BSP seeks P150-B add’l capital

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is seeking an additional capital of P150-billion to make it more effective in performing its mandate of keeping domestic prices stable and supportive of economic growth.

“We have been saying that the economy has grown many times over since 1993 and the financial system has also since grown but the capitalization has only been completed this year,” BSP Deputy Governor Diwa C. Guinigundo said.

Republic Act 7653 or The New Central Bank Act of 1993 mandated a recapitalization of P50 billion for the BSP but the government only completed the infusion this year.

The central bank received the additional capital in four tranches: P10 billion in 1996, another P10 billion in 2011, P20 billion in 2012, and the remaining P10 billion last week.

The additional capital helps the central bank perform its mandate of ensuring price and financial stability that is conducive to a sustainable economic growth.

Guinigundo explained that the additional P150 billion capital is being asked under the proposed charter amendments to RA 7653 and such may be transferred by the government through various methods.

“The first approach is to do it through government securities ... that can provide us with additional collateral for open market operations,” Guinigundo said.

The second approach is by sourcing funds from the national budget, while another is a mixture of the first two, he said.

Guinigundo noted that if the government decides to infuse the P150 billion through the issuance of government securities, such a scenario may benefit both parties.

“If we have enough securities to collateralize our borrowings from the market then we would be able to deliver our mandate to keep prices stable. If prices are kept stable interest rates will continue to be low and stable,” Guinigundo said.

“If interest rates are low and stable the cost of government borrowings will also come down,” he continued.

Moreover, Guinigundo said the central bank may assess if the Special Deposit Account facility — a tool used to mop up excess liquidity in the system — is still needed once the national government gives the BSP government securities.

“It’s possible that SDA may be reviewed and finally give way to open market operations... Remember that we had to resort to SDA because we don’t have enough government securities to support open market operations,” he explained.

At present, there is still no formulation on how the additional capital will be infused to the BSP and if the lawmakers will approve the amount being sought for by the central bank.

“There is a cost to promoting stability in the economy. We have to absorb those capital flows and ensure that levels of domestic liquidity are consistent with price stability and sustain economic growth,” Guinigundo said.

The BSP narrowed its net loss to P21.55 billion as of October 2013 from P78.43 billion in the same period in 2012, latest data showed.

The improvement in its bottomline is due to less interest payments made on the central bank’s SDA following a 150-basis-point cut on the facility’s interest rates in early 2013.