IMF cites need for key financial reforms in RP

MANILA, Philippines - Multilateral lender International Monetary Fund (IMF) stressed the need for a legislation of key reforms in the financial and capital markets in the Philippines to sustain the resiliency of the country’s financial system.

In its latest Financial System Stability Assessment Update, the IMF said that there is a need to pass proposed amendments to the New Central Banking Act as one of the key priorities in the banking supervision.

The IMF pointed out that further reforms may be needed to provide greater discretion to the BSP to require additional capital and impose other limits on banks and at the same time broaden the definition of connected counterparties.

The proposed changes would also expand and harmonize the definitions of single borrower limits and large exposures.

The update, prepared by IMF’s Pamela Madrid, pointed out that capital market supervision should focus on enhancing on-site examinations, enforcement, and the use of self-regulatory organizations by providing adequate resources to the Securities and Exchange Commission (SEC).

Likewise, the IMF said there is also a need to pass amendments to the Insurance Code to strengthen insurance supervision and at the same time provide the Insurance Commission with a broader set of discretionary intervention tools.

It added that it is imperative to roll back bank secrecy provisions that hamper the state-run Philippine Deposit Insurance Corp (PDIC) and supervisors’ access to individual deposit and investment information.

According to the lender, it is also important to provide these officials with adequate legal protection in line with Basel Core Principles.

“Further strengthening of supervisory powers and practices is needed to bring supervision and bank safety nets up to best international standards and practices. In particular, it is critical to ensure adequate legal protection for supervisors and eliminate bank secrecy with respect to supervisory duties,” the update stated.

The IMF said the enhanced Prompt Corrective Action framework of 2006 was a big step in reforming the industry and the proposed amendments to the central bank law would strengthen further resolution powers. 

“But the balance between shareholder rights and efficient resolution should shift more in favor of the latter, notably by empowering the authorities to take full control of a bank once capital adequacy falls below a critical threshold,” it added. 

The body also called for the creation of the Financial Sector Forum composed of the BSP, PDIC, SEC, an Insurance Commission to improve supervisory coordination.

Based on the latest assessment, the IMF said the banking sector — the core of the Philippine financial system — appears resilient as banks continued to dominate about two-thirds of the total system assets.

The IMF pointed out that bank restructuring and consolidation, and the shedding of nonperforming assets since the Asian crisis of the late 1990s have all helped improve bank soundness.