BSP profits up 38% end-Oct 2022

Published January 25, 2023, 2:54 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) earned P87.92 billion in the first 10 months of 2022, up 37.68 percent from same period in 2021 of P63.86 billion on the back of higher foreign exchange (FX) net gains due to US dollar selling to prop up the peso.

In October last year, the peso was lounging at its weakest level at P59 vis-à-vis the US dollar after first hitting this record low on Sept. 29. Based on the BSP’s daily exchange rate data, the peso was persistently on the high side of P58 in September until mid-November before appreciating back to the P55-56 level in November and December last year.

BSP building and logo/Reuters

BSP’s FX gains are realized gains from fluctuations in FX rates arising from foreign currency-denominated transactions of the BSP, including the release of US dollars in the spot market to smoothen exchange rate pressures.

According to the central bank’s latest unaudited statement of income and expense, as of end-October the BSP posted revenues of P116.12 billion, down by 18.3 percent from same period in 2021 of P142.05 billion.

Interest income which are trading gains, fees, penalties and other operating income, increased by 31.58 percent to 125.57 billion from P95.43 billion. Miscellaneous revenues contracted to P9.44 billion compared to an income of P46.63 billion in 2021.

The BSP spent P105.17 billion during the period. The BSP pay high costs for its banknotes production and coin minting cost, as well as taxes and licenses fees. Expenses were higher by 18.8 percent from same period in 2021 of P88.55 billion.

With its open market operations to siphon off the inflationary excess liquidity, the BSP incurred more interest expenses of P63.31 billion or up by 25.76 percent from same time in 2021 of P50.34 billion. Other BSP expenses amounted to P41.87 billion, up by 9.58 percent from P38.21 billion.

As of end-October, BSP’s total assets declined to P7.314 trillion, down by 8.7 percent from same time in 2021 of P8.013 trillion. Bulk of these assets are BSP’s international reserves which have been depleted due to BSP’s defense of the peso against the strong US dollar. The country’s reserves as of end-2022 stood at $96 billion versus end-2021 of $108 billion.

As for BSP liabilities, this also dropped to P7.228 trillion, 8.2 percent lower from P7.877 trillion in 2021. Liabilities are deposits such as the term deposit facility and the overnight deposit facility, and currency issues.

Based on the latest report, the BSP’s net worth amounted to P85.35 billion compared to P135.58 billion in 2021, or down by 37 percent due to reduced surplus and capital reserves.

The BSP’s surplus or reserves fell to P35.35 billion during the period, down by 58.7 percent from P85.58 billion. The central bank surplus is mainly composed of BSP’s unrestricted retained earnings as well as capital reserves or the funds set aside for various contingencies. It also includes unrealized gains or losses on its investments in government securities, stocks and other securities, said the BSP.

The BSP’s capital is still only P50 billion. Its amended law or Republic Act 11211 (“An Act Amending Republic Act No. 7653, Otherwise Known as the ‘New Central Bank Act’, and for Other Purposes”) which was implemented in 2019 increased the BSP’s capitalization to P200 billion from P50 billion. This will be funded solely from the declared dividends of the central bank.

However, in March 2020 and in August 2021, the BSP remitted a combined P36 billion to the government as dividends despite that under its charter, it is no longer mandated to remit dividends to the government. The P36 billion were additional funding for the government’s Covid-19 response programs.

Section 2 of the amended BSP charter specified that declared dividends will be deposited in a special account in the BSP’s general fund and will be “earmarked for the payment of the BSP’s increase in capitalization (and) such payment will be released and disbursed immediately and will continue until the increase in capitalization has been fully paid.”

To increase its P50 billion capitalization to P200 billion, the BSP has to raise the additional P150 billion on its own. But this will only come from its declared dividends.

The BSP fought to have a higher capitalization since its original P50 billion capital was based on the size of the economy in 1993, when the New Central Bank was enacted. One of the reasons for raising the capitalization to P200 billion was to address the lack of burden sharing between the BSP the National Government (NG) when it comes to losses.

Before 2019, the BSP’s charter provides for mandatory remittance of 75 percent of its net income to the NG. When BSP makes a profit, it shares that profit with the NG but when it posts losses, the BSP is left on its own to deal with it.