MANILA, Philippines – The central bank is keeping a close eye on the Philippine economy to ensure that no systemic risks emerge during the pandemic, especially with the regulator having pumped in an unprecedented P1.3 trillion into the local markets in recent months.
In a statement, the Bangko Sentral ng Pilipinas said it recently convened its Financial Stability Policy Committee to assess any possible build-up of such threats in the financial market.
At the same time, central bank officials also used the periodic meeting of the committee — made up of Monetary Board members, and created by Governor Benjamin Diokno earlier this year — as an opportunity to identify further interventions in line with the transition to the new economy.
Diokno pointed out that the possibility that systemic risks might have materialized as a result of the global recession has been flagged by various authorities and multilateral agencies, just as it was highlighted by the global financial crisis in 2007.
“Systemic risks may seem like a high-level concept but it really just means that financial authorities are looking for any sign that the operations of the financial market may be impaired to the detriment of the general public,” he said.
He added that “pursuing financial stability requires us to manage systemic risks and we do this because our primary goal is to protect the welfare of the public.”
Most market players have acknowledged the BSP for its early interventions by providing funding liquidity to the market. The FSPC now wants to ensure that this liquidity is more actively mobilized since the circulation of liquidity in the financial market is critical for the recovery of the economy.
Among the steps that the committee is considering is a new instrument that will allow banks to mobilize the liquidity already with them by taking a view on future economic growth.
One initiative is the strengthening of risk valuation practices so that the pricing of bank credit is continuously aligned with spot yields in the securities market.
With the quality of outstanding credit expected to face difficulties due to the weakened corporate performance in the first half of the year, the ongoing dialogue with all market stakeholders is a high priority, the central bank said.
“Aversion to financial risks has increased globally and certainly in our market as well,” Diokno said. “But if we want to move forward, we need to proactively reduce risk aversion so there is a more fundamentally sound balance between risks and rewards.” [ac]