Bank restrictions stoke infra funding fears

MANILA, Philippines–Policymakers have to ensure that recent banking reforms that aim to minimize unnecessary risks don’t constrict lending funds for key infrastructure projects to cement the region’s growth prospects.

International regulators have initiated a string of reforms in recent years to address weaknesses in the financial sector that were exposed during the 2008 crisis. These reforms include stiffer capital requirements for banks, and curbs on institutions that are too big to fail—all aimed at reducing lenders’ excessive risk-taking.

“There was a concern that some of these reforms may constrict lending to infrastructure,” Bangko Sentral ng Pilipinas (BSP) Assistant Governor Johnny Noe Ravalo said in an interview.

“Since infrastructure is a 20 to 25-year exposure, if you constrict now, then it has the longest impact,” he said.

He made the statement shortly after the 8th meeting of the Regional Consultative Group for Asia (RCGA) of the  Financial Stability Board (FSB). FSB is a multilateral regulatory body made up of rich countries. The RCGA meeting was hosted by the BSP.

In a report, the Asian Development Bank said that the Asia-Pacific region would spend a total of $8 trillion on infrastructure between 2010 and 2020.

By 2025, annual spending on new roads, bridges, and school buildings would reach a combined $5.65 trillion, according to a report from PricewaterhouseCoopers.

The Philippine government has committed to hike its own infrastructure spending program to the equivalent of 5 percent of gross domestic product by 2016, up from under 2 percent in 2010.

Ravalo said policymakers were crafting measures that would ensure the steady flow of cash into the infrastructure sector without jeopardizing the stability of the financial system.

Also, banking regulators should look into ways to stabilize banks’ funding base.

“How will you create a 20-year loan if majority of funding is savings deposit. You have that maturity mismatch,” Ravalo said.