipinos.”

 The BSP is mandated to maintain stability of prices, ensure a strong banking industry and payment systems, and to watch out for systemic risks, as well as financial inclusion.

Diokno, in a forum hosted by FINEX last week, assured investors that the local banking system continue to be on a strong footing with BSP’s time-bound and timely measures.

Key findings based on BSP’s most recent assessments are as follows: core funding remains relatively strong following COVID-19 outbreak; bank lending slightly rises; loan quality slightly weakens as borrowers experience cash flow interruptions and sustain losses due to the pandemic; financial assets grow but a slower rate as banks opted to reduce treasury activities to be liquid; net income declines as additional provisioning rises; and liquidity and capital buffers remain intact.

“The domestic banking system is expected to remain relatively stable in the next two years,” said Diokno, citing the BSP’s latest Banking Sector Outlook Survey (BSOS). The survey said banks project that real gross domestic product growth will return to a range of less than six percent to 6.3 percent with the gradual reopening of the economy.

About 69 percent of the surveyed banks expect a stable banking system. Most banks also project growth of 10-15 percent in their loan portfolio over the next two years.

“Banks also anticipate a more active participation in the money and capital markets in the next two years as growth in financial assets (excluding loans) is projected to not exceed 10 percent by more than half of (BSOS) respondents,” noted Diokno. “The remaining banks estimated a double-digit growth. A double-digit deposit growth is also expected by most banks.”

Diokno pointed out that despite that majority of banks expect bad loans to exceed three percent this year and in 2022 and a three to five percent ratio of restructured loans to total loans, banks still “retained their upbeat expectations on returns as 71 percent of (surveyed banks) forecasted double-digit net income growth for the next two years.”