ADB okays $75-M loan for non-bank financial sector

The Asian Development Bank (ADB), one of the country’s biggest multilateral creditors, has approved a $75-million program loan to bankroll reforms in the non-bank financial sector, including the stock or equities market.

The $75-million Non-bank Financial Governance (NGF) program will help government in its efforts to raise the efficiency of financial markets and strengthen capital market regulatory institutions. The NGF, if properly implemented, will make financial and corporate structures less vulnerable to external shocks.

The loan will come from ADB’s ordinary capital resources under its LIBOR-based lending facility. It will have a 15-year term with a grace period of three years.

The Department of Finance is the lead agency for the program while the Securities and Exchange Commission (SEC) will be the implementing agency. The SEC will set up a coordinating committee headed by the chairman of the SEC, Bureau of Treasury, National Economic and Development Authority, DOF, PSE, SEC and the Capital Market Development Council. The committee will also include members from business and industry associations.

"To build a strong and robust financial sector, the government needs to launch broad-based financial and corporate reforms," said ADB senior financial economist Naomi Chakwin.

"These reforms will help strengthen the stock exchange and meet the challenges of technological innovation, globalization and integration of financial markets," Chakwin added.

The NGF will be done in two phases. Phase 1 (1998-2000) which is almost complete includes the ongoing restructuring of the SEC that should beef up its function as a capital market regulator.

Also, work started to enhance the governance and transparency of the Philippine Stock Exchange (PSE). The local bourse’s board of directors was already reconstituted to include a majority of independent members. Moreover, the exchange was demutualized while the self-regulatory organization for the PSE boosted its reporting procedures.

Phase II which starts next year until 2004, will include full implementation of PSE demutualization, strengthening market regulation, governance and compliance, and supporting greater diversification of corporate financing through the introduction of corporate bond trading facilities.

Aside from $75 million, ADB will also provide a $1-million grant to beef up regulatory and market governance. This grant will be funded from ADB’s Asian Currency Crisis Support Facility which is bankrolled by the Japanese government.

The Philippines, Chakwin said, survived the 1997 Asian financial crisis but its financial and corporate structure remains vulnerable to external shocks. The ADB noted that the low level of financial intermediation in the Philippine non-bank sector makes the business sector dependent on bank financing with limited options.

Moreover, the concentration of bank shareholding in a few shareholders, some with close links to business conglomerates, often results in weak corporate governance. While recent political events brought stability, the stock market continues to reflect weakness in economic fundamentals and a waning investor confidence. – With Ted Torres