The Bangko Sentral ng Pilipinas successfully accomplished its Constitutional mandate to stabilize prices in 2007 with inflation averaging 2.8%, the lowest in 21 years, even in the midst of record high oil prices and rising commodity prices including wheat and dairy products.
Financial performance based on unaudited financial statements indicate BSP’s revenues posted improvement – from P74.7billion in 2006 to P93.8 billion – and raised net operating profit from P22.7 billion to P26.8 billion in 2007.
However, BSP ended the year with a net loss of P86.9 billion principally from foreign exchange losses, as strong dollar inflows led it to purchase large quantities of dollars to moderate sharp and economically detrimental swings in the exchange rate.
2007 was unusual in terms of very strong foreign exchange inflows driven in large part by the solid performance of the Philippine economy, steady exports, and record high remittances from overseas Filipinos which boosted confidence and market sentiment. This resulted in a record high balance of payments surplus of $8.6 billion, more than twice the $3.8 billion total in 2006. Gross international reserves also improved from the December 2006 total of $23 billion to a new high of $35 billion, a 47% increase.
Since this surge in forex inflows coincided with the weakening of the dollar on one hand and the appreciation of the peso on the other, on the back of our better economic fundamentals, it had an adverse impact on the BSP’s bottom line.
BSP manages its international reserves in a prudent manner, following international best practices. Nevertheless, while it has expanded its international reserves to include other foreign currencies such as the Euro and the Japanese yen, most of its reserves are in US dollars which remain the dominant foreign currency for the Philippine economy. The BSP is required by its charter to ensure it can serve the forex requirements of both the government and the private sectors.
Without the forex losses, the BSP would have generated a profit. This is the first time since its creation in 1993 that the BSP incurred a loss. As a consequence of a track record of profitable operations, over a 14-year period, BSP has remitted P107 billion in taxes, interest rebates, and dividends to the National Government.
Nevertheless, even with its loss in 2007, the BSP’s capital position remains strong as it has built-up capital reserves from operating income as well as forex profits made when the peso was depreciating against the US dollar. Its capital account as of December 2007 stands at P174.4 billion.
Total assets of the BSP posted improvements in 2007, moving up by 29.5% from P1.6 trillion in December 2006 to P2 trillion.
Republic Act No. 7653 or the New Central Bank Act created the BSP with an authorized capital of P50 billion but only P10 billion has been paid-up since then.
The National Government is working out a payment plan for the balance of the BSP’s P40 billion capitalization to strengthen its capability to pursue its mandate of promoting price stability and a sound banking system conducive to a balanced and sustainable growth of the economy.
Meanwhile, the banking system in general was better and stronger in 2007 in terms of its balance sheet, with capital adequacy well above minimum requirement, non-performing loans down to a low single-digit level, deposit base on an uptrend, and lending to major sectors of the economy improving steadily. The BSP continues to closely watch developments in bank lending to ensure that the financing requirements of the economy are met at the same time that a low inflation environment is maintained.