IMF backs additional powers for BSP, PDIC

The International Monetary Fund (IMF) is urging the Philippine government to consider changing its strategy in dealing with distressed banks.

IMF mission review chief Markus Rodlauer, in Manila recently to assess the economic situation of the Philippines, said recent problems encountered by the country’s biggest banks such as the Philippine National Bank (PNB) and Equitable PCI Bank, demonstrated the need to review existing strategies of the Bangko Sentral ng Pilipinas (BSP) and state-insurer Philippine Deposit Insurance Corp. (PDIC) in dealing with failed banks or ailing banks.

"It is time to see whether enough has been done to strengthen the regulatory powers of supervising authorities, recent problems of banks and how they were dealt with show there is still some way to make the BSP and the PDIC into well-equipped authorities that can deal with problem banks that based on international experience, would tell us is more appropriate than current approaches," Rodlauer said.

Rodlauer said the BSP’s and PDIC’s power should be strengthened to allow them to "deal quickly and effectively" with troubled banks.

"There is an emerging consensus in the banking system as well as in the government and private sector that it will be beneficial to enhance the powers of the BSP and PDIC," Rodlauer said.

He added that aside from expanding their authorities, there should be parallel moves to strengthen the protection of individual supervisors who put at stake their reputation, as well as professional and personal lives when they supervise these banks.

"International experience tells us they should be protected from legal action against acts which they have done in good faith," Rodlauer said.

The IMF official said beefing up the regulatory and supervisory powers of BSP and PDIC "becomes increasingly urgent as the country becomes more globally integrated and the local banking system is competing everyday for international capital and goodwill."

Rodlauer said despite recent difficulties of such banks as PNB and Equitable PCI Bank, the problems of the local banking sector are still far from the crisis proportions experienced by its neighbors such as Thailand and Indonesia where several of its banks went belly up at the height of Asian financial turmoil in 1997.

"The problems of the Philippine banking sector are far from the proportions of its neighbors that warranted a centralized government intervention with large amounts of money injected into banks," Rodlauer said, adding "it would be better for the Philippines to continue with its current approach but with more powers given to BSP and PDIC.

Earlier, the Washington-based executive board of the IMF noted "the importance of giving bank supervisors the necessary tools, authority and protection to perform their duties, including the ability to look into bank deposits, and put in place instruments to resolve failed banks."

The IMF pointed out "there is a need either in the context of a revised BSP or in the context of separate legislation, to look at international experiences, particularly in the region, as to how powers of the BSP can be strengthened."

Currently, the IMF said the BSP and PDIC are " nearly forced to providing assistance by the fact that a bank is really important," and assistance becomes necessary to save the entire banking system from irreversible collapse.

PNB for instance, met severe liquidity problems last year, prompting the BSP and PDIC to extend emergency loan assistance of P25 billion. On the other hand, Equitable PCI Bank also suffered heavy withdrawals when it was drawn into the impeachment trial against former president Joseph Estrada. Again, it had to ask BSP for financial assistance. Last year, Urban Bank declared a bank holiday after it too, was hit by heavy withdrawals.

The country’s creditors, including the World Bank are demanding for more reforms in the banking sector that would strengthen local banks.