PH eyes $200-M World Bank loan for financial sector reform plans

Another $200-million loan will be extended by the World Bank to the Philippines next year to promote financial inclusion while the economy recovers from the COVID-19 pandemic-induced recession.

Documents showed that the Washington-based multilateral lender’s board was scheduled to tackle the Department of Finance’s (DOF) Philippines First Financial Sector Reform Development Policy Financing in July 2021.The loan will “support financial sector reforms that will support the government of the Philippines in achieving a resilient, inclusive and sustainable financial sector,” the World Bank said.

The financing will also allow “green” recovery from COVID-19, it added.

Specifically, the World Bank loan will help Philippine authorities narrow the domestic financial sector’s legal, regulatory and supervisory gaps while ramping up long-term finance availability.It will also fast-track reforms geared toward improving micro, small and medium enterprises’ (MSMEs) access to financing; promoting innovative financial services, and building trust in the financial sector among consumers, the World Bank said.

To mitigate risks given the Philippines’ susceptibility to natural calamities, the World Bank financing will also enhance public-private partnership (PPP)-based disaster risk financing instruments while “greening” the financial sector.

“While poverty levels in the Philippines have declined over the years, they remain high and the government’s socioeconomic policy agenda—which focuses on infrastructure, education, and health—seeks to address these challenges. The proposed [loan] will enable the financial sector to play an effective role in reducing inequalities, supporting green and inclusive economic recovery from the pandemic. This will be achieved through strengthening the resilience of the financial sector to withstand the effects of COVID-19, expanding financial inclusion for individuals and MSMEs, increasing access to catastrophe risk insurance and greening the financial sector,” the World Bank said.

Even as the Philippines’ financial system was dwarfed by its Asian peers, the World Bank said it had “broadly withstood the impact of COVID-19.”

“In terms of financial depth, access and efficiency, the Philippines’s financial development is above average among emerging markets but on the lower side among emerging Asian economies. The bank capital adequacy ratio has been stable at about 15 percent, during the past decade, though lower than other Asian emerging markets. The banking sector nonperforming loans ratio at 2.8 percent at end-August 2020, though higher compared to 2 percent prior to the onset of COVID-19, are much below the level following the Asian Financial Crisis of 1997-1998. The key risks to financial stability arise from significant interlinkages between banks and nonfinancial corporations through mixed conglomerate ownership structures and large lending exposures,” according to the World Bank.