The Bangko Sentral ng Pilipinas (BSP) is conducting a corporate income monitoring survey to help in its review of the private sector’s capacity to pay debts – among other financial issues – and to also assess the magnitude and extent of the pandemic’s impact in the corporate sector.

“It is therefore imperative that regulators closely monitor the borrowing behavior of corporates and their capability to service their existing loans during the pandemic.  This is to allow us to accurately assess the magnitude and extent of the pandemic’s impact on the country’s corporate sector, and in turn, measure the corporate sector’s spillovers and spillbacks to the financial system and the economy,” said BSP Governor Benjamin E. Diokno.

Diokno said the central bank’s Corporate Financial Trends Survey (CFTS) will tackle what he considers one of the “most pressing issues that policymakers are facing today” which is to have access to a “timely, reliable, granular and accurate financial data” of the corporate sector.

CFTS will improve BSP’s understanding of industries’ financial trends and conditions. “In particular, the CFTS aims to gather more granular data on corporates’ sources of funds, spending activities, and profitability,” he said during the CFTS 2021 Information Session by the BSP on Friday, June 25.

“This survey helps address some of the data gaps the BSP encounters due to long lags in financial reporting of private firms,” said Diokno. Granular data is another way of gathering macrofinancial surveillance for a more appropriate monetary policy, he added, and to determine what affects corporates’ borrowing behavior, investments and production activities.

Diokno said the CFTS will allow the BSP to identify potential vulnerabilities of the corporate sector. “In turn, these could lead to the formulation of policies that would help safeguard macroeconomic and financial stability. This is particularly important as the domestic economy, including the corporate sector, continues to grapple with the challenges of the COVID-19 pandemic.”

Based on the CFTS’s preliminary assessment, the pandemic, as expected, resulted in a “sharp fall” in the corporate income due to the disruptions in business operations with the government-imposed lockdowns. “This weakened markedly the ability of firms to service their debt,” said Diokno.

Taking the lessons of the Global Financial Crisis, Diokno said the weakness in the corporate balance sheet and the “high levels of debt” of the corporate sector was one of the reasons the global economy was slow to recover after 2008.

“Clearly, the stability of the corporate sector is vital to the stability of the whole economy. The sector accounts for a large share of employment and output. As such, the monitoring and understanding of the financial conditions of corporations are vital in the early detection of weaknesses in the sector and in the prevention of these weaknesses to develop into a full-blown crisis,” said Diokno.

In reviewing the 2020 annual reports of listed companies, the BSP chief said the “exposure of corporates to the pandemic resulted in some sectors showing vulnerabilities in their operating performance, liquidity and leverage.”

The profitability of the industrial, holdings, services and financial sectors reported declines in revenues, he noted. The recession also affected many sectors such as accommodation and food service, transportation and storage, mining and quarrying, real estate, construction, manufacturing, education, and professional and business services.

“Lower corporate incomes could potentially expose firms to balance sheet weaknesses and vulnerabilities such as increased leverage and reduced ability to service debts. It is therefore imperative that regulators closely monitor the borrowing behavior of corporates and their capability to service their existing loans during the pandemic,” said Diokno.

The CFTS will conduct a more intensified surveillance to enhance its monitoring of corporate financial conditions in a more comprehensive and timely manner, Diokno reiterated.

He said results of the survey “will enhance the BSP’s assessment of various corporate exposures and vulnerabilities and their sensitivity to shocks such as supply-side disruptions, and changes in financial market conditions.”