Bangko Sentral urged to widen regulatory scope

The International Monetary Fund has urged the Bangko Sentral ng Pilipinas to widen its regulatory scope and include parent conglomerates of banks to ensure the stability of the country’s banking sector.

The IMF believes that, by keeping an eye on the financial relations between banks and the conglomerates that own them, the central bank would be able to deter the institutions from engaging in imprudent practices that could trip the economy.

“Further steps to close supervisory gaps, including broadening the central bank’s authority to allow supervision of conglomerate parents of banks and strengthening legal protections for supervisors would help mitigate systemic risks from real estate, shadow banking and concentrated credit exposures,” the IMF said in a report detailing the results of its latest mission to the Philippines.

As interest rates continue to stand at historic low levels and the Philippine economy remains steeped in liquidity, demand for real properties has gone up over the last few years. The growth in real estate sales has been aided by cheap bank loans.

Although economists have said that the Philippines is in no danger from asset price bubbles at the moment, they still maintain that tighter monitoring of credit and real estate activities is needed to prevent a crisis from happening.

One proposed area of monitoring is the relationship between banks and real estate developers owned by similar conglomerates.

The IMF has cited the BSP for implementing prudent policies to maintain a sound banking system and properly manage liquidity within the economy. But the multilateral institution still thinks that BSP regulators should be granted legal protection, particularly protection against lawsuits, to allow them free rein in conducting their duties.

Proposals to enhance the BSP’s regulatory authority are embodied in a bill seeking to amend its charter. But the same bill has been languishing in Congress for years.

The IMF is backing the ratification of the charter, saying that a stronger BSP will allow it to sustain the country’s gains on the economic front.

Also, the IMF said it would support proposals to boost the BSP’s capitalization. The institution said that, by increasing its resources, the BSP would become more efficient in regulating banks and tempering inflation.

“[IMF] directors highlighted that arrangements to ensure adequate central bank capital will be essential to support operational independence of monetary policy,” the IMF said.