Together with my fellow members of the Monetary Board—Secretary Sonny Dominguez, MBM Philip Medalla, MBM Jun de Zuñiga, MBM Peter Favila, MBM Tony Abacan, and MBM Bruce Tolentino….I wish everyone a very happy new year!
Welcome to the first working day of 2019.
This year, we also mark the 70th anniversary of central banking in the Philippines. The theme for the celebration of this milestone is, “Building on Strong Foundation: Continuity and Progressive Change.”
Continuity and change. There is a story that circulated some years ago on the internet about eagles enjoying a life span of up to 70 years.
According to the trending story, to reach 70 years old, eagles must make a hard decision when they turn 40. It is then that their talons and beak weaken, and feathers become thick. They can no longer catch prey and find it difficult to fly. As the story goes — all eagles at 40, must choose between death or adapting to survive.
If an eagle chooses transformation, it flies to a mountain top, knocks its beak against a rock, and plucks it out. When its beak grows back, it plucks out its talons and feathers. After 5 months of painful change, the eagle takes a flight of rebirth and lives for 30 more years - or a total of 70 years.
Continuity and change. It’s the word AND that links them. Not “OR”.... the story made me think of our theme.
Have you heard this story? Well, it turns out, the story is false. It has been debunked by scientists. It’s fake news. Inspiring, but untrue.
On this day, seventy years ago on January 3 in 1949, the General Banking Act took effect. On that day...at the Intendencia... the Central Bank of the Philippines (CBP) opened for business.
The CBP operated for forty-four years. Then it was replaced by a separate and distinct legal entity: The Bangko Sentral ng Pilipinas (BSP). The reason for the replacement was the need for a more independent and fiscally autonomous central monetary authority that remains accountable to the people.
The old CBP was struggling to fulfill its mandate. Also, all over the world, central banks were starting to focus on the maintenance of price stability, its core competency. So on 3 July 1993, a new, strengthened, more formidable BSP eagle rose, much like the proverbial phoenix rising from the ashes.
So sometimes, it’s not “AND” that links the two words but OR... continuity OR change.... and that was the case 25 years ago.
Central Banking in the Philippines has certainly come a long way. When the CBP started operations, it only had seven offices and 100 employees!
Compare that to the BSP today, a world-class institution with a nation-wide reach of more than 5,000 competent and dedicated public servants.
While the story about eagles pulling out talons and feathers to survive is not accurate, as we welcome 2019, allow me to share some lessons from the eagle. (After all, the symbol of the BSP as it appears on our logo and corporate seal, is the Philippine eagle).
We chose the eagle because it is a symbol of strength, clear vision and freedom. These are the qualities we aspire for as a central bank. Hindi ito fake news.
For the last 25 years, it is our eagle-like strength, clear vision and freedom that have allowed the BSP to be proactive in the areas of money, banking and credit.
What lessons can we learn from eagles?
First, eagles have extraordinary vision and concentration. They can focus on prey as far as 5 kilometers away. Despite obstacles, it will attempt to grab it.
With eyes like an eagle, in 2018 we launched our strategic roadmap for 2018-2023 tagged “Continuity Plus Plus”.
The BSP has firmly demonstrated its focus and unflagging pledge to maintain price stability and a sound financial system that includes an efficient payments system, front and center in its policy initiatives.
We focus on our mandates in spite of obstacles. In 2018, inflation was elevated due mainly to supply-side factors. The Monetary Board acted proactively to address potential second-round effects and brewing demand-side pressures. From May to November, key policy rates were raised five times for a total of 175 basis points to ensure that inflation will go back to within target range this year and in 2020.
2018 was an equally remarkable year in pursuit of bold financial sector reforms that complement our price stability mandate. We have reduced reserve requirements ratio (RRR) by a total of 200 basis points, in line with our phased and gradual approach of reducing RRR to single-digit level over the medium term as part of structural reforms. We continued to liberalize foreign exchange (FX) rules and pursued improvements in the governance framework of the FX trading market to ensure a more organized FX market supportive of a flexible and market-determined exchange rate. Towards this end, a Memorandum of Agreement (MoA) establishing a local Renminbi trading market was signed in 2018 in line with our growing economic requirements. This MoA allows FX market participants to be involved in the rule-making process to enhance governance and transparency in the FX market. The much older US Dollar trading market will be similarly organized very soon.
2018 was also a good year for the banking system. Data as of end-September indicate that overall bank capitalization was beefed up by earnings from core lending revenues.
At present, with foresight and keen vision, we continue to improve Philippine banking system by (1) strengthening risk governance; (2) accelerating capital development; (3) achieving greater and broader access to financial services; (4) upholding the financial integrity and safeguarding the public interest; and (5) leveraging on fintech and keeping an open approach to the use of artificial intelligence and other innovations.
Last year, the Philippines joined an elite group of less than 50 jurisdictions which report cross-border banking statistics to the Bank for International Settlements (BIS). This means our border banking data has met rigorous international standards for completeness and quality. This provides us with more granular cross-border banking data, critical in formulating well-informed policies.
In 2018, we pursued the modernization of our payments system. We were also given a Recognition of Excellence at the 2nd Annual Philippines OpenGov Leadership Forum for our promotion of technology to deliver citizen-centric services, particularly referring to the establishment of PESONet and InstaPay, under the National Retail Payment System (NRPS) initiative.
Key legislative measures were also passed which support our digitalization and financial inclusion efforts. The Philippine ID System (Philsys) Act or Republic Act (R.A.) 11055 was signed into law by the President last August. This establishes a biometric-based, foundational, national identification system that will provide every Filipino and foreign residents with a trusted and verifiable digital identity. The National Payment System Act or R.A. 11127 was signed on 30 October 2018 to promote a safe, efficient and reliable operation of payment systems, control systemic risks, and ensure an environment conducive to sustainable growth. This law is critical to the country's payment systems development agenda. And we eagerly look forward to the imminent enactment into law of the BSP Charter Amendments. Finally.
We remain a global leader in financial inclusion. According to “Microscope”, a cross-country study assessing the enabling environment for financial inclusion in 55 jurisdictions, in 2018, the Philippines is fourth in the world, and first in Asia, together with India, in having an environment conducive to financial inclusion.
We keep our sharp focus on our mandates. Our reform agenda – reducing reserve requirements, refining the operational features of the Interest Rate Corridor (IRC), deepening debt and FX markets, digitalization of payment system, as well as macro and micro-prudential measures – are all strategically pursued to fulfill our mandates.
A Second lesson from the eagle is that it is a master of change management. The mother eagle prepares the nest for its eggs. When it is time for the eaglet to fly, the mother removes the comfort layers from the nest, exposing pricks and sticks and throws the eaglets repeatedly out of the nest until they learn to fly.
Last year, we started to implement a phased reorganization to have reinforced units that promote effective risk management and compliance, as well as strong internal controls. We also implemented the Talent Optimization Program to future-ready the BSP, develop resilient leaders who can adapt, and be stronger in confronting challenges.
Embracing change and technology within our own boundaries, BSP witnessed the launch and implementation of the Internal Digitalization projects (e.g. medical claims, local travel, payment options of BSP concessionaires such as PayMaya and GCash). For this year, our ITSS looks at the implementation of other Digitalization projects such as our corporate disbursements, ePay Parking, and Open Wifi for BSP. Additionally, we look forward to the initial take-off of our Blockchain pilot initiative.
We are serious about encouraging the use of technology.
In reorganizing, adapting new ways of doing things, we continually challenge ourselves out of our comfort zones so we can soar.
Finally, (and this is my favorite lesson from eagles)— eagles thrive and even take advantage of storms. They welcome challenges and use the wind to lift and glide above the clouds, resting on its wings.
As we welcome 2019, we remain vigilant and mindful of macroeconomic and global challenges and risks of crisis borne out of frothy asset markets, slowing growth, and trade frictions.
Against this still unfolding economic and global backdrop, the BSP is proactive: taking steps to ensure the overall health of the transmission channels of monetary policy, of the country’s foreign exchange reserves, and of the banking system, as well as leading the charge to safeguarding macroeconomic, systemic and financial stability.
And for this, I want to commend each and every one of you my fellow BSPers. Through many trials, external disruptions, and challenges to our mandate, the BSP has been a fulcrum of economic stability. The BSP has soared and will continue to soar on its wings like eagles.
As eagles, clear-sighted and strong, we embrace both continuity and change. We embrace 2019 and the future for all the exciting possibilities it brings.
Mabuhay ang BSP! Maligayang bagong taon sa inyong lahat.