Director Judith E. SungsaiSupervision and Examination Sector

Strengthening the Asian Financial Sector toward Sustainable 

and Inclusive Growth

Disclaimer: Opinions/views expressed are those of the presenter and do not necessarily reflect those of the Bangko Sentral ng Pilipinas

Financial Services Agency

ADBI-JFSA Joint ConferenceMarch 8, 2013

Presentation Outline

• Commentary on Post‐Crisis Regulation of Financial Institutions in Japan (Mr. Toshihide Endo)

• Financial Regulatory Developments  and Challenges: The Philippines Case

2

Commentary on Post‐Crisis Regulation of Financial Institutions in Japan 

• Role of the economic and fiscal sectors in financial stability

• Banking sector policy reforms• Risk management and capital• Market conduct

3

• Resolution through enforced cooperation, mergers, takeovers, and nationalization

• Mitigating moral hazard and promotion of good corporate governance

• Deposit Insurance Coverage: Sufficient to avoid bank runs but not as large as to erode discipline on risk‐taking

• Arrangements for coordination and information sharing• Cross‐border issues: Diversity in legal and resolution frameworks, reputational risks, transfer pricing, confidentiality and capital flows

Commentary on Post‐Crisis Regulation of Financial Institutions in Japan 

4

FINANCIAL REGULATORY DEVELOPMENTS AND CHALLENGESThe Philippines Case

5

The Philippine Experience Thus Far

‐

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

7,000 

8,000 

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

PHP Millions

Total Assets Deposit Total Capital

Black Monday

Asian Financial Crisis

GlobalFinancial Crisis

6

The Philippine Experience Thus Far

Post‐Asian Crisis86.6% Oil /Energy Crisis

73.0%

Subprime Crisis58.6%

0102030405060708090100

 ‐

 1,000.0

 2,000.0

 3,000.0

 4,000.0

 5,000.0

 6,000.0

In Percent (RHS)In PhP Billions (LHS)

Philippine Banking System: LTD RatioFor End‐Years Indicated

Loans, gross (exclusive of IBL and RRP with BSP and Other Banks, LHS)Deposit Liabilities (LHS)LTD Ratio (RHS)

Philippine Banking System: Capital Adequacy Ratio (CAR)

As of  End‐Years Indicated and as of end‐June 2012

 ‐

 500

 1,000

 1,500

 2,000

 2,500

050

100150200250300350

 2001Q

4

 2002Q

3

2003Q2

2004Q1

2004Q4

2005Q3

2006Q2

 2007Q

1

2007Q4

2008Q3

2009Q2

2010Q1

 2010Q

4

 2011Q

3

 2012Q

2

2001Q2 = 100

Qualifying Capital (LHS)Risk‐Weighted Assets (RHS)

Banking System: Loan QualityFor End-Periods Indicated

-50.0

100.0150.0200.0250.0300.0350.0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

End-Nov.1

2

Leve

ls in

PhP

Bill

ions

NPLs Loan Loss Reserves

7

Financial Sector Reforms

1990‐1995: Build Market Confidence

1996‐2000: Strengthen Capabilities

2001‐2005: Build Market Architecture

2006‐2010: Deepen Financial Infrastructure

2011‐Present: Create Enabling Environment

8

Financial Sector ReformsStructural Reforms

Year Reforms1992 Establishment of Philippine Stock Exchange

Setting up of Capital Market Development Council1993 The New Central Bank Act 1996 Set up of Securities Clearing Corp. of the Philippines

Establishment of Phil. Central Depository2002 Launch of Philpass 2004 Formation of Financial Sector Forum 2005 Launch of Fixed Income Exchange 

Set up of Capital Markets Institute of the Philippines 2008 Launch of Public Market Trading Platform 2011 Formation of Capital Market Integrity Corporation 2012 Creation of Financial Stability Coordination Council

9

Organizing Financial Stability in the Philippines

• The BSP deliberately takes a Financial Stability view

Financial Stability Coordinating Council

• And this is now extended to include the fiscal policy component of stability

Financial Sector Forum

• This complements our prudential policy mandate for the financial sector

10

Financial Sector ReformsPrudential Reforms

Year Reforms1995 Issuance of minimum standards for risk management of 

derivativesPassage of Investment House Law 

1996 Adoption of comprehensive full disclosure rules1997 Adoption of risk‐based examination approach 1998 Consolidated supervision2000 General Banking law of 2000

Securities Regulation Code2005 Adoption of IAS 2009 Manual of Regulations for Foreign Exchange 

Transactions 2012 Governance

11

Financial Sector ReformsPrudential Reforms

Circ 2802001 Circ 3602002 Circ 4002003

Circ 5382006 Circ 6392009 Circ 7312011

Basel 1

• Define qualifying capital

• Credit risk charge

Basel 1 Basel 1• Market risk                   charge

• Credit risk charge

• Market risk charge

U/KBs, TBs, RBs, Coop U/KBs Quasi‐Banks

Basel 2

• Pillar 1• Pillar 3

U/KBs  and QBs

Basel 2

• Pillar 2

U/KBs  (Conso)

Basel 2

• Pillar 2 for Foreign Bank Branches/Subs

Foreign Banks in PHL

12

Ba‐sel 3

2014

Retail

Trading

Corporate

Off‐B/S

• Corp Gov• Risk Mgt

Bank Level Governance

• Guidelines• New skills

Regulatory Oversight

Some Challenges of Implementation13

Banks

BASEL III

IFRS

Fin’l MktInfra

GovernanceFSB‐BIS‐OECD Reforms

• Shadow banking

• Cons  Protection and Fin’l Literacy

• Leverage

• Conglomerates

Dodd‐Frank

• Different versions for different jurisdictions

• Semblance of harmonization

Sweeping Changes in Simultaneous Fronts14

FINANCIAL STABILITY

OverarchingPolicy

KeyFoundations

Market Conduct

Risk and Capital

FurtherForward

Fin’l InclusionFin’l EducationConsumer Protection

Capital Market Development

Overarching Policy Framework15

Strengthening the Asian Financial Sector toward Sustainable 

and Inclusive Growth

Financial Services Agency

Director Judith E. SungsaiSupervision and Examination Sector

Disclaimer: Opinions/views expressed are those of the presenter and do not necessarily reflect those of the Bangko Sentral ng Pilipinas