RP eyes $125-M loan for development of local capital mart

The government will begin negotiations with the Asian Development Bank (ADB) for a $125-million loan that would bankroll the policy adjustments in the capital market, particularly the demutualization of the Philippine Stock Exchange.

Sources told reporters over the weekend that the ADB has concluded the appraisal meetings with the Philippine government, paving the way for the start of formal negotiations for the terms of the loan.

The loan would be negotiated under the Second Non-bank Financial Governance Program Loan following the completion of the first loan where the ADB granted a total of $150 million.

The appraisal meetings for the loan were handled by Ayumi Konishi, director of the ADB’s Southeast Department whose Governance, Finance and Trade Division made the preparations for the start of the formal negotiations.

The program is intended to strengthen the governance and enforcement capacity of the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) as more transparency is introduced in the market along with enforcement of rules and regulations.

Phase 1 of the program involves the enhancement of SEC, modernization of the Philippine Stock Exchange (PSE) and strengthening market oversight, compliance and enforcement by developing market governance, strengthening prudential regulation of NBFIs, preventing misconduct and market abuse; and improving financial management.

Phase II consists of policy actions which, when agreed between the Government and ADB, may form the basis of future ADB assistance to the Philippines in the nonbank financial sector.

According to the ADB, the agenda for Phase II includes, discussions on the demutualization of PSE; strengthening market regulation; strengthening market governance and compliance; and facilitating diversification and innovation in corporate financing.

According to the ADB, the Asian crisis has highlighted the risk associated with narrow and vulnerable financial structures in the financial system stemming from excessive reliance on bank financing, poor corporate and financial regulations and weak governance including poor compliance with accounting and auditing standards and inadequate disclosures.

The ADB said the Philippines withstood the crisis well but its financial and corporate structures, do not conform to high governance standards and lack risk diversification.

"Given the weak policy and regulatory environment, the Philippines exhibits high bank dependence and has not been able to develop well its nonbank finance (NBF) sector," the ADB said. "To lay the foundation for a strong and robust NBF sector, the government needs to launch more broad-based financial and corporate governance reforms."

The ADB said these reforms include the strengthening of governance and enforcement; introduction of more competition and a level playing field amongst market financial intermediaries and improvements in financial management, reporting and disclosure.

The program loan, according to the ADB, would support the process of capital formation through improved corporate governance in the nonbank financial sector.