Accounting as the Language of Business:Some Perspectives from the Bangko Sentral

Hon. Benjamin E. Diokno

Governor

Bangko Sentral ng Pilipinas

First National Summit of CPAs in Commerce and

Industry (NSCCI)

30 January 2020

Century Park Sheraton, Manila

1 Overview of Macro-Financial Developments

2 Banking System Status and Outlook

3 BSP Financial Sector Reform Agenda

4 Policy Direction

5 Concluding Thoughts

THIS PRESENTATION

2

1. Overview of Macro-Financial Developments

3

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

PHP THB MYR IDR SGD VND CNY

SD / Ave USD RateDaily Closing Rates from January 2018

Source of Data: Bloomberg

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Comparative Real Bond YieldAs of October 2019

Source: Bloomberg

Despite global uncertainties, the Philippines, backed by solid macroeconomic fundamentals and prudent policy reforms, remains among the fastest growing economies . . .

4

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan

Jun

No

v

Ap

r

Sep

Feb

Jul

Dec

May Oct

Mar

Au

g

Jan

Jun

No

v

Ap

r

Sep

Feb

Jul

Dec

May Oct

Mar

Au

g

Jan

Jun

No

v

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PH Monthly Inflation DataIn Percent

Source: PSA

In Percent

-

2.0

4.0

6.0

8.0

2016 2017 2018 2019Q1 2019Q2 2019Q3 2019Q4

Comparative Real GDP GrowthAs of End-Periods Indicated

Philippines Malaysia Indonesia Thailand

Singapore Taiwan China Vietnam

18.5 23.0 33.8 37.6 44.2 62.4 75.3 83.8 83.2 79.5 80.7 80.7 81.6 79.2 79.2 87.8

4.65.1

6.7 6.4

9.2

10.411.6 11.5 11.6

9.9 9.9

8.87.8

7.0 6.97.7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 end-Dec2018

end-Dec2019

Gross International Reserves (in Billion US$) and Months of Imports CoverAs of End-Periods Indicated

GIR

Import cover

Source: BSP

12.814.4

16.4 17.318.8

20.121.4

23.024.6 25.6

26.928.1 28.9

26.1 27.2

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Nov2018

Nov2019

Cash Remittances (in Billion US$)4.4% YOY growth for Jan-Aug 2019

Source: BSP

. . . with adequate buffer against and global volatilities.

5

2. Banking System Status and Outlook

6

7

Banking assets rising along with expanding economy

Strong funding base for credit expansion

Loans continued to drive expansion in banks’ asset base

Banking system sustains robust performance as key performance indicators show further strengthening of banks’ balance sheets . . .

95.7%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Bank Assets (LHS) Nominal GDP (LHS) Bank Assets to Nominal GDP (RHS)

In Billion Pesos (LHS) In Percent (RHS)

Bank Assets as a Share of GDPAs of End-Periods Indicated

Source of data: BSP p/ Preliminary data

* Refers to economic sectors under the 2009 PSIC.

Loan expansion remain broad-based

0

3,000

6,000

9,000

12,000

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Nov-19

Philippine Banking SystemGross TLP by Economic Activity*

As of End-Periods Indicated, In Billion Pesos

Manufacturing Wholesale and Retail Trade

Real Estate Activities For Household Consumption

Others (18 remaining sectors)

-

3.0

6.0

9.0

12.0

15.0

18.0

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Nov-18 Nov 19

Philippine Banking SystemAsset Trends

As of End-Periods Indicated, In Trillion Pesos

Cash and Due from Banks Loans Investments Other Assets

-

3.0

6.0

9.0

12.0

15.0

18.0

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Nov-18 Nov-19

Philippine Banking SystemFunding Sources

As of End-Periods Indicated, In Trillion Pesos

Deposits Borrowings Other Liabilities Capital

Risk-Based Capital: Well beyond domestic and global norms Liquidity: Ample level of liquidity with adequate HQLAs

8Source of data: BSP p/ Preliminary data

* These refer to economic sectors under the 2009 PSIC.

. . . while risk management remains relatively strong.

171.2

90

100

50

100

150

200

Sep

'17

De

c'1

7

Jan

'18

Feb

'18

Mar

'18

Ap

r'1

8

May

'18

Jun

'18

Sep

'18

Oct

'18

No

v'1

8

De

c'1

8

Jan

'19

Feb

'19

Mar

'19

Ap

r'1

9

May

'19

Jun

'19

Sep

'19

U/KBs LCR ComplianceAs of End-Periods IndicatedIn Percent

U/KBs Minimum Requirement

15.2

15.6

13.514.2

0

2

4

6

8

10

12

14

16

18

20

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Universal and Commercial BanksComposition of Capital (Solo Basis)

As of End-Periods Indicated, In Billion Pesos, Ratios in Percent

CET1 Capital (LHS)Other TQC (LHS)CAR (RHS)CET1 Ratio (RHS)

minimum CAR requirement

minimum CET1 Ratio requirement

Grow the business Expand client base, invest in technology, and develop new products

Optimize technologyDigitize operations and customer service, leverage on technology for strategic efficiency

9

Top 2 Strategic Priorities

1

2

For the next two years, the banking system aims to . . .

Develop new

capabilities

Expand market

reach

Leverage on

client

relationships

Plans to achieve growth

3. BSP Financial Sector Reform Agenda

10

The BSP’s Strategic Financial Sector Reform Agenda

Strengthening risk governance

Leveraging on technology in finance and the use of artificial intelligence

Achieving greater and broader access to financial services

Upholding the integrity of the financial system and safeguarding the interest of the public

Accelerating capital market reforms, including foreign exchange liberalization

11

Price

Stability Financial Stability

Safe and Reliable

Payments System

STRENGTHENS BSP’S PRICE AND FINANCIAL STABILITY FUNCTIONS

12

The BSP Charter Amendment

The BSP Financial Inclusion Agenda – Inclusive, Digital Financial Ecosystem

Efficient retail

payment system

Sustainable Finance

Democratize access to

transaction account

Expand financial

access points

Islamic Banking

13

14

The National Retail Payment System

15

Frontier credit markets

Sustainable finance

Islamic banking

16

Formal Savings*

Overall Access Situation

526 out of 1,634 cities and

municipalities have no banking

office as of end-June 2019

32.2%1,566 out of 1,634 cities and

municipalities have at least one

access point as of end-June 201995.8%

Account

Ownership*Payments*Loan Incidence* Access Points*

22.6% of total Filipino

adult population have

a formal account, a

modest improvement

from the 2015 estimate

of 22%

48.0% of total adult

population had savings

in 2017, a notable

increase from the 43%

recorded in 2015

22.3% of Filipino

adults reported having

an outstanding loans

in 2017, a substantial

decline from the 47.1%

in 2015

18.0% only of Filipino

adults with an account

use it for payments (or

4% of the total adult

population)

64.0% or two-thirds

of adults who did not

use their accounts for

payments still prefer

cash payment while

20% are not aware of

electronic payment

using their account

Bank Branches

(70%), ATMs (61%)

& pawnshops (52%)

remain the most

popular financial

access touch points in

terms of awareness,

accessibility, & usage

“Based on the 2017 BSP Financial Inclusion Survey

Fintech is a great enabler towards a more inclusive financial system

The BSP’s Fintech Roadmap

Collaborative Engagements

Commensurate Regulations

Capacity Building

17

Banking System

✓ FX Market

Governance

Framework

✓ Corporate

Governance

✓ Supervision of

conduct and culture

✓ Supervisory

Approach

Framework Review

(SAFR)

✓ Basel III Reforms –

standardized

approach to credit

and operational risks,

etc

✓ Revised Pillar 3

Disclosures

✓ Basel standards on

large exposure

4. Future Policy Direction

✓ Risk-Based Pricing

✓ Model Risk Mngt

✓ Reputational Risk

Mngt

✓ Intraday liquidity

reporting

Other Financial Sector Reforms

✓ Sustainable

Finance

Framework

✓ Bill on Financial

Consumer

Protection

✓ Comprehensive

Amendments

to Agri-Agra

Law (RA 10000)

✓ NRPS expansion

✓ Large value

transfers

✓ Regtech and

Suptech

✓ Enhanced

Collaboration

with other

Agencies (FSF,

Industry

Associations)

18

19

4

2

3

1

BSP stands ready to provide enabling regulatory environment.

Financial technology and digitization are shaping the future

landscape of Philippine banking system.

The Philippine banking system grows alongside the economy to

facilitate efficient financial intermediation.

Strong macroeconomic fundamentals support Philippine economic

growth.

5. Our Key Takeaways

Accounting as the Language of Business:Some Perspectives from the Bangko Sentral

Hon. Benjamin E. Diokno

Governor

Bangko Sentral ng Pilipinas

First National Summit of CPAs in Commerce and

Industry (NSCCI)

30 January 2020

Century Park Sheraton, Manila