The Bangko Sentral ng Pilipinas today reminded the minority block of the House of Representatives that bank supervision is a constitutional mandate of the BSP. “The General Banking Act, by placing the banks under the supervisory and regulatory powers of the BSP, is only being consistent with the constitutional provision,” the BSP pointed out.
This is a reaction of the BSP to the reports that a house minority block led by Rep. Sergio Apostol (Lakas, Leyte) and Feliciano Belmonte (Lakas, Quezon City) is planning to place the supervision of banks under the authority of a separate and independent commission. At present, the BSP supervises and regulates the operation of banks and other banking institutions.
The BSP cited section 20, article 12 of the 1987 Philippine constitution which provides that “the congress shall establish an independent central monetary authority…(which) shall provide policy direction in the areas of money, banking and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.”
While Congress can broaden or clip the powers of the monetary authorities over the banks, it cannot create a separate commission to supervise and regulate the banks without amending the constitution. “Congress cannot do this unless it organizes itself into a constituent assembly or a constitutional convention is called for the purpose. And such amendment will have to be ratified by the people through a national plebiscite” the BSP stressed.
The BSP also pointed out that since 1993, pursuant to the constitution and the New Central Bank Charter, it has enjoyed independence as well as fiscal and administrative autonomy in its exercise of monetary policy and banking supervision.
This has been key to the BSP’s creditable performance in helping keep prices, interest rates and exchange rates stable even through the 18 months of the Asian financial crisis. It has also provided independent advice to the national government on external debt and the fiscal program.
Most important, BSP’s stewardship of the banking system during its five and a half years since its creation has been positive. The banking system has not only expanded in terms of its resources and network of branches but it has also become stronger and resilient. The BSP has kept the banks’ capital adequacy ratio at about 17 percent in 1998, one of the highest in the region. Non-performing loans of the banks had peaked in October 1998 and were down to just about 11 percent in December 1998, compared to high 30’s and 40’s in the other crisis economies.
As a result, no major bank failure took place in the Philippines. Small thrift banks and rural banks were closed by the BSP for failure to observe prudential regulations. Only one small commercial bank was closed but its share of the total commercial bank resources was a mere 0.34 percent.
The BSP also stressed that unlike in other countries, bank bail-outs using public funds reached billions of US dollars including the recapitalization of both public and private banking institutions as well as the purchase by government of non-performing loans of banks.
In the Philippines, the BSP’s liquidity support to banks via emergency advances and overdrafts for the period 16 July 1997 to 16 February 1999 amounted to only p18 billion and this was all extended in accordance with the BSP’s mandate as a lender of last resort. The BSP clarified that these advances to the banks are backed by collaterals. The BSP further clarified that these advances are only temporary liquidity support. Of the amount granted since 16 July 1997, 16 percent has already been collected by the BSP.
As a result of all the calibrated moves of the BSP to keep the banking system sound and healthy, no less than the world bank president expressed optimism on the Philippine authorities’ management of the banking system. Mr. James Wolfensohn, president of the World Bank, said that “ the Philippine banking system is very well run and that the economy is fundamentally sound but not without risks.” He also lauded the BSP governor for having done a lot that the other Asian countries did not do.
The BSP further added that some other countries which have decided to remove banking supervision from the Central Bank’s jurisdiction are set to review their decisions. Based on the early experiences of some countries, they are finding it difficult to reconcile banking policy and monetary policy. These difficulties necessitated the creation of a coordinating body to deliberate on and reconcile policy and operational issues which cut across banking and monetary policy concerns. This experience, the BSP added, is a clear indication that indeed it is difficult to split the conduct of banking supervision and monetary policy.