Speeches 1 X

A Culture of Inquiry and Evidence
Presented Date: Jul 5, 2016

Venue: Meeting Room, Executive Business Center, 5-Storey Building, BSP Manila
Occasion: Workshop entitled "Evidence in Financial Inclusion: New Findings and t
heir Applications"
Speaker: Governor Amando M. Tetangco, Jr.
We thank all you for accepting our invitation to this important workshop on Evide
nce in Financial Inclusion.
Important because poverty alleviation is central to our countrys financial inclus
ion program and we are co-hosting this with the Innovations for Poverty Action o
r IPA, the US-based non-profit organization dedicated to promoting solutions to
global poverty problems.
With their involvement in the Philippines and 50 other countries where it has ov
er six hundred studies, IPA is, indeed, an ideal partner for countries such as o
urs, that are committed to financial inclusion to address poverty and promote in
clusive growth. In particular, I understand that IPA has completed 30 research
studies in the Philippines and more are in progress.
For todays workshop, we have with us, no less than IPA Founder and President Prof
essor Dean Karlan, and IPA Country Director Nassreena Sampaco-Baddiri.
We look forward therefore to a full day of engaged and fruitful discussions betw
een our workshop participants and the IPA which will share their learnings from
the Philippines and other parts of the world.
Our objective is to develop among policy makers and financial inclusion practiti
oners, an evidence-based mindset in pursuing financial inclusion.
This is necessary if we are to move our financial inclusion programs in accordan
ce with our targets and timetables in the most effective and efficient manner.
Poverty alleviation is a national priority in the Philippines. While the inciden
ce of poverty in our country has been on the decline, the Philippine Statistics
Authority estimates that poverty incidence among Filipinos in the first semester
of 2015 was at 26.3%. That means more than 26 million Filipinos still live in p
overty.
In this connection, the Bangko Sentral continues to address persistent barriers
to financial inclusion. These come in the form of human barriers such as lack o
f financial literacy, age and gender issues. On the other hand, institutional ba
rriers include limited understanding of client needs; prohibitive costs to deliv
er products; cultural and geographical barriers; and barriers related to infrast
ructure such as lack of connectivity or access to providers and markets.
These barriers are multi-dimensional and must be addressed in concert with diffe
rent sectors. It is for this reason that the BSP took steps last year to bring t
ogether 12 other government agencies along with representatives from the private
sector, multilateral institutions and the NGO community to prepare a harmonized
plan under the National Strategy for Financial Inclusion or NSFI.
An Executive Order signed by then President Benigno Aquino III established the F
inancial Inclusion Steering Committee under which the Bangko Sentral has been ap
pointed as chair. The Executive Order also lodged the Technical Secretariat wit
h the Bangko Sentral.
The Reinforcing Roles of Narratives and Data
Narrative, one of the most time-honored ways of communication and knowledge tran
sfer, has played an important role in the process of building and implementing t
he NSFI. The BSP shared lessons learned in the development of our microfinance s
ector and our initiatives in financial inclusion.
The process of reaching out to other stakeholders and players has been anchored
in narratives as well. Through the sharing of stories of the unserved and unders
erved, we learned about needs that should be addressed urgently as well as the a
ppropriate manner in which to address them.
The narratives have brought us this far a responsive policy and regulatory envir
onment as well as a clear strategy with implementing plans.
At the BSP we have steadily reinforced these narratives with data and evidence.
We accumulate data through demand-side surveys, information sharing agreement w
ith other government institutions, and reportorial requirements from our supervi
sed institutions.
Insights derived from these information help us shape more responsive and more e
ffective policies. For instance, the Bangko Sentral fostered the creation of sc
aled-down or micro-banking offices to provide unserved municipalities access to
banking services. We recognized that smaller markets do not justify the cost of
setting up regular bank offices. Today, we have 540 micro-banking offices, over
12% of which are in areas with no other bank presence.
Indeed, we consult our stakeholders to improve our regulations. Our microfinanc
e regulations are a case in point. Recognizing the peculiarities of microfinance
, we provided incentives such as branching liberalization and documentary exempt
ions while instilling clear prudential and conduct standards to mitigate risks a
nd maintain alignment with international standards. Today, we have a robust and
active microfinance industry in the Philippines.
Initiatives and Gaps
Traversing the road toward a culture of inquiry and evidence is challenging but
worth the effort. In the past, we did not have a repository of financial inclus
ion information and data. There was a dearth in demand-side data.
Keeping in mind the principles of inquiry and evidence, the BSP introduced measu
res to bolster its data and measurement frameworks. These include:
The creation of a Data and Measurement Group within the BSPs Inclusive Financ
e Steering Committee (IFSC) to ensure a coordinated focus in pursuing programs s
upportive of financial inclusion. Among others, it oversees the institutionaliz
ation of information sharing within the BSP and other agencies
The creation of a supply-side financial inclusion database and library to be
maintained and updated by a dedicated team of data analysts from the BSPs Inclus
ive Finance Advocacy Office.
The roll out of the National Baseline Survey on Financial Inclusion (NBSFI).
This is the first national survey of individuals that measures baseline dimensi
ons of inclusive products and services from the perspective of users of financia
l products and services. The survey help provide a more holistic picture of fina
ncial inclusion and facilitates identification of barriers, crafting evidence-ba

sed policies and the setting of targets.
The importance we ascribe to data and measurement is underscored by the simultan
eous launch of our maiden baseline survey with our National Strategy for Financi
al Inclusion. Completed last year, the baseline survey showed the following resu
lts:
25% of Filipino adults have never saved, 32% used to save, and only 43 % pr
esently have savings.
Of those with savings, only 32% save in banks while 68 % keep their savings
at home.
65 % of unbanked adults cited lack of money as the main reason for not havi
ng a bank account.
About 47 % of adults have outstanding loans. The main source of borrowing i
s informal 62% borrow from family, relatives or friends while 10% borrow from in
formal lenders.
The survey indicates the many challenges we face moving forward. For service pro
viders, the survey reveals that there are plenty of opportunities for those look
ing to expand their business or to introduce game-changing innovations.
And we continue to push forward. We are now in the process of building a monitor
ing and evaluation framework for our National Strategy for Financial Inclusion.
Among others, we need to consider the different levels of technology across memb
er-agencies of our Steering Committee; distill the results of our National Basel
ine Survey on Financial Inclusion to yield focused studies; and take deeper dive
s into focus areas to deepen our understanding of the environment and its needs.
Ladies and gentlemen. We are encouraged that even as we address the gaps in data
and measurement, we continue to see gains in our financial inclusion programs.
For your information, the Philippines has been ranked by the Economic Intelligen
ce Unit as the top country in Asia with the most conducive environment for finan
cial inclusion.
A paradigm shift in the way we pursue financial inclusion may be just what we ne
ed to propel us forward in a major way. We need to constantly measure how we ar
e doing through evidence-based surveys and studies to ensure that we are on the
right track and that we are not wasting time and resources.
We need to develop an evidence-based mindset to continuously enrich our knowledg
e base and become more effective agents of financial inclusion programs that imp
rove lives and liberate people from poverty.
I wish therefore that our workshop on Evidence in Financial Inclusion will be su
ccessful and fruitful, and generate innovative programs to address poverty in ou
r country and other parts of the world.
Finally, on behalf of the Bangko Sentral ng Pilipinas, we thank IPA our co-host,
Citibank, all our resource persons and workshop participants for joining us tod
ay.
Thank you all and Mabuhay!
Dynamic Stability Amidst Global Volatility

Venue: Assembly Hall, BSP Manila
Occasion: 23rd anniversary of the BSP
Magandang umaga sa inyong lahat! On behalf of the Members of your Monetary Board
, I am very pleased to greet all BSPers from Luzon, Visayas and Mindanao a happy
anniversary! With us this morning are Monetary Board Members Freddie Antonio, P
hillip Medalla, Jun de Zuniga, Andy Suratos, and Val Araneta.
Now, I have a question. Two questions actually. You may answer yes (loudly) or y
es (softly). Fellow central bankers, happy ba kayo? With your dedication and har
d work, happy ba ang ating Monetary Board? You are correct! Indeed, as an instit
ution and as BSPers, we have many reasons to celebrate the 23rdanniversary of th
e BSP.
Today, in the midst of regional and global volatility, the Bangko Sentral ng Pil
ipinas stands out as a source of strength and stability for our economy and our
country. We have faced financial gyrations caused by divergent monetary policies
, uneven economic growth across the globe, geo-political concerns, weather distu
rbances, economic adjustments in China, the uncertainty of the timing of US Fed
rate hikes and very recently, Brexit.
And yet, through all these, we have maintained stability in monetary conditions
through data-intensive and well-articulated monetary policy; stability in a more
competitive and increasingly inclusive banking system; stability in the constan
tly growing payment system; and stability of the peso in relation to other curre
ncies.
Ladies and gentlemen, this is because we take the opportunity to learn the lesso
ns from the crises we encounter and we use this to craft and calibrate our way f
orward.
Now, multilateral institutions, international credit rating agencies and economi

c analysts cite the BSPs ability to promote low and stable inflation amid sustain
ed economic growth and a stable banking system as a positive for the economy and
among the reasons for the consecutive credit rating upgrades to investment grad
e levels. In particular, inflation has remained stable even as we achieved 69 co
nsecutive quarters of uninterrupted growth. In 2015, our inflation settled at 1.
4 percent, our lowest in 20 years. And yet, in the first quarter this year, Phil
ippine economic growth was one of the fastest in Asia, overtaking China, the wor
lds second largest economy. Thus, third party observers forecast that the Philipp
ine economy will again be among the regions top performers for 2016.
And we continue to innovate. Last month, we started implementing the interest ra

te corridor system. Meant as an important refinement to BSP s monetary operation
s, the IRC is seen to bolster the effectiveness of our toolkit to further improv
e the transmission of monetary policy to the financial markets and the economy.
The BSP also continues to build external buffers to shield our economy from poss
ible external shocks through sustained build-up in our Gross International Reser
ves (now nearly five times higher than its level 11 years ago) and a healthy bal
ance of payments position. At the same time, the BSPs payments and settlement sys
tem has been moving increasing volumes of funds faster and better. In 2015, it p
rocessed payment transactions valued at over P66 trillion. Our PhilPass, therefo
re, is another source of stability and confidence in our financial system.
It is also clear that our continuing banking reform agenda continues to pay divi
dends in terms of ensuring financial stability. Sustained capital build-up has b
rought the capital adequacy ratio comfortably above national and international s
tandards; confidence in the banking system has kept deposit levels at record hig
hs; the resources of the banking system have almost tripled in ten years; non-pe
rforming loans of universal and commercial banks have been on steady decline fro
m 9.2 percent ten years ago to 1.7 percent in April 2016; and stress tests indic
ate the resilience and ability of our banking system to withstand possible shock
s.
In other words, we have a sound, stable and liquid Philippine banking system and
it is able to fund productive sectors of our economy. In the process, vulnerabi
lities to external volatilities are minimized.
Thus, the IMF and a number of global watchers believe that the BSP has policy sp
ace being in a better place than most central banks in weathering possible fallo
ut from Brexit, the latest tremor that has shaken global financial markets. This
is a source of comfort and pride for us at the BSP.
And beyond these metrics, we have third party validation of the BSP being on the
right track. To cite a few:
1. The New Yorks Global Finance last year gave your governor an A rating for sound
monetary policies that can dampen the effects of currency swings and rising inte
rest rates and thus spur economic growth. This award is for all of us.
2. BSP received last May from Asian Banker the Best Macroeconomic Regulator Award
in Asia-Pacific.
3. The BSP received in November last year the Islands of Good Governance Award f
or having steered, under very turbulent times the country, the economy and its fin
ancial system through a very safe, prudent and transformational course for us al
l.
4. The Philippines was ranked by Economic Intelligence Unit as the top country i
n Asia with the most conducive environment for financial inclusion. As you are a
ware, the BSP is at the forefront of the implementation of the National Strategy
for Financial Inclusion that promotes inclusive growth and improves the lives o
f Filipinos.
I am also pleased to report that most of the people who participated in the publ
ic perception survey of the National Statistical Authority said the BSP is good
at what it does. Equally important, the survey indicates that most people believ
e in the integrity of the BSP management and its people. And this trust level ha
s been increasing.
Indeed, we have done well in so many fronts! Fellow BSPers, these achievements a
re the fruits of our collective work. The wealth of talent and the depth of ded
ication of each BSPer are the nuts and bolts that keep our central bank effectiv
e, responsive and strategic.
Let us therefore thank the Members of our Monetary Board who help steer the Bang
ko Sentral ng Pilipinas to new heights: Monetary Board Members Freddie Antonio,
Phillip Medalla, Jun de Zuniga, Andy Suratos, Val Araneta and former Finance Se
cretary Cesar Purisima.
Let us also acknowledge the work done by the men and women of the SES under the
leadership of Deputy Governor Nesting Espenilla; the MSS under the leadership of
Deputy Governor Diwa Guinugundo; the RMS under the leadership of Deputy Governo
r Vic Aquino; and the EMS supported by Assistant Governor Winnie Santiago as coo
rdinator.
I have heard it said that the BSP has accumulated so many awards. This is true.
And we take pride in these awards; these are unexpected gifts that inspire. But
that is not our end goal. What really drives us to excel is our knowledge that w
hat we do affects our economy, our country and our people.
In other words, consistent with our vision and mission, we at the BSP excel and
aspire to world-class standards because this is the level of quality necessary t
o improve the lives of Filipinos. Tama ba?! I am glad to hear that!
Let us also be mindful that central banking continues to evolve and transform. T
hus, even as we register gains in the pursuit of our mandate, our constant chall
enge is to find better ways of doing things at the BSP; to benchmark with intern
ational best practices and to develop the BSP to be the best it can be.
In this connection, I am glad to note that we now do benchmarking and strategic

asset allocation for our international reserve management; that we use state of
the art technology in banknote printing and coin minting; that we have constantl
y upgraded our banking policies in line with international standards; that we ha
ve enhanced our credit and rediscounting policies; and that we continue to expan
d our branch network to make our services available in more areas and to more pe
ople. BSPers, let us continue to identify other areas of improvement that will a
llow us to deliver on our mandate better.
Ladies and gentlemen. The theme of our celebration this year and our lobby exhib
it is BSP at 23: Dynamic Stability. In air navigation, dynamic stability refers to
how an aircraft responds to a disturbance when subjected to turbulence. Whether
it returns to stability or not depends on the characteristics of the aircraft,
the skill of its pilot and external factors.
For the BSP, dynamic stability requires skillful management of the many variable
s and moving parts that affect our stability objectives. In other words, dynamis
m is a necessary core value that will allow us to achieve our mandate of stabili
ty.
And because we want to make sure that BSPers are dynamic and prepared for the ch
allenges ahead, we continue to invest in our people. This is the reason behind o
ur Job Evaluation and Salary Review program; the reason why we constantly refine
our programs related to training, mentoring and cross-posting. Promoting dynami
sm is also the reason behind our program to create more cross-sectoral activitie
s that encourage exchange, engagement and cooperation across the bank.
Fellow BSPers, solidarity is another important core value we must nurture if we

are to move forward together. Let us make sure that the ties that bind the membe
rs of Team BSP continue to strengthen, broaden and deepen.
I am particularly happy that caring for those who need help is a common thread t
hat runs through BSPers. Whether it is building classrooms or giving children a
good start for the schoolyear with school supplies or caring for the elderly in
the Home for the Aged, BSPers can be counted on for support. It is just in our D
NA to be generous.
To me therefore, it is an honor and a privilege to be a central banker. Across t

he BSP, from Luzon, Visayas and Mindanao our shared values of patriotism, integr
ity, excellence, dynamism and solidarity bind us to be the best we can be as pub
lic servants.
I joined the central bank 42 years ago as a statistician and gradually rose thro
ugh the ranks. Along the way, I met Elma Plana, an exceptional and beautiful lad
y from the then Research Sector who became my wife 34 years ago. Together we rai
sed a son and two daughters.
And now, my wife is a grandmother a loving, and even more beautiful, grandmother
. While some things change, some things never change. Through all these years, E
lma and my family have remained my source of joy, strength and inspiration. They
provide the balance to my work. And so, today, I take this opportunity to thank
Mrs. Elma Plana-Tetangco for being the love of my life and for her wholehearted
love and support for me, my work and the BSP. Salamat, Elma. Ladies and gentlem
en of the BSP. My wife is here this morning, and I want to take this opportunity
to share this with her and with you as members of my other family - the BSP fam
ily.
Finally, I want to thank all BSPers past and present for the support you have be
en giving me through all these years. It is a blessing working with such excepti
onal professionals. And I am grateful and humbled that in the process, I have be
en receiving awards and recognition that truly belong to all of us.
But let me make one thing clear: I am not leaving yet; I will still be around by
my calculation 11 months and 27 days. That is still a lot of time to accomplish
a lot of good things. Do you agree? Aasahan natin yan.
It is said that time is both a gift and a challenge. Fellow BSPers, the Bangko S
entral ng Pilipinas allocates time and resources to nurture and develop the full
potential of its people. Let us therefore make full use of our time here at the
BSP to be the best we can be in serving the BSP, our country and our people.
Muli, maraming maraming salamat sa inyong lahat.

Mabuhay ang Bangko Sentral ng Pilipinas!
Mabuhay ang ating mahal na bansang Pilipinas!
Mabuhay po tayong lahat!
Mainstreaming Financial Inclusion as a Strategic Objective

Presented Date: Jun 3, 2016
Venue: Cebu, Philippines
Occasion: BSP-BIS Research Conference of Financial Inclusion and Central Banks

Good morning everyone. On behalf of the Bangko Sentral ng Pilipinas, I welcome a
ll of you to Cebu.
This conference, which the BSP is privileged to co-host with the BIS, is actuall
y the result of a discussion in the Asian Consultative Council (ACC) of the BIS.
It was early 2014 in Sydney, if I am not mistaken, when BSP suggested to the A
CC governors, that a possible area of research for the BIS Hongkong Office (unde
r the ACC process) could be the relationship between financial inclusion and fin
ancial stability. In particular, we suggested that the BIS Hongkong Office inves
tigate whether increased financial inclusion contributes to or detracts from fi
nancial stability. Necessarily, Dr. Remolona and his team would also have to det
ermine the possible transmission mechanism for this linkage.
That suggestion came at a time when revisions to the G20 Financial Inclusion Act
ion Plan (FIAP) were being undertaken during the Australian G20 Presidency. By t
hat time also, the United Nations had already underpinned the importance of fina
ncial inclusion as an imperative in the attainment of a wide range of targets un
der the Sustainable Development Goals. The UNSGSA, Her Majesty Queen Maxima of t
he Netherlands, had also by then already conducted intensive meetings on financi
al inclusion with the Standard Setting Bodies that included the BCBS, CPMI, FATF
, IADI and IAIS.
Clearly, the once-peripheral issue was then becoming mainstreamed in the global
discourse.
The BSP Experience
At that time, we were also trying to better understand this issue for our own po
licy work in the BSP. You see, by 2014, the BSP already had over a decade of exp
erience with microfinance as a flagship program for poverty alleviation.
Our efforts started as an advocacy, with the belief that creating an enabling po
licy and regulatory environment could catalyze market players to see microfinanc
e as a sound and viable undertaking. We endeavored to create a supervisory and r
egulatory framework that recognized the peculiarities of microfinance while stri
ving to maintain alignment with international standards. Such balance allowed th
e entry of banks into the microfinance market by reducing barriers and providing
incentives, while at the same time, ensuring that players act, and their operat
ions conducted, in a safe and prudent manner. In particular, we put in place the
needed measures that cover the full credit cycle of microfinance from loan appl
ication to full repayment.
Following the principle of proportionality, we allowed less documentary requirem
ents and enabled the use of group support or liability arrangements, cash flow b
ased and character lending, and high frequency amortizations. We balanced that w
ith demanding and timely loan review and loss provisioning. We also provided a m
echanism for unregulated microfinance institutions to formalize themselves into
banks.
Regulations were likewise established to leverage off technology to more efficie
ntly and cost-effectively reach out to more microenterprises across our archipel
ago of 7,107 islands. And in 2007, we created a full-time unit in the BSP to l
ook into financial inclusion issues.
This approach enabled over 170 banks mostly our rural banks to deliver microfina
nce services to nearly 1.5 million microentrepreneurs. The outstanding loans to

these microentrepreneurs are at PhP 11.3 Billion, a 333% increase from the 2002
levels of PhP 2.6 Billion. The banks have also enabled these clients to save for
the first time in their lives. At present, these microentrepreneurs have accumu
lated savings of around PhP 4.5 Billion. Moreover, the generation of related new
business opportunities that cater to the low income and the unbanked, e.g., mi
cro-insurance, micro-housing loans and remittances, has enabled them to expand t
heir markets and client base without compromising, in fact in some cases, even s
trengthening their institutional stability.
While these numbers were encouraging, and as we were getting more microenterpris
es into the formal financial sector, we also knew that we needed to better appre
ciate how these newly on-boarded enterprises would affect (in the long run) the
financial markets they were entering.
Fortunately, the rest of the ACC governors went along with our suggestion in 201
4, and so we are here today. But, as you can appreciate from the topics of our c
onference, the BIS has pushed the envelope further on that research agenda. For
the next day and half, we will be covering the full mandate of central banking,
not just financial stability but monetary policy and the growth objective as wel
l. This agenda certainly reflects that financial inclusion is multi-faceted.
Implications of Financial Inclusion
Indeed, financial inclusion cuts across multiple macroeconomic goals. Financial
inclusion has been seen to contribute to broad-based economic growth and develop
ment; as well as complement other policy objectives such as reducing inequality
and promoting financial stability and integrity. Financial inclusion also has im
portant implications for monetary and financial stability policy.
These are bold claims, yet the work of many of you in this room have strengthene
d these convictions through your academic work in collecting and analysing evide
nce, some of which we will have the opportunity to discuss in this conference. (
e.g., from Professor Becks early work in looking at financial intermediation and
growth (2000) and more recent ones on finance, inequality and the poor (2007) to
Dr. Hannigs discussion on financial inclusion and financial stability (2010) and
Professor Karlans numerous work on looking at impact of credit (2007) or other f
inancial services in households.)
In no small measure therefore, you have contributed to what could be likened to
an evolution: a gradual yet almost natural advancement of financial inclusion as
a widely-accepted policy objective.
In this conference, we hope to further enrich the discourse through exchanges am
ong central bankers and our select group of experts and see how we can pursue fi
nancial inclusion as a complement to our primary responsibilities as central ban
kers.
A good way of achieving this is, to keep in mind that while financial inclusion
has benefits, it also brings changes to the nature of the risks we face. Two th
at come top of mind are: 1) changes in the behavior of market participants; and
2) changes in the design and delivery of financial products. Related to these is
a third, that is, the potential changes in the reaction function of policy make
rs.
To illustrate the first kind of change the change in market behaviour. Newly-inc
luded agents may not necessarily behave in the same manner as those who are alrea
dy served and have been served for some time now. Because banks are more familiar w
ith the latter, the melding of the two client bases may create new operational c
hallenges for the banks frontline staff.
Change in agent behavior also affects monetary policy. Mehrotra and Yetman (2014
) argue that when more clients are able to smooth consumption, authorities have
more monetary policy space to concentrate on fighting inflation. The underlying
principle is that smooth consumption patterns help reduce the cost of output vol
atility. [I will leave this for James to further explain during his presentation
tomorrow.]
For the second type of change: on ways to design and deliver products to improve
access to financial service. Financial product providers need to be mindful tha
t, while most of the new entrants (generally the poor) have had to be savvy to d
eal with their unpredictable cashflows to survive, they are not (necessarily) as c
apable in dealing with a whole array of new financial products. Moreover, banks
must also be careful to extend certain types of credit to certain clients. This
could just expose lenders to higher risks and it can also expose ill-informed b
orrowers to increased risk of debt distress.
These concerns related to product development highlight the need for proportiona
te regulation that adequately balances the need for flexibility and openness to
innovation, on one hand, with that of mechanisms to ensure that risks are proper
ly managed, on the other. This will allow market contestability and the developm
ent of market-based solutions to serve markets that were traditionally unserved
or underserved.
Weve already seen innovative market-based approaches to improve credit access for
microfinance borrowers. Weve witnessed the move from brick-and-mortar offices to
alternative Financial Service Providers such a micro banking offices and e-mone
y issuers.
Addressing Technological Innovation:
Thru Financial Education, Consumer Protection and Proportionate Regulation
Innovations, particularly through financial technology, can indeed be the cataly
st for greater financial inclusion. Technological innovation has the potential t
o reduce costs and accelerate the on-boarding of currently excluded markets into
the formal financial system. In addition, technology solutions promise to enhan
ce regulatory capacity and tools to supervise the market, and facilitate regulat
ory compliance and reporting of financial institutions. Some examples of these i
nclude:
1. Big data analytics and algorithms that can be used to address information ass
ymetry in financial service provision (e.g., analytics of social media behavior
can predict financial behavior of target clients);
2. Crowdfunding platforms that may be utilized for generating funds for SMEs, st
art-ups and innovators. (e.g., peer-to-peer lending or equity crowdfunding)
3. Digital currencies. (When this is safely managed, this may facilitate payment
s, money transfers and e-commerce.)
4. RegTech or using technology to enhance regulatory capacity and enable regulat
ors to analyze data to ensure timely supervision and intervention.
As traditional players (such as banks) interconnect and engage new players (such
as fin tech companies -- which are often not within central bank supervision),
there is a greater need to look at the entire chain of financial services being
offered. The challenge for central banks and regulators here is to stay abreast
with emerging business models and innovation, to understand the inherent risks o
f these new models, and to know how to proportionately manage the risks. This wi
ll require capacity to undertake the said functions.
A number of central banks, including the BSP, have turned to the test and learn ap
proach, more recently known as the regulatory sandbox to address this gap.
The sandbox approach presupposes a dialogue and collaborative relationship between
the central bank and the industry innovators. It acknowledges that financial in
clusion solutions often arise from these innovators because the latter have grea
ter flexibility and technical capacity to create products and generate systems t
o deliver them.
Essentially, the sandbox provides an opportunity for innovators to connect to ba
nks and other financial system players with clear authority from the regulators.
Providing a sandox for these players gives the regulators a ring side seat that h
elps them assess potential risks to guide them in deciding when and how to regul
ate the new market, if needed. The ultimate objective is to be aware of the risk
s, employ mitigating actions as needed, but in a manner that also enables financ
ial inclusion.
While we need to allow ample space for the market to create cost-effective solut
ions that work for financial inclusion, prudence dictates that regulators must a
lso be on the lookout for activities that impact financial integrity and consume
r protection negatively. We need to have market conduct and consumer protection
regulations that are infused with the philosophy that all financial consumers, i
ncluding the less sophisticated and often low-income clients must be treated wit
h dignity and respect, their consumer rights upheld and their financial well-bei
ng protected. The regulators must act as the honest broker between the clients and
the financial institutions. In addition, we should also make the deliberate dec
ision to provide financial education to financial inclusion clients with the vie
w of anticipated positive returns over the long-run.
Finally, the changes that increased financial inclusion brings calls for greater
coordination among regulators. Coordination could positively help harmonize reg
ulations, address regulatory gaps and level the playing field.
Financial Inclusion as a Policy Priority
Mindful therefore of these risks but also aware of the benefits that financial i
nclusion offers, can there be too much financial inclusion? Is financial inclusi
on a worthy policy objective to pursue?
My response here would have to be that as in all things, there must be balance.
(Like in the fairy tale Goldilocks not too hot, not too cold not too big, not too
small. but just right!)
To achieve such balance, there should only be financial inclusion, to the extent
that there is sufficient quality capacity to supervise. There should only be fi
nancial inclusion to the extent that the players can be properly incentivized an
d are able to process financial information. There should only be financial incl
usion to the extent that the regulator is able to provide adequate financial con
sumer protection. When these conditions are present, we can say we have responsi
ble financial inclusion.
Clearly, this balance would have to be jurisdiction-specific. But a common frame
work and a set of working principles for implementation could be derived. The fr
amework and principles could then be the bases for closer dialogue among stakeho
lders, including central banks, other regulators, the standard setting bodies an
d the private sector.
Much has already been done to bring us closer to that common understanding of th
ese things. But much remains.
In this dynamic and ever evolving pursuit of financial inclusion, we must contin
ue to strengthen our evidence base to inform our policies, stay abreast with dev
elopments and ensure that our actions remain relevant, constantly challenge and
question our positions if only to ascertain that they are the right ones.
I believe this conference can largely contribute to this important exercise.
The work of pushing forward responsible financial inclusion is huge. And it is i
mportant that the pursuit of financial inclusion would not be to the detriment o
f other policy objectives.
Hopefully, after today, we have more clarity in what we need to do as central ba
nkers. Central banks who believe that a strong and stable economy and financial
system is only truly relevant if it benefits the majority of our population.
On that note, I look forward to our discussions in the next day and a half. Tha
nk you for your attention.
Rural Banks: Making a Difference in Financial Inclusion

Presented Date: May 23, 2016
Venue: Radisson Blu Hotel, Cebu City
Occasion: 63rd Annual National Convention and General Membership Meeting of RBAP
Thank you for inviting me to this annual national gathering of RBAP. The theme y
ou have chosen for this year: Rural Banks: Making a Difference in Financial Inclu
sion speaks well of your important role in increasing access to financial service
s, a role which you have been performing even before the term financial inclusio
n itself gained attention.
Rural banks and the changing environment
Let us briefly go back in history. The very reason for the creation of rural ban
ks in 1952 when Republic Act 720 was enacted was for them to be the key local fi
nancial institutions providing credit to farmers and people of rural communities
, thereby promoting and expanding the rural economy in an orderly and effective
manner. This was the original raison detre for the establishment of rural banks.
After six decades, there have been significant shifts in the financial system la
ndscape. There are now many other financial service providers banks and non-bank
s, formal and informal that are already in or are planning to enter your space.
The demands of your market and the conditions in which you operate have also evo
lved. Simply put, the operating environment now is very much different from befo
re.
Change
who is
ongest
ange.
rucial
r lose
is inevitable. What matters is how we respond to change. Charles Darwin,

best known for his theory of evolution, said and I quote It is not the str
or the most intelligent who will survive but those who can best manage ch
Indeed, adaptability or the ability to change to fit new circumstances is c
to survival. Without the ability and agility to adapt, we will stagnate o
our relevance.
In other countries, community banks are also struggling to find their rightful s
pot in a rapidly evolving environment, especially because of tough competition w
ith other market players. But I believe that small banks can still thrive in thi
s changing environment and remain relevant. Today, let me highlight two key exis
ting factors that you can capitalize on to adapt to change: one is your current
reach and immersion in the countryside, and the other one is the current enablin
g regulatory environment.
Reach and immersion in the countryside
BSP data as of December 2015 show that there are 524 rural banks with a network
of 2,086 branches and other offices. Rural banks are present in 59% of the coun
trys 1,634 cities and municipalities, which is more than double the reach of univ
ersal and commercial banks (23%) and thrift banks (28%). While bigger banks are
concentrating in highly urbanized and densely populated regions such as NCR, CAL
ABARZON and Central Luzon, rural banks are thriving in regions where there is le
ss access to financial services. For instance, Cordillera, Cagayan Valley, MIMAR
OPA, and Caraga are among the regions where there are more rural banks than othe
r bank types.
Noteworthy to mention is that rural banks are the frontrunners in the establishm
ent of micro-banking offices (MBOs), which enable banks to set up presence in ar
eas where it is not economically feasible to establish a full blown branch. Out
of 540 operating MBOs, 78% are owned by rural banks. These MBOs are present in 3
38 municipalities, of which 66 municipalities are served by MBOs alone. Looking
at previously unbanked municipalities which gained banking presence, most of the
m are now enjoying banking services because of MBOs.
The numbers that I have presented just show that rural banks are truly more acce
ssible in the countryside. You are still in areas where other players are not. T
ake advantage of this position to strengthen your foothold so that you will be m
ore resilient when competitors come.
While you already have a wide presence, there are also still untapped opportunit
ies in terms of unbanked municipalities whose level of economic activity is not
necessarily low. For instance, 15% of unbanked areas are 1st to 2nd class munici
palities. These areas will surely benefit from financial intermediation to susta
in local economic growth and boost consumption and productivity.
Admittedly though, some of you may be already satisfied with the current market
that you are serving. If geographical expansion is not part of your game plan, y
ou can always improve your products and services in terms of design and delivery
.
As rural
ionships
ies with
as well
banks, what sets you apart from bigger banks is that you are more relat
driven. You have an intimate knowledge of the local economy and close t
the community. Use this to be more responsive to the needs of customers
as to market trends.
You can also introduce improvements in your operations. According to our Nationa
l Baseline Survey on Financial Inclusion, more than 50% of adults who have trans
acted with banks are just somewhat satisfied with their transactions. The average
waiting time before being served in a bank is 33 minutes which is twice the wait
ing time in pawnshops and e-money agents. There is certainly room for you to imp
rove the quality of your services in order to enhance customer experience and sa
tisfaction.
They say that technology is changing the way banks do their business. Some do no
t have to ever set foot in a bank branch if they have a fully enabled smart phon
e. Emergence of financial technology companies or Fintechs are also dramatically c
hanging the delivery of financial services in payments and even in the underwrit
ing of credit. While you can use these technologies to your advantage to improve
your efficiencies and value proposition I believe that the value of person-to-p
erson contact will never fully go away. For instance, if you call a customer ser
vice hotline, isnt it that you still prefer to talk to someone rather than hear d
efault call answers from the other end of the line?
The point is, even in the face of technology, you can still build on your streng
th which is the relationship that you have established with your community. It i
s possible for technology to enhance relationships rather than replace them. If
you are able to effectively nurture the confluence between the two, you will be
able to not only increase but also cement your customer base.
Finally, to be better positioned to serve your clients, always keep in mind that
only sound and well-managed institutions can take advantage of new opportunitie
s and have scope for more innovations. Promoting financial inclusion should not
be at the expense of safety and soundness of operations. This is the reason why
the BSP always emphasizes the importance of strengthening your banks governance s
tructure and institutional capacity, and continuously upholding best practices a
nd performance standards.
Enabling regulatory environment
On the part of the BSP, not only as your regulator but also your partner, we rem
ain committed in providing an enabling regulatory environment that will support
rural banks in overcoming emerging challenges and provide you with various oppor
tunities to be more responsive to the markets that you would like to serve.
Our regulations allow you to partner with non-banks to offer new products and ad
opt new channels and technology. Many of you have already benefited from establi
shing partnerships with institutions that can assist you in the delivery of serv
ices which before were not offered by rural banks. For example, 39 rural banks h
ave been given the authority to cross-sell microinsurance and 50 additional rura
l banks have already obtained a no objection notice from the BSP and are in the pr
ocess of getting approval from the Insurance Commission. Based on RBAP data, the
re are almost 2 million insured clients of microinsurance, some of whom are pure
ly microinsurance clients. They can naturally develop into loyal customers of yo
ur other products.
There are 52 rural banks with electronic banking facilities and e-money money se
rvices. I understand that there is still room for improvement in terms of maximi
zing the use of these platforms in your operations, but your openness is encoura
ging. Our hope is that our efforts on the establishment of a National Retail Pay
ment System (NRPS) will be able to address some of the limitations that have imp
eded the scaled uptake of e-money and electronic payments in general.
Our regulatory environment also encourages rural banks to look for new markets,
or serve old markets in new ways. A good example is the agricultural sector and
the recent BSP circular on agri-value chain financing. This regulation provides
you with more opportunities to finance the agriculture and fisheries sector. By
encouraging the linking of various actors or players in an agricultural value ch
ain, the credit risk of participating farmers or fishermen can be reduced, there
by facilitating increased access to credit. This unlocks the potential for finan
cing at all levels from production to marketing. Rural banks can be ideal chann
els for such type of financing.
The BSP also looks forward to continue working with you in addressing the gaps i
n SME access to finance. Our guidelines on sound credit risk management (Circula
r 855) support lending to SMEs, wherein start-ups during the first three years o
f their operation or banking relationship are exempted from the submission of In
come Tax Return (ITR) and other supporting financial statements. The objective h
ere is to encourage SMEs to build banking relationships that will help them grow
. However, available data shows that only 31% of our SMEs borrow from banks. Our
experience in microfinance has proven that serving a low income segment can sti
ll be a viable and profitable undertaking, and we hope that we can apply the lea
rnings in microfinance in serving the SME market.
In summary, our regulatory environment already offers many opportunities. This i

s the reason why the Philippines is ranked by the Economist Intelligence Unit (E
IU) as the first in Asia and third in the world with the most conducive environm
ent for financial inclusion. The challenge to rural banks is how to maximize the
se opportunities within the framework of the regulations that we have so far put
together.
Closing
Ladies and gentlemen of the rural banking sector, in an environment that is rapi
dly evolving, adaptability is key. But adapting to change does not necessarily m
ean changing your core and losing your relevance. In fact, as the push for finan
cial inclusion continues to intensify, the role of rural banks today is even gre
ater than it was then. You remain to be a key channel to deliver financial servi
ces to the countryside especially the unserved and underserved markets. Embrace
this mission and role which you have been given more than 6 decades ago and nur
ture it by evolving and adapting to the demands of the times.
On our part, we will remain your partner in this important task. This partnershi
p is integral as we work on our shared goal of a stronger, more competitive and
more inclusive rural banking sector that can make a positive difference on the l
ives of the Filipino people.
I wish everyone a fruitful convention. Thank you and good day.
Strengthening the Monetary Transmission Mechanism through the BSP s Interest Rat
e Corridor System
Venue: Executive Business Center, BSP
Occasion: MOA Signing for the BSP s IRC System
Magandang hapon sa inyong lahat! I am pleased to see all of you here at the sig
ning of the Memorandum of Agreement on the Monetary Operations System (MOS). Tod
ays simple signing ceremony is a milestone that ushers in a new framework for the
way that the BSP conducts its monetary operations.
Since we first broached the idea to the public in 2013, we carefully laid down t
he groundwork for the adoption of the Interest Rate Corridor or the IRC this yea
r. This included drawing up an operational framework through consultations with
the banking community; establishing the MOS as an IT platform for auction-based
monetary operations; and developing a model for domestic liquidity forecasting t
o guide our daily monetary operations. In other words, years of preparation culm
inate in todays MOA signing. And in a few weeks time, on June 3, 20161, we will
bring these operational elements together to implement the IRC system.
Our motivation is simple. We would like to further strengthen the relationship b

etween the BSPs policy rates and money market interest rates. This, in turn, will
enable the BSP to better manage inflation and promote long-term sustainable gro
wth. By providing an operating framework for money market rates to move more clo
sely with the BSPs policy rate, the IRC will help enhance the link between the st
ance of BSP monetary policy and the real economy.
In order to establish the interest rate corridor, the BSP interest rates will be
re-calibrated as follows:
First, the current overnight RP rate of 6.0 percent will be reduced to 3.5 perce
nt when the RP window is converted to the overnight lending facility.
Second, the overnight RRP rate of 4.0 percent will be adjusted to 3.0 percent.
And third, the SDA rate of 2.5 percent will be kept steady when it is transforme
d to the overnight deposit facility.
The new configuration effectively sets a 50 basis-point width around the BSPs pol
icy interest rate. While there is no international consensus on the appropriate
width of the corridor, a narrow corridor provides clearer guidance for the marke
t and also helps to limit volatility in short-term interest rates.
By introducing auction-type instruments, the IRC system is intended to ensure mo

re equitable access for all participants. In addition, we hope to ultimately ai
d in the development and deepening of the countrys capital and money markets. Ove
r time, as more liquidity is absorbed by the BSP, market participants will be en
couraged to be more active and more prudent in managing their own day-to-day and
short-term liquidity positions. It is our hope that, in the process, we will en
courage counterparties to reduce their reliance on central bank facilities and i
nstead transact more with each other through interbank markets, in order to meet
liquidity requirements.
The more immediate benefit of the new auction-type instruments under the IRC is
that the price discovery process will be facilitated by the bids we receive from
market participants, which will provide information for the BSP and for the mar
ket on the prevailing cost of and demand for liquidity. In turn, better price di
scovery will allow the industry to establish more accurate interest rate benchma
rks in the future.
Ladies and gentlemen, let me emphasize that the new IRC system is not a departur
e from the BSPs current monetary policy framework. In fact, the IRC system is env
isioned to further support the inflation targeting framework by reinforcing the

BSPs policy stance as represented by the overnight reverse repurchase rate that w
ill remain our key policy rate.
More importantly, the shift to the IRC system does not represent a change in the
BSPs stance of monetary policy. The IRC reforms are primarily operational in nat
ure and will not materially affect prevailing monetary policy settings upon impl
ementation. At the same time, short-term liquidity conditions are expected to re
main broadly unchanged, as funds will continue to be absorbed through monetary o
perations under the new IRC system.
Moreover, the rate adjustments in the BSPs instruments under the IRC system remai
n consistent with the outlook for inflation and growth. Our current domestic env
ironment of manageable inflation, a stable financial sector and firm economic gr
owth prospects affords us the flexibility to implement these IRC-related reforms
at this time.
The successful implementation over time of the IRC system will also allow for re
calibrations in other monetary policy tools, including possible adjustments in r
eserve requirements in line with international norms.
Ladies and gentlemen, I have often said that while our mandate remains the same,
the environment in which we operate in remains dynamic and continues to evolve.
We therefore continue to rise up to the challenge of rethinking the status quo
and finding ways to further improve as a central monetary authority a central mo
netary authority that promotes stability and fosters sustained economic growth.
As we strive to constantly be better and to build on our strengths, we hope to b

e able to count on the continuing support of the banking and financial sectors.
Indeed, for our IRC system to succeed, it is important that we move forward toge
ther and cooperate in making it work as envisioned.
I am pleased therefore that we have with us today the Bankers Association of the
Philippines represented by its President Nestor Tan; the Money Market Associati
on of the Philippines with its President Raul Martin Pedro; the Investment House
Association of the Philippines with its President Manuel Tordesillas; the Trust
Officers Association of the Philippines with its President Angel Maria Pacis; t
he ACI Philippines, the Financial Markets Association represented by its Treasur
er Anthony Paul Yap; and the Chamber of Thrift Banks with its President Rommel
Latinazo.
I would challenge our industry associations to undertake your day-to-day liquidi

ty management more actively, to strive for greater participation in the interban
k market and reduce reliance on central bank facilities, and to continue efforts
towards establishing appropriate price benchmarks for financial markets.
Finally, we also thank the media for their continuing coverage that keeps us con
nected with our stakeholders and our people.
Maraming salamat sa inyo. Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay
po tayong lahat!
------------------------1 By June 3, all RRPs under the current facility would have matured and all term
placements under SDA would have been wound down to give way to the new faciliti
es under the IRC.
Keynote Message - Launch of 14th Citi Microentrepreneurship Awards (CMA)

Venue: BSP Assembly Hall, Manila
Occasion: 14th Citi Microentrepreneurship Awards (CMA)
It is a pleasure to be with you today as we launch the 14th year of this nationw
ide microentrepreneurship awards with our partners Citi Foundation, Citi Philip
pines and the Microfinance Council of the Philippines, Inc. (MCPI).
Yes, 14 years and counting. To me, what has kept this awards program relevant an
d meaningful year after year are the changes and enhancements that have been int
roduced in response to developments on the ground.
For indeed, the environment for the development of the microfinance sector conti
nues to improve based on sustained coordination and cooperation with industry pl
ayers and stakeholders. This includes microentrepeneurs, banks, microfinance ins
titutions, agencies of government, stakeholders from civil society, the private
sector as well as multilateral institutions.
Industry figures mark our progress. In December 2002, for instance, there were 3
90,635 microfinance borrowers from 119 banks. By 31 December 2015, the number of
banks providing microfinance loans had increased by nearly 43% to 170 while the
number of borrowers had increased by 277% to roughly 1.47 million.
Overall, microfinance loans increased by 333% from P2.6 billion in 2002 to P11.3
billion in 2015.
If we base it on their savings, we can say that microfinance has improved the fi
nancial standing of these microentrepreneurs. Together, they have accumulated sa
vings of about P4.5 billion as of December 2015. We have no comparative data for
2002 deposits; compared however to the deposits of as December 2011, this repre
sents a 22% growth.
Ladies and gentlemen, we are fully aware that we can do so much more to lift mor
e Filipinos from poverty through microfinance. Nevertheless, we are encouraged b
y global surveys that indicate that the Philippines has one of the worlds best en
vironment for promoting the quality of life of people through sustained develo
pment of the microfinance sector.
For instance, in recognition of the BSPs work, the Economic Intelligence Units 201
5 Global Microscope on Financial Inclusion ranked the Philippines first in Asia
and the third in the world in terms of regulatory environment for financial inc
lusion.
And together, we are committed to continue to find better ways to grow microfina
nce. One such strategy is through mentoring of our microentrepreneurs under the
CMA program.
The mentoring is aimed at improving their enterprises by providing support suite

d to their specific business needs. It covers, among others, helping products an
d services become more competitive in local and/or international markets; provid
ing guidance in identifying critical processes and areas for improvement; offer
ing technical advice on infusing innovation into enterprises; and facilitating t
he development of business competencies. The end goal is for microenterprises to
eventually transition into small and even medium enterprises.
This mentoring program was piloted last year. This year we plan to fully refine
the program based on lessons learned from the engagement of the University of th
e Philippines Institute for Small-Scale Industries (UP ISSI) which mentored 13 p
ast CMA winners for about 7 to 8 months. Let me share some key lessons.
One is the challenge of informality this is where the informal status of microen
terprises or their lack of legal personality to conduct business limits their ca
pability to expand and market their products.
Another is the limited capacity of microenterprises when it comes to financial r

ecording and documentation which makes them susceptible to poor accounting and p
lanning. This affects their ability to make sound business decisions.
At the BSP, we recognize that informality and lack of capacity remain major hurd
les that impede the growth of microenterprises. As a response, the BSP has issue
d guidelines on sound credit risk management practices (Circular 855) that provi
de an empowering approach to support small businesses. For instance, microfinanc
e loans and other credit accommodations not exceeding P3 million are exempted fr
om the submission of financial documents such as Income Tax Returns (ITRs) and o
ther supporting financial statements. Similarly exempted are start-ups during th
e first three years of their operation or banking relationship.
The objective here is encourage microenterprises to build banking relationships

that will help them grow for the long term.
Broader government initiatives converge with this way of thinking. For instance,
the Go Negosyo Act and Negosyo Centers provide support for MSMEs such as facili
tation of business registration and training in finance and marketing. Negosyo C
enters can also link MSMEs to value chains that will enable them to access secur
ed and sustainable markets to keep them more viable.
We also have the Barangay Micro Business Enterprises (BMBEs) Act that seeks to e
ncourage the formation and growth of micro business enterprises by intergrating
them with the mainstream economy through incentives, marketing assistance, as we
ll as training programs in production and management.
In addition, microfinance institutions (MFIs) and other financial service provid

ers support MSMEs through financial products and other services critical to the
entry, survival, productivity, and growth of enterprises.
I am happy to share that the ISSI diagnostics also highlighted positive findings
. For instance, ISSI found that especially when faced with high market demand, m
icroenterprises are resilient to operational issues in Filipino we describe the
m as madiskarte.
This indicates that given appropriate training and mentoring as well as adequate
funding support, our microentrepreneurs can favourably respond to business oppo
rtunities.
In other words, ladies and gentlemen, we stand to gain more benefits by having a
n increasingly nurturing environment for microenterprises. Given this, I am conf
ident that the nomination process for CMA that we are launching today will gener
ate an even better harvest for this year.
In this connection, we all look forward to meeting more successful and innovativ
e microenterprises that have the capacity to grow as well as the readiness and t
he desire to contribute to making lives better not only for their families but a
lso for their communities.
Indeed, we want MSMEs to develop to their full potential and to help drive econo
mic growth that is broad-based and inclusive.
Mabuhay ang microentrepreneurs! Mabuhay ang ating mahal na bansang Pilipinas! M

abuhay po tayong lahat!
Building Inclusive Growth for Migrant Workers through Multi-Sectoral Partnership

s
Presented Date: Apr 28, 2016
Venue: Assembly Hall, Bangko Sentral ng Pilipinas
Occasion: Financial Inclusion Summit
Speaker: Gov. Amando M. Tetangco, Jr.
As host partner, we at the Bangko Sentral ng Pilipinas are pleased to welcome y
ou to the Financial Inclusion Summit 2016. This summit is yet another milestone
in our journey to improve the lives of our people through financial inclusion,
under the collaborative platform of the National Strategy for Financial Inclusio
n or NSFI as our roadmap. With this Summit, we focus on Building inclusive growt
h for migrant workers through Multi-Sectoral Partnerships.
SFI: A collaborative platform for financial inclusion
Drafted by 13 government agencies including the Bangko Sentral ng Pilipinas, the

NSFI provides the platform for public and private sectors to work together towa
rd expanding access to financial services to all Filipinos.
With such partnerships, there is a wealth of complementary experience, expertise

and resources that can be matched to generate alliances that will result in gre
ater financial inclusion.
Ladies and gentlemen. As we move forward together, let us always keep the NSFI v
ision in mind: We aim for a financial system that is accessible and responsive t
o the needs of Filipinos.
Among our primary targets are what we now call our modern-day heroes: Overseas F
ilipinos (OFs) and their families. Their remittances have been a dependable sour
ce of strength for the Philippine economy. In the last 10 years, from 2005 to 20
15, they have sent over $228 billion in remittances (personal and cash) to our c
ountry.
In 2015, more than 10 million OFs sent over $28.5 billion in personal remittance
s, higher by 4.4% than the 2014 figure of over $27.3 billion. This is equivalen
t to roughly 10% (9.8% actually) of our GDP. 2
In fact, sustained increases in family and work-related migration of Filipinos h

ave resulted in the steady growth in remittance flows into the country. 2
As a result, the Philippines has been consistently ranked among the top recipien
ts of remittances. Early this month, a World Bank report on 2015 remittances sa
id the Philippines ranks third among the top remittance-receiving countries, nex
t to India and China, both of which have over a billion in population.
Financial inclusion and remittances
Indeed, there are many challenges and opportunities in providing access to finan
cial services to migrant workers and their families.
The remittances sent home are mostly used for consumption expenditures 97.3% of
OF households used the remittances to purchase food and other household needs. T
his helps drive our economy.
Another positive development, as indicated by a BSP survey (CES), is the rising

proportion of households directing remittances received to savings from 7.2% in
2007 to 43.4% in the first quarter this year. This is one of the many reasons wh
y Philippine bank deposits have been hitting record high levels -- it was P8.5
trillion in December 2014 and over P9.2 trillion as of December 2015.
Nevertheless, the challenge and the opportunity is to encourage more investments

by OF households; it continues to lag way behind savings. As indicated by our s
urvey, households that allocated part of their remittances for investments, incr
eased from 2.3% in 2007 to only 6.5% in the first quarter this year. That is ove
r a period of nearly nine years!
For institutions, the challenge is to develop and promote products suited to the
needs of OFs. Financial education is essential for OFs to realize the opportuni
ties -- as well as possible pitfalls -- in investments. Equally important, finan
cial institutions should consider it their responsibility to inform OFs of their
rights and protection as financial consumers.
The importance of remittances for enhancing the financial stability of OFs and t
he economic growth of our country cannot be overemphasized.
As part of the BSPs program to develop a more inclusive financial system, we have
put in place policies and programs to enable the development of a wide range of
products that can cater to the needs of OFs and their beneficiaries. We also co
ntinue to implement a nationwide Economic and Financial Learning Program where w
e have a special focus on OFs.
In fact, the
or Award for
, innovation
ment through
BSP won the Global Forum on Remittances and Development Public Sect
2015 in recognition for what it described as outstanding commitment
and impact in promoting remittances for social and economic develop
our Economic and Financial Learning Program.
Challenges
However, while we have positives, there are concerns that we need to address.
Foremost is the adverse impact on remittance costs and flows of the closure of a
ccounts of several money transfer operators (MTOs) by correspondent banks who ar
e limiting their exposure to possible channels for money laundering and other fi
nancial crimes. This is a de-risking strategy largely driven by business decisio
ns of foreign banks, weighing the risks and benefits of dealing with remittance
companies. This has been going on in recent years and has not been helped by the
present money laundering case here.
Since the closures limit the players that can competitively operate in the remit
tance market, this has the potential to reverse the steady gains we have made in
reducing remittance costs.
De-risking may also result in movement by OFs toward informal remittance channel
s and subsequent financial exclusion. In the end, this may exact an even larger
toll on the OFs and their families in terms of deprivation of access to safe and
reliable financial services.
We are therefore addressing this issue. As early as 2014, we started raising our
concerns on the adverse impact of de-risking with relevant international instit
utions. This includes the Financial Action Task Force, Alliance for Financial In
clusion, the Global Partnership for Financial Inclusion of the G20, the US Depar
tment of Treasury, the Financial Stability Board, and the World Bank.
In addition, we are gathering data and closely coordinating with concerned stake
holders for a more evidence-based response. Among others, we have an ongoing Nat
ional Risk Assessment (NRA) which is an inter-agency effort to evaluate the coun
trys money laundering and terrorist financing vulnerabilities and weaknesses. Thi
s will enable us to sharpen our focus in ensuring effective enforcement of inter
national standards against money laundering and terrorist financing.
On the other hand, there is a silver lining: technological innovations from the
market promise more cost-effective remittance channels. In todays language, thes
e are called disruptive innovations, the act of creating new value chains from exi
sting markets or value chains.
The advent of more affordable smart phones has encouraged new players (e.g., fin
ancial technology companies or FinTechs) and new business models to address the
problem of cost. There are now online money transfer services that are linking
international remittances to Facebook.3 Customer acceptance of these developmen
ts seems likely. In a recent global survey that studied 7 remittance corridors i
ncluding US-Philippines, it was gathered that 83% of consumers are willing to sh
ift to mobile money for international transfers.4
Indeed, the BSP will continue to create enabling and proportionate policy and re
gulatory space for these innovations while balancing inherent operational risks
such as business interruptions, network vulnerabilities, as well as concerns rel
ated to data privacy and security.
We are also working on the creation of a National Retail Payment System where al
l commercial electronic payment channels can effectively inter-operate through a
ppropriate clearing and settlement arrangements. With this in place, the deliver
y of remittances to the beneficiaries will be safe, convenient and affordable.
When such balance of policy objectives is achieved, it is exciting to imagine th

e acceleration of global uptake of technology-enabled remittances that can ultim
ately drive down the cost of remittance while providing a faster and safer chann
el.
Conclusion
Ladies and gentlemen. This Summit is a unique opportunity to increase awareness,

catalyze multi-sectoral partnerships, and promote financial inclusion for our m
igrant workers and their families. And I congratulate BPI Foundation and ASKI Gl
obal for organizing such an important venue to further our financial inclusion i
nitiatives. I hope therefore that we will generate practical solutions and tangi
ble steps to address its challenges and to seize its opportunities.
Together, let us make the lives of our migrant workers and their families better
through multi-sectoral partnerships to financial inclusion. Let our National S
trategy for Financial Inclusion serve as our roadmap to a better future for all.

-----------------------1 BSP Department of Economic Statistics (2015)
2 More than 10 million OFs sent $25.8 billion worth of cash remittances in 2015,
up by 4.6% from $24.6 billion in 2014.
3 Examples are Azimo and fastacash. See CGAP (2014). Does Facebook Represent the
Future of International Remittances?
4 Entitled Mobile Financial Services Consumer Survey: International Remittance, th
e survey questioned nearly 3,000 members of migrant communities in the US, UK, a
nd Germany. The survey was conducted by Juniper Research on behalf of Amdocs.
Tapping Into Our Strengths: Opportunities, Threats and Challenges for 2016 and B
eyond in the Philippines and Asia
Presented Date: Mar 18, 2016
Venue: Marriott Hotel, Newport City Complex, Pasay City
Occasion: 2016 Presidential Conference on WASH in Schools hosted by Rotary Inter
national
It is always a pleasure to speak before Rotarians, a group very much involved in
key and critical issues affecting communities, especially children and the yout
h.
You may wonder why a central bank governor, whose primary mandate is price and f
inancial stability, would be speaking at a Conference on "water, sanitation and
hygiene." I wondered this at first, when your Conference Chair and Past Governor
Sid invited me to speak today. But as I thought about it, I realized that your
goal of providing water, sanitation and hygiene to schools is not that unrelate
d to our own goals as a central bank.
Let us consider a fundamental tenet in economics Scarcity value determines the p

rice of a resource. Often, scarcity is only perceived. This occurs when the so
urce of supply is not sufficiently connected to demand. When supply meets demand
, there is price equilibrium. This is the goal. On this premise, I realize we a
re looking at the same problem but with different lenses.
In the BSP, we look at the issue primarily from the price stability angle, in yo
ur case, the convergence of supply and demand is the end view. Ultimately, we a
re both looking at the scarcity problem with welfare enhancement improving the q
uality of peoples lives as our overarching goal.
Another similarity is that we Rotarians and the BSP both embrace the value of pa
rtnership and collaboration. Sid invited me to give an overview of opportunities
in 2016. In my message, I will identify areas where collaboration is possible.
I shall also mention how we can harness the potential of evolving consumer pat
terns and technology toward our shared goal of national development.
ELIMINATING THE PERCEPTION OF SCARCITY
The Philippines has abundant water resources (421 principal rivers, 59 natural l
akes, 4 major groundwater reservoirs, and numerous individual streams ). One wo
uld think that making water readily available to its populace should not be a pr
oblem. Theoretically, per capita water availability is twice as much as the rest
of Asia, and about six times above the global scarcity threshold . But, over 40
0 of our municipalities remain waterless. 7.5 million Filipinos do not have ac
cess to improved water supply facilities. Inequalities in access are starkest a
nd most persistent for rural areas. 93% of the richest rural households have acc
ess to improved sanitation, as compared to only 27% among the poorest quintile.
69% of the richest quintile enjoys piped water house connections, while only 4%
of the poorest quintile does . There is a disconnect between availability and th
e quality of, and access to water services.
Moreover, an estimated 55 Filipinos die every day because of waterborne diseases

a tragedy entirely preventable by providing adequate sanitation facilities, ed
ucation and promotion of good hygiene habits. I believe this is the essence of
the WASH in schools program.
We face a parallel challenge as central bankers. How do we enable a greater tri

ckle-down effect so that opportunities and benefits of a healthy and growing eco
nomy are cascaded to the grassroots?
HARNESSING OPPORTUNTIES
The motivation to address this compelling need is behind the BSPs push on financi
al inclusion. Increasing financial services access is a challenge for an archipe
lagic country where nearly 600 municipalities remain unbanked.
The BSP has institutionalized financial inclusion following a three-pronged appr

oach, namely: access and usage, financial literacy and education, and increased
financial consumer protection. To push access and usage, a regulatory environme
nt is being created to encourage innovation and maximize safe technology use. In
particular, an ecosystem is being created where the unbanked are granted financ
ial services through alternative providers, without need for brick and mortar ba
nk branches or facilities.
Recognizing, however, that the task of financial inclusion is so great, last yea
r, the BSP engaged twelve other government agencies to launch the National Strat
egy for Financial Inclusion (NSFI). The NSFI aims to unify various initiatives o
n financial inclusion into a coherent platform so we can exploit economies of sc
ale and expertise across various government agencies. Many private sector agents
have come to work with us under the NSFI including telcos. We also hope to eli
cit interest from those here in the room. We are convinced financial inclusion i
s one of the ways to make economic growth more broad-based and inclusive.
That said, we also recognize that inclusive growth will only be realized if our
countrymen are given sustainable access - not just to finance- but also to basic
human necessities: including safe and clean water. Here, public-private partne
rships are a feasible solution to the low level of investments in the water supp
ly sector.
ASEAN integration is another area of opportunity. With the passage of Republic A

ct No. 10641, full entry of foreign banks into the Philippines is now allowed.
Qualified ASEAN banks can enter the local market. We recently signed an agreemen
t with Malaysia under the ASEAN Banking Integration Framework. The BSP Monetary
Board has also approved the application of six foreign banks to set up Philippin
e branches. This liberalized regime should further enhance the quality of compet
ition among our banks. This environment will result in promising opportunities t
o encourage innovations that will ultimately benefit the economy and the general
public.
Another source of opportunity is the countrys large, young and highly literate po
pulation. In the Philippines, the median age of the population is 24 . In Japa
n, it is 47. In the U.S., it is 38. We are entering a demographic window histori
cally proven to be the most prosperous years of a country, where millennials com
prise a significant consumer segment. As the largest portion of the workforce, t
hey are identified to play a key role in driving growth and economic development
. It is an exciting time and the future is bright with possibility!
This young generation will also make adoption of cutting-edge technology more li
kely. This can lead to opportunities for greater innovation including for the w
ater supply chain industry in terms of safeguarding water sanitation, waste wate
r management and protecting the environment.
For the banking industry and suppliers of goods and services, this can be signif
icant. Modern digital financial services and changes in how we make payments an
d money transfers will be provided. Related to this, the BSP is developing a Na
tional Retail Payment System (NRPS).
Through the NRPS, we aim to establish a safe, efficient and reliable means to tr
ansfer value built upon an effective and interoperable interface of various elec
tronic payment channels. This is an integral reform given that of 2.5 billion p
ayment transactions per month, only 1% is made through electronic means. The NRP
S will expand the reach of financial services and will promote efficiency, trans
parency and development of business models improving economic competitiveness.
THE BACKDROP OF THE ECONOMY
I hope I have encouraged you to consider some opportunities to help us achieve o

ur shared goal of economic development. Let me round off my remarks with views o
n our operating macroeconomic environment moving forward. This may help guide yo
u to take advantage of these prospects.
The Philippines entered 2016 in a position of relative strength. In 2015, averag

e full year GDP growth was 5.8%. This is among the highest in Asia. The 4th qua
rter 2015 growth of 6.3% brought the number of consecutive quarters of positive
economic growth to an astounding 68 quarters.
The Philippine banking system continued to expand. Over the past six years, tota
l assets roughly doubled owing to a steady growth of deposit liabilities. Bank l
oans also doubled and nonperforming loans continued on a downward trend. Philipp
ine banks are well-capitalized, with capital adequacy ratios above national and
international standards. Our external liquidity position is strong. Our end- Feb
ruary GIR of US$81.3B is sufficient to cover 10.4 months of imports and payments
of goods and services.
That said, in 2016, there are still challenges to our positive position. These w
ill come mostly from the external side. There is divergence in the monetary poli
cies in the advanced economies. The US Fed is poised to raise rates (albeit now
at a slower pace in 2016 than the Fed first indicated in December 2015), while E
CB and BOJ are in negative interest rate territory.
This may raise near term financial market volatility. But we are hopeful that th
e policies adopted would result in a sustainable growth trajectory for these cou
ntries and would create positive ripples to our own trade and growth prospects.
Another cause of concern is the Middle East, where oil prices fell sharply. Whil
e oil importers like the Philippines benefit from the price drop, low oil prices
are double-edged. Oil exporters may cut back on capital expenditures. This may
have an adverse effect on the Philippines in general, and on overseas Filipinos
, should oil producers cut costs and trim staff. There is need to manage the ne
ar-term impact on financial market volatilities and the government should consid
er more long-term solutions to possible disruptions.
Domestic considerations include intensification of the El Nio phenomenon (a very
clear concern we share) and the persistence of infrastructure gaps. Results of
the upcoming national and local elections may also influence global perception o
f Philippine growth prospects.

These risks, notwithstanding, we expect to see the country continue on the path
of low inflation, steady growth. Our confidence stems from the buffers we built
: a strong commitment to price stability, a stable banking system, a robust exte
rnal liquidity position and a safe, sound and efficient payments and settlements
system.
CLOSING
I began with the issue of the perception of scarcity, owing to the disconnect be
tween supply and demand of resources. I then shared some opportunities to scale
up services and further improve the quality of peoples lives; create and nurture
innovative partnerships; recognize and value our common and significant consume
r segment; leverage on technological innovation and increase our efforts for dev
elopment of our respective nations. These are consistent with the Rotary Club s
mottoes of "Service Above Self" and One Profits Most Who Serves Best.
It is incumbent on us to make the connections, technological, mechanical, and re

gulatory. As solutions to a problem: water scarcity and security, access to fin
ancial services and achieving overall inclusive growth are ultimately, solutions
for all. May we commit to an even stronger engagement and partnership as we fa
ce challenges and opportunities the unfolding operating environment offers.
Thank you and good evening.
Sustaining the Momentum for Inclusive Growth

Venue: Dusit Thani Manila, Makati City
Occasion: Chamber of Thrift Banks Convention
In preparing for my remarks, I considered your theme and two words leapt at me.
The first word is momentum. As you may know, this takes its roots from physics.
Some may remember its formula -- Mass x Velocity. In other words, mass in motion.
The second really, is a phrase -- inclusive growth. Picture this then, an object
, say, a truck called the initiatives and programs towards inclusive growth, that
is on the move and it will take some effort to stop it.
That is what this conference is all about. First -- how can we ensure a critical
mass of initiatives to keep us moving towards the goal of inclusive growth. An

d then, how can we make sure that we will continue in motion.
OUR CURRENT OPERATING ENVIRONMENT
In gathering my thoughts for todays event, I could not help but reflect on how th
e last seven months or so have affected our operating environment. Global growth
has slowed. Developments out of China have surprised markets. The US Federal R
eserve finally raised its target funds rate (Although just yesterday the Fed tur
ned dovish, retreating on their initially indicated four rate hikes in 2016 to j
ust two). Risk aversion was causing a de-risking. And oil supply was significa
ntly much larger than demand.
The net result has been a volatile financial market. And while it felt good to s
ee a full tanks worth of fuel cost significantly less, we remain cognizant of wha
t this was doing to our countrymen working in oil-generating economies.
Without overlooking these emerging developments, we should also not lose sight o
f the fact that our macroeconomic and financial market fundamentals remain solid
and intact. We have now had 68 quarters of continuous growth, finishing 2015 at
a full-year growth of 5.8 percent. Inflation was recorded at 1.4%, the lowest r
ate since the BSP adopted inflation targeting as our monetary policy framework i
n 2002.
Our Balance of Payments position for 2015 was at a surplus of USD2.6 billion, a
turnaround from the USD2.9 billion deficit in 2014. And with our gross internati
onal reserves still over USD80 billion, this is sufficient to service more than
10 months worth of imports of goods and payment for services. The exchange rate h
as sustained its relative competitiveness as it has moved in line with currencie
s in the region.
Based on our assessments, therefore, the current stance of monetary policy remai
ns appropriate, but we have flexibility to address developments should there be
reason to adjust our policy levers.
Certainly, the banking industry remains a clear pillar of strength. According to

S&P, and I quote, Philippine banks are looking forward to another solid year in
2016, thanks to the economys good growth prospects and banks healthy capitalizatio
n and asset quality.
Our favorable economic prospects are also noted by Fitch Ratings, which, for its
part, gave the Philippines the only positive outlook among Asia Pacific banking
systems for 2016 .
I am happy to note that thrift banks continue to contribute to the strength of t

he overall banking industry. The collective assets of TBs reached Php961.13 bill
ion as of November 2015 after growing annually by 10.71 percent for the past fiv
e years. Over the same period, deposit balances have been expanding at nearly 11
percent per annum [Php773.37 billion as of November 2015] while loans have grow
n just below 15 percent annually [Php 681.41 billion in November 2015].
QUO VADIS?
Given all of these developments, where do these take the thrift banking industry
? The textbook answer, is to follow your mandate under the Thrift Bank Act. Unde
r this law, TBs are expected to:
promote economic development and expand industrial and agricultural growth;
place within easy reach of the people the medium to long-term credit facilit
ies to agriculture, services, industry and housing at reasonable cost and
encourage industry, frugality and the accumulation of savings among the publ
ic.
While all of you are well aware of these, we all also recognize that these are n
ot trivial tasks and targets. These speak of thrift banks as an enabler of econo
mic development by encouraging retail savings and extending credit to targeted s
ectors.
Your mandate makes no distinction of where you are based or the environment with
in which you operate. This, I feel, is important to highlight because your own b
usiness strategy appears to reflect the more inclusive track of the industry. By t
his I mean that your branching footprint has clearly extended beyond cities.
Specifically, the number of thrift bank branches located in cities actually grew
by 26.3 percent (from 991 to 1252) between 2010 and 2015 but your branches in 1
st to 5th class municipalities grew by 37.5 percent (from 304 to 418). Certainly
, the bulk of your branches are still in 1st and 2nd class municipalities but I
am encouraged by the expansion elsewhere. What were just 35 branches in 3rd to 5
th class municipalities in 2010 are now 73 branches as of end 2015.
The numbers may be modest in absolute terms but the pace of growth is not trivia
l. Which brings me back to your conference theme: Thrift Banks: Sustaining the Mo
mentum for Inclusive Growth. Now, a critical question comes to mind-- How can/d
o thrift banks contribute to inclusive growth? I think with some pragmatism and
humility, we would be well-served to scope the response to this and say that thri
ft banks play a role in financial inclusion, which promotes inclusive growth.
INCLUSIVE GROWTH AND THE ROLE OF THE THRIFT BANKS
There are several policy issues which are being considered in the space of finan
cial inclusion. For thrift banks, I think two of these are most relevant.
First, we would want to ensure that there is symbiotic relationship between fina
ncial inclusion and financial stability. Certainly, it defeats our prudential pu
rposes if the attainment of one comes at the expense of the other.
Here, your expanding footprint strategy is a critical element. As banking servic

es are offered outside of the traditional city-centers, the expectation is that
the dynamics between inclusion and stability can very well change.
The BSP and the BIS are currently writing a paper on the relationship between in
clusion and stability to explore the empirical linkages. The preliminary results
suggest that information between a bank and its clients as well as the relation
ship between a bank and other banks in the vicinity do matter. This sounds rathe
r straightforward but the implications on the operations of banks are not simple
.
In practice, this means each bank must maintain a continuing dialogue with its
stakeholders. This kind of transparency is not just another disclosure regime. Ra
ther, it is communication that prevents surprises and allows stakeholders to mak
e informed decisions, avoiding the sharp spikes that often create and/or exacerb
ate evolving issues.
Furthermore, banks must be cognizant that stakeholders do look at the localized

community of financial service providers. In this day and age of electronic com
munication and affordable channels, financial consumers demand banking services, w
hich may no longer be necessarily supplied by the traditional brick-and-mortar ba
nking institutions.
This leads me to my second policy area which I often refer to as the totality o
f the client experience. As far as financial consumers are concerned, we live in
a digital age and financial services are expected to be delivered and are in the
form defined by financial technology.
The digitization of financial services, more popularly labeled as fintech, requi

res innovation and support. The BSP has put in place both its e-money and IT Ris
k framework to enable this environment. Financial consumers who need to transfer
funds from one branch to another of the same bank (lets say from Manila to relat
ives in the province OR between two branches here in Metro Manila) must be able
to do so with as less friction as possible.
In the event that something unexpected happens to such a transaction, this is wh

ere support comes into play. Here, the BSP issued its Consumer Protection Framewor
k that focuses on pro-active interventions such as financial literacy initiative
s and the necessity of having remedial recourse by way of redress.
The issues I just discussed are certainly relevant to thrift banks because you a
re the ones defining your target audience and by extension, you will have to pro
vide for the totality of your clients experience, regardless of where they may be.
FINAL THOUGHTS
Ladies and gentlemen, we spoke of the links between financial inclusion and fina
ncial stability; of how, as an industry, you would need to harness fintech to e
nrich your clients total experience. We also spoke of how your strategy of expand
ing branching footprint is helping to reach the underserved. These support our
belief that we are (well) on our way towards creating a critical mass in our col
lective initiatives towards inclusive growth. Importantly, this mass is moving.
By definition therefore, we have momentum. But, that is not enough, we need to
sustain it.
As the banking regulator, we will enable the environment with a commensurate reg
ulatory framework and calibrate as may be necessary. But the form and substance
of the banking products and services, including the means of delivery and distri
bution, are choices that only the banks can make.
Thrift banks will have to define your market niche, as individual institutions t
hat compete with others and as an industry that collaborates with the whole. Com
petition and collaboration may be flipsides of each other but the end goal will
have to be the totality of the experience of the financial consumer. Absent suc
h a positive experience, the financial consumer simply drifts to the shadows (i.
e., shadow banking) or chooses to be financially excluded. I trust that no one i
n this room will find that to be an acceptable outcome.
The National Strategy for Financial Inclusion (NSFI) has been launched, and we n
ow have to focus on its execution. I therefore look forward to your active parti
cipation in this endeavor.
Ladies and gentlemen, the work of financial inclusion is enormous. If we pursue

this individually, we are likely to only hardly make a dent. But collectively,
and forming a critical mass, who knows where our efforts will take us? We could
just very simply turn out to be unstoppable!
Thank you for your attention. Good morning.
National Strategy for Financial Inclusion Tactical Plans: Working Together with
the Private Sector
Venue: Assembly Hall A, Bangko Sentral ng Pilipinas
Occasion: National Strategy for Financial Inclusion Tactical Plans Exposure to t
he Private Sector
In May last year, in this same hall, we consulted many of you on the National St
rategy for Financial Inclusion (NSFI). In July, we eventually launched the NSFI,
enriched with your inputs, in the presence of Her Majesty Queen Maxima of the N
etherlands, the United Nations Secretary Generals Special Advocate for Inclusive
Finance for Development. Those who witnessed the Launch may remember that the BS
P and 12 other agencies signed a Memorandum of Understanding (MOU), signifying o
ur commitment to implement actions aligned with NSFI strategies.
We promised to continue working together with the public and private sectors in
NSFI implementation. Today, we gather again to keep that promise. Financial incl
usion is a multi-dimensional objective that can be achieved only through our com
bined efforts. Thus in this event, we emphasize the significance of your role as
NSFI partners and co-implementers.
We have three objectives: (1) Update you on what transpired since the Launch, pa
rticularly the Tactical Plans prepared by NSFI agencies; (2) Identify possible a
reas for collaboration, partnership, or support; and (3) Provide the venue for n
etworking with like-minded advocates and workers in the financial inclusion spac
e.
Updates since the Launch
With respect to our first objective, we are pleased to share that after the Laun
ch, the Department of Agrarian Reform (DAR) and Department of Science and Techno
logy (DOST) decided to commit as NSFI agencies. We now have 15 agencies altogeth
er, including the pioneers:
Department of Finance (DOF)
Department of Education (Dep-Ed)
Department of Trade and Industry (DTI)
Department of Social Welfare and Development (DSWD)
Department of Budget and Management (DBM)
National Economic and Development Authority (NEDA)
Insurance Commission (IC)
Commission on Filipinos Overseas (CFO) - Sec. Nicolas is with us this morn

ing and will address the audience
Securities and Exchange Commission (SEC)
Philippine Statistics Authority (PSA)
Philippine Deposit Insurance Corporation (PDIC)
Cooperative Development Authority (CDA), and
Bangko Sentral ng Pilipinas
These agencies each crafted Tactical Plans1, a set of specific, measurable, achi
evable, realistic and time-bound (SMART) actions that contribute to the achievem
ent of NSFI objectives, in line with their mandates. These Plans, together with
a proposed measurement framework, were submitted to the President in December 20
15.
In that submission, the NSFI agencies also proposed formalization of a Financial

Inclusion Steering Committee to provide strategic guidance, strengthen coordina
tion and facilitate efficient implementation of initiatives enrolled under the N
SFI. Some of you raised a similar suggestion during the NSFI consultations, with
the intent to ensure sustainability of initiatives and accountability in progre
ss monitoring. The proposed Executive Order (EO) is with the Office of the Presi
dent for consideration.
While we wait for hopefully some good news on the EO, we persist with the work a
lready begun. In todays program, co-chairs of the NSFI Inter-agency Working Group
s (WGs) will present a thematic overview of the Tactical Plans. The detailed des
cription of policies and programs contained in the Plans were earlier provided t
o all participants. Each initiative, classified under key focus areas of the NS
FI Policy and Regulation, Financial Inclusion and Consumer Protection, and Advoc
acy Programs is described in detail. At a glance, you can see the objectives, t
arget market, timeline, status of implementation, implementing partners, and mea
surable indicators of success. The inter-agency WGs worked on these Plans right
after the Launch, and are working even harder to implement and monitor milestone
s. We acknowledge the WG members who joined us today.
Do take advantage of this opportunity to engage with them. The WGs are open to y
our constructive feedback on ongoing measures, and bright ideas on future action
plans that we can all work together under the NSFI umbrella. This brings me to th
e next objective.
Identification of Areas for Collaboration, Partnership or Support
We hope that the information on the Plans can already inspire development partne
rs and private sector representatives present today to contemplate possible ways
of supporting the NSFI. The Plans contain measures already in operation, but th
ere is always room for convergence with private sector actions.
This is not meant to pressure you, but let me share some examples of private-led
programs categorically designed to support NSFI:
(1) International research institutions like Ideas42 and Innovations for Poverty
Action (IPA) respectively known for using behavioral sciences and randomized co
ntrol trials in financial inclusion research and program design are helping us f
ind pioneering solutions to increase access and usage of financial services by f
inancially excluded markets.
(2) PayMaya, Inc. (formerly Smart E-Money Inc., a BSP-licensed e-money issuer) l
aunched the PayMaya Card with NSFI in mind. It is now working with Dep-Ed to fin
d ways to encourage savings among K-12 students. Globe Telco is also currently w
orking with the Financial Sector Forums Consumer Protection and Education Committ
ee to facilitate information dissemination and enhance consumer protection.
(3) Two weeks from now, BPI Foundation and ASKI Global Ltd. (non-profit engaged
in entrepreneurship coaching for migrant workers2) will conduct a financial incl
usion summit on the role of remittances and migrant workers in inclusive growth.
All these initiatives were coordinated with the BSP, and purposely linked with N
SFI objectives, or facilitated thru the NSFI collaborative platform.
We are also pleased to share that the Asian Development Bank (ADB) and the World
Bank (WB) have committed resources to support various NSFI elements. For exampl
e, ADB will focus its technical assistance on strengthening microfinance NGOs; d
eepening agricultural value chain financing; and promoting e-payments, digital f
inancial services and microinsurance.
Meanwhile, the WB will focus on SME finance, financial education, consumer prote
ction, and data and measurement. In fact, the BSP and WB technical teams will me
et this week to define a practical approach for monitoring and measuring progres
s of NSFI implementation. Your inputs today in this particular area would be mos
t helpful in that meeting.
Aside from the afore-mentioned initiatives, a variety of private businesses and

entities have reached out to BSP, wishing to determine how they can engage in NS
FI implementation. These entities include technology providers, financial educat
ion program implementers, and even a consumer goods manufacturer. Their expressi
on of interest to contribute to financial inclusion is clear proof of boundless
possibilities for public and private sectors to work together. Thus, we designed
this event with the third objective in mind.
Networking Opportunity
This is a networking opportunity, and we encourage everyone to get to know key N

SFI stakeholders and industry players. We have a good mix present NSFI agencies,
development partners and donors; bank and non-bank financial service providers
and their associations; technology companies and other service providers.
Among yourselves, there is a wealth of complementary experience, expertise and r

esources that can be matched to generate beneficial alliances that can result in
greater financial inclusion. The program designates lunch (of course you can st
ay on) for everyone to mingle and network, talk about common interests, and cata
lyze concepts for potential collaboration.
This event is the first of many, and merely whets the appetite for greater engag
ement and collaboration among us. We plan to make this a regular activity to ens
ure continuity and synergy of public-private sector actions in financial inclusi
on.
Conclusion
The success of NSFI is dependent not only on the effectiveness of policy and pro
gram implementation by NSFI agencies. Success is also largely anchored on the p
rivate sectors response to NSFI initiatives.
With your support and commitment as NSFI co-implementers, we can be assured of f

uture successes. The BSP remains committed to lead and support the NSFI process.
On behalf of all NSFI agencies, we look forward to future productive partnershi
ps.
Thank you and good morning.

---------------------1Participants were provided with latest set of Tactical Plans (as of 01 April 20
16). This set is an updated version of those submitted to the President. All age
ncies have TPs except DAR, Dep-Ed, DOF and DOST.
2Incorporated in Singapore, related to the Philippine microfinance NGO Alalay sa
Kaunlaran, Inc. (ASKI)
Sustainable Inclusive Growth & Good Governance

Presented Date: Feb 10, 2016
Venue: Marriott Hotel Manila, Pasay City
Occasion: 2016 General Assembly of the League of Municipalities of the Philippin

es
Distinguished officers and members of the League of Municipalities of the Philip
pines (LMP) under the leadership of National President Sandy Javier, fellow work
ers in government, special guests, magandang hapon sa inyong lahat!
Thank you for inviting the Bangko Sentral ng Pilipinas to your general assembly
with the theme 2016 and Beyond: Promoting Good Governance and Sustainable Inclusi
ve Growth.
This is the first time for me to speak before an association of local government
executives. Some of you may be wondering why a Central Bank governor is addres
sing municipal governments. Well, two reasons. First, LMP National President J
avier is a former classmate in college and two, BSP shares your objective of pos
tering sustainable inclusive growth.
Pareho po tayo. Clearly, our government --- at the national and local levels -believes that promoting sustainable inclusive growth and good governance go han
d in hand.
In this connection, I am pleased to report that our track record s
hows that we continue to achieve major gains in both fronts.
Just the other week, the National Economic and Development Authority reported th
at that our economy expanded by 6.3 percent in October to December last year. La
dies and gentlemen, this means that the Philippines has achieved 68 quarters of
uninterrupted or sustained economic growth.
This brought the average full year economic growth of the Philippines to 5.8% in
2015, among the highest in Asia after India, China and Vietnam. Our growth wo
uld have been better if we did not have to deal with the adverse effects of El N
ino, other weather disturbances and adverse external conditions.
In fact, analysts describe Philippine economic growth as remarkable, as it is ta

king place when the global economy is slowing down as a result of financial and
geopolitical challenges.
NEDA said this level of growth (in the last five years) has not been seen in the
past four decades as this is based on public and private investments in areas t
hat create jobs, increase incomes, and improve peoples wellbeing. In other words,
these are investments that promote sustainable inclusive growth. On the part of
the BSP, we continue to be successful in providing stability to prices through
our monetary policies and in keeping our banking sector sound, stable and liquid
All these give us cause to be optimistic about sustaining inclusive growth in 20

16 and beyond,... particularly if adherence to good governance becomes the norm
from the national agencies as well as to the local government units.
Members of the LMP, good governance is also the rationale that underpins the req
uirement by government to get prior opinion of the BSPs Monetary Board (MB) on al
l government loans, including those from LGUs to ensure that borrowings are cons
istent with overall state financial goals. This requirement is essentially based
on the 1987 Constitution (Article 12) that mandates the BSP to provide policy d
irection in the areas of money, banking and credit. Furthermore, Republic Act No
. 7653 or the BSP Charter (Section 123) provides that the BSP functions as fin
ancial advisor on official credit operations of the Government, its political su
bdivisions and instrumentalities.
The objective is to enable the BSP to monitor public sector borrowings and to as
sess their impact on monetary aggregates, the price level and the balance of pay
ments in fulfillment of its role and mandate to promote and maintain monetary an
d financial stability.
As you may know, requests for MB opinion on planned borrowings may be submitted
directly to the BSP by the LGUs or through the lending banks.
The BSP recognizes the importance of credit to LGUs, particularly municipalities

. Thus, the BSP has issued circulars to streamline the documentary requirements
and facilitate the review process on how LGUs can secure MB opinions on LGU loan
s.
We have since registered a significant increase in LGUs engagement with the BSP.
In 2015, the BSP received a total of 347 requests for MB opinion, an increase o
f 35 percent from the 257 requests in 2014. The cooperation of the LGUs and lend
ing banks enabled the BSP to render MB opinion on 334 or 96 percent of these req
uests.
About 76 percent of the requests we received in 2015 came from municipalities, i

nvolving a total of P12.2 billion. It is notable that the majority of the loans
for which BSP rendered an opinion in 2015 were used for infrastructure projects
such as farm-to-market roads, public markets and multi-purpose halls.
These purposeful spending by local governments provide a boost not only to commu
nity development but also to broader national growth. Indeed, in the context of
governance, local government units play a significant role in ensuring that inve
stments made translate to better infrastructure, employment generation and susta
inable inclusive growth.
The BSP continues to review its procedures to further refine and facilitate the
process of securing an MB opinion, as well as to address issues concerning the l
ength and the validity of the MB opinion. These efforts constitute BSPs support f
or LGUs in delivering critical economic and social services to your constituents
.
In addition, the BSP continues to develop an inclusive financial system that sup
ports sustainable inclusive growth. This covers economic and financial education
, consumer protection, as well as access to credit through microfinance or the C
redit Surety Fund program.
As of January this year, there were 45 operational Credit Surety Funds across th
e country. Together, they have granted more than P2 billion in loans to Micro, s
mall and medium enterprises or what we call MSMEs. Under this program, collatera
l-challenged MSMEs that are members of cooperatives gain access to bank loans wi
th credit guarantees issued by the Credit Surety Fund.
In some provincial CSF
s, certain municipalities share in the pooling of contributions of cooperatives,
banks and NGOs to provide surety cover or guarantees for credit-worthy MSMEs.
You will also be happy to know that the BSP and 12 other government agencies are
now working together to implement the National Strategy for Financial Inclusion
, a common platform to reach out to the unbanked and the underbanked sectors of
our society so that they can benefit from being part of the formal financial sys
tem.
We hope to partner with the LMP and its members to make this a truly successful
grassroots program. For your constituents and your municipalities, financial inc
lusion means being part of the mainstream where financial services such as depos
its are safer and where loans are infinitely more affordable (from 15 to over 20
%), compared to informal lenders who charge as much as over 1,000 percent in i
nterest per year. This should generate tremendous benefits for those who remain
outside our financial mainstream.
Finally, we seek the support of the LMP to continue to inform your constituents
about our demonetization program. That while the old banknote series can no long
er be used to pay for goods and services, they can still be exchanged for the ne
w generation banknotes at banks or at the BSP branches and regional offices acro
ss the country until December 2016.
Ladies and gentlemen of the LMP. Sustaining the momentum of the Philippine econo
mic success story lies on the decisions we make and the actions we take today; t
hey provide the foundation on which to sustain economic activities that generate
jobs and improve the lives of Filipinos. The task before us therefore is to sec
ure this position of strength and deliver on our commitment to our constituents,
amidst continuing change and challenges.
Let us continue to work on our common goal: to promote sustainable inclusive gro
wth and good governance in 2016 and beyond.
Marami pong salamat sa LMP. Mabuhay ang ating mahal na bansang Pilipinas! Mabuh
ay po tayong lahat!
Philippines in 2016: Sustaining Resilience Amid Headwinds

Venue: New World Manila Bay Hotel
Occasion: 3rd Business Forum of The Manila Times
I am pleased to join you this morning for the 3rd Manila Times Business Forum.
There are quite a number of fora that tackle economic outlook and issues of the
day, but I dont know of any that is organized by a private institution, which dat
es itself to the time the country became independent from Spain!1 In addition, T
he Manila Times President & CEO Mr. Dante Ang said earlier that this forum gathe
rs various speakers, including those officials from institutions such as IMF, WB
and BSP to present their prognosis for the economy this year.
Very few institutions stand the test of time - technology, innovation, and more
recently, social media, among others; change the way we do things, how we perc
eive events, and therefore how we react.
Central banking in the Philippines is just 67 years old and yet the events of th
e last two decades have dramatically changed how we do things.
I am sure many, if not all of you, have heard of central banks lowering their po
licy rates to negative territory, of quantitative easing (QE), and of macroprude
ntial measures. In reality, the central bankers tool box now contains other impl
ements beyond the traditional interest rate and on-site supervision. But, I am g
etting ahead of myself here. Ive been asked to speak on the Philippine economic o
utlook for 2016.
While that seems much focused, our conversation today will certainly touch upon
global events of the last few years and our expectations beyond 2016. For me to
speak of 2016 however, I need to take a step back.
A newspaper lives or draws interest from its public through its headlines. And
since this Forum today is being hosted by The Manila Times, I thought I would fr
ame my talk today as a series of headlines.
My first is this The Philippines entered 2016 from a position of relative streng
th.
The country grew 5.8 percent for the full year 2015. If we take Q4 alone, the co
untry grew at 6.3 percent, making us the 4th fastest growing economy in Asia, fo
llowing India, China and Vietnam. That Q4 performance also brings to 68 the numb
er of consecutive quarters of positive economic growth. The services sector rema
ined the biggest driver of output while the resurgence of manufacturing also hel
ped to strengthen our base for growth. Growth also continued to be buoyed by st
rong private spending, aided by the increase in domestic employment and the stea
dy inflow of remittances from overseas Filipinos (OFs). The catch up in fiscal sp
ending in 2015 also helped to raise domestic output.
We experienced this strong economic growth together with low and stable prices.
For the full year 2015, the average inflation rate stood at only 1.4 percent, th
e lowest registered since the BSP adopted the inflation targeting framework in 2
002. In the BSP, we characterize this sweet spot as - the positive convergence of
strong growth and low inflation.
For certain, the countrys healthy banking system founded on years of judicious re
forms, including financial inclusion initiatives, aided the countrys economic exp
ansion. Our banks balance sheets have remained strong. In particular, our banks m
aintain high capital, with capital adequacy ratio above national regulatory and
international standards and the quality of their assets continues to improve, wi
th declining NPL and NPA ratios.
The countrys external liquidity position has also continued to be robust and help
ed shield the economy and the domestic financial markets from the worst effects
of the global shocks.
Our current account has been in surplus since 2003 supported by steady remittanc
es and, in more recent years, strong receipts from the business process outsourc
ing sector. For the full year 2015, the overall balance of payments (BOP) positi
on yielded a surplus of US$2.6 billion, a reversal from the US$2.9 billion defic
it in 2014. Last Friday, we released the balance of payments position for Janua
ry 2016. It was a deficit of $0.81 billion, which was due to the payment of Nati
onal Government (NG) debt service and the BSPs foreign exchange (FX) operations t
hat were only partially offset by FX inflows from deposits of the NG and BSP inc
ome from abroad. We see this deficit as temporary and we expect a turnaround in
the BOP position later this year, similar to what we experienced in 2015.
Our gross international reserves continue to grow. At end 2015, our gross intern
ational reserves (GIR) stood at US$80.7 billion, over US$1.0 billion more than
that registered in 2014. This level of reserves can cover 10.3 months worth of i
mports of goods and payment for services and income.
These encouraging developments have helped elevate third-party assessments on th

e domestic economys progress and prospects. Several indices of the country have m
oved up. These indices include those on transparency, governance and ease of doi
ng business, among others. In September last year, Fitch upgraded its credit out
look on the Philippine economy to positive from stable. This is important because it
raises the prospect that Fitch would upgrade the countrys credit rating in the n
ext 12-18 months.
Ladies and gentlemen, the facts and figures that I just discussed provide eviden
ce to support the first headline, that is, that the Philippines entered 2016 fro
m a position of relative strength.
My second headline: The Philippines is SEEN to SUSTAIN resilience in 2016.

Resilience is a word that many use, but it is important to remember that this is
a word that holds meaning only when it is taken in context. In other words, in
a specific circumstance. Clearly, resilience cannot be tested if one is sailing
over calm seas.
For us, 2015 was not at all calm. It was a challenging year. The markets and oth
er policy makers were cautious. We were all waiting for the Fed lift off (or when
the Fed would begin to raise its target rate). We werent sure where oil prices we
re headed. We didn t know how to fully interpret the actions by Chinese authorit
ies, including the devaluation of the Renminbi (RMB). And yet, in the face of al
l these uncertainties, the country stood its ground in 2015.
2016 was off to a bumpy start. While, we foresee the same risk factors in 2016
as those in 2015, it may be more difficult to predict how these factors would pl
ay out in 2016. Policy makers are being more sensitive to spill overs and spillb
acks to their economies. And market sentiment continues to be shifty. Let me quick
ly go through how we see each challenge evolving in 2016.
Let me begin with China. When the global financial crisis (GFC) started in 2007/
2008, global growth remained afloat because the emerging markets, the largest of
which is China, were growing. This time around, Chinas growth prospects are not
as clear-cut as then. There is now debate whether China could experience a hard
landing. This is creating market uncertainty, because in addition to contractio
n in global trade, a significant slowdown in China could also put downward press
ure on global commodity prices.
Furthermore, the markets are carefully watching the Chinese authorities next move
s to liberalize their markets. You may recall the stock market rout in China in
August last year. That was precipitated by the surprise RMB devaluation. That le
d to a sell-off in equities across the globe. Analysts say that to avoid a recur
rence of such adverse reactions, markets need to see more cohesiveness in the po
licy measures from Chinese authorities, as well as clarity in their communicatio
n.
In the US, the Fed, in December 2015, determined that the US labor market condit
ions and inflation outlook already warranted lift off. Based on the assessment of
the FOMC members then, the Fed was projected to raise its target rate by 100 bas
is points in 2016. But more recent statements of some Fed governors now reveal l
ess conviction in terms of the speed and magnitude of normalization of its polic
y. Even Fed Chair Yellen indicated in her latest testimony to the US Congress t
hat foreign economic developments could pose risks to economic growth. Some analy
sts have taken these recent statements to mean that the Fed may delay its next t
ightening moves. This uncertainty is heightening market volatility - yet again!
Turning to oil oil price is now at about $30 per barrel (pbl). In mid-2014, it w
as about $108 pbl. While the rate of decline has decelerated, the price is now
at levels that have triggered major oil producers to come to the table to discuss
the possibility of freezing production to specific output levels. Global oil suppl
y has overtaken demand since 2014.
Oil importers such as the Philippines benefit from low oil prices. Low oil price
s feed positively towards lower inflation and encourages domestic economic activ
ity. But low prices are double-edged in that significantly low oil prices could
lead to oil-exporters cutting back on capital expenditures. This in turn may tri
gger a decline in global trade and growth.
The uneven global growth prospects, the differences in the policy actions across
the globe, and the uncertainty in oil price movements are triggering global por
tfolio rebalancing. As market players flesh out their interpretation of these de
velopments, volatility in financial markets is heightened.
According to the Institute of International Finance (IIF), emerging market econo

mies (EMEs) experienced strong net capital outflows in 2015. It forecasts that f
urther net outflows from China are expected to continue in 2016. These net movem
ents of funds from EMEs in 2015 have been reflected, among others, in a decline
in ASEAN stock market values and an increase in the volatility of currencies in
the region.
How could these developments impact the Philippines?
I already spoke earlier about the positive impact of low oil prices on the Phili
ppines which it helps reduce inflationary pressures while encouraging domestic c
onsumption. We could, however, be adversely affected if the low oil prices caus
e export destinations of our OFWs in the Middle East to cut back on employment.
As for the divergent growth prospects in the US and China, we could be affected
via the trade channel. If US growth will continue and gain further traction, t
his could mitigate the impact of a slowdown in China.
Furthermore, our domestic financial markets have not been spared from the market
volatility that these external developments have stirred. The Philippine Stock
Exchange index (PSEi) fell, credit default swaps (CDS) and bond spreads widened,
and the peso depreciated.
To complete the picture, I should mention that we have our own domestic consider
ations in addition to these external challenges. Most prominent of our domestic
risks are the prospects of a prolonged El Nio and the persistence of the infrastr
ucture gaps.
Ladies and
aid, while
ily be the
off, This
gentlemen, this is the operating environment expected in 2016. As I s

its the same factors, how these factors will play out may not necessar
same in 2016. To paraphrase the title of the book of Reinhart and Rog
time it COULD BE different.
You may ask How can we claim (as a second headline) that the Philippines will sus
tain its resilience in 2016? First, because we have come into 2016 from a positio
n of relative strength. This was my first headline. Second, from the point of vi
ew of the BSP, we have been focused in our policy thrusts.
We are forward-looking in our policy formulation. Let me illustrate using our mo

netary policy. In 2014, we moved pre-emptively, in anticipation of the Fed lift
off. Markets had been talking about lift off since the Fed taper tantrum in May 201
3. But because until 2014, the Fed had only moved to end QE and not actually rai
se rates, markets kept on pushing the envelope, so to speak, in terms of maximiz
ing the benefits of low interest rates.
Through a series of tightening measures, we communicated to the market then that
players should begin to take stock of how they were assessing and pricing risk.
In a way, the BSP was reminding banks (and the general public) that interest ra
tes would not remain low forever, and that there is need to re-think business mo
dels and investment strategies. We also ensured that our tightening measures wer
e consistent with the inflation outlook at the time. Because our actions were e
arly enough, our markets were well-positioned when the Fed finally raised its ta
rget rate in December 2015.
We are not only forward-looking; we are also calibrated in our actions and mindf
ul of the idiosyncrasies of our domestic economy.
Let me illustrate using our approach to banking reform. In the aftermath of the
GFC, the global financial market reform agenda was thick and heavy-handed, prima
rily because there was much fear of a recurrence of crisis from slack regulation
. The Philippine banking system was not as affected by the GFC. In part, because
our bankers are inherently conservative.
Therefore the BSP adopted the global reforms in a calibrated manner and only as
appropriate to our domestic conditions. We were an early adopter of the capital
requirements under Basel 3, and we are now phasing in the rest of the components
of Basel 3.
In addition to adopting global reforms that are suited to our particular require
ments in a timely manner, we also put out regulations and guidelines that are in
tended to raise bank governance standards, strengthen credit, operational, IT ri
sk management and internal control frameworks, and improve market conduct.
Our approach to regulatory reform is anchored on Financial Stability. This is an

important lesson we learned from the GFC. Most policy makers have now come to r
ealize that having strong individual banks, while that is necessary, is NOT suff
icient. Policy makers need to consider the strength and soundness of the system
as a whole.
Our regulations benefit from consultation with the banking industry and are evid
ence-based. We meet with industry associations and groups 15 in all through th
e BSP Supervisory Policy Committee.
Putting all these together, you can see that our approach to regulatory reform a
nd adoption is comprehensive and strategic. Our goal is not only to grow strong
domestic banks but also banks that can compete in the global arena, particularly
when ASEAN integration comes to full swing.
BSP policy formulation is forward-looking. It is calibrated and consultative. It

is also based on solid academic foundations and strong market surveillance. In
policy formulation, the BSP uses various econometric and macro- models. To help
ensure that these tools are current against the latest economic research, we con
stantly fine tune our forecasting models, stress-tests parameters; recalibrate e
arly-warning systems and distress indices.
You may have also heard about our implementation of the interest rate corridor (
IRC) in Q2 2016. As weve emphasized in our public briefings, the implementation o
f the IRC is an operational change. It is not a shift in our monetary policy fra
mework. We will continue to be an inflation targeting central bank. The objectiv
e of the operational shift is to allow BSP to better steer short-term market int
erest rates towards the BSP policy rate. This should make the transmission of ch
anges in the monetary policy stance to the rest of the economy more effective.
Ladies and gentlemen, while we are improving how we do things, there will be no
change in our primary mandate we will keep our eye on inflation. At our most rec
ent policy meeting, we kept policy rates steady (at 4 percent for the reverse re
purchase rate). Our view was that domestic demand continues to be quite robust a
nd there is no urgent need to provide further monetary stimulus.
Our models showed that even as inflation is currently below our target range of
2-4 percent (i.e., 1.3 percent in January 2016), inflation will slowly move to w
ithin target in 2016 (i.e., 2.2 percent) and 2017 (i.e., 3.2 percent). Going fo
rward, we will continue to closely monitor the inflation process.
We will also keep our FX policy of allowing the exchange rate to be determined b
y market forces. We are mindful that the peso is sensitive to external developme
nts, so we will have scope for official action to limit excesses in exchange rat
e movements.
Ladies and gentlemen, let me reiterate, we have the policy space to respond to u
ncertainties in the external and domestic environment. We will therefore make a
djustments to the stance of policy as conditions warrant.
Headline number 3: A stable macroeconomy should be inclusive.
Some of you in the audience may be wondering why the Central Bank Governor would
speak about inclusiveness. With the many macroeconomic and banking concerns it
already has, should the central bank still be involved in inclusion. Our respons
e in the BSP is YES, we should. We cannot ignore the financial consumer. When a
ll is said and done, the purpose of a stable macroeconomic environment is ultima
tely to improve the consumers well-being.
In the BSP, we have institutionalized financial inclusion in our strategic agend

a. We put in place banking regulations that leverage on technology to increase a
ccess to financial products for the underserved and unbanked, strengthen financi
al consumer protection, and raise financial education and awareness to these new
financial products and modes of delivery.
We will also pursue the development of our National Retail Payments System or NR
PS. The NRPS should move the country from being cash-heavy to being cash-lite. The
NRPS is expected to improve transparency, security, and efficiency and reduce c
osts in financial transactions.
Ladies and gentlemen, I presented three headlines. First, the Philippines bucked
the trend in 2015. Next, we will continue to be resilient in 2016. And, finally
we will endeavor to share the fruits of a strong macroeconomy to a broader cros
s-section of the economy. These three should be sufficient to make a full page o
f news.
Indeed, our country has continued to expand despite the difficult external and d
omestic operating environment. It has been said that difficulty or adversity BUI
LDS character. In a way, we can say that the challenges our country has faced so
far, and continue to face, have helped BUILD our character. We have also built
buffers in the interim. And have become stronger as a nation.
But, I also believe difficulties or adversities REVEAL character. The challenge

s and difficulties we have faced have revealed that we, as a nation, have what i
t takes to be resilient.
However, ladies and gentlemen, these sources of resilience and buffers, the gain
s that we have attained so far, all these can only be fully harnessed if YOU in
the private sector will continue to do your part as well. YOU turn the wheels of
industry and business. YOUR actions will help solidify these gains. I hope to
see YOU make headlines of your own. Headlines that will help ensure the Philipp
ines sustains resilience in 2016 and beyond.
Thank you.
-----------------1 The tagline of The Manila Times Trusted since 1898
Looking Back to Move Ahead in 2016

Presented Date: Jan 7, 2016
Venue: Manila Polo Club, Makati City
Occasion: Joint Meeting between Rotary Club of Manila and Rotary Club of Forbes
Park
Distinguished officers and members of the Rotary Club of Manila under the leader
ship of President Eusebio Tan and the Rotary Club of Forbes Park represented tod
ay by Immediate Past President John Tiong, special guests, ladies and gentlemen,
good afternoon.
Thank you for inviting me to this joint membership meeting of the RCM and its yo
unger counterpart RCFP. As the oldest Rotary Club in Asia, dating back to 1919,
RCM will turn 97 years old this year. Few organizations last for nearly a centu
ry, much less remain dynamic, relevant and influential, like RCM. For this, the
men and women of the RCM deserve our congratulations!
In this connection, I am delighted that you have made me a part of your hist
ory by inviting me every year since I became Governor of the Bangko Sentral
ng Pilipinas to share my assessment of our economy its past, present and futu
re. And since I have always accepted your invitation every year, I am marki
ng today my 11th year as RCMs January speaker. Thank you RCM.
Now, what can I tell you about the Philippine economy.
Well, I can say that if the first seven days of this year is any indication, 201
6 will be far from boring it will be riveting and challenging.
Last Monday, in the first trading day of the year, stock markets across the glo
be did not simply drop, they plunged in the US, in Europe and in Asia. In par
ticular, China shut down trading for the day under its new circuit breaker rule
when stocks tumbled beyond seven 7%. This has been described as the worst openi
ng day for a new year in China, the worlds second largest economy. This rattled c
urrency markets as well. Today, Chinese stock market was shut down again.
Meanwhile, geopolitical concerns in the Middle East add to fears of volatility.
Analysts warn of more wild price swings as the global economy slows down.
On the other hand, these are early days -- just the first week in the year. It
is way too early to tell if this trend will last. As the Greek philosopher Aris
totle once said one swallow does not a summer make.
From the Philippine perspective, we move forward in 2016 with cautious optimism.
We are cautious -- because we are mindful of the challenges ahead and of the p
ossibility that our operating environment can change so swiftly at a scale we ma
y not have anticipated. Yet we are optimistic because we start from a position
of strength, having managed to address obstacles we encountered in 2015 and the
great financial crisis in 2007-2008.
At this point, it will be helpful if I give an assessment of 2015 and then move
on to 2016. After I complete my narrative, you can make your own judgment on th
e state of our economy.
Recalling 2015
2015 brought with it, its own challenges and opportunities. Global growth remai
ned uneven, resulting in a divergence in policy responses from major central ban
ks the US Fed finally went ahead with its much-awaited lift-off and raised interest
rates; China devalued its currency; while the European Central Bank provided fu
rther stimulus to its economy with interest rate cuts and an expanded bond purch
ase program.
These external headwinds made for some rough sailing for the Philippines in 2015
due to higher risk aversion among investors. Some capital flowed out particular
ly in the second half of the year, the Philippine stock market took a hit and th
e peso depreciated. There were similar shifts in financial markets across emergi
ng Asia.
Nevertheless, domestic sources of resilience kept the Philippine economy on a st

eady non-inflationary growth. Low and stable inflation -- 1.4% in 2015, the lo
west since the BSP adopted the inflation targeting framework in 2002 -- continue
d to encourage investments and business expansion. In the third quarter of 2015
, our economy grew at an accelerated pace of 6.0 percent. This made the Philippi
nes one of the fastest-growing economies in Asia in the first nine months last y
ear.
At the same time, the countrys sound, stable and liquid banking system provided s
olid support to our economy in 2015, with bank lending continuing to grow in dou
ble-digit rates, with credit flowing particularly to the productive sectors. And
as a result of the continuing cooperation between the BSP and the banking secto
r to continue to enhance governance and risk management practices of banks, indu
stry profitability improved further with return on equity rising from 9.67% in S
eptember 2014 to 10.04% in September 2015; asset quality got even better with gr
oss NPL ratio improving to 2.32% in September 2015 from 2.56% in September 2014;
while deposits reached record-high levels, increasing by over 9% year-on-year t
o nearly P 8.8 trillion as of September 2015.
Meanwhile, the countrys strong external position continued to inspire confidence
among investors and creditors, with the current account remaining in surplus, gi
ven the steady inflow of remittances from overseas Filipinos and receipts from B
POs, and a healthy level of gross international reserves that can support a robu
st economy.
I am pleased to inform you that preliminary GIR at end-December 2015 was reporte
d at US$80.6B, over US$1B more than the level at end-December 2014. At $80.6B,
the reserves can cover 10.3 months worth of imports and payment for goods and ser
vices.
Third-party sentiment on the domestic economys prospects also remained bullish. T
he international credit rating agency Fitch upgraded its outlook on the Philippi
ne economy to positive from stable in September 2015. This is an indication of possi
bly yet another credit rating upgrade within 18 months.
In other words, ladies and gentlemen, the Philippines remained stable in 2015 an
d went on to post 67 quarters of uninterrupted economic growth against a harsh e
xternal environment.
Looking ahead to 2016
Looking ahead to 2016, there are at least three challenges that the BSP should f
ocus on. We can summarize them into three key words -- stability, liquidity, and
opportunity.
Let us start with stability. In 2016, the BSPs primary concern will be to conti
nue to provide a stable environment where inflation is low, stable and within ta
rget. Our latest forecasts show that the path of inflation will be consistent wi
th the National Governments target range of 2 to 4 percent in 2016-2017.
However, there are potential upside pressures to inflation. Food prices are like
ly to be affected by El Nio, other weather disturbances, and increases in utilit
y rates. On the other hand, downside risks could come from slower-than-expected
global economic activities that could further lower oil and commodity prices. Th
e BSP will continue to monitor national and global developments to ensure that o
ur monetary policy stance remains appropriate.
In addition, the BSP will continue to find ways to further enhance the effective
ness of our monetary policy. Among others, we will adopt by the second quarter t
his year, what we call the interest rate corridor or IRC system. This is calibra
ted to keep interest rates within a reasonable range around the BSPs benchmark po
licy rates.
The second challenge we see in 2016 is liquidity and financial stability. Discu
ssions on financial stability often revolve around liquidity. Where it comes fr
om and where it goes, will determine its impact on the financial system and, ult
imately, on the real sector.
As we have learned from recent episodes of financial crises, too much liquidity
can cause potentially dangerous asset price bubbles; too little and the economy
could contract. The ideal is when liquidity is adequate and it is channeled towa
rd productive uses and opportunities.
Indeed, we need to ensure that the liquidity that is already in the financial s
ystem is channeled effectively toward productive uses.
Another concern is how domestic liquidity conditions could be affected by the US
Feds decision to raise interest rates, by the weakening Chinese growth prospects
and by the heightened volatility in their financial markets.
Nevertheless, we have reasons to believe that the overall impact on our economy
would be manageable due in large part to the pull factor of the Philippines strong
macroeconomic fundamentals.
At the end of the day, the move by the US Fed to raise rates also signals a rela
tively more vibrant outlook for the US economy which could have positive spillov
er effects through revitalized trade flows. Meanwhile, a more market-oriented Ch
inese market could also have positive long-term effects on the global economy by
ushering in a more sustainable growth path.
It is also important to note that the BSP has policies and measures to help cush
ion the economy from external shocks. These include (1) upholding a market-deter
mined exchange rate with an option to maintain its presence in the foreign excha
nge market to minimize volatility; (2) keeping a comfortable level of reserves a
nd managing them prudently; and (3) providing access to domestic and foreign exc
hange liquidity through various facilities.
We will also align our supervisory policies with international standards, to pro
vide a more level playing field for our local banks. This is crucial as we prepa
re for the entry of more regional and international banks under the ASEAN econom
ic and financial integration program.
Indeed, we
to handle
strengthen
ence rates
need to do much more to be competitive in the region. we need be able

more complex financial transactions and instruments; and we need to
our pricing conventions and price discovery mechanisms, so that refer
and benchmarks accurately reflect market valuation.
The BSP has been consulting with industry stakeholders, other government regulat
ory agencies and our counterparts overseas, to help nurture the countrys growing
money and capital markets.
These efforts tie in closely with our third challenge: opportunity and financial
inclusion. Given the healthy growth of our economy, there are many opportunitie
s in the Philippines today. Our challenge is to bring these opportunities to th
e people who stand to benefit the most from them.
The National Strategy for Financial Inclusion provides us the platform to reach
out to the unbanked and the underbanked by delivering suitable financial product
s to different market segments through responsible and innovative business model
s, while providing the citizens with adequate education and protection as client
s of the financial system.

To be implemented by the BSP with 12 other government agencies, NSFI serves as t
he countrys road map for catalyzing inclusive growth through the development of a
more inclusive financial system.
To give you an idea of the challenges we face in our financial inclusion program
, I will share some highlights of our maiden National Baseline Survey on Financi
al Inclusion. The survey, completed in 2015, showed the following results:
25% of Filipino adults (those aged 15 years and above) have never saved, 32%
used to save, and only 43 % presently have savings.
Of those who save, only 33% keep it in banks; the rest keep their savings at
home.
About 47 % of adults have outstanding loans. The main source of borrowing i
s informal from family, relatives, friends and informal lenders. The share of b
ank loans is only 4.4% of the total.
Only 3.2 percent of adults have microinsurance coverage.
Clients rated themselves as only somewhat satisfied with how issues were resol
ved in most financial service access points.
Ladies and gentlemen. The survey results tell us that we have a long way to go t
o achieve financial inclusion and that there are plenty of opportunities for tho
se looking to expand their business or to introduce meaningful game-changing inn
ovations to help improve the lives of Filipinos.
Clearly, we need broad-based cooperation from local and international institutio
ns to address these gaps. With more institutions as partners, we can make substa
ntial gains on our financial inclusion targets.
Concluding remarks
Ladies and gentlemen of the RCM and the RCFP. In 2016, both external and domesti
c developments will compel us to remain watchful in guarding against threats to
growth and stability. These challenges will revolve around promoting price stabi
lity through prudent and responsive monetary policy; channeling liquidity toward
productive uses while maintaining financial stability; and delivering opportuni
ties for growth and investment through financial inclusion and literacy.
We see continued economic challenges for the Philippines moving forward. Neverth
eless, our success in keeping our economy on the growth path in the midst of glo
bal volatility gives us confidence that we have what it takes to deal with the c
hallenges that will come our way.
Among others, our economys non-inflationary growth momentum, sound banking system
, and favorable external liquidity position provide your policymakers, including
the Bangko Sentral ng Pilipinas, enough flexibility to respond appropriately to
evolving domestic and global conditions.
We can look forward therefore to 2016 with cautious optimism. Let us also take h
eart from third party assessments that continue to give us high marks. In the pa
st, the Philippines was called the sick man of Asia. In recent months, we have b
een described as a star among emerging economies. More recently, we were describ
ed by analysts as the regions economic strongman due, among others, to our resili
ent growth. This is well and good.
But we can make it better. Let us work together on spreading the benefits from s
ustained economic growth with those who need it the most. RCM and RCFP lead the
way in such programs. Hopefully, we can get more advocates to work on financial
inclusion that supports sustained inclusive growth.
If you are interested, we can provide a briefing on the National Strategy for Fi
nancial Inclusion so that you can assess how to support it as private sector par
tners.
With the collective wisdom, expertise and influence of the members of the RCM an
d RCFP, I have no doubt, you can increase your sphere of influence to benefit mo
re areas and more people.
Finally, on behalf of the Bangko Sentral ng Pilipinas, I wish all the officers a
nd members of the Rotary Club of Manila and the Rotary Club of Forbes Park, a ha
ppy, healthy, and prosperous 2016!
Mabuhay ang RCM and RCFP! Mabuhay ang Pilipinas!
Mabuhay po tayong lahat! Maraming salamat sa inyo.
Titans and a Position of Strength

Venue: Philippine International Convention Center
Occasion: 40th Commencement Exercises, Manila Tytana Colleges
I understand there are 183 graduates today bringing the number of your instituti
ons degree-holders to a total of 7,960 for the last 40 years. I would like to beg
in by recognizing the graduates. Please clap/cheer as I call on your programs:
BS Nursing;
BS Psychology;
BS Business Administration Major in Human Resource;
BSBA Operational Management;
BSBA Marketing Management;
BSBA Financial Management;
BS Holistic Nutrition with Culinary Arts;
BS Information Technology;
BS Hotel and Restaurant Management
I understand that todays commencement exercises include the first batch of bachel
or of accountancy graduates. Where are you BS Accountancy grads? The 4 of you ar
e Tytanas pioneer batch and it is auspicious that this is your schools 40th Commen
cement Exercises. 4 at 40. What a momentous event!
Whenever I pass Macapagal Avenue, I am always impressed by the clean and modern
facilities of Manila Tytana Colleges.
I noticed that on your faade, hangs a banner saying, Welcome Home Titans. Titans is a
moniker you adapted for yourselves.
Today, instead of being welcomed home, you are being sent out into the world. Wh
at kind of world is it? What future does the world beyond PICC and Macapagal Ave
nue hold for the Titans, the Filipino youth?
You are joining the employment force as the country enjoys its demographic sweet
spot. Your school slogan is, Tytana, your edge. Do you know that we are on an edg
e as well? We are on the edge of economic opportunity. We are entering a demograp
hic window historically proven to be the most prosperous years of a country, wher
e millennials comprise a significant consumer segment in the economy.
As part of the countrys large, young and highly literate population, YOU will giv
e us the edge in seizing the opportunities economic development will bring.
In the Philippines, the median age of our population is 24. In Japan, it is 47.
In the U.S., it is 38. As the largest portion of the workforce, the youth will
play a key role in driving growth and economic development.
In several of my messages to diverse audiences this year, I emphasized

that despite challenges in the global economy, the Philippines entered 2016 fro
m a position of strength. I say this with confidence as we look at the numbers.
The national unemployment rate continues to decrease to 5.8 percent compared to

6.6 percent a year ago.[1] In 2015, average full year GDP growth was 5.8%. This
is among the highest in Asia. The 4th quarter 2015 growth of 6.3% brought the nu
mber of consecutive quarters of positive economic growth to 68.
And the Philippine banking system continues to expand and support the financing
needs of our growing economy. Over the past six years, total assets roughly doub
led as deposits continued to rise on the back of public confidence in the bankin
g sector. Bank loans also doubled and nonperforming loans continued on a downwar
d trend. Philippine banks are well-capitalized, with capital adequacy ratios abo
ve national and international standards. Our external liquidity position is stro
ng. Our end- March GIR of US$82.6B (preliminary) is sufficient to cover 10.3 mon
ths of imports of goods and payments for services.
Compare this to 1997/98, when at the height of the Asian Financial Crisis, the e
conomy was contracting, companies were shutting down, and many were being laid o
ff. Today, as new businesses open and expand, there is demand for well-educated
talents like you.
With Tytanas strategy of academe-industry collaboration, there is greater coordin

ation between labor demand and supply. The job-skills disconnect is more efficie
ntly addressed.
Am I saying that there will be no challenges? No, far from it. Am I saying there
will be no uncertainties? No also. Challenges and uncertainties are givens that
we all face.
In my long career at the Bangko Sentral ng Pilipinas, from the time I was a rank
-and-file statistician in the 1970s to this day as BSP Governor, my road was and
still is, full of surprises and the unexpected. From experience, and from my va
ntage point, I can tell you that your career and personal lives will be terrifyi
ng, gratifying, fulfilling and exciting precisely because of uncertainty.
In the central bank, we always deal with the uncertain: Will oil prices continue
to slide? Will the Chinese economy further weaken? Will the Philippine economy
sustain growth? These are real everyday questions we are confronted with. They d
emand us to prepare well, implement difficult but necessary reforms, and cushion
the economy from shock.
Even in our current economic sweet spot, we still need to be proactive and mindf
ul of risks. We embrace uncertainty as a given and commit to the fundamentals of
hard work and proactive reform. The same should hold true for each of you as yo
u face your future.
The discipline and diligence you learned here in college which makes you Titans
values which underlie every exam and requirement that you needed to pass, should
be your armor as you begin your next journey. Even the Titans of Greek Mytholog
y were not spared from trials and tests. It is how you will handle the uncertain
ties that will set you apart as the modern-day Titans you are.
As you pursue your own fields, there will be tests of integrity that will come y
our way. It will force you to make difficult choices among equally important val
ues and tradeoffs. But taking the hard road of selflessness and honesty versus t
he easy road of short-term and selfish gains will always bring you to even great
er heights.
As Titans, you must seize opportunities and take risks. Again, you are entering
the labor market at a time the economy is something your parents or graduates fi
fteen years ago can only be envious about. We need your restlessness, energy, yo
ur adeptness to information technology and your creativity to spur innovation an
d positive disruption.
Over the centuries, innovation has proven to be the cornerstone of economic deve
lopment. In a single click, you obtain information that our generation used to f
ind slowly in volumes of encyclopediae. In seconds, you receive messages that to
ok us weeks to get in the past. These innovations have transformed our lives pro
ducing strides in healthcare, communication and commerce.
Related to this, the BSP is continually creating a regulatory environment to enc

ourage innovation and maximize safe technology use. In particular, an ecosystem
is being created where the unreached are granted access to financial services th
rough alternative providers, without need for brick and mortar bank branches or
facilities. We are developing a National Retail Payment System (NRPS) to establi
sh a safe, efficient and reliable means to transfer value. Envisioned is an effe
ctive and interoperable interface of various electronic payment channels. This i
s an integral reform given that of 2.5 billion payment transactions per month, o
nly 1% is made through electronic means. The NRPS will expand the reach of finan
cial services and will promote efficiency, transparency and development of busin
ess models improving economic competitiveness.
Please do not take modern day innovations for granted. Rather, use innovation to
push the boundaries of your chosen fields forward.
Finally, please find strength in numbers the numbers that count. In the central
bank, we are fond of numbers. Every day, we analyze oceans of complex informatio
n inflation figures, the balance sheets of banks, and the amount of capital flow
ing in the economy. Yet, I learned that to deliver on our mandates, strength in
numerical expertise and precision is just as important as the strength in the nu
mbers and quality of people that cooperate, work together, and collaborate to ac
hieve our common objectives.
As BSP governor, I lead a 5000-strong institution comprised of diverse talents a
nd characters. Our mandate is to maintain price and financial stability. This is
a difficult task. It is impossible to do it alone.
Similar to the framework adopted by your Colleges, we in the central bank, value
internal and external partnerships and collaborations with other government age
ncies, with international bodies and with the academe. In fact, your very own Pr
esident, Dr. Sergio S. Cao was recipient of a BSP-UP Professorial Chair. Dr. Cao
wrote and submitted two professorial chair papers on Credit, Credit Derivatives,
and Credit Default Swaps (May 2012) and on Risk Mitigation and Basel III in the B
anking Sector (December 2010).
Indeed, collaboration and cooperation are very important. And you should not for
get those who helped you reach this important day. Your professors and your clas
smates contributed to your success and multiplied the possibilities arising from
your hard work.
As a father, I too know that the joy and pride your parents are feeling today is
probably double or even greater than that you graduates feel. So congratulation
s to your parents are in order. Graduates, please give your parents, family memb
ers, a round of applause.
Today, you are here because of your hard work, perseverance and patience. You
e here because of the dedication of numerous individuals in ensuring that you
t only earn your respective degrees, but more importantly, be equipped with a
nse of purpose, with values, knowledge and skills to make you better and more
oductive members of society.
ar
no
se
pr
In 20 or 30 years, most people will measure their accomplishments by the numbers

in their bank accounts. Yet we must not forget the numbers in our phone directo
ries, the networks and friendships we have made.
In your personal and professional lives, relationships, the expertise and guidan
ce of others will matter tremendously. Even Harvard studies confirm that true su
ccess and happiness is not determined by material possessions, but by the human
relations that we enkindle along the way.
As I end, allow me to remind you to consider yourselves blessed to finish your c

ollege education. Take it as a challenge. Your college degree, be it in the scie
nces, business administration, management, information technology, hotel and res
taurant management and accountancy is your calling to uplift your families and o
ur country.
You have worked hard. And you have succeeded. Today is the time to celebrate and
look ahead with optimism that you can accomplish even more.
Congratulations to all and thank you for the honor not only of speaking today, b
ut for the privilege of celebrating with you, your families, members of your aca
demic institution, faculty and staff. Thank you for your kind attention.
[1] Philippine Statistics Authority, January 2016 Labor Force Survey
Sustaining the BSP Brand

Venue: BSP Assembly Hall
Occasion: Breakfast with the Governor

SUSTAINING THE BSP BRAND
Magandang umaga sa inyong lahat and a warm welcome to the latest addition to tea
m BSP the 191 new employees who joined us in 2015!
Ladies and gentlemen of Batch 2015. By now, you know that the Bangko Sentral ng
Pilipinas has a rigorous selection process. It is a fact the BSP has high standa
rds and it starts at the screening of thousands of application forms that are su
bmitted to us, year after year.
That you are here today means that you meet our standards and that we believe yo
u have the capacity to exemplify Brand BSP. Congratulations!
So, what exactly is Brand BSP? Thinking about our logo, its elements and what th
ey represent is a good place to start. The logo is a strong reminder and symbol
of our values, ideals and goals.[1] But Brand BSP is so much more.
Brand BSP reflects excellence, integrity, patriotism, dynamism and solidarity. T
hese are our core values. You see this in the quality of our people, our policie
s and services, the way we craft our programs, the manner we execute our strateg
ies and the way we deal with our stakeholders.
So, you may ask, who are our stakeholders? Well, they can be our supervised bank
s or their dissatisfied clients who bring their concerns to the BSP. They can be
representatives of multilateral institutions; researchers; suppliers; the media
; investors; museum visitors; or anxious families who wish to buy back their for
eclosed properties.
In other words, our stakeholders are our partners, the people we deal with, and
the people who come to us for help.
As BSPers representative of Brand BSP, we should treat all our stakeholders with
respect and serve them as professional central bankers. Serve the BSP brand of
excellence at all times, even when no one else is looking and even if all a visi
tor needs is to exchange a few pieces of the old banknote series for our new gen
eration currency.
If we can serve the currency requirements of a bank, surely we can also find tim
e to serve our walk-in visitors with a handful of old banknotes.
About one-third of Batch 2015 are honor graduates, holders of masters degree and
a doctorate. Of the total, four are returnees or what we call balikbayan BSPers.
Certainly, excellence is second nature to you.
But equally important is for BSPers to have a strong service orientation, to be
inclusive. This is in accordance with the BSP Vision which is as follows: The BSP
aims to be a world-class monetary authority and a catalyst for a globally compe
titive economy and financial system that delivers a high quality of life for ALL
Filipinos.
Ladies and gentlemen, this vision underpins our goal to have an inclusive financ
ial system that supports sustained and inclusive growth. While the BSP is global
ly recognized for its leadership in crafting and implementing policies and progr
ams that promote financial inclusion, we are mindful that over 20 percent of Fil
ipinos still live in poverty. We need to do more, to cover more areas, to be mor
e efficient.
Finally, you must know that the Monetary Board provides continuous support for t
he development of BSPers not only in terms of training and exposure to internati
onal best practices but also in terms of achieving work-life balance to make us
even better central bankers.
In fact, we have programs to promote the physical, emotional and psychological w
ell-being of BSPers; we have excellent gym facilities that I too visit regularly
; we have sports clubs that range from mountain-climbing to basketball to target
shooting; and advocacies in support of those in need beyond our gates.
And of course, you know that our recently concluded Job Evaluation and Salary Re
view program makes our pay-scales competitive with that of the private sector. T
he ultimate goal of the JESR is to further enhance and strengthen the capacity o
f BSPers to deliver on our mandate to ensure stable prices and maintain a sound
and stable banking sector. For this let us thank the members of the Monetary Boa
rd!
And so, ladies and gentlemen of Batch 2015, we start 2016 with a clear roadmap a
nd well-equipped to face up to the challenges that may come our way.
Dear Batch 2015, you are working, walking, talking, social-media-posting ambassa
dors of the BSP brand. Be mindful that you represent the BSP in your activities,
conversations on Facebook, on Twitter and Instagram. Individually and collecti
vely, we are responsible for sustaining Brand BSP.
Now, I have a question. As new members of Team BSP, are you committed to do your
best as BSPers?! I am happy to hear that. I am counting on you.
Mabuhay ang Batch 2015! Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ati
ng mahal na bansang Pilipinas! Maraming salamat sa inyong lahat!
[1]
Overview of the BSP: BSP Seal at http://www.bsp.gov.ph/about/overview
.asp last accessed 20 January 2016.
The BSP and the Philippine Banking Sector: Sustaining Financial Stability Amid G
lobal Volatility
Venue: Fort Abad, BSP Complex
Occasion: Annual reception for the banking community (Jan. 19, 2016)
The BSP and the Philippine Banking Sector: Sustaining Financial Stability Amid G
lobal Volatility
On behalf of the Members of the Monetary Board, I thank all of you for joining u
s tonight for our annual reception for the banking community which brings togeth
er leaders and movers of our economy within this historic 400-year old Fort San
Antonio Abad. This is a cherished tradition at the BSP to recognize the value of
our partnership in sustaining the growth of the Philippine economy.
This Fort, an enduring symbol of centuries past, provides us a most fitting venu
e to reflect on the year just past and what lies ahead as we continue to move fo
rward together.
THE YEAR THAT WAS
Ladies and gentlemen, the Philippine banking sector was again a source of streng
th and stability for our economy in 2015. Sound, stable and liquid, our banks co
ntinued to be a major source of funding for our productive sectors and thereby h
elped generate jobs that support inclusive growth across the country.
As of the third quarter in 2015, the asset base of the banking industry had reac
hed over P11 trillion, growing over P1 trillion in 12 months, while continuously
achieving higher prudential standards by keeping non-performing loans at low s
ingle digit-levels (2.3% as of September 2015). The combined resources of the b
anking industry are sufficient to finance the requirements of the real economy.
And with a continuing build-up in capitalization, our banking sector more than m
eets national and international standards. In fact, our semestral stress tests c
onfirm further that bank capitalization stands resilient, even against extreme t
ail events. Indeed, the numbers do speak for themselves.
Ladies and gentlemen, the sustained growth and stability of our banking sector i
n 2015 happened amid global financial turmoil. The much-anticipated Fed lift-off
finally took place last December, with interest rates moving up on signs of a g
radual revival of the US economy. Other concerns that made for a challenging 201
5 were slowing inflation in the Eurozone and Japan, economic restructuring in Ch
ina, and the sharp drop in oil prices.
But despite all that, it was, on balance, another good year for our economy in g
eneral, and the banking sector in particular. The Philippine economy continued t
o expand, with 2015 inflation settling at 1.4%, our lowest in 20 years. Our exte
rnal position is robust and offers buffers against possible external shocks, wit
h a Balance of Payments surplus, healthy level of Gross International Reserves t
hat could pay for over 10 months worth of imports of goods and services, and remi
ttances through banks from overseas Filipinos that continue to grow year after
year.
Indeed, for our banks, 2015 was a year that tested their resilience but they cam
e out of it stronger and more stable.
CONTINUITY AMID CHANGE
Now, we start 2016 from a position of strength. This is a good place to start. W
e have done our homework.
We should be able to manage external risks that may arise from continuing volati
lity and possible contagion and closer to home avoid excessive leverage and impr
udent practices.
In particular, we anticipate that 2016 will continue to test the resilience of o

ur banking system, with market volatility that can heighten market liquidity and
credit risks.
We therefore need to stay firmly committed to the pursuit of financial stability

as the overarching prudential norm. It is a public good that benefits us all an
d gives us the space to pursue growth and profit opportunities.
Moving forward, there are game changers we have to contend with. Among others, r
egional integration will happen. This means that we have to be ready for the cha
llenges that are sure to come with it and more important, to ensure that we reap
the benefits we stand to gain from integration.
Certainly, the BSP will actively pursue bilateral arrangements to designate Qual
ified ASEAN Banks or QABs under the ASEAN Banking Integration Framework but much
work must be done in parallel on payments and settlements, market infrastructur
e and capital market development.
To further enhance the effectiveness of monetary policy, we shall have the Inter
est Rate Corridor in the next few months. Aside from enabling smoother market ra
te adjustments relative to BSP policy rates, we see that the IRC will contribute
to having more active and efficient financial markets.[1]
And in support of the national goal of inclusive growth, we will pursue with 12
other government agencies the implementation of our National Strategy for Financ
ial Inclusion. Our objective is to make our financial system more inclusive, res
ponsive and more accessible to the Micro, small and medium enterprises, as well
as to the underbanked and the unbanked.
There is room for banks and other institutions to participate in this program. I
hope therefore to see more banks and other institutions support this crucial un
dertaking not only as a matter of corporate social responsibility, but as a legi
timate and sustainable business opportunity that should make our economy stronge
r. We also know that an inclusive financial system makes for greater stability.
Ladies and gentlemen of the banking community, I also call on you to make sure t
hat your banks and all your branches serve the public by exchanging old banknote
s identified for demonetization with new generation banknotes even if they are n
ot your regular clients, even if they are sidewalk vendors exchanging just a han
dful of old banknotes. This is financial inclusion at its best.
The BSP also pins its hope on gaining mileage on its financial inclusion targets
with the launch of our National Retail Payments System Project. The NRPS is env
isioned to provide an accessible, inclusive and safe electronic payments system
using inter-operable payments network that financially links the country from Ba
tanes to Sulu 24/7.
Amid all these exciting developments, we have also introduced the Financial Cons
umer Protection framework to ensure that new participants to the financial syste
m are provided sufficient guidance and protection. This calls for pro-active pro
grams for consumer education, transparency and providing necessary information f
or redress mechanisms. I look forward to the active participation of banks in th
is activity.
Indeed, we have a full agenda that will help maintain the strength and stability
of our banking sector.
In this connection, the entry of new foreign banks under our liberalized regime
should further enhance the quality of competition among our banks and nurture in
novations that will ultimately benefit the general public.
This reminds me that during our co-chairmanship of the Financial Stability Board
Consultative Group for Asia, then Vice Minister Masamichi Kono of the Japan FSA
, advised that we should enjoy a cup of matcha or green tea to get us going thro
ugh the day and that we should take mugicha at night to relax. In the same spiri
t, we can all enjoy Ginseng tea or Maesil cha from South Korea, Oolong tea from
Taiwan or Teh Tarik from Singapore. All of these are said to help our internal
juices flow and rejuvenate our body.
You may ask, why am I mentioning tea from Japan, South Korea, Taiwan and Singapo
re? Well, it is because the Philippine banking community is going to be even mor
e dynamic with the entry of six banks from these jurisdictions. Like the tea tha
t is good for our body, the entry of these six banks to the Philippines could ca
talyse further innovations in our banking sector. We expect more to come in.
What else do we see in 2016? The consensus forecast for 2016 is for modest and u
neven global economic growth.
Certainly, we are not immune to adverse external developments. We will have to d

eal with their ramifications, the bumps on the road, so to speak.
Nonetheless, we believe that our sources of resilience will sustain our growth m
omentum. Private consumption continues to be buoyant while the services and indu
stry outputs remain firm. And Government spending is expected to further increas
e in line with continuing efforts to address issues on spending bottlenecks, esp
ecially for public infrastructure.
Thus, while 2016 will test the resilience of our banking system, we can rely on
the quality of our preparations to manage evolving risks from volatility as mark
et tide shifts.
This is also evident even to external analysts. Fitch Ratings has given the Phil
ippine banking system a positive rating outlook for 2016,[2] the only one for As
ia-Pacific. Among others, Fitch noted the generally healthy profile of local lend
ers, sound operating environment and the Philippiness strong economic fundamental
s.
Congratulations to our Philippine banks!
FINAL THOUGHTS
Ladies and gentlemen, we will continue to pursue our reform agenda to ensure sta
bility for the long-term. We are unfazed by the challenges that will come our wa
y because we are prepared, because we have been doing our homework. And we embra
ce continuing reforms because that is the key to stability and to more opportuni
ties moving forward.
Finally, we at the Bangko Sentral ng Pilipinas thank the members of the banking
community for your active support and cooperation, in implementing policies and
programs in pursuit of our mandate to provide stability to prices and the banki
ng sector -- stability that sustains economic growth for the long-term; stabilit
y that promotes inclusive growth.
At this point, may I request the other Members of the Monetary Board to join me
onstage. Secretary Cesar Purisima, Freddie Antonio, Phillip Medalla, Andy Surato
s, Jun de Zuniga and Val Araneta.
Together, let us offer a toast to the Philippine banking industry may you conti
nue to be sound, stable, liquid, and responsive to the needs of our economy, our
country and our people. And may all of us here at Fort San Antonio Abad be bles
sed with a happy, healthy and prosperous New Year. Cheers!
Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong laha

t! Maraming salamat sa inyo!
[1] How central banks influence interest rates Speech by Mr ystein Olsen, Governor
of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (C
ME) / BI Norwegian Business School, Oslo, 1 October 2015. http://www.bis.org/rev
iew/r151002b.htm
[2] Business World Fitch upgrades outlook of Philippine banking industry to positi
ve 16 December 2015
Working Together to Achieve Dynamic Stability

Occasion: Flag raising ceremony (Jan. 4, 2016)
Speaker: Amando M. Tetangco, Jr.
Working Together to Achieve Dynamic Stability
Dear BSPers, magandang umaga at maligayang bagong taon!

On behalf of the Members of the Monetary Board, I welcome all of you to our firs
t working day in 2016.
It is truly a pleasure to start the new year together with BSPers across the cou
ntry for our flag-raising ceremony.
Together with BSPers -- from our 19 branches, three regional offices, the Securi
ty Plant Complex and the BSP Head office -- we pledge as public servants and as
central bankers to serve our country faithfully, with integrity and in the best
way we can. This is the perfect way to start our first working day for the year.
Ladies and gentlemen, we face 2016 with optimism. There are many reasons for thi
s optimism. To cite a few: First, as an institution, and as a nation, we enter t
his year from a position of strength. The BSPs commitment to maintain price stabi
lity helped sustain non-inflationary growth while our sound and liquid banking s
ystem continued to support the financing needs of our productive sectors. Thus,
we have one of the fastest growing economies in Asia even in the midst of a chal
lenging external environment.
Second, our strong external position continues to provide buffers against potent
ial external shocks.
Third, it is in our DNA to continue to find better ways of doing things. As BSPe
rs, we realize that our growth momentum is not a guarantee -- but an opportunity
-- for sustainability. We know that it is the adoption and implementation of pr
udent policies and programs will help us sustain economic growth for the long te
rm.
Moving forward therefore, what do we see? Well, continuing shifts in the global
economic landscape are challenges that we need to be mindful of. We need to rema
in watchful so that we can act in a responsive and timely manner as necessary.
Among others, a protracted slowdown in emerging markets is foreseen; uncertainty
in US Federal Reserve actions remains; economic growth in Europe is expected to
remain modest; and geo-political tensions continue to add to global uncertainti
es.
In addition, 2016 brings unique challenges to our country. A harsher El Nio is pr
edicted. And we have national and local elections that are bound to generate cha
nges that will influence the pace of growth in different parts of the country an
d affect global perception of Philippine growth prospects. It is important that
confidence in the economy remains during this leadership transition.
As an independent constitutional institution, the BSP is in a rare position to h
elp provide continuity of the stable economic environment that has been a source
of strength for our economy.
Through appropriate monetary and banking policies and programs, BSP can provide
stability that comes from the ability to manage inflation at low and stable leve
ls even as it keeps the banking system sound, stable and liquid. This is the kin
d of stability that underpins sustained economic growth and breeds confidence in
long-term investments that generate jobs and promote inclusive growth.
But let us be clear: stability does not mean being static. At its core, it means
consistency. That in the face of changes of challenges, the BSP as an instituti
on remains steadfast and faithful to its mandate to provide stability to the eco
nomy through its policies and programs.
This is the challenge of stability to maintain our balance to remain stable in t
he midst of a dynamic and constantly shifting operating environment.
In aerodynamics, the phrase dynamic stability is used to describe how an aircraft
behaves when its original flight is interrupted.[1] In particular, it refers to
the plane s ability to oscillate and use inherent restoring characteristics to
stabilize.[2] Parang sa BSP.
At the BSP, we achieve stability through a complex process that involves so many
moving parts, so many decision points that are data-intensive, ranging from set
ting inflation targets, to deciding on policy rates, to developing mechanisms fo
r efficient monetary transmission, to promoting an inclusive financial system.
All these in the pursuit of stability. Indeed, so much work is involved to maint
ain stability, particularly as our operating landscape is constantly changing, p
olicies are diverging, and even the phrase new normal has become dated.
Change is a constant in the equation what to discard, what to enhance, what to s
cale, what not to change.
In this connection, I wish to share some programs that will result in changes wi
thin the BSP, changes calibrated to help us maintain stability even as we face c
hallenges.
First, to further enhance monetary policy transmission, we will launch this year
the interest rate corridor, or what we call the IRC system, to ensure that mone
y market interest rates move within a reasonable range around the BSPs policy rat
e. It consists of the lending rate at which the BSP will lend reserves to commer
cial banks and a deposit rate at which BSP will take deposits from banks. Typic
ally, the lending rate will be above and the deposit rate below the policy rate,
forming a corridor around it.
Second, to have better policy foresight, we will further refine and develop our
models for forecasting; broaden our indicators to capture the linkages among the
different sectors of the economy; and improve stakeholder involvement in policy
discussions and formulation.
Third, to further strengthen our banking system, we will continue to pursue bank
ing reforms, capital build-up, better governance and adherence to emerging inter
national best practices.
Fourth, to provide a more efficient, safe, convenient and more financially inclu
sive payment system across the country, we will pursue the development of our Na
tional Retail Payments System or NRPS.
Fifth, to develop a more inclusive financial system that supports inclusive grow
th, we will pro-actively implement the National Strategy for Financial Inclusion
that we have developed with other government agencies.
Sixth, to ensure adequate and timely supply of good-quality currency, we will ad
opt the Integrated Currency Management System. This is particularly important as
we are in the second phase of our demonetization campaign for our old banknote
series. We will also construct the new BSP Mint at Quezon City Security Plant.
Seventh, to strengthen the ability of the BSP to provide responsive services, we
will build new branches in Baguio, Puerto Prinsesa, and Bohol.
And finally, we will implement the recommendations under the job evaluation and
salary review program, more popularly called JESR, that will essentially raise s
alaries within the BSP.
Ladies and gentlemen of the BSP. Are we ready for 2016? I am so happy to hear
that!
At this point, let us thank the Members of the Monetary Board whose excellent po
licy-making decisions have been instrumental in bringing the BSP to where it is
now world-class and a source of stability for our economy. Let me call on our Mo
netary Board Members: Freddie Antonio, Phillip Medalla, Andy Suratos, Jun Zuniga
, and Val Araneta. Finance Secretary Cesar Purisima is not able to join us this
morning.
Let us also thank our excellent Deputy Governors. They make sure that crucial po
licy and program recommendations are elevated to the Monetary Board in a timely
and comprehensive manner and that, once approved by the MB, these are implemente
d correctly, fairly and efficiently.
Ladies and gentlemen, let me call on the Sector Head of the Supervision and Exam
ination Sector Nestor Espenilla, Jr., the Sector Head of the Monetary Stability
Sector Diwa Guinigundo, and the Sector Head of the Resource Management Sector an
d the Security Plant Complex Vicente Aquino.
Fellow BSPers, we have achieved much in 2015. For this, the Members of the Monet
ary Board and our Deputy Governors thank all of you. With the help of every BSPe
r, I am confident that the BSP will be successful in pursuing its mandate in 201
6.
Ladies and gentlemen, I have three more questions for you.
Does BSP deserve to be called the top performing government agency? I agree!
In 2016, are we ready to work as dynamic central bankers united under Team BSP?!
I am happy to hear that!
Are we ready to give our best as central bankers in 2016?! Aasahan natin yan.
Again, together with the Members of the Monetary Board and our Deputy Governors,
I wish all BSPers across the country -- from Luzon, Visayas and Mindanao -- a h
appy, healthy and prosperous 2016!
Mabuhay ang Bangko Sentral ng Pilipinas!
Mabuhay po tayong lahat!
Maraming salamat sa inyong lahat!
[1]
http://encyclopedia2.thefreedictionary.com/dynamic+stability
[2] See http://www.pilotfriend.com/training/flight_training/aero/stability.htm

and http://encyclopedia2.thefreedictionary.com/dynamic+stability
BSP@2015: Celebrating Our Journey to Stability May Himig, Indak at Tugtog ang Pa
sko sa BSP
Presented Date: Dec 28, 2015
Venue: Plenary Hall, PICC
Occasion: BSP Bankwide Christmas Program (Dec. 16, 2015)
BSP@2015: CELEBRATING OUR JOURNEY TO STABILITY

MAY HIMIG, INDAK AT TUGTOG ANG PASKO SA BSP
Magandang Hapon at Maligayang Pasko sa inyong lahat!
Fellow central bankers and members of our families, special guests. It is that t
ime of year again. The time when we pause to reflect and to count our blessings.
But wait. Before I proceed with my Christmas message, I have a question for you
: marami ba tayong blessings? I am happy to hear that!
Indeed, we have a lot to celebrate and be grateful for. The video we just saw sh
owed homegrown BSPers who continue to evolve and develop as central bankers who
inspire others to be the best that they can be.
But, ladies and gentlemen of the Bangko Sentral ng Pilipinas, let me make one th
ing clear. The Members of the Monetary Board rightfully THANK ALL BSPers across
the country from Luzon, Visayas and Mindanao for contributing their share in acc
omplishing our goals.
Indeed, with all of us pulling together, the BSP successfully delivered on its m
andate in 2015. Among others:
We have tamed inflation to levels that are low and stable levels that promot
e confidence in planning and investing for the long-term that will help sustain
economic growth;
our banking system is sound, stable, liquid and is recognized by global ana
lysts as a source of strength for our economy;
our safe and efficient payments and settlement system continues to inspire c
onfidence in our growing financial system;
and our financial inclusion initiatives continue to liberate people from pov
erty, help improve lives and support inclusive growth.
In other words, in the midst of global volatility, the BSPs monetary and banking
policies help provide internal stability needed to sustain the growth and develo
pment of our economy in 2015 growth that generates jobs, growth that spreads to
the countryside and growth that is more inclusive.
Third party assessments validate the success of our initiatives. To cite a few:
First, the prestigious Economist Intelligence Unit declared the Philippines
as Asias leader based on enabling environment for financial inclusion and third b
est in the world, next to Peru and Colombia. In particular, the BSP was cited fo
r the launch of the National Strategy for Financial Inclusion with 12 other agen
cies and the National Retail Payment System that is targeted to start in two yea
rs.
Second, the BSP is the 2015 winner of the Global Forum on Remittances and De
velopment Public Sector Award. We were cited for our outstanding commitment, inn
ovation and impact in promoting remittances for social and economic development
through our Economic and Financial Learning Program. Held in Italy last June, th
e forum was organized by the International Fund for Agricultural Development a s
pecialized agency of the United Nations, the World Bank, and the European Commis
sion-- that recognizes best practices in the field of remittances and developmen
t.
Third, the BSP received in November the Islands of Good Governance Award fr
om the Institute for Solidarity in Asia, the Institute of Corporate Directors (I
CD) and the National Competitiveness Council for ushering in what it describes a
s greater financial inclusivity through policies and regulations that have reape
d global recognition for transformative and sustainable governance. ICD said BSP
has steered, under very turbulent times, the country, the economy and its finan
cial system through a very safe, prudent and transformational course for us all.
Fourth, I was named 2015 Management Man of the Year by the Management Associ
ation of the Philippines. In particular, I was cited for expert and steady guidan
ce of the Philippine monetary and banking system as a strong foundation for the
current dynamism of the Philippine economy, exemplary leadership in embarking on
banking reforms, the pursuit of finance education for the youth and for providi
ng a world-class regulatory framework for microenterprise development. Ladies an
d gentlemen, this award properly belongs to all of us.
Fifth, New Yorks Global Finance publication rated your governor one of the wo
rlds best in 2015 with an A rating. The magazine said central banks with sound mone
tary policies can dampen the effects of currency swings and rising interest rate
s -- and thus spur economic growth. Some of you may recall that this is my fift
h back-to-back A grade and the seventh A in my 10 years as Governor. This is a s
uperlative rating on our collective work.
And finally, businessmen continued to rank the Bangko Sentral ng Pilipinas (
BSP) as the best performer in government, based on the results of the Makati Bus
iness Club (MBC) executive survey released in August this year. We have been t
opping this survey since 2002!
Fellow BSPers, it cannot be denied: we did well in 2015. This is the reason behi
nd the steady stream of recognition we have been receiving from both national an
d global institutions! Congratulations to all of us!
This is the reason why today is special -- kung bakit May Himig, Indak at Tugtog
ang Pasko sa BSP. Today, we celebrate what we have accomplished together in 2015
.
Let us thank the members of our Monetary Board who have been very supportive of
our people, our organization and our institution. May I call on the Members of
our Monetary Board: MBM Freddie Antonio, MBM Phillip Medalla, MBM Andy Suratos,
MBM Jun Zuniga, and MBM Val Araneta. Finance Secretary Cesar Purisima is not ab
le to join us today.
Let us also thank and acknowledge our three brilliant Deputy Governors who are r
esponsible for ensuring that our programs are implemented on time at the quality
and the scale required: DG Nesting Espenilla of the SES, DG Diwa Guinigundo o
f the MSS, and DG Vic Aquino of RMS and SPC. Let also thank EMS coordinator an
d Assistant Governor Winnie Santiago.
Now, what is in store for us in 2016? What do you think?
Well, that depends on your answer to my next question. You may answer yes or no.
Do you commit to do even BETTER in 2016? Thank you BSPers! The Members of your
Monetary Board heard you clearly! And your sector heads heard you too.
Fellow BSPers, there is one thing we cannot afford to do and that is, to be comp
lacent. The challenge for us is to constantly develop better ways of doing thing
s. As a wise man once said: we either innovate or stagnate.
We should be mindful that our operating environment keeps changing in varying an
d sometimes surprising, speed and scale. As central bankers, we need to be watch
ful, flexible and decisive moving forward.
To achieve this, the MB and the BSP management are providing the support BSPers
need to become even better at what we do. First, we will continue to invest in n
ecessary infrastructure and facilities to enhance efficiencies in our work place
. Second, investments in our people through appropriate training and exposure to
international best practices will remain a priority at the BSP. And finally, we
will implement in 2016 the recommendations under the much-awaited Job Evaluatio
n and Salary Review or what we call JESR.
For proper context, I will share the BSPs Compensation and Rewards Purpose Statem
ent that was earlier approved. It reads, and I quote: In fulfilment of our mandat
e to promote monetary and financial stability through sound policies, we ensure
viable, fair and just compensation and benefits package to our workforce. Cogniz
ant of our social and public responsibility, we strive for a reasonable and comp
etitive competency and performance-based rewards system that further strengthens
our mandate delivery. End of quote.
You may ask what does this mean exactly for BSPers? After thorough benchmarking
and lengthy discussions, the JESR is in the homestretch. But in the meantime, I
hope this anticipation will energize you and increase your commitment. For indee
d, we need BSPers who will continue to exemplify the values we hold dear: patrio
tism, integrity, excellence, dynamism and solidarity.
Ladies and gentlemen of the BSP. National elections are just around the corner,
the outcome of which, we cannot divine or determine with certainty. The one thin
g certain is that the transition of leadership at the national and local levels
is bound to generate changes.
As an independent central monetary authority, our principal responsibility is to
provide continuity and stability through appropriate monetary and banking polic
ies. This is important. The Philippines is on the international radar screen as
a country that will continue to grow and attract investments that will generate
employment and improve the quality of life of Filipinos. Let us turn our potenti
al into reality.
Once again, thank you BSPers for a job well done in 2015. Let us commit to work
together better to make sure that we will deliver even better results in 2016! B
SPers, are we ready for 2016?! Aasahan natin yan!
Finally, let us also thank and acknowledge the loving and consistent support of
the members of the BSP Ladies Club, the better half of the Members of our Moneta
ry Board: my beautiful wife Elma, Ruby Suratos, Zeny Zuniga, and Charimen Aranet
a. Also with us are Tess Espenilla and Apple Guinigundo. They provide loyal and
dependable support to us at the BSP. Maraming salamat!
And now, let us continue to enjoy the himig, indak at tugtog sa Pasko ng BSP. Mu
li, Maligayang Pasko! Nawa ay maging matagumpay, masagana at masaya ang Bagong T
aon nating lahat!
Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ating mahal na bansang Pili
pinas! Mabuhay po tayong lahat!
Launch of the BSP KM Portal

Venue: 5-storey building lobby
Occasion: Launch of the BSP KM Portal

Finally, our much-awaited Knowledge Management or KM Portal is ready for use by
everyone. This is truly a cause for celebration! This is a milestone in our jour
ney to become a knowledge-based efficient organization.
Our KM Portal links three important KM dimensions: people, technology, and proc
esses. With a KM Portal, documents and information are readily accessible to use
rs and thus allow faster and more efficient completion of work. With everybody o
n the same page literally looking at the same set of information-- miscommunicat
ion will be minimized and decision-making enhanced and done in a more timely man
ner.
And since KM retains corporate knowledge or organizational memory, BSPers will b
ecome more efficient as we will be spared from the constant need to reinvent the
wheel.
Ladies and gentlemen, today, we will see the KM portal with fully migrated/updat
ed content of the BSP Intranet and the integration of some applications like Lot
us Notes mail and Project Information Management System or PRIMS. This means tha
t with a single log-in to the KM Portal, the user will be automatically connecte
d to the Lotus Notes and PRIMS. Social media applications will also be incorpora
ted through communities such as the BSP Officers Club, Inc. and the BSP Employee
s Association.
The importance of KM was emphasized and prioritized by the BSP Management with t
he approval of the BSP Strategy Map for 2012-2017 under the Organizational Readi
ness Theme.
I am pleased to learn therefore that the KM team has developed guidelines, proce
dures, and tips on how to achieve best and fast results with our KM Portal. This
should encourage BSPers to use the KM Portal as a habit to improve work efficie
ncies. Our congratulations to all those involved in the development and manageme
nt of our KM Portal.
Should we make the use of our KM Portal as a habit? Very good. Aasahan natin yan.
And so, without further ado, let us officially launch the BSP KM Portal which is
called iKnow.
Evolving Cyber Threats: Are We Prepared?

Presented Date: Nov 24, 2015
Venue: Bangko Sentral Pilipinas Assembly Hall, Manila
Occasion: Cybersecurity Summit for the Financial Services Industry
Speaker: BSP Governor Amando M. Tetangco, Jr.
Good morning everyone and welcome to this first Cybersecurity Summit for the Fin
ancial Services Industry.
We at the Bangko Sentral ng Pilipinas together with our Summit co-organizers Ban
cNet and the Information Security Officers Group are pleased that you have joine
d us today to tackle the matter of cybercrimes. It is a fact: cybercrimes are be
ing committed and financial institutions and financial consumers are being targe
ted.
Questions are being asked: Is it widespread? Can we stop cybercrimes? How
e protect financial institutions and financial consumers from cybercrimes?
inguished representatives from the financial services industry, technology
ers, stakeholders in our financial sector, we need to address these issues
her.
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DIGITAL TRANSFORMATION IN THE FINANCIAL SERVICES INDUSTRY

In this digital age, the transformative power of technology is evident in almost
all aspects of human undertakings -- from modern science, education, health car
e, financial markets, to personal interaction.
Technology has likewise revolutionized banking and the manner it provides servic
es and products. Financial customers can now perform banking transactions anytim
e, anywhere, at their convenience.
We have also seen the adoption of technology by BSP supervised financial institu
tions or what we call BSFIs in offering innovative products and in the delivery
of fast and efficient service at affordable prices. And through technology, fina
ncial institutions tap a new breed of costumers who expect top-of-the-line ser
vices, financial solutions and products with the flick of a finger.
Based on our records as of December 2014, around 22 million users of electronic
banking services and channels were being serviced by over one hundred banks acro
ss the country. Indeed, we have seen the volume and the value of transactions u
sing e-money and e-banking channels grow steadily over the years.
Clearly, technology innovation has become an integral part of the business that
it is now considered a must for BSFIs to survive and thrive in the digital world.
However, as in other fields, there is a downside that comes with innovations in
technology -- criminal elements have likewise evolved. While it is far from wide
spread, cybercrimes exploit advances in technology to expand, conceal and perpet
rate their criminal activities from the real world to the cyber realm.
THE CYBER LANDSCAPE
Indeed, cybercrimes have spawned a global industry with skilled hackers-for-hire
, terrorists and syndicates that target critical institutions, infrastructure or
economies.
The Philippines has not been spared from cybercrimes. Considered the social med
ia capital of the world, the Philippines is on the radar screen of cyber crimina
ls who try cyber attacks of varying complexities. Nevertheless, industry coopera
tion has enabled us to stop and capture cybercriminals.
For instance, authorities have arrested foreign nationals associated with cyber
syndicates who were involved in ATM skimming, credit card fraud, and phishing in
cidents.
Can we stop cybercrimes? Well, studies indicate that cyber attacks and similar
fraudulent activities against the financial services industry are likely to cont
inue. But we can manage the risks related to cybercrimes.
Ladies and gentlemen. Our proper response should be to broaden, deepen and escal
ate our own anti-cybercrime programs and activities together. The stakes are hig
h: institutional and personal losses resulting from cybercrimes could undermine
the publics trust and confidence in financial institutions and ultimately our fi
nancial system.
THE RIGHT MINDSET
So, what can we do to ensure industry-wide cyber security? How do we benefit fro
m technology innovations while managing attendant risks and vulnerabilities?
Well, according to a SEACEN paper , the right mindset and a holistic multi-stake
holder approach for managing cyber security must be adopted. At the Bangko Sentr
al, we have reduced these to three major themes that form the acronym PIN. As yo
u know, PIN refers to the personal identification number that must be kept secur
e at all times by its owners, to prevent unauthorized access to their accounts.
Allow me to share what PIN means to the BSP in terms of fighting cybercrime: P
is to be proactive, not reactive; I is for information sharing and collaboration
; and N is a constant reminder that cybercrime is NOT a technical issue.
I will now briefly discuss each of these themes.
P IS TO BE PROACTIVE, NOT REACTIVE
Given a dynamic technology landscape, there is no room for complacency, one has
to be proactive. While it may take years to develop a robust and effective secu
rity infrastructure, it may only take minutes or even seconds for cyber criminal
s to breach its defenses.
And if criminals gain access to sensitive and critical information, they could t
rigger financial losses, business disruptions, damaged reputation, and even thre
aten the viability of the institution itself.
This calls for a continuing cycle of rigorous assessments of the institutions sec
urity versus emerging threats and risks. Cyber security controls, processes and
procedures must be continuously enhanced to mitigate weak points and achieve a
higher state of resilience and maturity.
This is the same rationale that underpins the Bangko Sentrals policy to continuou
sly enhance its supervisory framework through the issuance of guidelines, public
advisories and memoranda, as well as the adoption of a robust and dynamic super
visory program.
For instance BSP Circular No. 808 issued in August 2013 provides the framework f
or technology risk management which takes into account robust and multi-layered
security controls for cyber-risk prevention, detection and response. The BSP has
also introduced various initiatives and supervisory enhancements for a more pro
active approach to cybersecurity supervision and oversight. These shall be disc
ussed in detail later by BSP Deputy Governor Nestor A. Espenilla, Jr.
I IS FOR INFORMATION SHARING AND COLLABORATION
With the increasing sophistication and coordination of attacks, cyber security i
s no longer confined within the boundaries of each firm or organization; it is r
ightfully a shared concern by legitimate users of the cyber-environment. We beli
eve information sharing and collaboration among various stakeholders is an effec
tive, if not the best, antidote to the threat of cybercrimes. When attacks occu
r, early wa
Steer Toward True North
Venue: Main Lounge, Manila Polo Club, Forbes Park, McKinley Road Makati City
Occasion: Awarding Ceremony for "MAP Management Man of the Year 2015"
They say receiving the MAP Management Man of the Year award is like winning Best
Director in the Oscars
When I look at the roster of past winners I guess they have a point But also, whe
n I look at the roster, Best Director for a particular film pales in comparison B
ecause everyone before me had been judged for the consistency in his whole body
of work
And so it is with pride and, at the same time, humility that I address you this
afternoon
Since I became BSP Governor in 2005, a frequently used idiom to describe my posi
tion is that I am at its helm. I find this analogy to an ocean-going vessel very a
ppropriate, both from the technical and from the operational-management side of
central banking. Central banking has, after all, often been described as a navi
gational act of directing easing, tightening, reining-in balancing.

Slight changes on the wheel can alter the ships direction. Thus, captain and crew
must be in sync. With this in mind, for the last 10 years, 4 months and 20 days
I have approached my duties with great respect:
First, I must know the course with certainty. Many navigational tools can be con
sulted for geographical direction. In my readings, I learned that the compass i
s limited. It often does not point to the true north that does not change. Rathe
r, it directs to a magnetic north that varies because of fluctuations in the ear
ths fields. Thus, for accurate direction one must know where the true north is.
For the BSP, our true north is spelled out in our mandates. We are committed to
maintaining price stability; a stable banking system; and a safe, sound and eff
icient payments and settlements system. We choose the course that leads to them
despite possible trade-offs or even criticism, sometimes, lawsuits. In this comm
itment, we value our independence as we cannot be carried by changing currents o
r tossed by the waves. Our direction determines our destination.
Let me first talk about adherence to our second mandate.
Something about going through a crisis makes one think long and hard about the d
irection one is taking. The traumatic 1997 Asian Foreign Exchange Crisis and the
n ten years later, the 2007/8 Global Financial Crisis were valuable learning exp
eriences that shaped our thinking on how we should approach bank supervision and
promote overall financial stability. These defining moments have led us to embr
ace, champion, and implement wide-ranging financial reforms.
The financial reform agenda is exceptionally challenging and complex Significant
progress has been achieved but more can still be done. It began with a long, pain
staking, and painful post-1997 crisis clean-up of the banking system. We followe
d through with decisive adoption of relevant global banking reforms particularly
those advocated by the Basel Committee and other international standard setting
bodies. Running parallel to this are the implementation of regulations to raise
the bar for the governance and risk management of banks, on one hand, and the r
isk-based approach that we are now employing to supervise them, on the other.
Our goal was behavioral change in how banks are run. This, while consciously and
deliberately nurturing a more dynamic environment that encourages healthy compe
tition, financial innovation, consumer protection, and financial inclusion.
As a result, ladies and gentlemen, our banking system is robust. It supports ex
pansionary business activities and consumption spending, effectively becoming a
truly reliable pillar of economic growth.
Second, as captain, I must have an intimate understanding of the vessel and its
equipment. Our primary mandate, controlling inflation is often likened to operat
ing a big ship. Slight movements in the monetary policy rudder can cause big cha
nges in economic course. We must be focused, precise and deliberate in our decis
ions.
In 2002, the BSP adopted the inflation targeting framework. Inflation targetting
or IT is an exhaustive policy framework where thoughtful econometric modelling
and forecasting, grounded market surveillance, and sound judgement come together
. And I am happy to report that since weve become more adept at IT, we have also
become more effective in keeping prices low and stable. Economic growth is suppo
rted. Income equality is better promoted.
But the operating environment is evolving. So, again learning from the Global Fi
nancial Crisis, the BSP enhanced its tool kit to include macroprudential measure
s to address, among others, any unintended financial stresses that could potentia
lly arise from changes in market risk perception... because of monetary policy a
ctions or other related causes. Macroprudential tools can be targetted towards a
reas for which traditional monetary policy tools are not suitable.
Third, I must delegate to, and trust the ships officers. In the book, True North
by Bill George and Peter Sims, there was insight that as one travels to the true
north, a greater appreciation for the We instead of the I is developed. A difficult
journey is best undertaken with a capable team. In this regard, I am fortunate
that among my three deputy governors and myself, we have clocked-in about 130 y
ears of central banking experience. I wish to acknowledge them this afternoon. D
eputy Governor Nesting Espenilla of our Supervision and Examination Sector, Depu
ty Governor Diwa Guinigundo of our Monetary Stability Sector, and Deputy Governo
r Vic Aquino of our Resource Management Sector. I am grateful for the experience
and expertise of these men, and the excellent and dedicated officers of the BSP
, past and present, which combined through the years, illuminated a wider and br
ighter path for us to charter.
I would also like to acknowledge another significant source of illumination: ou
r highest policy making body - the Monetary Board. I benefit much from the wisdo
m and technical knowledge possessed and shared, always so selflessly, by the hig
hly accomplished men that comprise it. The Monetary Board is not involved in th
e day-to-day running of the BSP Ship. To my mind, the Monetary Board is like a li
ghthouse guiding toward our true north warning of perilous areas, and marking safe
entries to harbors. I wish to acknowledge the presence of those who are here
today. MBMs Cesar Purisima, Freddy Antonio, Philip Medalla, Andy Suratos, Val A
raneta and Jun de Zuniga.
The fourth duty of a captain is to take care of the crew. At present, the BSP h
as 5,321 officers and staff across the country. While we have varied experiences
and expertise, we are all central bankers. We are taught and trained not just t
o do routine tasks. Rather, we live out our shared mission and vision, which is
to be a world-class monetary authority, and a catalyst for a globally competitiv
e economy that delivers a high quality of life for all Filipinos. We take to he
art, core values of integrity, patriotism, solidarity, excellence and dynamism.
These values are sustained by quality recruitment, training, succession and ment
orship programs. We are committed to capacity building. It is the skillful sail
ing by all crew members that assures a successful voyage.
Fifth, I must provide clear and active communication internally, and lead coordi
nation externally. Internally, a strong knowledge management system and enterpri
se wide communication policy are being implemented and continually refined in th
e bank.
We also give importance to and deeply value our domestic and international stake
holders and partners. Last July, together with 12 other government agencies, we
launched the National Strategy for Financial Inclusion to build an inclusive fin
ancial system. We also chair the voluntary inter-agency body, the Financial Sec
tor Forum comprised of the BSP, SEC, Insurance Commission and the PDIC.
Our Bank Supervision Policy Committee regularly conducts meetings with 15 indust
ry associations for the continuous rationalization of regulations and so that su
pervisory policy remains relevant and responsive. Our Payment and Settlement Ste
ering Committee regularly consults PhilPaSS stakeholders who are given the oppor
tunity to raise concerns, grievances, as well as recommendations to improve Phil
PaSS operations.
The BSP also actively participates and holds chairmanship positions in internati
onal fora such as the Alliance for Financial Inclusion, the G-20 Global Partners
hip for Financial Inclusion, Bank for International Settlements Asian Consultati
ve Council, Financial Stability Board Regional Consultative Group for Asia, and
the BIS Meeting of Governors from Small Open Economies.
As Governor, I represent the country in the Executive Meeting of East Asia and P
acific Central Banks (EMEAP), ASEAN and ASEAN +3; and South East Asia Central Ba
nks (SEACEN), among others. We are represented in the IMF, the World Bank and AD
B. We benefit from a continued exchange of ideas, sharing of competencies, and
strengthening of linkages.
Sixth, laws and regulations must be complied with. I understand that common carr
iers have the legal duty to observe extraordinary diligence. In Philippine law,
the banking community is the only other industry required to observe this highes
t degree of diligence when acting in a fiduciary capacity. And for good reason,
given its key role. In the BSP, we are mindful of this principle and strive to
follow both the letter and the spirit of legal provisions.
Seventh, the journey must be inclusive. The BSP is continually increasing its in
terface with the Filipino people, our ultimate stakeholder. The phrase inclusive
growth is now cutting across the global reform agenda. The BSP has been doing it
s part to promote financial inclusion. And we have done so following three pilla
rs, namely: access and usage, financial literacy and education, and increased fi
nancial consumer protection. Policy and regulatory efforts are designed and dire
cted toward allowing more of our countrymen effective access to a wide range of
financial services, equipping them with know-how to appreciate which financial
service suits them best, and creating an environment where they are essentially
protected from unscrupulous elements.
We believe that for economic development and progress to be meaningful, more mus
t participate in and benefit from the journey.
Finally, a strong moral and internal compass is essential. It is difficult to f
ind direction when one relies only on external aids. Instead, one must listen c
losely to the dictates of his own conscience his true north -- doing his best in
each endeavor. In its simplest form, this is how one genuinely moves forward:
by listening to his inner compass, trusting in God, and doing what, in his mind,
is his very best, never settling for less in the day-to-day.
For me, as a young central bank statistician in the 1970s, this meant ensuring t
hat each report submitted to my supervisor was accurate and timely. All the num
bers had to add up. In the 1980s, this entailed carefully preparing correct and
complete documents for the next external debt negotiation. It also required tha
t as Director of the Research Department, my interviews be faithful to our manda
te. As Deputy Governor in the late 1990s and early 2000s, this translated to ba
sing each policy recommendation only on meticulous academic research sensitive t
o market reactions.
As Governor, it demands attention to consistency and appropriateness of policies
, and to consider paramount, the BSPs mandate and public welfare.
In closing, I recap what for me, are the core responsibilities at the helm. Ther
e must be commitment to the BSPs true north-- its mandates. There must be expert
familiarity with the vessel and its equipment. Delegation to, and trust in the
ships officers is essential. The crew must be cared for and continously prepared
for the journey. Clear and active communication must be provided internally, an
d there must be strong coordination externally. There must be compliance with l
aws and regulations to the standard of extraordinary diligence.
To be meani
ngful, the journey must be inclusive. And most importantly, a strong moral and
internal compass is essential.
Today, I am humbled and honored that the Management Association of the Philippin
es (MAP) has recognized that under my watch, the BSP has stayed steady on its co
urse.
I am honored to join an illustrious roster of awardees that includes previous ce
ntral bank governors, from whom I have learned a lot. My predecessor, Governor
Rafael Buenaventura was Management Man of the Year in 2004; Governor Gabriel Sin
gson in 1998; Governor Jose Cuisia, Jr. in 2007; and Governor Jobo Fernandez in
1989. Another former CB Governor, Jimmy Laya was once the President of MAP. For
this award, and for consistently demonstrating trust in the Central Bank and the
role it plays, maraming salamat po sa MAP.
I cannot receive this honor without sharing it. With my wife, Elma; my children
Patrick and Miko, Eula and Mia, whose support and encouragement allowed me to s
eek out my own true north even amidst trying times. I share this too with my gra
ndchild Zara who gives us much joy in the family. I pray that they would each co
ntinuously listen to their own internal and moral compass.
With the men and women who with me, serve in the BSP with integrity, excellence
and honor members of the Monetary Board, officers and staff, past and present, w
ho have ensured that the BSP stay its course, maraming salamat sa inyo.
Thank you all for listening. To the Management Association of the Philippines,
it is with deep gratitude and honor that I accept the award you have bestowed on
me; my family; and ultimately, on the magnificent team that comprises the Bangk
o Sentral ng Pilipinas.
Mabuhay at maraming salamat muli.
Of Ironies and Synergy

Venue: ADB Grand Ballroom
Occasion: First ASEAN Corporate Governance Conference and Awards: Governance Tra
nsformation in ASEAN: Reform and Priorities
Speaker: BSP Gov. Amando M. Tetangco, Jr.
Can self-interest lead to the greater good? Prior to Adam Smith1, it was counte
r-intuitive to say, Yes. Human nature, in its narrowest sense, if you must, is a
nathema to the proposition that individuals naturally uphold the common good. Bu
t proceeding from Smiths theory, we tap individuals natural inclination to pursue
their own interests. We motivate them to see that good governance works to thei
r benefit. Self-interest therefore is channelled to nationally desirable ends.
Another irony results -- supervised entities are now competing to adopt good gover
nance principles! In doing so, there is cooperation with regulated entities. Com
petition toward cooperation.
This provokes another thought: Can the regulator partner with the regulated? I
believe so. When standards are merely imposed from the top-down, results can be
unsustainable. To have sustainability, interests of the regulator and the regul
ated must converge.
Can more granular measurement lead to unlimited possibilities? In the ASEAN Capi
tal Markets Forum (ACMF), I believe the answer is yes. Since its initiation four y
ears ago under the ACMF Implementation Plan, the ASEAN Corporate Governance Scor
ecard (ACGS) has raised awareness for tangible benefits of good governance pract
ices among publicly listed companies. The Scorecard has become increasingly mor
e than a compliance metric or tick-box. Rather, it is now a tool to achieve org
anizational alignment and focus.2
OECD studies show that investors have greater confidence in firms whose governan
ce standards are measured and clearly understood, consequently allowing better a
ccess to equity and debt finance3, leading to reduced cost of capital4, and thu
s translating to improved share value5. These are goals both regulators and the
regulated desire. Since the initiative began in 2011, regulators have champion
ed good governance principles. It is for your own good, we say. And, we have not
been off-the-mark in our pronouncement.
Our advocacy has been heard. McKinsey has found that boards of directors of cor
porations are increasingly more confident in their knowledge of the companies the
y serve and more strategic in their approach. And we know that strategy formula
tion is the first step to good governance.6 Also, as shown in an ADB study7, P
LCs have begun to voluntarily adopt best practices. There is greater appreciati
on that a balanced scorecard can generate firm-level governance improvements8 a
nd attract foreign investments. Ultimately, these enhance the regions visibility
, integrity and branding as an asset class.
The impact of good corporate governance is not just on the micro. It is also on
the macro. There is evidence that improvements in corporate governance of firm
s positively affect aggregate economic activities at the country, and in our cas
e, regional levels. Studies show this is especially so when firms improve transp
arency. When firms are better governed, interests of the firm and of stakeholde
rs are more closely aligned. This gives firms stronger incentives to achieve hig
h productivity and efficiency, thereby raising economy-wide productivity growth.9
Success inspires more success and good governance results in the whole being gr
eater than the sum of its parts.
In terms of corporate governance, ASEAN has certainly come a long way since the
1997 financial crisis. OECD reports that many key financial and corporate insti
tutional reforms here have translated to stronger regulation, better resourced re
gulators, new institutions and an increasingly involved shareholder base. A key
facet of this positive development is corporate governance reform.10
Moreover, as the ACMF effort has reached its fourth year, we have a better under
standing of corporate governance standards across the region. As regulators, we
now have a common diagnostic tool to help us improve corporate governance standa
rds. Each country in the region is expected to build on these standards to creat
e their own corporate governance framework, which should clearly articulate expe
ctations on (among others) the fitness and propriety of the board, checks and ba
lances, and transparency.
The fundamental principle is that the tone of good governance should be set and
come from the top. It should remain the highest priority as it emphasizes the im
portance of having fit and proper standards for individual board members. These st
andards, we believe, should put as much weight on integrity, as on knowledge, ex
pertise and competence.
Fitness and propriety are also displayed in the exercise of independent and obje
ctive judgment. The state of independence is defined by parameters on term limits,
a cap on the number of concurrent independent directorships and the challenge o
f a seemingly limited number of qualified independent directors. Systems of chec
ks and balances should likewise be deeply embedded across all levels in the comp
any.
Unquestionably, an environment that fosters transparency should be the new norm.
A system for cooperation and collaboration among government bodies, regulators,
and supervisors should be in place to ensure reasonableness of disclosure requi
rements. We must display the will and capacity to implement standards and take
enforcement actions, if needed.
A business model that often draws discussion and one that is almost always assoc
iated with our region is related party interest. While we recognize that such a
corporate structure has inherent risks, we must also be mindful that synergies c
an lead to success of individual companies. It would therefore be beneficial to
set higher oversight and control standards. This, to address conflict of intere
st concerns and propriety of related transactions.
Our own efforts at the Bangko Sentral ng Pilipinas with respect to our supervise
d entities follow the global thrust closely, while at the same time being mindfu
l of emerging domestic industry concerns and unique situations in our legal and
regulatory environments. However, regulation alone is not enough. A culture th
at induces appropriate/proper behavior, even when nobody is watching, is needed.
Ladies and gentlemen, the scope of governance must be broad. Our initiatives mus
t not begin and end with PLCs only. The financial environment where PLCs operate
is made up of many moving parts. Efforts must extend to financial market segmen
ts as well. In particular, we must promote orderly financial markets that featu
re real price discovery and enforce responsible market conduct.
From the perspective of a central bank, we view good corporate governance as the
foundation of safe and sound banking operations. It embodies principles of fai
rness, accountability and transparency. The Basel Committee on Banking Supervis
ion emphasizes that since banks have an important financial intermediation role
in the economy, the public and the market must be highly sensitive to any diffic
ulties potentially arising from any corporate governance shortcomings in banks.1
1 Clearly, the financial industry thrives on public trust to sustain resiliency
. But I believe these principles are true not just for the banking sector but fo
r all commercial endeavors as well.
We should also recognize that SMEs make significant contributions to regional gr
owth. Thus, they should be included in our continuing transformation process. Th
is transformation should also not leave consumer protection behind. Ladies and g
entlemen, governance must be inclusive.
For certain, we give credit to ACMF for identifying good corporate governance as
a prerequisite for economic and financial integration. In doing so, ACMF strat
egically built a strong foundation for our single market of ten separate economi
es. Good corporate governance as a bedrock is essential for an economy whose com
bined GDP is expected to grow 4 times to US $10 trillion by 203012 and is proje
cted to become the 4th largest in the world by 2050.13 With this forecast, we
are therefore beginning strong with that trajectory in mind.
Diversity in ASEAN is a good thing. It suggests availability of niche markets t
hat can be tapped. Different needs can be explored and met. Pockets of expertise
can be harnessed.14 Each nation has a comparative advantage that will benefit t
he others. Regardless of our differences, we should work together to continually
make the Scorecard reflect internationally recognized good practices in a manne
r that remains relevant and applicable to ASEAN. This can be done through syste
matic collaboration, to ensure cohesion and promote synergy. As each nation is
here represented, I am confident we are off to an auspicious and productive star
t.
But can there be constancy amidst change? The answer, I would say, is yes. This
year, the Philippine SEC celebrates its 79th Founding Anniversary. Its core func
tions endure, yet it also makes history by launching the Philippine Corporate Go
vernance Blueprint. In crafting the plan, I understand that the SEC convened a
multi-sectoral consultative working group, which considered past, present and c
hanging requirements of corporate governance, while remaining sensitive to nuanc
es of the domestic market. For this endeavor, we congratulate the Philippine SEC
and its proactive and tireless Chairperson, my friend and colleague, Honorable
Teresita Herbosa. We look forward to the Blueprints introduction.
My final thoughts for this morning. For sustainability of the corporate governan
ce initiative, achieving synergy among seeming ironies is the challenge. Self-i
nterest toward the greater good, Competition toward cooperation, Partnerships be
tween regulators and the regulated, Unity in diversity, Consistency amidst chang
e.
In addressing these seeming ironies, balance is key. Balance in choosing a firm
regulatory stance, while respecting and giving a wide berth to what motivates P
LCs and individual firms. I believe we are on the right track.
As we fulfill our mandate as the countrys central monetary authority, and as memb
er of the Philippine Financial Sector Forum comprised of financial regulators, w
e stand one with you in the vision to make ASEAN an asset class of its own.
On behalf of the Monetary Board and the officers and staff of the BSP and the Fi
nancial Sector Forum, I congratulate the ACMF, and the fifty PLCs of the region,
inaugural award recipients of the ASEAN Corporate Governance Award. For being
exemplar in your way of governance, and being the elite first of many batches th
at will bring more investments and growth into our region, we warmly applaud you
.
As we say in the vernacular, maraming salamat and mabuhay po tayong lahat.
-------------------------1 Paraphrasing an idea in Adam Smiths The Theory of Moral Sentiments (1759).
2 Robert S. Kaplan and David P. Norton, The Strategy Focused Organization: How a
Balanced Scorecard Companies Thrive in the New Business Environment.2001 Harvard
Business School Publishing Corporation, p. 8.
3 http://www.oecd.org/daf/ca/corporategovernanceprinciples/43654500.pdf. The Tan
gible Benefits of Good Governance. Last accessed 11 November 2015. OECD.
4 Ibid.
5 Ibid.
6 Improving Board Governance: McKinsey Global Survey results. August 2013. Avail
able at http://www.mckinsey.com/insights/strategy/improving_board_governance_mck
insey_global_survey_results last accessed 12 November 2015.
7 Asian Development Bank, ASEAN Corporate Governance Scorecard, Country Reports
and Assessments, 2013-2014.
8 Chris Razook, Corporate Governance Challenges Facing Southeast Asia, The Ethic
al Boardroom, Spring 2015. In www.ifc.org last accessed 11 November 2015.
9 Gianni De Nicol, Luc Laeven, and Kenichi Ueda, Corporate Governance Quality: Tr
ends and Real Effects IMF Working Paper Series WP/06/293. December 2006.
10 OECD, Reform Priorities in Corporate Governance in Asia: Taking Corporate Go
vernance to a Higher Level (2011), http://www.oecd.org/corporate/ca/49801431.pdf
last accessed 11 November 2015.
11 Basel Committee on Banking Supervision, Consultative Document. Principles fo
r Enhancing Corporate Governance. Published in October 2010. http://www.bis.org/
publ/bcbs176.htm last accessed 12 November 2015.
12 Institute of Corporate Directors. ASEAN CG Scorecard and Best Practices.
13 Understanding ASEAN: Seven things you need to know. McKinsey&Company. May 2014
.
14 Amando M. Tetangco, Jr. Prospects for and Developments in the Philippine Bank
ing System, Philippine International Banking Convention 2015, 2 October 2015, Sh
angri-La Makati.
Moving Forward With Financial infrastructure Integration

Occasion: Signing Ceremony of the BSP s Reverse Repurchase E-Trading System
I am pleased to see that the partnership between the Bangko Sentral ng Pilipinas
and the banking industry continues to grow, strengthen and deepen. Today, the s
igning of a Memorandum of Understanding for the BSPs Reverse Repurchase Electroni
c Trading System marks yet another milestone in our efforts to promote financial
market operations underpinned by strong and secure infrastructure and well-desi
gned rules.
Over the years, the BSP has launched initiatives to address the growing needs of
its stakeholders and to adapt to the changing times. These include the impleme
ntation of real-time gross settlement system which BSP operates today as the Ph
ilPASS, the Intraday Liquidity Facility, the BSP e-Rediscounting System, and the
REMIT System for OFW remittances, just to name a few.
Ladies and gentlemen. These initiatives form important building blocks towards
a domestic financial market infrastructure that efficiently and effectively res
ponds to the needs of the real sector.
With this goal in mind, our latest initiative is the RRP E-trading system, a web
-based electronic platform where overnight and term RRP agreements between financ
ial institutions and the BSPs Treasury Department may be transacted and settled.
With built-in security access procedures, the new E system will replace the manu
al queuing of the RRP trade orders that are posted via a combination of telephon
e and stand-alone trading platforms, e.g., Reuters or Bloomberg. It will also el
iminate the unintended consequence of manually collating transactions from diffe
rent order sources.
Another benefit that users of the e-trading system will enjoy is straight throug
h processing where reporting of interbank call loan transactions will be done el
ectronically. In sum, therefore, the system should heighten the security of the
full dealing, settlement and reporting cycle of RRP transactions.
But more than the benefits of automation, the creation of this system opens up f
or the BSP new horizons for enhancing the way it conducts open market operations
or OMO. This electronic trading system provides the BSP the flexibility to use
different methods to allocate RRPs to participating banks, including possibly a
n auction system. In turn, the option to auction RRPs will give the BSP the mean
s to implement a full interest rate corridor for OMO in the future. Presently, o
ur OMO is conducted with the RP as the ceiling and the SDA as the floor.
The electronic reporting of transactions will also expedite the calculations for
another important initiative in progress -- the OIS, which is a determinative
component in completing the benchmark yield curve. We can see, therefore, some
interesting times ahead.
We look forward to continue working closely with the leaders of our financial s
ystem in building financial market infrastructure and systems that are safe, se
cure and responsive to its stakeholders. Thank you for your continuing support.
Finally, let us congratulate the BSPs Treasury Department under the leadership of
Assistant Governor Winnie Santiago who worked with the BSPs Payments System Offi
ce, Information Technology Sub-Sector, and Legal Office in setting up this trad
ing platform.
We look forward to more joint undertakings that will continue to move us forward
toward a better, bigger and stronger financial market that will keep our econom
y growing and increasingly inclusive.
The Pursuit of Financial Stability: A Daunting But Necessary Prudential Agenda

Occasion: FSCC MOA signing
Securities and Exchange Commission Chairperson Teresita Herbosa, Insurance Commi
ssioner Emmanuel Dooc, Philippine Deposit Insurance Corporation President Valent
in Araneta, National Treasurer Rosalia De Leon, representing DoF Secretary Cesar
Purisima, members of the Monetary Board, our partners from the various governme
nt institutions, my colleagues from the Bangko Sentral ng Pilipinas, members of
the media, ladies and gentlemen, good morning.
The BSP is honored to host this signing of the Memorandum of Agreement formalizi
ng the creation of the Financial Stability Coordination Council.
Today, the five agencies represented here the DoF, SEC, IC, PDIC, and the BSP pu
blicly affirm our collective resolve to pursue financial stability as the norm f
or prudential policy.
With that resolve comes the commitment to identify, monitor and mitigate the bui
ld-up of system-wide financial risks and deploy as necessary so-called macroprud
ential measures.
The Bigger Picture
This is certainly not the first time that we have publicly mentioned financial s
tability and our desire to make it the pillar of financial market oversight.
However, financial stability is prone to being misunderstood, if not under-appre
ciated. Perhaps, it is the sheer enormity of the tasks ahead that creates confus
ion. Or perhaps, it is the absence of a holistic and formalized textbook framewo
rk that makes the journey to financial stability and maintaining it quite daunti
ng.
The financial stability agenda talks of co-mingled risks, and systemic consequen
ces. This is not the type of language or focus that we have been used to in orga
nizing our prudential oversight of our respective segments of the financial mark
et. Yet, the dislocation that comes with financial instability has been very evi
dent for everyone to see and, unfortunately, for many jurisdictions to experienc
e.
From the breakdown of Wall Street to the difficulties in the Eurozone and genera
l weaknesses in consumer protection, we saw for ourselves how previously unmonit
ored and unrecognized risks could create system-wide consequences that are a bur
den borne ultimately by financial consumers.
The global reform agenda is thus designed precisely to prevent the recurrence of
dislocations whose magnitudes are felt worldwide.
The Basel 3 Accord, Financial Market Infrastructures, systemically important fin
ancial
institutions, corporate leverage, liquidity, shadow banking, large exposures, in
terconnectedness, managing capital flows, OTC derivatives, consumer protection.
These are but some of the components of the evolving global reform agenda. The c
hange institutionalized by each one of these is structured precisely to better a
chieve financial stability.
The Significance of the MoA
This is why todays event is nothing short of a milestone.
The five institutions represented here publicly recognize that financial stabili
ty matters. We appreciate that the task is extensive and challenging but we are
driven by our common commitment to nurturing the gains that we have already achi
eved by recognizing the intricate nature of financial risks.
This healthy respect for financial risks balances the rewards that we can reason
ably expect from such exposures as against the need to remain prudent in taking
on acceptable risks.
We likewise fully appreciate that each of the institutions will continue to over
see their respective markets and/or pursue their respective mandates. But the fi
nancial system is certainly much more than the collective sum of the parts. This
synergy brings forth the risks and rewards that are at the heart of financial s
tability.
The Progress Thus Far
Ladies and gentlemen, we mark a historic day for the financial system by signing
a document that binds five financial authorities towards pursuing the financial
stability agenda.
The truth is that our work on financial stability does not only start today. The
various committees have invested their time and effort for over a year now. The
y have been evaluating global, regional, local developments, with the end in vie
w of pro-actively positioning our financial market for evolving challenges.
For the silent but diligent work that the five workstreams, our steering committ
ee and the administrative team have put forward to-date, we in the Executive Com
mittee sincerely thank you. We recognize the enormous challenge before you and a
s a small token of our appreciation of your efforts, may I call on everyone to g
ive these men and women a hearty round of applause.

With a collective commitment and a shared responsibility to implement the financ
ial stability agenda, I am sure that we will be able to rise to this challenge.
Thank you very much and I wish you all a pleasant day.
Adapting to Change.. Creating Advantages from Challenges

Venue: Intercontinental Hotel Manila
Occasion: FINEX 6th General Membership Meeting
Speaker: BSP Governor Amando M. Tetangco, Jr
I am pleased to join you during your 6th General Membership Meeting for this yea
r to speak on the near-term prospects and challenges of ASEAN integration in par
ticular, as these relate to the Philippine banking system. I am sure questions
about our readiness for ASEAN integration are in the back of your minds. And ri
ghtfully so. Serious market players must ask these important questions -- Are we
equipped to take full advantage of the benefits of integration? Can our banks
and our domestic markets face up to the challenges of greater competition? I am
hoping that at the end of my remarks, you and I will come to the same conclusio
n.
Positive third party assessments
In preparing for my remarks, it was tempting to simply enumerate the positive re
views that the country has been given in recent periods. The latest of these is
from the IMF Article IV Mission which observed in their concluding report that
the country continued to perform strongly, despite weather-related disruptions to
agricultural production. In the same Mission report, the IMF team noted that the
banking industry is sound, with capital ratios well in excess of prudential norm
s, low nonperforming loans, and abundant liquidity. The economic numbers do tel
l a positive story. We have built buffers against external shocks through more
than ten consecutive years of current account surpluses and our gross internatio
nal reserves are ample by most traditional yardsticks.
Governance of Monetary Policy is clear
Moreover, the governance of our monetary policy is clear. And this, together wi
th improved policy communication and engagement with stakeholders, has helped to
keep annual average inflation within-target over the last six consecutive years
.
A number of central banks in the region have adjusted their policy settings in t
he past few months. Some have asked me why the BSP hasnt yet followed suit. The
answer quite simply is that the conditions that have compelled other central ba
nks to ease monetary policy are not exactly present in the Philippines. First,
inflation expectations continue to be well-anchored. Second, while we are cogni
zant of expectations of global slowdown in economic growth and volatile asset pr
ices arising from the asynchronous monetary policies in advanced economies, our
assessment is that domestic demand conditions remain robust. Solid private dema
nd and buoyant business sentiment support this view. Moreover, notwithstanding

the lower-than-expected Q1 GDP report, we see that in the months ahead, ample do
mestic liquidity and higher public spending are expected to support domestic eco
nomic activity and sustain the economys momentum.
We do feel some heat, however, quite literally from Mother Nature. This is not
just about the discomfort of the daily heat permeating through our office window
s. Rather, there is the looming threat of another El Nio phenomenon. As temper
atures rise, supply chains may become disrupted and create ripples through infla
tion.
All things considered, however, we see the balance of risks still point to infla
tion settling within the target range of 31 percent in 2015-2016.
Vision for the Banking Industry
In making these assessments, however, we are aware that markets are constantly e
volving. In light of this, the BSP has repeatedly espoused 3Rs for the banking in
dustry. -- Banks must be Responsive to the needs of their stakeholders, act in a
Responsible manner and stand Resilient to the volatilities that frequently come
their way.
Responsiveness requires that banks are inclusive. The market that banks serve m
ust not be limited to those who can already invest. Instead, banks must reach o
ut to those who desire and can be made better off by the products that they offe
r. Acting Responsibly stems from adherence to the entire spectrum of governance
. While Resilience to volatilities necessitates effective management of risks.
The Lay of the Challenges Ahead
These 3 Rs must figure prominently in our banking system if it is to continue to
be welfare-enhancing to its stakeholders. This is true whether we consider only
our own domestic operating environment or whether we consider the broader marke
t of ASEAN integration.
If it is brought to its expected conclusion, the integration of the ASEAN financ
ial markets would reshape the global market landscape. To better appreciate how
this may come about, it will help to step back and identify the different facet
s of this integration initiative.
The ASEAN Economic Community (AEC) is slated to commence by years end. The object
ive is to consolidate ASEAN into a single economic base that is integrated into
the global markets. In short, we expect to achieve free movement of goods, servi
ces, investment, skilled labour, and the freer flow of capital.
The parallel initiative is the integration of the ASEAN financial markets under
the ASEAN Financial Integration Framework or AFIF. This has a very broad covera
ge which includes banking, insurance and capital markets as well as the payment
systems.
The banking component of AFIF is the ASEAN Banking Integration Framework or ABIF
. Under ABIF, so-called Qualified ASEAN Banks or QABs will be allowed to establ
ish operations within ASEAN. These QABs, as endorsed by the home jurisdiction r
egulator, must meet established global standards for banking supervision. In ad
dition, the framework provides for bilateral agreement between the respective ho
me and host banking authorities which will govern the execution of ABIF and the
operation of QABs in the respective jurisdictions.
An easy way to imagine how the ABIF will play out is this. Picture a single mul
ti-jurisdiction archipelago called ASEAN. Goods and services, as well as labour
and capital, can move freely within the archipelago with as little friction cos
t as possible. QABs extend the reach of one jurisdiction by having outposts outsi
de its own jurisdictions borders but still within the larger archipelago.
As banks, these QABs compete with other banks in the host jurisdiction. They ar
e covered by the same regulations as a local in a host jurisdiction, subject to re
finements agreed bilaterally by the home and host regulator. This increases com
petition in the market of the host jurisdiction but it also provides financial c
onsumers with a wider array of financial products and services.
As illustrated, ABIF provides a financial highway for the raw potential of ASEAN
. Instead of using US correspondent banks, intra-ASEAN trade and investments ca
n be cleared and settled as inter-branch transactions of QABs. This is not only
convenient but specifically highlights the nature of ASEAN itself: a regional c
luster that has a record of growth, defined by a retail market with high disposa
ble income and unparalleled saving potential.
But, ASEAN integration is not just the banking side. It also covers the develop
ment of both the capital market and the payment systems. Achieving both the AEC
and AFIF means that Filipino entrepreneurs can seamlessly tap the capital marke
ts in any of the 10 ASEAN jurisdictions. Local investors would also have more o
ptions on securities, with the added convenience of not having to open accounts
in other ASEAN jurisdictions.
To enforce this vision, payment systems would be linked such that cross-border o
bligations will be settled with finality in the investors own jurisdiction. Cent
ral counterparties are established to reduce liquidity flows while central depos
itories are in place in behalf of investors with all trades duly reported to des
ignated repositories.
Taking the Changes and Creating Opportunities
All these, ladies and gentlemen, represent the vision of economic integration.
For FINEX members who are banks, you will be faced with increased competition. I
t is imperative therefore that you define/carve out your comparative advantage i
n our local market, which has one of the youngest populations in ASEAN and in th
e bigger ASEAN market, which is home to over 600 million individuals. This neces
sitates perhaps a different thinking cap, given that you will be making the hard
decisions on positioning yourself in the market a time when global reforms and
regional agreements are reshaping the market landscape. If you have not done s
o, you will need to make those tough decisions now to give yourselves time to ex
ecute your strategic goals.
Broker-dealers must now take an even broader view of what and how you define you
r market. I know many of you have leveraged on technology to extend your reach th
roughout our archipelago. But you may wish to also go beyond the bounds of our
7,100 islands and partake of ASEANs saving which in 2013 alone was over USD700 bi
llion. A portion of that has been deployed outside ASEAN, so, re-directing this
back to ASEAN is certainly going to have positive effects.
And to the CFOs in FINEX, the sheer thought of transforming 10 separate jurisdic
tions, that generated about USD2.4 trillion worth of output in 2013 alone, into
a single base of freely flowing economic resources ought to lead you to review t
he way you prioritize portfolios.
With ASEAN banking integration on the horizon, new opportunities arise. But we a
lso recognize the possibility of the increased volatility of capital flows and a
dditional risks attendant to cross-border transactions. The complexity of regio
nal bank operations highlights the need for vigilance among supervisory authorit
ies and continued focus on risk management among financial institutions.

Ladies and gentlemen, our finance executives must adapt quickly to our rapidly c
hanging environment. Unparalleled opportunities are unfolding and potential pit
falls as well if we do not watch out. It is soon going to be a very different w
orld out there for the financial executive. The sooner we take cognizance of wha
t may be, the better we can prepare. Change is upon us. Are we ready for ASEAN
banking integration?
For ABIF, the groundwork has been prepared with the liberalization of foreign ba
nk entry. The BSP is gearing banks up to step to the regional plate by adopting hi
gher capital requirements, enhancing credit risk management rules and raising go
vernance standards, among others. From a macro point of view, the BSP has conti
nued to create a stable macroeconomic environment. The rest of the story lies n
ow with each of you in how you will adapt and move forward.
This reminds me of that little best-selling book: Who Moved My Cheese? by Spencer
Johnson. The book has been in print for over a decade now. But its lessons are
always fresh. The book is a parable about 4 characters Sniff and Scurry, and Hem a
d Haw. In the parable, these 4 characters found cheese in the same spot at Cheese
Station C each day. Hem and Haw assumed that the cheese would always be there bec
ause so far, the cheese had been there without fail. They were not paying attent
ion to the small changes that had been taking place. In the meantime, Sniff and
Scurry noticed that each day the cheese was getting smaller. Not unexpectedly,
therefore, their reactions were different when one day, there was no longer any
cheese at Station C. Sniff and Scurry were prepared. My question to you, ladie
s and gentlemen, is this -- when change comes upon you, would you be heard shout
ing petulantly like Hem and Haw did: Who moved my cheese?
While there are still parts of ASEAN integration that are being finalized, the p
rinciples have been set. The lessons from the book on anticipating, monitoring a
nd being quick to adapt to change are therefore lessons we would need to apply e
ven today. Together, we have travelled far in re-shaping and re-energizing our
financial system. Let us, further solidify that partnership to position our cou
ntry in a more integrated ASEAN.
Thank you very much for your attention and good afternoon.
Celebrating Freedom and Responsibility

Venue: Pacific Islands Club Pavilion, Guam
Occasion: 117th Anniversary of Philippine Independence
I am deeply honored to be with you here in Guam to celebrate the 117th Anniversa
ry of the Independence of the Philippines. This is a time of reflection. A time
when we look back to honor the people who dedicated their lives to secure our f
reedom as a nation. A time to remember the significant events that define us as
a people and as a nation.
Indeed, we must celebrate, commemorate, and value our heroes and their legacy of
freedom. We are happy to note that this is well recognized by the Government of
Guam with the proclamation signed by Gov. Calvo declaring June 2015 as Philippi
ne Independence month.
This brings me to the subject I wish to share with you tonight.
In the Philippines, we are working on developing an economy where growth is sust
ained, balanced and one that promotes inclusive growth. Growth that improves th
e quality of life. Growth that empowers. Growth that breeds financial independe
nce among our people -- similar to what you have here in Guam.
Indeed, with the freedom to set our
chieve sustained long-term growth.
uninterrupted economic growth. And
ated a level of resilience that can
stress or the devastating impact of
own course, the Philippines is on track to a

Among others, we have registered 16 years of
time and again, the Philippines has demonstr
withstand the effects of global financial di
natural calamities.
In 2013, for instance, central Philippines was struck in succession by a 7.2 mag
nitude earthquake and by Typhoon Haiyan, considered the most powerful storm to m
ake landfall in recorded history. Thousands died, millions were adversely affec
ted, properties and infrastructure were destroyed and heritage sites ruined. Nev
ertheless, with overwhelming outpouring of international support, including from
Guam, and with growth momentum on our side, our economy still expanded by 7.2%,
the second highest in Asia, next to China.
The Bangko Sentral ng Pilipinas which is the Philippine central bank -- plays
a crucial role in laying the appropriate foundation to help keep our economy gro
wing. In line with our mandate, the Bangko Sentral works on providing an operati
ng environment where stability is the hallmark of price movements and the financ
ial system. The objective is to create conditions that are conducive to a balanc
ed and sustainable growth of the economy.
Promoting macroeconomic stability is crucial because it serves as a solid spring
board for households and businesses to flourish. As US President Franklin D. Roo
sevelt famously declared in his State of the Union address in 1944, and I quote:
True individual freedom cannot exist without economic security and independence.
Indeed, ensuring economic stability and security is in the best interest of a na
tion. I am pleased to report therefore that we continue to register solid gain
s in providing a stable environment for our economy to grow and for our people t
o benefit from opportunities that development brings.
Among others, Philippine inflation in May was 1.6%, our lowest in 20 years. At t
his rate, we are able to preserve and protect the purchasing power of our people
. By comparison, our inflation reached its highest at 50% in 1984 or three decad
es ago, when problems related to politics and economics converged. We had a debt
crisis: with our gross international reserves insufficient to meet our overseas
obligations, we declared a moratorium on foreign debt payments, which in turn t
riggered a credit freeze. As a consequence, government had to ration scarce fore
ign exchange by prioritizing importation of critical commodities such as oil, me
dicines, and dairy products. The credit squeeze also pushed domestic interest ra
tes higher, with housing loans going for over 30%. It was during this period wh
en many Filipinos went overseas to find better opportunities.
Today, things are so much better in the Philippines. We now have ample internat
ional reserves that have enabled us to fully prepay our loans to the Internation
al Monetary Fund, after 45 years of indebtedness. And we have liberalized forei
gn exchange transactions. Among others, with minimal documentation, individuals
can purchase as much as one hundred twenty thousand dollars ($120,000.00) per tr
ansaction from banks.
Interest rates have also been lower, with some housing loans going for 5% per ye
ar. The banking system is sound, stable and liquid, with bank capitalization mo
re than compliant with global standards.
In fact, last year, in a field of 69 jurisdictions, the Philippine banking syste
m earned the distinction of receiving the only positive outlook rating from Mood
ys. Moving forward, we are confident that our banks can hold their own when ASEA
N Banking Integration takes place by 2020, as part of the wider implementation o
f the ASEAN Economic Community (AEC) by the end of 2015.
In preparation for this, a new law was passed last year -- Republic Act No. 1064
1 allowing 100% foreign ownership of banks in the Philippines. We believe this w
ill encourage healthy competition that will benefit Filipino consumers in terms
of having broader and better choices of bank products and services. It will al
so bring in more foreign investments into the Philippine economy.
We hope that these favorable business conditions in the Philippines will prove a
ttractive for increased investments from Guamanians to partner with us in exploi
ting such opportunities.
Parallel to this, we are taking a proactive approach to ensure that Filipinos ac
ross the country are able to identify, gain and prosper from the fruits of econo
mic progress.
Our way forward is through financial inclusion. We want our people to save, inve
st and learn proper personal finance management to be financially secure and ind
ependent. We want our people to be part of the financial mainstream where they c
an access bank loans that will help them grow their own business. We want our pe
ople to have options other than informal lenders with prohibitive rates and oner
ous conditions. And we want our people to be able to protect themselves against
scams and to know their rights as financial consumers.
We are therefore working with other agencies and institutions to develop and imp
lement a national strategy for Financial Inclusion to achieve sustained and broa
d-based inclusive growth.
The upward trajectory of economic freedom in the Philippines is reflected in the
2015 Index of Economic Freedom published by the Wall Street Journal and The Her
itage Foundation where we ranked as 76th freest among 186 countries.
We had one of the 10 best score improvements in this 2015 Index, with notable im
provements in financial freedom, freedom from corruption, and labor freedom. Wh
ile the report pointed out areas of remaining concern, it acknowledged that wide
-ranging reforms have put greater emphasis on improving regulatory efficiency, e
nhancing regional competitiveness, and liberalizing the banking sector. In terms
of overall economic freedom, the score of the Philippines is above average, rel
ative to the world and the regional benchmarks.
Ladies and gentlemen, the declaration of Philippine independence 117 years ago w
as a decisive step toward building a free and prosperous nation.
Today, more than paying respect to our forefathers and heroes, let us reflect, a
s beneficiaries of this freedom on our responsibilities in moving our country an
d our people forward wherever we may be.
The current generation has the obligation to carry on with the task of nation-bu
ilding to ensure that future generations continue to have the rights and privile
ges that we enjoy today as free and independent citizens as Filipinos or as Guam
anians.
At the core of this shared mission is the spirit of community that we also celeb
rate tonightthe Filipino values of bayanihan and malasakit -- both of which are
underpinned by concern and caring for others, out of compassion, or a sense of d
uty.
We observe this, for instance, in the consistent flow of remittances from Guam t
o the Philippines. According to data collated by the Bangko Sentral ng Pilipina
s, cash remittances through banks by overseas Filipinos in Guam reached a total
of $85 million in 2013 and $87 million in 2014.
The strong ties that bind us are also evident in the number of tourists from Gua
m who visit the Philippines. In 2014 for instance, we recorded 38,000 tourists f
rom Guam -- equivalent to roughly 23% of your population.
And preference for products from the Philippines is on the rise. This includes
dried mangos, shrimps and other food items and automotive vehicles. Philippine
exports to Guam reached $13 million in 2013 and increased to $19 million in 2014
.
This is not surprising. Guam and the Philippines have many things in common bein
g a former colony of Spain and the United States and under Japan during World Wa
r II.
Indeed, Guam is part of our history. Filipino revolutionary heroes were exiled
here. This included Melchora Aquino who was 84 when the Philippine revolution a
gainst Spanish rule broke out. Popularly named as Tandang Sora she provided shelte
r and resources to freedom fighters and became known as the Mother of the Philip
pine Revolution.
The other Filipino hero exiled here was Apolinario Mabini who was recognized as
the Brains of the Philippine Revolution. He was the first Prime Minister of the
Revolutionary Government and the first Foreign Affairs Secretary of the Republi
c of the Philippines. He was 38 when he died, shortly after returning from exil
e.
Indeed, no one is too young nor too old, to fight for freedom.
As fate would have it, we recently celebrated milestones of these two heroes: M
elchora Aquinos 200th birth anniversary in 2012, and Apolinario Mabinis 150th birt
h anniversary in 2014. The Bangko Sentral ng Pilipinas minted special coins and
medals to commemorate the role of these two heroes in our fight to gain independ
ence for our country and our people.
Ladies and gentlemen, we are donating a number of these commemorative coins and
medals to the Filipino Community of Guam and to the Philippine consulate here as
a reminder of how Guam figured in the lives of these two heroes.
And now, Filipinos come to Guam, not as exiles but as citizens of the world, who
exercise their freedom to choose where they can be productive members of the ec
onomy and live better lives with their families. I understand that the number o
f tourists from the Philippines is also on the rise, as we have been learning go
od things about Guam and Guamanians.
In other words, the Filipinos here have been actively promoting Guam in our coun
try. I therefore congratulate the Filipino Community of Guam (FCG) in fostering
and nurturing Philippine-Guam relations.
And most especially, I commend FCG for being responsible members of the communit
y here for over 60 years now. I understand FCG channels its efforts and resource
s to respond to emerging needs in health care, education, as well as in disaster

relief and mitigation. This is as it should be paying back to the island of Gu
am, which, for many of you, has become your new home.
I believe the members of FCG have made the right choice. Guam is economically ac
tive and has a bright future ahead of it. Among others, Guam is an exciting and
popular destination for tourists who number over a million. In short, tourists
easily outnumber the local population (est. at over 165,000).
And projections of more active US military presence is bound to create more jobs
and better opportunities here. I take this opportunity therefore to congratula
te the leaders of Guam who are here tonight, for providing a clear roadmap to su
staining growth and a better life for Guamanians and its other residents.
Ladies and gentlemen, the task of nation-building begins when we gain our freedo
m, our independence. This privilege comes with an obligation to nurture our fre
edom by working together to create better lives for our people. As French writer
and philosopher Albert Camus once said: Freedom is nothing else but a chance to
be better.
Once again, I congratulate the members and officers, the Board of Directors, and
the Board of Trustees of the Filipino Community of Guam under the leadership of
President Baldovino for this successful celebration.
Maraming Salamat!
To my Kabalens, dacal a salamat!
Thank you for your invitation and your kind attention. Mabuhay!
Hafa Adai.
National Strategy for Financial Inclusion: Our Platform to Provide Better Lives
Venue: Reception Hall, Philippine International Convention Center
Occasion: Launch of the National Strategy for Financial Inclusion
Welcome to the beginning of our collective journey to change Filipino lives for
the better through financial inclusion. In this journey, the National Strategy
for Financial Inclusion (NSFI) which we are launching today, shall serve as our
road map.
About the NSFI: Overview
For the Philippine government, financial inclusion is an enduring vision -- fina
ncial inclusion that supports inclusive growth, one that promotes shared economi
c development, upholds social cohesion and reduces income inequality. This is ex
plicit in the Philippine Development Plan.
Indeed, inclusive growth is the ultimate goal. This is the reason why many agenc
ies are engaged in development activities. With the NSFI, we focus on achieving
financial inclusion that promotes inclusive growth, consolidate our efforts to a
void overlaps, and together set priorities to maximize use of our resources.
The NSFI covers three fundamental points: (1) Why we are pursuing financial incl
usion, (2) Who we are targeting to include, and (3) What we should do to transla
te the vision into reality. Let me expound on these more fully.
(1) Why pursue financial inclusion
We are pursuing financial inclusion because we want Filipinos to have better liv
es similar to those whose inspiring stories highlight our Exhibit.
Indeed, with a small loan, or some savings, a microinsurance cover, steady remit
tance from abroad sent through formal channels and access to other financial ser
vices, more and more Filipinos are lifting themselves and their families out of
poverty toward higher incomes, risk-protected assets, and brighter futures.
Surveys indicate that roughly 25 percent of Filipinos still live in poverty. On
e can say therefore, that we have millions of reasons to do our best in building a
n inclusive financial system.
The timing is right. The Philippines is in a bright spot, with GDP growth averag
ing 6.6 percent in the last three years , one of the highest growths in Asia and
the world. This has been achieved in an environment of within-target inflation,
a desirable combination indeed.
At the same time, the Philippine financial system is in a position of strength,
with steady growth in resources, healthy balance sheets, and capitalization that
is well-above national and international requirements .
In other words, economic opportunities abound across the country today at a time
when the financial system is sound, stable and liquid. This is fertile ground
indeed for proactive work on financial inclusion.
(2) Who should be financially included
Our goal is to mainstream Filipinos across the country as regular clients of our
financial system, particularly (1) MSMEs, (2) overseas Filipinos and their bene
ficiaries, (3) agriculture and agrarian reform sectors, (4) indigenous peoples a
nd cultural minorities, (4) women, (5) the youth, (6) and persons with disabilit
ies. These sectors are typically unserved or underserved by conventional financi
al service providers.
We want to provide effective access to a wide range of financial products and se
rvices. This broadly encompasses a multitude of target sectors and inclusion iss
ues. It also indicates the multi-dimensional financial needs of these sectors ne
eds that can be addressed by a variety of financial service providers and suppor
t institutions.
(3) What should we do to achieve financial inclusion
Given a clear vision and target market, the next step is to implement the Nation
al Strategy for Financial Inclusion. The NSFI spells out high-level principles a
nd systematic strategies; guides coordination across government and private sect
ors; ensures policy and program cohesion; and promotes multi-sectoral synergies.
In particular, the NSFI lays down precise objectives: (1) Financial products tha
t are diverse, well-designed, suitable and relevant to different market segments
; (2) Providers and business models that are diverse, responsible, responsive an
d innovative; and (3) A citizenry that is financially-learned and adequately pro
tected.
The NSFI strategic statements and clear objectives serve as guide to all stakeho
lders when designing and implementing financial inclusion policies and programs.
Moving Forward to Implementation and Progress Measurement
Later in the program, the government agencies that crafted the NSFI will sign a
Memorandum of Understanding. These are the agencies that will spearhead the impl
ementation of our NSFI:
Department of Finance (DOF)
Department of Education (Dep-Ed)
Department of Trade and Industry (DTI)
Department of Social Welfare and Development (DSWD)
Department of Budget and Management (DBM)
National Economic and Development Authority (NEDA)
Insurance Commission (IC)
Commission on Filipinos Overseas (CFO)
Securities and Exchange Commission (SEC)
Philippine Statistics Authority (PSA)
Philippine Deposit Insurance Corporation (PDIC)
Cooperative Development Authority (CDA) and
Bangko Sentral ng Pilipinas
At the same time, we have invited multi-sectoral representatives here today beca
use we believe that you can play a significant role in the successful implementa
tion of our NSFI. Ladies and gentlemen, we need your cooperation, collaboration
and overall support to ensure that financial inclusion becomes a reality throug
hout the Philippines.
Equally important, we hope that you will help us in measuring and monitoring the
progress of our financial inclusion initiatives. Moving forward, we need data t
o guide and inform us if we are on the right track; to evaluate if we need to re
fine our tactical plans; to help us prioritize our resources; and to help us cal
ibrate our policies and programs accordingly.
Indeed, the importance we ascribe to data and measurement is underscored by the
simultaneous launch today of the result of our maiden National Baseline Survey
on Financial Inclusion. The survey, completed this year, showed the following r
esults:
25% of Filipino adults have never saved, 32% used to save, and only 43 % pre
sently have savings.
Of those with savings, only 32% save in banks while 68 % keep their savings
at home.
65 % of unbanked adults cited lack of money as the main reason for not havin
g a bank account.
About 47 % of adults have outstanding loans. The main source of borrowing is
informal 62% borrow from family, relatives or friends while 10% borrow from in
formal lenders.
In the past six months, about 44 % of adults sent or received money while 42
% made payments.
Only 3.2 percent of adults have microinsurance coverage.
Clients rated themselves as only somewhat satisfied with how issues were reso
lved in most financial service access points.
The survey results tell us we have a long way to go to achieve financial inclusi
on. The survey also tells us that there are plenty of opportunities for those lo
oking to expand their business or to introduce game-changing innovations.
Clearly, we will need broad-based cooperation from local and international insti
tutions to address these gaps. Together, I believe we can make substantial gains
on our financial inclusion targets.
Conclusion
We look forward therefore to work with you in our journey to achieve inclusive f
inance that supports inclusive growth. We want to ensure that Filipinos across
the country are able to identify, gain and prosper from the fruits of economic p
rogress.
In particular, we want our people to be part of the financial mainstream where t
hey can access financial services and to have options other than informal lender
s with prohibitive rates and onerous conditions. And we want our people to be ab
le to protect themselves against scams and to know their rights as financial con
sumers.
Let us therefore forge partnerships that will empower more Filipinos to improve
their lives through access to responsive, responsible and fair financial service
s.
Finally, we thank Her Majesty Queen Maxima, for making a special visit to the Ph
ilippines to express her support for our financial inclusion initiatives and our
National Strategy for Financial Inclusion. We take inspiration from your work
in countries like ours. Indeed, we support your efforts to promote financial inc
lusion in the global arena as a means to achieve development goals.
With your support, and the commitment of everybody in this hall as co-implemente
rs of the National Strategy for Financial Inclusion, I believe that we are on ou
r way to a meaningful and fruitful journey toward financial inclusion for all Fi
lipinos.
Thank you all for joining us on this auspicious day. Maraming salamat at Mabuhay
!
Working Together towards a Stronger Economy

Venue: Fairmont Hotel (Main Ballroom, 2/F), Makati
Occasion: Security Bank Economic Forum Economic & Business Forecast 2015
The presentation this afternoon will start with a discussion on the global econo
mic and financial developments and their possible implications for the Philippin
e economy. Then we will look at the growth experience of the Philippine economy
and the underlying factors that form the bases for the economys resilience.
A Look Back to 2014
I was looking at the new logo of Security Bank. It shows two halves just like t
he yin and the yang. Two parts working and coming together. Its an interesting de
piction although of course, on the hard-court (as in the basketball, or even in vo
lleyball courts), it would be a stretch to say that the Greens would be above th
e Blues for long periods. I must have a conversation with Abet about his choice
of corporate colors. The old Security Bank color was already the perfect one B
lue!
But seriously, two things coming together and being integral parts of each other
. These are very similar to the themes that pervaded our global operating enviro
nment in 2014.
In 2014, there were two themes that dominated the global operating environment 1
) uneven global growth and 2) divergent monetary policies in advanced economies.
As the US economic growth continued to gain traction and the US Fed subsequent
ly ended its asset purchase program in October last year, markets began to inter
pret the Feds statements to mean that it would begin lift off (or raise the Fed Fun
ds target rate) sometime this year. In contrast, EU and Japan remained barely a
ble to eke out growth. By the ECBs and the BOJs own pronouncements, they were will
ing to further expand easy monetary conditions to stimulate growth in their juri
sdictions. ECB President Mario Draghi even pledged to do whatever it takes. So, i
n one part of the globe, you had the Fed poised to tighten monetary conditions,
and in another, you had the ECB and BOJ committing to provide more liquidity as
needed.
This combination ushered the shift in market sentiment capital flowed out of EME
assets (the long-standing darling of investors) toward US financial assets. Thi
s resulted in a strong appreciation of the US dollar. While this was happening,
oil prices began to tumble. By year end, Brent had lost half its value, dropping
from a high $115/bbl to $55/bbl.
How did the Philippines fare in all of these? Well, the Philippines stood its gr
ound. We continued to show healthy growth in a low inflation environment. The fo
urth quarter GDP number was released yesterday and it showed the underlying stre
ngth of the economy. In Q4, the economy grew 6.9 percent, faster than the 6.3 p
ct in the same quarter in 2013 and 5.3 pct in Q3 of 2014.
For full-year 2014, GDP grew by 6.1 pct. On a full-year basis, the Philippines r
anked second among selected Asian economies, next to Chinas 7.4 pct.
In the meantime, with the right monetary policy settings and some help from lowe
r oil prices, full-year inflation tipped at 4.1 pct, marking 2014 as the 6th con
secutive year that inflation has been kept within the governments target range.
This robust performance was supported by a sound banking system that continued t
o be profitable, well-capitalized and able to intermediate funds to the producti
ve sectors of the economy, while maintaining good credit standards. In addition,
the country continued to sustain surpluses in its current account, enabling us
to keep our GIR at about $80B at end 2014.
The Outlook for 2015
Ladies and gentlemen, clearly, we have entered 2015 as we did in 2014 -from a po
sition of relative strength. Can we expect this strength to be sustained through
out 2015? My answer to this question is a YES.
Shortly, I will provide you four reasons why. But before that, let me give you s
ome perspective by walking you through the operating environment that we see for
2015.
The global themes coming into 2015 were rather clear uneven growth and divergent
monetary policies and a strong USD arising from this combination. This was so
until oil prices began to drop -- like falling knives as one analyst put it. It
is notable that no one has yet, very definitively called the oil price decline
as being overdone. Although the IMF forecasts as of 6 January 2015 show an uptick
in oil prices in the second half of this year.
The steep decline in oil prices has complicated the market appreciation of the o
utlook for monetary policy in 2015. Some analysts say, the Fed would be hard-pr
essed to hike rates by any significant measure (as in June this year) if oil pri
ces continue to drop because inflation in the US will be soft.
In addition, low oil prices increase the risk of deflation in the EU and Japan,
raising the likelihood that more easing measures would be put in place.
In other words, ladies and gentlemen, whereas markets used to have the confidenc
e in the trend of monetary policies, this new uncertainty from oil price movemen
ts is now seen to heighten volatility in financial markets by unsettling investo
r risk appetite and unseating inflation expectations.
Further, a continued decline in oil price could also change the balance of globa
l growth prospects. There will be winners and losers if low oil prices persist.
While the decline in oil is a dampener to inflation and could raise purchasing
power for oil importers, it could also result in a loss of revenues for oil prod
ucers and lead to weak aggregate demand. With overall global growth still fragil
e, the significant drop and the weak prospects in oil prices have gotten more an
alysts discussing the risk of deflation in recent weeks.
The Philippines in Focus:
How do we see all these impacting the Philippines? For us, low oil prices repre
sent disinflation pressures. Fuel and fuel-related items account for nearly 9 pc
t of our CPI basket. We have also
seen transport fares being adjusted downward. In addition, the fall in oil price
s could benefit us through an increase in household real income as well as the l
ower cost of production.
I have been asked whether we are worried about deflation (due to the substantial
decline in oil prices). Well, deflation effects in the AEs can spillover to our
economy through lower trade. However, trade as a percentage of GDP is still rel
atively lower than those of our peers in the region.1 So the risk here is probab
ly only of a relatively small magnitude.
As for deflation materializing in the Philippines, the risk is not significant.
For one, our demand conditions are firm. Services and industry remain strong. An
d on the demand side, consumption is seen remaining robust. We heard Sec. Balisa
can say yesterday that the worst is over on underspending and that the government
is committed to ramping up spending. There are other factors that lead us to sa
y that deflation is remote -- or that inflation would remain positive. These are
wage rigidities and the upside risks from pending petitions for utility rate ad
justments (electricity) and potential power shortages.
Given this scenario, what would the monetary response of the BSP be? Our initial
projections using lower oil prices show that inflation would still be within th
e target range for 2015, which is now lower at 2-4 percent compared to the previ
ous years target of 3-5 percent. Indications of easing inflationary pressures owi
ng in part to the decline in international oil prices as well as signs of robust
domestic economic growth allow the BSP some room to maintain its current moneta
ry policy stance. Even so, we do not pre-commit to a set course of action. As I
have always said, the stance of monetary policy will remain data-dependent.
One thing we keep in the back of our minds is that prices can reverse and often
very quickly. If you have been in this market long enough as I believe some in t
he audience have you know that markets tend to get ahead of themselves. So, we
continue to watch developments in the oil market carefully and how these affect
inflation and growth dynamics, to see if there is any need to make adjustments i
n the stance of policy.
While volatilities in oil prices have complicated the balance of growth prospect
s, there are the other underlying other risks that we see in the horizon. These
include a bumpy growth path for China, delays in the needed structural reforms i
n the EU and Japan, and geopolitical risks that could arise from a worsening of
the situation in Russia or the Middle East all of which can heighten financial m
arket volatilities.
Can we remain steadfast in 2015?
Going back to the earlier question of whether we will be able to sustain our pos
ition of strength in 2015. Let me share that, in the areas under the purview of
the BSP, we believe we will be able to withstand headwinds in the global economy
. And I have four reasons.
One, our monetary policy is focused. While we are mindful of developments extern
ally, we will always adjust policy in consideration of domestic demand and suppl
y dynamics as reflected in our forecasted inflation path. The focus has served u
s well throughout the period of the Great Moderation through the Global Financia
l Crisis and in the aftermath of the GFC. So you should not expect that we will
necessarily move in synch with and in the same magnitude as the Fed or other cen
tral banks.
Two, we have maintained a strong external position. We expect current account s
urplus to be sustained by remittances, receipts from the tourism and BPO industr
ies. We will continue with
our policy of a market-determined exchange rate, while allowing for some scope f
or official action given that the exchange rate can be an effective tool for abs
orbing shocks from external sources.
Three, we have a sound, stable and liquid banking system. The Philippine banking
system is the only one, out of the 69 jurisdiction that it rates, which Moodys j
udged as having a positive outlook. This sound performance of the banks was due
to progressive implementation of deep reforms and prudent risk-taking activitie
s of banks despite the ample liquidity in the global economy.
Over the years we pursued reforms to enable our banks to respond to the evolving
requirements of their stakeholders, just as it has to adapt to a changing marke
t environment. We do not anticipate a specific market scenario. Rather, we want
our banks to be in a strong position regardless of how markets swing or stakehol
der needs evolve. In effect, we envision a banking community that is not just re
silient but one that is fundamentally responsive to stakeholder needs and where
banks act responsibly.
So in 2014, for instance, we raised the minimum required level of bank capital,
recognizing that the new normal of banking treats conventional risks more aggres
sively while constantly identifying newer forms of risks. We also achieved fair
ly significant milestones, for example, in re-writing our credit risk framework,

in crafting the implementing guidelines for Republic Act 10641 and introducing
a Financial Consumer Protection Framework.
Four, we are unrelenting in our commitment towards a more inclusive financial ma
rket and an empowered economic and financial consumer. This is not just about pr
oviding access but having the wherewithal to make markets where there are none y
et, investing in the future rather than be content with the limitations of today
.
Our Commitment
Going forward, the BSP will remain on the lookout for potential risks to price a
nd financial stability. We will be vigilant to be able to provide timely and ca
librated responses to unfolding events.
But just as in the Security Bank logo, you have the yin and the yang, the BSP ne
eds your partnership. For only as we come together and work towards the same goa
l, can we preserve what we have achieved and ensure that our economy sustains it
s position of strength.
-----------------1Note: Trade value (exports plus imports) relative to GDP is low for the Philipp
ines as compared to most of our regional peers. Average (2005-2012): Philippi
nes- 52.2; Malaysia - 144.6; Singapore - 290.6; Thailand - 123.6; Indonesia - 44
.3; Taiwan (PRC) - 118.7; South Korea - 84.6.
Generating More Winners in Microfinance

Venue: BSP Executive Business Center
Occasion: Launch of the 2015 Citi Microentrepreneurship Awards
Today we launch the 2015 Citi Microenterpreneurship Awards or CMA, a groundbreak
ing program that has allowed us to discover the creativity, tenacity and generos
ity of Filipino microentrepreneurs across our country. We just heard the testimo
ny of Ms. Teresita Valdez, one of about a hundred CMA awardees so far. Their sto
ries inspire, inform and motivate those who want to go into business. The challe
nges they faced and how they overcome seemingly insurmountable odds strengthen th
e resolve of other entrepreneurial Filipinos that they too can succeed in the mi
crofinance sector. Indeed, our microentrepreneurs represent a gold mine of lesso
ns and information that has been helping us transform and improve the lives of m
illions of Filipinos through microfinance. Ladies and gentlemen. A significant f
actor in our growing harvest of successful microenterprises stories is a regulat
ory environment that enables microfinance institutions or MFIs to provide approp
riate products and services. Microentrepreneurs succeed when the regulatory fram
ework is well-defined; enables various MFIs whether banks, coops and NGOs to del
iver a range of microfinance services to their niche markets; and encourages ins
titutions under our supervision to cater to microentrepreneurs, a market which tr
aditional bankers tend to sidestep due to perceived high credit risks and transac
tion costs. In this connection, the Bangko Sentral ng Pilipinas has issued clear
guidelines and codes of conduct, so that banks can viably provide an array of p
roducts designed to fit the peculiarities of microfinance clients. I can say we
are on the right track. The Philippine regulatory framework for microfinance has
been consistently ranked as one of the best in world by the Economist Intellige
nce Unit (EIU) . More recently, the EIU ranked the Philippines as the top countr
y in Asia, and the 3rd in the world, with the most conducive environment for fin
ancial inclusion . The EIU further notes that countries like the Philippines wit
h a long tradition of microfinance have better institutional and financial infra
structures which can be leveraged to financially-include more clients at the bott
om of the pyramid. Back in 2000 when the BSP started issuing microfinance-related
regulations, hardly any bank was into microfinance. Today, we have 176 thrift a
nd rural banks serving over 1.2 million microfinance clients with outstanding lo
ans of PhP 11.4 billion or an average of nine thousand five hundred pesos. These
microfinance loans now include different types for starting and growing microen
terprises ; for micro-agriculture ventures; and for housing. These are all desig
ned for low-income households with varied financing needs . At the same time, mi
crofinance banks have opened 2 million microdeposit accounts with nearly four bi
llion pesos in deposits. In addition, 39 banks licensed as microinsurance agents
are now serving 1.4 million clients. Big banks, on the other hand, are particip
ating in the microfinance market by providing wholesale loans to retail MFIs or
to MSMEs through their subsidiaries. I am also pleased to report the progress be
ing made by other MFIs outside the BSPs supervision in moving the industry forward
. Among others, a survey indicated that 16 microfinance NGOs with a combined net
work of 2,190 branches have P11.6 billion in outstanding loans served to 2.5 mill
ion borrowers or an average of P4,640.00 per borrower. On the other hand, data f
rom the Cooperative Development Authority (CDA) indicate that 67.9 percent of th
e 10,675 reporting coops are providing financial services to 6.5 million members
. It is clear: there is great potential for MFIs to accelerate the development
of microfinance with appropriate, effective and responsive services. We have bee
n monitoring this. Among others, 35 banks have set up 517 micro-banking offices
(MBOs) in 334 municipalities; 64 of these municipalities are served only by an M
BO. BSP regulations issued in 2010 enabled the creation of MBOs -- these are sma
ll banking units where microfinance clients can conveniently access a range of b
anking services, including loans, microdeposits and microinsurance. The e-money
regulations issued by the BSP in 2009 have also produced positive results: 52 mi
crofinance oriented banks now provide e-banking and e-money services . They see
the value of e-money as a transactional platform for faster, cost-efficient and
convenient transfer of funds. Among others, e-money can be used by microfinance
clients to purchase goods, pay bills or loans, and move value to their deposit a
ccounts. Indeed, the e-money ecosystem offers opportunities for MFIs as our regu
latory framework allows banks and non-banks -- such as telco subsidiaries and emoney agents -- to participate as issuers or delivery channels. Today, this ecos
ystem consists of more than 24,000 agents which complement over 10,000 banking o
ffices and over 15,000 ATMs as financial service access points. MFIs can tap int
o this infrastructure, in response to clients need for easier access and other co
nvenient functions. Please note that the number of e-money accounts opened over
a period of five years has reached 26.7 million. This represents exponential gro
wth compared with the 47.4 million deposit accounts that took our banks 100 years
to generate. While e-money accounts are just transactional accounts, it can be
the first step or an on-ramp to more valuable financial services such as savings,
credit, even microinsurance. It is a fact-- MFIs that keep finding ways to serve
clients thru efficient, sustainable business models can help nurture more succe
ssful microentrepreneurs. Strong support from public and private sector partners
can provide more impetus to grow more success stories in the microfinance secto
r. One prime example is CMA itself, made possible by mutual support and collecti
ve diligence of the Microfinance Council of the Philippines, Inc. (MCPI), Citiba
nk, Citi Foundation, and the BSP itself. At the same time, the participation of
distinguished members of the CMA National Selection Committee provides prestige
and valuable linkages that generate long-term benefits for CMA winners. Lets give
them a big hand. Networks such as bank associations and cooperative federations
also play unique roles in providing support to their MFI members. The role of m
edia is also important you raise public awareness of microfinance, prompt discus
sions about its promise and opportunities, and even make microfinance a trending t
opic. Ladies and gentlemen, let us keep in mind that with appropriate enabling r
egulations, responsive MFI services, and multi-sectoral support for microentrepr
eneurs, we can help improve the lives of millions of Filipinos. Through our coll
ective efforts, we can help inspire more microentrepreneurs, generate more succe
ss stories from their ranks, and realize our goal of achieving balanced and sust
ained growth that is truly inclusive. Thank you all for joining todays launch of
the 2015 CMA. Mabuhay ang microfinance sector! Mabuhay ang ating mahal na bansan
g Pilipinas! Maraming salamat sa inyong lahat.
Geared up for Global Reform and Regional Integration

Venue: Makati Shangri-la Hotel
Occasion: FT-First Metro Philippines Investment Summit
Speaker: BSP Gov Amando M. Tetangco, Jr.
I am pleased to have this opportunity to share my thoughts with you this afterno
on. At last years Summit, we tackled the new wave of volatilities that we were then
experiencing. You may recall that the markets (both global and our own) were at
that time still internalizing the reality of Fed taper. In the interim, however,
a more upbeat outlook on the US economy has surfaced as well as significantly lo
wer oil prices. Recently, improvements have also been noted in Europe and Japan.
Domestically, there have also been quite a number of positive developments. Pri
vate consumption has remained buoyant, inflation has been kept within target, cu
rrent account surpluses have been sustained and the banking system has stayed so
und. Against this backdrop, the IMF, the World Bank and the ADB have all project
ed strong GDP growth for 2015 and 2016 for the Philippines. Moodys backed these u
p by describing our banks as being well positioned to manage unexpected downward
pressures. While we await an update from S&P after its recent due diligence, Fitc
h has highlighted the sound liquidity, high capital buffers and stable asset qual
ity of our banks. All things considered, the Philippine financial system is in a
good place today. But we cant afford to be complacent. Not at all. For this after
noon, lets consider two things that are top-of-mind of the market that could chan
ge the situation: 1) the global reform agenda, and 2) regional financial integra
tion. First, the global reform agenda. We have seen the reform agenda take shape
-- from banking to securities, insurance, infrastructure, governance and market
conduct. All these reforms are meant to institutionalize a new normal under a rev
ised set of global best practices and minimum standards. We all appreciate how d
ifferent this new normal is against the older ways of doing thing. I fully underst
and that making this transition is a challenge for stakeholders, regulators and
the regulated alike. The principles underlying the various reform components, ho
wever, make a clear case for why there is a need for change. As responsive and r
esponsible agents, it is incumbent upon us to adopt and adapt. We adopt the high
er norms prescribed for good governance, risk management, market conduct and con
sumer protection since these define our new market architecture. However, we are
equally practical and pragmatic in recognizing idiosyncratic conditions that re
quire us to adapt the global standards in ways that better serve our prudential
purposes. Moving on to the second issue. We are seeing regional financial integr
ation materialize into a defined reality. What was perhaps a faint prospect at a
n earlier time and was hardly discussed publicly, we now hear of promises of imp
roved well-being for financial consumers and prospects of larger markets for ser
vice providers under the certainty of enhanced competition. The integration time
lines have been set and how we handle ourselves against those milestone dates wi
ll greatly determine the macro-financial landscape for generations to come. In b
anking, we have a few short years before Qualified ASEAN Banks (QABs) may enter
our market. The integration of ASEAN insurance markets has a more assertive time
line while capital market development has a definitive vision for a harmonized f
ramework for cross-border securities transactions. None of these integrated mark
ets could exist, however, without the necessary pipelines and so interoperable a
nd/or interlinked trading, clearing and settlement systems are likewise a necess
ity. As you can see, ladies and gentlemen, there is much that lies ahead of us.
The new normal has set the bar higher in the manner regulators supervise the fin
ancial market and how market participants conduct themselves. Against the Certai
nty of Change, are we ready? Thankfully, the Philippine financial system has the
advantage of being in a position of strength. But, we have repeatedly argued th
at this strength is neither permanent nor absolute. Change is a certainty becaus
e the needs of financial consumers evolve with time. Markets, in turn, offer a r
icher menu of products and services that address the evolving broader needs of f
inancial consumers. And on top of these, we have seen in recent times that marke
ts sometimes need a fresh-but-major reboot and that too will certainly call for
change. These changes are most apparent in the recent legislative and policy ini
tiatives to further open our banking market to foreign interests. I am often ask
ed whether the Philippines is ready for banking integration. Although it is not
as often raised, the accompanying question is why we should be part of such inte
gration efforts. Let me address the latter question first as a prelude to the fo
rmer. The answer really may just boil down to two numbers: 600 and 31. The lates
t figures suggest that the world generally saves at a rate of roughly 20% of GDP
. ASEAN, however, has a Gross Domestic Saving rate of 31%. Applying these figure
s to the USD2.395 trillion GDP of ASEAN in 2013 , we have ASEAN saving at USD742
.5 billion of which USD263.5 billion (i.e., 11% of GDP) can be seen as a saving
that is higher than the norm for the rest of the world. These are not small numb
ers, a good portion of which is invested outside of ASEAN. When combined with th
e estimated ASEAN population of over 600 million individuals, a more organized A
SEAN financial market does seem to make its own case. Preparing for New Foreign
Interests and Added Competition This brings me back to the first question: how d
o we prepare for the new foreign interests coming into our banking industry? Per
haps, with one eye equally focused on trying to mobilize a portion of the USD742
.5 billion in ASEAN saving in 2013 alone? Unfortunately, there is no switch that
we can conveniently toggle between on and off for this. The best preparation is sim
ply to have each bank operate with due recognition of the impact of financial ri
sks on its own balance sheet and that of the system as a whole. This combines 1)
the effective management of risk exposures and the enforcement of a binding gov
ernance culture at the bank level and 2) the regulatory oversight and mitigation
of systemic pressures that may be developing. This is the specific context of w
hat we euphemistically refer to as an enabled environment. It is simply a regulato
ry framework that deliberately nurtures the creativity of providers to deliver i
nnovative product and services while giving regulators enough leeway to interven
e to address conflicts of interests, including the possibility that what may be
good for individual banks may not necessarily be beneficial to the system at lar
ge. In the capital market, we need to strengthen and finalize our pricing conven
tions so that there are no material gaps between reference rates and market valu
ation. We strongly subscribe to price discovery and we aspire to implement the p
rinciples on financial benchmarks soonest. Market infrastructure, of course, pla
ys a central role for the efficient transfer of funds and settlement of obligati
ons, whether onshore or offshore. The BSP is playing a very prominent role in re
gional and global discussions to calibrate the global OTC Derivatives infrastruc
ture requirements to better reflect the less active markets in Asia. Currently,
financial regulators are actively reviewing our payments and settlement system s
o that a harmonized domestic structure puts us in a viable position to be a stro
ng node within the ASEAN network. Indeed, to the extent possible, we lend our vo
ice in global and regional forums where market reforms are either being designed
or discussed for cross-border application. To be sure, we will not forget our f
inancial consumer. The Financial Consumer Protection Framework recently approved
by the Monetary Board is a milestone in what can prudentially be expected by co
nsumers and of financial service providers. The fact that a recent World Bank-fu
nded review describes our consumer protection framework as one of the best in th
e world is a major strength as we move forward. Collaboration and Cooperation La
dies and gentlemen, much has already been put on our collective plate but the re
ality is that much more can be expected ahead of us. It is not our intention to
push all of these to our supervised entities for them to deal with on their own.
Critical collaboration and cooperation is necessary because these are major dev
elopments that will dictate the market landscape for decades ahead. This extent
of collaboration is an essential facet of how we got to this position of strengt
h. Now, we have to build upon that collaboration and that position of strength f
or us to move forward. The winds of change have brought both the global reforms
and regional integration into their respective mature stages and it is now the c
hallenge of execution that is before us. We may not always agree with the specif
ic form of the global and regional changes but, perhaps, we can agree on the pri
nciples for which change is being espoused. Borrowing from the website of the Fi
nancial Stability Board, we continuously need to build resilient financial insti
tutions, make markets safer, instill more effective supervision and institutiona
lize more effective resolution regimes. In other words, we need to uphold transp
arency, be mindful of contagion and concentration, and monitor simple risks that
can subtly transform into systemic vulnerabilities. Ladies and gentlemen, vigil
ance has been the seed for which we are now reaping the fruit of macro-financial
strength. Being continually cognizant of the need for such vigilance and adheri
ng to the discipline of governance are the keys to continued resilience. These a
re the responsible investments we need to make and with contributions from all s
takeholders, we can expect a better and stronger financial market ahead. Thank y
ou and good afternoon.
Acting Together for Financial Inclusion

Occasion: the Luzon Regional Consultation on the National Strategy for Financial
Inclusion
Today is a milestone in our process of crafting a National Strategy for Financia
l Inclusion (NSFI). This is important because our objective is to act and work t
ogether to improve the quality of life of millions of Filipinos. Ladies and gent
lemen, you and I know that economic reforms and better governance have given mom
entum to our countrys economic growth that is now at levels regarded as among the
fastest in Asia. However, we also need to ensure that across the country our pe
ople are able to identify, gain and prosper from opportunities that such develop
ment brings. We can achieve this through financial inclusion -- where there is a
ccess to a wide range of financial products and services that are responsive to
the needs of all Filipinos and supports broad-based and inclusive growth. While
the trickle-down approach to spread the benefits of development is good, it is n
ot enough; we want to be more proactive. Among others, we want our people to sav
e, invest and know personal finance management to be financially secure and inde
pendent. We want our people to be part of the financial mainstream where they ca
n access bank loans that will help them grow their own business. We want our peo
ple to have options other than informal lenders with prohibitive rates and onero
us conditions. And we want our people to be able to protect themselves against s
cams and to know their rights as financial consumers. Working on financial inclu
sion is one clear way to ensure sustained and broad-based inclusive growth, a pr
incipal goal of our Government. And so, we have gathered today to discuss our dr
aft National Strategy for Financial Inclusion or NSFI. You have been especially
selected as key stakeholders to craft our way forward to achieve financial inclu
sion in the Philippines. This process of consultation is structured to give ampl
e opportunity for you to articulate your insights as co-authors and implementing
partners of our NSFI. This is the first in a series of regional consultations.
Next week, we will have similar consultations in Cebu and and in Davao. As we go
thru the workshops for the rest of the day, let us keep in mind the Filipino pu
blic who we want to serve and the challenges before us. Among others: About 12 p
ercent of our 1,634 cities and municipalities of remain unserved by authorized f
inancial service providers while 36 percent have no banks at all ; Only 4 out of
10 Filipino adults set aside money to save, and 68 percent of them keep their s
avings at home ; 47 percent of Filipino adults borrow, but mostly from sources l
ike family and friends (62 percent) and informal lenders (10 percent) ; Only 39
percent of households receiving Overseas Filipino remittances allocate a portion
to savings ; and Insurance penetration is only 1.8 percent . With your inputs a
nd support to the NSFI process we look forward to seeing significant changes in t
hese numbers. Ladies and gentlemen. I am confident that our NSFI will generate p
ositive results for a number of reasons: first, because its implementing mechanis
m is inclusive; second, it ensures interactive engagement among stakeholders; an
d third, it promotes synergy of initiatives. The experience of other countries i
nspires us to have our own NSFI. In particular, the World Bank has noted that co
untries which have national strategies for financial inclusion have recorded hig
her average growth rates for financial access compared to others. I have been re
peatedly asked -- why is an NSFI important? Well, the NSFI provides a platform f
or coordination among the many stakeholders with important roles in financial in
clusion. It provides the blueprint useful in designing and implementing financia
l inclusion policies and programs that focus on four areas: (1) policy, regulati
on and supervision, (2) financial education and consumer protection, (3) advocac
y programs and (4) data and measurement. In addition, the NSFI fulfills the Phil
ippine Development Plan (PDP), which commits to establish a national strategy tha
t defines financial inclusion, the strategies undertaken to achieve it, and the
accountabilities of all stakeholders. It is the result of different agencies, wit
h varied mandates, working together because of a shared recognition that financi
al inclusion is essential to achieve the governments overarching goal of inclusiv
e growth. These agencies include: Bangko Sentral ng Pilipinas (BSP) ; Commission
on Filipinos Overseas (CFO) Cooperative Development Authority (CDA) Department
of Budget and Management (DBM) Department of Education (Dep-Ed) Department of Fi
nance (DOF) Department of Social Welfare and Development (DSWD) Department of Tr
ade and Industry (DTI) Insurance Commission (IC) National Economic and Developme
nt Authority (NEDA) Philippine Deposit Insurance Corporation (PDIC) Philippine S
tatistics Authority (PSA) and Securities and Exchange Commission (SEC) These age
ncies are involved, directly or indirectly, in promoting an inclusive financial
system and in serving unserved and underserved markets. As participants in the N
SFI crafting process, these agencies commit to pursue financial inclusion alongs
ide their respective mandates. The BSP, as initiator of this process, is committ
ed to make the NSFI a living, relevant and useful document for all stakeholders.
Our commitment to financial inclusion began as early as year 2000 when we mains
treamed microfinance as a banking activity. Since then, we have been fine-tuning
policies and regulations to enable our supervised institutions to serve unconve
ntional markets such as low-income households and microentrepreneurs. Experience
taught us that such markets, like regular consumers, can be provided with suita
ble financial products and services by regular financial institutions. Hence in
2007, we progressed our advocacy from microfinance to financial inclusion. The B
SP was among the first central banks to create a unit dedicated to promoting fin
ancial inclusion. Our agenda has since expanded because of the conviction that f
inancial inclusion, when done right, supports the BSPs primary mandates of price
and financial system stability. We have also put equal focus on consumer protect
ion and financial education. In 2012, the BSP institutionalized financial inclus
ion as a corporate objective with the creation of the Inclusive Finance Steering
Committee (IFSC), which I chair. This Committee serves as a seamless mechanism
for internal coordination and synergy of various inclusion-related initiatives t
hat are being implemented by different operating units. These initiatives revolv
e around the same four areas that the NSFI focuses on. To institutions therefore
who wish to support or promote financial inclusion, the NSFI serves as guide -the SONAR or GPS that ensures policy cohesion and coordination, and prevents du
plication of initiatives. Skeptics may think that our NSFI is merely another doc
ument. We believe NSFI will work thru the implementation of tactical plans that
form the acrononym SMART: specific, measureable, achievable, realistic and timebound. As per our timeline, by July this year, the heads of the agencies represe
nted here today will sign a Memorandum of Understanding as a formal commitment t
o the NSFI objectives, principles and tactical plans. Ladies and gentlemen. We r
ealize that the 13 agencies that drafted this NSFI have limited mandates, capaci
ty and resources to implement the many possible interventions contemplated in th
e document. We are confident however that the NSFI can be fully implemented with
ownership and support from a wide spectrum of public, private and even internat
ional stakeholders. I am glad therefore to see a good mix of institutions repres
ented today. Together, let us ACT: Agree on a vision of financial inclusion, and
align institutional, or even personal, objectives to this vision; Collaborate o
n the SMART tactical plans; and Take action to implement these plans. Ladies and
gentlemen, in the service of all Filipinos, let us make financial inclusion and
inclusive growth, a reality in our country. Maraming salamat sa inyong lahat. M
abuhay ang ating mahal na bansang Pilipinas!
Rural Banks: Portals of Inclusiveness for Juan and Juana dela Cruz
Venue: EDSA Shangri-La Manila
Occasion: 62nd Annual National Convention and General Membership Meeting of the
Rural Bankers Association of the Philippines
Today, we gather to kick off your 62nd Annual National Convention and General Me
mbership Meeting. You have set New Vision, One Direction, Stronger Organization as
your theme for this conference, the same title as your 5-year strategic plan. T
his is certainly a welcome initiative. It reflects the intent of the RBAP to loo
k ahead, define your strategic path and communally decide on the tactical action
s needed to get you to your desired destination. THE VISION FOR RURAL DEVELOPMEN
T But to move forward and reach our destination, it will be useful to pause and
also look back. For some, this suggestion may seem counterintuitive. Prudence di
ctates that in creating a vision of what you wish to become, it would be useful
to revisit the purpose for which the rural banking system was set up in the firs
t place. Republic Act 7353 is categorical in that it speaks of the establishment
of a rural banking system designed to make needed credit available and readily a
ccessible in the rural areas on reasonable terms. Ladies and gentlemen, the opera
tive words here are: needed credit that is accessible on reasonable terms. In the
simplest of words, this is the vision of the rural banking system. It is quite s
traightforward. But it is a vision that has turned out to be quite elusive to fu

lly realize. SHIFTING FINANCIAL MARKETS As we review the current markets we oper
ate in, I would like us to consider two things. First, the broader and larger ma
croeconomic picture, and second, a more focused view of the improvements in tech
nology and how we can harness this to our advantage. The Big Picture and Technol
ogy: I will not delve into the macroeconomic indicators that you traditionally h
ear me speak of during your events. Instead, for today, what I would like us to
appreciate is that our constituents needs are changing. And these changes are ref
lecting rather fundamental shifts. With 64 consecutive quarters of economic grow
th to-date, one should expect to find some structural improvements at the grassr
oots. Indeed, latest data seem to confirm such an improvement. In the Global Fin
dex for 2014, the World Bank noted that the percentage of Filipino adults with f
ormal accounts increased to 31.3% from the 26.6% baseline figure in 2011. These
accounts refer to those held in banks, cooperatives or microfinance institutions
or as mobile money. On the other hand, the percentage of the poorest 40% of Fil
ipino adults who have a formal financial account stood at 17.8 percent in 2014,
a rise of 7.1 percentage points from the figure in 2011. These are not small imp
rovements especially when you consider that 37 percent of our LGUs (604 out of 1
,634) are still unserved by any bank. While banking reach and financial access c
ontinue to be fundamentally challenging because of our archipelagic landscape, t
he BSPs innovations in banking regulations have helped reduce this gap. We have a
ugmented the presence of the 514 rural banks headquartered in our 17 regions by
licensing other financial service providers (FSPs) such as e-money agents. With
the operation of FSPs, the percentage of LGUs that remains without any form of f
inancial access point falls from 37 percent to 13 percent. Ladies and gentlemen,
indeed, economic growth is being reported and financial access is broadening. A
midst these shifts, every financial institution is looking for newer frontiers t
o explore. The following simple numbers provide richer flavor for the opportunit
ies that lie ahead. At a gross domestic saving rate of 20.8% in inflation-adjust
ed terms for 2014, that translates to Php1.49 trillion in real terms or Php2.12
trillion in nominal savings that can be mobilized. That is 2014 savings alone, q
uite distinct from the Php 1.80 trillion in 2013 and another Php 1.58 trillion t
he year before. And perhaps what is most telling is that the great bulk of this
has been generated by half of the population since the other half is literally s
till in school. The bet really is that our future rests with the economic fate o
f our young population. They provide the demand that will drive consumer finance
. And they represent the future where preferences are molded by technology and p
roduct choice. This brings me to my second point. The availability of technology
at the retail level is rapidly changing the business model of community banking
. We are not talking only about more ATMs and e-banking services. Instead, it is
really the basic fact that information and communications technology is now rel
atively affordable and is scalable to make your operations more efficient and re
liable. Theres also greater capability to communicate through long distances with
a simple email or social media posting and to reduce dependency on physical off
ices to reach out to a wider customer base through mobile banking technology. Th
is means that the information technology frontier just keeps on extending and ex
tending and extending. Your options on rural banking then become largely an issu
e of how you deliver banking products and services using the IT choices you have
made. The competitive landscape of the rural banking market has also seen major
shifts in recent times. From what was then nearly the exclusive domain of rural
banks, we have now seen universal and commercial banks venturing into the count
ryside, in part because of the phenomenon of technology. FUNDAMENTAL CHOICES: Th
ese are the broad strokes of change. Sustained economic growth that is becoming
reflected in the consumers financial choices. Greater market competition from bot
h within and without as we have become more open to foreign ownership of our ban
ks. Financial technology that is moving at the speed of light. Where do all thes
e changes leave the rural banking industry? As you embark on your visioning exer
cise, each one of your members must make the hard choices in terms of the scope an
d the scale of your operations. A rural banks fundamental strength is its familiari
ty with the grassroots, the community it serves. But as the market evolves, fami
liarity even as it is an advantage -- may not be sufficient to guarantee the ope

rational viability of a rural bank. As the local community being served grows, s
o must the rural bank which is invested into that community. But, even as I say
this, the causality must go both ways. For the local community to grow faster, t
he rural bank must also continue to be the stimulus for the community. This is a
t the very ideal of what rural banking should be in the Philippines. There will
always be a need for financial services and it is incumbent upon the RB to devel
op products and services that can address the requirements of its constituents.
This is the issue of scope and this reflects the responsibility of banks to be por
tals of economic improvement. Financial consumers are made better-off by banks b
ecause financial well-being is improved by banking products and services which t
hen also translate to improvements in the community. Then there is a question of
scale so that the rural bank stands ready to grow in size and core competencies w
ith the communities it serves. In the end, buzzwords like right sizing and streamli
ning need specific context. It seems obvious that there is no universal standard
or magic number that is out there. What is clear though is that as you make your d
ecisions on what you deem is the right size for you, you must continue to be gui
ded by the BSPs regulations on the appropriate governance structures and risk man
agement frameworks. In the process of determining the scale and scope of your op
erations, it is my hope that you will be able to deliver the needed financial se
rvices to your clients at reasonable terms just as it has been envisioned in the
Rural Banks Act. WHAT THE FUTURE BRINGS Rural banks must remember that you are
yourselves stakeholders in the community. You are, in effect, a financial consum
er as an institution and as individuals in the community that your bank also ope
rates as a financial provider. As I close, I want to inform you that the BSP has
spearheaded the formulation of a national strategy for financial inclusion, the
National Strategy for Financial Inclusion (NSFI). We are set to launch this in
July this year. Its a multi-sectoral endeavor that sets out the coherent framewor
k on how all our efforts, those of the public sector and the private sector, can
be closely and systematically coordinated to bring about financial inclusion th
at leads to broad-based and inclusive growth. Rural banks are an integral part o
f that strategy. It is a great opportunity. I urge you to closely engage with us
on this grand endeavor. Friends, change is everywhere and perhaps none more so
than in the present times. You talk of a new vision because we need to accept that
there is a new normal in banking. It is still very much a business activity but
one which is held to a very high social standard. This important qualification
is necessary to protect the financial consumer from conflicts of interest, to in
still corporate governance standards, to enforce global best practices for manag
ing risks and ultimately, to sustain public trust. We have seen during the globa
l crisis what a banking market becomes in jurisdictions where public trust becom
es eroded. It would be an over-simplification to argue that their problems are u
nique and could not arise in Asia or in the Philippines. These problems have not
manifested themselves here because we took early steps to prevent the build-up
in risk and we continue to invest in a regulatory environment that nurtures your
creativity as product providers while mitigating the ill effects of unwarranted
risks. There is a need for one direction to strengthen commonality in purpose in
addressing the challenges of the future. Yes, there is diversity in the differen
t situations that invite different approaches. But those different approaches ne
ed to be anchored by common principles and shared aspirations. Finally, a strong
organization is always a must and a stronger organization must be responsive to
the changing times, that new normal we approach with common purpose. We need to
continue to be a value proposition to the financial consumer, especially those
in the countryside. RBAP is certainly equipped to do just that under a new visio
n that accepts the new normal in banking, having one direction to approach the c
hallenges with a common purpose, having a stronger organization that has the str
ength and agility to withstand the uncertainties, and having the boldness and co
urage to innovate and re-invent. I wish all of you well for this national conven
tion and the BSP stands ready to be your continuing partner in rural development
.
Strategic Challenges Ahead for Banking and for Thrift Banks

Venue: Dusit Thani Hotel, Makati
Occasion: 2015 annual convention of the Chamber of Thrift Banks
A Growing Economy and a Steady Banking Industry The Philippine economic story re
mains one of growth. The macroeconomy has had 64 consecutive quarters of expansi
on which has been achieved while keeping prices stable. On the external front, w
e have been able to sustain current account surpluses for more than a decade due
to strong structural flows from remittances and BPO receipts. As a result, our
GIR has increased to USD 81.3 billion as of end-February 2015. Buoyed by investo
rs confidence on the countrys sound macroeconomic fundamentals, the Philippines at
tracted a record-high of USD 6.2 billion last year in foreign direct investments
. The success of the Philippines thankfully has not gone unnoticed. We cherish t
he investment grade status bestowed by international credit rating agencies beca
use it opens opportunities for the country as an investment destination. This is
one major reason why we pushed for what later became Republic Act 10641 and we
are now seeing the strong interest of foreign banks to enter into our market. Th
ey serve as potential catalyst of more investments from their home countries. Al
ongside the favorable macroeconomic environment has been the expansion of the ba
nking industry. The numbers do change but we have seen the resources1 of the Phi
lippine banking industry grow at a steady pace due to the continuous increase in
deposits from the public. This build up in deposits is critical in two respects
. First, it reaffirms the confidence of the public to entrust their savings into
the banking system and also shows the improved economic condition of the popula
tion that eventually translates into saving. The second reason is that it of cou
rse fuels the availability of more loanable funds and we have noted that the inc
reased credit exposures have been without deterioration in asset quality. Re-Pos
itioning Thrift Banking in a Changed Environment All the positive developments h
ave certainly put us in a good position. They provide us the momentum to move fo
rward but they will not necessarily guarantee further success. Markets are const
antly in a flux and the strengths of the past need to be further enhanced to mee
t the challenges of the future. This is why we continuously amend and upgrade ou
r regulatory environment. The BSP has always been an ardent supporter of global
best practices. But we have equally been careful to apply the substance of the r
eforms and not just be bound to the form of the changes. We stand ready to make
the difficult decisions when and where we have to, while committing to continuou
s dialogue to mold and manage the reform agenda. The banking landscape is itself
under a phase of major remodelling, the new normal as many refer to it. This new
normal, where newer risks are being identified and mitigated while older risks a
re being approached in a different manner, really calls for a strategic re-think
ing of what is possible, what is likely, and how these can be effectively pursue
d under more stringent norms of risk management, corporate governance, and consu
mer protection. From what we see, each and every bank must invest in this re-thi
nking process. Thrift banks, however, face the unique situation of being confron
ted with a question of both scale and scope. If you choose to differentiate your
self from other banks via scale, this certainly raises the intriguing question o
f how a thrift bank competes alongside the bigger universal/commercial banks or
the smaller rural/cooperative banks. If you offer similar products and services
as those of U/KBs, the conventional thinking is that they would have the advanta
ge of scale and scope economies. Within the framework of allocating risk capital
to various risk exposures, this difference in scale and scope would be particul
arly telling. If you position yourselves against rural and coop banks, one expec
ts that they would have the advantage of being more entrenched with the communit
y at a scale that is aligned with community needs. Either decision has a direct
bearing on your cost structure, your profitability and, therefore, your viabilit
y. Being smaller in markets where size (i.e., capital) and footprint (i.e., netw
ork) matter makes it very difficult to compete. And yet, choosing to be bigger m
ay also not serve you well if you operate in those markets where grass root rela
tionships matter most. Re-Focusing on a Niche All these notwithstanding, there i
s a strategic issue facing thrift banks besides size of operation and this one i
s about the choice of target markets. If we revert to the Thrift Bank Act of 199
5 , it says there that TBs are supposed to: Promote economic development, and exp
and industrial and agricultural growth. At the same time, TBs should place withi
n easy reach of the people the medium to long-term credit facilities to business
es engaged in agriculture, services, industry, and housing at reasonable cost. Pa
rsing through this mandate, it talks simply of lending term funds to various eco
nomic sectors, whether in the agriculture, industry or services sector. One can
argue that this is true of any bank, whether universal, commercial, thrift, rura
l or coop banks. If this is the case then, the distinctive feature of thrift ban
king as provided by law is that of mortgage financing. Taking a more general vie
w, the niche of Philippine thrift banking is consumer finance and MSMEs. By targ
eting specifically these markets, TBs should have a better sense of the amount o
f risk capital that is needed for a projected level of risk exposure. It also al
lows for more focused consideration via specific regulatory issuances. In Circul
ar 855, for example, the BSP talks of underwriting credit without being locked i
nto specific forms of collateral. Our periodic stress tests have a specific sect
ion on consumer finance vulnerabilities while the recent introduction of REST se
ts our own framework on the credit risks of real estate exposures. Consumer prot
ection issues redress mechanisms, financial literacy initiatives and outright be
tter disclosures are equally relevant. Our Circular 857 provides the minimum sta
ndards of conduct we expect from market players while setting the framework for
a periodic review and complaints handling. These are all critical as you conside
r your niche. But ASEAN integration is certainly another key consideration. The
ASEAN Banking Integration Framework or ABIF was formally launched only a couple
of weeks ago. This means that we now enter the phase of administering the guidel
ines so that Qualified ASEAN Banks (QABs) can operate within the region in the n
ext couple of years. There will be other occasions where we can fully elucidate
the details and operation of ABIF. But central to the framework is the idea of d
eveloping ASEAN for ASEAN for which consumer finance appears to be a key facet.
About a tenth of the worlds population resides in ASEAN. While the global life ex
pectancy rates have increased from 66 years old in 1990 to 71 years old in 2012,
ASEAN has extended this to 73 years old on average. With 30 to 35 percent of AS
EAN population at or younger than 15 years old, this extra 2 years becomes even
more material over the next few decades. In addition, ASEAN saves nearly 31 perc
ent of its GDP. This rate is 11 percentage points higher than the rest of the wo
rld. This extra 11% in saving is not small as it is larger than the GDP of many
countries. As time moves forward, ASEANs young population provides a rich opportu
nity for increasing demand for financial services. The same population will requ
ire financing for consumer requirements in housing, auto loans, credit cards and
other personal needs -- the very market that the Philippine thrift banking indu
stry currently defines as its space. Finally, the MSME sector, which accounts for
99.6 percent of the total number enterprises in the country and more than one-th
ird (or 35 percent) of our GDP and employs 65 percent of our workforce, is witho
ut a doubt vital to our economy. By positioning yourselves to grow this sector,
the dividends will go beyond yourselves. Growth in this sector will have signifi
cant multiplier effects in generating employment and raising the standard of liv
ing of more of our people. By positioning to serve this sector, TBs can be true
catalysts of broad-based and sustainable inclusive growth. Strategic Directions
and Final Thoughts Ladies and gentlemen, I started my remarks by stating that ou
rs remains a story of growth. I suggested, however, that we need to be strategic
in facing the new normal of banking. Banks have to look carefully at the evolvi
ng environment, including the reforms, and how they can strategically position t
hemselves in a changing market environment. The banking mindset today and five y
ears hence are not the same as those from a decade ago. Banks must adopt the bes
t practice standards, adapt to the changing market conditions, and adjust their
strategic mindset accordingly. This strategic landscape of adopt-adapt-adjust is
, however, not a game of absolute size but one of relative fit. In other words,
finding your niche. You asked me to comment on the state of thrift banking in th
e Philippines. The reality of course is that the industry is a dichotomy. Those
that are part of a banking group enjoy the scale that the group offers. This rou
te offers a way to create a wider footprint and carves out the consumer finance
business line from the U/KB parent to the TB subsidiary/affiliate. For the TBs t
hat are stand-alone, you are effectively much more geared to your community mark
et. The concept of a community can readily be defined more liberally in both pro
duct line and counterparty. But the crux is that the discipline of target market
must take precedence. And it takes precedence by taking particular cognizance t
hat you are typically smaller than the TBs which are part of a banking group. La
dies and gentlemen, what all this says is that the future rests with your choice
s. While we have, as a country and as a banking industry, done well, we are at t
hat proverbial fork in the road where strategic decisions will have to be made.
Resources have always been relatively scarce but our new banking framework requi
res of us to be more conscious of the unseen risk, the allocation of scarce risk
capital, and remaining competitive as a corporate entity but with a heightened
sense of governance. These are the strategic issues. Eleanor Roosevelt once said
that Great minds discuss ideas; average minds discuss events; small minds discus
s people. The likely events have crystalized before our eyes. It is now time to ven
ture into the market of strategic ideas, not only to discuss but more so for the
greater minds to lead the way towards a better banking future. Thank you and go
od morning. ------------------------------ 1The total resources of the Philippin
e banking system rose by 11.91 percent to Php 11.2 trillion as of end-December 2
014 from Php 9.8 trillion in 2013.
Sustaining the Economy s Growth Saga through The 3Ps of Policymaking: Proactive,
Pre-emptive, and Prudent
Venue: Peninsula Manila
Occasion: Euromoney Philippines Investment Forum
I see from the conference agenda that you have already covered critical topics t
his morning. Our place in the ASEAN Economic Community, our prospects in the mas
s market and our infrastructure are certainly key issues for the Philippines tod
ay. Before you take on capital market issues and the rest of the forum topics, I
thought it would help in the discussion of these sectoral issues, if I would sp
end the time allotted to me to speak on the broader economy that we operate in.
In particular, I would like to speak briefly on the risks to the macroeconomy th
at the BSP sees in the horizon, and how we, from a monetary and banking policy f
ramework, intend to address these. First, The Risks: The risks we face come main
ly from the external side. Here I mean the interplay of three key factors: (1) t
he uneven global economic growth; (2) the uncertainty of the oil price path and
the ambiguity of the underlying drivers of the oil price decline; and (3) the re
sulting divergence in monetary policy stance among major advanced economies. In
the last year and a half, these factors have manifested themselves in the moveme
nt of global capital into US assets (away from core Europe and emerging markets)
, an appreciating trend in the US dollar and a decline in global long-term inter
est rates. The rebalancing in global portfolios, as funds search for better yiel
ds, has surfaced in our domestic financial markets as volatility in the peso/dol
lar exchange rate, and in the local bond and equity markets. Going forward, shou
ld the uneven global growth scenario persist, we may see this translate into mor
e pronounced changes in trade patterns. Monetary Policy Thrusts: In response, th
e BSP has opted to use a mix of monetary policy tools over the last year. These
actions included increases in reserve requirements on bank deposits, upward adju
stments in policy interest rates, a strategic presence in the FX market, alongsi
de a clear communication plan, and other macroprudential measures. The BSP did t
hese to allow it to: 1) better manage credit and liquidity growth, 2) anchor inf
lation expectations, and 3) ward off any potential build up of excesses in some
segments of the market that may be overly-reliant on the historically low intere
st rates for their growth and exuberance. The BSP will continue this strategy of
using what it deems as appropriate from the whole range of tools available in i
ts enhanced tool kit. I believe the domestic markets have come to understand thi
s. They now appreciate that the BSPs approach to responding to challenges is real
ly to be Pro-active, Pre-emptive and Prudent. Three Ps. Banking Reforms: Given th
e central role of banks in the transmission of monetary policy, the BSP is also
strategic in ensuring the resiliency of the banking system. We have repeatedly s
aid that our handling of the banking system is premised on striking a balance be
tween the needed prudential limits and the ability of banks to make sound busine
ss decisions based on the idiosyncrasies of their operations and the realities o
f their market. In practice, this translates into specific actions under two fac
ets. 1) Regulatory framework, and 2) Access to financial products. The first fac
et is crafting a regulatory environment that encourages innovation while adequat
ely mitigating unwarranted financial risks. I want to be clear though that it is
not just about Basel 3, although we consider Basel 3 as a primary safety net. T
here was much apprehension surrounding our adoption of the capital requirements
under Basel 3. In fact, I note that one of the topics for discussion in the sess
ion following my talk is whether the capital regulatory reforms are affecting ba
nks ability to lend. Not to preempt the later discussion, let me just share that,
the initial fear over the implementation of the Basel 3 framework is unfounded.
Today, our universal and commercial banks continue to have capital levels that
can withstand credit stress tests of 20 to 50 percent write-offs. In addition, c
redit continues to grow at healthy levels. Equally worth noting is that the qual
ity of loans has been improving, with NPLs continuing to fall. It will be intere
sting to find out the perspectives of the Conference on this issue. I wont attemp
t to list all the regulatory reforms, but just to illustrate, let me cite a coup
le. We have amended the credit risk framework for banks to align this with the g
lobal best practice of highlighting the factors that go into a sound credit deci
sion, without relying only on the collaterals pledged against the credit. We hav
e also streamlined the minimum capital requirement for banks so that it is tiere
d with the extent of their branch network. At the same time, liberalization of b
ank branching was undertaken so that banks can better make the business decision
of how and where they wish to serve their target constituents. To round this ou
t, we have likewise pursued the longstanding objective of developing our capital
markets. Recent amendments to our regulations address gaps, particularly in arr
iving at market rates for purposes of marking-to-market. These new interest rate
benchmarking regulations should make pricing of bonds for capital build-up more
transparent. All of these are done with the objective of making the regulatory
environment more open to the business decisions of service and product providers
. They broaden what can be achieved within the banking industry without unduly c
ompromising the regulatory oversight for risks and conflicts of interest. This d
ovetails with the second facet of how we strike the balance between prudential l
imits and banks decision-making ability. This is -- liberalized access to the ban
king market. It is critical that our market is financially inclusive given the str
ucture of the Philippine archipelago. This means that access, products and polic
y have to generate the desired synergies so that we can equally respond to the n
eeds of those traditionally underserved or underbanked. This is a key advocacy o
f the BSP, for which we could easily devote another forum. Even if I limit mysel
f today to the traditional banking market, so much has already happened of late.
With the enactment of Republic Act 10641, we have increased the ownership ceili
ng of foreign banks to 100 percent from 60 percent, liberalized branching requir
ements and allowed foreign banks to participate in foreclosure proceedings of re
al estate properties. With capital infusion and market presence, the expectation
is that the Law would bolster the local banking industry through greater compet
ition, and the benefits from the transfer of skills and technology. This liberal
ization of the entry of foreign financial institutions positions us well for the
ASEAN Banking Integration Framework. But more than just ABIF, we have pursued a
nd supported these legislative initiatives because a competitive globally-orient
ed banking industry is an essential portal for foreign investments. This, in tur
n, feeds off the investment grade rating we have obtained from international cre
dit rating agencies. While liberalization has its advantages, we recognize that
there may be potential issues such as the relaxation of credit standards in the
pursuit of larger market share, the risk of contagion and volatile capital flows
. Financial Stability Lens: Ladies and gentlemen, when the BSP considers the eff
ects of potential risks, we do not merely look at the impact on individual firms
. Rather, through the lens of financial stability, our concern becomes the bigge
r picture, examining the interaction among institutions, transactions, products
and markets. It is through this new prudential norm that we address the contagio
n of risks, including those that may potentially arise from any liberalization i
nitiative. Outlook: Against this monetary and banking sector policy backdrop and
in light of the risks we anticipate, how do we see the operating environment go
ing forward? Very broadly, we see the country continuing to grow in a stable inf
lationary environment. We believe liquidity is sufficiently calibrated and that
it would support broad-based growth without fuelling inflation which we monitor
particularly in view of policy normalization in the US. More specifically, the g
overnments target of 7-8 percent is attainable as domestic demand conditions rema
in firm and supported by improving production efficiency and robust labor market
dynamics. Meantime, inflation expectations will remain well-anchored. Latest in
flation forecasts, based on surveys by the BSP and the Consensus Economics, rema
in close to the mid-point of the target band of 2-4 percent for 2015-2016 . On t
he banking side, we see that this will remain a reliable intermediator of funds.
Given the reform agenda, the system will continue to be characterized by solid
asset growth, improved quality of loans and assets, strong capitalization, and b
etter risk management practices. We see the external current account remaining i
n surplus as exchange inflows from overseas Filipinos (OFs) remittances, busines
s process outsourcing (BPO) revenues, as well as tourism receipts are seen to co
ntinue to grow. Finally, ladies and gentlemen, given the positive alignment betw
een inflation and growth, and augmented government resources as a result of fisc
al consolidation, both the monetary and financial sectors have sufficient room t
o make policy adjustments, as may be warranted. Conclusion: You may ask, will th
e Philippine economy be able to sustain its successive years of strong growth pe
rformance over the medium term? I believe so. Apart from the countrys strong fund
amentals, the governments commitment toward sustaining its structural reform agen
da would lend critical support to achieving our growth potential. The BSP shares
the same commitment. After all, we follow the framework of the Three Ps. I am co
nfident that we will be able to attain our goal of an upward economic growth tra
jectory, in an environment of price and financial stability because we will rema
in Proactive in policy dialogue with stakeholders such as yourselves. Pre-emptiv
e in putting in place forward looking policies, and Prudent in adopting reforms.
Ladies and gentlemen, even as the outlook remains favorable, now is not the tim
e for complacency. As the genius behind Intel, Andy Grove, once said, Only the pa
ranoid survive. I wish therefore that your conference would be peppered with just
the right amount of paranoia and balanced with enough openness for finding suit
able solutions. Good afternoon and thank you for your attention.
Financial Rehabilitation and Insolvency Regime in the Philippines: Progress and

Remaining Challenges
Venue: NA
Occasion: SharePHIL s Seminar :All You Need to Know About Financial Rehabilitati
on and Insolvency Act
Good afternoon ladies and gentlemen. Let me begin by thanking the organizers for
this privilege to share with you the thoughts of the BSP on an important legisl
ative initiative -- the Financial Rehabilitation and Insolvency Act (also known
as FRIA). We all know that FRIA became a law in 2010. What perhaps most of us do
not know is: when then Senator Juan Edgardo J. Angara sponsored the bill on the
Senate floor in 2009, it was the 100th year anniversary of the Insolvency Act o
f 1909, its precursor law. Talk about long gestation! It was therefore not surpr
ising that the good Senator clamored for its passage, arguing that it could no l
onger be postponed. But more than the length of time since its precursor law, th
e prevailing mood of global financial insecurity then demanded its enactment. Th
e same mood of global financial insecurity still prevails today, albeit to a les
ser extent. While the rest of the world continues to grapple with the global fin
ancial crisis and its aftermath, the Philippines is in a better place. Thanks to
economic reforms we have undertaken thus far. However, now is not the time to s
it back and rest on our laurels. Indeed, we need to remain proactive and adopt r
eforms that would allow us to withstand the inevitable challenges that a growing
economy such as ours faces. When former Senator Angara spoke at the Senate in 2
009, he noted that, in our country, the chances of a claimant to recover his inv
estments from a failed enterprise are a nightmarish 4.4%. In sharp contrast, the
recovery rate in Japan for failed enterprises is a whopping 92.5%. Where we are
now? With the passage of FRIA and the FR Rules in 2013, however, our recovery r
ate now stands at 21.2%. Furthermore, the World Bank Group in its June 2014 Doin
g Business report ranked the Philippines as #50 in the Resolving Insolvency Inde
x in a pool of 189 countries. Not bad you may think, but we clearly still have q
uite a long way to go. Beyond the metrics, ladies and gentlemen, we should focus
on the real goal: that of reaping the advantages of an effective insolvency reg
ime. The FRIA is a major reform designed to promote investor confidence and cont
ribute to financial stability and sustained growth in our economy. However, the
passage of the FRIA is really just the jump-off point in achieving that goal. Wh
at are the benefits of an effective insolvency regime? To say that the presence
of an effective insolvency regime is a pillar of market confidence seems contrad
ictory, doesnt it? Especially because we do not expect real investors to embark o
n a business or an economic endeavor with failure in mind. However, part of a so
und business plan is knowing what you are up against -- including what would hap
pen to you and your investment, should your business turn sour. Indeed, market e
xit (even if it is forced upon you) is an integral part of the business life cycle
. The principle is this -- if investors (and banks) know that there are clear ru
les that govern recovery, they become more willing to take on new ventures and b
usinesses. When you extend this principle across the many current and potential
investors across markets, it then becomes intuitive and easy to appreciate that
a sound insolvency regime builds confidence and is economic growth-enhancing. In
addition, it also supports financial stability. Let me illustrate. From the poi
nt of view of the investor, an effective insolvency regime provides a framework
for the terms on which they can be willing or prepared to lend. More particularl
y, the predictability and confidence in loan recovery upon default give the inve
stors specific parameters, including price points, for their lending. In several
cases, this has led to increased credit availability, lower cost of credit, or
both at the same time. The experience in Brazil shows that the broad bankruptcy
reform in 2005 that established greater protection to credit had led to a signif
icant increase in the total amount of total debt (a reported 10-17 percent incre
ase) and in the total amount of long-term debt (23 to 74 percent increase). In o
ther words, there was also a lengthening of debt maturities. The same study also
reported a 7 to 17 percent reduction in the cost of debt financing for Brazilia
n firms. From the broader macro point of view, a clear insolvency regime encoura
ges entrepreneurship, when this provides a safety net for entrepreneurs, especia
lly those who commit personal assets to start a business and personally guarante
e loans to the new venture. A 2008 study that compared self-employment in 15 cou
ntries in Europe and North America between 1990 and 2005 found that more forgivi
ng personal bankruptcy laws combined with ready access to limited liability prot
ections, enhance entrepreneurial activity. Furthermore, when the laws also provi
de for a well-managed redeployment of assets to more productive firms, jobs are
preserved. A corporate reorganization code in Colombia enacted in 1999 dramatica
lly improved the efficiency of reorganization proceedings, its duration fell fro
m an average of 34 months to 12 months. Effective reorganization in countries su
ch as Colombia allowed a companys workforce to remain employed and productive. Fr
om a financial stability perspective, effective insolvency laws help to reduce m
arket disruption. In Chile, for instance, the introduction of economic insolvenc
y advisors who were tasked to first determine the viability of firms in financia
l distress as basis for insolvency proceedings to commence -- laid a foundation
for the smooth processing of insolvency proceedings. It allowed Chile to improve
the recovery rate of distressed firms creditors from 19 cents on the dollar in 2
004 to 30 cents in 2013. What is the relevance of FRIA to central banking? Some
of you may be wondering why the central bank governor is speaking at a seminar o
n insolvency and recovery. Particularly given that, the resolution processes for
banks is covered under another set of laws and regulations, not the FRIA. I ask
ed your president, Atty. Lim the same question when he invited me. He reminded m
e of the ardent support of the BSP during the deliberations of the law. I guess,
the answer to that question therefore is as both Francis and I agreed -- the FR
IA is important to the BSP as well, just as it is to you. In fact, while deliber
ations in Congress on the FRIA were on-going, the BSP did parallel work on forma
lly adopting financial stability as a policy objective. You may ask, how is fina
ncial stability related to FRIA? I submit [as I alluded to earlier] that, if FRI
A is well implemented, it will help promote and advance financial stability in o
ur country. There is no textbook definition for financial stability. But in the
BSP, we define financial stability as that desirable state that is achieved when
the governance framework of the market and its financial infrastructure enable
and ensure the smooth functioning of the financial system conducive to sustainab
le and equitable economic growth. Effective insolvency regimes, by saving strugg
ling firms when possible, or by reallocating assets of failing firms more produc
tively, contribute to the smooth functioning of the financial system. They help
minimize market disruptions. Banks and investors are also more willing to lend w
hen they know they can recover at least some of their investment when businesses
fail. Entrepreneurs, particularly those involved in small and medium scale ente
rprises, will be more willing to enter the market when they do not have to put t
heir entire personal resources at risk. Effective insolvency regimes enable tran
sacting parties to take calculated risks in their investment decisions. I am sur
e you will agree with me when I say that such an empowerment to take calculated
risks is what fuels innovation. In turn, innovation is that which is at the hear
t of economic growth. The current Philippine growth trajectory is on an uptrend.
To sustain this, we need more investments, especially from real money funds fro
m abroad that are accompanied by new technology for innovation. While it helps t
hat the country is now rated two notches into investment grade territory, we sho
uld be mindful this alone wont bring in investors. Good growth prospects and high
er credit ratings are undoubtedly important contributors to improving the invest
ment environment. But they may not be enough to entice the full range of investo
rs to come in, build businesses and create jobs for Filipinos. We should always
recognize that investment decisions are highly influenced by investors confidence
in our domestic legal system, the quality of our laws governing private and pro
perty sectors and how effective our laws are upheld and enforced. Investors look
for consistency and predictability in their commercial affairs. They would want
to maximize and preserve the value of their assets or ensure that their claims
are upheld, prioritized or equally treated if they become creditors of insolvent
debtors. It is their confidence in our legal system that will encourage them to
make use of court processes should rehabilitation and insolvency issues confron
t them. The FRIA provides us with a menu of remedies for distressed debtors and
new approaches to rehabilitation and insolvency. And because it expressly adopts
the UNCITRAL Model Law on Cross-Border Insolvency and accordingly, FRIA gives f
oreign creditors in liquidations and rehabilitation proceedings direct access to
Philippine courts. Thus, opportunities for cooperation between domestic and for
eign courts and domestic and foreign insolvency administrators in cross-border i
nsolvencies and restructurings are available. What more needs to be done? Over t
he past 15 minutes or so, I went through a laundry list of the benefits of an ef
fective insolvency regime. Clearly, we all appreciate that the FRIA is our take
off point for reaping these benefits. However, in the 2013 Forum on Asian Insolv
ency Reform that the Philippine Government hosted through the Bangko Sentral ng
Pilipinas, one session exhaustively deliberated on the proposition that, in the
implementation of insolvency regimes, fixing the insolvency statute is not suffi
cient to create a well-functioning insolvency regime. I cannot agree more. Recen
t studies have shown that the critical success factor in effective insolvency re
gimes globally is: the continuation of reforms after laws are enacted. The failu
re of insolvency systems in countries that have already modernized their laws is
due to inadequate implementation. The implementation of the law is as important
as the law itself. Our distinguished audience knows all too well that the succe
ssful implementation of the FRIA can only come about through a clear understandi
ng and consistent application of the FRIA and FR Rules by our judges and insolve
ncy administrators. Given the special and technical competence required in liqui
dation and rehabilitation processes, suitable and sufficient capacity building i
s a necessary component. Thus, we cannot stress enough the benefit of specialize
d training for members of our judiciary, industry practitioners, and other stake
holders. This should include basic business and accounting training, especially
for those who have neither. With the growing internationalization of finance and
other businesses, we can anticipate the application of insolvency laws and rule
s on international corporations doing business in the country. Our courts are th
erefore continually called upon to be more dynamic and responsive to such econom
ic and financial developments. We are hopeful and confident of the response of o
ur judiciary to this call, so as to give spirit to the more expeditious rehabili
tation proceedings mandated under the FRIA and FR. This will help in ensuring th
at no delay will derail implementation of rehabilitation plans. Conclusion: Ladi
es and gentlemen, at the core of it, the challenge to us is to help sustain the
business confidence in our country and achieve financial stability. This we can
do by actively playing our role in creating an environment with an adequate and
functioning legal framework, where laws and rules are clear and well-defined, th
ereby enabling a consistent application by the members of our judiciary. It is e
vident that through FRIA we have the cornerstone for an effective insolvency reg
ime. We can build on this foundation to ensure that the advantages of such an in
solvency regime are achieved. As I close, let me congratulate the SHAREPhil let
by its President, Atty. Francis Lim, and its Chairperson, Ms. Evelyn Singson, fo
r organizing this very important seminar. I urge everyone to continue to take fu
ll advantage of this learning opportunity, to validate his/her knowledge on reha
bilitation and insolvency matters, to share insights or experiences, or even to
challenge ideas concerning financial rehabilitation and insolvency. Let us make
this forum not just a venue to learn but also as a place to think of new ways by
which we can effectively contribute in moving rapidly to an effective rehabilit
ation and insolvency regime and a more financially stable Philippine economy. La
dies and gentlemen, we know our end-goal. Lets not wait another century to get th
ere. Good afternoon and I wish this seminar great success.
Sustaining Economic Growth

Venue: Peninsula Manila (Rigodon Ballroom), Makati
Occasion: MAP Gen Membership Meeting (GMM) and First MAP Economic Briefing for 2
015 with the theme, ?Innovative Leadership for Sustained Growth?
Innovative Leadership for Sustained Growth. Strong, Simple, Spirited. Its a confide
nt statement and direct to the point, quite like what we have come to expect fro
m MAP President, Popoy Del Rosario. This theme, which MAP, has chosen for 2015 r
eminds me of that management principle -- Innovate or Stagnate. Innovate or stagn
ate is direct and simple to remember, and has a nice ring to it. But when you put
innovation in the context of the broader concept of leadership (as MAP has done her
e), the resonance of that ring becomes deeper and applying it within our organiz
ations becomes more challenging. While it is difficult to put into practice, Inno
vate or stagnate is not impossible to do so. Think of a company like Google. Our
local telcos, our local conglomerates, even our banks. They constantly reinvent
themselves to gain a bigger share of the pie or create new markets where there p
reviously were none. All these, while taking care of their people. I have spent
about two-thirds of my life as a central banker, with the last 10 years of that
as the BSP governor. And I can tell you for a fact that, that mantra of innovati
on has never been more relevant in central banking than it has in the last eight
years. Why do I say that? Simple. The 2007/08 Global Financial Crisis (or the G
FC) happened. The GFC led us to uncharted territory as it was a crisis unlike an
y in the recent past. Let me illustrate. Unlike in 1997/98, when the financial c
risis originated from the emerging markets in Asia, the GFC was a crisis that st
arted from the advanced economy world. In 1997/98, central banks and economies h
ad to fix exchange rate valuations and develop capital markets. Painful. But not
hing extraordinary because contagion was localized to the region. During the GFC
recession was deep in the advanced economy world. And because of highly interco
nnected markets, that economic weakness spread to the rest of the globe. There a
lso was no clear way out of the room for the debt crisis in Europe. Market confi
dence (and in some jurisdictions, even political confidence) was very low, if no
t non-existent. During the GFC, major central banks had reached the zero bound o
f the policy curve. Interest rates had gone so low, there was hardly any wiggle
room to use interest rates for stimulating the economy. We could therefore no lo
nger rely on the familiar channels of transmission of monetary policy. At the ti
me, new transmission channels emerged such as the expectations channel and the risk
-taking channel. So, advanced economy central banks needed to employ non-conventi
onal monetary tools. Even central banks in some emerging market economies had to
deploy non-traditional tools because of contagion. As a result Asset Purchase P
rograms in all letters of the alphabet some of which you would normally throw aw
ay in a game of Scrabble came into vogue. Q-E-1, QE2 (with operation twist) in t
he US, OMT [or Outright Monetary Transactions] and TLTRO [or Targetted Long-Term
Refinancing Operations] in Europe, and Q-Q-E (Quantitative and Qualitative Easi
ng -- the three arrows) in Japan. Furthermore, central banks needed to be sharpe
r and more pointed in their communication of policy intent. As you now know, forw
ard guidance has come to be a specific central bank technique for managing market
expectations. In addition, financial stability and the systemic nature of risks
became the driving forces for the global financial reform agenda. Too big to fai
l was no longer going to be the bottom line. Even as we speak, ladies and gentlem
en, financial reforms are being put in place so that those defined to be systemic
ally important institutions would not have to be bailed out by taxpayer money. Th
ese SIFIs would instead be mandated to meet a higher capital standard. SIFIs hav
e to have more skin in the game, so to speak. And the game, ladies and gentlemen,
has changed. Micro prudential regulations, while necessary, are no longer suffic
ient. It may be recalled that micro prudential measures are meant to improve ind
ividual institutions resilience to risks. Central banks must now also have macrop
rudential measures in place. Macroprudential measures look to address the interc
onnected nature of the system and help ensure safety at the system level. In tru
th, some have said that at the height of the GFC, Central Banking was the only ga
me in town. Monetary policy was made to bear the brunt of the heavy lifting in re
sponding to the effects of the crisis because there was very little fiscal polic
y space, particularly in the AEs. You may ask, eight years from the GFC, how do
we see the operating environment? What is the global outlook now? How does that
translate to the Philippines? With these in mind, let me structure the rest of m
y presentation as follows: Since I began with the GFC, let me continue with our
global outlook and the risks and challenges we see from global impulses. Then Ill
move to our own domestic market dynamics, and conclude with the policy thrusts
of the BSP to address these concerns. The consensus at the moment is that global
growth will continue to be uneven. If you look at the slide closely, you could
see, global growth is MULTI-SPEED. In the most recent forecast of the IMF, the U
S was the only major economy for which the Fund raised its growth projections. T
he growth forecasts for EU and Japan, as well as for Emerging and Developing Asi
a (which includes India and China) were downgraded. An offshoot of the growing r
elative strength of the US economy has been the parallel strength in the US doll
ar, based on the US dollar Currency Index as of 23 February 2015. Further, due t
o this weak and uneven global economic growth, central banks are seen as adoptin
g differing paths in their monetary policy stances. On one end of the spectrum,
the Fed Reserve (central bank of the US) is widely expected to begin to raise it
s interest rates (lift-off) this year, while on the other end, the ECB has announc
ed its own version of quantitative easing last month and Japan had earlier furth
er increased its monetary base. The upshot of this divergence is that one end of
the spectrum provides a counterbalance to the other, giving the market the conf
idence that global liquidity will not just dry up with policy normalization in t
he US. However, some market participants have recently begun to reassess the str
ength of the divergence among central bank policies, with the steep drop in oil
prices. The drop in oil prices has: 1) heightened deflation pressures in the EU
and Japan, 2) led to reduction in capital expenditures in the US that now threat
ens to soften economic growth and inflation in the US, and, 3) caused some emerg
ing markets to also be leery of the adverse growth effects if deflation becomes
more pervasive. With these, the Fed may not tighten as previously expected, and
even other central banks may ease further. If we add to these factors the unquen
chable thirst for yield by investors, we can expect some capital flow volatility
as market participants rebalance their portfolios. In sum, ladies and gentlemen
, we see three major trends in the global operating environment. 1) Multi-speed
global growth, 2) Policy divergence among advanced economies, and 3) Bouts of fi
nancial market volatility as global markets rebalance positions in the face of U
S dollar strength and volatility in commodity markets. Notwithstanding this flui
d external backdrop, the resilience of our economy is expected to continue. In t
he aftermath of the GFC, the Philippines has been tagged as the bright spot in Asi
a. For 64 successive quarters, the Philippines has been marking positive growth.
In 2014, the full year growth of 6.1 put the Philippines second to China among
select Asian economies. This growth performance is being underpinned by the sust
ained contributions of the services sector, the recent rebound in manufacturing,
and favorable improvements in labor dynamics as we stand at the cusp of what th
e United Nations calls the demographic sweet spot. Indeed, the numbers reflect res
iliency. It bears noting that this sustained output growth of the Philippine eco
nomy was attained in a stable inflation environment. The 2014 full year inflatio
n averaged 4.1 percent, marking it as the 6th consecutive year that inflation is
within the target range of the Government. The latest headline inflation was po
sted at 2.4 percent in January 2015, well within the target range for 2015 of 24 percent. Meanwhile, money supply continues to be sufficient to support the sus
tained demand for credit, the bulk of which continues to be channeled to the key
production sectors. Intermediation of these funds has been safe and efficient o
wing to our sound and stable banking system. Its worth noting that of the 69 juri
sdictions rated by Moodys, it was only the Philippine banking system which Moodys
gave a positive outlook rating to. Indeed, our banks have strong balance sheets. B
anking system CAR is above both the national and Basel standards. The quality of
banks loan portfolios (UKBs) also continues to be healthy with NPL ratio at 1.98
percent as of November 2014. On the external front, we have been able to sustai
n current account surpluses since 2003, due to strong structural flows from remi
ttances, BPO receipts and tourism. This has allowed us to build up our GIR to $8
0 billion, which is more than 10 months worth of imports of goods and payment for
services. Ladies and gentlemen, with these macroeconomic indicators, it would s
eem that the Philippines was not severely affected by the GFC. This is true. We
believe this was because we have kept our own house in order. Keeping ones own hous
e in order entails putting together policies that are responsive. However, what
can be considered responsive today, may not necessarily be what is responsive in
the future. Keeping ones house in order, therefore, requires creativity and inno
vativeness. Ladies and gentlemen, in the areas that are under the purview of the
BSP, keeping our house in order has meant: 1. Being focused on our primary goal
of keeping prices stable. We have done this by ensuring that our monetary polic
y framework is well calibrated and appropriately flexible. We constantly improve
our surveillance capabilities, fine-tune our econometric models, perform scenar
io building, and engage the market and our regional counterparts to make sure th
e inputs to policy are always fresh. To illustrate, during our last policy meeti
ng, we kept our policy rates steady, even as some in the region have lowered the
ir policy rates. Our assessment then was that inflation would remain within the
governments target range of 2 to 4 percent over the policy horizon and that the r
isks to this forecast are balanced. FOR NOW, therefore, we deem the stance of mo
netary policy to be APPROPRIATE. 2. Being deliberate in adopting the global fina
ncial reform agenda. While we agree with the goals of the global reforms, our ad
option of these has been based on our unique domestic market conditions. For ins
tance, we adopted the capital requirements of Basel 3 in January 2014 because ou
r banks were already above the new requirements anyway. Meanwhile, we have decid
ed to phase in the adoption of the other components of Basel 3, including those
related to liquidity and leverage. Our approach to reform has always been pragma
tic. But we do not subscribe to the view of others that if it aint broke why fix i
t. There is always a better way of doing things, but one needs to have a macro vi
ew in adopting change. There will always be those who would be negatively affect
ed by change. So, we are consultative in adopting reforms. This way, the market
could understand that the short-term pain of reforms will be balanced by long-te
rm safety for the whole system. 3. Being open to liberalizing the FX environment
and keeping a flexible exchange rate system. We have found that transparency an
d flexibility in FX transactions helps the market plan better. We are on our 7th
wave of FX liberalization measures. We have also allowed the exchange rate to b
e determined by market forces. From experience, these policies have helped us to
better manage external vulnerabilities. 4. Being creative in our surveillance a
nd monitoring An example here is our adoption of stress testing. We stress the b
ank balance sheets for extreme but plausible scenarios. One specific form of str
ess test is the Real Estate Stress Test (REST). Based on the results of these st
ress tests, our banks are seen to be able to withstand plausible stresses. 5. Fi
nally, being strong advocates of financial inclusion. We are firm believers that
policy must translate to an improvement in the quality of life of every Filipin
o. I find this consistent with INNOVATIVE LEADERSHIP. As Cardinal Tagle reminded
as during the last induction of MAP officers and directors, we must always cons
ider the interest of others (our people and others who may need assistance) in o
ur entities corporate strategy. While keeping inflation stable already helps the
Filipino maintain his purchasing power, we believe that more can be done. Our ap
proach to financial inclusion is three-pronged. 1) Access to reasonably-priced f
inancial services through proportionate regulation; 2) Financial education that
is targeted; and 3) Financial consumer protection that is institutionalized. The
re is so much ground to cover in financial inclusion and what we do in the BSP i
s but part of it. This is why we have spearheaded the drafting of a National Fin
ancial Inclusion Strategy, to bring together the financial inclusion work in oth
er government agencies, interested NGOs and the private sector into a comprehens
ive, holistic plan. We hope to be able to launch this year. As a result of these
initiatives, the Philippines has been recognized as having one of the most cond
ucive regulatory environments for financial inclusion. I hope that in the last 2
5 minutes or so, I have been able to paint a fair picture of the economy as we m
ove forward in the context of the global environment we operate in. The Philippi
nes is expected to remain resilient and grow above trend (Govt target of 7-8 pct
), in a low inflation environment (Govt target of 2-4 pct), supported by a sound
banking system, and able to withstand reasonable external shocks. I also hope t
hat you now have a better appreciation of what to expect from the BSP. The BSP c
an lead in the initiatives I mentioned, but we cannot do it alone. You, in the c
orporate world, are the ones who bring to life the policies we espouse. As you c
an see from the slide, the goal is to have everyone rowing in synch and towards
the same goal. In the areas under our purview, the BSP has tried to be an innova
tive leader. 1. We try to be unconstrained by the past, even as we learn from it
2. We always ask the relevant questions and try to find the appropriate answers
, and 3. We continue to believe that, in partnership with the market and corpora
te world, there is always a better way of doing things. As we push forward in 20
15, I hope that the MAP and the BSP can work more closely together towards our s
hared goal of a stable macroeconomy and sustained economic growth. Thank you and
again, good afternoon to everyone.
Keeping the Economy on the Right Track: Key Challenges for Monetary Policy
Venue: The Anvil, BDO Corporate Center, Makati City
Occasion: Induction ceremony for the new officers of the Economic Journalists As
sociation of the Philippines (EJAP)
Let me begin by congratulating the new set of officers of EJAP, led by its new p
resident, Mr. Paolo Montecillo, who is a member of the BSP press corps. I wish t
o reaffirm the BSPs belief in the essential role of EJAP in promoting high qualit
y economic news reporting in the country. Rest assured that your organization wi
ll continue to have the support of the BSP in your activities that help achieve
the responsible and thorough coverage of economic events. In the days leading up t
o the celebration of the Chinese New Year yesterday, we have been reading and he
aring many and varied predictions concerning the Year of the Sheep or the Goat o
r the Ram. Tonight, I will contribute my share from the perspective of emerging
market economy central banks, in general, and the Bangko Sentral ng Pilipinas, i
n particular. The issues that confront EME central banks these days include the
following: Whether disinflation pressures could lead to breaches in official inf
lation target bands. Whether there is a risk of domestic deflation or whether so
me collateral damage could be imported from deflation elsewhere. Whether there w
ill be further monetary easing (in the AEs in one part of the globe) or whether
there will be a shift in the perception of the timing of monetary tightening (at
the Fed, across the other side of the globe). Whether huge dips in oil prices a
re a positive or a negative. Whether we will see currency wars or we will see cu
rrency peace. Whether new tools would need to emerge to ensure financial stabili
ty during this period of divergence in economic trends and monetary policy. Ther
e are no absolutes in dealing with these issues. There are many ifs and buts. An
d, a number of factors and variables, including concerns related to technology a
nd geopolitics, would need to be considered. Friends, there is no crystal ball f
or these things. So, as we continue to navigate a challenging economic landscape
this year, it is imperative that the intent of policies from central banks and
other authorities is clearly understood by the public. Statements by the central
bank and other authorities can influence peoples expectations and, ultimately, t
heir economic decisions. Sound and accurate reporting by the media therefore is
necessary to help bring our message across to financial markets and the general
public. We understand that covering the economic beat is quite challenging. Unfo
rtunately, it is also at times, thankless. Rarely would you go home to your fami
lies and see them jumping up and down to ask so what happened in the world of eco
nomics today? Economic news isnt riveting, unlike political news or news about cri
me. But what you do requires just as much vigilance, patience, and diligence, if
not more. Economic numbers rarely tell the complete story when taken at face va
lue. Therefore, a responsible journalist who seeks to offer readers a fuller app
reciation of the information will examine the figures within a broader context o
r against an array of other relevant indicators. Given the facts on hand, a good
reporter will know which leads to chase, and which to set aside, perhaps for an
other day, for another story. The objective is to understand what is happening - and why -- so that the facts can be pieced together into a sensible and useful
news report for their publics. Indeed, we thank the media and, more specificall
y, EJAP member for playing a crucial role in helping the public understand and s
tay abreast of current economic issues. With this in mind, let me briefly share
two key issues in current discussions of monetary policy stance. Disinflation Th
e first is disinflation pressures. The overall impact of the significant decline
in international oil prices will vary in direction and scope across the globe.
While there were recent upticks, oil prices remain well below their levels in mi
d-2014. In general, low oil prices represent disinflation pressures for oil impo
rting countries like the Philippines. We have already seen this in the slower in
flation outturns in recent months. Many have wondered why, given it has already
lowered its own inflation forecasts for 2015 and 2016, the BSP stood pat on its
policy rates and didnt follow the other central banks that had earlier eased thei
r policy settings. Two reasons. First, unlike in some economies, the risk of inf
lation falling below zero or to negative levels in the Philippines appears to be
minimal. In fact, while our latest forecasts show a lower inflation path, we ex
pect inflation to stay within the governments target range over the policy horizo
n. This outlook is supported by firm domestic demand conditions. Our latest expe
ctations surveys show that market sentiment remains broadly favorable, which sho
uld in turn drive up spending and investment. Wage levels, potential increases i
n utility rates and possible power shortages also lead us to expect that inflati
on is likely to remain positive, rather than reach or fall below zero. Second, c
onsistent with our symmetric approach to inflation targeting framework, we have
room to wait for additional data to see if the lower end of our target range wil
l be breached for a persistent period. We are mindful of the uncertainty over th
e path of oil prices moving forward. As the recent hike in fuel pump prices show
s, oil prices can rise just as quickly as they have fallen. Keeping an eye on po
ssible turning points, therefore, will help us see if there is any need to recal
ibrate monetary policy. As always, the key is to make the necessary adjustments
in a timely and calibrated manner. Divergence This ties in closely with our seco
nd key issue: divergence in economic prospects across economies, and consequentl
y, divergence in monetary policies. We have been talking about this topic since
early last year, and it has retained its relevance to the present. In fact, the
disinflationary effect of the steep decline in oil prices has served to complica
te our own views of the outlook for 2015, especially with regard to overseas mon
etary policies and their potential implications for financial stability. More sp
ecifically, a robust recovery is underway in the US. As a consequence, financial

markets largely expect the Federal Reserve Bank to raise its policy rates somet
ime in 2015 as it moves to normalize its monetary policy settings. However, if i
nflation in the US softens considerably, then the increase in interest rates may
come later than anticipated, keeping in mind the Feds forward guidance on its in
flation objective. By contrast, low oil prices increase the risk of deflation in
the Euro area and Japan, which could further stall their economic recovery. At
the moment, even with substantial monetary easing measures already in place, eco
nomic activity in these two jurisdictions continues to struggle for traction. Th
is raises the likelihood of an extended period of monetary accommodation by thei
r respective central banks. There is a benefit to this, as this could provide so
me counterbalance to the potential decline in global liquidity and increase in i
nterest rates resulting from tighter monetary policy in the US moving forward. O
n balance, these contrasting prospects underpin the risk of capital flow volatil
ity and financial market turbulence. Market volatility could be fuelled by a pro
longed period of low interest rates and liquidity enhancement measures, as inves
tors continue to search for higher yield. Fortunately, even amid the volatility,
investors tend to go back to assessing the merits of individual economies. For
the Philippines, these merits include ample fiscal policy space, a sound and res
ponsive banking system, an increasingly inclusive financial system, and a health
y external position, all of which contribute to a solid outlook for growth. Inde
ed, the countrys solid macroeconomic fundamentals continue to give confidence to
investors and creditors. Moving forward, we will continue to invest in sound and
prudent policies to ensure both price and financial stability. With our wide me
nu of policy tools and options, we stand ready to deploy appropriate measures as
needed to ensure that liquidity stays adequate and that our financial system re
mains resilient against volatility in capital flows. For instance, will continue
to pursue reforms in the banking sector. Our objective is to enable our banks t
o better withstand stresses of external origin and to compete in a more integrat
ed regional arena. To this end, we have already adopted several measures -- incl
uding raising the minimum capital requirements for banks and implementing a comp
rehensive credit risk management framework. Other measures in the pipeline inclu
de those related to Basel 3 reforms. The BSP will also remain alert to possible
threats to financial stability, including those associated with the build-up of
leverage among households and firms, as well as banks exposure to the real estate
sector. To mitigate these risks, the BSP will continue to its mix of micro- and
macro-prudential tools as well as surveillance mechanisms, taking in considerat
ion their potential impact on liquidity and overall financial conditions. Conclu
ding remarks Ladies and gentlemen, disinflationary pressures and divergence are
just two of the key economic issues that are likely to pose challenges for centr
al bank like the BSP. I have discussed some of the main factors that we have con
sidered and will continue to look into in the formulation of our monetary policy
stance. I hope this provides additional guidance as you continue your coverage
of Philippine economic developments. In closing, I wish to reiterate that while
other emerging markets have begun to ease their monetary policy settings in view
of their own domestic considerations, we believe that our prevailing monetary p
olicy stance remains appropriate. Supported by robust credit growth and ample li
quidity, current inflation and output growth dynamics in our country do not at t
his time warrant a reversal of the preemptive tightening measures we did in 2014
. Moreover, there is still some measure of uncertainty hanging over global marke
ts, the implications of which have to be continuously monitored closely. Neverth
eless, should the need arise, we have ample fiscal headroom to provide further s
timulus to the economy. In other words, ladies and gentlemen, while 2015 is like
ly to bring continued economic challenges for the Philippines, our country appea
rs to be well-placed to deal with them. The economys manageable inflation environ
ment and firm growth momentum provide policymakers ample space to respond approp
riately to evolving domestic and global conditions. Once again, I congratulate E
JAP and its new set of officers under the leadership of President Paolo Montecil
lo. On behalf of the Bangko Sentral ng Pilipinas, I wish EJAP continuing success
in all its undertakings, particularly its programs concerning professional deve
lopment, sports, cultural activities, and health protection. We have seen how EJ
AP has evolved as a professional organization in its first 29 years. Many of its
members have moved on to assume greater responsibilities as senior journalists
and editors, here and overseas. Indeed, EJAP has set the bar for covering the ec
onomic beat with depth, discipline, fairness and responsibility. Congratulations
and thank you EJAP! On our part, you can be assured that the BSP will continue
to engage economic journalists with professionalism and respect. Mabuhay ang EJA
P! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong laha
t!
Building an Efficient and Inclusive National Payment System

Occasion: signing of the Memorandum of Agreement on the Consolidation of ATM Net
works
We at the Bangko Sentral ng Pilipinas are happy to join you to witness the start
of the consolidation of our ATM networks under the umbrella of the Bankers Asso
ciation of the Philippines. This is the second significant program that we are l
aunching today to move our financial system forward. Two hours ago, the BSP laun
ched the electronic trading platform for the BSPs Reverse Repurchase Electronic T
rading System. This time, it is the private sector that is launching its own mil
estone: the consolidation of our Bancnet and Megalink ATM networks. While the BA
P and our ATM networks describe this event as inspired by the BSP, to us the cred
it for implementing this milestone program properly belongs to our banks. Indeed
, it has been our position that the BSP receives recognition for its regulatory
framework because it works; and it works because our banks are part of the consu
ltative process. Thus, our banks are able to respond and implement programs acco
rdingly. I have said this before and I will say it again: I believe that the BSP
and the banking community work well together simply because we are on the same p
age we both want to make our banking system better, stronger and more inclusive
so that we can help keep our economy growing and improve the lives of Filipinos.
In particular, this coming together of our ATMs under a single network is the i
mportant first step toward an efficient and inclusive retail payment system. In
this connection, I am pleased to note that our ATM network has been expanding st
eadily -- it increased from 6,200 units in 2005 to over 16,000 in 2014. And over
this period, you have expanded the use of the ATMs beyond deposit withdrawals,
to bills payment, to making donations and even to selling e-loads to pre-paid ce
llphone users. Ladies and gentlemen. Today, the Philippines average 2.5 billion
payments per month which correspond to a value of over PhP 3.2 trillion -- 99% of
these payments are cash-based. This is an expensive way of transacting as the co
st of producing, transporting, protecting and even retiring cash is quite high.
This high cost poses a barrier to inclusion. Greater access to payment or transa
ctional accounts can be an effective on-ramp to a broader range of financial ser
vices and boost our efforts toward financial inclusion. In addition, a shift to
electronic payments will facilitate efficiency, which is convenience at the righ
t cost. This will lead to lower business costs and higher consumer expenditure,
a driver of economic growth in many economies. In fact, a cross country study fo
und that a 10% increase in the share of electronic payments was correlated with
a .5% increase in consumer spending.1 This efficiency will also drive business i
nnovation and promote greater transparency in transactions. All these are also c
rucial in preparing for a more integrated ASEAN Economic Community. Nevertheless

, while we celebrate this milestone today, we realize that this is just the begi
nning. There are still things to do and bear in mind as we take this journey for
ward. Let me focus on three: First, it is important to establish well-defined ru
les, policies and processes to set the stage for areas of cooperation and areas
of competition. This will facilitate the entry of new players, create a level pl
aying field and provide the framework for inter-operability. Second, there is a
need to upgrade current arrangements to enable the participation of payment serv
ice providers, including non-banks. This will support the environment for innova
tion and efficiency in payment channels and the development new and inclusive bu
siness models. Third and last is to always have the customer in mind. The retail p
ayment system should provide each of its users with transparency, certainty and
reliability. These are the critical steps in this journey; which will surely lea
d us to a destination that will benefit all a truly inclusive and efficient nati
onal retail payment system that promotes electronic payments in the country. The
se benefits reveal the very purpose of this journey. I have no doubt that the me
mbers of our banking community will all continue to work together toward this en
d of providing better payment services to our people. Our next step is to collab
orate on how to best implement not only the merger of ATM and POS or point of sa
les operations, but the overall integration of our payments system. Finally, I t
hank and congratulate everyone responsible for this milestone event. Mabuhay ang
banking system! Mabuhay po tayong lahat. Maraming, maraming salamat! --------------- 1 Le Sar, Porteous, Introduction to National Payments System, National Pa
yments System Institute, 2013
Moving Forward With Financial infrastructure Integration Thru the BSP s Reverse
Repurchase E-Trading System
Occasion: Signing Ceremony of the BSP s Reverse Repurchase E-Trading System
I am pleased to see that the partnership between the Bangko Sentral ng Pilipinas
and the banking industry continues to grow, strengthen and deepen. Today, the s
igning of a Memorandum of Understanding for the BSPs Reverse Repurchase Electroni
c Trading System marks yet another milestone in our efforts to promote financial
market operations underpinned by strong and secure infrastructure and well-desi
gned rules. Over the years, the BSP has launched initiatives to address the grow
ing needs of its stakeholders and to adapt to the changing times. These include
the implementation of real-time gross settlement system which BSP operates today
as the PhilPASS, the Intraday Liquidity Facility, the BSP e-Rediscounting Syste
m, and the REMIT System for OFW remittances, just to name a few. Ladies and gent
lemen. These initiatives form important building blocks towards a domestic finan
cial market infrastructure that efficiently and effectively responds to the need
s of the real sector. With this goal in mind, our latest initiative is the RRP E
-trading system, a web-based electronic platform where overnight and term RRP agr
eements between financial institutions and the BSPs Treasury Department may be tr
ansacted and settled. With built-in security access procedures, the new E system
will replace the manual queuing of the RRP trade orders that are posted via a c
ombination of telephone and stand-alone trading platforms, e.g., Reuters or Bloo
mberg. It will also eliminate the unintended consequence of manually collating t
ransactions from different order sources. Another benefit that users of the e-tr
ading system will enjoy is straight through processing where reporting of interb
ank call loan transactions will be done electronically. In sum, therefore, the s
ystem should heighten the security of the full dealing, settlement and reporting
cycle of RRP transactions. But more than the benefits of automation, the creati
on of this system opens up for the BSP new horizons for enhancing the way it con
ducts open market operations or OMO. This electronic trading system provides the
BSP the flexibility to use different methods to allocate RRPs to participating
banks, including possibly an auction system. In turn, the option to auction RRPs
will give the BSP the means to implement a full interest rate corridor for OMO
in the future. Presently, our OMO is conducted with the RP as the ceiling and th
e SDA as the floor. The electronic reporting of transactions will also expedite
the calculations for another important initiative in progress -- the OIS, which
is a determinative component in completing the benchmark yield curve. We can see
, therefore, some interesting times ahead. We look forward to continue working c
losely with the leaders of our financial system in building financial market inf
rastructure and systems that are safe, secure and responsive to its stakeholders
. Thank you for your continuing support. Finally, let us congratulate the BSPs Tr
easury Department under the leadership of Assistant Governor Winnie Santiago who
worked with the BSPs Payments System Office, Information Technology Sub-Sector,
and Legal Office in setting up this trading platform. We look forward to more jo
int undertakings that will continue to move us forward toward a better, bigger a
nd stronger financial market that will keep our economy growing and increasingly
inclusive. Thank you all and Mabuhay!
Working Together towards a Stronger Economy

Venue: Fairmont Hotel (Main Ballroom, 2/F), Makati
Occasion: Security Bank Economic Forum "Economic & Business Forecast 2015
The presentation this afternoon will start with a discussion on the global econo
mic and financial developments and their possible implications for the Philippin
e economy. Then we will look at the growth experience of the Philippine economy
and the underlying factors that form the bases for the economys resilience. A Loo
k Back to 2014 I was looking at the new logo of Security Bank. It shows two halv
es just like the yin and the yang. Two parts working and coming together. Its an
interesting depiction although of course, on the hard-court (as in the basketball,
or even in volleyball courts), it would be a stretch to say that the Greens wou
ld be above the Blues for long periods. I must have a conversation with Abet abo
ut his choice of corporate colors. The old Security Bank color was already the p
erfect one Blue! But seriously, two things coming together and being integral pa
rts of each other. These are very similar to the themes that pervaded our global
operating environment in 2014. In 2014, there were two themes that dominated th
e global operating environment 1) uneven global growth and 2) divergent monetary
policies in advanced economies. As the US economic growth continued to gain tra
ction and the US Fed subsequently ended its asset purchase program in October la
st year, markets began to interpret the Feds statements to mean that it would beg
in lift off (or raise the Fed Funds target rate) sometime this year. In contrast,
EU and Japan remained barely able to eke out growth. By the ECBs and the BOJs own
pronouncements, they were willing to further expand easy monetary conditions to
stimulate growth in their jurisdictions. ECB President Mario Draghi even pledged
to do whatever it takes. So, in one part of the globe, you had the Fed poised to
tighten monetary conditions, and in another, you had the ECB and BOJ committing
to provide more liquidity as needed. This combination ushered the shift in marke
t sentiment capital flowed out of EME assets (the long-standing darling of inves
tors) toward US financial assets. This resulted in a strong appreciation of the
US dollar. While this was happening, oil prices began to tumble. By year end, Br
ent had lost half its value, dropping from a high $115/bbl to $55/bbl. How did t
he Philippines fare in all of these? Well, the Philippines stood its ground. We
continued to show healthy growth in a low inflation environment. The fourth quar
ter GDP number was released yesterday and it showed the underlying strength of t
he economy. In Q4, the economy grew 6.9 percent, faster than the 6.3 pct in the
same quarter in 2013 and 5.3 pct in Q3 of 2014. For full-year 2014, GDP grew by
6.1 pct. On a full-year basis, the Philippines ranked second among selected Asia
n economies, next to Chinas 7.4 pct. In the meantime, with the right monetary pol
icy settings and some help from lower oil prices, full-year inflation tipped at
4.1 pct, marking 2014 as the 6th consecutive year that inflation has been kept w
ithin the governments target range. This robust performance was supported by a so
und banking system that continued to be profitable, well-capitalized and able to
intermediate funds to the productive sectors of the economy, while maintaining
good credit standards. In addition, the country continued to sustain surpluses i
n its current account, enabling us to keep our GIR at about $80B at end 2014. Th
e Outlook for 2015 Ladies and gentlemen, clearly, we have entered 2015 as we did
in 2014 -from a position of relative strength. Can we expect this strength to b
e sustained throughout 2015? My answer to this question is a YES. Shortly, I wil
l provide you four reasons why. But before that, let me give you some perspectiv
e by walking you through the operating environment that we see for 2015. The glo
bal themes coming into 2015 were rather clear uneven growth and divergent moneta
ry policies and a strong USD arising from this combination. This was so until oi
l prices began to drop -- like falling knives as one analyst put it. It is notab
le that no one has yet, very definitively called the oil price decline as being o
verdone. Although the IMF forecasts as of 6 January 2015 show an uptick in oil pr
ices in the second half of this year. The steep decline in oil prices has compli
cated the market appreciation of the outlook for monetary policy in 2015. Some a
nalysts say, the Fed would be hard-pressed to hike rates by any significant meas
ure (as in June this year) if oil prices continue to drop because inflation in t
he US will be soft. In addition, low oil prices increase the risk of deflation i
n the EU and Japan, raising the likelihood that more easing measures would be pu
t in place. In other words, ladies and gentlemen, whereas markets used to have t
he confidence in the trend of monetary policies, this new uncertainty from oil p
rice movements is now seen to heighten volatility in financial markets by unsett
ling investor risk appetite and unseating inflation expectations. Further, a con
tinued decline in oil price could also change the balance of global growth prosp
ects. There will be winners and losers if low oil prices persist. While the decl
ine in oil is a dampener to inflation and could raise purchasing power for oil i
mporters, it could also result in a loss of revenues for oil producers and lead
to weak aggregate demand. With overall global growth still fragile, the signific
ant drop and the weak prospects in oil prices have gotten more analysts discussi
ng the risk of deflation in recent weeks. The Philippines in Focus: How do we se
e all these impacting the Philippines? For us, low oil prices represent disinfla
tion pressures. Fuel and fuel-related items account for nearly 9 pct of our CPI
basket. We have also seen transport fares being adjusted downward. In addition,
the fall in oil prices could benefit us through an increase in household real in
come as well as the lower cost of production. I have been asked whether we are w
orried about deflation (due to the substantial decline in oil prices). Well, def
lation effects in the AEs can spillover to our economy through lower trade. Howe
ver, trade as a percentage of GDP is still relatively lower than those of our pe
ers in the region.1 So the risk here is probably only of a relatively small magn
itude. As for deflation materializing in the Philippines, the risk is not signif
icant. For one, our demand conditions are firm. Services and industry remain str
ong. And on the demand side, consumption is seen remaining robust. We heard Sec.
Balisacan say yesterday that the worst is over on underspending and that the gove
rnment is committed to ramping up spending. There are other factors that lead us
to say that deflation is remote -- or that inflation would remain positive. The
se are wage rigidities and the upside risks from pending petitions for utility r
ate adjustments (electricity) and potential power shortages. Given this scenario
, what would the monetary response of the BSP be? Our initial projections using
lower oil prices show that inflation would still be within the target range for
2015, which is now lower at 2-4 percent compared to the previous years target of
3-5 percent. Indications of easing inflationary pressures owing in part to the d
ecline in international oil prices as well as signs of robust domestic economic
growth allow the BSP some room to maintain its current monetary policy stance. E
ven so, we do not pre-commit to a set course of action. As I have always said, t
he stance of monetary policy will remain data-dependent. One thing we keep in th
e back of our minds is that prices can reverse and often very quickly. If you ha
ve been in this market long enough as I believe some in the audience have you kn
ow that markets tend to get ahead of themselves. So, we continue to watch develo
pments in the oil market carefully and how these affect inflation and growth dyn
amics, to see if there is any need to make adjustments in the stance of policy.
While volatilities in oil prices have complicated the balance of growth prospect
s, there are the other underlying other risks that we see in the horizon. These
include a bumpy growth path for China, delays in the needed structural reforms i
n the EU and Japan, and geopolitical risks that could arise from a worsening of
the situation in Russia or the Middle East all of which can heighten financial m
arket volatilities. Can we remain steadfast in 2015? Going back to the earlier q
uestion of whether we will be able to sustain our position of strength in 2015.
Let me share that, in the areas under the purview of the BSP, we believe we will
be able to withstand headwinds in the global economy. And I have four reasons.
One, our monetary policy is focused. While we are mindful of developments extern
ally, we will always adjust policy in consideration of domestic demand and suppl
y dynamics as reflected in our forecasted inflation path. The focus has served u
s well throughout the period of the Great Moderation through the Global Financia
l Crisis and in the aftermath of the GFC. So you should not expect that we will
necessarily move in synch with and in the same magnitude as the Fed or other cen
tral banks. Two, we have maintained a strong external position. We expect curren
t account surplus to be sustained by remittances, receipts from the tourism and
BPO industries. We will continue with our policy of a market-determined exchange
rate, while allowing for some scope for official action given that the exchange
rate can be an effective tool for absorbing shocks from external sources. Three
, we have a sound, stable and liquid banking system. The Philippine banking syst
em is the only one, out of the 69 jurisdiction that it rates, which Moodys judged
as having a positive outlook. This sound performance of the banks was due to pr
ogressive implementation of deep reforms and prudent risk-taking activities of b
anks despite the ample liquidity in the global economy. Over the years we pursue
d reforms to enable our banks to respond to the evolving requirements of their s
takeholders, just as it has to adapt to a changing market environment. We do not
anticipate a specific market scenario. Rather, we want our banks to be in a str
ong position regardless of how markets swing or stakeholder needs evolve. In eff
ect, we envision a banking community that is not just resilient but one that is
fundamentally responsive to stakeholder needs and where banks act responsibly. S
o in 2014, for instance, we raised the minimum required level of bank capital, r
ecognizing that the new normal of banking treats conventional risks more aggress
ively while constantly identifying newer forms of risks. We also achieved fairly
significant milestones, for example, in re-writing our credit risk framework, i
n crafting the implementing guidelines for Republic Act 10641 and introducing a
Financial Consumer Protection Framework. Four, we are unrelenting in our commitm
ent towards a more inclusive financial market and an empowered economic and fina
ncial consumer. This is not just about providing access but having the wherewith
al to make markets where there are none yet, investing in the future rather than
be content with the limitations of today. Our Commitment Going forward, the BSP
will remain on the lookout for potential risks to price and financial stability
. We will be vigilant to be able to provide timely and calibrated responses to u
nfolding events. But just as in the Security Bank logo, you have the yin and the
yang, the BSP needs your partnership. For only as we come together and work tow
ards the same goal, can we preserve what we have achieved and ensure that our ec
onomy sustains its position of strength. ------------------ 1Note: Trade value (
exports plus imports) relative to GDP is low for the Philippines as compared to
most of our regional peers. Average (2005-2012): Philippines- 52.2; Malaysia - 1
44.6; Singapore - 290.6; Thailand - 123.6; Indonesia - 44.3; Taiwan (PRC) - 118.
7; South Korea - 84.6.
rning can spell the difference between business continuity and business catastro
phe.
While industry-wide collaboration efforts and initiatives are already in place - in coordination with industry associations, namely the Inter-Network Anti-Frau
d Committee (IAFC) through the BancNet and ISOG the ideal would be to expand it t
o include all stakeholders, such as technology service providers, law enforcemen
t agencies, regulators and relevant government institutions.
Ladies and gentlemen. In the fight against cybercrimes, let us remember to be i
nclusive, let us involve all stakeholders. In particular, financial consumers sh
ould be informed about cyber threats and how they can evade cyber attacks to pro
tect their accounts.
Indeed, cyber security is a shared responsibility, and each of us has a role to
play in making our cyber landscape safer, more secure and resilient.
N IS FOR NOT A TECHNICAL ISSUE
Ladies and gentlemen, cybersecurity is not achieved merely by deploying state-of
-the-art security appliances and devices. In fact, a number of organizations wi
th the most secure defenses have been subjected to cyber-attacks.
More than a technical issue, cyber security should be a top priority concern by
the Board and senior management. Cyber security initiatives and investments must
be supported at the highest level of management to ensure their sustainability
and adoption across all processes within organizations. As a wise man once said
, it is the tone at the top that defines an institutions cyber security culture.
Given the crucial role that the Board and senior management play in creating a s
afe and sound cyber security regime, I am pleased to see that we have CEOs, memb
ers of the Board and senior management at this Summit. This speaks of executive
s walking the talk on ensuring cyber security; this also reflects a high degree
of cyber governance in the financial services industry. You all deserve a round
of applause.
PARTING SHOTS
Ladies and gentlemen. We are fortunate to have with us at this summit, distingui
shed experts on dealing with cybercrimes. Also with us are industry players deep
ly involved in ensuring cyber security who will discuss current and emerging cyb
er threats confronting the financial services industry. Also up for discussion a
re international best practices on cyber security management.

Let us therefore maximize the opportunities to be proactive, to inform and colla
borate, and to remember that cybercrime is Not merely a technical issue. These a
re the lessons of PIN.
Indeed, there are many cyber challenges ahead of us. With this summit, I hope we
can put our collective wisdom and expertise together to collaborate and develop
comprehensive and united solutions for a safe, secure and healthy cyber environ
ment. Together, let us fight cybercrimes.
Our ultimate goal is to propel our financial sector forward to an environment wh
ere robust financial institutions reach out to the unserved and the underserved
to achieve financial inclusion that promotes inclusive growth.
Maraming salamat. Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayo
ng lahat!
The BSP and the Banking Industry: Weaving a Story of Growth and Development
Venue: Fort San Antonio Abad, BSP Complex, Malate, Manila
Occasion: Annual Reception for the Banking Community
On behalf of the members of the Monetary Board, your other hosts for tonight: Fi
nance Secretary Cesar Purisima (who is currently on official mission abroad), Fr
eddie Antonio, Phillip Medalla, Andy Suratos, Juan de Zuniga and Val Araneta, I
thank all of you for accepting our invitation. This marks the 10th year that I a
m welcoming you to the Fort San Antonio Abad for the BSPs Annual Reception for th
e Banking Community. This is the only time in a year that the BSP hosts in one e
vent, the leadership of the Philippine banking industry from the universal and c
ommercial banks to the thrift banks and the rural banks -- in a multi-sectoral g
athering. After all, the banking industry serves the cross section of our societ
y. In other words, all of us here have a stake in the banking sector, a very imp
ortant pillar of our economy. As in the past, I will briefly review how we fared
last year, discuss how we see the operating environment for this year, and shar
e how we can move forward together to achieve even better results. Review of 201
4 Well, 2014 certainly turned out to be a good year for the Philippine economy i
n general and for the banking sector in particular, although it did not start th
is way. About this time last year, we were faced with significant capital outflo
ws and as a result, the peso came under strong depreciation pressures. In May to
August, inflation spiked to levels that threatened the attainment of the govern
ments inflation target. In addition, losses from a series of natural disasters sl
owed our economy. GDP grew 5.8% in the first three quarters last year, slower th
an in the comparable period in 2013. Even so, the Philippines still emerged as o
ne of the fastest growing economies in the region. Indeed, our countrys underlyin
g story of resilience remained intact through the challenges of 2014 with contin
uing economic and governance reforms keeping us on the growth track. On our part
, the Bangko Sentral implemented preemptive and sequential monetary and macropru
dential policies that helped keep inflation expectations in check and financial
market exuberance at bay. As a result, average inflation settled at 4.1 percent
-- this is the sixth year in a row that we kept inflation within the governments
target range. The peso remained relatively stable. And while our Balance of Paym
ents showed a deficit due to capital outflows influenced by the Feds decision to
end quantitative easing, our current account remained in surplus from strong rem
ittances and receipts from exports and BPOs. This brought our foreign exchange r
eserves to nearly $80 billion, sufficient to cover over 10 months worth of import
s of goods and payment for services. This provides a critical buffer against pot
ential external shocks. Underpinning the sustained growth of the Philippine econ
omy is the strong performance of our banking system. Double-digit growth rates i
n lending continued to support economic activities, as public confidence in bank
s sustained the rise in deposits to record high levels. The confidence is well d
eserved. For instance, even as lending continued to grow, commercial and univers
al banks maintained the quality of their loans, with NPLs as of September at 2.0
4% -- the lowest since December 2009. Certainly, we are seeing better governance
, better management and more investments in technology and capacity building fro
m Philippine banks. Equally important, our stress tests indicate that our banks
have enough capital to withstand extreme shocks in credit and market risks. Inde
ed, the accelerated adoption of Basel 3 capital requirements beginning January l
ast year is a measure not only of the strength of our banks -- it is a measure o
f the commitment and the readiness of our banks to help foster overall financial
stability. Philippine banks are also becoming more financially inclusive. We ar
e witness to their increasing involvement in financial education, the growing nu
mber of new deposit accounts starting with children, the greater use of electron
ic money, the expanding size of the countrys microfinance portfolio and the wider
coverage of our automatic teller machines or ATMs. I am happy to share the good
news that next week, the Bankers Association of the Philippines, Bancnet and Me
galink will formalize the consolidation of the two ATM networks. This is a miles
tone we have been looking forward to on the way to the greater goal of establish
ing a National Retail Payment System (NRPS) that will achieve inter-operability,
efficiency, security and inclusiveness in the way we settle financial transacti
ons. Indeed, the Bangko Sentral ng Pilipinas is pleased that the banking communi
ty is fully engaged with us in the implementation of prudent and systematic bank
ing reforms. I can say that today, our banking system is sound, profitable and s
table; it is responsive to the needs of the economy; it is responsible in managi
ng the funds entrusted to them by their customers; and it is increasingly inclus
ive. Ladies and gentlemen of the Philippine banking sector, well done! Congratul
ations! Our banks are also highly rated by independent analysts. In 2014 for ins
tance, Philippine banks received awards and recognition for various categories t
hat are just too many to mention here. In the interest of fairness therefore, I
will desist from naming any such awards. Suffice it to say, that people take not
e of these awards which should help define your bank as we prepare for the oppor
tunities and challenges that come with ASEAN Integration. In addition, it is a s
ource of pride for us that when Moodys assessed 69 jurisdictions in 2014, it conc
luded that only the Philippine banking system deserved a positive outlook -- onl
y one out of 69. Outlook Given all these, what is in store for us in 2015? As po
licymakers of the National Government see it, our economy will grow by 7-8 perce
nt in 2015 while the inflation target is at 2 to 4 percent.2 Other institutions
and analysts project lower numbers for growth. But there is one thing they have
in common -- the view that the Philippines will continue to be comparatively buo
yant. However, there are risks that cloud the future. The continuing uncertainty
in the global financial markets is a concern as geopolitical tensions go on and
economic performance among major economies remains divergent. For instance, US
economic growth continues to gain traction. With this, the market anticipates th
e Fed will raise the Fed Funds target rate this year. As a result, the US dollar
has been strengthening against other currencies. Apart from the US, however, ot
her major economies are slowing down weighed by debt, unemployment, weak demand
and/or geopolitical concerns. These economies are moving toward stimulus program
s or quantitative easing. This divergence in monetary policy between strong and
weak economies could unsettle markets. While all of this was happening, the bala
nce of supply and demand in the oil market has triggered a precipitous decline i
n oil prices. I have been asked how a stronger dollar and cheaper oil will affec
t us. Well, a stronger dollar would make our foreign exchange obligations more e
xpensive but, this will be countered by a smaller oil (import) bill from lower o
il prices. The drop in oil prices will also ease inflation and benefit consumers
. Nevertheless, we need to be mindful of the risk of a sudden reversal in the tr
end. If low oil prices persist, the economies of oil-producing countries may eve
ntually weaken and adversely affect the global economy. For certain, there will
be pluses and minuses. We could see sporadic market volatility in the interim. N
evertheless, from our experience and track record, it can be said that we are eq
uipped to deal and handle these issues. Let us also remember that we start 2015
with a credit rating that is two notches into investment grade territory. Higher
state spending on infrastructure and the implementation of projects under the p
ublic-private partnership program should also provide stimulus for growth moving
forward. I believe, therefore, that even as episodes of stormy weather develop,
the Philippine banking community can face 2015 with confidence given its strong
balance sheet, solid capital base that exceeds global standards, product innova
tions, and adherence to international standards for governance and risk manageme
nt. Of course, we still need to continue working together on our reform agenda t
o achieve a more inclusive financial system that promotes inclusive growth, stre
ngthen consumer protection, forestall emerging risks, and ensure financial stabi
lity at all times. This is the philosophy that underpins our reform program. Tog
ether, let us craft the way forward to an even better, stronger and more inclusi
ve banking system. Only by doing so can we preserve the gains we have achieved s
o far. And we do have a long way to go, given that 25% of Filipinos still live i
n poverty. Of course, there is so much more that our banks have empowered and co
ntinue to support -- from the cities to the countryside. Ladies and gentlemen. I
have learned in my almost 10 years as governor of the Bangko Sentral that each
year is different. While our mandate remains the same, our operating environment
is constantly shifting and changing. Sometimes, it turns on its head. So, how d
o we navigate in uncharted waters? Well, with extreme care: we have to make sure
that we are in shipshape condition, that we are properly equipped for the journ
ey ahead, and that we remain watchful of possible risks. Ladies and gentlemen, I
believe we are ready to take on the challenges and opportunities that lie ahead
. Let us now offer a toast: May I request the members of the Monetary Board to p
lease join me on stage To our continuing partnership in making our banking indust
ry a dynamic story of growth and development that benefits our people and our co
untry. Cheers!... Mabuhay ang Pilipinas! Mabuhay po tayong lahat! -------------- 1June 2014 Data for Financial Inclusion 2 DBCC Macroeconomic Assumptions (2013
-2017), as of 20 June 2014
The Philippine Economy Going Forward

Venue: Manila Polo Club, Makati City
Occasion: Membership Meeting of the Rotary Club of Manila
On behalf of the Bangko Sentral ng Pilipinas, I wish all of you a successful, me
aningful and prosperous New Year! Now, what are the chances these wishes will co
me true? Well, it depends largely on the choices you will make as professionals,
businessmen, as family men and as members of the community living up to the Rot
ary Club of Manilas brand of public service. From the point of view of the Bangko
Sentral, what do we see? As your speaker in January last year, I described 2014
as a year to be marked with continuing growth amidst recurrent risks and uncerta
inty. Ladies and gentlemen, all these came to pass. In Retrospect In retrospect,
we faced national and global difficulties -- we had typhoons, uneven growth in t
he world economy, political unrest in the Middle East and Russia, and market unc
ertainties from divergent moves in the global markets. But because we have done
our homework and continued to implement our reform agenda, the Philippine econom
y stayed the course and continued to grow above trend. In particular, for the fi
rst three quarters of 2014 the economy grew by 5.8 percent, in an environment of
low and stable price movements. Full year inflation averaged 4.1 percent, marki
ng 2014 the 6th consecutive year that inflation was within the target range of t
he Government. Ladies and gentlemen, this was achieved because we were vigilant
and took timely calibrated responses to unfolding events. In mid-2014, for insta
nce, inflation edged higher on market talk of possibly tighter monetary conditio
ns in the US. At the same time, inflation expectations began to rise while real
and financial assets continued to climb. To forestall a situation where our infl
ation target could be breached and to prevent potential asset bubbles, the BSP i
mplemented a series of pre-emptive, calibrated monetary measures to tighten mone
tary conditions. Among others, we raised reserve requirements, our policy rate a
nd also our SDA rate. We did these in steps to help guide the markets inflation e
xpectations and to help the market better appreciate the risks inherent in the s
hifts in the monetary policy stances of major central banks, especially the US F
ed. We also carefully communicated our policy intent to the market. At the same
time, international oil prices started to drop. Subsequently, inflation started
to moderate and fall to the middle of the target range of 3-5 per cent inflation
. We are pleased about this outcome. Inflation management is a crucial function
of the BSP as it provides the stability that our economy and its stakeholders ne
ed. Even as uncertainties in global markets led to some capital flow reversals a
nd depreciation pressures on the peso, we were able to maintain a strong externa
l liquidity position. The current account sustained its surplus because remittan
ces, receipts from the tourism and BPO industries remained strong. As a result,
our gross international reserves settled at a robust $79.8 billion in December 2
014, providing us buffers from possible external shocks. The reserves are enough
to cover 10.2 months worth of imports of goods and payments of services and inco
me; it is also equivalent to 8.4 times the countrys short-term external debt base
d on original maturity and six times based on residual maturity. Our strong exte
rnal position continues to be a source of confidence for our creditors and inves
tors. Another source of strength for the Philippine economy is our sound, stable
and liquid banking system as public confidence has kept deposits growing to rec
ord-high levels. Among others, this has sustained double-digit growth rates in l
ending, particularly to the productive sectors of the economy. Overall, our bank
s have strong balance sheets, solid asset growth, low NPL ratios and above-stand
ard Capital Adequacy Ratios as a result of good governance practices and adheren
ce to international best practice in risk management. Thus, our banking sector c
ontinues to be highly rated by third party assessors. In particular, the Philipp
ines received the only positive outlook among 69 jurisdictions assessed by Moodys
, a major international credit rating agency. Indeed, our banks are fully engage
d with us in our efforts to help ensure that our system is sound, that its opera
tions are aligned with international standards, and that its reach covers more o
f the previously unbanked or unserved areas. In 2014, we endorsed Republic Act 1
0641 that allows the full entry of Foreign Banks in the Philippines and prepared
the IRR for its implementation. With the approval of the IRR, additional foreig
n banks can now apply to operate in the Philippines either as a branch or as a w
holly-owned subsidiary. There are clear economic benefits for us from this new l
aw: first, foreign banks can serve as vehicles for foreign direct investments in
to the Philippines; transfer of technology is second; and enhancement of human r
esource skills is third. All these will strengthen our banking system at a time
when we are gearing up for the ASEAN Banking Integration Framework. The IRR of t
his law reflects enhancements in the entry criteria for foreign banks in particu
lar, the new law focuses on the demonstrated expertise of a potential entrant as
an established, reputable and financially sound bank. In addition, foreign bank
s interested to enter the Philippines are required to be widely-owned and public
ly-listed in their home country. In evaluating the entry applications of foreign
banks, the Monetary Board shall also consider strategic relationships and recip
rocity rights. This should reassure some sectors who fear that this law opens th
e floodgates to foreign entry. Indeed, there are requirements foreign banks have
to meet and standards they have to hurdle. I am also pleased to share that our
regulations and programs enabled us to gain more ground in our goal to develop a
n inclusive financial system. In this connection, we continued to widen the reac
h of our financial learning program. We have also started the groundwork for a f
ormal National Financial Inclusion Strategy that will pull together the efforts
of various government agencies for a holistic approach to inclusive growth. In o
ther words, ladies and gentlemen, against a backdrop of solid growth, stable pri
ces and a strong banking system, the Philippine economy is entering 2015 well-pl
aced to face challenges from both domestic and external sources and move on to s
ustain growth amidst new challenges. Independent credit rating agencies affirm t
his. In October 2014, Moodys joined Standard and Poors in rating the Philippines o
ne notch above the minimum investment-grade credit rating. In raising the rating
, Moodys cited the governments ongoing efforts to reduce debt, improve fiscal mana
gement, and minimize vulnerability to external developments. Risks Moving Forwar
d in 2015 Moving forward, what do we see in 2015? What I can tell you with certa
inty is that 2015 will be a year of challenges and opportunities. Externally, we
see global growth continuing to be uneven strong in some countries and fragile
in other economies. As a consequence, monetary policies across the globe will co
ntinue to diverge as their economies move into opposite directions. We see, on o
ne hand, the US Federal Reserve and the Bank of England taking steps toward mone
tary policy normalization, as growth in their jurisdictions gain traction. On th
e other hand, the European Central Bank and the Bank of Japan are weighed down b
y their struggling economies and therefore anticipated to continue or accelerate
their unconventional monetary policies or stimulus measures. China is in the sa
me boat, as it is anticipated to go through a process of reforms in its financia
l sector, to prop its slowing economy. To us, having protracted uneven global gr
owth is a cause for concern as this could have significant implications for our
own growth dynamics and impact trade and the service industry. At the same time,
policy divergence among advanced economies would also have an impact on our own
domestic financial markets. Should the US economy continue to strengthen, yield
s on US dollar assets could also continue to rise. The growing difference in pol
icy stances among major economies could result in polar destinations of capital
flows and in the processheighten volatilities in our own financial markets -- inc
luding the peso, equity prices and yields on bonds. BSPs Policy Thrusts Given thi
s scenario, we at the BSP, will continue to be watchful and ready to deploy appr
opriate policy actions in a timely manner to minimize potential adverse impact o
f volatile capital flow movements. In the meantime, our earlier decisions to act
preemptively to address potential risks to price and financial stability have g
iven the BSP sufficient policy space to consider measures that may be required b
y emerging monetary conditions. Ladies and gentlemen. What I have given you so f
ar is the big picture. At this point, I wish to share the process we go through
in operationalizing our policies. This should reassure you that the BSP does NOT
rely on a crystal ball nor does it craft policy in a vacuum. We coordinate with
various government agencies. For instance, the BSP is a resource agency of the
Development and Budget Coordination Committee (DBCC). With the inputs of the DBC
C members and the BSP, the DBCC formulates growth projections and approves infla
tion targets for the country. The BSP then incorporates the growth targets into
our own inflation forecasts, and makes appropriate adjustments to our policy rat
es to ensure that inflation would be within the approved target over the policy
horizon. For 2015, the DBCC is projecting that the economy would grow 7-8 percen
t within an inflation target range of 2 to 4 percent. The way we see it, the ris
ks to inflation in 2015 are broadly balanced. Higher utility rates and LRT fares
will be counterbalanced by lower international oil prices, which fell to around
$50 per barrel this week, the lowest since 2009. For 2015, therefore, we expect
inflation would be well-within the target range. This should provide the BSP th
e flexibility to keep policy rates at low and stable levels in support of econom
ic growth. On the exchange rate, another metric the BSP is always asked about, I
can tell you that our policy remains the same. This means we will allow the exc
hange rate to be essentially determined by market forces. As I mentioned earlier
, we expect some volatility in the market in the near-term because of the growin
g consensus for a strong US dollar. But as in previous episodes of volatility an
d portfolio outflows, there will be core investors who will remain invested in t
he Philippines because of our positive growth prospects and sound fundamentals.
During these periods of volatility, you can expect the BSP to maintain a presenc
e in the forex market to keep the movements aligned with fundamentals and with t
hose of our peers in the region. Aside from working on monetary stability, the B
SP will continue its banking reform agenda appropriate to our own operating envi
ronment. These reforms will impact on the way banks do business with you, but th
ese are calibrated to enhance the protection of bank clients and to ensure the s
tability of the financial and the economic system as a whole. Conclusion Ladies
and gentlemen of the Rotary Club of Manila, whatever the Philippines has achieve
d in the past years is a result of close coordination between the public sector
and the private sector. As the monetary policymaker, the BSP will continue to pr
omote an enabling environment for business and develop a more inclusive financia
l system that supports sustained and inclusive growth. You will be happy to know
therefore that from 2009 to 2013, the Philippines was consistently ranked as th
e best in the world in terms of the regulatory environment for microfinance. In
2014, the Economist Intelligence Unit (EIU) named the Philippines as the top cou
ntry in East and South Asia and the third in the world, with the most conducive
environment for financial inclusion. But beyond these recognitions, what we valu
e is the impact of our gains in improving the lives of millions of Filipinos thr
ough financial inclusion, and particularly through microfinance. Nevertheless, w
e are mindful that there are so many more that we need to reach out to. This is
where successful professionals such as yourselves and organizations such as the
Rotary Club of Manila can help make a difference. The actual use of financial re
sources to create jobs and generate production for our countrys economic growth a
re in your hands. We at the BSP also look forward to working with you on financi
al inclusion programs that will attract more Filipinos to be part of the financi
al mainstream where money would be more widely available at prevailing commercia
l rates. Rates that are significantly lower than the 1,000% a year rate in the i
nformal sector. Imagine the beneficial impact this can bring to millions of our
microentrepreneurs. Let us therefore continue to work together to keep the Phili
ppine economy growing and make lives better for Filipinos. This is very much in
keeping with the Rotary Clubs two mottos: Service Above Self and He Profits Most Who
Serves Best. Ladies and gentlemen of the Rotary Club of Manila, together, may we
have a successful, meaningful and prosperous New Year! Thank you for your attent
ion. Mabuhay ang Pilipinas! Mabuhay po tayong lahat!
Microfinance Improves Lives and Bank Profits

Occasion: 12th Citi Microentrepreneurship Awarding Ceremony
It is always a pleasure to celebrate yet another milestone year in the presence

of the best among the best of our microentrepreneurs and the institutions and in
dividuals who have remained faithful advocates and cheerleaders of the Philippin
e microfinance sector. I refer, among others, to the Citi Philippines headed by
Country Officer Mr. Batara Sianturi; the Microfinance Council of the Philippines
headed by Chairperson Ms. Maria Anna Ignacio; the Bangko Sentral ng Pilipinas;
and the members of our CMA National Selection Board -- we have with us today Sec
retary Imelda Nicolas, Chairperson, Commission on Filipinos Overseas; former Mon
etary Board Member Antonino Alindogan, Jr; Ms. Marixi Rufino-Prieto, Chairman of
Philippine Daily Inquirer; Mr. Jose Maria Concepcion III, President and CEO of
RFM Corp; Dr. Darwin Yu, Dean of the School of Management of Ateneo de Manila Un
iversity. We also thank the people who patronize the goods and services of our m
icroentrepeneurs and the members of the media who report the inspiring success s
tories of our CMA awardees. Indeed, we continue to see how microfinance empowers
, transforms and uplifts individuals, families even communities. In particular, t
he stories of our CMA finalists and awardees attest how humble beginnings can gr
ow to progressive businesses with higher incomes because they gained access to f
inance, to microcredit. Equally important, we have seen how microfinance has imp
roved bank operations and profitability. In the last four years for instance, th
e return on equity of rural banks with microfinance operations was higher by an
average of 3 percentage points compared to that of the rural banking sector. In
addition, from 2010 to 2012, the non-performing loans (NPL) ratio of rural banks
engaged in microfinance was lower by an average of 0.33 percentage points from
the industry-wide average. As of June 2014, microentrepreneurs have outstanding
loans amounting to 9.3 billion pesos. It is clear: microfinance has become a via
ble proposition for banks. In fact, we can say that microfinance as a medium for
financial inclusion, has strengthened the institutional stability of banks by g
enerating reliable business opportunities. This is because the microfinance indu
stry has evolved from a narrow focus on microcredit to a more holistic, sustaina
ble and value-adding provision of financial services to our target market. For exa
mple, 69 of the 183 banks with microcredit operations now hold 1.7 million micro
deposit accounts. In early 2012, there were only 22 such banks. In addition, 86
of these banks have decided to offer microinsurance to their clients. Furthermor
e, 26 of these banks now provide e-banking services, including mobile money -- a
more cost-efficient transactional platform for both banks and clients. Ladies a
nd gentlemen. The availability, accessibility and affordability of these financi
al products have drawn more microentrepreneurs to do business with banks. From t
his, we have learned that developing appropriate products and delivery channels
enable financial institutions to serve markets that were previously marginalized
. This is a solid foundation to build on for our broader financial inclusion pro
gram. It appears therefore that in the case of the Philippine microfinance secto
r, we have achieved convergence in the delivery of positive financial results an
d social performance management. Congratulations everyone! The Bangko Sentral is
pleased to contribute to the success of microfinance in our country. We deliber
ately crafted our regulations to fully support the safe and sound development of
microfinance. We believe that financial inclusion, through microfinance, comple
ments our financial stability objectives. Thus, our regulatory environment is co
nducive to expand financial access while preserving financial stability and inte
grity, deepening financial education, and ensuring consumer protection. Congratu
lations BSP! Credit should also be given to our microfinance institutions includ
ing banks and NGOs who took advantage of this enabling regulatory environment to
magnify their outreach. They are the ones directly catalyzing change on the gro
und in small businesses, in poor households. Finally, I am pleased to share the
good news that the survey on financial inclusion conducted by Europe-based Econo
mist Intelligence Unit gave the Philippines high scores on account of strong lea
dership, highly capable regulators, optimal credit regulation and effective disp
ute resolution. Overall, the Philippines is ranked as the top country in Asia, a
nd third in the world, with the most conducive environment for financial inclusi
on. The EIU notes that countries like the Philippines, with a long tradition of
microfinance, have better institutional and financial infrastructures, which can

be leveraged to provide a wider range of services, and cater to more clients at
the bottom of the pyramid. Ladies and gentlemen. This happened because we have de
dicated and creative microentrepreneurs like our CMA finalists and winners, resp
onsive microfinance institutions, a consultative regular, and people who patroni
ze the goods and services from our microentrepreneurs. Moving forward, let us co
ntinue to find ways to maximize the opportunities and benefits we can derive fro
m microfinance. I look forward to seeing our CMA winners take advantage of the m
entoring program organized by Citi, guidance from the Microfinance Council and e
ven better products from microfinance institutions. At the same time, you can co
unt on the Bangko Sentral to keep working with industry players and advocates to
nurture the development and maturity of the microfinance sector. We look forwar
d to innovations that can target financially-excluded segments of our population
, with affordable and accessible financial services. At the same time, we will e
nsure that our regulations will keep providers and products safe, sound, and res
ponsive to diverse needs of our microfinance clients. Once again, congratulation
s to all our winners and all those involved in this this 12th CMA! Mabuhay ang a
ting microfinance sector! Mabuhay ang ating mahal na bansang Piilipinas! Maramin
g salamat, at magandang hapon sa inyong lahat!
EMPOWERING MSMEs THROUGH CSFs

Venue: BSP Butuan Branch, Butuan City
Occasion: the Launching of the Butuan City Credit Surety Fund and Agusan del Nor
te Credit Surety Fund
Today, we witness the launching of two Credit Surety Funds or CSFs, as more and
more local government officials, cooperatives and government financial instituti
ons join hands to provide access to credit to those who need it the most. But be
fore anything else, I would like to say that this time, credit for todays new CSF
s properly belongs to Agusan del Norte Governor Maria Angelica Amante-Matba for
the Agusan del Norte Surety Fund and Mayor Ferdinand Amante Jr. for the Butuan C
ity Credit Surety Fund. They provided the leadership in mobilizing cooperatives
to participate in setting up, and bringing to reality, their own CSFs. We also t
hank the Land Bank, the Development Bank of the Philippines (Chairman Pepo Nunez
) and the Industrial Guarantee Loan Fund for continuously supporting the creatio
n of more CSFs across the country. The Butuan CSF has 14 coop members while Agus
an del Norte has 8 coops. In other words, the total number of coops participatin
g today is 22, higher than the 15 I mentioned yesterday. I have been informed th
at seven more coops joined the CSFs. This is a happy development. The Butwan CSF
is our 33rd while the Agusan del Norte is the 34th in the country. We look forw
ard to seeing good results from these two CSFs. But what is the value of having
a CSF? Well, lack of access to credit is a major constraint for growth among ent
repreneurs without sufficient collateral, particularly those in the countryside.
The CSF addresses this with the issuance of a guarantee on the loans to be exte
nded. The CSF is therefore a game changer that empowers micro, small and medium
enterprises to reach their potential without borrowing at inordinately high inte
rest rates. For banks, CSF involvement provides the opportunity to comply with t
he mandatory credit allocation under the Magna Carta for Small Enterprises or RA
6977. CSF also institutionalizes a financial system that supports inclusive eco
nomic growth. Financial inclusion is no longer simply an advocacy; it has become
part of mainstream policy that expands the opportunities for sustainable, broad
-based development that is less susceptible to external shocks. And the BSP is f
irmly committed to financial inclusion through the adoption of appropriate polic
ies and leveraging on synergies with all stakeholders. Given that MSMEs represen
t over 90 percent of registered companies, employ over 63 of the countrys labor f
orce and contribute nearly 37 of our GDP, gains in this sector are bound to gene
rate a lot of good, particularly in promoting inclusive growth. Our first CSF wa
s launched in Cavite on 28 August 2008. Since then, loans approved by banks unde
r the program has amounted to P1.2 billion, benefitting in the process 10,422 MS
MEs nationwide. To build on these further, we need to ensure close cooperation a
nd collaboration of the key players in this multi-sectoral program: the cooperat
ives, the LGUs, financial institutions and the BSP. If we sustain this momentum,
we can achieve what we truly aspire for: balanced, sustained and inclusive grow
th. Once again, we at the Bangko Sentral ng Pilipinas thank all of you for worki
ng with us on these CSFs to empower and transform our MSMEs into catalysts for g
rowth that generate jobs and improve lives across the country. Daghang salamat k
a ninyong tanan.
Improving Financial Literacy and Increasing Financial Inclusion to Sustain Econo

mic Growth
Venue: Dusit Thani, Manila
Occasion: SharePHIL?s 7th General Membership Meeting and Forum on ?Improving Fin
ancial Literacy and Increasing Financial Inclusion to Sustain Economic Growth?
I am delighted to join you for your 7th General Membership Meeting. For this aft
ernoon, I have been asked to speak on improving financial literacy and increasin
g financial inclusion. These are critical advocacies of the BSP and I would be m
ore than happy to share my thoughts on these intertwined issues and how these co
uld translate to sustaining economic growth. But before I get to this topic, let
me also express how much I truly welcome the efforts of SharePHIL in making the
investing public aware of their rights, duties and responsibilities as stockhol
ders of corporations and institutions. One cannot overemphasize how valuable thi
s agenda is. After all, the rights to information, to speak and be heard, and fo
r redress are inherent rights of all shareholders whether majority or minority.
This agenda therefore makes inclusiveness, or more specifically, financial inclu
siveness, a desired public good. Challenge of Execution Economics tells us that
public goods are socially desirable outcomes for which private funding is limite
d. As such, the real challenge to the public good that is financial inclusion must
certainly be one of execution. Financial inclusion is a key advocacy of the BSP
as it is complementary to our mandate of maintaining price and financial stabil
ity. Financial inclusion carries with it the potential to equalize opportunities
across segments of society and reduce the economys vulnerability to financial di
stress. In the BSP, we define our financial inclusion agenda around a three-pron
ged framework Access to Financial Products and Services, Financial Education and
Literacy, and Financial Consumer Protection. Each of these has a distinct contr
ibution to achieving our objective just as each one is inherently intertwined wi
th the others. The actual execution of our financial inclusion agenda can be lik
ened to that of a ladder. Broadening Access to Financial Products and Services:
At the first level/step, we would want to bring in more savers into the formal f
inancial system. This is Financial Access. We achieve this principally by streng
thening the banking/financial regulatory framework. This includes our efforts in

terms of: 1) broadening stakeholder access specifically by rationalizing the re
quirements for establishing financial access points [for example, access is not
limited to full banking offices or brick and mortar establishments we now have Mi
cro-Banking Offices and Financial Service Providers ] 2) improving the mix of fi
nancial products through the application of proportionate regulation [for exampl
e, allowing micro-insurance, microagri-loans and relaxed disclosure and other re
quirements, including partnering with industry associations to come up with new
products such as the Kiddy Account Program], and 3) leveraging off technology to
aid in creating more financial access points and products [for example, mobile
and internet banking]. Such efforts are a calibrated intervention. We believe th
at financial markets should be made strong not because they are the exclusive do
main of those who can save. Rather, their strength must rest on their ability to
be responsive to the needs of stakeholders all stakeholders. In this connection
, I am happy to share with you that we now have fewer cities and municipalities
that are considered unbanked. At the end of 2012, about 37 percent of cities/mun
icipalities had no banking presence (either in the form of banks or MBOs). Howev
er, if we consider the increased presence of other financial service providers l
ike ATMs, e-money agents, pawnshops, savings and loan associations, remittance a
gents and money changers, the percentage of cities/municipalities that remains u
nserved is lower at 12.6 percent. In what could very well be one of the most sig
nificant gains we have achieved as a community that remains not well reported, w
e have seen a sizeable increase in the number of deposit account holders. As of
June 2014, we had 46.9 million deposit accounts versus the 39.7 million deposit
accounts as of two years before. What is most notable of this increase of 7.2 mi
llion accounts is the fact that nearly 6.6 million of these accounts are those w
ith balances of less than Php100,000. These are developments that do not normall
y catch the headlines or even the business pages. But they are tangible gains no
netheless which we need to sustain and further enhance. Deepening Roots of Finan
cial Education: As the second level/step of this ladder, we want to encourage sa
vers to migrate and become investors. As the BSP has consistently advocated, sav
ing is much more than just income versus expenses. It is a discipline and a proc
ess. And central to that process is financial education so that individuals can
safe-keep their principal while building up the capacity to set aside a portion
for risk-taking and financial gains. It is this underlying shift in risk awarene
ss that allows savers to make well-informed decisions and become retail investor
s. Along these lines, the BSP pursues financial literacy as an advocacy with fer
vent passion through various undertakings. Under our Economic and Financial Lite
racy Program (EFLP), we conduct briefings, seminars and expos across the country
. We have offerings for the economic and financial consumer, shedding more light
on economic statistics as well as sharing learnings on personal finance, includ
ing retirement. We discuss the basics of saving and money management, and make p
articipants understand that financial products carry different risks, and help t
hem appreciate their own risk appetites. We have been conducting different compo
nents of our EFLP since 2000 across the country and in areas around the globe wh
ere there is a concentration of OFWs. So far, the BSP has conducted various outr
each learning activities in 54 percent of our 81 provinces nationwide, from as f
ar as Laoag City in the north to General Santos City in the south. We have also
brought our information campaigns to Hong Kong, Singapore, South Korea, Bahrain,
Brunei Darussalam, Qatar, Saudi Arabia, Italy and the United Kingdom. We target
our initiatives to varied audiences and for differentiated needs students, prof
essionals, families of our OFWs. We also partnered with the DepEd to develop tea
ching guides on saving and money management and incorporated these into the curr
iculum of public elementary schools. Interestingly, we have the Money Matters fo
r Kids (MMK), which is for our young schoolers just as we have launched our Aler
toAko exhibit to heighten awareness against financial scams and fraud. In other
words, ladies and gentlemen, our financial education programs run the scale of a
persons economic life cycle. While it remains a challenge (in economic literatur
e) to attribute improvements in economic and financial well-being to any financi
al literacy campaign, it stands to reason that financially well-informed individ
uals should make better decisions for their families, increasing their economic
security. Secure families, in turn, are better able to contribute to their commu
nities, further fostering economic development. Indeed, a financially educated c
itizenry is better able to navigate an economic crisis, when it hits them. And t
his is the philosophy behind our own EFLP we believe that: A citizenry that is wel
l informed in economics and finance is a more effective partner of the BSP in ma
intaining the effectiveness of monetary policy as well as in ensuring a stronger
and safer banking and payments system. At the same time, a knowledgeable citize
nry is able to contribute more meaningfully to economic development and benefit
better from the opportunities that development brings. Extending the Scope of Fin
ancial Consumer Protection: At each of the steps, the BSP recognizes that risks
and opportunities can transfer between the consumers of and the providers of fin
ancial services between the borrower or investor and the financial intermediary.
Therefore part of our framework is to ensure that financial consumers are amply
protected. To walk this talk, the Monetary Board approved earlier the adoption
of the Financial Consumer Protection (FCP) Framework to institutionalize consume
r protection as an integral component of banking supervision in the country. The
new framework has been crafted based on the fundamental tenets of consumer empo
werment, market conduct and collective responsibility. The Framework reflects th
e BSPs own commitment to ensure that BSP-supervised financial institutions develo
p a culture of fair and responsible dealings while continually protecting the we
lfare of financial consumers. Our FCP framework embodies five consumer protectio
n standards of which (1) Fair Treatment and (2) Disclosure and Transparency are
consistent with the core values of SharePHIL. We hold our covered institutions t
o a standard of market conduct which similarly aligns to your vision of accounta
bility. And certainly not the least, financial education is another of the five
standards which aligns with the investor education initiative of the current lea
dership of SharePHIL. Translating Financial Inclusion to Economic Growth: I hope
I have been able to illustrate to you that the BSP framework on financial inclu
sion is a holistic process that goes beyond providing information. But we do not
kid ourselves. We realize that it is, as the OECD principles of financial liter
acy say, a lifelong, on-going, and continuous process that needs to take account
of the increased complexity of markets, varying needs at different life stages,
and increasingly complex information. One should not be surprised then that the c
hanges may seem incremental in nature. This does not suggest that the process is n
ot taking hold. Instead, it does show that the change is taking shape and that t
hese small changes may have much larger effects than we can immediately see. Mor
e broadly, we would like to see this financial ladder get wider as more of our c
itizenry are able to hop on and reach greater heights as the resulting economic
pie increases and more are able to share in the pie. We hope to see economic gro
wth that empowers more of the citizens to be in charge of their financial future
. This is our goal. More narrowly, what we hope to see is the maturation of the
consumer into a saver and then to an investor. As these investors gain financial
awareness and risk sophistication, we may actually find some of them to be the
shareholders that we all focus on here today. Zeroing in on SharePHILs advocacy F
or this afternoon, I think it is clear that one cannot think of promoting the sh
areholders rights and empowerment without due consideration for the advocacies of
financial inclusion and financial literacy. For clearly, the motivation behind
these two advocacies is to level opportunities and attract even more investors i
nto our financial markets. Going Beyond Lip Service: The Shareholders Handbook Yo
ur core values neatly coined as Faith to the Investor speaks of fairness, accounta
bility, independence, transparency and honor. These are essential, indispensable
values. Who can detract from the need for transparency or the basic value of fa
irness? But while all of these are good and true, we also cannot be caught payin
g homage to its lip service. These are not mere governance concepts. Instead, th
ey are actionable items with tangible desired deliverables. This is why SharePHI
L deserves commendation for the launching of the Shareholders Handbook. It repre
sents to me a concrete manifestation of transforming concepts into sharable idea
s for the benefit of the public. As the handbook categorically states, it is for
the prospective shareholder, the small and minority shareholder as well as the
investor community, among others. It is noteworthy that the handbook talks of fi

nancial reports and ratios in both chapters 5 and 6. This is useful as one prepa
res for the stockholders meeting, for example. Chapter 8 of the handbook goes th
rough great lengths to discuss details, even pointing to some questions that sha
reholders may which to ask. The items raised in chapter 4 on choosing a stockbro
ker and the due diligence issues in chapter 3 will certainly be of value. All of
the above materials are not exactly basic fare for someone just starting out fr
om being a saver to a would-be investor. This is why the information in chapters
1 (Invest Intelligently) and 2 (Know Your Duties, Responsibilities, and Rights
as a Shareholder) matter because they provide for the transition that one needs
to take for the succeeding chapters. Capital Market Development: The Overarching
Objective Ladies and gentlemen, while we have already covered much ground, ther
e is still much more that needs to be done. In the end though, all our actions t
owards protecting minority shareholders nurture a culture of cooperation and sym
biotic partnership among stakeholders. In turn, all that will eventually converg
e to the development of our capital market. This is explicit in SharePHILs vision
and it remains one of the countrys overarching priorities. But, if we look inwar
ds objectively, it will become clear that there remain key challenges ahead of u
s as we reach for the goal of a more developed capital market. Capital market ac
tions require big changes whose ramifications are even bigger and more widespread. T
he big change here is that we are looking out for those who participate in this ma
rket but who will otherwise not have the collective position to instigate needed
corporate reforms. This is about molding the corporate culture so that it is no
t about the majority versus the minority, but one of collective action on what n
eeds to be done. FAITH to the Investor. This is your core value. This is what make
s SharePHIL a market mover -- one who is willing to work with others while at th
e same time be passionate in pursuing and enacting change when and where needed.
Thank you very much and good afternoon.
From Saving to Investments and to Retirement: The Role of Inclusive Growth

Presented Date: Oct 20, 2014
Venue: Intercontinental Hotel in Makati City
Occasion: Philippine Pension and Investment Summit
I am pleased to join you today for the Philippine Pension and Investment Summit. T
his Summit is yet another venue to discuss, strengthen and see how best to emplo
y the synergies that link banking, trust and pension fund professionals. At the
outset, let me say that at the level of the macro-economy, we urge our consumers
to develop the discipline of saving. To move further forward, however, we would
want these savers to eventually migrate into retail investors. This transforms
the paradigm from protecting principal only (saving) to building capital (invest
ing). While it is understood that investments carry financial risks, it is also
well appreciated that preparing for the uncertainties of the future cannot be fu
lly addressed by protecting principal alone. It is likewise accepted that prepar
ing for the future cannot be properly done without an organized approach. Such a
n approach requires setting viable financial targets for each saver-cum-retail-i
nvestor in a way that responds to their own unique situation. That in turn means
managing financial risks within the realm of what can be tolerated by each of t
hose financial consumers. This is why banking, trust, and pensions are inherentl
y interconnected and symbiotic. But this does not mean that they are interchange
able. Instead, each has a distinct role to play, offering savers a value chain t
hat they may want to consider. The same symbiotic relationship must also exist b
etween individuals, the financial market and the real economy. The expansion of
the macro-economy must ultimately translate to welfare gains for individual cons
umers, broadening the economic base which financial markets can service both as
depositors and as borrowers. This measure of inclusiveness in the form of the ge
neral publics access to financial products and services as well as the ability of
growth to reflect and reward collective effort is the hallmark of stability. Th
is is what we aspire to achieve as a nation, the same norms which the BSP has co
nsistently been advocating and working on for some time now. UNDERPINNINGS OF QU
ALITY GROWTH An interesting question does arise: Can we not allow growth to simp
ly define the prospects and fortunes of each individual? The answer to this quer
y is a definitive NO and it goes back to the socio-economic profile of our economy
. Official data1 show that 69.3% of saving can be attributed to 20% of families
while the bottom 50% of Filipino families can only generate 6.2% of total saving
. We also know that 37% of our 1,634 cities and municipalities do not have even
one banking office. These data suggest that there is much that needs to be done.
It is not just growth but the quality and inclusiveness of such growth that wil
l allow our financial consumers to better prepare for their future. Perhaps, bef
ore I go any further, it is useful to take a quick look at the broad indicators
of economic and financial well-being. Certainly, the economy continues to grow.
To-date, we have had 62 consecutive quarters2 of positive economic growth which
has been achieved while keeping prices stable. Inflation has been within the gov
ernments target range for the last five consecutive years. We expect this year to
be the sixth year of withintarget inflation. These alone suggest that opportunit
ies are being created through the real economy and these gains are not being dis
sipated by inflation. Moreover, we have sizeable buffers for external shocks. As
of end-September this year, the countrys gross international reserves stood at U
S$80.43 billion, enough for 11 months worth of imports of goods and payments of s
ervices and income. While economic endowments often dictate our external trade d
ynamics, our current level of reserves do tell us that the flow of goods and ser
vices will not be immediately at risk if unforeseen external shocks arise. The f
inancing of this growth and expansion likewise show strength. As of June this ye
ar, the total loan portfolio of banks reached Php5.21 trillion, continuing its d
ouble-digit growth trajectory over the past five years. BANKING DATA CONFIRM INC
LUSIVENESS All of these data confirm that we have been experiencing not just gro
wth but rather increasingly participative growth. Let me take a look at developm
ents in the banking sector. True enough, the numbers speak for themselves. Bank
deposits, for instance, sustained their growth both in value and number of accou
nts. As of June this year, the industry posted outstanding deposits of Php 7.9 t
rillion after growing annually by about 13 percent for five years. Supporting th
e view of inclusiveness, data from the BSP indicate that there are about 47 mill
ion deposit accounts held by 38.4 million accountholders in June 2014. This is a
considerable increase from the 40.1 million accounts in the name of 31.1 millio
n depositors that was recorded as late as March 2012. The number of unbanked mun
icipalities has also dropped, mainly due to a rise in alternative channels that
target low-income clients. We have seen a rise in the use of electronic money; a
n increase in the number and reach of automated teller machines; as well as the
expansion of the microfinance portfolio of the banking industry. This last point
is critical because we are aware that microfinance responds to its stakeholders
by calibrating related products and services to meet the idiosyncratic needs of
its constituents. EXCITING TIMES SYNERGIES These banking indicators point to a
rise in retail savers the very segment who we believe can migrate into investors
as they prepare for their future through trust and pension products. These are
clearly very encouraging developments. They reflect growth and portend of opport
unities while institutionalizing the synergies among financial institutions and
professionals in banking, trust and pensions. It is not enough to preserve these
gains. Rather, we need to build upon them so that we continue to dynamically pr
epare for the uncertainties facing differentiated individuals. Fortunately, we s
ee some points of convergence that we can focus on: First, the countrys widening
banking network can provide more access points for the convenient collection of
premiums and the distribution of pension benefits. Second, BSP-supervised trust

entities can broaden their participation in the pension system by managing the e
mployee benefit funds of private firms as well as the trust funds of pre-need co
mpanies. As of end-June this year, only 13.7% of assets under management of BSPsupervised trust entities are those of employee benefit programs as well as indi
vidual retirement and pension funds. This is an area where improvements can be m
ade, especially when you consider the very nature of the trust business. Third,
under the IRR of the Personal Equity and Retirement Act, trust entities are allo
wed to serve either as product provider, administrator, investment manager or se
curities custodian of retirement funds that are over and above those that the GS
IS and the SSS provide. Fourth, the amended Insurance Code now allows insurance
companies to engage in limited trust business by becoming a trustee for employee
benefit and pre-need plans such as pension. Fifth, there are individual initiat
ives which clearly manifest an interest to help out a broader spectrum of financ
ial consumers. The SSS, for example, launched in 2012 its Al-kanSSSya program for
the self-employed and informal sector workers. The program reaches out to such p
eople as farmers, fisher folks, market vendors and tricycle drivers who are prec
isely the target of the BSPs microfinance initiatives. There is another innovativ
e scheme in micro-pension, which will be discussed later in the forum today. Let
me not pre-empt the discussions on this point but suffice it to say that the BS
P would like to see those outside of the formal market to likewise benefit from
a pension system specifically designed for their needs. CONSUMER PROTECTION All
of these five points of convergence are indeed actionable today. But I trust tha
t we also do not overlook that facet which is underpinning all of them. Heighten
ing financial inclusion necessarily requires high standards of financial consume
r protection. Connecting saving with retail investments and trust products as a
way to organize ones preparation for retirement certainly leaves uncertainty on t
he table. There is uncertainty across products, across risks and across time. Si
nce financial institutions are expected to have more and better information than
savers-cum-retail-investors, FIs must be given a specific responsibility toward
s consumer protection. The BSPs consumer protection framework supports this polic
y objective. The framework requires BSP-supervised institutions to adhere to ide
ntified global best practices such as disclosure and transparency, treatment of
clients, protection of client information and dispute settlement. Our end in vie
w with the framework is to set a standard for market conduct, empower the financ
ial consumer through financial awareness while providing for the means of protec
tion and redress. This approach should ensure for better balance, the type of ba
lance between stakeholders and between competing interests that allow markets to
thrive and be self-sustaining. PENSION SUSTAINABILITY The issues before us are
certainly critical because much is at stake. But before we proceed with todays di
scussions, it may be useful to consider where we are in the area of pensions. A
recent study by the Asian Development Bank3 notes that expanding the economy is in
tegral to the sustainability of the Philippine pension system. This is a validat
ion of the virtuous cycle where a growing economy is expected to generate employ
ment, foster higher collection of premiums and enhance the growth potential of t
he domestic pension system. At the same time, economic growth reflects the input
s of stakeholders both labor and capital that allow such growth to materialize.
But growth alone as I have been suggesting cannot be the only factor. If you rev
iew the recent rankings of the Melbourne Mercer Global Pension Index, Singapore
is the only Asian economy that ranks within the top 10 (ie, ranked 10th in 2014)
. China, Indonesia, Japan, South Korea and India have the same qualitative resul
t and are ranked 21st to 25th. Singapores score which is better than that of the
US, Germany and France falls under the category that describes a sound structure
with many good features but has many areas for improvement. On the other hand, th
e five other Asian jurisdictions I cited are categorized as having some desirable
features but also has major weaknesses. What this tells me is that we have a lot
of things that we can work on. But we also have our peers as guide and referenc
e. We can learn from them and I am sure that we can make such a journey forward.
FINAL THOUGHTS Ladies and gentlemen, I have repeatedly said this morning that t
here are synergies between banks, trust entities and pension funds. There is lik
ewise that symbiotic relationship between different facets of the financial mark
et and the real economy. These different means of interconnectedness will ultima
tely converge upon our financial consumers. A more inclusive financial market al
lows each individual to become a saver and a responsive financial market nurture
s individual savers to become retail investors. As the economy grows, it is the
inclusiveness of such growth that provides opportunities that loop back to our c
onsumers, first as economic agents and then ultimately as financial consumers. I
t is only with these interconnected parts that a saver can properly prepare for
the uncertainties of the future. And while we have shown that we can grow despit
e global shocks and with a growth path that portends of quality and inclusivenes
s, we also know that there is much more that needs to be done. Perhaps it is a d
ream. That dream is for the Philippine pension system to rank high up in the Mer
cer Index while sustaining the current momentum on financial inclusion and achie
ving a more inclusive economic growth. It may sound like a dream but much like t
he Philippines achieving sovereign investment rating, dreams are meant to be pur
sued, collectively and in an organized manner. I trust that all of us can dream
the same dream. And I trust that the pursuit of such dream starts today. Thank y
ou very much and have a good day. ----------------------- 1 2012 Family Income a
nd Expenditure Survey. 2 Derived from 62 quarters of consecutive growth ending Q
2 of 2014, Banking on Safety Nets, Govs Speech during the SSS Balikat ng Bayan Awar
ding Ceremonies and PESO Fund, 25 Sept. 2014. 3 Pension Systems in East and Sout
heast Asia: Promoting Fairness and Sustainability, edited by Donghyun Park, publ
ished 2012
Nurturing Excellence in Finance Education

Occasion: 16th Inter-Collegiate Finance Competition of the Financial Executives
Institute of the Philippines
Good afternoon everyone and congratulations to all the students and mentors who
are part of the FINEX-JP Morgan Chase 16th Inter-Collegiate Finance Competition
or ICFC. I learned that 100 teams from finance schools across the country compet
ed to join the 20 finalists this year. This year therefore had the highest schoo
l participation in ICFCs 16-year history. That you made it here today tells us th
at the hours, weeks and months you have dedicated in preparation for this event
have been time well spent. You stepped up the plate and accepted the challenge o
f being part of a team under the guidance of your mentor to represent your schoo
l and your locality. Your school, your parents and your friends must be proud of
you. Well done! I am also happy to note there is fair geographical representati
on at ICFC: Mindanao has four teams in the finals; Visayas has three; NCR has fi
ve; and the rest of Luzon has eight. Indeed, we can say circles of excellence fo
r finance education can be found across our country. I am also glad that ICFC ma
intains its cross-border linkages the University of Guam is part of todays compet
ition. This is one way of preparing our students to develop a global perspective
. Indeed, with ASEAN economic integration just around the corner, it is a must t
o develop not only a national but also a regional and global mindset. With econo
mic integration, market opportunities expand beyond Philippine borders and our 1
00 million population to the 10-nation ASEAN with a combined population of over
600 million. The ability to transform these opportunities into reality will go t
o those who are best prepared to meet competitive challenges. In this context, o
ur finalists are already on the right track. I am positive you will succeed as p
rofessionals if you will continue to nurture the discipline, the drive to excel,
the strong team spirit, the mental toughness, and grace under pressure that hav
e brought you here. Indeed, many of the worlds greatest achievers could not have
reached their level of success without learning how to stay calm under pressure
and to sustain a particular psychological readiness and mental preparedness when
the need arises. Equally important, it is necessary that you become exemplars o
f integrity and fairness. As a wise man once said, it is the convergence of know
ledge and proper values that improve the lives of many. Ladies and gentlemen, al
l of us know the importance of keeping the financial system in the pink of healt
h since it affects the economy and the lives of the people as well. To give you
an idea of the magnitudes involved, data as of June 2014 reveal that consolidate
d deposits in the banking system reached a record high of P7.9 trillion, as conf
idence in our banks remain strong. It is essential therefore to ensure that the
people responsible for running the finances, whether of a single institution or
the financial system as whole, meet the high standards of their job. In the Phil
ippines, development policies and programs have led to over 15 years of uninterr
upted economic growth; this has improved the lives of many Filipinos. However, w
e have to exert more effort as today, one out of four or over 20 million Filipino
s still live in poverty. This is the reason why the Bangko Sentral ng Pilipinas
is implementing a nationwide economic and financial learning program that provid
es lessons on saving, investing, and money management for students, for overseas
Filipinos and their dependents, for entrepreneurial individuals who venture int
o microfinance, and for our small- and medium-scale entrepreneurs who are lookin
g for credit to finance their business. We aim to provide an equal chance for ou
r people to gain access to the empowering effects of financial education. When e
mpowered, a knowledgeable citizenry effectively contributes to the productive ac
tivities that drive economic growth and development. Our strategy is to develop
an inclusive financial system that promotes inclusive growth. In this connection
, the continuing program of FINEX to raise the quality of finance education acro
ss the country through its mentoring program and through ICFC are steps in this
direction. This is capacity building in different areas in our country for peopl
e who will man our financial system in the future. Indeed, we need highly capabl
e financial people all over the country to manage banks and financial institutio
ns that keep our economy growing. This is the reason why the BSP- FINEX partners
hip endures. In fact, this is the seventh year that ICFC is being held here at t
he Bangko Sentral ng Pilipinas. I also acknowledge all the schools, teachers, st
udents and parents who give importance to the ICFC through their active and dedi
cated participation. For instance, I learned that not even typhoon Mario stopped
the elimination rounds for the best finance teams. Equally important, we value
the agreement of the schools and FINEX to include ethical practices and social r
esponsibility in the education of our finance students. I highlight this point b
ecause the natural pursuit of fostering a healthy bottom line should always be w
ithin the parameters of ethical and social responsibility standards. At work, ma
rket practitioners, leaders of banks and financial institutions have the power a
nd the responsibility to strengthen the value of good governance among their emp
loyees by walking their talk. For institutions to be able to stay in their respe
ctive businesses for the long haul -- whether they are private or government, th
ree attributes are indispensable: excellence, integrity and good corporate gover
nance. Indeed, excellence, integrity and good values should constantly be a part
of our life wherever we are, whether we are at home, in school, or at work. Aga
in, to the finalists in this 16th ICFC, I salute you for being the best that you
can be. While prizes go to those who top this competition, in my book, you are
all winners. Serve our country and our people well by developing into world-clas
s leaders who are ethical and socially-responsible. I also thank the organizers
from FINEX, JPMorgan Chase and the other partners for making finance education a
nd this annual ICFC a truly exciting event for our schools and students across t
he country. This event reminds me of what the late American President John F. Ke
nnedy once said, and I quote: Let us think of education as the means of developin
g our greatest abilities, because in each of us there is a private hope and drea
m, which, fulfilled, can be translated into benefit for everyone and greater str
ength for our nation. Ladies and gentlemen, it is in this spirit that I ask that
we continue to work together to nurture excellence in finance education. Hanggan
g sa muli! Mabuhay ang ating mahal na bansang Pilipinas! Mabuhay po tayong lahat
!
Keeping the House in Order amid Mounting Uncertainties

Venue: Top of the Citi, Makati City
Occasion: Foreign Correspondents Association of the Philippines (FOCAP) Media Fo
rum
The last time I joined you in this Forum was at end November 2013. Since then, t
he Fed taper had become a reality -- this week, the Fed is expected to announce
the end of its asset purchase program. The market frenzy about the onset of the
taper was replaced by an eerie calm as soon as it actually commenced. In the six
months or so that followed the beginning of taper, the 10-year US Treasury as w
ell as the DXY traded in a relatively narrow band. The second half of the year,
however, was not as calm. The market moved from a belief that the Fed would rais
e its target rate sooner than earlier anticipated (because of strong US data rel
eases), to a belief that the Fed would still keep rates low for a considerable ti
me. In either case, the strong USD dollar story had begun to form a solid base -market caused the DXY to start to ratchet up and the 10-year Treasury yield to
begin falling precipitously1. This fundamental story was not, however, without c
hallenge. There were bumps along the way as the ECB brought short-dated interest
rates to negative territory, as tensions in Ukraine increased, and as multilate
ral bodies continued to predict weak global growth (the IMF described it as medio
cre.) Throughout this period, our own peso GS curve flattened while peso tracked
the DXY movements. Such irregular shifts in global market behavior confirm the n
eed for economies to insulate themselves from spillovers from these external vol
atilties. In the BSP, we have long subscribed to the idea that the best way to d
o this, is to make the difficult and tough choices that would keep our own house
in order. This reminds me of the classic childrens story about the Three Little
Pigs. The first two pigs took the easier way of building their houses, using str
aws and sticks, while the third little pig built his house using bricks. On the
day the Big Bad Wolf attacked, only the house of bricks stood unscathed. The mor
al of the story is simple: there is no substitute for conscientious preparation
and hard work to guard ourselves against the Big Bad Wolf. Analogous to the cons
truction of the brick house in the story, the Philippine economy was built throu
gh the pursuit of wide-ranging, and at times difficult, policy reforms over seve
ral years which allowed the economy to endure several Big Bad crises. Building t
he house of bricks 1. The output expansion we have realized for the past two dec
ades has been built on purposeful structural reforms supported by disciplined ma
croeconomic policymaking. This paved the way for the economy to increase investm
ents, pursue fiscal consolidation and reduce debt, improve labor dynamics, and e
nhance competitiveness, all of which contributed to the Philippines becoming one
of the fastest growing economies in emerging Asia. 2. Our efforts toward mainta
ining price and financial stability also bore fruits. Last year marked the fifth
straight year that the inflation target has been achieved. Inflation in the fir
st nine months of 2014 at 4.4 percent is also well within the governments full ye
ar target of 3-5 percent. On the other hand, amid bouts of financial market vola
tilities, ample liquidity in the system granted domestic borrowers with continue
d access to domestic financing to support economic activities. 3. The countrys cu
rrent account remains in surplus, supported by sustained increase in overseas Fi
lipinos (OFs) remittances, business process outsourcing (BPO) revenues, as well a
s tourism receipts. Our foreign exchange (FX) reserves are adequate to meet the
countrys FX liquidity requirements. 4. Sustained structural reforms have kept our
banking system in good shape, demonstrated by improved quality of banks assets a
nd loan portfolios, profitability metrics as well as adequacy of capital. The BS
P is also on track with the requirements under the ASEAN Financial Integration F
ramework (AFIF) with the recent approval of the amendments to the Foreign Bank E
ntry Liberalization Law. 5. Meanwhile, in support of the national governments (NG
) overarching goal of achieving inclusive growth, the BSP ardently pursues the i
mplementation of its financial inclusion program. We are further inspired with t
he increase in the number of participants in the BSPs programs on microfinance, c
redit surety fund, and economic and financial learning. The potential Big Bad Wo
lves The Philippine economy also faces potential threats, the so called Big Bad
Wolves. We remain mindful of the risks that could threaten the strength of the e
conomy. o Risks to price stability. On top of our watchlist is any possible disl
odgement of inflation expectations should strong second round effects (transport
fare adjustments and power rate hikes) appear because of possible price pressur
es emanating from any short-term volatility in international oil prices on the b
ack of geopolitical tensions. o Risks to financial stability. We are mindful of
market behavior in reaction to the monetary policy divergence across major advan
ced economies timing of US Fed tightening and prospects of further easing by the
ECB and BOJ. We are watchful of possible increased financial market volatility
as market agents price/or mis-price risk based on their interpretation of the ac
tions of authorities. There could be shifts from market complacency to panic. We
are also closely monitoring household debt levels and corporate leverage and co
mparing these against bank lending standards. o Risks to growth outlook. We moni
tor growth developments in our trading partners US, Japan, China. In our domesti
c radar screen, we are monitoring possible spikes in commodity prices, delays in
infrastructure and reconstruction projects, natural disasters as well as logist
ics bottlenecks. Keeping the house of bricks in order We cannot accurately predi
ct when these Bad Wolves will attack but we can build buffers. Let me focus on th
ree strategies to keep our house in order: investing for the future, enhancing o
ur policy tools, and putting the synergy principle in action. Investing for the
future 1. The National Government is committed to investment-led growth. The NG
will ramp up infrastructure spending, from 2.7 percent of GDP in 2013 to 5.0 per
cent of GDP by 2016. Higher allotment for infrastructure is doable now because w
e have sufficient fiscal space to do so. 2. The BSP, for its part, remains stead
fast in maintaining price and financial stability to provide a macroeconomic env
ironment supportive of investments. We will also continue to strengthen our regu
latory framework for financial inclusion.2 Enhancing our policy tools 1. The BSP
will continue to proactively use its enhanced tool set. We are well aware that
the deployment of these tools is just as (if not even more important) than the t
ools themselves. You can therefore expect the BSP to balance timing and calibrat
ion of the use of its policy levers. This approach should have been evident in t
he recent series of adjustments in our monetary tools, which were calibrated and
timed so as to 1) rein in domestic liquidity growth, 2) pre-emptively arrest po
ssible second-round effects of supply shocks and 3) anchor inflation expectation
s.3 So far, the numbers reflect that these moves have achieved what they were se
t out to do. With the latest Fed communications pointing to a more dovish approa
ch to its tightening plan, the BSP may be able to bide some time to allow these
policy adjustments to pass through to the economy. 2. The BSP also issued severa
l regulatory reforms to further strengthen risk management practices in the bank
ing system and enhance capital buffers against possible unforeseen shocks. These
measures include: (a) implementation of real estate stress test (REST); (b) app
roval of enhanced regulation on credit risk management of banks and quasi-banks;
(c) approval of guidelines for determining so-called D-SIBs or banks which are de
emed systemically important within the domestic banking industry; and (d) increa
se in the minimum capital requirement for all bank categories, on top of the cap
ital requirement under Basel 3. Putting the principle of synergy into action 1.
The BSP recognizes the importance of the synergy principle in dealing with risks
to price and financial stability. Thus, we coordinate with other agencies such
as the National Food Authority and Department of Agriculture on issues related t
o prices of rice and other crops; Energy Regulatory Commission on power rates; a
nd Land Transportation and Regulatory Board on public utility vehicle fares. 2.
The BSP is also an active member of external committees that broadly endeavor to
strengthen and protect the countrys financial sector. These include the Financia
l Sector Forum (FSF) and the Financial Stability Coordination Council (FSCC)4. T
he main goal of the FSF is to harmonize financial regulations and address any fi
nancial regulatory gaps, while the FSCC aims to identify, manage and mitigate th
e build-up of systemic risks. These are consistent with the overall prudential o
bjective of financial stability. Let me conclude by saying that with continuous
pursuit of meaningful policy actions and reforms, I am confident that the Philip
pine economy can withstand the Big Bad Wolves along the way and remain sturdy as
the house of bricks in the story. -------------------- 1 The 10-year US Treasur
y traded at 2.137 pct. on 15 October 2014. 2 We are pleased to note that as of e
nd-2013, we have recorded 1.5 million micro-deposit accounts and a total of P8.7
billion microfinance loans availed. We have also recorded about 837 thousand MS
MES with outstanding loans from banks amounting to P385 billion. 3 These include
: (a) increasing key policy interest rates by a total of 50 bps to 4.0 percent f
or the overnight borrowing or reverse repurchase (RRP) facility and to 6.0 perce
nt for the overnight lending or repurchase (RP) facility (25 bps each on 31 July
2014 and 11 September 2014); (b) increasing the rate on the Special Deposit Acc
ount (SDA) facility by a total of 50 bps to 2.5 percent across all tenors (25 bp
s each on 19 June 2014 and 11 September 2014); and (c) raised banks reserve requi
rement rate by one percentage point to 19 percent effective 4 April 2014 and fur
ther to 20 percent effective 30 May 2014. 4 The FSF is composed of the BSP, the
Securities and Exchange Commission (SEC), the Insurance Commission (IC) and the
Philippine Deposit Insurance Corporation (PDIC). The FSCC is composed of the BSP
, Department of Finance (DOF), IC, PDIC, and SEC. The BSP chairs both the FSF an
d the FSCC.
Infrastructure, Inclusiveness, Institutions - Raising the Philippines to the Nex

t Level
Presented Date: Sep 30, 2014
Venue: Philippine International Convention Center (PICC)
Occasion: Philippine Economic Briefing
Honorable members of the Economic Team, Cabinet members, members of the Diplomat
ic Corps, our partners from the private sector and multilateral institutions, co
lleagues from government, friends from media and civil society, ladies and gentl
emen, good morning and welcome to the 2014 Mid-year Philippine Economic Briefing
. The theme for todays economic briefing is Shaping our Future. We have chosen this
theme to help bring to mind that we can proactively define our direction and go
al as a country. It is also a call for us not to merely look back to the past or
to leave the future to chance. Our Investor Relations Office has designed todays
briefing so we would all come to appreciate a future that we can all aspire for
that is, a more open, robust, dynamic and inclusive economy. Solid macroeconomi
c environment Let me first note that aggregate demand conditions continue to be
solid. In the first half of this year, the Philippines grew at 6 percent. This g
rowth has been fueled by a broader set of growth drivers and continues the strea
k of consecutive quarters of positive growth since 1998. Inflation (actual and f
orecast) remains within target. Although inflation has been elevated and risks t
o future inflation have remained tilted to the upside, the outlook continues to
be manageable. Meanwhile, we have seen strong structural flows, including remitt
ances and receipts from BPO and tourism. These have allowed us to build up ample
international reserves and support our external sector dynamics. Our banking sy
stem remains a vital lynchpin for growth. It continues to be characterized by so
und metrics such as growing deposits and assets, strong capitalization, ample li
quidity, favorable funding profile and solid lending growth. Risks that can chal
lenge the ongoing narrative Even as our fundamentals show strength and we have b
uilt buffers against external shocks, we remain cognizant that there are risks t
hat could challenge this positive narrative. For instance, there is the uncertai
nty over the timing and magnitude of the US Fed policy shift into more normal mo
de. This headwind could take many forms, among others: financial stability press
ures from repricing of credit; sharp downward adjustments in prices of real and
financial assets; and, capital flow volatility that could reemerge as global inv
estors react to news. If these risks are not managed well and result in unwarran
ted tight financial conditions, fragilities in EME financial markets could be ex
posed. In turn, these could negatively feedback to the real economies of EMEs. O
n the part of the BSP, although our series of monetary tightening actions in the
past few months have been principally aimed at managing inflation expectations,
these have also been put in place to help guide the domestic financial market t
o a smooth transition as monetary policy begins to normalize in the US. In the c
ase of the domestic economy, the key challenges over the medium term are likely
to relate mainly to addressing potential supply-side bottlenecks, bridging ident
ified gaps in existing infrastructure, minimizing the impact of natural calamiti
es, and promoting greater economic inclusion by, among other things, generating
more employment. What can bring PHL to the next level? Our economys resilience ha
s been supported by sound macroeconomic policy. Even so, the reform agenda remai
ns very much a work-in-progress. The challenge now lies in sustaining our good p
erformance and consolidating our gains, even through difficult times. As I indic
ated at the top of my remarks, our main priority is to achieve sustained, strong
er, durable, and more inclusive growth. This priority could be promoted by three
IsInfrastructure, Inclusiveness and Institutions. These three will be tackled in
greater depth during the panel sessions throughout this morning. But allow me no
w to just quickly run through each one. The need for the first Iinfrastructureis str
aightforward. The Philippines has serious need for more infrastructures. First,
to deliver important services and facilities to the people. These include well-o
rdered affordable mobility within the urban areas, efficient transport/delivery
of goods and services between our islands, and the provision of low-cost and rel
iable (electric) power to the whole archipelago. Second, to enhance the attracti
veness of the country as an investment destination by improving the local busine
ss climate and reducing the cost of doing business in the country. The Philippin
es boasts of a highly skilled workforce. To be able to deploy more of this workf
orce into well-paying value-added jobs, we need to bring in more foreign direct
investments that will build industry. With the performance of the fiscal authori
ties, the National Government has been able to broaden its fiscal space. This gi
ves it room to elevate public spending on infrastructure and foster public and p
rivate partnership. It is also imperative that we focus our efforts on Inclusive
ness, the second I. We must create an environment that not only enables more of
our countrymen to enjoy prosperity as the economy grows but also one where they c
an actively participate in making the economy grow. Indeed, durable economic gro
wth is one that is inclusive. It must cast a wider employment net in a broader s
et of industries, while remaining entrepreneur-friendly. On the BSPs part, we con
tinue to strengthen our initiatives to promote greater financial inclusion throu
gh regulations that broaden access to financial services and programs that deepe
n financial learning. Finally, we must foster responsible and responsive politic
al and economic institutions, the third I -- Institutions that are anchored on eth
ical and transparent governance systems. Institutions that would engender a soun
d and upright policy framework that would enforce the nations laws and regulations
faithfully and consistently that would ensure the smoother functioning of the e
conomy. The ongoing efforts to establish such institutions should help promote a
stable and dependable business environment where entrepreneurial activityparticu
larly of the SME varietycan flourish. On the part of the BSP, we continue to supp
ort the countrys macroeconomic fundamentals by firmly adhering to our mandate of
safeguarding price stability and ensuring that the financial system remains resi
lient. The BSP will continue to draw upon its policy toolkit to ensure that liqu
idity remains adequate to fuel the economys requirements in an environment of low
and stable prices. We will also continue to maintain a flexible exchange rate p
olicy that allows the market to essentially determine the exchange rate, but wit
h scope for official action to ensure against any excessive volatility. The BSP
will likewise continue to pursue banking reforms, in line with the global financ
ial reform agenda, that would help further strengthen banks, individually, and t
he system as a whole. Let me conclude on this note The positive transformation o
f the economy that we now enjoy is the result of critical structural reforms, al
ong with careful macroeconomic management. While we have amply demonstrated that
we are capable of instituting critical reforms, we at the same time, continue t
o be mindful that the operating environment is evolving, and therefore we need t
o carefully move in step. And this is what we are doing. Reforms will continue t
o play a significant role in further propelling economic activity going forward.
As we are well aware, government cannot craft and implement reforms alone. We n
eed your partnership. We need your support. For it is only if we work together t
hat any structural reform agenda would be truly transformative towards durable a
nd inclusive economic growth. Thank you and a pleasant day to all.
Banking on Social Safety Nets

Venue: Ramon Magsaysay Hall, 2nd Floor SSS Main Building, East Avenue, Diliman,
Quezon City
Occasion: Balikat ng Bayan Awarding Ceremonies and the launching of the Personal
Equity and Savings Option Fund of the Social Security System
On behalf of the Bangko Sentral ng Pilipinas, I congratulate the SSS for making
its 57th anniversary truly meaningful for two things: first, by recognizing its
partners in the challenging task of bringing social security services to its mem
bers; and second, by introducing service enhancement to its members through the
SSS Personal Equity and Savings Option or what you call the PESO Fund. As an ins
titution that has accumulated 31 million members over 57 years, the SSS has its
hands full not only in preparing its members for retirement, but also in helping
members face intermittent financial challenges from maternity, sickness, disabi
lity and other contingencies. In this connection, the SSS PESO Fund provides a v
iable option for members with excess earnings to contribute more to this tax-fre
e fund to receive higher benefits in the future. With such a big customer base,
the SSS and its PESO Fund could be a game-changer in terms of promoting the habi
t of saving and investing regularly among Filipinos. The BSPs Consumer Expectatio
ns Survey released early this month indicated that 26.9% of our households have
savings. Of these households with savings, 67 percent have bank deposit accounts
; 10 percent put their money in cooperatives, paluwagan and other credit/loan as
sociations; while 23 percent kept their savings at home. It is also interesting
to note that 35 percent of households said they could set aside money for saving
s during the third quarter this year. Moreover, one-third of these households sa
id they could save 10 percent or more of their monthly gross family income. Acco
rding to the respondents, they save money for the following reasons: for emergen
cies; retirement; health & hospitalization; education; and business capital & in
vestment. In other words, there remains a lot of opportunities for scaling up sa
vings mobilization. What magnitudes are we looking at? Well, as of March 2014, t
he Philippine banking system had 37.8 million depositors who had saved 7.7 trill
ion pesos in 46 million deposit accounts. ON BANKING AND PENSION It may not be p
ronounced, but there is a significant convergence between banking and pension pl
anning. Several aspects stand out. First, both reinforce the value of saving on
a regular basis. After all, preparing for life after retirement is the prudent t
hing to do. The ideal situation is to have sufficient funding of our own after w
e retire. In the absence of private capacity, it is essential for countries to h
ave effective public pension services. This underscores the importance of a stro
ng SSS. Without a doubt, pensions are important. They epitomize the value of pre
paring for your future -- a validation of the significance of our lifelong caree
r. Second, each time SSS extends benefits to its members, they are reminded of t
he value of regularly setting aside part of their income for the rainy days. Thi
s is important for the banking industry as well. It is the accumulated savings o
f our people that allow our banks to lend for economic activities that create an
d keep jobs. Third, banks are essential channels for the collection of SSS premi
ums as well as for the distribution of the benefits to its members and their ben
eficiaries. This synergy between the SSS and our banking system is bound to cont
inue moving forward. Fourth, is the importance of the capital market to both the
banking sector and to the SSS. From the accumulated contributions of its member
s as well as earnings derived from its fund management, SSS has become a signifi
cant market player. I understand that as of July this year, 38 percent of the to
tal investments of SSS is in government securities, 26 percent in equities, and
5 percent in corporate notes and bonds1. This portfolio structure of the SSS is
important because you accumulate assets today but your liabilities are in the fu
ture. You need a market that bridges the idea of today with that of the future and t
hat is the capital market. In this connection, the BSPs initiatives to help devel
op and deepen the domestic capital market will present the banking sector and th
e SSS with more opportunities for investment diversification. Because of the fid
uciary role of the SSS, your ability to manage both sides of your balance sheet
is crucial. In particular, investing your reserves prudently, while being mindfu
l of the short and long-term financial requirements of your membership. The SSS
needs to be strong to service the social need for our pension system to take car
e of us when we are past our retirement age. In an economy where not everyone is
born with enough resources, we need a social safety net when we are no longer w
orking. Finally, the state of the economy, employment, and capital markets are v
ital factors for both the banking system and the SSS in charting their course. L
et me therefore spend the next few minutes to speak about our macroeconomic envi
ronment. The Philippines has been experiencing strong growth in a low inflation
environment. In particular, we have had 62 quarters of consecutive positive real
economic growth and five consecutive years of within target inflation. In the s
econd quarter this year, our GDP grew 6.4 percent, making the Philippines, toget
her with Malaysia, the second best performing economy in Asia, next only to Chin
a. At the same time, inflation was 4.9 percent in August, still within the 3-5 p
ercent target band for this year. Having said these, I will be the first to say
that risks to growth remain. External factors -- including the uneven growth in
major economies, uncertainties surrounding monetary policy in the advanced count
ries, and geopolitical concerns -- could impact the Philippine economy through t
rade and volatilities in domestic financial markets. Here at home, weather distu
rbances and recurring concerns about power rates and supply could also affect gr
owth. Still, I believe the Philippines will overcome these challenges and contin
ue its growth trajectory. Our economic fundamentals remain sound and solid. This
is because we have been instituting purposeful reforms; we have been keeping ou
r own house in order, so to speak. Sure, we are far from perfect, but our contin
uing reform agenda has served us in good stead in this highly interconnected glo
bal environment. Among others, we have a sound, stable, well-capitalized and liq
uid banking system that continues to attract record high deposits and provides c
redit to our productive sectors. We have a strong external position that provide
s sufficient buffers from possible external shocks. For instance, our gross inte
rnational reserves amount to $80 billion, enough to support 11 months of imports
and payments of services and income; in the past, three months was good enough.
Sustained strong remittances from overseas Filipinos, export earnings, BPOs and
tourism are behind this strong external position. In this period of external vo
latility, this is an anchor for stability. FINAL THOUGHTS Ladies and gentlemen,
if banking is about taking care of our financing needs, pension is about taking
care of us when we are no longer working. As has been said, Banking is saving pen
sion is the reward for saving. In this context, we look forward to a stronger and
self-sustaining SSS. For the SSS, sustained economic growth can only mean more
members and better yields on its funds. In the case of SSS and the BSP, we share
a common goal of financial education to empower and help improve the lives of F
ilipinos. The BSP has a national economic and financial learning program that re
aches out to all age groups starting from Grade I to college students to young p
rofessionals as well as overseas Filipinos and their families. The capability of
SSS to reach out to millions of its members gives it tremendous advantage in pr
omoting financial education. We are confident that SSS, under the leadership of
Chairman Santos and Pres. De Quiros will not pass on this chance to nurture fina
ncial literature and more financially-stable Filipinos. We can work on this toge
ther. The BSP and SSS. In the process, we will help maintain the stability of ou
r financial system and promote sustained economic growth that is truly inclusive
. Once again, congratulations to the women and men of the SSS on your 57th anniv
ersary. Mabuhay ang SSS! Mabuhay ang ating mahal na bansang Pilipinas! Maraming
salamat sa inyong lahat. -------------- 1Investments and Assets as of July 2014.
Fact and Figures. Social Security System.
Working on ASEAN Governance Standards

Venue: Executive Business Center, BSP Manila
Occasion: Financial Sector Forum on ASEAN Corporate Governance Scorecard
Good morning everyone and welcome to the Bangko Sentral ng Pilipinas. On behalf
of the other members of the FSF the heads of SEC, IC and PDIC I also welcome eve
ryone to this Forum on the ASEAN Corporate Governance Scorecard or what we call
ACGS. The Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, t
he Insurance Commission and the Philippine Deposit Insurance Corporation are ple
ased that representatives from various sectors have joined us this morning to kn
ow more about the ACGS. This tells us that you and the institutions you represen
t similarly value corporate governance. As you and I know, good corporate govern
ance is key to ensuring sustainable long-term growth. In this context, ACGS is i
mportant -- it deserves our time and full attention. A joint initiative of the A
SEAN Capital Markets Forum and the Asian Development Bank, the ACGS evaluates th
e top publicly listed companies in five categories, based on the following weigh
ts: 10% for rights of the shareholders; 10% for role of stakeholders; 15% for eq
uitable treatment of shareholders; 25% for disclosure and transparency; and 40%
for responsibilities of the Board. Benchmarked against international best practi
ce, the ACGS provides a standard rigorous methodology that can generate comparab
le information crucial to investors, fund managers, the private sector, the regu
lators and governments. At present, the ACGS counts six participating ASEAN coun
tries: Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines. Th
is program is being done in parallel with other efforts to promote ASEAN as a co
mpetitive growth region. While the ACGS country reports and assessments for 2013
-2014 said the performance of ASEAN publicly listed companies in applying recomm
ended corporate governance principles is commendable, continuing improvements ar
e called for. We agree. And all of us should strive to do so in our respective i
nstitutions, industries and sectors. Good governance has to be a culture not onl
y within institutions but across our country. At this point, I will share a numb
er of our initiatives at the Bangko Sentral. Over the years, we at the Bangko Se
ntral have been working on strengthening governance standards in banks. Among ot
hers, proposed directors of banks are subject to the confirmation requirements o
f the BSP. Our fit and proper standard covers not only competence, education and e
xperience but makes specific reference to integrity, probity, as well as physica
l and mental fitness. In addition, we have mandated the creation of Board-level
committees that will oversee Risk, Audit and Governance. We have also institutio
nalized a compliance system that should have the authority and independence to a
ddress the banks business risks. These are check-and-balance type structures whic
h are integral to a banks governance, alongside its own culture on the management
of articulated risks. Equally important, disclosure and transparency requiremen
ts continue to be enhanced. Among others, disclosure requirements cover potentia
l conflicts of interest, Basel 3-eligible capital instruments with loss-absorben
cy features and cross-selling. In other words, ensuring good governance is never
-ending; it is always a work in progress. Ladies and gentlemen. The strategic na
ture of corporate governance has tactical elements which are inherently actionab
le. This is what we aspire for: on one hand, we want to institutionalize the pub
lics awareness of the value of corporate governance; on the other, we want corpor
ate entities to practice what is globally preached and to build a Philippine bra
nd that can stand side by side with other corporates in the region. To do just t
hat, we need to monitor the execution of these standards at the institutional le
vel. This is where we are today. I trust therefore that this forum can contribut
e towards greater understanding of the ACGS. We in the FSF also would like to se
e our corporates banks and non-banks, listed and not listed to be able to apply
best practice standards and to hold themselves against the bar of providing a va
lue proposition to the general public. While the Philippines has made big stride
s to move our economy forward and achieve investment grade rating, certainly we
should strive for high standards of governance to ensure sustained and inclusive
growth for our people. Ladies and gentlemen, having a successful and productive
forum today on the ASEAN Corporate Governance Scorecard is one more step forwar
d in our continuing efforts to make the Philippines fulfil its full potential in
the midst of regional integration. Thank you all for joining our forum. Mabuhay
po tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat
sa inyong lahat!
Convergence in a Divergent World

Venue: Raffles Hotel, Makati
Occasion: ACI Phils-FMAP-IHAP-MART-TOAP Joint General Assembly
Introduction Last time I addressed your General Assembly, I did a little word ass
ociation game with you. I dont know how many of you recall that, but I did that la
st year to highlight the fact that often, the same words we hear have different
meanings to us. Often, this is so because of our individual positions in the marke
t. In other words, that adage where we stand depends on where we sit is very true
among you. Last time, I highlighted the BSPs desire to get everyone on the same p
age, wherein the same words would mean the same thing. Because clearly that idea
l situation of common understanding makes for more effective and efficient BSP p
olicy implementation. This year, I will not do that game anymore. Rather, let me
focus on just two words. Can anyone hazard a guess as to what these two words w
ould be? Any guesses? The first word The first word is DIVERGENCE. I chose this
word because of late, it has become quite an important word that describes some
of the remarkable features of the current global economic environment. First. Di
vergence in the growth paths among major economies. We have seen that in the US
there continues to be a sprinkling/sputtering of positive economic indicators, w
hile both the EU and Japan are still struggling for their economic growths to ga
in traction. Second. Divergence between the current growth path of emerging mark
et economies and the previous forecasts for the growth path of these economies.
EME growth has broadly slowed down from the earlier anticipated growth trajector
ies. Together, these two divergences have important implications for the speed and
manner of global growth rebalancing and policy normalization. Third. Divergence
in the monetary policy stances among the AEs. Major central banks policy rates h
ave remained at historic lows. But while the Fed has kept the phrase considerable
length of time in its statement, it raised its expectations on the future path o
f the target rate (i.e., those infamous dots). It also reiterated its exit plan
-- stating that depending on data developments, it could raise its target rates
sooner than earlier expected. My sense is that the markets have taken these stat
ements from the Fed to be of a relatively hawkish tone, and therefore USD suppor
tive. Particularly so when the market would contrast these statements against: 1
. the ECB action of offering liquidity directly to banks under its TLTRO (which,
subsequently received only a weak take-up by banks), and, 2. the BOJ preparing
for further QE. This apparent divergence in the monetary policy postures among A
Es is not necessarily a bad situation. It should give you in the market some com
fort that global liquidity will not be drying up anytime soon. In the BSP, we re
fer to these as countervailing forces. But it should also give us cause to pause as
this sentiment could very well lead to the perpetuation of low volatility in th
e financial markets. For while there is disparity in the expected directions of
policy among the AEs, this disparity is transpiring at very, very low levels of
interest rates. With the forward guidance provided by the Fed, EU as well as Jap
an, helping to reduce some of the uncertainty about interest rate changes, the l
ow volatility may actually lead to further investor complacency. This leads to a
Fourth Divergence. The possible divergence in the true state of the global econom
y and the financial system against that which the low volatility in financial ma
rkets is portraying. Those of you have been around the block a few times and (I se
e a number of you in the front row!) You have witnessed that serious episodes of
market stress are often preceded by unusually low volatility, which oftentimes s
ignal the gradual build-up in risk-taking. What then does this current global ba
ckdrop of divergence mean for us? For our domestic markets? Our Monetary Policy
Stance The Reasons Behind Our last policy action speaks to this issue. Keenly aw
are of how our domestic market, i.e., your industry associations, is extremely r
eactive to US rate movements, the BSP acted pre-emptively against the expected ris
e in US interest rates. Ladies and gentlemen, I have maintained for some time no
w that, early, measured action is superior to belated, large, discrete re-action
s. The latter could create more volatility in the markets in general, and on you
r own P/L in particular. Therefore, as we prepare for the eventual Fed lift-off, y
ou may wish to also consider making only gradual, non-chunky adjustments in your
own portfolios. Let me now spend just a few more minutes to speak about our cur
rent stance of monetary policy. The BSP has done a number of things over the pas
t few months. We have raised reserve requirements, hiked the SDA rate, the RRP r
ate and then, recently, both the SDA and the RRP rates together. These we did in
response to various factors to achieve the following results: 1. To rein in dom
estic liquidity growth. M3 growth is now down from above 30 percent to just abov
e 18 percent in July this year. We expect M3 growth to continue on its decelerat
ion path and reach more normal levels later this year.; 2. To help manage the fi
nancial stability risks of the over-all low interest rate environment. While we
have not seen broad-based asset mis-valuations, the BSP remains cognizant that k
eeping rates low for too long could result in mis-appreciation of risks in certa
in segments of the market, including the real estate sector and the stock market
as markets search for yield. So far, coupled with changes in reportorial requir
ements and macroprudential measures, the monetary policy actions appear to have
achieved some success in moderating the buildup of irrational exuberance in certai
n market segments.; 3. To help steer inflation expectations. Our most recent Bus
iness Expectations Survey showed that the number of those who expected inflation
to go up in the current and next quarters has increased. In addition, our surve
y of private sector economists shows inflation forecasts that are precariously c
lose to the upper end of our target range. This is particularly true of forecast
s for 2015, for which the NG target is lower at 2-4 percent. Further, our own fo
recasts are also now higher. We now see 2014 inflation to average 4.48 pct, up f
rom previous 4.33 pct, and 2015 inflation to average 3.79 pct, up from previous
3.72 pct. While most of the reasons cited for the heightened inflation expectati
ons are due to supply side pressures, elevated expectations need to be addressed
sooner rather than later. These could fuel second-round effects, which may be m
ore difficult to arrest once they have set in; and 4. To reduce the possible fin
ancial stability impact of extended periods of negative real interest rates. Rig
ht now because of excess liquidity in the system, the industry doesnt seem to min
d much that real interest rates are negative. But ladies and gentlemen, when the
tide turns, those projects that you may have approved based on a specific expecte
d value may not provide you the return you anticipated. With this in mind, our pol
icy actions have been aimed at helping you manage your own risk appetites. Given
all these fundamental reasons for the series of BSP actions so far, what can th
e market expect from the BSP going forward? As I have always said, the BSP will
remain watchful. We will keep our ears to the ground while we have our eyes on o
ur price and financial stability mandate. And we will remain flexible to use all
available tools in our now enhanced tool kit, including our strong external liq
uidity position. Validating Our Position of Strength Indeed, in addition to: 1)
a disciplined monetary policy framework, 2) a deep enhanced policy tool kit, 3)
a healthy level of gross international reserves, and 4) ample monetary policy sp
ace we have built other buffers that make us confident we would be able to withs
tand the impact of the divergences in the external environment that I had just out
lined. Of significance among these other buffers is our sound banking system. We
have had numerous occasions over the last few years to point to the strength of
our banking industry. Even before the sovereign attained investment grade, the
Philippine banking system had already been cited for its resilience in the midst
of global dislocations. Total assets held by universal and commercial banks inc
reased by a little over two trillion pesos from end-2012 to July 2014. This tran
slates into an annualized double-digit growth rate of 16.9% over this 19-month p
eriod. The same two trillion-peso increase can be seen in deposit liabilities, e
quivalent to an annualized growth of 23.1%. Asset-side accounts have also increa
sed, with Loans growing at an annual rate of 14.3% and another 10.6% for Financi
al Assets. What is most impressive is that universal and commercial banks have c
ontinuously strengthened their balance sheet for possible exigencies. The Capita
l Account of U/KBs has increased by around Php156 billion in the past 19 months,
driven by improvements in Retained Earnings (Php94 billion) and Paid-In Capital
(Php46 billion). To top it all, our U/KBs appear to be purposely leaning on the
side of caution. The account Cash and Due From Banks has significantly increased.
Since end 2012, U/KBs have recorded an increase of Php867 billion or a staggeri
ng annualized growth of 37%. Reforms: How Strength Can be Further Enhanced As th
ese numbers validate, there is definitely every reason to believe that we are in
a position of strength and finding ways to sustain it. This is a feather on our
cap. But we also must be circumspect enough to accept that strength is neither
absolute nor eternal. Financial markets continuously evolve and the same positio
n of strength can be a marked weakness at another time and under different marke
t circumstances. This is why the BSP has made it clear that we support the princ
iples underlying the espoused global reforms. We believe that there is reason to
the global reforms. But we are open to both the timing and execution of the ref
orm details. Bank capital the very core of banking supervision principles must a
lways have the capacity to absorb losses from risk taking behavior. These are no
longer from your plain-vanilla credit, market and operational risks. Instead, w
e need to be more cognizant of such issues as liquidity pressures, excessive lev
erage, interconnectedness, and the bar of governance applicable to each entity w
ith a public franchise to operate as a bank, including and especially for those
which are deemed systemic by virtue of their operations, market reach and the un
ique products and services that they provide. These are all enshrined in the Bas
el 3 reform agenda. And while we support the basic prudential intent of these re
forms, we have also been very deliberate in our roll out of the reform component
s. Within the ASEAN-5, we were the last to implement the capital reforms for Bas
el 3. To-date, we have issued exposure drafts for the treatment of counterparty
credit risk, domestically-operating systemically important banks, the data aspec
t of OTC derivatives and of leverage. And while the exposure draft for liquidity
risk has yet to be issued, this too has been simulated, much like our prior eff
orts on capital, D-SIBs and leverage. Apart from the global reforms, we have qui
te a bit in the pipeline for things that we consider home-grown issues. It is a
long wish list, and I shall not go through each of them here. I am fully aware t
hat your industry associations are in constant conversation with the BSP on thes
e topics through the BSPC. For all these to work, we need the plumbing. Just like
in a house, the financial markets need to have efficient plumbing. This is why t
he BSP is currently reviewing, not just Philpass, but the whole financial market
infrastructure as well. In market infrastructure, the BSP is a vested stakehold
er for whether it is wholesale or retail payments, securities transactions or th
e transfer of liquidity from one account to another, the backroom of our banks m
ust ultimately meet at PhilPass to effect final and irrevocable settlement. For
the BSP this goes well beyond the issue of efficiency. For us, it is about ensur
ing the flow of financial transactions through the appropriate management of liq
uidity across financial institutions and for the system as a whole. Do We Really
Need all These Now? Ladies and gentlemen, I just went through 5 compacted slide
s of reforms... There is much that is already on the table as far as change is c
oncerned. And the honest truth is that the market should expect more. We have be
en asked quite often: Do we really have to do all these now? In response, I ask
those who can remember what it was a decade and a half ago. I believe quite a fe
w of those on the presidential table were already here then! A few years removed
from the immediate impact of the Asian Financial Crisis, the Philippines was st
rong enough to be as devastated as some jurisdictions around us but not strong e
nough to be deemed resilient. Before then was the so-called Tequila crisis and t
he Philippines figured in several publications as among the most likely jurisdict
ion to fall next. During those years, changes were also introduced. Back then, th
e question was also raised: Do we have to do these reforms now? The point of the
matter is that reforms are inconvenient because they introduce change and chang
e needs to be managed. The strength that we see around us in the industry is the
by-product of calibrated change. And as the Central Monetary Authority, we have
every intention to continue enabling the operating environment within the conte
xt of a pro-active culture of risk management and financial governance. The poin
t, ladies and gentlemen, of all these is that the position of strength that we so
cherish today is the result of reforms. This is the reward for introducing the f
acets of change that we needed, even when it was unpopular to do so. But in the
end, it cannot be just the standards that have made a difference. Instead, we do
recognize that the market has to a large extent although not absolutely always
conducted itself in a prudent and professional manner. It is this combination of
prudential governance and market conduct that has gotten us this far. As a comm
unity, we clearly value it. It is to our best interest to sustain and also find
ways to enhance it. Final Thoughts At the beginning of my remarks, I said I had
TWO words I have only given you one DIVERGENCE. Let me conclude with the second w
ord CONVERGENCE. In this divergent world, where each is driven by his own bottom
line considerations, we come to realize that there is no exercise that does not
leave us short of breath. Whether it is a pro-active effort or an intervention
to address parochial concern, the intention to make us better requires deliberat
e effort. There is no short cut to this and there cannot be easy wins if it is l
onger term competitiveness that is our objective. Strength is achieved, not gran
ted. Reforms are consciously laid out, not wantonly enforced. Our efforts theref
ore need to CONVERGE towards purposeful reforms. If we value what we see around
us in the industry today, let us actively find ways to improve ourselves and our
operating environment. We are all vested parties and the future is a collective
interest. This is the message I would like to share with all of you today. Be p
art of the pro-active change. Reforms are never convenient. But, with the right
mix, they make us better. Indeed, we must find convergence in this divergent wor
ld we operate in.
The Three Cs of AFI s Success

Venue: Hyatt Regency, Port of Spain, Trinidad and Tobago
Occasion: 2014 Alliance for Financial Inclusion Global Policy Forum
Salutation Governor Jwala Rambarran; Governor Zeti of Bank Negara Malaysia, host
of AFIs future headquarters; ministers; fellow governors; Dr. Alfred Hannig; dis
tinguished delegates; AFI partners; ladies and gentlemen, good morning. It is a
privilege to speak at the opening of the 2014 Alliance for Financial Inclusion (
AFI) Global Policy Forum (GPF) which has quickly evolved into the worlds major ga
thering of policymakers, regulators, prime movers and advocates of financial inc
lusion. Today, we have a record number of over 400 participants, a 300 percent i
ncrease from the first GPF in 2009. Let me thank Central Bank Governor Jwala Ram
barran for hosting the 2014 GPF. We can say that it is appropriate to hold this
event here in the paradisical Trinidad & Tobago, a firmly committed member of AF
I. Moreover, Trinidad and Tobago is the birthplace of calypso music.1 After all,
the GPF is quite an upbeat, fun and engaging assembly of AFI members and friend
s. Holding this GPF here on the 50th anniversary of the countrys central bank, th
e 100th member of AFI, lends added color to this gathering. Brief overview of AF
I independence As outgoing chair of the Steering Committee, I am privileged that
my last opportunity to open the GPF comes at this point in AFIs history. The pas
t two years have been crucial to set in motion the transformational processes th
at have driven the AFI journey to independence. Now we are about to cross the pr
overbial Rubicon as AFI leaves its project status and becomes an international org
anization. We are embarking on a fundamental change that requires our solid reso
lve as a global network. AFIs transformation as an international organization wit
h juridical identity will strengthen its DNA - the member-driven, equitable, and
inclusive nature of AFIs governance, membership, and activities. This DNA has se
t AFI apart as a policy-driving network. It has effectively mobilized financial
sector policymakers, regulators and international organizations, to proactively
confront the challenges of financial exclusion. The Cs of AFIs success The succes
s of AFI can be attributed to what we can call three Cs: (1) commitment, (2) col
laboration, and (3) concrete results. Commitment is an important first step in t
he attainment of any goal. As one of the pioneer members, the Bangko Sentral ng
Pilipinas (BSP) can attest to the steadfast engagement of AFI members and partne
rs in activities and programs toward financial inclusion. We have benefitted fro
m the commitment of visionary funding partners who believed in the concept of AF

I and sustained us in our journey toward increasing access to financial services
for the poor. The trust and support of the Bill and Melinda Gates Foundation, G
erman International Cooperation (GIZ), Federal Ministry for Economic Cooperation
and Development (BMZ) and other donors like the Australian Agency for Internati
onal Development (AUSAID), facilitated the exponential growth of AFI. Within six
short years, it is now a network of 120 member institutions from 95 developing
countries. Future commitments from like-minded donors will surely fortify AFIs ab
ility to continuously undertake its important mission. AFI would not be what it
is now without the commitment of members who devoted substantial time, resources
and expertise to make AFI activities fruitful and successful. If we count just
the face-to-face meetings of the seven AFI working groups2, we get a total of 57
meetings from 2010 to 2014. Steering Committee meetings, and those of the Subco
mmittees on Independence, Host Country Evaluation and Global Standards, are not
yet accounted in this number. If time is gold, then it is clear that the membershi
p definitely invested so much in the AFI journey. Underpinning this investment i
n time and resources is AFI members commitment to achieving our shared vision of
a financially inclusive world. AFI members firmly supported the Maya Declaration
in 2011 and the consequent Sasana Accord in 2013. These declarations are docume
ntary proof of members dedication to implement concrete and measurable policies a
nd programs that expand inclusion in their respective jurisdictions. To date, 47
out of 120 member institutions have publicly articulated their own Maya commitm
ents. While targets and accomplishments vary from country to country on account
of domestic contexts, the most significant outcome of the Maya Declaration is in
creased institutional accountability. By AFIs count, a total of 71 measurable pol
icy improvements have been made by Maya countries. The second C is a blend of co
llaboration and cooperation, which describe (1) how AFI members interact with ea
ch other, and (2) how the AFI network engages with external stakeholders. Collab
oration and cooperation is inherent in the design of AFIs signature platforms the
working groups and the knowledge exchanges. The working groups, with a membersh
ip total of at least 194 individuals, function as communities of practice. As peer
s on equal footing, they share and discuss ideas to produce outputs that are rel
evant in policymaking and program development. These outputs include guideline n
otes, discussion papers, surveys, data indicators, case studies and peer reviews
which we collectively call knowledge products. These products constitute majori
ty of the AFI library, and serve as useful references for AFI members and extern
al interested parties. Like other AFI members, the BSP benefited from the workin
g groups, as we implemented various aspects of our financial inclusion agenda. F
or example, our national baseline survey on financial inclusion was enriched thr
u peer reviews by CNBV Mexico and Bank of Tanzania in the Data Working Group. Ou
r regulatory perspective on digital financial inclusion was constantly deepened
thru the interactions in the Mobile Financial Services Working Group. These are
just a few examples, considering that the BSP is an active member in all the wor
king groups, save for the regional group of Pacific Islands. On the other hand,
the knowledge exchange (KX) one of the most availed of grants by AFI members is
a structured, purposive and onsite study visit. As recipient of one, and host of
20 AFI knowledge exchanges since 2010, the BSP can attest that the KX is mutual
ly beneficial to the visitor and the host. It facilitates open, candid dialogue
among regulators facing similar issues, but operating in different domestic situ
ations. Many policy solutions are informed by lessons learned from knowledge exc
hanges. For example, our consumer protection framework and financial education p
rogram were inspired by what we learned, in no small measure, from a KX with Ban
k Negara Malaysia. We shared our regulatory experience with colleagues from the
Bank of Tanzania, and later provided insights on their draft electronic money re
gulations. I am sure that other AFI members also have interesting stories to tel
l about their KX experiences. Collaboration and cooperation likewise characteriz
e AFIs engagement with external stakeholders. This approach has resulted in rewar
ding partnerships and increased global attention on financial inclusion. Let me
cite some examples: We have initiated, and will continue to deepen the engagemen
t with Standard Setting Bodies (SSBs) thru a structured peer learning program. G
lobal standards greatly affect the level of exclusion, as well as the range, qua
lity and affordability of financial products available to clients at the bottom
of the pyramid. AFI is in a unique position to contribute value to the SSB discu
ssions; given the wealth of experience that the membership has in practicing the
proportionality principle; in a manner that is conducive for financial inclusio
n. Presently, the BSP chairs the Basel Consultative Group Workstream on Financia
l Inclusion. This working group aims to form an overall risk picture on financia
l inclusion that would be of particular relevance to banking supervisors around
the world. AFI members provided invaluable inputs to the workstream thru their p
articipation in the Range of Practice Survey. As implementing partner of the G20
Global Partnership for Financial Inclusion (GPFI), AFI has gained stature as th
e voice of the developing world in the area of financial inclusion. We significa
ntly contributed to the development of the G20 Principles for Innovative Financi
al Inclusion. Finally, AFIs regular collaboration with the G24 in conducting poli
cy forums, continues to deepen awareness on financial inclusion issues, and insp
ire action among G24 member countries. Commitment, collaboration and cooperation
are necessary, but insufficient to beget success. These factors must translate
into a third C concrete results. The results-oriented culture of AFI ensures tha
t policy solutions, regulatory enhancements and program interventions always ben
efit the ultimate stakeholder whom we all target to serve: the financially-exclu
ded. To date, we have seen policy solutions that resulted in: 16.7 million mobil
e money accounts for 15 percent of adults, achieved within 2.5 years in Banglade
sh 17 million mobile money accounts for 67 percent of adults, achieved within 7
years in Kenya 19.4 million basic bank accounts for 27 percent of adults, achiev
ed within 5 years in Mexico 26.7 million mobile money and cash card accounts, ac
hieved within 4 years in the Philippines 1.7 million savings accounts for 25 per
cent of adults, achieved within 4 years in Rwanda This sampler data from selecte
d AFI members reinforce the importance of impact measurement and monitoring. As
responsible policymakers and program implementers, we must verify that our actio
ns are indeed achieving inclusion objectives. We can only claim true success if
we have incontestable proof that global partnerships and national goals adequate
ly empower our ultimate stakeholders. Conclusion As I end my term as Chairman of
the Steering Committee, allow me to extend deep appreciation to my distinguishe
d colleagues in the Committee, all member institutions, our strategic partners a
nd donors, and the AFI Management Unit, for your unwavering support. Your active
and thoughtful participation in the Committee, and in AFI processes, has made o
ur work much more manageable and gratifying. I am pleased to announce that the S
teering Committee will be led by incoming Chair Daniel Schydlowsky of Peru. As I
contemplated an appropriate end to my opening remarks, TNT came to mind; not on
ly because it resembles the initials of our host country Trinidad n Tobago; but al
so because of the massive force of change that we want to take place in our resp
ective countries. Let us all keep the three Cs of AFI aglow to see forceful init
iatives in AFIs future - to catapult financial inclusion to greater heights aroun
d the world. Thank you and good morning. ------------- 1 A kind of West Indian (
originally Trinidadian) music in syncopated African rhythm, typically with words
improvised on a topical theme (Oxford Dictionary). 2 AFI has six working groups
with thematic focus on consumer empowerment and market conduct; financial inclu
sion data; global standards and proportionality (originally financial integrity)
; mobile financial services; small and medium enterprises; financial inclusion s
trategy. The seventh working group is focused on financial inclusion in the Paci
fic islands.
Moving Forward Together

Venue: Regency Ballroom, Hyatt Regency Trinidad, Port-of-Spain, Republic of Trin
idad & Tobago

Occasion: AFI Annual General Meeting (AGM): Independence, Host Country and Gover
nance
It is a great privilege for me to welcome all of you to the Annual General Meeti
ng (AGM) of the Alliance for Financial Inclusion (AFI). I feel distinct pleasure
in seeing familiar pioneers of financial inclusion, and new faces gathered in t
his hall. We have a weighty agenda that includes landmark issues for AFI and its
membership. A key focus of todays discussions is AFIs progress toward becoming an
international, independent organization and the important next steps that we wi
ll all be taking together. As is the usual practice, we are having the AGM befor
e the Global Policy Forum (GPF), AFIs centerpiece event where financial inclusion
stakeholders gather. A members-only AGM taking place before the GPF allows us t
o make collective decisions and have a unified voice before we set out to collab
orate with our external stakeholders. Let us make use of this AGM as a venue tha
t has, time and again, provided us with a collegial and enriching environment to
discuss and find solutions to important matters facing us. This general meeting
allows us to bring up our relevant individual and institutional concerns, to he
ar out our peers, and to share and leverage on our best practices and knowledge
toward building a stronger network of nations championing financial inclusion. I
n the past two AGMs, we reached agreement and started the initial work to be a f
ully independent institution. In Cape Town, members reasoned that the aspiration
for independence will foster a stronger policy-enabling environment for the mem
bers, and will strengthen AFIs leadership standing in financial inclusion. Key co
nsiderations surrounding our pursuit of independence, such as legitimacy and fis
cal sustainability, were underscored. Also, last year in Kuala Lumpur, the AFI h
ost country bidding was officially launched. The adoption of this bidding proces
s offered transparency that further fortified AFI as a credible organization. To
day, we continue laying the foundation of our work toward our independence. In t
his meeting: Members will be provided with an overview of the AFI independence p
rocess, with a presentation to be made by Superintendent Daniel Schydlowsky of P
eru. Our resolve to achieve independence will not only advance our sense of owne
rship, but also assure ourselves that we are building together a member-governed
and member-driven organization that is sustainable. As such, crucial and practi
cal issues such as the membership fee structures and related recommendations on
membership rights and participation will be discussed. Secondly, the rigorous wo
rk of the Sub-committee on Host Country Evaluation will be presented to us for o
ur appreciation. The choice of the future home of AFI is a crucial milestone in
our journey to become an independent institution. Thus, it is with a sense of ex
citement that I inform you that the newly selected AFI host country will be anno
unced shortly. Thirdly, the Independence Sub-committee Chair, Governor Njuguna N
dung u of Kenya will outline the governance recommendations that will determine
how the independent AFI will be steered toward our collective mission of adoptin
g and expanding effective, inclusive financial policies in developing nations. W
ith these, all members are encouraged to be proactive in the discussions. Your i
nsights and contributions to the many important issues will enrich the process a
nd ultimately strengthen AFI. The important agenda I have just outlined - charti
ng our way toward independence, governance issues, and the conferment of the new
AFI host country - will allow us to advance our strength as one body and our pa
rtnership for the ultimate betterment of the poor people we target to serve. On
a final and a more personal note, let me take this opportunity to thank all of y
ou for your personal commitment and individual contribution to AFI over the year
s. After this forum, I will be stepping down as the Steering Committee Chair - a
role which has been a privilege and a joy to hold, in large measure due to all
your support. Warm thanks to my colleagues at the Steering Committee who have sh
ared their expertise in building and providing strategic guidance to AFI; to the
Management Unit - the team that has made our AFI work seamless and efficient; t
o all the members - the bright minds behind our financial inclusion policies and
various programs that are truly making a difference; to all those who made AFI
programs and initiatives a success through their effective organization of activ
ities and events; our sincerest gratitude to all of you. I am pleased to announc
e that Superintendent Daniel Schydlowsky of Peru is the incoming chairman of the
Steering Committee. I will, of course, stay on as an active member of AFI and w
ill remain committed in sharing our institutional knowledge, and, being a person
al advocate of financial inclusion, in advancing AFIs global mandate. My colleagu
es and friends, let us all remain committed in being responsible stewards of thi
s global policy network on financial inclusion. Together, let us note that stewa
rdship is not merely an obligation but a proactive response and opportunity for
us to develop further what has been entrusted to us. We are all called to foster
this global connection and move forward together toward institutional independe
nce. Thank you and more power to all of us.
Building a Collective Brand for the Banking Industry

Venue: NA
Occasion: 40th anniversary celebration of the Bank Marketing Association of the
Philippines
Congratulations on your 40th anniversary! For most individuals, forty years of s
ervice is already a full career. And in a sense, this is where the Bank Marketin
g Association of the Philippines stands today: the point where the success of yo
ur past meets the eagerness to address the challenges that lie ahead. If we thin
k back to what it was in early 1974, it was certainly a time of change and chall
enges. The oil crisis had triggered steep oil price hikes, oil rationing, browno
uts and a global recession. And the country was under Martial Law. Amidst this s
ocio-economic climate, BMAP was established. The objective was to bolster bank m
arketing which was in its early stages of development. Back then, there were no
online products for the retail market or structured notes for selected clients.
Minimum deposit balance was as low as possible and we had those blue shaded 2-pe
so bills in circulation. Today, we have found success in institutionalizing the e
in e-banking while banks offer a multitude of differentiated products for a cont
inuum of differentiated clients. One can now easily pay bills online, withdraw f
rom teller-less machines, just as routinely as transacting across currencies thr
ough money changers. And while we no longer have the 2-peso bill, we have 5 and
10-peso coins to go with our New Generation Banknotes. Certainly, there have bee
n so many changes over the past 40 years. But through it all, one thing has rema
ined constant -- the objective of banks to actively market their offerings to th
e retail and corporate markets. What has evolved is the menu of products and ser
vices that banks offer. These now come in variants that differ in currencies, in
vestment objective, lot size and, cash flow requirements. We talk of defining di
ffering Investment Policy Statements (IPS) for clients who may be assessed as eq
ually suitable for exposure to certain types of risks. All these reflect a wide
variety of bank offerings that are structured to respond to the banking publics b
road range of financial requirements. After all, in a country of 100 million ind
ividuals, Philippine demographics signifies opportunities in diversity. In other
words, the marketing message and the delivery of those messages to the banking
public can never be static and must continue to evolve. This is your area of exp
ertise. The work of the important-but-behind-the-scenes individuals who craft th

e message and design the means of delivering those messages to your target marke
ts. Bank marketing executives form the backbone of the industrys marketing machin
ery. And through innovations in marketing financial products and services, you a
s marketing experts and BMAP as the industry association deserve recognition for
contributing to the growth of our banking system. And indeed, the industry has
sustained its growth trend. What is most telling is how much we have become stro
nger even during the recent period of global financial difficulties. Among other
s: total assets of our banking sector have grown by 11.9% a year between 2009 to
June 2014, much higher than the 8.2% growth rate between 2001 to 2008. We see t
he same pattern with peso deposits: from an annual growth of 11.4% for the perio
d 2001 to 2008, deposit growth rate from 2009 to June 2014 accelerated to 14.3%
a year. The difference is even more pronounced with loans outstanding: it grew 7
.6% a year between 2001 and 2008 and moved up at a faster rate of 11.9% annually
from 2009 to June 2014. Trust activity also experienced a sharp expansion in re
cent periods: from Php1.22 trillion in 2008, assets under management of trust en
tities increased 165% to Php3.24 trillion by March 2013. The growth rates in bot
h the deposit base and in trust activity tell us that the saving public has conf
idence in our banks for safekeeping and/or investing their hard-earned personal
savings. This growth is best appreciated when we consider that 6.87 Million new
deposit accounts were added in the nine quarters between March 2012 and June 201
4. Of this total, 92.4% are accounts with outstanding balances of One Hundred Th
ousand pesos or less. This highlights the very retail nature of this expansion.
In the end, one can aptly characterize this expansion as public confidence built
through targeted messaging and awareness campaigns. Simply put, it is an expans
ion that cannot unfold by itself without proper marketing of banking products an
d services. On this basis, I can say that our banks are successful in marketing
their products and services. This is surely a cause for celebration. Congratulat
ions members of BMAP! Towards One TOWARDS ONE BRAND I believe that what makes ou
r banking products and services marketable are a set of characteristics that dis
tinguish us from others. This is inherently a branding issue. As more financial pr
oducts are made available and technology allows us to move beyond national borde
rs, we need to be clear about who we are and what the Philippine banking system
stands for. I believe that this will be a vital component of our efforts to prep
are for an integrated ASEAN banking community and the further entry of new forei
gn banks and foreign investors into our banking sector under Republic Act 10641
and Republic Act 10574 respectively. The branding characteristics that I have in
mind do not pertain to specific facets of products. Instead, I would like to hi
ghlight how risk management, good corporate governance and consumer protection c
an and have made a real difference in ensuring the stability of our banking syst
em. It is this stability that underpins our banks value proposition to savers, wh
ile providing a viable counterparty for borrowers. The value of risk management
cannot be overstated. In a market where uncertainty and risks are hallmark issue
s, a bank can only be viable as a two-way agent between savers and borrowers if
it is able to effectively manage its risk exposures. This certainly matters to d
epositors who rely on banks to keep their savings safe. Products you offer may h
ave bells and whistles; but in the end, they are only as good as your promise to
make the underlying funds available when depositors need them. It matters as we
ll to your borrowers. Your ability to keep the bank operating in a safe and soun
d manner allows them to build a lasting relationship that supports their entrepr
eneurial initiatives, services their payment requirements, handles personnel acc
ounts and manages their own corporate savings and investments. In the end, effec
tive risk management is the skill that allows market stakeholders to operate as
a going-concern. This is a skill unique to banks and it must be a success factor
that distinguishes the Philippine banking brand from the rest. Actually, we hav
e achieved such distinction. In the December 2013 report of Moodys, the Philippin
es was the only banking system rated with a positive outlook from among the jurisd
ictions it reviews. In a recent press statement, Moodys declared that it maintains
positive outlook on Philippine banking system in line with our expectation that
GDP growth will remain one of the strongest among emerging-market economies ove
r the next 12-18 months. For its part, Fitch said that the fundamentals of our ba
nking sector remain stable as capitalization is high, funding and liquidity is he
althy and loan-loss reserves are rising. This is echoed by Standard & Poors which
said that Philippine banks are well positioned to meet the new Basel III require
ments, with capital ratios that are comfortably above the regulatory minimum Neve
rtheless, as gratifying as these external views may be, the challenge is still t
o maintain our strengths and address weaknesses that have been identified. Risk
management may provide the technical on- and off-book expertise but this has to
be complemented by a strong and unwavering culture of corporate governance. To d
ifferent entities corporate governance can mean several things; but for banks it
may simply boil down to mitigating conflicts of interest. There are conflicts b
ecause savers entrust their savings to the banks while banks must deploy these f
unds productively. In the end, it is the banks corporate governance culture that
will protect the publics savings from excessive and unwarranted risk-taking. We a
ccept that banking is a business where products are designed and marketed to the
public. But banking is more than just marketing and sales. Its power lies in th
e information that banks possess. Thus, the crux of the business is, in fact, pr
otecting the integrity of the pre-sale process and a solid commitment to after-s
ale support. Banking is a promise to and a relationship with stakeholders. This
is built by instilling confidence that the bank is operating prudently. If the b
usiness of banking is to be a going concern, the public must believe that the pr
oducts and services which you market will provide them a better future. While we
know that bankers do not have the unique ability to read tea leaves and accurat
ely predict the future, you are expected to think beyond bottom lines. This shou
ld be another hallmark of the Philippine banking brand: a corporate governance c
ulture bar none. This is a perpetual call for leadership, exercising sound judge
ment so that the publics interests are not compromised and displaying excellence t
hrough responsive service. This is where the expansion in both the deposit and t
rust books matters significantly. We take these as signs of continuing confidenc
e in the banking system and we look to BMAP to sustain this trend. The skill of
effective risk management and a commitment to a corporate culture of governance
lead us to the third aspect of the Philippine banking brand: that of empowering
the financial consumer. This is an area which does not need much further elabora
tion before an audience like BMAP. Last year, for instance, you launched the rev
ised Banking Code for Consumer Protection which reflects your own commitment to ou
r financial consumers. This should be taken in parallel with the Consumer Protect
ion Framework which the Monetary Board recently approved. Together, these two ini
tiatives suggest that we do not pay lip service to consumer protection. Instead,
we now have live frameworks that institutionalize market conduct standards, str
engthen the redress mechanism, cultivate financial literacy as an active element
of financial well-being and hold stakeholders accountable for their behaviour.
The bar is set deliberately high but I know we are all fully committed. BSP SUPP
ORT Moving forward, the BSP will sustain its collaboration with the industry in
crafting policies that raise the bar for banking excellence. We shall pursue thi
s through an environment that enables the development of a distinct brand for th
e Philippine banking industry. From our perspective, effective risk management,
a unwavering culture of good corporate governance and the empowerment of the fin
ancial consumer are the fundamental aspects of our brand of banking. For sure, t
here are many challenges that lie ahead, but what you have achieved so far gives
us confidence moving forward. Among others, I urge BMAP to sustain its socio-ec
onomic service of enhancing the financial literacy of seafarers. This is an impo
rtant undertaking: to help our modern heroes who faithfully send money to their
families here. I also encourage BMAP and its members to continue promoting the g
ospel of saving across the country. In particular, I look forward to the continu
ing promotion and expansion of BMAPs Kiddie Account Program. I understand that arou
nd 526,000 kiddie savings accounts have been opened as of March 2014. I am happy
that more children are developing the habit of saving but the challenge is to p
romote the program to more areas and to reach out to more children. I hope BMAP
will continue to push this program forward with greater vigor. If you recall, we
received the country award in 2013 from the Amsterdam-based Child and Youth Fin
ance International or CYFI for having the best financial education program for c
hildren that combines curriculum integration of lessons on saving and money mana
gement with actual bank campaigns to encourage children to save in banks. If you
recall, BMAP members from BDO, BPI and RCBC Savings briefed foreign delegates f
rom CYFI on their respective marketing campaigns under the Kiddie Account Progra
m. This has made such a positive impression that CYFI considers our integrated p
rogram an international best practice model. We therefore share this award with
the Department of Education and BMAP. Thank you. Ladies and gentlemen. Financial
education that leads to responsible personal finance management is now consider
ed a life skill everyone must have, like reading and writing. Ultimately, everyo
ne handles money, whatever station in life one has. I hope therefore that BMAP w
ill employ its creativity and ability to reach out to millions of financially un
served Filipinos who represent a big untapped market. We are happy that BMAP has
initiated its own Bank Marketing Awards for best practices in brand and product
marketing in the industry. This is aligned with our objective of creating a dis
tinct brand for the industry -- a brand marked by both competence and excellence
. Certainly, these efforts can go a long way in making our banking industry trul
y responsive to the needs of our people. THE TASK AHEAD Ladies and gentlemen, mu
ch has been gained by and in Philippine banking. From a marketing perspective, i
t may be beneficial if banks integrate their individual marketing plans into an
industry marketing approach for branding purposes. For instance, if Philippine t
ourism has Its more fun in the Philippines tagline, the banking sector may also con
sider developing a program that embodies its collective aspirations. Competence
and excellence founded on effective risk management, an unwavering corporate cul
ture of good governance and the empowerment of the financial consumer. These are
the essential brand elements we see of the Philippine banking system. I have no
doubt that BMAP can harness your collective expertise to make this happen and t
o boost the overall competitiveness of the Philippine banking industry. I believ
e this is a challenge worthy of BMAP -- an association that has 40 years of trac
k record behind it. With the liberalization of the entry of foreign banks to the
Philippines and the forthcoming ASEAN Integration, developing a distinct brand
for Philippine banking is a goal worth pursuing. If BMAP is successful in develo
ping this as a legacy, the next generations of bank marketing professionals can
look back and celebrate this milestone as the game changer that raised the quali
ty of bank marketing in the Philippines. I know BMAP is up to this challenge. It
is said that life begins at 40. This is the perfect time therefore to start on
this legacy project. And to add more context and perspective to BMAPs 40th annive
rsary, I wish to share that this year, I am celebrating my 40th year I am not re
ferring to my birthday and certainly not to my waistline. This year, I mark my 4
0th year as a central banker. Ladies and gentlemen of BMAP. To me, this is a sig
n that good things will continue to develop as we continue our partnership. A pa
rtnership for a stronger, more responsive, and more responsible banking system t
hat promotes sustained and inclusive growth. Together, let us work on this legac
y. Finally, I thank BMAP for its continuing support to the BSPs programs. Again,
my congratulations to BMAP as well as its leaders and members, past and present.
Mabuhay ang BMAP! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salama
t sa inyong lahat.
Seizing Opportunities Amid a Growing Banking Environment

Presented Date: Aug 29, 2014
Venue: Makati Shangri-la, Makati City
Occasion: the Asian Bankers
Philippines International Banking Convention
The theme of your convention this year is The Drive for Growth and Sustainability
in the Philippine Banking System. This is quite timely in light of the governmen
ts goal to push the real economy onto a sustainable upward growth trajectory. Giv
en that an essential component to achieving this goal is a resilient, responsive
and responsible banking system, todays convention presents a good platform for d
iscussing the state of the Philippine economy and the banking system. We hope th
e different sessions would help bring to fore ways by which we can harness the p
ower of the banking system to raise economic growth so that it would deliver a h
igher quality of life for more. Opportunities Let me begin therefore with an ove
rview of the opportunities that could drive growth. Well, the Philippines is lis
ted as the worlds 12th largest in terms of population. We are a country of 100 mi
llion people, mostly young, with a median age projected to stay around 30 years
in the next two decades. Ours is a growing and consuming population which transa
cts about 2.5 billion payments per month in cash and check payments with electro
nic transactions at only 1% of the total. This represents opportunities to techn
ology innovations that will extend the reach of efficient and competitive paymen
ts systems across our country. After all, our people embrace technology and mobi
le communications in a manner that has raised our mobile phones to around 110 mi
llion, more than our population. In the last nine quarters, we saw deposit accou
nts grow by nearly 7 million or 17.5% to nearly 47 million. About 93% of the new
accounts have outstanding balances of about one hundred thousand pesos or less.
This shows sustained expansion of the retail base of savers. This is a base tha
t represents those who have learned the value of safekeeping their hard-earned s
avings and who perhaps aspire to migrate from savers to investors in the future.
Ladies and gentlemen, these are just a few figures and trends that define oppor
tunities. Macroeconomic Perspectives Indeed, the Philippines is a land of opport
unity and growth. And the opportunities here go beyond the consumer market. For
a better perspective, let us take a macro-point of view. First, the countrys GDP
growth continues to be above its long-term average. Although there has been some
moderation in growth, the countrys GDP continues to prove resilient against exte
rnal and domestic headwinds. Philippine economic growth accelerated to 6.4 perce
nt in the second quarter of 2014, the second fastest among major Asian countries
tied with Malaysia . This growth trend supports the view of the BSP that the ec
onomy has the capacity to absorb the recent tightening in monetary policy settin
gs. Second, inflation has been within the national governments target ranges in t
he last five years and is expected to remain so over the policy horizon, albeit
closer to the upper end of our target range. This, notwithstanding risks to the
inflation outlook that include price pressures from higher food prices short-ter
m volatility in international oil prices and pending petitions for adjustments i
n power rates and transport fares. The BSP is closely monitoring these risks and
their impact on inflation. Third, the country continues to enjoy a healthy exte
rnal liquidity position, which should provide a strong buffer against potential
external shocks. The current account continues to perform well due to resilient
remittances from Overseas Filipinos, sustained rise in BPO revenues, and higher
tourist receipts. Cash remittances from OFs coursed through banks for the period
January to June 2014 reached US$11.4 billion, higher by 5.8 percent compared to
the same period a year ago. The countrys Gross International Reserves stood at U
S$80.6 billion as of end-July 2014, enough to cover 11 months worth of imports of
goods and payments of services and income. That level is also equivalent to 7.7
times the countrys short-term external debt based on original maturity, and 5.6
times based on residual maturity. These figures are above commonly used standard
s for these metrics. Fourth, our banking sectors scorecard as of June 2014 shows
consolidated figures for assets, loans, deposits and capital at uniformly record
high levels. In particular: assets were at P10.28 trillion; loans stood at P5.2
trillion; deposits climbed to P7.9 trillion; capital registered at P1.2 trillio
n. In addition, our semestral stress tests validate that our universal and comme
rcial banks are in a position to withstand extreme but plausible shocks in credi
t and market risks. Credit conditions, on the other hand, remain supportive of e
conomic growth. Double-digit growth in bank loans continues, rising by 20% in Ju

ne 2014 for universal and commercial banks. The sustained expansion in bank lend
ing reflects the strong underpinnings of the domestic economy. Nevertheless, as
in other jurisdictions, we are on guard for any possible build-up of asset price
bubbles and its implications for the system and the economy, especially in the
context of monetary policy normalization. At this juncture, we are pleased to no
te that the NPL ratio of universal and commercial banks remains low at only 2.1%
as of June 2014. This is a good indication that sustained loan growth has not c
ome at the expense of credit quality. Given all these, it can therefore be said
that the financial pie has expanded and is getting even bigger as the real econo
my continues to expand. Policy Tracks Towards Strengthening the Banking System E
ven as we say this, however, economic literature presents evidence that for an e
conomy to continue to expand, it is essential to have a well-functioning banking
and financial system. Indeed economic growth helps to grow the financial sector
, just as the finanical sector supports economic growth. Consistent with this, t
he BSP has adopted essentially five tracks to strengthen our own banking system:
1. First, we have adopted regulations that would help ensure that our banks con
tinue to operate soundly. In particular, we adopted the principles of the capita
l requirements for Basel 3, in one go and at a higher level than Basel standards s
tarting January 2014. Basel 3 is meant to reduce the risk of systemic banking cr
isis, with the quality of capital further improved to ensure its ability to abso
rb losses. Based on March 2014 Basel 3 CAR report, Philippine banks remained abo
ve the regulatory minimum requirement. On solo basis, CAR stood at 15.45%, of wh
ich Common Equity Tier 1 ratio accounts 13.44%. The BSP and the banking sector a
re collaborating on the forthcoming implementation of the other components of th
e Basel 3 framework. 2. Second, we continue to refine regulations to achieve gre
ater financial inclusion, particularly leveraging off of technology by optimizin
g the use of electronic money. To illustrate, it took more than 160 years before
the number of local bank offices reached 9,884 yet it only took 4 years before
the number of e-money agents reached 10,620. At the same time, the BSP continues
to strengthen consumer protection with the release of a comprehensive consumer
protection framework. 3. Third, we have worked to strengthen the governance in b
anks. In particular, we have imposed fit and proper criteria on directors, while
clearly articulating their duties and responsibilities, including the expectati
on for each board member to exercise objective judgment at all times. Banks also
have to institutionalize a Compliance System to reinforce checks and balances i
n the institution. Further, we have highlighted the importance of having an effe
ctive risk management system. All these are accompanied by regular monitoring an
d strengthened enforcement actions. 4. Fourth, we have fully supported the furth
er liberalization of the entry of foreign banks into the Philippine market. 5. F
ifth, we are committed to the timely and appropriate adoption of international b
anking reforms to our domestic economic conditions. We subscribe to the general
principles and objectives of the international reform agenda, but we are also pr
agmatic in our approach to their adoption. While we are in agreement with the go
als, we believe that implementation must follow the principle of proportionality
to country-specific circumstances. One such reform concerns Financial Market In
frastructures or FMIs, the piping that allows trades to be processed and critica
l risk information to be properly monitored. For a market such as the Philippine
s, this is critical but it is also a clear challenge. Certainly, we need FMI pip
elines to execute market transactions, provide transparency, ensure price discov
ery, introduce risk mitigation, and generate efficiencies. Nevertheless, many of
the FMIs identified by global reforms may not be in synch with the scale of mar
ket activity and associated risk in most Asian jurisdictions. Central counterpar
ties, trade repositories and exchanges for OTC derivatives, among others, requir
e a fair amount of investment and a lot of preparation. This is work that does n
ot only involve the BSP, but other financial market regulators as well. This is
the reason why the financial market infrastructure as well as the other internat
ional reforms are being discussed at the Financial Sector Forum, which is compos
ed of the BSP, the Insurance Commission, the Securities and Exchange Commission,
and the Philippine Deposit Insurance Corporation. Quality Improvement among our
Banks Ladies and gentlemen, we have followed these policy tracks to strengthen
our banking system. Within this framework, our banks could generally have the le
eway to take on more risk exposures, if they so choose. In addition, the regulat
ory framework is such that it would allow banks to be able to withstand added, i
f not healthy, competition. There are evolving competitive forces expected to co
me from banks outside the region which have an interest to service activities in
the country as well as future Qualified ASEAN Banks (QABs) who exemplify ASEAN
integration. I am confident in the ability of our banks to be up to these challe
nges. Yes, we may not be a big market with big banks but our continuing reform a
genda has made our banks stronger and more stable. And we have an economy whose
prospects attract the interest of not just a few. In Moodys recent publication on
banking system outlooks covering 67 jurisdictions, the Philippines was the only
banking jurisdiction rated positive. Add to this the fact that the Economist In
telligence Unit (EIU) has rated our micro-finance policy framework as the best i
n the world for the past five years. Indeed, there is something to be said about
the quality of our banking environment and of the institutions that operate in
it. With ample funding liquidity, the challenge for our banks is to identify tho
se initiatives in the real economy, which can reasonably absorb available fundin
g. Challenges Today, the Philippine banking industry is vastly different from wh
at it was during the Asian Financial Crisis. We have achieved sizeable gains sin
ce then. Moving forward, part of the challenge is to recognize that gains are ne
ver absolute. In this imperfect world, there is always something that can be mad
e better or something that market needs to change in time especially since we op
erate in a global environment that is in constant change. Among others, heighten
ed financial and trade integration make our own domestic operations vulnerable t
o external factors. The most significant of these factors is the speed and degre
e of normalization of monetary policies in advanced economies and how these woul
d impact their own growth prospects. Geopolitical risks that could impact trade
and prices of international commodities add to our list of challenges. On the do
mestic front, as I mentioned near the top of my remarks, the risks that tilt fut
ure inflation to the upside are mainly weather and supply side-related, as well
as those stemming from volatilities in the financial markets. The BSP has acted
pre-emptively to ward off these inflation threats through calibrated tightening
of policy stance. We have earlier raised RR and increased SDA and the policy rat
es. We have opted to act in this manner so that banks and other stakeholders wou
ld be guided in their own assessments of the risks they face in their transactio
ns. We will not hesitate to make further adjustments, if these are needed, in or
der to keep inflation expectation well-anchored and therewith limit the occurren
ce of second round effects. We will also continue to work with other agencies of
government to address supply bottlenecks that affect movement of good and servi
ces. We will likewise remain vigilant that none of these effects pose risk to fi
nancial stability. We will continue to be involved in initiatives in implementin
g governance reforms in the country, including our initiatives for AEC 2015. Fin
ally, we will continue to work on a more inclusive financial system that that wi
ll sustain and promote inclusive growth. Final Thoughts Ladies and gentlemen, I
have shared my assessment of our prospects and flagged some key challenges. At t
he end of the day, we have to nurture the gains we have achieved through time an
d address the pending issues which we believe can only make us better. Markets w
ill always evolve, just as they are changing right now. But Philippine banks, in
general, have proven themselves to be resilient while remaining responsive to t
he needs of stakeholders. This is the mark of a strong banking industry, one whi
ch can tap growth opportunities while acting responsibly in managing the publics
savings. In the end, it boils down to choices we make. And thus far, our record
in the banking system speaks for itself. Ladies and gentlemen, thank you for you
r attention. Mabuhay!
Been There and Done That: Why This Would Not Be Enough For What Lies Ahead

Venue: NA
Occasion: the50th Anniversary and 65th Foundation Year of the Bankers Associatio
n of the Philippines
On behalf of the Bangko Sentral ng Pilipinas, I congratulate the Bankers Associa
tion of the Philippines on its double anniversary celebration. This is a truly h
appy event... not only for the BAP but also for our central bank. The symbol of
an anniversary for 65 years is the royal blue sapphire it is said that it stands
for wisdom, truth, and faithfulness. On the other hand, the symbol for 50 years
is gold, a symbol for great value. Thus, banks give their valued clients gold ca
rds, we follow the Golden Rule in interpersonal engagement... and the height of wi
sdom in civilizations is referred to as "the golden age." But are blue sapphire
and gold appropriate symbols for BAPs celebration? Of course absolutely! The Philip
pine banking sector today stands on solid ground... and can rightfully claim cre
dit for helping keep our economy on the growth track. We have a well-capitalized
banking system where deposits continue to climb and loans continue to increase, t
he bulk of which are directed to production sectors that have strong multiplier
effects. In fact, credit rating agencies cite our sound and stable banking syste
m as a credit positive in giving the Philippines an investment grade rating. And
as if on cue, data as of June 2014 reveal that all the figures for consolidated
assets, loans, deposits and capital of the banking industry... were uniformly a
t record high levels. P10.28 trillion for assets; P5.2 trillion for loans; P7.9
trillion for deposits and P1.2 trillion for capital. In particular, the BAP has
played a key role in making this happen. In fact, it can be said that crucial ep
isodes of our banking history have been defined by your actions and the way you i
nteract with the central bank as regulator. I therefore thank the BAP, its leade
rship and its members for helping steer the banking industry through calm and rou
gh seas. Through the years, the central bank and the BAP have developed a good w
orking relationship: it is not perfect, but it has yielded good results that have
served our country and our people in good stead, especially in times of stress.
The BSP and BAP As a Partnership The BAP has been a constant partner of the cent
ral bank -- whether it is managing foreign exchange, performing the clearing fun
ction or having a venue for constructive policy discussions. These are facets th
at are critical systemic, if you will for a market to thrive and succeed. Many e
lements bind the two institutions: among others, the first three governors of th
e Central Bank of the Philippines had significant roles in the precursor of the
BAP: they were Governors Miguel Cuaderno Sr., Andres Castillo and Alfonso Calala
ng. Certainly, the list does not end there. Under the BAP, collaboration continu
ed with Governors Gregorio Licaros, Jaime Laya, Jose Fernandez, and Jose Cuisia.
The partnership between BAP and the new Bangko Sentral ng Pilipinas started und
er Governors Gabriel Singson and Rafael Buenaventura, who at one time headed the B
AP as president. Now they are all part of the history of Philippine banking and
finance. Today, the BSP-BAP partnership continues. It is a commitment to lead ou
r banking industry forward toward a direction that is premised on experience, exp
ertise and a collective sense of what truly matters for the system as a whole. I
n our continuing collaboration, there are three projects that stand out. The fir
st is from a market infrastructure and technology standpoint. The launching in J
une 1980 of the Philippine Clearing House Corporation or PCHC signalled our migrat
ion from manual to electronic processing of checks. PCHC also made history then.
.. as the first automated MICR check clearing house in Southeast Asia. The creat
ion of a depository in the mid-90s was another market-driven milestone from a fi
nancial infrastructure standpoint. The depository allowed us to implement a book
-entry system, dematerialize securities and move into scripless trading. This in
stitutionalized critical process improvements, instilled cost reductions and mad

e us compliant with international standards. There is also the Philippine Domest
ic Dollar Transfer System (PDDTS), the first USD real time gross settlement syst
em in Asia. Apart from bank-to-bank transfers of USD, this system has been expan
ded to handle payment-versus-payment (PvP) transactions (with the peso leg settl
ed at BSPs PhilPass) as well as end-of-day net clearing results of OFW remittances
. Ladies and gentlemen. These three market infrastructure initiatives were landm
ark projects: aside from the technical complexity that was required to put these
systems together, market conduct standards also emanated from them. Legislation
is a second area where the BSP and the BAP have collaborated time and again. Th
e passage of the General Banking Law, the SPAV law, the Anti-Money Laundering Ac
t, the Corporate Recovery Act, and the Foreign Banks Liberalization Act Amendmen
ts, are successful initiatives we jointly supported. I trust the BAP will also su
pport the passage of proposed amendments to the BSPs 21-year old Charter. Work on
legislation comes hand in hand with our policy initiatives which represent my th
ird area. As a result of the consultative process that we follow, many of our ci
rculars take into account the views and concerns of the BAP. Governance and the
implementation of the Basel Accord stand out as top issues. Key Issues Moving Fo
rward In the aftermath of the recent global financial crisis, the Philippine ban
king system was cited as a key element of financial stability and economic succe
ss. However, stability and success can be fleeting unless we continue to nurture
our strengths and address our weaknesses. Thus, our reform agenda will continue
to be a work-in-progress. There are four important issues that we must face movi
ng forward. First, we need to uphold the integrity of our pricing and valuation
framework. The very nature of finance suggests that we need to account for the r
isks that arise from products, issuers, markets as well as the passage of time.
If we make a mistake in appreciating any of these risks, there will be distortio
ns in the way financial opportunities are valued. Over time, systemic pressures
may be brewing as a result of persistent mispricing of risks. Second, is how we
should approach Basel 3. The turbulence that brought the global financial market
to the edge of collapse requires that we accept that risks in the market are mor
e complex than previously thought. As banking markets expand and offer newer pro
ducts, risks evolve into unmonitored and unfamiliar forms. As a result, we are i
n new territory on financial risk and could no longer rely on history as a guide
of what could be. The price of the market turbulence is the reform agenda embed
ded in the Basel III Accord. So far, we have only implemented the capital compon
ent of Basel 3. There are other Basel 3-related reforms in various stages of dev
elopment. For instance, the market has already commented on the exposure drafts
on systemically important banks as well as on counterparty credit risk. The remai
ning elements of the reform agenda leverage, liquidity, OTC derivatives and trad
ing books are forthcoming. My third issue goes back to Financial Market Infrastr
uctures (FMIs). While we have moved forward significantly on platforms and syste
ms, there are several policy and structural issues that still need to be address
ed. In April 2012, BIS and IOSCO released the Principles for Financial Market In
frastructures (PFMIs) which sets higher standards for payment, clearing and sett
lement systems. By intent, these principles apply to all: systemically important
payment systems; central securities depositories; securities settlement systems
; central counterparties; and trade repositories. With the help of third party e
xperts, we have initiated the process of evaluating the Philippines against the
global standards. This will be a critical development and we look forward to the
assessment. I should also point out that within the ASEAN integration framework
, the policy prescription is for all financial trades to be settled in central b
ank money. That being the case, we need to take a hard look at the design of our
market infrastructure, its potential for systemic risks, and its regulatory ove
rsight including liquidity. If we believe in the underlying principles espoused
by the reform, that of transparency and to mitigate systemic risks, we must act
to execute the FMI agenda in a manner that best addresses our needs. In other wor
ds, we have to decide on the design of our payments system. Another payment infr
astructure component which should be subject to careful consideration and meaning
ful reform is our retail payments system. While such system may not be considered
systemically important due to lower values exchanged, its failure or even ineff
iciency will affect the lives of millions of Filipinos. A recent study by the Be
tter than Cash Alliance estimated that Filipinos make 2.5 billion payments per m
onth, a volume larger than international remittances - yet only 1% are electroni
c; cash and check payments still account for the balance. In a country where mob
ile penetration exceeds 100%, and people embrace technology and mobile data serv
ices , this is quite incongruous. We find that few electronic retail payments ar
e being made due to lack of inter-operability, need to improve transparency in p
ricing, and limited capabilities. On the other hand, these challenges present an
opportunity -- a robust and reliable electronic retail payments system can lower
business costs and increase consumer expenditure, both drivers of economic grow
th. One cross-country study found that a 10% increase in the share of electronic
payments was correlated with a 0.5% increase in consumer spending Another impor
tant benefit and one that is close to the heart of the Bangko Sentral - an effic
ient and robust electronic retail payments system promotes financial inclusion.
Through innovative delivery channels, we can effectively and efficiently deliver
more financial services to markets that are unserved or poorly served by tradit
ional channels. This leads me to my fourth point, that of financial inclusion, c
onsumer protection and financial literacy. Surveys confirm that while we are mak
ing progress in our financial inclusion program, we have a long way to go in ter
ms of providing choices and empowering consumers to make informed decisions. We
should continuously strive therefore to be more financially inclusive. Banks are
natural candidates for this task. You have your retail clients as a base and you
have the financial depth to offer non-traditional delivery mechanisms for finan
cial services. You can at the same time take advantage of the policies of the Ba
ngko Sentral that allow banks to create strategic linkages and to undertake inno
vations to reach a wider market. We need to have a responsive and responsible ba
nking industry, not just resilient and robust. The contribution of the retail ma
rket may be small at this juncture but this is the way forward because everyone i
s a stakeholder. In fact, more studies are showing how financial inclusion can a
ctually contribute to financial stability as the system becomes deeper and more
broad based. The governance standards and financial literacy initiatives must th
en move in tandem to provide reasonable cover for those who wish to move from be
ing purely consumers to being savers and from savers to investors. Such standards
and initiatives shall ensure the needed trust and certainty for our financial co
nsumer. Indeed, we have accomplished much but so much more needs to be done. The f
orthcoming policy and structural changes will enable us to see the same market w
ith a sharper lens to consider both bank-level transactional risks and those risk
s that comingle to become systemic in nature. While we have been there and done
that, we also know that what the future holds may not be something we have done
before. We must remain vigilant in our quest for financial stability. Such stabi
lity will be viable and sustainable as long as it rests on strong financial inst
itutions, robust financial market infrastructures, and empowered financial consu
mers. But for now, let us celebrate the golden year of the countrys foremost bank
ing organization the Bankers Association of the Philippines under the leadership
of President Lorenzo Tan. Mabuhay ang BAP! Mabuhay ang ating mahal na bansang P
ilipinas! Maraming salamat sa inyong lahat.
Setting a Milestone with the Quezon City Credit Surety Fund

Occasion: QC CSF Launch
Good morning everyone! On behalf of the Bangko Sentral ng Pilipinas and our part
ner institutions the DBP, Land Bank and IGLF -- we thank Quezon City under the d
istinguished leadership of Mayor Herbert Bautista, Vice Mayor Ma.Josefina Belmon
te-Alimurung, and themembers of the Sangguniang Panlungsod.for launching its own
Credit Surety Fund or CSF. The Quezon City CSF is the first at the National Capi
tal Region. This is therefore a significant milestone in our program to promote
CSFs across the country. This tells us that the local government in Quezon City
continues to find ways to support the further growth and development of local mi
cro, small and medium enterprises -- or what we call MSMEs. We know that through
its Sikap Buhay Entrepreneurship and Cooperative Office, the city government is
pro-active in promoting access to credit, particularly for microfinance. This t
ime, by setting up its own CSF, Quezon City is scaling up to help moremembers of
cooperatives gain access to bank credit. With the CSF, coop members with good c
redit standing can avail of bank credit even if they still lack collateral and su
fficient credit history. On the part of the banks, CSF is a welcome program, as
it provides opportunities to comply with the mandatory 8pct credit allocation re
quired under the law - RA 6977, as amended, also known as The Act to Promote, De
velop and Assist SMEs -- under a more manageable risk framework. As a whole ther
efore, the CSF is a win-win program for coop members, banks and our national goa
l to have amore inclusive financial system that will support inclusive growth. I
ndeed, we have seen the initial benefits fromour partnerships under the CSF. As
of May this year, roughly P1.1 billion in loans have been granted by 30 CSFs to
nearly 10,000 MSMEs. With Quezon City, we now have 31 CSFs: 14 in Luzon, 7 in th
e Visayas and 10 in Mindanao. We look forward to seeing the benefits of CSF in Q
uezon City, our countrys biggest city in terms of population. The importance of M
SMEs to our country and our people cannot be overemphasized: they account for 35
.7% of our economy as measured by GDP, constitute 99.6% of registered firms and
employ 62% of our workforce. In other words, additional support granted to MSMEs
will have strong multiplier effects. We are happy to learn therefore that Quezo
n City-based coops in cooperation with the Office of the Mayor initiated discussio
ns with the Bangko Sentral for the creation of its own CSF. Thus today, we have
12 cooperatives who have initially contributed P3.95 million to the CSF while th
e Quezon City government will give a counterpart contribution of P5 million. Add
itional contributions will also come from DBP, LandBank and the IGLF.Let us ther
efore thank Land Bank as represented by its President Gilda Pico; the Developmen
t Bank of the Philippines represented by Chairman Jose Nuez, Jr.; and the Industr
ial Guarantee and Loan Fund represented by its Chief Executive Officer BenelLagu
a. On our part, you can count on the Bangko Sentrals continued support to make th
is collaboration sustainable. We will continue to advocate and introduce more in
novations, promote capacity building, and provide liquidity support through our
rediscounting facility. Finally, I can share that the Bangko Sentral is in final
stages of discussions on new partnerships with other LGUs and cooperatives to s
et up additional CSFs in the country. Indeed, the spirit of cooperation. of Bayan
ihan is alive and well in our country. If we sustain this momentum, we can truly
achieve sustained, balanced and inclusive growth. Muli, maraming salamat.Mabuhay
ang MSMEs! Mabuhay ang Quezon City! Mabuhay ang ating mahal na bansang Pilipina
s!
Sustaining Growth While Riding the Uncertainty

Venue: Shangri-la Hotel, Makati
Occasion: Bloomberg?s Foreign Exchange Forum

Introduction -- Caution in a time of uncertainty Good afternoon. Seeing all of y
ou here once again validates my theory that indeed there is a strong correlation
between volatility and attendance in a forum like this one - to listen to the c
entral bank talk about uncertainty. From a smaller function room downstairs wher
e we used to hold this forum, we have been kicked upstairs to this ballroom. Hol
ding this discussion now also shows Bloombergs knack for getting the timing right
. Your interest confirms that the most common reaction to uncertainty is caution.
Think about it, if you are about to undergo your annual physical, dont you modif
y your eating habits and hold off on that last piece of lechon? . However, how long
you feel you need to deprive yourself depends on your initial conditions. If you
are in fairly good health, maybe you would only skip one craving for that savory
bite and you would still be confident to walk into the doctors office. The same
reality applies to the financial market. 1) When market participants sense uncer
tainty, they proceed with caution and 2) The impact of uncertainty on your behav
ior will depend on initial conditions. If uncertainty finds you at a time of hig
h market volatility, you are likely to be more nimble, than when uncertainty fin
ds you at a time of low volatility. Right now we are in a low volatility environ
ment. Some analysts say volatility is eerily low. There is even an assessment that
markets have become too complacent. Is that the case among market participants in
the Philippines? I hope not. See, the thing with uncertainty is that the degree o
f uncertainty is itself uncertain. Therefore, we really cannot, and should not b
e complacent. Because however quiet markets seem to be now, risks remain. Risks Re
main What are these risks that we face today? Let me name four that are top of m
ind: 1) Monetary policy normalization in advanced economies. The consensus, as I
understand it, is that the Fed would continue with its current pace of tapering
. The operative question now therefore is when will the Fed lift off be? Will it b
e mid-2015, as many market analysts project? Or earlier? The next critical quest
ion we must ask ourselves is -- how far should we take the risk on trade? Unfortun
ately, because of possible spillovers and contagion, the answer to this question
may actually depend on the answer to yet another question, i.e., how far will t
he global investor take the risk on trade? As price takers in the global market, w
e are often at the mercy of how the global asset managers behave. Indeed, the be
havior of global asset managers has caught the attention of central banks in all
jurisdictions, particularly, how their herd behavior tends to amplify volatility.
Quite often, because 1) they hold superior information to that of retail invest
ors, 2) they have similar risk management frameworks, and 3) they have a common
goal to outperform their benchmarks, global asset managers are able to (and ofte
n do) get out of trades more quickly and nearly at the same time, leaving the sm
all institutional investors and retail investors holding the bag, when the music s
tops. If global investor sentiment shifts because of a misappreciation of Fed pr
onouncements, as what happened during the taper tantrum, the current low volatilit
y in the market could quickly turn to a high volatility environment. 2) We shoul
d also consider the monetary policies in the ECB and BOJ. These central banks ha
ve both said they are willing to extend accommodative monetary policy longer tha
n the Fed. While this asynchronous exit could help assure the market that global
central bank liquidity would not suddenly dry up, a prolonged QE from these two
central banks could also present a drag to global trade, if the QE in these jur
isdictions is perceived to be ineffective in stimulating growth. Furthermore, pr
olonged QE could create distortions in financial risk assessments. 3) Geopolitic
al risks Happenings in the Middle East, retaliations between the West and Russia
all these could raise the volatility in commodity prices, affect global trade a
s sanctions continue to be hurled from both sides, and quite possibly, economic
activity. In addition, geopolitical risks could lead to flight-to-quality trades,
which could adversely affect EMEs. 4) Natural disasters These could affect the d
omestic supply chain of food and other important commodities and exacerbate supp
ly of power. These can directly feed into our inflation and growth dynamics. Nor
malization of monetary policies in advanced economies, geopolitical risks, and n

atural disasters -- these are some of the major risks that bring about uncertain
ty in our operating environment. How these could ultimately impact all of us, de
pends on our initial conditions. Initial Conditions and what has the BSP done so
far This snapshot is not unfamiliar to you, so let me just quickly run thru the
se: On monetary policy As you know, the BSP has carried out a series of actions.
Each to address an evolving condition. First to contain domestic liquidity that
continued to be very high in the system through two 100 bps increases in our re
serve requirements; then an increase in our SDA rate of 25 bps to help contain f
inancial stability pressures from the excess liquidity, and finally 25 bps incre
ase in our RRP rate, to help manage inflation expectations. These show our shift
to a tightening bias. Our view is that it is important to guide the market to b
etter appreciate market risk in the context of normalization. Because continued
low volatility in the financial markets may promote further undue risk-taking at
titudes. Equally important, the series of policy actions helps ensure that infla
tion expectations do not get disanchored. Now you may ask, would you be seeing f
urther action from the BSP? Let me just say that all the tools available to us i
n our expanded tool kit remain on the table. I reiterate that the BSP is fully com
mitted to the inflation target and is prepared to deploy all policy tools as war
ranted. At the same time, we will continue to coordinate with other agencies of
government to address pressures from the supply side, including the timely impor
tation of certain food products and tighter price monitoring to prevent speculat
ive trading, to help ease price pressures. Other measures include: lowering logi
stics and shipping costs, increasing agricultural productivity. On the exchange
rate The exchange rate will continue to be market-determined. But BSP will not h
esitate to come into the market if there is a need to smooth out too much volati
lity in exchange rate movements. On the banking sector -- The Philippine banking
system continues to maintain a strong performance. We will remain on track in a
dopting international standards, taking into account domestic market conditions,
to ensure that the banking system becomes more resilient and is able to interme
diate funds safely, efficiently, and effectively. On external liquidity dynamics
We will retain a pragmatic approach to handling foreign exchange so that our cu
rrent account continues to be in surplus, supported by overseas Filipino remitta
nces, business process outsourcing (BPO) revenues, tourism receipts and exports.
We will also manage international reserves as appropriate. Our strong external
liquidity position will continue to provide a cushion against external shocks. A
ll these would help enable the Philippines to remain competitive and be able to
hurdle the challenges as well as reap the benefits from the numerous opportuniti
es of the forthcoming ASEAN integration of financial and goods markets. Granted,
much more needs to be done to make the ASEAN story whole, we find the initial con
ditions and our policy thrusts conducive to make this story come true. Assessmen
t: Given such sound initial macroeconomic conditions, should we/you worry? Would
any uncertainty rock us/you? And the million dollar question -- What can you ex
pect from the BSP? A tilting in any/or all of the risks I enumerated could tip t
he balance of volatility from low to high. For certain, the sound macro conditio
ns we walked through earlier would help to temper the impact of a significant an
d sudden shift to greater volatility. But, how each of your individual bottom li
nes would ultimately be affected would depend on your specific circumstances. Cl
early, the Philippines is in a good spot, and the prospects are bright. Our soun
d fundamental story is intact. This should not, however, lull us to complacency.
I admonish each of you to use this time of low volatility wisely -- take stock
of your positions and carefully reassess these against the risks. It is a fundam
ental truth -- in everything we face, there are two circles of concern that conf
ront us: 1) those concerns that are within your control, and 2) those outside of
your control. Quite often, the latter circle is larger than the former. As mark
et practitioners, you need to be mindful of these two circles. What can you cont
rol? Certainly your risk appetite. Controlling this when greed gets the better o
f you is very difficult. So in a period of low volatility such as what we have b
een experiencing, practice the discipline of setting limits. This discipline wil
l not only help you to avoid the pitfalls of chasing the market. More importantly,
this discipline will help you take advantage of the obvious opportunities, as w
ell as unearth those that are hidden. Discipline set during the sober low volati
lity period will guide you when you are confronted with factors that are not wit
hin your control, especially during a frenzied high volatility period. The BSP p
ractices the same discipline. For the things that are under the BSPs control, the
BSP takes conscious effort to act on these. For those that are not we sharpen o
ur surveillance, monitoring and analysis. We also coordinate with other governme
nt agencies which may have influence over the situation and dialogue with our pe
ers in the region and beyond. You can therefore expect the BSP to continue to 1)
keep our ears on the ground for inflation impulses and changes in inflation dyn
amics, 2) act preemptively as appropriate when we see financial stability pressu
res rising, 3) keep a market-determined exchange rate, and 4) use all monetary a
nd macroprudential tools under our disposal to shield the gains we have achieved
so far. The BSP will also continue to work to strengthen the consumer protectio
n practices of banks. I believe it is incumbent upon you, particularly those on
the marketing side, to fully disclose the risks of transactions or products to y
our clients making it clear that price history is not necessarily a predictor of
future price behavior. Related to this, we are about to roll out a new comprehe
nsive consumer protection framework, which will cover what is expected of financ
ial professionals such as yourselves with respect to the public whom you serve.
You have heard me say, on numerous occasions the best policy is to keep your own
house in order. This is what you can expect the BSP to do And that is also what we
expect each of you to do. It is our hope that the BSPs actions and policy intent
ions are clear enough to you and that I have helped to articulate these better th
is afternoon. The BSPs objective is to help you plan better, prepare and ultimate
ly prosper even in times of uncertainty. Our vision is for the BSP to be, consis
tent with our mandate, the tide that lifts all boats.
2014 Stakeholders Awards Ceremony and Appreciation Lunch

Occasion: 2014 Stakeholders Awards Ceremony and Appreciation Lunch
Magandang umaga sa inyong lahat! On behalf of my colleagues at the Monetary Boar
d and my fellow central bankers, I thank all of our special guests from the priv
ate and the government sectors for joining our traditional stakeholders awards a
nd appreciation ceremony. This annual event is important to us at the Bangko Sen
tral ng Pilipinas; thus, we always make it a point to celebrate our anniversary
with our stakeholders from the different sectors of our economy. Because of you,
... we have partners we can rely on to provide timely and comprehensive informa
tion crucial in crafting responsive policies; we have responsible partners who h
elp us maintain price and banking stability; and we have dynamic partners who he
lp us develop a better... and a more inclusive financial system that promotes in
clusive growth. For this, we thank all of you who are here with us today... as w
ell as our other partners across the country. At a time when the global economy
remains in a state of flux... at a time when uncertainty is the norm, .... it is
our strong partnership that counts among our sources of guidance in choosing th
e way forward. Among others, we credit the quality and timeliness of the informa
tion you share... in helping the Bangko Sentral calibrate its decisions that wou
ld influence inflation and interest rates two important factors that affect the
economy and ultimately... everyone. Thus, we are seeing the ideal convergence of
higher economic growth and stable prices. In 2013, for instance, our GDP expand
ed by 7.2 % amid an inflation rate of 3.0 %. It is in this context that for our
2014 awards... we adopted as the most appropriate theme... Forging Stronger Allia
nces, Propelling Sustainable Growth. In particular, we thank respondents to the B
usiness Expectations Survey who keep us sharply attuned to perceptions on the mo
vement of prices. On the other hand, respondents to surveys such as the Cross Bo
rder Transactions, Coordinated Portfolio Investment, Information Technology-BPO
Services, and Foreign Direct Investment... help us to broadly assess the countrys
transactions with the rest of the world. These are important in assessing signi
ficant developments in exchange rates and vulnerability to external shocks. We a
lso recognize our stakeholders who regularly provide us with a diverse range of
inputs for our monetary policy formulation, our balance of payments projections,
and regional reports on economic developments. All these are crucial to the for
mulation of responsive and forward-looking policies. We also thank our banks tha
t have been our steady partners in facilitating the safe transfer of billions of
remittances from overseas Filipinos. In 2013, cash remittances of overseas Fili
pinos reached a record high of almost $23 billion ($22.968B). We also recognize
that the efforts of banks at enhancing competition and transparency in the remit
tance market has benefitted millions of overseas Filipinos and their families in
terms of lower charges. Finally, we thank all our partners who help Bangko Sent
ral ng Pilipinas become better in providing other services to our people: whethe
r it is developing a more inclusive financial system; promoting the development
of microfinance; enhancing access to credit; enhancing financial consumer protec
tion; supporting our banknotes and coin distribution and information programs; p
articipating in financial education programs; or promoting the habit of saving r
egularly. Ladies and gentlemen. We have learned that our partnership yields bene
ficial dividends. With your support, the Bangko Sentral ng Pilipinas is able to
execute well-informed policies grounded on comprehensive, accurate and timely in
formation. In turn, you benefit from these policies that provide an enabling env
ironment for businesses to continue to grow... and to thrive... even through cha
llenging times. In the process, employment is generated and inclusive growth is
achieved. So, what does the future hold for us? Well, across the globe economic
growth has started to gain traction, albeit at varying speeds. Advanced economie
s led by the US, have started to crawl out of recession.... while activities in
emerging markets remain uneven. Amidst these uneven patches of recovery in the g
lobal arena, the Philippine economy continues to be fertile ground for growth, g
iven its strong macroeconomic fundamentals. For the first quarter of 2014, our e
conomy grew by 5.7 percent year-on-year on the back of the steady growth of the
services sector. On the expenditure side, consumption and capital formation cont
inue to drive growth. Notably, the economy has consistently expanded by more tha
n 5 percent in the last 9 quarters. This positive trend has prompted analysts to
describe the Philippines as Asias rising star - with the economy also gaining repu
tation as one of the fastest growing in Asia. Indeed, the economy has been resil
ient, exhibiting both price and financial stability. Inflation has been kept low
and stable. For 5 consecutive years, inflation has been kept well-within our ta
rget due to timely and responsive monetary policies. At the same time, the banki
ng system remains sound and stable with assets continuing to expand, funded main
ly by a healthy growth in deposits. Moreover, banks are well-capitalized while a
sset quality continues to improve, with banks non-performing loan ratios at all-t
ime lows. Another source of strength is our strong external position... supporte
d by the continued surplus in our current account. Our gross international reser
ves as of June 2014 reached 80.7 billion dollars, enough to cover 11 months worth
of imports of goods and payments of services. In other words, we have enough bu
ffers against possible external shocks. This is not to say the road ahead will b
e smooth. There are bound to be surprises, bumps and risks ahead; but we have al
so shown remarkable strength and resilience in meeting tough challenges. I am co
nfident therefore... that as we benefit from even better and stronger support fr
om you... our stakeholders... we will be able to sustain our growth objectives a
nd achieve more inclusive growth across our country. Muli, maraming salamat sa i
nyong lahat.... and congratulations... to all our awardees! Mabuhay ang ating ma
hal na bansang Pilipinas! Mabuhay po tayong lahat!
Navigating the New Rural Banking Landscape: Challenges and Opportunities

Venue: Hotel Sofitel, Pasay City
Occasion: Induction Ceremonies of the Rural Bankers Association of the Philippin
es? officers for 2014-2015
The members of the Rural Bankers Association of the Philippines, headed by newly
sworn in President Jose Misael Moraleda, members of the Monetary Board, PDIC Pr
esident Valentin Araneta, colleagues from the BSP, fellow advocates of rural ban
king, distinguished guests, good evening! Once again, on behalf of the Bangko Sen
tral ng Pilipinas, I congratulate the new officers and directors of RBAP led by
President Moraleda. Let us also thank the previous board and officers of RBAP un
der the leadership of Mr. Vittorio Almario. Rural Banking in Broad Strokes Ladie
s and gentlemen. You will be pleased to know that the Philippine rural banking s
ector continues to grow and expand as indicated by key performance indicators inc
luding consolidated assets, deposits, and loans. As of March this year, the tota
l resources of rural banks stood at 209.4 billion pesos, representing a year-onyear growth of 8.8 %. At the same time, total loan portfolio increased by 6.5% t
o 138 billion pesos while deposits climbed 10.6% to 145 billion pesos. That these
figures were achieved even as natural calamities devastated wide areas in the V
isayas is unquestionably commendable. Indeed, the story of our rural banks has b
een one of resilience. Challenges and Opportunities Moving forward, what does th
e future hold for our rural banks. Well, we see new challenges as well as opportu
nities. emerging from the ongoing changes in the environment where rural banks op
erate. Among others, rural banks face increasingly stiffer competition from both
smaller and bigger players. More cooperatives and non-government organizations (
NGOs) now operate in the countryside with relatively lower costs than most rural
banks. As such, these entities may acquire portions of your market not only from
frontier areas but possibly even those you have nurtured through time. We also
see the increasing presence of larger financial institutions in various municipa
lities. While larger banks may have their own reasons for expanding their branch
ing footprint, the net effect is that rural banks now face more competition. Fur
thermore, the passage of legislations allowing the infusion of foreign equity in
rural banks is also bound to be a game changer. Ladies and gentlemen. All these
call for decisions on the part of your rural banks. Do you want to continue oper
ating on your own? Will you consider taking in new investors whether local or fo
reign? Are you looking at possible mergers? Is there a good fit? In making your
decision, it is important to remember that size is not the only determinant in f
acing competition. You may not be the biggest in your area, but you certainly kn
ow the countryside better than anyone. Indeed, your expertise and knowledge shou
ld translate into a premium on efficiency, a definite advantage over your compet
itors. Let me give you an example. Compared to Indonesia, Malaysia, Singapore an
d Thailand the Philippine banking system is smaller. Nevertheless, among 72 juris
dictions monitored by Moodys, a major international credit rating company, only t
he Philippine banking sector was given a positive outlook. Indeed, in assessing yo
ur rural bank... or your potential partners/investors for that matter, there are
many factors to consider. These are: right-sizing which is crucial, efficiency,
risk management, good governance, capitalization, and the ability to adapt to a
constantly shifting environment. Interventions Given all these, it is only logi
cal to ask this question: is the industry ready to face up to the challenges of
a changing market landscape? Well, an objective assessment leads us to conclude
that... much has been done to prepare the industry. Our banking reform agenda in
the past 20 years has been structured to strengthen our local banks and to be m
ore responsive to the needs of stakeholders. In particular, our efforts to bolst
er risk management systems, enhance corporate governance standards, build-up cap
ital and adopt international best practices are intended to improve the efficien
cy and competitiveness of our banks. The Bangko Sentral is mindful that in align
ing ourselves with global best practices, we at the same time should take local
conditions into consideration. Thus, while commercial banks are required to be B
asel III compliant starting January 2014, the BSPs requirement for rural banks is
the less stringent Basel 1.5. Another program tailor-fit for rural banks is the
Strengthening Program for Rural Banks, a joint undertaking of the BSP and the P
DIC. Launched in 2010 to strengthen rural banks and to minimize bank closures, t
he program has been extended as SPRB Plus until December 2014 to encourage more
mergers, consolidations and acquisition of eligible rural banks and thrift banks
by strategic third party investors. As of 30 June 2014, seven merger/consolidat
ion applications involving fifteen (15) banks have been approved by the PDIC and
are being processed by the BSP. In addition, there are five (5) other applicati
ons for consolidation/acquisition that are in the pipeline. Capacity building is
another area we have focused on. In particular, the BSPs Supervision and Examina
tion Sector developed a completely new four-day training program targeted for th
e Board of Directors and senior officers of rural banks... which we now refer to
as the Rural Bank Management Course. The BSP worked with RBAP on the coverage o
f such a program. After a series of pilot and early runs we are now ready to hand
over to RBAP the course materials and the conduct of this well-received and high
ly rated course. If needed, the BSP is prepared to extend further assistance on
this program to RBAP. Redefining a Strategic Direction While these programs are
meant to enhance the operations of rural banks, we recognize that there is still
a lot more that can and should be done. A good starting point is a fundamental r
eview of your banks strengths and weaknesses. After this is completed, identify t
he needs of your constituents in the context of the competition that has emerged
. Such a review is likely to show that different communities require different f
orms of access and delivery of financial products and services. This is the dire
ct result of having an archipelago where demographic differences across localiti
es are significant. This may seem like a stumbling block but this also represents
opportunities for rural banks. For instance, our experience in microfinance and
financial inclusion shows that alternative delivery channels are viable. You ca
n therefore find a balance between alternative delivery mechanisms vis--vis the b
rick and mortar approach of traditional branching. As you move from one locality
to another, you will discover that one approach is more viable than the other,
depending on the economics of the locality itself. For other areas, it may be ec
onomically feasible to offer both approaches to the community. In the current en
vironment, we do see a silver lining: in the face of rising competition, we see
the market growing as the benefits of development programs and fresh investments
increasingly find their way to the countryside. We see for instance the positiv
e impact of infrastructure development, tourism and even the conditional cash tr
ansfer program. In small communities, such inflows can serve as catalysts for su
stainable and inclusive growth. Microfinance presents another growth opportunity
for rural banks, with microentrepreneurs emerging as both depositors and invest
ors who generate jobs. The Crucial Steps Moving Forward Ladies and gentlemen, th
e unfolding scenarios certainly create opportunities for those who are determine
d to pursue the path of success. For rural banks, this is an impetus to boost op
erational efficiency, expand product lines, reach out to more markets, increase
diversity, lower operating cost and simply right-size the way you do business. A
fter long discussions on such concepts as regionalization, market integration an
d global reforms, these buzzwords are now a reality. The broad strokes are evide
nt. Now you have to decide where to take your bank and how to achieve your vision
. You can be proactive or you can simply maintain the status quo. It is all up to
you. One thing is certain. The BSP stands ready as it always been to be the par
tner of the rural banking sector in responding to the financial needs of the Phi
lippine countryside. to reach out to those who remain unserved and to promote sust
ainable and inclusive growth across our country. Maming salamat sa inyong lahat!
CMA: More Than an Awards Program

Venue: Lounge, Executive Business Center, BSP
Occasion: Media Launch of the 2014 Citi Microentrepreneurship Awards (CMA)
Citi Philippines CEO Batara Sianturi; our 2013 Citi Microentrepreneurship Awarde
es; colleagues from the BSP; fellow advocates of microfinance; our special guest
s from the media; ladies and gentlemen, good morning! I am pleased to confirm th
e good news: .... the microfinance sector continues to grow.... and empower more
microentrepreneurs across the Philippines. As of September 2013, 183 banks prov
ided 8.1 billion pesos in microfinance loans to over a million borrowers -- 1,01
7,351 Pinoys to be exact. This translates to an average bank loan of eight thous
and pesos per borrower. Seven years ago - in December 2006, the total microfinan
ce loan portfolio of banks was 4 billion pesos for 650,000 borrowers... or an av
erage of 6,150 pesos per borrower. In other words, bank loans to microenterprise
s increased by 102% in seven years, while the number of microentrepreneurs who a
ccessed micro loans from banks increased by 56%. Over the same period, average m
icro loans increased by 30%. Equally significant, the accumulated bank savings o
f microentrepreneurs jumped from P1.4 billion in 2006 to P8.8 billion, an increa
se of 525%. This means the average deposit per microentrepreneur increased from
two thousand pesos in 2006 to 8,650 pesos in 2013, an improvement of 332% in sev
en years. We realize these are cold figures. However, the stories behind these f
igures prove the power of microfinance to transform and improve lives. As co-cha
ir of the selection committee for CMA for 10 years now, I have personally witnes
sed how microentrepreneurs survived scarcity by making their business a reliable
source of family income all because they accessed... and sensibly used... micro
finance loans. As a regulator, it is a joy to see tangible proof that our microf
inance policies and regulations have such a powerful impact on families and comm
unities. And so today, we are pleased to present to you the 2013 CMA winners who
will share their unique stories, challenges, and how they finally found the roa
d to success. They are the latest batch of inspiring good role models for other
entrepreneurial Pinoys. So far, this annual search for outstanding microentrepre
neurs has generated 93 winners since it was jointly launched in 2002 by the Bang
ko Sentral ng Pilipinas, the Microfinance Council of the Philippines and Citi. S
ince then, this award-winning program has been replicated by Citi in 32 other co
untries. I am also pleased to announce that even as the global survey of Economi
c Intelligence Unit consistently ranks the Philippines as having the best regula
tory framework for the development of microfinance, the Bangko Sentral ng Pilipi
nas continues to work on regulatory enhancements in response to changing market
needs and developments. Among others, the BSP has done the following: raised the
average daily balance of microdeposits to promote higher savings rate among mic
rofinance clients; enabled microinsurance providers to expand coverage to famili
es of microfinance clients; improved procedures in the product approval of housi
ng microfinance loans and micro-agri loans to simplify the process by which bank
s can offer innovative microfinance products; allowed the acceptance of alternat
ive Identification Documents (IDs) to open bank accounts, including those issued
to persons with disability or under government welfare; & institutionalized a C

onsumer Protection Framework to provide comprehensive protection for all financi
al consumers, including microfinance clients. Ladies and gentlemen. While we cel
ebrate our milestones, we know that there is so much more that we can do... to i
mprove the lives of Filipinos, particularly those who live in poverty. We can he
lp them help themselves... by showing them the opportunities microfinance can pr
ovide. As we launch this years search for new CMA awardees, we hope we can gain t
he interest of more Filipinos to join the microfinance sector. Let us therefore
continue to spread the word about microfinance... and the stories of our CMA win
ners...some of whom are with us today. Through them, we are reassured again and
again... that microfinance is a viable option for entrepreneurial Pinoys. Mabuha
y ang microfinance! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salam
at sa inyong lahat!
The Philippine Economy: Gearing up for the Challenges Ahead

Venue: SM Aura Convention Center, Taguig City
Occasion: Philippine Retail Investment Conference hosted by the Chartered Financ
ial Analyst (CFA) Society of the Philippines
To the organizers of the Retail Investment Conference, led by Ms. April Lynn Tan
, President of the Chartered Financial Analyst (CFA) Society of the Philippines,
guests, ladies and gentlemen, good morning. I am delighted to welcome you to th
e CFAs first Retail Investment Conference. Coming after the countrys successful ho
sting of the World Economic Forum last week, and before that the countrys receipt
of the one-notch further credit rating upgrade from Standard and Poors, this con
ference dedicated to the Filipino retail investor could not have come at a more
opportune time. With the WEF and the rating upgrade, we could expect greater int
erest from foreign investors in the countrys potential as an investment destinati
on. That being the case, we should not allow the domestic retail investor to be
left too far behind. The CFA Institute, which organized this conference, is often
thought of as an organization of math wizards and nerds who dabble in the rocket
science that is called finance. Looking around the room, I think there are quit
e a few of you who are also investment geniuses. But to the majority of us, commo
ners, who are not as gifted, it is the discipline in informed decision-making that
evens out the equation. Whether you are in the former group, or in the latter, t
he fact that you are here indicates to me that you have interest in the Philippi
ne economic story. I hope that at the end of the day, you will find yourselves a
rmed with the correct information and able to make the right decisions to suit y
our personal financial objectives. Ive structured my remarks this morning, follow
ing this outline. Ill start with the developments and outlook in the Philippines,
go through some challenges -- from both the domestic and global fronts -- that
face us and how the BSP is helping to address these challenges. I would like you
to focus on the top chart this is the countrys quarterly GDP performance. This c
hart tells us that since 1999 (or nearly 15 years ago), the Philippines has post
ed 60 quarters of consecutive, positive economic growth. Not even at the height
of the Global Financial Crisis in 2008/9 did we register negative GDP growth. Wh
at is even more noteworthy is the fact that in the last 8 quarters, GDP has cons
istently grown above 6 percent (with an average of 7 percent). This has led many
during the WEF to call the Philippines a country turning the tide from being th
e sick man of Asia to the next Asian miracle. To be perfectly frank though, I do
not relish that we are called a miracle. The evidence will show that we are whe
re we are now because of hard-fought reforms. Analysts have described the Philip
pine economy as being in the pink of health. And this rosy picture is expected to
continue through 2014-2015. The charts in the bottom half of the screenshow that
domestic aggregate demand -- consumption and capital formation continue to be t
he main drivers of growth. Our growth story has been underpinned by solid anchor
s -- low and stable inflation due to credible monetary policy and a sound bankin
g system maintained through responsive regulation. Inflation has remained within
target for 5 consecutive years. Meanwhile, Philippine banks continue to be well
-capitalized. On both solo and consolidated bases, the capital adequacy ratio of
our banks remains well-above the BSPs standard of 10 percent and the BISs standar
d of 8 percent. Likewise the adoption of Basel 3 in 2014 is expected to strength
en further the financial system. The countrys external sector position and paymen
ts dynamics have continued to help shield the economy and the domestic financial
market amid recent financial market volatilities following the start of the Fed
tapering. The favorable external sector dynamics is also manifested through imp
rovements in the countrys external liability management. The countrys current acco
unt has been in surplus for 11 consecutive years now. Our gross international re
serves remain more than adequate to meet the countrys foreign exchange requiremen
ts. The countrys external debt has been on the decline from around 60 percent in
2004 to just over 20 percent in 2013. The strong macroeconomic fundamentals of t
he country have also been reflected in strong positive sentiment among retail in
vestors. As we all know, favourable sentiment is a positive multiplier. Both con
sumers and businesses continue to express upbeat views about the Philippine econ
omy s growth trajectory. The positive sentiments of both consumers and businesse
s are indicative of the broad support to the general direction of economic polic
ies, and this is expected to fuel the momentum of reforms moving forward. With t
he sustained positive developments in almost all sectors of the economy, the out
look in 2014 remains upbeat. We are optimistic that GDP growth will reach the go
vernments growth target of 6.5 to 7.5 percent for the year. We also expect inflat
ion to settle within the target of 3-5 percent for 2014. In 2015, the inflation
target is lowered to2-4 percent, which is consistent with our desired disinflati
on path. External sector dynamics will remain favorable, as trade is expected to
rebound in light of expected global turnaround while remittances are seen to re
main on a steady growth path. Let me now go to the second part of my presentatio
n: macroeconomic issues. Actual developments and prospects all look and sound li
ke it is all good, doesnt it? Yes, so far All positive trends.But just like any sh
rewd investor, the BSP is mindful about the pockets of risks that could impinge
on the countrys economic growth momentum. As they say, the trend is your friend un
til it bends. Let me focus on three issues: 1) Risks to price stability; 2) Impac
t of the gradual tightening of US monetary policy; and 3) Concerns raised on the
rapid growth in domestic liquidity and credit which,nevertheless, remain consis
tent with fundamentals. The first issue is: what are the risks to price stabilit
y? Weve been able to keep inflation within the governments target for 5 consecutiv
e years now. Is that a trend we can keep? I know many of you are used to looking
at charts and trends. The chart on the right side of the screen is something wh
ich you may not be that familiar with. Its called a fan chart. It shows the proje
cted path of inflation and the likely area this can stray about, given certain l
evels of confidence. Inflation is seen to be manageable over the policy horizon,
even as the inflation path has somewhat moved higher. The left hand side of the
screen lists the potential price risks. Potential price pressures are still com
ing mostly from the supply side, notably potential increases in power rates and
higher food prices resulting from an expected El Nio episode in the second half o
f 2014. These factors highlight the continued risk of second-round effects, whic
h are thus far, not yet evident. The downside risks to inflation are associated
with the potential growth slowdown in key emerging markets and risk of deflation
in some advanced economies. Going forward, to help ensure that the BSP is able
to sustain the trend of meeting the inflation target, we will continue to watch de
velopments. We will deploy appropriate measures as needed to ensure sustainable,
non-inflationary, and inclusive economic growth. I know that many of you are ac
hing to find out, when is the BSP going to raise its policy rates? No one has a cr
ystal ball, even Nostradamus missed. Instead of giving you a day and date, let m
e give you principles. 1) The BSP is focused on inflation. 2) We will not hesita
te to act pre-emptively if we believe the inflation target is at risk. 3) We are
not wedded to a pre-set course of action. We will use available tools in our en
hanced tool kit, as appropriate. Now does that answer the burning question in you
r mind? A second issue is the Fed taper. As sanguine as the future of the countr
y may sound, we remain watchful of potential risks that could arise from the Feds
actions. I am sure you have been following the issue of the Fed taper quite clo
sely. As shown in the charts, movements of domestic financial instruments in May
2013, Q4 2013 and Q1 2014 exhibited volatility. Nonetheless, the spill-over eff
ect of the US monetary policy normalization has gradually tapered off. In partic
ular, we could see that portfolio investments are now posting inflows following
outflows registered during the latter part of 2013 to the first three months of
2014. With the Fed taper of asset purchases in place, markets are now watching d
evelopments in growth and unemployment in the US, to see if the Fed will change
the perceived path of the taper, and when the lift-off (or when Fed would raise ra
tes) would be. In this period of uncertainty and market volatility, good surveil
lance is key. The BSP will not hesitate to deploy contingency measures in respon
se to sharp volatility in capital flows. With an expanded monetary policy toolki
t and a broad-range of macroprudential measures to help ensure financial stabili
ty, we are optimistic that we are equipped to deal with potential market volatil
ity. I can sense in the room, a second burning question at the back of your mind
s. will the exchange rate go below P43? Will it go past P45 again? When? Again,
I do not have a crystal ball. But let me describe to you our policy. The BSP wil
l continue to allow the FX rate to be broadly determined by the market But becaus
e market participants often go ahead of themselves, we will be present in the ma
rket if needed to help keep a lid on these excesses. This policy has worked well
, and we observe this whether the exchange rate is on an appreciation or a depre
ciation trend. The countrys external sector remains robust, and we are confident
we will be able to absorb significant shocks originating from external sources.
The movements in the domestic financial assets including the stock market and ex
change rate will continue to be dominated, in the near-term, by changes in the g
lobal investor sentiment. The global investor is hard-wired to be binary he is e
ither risk ON or risk OFF. Depending on the balance of risks between AEs and EME
s, funds can move across markets swiftly and in surges. It is these shifts in gl
obal sentiment that we are mindful of because often, it is the retail investor wh
o is the most at risk when the larger investment houses go in or out of specific
markets. This is why good, credible, timely information to retail investors is
critical. The slide lists some of these risks. Risks coming from advanced econom
ies include: a) weak domestic activity amid sustained ultra-low inflation/deflat
ion; b) sustainability of key reform measures in the euro area amid improving gr
owth prospects; and c) a faster than expected pace of US monetary policy normali
zation. Possible risks emanating from emerging market economies (EMEs) include:
a) protracted weak growth in certain EMEs; b) economic slowdown in China; and c)
geopolitical risks. A third risk is the build-up of financial stability pressur
es from high liquidity and credit growth that could lead to potential asset bubb
les. To backtrack, in 2010-12, the country experienced strong surges of capital
inflows, as the country became a magnet for capital that was looking for a home
that had both good yield and excellent growth potential. As the dollars were con
verted to buy domestic assets, peso liquidity in the system grew. Since 2011, we
have been instituting a series of macroprudential measures including adjustment
s in the capital risk weights on NDF, refinements in our SDA facility and increa
ses in reserve requirements. All these have been calibrated so that while we try
and limit speculative activity, we do not stifle legitimate inflows to the econ
omy. The use of macroprudential measures has so far been effective. By and large
, volatilities in the financial markets have been contained. We can use our enha
nced tool kit to ensure that volatility in financial and real asset prices is ke
pt at manageable levels. Before I move on to the next slide, I know some of you
may have this nagging question -- are we in an asset bubble? The indicators, as
of now, show that we are not in one but because it is our job to worry, we are m
indful that pressures from excessive market exuberance can lead to a bubble. Thu
s, we have been more closely monitoring the real estate sector (e.g., through th
e expanded definition of real estate exposures, stress testing on REE.) Earlier,
I had alluded to the phenomenon that when global asset managers move, there is
a risk that the retail investor could bear the heat of the shifts. Global asset ma
nagers often move in herd partly because they use the same benchmarks, have simi
lar risk management systems, and are very competitive. Also, partly because the
retail investor does not necessarily have the same set of information that globa
l asset managers have. The classic dilemma of information asymmetry. Hence, the
saying It is better to be incorrect and be with the herd, than to be correct and
be trampled upon by the market. In order to help reduce that risk to the retail inv
estors, the BSP is ardent in pursuing measures to promote further the developmen
t of our countrys capital market by broadening available investment alternatives
for you. Amended guidelines on rules governing Long-Term Negotiable Certificates
of Time Deposits (LTNCTDs).More liberal rules on issuance and trading of LTNCDs
in an exchange to enhance transparency and price discovery. Liberalized the fra
mework for the cross-selling of financial products by banks. Allowing banks to u
se their premises to market and sell the financial products of their related par
ties under a banking group or a financial conglomerate provides a broader array
of financial products using the existing branch network of the banking system. C
reated the environment to encourage availability of derivative products for bank
s and clients. We continue to enhance the regulatory environment [e.g., refineme
nt of benchmarks, trading rules] so that banks can offer instruments to help hed
ge risk and provide ways of portfolio diversification [e.g., FX options, swaps,
credit derivatives, IRS] Also contributing to efforts to deepen the countrys capi
tal market is the BSPs Economic and Financial Learning Program (EFLP) which bring
s together under one flagship program the key economic and financial learning pr
ograms of the BSP. It embodies the BSPs thrust to promote economic and financial
education among the public. Increasing awareness about the financial system and
the financial services it offers will certainly increase retail investor partici
pation. As much as we are committed to promoting financial services and products
, and providing financial education, we are also equally keen on ensuring that c
onsumer rights are being protected. This is something we take seriously in the B
SP. Just two weeks ago, the Monetary Board (MB) approved the adoption of the Fin
ancial Consumer Protection Framework of the BSP to institutionalize consumer pro
tection as an integral component of banking supervision in the country. Banks sh
ould no longer see consumer protection as a nice to have CSR or advocacy, but we w
ill be rating banks in terms of the systems and procedures they have for consume
r protection. Much earlier on, the BSP already put its money where its mouth is, s
o to speak. In the BSP, we institutionalized consumer protection by creating one
department which sole function is to be a redress mechanism for consumer grieva
nces and complaints. Being in the BSPs Financial Consumer Affairs Group (FCAG) is
not an easy day job, as you can imagine. But it is something that we believe ha
s been effective in giving reprieve to consumers and also bringing complaints to
banks so they could make appropriate changes in their own processes. Part of co
nsumer protection is also giving them information. So, in addition to the EFLP o
f the BSP, we have worked with other members of the Financial Sector Forum (FSF)
, i.e., SEC, PDIC, IC, to develop Protect Your Money (PYM) and other advisories to
raise public awareness on financial products and services, the basic responsibi
lities of depositors and investors, and the things to look out for when depositi
ng or investing. Consumer protection, financial education, and developing the do
mestic capital markets are all part of the BSPs strategy to help ensure that the
retail investor is equipped and protected. But more broadly and to the rest of t
he economy, the BSP works towards creating a stable macroeconomic environment wh
ere you can plan, participate, and help propagate the creation and enlargement o
f wealth, not just for yourselves, but for the greater majority. In particular,
The BSP remains committed to staying the course:(a) sustain appropriate monetary
policy stance to maintain and promote price stability; (b) continue to initiate
key reforms to promote financial stability, including financial inclusion advoc
acies; and (c) pursue measures (e.g., maintaining a market-determined exchange r

ate, keeping an adequate level of FX reserves, and managing our external debt pr
ofile) to strengthen resilience against external shocks. The BSP will remain as
a catalyst for further development of sustainable and inclusive growth: We will
continue to adopt purposeful reforms, aligning our own processes with internatio
nal benchmarks, while making sure these reforms are relevant to our own domestic
needs. As you may have heard me say on numerous occasions in the past weeks,So fa
r, so good.. We have weathered the GFC, the Fed taper tantrum, the onset of the Fe
d taper, Yolanda and a host of other natural calamities. We have even weathered g
eopolitical risks. But this should not lead us to be complacent. The situation c
ould, as they say, turn on a dime.Which is why you and the BSP have to remain vigi
lant. I mentioned our buffers, I also mentioned the risks. But I want to end the
se remarks by saying, the BSP will continue to be watchful, implement appropriat
e and timely reforms and draw from our strengths in confronting the challenges a
head. Our support for the development of the countrys financial market will not w
aver We will continue to be guided by a framework that will not stifle innovation
but rather promote market discipline. This is our word, and to borrow investors
dictum: Our word is our bond. Thank you.
Policy Challenges Amid an Evolving Investment Environment

Venue: Mandarin Oriental Hotel, Makati City
Occasion: Inaugural Philippines Investment Summit, organized by the Financial Ti
mes in partnership with First Metro Investment Corporation
Good afternoon. Let me first thank the Financial Times and First Metro Investmen
t Corporation for inviting me to address this inaugural Philippine Investment Su
mmit. The Summit couldnt have come at a better time. Today, emerging market econo
mies, including the Philippines and other Asian countries, face a new wave of mar
ket volatilities. In the first quarter of this year, many EMEs saw large capital
outflows, which resulted in EME currencies depreciating, bond yields rising, and
equities coming under pressure. Although some of these trends have somewhat dis
sipated in the last few weeks, risks from the underlying reasons for the volatil
ities remain. I therefore welcome this opportunity to share some of our thoughts
on the remaining risks. Against this background, I will discuss the outlook for
the Philippine economy as well as financial market concerns and the BSPs approac
h to safeguard against financial instability. This New Wave of Market Volatiliti
es Let me begin by considering what I see are the principal sources of the impul
ses for this new wave of market volatilities. First, the series of Fed announcemen
ts and actions. Go back to May 2013 and the taper tantrum. Flash forward to Fed Re
serves announcement in December the same year of the start of taper. And then the
eventual commencement of the taper in January this year. With additional Fed as
set purchases now down to only $45B from $85B at the end of 2013, and the taper
seen to be fairly on course, the market has found itself at a stage where the be
tting has turned to when the lift off would happen. In other words, markets are sp
eculating when the Fed would begin to hike the Fed Funds target rate. Indeed, ma
rkets would like to find the next reason to put on a new trade! A second source
of impulses is the still-patchy structural reform-dependent growth paths of key
trading partner Asian economies, particularly Japan and China. Although growth i
n Japan has picked up as the first two arrows of Abenomics have found their targ
et, the third arrow of structural reforms still has to be firmly in place for th
e economy to successfully transition to self-sustained, deflation-free growth. F

or China, while the scenario of a hard landing is not high on many economists rad
ar screens, the full implementation of the reform agenda that would help acceler
ate economic rebalancing toward private consumption and deliver more sustained g
rowth is yet to materialize. Third source of volatility impulses is Europe. The
markets continue to watch what the ECB would actually do to fight deflation and
curb the strong euro, whether it would in fact unleash its own version of QE. An
alysts say Super Mario isnt bluffing. There are a number of other impulses, includi
ng geopolitical concerns, but in the interest of time, let me just round out thi
s list with this -- market differentiation within the EME debt space. Differenti
ation is really the market manifestation of the aforementioned macro impulses. B
ecause the current breed of market participants are hard-wired as binary either
risk is on or off, market volatility could be amplified depending on which of the ea
rlier impulses would be stronger at a point in time. Capital flows could shift f
rom AEs to EMEs, in general, and more strongly into specific EMEs, in particular
. And depending on the news, we may see a rebalancing within the EME space, a re
turn of flows to AEs, and the cycle could continue where funds would flow back t
o EMEs. EME Policy Focus: How do we guard against the New Wave? Amid this new wav
e of volatilities, therefore, the key priority of policymakers in EMEs, including
those in Asia, should be to continue focusing on promoting macroeconomic stabil
ity by strengthening buffers against potential risks to financial stability, and
equally to the outlook for inflation and growth. In a word, in the uncertainty
created by market reaction to AEs, EMEs must develop an internal anchor. For thi
s, there is no substitute for sound domestic macrofundamentals. Our Assessment:
How would we fare during the New Wave? For the Philippines, our assessment is th
at the economy remains well-positioned to deal with these challenges. In the yea
rs following the global financial crisis, the confluence of strong economic grow
th, low and stable inflation, ample liquidity, and broad market confidence has a
llowed policymakers to pursue structural reforms to strengthen our buffers again
st external and domestic sources of headwinds. Disciplined fiscal policy has als
o yielded good dividends, as the government now has wider headroom to undertake
critical social and physical infrastructure that could in turn improve the inves
tment climate for more enduring growth over the long haul. Further, prudent mone
tary policy has helped safeguard non-inflationary growth and financial stability
, creating a predictable environment for growth in consumption and investment, t
hus fueling the economys momentum. Indeed, the underlying story of the economys so
und growth prospects remains intact. Policy Prescriptions: How did we get here?
In the next few minutes, allow me to briefly describe some of the principles und
erlying the BSP approach in dealing with the (external) volatilities the country
faces. First, to avoid policy confusion, we use tools from our enhanced tool ki
t distinctly. For instance, we carefully calibrate policy rates to respond to in
flationary pressures. At the same time, we use macroprudential tools selectively
to address financial stability pressures, including those related to potential
exchange rate volatility. To illustrate, in our last two policy meetings, we rai
sed the reserve requirements because we needed to pre-emptively address strong l
iquidity growth that could lead to potential asset bubbles. Meanwhile, even as t
he balance of risks remained tilted to the upside, we kept policy rates steady b
ecause the assessment is that inflation over the policy horizon would still be m
anageable. Together, these moves would make any future monetary policy move more
effective. Second, in addition to keeping our regulations in step with the glob
al regulatory reform agenda, we work with other government agencies, like the SE
C, to curb market conduct in economic transactions that are not under BSP superv
ision, such as those by real estate companies, other non-financial entities and
asset managers. Examples of the latter are the frameworks for good governance of
institutions and consumer protection that we have put in place in collaboration
with co-regulators under the ambit of the Financial Sector Forum. As for the fo
rmer, an example is our full shift to Basel III capital adequacy requirementsas w
ith other countries in the region. Third, we sharpen market surveillance. For in
stance, we have refined some of our reportorial requirements to allow us to see
things somewhat differently, with emphasis on financial stability implications o
f specific activities. We recently expanded the definition of real estate exposu

res that banks would report to us to help us better appreciate the real estate s
ector, particularly in relation to the financial sector. Finally, we aim to keep
our communication simple. Not too much guidance to avoid confusion, not too lit
tle either so as to enhance credibility. Just like Goldilocks. Right now our mes
sage to our markets is that we prefer early, measured action as opposed to chunk
y reactions to global developments as they happen. We believe this strategy is l
ess disruptive, and will help insulate us from the toggle of AE normalization. T
he availability of good information is of course crucial in this regard. Keeping
the House in Order with Integration in Mind Our own goal has always been to kee
p our own house in order and strengthen it so that when shocks do occur, we have
buffers to shield us. Recently our efforts to keep our house in order have gain
ed more urgency in light of our preparations for ASEAN economic and financial in
tegration. The BSP recognizes the potential of integration but we likewise remai
n cognizant of the challenges that this initiative entails. We support the under
lying principles of readiness and reciprocity espoused under the ASEAN Banking Int
egration Framework or ABIF. But there is need to ensure that the implementation
of the principles is fair and balanced. The BSP has prepared the groundwork by c
reating a stable macroeconomic environment and putting in place a sound regulato
ry framework consistent with the global reform agenda. We have also proposed ame
ndments to RA 7721 (i.e., the law that liberalized entry of foreign banks into t
he country) that would open up the window again for the entry of foreign banks t
o establish their own branches or subsidiaries here. The BSP has also started di
scussions with the various banking organizations, which should provide further c
larity and level expectations among their member-banks and give them the chance
to craft their respective forward-looking competition strategy. In response to B
SPs actions, some Philippine banks have already expanded their branch networks, e
specially in underserved markets, to build up their domestic presence in prepara
tion for the potential entry of foreign banks. Some are also shoring up their ca
pital positions, further improving their risk management practices, or consideri
ng merger and acquisition opportunities to support their expansion plans. In loc
k-step, the BSP will continue to maintain a regulatory environment that supports
growth while at the same time remaining mindful of potential systemic risks. Co
ncluding remarks Ladies and gentlemen, the ongoing rebalancing of growth across
the globe as well as the challenge of preparing for greater integration with our
ASEAN neighborhood will require continued vigilance on the part of the BSP and
more active involvement from our banks. Most of the policy directions I have out
lined are geared to sustain what we have started even before the global financia
l crisis. We believe that this strategy remains appropriate amid heightened vola
tility in the market. Todays Summit issues a timely notice for us to be flexible
and adaptive to shifting market dynamics. For investors in particular, a good st
rategy is to recognize and seek out new opportunities. The Philippines offers a
host of them, and it is our hope that you also see and positively respond to the
ir great, untapped potential. Thank you, and have a pleasant afternoon.
Sustaining Stability in the Uncertain Transition to Normalization

Venue: Shangri-la Mactan, Cebu
Occasion: ACI Annual Convention
Good morning. I wish to thank the ACI Board led by its president, Paul San Pedro
, for inviting me to address this years Convention. When one is invited to speak
before the ACI, one can never fully anticipate the turn of events. Two years ago
, I was supposed to join you in Boracay, but given heavy NAIA traffic, one delay
caused a domino of further delaysand before we knew it, a steward announced -- o
ur plane was being rerouted. That, after having sat in the airport for the bette
r half of the afternoon This year, I didnt miss the Convention because Paul broke t
he Boracay tradition and luckily chose the very weekend in April when I would alr
eady be here in Cebu for a regional meeting of the Financial Stability Boards Reg
ional Consultative Group for Asia, which I am co-chairing. This has required jus
t a little additional time to stay in Cebu to join you as speaker this morning.
Serendipitous? Or Pay back for missing the 2012 event? Also, I understand most o
f you were delayed last night because NAIA was closed with the arrival of the ad
vance party of the President of the United States. Two years ago, the airport wa
s closed for the passage of another president PNoy. Both of these incidents happ
ened on the Friday before the ACI Convention. Coincidence? In preparing for my r
emarks today, I looked over the speech that I was supposed to have delivered two
years ago. The same speech was kindly read for me by Assistant Governor Winnie
SantiagoIf the file I reviewed was the correct one, that speech would have been m
y first time to have hinted at a possible adjustment to the SDA facility. As you
would recall, the SDA then looked very much like a carry-trade vehicle. The out
standing level of SDAs was well on its way to reaching the peak at that time. Yo
u would also recall that it was in July that year that BSP prohibited non-reside
nts from investing in the SDA. I am not sure how many of those present then, hear
d my hints So to be certain that I am heard this time, I thought, what better way
to have a conversation with traders, than to speak some trader terms Lets try this
How many in this room have NOT YET heard the trading maxim: The trend is your fri
end? May I have a show of hands please? Let me ask a second question, how many ha
ve heard of this variant, The trend is your friend, when you are on the same side
as the trend?... And there is a third variation: The trend is your friend, until
it bends? In my mind, this trading maxim is quite mis-appreciated. Some narrowly
think of the trend as a wave in the chart, as in Elliot wave. Some think the trend is
the flavor of the month, as in what the TV investment guru says is a buy. Both are
correct to a certain extent. But a trends full meaning can only be understood by
appreciating what underlies it. What I am trying to say, ladies and gentlemen,
is that, at its very core, trend analysis is simply fundamental analysis And to t
he central banker, THAT is exactly how your trading maxim translates. What funda
mentals? Now for some CentralBank-speak what are the fundamental trends that BSP is
looking at. I hope that with my explanation you will no longer think that fundam
ental trends is an oxymoron. Let me cite two trends that are top of our mind at t
he moment. First trend, the era of overly accommodative monetary policy is endin
g, but the pace of withdrawal will vary across jurisdictions. What have we obser
ved? The need for overly easy money is behind us, if we consider that global gro
wth forecasts for 2014 and 2015 for the US, EU and Japan are positive. Forecast
growth rates are not quite at pre-crisis levels, but nonetheless respectable. In
the US, recovery appears to be gaining some traction, and the much-awaited Fed
taper has commenced. Now whether the first hike materializes in six months or som
ething like that, the flag has been raised. In the Euro Area, there has been stea
dy strengthening of bank capital positions en route to a more robust framework f
or integration. In other words, Europe is somehow getting its act together. In J
apan, monetary accommodation has lifted some of the weight, although the enactme
nt of structural reforms is what will allow the economic growth to deepen. Simpl
y stated, there is now some global growth momentum, albeit uneven. Therefore hero
ic liquidity infusions appear to no longer be warranted. Second trend, policy mak
ers will try to follow a path (towards the normalization) that will carefully ma
nage the financial stability implications of tighter financial conditions. Some
of these financial stability risks include: heightened exchange rate volatilitie
s, asset bubbles, excessive corporate leverage. Implications on BSP policy? What
do these trends an environment of impending tighter monetary conditions and hei
ghtened risk of financial stability pressures -- imply for BSP action? Let me be
clear at the on-set that as in the past, the BSP is not wedded to a pre-set cou
rse of policy actions. In addition, our next moves remain data-dependent. At a m

ore granular level, the speed and timing of our next monetary policy responses w
ill take into account several key factors. The most important are: First, the in
flation outlook. It was just announced that DBCC is keeping the inflation target
s. Some of the broadsheet headlines did not properly reflect a critical aspect o
f this announcement. That is, that these targets now show a downward inflation p
ath over the policy horizon, i.e., 4.0 percent 1.0 percentage point for 2014 and
3.0 percent 1.0 ppt for 2015. While the downward target range is consistent with
our assessment that structural changes in the economy could bring about lower i
nflation, it also means that more vigilance from the BSP is required. Our foreca
sts show that inflation over the policy horizon would remain broadly on target.
However, the balance of risks to the inflation outlook remains skewed to the ups
ide. Possible price pressures can come from global sources (through volatile int
ernational commodity prices) as well as from increases in the prices of food and
utility rates. The BSP will also continue to pay close attention to potential s
econd-round effects arising from these risks. One piece of good news though the
upside risk to inflation is reduced by the recent extension of the Supreme Courts
Temporary Restraining Order on electricity rate hikes. Second, growth prospects
. We will consider the buoyancy of domestic demand and whether the economy can i
ndeed accommodate a measured increase in domestic interest rates. Our current as
sessment is that, the economy is resilient and will be able to withstand some ti
ghtness in monetary conditions. High frequency demand indicators--such as vehicl
e sales, manufacturing capacity utilization and energy sales--have thus far cont
inued to show positive readings in the first quarter of 2014. Remittances are ex
pected to remain strong and therefore will continue to be fundamental support fo
r private consumption. The infrastructure projects in the pipeline, on the other
hand, will continue to be a strong driver of public investment. Third, credit a
nd liquidity growth dynamics. The BSP will remain on the lookout for heightened
financial stability risks from sustained rapid growth in domestic liquidity. The
re are still limited signs of financial market stresses. But if liquidity growth
continues to be strong, even as the inflation outlook stays manageable, we will
not hesitate to again consider further pre-emptive macroprudential measures. Th
e GFC has taught us that when faced with this combination of manageable inflatio
n and prolonged, strong liquidity growth, tweaking policy rates could produce un
intended consequences and only fuel financial stability pressures. We had earlie
r put in place several macroprudential measures that have helped us target speci
fic areas of concern with respect to financial stability. These include: the lim
its on banks exposure to non-deliverable forwards (NDFs) to contain market behavi
or; prohibitions on access to SDA for non-residents and IMA to help ensure the p
otency of our monetary tools; and most recently, the increase in RR to keep a li
d on liquidity growth that could lead to possible asset bubble formation. As app
ropriate, therefore, we will continue with this strategy. Lastly, on the exchang
e rate. We know that the exchange rate is easily hit by negative sentiment in th
e global environment, and it is the most visible channel through which such head
winds affect the local economy. Hence, the BSP shall continue to maintain its pr
esence in the foreign exchange market to temper sharp fluctuations in the value
of the peso. For now, it seems, as in the time of Goldilocks, things remain just
right in our economy. As they say, so far, so good. The economy has survived th
e turbulences of the onset of normalization. But this does not mean, we can affo
rd to let our guard down. We are just at the cusp of normalization. There are st
ill known unknowns. Two of these stand out. 1) The timing and magnitude of the rev
ersal of the near-zero target Fed Funds rate (i.e., when and how fast will the F
ed hike rates); and 2) The tendency of markets to go ahead of themselves and how
this tendency will be manifested. For these reasons, BSP decided that signaling
a preference to do early, measured action as opposed to belated, chunky and discr
ete movements would serve all stakeholders well. Indeed, the ongoing rebalancing
of growth across the globe and the expected normalization of monetary policy ove
rseas will require much vigilance on the part of the BSP to help sustain the mom
entum of the economy. Now, what can we expect from the market? Now what can we e
xpect from the marketfrom the ACI? Many of you play golf for sport And many of you
bring the golf mentality into the dealing room your goal is to get to the next ho
le, the next high in as few swings as possible. You only have the green and wind t
o pit against. However, in this evolving market environment that we operate in,
we cannot afford to play like golfers in the dealing room. We must learn to oper
ate as if we were playing chess. Friends, the real game is CHESS because you are
not playing just against yourselves. Each of your actions affect an opponents ac
tions just as his will affect yours. Its a game of back and forth. Therefore you n
eed to watch the trends. Not just the near term trends, but also the long-term u
nderlying trends. As you look at the fundamental trends, I hope you will also se
e that you can have a bigger role in helping the country sustain the economic ga
ins. Employ these trends and use the power of the trading room to go beyond incr
easing your banks bottom lines Harness the power of the trading room by using its
many products syndication, hedging, and diversification in order to meet the fin
ancial needs of those engaged in real economic activity Go beyond chasing paper p
rofits and sweating what your next big trade bet would be. The economy, with its
buffers and built-up resiliencies, WILL get through this potentially unstable p
eriod on the road to global normalization. Dont miss out on that boat Instead, let
us make that an easier ride by strengthening our cooperation. Let us work more
closely together and seriously take up the objective of maintaining fundamental
financial stability. This is foundational for lifting the welfare of more, if no
t all. I trust that your membership will aspire to become leaders and partners o
f this transformation. Thank you very much and I wish you a productive conventio
n.
The Strength of Retail: in a Wider ASEAN Economy

Venue: Mandarin Manila, Makati City
Occasion: CTB Annual Convention
Every year, your industry comes together to exchange views on the prospects for
the year ahead. With your theme this year Thrift Banks: Preparing for 2015 ASEAN
Integration, the thrift banking industry is recognizing a development that has qu
ietly evolved through the years and will soon crystalize. ASEAN integration broa
dly through the ASEAN Financial Integration Framework or AFIF and more specifica
lly through the ASEAN Banking Integration Framework or ABIF will come to fruition
in line with the ASEAN 2020 vision that was enunciated way back in 2007. It is,
in this sense, imminent and the Chamber is being responsive by preparing for th
is eventuality. In fact, for this Convention, the organizers have lined up exper
ts to tackle different facets of integration. My role this morning is to describ
e the broad economic landscape, including the challenges and opportunities, that
the thrift banking industry currently faces against the backdrop of ASEAN integ
ration. The Chamber is being strategic in this way, for clearly, understanding o
nes starting point and initial conditions is just as important as defining ones fi
nal destination. The Economy at Large Let me begin therefore with the economy at
large. It is tempting to simply cite the array of indicators that show that the
macro-economy is strong. In 2013, we again saw the convergence of high growth a
nd stable prices as the country posted a real gross domestic product growth rate
of 7.2 percent amid an inflation of three percent. This is on top of the real G
DP growth of 6.8 percent and a 3.2 percent inflation rate in 2012. We need to ap
preciate these numbers not just because they are better than the performance num
bers that came out of 2011 (which were 3.6% real GDP growth and 4.6% inflation r
ate). Instead, these are excellent numbers because of the calamities that befell
us during the period.1 On the external front, the balance of payments position
was at USD5.1 billion for 2013. And the Gross International Reserves at almost 1
2 months worth of imports of goods and payments of services continues to provide
ample cushion against external vulnerabilities. We should certainly point out th
at the growth of the real economy is supported by and feeds into a banking indus
try whose strength is well documented. Standard & Poors latest banking outlook (F
ebruary 2014) notes that Philippine banks will likely continue to benefit from th
e countrys buoyant economic prospects in 2014. And in Moodys own banking report (20
14 Outlook dated December 2013), the Philippines is the only jurisdiction whose
banking system they rate to have a positive outlook. Thrift banks as an industry
may be small when compared to its universal and commercial bank peers. But it i
s by no means left behind. Peso deposits mobilized grew by 22 percent in 2013, l
oans expanded by 13 percent, total resources rose by 16 percent, while profitabi
lity increased by 18 percent. The Challenges that Lie Ahead All these should be
more than enough reason to be optimistic about the future of the banking industr
y. But financial markets can swiftly change course Everyone here is more than awa
re that the saving that takes a long time to put together could be the investmen
t that loses value in a mark-to-market second. And when financial markets get shoc
ked, the impact leaves a mark in both depth and breadth. As an industry then, yo
ur stereotypical challenge is to maximize your strengths while addressing your w
eaknesses This brings us to the question of what a thrift bank represents This is
a question of character which would define the path that you will take as well as
those side roads that you ought to avoid. As I look at your Asset-Liability stru
cture, I note that 86 percent of your liabilities are peso deposits and 66 perce
nt of assets are in loans. Although your universal and commercial bank peers hav
e peso deposits at roughly the same magnitude (72 percent), U/KBs only have 47 p
ercent of their assets in loans. This fact is material. Without another avenue f
or generating revenues, the viability of the thrift bank model must rest in the
balance between sourcing retail saving and deploying the same as loans. And as y
ou dig deeper into the loan portfolio, it becomes readily evident that the bulk
of the credits lie in consumer finance. From this perspective, consumer finance
is therefore at the very crux of what defines thrift banks. The Promise of the F
ilipino Consumer The good news is that several indicators suggest that the prosp
ects of our consumer finance market remains promising. Like all other jurisdicti
ons in ASEAN, our population growth has actually slowed substantially from 3.35
percent per annum in 1960 to 1.72 percent in 2012.2 Despite this, some 35 percen
t of Filipinos are younger than 15 years old as of end-2012. This percentage is
much higher than the rest of ASEAN which averages at only 25.8 percent. It is al
so much higher than those of China, Japan and South Korea which average 17.7 per
cent, that of North America at 19.3 percent and the euro area at 15.3 percent. W
hat these numbers mean is that the Philippines will see a greater proportion of
its population becoming consumers in the next few decades. This leaves the futur
e market for consumer needs very potent. This is not to say that the current con
sumer market is not already attractive. World Bank data show, for example, that
cellular subscriptions per 100 individuals is already at nearly 107 in the Phili
ppines, higher than the 94 subscriptions average for the BCLMV countries (Brunei
, Cambodia, Lao, Myanmar and Vietnam), and the 66 subscriptions for China, Japan
and Korea. Our internet penetration rate is not that far off, where we have abo
ut 36 internet users per 100 individuals versus the 40 on average in China, Japa
n and Korea and the 45 users for Singapore, Thailand, Malaysia and Indonesia col
lectively. But as we develop our young population to be more tech-savvy, one sur
ely expects our numbers to keep on rising. I really do not have to mention the b
igger ticket items since this is your area of focus. But to put it on record, we
have seen outstanding auto loans, credit card receivables and residential real
estate loans booked by thrift banks increase by Php 33 billion, Php 253 million
and Php 29 billion respectively over the past three years alone. This translates
to annualized growth rates of 15 percent, 14 percent and nine percent respectiv
ely. ASEAN Integration and the Consumer Market Ladies and gentlemen, clearly, de
mographics favor you. Furthermore, ASEAN integration opens up a bigger regional
market. After all, the economic prospects of ASEAN as a whole have always been p
remised on its retail market. ASEAN has a base of over 600 million individuals i
n 10 jurisdictions whose collective GDP in 2012 amounted to USD2.27 trillion. Wh
ile this amount only represents 3.13 percent of the worlds nominal GDP, ASEAN as
a collective aggrupation would be the worlds 8th largest economy, only following
the US, China, Japan, Germany, France, UK and Brazil.3 Prospects for Philippine
Thrift Banks On the whole then, an integrated ASEAN is a natural treasure trove
for the consumer finance market. With ASEAN gross saving as a percentage to GDP
just above 30 percent while the world is at under 22 percent, the potential for
ASEAN is not just its size but also its saving.4 As an industry structured to mo
bilize retail saving and generate credit exposures to the consumer finance marke
t, the prospects seem tailor-fit for you. In fact, within that framework, the Ph
ilippines does stand out even further because of the specific demographic profil
e that I described earlier. Does this mean then that your corporate future is se
cured? Unfortunately, the potential that is ASEAN and our own demographic advant
ages do not, on their own, create balance sheets. There are still strategic deci
sions to be made and tactical plans to be executed for these identified positive
s to be reflected as reality on your balance sheets. What is clear at this junct
ure is that market competition is changing the traditional niches. Internally, t
he larger banks are extending their network into areas where smaller banks tradi
tionally operate while banks have increasingly tapped into the consumer finance
space. Externally, ASEAN is poised to further integrate under the mantra of an A
SEAN that is for ASEAN. Just as we will be exposed to the opportunities of a big
ger regional market, our economic prospects will also be targeted by interested
regional entities. In both cases, they create competitive pressure for TBs and t
his, in our view, presents the main strategic issue for thrift banks. Despite al
l the gains achieved in recent years, you and I will agree that status quo canno
t be an option. The ideal solution is to right size, getting bigger so that you ar
e better equipped to handle competitive risks while getting smaller in risk expo
sures where the bank cannot develop a competitive advantage within a reasonable
period. This is all about managing risks, a familiar point that the BSP has rais
ed at every opportunity. The difference between today and last years convention,
however, is that the financial market has re-calibrated towards higher interest
rate levels the much awaited Fed taper has begun and the normalization in easy mo
ney conditions has commenced Furthermore, the ASEANs collective resolve to transfo
rm into an economic community is upon us. Ladies and gentlemen, the prospects fo
r thrift banks in the Philippines indeed appear to be very strong. But the attra
ctiveness of those prospects is also catching the attention of other banks in th
e Philippines and most likely, also of banks in the region. You simply have to g
et stronger to compete in this evolving market. How you become stronger and in w
hat form remains the critical issue before you. I would like to believe that a t
hriving domestic economy, supportive demographics and your traditional strength
in consumer finance should give you a healthy level of confidence as you find yo
ur place under the ASEAN sun. These, along with the innate Filipino ingenuity an
d talent in thriving amid challenges, should serve you well in this journey. I a
m sure that your resource speakers today will provide various insights and direc
tion during their respective presentations. I then wish you a very productive co
nvention and I thank you for your attention. Maraming salamat po sa inyong lahat
. ----------- 1Typhoon Pablo is the strongest tropical cyclone to ever hit Minda
nao. The Zamboanga crisis was a 30-day stand-off. The earthquake in Bohol was th
e deadliest earthquake the Philippines has experienced in 23 years while Typhoon
Yolanda is the most devastating typhoon on record. 2All the data in this sectio
n are taken from the World Banks World Development Indicators 2013 edition. 3Base
d on nominal 2012 GDP denominated in USD. The ranking is consistent across table
s provided separately by the United Nations, the IMF and the World Bank. 4Raw da
ta from the World Development Indicators
Enhancing Resilience to Sustain Inclusive Growth

Occasion: Year-end Philippine Economic Briefing
Reflection of Resilience Quite often the picture that we associate with the word
resilience is that of the bamboo tree that sways to the violent winds and yet is
not broken. It rustlesBut doesnt snap In medicine, we think of resilience as the bo
dys ability to recover quickly from illness In psychology, we conjure a state of b
eing able to bounce back Such pictures do characterize the Philippine economy, espe
cially when we consider the events of last year. We were buffeted from both the
global and domestic fronts But the economy remained resilient. Globally, the Feds
pronouncements and actions with respect to its withdrawal of accommodative monet
ary policy (or the Fed tapering) brought heightened volatility to our financial
markets. The resulting market uncertainty and portfolio rebalancing got reflecte
d in a reversal of the strong capital inflows of previous periods. This led to d
epreciation pressures on the exchange rate decline in our stock market and widenin
g of spreads on our debt papers. While all of these were happening in the financ
ial markets, the country was hit by natural disasters, which threatened to weake
n our growth prospects and unsettle inflation expectations. Against this backdro
p, the resilience of the economy was evident. The economy continued to grow by 7
.2 percent in 2013. This performance beat market expectations and the Governments
target of 6-7 percent for the year. Inflation was at the low end of the Governm
ents target range of 3-5 percent. Meanwhile, our banks remained a source of stren
gth as the systems balance sheets stayed solid. Our external accounts continued t
o be robust, buoyed by strong structural flows such as remittances and receipts
from BPO and tourism. Our GIR remained more than adequate by most yardsticks. An
d, prudent fiscal management provided the policy space for re-building and stepp
ed-up government spending on infrastructure that is expected to form the base fo
r sustained economic growth. Risks to the Resilience Story Can we expect this st
rong performance to continue? What are the risks to this resilience story? Let m
e quickly run through some threats to resilience. On the global front... First,
we see continued uneasiness among global investors from uncertainty in the next
steps of the Fed. This may cause capital outflows and with that, greater financi
al market volatility. Second, many analysts also predict the slower growth in As
ia to continue. This could have an impact on intra-Asian trade, which had compen
sated for weakness in trade with advanced economies in the recent periods. Third
, the risk that recent political turmoil, including in Ukraine, may escalate. Th
is could affect international commodity prices, global financial markets, and un
dermine global growth prospects. Closer to home... we need to be watchful, among
others, of our own disaster risk management efforts that could affect sustainab
ility of our growth performance; and potential upward adjustments in domestic ut
ility rates that could affect inflation expectations; as well as any risks to fi
nancial stability. Responses to Sustain Resilience Given these risks, how can we
sustain resilience? On the part of the BSP, we will continue policies that stre
ngthen our macrofundamentals. First, we will closely track monetary conditions t
o ensure that our stance of monetary policy is appropriate. Based on our assessm
ents, inflation remains manageable. Our forecast runs show that, over our policy
horizon, average annual inflation will settle within the governments target rang
e. Therefore, there continues to be room to keep rates steady... although the ro
om for keeping stance of policy has narrowed, given the aforementioned global an
d domestic risks. Second, the BSP will continue to closely monitor movements in
the exchange rate. Our assessment shows that the peso will remain fundamentally
supported by robust economic growth and the BOP surplus. Given the moods and swi
ngs of the financial markets, we will continue our flexible exchange rate policy
, but at the same time, keep a strategic presence in the foreign exchange market
to limit excessive exchange rate volatilities. Third, we will remain watchful o
f potential sources of vulnerability to our banks. Risks that can directly affec
t individual banks, and those that co-mingle and can affect the system as a whol
e will be given attention. In other words, we will sharpen the financial stabili
ty perspective of our bank surveillance. We will also align our regulations with
the international reform agenda. Banks will be supervised so they stay sound an
d therefore able to sustain effective and efficient intermediation of funds to t
he productive sectors of the economy. In other words, ladies and gentlemen, the
BSP will continue to build resilience that would lead to stable prices, a relati
vely competitive exchange rate, and a sound banking system. The ASEAN Banking In
tegration Framework could also help us achieve improved resilience. We believe t
he Philippines stands to benefit from this regional integration effort. Apart fr
om seeing a much larger investor base, greater integration could also open up op
portunities to mobilize resources toward a diverse array of productive investmen
ts. Greater competition also promises to help us capitalize on technology and in
novation, while pushing our financial institutions to enhance their efficiency.
But Resilience is not enough But resilience of itself is not enough. What would b
e ideal is that, while our economy is able to withstand harsh conditions, we sho
uld also be able to move forward and achieve our objectives of sustained broad-ba
sed economic growth in a stable macro environment. This is the second part of to
days theme Enhancing Resilience to Sustain Inclusive Growth. Inclusive Growth has be
come such a buzz word -- everyone (even the IMF) now talks about it I am afraid,
if we just keep on speaking about it, without much action, there is a risk that
the buzz will simply drone We need to make sure that our exhibited resilience, wh
ich has given us this strong macroeconomic base from which to leap, translates t
o a palpable improvement in the welfare of more, if not all, Filipinos. A larger
economic pie for more Resilience helps to enlarge the economic pieBut, it would
be more desirable if the larger pie is shared by more. Ladies and gentlemen, we
all need to do more if we would like economic growth to cast a wider net and cas
cade through the broader society. On the part of the BSP, we believe our efforts
to intensify financial inclusion would help ensure that more of the stakeholder
s are able to enjoy the now larger pie. These initiatives are in the form of cra
fting regulations to improve access to financial services, expanding our economi
c financial and learning programs, and strengthening our financial consumer prot
ection efforts. We are fully aware, however, that BSP and the government cannot
do this alone. We need the strong partnership of the private sector. We hope tha
t this briefing will provide a venue for meaningful information sharing and dial
ogue between the public and the private sectors on the competitive challenges an
d opportunities posed by our current operating environment. But more than this,
we hope that this briefing would be a venue for us to confirm our readiness to m
eet these challenges and move forward, with the good of the greater majority in
mind. We trust that todays proceedings will encourage all to work together toward
s the shared goal of inclusive growth the only growth that truly matters and the
only growth that transforms. Thank you and a pleasant day to all.
Islamic Banking and Finance in the Philippines: Opportunities and Challenges

Venue: Bangko Sentral ng Pilipinas
Occasion: Islamic Banking and Finance Workshop
Hon. Cesar Virata, Ms. Amina Rasul Bernardo, Mr. Warren Hoye, Mr. Saffrullah Dip
atuan, distinguished resource persons, special guests from the private sector, a
nd multilateral institutions, colleagues in government, ladies and gentlemen, go
od morning to all of you and a warm welcome to the Bangko Sentral ng Pilipinas.
I join our co-organizers, the Philippine Center for Islam and Democracy and the
Foundation for Economic Freedom, in welcoming you to this Islamic Banking and Fi
nance Workshop. This is a valuable opportunity, an occasion where experts from g
overnment, private sector and international institutions can share insights, per
spectives and ideas on the timely and nationally significant topic of Islamic Ba
nking and Finance. The Underpinnings of Islamic Finance Islamic banking is a bit
of a mystery to many, particularly in the Philippines While a good number of Fil
ipinos may already have an appreciation that Islamic Finance is not limited to t
hose who are of the Muslim faith Not many have a clear understanding of Islamic f
inance being founded on the principles of Shariah or Islamic Law Also, not many k
now that the Shariah is based on the principles of justice, fair dealings and ha
rmony through the equitable distribution of wealth. The most known characteristi
c of Islamic banking is that the Shariah prohibits the payment and receipt of a
predetermined rate of return. To those who are familiar only with conventional b
anking, the concept of no interest paid or received is difficult to comprehend. Th
is construct could lead the purely conventional bankers to think that there are
no opportunities to be gained in such an environment. That such a system could a
lso encourage a reversion to an all-cash or barter economy and discourages wealt
h creation. As I understand it, however, these concerns are farthest from the pr
inciples of Islamic banking. Foundational in Islamic finance is the principle of
risk sharing. Risk sharing is the justification for the fundamental requirement
s of profit and loss sharing. Guarantees or assurances of return of capital and
return on capital, rewards without commensurate risk and preferential awards are
all not permissible in Islamic finance. Trading and partnership or joint ventur
e arrangements are thus the appropriate risk-reward paradigms. Another underpinn
ing of Islamic finance is the tenet that financial transactions should be suppor
ted by genuine productive economic activity that subscribes to the ethics of the
Islamic faith. Notably, this principle can serve to reinforce links between fin
ance and the real sector, reducing the perils of unbridled innovation excessive
and risk taking. In this context, it contributes to financial stability in the s
ystem. Together, these two principles help to ensure a more equitable distributi
on of wealth, where the only acceptable form of investment is ethical investing.
Ladies and gentlemen, reflecting on these principles would lead one to the conc
lusion that at the end of the day, similar prescriptions should govern a good ba
nking framework. More specifically, that the goal of financial transactions shou
ld be to improve a countrys overall economic activity, raise the level of its sha
red economic prosperity and promote the well-being of individual economic agents
. Opportunities in Islamic Finance Is there a place for Islamic banking in the P
hilippines? I believe the answer is yes. Although Islamic banking could also cat
er to those outside the Islamic faith, we can begin looking at market needs and
opportunities in the millions of Muslims in the Philippines today. They mostly r
eside in the Autonomous Region in Muslim Mindanao (ARMM). Conventional banking h
as been slow to cover the ARMM. With just 20 banks and 28 ATMs present, only 8%
of the municipalities of the ARMM have a banking presence. This is an unfortunat
e state of affairs, considering that the ARMM is a resource-rich area with vast
potential. It is one of the countrys top sources of marine and fish products. It
also holds large mineral deposits, including of copper and gold. There is theref
ore a significant untapped market opportunity, not just for conventional banking
but also and more importantly for Islamic banking. The latest available regiona
l GDP data (2012) puts the real GDP growth in the ARMM at only 1.2 pct. But when
we consider broader Mindanao, the number rises about sevenfold to 8.2 pct. This
tells us, that there is an enormous potential in the Mindanao region in general
, and the ARMM in particular. Challenges to Islamic Finance in the Philippines A
t present, there is only one Islamic bank in the Philippines, the Al-Amanah Isla
mic Investment Bank of the Philippines. Al-Amanah Bank was established in 1973.
While it has been over four decades since the creation of the first Islamic Bank
, Islamic banking itself has not grown in large part because of legal constraint
s. The Al-Amanah Charter created the Bank but not a framework for Islamic bankin
g per se. No such enabling law has so far been passed. In fact, the General Bank
ing Law of 2000 defines Islamic bank as specifically pertaining to Al-Amanah Ban
k only. The GBL does not provide for the creation of other Islamic banks. If we
are to create a truly responsive system of Islamic banks, from a BSP standpoint,
certain principles will be important. First, the system must allow for a critic
al mass of market players under a competitive but well regulated environment. Th
e public must be provided with appropriate choices to suit their risk appetite a
nd financial needs. Second, appropriate linkages, including inter-bank markets t
hat cater to the unique characteristics of Islamic banking, must be present. Thi
rd, the regulatory and supervisory framework must encourage a level playing fiel
d where the Islamic banking system can operate alongside conventional banking. T
here must be a coherent, consistent and comprehensive set of regulations and sta
ndards that would appropriately apply to all banks. In other words, the privileg
es that are available for conventional banks must also be available to Islamic b
anks. In the same vein, the prudential requirements that cover conventional bank
s, must also apply to Islamic banks. The design and implementation of standards,
of course, would need to take into account, the particular characteristics of I
slamic finance. Fourth, the regulatory environment must encourage the provision
of innovative products and services to address the distinctive needs of Islamic
finance. Islamic financial players should be encouraged and not inhibited from i
ntroducing Islamic finance products. The regulatory framework could consider the
substance [more than the form] of the Islamic products, assess the economic ris
ks involved and use that assessment as basis for regulation. To support this app
roach, the system must allow for the development of a pool of experts on Islamic
finance. Fifth, the regulatory framework must help build a broader customer and
asset base by increasing investor awareness and acceptance, while ensuring cons
umer protection. While the BSP would like to promote an increase in the number o
f Islamic banks that operate alongside conventional banks, the BSP is also looki
ng at an open approach whereby conventional banks can operate Islamic banking wind
ows, if they so desire, as long as the principles outlined just now are followed
. Fortunately, there is growing literature on how these principles can be realiz
ed. We can learn from the research and expertise of the Islamic Financial Servic
es Board, of which the BSP is an associate member, other international organizat
ions and friendly governments which have signified interest in supporting BSP in
this initiative, as well as from the rich experiences of outstanding practition
ers of Islamic banking. To achieve all these objectives, the BSP intends to work
towards attaining a suitable legal framework for Islamic banking in the Philipp
ines. We are currently in the very early stages of drafting a general law for th
e creation and regulation of Islamic banks. Consistent with this, we have includ
ed in our list of proposed amendments to our charter, a provision that will enab
le the BSP to develop regulations for the extension of financial facilities to I
slamic banks. Concluding Thoughts Ladies and gentlemen, there is much work for a
ll of us to do. The task requires strong partnerships among key stakeholders in
the government and the private sector and the support of key international organ
izations and friendly governments. Todays workshop is another important step for
all of us to work together, share ideas and mobilize support toward promoting Is
lamic banking and finance in the country. Indeed, a well-crafted framework for a
n Islamic banking and finance system would ensure that our goal of stretching th
e coverage of our financial system [so it casts a wider net] is attained. In add
ition, Islamic finance with the vast opportunities it offers could potentially t
rigger inflows of foreign investments Investments, which in turn, could be deploy
ed towards building the necessary infrastructure and other projects to accelerat
e and sustain economic growth. For certain, an appropriate Islamic banking and f
inance framework would help ensure that the Philippines financial system would tr
uly be a more effective catalyst of broad-based and inclusive growth. On that no
te, let me wish you a most productive Workshop. Thank you and good morning.
Enabling Market-Based Solutions Toward Financial Inclusion

Venue: Sydney, Australia
Occasion: IIF Conference entitled the G20 Agenda under the Australian Presidency
It is an honor and a great pleasure to participate in this High-Level Public-Pri
vate Sector Conference. I thank the organizers --the Institute of International
Finance (IIF) and Australia as President of the G20 -- for inviting me to this e
vent. Ladies and gentlemen, as mentioned earlier, there are an estimated 2.5 Bil
lion1 people living without access to financial services, according to the World
Bank and other sources.Three quarters of the worlds poor are unbanked. Tradition
al financial products and delivery channels have not been able to address the ne
eds of this market. There is therefore a need for new business models and fresh
thinking on how this market can be best served. This presents a large untapped m
arket and a source of vast opportunities. The private sector, with its inherent
agility, is well placed to respond to such opportunities with commercial potenti
al. It has the capacity to innovate and develop new and sustainable business mod
els. Microfinance is a good example. The large numbers of low income microentrep
reneurs were once thought to have very high credit risk to which commercial fina
ncial institutions have traditionally been averse. With appropriately priced and
designed products, microfinance institutions have proven the profitability of s
erving a market that was previously viewed as unbankable. In the last ten years,
some microfinance institutions have gone public2 and mainstream financial servi
ce providers are now in the microfinance space. In microfinance, commercializati
on was seen as an accepted prerequisite to viable and sustainable microfinance o
perations.3 More recently, the interest of mobile telecom operators in playing a
role in the delivery of financial services has ushered in a wave of innovative
business models. According to a McKinsey study (Beshouri and Gravrk, 2010), bring
ing financial services to the unbankedis a strategic shift for mobile operators
as it presents significant commercial potential. Research4 shows that about one
billion people in emerging markets have a mobile phone but no access to banking
services. The study therefore estimated that in just two years $5 billion could
be generated annually in direct revenue, primarily from fees for financial servi
ces such as transactions and cash out, and an additional $3 billion annually in
indirect revenue, including reduced churn and higher average revenues per user f
or traditional voice and short message service (SMS). In 2012, GSM Association r
eported over 200 mobile money deployments globally in 83 countries. These soluti
ons can only flourish within an enabling policy and regulatory environment that
allows innovation and new ideas to thrive rather than stifle them. There is a ne
ed for policy makers and regulators to fully understand the new business models
to be able to provide the appropriate and proportionate guidance. This approach
has characterized the way the BangkoSentralngPilipinas crafted our policies on m
icrofinance and more recently on electronic money and mobile financial services.
In microfinance, our approach is to mainstream its practice in the banking syst
em. Integral to this approach is the safety and soundness of the bank which we b
elieve will allow it to viably innovate and serve new markets. With this, the ap
plication of prudential standards is not compromised but instead tailor fitted t
o better address the risks in the given activity. In our mobile financial servic
es framework, we developed an electronic money ecosystem. We clearly differentia
ted e-money from a deposit which allowed a proportionate approach toward electro
nic money issuers. These efforts paved the way for an efficient retail payment s
ystem upon which various use-cases can be developed. Examples include electronic
payment of the government conditional cash transfers (G2P) and the electronic p
ayment of taxes to the government (P2G). There remains vast potential for other
functionalities. Indeed, progress has been made in financial inclusion. The chal
lenge now is to continue to take the agenda forward by leveraging on strategic p
artnerships and linkages: 1) Linkages in-country which are important to ensure a
coordinated approach. Alignment of the policies and activities of relevant agen
cies and institutions will be necessary to optimize linkages and reduce duplicat
ions. 2) Partnerships across countriesthat enable sharing of experiences and the
ability to leapfrog in developing policy solutions. Peer learning platforms suc
h as those enabled through the Alliance for Financial Inclusion (AFI) network ma
ke such exchanges possible. 3) Engagement with global bodies such as Standard Se
tting Bodies and international agenciesas a productive means to promote a cohesi
ve and consistent financial inclusion global framework. Financial inclusion brin
gs to fore innovative models, new products and new players. While international
standards are designed to be applied flexibly in all country contexts, the appli
cation has tended to be focused on traditional constructs and activities that ca
ter to the already served market. There is therefore a need for a commensurate evo
lution in thinking on proportionality the acceptable points of balance between t
he policy objectives of financial stability, inclusion and integrity. This conce
pt of proportionality has been aptly identified as one of the G20 Principles of
financial inclusion. The BSP has been involved in the G20 Global Partnership for
Financial Inclusion particularly in the Sub-Group on Principles5 and Standard S
etting Bodies Our involvement has allowed the sharing of experiences particularl
y on balancing the risks and benefits of financial inclusion through the applica
tion of internationally accepted prudential and supervisory standards. Financial
inclusion is a gargantuan task which can only be achieved through well-coordina
ted and meaningful partnerships. We are already seeing some evidence of success.
.. In Kenya, seventeen million6 are able to send and receive money through their
Safaricom mobile phones using M-PESA, a small-value electronic payment and stor
e of value system7 . In Brazil, commercial banks have banked each of the 5,564 m
unicipalities through their banking agents8 . A state-of-the-art biometric enabl
ed smart card and battery operated authentication devise has allowed ICICI to pr
ovide micro-savings accounts to the unbanked in India.9 In the Philippines, bank
s are providing microfinance loans and deposit products to over a million client
s, majority of whom claim to have never had the opportunity to save in a formal
financial institution in their lives. At the end of the day, we are starting to
see more people participate in the financial system. With this access to finance
, households are better able to manage their finances, guard against shocks and
take advantage of economic opportunities. The financial system is able mobilize
broader based savings and channel such funds to productive activities. These can
contribute not only to financial resiliency, and stability but also to inclusiv
e growth. There is a growing body of literature on the benefits of financial inc
lusion. It is therefore important that policy makers and regulators pay serious
attention to financial inclusion side by side our traditional objective of maint
aining financial stability. A stable financial system will gain more meaning if
it serves the needs of the majority, especially the three quarters of the worlds
poor that have been unserved too long. Thank you very much and good morning. ------------------------------ 1 World Bank, 2012 Note: Adult Population is at 4.7
Billion 2 Initial Public Offering of Compartamos Mexico in 2007 and SKS India i
n 2010. 3 Commercialization of Microfinance: Philippines, Asian Development Bank
, 2003. 4 Covering 147 countries conducted by the GSM Association (GSMA) and the
Consultative Group to Assist the Poor (CGAP) 5 Principles Leadership, Diversity
, Innovation, Protection, Empowerment, Cooperation, Knowledge, Proportionality a
nd Framework. 6 Out of a population of 40.5 million (World Bank FIndex, 2012) 7
Safaricom Limited Annual Report, Year Ended 31 March 2013. 8 Branchless Banking
in Brazil, CGAP, 2010. 9 Financial Inclusion Efforts of the Group, ICICI website
A Responsive Capital Market: A Step on the Road beyond Investment Grade

Venue: Solaire Resorts, Manila
Occasion: ?Philippines Investment Forum? by Euromoney
I am pleased to join you for this Philippines Investment Forum. Events such as t
his organized by Euromoney bring together the main stakeholders of our economy.
Through the various panel sessions, we are able to hear and exchange views, givi
ng us a good sense of where the market pulse lies. It was certainly a privilege
for all of us to have listened to no less than the President deliver the officia
l Keynote Address. This shows you how serious the countrys policy makers are in r
eaching out to you who are among our economys main stakeholders. Your work is cen
tral in enabling the public sector to effect true, broad-based and lasting chang
e that supports the countrys continued development. The Presidents address and the
session before this one laid the groundwork for us to set our sights Beyond Inve
stment Grade. Investment Grade How did we get here? Indeed, we have seen that the
road to Investment Grade was not easy... it was long and marked by reforms. Ref
orms which include, first, a critical diversification of our growth sources and
drivers to exploit and take advantage of our favourable demographics... Second,
a purposeful shoring up of our external position and strengthening of our bankin
g systemknowing that a robust external position and strong bank balance sheets wo
uld allow us to ride out the turbulence from external financial shocks... And th
ird, a resolute management of our fiscal house by steadily reducing our external
debt, maintaining a healthy government debt profile, and firmly committing to r
eforms that would allow us to meet our intergenerational needs. Investment Grade
The near-term challenges Our current operating environment continues to be very
sensitive to global developments. Of late, we have witnessed what some analysts
called the rout in Emerging Markets, following uncertainty in the next steps of t
he Fed. Since the beginning of the year, investors have indiscriminately sold EM
debt, and the Philippines was not spared. We saw the peso decline, the stock ma
rket index drop and government securities yields rise in the secondary market. A
longside the fear of contagion from EM sell-offs, some analysts are also beginni
ng to wonder if the Philippines isnt already overheating. Let me address the over
heating concern first. Looking behind the numbers, current trends in liquidity a
nd credit growth do not appear to be worrisome. The strong growth in domestic li
quidity has been due mainly to the operational adjustments in the BSPs Special De
posit Account (SDA) facility which were completed in November 2013. This rapid g
rowth is therefore seen as only temporary and is not expected to translate into
significant inflationary pressures or asset price misalignments. The growth in b
ank credit, on the other hand, continues to be channelled to the productive sect
ors of the economy. The higher bank lending growth rates are reflective of the e
conomys higher growth trajectory and increased financial deepening. In addition,
there is fundamental support for the growth in the real estate sector with real
demand from end-users including from the growing young professionals and the BPO
sector. Finally, data from Colliers International Philippines Research (Collier
s) as of Q4 2013 show that property prices are not significantly out of line wit
h their long-term trends. As for the rout in the financial markets, I would say,
some calm has returned with the markets better appreciation of the forward guida
nce from the Fed. Our view has always been that after the initial nervousness, m
arkets would regain their bearing and distinguish between economies with good fu
ndamentals (such as the Philippines) and those with more structural concerns. In
the case of the Philippines, we have actually observed some funds returning to
our financial markets. At the beginning of each new calendar year or each Chines
e new year, I am often asked for my fearless economic forecasts. There are those w
ho ask me with such earnestness that I sometimes feel they think I have an infal
lible crystal ball! Friends, I dont have one. And neither am I one to pursue luck
. Although before this forum, someone told me that in the year of the Chinese Wo
oden Horse, the numbers 2, 3 and 7 are considered lucky Interestingly, today is t
he 2nd day of the 3rd week of the Year of the Horse and 7th full week of the yea
r 2014! What a coincidence, right? Thankfully, we dont have to leave things to co
incidences. We can instead have the confidence to weather hiccups in market sent
iment by planning judiciously and working earnestly. More specifically, the gain
s we have achieved on the run up to investment grade have taken root. Above-tren
d growth, low and stable inflation within target, current account surpluses fund
ed by structural inflows, fx reserves that are more than adequate against tradit
ional standards, a sound banking system, banking sector regulations that are lin
e with global best practices and comprehensive fiscal consolidation. These are a
ll expected to continue and that, ladies and gentlemen, is not wishful thinking ne
ither is it a matter of luckBecause the reform agenda and the policy focus to sup
port these are clearly in place. The Philippines track record has shown that even
in good times, reforms have been sustained. Beyond Investment Grade: Does it ma
tter? But is going beyond investment grade a goal we should pursue? Clearly, goi
ng beyond investment grade of itself would truly matter if it translates to real
investments. For our ultimate stakeholder, investment-led economic transformati
on is necessary not just for sustainable growth, but also to develop a competiti
ve middle-class group that further boosts our domestic demand. Recognizing this,
the NG has accelerated the bidding and awarding of crucial infrastructure proje
cts and raised public investment. In addition, the governments targeted social sp
ending, especially in education, is expected to yield broader growth in the long
run by improving our human capital. These initiatives should help both our inve
stment to GDP ratio and our national income to continue their upward trend. Beyo
nd Investment Grade: Role of Capital Markets To move beyond investment grade req
uires deliberate steps, just as we saw on the road to investment grade. One of t
he critical steps on this road is creating a thriving capital market in an envir
onment of stable prices. The latest numbers tell us that our economy remains to
be bank-centric, rather than a capital market-oriented financial system. The dis
tribution of total assets suggests that 80 percent are held by banks. In 2013, s
ome Php84 billion in corporate securities were issued and listed while loans out
standing of the banking system increased by Php663 billion over the same period.
Being heavily dependent on one funding vehicle to raise needed capital can pres
ent challenges. For example, as global interest rates are expected to normalize
and trend higher, those who have relied on bank credit to raise long-term fundin
g face increased pressure on their cashflows to handle the requirement of higher
debt servicing. In addition, with limited private sector securities plying the
market, savers do not have sufficient means to migrate themselves into investors
, keeping available funding to the shorter-term tenors. Short-tenors are not the
natural match for the longer-term funding needs of entrepreneurs and corporate
borrowers. Our idea of capital market reform is not a question of the dominance
of one product over the other. Also, we do not expect an overnight shift in the
funding structure from bank credit to market securities. There are good reasons
why we would like to see more securities issued relative to loans just as there
are reasons why the system is currently heavily reliant on bank loans over any o
ther funding source. What we wish to underscore, instead, is that having the rig
ht balance between bank credit and access to capital markets is essential in ord
er to properly manage systemic risks. This has been the key lesson from the rece
nt global crisis. The new prudential norm of financial stability requires that w
e take a holistic view of how and where risks develop, keeping in mind that mark
ets are all inter-connected. To help create that healthy balance between bank le
nding and capital market as a source of funding for the corporate sector, the BS
P has been working towards the development of a benchmark yield curve that has d
epth and breadth. Related initiatives also cover, among others, price-related in
itiatives such as the Overnight Index Swap (OIS), the calculation of implied zer
o rates, the oversight of repos and the introduction of STRIPS. We are also look
ing at the financial infrastructure requirement for the capital markets. From da
ta capture within a price discovery function to the repository of all trade tran
sactions and to auxiliary services such as central counterparties, securities se
ttlement, trading platforms and central securities depository. These initiatives
are but a portion of a long to-do list. The capital market reform agenda is huge
and the barriers are formidable butas the characters in the Broadway play, Wicked,
would sing, we must go beyond our limitations and defy gravity. Concluding Thought
s Moving ahead does not happen on its own. Progress has to be moulded, packaged
and timed. If we are to sustain the momentum of growth and expansion in our bid
to move beyond investment grade, capital market reform must be integral to this
strategy. If tomorrow is to be better and brighter, we must ensure that we have
the overall support system to reap future rewards. We have to instil real change
. Only then can we really obtain the benefits of going beyond Investment Grade. On
that note, I wish everyone a productive conference.
The Pursuit of Financial Stability: A Daunting But Necessary Prudential Agenda

Occasion: FSCC MOA signing
Securities and Exchange Commission Chairperson Teresita Herbosa, Insurance Commi
ssioner Emmanuel Dooc, Philippine Deposit Insurance Corporation President Valent
in Araneta, National Treasurer Rosalia De Leon, representing DoF Secretary Cesar
Purisima, members of the Monetary Board, our partners from the various governme
nt institutions, my colleagues from the Bangko Sentral ng Pilipinas, members of
the media, ladies and gentlemen, good morning. The BSP is honored to host this s
igning of the Memorandum of Agreement formalizing the creation of the Financial
Stability Coordination Council. Today, the five agencies represented here the Do
F, SEC, IC, PDIC, and the BSP publicly affirm our collective resolve to pursue f
inancial stability as the norm for prudential policy. With that resolve comes th
e commitment to identify, monitor and mitigate the build-up of system-wide finan
cial risks and deploy as necessary so-called macroprudential measures. The Bigge
r Picture This is certainly not the first time that we have publicly mentioned f
inancial stability and our desire to make it the pillar of financial market over
sight. However, financial stability is prone to being misunderstood, if not unde
r-appreciated. Perhaps, it is the sheer enormity of the tasks ahead that creates
confusion. Or perhaps, it is the absence of a holistic and formalized textbook
framework that makes the journey to financial stability and maintaining it quite
daunting. The financial stability agenda talks of co-mingled risks, and systemi
c consequences. This is not the type of language or focus that we have been used
to in organizing our prudential oversight of our respective segments of the fin
ancial market. Yet, the dislocation that comes with financial instability has be
en very evident for everyone to see and, unfortunately, for many jurisdictions t
o experience. From the breakdown of Wall Street to the difficulties in the Euroz
one and general weaknesses in consumer protection, we saw for ourselves how prev
iously unmonitored and unrecognized risks could create system-wide consequences
that are a burden borne ultimately by financial consumers. The global reform age
nda is thus designed precisely to prevent the recurrence of dislocations whose m
agnitudes are felt worldwide. The Basel 3 Accord, Financial Market Infrastructur
es, systemically important financial institutions, corporate leverage, liquidity
, shadow banking, large exposures, interconnectedness, managing capital flows, O
TC derivatives, consumer protection. These are but some of the components of the
evolving global reform agenda. The change institutionalized by each one of thes
e is structured precisely to better achieve financial stability. The Significanc
e of the MoA This is why todays event is nothing short of a milestone. The five i
nstitutions represented here publicly recognize that financial stability matters
. We appreciate that the task is extensive and challenging but we are driven by
our common commitment to nurturing the gains that we have already achieved by re
cognizing the intricate nature of financial risks. This healthy respect for fina
ncial risks balances the rewards that we can reasonably expect from such exposur
es as against the need to remain prudent in taking on acceptable risks. We likew
ise fully appreciate that each of the institutions will continue to oversee thei
r respective markets and/or pursue their respective mandates. But the financial
system is certainly much more than the collective sum of the parts. This synergy
brings forth the risks and rewards that are at the heart of financial stability
. The Progress Thus Far Ladies and gentlemen, we mark a historic day for the fin
ancial system by signing a document that binds five financial authorities toward
s pursuing the financial stability agenda. The truth is that our work on financi
al stability does not only start today. The various committees have invested the
ir time and effort for over a year now. They have been evaluating global, region
al, local developments, with the end in view of pro-actively positioning our fin
ancial market for evolving challenges. For the silent but diligent work that the
five workstreams, our steering committee and the administrative team have put f
orward to-date, we in the Executive Committee sincerely thank you. We recognize
the enormous challenge before you and as a small token of our appreciation of yo
ur efforts, may I call on everyone to give these men and women a hearty round of
applause. With a collective commitment and a shared responsibility to implement
the financial stability agenda, I am sure that we will be able to rise to this
challenge. Thank you very much and I wish you all a pleasant day.
Continuing Growth Amidst Recurrent Risks and Uncertainty

Venue: NA
Occasion: Joint Meeting of the Rotary Club of Manila and the Rotary Club of Maka
ti-Forbes Park
Rotary Club of Manila (RCM) President Rudy Bediones, Rotary Club of Forbes Park
(RCFP) President Ruben Torres, other officers and members of RCM and RCFP, ladie
s and gentlemen, good afternoon. Thank you for the invitation to be part of the
Joint Meeting of the Rotary Club of Manila and the Rotary Club of Forbes Park. I
ts always a privilege to be included in your New Year tradition and your celebrat
ion of the Rotary Awareness Month, which I understand is commemorated in all Rot
ary Clubs across the globe. Today isnt really the first Thursday of the year, whi
ch is when you normally invite me to speak. But January 2 would have been too cl
ose to New Years day, and most of you would still have been in the holiday mood.
Today, I think everyone is on rev mode and ready to tackle the challenges of 201
4. Quite a few things happened in 2013 that have elevated the potential challeng
es of 2014. Of these, the one most felt by the country is the trilogy of natural
and man-made events the earthquake in Bohol and Cebu, the armed conflict in Zam
boanga and from Yolanda which we experienced in the second half of 2013. While t
hese three events literally changed the landscape of the country, I think these
events also, in the process, showed the best in the Filipinoour resilience and ho
w we are at our very best when we work together. In this spirit of working toget
her, the BSP also did its part to help ease the impact of Yolanda by putting in
place regulatory relief for banks in the affected areas, so they could extend th
e same to their customers. Among others, the temporary relief measures include t
he following: For all banks Allowing banks to provide financial assistance to th
eir officers and employees who were affected by the calamity including those typ
es of assistance that may not be within the scope of the existing BSP-approved F
ringe Benefits Program. For thrift banks/rural banks/cooperative banks: Excludin
g existing loans of borrowers in affected areas from the computation of past due
ratios provided these are restructured or given relief; and Reducing the 5-perc
ent general loan-loss provision to 1 percent for restructured loans of borrowers
in the affected areas. For all rediscounting banks Granting of a 60-day grace p
eriod to settle the outstanding rediscounting obligations as of 8 November 2013
with the BSP of all rediscounting banks in the affected areas; and Allowing bank
s to restructure with the BSP, on a case-to-case basis, the outstanding rediscou
nted loans of borrowers affected by the calamity. For quite a few other reasons,
besides the calamities, 2013 has been described as a year of challenges, due to
: 1. Failing to reach a consensus on a fiscal legislation, the US government shu
t down for several days. 2. Eurozone recovery remained weak and uneven across th
e member-countries. 3. China had to deal with growing shadow banking and rapid c
redit growth. 4. Market anticipation of the Feds policies added uncertainty in th
e financial markets and led to greater volatility of capital flows. Nonetheless,
the Philippine economy was able to ride out turbulence in the global financial
markets due to significant sources of strength. Notwithstanding the slowdown in
global economic growth, the Philippine economy continued to have vibrant growth.
For the first three quarters, GDP increased by 7.4 percent, higher than the 6.7
percent in the same period in 2012. Growth was boosted by the strong performanc
e of services, manufacturing and construction. On the expenditure side growth ca
me mainly from consumer and public spending buttressed by increased investments
in Fixed Capital; exports contributed in the third quarter. This was supported b
y a benign inflation environment. The full-year 2013 average inflation rate of 3
.0 percent was at the low end of the Governments inflation target range of 3-5 pe
rcent for 2013. This is the fifth consecutive year that the country has been abl
e to keep inflation within the Governments target inflation range. Moreover, the
Philippines has substantial cushions to ride out potential turbulence in the glo
bal financial markets: Our gross international reserves reached US$83.7 billion
as of end-December 2013. - can adequately cover 12.1 months worth of imports of g
oods and payments of services and income - equivalent to 8.4 times the countrys s
hort-term external debt based on original maturity and 5.8 times based on residu
al maturity We enjoy a current account surplus owing to structural sourcesBOP pos
ition yielded a surplus of US$4.7 billion for January-November 2013. The current
account surplus was mainly on account of increased net receipts of primary and
secondary income and in other services accounts. Our banking system is stable an
d strong with capital adequacy ratios well above international standards. As of
end-June 2013, the capital adequacy ratio (CAR) of UK/Bs stood at 18 percent on
solo and 19.3 percent on consolidated bases. External debt dynamics are favorabl
eexternal debt-to-GDP ratio decreased to 21.9 percent in the third quarter (2013)
from 25.6 percent in September 2012 and 24.1 in December 2012. Moreover, more t
han four-fifths of our external debt has medium- to long-term maturities.1 The P
hilippines strong economic performance has been validated internationally. 1) Cre
dit Rating Upgrades. The year 2013 saw the Philippines achieve investment grade
credit ratingnot just from one, but from all the three major credit rating agenci
es. These rating agencies have cited the disciplined fiscal management with the
declining reliance on foreign currency debt, strong external position, and low a
nd stable inflation levels as bases for the score. In a recent report, Moodys mai
ntained its positive outlook on the Philippine banking system. In fact, in that
report, Moodys stated that the Philippines banking sector is the only one in the A
sia-Pacific region which they have given a positive outlook. 2) The IMF. An IMF mi
ssion report in September 2013 cited that the countrys strong fundamentals would
enable it to deal with any capital outflows when the U.S. Federal Reserve cuts i
ts stimulus program. 3) Doing Business 2014. In the latest World Bank and Intern
ational Finance Corporation report (October 2013), the Philippines was ranked am
ong the top 10 countries that made the biggest improvement in business regulatio
n. The report took note of the governments regulatory reforms in three areas: int
roduction of a fully operational online tax filing and payment system, simplifie
d occupancy clearances for construction, and new regulations that guarantee borr
owers right to access credit information. While most of the sources of risks have
dissipated, in particular with clearer forward guidance from the US Federal Res
erve (Fed), resolution efforts in Eurozone gaining broad agreement, and accommod
ative policies in Japan bearing fruit, risks still remain. First, due to these l
ingering concerns, global economic growth remains subdued. As a whole, the world
economy is projected to have higher growth in 2014 but as the IMF puts it, glob
al growth is in low gear. Of course, just yesterday, the IMF said it would raise i
ts economic growth forecast. According to the IMFs World Economic Report of Octob
er 2013, advanced economies are showing signs of gradual, but steady, growth. Al
though emerging market economies, particularly those in Asia, continue to do bet
ter than advanced economies, China is seen to have slowing growth. In addition,
ASEAN-5 countries projected growth rates, while projected to be higher for 2014 t
han in 2013, these rates are still lower than those registered in 2012. 2 Second
, market reaction to the Feds actions. The Fed has consistently pointed out that
their decisions on these matters will be dependent on incoming data, particularl
y US employment data. The Federal Reserve has announced a reduction of its month
ly bond purchases to US$75 billion from US$ 85 billion as the start of its exit
from the stimulus measures, beginning January this year. Accompanying the reduct
ion is the Feds commitment to maintain accommodative policy. The withdrawal of th
e stimulus (including QE tapering) could impact on global markets in a number of
ways: On one hand, policy normalization in the US could mean that the major dri
ver of the global economy and trade partner to many EMEs is indeed seeing growth r
enewal, which would in turn be positive for EMEs, including the Philippines. On
the other hand, as markets expect interest normalization, this could lead to glo
bal portfolio rebalancing. Should this happen, a weakening of capital flows to o
r even a pull-out of capital from emerging markets could ensue. And, the financi
al stability implications of global funds movements could prove stressful for le
ss resilient economies those with weak external positions and those with less de
veloped financial systems. For the Philippines, the Fed taper may lead to greate
r volatility in domestic financial markets. But given sound fundamentals, we exp
ect the price movements to be broadly manageable. Across the other part of the g
lobe, efforts to improve Europe s debt position as well as the discussion toward
s completing the EU banking union continue. The full banking union reform deal i
ncludes a single supervisory mechanism, a single resolution mechanism and common
deposit insurance. The single supervisor has been approved by the EU Parliament
, and the ECB will perform this role. The single resolution mechanism has receiv
ed broad agreement at the finance and EU leaders level, but this is still for ra
tification in the EU Parliament in May. Market volatility may heighten as market
s carefully watch how the issues will be resolved. In the face of these risks, t
he BSP has a menu of options that could be deployed: We have standing facilities
to ensure adequate domestic liquidity for banks should funding sources dry up.
We would maintain a strategic presence in the FX market, while keeping the value
of the exchange rate essentially market-determined. We could implement targeted
macroprudential measures. In addition: 1. Timely and clear communication with m
arket players would quell anxieties. 2. The careful and regular surveillance of
risks would allow for prompt and appropriate responses. 3. In the event of liqui
dity problems, there are regional financial arrangements that the Philippines ca
n use. In light of all these, the outlook on Philippine growth and inflation rem
ains favorable. The economy is expected to grow between 6.5 to 7.5 percent in 20
14, despite the chain of untoward incidents. Recovery and rehabilitation efforts
are expected to bolster growth. For the medium-term, growth would be supported
by stronger performance from the construction, manufacturing, business process o
utsourcing and private services. The countrys attainment of investment grade stat
us may attract foreign direct investments that would in turn generate jobs. Infl
ation is expected to remain within the target range over the policy horizon. In
2014, inflation is seen to be slightly higher than the mid-point of the target r
ange of 3-5 percent, due mainly to higher food prices and possible increases in
utility rates but comfortably within the target range. Moving forward, the BSP w
ill remain committed to staying the course toward sustained growth, while firmly
adhering to its mandate of safeguarding price stability and ensuring the financ
ial system remains resilient. On monetary policy, we will ensure that liquidity
remains adequate to support economic growth with manageable inflation. On financ
ial sector policy, the BSP commits to maintain the stability of the financial sy
stem by continuing to craft banking regulations that are responsive, consistent
with best practice and in line with the international market reform agenda. On t
he external front, the BSP remains supportive of policies that will help cushion
the economy from external shocks. We will continue to maintain a market-determi
ned exchange rate and a comfortable level of reserves. The BSP will also continu
e to promote external debt sustainability by keeping the countrys outstanding ext
ernal debt manageable and within the economys capacity to service its debt in an
orderly manner. We will continue to monitor developments to keep ahead of emergi
ng risks. Before I conclude, I would like to spend a couple of minutes on an adv
ocacy of the BSP that we believe helps to translate the positive macroeconomic d
evelopments into the overarching goal of inclusive growth. Here, I refer to effo
rts towards financial inclusion that are within the area of the BSP. This advoca
cy is of particular importance now, in light of recent calamities, as these cala
mities have resulted in a number of families losing their savings and needing vi
tal access to financial services to rebuild their lives. The BSP financial inclu
sion framework is built on three areas: 1) broad access to appropriate credit at
reasonable rates through responsible and proportionate regulation that encourag
es market innovation, 2) timely and relevant economic and financial learning, an
d 3) well-founded financial consumer protection. How have we impacted the macroe
conomy? Let me cite some examples: First, financial access. Our policies on simp
lified or scaled down branches called microbanking offices (MBOs) have enabled b
anks to have a presence in areas that were previously unbanked. There are now 50
municipalities from 37 in 2011, an increase of 35 pct, that are served by MBOs
alone. We have also continued to leverage off mobile technology by enabling alte
rnative financial service providers (FSPs) as effective touch points to banking
services. FSPs, including pawnshops, remittance and e-money agents, which tend t
o be available even in areas with small population and have high incidence of po
verty, now total over 46,200 from about 38,400 in 2011, or a growth rate of 20pc
t. If we consider only banks (including MBOs), thirty-seven pct of municipalitie
s would be without such presence. But if we now include FSPs, only 13.2 pct of m
unicipalities would not have any form of access to financial services. Second, f
inancial education. Since we revitalized this program in 2008 we have conducted
numerous domestic and international roadshows and financial expos. Our internati
onal roadshows have targeted cities where most of our OFWs are deployed, includi
ng those in Asia, Europe and the United States. We have a number of advocacy pro
grams, including the Credit Surety Fund, the savings programs for the youth, i.e
., Kiddie Savings Program, Bamboo to Bangko, Tulong Barya Para sa Eskwela, among
others. This year, we plan to leverage on this strength to reach out to more se
ctors and regions across the country. Finally, financial consumer protection. We
have strengthened our financial consumer protection efforts by creating a consu
mer redress mechanism within the BSP. We are also in the final stages of complet
ing a consumer protection framework that will formally rate the CP efforts of ba
nks, and provide specific guidance on how banks can scale their efforts up. We a
re strong advocates of financial inclusion because in this way, we are able to e
mpower our citizens, and therewith make them more effective partners in nation-b
uilding. Concluding Remarks As I mentioned at the beginning of my remarks, the r
ecent natural calamities once again proved the Filipino is resilient thru the Ba
yanihan spirit which we saw work so excellently during our natural calamities. I
know Rotarians know this very well for you follow your motto is service above sel
f. The painting by national artist Botong Francisco illustrates this point quite
exquisitely. As we appreciate this masterpiece, we also appreciate each stroke o
f the brush that was skillfully made how deliberate Botong was in building one br
ush stroke over the other to bring to life what he had imagined in his mind to d
o. Think about what we have done in 2013 And then imagine, what more we can do in
2014, if we continue to work together with the same purpose and goal. The BSP,
national and local governments, and you, the private sectorwe are all called to s
tep forward and do our share in the rebuilding, not merely houses or even commun
ities, but precious lives of our people. I salute you, ladies and gentlemen of t
he Rotary Club of Manila and the Rotary Club of Forbes Park, for your service to
the Filipino people. May your productive work continue this and the coming year
s. Thank you very much. ------------------ 1 Average Maturity : Public Sector: 2
0.1 years Private Sector: 9.8 2 Emerging Asia includes China, India, and the ASE
AN-5 countries (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam).
Empowering Entrepreneurs Through Responsive Microfinance Programs

Venue: Executive Business Center, Bangko Sentral ng Pilipinas
Occasion: 2013 Citi Microentrepreneurship Awards (CMA) Awarding Ceremonies
Magandang hapon sa inyong lahat! We are gathered once again to celebrate a happy
event: the awarding of our top achievers in the Philippine microfinance sector.
I can tell you that it took a lot of work: we had to go through evaluation, dis
cussions and validation. But in the end, we are very pleased that we continue to
see many inspiring success stories of Filipino microentrepreneurs. Let us there
fore acknowledge all those involved in this Citi Microentrepreneurship Award: Ci
ti Philippines represented by Country Officer Batara Sianturi; Microfinance Coun
cil of the Philippines (MCPI) represented by Chairman Mila Banker; the officers
and staff of the Bangko Sentral ng Pilipinas; and finally, our amazing and commi
tted members of the board of judges under the National Selection Committee which
include: Mr. Batara Sianturi, Mr. Antonino Alindogan, Jr. and Ms. Marixi Rufino
-Prieto. Atty Felipe Gozon is represented by Ms. Teresita Pacis of GMA. We also
acknowledge the presence of Mr. Michael Zink, Head of ASEAN and Singapore Countr
y Officer of Citi, as well as MBM Felipe Medalla, Adviser to the BSP Microfinanc
e Committee. And most of all, we congratulate all the finalists and all the winn
ers of the 2013 Citi Microentrepreneurship Awards for continuing to surprise us
with your creativity, your discipline, and your humility even as you achieve your
goals in the face of many challenges that come your way. Congratulations po sa
inyong lahat. Through you, we are reassuredagain and again that microfinance is a
viable option for entrepreneurial Pinoys. Eleven years na po tayo.and counting. O
ur family of awardees keep growing and you continue to make us proud. Ipinag-mamalaki namin kayo. Dahil po dito, we continue to find ways to enhance our annual
awards program. This year for instance, we are giving a Special Award for Micro
enterprise Leadership. This will be awarded to a previous winner whose success c
ontinues to bring it to another level of growth and expansion. Ladies and gentle
men. Seeing our microentrepreneurs graduate into the next level as a small enter
prise is a milestone we look forward to. In this connection, we have developed su
pport programs to make this happen. Among others, the regulation of the Bangko S
entral ng Pilipinas on microfinance plus increases the ceiling of microfinance loa
ns from one hundred fifty thousand (P150,000.00) to three hundred thousand pesos
(P300,000.00)... to support further growth that will employ more people, create
wealth, and contribute to broad-based, inclusive growth. As it is, we are alrea
dy seeing positive results from providing microentrepreneurs access to finance.
As of end-June 2013, 186 banks with microfinance operations were serving over on
e million clients with combined outstanding loans of 8 billion pesos. And these
microentrepreneurs have become net savers with consolidated bank deposits of 8.9
billion pesos, an amount that easily surpasses their total loan. It is clear, th
ese microentrepreneurs are on the road to attaining a certain level of financial
independence. We also continue to implement programs to provide more Filipinos
access to financial services that would empower people to improve their lives. F
or instance, there are now 391 micro-banking offices that provide a broad range
of financial services in new areas. In addition, a retail electronic payments sy
stem through e-money and mobile banking is in place with 30 e-money issuers worki
ng alongside a network of more than 12,000 cash-in and cash-out agents. Indeed,
we continue to post gains in our program to develop a more inclusive financial s
ystem that will promote inclusive growth. Ladies and gentlemen. This years CMA is
taking place on the heels of super typhoon Yolanda that devastated parts of Leyt
e, Samar and other islands in the Visayas. Some of our previous CMA winners were
not spared. Our regional winners from Bantayan and Malaspacua Islands in Cebu r
eported that the typhoon wiped out everything they owned. Also affected are our
previous winners living in Iloilo, Negros and Leyte. Destructive natural calamit
ies underscore the importance of having adequate insurance protection especially
for the most vulnerable. In particular, microinsurance can protect the hard-ear
ned gains of our microentrepreneurs. For this reason, starting in 2011, the priz
es of CMA winners include microinsurance. Indeed, challenging times call for str
onger partnerships. And to show our support and solidarity to our microentrepren
eurs, we conducted here at the Bangko Sentral last week a three-day event which w
e called Microfinance Partnerships during Challenging Times. Fellow advocates of
microfinance, let us continue to enhance and strengthen our partnerships in sup
port of our microentrepreneurs who have improved the lives of their families and
generated employment for millions of Filipinos. It is also noteworthy that our
microentrepreneurs are also known for their generosity in helping other would-be
entrepreneurs. They would readily share their stories and mentor others. Last m
onth for instance, the Bangko Sentrals financial education lectures for 1,700 tea
chers and principals of the Department of Education in Kabankalan, Negros Occide
ntal was made more memorable and inspiring by the sharing of local microentrepre
neurs from Negros. Indeed, our microentrepreneurs have developed a culture of sh
aring. In words and in deeds, they inspire others who aspire to better their liv
es through microfinance. Across our country, our microentrepreneurs prove that h
umble beginnings can lead to success beyond their dreams andsometimes even beyond
our borders. Once again, congratulations to our CMA winners this year. Mabuhay a
ng microfinance! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat
sa inyong lahat!
Sustaining Growth Through Insolvency Reforms

Venue: PICC, Metro Manila
Occasion: 9th Forum on Asian Insolvency Reform
Distinguished resource persons and participants to this 9th Forum on Asian Insol
vency Reform, special guests from the government and the private sectors, our co
-organizers from the World Bank, the United Nations Commission on International
Trade Law (UNCITRAL), and the International Association of Restructuring, Insolv
ency & Bankruptcy Professionals (INSOL) good morning and welcome to the Philippi
ne International Convention Center. And to all our Forum participants from overs
eas, I welcome all of you to our country . on behalf of the Bangko Sentral ng Pil
ipinas and other Philippine institutions represented here today. Ladies and the
gentlemen, this is the first time the Philippines is hosting this Forum on Asian
Insolvency Reform, and we are privileged to do so. We thank all of you for join
ing this important event. where experienced policy makers, legal luminaries, thou
ght leaders from the academe and experts from the government and private sectors
come together to address the need to strengthen our insolvency systems. as a mea
ns to foster and sustain growth and development in our constituencies. Indeed, w
eak insolvency systems have been identified as one of the key shortcomings of th
e Asian markets. The Asian financial crisis of 1997-1998 focused a glaring spotl
ight on this weakness. Unprecedented expansion fueled speculation that eventuall
y led to a collapse of institutions, compelling governments to step in and putting
a drag on economies that took years to shake off. In its aftermath, many Asian
jurisdictions carried out reforms to improve their insolvency mechanisms. Howeve
r, most of the initiatives eventually ended up promoting the pace of restructuri
ng rather than the quality of restructuring. This had unintended consequences. Pri
marily, the widespread financial restructuring that followed resulted in masking
underlying long-term weaknesses that were not immediately given the attention the
se deserved. A decade later, what initially started as a home mortgage crisis th
at adversely affected or displaced homeowners in the US... eventually developed
into a global financial crisis. The lesson is clear: efficient and effective ins
olvency systems are necessary in ALL constituencies,... no matter their level of
economic development. Having a well-developed insolvency law is important for th
e development of an effective insolvency system. But this is not enough, as we h
ave seen in countries that have modernized their laws. We need to ensure its pro
per, effective and timely implementation. It is equally important therefore. to fo
cus on developing strong institutions that would interpret and implement the law
s. Combined, a well-developed insolvency law and strong institutional capabiliti
es provide a good foundation for a smoothly functioning insolvency system. Among
others, we need appropriate accounting and auditing standards; transparent and
accountable court systems and better insolvency administrators; enhanced corpora
te governance in corporations and financial institutions; and effective regulato
ry oversight. In this connection ladies and gentlemen, we will highlight in this
Forumthe key stakeholder roles in insolvency reforms as part of the development
of a strong institutional insolvency infrastructure. It is structured around two
basic themes which are critical goals of modern and efficient insolvency system
s: these are financial stability and responsible access to finance. In this Foru
m, therefore, discussions will cover the following: the design of an optimum fin
ancial institutions resolution regime; the development of modern insolvency syst
ems for natural persons; the determination of whether special treatment in insol
vency for state-owned enterprises is warranted; the on-going international dialo
gue concerning recovery and resolution framework for non-bank financial institut
ions; loan reclassification and restructuring practices in various jurisdictions
; market conduct regulation; consumer protection measures to mitigate the risks
of consumer over-indebtedness and consumer insolvency; treatment of SMEs in dist
ress; resolution proceedings for financial institutions; the role of the court i
n insolvency proceedings; and national updates on insolvency systems. Ladies and
gentlemen. We have a full and rich agenda for this gathering. And with everyone
here actively participating in the discussions, I am confident that this 9th Fo
rum on Asian Insolvency Reform will be successful in helping us move toward a st
rong insolvency regime that promotes sustainable growth and development, financi
al stability and investor confidence. Finally, in the spirit of ensuring a healt
hy balance in everything that we do, I also invite our foreign delegates to take
the time to get to know our people, our culture and our country better.after our
Forum. I hope you will have fond memories of your stay here. Thank you all and M
abuhay!
The Philippine Economy: Amidst Global Headwinds, Leveraging on Domestic Tailwind

s to Stay the Course
Venue: Mandarin Hotel
Occasion: Foreign Correspondents Association of the Philippines (FOCAP) Media Fo
rum
Good morning. In the American tradition, today, the day after Thanksgiving Day,
is called Black Friday -- the official first day of Christmas shopping. Picture herd
s of early birds lining up retail stores to catch the biggest sales. Consumer wa
tchdogs in America would be detailing on Monday whether this years Black Friday r
ecorded a larger sales number than previous years. Undoubtedly, the result of th
e surveys would provide the Fed with additional input as they decide whether to
taper sooner rather than later. The numbers could also help answer the question
of whether the Fed has been successful in steering domestic consumption enough t
o sustain positive economic growth. So far, so good In the last few years, extern
al factors, particularly, the Fed signals have exerted greater impact on the dom
estic market. This has been the case on two fronts 1) financial market volatilit
y and, 2) external trade. The other external risks we have been watchful of are
the tepid recovery in Europe, the impact of Abenomics, and the growth story in C
hina. So far, our calibrated use of our economic policy tool kit -- both traditi
onal policy tools and macroprudential measures -- has been successful in taming
financial market volatility and in supporting domestic aggregate demand to help
make up for any weaknesses in external trade. Just to cite some indicators.Q3 201
3 growth at 7.0 percent is the 59th consecutive quarter of positive GDP growth s
ince 1999. The last five consecutive quarters all registered growth rates of 7 p
ercent or more. This is not a fluke. The Philippine growth story has structural
roots. Inflation has been within target for the last four years Our current accoun
t has consistently been in surplus for over a decade now. Our gross international
reserves have been at record highs. And our banking system balance sheets remain
strong, with NPL ratios continuing their decline to levels lower than pre-1997
crisis. Shall we, however, continue to live in this Goldilocks world where every
thing seems to be just right where the porridge is not too hot, or too cold.. Wh
ere the bed is neither too hard nor too soft Where the chair is not too big or no
t too small? Are there other risks that lurk? How do we intend to respond to the
se? Would we be surprised like Goldilocks was when the Bear family arrived and f
ound Goldilocks sleeping in one of the beds? Then came the storm. .. In a way, Y
olanda can be considered as a surprise that hit us. Regions 6, 7, and 8 account fo
r about 12.7 pct of 2012 GDP. Latest estimates from the NDRRMC, put damage to pr
operty, industry and agriculture in these regions at P24.5B (as of 26 Nov 2013).
What is the impact of Yolanda on domestic growth? On domestic inflation? Curren
t assessments show that the impact on overall GDP in 2013 would be manageable. T
he expected expenditures for relief, rehab and reconstruction should help keep G
DP in 2013 and 2014 within the NG target. Inflation, on the other hand, will lik
ely increase in November and December from the October level of 2.9 pct. But giv
en that the weight of the affected regions in the national CPI is relatively sma
ll, the impact of the regional price increases over the two month period on the
overall inflation in 2013 should also not be that significant. Over the balance
of the policy horizon, inflation is expected to stay around the middle of the ta
rget range. Risks remain Before Yolanda, BSP had been keeping a close watch on th
e spillover effects of global developments. Specifically, 1) rapid domestic liqu
idity growth, 2) strong domestic credit growth; and 3) potential asset bubbles.
I am often asked the questions Is the BSP not worried about strong liquidity gro
wth, which tipped 30 percent in August and September? Is the BSP not concerned w
ith credit growth, which has been growing at double digit for over a year now? D
oes the BSP see an asset bubble? Let me consider each briefly. On liquidity grow
th The uptick in liquidity growth will only be for a short transition period, as
banks adjust to operational refinements to the access to the BSPs SDA facility.
With banks rebalancing portfolios to take these changes into consideration, bank
s could be expected to more expeditiously and effectively channel the SDA funds
to the productive sectors. On credit growth In our assessment, the banks have ma
de very deliberate choices to continue to lend bulk of their funds to the relati
vely capital-intensive productive sectors of the economy, i.e., the manufacturin
g and real estate sectors. Our surveys show also that even as banks have increas
ed their lending activities, they have not relaxed their lending standards. We a
re confident that given the current regulatory environment and the banks observed
risk appetite, banks will continue to be discriminating in the projects they wi
ll fund. Indeed, there is room to grow further in this respect, given our ratio
of credit to GDP remains below that of our peers in the region. On strong asset
prices We do not yet see asset bubbles forming. But developments bear watching.
Our assessments show that demand for real property assets continues to be based
on fundamentals, i.e., there is real demand from OFWs, expatriates, and the BPO
sector. The demand is also indicative of the increase in the incomes of these se
ctors, as well as the growing young professional segment of the economy. The cha
nging lifestyle of these workers has led to an increase in requirements for hous
ing near the workplace during the week as they go home to the province only on w
eekends. The BSP has been criticized as fuelling a credit and asset bubble through
low interest rates. I would say, this view is rather narrow. The BSP has reduce
d its policy rates to support growth to the extent the inflation outook has allo
wed it to. In addition, we have deployed macroprudential measures during the ear
ly stages of strong capital inflows and even earlier to help tighten regulatory
screws. These include concentration limits on real estate lending, limits on ope
n FX positions, and higher risk weight for NDF transactions. The BSP is mindful
that there are many moving parts to the economic equation, and we will always co
nsider the financial stability implications of our policy actions. What is our g
ame plan for dealing with these issues and their attendant risks? The country ha
s sufficient policy space to deal with external shocks and their spillovers to t
he domestic economy. For one, the benign inflation environment affords the BSP t
he flexibility to fine-tune policy settings, as necessary, to support the domest
ic economy. The emerging estimates over the policy horizon continue to show with
in-target inflation. Therefore at this time, policy settings appear to continue
to be appropriate. Even as inflation is within our comfort zones, we have it at
the front burner. Our commitment to price stability is not only for its own sake
but because this lays down the conditions for sustainable and balanced growth.
At the same time, prudent fiscal management has enabled the NG to keep the fisca
l deficit within target and on track with fiscal objectives.1 The NG has gained
fiscal space that could be utilized to boost the economy, when necessary. In add
ition, the BSP has also enhanced its policy toolkit to include macroprudential m
easures that would address the financial stability pressures of external factors
such as capital flows. The BSP will continue to maintain a flexible exchange ra
te policy that allows the market essentially to determine the exchange rate, but
with scope for official action to ensure against excessive volatilities. We hav
e also been actively pursuing banking sector reforms that will enhance the sound
ness of the system, engender healthy domestic competition while enabling our ban
ks to level up against peers in the region. Alongside beefing up the banking sec
tor, we will continue to broaden our efforts at financial literacy and inclusion
. Conclusion: While the country is exposed to global headwinds, and some domesti
c storm surges, we are focused on our price and financial stability mandates. In
the presence of global headwinds, we have the tools that would allow us to capi
talize on domestic tailwinds. Warren Buffet once said, You only find out who is s
wimming naked when the tide goes out. Well, ladies and gentlemen, I am confident t
hat when the tide does go out, the Philippines will be found well-clothed. ----- 1Jan-Sept 2013 Programmed deficit is P144.5B vs. Actual deficit of P101.2B.
Philippine Banking: Responsive and Responsible

Venue: Shangri-La EDSA, Manila
Occasion: Third Annual Asian Banker Philippine International Banking Convention
2013
Good morning everyone. I am pleased to join you at this 3rd Asian Banker Philipp
ine International Banking Convention. This provides us the platform to share the
continuing transformation of our banking industry in the midst of global challe
nges,... the start of our compliance with Basel 3 in 2014,... and issues related
to expansion and competition. Ladies and gentlemen. In our view, there are four
Rs that define our banking community today: robust, resilient, responsive and r
esponsible. For instance, the three major international credit rating agencies t
hat gave the Philippines investment grade status this year, acknowledged our soun
d and stable banking industry as a contributing factor. They view the Philippine
banking system as well capitalized, profitable, and liquid, with deposit-funded
balance sheets and sound loss-absorption capacities. In fact, the Philippines i
s the only country whose banking sector is on positive outlook at Moodys; it rais
ed the outlook to positive in December 2012. In January 2013, Moodys said it sees
positive credit trends in the Philippine banking system, one that has been and w
ill stay relatively immune to global economic shocks, and is benefiting from ste
ady credit growth and growing diversification opportunities. On the other hand, S
tandard & Poor is in its February 2013 report said it believes that the Philippine
banking system is reasonably resilient to an external slowdown. As the regulator
of the banking system, we at the Bangko Sentral ng Pilipinas value such positiv
e third party assessments which are... of course, corroborated by relevant indica
tors. But more than being robust and resilient, our banking sector has become mo
re responsive to the varied needs of differentiated stakeholders. Most of all, r
esponsible behavior by our banking sector in handling the savings of our people.
.. continues to underpin the continued growth of our banks to record levels. A R
esponsive Banking Industry Indicators clearly show a growing industry. But that
cannot be the only measure of success. For the Bangko Sentral, it is the banks t
hat must respond to the needs of their constituents, not the other way around. B
ut let me make one thing clear: this is not meant to be a relaxation of standard
s; rather, it is a necessary calibration to ensure that the financial needs of t
he public are truly met by the industry. The critical issue to determine then is
how inclusive our banking system has become. Our ultimate goal is for banks to c
over even the underbanked, the unbanked, and those that have been mis-labeled as
unbankable. This is quite a challenge in a country of 7,107 islands with a total
population of 100 million and where only 20% of households have bank accounts. Ne
vertheless, we continue to make progress in this area. While consolidation conti
nues to reduce the number of our banks, the industrys network and reach continue
to grow and deepen through branch banking, ATMs, ebanking, and innovations in ma
rketing and service delivery. Our initiatives to develop an inclusive financial
system through financial education, consumer protection and providing access to
financial services also continue to generate positive results. For the 5th strai
ght year, the Economist Intelligence Unit ranked the Philippine regulatory envir
onment for microfinance as the best in the world. We now have 186 banks with mic
rofinance operations, microfinance loans have more than tripled from 2002 to Jun
e 2013 at eight billion pesos, while the number of microfinance borrowers have a
lso tripled to over one million. Even better, the combined savings of the banks m
icrofinance clients have reached 8.9 billion pesos, an amount surpassing their t
otal loans. This tells us that these microentrepreneurs attained a level of fina
ncial independence... because they gained access to microcredit. Indeed, the soc
io-economic impact of developing an inclusive banking system cannot be overempha
sized. Moving forward, there is one point about our population structure that sh
ould be highlighted. Based on 2015 population estimates, the median age of Filip
inos nationwide would be at the upper end of the 20-24 years old bracket. By the
years 2020 and 2025, the average age of Filipinos is estimated to move up to 25
years and 26 years old, respectively. This information should matter to the ban
king industry. It reflects a steady but young core of the population... whose ma
in financing needs lie 10 to 15 years ahead. On the other hand, there is also th
e more mature half of the population who are today already savers, investors, bo
rrowers and entrepreneurs. Indeed, the needs of your market vary considerably ac
ross constituents, across geographical communities and across the dimension of t
ime. This presents challenges... as well as opportunities... if banks are to be
responsive to the needs of the public. Nevertheless, while having an array of pr
oducts and services is necessary, this is also not sufficient. The diversity acr
oss constituents calls for consumer protection and customer care to be on top of
our agenda. This is the responsible path to take. At the Bangko Sentral, the dr
ive to promote financial inclusion is balanced with programs to institutionalize
redress mechanisms and financial education. Today, this balanced approach is pa
rt of global standards. Nevertheless, the Bangko Sentral is taking consumer prot
ection a notch higher. Soon, our supervised institutions will also be examined o
n how they provide consumer protection. Up for consideration by our Monetary Boa
rd is a consumer protection framework that outlines the modes of behavior and pr
actices that should be adhered to... by BSP-supervised institutions. Responsible
Market Conduct: A Credit Perspective A central tenet of the financial consumer
protection framework is the aspect of responsible market conduct. This, extends
beyond consumer protection and is a critical pillar of our market. I am pleased
to share therefore... that even with the high level of liquidity in the banking
system and our own push towards a more inclusive banking industry,... our banks,
in general, adhere to high standards of credit discipline. For instance, we note
that while total loan portfolio increased by over a trillion pesos between Dece
mber 2009 and March 2013, the amount of non-performing loans over the same perio
d actually declined by over 11 billion pesos. And even with this improvement, ba
nks further increased their allowance for credit losses on loans by more than 11.
6 billion. The result is a declining NPL ratio and an NPL coverage ratio above 1
00 percent. Likewise, the countrys credit-to-GDP ratio does not show any sign of
unwarranted expansion. In fact, within ASEAN-5... we remain at the low end of th
e spectrum on this measure, suggesting that there is room to grow within the tene
ts of sound credit standards. In addition, stress tests,... which we conduct eve
ry semester,... tell us that the balance sheet of banks can absorb extreme credi
t shocks. Even at a 50 percent write off, capital positions are sufficient to ta
ke on the magnitudes of such losses. Ladies and gentlemen, all of these indicato
rs suggest that Philippine banks manage their credit exposures quite well. They
observe a degree of conservatism needed to stay within the so-called discipline o
f target markets. This is evident by the declining levels of NPLs, high coverage
ratio and moderate credit exposures vis--vis GDP. What makes these numbers even m
ore impressive is the fact that banks have available liquidity that they can dep
loy, if they so choose. The Pursuit of Financial Stability Perhaps, the crux of
the matter lies in those last four words: if they so choose. In a market that seiz
es opportunities, making the appropriate choices is critical, particularly since f
unds being deployed belong to the public. The BSP sees these choices not only in
the numerical indicators but also in the ICAAP (Internal Capital Adequacy Assess
ment Program) document which universal and commercial banks submit annually. Ind
eed, risk management cannot be the domain of a few specialists in the bank. Stra
tegic risk decisions must emanate from bank management and... from there... it s
hould become everyones business within the bank. On our part, the Bangko Sentral
does not hesitate to act accordingly in the event remedial and corrective action
s are needed at the bank level. Ladies and gentlemen. To us, the prudential obje
ctive for the industry is not only about banks being individually safe and sound
; a clear lesson from the financial crisis of 2007-2009 is that... the condition
of the whole cannot be the simple sum of the respective parts. Moreover, the bi
gger picture is defined not just by the complexities of finance. Rather, it is a
bout the web of inter-connectedness between transacting parties,... across produ
cts... as well as the channels of risk that underpin the activities in the marke
t. This is the new prudential world of financial stability. It is not just about
banks being safe and sound. For this reason, the norms for financial stability
go beyond those of financial system stability. There are technical and policy nu
ances to consider under financial stability but these can be discussed at another
opportunity. For now, let us be mindful that all of us must bear collective res
ponsibility for the actions each of us take in the market,... day in and day out
... given that inter-connectedness is a central tenet of financial stability. Fi
nal Thoughts: Managing Change and Moving Forward Moving forward, it is wise to r
emember that market conditions continue to evolve,... opportunities are never pe
rmanent,... incentives change... and macro-financial situations can reverse. We
need therefore to continuously invest in ourselves as a market, if we are to susta
in the banking sectors position of strength and adhere to the new prudential mand
ate of financial stability. This means that change is inevitable,... at the nati
onal, regional and global scale. A case in point is Basel 3, the new global stan
dard for managing banking-related risks. In this connection, the Bangko Sentral
has made clear... repeatedly... that we subscribe to the underlying principles e
spoused by the Basel 3 Accord. However, we have taken steps to calibrate its imp
lementation here... to align with local conditions. At the Bangko Sentral, we do
not instigate change... for the sake of change. Rather, our policy initiation i
s calibrated to make the industry stronger against potential waves of shocks. Th
e same principle applies to other reform strands. The new framework for OTC deri
vatives,... financial market infrastructure,... changes in corporate governance
standards,... consumer protection,... accounting... and even the recent issue on
the integrity of financial benchmarks... are all in the context of addressing i
dentified weaknesses under a financial stability mandate. They represent global
reforms that are meant to revise the international financial architecture and th
e markets intrinsic landscape. At the regional level, the reforms emanate from th
e policy decision to pursue integration. For the banking community, this will be
the ASEAN Banking Integration Framework or ABIF. The framework takes us to 2020
at which time we expect that the ASEAN banking community would be semi-integrat
ed. While this is six years away, the work under ABIF is well underway. Banks ca
n choose to retain a domestic focus or choose to become a regional player. Howeve
r you position your bank,... be aware that either of the two choices has critica
l competition policy consequences. If one is to survive and thrive, internationa
l competitiveness is the way to go. This is because so-called Qualified ASEAN Ba
nks (QABs) will operate within ASEAN. In the end, the size and strength of each
banks balance sheet as well as the quality of its management will become crucial fa
ctors under regional integration. Ladies and gentlemen, we have covered quite a
bit of ground in describing the Philippine banking industry in terms of both its
current standing and its prospects. I can say that while we are in a clear posi
tion of strength today, calibrated reforms will continue to be a necessity. At t
he end of the day, the real measure of strength and success is the ability to wi
thstand difficulties that will arise in the future. We know that change will alw
ays be at a cost; consider this as investment for the future. For today, your pr
ospective strength will be difficult to quantify. Nevertheless, you can count on
the Bangko Sentral in defining our shared vision of the future... under the pri
nciple of collective responsibility. I believe we all want a banking system that
is robust, resilient, responsive and responsible. How to achieve these in the m
idst of a constantly shifting and changing landscape... is the challenge before
us. I look forward therefore to this International Banking Convention of The Asi
an Banker to provide some answers for us. Thank you all and Mabuhay!
Partnerships Against Poverty

Occasion: 2013 Microcredit Summit
Good morning! The Philippines is pleased to welcome all of you to the 2013 Micro
credit Summit: Partnerships Against Poverty. That the summit is being held in th
is part of the world at this time... is deeply appreciated. According to the Asi
an Development Bank, two-thirds of the worlds poor are in Asia and the Pacific. I
ndeed, while economic growth has improved lives by the millions,... many still l
ive in poverty. Clearly, there is a need for intervention... to accelerate the p
rocess of bringing down the benefits of growth to the grassroots. Organized broa
d-based programs... such as this summit... address this need. This is where stak
eholders across the world can learn from each other and benchmark with internati
onal best practices. Empowering people to get out of poverty... by giving them a
ccess to microcredit from formal financial service providers... is a winning str
ategy. How to reach out to the teeming millions who live in poverty... is the ch
allenge before us. This is where partnerships against poverty come in. We are fo
rtunate therefore that we have hundreds of participants here at the summit... wh
o will share what they have learned: in challenging times... as well as in good
times. In particular, we are honored that we have with us leading champions and
enablers of microfinance, led by: Nobel Laureate Professor Muhammad Yunus; Minis
ter Syarief Hasan of Indonesia, Ambassador Jorge Domecq Fernandez of Spain, Dire
ctor Larry Reed of the Microcredit Summit Campaign; Chair of the Microfinance Co
uncil of the Philippines Mila Mercado-Bunker; and no less than Philippine Budget
Secretary Florencio Abad. Here in the Philippines, the Bangko Sentral ng Pilipi
nas, which is the central bank of the Philippines,... plays a key role in the de
velopment of the microfinance sector. As a central bank, our principal mandate i
s to ensure the stability of prices and the banking sector. In this connection,
one of our principal thrusts is to develop a financial system that is inclusive
and reaches out to the unbanked. To us, an inclusive financial system makes for
a more stable financial system; equally important, it enables us to help improve
the lives of our people. This is particularly true for microfinance, our flagsh
ip program for poverty alleviation... which we have been nurturing since 2000. T
hirteen years hence, we have issued over 40 policies and regulations to guide th
e operations of banks that have made the business decision to engage in microfin
ance. So far, so good. For five consecutive years -- from 2009 to 2013 -- the Ec
onomist Intelligence Unit has consistently ranked the Philippine regulatory envi
ronment for microfinance... as one of the best in the world. Thus, delegations f
rom other countries have been visiting our central bank to learn about microfina
nce development. And as a pioneer in developing prudential regulation of microfi
nance,... the Bangko Sentral is part of the working group responsible for drafti
ng the guidance paper on Microfinance activities and core principles for effectiv
e banking supervision... issued by the Basel Committee on Banking Supervision. Bu
t more than these, we take pride in the actual results that we see on the ground
. As of end-June 2013, for instance, there were 186 banks with microfinance oper
ations, from just a handful in 2000. These banks now serve over a million client
s with consolidated outstanding loans of over 8 billion pesos. Even better, the
combined savings of the banks microfinance clients have reached 8.9 billion pesos
, an amount surpassing their total loans. This tells us that these microfinance
clients have attained a level of financial independence... from gaining access t
o microcredit. I can personally attest how successful Filipino microentrepreneur
s are able to increase household income,... send children to school,... improve

their health and housing condition,... generally lead a better life... and serve
as catalyst for community development all because they were able to access a mi
crofinance loan. Indeed, microcredit empowers the poor to start or expand their
microenterprise. At the same time, our banks find that their bottom line is gett
ing better from microfinance. Today, an increasing number of microfinance banks
offer a wider range of products... including housing microfinance, micro-agri lo
ans and the distribution of microinsurance. Microfinance therefore... is a win-w
in program. In the Philippines, this did not happen overnight. The policymaking
process evolved from dialogues with our regulated entities,... as well as consul
tations with other stakeholders in the microfinance industry. We institutionaliz
ed such meetings with bank associations... to discuss emerging regulatory and ma
rket issues. We also expose draft regulations prior to their issuance, and admin
ister feedback surveys. We maintain open lines of communication with association
s of microfinance institutions and other concerned regulators and policymakers.
And key officers of the central bank go on exposure visits to see how our polici
es are implemented on the ground,... and to find ways to make the program more e
ffective. Ladies and gentlemen. We do all these because every stakeholder is a v
aluable partner in the policymaking process. This participative process has sure
ly enriched our understanding and appreciation of the needs of the poor, the unb
anked and the financially excluded. It has also made us more aware of our strate
gic role in enabling market players to best serve these needs. The result is a r
egulatory environment which recognizes that the financial needs of the poor and
the unbanked are as varied as those of the regular financial consumer. Regulatio
ns also provide a good level of market contestability where new players and inno
vative business models can enter and flourish. NGOs have a clear path to formali
zation, should this be their desired track. New players, such as electronic mone
y (e-money) issuers, can be part of an ecosystem that delivers financial service
s. Our regulatory environment also empowers banks to expand their coverage and r
each out to underserved markets through scaled-down branches called micro-bankin
g offices (MBOs), or through the e-money platform. These allow banks to increase
their efficiency and lower costs, enabling them to reach markets which are othe
rwise not economically feasible to serve. Regulations also reduce the barriers f
or the poor to transact with banks. Aside from the expansion of possible financi
al service access points, we have also expanded the range of acceptable IDs that
may be used to open a bank account. This addresses one of the key obstacles fac
ed by the poor and excluded to transact with a formal financial institution. In
addition, we have developed a regulatory environment which ensures that consumer
s are informed, educated and protected. Among others, the Bangko Sentral has iss
ued regulations that promote true price transparency and disclosure... to allow
clients to compare similar loan products. We have also institutionalized a consu
mer assistance mechanism to address complaints against BSP-supervised institutio
ns. We are also in the process of crafting a rating system that will assess fina
ncial institutions compliance to various consumer protection laws, rules and regu
lations. To complement these regulations, the BSP implements a comprehensive Eco
nomic and Financial Learning Program (EFLP). One component of this program is a
financial literacy session for microfinance clients and beneficiaries of the gov
ernments conditional cash transfer (CCT) program, many of whom are unbanked. The
sessions are designed to enhance their capacity to manage resources and make wis
e financial decisions that would eventually benefit their household, their commu
nity, and eventually the larger economy. These sessions are conducted in partner
ship with our Department of Social Welfare and Development, the lead administrat
or of our CCT program. Indeed, we continue to view multi-stakeholder partnership
as an important strategy to facilitate the expansion and deepening of our finan
cial system. Moving forward, we see the value of collecting evidence and data th
at conclusively affirms what we believe to be true: that access to financial ser
vices empowers households to better manage their resources and improve the quali
ty of their lives; and that broad-based access to finance and financial inclusio
n support financial stability and facilitate inclusive growth. Aside from anecdo
tal evidence, it would be ideal to have metrics that will give us solid data on
how we are doing and how we can make things even better. To implement this commi
tment, we will engage various institutions in further consultations... to develo
p a national financial inclusion strategy. With a unified vision, synergy of act
ion and complementarity of initiatives, we should make financial inclusion a rea
lity across our country. Our ultimate goal is to provide every Filipino the oppo
rtunity to benefit from having access to appropriate financial services. Ladies
and gentlemen. We are here because we share the same vision: to fight poverty an
d improve lives across the world. Let us... therefore... leverage on each others
competencies and expertise by forging effective partnerships,... and moving in u
nison toward our common goal of poverty reduction, financial inclusion and inclu
sive growth. Together, we can cover a lot of ground. Once again, I welcome all o
f you to the Philippines... for the 2013 Microcredit Summit on Partnerships Agai
nst Poverty. Thank you!... And... as we say in the Philippines: Mabuhay!
BSP Policy Directions in a Challenging Landscape

Venue: Grand Ballroom, Intercontinental Manila
Occasion: ACI Phils-FMAP-IHAP-MART-NASBI-TOAP Joint General Assembly
Ladies and gentlemen, good evening. Let me begin by thanking the organizers of t
his event for the opportunity to speak before your membership. I sometimes have
the chance to speak individually with a number of the associations and I always w
elcome those one-on-one exchanges, which are often very informative and insightf
ul. But your Annual General Meeting is a clear upside for everyone. By holding a
joint general assembly, we benefit from not having to repeat messages across se
veral forums. We also benefit from coming together as a market with a commitment
towards ensuring that we continue to build on the gains we have made so far. In
troduction Let me take you to a quick game of WORD ASSOCIATION Is everyone famili
ar with this game?... For example, when I say BLUE What comes to your mind? I deb
ated whether I should use words or the Rorschach Test of inkblots In the end, I c
oncluded words would be easier for a crowd like this It should be easier to find so
me kind of consensus in a room full of traders than it would among economists. [
Two-handed economist.] Here goes: Uncertainty Communication Volatility Normalizatio
n P44.00 Maintain Spread Narrowing Market Infrastructure Client Suitability Client Pro
tection Real Growth Inclusive Growth As expected there are differing appreciations/
meanings associated with words. Our associations are defined by where we are rig
ht now (in dealer parlance, your current POSITION) and what weve learned from the pa
st (Ika nga nila kailan, kung saan at gaano kalaki ang talo or panalo mo!) In ot
her words, ladies in gentlemen, your associations and ultimately your behavior a
re defined by facts and perception. Tonight Id like to lay down some facts before y
ou After which, Ill briefly touch on some of the risks that could color our percepti
on. My goal tonight is to help ensure that there is a convergence between your a
ppreciation and the actual intent of the BSPs policy thrust. A strong positive co
nsonance between the two will certainly make our monetary and banking policies e
ven more effective. In the end, our hope is that the resulting market conditions
would create wealth and prosperity not only for you, as intermediaries, but als
o for the Filipino people, who are, after all, the BSPs and your ultimate stakeho
lder. Fact 1: We have buffers against known vulnerabilities. First, our strong m
acrofundamentals yield solid growth and low inflation. GDP growth (left slide) G
DP grew robustly by 7.5 percent in Q2 2013, supported by strong household and go
vernment spending, as well as increased investments in capital formation on the
expenditure side. These drivers of growth offset the negative contribution from
exports. On the production side, GDP growth was led by the services sector. 4th
consecutive quarter of above 7 pct growth, 58th consecutive quarter of positive
growth. Inflation (right slide) Inflation pressures remain manageable. Headline
inflation expected to fall within the 4.0 percent + 1.0 percentage point target
range for 2013-2014 and the 3.0 percent + 1.0 percentage point target range for
2015. Second, we have a comfortable cushion of FX reserves which buffers the cou
ntry against external shocks The countrys GIR stood at US$83.2 billion as of endAugust 2013 adequate to cover 12 months worth of imports of goods and payments of
services and income; equivalent to 8.0 times the countrys short-term external deb
t based on original maturity ; 5.5 times based on residual maturity. Comfortable
margins from historical and international standards. Third, the BSPs consultativ
e style and clear effort to understand market behavior have helped us calibrate
regulation appropriately. The graphs prove that this proactive approach to overs
ight of the banking sector contributes to healthy asset quality and credit growt
h. KB Lending (left slide) The Philippine banking system has been exhibiting str
ong lending growth since 2011. As of July 2013, bank lending growth stood at 12.
3 percent. Growth in bank lending has been fueled by both supply and demand fact
ors: o Supply side: encouraged by steady growth in domestic liquidity and improv
ed asset quality o Demand side: explained by increased financing needs of busine
sses and households, plus
Relatively low interest rates
Attractive terms of fina
ncing offered by banks GNPL Ratio (right slide) The Gross NPL (GNPL) ratio of U/
KBs has broadly declined and remains low at 2.68 percent as of June 2013. While
GNPL ratio has been on a downtrend, the Net NPL (NNPL) ratio has remained nearly
constant. As of end-June 2013, the NNPL ratio was at 0.39 percent and the yearto-date ratios have been within a very narrow band between 0.43 percent and 0.45
percent. Fourth, the BSP has the surveillance tools to allow us to respond preemptively to emerging threats. A review of our indicators shows that none of the
se indicators have breached set critical thresholds. None of these are emitting
signals that raise alarm bells. A. Indicators 1. The EWS on currency crisis util
izes a set of macroeconomic indicators to assess the probability of a currency c
risis. Deviations of these variables from their normal threshold levels (estimat
ed based on previous crises) are taken as warning signals of a possible crisis o
ccurring within a specified time frame. 2. The Philippine Financial Stress Index
(PFSI) measures the degree of stress in the financial system with the use of 10
high-frequency data on bonds, foreign exchange, equities markets in both extern
al and domestic markets. A positive PFSI thus indicates that the level of financ
ial stress is above the historical average, while a negative value signifies tha
t the level of financial stress is below the historical average. 3. The BES Conf
idence Index (CI) presents the prospective outlook of the business sector on the
macroeconomy. It depicts entrepreneurs views of the general business situation i
n the Philippine economy. 4. The Consumer Expectations Survey (CES) is a quarter
ly nationwide survey of a random sample of 5,000 households in the Philippines.
Results of the CES provide advance indication of consumer sentiment for the curr
ent and next quarters and the year ahead as reflected in the overall CI, as well
as in selected economic indicators. 5. Senior loan Officers Survey 6. Business
Cycle Analysis provides an indication of on turning points of economic activity
from an expansion to a contraction and vice versa. B. Committees 1. The Advisory
Committee was established as an integral part of the institutional setting for
inflation targeting. It is tasked to deliberate, discuss and make recommendation
s on monetary policy to the Monetary Board. Starting in 2012, the Committee will
hold eight (8) monetary policy meetings in a year. 2. The Financial Stability C
ommittee (FSC) was created in September 2010. The FSC is tasked to determine the
appropriate market vision and work plan to adequately mitigate the build-up of
systemic risks in the financial system. 3. The BSP believes in a holistic and we
ll-coordinated approach in pursuing its financial inclusion agenda. Toward this
end, a high-level Inclusive Finance Steering Committee was constituted on 27 Feb
ruary 2012. The Committee provides direction and oversight in all BSP policies a
nd programs related to financial inclusion. 4. BSPs membership in EXTERNAL commit
tees includes the FSF and FSCC, both of which broadly endeavor to strengthen and
protect the countrys financial sector. C. Reports 1. The Inflation Report is pub
lished quarterly as part of the BSPs efforts to improve the transparency of monet
ary policy under inflation targeting and to convey to the public the thinking an
d analysis behind the Monetary Boards decisions on monetary policy. 2. The Quarte
rly Report on Economic and Financial Developments (Letter to the President) outl
ines the major developments in the real, monetary and fiscal sectors of the Phil
ippine economy. 3. The Financial Stability Report is published two times a year.
It provides a comprehensive assessment of the robustness as well as vulnerabili
ties of the domestic financial system against emerging economic and financial de
velopments both in the global and domestic environment. Fact 2: We are reform-mi
nded and have a strong reform agenda in place. We are geared up for the Basel 3
Capital Framework. This slide shows a comparison of the minimum requirements und
er our old Basel 2 framework, the Basel 3 framework of the BIS and our own requi
rements in 2014. You will see that our minimum CAR has not changed. It is still
10 pct. What has changed, however, is the composition of qualifying capital. Fro
m a requirement of minimum Tier 1 of 5 pct under Basel 2, we will now be requiri
ng at least 6 pct of Common Equity Tier 1 (CET1). The minimum Tier 1 shall now b
e 7.5 pct. It s not on the slide, but we will also be requiring a 2.5 pct Capita
l Conservation Buffer, all of which must be CET1. In other words, ladies and gen
tlemen, what has changed is the composition of capital to improve its loss absor
bing capacity. I have been asked why we appear to be in a hurry to implement Bas
el 3. Its true we are ahead of the Basel timeframe of 2019, but we are actually b
ehind our EMEAP counterparts. (Australia and NZ have implemented in full in 2013
.) Are we being stricter than other jurisdictions? Not really, when you consider
that our minimum CAR remains at 10 pct. I am also asked whats the benefit of impl
ementing this now instead of later. 1) To reduce regulatory uncertainty, 2) Mini
mal impact on banks, because banks are ready, 3) Its a credit positive. In additi
on, we are gearing up for the rest of the reform Agenda under Basel 3. This slid
e gives a quick view of the packages of Basel 3 reforms in the pipeline What will
come into play in Jan 2014 is part of the capital framework in Basel 3. The othe
r major reforms will fall under Liquidity Standards and Systemic Risk and Interc
onnectedness. Experience has taught us that when it is crunch time, often what b
ecomes the binding constraint is liquidity. Bank failures often result from a la
ck of liquidity. Moreover, this crisis has taught us that looking at individual
firms is not sufficient. Interconnectedness is at times even more important. As
you can see from this slide, the capital market reform agenda is a full topic by
itself that deserves its own treatment. Ill leave that as a topic for a future sp
eech. Another part of our reform agenda covers the ongoing efforts towards regio
nal integration. The BSP is supportive of the AEC 2015 and ABIF 2020 dialogue. T
he benefits of technology transfer and broadening of markets and market access a
re clear. But of course there are costs, including perhaps loss of market share
and volatility if one thinks of the region as a zero sum gameWe dont believe this
is so. The principles are clear. The key principles are: 1) acknowledgement of v
arious initial conditions of member states, 2) agreement on milestones, and 3) a
greement that compliance with milestones is state-dependent. At the end of the d
ay, we see this as a window of opportunity. Its a cooperative effort. Fact 3: The
re is a strong show of faith from third-party recognition. The stable macrofunda
mentals and sound banking system have not gone unnoticed. Our investment grade c
redit rating clearly reflects these. In addition, the institutionalization of ou
r governance reforms continues to be reflected in improvements in our internatio
nal competitiveness. Based on the results of the Global Competitiveness Ranking
of the World Economic Forum, marked improvements were noted in the areas of mana
gement of our fiscal position, financial market regulation, and a turnaround in
the area of labor market efficiency. Clearly, ladies and gentlemen, the BSP has
its eyes on the ball and its ears to the ground. Importantly, we have policy spa
ce to respond to the brewing pressures we observe. Often times, however, it is i
n the perception of the brewing pressures where the BSP and the market could hav
e a conceptual difference. Let me just cite three risks that we see as possible
points of pressure: 1) What comes after the Fed Action (or No Action)? 2) Liquid
ity and Credit Growth post IMA Are there inflationary and financial Stability co
ncerns? 3) Should we be concerned with the Rest of the World? Risk 1: How prepar
ed are we for a Fed Tapering? The Fed taper is an issue that is quite familiar t
o the market. And I am sure you have read with critical interest all the analyse
s by eminent Fed watchers of the recent Fed pronouncements. I dont want to stir t
hat pot of confusion and I also dont want to comment on what the Fed should or sho
uldnt have done. But one thing I know is clear, and I can attest to this: the BSP
is ready to respond to excessive market exuberance or disappointment (whichever c
ase will apply) to any surprise action (or the lack thereof) of the Fed. I know
I dont need to remind you, that we are watching market conduct very carefully, cl
osely, and critically. Should market reaction/sentiment lead to a loss of overal
l business confidence or a dis-anchoring of inflation expectations, the BSP has
the room to adjust policy interest rates or other monetary policy tools, as appr
opriate. Should market action lead to instability in the non-financial (or the r
eal asset) markets, we can further tweak existing macroprudential measures or re
lease new ones, as appropriate to target problem asset areas. In other words, la
dies and gentlemen, our policy actions will always be guided by our price and fi
nancial stability objectives. Barring any unforeseen threats, I think we have ro
om to keep policy rates steady for the balance of the year. Risk 2: Should domes
tic liquidity growth be a concern? And the flip-side of this, should we be conce
rned with credit growth? Our assessment is that both liquidity and credit are ri
sing consistent with the growth in the economy and financial deepening. Strong l
iquidity and credit growth feeds the economys growth potential. Structural reform
milestones that began in the early 1990s and 2000s and continue to gather stron
ger pace today have translated to productivity gains over time, as reflected in
higher potential output growth. If the current investment-led growth and institu
tional reforms are sustained, a 5 to 7 percent potential output growth for the m
edium-term is highly feasible. There is sufficient liquidity to fuel this, and b
anks are able to intermediate these funds safely. You could also ask should the
market be concerned post-SDA IMA? If the market concern is on the headline liqui
dity growth number of over 30 percent, my answer would be no. The BSP has always
anticipated there will be some liquidity growth after the funds under SDA- IMA
are released. That was, after all, the game plan. We fine-tuned the SDA operations
so the funds could find more productive homes in industry, manufacturing and ot
her sectors of the economy. In addition, our anticipation is that the period of
high liquidity growth coming from SDA-IMA will not persist. If the concern is wh
ether the liquidity will fuel an asset bubble, the answer again is no. And I thi
nk you, who know your SDA clients well, will agree with me on this one. The prof
ile of an SDA investor is very different from the profile of a real estate inves
tor. Finally, Risk 3: The Rest of the World? Because of 1) trade ties with, 2) w
orkers deployed to, and 3) tourists expected from Europe, Japan, China, we watch
these countries with great interest. At the moment, the consensus seems to be t
hat 1) Europe can possibly keep its growth rate level, 2) Japan will calibrate i
ts stimulus, learning from the experience of the Fed on the problems of exit fro
m unconventional monetary policy, and 3) China will continue to grow at a steadi
er pace. We are monitoring these economies, but we are also mindful that our own
domestic demand conditions, particularly consumption and capital formation, rem
ain quite strong. Concluding Remarks Ladies and gentlemen, Ive laid out for you t
he facts and the perceived risks three buffers against three vulnerabilities. I know
Ive gone thru a lot of information I am not worried though because I know dealers
are experts at multi-tasking, and are able to filter thru a lot of information
quickly! My bottom line is this: the country has what it takes to move forward a
midst the uncertainty in the short-term, because we have put up buffers. I know y
ou have heard this said over and over and over but ladies and gentlemen, this is
not a trivial matter It is the very presence of these buffers that has enabled yo
u to enjoy the positions that you are currently in. We are where we are because
we did our homework. To you, the vital players in the market, my message is Do N
OT get stuck in the short-term Just because we have the buffers, doesnt mean it sh
ould be business as usual. You should always look to enlarge your business opportun
ities, and not just go for the quick trade. I encourage you to think long-term.I kno
w LONG-TERM TRADER (unless natatalo yung position) is an oxymoron. But think abo
ut it, to survive in this business, you NEED to think long-term. The BSP has a f
ull market reform agenda. The agenda, as you will learn quickly enough, is not a
mechanical duplication of the international reforms. Our agenda is a calibrated
adoption of the principles of the international agenda to suit our idiosyncrati
c requirements as an economy. It is also informed by lessons learned from years
of dealing with earlier crises. The BSP needs you, the market, to partner with u
s, in the full development of this agenda, and in its eventual implementation. R
eform will work only if we work on it together. I avoided using ink blots at the b
eginning of my remarks. But I think for my conclusion, I shall put one up. This
picture is the word CRISIS, written in Chinese. It is said that one character repr
esents danger, the other opportunity. I am not an expert, but I dont think the Ch
inese meant to say that Opportunity plus Danger equals Crisis. Although to an undi
sciplined trader, working in a dealing room without the appropriate controls, he
might see an OPPORTUNITY which could then bring DANGER to the firm, and result in C
RISIS.. As a true market, we dont ever want to find ourselves in a FIX like this The
BSP is always ready to sanction such activities to the full extent of regulation
s and the law. But I digress, what I hope we all will come away with from this pi
cture is this: that with every crisis comes an opportunity to grow. In the Phili
ppines, we can achieve that if we look beyond the short-term volatilities, and c
onsider the bigger picture of what lies ahead. I hope I can count on all of you,
as we work from the same page, of the same game plan. Thank you, and have a ple
asant evening.
The PDIC & the BSP: Continuing a Partnership for Stability

Occasion: Signing of the Memorandum of Agreement Between the BSP and the PDIC on
Bank Examination
Thank you for joining us this afternoon to witness the signing of this Amended M
emorandum of Agreement on Bank Examination between the Philippine Deposit Insura
nce Corporation and the Bangko Sentral ng Pilipinas. Our signing ceremony is bri
ef and simple but also significant and meaningful. The MOA we have signed today
underscores the continuing efforts of the PDIC and the BSP to enhance our respec
tive regulatory and policy frameworks. Equally important, this amended MOA refle
cts our continuing cooperation to ensure that our joint working arrangements are
responsive to the changes taking place in the operating environment of our supe
rvised and regulated institutions. Indeed, the PDIC and the BSP have a long hist
ory of partnership and cooperation to achieve and maintain a sound and stable ba
nking system. In particular, the PDIC and the BSP signed the original MOA on Ban
k Examination on October 11, 2005 which created the overall framework for our ins
titutions to supervise banks through, among others, the conduct of on-site exami
nations, jointly or independently. While the original MOA has served us well, we
recognized the need to align it with current supervisory procedures, practices
and requirements. The joint review committee created for this purpose was headed
by PDIC Executive Vice President Imelda Singzon and BSP Managing Director Chuch
i Fonacier with support from their respective groups. And so today, we have this
amended MOA. Let us give our review committee a big hand. As amended, the MOA h
armonizes our examination procedures to avoid overlapping of functions and effor
ts, enhances data-sharing arrangement, and maximizes the use of reports and reso
urces. The amended MOA also provides the PDIC more flexibility in terms of the t
ypes of banks it can jointly examine with the BSP, defines the specific findings
/information that the BSP examiners can share with PDIC examiners, and considers
the provisions as well as rules and regulations of Republic Act No. 9576 which
amended the PDIC Charter. With these amendments, we look forward to the PDIC and
the BSP being able to address examination findings and violations with expedien
cy especially those involving unsafe and unsound banking activities. This is cons
istent with the thrust of the BSP and the PDIC to promote and strengthen good go
vernance practices in supervised banks to ensure the stability of the banking sy
stem at all times. We look forward therefore to exploring new projects and expan
ding existing initiatives with the PDIC to realize our shared goal of delivering
a better quality of life to Filipinos through a sound and responsive banking sy
stem. Mabuhay ang BSP at ang PDIC! Mabuhay ang ating mahal na bansang Pilipinas!
Maraming salamat sa inyong lahat!
IABC s 2013 CEO Excel Lifetime Achievement Award

Venue: Intercontinental Manila
Occasion: CEO Excel Awards 2013
The officers and members of IABC under the leadership of Chair Elpi Cuna and IAB
C President Ritzi Ronquillo, distinguished fellow awardees, special guests, frie
nds, good evening. I am deeply honored to receive the 2013 CEO Excel Lifetime Ac
hievement Award....and for this I thank the IABC. In your letter informing me of
this award, you described the awardees as belonging to the select group of outst
anding national and industry leaders who epitomize management competence and exc
ellence in communication at a strategic level;... a leader for good governance a
nd responsible corporate citizenship who inspires others to serve for the greate
r good. Ladies and gentlemen. I have been a central banker for 39 years now, ...
of which eight years have been spent at the helm of the Bangko Sentral ng Pilipi
nas as Governor and Chairman of the Monetary Board. And to this day, ... I still
find my work challenging, meaningful and fulfilling. Indeed, I have always felt
it is a privilege being given the opportunity to serve our people and our count
ry... as a public servant. Across the country, the commitment to serve runs deep
at the BSP from our 18 branches, three regional offices to our Security Plant t
o our Manila Head Office. I therefore share this award with my colleagues,. whose
drive to excel is motivated by the singular vision of achieving a better life f
or Filipinos through sound monetary and banking policies. At all times, we are co
nscious that what we do or what we say can affect millions of Filipinos for the be
tter or not. In this connection, we make sure that two-way communication is maint
ained with our various constituents. Among others, the Bangko Sentral has mainta
ined a consultative process...given that concerns of financial markets have beco
me broader in breadth and deeper in consequence. Clearly, we cannot afford a uni
lateral approach; even if we do not agree on every policy detail, we continue to
find ways to address issues together. With open channels of communication the B
angko Sentral and the banking sector continue to evolve in response to the needs
of our growing economy. Today, our banking sector is sound, stable and liquid.
In fact, the stability of our banking system in the midst of global turmoil... h
as been a factor in our country finally getting out of junk status and receiving
investment grade from S&P and Fitch credit rating agencies. This is important.
A higher credit rating generally enables a country and its corporations to have
access to international capital markets at lower rates. Similarly, our continuin
g efforts to involve and engage our stakeholders on key policy issues have produ
ced positive results. For instance, our quarterly Consumer Expectations Survey o
f 5,000 households and Business Expectations Survey of our top 7,000 corporation
s help us formulate sound policy decisions. The continuous improvement in the qu
ality of our surveys and our consultative approach provide a good anchor for the
monetary policies of the Bangko Sentral ng Pilipinas, the objective of which is
to keep prices low and stable. In fact, when we tracked the correlation between
the results of our expectation surveys with actual data on the GDP, inflation, in
terest rates and foreign exchange we found significantly high overall convergence
. As a result, the Bangko Sentrals policy decisions continue to provide the stabi
lity that preserves the public s purchasing power and creates a planning environ
ment conducive to strong and sustainable growth. In particular, we continue to b
e successful in taming inflation at low single digit levels 2.8% as of June 2013
, with year-to-date inflation at 2.9 percent. And with BSPs policy rates now at r
ecord low levels, average interest rates charged by banks to their customers hav
e also dropped to single digit levels. This has benefitted consumers in terms of
gaining access to more affordable credit.... while business is able to expand a
nd create new jobs with lower financing costs. We are also heartened by our prog
ress in developing a more inclusive financial system, the implementation of our
nationwide economic and financial learning program, and enhancing protection for
finance consumers. Ladies and gentlemen. The ability to make informed financial
decisions is now recognized globally as a life skill needed if one is to be suc
cessful. Again, how to communicate finance lessons across different sectors, reg
ions and age groups is a challenge the Bangko Sentral has taken up. Finally, we
observe that the resilience of our economy strongly reflects the efficient perfo
rmance of our communication exchange with key stakeholders. To us at the Bangko
Sentral therefore, efficient communication leads to transformational growth. Of
course, you and I know communications is always fraught with challenges. Witting
ly or unwittingly, statements from the Bangko Sentral move markets. The same is
true of other central banks. We have also witnessed how global markets big or sm
all - can rise or fall sharply... in reaction to statements from central bank he
ads. US Federal Reserve Chairman Ben Bernanke today and Alan Greenspan before hi
m come to mind. In the same vein, the European Central Bank said credibility and
effectiveness of monetary policy come with effective communication. Indeed, as
much as credible policy actions, effective communication is of fundamental impor
tance to central banks. And for this reason, this Lifetime Award on Communicatio
n Excellence from the IABC is truly meaningful and deeply appreciated. I also th
ank my fellow central bankers at the Bangko Sentral ng Pilipinas who have been p
art of my journey as a public servant. And finally, I take this opportunity to t
hank my family, particularly my wife Elma and my children, for their uncondition
al love and support. I can say I am truly blessed. Maraming salamat sa inyong la
hat!
The BSP and the Banking Community: Forging a Strong Partnership that Benefits th
e Country
Venue: BSP Assembly Hall, BSP Complex, Manila
Occasion: Dinner with Bankers
Sec Cesar Purisima, ADB President Takehiko Nakao, SEC Chair Teresita Herbosa, th
e leaders of the Philippine banking community, former Members of the Monetary Bo
ard, Heads of international agencies in the Philippines, fellow public servants,

members of the media, distinguished guests, friends, ladies and gentlemen. On b
ehalf of the Members of the Monetary Board, we thank you for accepting our invit
ation to recognize the banking community --- one of the most important channels
for the transmission of the BSPs monetary policy and one of the reasons why our c
ountry finally earned investment grade this year. While our partnership is not p
erfect, our partnership is a success ... as it generates incalculable benefits f
or our people and our country. If this were a wedding anniversary, porcelain wou
ld be our theme. The story of porcelain as works of art started over 2,000 years a
go. What is amazing is that some of these ancient pieces still exist; they have
endured. Like the porcelain of old, the Bangko Sentral is rich in history. While
we are distinct from the Central Bank of the Philippines, we value its legacy a
nd traditions that connect us to the history of central banking in the Philippin
es. And in tandem with its partners in government and the private sector... incl
uding the banking community, the Bangko Sentral continues to make history, ....e
nduring the heat of national and global challenges and coming out better and stro
nger from it. Two Decades of Moving Forward Indeed, we have the metrics to show
the progress we have made in pursuing our mandate of providing stability to pric
es and the banking sector through our monetary and banking policies and programs
. Republic Act 7653, the law that created the Bangko Sentral ng Pilipinas in 199
3 was passed by Congress during the term of then Governor Jose Cuisia of the Cen
tral Bank of the Philippines and signed into law by President Fidel Ramos. That
was 20 years ago. Since then, price movements as measured by inflation have been
limited to single-digit levels: it hit a high of 9.3% in 1998 during the Asian
financial crisis and has dipped to 2.8% in June this year. And together, the Ban
gko Sentral ng Pilipinas and the banking sector have successfully evolved to mee
t the growing and changing needs of our country and our people. Total resources
of the banking system for instance increased from more than P1 trillion in 1993
to over P8 trillion in 2012, deposits from P649 billion to P5.8 trillion, and lo
ans from P553 billion to P4.1 trillion. Over the same period, our gross internat
ional reserves soared from $5.3 billion to $81.6 billion as of June this year, g
iving us the ability to provide the foreign exchange needs of our growing econom
y and to minimize the possible impact of external shocks. Our healthy GIR levels
also allowed us to prepay our debts to the IMF and end more than forty years of
our countrys dependence on IMF loans in 2006. Thus, when the 2008 global economi
c crisis came around, we were able to ride it out. In fact, while credit freeze
became the norm in developed countries, Philippine banks remained liquid and abl
e to sustain double-digit growth in lending. And non-performing loans of commerc
ial and universal banks dropped from double-digit levels to 1.87% in May 2013, e
ven better than the pre-Asian financial crisis figures. Looking back, I think it
is because we have a good balance of prudential regulations from the Bangko Sen
tral on one hand and on the other adherence to sound banking practices by our bank
s. In other words, the sound and stable Philippine banking system that we see to
day is the dividend from our continuing reform agenda to clean up bank balance s
heets, strengthen bank capitalization, improve governance structures, enhance ri
sk management systems, and align with international standards. Many take comfort
that we have been in a position of strength as we traversed recent and ongoing
global turbulence in financial markets. That may be so but we cannot be complacen
t: new challenges are before us and we need to address these now. Indeed, there
will be no shortage of issues to confront. Financial markets are never static an
d we must be able to respond accordingly. From our perspective as industry regul
ator, two challenges deserve particular mention. Financial Stability as the Prud
ential Cornerstone With the global economic turmoil in the last five years far f
rom over, the first challenge must be to maintain financial stability, whichladie
s and gentlemen, goes beyond the Basel 3 agenda. New standards will be introduce
d for leverage, liquidity, the handling of market risks that lead to credit risk
s, the treatment of securitization and inter-financial exposures, and mitigating
counterparty risks, among others. Beyond the Basel Accord, the distinction betw
een OTC and exchange-traded derivatives is effectively being removed to ensure p
rice transparency and improved governance. Payment systems are now governed by n
ew principles set for providers of so-called Financial Market Infrastructures (F

MIs) while the use or non-use of these FMIs by market players will have conseque
nces. There are many other reform initiatives that could be cited. At the end of
the day though, all of these are geared to the common purpose of achieving fina
ncial stability. We will have every opportunity to discuss how high to set the p
rudential bar but the principles behind the change in the global standards are d
ifficult to ignore. Capital Market Development: Moving Beyond the Usual Rhetoric
s Apart from the global initiatives, we do have our own set of concerns. Capital
market development has been in and out of vogue through the years. However, man
y unresolved issues remain and this is our second major challenge. The Capital M
arket Blueprint prepared under the auspices of the Securities and Exchange Commi
ssion headed by Chairperson Herbosa is the take-off point. I urge the stakeholde
rs to look carefully at the Blueprint and commit to the deliverables within thei
r purview. From the perspective of the BSP, a few specific issues are most criti
cal. Who will disagree with the proposition that benchmarks are central to our m
arket and its operations? Whether it is to price a new issue or value/re-value a
n existing exposure, the role of benchmark rates simply cannot be over-stated. D
espite many initiatives and formulations, we remain well-short of a viable yield
curve that properly reflects credit and liquidity risks.We have all heard of OI
S, implied zero rates and single price as the latest round of initiatives toward
s an acceptable yield curve. We look forward to having these initiatives come to
fruition, hopefully by end-year. The role of clearing entities and similar disinterested 3rd parties will also be critical. A part of this goes back to the is
sue of valuation. At this juncture, we do need to think about the broader policy
framework for our market infrastructure. To execute our capital market agenda,
these are the areas that need to move beyond rhetorics. Taking the Challenges Fo
rward Ladies and gentlemen, the past 20 years has been all about transformation.
As we mold ourselves and the financial markets through the last two decades, we
have always had the banking community as a partner. From the term of Gov. Gabri
el Singson to Gov. Rafael Buenaventura, and up to now, we have always nurtured a
consultative process. I assure you that while we may not always agree on every
policy detail, we will continue to find ways to address these issues together. M
oving forward, we expect to continue relying on the consultative process. We can
not afford a unilateral approach. We ask the banking community therefore to take
an active role in addressing the issues that lie before us. Ladies and gentleme
n. With your support and cooperation, the Bangko Sentral has had a good track re
cord in its first 20 years. And while our record of accomplishments is far from
perfect, we are reassured by the recognition the Bangko Sentral continues to rec
eive here and overseas. We are also heartened by our progress in developing a mo
re inclusive financial system, the implementation of our nationwide economic and
financial learning program, and enhancing protection for finance consumers. We
need to think out of the box in mobilizing savings in the region, providing exte
nded financial access through both mainstream and non-mainstream channels and cr
eating alternative sources of financing for borrowers and entrepreneurs. Toward
this end, the Bangko Sentral looks forward to more partnerships with the banking
community in ensuring sustained and inclusive growth for all. Once again, we at
the Bangko Sentral ng Pilipinas thank the banking community and other sectors r
epresented here tonight for your continuing support and cooperation. Mabuhay po
tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat. An
d lets enjoy the rest of the evening.
Fostering a Culture of Good Governance and Compliance

Venue: Rizal Ballroom A, Makati Shangri-la, Makati City
Occasion: Induction of New Officers and General Membership Meeting of the Banker
s Institute of the Philippines
The officers and members of the Bankers Institute of the Philippines under the l
eadership of President Francis Puzon, SEC Chairperson Tess Herbosa, my colleague
s at the Monetary Board Ignacio Bunye and Armando Suratos, former PM Cesar Virat
a, friends from the banking community, fellow BSPers, distinguished guests, ladi
es and gentlemen, good afternoon. It is always a pleasure to join events of the
BAIPHIL, a partner of long standing of the Bangko Sentral ng Pilipinas. In parti
cular, today is special.... as we witnessed a transition of leadership. This giv
es me the opportunity to thank the previous set of officers led by immediate pas
t president Salvador Serrano for a job well done.... and to congratulate brand n
ew BAIPHIL President Francis Puzon and his fellow officers... on winning the con
fidence of their peers to lead them for the fiscal year 2013-2014. I learned tha
t by tradition, incoming BAIPHIL leaders should have served earlier as an office
r or in working committees. This is a good practice: it reflects a long-term com
mitment to serve BAIPHIL and the interests of the industry. In your case, the ba
ton is passed on to runners who have run previous legs of the relay. This repres
ents a great opportunity to leverage from the experience of the past... and to a
pply this perspective to what lies ahead. As we all know, industry association w
ork is never easy; but it can be most fulfilling... and quite educational -- lit
erally and figuratively. BAIPHIL as a Partner for Good Governance Francis and hi
s team have chosen as their underlying theme Fostering a Culture of Governance an
d Compliance. For us at the Bangko Sentral ng Pilipinas, this is a good theme. It
is simple and direct. It shows clarity of vision. And it is aligned with the co
ntinuing thrust of the Bangko Sentral. Indeed, having a culture of good governan
ce and compliance not only within the banking system... but across all sectors a
s well... is what we should aspire for. Over the years, the Bangko Sentral has b
een working on ensuring good governance and compliance systems in banks. We benc
hmark against international standards and adapt to emerging challenges. In Janua
ry last year, for instance, the Bangko Sentral adopted revised guidelines under
Circular 749 and 757 to strengthen governance standards that have been largely p
atterned after the paper on Principles for Enhancing Corporate Governance by the B
asel Committee on Banking Supervision (BCBS). The BSP also adopted rules under C
ircular 747 to strengthen banks compliance systems. Only last May, the BSP deploy
ed its Compliance Rating System (CRS), an assessment tool that we developed to c
omprehensively evaluate... during an on-site examination... the effectiveness of
a supervised institutions compliance system in mitigating business risk. In craf
ting new policies on governance and compliance, the Bangko Sentral adheres to th
e principle that good governance is the primary responsibility of the particular
banks board of directors and its senior management. We respect the mandate of th
e leadership of each bank to make strategic decisions... and it is the risk choi
ces in these decisions that differentiate one bank from another as a business pr
oposition. Thus, when the BSP intervenes in the conduct of any bank, governance
has broken down and remedial action is needed. For the record, we intervene in t
he conduct of a bank only to protect the broader public interest. It is critical
for a bank therefore to embrace a mandate on good corporate governance. Having
a pool of officers who can preach, practice and promote good corporate governanc
e is clearly an essential facet of success. Two challenges to the BAIPHIL as Par
tner in Governance On this point, BAIPHIL is faced with two challenges. First, d
ata culled from the BAIPHIL Secretariat show that 2,273 individuals have taken y
our governance course between August 2002 and June 2013. A quick work on the num
bers tells us that it comes out to about 17 course participants per month or a l
ittle over 200 on average every year. I believe these numbers can be significant
ly improved and the new board may want to look into this as a key result area. I
n an industry of over 140,000 officers and staff, we need to find ways to ensure
that good governance is not only a nice-to-have training but a must-have perspe
ctive among bankers. The governance perspective that we seek must be fundamental
ly entrenched as a core competency of any banker. Banking is about mobilizing ot
her peoples savings. Intermediating these funds to borrowers... only to be faced
with collection issues.... gives rise to conflicted interests. We can point to i
nternal checks and balances ....but what better mitigant is there ...than practi
tioners who shun unacceptable behavior and practices. In my view, developing a b
road and deep pool of practitioners should mean more than the 200 individuals co
mpleting governance courses a year. Not only is this a game of numbers for an in
dustry that is growing both in size and complexity, ...governance standards them
selves are central to the on-going reforms of global best practices. Thus, not o
nly should there be many more advocates of good governance, there is much to relearn of governance standards in the first place. The second challenge is the na
tural consequence of the first. If we are to develop training programs for corpo
rate governance in banking, there must be a way to evaluate whether the training
is itself an effective intervention. Is the program content reflective of the mod
ified global norms? Is the training itself making a difference? These questions
must be addressed. The metric, in our view, is properly developed at the bank-le
vel... since it is bank leaders who have the appropriate perspective... of the e
xtent to which conflicts of interest arise and how these are resolved. Banks als
o possess the needed information to directly assess progress. Governance and Con
sumer Protection As an intermediary, you serve the interests of the saving and i
nvesting public... as much as you look to meet the needs of those borrowing and
raising funds. You provide great service... as you are able to regularly do as a
n institution... what individuals and entities will find very costly to do on th
eir own. In an ideal world, this symbiotic relationship will generate benefits m
utually agreeable to all parties. Left to its own, however, the subsequent resul
ts may not always be positive. As defined in academic literature and repeatedly
confirmed in practice, finance in general... is fraught with conflicts of intere
st. This is the reason why good governance and the general ambit of consumer pro
tection... must be inherently intertwined. The ultimate measure of success canno
t be simply summarized either by a Capital Adequacy Ratio that is above regulato
ry norms... or by the extent of profits banking operations generate. Instead, ba
nking must be about addressing the financial needs of various stakeholders. Not
only are we talking about making the system more inclusive, we need to step up t
o protect the financial consumer,.... from improved awareness to redress mechani
sms. The mantra of good corporate governance therefore cannot be just about the
bank or its personnel. It has to go beyond compliance with regulatory directives
. It must consider fair and acceptable behavior, among others, to those who are
more vulnerable, even if it means accruing less to the bottom-line. This is the
very essence of why banking is imbued with public interest. In this connection,
the Bangko Sentral is preparing to release a Consumer Protection Framework (CPF)
that is applicable to its covered institutions. Built upon the pillars of consu
mer empowerment, market conduct and collective responsibility, the governance st
andards put into practice by each BSP-covered institution will play a central ro
le within the CPF. The introduction of the CPF is a milestone for us. Consumer p
rotection is now part of the core practices for which the BSP exercises supervis
ion and regulation. In this initiative, I expect that BAIPHIL will again be one
of our key partners. What Lies Ahead: A Challenge to BAIPHIL Ladies and gentleme
n, we can always talk of governance at length. The challenge, however, is not in
extolling the virtues of good corporate governance. Rather, it is what happens
after .... THAT is the key challenge. If a culture of good governance is meant to
define our set of values, beliefs and practices on governance, ...then we are cl
early along the proper path. This cannot be delineating the shades of grey betwe
en acceptable and unacceptable. When it involves the interests of several stakeholde
rs, we need to be categorical about what is right and wrong. The challenge is measur
ing how far we moved forward. I am not referring to specific instances of compli
ance or breaches. What we want to achieve is having that comfort that values, be
liefs and practices are fully in place and updated even when no one is looking.
Certainly, it is this last part that is at the core of the issue. BAIPHIL has al
ways been the advocate of training and capacity building. The industry benefits
from your course offerings and capacity building programs. But BAIPHILs mandate c
annot...and should not stop when the courses end ...or when we choose to mount a
new training. Is BAIPHIL up to this critical task? ..... Abangan! Actually, giv
en your track record, I trust that BAIPHIL will find new and creative solutions
to meet these challenges. Finally, I thank and commend BAIPHIL for its continuin
g commitment to support the Bangko Sentrals financial education program for paren
ts and teachers in our public schools. This is a parallel program that complemen
ts the lessons on saving, money management and entrepreneurship being taught in
public elementary schools... under a joint program of the Bangko Sentral ng Pili
pinas and the Department of Education. As the members of your education committe
e and other BAIPHIL volunteers can attest, the learnings on personal finance are
deeply appreciated by teachers and parents,... some of whom are moved to tears.
.. when they share what they go through to make both ends meet. It means a lot t
o them that BAIPHIL and the Bangko Sentral spend time with them to help improve
their lives. Think about it. Education Secretary Brother Armin Luistro has learn
ed of our joint project and is interested in scaling it up to help teachers get
out of debt and handle their finances properly. I remember that this BSP-BAIPHIL
financial education program has been in place under four consecutive BAIPHIL pr
esidents. It started with Susan Uranza-Alcala who signed a MOA with the Bangko S
entral in 2009 under the Banking on Your Future Program.... which was launched w
hen we celebrated 60 years of central banking in the Philippines. BAIPHIL contin
ued the program under Emmanuel Barcena, Agnes Brillante-Santos and Salvador Serr
ano. I have been informed Francis has been joining the group that goes to public
schools. I am optimistic therefore that Francis and his board will continue thi
s program... that is already being requested in elementary schools and by some N
GOs. Ladies and gentlemen of BAIPHIL. You are used to training bankers. Now, you
are reaching out to the underbanked and the unbanked. Truly, I can say that BAI
PHIL is aligned with the Bangko Sentrals goal of promoting good governance and th
e development of a financial system that is inclusive and able to sustain inclus
ive growth. Mabuhay ang BAIPHIL! Mabuhay ang ating mahal na bansang Pilipinas! M
araming salamat sa inyong lahat.
BSP s Stakeholders Awards: A Celebration of Solid Partnership

Venue: Assembly Hall, BSP
Occasion: 2013 Awards Ceremony and Appreciation Lunch for BSP Stakeholders
Magandang umaga sa inyong lahat! On behalf of my colleagues at the Monetary Boar
d and the Bangko Sentral ng Pilipinas, I thank all of you for accepting our invi
tation today to our Stakeholders Awards Ceremony and Appreciation Lunch for BSP
Stakeholders. As in years past, this ceremony takes place during the Bangko Sent
rals anniversary month. This year however, is more special: this month July 3 to
be exact we commemorated the 20th anniversary of the Bangko Sentral ng Pilipinas
. And today, we mark the 10th year of our Stakeholders Awards, the annual celebr
ation of our fruitful partnership and collaboration. Ladies and gentlemen. In ob
serving these milestones, we take the opportunity to express our deep appreciati
on to all our guests in this hall and to our other stakeholders across the countr
y. for helping us craft policies and implement programs that make lives better for
our people. Among others, the continuous improvement in the quality of our surve
ys provides a good anchor for the monetary policies of the Bangko Sentral ng Pil
ipinas, the main objective of which is to keep prices low and stable. With your s
upport, we continue to be successful in this effort. We have tamed inflation at

low single digit levels 2.8% as of June 2013, with year-to-date inflation at 2.9
percent. One of the monetary tools used by the Bangko Sentral to influence infl
ation is its policy rates, the benchmark used by banks to transact with their ow
n customers. Under the Bangko Sentrals inflation targeting framework, policy rate
s are adjusted appropriately and pre-emptively to ward off inflation threats. In
general, it takes policy rate decisions from 18 to 24 months to work their way
through the economy. Thus, the BSPs Monetary Board ensures that its policy rate s
ettings are based on accurate information-intensive studies such as business and
consumer outlook. This includes the quarterly Business Expectations Survey which
covers the top 7,000 corporations in the country and the quarterly Consumer Exp
ectations Survey which covers 5,000 households. We are happy therefore that when
we tracked the correlation between the results of our expectation surveys with ac
tual data on the GDP, inflation, interest rates and foreign exchange we found hig
h overall convergence. Ladies and gentlemen, we continue to achieve high correla
tion because you provide us accurate, comprehensive and timely survey inputs. Th
ank you! As a result, the Bangko Sentrals policy decisions continue to provide th
e stability that preserves the public s purchasing power and creates a planning
environment conducive to strong and sustainable growth. With BSPs policy rates no
w at record low levels, average interest rates charged by banks to their custome
rs have also dropped to single digit levels. This has benefitted consumers in te
rms of access to more affordable credit while business is able to expand and cre
ate new jobs with lower financing costs. Moving forward, therefore, the Bangko S
entral will continue to focus on fighting inflation and safeguarding price stabi
lity to achieve sustained and inclusive growth. The Bangko Sentral also needs you
r support for other surveys including Cross Border Transactions, Coordinated Por
tfolio Investment, Information Technology-BPO Outsourcing Services, and Foreign
Direct Investment. Among others, these surveys help us determine our Balance of
Payments position, a closely-watched indicator of our transactions with the rest
of the world. We are pleased to report that our external accounts remain robust
, providing much-needed insulation from external shocks. External payment dynami
cs remain strong on the back of rising foreign exchange reserves, sustained influ
x of overseas Filipino remittances and BPO receipts, and declining external debt
to GDP ratio. I am also happy to note that our network of committed partners co
ntinues to expand. From seven in 2004, we now have 71 awardees, 42 of whom are i
n areas outside the National Capital Region. Ladies and gentlemen. As we take st
ock of our achievements, we also take note that the resiliency of our economy st
rongly reflects the efficient performance of our information sharing initiatives
. Indeed, our partnership continues to generate synergies that lead to transform
ational growth. And while recent developments in the external front have made ec
onomic conditions more challenging, we have been able to ride out these headwind
s to economic growth. We attribute these largely to the strength of our partners
hips and to the buffers that the Philippine economy has built through the years.
Another source of strength of the Philippine economy is our sound and stable ba
nking system. Deposits continue to increase to record levels, in tandem with hea
lthy growth in lending. And the quality of loans continues to improveeven as nonperforming loan ratios drop to record low levels. Equally important, banks conti
nue to build strong buffers against systemic shocks and have kept their capitali
zation well-above the regulatory threshold. Against this favorable backdrop, maj
or multilateral financial institutions have upgraded their outlook on the Philip
pine economy. Credit rating agencies such as Fitch and Standard & Poors acknowled
ge the Philippines strong economic and fiscal gains by raising the countrys credit
rating to investment grade. Nevertheless, given the constant shift in the globa
l landscape, we continue to face challenges. Over the last month, we have seen g
reat volatility as global financial markets react to the Federal Reserves announc
ement on the unwinding of its accommodative monetary policy. Foreign exchange an
d equity markets gyrated as investors searched for safe havens and higher return
s in developed economies. On the upside, the current market movements may help r
educe the build-up of asset valuations that could contribute to financial market
imbalances. We can also be assured that recent market volatility notwithstandin
g,. our economys growth remains firm, underpinned by strong macroeconomic fundamen
tals, broad-based economic growth, manageable inflation, strong external payment
s position, sufficient fiscal space, as well as a sound and stable banking syste
m. Ladies and gentlemen. The resilience of our economy brings us to the heart of
this years celebration, which has the theme: Hand in Hand in Sustaining a Steadfa
st and Strong Economy. This is a timely reminder that by working together we can an
d shall overcome the challenges and uncertainties faced by our economy. Among ot
hers, we acknowledge the support of banks who work with the Bangko Sentral in ha
ndling remittances of our overseas Filipinos efficiently at significantly lower c
osts. Your reliable service not only benefits our overseas Filipinos and their f
amilies, but our economy as well. Ladies and gentlemen, your support in empoweri
ng Filipinos through the development of a more inclusive financial system is als
o important to us. Together, let us work to extend the delivery of a broader ran
ge of financial services to the unbanked and underbanked segments of our populat
ion. Imagine the benefits a microentrepreneur and his family can derive from gai
ning access to a lower-priced bank loanin place of a 1,000% loan from non-bank so
urces. Finance education and consumer protection are equally important component
s of financial empowerment. In this connection, we salute the Department of Educ
ation for being our active partner in bringing financial education to millions o
f our schoolchildren. We also acknowledge the banks who help our youth develop t
he habit of saving and give lessons on personal finance to teachers and parents.
So far, we have made significant strides in the development of the Philippine m
icrofinance sector that has liberated millions of entrepreneurial Filipinos from
poverty and transformed them into net savers in banks. In fact, our latest data
indicate that for the first time.consolidated bank deposits of microentrepreneurs
at over P8 billion have now exceeded their total bank loans. I also thank all t
he industry groups, all companies big and small, our partners from both public a
nd private sectors for your support in Bangko Sentrals advocacies that promote coi
n recirculation and clean banknotes, as well as protection against counterfeit m
oney and financial scams. Once again, ladies and gentlemen, we at the Bangko Sen
tral ng Pilipinas thank and congratulate all of you for being our active partner
s in the pursuit of our mandateand in making lives better through better policies
and programs. Together, let us steer the economy toward balanced, sustained and
inclusive growth. Maraming salamat sa inyong lahat! Mabuhay ang ating mahal na
bansang Pilipinas!
Championing Microentrepreneurship
Venue: the Lounge, Executive Business Center, Bangko Sentral ng Pilipinas
Occasion: Citi Microentrepreneurship Awards (CMA) 2013 Media Launch
Good afternoon everyone ....and welcome to the launching of the 2013 Citi Microe
ntrepreneuship Awards or CMA. In the ten years of CMA, we have met many microent
repreneurs who lifted themselves from poverty, transformed into net savers in ba
nks, and served as catalysts for development in their respective communities. To
day, as we launch the 2013 CMA, we look forward to hearing more inspiring storie
s of how access to collateral-free credit can be so empowering. Indeed, we have
witnessed the power of microfinance to improve lives across the country. As a me
mber of the CMA board of judges for 8 years now, I have witnessed how this Award
s program has also evolved. For instance, in response to the increasing difficul
ty of the board of judges to select the winners from such a rich field, the CMA
made a simple win-win decision- it developed new award categories. In addition,

CMA has made the prizes more meaningful: aside from cash rewards, winners also g
et insurance coverage, entrepreneurship training, and support for expanding thei
r partnershipnetworks. In other words, CMA keeps pace with the developments in t
he microfinance industry. The development of the Philippine microfinance industr
y has been phenomenal. Ten years ago, microfinance was limited to microcredit pr
ovided by leading NGOs, cooperatives and a handful of banks. Since then, there h
as been a significant increase and diversification of microfinance players, prod
ucts and services, as well as delivery channels. The Bangko Sentral ng Pilipinas
provides leadership in the development of the microfinance sector through appro
priate policies, regulations and programs. So far so good. In fact, the Philippi
nes has been cited to have the best regulatory framework for the development of
microfinance for four consecutive years now. As of March 2013, there were 186 ba
nks with microfinance operations reaching out to more than 1 million clients. Th
eir combined savings have reached 8.2 billion pesos, higher than the 8 billion p
esos they have borrowed. This is the first time that total microfinance loan por
tfolio is exceeded by the savings component. This suggests that while microfinan
ce clients take out loans, saving is sustained. For microentrepreneurs, savings
help them survive throughemergenciesor take advantage of a business opportunity.
As a further support to microentrepreneurs, the Bangko Sentral issued last Janu
ary Circular 782...which expanded the scope of qualified microinsurance clients
and increased their risk protection. The Rural Bankers Association of the Philip
pines (RBAP) reports that there are over 500,000 clients of rural banks that now
enjoy microinsurance coverage. This supports the report from the Insurance Comm
ission that the number of Filipinos with microinsurance coverage has doubled in
just two years. Ladies and gentlemen. Earlier we heard the testimonial of Florai
win Cainglet, the 2012 CMA National Winner. Flor and her husband Rommel started
with only two pigs and now have a thriving and innovative hog raising business w
orth P2.5 million. In addition, they support a daycare center and feeding progra
ms in their community. These microentrepreneurs are at the forefront of improvin
g lives in their community. Again, let us give them a big hand! The success stor
ies of more than 80exceptional microentrepreneurs that the CMA has recognized in
the past decade... tell us that we are successful in providing a nurturing envi
ronment for microenterprises. These stories lend a face to the data and serve as
validation... that our efforts and initiatives in microfinance are effective an
d sustainable. Fellow advocates of microfinance, let us continue to work togethe
r therefore....to strengthen and sustain partnerships for microfinance. In Octob
er this year, the Microcredit Summit Campaign will hold its 16th summit in Manil
a... in partnership with the MCPI and with support from the BSP. The theme for t
his years conference revolves around Partnerships against Poverty. The conference
will discuss some of the most advanced and successful examples of public-privat
e partnerships in microfinance. I hope you will join the conference. The CMA its
elf isone tangible example of a successful and meaningful partnership against po
vertywith Citi, the Citi Foundation, the MCPI and the Bangko Sentral working toge
ther toward a shared goal. Together, we celebrate the success of our microentrep
reneurs. They strengthen our belief that many more Filipinos can have a better l
ife through microfinance. Again, my congratulations to everyone involved in CMA:
Citi and the Citi Foundation under the leadership of Country Officer Batara Sia
nturi, the Micro Finance Council of the Philippines headed by chairperson Mila B
unker, my fellow members in the National Selection Committee, my colleagues at t
he Bangko Sentral ng Pilipinas and our special guests from the media who help sp
read the good news about microfinance in our country. Mabuhay ang microfinance!
Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat!
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July 12, 2016, Tuesday
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BSP at 20: Past Progressive, Future Perfect
Occasion: 20th Anniversary of BSP
Magandang umaga sa inyong lahat! And Happy Anniversary to everyone! Fellow BSPer
s, today marks the 20th year since the creation of the Bangko Sentral ng Pilipin
as. And the theme for our simple celebration is Past Progressive, Future Perfect.
This echoes the familiar saying of our wise forefathers. Ang sabi nga ng ating m
atatanda: Ang hindi marunong lumingon sapinang-galingan, hindi makara-rating sa p
aro-roonan. 1 Todays occasion therefore is not only a tribute to the history of ce
ntral banking in the Philippines; it is also an invitation for us to reflect on
what we have accomplished together.... and how to move team BSP forward. A Clean
Slate 2 Central banking in the Philippines dates back to 1949 with the creation
of the Central Bank of the Philippines or the CBP. It was given several mandate
s: to conduct monetary policy; to supervise financial institutions;to foster cre
dit and exchange conditions conducive to economic growth; and to administer spec
ial development financing programs to help promote economic activity. In the 198
0s, the CBP bore the staggering cost of restoring market confidence from a sever
e balance of payments crisis; losses from the administration of special developm
ent financing programs for what were considered priority growth sectors; and the
difficulties of high and rising inflation amid ballooning government budget def
icits. It was then that policy makers realized that macroeconomic stabilization
will be better served if the central bank is not burdened with too many mandates
. Thus, in 1993, Republic Act No. 7653 created the Bangko Sentral ng Pilipinas a
nd mandated it to pursue one primary objective: to maintain price stability, con
sistent with the promotion of balanced and sustainable economic growth. In addit
ion, the BSP was given fiscal and administrative autonomy. . The country reaped
early dividends from the change. Under its monetary aggregate targeting framewor
k in the 1990s, the BSP ensured that liquidity and credit remained adequate to s
upport economic activity. This was complemented with initiatives to further dere
gulate financial markets and liberalize bank branching. Consequently, GDP growth
accelerated steadily, while inflation eased graduallyfrom the double-digit rate
s of the seventies and eighties. And the Philippines started to be recognized as
one of the new tiger economies of Asia. But the good times did not last. In 199
7, the Asian Financial Crisis came. Fortunately, the Bangko Sentral had institut
ed structural and banking reforms by then. These reforms sustained Philippine ba
nks through the crisis in spite of higher problem loans. The 1997 crisis taught
the BSP three important lessons: one, that a transactional approach to banking s
upervision that emphasizes individual bank compliance to regulationsis not suffic
ient to mitigate system-wide risks; two, that interest rate deregulation and fin
ancial innovations eroded the traditional link among money, output and inflation
; and three, that a strong financial system needs to be supported by an efficien
t payment system. Thus, in the years that followed, the Bangko Sentral pursued w
ith great vigor more banking and structural reforms. These have resulted in what
we now know as risk-based supervision, inflation targeting and real-time gross
settlement or the Philpass. Fast forward to 2013, ...and we see just how far the
Bangko Sentral and our economy have come. The economy has more than doubled in
size from 20 years ago. In the first quarter this year, the economy expanded at
a rate of 7.8 percent-- the fastest in the region. At the same time, inflation h
as fallen to historic lows and within-target levels for four consecutive years n
ow. The gross international reserves at more than $82B can now cover almost one
year of imports of goods and services. The banking systems NPL ratio is less than
2 percent and capital at 17 percent is more than double the international stand
ard of 8 percent. The payment system is robust, processing an average of P1.5T w
orth of transactions daily, 11 times more than the daily value just 10 years ear
lier. In addition, the Bangko Sentrals financial inclusion and financial educatio
n program continues to inform, protect and empower Filipinos. In fact, our regul
atory framework and various initiatives for microfinance continue to earn recogn
ition as among the best in the world.3 Meanwhile, our economic and financial lea
rning programs reach out to the general public, including our OFWs and the youth
, to encourage them to save, invest and become financially secure. And by the wa
y, similar programs on personal finance are being offered to BSPers. Given the s
takes involved, your management continues to make investments in our people, inf
rastructure, processes and technology. As approved by the Monetary Board, suppor
t is given to BSPers for further studies here and overseas...as well as internat
ional professional accreditation... to develop required competencies and increas
e our corps of world-class experts. The program to improve the work environment
of BSPers across the country continues to show visible results. I also hear of m
any success stories concerning our health and wellness programs. And we are prou
d that we continue to align our internal process with global best practices. For
instance, we now have 25 BSP units whose management systems are certified under
ISO standards. Fellow central bankers, we have been able to achieve all these a
s a result of the collective work of each and every employee of the Bangko Sentr
al, past and present. For this, let us thank the two Governors who came before m
e. Individually, they were recognized as among the worlds best governors. Togethe
r, they strengthened the foundation that has allowed us to develop the Bangko Se
ntral ng Pilipinas into what it is today. Fellow BSPers, let us salute and honor
Governor Gabriel Singson and Governor Rafael Buenaventura. Let us also thank th
e Members of our Monetary Board for their wisdom, patience and admirable sense o
f fairness: Finance Secretary Cesar Purisima; Alfredo Antonio; Ignacio Bunye; Pe
ter Favila; Felipe Medalla; and Armando Suratos. Let us also recognize our inspi
ring and brilliant Deputy Governors: Nestor Espenilla from the Supervision and E
xamination Sector; Diwa Guinigundo from the Monetary Stability Sector; and Vicen
te Aquino... and his immediate predecessor Juan de Zuiga, Jr.... from the Resourc
e Management Sector. Finally, I thank all of you ...my fellow BSPers... for doin
g your work with responsibility, integrity and tenacity. Whatever we have achiev
ed, we achieved as members of team BSP. Fellow BSPers. As we continue our journe
y amid constant shifts in the national and global landscape, the path before us
seem challenging. Nevertheless, with the lessons learned and the expertise we ha
ve gained in our first 20 years, I am confident that we will continue to deliver
on our mandate. This is the reason why I accepted a second term as your Governo
r, two years ago. I have faith in the capability of BSPers. At that time, I laid
out before you a 6-point agenda that would enhance the BSPs credibility and effe
ctiveness as a monetary authority... and with it help chart a smoother course fo

r the economy to sustain balanced growth. How have we fared? Well, we have achie
ved some measure of success in each of these, as evidenced by our strong macrofu
ndamentals. Nevertheless, these tracks remain relevant; we should continue to wo
rk on them. Briefly, our 6-point agenda is as follows: 1. A well-informed and gr
ounded monetary policy framework. 2. A responsive and adaptive banking regulator
y and supervisory framework. 3. An efficient and effective payment and settlemen
t infrastructure. 4. An empowering and sustainable financial inclusion program t
hat includes relevant financial access, wide-reaching financial education and st
rong financial consumer protection. 5. Thought leadership in the regional and in
ternational fora; and 6. Operational efficiency and effectiveness. Ladies and ge
ntlemen. The environment we operate in is not static; it is dynamic. Among other
s, we are faced with the unwinding of easy monetary policy in advanced economies
, which... if it becomes disorderly... could have serious spillover effects on o
ur economy. At the same time, the threat of unbridled market exuberance could cr
eate imbalances in asset markets that could adversely impact the banking systems
ability to effectively intermediate funds. On the other hand, advances in inform
ation technology have encouraged the emergence ofnewer payment channels such as
mobile banking, ....that...if not regulated properly....could undermine the cred
ibility of our payments and settlements infrastructure. Meanwhile, population gr
owth continues to challenge our programs on financial inclusion, education and c
onsumer protection. The challenge before us is to translate our gains at the mac
ro level down to the grassroots. Fellow BSPers, all these measures and courses o
f action are bound to weigh heavily on the resources of the Bangko Sentral. We n
eed therefore to find more efficient ways to use our resources in thepursuit of
our mandate. More fundamentally, some of the provisions of our Charter could be
revisited to make it more relevant and responsive to present conditions. The BSP
will continue to work with Congress in this regard. Looking Ahead Fellow BSPers
. Our journey has not been without its challenges, but together we have managed
to transform the BSP closer into a truly world-class central bank. The signs say
we are on the right path: Just this April, the BSP was hailed at the Asian Bank
er Leadership Achievement Awards as the Best Macroeconomic Regulator in the Asia
Pacific Region. Of course, our pursuit of excellence is not motivated by public
recognition or awards. We pursue excellence because ..it is THAT level of publi
c service that will help improve the lives of Filipinos, our ultimate stakeholde
rs. Tama ba?! ..... I am glad you agree. And now, for my final question. BSPer k
a ba? Ako rin. I am a proud BSPer. To me, BSPer stands for Bangkero Sa Pilipinas
na Excellent.... and Resilient! Ladies and gentlemen.You all make me proud to b
e a BSPer. On behalf of my wife Elma, and the rest of our family.... I thank all
of you for making my journey as a BSPer... truly worthwhile and deeply fulfilli
ng. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ating mahal na bansang
Pilipinas! Maraming salamat sa inyong lahat! ------------------- 1 "He who does
not look back to where he came from will never see his destination." 2 Various C
BP and BSP Annual Reports; Lamberte, M. (2002) Central banking in the Philippines
: Then, now and the future. PIDS Discussion Paper 2002-10. 3 For four years in a
row (2009-2012), the Economist Intelligence Units global survey has ranked the Ph
ilippines as number one in the world in terms of policy and regulatory framework
for microfinance. The Philippines is also consistently ranked at the top ten fo
r having a good microfinance business environment. The survey also noted the ini
tiative of the microfinance industry to establish Microfinance Data Sharing Syst
em (MiDaS), which is a microfinance credit bureau that identifies delinquent bor
rowers with the ultimate objective of client rehabilitation.
Ugaliing mag-impok
Venue: NA
Occasion: National Savings Consciousness Week 2013
Speaker: Joint message of Education Secretary Br Armin Luistro FSC and BSP Gover
nor Amando Tetangco, Jr.
(Joint message of Education Secretary Br Armin Luistro FSC and Bangko Sentral Go
vernor Amando Tetangco, Jr. for the National Savings Consciousness Week 2013 to be
read at the flag-raising ceremony of elementary schools on Monday, July 1, 2013
) Magandang umaga sa inyong lahat. Mula Hunyo 30 hanggang Hulyo 6 ay ipinagdiriw
ang natin ang National Savings Consciousness Week. Sa linggong ito ay ipapaalala
sa atin ng Bangko Sentral ng Pilipinas at ng Department of Education, sa pamama
gitan ng ating mga guro, ang kahalagahan ng pag-iimpok. Ginagawa natin ito sapag
kat ang pagiging masinop at matipid ay mahalagang matutunan hindi lamang ng kaba
taan, kundi ng lahat ng Pilipino. Kung may pera tayong natatanggap, ugaliin nati
ng huwag gastusin itong lahat. Magtabi tayo ng kahit kaunti. Ang baryang nakukuh
a natin bilang sukli at ang perang natitira sa ating baon araw-araw o linggo-lin
ggo ay hindi naririyan para lamang ubusin. Itabi natin ito nang sa gayon ay may
magagamit tayo kung may kailangan o gusto tayong bilhin. Maari tayong magkaroon
ng alkansya kahit lumang kahon o lata na maitatago sa ligtas na lugar at pupuwed
eng pag-ipunan ng barya. Pwede rin tayong magbukas ng account sa banko para hind
i lamang ligtas ang ating pera, kumikita pa ng interes. Maaring naaalala pa niny
o ang Tulong Barya Para sa Eskwela noon. Barya-barya lamang ang hiningi natin ngun
it umabot ito ng 15 milyong piso. Maaring hindi umabot ng 15 milyon ang ipon nin
yo sa alkansya ninyo ngunit mahalagang tandaan na hindi natin dapat maliitin ang
barya. Ang pag-iimpok ay isang ugali na dapat makasanayan. At itoy hindi magigin
g gawi kung hindi natin ito gagawin araw-araw. Kayat ating tandaan, hindi lamang
ngayong National Savings Consciousness Week ngunit sa araw-araw. Maraming salamat
at magandang umaga!
Upgrades and Strong Growth: Dealing with the Short-term to Get to the End Goal
Venue: InterContinental Hotel, Makati
Occasion: The Asset Forum
These are interesting times. As I survey this ballroom, I see that in our midst a
re some of the individuals most affected by the global and domestic developments
over the last few weeks. I was on my way literally on the road-- to a Governors
meeting in Switzerland on Thursday when news of the markets reaction to the Feds s
tatements hit my blackberry The divergence in what the guidance the Fed meant to
convey about its policy and how the market interpreted Mr. Bernankes statements a
nd his assessment of the state of the US economy has created some furor across f
inancial markets around the globe, including our own local financial markets. I
have been asked what I thought about the recent market movements. I say, this ma
rket price action is a good thing. It is good because it helps put a brake someh
ow on the exuberance, and thereby help reduce some of the risks from bubble form
ation in certain asset classes that could lead tomore financial market imbalance
sHave the movements been excessive? Well, rather than answering that question, I
would say, the recent market movement can help separate the wheat from the chaff or
to those who enjoy a good glass of beer, help raise the head to the top of the gla
ss. When these separations are completed, the process could actually create oppo
rtunities for those who keep their eye on the ball. Let me therefore repeat we l
ive in very interesting times. Times like this remindme of the one clear fact I
have learned, first as head of BSPs Treasury and now as BSP Governor -- There is a
lways volatility on the way to recovery. The road to recovery is never a straigh
t path. And the one clear lesson I have learned from periods of volatility is thi
s: Keep the main things, main. In other words, focus on your goal and dont be distr
acted because volatility is inevitable. I hope you will indulge me when I say th
at my nearly four decades of central banking experience bear me on this assertio
n. To help me keep the main things main when I am faced with any situation I foll
ow three simple steps, my triple A swhich will essentially be the outline of my rem
arks this afternoon 1) Appreciate the knowns what is in my arsenal. 2) Anticipate
the unknowns what are the risks that my arsenal cant handle now. And finally, 3)
Act on the known, mindful that there are unknowns or how can I be creative to a
ddress the potential impact of what could transpire when the knowns become entan
gled with the previously unknown? First, lets appreciate the knowns.Ladies and gen
tlemen, the events of the last couple of weeks notwithstanding, these are what w
e undeniably know. 1. The Philippine fundamentals are intact.Friends, this is not
a clich. It is not meant to be a bumper sticker. It is a statement that I hope yo
u would not take lightly. On one hand, Q1 2013GDP grew at 7.8 percent. Divorcing
from the fact that this wasthe highest Q1 growth in the region (better even than
Chinas), this growth was supported by capital formation and public spendingon in
frastructure. In other words, the economy is being buoyed by expenditures that w
ould cement the growth to a sustainable level.At the same time,year-to-date aver
age inflation of 3.0 percent is at the lower end of our inflation target range.
Over the policy horizon, the BSP expects inflation to fall well-within the gover
nments official target range of 3-5 percent. Clearly, the Philippine fundamental
story remains solid as we continue to enjoy the positive convergence of high gro
wth and low inflation. 2. The Philippine banking system is sound. Again, this is
not to be taken as a trite phrase. The banking system is growing steadily, crea
ting a solid base for domestic retail funding. It is also more than adequately c
apitalized and the BSP does not foresee any major difficulties for the system to
meet the requirements of the early adoption of the capital requirements of Base
l 3 in January 2014. 3. The Philippine external position is robust. The GIR at o
ver $82B has been supported by strong current account receipts that are not easi
ly affected by changes in the global operating environment. At about 12 months wo
rth of imports of goods and services, the GIR provides a hearty cushion to exter
nal shocks. 4. The Philippines liquidity conditions are adequate and credit growt
h is robust. Together, these two support healthy economic growth. Ladies and gen
tlemen, these statements are undeniable. And these developments have led to the
country achieving investment grade rating from two of the three major western cr
edit rating agencies. In fact, the organizers of this event have built this foru
m on the theme of the countrys investment grade rating, which I will come to shor
tly. So, then you might ask, if it is all good, then why have the domestic finan
cial markets sold off in the last few days?To answer this, lets now move to the s
econd step: Anticipate the unknowns. Our financial markets have been affected by
the recent global developments because financial markets have become increasing
ly integrated. We pushed hard to achieve investment grade rating precisely becau
se, in a globally integrated market, the independent rating of a credit rating a
gency helps market participants distinguish between good and better investment d
estinations. Add to this, the combination of the accommodative monetary policy i
n the advanced economies, on one hand, and the good growth prospects in emerging
market economies (such as the Philippines), on the other. The confluence of the
se elements has indeed made the Philippines amagnet for capital flows, i.e., por
tfolio flows that are looking for better yields. Still, the good story behind th
e investment grade rating and strong capital flows begs the question, why the se
ll off? Im afraid given our collective years of market experience, you would agre
e with me when I say that there are three specific risks an integrated financial
market faces -- Capital flow reversal, market overshooting, and the loss of mar
ket confidence.If we are able to scope these risks, our problems would possibly g
o away. To scope these risks, however, both policy makers and market participants
must measure two things 1) speed and 2) magnitude. We must find answers to the
questions of --by how much and how fast could capital flow reverse? By how much
and in which direction will market overshoot? By how much and in what form would
loss of market confidence manifest itself? The problems would go away even fast
er, if there is a convergence in the assessments of policy makers and the market
in all of these. But these variables are not easily quantifiable with any measu
re of accuracy. To address this problem, the BSP has therefore had to constantly
sharpenour market surveillance skills, enhance our forecasting models, and wide
n the breadth of our regional cooperation efforts. I hope the market is able to
appreciate this fact and see that we have achieved some amount of success in all
these fronts. Which brings me to the third step Act on the known, but be mindfu
l of the unknown This is a policy that the BSP adheres to with diligence and circ
umspection. Our recent monetary policy actions, responses in the form of macropr
udential measures and refinements to the manner in which we conduct our open mar
ket operations are examples of this. Ladies and gentlemen, the Philippines, in p
art through the efforts of the BSP, has sufficient cushions to ride out the rece
nt bout of financial market volatility and take advantage of the opportunities t
hat would present themselves as the Fed-forecasted US economic growth indeed gai
ns more solid traction. Liquidity both peso and dollar remains ample and the BSP
is prepared to ensure that the financial system remains adequately lubricated d
uring this period of global normalization. I know that was quite a mouthful and f
rom the perspective of treasury players, perhaps too broad and macro. I know tha
t what the market really wants to hear from the BSP governor is this - where are
the exchange and interest rates headed? I dont want to suffer the same fate as B
ernanke had.So I will make it clear my message today is this..the Philippine fun
damentals are solid, and we have built up safeguards to ride out the volatilitie
s. Therefore at the moment there is no need for us to deviate from our current pol
icy stance. The exchange rate will continue to be market-determined, and the BSP
will maintain its strategic market presence to avoid excesses in volatilities a
nd to provide appropriate market guidance. Monetary policy will continue to be c
onducted in consideration of the inflation outlook and mindful of any financial
stability pressures, which in our current assessment are benign. The challenge f
or all of us is preparedness. The BSP will continue to work towards an operating
environment that would help businesses and consumers plan for the medium and lo
ng-term. In the near-term, however, we look to you in the market to help mitigat
e market volatilities so that those whom we both serve could cross through, get
past these volatilitiesand in the end reach their ultimate goals of a better lif
e ahead. Maraming salamat.
Rural Banks: Working on Inclusive Growth in an Exclusive World of Banking

Venue: Sofitel Philippine Plaza, Pasay City
Occasion: 60th Annual Convention of the Rural Bankers Association of the Philipp
ines
The officers and members of the Rural Bankers Association of the Philippines (RB
AP) under the leadership of President Garcia, fellow advocates for a stronger an
d more inclusive rural banking sector including our BSP and PDIC colleagues and
co-workers, distinguished resource persons, special guests including PDIC Presid
ent Val Araneta, CTB President TG Limcaoco, NEDA Deputy Director Dr. Manny Esgue
rra, good morning. We meet in an auspicious time. For this, I congratulate RBAP
for its perfect timing. Indeed, the hosting of your milestone 60th Annual Nation
al Convention comes at a time when there is a convergence of positive developmen
ts that has the potential to transform the rural banking sector to become the ma
jor force for inclusive and sustained countryside development. This is your visi
on and this is now within your reach. Our first quarter economic growth -- as mea
sured by Gross Domestic Product or GDP-- is the highest in the region at 7.8%. An
d while other countries are going through downgrades, the Philippines recently g
ot an upgrade, receiving for the first time the much-coveted investment grade stat
us. Our strong economic fundamentals are reflected in low and stable inflation 2
.6% in May; a Balance of Payments surplus of $274 million in April; and Gross In
ternational Reserves of over $83 billion also in April. In addition, consolidate
d assets and deposits of the banking system continue to increase, an indicator o
f the publics trust and confidence in our banks. It can be said that a particular
strength of our economy... is our banking system that remains sound, stable and
liquid even in the midst global uncertainties. For the rural banking sector in
particular, the future holds much promise for even better days ahead. Last month
, we applauded the passage of Republic Act 10574 ...which allows the infusion of
foreign equity in rural banks. And still in place is the 5 billion-peso Strengt
hening Program for Rural Banks (now SPRB+) which is jointly funded by the Bangko
Sentral ng Pilipinas and the Philippine Deposit Insurance Corporation. Add to t
his the Bangko Sentrals Prompt Corrective Action program that helps banks identif
y areas for improvement to head off potentially debilitating concerns. The Phili
ppine rural banking sector is also the recipient of grants and technical support
from national and multilateral institutions. In other words, the rural banking
sector enjoys broad-based support -- from President Benigno Aquino III and the l
egislators who worked together on the ground-breaking law that allows foreign eq
uity into rural banks; to local universal and commercial banks and other banks w
ho work with rural banks; to international organizations and grant-giving agenci
es; and national institutions including the PDIC and the Bangko Sentral ng Pilip
inas. It is clear, we all want the rural banking sector to succeed. Why is this s
o? Well, roughly 40% of Filipinos live outside urban areas. And based on latest
statistics, the incidence of poverty is higher in the countryside. In the contex
t of the Philippines therefore inclusive growth is possible only if countryside d
evelopment is given the support it needs. Embedded and part of the communities w
here it operates, rural banks are in the best position to help spur rural develo
pment. THE PHILIPPINE RURAL BANKING SECTOR As of December 2012, rural banks had
2,482 offices and branches across the country. This represents roughly 26% of to
tal bank offices and branches in the Philippines. The rural banking sector there
fore has the distinction of having the most extensive network, next to universal
and commercial banks. However, development is not simply about numbers. Ultimat
ely, these figures need to make a difference in the lives of individuals. By ado
pting inclusive growth as the theme of your conference, RBAP is certainly moving
in the right direction. Taking off from the Rural Bank Act of 1992, serving the
traditionally unbanked is your key mandate. And by operating in second to fifth
level municipalities, your presence is strategic as you will often be the entry
point for those venturing for the first time into the formal financial market. I
n this connection, rural banks also play an important role in ensuring that thei
r clients are duly informed and protected in accordance with prudential principle
s of finance. This covers issues related to over-indebtedness, pricing, privacy
of data, complaints resolution as well as fair and respectful treatment of clien
ts. It is in the interest of rural banks to have better informed and protected c
lients. As your customers prosper, you develop a bigger and stronger base for yo
ur banks. In the process, your ability to support countryside development is enh
anced. We cannot overemphasize the critical role of rural banks in national deve
lopment. Historically, the share of rural banks to total resources of the Philip
pine banking system has been modest. Given the opportunities available to rural
banks today, this trend has started to change... and can accelerate further, if
the shift in the mindset of rural bank owners continues. I say this because our
efforts to promote mergers and consolidation have yet to produce the results we
look forward to. While we continue to receive applications for incentives under
the BSP-PDIC Strengthening Program for Rural Banks, the reality is... less than
20 % of available funding for capital build-up has been utilized. We understand
that there are concerns related to mergers and having new stockholders into your
banks. However, if your vision is to see your bank scale up and grow as catalys
t for growth in your communities mergers could be the path to take. Of course, du
e diligence in the selection of possible investors and partners should be part o
f the process. The success of banks that started as family-owned but have since s
caled up and enhanced operations with the entry of new investors and partners can
serve as your business models. Ladies and gentlemen. Statements have been made
about the number of rural banks that have been closed by the Bangko Sentral. For
the record, the decision to close a bank is our last resort,when no viable optio
ns are available to protect the interest of depositors, creditors and investors.
This is in accordance with our mandate. On the other hand, as a business built
on public trust, banks should adhere at all times to good governance practices.
And being part of a competitive industry, rural banks should also continue to fi
nd ways to improve its products and services to sustain growth. For instance, ru
ral banks that have successfully engaged in microfinance have seen improvements
in their profitability. We see more upside opportunities for rural banks who are
willing to take on the challenge presented by the financial profile of our coun
try. In particular, our consumer finance survey indicated that only 20 percent o
f Filipino households have deposit accounts; only four percent have credit cards
; and less than one percent have investments in stocks, mutual funds or fixed-in
come deposits. And over one-third of Philippine municipalities (37 percent) are
still without banking offices. Clearly, there is a need to extend our reach to t
he unbanked and the underbanked. To have a bigger role in making this possible,
rural banks need to scale up their operations and consider programs that will em
power them to do so. Becoming the major force for inclusive and sustained countr
yside development is your vision and this is now within your reach... as support
programs are in place to make this possible. It is important to remember that in
clusive growth is the primary goal that underpins our development program under
President Benigno Aquino III. It is in this context that last month, President A
quino signed into law the new legislation that allows foreign equity in rural ba
nks. And last week in Myanmar where he attended the World Economic Forum, Presiden
t Aquino again encouraged investments in our country. He said: In our country, yo
u have the recipe for sustained, inclusive growth that benefits investors and pu
blic alike. All that is left is for us to engage each other, and work together."
Ladies and gentlemen. We are at a critical point as an industry and as a nation
. You can opt for the status quo or you can move forward. The decision is yours
to make. I am confident, you will make the right choice. Mabuhay ang rural banki
ng sector! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa iny
ong lahat!
Speech of the Governor for the Opening Ceremony of the 29th Biennial Convention
of FFCCCII
Venue: Century Seafood Restaurant, Century Park Hotel
Occasion: 29th Biennial Convention of Federation of Filipino-Chinese Chambers of
Commerce and Industry, Inc. (FFCCCII)
Introduction Officers and Members of the Federation of Filipino-Chinese Chambers

of Commerce and Industry Incorporated (FFCCCII), led by its President, Mr. Tan
Ching and Chairman Emeritus, Mr. Lucio Tan, distinguished leaders and members of
the business community, honored guests, ladies and gentlemen, good afternoon. I
t is a pleasure to grace the 29th Biennial Convention of the FFCCCII and address
an audience representing the largest organization of Filipino-Chinese businessm
en. The theme of todays event, Tuwid na Daan Towards Peace, Unity and Prosperity, i
s very much aligned to the thrust of government which is centered on good govern
ance - a governance environment marked by transparency, accountability and enhan
ced citizens participation to attain sustainable and inclusive growth. The BSP al
so shares this vision. Good corporate governance encourages investments which al
lows the expansion of the economy with minimal inflation pressures. Good governa
nce is also the foundation of a safe, stable, and sound financial system. It is
most welcome that the private sector, like the FFCCCII, fully supports the gover
nments programs and thrust on good governance. Indeed it is easier to reach a des
tination by passing a tuwid na daan rather than daan na madaming liko at baku-bako.
This means, time and resources well spent, especially for businessmen like you.
Di po ba? Favorable economic growth prospects by multilateral institutions 2012
was an auspicious year for the Philippine economy. Notwithstanding the risks ari
sing from a volatile global economic environment, the Philippines emerged strong
er-than-expected. With the continued resilience demonstrated in recent years, so
me are even beginning to consider the Philippines as an emerging tiger economy i
n Asia. A decisive transformation from being once tagged as The sick man in Asia.
The complimentary reviews are reflected in the upward revisions made by multilat
eral institutions such as the International Monetary Fund (IMF), the World Bank
(WB) as well as the Asian Development Bank (ADB) on the Philippines GDP growth fo
recasts for 2013. All these favorable assessments and bright growth prospects we
re driven by the solid performance of the Philippine economy across various indi
cators. Let me cite four: (1) Robust and broad-based economic growth. The strong
er-than-expected growth performance in 2012 was supported by broadening growth d
rivers. All major economic sectors advanced during the year. On the supply side,
transportation, telecommunication, real estate, and construction business activ
ities pushed the economy forward. Meanwhile, on the demand side, growth was boos
ted by consumer expenditure and government spending. (2) Favorable inflation env
ironment and well-anchored inflation expectations. I should point out that the i
ncreased activity has not caused the general price level to rise. Inflation has
generally remained low, and prospects appear to be equally subdued in terms of p
rice. Indeed, we expect this scenario of high growth-low inflation to be sustain
ed going forward. (3) Sound and stable banking system. The strong economic perfo
rmance is itself anchored on a sound and stable banking system. Deposits continu
e to build up, allowing loans to similarly expand. Much like inflation, our bank
s Capital Adequacy Ratio shows no sign of vulnerability. This encouraging situati
on supports our assessment that our banks are ready for the implementation of Ba
sel 3. We will roll out the capital adequacy framework of Basel 3 in about nine
months from today. (4) Robust external payments position. A robust external posi
tion completes our position of strength. Whether we look at the overall BOP posi
tion or its sub components, we see positive balances. Remittances from OFs conti
nue to bolster domestic liquidity while BPO estimated receipts continue to be a
positive factor. All these eventually led us to a GIR level that is just below U
S$84B. 2013 Macroeconomic Outlook The macro financial numbers provide us some mo
mentum. Nothing in the first quarter gives us reason to take pause. Instead, the
outlook continues to be encouraging. Given available data, we expect growth to
further accelerate but this time aside from the growth drivers in 2012, we antic
ipate a more pronounced contribution from the external trade sector. In addition
, remittances from our OFs will continue to be a steadying factor. The BOP is al
so seen to remain in surplus, which in turn will support an even higher level of
international reserves. At end 2013, the GIR is projected to reach $86.0B Chall
enges to the Economic Outlook But while we expect the Philippine economy to cont
inue to show resilience, given its solid macroeconomic fundamentals so far and t
he ample policy space these provide us, we are not immune to the continuing vola
tilities in the external front. The risks that we are currently monitoring close
ly include the following: 1. Intensification of the euro-area debt crisis. Just
when we thought the European authorities are on the way to a resolution, the pro
blem in Cyprus crops up. 2. Any further delay in the resolution of fiscal issues
in the US. 3. Continued surge in capital flows to the EMEs, including the Phili
ppines, resulting from the continued low interest rates and weak economic prospe
cts in Europe and the US. Friends, let me assure you that the BSP stands ready t
o pursue policy measures to deal with these downside risks from external sources
. But the BSP and the Government cannot do this alone. The Government needs the
support of the private sector of an organization such as this Federation. FFCCCII
and the Government: Forging stronger ties toward sustaining growth momentum How
can the FFCCCII help? Just as I have mentioned four major sustainability factor
s that support economic growth in the country, let me mention four key areas whe
re the members of your Federation can help in sustaining the momentum of high gr
owth-low inflation. 1. Participation in the infrastructure program of the govern
ment, particularly the Public-Private Partnership (PPP). Given the relatively wi
de scope of industry sectors that FFCCCII members belong to, the FFCCCII could e
ncourage more of its members to engage with the government in pursuing vital inf
rastructure projects for the country. Enhanced infrastructure would boost the co
untrys business climate, which in turn would help generate more jobs. More jobs m
ean improved spending capacity for more Filipinos which would lead to higher cons
umption. Indeed, a win-win situation for both the private and the public sectors.
2. Investments in the export sector. There have been concerns that the Philippi
nes may be over-reliant on remittances from overseas Filipinos in terms of finan
cing its foreign exchange needs. One of the strategies that is needed for this c
ountry to promote a sustainable external position is through increasing investme
nts in the export sector and enhancing competitiveness as well as innovativeness
in this sector. Given the widely diversified and geographically dispersed profi
le of FFCCCII members, the Federation could definitely encourage more of its mem
bers to invest in developing new export-viable products. 3. Development of a str
ong industrial base. Another project that the FFCCCII could further promote is t
he development of a strong industrial base in the country. With a well-represent
ed industry sector, FFCCCII could easily push for a roadmap toward a stronger an
d more diversified industry sector across various lines and regions nationwide.
This project could certainly lend support to one of the governments key concerns:
employment generation in the domestic economy. 4. Investment in human capital.
I know that the FFCCCII has been keen on pursuing programs and projects aimed at
promoting education. These include construction of barrio schools and provision
of scholarship programs to elementary and high school students in Chinese-Filip
ino schools. I encourage you to expand existing programs in this area. These are
only a few of what I have in mind, but I am sure that the FFCCCII could contrib
ute a lot more in terms of programs and projects geared toward nation-building,
on top of what the Federation has already been doing in the past. BSPs policy dir
ections going forward Ladies and gentlemen. We are seeing many positive developm
ents but the agenda is definitely not done yet. We need to take a holistic view
and pursue the prudential path towards financial stability. I realize that to ma
ny of you, financial stability may sound to be such a high-level objective that
is detached from the ground. In reality, this prudential objective has a direct
bearing on all of us. Financial stability means that we will continue to set mon
etary policy with an inflation anchor that is consistent with the needs of the b
roader macroeconomy. In particular, the BSP sees interest rates remaining low ov
er the policy horizon, given a manageable inflation outlook. Foreign exchange in
flows are expected to continue, although we see flows coming in at a slower pace
than before. Therefore we expect the peso to remain well-supported. Financial s
tability also means a stable and sound banking sector that actively promotes inc
lusion, provides for non-traditional delivery channels of financial services, an
d protects the interests of the saving public. In particular, the BSP will conti
nue with the banking reform agenda, including the adoption of Basel 3 capital ad
equacy standards in January 2014. Finally, financial stability must then mean th
at we have an efficient payments system that is responsive to the business needs
of the community as well as in providing the needed market infrastructure for i

nvestors. Conclusion Ladies and gentlemen, the 2012 macroeconomic performance of
the Philippine economy has set a significant standard for the country. While ch
allenges remain and continue to pose risks to the economy, the BSP is optimistic
that with an even stronger partnership between the private sector represented b
y business organizations like the FFCCCII, the Philippines could do a repeat, if
not better, performance this year. With stronger partnership with the private s
ector, the government will also be able to facilitate smoothly its pursuit of su
staining good governance reforms to ensure a sustainable and inclusive growth fo
r the Philippines. I salute the FFCCCII for its almost six decades of uniting th
e Chinese-Filipino community to promote the growth of business and implement soc
ial welfare projects that help bring about economic development and progress for
the country. In the next decade and beyond, may you continue to inspire more le
aders in the business community to share your tradition of service to the Filipino
people. As we embark on another journey this 2013, it is my hope that there wil
l be more partnerships forged and bounded with the same mission as the FFCCCII.
That is, to devote time, talent and resources to projects that will contribute to
the countrys economic, social and cultural development. This for me, is the true
essence of corporate social responsibility and nation-buildinga business organiza
tion which commits itself as a partner of the government in alleviating poverty
and promoting economic prosperity for the entire nation. Thank you and good afte
rnoon.
Building Broader Horizons in 2013

Occasion: Annual Convention of the Chamber of Thrift Banks
The officers and members of the Chamber of Thrift Banks, under the leadership of
outgoing president, Patrick Cheng, and incoming president, Jose Teodoro Limcaoc
o, Members of the Monetary Board, Fellow BSPers, my colleagues in the banking in
dustry and in government service, ladies and gentlemen, good morning. The Bangko
Sentral ng Pilipinas is pleased to once again take part in your annual conventi
on. As I begin my remarks this morning, let me take this opportunity to thank th
e outgoing officers and members of the board for your efforts. I am pleased that
we were able to move forward on several fronts, even as we still have a full pl
ate of reforms Let me also congratulate your incoming officers. Indeed, to be ele
cted to the CTB board shows the confidence that your peers have in you. More imp
ortantly, your accepting such a challenge underscores your commitment to work fo
r the greater good. A part of the tradition of your convention that I appreciate
is the row of display booths one has to pass through as one enters the ballroom
... Stalls of the various companies that have grown because of partnership with
the industry. To me, the variety and quality of the displays have been an indica
tor of the state of the thrift banking industry. If this years display continues
in that tradition, I believe it is telling us that good things are in the offing
for the CTB and our economy. What is in the Horizon? This brings me to your cho
sen theme. Building a Broader Horizon for 2013. Horizon is an interesting word. It
has a couple of meanings and evokes several feelings. One meaning of horizon is
that it is the apparent intersection of the earth and sky. Were coming into the sum
mer months. And I am sure, if you find yourself on the beach in the next few wee
ks, you will discover that it is hard to escape the temptation to stand on the s
horeline, maybe barefoot, and then fix your gaze towards the vastness of the oce
an-- Just to see where the ocean and sky seem to meet... the horizon. Another me
aning of horizon in the Webster dictionary is that it is the range of ones percept
ion and experience. Putting these two meanings together suggests to me that when
you chose this topic for this years convention, you were actually asking your mem
bers to find ways of enlarging what the industry knows about...what it can experi
ence... and what it is able to do... You were, in a sense, asking your members to
find ways to enlarge these things to the point where the sky and earth seem to
meet. I wish to tell you even now, that in this journey you have chosen, the ind
ustry can expect the BSP to provide an operating environment that would allow yo
u to traverse this path, but in a way that makes you also mindful of the impact
of your actions -- not only on yourselves but also on the rest of the members of
the financial eco-system you are in. How Shall We Broaden the Horizon? Your goa
l for 2013 is clear to broaden the industrys horizon. But how would you achieve t
his? In geometry and in nautical science, I am told practitioners have derived a
mathematical formula for calculating the distance to the visible horizon. The e
xact equation will depend on whether adjustments for refraction, i.e., the disto
rtions due to light, are done or not. But the common element in any of the equat
ions is this that the distance to the horizon is a function of the height from w
hich you are taking your view.... More specifically, the visible horizon will be
further from you, the higher you are above the ground. This natural law is quit
e interesting in that it also applies to the laws of economics. If I were to app
ly this law to your chosen goal, I would paraphrase as follows.... If the CTB wi
shes to broaden its horizon, the Chamber needs to raise its vantage point. The S
tage is Set Using 2012 as our gauge, I believe you will agree with me that the c
ountry has certainly raised its vantage point. When we consider our markets, the
environment is indeed more favourable now than it has been in the recent past.
The economy expanded by 6.6 percent in 2012 and this growth was matched by gener
ally stable prices as inflation averaged 3.2 percent last year. The high growthlow inflation scenario was further supported by our robust external position. Th
e countrys balance of payments remains in surplus due to investment growth, busin
ess process outsourcing receipts and the steady rise in remittances. This led to
the further build-up in our Gross International Reserves, which stood at 83.8 b
illion dollars at end-February. This is about one years worth of imports of goods
and services, more than adequate by any of the standard measures of adequacy. T
hese positive developments have heightened investor confidence in the country wh
ile further expanding the financial services extended by our banks. For the thri
ft banking industry, your assets rose to Php 666.17 billion last year (up from P
hp 607.43 billion in 2011 or a growth rate of about 9.7 percent). This was on th
e back of Php 529.80 billion in deposits and matched by Php 449.27 billion in lo
ans. Given this starting point for 2013, I ask the officers and members of the C
TB, can we broaden our horizon? I think the answer should be a resounding yes. W
e have entered 2013 from a position of strength, and with some momentum. The onu
s is on you, on us, to make the most of this advantage, to bring you forward in
your chosen objective. Opportunities Abound Some Specific Directions Id like to s
pend the rest of the time allotted on some specific suggestions for broadening y
our horizon. A quick review of the industrys loan portfolio shows that about a th
ird of the industrys total lending continues to be towards the Real Estate and Co
nstruction Businesses. In addition, while such lending remains concentrated towa
rd the acquisition of residential property, there has been an improvement in the
take up of loans for commercial purposes, principally from the BPO sector. Thes
e trends make the recent approval of the BSP of prudential reference standards f
or Contract-to-sell (CTS) financing important . Furthermore, against the backdro
p of low interest rates and the constant temptation among banks to chase after h
igher yields, this market approach dovetails quite well with the prudential thru
st of the BSP to strengthen credit underwriting practices for real estate activi
ties. The BSP has not yet moved to formal prescriptive regulations at this stage
. But, it appreciates the fact that the market itself sought to define the guide
lines to streamline market practice since no common standards have been recogniz
ed todate. In the context of this years convention theme, a market approach such
as this can be seen as the industrys way of broadening its horizon, with financia
l stability specifically in mind. As we have already taken the steps forward on
mortgage finance, perhaps the Chamber can likewise consider similar standards fo
r auto loans in order to ensure that banks dont end up financing lemons. We would a
lso like to see the Chamber actively contributing towards an equivalent effort f
or credit card receivables and other modes of consumer financing. Business cycle
s come and go, and therefore it is important that we have the rules of the game
squarely in place, so that any market inflection points will not cause instabili
ty in the market. As market opportunities expand, we need to also work together
so we can maintain strong credit discipline and avoid imprudent lending and inve
stments. Ladies and gentlemen. We are an economy of 96 million Filipinos spread
over 7,101 islands. It stands to reason that consumer-related financing, your br
ead and butter, will be a major factor in the economy. Hence, the BSPs push to im
prove credit underwriting standards for consumer loans. But in parallel with thi
s, we believe thrift banks should also actively participate in the culture and p
ractice of financial education and consumer protection. These are not just fancy
buzz words. In fact, in the BSP, we take these twin advocacies seriously. Throu
gh our economic and financial learning centers (EFLCs) in our head office and 21
regional offices and branches, we undertake outreaches to raise the awareness o
f the financial consumer so that each of them can make informed saving and inves
tment choices. The BSP has partnered with the Chamber on some of these programs
and we look forward to engaging the Chamber even more. We would also like to see
individual members of the Chamber embark on your own literacy programs. As a co
mplement, we have created a specialized department in BSP called the Financial C
onsumer Affairs Group (FCAG). It is set up as a clearing hub for complaints and
as a redress mechanism so that those who have clearly been victimized through no
fault of their own do not have to suffer the added penalty of delayed attention
. Furthermore, the BSP is in the early stages of formalizing specific standards
for consumer protection, including how banks should handle consumer complaints.
This move is aimed at elevating consumer protection to a stature of a core bank
function, and not simply an ancillary advocacy. Let me now leave the world of re
al estate and consumer finance. And turn to another sector that the Chamber is w
ell-equipped to support. Here I mean the world of Micro, Small and Medium Enterp
rises. The Philippines is traditionally an MSME market. And if we are to raise o
ur national economic vantage point and take advantage of the momentum coming int
o 2013, thrift banks need to consider lending more to this economic segment. I s
ay this because MSMEs provide great employment opportunities. A healthier MSME s
ector will help ensure our economic growth is broad-based and inclusive. Thrift
banks, however, must not just lend more in terms of nominal amounts. The challen
ge to the industry really is to ensure that such lending continuously creates fu
rther opportunities. In this way, MSMEs can be assured of viability, regardless
of mandated credit programs. Final Thoughts Friends, you want this convention to
be a discussion on broadening your horizon, our horizon. In trying to look ahea
d, I took us through the more scenic route of our recent past. The numbers tell
us an encouraging story of growth and consistency... of economic and financial s
tability. However, the paradox of financial stability is that we may just be at
our weakest when we believe we are at our strongest position. Complacency often
sets in when positive news is continuous and this is reinforced by encouraging m
arket parameters. If we fall into this trap of complacency, we risk losing our f
ocus. For the thrift banking industry, the growth trajectory that many are antic
ipating suggests even better times ahead. It is therefore in our collective inte
rest, if we wish to truly broaden our horizon, to agree on a common vision where
thrift banks have a definitive role to play. In my remarks, I have suggested sp
ecific action points you may consider in order to accomplish just that, and over
time broaden your horizon. I challenge the industry to 1) further improve credi
t underwriting standards for real estate and consumer loans and raise your vanta
ge point by looking at your processes with the lens of financial stability, 2) i
nteract with your clients and raise your vantage point by enhancing your practic
es with the heart of consumer protection and financial education, and 3) increas
e lending to MSMEs and raise your vantage point by lending with the mind to crea
te greater value.... But much more can be done. As the old Board takes its place
in CTB lore, your new Board is now at the helm to guide the industry forward. I
t is never an easy task to move forward... but rest assured that the Bangko Sent
ral ng Pilipinas will be with you as we take that journey together into broader
horizons. Thank you very much and good day to all of you.
Embedding Business Continuity as a Mindset

Venue: Meeting Area, EBC, BSP
Occasion: BCM for Executives Forum
Good morning everyone ..... and welcome to the Business Continuity Management Ex
ecutives Forum. I am pleased to know that many BSPers attend activities related
to our celebration of the Business Continuity Awareness Week. This is...as it sh
ould be. Business Continuity is everyones responsibility. All BSPers should be aw
are of the principles of Business Continuity and its practical application to th
e Bangko Sentral. We cannot allow risks to business continuity to develop within
our midst; instead let us ensure that everyone... all BSPers are assets... in t
erms of our Business Continuity Management Programs. I cannot emphasize this eno
ugh. The BSP is mandated to provide stability to our economy through our monetar
y and banking policies. Stability. That is our mantra. We should all do our best
... therefore... to prevent disruptions in our operations. We are fortunate that
we have with us today a global expert on business continuity management Vice Ch
airman Jerome Ryan of Disaster Recovery Institute International, a US-based orga
nization that offers education and certification programs for continuity managem
ent. Thank you for accepting our invitation. Like other world-class organization
s, the Bangko Sentral ng Pilipinas places great importance on business continuit
y management or BCM. For this reason, we have organized and prepared BCM Teams a
nd key personnel... to work in alternate sites and continue mission-critical and
time-sensitive operations... in the event of business disruptions at our regula
r work areas. The BSP started adapting BCM concepts and strategies in 2003 under
the Ad Hoc Committee on Crisis Management. The year after, we created the Crisi
s Management Office or the CMO which is responsible for embedding BCM as a cultu
re ...at the BSP. By 2006, the Monetary Board approved the BSP Business Continui
ty Plan which established our alternate sites; we also required all departments
and offices to submit their respective continuity plans .... using standard and
CMO-designed templates. CMO validated the plans and facilitated the conduct of t
abletop and simulation exercises. Since then, CMO has been leading the integrate
d business continuity exercise involving all mission-critical departments. BSPs i
nvestment of time and resources on BCM programs has proven its worth. For instan
ce, the activation of our alternate sites enabled us to continue mission critica
l operations when we had a communication problem in 2005 and an electricity shut
down at the head office in 2009. But the secret of having a resilient organizati
on does not rest only on investing in alternate site or a robust back-up system;
achieving resiliency entails a concerted effort and shared responsibility among
all members of the organization. It is important therefore that we continue to
develop the habit of incorporating BCM in our operations. In fact, it should be
second nature for us at the BSP to embed BCMS in our processes. The BSPs adoption
of BCM started in 2003 or ten years ago. This week is a good time therefore to
revisit and refresh our memories on what our respective business continuity plan
s entail, ... giving particular attention to those who have recently joined us a
nd are still unaware of our BCM. Ladies and gentlemen of the BSP. Business conti
nuity is at the core of effective corporate governance. I therefore look forward
to your active participation in todays forum and the activities laid down by CMO
for the rest of the week. Finally, I ask everyone to always keep a Business Con
tinuity mindset. As responsible BSPers and as responsible Filipinos, keeping a B
CM mindset is a patriotic duty. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay
ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat!
The Philippine Economy: Primes for a Sustainable and Solid Growth

Occasion: Euromoney Philippine Investment Forum
Secretary Cesar Purisima, other government officials, Mr. Tony Shale, CEO of Eur
omoney Institutional Investor Asia, distinguished leaders and members of the bus
iness and investor community, honored guests, ladies and gentlemen, good afterno
on. Over the recent period, there has been a welcome spate of rosy and positive
commentaries on the Philippine economy. We have been described as an emerging As
ian tiger. The venerable New York Times has labeled the Philippines as the econo
mic bright spot in Asia. The World Bank has observed that macroeconomic stabilit
y is now the new normal in the Philippines. The IMF has singled out the Philippi
nes for being the only country whose growth forecast it has upgraded. The IMF 20
13 growth forecast was set at 4.7 percent earlier on but was revised twice to re
ach 6 percent this January.1 The IMF is not the only multilateral financial inst
itution that has upgraded the growth forecast of the Philippine economy. The Wor
ld Bank upgraded its outlook on the Philippines 2013 economic growth from 5 perce
nt (October) to 6.2 percent (December).2 The Asian Development Bank likewise rai
sed its earlier 2013 forecast of 4.8 percent (April 2012) to 5.5 percent 6 month
s later (October).3 These assessments are consistent with the series of sovereig
n credit rating upgrades received by the Philippines even as the credit ratings
of many other countries have been downgraded. In fact, it could be said that the
financial markets have already voted the Philippines as investment grade as evi
dent in the pricing of our credit default risk in the same range as investment g
rade economies. All these assessments were driven mainly by the solid performanc
e of the Philippine economy across various metrics. These include: - Robust and
broad-based economic growth; - Low and stable inflation; - Strong external payme
nts position; - Sound and stable banking system; and - Much improved fiscal perf
ormance. These macroeconomic conditions did not happen by chance. Far from it. I
n fact, these trends are all the more noteworthy in that they are happening agai
nst a backdrop of persistent and strong headwinds in the global economy. The pro
gress in the economic front is the outcome of prudent and disciplined monetary a
nd fiscal policymaking. And these conditions are sustainable because of strong a
nd well-grounded policy frameworks in place. These include: 1. The government is
committed to sound fiscal policy. The government is appropriately focused on st
rengthening the quality of fiscal adjustments. It has increased spending for cri
tical social priorities and economic infrastructures while keeping a watchful ey
e on the medium-term objective of fiscal consolidation. 2. The government contin
ues to pursue a reform agenda that is aimed at raising the economys flexibility a
nd unlocking the countrys growth potential. 3. A forward-looking monetary policy
framework that has helped strengthen our commitment to non-inflationary economic

growth. We have met our inflation target for the past consecutive four years (2
009-2012), even as the economys engines have powered ahead; 4. An enhanced policy
toolkit that is geared to respond to the challenges brought about by strong cap
ital inflows; 5. Finally, supervisory and regulatory practices that are benchmar
ked against international best practices. This is reflected in well-capitalized
and better-governed banks that are able to efficiently perform financial interme
diation and risk management. There are therefore fundamental reasons to believe
that continued macroeconomic discipline and reforms can push the growth trajecto
ry furtherto a path that will allow the economy to not only survive the global he
adwinds but to adapt and to thrive in a more challenging operating environment.
As we are aware of the headway that has been made, we are equally mindful of the
challenges and the risks to the favorable economic outlook. I can assure you th
at there are a lot of responsible adults in the room. These are policymakers who a
re attentive to the overt as well as the underappreciated risks to the Philippin
e growth story. What are the challenges? What are the latent pressure points in
the economy? Let me cite three major ones, from the BSPs standpoint: 1. Managing
capital flow surges an issue repeatedly mentioned this morning 2. Ensuring finan
cial stability 3. Going the distance with structural reforms In this challenging
period of very strong capital flows and expectations of continuing strong capit
al flows, or as one economist has called itthe whipsaw of huge capital movements,
the question is - do monetary authorities still have the firepower and yet be m
arket-friendly in their policy responses? To this, my response is yes. The BSP h
as recognized long ago the need to deploy a deep toolkit in addressing the conte
mporary challenges confronting emerging market central banks that are at the rec
eiving end of strong capital flows. It has used a variety of instruments to achi
eve low and stable inflation, prevent excessive volatility in the exchange rate
and maintain broad financial stability. As a result of BSPs signature circumspect
ion, the evidence suggests that the sizable FX inflows have not led to significa
nt adverse macroeconomic and financial consequences. Reserve accumulation in res
ponse to the surges in capital inflows does not appear to have led to excessive
money creation. The limited impact of capital flows on monetary aggregate growth
suggests that sterilization policies have been broadly effective. Credit growth
has not contributed to macroeconomic imbalances, as inflation has remained low.
A second and related challenge is the need to ensure continued financial stabil
ity. The recent global financial crisis showed that sole focus on price stabilit
y is not sufficient to attain macroeconomic stability. Policymakers need to deli
ver more than stable prices if they are to achieve sustained and stable growth.
Price stability does not guarantee financial stability. The BSP, therefore, is a
ttentive to pressure points that could impact on both price stability and financ
ial stability. To ensure financial stability we have utilized prudential measure
s to manage capital inflows and moderate, if not prevent, the build-up of excess
es in specific sectors and in the banking system. Prudential policies are the in
strument of choice and employed as the first line of defense against financial s
tability risks. Given the current regime of low interest ratesdriven in large par
t by the surge of foreign capital into domestic financial markets and the limite
d absorptive capacity of the economy in the short termthe BSP is keeping a watchf
ul eye on developments in the asset markets. We pay particular attention to what
is happening in the equity and property markets, as these markets are interestrate sensitive and could be prone to bubbly behavior. We see that while activity
in these markets has been buoyant, the key indicators are growing broadly withi
n trend, reflecting both cyclical as well as structural or fundamental forces. I
t is also important to note that indebtedness in the Philippines is still quite
low. Domestic credit-to-GDP ratio at 50.4 percent (Q4 2012) still ranks one of t
he lowest in the region.4 This would suggest that the risk of excessive leverage
is less and the threat to financial stability is likewise lower, should asset p
rices correct. The third challenge involves going the distance in the pursuit of
the reform agenda. 1. We are implementing the capital adequacy framework of Bas
el III in January 2014. We will also be closely studying the other building bloc
ks of the Basel III reform agenda to see how and when we can incorporate these i
nto domestic regulatory environment. 2. Capital market reform will be a priority

. This will include ensuring that an appropriate market infrastructure is in pla
ce. The infrastructure will not only improve the quality of markets, which will
help mitigate financial stability risk. But infrastructure will also promote the
absorption of the inflows, which will ultimately lead to an expansion of the ec
onomy. By improving financial intermediation in the system, a well-functioning c
apital market will help unlock the economys productive potential and strengthen i
ts capacity to withstand shocks. Right now, we see an economy that is on an even
keel, on surer footing, poised for higher growth, riding on a momentum of chang
e that offers the promise of not only stronger growth but also one that is more
inclusive and more durable. The challenge is to keep the momentum of positive ch
ange strong. The appropriate response to current favorable winds is not to sit b
ack and relax, not to pop champagne corks as William asked this morning, but to
treat them as an ideal opportunity to strengthen the underpinnings of the econom
ys foundations. The BSP will strive to have monetary policy that will provide an
environment where credit and liquidity growth will remain supportive of economic
growth while maintaining price stability. We will also continue to work on refo
rms that will deepen the financial system. We will continue to monitor financial
and asset markets and be responsive to emerging risks. We will continue to work
with the government in pushing the agenda for reforms to ensure macroeconomic s
tability. ------- 1 IMF Statement at the Conclusion of the 2013 Article IV Consu
ltation Mission to the Philippines, Press Release No. 13/21, January 23, 2013 2
The World Bank East Asia and Pacific Economic Update December 2012 3 Asian Devel
opment Outlook 2012 4 Note: Latest available: Indonesia 40.2; Malaysia 133.3; Si
ngapore 151.8; Thailand 129.4; Japan 221.2; China 153.1; Korea 104.1
Promoting the Rule of Law in the Financial Sector

Occasion: Launching of the BSPs book on SPECIAL BANKING LAWS ANNOTATED
Former Chief Justice Reynato Puno, members of the Monetary Board, former BSP Gov
ernors Laya and Singson, Prime Minister Virata, advocates of the rule of law fro
m the government and the private sector, fellow BSPers, distinguished guests, go
od afternoon. We at the Bangko Sentral ng Pilipinas are deeply honored by your p
resence, Chief Justice Puno, at this simple launching ceremony for the Book on S
pecial Banking Laws Annotated. This book covers the laws that govern particular
financial institutions such as thrift, rural and cooperative banks as well as no
n-stock savings and loan associations. These financial institutions play a uniqu
e and pivotal role: they broaden the reach of our financial system down to the c
ountryside and encourage savings, loans and investments that grow the economy, g
enerate employment and promote inclusive growth. Equally important are annotatio
ns to laws on the rights and protection of consumers, borrowers and depositors t
hat are discussed in this book. This book completes the three-volume series on B
anking Laws of the Philippines published by the Bangko Sentral ng Pilipinas. As
mentioned earlier, the first book is The New Central Bank Act Annotated while th
e second is The General Banking Law Annotated. Deputy Governor and General Couns
el de Zuiga tells us that this will probably be not the last; his team is now loo
king at the possibility of coming up with another book, possibly on financial tr
ansaction and products. With this groundbreaking undertaking, we have consolidat
ed in three books the legal framework within which we operate... complete with a
nnotations as to its applications including its historical and philosophical und

erpinnings. We have been asked: why is the Bangko Sentral publishing these books
? Well, we learned it was difficult for lawyers, researchers and the academe...
to access laws and annotations relevant to the financial sector... in a timely f
ashion. And since we also subscribe to the legal maxim that Justice delayed is ju
stice denied ....the BSPs Monetary Board decided to take on the challenge of publi
shing these three books. It is a source of pride for us that these landmark book
s represent the collective output of the Bangko Sentrals in-house team of lawyers
from the Office of the General Counsel and Legal Services under the leadership
of Deputy Governor Juan de Zuniga, Jr. Without question, they have no equal in t
erms of combined expertise and experience in the application and interpretation
of banking laws and regulations. But beyond their expertise, it is their passion
to serve our people that gave them the adrenalin to work on these legal books a
longside their regular assignments. You can see the portraits of our writers and
editors around this hall. And they will be happy to autograph your books. We al
so thank the former Chief Justice of the Supreme Court, The Honorable Reynato Pu
no who graciously and generously accepted our request for him to write the forew
ord for the Book on Special Banking Laws Annotated and to be our Guest of Honor
in this book launch. It is our distinct honor and privilege... to have with us t
oday the man described by the magistrates at the Supreme Court as a transformatio
nal leader, an intellectual aristocrat and one of the greatest Chief Justices of the
Supreme Court of the Philippines. His book entitled Equal Dignity and Respect...
the Substance of Equal Protection and Social Justice was launched only last month
. In other words, he continues his crusade for a level playing field and equalit
y in our country. Maraming salamat Mr. Chief Justice. And so today, ladies and g
entlemen, we present the complete set of the Bangko Sentrals three books on Banki
ng Laws of the Philippines which... we are certain... will help fortify the foun
dation for the rule of law... to flourish in the Philippine financial sector. Th
is should benefit our people, our economy and our country. Once again, our congr
atulations to our lawyers who made these books a reality.... and our appreciatio
n to Chief Justice Puno and all of you who have joined us today for this legal m
ilestone. Mabuhay po tayong lahat! Mabuhay ang ating mahal na bansang Pilipinas!
Thank you and enjoy the rest of the evening.
Vigilance Amid Stability and Growth

Venue: Fort San Antonio Abad, BSP Complex, Malate, Manila
Distinguished guests from the banking community, the government, Philippine busi
ness, the diplomatic corps, multilateral institutions, NGOs, the media, special
guests, good evening and a happy new year. The Bangko Sentral ng Pilipinas and i
ts Monetary Board welcome all of you to this traditional annual reception for th
e banking community. This annual ritual provides us the opportunity to come toge
ther to review the past and to share our roadmap moving forward. But first, allo
w me to call on my co-hosts tonight, the other members of the Monetary Board: Fi
nance Secretary Cesar Purisima, MBM Alfredo Antonio, Ignacio Bunye, Peter Favila
, Felipe Medalla, and Armando Suratos. As you may have noticed, the high-rise BS
P building behind us greets everyone masaganang bagong taon. In English, this mean
s wishes for A prosperous new year. Our collective wish, here at the BSP, is for b
alanced, sustainable and inclusive growth that brings prosperity to Filipinos. We a
t the BSP believe that if we unite and work together, this is not impossible. La
dies and gentlemen. While global headwinds continued to challenge economies arou
nd the world home-grown sources of resilience enabled the Philippine economy to g
row with a 6.5% increase in GDP in the first nine months in 2012. This surpassed
growth projections and earned for the country the distinction of posting one of
the fastest growth rates in Asia. This strong economic growth was achieved with
inflation remaining low and stable. At 3.2% in 2012, inflation was well within
the target range set by the National Government. This tells us that our monetary
policy settings remain supportive of non-inflationary growth. At the same time,
the Philippines continued to have a strong external position with, based on the
latest figures, a balance of payments surplus of $9.2 billion for full-year 201
2 and Gross International Reserves at $83.8 billion as of year-end. This continu
es to enhance confidence in our ability to meet potential shocks. Another source
of resilience for our economy is our strong and responsive banking sector. As o
f November 2012, aggregate gross lending of universal and commercial banks was a
round P3.4 trillion, 13% higher than the year before. In fact, lending of univer
sal and commercial banks has been growing at double-digit rates since January 20
11. Indeed, the Philippine banking sector continues to underpin our countrys econ
omy, as adherence to good governance becomes the norm and risk management standa
rds align with global benchmarks. For instance, it is noteworthy that even as ba
nk lending sustained double-digit growth, the quality of loans continues to impr
ove, with non-performing loans dropping further to 2% in October last year, comp
ared with over 18% in the aftermath of the 1997 Asian financial crisis. At the s
ame time, banks have always kept their capitalization above the regulatory thres
hold, largely through the retention of earnings and a conscious build-up of capi
tal. Also assets of the banking sector as of last October was about P7.6 trillio
n , our highest on record. The same can be said of deposit levels, profits and b
ank capitalization. Now, our challenge is dealing with the consequences of this a
pparent success. In particular, surges in capital flows. As Fed Reserve Chairman
Ben Bernanke stated, emerging markets have been attracting capital because we ha
ve remained resilient even at the height of the recent crisis. Essentially he wa
s saying we are the victims of our own success. Of course, the near-zero interes
t rate regimes in the advanced economies have also been a factor behind the stro
ng capital flows going to emerging markets. The ideal scenario is to convert the
se surges in capital flows into real economic assets, such as factories in the m
anufacturing sector or storage facilities in the agricultural sector. In doing s
o, we would have leveraged the financial resources into added productive capacit
y. However, if these resources remain financial in nature and in search of bette
r returns for risks they deem acceptable, then the onus shifts once again to the B
angko Sentral ng Pilipinas. More than ever, monetary policymaking requires great
care and balance -- Balance to contain speculative actions but not to discourag
e investments And balance to maintain financial and macroeconomic stability but
not to stifle competition and growth. As the central monetary authority, we need
to find this delicate point of policy equilibrium when the potential impact of
policy on key market parameters such as on exchange and interest rates wont outwe
igh the economic virtues of an open market. The issue here is not individual ris
ks of products and transactions. Instead, it is about the risks to the system fr
om the possible build-up of risks. Risks that could eventually spill over across
stakeholders, products, transactions and sub-markets. We need therefore to be a
ttentive to the possibility of downstream risks even when the picture upstream lo
oks overtly robust and rosy. This is the challenge of prudently asking ourselves.
constantly. What can go wrong? . and to prepare accordingly for such possibilities. T
o us at the Bangko Sentral ng Pilipinas, this is at the heart the very essence of
ensuring financial stability. And, as complex a challenge as it may be, it repr
esents our central policy framework moving forward. The environment we operate i
n is not static. And we envision that our reform agenda will remain dynamic as p
olicy developments emerge and market needs arise. But, even as the components of
this agenda can change, the ultimate and driving goal remains the same. Our age
nda will cover the Basel Accord on capitalization and other financial standards,
as well as policy reforms on OTC Derivatives and financial market infrastructur
es. We also encourage banks to become more proactive in doing their part to broa
den the reach of financial education. On its own, the BSP implements finance edu
cation programs across different age groups to empower Filipinos to save, invest
and manage their resources with prudence, to avoid scams and to protect their r
ights as bank customers. To us, financial education is valuable not only for emp
owering our people but also in enhancing the stability of our financial system.
This should also lead to improvements in the savings rate in our country which l
ag behind that of our neighbours. Certainly, our agenda moving forward calls for
a collective effort as the ramifications and accountabilities cut across differ
ent financial institutions and regulatory agencies. In this period of change, it
is important that we agree on the direction we want to take the system. And hav
ing agreed, the stakeholders must collaborate on working on such changes in ways
and forms as may be required by circumstances, . For the greater good. Ladies an
d gentlemen. We have seen how successful cooperation between the BSP and the ban
king sector generated long-term benefits for our country and our people. For thi
s, the BSP and the Members of the Monetary Board thank the leaders, the manageme
nt and the staff of the Philippine banking community. Maraming salamat sa inyong
lahat! We also thank our guests from other sectors of our country for taking ti
me to join us tonight. We are heartened by your show of support. As the economis
t Adam Smith once said, and I quote: civilized society stands at all times in nee
d of the cooperation and assistance of great multitudes. It is our hope therefore
that the same spirit of cooperation and collaboration will characterize our pur
suit of continuing reforms in 2013 and the years ahead. And now, let us offer a
toast to all of us coming together for an even stronger, more responsive, more inc
lusive, and more successful Philippine banking system that will underpin a strong
and vibrant Philippine economy that will bring prosperity and a better quality
of life to our country and our people. Cheers!
Speech of the Governor during the Rotary Club of Manilas First Membership Meeting
for 2013
Venue: Manila Polo Club
Occasion: Rotary Club of Manilas First Membership Meeting for 2013
Introduction Officers and members of the Rotary Club of Manila (RCM), led by Pre
sident Obet Pagdanganan, who are joined by the officers and members of the Rotar
y Club of Leon Guinto headed by President Lody Garcia and of the Rotary Club of
Manila-Sta Ana led by President Marci Bautista and of the Inner Wheel Club of Ma
nila, led by Pres. Dolly Gupit, esteemed guests, ladies and gentlemen, let me be
gin by greeting you all a Peaceful and Prosperous 2013. It is a pleasure, once a
gain, to be part of the Rotary Club of Manilas first Membership Meeting of the ye
ar and to have the opportunity to share with Rotarians the BSPs views on the year
just past and the expected global and domestic developments that could help shap
e the year ahead of us. Having done this for five or six years now, Ive lost coun
t, I feel like I am a member of this jolly group already. Although I know I have
to put in more time to earn one of those metal badges of honor. I am told that
to deserve that golden metallic nameplate will take decades. Unfortunately, the
BSP Charter has imposed a two-term limit to the central bank governor. Before I
digress any further, I hope you will not mind if I, as one who feels part of the
group already, would go directly to the meat of my remarks this afternoon. 2012
A year of transition for the global economy 2012 has been described by economic
analysts as a year of transition. The year began with economic policy makers in
the advanced economies wrapped with uncertainty about whether their politicians
would be able to deliver the required votes on economic reforms essential for t
he resolution of the European sovereign debt crisis and the aversion of the US f
iscal cliff. Markets were jittery and credit spreads were high. In the meantime,
emerging market (EM) economies policy makers on the other side of the globe whi
le doing relatively better, had become increasingly concerned with spillover to th
eir economies, given the relative importance of Europe and the US as trading par
tners to these economies. In meeting after meeting among EM central bankers, the
questions we asked of each other were: How could we avoid any adverse effect on
our own economies? How much would any spillover be? Crisis prevention and mitigat
ion had thus become the mantra of policy makers across the globe. In a major way
, central bankers stepped in while the markets waited for the political resoluti
on to the twin issues. Central bankers became the catalysts for preventing anoth
er global financial crisis from erupting. Among others, the ECBs OMT (or Outright
Monetary Transactions Program) and the Feds QE3 (or its third offering of Quanti
tative Easing) provided the financial markets with both the actual liquidity and t
he psychological calm that they needed to break their crisis mentality. Now, Europ
e seems to be getting closer to a resolution to its debt problems. The US econom
ic growth appears to be gaining some traction, although it is still a work in pr
ogress. Even as the medium-term implications are still unclear, the fact that the
US fiscal cliff has been avoided over the weekend provided support to the marke
ts when they opened yesterday. Risk appetite has again emerged. And as one comme
ntary I read said, Happy New Year Risk on! In our own backyard and in response to
these dual concerns, the BSP calibrated domestic monetary conditions by cutting
our policy rates by a cumulative 100 basis points. This move reduced our borrowi
ng rate from 4.5 percent to 3.5 percent. The BSP was able to reduce its policy r
ates by this much because the domestic inflation outlook continues to be managea
ble. The easy monetary policy encouraged banks to also reduce their lending rate
s, thereby supporting domestic investment and consumption. The Philippine bankin
g system remained sound and stable in 2012, allowing it to effectively intermedi
ate funds to productive uses even during times of global uncertainty. Our bankin
g system continued to experience solid asset growth, improve the quality of its
assets, and keep its capitalization above international norms and national stand
ards. As events unfolded, the projected weak growth in the advanced economies di
dnt spill over to all emerging markets in the form we thought they would. As you
are aware, the Philippine economy grew stronger-than-expected in the first three
quarters of 2012. The 6.5 percent growth posted during the period surpassed the
national governments (NG) target range of 5.0-6.0 percent growth for the year. I
n fact, the countrys growth in the third quarter of 2012 of 7.1 percent was the h
ighest among the ASEAN countries, which all posted positive growth. Indonesia gr
ew at 6.2 percent, Malaysia 5.2. percent, Vietnam 4.7 percent, Thailand 3.0 perc
ent, and Singapore 0.3 percent. In addition to easy monetary conditions, the tim
ely increases in government spending and increased private sector activity helpe
d the Philippines stay on this uptrend. The robust output growth was achieved in
a low inflation environment. Headline inflation during the first eleven months
of 2012 of 3.2 percent remains well-within the governments inflation target range
of 3.0-5.0 percent for the year. This would make 2012 the fourth consecutive ye
ar that the BSP is able to keep inflation to within the governments target range.
With this continued benign inflation outlook, businesses could expect the BSP t
o keep interest rates at low levels in 2013. In other words, ladies and gentleme
n, the Philippines has again achieved the sought-after alignment of strong growt
h and low inflation This could lead one to ask: Is the Philippine economy a super
economy that it appears to have been immune from any adverse impact from global
developments? The answer ladies and gentlemen -- is no, it isnt. 2012 - A year o
f continued strong capital flows for the Philippines A year that tested instituti
ons Global developments did spill over to the Philippines but not in the form of
slower economic growth Global developments spilled over to the Philippines in th
e form of surges in capital flows to the economy. Which have been manifested in v
olatilities in the financial markets. Take the exchange rate. This slide shows t
hat in 2012, the peso has been on an appreciating trend. Take a look at the stoc
k market. This slide shows an appreciating trend also for the stock market. Take
a look at the Tbills market, where yields have been on a downtrend. All these p
oint to strong investor interest in our currency, our stock market and our GS ma
rket. In this year of transition, our better growth prospects have continued to
make the economy a magnet for capital flows. With investment grade status just a
round the corner, we could continue to see more foreign capital come into our do
mestic financial markets. How has the BSP addressed these surges in capital flow
s? BSP follows a pragmatic approach. We employ a menu of policy options our enha
nced policy tool kit. First, our use of policy tools is targeted. For structural
flows (such as strong remittances and other current account receipts), we allow
for some currency appreciation. It would be imprudent to go against a trend sup
ported by fundamental flows. But for the speculative kind, we impose market-base
d regulations aimed at providing the incentive structure for market participants
to correctly price their transactions, taking into account associated risks. Se
cond, we use tools to address systemic risks. As we showed through earlier graph
s on the movements in the peso, PSE and GS, capital flows have not only impacted
the exchange rate. They also affected the other financial markets and economic
prices. During this crisis, we learned that monetary policy tools are not enough
to contain the broad-based impact of capital flows. During this crisis, we lear
ned that there is a need to complement monetary policy with macroprudential poli
cy tools. The BSP has never targeted an exchange rate level nor mandated specifi
c price levels for specific market transactions. Instead, our policy has been to
craft regulations that would help ensure that market participants appreciate th
e inherent risks of the transactions they enter into. In the case of capital flo
ws, the market must be aware that flows which come in quickly into the economy,
could also just as quickly flow out. This is often referred to as sudden stop or
capital flow reversal So far, this policy has resulted in containing the volati
lity in exchange rate movements to within the middle of the range of other regio
nal currencies, although the peso has performed relatively more strongly than in
previous years. In an environment where the movement of the exchange rate deter
mines the financial wealth of different economic sectors and affects different s
ectors differently, this policy has been determined as fair. Beyond capital flow
management policies, the economy has been successful against shocks from extern
al volatilities because of past reforms that have built stronger institutions. W
hat are some of these? First, a disciplined monetary policy framework, with a cl
ear focus on our mandate. Second, sound and stable banking system, as reflected
in well-capitalized and better-governed banks. Third, a robust external position
and payment dynamics characterized by continued build-up in foreign exchange re
serves and a lower external debt-to-GDP ratio. The NG is targeting a GDP growth
of 6-7% in 2013 while for inflation, its 2013 target range is 3-5% Clearly, the
Philippines performed quite well in 2012. While 2012 was a year of transition fo
r the global economy For the Philippines, I believe, 2012 could more appropriatel
y be characterized as a year of consolidation, when all the outcomes, as desired
from reforms instituted, have essentially fallen into place and fitted together
. Sound macroeconomic policies and structural reforms have led to investor confi
dence and steady economic growth in a non-inflationary environment. 2013 Are we
out of the woods yet? No, continued vigilance is needed amid relative stability
Going into 2013 in a state of relative calm, is the global economy out of the wo
ods? With the confluence of strong domestic growth and low inflation, is the Phi
lippines in a clearing? While we expect the Philippines to be resilient, we are
also aware that the country is not fully immune to the volatilities in the exter
nal front. While there seems to be relative global stability at the moment, risk
s remain. What are some of these risks? There may be delays in further political
reforms needed for dealing with the euro area sovereign debt crisis. The US sti
ll faces sizable medium-term fiscal tightening. These two risks are highly polit
ically-related problems, which again may require central banks in advanced econo
mies to keep easy monetary conditions. In turn, these could lead to more capital
flows to emerging economies. We are also monitoring developments in China, to s
ee if we would see a slowdown or a return to strong growth that together with a
recovery in the US, could push global commodity prices higher. We are also watch
ful of geopolitical developments in the Middle East as these could impact on the
supply chain for oil. These are some of the risks that we keep an eye on. Given
the highly integrated nature of economic and financial transactions today, exte
rnal developments such as these, could impact on our domestic growth and inflati
on processes including on domestic utility and gas pump prices. BSPs policy thrus
ts moving forward The BSP welcomes the seeming respite from crisis which we are
now experiencing, but we continue to keep our ears close to the ground to identi
fy looming pressures. More specifically: On monetary policy, we will sharpen eco
nomic surveillance of shifts in the domestic and global inflation dynamics, incl
uding any brewing asset price pressures. On financial sector policy, we continue
to improve the microprudential supervision of banks and pursue macroprudential
regulation with equal vigor to address potential systemic risks. In line with th
is, we will implement the Basel 3 capital requirements for universal and commerc
ial banks (U/KBs) by January 2014. Beyond the preservation of monetary and finan
cial stability, the BSP will also continue its advocacies to support local enter
prises, promote inclusive growth and help alleviate poverty. Thus, the BSP will
sustain its advocacies on microfinance, financial inclusion, consumer protection
and financial education with greater energy. On the external front, the BSP wil
l continue to maintain a market-determined exchange rate; keep a comfortable lev
el of reserves; and continue to promote external debt sustainability by keeping
the countrys outstanding external debt manageable. In 2013, as policies further e
ngender a sound domestic macroeconomy, we foresee continued solid economic growt
h amidst stable prices, a relatively stable exchange rate, and a responsive bank
ing system that is able to withstand significant external shocks. Conclusion Lad
ies and gentlemen, 2012 was a year of transition for the global economy and a ye
ar of further strengthening and consolidation for the Philippine economy. In the
face of the relative economic stability we have gained during this transition,
and the support of domestic policy makers in our period of consolidation, it is
my hope that Rotarians would make 2013 a year of expansion. A year when all of y
ou would seek more actively -- every opportunity to create a better life not onl
y for yourselves, but for a greater majority of our countrymen. Transition bring
s a traveler from one point in his journey to the next Consolidation strengthens
his foothold at every point .Expansion provides the traveler with more options du
ring his journey. The private sector represented by Rotarians, and the governmen
t are all travelers on this economic journey. It is my hope , therefore, that as
you and the BSP take on the challenges that our path throw at us, we would be ab
le to continue working together to bring our country to the next point One that i
s prosperous for more if not for all Filipinos.
Financial Capability as a 21st Century Life Skill

Venue: Shangri-la Makati, Philippines
Occasion: Citi-FT Financial Education Summit
Mr. Michael Zink, Head of ASEAN and Singapore Citi Country Officer; Mr. Sanjiv V
ohra, Citi Country Officer for the Philippines; Secretary Imelda Nicolas, Chairp
erson, Commission on Filipino Overseas; Ms. Brandee McHale, Chief Operating Offi
cer, Citi Foundation; Mr. David Pilling, Financial Times Asia Editor; Ms. Kathy
Hurley, Executive Vice President, Education Alliances, Pearson Foundation; disti
nguished resource persons; experts and practitioners in financial education; fri
ends who have traveled from other countries; my colleagues in the BSP; ladies an
d gentlemen, good morning everyone! Finally, this annual financial education sum
mit is in the Philippines. Now on its 9th year, it continues to enjoy such high
level of interest and support for its relevance to the times. Congratulate and t
hank Citi and FT and the other sponsors and organizers of this gathering. For st
arters, its forum theme Financial Capability as a 21st Century Life Skill .... is
an outright declaration that financial capability is a must-have-skill. I agree
with this statement. Indeed, the ability to make sound financial choices and dec
isions is essential... to ensure ones financial well-being. And yet, most people
are sorely lacking in this necessary skill. The summits keynote session pushes th
e envelope further: it raises the social, economic and moral imperatives of brid
ging the financial capability gap. Discussions are also bound to be thought-prov
oking on the topic The Ultimate Financial Education Challenges Impact, Scale and
Sustainability. Ladies and gentlemen. The organizers of this summit have brought
together world-class finance education experts and advocates to tackle these imp
ortant issues. The Bangko Sentral ng Pilipinas is therefore pleased that it is a
host partner in this Financial Education Summit. For your information, the BSP
was also co-host... in the last two days... of the Asia and the Pacific Regional
Meeting on Child and Youth Finance organized by the Child and Youth Finance, In
ternational. And three months ago, the BSP co-hosted with the OECD in Cebu the A
sian Seminar on Financial Literacy and Inclusion. It must be obvious, financial
education is important to the Bangko Sentral ng Pilipinas. Both Mr. Zink and Mr.
Pilling have given us a useful and comprehensive background on the objectives,
issues, efforts being made towards expanding financial education and inclusion.
I would like to tell you about our experience at the BSP. The vision of the BSP
as the countrys monetary authority and supervisor of the banking system is to be
a catalyst for a globally competitive economy and a financial system that delive
rs a high quality of life for all Filipinos. While financial education may not i
mmediately be considered a core function of a monetary authority or a supervisor
of the banking system, it is actually quite intrinsically linked to our overarc
hing goal and vision. To us, financial education empowers people to manage their
resources with prudence, instills the discipline of saving regularly, and safel
y grow their money. Thus, we believe that financial education empowers the citiz
enry to become effective partners of the BSP as productive economic agents and i
mproves peoples lives. With the importance we attach to financial education, the
Bangko Sentral is implementing a nationwide economic and financial learning prog
ram. We follow a multi-dimensional strategy covering 1) the learning sector ...i
ncluding schools, public and private sector research work, and 2) the transactin
g public. For the learning sector, we created Economic and Financial Learning Cent
ers at our head office, three regional offices and 18 branches across the countr
y. These are our primary in-house communication channels and the publics focal po
int of contact in the BSP on information concerning economic and financial matte
rs. The BSP also conducts outreach activities, such as targeted seminars and exp
os to promote greater awareness and understanding of essential economic and fina
ncial issues. For the transacting public, the BSP created the Financial Consumer
s Affairs Group (FCAG), a unit dedicated to assisting consumers who have concern
s related to banking and financial services. We have also forged partnerships to
broaden and deepen our reach. Among others, we are in partnership with the Depa
rtment of Education for the integration of lessons on saving and money managemen
t into the elementary education curriculum of our 14 million elementary pupils.
Parallel to this, we forged partnerships with the Bank Marketing Association of
the Philippines for the development of affordable child-friendly bank products i
ncluding savings account with a minimum opening balance of P100 or less than US$
3.00. We have also partnered with international organizations to help us benchma
rk our practices, share our learnings and exchange ideas. These include: 1) the
International Network for Finance Education (INFE) created by OECD to promote an
d facilitate international cooperation on global financial education issues; and
2) the Group of the Alliance for Financial Inclusion (AFI), which counts as mem
bers policy makers and regulators in the developing world who are committed to f
inancial inclusion. Ladies and gentlemen. In scaling up its activities for consu
mer protection, the BSP is also intensifying its information campaign to ensure
that intended benefits actually accrue to financial consumers. For instance, we
have been working on enhancing transparency in credit transactions to make sure
people are not overcharged with flat interest rates and similar misleading methods
. To ensure proper and immediate dissemination of such consumer protection measu
res, no less than our deputy governors explain the issues through mass media, in
cluding radio. This may not mean much to some, but for tricycle drivers, for ins
tance, who pay their motorcycles on installment, .... the right to demand correc
t pricing translates to higher income for him and his family. It is not enough t
herefore to craft responsive policies. We need to communicate and educate the pe
ople on what these means for them. On the other hand, we also need our people to
be responsible and vigilant in protecting their rights. Indeed, financial capab
ility is a life skill that can lead to a better life. I wish all of you therefor
e a fruitful and successful financial education summit. Thank you and Mabuhay!
Crafting a Regional Agenda for Child & Youth Finance

Venue: EBC, BSP, Manila
Occasion: Asia and the Pacific Regional Meeting on Child & Youth Finance
Secretary Imelda Nicolas of the Commission on Filipinos Overseas; CYFI Managing
Director Jeroo Billimoria; distinguished resource persons; child and youth repre
sentatives Callista (12 years old) from Indonesia, Sam (11 years old) from Ugand
a and Jessie from the Philippines; fellow advocates of financial inclusion from
Asia and the Pacific; our media partners; special guests, good morning .... and
welcome to the Bangko Sentral ng Pilipinas, the Philippine central bank. We at t
he Bangko Sentral are happy that you have come to the Philippines to discuss chi
ld and youth finance in Asia and the Pacific - where... it is said... roughly 60
% of the worlds youth reside. Here in the Philippines alone, about half of our to
tal population are young. It is important for our country therefore to ensure th
at our youth are given proper basic education... that will allow them to grow in
to responsible self-reliant adults. Indeed, to us at the Bangko Sentral, finance
education is for everyone. Thus, when a 2006 survey indicated that less than 5%
of the Filipino youth save regularly, ...we made a decision to place child and
youth finance education high on our agenda. This is important to us. After all,
we have roughly 25 million students in both elementary and high school levels. A
nd as Philippine National Hero Dr. Jose Rizal once said ... Ang kabataan ang pagasa ng ating bayan. The youth are the hope of our future. Furthermore, the 2006 C
itibank Financial Quotient Survey indicated that Filipinos have a financial inte
lligence quotient of 47.8 points, less than half the maximum score of 100. While
there were other countries that had lower scores, the result was disturbing for
us nevertheless. It was an indication that over the long term... our countrymen
may miss out on the opportunities that development brings... or worse, .....be
unprepared to weather financial uncertainties that may arise in the future. Thes
e results provided us with the strong resolve to broaden and deepen our financia
l education program. Since then, the Bangko Sentral ng Pilipinas has been implem
enting an integrated economic and financial learning program that covers differe
nt segments of our society from students to young adults... to overseas Filipino
s and their families.... to teachers and parents... as well as the unbanked and
the underbanked. Our ultimate goal is to make people part of our financial syste
m while giving them protection. In other words, we want to develop an inclusive
financial system that will generate inclusive growth through financial education
and protection. In this connection, I am pleased to report that the development
of the Philippine microfinance sector is one success story in our continuing ef
forts to develop a more inclusive financial system. In fact, the Philippines has
been cited for the fourth consecutive year for having the worlds best regulatory
environment in promoting microfinance. Millions of Filipino microentrepreneurs
and their families have been liberated from poverty through microfinance which gi
ves access to credit without collateral. As of June 2012, banks have an outstand
ing microfinance loan portfolio of P 7.7 Billion and an equally impressive saving
s portfolio of P4.3 Billion from microentrepreneurs. Indeed, the success of many
microentrepreneurs is proof of the empowering benefits of gaining access to fin
ancial services. This is the reason why we are optimistic about the impact of ha
ving lessons on entrepreneurship taught to our elementary students. Using langua
ge and concepts that are easy for children to understand, the Bangko Sentral and
the Department of Education produced teaching guides to instill in children an
understanding and consciousness of financial issues. This is at the heart of the
BSP-DepEds finance education program. The lessons range from telling the differ
ence between needs and wants... to undertaking income-generating ventures... to
the concept of inventory... to acquiring the qualities of a successful entrepren
eur. All these with the aim to hone their financial decision-making skills... th
at will serve them well into adulthood. Ladies and gentlemen. In this journey, w
e have met many challenges; but we also gained partners along the way. One of ou
r partners was the Learning Section of the local newspaper Philippine Daily Inqu
irer. Supported by Citi and the Bangko Sentral, it published a six-week series d
esigned for high school students: Money Matters for Teens: You Can Bank on It. It
eventually earned the top prize from the World Association of Newspapers for exce
llence in efforts to engage the youth. Another partner is The Bankers Institute o
f the Philippines which conducts personal finance management lectures for teache
rs and parents of elementary school pupils. Schools now request this program whi
ch runs parallel to the classroom teachings of elementary pupils. At the same ti
me, 12 banks joined hands to launch the Kiddie Account Program. While these bank
s were no stranger to childrens accounts, they all agreed on the need to make sav
ing affordable, accessible and convenient to attract more kiddie savers. After n
egotiations that took nearly two years, the 12 banks agreed on a common denomina
tor: children are welcome to open accounts with them... with a minimum deposit o
f only 100 pesos... or less than US$3.00. And to further help make saving a habi
t, bank representatives also go directly to schools to service childrens deposits
. So far, so good: thousands of new accounts are being generated by the Kiddie A
ccount Program... and withdrawals are minimal. Since children exert influence in
household decisions, we hope that their habit of saving will rub off on other m
embers of the households, including the adults. Based on the results of the BSPs
Household Finance Survey, only 20% of Philippine households maintain bank accoun
ts. We are therefore looking at this program as a way to help raise the savings
rate in the Philippines. I understand that yesterday ... many of our foreign del
egates visited the Aurora Quezon Elementary School ... to observe how financial
lessons are taught and to hear how banks are implementing their Kiddie Account P
rograms. Did you find it useful? That is good to know. Ladies and gentlemen, our
continuing journey takes us through uncharted territory. Nevertheless, we are e
ncouraged by positive feedback -- from the pupils who start saving regularly, to
the teachers who say they learn life lessons from the program. Also a positive
is the 2011 Citi Financial Quotient Survey where the Philippines showed sustaine
d improvements in its score. Nevertheless, we have a long way to go... and a lot
more to learn. It is for this reason that we look forward to this Regional Meet
ing on Child and Youth Finance for Asia and the Pacific. I hope therefore that o
ur conference today will be successful and fruitful. Finally, we thank the Child
and Youth Finance International for bringing this regional meeting to Manila ..
.and for taking the lead in the global movement to promote the habit of saving..
. among schoolchildren. We also commend their design props today the multi-color
ed balloons and throw pillows. It reminds us that while we are tackling a seriou
s subject, we should not forget that our intended beneficiaries should find it f
un to find ways to grow and manage their own money. We also thank all the speake
rs and delegates from here and overseas... who have come to contribute to the cr
afting of the regional agenda for child and youth finance. And to our foreign de
legates, we hope you enjoy your stay here in the Philippines. Thank you all....
and Mabuhay!
Currency Stability Amidst Global Volatilities

Venue: Shangri-la Hotel, Makati City
Occasion: Bloomberg Foreign Exchange Summit (FX Manila 2012)
The title of the Summit is quite intriguing. Where will the new ideas in the FX co
me from in 2013? Its a rather interesting title -- in two ways And quite symptomati
c of how the market thinks First, are there really new ideas? Second, why only in
or until 2013? Clearly, these demonstrate that treasury practitioners (not limi
ted to those in attendance today) tend to look at the world with a slightly diff
erent perspective. There are many themes that continue to criss-cross in the mar
kets today not quite unlike the plots of an unfolding telenovela. The fiscal clif
f issue in the US, the decision to Grexit or not to Grexit, how far the unrest i
n the Middle East will go, and whether the China slump has bottomed out or not.
From where I stand, I see global conditions stabilizing. This was the general fe
eling during the Governors meetings that I attended in both Mexico and Uruguay ju
st two weeks ago. The US economic recovery seems to be gaining some momentum and
many analysts appear confident the fiscal cliff issue will be resolved Export an
d manufacturing indicators from China show that growth is picking upThe risk of a
Greek exit is assessed to be lower And although geopolitical issues may impact c
ommodity prices, such impact would be at a manageable degree, given current mark
et stability. On the domestic front, we see growth remaining solid in a non-infl
ationary pace. I think many of you would agree with this assessment There is defi
nitely optimism in the air, despite the many and varied uncertainties ahead But b
ecause many still remember the green shoots of 2009, when the hailed US recovery t
urned out to be a false start, no one wants to let the marching band out of the
locker rooms just yet. And so, what we generally find today is that markets tend
to dance to the same tune of either risk on or risk off conditions. Hence, the desi
re for new ideas. Market practitioners generally share the same views about what e
lse could happen. By extension, that also means taking the same general approach
in managing assets and liabilities. Case in point -- we continue to see waves o
f cross-border flows that are massive in size and uniform in destination And ever
yone in the room understands the motivation behind these transactions. The IMF a
nticipates US$113.3B of private money will flow into developing Asia in 2012, in
creasing further to US$182.5B in 2013. The Philippines is part of this phenomeno
n. From only US$388M in 2009, Net Foreign Portfolio flows in 2010 and 2011 excee
ded US$4B each year. For the first 10 months of 2012, the balance is already at
US$2.7B. These figures to me suggest two things. One, the Philippine Peso is no
longer just a cross currency used as a means of exchange for external trade purp
oses. Instead, it has become a financial commodity, a vehicle through which inve
stors take on investment risk in search of financial returns. Two, it also sugge
sts that formulating the policy stance of the BSP will continue to be challengin
g. From Impossible Trinity to Financial Stability There was a time in academic l
iterature when it was believed that it would be impossible to have a free flow o
f capital, exchange rate stability and an independent monetary policy all at the
same time. This is the so-called Impossible Trinity. As we know, academics like
to think only in terms of corner solution. But this crisis has taught us that t
here are middle ground solutions. It is no longer one or the other There can be m
obility of capital, while exchange rates remain stable under the conduct of inde
pendent monetary policy. How? It hasnt been easy and it has required much creativi
ty from policy makers. Monetary authorities have had to expand their tool kits a
nd their balance sheets. Policy makers have added QE (in all its three versions)
, OMT, TARP and TALF (and the other earlier forms of asset purchases) and Operat
ion Twist and the new kid on the block, macroprudential tools, among others. Clearl
y, the protracted difficulties in the advanced countries have broadened the poli
cy debate. Instead of focusing on the Impossible Trinity, the overarching pruden
tial issue of the day is that of Financial Stability. Let me ask you three quest
ions: If you could borrow offshore at near zero rates and bring the proceeds ons
hore, would you do it? If you can create a liability of a currency that is expec
ted to weaken and turnaround to bet on another currency that is projected to str
engthen, should you do it? If the indicators suggest that an economys growth will
accelerate (conspicuously when many other jurisdictions are slowing down), will
you allow offshore corporate clients access to your balance sheet so they can g
ain on the upside cycle? In each of these, I would guess that a typical treasury
desk would answer why not?. As I said earlier, everyone in the room understands t
he motivation, and, given the global and domestic outlook that I just laid out f
or you, wherein we see conditions being broadly stabilizing despite some risks,
I am convinced that traders such as yourselves will in fact answer Why not to each
of the questions I posed and, put their money where their mouths are. The conse
quence of this is that we could: 1) see further capital flows to the country alt
hough perhaps not to the degree we saw in the last 18 months; 2) interest rates
in the secondary market could continue to fall but how much lower could they go?
; and, 3) the peso would remain supported... all these at the cost of increased
volatility in the market. Now, I can almost hear the disbelief underneath your b
reath asking, who in this room does not live for volatility? As your regulator, ho
wever, I would like you to step back and think of the larger picture. In each of t
he three questions, what may be beneficial at the transaction level may pose a r
eal systemic risk in the overall scheme of things. It is quite easy for you to t
ransact in the market or choose to walk away from some transaction. But, ladies
and gentlemen, your choices affect other transactions in the market and new risk
s evolve as the impact of your initial choice is transmitted from one party to t
he next. One could say these risks are not normally the concern of any one banks
balance sheet but let us not deceive ourselves every banks balance sheet could be p
ut at risk if these broader stress points get out of hand This bigger picture is the
motivation behind our policy actions. To address these interrelated risks from c
ross-border flows, the BSPs response has been to implement targeted macroprudenti
al measures: For potential carry trades, we have already set the policy that for
eign funding cannot be used, directly or indirectly, for exposures in our SDA. F
or NDFs, the speculative spikes have been tempered with earlier cooperative effo
rts of the market and through the higher risk weight. The agenda on this is not
done and we are in discussion with the Bankers Association of the Philippines fo
r a revised framework. For leverage, we have been actively monitoring the report
ed flows from Europe to the Philippines in particular. These may not just be lim
ited to flows to banks but flows to the corporate sector as well, for which coor
dination with other regulators (such as the SEC) is needed. These macroprudentia
l measures, as well as other measures that may be warranted, serve as sand in the
wheels... To create the appropriate incentive so that markets slow down enough o
n their tracks and consider the risks they are taking on with each transaction t
hey are putting on. As market players, you see individual dots. We also see the
same individual dots, but beyond that, your regulator connects these dots to for
m a picture. Sometimes the pictures formed are immediately obvious, but there ar
e times when we have genuine surprises as well. It is those surprises that concern
financial stability the most, even though we remain vigilant about the emerging
pictures we already see from some of the dots. The strength that the financial
market speaks of today has been possible because we you and the regulator -- hav
e been able to better manage these stresses, both the risks to your own balance
sheet and that of the system as a whole. We have collaborated in formulating reg
ulations, and, during crunch time, we have cooperated in defining appropriate market
conduct when it mattered. However, to be able to move forward and get even bett
er, we need to handle properly all the risks that could arise. Final Thoughts La
dies and gentlemen, in the course of this crisis, we have learned that monetary
policy is no longer sufficient to address the risks from cross-border flows. Thi
s is why we are putting financial stability at the forefront of todays discussion
. We have developed and enhanced our policy tool kit, beyond the policy interest
rate to allow us to be nimble to deal with the challenges of global developments
Whether it is in handling NDFs or in the documentary requirements of FX, there i
s consistency in what our prudential policies are targeting. In this environment
where we expect more capital inflows, we may see other trading days such as tod
ay. It has not escaped us that the peso has been appreciating faster than others
in the region, but let me make it perfectly clear our enhanced tool kit is deep
, and we certainly have the policy space to make adjustments to our stance - and
act swiftly - if the dots dont fall into place or if the stresses go out of hand
. If this Summit is to have a take-away message, I would hope that you all appre
ciate that there are legitimate concerns beyond the bottom line. We need to mana
ge those bigger-picture risks from the time we transact in the market. I hope I
am not misunderstood. We are not requiring altruism. We are asking that the stak
eholders take on the collective responsibility of managing transaction and syste
m-wide risks. This sounds so abstract but we can provide clarity by working toge
ther. Join us in this agenda, and, let us come back next year - 2013, as the tim
e frame that this Summit suggests from its title - to account for how we would h
ave improved the market by addressing some of those pressure points brewing on t
he FX side. Working together, this is more than a possibility. Working apart, it
is a certainty that next years theme may not be as encouraging as what we see to
day. Where will the new FX ideas come from in 2013? The answer lies with you. I wi
sh everyone a productive Summit. Thank you and good afternoon.
Capital Market Education: A Tool for Market Development and Financial Stability
Occasion: First National Convention of Capital Market Institute of the Philippin
es
Capital Markets Institute of the Phils. (CMIP) Chairman- Reynaldo Nograles, Pres
ident- Leo Quinto, officers and members; distinguished speakers; special guests;
fellow workers in government and in BSP; ladies and gentlemen, good morning. At
the outset, allow me to congratulate the Institute for holding its 1st National
Convention. Anyone who has tried to push an idea or an initiative forward reali
zes early on the great difficulties one endures to start off. Many good ideas ha
ve perhaps fallen by the wayside, unable to remain viable in a market of competi
ng ideas and differentiated approaches. Yet as one gets to that first milestone
of success, there is that immediate realization that moving beyond the last succ
ess is in fact the enduring challenge. It may be hard to start but it is more di
fficult to stay relevant by keeping on moving forward. As I look around this nat
ional convention, I must say that the Capital Market Institute of the Philippine
s has indeed moved well past your initial milestone of success. This day no long
er stands simply as a reunion of your past graduates of the Investment Teaching
Accreditation Program. It manifests how far and how wide your efforts have had a
n impact. Let me then congratulate the leadership of the CMIP, the members and t
he graduates of the Capital Markets Investment Teaching Accreditation Program. C
hallenges of Financial Education in Capital Markets Having gone this far, the ta
sk now is to set our sights forward. In thinking about the financial education n
eeds of capital markets and investments, the hurdles ahead do take on specific d
imensions. Foremost of these challenges is the fact that our targeted constituen
ts cut across 17 administrative regions, are of different faiths and speak sever
al dialects. That diversity should surely tell us that the learning intervention
s for Apayao up north may be different from those which will be extended to the
Zamboanga Peninsula down south. In addition, there are capacity and needs differ
ences across the regions. The latest Family Income and Expenditure Survey (FIES
2009) provides us with useful lens through which we can view the saving and thus
investing capacity of families. It tells us for example that roughly 90 percent
of the total saving is generated by only 30 percent of families. The numbers th
en paint a rather narrow base since nearly 13 million families out of the estima
ted 18.4 million families could only provide 10 percent of total saving. In prac
tice, this means that the cash flows are different across regions, and the prefe
rences differ from person to person. These hurdles may seem daunting but I assur
e the CMIP that you are not alone. The BSP faces the same challenges in our own
Economic and Financial Learning Program. Like you, we believe in the advocacy of
financial learning. And like you, we appreciate the difficulties of pursuing su
ch a learning campaign within the context of the nuances of our market and our s
takeholders. Capital Market Development and Financial Stability Although the dif
ficulties are defined, the consequences from not pursuing a financial education
campaign are even less enticing. Financial education creates the platform for ra
ising responsible market agents, who are able to look beyond their own bottom li
nes. Without an appropriate national financial education program, the developmen
t of stakeholders who can make well-informed financial decisions.who can then tak
e the the next step from being cash hoarders to become savers and ultimately to beco
me investors who will form the capital base for sustained economic growth will be
a slooooww process. And if our country is to take advantage of opportunities at
this time and move up the global economic ladder, we need to accelerate this pr
ocess! But while financial education is a challenging objective on its own, ther
e are equally important goals that must be considered as well. These objectives
include the development of the capital market and achieving financial stability.
We all know that developing the capital market provides both the buy side and the
sell side of the market with choices. For the buy side, choices to reflect its long
er-term investment needs. And for the sell side, choices to adjust product offerin
gs to where there is felt need. Developing the capital market, alongside financi
al education, makes the meeting of an informed risk-responsive investor and a re
sponsible product provider efficient. The development of the capital market is al
so critical because it relieves the pressures off the spot market. The capital m
arket is the anchor that filters the intra-day and the day-to-day volatilities o
f the cash market into underlying longer-term trends. Investors, providers and r
egulators need not react to every market blip. Instead, decisions can be premise
d on long-term signals, filtering all the shorter-term noise in the process. A w
ell-developed capital market provides this avenue for users and sources of longterm funds. But capital market development is itself not the end goal. That deli
cate balance between servicing needs in a dynamic cash market and the developmen
tal nature of a thriving capital market creates a measure of financial market st
ability. In a narrow sense, the absence of forces that can instigate financial m
arket instability is certainly always welcome. However, under todays prudential f
ramework and policy perspective, the term financial stability takes on the broader
context of mitigating the build up and spread of systemic risk. This elevates t
he issues to a much higher plane because the recent and on-going global difficul
ties as well as the ensuing international reform agenda are all about the abilit
y of economies to contain systemic risks. At the BSP, we take financial stabilit
y quite seriously. We have created a high-level Financial Stability Committee (F
SComm) which I have the pleasure to chair. With me in this committee are six of
the most senior officers of the Bangko Sentral. In this committee, we pro-active
ly look into possible pressure points that may be brewing but are still not evid
ent in the headline data. From the ability of banks to take on stressed conditio
ns, to potential channels of risk from internal and external shocks as well as t
he impact of international reforms, all of these are taken up at the Financial S
tability Committee. Conferences on financial stability are constantly being run
and the agenda can take several days. We can certainly do that here in the Phili
ppines as well and we look forward to engaging all stakeholders. But let me rese
rve that for another time and another place. For now, I simply wish to point out
that neither developed capital markets nor mitigated systemic risks are possibl
e unless we have a well-informed public and market agents who look beyond the bo
ttom line. Both of these must stem from a financial education campaign that nurt
ures the awareness of the general public while developing responsible market age
nts. Final Thoughts Ladies and gentlemen, I have deliberately painted on a large
r canvass the various big dots which we believe currently define the market land
scape. The dots must and do connect. But unlike the pictures that we used to dra
w by connecting the dots many, many moons ago, we collectively have the ability
to shape the landscape that make up the dots. With the favourable sentiments tow
ards the Philippines and its financial market, it is tempting to be lost in the
glory of the accolades. While we have worked hard and over long hours to achieve
these developments, the real challenge for all of us must be in providing a bet
ter tomorrow to future generations. The BSP has long held the view that financia
l education, financial inclusion and consumer protection form the triumvirate th
at holds the key. Each mutually reinforces the other. While financial inclusion
and consumer protection do require regulatory intervention, financial education
will have to be a commitment that all of us puts forward. CMIP has already inves
ted itself into this agenda by pursuing a passion that became an advocacy that i
s now a program. The Institute has taken great steps but it cannot end here. Let
us use this 1st National Convention as a springboard for setting milestones of
performance going forward. Will you simply want to have more graduates of the CM
ITAP? Or will you measure yourselves against what the graduates themselves can d
o individually and collectively as part of the CMIP family? How do you pay forwa
rd the investment that you have made for yourself? How does this investment pay
off when working with your students, interacting with office colleagues or opera
ting with fellow market practitioners? How can CMIP contribute to the developmen
t of the Philippine capital market in resolving longstanding issues? How will yo
u ensure financial stability knowing that your individual actions may have macro
-prudential consequences? There are many questions that can be raised. What is c
lear is that the answers must come from you, just as other stakeholders must hav
e their own answers. Pause and take time to recognize what you have already achi
eved. But I enjoin all of you to use that success as a commitment to a better to
morrow. I do not have any doubt in our collective ability to make a better tomor
row for future generations. I also am firm in my belief that financial education
is a key element in developing markets and instilling systemic stability. CMIP
has taken major strides forward to-date. And I look forward to hearing, seeing a
nd being part of your future successes. Maraming salamat po. Mabuhay ang CMIP. M
abuhay ang ating bansang Pilipinas.
Keynote Address
Occasion: Launch of the Banking Code for Consumer Protection, Bank Marketing Ass
ociation of the Philippines General Membership Meeting

Mr. Allan Tumbaga, President of the Bank Marketing Association of the Philippine
s (BMAP); Mr. Patrick Cheng, President of Chamber of Thrift Banks; Mr. Edward Ga
rcia, President of the Rural Bankers Association of the Philippines; Mr. Cesar V
irtusio, Executive Director of the Bankers Association of the Philippines; offic
ers and members of BMAP; MBM Peter Favila; former BAP President Gigi Montinola;
friends in the banking sector; colleagues from the BSP; ladies and gentlemen, go
od afternoon. It is my pleasure to join you in launching the new Banking Code fo
r Consumer Protection. The Bangko Sentral commends BMAP, as well as the rest of
the industry associations for working together in updating the Code. This is tan
gible proof of your responsiveness and commitment to provide the best service po
ssible to your clients. It is also evidence of your recognition that the lifeblo
od of the banking system comes from client deposits and investments, and that th
eir trust is something that banks must strive to preserve. This is why bankers,
from top management down to the frontline staff, must exercise prudence and vigi
lance in ensuring that banking operations are optimally carried out. The preserv
ation of public trust is likewise the underlying imperative for the Bangko Sentr
als policy and regulatory actions. This drives us to constantly emphasize that th
e business of banking requires serious effort to keep operations within the boun
ds of safety, soundness and professional management. This practice, in itself, i
s already equivalent to protecting the consumers of financial services. However,
responsible banking is more than just business savvy and prudent risk managemen
t. Responsible banking means a conscientious focus on clients by putting their b
est interest at heart. It means recognizing that they deserve the highest standa
rds of service. Client-centered banking entails embedding consumer protection in
business operations. Products and services must be designed, priced and deliver
ed in ways that match client needs. Adequate measures must be in place to ensure
that the consumers are not unduly disadvantaged by business processes. The cred
it approval process should, for example, prevent over-indebtedness. The features
and conditionalities of financial products should be clearly communicated. Tran
sparency in information and pricing should be the key principle in marketing and
client dealings. Client-focused banking further means treating consumers, regar
dless of their economic standing, with fairness, dignity and respect in all phas
es of transactions. This requires ensuring the integrity and confidentiality of
client information. It also necessitates measures that prevent fraud or abuse. F
or example, staff training in good customer service is important. Incentivizing
ethical behavior can positively reinforce staff honesty and reliability. Treatin
g clients with respect at all times, of course entails quite a lot of patience a
nd tolerance, but this will surely endear you more to your clients. Another impo
rtant element of client-focused banking is a straightforward mechanism for compl
aints resolution. We at the Bangko Sentral, encourage banks to institutionalize
a system of redress that immediately addresses customer concerns. It is essentia
l that your clients know where or who to complain to within your institution. Co
mplaints should be viewed in a positive light. The complaints or negative commen
ts that you receive provide insight to what might be amiss in your products or p
olicies, or to what you might be doing wrong in your operations. Providing a for
mal avenue for complaints, even just a humble suggestion box in a corner of your b
ranches, is one way for the bank to listen and learn directly from clients. Info
rmation from complaints often carry implications or suggestions for the improvem
ent of product design, delivery, branding, marketing, communications, even for g
overnance and decision-making. As Bill Gates once said, Your most unhappy custome
rs are your greatest source of learning. When you make your unhappy customers hap
py, you ultimately benefit from preserving a reputation that your bank cares. Th
e Bangko Sentral has established a dedicated unit that attends to complaints aga
inst our supervised institutions, the Financial Consumer Affairs Group (FCAG). A
mong the complaints that FCAG has received is on credit cards, because clients m
isunderstood or were unaware of the fine prints about the fees and charges on thei
r credit card contracts. Thus BSP Circular 702 dated 15 December 2010 was issued
to address, among others, the disclosure of all fees linked to credit card tran
sactions. This is just a simple example of how customer complaints can inform po
licymaking. Your institutions too, can leverage on complaints information in the
same way. While you implement institutional procedures to ensure consumer prote
ction and provide excellent customer service, do not forget that dealing with cl
ients often require some form of financial education. It need not be an elaborat
e training program or a formal classroom discussion on financial literacy. When
bank staff explain the features of a savings or investment product, they are alr
eady pointing out the importance of setting aside a portion of the clients hardearned money into productive use. It is the Bangko Sentrals dream that financial
education also become embedded in the customer relations of financial institutio
ns. Many have said that the most effective form of financial education happens a
t the point of transaction. For our part, we will do our share in promoting econ
omic and financial awareness through our Economic and Financial Learning Program
(EFLP). While the EFLP is comprehensive, we know that the Bangko Sentral alone
cannot promote financial literacy to the whole Philippine population. In this ad
vocacy, we hope that the market players such as yourselves, can do their share,
or even partner with us to make the average Filipino citizen a well-informed fin
ancial decision-maker. Financial education becomes extremely important when you
tap new markets, particularly those that are traditionally unserved by the banki
ng system. Earlier today, the Bangko Sentrals financial inclusion initiatives and
the opportunities that arise from these initiatives were discussed. As you take
advantage of these opportunities and bring into the financial system the curren
tly excluded for example the small businessmen, farmers, and low-income sectors
bear in mind that this market will be less informed and is more vulnerable. You
will need, not only to innovate products that fit their needs, but also to exerc
ise greater diligence in adequately informing and protecting these clients. It i
s noteworthy to see that the new Banking Code already embodies the basic princip
les of consumer protection and education that I have mentioned. The challenge no
w is translating this Code into actual standard practice. The greater challenge
is to get the whole banking sector, all the big and small players, to consistent
ly uphold the highest standards of customer service and responsible finance. I a
m confident that the industry will again rise to the challenge. Be likewise conf
ident that the Bangko Sentral is ready to provide the environment that allows th
e industry to become stronger, more stable and more client-focused. We are unite
d in the view that the clients are our ultimate stakeholders, and that their wel
l-being as a result of what we do, is of primary consideration. Thank you and go
od afternoon.
Nurturing World-Class Finance Leaders

Occasion: 14th Inter-Collegiate Finance Competition
Good afternoon everyone! On behalf of the Bangko Sentral ng Pilipinas, I congrat
ulate all the students and the schools that participated in this 14th Inter-Coll
egiate Finance Competition of the Financial Executives, Inc. and its partner JP
Morgan Chase. I have personally witnessed a number of previous years final rounds
and I can tell you this competition is tough and definitely not for the faint-hea
rted. Participants only have a few minutes to solve difficult questions; these a
re questions patterned after the notoriously challenging Chartered Financial Ana
lyst examination for experienced finance practitioners. Let us therefore give a

well-deserved round of applause to all the students, their mentors, and supporte
rs from about 90 schools who entered the competition. I am happy to note that the
finalists come from 20 schools scattered in Luzon, Visayas and Mindanao, ... pr
oving once again that academic excellence is present across the Philippines. Let
us also thank the delegates from the Assumption University of Thailand, the Uni
versity of Guam, and the National University of Singapore for joining this event
and giving it a regional scope. FINEX President Ramon Opulencia explains that t
his competition aims to expose students and schools to world-class finance educa
tion standards, as well as to promote exchange of ideas, cooperation, networking
and friendship among the participants. We at the Philippine central bank suppor
t FINEX in this program for a number of reasons. Ladies and gentlemen, you and I
know the value of keeping our financial system healthy on an institutional, natio
nal, regional, and global level. For better or for worse, financial systems affe
ct economies and the lives of millions even billions of people. It is important t
o ensure therefore that the people responsible for running the finances of our in
stitutions in particular and our financial system in general meet the high standar
ds required by their job. FINEX deserves our recognition therefore in engaging s
tudents and schools to raise the bar of excellence in financial education year af
ter year. Let us thank the hardworking members of FINEX for their undiminished c
ommitment to this program with a round of applause. In this connection, I am look
ing forward to seeing FINEX work with our schools to make sure that ethical pract
ices and social responsibility complete the education of our students. It would
be helpful to discuss the consequences of bad or good ethical and social responsib
ility practices in particular institutions, here and overseas. Of course, runnin
g after a healthy bottom line is a valid and natural pursuit. However, this shou
ld be done within the parameters of ethical and social responsibility standards,
. if the intention is to stay in business for the long haul. In fact, studies ha
ve repeatedly shown that given a choice, customers, particularly the youth, supp
ort companies they perceive as more trustworthy and socially responsible. Anothe
r reason why the Bangko Sentral supports this annual event is our belief that fa
ir and open competition elicits the best possible performance from market player
s which in turn benefits their customers. As such, I look forward to this competi
tion where the final 20 teams will apply their holistic competence in crafting t
heir answers. Ladies and gentlemen, the students here today remind us that with
good mentoring and support from their school, family, friends, and industry grou
ps they will be prepared for the challenges they will face in the market place. F
or us in the central bank, we derive considerable pleasure in the thought that w
e are nurturing world-class and responsible financial leaders. A word of advice
to our young competitors: a wise man once said, winning is a great reward but pre
paring for the future is the greater prize. I wish therefore that all of you wil
l continue to maintain the high standards of discipline that have brought you he
re. I also wish that you will apply your learnings to achieve financial health f
or yourself and mentor your family, friends and your larger community to achieve
the same. This is the same rationale that underpins the Bangko Sentrals economic
and financial education program. Our objective is to empower our people to impro
ve their financial well-being by making informed decisions on saving, investing
and managing their resources. In addition, having a well-informed population on
basic economic and financial concepts contributes to financial stability as more
Filipinos become participants in our financial mainstream. For your information,
latest available figures indicate that only about 20% of Filipino households ha
ve bank accounts. Nevertheless, we are optimistic that given our ongoing nationa
l campaign to broaden and deepen the reach of our financial education program, t
his indicator is bound to improve. Our economic and financial education program
covers students starting from Grade I to college, to teachers and parents, to ov
erseas Filipinos and their dependents, and the general public. Of course we impl
ement this in partnership with other institutions such as the Department of Educ
ation, the Department of Labor, NGOs, private sector organizations such as FINEX
, the banking community and multilateral agencies. Indeed, by working with a bro
ad network of partners to promote financial education and to develop an inclusiv
e financial system, we can achieve our national goal of sustained and inclusive
growth for all. Ladies and gentlemen, these are not mere buzzwords. Be mindful t
hat while our economy continues to grow and expand, at least 20% of our populati
on still live in poverty. Sure, we are making progress but we need to work on acc
elerating the process of improving our peoples quality of life. As a people, we a
re great. Among many other positive traits, we are talented, creative, flexible,
fun, hardworking and innovative. It is our hope therefore that our students her
e will continue their journey to become leaders in our economy. leaders who are w
orld-class, ethical, and socially responsible. My understanding is that FINEX wi
ll continue to monitor your development, whether you are in the private sector or
in government agencies such as the Bangko Sentral ng Pilipinas. Yes, if you hav
e the aptitude and the desire to become world-class civil servants, we need you
to apply with us here at the Bangko Sentral. Again, to all the students, the sch
ools you represent, the mentors who have taught you well, the organizers- JP Mor
gan Chase and FINEX, our congratulations for a job well done. And to the winners
of the 14th Inter-Collegiate Finance Competition, we salute you for being at yo
ur best among our countrys best. Mabuhay ang ating mahal na bansang Pilipinas! Mar
aming salamat sa inyong lahat.
Crafting Policy in a Shifting Operating Environment

Occasion: 2012 FINEX National Conference
It is a pleasure to join you on your 44th National Conference. FINEX is unique i
n our market because you are an organization of professionals -- rather than of
specific institutions. In your vision/mission statement you declare you are the l
eading national organization of financial professionals and practitioners. As suc
h, you represent the financial expertise across several industries. Let me under
score the term ...expertise. Therefore, it can be said that the psyche that moves fi
nancial markets is determined among your membership. I use the term psyche here
to refer to both the expert knowledge accumulated through facts and figures and th
e raw gut that brings those facts and figures to life in the financial world... Th
e trader instinct. The hunt for the gain. The animal spirits as John Maynard Keyne
s refers to. Risk Taking Behavior Complicates Policy I was reflecting on your ch
osen topic -- Driving Growth and Competitiveness Through Innovation. Three big wor
ds Growth, competitiveness and innovation. At first I thought of how broad the to
pic was, especially when taken against the very specific mandate of the BSP. And
then it dawned on me that because market innovation is driven by your members ani
mal spirits, this topic squares quite well with the motivation to our work as a c
entral bankwhich has to do with the channels of transmission of monetary policy.
Let me explain. The better known or more familiar channels of transmission of mo
netary policy are interest rate, exchange rate, credit, asset prices and expecta
tions. But there is one more channel that is less-talked-about but which has rec
ently become prominent both in the literature and in global real world practice.
This is the risk taking channel of policy, which has gained ground during this pr
olonged period of low global interest rates. Let me illustrate why this has been
so. First, the low interest rate environment encourages agents to take more ris
k than they normally wouldjust to enhance yield on their portfolio. Second, low i
nterest rates affect asset valuations and therefore modify credit worthiness of s
ome corporates. These in turn encourage the structuring of financial products (t
hrough derivatives) for projects that may not normally meet credit standards. A
global example of the risk taking channel is the now-familiar story of the mortg
age crisis in the US. While a bank that securitized its mortgages freed up liqui
dity trapped in its non-tradable long-term receivables, the value chain of conti
nued securitization and re-securitization proved to be very vulnerable to price
shocks. Nobody quite imagined that the loss in the value of that single underlyi
ng collateral could become wholesale. Nobody quite foresaw that we would get a g
lobal crisis, the socio-economic dislocations arising from which would not have
yet fully abated nearly five years since it began. Closer to home, the example w
e can cite is market behaviour reflected in the magnitude and speed of capital f
lows into the country. Accommodative monetary conditions in advanced economies,
the weak US employment picture, and the still-unresolved European crisis continu
e to direct investors to re-balance their portfolios... And, Emerging Markets (i
ncluding the Philippines) are currently an attractive target. This puts the peso
under pressure of sharp swings against global currencies. Using the Right Tools
for the Job The peso appreciation has been recent topic of interest in news col
umns of academics and former government technocrats. A few have encouraged the B
SP to print more money instead of sterilizing, as a response to capital inflows. T
hey would like the BSP to be more resolute in our pushback on the exchange rate le
st we lose more jobs to competitor countries like India. My response to this is
that doing so would be inflationary. Printing money" to absorb the expected capit
al flows would lead to a tremendous expansion in domestic liquidity that would f
an price pressures. In addition, the pesos strength is largely fundamentally supp
orted. So, official BSP action should only be to reduce excessive volatility in
the rate movements. Capital flows are fickle and crafting monetary policy to add
ress them is even trickier. It seems quite simple to prescribe monetary easing.
But that seemingly simple construct could fan inflation pressures, lead to asset
bubbles and create more problems beyond what we thought we were trying to solve t
o begin with. It is easy to let money lose, but it is not easy to clean up afterwa
rds. Ladies and gentlemen, let me emphasize that risk taking complicates monetar
y policy formulation and implementation. To address this, the BSP has had to use
a menu of policy actions. We have not limited ourselves to the policy rate. But
we have used an enhanced policy tool kit. The kit includes allowing some exchan
ge rate appreciation to account for the structural inflows and macroprudential r
egulations such as the increased risk weight on NDF transactions. The toolkit al
so includes a careful build-up of our reserves. Reserves are for insurance. But
it is not easy to determine an optimal level as some have suggested. The risks we
are now insuring against are also evolving. That said, our experience in the rec
ent crisis and its aftermath has taught us that it is critical to use the right
tools for the job. Competitiveness is more than the Price Moving to the second b
ig term in your theme Competitiveness. The BSPs contribution to competitiveness is
maintaining a stable macroeconomic environment and banking regulatory framework
. Within these, the market can plan well ahead, consider expansion, innovate and
find market-based solutions to address risks. The BSPs primary mandate is price
stability. Its noteworthy that since 2009, the BSP has been successful at keeping
inflation well-within the Governments official target range. And it appears that
we would be able to do the same in 2012 and 2013. Our forecast for inflation is
that over the policy horizon, inflation should be manageable. Therefore our cur
rent policy stance remains appropriate. In other words, you can expect interest
rates to remain low over this period. But we will make adjustments should circum
stances warrant, including, among others, in the event tensions in the Middle Ea
st escalate and more weather-related supply chain disruptions occur. On the exte
rnal front, the countrys external position is likely to remain robust, which in t
urn should fundamentally support the peso. Our experience has taught us that all
owing the market room to determine the exchange rate is equitable and efficient.
So far, (looking at the REER), the peso has maintained its competitiveness and
volatility has just been in line with the region. Ladies and gentlemen, the BSP
fully appreciates that when finance executives consider the macroeconomic operat
ing environment, your ultimate unit of analysis is the corporate bottom line. Yo
u consider every transaction and how it would increase the value of the firm. Th
is is well and good. But the complication arises when these individual animal spi
rits do not behave as the invisible hand of Adam Smith would have determined. Often
times, an act that may be beneficial to a firm may actually turn out to be harmf
ul when all other firms are engaged in the same transaction. This is a newer app
reciation of the complexities of financial markets. In order to create a stable
macro operating environment, the BSP must now go beyond stable interest rates an
d exchange rates. The BSP must now also ensure that the financial market account
s for how risk exposures interact with one another. In other words, ladies and g
entlemen, monetary stability must now be pursued alongside financial stability.
So far, through the series of reforms we have instituted, we have been able to k
eep the banking system in a position where its capital is able to absorb signifi
cant external shocks and we are ready for the adoption of Basel 3 capital standar
ds starting 2014. But this is not enough. At the BSP, we have formally taken on
financial stability as a prudential task. A high-level committee has been operat
ing for this purpose, working on an agenda consistent with international reform
initiatives. Although still at the early stages, we have already initiated some
prudential policies and built quantitative models for the singular purpose of mi
tigating the build-up of systemic risks. At the national level, the Financial St
ability Coordinating Council or FSCC has been convened as well. Composed of the
DOF, IC, SEC, PDIC and the BSP, the FSCC is to identify areas of brewing pressur
es and to take pro-active measures before these risks spillover. The agreed upon
agenda of the FSCC covers quite a bit of ground. Many elements of the agenda ar
e of direct relevance to the financial executive, regardless of whether you are
in banking, securities, insurance or in the corporate field. Growth has to be in
clusive The final big word in your theme is Growth. In every forum I have been i
nvited to speak, I am always asked the question, what can BSP do to sustain grow
th, alleviate poverty and improve income distribution? These questions and simil
ar comments indicate that much is expected of the BSP... perhaps too much. Let m
e remind everyone that the mandate of the BSP is price stability, and we are now
moving more towards price and financial stability. We have the tools to pursue
these. But, monetary and financial stability cannot be expected to do everything
. It has been said, one cannot push on a string. There are other government agen
cies that are more specifically geared for stimulating and maintaining growth. W
hat we have done so far is endeavour to make credit and funding accessible at re
asonable prices, commensurate to the risks agents are willing to take. For the n
eeds of Main Street, we are in partnership with other government agencies on the
capital market agenda. On servicing the unbanked and marginalized, the BSP has
1) put together a regulatory environment that has encouraged banks to design sui
table financial products, and 2) expanded our financial education and enhance co
nsumer protection efforts. Innovation, Competition, Growth Role for Finex? Putti
ng all three big words together innovation, competition, growth -- there is clea
r recognition that the government agencies cannot possibly handle the tasks alon
e. We need the private sector to be our active partner. Here is where FINEX can
play a major role. I mentioned at the onset that you are unique in your represen
tation. As such, FINEX should be called upon to drive growth and competitiveness
by pushing innovations that go beyond the bottom line, that consider the bigger
picture, that contribute to financial stability. There are many ways by which y
ou can pursue this in your own work. You can avoid the temptation of leveraging
finance through carry trades. The pay-offs may look enticing but compounded risk
exposures are created in the process which often cannot be unwound without sign
ificant loss. Credit underwriting standards need to be kept high. This ensures t
hat credit is allocated based solely on the merits of the prospective economic a
ctivity and the counterpartys ability to pay. Binding market conventions and redr
ess mechanisms should be pursued. Such conventions set the bar on market conduct
which then translate to uniformity in behaviour and practice. Other avenues may
be considered. When your individual creativities are pooled together under the
FINEX umbrella, the opportunities are limitless. Final Thoughts I have covered q
uite a bit of ground this morning. But much of the breadth has been dictated by
the call of the times. Ladies and gentlemen, the best financial investments toda
y are those that build bigger markets in the future. Markets wherein stakeholder
s are better aware of financial opportunities. Markets that are best able to wit
hstand the build-up of system-wide risks. This, in my view, is the unique opport
unity that is presented to a unique organization of financial executives. Will F
INEX rise to this challenge? Thank you and good morning to all of you.
Managing Risks in a Financial Stability World: How Different is this Prudential

World?
Venue: Makati City
Occasion: Joint General Assembly ACI Phils-FMAP-IHAP-MART-NASBI-TOAP
The Officers and Members of ACI Phils led by Coco Martin, FMAP led by Mike Ferre
r, IHAP led by Manny Tordesillas, MART led by Raul Victor Tan, NASBI led by Rode
rick Dones, and TOAP led by Raffy Ayuste, colleagues from the BSP, ladies and ge
ntlemen, good evening. It is a pleasure to be joining here tonight six (6) organ
izations Since your last General Membership Meeting, I am told two organizations
have been added to the Meeting. In other words, the Clan has gotten bigger. Among
your six organizations, you cover a very broad spectrum of the market activities
which we oversee from the cash market, to the foreign exchange market, to securi
ties underwriting and brokering and then to trust. This gathering is impressive
for its sheer breadth of operating interests, all falling under the purview of t
he banking regulatorThis Assembly therefore presents a unique opportunity for the
BSP to share its views with several different organizations at the same time. I
would therefore like to thank you for the invitation. The Operating Environment
As I have done for a few years now during your General Membership Meeting, I sh
all begin my remarks by touching on our targets and expectations over our policy
horizon. If you attended our Mid-Year Economic Briefing last Monday (17 Septemb
er) at the PICC, I think you would agree with me that, as in the immediately pre
ceding Economic Briefing hosted by the BSP-IRO, the publics interest in our econo
my is palpable. The excitement about our economic prospects remains high. The pr
esenters on the government side were optimistic, while the reactors on the priva
te sector side were upbeat. Our current growth rate is already at the doorstep o
f the National Governments announced real GDP growth target for 2013 of 6-7 pctInf
lation is expected to be benign with the targets for headline inflation still se
t at 3-5 pct through 2014. The countrys external position is seen to remain robust
. In fact, our current BOP and GIR are already at levels where they are forecast
to be by 2013, if not higher. Indeed, it would seem that the economic policies
and reforms we have invested in over the years are converging towards solid high
economic performanceBut, in taking all these in, we need to be prudent Let us not
overvalue these better prospects lest we become complacent You in the markets, o
f all, are most familiar with the still fragile global environment we operate in
. Over the past two weeks, both the ECB and the Fed announced new asset purchase
programs the OMT (although with some conditionality) and the QE3Central bankers
do know how to use acronyms also, dont we? Both of these were much awaited by the
marketboth seemingly open-ended both signalling prolonged easy monetary policy in
the advanced economiesAnd, your reaction has so far been, as expected To take on
added risk, as layers of policy uncertainty are peeled away. At the BSP, we are
watchful of these developments. If these programs still dont produce the desired
effects on growth and unemployment in the US and Europe, the risks are clearly t
o the downside. Of particular concern to us is the adverse feedback loop between
the financial sector and the real sector due to 1) the interlocking sovereign d
ebt and banking crisis in the euro zone2) the overhang of the fiscal cliff in the
US, and3) the softening Chinese economy. The 2007/08 financial crisis graphicall
y illustrated to us that this feedback loop can be very strong and could take a
non-trivial length of time to unwindIt also taught us that although focus on pric
e stability is necessary, it is not a sufficient condition to protect economic g
rowth Furthermore, we should remember the lesson that looking only at the health
of individual financial entities would not safeguard the system as a wholeIndeed,
the recent crisis has taught us many things but most importantly, it taught us
that policies to ensure monetary stability and financial stability must go hand
in hand. I know that when market players listen to a speech from the BSP Governo
r, you have your radars up, hoping to hear directionals On the peso you hope to hea
r about where the peso is going. Have we hit the top yet?... On interest rates,
you hope to hear where these are headed. Have we hit the bottom yet?... Are we a
t the top? bottom? Is the BSP holding steady?... These are important concerns, o
f course, because where the peso is and where interest rates are, feed directly
and quite concretely into the everyday lives of Filipinos. But, I dont have to sp
eak about directionals tonight Everyday you come across some quote from me on the
se financial prices So I am certain you already know the stance of the BSP One, th
at, the exchange rate will remain market-determined although, Folks, be very awar
e that the BSP is watching how you conduct yourselves in the market Two, that the
policy interest rates will always primarily be dictated by the inflation outloo
kbut balanced off against concerns on excesses in other segments in the market su
ch as real assets and capital flows. You know that our current assessment is -that inflation over the policy horizon will remain well within our target range
of 3-5 percent. You must also know that the implication of this on interest rate
s is that interest rates will remain low over this period. Many of you already h
ave a good handle on how the BSP conducts monetary policy and our exchange rate
policy. I can say that we have had some success in communicating monetary policy
to the market. But we still need to work on conveying the nuances when it comes
to financial stability. So, instead of one-dimensional directionals, I would li
ke us to spend the next few minutes discussing financial stability. In the BSP,
we believe it is important to pursue financial stability because financial stabi
lity makes the transmission of other policies (including monetary policy) more e
ffective Moreover, we pursue it because financial stability helps financial insti
tutions better allocate resources. When the risk/return tradeoffs are known and
steady, returns are more predictable even when the risks are relatively higher. In
other words, financial stability benefits both the policy makers and the market
. So whats new about Financial Stability? The original draft of this speech conta
ined the BSP financial stability frameworkOur definition of financial stabilityThe
governance framework in the BSPAnd how we are pushing the agenda to go past the
BSP borders. But in the interest of time, let me just focus on a couple of point
s (well, five points to be precise) to help you better appreciate what we mean i
n the BSP when we talk about financial stability, and hopefully along the way, t
his discussion will help you also understand what all these mean for you and the
institutions you represent. Let me begin with capital. The BSP is now more focus
ed on capital adequacy -- but from the perspective of strengthening the ability o
f capital to absorb losses. Lest I be misunderstood, I want to emphasize that ou
r regulations in the past were never just simply about exacting compliance to a
specific ratio. What is different today is the focus. Now the goal is to make ca
pital more efficient in mitigating potential losses from the type of bailouts we
saw in other jurisdictions. Today, we are (in a sense) being stricter about what
goes (or does not go) into both the numerator and the denominator of that ratio.
By doing this, we are broadening the risks that are accounted for by such capit
al. This is the BSP view on CAR from a financial stability perspective. The CAR
should not keep only your compliance officer awake at night It should concern eve
ryone here, including you who are in the confines of your trading rooms. Ladies a
nd gentlemen, the types of transactions and risks you can undertake will now be
defined by the amount and kind of capital your institutions have But you already
know that from the example of the 15pct risk weight on NDF. It is this kind of po
licy framework that drives the new regulations we have been putting out And this
is my second pointWe now view regulation using the systemic lens. After the additio
nal NDF risk weight, you must have noted that the BSP has become more visibly co
ncerned with issues that have systemic implications. These are reflected in, amo
ng others, the refinements to SDA trading, which have been intended to contain p
ossible carry trades funding SDAs, and initiatives to improve reporting on real
estate exposures, which are expected to ensure that all possible exposures are c
ontained in the net and accounted for in the limits set. These reforms are some
of the most recent that we put out but many more lie ahead -- from the money mark
et to the capital market and to the derivative market. Some in the pipeline are
1) defining the benchmark yield curve so that pricing is transparent and indepen
dent of one large market participants rejections (I meant actions) in the auction
market, 2) awakening the moribund repo markets so that liquidity is improved an
d one-sided quotes will be a thing of the past, 3) standardizing OTC derivatives
so that structured products would have more legs to stand on, and 4) obtaining
the components of shadow banking so that the unregulated activities are brought
to the surface. While I am listing forthcoming reforms, let me also share with y
ou that there are talks in the regulatory circle that consumer protection will b
e elevated to a core banking function and not simply an advocacy You should keep
this in mind because when this happens, it would materially impact your product
development, disclosure practices and marketing efforts, on one hand, and tradin
g and settlement infrastructure, on the other. This brings me to my third point.
Market infrastructure The perennial elephant in the room Friends, new internatio
nal guidelines are being introduced. Let me rattle off a few more acronyms. I am
afraid its not only central bankers who love acronyms. Regulators have an even b
igger penchant for these! CSDs (for central securities depositories), SSS (for se
curities settlement systems), CCPs (for central counterparties) and TRs (for tra
de repositories). I am not saying BSP will take all these in. But once these guid
elines are in place, we will have to consider how we can adopt these best practi
ce guidelines to our domestic operating context. I assure you, the BSP will be c
onsultative in rolling out the guidelines... but at the same time, the BSP will
not allow parochial motivations to cloud what is best for the market and financi
al stability. Moving on to my fourth point In considering financial stability, th
e BSP has pushed changes in the financial governance framework so it starts with
the financial institution itself. I realize this point may seem at odds with wh
at I just said about parochial motivations. But having solid governance structure
s in the banks would precisely help the institution veer away from such insular
thinking. Governance was never meant to be the reactive function of the regulato
r. Our recently released revised compliance framework highlights the accountabil
ity of banks with actions and processes that they undertake. We have also just i
ssued the new corporate governance and risk management guidelines for trusts (I
am told the latter had undergone considerable discussion and coordinationIs this
is indicative of how tough Trust practitioners are?) Finally, it would be a seri
ous oversight if I do not touch on the monetary policy aspects of financial stab
ility. Our calibration of monetary policy rates is towards price stability but i
t clearly will have real economy implications. In addition, the interest rate be
nchmarks that monetary policy sets will directly impact the cost of leverage and
the volume of credit exposures. Obviously, the use of one policy lever (in this
case, policy interest rates) would not always be able to address - at the same
time- two policy objectives (price stability vs. financial stability) without co
nflict. Hence, the use of enhanced policy tool kit and policy coordination are i
mperative. To operationalize all these at the BSP, we have recently created the
BSP Financial Stability Committee (or FSComm) in addition to the BSP Advisory Co
mmittee (which recommends monetary policy to the Monetary Board). From the five
items I enumerated earlier, it is clear that financial stability crosses the thr
ee pillars of central banking. To close that divide, the FSComm is set at the high
est level at the BSP, with the main committee manned by the three deputy governo
rs and 3 of the most senior officers of the BSP I have the pleasure of directly o
verseeing this committee. Closing Remarks: Market Conduct Ensures Reform Success
I have given you some of the guideposts, or mile markers on the road to financi
al stability -- as we see it in the BSP. The BSP can put out regulations and cre
ate the enabling regulatory environment but, after everything is said and done, i
t is the market that will execute transactions. A wise man once warned that when
dealing with the market, one should anticipate that it is not so much about the
destination, as it is about the ride itself. Financial targets tell us where we
want to go but it is risk-taking and risk management that get us there. No doub
t, the ride can be enjoyable and give you a high, but if you dont manage the risk
s well, then you dragging everyone else with you -- might end up in one big traf
fic jam, if not in the gutter. Ladies and gentlemen, I am not about to ask every
one here for lack of a better term to behave As Michael Corleone said to Sonny, It s
not personal, it s strictly business. Acceptable behaviour is a given because th
at is what collective responsibility requires. And our collective responsibility
are prudential concerns. Turned on its head, prudential concerns are our collec
tive responsibility because the gains (as well as the losses) are always shared.
This applies as much to the cash market, to the foreign exchange market, to sec
urities underwriting and brokering, to trusts and other fiduciary activities and
certainly to banking. I therefore ask the organizations and institutions here t
onight, let us effectively partner with one another because... the stakes are fa
r too great for the bottom line of any single balance sheet the stakes far outwei
gh the high of the ride. Ladies and gentlemen, we are in this together.
Philippine Banking: Reaping the Rewards from Prudent Reforms*

Venue: Shangri-La Makati
Occasion: 2nd Asian Banker Philippine International Banking Conference
Colleagues in banking, fellow stakeholders, ladies and gentlemen, good morning.
Let me begin by thanking the organizers for holding the 2nd Asian Banker Philipp
ine International Banking Conference. When you have a 2nd (after a 1st) you creat
e a seriesIts like the Rocky Series (for those who can still remember), or Harry P
otter (to those of this generation), or Batman Series or the Ipad the 1st one was
a good experience and you want to have more of the same The organizers did a goo
d job the first time around Today, they again provide a venue for us to take a cl
oser look at the issues that confront us, as they relate to the Philippine banki
ng system. And, we look forward, perhaps to a broader Asian Summit in the Philip
pines at an opportune time in the near future. Let me therefore now focus on tod
ays agenda. I will not give you a litany of numbers to prove that the Philippine
banking system has remained strong in contrast to other jurisdictions. The posit
ive performance indicators are quite familiar to you. For instance, you all know
that system resources have been growing, funded by increased balances of deposi
ts and more loans extended to borrowers. Let me, however, share with you storyli
nes that are not cited often enough On the deposits side, growth was faster in th
e years after the height of the crisis than the years before. Between 1999 and 2
007, deposits grew a little over 8% per year. But from 2007 at the time that the
mortgage crisis was already unfolding in the US Philippine system-wide deposit
balances increased by 13.40% per year all the way to 2011 On the loan side, the n
umbers are even more dramatic. Loans have been growing at a 10.62% pace per year
in the last 4 years (2007 to 2011) when it was growing by only 3.67% p.a. in th
e 8 years from 1999. Add to this, the fact that increased loan portfolio was not
a case of liquidity chasing after every credit exposure. A simple look at the n
umbers will show that the NPL ratio has actually been falling since the turn of
the century just as the coverage ratio has been rising. For universal and commer
cial banks, our latest number is an NPL ratio of 2.06% and a coverage ratio of 1
35%. All of these metrics converge into the capital adequacy ratio which is the
central, though not exclusive, metric under the Basel Accord. The often-cited st
atistic is that our banks have consistently maintained, on average, capital rati
os well above the regulatory thresholds. On a consolidated basis, system CAR is
hovering at 17%, of which 14 percentage points pertain to the Tier 1 ratio. Most
will leave the system review to the measures that I just shared. However, it is
important for the BSP to make a point about access to the banking market becaus
e financial inclusion is much more than just a buzz word to us. Today, we have a
wider reach not only from the significant increase in physical banking officers
(which surged from 21,394 at end 2007 to 26,057 at end 2011) but also through A
TMs (which grew from 7,155 to 10,659 over the same period) and the active use of
technology through our mobile banking framework. Indeed, it can be said that we
now have a wider footprint of banking services that caters to the needs of our
differentiated public. Ladies and gentlemen, all of these positive developments
neither happened overnight nor happened on their own. We believe that they refle
ct the enabling environment which we have invested in with the active support of
and coordination with market stakeholders. While we can itemize each and every
circular and policy prescription we have issued, I believe that we can categoriz
e them into six main areas. I would start with governance. This is most critical
because without these overarching guidelines, the conflicts of interest inheren
t in finance would prove to be untenable. Risk management comes to mind next bec
ause of our deliberate shift from transactions review to a risk-based supervisor
y framework. Microfinance and financial inclusion are advocacies which we have p
ursued well before it became popular to do so. To complement the prudential fram
ework, there needed to be improvements in the delivery of banking services. We c
ertainly could not and would not neglect contributing to the development of the
capital market. As the other facets involved direct improvements of market compo
nents, we have not forgotten the needs of the banking public either for redress
mechanisms or for financial education. Each facet is a critical component withou
t which our prudential framework will have major deficiencies. Taken collectivel
y, they represent the foundations upon which we envision a thriving banking mark
et that is responsive to the evolving needs of its public. This of course begs t
he question. If we have a prudential framework in place, which appears to have w
ithstood the most intense of global shocks, is there anything else that needs to
be done? The answer is definitely, there is still much more that needs to be don
e. And as in the past, we look to those of you in the market to join us in the w
ork ahead. There are, however, challenges. First, the policy questions before us
are evolving. Second, conduct and the performance standards that market partici
pants must adhere to are also shifting. Then, traditional financial relationship
s arent necessarily still true. Finally, time-honored policy transmission mechani
sms no longer seem to hold in the past. In response to these challenges, BSP has
had to realign our own policy framework -- to go beyond considering price stabi
lity as a sole objective to one that nurtures financial stability alongside pric
e stability. We have also had to view banking policy not only from the perspecti
ve of ensuring the soundness of individual banks but also the soundness of the s
ystem as a whole. We are deliberately developing capacity so that we are able to
weigh issues holistically, with the view to achieving the broader objective of
financial stability. Falling from this, we put in place a suitable governance st
ructure. First, we adopted a formal definition of financial stability to get our
work agenda moving. Our definition essentially focuses on four areas: (1) gover
nance (2) market infrastructure, (3) functioning financial system and (4) thrivi
ng economic growth. These four have to be in place, symbiotic of one another for
stability to be achieved. Second, to execute this agenda, we created a Financia
l Stability Committee which I have the pleasure to directly oversee. With me in
this committee are six of our most senior BSP officers. The work itself is run t
hrough specific committees. Key to our success is our capacity to think of the i
ssues comprehensively even though we are traditionally structured along the thre
e established pillars of Philippine central banking. I can tell you right now th
at making this new paradigm work is not a superficial challenge. We understand t
he difficulties this early but we nonetheless persevere. Having the governance s

tructure in place is certainly not a panacea. We recognize that the work agenda
is complex and far reaching. Key reform initiatives that we have identified incl
ude Basel 3, Corporate Governance, Consumer Protection and Financial Education,
Financial Market Infrastructure and Crisis Preparedness. These initiatives are o
n our radar screen today in the context of unifying the prudential architecture
of financial stability. None of these is trivial, each one of these requires a k
een eye for details and a broader appreciation of how each interconnects with an
other, and each is essential in the pro-active management of any underlying pres
sure points that may be brewing. Let me also say that we do not underestimate ho
w weaknesses in the West will leave their imprints upon Asia, upon us. Although
better off than other jurisdictions, economies in our region are also experienci
ng an economic slowdown. Coupled with the deleveraging in Europe, Asia will feel
some of the repercussions, either from re-leveraging, capital inflows and/or st
ronger local currencies. These are not insignificant macroeconomic policy issues
and they certainly will be formidable macro-prudential policy concerns. For us
there is that added issue of domestic liquidity that is building up and looking
for suitable outlets. Some say its a positive problem that is preferable to the c
ase of liquidity drying up. That may be true, but to central bankers, it is stil
l a concern, positive or otherwise. In retrospect, we believe that the Philippin
e banking system is in a position of strength. Such strength has been achieved t
hrough the reforms that we have invested in the past and whose benefits have com
e to fruition. Moving forward, we expect to further evolve with the needs of the
public at large as well as the institutions that we oversee. Ladies and gentlem
en, let me reiterate -- there is a role for the market in this framework. BSP do
es not expect to do the work alone. We stand not only as your banking regulator
or monetary policy authority. We are your partner, and as in any partnership, we
expect the different stakeholders to bear their proportionate load. Whether it
is in managing financial risks or in exemplifying acceptable conduct in market o
perations, the market has a definitive role. Stability is easier to achieve if w
e consider the bigger picture and not be shortsighted by our own bottom lines. C
apital market development is certainly a shared responsibility because it is a c
ollective gain. And providing for an inclusive financial market, with appropriat
e support for financial consumers, is itself a clear winning bet for tomorrow. T
ogether, we have taken what was perennially a difficult financial market situati
on in the late 90s into an environment that has withstood global shocks. Ladies
and gentlemen, today, OUR market is on every investors radar screen. I ask all of
you: where do you want this market to be as we hold the 3rd, 4th and 5th Philip
pine International Banking Conference and perhaps the 1st, 2nd and 3rd Asian Ban
king Summit? I have every reason to believe that we all share the same answers.
Let us then do our part as we lift the Philippine banking system further forward
as a responsive platform for the needs of the Filipino in the Asian, if not glo
bal, platform. Thank you very much.
Keynote Remarks
Venue: Makati Shangri-La Hotel, Manila
Occasion: FinanceAsia 4th Annual Corporate Treasury & CFO Summit
Ladies and gentlemen, good afternoon. Let me begin by thanking the organizers an
d sponsors of this Summit for this opportunity to connect more closely with thos
e directly involved in our financial markets the CFOs, corporate treasurers and
senior treasury professionals Treasury professionals are always an interesting au
dience to address You are known to be sharp and analytical. It is in your DNA to
be direct in your communication You use very few words and yet everyone understan
ds. You say yours, mine, give, take. You follow simple rules. For instance, in fixed
me, you buy high (in terms of yields) and sell low in foreign exchange, you buy t
he swap points in your favor and in origination, you dot every I and cross every
T In this respect, there are no two camps of treasury professionals. But when it
comes to patience, there are generally two diametrically opposed groups among tr
easury professionals 1) the notoriously impatient and 2) the unflappably patient
. Some of you coolly follow trends (the trend is your friend!), while some eithe
r calmly or feverishly wait for the inflection points (this is where you make th
e one-time big bucks), and yet quite a few trail blaze and themselves radically
create the trend. Knowing this, I thought that for this afternoon, I shall try t
o speak squarely on the issues that interest you -- from the perspective of the
BSP -- Where do we think interest rates are headed? Will we see further peso app
reciation? Is there an asset bubble? Are banks safe? What can you expect from th
e BSP in terms of policy when dealing with these issues? This approach is for th
e impatient side of this Summit However, it is in my nature as a central banker t
o provide an appropriately balanced operating environment Therefore to equally ad
dress the patient constituents of the Summit, I shall first provide the fundamen
tal basis for our policy actions including the risks that we see going forward.
I hope this broad outline works for everyone here. I was quite pleased to see th
at in the sessions preceding this, particularly the one at 9.30 am, there would
already have been discussions of the macro trends that can be expectedstrong econ
omic growth, manageable inflation, robust external position, sound banking syste
m. So I shall no longer repeat those. Instead, I shall deal directly with the ris
ks in our operating environment that fall from those trends. The first risk Globa
l headwinds will continue to be formidable. Despite collective efforts to addres
s systemic weaknesses, Europe continues to struggle with economic and socio-poli
tical obstacles to the implementation of much-needed rehabilitation and reform m
easures The economic outlook in the US is also uncertain, as unemployment remains
elevated and private sector demand continues to be weak and the so-called fiscal
cliff continues to limit the room for fiscal stimulus. Even for Asia, less-than-f
avorable indicators in major emerging Asian economies as of late -- in particula
r, slowing growth in China and India -- suggest a vulnerability to the global sl
owdown, as weak external demand from advanced economies exerts its impact across
the region. As a result, the IMF, in its World Economic Outlook update in July,
cut its global economic growth projections for both 2012 and 2013 to 3.5 pct an
d 3.9 pct, respectively. For the Philippines, however, it is of some comfort tha
t the economy has been resilient against the global downturn. Growth continues t
o be driven by a vibrant services sector, robust private demand, and acceleratin
g government consumption The Q2 GDP is expected to be released at the end of the
month (30 August). Let us therefore see if the second-fastest growing economy in
Asia would continue to beat market expectations. Second risk Europes apparent del
everaging -- or the shrinkage of assets in light of the current stream of global
regulatory reform -- may result in squeezes in the rest of the world, particula
rly Asia. For instance, in response to Basel 3, some international banks, instea
d of raising more capital, have resorted to reducing their risk-weighted assets
as a way of increasing their capital adequacy ratio or CAR. In the CAR build-up
recently required by the European Banking Authority (EBA) on 71 banks, this form
of deleveraging seems to be recurring. It is thus no surprise that some quarter
s estimate that complying with Basel 3 alone will reduce bank profitability and/
or impair GDP. The 2011 study of the OECD led to a result that Basel 3 implement
ation would mean up to a 15 basis point drop in GDP growth per year due to highe
r interest rates passed on to borrowers. McKinsey (2011), on the other hand, sug
gests that the return on equity of US banks can fall by as much as 320 bps as a
result of Basel 3. These are not very encouraging thoughts but the upside is tha
t we do not believe right now that such is the case for Philippine banks. With i
ndustry CAR of between 16% and 17% of which Tier 1 capital is 13% to 14%, there
should be no reason to deleverage for the sake of hitting the capital standards
of Basel 3. All these notwithstanding, the weaknesses in the US and the eurozone
as well as the displayed strength of the Philippine banking industry will have
capital flow implications as investors seek destinations for the freed up assets
, or for funding sources, as a result of deleveraging. This brings us to the thi
rd risk. Third risk Capital inflows to EMEs, including the Philippines, could con
tinue in light of prolonged easy monetary policy in the advanced economies and a
s growth prospects and financial markets remain relatively healthier in EMEs. Ye
sterday, we reported a US$3.2 billion surplus in BoP in July 2012, a large part
of which was due to portfolio inflows on top of the current account surplus. Fro
m a macro perspective, the broader concern with continued foreign inflows is tha
t it could encourage more leveraging or risk-taking activities beyond the econom
ys absorptive capacity for risk. This complicates monetary policy and more partic
ularly, strong and rapid inflows of capital are often associated with asset pric
e bubbles that could potentially undermine financial stability. What are BSPs pol
icy thrusts in light of these three risks? To answer this question, let me first
give you four lessons from the recent past. One key lesson we, at the BSP, have
drawn from the last few years is that achieving price stability is no longer en
ough to ensure macroeconomic stability. As we witnessed during the Great Moderati
on, an extended period of price stability can also plant the seeds of future dist
ress by causing agents to take on a disproportionate amount of risk. In short, p
rice stability must go hand-in-hand with financial stability. Another lesson we
have learned is this -- Capital can move freely across borders. Thus, policymake
rs must maintain a delicate balancing act between ensuring a relatively stable c
urrency and sustaining the use of independent monetary policy to offset macroeco
nomic shocks. Together, these two lessons have taught us that it is prudent to u
se a wide set of available policy instruments to achieve low and stable inflatio
n, prevent undue volatility in the exchange rate, and maintain broad financial s
tability. Our policy toolkit has till now encompassed, in addition to the policy
rate and bank reserve requirements, mechanisms to better understand the nature
of the flows, international reserve accumulation and the associated liquidity ma
nagement, financial and foreign exchange reforms, and macroprudential regulation
s. By employing this strategy, the BSP has thus far been able to keep inflation
in check while containing the risks associated with strong capital inflows. A th
ird lesson we have learned is that policy responses must be oriented towards pre
venting a build-up of system-wide risks that may be brewing underneath the growt
h momentum. We need to keep an eye on the broader objective of maintaining finan
cial stability. The regulator can no longer simply look at transactional risks,
but we need to also consider how these individual transactions impact on other f
inancial transactions. Our commitments to the Basel 3 Accord exemplify this beli
ef as we have placed greater scrutiny on linkages between our financial institut
ions and the non-banking corporate sector. This now brings us full circle. For f
inancial stability to translate fully to solid and durable economic growth, the
BSP must continue to enable different stakeholders to participate confidently in
the financial system. This is where our continuing reform initiatives toward gr
eater consumer protection come in. The fourth lesson we can draw from recent exp
erience is that consumer protection complements financial stability. These twin
goals ultimately help address the expanding needs of the growing economy. I have
given you the lay of the land, so to speakClearly, the coming months are likely
to continue to prove to be challenging for the Philippines As such, our strategy
in addressing potential threats to the economy continues to revolve around using
a broad-based policy tool kit that aims to bolster our domestic sources of resi
lience. Ladies and gentlemen, I have noted that many of you (the patient side of
the Summit) have been listening intently But for the other side of the Summit, you
may anxiously ask, what do all these mean for the economic variables that matte
r to us? Quickly, three guideposts: 1. On the policy rate We continue to see the
average inflation rate falling within the lower half of the target range. With
this relatively favorable inflation outlook and our still-positive real interest
rate structure, we continue to have the policy space to, should it be needed, r
espond to sudden changes in the global and domestic environment. 2. On the excha
nge rate We will continue to pursue the policy of a market-determined exchange r

ate. But while we dont expect drastic moves, the market should bear in mind that
the exchange rate is no longer a one-way bet. The BSP is carefully monitoring ma
rket behavior. So the market would be the wiser if it acknowledges that the BSP
has several tools up our sleeve to ensure that market dynamics do not result in
misalignments in the fundamental value of the exchange rate. 3. On asset prices
We dont see stretched asset valuations at this time, but we will continue to watc
h out for build-ups in asset price pressures. The experiences in the US sub-prim
e and in the European debt crisis have given rise to the lean vs. clean debate. We n
ow know that it could be expensive to clean up after an asset price mess. Therefor
e, the market could expect the BSP to cautiously lean against such price pressures
. The BSP will carefully calibrate policy rates, being cognizant that our first
line of defense is still the use a mix of macroprudential tools to address poten
tial excessive risk taking among market participants. Just last week, the Moneta
ry Board approved the introduction of a more comprehensive method of measuring t
he real estate exposures of banks. This measure will include, among others, not
only bank loans but also investments in debt and equity securities, the proceeds
of which are intended to finance the activities of real estate companies. The o
bjective is to get a more complete picture of the amount of funds going to the p
roperty sector. If you have been observing the BSP, one thing should be pretty c
lear to all of you by now The BSP considers any situation with circumspection and
addresses it in a gradualist and market-consultative fashion. We always aim to
provide clear guidance to the market. I hope over the past few minutes, I have b
een able to convey to you that the BSP will continue to craft policy with the br
oader objective of financial stability in mind. The theme that you have chosen f
or this Summit is Excellence in Optimizing Your Treasury. This is a point worthy o
f discussion. The phrase Optimizing Treasury brings to mind the debate between the
efficient market hypothesis proponents and the advocates of behavioral finance.
To believers of efficient markets, the price contains all relevant information
to make a decision and market forces will trade away arbitrage opportunities. Be
lievers of behavioral finance, on the other hand, look at a traders psychology an
d how he values prospects and gambles as the drivers of prices. To its supporters, b
ehavioral finance explains market overshooting, over/under-reaction and loss ave
rsion. Well, the jury is still in out on this debate but whether you believe in o
ne school of thought or the other, one thing is clear -- to be able to maximize
your treasury potential, you need information correct and timely information. I h
ope that by having distilled our current market environment into three risks, fo
ur lessons and three policy guideposts, I have moved this discussion further to
help you optimize your potential. As I close, let me point out that your chosen
theme is not limited to parochial bottom-line optimization. Your theme calls for
Excellence. To me, that is a call for you to be responsible stakeholders. If you
are on the sell-side, sufficient disclosure and transparency are central in your
dealings. If you are on the buy-side, bounded risk taking is relevant in your i
nvestments. As you perform your jobs, I hope you appreciate that you are an inva
luable partner of the BSP in transmitting the impact of our policies to the real
economy.I hope also that you bear in mind that as participants in the financial
market, you have a responsibility to the broader community that you are in Finall
y, I trust that you will remember that your reason for being is to finance activ
ities in the real sector. On that note, let me once again thank the organizers o
f this conference and wish all of you a productive and rewarding afternoon. Good
day to all!
Ensuring a Better and More Inclusive Microfinance Sector

Venue: Hyatt, Manila
Occasion: Microfinance Council of the Philippines, Inc. Annual Conference

MCPI Chairperson Mila Bunker, Citibank Country Officer Sanjiv Vohra, fellow cham
pions of microfinance, distinguished resource persons, special guests, good morn
ing. It is a pleasure to be part of this Annual Conference ... at a time when we
are seeing concrete gains from the programs we have been implementing in the mi
crofinance industry. This is evident in the millions of clients reached, stable
microfinance institutions nurtured and strengthened, innovative products and ser
vices introduced... as well as the development of an enabling environment for mi
crofinance across our country. Indeed, microfinance in the Philippines has liber
ated millions of Filipinos from poverty; transformed millions of micro-entrepren
eurs to become savers and bank depositors; and generated millions of jobs in loc
al communities. Equally important, we have proven... beyond any doubt... that mi
crofinance is a sustainable strategy for improving lives and promoting inclusive
growth. But what is most gratifying... is the determination of advocates of the
Philippine microfinance sector to continue to explore ways to do better. Clearl
y, our success has not bred complacency. One proof is this conference with the t
heme Focusing on Responsible and Client-Centered Microfinance. Aside from taking s
tock of where we are today, your conference seeks to create synergies that build
strengths, to warn against over-indebtedness and other risks to microfinance, a
nd to guide microentrepreneurs handle their finances better and build ventures t
hat last. We at the BSP agree that initiatives to expand access to financial ser
vices... not only for microfinance but for the public in general... must be coup
led with the push for greater financial education and consumer protection. This
is the reason why the Bangko Sentral has created units that are focused on finan
cial education and consumer protection. For instance, BSP briefings help people
make informed decisions on savings, investments, debt management, avoiding scams
and how to achieve financial independence. On the other hand, real-time economi
c and financial Information that can help microentrepreneurs and the public in g
eneral, may be accessed at the BSPs 21 Economic and Financial Learning Centers ac
ross the country, in addition to the main center at the BSP Head Office in Manil
a. For consumer protection, the BSP has created the Financial Consumer Affairs G
roup to act on public complaints, inquiries and requests involving our supervise
d institutions. On the other hand, the issuance of Circular 730 is another BSP i
nitiative to protect the interest of Filipino borrowers. Circular 730 on truth a
nd transparency in lending... enhances loan price transparency and improves disc
losure practices. Among others, the BSP has required a standard format of disclo
sure to ensure that borrowers are given information about their loans that are s
imple and easy to understand. The implementation of standard rules across all ty
pes of credit-granting entities including microfinance NGOs and in-house financi
ers -- is crucial in developing enhanced transparency and truth in lending. As s
uch, the BSP will coordinate on this matter with other regulators including the
Department of Trade and Industry and the Department of Interior and Local Govern
ment. In this connection, I look forward to having microfinance NGOs be among th
e first institutions to embrace this enhanced truth and transparency in lending
regime. In all of this, my optimism is grounded on reality. Early this year, the
microfinance sector launched the very first microfinance credit bureau in our c
ountry. Truly, it was inspiring to see the coming together of microfinance indus
try leaders; they transcended narrow competitive interests for the greater good.
The greater good of the microfinance sector is also the rationale that underpin
s the annual Citi Microentrepreneur of the Year Awards Program, which we are lau
nching this morning. Now on its 10th year, this awards program celebrates the in
spiring gains micro-entrepreneurs in the country continue to achieve through det
ermination and innovation. I can tell you that the rich selection of finalists m
akes it more difficult each year for the judges to choose the awardees. Neverthe
less, this is more than offset by their joy... in the discovery of many successf
ul Filipino micro-entrepreneurs who overcome difficulties with creativity and te

nacity. Their success tells us that we are on the right track; that we should co
ntinue to work together to make the microfinance sector better, bigger and more
inclusive. I wish MCPI therefore a fruitful annual conference and the MOTY anoth
er smash hit on its 10th year. Mabuhay ang Philippine microfinance sector! Mabuh
ay ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat!
Capacity-Building and the BSP Reform Agenda

Occasion: Induction ceremonies of BAIPHILs 2012-2013 officers
To the incoming and outgoing officers of BAIPHIL, led by Mr. Buddy Serrano and M
s. Agnes Brillantes-Santos, members of the organization, MB members Ignacio Buny
e and Armando Suratos, SEC Chair Tess Herbosa, PDIC President Val Araneta, fello
w bankers led by BAP President Abet Villarosa, distinguished guests, my colleagu
es at the BSP, ladies and gentlemen, good afternoon. It is a pleasure to join yo
u today to induct your incoming officers. Of all the organizational activities,
the passing of the baton is truly meaningful. Similar to the relay races in athl
etic competition, moving the baton typifies continuity as the next leg takes ove
r from the last one. On this basis, I would like to laud the outgoing officers f
or completing yet another successful, activity-laden chapter in the story of BAI
PHIL. I also congratulate your incoming officials for accepting the challenge of
leadership and for taking their turn in carrying the baton. Reaping the Fruits
of Investing in Ourselves Managing change is certainly not alien to any of us he
re. From the persistent difficulties we endured in the past through one financia
l crisis after another, we now find ourselves in a position of strength. For som
e time, we referred to this as a mark of our resilience. Perhaps, it may be more
appropriate to simply describe it as investing in ourselves but with a clear view
of the changes that we would like to effect. The net result is open for everyon
e to see. With total assets of Php 2.95 trillion in 1999, the Philippine banking
system has grown to Php 7.33 trillion as of the end of 2011. This expansion has
of course been accompanied by a corresponding increase in both deposits and loa
n levels. However, what is striking is not just the increase. Rather, it is that
we have been actually growing faster in this time of global difficulties than i
n the years of relative global calm. Deposit balances have grown by 13.40% per y
ear between 2007 and 2011 even though it is only growing by roughly 8% annually
between 1999 and 2007. The loan book is more impressive, expanding at 10.62% per
year in the last 4 years which is much higher than the 3.67% p.a. growth in the
8 years from 1999. With a strong banking core firmly in place, the economy grew
by 6.4 percent year-on-year in the first quarter. Prices have remained stable w
ith inflation averaging 3.0 percent during the first semester. The countrys balan
ce of payments position also remains healthy. During the first five months of th
is year, the country posted a BoP surplus of USD 1.3 billion. This has contribut
ed to record level of gross international reserves which as of end-June now stoo
d at USD 76.3 billion. Capacity-building: a key to reforms These positive macrofinancial indicators should not be taken as simply the aggregate view. They are th
e result of and not independent of the inputs of stakeholders on the ground. To
be sure, BAIPHIL is one of those stakeholders. Through the years, you have been
a vital institutional partner in ensuring a healthy banking industry. Not only h
ave your initiatives been essential in extending the competencies of your member
institutions, you have likewise reached out to other constituents to broaden aw

areness towards saving and financial literacy. Your corporate governance course
is now part of our market landscape, together with other trainings such as Forge
ry Detection and various aspects of risk management. Of equal importance are the
activities that you have pursued with other constituencies in mind. Our partner
ship on the "Banking on your Future" kiddie account program as well as the finan
cial literacy program for teachers and students are high marks that deserve the
publics gratitude and commendation. It may not have been front-page news, but you
r recent undertakings in Bayambang, one for the Tugatog Elementary school, and a
nother in Barangay Highway Hills in Mandaluyong certainly take front-and-center
stage in making a difference. And with your donation for the victims of typhoon
Sendong and the earthquake in Negros, BAIPHIL has truly made a difference in the
lives of people. These are all efforts towards expanding the core competencies
of different target audiences. I cite them because they are critical to the futu
re of our financial market and our reform agenda. We do understand that without
the adequate retooling of existing skills and the build up of new ones, policy i
nitiatives would not have much of an anchor from the constituents who either mus
t execute or those that can benefit from these reforms. It is for this reason th
at I truly appreciate your theme for the coming fiscal year of Levelling-up: Link
ing Action with Vision. In a short phrase, you emphasize the need for direction t
hrough vision but likewise realize that success requires affirmative action. Tow
ards this end, the BSP values the efforts of BAIPHIL to step up its capability-b
uilding initiatives. We also welcome BAIPHILs move to thoroughly align its varied
activities with its vision of providing excellent banking support at par with t
he best in the Asia Pacific. Achieving this singular goal alone will demand unit
y of purpose throughout the organization. Down the road, we see that this will r
esult not only in a rise in the number of seminars for bank personnel. More impo
rtantly, we expect this to translate to responsive training programs that enable
bankers to keep up with the fast-changing global environment. It is clear to us
that todays financial market norms are markedly different compared to practices
just a decade or two ago. We now live in an era of stricter capital requirements
, steeper yardsticks of governance and higher standards of consumer protection.
We certainly expect banking practices to evolve as global markets grapple furthe
r with the lingering global financial crisis. Indeed, the only thing that remain
s constant is change itself. But financial markets rarely give us the opportunit
y to pause and dictate the changes that are evolving before us. Banks with all t
he formalities of an organization and its brick and mortar structures must alway
s be ready to adjust if they are to meet the changing needs of their own publics
. This is a hurdlebut not an impossibility. To be able to put themselves in a pos
ition to be this flexible, banks must ensure that both skills and knowledge are
already in place before change takes root. The Reform Agenda as a Training guide
This seems to be an oxymoron: to ask banks to have skills and knowledge in plac
e well before these competencies will be demanded by the changes in front of us.
However, this investment in capacity is precisely what is dictated by todays mar
ket landscape. We need to anticipate change and by doing so, we allow ourselves
the opportunity to parlay the uncertainties of change into opportunities that co
me with vigilance. There is then a convenient nexus between the agenda of reform
and the dictates of capacity-building. From our perspective, nothing is more ur
gent than the policy agenda of pursuing financial stability and mitigating syste
mic risks. Regulators talk of this continuously and we have set this as a thresh
old of prudential policy moving forward. Many may argue however that financial s
tability is best left to regulators. After all, each bank is well aware of its o
wn actions, its balance sheet and performance metrics but certainly not of each
and every other bank out in the market. Should you not then focus on the bottom
line and leave the big picture to the prudential authority? This is an easy argume
nt to make. But I believe it to be only half true. While regulators need to unde
rstand and take action on what can impair the system as a whole, this cannot be
simply a task of one stakeholder. How can the greatest good be achieved if not a
ll stakeholders assume collective responsibility? We believe that it is useful f
or all other stakeholders to have a working appreciation of that same big pictur
e that regulators routinely worry about. From a capacity-building standpoint, th

is is ground zero. All other training initiatives will emanate from this. Capita
l market issues such as products and markets, pricing and valuation, and market
infrastructure easily emanate from the same framework. All these training topics
are quite technical in their own regard but there is a direct way to make them
part of one common objective. Training opportunities in the Basel Accord, ICAAP,
stress testing, risk management, good governance, compliance framework, among o
thers, can then be brought to bear on this singular prudential goal of achieving
stability. Final Thoughts Ladies and gentlemen, while we have made strides, we
should not rest on our laurels. To say that much more needs to be done is an und
erstatement. The truth is that a lot more than much more must be done if we are to
continuously move forward. But the tasks ahead are not independent strands but
should instead be seen as part of a single process. Just like the relays in athl
etics, each stakeholder plays a unique role so that the baton is faithfully pass
ed on from one leg to the next. Those of you who know the 4-by-100 relays unders
tand that the winning team is not always made up of the four fastest runners. Re
lays are not only about sheer speed. Rather, most races are won and lost in the b
aton hand-off. Capacity-building is just like these competitive relays. The skil
l set that one develops is the speed that allows us to be in this race. But it i
s knowledge that keen perspective of when and how things fall into place that ge
nerates results and ensures eventual success. Relays are about continuity in mot
ion so that momentum is not impaired but actually built upon in a coordinated an
d smooth passing of the baton. This continuity in motion is how we evolve from s
imply building capacities to becoming enablers of change. Make no mistake about
it; we are in the midst of a relay in instituting change. We led off with a stro
ng start and despite the staggered positions, we can see some early gains. Our s
econd runner has taken the baton and built momentum in the straight-away leg. No
w comes the harder part of this relay. We have the speed and momentum but we mus
t now run the next leg while navigating a curve. Only after we get through that
can we hand-off to the anchor who must then take this race home to the finish li
ne. I ask you now: with the investments of your previous and outgoing boards plu
s the unbridled potential of the incoming board, has BAIPHIL built enough future
capacity so that our industry can take this race home? Thank you very much and
good afternoon to all of you.
Taking the Next Steps at a Time of Change

Venue: Makati Shangri-La
Occasion: Philippine Financial Market Forum "The Way Forward: Building Opportuni
ties - Riding on the Wave of Emerging Market Growth
Distinguished guests, my colleagues in the financial market, friends from media,
ladies and gentlemen, good afternoon. I am happy to join you again and have thi
s opportunity to discuss the prospects of our financial market. Forums such as t
his seem to be occurring more frequently these days. To me, this is a strong ind
icator of interest in the Philippines. This interest is not without basis. Consi
der this. despite the volatility in oil prices and global uncertainties, domestic
inflation has remained manageable. Interest rates have been at historic lows. T
his has had the upside of sustaining consumption expenditures which in 2011 acco
unted for 70.8% (in real terms) of GDP. Government spending has since picked up
while the fiscal deficit has remained under tight control. With the balance of p
ayments remaining positive and remittances sustained, we now find gross internat
ional reserves at record highs. Such an economic environment translated to a 3.7
% growth in GDP for 2011. Building on this, our first quarter GDP growth rate ha
s been reported at 6.4% year-on-year. This is the highest in Southeast Asia thus
far and second only to Chinas 8.1 percent in all of Asia. It is important to poi
nt out that these are not one-off gains. The sovereign rating and the accompanyi
ng outlook have been upgraded by various rating agencies in the last two years,
re-affirming the consistency of our economic gains. We are likewise heartened to
read of recent public comments by a number of analysts who see the Philippines
getting another upgrade this year. I believe we would all be in agreement when I
say that, these favorable indicators have come from our collective investments
in focused policy reform and implementation, post-1997. As policy makers kept th
eir eyes on the inflation ball and sustained the will to reduce our dependence o
n external debt, the private sector also remained engaged in policy development
and prudently sought growth opportunities. For certain, this partnership has bro
ught our country to its current position of relative economic strength. You have
aptly chosen as your theme The Way Forward: Building Opportunities Riding on the
Wave of Emerging Market Growth. Data from the BIS shows that the growth pattern
in the EMEs has changed since the height of the crisis. Overall, exports and ind
ustrial production are weakening while household consumption continues to hold u
p well. In emerging Asia, consumption contributed 4.25% and investment 2.75% to
growth last year. The Philippine experience certainly reflects this. The shift i
n focus to stimulating domestic demand has certainly made emerging markets more
resilient than advanced economies. This is not to say, however, that we should b
e complacent. Markets can turn quickly and difficulties can be protracted. Was i
t not only 48 months ago that the sale of Bear Stearns was finalized (on May 30,
2008) to stem the tide of market collapse? Yet when Lehman Brothers announced n
ine days later that it incurred a USD2.8 billion loss for its second quarter res
ults, the chain of ensuing global difficulties could not have been rationally fo
reseen by any model or analysis. In other words, ladies and gentlemen, things ca
n quickly change. If institutions and the sovereign are to be best positioned at
a time of change, we need to be cognizant of whats driving the momentum for chan
geFrom our perspective, three main themes stand out. First, liquidity. In thinkin
g about the growth agenda, we need to pay particular attention to both the poten
tial capital flows and the movements in domestic liquidity, as these are closely
related to maintaining stable monetary conditions. Europe is said to be delever
aging. As central Europe deleverages away from peripheral Europe, it is likely t
hat at least some of the funds would be headed towards Asia. However, if core Eu
rope deleverages absolutely, then we might see a liquidity squeeze, not only in
Asia but across the globe as well. Capital flows impact exchange rates, interest
rates, trading volumes and future demands on currency withdrawals. These are no
t small concerns, as these can quickly become the stimuli for systemic risk. The
BSP is thus always watchful. On the other hand, there is sufficient domestic li
quidity. You may have heard me say this on a number of occasions in the past. As
I see it therefore, the issue of a liquidity squeeze and contraction of trade c
redits because of deleveraging in Europe is not our primordial concern. The stre
ngth of the Philippine banking system at the height of the global financial cris
is was precisely the ability to source deposits, create loans while at the same
time continuously improving the quality of the credit portfolio. There is always
of course that temptation to deploy funds to cover costs. Ultimately, it is an
issue of credit underwriting for banks. So, I say to our banks, now is not the t
ime to put our avowed strength at risk. What I would, however, encourage our ban
ks to do at this time is to seriously consider channeling liquidity to productiv
e investments, such as the PPP program, instead of simply placing funds in finan
cial instruments or engaging, even indirectly, in activities like shadow banking
. Communication lines, roads, bridges and airports these are the kinds of investm
ents that affect the quality of growth and define our competitiveness. Second, f
inancial stability. Through the crisis, we managed continued real GDP growth bec
ause our financial markets were broadly in order. This is why financial stabilit
y is now the overarching policy issue. Instead of looking at growth only as a hi
gher number, we need to go beyond the bottom line and the balance sheet. Specifi
cally, we must appreciate how things relate to one another, arresting any buildu
p of system-wide risks that may be brewing underneath. This leads to an agenda t
hat oversees corporate leverage, nonbank sources of credit, real estate expansio
n, and corporate governance as much as it does for managing liquidity, yield cur
ves, loans, and bank capital. For banks in particular, your relationship with ot
her financial institutions and with nonbank corporates will be under increased s
crutiny under Basel 3. Consistent with the stability agenda, the new Basel Accor
d covers a lot of ground on counterparty risks and systemic connectedness. While
many have complained that this will likely increase the cost of doing business,
we must remind the market that there is a price for taking on more risk, becaus
e ultimately, the costs of a financial blow-out are borne not just by the banks,
but by the economic community as a whole. The third theme is the issue of econo
mic integration, which is high on the agenda of Asia. ASEAN is consolidating to
take a collective approach from capacity building to capital markets to liberali
zation. One may wonder why this should be high on the Asian agenda, given the ex
perience in the Eurozone. The answer is simple -- we need to learn from others i
n the region, we need to understand how individual markets work, so we can bette
r appreciate what opportunities (and threats) reside in our own backyard. Integr
ation is not just the usual line that markets will be extended or that market gu
idelines will be harmonized. Rather, this goes to the heart of regional policy c
ooperation. During a time of crisis possible conflicts could arise between sover
eign policy packages and regional stability efforts. It is therefore imperative
that before that time comes, practicable regional safety nets are already in pla
ce. Often, the problems an individual country faces are the same problems faced
by the region as a whole, regardless of the individual country circumstance. The
efforts to strengthen regional cooperation in Asia are steady. The recent enhan
cements in the CMIM, of which the Philippines is a part, certainly move the regi
on closer to this goal. Friends, these three themes comprise a full list of thin
gs to consider as we mull the way forward. While there are a number of clear opp
ortunities that the countrys current position of relative strength affords us, th
ere remain serious storm clouds in the external environment. Europe continues to
struggle to find the appropriate policy balance - between the short-run remedy
to stop the contagion and the long-term cure to ensure sustainable growth. Today
, the market welcomed the results of the Greek vote. But participants remain cau
tious and watchful of the next steps of the ECB, other major central banks, as w
ell as the IMF towards reaching a credible resolution to the EU debt crisis. As
for the US, the economic fortunes there are just as unclear. These two are not i
nconsequential jurisdictions. Taken together, the US and the EU represent 14% of
incremental global GDP between 2007 and 2011, increasing to 16% if measured in
purchasing power parity terms. As Europe and the US face increased financial mar
ket difficulties, the feedback loop will take the Philippines through episodes o
f volatile capital flows, adjustments in liquidity, stresses in credit underwrit
ing all of which could affect economic growth. Ladies and gentlemen, this simply
highlights that the challenges in offshore markets should be onshore concerns.
In our role as bank regulator, our concern is with respect to the potential rami
fications of all these developments on banks. We have been doing a lot of pencil
pushing. Under different simulated stress scenarios, the banking system CAR fal
ls but still remains above the national standard of 10%. The numbers may be reas
suring, but these should not lead to complacency. Friends, while uncertainties s
urround us today, there are many things that are looking up Business confidence i
s rising Private consumption continues to be resilient Unemployment remains low an
d is declining Inflation expectations continue to be firmly anchored, with the fo
recast close to lower end of target range of 3-5%, so interest rates can be seen
to be stable BoP is seen to post a surplus of $2.6 billion. Foreign reserves are
projected to continue to rise to about $77.5 78 billion in 2012 while debt serv
ice is expected to remain stable, or even decline With these, the peso can be exp
ected to trade within reasonable ranges. Banks are seen to remain in good health.
Ladies and gentlemen, if you are to build opportunities and ride on the wave of
our current position of strength, you need to recognize that the choices you ma
ke today will have lasting consequences. This was what your policy makers did in
1997. We took on the difficult reforms to correct structural vulnerabilities the
n. Thus we developed the defenses that ensured resilience through the crisis of
today. It hasnt been easy getting to where we are today. So your role in this une
ven operating environment is to safeguard the gains so far, for it is these hard
-earned gains that will allow you to take advantage of the opportunities going f
orward. In support, you can be assured that the BSP will craft the requisite ena
bling monetary, external and banking sector policies. There is no magic formula
that will allow us to accomplish all these effortlessly. The key, however, remai
ns to think of the bigger picture -- no longer just in terms of individual pay-o
ffs but rather on how our respective actions can produce the shared goal of a st
rong, steady and upward economic growth trajectory that benefits the greater maj
ority.
REMARKS
Venue: Makati City
Occasion: Launching of the 2012 RCBC SME Initiatives
The officers and staff of RCBC under the leadership of President Lorenzo Tan; en
trepreneurs from the SME sector; fellow advocates in promoting access to credit;
special guests, good evening. It is my pleasure to join this launch of innovati
ve and customer-friendly initiatives of RCBC ..in support of small and medium en
terprises: the Phone-a-Loan service and the Womens Enterprise Loan Program. These
two programs join the internet-based loan self-assessment service introduced in
2009. Indeed, RCBC deserves commendation for these services that enable SMEs to
find out early on by telephone or internet if their business fits in with RCBCs S
ME initiatives. This is therefore a win-win program that saves time. for both the e
ntrepreneurs seeking credit and the bank offering credit. The Womens Enterprise L
oan program is also noteworthy for addressing the need of Filipina entrepreneurs
not only for credit, but also for incorporating other financial services, traini
ng and business networking. In other words, this program is designed to support
the growth of SMEs managed by Filipinas. This is a good decision. In the microfi
nance world, it has been proven... repeatedly... that women make exceptional ent
repreneurs and have good credit discipline. That you are launching the Womens Ent
erprise Loan program on the week of the celebration of Mothers Day makes your prog
ram even more meaningful. Ladies and gentlemen. We need our financial system to
reach out to underserved and the presently unserved. Together, we should work on
having an inclusive financial system that brings about inclusive growth in our c
ountry. This is the value of your SME program. As it is, the 2010 Financial Acce
ss Survey indicated that only around 20% of our small firms access loans from fi
nancial institutions. The figure is higher in our neighboring countries; in Mala
ysia, for instance, the comparable figure is 60%. The impact of micro, small and
medium enterprises on our economy and our people cannot be overemphasized. Toge
ther, our MSMEs are estimated to employ roughly 61% of Filipino workers and cont
ribute 32% of our Gross Domestic Product. In fact, MSMEs are considered as a see
dbed for nurturing entrepreneurial skills and new ideas. MSMEs therefore are cri
tical engines of economic growth and development. The entry of large banks to th
e SME sector therefore ...is a most welcome development. Globally, providing SME
s access to finance is gaining renewed momentum. For instance, the association o
f the worlds biggest economies... under the so-called G20... has created a Global
Partnership for Financial Inclusion... which is working on principles for innov

ative financial inclusion... as well as SME finance. While the Philippines is no
t a member of the G20, the Bangko Sentral ng Pilipinas has been invited to join
this important global undertaking. At first glance, the MSME sector may not seem
to be a natural market for large banks, given the high transaction costs relati
ve to small loans and their lack of familiarity with the MSME landscape. Neverth
eless, we have seen many jurisdictions address these concerns ... in a timely an
d cost-effective manner. The Philippine microfinance sector is one such success
story. Developing innovative product design and delivery channels have proven to
be a viable and sustainable model to serve a sector.... previously seen as diff
icult to serve. RCBC itself has made inroads into microfinance. Moving forward,
we at the BSP will continue to create an enabling policy and regulatory environm
ent that will allow both the financial institutions and the MSMEs to grow... on
a sustained basis. To achieve this, the BSP will develop and adopt more market-o
riented solutions to promote SME lending. So far, the BSP has instituted certain
regulatory incentives, among which, are the reduction in the risk weight for SM
E loans from 100% to 75% and the extension to December 31, 2014 of the exemption
of micro- and small- enterprises from the submission of additional documentary
requirements, such as income tax return and/or audited financial statements ...w
hen they apply for bank loans. Within the BSP, we are implementing a capacity bu
ilding program for BSP examiners to familiarize them with the many methodologies
and technologies banks can use to effectively lend to SMEs. The BSP also active
ly supports the development of a comprehensive credit information bureau and the
creation of a collateral registry to spur the growth of MSME lending. Finally,
the BSP is deeply committed to further broaden the reach of our economic and fin
ancial learning program to strengthen MSMEs. I am pleased to know therefore that
RCBC is doing its part in promoting financial education. Indeed, as a bank name
d after our national hero, We can expect no less. After all, Dr. Jose Rizal was
an ardent advocate of education as the way to improve the lives of Filipinos. Em
powering our people through financial education and supporting the MSME sector g
ain access to credit are, therefore, truly worthy pursuits for RCBC... both as a
business enterprise and as a responsible corporate citizen. In his novel El Fil
ibusterismo, Dr. Jose Rizal wrote.. and I quote: The greatness of a man is... in
understanding his times desires, in responding to its needs, and in guiding its
way forward. Ladies and gentlemen, the programs RCBC launched today respond to th
e needs of our time: to help Philippine MSMEs move forward; to help MSMEs prospe
r into viable ventures that will employ more Filipinos; and to help MSMEs become
viable partners in promoting inclusive and sustainable growth across the Philip
pines. We therefore wish total success for RCBCs SME programs. Marami pong salama
t sa inyong lahat. Mabuhay ang ating mahal na bansang Pilipinas!
Remarks
Occasion: signing of the Memorandum of Agreement between the Commission on Filip
inos Overseas (CFO) and the Bangko Sentral ng Pilipinas (BSP) on the Remittance
for Development Council
Secretary Imelda Nicolas; officers and staff of the Commission on Filipinos Over
seas; fellow advocates in promoting the interest of overseas Filipinos and their
families; distinguished stakeholders; fellow BSPers; special guests; friends fr
om the media; ladies and gentlemen, good afternoon. Welcome. What we have today
is a short and simple ceremony for the signing of the Memorandum of Agreement be
tween the Commission on Filipinos Overseas and the Bangko Sentral ng Pilipinas c
overing the Remittance for Development Council. Short and simple; . but full of s
ignificance. To the Bangko Sentral, this partnership with the CFO on the Remitta
nce for Development Council, is yet another step forward in our continuing effor
ts to maximize the benefits from remittances from overseas Filipinos. not only fo
r themselves and their dependents in particular, but also for our country in gen
eral. As a multi-stakeholder advisory and policy recommending body, the Remittan
ce for Development Council can address the matter of channeling individual and c
ollective remittances to productive use and at the same time..serve as a venue fo
r discussing issues related to the remittance environment affecting overseas Fil
ipinos. Over the past decades, the steady growth of migrant remittances has beco
me a dependable and major source of foreign exchange for the Philippines. In fac
t, the World Bank reports that in 2011 the Philippines ranked as the worlds fourth
largest remittance-receiving country. Remittances from overseas Filipinos cours
ed through banks was up 7.2 percent in 2011 and reached over $20 billion; this i
s equivalent to about 9 percent of the countrys Gross Domestic Product. Clearly,
remittances from overseas Filipinos are a major driver of consumption activity i
n the Philippines, which in turn has supported economic growth. Nevertheless, wh
ile remittances boost domestic consumption, their impact on the financial securi
ty of households and on the countrys long-term economic development has not been
utilized to its full potential. An IMF study in 2009 finds that remittances inde
ed help lift people out of poverty; in most countries, however, its potential as
driver for investment and economic growth has yet be fully explored. Together w
ith other members, stakeholders, and partners of the Remittance for Development
Council, we can explore new projects and expand our existing initiatives to crea
te a more enabling environment to harness remittances for more savings and produ
ctive investments. For your information, the Bangko Sentral continues to work on
lowering bank remittance charges further. and to provide an environment for safe
r and faster remittance services through our banking system. At the same time, t
he Bangko Sentral has been conducting lectures on saving, investing and money ma
nagement for overseas Filipinos and their dependents in the last three years. Th
is financial education program has brought us to places with heavy concentration
of overseas Filipinos such as Japan, Europe, and the Middle East in cooperation
with the Department of Foreign Affairs. In the Philippines, our partnership is
with the Department of Labor and Employment and its agencies in prioritizing are
as where many dependents of overseas Filipinos reside. We look forward therefore
to forging new avenues of cooperation and deeper alliances within the Remittanc
e for Development Council to realize our shared goal of delivering a better qual
ity of life for our modern day heroes our overseas Filipinos and their dependent
s. In the meantime, palagi nating tandaan ang sumusunod na tula: Perang padala,
talagang mahalaga Ipunin, palaguin, pag-yamanin Para magkasama-sama muli pamilya
natin At patuloy lumakas ang mahal natin ang bansang Pilipinas Mabuhay ang atin
g overseas Filipinos! Mabuhay ang ating mahal na bansang Pilipinas! Maraming sal
amat sa inyong lahat.
The Thrift Banking Industry Amid an Evolving Global Landscape

Occasion: Annual convention of the Chamber of Thrift Banks
THE THRIFT BANKING INDUSTRY AMID AN EVOLVING GLOBAL LANDSCAPE The officers and me
mbers of the Chamber of Thrift Banks under the leadership of President Patrick C
heng, distinguished leaders of the banking community, fellow workers in governme
nt, special guests from the media, ladies and gentlemen, good morning. On behalf
of the Bangko Sentral ng Pilipinas, I commend the CTB for the choice of its con
vention theme this year. It is simple and straightforward: Thrift Banks: Partner
in National Development. There is a clear understanding of the role you play in o
ur economy. Indeed, by accumulating savings of depositors to finance small and m
edium enterprises as well as consumer loans, thrift banks continue to help the eco
nomy grow and generate employment. The resources of thrift banks deposits, loans
and capital have all grown substantially. A review of industry figures indicate
that increases in deposits in thrift banks were matched by similar increases in
loans to consumers as well as to micro, small, and medium enterprises or what we
call MSMEs. As a result, thrift banks in general are comfortably above the minim
um threshold mandated for MSME lending. Nevertheless, given that our banks remain
quite liquid, thrift banks can help more deserving MSMEs. The importance of MSM
Es in our country cannot be overemphasized. The MSME sector provides employment
for most Filipinos; it is, in fact, the backbone of our economy. This is where t
he members of the Chamber of Thrift Banks can make a lot of difference in terms
of moving our economy forward. Ladies and gentlemen. Our country is poised to ac
hieve solid growth this year with both our monetary and fiscal engines running.
The BSPs recent monetary policy decisions have kept our interest rates at low sin
gle-digit levels. This keeps the cost of money down and provides stimulus for ou
r economy. At the same time, Government has been raising more revenues and will
be spending more this year for infrastructure, education, and other public servi
ces. Steady investment inflows provide additional impetus for growth. Thus, whil
e the global economy continues to grapple with the adverse impact of the debt cr
isis in Europe and slower growth in developed countries, the Philippines continu
es to generate good macro-economic numbers. Among others, our economy grew 3.7 p
ercent last year; the stock market is touching record high levels; inflation rat
e dipped to 2.7 percent in February; overseas remittances remain strong and cont
inue to beat expectations; and our strong external position is underscored by gr
oss international reserves that set a new record high of $77.7 billion in Februa
ry 2012. Nevertheless, even with these positive indicators on hand, much still n
eeds to be done if we are to sustain our growth momentum. This is the reason why
the Bangko Sentral continues to pursue a reform agenda that encompasses differe
nt facets of market conduct and the enabling prudential environment. Our reform
agenda includes continuing capital-buildup for our banks to prepare for the chall
enges that lie ahead. For stand-alone thrift banks, the era of Basel 1.5 is upon
you. The rest of the thrift bank industry is under Basel 2, but for those with
parent universal and commercial banks, the window for Basel 2.5 and Basel 3 has
likewise been opened. It is easy to get lost in all the technical nuances of the
Basel versions. We have in-between standards like 1.5 our local variant -- and
2.5 of the Bank for International Settlements. We can discuss its finer details
later but I trust that its fundamental message is not lost on the thrift banking
industry: the Basel core principles and the Basel Accord itselfregardless of vers
ion have always been about recognizing the risks in the banking business as a pro
tection to our ultimate constituents. Indeed, banks must not only redirect the f
low of depositors savings into investments and loans, they must also manage the r
isks that arise as a consequence. This is not a trivial task. Whether your focus
is consumer or corporate finance, the stakes are high. Bank failures always hav
e adverse consequences: whether to the depositors who have invested their faith
and funds in the bank, the bank employees who lose their jobs, and the community
which depends on the economic activities funded by the savings of others. For t
his reason, we have been active proponents of the Basel framework. This is not m
ere adherence to the letter of provisions but rather a commitment to what it stan
ds for: risk awareness and risk management. For the same reason, we have pushed
the frontier with recent issuances on the compliance program under Circular 747 a
nd on corporate governance under Circular 749. We want banks to put in place a c
ompliance system that is best suited to their needs. While the circular establis
hes the senior role of the Chief Compliance Officer, it is the compliance system
that is truly the central feature of the policy direction. We are not intereste
d in citing one-off deviations; rather, we want to nurture a culture of complian
ce among our banks. This dovetails with the revised corporate governance framewo
rk as approved recently by the Monetary Board. As you know, corporate governance
is about managing the potential conflicts of interest that will invariably arise
. The Board of Directors, board-level committees as well as senior management all
have distinct roles to play in managing the conflicts of interest between handl
ing public funds and deploying the same at a margin. Independent directors, in p
articular, are increasingly critical components of a check and balance system th
at can oversee any breaches in agreed protocols and maintain an appropriate syst
em of compensation and rewards. At this point, I also wish to cite the valuable
contribution of some members of the CTB to the Bangko Sentrals stress testing pro
gram. By participating in this exercise, you provide us with a holistic view of
potential system-wide effects from extreme events. We understand that tests espe
cially those conducted by regulators can be daunting exercises. However, the gai
ns we stand to make are considerable. We look forward therefore to increased part
icipation of more thrift banks in due course. Ladies and gentlemen. The Basel fr
amework, the new circulars on compliance and governance, and the stress tests. wi
ll serve as catalysts for change in your banks. Certainly, change is not easy; o
n the other hand, standing still is not an option. We either innovate or stagnate
. Today, in your convention, I hope you will maximize the opportunities availabl
e to you to identify possible areas for improvement, for streamlining, for upgra
ding, and for innovation. As I look around, I see many familiar faces. To me, thi
s is a welcome sight: it tells me that the industry is in capable hands. At the
same time, I also see new faces who should bring fresh perspectives to the secto
r. This mix of seasoned and fresh bankers is bound to keep the thrift banking se
ctor innovative, exciting and dynamic. Yes, innovative, exciting and dynamic the
opposite of complacent. Indeed, there should be no room for complacency in bank
s and bankers. Filipinos trust you with their money. You are accountable to them.
Shape up, level up, and never betray their trust. If you are faithful to your cl
ients, they will be faithful to you. Then you can grow together as partners. On
our part, we at the Bangko Sentral will continue to work with you in actively pu
rsuing our reform agenda . and in crafting policies and programs that will empowe
r thrift banks to become more effective partners... for national development and
growth. Growth that is sustained, and growth that is inclusive. Mabuhay ang thr
ift banks! Mabuhay ang ating mahal na bansang Pilipinas! Maraming salamat sa iny
ong lahat at taus pusong pagpati sa inyong bagong Board of Director.
Managing External Debt, A Move to Ensure Economic Growth

Venue: Meeting Room of the Executive Business Center, BSP Complex
Occasion: Launching of the Foreign Loan Approval and Registration System (FLAReS
)
I wish to thank everyone for joining us today for the launch of FLAReS or the Fo
reign Loan Approval and Registration System. This is the newest BSP electronic i
nnovation and is part of our continuing efforts to enhance the delivery of servi
ces to our stakeholders. The Vision Through the years, the BSP has consciously a
nd progressively adopted measures to move towards a paperless system. Taking adv
antage of the prevalence of the internet and the robustness of the PhilPass, the
FLAReS project certainly takes us another step closer to this vision. As you sa
w from the presentation of the operational highlights, FLAReS will facilitate th
e submission of applications for approval and registration of loans via the inte
rnet Payment of processing fees will likewise be more convenient, using the branc
h network of participating banks. Finally, participants will be able to monitor t
he status of applications online It is our expectation therefore that FLAReS in ad
dition to improving operational efficiency will also move us towards greater tran
sparency in our delivery of services to stakeholders. Today, FLAReS is realized
because of the active partnership of a select group of banks -- Banco De Oro, Ba
nk of the Philippine Islands, Land Bank of the Philippines and the Philippine Na
tional Bank. . I would also like to express our appreciation to the public and pr
ivate sector borrowers who provided useful feedback and cooperated in the pilot
testing of FLAReS. .Of course, this project would not be possible without the cre
ative ideas and critical support of the officers and staff of the Bangko Sentral
ng Pilipinas who collaborated to see the project to its completion, particularl
y the International Operations Department under the International Sub-Sector, th
e Information Technology Sub-Sector, the Payments and Settlements Office, and th
e Financial Accounting Department. The Reason The launch of FLARes is indeed qui
te timely, in light of all the developments in external debt dynamics across the
globe. While I dont believe the Philippines is about to enter any kind of extern
al debt crisis any time soon.I believe now is a good time to take stock and be remi
nded (through the experiences in other jurisdictions) of the possible consequenc
es both intended and otherwise -- of a countrys cumulative decisions and actions
with respect to debt It is also wise for a country to institutionalize governance
practices that would precisely avoid such a crisis during a time when such is th
e least of the countrys concerns. The Season The Philippines is in a good spot to
day. As can be gleaned from major external debt indicators, the BSP has been suc
cessful in its debt management efforts. Key ratios such as Gross International R
eserves to Short-term Debt, Outstanding Debt to Gross National Income and Debt S
ervice to Foreign Exchange Receipts have consistently strengthened, indicating t
he countrys sustained and improving ability to meet maturing obligations. We have
recently announced that our gross international reserves have reached an all-ti
me high of US$77.7 billion as of February 2012. Relative to short-term debt, our
current GIR can cover nearly 11 times our short-term debt under the original ma
turity concept, and about 7 times using the residual maturity concept. At 27.5pc
t, our external debt to GDP has been on a downtrend during the past decade. It i
s now less than half its high over the 10-year period of 68.6pct in 2003. Likewi
se, the maturity of our external debt has been lengthened, with close to 90 perc
ent of our external debt being long-term. .. The average maturity is now about 2
2 years. The debt service ratio (or the amount of principal and interest payment
s due relative to exports of goods and receipts from services and income) has dr
oppedfrom 15.7 percent in 2001 to only 8.4 percent by November 2011, or less tha
n 10 cents per dollar of income. By all indicators, therefore, the Philippines i
s well-positioned to adopt these changes. The Champion You may ask, why is the B
SP taking on FLAReS?... Well, quite simply, external debt management is part of
our mandate as the central monetary authority. The Bangko Sentral is mandated by
the Philippine Constitution and other pertinent laws to manage the countrys exte
rnal debt. Our objective is to keep outstanding obligations at prudent levels so
that these can be comfortably serviced by the economy in an orderly and timely
manner. In pursuit of this mandate, the Bangko Sentral coordinates with other go
vernment agencies, and employs various debt management tools. These tools includ
e an approval and registration process which is being implemented by the Interna
tional Operations Department, and is instrumental in directing externally-source
d funds to priority areas for development and influencing the impact of borrowin
gs on the profile and structure of total external debt. A continuing review of B
angko Sentral regulations governing external debt and other foreign exchange tra
nsactions is likewise undertaken to keep our rules attuned with current global a
nd domestic conditions and to foster a regulatory environment that supports the
objective to achieve inclusive growth for the country. In all these undertakings
, a good monitoring system is indispensable. FLAReS allows us to perform all the

se with relative ease and accuracy. CONCLUSION I have, on a number of occasions
in the past, said thatthe Philippines managed to survive todays crisis, because we
purposed to invest in the reforms yesterday. And today, ladies and gentlemen, we
add FLAReS to the list of governance reforms we have instituted. As we enlist pu
blic and private sector entities to enroll in FLAReS and encourage more banks to
participate, it is my hope that FLAReS would indeed help us better manage our e
xternal debt. In turn, I hope this will ensure and protect our desired trajector
y of sustained higher economic growth. Maraming salamat sa inyong pagdalo at pak
ikinig.
Financial Stability and Financial Inclusion: Two Facets of the Same Policy Objec
tive
Venue: NA
Occasion: Keynote remarks for the session on Financial Stability and Financial I
nclusion, 2012 Financial Sector Forum
Officials of the Asian Development Bank, resource persons, forum participants, m
y colleagues in government and in the financial market, ladies and gentlemen, go
od afternoon. I am happy to join you this afternoon and have this opportunity to
discuss two policy issues which command prime attention today. For this reason,
this session is a timely intervention, providing us a venue to further our appr
eciation of the dynamics between inclusion and stability. Let me start with fina
ncial inclusion. Our foray into this policy objective has been driven by our soc
io-economic profile. Spread over 17administrative regions, the Philippine archip
elago is prone to physical fragmentation. With the population typically drawn al
ong ethnocentric lines, we have as much diversity as distinction. The economics
of this divide is evident in our income distribution. Data from our Family Incom
e and Expenditure Surveys (FIES) will show that on average only 20 percent of fa
mily saving is generated by 80 percent of families. This disparity was the case
in the 1997 FIES and it still is the case in the latest (2009) FIES. In the bank
ing market, limited family saving is validated by the metric of having 3 deposit
accounts per 5 Filipinos nationwide. This is quite low in absolute terms specia
lly when compared with the rest of the region. What is worse though is that only
26% of the adult population use banking services. This suggests that the 3 depo
sit accounts likely belong to repeat customers. To compound matters, about 37% o
f municipalities still do not have banking offices. Quite expectedly, the majori
ty of banking offices are in the cities and first and second class municipalitie
s. These information are significant because they reflect the basic gap in the f
ootprint strategy of the banking community vis--vis the population. Left as they
are, the numbers do give us strong reasons to intervene with a formal policy on
financial inclusion. This call for intervention is premised on socio-economic di
versity. This is again another important consideration because it is a reminder
that it is diversity which financial inclusion must precisely address. From this
perspective, financial inclusion is about tailor-fitting a response for a defin
ed problem. It is about advancing the financial, social and economic well-being
of those who are otherwise excluded. The same supervisory principles as those in t
he mainstream market continue to apply but the execution allows for the proporti
onate application of regulatory requirements. In this way, we provide for flexib
ilities in policy aspects where rigidities would deter the creation of markets.
This is precisely what we have done in the Philippines. To-date, we have crafted
20 regulatory issuances specific to the financial inclusion framework. These 20
fall under 5 key aspects: 1. Wider range of products; 2. Expanded physical netw
ork; 3. Extended virtual reach; 4. Enhanced transparency and disclosure; 5. Lowe
r barriers to customer acquisition1 We believe these ensure effective implementa
tion of financial inclusion. In providing for a wider range of products, for exa
mple, we recognize that the financial service needs are quite varied. Toward thi
s end, the BSP has recognized credit facilities of up to Php300,000 for such ins
truments as micro-enterprise loans, micro-agri loans and, housing microfinance l
oans. To make this micro ecosystem thriving, we complement the credit facilities
with needed auxiliary products such as micro-deposits and micro-insurance produ
ct lines. The combination of all these product lines allows for a free flow of f
unds within an environment that is specifically structured for small-ticket item
transactions. We recognize that access is a major concern, particularly with 37
% of municipalities not having a banking office. To address this, we introduced
the concept of microfinance banking office (MBO). MBOs are operationally attache
d to a full-service branch but can be established in hard-to-reach areas. On the
ir own,they serve as a launch pad for a range of product lines from loans, to sa
vings, remittances, to e-money conversion, bills payment, pay out services and e
ven foreign exchange purchases on a limited basis. MBOs are separate from the el
ectronic money ecosystem which we introduced a couple of years ago. Using techno
logy that is readily accessible by the retail market, we are able to bridge the
physical gaps in banking with a technology-driven network. This covers several f
acets including fund transfer facilities, retail payments and even partnerships
with merchants. Pricing is certainly another key element. Contrary to some perce
ption, financial inclusion operates on market terms and does not require any spe
cial pricing concession. To make this effective, we believe it to be important t
hat the financial consumer is provided with accurate information on pricing. By
expanding the provisions of the Truth in Lending Act, the pricing approach has b
een standardized to avoid possible misrepresentation. Beyond pricing, we are als
o of the belief that the consumer would be better protected if he is informed of
the different investment options available to him as well the macro and microec
onomic factors that are likely to impact on the value of his chosen investments.
2 None of the above would be possible, however, if specific regulatory barriers
are not addressed. Through the recent issuance of updated Anti Money Laundering
rules and regulations, we are able to strike a balance between prudential requir
ements and realistically not having direct knowledge of those in under-served ar
eas. To address this difficulty, our new rules rely on 3rd parties already embed
ded in the communities to fulfil the face to face requirements of the Know-YourCustomer threshold .3 The net effect is an enabled environment. Today,188 banks
provide microfinance services. We estimate that one million households are servi
ced with an outstanding portfolio of about Php 7 billion as of September 2011. W
hen compared with the Php 7.17 trillion total resources ofthe banking system as
of November 2011, the portfolio for financial inclusion is modest. However, this
same portfolio was not formally in existence only a decade ago and it is in tha
t context that we measure the strides taken, which then reflect greater signific
ance. With all of the above initiatives and changes, a natural question to ask i
s whether financial inclusion impinges upon financial stability. After all, incl
usion requires specialized rules for a specialized market constituency. However,
the link between inclusion and stability or more appropriately, between reducin
g exclusion and increasing instability may not be unique. This makes it difficul
t to be precise. Nonetheless, two possibilities may be considered. First, financ
ial market failures are often premised on information asymmetries. Incorporating
new agents into the formal market will likely increase information asymmetries.
This is more so the case with stakeholders whose access to and use of informati
on is not the same as those in the mainstream market. Second, there is regulator
y arbitrage. The tailor fitting of guidelines that is inherent to financial inclus
ion may create an unintendedimbalance in incentives. This becomes a point of arb
itrage, if not market pressure. These two scenarios are certainly possible. As w
e evaluate these possibilities, it bears repeating that the tailor-fitting of re
gulations observed for the inclusion framework is not meant to compromise govern
ance standards. What it simply does is introduce flexibilities so that we can im
pose proportionate oversight where and in the manner that this is needed. Beyond
this, it does become an empirical issue. At the most basic level, the risks in
financial inclusion are transactional, of smallervalue and often specific to a t
arget constituent. For the Philippines, the concern is the extent to which the f
inancial inclusion portfolio can affect the banking system which is currently 10
0x its own size. The answer lies in the concept of contagion. This is largely id
iosyncratic to a jurisdiction and empirical in nature more than anything else. D
ifferent jurisdictions will face different parameters and different pressures du
e to contagion. Where then do all of these take us? Should we not pursue inclusi
on when the numbers say so? Should stability be the primordial concern around wh
ich all other policy objectives must subsist? If we go back to first principles,
markets are made when two parties with opposing views and different needs come
together to agree to transact with each other. It is for this fundamental reason
that markets thrive on servicing the needs of savers versus borrowers and those
of depositors versus investors. However, when the markets aretoo fragmented and
their constituents are effectively segmented, instead of offering a venue for d
isinterested counterparties to come together, market failures could arise. Movin
g forward then, it would stand to reason that financial stability would thrive w
hen the market framework allows for the different stakeholders to participate. F
inancial stability can thrive when different needs arerecognized, but addressed
as appropriate and governed under the same overarching core principles of market
governance and prudential oversight. This is nothing more than financial inclus
ion. Stripped to its core, inclusion is a participatory framework to work toward
a holistic market and break down barriers between bankable and unbanked, servic
ed and under-served. Once such a holistic market is upon us, we would have creat
ed the environment where stability can more likely be sustained. More than nice
words, the Philippines stands by this framework. First, on inclusion, we are pro
ud of our humble achievements and the recent pronouncements fromexternal institu
tions give us reason to move further and forward. For three years in a row (2009
-2011), the Economist Intelligence Units global survey on microfinance has ranked
the Philippines as number one in the world in terms of policy and regulatory fr
amework for microfinance. The World Economic Forum and other international bodie
s have also recognized our strides in using innovation to increase access to fin
ancial services. Second, on stability, we believe that our financial system has
performed well under the most difficult global conditions in recent memory. Beyo
nd the positive review from our recent FSAP and the analyses from various other
external agencies, including credit rating bodies, the fact remains that the Phi
lippine financial system has been consistently expanding through the past decade
. It is our view that the strength and stability of the financial system and the
expansion and development of our financial inclusion program are not merely coincidentalbut rather complementary. They do not just run in silent parallel, but
they run as a shared purpose. From only Php 2.6 billion in December 2002 servin
g around 390,000 borrowers, the financial inclusion portfolio as of September 20
11 is over Php 7 billion with nearly a million borrowers. What makes this impres
sive is not its nominal amount. Rather, it is the fact that the portfolio growth
translates to an annualized expansion of 12% per annum. In contrast, banking sy
stem resources over the same exact period have grown by 8.4% per annum [from Php
3.48 trillion in December 2002 to Php 7.04 trillion in September 2011]. Though
much remains to be done, we have moved forward to make economic activity much mo
re participatory through inclusion. In the process, we have broadened the covera
ge of the financial net by not limiting it to those who are already naturally ba
nkable. The process does not end here. Financial inclusion and financial stabili
ty can and do complement each other and we will continue to stand by this framew
ork. Well beyond the numbers, we believe that the Filipino public is definitely
better for it. Thank you very much and good day. --------- 1 A specific example
would be allowing banks to rely on customer identification by agents that are lo
cated in underbanked communities. There is decreased transaction cost in custome
r retention and record keeping. 2 Todate, the BSP has conducted under its BSP Ec
onomic and Financial Learning Program 90 Public Information Campaigns, 48 local

and 11 international Financial Learning Campaigns for OFWs and their families, 9
Financial Expos, 11 Financial Learning conferences for Microfinance Clients and
the Unbanked. 3 An example of authorized third parties under the new rules are
covered institutions such as money changers, pawnshops and remittance agents whi
ch have been accredited by specific banks in the head offices to perform KYC fun
ctions for them in the underbanked communities.
The BSP and the Banking Community: Partners in Sustainable Development

Venue: Fort Abad, BSP Complex, Manila
Occasion: BankersReception hosted by BSP
Distinguished guests from the banking community, the government, the private sec
tor, the diplomatic community, the multilateral agencies, the media, dear friend
s, ladies and gentlemen. On behalf of the other Members of the Monetary Board, I
bid you all good evening. and welcome to the traditional reception of the Bangko
Sentral ng Pilipinas for the banking community. We thank all of you for acceptin
g our invitation to recognize one important pillar of our economy the banking se
ctor, a key channel for the transmission of Bangko Sentrals monetary policy. Soun
d, stable, and liquid, the Philippine banking sector provides valuable support to o
ur economy helping sustain its growth trajectory, through varied challenges. This
was particularly true in 2011 a year considered as one of the most challenging f
or central banks across the globe. We had to deal with the consequences of a slo
wing global economy affected by global developments. In the US, the underlying d
rift is still for below-trend growth even as employment has somewhat improved. I
n Europe, the deleveraging among banks has deepened, which has led to a contract
ion in bank credit, thereby heightening recession risks. Some analysts have call
ed this the deleveraging doom loop. In the Middle East, the threat of supply chain
disruptions has become amplified. Here at home, we had to grapple with destruct
ive typhoons, floods, and other calamities. Notwithstanding a fluid environment
in 2011, we successfully kept inflation within our target range; this gave us ro
om to lower our key policy rates yesterday, our first rate cut in 2 years. At th
e same time, steady inflow of funds kept our external position strong, with our
international reserves hitting record levels; this provides us buffers for poten
tial external shocks. 2011 was also characterized by robust bank credit that con
tinued to underpin economic activities. For instance, lending as of November 201
1 was up 22%, with the productive sector claiming four-fifths of total loan port
folio. And while we closed banks in violation of banking laws, continued public
confidence in our banking system kept bank deposits at all-time high levels. Alo
ng the way, our gains in the monetary sector contributed to the upgrades that bo
th the country and the banking sector received in 2011. Indeed, global and domes
tic challenges notwithstanding, 2011 emerged as another good year for the bankin
g industry: balance sheets kept growing, asset quality continued to improve, and
bank profitability continued to strengthen. This is because we made significant
headway in improving our risk management systems, strengthening the supervisory
process, instituting good financial governance, enhancing coordination among fi
nancial regulators, and aligning our accounting rules with international standar
ds. Our challenge is to sustain our momentum in pursuing our reform agenda. Wisd
om has it that the best time to pursue and invest in reforms is during good time
s. Given that 2011 was an even better year for banks than 2010, we are committed
to continue our reform process. In this connection, you can say we hit the grou
nd running in 2012. Starting this month, stand-alone thrift banks, rural banks a
nd cooperative banks are covered by the Basel 1.5 framework that upgrades them t
o higher capital adequacy standards. This month also marks the start of higher c
apital charge on nondeliverable forwards or NDFs for net open positions -- from 10
% it is now 15%. We now require banks to set aside more funds to cover NDFs to r
educe potential systemic risk and curb speculation. For universal and commercial
banks, we declared early this month that we are adopting the more stringent sta
ndards of Basel 3 in 2014, four years ahead of the timeline set by the Basel Com
mittee on Banking Supervision. Essentially, Basel 3 introduces reforms that will
improve the ability of bank capital to absorb losses, extend the coverage of fi
nancial risks, and have stronger firewalls against periods of stress. Similar Ba
sel 3 implementation plans have been announced by China, Australia, Hong Kong SA
R and Singapore. Ladies and gentlemen, we are able to accelerate our timetable b
ecause of the present strong capital position of the banking industry. Our confi
dence also springs from the track record of our banks that have through the years
shown the maturity and the capacity to undertake far-reaching reforms that ultim
ately redound to the benefit of our economy and our people. This afternoon, the
Monetary Board approved a new set of enhanced standards on corporate governance
in banks, as well as rules to strengthen banks compliance systems. Indeed, we con
tinue to reap benefits from years of collaboration between the Bangko Sentral an
d the banking community in pursuing reforms to strengthen our banks and make the
system more responsive to the demands of a constantly changing environment. Mov
ing forward, we shall continue to stamp out unsafe and unsound practices, encour
age mergers to bolster the strength of our banks, and build an infrastructure fo
r a vibrant and inclusive financial system. While bank lending has been on a ste
ady rise, credit delivery to the underbanked and the unbanked also deserves a se
rious closer look. Bear in mind that, the Bangko Sentrals regulatory framework fo
r the development of microfinance has been rated as the worlds best, for three ye
ars in a row. In other words, we are acknowledged as a pioneer in advocating use
of responsible microfinance while ensuring adherence to safe and sound banking
practices. In fact, 28 central banks visited us last year to learn from our expe
rience in microfinance. Outstanding microfinance loans now average P7 billion. C
onsidering that the average term of microfinance loans is two months, we can ass
ume that microentrepreneurs can access as much as P40 billion a year in short-te
rm credit. Ladies and gentlemen. Our success in developing an inclusive financia
l system is a crucial empowering element in liberating millions of Filipinos fro
m poverty. We have witnessed so many inspiring success stories in microfinance a
cross our country. We have seen how households and communities have been transfo
rmed by successful microfinance ventures. But we need to do more; we need to fur
ther broaden and deepen its reach. At the same time, we also need to ensure acce
ss to credit of viable small and medium enterprises who do not have sufficient c
ollateral. One solution is through the Credit Surety Fund organized by the BSP a
nd financed by the LGUs, the Industrial Guarantee and Loan Fund, DBP and Land Ba
nk. As designed, SMEs that receive credit surety guarantee from the Fund can pre
sent this to banks as collateral for their loans. This is a relatively new progr
am and so far, we have created 20 Credit Surety Funds: in four cities and in 16
provinces. Ladies and gentlemen. The Micro, Small and Medium Enterprises are imp
ortant to our economy and our people: combined they represent more than 90% of r
egistered businesses and employ about 70% of our labor force. In the banking ind
ustry, financial inclusion, consumer protection and financial education are the
three-in-one policy agenda. We need to think out of the box in mobilizing saving
s in the region, providing extended financial access through non-mainstream chan
nels and creating alternative sources of financing for borrowers and entrepreneu
rs. We need to make our financial system more inclusive. If we move forward toge
ther on these fronts, we can truly make a positive difference in the lives of ma
ny more Filipinos. The link between the real economy and our banking market must
stay firm so that liquidity in the latter can translate into new productive cap
acity in the former. As it is, we see sustained growth for our economy in 2012 e
ven as global growth continues to weaken. While the debt crisis in the Eurozone
persists there are, on the other hand, welcome signs such as the strengthening o
f the US economy. Here at home, we derive comfort from the fact that the Philipp
ine economy has stronger foundations to see us through the global headwinds, tha
nks to home-grown sources of resilience and reforms we continue to pursue. We al
so see benefits from the simultaneous running of both monetary and fiscal engine
s. As early as this month, the Department of Budget and Management has practical
ly released the 2012 budget to implementing agencies. Other sources of optimism
are the BSPs expectations surveys showing that both business and consumer sentime
nt remains generally upbeat. Ladies and gentlemen. It is providential that the P
hilippines is hosting this years 45th annual meeting of the Asian Development Ban
k at a time when our economy is primed for growth. Finance Secretary and Monetar
y Board Member Cesar Purisima is the head of the Philippine delegation. The meet
ing will take place from May 2 to May 5 and we expect about 4,000 delegates to p
articipate. The preparations are in full-swing and we call on your full support
to make the event a success. And so, ladies and gentlemen, on this optimistic no
te, let us wish our banking community, our economy and our country a happier, he
althier and more prosperous 2012 where good governance prevails and growth is tr
uly inclusive. Mabuhay ang Pilipinas! Cheers! Thank you everyone and lets enjoy t
he rest of the evening.
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Cooperative Effort to Strengthen Cooperatives
Venue: Executive Business Center, Bangko Sentral ng Pilipinas, Manila
Occasion: Launching of the Strengthening Program for Cooperative Banks (SPCB) an
d Signing of the Memorandum of Agreement (MOA)
Congressman Jose Ping-ay, Chairman, Committee on Cooperatives Development, House
of Representatives, Congressman Cresente Paez, PDIC President Valentin Araneta,
LBP President Gilda Pico, Members of the Monetary Board, fellow workers in gove
rnment, distinguished guests, ladies and gentlemen, good morning. First of all,
let me thank you for your presence in the formal launch of the Strengthening Pro
gram for Cooperative Banks (SPCB) and the signing of the Memorandum of Agreement
among BSP, PDIC and LBP. A product of long discussions among the BSP, PDIC and
LBP, the SPCB was conceived in close consultation with the cooperative banking s
ector to ensure that the program will achieve its objective of developing a stro
nger cooperative banking sector. The cooperative banking sector plays a vital ro
le in the governments efforts to have a truly inclusive financial system. Althoug
h the cooperative sector comprises but a small fraction of the entire banking sy
stem , cooperative banks are at the forefront in the provision of the much neede
d financial services to hundreds of primary and federation cooperatives and thei
r individual members who usually have limited access to banking services. It is
through these cooperative banks that a great number of those in the countryside
have their first interaction with the formal financial system. It should therefo
re come as no surprise to us that, with the sectors value and contribution in the
financial system, it should be the beneficiary of a strengthening program of th
is nature. The SPCB was conceptualized to bring about larger and stronger cooper
ative banks by encouraging mergers, consolidations with or acquisitions of coope
rative banks by eligible Strategic Third Party Investors (STPIs) under a specifi
c set of guidelines. The program offers a variety of incentives to participating
cooperative banks and their partner STPIs, the reason for which is to help them
achieve a healthier financial condition. These incentives include targeted fina
ncial assistance to augment capital, credit facilities to support business expan
sion, and a package of regulatory relief. To augment capital, the PDIC and LBP w
ill provide equity infusions in the form of perpetual, non-cumulative preferred
shares, convertible to common shares at the end of 10 years. These equity infusi
ons will neutralize the potential adverse impact of asset write-downs that are e
ssential to clean up the books and ensure that the surviving banks are strong an
d capable. An exit mechanism provides for the buy-out of government shares after
10 years. In addition to equity infusions, credit facilities will also be made
available by LBP to enable STPIs to further scale up their operations at an acce
lerated rate. The BSP on the other hand, will provide a complementary regulatory
relief package such as allowing flexibility in the opening, conversion and relo
cation of bank offices, including head offices, flexibility in ownership limits,
more liberal guidelines that would allow staggered booking of required valuatio
n reserves, waiver of penalties as may be appropriate, and the restructuring of
existing rediscounting and emergency loans with the BSP. The grant of regulatory
relief is expected to allow the surviving banks to achieve economies of scale a
nd better manage their liabilities. Further, mergers, consolidations and acquisi
tions under the SPCB will rationalize the cooperative banking sector and bring a
bout surviving banks that have higher capitalization and stronger management. Cl
early, this is consistent with our objective to strengthen the cooperative banki
ng sector so it can better contribute in promoting a balanced and sustainable gr
owth for our nation. The cooperative sector is also squarely behind this program
, with no less than the sectors partylist representatives playing an important ro
le in ensuring the success of this program. I am happy to note that even before
the operating guidelines for the implementation of the program were finalized, a
number of banks and their STPIs have expressed interest to participate in the p
rogram. The BSP, PDIC and LBP are working closely with them in this respect. Lad
ies and gentlemen Indeed, we all look forward to the benefits of this program, fi
rst to the cooperative sector and then to larger public that this sector serves A
nd, as we do, it would serve us well to remember that beyond the documentation i
nvolved in mergers, acquisitions or consolidations, and the grant of financial a
nd regulatory relief to participating institutions, the real challenge to us is
how to sustain the viability and sound operations of cooperative banks resulting
from such mergers, acquisitions or consolidations. Here, I cannot overemphasize
the importance of having committed boards and senior management teams, as well
as sound corporate governance practices in these banks. These will help ensure t
hat the gains we expect from the SPCB are sustained, and that the programs impact
would be felt in the entire banking system long after this launch. That said, I
am most confident that because we have put our collective efforts to establishi
ng this program, we will only reap success. On this note, let me congratulate ev
eryone present today particularly those who were instrumental in the launch of th
e SPCB and making todays MOA signing ceremony a reality. You can be assured of th
e BSPs steadfast commitment and continued close partnership. Mabuhay ang ating mg
a kooperatiba Mabuhay ang ating bansang Pilipinas. Maraming salamat.
Amid Global Uncertainties: Philippines Sailing in Rough Tides

Venue: Met Museum, Manila
Occasion: Economic Journalists Association of the Philippines (EJAP), Inc. Busin
ess Journalism Awards
It is that time of year again: the much anticipated Annual Business Journalism A
wards of EJAP. I am sure the board of judges of this years journalism awards had
a difficult time selecting the best journalist for each beat. In my opinion, bus
iness reportage in the Philippines has been improving dramatically in terms of q
uality, coverage, insights, and depth of treatment. I say this because I find my
self devoting more and more time reading business stories in our newspapers, eve
n on weekends. In fact, it can be said that the quality of business reportage he
re is one of the reasons why the Philippines is back on the international radar
screen and why multilaterals investors. as well as credit rating agencies. have been
able to better understand and appreciate the state of our economy. Indeed, the
members of EJAP are living up to its vision of serving the public through the pur
suit of business news excellence. And so, ladies and gentlemen, let us show our a
ppreciation for our hardworking business journalists with a well-deserved round o
f applause. And now, I shall do my assignment as keynote speaker. Your president
(Mich) has chosen Amid Global Uncertainties: Philippines Sailing in Rough Tides a
s your theme. Sailing is a tricky sport. It requires skill, agility, mental fort
itude and, some luck. A sailor needs to be familiar with his own boat, and with
his surroundings. He must be a master at managing wind and sea conditions. He mu
st also learn from past experiences. So far, Team Philippines has managed the wa
ves and rough tides relatively well. For sure, our hard-earned economic gains we
re achieved from lessons learned from the past. In this regard, we must ensure t
hat these gains will not only be preserved. but will also provide the momentum to
keep us sailing forward through rough tides. Tonight I wish to spend a few minu
tes to speak on the rough tides that we expect to hit us, and how we could ride
out these waves as we sail forward. Increasing global uncertainties The talk of
this week has centered on Europe. Some analysts have said that Europe has to come
to the very edge first before it would be forced to make the painful decisions
necessary to reverse the crisis. The market is still waiting for agreement on the
amount of the bank recapitalization plan, measures to boost the current EFSF ba
il out, and policies to specifically address Greeces debt problems to avoid conta
gion to Spain and Italy. There is evidence of strong disagreement still among th
e main players in Europe (Germany and France). But some analysts see this, as we
ll as the postponement of the summit to this Wednesday, as signs that a historic
decision is about to be made rather than a breakdown in political will to come
up with a solution. This is what we are hoping also that indeed we would be seei
ng the beginning of the end of the European crisis. With all the news thats been
coming from Brussels, another source of uncertainty appears to have taken a back
seat this is the growth prospect in the US. Analysts are seeing early indicatio
ns for a slightly lower recession probability. A double dip recession is not our
own baseline scenario, but a significant part of the risk to the US is currentl
y tied to risk of collateral damage from Europe. Leveraging on current strength
Indeed, the global growth outlook has deteriorated. Based on the IMFs latest Worl
d Economic Outlook (WEO), global output is now projected to grow by 4.0 percent
in both 2011 and 2012, a deceleration from the previous June 2011 assessment of
4.3 percent for 2011 and 4.5 percent for 2012. Despite the slowing global activi
ty due mainly to downdrafts from advanced economies, the outlook for EMEs contin
ues to be relatively upbeat, albeit at a slightly moderate pace. Assuming that g
lobal financial volatility does not escalate sharply, Asia is expected to remain
a bright spot in the world economy. Here are the mitigating factors. One, intra
-regional trade and investment have been improving in recent years. This should
provide a counterweight to support Asian exports, in the face of a prolonged slo
wdown in the US and EU that could dampen external demand. At the same time, coun
tries that have large domestic consumer bases, such as the Philippines, will lik
ewise prove to be resilient. Two, Asian EMEs have policy space. Unlike their cou
nterparts in advanced economies, Asian EMEs have room for deficit spending and f
or accommodative monetary policies that should help to stimulate economic activi
ty. In addition, the lingering global weakness has dampened commodity prices. He
nce, pressures to inflation have eased, allowing monetary policy to focus on gro
wth. Three, there is a growing move in Asia for the development of deeper region
al capital markets. As this develops roots, intra-regional investment would faci
litate keeping savings of the region within the region. The challenge now for As
ian EMEs is how to step up to their role as key drivers of global growth. The ri
se in the economic weight of the Asian economies implies that their stake in the
economic performance of other countries must also be increasing. In view of thi
s, Asian EMEs should not only ensure the further strengthening of the regional e
conomy but should also actively contribute to policy dialogues toward forging a
balanced and sustainable global growth. Philippines: Moving Forward Moving forwa
rd, what is the role of the Philippines as Asian EMEs take their place in the gl
obal economy? The Philippines has strong sails attached to its mast, which we be
lieve can effectively capture most of the strong winds from external pressures. Le
t me enumerate these: First, the structural makeup of the economy is self-sustai
ning. A large part of our GDP is attributed to robust household consumption. Our
country continues to draw support from a young, economically-active and educate
d population. Moreover, notwithstanding lingering global economic uncertainties,
overseas Filipino remittances, which reached US$13 billion in the first eight m
onths of the year, have remained resilient. By sustaining an environment of stab
le prices and healthy financial institutions, it is our belief that domestic con
sumption is likely to remain solid and vigorous. Second, the appropriate monetar
y policy of the Bangko Sentral has been able to strike an effective policy balan
ce of supporting economic growth while maintaining stable inflation by being for
ward-looking and taking preemptive policy actions. The BSPs recent assessment of
a manageable inflation environment and subdued economic conditions continues to
support the current monetary policy settings. Baseline forecasts show a lower in
flation path, consistent with the 3-5 percent target range for 2011-2013, while
inflation expectations remain well-contained, supported by easing commodity pric
es. Moving forward, we, at the BSP, will continue to be mindful of any remaining
upside risks to inflation. A continuing challenge to monetary policymaking, tho
ugh, is the unevenness in capital flows, which fuel volatility in the financial
markets, including in exchange and interest rates. With these risks in mind, the
BSP utilizes its enhanced policy tool kit (which by now you must be quite famil
iar with) to ensure that these flows remain orderly in both directions. Third, t
he Philippine financial system continues to support domestic activity. Credit co
ntinues to grow at a healthy pace and go to the productive sectors of the econom
y. In addition, it is our expectation, based on recent stress tests, that our ba
nks will be able to withstand significant shocks emanating from global developme
nts. Fourth, the BSP will always be a staunch supporter of inclusive growth. Tow
ard this end, the BSP will maintain a proactive stance in microfinance to expand
further the access to mainstream financial products and services by the unbanke
d and underserved population. The BSP will also intensify its economic and finan
cial education and consumer protection programs to promote a culture of saving a
nd investment in the country. Finally, the stronger fiscal position gives the co
untry readily available funds to pursue projects, whose economic multipliers are
more durable. Concluding thoughts Amidst all the uncertainty we face, one thing
is certain. That is, our country is indisputably linked with the global economy
. Therefore it is incumbent upon us to leverage on our strengths, and continue t
o work harder, not only toward economic stability and flexibility, but also grad
ually toward greater contribution to regional and global stability. Ladies and g
entlemen. The best-selling author and journalist, Malcolm Gladwell, said in one
of his recent interviews that the most important principle of a good journalist i
s to make everything interesting. Given all that is happening here and overseas,
these are interesting times, indeed. If there is a best time to impart helpful s
tories on what is happening in the domestic and global environment to serve the
best interest of the readers and the public, then that time is now. On our part,
we at the Bangko Sentral ng Pilipinas will continue to promote better understan
ding of monetary policies and programs through our regular media lecture series,
press statements, publications, countless interviews, emails, and even text mes
sages. We appreciate the time journalists invest to ask questions and to attend
our lectures and other information programs. We acknowledge that as a source of
news, we have the responsibility to help journalists write accurate stories with
the proper perspective so that it becomes both informative and useful. Always,
we are mindful that journalists are our link to the public. That through you, pe
ople gain useful information that help them improve not only their livelihood bu
t also their communities. And through you, the world knows about our country and
why they should be involved in development activities here. And through you, ou
r people and our country receive global recognition that makes us proud to be Fi
lipinos. And so, on behalf of the reading public, we thank all the members of th
e Economic Journalists Association of the Philippines. and congratulate this years
awardees who have emerged as the best among the best. Mabuhay ang EJAP! Mabuhay
ang ating mahal na bansang Pilipinas! Maraming salamat sa inyong lahat!
Philippine Banking: Remaining Responsive, Responsible and Relevant

Venue: Shangri-La, Makati
Occasion: Philippine International Banking Convention 2011
To the officers of the Asian Banker, led of course by its President and CEO, Mr.
Emmanuel Daniel, my colleagues from the banking community, fellow stakeholders,
ladies and gentlemen, a very pleasant morning to all of you. It is a pleasure t
o join you this morning. By all accounts, we have a full agenda ahead of us, a p
otent mix of very relevant topics and an array of excellent speakers and panelis
ts who are leaders in their respective fields. I am sure there will be much to t
ake-away from todays proceedings in new insights, added perspectives, and fresh i
deas. Of course, there is that opportunity to meet up with colleagues and the ch
ance to meet new ones. All of these, the organizers have painstakingly arranged
for our benefit and I encourage all to take full advantage of this conference wh
ich is being held for the first time here in Manila. The Same Shock, Different F
ortunes This time its different is a phrase that we have heard often in the last fe
w years. Unfortunately, this phrase has been relayed with a sense of urgency, su
ggesting that something is not quite right. All of us can actually feel the urgenc
y as we are not oblivious to the massive restructuring of the global financial a
rchitecture. Perhaps, this round of reforms may indeed be different. Without a d
oubt, however, this new architecture is driven by the difficulties we have witne
ssed in the last five years. For the European Central Bank and the Federal Reser
ve of the United States, this time its different reflects a changing of fortunes th
at few, if any, truly anticipated. Credit rating downgrades have been instigated
for Greece, Italy, Spain and even the US. There is no assurance that we have se
en the last of these negative ratings decisions. CDS spreads for these jurisdict
ions have certainly followed suit. Greece is currently trading over 6,300 basis
points (more than double where it was just two months ago); Italy hovering 450 b
ps (from around 360 bps) and Spain around 380 bps (from about 360 bps). For the
world half-way around, this time its different is significantly much more pleasant.
We can see it for much of our region but allow me to focus specifically on the
Philippine business case. While it is true that we were not immune from the init
ial fallout from the global difficulties, we are also no longer within earshot o
f the epicenter of such disruptions. We welcome the credit rating upgrades of th
e Philippines, premised specifically on our sustained solid external position, t
he improved fiscal performance of the sovereign and the continued soundness of o
ur banking system. Yesterday, we released the countrys latest external payments f
igures. For the first nine months of 2011, our BOP stood at $9.7 billion, way ah
ead of our current projection of $6.7 billion for the whole year. On the fiscal
side, we are also running better than our target. First semester deficit to GDP
was at -0.4 percent, well ahead also of the full-year target of -2.6 percent. On
the banking side, which is our focus for this morning, its worth noting that wh
ile other markets were shrinking, the local banking industry grew. Deposit level
s expanded by 40.7% from Php3.66 trillion at end-2007 to Php 5.16 trillion as of
June 2011. This reflects savers inherent faith in our banking industry, giving b
anks the responsibility to safekeep hard-earned surplus funds. In turn, the indu
stry has paid forward this faith, expanding loans by 51.2% over the same period.
To complete the virtuous cycle, the quality of such credit extensions remains h
igh as non-performing loans for universal and commercial banks is only at 2.52%
(as of August 2011) with an NPL coverage ratio of over 100%. Beyond the wholesal
e and high-end retail markets, the growth of microfinance and non-traditional de
livery channels is something we are most proud of. The banking system is much mo
re inclusive today with almost 980,000 [979,353] microfinance borrowers at a por
tfolio of Php7.3 billion covering over 200 [202] banking institutions. These are
why we firmly believe that the Philippines deserves another round of ratings up
grade If delivering to our constituents is the benchmark, yes, we have delivered.
A Basic Premise and The Road Ahead But, lets look ahead. For the Philippine bank
ing system, This time, its different means going beyond the talk of how the system
has been strong through globally difficult times it means going beyond pointing o
ut how we have remained stable under contemporaneous pressures. For the BSP, as
the bank regulator, This time, its different means asking ourselves the question,
does our banking system have the wherewithal to succeed in an increasingly uncer
tain future. I believe the answer to this question is yes. The Business Case of
Philippine Banking Ladies and gentlemen, we can talk about specific metrics of b
ank performance so that we can argue for the systems strengths and weaknesses. We
are not resting our laurels on mainstream data. Instead, we continue to venture
forward, exploring the relative strength of the system to withstand future unkn
own shocks. Our recent stress test results show that for the 55 universal, comme
rcial and thrift banks tested, their aggregate balance sheet shows a remarkable
ability to absorb extreme values of risk. Their Capital adequacy Ratio remained
significantly higher than regulatory requirements despite write off of as large
as 50%, 500 bps increase on local and foreign interest rates as well as a 30% de
preciation of the PHP. I should point out that our ICAAP program was put in plac
e in late 2008, at the height of the global difficulties. We pushed forward beca
use we believe strongly in the value of such exercise and the results have been
rewarding. We have had very candid exchanges with ICAAP-covered institutions and
these banks have likewise appreciated that there are strategic gains that accru
e to them for such a program. Recently, we have instituted a further extension o

f the ICAAP program by covering all foreign banks operating in the Philippines.
Instead of relying solely on their parent, we believe in holding banks operating
in the Philippines to a standard of accountability and shared governance. By co
vering foreign banks, we will have a more complete view of how market operators
see the risks in their operations and how they manage the same. This is an impor
tant element because of the potential for spillovers if their risks are not even
considered on the radar screen of the regulator. Ladies and gentlemen, there ar
e many more initiatives in the pipeline to strengthen the banking system, as wel
l as to develop new means of measuring that strength. But, I wish to emphasize h
ere that strength and soundness in and of themselves are hollow These must transl
ate to welfare improvement. Banks must not only be responsive to the changing en
vironment, they must also always conduct their business responsibly. We certainl
y expect strong banks to mobilize savings and then to intermediate the same to b
orrowers. In this respect, therefore, it is useful to highlight that bank credit
has grown, and grown in congruence with the activities in the real sector. The
credit-to-GDP ratio, at 39.6% as of June 2011, has been steady from as far back
as 2006 (40.2%). This suggests a relatively stable relationship between economic
activity and credit exposures. The ratio is not too high so as to raise overhea
ting alarm bells and not too low as to suggest a market without momentum. If, ho
wever, we take the argument a step further, this relationship between bank credi
t and economic growth tells us that banks have the power of the purse to support t
he real economy by allocating to deserving borrowers. It is critical, therefore,
to remember that even in the stylized world, banking is a business initiative.
It is a service [in quotes]. Banks deliberately take on risks because they can pro
vide such a service [again, in quotes] to those who are not in a position to absor
b such risks. More simply put, the business of banking is to make money by alloc
ating the money that others have tasked them to safekeep. Necessarily, this rais
es a lot of flags about conflicts and market abuse. This is where responsible ba
nking kicks in. As the bank supervisor, the BSP oversees the banking market large
ly along the lines of permissible banking activity. This sets the perimeter with
in which good or responsible behavior is nurtured and accountability is demanded o
f bad behavior. Here the role central banks and bank supervisors is clear.. They
must provide a framework that balances the competing interests of all parties.
We believe that that balance is achieved by providing for an enabling environmen
t. Such an environment: nurtures entrepreneurial initiatives which can be achiev
ed with some funding support, protects the rights of the public who either contr
ibute their saving to the system and/or partake of products and services; while
encouraging innovation so that banks can address the evolving needs of a differe
ntiated public. The BSP has been very deliberate about providing such a balanced
environment. We strongly support the Filipino entrepreneur by providing a sound
regulatory framework. Our microfinance regulatory framework has been recognized
as one of the best in the world. We have revitalized our financial literacy pro
gram and have beefed up our consumer affairs efforts by setting up a dedicated d
epartment within the BSP to handle consumer complaints. We are consultative and
gradual in our approach to innovation and refinements in our regulation to ensur
e the intended effect is well-communicated to our stakeholders. To tie in and ro
und out the balanced operating environment that we desire, we have endeavored to
put in place a sound governance structure. In the BSP, we have convened a highlevel Financial Stability Committee to take deliberate stock of potential system
-wide risks. Technical work is underway on the measures and metrics needed to mo
nitor and mitigate system-wide risks. In this way, we can stay ahead of transact
ion-level risks before they become systemic and disruptive. Our Financial Sector
Forum (FSF) continues to be pro-active on common issues of micro-prudential reg
ulation. Recently, we agreed to establish a Financial Stability Coordination Cou
ncil which will bring together the SEC, IC, PDIC, the DOF and the BSP on the iss
ue of Financial Stability. Ladies and gentlemen, the hallmark of a system that i
s strong and ready for the uncertain future is that it must be balanced and have
in place the ability to manage conflicts of interest and to manage unwarranted
market conduct. I hope that in the past few minutes, I have been able to convinc
e you that by this litmus test, the Philippine banking system is indeed well posi
tioned for an increasingly uncertain future. The Philippine banking system will
be able to keep abreast in an increasingly uncertain market. I am certain of tha
t. We are cognizant of the balance between being supportive of innovation and th
e arbiter for potential conflicts of interest. The BSP will support innovation.
But we are a stronger believer that we need not change or innovate for the sake
of change. Instead, we believe in a strong financial governance framework becaus
e at the end of the day it is the balance between the business of banking and it
s social mandate that takes primacy. We believe that Philippine banks have been
responsive to the needs of the public and have taken responsible measures as mar
ket conditions warrant. In this way, the Philippine banking system remains relev
ant to its constituents. We are ready now but we will strive to be even more rea
dy for the contingencies that the uncertain future may provide. We cannot tell w
hat tomorrow will bring but we can guarantee you that the commitment from the Ba
ngko Sentral ng Pilipinas will not waver. Thank you and a productive conference
to all of you.
Surging Together for An Inclusive Financial System

Venue: Hotel Sofitel, Manila
Occasion: RBAP Inaugural Dinner
Outgoing Rural Bankers Association of the Philippines (RBAP) President Ms. Coraz
on Miller, incoming President Mr. Ian Eric Pama, officers and board of directors
of RBAP, friends in the rural banking industry, ladies and gentlemen, good even
ing. It is always a pleasure to join RBAP for your changing of guards. I wish to
therefore take this opportunity to congratulate the outgoing officers and board
for a job well done Please join me in giving them a round of applause. I would a
lso like to congratulate the new set of officers and directors We at the BSP look
forward to working with all of you. Indeed, the BSP and RBAP have a long histor
y of cooperation in advancing the rural banking sector, and we are happy to sust
ain this cooperative arrangement. This partnership has taken the industry throug
h good and difficult periods, from remarkable economic growth to global financia
l crises. In all, ladies and gentlemen, we have remained resilient and prevailed
. The demanding challenge facing us today, however, is how we could accelerate e
conomic growth while maintaining price and financial stability. For the BSP, bot
h objectives are important, and both require energy and serious attention from p
olicymakers. From my perspective, the rural banking industry plays a special rol
e in achieving these objectives. How you may ask? Clearly, it is through your de
ep involvement in our financial inclusion effort. Financial inclusion is dear to
the BSP. We see it as the means to expand access to financial services through
multiple, innovative yet safe channels for more Filipinos, including (and especi
ally) the previously unbanked. The dedication of RBAP, its leaders and its membe
rs, is invaluable in pursuing these objectives. A quick look at industry statist
ics We have gained much ground in positioning the rural banking industry as effe
ctive partners. Indicators show that the industry is generally in good condition
. As of end 2010, it is adequately capitalized, posting an industry-wide capital
adequacy ratio of 19 percent. Rural banks also posted steady profitability indi
cators. In the period indicated, return on assets (ROA) was at 1.9 percent while
return on equity (ROE) was at 11.7 percent, levels that are at par with commerc
ial bank counterparts. Rural banks have continued with their core banking, with
your gross total loan portfolio of PhP 100.2 billion and deposits of PhP 108.9 b
illion, both an increase of 1.1 percent and 3.4 percent, respectively, from 2009
. The industry s NPL ratio is at 8.9 percent and steadily decreasing from the pr
evious year . The rural banks are also increasingly committing to professionaliz
e their management and operations and maintain strong balance sheets. More and m
ore, rural banks are putting in place risk management systems and internal contr
ols that are necessary defenses against risks and losses. In the area of financi
al inclusion, rural banks remain at the forefront. As a sector, you continue to
take a significant share of the overall physical infrastructure of the banking i
ndustry. While the ongoing consolidation has resulted in a leaner physical struc
ture with a total of 595 head offices (as of March 2011) as compared to 624 in t
he same period last year, the branch network still managed to show a modest incr
ease from 1,993 to 1,997 branches. But more remarkably, this streamlining of phy
sical structures has been further expanded by non-traditional delivery channels
such as automated teller machines (ATMs) and electronic banking. As of March 201
1, rural and cooperative banks had deployed 187 ATMs and 55 banks have electroni
c banking services. These were non-existent just a little over five years ago. I
ndeed, rural banks are embracing opportunities and innovating to continually rea
ch more markets and service more clients. Your close proximity to clients in the
countryside likewise makes you ideal partners of financial inclusion. The Indus
try Opportunities It is therefore encouraging to see that rural banks are among
the ones taking the lead in seizing the many emerging opportunities presented by
recent BSP regulations. These regulations, as you have clearly come to apprecia
te, are aimed at diversifying your product base while at the same time expanding
the access options to broaden your reach. In the last 12 months, BSP expanded t
he range of microfinance services that can be offered to your target market, rec
ognizing the varying needs of your client-base. Aside from the usual microenterp
rise loans, we have recognized micro-housing loans (Circular 678), micro-agri lo
ans (Circular 680), microinsurance (Circular 683), and micro-deposits (Circular
694) as components of the suite of products that can be offered to your clients.
This allows you to become more responsive to varied needs of your existing clie
nts, expand your client base, tap deposits from the bankable poor, and increase
as well as diversify your income streams. A proliferation of these products, whi
ch cater to the low-income markets, would be a significant progress in financial
inclusion. To date 21 and 24 rural banks have been authorized to provide microagri and housing microfinance loans, respectively; while 26 have been cleared to
proceed to the next steps and finally be licensed to distribute microinsurance
services. In addition to the wider range of products, our issuance of Circular 6
94 in October last year, hopes to similarly widen the physical touch points to a
ccess these financial products. As such, we have provided opportunity for any qu
alified bank to setup physical offices in areas where it may not be economically
feasible to set up a full-blown branch through the establishment of Other Banki
ng Offices (OBOs) and Micro-Banking Offices (MBOs). The number of applications w
e received - 97 applications for 800 MBOs and OBOs - is noteworthy evidence of y
our keen commitment to deliver financial services in the previously unreached co
untryside where they are most needed. We at the BSP are glad to see how our regu
lations are complementing your business plans. Through these scaled-down banking
offices, the unbanked and underserved will now have access to financial service
s like loans, savings, remittances, electronic money conversion, bills payment,
pay out services and limited foreign exchange purchases. As many rural banks hav
e recognized, these offices will not only allow you to increase the value of you
r services to your existing clients but also to tap new and unserved market segm
ents at lesser costs. With your strong representation, the BSP has heard how tec
hnology has helped you improve efficiencies. Thus we have further expanded the e
lectronic money space to address the barriers that previously prevented many of
you to use e-money platforms or to directly become e-money issuers. Circular 649
, taken together with Circular 704, allows you to create linkages with authorize
d e-money issuers or become e-money issuers yourselves. You now have the option
of outsourcing automated systems, infrastructure and even network of agents to s
ervice providers (e-money network service providers or EMNSP). The complex techn
ology and substantial investment required in e-money issuance should no longer c

onstitute a formidable barrier to entry for smaller banks. With this regulation
in place, we expect to see more rural banks becoming competitive in the e-money
business. In addition to this already formidable list, we have issued our Update
d Anti-Money Laundering (AML) Rules and Regulations (Circular 706), which addres
s a main obstacle in serving the unbanked yet bankable: the lack of necessary ID
s, problems of proximity to bank offices and even the high cost of servicing sma
ll transactions. This Circular directly addresses this obstacle by allowing bank
s to classify the levels of risk for different types of customers and apply corr
esponding rules. Given this flexibility, customers with a small account balance
and transactions may be considered low risk wherein the bank may use a reduced d
ue diligence and customer acceptance. The Circular also provides scope for the o
utsourcing of customer identification and KYC requirements. Ladies and gentlemen
of the RBAP, I have to pause here to catch my breath Hasn t that been quite a li
tany of advances and innovations in the regulatory environment already? I am sur
e you will agree with me when I say that the regulations and innovations I just
shared with you over the last ten minutes or so is a strong testament to our end
uring partnership. It is reflective of how a creative partnership between regula
tor and the industry can make the regulatory framework both responsive and relev
ant. For this, I believe we all deserve a pat on the back. But wait as they say w
hen you open a magic box, there is more! We are also excited to work with the ne
w Board in the Technical Working Group for Credit Risk Management. I commend the
outgoing officers for initiating this working group to craft a model Credit Ris
k Management process developed from proven, practical and prudent practices of s
elected rural banks. This workstream is tangible proof of your commitment to str
onger risk management and your conscious effort to comply with banking standards
. We commend this self-help initiative to ensure that the rural banking sector a
dheres to prudent risk management, remains stable and improves competitiveness.
The BSP, in its consulting capacity, will be happy to provide all the necessary
technical assistance which the working group may need. Let us make this a high p
riority. We are also pleased to report that the Basic Rural Banking Course (BRBC
) has completed its pilot run. As you know, we have worked with RBAP officers to
enhance the BRBC modules, which now emphasize the oversight role of bank manage
ment and directors, and the operational aspects of banking. The course is now sh
ortened from 10 days to just 3 on account of the enhancements. I thank the 30 se
nior managers and directors selected from RBAP member banks that participated in
the pilot and provided valuable feedback on how the course can be improved furt
her. After the pilot run, the course will be cascaded to 13 regional RBAP federa
tions. After hearing all that, I believe you will agree with me that indeed the
outgoing board has given the new board much to pursue Let me assure Mr. Pama and
his new board, you will continue to have my support as well as that of my collea
gues in the BSP. Initiative for Greater Transparency Before I conclude my remark
s, I wish to speak about a recent issuance of the BSP that is aimed at gently re
minding the banks of your legal and moral obligation to practice integrity and t
ransparency in business. Circular 730, issued just last July 20, updates the rul
es implementing the Truth in Lending Act. Its objective is to ensure better cons
umer protection by enhancing loan price transparency and improving disclosure pr
actices. In particular, this Circular prescribes a uniform way of computing inte
rest to be always based on the outstanding balance of a loan at the beginning of
an interest period; the presentation of only one rate - the effective interest
rate - in all loan documents including marketing materials; and a uniform format
of disclosure that shows all essential information in a simple to understand fo
rmat. This issuance, which covers all credit providers of significance, whether
bank or non-bank institutions, effectively prohibits practices like the use of s
o-called "flat" interest rates, which show contractual rates for loans that subs
tantially differ from the effective interest rate; or possible deliberate quotin
g of lower interest rates and hidden charges. It is important to keep the public
s trust by making the true cost of their borrowings fully transparent. We are h
opeful that with universal compliance to this new interest calculation and discl
osure rules, the number of complaints against creditors received at the BSP Fina
ncial Consumer Affairs Group (FCAG) will decline. The BSP will continue to compl
ement these transparency and consumer protection initiatives with our comprehens
ive economic and financial learning programs. We hope that, together, these effo
rts will equip the general public with knowledge, skills and tools to enable the
m to make better financial decisions and become better partners in ensuring a st
rong and stable financial system. Circular 730 has had an extensive consultation
period with all bank associations, and even non-bank credit providers like micr
ofinance NGOs. You have one year to adjust your systems, revise your loan docume
nts and marketing materials before the Circular takes effect in July 2012. The C
hallenges Ladies and gentlemen, the environment we operate in is becoming increa
singly interconnected. Today, we are more quickly and more potently affected by
what is happening globally. The BSP s cumulative 50 basis points policy rate hik
e and the 200 basis points increase in reserve requirements on bank deposits thi
s year appear to have been successful in keeping inflation expectations well-anc
hored and the liquidity generated from the capital flows in check. Our assessmen
t is that these moves are sufficient (for now) to keep average inflation for ful
l-year 2011 and 2012 within the target band of 3-5 percent. But we remain watchf
ul of global developments to ensure our policy settings remain appropriate. Goin
g forward, you can continue to expect from the BSP monetary and financial polici
es that endeavor to buffer the financial system from external shocks and ensure
stable economic growth. The challenge to the industry and this new board therefo
re is how to create -- in this difficult operating environment -- a stronger rur
al banking industry that is able to maximize opportunities within the framework
of the innovative regulations we have so far put together. As the industry insti
tutionalizes better governance and management structures, strengthens capital po
sitions and balance sheets, improves risk management systems, greater transparen
cy and market discipline, and increases concern for consumer welfare, you can co
unt on the BSP s continuing commitment to provide that enabling environment for
the rural banking industry to flourish. I am confident that, united, we can succ
essfully drive the transformation towards a truly inclusive financial system tha
t will sustain economic growth and bolster financial stability. Again, congratul
ations to the new board. Mabuhay ang RBAP! Maraming salamat po!
"The Benefits of Partnership: Working for Sustainable and Inclusive Growth"

Occasion: 2011 Awards and Appreciation Lunch for BSP Stakeholders
Magandang umaga sa inyong lahat! On behalf of the Monetary Board, I thank all of
you-- our special guests -- for joining us today for our traditional awards and
appreciation lunch for our partner-stakeholders. That this event happens within
the week of our anniversary underscores its importance to the Bangko Sentral ng
Pilipinas. This is the 8th year we have been honoring our partners who through t
he years have diligently supported the BSP s information and statistical requirem
ents, as well as our advocacy programs. I can tell you now that ours is a succes
sful partnership. With your outstanding information support, the BSP has been ab
le to calibrate its policy settings correctly and keep inflation at relatively l
ow single-digit levels. In fact, a credit rating agency (Fitch) has cited BSP s
track record of delivering effective monetary policy management. In addition, th
e BSP has been receiving unprecedented support from many institutions on the imp
lementation of its many advocacies. Not many central banks can claim this distin
ction. It is fitting therefore that we expand our award categories to include ou

r partner-stakeholders for regional development, financial inclusion, currency m
anagement programs, as well as payments and settlements. Henceforth, our awards
program will celebrate not only our partnership but also the fruits of our colla
boration. Indeed, our partnership has allowed us to endure challenges. and benefi
t from opportunities stemming from global turmoil. We have seen how man-made disa
sters such as the Euro sovereign debt crises as well as geopolitical concerns in
the Middle East and North Africa have impeded global economic growth and stoked
inflationary pressures. We have also seen how natural disasters such as the ear
thquake and tsunami in Japan brought uncertainties in the global economic front.
Nevertheless, global economic growth continues to make headway. It remains frag
ile however because it is uneven and is moving at two speeds. In most advanced ec
onomies, growth is predominantly below-par as countries continue to grapple with
high unemployment rates as a result of anemic industrial activity. On the other
hand, growth prospects in emerging economies are brighter and attracting more f
oreign investments. In the Philippines, economic growth continues to gain tracti
on on the back of robust personal consumption, investments and a rebound in expo
rts. On the supply side, the economy was supported by the solid performance of t
he agriculture, industry, and services sectors. We have also been able to strike
a balance between sustained economic growth and low and stable inflation. These
factors, combined with the strength of the country s balance of payments and th
e progress toward fiscal consolidation have earned us the much-awaited credit rat
ing upgrades from all major credit rating agencies. This is a validation that we
are on the right track and that we remain committed to responsible policies and
purposeful reforms. Despite these achievements, we are mindful that there is no
room for complacency. An even better and stronger partnership is needed if we m
ust sail through both the challenges and opportunities successfully. We must be
able to sustain our momentum and translate the growth that the economy is experi
encing to something that is more sustainable and enduring. However, sustainabili
ty is not our only goal. While high economic growth is desirable, it is equally
important that the fruits of development are felt throughout the economy, partic
ularly by the marginalized and the vulnerable. It is in this context that I find
the theme for our 2011 awarding ceremony most appropriate: "Ikaw at ang BSP: Wo
rking for Sustainable and Inclusive Growth". Ladies and gentlemen. The complete
and timely reports you submit provide the BSP with essential inputs in the formu
lation of appropriate and timely monetary policies. Through your reports, we get
leading indicators, discern patterns and trends of expectations as well as trans
actions crucial to the crafting of responsive and forward-looking monetary polic
y; their significance cannot be overemphasized. Monetary stability is the first
pillar of central banking and it serves as our covenant with the Filipino people
. An environment of stable prices preserves the public s purchasing power and cr
eates a predictable planning environment conducive to strong and sustainable gro
wth. We are therefore focused on fighting inflation and safeguarding price stabi
lity. That is our objective. That is our commitment. To this end, we continue to
be vigilant against emerging risks to inflation outlook such as elevated food a
nd energy prices, strong capital inflows and higher inflation expectations. Toda
y, we also acknowledge banks that have remained our steady partners in facilitat
ing the transfer of remittances from overseas Filipinos to their beneficiaries.
Through innovative services and products, they have improved on both the speed a
nd convenience of transferring funds to beneficiaries of overseas Filipinos. Thi
s year, we will be honoring our banks not only in the area of enhancing transpar
ency and competition in the remittance market but also in reducing remittance cha
rges further through the use of the BSP s real time gross settlement system or Ph
ilPaSS .as clearing house for transfer of funds from overseas Filipinos. Thus, we
will be giving an award to the best-performing PhilPaSS REMIT participant. We a
lso continue to develop a more inclusive financial system by using multiple chan
nels to deliver a broad range of financial services to the unbanked and underser
ved population. In this connection, we recognize the potential of the Micro-, Sm
all- and Medium Enterprises (MSMEs) to boost economic growth and create employme
nt opportunities, especially if we improve their access to credit. particularly t
o collateral-free credit. Another initiative to increase the flow of credit, par

ticularly in the countryside, is the credit surety fund which allows cooperative
s to borrow from banks even without collateral. To date, we have launched 16 cre
dit surety funds across the country. This, among other initiatives, supports the
BSP s objective of developing an inclusive financial system. Thus, we will add
as awardees our outstanding partners in microfinance and financial inclusion as
well as the outstanding credit surety fund. We also acknowledge our partners who
have joined us in our various economic and financial education programs. This i
s a priority advocacy of the BSP. To us, having financially-literate Filipinos i
s a basic foundation in building a strong and inclusive financial system. Finall
y, we also have new awards for institutions that have participated in the BSP s
program to achieve a more efficient recirculation of our currency. I now take th
is opportunity to thank various industry groups that have participated in our pu
blic information campaign across the country. to help address issues in currency
supply and circulation. In particular, we honor stakeholders from the banking, e
ducation and retail sectors who help us in the BSP-DepEd s "Tulong-Barya Para sa
Eskwela" campaign. Tulong Barya encourages people to liberate and circulate for
gotten and idle coins from storage for the benefit of public elementary schools.
The regular recirculation of coins is vital in ensuring that the currency needs
of our people and our economy are met. We also recognize the support of banks in
helping the BSP implement its Clean Note Policy by withdrawing unfit or dirty b
anknotes from circulation. Our awardee banks therefore help ensure that banknote
s left circulating in the economy are clean, clear, and easier to identify from
counterfeits. Ladies and gentlemen. We at the Bangko Sentral ng Pilipinas thank
and congratulate all our partners and stakeholders across the country for their
support to our programs, advocacies and information requirements. With our conti
nuing partnership, we will be able ensure that growth in our country will be bal
anced, sustainable and inclusive. American car maker Henry Ford once said: "Comi
ng together is a beginning. Keeping together is progress. Working together is su
ccess." Ladies and gentlemen. We have been successful as partners because we mad
e a decision to work together. It is my hope that we will continue to be exempla
ry partners in the years to come. Maraming salamat sa inyong lahat! Mabuhay ang
ating mahal na bansang Pilipinas! Mabuhay tayong lahat!
BSP @18th: A Stable Anchor for Sustained Growth

Occasion: 18th Anniversary Message
Magandang, magandang umaga .... at maligayang anibersaryo sa ating lahat dito sa
Bangko Sentral ng Pilipinas! Ladies and gentlemen of the BSP. Let me begin my r
emarks with a question for you: Is there a reason for us to celebrate the 18th a
nniversary of the BSP? . I agree! In fact, there are many reasons for us to celebrat
e this milestone. In particular, the BSP has established a solid track record in
promoting monetary and financial stability in our country. This has contributed
to the country s economic and social advancement. I therefore take this opportu
nity to thank all of you and the Members of our Monetary Board who helped nurtur
e the BSP in the last 18 years, whose competence and dedication have made the BS
P a respected agent of stability and purposeful reforms. In other words, here at
the BSP we do not just count the years we make the years count. So how did we make
our years count? Let us count the ways, starting with the three pillars of centr
al banking. Ensuring prices are kept low, stable and within target First, we wor
ked diligently to ensure that prices are kept low and stable. Since our adoption
of the inflation targeting framework in 2002, we have remained vigilant against
signs of inflation pressures and adjusted our policy settings appropriately and
pre-emptively to ward off inflation threats. This is consistent with our forwar
d-looking perspective to monetary policy. How did we fare? Well, we managed to k
eep inflation stable at single-digit levels even in times when there were consid
erable risks to the inflation target. For two years in a row - in 2009 and in 20
10 - we succeeded in steering inflation within the target range and based on the
first six months of 2011, it appears that inflation will continue to be manageab
le. Safeguarding the stability of financial institutions Second, we safeguarded
the health and stability of our banking system through the worst global financia
l crisis in decades. In this connection, we shifted from the traditional transac
tional, individualized approach to supervision that is risk-based and consolidat
ed. Other key reforms were calibrated to further align local banking and governa
nce practices with international standards. Our reforms have been successful in
creating a steadily growing and stronger Philippine financial system - one that
is characterized by an expanded deposit base, improved asset quality, better cap
italization, robust profits, and ample liquidity. As a result, the banking syste
m remained an effective channel of monetary policy and a steady source of liquid
ity for the funding requirements of the economy. Maintaining an efficient paymen
ts and settlements system Third, BSP s payments and settlement system remained c
onsistently safe, efficient, and reliable, thereby boosting confidence further i
n our financial system. Over the years, our real time gross settlement system or
PhilPaSS has been moving funds faster and better. As of end March 2011, it had
processed and settled over 270,000 payment transactions with an equivalent value
of P71 trillion - significantly higher than the year ago level. Our recent brea
kthrough project is the PhilPaSS REMIT System which facilitates the settlement o
f remittances from overseas Filipinos in a safer, faster and cheaper way. So far
, 12 banks are using PhilPaSS REMIT and 35 more banks want to join the system. W
e are particularly proud that we have been able to lower remittance charges of o
verseas Filipinos by fostering healthy competition among service providers and b
y giving service providers access to RTGS, our payments and settlement infrastru
cture. Pursuing programs supportive of inclusive growth Fourth, beyond the three
pillars of central banking, the BSP has been implementing programs that facilit
ate access to credit, build productive capacities and create opportunities down
to the countryside. This includes microfinance which provides the country s entr
epreneurial poor access to collateral-free loans and various financial services,
including deposits, payment services, money transfers and insurance. As of end
2010, 200 banks engaged in microfinance were serving close to a million microbor
rowers with a total loan portfolio of P7 billion. Recently, we allowed the estab
lishment of micro banking offices (MBO) to deliver microfinance-oriented banking
services in hard-to-reach and underserved areas. We also successfully held the
first National Microfinance Stakeholders Summit last April to celebrate the triu
mphs and milestones of Philippine microfinance as well as to encourage greater c
ommitment to pursue financial inclusion in the country. To broaden access by sma
ll and medium-enterprises to collateral-free loans, we have advocated the creati
on of credit surety funds or CSFs. We organize cooperatives and partner them wit
h local government units, government financial institutions and the Industrial G
uarantee Loan Fund to set up CSFs. Today, we have 16 CSFs from Luzon to the Visa
yas and Mindanao which now support entrepreneurial activities across the country.
We have also intensified our Economic and Financial Learning Program or EFLP wh
ich integrates all of BSP s educational outreach activities across different sec
tors of our society. For the BSP, having financially-literate Filipinos is a bas
ic foundation in building a strong and inclusive financial system. This is why w
e give importance to our financial education program as a leading advocacy of th
e Bangko Sentral. Putting in place support services for institution building Int
ernally, we have focused on capacity building and raising our governance standar
ds. We instituted reforms that promote fairness, transparency, accountability, a
nd high ethical standards. And we made good progress in meeting the human resour
ce needs of the BSP through enhanced training and scholarship programs, competen
cy profiling, and performance evaluation. Through BEST or the BSP Educational Sc
holarship and Training Program, we have produced an impressive list of economist
s, internal auditors, financial risk managers and financial analysts. In additio
n, we have moved forward in formulating and implementing an Enterprise Risk Mana
gement system or ERM. Risks are real threats to the strength of our institution,
and they need to be recognized, measured and managed. At the same time, continu
ous enhancements of support services were implemented across the Bank. I also wa
nt to acknowledge the active participation of BSPers in various social projects
to help those who are in need. You were at the front lines to help flood victims
; you bring joy to residents of the Home for the Aged; support orphans; donate s
hoes to those who go to school in tattered slippers; build homes for the homeles
s; and regularly share coins, banknotes, toys and educational materials for chil
dren in public schools. Truly, I can say that BSPers are not only excellent publ
ic servants who serve with integrity and patriotism, . BSPers find ways to help. a
nd be a blessing to others .. with creativity and dynamism! Tama ba? Tama! In oth
er words, ladies and gentlemen of the BSP, you get top grade for a job well done
! Let us celebrate this.. with a round of applause! The BSP in the next six years
Ladies and gentlemen. I have discussed what we have accomplished so far. Now I w
ill briefly outline our roadmap going forward. I will refer to them as our six p
olicy guides for the next six years.. as we journey through this fast-paced, tech
nology-driven, and globalized world. that has made the conduct of central banking
a challenging balancing act. First, the BSP remains committed to provide stabil
ity to our economy. through monetary policy calibrated to keep inflation at low a
nd stable levels. We will continue to work on our policy toolkit as well as enha
nce our forecasting models and macroeconomic early warning systems. The importan
ce of crafting responsive and forward-looking monetary policy cannot be overemph
asized. Monetary stability is the first pillar of central banking and it serves
as our covenant with the Filipino people. An environment of stable prices preser
ves the public s purchasing power and creates a predictable planning environment
conducive to strong and sustainable growth. We are therefore focused on fightin
g inflation and safeguarding price stability. That is our objective. That is our
commitment. Second, we will continue to craft policies and programs to create a
sound, responsive, and inclusive financial system. Let us foster a healthy fina
ncial system where funds are channeled where it can be most productive and suppor
t our national goal of achieving inclusive growth. We will continue to pursue ou
r reform agenda to strengthen our financial system. We look at reforms from two
dimensions: first, improving both regulatory framework and the effectiveness of
supervision; and second, broadening the coverage of our examination beyond the s
afety of individual institutions to cover the stability of our entire financial
system. The objective is to prevent the buildup of systemic risk. The recent glo
bal financial crisis highlighted that monetary stability is necessary, but not s
ufficient, in preventing financial crisis. Central banks are increasingly expect
ed to ensure stability in a broader sense - focusing not only on price stability
but also on financial system stability. Third, a smooth functioning financial s
ystem warrants a robust payment system, where payments are settled in the most e
fficient way among economic agents. Thus, the BSP will continue to be proactive
in ensuring the smooth functioning of our payments and settlement system as well
as in broadening its customer base. Fourth, the BSP will continue to work on ha
ving an inclusive financial system that reaches out to the underbanked and the u
nbanked. Let us be mindful that about 1/3 of our municipalities are still withou
t bank offices and that less than one-half of Filipino adults have bank accounts
. The BSP shall also continue to support the micro, small and medium enterprises
by instituting reforms that will broaden access of the marginalized and vulnera
ble segment of our population to the financial sector. Economic and financial le
arning campaigns will be pursued consistently to empower more Filipinos to save,
invest and grow their money properly and effectively. Fifth, we shall continue
our active participation in international cooperation arrangements. In this era
of greater interconnectivity, it is imperative for central banks to engage in co
llaborative undertakings, such as information sharing, harmonization of standard
s and practices, as well as liquidity provision during stressful domestic market

conditions. Finally, the BSP shall continue to work on becoming a world-class m
onetary authority. As an institution, we have to work on some institutional rigi
dities by amending the BSP charter and aligning our processes with global best p
ractices. We shall work with Congress to address this concern. We should also co
ntinue to participate actively in global dialogues where we have emerged as thou
ght and practice leaders. Among others, our regulatory framework for microfinanc
e has been cited by a global survey as the best in the world and has brought in
observers from other countries who want to learn from us. In addition, our pione
ering policies and programs involving e-cash or electronic cash have also attrac
ted international attention. Concluding remarks Ladies and gentlemen, it is clea
r we have achieved a great deal in the last 18 years by delivering on our mandat
e and many other positive policies and programs. Moving forward together in soli
darity, I know that we can do even better in the service of our people and our c
ountry. Together let us provide an environment conducive to sustained growth whe
re prices remain low and stable; where the banking sector is sound, responsive a
nd inclusive; where the payments and settlements system is safe, efficient and r
eliable; where our charter allows us to align with global best practices in cent
ral banking; and where most Filipinos know how to save, invest, and grow their m
oney. If we succeed, growth will be truly inclusive in our land, not just in urb
an centers but in the countryside as well. If I remember correctly, one out of t
hree Filipinos live in poverty. Many of them do their best to earn a living usin
g money borrowed on the so-called 5-6 or at an interest rate of more than 1,000
% per annum. On the other hand, if they are able to access micro credit from ban
ks, they pay only about 30% a year! Imagine how much more money they can earn fo
r their families and how much more it can improve their quality of life! Think ab
out it. Our policies and programs can and truly change and improve lives. Indeed,
it is very fulfilling being part of a cause bigger than ourselves. I believe thi
s is the reason why we are all committed to our work as BSPers, 24/7, and why we
look forward to dedicating more years as public servants here at the BSP. On a
personal note ladies and gentlemen. I and my wife Elma; my daughters Eula and Mi
a; my son Patrick and his wife Miko and my grandchild Zara thank all of you for gi
ving me the privilege and good fortune.of working with the best and most dedicate
d public servants in our country: the BSPers spread out across the Philippines from Manila to Quezon City to all our regional offices and branches! My special
thanks too to the brilliant and hardworking deputy governors who I have worked w
ith and look forward to working more with: Andy Suratos, Nesting Espenilla, Diwa
Guinigundo, and Jun Zuniga! In sickness and in health, through good times and d
ifficult challenges, through ups and downs, rain or shine, you have always stood
by me and given me your full support. From the bottom of my new heart, I sincere
ly thank all of you! Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ating
mahal na bansang Pilipinas! Maraming, maraming salamat sa inyong lahat!
The Philippine Initiative: Harnessing the Development Potential of Migrants

ittances
Rem

Venue: Astoria Plaza
Occasion: Policy Forum on Overseas Filipinos-Diaspora Remittance for Development
(OF-RED)
Secretary Imelda Nicolas, Governor Imee Marcos, the sectoral representatives of
our migrants and overseas Filipinos, fellow workers in government, special guest
s from the financial sector, ladies and gentlemen, good morning. At the outset,
I congratulate the organizers of this important policy forum on the Overseas Fil
ipinos-Diaspora Remittance for Development (OFs-RED) Project. Indeed, we at the
Bangko Sentral ng Pilipinas fully support forums such as this that take a collabo
rative and multi-disciplinary approach in tapping the remittances of our overseas
Filipinos for social and economic development. Macroeconomic Role of Remittance
s By World Bank estimates, remittance flows across countries have grown by almos
t two-fold in the past seven years to $414 billion in 2009, 76% of which were re
ceived by developing countries. For most of the recipient countries, including t
he Philippines, these remittances provided stable support to their economies, ser
ving as cushion during global economic and financial downturns, . political turmo
il and natural calamities. In the Philippines, remittances of overseas Filipinos
have grown at an annual average of 14.2% in the last six years, spurred by the d
iversity of skills and destinations. In 2010, it reached a record high of $18.8
billion and contributed about 10% of our Gross Domestic Product. From remittance
s, households are able to spend more on education and health care, purchase real
properties, undertake house improvement, . save money, invest in financial instr
uments, and engage in business enterprises. In the process, remittances generate
demand for goods and services that creates jobs for more Filipinos. The countrys
policy response to remittances should therefore be directed more toward reinforc
ing these positive and beneficial effects. Thus, the BSP in cooperation with oth
er government agencies, financial institutions and NGOs have been conducting eco
nomic and financial education for overseas workers and their families here in th
e Philippines. Our objective is to empower our migrant workers in partnership wi
th their families to save, invest and grow their money for the long-term. Under
our financial education program, the BSP, in the last five years, has conducted
48 financial lectures across the country for about 6,000 dependents of overseas
Filipinos. In 2008, in response to mounting requests, the BSP started conducting
financial lectures directly for our overseas Filipinos. As of today, the BSP ha
s conducted 14 financial lectures abroad for nearly 2,000 overseas Filipinos in p
laces such as Hong Kong, Singapore, South Korea, Japan, Saudi Arabia, Bahrain, Q
atar, Italy, and the United Kingdom. Based on our monitoring, the cumulative inf
luence of institutional and public policies combined with generally higher aspira
tions of migrant families have produced some positive results. For instance, resu
lts of the BSPs Consumer Expectations Survey for the first quarter this year indi
cated that the percentage of Overseas Filipino households which set aside money
for savings has increased to 41.4%. Four years earlier, the first time we conduc
ted this survey in the first quarter of 2007, only 7.2% of OFW households report
ed saving money from remittances. However, we do have a long way to go in terms
of fostering investments among OFW households: the percentage of households that
used part of their remittances for investments reached only 5.7% in the first q
uarter this year, compared to 2.3% four years earlier. Clearly, this is where th
e challenge lies, .where we need to focus our efforts: toward harnessing remittan
ces from migrant and overseas Filipinos for economic and social development. A r
oadmap that will encourage OFW households to expand from pure consumption to inc
lude saving and investing regularly is called for. While consumption generates e
conomic growth, it is the allocation of remittances to saving and investments th
at will improve the financial condition of households and that of the entire econ
omy in the long term. In this connection, the BSP has continuously worked on faci
litating safer and more efficient transfer of remittances by fostering competitio
n that has reduced transaction costs for overseas Filipinos and their beneficiar
ies. Further reductions in local remittance fees by 50% to as much as 91% are be
ing generated from the use of the BSPs real-time gross settlement system or PhilP
ass as local clearing facility for remittances for credit to other banks. For in
stance, transaction fees involving the use of couriers in some instances, which r
anged from P100 to P550 have now been reduced to P50 per transaction with the use
of BSPs PhilPass. BSP will continue to use new technology to provide overseas Fi
lipinos and their dependents with more low-cost options for fund remittance. Equ
ally important, in addition to conducting financial lectures, the BSP has been w
orking on a number of activities to mobilize remittances to fund productive acti

vities and maximize the development potential of remittances. Among others, we h
ave encouraged and authorized commercial banks to offer specialized investment p
roducts and services to overseas Filipinos. Last year for instance, the BSP appr
oved the release of multicurrency retail treasury bonds or OFW bonds, allowing o
verseas Filipinos to invest in the bond instrument for as low as US$100 or 100. I
n 2008, we authorized two specialized government banks to promote hedging instru
ments and long-term negotiable certificates of deposits. And today, banks offer
direct payment schemes to ensure convenient and safe payments by overseas Filipi
nos to different institutions. However, we need to much more. We need to broaden
and deepen our reach, harness the cooperation and support of more sectors, and
work together to make the collective remittances of migrant and overseas Filipino
s an empowering force for social and economic development. I am happy to note th
erefore that the Commission on Filipinos Overseas under the leadership of Secret
ary Nicolas has taken a proactive approach in this direction. Indeed, I share he
r belief that harnessing remittances for development is the next frontier for dev
elopment banking and finance. I also share her optimism that if all of us in gove
rnment, civil society and the private sector unify behind this goal, we can succ
essfully create an enabling and creative environment for harnessing remittances
for development, the same way we did for microfinance. As some of you are aware,
a global survey ranked the Philippines as the worlds best in terms of providing
a regulatory environment that fosters the development of the microfinance sector
. Ladies and gentlemen. The Philippines is now ranked as the worlds fourth larges
t recipient of remittances because of the labor and industry of our migrants and
overseas Filipinos. We call them our modern-day heroes. Like the Commission on
Filipinos Overseas, the Bangko Sentral ng Pilipinas also believes that the best
way we can show proper appreciation for their efforts is to empower them to atta
in financial independence for their families and to harness their collective savi
ngs and investments to help our economy achieve balanced, sustained and inclusiv
e growth. This is not to say meeting this objective will be easy; of course ther
e will be challenges to be met and obstacles to overcome. But things are bound t
o move faster and more smoothly if we move forward together. With this in mind,
I wish you all a successful forum. Mabuhay ang overseas Filipinos! Mabuhay ang m
ahal nating bansang Pilipinas! Maraming salamat sa inyong lahat!
The Philippine Banking Sector: Stepping Up to the Challenge of Setting the Found
ation for Sustained & Inclusive Growth
Venue: Fort San Antonio Abad, BSP Head Office Complex, Manila
Occasion: BSP s Annual Reception for the Banking Community,
Distinguished members of the executive, judicial and legislative branches of gov
ernment, members of the diplomatic corps, the leaders of the Philippine banking
community, multilateral agencies, the media, the private sector, NGOs, friends,
good evening. and welcome to the annual reception of the Monetary Board of the Ba
ngko Sentral ng Pilipinas for the banking community. As Governor of the Bangko S
entral and concurrent Chairman of the Monetary Board, I am one of your hosts. Yo
ur other hosts tonight are the six other members of the Monetary Board who I wil
l now invite to kindly join me here on stage: Finance Secretary Cesar Purisima,
MB Members Juanita Amatong, Nelly Favis-Villafuerte, Alfredo Antonio, Ignacio Bu
nye and Peter Favila. Ladies and gentlemen. We thank all of you for joining us t
onight. This is an auspicious time for our economy in general and our banking sec
tor in particular. First, our economy as measured by GDP grew 7.5% in the first
nine months in 2010; Second, inflation remained at low single digit levels, aver
aging 3.8 for the entire year in 2010 or at the low end of the Government s targ
et range of 3.5-5.5 percent Third, the Bangko Sentral s policy rates have remain
ed at record low levels since July 2009: 4 per cent for overnight borrowing and
6 per cent for overnight lending. As a result, most banks have also clipped thei
r interest rates and kept the cost of money relatively lower. Fourth, our strong
external position provides a strong cushion against possible external shocks. O
ur gross international reserves (GIR) as of end-December 2010 is at an all-time
high at $62.1 billion, higher by $17.9 billion compared to the $44.2 billion tot
al in December 2009. This is partly due to our overseas Filipinos who continue t
o remit money to the Philippines in record levels. ifth, improvements in our eco
nomic performance and prospects have resulted in better credit assessment for ou
r country. In November last year, the Philippines received a credit rating upgra
de from S & P, the first in 13 years. And last week, Moody s Investors Service c
hanged the outlook on the Government of the Philippines Ba3 foreign and local-c
urrency bond ratings to positive from stable; this is its second positive rating
action in 18 months. ixth, the Philippine peso has maintained its relative comp
etitiveness with other currencies in the region as effective management of forei
gn exchange inflows by the Bangko Sentral has allowed the peso to remain relativ
ely stable. Ladies and gentlemen, one of the reasons behind the sustained growth
of our economy is our banking system which has remained sound, stable, and liqu
id through the recent global economic and financial crises. Lending, deposits, an
d profitability posted healthy growth rates in 2010; average capital adequacy ra
tio of over 15% remained comfortably above the BSP s 10% minimum requirement; an
d non-performing loans remained generally low at 3%. In fact, initial assessment
s indicate that 2010 could be one of the best years for Philippine banks. Equall
y important, we have made significant strides in our inclusive finance program.
With the use of modern technology, more and more people become part of the finan
cial mainstream, gaining access from the different corners of the archipelago. A
nd in parallel with the expansion of credit delivery channels, we have broadened
and intensified our economic and financial education program to empower differe
nt sectors of our society. As of September 2010, for instance, outstanding micro
finance loans of 200 banks to 933,000 borrowers stood at P6.53 billion. or an ave
rage of nearly P7,000 per borrower. What is inspiring is that many of these micr
o borrowers have also become net savers with deposit accounts in banks. These ac
hievements have been recognized by international organizations and the markets.
For instance, the 2010 Global Microscope on Microfinance conducted by the Econom
ist Intelligence Unit, ranked the Philippines as the best in terms of our policy
and regulatory framework for microfinance and number two overall for best perfo
rming country for microfinance, next only to Peru. But, our agenda does not and s
hould not end here; there is so much more that we can and should do. You and I kno
w that millions of Filipinos still live in poverty. Among others, we should put
in place an even more inclusive financial system by developing new programs to a
ccommodate more of our entrepreneurial poor, the underbanked, and the unbanked.
Banks can also broaden and make their corporate social responsibility programs m
ore inclusive on a sustained basis. They can be related to education, livelihood
, the arts, or cultural heritage preservation. The ideal is to empower and equip
our people with skills that will make them productive and self-reliant for the
long-term, within their respective communities. The Government s public-private
partnership program under President Benigno S. Aquino III also offers new opport
unities for our banking sector. Not only will PPP projects generate employment,
they will also fill in our country s need for infrastructure and catalysts that
will spur long-term growth If the leaders of our banks represented here tonight
respond to these challenges, then our banking community can rightfully claim to
have set up the foundation for sustained and inclusive growth in our country. Gr
owth that will in turn generate better returns and further strengthen our bankin
g system. Growth from investments that will generate a virtuous cycle, improve t
he lives of Filipinos and make our country a better place. On our part, we at th
e Bangko Sentral commits to work even better to deliver on our mandate concernin
g the three pillars of central banking: promoting stable prices through responsi
ve monetary policies; maintaining a reliable and efficient payments and settleme
nt system; and ensuring a sound and stable banking system. In all these, good go
vernance will be our guide along with our corporate values of patriotism, integr
ity, excellence, dynamism, and solidarity. Ladies and gentlemen. Behind me, you
can see the new logo of the Bangko Sentral highlighted by the Philippine eagle:
a symbol of strength, clear vision and freedom, the qualities we aspire for as a
central bank. We are also proud of our new generation banknotes that pay tribut
e to Filipinos who played significant roles at various moments of our nation s h
istory and feature World heritage sites and iconic natural wonders we are proud
of as Filipinos. Finally, we at the Bangko Sentral ng Pilipinas thank all of our
special guests for your continuing support. We have accomplished much in the pa
st years because you have worked with us in crafting and implementing challengin
g reforms that have made our banking system sound and stable through difficult p
eriods. If we remain united in pursuing much-needed reforms, we can transform ou
r banking system to become even stronger and an even more effective catalyst for
development. At this point, may I invite all of you to offer a toast to a bette
r Philippines. where peace reigns, good governance prevails, and development is t
ruly inclusive. Mabuhay ang Pilipinas! Thank you and let s enjoy the rest of the
evening.
The Philippines: Vision Toward Sustained Rapid Growth

Venue: Manila Polo Club, McKinley Hall, McKinley Road, Forbes Park, Makati
Occasion: NA
Officers and members of the Rotary Club (RC) of Manila (led by your president, G
ert Gust), RC of Chinatown Manila (led by your president, Rosie Lim), RC of Forb
es Park (led by your president, Peter Kawsek, Jr.); Cong. Roilo Golez, special g
uests, ladies and gentlemen, happy New Year and good afternoon. It is always a p
leasure to touch base with the Rotary Club. But this year, I am especially pleas
ed to join your meeting because this years joint meeting is one among three RC ch
apters. If I recall correctly, last year it was the RCM and the RCFP together. T
his year, the RCCM is also participating in this joint meeting. I find speaking
before the Rotarians during this time of the year, when we traditionally set our
sights on the future, most worthwhile. Why do I say this? The RC has always bee
n known for leadership and service in both public and private endeavors. I am ce
rtain you will also agree with me that Rotarians are distinguished, not only for
your capacity and courage, but more importantly, your desire and drive to move
our country forward and upward. It is my hope therefore that in the next few min
utes as I share with you my thoughts on how I see our countrys economic and finan
cial landscape going forward, I would succeed in encouraging you to an even stro
nger engagement and partnership as we sail through both the challenges and the o
pportunities that the unfolding operating environment offers. 2011 - A year of P
romise Let me begin by saying, I firmly believe 2011 is a year that offers much
promise for our country. When I was here last year, I spoke about the global eco
nomy being at the cusp of recovery. This time, numbers from the first semester o
f 2010 show that the worst effects of the global crisis are behind us. Domestica
lly, I believe we have surpassed most expectations. Indeed, the Philippines has
entered 2011 from a position of strength. Let me illustrate Our economy sustained
its dynamism and grew robustly in 20107.5 percent in the first three quarterson t
he strength of solid macroeconomic fundamentals, timely and effective policy res
ponses, and purposeful reforms. At this rate, our economy is poised to grow at a
rate faster than the governments target of 5.0 to 6.0 percent in 2010. Strong ou
tput growth was realized in a low inflation environment. Full year inflation ave
raged 3.8 percent in 2010, well within the governments target range of 3.5 to 5.5
percent. The countrys external payments position continued to strengthen. We pos
ted an unprecedented surplus of US$13.2 billion in the first 11 months of 2010all
owing for the healthy build-up of international reserves and helping ensure exte
rnal debt sustainability. Both of these have strengthened our resilience against
external shocks and consequently led to a credit rating upgrade for the country
from Standard and Poors (S&P). This morning, Moodys upgraded the Philippines credi
t rating outlook from stable to positive. Again, this is reflective of our stron
g external position. International reserves stood at an all-time high of US$60.6
billion as of end-November 2010, considerably higher than the end-2009 level of
US$44.2 billion. The preliminary figure for December is US$62 billion, before r
evaluation. The end-November GIR level could cover close to 11 months worth of im
ports of goods and services and is 6 times the countrys external debt based on re
sidual maturity. The strong reserves position provides a hefty cushion against e
xternal shocks. Exchange rate stability has been maintained, even as the peso ha
s retained its competitiveness. Meanwhile, an increasing deposit base, steady pr
ofitability, adequate capitalization (above BSP regulatory standards), and solid
asset quality with low non-performing loan ratios continue to characterize the
banking system. Its soundness has enabled the banking system to perform a cataly
tic role for a more dynamic and participatory economic development. In other wor
ds, ladies and gentlemen, all our economic indicators are pointing in the right
direction. Quite a few have even surpassed targets. The Ideal Combination Strong
growth in an environment of low and stable inflation is what we experienced las
t year that is the ideal combination. With the New Year, we turn over a new leaf
. And with our recent solid economic performance, there is basis for us to set o
ur sights to sustained rapid growth. We must aim high and indeed we can aim high
. Goal determines destination. If we set a high enough goal we can only see highe
r and better things for ourselves. Its similar to when one plays video games. Whe
n playing these games you do so with much intensity and passion because you want
to go to the next level and then the nextand then the next Ladies and gentlemen, o
nly sustained rapid growth can help bring significant improvement in the lives o
f ordinary Filipinos. That should be our vision. Risks to our Vision To be able
to reach our goal, we must be keenly aware of our surroundings. What are the cha
llenges and possible risks to this vision? From the BSPs perspective, we see a nu
mber of challenges in the global arena that could affect domestic monetary polic
y and the banking regulatory environment. Let me just cite four. First, global g
rowth is still expected to be subdued this year. Although fears of a double dip
have receded, recovery has been uneven across countries, with advanced economies
lagging behind developing ones. The massive non-traditional monetary and fiscal
stimulus packages put in place by advanced economies have not produced quickly
enough the desired effects on domestic jobs creation.That said, export-dependent
developing economies are at risk should G-3 economies continue to lag. We would
therefore be well-advised to review trade partnerships. In the specific case of
Asia, we could consider increasing trade among our economies to better tap the
demographics or the internal demand of our own region. There is no major threat
to global inflation at this time. As I see it, inflation is only developing as a
n idiosyncratic risk factor in emerging markets, in light of above-potential gro
wth for EMs and higher commodity prices. Now, whether these become more generali
zed among emerging markets remains to be seen. In the Philippines, the manageabl
e inflation outlook has accorded the BSP room to keep our policy interest rates
steady since July 2009. Nevertheless, developing economies, including the Philip
pines, should still be mindful of changes in the monetary policies of advanced e
conomies. Second, foreign exchange is likely going to continue to flow into econ
omies that have better growth prospects. If investor risk appetite continues to
improve, then emerging markets, including the Philippines, will likely continue
to be recipients of foreign exchange. As we have experienced in the past, these

inflows, if disorderly, could complicate monetary policy, create strong currency
appreciation pressures, and potentially result in asset bubbles. So far, the BS
P has been successful at taming the ill effects of the surge in capital flows on
domestic liquidity, exchange rate volatility and inflation expectations. The BS
P achieved this by employing a mix of policy instruments, instead of simply depe
nding on the policy interest rate alone. In addition, the risk of a bubble over
the near term for us appears limited for a number of reasons, including the cons
ervative prudential framework we adopted in the aftermath of the Asian financial
crisis. That said, investor sentiment could quickly shift and therefore BSP mon
etary policy should always be vigilant and nimble. Third, the international fina
ncial regulatory landscape is changing with the implementation of Basel III. As
regulators across the globe consider how to adopt Basel III to their own domesti
c financial systems, regulated entities may take on a wait-and-see attitude with
regards their credit operations. This could weaken real growth prospects. For t
he BSP, we have always taken a phased-in approach to banking reform. Therefore,
it is expected that the transition into Basel III for Philippine banks would be
relatively smooth. Nonetheless, BSP should remain sensitive that adoption of int
ernational standards to our own setting must be in line with the objective of me
eting the economys peculiar financial service requirements. Fourth, the resolutio
n of the debt crisis in Europe could be protracted. If indeed the road to its re
solution would deepen the gap between the high interest deficit countries (PIIGS
) and the much lower core interest surplus countries (e.g.,Germany) in Europe, t
he process could adversely affect any or all of the three foregoing challenges I
cited. Ive limited my discussion to these four (challenges), which are inherentl
y interrelated and whose adverse impacts are shifting. The shiftiness of these c
hallenges reminds me of a quote from actor James Dean (He was not simply the guy
with the suave hair and cool jacket. It appears he was also smart). He said, I c
ant change the direction of the wind, but I can adjust my sail to always reach my
destination. My take away from this quote is this there will be things beyond our
control, but for as long as our goal is clear, we can still get to our destinat
ion if we make timely adjustments along the way. Given these possible risks, wha
t must we do to stay on track? 1. BSP will keep its eye on the inflation ball. T
o sustain rapid growth, we need to maintain a low-inflation environment. For 201
1, we forecast inflation to be 3.6 percent, well within the governments target ra
nge of 3 to 5 percent. This favorable inflation outlook gives BSP elbow room in
its conduct of monetary policy. Over the next four years till 2014, the BSP has
committed to an inflation target of 3-5 percent. The longer target horizon is ex
pected to support consumption and investment by fostering greater predictability
in economic decisions. 2. BSP will endeavor to keep the financial system stable
. This is essential in ensuring efficient intermediation credit to the productiv
e sectors of the economy. Toward this end, the BSP will further enhance risk-bas
ed supervision technologies, improve existing macro/micro surveillance tools, an
d continue aligning the existing regulatory framework with international standar
ds (including the Basel III reform package). 3. BSP will ensure confidence in th
e countrys payments and settlements systems. Therefore, the BSP will continue to
benchmark its systems and processes against international best practices. 4. BSP
will sustain an environment that will support a healthy external position. The
BSP expects the BOP to remain in surplus in the near-term, and will work towards
an orderly build-up of international reserves, an essentially market-determined
FX rate, and a sufficiently flexible FX regulatory environment. 5. BSP will con
tinue to help create an environment of growth where no one is left behind. As su
ch, we will continue to pursue advocacy programs in microfinance, financial lite
racy, consumer protection, and the improvement of the overseas Filipinos remittan
ces environment. Conclusion Given all that, I think we have our work cut out for
us. I hope I have made this point clear -- only sustained robust growth can hel
p bring significant improvement in the lives of ordinary Filipinos. That is our
vision. I hope also that I have painted not just a picture of where we want to go
, but also a map of how I propose we get there. Business and economics are somet
imes likened to a game. There are players, contenders there are rules there are be
st strategies.then, there is a prize. In the past few minutes, Ive tried to lay ou
t our strategy, so to speak. As I close, Id like to share words from Albert Einst
ein (Unlike James Dean, Alberts hair was often out of whack, but he was undeniabl
y one of the smartest who ever lived). Albert Einstein said, and I quote: You have
to learn the rules of the game, and then you have to play better than anyone el
se. It is my hope that I can count on you to join us in our strategy to stay on t
he path of rapid economic growth. Thank you and have a good day.
Remarks for the Foreign Correspondents Association of the Philippines (FOCAP) Bre
akfast Forum
Venue: NA
Occasion: Foreign Correspondents Association of the Philippines (FOCAP) Breakfast
Forum
Good morning, ladies and gentlemen. I am grateful for this opportunity to once a
gain address the FOCAP community and briefly share some insights on key recent e
conomic and financial developments with friends from the foreign media. Let me s
tart with the global arena. The turnout of the global economy in the first semes
ter of 2010 was considerably brighter than previously anticipated. In its latest
World Economic Outlook, the IMF reported that the world economy expanded at an
annual rate of 4.6 percent during the first half of 2010, slightly higher than i
ts earlier projection of 4.2 percent in April 2010. But while economic recovery
is proceeding, vulnerabilities remain elevated due mainly to the significant geo
graphical variation in the recovery process. The IMFs Managing Director captured
it quite well. He said, Recovery is uneven and fragile; it is fragile because it
is uneven. The central challenge, therefore, lies in how the global economy will
rebalance. The multi-speed pace of recovery across countries puts the global eco
nomy at a critical juncture. The weak growth exhibited by the US and other advan
ced economies has led to pressures on their currencies to depreciate. Anemic gro
wth prospects have also necessitated a further round of easy monetary policy, no
tably in the U.S. This has resulted in funds (both real money and speculative flo
ws) turbulent search for yield mainly in emerging market economies. Emerging mar
ket economies have therefore become vulnerable to potential asset price bubbles.
In addition, foreign exchange flows have been pulled in by the strong economic
growth prospects of emerging market economies, exerting appreciation pressures o
n their local currencies and threatening to complicate liquidity management. The
se developments have created tensions as driven by national interests, pushing s
ome countries to weaken their currencies or prevent appreciation. Some have term
ed these as currency wars or competitive depreciation (or non-appreciation). However
, as any economist would tell us: this cannot be equilibrium. As Nouriel Roubini
1/ said: We are in a world in which everyone wants a weaker currency but you can
not have equilibrium of all currencies being weaker. Reducing global imbalances i
s therefore a necessary condition to achieve a strong, sustained and balanced wo
rld recovery. Two rebalancing acts need to take place soon and fast: external re
balancing and internal rebalancing. External rebalancing will require deficit ec
onomies to save more and consume less. They will need to depend more on external
demand, which will benefit from a real depreciation of their currencies. Meanwh
ile, the surplus economies, most notably the emerging market economies, will nee
d to do the opposite save less and spend more. They will need to shift their dev
elopment models to focus more on reinvigorating domestic demand and boosting int
ra-regional trade. On the other hand, internal rebalancing implies that private
demand must be strong enough to take the lead and sustain economic growth going
forward. Fiscal policy has its limits, and we are seeing these limits reached in
many jurisdictions. How can the Philippines contribute to the rebalancing proce
ss? First is to increase domestic demand. For the Philippines, buoyant domestic
demand is currently being supported by a low interest rate and low inflation env
ironment. We are currently in what I have referred to as a sweet spot strong GDP g
rowth at 7.9 percent in the first half of 2010 and a low inflation average rate
of 4.0 percent for the first ten months of the year. As the inflation outlook re
mains manageable in the medium term, the current monetary policy balance appears
to be well-tuned and would continue to be supportive of both inflation control
and economic growth. Our view is that domestic demand growth would still remain
solid and vigorous. But as I said earlier, this will only be sustained if privat
e demand becomes the foremost driver. The governments PPP initiative could make t
his a reality. The BSP is very supportive of this effort and we will continue to
endeavor to promote a macroeconomic environment that would make it gainful for
the domestic private sector (on their own or through strategic foreign partnersh
ips) to participate full speed in these much-needed domestic infrastructure proj
ects. Second is to pursue fiscal consolidation. What is crucial here is not the
urgency of fully phasing out fiscal stimulus, but of offering credible medium-te
rm plans. This should cover: (1) increasing the tax effort through improved tax
administration and in the future, perhaps a review of tax policy; (2) raising sp
ending on much-needed infrastructure as well as social services; and (3) reducin
g the countrys debt-to-GDP ratio. The NG has been aggressively pursuing programs
to deliver on its promise of reducing the countrys deficit to GDP ratio to 3.9 pe
rcent this year, with a view to keeping this ratio at a more manageable 2.0 perc
ent from 2013 onwards. The NG has also been proactively and creatively managing
the maturity and currency profiles of the countrys debt. The approved national bu
dget for 2011 also offers more social programs for the poor. The market recogniz
es these efforts and has, by and large, been patient and hopeful. But these effo
rts must, as in any other effort, be sustained to cement credibility. Third is t
o deal prudently with the surge of foreign exchange, which may continue for some
time as the global adjustments take place. We have a menu of options available
to address this issue. One is to allow greater exchange rate flexibility. Two is
to build up the countrys international reserves to create a buffer against exter
nal shocks. Three is to put in place macroprudential measures which can be usefu
l in limiting potential vulnerabilities in the financial system that may result
from excessive and sharp asset price movements. Such targeted macroprudential me
asures reduce authorities reliance on monetary policy adjustment while limiting a
ny collateral impact on non-bubble sectors. I believe the BSP has been successfu
l in addressing the impact of the recent surge in foreign exchange inflows into
the country. In particular, the countrys external position has remained comfortab
ly in surplus and the GIR has been rising to new highs, with both of these occur
ring while the volatility of the peso/dollar exchange rate has remained in the m
iddle of the range of the volatilities of currencies in the region. The BSP will
continue to fine tune the use of what I have called our enhanced tool kit to ensu
re that the foreign exchange flows are orderly. I believe this will help busines
ses plan their investments better and effectively translate these FX inflows to
projects that create even more domestic employment. Fourth is to further strengt
hen the financial system so as to improve its capability to efficiently intermed
iate liquidity to productive uses. As an example, beginning January 2011, the BS
P will require banks to submit their programs for Internal Capital Adequacy Asse
ssment Process (ICAAP). The ICAAP is a tool by which banks assess (i.e., identif
y and measure) risks and define a plan to mitigate such risks to help lower capi
tal requirements. By its definition, the ICAAP is the banks own assessment based
on its internal risk/return models. The ICAAP doesnt prevent a bank from taking r
isks. On the contrary, it will provide both the bank and the regulator (BSP) wit
h a level of comfort that the bank (its management and shareholders) fully under
stands these risks and has set sufficient capital against such risks. The ICAAP
will allow banks to deploy their capital to efficiently maximize return given th
e risks. Fifth is to sustain structural reforms. Specific policy options include

: (1) promoting investment by small and medium-sized enterprises; (2) improving
the business climate; (3) facilitating further product and labor market producti
vity; and (4) greater capital market deepening. Related to these, the BSP has be
en energetically pushing its advocacies to broaden and improve access to credit,
particularly to the MSME sector, and deepening public financial education. Thes
e are partner programs of the BSP conducted under the principle that credit can
be more profitably utilized by an informed public. I have already covered much g
round in the past few minutes. So let me conclude my remarks this morning by say
ing that as our country continues to face challenges and complexities from both
the global and domestic fronts, the BSP will remain firmly committed to engender
ing a stable macroeconomic environment. Our mandate dictates this. I hope going
forward, we can effectively contribute to addressing the post-crisis challenges
and in the process help achieve a strong, sustainable and more balanced and incl
usive economic growth. Thank you. I am now ready for your questions. ------------ 1/ Roubini is largely credited as having first predicted the end of the US ho
using bubble in 2006.
The POS Interconnection: Giving Better Banking Services Together

Venue: Century Park Hotel, Manila
Occasion: Launching of the Point of Sale Interconnection
The officers and staff of the countrys three biggest ATM networks, fellow bankers
, special guests, good morning! I am very pleased to witness the launching of th
is much-anticipated project: the point of sale (POS) interconnection of Bancnet,
Expressnet and Megalink. This is another milestone in the Philippine financial
system as it is certain to open gateways for further expansion of financial servi
ces in the country through a convenient, secure and reliable channel. For this, l
et us commend the leadership of our three networks: Expressnet led by its Chairm
an Aurelio Montinola III, Bancnet led by its Chairman Ricardo Chua, and Megalink
led by its President Benjamin Castillo. Let us give them a well-deserved round
of applause! Indeed, the POS system in the Philippines has come a long way from
its initial introduction by the Bank of the Philippine Islands in 1987, followed
by Megalink in 1993 and Bancnet in 1994. Today, we have over 37,000 POS termina
ls serving around 30 million ATM cardholders in malls, restaurants, hotels and e
ven small specialty shops. In other words, your market covers roughly one-third
of our countrys population of about 92 million! The cooperative efforts that have
led the three biggest ATM networks in the country to institutionalize the inter
connectivity of their respective POS systems are therefore a most welcome developm
ent. This should lead to even improved efficiencies and better services, while e
nabling customer payments in a faster but simpler manner. We at the Bangko Sentra
l knew it was just a matter of time before this project became a reality. After
all, the three ATM networks already worked together in 2006 to achieve full inte
rconnection of their ATM services to provide more accessible and efficient servic
es at much lower costs to the banking public. This time around, the interconnectio
n of the POS systems of the ATM consortia should increase the touch points for c
lient interface and enhance the value of your services to your customers. The va
lue proposition for retailers is likewise enhanced. With this POS interconnectio
n, retailers will no longer have to deploy multiple card-accepting devices, ther
eby simplifying operations and minimizing costs. Ultimately, millions of Filipin
os will enjoy the convenience, efficiency and lower costs of transactions from y
our POS interconnection. We at the Bangko Sentral also welcome this initiative b
ecause it presents enormous potential for creating a truly inclusive financial s
ystem.where strong and vibrant institutions provide efficient financial services
to more people. including the underbanked and those who remain unbanked or unserv
ed by our financial system. Crucial in developing this system is the creation of
a network of access points where customers can conduct their transactions throu
gh a multi-channel approach for customer interface. This is where an interconnec
ted POS system can play an important role. Since POS terminals entail relatively
minimal investment, are easier to deploy and are less costly to maintain, it is
likely that more and more financial institutions will be inclined to adopt this
technology as a channel for their services. The growth in electronic or e-money
business is another area that may fortify the role of POS systems further. Bang
ko Sentrals Circular 649 which set the regulatory framework for e-money and e-mon
ey issuers promotes innovations in fund transfer mechanisms and paves the way fo
r a competitive growth in the industry. Under this framework, authorized e-money
issuers can build a network of cash in/cash out agents that can serve as gatewa
y for the previously unbanked to access financial services. Financial institutio
ns can create linkages and leverage this vast network of agents to deliver finan
cial services to a broader market using the e-money platform facilitated by eithe
r a mobile phone or a POS terminal. We have seen promising results so far. I und
erstand that the next phase of development for the system is to allow fund trans
fers, another welcome innovation. As of March 2010, for instance, we have monito
red 7.4 million e-money transactions valued at roughly 11.3 billion pesos using
ATM and POS channels. Once this POS network interconnection is fully developed,
therefore, it will provide even more efficient and cost-effective ways to serve
the many bankable yet unbanked Filipinos. Nevertheless, it is prudent to remember
that while technology presents us with many opportunities, we must also remain v
igilant of its attendant challenges and risks. System downtimes, breach of consu
mer information confidentiality, unclear charges and fees are among the issues t
hat can erode public confidence in the POS system. We therefore enjoin our ATM c
onsortia, as well as other financial institutions, to adopt appropriate measures
and controls to mitigate such risks. One of your priorities should be an inform
ation campaign to ensure that customers are properly informed on how they can pe
rform POS transactions safely and securely, as well as the possible risks involv
ed. Customers must also be informed about all applicable fees associated with th
e use of other networks POS terminals, in accordance with existing BSP regulation
s on e-money and consumer protection. On our part, we at the Bangko Sentral will
continue to create a policy and regulatory environment that will enable innovat
ions to flourish while ensuring that appropriate controls and safeguards are in
place. Ladies and gentlemen. Changes in our financial landscape and innovations
in technology represent both challenge and opportunity for all of us. I believe
however that if we remain united by our common goal to provide better service to
Filipino consumers, we will find the way forward. While we have our respective
roles to play, we should find ultimate convergence in working for a better, stro
nger, and more inclusive banking system; a banking system that supports balanced
and sustainable growth for our country and our people. And so, once again, I co
ngratulate Bancnet, Expressnet and Megalink for proving, once again, that public
service is alive and well in the banking sector. Mabuhay! Maraming salamat sa i
nyong lahat!
The Philippines: Creating Opportunities Through Effective Governance

Venue: Dusit Thani Hotel, Makati City
Occasion: Philippine Mid-Year Economic Briefing 2010

Members of the governments economic team, other Cabinet members, excellencies of
the diplomatic corps, our partners from the private sector and multilateral inst
itutions, our friends from the media, colleagues from government, ladies and gen
tlemen, good morning. Thank you for joining us in this economic briefing. Over t
he next few minutes, allow me to share with you the BSPs legal mandate, the key r
eforms we have implemented and our assessment of the macroeconomic opportunities
that have been created in the process. I would also like to share with you our
thoughts on the challenges that lie ahead and the BSPs policy strategies to meet
these challenges with a view to creating more opportunities to achieve more dura
ble and inclusive growth for the Philippine economy. Let me start with a review
of the major reforms that the BSP has adopted in pursuit of its mandated respons
ibilities. First, on monetary policy - the BSP has adopted the inflation targeti
ng framework that has provided us with a disciplined approach to safeguarding pr
ice stability. The forward-looking perspective under the framework as well as th
e associated transparency and accountability practices have helped better anchor
the inflation expectations of the markets and the public. This, in turn, has co
ntributed to improved inflation management and to well-contained inflation dynam
ics. Let us look at the numbers Stable food prices have helped temper inflation p
ressures, despite the occurrence of the El Nio phenomenon early this year. From J
anuary to July 2010, headline inflation fluctuated between 3.9 percent and 4.4 p
ercent, staying within the Governments target range of 3.5-5.5 percent for 2010.
The benign inflation environment has given the BSP the flexibility to keep polic
y rates steady. With stable domestic financial conditions, the BSP also started
a measured and paced unwinding of its accommodative monetary policy stance in th
e first half of the year. Second, on external sector policy the BSP adheres to a
flexible exchange rate system and to an appropriately designed foreign exchange
regulatory framework. The BSP also has in place an external debt management str
ategy that helps promote debt sustainability. As a result, we have seen the emer
gence of strong external payments dynamics, providing comfortable buffers agains
t external shocks. Reflecting these prudent external sector policies, the countr
ys balance of payments (BOP) position posted a surplus of US$3.2 billion in the f
irst half of the year. The resilience of OF remittances and the sharp recovery o
f exports contributed largely to the countrys favorable external payments dynamic
s. The countrys external debt profile continues to improve. Six years ago, our ex
ternal debt-to-GDP ratio was around 70 percent. As of March 2010, this ratio was
down to 33 percent. The long-dated maturity structure of our foreign currency d
ebt, helps limit rollover and foreign exchange risks. The countrys debt service b
urden as percent of GDP, which had previously hovered around 10 percent [2001-20
03], eased to 6 percent as of March 2010. International reserves have climbed to
new highs, providing strong coverage for both imports and short-term external d
ebt. At end-July 2010, the GIR stood at US$48.6 billion. At this level, the GIR
can cover 9 months of imports and is equivalent to 9.3 times the countrys short-t
erm external debt based on original maturity and 5.1 times based on residual mat
urity, thus providing a strong cushion against external shocks. As a result of t
he strong external liquidity position, the Philippine peso has remained broadly
stable. The trends in the real effective exchange rate (REER) show that the peso
has generally maintained its international competitiveness over the last ten ye
ars. With generally lower inflation rates, the Philippine peso has accommodated
some appreciation, but without undermining external price competitiveness. Third
, on financial sector policy the BSP has put in place critical reforms geared to
ward maintaining a healthy banking system. The package of reforms includes the d
isposal of banks bad assets, the promotion of good corporate governance and trans
parency practices, and the upgrading of risk management standards. As a result,
we have today an efficient, sound, and competitive financial system. These criti
cal reforms have been successful in steadily expanding and strengthening the ban
king system. Indicators of the health of the banking system continue to post fav
orable readings, with asset levels and bank earnings continuing to improve. The
capital adequacy ratio remained high at 16 percent and non-performing loans also
remained generally low at less than 4 percent of total loans. The favorable per
formance of the domestic financial markets reflects the upturn in the countrys ec
onomic prospects. Thus, despite global market volatility following sovereign deb
t concerns in Europe and uncertainties regarding the depth and breadth of the gl
obal economic recovery, the spillovers on our domestic financial markets have be
en limited. With continued improvements in domestic economic conditions and a br
oadly favorable global outlook, we foresee a firmer growth path for the Philippi
ne economy in 2010. Inflation is expected to stay within the target range of 3.5
to 5.5 percent for 2010. The outlook for the BOP position and the GIR level con
tinues to be favorable, with the current account projected to remain in surplus.
While we expect the economy to continue to perform strongly, we remain consciou
s of the risks and challenges that lie ahead. First is the multispeed recovery a
cross the globe. Growth in emerging countries is outpacing growth in advanced ec
onomies. Given global interdependencies and linkages, this could result in sub-p
ar global growth over the medium term. Second, the potential heavy inflow of cap
ital into the country, as risk appetites perk up, can lead to liquidity manageme
nt problems which could pose inflationary risks. Third, the rebound of the globa
l economy could create upward pressures on commodity prices and fan inflation. T
he BSPs responses to these challenges are, as always, founded on its primary mand
ate of promoting monetary and financial stability. In particular, our focus in t
he area of monetary policy will be on addressing the risks to price stability an
d re-examining policy settings when warranted. On the external front, our priori
ty is to promote policies that will help shield the economy against adverse shoc
ks. On the financial sector, the BSP will endeavor to maintain a well-functionin
g banking system that will efficiently mobilize funds and channel them to produc
tive uses. The BSPs policy commitments, going forward, are supportive of the Gove
rnments agenda of creating an enabling environment for durable, sustainable and i
nclusive growth and broad-based development, including through the pursuit of fa
r-reaching and meaningful structural reforms and disciplined macroeconomic polic
ies. Ladies and gentlemen, the fundamental strengths of the Philippine economy,
which saw us through a tough period, provide a huge opportunity for us to consol
idate the gains we have achieved thus far and allow us to create an environment
that will propel the economy forward. The BSP, together with the other governmen
t agencies, are firmly committed to continue pursuing sound macroeconomic manage
ment and structural reforms to address the challenges ahead. To this end, let us
be guided by our shared commitment to serve the general good and by our common
desire to make better things happen for the Philippines. Thank you.
12th Credit Surety Fund is in Albay

Venue: Legaspi City
Occasion: NA
Governor Joey Salceda, distinguished leaders of the various sectors in Albay, me
mbers of cooperatives in Albay, fellow workers in government, special guests, ma
rhay na aga sa indo gabos! Good morning. On behalf of the Members of the Monetar
y Board and my colleagues at the Bangko Sentral ng Pilipinas, we welcome Albay p
rovince under the leadership of Governor Salceda to the Credit Surety Fund movem
ent ... or what we call CSF. With todays launch, the Albay Mayon Credit Surety Fu
nd becomes the 12th CSF to be created since 2008. With CSF, entrepreneurs gain a
ccess to bank loans even without collaterals. Before CSF, financially-challenged
entrepreneurs source funds from informal lenders at very high interest rates. CS
F is also a positive for banks. Even without collaterals, bank loans made under
CSF are effectively insured against default by the surety fund set up jointly by
the LGUs and other partner organizations. You may ask, does it really work? Wel
l, based on our experience from the first 11 CSFs .it works! I will share some CS
F updates with you: As of 31 July 2010, the eleven (11) CSFs set up ahead of Alb
ay are in the Provinces of Aurora, Bohol, Cavite, Compostela Valley, Davao del N
orte, Davao Oriental, Negros Occidental, Negros Oriental and North Cotabato as w
ell as in the Cities of Cebu and Iloilo. The combined assets of the cooperatives
and NGOs who are members of first the eleven (11) CSFs is valued at P8 billion,
about P2.6 billion of which represents equity. These eleven CSFs are made up of
one hundred seventy-three (173) cooperatives and three (3) NGOs with total memb
ership of close to 200,000. The sheer financial muscle and reach of the CSFs spe
ak of the tremendous potential of the Program. The total trust fund of the eleve
n (11) CSFs have reached P98 million, including P51 million contributed by the c
ooperatives and NGOs. This translates to a total potential loan of P511 million
at any one time. Total loans booked under the program reached P53 million. These
loans not only helped end-user borrowers finance the needs of their businesses
but helped their immediate communities as well. Loan applications amounting to P
156 million are in various stages of processing and approval. Given these number
s, it is safe to say that CSFs have gained traction. For this, we thank our LGU
partners, as well as our institutional partners that includes the Land Bank of t
he Philippines, the Development Bank of the Philippines and the Industrial Guara
ntee and Loan Fund. We also acknowledge IGLFs support for the training of contrib
uting cooperatives on credit appraisal and monitoring, basic accounting, marketi
ng, and credit risk management. The University of the Philippines Institute of Sm
all Scale Industries has already conducted ten runs of these training courses wh
ich have benefited 243 cooperative and NGO members. Nevertheless, we will be the
first to say that CSF is not perfect. In this imperfect world, there is always
room for improvement. The key is to have all parties involved follow procedures
faithfully, starting with those who will screen and evaluate the loan applicatio
ns. In the case of Albay, we see a perfect fit with CSF. Based on our monitoring
, loans to deposit ratio in the entire Bicol Region remains low. For instance, w
hile deposits have reached P53 billion in 2009, loans were at P14 billion. Clear
ly, you have a loyal and growing base of depositors and yet your loans to deposi
t ratios are low. Possibly, the guarantee provided by the credit surety fund for
bank lending could well be the catalyst that will move lending forward here in
Bicol. With the dynamic leadership provided by Governor Salceda and other Albay
LGU officials, I am confident Albay Mayon CSF will serve as a positive catalyst
that will further accelerate the development of the Bicol Region. As reported ea
rlier, Bicols 2009 GDP already increased by an impressive rate of 8.2%, the highe
st among the 17 regions in the Philippines. We can look forward to a repeat perf
ormance. With the CSF in place, we hope Albays MSMEs will develop at a more balan
ced and sustained pace. This should exert a positive influence on the continuing
development of the Bicol Region. And so, once again, we welcome Albay and Gover
nor Salceda to the CSF movement. We also look forward to learning much from your
CSF as you start implementation of this empowering collateral-free credit progr
am for micro, small, and medium enterprises. Mabuhay ang Albay! Mabuhay ang maha
l nating bansang Pilipinas! Maraming salamat sa inyong lahat!
Closing Remarks

Occasion: 2010 Mid-Year Organizational Performance Review Session
We may have missed the splendid view of the beaches of Cebu, or the pine-scented
Baguio breeze, or the gentle winds of Tagaytay but I was captivated by your dis
play of the same diligence and hard work during this past day and a half as we p
aused and pondered on what is essential to effectively deliver our mission. In 2
007, we committed to regularly review our scorecard to ensure that we sustain BS
Ps credibility and relevance in the context of the new global, regional and domes
tic landscape. CELEBRATING OUR SUCCESSES Meeting our Targets At this point, I wi
sh to commend the hard work and dedication of the BSPers in meeting our performa
nce targets. Evidently, we are on track. We have met and even surpassed some of
our targets for the year. I extend my congratulations and thanks to the collecti
ve efforts of management and staff of the Monetary Stability Sector; the Supervi
sion and Examination Sector; the Resource Management Sector; the Security Plant
Complex; and the Executive Management Services. On our institutional mandates, w
e are on course as actual inflation for the first semester is well within our ta
rget for 2010; and while actual values of our performance have yet to fully refl
ect our achievements, we continue to make progress in addressing operational gap
s in our supervisory actions and examination related deliverables. Our pursuit f
or operational excellence is driven by our continuing efforts to align our busin
ess processes with international standards and best practices. We have pushed fo
r innovative approaches to managing and developing our people. Receiving Stakeho
lder Affirmation We believe that our good performance eventually reached the min
ds of the public we serve. Our stakeholders have spoken and we are happy to be a
ffirmed that we have their trust and confidence as evidenced by a high net appro
val index of 76.6% and a qualitative rating of good based on the 2009 BSP Public P
erception Survey Report. Similarly, in a survey among our business partners we g
arnered a high net approval rating of 83%, which shows that BSP is a good busine
ss partner and our integrity is highly regarded by them. Laying the Groundwork i
n Good Governance and in Organizational Enhancement We have also focused on effo
rts to improve our enabling processes in strengthening good governance and enhan
cing our corporate culture. With our frameworks for governance, risk management
and organizational enhancement in place, assessments on where we stand in these
areas are nearly completed. We are finalizing our roadmaps toward a Bangko Sentr
al that exhibits governance principles which are highly integrated in our polici
es, systems, processes and practices; a Bangko Sentral that exemplifies a values
-based culture, with men and women of inspiring leadership, dynamic, achievement
-oriented, and acting as one team. REVISITING THE FUNDAMENTALS BSPS MANDATE As th
e end of our strategic plan draws near, fundamental questions emerge as we respo
nd to new challenges relating to our mandate. During this past day and a half, w
e also engaged in a strategic dialogue on how we would like to position BSP, the
countrys lone monetary authority, in the next medium term. Our engaging dialogue
on the assessment of seventeen years of monetary policy at the BSP highlighted
key issues such as the financial stability dimension of price stability, the ope
rating environment and practice of inflation targeting in emerging market econom
ies like the Philippines, and the approach in responding to asset price bubbles.
We also had a spirited discussion on the complexity, impact and requirements of
pursuing financial stability in bank supervision, BSPs relationships with other
regulators, monetary policy and payments and settlements. In this connection, we
also looked into the challenges in the payments and settlements system in the c
ontext of meeting our goals of monetary and financial stability, as well as in a
chieving economic efficiency. FOCUSING ON THE HOMESTRETCH We are on the final le
g of the journey. Apart from the sense of urgency this evokes, this reality prom
pts us to heighten our teamwork and to collaborate more to guarantee our strateg
ic success. Looking at our scorecard, the reds and yellows pointed out the areas of
concern that need the attention of the entire organization--the Monetary Board,
management and staff. We said that we are a strategy-focused and results-oriente
d organization, and we are determined to prove this true. Let us focus our energ
y to the implementation of the strategic initiatives that will contribute to the
attainment of our targets in the medium-term plan. Let us continue our efforts
in closing the gaps and in addressing the overlaps to achieve the synergy we des
ire within the organization and in our relationships with external partners. We
will deliver on our promise. In staying true to our commitment for continuous im
provement, let us keep in mind what our stakeholders have expressed in terms of
areas that still fall short of their expectations. Let us draw up measures to ef
fectively address these gaps in our roadmap. FORTIFYING THE BSP TEAM FOR THE NEX
T MEDIUM TERM As we set our minds on the immediate tasks at hand, let us not los
e sight of the future, which we need to plan for strategically. We end our plann
ing exercise today with a question: Is the BSP poised to face the advent of a new
period in central banking, both in the global and regional fronts? With our idea
ls as an institution encapsulated in our new BSP logo, we usher the next mediumterm with our continuing pursuit of becoming a world-class monetary authority, w
ith high degree of professionalism and open mindedness to the changes that comes
with the evolving demands for best practices in governance and service delivery
. On behalf of the Monetary Board, I affirm our support to management. Pursuing
our mandate is not an easy task as it requires not only the high-level of compet
ence the BSP is known for, but also strength of character and a courageous heart
to protect and contribute to a better quality of life for Filipinos. We may hav
e our share of disappointments and discouragements in the conduct of our work, b
ut at the end of the day, we find fulfillment in the fact that we have served ou
r stakeholders well. I urge everyone to continue to help one another in doing ou
r task and with Gods blessing see it though its completion. I congratulate all of
you and the organizers of this years performance review and planning event for a
job well done. Thank you and enjoy the rest of the weekend.
Keynote Message Launching of Strengthening Program for Rural Banks (SPRB)

Venue: PDIC, Makati
Occasion: Launching of Strengthening Program for Rural Banks (SPRB)
PDIC President Jose Nograles, Members of the PDIC Board, Ms. Cora Miller and oth
er officers of the Rural Bankers Association of the Philippines (RBAP), fellow w
orkers in government, distinguished guests, friends from media, ladies and gentl
emen, good morning to all of you. First, let me thank you for inviting me to del
iver a message in this milestone event -- the launching of the Strengthening Pro
gram for Rural Banks (SPRB). It is indeed a pleasure for me to affirm today the
BSPs commitment, support and partnership with the PDIC and the rural banking indu
stry in this important undertaking. Rural banks are, what I often refer to as, t
he natural frontliners in our national program to broaden and deepen the reach of
responsible and empowering financial services to local communities. It is therefor
e incumbent upon the regulators to ensure that the strength and viability of thi
s critical segment of our banking system is sustained, particularly during these
challenging times that we face. The SPRB is specifically expected to achieve th
is goal of creating a stronger rural banking system as it promotes mergers and c
onsolidations between or among rural banks and eligible strategic third party in
vestors (STPIs) under a specific set of guidelines. There are two prongs to the
SPRB one, the capital augmentation component, and two, the regulatory relief pac
kage. The capital augmentation and direct loan component is to be made available
through financial assistance from the PDIC. To flesh out the regulatory relief
package, the Monetary Board approved a set of incentives that include the conver
sion and opening/relocation of head offices, branches and extension offices, the
waiver of penalties and other incentives pertaining to rediscounting and emerge
ncy loans. In addition to the financial strengthening of the resulting entities,
the grant of these incentives is expected to allow such entities to achieve eco
nomies of scale, attract more skills, and better manage their liabilities. Furth
ermore, through mergers and consolidations, the resulting banks will achieve hig
her capitalization, which would then enable them to diversify their portfolios t
o reduce risk, fund growth and innovation and expand their presence and their re
ach throughout the country. As you can tell, this is consistent with our objecti
ve of strengthening the rural banking system so it can more effectively serve th
e countryside and better contribute in promoting balanced and sustainable growth
for our nation. In this regard, the RBAP plays an important role in ensuring th
e success of this program, jointly with the PDIC and the BSP. Beyond the SPRB, h
owever, the BSP shall continue to ensure that a sound regulatory framework is in
place that would enable Philippine banks, including RBs, to cope with both dome
stic and global challenges. The BSP will also continue to pursue reforms to furt
her strengthen the capitalization of banks and improve the supervisory oversight
of risk management of banks. In addition, we will also continue to implement re
forms geared towards improving the corporate governance structures of banks, inc
luding RBs. Sustaining and ensuring the strength of the rural banking sector is
not, however, just the role of the regulators. It is a partnership with the regu
lated. As in the past, we therefore look to the solid support of the rural banks
, through the RBAP, in effecting important reforms and initiatives that would im
prove the resilience of our banks, including the RBs, and our financial system a
s a whole so they will continue to withstand the impact of domestic and global c
rises and remain important channels for investment, credit and overall economic
development. On this note, I wish to congratulate all those who have been instru
mental in putting together this program. The BSP looks forward to the success of
this program in close partnership with PDIC and RBAP. Thank you and good day!
In Praise of BSPs Top Performers

Occasion: 2009 BSP Praise Awarding Ceremony
Magandang tanghali sa inyong lahat! Fellow central bankers and special guests, i
t is my pleasure to be part of todays Praise Awarding Ceremonywhere we celebrate s
ervice excellence at the Bangko Sentral ng Pilipinas! In particular, we should b
e proud of our rich harvest: this year we have more than 400 awardees and nomine
es. Indeed, our initiatives to advance employee performance continue to pay off.
Once again, therefore, let us salute all the nominees and winners under our 200
9 Praise Awards with a well-deserved round of applause! Let us also congratulate
for a job well done all those who worked on our 2009 selection process under the
Praise Committee headed by Deputy Governor Andy Suratos and Assistant Governor
Juan de Zuiga! Palakpakan din po natin sila. I understand that the interviews and
evaluation of the nominees for all award categories have been quite intensive.
That is because we truly have many BSPers who deserve recognition and awards. Ta
ma ba ako? . Tama! Let us also salute our ISO awardees and reward them with a rou
nd of applause! Ladies and gentlemen of the BSP. I have been a BSPer for 36 year
s now. In my 3 decades as a central banker, it has always been clear to me that
the singular source of strength of the Bank is its people. In fact, long before
the lifting of the salary standardization, many BSPers could be depended upon to
render excellent work. And so, ladies and gentlemen, let us also salute central
bankers past and present who under the salary standardization regimerendered praise
worthy service! Palakpakan po natin sila! Clearly, the commitment to serve our p
eople and our country in the best way possible is a constant and strong motivation
goal for all BSPers. And now, with better incentives, better employee developme
nt programs, and continuously improving work conditions we are seeing broader and
deeper commitment to always excel. I see this all around at the BSP: whether it
is related to the performance of our core functions, institutional celebrations,
employee activities, social programs, and even fund-raising projects by the BSP Em
ployees Association! Just to be sure, let me ask you: nag-level up na ba tayo? ..
Tama! In other words, ladies and gentlemen, we at the BSP remain faithful to th
e continuous improvement process. This is as it should be. As a wise person once
said, the path to excellence has no finish line. The moment we become complacent
the moment we stop trying to improve ourselves is the moment when we start deteri
orating. As the institution mandated to provide stability to our economy through
appropriate monetary and banking policies, we at the Bangko Sentral ng Pilipina
s have the responsibility to make sure we render excellent work, at all times. T
his means we have to be prepared to work well in all types of operating environm
ent in good times and in bad. We have to retool and reinvent the way we do things
as we work in a constantly changing and challenging surroundings. In this conne
ction, let us acknowledge the members of the Monetary Board. They have been supp
ortive of our continuing efforts to enhance employee performance through various
incentives and employee development programs. Palakpakan po natin sila. This is
the rationale that underpins our awards theme: Embracing Change, Empowering Peop
le. And so ladies and gentlemen, let us once again commit to work together to pro
vide excellent service to our country and our people. Let this be our unifying g
oal! BSPers, maraming salamat sa inyong lahat! Mabuhay ang Bangko Sentral! Mabuh
ay ang Pilipinas!
Moving Central Banking Forward Through the Legal Framework

Occasion: Book Launching of the Legal Book on RA 7653
The honorable members of the judicial and the legislative branches of government
, distinguished representatives from the academe and the legal sector, fellow ba
nkers, special guests, good afternoon! We at the Bangko Sentral ng Pilipinas tha
nk all of you for accepting our invitation to the launching of our Annotated Boo
k on Republic Act 7653 or the New Central Bank Act. As you can tell, this event
is important to us. The Bangko Sentral has ventured into the publication of this
legal book for one simple reason: to promote better understanding and appreciat
ion of the law that governs central banking in our country. As you are aware, th
e policies and programs crafted by the Bangko Sentral ng Pilipinas affect the na
tional economy and ultimatelythe lives of Filipinos. We believe therefore that we
will be able to perform our mandate better if there is clear understanding and su
pport for our functions. The initiative for the creation of an institution for ce
ntral banking can be credited to President Manuel Roxas. In 1947, he created the
Central Bank Council to draw up a draft charter for a central bank. This was su
bmitted to the House Committee on Banks and Corporations. Further amendments to
the draft were made by both chambers until its enactment into law in June 1948 a
s Republic Act 265 or the Central Bank Act as signed by President Elpidio Quirino
. On January 3, 1949 the Central Bank of the Philippines opened for business. 38
years later, the 1987 Constitution called for the creation of a new and indepen
dent central monetary authority. In 1993, Republic Act 7653 or the New Central Ba
nk Act was passed creating the Bangko Sentral ng Pilipinas with the Constitutiona
l mandate to craft policy direction in the areas of money, banking, and credit .as
well as to supervise the operations of banks and exercise regulatory powers over
other institutions performing similar functions. You may well ask: is this the
final chapter in our legal evolution? Well, as some of you are aware, we will wo
rk with Congress to introduce further amendments to RA 7653 so that the Bangko S
entral may do its work even better and more efficiently given the changes that ar
e taking place in our operating environment. When this happens, we will update t
his book accordingly. One thing is clear. Since its birth, central banking as a
function has evolved and transformed into a dynamic area of law enriched by signi
ficant legislations, administrative opinions, and landmark judicial decisions. T
his has made central banking as a subject of legal research challenging and diffi
cult for various stakeholders. To address this, the Monetary Board decided that t
he BSP itself should publish legal books on banking laws, starting with RA 7653.
The Monetary Board selected the in-house lawyers of Bangko Sentral to undertake
the project, given their unique expertise and experience in this highly special
ized legal field. We take pride that this book that we are launching this aftern
oon is the product of the collective efforts of the Bangko Sentrals team of lawyer
s. They come from the Office of the General Counsel and Legal Services headed by
Assistant Governor Juan de Zuniga, Jr. That they took on the challenge of produ
cing this annotation on top of their regular heavy work load is amazing. And now,
here we are. Ladies and gentlemen, let us congratulate and thank our topnotch te
am of lawyers who conceptualized, researched, wrote, editedand were even seen proof
reading this book. Let us give them a well-deserved round of applause! ..Well done!
The brilliant Oliver Wendell Holmes who taught law at Harvard for 20 years and
served the United States Supreme Court for 30 years once said: Life transforming
ideas have always come to me through books. Ladies and gentlemen. It is our hope
that this book will help inform and transform peoples understanding and appreciatio
n of central banking in the Philippines. And so, we invite you to get your copie
s and to give us your feedback. And in choosing gifts for your colleagues and fr
iends let us be mindful of the advice given by famous lady journalist Lenore Hers
hey. She said: Do give books. Theyre never fattening, seldom sinful, and permanent
ly personal. Ladies and gentlemen, through this book, let us engage in constructi
ve and productive discussions that will help us implement our mandate better for t
he benefit of our banking sector, our economy and ultimately our people. Maramin
g salamat sa inyong lahat!
BAIPhil @ 70: Empowering the Banking Industry Through Continuing Education, Inno
vation and Research
Venue: Shangri-La, Makati City
Occasion: BAIPhils Induction of Officers, Directors and Committee Chairpersons an
d in Celebration of its 70th Founding Anniversary
The officers and members of the Bankers Institute of the Philippines, past and p
resent; fellow bankers; colleagues from the BSP; special guests: good afternoon
and a happy 70th anniversary to BAIPhil! Today is truly a memorable day not only
for BAIPhil but also for the banking industry. If we stop and think about it, we
ultimately reach the conclusion that BAIPhil is one of the rare professional or
ganizations that has remained consistently relevant and in step with the times, .
growing and evolving with the Philippine banking industry as operations shifted
gears from manual to automated. to electronic. Indeed, through seven decades of g
rowth and change, BAIPhil has remained faithful to its avowed mission of enhanci
ng productivity, good governance, and developing expertise among Philippine bank
s through research, information exchange and education. Ladies and gentlemen, let
us celebrate BAIPhils seven decades of accomplishments with a well-deserved roun
d of applause! We at the Bangko Sentral ng Pilipinas have long recognized BAIPhi
l as one of our steadfast partners in moving the banking industry forward. By pr
ofessionalizing industry standards and practices underpinned by the good governa
nce values of fairness, accountability and transparency, BAIPhil helps anchor pos
itive change within the industry. Such is BAIPhils unique legacy as an organizati
on. BAIPhil can rightfully claim therefore that it is one of the reasons why the
Philippine banking system remains sound and stable at a time of global financia
l crisis. Assessment of the Philippine Banking System To put things in perspecti
ve, I will share the latest consolidated industry information that tells us wher
e our banking system stands today. First, total resources of the Philippine bank
ing sector continues to expand. In fact, a double-digit asset growth was registe
red in April 2010; this raised the value of consolidated assets to P6.2 trillion
. This was made possible by sustained growth in deposits which expanded by 10.4
percent to P4.6 trillion. Second, asset quality has significantly improved with
universal/commercial banks average NPL ratio at a low single-digit level of 3.37
percent and NPA at 3.82 percent. At the same time, loan loss provisions have bee
n built up to adequate levels. Third, bank lending remains on the uptrend: it re
ached P2.7 trillion as of April this year, a growth of 6.1 percent from the same
period last year. Fourth, the capitalization of the Philippine banking sector r
emains comfortably above the global standard of 8% and BSPs minimum requirement o
f 10%: on a solo basis, Philippine banks capital adequacy ratio is 14.85%. On a c
onsolidated basis it is even higher at 15.78%. Fifth, banks sustained profitable
operations. For the period ending March this year, net income was up by an esti
mated 34 percent, while return on equity was at 11.4 percent. In other words, la
dies and gentlemen, our banking system is resilient, sound and stable. The key cha
llenge for our banks is to preserve this growth momentum. In this, there should
be no room for complacency. BSPs policy reform thrusts More than ever, it is crit
ical to sustain the path to reforms. We have seen how our banks passed the ultim
ate stress test by standing firm amidst the global financial turmoil. This did n
ot happen overnight. With the Bangko Sentral setting the pace, Philippine banks
implemented reforms that included the clean up of their balance sheets, the stre
ngthening of bank capitalization through Basel II, and further improvements in g
overnance structures. Moving forward, risk-based supervision will remain central
to our reform agenda. We will continue to focus on enhancing our macro-surveill
ance capabilities and on improving further our supervisory oversight of risk man
agement. Last year, the Bangko Sentral issued the guidelines for Internal Capita
l Adequacy Assessment Process (ICAAP) and the Supervisory Review Process (SRP).
This is to make sure that banks have a better appreciation of their business ris
ks and are more diligent in terms of disclosure and transparency to their stakeh
olders. Building the resilience of the banking system goes hand in hand with cre
ating a stable macro environment. This includes fostering stable interest rates
and exchange rates that encourage long-term business planning and lending by bank
s. Ladies and gentlemen. I have said this before and I will say it again: 2010 i
s not only about challenges and changes; it is also about the chances and opportu
nities that lie ahead. In the midst of the ongoing process of recovery in the glo
bal economy, domestic banks should be able to discern and seize opportunities tha
t will help them grow stronger and support the turnaround in economic activity.
I also believe there is room for financial innovation, as long as this is couple
d with appropriate prudential regulations as well as appropriate disclosure and
transparency standards. Our objective is to ensure that all stakeholders are ful
ly aware of the risks that they are taking on. Ideally, we should not swing to t
he extreme of over regulation; rather, banks should move toward greater accounta
bility for their actions. Together, let us work out a dynamic, but always well-c
alibrated balance between regulation and innovation to move our economy. and our c
ountry forward. One way for banks to keep pace with the intense demands of an inc
reasingly global and complex financial environment is to acquire as much relevant
knowledge and technical expertise in a timely and comprehensive manner. In this
connection, BAIPhils role as the education and research arm of the banking indust
ry is even more relevant in todays rapidly evolving financial landscape. With lea
rning or enlightenment comes real empowerment. I am very pleased to know therefo
re that based on this belief, BAIPhil is setting its sights beyond banks; it is
gearing up to include the educationand empowerment of present and future Filipino ba
nk customers. I have been informed that tomorrow afternoon, BAIPhils audience wil
l not be bankers, but teachers and parents in San Joaquin Elementary School in P
asig City. They will be taught personal financial planning, values formation and
wealth creation. I am happy to learn that no less than BAIPhils new president..
Emmanuel Barcena.. will lead the BAIPhil team that includes three former BAIPHIL
presidents Susan Uranza, Artecer Quebal and Rebecca Torres and Marilen Ruiz who
chairs BAIPhils special projects committee. Clearly, financial education of Fili
pinos, including the underbanked and the unbanked, is being given special attent
ion by BAIPhil. Palakpakan po natin ang BAIPhil for this initiative! I understan
d similar lectures will be conducted in the Bangko Sentrals Gawad Kalinga Village
in Quezon City and in Paranaque City. Ladies and gentlemen of BAIPhil. You have
our full support in this project. In fact, we invite BAIPhil to join the Bangko
Sentral in implementing an inclusive national economic and financial education
program that aims to reach out to the broader public. such as our youth, overseas
workers and their dependents as well as the entrepreneurially-inclined in the m
arginalized sectors. Having BAIPhils first lecture in financial education in a pu
blic school makes perfect sense: our public elementary school system has about 1
2 million children or 92% of Filipino elementary pupils; it employs roughly 400,
000 teachers and school staffs; and it is a convenient venue where we can engage
millions of parents. The BSP looks forward therefore to forging a broader partn
ership with BAIPhil. This should result not only in better efficiencies and grea
ter expertise for Filipino bankers but also lead to a more financially informed a
nd empowered public. Together, we can expand the client base of banks, fortify t
he foundations of our banking system further, and bring about balanced and susta
inable growth in our country. Eventually, what is initially looked upon as a cor
porate social responsibility program could be the key that will unlock the full
potential of our banking industry, our people, and our economy. Ladies and gentl
emen. To reach our shared goal, let us journey together in our quest for excelle
nce. to have a stronger, more resilient, more proactive, more responsive, .and mor
e inclusive banking system. On behalf of the Bangko Sentral ng Pilipinas, I cong
ratulate BAIPhil on its 70th year and for a job well done. It is truly my privil
ege to be here with you today. Mabuhay ang BAIPhil! Mabuhay ang Pilipinas! Maram
ing salamat sa inyong lahat!
Moving Forward Through Stronger Partnerships

Occasion: 2010 BSP Stakeholders Awards and Appreciation Lunch

Our esteemed awardees and partners from both private and government sectors, spe
cial guests, ladies and gentlemen, good morning. On behalf of the Members of the
Monetary Board and my fellow central bankers, I thank all of you for attending
this years Awards Ceremony and Appreciation Lunch for BSP Stakeholders. Today, we
continue the tradition of recognizing our stakeholders who faithfully support t
he BSPs statistical activities and advocacy programs. As you can tell, this event
is important to us. Last Monday, we celebrated the BSPs 17th anniversary; two da
ys later, we are holding todays event our 7th Stakeholders Awards. In other words
, our Stakeholders Awards ceremony now represents one of the highlights of our a
nniversary celebration. For better measure, awarding ceremonies are held not onl
y in Metro Manila but also in other parts in Luzon, Visayas and Mindanao. We hav
e also increased the number of awards this year to reflect BSPs broader and deepe
r alliances. This year, we added outstanding respondents to our Business Expecta
tions Survey in three regions, namely: Region V or the Bicol area; Region IX or
the Zamboanga Peninsula; and Region XII or the SOCSARGEN area. Today, we will al
so recognize the contribution of selected public and private entities as valuabl
e sources of information for our balance of payments projections. The changes in
this years ceremony extend to the awards we shall be handing out today as created
by Filipino artist Sajid Imao, one of the leading sculptors in the country toda
y. Even the BSP logo has changed to reflect the changes that continue to take pla
ce in our organization and the environment where we operate. The principal eleme
nt of our new logo is the Philippine Eagle, the worlds largest. It symbolizes str
ength, freedom, and clear vision the qualities we aspire for as a central bank. T
hree golden stars represent the three pillars of central banking: price stabilit
y, stable banking system, and a reliable payments system. These elements are ren
dered on a blue background to represent stability. Our logo has a round shape, t
o symbolize our unending quest to become an excellent monetary authority committ
ed to improve the quality of life of Filipinos. It is fitting that we are implem
enting these changes just a week after the assumption into office of President B
enigno Aquino III. He stood for change and received an overwhelming mandate from
our people with a landslide win. Palakpakan po natin si Presidente Benigno Aqui
no III! Ladies and gentlemen, let us unite and join President Aquino in making t
he changes our country needs to become a better place for all. As our theme says,
let us keep Moving Forward through Stronger Partnerships. Indeed, we should take
our theme to heart, given the many challenges and uncertainties ahead. Why do I
say this? First, we are looking at varying and uneven pace of recovery across th
e globe. Given global interdependencies and linkages, it could lead to slower gr
owth over the medium term. Second, the potential heavy influx of capital inflows
, as risk appetites perk up, can also complicate monetary management. Additional
ly, the rebound of the global economy could create upward pressures on commodity
prices and fan inflation. There could be positive surprises to investor confide
nce, which could foster a stronger-than-expected improvement in market sentiment
and prompt a strong rebound in investment and demand. Third, there are risks to
the inflation outlook. For these reasons, the BSP is watchful of emerging signs
of inflation that could be disruptive to consumption and investment, and ultima
tely have a corrosive impact on the economy. One clear strategy in addressing th
ese challenges is to forge and nurture greater partnership between the BSP and i
ts stakeholders, through open communication. This is where your inputs, through y
our responses in the Business Expectations Survey, come in. Your responses enabl
e us to discern public expectations on the general direction of economic indicat
ors, particularly inflation, a crucial element in the BSPs monetary policy settin
gs. As in a jigsaw puzzle, each institution represents a piece whose absence wil
l leave gaps that could adversely affect our proper appreciation of particular s
cenarios. This could potentially lead to weak or even wrong policies. It is impo
rtant therefore that we keep on working together to gain clear perspectives that
give rise to appropriate and timely policies. Indeed, sound macroeconomic polic
ies provided our economy with some insulation against the worst global crisis in
post-war history. Among the key elements that enabled the BSP to calibrate well
-informed and well-guided policies during the crisis was the constant supply of
information from you, our partners in the BSPs programs. For this, we thank and a
pplaud you. Palakpakan po natin ang lahat ng respondents and partners ng BSP! Th
us, today, the inflation environment remains benign while bank lending continues
to expand. This enabled the Philippine financial system to avoid the credit gri
dlock which paralyzed other financial markets overseas. Meanwhile, our external
position remains healthy, with a balance of payments surplus, and Gross Internat
ional Reserves reaching record levels of roughly $48.4 billion in June 2010. In
particular, the data you share with us -- through the Cross Border Transactions
Survey, Foreign Direct Investment Survey, and Coordinated Portfolio Investments
Survey -- allowed us to derive sound baseline estimates critical in enhancing co
mpilation of our external accounts and in calibrating well-anchored balance of p
ayments projections. These projections are vital in estimating forecasts for inf
lation and in crafting our monetary policy formulation. Let us thank our respond
ents with a round of applause! At the same time, remittances from overseas Filip
inos coursed through banks have been hitting unprecedented levels and helped rai
se our international reserves to record high figures as well. This was made poss
ible by our banks who have efficiently handled the billion dollar remittances of
overseas Filipinos. In effect, your reliable service provides significant benef
its not only to our hardworking overseas Filipinos and their families but to our
economy as well. Let us give our banks a well-deserved round of applause. We al
so thank all our partners who have joined us in our economic and financial educa
tion programs as we push for a better-informed public. Your unqualified support
and cooperation are valuable to the success of the BSPs economic and financial ed
ucation programs. Let us give our partners in our education programs a big hand!
Once again, ladies and gentlemen, we at the Bangko Sentral ng Pilipinas thank a
nd congratulate all of you for being our active partners. You have empowered us
to craft and implement responsive policies that promote balanced and sustainable
growth of our economy. Growth that empowers and improves the quality of life of
Filipinos. Moving forward, all we have to do is to act as a single force and mo
ve forward as one. Henry Ford once said: If everyone is moving forward, then succ
ess takes care of itself. Ladies and gentlemen. Today, therefore, let us commit t
o work more closely together and act in solidarity to be a single force. and to mo
ve forward as one so that we can achieve the change we need, sooner rather than la
ter. Maraming salamat sa inyong lahat! Mabuhay ang Pilipinas!
The BSP @ 17: Moving the Economy Forward

Venue: Bangko Sentral ng Pilipinas Assembly Hall
Occasion: BSPs 17th anniversary celebration
Magandang umaga sa inyong lahat! Maganda ba ang umaga? Tama! Fellow central bank
ers, it is our 17th anniversary the dawn of a new chapter in our journey as the c
ountrys central monetary authority. BSPers, batiin po natin ng happy birthday ang
mahal nating Bangko Sentral ng Pilipinas! Happy birthday BSP! Ladies and gentle
men, I am very happy that one of the milestones we are celebrating today is the
realization of a dream to unite all BSPersthrough the magic of technology. Under
the leadership of Deputy Governor Andy Suratos, our IT sub-sector team headed by
Managing Director Tess Bulseco has enhanced BSPs internal connectivity from one-
way video streaming to a two-way communication network. In other words, nag leve
l-up na tayo. to interactive video connectivity on a national scale! Palakpakan p
o natin ang milestone na ito. Now, let use our new system, starting with our Ass
embly Hall. I request everyone here, when I say now please wave your hands and gree
t our fellow BSPers all over the country with happy anniversary. Sabay-sabay tayoNO
W! Palakpakan po natin ang BSP head office! And since we are serving as anchor t
o this event, I ask everyone here at the assembly hall to respond to incoming gr
eetings with a wave and a happy anniversary. This time, let us hear from BSPers
in our Security Plant Complex in Quezon City! From Mindanao! From the Visayas! . Fr
om North Luzon! .From South Luzon! . May energy pa ba tayo? Meron pa? O sige. All
together, across the Philippines. let us celebrate BSPs 17th anniversary by waving
and saying happy anniversary. What is my signal? Tama! Sabay-sabay tayoNOW! Fello
w central bankers. We have just participated in a major event in Bangko Sentrals
history: we have taken part in putting one of our core values in action solidari
ty. But beyond connectivity through technology, what we need to do is to work mo
re closely together. We need to ensure that within our offices and departments PA
RTICULARLY ACROSS SECTORS we are all working in solidarity to serve our people and
our country as central bankers. That after thorough and healthy discussions of
a broad range of ideas, all possible scenarios and options,. we unite behind fina
l decisions that are made, whatever position we hold. We know that if we are div
ided and fragmented it will take more time to reach the goals we aspire for. or wo
rse, we may lose our way. Either way, we do a disservice to our country. This is
not to say that we are not united. However, in this imperfect world, there is a
lways room for improvement. In words and in deeds, let us be one. United, we are
strong and can be the best we can be, at all times. Together, let us unleash th
e Power of One. Sa isip, sa salita, at sa gawa tayo ay HIGIT na magka-isa. Team B
SP. Tatanungin ko kayo ngayon. Tayo ba ay HIGIT na magkaka-isa? .. Salamat naman! A
ko at ang mga members ng Monetary Board natin ay a-asahan yan. It is also quite
timely that we are renewing our vow of solidarity just days after the assumption
into office of President Benigno C. Aquino III who received his mandate from our
people with a landslide win! As patriotic Filipinos, let us also unite behind P
resident Aquino as he leads our people and our country to a better future. Fello
w central bankers, let us celebrate our solidarity as BSPers. and as Filipinos. wi
th a long round of applause! As we start a new chapter in the history of our cou
ntry and the Bangko Sentral, it would be useful to assess where we are, where we
are going, and how we plan to get there. For this, let us use our mission state
ment as our guide. First, we declared that the BSP is committed to promote and ma
intain price stability. Do you believe we have accomplished this? . Yes, of course
! Seventeen years ago, the Bangko Sentral ng Pilipinas was established as an ind
ependent central monetary authority with the mandated primary duty under its char
ter to maintain price stability. This came at a time when a global consensus was
emerging that price stability should indeed be the overriding goal of monetary p
olicy. Since then, extensive studies have shown that the overall declines in the
level and volatility of inflation can be associated with better monetary policy
. Price stability therefore has been the hallmark of modern central banking. Tod
ay, we can say that appropriate and timely monetary policies have kept inflation
and the Bangko Sentrals policy rates at low single-digit levels. In fact, even t
hrough periods marked with record high prices of basic commodities such as oil a
nd rice, we protected the purchasing power of Filipinos in the best way we can an
d kept the cost of money for business and consumers at relatively low levels. Ou
r mission statement also declares that the BSP is committed to provide proactive
leadership in bringing about a strong financial system conducive to a balanced a
nd sustainable growth of the economy. Do you believe we have accomplished this? ..
Yes, of course! In fact, we can say that the Philippine banking system passed t
he ultimate stress test by remaining sound and stable,. even when major internati
onal institutions buckled under the most debilitating global financial crisis in
decades. I should also mention that while there was a global financial credit s
queeze, Philippine banks kept credit flowing to our economy, on the back of ampl
e liquidity in the financial system. Confidence in our banking system was manife
sted by a double-digit growth rate in aggregate bank deposits to nearly P4.7 tri
llion in 2009. Indeed, sustained pursuit of critical reforms to improve governan

ce, strengthen bank capitalization, clean up banks balance sheets, and enhance ri
sk management helped create sound underpinnings for a healthier banking system.
The last part of our mission statement further says towards this end, it shall co
nduct sound monetary policy and effective supervision over financial institution
s under its jurisdiction. Did we accomplish these? . Yes, of course! I believe tha
t appropriate monetary and banking policies of the Bangko Sentral have been cont
ributing factors to sustaining growth in our country and ... in particularin keep
ing the Philippine economy resilient and on dry ground amidst the turbulence of
the global financial and economic crises. Indeed, we can take quiet pride that t
he BSP has built a reputation as a credible inflation fighter. I can say that ou
r transparency and accountability practices helped anchor the publics inflation e
xpectations and created a more predictable environment for business planning and
consumer decisions. In fact, except during periods of significant supply-side s
hocks, inflation under our inflation targeting framework has been generally lowe
r than target. We also engaged other regulators within the financial sector to w
ork more closely with the Bangko Sentral to harmonize standards and procedures,
to align our policies with global best practices, and to have a coordinated prog
ram for a financial sector that is more responsive to the needs of our economy.
Equally important, the BSPs real-time gross settlement system or PhilPaSS continu
es to inspire confidence and development in the financial system. Able to proces
s large value payments that reached P188 trillion in 2009, PhilPaSS is gearing u
p to further use its capacity to benefit overseas workers by processing remittan
ce flows to facilitate service delivery and lower remittance fees. These are gai
ns we have made insofar as the three pillars of central banking are concerned. I
n addition, we also have a healthy external liquidity position with a balance of
payments (BOP) surplus, record high gross international reserves and remittance
s from overseas Filipinos, as well as a stable and competitive peso. All these w
ill help provide our economy with appropriate cushions against possible external
shocks, going forward. Our Security Plant Complex, on the other hand, continues
to meet most of our currency requirements through banknote printing and coin mi
nting. And through SPC, we helped the Department of Foreign Affairs produce mach
ine-readable and electronic passports, thereby allowing Filipinos to have global
ly-compliant travel documents. When it completes the upgrading and expansion of
its facilities, SPC shall be able to meet the steady rise in demand by our expan
ding economy and growing population; it shall also print our new generation bank
note designs with upgraded security features. Let me also mention the advancemen
t of key programs of the BSP during the past few years. In support of the global
fight against money laundering, we continue to finetune our regulations and exp
and our reach which now include our supervision of foreign exchange dealers and
remittance agents. We are also proud of our accomplishments in microfinance acro
ss the Philippines which has liberated thousands of our entrepreneurial poor fro
m poverty. This is based on hard data and the many inspiring success stories it
has spawned. Our success in microfinance has been validated by a global survey w
hich ranked the Philippines as number one in terms of providing a regulatory fra
mework conducive to the development and growth of microfinance. Today, more than
200 banks are engaged in microfinance with aggregate loans of about P12 billion
granted to roughly 900,000 microentrepreneurs. And you will be happy to know th
at about 600,000 of them now have bank accounts and their total deposits have re
ached one billion pesos! In addition, our inclusive economic and financial educa
tion programs that target Filipinos from different sectors across our country he
lp empower millions of Filipinos: from students in the elementary and college le
vels, to overseas Filipinos and their dependents, to salaried employees, the pub
lic in general, as well as exporters, microentrepreneurs, and SME investors. In
particular, we have enhanced access to bank credit in the countryside through th
e Credit Surety Fund (CSF) Program. We have also set up 22 economic and financia
l learning centers all over the country to make useful economic information acce
ssible not only to students but also to professionals and the business sector. A
nd beyond banking, the Philippine International Convention Center provide vital
support to our countrys efforts to be competitive in the global conference and ex
hibition sector. By the way, we have members of the PICC board and their top man
agement with us this morning. Palakpakan po natin sila. We also constantly worke
d on improving the Bangko Sentrals capabilities as a public institution through c
ompetitive compensation and benefit package that attracts and retains the best a
nd the brightest. Kayong lahat iyan. At the same time, our continuing wholistic
training program equips our employees with the necessary skills and expertise to
perform their duties more effectively. We also continue to provide local and fo
reign scholarships to our deserving employees so that they can capably respond t
o the challenges ahead and one day assume leadership roles in our institution. A
nd of course, we make sure we provide a healthy and safe working environment con
ducive for a more productive and efficient workforce. Moving forward, we will ne
ed to draw strength from the core values we have identified as imperatives for t
he Bangko Sentral to be successful in pursuing its mandate. We have discussed So
lidarity earlier. Let me guide you in identifying the other four values of the B
SP. It starts with the letter P: you are correct, it is patriotism; It starts wi
th E: you are correct, it is excellence; It starts with I: you are correct, it i
s integrity; and It starts with D: yes, it is dynamism. Finally, ladies and gent
lemen of the Bangko Sentral. On behalf of the members of the Monetary Board, I t
hank all of you for a job well done and for your continuing fidelity to our core
values in the workplace. But you and I know, there is still a lot of room for i
mprovement. We will work on these together, starting with the results of the wor
kshop on Organizational Enhancements which we completed last Friday. Briefly, th
is will cover continuing improvements in our processes, an enterprise-wide commu
nication policy and program, the continued development of a values-driven workfo
rce, and reinforcing the ties that bind us through our heroes, legends and symbo
ls. Foremost of these symbols is our new logo that embodies BSPs continuing trans
formations to adapt to a changing environment and our now global approach to the
three pillars of central banking, as represented by three gold stars. Our princ
ipal symbol of course is the Philippine Eagle, the worlds largest, which is a sym
bol of strength, clear vision, and independence,. the qualities we aspire for as
a central bank. Ladies and gentlemen. The Bangko Sentral ng Pilipinas has a soli
d track record that makes me confident we have what it takes to reach our goals
faster and in a more efficient manner. Together, let us move the BSP and our eco
nomy forward to help ensure balanced and sustained growth across our country. On
a personal note, I want to say it is an honor and a privilege working with all
of you at the Bangko Sentral. This year, I am commemorating my 36 years of servi
ce at the Bank. In the last five years, I have served as Chairman of the Monetar
y Board and Governor of the Bangko Sentral ng Pilipinas. Through all these years
, you have supported me, in sickness and in health. For this, my family and I th
ank all of you. This includes my wife Elma, my daughters Eula and Mia as well as
my son Patrick and his wife Miko, plus my granddaughter Zara. Wait! I am not sa
ying goodbye yet. I still have one year to complete my term. I just feel I canno
t thank all of you enough. I also extend my thanks and deep appreciation to thre
e other Members of the Monetary Board who started out with me in this journey fi
ve years ago: Monetary Board Members Juanita Amatong, Nelly Villafuerte, and Fre
ddie Antonio. I also thank past and present members of the Monetary Board in the
last five years. It has been a pleasure and a privilege working with them as we
ll: Dr. Vicente Valdepenas, Atty. Raul Boncan, Atty. Ignacio Bunye, former NEDA
head Augusto Santos and former DTI Secretary Peter Favila. Palakpakan po natin s
ila! Let us also thank all those who worked together in our anniversary committe
e headed by the energetic and inspiring Director of the SES Gail Fule! Palakpaka
n po natin sila. They will continue working in the next few weeks to make our 17
th anniversary celebration memorable and successful. Fellow BSPers, as we celebr
ate our 17th anniversary as an independent central monetary authority, let us be
grateful for the opportunity to serve our country and our people. And let us co
mmit to work more closely together as we pursue our agenda to improve the qualit
y of life of our people through responsive monetary and banking policies. Mabuha
y tayong lahat! Mabuhay ang Bangko Sentral ng Pilipinas! Maraming salamat sa iny
ong lahat!
Nurturing Responsible Young Leaders through SIFE

Occasion: Pilipinas Students in Free Enterprise National Competition
Magandang umaga sa inyong lahat! The Bangko Sentral ng Pilipinas is happy to be
a part of the 2010 Pilipinas SIFE National Competition that celebrates successfu
l community projects of SIFE teams across the country. Indeed, we should all sup
port projects that channel the energy and creativity of our youth in improving t
he lives of our people. I am very pleased to know therefore that SIFE has instit
utionalized the coming together of students with their academic advisors and corp
orate partners in empowering local communities to improve their quality of life a
nd to become more self-reliant. In particular, SIFEs mantra for developing young
people with a head for business, a heart for the world is a guiding principle we s
hould take to heart. We have seen how the blind pursuit of money can be ultimate
ly destructive even for the very rich and well-educated, like what was experience
d in the recent global financial crisis. I believe therefore that imparting prop
er values and exposing young people to directly assess the impact of their busin
ess decisions on real lives make for an excellent approach that we should all co
ntinue to support and promote. In an emerging market economy such as the Philipp
ines, where ensuring balanced and sustainable growth remains a challenge, traini
ng our youth early enough to be part of the national effort to address poverty i
s a big step in the right direction. Let us therefore congratulate Pilipinas SIF
E led by Chairman & CEO Joey Leviste, its members, organizers, and partners for b
ringing this program to the Philippines. Let us give everyone involved in Pilipi
nas SIFE a well-deserved round of applause! Ladies and gentlemen. As a governmen
t institution, the Bangko Sentral serves our country by providing stability to o
ur economy through appropriate monetary and banking policies. That is our primar
y mandate. In addition, we are actively engaged in conducting economic and finan
cial education programs. I am very pleased to know therefore that a number of SI
FE teams undertake financial education as their project. We at the Bangko Sentra
l look at inclusive financial education and empowerment programs as building blo
cks for a stronger Philippine economy, for two reasons. First, it has been prove
n that a financially literate population makes for a sound and stable financial
system and second, we want our people to benefit from the opportunities that deve
lopment brings. In this connection, the Bangko Sentral has taken a proactive sta
nce to institutionalize a broad range of economic and financial education progra
ms that target different sectors of our society, including the marginalized and
the unbanked. Among others, lessons on personal financial planning, investments,
and entrepreneurship are given to overseas Filipinos and their dependents, as we
ll as to high school and college students. through Bangko Sentrals economic and fi
nancial learning centers all over the country. We also conduct briefings on fina
ncial planning in various countries to reach out to our overseas Filipinos in th
eir places of work abroad. And in cooperation with the Department of Education,
we have integrated lessons on saving and money management in the curriculum of p
ublic elementary schools. I believe we have covered a lot of ground; however, th
ere is still so much more that we can do. We need more partners. We therefore lo
ok forward to working with SIFE on broadening the reach of our financial educati
on programs. Another possible area of partnership between the BSP and SIFE is mi
crofinance which has generated so many inspiring success stories in many parts of
our country. In fact, our efforts to promote microfinance and financial inclusi
on in our country have placed us in the international radar screen. In particula

r, an international survey ranked the Philippines first overall in terms of prov
iding a regulatory framework conducive to the development and growth of microfin
ance. As of December 2009, for instance, there were more than 200 Philippine ban
ks engaged in microfinance with total loans outstanding of about P12 billion len
t out to about 900,000 entrepreneurial poor. This translates to an average loan
of roughly P13,300.00. It is remarkable that 2/3 of microcredit recipients have
also become net bank depositors: their aggregate deposits have reached one billi
on pesos! These are relatively modest amounts but they represent a very signific
ant step forward toward self-reliance. I hope therefore that through Pilipinas S
IFE, we will have more successful microfinance operations that will improve the
lives of many more Filipinos. Finally, on behalf of the Bangko Sentral, I congra
tulate all the finalists in the 2010 Pilipinas SIFE National Competition, their
advisors and corporate partners for working as a team in doing good for our coun
try. I would also like to extend the best of luck and more power to the team tha
t will represent Pilipinas SIFE in the SIFE World Cup. Together, by empowering l
ocal communities through a better understanding of the principles of free enterp
rise, to help them reach their full pontential, you honor our national hero who
believed in the promise of the Filipino youth. Ang sabi ni Dr. Jose Rizal: Ang mg
a kabataan ang pag-asa ng ating bayan. Mabuhay ang kabata-ang Pilipino! Mabuhay a
ng Pilipinas! Maraming salamat sa inyong lahat!
Nurturing the BSP-RBAP Partnership

Venue: Sofitel, Manila
Occasion: RBAP Induction of New Officers
The officers and members of the Rural Bankers Association of the Philippines (RB
AP), fellow bankers, special guests, good evening. As you can tell by now, rural
banks are special to the Bangko Sentral ng Pilipinas. Among other indicators, t
his is the third time in one month that I am addressing RBAP: I was a keynote sp
eaker at RBAPs 57th Annual National Convention last May 31 and at the RBAP-MABS A
nnual National Roundtable last June 2. Today, for RBAPs Inaugural and Induction o
f Officers, you invited me and I accepted to be your keynote speaker once again. W
ell, as I have said before .rural banks are important to the Bangko Sentral as yo
u are the natural frontliners in our national program to broaden and deepen the
reach of responsible and empowering financial services to local communities. And j
ust as our nation witnessed the peaceful transition of national leadership the o
ther day, I am pleased that this was echoed in the smooth transition of RBAPs lea
dership: from immediate past President Joseph Omar Andaya to your new President
Ma. Corazon Llamzon-Miller and her board. Ladies and gentlemen, let us celebrate
these democratic transitions with a round of applause! I am optimistic that aft
er todays induction, we can look forward to another vibrant and successful year o
f rural banking. Let us inspire our new officers with a long round of applause.
This is also the most opportune time to congratulate RBAPs past officers for a jo
b very well done. Let us give them a well-deserved round of applause! I remember
that the past officers and board members assumed office when the rural banking
sector was dealing with difficult challenges. As the global financial and econom
ic crises were underway, our rural banking sector had to contend as well with ne
gative perceptions generated by a few but high profile bank closures. Together, y
ou tackled these challenges squarely, proved to the public that the issues conce
rning the closed banks were isolated cases, and successfully shepherded the indu
stry toward recovery and sustained growth. RBAP also took the opportunity to adv
ance innovative ideas that have made rural banking services better designed and m
ore accessible to your clients. In the process, you have lowered your costs and
raised your efficiencies while reaching a larger market. Our numbers prove these
important gains. For instance, while the number of rural banks dropped 4% in 200
9 -- from 658 to 631 -- the branching network increased significantly by 45% -from 1,362 to 1,974. The installation of 119 ATM units and the involvement of 52
rural banks in mobile and electronic banking have further expanded the reach of
the sector. All these combined to sustain increases in deposits and loans, impr
ove NPL ratio, and raise return on equity to 12.12%, a rate slightly better than
the 11.38% ROE of universal and commercial banks. These indicators tell us that
our rural banking sector is moving forward on stronger footing. The task ahead
for the new RBAP officers and board members is to build on the gains of the past
, to push frontiers and to take Philippine rural banking to greater heights. In
particular, your immediate challenge is to continue with reforms to further stre
ngthen balance sheets, improve governance and management structures, and to embr
ace innovations in products and service delivery to better respond to changing ma
rket needs. The Bangko Sentral is looking forward to working with the new RBAP l
eadership in this important task. Together, let us nurture the partnership and o
pen communication we have developed through the years. Together, let us strength
en the rural banking sector to play an even bigger role in accelerating the deve
lopment of rural communities and in improving the lives of Filipinos. Again, my
congratulations to the new officers of RBAP under the leadership of President Ma
. Corazon Llamzon-Miller. Mabuhay ang RBAP! Mabuhay ang Pilipinas! Maraming sala
mat sa inyong lahat!
Welcome Remarks
Venue: San Fernando, Pampanga
Occasion: Inauguration of the BSP Pampanga Regional Branch
Her Excellency Gloria Macapagal Arroyo, Secretary Gary Teves, fellow workers in
government, leaders of the business community, members of the banking community,
special guests, mga kabalen, good afternoon. On behalf of the members of the Mo
netary Board we welcome all of you to this new home of the Bangko Sentral ng Pil
ipinas in the City of San Fernando . We are happy and honored that you have accept
ed our invitation to join the inaugural ceremonies of this new landmark in Pampa
nga. Indeed, we should celebrate what the transfer of our Pampanga office repres
ents - that the Bangko Sentral ng Pilipinas needed bigger offices to support sus
tained growth of economic transactions here in Pampanga and in nearby provinces
such as Zambales, Tarlac, and Bulacan. In fact, of the 21 regional offices and b
ranches of the Bangko Sentral, our Pampanga branch is the second largest in term
s of deposits, next only to Cebu. In addition, Region III or Central Luzon ranks
the third largest in terms of net loan portfolio, after the National Capital Re
gion and Central Visayas. This is concrete proof of the gains this region has ma
de over the years, having overcome the setbacks wrought by the eruption of Mt. P
inatubo. Ladies and gentlemen, let us celebrate this success with a round of app
lause! It is not surprising therefore that the Bangko Sentrals recent surveys indi
cated... that the business sector and the consumers in Region III are optimistic
that even higher levels of growth and prosperity will continue to be achieved.
And while the Bangko Sentral has moved to San Fernando, we remain grateful to An
geles City for supporting us in the last 23 years that we held office at the his
toric Pamintuan House where the first anniversary of the Philippine Republic was
held and which served briefly as presidential residence of Emilio Aguinildo, the
first Philippine President. For this reason, the Bangko Sentral ng Pilipinas ha
s included the Pamintuan House in the list of real estate properties that will b
e turned over to the Department of Finance as property dividends. The Department
of Finance in turn will transfer responsibility over the property to the Nation
al Historical Commission which will convert this into a museum. In this manner, w
e ensure that ownership of Pamintuan House remains with government and Angeles Ci
ty will be assured that this historic landmark in its midst will be preserved fo
r the next generations as witness to the history and heroism of our people. Ladie
s and gentlemen. I am also pleased to report that our country, as a whole, is al
so doing relatively well. While the world economy remain in distress following t
he worst global financial crisis in decades, the Philippine economy continued to
move forward, culminating in the 7.3% GDP in the first quarter this year. The r
esiliency of our economy was not lost to global analysts and investors. One of t
he worlds biggest investment banks said the Philippines surpassed expectations, d
isplaying remarkable resilience and an impressive rebound. The pursuit of sustai
ned economic reforms under the Administration of President Arroyo made this poss
ible. At the same time, the Bangko Sentral as an independent institution respons
ible for in inflation management and banking supervision reinforced the Philippi
nes macroeconomic achievements. Average annual inflation was kept at single digit
s dropping to 2.8 percent in 2007, the lowest annual average in 21 years. This y
ear, the average inflation for the year is at 4.3 percent, well within the gover
nments target of 3.5 to 5.5 percent for 2010. The centrality of price stability,
particularly in creating an environment conducive to informed consumption and in
vestment decisions cannot be overemphasized. At the same time, our external posi
tion remains strong. Our balance of payments is in surplus in spite of a difficu
lt environment while the countrys Gross International Reserves (GIR) is at a reco
rd high level of $48 billion and could cover more than 9 months of imports of goo
ds, three times the standard of three months. Our healthy external position is d
ue in part to the continued surge of Overseas Filipino remittances to historic h
igh levels. In support of our OFs, Bangko Sentral has been working on lowering r
emittance charges and conducting financial education on investment opportunities
and investor protection programs. Another important mandate of the BSP is maint
aining financial stability, which proved its significance in the recent global e
conomic turmoil. The financial reforms we have consistently pursued have enabled
the Philippine financial system to remain resilient amidst the global financial
storm. In fact, the countrys financial system has substantially improved as indic
ated by the uptrend in total assets, the rise in bank capital ratios, improvemen
t in bank profitability and better non-performing loan ratios. The promotion of
good governance practices, steady capitalization build-up, and continuing reform
s generated positive results for the banking sector. We are also pleased to repo
rt that we continue to make good progress in integrating our countrymen into the
net of the formal financial system through a program to provide financial servi
ces to the underserved as well as the unserved and unbanked. In particular, we h
ave made inroads in improving lives through microfinance with an impressive rise
in the number of clients served, in loans granted and in savings generated. In
fact, the country has been recognized as one of the best in the world of microfi
nance by the Economist Intelligence Unit. The Philippines is also in a leadershi
p position for mobile money transfers. This is not to say that the road ahead wi
ll be easy. However, we have learned that cooperating and working together can d
o wonders in terms of keeping our economy on sound and stable footing in the yea
rs ahead to improve the lives of Filipinos. This, we shall continue to do as we
pursue our mandate to ensure stable prices through monetary policies; a sound an
d stable banking system through appropriate policies and programs; as well as a
safe and reliable payments system that inspires confidence in our financial syst
em. . These topics will be discussed in greater detail in the Restrospective For
um that will follow later. Your Excellency, ladies and gentlemen, on behalf of m
y fellow central bankers, I thank you for joining us today on the inauguration o
f the Bangko Sentrals new branch office in Pampanga. Mabuhay!
Microfinance: From Best Practice to Next Practice

Venue: Hyatt Hotel and Casino, Malate, Manila
Occasion: RBAP-MABS Annual National Roundtable
RBAP President Omar Andaya, RBAP-MABS chief of party John Owens, fellow advocate
s of microfinance, colleagues in the banking community, good afternoon. It is a
pleasure for me to join you once again in your Annual National Roundtable Confer
ence. Last year, I had the opportunity to discuss microfinance as the bright spot
during challenging times. This year, I am happy to note that indeed that bright
spot continues to shine and we can move on, so to speak, From Best Practice to Nex
t Practice. Ladies and gentlemen. It was not too long ago when microfinance was l
imited to microcredit provided by leading non-governmental organizations (NGOs),
cooperatives and a handful of banks. Since then, the number of microfinance pla
yers has increased significantly, while available services have noticeably diver
sified. And this trend continues. Today, MFI clients are able to access savings
products, microenterprise loans, housing microfinance, micro-agri loans, and mos
t recently, microinsurance. At the same time, more banks now see the viability o
f providing meaningful microfinance services to our countrys entrepreneurial poor
. Of course, MABS-participating banks lead this pack. We are also seeing commerc
ial banks escalate their engagement: from simply providing wholesale funds to dir
ectly engaging in microfinance operations through their subsidiaries or affiliat
es. Certainly, this has intensified competition that benefits clients in terms o
f better-designed and more appropriately-priced products. Ladies and gentlemen.
These product innovations increase the value of your services to your clients hou
seholds and business. At the same time, you are able to diversify your portfolio
and target specific customer needs with the right products. Much has also chang
ed in the way microfinance services are delivered. For some time, having a compu
terized management information system to track loans was considered the primary
technological innovation for microfinance institutions. And having loan officers
using palm pilot during client visits was already considered cutting edge. Who
could have imagined that in just a few years clients can pay their loans, make wit
hdrawals or deposits using their mobile phones and a simple text message? Who co
uld have predicted that an ordinary village merchant can serve as a channel to a
ccess financial services? Indeed, technology has created transformative solution
s for increasing efficiency and lowering costs for both the microfinance institu
tions and their clients. These developments or what we can call next practice mean o
nly one thing: greater opportunities for microfinance practitioners. You now hav
e the ability to offer a wide range of products to a much bigger market. With in
novations in technology, you are now able to extend your services to areas that
traditionally could not be reached from your brick and mortar offices. It is cle
ar.the opportunities ahead are limitless, particularly for strong and stable inst
itutions. It is in this context that I commend the RBAP-MABS leadership and part
icipating banks for your unwavering commitment to prudential standards and best
practices. Let us celebrate your accomplishments with a well-deserved round of a
pplause. Your clear methodology and underwriting standards coupled with strict ad
herence to maintaining portfolio quality have enabled you to enjoy much of the g
ains of the sector. The challenge is for you to continue on this path of good go
vernance and to constantly strive to do better. It is important that banks conti

nue to work on improvements in your capital positions, as well as in increasing
capacity to better manage risks. Adhering to sound management practices should b
e a priority. With these in place, I am certain that rural banks, particularly t
hose reaching out to the unbanked, can fully realize their potential as catalyst
s for sustainable and balanced grassroots economic growth. We at the BSP recogni
ze this important role. Therefore, we have been working continuously to provide
a supportive environment that will further promote the growth and development of
microfinance, in accordance with our inclusive finance objectives. You see this
in our most recent Circulars related to microfinance. For instance, Bangko Sent
rals Circulars 678, 680 and 683 allow you to diversify your product offerings to
include housing microfinance loans, micro-agri loans and microinsurance, respect
ively. On the other hand, Circular 685 supports the commercialization of the ind
ustry by recognizing the importance of independent, 3rd party ratings provided b
y Microfinance Institution Rating Agencies or MIRAs. At the same time, we are re
viewing our earlier regulations that define microfinance and microfinance loans.
As I mentioned earlier, much has changed in the practice of microfinance and we
want our regulations to be in step with the times. Our objective is to craft re
gulations that will enable microfinance practitioners to provide services to an
even wider range of clients and to deliver financial services to more unserved m
arkets including those who fall in the so-called gray area of microfinance who need
loans above P 150,000.00. These are the microenterprises that are ready to scal
e up their operations as small or even medium enterprises. In addition, we have re
cently engaged the consultancy services of SME lending experts to further streng
then the capacity of the Bangko Sentral in supervising SME lending technologies.
Parallel to these, we continue to expand and deepen the reach of Bangko Sentrals
financial education and consumer protection program. We want to have a truly in
clusive and empowering financial system that will mainstream the previously unse
rved or unbanked. Typically, they are more economically vulnerable and stand to
benefit the most from information and capacity building that will give them acce
ss to financial services. Our financial inclusion efforts are therefore intrinsi
cally linked to our financial learning and consumer protection efforts. We have
a Comprehensive Economic and Financial Learning Program which provides important
economic and financial information to identified segments of the population. Th
is is because we believe that a well-informed populace make better economic and
financial decisions that make them effective channels of economic development. A
side from our financial education efforts, we have created a Financial and Consu
mer Affairs Group to strengthen consumer protection for bank customers. Indeed,
we have accomplished much together. Yet there is always so much more that can be
done. Ladies and gentlemen, for as long as more than 30 million Filipinos still
live in poverty, we cannot and should notbe complacent. We have found microfinance
to be an effective and empowering force in getting people out of poverty, in im
proving lives. Let us therefore continue to work together to strengthen our micr
ofinance sector and bring it to its full potential. I believefor microfinance, th
e best is yet to come. Mabuhay ang RBAP-MABS! Mabuhay ang microfinance! Mabuhay
ang Pilipinas! Thank you all and good afternoon.
Strengthening Financial Inclusion & Social Protection

Venue: Sofitel Hotel, Manila
Occasion: 57th Annual National Convention and Corporate Meeting of the Rural Ban
kers Association of the Philippines (RBAP)
Ladies and gentlemen of the Rural Bankers Association of the Philippines, fellow
advocates of the rural banking sector, special guests, good morning! I am happy
to be here at the 57th Annual National Convention of the Rural Bankers Associat
ion of the Philippines, for several reasons. First, it is always good to meet ru
ral bankers from different parts of the country to learn about operating conditi
ons in our local communities, as well as the opportunities new government polici
es present. To us at the Bangko Sentral ng Pilipinas, this signifies a continuin
g commitment on your part to provide responsive banking services by investing ti
me and effort to understand and adapt to an environment that is constantly shiftin
g and changing. For this, we salute all the officers and members of the RBAP who
have taken the time to participate in this annual convention. Let us give all t
he RBAP members here today a well-deserved round of applause. Second, your confe
rence theme Towards Greater Financial Inclusion and Social Protection communicates
very clearly that once again the RBAP and the Bangko Sentral ng Pilipinas are on
the same page, insofar as our quantitative and qualitative aspirations are conce
rned. Indeed, bank programs to grow the business should be balanced with efforts
to educate and protect bank customers. As responsible bankers, this win-win stra
tegy is the way to go and grow. For this, I commend RBAP under the leadership of
President Joseph Omar Andaya and the members of your board of directors. Palakpa
kan po natin sila! Ladies and gentlemen of the rural banking sector. You are the
natural frontliners in our national program to broaden and deepen the reach of
responsible... and empowering... financial services to local communities. Aside
from your proximity to the clients in the countryside, your deep understanding o
f their needs makes you effective catalysts for financial inclusion and social p
rotection. In addition, rural banks... as a sector... continue to hold the lions
share of the banking industrys network in the countryside. For instance, while th
e ongoing consolidation in the banking sector reduced the number of rural banks
by 4% - from 658 in 2008 to 631 in 2009 - the branching network showed a signifi
cant 45% increase - from 1,362 to 1,974 branches. Equally important, rural banks
continue to expand their non-traditional service delivery channels. Between 200
8 and 2009, the number of rural banks with Automatic Teller Machines - or ATMs increased from 113 to 119 while rural banks providing electronic banking servic
es moved up from 47 to 52. Through rural banks, therefore, we expect that more u
nserved and underserved Filipinos will gain access to responsible and dependable
financial services. It can be a simple savings account, a time deposit, an effi
cient way to pay bills, an insurance product, a microfinance loan, or even just
a safe channel to send and receive money. After getting clients through your doo
rs, it is important that... in words and in deeds... your customers are assured
that their trust in you and your bank is well-deserved. The challenge therefore
is to ensure that the Filipinos confidence in the banking system and in rural ban
ks in particular continues to grow and strengthen. What are the magnitudes invol
ved in working on financial inclusion? Well, rough estimates indicate that at th
e most, only one-third of our households have bank accounts. In other words, at
least two out of every three households in the Philippines do not maintain bank
accounts. This means an untapped market of about 11 million households! Some sce
ptics maintain that many households have no means to maintain bank accounts. Tha
t may be true; but we maintain that there are millions more households that can
open and maintain bank accounts... given enough information, attention, incentiv
e, and protection. In fact, these new customers could very well boost the profit
ability of rural banks. There is also the added potential of engaging both new a
nd existing customers to have multiple transactions with your bank to further de
epen their financial inclusion. Ladies and gentlemen. Financial Inclusion became a
global buzzword with the launching in 2005 of the United Nations International
Year of Microcredit. Since then, the resounding success of microfinance proved,
beyond any doubt, that an activity once seen as marginal or even charitable could
in fact be undertaken in a sound, sustainable and profitable manner. This succes
s catalyzed the push to look beyond microfinance and find ways to further expand
the reach and scope of financial services. The concept gained further traction
in light of the recent global financial and economic crisis. There is now a grow
ing acceptance in global debates that the crisis reinforced the adverse effects
of financial exclusion, resulting in increased burden for those segments of the
population that are already vulnerable. Thus, influential bodies such as the Gro
up of 20 major economies... more popularly known as G-20... have incorporated fi
nancial inclusion in their agendas. In fact, the recent G-20 Leaders Meeting res
ulted in the creation of a Financial Inclusion Experts Group to work on broadeni
ng access to a full range of financial services... as a strategy to provide the
foundation for sustainable growth worldwide. Here in our country, we have been p
utting policies and programs in place to provide both financial inclusion and so
cial protection. In fact, you will be pleased to know that the Bangko Sentral ng
Pilipinas is one of the first central banks in the world to have an office dedi
cated to the pursuit of financial inclusion. As a result, we now have policies t
hat empower strong and capable banks to have a wider scope and scale of operatio
ns to make them effective and meaningful providers of financial services to more
Filipinos. In 2006, for instance, the Bangko Sentral issued Circular 522 author
izing rural banks to offer FCDUs or Foreign Currency Deposit Unit accounts so th
at you can take a strategic and active role in the growing remittance business t
hat has since grown into a 17 billion-dollar industry. In 2007, the Bangko Sentr
al authorized rural banks to make equity investments in ATM networks through Cir
cular 563 and engage in limited trust activities under Circular 583. In 2008, qu
alified rural banks were even allowed to participate in select derivatives activ
ities under Circular 594. In 2009, the Bangko Sentral issued Circular 649 or the
electronic money circular which provides the regulatory framework for the fastgrowing electronic money business, where rural banks play a central role. With a
wider network of cash in/out agents, you will be able to leverage your existing
offices and deliver your financial services to an even broader market with pote
ntially greater efficiency and lower costs. So far this year, we have issued new
regulations that significantly broaden business opportunities for rural and coo
perative banks. In the first two months, we approved Circulars 678 and 680 cover
ing Housing Microfinance and the Micro-Agri Loan Product under which banks are a
ble to manage their microfinance operations better, with a more diversified port
folio and lower risk of business loans applied to agriculture or housing. To fur
ther expedite the provision of these services, just two weeks ago, the Monetary
Board approved the RBAP-MABS housing microfinance program. Through this approval
, the RBAP will take a leadership role in the qualification or screening process
of participating banks that wish to offer housing microfinance. This develops a
strong sense of product ownership and makes the process more efficient. Also th
is year, we issued Circular 683 authorizing rural banks to market, sell and serv
ice microinsurance products, subject to certain prudential rules and regulations
. This enables rural banks to deliver a full range of financial services needed
by your clients, which may include protection against injury, loss of property,
and other contingent events. This is a groundbreaking policy that places rural b
anks on the same footing as universal banks which previously held this business.
The Bangko Sentral has also issued this year Circular 685 covering the rules and
regulations in recognizing Microfinance Institutional Rating Agencies. This is i
mportant as the use of objective, credible, and competent third-party ratings of
microfinance institutions enhances transparency and possible inflow of resource
s into the industry. Altogether, this should facilitate the further growth and d
evelopment of microfinance in the Philippineswhich has proven to be an effective
medium for liberating millions of Filipinos from poverty. Ladies and gentlemen o
f the RBAP, all these policies are in place and the opportunities this brings ar
e well within your reach. All you need to do is to continue to strengthen your i
nstitutions by aligning governance practices with global standards, strengthenin
g your capital positions, putting in place a proactive risk management system, i
mproving business operations and following industry best practices. I also wish
to say that the Bangko Sentral ng Pilipinas remains responsive to issues raised
by RBAP, including those pertaining to the implementation of certain policies. T
ake for instance Circular No. 688 issued only last week May 26 to be exact - imp
lementing the Revised Risk Based Capital Adequacy Framework for Stand-alone Thri
ft, Rural and Cooperative Banks or the so-called Basel 1.5 framework. Unlike the
full Basel 2 framework for universal and commercial banks and their subsidiary
banks and quasi-banks, the Basel 1.5 framework involves only a few key changes o
n the existing framework under Circular No. 280 dated March 29, 2001, as amended
. The main changes include the increase in risk weight from 0% to 100% for forei
gn currency denominated exposures to the Philippine National Government and the
Bangko Sentral. The increase in risk weight shall be phased-in over a three year
period: that is, 1/3 of the applicable risk weight shall be applied by January
2, 2012; 2/3 by January 1, 2013; and the full risk weight by January 1, 2014. An
other major change is the increase in risk weight for Real and Other Properties
Acquired exposures from 100% to 150%, which shall also be applied gradually for
three years: 115% risk weight shall be applied by January 1, 2012; 130% by Janua
ry 1, 2013; and 150% by January 1, 2014. This revision is consistent with the BS
P s thrust of reducing the level of non-performing assets of banks to strengthen
the overall asset quality of the banking system. Another new feature in the rev
ised framework is the capital requirement for operational risk which is based on
12% of the average positive gross income of the bank for the past three years.
The new guidelines also require important items to be disclosed in the Annual Re
ports and the Quarterly Published Balanced Sheet to enhance market discipline an
d transparency. The Bangko Sentral has considered delaying the effectivity of th
is new Circular to 1 January 2012 to give concerned banks ample time to adjust t
o this new capital adequacy framework. And to make the transition more manageabl
e, the implementation is on a staggered basis. Ladies and gentlemen of the rural
banking sector. It is important that you see these circulars not as mere issues
of compliance undertaken to satisfy the regulator; rather, it is our hope that
there is a clear understanding and appreciation on your part that these measures a
re crucial to your growth and viability as a business. Ultimately this will bene
fit your customers in terms of stronger social protection and your shareholders i
n terms of better returns. As it is, the rural banking sector as a whole is alread
y on the right track, as far as operational bottom line is concerned. I base thi
s on 2009 consolidated figures. In fact, even with the global financial crisis a
nd isolated closures of some banks, consolidated return on equity of the rural b
anking sector in 2009 reached 12.12 centavos for every one peso equity investmen
t, even better than the commercial banking sector which posted an aggregate ROE
of 11.38 centavos per peso of equity. Total assets of the rural banking sector a
lso continued to expand, rising from P146 billion in 2008 to P157.4 Billion in 2
009. Yearend 2009 figures also showed that rural banks gross total loan portfolio
was more than P98 Billion, while deposits stood at over P105 Billion. By any me
asure, these are respectable figures posted at a time when the global financial
crisis triggered the most serious world recession since World War II. Ladies and
gentlemen, let us celebrate the accomplishments of the rural banking sector wit
h a well-deserved round of applause! To the Bangko Sentral, all these represent
concrete evidence that our rural banks are indeed ready to take on a more strate
gic and competitive place in the Philippine financial system. We are confident t
herefore that in cooperation with our rural banks through the leadership of RBAP w
e can work toward greater financial inclusion and social protection for Filipino
s. Mabuhay ang RBAP! Mabuhay ang Pilipinas! I wish you all a successful conventi
on. Maraming salamat sa inyong lahat!
Empowering Entrepreneurial Filipinos Thru Microfinance

Venue: Century Park Hotel, Manila
Occasion: 2010 Microentrepreneur of the Year Official Launch

Fellow advocates of the microfinance sector, good afternoon and congratulations!
Yes, ladies and gentlemen, we have many reasons to celebrate. First, this annual
national search for outstanding Filipino microentrepeneurs is on its 8th year.
This speaks well of the commitment of those involved in this program. And so, le
t us give a big hand to Citi Philippines headed by Sanjiv Vohra; the Microfinanc
e Council of the Philippines headed by Mr. Ruben de Lara; the Bangko Sentral ng
Pilipinas and my fellow central bankers; and finally my hardworking co-members a
t the National Selection Committee which includes Philippine Daily Inquirer Chai
rperson Marixi Rufino-Prieto; SM Investments Vice Chairperson Tessie Sy-Coson; f
ormer MBM Antonino Alindogan; GMA Network CEO Atty. Felipe Gozon; Go Negosyo Mov
ement Head and RFM Corporation CEO Joey Concepcion; Chair of the Leadership and
Strategy Department of the Ateneo de Manila University and Finance Educator of t
he Year Dr. Darwin Yu; and Ayala Corporation President Fernando Zobel de Ayala.
They are not only hardworking judges, they are also deeply engaged in supporting
microentrepreneurs. Palakpakan po natin silang lahat. Another reason to celebra
te is the continued growth and development of the microfinance sector in the Phi
lippines that has produced so many inspiring success stories. This has allowed u
s to sustain our annual search across the country. Of course, this has made the
work of the National Selection Committee members more difficult. but ultimately m
ore satisfying. Let us therefore celebrate the transformative power of microfina
nce with a round of applause. I am also pleased to report that our efforts to pr
omote microfinance and financial inclusion in our country have placed us in the
international radar screen. In particular, survey results of the First Annual Gl
obal Microfinance Index and Study - which was conducted by the Economist Intelli
gence Unit of The Economist Group - measured the state of the regulatory framewo
rk, investment climate and institutional development. Overall, the Philippines r
anked 3rd out of 55 countries, next to usual leaders Peru and Bolivia. Further,
the Philippines ranked 1st overall in the area of regulatory framework. Ladies a
nd gentlemen, the survey results reflected the gains we have made together in mi
crofinance. Let us therefore give ourselves a well-deserved round of applause! W
ith the continuing support of all stakeholders, the new policies and programs we
have crafted are bound to further expand and deepen our microfinance sector. I
refer in particular to the following circulars the Bangko Sentral ng Pilipinas i
ssued this year: Circular 678 on Housing Microfinance and Circular 680 on MicroAgri Loan Products which address the needs of microfinance clients beyond enterp
rise loans. These circulars give banks the opportunity to expand the range of se
rvices they provide their clients, even as they maintain microfinance privileges
. This includes no collateral requirements or the acceptance of collateral subst
itutes, cash flow and character based lending, small and frequent amortizations,
as well as simple documentary requirements. In March, the Bangko Sentral issued
Circular 683 which allows thrift, rural and cooperative banks- subject to certa
in rules and regulations- to sell, market, and service approved microinsurance p
roducts by licensed insurance providers. Thrift, rural and cooperative banks are
ideal distribution channels for microinsurance products as they are the trusted
financial institutions in the countryside and have a deeper understanding of th
e low income market. Recent calamities from flooding and destructive typhoons un
derscore the importance of having adequate insurance protection especially for t
he poor who are more vulnerable to various risks. For thrift, rural and cooperat
ive banks, therefore, microinsurance is a groundbreaking initiative that allows
them to participate in a business that was once limited only to universal and co
mmercial banks. On the other hand, Bangko Sentrals Circular 685 provides the rule
s for the recognition of Microfinance Institution Rating Agencies or MIRAs. This
should improve access to financing and capital as ratings have proven effective
in enhancing the quality of microfinance institutions in terms of transparency,
discipline, and overall governance. This should also promote investments in the
Philippine microfinance industry. These are the circulars the Bangko Sentral is
sued this year to promote the further development of our microfinance sector. Wi
th the support of all stakeholders, we should start seeing positive results from
these initiatives. I also look forward to the participation of more banks in th
e microfinance sector. As of December 2009, there were more than 200 banks engag
ed in microfinance with total loans outstanding of about P6 billion lent out to
about 900,000 borrowers. By any yardstick, these are good numbers. However, with
millions of Filipinos still living in poverty, we should commit to do more toge
ther to do better in spreading the gospel of microfinance and how it can uplift a
nd transform individuals, families, as well as communities. We have seen these t
ransformations happen, year after year, in the hundreds of entries to our annual
search under the Microentrepreneur of the Year Awards and even Joeys Go Negosyo
program. This year, we are bound to learn more inspiring stories we can share an
d many more role models we can follow. I hope that our banks will also be more p
roactive in spreading the inspiring stories of our awardees so that many more Fil
ipinos will realize that viable and sustainable business can start from micro lo
ans. Fellow advocates of microfinance, let us continue to work together in provi
ding a truly inclusive and empowering financial system for our people. Mabuhay a
ng microfinance! Mabuhay ang Pilipino! Marami pong salamat sa inyong lahat.
Moving the Economy Forward Through Banking

Venue: NA
Occasion: Annual Convention of the Chamber of Thrift Banks
Mr. Pascual M. Garcia III, President of the Chamber of Thrift Banks, the new off
icers and trustees of the chamber this 2010, the various member banks comprising
the CTB, our colleagues in banking and from media, ladies and gentlemen, a very
pleasant good morning. It is a pleasure to join you again for your annual conve
ntion. On a personal note, it certainly feels good to be back in circulation, bo
th literally and figuratively As many of you may know, this is my first speaking
engagement after my leave of absence. Indeed, industry events such as CTBs annual
convention are simply too important to miss. And while the BSP has always value
d directly interfacing with stakeholders, I must say that events over the past m
onth have only renewed my keen interest to learn from others, as opportunities p
resent themselves, knowing now (more than ever) that change can come rather quic
kly. The Economy and the Philippine Banking Industry Indeed, change is clearly t
he mantra today. The global economy is in the midst of a massive restructuring o
f the market landscape. And while we have witnessed encouraging signs of recover
y, there are recurring reminders that all is not yet well. Moving forward, chang
e beckons but we must jointly share the task of choosing the changes that we desi
re and laying the foundation for instituting these collective changes. Change th
ough can never be absolute. Moving forward means that we appreciate where we are
, and what we have. When considered against the economic dislocations transpirin
g at the global stage, the Philippines performed well in both 2008 and 2009. As
we expected, last years growth was modest but we certainly stayed positive and di
d not venture into a recession. More importantly, other key economic measures su
ggest that all was not bad: Lower inflation at 3.2%; Higher systemic liquidity;
Larger BOP surplus at USD5.3 Billion; More remittance at USD17.3 Billion despite
predictions of sharp reversals; All-time high Gross International Reserves at U
SD44.2 Billion which translates to almost nine (8.98) months of coverage for imp
orts of goods and services (vs. 5.95 months worth at end 2008); and A better port
folio balance of our external debts with only 1 out of every 10 dollars of debt
now due in the short-term. At the heart of the countrys better fortune during thi
s global crisis is a banking system that continued to manifest resiliency and st
rength in 2009. Unlike previous crises, we continued to mobilize deposits and fu
nded new loans. Credit quality for the system as a whole in fact has been improv
ing with NPL ratios declining, while coverage ratios generally increasing. Thus,
despite the global financial turmoil, our Capital Adequacy Ratio for the Philip
pine banking system (on a consolidated basis) has remained largely stable at aro
und 15.68%. The Challenge of Managing Risk My point in all these ladies and gent
lemen is that macro-financial indicators cannot exist in a vacuum and must be se
en in the context of the prevailing environment. For banking markets worldwide,
managing financial risks has been the unifying theme for several decades now. We
see this, for example, in the issuance by the BIS via the BCBS Core Principles,
the Basel Accord and the array of best practice documents on specific types of
risks. The net effect is that the international order has achieved uniformity in
the treatment of banks as institutions that generate and mitigate risks. Instea
d of differentiating one bank type from another, the stylized framework distingu
ishes across financial risks with much less concern with how we categorize banks
. As you are well aware, we employ the same approach here. Thrift banks for exam
ple have been accorded the ability to conduct activities that previously were li
mited to commercial and universal banks. In the last 2-3 years alone, the Moneta
ry Board approved, among others,: Your ability to apply for a end-user derivativ
es license (circ 594); Your ability to issue foreign currency LCs (circ 650); Li
mited trust operations (circ 583); and Investments in readily marketable foreign
-currency denominated debt instruments for those with FCDU license (circ 565 and
575) All of these help diversify your operations. Yet, these do not come free a
nd they bring with them the need for more prudent exercise of individual bank ju
dgement. There is no greater challenge today than to do a better job at identify
ing financial risks and prudently managing these on our respective balance sheet
s. The difficulty is that these risks are themselves quickly evolving and may ty
pically be layered across transactions in ways that often are neither obvious no
r transparent. This is certainly no small task. Using the four new activities I
mentioned that thrift banks may conduct as examples, these expose you to greater
amounts of credit risks in trade finance (FCY LCs), market risks in derivatives
(as end-users) and in the FCDU books (for the investments in FCY debt securitie
s) while operational risks arise in the limited trust. All of these will clearly
add pressure on both your risk culture and compliance program. These two aspect
s are not buzz words to which we pay mere lip service. Behind them are real resp
onsibilities that the bank must explicitly bear. In effect, you choose whether o
r not you wish to take this business road. Once that choice is made, the burden
of prudently managing risks is no longer a choice. It becomes a shared responsib
ility -- among banks and between the regulator and the regulated -- because we a
re all accountable for attaining financial stability. The Challenge for Thrift B
anks For thrift banks, the immediate challenge is to consider the evolving dimen
sions of financial risks as you further develop within your niche markets while
prudently exploring new possibilities in due course. The expansion of your balan
ce sheet in 2009 -- deposits grew 12% while gross loans grew by 8.6% -- confirms
that resources are being mobilized and can be deployed. Following your mandate
to provide medium to long term peso financing, we expect you to remain pro-activ
e in residential real estate undertakings and auto loans both of which thrift ba
nks dominate. Loans for Small and Medium Enterprises (SMEs) have consistently re
presented one-fifth of your industrys exposure and represents a niche that the ec
onomy relies on you to nurture and develop. The families of our overseas workers
are another market that you could further expand services to 1 . To fully tap i
nto the needs of the SMEs and OF families, however, you will need to cover the v
ast expanse of the Philippine archipelago with your network of over 1,300 bankin
g offices. Currently NCR and Calabarzon are the main hubs of thrift bank operati
ons and this leaves the rest of the economy as an upside potential. Further to t
his, the BSP has adopted a liberalized branching policy which you can avail of t
o reach a broader market constituency. I urge you also to further consider and s
ubsequently deploy technology so that you can bridge the geographical divide of
our archipelago. E-banking is also now a reality and you can parlay this to trul
y provide credit and saving access to a holistic Philippine market. I am happy t
o note that you have taken advantage of our policy initiatives to improve the re
ach of banking services. I understand that last year, thrift banks have deployed
an additional 95 ATM units, bringing the total thrift banks ATM units to 959 nat
ionwide. In addition, there were 15 thrift banks that started to engage in elect
ronic and mobile banking activities as of end-December 2009. From the policy sid
e, we welcome receipt and continue to evaluate your proposals such as the abilit
y to extend long-term foreign-currency loans, the possibility of a more pro-acti
ve use of FX swaps and engaging in bancassurance. In considering all these possi
bilities, I trust that you and I agree that the underlying thread will still be
the alignment of your risk culture and compliance program to the demands of thes
e expanded business lines. Here, it is worth pointing out briefly that there are
performance differences which the industry may want to further look into. For e
xample, while the Philippine banking system consolidated CAR was 15.68% in June
2009 (latest available), the thrift banking industry was at 11.47%. Whereas the
system as a whole reflected an NPL ratio of 3.66% in December 2009, the comparab
le metric for the thrift banking industry was at 7.27%. Dont get me wrong. The BS
P does appreciate the gains that the thrift banking industry has achieved throug
h time. But change beckons change and we must continue to strive to work towards
further gains where possible. Another area of change is certainly the most reve
red facet of a democracy. As it has often been observed, elections entice instit
utions to forestall business plans, opting instead to wait and see before charting
their business future. For banks, this strategy will render you as a passive ob
server which precisely is the role that will be most detrimental to economic act
ivity. This will not benefit anyone and can only hurt everyone. I urge you then
to stay focused on your target markets and fulfil the needs of the banking publi
c through the political transition. We were strong enough to weather a global fi
nancial meltdown; surely, a political transition should be less of an issue. In
closing ladies and gentlemen, let me point out that adversity brings with it hop
e of new opportunities while relative triumph can only invite further trials. Th
e adversities of our past have made us stronger and it is now up to us to show t
hat we can meet the challenge of continuing trials. I urge all of us present her
e to seize these opportunities to move forward. I encourage the banking industry
to be the stimulus for the real economy. I challenge the thrift banks to feveri
shly build on your gains. Let us collectively lead the way towards broader-based
, accelerated and sustained economic growth. Thank you and good morning. ------1 In 2009, about $23 million of OF remittances were coursed through Thrift Bank
s.
Finance Education: A Cornerstone for Economic and Social Advancement

Venue: Executive Business Center, BSP Complex Manila
Occasion: 2009-2010 FINEX-CITI Rafael B. Buenaventura Outstanding Finance Educat
ors Award
Distinguished organizers and finalists of the 2009-2010 Finex-Citi Rafael B. Bue
naventura Outstanding Finance Educators Awards, special guests from the academe,
the banking and finance communities, and most especially the family and friends
of Governor Rafael Buenaventura, good afternoon. On behalf of the members of th
e Monetary Board and my fellow central bankers, I welcome all of you to the Bang
ko Sentral ng Pilipinas for the 3rd Rafael B. Buenaventura Outstanding Finance E

ducators Awards. It is fitting that this awards program is named after the highl
y respected and well-loved second governor of the Bangko Sentral ng Pilipinas who
we fondly call Gob Paeng. A consummate banker who excelled in both local and glob
al settings, he generously mentored others he worked with, sharing lessons learn
ed and wisdom gained through the years. I can personally attest to this because
we at the central bank learned a lot from him during his six-year term as govern
or of the Bangko Sentral from July 1999 to July 2005. His vision was to make BSP
a truly world-class monetary authority. For this purpose, he encouraged the pur
suit of higher learning among BSPers by making available local and foreign schol
arship grants to qualified candidates. In other words, Gob Paeng was an outstandin
g finance educator. Ladies and gentlemen, let us honor Gob Paeng with a round of
applause! African leader Nelson Mandela once said that education is the most pow
erful weapon which we can use to change the world. We are in complete agreement w
ith him. This is the reason why we at the Bangko Sentral fully support this awar
ds program for outstanding finance educators. We believe that financial educatio
n is a powerful empowering tool for the economic and social advancement of our p
eople and our country. Ladies and gentlemen, we have seen from the global econom
ic crisis how financial missteps and misconduct can generate consequences that c
an be so hard and painful on millions of people. We should therefore work togeth
er to promote and strengthen finance education with particular emphasis on the v
alue of good governance. Within and beyond the borders of academic institutions,
we need to be consistent advocates not only of promoting knowledge of finance b
ut also of the good governance tenets of fairness, accountability, transparency,
and social responsibility. In schools, educators have the opportunity to mold y
oung minds to become knowledgeable and to become adherents of time-honored value
s of integrity and professionalism. At work, leaders of banks and financial inst
itutions have the power and the responsibility to reinforce the value of good gove
rnance among their employees not only through words, but by walking their govern
ance talk. Indeed, values education should always be a part of our life whether
we are at home, in school, or at work. Let us always remember that it is the con
vergence of knowledge and proper values that produce positive results that impro
ve lives. At the Bangko Sentral, we live by the same philosophy of improving liv
es through continuing economic and financial education programs. Thus, we have a
n inclusive and proactive economic and financial education program that provides
lessons on saving, investing, and money management for our elementary pupils fr
om grade I to Grade VIto overseas Filipinos and their dependentsto entrepreneurial
individuals who venture into microfinanceand to our small-and medium-scale entre
preneurs who are in search of credit to finance their business. Parallel to this
, we continue to enhance our support infrastructure for financial education. For
instance, we have expanded public access to financial information through the B
angko Sentral website. We have also set up Economic and Financial Learning Cente
rs not only here in Manila but in our regional offices and branches as well. We
also have a dedicated team of BSP personnel in our Financial Consumer Affairs Gr
oup to address consumer concerns and hold information caravans to promote consum
er education. We have also created a Consumer Education Committee and forged a p
artnership with the inter-agency group, ConsumerNet, to strengthen our informati
on campaigns on consumer rights. Equally important, the Bangko Sentral ng Pilipi
nas continues to produce textbooks written by our own hands-on central bankers t
o share lessons learned: the first is Money and Banking: Perspectives from the Ba
ngko Sentral ng Pilipinas and the second is Bangko Sentral and the Philippine Econ
omy. The latest is our 530-page book Central Banking in Challenging Times: The Phi
lippine Experience which we launched only this month. Through these initiatives,
we hope to provide an equal chance for our people to gain access to the empoweri
ng effects of financial education. At this point, I would like to acknowledge ou
r strong partnership with banks and other institutions in raising the level of f
inancial and economic education in the country. In particular, Finex Foundation
and Citi Foundation are two institutions that have been consistently at the fore
front of this endeavor. To Finex Foundation headed by Roberto Borromeo and to Ci
ti headed by Country Officer Sanjiv Vohra , we thank you for your untiring effor
ts to help make finance education a cornerstone for economic and social advancem
ent in the Philippines. Palakpakan po natin sila! To the outstanding finance edu
cators who are here with us today as finalists and winners, we commend all of yo
u for strengthening finance education in the Philippines. Let us give all of the
m a well-deserved round of applause! American historian Henry Brooks Adams once
said, and I quote: A teacher affects eternity; he can never tell where his influe
nce stops. This brings to mind the person for whom this awards program is named a
fter. Gob Paeng is now longer with us, but his positive influence lives on. The
mans enduring legacy to us his expert leadership, vision and genuine passion for
education inspires us to recognize and award exemplary individuals who embody th
ose same qualities. And so, on behalf of everyone here today, I congratulate all
our finalists and winners who are the best among finance educators in our count
ry today. Let us also congratulate the schools that nurture and support them in
being the best they can be. Let us also give them a big hand. May your tribe inc
rease and empower more Filipinos to have better lives through finance education!
Forging Ahead Toward Higher Ground

Venue: Fort San Antonio Abad, BSP Manila
Occasion: BSPs 2010 Reception for the Banking Community
Leaders of the Philippine banking community, fellow workers in government, speci
al guests from the private sector, the diplomatic corps, the multilateral agenci
es, the academe and the media, good evening. The members of the Monetary Board t
hank all of you for accepting our invitation tonight. This Annual Reception host
ed by the Bangko Sentral is tradition we look forward to, as it is an opportunit
y to gather thought leaders and the movers of the economy within this historic F
ort San Antonio Abad. In other words, it is a fascinating fusion of history and
those who make history. It is also an opportune time to reflect on the year just
past, and to train our eyes on what lies ahead. Standing Firm in the Midst of a
Global Downturn First, let us have a brief overview of 2009: the year of the wo
rst global recession in 80 years and one of the most difficult years for central
banks around the world. As a country, the Philippines came out of this difficul
t period with a positive growth. Sure, our economy expanded by a modest 0.7 perc
ent for the first three quarters of 2009; nevertheless, this is remarkable given
that only a handful of economies escaped recession in 2009. And while Bangko Se
ntral ng Pilipinas implemented liquidity enhancing measures at the height of the
global credit crunch, these were non-inflationary. Domestic liquidity growth as
of October last year was 12.5%. On the other hand, full-year inflation at 3.2 p
ercent was well within our target range of 2.5 to 4.5 percent. This indicates th
at we made appropriate decisions taken 18-24 months ago, the estimated time lag
for monetary policy to have full impact. Our external position remained strong,
with a confidence-building Balance of Payments surplus of $4.1 billion for the f
irst 11 months and record high gross international reserves at a preliminary $45
billion by year-end. Equally important, our banking system remained sound and s
table. We also avoided a credit freeze as banks continued to lend to the product
ive sectors of the economy. In addition, Bangko Sentral received last year inter
national recognition for having the best regulatory environment conducive for mi
crofinance and for our pioneering regulations for mobile money transfers that pr
omote inclusive banking. This is not to say that 2009 was perfect for us. But we
are proud that the reforms we have implemented together with the banking commun
ity and other stakeholders served us in good stead and empowered us to stand firm
in the midst of a global economic storm that crippled many economies. This is t
he broad picture of 2009 that make us hopeful moving forward into 2010. Diffusin
g the Odds in 2010 Indeed, we have reasons for optimism. While rain clouds linge
r, the worst of the global storm is over. The consensus is that the global econo
my has seen the worst and is on a recovery phase. At the same time, the global f
inancial markets reflect growing stability that whets the risk appetite of inves
tors. Still, questions remain. First, no one knows for certain the final shape a
nd speed of the global recovery. Second, as the pace of recovery across countrie
s varies, national authorities have to carefully calibrate the timing for unwind
ing the support and stimulus mechanisms they had put in place. Premature unwindi
ng could put recovery at risk; on the other hand, delayed response could stir up
inflation and create destabilizing asset bubbles. What I can tell you is that t
he exit strategy of the Bangko Sentral will be done gradually and in stages as we
have monetary policy space. As we execute our exit, we will always be mindful o
f our underlying domestic conditions, with particular focus on the outlook for i
nflation. For the broader financial system, proper focus should be on how to avo
id the financial crisis that triggered the global economic shocks. In forum afte
r forum, we hear of the need to modify operating standards and guidelines. Only
last month, the Bank for International Settlements released new guidelines on in
ternational standards for liquidity while focus on large exposure risks and amen
dments to accounting standards continues. Ladies and gentlemen. We did not build
our banking system by chasing one change after another. Instead, we made a coll
ective decision to effect meaningful and appropriate structural reforms that wer
e far from easy. This includes risk-based supervision that is central to our ref
orm agenda. Together, we must continue to move forward along this path that will
allow us to identify and manage risks to the banking system. Developing Strong
Pillars for 2010 and beyond Ladies and gentlemen. 2010 is not only about challen
ges and changes; it is also about the chances and opportunities that lie ahead.
Sure, our conditions are far from ideal, but our economic fundamentals remain fi
rm. Inflation is expected to be manageable and is forecast to fall within the ta
rget range of 3.5 to 5.5 percent. In other words, we do not see drastic changes
in our policy rate settings. At the same time, our external position will remain
in surplus, with the BOP surplus expected to range between $3-4 billion by year
end. This means that the peso will have fundamental support. Consequently, there
will be occasion for the BSP to build up its international reserves to temper e
xchange rate volatilities. I foresee that the banking system will remain sound a
nd will continue to intermediate credit to the productive sectors of the economy
. This will create more opportunities for lending, particularly to micro, small
and medium enterprises of MSMEs. And as the economic recovery goes into full swi
ng, there will be greater prospects for fee-based activities in the capital mark
ets in support of infrastructure and expansion projects. Final Thoughts Ladies a
nd gentlemen, we avoided the worst global recession in decades because togetherwe
forged the political will to implement challenging reforms long before the crisi
s struck. Moving forward, let us commit once again to move forward together to ens
ure an even stronger and more responsive banking system. Finally, I have one mor
e good news to share. This year, we are launching the Bangko Sentral ng Pilipina
s Art Competition which we call Tanaw. This is the first time we are launching a n
ational painting competition. Our objective is to support the development of Phi
lippine art by providing incentives for excellence to Filipino artists. Bangko S
entral has one of the most extensive collection of Philippine paintings and prehistoric gold in our country today. This is due principally to the vision of Dr.
Jaime Laya, former governor of the Central Bank of the Philippines. Ladies and
gentlemen, let us thank Dr. Laya for this legacy with a round of applause. For y
our information, Dr. Laya has agreed to chair the BSP Cultural Properties Acquis
ition Advisory Committee which counts as members National Museum Director Corazo
n Alvina, Art Educator Deanna Ongpin-Recto, Art Critic Cid Reyes, BSP Deputy Gov
ernor Diwa Guinigundo, BSP Director Fe de la Cruz and Monetary Board Members Rau
l Boncan and Juanita Amatong as advisers. With this art competition, we broaden
Bangko Sentrals involvement in the preservation and promotion of Philippine arts

and culture. In the process, we create more reasons to be proud as a Filipino. T
o all our guests, we thank you once again for your support to the Bangko Sentral
ng Pilipinas as we continue to serve our people and our country through better
policies and programs that keep our banking system sound and stable, in a fast-c
hanging world. Let us therefore offer a toast: to our continuing partnership in
sustaining economic growth and improving the quality of life for all Filipinos.
Mabuhay! Thank you and do enjoy the rest of the evening.
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Innovations Toward Financial Inclusion
Venue: Edsa Shangrila Hotel, Ortigas, Pasig, Metro Manila
Occasion: Mobile Money Transfer Conference
Leaders of the global Mobile Money Transfer Industry, representatives from the t
elecommunications, banking, and regulatory sectors, other financial service prov
iders, workshop participants, special guests, good morning. It is my pleasure to
welcome all of you to the first ever Mobile Money Transfer Conference for the A
sia Pacific. To our guests from other countries, I am very pleased to have this
distinct opportunity to extent our warm welcome to the Philippines, the host of
the MMT Asia Pacific Conference and Exhibition, and the birthplace of mobile mon
ey. Indeed, our countries experience in MMT represents solid proof that the conve
rgence of ideals for service innovations can create new pathways that benefit an
d transform lives of millions of people. In the Philippines the major drivers fo
r MMT are a large domestic market, our ground-breaking telecommunications compan
ies, the continuously expanding banking sector, and responsive regulators. The t
echnology of issuing electronic money was made available in the Philippines thro
ugh the pioneering efforts of our countrys two largest telecommunications compani
es, in alphabetical order: Globe Telecom and Smart Communications. This electron
ic money, stored in either a card or a mobile phone, facilitates person to perso
n transfers, purchase of goods and services, as well as payment of bills, throug
h either a point of sale device (POS), ATM or through SMS. This presented an exc
iting opportunity for various stakeholders. Today, eight million Filipinos are r
egistered to use electronic money and this number continues to grow. Another yar
dstick of growth is the number of rural banks offering electronic banking servic
es that is primarily mobile banking: from zero in 2005 to 49 rural banks as of S
eptember 2009. These community banks have developed linkages with electronic cas
h platforms of telecommunications companies for their microfinance operations. U
nder this arrangement, clients need not leave their place of business to transac
t with their banks; through simple text, they can pay loans, withdraw money, or
make deposits. To encourage this more cost-efficient transaction mode, some rura
l banks have lowered interest rates for clients that use the text-a-payment platfo
rm, by 50bps for instance. Mobile phones have also dramatically reduced domestic
remittance costs: from 6-7% of the remittance amount down to 1%. No doubt about
it, we have made big strides forward in terms of MMT; nevertheless, the potenti
al for growth remains bigger. Ladies and gentlemen. Aggressive and creative mark
eting of our very competitive telecommunications companies have resulted in sign
ificant mobile phone penetration across all income groups in our country. For in
stance, mobile phone users in the Philippines are estimated at around 42.5 milli
on, far more than those with bank accounts or those that have existing relations
hips with a formal financial institution. This number represents nearly half of
our 90 million population. Filipinos are so taken with mobile phones that even t
hose in remote villages know how to use mobile phones. In fact, the Philippines
has been dubbed by the international community as the text messaging capital of t
he world as Filipinos send around a billion text messages each day. From a financ
ial inclusion standpoint, therefore, the reach of mobile phones can be massively
leveraged as possible access points for basic fund transfer activities. In fact
, around 40% of the 1,632 municipalities in the Philippines have no banking offi
ce. These areas represent growth potential for Mobile Money Transfer in terms of
ensuring fast and inexpensive delivery of remittances from 8 million overseas F
ilipinos to their families and relatives across the Philippines. In many cases,
remittance beneficiaries have to travel to the nearest banking office or remitta
nce agent. Yet, most of these beneficiaries have mobile phones that can provide
safe, convenient, and cost-effective conduits for receiving remittances. The Phi
lippines receives over $ 1 billion in monthly remittances. Total remittances rec
eived in 2008 reached more than $16 billion. Given our record of accomplishments
so far, I am confident we will continue to make headway in our efforts to broad
en the reach of Mobile Money Transfer. For instance, the London-based publicatio
n The Economist has labeled our regulatory approach to mobile banking as a good
model, while the Financial Times has praised how the rural banks, the telecoms c
ompanies and the regulators are working together on the use of mobile phone bank
ing in microfinance provision. In addition, the World Banks Consultative Group to
Assist the Poor or CGAP has complimented our hands on role in finding ways to per
mit mobile banking innovations within safe, sound and prudent standards. And jus
t last week, when the G20 held the first meeting of the newly formed G20 Financi
al Inclusion Experts Group (FIEG), the Bangko Sentral ng Pilipinas and the Centr
al Bank of Kenya, although not G20 members, were invited to share experiences in
creating the enabling policy and regulatory environment for the use of electron
ic money and mobile phones to deliver financial services. Our counterparts from
Kenya talked about M-Pesa while we discussed our experiences with Smart Money an
d G-cash. It is evident that developed countries are now taking notice of the be
nefits that can be derived from using mobile money transfer to serve the unbanke
d. At the Bangko Sentral, we believe that the role of the regulator is crucial i
n ensuring a dynamic, productive, and safe interplay of all key stakeholders in
creating an inclusive financial system. Our strategy is to be flexible yet cauti
ous; to allow the innovations to take place in a sound, safe, and sustainable wa
y. While it was easier to tie ourselves to the straightforward and simpler bankbased model, we were flexible and open to others, such as the non bank-based mod
el, all the time conscious that we need to identify and ensure that appropriate
risk management systems must be in place. We also recognize that this journey to
ward greater financial inclusion through mobile money transfers and similar appl
ications still face challenges and barriers. The first challenge is anti-money l
aundering (AML) regulations and finding the right balance between promoting fina
ncial inclusion while ensuring financial integrity. Another area we are looking
at is the role of authorized third party agents. While the business case of deve
loping a vast network of authorized agents is clear, sufficient regulation must
be in place to ascertain that these agents comply with operational standards as
well as good governance and consumer protection practices, among others. We beli
eve that addressing these issues will allow us to witness the truly transformati
onal power of technology to reach and benefit millions of unbanked Filipinos. Ju
st last week for example, we set in motion the replacement of costly and time-co
nsuming courier delivery with the central banks real-time gross settlement system
. To be operational within the first quarter in 2010, this will save our oversea
s workers at least P75 million a year in remittance fees. I must mention, howeve
r, that financial inclusion and providing better service to our public does not
rest on technology and new innovations alone. The Bangko Sentral recognizes that
our shared goal of financial inclusion can be attained through a combination of
complementary efforts. We need to ensure the strength and stability of the bank
ing sector to reach new markets and develop a wider range of products; promote a
liberalized branching regime that will allow banks to develop a vast network of
outlets; develop a policy environment that will be open to new strategic partne
rships and linkages between banks and other players; as well as broaden and deep
en financial education and empowerment programs. With these components, I am con
fident that we will move closer to the goal of having a truly inclusive financia
l system: one where there is reliable and universal access to a range of financi
al services from banks and other authorized entities through a wide range of acc
essible, convenient, and cost-effective delivery channels. Financial services th
at would be available to all -- especially the unbanked, the unserved and the un
derserved. This is our story and what we aspire to accomplish, moving forward. T
his is the reason why we welcome this MMT conference where we can learn from exp
erts, practitioners and other key players. I am certain that this two day confer
ence will be enriching, fruitful and useful for us all. And while you are in thi
s conference, keep in mind the advice Napoleon Bonaparte once gave. He said: Neve
r interrupt your enemy when he is making a mistake. Ladies and gentlemen. You and
I share the same ideals.. the same objectives: to make peoples lives better thro
ugh our products and services. Clearly, we are not enemies. I hope therefore tha
t this workshop will have fully engaged participants who will generously share t
heir insights and lessons learned in their journey as MMT leaders. Together, let
us make this a successful conference that will be remembered for moving the MMT
agenda forward in terms of generating new initiatives that will bring the benef
its of financial services to millions of the worlds unbanked and underserved. Fin
ally, ladies and gentlemen, please join me in acknowledging the vision and the c
ollective efforts that have culminated in the holding of this conference on mobi
le money transfer for Asia and the Pacific. Congratulations to all! Thank you an
d Mabuhay!
Supporting Overseas Workers Thru Lower Remittance Fees

Occasion: PHILPASS-ABROI MOA signing
Magandang umaga sa inyong lahat! On behalf of the Members of the Monetary Board
and my fellow central bankers, I congratulate all the institutions and all those
involved in this important undertaking for making this a reality. This is impor
tant because with our signing ceremony today, we take another significant step f
orward in our continuing program to support millions of our overseas workers. To
gether, we shall be able to lower the fees paid by our overseas workers to send
money to their beneficiaries. The principal players who collaborated with the Ba
ngko Sentrals Department of Economic Statistics and the Payments and Settlements
Office on this project are the Association of Bank Remittance Officers, Inc. mor
e popularly known as ABROI, and the different bank organizations including the R
ural Bankers Association of the Philippines, the Chamber of Thrift Banks, and th
e Bankers Association of the Philippines. Let us acknowledge them with a well-de
served round of applause. In particular, we commend ABROI under the leadership o
f its president Carmelita Araneta and its 11 member banks, in alphabetical order
: Allied Bank, Asia United Bank, Banco de Oro, Bank of Philippine Islands, China
Bank, Development Bank of the Philippines, Land Bank of the Philippines, Metrob
ank, Philippine National Bank, RCBC and Union Bank. Ladies and gentlemen, let us
give them a well-deserved round of applause. Under our agreement, the 11 member
banks of ABROI who handle remittances of overseas Filipino workers will use the
Bangko Sentrals real-time gross settlement system -- which we call PhilPass -- a
s their link to send remitted money to the beneficiaries accounts in other banks.
As a payments system infrastructure, PhilPass primarily settles high value paym
ents from accounts maintained by banks with the Bangko Sentral, thereby eliminat
ing settlement risks. With our MOA, PhilPass will also serve as a local clearing
facility for the settlement of remittances for credit to other banks. Given the
delays as well as incidents of theft and robbery involving some couriers used b
y banks to deposit remittance funds to beneficiary accounts, PhilPass emerges as
a safer, faster, and more efficient option for remitting overseas workers. Anot
her highlight of this project is the agreement by participating banks to charge
a significantly lower standard back-end processing fee of 50 pesos per remittanc
e transaction. The back-end processing fee normally charged ranges from a low of
P100.00 to a high of P550.00 per transaction. In other words, overseas Filipino
s will be saving at least P50 to P500 per transaction in remittance fees wheneve
r ABROI members forward the money to beneficiary accounts in other banks. Estima
tes indicate that remittance transactions average 66 million per year, of which
transmission through credit-to-other banks accounts for 8% or an average of more t
han 5,000 transactions daily. This means savings of at least P75 million in annu
al remittance fees for overseas Filipinos. At least P75 million. For our oversea
s workers, this represents additional money that can benefit their families and
other beneficiaries. For the Bangko Sentral and our banks, this represents yet a
nother way for us to express our support for our overseas workers who continue t
o play a pivotal role in keeping our economy sound and stable. I understand that
systems integration of ABROI member banks with the Bangko Sentrals PhilPass will
be completed before the end of this year, with test runs expected to begin in J
anuary 2010. Given this timeline, the PhilPass-ABROI linkage should be fully ope
rational by late February or early March next year. Once again ladies and gentle
men, I thank everyone involved in this important undertaking that will benefit m
illions of our overseas Filipino workers and their families. Let us consider thi
s as our joint Christmas gift to them. Mabuhay ang ating overseas workers! Mabuh
ay ang Pilipinas! Maraming salamat sa inyong lahat.
ENSURING EFFICIENT & ECO-FRIENDLY ASEAN MINTS

Venue: Sofitel Philippine Plaza, Manila

Occasion: 14th Technical Meeting of Mints in ASEAN (TEMAN)
Distinguished members and participants to the 14th Technical Meeting of Mints in
the ASEAN, special guests, good morning! On behalf of the Bangko Sentral ng Pil
ipinas and our Security Plant Complex, it is with pleasure that I welcome all of
you to the Philippines for the 14 TEMAN Conference. As you may have noticed, th
e conference theme we adopted is SPCwhich stands for Strengthening Partnership and
Cooperation. I understand that in Indonesia, the abbreviated word TEMAN means fr
iends. What better way to move forward with friends therefore than to strengthen
partnership and cooperation. The Organizing Committee envisions the conference
to be a catalyst for new and dynamic ideas, for critical thinking, and for open
discussions on issues affecting the minting industry. Among others, we want to c
reate more value for our products, to facilitate advancements and enhancements i
n our systems, and to contribute ..ultimately.. in the broader and lofty task of
building up our respective nations. Indeed, TEMAN plays a vital role in empower
ing its member Mints to provide quality products and services to their people. G
iven the global financial crisis that had triggered a global economic slowdown,
TEMAN must take appropriate steps to work out a common agenda that will promote
process and cost efficiencies, while addressing urgent issues such as the need t
o adopt more environment-friendly processes. Ladies and gentlemen. The world has
realized that there is no progress to speak of if this is made at the expense of
the environment; because in the end, it is a step backwardnot forward if the envi
ronment suffers as a result of our operations. We have seen how industrializatio
n made for the benefit of human beings has been generating toxins and pollutants w
hich now threaten the very same human beings. The challenge for TEMAN therefore
is to align itself with the goals of the Association of Southeast Asian Nations
which is committed to continue sustainable development or the pursuit of a green
and eco-friendly economy. Afterall, the 10 TEMAN members have one thing in comm
on: we are all members of ASEAN. That goes for Brunei Darussalam, Cambodia, Indo
nesia, Lao PDR, Malaysia, Union of Myanmar, Singapore, Thailand, Socialist Repub
lic of Vietnam, and the Philippines. I hope therefore that clean and green topic
s will be very much a part of your discussions. In words and in deeds, let us he
lp take on the case for a cleaner and better environment in our respective mints
, in our homes, and in our communities. Our own Security Plant Complex has alrea
dy taken meaningful steps in this direction. I hope that this TEMAN conference w
ill give it more new ideas to implement as an eco-friendly mint. I am counting o
n it. Finally, I wish to congratulate the members of the 14th TEMAN Organizing C
ommittee -- my colleagues at the Bangko Sentral ng Pilipinas -- for all their ef
forts in ensuring the success of this conference. Please stand up so we can ackn
owledge you with a round of applause! To our foreign guests, I advise you to fin
d time to explore and know more about our country, our culture, and our people.
You will find that this is a great place which is worth coming back for. Once ag
ain, I wish you all a successful and fruitful conference! Thank you all and Mabu
hay!
Prospects and Challenges in 2010: The Bond Market in the Context of the Philippi
ne Economy?
Venue: Makati Shangri-la
Occasion: Bloomberg Conference "Gearing for 2010. Ensuring Profitability. Contai

ning Risk
A few days ago, I had the occasion to speak before an international body of Asia
n bankers. There, I shared my views about the future of the regional banking mar
ket and specifically raised product and policy issues that confront Asia today.
These are the concerns that arise if we are to move forward as a banking hub und
erpinned by the regions vast economic potential. I join you this afternoon to foc
us in particular on the Philippine situation. Instead of providing you with the
usual parameters that come with a macro prognosis, allow me instead to discuss t
he bond market in the context of our broad macro-financial situation. This would
be our natural recourse given the inherent relationship between interest rates
and fixed-income valuation on one hand and between economic activity and capital
-raising on the other. When Structure Translates Into Operations To talk about t
he Philippine bond market necessarily means talking about the Philippine governm
ent securities (GS) market. In addition, it is probably not much of an exaggerat
ion to argue that the local bond market is inherently linked to fiscal policy. O
ver the last 5 decades, the national government has found itself in a budget def
icit position, with the exception of 5 fiscal years. The NG funds the deficit pr
incipally by the issuance of domestic GS. Of course, as the countrys macroeconomi
c fundamentals improved, the NG has also been able to tap the international capi
tal market for portion of the budgetary requirement. Nevertheless, domestic fund
ing remains the primary funding source to a ratio of more than two-thirds of tot
al borrowing mix. Relative to the size of the economy, outstanding GS accounted
for about one-third of nominal GDP as of end 2008. This basic structure translat
es into a challenging operating framework. To be sure, the national government h
as every interest to bring down its cost of borrowing. Yet in the same token, it
is also the most active borrower in the market. One added feature that can read
ily be seen from the data of the BTr is that GS issues thru ADAPS have been pred
ominantly in the form of Treasury Bills, accounting for 58% on average since 200
0. This significant amount of short-term debt invariably puts pressure on managi
ng liquidity and fiscal authorities have to fund frequently maturing obligations
. The shorter-term debt profile also helps explain lower trading activity. As of
June 2009, calculations by the ADB show a turnover ratio of 0.37 which literall
y means a recorded trade value of only 37 centavos per peso of outstanding gover
nment security. At the other end of the tenor profile, many institutional partic
ipants choose to immunize their long-term obligations with long-term assets. Eve
n those who may not have such long-dated obligations often prefer to hold Treasu
ry Bonds to term because of the steady stream of coupons over the long-term. The
net effect of both of these is that our long-term treasury issues tend to be ra
ther illiquid. One can readily check that the long-end of the PDST-R2 series is
often the best bid of benchmark bonds rather than actual done deals. The irony the
n is that sheer volume has really not nurtured a liquid GS market. Asset price l
iquidity can be problematic to establish for certain issues. For some tenor buck
ets and specific issues, funding liquidity may also be a concern from time to ti
me. The point has been raised that the market dominance of GS may in fact be abs
orbing funding liquidity away from other market instruments, curtailing the deve
lopment of the latter product lines. Market Development and Policy Moving forwar
d then, the clear mantra is to jump-start and nurture liquidity in GS. The recen
t launch of the trading platforms for repos and Securities Lending Transactions
(SLT) separately should go a long way in institutionalizing organized secondary
markets. The case of the inter-professional repo platform, for example, gives us
high hopes of what lies ahead. From an outstanding amount of Php5.4 Billion as
of year-end 2008, it is now at Php36.3 billion as of October this year. What we
would like to encourage is for trading activity and turnover to increase without
mandating holders of long-term issues to liquidate their positions. This is of
course possible only if the various tenors maintain sufficient depth while gener
ating credible and transparent market prices. In this way, we provide investors
with the level of comfort that they can exit their positions in an orderly manne
r without having to absorb significant distortions in valuation. This basic appr
oach provides an essential ingredient, that of credible prices where trades can
and do occur. The BSP had previously issued in 2006 guidelines on what we deem t
o be acceptable benchmark prices. What we would like to see is more depth and mo
re activity across the benchmark tenors precisely to assure investors that marke
t prices reflect consummation of demand and supply pressures. This is the only y
ield curve that would eventually matter. We understand that international accoun
ting standards rely on bid rates to establish fixed income benchmark rates. In a l
iquid market, there would be no debate that buy-side rates would be sufficient s
ince this would generally reflect the short-side that defines equilibrium. Howev
er, if we are starting from a fragmented market where both funding and asset pri
ce liquidity are not uniformly established, it is less clear that done rates are o
f less reference value than bid rates. The yield curve is essential for policy bec
ause it allows us to eventually price corporate issues. Since GS would still enj
oy the least of credit risk, the prices that come out of this market reflect the
markets premium for time. In other words, it is the pure premium for waiting. Wi
th that on hand, corporate issues can be priced then for their tenor and credit
quality. The transparency of this dichotomy makes the market more efficient for
investors who can now choose the combination they are prepared to absorb as an i
nvestment risk. To this end, the BSP is quite pleased to see the debt issues bei
ng listed at the fixed income exchange. These are not only straight bonds but mo
re recently includes two bank issues of unsecured subordinated debt. As I have r
emarked at a previous occasion, the listing of these corporate issues reflect th
e willingness of the issuer to be eventually judged by the market on the markets
terms. The fact that the last two listings are bank issues gives the BSP added p
leasure because this is aligned with our stated objective of broadening the owne
rship base of banks while enhancing the capital market with newer instruments. T
he Bond Market and the Needs of the Philippine Economy Of course, a deep and liq
uid bond market that generates credible pricing has always been the plan. The re
al question then is what else needs to be done to put the bond market within the
specific context of the Philippine economy. I already mentioned the valuable co
ntribution that the repo and SLT platforms can provide. These are a good start b
ecause these platforms can unlock trapped liquidity in the long-term issues for
which we expect to improve on both liquidity and market turnover. Beyond trading
venues however, four initiatives come to mind. First, it may be useful to revis
it the issue of having 11 benchmark tenor buckets. It should be evident by now t
hat having so many benchmark tenors does not necessarily improve the ability of
the market to price off-the-run issues. Stated differently, the major economies
typically have 4-6 benchmark tenor buckets only and this has not weighed against
liquidity and the pricing of off-the-run issues. Recent initiatives to exchange
short-for-long-term issues help to consolidate depth but a significant potentia
l remains untapped. Second, the bond market can be a more active vehicle for rai
sing long-term capital. The fact that the GS market is as big as a third of GDP
is itself not a binding constraint. Economies such as Hong Kong, Korea, Malaysia
and Singapore all have significant corporate bond markets that complement their
respective GS market. This would be a healthy next step for the Philippines as
it broadens the financing options for corporations while reducing the gapping pr
essure on bank credits. Third, we need to recognize that the Philippines is an a
rchipelago. The implication is that the market needs to bridge the gap in space
to provide real-time opportunities. Two credits cannot be priced differently if
all that distinguishes them is location. Unless there is economic value to locat
ion, any such difference is simply arbitrage. Worse, the same credit cannot be p
riced differently as an investment opportunity in two different locations at the
same time. That is simply blatant inefficiency, if not market bias. Fortunately
, technology has moved forward to allow us to fill gaps in time and space. Some
time back, the BSP entered into a partnership with market stakeholders on the Na
tional Settlement Highway. The NSH is the technological backbone that will allow
the public to efficiently clear and settle good funds across entities in differ
ent regions. More recently, the FI-BIOS was launched to provide retail investors
in different regions with the capability to place investment orders on real tim
e basis. These are the type of technological innovations that help us address th
e unique situation of the Philippines. I trust that we can maximize the use of s
uch facilities and make further innovations where needed. Fourth and final initi
ative, the development of the bond market, whether GS alone or inclusive of corp
orate issues, will not be self-sustaining unless there is a financially-aware in
vesting public. This is not a trivial task but the onus of providing the public
with relevant information must be shared by all stakeholders, both regulator and
the regulated. The recent passage of the PERA law together with its attendant I
RR is a prime example of the type of financial awareness campaign that must be p
ursued. PERA itself is encompassing given the wide variety of products that may
be offered. This can therefore be the linchpin for a concerted campaign and even
tually extended beyond PERA. Final Thoughts Ladies and gentlemen, I have covered
quite a bit of ground here this afternoon. Some may choose to see this as an in
dication that there is much that is impaired with the Philippine bond market, pa
rticularly that of the government securities. I beg to differ since I have seen
the strides that have been taken particularly in more recent times. Thus, I choo
se to see the vast potential this market can offer to the Philippines as a neces
sary vehicle to promote further economic development. It would be a grave mistak
e however if we see the market simply as government securities. While it is true
that in the Philippines the GS market in inherently linked to our fiscal situat
ion, the broader development initiative cannot be held hostage by such limited c
oncerns. Fiscal consolidation is a continuing commitment and our collective effo
rts to address our fiscal position may soon come to fruition. Between now and th
e point of a sustainable national budget, the bond market needs to develop so th
at it moves beyond a largely fiscal-centric tool to one that can provide opportu
nities for both business initiatives and the investing public. From the regulato
ry end, our commitment is to provide the enabling environment for the broad fixe
d income market to thrive. That will include the prudential framework that is ne
eded for effective oversight and to protect the interests of the public. It will
have to also include a stable macroeconomic environment where expectations on m
arket prices and economic activity can be reasonably ascertained. This combinati
on of a prudential framework and the ability to mitigate volatilities is certain
ly at the heart of a thriving fixed income market. I will submit to you this aft
ernoon, ladies and gentlemen, that indeed we have such an enabling macroeconomic
environment before us. The outlook remains that of manageable inflation expecta
tions, within-target inflation rates for 2009 and 2010, continuing remittances fro
m overseas Filipinos, a surplus BOP position, market-driven peso value and inter
est rates that are responsive to our markets needs. Already the current low inter
est rate environment provides an interesting market backdrop for this point. Bet
ween a fixed coupon rate payable over the long-term and bank credit that is re-p
riced annually, the current environment appears to favour the former than the la
tter. Certainly, we have seen a number of debt issues structured of late and I a
m told that a few more are in the realm of the possible. Ladies and gentlemen, I
have no doubt that the GS market can very well serve as the catalyst for furthe
r reforms. The goal is to transform the market from a basic fiscal tool to a bro
ader venue that migrates savers into investors while raising capital for product
ive initiatives. Instead of tapping foreign saving, entrepreneurs can very well
raise funds locally without the complications of cross-currency cross-border ris
ks. Instead of crowding out private saving, the GS market can act as the necessa
ry base from which corporate credit can be properly priced and sourced. Instead
of seeing its limitations, I see what the Philippines can do in this market and
hold high hopes for its eventual success. With that, ladies and gentlemen, I bid
you all a pleasant afternoon.
Whats for Asian Banking? Re-Assess, Re-evaluate, Re-tool and Re-Position?

Venue: RCBC Plaza, Makati City, Philippines.
Occasion: 26th Asian Bankers Association (ABA) General Meeting and Conference
Twelve months ago, everyone was keen to look ahead by asking the possible extent
of difficulties that the financial markets could further endure in 2009. It was
part "responsible planning" and part "therapy" as if the repeated reminders wou
ld somehow ease the pains that were expected to materialize. Today, the tone of
market discussions is decidedly different with most gatherings optimistic of a b
righter future, seemingly confident that the worst is behind us. The Apparent Ea
sing of Financial Pressures Whether we have indeed navigated the turning point o
r that a W-shaped path may still materialize remains to be seen. However, the ma
rket indicators today are clearly encouraging for now, in sharp contrast to the
spiked levels from 12 months ago. In the fixed income market, the EMBI Composite
price index has gained over 50% from less than 300 to the 458 it was a few days
back. In the equity market, the MSCI Asia APEX 50 Index ? which serves as a liq
uid proxy to the broader MSCI benchmark ? has nearly doubled from 388 to 747 ove
r the past 12 months. Pressures on sovereign pricing have likewise eased conside
rably with current CDS spreads for all of East and Southeast Asian economies sig
nificantly off peak levels in the aftermath of September 2008. The Structural Ma
croeconomic Changes I would argue however that the seemingly consistent good new
s from market indices should not be interpreted as suggesting that all is back t
o normal. Instead, we must concede the point that our sense of "normal" must cha
nge just as the regional macro-financial market landscape was changing even befo
re the mortgage crisis broke out. That benchmark indicators suggest market stres
ses have considerably eased should only make us realize the significance of thes
e changes as we consider what may lie ahead. In particular, it is important to a
ppreciate that Asia deliberately took to the policy of strengthening its externa
l trade as an offshoot of the 1997 crisis. By allowing exchange rates broadly to
be traded more freely, the region was able to maintain trade surpluses with mat
ure economies. By taking the path of an export-led growth, the region built its
reserve base in the process. Asia has premised its economic prominence on this s
trategy, generating a growth trajectory higher than other regions. No longer was
it just "Emerging Markets" en toto. Rather, that Asia had emerged. However, as
Emerging Asia became more integrated through trade with the mature economies, th
e (recent) economic downturn in US and European markets meant that Asia would ev
entually feel the shock. Thus, any prolonged weakness in these markets would cle
arly undermine the region s economic engine. The point here is that the economic
shock to the region is itself independent of the extent to which Asian banks ca
rried direct exposures to Lehman instruments. Those banks that had Lehman exposu
res had more problems than others, but those that may have had negligible credit
exposures to Lehman were still vulnerable to the impairment of the economic eng
ine. Three added features are worth highlighting. Data from the Asian Developmen
t Bank would show that intra-regional trade within the so-called East Asia-15 ec
onomies likewise increased from 37.7% of total trade in 1998 to 42% by 2008. Whe
n considered in the context of the cumulative expansion of the region, this 4.3
percentage point increase is significant. Complementing this further is Foreign
Direct Investments where data from UNCTAD suggest that cumulative FDI inflows wi
thin East Asia-15 rose from USD228 billion in 1998 to USD563 billion in 2005. In
addition, data from the Institute of International Finance (IIF) projects in it
s October 2009 research note that net private capital flows to emerging markets
will round out to USD349 billion in 2009 and increase to USD672 billion in 2010.
Of these amounts, USD191.1 billion and USD272.9 billion respectively are attrib
utable to flows into Emerging Asia, by far larger than what is expected of Latin
America, Emerging Europe, and Africa/Middle East. Some Gaps in Regional Banking
The features of the structural change that I just discussed are relevant to the
banking community for the simple reason that trade needs to be financed and cap
ital flows require a proper venue for its disposition. The dimension of intra-re
gional flows is particularly significant because it is within the direct influen
ce of the regional economies. Moving forward, there is every reason to expect th
at intra-regional flows will play yet an increasing role. For the region s banks
, however, the irony is that brighter prospects and the significant amounts invo
lved only highlight some of the gaps that need to be urgently addressed. Trade f
inance, for example, is not deeply entrenched in all of our economies and certai
nly not coordinated within the region as a collective product line. An organized
Bankers Acceptance/Trade Acceptance market can potentially unlock latent liquid
ity that is otherwise trapped by the routine lags in trade financing. The plain
objective is to provide our exporters and importers with access to good funds ov
er a shorter economic cycle. Given the region s trade engine, this would be an i
mportant development that is eventually expected to reduce transaction costs, pe
rhaps lower the pricing of trade-related goods while mitigating some of the cros
s-currency price volatilities in the process. All of these can be maximized if a
working coordination at the regional level can be instituted. This brings up th
e issue of developing a local capital market, let alone a coordinated regional c
apital market. The issuance of BAs/TAs invariably requires some amount of tradab
ility, which in turn necessitates organized trading markets and discovered price
s. At current low interest rate levels, the prospects for the fixed income marke
t are brighter than traditionally re-priced banking credits. Let us not forget t
hat Asia has also built its reputation on higher-than-average saving rates. Give
n the liquidity that is already circulating in our markets, incremental saving m
ust find investment outlets which are increasingly cross-border in nature. Altho
ugh exaggerated, there is some semblance of truth in the view that it is current
ly easier to buy a bond in New York using proceeds from Asia rather than do the
same transaction in Emerging Asia and have the security immobilized in an Asian
custodian. Surely, this is not something Asia should allow to perpetuate. The re
ceipt and handling of foreign exchange on the other hand could be better handled
with active and robust forward markets. This is the best way to take out volati
lity in the spot market since participants will have the benefit of forward rate
s to consider. This will likewise provide the useful by-product of tempering the
urge of the broad public to unnecessarily analyze the day-to-day movements in s
pot market rates. For regulators, price discovery, asset liquidity, mitigated vo
latility and forward rates are all desirable features. Given the volume of capit
al flows expected ? both from intra-regional trade and from within-region invest
ments ? the case can be made that there is a clear benefit to having such a coor
dinated regional capital market even if, on an economy by economy basis, not all
economies have the volume for a deep local capital market. Strategic Challenges
Ahead Moving forward, the banking opportunities from the unique structure of As
ia can be best tapped if indeed we address the gaps that I have just mentioned.
However, doing so will invariably require a commitment to a larger capital base
given the larger scale of operations and broader risks that must be mitigated. L
et me be very clear though that I am not suggesting that more bank capital is th
e only way forward. Instead, the operating reality is that capital is the fixed
resource at any given point in time and for this reason, banking operations are
more akin to budgeting acceptable risk exposures for the given capital. This tak
es me to the issue of managing risks which, under current international norms, i
s the sine qua non (literally, "without which none") of banking. Much has been s
aid in this crisis that a large portion of the blame goes to the reliance on fan
cy risk models -- models that, in the end, did not connect well with how markets
actually behaved. That may be so. But allow me also to pose this query: did we
simply rely too much on the stylized risk models that proved to be failures, or
did users fail to localize idiosyncratic features of their markets into the styl
ized models? Stated differently, when we use Value-at-Risk models, do we adjust
the embedded standard normal distribution because we are well aware that financi
al markets are notorious for "skews" and "fat tails"? When we do our IRB models,
do we consider the consequence of the granularity assumption because we know ou

r portfolios are never finely granular? (That may sound too technical. But more
simply stated, did we just accept the models presented to us, knowing how imperf
ect they were, because we knew there are no perfect models anyway?) These are ex
ecution issues that often are not raised at strategic discussions. Yet, at the e
nd of the day, these models are meant to be starting points. The larger exercise
is to fine tune these models to best reflect our local markets. This may be see
n as something better left to "quants" but the implications are fundamentally st
rategic: our ability to monitor the adequacy of our risk controls and exposures
depends largely on the model that we are using in the first place. A bad model w
ill always generate bad results; better models minimize those surprises that com
e with bad modeling. A better handle over risk is related to a topic that is cur
rent mainstream discussion among regulators: that of financial stability and the
attendant concern over macro-prudential regulation. This is not the time and pl
ace to fully array the complications of this issue but I raise the issue with yo
u today because the underlying message needs to be reiterated. That message is t
hat financial markets are too important to be governed purely by individual inte
rests. The governance of the "bigger picture," however, is not a task that is ex
clusive to regulators. Since remedial measures will almost always require collec
tive actions, financial governance is rightfully a shared responsibility among m
arket stakeholders. We all share the gains of a financial market that works. Thu
s it is only fitting that we all share in the responsibility of making the marke
t work and remain viable. Regulators do not expect each bank to be worried about
monetary aggregates but regulators do expect that banks manage their risks prud
ently. This is the quid pro quo of governance and strategically, this is the cle
ar direction embedded in the Basel Accord. The Internal Capital Adequacy Assessm
ent Program (ICAAP) under Pillar 2 of the Basel Accord is a clear case where the
onus of governance rests in part with the banks themselves. ICAAP has never bee
n simply a compliance issue and is instead the venue for the banks to articulate
their own processes that identify and appropriately handle risks. Closing Remar
ks Let me close my remarks by going back to the question at hand: What is next f
or Asian Banking? Precisely because our banks were more indirectly affected by t
he latest crisis, the Solomonic answer to the question is that we have the optio
n to choose our answer. The unique economic structure of Asia provides banking o
pportunities in trade finance, in fixed income markets and in auxiliary services
such as agency and custodianship arrangements. Yet, Asia has developed as an ec
onomic force faster than it has as an integrated financial hub for Asian needs.
This is the irony that needs to be addressed and while the tasks ahead are non-t
rivial, the advantage we have is that we directly influence the outcome. It is w
hat we make Asian banking to be. Strategically, the future of Asian Banking rest
s as much on the opportunities we generate in Asia as it does on the remodelled
architecture of banking. But there is also a clearer appreciation that banking i
s evolving dynamically. If Asia is to move further forward and consolidate its c
urrent strengths, banks need to re-assess their strategic decisions to the chang
ed landscape, re-evaluate their core competencies, re-tool their internal skill
sets, and re-position themselves to clearly defined target market. While it is a
n option available to those who choose to do so, re-capitalizing Asian banks so
that we can be everything to everybody may now less viable a strategic play movi
ng forward. Amidst all the change that is happening, focus is the essential elem
ent. That leaves choosing one s market clearly, serving it well while mindful of
our own respective accountabilities in our shared governance commitment. It doe
s sound "philosophical" but stepping back a bit, the beauty of this is that it r
emains a choice and our choice at that. Many others would want to be in our shoe
s right now. Thank you and good afternoon.
The Philippines on the Road to Recovery

Venue: Makati Shangri-la Hotel
Occasion: Economic Journalists Association of the Philippines (EJAP) Annual Awar
ds Night
Introduction Distinguished officers and members of the Economic Journalists Asso
ciation of the Philippines (EJAP) headed by President Alena Mae Flores, the Boar
d of Judges chaired by Ms. Milwida Guevarra, special guests from the media, the
business community and the government sector, good evening. It is a pleasure to
be part of EJAPs Annual Business Journalism Awards. It is that time of year when
it becomes medias turn to host a formal event with their traditional news sources
as guests. More important, this is the special moment when the best business rep
ortage and journalists in the different business beats are recognized. That the
selection is based on the body of work of economic journalists over a one-year p
eriod makes this annual business journalism event truly special. And so, on beha
lf of the Bangko Sentral ng Pilipinas, I take this opportunity to congratulate t
he leadership and members of EJAP, as well as its partners, who have institution
alized this annual business journalism awards which is now on its 18th year. Con
gratulations are also in order to all EJAP winners, past and present, for living
up to the daily challenge of turning in excellent reports that are accurate, co
mprehensive, timely, and insightful. And so, ladies and gentlemen, let us give a
ll of them a well-deserved round of applause. And now, as requested, it is my tu
rn to do my bit of reporting, if you will, on the state of affairs in the global
economy in general and the Philippine economy in particular. Global and domesti
c economic developments Let me start with a quick review of what is happening on
the global front. At its Annual Meeting in Istanbul early this month, the IMF d
eclared that the global economy has turned a corner after its biggest contraction i
n decades. A major factor anchoring the rebound is wide-ranging public intervent
ion, particularly the massive monetary and fiscal stimulus efforts undertaken by
governments across the globe. Initial signs of pick up, in varying degrees, are
evident in the manufacturing sector, industrial production and retail sales. In
addition to putting up stimulus packages, governments, particularly in advanced
economies, crafted measures to avert potential systemic collapse of their finan
cial systems. These measures included deposit and debt guarantees, as well as th
e recapitalization and clean-up of huge levels of toxic assets held by troubled
financial institutions. These actions have been broadly successful in providing
a much-needed boost to market and business confidence. In fact, latest data from
the IMFs financial stress index show that financial strains in both advanced and
emerging economies have receded from historical highs registered in the early m
onths of 2009. The gradual return of confidence in the international markets has
led to increased willingness of financial institutions to lend. Two primary ind
icators of credit appetite the LIBOR-OIS and TED spreads have narrowed and are n
ow significantly off their peaks in October 2008. This developed after central b
anks around the world cut interest rates to near zero and unlocked massive amoun
ts of funds to keep credit flowing. But while the global growth outlook has turn
ed positive, recovery is expected to be slow as risks to the outlook remain tilt
ed on the downside. Financial sector health (although it has started to regain s
ome strength) remains fragile; support from public policies will have to be even
tually withdrawn; and households that suffered asset price busts will continue t
o rebuild savings, which means spending will continue to be moderate. In short,
there is recovery, yes, but it will likely be weak and protracted. On the home f
ront, Philippine financial markets have been exhibiting marked improvements in r
esponse to emerging indications of easing financial strains in the global econom
y. As early as April this year, the peso started to stabilize (it appreciated by
1.2 percent on a year-to-date basis against the US dollar on 23 October 2009) w
hile share prices have been edging up in the local bourse and in fact hurdled pa
st the 2,900 index resistance level in early October. Meanwhile, Philippine debt
spreads narrowed as the perception on the countrys credit risk improved. The eme
rgence of green shoots in the domestic financial markets have occurred within a be
nign inflation environment. Headline inflation has been sliding for the past cou
ple of months. After dropping to 0.1 percent in August, the lowest in over 20 ye
ars, it inched up to 0.7 percent in September. Sustained low and stable inflatio
n is largely on account of lower oil and non-oil commodity prices in the world m
arket and well-anchored inflation expectations. This has helped protect househol
d purchasing power and allowed reductions in the policy rate to support the econ
omy. And while commodity prices have been edging up recently, this has been at a
tempered pace. With inflation prospects remaining favorable, the BSP was able t
o boost liquidity at the height of the recent crisis through several measures. F
irst, the BSP implemented a series of policy rate cuts by a total of 200 basis p
oints since December 2008; second, the BSP lowered reserve requirements by 2 per
centage points; and third, the BSP augmented its peso rediscounting budget to P6
0 billion. Another P5 billion was added recently for rediscounting to cover for
typhoon-affected MSMEs. As a result, domestic liquidity expanded at double-digit
levels this year, providing the necessary resources to fuel banks lending activi
ties and fund the countrys growth requirements. Outstanding commercial loans exhi
bited expansion during the year, although the rate of growth has moderated in re
cent months. Meanwhile, the banking sector has remained fundamentally sound. Imp
ortant banking reforms, particularly in the areas of corporate governance, risk
management, and asset clean-up, have strengthened the banking system further, bo
osting its overall performance in terms of higher asset growth, enhanced asset q
uality, improved profitability and better capitalization. Another important sour
ce of stability for the Philippine economy is the external sector. The countrys o
verall BOP position posted a surplus of US$3.3 billion in the first nine months
of 2009, supported by strong remittance flows from overseas Filipinos as well as
higher services receipts, particularly from the BPO sector. These factors allow
ed the BSP to build up the countrys foreign exchange reserves. As of end-Septembe
r, it reached a record-high level of US$42.5 billion. This could cover 8 months w
orth of imports. Nearly three times the norm of 3 months worth of imports. The e
xternal debt situation has likewise improved and remained manageable. The curren
t level of external debt as a percentage of GDP improved to 32.6 percent in June
2009 from 33.9 percent in the same period in 2008. Remittances from overseas Fi
lipinos continued hit record levels, defying projections that it will be adverse
ly affected by the global economic slowdown. Sustained remittance flows were sup
ported by the steady deployment of Filipino workers abroad; the start of the imp
lementation of hiring programs forged with key host countries, as well as increa
sed access of overseas Filipinos and their beneficiaries to formal remittance ch
annels. For the first eight months of the year, remittances of overseas Filipino
s reached US$11.3 billion, representing a year-on-year growth of 3.7 percent. Th
e rebound in consumer demand continues to provide stimulus to our economy. This
was supported by the sustained rise in remittance flows, the market decline in i
nflation, and the governments economic stimulus program. Private and government c
onsumption expenditures, which comprise about 80 percent of GDP, contributed 2.5
percentage points to GDP growth in the second quarter of 2009. Overall, Philipp
ine GDP grew by 1.5 percent year-on-year in the second quarter, up from the 0.6
percent rate posted in the previous quarter, dispelling recessionary fears and d
efying market expectations in the process. Given indications of recovery in the
global markets and the resilience shown by the Philippine economy, the outlook o
f firms and households nationwide improved in the current quarter. The results o
f the BSPs Business Expectations Survey in the third quarter this year showed ove
rall confidence index was up by 21 index points from the second quarter, while t
he Consumer Expectations Survey improved by 2.3 index points. Market expectation
s for the fourth quarter also fared better compared to the current quarter. Outl
ook and challenges The key question now is how far will the initial recovery go?
Given the modest rebound in domestic output growth in the second quarter and exp
ectations of slow recovery in the global markets, we foresee for 2009 continued
growth for the Philippine economy, although at a slower pace than the year-ago l
evel. Meanwhile, inflation is expected to fall within our target range of 2.5 to
4.5 percent for 2009. On the external front, we see a remittance level that cou
ld exceed last years record high level as well as a better-than-expected overall
Balance of Payments surplus and Gross International Reserves for 2009. The overa
ll balance of payments is seen to post a surplus of about US$4 to US$5 billion a
nd the GIR to settle at about US$42 to US$43 billion for 2009. This will be supp
orted by a projected 4 percent remittance growth for the year, an improvement ov
er the earlier projection of zero growth. Nevertheless, while we see growth movi
ng forward, there are risks we should be mindful of. First, amid mounting eviden
ce that the global economy is pulling out of recession, questions remain as to t
he likely trend of recovery in the coming quarters. Is the initial rebound we ar
e experiencing, a portent of a stronger recovery ahead? .Or is a risk of renewed
recession a concern, as expansionary policies lose impetus and the desire to reb
uild savings hold back the momentum in private demand? Second, finding the right
timing for the orderly unwinding of the stimulus measures that have been implem
ented. Leaving these measures in place too long could stoke inflation and expand
public debt; on the other hand, premature unwinding could put recovery at risk.
For the BSP, the appropriate timing and magnitude of an exit strategy is contin
gent mainly on the inflation outlook. So far, the inflation outlook continues to
be within target range while surveys show that inflation expectations have rema
ined anchored toward the target over the policy horizon. The third risk could co
me from cross-border capital flows. This took a major hit over the past year but
is expected to regain strength this year. A persistent surge in capital inflows
could pose additional challenges to monetary policy. BSP policy thrusts Althoug
h these downside factors represent challenges to monetary policy, these will not
radically alter the BSPs focus on delivering on its primary mandate of promoting
price stability. Thus, the BSP will continue to carefully scan the operating en
vironment with a forward-looking perspective, with a view to moving in a pre-emp
tive fashion to address any risks to its mandate. While the continued manageable
inflation environment provides the flexibility to preserve the stimulus to econ
omic activity, there is a need for circumspection due to additional upside risks
to the inflation outlook. These include the increasing signs of recovery in rea
l sector activity; the extensive macroeconomic stimulus in advanced economies; t
he prevailing El Nio conditions in the Pacific area; and the petition of Napocor
to increase power rates. In the area of promoting financial system stability, th
e BSP will continue to pursue key reforms that will further improve the regulato
ry and supervisory framework, enhance risk management systems, improve corporate
governance structures, and strengthen disclosure practices for better consumer
protection. We will also continue to work with Congress on the passage of amendm
ents to the BSP Charter to empower the Bangko Sentral to respond in a more appro
priate and timely manner to emerging issues in an increasingly dynamic environme
nt. Finally, the BSP remains committed to continue supporting external policies
that will help insulate the economy against global risks. We will achieve this b
y pursuing a healthy external payments dynamics and by maintaining manageable le
vels of external debt. Let me also take this opportunity to update you on some o
f the measures that the BSP has taken to help individuals and institutions who h
ave been adversely affected by the recent typhoons. First, the BSP has put in pl
ace a package of regulatory relief measures for banks to enable them to assist a
nd ease the burden on their affected customers. Second, the BSP established a P5
billion special rediscounting line for the exclusive use of banks whose borrowe
r MSMEs were affected by typhoons Ondoy and Pepeng. The regulatory relief measur
es include: 1. Excluding existing loans of borrowers in affected areas from the
computation of past due ratios; 2. Reducing the 5 % general loan loss provision
to 1 % for restructured loans of borrowers in the affected areas; 3. Suspension
of penalties for delays in the submission of supervisory reports; 4. Allowing ba
nks to provide financial assistance to their officers and employees who were aff
ected by the calamity; 5. Granting of a 60-day grace period to settle the outsta
nding rediscounting obligations as of 28 September 2009 with the BSP; and 6. All
owing banks to restructure with the BSP the outstanding rediscounted loans of bo
rrowers affected by the calamity. Conclusion In other words ladies and gentlemen
, the Philippines is on the road to recovery. We have reason to be optimistic ab
out the future as economic growth has started to regain momentum, financial mark
et conditions have improved, the banking system remains strong and well-capitali
zed, and our external payments position has remained favorable. While there are
downside risks, we are prepared to face up to the challenge of sustaining growth
that is balanced and broad-based, one that will uplift the lives of Filipinos.
To this end, the BSP looks forward to the continued support extended by the jour
nalists who belong to EJAP. Traditionally, it was such that when economic journa
lists came home, the answer to the question How was your day, Dear wasnt something
that would rivet dining table conversation. But as our economy grew, and our int
erconnectedness to the global arena deepened, the sophistication of agents grew
along and broadened in tandem. And, the set of economic stakeholders also expand
ed. In turn, the role economic journalists play in shaping the economy has also
become elevated. Your role has become even more important. A wise man once said,
"Journalism is in fact history on the run." Ladies and gentlemen of the EJAP, th
at means you dont just WRITE history, but you help MOLD history.you MAKE history.
Congratulations once again and cheers to our continued partnership! Mabuhay ang
EJAP! Mabuhay ang mahal nating bansang Pilipinas! Maraming salamat sa inyong lah
at!
Corporate Governance Reform in the Philippines: Progress and Challenges

Venue: The Peninsula, Manila
Occasion: the Asian Roundtable on Corporate Governance
This roundtable conference on corporate governance is indeed timely as the world
now moves to redefine the global corporate, financial and regulatory architectu
re with the view to prevent the recurrence of a similar crisis in the near or di
stant future. Many have concluded that this crisis was to an important extent th
e result of poor adherence to the core tenets of good governance. Decisions over
stepped the principles of good governance either due to excessive risk-taking, c
onflicts of interest and or opacity of transactions. In the BSP, we take governa
nce of banks seriously because we know banks are key in keeping the economy well
functioning and growing. One of the main reasons our economy has weathered the
crisis relatively better than most in our region is that our financial system ha
s continued to function normally even at the height of the crisis in the last qu
arter of 2008. In this regard, please allow me to walk you through BSPs initiativ
es to strengthen good governance in the financial industry and our continuing ef
forts to ensure that good governance principles are woven into the organizationa
l culture and operations of our supervised institutions. BSP initiatives on corp
orate governance Setting the tone from the top At the BSP, we believe that the c
orporate governance principles of Fairness, Accountability and Transparency shou
ld complement our banking reform advocacies. When we were trying to flesh out th
e implementation of these tenets to banks, we asked ourselves where better to se
t the tone of good governance than at the corporate top? Indeed we wanted to ens
ure that only those deemed fit and proper for the jobs are confirmed to assume the
ir posts. To accomplish this, we issued regulations that set out standards on th
e qualifications of directors and key officers of financial institutions, puttin
g as much weight on competence as on integrity. The BSP likewise required the me
mbers of the board to attend a seminar on corporate governance to formally struc
ture the learning on the ethos of good governance. For this undertaking, the BSP
accredited seven (7) training providers, which include the Institute of Corpora
te Directors. We have also made explicit our expectations from the board of dire
ctors of our supervised financial institutions. We have issued regulations clear
ly identifying the duties and responsibilities that the board itself and the mem
bers of the board, in their individual capacity, should carry-out. Responsibilit
ies of the board that have been established include the selection of officers an
d personnel to the adoption and implementation of adequate risk management polic
ies. Also, consistent with the General Banking Law, the BSP has required that ba
nks have at least two independent directors on their boards. In addition, we hav
e prescribed that risk management, corporate governance and audit committees be
created in the board. All these may be considered as parts of an internal line o
f defense against excessive risk taking or attempts to cut corners that may resu
lt in unsafe and unsound practices. Enhancing transparency, disclosure and finan
cial reporting Our campaign for good corporate governance didnt only cover determ
ining fit and proper officials, but also included equipping the officials with the
necessary tools for making informed decisions and for relaying the same to stak
eholders. In this respect, the BSP adopted the International Accounting Standard
s. This aligns our financial reporting principles with the global standards and
substantially improves the amount and quality of information disclosed by financ
ial institutions to the public, beyond published audited financial statements an
d annual reports. Along the line of promoting transparency and disclosure in fin
ancial reporting, we have established an accreditation process for external audi
tors. This raises the bar for adherence to control standards and ensures that fi
nancial institutions will be audited only by external auditors who adhere to suc
h quality control standards. I am pleased to report that to further cement this
move, the BSP signed (just last month) together with the Securities and Exchange
Commission (SEC), the Insurance Commission (IC) and the Board of Accountancy a
Memorandum of Agreement (MOA) to provide a working framework to harmonize the di
fferent accreditation processes of the regulatory agencies and allow mutual reco
gnition of external auditors that they have individually accredited for certain
types of institutions. Enhancing supervisory tools Many of us may have heard tha
t this crisis was brought about by individual actions that have necessitated cor
rection by collective action. Market participants have been seen to manage their
risks effectively up to the point where the cost of doing so makes sense from t
heir own point of view only. This presents a challenge to regulators. To avoid s
tifling appropriate credit activities and risk taking, the regulator must find t
he suitable balance when crafting banking regulation and enforcing supervision.
The regulator must ensure that risks are well understood and appreciated by all
concerned economic agents. In addition, the appropriate incentive structures mus
t be present so that market discipline operates effectively in the future. The B
SP, as an overseer of good governance in the financial system, therefore recogni
zes the need to constantly enhance its supervisory tools if it is to effectively
perform this balancing act. A step towards this goal is the issuance of the gui
delines on Pillar 2 of the Basel 2 capital adequacy framework or the Internal Ca
pital Adequacy Assessment Process (ICAAP) and the Supervisory Review Process (SR
P). This would give the BSP a better handle on how well the board of directors a
nd senior officers understand their own risk management systems and capital allo
cation policies, as the ICAAP is bank-determined and should provide rules for im
plementing the banks risk appetite. In sum, the BSP has created an environment of
good governance among banks by 1) setting the tone of governance from the top b
y choosing only fit and proper directors; 2) equipping the board of directors to
make smart risk decisions through appropriate information and disclosure tools;
and 3) allowing bank management to implement those risk decisions in a framewor
k that protects the stakeholders. By creating this environment, we hope that ban
ks would move from mere compliance, to performance. Corporate governance scorecard
for banks Before I conclude my remarks this morning, allow me to share with you
the issuance by the BSP of the Corporate Governance Scorecard (CGS) for Banks.
I am quite pleased to mention this, as I have been told this is the first of its
kind in the world. The CGS for banks initially covers universal and commercial
banks and their subsidiary and affiliate banks. It was made possible through our
partnership with the ICD and representatives from the banking industry. The CGS
for banks was broadly patterned after the scorecard for publicly listed compani
es, which was customized and refined to make it suitable for banks. In addition
to the five (5) corporate governance categories that we have adopted from the Or
ganization for Economic Cooperation and Development (OECD), the CGS for banks in
cludes a category on Control Environment and Processes in recognition of the imp
ortance of risk management in banks. The 20 U/KBs involved in this project were
asked to rate themselves using the questionnaire issued by the BSP. The person-on
-the-street approach was adopted in evaluating the corporate governance practices
of the concerned banks. This takes on the perspective of a depositor or investo
r that has no other access to information aside from those available to the publ
ic, including those posted in banks website. Based on the evaluation of the submi
tted CGS of U/KBs, the industry charted a high average score of 84%. Although th
is did not come as a surprise, we are nevertheless pleased as we take this as an
indication that the banking industry is indeed embracing the principles of good
governance. I would also like to share with you, that among the six (6) corpora
te governance categories, the U/KBs registered the highest score in Control Envi
ronment and Processes at 89%. The top three (3) U/KBs had an average score of 94
% while the bottom three had an average score of 66%, or a margin of 28%. Howeve
r, if we look at the average scores of the top three (3) and bottom three (3) on
a per group basis the margin narrowed down to 15% as the top three (3) of the t
hirteen (13) universal banks received an average score of 94%. The same margin w
as maintained for the seven (7) commercial banks, as their top three (3) posted
an average score of 85%. The BSP intends to continue the CGS for banks on a year
ly basis and eventually expand its coverage so as to include all types of banks
under our supervision. We believe that this endeavor will take us a step closer
to strengthened investor confidence and capital market development. Roadmap for
the future Moving forward, the BSP will continue to maintain its stance of being
a step ahead in initiating reforms for good governance in the financial industr
y. For example, we recently conducted a study on whether we should impose a limi
t on the number of institutions wherein an individual may serve as an independen
t director. Based on our assessment, there is no immediate need to change existi
ng regulations, we will, however, monitor any development in the industry that m
ay indicate an abuse of the existing regulatory leeway. Also, we are proposing a
n amendment to the BSP Charter that would require our prior approval for the tra
nsfer of substantial equity holdings in banks. We believe that this additional m
easure would help in ensuring that only those with indubitable integrity, capaci
ty and competence would have a stake in the banking industry. The BSP has also s
tarted planting the seeds for increased financial literacy in the country as we
believe that the financial sector and ultimately the Philippine economy will ben
efit from increased public awareness. This will strengthen the confidence of the
market in the financial system and at the same time, foster a more transparent
way of doing business. The BSP created a group dedicated solely to advancing fin
ancial literacy and we have also tied-up with the Department of Education to inc
lude in the curriculum of grade school students basic topics on savings and mone
y management. Concluding remarks To conclude, governance is a reflection of the
values of individuals within an institution. The initiatives we have started to
promote good governance are only as good as the people observing them. This is s
imilar to the art of making ceramics. Different potters shaping the clay will co
me out with different interpretations of the same pattern, although each one of
them followed the same process and used the same tools. The challenge for us, in
this case, is to ensure that the potters have the skills, the right values and
perspective in shaping the delicate piece of art. Thank you and good day.
BSP and SSS: Moving Towards a Common Vision

Venue: SSS Corporate Headquarters in Diliman, Quezon City
Occasion: SSS anniversary celebration
Social Security Commission Chairman Thelmo Cunanan, SSS President and CEO Sec. R
omulo Neri, Former SSS President and CEO Corazon de la Paz-Bernardo, Distinguish
ed Members of the Social Security Commission, past and present, COA Chairman Rey
Villar, other officers and staff of SSS, fellow workers in government, special
guests, members of the press, ladies and gentlemen, good morning. It is a pleasu
re to be part of the 52nd anniversary celebration of the SSS, the Philippine ins
titution that has 28 million members or nearly one-third of our countrys populati
on! Indeed, the SSS is one of the most important institutions in our country: it
is the institution that has been providing support and protection to millions o
f its members who face financial challenges from sickness, disability, death, ma
ternity, and other contingencies for 52 years now. This tells us that SSS has be
en faithful in fulfilling its responsibilities to its members and that, in turn,
its members continue to trust SSS with their hard-earned money. For this, the m
en and women of the SSS, past and present, deserve our appreciation and a long-ro
und of applause! Let us also give a big hand to all the Balikat ng Bayan awardee
s who are the exceptional bank partners and top employers that help the SSS achi
eve its objectives and provide good service to its members. Palakpakan din po na
tin sila! Ladies and gentlemen, the continuing stability and strength of the SSS
is important not only for its members and employees but also for the economy as
a whole. Among others, each time it extends benefits to its members, the SSS, i
n effect, reminds them of the value of regularly setting aside part of ones incom
e for the rainy days. This is important as it is the accumulated savings of our p
eople that enable our banks to sustain lending for economic activities that gene
rate and keep jobs. In turn, the new additions to the labor force keep on expand
ing the membership base of the SSS. Banks are also important conduits for the co
llection of SSS premiums as well as for the distribution of benefits to its memb
ers. Clearly, there is synergy between the SSS and our banking system. Synergy a
lso exists between the SSS and the capital market. From the accumulated contribu
tions of its members as well as earnings derived from its funds management, SSS
has become a major market player. I understand that the investment portfolio of
SSS as of the first quarter of this year had reached P220 billion. In addition,
it has outstanding housing and salary loans of about P3 billion to its members a
s of March 2009. These are investments that have multiplier effects on the econo
my. The SSS is also responsible for the entry of many new individual investors i
n the stock market when it extended loans to its members for investments in list
ed stocks. Moving forward, the state of the economy, employment, the capital mar
kets and the banking system are important factors for the SSS in planning for it
s future. I will therefore give a brief overview of how these are developing. Re
cent Global Developments Let me start with the global economy that is still grap
pling with the financial turmoil that has triggered the most serious economic do
wnturn since the 1930s. In the US and in Europe, in particular, this has been a p
eriod of significant external shocks, financial stress, and, for some, massive l
oss of wealth and investments. Fortunately, coordinated response among governmen
ts and central banks to address the global financial crisis and the economic rec
ession has been producing positive results. In its latest assessment, the Intern
ational Monetary Fund noted that the world economy is stabilizing and that there
are clear signs that global growth prospects are reviving. However, the improve
ments are far from uniform across markets and countries. Furthermore, the recove
ry is likely to be sluggish, in part because while global financial markets are
improving, it is still not back to normal. Thus, global economic recovery will l
ikely remain subdued or muted for some time. For Asia, there is a growing consen
sus that growth is likely to solidify going forward. Against this global backdro
p, how is the Philippine economy doing? Philippine experience: sustained resilie
ncy In the case of the Philippines, the picture is of sustained resiliency. Comp
ared to other Asian countries, the economic slowdown in the Philippines has been
relatively moderate. In fact, while neighboring countries slipped into recessio
n, our economy continued to grow, although at a markedly slower pace: 0.6 percen
t in the first quarter this year to 1.5 percent in the second quarter. At the sa
me time, inflation continued to ease. From an average of 9.3% in 2008, inflation
slowed to 7.1% in January 2009 and declined further to 0.2 percent in July 2009
, as prices started to normalize from the spikes experienced in the previous yea
r. Demand remains steady and is expected to pick up. Inflation is seen to stay w
ithin its target range of 2.5 to 4.5 percent in 2009 and in 2010 generally in li
ne with the 3.5 to 5.5 percent target. The continuing benign inflation outlook h
as allowed the BSP to cut its policy rates by a total of 200 basis points since
December 2008. These rate reductions are aimed at bringing down the cost of borr
owing and reducing the financial burdens on firms and households. Further, lower
policy rates enhance business and consumer confidence that should sustain the m
omentum for economic expansion. The BSP is happy to know therefore that the SSS
has been lowering its interest rates as well. For instance, I have been informed
that interest rates for your business and social loan programs were reduced las
t July by .5% to 1%. In addition to the cuts in its policy rates, the BSP also m
oved to ensure sufficient liquidity in the banking system. These liquidity enhan
cing measures include the reduction in bank reserve requirements by two percenta
ge points and an increase in our peso rediscounting budget from P20 billion to P
60 billion. This helped sustain bank lending at double-digit growth rates. At th
e same time, continued reforms implemented as lessons learned from the past have
kept the Philippine banking sector stable through the ongoing financial turmoil
. These include capitalization build-up to levels above international standards,
asset clean-up that saw non-performing loans improve to low single-digit figure
s, and better risk-management practices particularly credit and liquidity risks.
Overall, the consolidated asset base of Philippine banks continues to expand, s
upported by sustained growth in deposits. Our banking system will therefore rema
in as a safe and stable partner of the SSS in reaching out to its members across
the Philippines. The countrys external payments position also remains a fundamen
tal source of strength to the economy. One important lesson learned from the 199
7 Asian financial crisis is the value of building up our international reserves
for self insurance. As of end-July 2009, reserves have risen to a record high le
vel of US$40.0 billion, enough to pay for seven months of imports; this is more
than double the global standard of 3 months. This strong external position suppo
rted by robust remittances of overseas Filipinos as well as higher receipts from
business process outsourcing -- makes the Philippine economy less vulnerable to
the moods and swings of the international financial markets. The financial mark
ets have also stabilized. Credit spreads have narrowed compared to levels at the
height of the financial turmoil; the peso continues to be broadly stable; and f
oreign buying has boosted the stock market. Investor confidence has been enhance
d further by Moodys upgrade of the countrys outlook from stable to positive. BSPs poli
y actions Going forward, the BSPs monetary policy stance will remain appropriatel
y calibrated to support domestic economic activity, but will always be mindful o
f emerging risks to inflation. The BSP will also pursue the banking reform agend
a to ensure that the banking system remains sound and globally competitive. Key
financial and banking sector reforms that would lead to greater efficiency, more
effective risk management, stronger capitalization, and enhanced corporate gove
rnance standards in the banking system will be sustained. We are also working fo
r the passage of amendments to the BSP Charter to strengthen BSPs ability to ensu
re stable prices and a sound banking system and financial stability in the count
ry. Ladies and gentlemen, the credibility of institutions is anchored on their c
ommitment and ability to pursue their mandate and objectives. For the SSS and th
e BSP, the convergence of some of our objectives provides room for collaboration
. Financial education is one such area. The BSP is actively involved in promotin
g lessons in saving, money management, and investments to help more Filipinos be
nefit from opportunities development brings and to protect them from getting vic
timized by scams. Equally important, having more financially-educated Filipinos
make for a stronger and more stable banking system, an objective shared by both
the BSP and the SSS. The ability of the SSS to reach out to millions of its memb
ers makes it a vital partner for financial education. I hope therefore that we c
an explore areas for cooperation in expanding the reach of our financial educati
on program. This will provide added support for the efforts of the SSS to improv
e the quality of life of its members. And since banks remain the principal chann
el of the SSS for its premium collections, pension disbursements and other finan
cial transactions, the BSPs efforts to continuously strengthen our banking system
will benefit the SSS and its members as well. In addition, the BSPs initiatives
to help develop and deepen the domestic capital market will help provide SSS wit
h wider opportunities for investment diversification. Finally, the BSPs commitmen
t to price stability will be key in preserving the purchasing power of pensioner
s and other SSS stakeholders. We look forward therefore to closer collaboration
between the SSS and the BSP. I also wish the SSS and its other stakeholders a su
ccessful partnership that will continue to bring timely and meaningful benefits
to its members. Once again, congratulations to the men and women of the SSS on i
ts 52nd anniversary and its continued success in providing social security for 2
8 million Filipinos. Mabuhay ang SSS! Mabuhay ang Pilipinas! Maraming salamat sa
inyong lahat!
The Philippine Economy: Facing Up to the Challenges

Occasion: NA
Executive Director Robert Sears, executives of the American Chamber of Commerce
of the Philippines, distinguished guests, ladies and gentlemen, good morning to
all of you. It is a pleasure to be here this morning to share with you the exper
ience of the Bangko Sentral ng Pilipinas in responding to the challenges posed b
y the recent global financial crisis, taking into consideration the current glob
al and domestic scenarios and emerging outlook. My short presentation will basic
ally cover three parts:
First, a quick look at the global and domestic economic
situations; Second, the latest outlook for the economy and some key challenges;
and Lastly, the responses that the BSP undertook to mitigate the impact of the c
risis and the BSPs policy directions moving forward. Let me start with a quick re
view of what is happening globally and domestically. In its latest World Economi
c Outlook (WEO) Update released in July 2009, the International Monetary Fund re
ported that the world economy is stabilizing, helped by unprecedented macroecono
mic and financial policy support by fiscal and monetary authorities worldwide. H
owever, the recession is not yet over and the recovery is likely to be sluggish.
As a result, global economic growth during 2010 is now projected to be about 0.
5 percentage points higher than projected in the April 2009 issue of the WEO. Ho
wever, the advanced economies as a group are projected to show a sustained picku
p in activity only beginning the second half of 2010. A closer examination of so
me high-frequency indicators like industrial production and merchandise exports
point to a return to a modest growth in global GDP beginning in the 2nd quarter
of 2009. Similarly, we also see a favorable outlook for prices in general. The c
ontinued weakness of the global economy for the past several months has put a do
wnward pressure on prices. Measures of both headline and core inflation are on a
downward trajectory, for the global economy as a whole as well as for advanced
economies and emerging market economies. Although there are stronger disinflatio
nary forces in some regions of emerging economies, the risk of a sustained defla
tion is expected to be small, as core inflation and inflation expectations in mo
st major economies are still holding in the 1-2 percent range. Any sharp movemen
ts in commodity prices bear some watching if sustained. To date, food prices hav
e been subdued so far, oil has been range-bound but metal prices are still surgi
ng. Based on a composite index which captures credit conditions in three financi
al market segments (banking, securities markets, and exchange markets), there ha
s been a marked decline in financial stress for advanced and emerging economies
since the beginning of 2009. Across Asia, output growth performance was mixed, w
ith more open economies such as Taiwan and Singapore experiencing the brunt of t
he global economic downturn. Domestically, the story has been that of economic r
esilience. The slowdown in economic activity in the Philippines thus far has bee
n moderate relative to that of some other economies in the region. This resilien
ce has been acknowledged by ratings agency Moodys Investors Service when it upgra
ded the Philippines credit rating by one notch, citing the countrys healthy financ
ial system and resilience against the impact of the global recession. The countr
ys outlook was also changed to "stable" from "positive. The slowdown in the growth
of domestic output to 0.4 percent, in the first quarter of 2009, was due to low
er growth in private spending, coupled with a contraction in exports and capital
formation (year-on-year). Inflation has continued to ease. The slowdown in glob
al demand has led to lower international oil and food prices, which have dampene
d inflation pressure domestically as well. Headline inflation had fallen to 0.2
percent in July, the lowest since March 1987. This brings the year-to-date avera
ge down to 4.3 percent which is within the target range for 2009. Similarly, cor
e inflation, which excludes specific food and energy items to measure broader pr
ice pressures, also declined to 3.6 percent (July 2009) from 6.9 percent in Janu
ary 2009. The downward trajectory of inflation was driven primarily by two facto
rs: (1) base effects due to record-high prices of commodities last year and (2)
relatively subdued demand. This trend may have reached its trough in July, as in
flation is expected to rise gradually during the remaining months of this year a
nd the next, but still remain within target ranges for the policy horizon. Our e
xternal payments position continues to be manageable. The healthy external balan
ce has been supported by steady levels of remittances of overseas Filipinos as w
ell as higher services receipts, particularly from business process outsourcing.
In turn, this has allowed us to build up our dollar reserves. One of the lesson
s we learned from the 1997 Asian financial crisis was the value of building up o
ur international reserves for self insurance. Based on revised data, as of end-J
uly 2009, our reserves have risen to US$40.0 billion. This is enough to cover ab
out 6.9 months of imports of goods and payments of services and income, or alter
natively, it could cover our short-term external debt payments about three times
over. Thus, even as we face a slowdown in external demand, the stronger externa
l liquidity position provides us some cushion against shifts in capital flows. O
ur financial markets are showing some signs of recovery. Credit spreads have nar
rowed, the peso has stabilized and its volatility has decreased, and the stock m
arket is on an upswing. Our banking system has remained sound and stable. The ba
nking systems asset base has been expanding steadily, supported by sustained grow
th in deposits. As of end of April 2009, the total resources of the banking syst
em stood at P5.8 trillion. Banks have been offloading their non-performing asset
s and problem loans. As a result, the NPL ratio is now at the pre-Asian crisis l
evel of around 4.0 percent. Furthermore, the profitability of the banking system
has remained resilient, although with some moderation of late. Banks have remai
ned adequately capitalized at levels above both the BSP-regulatory requirement o
f 10 percent and the international (BIS) standard of 8.0 percent. Bank lending g
rowth has remained healthy, in part reflecting the easing of monetary policy sin
ce the fourth quarter of 2008. Credit flows continued to support the productive
sectors of the economy even against the backdrop of tight liquidity conditions i
n global financial markets. It is the BSPs commitment to ensure that liquidity co
nditions are supportive of the spending and investment needs of firms and househ
olds, while keeping a watchful eye on price stability. The recent lowering of th
e risks to inflation allowed the BSP to cut its policy rates by a total of 200 b
asis points since December 2008. The BSPs decision to ease the monetary policy st
ance was based on the Monetary Boards assessment that inflation would stay within
target over the course of the policy horizon. This 200 basis-point cumulative r
eduction in the policy rate will help stimulate economic growth or help moderate
the slowdown by bringing down the cost of borrowing and reduce the financial bu
rdens on firms and households. This will help us avoid or at least mitigate the
negative feedback loop from weakening economic conditions to the functioning of
the financial sector. Lower policy rates would also have the effect of shoring u
p business and consumer confidence. The latest inflation forecasts continue to s
how subdued price pressures, with headline inflation expected to settle at aroun
d the middle of the target range for 2009 and at the lower bound of the target r
ange for 2010. On balance, downside pressures on prices predominate due mainly t
o expectations of a marked deceleration in global economic activity, which is ex
pected to continue to dampen imported inflation and inflation expectations, and
weaker domestic demand conditions. In addition to the reduction in its policy ra
tes, the BSP also moved to ensure that there is sufficient liquidity in the syst
em. The BSP: 1. Enhanced the existing peso repurchase agreement (repo) facilitie
s through relaxed valuation and a broader list of acceptable collaterals; 2. Est
ablished a US dollar repo facility to augment dollar liquidity in the foreign ex
change market and ensure the ready availability of credit for imports and other
legitimate funding requirements; 3. Reduced the regular reserve requirement by t
wo percentage points on 14 November 2008; 4. Liberalized rediscounting guideline
s which include increasing the rediscounting budget to P40 billion in 14 Novembe
r 2008 and to P60 billion on 02 March 2009, aligning rediscounting rate with the
RRP rate, easing the NPL ratio requirement and increasing loan value of all eli
gible papers; and 5. Launched the Credit Surety Fund (CSF) Program which provide
s guarantee to small cooperatives to ensure continued access to financing of sma
ll businesses. The BSP has also acted swiftly to bolster confidence in the finan
cial system, through timely communication and greater transparency. Moreover, to
safeguard the confidence in the banking system, the Monetary Board approved on
30 October 2008 the guidelines allowing financial institutions to reclassify fin
ancial assets from categories measured at fair value to those measured at amorti
zed cost. Financial institutions were allowed to reclassify their investments in
debt and equity securities from their Held for Trading or Available for Sale ca
tegories to the Held to Maturity or the Unquoted Debt Securities Classified as L
oans. The BSP also allowed banks not to deduct unrealized mark-to-market losses
in computing for the 100 percent asset cover for FCDUs, effective until 30 Septe
mber 2009). This reduced the need for banks to source dollars from the foreign e
xchange market. What lies ahead for the Philippine economy? In the succeeding fr
ames, we examine the outlook for this year and the challenges ahead of us. This
table shows the domestic outlook for 2009, based on the macroeconomic assumption
s agreed upon by the Development Budget Coordination Committee. With the bottomi
ng out of the crisis, the economy is forecast to grow moderately at a range betw
een 0.8 and 1.8 percent in 2009 (GDP) to provide the backdrop for the improvemen
t in growth prospects in the coming year. As mentioned earlier, inflation is exp
ected to further decelerate in 2009. This has given some flexibility to monetary
policy to support economic activity, as long as inflation remains on target. In
2009, the BOP is expected to again post a surplus, supported in part by three f
actors: Remittances which are expected to stay at the 2008 level, or possibly ev
en surpass it a bit; Revenues from BPO services which will also provide some lif
t to the current account (actual revenues for 2008 reached US$6 billion). The BP
O industry is poised to grow on account of strong demand for back office, engine
ering and financial services; and Export revenues, while still expected to contr
act, are showing some signs of life, i.e. the book to bill ratio has increased s
ince February 2009. The GIR as of end of July 2009 has already surpassed the tar
get range for 2009. The peso which is assumed to stay at an average of between P
46 to P49 per US dollar will be supported by the favorable external payments pos
ition. Inflation expectations remain well-anchored. The BSP survey of private ec
onomists indicates that the mean inflation forecasts to be at 3.5 percent for 20
09, 4.8 percent for 2010 and 4.8 percent in 2011. These were all lower than the
forecasts in the previous quarters. Broadly, similar numbers are yielded by the
Asia Pacific consensus forecasts: at 3.6 percent for 2009 and 4.4 percent for 20
10. Given this scenario, what are the likely directions of the monetary policy g
oing forward? The BSPs policy thrusts will continue to be aimed at ensuring that
the headway achieved in nurturing a resilient economy and a sound banking sector
will be sustained even in the face of the challenges. First, on monetary policy
, we will maintain vigilance over price developments, since this is the BSPs prim
ary mandate. As the risks to the domestic economy move away from inflation towar
d economic growth, we have had more flexibility in our policy settings. The BSP
will continue to pay close attention to signs of global demand recovery as well
as to a possible build-up in commodity price pressures over the medium term, wit
h a view to undertaking timely action towards a non-inflationary recovery in eco
nomic activity. Moreover, the BSP stands ready to undertake policy actions that
will strengthen the publics confidence in the financial system. We will sustain k
ey reforms that will strengthen capitalization, supervision and market disciplin
e for greater efficiency, more effective risk management, stronger capital base
and improved corporate governance standards in the banking system. In the extern
al sector, our policies will continue to be directed at maintaining a market-det
ermined exchange rate with scope for occasional official action to address sharp
movement in the exchange rate; maintaining a comfortable level of reserves as s
elf-insurance; and ensuring the sustainability of our external debt. Let me add
a few notes on the likely path of monetary policy in the near term. As the globa
l economy recovers, the eventual strengthening in domestic economic activity wil
l require a controlled shift in the direction of the policy stance from the curr
ent easing mode. The timing and speed of the shift to a tighter or less accommod
ative policy stance will depend on the inflation outlook as well as on the susta
ined pick-up in real sector activity, as the full impact of prior fiscal and mon
etary stimulus takes effect. It is important to remember that the type of moneta
ry easing undertaken so far by emerging-economy central banks like the BSP has b
een more conventional compared to that by the central banks of advanced economie
s. Central bank balance sheets in advanced economies have grown more sharply in
the past year as a result of unprecedented "quantitative" easing and significant
credit measures. By contrast, we relied largely on conventional easing measures
such as lower policy interest rates and reserve requirements although we did im
plement liquidity enhancing measures as well. Looking further ahead, however, on
e important risk that we are seeing for monetary policy apart from the volatilit
y of commodity prices is the potential resumption of cross-border capital flows,
which may complicate the shift to a tighter policy stance. The emerging signs o
f stabilization of global financial markets and economic conditions are expected
to encourage the gradual return of capital flows to Asia. With the ongoing real
ignment in risk perceptions, flows to emerging economiesparticularly those with s
ound macroeconomic policy and good growth prospectsare expected to improve in the
second half of 2009 and in 2010. Capital inflows help relax the foreign exchang
e financing constraint of the domestic economy. For this reason, they can have a
positive impact on the external accounts, contribute to liquidity expansion and
help lower domestic interest rates. However, policymakers will also need to be
prepared to face the possibility of exchange rate appreciation and increased liq
uidity growth, along with associated concerns. The key challenge is to conduct m
onetary policy so as to ensure that the additional resources provided by rising
foreign capital inflows do not lead to inflationary pressures or to asset price
bubbles. As economic conditions improve and we enter another phase of the busine
ss cycle, policy imperatives come into the fore. The challenge is to address the
inherent procyclicality of the financial system by strengthening the macro-prud
ential framework for monetary policy. The long-term commitment to price and fina
ncial stability imposes the need to require better risk management within the fi
nancial system. On its part, the BSP has already issued its Internal Capital Ade
quacy Assessment Process (ICAAP) guidelines which aim to strengthen the risk cul
ture within banks. Likewise, the BSP is in the process of beefing up its macro-s
urveillance capabilities. Mindful of the lessons brought by the global financial

turmoil, the BSP has stressed the need to operationalize the guidelines on liqu
idity risk management. Moreover, the BSP will continue to monitor proposed furth
er enhancements* and adjustments in the Basel II framework to make capital requi
rements countercyclical. Another challenge is to sharpen the central banks commun
ication toolbox to include not only management of expectations but also manageme
nt of risk aversion. The key point is to maintain and enhance the credibility of
the monetary and financial policies such that expectations are well-anchored an
d concerns of risk aversion do not become self-fulfilling. Finally, I want to co
nclude my presentation by emphasizing that:
The full recovery of the global fina
ncial system may take some time; With the global economy likely to be going at a
sub-par rate for some time, the key challenge is to continue to provide support
domestic demand. As monetary policy has eased, fiscal policy will also play a k
ey role in sustaining domestic economic activity.
The BSP will continue to calib
rate its actions appropriately to help achieve faster recovery of the domestic e
conomy always taking into consideration the inflation outlook. --------------- Moodys Investors Service upgraded the Philippines foreign and local currency gove
rnment ratings to Ba3 from B1, the country ceiling for foreign currency bank dep
osits to Ba3 from B1 and the country ceiling for foreign currency bonds to Ba1 f
rom Ba3. The change in the foreign currency bond ceiling is based on a revised a
ssessment of the risk of an external payments moratorium to low from moderate. The outlook on the ratings is stable. The upgrade was prompted by the relativel
y high degree of resiliency exhibited by both the countrys financial system and e
xternal payments position in the face of the global financial and economic crise
s. International reserves of the central bank are at a historic high and excepti
onal policy measures have not been required to shield the banking system from gl
obal shocks.
Transforming Potential Into Reality

Venue: Mandarin Oriental Hotel, Makati, Metro Manila
Occasion: BAIPHIL s Induction of Officers and General Membership Meeting
Distinguished officers and members of the Bankers Institute of the Philippines l
ed by Incoming President Susan Uranza and Outgoing President Lydia King, SEC Cha
irman Fe Barin, MBM Ignacio Bunye, PM Cesar Virata, fellow bankers, colleagues f
rom the BSP, special guests, good afternoon! On behalf of the Bangko Sentral ng
Pilipinas, I congratulate BAIPHILs new set of officers led by President Susan Ura
nza. Ladies and gentlemen, let us wish them well and cheer them on with a long r
ound of applause! To the Bangko Sentral ng Pilipinas, the BAIPHIL is a long-stan
ding partner in strengthening the Philippine banking sector by enhancing product
ivity through research, information exchange and education. Indeed, through its
continuous development and conduct of appropriate training programs, BAIPHIL has
been upgrading the knowledge and expertise of banking professionals. In other w
ords, BAIPHIL plays a major role in keeping Philippine bankers abreast of global
bank standards and practices. This is a very important function. The banking se
ctor is the pillar of our financial system as it remains the primary source of f
unds for our business sector, drawing, in turn, from funds entrusted to it by in
vestors, creditors, and depositors. It is essential therefore that our bankers a
re able to adapt and respond appropriately to a constantly changing and ever chal
lenging environment. This is particularly true today when the global financial la
ndscape continues to be redefined by the ongoing financial crisis and the most s
evere global economic downturn in decades. New challenges have emerged, even as
new opportunities surface. It is crucial, therefore, that bankers should be read
y to take on these new challenges and opportunities. For instance, it is importa
nt to note that while other countries struggle with tight credit, our banking se
ctor remains liquid and able to sustain lending at double-digit growth rates. As
of May 2009, outstanding loans of commercial banks, including reverse repurchas
e agreements, reached P2.1 trillion, over 10% higher than the year-ago level. Th
is is a positive trend that indicates continuing support from the banking sector
for productive activities that sustain economic growth. Having said this, banks
must make sure that appropriate risk management systems are in place to guard a
gainst potential credit and liquidity risks, among others. There should be no ro
om for complacency insofar as risk management is concerned. I believe BAIPHILs tr
aining programs on risk management will go a long way in addressing this need. E
nsuring the quality of your training programs on good governance is also importa
nt, as this counts as compliance to the BSPs mandatory requirement for bank direc
tors and key officers. As you are aware, weak governance and lack of transparenc
y have been cited as among the causes of the continuing global financial crisis
and economic downturn. There are other programs that I know BAIPHIL can take on
quite effectively, which are aligned with our special advocacies at the Bangko S
entral ng Pilipinas. One of these is economic and financial education for Filipi
nos. So far, we have institutionalized the integration into the public elementar
y school curriculum.. lessons on saving and money management starting schoolyear
2008-2009. This joint program of the Bangko Sentral with the Department of Educ
ation targets 12 million students, from Grade I to Grade VI, or nearly 90% of Fi
lipino children in the elementary schools. This number will increase further as
last month, the Coordinating Council of Private Educators Association or COCOPEA
also expressed its intent to teach saving and money management lessons to eleme
ntary students in private schools estimated at over 1.5 million. We are therefor
e planting the seeds for nurturing a new generation of Filipinos who save regula
rly and manage their finances properly. They are the future of our nation. They
deserve our support. The Bangko Sentral has also started financial education pro
grams on saving, money management, and investment options for overseas Filipinos
and their dependents. With BAIPHILs support, we can cover more ground and extend
our reach. This is one way we can express our appreciation to overseas Filipino
s whose remittances have kept the Philippine economy resilient in the midst of t
he global recession. Their monthly remittances have remained above $1 billion si
nce 2006 and reached an unprecedented annual level of $16.4 billion in 2008. In
2000, remittances for the whole year were just over $6 billion. Latest data show
that for May 2009, remittances coursed through the banking system reached a rec
ord high of $1.48 billion or a YOY growth of 3.7 percent. Total or cumulative re
mittances for the first 5 months of 2009 amounted to $6.98 billion, representing
a YOY increase of 2.8 percent. Together, let us help Overseas Filipinos and the
ir families put their money to optimal use, so that they can allocate their cash
flows not only for consumer goods and leisure but also for smart spending and s
avings such as education, housing and investments. Banks should also explore new
products and services for overseas Filipinos as well as guide them on the type
of savings pattern and investments that are suitable for them. Finally, BAIPHIL
can help develop teaching modules on saving, investment, and money management fo
r adults and out-of-school youths in cooperation with the Bangko Sentral and the
Department of Educations Bureau of Alternative Education. I am very pleased ther
efore that BAIPHIL thru President Susan Uranza, signed a Memorandum of Agreement
with the Bangko Sentral last week to support our economic and financial educati
on program including our savings promotion campaign which we call Banking on Your
Future. Other organizations that have signed up as our partners for this program
are the Rural Bankers Association of the Philippines, the Chamber of Thrift Ban
ks, the Bank Marketing Association of the Philippines and the Bankers Associatio
n of the Philippines. The BSP has also set up Economic and Financial Learning Ce
nters in our regional offices and branches where researchers can access economic
and financial data generated and monitored by the Bangko Sentral. Indeed, the B
SP in coordination with the banking sector has taken a proactive stance to insti
tutionalize an inclusive program for the economic and financial education of Fil
ipinos anchored on the theme, Financial Education: Building Blocks for a Stronger
Economy. Ladies and gentlemen. The BSP recognizes the need to continuously raise
the bar of competency for banking professionals. At a macro level, the depth of
skills of the entire banking sector workforce will be a crucial factor in build
ing a stronger banking system. In this regard, I recognize that BAIPHIL has been
and will continue to provide support in strengthening the human capital base of
our banks. The BSP, for its part, will remain committed and continue to craft a
ppropriate monetary policies and banking reforms that will allow our economy to
ride out the crisis. We will also move forward with reforms to protect consumers
and investors. These initiatives, which we have vigorously pursued in recent ye
ars, are instrumental in instilling order and depth in the banking system, ahead
of the onset of the global financial crisis. Nevertheless, considering all that
is happening in the global arena, we are in a relatively good place. Among othe
rs, our inflation rate in June is at its lowest in 22 years, we are looking at a
balance of payments surplus this year, and our gross international reserves are
at its highest level ever. This is not to say that we will have smooth sailing
moving forward. In this imperfect world, we are bound to meet unexpected bumps a
long the way. However, if BAIPHIL continues to be successful in fulfilling its m
ission to enhance productivity through research, information exchange and educat
ion, then the banking sector would be better equipped to hurdle the challenges t
hat will come its way. And given its commitment to participate actively in expan
ding the reach of our economic and financial education programs, BAIPHIL should
also make a big impact in promoting wealth creation among Filipinos. Susan, your
president at BAIPHIL, describes this process as teaching Filipinos proper lifes
tyle management. I agree with this practical approach. We at the Bangko Sentral
are therefore looking forward to a fruitful collaboration with BAIPHIL that will
result in a continuously growing pool of trained bankers as well as financially
literate Filipinos who will help build a better and stronger Philippines. Again
, my congratulations to the distinguished ladies and gentlemen of the BAIPHIL, y
our past set of officers led by Mrs. Lydia King and the freshly-inducted new off
icers under the leadership of President Susan Uranza. Mabuhay ang BAIPHIL! Mabuh
ay ang Pilipinas! Maraming salamat po sa inyong lahat.
The BSP and Its Partners: Standing Up to the Global Challenges Today
Occasion: Stakeholders Awards and Appreciation Lunch for 2009
Distinguished partners and special guests from the private and government sector
s, good morning. On behalf of the Monetary Board and my colleagues at the Bangko
Sentral ng Pilipinas, I thank all of you for joining us today for our Stakehold
ers Awarding Ceremony and Appreciation Lunch. As you can tell, this event is imp
ortant to us. This is the time of the year when the Bangko Sentral ng Pilipinas
honors its partners who provide outstanding support to our information and stati
stical requirements, as well as to our advocacy programs. This year s Stakeholde
rs Awards is made more special by the fact that our partnership has gone through
a particularly challenging period that saw the worst global financial crisis an
d the most severe economic downturn in decades. While the epicenter of the finan
cial turmoil is in the US, shockwaves are being felt worldwide, even in emerging
economies such as the Philippines. Thus, the theme for our 2009 awarding ceremo
ny is most appropriate: "The BSP & its Partners: Standing Up to the Global Chall
enges Today." Indeed, we are here todaystanding up together because we kept our pa
rtnership strong and fully functioning even in the midst of a global crisis. You
honored your commitment to the Bangko Sentral, stood by us, and never failed to
send us your comprehensive reports on time. Thus, the Bangko Sentral ng Pilipin
as and our economy benefited from receiving your complete and reliable informati
on on which to base our policy decisions. For this, we give all of you your initi
al award today: a well-deserved long round of applause. Ladies and gentlemen, th
e first group of stakeholders we will recognize today are the outstanding respon
dents to the following BSP surveys: the Business Expectations Survey; Cross-Bord
er Transactions Survey; Foreign Direct Investment Survey; Coordinated Portfolio
Investment Survey; and Survey on IT and IT-Enabled Services. We will also give a
wards to other institutions that provide valuable information for the formulatio
n of monetary policy in accordance with the BSP s key mandate to promote price s
tability conducive to balanced and sustainable economic growth. The framework fo
r our monetary policy is inflation targeting - a forward-looking and information
-intensive approach. Thus, it is imperative that the information and statistics
we receive are comprehensive, timely, and accurate. We cannot overemphasize the
importance of keeping prices stable; this allows households and businesses to pl
an over a longer horizon and make informed decisions on consumption, investment,
savings, and production. In case some of you are wondering how we have fared in
terms of stabilizing prices. The answer is: with your help, we have done quite
well. Headline inflation has been on a downtrend, dropping from 3.3 percent in M
ay to 1.5 percent year-on-year in June, the lowest in more than 22 years. Our ex
ternal accounts have also remained healthy, with a balance of payments surplus a
nd a record-high gross international reserves of US$39.6 billion. These are posi
tive results from our collaboration. Palakpakan po natin ito! Today, we will als
o recognize the best commercial banks that facilitate the inflow, and reporting,
of remittances from overseas Filipino. We all know that this is a service that
is important not only to overseas Filipinos and their families but also to our ec
onomy. On the average, remittances represent 10-11% of our GDP. Therefore, let u
s also congratulate our banks that provide efficient and secure handling of over
one billion dollars in monthly remittances from our overseas Filipinos. Palakpa
kan din po natin sila! We will also give special recognition to institutions tha
t have given their unqualified support and cooperation for the BSP s economic an
d financial education program. Let us also give them a round of applause! Once a
gain, on behalf of the Bangko Sentral, I thank all of our respondents and stakeh
olders who have been our faithful partners through these years. With your steadf
ast support, the Bangko Sentral will continue to craft and implement effective a
nd responsive monetary and banking policies that will empower us and our partners
to face up to the challenges that come our way. Finally, let us keep in mind wha
t the physicist Albert Einstein once said about information. He said and I quote:
"Information is a source of learning. But unless it is organized, processed, an
d available to the right people in a format for decision making, it is a burden,
not a benefit". End of quote. Ladies and gentlemen. As partners of the Bangko S
entral ng Pilipinas who have generously shared your time in giving us accurate,
comprehensive, and timely information with us, you have also served our country
and our people. For this, we are grateful and we thank you. We do look forward t
o many more productive collaboration with all of you in the years to come. Again
, my warmest congratulations to all the awardees. Mabuhay ang Pilipinas! Mabuhay
po tayong lahat! Magandang umaga at maraming salamat po sa inyong lahat!
RBAP: Sustaining Reforms for an Economically Vibrant Countryside

Venue: Manila Diamond Hotel

Occasion: Inaugural Dinner for the Newly Elected RBAP Officers and Board of Dire
ctors
The leadership of the Rural Bankers Association of the Philippines (RBAP) led by
President Omar Andaya and immediate past president Mitch Gomez, the officers an
d members of RBAP, good evening. I am delighted to be part of this inaugural din
ner celebrating your new set officers at RBAP. To me, this seamless transition i
n the associations leadership is a strong indication that the rural banking secto
r will continue the many significant initiatives that have characterized the pas
t year. United, your initiatives under RBAP have kept the rural banking sector r
esilient in the midst of a particularly challenging environment. Let us therefor
e give the RBAP leadership a well-deserved round of applause! Indeed, the past y
ear was full of challenges, for the economy in general and for the rural banking
sector in particular. And yet, latest available figures indicate that the rural
banking sector continues to perform relatively well. It appears that our rural
bankers have turned this period of challenges as an opportunity to further stren
gthen your institutions. Thus, even with the series of bank closures affiliated
with one group, total capitalization of the rural banking sector actually improv
ed further from P24.8 billion in December 2008 to P25.4 billion as of March 2009
. Less measurable, but no less important, is RBAPs success in maintaining public
confidence in rural banks in the face of successive bank closures. Through vigil
ance and proactive measures, RBAP ensured that your clients understood that thes
e high profile bank closures basically involved a single group that is not repre
sentative of the management of other rural banks. I also wish to acknowledge RBA
Ps pioneering work on inclusive banking through technological and product innovat
ions, as well as your continuing efforts to be more responsive and efficient in
serving your clients. In particular, the rural banking sector continues to expan
d its operating network to reach more clients. What we have today, therefore, is
a more solid and more inclusive rural banking industry. And so, once again, lad
ies and gentlemen, let us celebrate our rural banking sector with another round
of applause! However there is much more that we have to accomplish and we are lo
oking at RBAPs new set of officers and members of the board of directors to provi
de leadership for this. Among others, it is important to sustain reforms we have
started. In this context, your banks risk management infrastructure should be a
priority. This is the infrastructure that allows you to identify risks and to ac
t on these in a responsive manner. In the case of rural banks, particular focus
must be given to credit risks and liquidity risks, because your position as comm
unity-based financial institutions magnifies these risks. Equally important is y
our commitment to maintain strong capital positions. Banks must fully appreciate
that capital adequacy is not merely a compliance issue, but is central to the p
rudent control of leverage. Banks must have sufficient buffer for risks which co
uld turn into losses. While we will not dictate your specific allocation decisio
ns, maintaining capital adequacy above the BSPs regulatory floor rate of 10% is i
tself reflective of a banks commitment towards prudential control and financial g
overnance. I am sure you have heard me discuss these key reform issues in other
occasions. However, for as long as we have not reached our desired destination,
I assure you, you will continue to hear from me on these issues. You can also be
sure that the Bangko Sentral will continue to do its part toward creating the a
ppropriate policy and regulatory environment that enables more innovations, grea
ter efficiency, better risk management, stronger capitalization, improved disclo
sure and transparency practices, and enhanced corporate governance standards in
the banking system. High on our agenda is to open doors for you in housing micro
finance and microinsurance, as well as possibly grant you more flexibility to us
e non-bank agents as a way to expand your reach. We are also looking at the use
of independent rating agencies to attest to your inherent strength and secure ma
rket credibility. We are also designing a program with PDIC to encourage mergers
and acquisitions through targeted financial incentives to would-be white knights
of rural banks. Ladies and gentlemen. The rural banking sector has stood up well
to the difficult challenges of the past. Now, I look forward with optimism to t
he future of our rural banks. While I am sure rural banks will be facing new cha
llenges moving forward, I am heartened by the fact that we are on the same page
insofar as the need, and the wisdom, of adhering to good governance principles;
of implementing appropriate policies for credit and liquidity risks management;
and of working on having stronger capital positions. We all know, the path towar
d these goals will be complex; but if our rural banks remain committed in servin
g their role as catalyst and enabler of productive activities in the countryside
, I am confident that the rural banking sector will contribute a lot toward ensu
ring balanced and sustainable economic growth in our country. This calls to mind
how the great artist Michelangelo responded to comments about this genius in co
mpleting his Sistine Chapel masterpiece. He said: If you knew how much work went
into it, you would not call it genius. Ladies and gentlemen. A lot of work is cle
arly ahead of us. But if we are committed and focused, it will be a matter of ti
me before our coordinated efforts create a strong and lasting foundation for a h
ealthy, resilient and vibrant rural banking sector. Together, let us continue to
walk the path of sustained reforms. Again, my congratulations and best wishes t
o the leadership of RBAP. Mabuhay ang ating rural banks! Mabuhay ang Pilipinas!
Thank you all and good evening.
Developing a New Generation of Savers with the Program "Banking on Your Future"
Venue: NA
Occasion: NA
Former BSP Governor Gabriel Singson, Monetary Board Members, our partners from t
he banking community, our guests from the Aurora A. Quezon Elementary School, fe
llow central bankers, members of the media, special guests, good afternoon. On b
ehalf of the Monetary Board, I thank all of you for joining us today as we celeb
rate the 16th anniversary of the Bangko Sentral ng Pilipinas. With the signing o
f our agreements this afternoon, we are on track to institutionalize our economi
c and financial education program for Filipino children. This program is importa
nt to us. We at the Bangko Sentral believe that persons literate in basic econom
ic and financial concepts stand to benefit more from opportunities that developm
ent brings. And we believe that our elementary education system is the best plac
e to start. With our Memorandum of Agreement with the Department of Education, l
essons on saving and money management have been incorporated into the curriculum
of 12 million public elementary students where 90% of our elementary pupils stu
dy, beginning schoolyear 2008-2009. Last week, the Bangko Sentral ng Pilipinas s
igned a Memorandum of Agreement with the Coordinating Council of Public Educator
s Association also for the inclusion of economic and financial concepts in priva
te elementary school curriculum. Today, the launching of this savings promotion
program "Banking on Your Future" brings the banking sector fully on board our fi
nancial education program for millions of Filipino children. Actually, we are lo
oking at generating synergies from this program. We believe that saving as a hab
it can best be developed among schoolchildren who wield a strong influence in th
eir homes and communities. Through the children, therefore, we hope to reach out
to their parents, including the unbanked. Equally important, we believe that in
formed Filipinos make for better partners in ensuring that we have a sound banki
ng system and a more efficient transmission mechanism for our monetary policy ac
tions. They also wise up to financial scams. In the process, they help sustain b
alanced economic growth. This is the philosophy that underpins our economic and
financial education program. We all know how resilient we Filipinos are. Given t
he right tools, there is much more we can do. The program Banking on your Future i
s therefore an important component of our economic and financial education progr
am. The support of the Banking Sector for this program is essential as you are t
he practitioners and therefore the ideal mentors to work with the youth regardin
g financial education. The key is knowledge sharing. We do look forward to banks
and its branches to get involved in their neighbor elementary schools to mount
parallel financial education activities and to reward best performing schools an
d students with prizes including savings account. The idea is to make it hip and
cool for our students to have savings account that they can nurture and grow. T
his way, they develop the habit of saving on a regular basis. Aasahan po nang at
ing mga kabataan ang programang ito, kasama na ang ating mga bisitang mag-aaral
mula sa Aurora A. Quezon Elementary School. There are about 38,000 elementary sc
hools there are about 7,000 bank offices and branches. I hope we can cover most,
if not all of these schools. Ladies and gentlemen. The 16th anniversary of the
Bangko Sentral ng Pilipinas also coincides with the celebration of National Savi
ngs Consciousness Week. For this year, our theme is particularly appropriate: Kin
abukasan Siguruhin, Pag-iimpok Ugaliin. It is only fitting therefore that ..toge
ther ..we launch the program Banking on Your Future on this auspicious day. Mabuha
y ang Philippine Banking Sector! Mabuhay ating mga kabataan! Maraming salamat po
sa inyong lahat.
BSP@16: Riding Out the Winds of Change and Weathering the Turbulence
Occasion: 16th Anniversary of the Bangko Sentral ng Pilipinas
Magandang, magandang umaga po... sa inyong lahat! Fellow central bankers. there i
s every reason to celebrate and to be happy today! Today, we mark the convergenc
e of two important events: the 16th anniversary of the Bangko Sentral ng Pilipin
as and the 60th year of central banking in the Philippines. At sixteen, the Bang
ko Sentral ng Pilipinas is a relatively young institution; but its foundation ru
ns deep. That is because central banking, as a function directly linked with the
development of our economy and our nation, marks its 60th year in 2009. And so,
today, in celebrating our 16th year as Bangko Sentral ng Pilipinas, we also pay
homage to six decades of central banking as well as to the men and women who ser
ved our people and our country as central bankers. This is the reason why our ce
lebration has for its theme: "Ako at ang Bangko Sentral: Noon, Ngayon, at Bukas.
" My understanding from Managing Director Pete Tordilla, the chairman of our 16t
h anniversary celebration, is that almost 500 BSPers are involved in the excitin
g presentations this morning! Marami talagang showbizat magaling dito sa Bangko Se
ntral. Fellow central bankers, palakpakan po nating muli ang magagaling nating p
erformers and the creative team behind these presentations on 60 years of centra
l banking! Salamat sa inyo. You really brought back old memories! Parang kaylan
lang ano! Of course, special occasions such as this are not an excuse to miss ou
r deadlines. As central bankers, we know that even as we complete tough assignme
nts in an excellent manner, there are always many more programs that we need to
work on, asap! Thus, we sometimes miss the opportunity to say thank you, as we i
mmediately move on the next assignment. In fact, one of our favorite phrases her
e at the Bangko Sentral is. moving forward! Tama ba?! Tama! And so, today, let us
pause and take the time to say thank you to our fellow central bankers. Ladies a
nd gentlemen, let us express our thanks and appreciation with a well-deserved ro
und of applause to the Resource Management Sector headed by Deputy Governor Andy
Suratos; the Supervision and Examination Sector headed by Deputy Governor Nesti
ng Espenilla; the Monetary Stability Sector headed by Deputy Governor Diwa Guini
gundo; the Security Plant Complex headed by Assistant Governor Eve Avila; and th
e Executive Management Sector headed by yours truly with strong support from Ass
istant Governor and General Counsel Jun de Zuiga. And finally, let us also thank
the hardworking members of the Monetary Board of the Bangko Sentral ng Pilipinas
, MBMs Amatong, Villafuerte, Antonio, Bunye, Boncan and Sec. Favila. Palakpakan
po nating lahat ang mga BSPers! Ladies and gentlemen. We saw through the present
ations the challenges central bankers faced in the last 60 years. There is no be
tter time than today to look back at the global financial turmoil over the past
12 months and mark the lessons that punctuated the difficult episodes of what is
now described as the deepest economic descent since the Great Depression. If yo
u recall, last year I spoke about how we succeeded in reaping the fruits of low
inflation and high growth. This year is completely different, to say the least.
The global financial turmoil has spawned deep economic slowdown or recession, dy
sfunctional financial markets, precipitous drop in trade, bearish equities marke
t and continued risk aversion. Through the last 12 months, there has been massiv
e wealth destruction while deleveraging continues at a dizzying pace. In substan
ce and in various forms, these have characterized both developed and emerging ma
rkets alike. Ladies and gentlemen, to say that the past year has been a challeng
ing one is clearly an understatement. The crisis that began half a world away ha
s reached our shores. Thus, even as the Philippines entered the period of turbul
ence from a position of relative strength. We have felt the bumps and bruises in
financial markets, trade, and the real sector. Already, the global crisis has s
everely slowed output growth in our country. Nevertheless, the Philippines conti
nues to distinguish itself for having one of the most resilient economies around
. Moving forward, we are optimistic that positive growth will be sustained this
year, that the balance of payments will continue to yield a healthy surplus, and
that our banking system will remain solid through the turbulence. Still, we nee
d to be vigilant in guarding the economy against the spillover effects of the gl
obal crisis. You may well ask, how is the Bangko Sentral responding to the globa
l financial and economic crisis? Well, the BSP has been providing ample liquidit
y to keep the financial markets functioning and able to fund the growth requirem
ents of the economy, amidst the global credit crunch. The monetary actions we ha
ve taken since the fourth quarter of 2008 include the following: first, the open
ing of the US dollar repurchase facility to augment dollar liquidity in the fore
ign exchange market; second, the enhancement of the existing peso repurchase fac
ility through relaxed valuation and broader acceptable collateral; third, the re
duction in the reserve requirements on bank deposits by two percentage points; f
ourth, the increase to P60 billion of the peso rediscounting budget to ensure ad
equate peso liquidity; and fifth, the launching of the Credit Surety Fund Progra
m to provide financing to small businesses through guarantees to small cooperati
ves with good track record. The BSP has also reduced its policy rates by 175 bas
is points since December 2008, given favorable inflation outlook and well-anchor
ed inflation expectations. This historical series of five rate reductions brough
t our overnight borrowing or reverse repurchase (RRP) facility to 4.25 per cent,
the lowest in over 17 years. The intention is to help bring down the cost of bo
rrowing and reduce the financial burden on firms and households. Lower policy ra
tes would also shore up business and consumer confidence for economic expansion.
The Bangko Sentral has also ensured that banks and other financial institutions
have risk management systems in place, that banks adhere to safe and sound bank
ing practices, and that accounting and supervisory rules are calibrated to adjus
t to the new financial circumstances. Well, how are our scorecards in relation t
o these initiatives? Evidence suggests that these initiatives have been effectiv
e. Our policy actions have provided a steady supply of liquidity that has allowe
d banks to continue lending and performing their role as fund intermediaries. Ma
rket interest rates have trended downward following the policy rate cuts by the
BSP, as banks pass on lower lending rates to their borrowers. Inflation, meanwhi
le, continues to be subdued, and we continue to expect favorable inflation dynam
ics going forward. Equally important, our banking system has remained sound and
stable. Other segments of the financial sector - including the money, bond and e
quities markets as well as the foreign exchange market - have showed signs of st
abilization if not recovery. Ladies and gentlemen, our sustained efforts at capa
city building has empowered us to be effective at monetary policy and bank super
vision. We have strengthened our strategic planning and budgeting processes to c
ontinue sharpening our vision. We have also sustained our BEST program by sendin
g the best and the brightest of our staff to the best universities here and abro
ad, to ensure excellence and a global outlook among the future leaders of the Ba
ngko Sentral. We want them to think big, to think new, and to think ahead while
being immersed in the deep structure of their creative potential. We have persev
ered in our wellness programs to keep our staff going strong and motivated. We h
ave streamlined our recruitment process by opening our doors more widely to prom
ising prospective employees. We have also continued to review our benefit packag
e to ensure that we are able to attract and retain our most valuable resource: o
ur professional, competent, and dedicated staff. As we review our score card for
another year of central banking in the Philippines, I would like to believe tha
t we have provided the leadership and the vision for maintaining macroeconomic s
tability yesterday, .today and tomorrow. We continue to receive recognition for th
is and we continue to raise the bar further. For instance, I am very pleased tha
t 17 more departments and offices will be receiving ISO certifications next week
, proof of our sustained program to align our processes with international stand
ards. Palakpakan po natin ang mga bagong ISO-recipients natin! Ladies and gentle
men of the Bangko Sentral. Our pledged stewardship of the Philippine monetary an
d financial system is of central value to the country s economic development. We
have kept prices low, interest rates reasonable, the financial system sound and
stable, and the payments and settlement system functioning efficiently. These a
re key elements in the resilient performance of the Philippine economy. What mor
e should be done? Well, it is not enough that we succeeded last year and the yea
rs before that. For as long as millions of Filipinos continue to live in poverty
, we cannot restwe cannot stop. As we continue our work to achieve our mandate, w
e need to ensure that we possess the expertise and competence in all phases of c
entral banking; we need to develop greater sensitivity to signals which we shoul
d answer with better and more responsive actions; we need to be swift -footed in
adjusting to a dynamic environment; and we need to further fine tune our abilit
y to plan ahead. We also need to work on amendments to the New Central Bank Act
(R.A. No. 7653) to further strengthen our ability to achieve monetary and financ
ial stability. The proposed amendments will allow the BSP to float its own bonds
, enhance the supervisory and regulatory capabilities of the BSP with additional
powers and greater legal protection. We will redouble our efforts to push for t
hese amendments when the Congress resumes its session. BSP has a comprehensive p
rogram to advance ordinary Filipinos understanding of basic economic and financ
ial concepts to empower them to benefit from opportunities that development brin
gs. In the last three years, for instance, the BSP been to 24 locations to bring
its financial education lectures to overseas Filipinos and their families. The
program has since been expanded and brought overseas to countries which have lar
ge concentrations of overseas Filipino workers (OFWs). The integration of lesson
s on saving and money management in the curriculum of public elementary schools
beginning schoolyear 2008-2009 is a major step forward in raising a new generati
on of savers in our country. This joint project of the Bangko Sentral ng Pilipin
as and the Department of Education is targeted at 12 million public elementary p
upils. With the signing last week of a Memorandum of Agreement by the Bangko Sen
tral with the Coordinating Council of Private Educational Associations, we can l
ook forward to the integration of lessons on saving and money management in the
private elementary schools curriculum as well. The launching this afternoon of
the savings promotion program which we call "Banking on Your Future" brings the
banking sector on board our financial education program for millions of Filipino
children. We will also develop financial education modules for out-of-school yo
uths and adults to complete our program. Parallel to these proactive initiatives
, the BSP has also set up Economic and Financial Learning Centers or EFLCs in ou
r regional offices and branches where researchers can access economic and financ
ial data series produced and monitored by the BSP. It also has a wide collection
of books, journals and periodicals on banking, finance and economics, as well a
s electronic research system. Indeed, BSP continues with its efforts to institut
ionalize and promote an inclusive program for the economic and financial educati
on for Filipinos. This supports our program on inclusive banking and reaching ou
t to the unbanked. Ladies and gentlemen, my fellow central bankers, I am sure th
at this time of global economic and financial turmoil will surely rank as one of
the defining moments in economic history. It will have a profound impact on all
countries. Its economic toll so far has been unprecedented and, in some cases,
has exacted painful social consequences including job and income losses. But I k
now that we shall be equal to the challenges. Let us therefore commit to work to
gether with greater vigor and dedication as we navigate our economy through turb
ulence to the safety of enduring balanced economic growth, for the benefit all F
ilipinos. For now, let us walk our talk by saying thank you to one another as fel
low central bankers who work with patriotism, excellence, integrity, dynamism an
d solidarity, our guiding values here at the Bangko Sentral ng Pilipinas. Togeth
er let us stand proud as BSPers who can truly make a difference in improving the
lives of all Filipinos. Mabuhay ang Bangko Sentral ng Pilipinas! Mabuhay ang ma
hal nating bansang Pilipinas! Maraming salamat at masayang anibersaryo!
Banking on Governance for Growth and Stability

Venue: Sofitel Philippine Plaza Manila
Occasion: Rural Bankers Association of the Philippines (RBAP) 2009 National Annu
al Convention
Ladies and gentlemen of the Rural Bankers Association of the Philippines led by
Mr. Tomas Gomez IV, outgoing President, and Mr. Omar Andaya, incoming President
of RBAP, supporters and advocates of our rural banking sector, colleagues from t
he Bangko Sentral, special guests, members of media, ladies and gentlemen, good
morning. We at the Bangko Sentral ng Pilipinas join you in celebrating 56 years
of rural banking in the Philippines. This is 56 years of partnership with local
communities in invigorating countryside development - a fruitful partnership tha
t has seen our rural communities grow and develop alongside rural banks. Indeed,
key indicators for the rural banking sector show steady growth even in the mids
t of the global financial crisis and the closure of a number of rural banks enga
ged in unsafe and unsound banking practices. Among others, the operating network
of rural banks continues to increase. As of end December 2008, the network of r
ural and cooperative rural banks, consisting of head offices and branches, was a
t 2,148, higher than 2,133 in 2007. While there was a net decline in the number
of head offices from 727 to 703 as a result of closures and mergers, this was mo
re than offset by the increase in the number of branches. The net effect is a la
rger network capable of delivering banking services directly to a wider market.
In addition, rural banks are exhibiting greater innovation and dynamism by seizi
ng opportunities presented by technology. The industry enhanced its banking serv
ices delivery with the installation of more Automated Teller Machines (ATMs): fr
om only 83 in 2007 to 113 as of end December 2008. A number of rural banks have
also ventured into electronic banking to beef up delivery of financial services:
the number of rural banks offering e-banking services such as cash cards and mo
bile banking have increased to 47 in 2008, from only 5 banks in 2005. It is impo
rtant to note that the increasingly broader and deeper reach of rural banks, com
es at a time when bank deposits in all but one of the regions were on the rise.
Consolidated deposits of 6 million savers with rural banks as of end December 20
08 reached more than P 107 Billion, allowing the rural banking sector to provide
more loans for agriculture as well as micro, small and medium enterprises. Our
figures indicate that nearly half of the rural banks total loan portfolio of P106
.6 billion in December 2008 went to agri-gra loans. I am also pleased to note th
at loans granted by rural banks in 2008 went up in 13 of our 17 regions. The bus
iness of rural banking has likewise been profitable with net income after tax at
more than P 3 Billion in 2008, slightly higher than the 2007 level. A clear ind
icator of the rural banking sectors strength is its strong capital position: its
capital adequacy ratio at 13.8% as of September 2008 remains well above the BSPs
mandatory standard of 10%. Of course, your CAR remains a bit lower than that for
our thrift banks and universal/commercial banks. Still, 13.8% CAR of rural bank
s compares well with the overall CAR of the banking sector in Malaysia with at 1
2.6% and Korea with 11.2%. And so, ladies and gentlemen, let us celebrate the co
ntinued growth and development of the Philippine rural banking sector with a lon
g round of applause! Nevertheless, these positive indicators must not lull us in
to a false sense of complacency. The rural banking industry achieved these by ma
intaining business discipline. And clearly, rural banks stand to perform even be
tter if all members of RBAP will work on having even stronger capital positions,
become more vigilant in managing liquidity and credit risks, and faithfully adh
ere to the good governance tenets of fairness, accountability and transparency.
I am happy to know therefore that we are on the same page, so to speak, as your
convention theme this year is Banking on Governance. As declared by the Organizati
on for Economic Cooperation and Development (OECD), good corporate governance is
key not only to the integrity of corporations, financial institutions and marke
ts it is also central to the health and stability of our economies. Further, an O
ECD study released this year entitled Corporate Governance Lessons from the Finan
cial Crisis concluded that to an important extent, the current financial crisis c
an be attributed to failures and weaknesses in corporate governance arrangements
. The choice of governance as the central theme for your convention is therefore
timely as it is compelling. I take this as a message of the deep commitment of
rural banks to good governance principles, strong capital buildup, and better li
quidity and risk management. Surely, if you walk your talk, rural banks will con
tinue on a growth track. Indeed, we can learn a lot from the current global fina
ncial turmoil and economic downturn. While it has become evident that no economy
is immune from its effects, we are also seeing that economies that had the poli
tical will to pursue much-needed reforms and built up buffers are more likely to
fare better than others. Among others, the Philippines is in a relatively better
position today in terms of growth prospects compared to many other economies, i
ncluding advanced economies. Our resiliency springs from the continuous implemen
tation of reforms calibrated to strengthen our banks, our financial system and o
ur economy. Thus, while other countries have sunk in recession, our domestic eco
nomy still expanded at a respectable 4.6% growth rate in 2008. The outlook for t
his year remains positive, although at a markedly slower pace. In fact, some ana
lysts believe the Philippines will be one of only three or four countries in Asi
a that will grow this year. A key factor that could sustain the countrys growth i
s the strength of domestic demand. Personal consumption, which accounts for more
than two-thirds of the Philippine economy, has been historically firm, with pri
vate spending resilient across business cycles. As you know, the Bangko Sentrals
monetary policy, as measured by recent benchmark policy rates, is supportive of
sustained growth. Easing inflation also provides a welcome boost to households pu
rchasing power. Inflation as of April this year was at 4.8%, down from 6.4% in M
arch. Our forecast for average inflation this year is projected at 3.4%, which i
s well within our inflation target range of 2.5 4.5%. In addition, our remittanc
e figures are holding up. Remittances coursed through banks reached a record hig
h US$1.47 billion in March 2009, representing a 3.1% year-on-year growth. This b
rought the cumulative remittances in the first quarter to US$4.1 billion, or an
annual growth of 2.7 percent. Remittances are expected to be resilient as worker
s with permanent resident status continue to rise; this suggests a welcome shift
from yearly contract renewals to more long-term employment. Based on actual dat
a for January-February, the deployment of both skilled and professional workers
has remained on the uptrend, generating with it higher consolidated earnings for
overseas Filipinos. And while there have been reported layoffs, the numbers are
quite small compared to the total number of overseas Filipinos. We also expect
further growth for the business process outsourcing sector in 2009 as recession i
n the global economy is seen to encourage outsourcing to streamline costs. This
scenario should challenge our rural banks to work better on growing your busines
s and clientele so that you can capture a bigger share of our expanding economy,
particularly in the resilient countryside. How, then, should rural banks move f
orward? In our view, it is critical for rural banks not to waver in their resolv
e to pursue reforms that would ensure strength and stability of your banks. In t
his context, your banks risk infrastructure is a key component that will allow yo
u to identify and act on risks that may arise; credit risks and liquidity risks
are particularly important. In the case of risks, a proactive approach is prefer
able over remedial management. For instance, credit risk can be mitigated by gen
erating high quality information and acting prudently based on this information.
On the other hand, it is important in managing liquidity risk to strike the app
ropriate balance between actively deploying funds through loans and investments
and in retaining enough of a defensive position so that liquidity is available w
hen the need arises. Again, this poses its own challenges for rural banks becaus
e of the narrower exposures from focused lending to a local community. Another i
mportant aspect is your commitment to maintain strong capital positions not simpl
y for compliance but for prudent control of leverage. Management should ensure t
hat your banks have sufficient buffer whenever risks turn into losses, through c
areful allocation of scarce capital to alternative exposures. While we will not
dictate your allocation, your adherence to maintain capital adequacy above our r
egulatory floor rate of 10% reflects commitment toward prudential control and fi
nancial governance. On our part, we at the Bangko Sentral will continue with ban
king reforms that will encourage improvement of capital positions and broaden th
e avenues for better risk management. We will move forward with the implementati
on of consolidated and risk-based supervision; the enhancement of corporate gove
rnance and disclosure standards; and fostering transparency in financial reporti
ng. If you recall, these initiatives which we have vigorously implemented in rec
ent years are instrumental in instilling order and depth in the banking system a
head of the onset of the global financial crisis. The Bangko Sentral will also m
aintain its policy approach of enabling banks, particularly rural banks, to incr
ease the scale and scope of their operations. This is a win-win strategy: first,
it will enhance your banks bottom lines and, second, it will support Bangko Sent
rals inclusive banking policy to reach out to the unbanked and those who remain u
nserved by the financial sector. This is the rationale behind Bangko Sentrals lib
eralization of bank branching; receptiveness to product and technological innova
tions in banking services; and approval of a broader range of services for rural
banks such as FCDUs and investments in ATMs to provide more services and product
s to their clients. The recent issuance of the E-money Circular (Circular 649) i
s another significant step toward inclusive financial services. This Circular pr
ovides the regulatory framework for the electronic money business, promotes inno
vations in fund transfer mechanisms, and paves the way for competitive growth in
the industry. To build on this clear framework for electronic money facility, w
e are reviewing regulations for third party agent networks to ensure the success
, efficacy, safety, and soundness of the system. Here, we envision a vast networ
k of retail agents that will provide broad access to financial services even to
the previously unbanked. I see rural banks playing a significant role in this ve
ry exciting development. Apart from your branches, other banking offices, and AT
Ms, you will be able to leverage this vast network of outlets to deliver your fi
nancial services to a broader market. This is one area we should consciously dev
elop together. Once fully developed, this system should be a cost-effective and
efficient channel to serve the many bankable yet unbanked Filipinos. Indeed, the
future holds much promise and opportunities for rural banks. With our coordinat
ed efforts and joint commitment to good governance, integrity and stability, rur
al banks are certain to take a competitive and strategic place as effective chan
nels for a truly inclusive financial system and catalysts for sustaining balance
d growth and development in the countryside. Again, my congratulations to the di
stinguished ladies and gentlemen of our rural banking sector. United under RBAP,
may you continue to grow and develop as efficient empowering channels for enhan
cing economic activities and improving the quality of life in the countryside. M
abuhay ang ating mga rural banks! Mabuhay ang Pilipinas! Maraming salamat po sa
inyong lahat.
Microfinance: The Bright Spot in these Challenging Times

Venue: Hyatt Hotel & Casino, Malate, Manila
Occasion: 2009 RBAP-MABS National Rountable Conferenc
Mr. Francis Ganzon, Chairman, Rural Bankers Research and Development Foundation;
the officers and members of the Rural Bankers Association of the Philippines (R
BAP); our partners from the USAID led by Christian Hougen and John Owens; fellow
advocates in the microfinance sector; special guests, ladies and gentlemen, goo
d afternoon. We at the Bangko Sentral ng Pilipinas are happy that the the Nation
al Roundable Conference of RBAP - Microenterprise Access to Banking Services (MA
BS) has chosen for its theme Microfinance: The Bright Spot in These Challenging T
imes. Indeed, we believe that microfinance is an effective countercyclical tool f
or softening the negative effects of economic crises, particularly to the most v
ulnerable segment of the economy. Former United Nations Secretary General Kofi A
nan once said that microfinance recognizes that poor people are remarkable reser
voirs of energy and knowledge; that while the lack of access to financial servic
es may be a sign of poverty, it is also an untapped opportunity to create market
s, bring people in from the margins and give them the tools with which to help t
hemselves. Especially during challenging times, it is microfinance that can prov
ide much-needed support for our entrepreneurial poor. But before I discuss micro
finance, I will give a brief overview of our present operating environment.. and
why we live in challenging times . The current global economic crisis is a sour
ce of worry. Even countries that do not have strong financial links to the US, E
urope or the other markets that have been most affected are now seeing effects t
hrough real flows and financial losses on trade activities. As the global econom
y slows down, jobs are jeopardized and unemployment figures in the directly affe
cted countries tend to rise. In fact, there are Filipino workers here and overse
as that have been laid off. We have learned that no economy is immune from the e
ffects of the present global crisis, described as the most serious since the Gre
at Depression. However, economies with sound economic fundamentals are likely to
fare better than others. Given the structural and market reforms we had painsta
kingly put in place since the Asian Financial Crisis, it can be said that the pr
esent crisis came at a time when the Philippine economy is in a position of rela
tive strength. Indeed, our sound macroeconomic fundamentals have served us well.
In the face of this crisis, the Philippine economy remains resilient, relative
to our peers in the region. Let me quickly run thru some numbers to show the buff
ers we have built. Our domestic economy has remained steady. In 2008, GDP grew by
4.6%, still within our long-term trend growth rate, and quite respectable when
compared against our neighbors. The outlook for this year remains positive, alth
ough at a slower pace of growth. Nevertheless, this is not bad at all considerin
g that the Philippines is one of the few Asian countries seen to grow and ride o
ut this severe global economic recession. Our inflation rate continues to decele
rate. Headline inflation in April was reported at 4.8 pct from 6.4% the previous
month. Core inflation has similarly slowed down (to 5pct from 5.6 pct). The for
ecast average inflation for 2009 is at 3.4 pct, well within our set target range
of at 2.5 4.5%. Our Balance of Payments is expected to continue to be in positi
ve territory through the year. We continue to see a current account surplus from
sustained remittances and receipts from the BPO sector. Because of our healthy
external position, we have been able to build up our gross international reserve
s to a record-high level of $39.5 billion in April, enough to pay for more than
6 months worth of imports of goods and services. The positive external surplus wi
ll continue to support the peso. With our policy for a market-determined exchang
e rate, the peso is expected to remain competitive as this moves in tandem with
the other currencies in the region. Our banking system remains sound. Thanks to
the innate conservatism of our banks and the phased-in approach by the regulator
to financial innovation, Philippine banks exposure to toxic assets has been mini
mal. Also due to reforms implemented in earlier years to clean up bank balance s
heets, strengthen bank capitalization through Basel II, improve governance struc
tures, enhance risk management systems, and adhere to international accounting s
tandards, the banking system remains sound and stable. Our asset base continues
to expand, asset quality has greatly improved with NPL ratio now at pre-1997 cri
sis level, and capital adequacy has remained above national and international st
andards. And we did not see a freezing of credit markets similar to what was hap
pening in the US and Europe then. Given all these indicators, one could say so fa
r, so good. Nevertheless, we are aware that risks remain. Thus, in October 2008, at
the height of the uncertainty surrounding this crisis, the BSP implemented pree
mptive measures to boost domestic liquidity. The following are among these measu
res: Enhancement of the BSPs standing peso repo facility by expanding allowable c
ollateral and relaxing valuation on these; Creation of a US dollar repo facility
to augment dollar liquidity in the foreign exchange market and ensure the ready
availability of credit for imports and other legitimate funding requirements; I
ncrease in the budget for our peso rediscounting facility to P60 billion; and Re
duction in the regular reserve requirements on bank deposits and deposit substit
utes by two percentage points. In addition, the BSP took the opportunity to redu
ce policy rates in the light of easing inflation expectations. During the last f
our policy meetings, the Monetary Board cut BSPs policy rates by a total of 150 b
asis points. Combined, the lower cost of money and increased liquidity should su
pport continued economic growth. We will continue to monitor developments to ens
ure that our policy settings remain appropriate and balanced. Nevertheless, whil
e there has been monetary easing, the BSP remains unrelenting in its pursuit of
reforms. We will continue to pursue greater efficiency, better risk management,
stronger capitalization, improved disclosure and transparency practices, and enh
anced corporate governance standards in the banking system. So far, the reforms
we have implemented have allowed our banks to efficiently perform their central
role of channeling funds to productive uses, as well as in managing and distribu
ting risks. Having a more efficient and liquid Philippine banking sector has hel
ped mitigate the risk of what is called the negative feedback loop from the glob
al financial crisis. Having said these, there is a critical question that we hav
e to face: Will the global financial crisis affect the worlds microfinance sector
? Microfinance scholars have grappled with the first question. Unfortunately, th
e results from their initial studies remain inconclusive. One study by the Unite
d States Agency for International Development (USAID), published in March 2009 a
nd entitled Will the Bottom of the Pyramid Hit Bottom? 1 states that (and I quote)
the crisis may ultimately lead to a squeeze in MFIs profitability. Due to the cr
edit crunch, MFIs, especially those with limited deposit taking facilities, will
have reduced access to commercial wholesale funds to finance their loan portfol
ios. Scarce private credit and higher borrowing costs would likewise stunt their
portfolios. MFIs would also be competing for fewer and more expensive funds for
their operations and expansion. The relative increase in prices and an overall
slowdown in economic activities will also affect the profitability of clients bus
inesses, thus constraining their household incomes. As a result, leading MFI cli
ents may fall back on loan obligations or withdraw their savings. On the other h
and, a paper entitled The global financial crisis and its impact on microfinance 2
written for the Consultative Group to Assist the Poor (CGAP) last February 2009
, claims that the effects of the crisis on microfinance are actually well-manage
d. Authors of the paper claim that while there may be some anecdotal evidence, t
here have been no major negative changes in the profitability or risk profiles o
f MFIs. Their study was based on the 2008 4th Quarter figures of Symbiotics 50 B
enchmark which tracks large microfinance institutions worldwide. The authors how
ever recognize that microfinance as it is today, given greater links to domestic
and international financial markets, may still be affected by the financial cri
sis. However, they iterate that past investments in building a sound foundation
for the sector and the vast untapped market of credit worthy clients will ensure
that microfinance remains resilient amidst this current crisis. Given these, th
e next question is whether the global crisis will impact Philippine microfinance
. Will it have adverse effects or darken the prospects and opportunities of Phil
ippine MFIs? We at the Bangko Sentral believe that as our macroeconomy has prove
n resilient to crisis, we can expect the same resiliency in our microfinance ind
ustry. In fact, bright spots abound in Philippine microfinance. For instance, si
nce microfinance in the country has been increasingly led by banks, the risks to
the liability side of microfinance institutions remain more manageable. Banks,
as deposit taking institutions, are less reliant on external sources of funds an
d therefore less vulnerable to any reversals in foreign capital flows and shifts
in investor preferences as a result of the crisis. While the diversification an
d commercialization of sources of funding has been seen as a positive industry d
evelopment, retail deposits remain significant as a stable core funding base. Fu
rther, our microfinance institutions, especially banks with microfinance operati
ons, have demonstrated the necessary commitment to institutional strengthening.
More and more, we are seeing banks upgrading their risk management systems to be
able to adequately and appropriately identify possible risks, such as credit an
d liquidity risk; and how they will be managed. Commitment to maintaining the qu
ality of your microfinance loan portfolios has also been evident. I am happy to
note that a culture of zero tolerance for delinquency and vigilance in monitorin
g of portfolio at risk is clearly evident among MABs banks. These are practices
you must sustain, in good times and in bad. On the part of the Bangko Sentral, w
e will continue with our policy approach of enabling banks, particularly rural b
anks, to increase the scale and scope of their microfinance operations. Our regu
lations for microfinance have created the enabling environment for its practice
to fully flourish within the banking sector. We have also liberalized the branch
ing regime, and we will continue to review this as conditions warrant. Our branc
hing regulations also provide particular incentives for microfinance-oriented ba
nks such as the ability to branch out even in the restricted areas of Metro Mani
la as well as the ability to collect savings from microfinance clients through o
ther banking offices. The BSP has also been receptive to various product and tec
hnological innovations in banking services. We have also allowed the outsourcing
of some banking functions to help improve your operating efficiency. Rural bank
s now have more opportunities to provide a wider range of services and products
to their clients such as electronic money, FCDUs, and investments in ATM network
s. Moving forward, I propose that we make these bright spots brighter. In this,
we have our own roles to play. On the part of the BSP, we shall remain unrelenti
ng in our commitment to strengthen the banking institutions through improvements
in capital positions and enhanced capacities to manage risks. Our commitment to
broaden financial inclusion is undiminished; in fact, it has been heightened by
the financial crisis. Given its importance, we will be more proactive in explor
ing ways to increase access to financial services, particularly for those who re
main unbanked and unserved by the financial system. I believe that all of you, a
s our partners, share these goals. I therefore take this opportunity to thank th
e 91 rural banks participating in MABS, including their nearly 500 banking offic
es, for being at the forefront of delivering microfinance services to millions o
f Filipino microentrepreneurs. Ladies and gentlemen, let us give our MABS-partic
ipating rural banks a well-deserved round of applause! Indeed, you are the cruci
al channels for countryside development and the catalysts for promoting a truly
inclusive financial system. You can therefore count on Bangko Sentrals continuing
support in this important task. While banks have accomplished much, you cannot
be complacent nor rest on your laurels: Clearly, more needs to be done! You must
continuously monitor the quality of your loan portfolios and vigilantly maintai
n low portfolio at risk (PAR). Of course, this must be balanced with your commit
ment to continuously serve your microfinance clients. I am certain you have real
ized that microfinance clients who repay their loans faithfully are motivated in
part by their desire to promptly access follow-on loans. This ensured access to
finance is very important for our microentrepreneurs. Another important commitm
ent is for banks to maintain strong capital positions. Capital adequacy is centr
al to ensuring that banks have sufficient buffer whenever risks turn into losses
. Remember that our banking sectors strong capital position is one of the main re
asons why it has remained resilient amidst the continuing global financial crisi
s. I do look forward to banks becoming more proactive, rather than reactive, in
terms of strengthening their capital positions. Finally, I wish that microfinanc
e institutions will look at this crisis as an opportune time to push for reforms
to further strengthen the microfinance industry. to find ways to improve efficie
ncies, to strengthen governance structures to enhance the quality of its manageme
nt to diversify funding, to become more transparent and to strengthen consumer pro
tection. Microfinance institutions may also continue to expand and tap new marke
ts,of course with appropriate caution and preparation. For instance, some microfi
nance institutions see market growth potential from returning overseas Filipinos
who begin to engage in various entrepreneurial activities. From current indicat
ions, the global economic crisis has not negatively impacted Philippine microfin
ance. However, it is imperative that we all remain vigilant in these challenging
times. We have seen how microfinance has improved the lives of millions of our
entrepreneurial poor. The yearly Microentrepreneur of the Year Awards program, w
here MABS banks always have a winner, is a regular reminder to us that access to
financial services coupled with hard work, ingenuity and perseverance are powerfu
l empowering tools for breaking out of poverty and building a better life not on
ly for the microentrepreneurs themselves, but for their families and communities
as well. You and I know of many Filipino success stories rooted in microfinance
. The success of our microentrepreneurs continues to inspire and bring hope that
it can be replicated throughout our country and liberate more Filipinos from po
verty. This is the reason why we are all here today. This is the reason why we c
ommit to work together to broaden and deepen the reach of microfinance. I hope t
herefore that this RBAP-MABS roundtable conference will be fruitful and successf
ul in transforming our microfinance sector to be stronger, better, and even more
responsive to the needs of our microentrepreneurs. Again, my congratulations to
all those involved in our microfinance sector.a truly bright spot in these chall
enging times. Mabuhay ang microfinance! Mabuhay ang Pilipinas! Salamat sa inyong
lahat! Thank you and good day! ------------------ 1 Will the Bottom of the Pyra
mid Hit Bottom? The Effects of the Global Credit Crisis on the Microfinance Sect
or. Barbara Magnoni and Jennifer Powers, produced for review by the United States
Agency for International Development (USAID). March 2009. 2 The Global Financia
l Crisis and its Impact on Microfinance. Elizabeth Littlefield and Christoph Knei
ding for the Consultative Group to Assist the Poor (CGAP) Focus Note No. 52. Feb
ruary 2009.
Philippines: Navigating Through The Global Financial Turmoil

Venue: InterContinental Hotel, Makati City
Occasion: Australian-New Zealand Chamber of Commerce Philippines Annual General
Membership Meeting
Introduction President Richard Barclay, distinguished members of the AustralianNew Zealand Chamber of Commerce, ladies and gentlemen good evening. First, let me
thank ANZCHAM for inviting me to your monthly members meeting. If I remember cor
rectly, the last time I graced a similar event of ANZCHAM was in July 2005 as I
was just beginning my term as central bank governor. Much has transpired during
the nearly four years since then. As this particular slide shows, our economies
have experienced ups and downs riding on record growth rates, and now recessiona
ry trends, historic low inflation, and then some episodes of highly unstable pri
ces, stock market gyrations, as well as periods of volatility in our exchange ra
tes. Our journey in the last four years has taken us through good roads, so to s
peak. But we also went through road blocks and speed bumps along the way. Now, t
he global financial and economic turmoil presents our economies with, perhaps, o
ur biggest challenge yet. The current crisis has been described as a crisis unlik
e any we have seen in our lifetime. We have seen much of the crisis adverse effect
on our economies, but we know that much is still to unfold. For my remarks toni
ght, I thought I would follow the outline flashed on the screen right now. I wil
l begin by quickly running through three themes that I have seen surrounding the
current crisis: First, that the law of unintended consequences has been at work i
n this crisis. Second, that a global crisis needs global responses. Finally, tha
t no economy is immune from the effects of this crisis, but those which have bui
lt up buffers are more likely to fare better than others. I shall then conclude
my remarks with a description of the policy actions and initiatives that the BSP
has so far implemented to allow us a less bumpy ride to the not-so-distant peri
od of economic recovery. Unintended consequences evident in the crisis I am sure
many of you have heard of the term law of unintended consequences. Some have defi
ned this as the proposition that every undertaking, however well-intentioned, is
generally accompanied by unforeseen repercussions that can overshadow the princi
pal intention. Let me illustrate, continuing with my road analogy. In road develo
pment, one option to deal with a traffic-congested road is to build a bypass or
an alternate road. Unfortunately, building a bypass may decongest the existing r
oad, but as often happens, with new developments in the area of the bypass, we w
ould now have, instead of just one congested road, two traffic congestions. Many
analysts have said that the law of unintended consequences was working spectacula
rly in the run up to this current crisis. One evidence of this is the benign mac
roeconomic environment created by the low interest rate regime prevalent during
the first half of this decade. This should be a good thing. However, this enviro
nment led to the search for higher yields, that fueled unprecedented asset price
increases and at rates faster than the growth in household incomes. This furthe
r led to a loss of rationality (individuals believing house prices would never f
all) and extension of credit by financial institutions to sectors of the economy
that normally would not qualify to borrow (in other words, the so-called subprim
e borrowers). Sounds familiar? This was what transpired in the United States low
federal funds rate fueling a boom in mortgages with borrowers having doubtful cr
edit histories, housing prices bubbled and burst, with the negative feedbacks af
fecting both the U.S. domestic economy and financial markets. Another example is
in line with risk spreading through financial innovations. The ability to sprea
d risk should also be a desirable goal. However, the fast-paced evolution of fin
ancial products and services, along with the seemingly loose financial regulation
later on gave way to the unfortunate reality that risks were eventually concealed.
Through securitization and deleveraging, those hidden risks were effectively mu

ltiplied in the process. Thus, while financial innovations have good intentions,
they also have some side effects if not prudently monitored or given appropriate
form of regulation. These developments, together with a host of other factors,
fueled the current crisis, which from all angles, can be considered our first tr
uly global crisis. From what was first believed to be a US-centric subprime mort
gage problem, the crisis has since transformed into financial turmoil and furthe
r into an economic growth crisis. From the US and Europe, it has spread to the r
est of the world. Economies in the periphery suffered market failures characteri
zed by sudden stops as sentiment turned, despite sound policies. Even countries
that did not have strong financial links with the core nations are now being aff
ected through real flows and financial losses on trade activities. A Global cris
is requires global responses This brings me to my second theme A global crisis re
quires a global response. When it had become evident that the economic events wer
e not going to remain localized at the epicenter, advanced and emerging economie
s implemented policies and strategic actions, in concert and at the national lev
el. Some economies that have more monetary space have eased policy interest rate
s, reserve requirements and credit facilities. Some that have more fiscal space
boosted spending via stimulus packages and prioritization of important infrastru
ctures. Many have pursued both expansionary monetary and fiscal policies. Some c
ountries like Australia and New Zealand have implemented unlimited but temporary
deposit guarantees and opened up US dollar swap lines with the Fed. Finding the
right policy mix poses a continuous challenge, as economic managers and policym
akers would have to deal with varying conditions, magnitude and depth of the cri
sis effects. Thus, the worldwide crusade to mitigate the impact of the current gl
obal financial and economic crisis continues its experimentation but with utmost
caution for a wrong policy could eventually take its toll on the economy over th
e long-term horizon. No economy is immune, but buffers and cushions help lessen
the impact The crisis has shown that no one is immune. This leads me to my third
theme No economy is immune but some economies fare better because of buffers bui
lt from past reforms and behavior. While our countries have been affected, it is
noteworthy that the cushions we have painstakingly put in place before the curr
ent crisis unfolded have helped us weather the blows. Allow me to name a few of
these buffers. In the case of Australia and New Zealand, these economies have gr
own strongly for the past 10 years and inflation has been largely within the 1 t
o 3% target band; this has resulted in low unemployment, and a strong fiscal pos
ition. They also have good institutions. They scored highly on measures of ease
of doing business, as well as measures of corruption/transparency. They also hav
e flexible labour markets. They both have an established track record for transp
arency in regulatory institutions, sound management of the public accounts, and
a forward-looking monetary policy are well-regarded internationally. Finally, th
eir banking system remained sound and well-capitalised. The large Australian ban
king groups, of which the major New Zealand banks are a part of, are now among t
he largest and highest-credit-quality banks in the world. Australian parents of
the big 4 NZ banks are some of the best-rated in the world (4 of the remaining 1
3 AAs and in the top 20 biggest). The openness of your economies has indeed left
you quite vulnerable during this crisis, but your strong institutions have cert
ainly helped to mitigate the crisis adverse impact. How about in the Philippines?
What are the buffers we have built? With the easing of oil and other non-oil co
mmodity prices in the world market and the moderation in inflation expectations,
inflation is now expected to further decelerateand be within the target rangesin
2009 and 2010. Actual headline inflation has decreased to 6.4 percent in March f
rom 7.3 percent in February 2009. (Core Inflation in March also declined to 5.6
percent from 6.4 percent in February 2009) These developments opened the opportu
nity for BSP, during its last three policy meetings, to cut its policy rates by
a total of 125 basis points. The reduction in rates makes more funds available f
or lending to corporations, including small and medium business enterprises, as
well as for consumer loans. We will continue to monitor developments to ensure t
hat our policy settings remain appropriate. In October 2008, at the height of th
e uncertainty surrounding this crisis, the BSP implemented several measures to b
oost liquidity. We were witnessing at the time the freezing of credit markets in
the major economies. So, even as we were aware there was ample liquidity in the
system then, the BSP took preemptive steps to avert a similar situation develop
ing here. These measures, which I will discuss shortly, have helped to raise dom
estic liquidity and allowed banks to continue to extend loans. The continued liq
uidity and credit growth is shown in this slide. Demand for money remained stron
g in February as domestic liquidity or M3 grew by 14.6 percent year-on-year, hig
her than the 6.8 percent expansion during the same month a year ago but lower th
an the 16.1 percent growth in January 2009. The continued strength of domestic l
iquidity indicates that there are funds available in the system which could be t
apped for investment and other productive activities. Outstanding loans of comme
rcial banks including reverse repurchase agreements (RRPs) increased in February
2009 by 22.5 percent year-on-year, an acceleration from the previous months grow
th of 18.8 percent. Net of RRP placements with the BSP, lending also increased b
y 22.6 percent year-on-year in February, slightly slower compared to the 24.5 pe
rcent expansion in the previous month. We have allowed liquidity to grow faster
than we would normally tolerate since we see that these funds are being used in
productive sectors. Nonetheless, we are mindful that while liquidity fuels econo
mic growth, excess liquidity could fan inflation. In view of this, we always kee
p in mind that balance is necessary to ensure that we are able to support growth
in an environment of stable prices. One of the lessons we learned from the 1997
Asian Financial Crisis was the value of managing external debt and building up
FX reserves for self insurance. This chart shows that we have indeed learned thi
s lesson well. Based on preliminary data, as of end-March 2009, our reserves hav
e remained broadly steady and close to record level at US$38.9 billion. This suf
fices to cover about 6.2 months of imports of goods and payments of services and
income, or alternatively, it could cover our short-term external debt based on
residual maturity about 2.9 times. (What s interesting to note is this level of
reserves is more than fourfold our reserves level in 1997 of $8.8 billion!) We w
ere able to continue building reserves because our external payments position ha
s remained in surplus in 2008 (in fact for nearly 5 years now). The healthy exte
rnal balance has been supported by remittances of overseas Filipinos as well as
higher services receipts particularly from business process outsourcing. In Febr
uary 2009, our balance of payments position posted a surplus of US$ 469 million,
resulting in a year-to-date surplus of US$2.2 billion in 2009. Thus, even as we
face a slowdown in external demand and capital flows, the stronger external liq
uidity position that we currently enjoy will make us less vulnerable to the mood
s and swings of international financial markets. This slide shows that (1) The b
anking systems asset base has been expanding steadily, supported by sustained gro
wth in deposits. Our banks have continued to perform their central role of effic
iently channeling funds to productive uses and managing and distributing risks;
(2) Banks have been offloading their non-performing assets and problem loans. As
a result, the NPL ratio is now at the pre-Asian crisis level of around 4.0 perc
ent. Furthermore, the profitability of the banking system has continued to incre
ase, although with some moderation as of late. Banks have remained capitalized a
t levels above both the BSP-regulatory requirement and the international (BIS) s
tandard. In addition, let me also assure you that the rural banking industry rem
ains strong and healthy despite the recent closures of some rural banks which ha
ve been found to have been suffering from severe solvency problems. BSP Initiati
ves and Policy Thrusts Amidst this global crisis, the Philippines has indeed rem
ained resilient and steadfast. How have we been able to accomplish this? Let me
quickly go over the BSPs initiatives to mitigate the impact of the crisis. And th
en conclude with our policy thrusts going forward. To ensure liquidity in the fi
nancial system, the BSP opened the US dollar repo facility to augment dollar liq
uidity in the foreign exchange market and ensure the ready availability of credi
t for imports and other legitimate funding requirements. The BSP also increased
the budget for the peso rediscounting facility to P60 billion. Regular reserve r
equirements on bank deposits and deposit substitutes were reduced by two percent
age points. To ensure continued access to financing of small businesses, the BSP
launched its Credit Surety Fund (CSF) Program which provides guarantee to small
cooperatives with good track record but without credit history. The BSP was als
o quick in bolstering confidence in the financial system, through timely communi
cation with financial institutions and market participants on the minimal exposu
re of the banking system to troubled financial assets, such that the impact of t
he global financial crisis on the Philippines has not been significant. Monetary
policy in 2009 will continue to pursue prudent rate movements mindful of price
stability as the primary mandate. With the easing in the prices of oil and non-o
il commodities in the world market, inflation is expected to further decelerate
and be within the target range of 2.5 - 4.5 percent in 2009. This will give some
flexibility to monetary policy to support growth. An accommodative monetary pol
icy stance is expected to help ensure greater availability of credit and reinfor
ce market confidence. However, given possible upside risks to inflation, a more
measured adjustment of policy rates is appropriate. Banking sector policies will
be geared towards improving the regulatory framework, mindful of the need to pr
otect consumers and investors. Key financial and banking sector reforms will be
sustained in pursuit of greater efficiency, better risk management, stronger cap
ital base, improved disclosure and transparency practices, and enhanced corporat
e governance standards in the banking system. The BSPs external sector policy wil
l remain focused on ensuring our external vulnerabilities are limited. We expect
to continue to post a surplus in our BOP, mainly still due to steady OF remitta
nces and receipts from the BPO sector. This will give us the opportunity to furt
her beef up reserves for self-insurance. We will continue to pursue a market-det
ermined exchange rate to allow us to maintain external price competitiveness. We
will also engage in policies that would sustain a manageable external debt prof
ile. The current turmoil underscored the importance of comprehensive and globall
y coordinated policy responses. Recognizing this, the BSP has been actively cons
ulting with its regional peers to share information and discuss emerging develop
ments and policy alternatives. Conclusion As I mentioned when I began my remarks
, an overarching theme of this crisis is the law of unintended consequences. Is
it possible to avoid this going forward? Frederic Bastiat, a 19th century French
economic journalist, once said, there is only one difference between a bad econo
mist and a good economist: the bad economist confines himself to the visible eff
ect; the good economist takes into account the effects that can be seen and thos
e effects that must be foreseen. It may be impossible to perfectly foresee things
but this should not discourage us from trying. Thus, I encourage all of us in t
his venue to remain positive, yet vigilant for any circumstances that could come
our way. The BSP, for its part, will remain committed and continue to put forth
monetary policy actions and banking reforms that will allow our economy to with
stand the road blocks comprising panics, crises and other changes in the horizon
. Let us keep our eyes steady on the road ahead and gear up. The BSP looks forwa
rd to continued partnership with the Chamber. This will certainly help enable ou
r economies navigate the global financial crisis towards an economic recovery of
renewed confidence and regained trust in markets. Thank you very much.
Macroeconomic Policy Management in Challenging Times

Occasion: MAP Economic Briefing
1. INTRODUCTION Let me begin by thanking the leadership of the MAP for inviting
me to speak on the global financial crisis and its impact on the Philippine econ
omy. Much has already been written, said and reported about this topic. What I p
ropose to do this afternoon is to spend some time describing the BSPs policy fram
ework for managing the challenges that confront our economy. They say economists
tend to state the obvious in terms of the incomprehensible. Unfortunately, the sa
me can be said not only of economists but of many others in varying professions!
I hope my remarks this afternoon will help clarify rather further confuse any l
ingering incomprehensibles that may be lurking in your minds. About a year ago, I
told this gathering that the Philippines would be able to ride out the headwinds
of the global economic environment because of the buffers in our economy that wou
ld allow it to sail forward. I spoke of resilient domestic demand, declining inf
lation, fiscal reform, a stable banking system and sound external payments dynam
ics as saving graces of our economy. This time around, the global economy is alr
eady in the midst of that storm. And, to a large extent, the buffers I mentioned bef
ore have indeed helped our economy to, so far, weather the global economic and f
inancial turbulence. However, how well we, and the rest of the world, will come
out of this storm will depend largely on how well policy makers are able to comp
rehend the problems and present solutions, together with how markets react to th
e policies and stimulus packages being put together by the policy makers. I shal
l begin my presentation by considering what is happening in the global markets.
I shall then relate these to what is happening in our own backyard and finally r
eflect on the macroenonomic policies that your policy makers have implemented. 2
. IMPACT OF THE GLOBAL FINANCIAL CRISIS It has now become evident that the globa
l economy not only remains in the grip of considerable financial stresses but ha
s also suffered a contraction. The IMF, for instance, notes that, despite inject
ions of public funds, many banks around the world may not have sufficient capita
l cushions to weather a deep and more protracted downturn in global economic act
ivity. In addition, the Fund, in its most recent projection forecasts that, for
the first time in 60 years, global activity will contract by to 1 percent in 200
9 on an annual average basis. Indeed, the negative interaction between the real
economy and the financial sector appears to be intensifying in advanced economie
s and elsewhere. Risks to global financial stability and economic activity As th
is negative feedback deepens, risks to global financial stability and economic a
ctivity become more highly correlated -- you have generalized risk aversion and
poor market confidence brought by weaknesses in the financial markets, on the on
e hand; and the same factors exacerbated by the worsening outlook on economic co
nditions, on the other hand. Lets go to some specifics. Risk aversion and poor ma
rket confidence have resulted in: 1. Heightened global illiquid market condition
s, consequently raising funding costs, even as risk-free interest rates have dec
lined due to monetary easing. 2. Higher probability of loan defaults, which magn
ify credit risks, creating the impetus for tighter credit standards by financial
institutions. 3. Significant contraction in household wealth, and disruptions i
n credit intermediation that have triggered a sharp deceleration in activity acr
oss the globe. 4. Markedly weaker prospect for demand, resulting in slower inter
national trade activity, which is being further compounded by the risk of a retr
eat toward greater protectionism in some countries. Indeed, the risks to global
financial stability have remained high, while the risks to economic activity hav
e intensified. These are rather acutely felt in emerging economies as capital fl
ows slacken. The pullback from emerging economy assets since mid-September has b
een widespread, and financing costs for these countries remain much higher than
previous levels. Countries with large external financing needsboth public and pri
vateand highly leveraged financial systems may face greater funding strains. On t
he other hand, inflation is easing quickly across countries with the fall in eco
nomic activity and the easing in commodity prices from their 2008 levels. Howeve
r, many countries are also at risk from deflationary impulses, which will hamper
economic stimulus efforts. This is a risk that affects not only the advanced ec
onomies, but potentially some emerging economies as well. Over the medium term,
policymakers in emerging economies may also find reason for concern in the longterm impact of increased borrowing by the U.S. government, and its potential to
drive up inflation and interest rates around the world. Challenges to the Philip
pine Economy How have these developments affected the Philippines? What are the
challenges for the Philippine economy? 1. Real Sector In terms of the real secto
r, our main vulnerability lies in exports and remittances. Recessionary trends i
n our major trading partners like the US and our Asian neighbors have slowly tra
nslated into slower demand for our products and services. In December and Januar
y, exports declined by more than 40 percent. Growth in remittances coursed throu
gh banks has slowed down to 0.1 percent in January. Remittances have thus far co
ntinued to hold up, but there are concerns that they may eventually succumb to t
he global slowdown, particularly as labor demand weakens in the host countries.
These two fronts ultimately affect private consumption spending, which plays a b
ig part in domestic economic growth. 2. Financial Sector In the financial system
, credit is still growing at healthy levels. But the potential weakening of corp
orate and household finances could lead to deterioration in the quality of banks
loan portfolios. Local banks have already responded by tightening their lending
standards and boosting their capital reserves. The risk is that this could resul
t in less credit being available for productive purposes, which would add to the
pressure on businesses. 3. External Sector On the external front, slower inflow
s (both portfolio and direct investments) due to global deleveraging and risk av
ersion may imply both a weaker exchange rate and less favorable external financi
ng conditions, for both the private and public sectors. A rise in debt service c
osts means that fewer funds will be available for spending on key social service
s and infrastructure. 4. Fiscal Sector A larger concern for fiscal authorities i
s the impact of reduced collections from income, consumption and trade taxes on
the National Governments ability to pursue stimulus efforts. 5. Inflation Meanwhi
le, on the inflation front, there are possible upside risks to consumer prices s
uch as volatilities in exchange rates and commodity prices including oil, but la
test inflation readings continue to show inflation converging toward the inflati
on targets over the policy horizon (within the target range of 2.5 4.5 percent i
n 2009 and 3.5 5.5 percent in 2010). Internal Strengths of the Economy The buffe
rs or internal strengths of the Philippine economy that I previously mentioned h
ave remained largely intact. In the midst of this storm, this provides us with a s
ource of reassurance. Firstly, the overall domestic banking system remains stabl
e, thanks to the reforms implemented in earlier years to clean up bank balance s
heets, strengthen bank capitalization through Basel II, improve governance struc
tures, enhance risk management systems, and adhere to international accounting s
tandards. Like many of our Asian neighbors, we have put the lessons of the 1997
crisis to practice in supervising our financial system. It is partly for this re
ason that liquidity has remained ample and credit intermediation relatively heal
thy, despite indications of increased caution among banks in their lending activ
ity. This may be one of the reasons why the economy has not seen a contraction u
nlike many in the region. Real GDP managed to grow at 4.6 percent in 2008, which
is still in line with the long-term trend. Domestic demand continues to be driv
en by personal consumption, which historically has shown to be resilient over ma
ny economic cycles. In the past 30 years, consumption has not suffered a contrac
tion except during the balance of payments crisis in 1985. There may be importan
t demographic reasons behind this stability, such as our relatively young and ec
onomically active population, whose relatively higher income levels could lead t
o high propensities to consume. There may be risks to household spending from a
slowdown or contraction in remittance flows. However, with other labor markets o
pening up to Filipinos (such as recently in Scandinavian countries), the impact
of a slowdown in deployment may be muted. Here, too, demographics are also on ou
r side in terms of the driving factors behind labor demand in the host countries
, particularly for healthcare- and education-related occupations. This will help
ensure that our Gross International Reserves continue to grow and our Balance o
f Payments position will remain positive. In any event, the easing of fuel price
s and the stimulus from monetary easing should help to support domestic demand i
n the near term. Lower commodity prices may in turn prove to be a major source o
f stimulus since it increases the purchasing power of households and businesses.
3. POLICY MEASURES Policymakers around the world have responded with force and
innovation to the financial turmoil and the subsequent downturn. Unfortunately,
markets have been slow in being convinced. Risk aversion and poor market confide
nce continue to be at the heart of this global financial and economic crisis. In
my view, policy making should be directed at modifying behavior. In large part,
policies become (or are) effective if these are clearly (and at times patiently
) communicated. Policy makers need to create the proper incentive structures so
that market participants behave in what is deemed as appropriate and overall wel
fare building. Immediate Policy Responses On the part of the BSP, for instance,
we wanted to avert a situation of fear being created by credit markets seizing u
p, as what we witnessed in the advanced economies. Thus, our policy efforts, imm
ediately following the series of collapses of international financial giants wer
e focused on liquidity provision. The BSP implemented a series of measures to en
sure continued normal operation of the Philippine credit markets and to address
any liquidity distribution issues. These preemptive moves included broadening th
e set of allowable collateral for our peso repo facility (together with relaxing
the valuation for the same); the increase in the budget for, as well as easing
of the guidelines for rediscounting; and the reduction in reserve requirements f
or bank deposits. There were initial concerns about dollar liquidity but these w
ere alleviated by the creation of a US dollar repo facility, BSP presence in the
spot and swap foreign exchange markets and regulatory adjustments on mark-to-ma
rket rules, particularly for US ROP holdings of banks. In addition, with the eas
ing of oil and other non-oil commodity prices in the world market and the modera
tion in inflation expectations, the BSP reduced its policy interest rates by a t
otal of 125 basis points since December in order to help support economic growth
. Furthermore we wanted to ensure that confidence in the banking system was not
eroded through contagion. Thus we intensified communication efforts particularly
at the height of market uncertainty in the second half of 2008. Policy Thrusts
Going Forward Going forward, the BSP would like to see preserved gains from refo
rms previously put in place. We have become quite aware through this crisis that
individual economic agents often behave in a manner that may be optimal from th
eir individual perspectives but sub-optimal when aggregated at the economy level
. What the BSP would want to achieve therefore is to create an operating environ
ment where the two goals would coincide or at least where the differences betwee
n the two are not so magnified. We believe this will occur if economic agents ar
e confident in the stability of the macroeconomy and the banking system. Thus, t
he BSP will continue to: 1. Pursue its primary mandate of price stability while
supporting economic growth. The recent lowering of the risks to inflation has gi
ven BSP sufficient flexibility to act preemptively on the risks to growth and fi
nancial stability. The preemptive and anticipatory monetary stimulus undertaken
thus far has worked its way through the various transmission channels, particula
rly on market interest rates, which have seen a notable decline over the past fe
w months. The reduction in market interest rates will help to make more funds av
ailable for lending to firms and consumers, reduce their financial burden, and s
hore up overall confidence. The recent positive outlook on inflation has provide
d room to ease interest rates to support growth. However, given that there are s
till possible upside risks to inflation, notably the volatility in oil prices an
d in exchange rates, increases in utility rates, and potential price pressures c
oming from some agricultural commodities, a more measured adjustment of policy r
ates is needed. 2. In terms of banking sector policies, the BSP will remain focu
sed on policy actions to strengthen the publics confidence in the financial syste
m. The main challenge in the months ahead will be to strengthen the regulatory r
egime to ensure responsible risk management on the part of financial institution
s, as they continue taking the risks necessary and inherent in any successful ma
rket economy. We will continue to enhance our macroprudential surveillance capab
ilities and further improve supervisory oversight of risk management. To operati
onalize these, the BSP recently approved the guidelines for Internal Capital Ade
quacy Assessment Process (ICAAP). The ICAAP provides a prudent framework that wo
uld force banks to consider their own assessments of business lines and the pros
pects for these activities to determine their risk profile and then actively dec
ide the appropriate level of capital to hold. This formalizes the requirement fo
r banks to have a more-forward looking approach to risk management and make them
directly link risk to capital. This would improve accountability on the part of
banks for their actions and hopefully avoid the situation of poor appreciation
of risk that was at the heart of the financial turmoil in the US. 3. At the same
time, to help shield the economy from further external vulnerability, we contin
ue to allow market forces to set the exchange rate, while keeping the volatility
manageable. This strategy should help keep the exchange rate broadly competitiv
e. To provide room to absorb external shocks, we also continue to build up inter
national reserves as market conditions permit. 5. CONCLUDING REMARKS For the pas
t 20 minutes or so, I walked you through the policy measures the BSP has impleme
nted in response to the current global economic and financial crisis, as well as
our policy thrusts going forward. As I end, let me quickly go over lessons so f
ar gained from our two-year experience with this crisis. Let me cite just one il
lustration, and I shall conclude with that. Picture this fire alarms going off.. I
am sure you have encountered quite a few of these. You are in a hotel room, in
the United States perhaps or somewhere in Europe. The fire alarm goes off, what
is your first instinct?.. Lets be honest, you ignore itRight?. You think its just so
me other tourist who tripped the smoke detector and fire alarm because he smoked
in a non-smoking roomBut the alarm persistsSo you look out the windowNothing Still
the alarm does not abateYou peek into the hallwayYou hear the hotel personnel scra
mbling door to door, and then you hear the fire doors shut... Hmmmm You think thi
s may be a bit more serious than you first thought, there could be something to
it..Then you hear fire truck sirens And then your cell phone rings Its your wife (or
your husband), shes caught outside among the fire trucks and fire marshals wont h
eed her pleasThey wont let her in, its too dangerous. Now you tell yourself, Boy, am
I in big trouble. Thankfully, some faithful hotel maintenance person fearlessly an
d patiently continued door to door and until he got to yours, helps you out the
fire escape and into the loving arms of your wife (or husband). Whats the lesson t
here? Fires and the accidents that result from these, dont happen without fair wa
rningIn addition, fires dont just affect those who caused them but also those who
are innocently standing by...Sometimes our actions endanger others Just like fina
ncial crisesThere are in more ways than one fair warningsAnd almost always, there
is contagion to parties other than those at the epicenterIt is therefore up, not
only to regulators, but also to market participants to look out and be sensitive
to early warnings of excessive behavior Many who now claim omniscience, say this
crisis had it written all over the wallLest we hear more of these I told you sos, let
us all learn to heed warnings. Ladies and gentlemenIndividual behavior, as I ear
lier made a point of, is at times short-sighted. Oftentimes individuals see only
what benefits them. Or they see only the dangers that could impact them. Some c
all the latter disaster myopia. There is therefore a role for government policies
to ensure that individual risk taking behavior takes place without compromising
the health of the financial system in particular and the economy as a whole. Lad
ies and gentlemen. The continuing task of macroeconomic policy is to ensure the
continued resilience of the economy in the face of mounting global difficulties.
Policies, however, will be limited in their effect if these do not modify econo
mic agents behavior. This is the challenge to policy makers. And I throw the same
back to you, members of the Management Association the Philippines. To sustain
the gains, we must all do our part and make the right things happen. Thank you a
nd good afternoon.
Opening Remarks
Venue: Garden Ballroom, Edsa Shangri-la Hotel, Ortigas Center
Occasion: BSP International Research Conference on Remittances
I. Introduction Distinguished Speakers and Paper Presenters, Esteemed Guests and

Participants, My Colleagues at the Monetary Board and the BSP, Ladies and Gentl
emen, Good Morning. It gives me great pleasure to welcome you to the BSP Interna
tional Research Conference on Remittances. I extend a special welcome to our for
eign guests and hope that their stay here in our country will be both interestin
g and fruitful. This is the second International Research Conference sponsored b
y the BSP. Last year, in partnership with the Bank for International Settlements
(BIS), we hosted a High-Level Conference on Transparency and Central Bank Commu
nication. This years theme The Macroeconomic Consequences of Remittances: Implicat
ions for Monetary and Financial Policies in Asia highlights a timely and topical
issue as it recognizes important trends among emerging economies over the past d
ecade. The World Bank estimates remittance flows to developing countries to have
reached US$ 305 billion in 2008, almost triple its level in 2002. For many coun
tries, including the Philippines, remittances are now providing more inflows tha
n foreign direct investment, portfolio investment and official development aid.
They now amount to a substantial portion of imports and a nontrivial fraction of
GDP for these economies. They are also proving to be more stable 1 , unrequited
and represent private transfers that do not result in claims on assets, debt se
rvice or other contractual obligations 2 . In the light of the global financial
crisis, remittances have become even more important to developing countries. Wit
h output in the advanced economies now expected to contract and growth in emergi
ng and developing economies expected to slow sharply in 2009, under the drag of
falling export demand and financing, lower commodity prices, and much tighter ex
ternal financing constraints (especially for economies with large external imbal
ances), the question of the resilience of remittances to a global downturn has i
ndeed become even more crucial. Against this emerging scenario, the BSP hosts th
is Conference to shed some light on several key issues on remittances as they re
late to recipient economies, including the Philippines. II. Macroeconomic Conseq
uences of Remittances Remittances give rise to a host of macroeconomic effects o
n recipient economies. During this conference, we pose and seek clarity on quest
ions that will 1) impinge on short-term and medium-term policy strategies and 2)
guide strategic research for determining the optimal path for long-term policy
formulation. Allow me to highlight three of these issues. First, the debate on t
he procyclicality of remittance flows. While there is extensive literature on th
e impact of remittances on business cycle frequencies, the empirical evidence ha
s been ambiguous. For instance, while research done on countries such as Morocco
, India, and a large sample of developing and emerging market economies show tha
t remittances tend to be countercyclical, similar work on the Philippines does n
ot support the purported countercyclical effect of remittance flows. The migrati
on and remittance processes continue to evolve. And questions remain to be answe
red on the set of conditions in remittance-receiving and remittance-sending coun
tries that would determine whether these flows would be procyclical or countercy
clical. Similar questions arise on the business cycle implications for countries
such as the Philippines wherein the deployment of workers is highly-diversified
, both in terms of countries of destination and in the skills set of outbound wo
rkers. Taking the issue a step further, it would also be important to consider a
nd determine procyclical behavior that could amplify economic booms and downturn
s. A second area of interest pertains to the microeconomic channels through whic
h worker remittances impact the macroeconomy. These include household savings an
d expenditure patterns, labor supply and entrepreneurship. Again here, the impac
t of remittances varies. For instance, remittances cause positive shocks that lead
to increased human capital accumulation and entrepreneurship in migrant workers
origin households. How so? From remittances, these households are able to either
spend more on higher education or increase working hours and investment in rela
tively capital-intensive household enterprises. On the other hand, there is evid
ence (at least in the case of the Philippines), that international migration and
the accompanying remittance flows tend to raise the reservation wage of individ
uals coming from households receiving remittance income. (Note: Reservation wage
is that threshold wage which determines whether individuals would join the work
force or not) Higher reservation wages could discourage members of migrants origi
n household from working, and hence lead to reduced domestic labor supply. A thi
rd area of interest is the relationship of remittances to the financial and exte
rnal sectors. Of particular concern here would be the impact of remittances on t
he macroeconomy under varying exchange rate regimes as well as how remittances c
reate depth in the financial sector as they provide different motivations for co
nsumption and investment. In short, there are many strands of thought and eviden
ce on how remittances affect the receiving country, both at the macro and micro
level. To cover this vast array of issues, we have lined up distinguished speake
rs. You will notice from the topics for discussion, it hasnt been altogether easy
to disentangle one strand of concern from another. Let me now quickly give you
a flavor of this. Prof. Katsushi Tabata and Dr. Federico Mandelman would be pres
enting papers that provide some clues on how financial deepening in the home cou
ntry and international risk diversification may play significant roles in bringi
ng about cyclical outcomes from remittance flows. Meanwhile, the papers of Dr. P
rachi Mishra on the effects of labor market integration and of Dr. Pablo Acosta
on Dutch disease provide useful inputs on examining competitiveness issues. The
papers by Prof. David Andrew Singer and by Dr. Ioannis Halikias provide signific
ant insights for a more nuanced policy on external sector management. III. Polic
y Implications of Remittances We look forward to discussing the various findings
from these papers over the course of the conference. As we do so, however, we w
ould be well served to remember that the primary value of these discussions are
the insights that could guide policymakers in dealing with key policy questions,
in light of country-specific macroeconomic circumstances. Let me illustrate. Fo
r emerging economies, including the Philippines, the fulcrum on major policy dec
isions depends largely upon the answers to questions such as whether remittances
can support consumption under the current global environment or whether there w
ill be a reversal of migration flows. Although remittance flows now constitute i
ncreasingly larger portions of recipient countries GDPs, these still cannot be re
adily counted upon to moderate sharp fluctuations or swings in the economy or to h
edge against macroeconomic shocks. Indeed policymakers would be wise not to be d
rawn into complacency that remittances can help the economy comfortably weather
economic downturns. Therefore, policy responses in receiving countries should be
directed towards improving the quality of policies and institutions so as to re
inforce the positive impact of remittances. During this conference, we will cons
ider two specific aspects for policy improvement. First, policies should be dire
cted toward creating the environment that would help recipient families to funne
l more of the inflows toward productive activities, such as entrepreneurship and
sound financial investment. Second, policies should be directed toward human ca
pital resource development, an engine of long-term growth that has yet to be ful
ly taken advantage of (or exploited) by developing countries. The presentations
of Prof. Ma. Teresa Punzi (on utilizing remittances to overcome credit constrain
ts) and of Dr. Dean Yang (on using technology and financial innovation to improv
e savings mobilization) would provide some suggestions on directing remittance f
lows to more productive activities. The papers by Prof. Edita Tan and by Prof. T
ereso Tullao would, for their part, provide meaningful inputs on reforming our h
igher education sector to preserve and sustain the gains from remittance flows.
IV. Conclusion Ladies and gentlemen Remittances can be a potent engine of economi
c growth as the flows continue to make up a larger portion of the GDP pie among
recipient countries. The main challenge therefore for policymakers in recipient
countries, including the Philippines, is to design policies that would further p
romote remittances and increase their benefits while mitigating any adverse side
effects. The Bangko Sentral ng Pilipinas (BSP) is honored to host this Internat
ional Research Conference on Remittances. Through the discussions that will take
place today and tomorrow, we hope to be able to shed some light on the policy i
ssues I have broadly outlined. Hopefully, at the end of this conference, we woul
d have a better handle on how the macroeconomic effects of remittances can be ef
fectively managed so that we are able to fully harness their development potenti
al. Before I end my remarks, allow me to thank in advance our presenters, discus
sants and other participants for what I am certain will be enlightening discussi
ons. Let me end by saying that I wish this conference on remittances will be fru
itful and highly successful, not only in terms of generating policy insights but
also in fostering a rich and productive exchange of ideas. Thank you and Mabuha
y! ------------------- 1/ According to The Economist (Trickle-down economics, 21
February 2009): Although they are likely to fall as a result of the slumping wor
ld economy, they may be less fickle than more publicized private-capital flows,
such as equity and lending by foreign banks. 2/ Brown, Stuart. (2006). Can Remitta
nces Spur Development? A Critical Survey, International Studies Review. 8:55-75 a
nd Kapur, Devesh (2005). Remittances: The New Development Mantra? in Samuel Maimbo
and Dilip Ratha (eds.) Remittances: Development Impact and Future Prospects (Wa
shington, D. C.: The World Bank).
Financial Stability Through Collaboration and Understanding

Venue: Manila Peninsula Hotel, Makati City
Occasion: Insurance Congress of Developing Countries (ICDC) 2009
Atty. Eduardo Malinis, Insurance Commissioner and Chairman of the Organizing Com
mittee of the Insurance Congress of Developing Countries 2009, other distinguish
ed speakers, distinguished delegates to this Insurance Congress, ladies and gent
lemen, good morning. To our visiting delegates, Welcome to Manila! .....Welcome
to the Philippines! I hope youve had or you will have the chance to partake of th
e many options to help further stimulate our domestic economy. I am sure all of us
in this room have heard about the different financial stability and fiscal stim
ulus packages, being pursued by economies across the globe, to help stem the imp
act of the current global financial and economic crisis. I am certain the organi
zers of ICDC Manila 2009 have also put together their own version of a post-meetin
g stimulus package to complement the many interesting conference breakout sessio
ns. For my part, Id like to encourage all of you to participate as actively in th
at endeavor as you would in the different sessions in the next three days. Let m
e begin my remarks this morning by thanking Commissioner Ed Malinis and the Cong
ress organizers for inviting me to speak before you today.At first blush, the key
note message for a gathering of insurers to be delivered by the governor of a ce
ntral bank that supervises only the banking sector, may be a bit peculiar. But i
f one seriously looks at the situation, it is indeed quite reflective of the the
me of the Congress, which is Financial Stability through Collaboration and Under
standing. Ladies and gentlemen, at no other time than now has the need for promo
ting financial stability been more imperative. As we are all keenly aware, the c
urrent financial turmoil has gone beyond the borders of the epicenter of the fin
ancial crisis the US and the major economies and has reached the shores of emerg
ing markets. More importantly, the global financial turmoil has transcended the
bounds of the financial realm and has crossed over to the real sector of most ec
onomies, including several represented here today. You will be pleased to know t
hat my remarks this morning will be brief. I only have two messages that I wish
to bring across, in light of our desire for financial stability. First is that,
information efficiency must be created and maintained among financial regulators
. As we have witnessed in this current crisis, the lines delineating the financi
al institutions that make up the financial system have become at times blurred,
making improved collaboration among financial regulators exigent. Second, there
must be a conscious effort among regulators to devote more resources to the regu
lation of the conduct of business. There is often the temptation during a largescale (global) crisis, such the one we are in at the moment, to speak only about
systemically important institutions.Ladies and gentlemen, I believe we must be c
areful not to forget the public that ultimately we serve. We must remember that
the financial sophistication of the investing public may not necessarily coincid
e with the pace of financial innovation. This creates a gap that could result in
the public not fully appreciating the products and new structures that they are
investing in, thereby unduly exposing them to risk. I. The Need for Information
Efficiency In discussing my first point, which is the need for information effi
ciency, Id like to highlight two recent developments in the global financial mark
ets. First, the convergence among different types of financial institutions. And
second, the convergence in the framework for financial regulation and supervisi
on. A. Convergence among different types of financial institutions The financial
crisis in the US, as we now understand it, is partly explained by the relativel
y loose regulation of entities heavily involved in financial innovation, includi
ng the oversight of the sale of these products to the wider public. Financial ma
rkets have developed in recent years so that the same financial products are sol
d across different financial sub-sectors -- from banks to insurance companies, t
o securities firms, with several cross-combinations thereof. In addition, the em
ergence (through common ownership) of financial conglomerates that encompass the
different types of financial institutions has eroded the long-standing barriers
that kept these business lines apart. With these changes, it has become importa
nt that financial regulators clearly understand the mechanisms for passing on of
risks among these different sub-sectors. Let me illustrate. The distress certai
n insurance companies currently face can be directly traced to their exposure to
risks that originated in the banking system, including structured products and
derivatives whose underlying assets were sub-prime mortgages. This further highl
ights the fact that the risks to financial soundness of insurance firms may now
also arise from the asset side of their balance sheets, a clear departure from t
he traditional insurance firm risk management practice that focused exclusively
on the underwriting risks associated with insurance liabilities. Indeed, the bar
riers that used to separate the analysis of risks in different lines of business
have slowly been breaking down. To give you another example, unlike in their ol
d (standard) business models, banks are now paying more attention to the adequac
y of pricing risk exposures so as to at least cover expected losses. In many bus
iness models, this is called the probability function for loss given default. Cu
riously, this is central to and is a long-standing practice among insurance firm
s. As we are now able to appreciate, this product and financial structure conver
gence has been driven by financial liberalization and advances in information an
d financial technology. Developments in risk management and in valuation methodo
logies also helped to heighten convergence. These factors nurtured convergence,
particularly during the extended low-interest rate environment -- referred to as
The Great Moderation -- when market participants sought to enhance yield and off
load or spread risk. B. Convergence in the framework of prudential regulation and
supervision A second major development in the financial market, which makes inf
ormation efficiency among regulators urgent, is the convergence in the framework
of prudential regulation and supervision. Just as in banking, for instance, a s
et of core principles now lays out the broad prudential framework in insurance t
oo. The International Association of Insurance Supervisors (IAIS) has released j
ust two weeks ago an Issues Paper on Group-Wide Solvency Assessment and Supervis
ion. This sets out the future IAIS work on the development of a comprehensive su
ite of supervisory papers on group-wide solvency assessment and supervision. One
could look at this as the international insurance industrys version of the capit
al adequacy framework under Basel II for banks. It is not only, however, the fra
mework for prudential regulation and supervision that has converged. At the nati
onal level (counting over 30 countries now), there has also been a physical conv
ergence of the different financial supervisory bodies more specifically the esta
blishment of integrated supervisors (i.e., supervisors that are responsible for at
least two (2) types of financial institutions). Internationally though, the con
vergence has not really been physical but only intellectual, with the creation o
f the Joint Forum. The Joint Forum is composed of international financial superv
isory organizations, namely, the Basel Committee on Banking Supervision (BCBS),
the International Organization of Securities Commissions (IOSCO), and the IAIS.
The Forum has been performing a valuable role in identifying differences in prud
ential arrangements across sectors and in considering the ever larger set of iss
ues of common interest across the different supervisory communities. C. The Phil
ippine case In the Philippines, we do not have an integrated supervisor for the
financial system although, as I will explain later, there are existing collabora
tive arrangements among the different financial supervisory agencies in order to
achieve our goal of a stable financial system. Supervision of the Philippine fi
nancial system follows a silo approach, i.e., each supervisory agency is responsib
le for supervision of a certain segment of the system - (1) the Bangko Sentral n
g Pilipinas (BSP) for banks and quasi-banks, their financial allied subsidiaries
and affiliates; non stock savings and loan associations, and pawnshops; (2) the
Securities and Exchange Commission (SEC) for investment houses, financing compa
nies, securities dealers/brokers, investment companies, and pre-need companies;
and (3) the Insurance Commission (IC) for insurance and reinsurance companies, i
nsurance brokers, and mutual benefit associations. While the BSP supervises the
largest financial groups holding the bulk of the financial systems resources, in
some instances, the existing mandates of the three supervisory agencies result i
n overlaps in supervisory jurisdictions. These overlaps are, however, remedied b
y our continuous collaborative efforts. Most notable of these collaborative effo
rts is the establishment in 2004 of the Financial Sector Forum (FSF), which is s
imilar to the Joint Forum but only on a national scale. The FSF is comprised of
the three supervisory agencies the BSP, the SEC and the IC -- together with the
Philippine Deposit Insurance Corporation (PDIC). The members of the FSF are the
heads of the four member agencies, with the BSP Governor as the Chair. FSF is es
sentially a cooperative effort without any legal mandate lest it be construed as
being an integrated supervisory body. A quick survey among the participants in
this Congress will show that there is no clearly identifiable single optimal mod
el for supervision. There are motivations commonly cited for establishing consol
idated supervision, although no standard has been established for its design. Th
ese motivations include 1) regulatory consistency and coordination to harmonize
rules and standards, 2) the difficulty that hybrid financial instruments and pre
sence of financial conglomerates pose to separate regulators, and 3) the value o
f economies of scale given limited financial and human resources. What is eviden
t in all discussions, however, is the need to share information efficiently, reg
ardless of the form of supervision structure present in the economy. Ladies and
gentlemen, what is incumbent among financial supervisors in order to facilitate
and strengthen financial stability at this time, is to create and maintain an in
formation sharing structure that will allow all to react swiftly and preemptivel
y to changes in the operating environment. This will certainly help prevent the
occurrence of a crisis of the magnitude and breadth were seeing today. II. Conduc
t of business supervision Let me now move on to my second message which, I belie
ve is an issue that is of particular interest to developing countries. One chara
cteristic of developing countries is the relatively weaker financial sophisticat
ion of their consumers, which makes the customers quite vulnerable to financial
scams, including relatively simple ones. I believe therefore that financial supe
rvision in developing countries should not only focus on setting prudential stan
dards, but also on strengthening conduct of business oversight of financial inst
itutions (i.e., supervision of the business practices, including dealings with c
ustomers). The increased globalization of the financial industry presents a furt
her complication as globalization improves the availability of and access to com
plex financial products across developing countries, without necessarily discrim
inating among levels of sophistication of the target markets. Ensuring that fina
ncial institutions conduct their business in a proper and transparent manner sho
uld therefore be a primary concern for financial supervisors in developing count
ries. Failure to ensure proper business conduct by financial institutions would
have adverse implications on market confidence, which, in turn, could threaten t
he viability of the financial markets as source of funds that could support the
productive capacity of the economy. This point could not be more apparent in the
developments in the global financial markets we are witnessing right now. The f
allout from the global financial crisis left many investors in financial product
s with substantial losses, and exposed some investment schemes as economically u
nsound if not totally fraudulent. The immediate impact was the weakening of conf
idence in financial markets, which played a key role in stoking the crisis. Rest
oring market confidence through conduct of business supervision is therefore ess
ential in order to restore the smooth functioning of financial markets. In the P
hilippines, financial supervisors, independently and in collaboration with the F
inancial Sector Forum, have already undertaken initiatives and issued rules to i
mprove the conduct of business by financial institutions, especially those relat
ing to complex products and services. The BSP, for instance, came out with circu
lars requiring banks and trust entities to take a more pro-active responsibility
in marketing their derivative and trust products by conducting client suitabili
ty tests. Under these rules, the bank/trustee shall perform a client profiling p
rocess under the general principles on client suitability assessment to guide th
e client in choosing investment outlets that are best suited to his objectives,
risk tolerance, preferences and experience. In addition, the BSP has tightened d
isclosure requirements covering the interest structure on credit cards, fees pai
d on loans and deposits, and the management and custody fees for trust funds. Th
e FSF, for its part, has also intensified the release of advisories against frau
dulent and unsound corporate financial practices. Concluding remarks Ladies and
gentlemen, allow me to conclude my remarks this morning by recapping my two poin
ts. The increasing convergence of the different types of financial institutions
and financial products calls for closer collaboration among the different financ
ial supervisory agencies or units in order to ensure financial stability. For th
e developing countries, however, another important issue is the refocusing of fi
nancial supervision to include not only the oversight role of supervisors in the
safety and soundness of financial institutions, but also the oversight role of
supervisors in the conduct of business of these institutions. I trust that these
would be food for thought among you, as you consider the many different issues
that surround financial stability during these very difficult and challenging ti
mes. I wish you all a productive and meaningful Congress. Thank you very much fo
r your attention, and good day.
Overcoming Global Challenges: Policies for Resilience and Stability

Venue: Grand Ballroom, Hotel Inter-Continental Manila, Makati City
Occasion: FINEX 3rd General Membership Meeting
President Roberto Borromeo, distinguished officers and members of the Financial
Executives Institute of the Philippines (FINEX), friends, ladies and gentlemen,
good afternoon. It is a pleasure to address the FINEX community once again even
as we meet in this very tricky operating environment. I like the theme youve chos
en for today Overcoming Global Challenges. That to me speaks volumes about the posi
tive spirit that I hope is truly within the FINEX, not just as an institution, b
ut also among your individual membership. I hope the next time you invite me; it
shall already be a less trying time, globally. And, I hope it is sooner rather
than later. The extraordinary challenges that continue to confront us call for e
xtraordinary responses, foremost of which is the need to establish stable and so
und foundations of growth that will enhance the economys flexibility in respondin
g to the challenges that come our way. It is this pivotal task of sowing a balan
ced set of policy measures that will enable us to reap the benefits of stability
to cope with the crisis now and chart the course of the countrys path to sustain
ed growth in the future. Let me start my remarks this afternoon by sharing some
views on recent developments in the global economy and to what extent these deve
lopments have impacted the domestic economy. The second part of my presentation
will expound on the economic buffers in place that provide the flexibility to pu
rsue policy measures to address present challenges. Third, I will give an update
on market developments in light of the measures that have recently been adopted
. Finally, I will discuss the BSPs policy direction going forward. Any discussion
of the current global economic and financial crisis would have to begin with wh
ats happening in the US, the crisis epicenter. Since October last year, the US gov
ernment has announced and put into action over 11 trillion US dollars in economi
c stimulus and financial stabilization packages. These include bank capitalizati
on, bank guarantees, deposit insurance, and assistance to the housing sector. De
spite these, however, the markets appear to be unconvinced. Although credit cond
itions in the US seem to have somewhat eased, these still remain tight. Two meas
ures of credit appetite -- LIBOR-OIS and TED spreads, for instance -- as shown i
n the slide, are currently trading at 105-110 basis points, significantly off of
their October highs of 364 and 464 basis points, respectively. But these figure
s are still a long way from their normal levels of below 5 and 15 bps, respectiv
ely. The tight credit markets have taken their toll on real economic activity in
the US. The slide shows that in the last 6 months, unemployment widened, consum
er confidence fell, home sales dwindled and productivity slackened in the US. As
we all know, a similar story could be told of many economies in the rest of the
globe, albeit in varying degrees of intensity. As more of the worlds economic gi
ants reported entering into recession in the fourth quarter last year, the Inter
national Monetary Fund (IMF) further revised downward its global growth projecti
ons for 2009 (from 2.2 percent in November 2008 to 0.5 percent in January 2009).
And just last week we learned that the Fund now expects that the global economy
will be entering a Great Recession in 2009 and contract below zero. The Fund has
warned that a global recession could be inevitable if the clean-up of banks probl
em assets, particularly in the worlds advanced economies, moves too slowly. Now,
going closer to homeWe have felt a pinch on our own real economy. For the Philipp
ines, these external shocks are transmitted through the macroeconomic linkages b
etween the Philippine economy and that of the US and other major economies exper
iencing a slowdown. These linkages are in the areas of trade, investments and re
mittances. How have these areas been affected so far? First, data from the NSO s
howed exports in January 2009 contracted by 41 percent, year-on-year. This dispe
ls clearly the idea of decoupling. Not really surprising considering that the US
still accounted for about 17 percent of total Philippine exports in 2008. Secon
d, foreign investments to the country slowed to $1.5 billion in 2008, down by 48
percent relative to 2007, while foreign portfolio investments posted monthly ne
t outflows for much of 2008 and recently in February. Its not all that bad, howev
er.On a positive note, remittance inflow continues to remain steady. Latest data
as of January shows an inflow still above the $1 billion mark. If we keep this p
ace, we could still match in 2009 the $16.4 billion inflow that we saw last year
. Meanwhile, as global financial markets weakened and confidence in global econo
mic prospects deteriorated, risk aversion towards emerging markets, including th
e Philippines, increased. These resulted in wider credit spreads against Philipp
ine debt, weaker exchange rates, and lower stock market values. The charts show,
however, that there have been moments of relative improvement in the markets, p
articularly towards the end of last year, as risk aversion ebbed mostly in react
ion to the wide-ranging and concerted policy actions by the majors till then. Wh
ile, as a result of the global financial turmoil, domestic economic prices exper
ienced some strain (as was shown in the slide before), the overall domestic bank
ing system remains stable. Thanks to the reforms implemented in earlier years to
clean up bank balance sheets, strengthen bank capitalization through Basel II,
improve governance structures, enhance risk management systems, and adhere to in
ternational accounting standards. All these have come together to create a steadi
ly growing, adequately capitalized, significantly stronger Philippine banking sy

stem. Our efficiently functioning banking system created the stable financial en
vironment that helped to keep the economy going. Unlike many of our peers in the
region, our economy managed to grow at 4.6 percent in 2008, still within our lo
ng-term trend growth rate. Domestic demand, specifically personal consumption, w
as the main driver of growth. Personal consumption expenditure, which accounts f
or two-thirds of the Philippine economy, has been growing at an average of 4 per
cent annually in the past three decades. It has also been historically firm, wit
h its growth trend exhibiting resilience across different economic cycles. In th
e past 30 years, consumption has not suffered a contraction except in 1985, when
the country fell into a deep recession. The critical question at this point is
whether the global headwinds pose a significant risk to domestic demand. Have th
e stresses in the global economy permeated into domestic consumption? Not alarmi
ngly so, thus far The continued expansion in consumption was fueled chiefly by th
e income effect of strong overseas Filipino remittances and recently, the favora
ble prospects in outsourcing and offshoring industry. Structural factors also ex
plain its resilience. Demographics - particularly in the form of the Philippines
young and economically active population - underpins the view that consumption w
ill continue to propel economic growth even in these difficult times. Moreover,
income levels are such that majority of the population has a greater propensity
to consume. The continued stability of the banking system and the strength of do
mestic demand, built through structural reforms since the 1997 Asian Financial C
risis, have put the economy in a better position against the current crisis. The
se have somehow insulated the Philippine economy from being dragged into the per
nicious feedback loop between the real and financial sectors that has by now cha
racterized the major advanced economies. The negative feedback loop in general o
ccurs when the financial crisis persistently puts pressure on asset values, thus
decreasing household wealth and thereby exerting downward pressure on consumer
demand. These consequently weaken the domestic financial system and result in th
e latter being unable to provide credit services to fuel economic activities thu
s, plunging the economy into a vicious downward spiral. Another positive result
of previous reforms is the flexibility thats been developed and the crisis manage
ment mentality ingrained in our policy framework. These have allowed us to act s
peedily and decisively against the onslaught of global changes. As early as Octo
ber last year, for instance, the BSP decided that it would make sure the domesti
c markets didnt experience the kind of credit crunch that was happening in the US
. In this regard, the BSP moved pre-emptively to ensure there was sufficient liq
uidity, and that this liquidity was more or less evenly distributed. The measure
s included: 1. Expanding Peso Repo Facility and E-rediscounting access 2. Creati
ng a US$ Repo Facility 3. Reducing reserve requirements 4. Maintaining a presenc
e in spot and swap fx markets, and, 5. Reducing policy rates (now a total of 125
basis points since December 2008). We eased policy rates primarily to: 1. Impro
ve bank expectations and encourage them to reduce lending rates 2. Lessen financ
ial burdens on firms and households; and 3. Shore up business and consumer confi
dence. Going forward, the BSP will continue to calibrate monetary policy to ensu
re price stability. The recent positive outlook on inflation has provided room t
o ease interest rates to support growth. However, given that there are still pos
sible upside risks to inflation, notably the volatility in oil prices and in exc
hange rates, increases in utility rates, and potential price pressures coming fr
om some agricultural commodities, a more measured adjustment of policy rates is
needed. In terms of banking sector policies, the BSP knew that it was critical t
o keep confidence in the financial markets, particularly at the height of the gl
obal financial market uncertainty in October last year. Thus, BSP stepped up its
communications effort, particularly at the time, to keep the public aware of th
e state of domestic banks. As for the banks, the BSP recognized that the values
of their financial assets particularly debt papers, were greatly affected by ris
k aversion and the deleveraging in the global markets that was occurring. Thus,
the BSP, as allowable under IAS guidelines opened a window for banks to reclassi
fy their financial assets from categories measured at fair value to those measur
ed at amortized cost. Banks have also been allowed not to deduct unrealized mark
-to-market losses in computing for the 100 percent asset cover for FCDU liabilit
ies. This regulatory flexibility was temporary and only so as to allow banks som
e consolidation space at the time. Going forward, the BSP will remain firm in it
s resolve to undertake policy actions that will strengthen the publics confidence
in the financial system. The main challenge in the months ahead is to strengthe
n our regulatory regime to ensure responsible risk management on the part of fin
ancial institutions, as they continue taking the risks necessary and inherent in
any successful market economy. Another important response at the height of mark
et uncertainty was external sector policy. To help shield the economy from furth
er external vulnerability, we allowed market forces to continue to determine the
exchange rate, while keeping the volatility manageable. This strategy kept the
exchange rate broadly competitive. In addition, to provide room to absorb extern
al shocks, we continued to beef up reserves as market conditions warranted. As o
f February, GIR stood at $38.9B, equivalent to over 6 months worth of imports of
goods and services. This allowed us to continue to post a BOP surplus in Februar
y. YTD cumulative BOP is at $2.2B. Going forward, the BSP will continue to maint
ain a market-determined exchange rate, endeavor to keep a comfortable level of r
eserves as self-insurance, and ensure a manageable external debt profile. Econom
ic prices and indicators show that the BSPs recent policy measures have been effe
ctive. First, market interest rates have gone down following the various easing
measures implemented between November 2008 and January 2009. This indicates that
market interest rates follow closely movements of the BSP policy rate. The peso
has also generally moved in line with regional currencies. Second, liquidity ha
s been ample (M3 grew by 16.1 y-o-y percent in Jan 2009) and credit activity has
remained relatively strong (preliminary data shows outstanding loans of KBs (ne
t of RRPs) for Jan 2009 grew by 24.5%). However, there are indications of some t
ightening in credit standards based on the BSPs survey of bank loan officers. Out
standing Loans including RRPs grew 18.8 percent. Third, while equity capital has
declined in 2008 due to weak trading activity and bearish foreign investor sent
iment, bond issuances by the corporate sector have been increasing, suggesting a
dditional source of financing for firms. Fourth, the results of the BSPs monthly
survey of private sector economists/analysts, the latest Business Expectations S
urvey (BES) and Consumer Expectations Survey (CES), and the Asia Pacific Consens
us Forecasts showed lower expected inflation in 2009 relative to the previous su
rveys. Even as the recent policy moves have been effective in averting the negat
ive feedback loop, the economy remains sensitive to a deeper and protracted glob
al downturn. Therefore there continues to be a critical need for policy initiati
ves that are focused and flexible to mitigate the impact of the worsening global
downturn. Going forward therefore, the policy thrusts of the BSP will be aimed
at ensuring continued resilience of the economy in the face of mounting global c
hallenges. Ladies and gentlemen, without a doubt, the global challenges that rem
ain are substantial. These seemingly insurmountable challenges have called for p
rompt and decisive policy action, both here and abroad. I put particular stress
in the word seemingly because I subscribe to the belief that every crisis presen
ts us with corresponding opportunities, the foremost of which is the need to boo
st confidence. In the Philippines we can liken confidence building as the fruit
of purposeful reforms we have sown in the past. As long as confidence is kept, t
he economy will remain afloat. While we are reaping some of the fruits of our en
deavors in the past, we need to continue to plant the seeds of economic resilien
ce and stability even in these trying times. While the harvest could be slow and
scarce this year, the seeds that we have sown will enable us to sustain ourselv
es in the period ahead until the crisis subsides. In this endeavor, we at the BS
P look forward to the continued support extended by FINEX. I am confident that o
ur collective wisdom and action will prevail and pull us through the challenges
that we are now facing. Maraming salamat at mabuhay tayong lahat!
Thrift Banks: Moving Forward Through Responsive, Responsible Banking

Venue: Ballroom A, Dusit Hotel Nikko, Makati City
Occasion: the Annual Convention of the Chamber of Thrift Banks
Ambassador Alfredo Yao, Immediate Past President, Mr. Pascual Garcia III, Incomi
ng President of the Chamber of Thrift Banks, Distinguished officers and members
of the Chamber, colleagues from the BSP, members of the media, special guest, la
dies and gentlemen, Good morning. It is always a pleasure to keynote the Chambers
annual convention. This year, you have certainly chosen a very appropriate and
constructive theme Thrift Banks: Moving Forward Through Responsive, Responsible B
anking. I see being responsive and responsible as two sides of the same coin -- o
ne side balances and completes the other. To illustrate, if you were only reacti
ve to changes around you but not mindful of the impact of your actions on those
around you, that could lead to discord. If, on the other hand, you are fully awa
re only of your own obligation, without being sensitive to changes in your surro
undings, that could lead to stagnation. You have to be both responsive and respo
nsible -- to be able to push forward. A conventions theme is only as good as the
actions that will spring forth from it. So I ask the question, what can the publ
ic expect from a responsible and responsive thrift banking industry? The thrift
banking industry should be able to make the convention theme come to fruition, d
espite the distractions of the current crisis. Ladies and gentlemen, you have a
gem of an opportunity to build upon a stable foundation. Through the difficult r
eforms that together we had put in place over the last few years, our banking sy
stem has remained sound, considering the scope and enormity of the current globa
l financial crisis. In particular, The banking industrys balance sheet grew in 20
08, despite stressed global conditions, while both NPL and NPA ratios remained r
elatively stable. This is critical when one recalls what it was like in the earl
y months of the Asian Financial crisis when comparable ratios were rising in lar
ge discrete increments. While profitability has and could be under further press
ure, the capital of the banking system as a whole is considerably well above int
ernational norms and our own prudential standards. In addition, our real GDP gro
wth of 4.6% in 2008 was not only notable vis--vis other economies, it was further
supported by the continuing deceleration in inflation, which in February stood
at 7.3% . On the external front, our Gross International Reserves is growing (al
l-time high of $39.3 billion in February), the BOP was in surplus in 2008 and wi
ll also be in surplus in 2009, and remittances from overseas Filipinos continue
to flow, even though the Peso has lost some ground since last year. In sum, the
banking system continues to be fundamentally sound and stable, and operates in a
macroeonomic environment that has stood resilient. Given these, the material qu
estion that needs to be asked is: what do all of these banking and economic indi
cators mean for your public? Perhaps, it would be useful to go back to the law w
hich created thrift banks. The Thrift Bank Act of 1995 says that thrift banks ar
e supposed to promote agriculture and industry and at the same time place within
easy reach of the people the medium to long-term credit facilities at reasonable
cost. In other words, it is about developing a targeted economic activity and pr
oviding term financing. Building on this mandate, the thrift banking industry ha
s developed itself, so as to offer far more services and products to its banking
public. Today, under clear guidelines and appropriate approvals, thrift banks c
an perform trust operations, act as a Foreign Currency Deposit Unit (FCDU), open
domestic and foreign letters of credit, engage in quasi-banking activities and
undertake, where allowed, derivative activities. These new functions are proof o
f the continuing progress of the industry, led by your hardworking officers and
directors of the Chamber. Recently, the Monetary Board approved the lifting of t
he requirement to execute a Surety Agreement by any single stockholder, natural
or juridical, owning more than 50 percent of the voting stock of a bank with an
approved rediscounting line with the BSP. This was with the expressed intent of
facilitating the faster processing of rediscounting loans. Thee total rediscount
ing budget has also been trebled to P60 billion and the loan value increased fro
m 80 to 90 percent. Herein lies the real challenge of your convention theme. To
provide responsible and responsive banking services, different types of banks mu
st be able to cater to the varied needs of differentiated constituents. Its not s
imply a matter of having access to as many product types, but how one maximizes
that privilege to serve his public best. In the context of our financial infrast
ructure, we have commercial banks, thrift banks, rural banks, and cooperative ba
nks. We have do-it-all institutions like universal banks. In terms of products,
we have created curious concoctions like a quasi-bank which in the vernacular tran
slates to parang bangko and deposit substitutes which some have described as deposito
na rin. Clearly, thrift banks share many of the facilities and services that you
r commercial bank brethren can employ. In fact all of the recently-BSP approved
functions and products that you could enter into are similarly possible for your
counterparts in the commercial and universal banking industry. Thrift banks are
also like rural banks, in that thrift banks remain positioned for the financing
requirements of the general public across the archipelago. Now, however, with c
ommercial banks positioned at the corporate high end and the rural banks address
ing the needs of the countryside, that leaves the viable middle as your natural ma
rket. Ladies and gentlemen, you are well-positioned to take the cudgels for the
MSME sector, including the microfinance sector. I urge you to appreciate that yo
u are much closer to SMEs which represent the backbone of the Philippine economy
. Instead of seeing a disadvantage in allowed and disallowed activities, I encou
rage you to see the advantage of your target market. This is not to be taken as
a response to the on-going crisis. It goes beyond the challenges of the current
environment. It is to clearly define your target market, and towards that be res
ponsive and responsible. Where does this leave you from a strategic and tactical
stand point? One easy option is to continue what you are already doing. As of S
eptember 2008, about 59 percent of the industrys loan portfolio was in real estat
e, business activity and loans to individuals. Another option, is for you to inc
rease your loan portfolio for manufacturing and construction, two vital industry
segments that could help ensure that our domestic economy continues to grow abo
ve long-term trend. What is really critical for thrift banks at this juncture is
to determine how to incorporate the new facilities and offer new services to yo
ur public. With newer tools and more opportunities, I expect that beyond improvi
ng your loan industry mix, the thrift banking industry would expand its balance
sheet and continue the improvement in your NPL ratios. As of September 2008, I s
ee P482 billion in total assets, P334 billion in peso deposits and an NPL ratio
(inclusive of IBL) of 6.6 pct. These provide useful benchmarks against which we
envision significant improvements this time next year. Ladies and gentlemen, I w
ill not pretend that the road that lies ahead is free and clear for all of us. W
e live in a global market that is experiencing a global shock and to a large ext
ent then, achieving improvements in our balance sheets is something we have to w
ork for. Perhaps, the biggest threat for us moving forward is if we persist to t
raverse the road of financial risk without having a clear idea of our target mar
ket. If we try to become everything to everyone, we become lost in a sea of look
-alikes. However, if we specialize too much, we narrow our target markets that i
t may become untenable for us to continue. Let me then ask you the same question
: what do all of these challenges mean to your banking public? In answering this
question, the key lies not with the public, your customers, your clients. Inste
ad, it remains with you and your ability to balance yourselves within myriad nee
ds. The way forward is for your institutions to develop core competencies in var
ious facets to allow you to co-exist with other financial institutions in a comp
etitive world. There too is no denying that each one of us needs to define and l
ive within our target market. For thrift banks, let me once again encourage you
to focus on MSMEs even though in many respects the label of SME is itself a simpli
fication of complex requirements from evolving clients. Going back to the conven
tion theme, I felt it was necessary to ask the difficult question: What do all t
hese mean for your public, your customers, your clients? If our financial market
is to make headway with the banking public, this is the question that always an
d continuously should be asked. Remember, the evolution of the structure of our
financial market must constantly be guided by the best interest of the public th
at this market serves. I realize that we can all move forward more expeditiously
only within the confines of a strong and stable financial and macroeconomic env
ironment. This is why the BSP endeavors through its policies to create an operat
ing framework where financial markets could efficiently function. It will, howev
er, be important to remember that the relative strength and stability that our m
arkets enjoy today have come about through the lessons from our own past. The BS
P together with the banking industry will remain steadfast in our reform effort.
If we are to serve our public, we must continue to be responsive to their needs
and to ensure that we act responsibly, mindful of the trust bequeathed by our p
ublic on us. The term fiduciary responsibility is not just a mantra that is conven
iently brought out as the need arises but it is instead a social contract with o
ur most basic constituent. This is the way forward and this is the high bar that
must be set if we are to see responsive and responsible banking bear fruit. I h
ave seen our market rise with resiliency when it was down. I have every bit of c
onfidence to know that it will find the answer to the difficult questions when o
ur present position is that of relative strength. It is afterall, all about who
we are. who we serve, and, now is the time to show what we are made of. Thank you
very much and good morning.
The Crisis in Perspective: Is There Really Cause for Alarm?

Venue: Hotel Intercon Manila
Occasion: Bank Marketing Association of the Philippines (BMAP): Banking and Busi
ness Forum with the theme The Crisis in Perspective: Is There Really Cause for Al
arm?
The officers and members of the Bank Marketing Association of the Philippines (B
MAP) led by President Ferdie LaChica, distinguished speakers, fellow bankers, ou
r friends from the media, special guests, good morning! I congratulate the leade
rship of the BMAP for taking the initiative to gather members of the financial c
ommunity and the media to discuss the global financial crisis and its possible i
mpact on the domestic front. Indeed, we should welcome activities such as these
which promote open exchange that lead to better understanding of critical issues
. After all, we cannot move forward together.. if we are not on the same page an
d able to engage the cooperation of our stakeholders at this crucial point in ti
me. In this years forum, BMAPs theme asks this NON-TRIVIAL question: Is there reall
y cause for alarm? Well, let me share some information that will help you respond
to this question. Among others, key economic and banking metrics indicate the f
ollowing: The domestic economy has remained resilient, posting a 4.6% growth las
t year. This year, the Philippine economy is still expected to grow at a respect
able range of 3.7% to 4.4%. That we are able to sustain growth under stressed gl
obal conditions with major economies undergoing contraction makes these figures
particularly encouraging. Inflation continues to decline and is expected to furt
her decelerate with the easing in the price of oil and other non-oil commodities
in the world market. As of January 2009, inflation stood at 7.1% from 8% in Dec
ember 2008. Our currency remains competitive. Even as the peso lost much of the
gains of 2007 due to heightened risk aversion towards emerging markets, the pesos
fall was nevertheless in line with the movement of other currencies in the regi
on which also lost ground against the US dollar. The countrys external position r
emains favorable. As of end-January 2009, the balance of payments yielded a surp
lus of US$1.7 billion while our gross international reserves stood at US$39.2 bi
llion. The current GIR level is sufficient to cover six months of imports of goo
ds and payments of services and income, double the international standard of thr
ee months and three times the size of debt falling due within a year. The bankin
g system sustained its asset expansion with total resources growing by 9.8% to r
each P5.6 trillion as of end-November 2008. Among bank assets, loans (gross, and
exclusive of interbank loans) posted a significant growth of 23.5%. This asset
expansion was supported by a continued rise in deposit base which registered a 1
5.9% growth as of end November 2008. Worth noting is that this continued asset e
xpansion has been accompanied by the steady improvement in asset quality as meas
ured by both non-performing loans and non-performing assets. From a peak of 16.9
% at end-2001, banks NPL ratio has since dropped to a low single-digit level of 4
.2% while NPA ratio improved to 5.5% as of end November 2008. The banking system
also maintained its strong solvency position. As of end-June 2008, banks capital
adequacy ratio (CAR) stood at 15.3% on a consolidated basis, comfortably above
both the international standard and the BSPs minimum regulatory requirement. If t
here is one lasting lesson from past crises, it must be that capital sufficiency
is a primordial concern. It is reassuring then that the present Capital Adequac
y Ratio of our banks is at this level. Moving forward, what then are the challen
ges that we face? For our economy, the channels of vulnerabilities are exports a
nd remittances. The impact on Philippine exports has already started to show wit
h a 40.4% drop in December of last year. Remittances are holding up but there ar
e concerns that it will eventually reflect the global slowdown. These two fronts
ultimately affect consumption spending, which plays a big part in domestic econ
omic growth. In the financial market, the potential weakening of corporate (expo
rters) and household (OF beneficiaries) balance sheets could lead to some deteri
oration in the quality of banks loan portfolios. Individually, local banks have t
aken logical defensive action by being more cautious in lending and boosting the
ir liquidity levels. The risk is that this could result in less credit for produ
ctive purposes, which would add to the pressure on the real economy players. Thi
s could lead to a negative feedback loop between the real and financial sectors.
In other words, ladies and gentlemen, even as our economy remains on a growth t
rack, the global crisis brings with it serious challenges. It would be cause for
alarm, therefore, if we remain complacent. We need to plan; we need to act preemptively to create buffers that will protect us from the headwinds that will co
me our way. Among others, our Government has prepared a P330 billion economic st
imulus program that includes higher infrastructure spending and enhanced social
safety nets to support the most vulnerable segments of our population. The stimu
lus package, designed to adhere to the so-called best principles of 4 Ts: spendin
g that is timely, targeted, transparent, and temporary should be supportive of s
ustainable and robust growth. In addition, the Bangko Sentral ng Pilipinas has i
mplemented a series of measures to ensure continued normal operation of the Phil
ippine credit markets. The objective is to avoid the crippling credit crunch in
the US and Europe that has triggered widespread dislocations in both business an
d households. Is there a specific role for BMAP? Yes, absolutely. As the marketi
ng and communications experts in your respective banks, BMAP members can spearhe
ad a concerted effort to ensure that bank stakeholders are kept abreast of marke
t situation so that they can discern factual realities from fictional representa
tions. The objective is to inform the general public so that stakeholders your d
epositors and borrowers as well as your employees and stockholders can make info
rmed choices. The challenge is to keep working on this patiently and faithfully
because markets continue to evolve and transform. It is not enough that you do i
t once or twice; it should be a continuing commitment on your part. Among others
, explain the fine print, provide clear directions on how they can maximize the
benefits from the services you render, make your banks accessible literally and
figuratively, and be guided at all times by the good governance tenets of fairne
ss, accountability, and transparency. It benefits no one if our depositors are u
nsure of their savings. Long-term savers, those who manage funds for their retir
ement or for future expenses such as our childrens educational needs or medical f
unding, these are but some of our constituents who can always benefit from bette
r financial information. For your borrowers, continuing dialogues are always use
ful and productive in terms of avoiding unwarranted shocks. Consumer rights must
be protected. I therefore request the BMAP to take the lead in making sure that
appropriate sytems are in place to address complaints with utmost urgency. To m
e, one yardstick for BMAPs success in this area is a decline in the number of com
plaints against banks that we receive at the Bangko Sentral. I look forward to s
tronger cooperation between us in this regard. I also count on BMAP to continue
supporting Bangko Sentrals various initiatives on economic and financial educatio
n covering our 12 million schoolchildren, our youth, our Overseas Filipinos and
their dependents, and the public in general. This includes Tulong Barya Para sa E
skwela and the integration of lessons in saving and money management in our publi
c elementary school curriculum. One of our objectives is to make saving a regula
r habit and expand our deposit base to include children, the youth and unbanked
adults. While our savings rate (or gross savings as a percent of GNP) has been o
n a steady uptrend from 22.7 in 2000 to 27.9 as of 2007, we are behind other cou
ntries in the region. I ask the BMAP members therefore to apply your marketing a
nd communications skills to move this program forward. Ladies and gentlemen. In
good times and in bad, taking care of your clients and consciously growing your
customer base are challenges BMAP members face. This being the case, I believe t
here should be no cause for alarm if you have properly anticipated and planned f
or crisis, long before the onset of the global financial turmoil. Remember Noah?
It wasn t raining when he built his ark. He hoped for the best, but prepared fo
r the worst. As professionals in your field, I am confident BMAP members are pre
pared to tackle new concerns emerging from the global crisis, individually and c
ollectively. Once again, congratulations to BMAP for organizing this forum. Mabu
hay ang BMAP! Mabuhay ang Pilipinas! Maraming salamat sa inyong lahat.
Sustaining Growth Through Better Access to Credit

Occasion: Forum of the Bangko Sentral ng Pilipinas on Sustaining Growth Through B
etter Access to Credit.
Magandang umaga po.. sa inyong lahat! On behalf of the Members of the Monetary B
oard and my fellow central bankers, I welcome all our special guests... and view
ers to the Forum of the Bangko Sentral ng Pilipinas on Sustaining Growth Through B
etter Access to Credit. We have with us today representatives from the different
sectors of our economy. including the Philippine Chamber of Commerce & Industry a
nd other industry associations; companies of various sizes; entrepreneurs from t
he micro, small, and medium enterprises or what we call MSMEs; other government
institutions; the academe which helps shape policies through rigorous research a
nd studies; NGOs; the media which serves as our link to the general public; and,
finally, the banks which remain the principal conduit or source of funds for th
ose who do business in our country. In other words, ladies and gentlemen, we can
look forward to a productive exchange concerning our economy; where and how cre
dit can be accessed; addressing barriers to credit; why achieving and maintainin
g good credit standing is good for your business; and the role of the Bangko Sen
tral ng Pilipinas insofar as money, credit, and banking are concerned. Of course
, we have no illusion that this Forum will be able to address all the issues and
concerns that will be raised today. In fact, we expect that there will be diffe
rences of opinions, of strategies. After all, the shifts in the economic landsca
pe affect industries differently; but if we keep an open mind, and agree to work
on these issues, we can move forward together. But, there is cause for optimism
. Ladies and gentlemen, your participation in this Forum is already a clear indi
cation that while we may come from different segments of our society, we share t
he same goal to keep economic activities going and growing through better access
to credit. To celebrate this coming together of those who have taken the time to
participate in our Forum today, including those who are watching NBN Channel 4s
live coverage at Bangko Sentrals regional offices and branches and the general pu
blic, let us give ourselves a round of applause! Indeed, given the global econom
ic slowdown resulting from the continuing financial crisis, it is important that
we remain united in our efforts to minimize its adverse impact on our country a
nd our people. Ensuring the availability of market liquidity is a critical eleme
nt in a comprehensive approach to avoiding a severe slowdown. In this connection
, the Bangko Sentral ng Pilipinas has been implementing a series of moves in acc
ordance with this overall thrust to provide better access to credit. Among other
s, we have done the following: First, we have reduced policy interest rate twice
since December 2008 by a total of 100 basis points. In effect, we have lowered
the cost of money for banks. This paves the way for banks to charge lower intere
st rates for their loans and in effect reduce the overall cost of borrowing and
doing business; Second, we have reduced the deposit reserve requirements for ban
ks by 2 percentage points. This should infuse roughly P60 billion in additional
liquidity. Latest information reveal that demand for money remain strong: in Dec
ember 2008 domestic liquidity grew by 15.6 percent from the previous year. This
double-digit growth in domestic liquidity indicates that there are funds availab
le in the system which could be tapped for investment and other productive activ
ities; Third, we have opened a US dollar repurchase facility. This is a preempti
ve move on our part to provide liquidity to the market, not only in pesos but al
so in dollars. Relevant to this, I wish to report that our countrys gross interna
tional reserves is at an all-time high of $39.2 billion as of end-January 2009;
Fourth, through the Credit Surety Fund (CSF) program which it conceptualized, the
Bangko Sentral ng Pilipinas has provided leadership in addressing the problem of
our MSMEs or our micro, small, and medium entrepreneurs in getting loans for la
ck of collateral. The Credit Surety Program brings together well-managed and wel
l-capitalized cooperatives with local government units and other donors to provi
de surety cover, in place of collateral, to guarantee MSMEs bank loans. The Credi
t Surety Fund operates at the provincial level and has been launched in Cavite,
Aurora, and Bohol. I am happy to report that more provinces have expressed inter
est in joining this CSF program. Fifth, to provide banks better access to additi
onal funds which they can relend to the public, we have increased the budget for
our Peso Rediscounting Facility from P20 billion to P60 billion liberalized. Eq
ually important, we have liberalized our rediscounting guidelines. Among others,
we have raised the loan value of eligible papers for rediscounting from 80% to
90%. Later on, Deputy Governor Diwa Guinigundo will have a power point presentat
ion that will explain our liberalized guidelines Please note that our rediscount
ing facility also covers microfinance loans, in accordance with our inclusive ba
nking policy. In particular, I am pleased to report that as of September 2008, o
utstanding microfinance loans of over 220 banks to about 886,000 households have
reached nearly P7 billion. Indeed, our policy to provide better access to credi
t covers the entire spectrum of our economy. Ladies and gentlemen, the Bangko Se
ntral ng Pilipinas has implemented these measures to ensure continued normal ope
ration of the Philippine credit markets. What we have done is to act pre-emptive
ly to avoid the credit crunch in the US and Europe that has cut-off companies bi
g and small from their traditional fund sources. In our case, you will be please
d to know that Philippine banks remain liquid and continue to increase their len
ding in healthy double-digit growth rates. For instance, outstanding loans of co
mmercial and universal banks as of December 2008 were up 17.5 from the previous
year. In particular, loans for production activities drove the expansion in bank
lending, growing by 18.3 percent in December while consumption loans grew by 13

.4 percent. In other words, the Philippine banking system, which remains the pri
mary source of funds for our business sector, is functioning normally and remain
s stable in the midst of the ongoing global financial turmoil. And so, we have t
he liquidity and enhanced access to credit. What we need to do now is to work to
gether to sustain growth by stimulating economic activity and thereby avoid the
negative feedback loop from the global crisis. We want to see firms continue to
sell, households continue to spend, banks get their loans paid, and Government s
ustains its fiscal efforts to support investments on infrastructure and social s
afety nets. While our economic fundamentals here in the Philippines remain sound
, there is great urgency in addressing the possible fall-out from the global eco
nomic and financial turmoil. In the US, President Obamas government promptly put
together the first tranche of their economic stimulus package amounting to $787
billion. Ladies and gentlemen, losing to time was one of the greatest lessons in
public finance of the Great Depression in the United States: when public expend
itures were finally in high gear, the four-year Great Depression was about to en
d. In hindsight, the deep and painful dislocations of the Great Depression could
have been mitigated if the government had responded more quickly. Thus, other c
ountries familiar with this lesson from the Great Depression are moving alongsid
e the US Government to shore up their respective economies, because delayed resp
onses could prove very costly. This includes the Philippines. In particular, our
government has defined a P330 billion economic stimulus program to sustain mark
et confidence and get the economy moving more robustly. But government alone can
not achieve this. Let us therefore work together to support governments initiativ
es to keep our economy growing, to continue to grow your business, to protect jo
bs and to create new employment opportunities for our people. Let us be mindful
of the possible effects of a downturn to millions of Filipinos, especially to th
ose who continue to live in poverty. And even as we come to terms with the reali
ty of a global economic crisis, let us not forget the positive Chinese point of
view that sees opportunities in every crisis. Sure, the challenges are big, but
there are equally big opportunities in riding them out. At the end of the day, i
f we remain united, we shall be able to reap the dividends from our concerted, c
ooperative effortstogether. And so, ladies and gentlemen, today let us renew our
commitment to sustain the growth of our economy through better access to credit.
Once again, on behalf of the Members of the Monetary Board - Monetary Board Jua
nita Amatong, Monetary Board Member Raul Boncan, Monetary Board Member Nellie Fa
vis-Villafuerte, Monetary Board Member Alfredo Antonio, Monetary Board Member Ig
nacio Bunye and Monetary Board Member Peter Favila, we thank all of you for acce
pting our invitation to this Forum. Mabuhay ang Pilipinas! Mabuhay tayong lahat!
Maraming salamat po!
Accelerating Countryside Development Thru Rural Banks

Venue: Cabanatuan City
Occasion: Blessing of GM Bank Head Office
Vice Governor Edward Thomas Joson of Nueva Ecija, Cabanatuan City Mayor Alvin Ve
rgara, GM Bank officers and staff led by Chairman Abelardo Samson and President
Mitch Gomez who is the concurrent President of the Rural Bankers Association of
the Philippines, RBAP Board Members, leaders of the government and private secto
rs here in Cabanatuan City, our friends from USAID, my colleagues from the BSP,
special guests, good afternoon! I am happy to be here with you today on the occa
sion of the blessing of GM Banks new head office. This modern and well-designed b
uilding is a most appropriate symbol of the dynamic and forward-looking vision t
hat animates GM Bank. Your commitment to strengthen your capital position1 with
initiatives such as the issuance of tier 2 capital; to work on the strength and
operational network of your institution 2 by increasing your number of branches;
and to seize the benefits of technological innovations through your mobile bank
ing applications are concrete steps that will help GM Bank achieve its goal of br
idging rural and global banking. On a larger perspective, this event symbolically
communicates that rural banks continue to move forward toward stability and sus
tained growth and that they will not be thwarted by the misconduct of a few. Thi
s is the important message that we must all convey, individually and collectivel
y. Indeed, we have the figures to support this message. Rural banks continue to
exhibit healthy double-digit asset growth and strong capital positions. As of en
d June 2008, total assets of the rural banking sector reached 172.5 billion peso
s, up 16% from the previous year. At the same time, average capital adequacy rat
io of the rural banking sector as of end March 2008 was 13.6%, well above the mi
nimum 10% requirement. The business of rural banking also continues to show viab
ility and profitability. As of end June 2008, the consolidated profits of the co
untrys rural banks was P 1.9 billion, a 7% increase from the previous year. Retur
n on Equity was at 13.6%, which compares favorably with their counterparts in th
e commercial and thrift banking sectors. Lending activities of rural banks have
also been on a steady uptrend, providing much-needed financing that sustains gro
wth in the countryside. As of June 2008, outstanding loans of the rural banking
sector stood at P103 billion, 19% more than the previous year. Indeed, rural ban
ks are responsive to the growing needs for credit of our micro, small and medium
enterprises. It is also worth noting that while lending activities expanded, th
e quality of the loan portfolio remained at manageable levels. Indeed, we must r
emain unrelenting in our task to strengthen our institutions by focusing on key
areas of our governance and operations. Risk management systems must be in place
so that risks, especially credit and liquidity risks, can be adequately and app
ropriately identified and managed. It is essential that credit risk management s
ystems enable banks to make better assessments and sounder credit decisions that
will reduce reliance on physical collateral. This will ensure that rightful foc
us is given on the core business of banking rather than on accumulating real and
other properties that are difficult to unload when loans turn sour. Related to
this is the imperative to continuously monitor the quality of loan portfolios. V
igilance is necessary on your part to maintain low non-performing loan (NPL) rat
ios and/ or portfolio at risk (PAR), in the case of microfinance operations. Liq
uidity management is also crucial where banks must continuously strike the appro
priate balance between maintaining liquid assets and providing loans. On our par
t, we at the Bangko Sentral will continue with our policy approach of enabling b
anks, particularly rural banks, to increase the scale and scope of their operati
ons. We are doing this through the liberalized branching regime; receptiveness t
o various product and technological innovations in banking services; our commitm
ent to increased efficiencies through the outsourcing of some banking functions;
and broader range of services and opportunities that rural banks can undertake
such as Foreign Currency Deposit Units and equity investments in ATM networks. A
s a result, rural banks now have more opportunities to provide a wider range of
services and products to their clients. The Bangko Sentral will also continue wi
th reforms that will encourage the improvement of capital positions and increase
bank capacities to better manage risks. Ladies and gentlemen. These initiatives
that we have been vigorously implementing in recent years are instrumental in i
nstilling order and depth in the banking system. Together, let us continue to bu
ild on these initial successes and continue by stepping up our efforts to streng
then the regulatory framework to ensure safety and efficiency not only among rur
al banks, but in the entire banking system. Together, let us create a truly incl
usive financial system that provides universal access to responsive and competit
ively priced financial products and services to all, including to the previously
unbanked. Together, let us have an inclusive financial system that will support
sustained and balanced economic growth in our country. Mabuhay ang GM Bank! Mab
uhay ang Nueva Ecija! Mabuhay ang Philippine banking sector! Mabuhay ang Pilipin
as! Marami pong salamat sa inyong lahat! ------------------ 1 Capital Adequacy R
atio as of December 2008 was at 15.04% 2 GM Bank currently has 24 branches which
include former Head Offices and Branches of Community Rural Bank and Munoz Rura
l Bank
Are We Ready to Cross Our Rubicon?

Occasion: PDS Awards Night 2009
SEC Chairperson Fe B. Barin, , ladies and gentlemen, good evening. We gather aga
in here tonight to honor the market participants who have excelled in the past y
ear. I am especially pleased to note that the recognition has been expanded to c
over new categories. In addition to the mainstay award for the top fixed-income
brokering participants, I understand that the PDS group is conferring 13 other a
wards for settlement, custody, FX as well as for the pioneering participants in
new products and services. To the awardees, I extend my congratulations, not onl
y for the recognition that you are receiving tonight but more so for your dedica
tion to deepening our capital market. Beyond rhetorics, your actions over the pa
st year speak volumes of your firm commitment to a vision that we as collective
stakeholders all share. To the other institutions, be assured that the BSP is no
t blind to your own efforts and your contributions to financial deepening. The g
ood news is that the current year affords you another golden opportunity so that
this time next year, you could take centerstage to share the laurels that those
before you have gained. If that sounds like a veiled challenge, it probably is.
We believe though that it is certainly worth pursuing because within the confin
es of this competitive spirit, it is ultimately the Philippine economy that come
s out as the winner. Beyond the recognition and appreciation however, allow me t
he liberty to raise another challenge which I direct to all of us as collective
stakeholders: are we ready to cross our rubicon? To many, my challenge may seem
misplaced in the light of the current crisis. Certainly, in the face of unpreced
ented global uncertainty in financial markets, the safest recourse is to remain
conservative. But conservative is already where we currently are and while this
has taken us in good stead, an objective inward look at our markets should remin
d us that much remains to be done. This agenda is separate from our response to
the crisis. To be sure, this is one crisis where the Philippines is not the epic
enter. If we are to move forward then, today presents itself as an opportunity t
o solidify what we already have without distraction from the toxic assets. More
importantly, we have this rare occasion to address fundamental concerns while ot
hers are themselves forced into remedial management. Do we have a yield curve th
at we can truly represent as our own benchmark for valuation across tenor and ac
ross risks? Do we have complementary markets that thrive to channel liquidity at
a fair price even under stressed conditions? Does our payment and settlement sy
stem bridge the gaps across islands? Do our investors in this archepelagic econo
my have access to the same functioning markets that we enjoy here in Metro Manil
a? These are but some of the questions whose answers hang in the balance. Tonigh
t may not be the venue to resolve them but surely now is the time for their reso
lution. The answers ensure that we create a holistic financial market where oppo
rtunities are properly priced for their risks; where information is made availab
le to anyone and everyone; where access is institutionalized to erode unwarrante

d advantages; and where stakeholders individually engage in productive competiti
on so that we can collectively attain the higher good of stability in diversity.
Ladies and gentlemen, stakeholders often disagree because they find themselves
to be primarily competitors in a market of fixed resources and fixed opportuniti
es. But if we are to move forward and lay claim to the added value that financia
l markets promise, we also must be collaborators towards a common vision of coll
ective gains premised on joint accountabilities. The basic irony of life is that
success has many contributors but failure is often self-driven. I end with the
two critical questions that I asked earlier. 1. Do all of these sound like a vei
led challenge? To that I can answer an unequivocal yes with the further collatilla
that the bar is set high with little margin for error. This is not about perfec
tion but rather making those difficult choices so that we enjoy a market infrast
ructure that truly addresses our respective needs. This brings me to my second q
uestion. 2. Are we ready to cross our rubicon? I look forward to your resounding
affirmation since failure is not, cannot and should not be an option. Thank you
very much and good evening.
Challenges and Opportunities in a Global Crisis

Venue: Dusit Thani Hotel
My presentation this morning will cover the impact of the global crisis on the m
onetary, external and financial sectors; the risks and challenges facing these s
ectors; and the opportunities we see amidst this crisis and BSPs strategy and pol
icy commitments to take advantage of these opportunities. It has just been over
a year and a half since the world became critically aware of the word subprime and
in this time the crisis has evolved into the first truly global crisis world ec
onomies have faced. The impact on the Philippines has so far been limited. In fa
ct, the Philippines ended 2008 better placed than many countries in the region.
But we are fully aware that our economy is not immune to the ongoing global fina
ncial turmoil. Risks and Challenges The way I see it, there are three major chal
lenges that the monetary, external and banking sectors face at this time. First,
risk aversion that follows from continued uncertainty in the global financial m
arkets. Second, recessionary trends spreading beyond the developed world and int
o emerging market economies. Third, risk of the negative feedback loop. When the
crisis broke out (and up to now), our banking system had very minimal direct ex
posure to the troubled financial institutions. The most visible impact of the gl
obal financial turbulence on the Philippines has been volatility in our domestic
financial markets, due principally to risk aversion against emerging markets, i
ncluding the Philippines. The graphs on this slide show that both the peso and t
he stock market have lost most of their gains from 2007. This slide, on the othe
r hand, shows that credit spreads on Philippine debt have also widened from thei
r levels in 2007, with 5-year CDS spreads reaching as high as 820 plus basis poi
nts at the height of the uncertainty in the global financial markets in October
2008. Two facts are worth noting at this point: First, these trends have been sh
ared by economies in the region, and, second, there has been some traction in the
market recently. The peso, PHISIX and credit spreads have been consolidating som
ewhat. Nevertheless the global financial markets remain volatile and our own dom
estic markets remain vulnerable to changes in market appetite and investor risk
preferences. Let me now show you how risk aversion has affected some of the emer
ging market economies in Asia. Exchange rates have become more volatile in 2008.
The equity capital inflows everyone enjoyed in 2007 were reversed. Sovereign cr
edit spreads have widened during the height of the financial turmoil in the US.
-- Nevertheless, our country has fared at par, if not better, than some of our A
sian neighbors amidst the global financial crisis. The second major challenge we
face is the threat of global recession. As you are aware the US, UK, most of Eu
roland, Australia, Hong Kong, Singapore, and Japan, to name a few, have all been
declared officially in recession. The most recent published IMF projection for
2008 world growth is 3.4 percent and 0.5 percent in 2009, while the World Bank p
rojects world GDP to slow to a meager 0.9 percent in 2009. These forecasts conti
nue to be reviewed as more information about the financial market is known. Give
n such an unfolding scenario of weaker global demand, coupled with easing of oil
and non-oil commodity prices, the National Government has revised its projectio
ns downwards. In particular, 1. Philippine inflation is seen to further decelera
te, and will likely fall within the target range in 2009 of 3.5% +/- 1 ppt.; 2.
The BOP for 2009 would still be a surplus of about US$ 700 million; 3. The curre
nt account is expected to also still be in surplus, supported by remittance flow
s, which may be flat but not contract, and a smaller import bill due to signific
antly lower international oil prices. 4. These developments would allow us to ke
ep the GIR in 2009 at about $37.5 to $38.5 billion. The new NG projections shown
in the earlier slide reveal that the macroeconomy is expected to remain broadly
stable against the tide of the financial turmoil. But there is a risk -- should
the global economy weaken more than expected and cut deeper into the domestic e
conomy, this could also weaken the domestic financial system and result in the l
atter being unable to provide credit services to fuel the economy THE NEGATIVE F
EEDBACK LOOP, as many refer to it. In some parts of the globe, credit markets ar
e frozen due to the economic slowdown. The Philippines hasnt come to this ..and we w
ill make sure that we dont. How shall we manage that? Opportunities and Thrusts A
h. This is where the eye for opportunities comes in. Even as the Philippines has be
en characterized as an island of calm in these troubled waters, there continues to
be that risk of the negative feedback loop. Let me highlight three thrusts rele
vant to the monetary, banking and external sectors that I believe will help mana
ge the situation. Going forward, the BSP will: 1. Consider opportunities to furt
her ease monetary policy to help stimulate growth, mindful of potential tighteni
ng in credit conditions; 2. Commit to ensure a manageable external payments posi
tion; and 3. Continue to buttress the banking system to ensure that it remains s
afe and functions efficiently. How shall we do these? The BSPs primary mandate is
price stability. However, the recent lowering of the risks to inflation has giv
en BSP greater flexibility to help support growth. With the easing of oil and ot
her non-oil commodity prices in the world market and the moderation in inflation
expectations, inflation (as I mentioned before) is now expected to further dece
lerateand be within the target rangesin 2009 and 2010. Actual headline inflation d
ropped further last January to 7.1 percent from 8 percent in December, the lowes
t since March 2008. These developments opened the opportunity for BSP, during it
s last two Policy meetings, to cut its policy rates by a total of 100 basis poin
ts. The reduction in rates makes more funds available for lending to corporation
s, including small and medium business enterprises, as well as for consumer loan
s. We will continue to monitor developments to ensure that our policy settings r
emain appropriate. Prior to the twin rate cuts, BSP also moved (at the height of
the global financial market uncertainty in late 2008) to ensure there was suffi
cient liquidity in the system then and to address any liquidity distribution iss
ues. These preemptive moves included the opening of a US dollar repurchase facil
ity; increase in the budget for, and more recently, liberalizing the guidelines
of rediscounting facilities; and reduction in the reserve requirements. Liquidit
y fuels economic growth. But excess liquidity fans inflation. Balance is therefo
re necessary to ensure that these twin states are addressed. This slide shows a
graph of M3 (on the left) or the amount of money circulating in the economy and
credit growth (on the right). Together, these two charts show that while domesti
c liquidity continued to grow (latest at 15.6% in December), meaning funds are a
vailable in the system for investment and other productive activities, bank lend
ing has also remained robust (latest at 17.5 percent also in December), with loa
ns for production activities driving the expansion with an 18.3 percent growth.
While we have allowed liquidity to grow faster than we would normally tolerate,
we see that these funds are being used for productive sectors. A second thrust i
s the commitment to ensure a manageable external payments position. The BSPs exte
rnal sector policy will remain focused on ensuring that the economys external vul
nerabilities are reduced. We will continue to build up our international reserve
s for self-insurance to reduce our vulnerabilities to the volatilities in intern
ational financial markets. As of end-January 2009, our reserves have risen to an
all-time high of US$39.2 billion. This suffices to cover about 5.9 months of im
ports of goods and payments of services and income, or alternatively, it could c
over our short-term external debt based on residual maturity about three times o
ver. We were able to do this because our external payments position remained in
surplus in 2008, supported by remittances of overseas Filipinos as well as highe
r services receipts particularly from business process outsourcing. In January 2
009, our balance of payments position posted a surplus of US$1.7 billion. We wil
l also continue to pursue our policy of a market-determined exchange rate and im
plement measures that would ensure external debt sustainability. A third window
of opportunity is the banking system that has remained stable, against the backd
rop of ongoing global financial turmoil. This slide shows that the banking syste
ms asset base has been expanding steadily, supported by sustained growth in depos
it liabilities. Banks have been offloading their non-performing assets and probl
em loans. As a result, the NPL ratio is now at the pre-Asian crisis level of aro
und 4.0 percent. Further, the profitability of the banking system has continued
to increase, albeit with some moderation as of late. Banks have remained capital
ized at levels above both the BSP-regulatory requirement and the international (
BIS) standard. In addition, let me also assure you that the rural banking indust
ry remains strong and healthy despite the recent closure of some rural banks tha
t have declared bank holiday. A stable and efficiently functioning banking syste
m allows the banks to continue to perform their central roles of effectively cha
nneling funds to productive uses and managing and distributing risks. Therefore,
the BSP will continue instituting reforms to: 1. Further improve the regulatory
and supervisory framework. 2. Promote enhance risk management systems 3. Improv
e corporate governance structures in banks 4. Strengthen disclosure practices fo
r better consumer protection, and 5. Push for the passage of amendments to the C
entral Bank Charter. Conclusion: It will indeed be a tough operating internation
al environment in 2009. So what is our central message? The Philippine economy i
s not immune to the crisis but it is better positioned now to face a period of c
ontinued economic and financial volatility. Your monetary policymakers are wide
awake at the wheels and, more importantly, we have the tools to ride out the sto
rm 1. Monetary policy is flexible and has room to act preemptively and swiftly;
2. The discipline of debt management has been ingrained in the policy framework;
and 3. There is a deliberate effort to keep the banking system sound and stable
. All these factors should see us through the ongoing economic downturn. The way
I see it, there are two steps to overcome the challenges that confront us. The
first is to see, as American writer Charles Swindoll once said, that behind each
challenge lie great opportunities disguised as impossible situations. The secon
d is to persevere. Quoting an old Chinese proverb, Without the strength to endure
the crisis, one will not see the opportunity within. It is within the process o
f endurance that opportunity reveals itself. Thank you for your attention.
The Philippine Economy: Building Resilience in a Time of Uncertainty

Venue: Mandarin Oriental
Occasion: Economic Forum hosted by Security Bank with the theme Philippine Econom
ic Outlook Prospects and Challenges
Distinguished officers and staff of Security Bank led by its Chairman Mr. Freder
ick Y. Dy, President and CEO Mr. Alberto S. Villarosa, other distinguished speak
ers, guests, ladies and gentlemen: good afternoon! It is my pleasure to join you
for todays economic briefing. I laud the efforts of Security Bank for making thi
s gathering possible. I welcome opportunities such as this to help shed light on
our current economic and financial environment, from the vantage point of the c
entral bank, which I hope is not far removed from how it is in the real world. Muc
h has already been said and written about the current environment we are in it h
as been described as being a tsunami of historic proportions to being the the worst
crisis since the 1930s. Every writer or speaker seems to want to paint a picture
direr than the one before. Today, I dont want to be included in that list rather
, I hope I can more candidly share with you a balanced (realistic) view. Lets beg
in with what we now know against what is still uncertain. Three things stand out
. First, we have clearly seen that, on the one hand, the crisis has moved from i
ts epicenter the US and Europe and has begun to manifest itself in Emerging Mark
ets, including our part of the world. On the other hand, however, we dont know ho
w much further or deeper the crisis reach and breadth would be once the dust, as
they say, finally settles. Second, so far the policy prescriptions from the majo
r economies have been unconventional untested (so to speak) in these unchartered t
erritories we now trek. Unfortunately, the very nature of these prescriptions re
quires patience not only from those in the major economies but also from those at
the periphery such as the Philippines. The policy prescriptions clearly need ti
me to filter to the markets and achieve the necessary effects. Question is, how
much patience and tolerance do the markets have? Other questions that are perhap
s racing in stakeholders minds are: What is the exit strategy? How would all thes
e new policy tools be unwound? How would any exit strategy impact other economie
s, including the Philippines? Third, the impact on the Philippines of the global
financial crisis has (so far) been limited, but we know we are not totally immu
ne. We know the potential channels for weakness exports and remittances (then co
nsequently consumption). Yet again, we dont know how deeply these could and would
be penetrated by external factors. I arrived yesterday from Kuala Lumpur, after
attending a series of meetings with other central bank governors in the South E
ast Asian Central Banks (SEACEN) and the Bank for International Settlements (BIS
) including the heads of the International Monetary Fund (IMF) and the BIS. The
assessment was unanimous the crisis we are in is unlike any other we have so far
faced. Why so? 1. It is the first truly global crisis. Earlier crises were gene
rally localized with the contagion fairly limited to nearby regions. For example
, the debt crisis in the Latin Americas in the 1980s and then the foreign exchan
ge crisis in Asia in the 1990s neither affected the major economies in any signi
ficant way. This time, however, it is the developed economies that were first af
fected with the claws of the crisis reaching the rest of the world. 2. The linka
ges are now more enmeshed, more difficult to define and therefore more difficult
to disentangle. The crisis began as a US subprime mortgage market problem that
US policymakers first considered a situation which could be fixed with a single st
imulus package. The mortgage problem, as we now understand it, was triggered by
search for higher yield and new markets and perpetrated by the opacity in financ
ial markets that resulted from rapid financial innovation. This has since evolve
d into a seizing up of liquidity in major financial centers, rapid deleveraging
by banks and other financial institutions, generally lower asset values, unprece
dented wealth destruction and therewith a significant decline in consumption and
contraction in global trade. The turmoil in the financial markets has indeed tr
anslated into a slowdown in the real sector. More recently, the downturn in the
real sector is adversely impacting on the availability of domestic and internati
onal credit. I share these assessments by the major central banks with you, not
to show you how bad things are.but to show you that there is now among global polic
y makers a better appreciation of what has happened and what is happening, inclu
ding a fostering of a higher level of coordination and cooperation. Let me now m
ove on to where we are now and what we have done so far. The Philippine banking
system was not significantly directly impacted by the global financial crisis. T
his is because the direct exposure of Philippine banks to the troubled internati
onal financial institutions was minimal. Nevertheless, the BSP moved preemptivel
y to ensure the Philippines didnt experience the situation of credit markets seiz
ing up and liquidity in the financial system drying up that characterized the in
ternational financial markets at the height of the crisis in September 2008. The
BSP was aware that there was ample liquidity in the system even at the height o
f the crisis. That was evident from the fact that credit growth was still at dou
ble digit (even up till now) and that interbank markets continued to operate smo
othly with no prolonged periods of high interest rates. What the BSP witnessed,
however, were some kinks in the distribution of the liquidity. To address these,
the BSP expanded the allowable collateral for its repo facility; relaxed the va
luation on these collaterals, increased the budget of its e-rediscounting window
, reduced reserve requirements, and provided dollar liquidity in the spot and sw
ap FX markets. We believe these moves, in tandem with extensive and comprehensiv
e communication of our policy intent to key stakeholders, helped to shore up con
fidence in the financial markets during that critical period. That relative stab
ility exhibited by the financial markets then was critical in cementing the envi
ronment that allowed the economy to post a within-trend GDP growth and single di
git inflation in 2008. Understandably the numbers are nowhere near the ideal con
vergence of historic high growth and historic low inflation that we saw in 2007,
nevertheless these were respectable especially when pitted against those in our
region. The Philippine economy continues to be resilient. The 4.6 percent GDP g
rowth rate for 2008 was broad-based with the major domestic sectors providing po
sitive contributions to growth. I am confident that both domestic private and pu
blic consumption on the expenditure side, and services and agriculture on the de
mand side would continue to lift the economy in 2009. For this year, the GDP is
expected to grow between 3.7 to 4.7 percent. Inflation continues to decline. For
January this year, inflation went down further to 7.1 percent from 8 percent in
December 2008. This supports our view for within-target inflation rates for bot
h 2009 and 2010, and provides the BSP with room for monetary policy maneuvering
to counter the effects of the global financial crisis on the domestic economy. T
he external position continues to be strong. As of end January, the countrys inte
rnational reserves registered almost $40 billion, equivalent to six months of imp
orts of goods and service and three times external debt based on residual maturi
ty. We are still projecting a surplus in the BOP for this year, supported by ste
ady remittances and BPO receipts as well as a lower import bill due to the signi
ficant decline in international oil prices. The banking system remains stable wi
th very robust solvency. The industrys capital adequacy ratio (CAR) as of end-Jun
e 2008 stood at 15.3 percent. Moreover, results of stress-testing done by the BS
P showed that despite adverse shocks to asset quality and income, banks CAR would
still be well above both the international standard of 8 percent and the BSPs mi
nimum regulatory requirement of 10 percent. The banking system as a whole also r
emains very liquid. Proof of this is that bank lending continues to post signifi
cant growth. As of end-November 2008, bank lending, inclusive of interbank loans
, registered a year-on-year growth rate of 22.9 percent. We expect some slowdown
in credit expansion going forward as banks tighten credit standards. Neverthele
ss, loan growth could still be at double-digit, if banks remain keen to spot len
ding opportunities. Avoiding the negative feedback loop What do all those number
s and data mean? How do they fit into our daily lives? ....We all know there is
a key link between a stable macroeconomy and a sound financial system. On one si
de of this link, we know that an efficiently functioning financial system is cri
tical to the effective transmission of monetary policy and fuels economic activi
ty and growth. On the other side of this, we know that a vibrant real economy en
courages the further development of the financial system. In essence they feed on
or reinforce each other. [I leave the discussion of the direction of causation f

or another day!] The numbers and data I walked you through show that both our ma
croeconomy and our financial system have remained sound and stable against the t
ide of the financial turmoil. But there is risk that if one of these weakens, pe
rhaps due to further external stress, it could drag the other one with it. In ot
her words, the feedback loop is negative. This is now occurring in the major eco
nomies the financial turmoil has caused economic recession in the US, UK, Europe
, Singapore, Hong Kong and Australia, to name a few. And we have also seen the c
redit markets in these economies freezing up. We havent come to this yet..and we wi
ll make sure that we dont. How shall we manage that? The BSP can contribute by: 1
. Calibrating monetary policy to ensure that there is ample liquidity in the sys
tem. The trend decline in inflation and our within-target inflation outlook have
given the BSP room to be accommodative. We will, therefore continue to look for
opportunities to be supportive of economic growth. 2. Keeping our banking syste
m safe. Our banks have benefited from the series of reforms implemented in recen
t years, which have included cleaning up of banks balance sheets, the strengtheni
ng of bank capitalization through Basel II, and the improvements in governance s
tructures. We will continue to enhance our macro-surveillance capabilities and f
urther improve supervisory oversight of risk management. To operationalize these
, the BSP recently approved the guidelines for Internal Capital Adequacy Assessm
ent Process (ICAAP). The ICAAP provides a prudent framework that would force ban
ks to consider their own assessments of business lines and the prospects for the
se, determine their risk profile and then actively decide the appropriate level
of capital to hold. This formalizes the requirement for banks to have a more-for
ward looking approach to risk management and make them directly link risk to cap
ital. This would improve accountability on the part of banks for their actions a
nd hopefully avoid the situation of poor appreciation of risk that was at the he
art of the financial turmoil in the US. 3. Creating a stable macro environment,
i.e., stable interest rates and exchange rates. This would encourage long-term b
usiness planning and lending by banks. Economic agents and banks need to continu
e to be keen to seize opportunities during this downturn and be ready for the up
turn. 4. Continuing to encourage financial innovation and capital market develop
ment. I am often asked whether the BSP would clamp down on financial derivatives
and financial innovation, given pundits are pointing to their proliferation as
one of the reasons for the current financial turmoil. My answer to that is this
I believe there is a place for financial innovation in market development. Its p
resence provides avenues to address varying risk requirements of investors and u
sers of funds. What I always emphasize, however, is that embracing financial inn
ovation must be coupled with appropriate prudential regulation, including approp
riate disclosure and transparency standards. These would ensure that all stakeho
lders are fully aware of the risks that they are taking on. As I have said, we s
houldnt go to the extreme of over regulation. Rather, we should move towards grea
ter accountability for our actions. How do we see things going forward? I had ma
de a point earlier of saying that no one knows how deep or how much longer this
crisis would last. But I want to stress now, this will not go on forever. There
will be an upturn sooner or later. (As they say, the light at the end of the tunn
el.) What is crucial is we must be ready for that time. Slowly, we are seeing so
me traction in the markets. The most visible manifestations of these are: the ex
change rate level consolidating, the credit spreads narrowing, the stock market
steadying. At the meetings I attended in Kuala Lumpur. The IMF analysis showed t
hat recovery in Asia could be faster given our relatively stronger position comi
ng into the crisis. They point to lessons on building up reserves for insurance,
managing debt levels, setting up prudential standards and cleaning up bank bala
nce sheets all lessons astutely learned from and implemented by the Asian econom
ies since 1997 Crisis. However, in the same breath, the IMF admitted that an Asi
an recovery may not occur without a recovery in the US. The recent events have i
ndeed debunked the myth of Asia decoupling from the U.S. I see a three-fold hope
in that irony. First, the strong and aggressive policy actions by the US could
move it closer to a recovery than without such action. Second, individual econom
ies outside of the US are also doing their part to shore up confidence in their
own economies. Third, there is a heightened desire to improve the coordination a

nd cooperation among national governments to resolve the current global financia
l crisis, including more openly sharing information and the thinking behind poli
cy actions. This would help fuel policy actions forward. The current crisis has
brought to fore that, with its good points, globalization also brings many chall
enges. The worlds economies and financial markets have become highly integrated t
hat any solution to the problems we currently face must necessarily also be of a
global nature. Conclusion: I tried to bring into my remarks this afternoon a mo
re international/regional flavor. I have also tried to share the risks we face,
our policy moves and our outlook both the bad and the good that at the same time
envelope this crisis. I have emphasized that the resolution strategies necessar
y to address the current crisis must have an international dimension. But this i
s not to say that, that is where it ends. Indeed the difficulties we are experie
ncing are broadly external (global) in origin. But building resilience against e
xternal vulnerabilities resides in all of us. Building resilience in a time of u
ncertainty is not just BSPs task. Even as I outlined actions that BSP is undertak
ing to avoid the negative feedback loop, avoiding this is not just BSPs task. If
there is anything that this crisis has taught us, it is that there should be gre
ater accountability among all market players. On the part of the banks, there ne
eds to be a better appreciation of the risk of their businesses and true diligen
ce in disclosure and transparency to stakeholders, while at the same time remain
ing adept at seizing lending opportunities. On the part of the corporate sector,
there needs to be a broader, more critical long-term view of their operating en
vironment, realizing that is necessary to ensure their own viability. On the par
t of the financial consumers, there needs to be a move to be better informed. Th
e BSP has been actively undertaking its financial literacy campaign. The long-te
rm goal is to instill among the financial consumers the responsibility of inform
ing themselves about the risks involved in financial decisions. Better informed
consumers would mean lesser instances of market instability caused by loss of ma
rket confidence due to failed investment schemes. Indeed, building resilience of
our financial system, and the economy in general, requires appropriate action f
rom the government, the central bank, the financial institutions, businesses, do
wn to the individual private citizens. By doing our respective responsibilities,
we can build a financial system and economy that can withstand not only the imp
act of the current crisis, but also of other future crises. Thank you very much
for your attention.
Antecedents of the Global Financial Crisis: A Multi-Factorial Phenomenon

Venue: Renaissance Hotel, Makati City
Occasion: Sixth Sec. Alfonso Yuchengco Policy Conference
Secretary Alfonso Yuchengco, distinguished guests and fellow stakeholders from t
he business sector, the government and the academe, ladies and gentlemen good mor
ning. First, let me thank the Board of Trustees and Secretary Yuchengco for invi
ting me to your sixth policy conference. It is my pleasure to be able to share w
ith you today some thoughts on a subject which has occupied global attention, es
pecially since the last four months of 2008 when marquee financial institutions
in Wall Street started to crumble, and bailout became a buzzword in global financi
al markets. Let me put in a nutshell the Philippines economic situation in 2008.
What we had seen as an ideal convergence of low inflation and high growth in 200
7 was clearly disrupted by the highly volatile oil and food prices, the spread o
f the subprime mortgage woes of the US to international financial markets, and t
he recession in some key advanced economies and economic slowdown elsewhere. For
ecasts for this year and 2010 continue to be revised downward, as more concrete
data become available. A bleaker outlook is in the offing, with the impact of th
e crisis trickling down to the real and external sectors, affecting trade, inves
tment and consumer demand. But before we get into the details of the extent and
implications of the crisis on our countrys development momentum, I suppose it is
important to ask the question: How did the current global financial crisis occur
in the first place? What led to the creation of bubbles? I believe that there are
two layers to the reasons for the crisis. The first layer I will refer to as th
e superstructure or the physical what is happening and visible to the naked eye. T
he second layer is the microstructure or the psychology what is underlying those t
hat can be seen. Let me talk about the superstructure first. The roots of the US f
inancial crisis can be traced back to the early years of this decade when the Un
ited States aggressively eased its monetary policy to facilitate recovery from t
he dotcom bubble and the September 11 terrorist attacks. If you will recall, the
US Federal Reserve began a cycle of cuts in the Fed funds target rate from 6.5
percent in May 2000 to as low as one percent by June 2003. On the fiscal front,
large public deficit spending beginning in 2001 was pursued to prop up the econo
my which was then on the brink of recession. The low interest rate regime fueled
a boom in mortgages, including among borrowers with doubtful credit histories o
r those fancifully called NINJA loans that is, loans to No Income, No Job or Ass
ets loans. Thus, house prices in the US began rising in 2000, surpassing the gro
wth of disposable income. The excessive lending itself would not have brought in
such great financial distress because if the borrowers turned out to be poor bo
rrowers, then foreclosures would just have followed. However, what made this ris
ky behavior turn into a crisis event was the bundling of mortgages by various fi
nancial institutions into complex securities such as collateralized debt obligat
ions (CDOs) which were largely unregulated. These complex transactions were desi
gned in search for yield and new markets. The securitized products were sold to
banks, Wall Street firms and overseas investors. The continued appreciation of h
ouse prices ensured attractive returns for these mortgage-related securities. Wi
th too much liquidity in the US economy and with the price level creeping up, th
e US Federal Reserve started to rein inflation in. In June 2004, the Fed began a
cycle of hikes in the Federal funds target rate, lifting the Fed funds target r
ate from one percent to as high as 5.25 percent just two years later (or by June
2006). When interest rates were raised, an asset bubble burst became imminent.
The elevated interest rates discouraged availments of mortgage loans, which led
to a build up in unsold homes. This precipitated the steep descent in house pric
es from their peak in 2006. As of end-November 2008, the S&P/Case-Shiller index
of 20 major metropolitan areas showed that home prices in the US had fallen by a
round 25 percent below their July 2006 peak. The immediate damage was felt in su
b-prime mortgages - not only the most highly leveraged sector in the economy but
also that with the weakest capital support, least transparency, and on which th
e poorest due diligence had been done. Initially, market participants and policy
makers felt the damage was an isolated case that could be fixed. This belief partl
y mirrored the (over) reliance on the most modern risk management techniques rel
ated to derivatives and structured products. It also partly reflected inadequate
information on the extent to which sub-prime exposures had infected the balance
sheets of financial institutions. With the glut in supply and as housing prices
fell, the value of the collaterals supporting mortgage loans eroded. Higher del
inquency rates on sub-prime mortgage loans triggered a wave of bankruptcies of s
ub-prime mortgage lenders. As bankruptcy filings by mortgage lenders mounted, un
nerved investors began draining liquidity from financial markets. With banks hol
ding on to their cash to cover losses, credit markets started to seize up. Even
creditworthy borrowers began experiencing difficulty in borrowing. Firms/ househ
olds cut back on investment and consumption, causing a slump in economic activit
y, precipitating a recessionary cycle. Moreover, since the loans were securitize
d and sold to other investors as credit derivatives, the defaults in the mortgag
e lending market spread to the wider credit markets, multiplied several-fold by

leverage. Eventually, losses in subprime mortgage lending and credit derivatives
would spill over to the broader financial markets and to financial institutions
elsewhere that invested in US mortgage bonds and structured products. There wer
e other factors that could have contributed to the credit crisis. Mark-to-market
accounting standards exacerbated selling pressures during the period of deflati
ng house prices as banks were forced to recognize valuation losses in their bala
nce sheets. The fragmented supervision in the United States led to lack of regul
ation over segments of the financial system. Even credit rating agencies have go
ne under scrutiny for giving investment-grade ratings to securitization transact
ions that were backed by sub-prime mortgage loans. These high credit ratings enc
ouraged the flow of investor funds to these securitized instruments. Critics cla
im that conflicts of interest were involved, as rating agencies were paid by fir
ms, such as investment banks, that originated and sold the debt to investors. Ho
wever, beneath what can be seen by the naked eye is the "micro structure" or the
underpinning of the crisis. There is a quote from Robert Shiller. He said "too
little attention has been paid to the most fundamental cause (for the housing cr
isis): the contagious optimism, seemingly impervious to facts, that often takes
hold when prices are rising. Bubbles are primarily social phenomena; until we un
derstand and address the psychology that fuels them, they re going to keep formi
ng". I am a believer that all these over-structures could be explained by underl
ying market psychology -- Greed. Ignorance. Herd mentality. Disregard for or mis
use of information. Exuberance. Irrationality. If we look back at the 1997 Asian
financial crisis, and the other crises during the last three decades, the patte
rn seems to be quite similar: crisis was preceded by rapid credit expansion, whi
ch manifested itself in asset prices. These gains, of course, provided the colla
teral to justify even more lending. The euphoria generated by such gains also se
emed to affect both the perception of risk and the appetite for risk-taking, on
the side of both lenders and borrowers. As a result, leveraging increased even a
s the general quality of credits deteriorated - unfortunately, this was commonly
not perceived at the time. And, as we realize now, the so-called Minsky moment inva
riably comes. At a certain point, usually when earlier expectations about profit
s or future income growth begin to look unrealistic, the whole endogenous proces
s goes into reverse. In effect, boom turns to bust, with the stress in the finan
cial system commonly, but not universally, aggravating the economic damage on th
e downside. Together, the superstructure and the microstructure of the crisis wo
uld explain the bubble that just burst. In hindsight, it is clear that global fi
nancial activities had outpaced the financial systems ability to manage these act
ivities in an orderly manner. Thus, the air of uncertainty and vulnerability as
well as a general sense of eroded confidence now looms in both industrial and em
erging market economies. One could even call this a Black Swan Event a large-imp
act, hard-to-predict and rare event beyond the realm of normal expectations. Whi
le the epicenter of the financial turmoil is in the US, tremors have been felt w
orldwide. The slowdown in growth spread to Europe, amid weak business and consum
er sentiment, terms of trade losses, and tightening credit conditions. The impac
t on Asia has come through risk aversion as evidenced by: 1) the reversal of equ
ity capital inflows; 2) widening of sovereign credit spreads; and 3) heightened
volatility in exchange rates. Apprehension has also risen in the Asian economies
, particularly in terms of reduced production, and weaker consumer demand. These
developments necessitated coordinated policy actions among major advanced econo
mies to support the global financial system on a scale not seen for decades. Man
y central banks have taken strong actions to cut interest rates and expand liqui
dity provision both in local and foreign currencies. Other measures taken includ
e capital injections into financial institutions, expansion of deposit insurance
and purchase of distressed assets. On fiscal policy, many countries have announ
ced and are already implementing sizeable stimulus packages. Evidently, there is
no one-size-fits-all policy mix. Some countries have more fiscal and monetary spa
ce than others. This brings me to the next - and to most of us here - the centra
l question - how will the Philippine economy fare amid this highly challenging g
lobal economic turmoil? Admittedly, we are not immune to what is happening aroun
d the world, but there are insulations, cushions, buffers that can serve the Phi
lippine economy in good stead in this challenging period. Let me provide some de
tails on these buffers. Output growth has continued at a respectable pace and it
continues to be demand-driven. The 4.6 percent GDP growth for 2008 was a respec
table growth performance vis--vis those of our Asian neighbors. It is noteworthy
that the countrys GDP growth for 2008 is within the countrys long-term growth tren
d. Domestic demand continues to be the main driver of growth in the economy, spe
cifically personal consumption. Demographics - particularly in the form of the P
hilippines young and economically active population - underpins the view that con
sumption will continue to propel economic growth even in these difficult times.
Moreover, income levels are such that majority of the population has a greater p
ropensity to consume. Weakening global demand is causing commodity prices to ret
reat. Reflecting the global economic downturn, oil prices began to ease starting
July 2008. Partly because of this, headline inflation dropped sharply lower in
December 2008 to 8.0 percent year-on-year. This brought the average inflation in
2008 to 9.3 percent. Lower fuel prices and slower price increases of food and l
ight, as well as of transportation and communication services accounted for the
retreat of inflation. With the easing in the prices of oil and other non-oil com
modities in the world market and given moderating inflation expectations, inflat
ion in the Philippines is expected to further decelerateand be within the target
rangein 2009 (2.5 4.5%) and 2010 (3.5 5.5%). This gives some flexibility to monet
ary policy to support growth and stabilize financial conditions, while being hig
hly attentive to price pressures. Fiscal reforms, particularly the VAT reform, h
ave strengthened the Philippines ability to cope with externally-induced challeng
es, as fiscal consolidation has improved our debt profile and markets view about
the commitment of our authorities to difficult but much-needed fiscal rectitude.
Recent adjustments in fiscal targets could also provide policy space to support
growth. The postponement of the balanced-budget objective due to the expected s
lowdown in the global economy will provide countercyclical fiscal space for the
government to boost infrastructure spending and enhance social safety nets to su
pport the most vulnerable segments of the population. The fiscal stimulusprovided
that it adheres to best principles of what some would call the 4 Ts (spending th
at is timely, targeted, transparent and temporary) or as some would say spending
that gives the most bang for the buckshould be supportive of durable, robust growt
h. On the external front, we have continued to build up our international reserv
es for self-insurance to reduce our vulnerabilities to the inevitable moods and
swings of international financial markets. At year-end 2008, our reserves rose t
o US$37.6 billion. This suffices to cover about 6 months of imports of goods and
payments of services and income, or alternatively, it could cover our short-ter
m external debt based on residual maturity about three times over. We were able
to do this because our external position remained in surplus in 2008, supported
by remittances of overseas Filipinos as well as higher services receipts (includ
ing from tourism & business process outsourcing). Meanwhile, the Philippine fina
ncial system remains stable notwithstanding the challenges brought about by the
global financial crisis. The Asian financial crisis of 1997 had imprinted valuab
le lessons which provided the needed cushion for our banking system to weather t
he current turmoil. For instance, we regulated the real estate sector in relatio
n to housing and mortgage markets; we implemented stronger bank supervision anch
ored on managing risk exposures; we reduced non-performing loans via asset vehic
les; we implemented macro-prudential surveillance with due diligence in implemen
ting internationally accepted standards via the Basel II accord; and we particip
ated actively in implementing collaboration among Asian neighbors for coordinate
d responses and information-sharing to mitigate contagion effects and spillovers
. Importantly too, the Philippines is relatively well-insulated from key transmi
ssion channels of the global financial strains that are affecting other emerging
market economies (EMEs). This is so for the following reasons: Reasons: (1) Phi
lippine financial institutions have relatively limited exposure to structured cr
edit and related derivative products which were the main cause of the large loss
es of crisis-affected international banks. It is helpful to point out that deriv
atives licenses in the Philippines have been given out prudently. (2) Philippine
banks are more domestically oriented, and rely more on traditional banking serv
ices such as deposits than on complex products like derivatives as sources of fu
nds. Corporate sector bond financing is also minimal and private sector reliance
on external loans is limited. (3) Lastly, while credit growth has been steady a
nd significant, it has not fueled concerns of overheating or asset price booms.
What should we expect in 2009? Even though we could lay claim to the island of ca
lm status mentioned by economists in evaluating the Philippine economic situation
amidst the crisis, and even though we have buffers that we could rely upon as w
e brave the current financial storm, we should not rest on our laurels for the ef
fects of the crisis are just beginning to show their fangs and just starting to
bite into our pockets. The real and external sectors are yet to experience tough
er challengesso let me share the policy thrusts of the BSP this year: Monetary po
licy in 2009 will continue to focus on our primary mandate of price stability. A
s inflation risks moderate, the BSP will carefully consider opportunities for mo
netary policy easing amidst a possible tightening in financial conditions. We wi
ll also continue to ensure appropriate levels of market liquidity to maintain th
e efficient functioning of the financial markets. Through these, we hope to prov
ide the necessary conditions that will allow economic growth to continue. We wil
l at the same time endeavor to keep inflation at manageable levels as this creat
es the environment for sustainable long-term growth. The BSPs external sector pol
icy will remain focused on ensuring our external vulnerabilities are reduced. We
expect to continue to post a surplus in our BOP, mainly due to steady OF remitt
ances and receipts from the BPO sector, coupled with a reduced level of imports.
This will give us the opportunity to further beef up reserves for self-insuranc
e. We will continue to pursue a market-determined exchange rate to allow us to m
aintain external competitiveness. We will also engage in policies that would sus
tain a manageable external debt profile. Banking sector policies will remain gea
red towards the financial systems soundness in terms of greater risk management,
stronger capital base, bolder disclosure mechanisms, and better corporate govern
ance standards. Since most of the experts point to the lack of regulation as one
of the root causes of the US subprime market crisis, it is therefore tempting t
o swing to the other extreme of over regulation. I dont believe that we should mo
ve towards that direction. Instead, what I believe should occur is a move toward
s greater accountability. Thus, the BSP will sustain its reforms that would lead
to improved disclosure practices, better risk management and higher standards o
f governance in the banking system. We will continue to pursue regulation that w
ould make the markets work more efficiently and advance consumer protection. Rea
lizing that the current crisis has taken on a global nature, we will further str
engthen engagements with our regional peers to share information, discuss emergi
ng developments, and pool resources, if necessary even foreign exchange reserves
. Its interesting that the current financial turmoil took on a turn for the bette
r once the major economies began to act in concert. Confidence had been quickly
eroding until then. The coordinated and cooperative policies that were put in pl
ace by the US and European central banks and finance ministries beginning Octobe
r last year, have helped restore some traction in the markets and subsequently i
mproved market confidence not only in the major economies, but also in emerging
markets. Ladies and gentlemen, 2009 will be a critical year for our economy. But
we should look at this crisis as like the gift of fire of old. Fire is importan
t in all facets of our lives including the need for light, power and heat. Yet f
ire is not without risks to life and property. What is important is to be able t
o master it and harness it to serve human needs. Thus, this crisis should pose a
challenge to us to put together and implement policies this year and beyond tha
t would enhance the resilience and the flexibility of our economy. Without a dou
bt, this crisis shall test our resiliency and character, and it shall determine
whether our buffers would keep us afloat amidst troubled waters. The Philippines
is not a newbie in terms of facing crises, for we have hurdled quite a number o
f these in the past. Each crisis we encountered was unique in its roots and caus
es. But we have learned from each, every time. Its too early to make prescription
s and judgments, given that much is still to unfold. I trust that the audience c
ould share my vision in seeing a glass half-filled with water as half-full rather
than half-empty. Let us also remain vigilant and prepared for any circumstances th
at could come our way. Let me end my remarks this morning with a quote from John
D. Rockefeller. He said "These are days when many are discouraged. In the years
of my life, depressions have come and gone. Prosperity has always returned and
will again." Thank you very much Mabuhay ang Pilipinas!
Nurturing Successful & Ethical Finance Professionals

Venue: Executive Business Center Lounge, BSP
Occasion: FINEX-CITI Rafael B. Buenaventura Outstanding Finance Educators Awards
Night
Members of the Monetary Board, the family and friends of Governor Rafael Buenave
ntura, the organizers of the Finex-Citi Rafael B. Buenaventura Outstanding Finan
ce Awards led by Mr. Sanjiv Vohra of Citi and Mr. Eduardo Francisco of Finex Fou
ndation, distinguished finalists, my colleagues at the Bangko Sentral ng Pilipin
as, special guests from the academic, banking and finance communities, good even
ing. I am very pleased to be here today to join you in honoring our outstanding
finance educators. As a career central banker for more than three decades now, I
was fortunate to have good mentors; Governor Rafael Buenaventura stands out in
particular. He never lectured, he mentored. He never preached, he showed by exam
ple. Thus, his six-year term as head of the Bangko Sentral ng Pilipinas will be
remembered for the world-class expertise and wisdom which he generously shared.
It is fitting therefore that our awards tonight are given in honor of a great me
ntor -- former BSP Governor Paeng Buenaventura. Ladies and gentlemen, let us cel
ebrate the memory of Gov Paeng with a long round of applause. Teaching is a voca
tion; it requires intellectual, emotional, and spiritual commitment. It is there
fore proper for us to reward outstanding educators. To me, the discipline, intel
lectual rigor, and moral values that good educators engender are priceless gifts
that empower their students to become effective catalysts for economic and soci
al advancement in our country. Given the hard and painful lessons from the ongoi
ng global financial crisis, we cannot overemphasize the importance, the valueof i
nstilling good moral principles and good governance in the process of educating
our youth, the future leaders of our nation. For instance, we have seen the dest
ructive effects, on a global scale, of the greedy and senseless race to have eve
r fatter bottomlines at all cost, in total disregard of its consequences. We hav
e seen many supposedly finance experts lose their perspective when it comes to m
oney. Think subprime, Madoff, and the German billionaire, one of the 100 richest
men in the world, who committed suicide when his investments soured. What is cl
ear is that having piles of money that would allow them to live in luxury was no
t enough. The chase for money became the end goal. This is where the value of go
od and ethical finance educators comes in. Educators who will provide their stud
ents solid grounding on what financial success means and the ethical parameters
for achieving it. Helping your students develop the ethical compass and the mora
l fortitude to adhere to doing things the right way should help them find their
way in a challenging world. For as we know, doing the right things is not necess
arily the easiest path to follow. American civil rights leader Martin Luther Kin
g, Jr. once said that Intelligence plus character--that is the goal of true educa
tion. That is the challenge before our educators. As finance educators I hope you
will always be mindful that sitting before you in your class are the future lea
ders of our banking and finance institutions. That you have the power to nurture
leaders who can truly make a difference in improving the quality of life of our
people. This is the same philosophy that underpins the economic and financial e
ducation program of the Bangko Sentral ng Pilipinas: improving lives through lit
eracy programs that will empower them to benefit from opportunities that develop
ment brings. As you and I know, there are millions of Filipinos who still live i
n poverty. If we can harness the liberating effects of financial know-how, even
at its most basic, then we would be able to help millions of Filipinos help them
selves. Empowerment is the key. This is the reason why economic and financial ed
ucation is at the heart of Bangko Sentrals advocacies. It is a social good, whose
value to society is considerably much more than the personal gains. Financial l
earning empowers the citizenry as it helps the public acquire knowledge and deve
lop skills in making well-informed economic and financial decisions necessary to
ensure well-functioning markets that, in turn, support economic growth and deve
lopment. And when consumers and producers understand financial issues, they are
less vulnerable to fraudulent practices and scams. As they grow in their underst
anding of financial products, whose variety and complexity have grown in leaps a
nd bounds, they will be able to prepare and chart their financial future based o
n their preferences for risks and rewards. Just as financial learning helps to p
rotect the public from unsafe financial practices, it also affords the public be
tter opportunities for financial advancement and wealth creation. The importance
of education to ones financial future highlights the need to start the process o
f education as early as possible. Many of you here are parents like myself. So Im
sure many of us would also be happy to see our children learn the importance of
saving, investment and budgeting, as well as other aspects of personal financia
l management, to set them on the right path to a secure and stable financial fut
ure. On the macroeconomic level, financial education also ensures the efficient
transmission of macroeconomic policies. It also facilitates the anchoring of exp
ectations as the public is better able to understand and respond to policy actio
ns of the various economic agencies of the government and the Bangko Sentral. It
is for these reasons that the Bangko Sentral and many other central banks in th
e world consider economic and financial education as a key advocacy. The private
sector also plays a major role in raising the general level of financial and ec
onomic education. Tonights awarding ceremony to honor our outstanding finance edu
cators is a testament to the commitment of our organizers, FINEX and Citi Founda
tion, to this advocacy. In particular, FINEX has been at the very forefront of t
he development and advancement of knowledge and skills related to the financial
field. On the other hand, Citi Foundation is proactive in its own educational ca
mpaign to help consumers better understand credit, savings and investment. We ar
e, therefore, natural partners in broadening the reach of our economic and finan
cial education programs. I look forward to an ever-expanding network of similarminded individuals and institutions who will cooperate with us to reach out to b
roader segments of our society: from school children, students, young adults and
professionals, overseas Filipinos, and members of the business sector, academe,
media and public service. To those who wish to identify possible areas of coope
ration with the Bangko Sentral, our initiatives include the launching of Economi
c and Financial Learning Centers in different regions; out-reach programs to tea
ch financial management to overseas Filipinos and their families; in-house educa
tion activities to enhance economic education even among BSP staff; advocacy of
microfinance as a tool for poverty alleviation for entrepreneurially-inclined bu
t capital-challenged Filipinos; in partnership with the Department of Education
the integration of savings and money management lessons in the grade school curr
iculum; and teaching the value of small things including the barya for wealth cr
eation through fund-raising projects such as the award-winning Tulong Barya Para
sa Eskwela. Ladies and gentlemen. The overall success of financial and economic
education rests on the concerted efforts of the BSP, our educators and our part
ners in the private sector. Aside from the various programs and initiatives of t
he BSP, our contributions to this advocacy lie in providing support to similar e
fforts of individual organizations. That is why we are particularly happy to hos
t this awards night, together with FINEX and Citi Foundation. Both the private s
ector, as well as the BSP, stand to gain from a citizenry that better understand
s economics and finance, and we pledge our support to programs and initiatives t
hat will help us attain this end. For FINEX and Citi Foundation, we look forward
to building upon our collaboration and partnerships in the area of promoting fi
nancial and economic education. For our educators, nominees and winners all, I s
alute you for your dedication to an ideal that we at the BSP and the banking com
munity as a whole, hold dear. I know that you do all these things not for person
al glory or monetary reward. However, your actions should be recognized because
they serve to inspire others to do better and to continue the work at hand. I ch
allenge our educators to develop new and innovative methods of reaching our stud
ents, and to continue to inspire and enkindle in the hearts of the youth, the th
irst and zest for knowledge you hope to impart. Once again, thank you for your d
edication and congratulations to our winners! Mabuhay ang Pilipinas! Salamat sa
inyong lahat.
Career Executives in Government: Making Lives Better for Filipinos

Occasion: CES Circle Forum
Executive Director Allones of the Career Executive Service Board, distinguished
panelists, the elite corps of government employees who make up the Career Execut
ive Service Officers and Eligibles, colleagues in government service, special gu
ests, good afternoon. On behalf of the men and women of the Bangko Sentral ng Pi
lipinas, I welcome all of you to our head office for the inaugural CES CIRCLE Fo
rum. CIRCLE, which stands for Creative Innovations and Reforms for Committed Lea
dership and Effectiveness, is a most appropriate symbol for this program that ai
ms to nurture thought leadership in government: a circle is never-ending and so
should our efforts to learn and continuously find better and more efficient ways
of doing things. I also find the timing for this new program for CESOs and CES
eligibles quite auspicious. This is the first month of the year and, coincidenta
lly, the celebration of the Chinese New Year the beginning of the year of the Ox
, one of the most hardworking and productive creatures on earth. Ladies and gent
lemen, for its resolute efforts to strengthen and broaden professional competenc
e in government let us give the CES Board a well-deserved round of applause! The
theme for this Circle Forum is thought-provoking and challenging: Bagong Taon,
Mga Bagong Hamon, CESOt Eligibles, Paano Ka Tutugon? Earlier, you heard about the
labor situation as well peace and national security issues. On my part, I cannot
overemphasize that this will be a particularly challenging year for us as a cou
ntry.. as we grapple with the impact of the ongoing global financial crisis. Wha
t began with the market turmoil surrounding U.S. subprime mortgages, has become
an economic and financial crisis that threatens the global community in magnitud
es reminiscent of the 1930s Great Depression. No economy has been unscathed by the
global headwinds. And the crisis has landed on our shores as well. As leaders a
nd managers in our respective government agencies and offices, the burden is upo
n us to craft and implement policies and measures that will enable our country a
nd our people to ride out this economic and financial storm. Current Situation H
ow should we respond to the challenges before us? The first step is to recognize
where we stand at the moment. Thus, allow me to share with you some insights on
the impact of the global financial crisis on the Philippine economy. As we all
know, 2008 has turned out to be one of the most challenging years weve had, as we
coped with two major challenges. In the first half of the year, we were confron
ted by surging prices of oil and non-oil commodities which caused inflation to a
ccelerate globally. In the second half, we faced the international financial tur
moil that was ignited by the U.S. subprime mortgage problem and, which subsequen
tly, turned into a global financial meltdown. While the Philippine economy has r
emained generally resilient and has been described by a ratings executives as an
island of calm, it does not mean that we are totally immune to adverse global dev
elopments. As in most other countries, our currency has generally weakened, cred
it spreads have widened, and the stock market has fallen. Some economists believ
e that 2009 could even be tougher than 2008 once the impact on the real economy
is felt. Nevertheless, it is not all gloom and doom for us. The Philippines has
buffers that can help us through the current global economic crisis. Our output
growth continues to be demand-driven, led by consumption as well as capital spen
ding. Moreover, the countrys GDP growth for the first three quarters of 2008 is s
till within the countrys long-term growth trend. Compared against our neighbors,
this growth performance is quite respectable. Meanwhile, easing prices of oil an
d other non-oil commodities in the world market and moderating inflation expecta
tions have reduced inflation pressures and protected the peoples purchasing power
. Easing inflation pressures provide flexibility for the BSP to formulate polici
es supportive of the real economy while keeping an eye on the risks to stable pr
ices. Recent adjustments in fiscal targets also provide some policy space to sup
port growth. The postponement of the balanced-budget objective to 2010 should pr
ovide additional resources to government to boost infrastructure spending and en
hance social safety nets that will protect the vulnerable segments of our popula
tion. The countrys stable external payments position also provides additional buf
fer against the global economic slowdown. The countrys balance of payments, altho
ugh significantly lower than in 2007, has remained in surplus in 2008 with our Gr
oss International Reserves at an all-time high. Finally, the banking system rema
ins sound due to continuing policy and structural reforms. Our banks have limite
d exposure to structured credit and related derivative products which were the m
ain cause of the large losses of crisis-affected international institutions. Liq
uidity in our banking system remains adequate and bank lending operations contin
ue to expand at a healthy pace. Furthermore, our banks are capitalized above the
global standards and BSP regulatory requirement. Moving Forward The next questi
on is how do we move forward? First, given the buffers I have mentioned earlier,
we should face the global headwinds with an underlying belief in the resilience
of the Philippine economy. The message is that 2008 has been a tough year and 2
009 will most likely be tougher but our economy is in a better shape to weather
this global storm. This is not our first crisis, nor will it be the last. This t
ime around, we are entering the crisis from a position of relative economic stre
ngth. The key is to manage the factors that are within our control, to maintain
a positive mindset, and to capitalize on our time-tested resiliency and ability
to innovate amidst challenging times. This brings me to my second point. We shou
ld press on with the strategy that has so far kept us in good stead macroeconomi
c prudence. Sound macroeconomic fundamentals are the first line of defense durin
g these trying times. Our experience in the past years has demonstrated that sou
nd monetary, fiscal and structural policies have a salutary effect on the econom
y. The key challenge is to continue to have a consistent and coordinated monetar
y, financial and fiscal policy response to the ongoing crisis. The commitment to
tackle policy challenges boldly through purposeful reforms to strengthen instit
utional underpinnings, improve productivity and boost international competitiven
ess should ensure a steady anchor to the countrys economic prospects amidst the i
nevitable global storms. On the part of the BSP, we will continue to craft monet
ary and financial policies that will support broad-based economic growth while k
eeping prices stable. In other words, the BSPs monetary policy will continue to f
ocus on achieving price stability while allowing room for the economy to grow. T
he BSP will also continue to stabilize financial conditions through reforms that
will foster healthy financial balance sheets. We will guard against systemic fa
ilures through liquidity provision when necessary, while keeping inflation under
control. This will ensure the effective functioning of transmission channels fo
r monetary policy. In turn, this should reinforce confidence in the financial ma
rkets and in the economy as a whole. The ultimate goal is to have a more balance
d and inclusive economic growth and development that will sustain durable wealth
creation. However, you and I know that improved frameworks and policies will be
useless if we dont have competent and dedicated professionals to implement them.
Beyond policies therefore, what we should nurture in the career executive servi
ce is the drive for excellent leadership. This, to me, is the value of the CIRCL
E Forum. Indeed, this is what we need in our government: innovative and committe
d leaders, trailblazers in their fields and effective in the way they do things,
wherever they are. Given the hard times that confront us, our challenge is to f
ind opportunities for productive and innovative activities. This is a call for a
ctive participation at a time when the economy needs us the most. Now, more than
ever, we should be conscious that as civil servants, our actions or inaction affe
ct the lives of millions of our countrymen the Filipinos we have pledged to serve
to the best of our abilities. Concluding Remarks Ladies and gentlemen. One of t
he many positive traits associated with us as a people is resiliency the Filipino
can-do spirit. Thus, even as we look at 2009 as a serious challenge for our coun
try, I am confident that as long as we remain united, we can ride out this crisi
s and emerge stronger and better prepared to benefit from the opportunities that
the next global economic upturn shall bring. As leaders and managers in our resp
ective agencies, let us look for opportunities where we can improve our services
and inspire confidence in the government and in our economy. Let us strive for
constant change for the better. Together as one team in the civil service, let u
s work with vigor and dynamism as we face the challenges ahead confident that we
can make a difference in making lives better for Filipinos. Mabuhay ang Pilipina
s! Mabuhay po tayong lahat! Maraming salamat!
Sustaining Partnerships in a Year of Challenges

Venue: Fort San Antonio Abad, BSP Complex
Members of the judicial, legislative, and executive branches of government; lead
ers of the Philippine banking community; special guests from the diplomatic comm
unity, the private sector, the academe, and the media; fellow central bankers; l
adies and gentlemen, a pleasant good evening to all of you. On behalf of the Mon
etary Board, I thank you all for taking the time to join us tonight for our trad
itional Reception for the Banking Community. That we are celebrating 60 years of
Central Banking in the Philippines in 2009, makes this reception doubly meaning
ful. We are happy therefore that we have with us tonight former deputy governors
and members of the Monetary Board; two former governors under the Central Bank
of the Philippines Governor Jaime Laya and Governor Jose Cuisia, Jr.; and one fo
rmer governor of the Bangko Sentral ng Pilipinas - Governor Gabriel Singson. Lad
ies and gentlemen, let us acknowledge all central bankers past and present on th
is 60-year milestone with a round of applause. We have 60 years of central banki
ng behind us and we move forward to the future with confidencehaving learned many
lessons along the way. We therefore look forward to more opportunities for us t
o shape a better future for ourselves, our families, our communities, and our co
untry through sound and responsive monetary and banking policies. Take the year
just past, for instance. No doubt about it, 2008 was challenging given the diffi
culties we had to face. But it was also the same difficulties that allowed us to
confirm.. that our collective reform efforts have put our financial system in b
etter shape. Indeed the irony of financial markets is that crises invariably occ
ur despite the best intentions; yet, it is in facing the next challenge in relat
ive strength that we can truly say..we have learned from the past. Ladies and ge
ntlemen, we are fully cognizant of the difficulties that the current global fina
ncial crisis has created and the spillover effects that it would certainly gener
ate. Our continuing efforts to clean up our domestic banking system and root out
malpractices that particularly victimize the most vulnerable customers and our
financial safety nets may also be creating short-term anxiety alongside global t
urmoil. But I stand before you tonight to affirm that our banking system, in all
its vital components rural and cooperative banks, thrift banks, and commercial
and universal banks, is in much better shape today than it was during the last c
risis we faced. And I can tell you, the Monetary Board and the rest of the Bangk
o Sentral ng Pilipinas family remain confident that our banking system can work
through these challenges. I assure you, this is not meant to be a self-acclamati
on. Rather, it is our tribute to the collective efforts we have invested in our
shared future. As a community of stakeholders, it is this common future that req
uires of us.. shared responsibilities to take on challenges together in order to
grow.. and gain.. as one. I refer specifically to the Bankers Association of the
Philippines, the Chamber of Thrift Banks and the Rural Bankers Association of t
he Philippines. The Bangko Sentral ng Pilipinas thanks you and salutes your effo
rts in sustaining economic activities not only in urban centers but also in the
countryside through responsible and responsive banking. Ladies and gentlemen, let
us give a round of applause to the Philippine banking sector. There is a saying
that it is okay to build sand castles in the sky.. for as long as our feet are
well planted on the ground. What is the context, what do I mean by this? There a
re three points I wish to make. First, the best strategy is always to move forwa
rd as one. This is not an inspirational punch line but the hard reality of marke
t dynamics. We appreciate that banks are inherently business concerns, but prote
cting the institutional bottom line requires nurturing sustainable relationships
in a thriving environment. What is not too obvious is that the financial system
as a whole moves forward only when we work together. Ultimately, it is this sta
bility from working together that gets us through the business cycles, even as t
his starts from a position of competing interests. As competitive elements withi
n one system, we can always agree to disagree but we cannot fall into the trap of
disagreeing to agree. Second, it is critical that any lingering risk aversion f
rom whatever source does not spill over into our ability to provide needed finan
cial services for our real economy. Global conditions will be challenging. But i
n the same breath, let us not allow fears of off-shore conditions to pre-judge o
ur on-shore actions, when and where such links are not warranted. If we are to c
onsolidate our position of relative strength, we need to seize opportunities whe
n they present themselves, while mindful of our basic fiduciary responsibilities
and our mandate to act prudently. This is a call for active participation at a
time when the real economy needs us the most. We have seen how successful partne
rships between the Bangko Sentral and the banking sector generated positive resu
lts for our people, our economy, and our country. I refer specifically to the ba
nking sector as effective and responsive transmission channel for the Bangko Sen
trals policies concerning money, banking and credit. And now, to pro-actively mov
e forward, I also ask for a re-affirmation of our partnership across a spectrum
of initiatives -- from expanding access to and improving the quality and cost of
our services especially to the poor, to small enterprises, and to our overseas
Filipinos; to building and deepening financial awareness and literacy; to promot
ing better consumer protection; to structuring organized and transparent financi
al markets. The times are challenging but they are as much a test of our own res
olve; this will prove to be the first hurdle in building sustainable relationshi
ps in a thriving environment. Third, the global financial architecture is broken
because less attention was given to the details as markets moved faster, forwar
d, and further. There was over reliance on market pressures to instill market di
scipline and global institutions from multilaterals to regulators to market play
ers -- took comfort from the on-going work on best international practices. As w
e are now reminded, market failures happen at a painful cost to the displaced and
that best international practices will mitigate domestic risks only if the supe
rvisory framework evolves with market dynamics. Moving forward, I believe that t
he need is not necessarily for more complex and rigorous new regulations but for
greater accountability. Much more would therefore be required of the Board of Di
rectors of banks and of the technical expertise of the line functions that relat
e to prudential management of risks. This is the form of market-driven accountab
ility that I believe will be needed in restructuring the financial landscape -and it is quite different from just simply having more regulations. Let us there
fore work more closely together in crafting regulations that would make markets
more efficient and dynamic. Will 2009 be a difficult year? Given the downward tr
ajectory of the global economy, volatile commodity prices, and the continuing fi
nancial turmoil, conventional wisdom says that it will be. Nevertheless, I believ
e that together we have the capacity to ride out the challenges before us. The ke
y is to manage the factors that are within our control, to maintain a positive m
indset, and to capitalize on our time-tested resiliency and ability to innovate
amidst challenging times. And dont forget, our economic fundamentals continue to
be a source for optimism. This includes sustained economic growth, slowing infla
tion, declining interest rates, record high international reserves, balance of p
ayments surplus, a competitive peso and a stable banking system. In the end, the
challenge in 2009 for the banking sector is to quickly act on the painful lesso
ns of the global financial crisis. It is simply far too convenient to point at t
he complexities of structured products, the over-leveraging, or the fundamental
dilemma with market greed. All these were necessary inputs but together they are
not sufficient to explain where the world is today. More importantly, debating
the whys and wherefores will have its place, but at this juncture we need to act
decisively with conviction, in unison, and move forward. Ladies and gentlemen,
while the global prognosis for 2009 is daunting, the Bangko Sentral continues to
believe that the Philippines remains in a position of relative strength as we n
avigate through these difficult times. What we do to consolidate our gains rests
squarely on us. In the case of the Philippine banking community, I am confident
it will prevail and remain sound and stable. On behalf of the Members of the Mon
etary Board, I thank all the sectors represented here tonight for their continui
ng support: the banking community; the legislative, executive and judicial branc
hes of government; the private sector, the diplomatic corps, the academe, the me
dia, our special guests, and our partners in bilateral and multilateral agencies
. Together, let us offer a toast to our continuing partnership in sustaining eco
nomic growth in our country and improving the quality of life of Filipinos. Chee
rs! Finally, before it becomes totally unfashionable, let me take this opportuni
ty to wish all of you. blessings of good health, success, and prosperity this New
Year. Mabuhay! Thank you all and enjoy the rest of the evening.
Security Management: A Challenging Balancing Act

Occasion: Bank Security Management Association, Inc. (BSMA) Induction
The officers and directors of the Bank Security Management Association, Inc. (BS
MA) led by President Edwin Ermita, special guests, fellow central bankers, good
morning. I am very pleased to meet the leadership of the Bank Security Managemen
t Association and engage you in a dialogue. You and the members BSMA are respons
ible for providing the highest level of protection to Philippine banking institu
tions in general and to bank employees and clients in particular. For the Bangko
Sentral ng Pilipinas therefore, you represent a vital component of our continui
ng efforts to ensure the health and stability of our banking system. Through the
years, securing a bank has evolved from the traditional watchdog concept to the
use of state-of-the-art security devices and gadgets. Given the rising violence
we have seen in recent bank robberies, you have to ensure that you develop in p
arallel with your operating environment. Your additional challenge is to provide
effective security to bank properties and most especially to the people within
your premises while making sure that customers do not feel intimated or threaten
ed by security personnel. You and I know that bank clients are civilians who are
not used to armed personnel. Therefore, they may complain or, worse, move their
account if they feel that your security men are somewhat threatening. I know it
is easier said than done but your objective should be for security personnel to
remain courteous while being visible, firm, and alert as security personnel. Di
rector Ed Gatumbato, the head of Bangko Sentrals security department, is constant
ly challenged by this balancing act. I am sure you will have a lot to talk about
. Last year, September 3 to be exact, I signed Bangko Sentral ng Pilipinas (BSP)
Circular 620, the revised rules and regulations on bank protection pursuant to
Monetary Board Resolution No. 1057 dated August 14, 2008. The objective of this
circular is to strengthen and broaden the security of banks to cover not only ph
ysical security but also on other crimes perpetrated against the banking institu
tions such as external and internal frauds, cash in transit operations as well a
s the conduct of investigation of such cases. This means that the concept of ban
k security management now goes beyond guard force deployment and monitoring. Bro
ader authority and responsibility for security management personnel clearly requ
ires reorientation and training of both officers and staff of your departments.
For at the end of the day, even with the most expensive security gadgets, it is
the training of your personnel, their ability to discern potential danger or fra
ud, and skills honed through constant practice that will spell the difference bet
ween success and failure for your security management. Now is the best time ther
efore for BSMA to take the lead in this direction by keeping your association un
ited and constantly engaged in dialogues to keep up to date with the industry be
st practices. And so, once again, I congratulate the BSMA and its leadership for
having a proactive stance in dealing with bank security management. I wish you
all the success in keeping the banking community and its clients safe and secure
. Mabuhay ang BSMA! Salamat sa inyong lahat.
Preparing for What Lies Ahead

Venue: Rotary Club (Manila Polo Club)
Occasion: 1st Membership Meeting of the Year
RCM President Romeo Batino, Monetary Board Member Rtn. Raul Boncan, Esteemed mem
bers of the Rotary Club of Manila, Friends from the media, Ladies and gentlemen,
good afternoon. Thank you once again for this opportunity to address the Rotari
ans on your first Membership Meeting of the year. If I am not mistaken, this is
the fourth year I am doing this as BSP governor. Time flies, doesnt it? And takin
g a quick sweep of this room, it doesnt seem like many of you have added on anoth
er year! (I dont want to soil my welcome mat at the Rotary Club.) Every year is di
fferent, but each year always brings with it renewed hope. The conclusion of one
and the beginning of a new year is often a time to reflect on the events of the
year just past and the expectations for the year that is upon us. You may have
read the headlines yesterday, which quoted me as describing 2009 as a critical y
ear. YesI believe 2009 is critical. To ensure we are prepared for what lies ahead.
2008 was a challenging year. It saw the ideal convergence of low inflation and
high growth, that characterized our 2007, get dissipated by high oil prices and
the spread of the subprime market woes from the US to global financial markets,
with marquee financial names falling one by one. It also was witness to major ec
onomies, including the US; Germany and Italy in Europe; Japan, Singapore and Hon
gkong in Asia descending into recession. Forecasts for world growth from the pri
vate sector as well as multilateral agencies continue to be reviewed and revised
downward as more information becomes available. When I say 2009 is critical -it is not to create fear. But quite the opposite. I want you to be hopeful. You
hold among your membership many of the most prominent in business and industry.
To many of you, darkness is not darkness for its sake, but rather the absence of
light. Because many among you have developed the killer instincts, when the dark
gets bleaker, you see opportunities. Therefore, I encourage you to be the light
so darkness will be dispersed. I encourage you further to create more opportunit
ies that will sustain the light. Many pundits say that the worst is yet to come
in the local and international financial markets. I say, no one knows how much d
eeper or how much longer this downturn will be. So there will continue to be cha
llenges. But I want to add, this wont go on forever. What we need to do now is to
make the best of what we can at this time, try to ease some of the pain currently
experienced, build up safeguards, and prepare for the eventual upturn. This is
why I say 2009 is critical..Our actions and policies this year will help define h
ow prepared we would be when the upturn does come about. Several relatively opti
mistic analysts forecast a recovery among the major economies could occur as soo
n as 18 months. So, depending on when you begin to count, and because time does
fly, the upturn could be just around the corner! We ended 2008 on a much sounder
footing than most in the region. Philippine growth for the first 3 quarters of
2008 stood at 4.6 percent, quite respectable compared to our ASEAN-5 neighbors.
Inflation was on an uptrend and elevated due mainly to highly volatile oil and n
on-oil commodity prices. We take comfort, however, in that this trend was not un
ique to the Philippines. At an average inflation for the year of 9.3%, this stil
l compares favorably against ASEAN-5 range of 5.5 to 10.3%. Also, inflation has
started to recede faster than expected. We found ourselves better-situated than
others at the end of 2008 precisely because we came into that downturn prepared
and with buffers, including a forward-looking monetary policy framework; a healt
hier reserves level for insurance; and a sound banking system. 2008 What buffers
have we stored? Let me quickly run through these buffers with some detail. Firs
t of all, the resilience of domestic demand. In previous crises, it was internal
activity that kept the economy going. Last year, real growth was broad-based. T
he major domestic sectors, including agriculture, industry, and services, provid
ed positive contributions to growth. In addition, government spending for infras
tructure as well as private consumption supported by steady remittances helped s
ustain domestic demand. Second, the discipline of inflation targeting has helped
us focus on our primary mandate of price stability. That we were able to mainta
in inflation at manageable levels helped to create a calmer environment that sus
tained domestic business. Third, because we kept to our policy of a market-deter
mined exchange rate, the peso broadly maintained its competitiveness against a b
asket of currencies of our major trading partners and competitor countries Altho
ugh it lost much of the gains of 2007 as the country wasnt spared from the height
ened risk aversion towards emerging markets, the pesos fall was nevertheless in l
ine with the movement of other currencies in the region, which also fell against
the US dollar. Fourth, with an appropriate FX regulatory environment and a natu
ral pool of talent, we were able to attract FX investments particularly in the B
PO sector. Remittances also kept flowing. These allowed us to continue to build
our Gross International Reserves to comfortable levels, above international benc
hmark levels, and therewith continue to register a surplus in the BOP. Fifth, th
e banking reforms we had put in place during earlier years have caused the banki
ng system to be only minimally exposed to the troubled global financial institut
ions and thus remain sound. In addition, the inherent conservatism and the domes
tic orientation of banks, as well as the BSPs phased-in approach to embracing fin
ancial innovation helped to keep our exposure to the global financial turmoil li
mited. Our banks continue to be capitalized above the BIS standard and BSP regul
atory requirement; bank balance sheets are at their strongest since the 1997 Asi
an financial crisis; and assets continue to grow. Sixth, through the series of r
eforms instituted, our monetary and regulatory frameworks have become more flexi
ble. These now allow us to quickly respond to changes in our working environment
. For instance, at the time when there was perceived tightness in liquidity and
some friction in distribution of both peso and dollar funds at the height of the
uncertainty from the global financial turmoil, the BSP was able to expeditiousl
y adopt measures to address these market concerns. Among the measures put in pla
ce to address peso and dollar liquidity were a) the relaxation of valuation and
collateral requirements for the existing peso repurchase facility, b) the creati
on of a new dollar repurchase facility and c) the doubling of the budget for e-r
ediscounting. In the meantime, to address distribution issues, the BSP a) reduce
d reserve requirements on bank deposits by 2 percentage points and b) maintained
a presence in spot and swap FX markets. In addition, to address temporary conce
rns due to the difficulty in valuation of emerging market debt assets, the BSP a
llowed the reclassification of certain debt holdings of banks from their trading
accounts to their held-to-maturity accounts. Seventh, we have put a premium on
communication strategy. At all times, but particularly during a period of uncert
ainty, accurate and timely information is vital. The BSP heightened its consulta
tion with stakeholders by holding more frequent dialogues and conducting periodi
c surveys to capture consumer and business sentiments. We realize that having an
open two-way communication makes for more effective, efficient and responsive p
olicy making. Seven is a complete number as they say, so I will end my list here.
Let me summarize by saying the BSP has endeavored to create and maintain an envi
ronment supportive of our objectives of stable prices and sustainable long-term
growth. 2009 -- Whats in store? With these buffers in place but at the same time
mindful of the challenges that are still upon us, how must we be in 2009 so we c
ould limit the adverse impact of the crisis and be prepared for the expected upt
urn? Just like the eagle on a prey, we need to sharpen our senses we need to be
sensitive to the signals around us sights.sounds. and scents. We need to be aware
not only of our immediate surrounding but also of what may lie around. We need t
o not only be present-thinking but forward-looking also. You cant be complacent.
You need to be prescient. I do not particularly espouse the Darwinian theory. Bu
t Mr. Darwin may have been on to something when he said, that which will survive
is the species which is most adaptable to change. (Please pardon literary freedom
for my paraphrase). I declared earlier that we ended 2008 fairly unscathed from
the global financial turmoil, but real risks are still lurking. Further uncerta
inty in the global financial markets; recessionary trends that could spread to r
egions beyond the developed world; and volatilities in commodity prices, particu
larly oil. Policy thrusts for 2009 How shall we translate into policies for 2009
both the need to be anticipatory (like the eagle) and adaptable to change (as D
r. Darwin posited)? Let me quickly run by some specifics: Monetary policy in 200
9 will continue to focus on our primary mandate of price stability. As inflation
risks moderate, the BSP will carefully consider opportunities for monetary poli
cy easing amidst potential tightening financial conditions. We will also continu
e to ensure appropriate levels of market liquidity to maintain the efficient fun
ctioning of the financial markets. Through this, we hope to provide the necessar
y conditions that will allow economic growth to continue. We will at the same ti
me endeavor to keep inflation at manageable levels as this creates the environme
nt for sustainable long-term growth. The BSPs external sector policy will remain
focused on ensuring our external vulnerabilities are limited. We expect to conti
nue to post a surplus in our BOP, mainly still due to steady OF remittances and
receipts from the BPO sector. This will give us the opportunity to further beef
up reserves for insurance. We will continue to pursue a market-determined exchan
ge rate to allow us to maintain external competitiveness. We will also engage in
policies that would sustain a manageable external debt profile. Banking sector
policies will continue to reinforce the banking systems soundness. Most analyses
point to the lack of regulation as one of the root causes of the US subprime mar
ket crisis, it is tempting therefore to swing to the other extreme of over regul
ation. I dont believe BSP would move towards that direction, given our gradualist
and consultative approach to regulation. Instead what I believe may occur is a
move towards greater accountability coupled with greater granularity of regulati
on. I have always believed that markets and regulation can and must co-exist. Th
e trick is to craft regulation that would make the markets work. We will therefo
re remain committed to sustaining key financial and banking sector reforms that
would lead to greater efficiency, risk management, stronger capital base, improv
ed disclosure practices and transparency, and enhanced corporate governance stan
dards in the banking system. Realizing that the current crisis has taken on a gl
obal nature, we will further strengthen engagements with regional peers to share
information, discuss emerging developments, and pool resources, if necessary ev
en foreign exchange reserves. Its interesting that the current financial turmoil
took on a turn for the better once the major economies began to act in concert.
Confidence had been quickly eroding until then. The coordinated and cooperative
policies, that were put in place by the US and European central banks and financ
e ministries beginning October last year, helped to restore some traction in the
markets and subsequently improve market confidence not only towards the major e
conomies, but also towards emerging markets. Conclusion: 2008 was a difficult ye
ar, to say the least. The global economies reached some highs and lows not seen
in over a hundred years. Philosopher George Santayana, who I just found out trac
es some historical associations to the Philippines, said Those who do not remembe
r the past are condemned to repeat it. The Philippines is not a newbie in terms o
f crisis, we have faced quite a number of those in the past. Each crisis we enco
untered was unique in its roots and causes. But we have learned from each, every
time. Its too early to make prescriptions, given that much is still to unfold. B
ut as I end todays remarks, Id like to share some themes we may pick up even at th
is stage from this current crisis. I take these from our own acronym BSP. Some o
f you may have read this from a previous interview but I thought it would be app
ropriate for this audience. I repeat it hear with some slight modification. B Be
prepared, keep your tools sharp (Review cost structures, enhance product offerin
gs). S Stay alert to spot opportunities (Consider trends and structural changes, e
nlarge market scope, do research) P Push ahead! As I scan this audience, I see a
wealth of experience that covers the breadth and depth of the crises the Philip
pines has gone through in the last three decades. So I know, what I have just sh
ared as lessons with you is not news to you. The BSP is doing its part to limit
the impact of the crisis and to anticipate the upturn, but we cannot do this alo
ne. We need the full support and cooperation of the private sector and those amo
ng your ranks to make us and the whole nation ready for that upturn. Let us pres
erve what we have stored in 2008 and, together, let us build further on these in
2009. Thank you for the opportunity to share these thoughts with you. I wish yo
u and your loved ones all the best possible for 2009!
Statement of Governor Amando M. Tetangco, Jr.

Venue: Edsa Shangrila Hotel
Occasion: Tuesday Club Breakfast Meeting
Let me begin by wishing everyone a calmer, hopefully not too challenging 2009 ahead
of us. Last year, I was also your guest around this time. Then, I greeted you a h
appy, though perhaps more challenging year! If you recall, we were then coming ou
t of 2007, which saw the country experience the ideal convergence of high growth
and low inflation. But on the heels of 2007, we began to feel some of the impact
of the US subprime mortgage problem. Subsequent market events have certainly pro
ven me correct, havent they? In fact, the country faced two major challenges. Fir
st, volatile international prices of oil and non-oil commodities which caused in
flation to accelerate globally, particularly in the first half of the year. Seco
nd, the broadening of the reach of the impact of the US subprime mortgage proble
m -- from the US subprime market alone to the US financial market, to the global
financial markets and then to the US and major REAL economies, and now the glob
al real economy. These challenges translated to lower-than-first-forecasted real
GDP growth and higher-than-targeted inflation. Nevertheless, the country still
ended 2008 on much better footing than most of our Asian counterparts. Specifica
lly, Philippine growth for the first 3 quarters of 2008 stood at 4.6 percent, si
gnificantly lower than the NGs initial target but still within the countrys long-t
erm growth trend and quite respectable compared to our ASEAN neighbors. Inflatio
n, on the other hand, peaked at 12.4 pct in August from a level of 4.9 pct at th
e start of the year. The average inflation for the first 11 months of 9.4 was si
gnificantly higher than the target range of 4 pct +/- 1 percentage point. This u
pswing in inflation was, however, not unique to the Philippines in 2008, given t
hat this trend was largely due to elevated and highly volatile international oil
and food prices. On the exchange rate, the peso lost much of the gains it tucke
d in 2007, due principally to heightened risk aversion towards emerging markets
including the Philippines as the global financial turmoil spread. The peso depre
ciated 13.3 pct against the US dollar in 2008 against an 18.8 pct appreciation i
n 2007. This loss in value was, nonetheless, in line with movements of other cur
rencies in the region, which also depreciated against the US dollar. In addition
, in terms of the Real Effective Exchange Rate over the past eight years, the pe
so has largely maintained its competitiveness against a basket of currencies of
our major trading partners and competitor countries. In the meantime, we have be
en able to keep the Gross International Reserves at comfortable levels. GIR stoo
d at $36.8 B at end November 2008, an increase of about $3 B over the end 2007 l
evel. The build-up in GIR has allowed us to keep the BOP in surplus in 2008. At
almost $37 B, GIR is 5.8 months of imports and 2.5 times short-term debt based on
residual maturity. These ratios are at least twice the international benchmark
levels of 3 months of imports and 1 time the debt ratio. The banking system rema
ins sound. The series of banking reforms put in place over the last five years,
and among others, the inherent conservatism and the domestic orientation of bank
s, as well as the BSPs phased-in approach to embracing financial innovation, have
resulted in minimal exposure of the banking system to the troubled internationa
l financial institutions. In addition, banks continue to be capitalized above th
e BIS standard and BSP regulatory requirement; bank balance sheets are at their
strongest since the 1997 Asian financial crisis; and assets continue to grow. Wh
at do we foresee for 2009? 2009 will be a critical year. It could define how we
will perform when the markets turn around. If you read most analyses of the US a
nd major economies downtrend, the expectation is these could last about 18 months
. Therefore, depending on when you begin your count, recovery in the US and mayb
e globally could begin in 2010. No one, however, can say for certain how deep an
d how long the global downtrend would be, nor how far markets would retreat. The
refore it is incumbent upon us to continue to brace for further uncertainty in t
he global financial markets, recessionary trends that would spread to regions be
yond the developed world; and volatilities in commodity prices, particularly oil
. How shall we respond to the unfolding environment? Monetary policy in 2009 wil
l continue to be anchored on inflation targeting. The discipline of the inflatio
n-targeting framework that we adopted in 2002 has helped the BSP focus more on i
ts primary mandate of price stability. More specifically, as inflation risks mod
erate, BSP will carefully consider opportunities for monetary policy easing amid
st tightening financial conditions. We will continue to ensure appropriate level
s of market liquidity to maintain confidence in and the efficient functioning of
the financial markets. We will calibrate monetary policy to protect our peoples
real income and purchasing power. We will endeavor to keep inflation at manageab
le levels as this creates the environment for sustainable long-term growth. The
BSPs external sector policy will remain focused on ensuring our external vulnerab
ilities are limited. More specifically, we will beef up reserves for insurance;
maintain a market-determined (thereby externally competitive) exchange rate and
we will continue to review our FX regulatory environment. Banking sector policie
s will revolve around buttressing the banking systems soundness. The reforms we h
ave so far put in place have created the environment which has resulted in the s
ystems minimal exposure to the global financial market turbulence. We will contin
ue on this track. Conclusion: I began these brief remarks declaring we have ende
d 2008 on a much sounder footing than most of our Asian neighbors. So far, we ha
ve not been as affected by the global financial turmoil. I also said that 2009 w
ould be critical in crafting policy that would allow us to be ready take to adva
ntage of the upturns in the global slowdown when they do materialize. As we conc
luded 2008 and now look forward to 2009, we reflect upon how we have been able t
o remain fairly resilient in the face of the challenges we faced in 2008 -- macr
oeconomic prudence. That is, consistently building buffers during the good times
to provide us a shield during the bad times. As 2009 rolls in, we will press on
with this strategy that has so far kept us in good stead.
Governors Remarks for the BSP Christmas Party

Venue: PICC
Occasion: BSP Christmas Party
Members of the Monetary Board, fellow central bankers, special guests, magandang
hapon at maligayang pasko sa inyong lahat! Well, what can I say?! Very energizi
ng and inspiring ang mga special numbers that we have seen. Of course, I have to
say that the last number, in particular, is my favorite! And I firmly believe t
hat this bias is shared by Deputy Governors Andy Suratos, Nesting Espenilla, and
Diwa Guinigundo as well as Assistant Governor Rene Carreon! And so, once again
fellow central bankers, let us show our appreciation for our wives who performed
on our behalf by giving them a warm round of applause! Alam ninyo, their dance wa
s a patriotic act on their part. They know that if we ourselves were to practice
and aim to be excellent dancers for this Christmas, we will have less time for
work. They understand that this year is like no other in terms of internal and e
xternal challenges. Indeed, this is a time that calls for cooperation from every
one all around to do their share for our country. To us at the Bangko Sentral ng
Pilipinas, there is no better time to affirm our love for our country by putting
it at the center of our Christmas celebration, the merriest and one of the most
meaningful of all occasions. I therefore consider the theme for this years BSP C
hristmas celebration, Pinas, Labs Kita, to be particularly appropriate. It capture
s the pride that we have for our nation, which gains greater currency during the
se times as we revert to Pinoy traditions that are central to our celebration of
Christmas: the myriad images of our parol, the simbang gabi for the faithful, s
teamy puto-bumbong and bibingka for the early risers, and the visits of mga inaa
nak sa mga ninong at ninang. As we take stock of this years events, we are remind
ed of Filipinos who made their mark on the global stage in 2008: the angelic-fac
ed Charice Pempengco with her powerful voice; youthful Arnel Pineda who is now t
he lead singer of an iconic rock band; and of course the now legendary Manny Pac
quiao who has repeatedly made us proud by winning against seemingly more powerfu
l boxers and emerging as the best pound-for-pound boxer in the world. Beyond the
se Filipino celebrities, however, we know about Filipinos in literally every cor
ner of the world who heroically toil quietly, without much fanfare but who make a
positive difference in the lives of the people and communities they serve for t
he sake of their families here. In the process, they have also become a powerful
source of continuing support for our economy and our country. Palakpakan din po
natin ang ating mga overseas Filipinos! But we need not look far for inspiratio
n. I see this everyday at the Bangko Sentral, in the quiet buzz of activities in
our offices and departments, where central bankers diligently perform their dut
ies as public servants. In the face of highly challenging events in 2008, this t
akes on greater meaning. Indeed, the recent months have proven extremely difficu
lt for the global economy. The crisis that began as a liquidity gridlock in the
US financial markets has led to a more generalized distrust in global financial
markets, or what some would call a crisis of confidence. From its epicenter in the
US financial markets, the turmoil has affected the financial centers of Europe
and Asia and has not spared emerging markets, even the supposedly stellar perfor
mers. More recently, we have seen the global economy start to slow sharply: the
negative feedback loop from the financial sector crisis to the real economy is n
o longer a risk but a reality. Well, because economies seem to invariably swing
from fragility to strength and back again to weakness, economics is described as
a dismal science. In 2007, the Philippine economy had one of the best years in
decades. 2008 has turned out to be one of the most challenging given the interna
tional financial turmoil and the global economic slowdown. While the Philippine
economy has been described as an island of calm, it does not mean that we are to
tally immune to these global developments. Our financial markets have not been s
pared from the ripple effects of the worsening global financial strains: the pes
o has generally weakened, credit spreads have widened and stock market activity
has fallen, as in most other countries. Some economists believe that 2009 could
be even tougher than 2008 once the impact on the real sector take hold as the gl
obal financial system sheds off excess fat and other excesses built up through t
he years. Against this still unfolding landscape, the BSP has not stood idly by.
For one, we cannot afford to be complacent or simply watch from the sidelines.
More importantly, that is not the way we do business around here. Rather, we hav
e proactively taken steps to ensure the overall health of the banking system and
help provide the environment conducive to economic growth and development throu
gh responsible monetary policy, and by ensuring the smooth functioning of the pa
yments and settlements system. Specifically, we have calibrated our monetary pol
icy responses with our eye firmly on the inflation ball. As price pressures have
receded particularly in the latter part of this year, we have had greater flexi
bility in providing support for the growth requirements of the economy amid tigh
t global financial conditions. We have been vigilant in protecting the financial
system with the timely closure of banking institutions to safeguard the overall
health of banking system. We have also implemented a package of measures to pro
mote the stability of the financial system, such as ensuring that banks have acc
ess to adequate peso and dollar liquidity, and by communicating the state of the
banking system to the markets. Good communication is important in any occasion
but more so in an environment that is characterized by some uncertainty. I am re
minded of the view that if there is anything that the markets dislike more than
anything, it is uncertainty. Apart from these measures, our economy is also bene
fitting from the fruits of previous reform efforts adopted by the BSP. We have e
arned valuable credibility in managing inflation and promoting a stable environm
ent for business and investment planning as well as consumer spending; through p
rudent supervision and regulation of the banking system, our banks are now adequ
ately capitalized, with healthy balance sheets, sound risk management, and effic
ient fund intermediation that are pivotal to supporting durable and robust econo
mic growth. We therefore face the global headwinds with an underlying belief in
the resilience of the Philippine economy. There are important cushions that we c
an count on to ride us through these difficult times. For one, domestic demand i
s the major driver of growth of the Philippine economy. This is partly because o
f demographics, as the Philippines has a young and economically active populatio

n. For another, the sources of growth have become more broad-based, with the eco
nomy diversifying toward such non-traditional sectors as business process outsou
rcing, agro-industry, mining, tourism, and services. Moreover, we have reduced o
ur vulnerabilities to the moods and swings of the international financial market
s: our arsenal of foreign exchange reserves are at record high levels and our re
liance on external financing less. Equally important, there is more buy-in for r
eforms and we have built a track record of responsible macroeconomic stewardship
. The message is that it has been a tough year and the next year will most likel
y be challengingperhaps even more sobut our economy is in a better shape to weathe
r the global storm. This is not our first crisis, nor is it the last. And we com
e out of each crisis better forewarned, better armed, and better able to withsta
nd the gyrations and the shocks of economic and financial turmoil. Fellow centra
l bankers, your hard work, dedication and unwavering commitment to excellence in
your respective fields are behind these cushions and buffers. Together we have
crafted and implemented responsive monetary and banking policies which have empo
wered us to serve our main stakeholders: the Filipino people. We have also done
this by going beyond the conventional perimeters of our mandates by pursuing our
various advocacy programs that have a direct impact on the lives of Filipinos.
This is made possible through our comprehensive economic and financial education
program that covers 12 millon elementary students, the national lesson in savin
gs that have generated millions worth of support for Tulong Barya Para sa Eskwel
a, our road shows for millions of overseas Filipinos and their families, microfi
nance for the millions of entrepreneurial Filipinos who live in poverty, and inc
lusive banking programs for the unbanked. We also continue to support those who
need help through the Gawad Kalinga, medical missions and outreach activities. T
o protect our environment, we have also been involved in the clean-up of Manila
Bay and tree-planting activities and we have signified our commitment to green t
echnology. We continue to improve the access to credit in the countryside throug
h our award-winning e-rediscounting facility that received the coveted Lingkod B
ayan award from the President and the Civil Service Commission. Palakpakan po na
tin ang MSS of Deputy Governor Guinigundo under which Department of Loans and Cr
edit belongs! On the development financing front, the BSP and the Philippines we
re lauded for recent innovations such as mobile phone banking and integrating th
e principles of microfinance into housing loans, earning citations by publicatio
ns such as The Economist and Expanding Frontiers. Of course, the courage of our exam
iners in our continuing effort to protect the public from unsound banking practi
ces deserve our full support and wholehearted appreciation. Palakpakan po natin
ang SES under Deputy Governor Nesting Espenilla for this. And for PHILPASS, Comp
trollership, IT, the continuing improvements in the benefits and training progra
ms as well as facilities of the BSP, let us acknowledge the support of the RMS u
nder Deputy Governor Andy Suratos. And let us not forget the SPC under Asst Gov
Eve Avila which meets our countrys requirements for banknotes and coins, Palakpak
an din po natin sila. The EMS of course under me for the many things it has to d
o and coordinate, especially with the help of Assistant Governor and General Cou
nsel Juan de Zuiga. Palakpakan din po natin ang EMS! And most of all our Monetary
Board which has been hard at work in crafting policies and guidance for the ban
king sector and the Bangko Sentral. Palakpakan din po natin ang Members of the M
onetary Board! Indeed, we have many reasons to rejoice this Christmas. In spite
of the twists and turns, the difficulties and complexities of 2008, we did quite
well in providing stability to our economy through responsive monetary and bank
ing policies. I take the time to discuss all these because it is important that
we all have a clear understanding of our role as central bankers. We have a mand
ate, a contract with our people and our country... to do our work in accordance
with the values we hold dear: patriotism, integrity, excellence, dynamism and so
lidarity. Fellow central bankers, in 2009, we celebrate 60 years of central bank
ing in the Philippines. As I look back to the events leading to the birth of cen
tral banking in our country, I was struck by the comments made by one of the law
makers who had a hand in the crafting of the Republic Act 265 or the Central Ban
k Act. This is what he said: We are entrusting to this Central Bank and to the Mo
netary Board the economic life of our nation. Fellow workers, central banking is
a function directly linked to the development of our economy and our nation. And
it is our duty, our obligation to ensure that the faith and confidence of our pe
ople in the Bangko Sentral remain justified, unshaken and well-deserved. Let us
therefore remain faithful to our mandate to provide stability to our economy wit
h our monetary and banking policies, to uphold the law at all times, to run afte
r those who violate and betray the trust of our people in the banking system, an
d to provide leadership in crafting policies that lead to sustained and balanced
economic growth. As 2008 comes to a close, let me therefore salute each and eve
ryone one of you for the work that you have done this past year. You make me pro
ud to be part of the BSP family. On a personal note, allow me to thank you for t
he unstinting support you give me as Governor of the Bangko Sentral ng Pilipinas
. I can tell you that in the many difficult decisions that I have had to take as
head of this worthy institution, I have taken them with confidence knowing that
I have the whole BSP community behind these efforts. I am often asked these day
s whether I sleep soundly at night. I answer in the affirmative without hesitati
on, because I know that I have good people with me, world-class central bankers
actually. Mabuhay ang Bangko Sentral ng Pilipinas! Muli, with my wife Elma and o
ur children, I greet all of you, Maligayang Pasko at Masaganang Bagong Taon!
Keynote Address
Venue: Metropolitan Museum, Manila
Occasion: Microentrepreneur of the Year (MOTY) Awarding Ceremony
Magandang hapon sa inyong lahat! Ladies and gentlemen, we are gathered once agai
n to celebrate, honor, and give recognition to our outstanding microentrepreneur
s. Their collective success in overcoming the difficulties inherent in microentr
epreneurship serves as a powerful inspiration for all of us. Their stories remin
d us that with vision, courage, passionate commitment, a persevering spirit, we
can pursueand reach seemingly impossible goals.even in the midst of a global econom
ic slowdown and financial turmoil. And so, friends, let us show our appreciation
for all our awardees by giving them a long round of applause. Palakpakan po nat
in ang ating mga awardees! Let us also thank the officers and staff of Citi Phil
ippines headed by Country Officer Sanjiv Vohra for initiating and sustaining the
Citi Microentrepreneur of the Year Awards which is now on its 6th year. With Ci
ti, this annual recognition of outstanding microentrepreneurs has been instituti
onalized. A round of applause please for Citi. Of course, we also salute the mem
bers of the working groups from the Microfinance Council of the Philippines head
ed by Rollie Victoria, from the Bangko Sentral, from Citi, and from other partne
r institutions. Palakpakan din po natin sila. They had the privilege of seeing o
ur successful microentrepreneurs up close and personal, but I am sure they had a
difficult time narrowing down the list. I can say this with certainty because w
e who compose the National Selection Committee devoted long deliberations on eac
h of the finalists. Given the remarkable accomplishments of our finalists, it wa
s a tough choice indeed. And so, this year, the members of the National Selectio
n Committee decided to give three special awards on top of our eight major winne
rs. Friends, let us also reward the hardworking members of the National Selectio
n Committee with a round of applause. Ladies and gentlemen. The stories of our w
inners become even more significant when viewed against the backdrop of an incre
asingly difficult operating environment. These exceptional microentrepreneurs no
t only survive they thrive! Their stories give us confidence that our micro, smal
l and medium enterprises (MSMEs) will continue to be a vital, resilient, and via
ble foundation for sustaining economic growth throughout our country. It is note
worthy that one of the countrys pioneer MFIs CARD-MRI -- is a 2008 awardee of the
prestigious Ramon Magsaysay Award Foundation for Public Service under its theme
Pathfinders in a Changing Asia. It was honored for its "successful adaptation of
microfinance in the Philippines, providing self-sustaining and comprehensive ser
vices for half a million poor women and their families." Indeed, real-life succe
ss stories of microentrepreneurs and hard data on hand prove beyond reasonable do
ubt that microfinance truly has the power to liberate our entrepreneurial poor fr
om poverty and to give them a better life. As of June 2008, there were 802,092 m
icrofinance borrowers who have accessed loans worth P6.5 billion from 230 banks.
These borrowers have also accumulated roughly P1.6 billion in deposits with the
banks. It is also evident that our banks have successfully taken their strategi
c place in providing financial services to the previously unbanked. Since 2006,
rural banks have consistently accounted for a significant portion of the winners
. In fact, both of our national winners this year are clients of rural banks. I
believe this trend will continue as more banks provide microfinance services. I
also see more successful microentrepreneurs being nominated in the years ahead a
s partner institutions who have become fierce advocates of microfinance get more
supporters and more microentrepreneurs on board. Synergies developed between an
d among partner institutions should result in a further broadening and deepening
of the microfinance sector. The case of Citi awardees are a case in point. I un
derstand our 11 awardees have attended financial education lectures to boost the
ir ability to sustain profitable operations. The members of our National Selecti
on Committee have also been generous in terms of giving guides to growing their
business and providing marketing outlets for consumer goods. On our part, the Ba
ngko Sentral will continue to provide a policy environment conducive to broader
participation of banks in the microfinance sector. Rediscounting of microfinance
loans will also continue. And so, ladies and gentlemen, let us continue working
together to ensure the continuing success of microfinance, to expand its reach,
and to lift millions more of our countrymen from poverty to a better quality of
life.through microfinance. Again, my congratulations to all our awardees, to Cit
i and all those involved in this annual search for outstanding microentrepreneur
s. Mabuhay ang Pilipinas! Salamat po sa inyong lahat.
The Philippine Economy: Building Resilience in a Time of Uncertainty

Occasion: Consular Corps of the Philippines Monthly General Luncheon Meeting
Minister and Consul General Sobashima, Acting Dean of the Consular Corps of the
Philippines, honorable consuls-general, officers and staff of the Philippine Con
sular Corps, ladies and gentlemen, good afternoon. It is a pleasure to finally a
ddress the diplomatic community. Your organizers would recall that we have been
trying to get our schedules together since January this year. In fact, we were fir
st set to meet in February, but something came up on my side. Then in August, bu
t something came up on your end. Then, today. (I suppose the stars have all final
ly aligned today, so to speak, so here we are.) Whats interesting is during all t
his time, the markets have moved quite significantly. Consider the table shown.
Ive compared some important financial indicators for Feb 27, Aug 27 the two previ
ously scheduled dates -- and yesterday. You will note that all of these have tur
ned south as they say. But more dramatically so in the last two months. The peso d
ollar exchange rate has moved from P40.33 to P45.73. Yesterday it was quoted at
P49.105. At close of morning trade today, the peso stood at P49.14. The 5-year c
redit default swap spread, which is a measure of the markets perception of the co
untrys credit worthiness, has more than doubled from 248 to 660 bps. The same can
be observed on the spread over the ROP30, which moved from 260 to 649 bps. The
PSEi, on the other hand, lost close to half its value from 3,105 in February to
1,704 pts at yesterdays close. The regional financial markets followed the same t
rends regional currencies weakened, credit spreads widened, and stock markets de
clined. Before any, or all of you cry the sky is falling -- like the little chicke
n in that childrens fable who got hit on the head by a falling acorn, - let me sh
are with you some good news: Even as the numbers I showed you earlier appear to
have run away or fallen sharply, there has been some reprieve in them. In other wo
rds, what we are experiencing is not a free fall, rather there has been some tracti
on in the markets lately. Our macroeconomy has remained fairly resilient and stab
le, owing to the buffers we have built up over the past years. Our banking syste
m continues to be sound, despite some contagion -- as reflected in the deteriora
tion of the financial indicators since the beginning of the year. Our policy str
ucture has so far been flexible. We have instituted significant reforms in the p
ast, and we continue to fine-tune our policy tool kit to ensure our policies are
responsive, targeted and therefore effective during these difficult times. So,
hold that urge to cry the sky is falling lest you meet the same fate as that chick
en, who got fooled and eaten by the wily fox. My presentation will be of four pa
rts. I will begin with a brief discussion of recent events in global financial m
arkets. I will then focus the major part of my discussion in assessing the Phili
ppine economys resilience in the face of what the former Fed Chairman Alan Greens
pan calls the credit tsunami. In particular, I will discuss how these external dev
elopments impact on the Philippine economy, why I believe the Philippines is wel
l-positioned to withstand the crisis and what the Bangko Sentrals policy response
s are to bolster the economys foundations in the face of the enormous strains in
the global financial markets. I. Recent Developments in the Global Financial Mar
ket I will no longer go into the genesis of the financial turmoil, as I am sure
you have already heard a number of expositions on that. But I think it is import
ant to highlight that this crisis has evolved and continues to do so in its FORM
. It began as a liquidity seizure in the financial markets when the credit boom
came to an end after the subprime mortgage collapse, leaving US investment banks
heavily strapped for cash. Then moved on to be more of a solvency crisis, when
we began to see the rapid turnover of marquee names in the global financial stag
e. Then a confidence crisis. Increasingly, investors and creditors are losing co
nfidence in the ability of certain firms to meet their obligations leading to a
general distrust in the global financial markets. The financial market turmoil h
as further changed its FACE. It has moved from its epicenter in the financial ma
rkets in the US and has begun to affect the US real economy. Its impact has also
now crossed to the financial centers in Europe, as well as the European real ec
onomy. Now we are seeing it impact the Emerging Markets. So far, the effect on e
merging markets has mostly been on the financial sector, and generally indirect
through risk aversion. Indeed, the financial market turmoil has changed into a w
ider-spread contagion. Nonetheless, the three-pronged approach of the US and Eur
opean governments aimed at: (1) repairing damaged financial systems through capi
tal infusion; (2) providing a liquidity lifeline; and (3) enhancing deposit insu
rance, appears to have some effect in terms of shoring up confidence. This has b
een evident in the recent improvements in the LIBOR-OIS and TED spreads. The LIB
OR-OIS and TED spreads are viewed as an indirect measure of funds availability i
n the market. A decrease in spreads typically signals an increased willingness t
o lend. A similar slowdown in the widening of CDS spreads in Asia has recently o
ccurred as certain regional central banks also lowered policy rates and injected
liquidity to their markets through repurchase facilities. These are tractions tha
t we are seeing in the markets. I believe these will eventually constrain market
s from doing a free-fall. Pockets of the financial markets are slowly adjusting, p
erhaps in confident response to the recent display of concerted, collaborative a

nd cooperative action from officials of both the major and emerging economies. I
f these tractions continue and broaden in scope, we may begin to see a further u
nfreezing of credit and a muting of the negative feedback from the financial tur
moil to the real economy. Having said that, however, much depends on whether the
slowdown in the US and other major economies would be shorter or shallower than
first expected.. II. Impact on the Philippines How do all of these developments
impact on the Philippine economy? The Philippine financial markets have not bee
n spared from the ripple effect of the worsening global financial strains. As I
noted in my introduction, the peso has weakened, credit spreads have widened and
the stock market has fallen, like in the other countries. What concerns us now
is that a negative feedback loop from the financial markets to the real economy
cannot be fully discounted. In the Philippines, the macroeconomic impact of the
current turmoil will depend, in part, on the linkages between the Philippine eco
nomy and that of the US. These linkages are in the areas of trade, remittances a
nd investments. Trade. There is no decoupling. The US accounted for about 17 per
cent of total RP exports in 2007. Although this is lower than the 30 percent in
2000 and has been declining since, the US slowdown poses a downside risk to the
countrys export earnings as some exports to other countries are subsequently redi
rected to the US market. Remittances. Remittances are another important channel
through which the US economic slowdown could manifest itself in the Philippines.
More than 30 percent of overseas Filipinos (OFs) were based in the US as of 200
7. Investment. Moreover, more than 30 percent of net foreign direct investment (
FDI) in the Philippines came from the US (in 2007). Slower US economic activity
may, therefore, cause a reduction in inward foreign direct investment. The expec
ted slowdown in other advance economies, including those in Europe and Japan, da
mpens further the countrys FDI prospects. III. Sources of Resilience of the Phili
ppine Economy While the Philippines is not immune to the contagion from the glob
al financial turbulence, underlying strengths or buffers in the economy remain t
hat can help it ride out the storm. The Philippines is in a good position to wit
hstand the crisis for the following reasons: First, the countrys macroeconomic fu
ndamentals are sound and the economic growth potential remains good; Second, dom
estic demand remains a major contributor to growth; Third, the external payments
position is stable; Fourth, dividends from structural reforms adopted by financ
ial institutions since the Asian crisis have helped mitigate the impact of exter
nal shocks; and Fifth, information disclosure practices have improved. Let me hi
ghlight some of these factors in greater detail Favorable growth dynamics The eco
nomy has continued to expand despite a difficult external environment. In the se
cond quarter of 2008, gross domestic product (GDP) grew by 4.6 percent on the ba
ck of relatively strong performances of manufacturing, agriculture and fishery,
trade, private services and construction. On the expenditure side, the main driv
ers of growth have been private consumption and, to some extent, investments. Do
mestic demand has proven to be fairly resilient in previous episodes of global s
lowdowns and should be helpful once again in buttressing the economy from the fa
llout of the ongoing global slowdown. Stable External Payments Position The coun
trys external payments position remains favorable. The balance of payments - alth
ough it is beginning to come under pressure from global developments has remaine
d in surplus for the first nine months of 2008 at US$1.5 billion. The continued
strength of the BOP is underpinned by the sustained strong remittances of overse
as Filipinos as well as higher services receipts, particularly from business pro
cess outsourcing. Let me go into some specifics: Remittances. Overseas Filipino
remittances reached US$11 billion in the first eight months of 2008. OF remittan
ces are expected to grow on the back of improvements in the quality of workers d
eployed. In addition, the geographical diversification of our deployments as wel
l as the relatively inelastic demand for our growing deployed workers in the med
ical related fields, should form a buffer against a global economic downturn. BP
O revenues. Revenues from BPO services also provide some lift (actual revenues f
or 2007 reached US$5 billion according to the BP Association of the Philippines)
. The BPO industry is poised to grow by 39 percent for 2008 on account of strong
demand for back office, engineering and financial services. In a period of slow
down, our BPO centers may benefit as they remain cost-competitive relative to th
e other regional centers. The country also continued to build up sufficient inte
rnational reserves to cover import payments and to service external debt. The cu
rrent GIR level of US$36.7 billion as of end-September 2008 covers about six mon
ths of imports of goods and payments of services and income and is equivalent to
nearly three times the countrys short-term external debt based on residual matur
ity. Stable Banking System Going to the banking sector. You must have heard me sa
y that direct exposure of Philippine banking system to the financial institution
s currently in trouble is limited. Our banks continue to be innately conservativ
e, domestically-oriented, and have not moved to the business model of originate a
nd distribute, which has propelled the popularity of structured products in the m
ajor economies. In addition, the reforms implemented to clean up bank balance sh
eets, strengthen bank capitalization through Basel II, improvements in governanc
e structures, enhancements in risk management systems and adoption of internatio
nal accounting standards have all come together to create a steadily growing, ad
equately capitalized, significantly stronger banking system. In particular Banks
remained capitalized at levels above both the BSP-regulatory requirement and th
e BIS standard. This provides a buffer to banks to absorb more shocks going forwar
d. NPL Asset-quality has been enhanced - NPL ratio has been going down and is at
its best level since the Asian crisis level. As of Aug, NPL ratio for UKBs stoo
d at 3.88%. The asset clean-up of banks was accomplished without the use of publ
ic funds. Profitability has been sustained. As of 2007, return-on-equity and ret
urn-on-assets were posted at 10.8 percent and 1.3 percent, respectively, and wer
e on increasing trend since the post-1997 Asian financial crisis period. During
this period, however, there may be a dent in banks profitability as banks provisi
on for potential losses from affected investments. IV. Policy Response to the Tu
rmoil Despite these buffers, the BSP has not remained complacent in the face of
the turmoil. What have been the BSPs responses to the current turmoil? The BSPs ap
proach to the financial turmoil has consisted of the following: 1. Shoring up co
nfidence through timely communication and transparency Immediate release of info
rmation on bank exposures to troubled financial institutions Continuous messagin
g on developments and policy changes 2. Ensuring that there is adequate peso and
dollar liquidity Enhancing existing peso repo facilities through relaxed valuat
ion and broader acceptable collateral Establishing the US$ repo Facility Maintai
ning a presence in the spot and swap markets by selling dollars Keeping the e-re
discounting facilities and emergency loan facilities open 3. Providing directed
relief to banks by allowing reclassification of financial assets from categories
measured at fair value to those measured as of 1 July 2008. 4. Engaging with it
s regional peers to share information, discuss emerging developments, and pool r
esources, particularly foreign exchange reserves. BSP has supported the proposal
in the ASEAN+3 to enhance the existing swap arrangements as a means of boosting
confidence in the region. The BSP is also considering other possible measures t
o help stabilize the financial markets, including a possible reduction in bank r
eserve requirements. We are also in constant touch with the Bankers Association
of the Philippines to discuss other steps that can be taken under the evolving m
arket conditions. Further, the BSP supports the proposed legislation that seeks
to increase the maximum bank deposit guarantee to be provided by the Philippine
Deposit Insurance Corporation, although under the context of a general restructu
re and recapitalization of the PDIC. V. Conclusion Ladies and gentlemen, While t
he Philippines is not immune to the impact of the financial market turmoil, it i
s relatively better insulated now to ride out the crisis. The continued resilien
ce of the economy and soundness of the banking system, buttressed by gains achie
ved from purposeful reforms (past and present), puts us in a good position to de
al with adversities in the global environment. In addition, we are seeing pocket
s of improvement in the financial markets, which can help to build confidence an
d prevent a free fall. Nevertheless, there is no room for complacency. We must con
tinue to be mindful of the risks that could impede the growth of the Philippine
economy. We can learn a lesson from the little chicken in that childrens fable li
ke the chicken, we must be watchful of our surroundings. But, unlike the chicken,
we must take courage. These are difficult times. If, however, we are armed with t
he correct information and an appropriate plan of action, we should be able to g

et out of this crisis stronger. In this endeavor, the BSP looks forward to the c
ontinued support extended by the Consular Corps. Your work of promoting the diss
emination of correct information about our country takes on a more critical dime
nsion as we try to cope in these very trying times. Thank you very much and Mabu
hay tayong lahat!!
Message
Venue: Executive House, UP Campus, Diliman, Quezon City
Occasion: BSP UP Centennial Professorial Chairs Launching Ceremony
Senator Angara, President Roman, Chancellor Cao, our friends from the UP communi
ty, fellow supporters of UP, special guests, good afternoon. On behalf of the Ba
ngko Sentral ng Pilipinas, I am here to launch the seven BSP-UP Centennial Profe
ssorial Chairs. We believe that setting up professorial chairs is the best way t
o institutionalize our support to academic excellence that is the hallmark of the
University of the Philippines. As I said before, the concentration of UP alumni
in legal, political and government circles as well as in the scientific pool spea
ks volumes about the universitys central role in nation-building. By helping mold
the minds of the nations best and brightest or what we call iskolars ng bayan, b
y stoking the engine of innovation,.and by providing an intellectual compass and
healthy critique to public policymaking,. UP has contributed.and continues to cont
ribute. to the advancement of our country. The BSP-UP Centennial Professorial Cha
irs managed by the UP Foundation Inc. are professorial chairs donated by the Cen
tral Bank of the Philippines in 1982-1983 during UPs Diamond Jubilee celebrations
. The original endowment for these chairs was P150,000 each. We raised each endo
wment to P1,500,000 by donating an additional P1,350,000 per chair. Meanwhile, t
he BSP UP Centennial Professorial Chair in Business Administration has an endowm
ent of P1.5 million from several donations made by the CBP and the BSP since 198
1. We raised the endowment to P3 million through an additional donation of P1.5
million. The terms also have been enhanced to maximize the benefits to the chair
holder. Since 1983 when the professorial chairs were first awarded, they have be
en held by distinguished scholars whose research and public service have contrib
uted significantly to the shaping of policy decisions, the enactment of landmark
legislation and the formation of institutions, both in the government and priva
te sectors. The decision of the Bangko Sentral to establish additional professor
ial chairs namely, the BSP Sterling Professorial Chair in monetary and Banking E
conomics at the UP School of Economics and the BSP Sterling Professorial Chair i
n Government and Official Statistics at the UP School of Statistics, manifests t
he satisfaction of the Bangko Sentral ng Pilipinas in the contribution of the ch
air holders. Therefore, when UP President Roman and Dean Echanis approached the
BSP for upgrading the old CBP/BSP chairs to UP Centennial Professorial Chairs, t
hey found ready support within the Monetary Board. In awarding the chairs, the B
SP affirms the academic excellence and freedom that make the University of the P
hilippines what it is today. The professorial chairs provide funding support for
research but the chair holders are free to set the research agenda within the s
phere covered by the professorial chairs. On the whole, the gains to the UP exce
ed the obvious opportunity to retain and upgrade its most important resource, it
s faculty. It provides a chance to generate research and facilitate extension ac
tivities among the major units of the UP system. For its part, the BSP benefits
through improvements in the existing body of policy-oriented social science rese

arch, of which it is both a producer and user. Our partnership with the Universi
ty will allow us to further avail of intellectual assets to generate ideas, evol
ve good practices, access good vetting and generate competitive advantage in a d
ifficult policy environment. I must say that the establishment of the BSP UP Cen
tennial Professorial Chairs is also in recognition of the role of the University
of the Philippines as the alma mater of the many professionals among BSP staff.
Through these offerings, we hope to continue to provide UPs community of academi
cs and scholars the opportunity to generate ideas and applications that uphold t
he long-standing UP tradition of academic rigor, intellectual freedom, and pract
ical relevance. More importantly, we hope that the research generated through th
e professorial chairs will be of benefit to policymakers at the BSP and in gover
nment who are engaged in the quest for socio-economic development, one that will
truly meet the development aspirations of Filipino society. The BSP UP Centenni
al Professorial Chairs also serve as a challenge for UPs community of academics t
o continue to serve as catalysts for meaningful change in our society. Once agai
n, the Bangko Sentral celebrates with you the first 100 years of the University
of the Philippines and look forward to the next one hundred years of excellence
in research and education at UP. Maraming salamat at magandang hapon sa inyong l
ahat!
Message
Venue: EFLC, Bangko Sentral ng Pilipinas Complex
Occasion: Launching of the Economic and Financial Learning Center
Members of the Monetary Board, our partners in the financial and business commun
ities, special guests, fellow central bankers, good afternoon. We thank you for
being here with us at the launching of the Bangko Sentrals Economic and Financial
Learning Center which includes the BSP Library as well as the Statistical and L
earning Center. This center, which we call EFLC, symbolizes Bangko Sentrals commi
tment to institutionalizeand sustain.. a comprehensive financial education progra
m for Filipinos -- our primary stakeholders. We believe that persons literate in
basic economic and financial concepts stand to benefit more from opportunities t
hat development brings. They also become better partners in ensuring that we hav
e a sound banking system and a more efficient transmission mechanism for our mon
etary policy actions. In the process, they help sustain balanced economic growth
. This is the philosophy that underpins our economic and financial education pro
gram. It is in this context that today, we are implementing a comprehensive econ
omic and financial education program that covers children, teenagers, and adults
. I will discuss its components briefly. For Filipino children, we have Bangko S
entrals joint program with the Department of Education and the banking community,
where lessons on saving and money management are now being taught. as part of th
e curriculum for 12 million public elementary pupils. For overseas Filipinos and
their dependents here and abroad we conduct lectures and dialogues, to help them
make sound financial decisions and investments to grow their money. For our entr
epreneurial poor, we continue to preach the gospel of microfinance that has help
ed improve the quality of life of millions of Filipinos. For small and medium-sc
ale entrepreneurs, we guide them on how and where to access credit. For banks, w
e teach them how to align with and benefit from our technological innovations such
as the award-winning electronic rediscounting. For those engaged in the remitta
nce business, we let them know how they can benefit from using our real-time gro
ss settlement system or PhilPass. For bank customers, we empower them by educati
ng them on their rights and responsibilities in dealing with banks. For maintain
ing the quality of our policies, we have professorial chairs in top academic ins
titutions to improve economic policy formulation and education. For the general
public, we conduct lectures and seminars for them to understand the role of the
Bangko Sentral in the Philippine economy; we also teach them how to recognize co
unterfeit currency; and through the highly successful Tulong Barya Para sa Eskwel
a we teach our public the value of small things, including the barya, as the star
t of wealth creation. And of course, we respond to requests for information and
resource persons from schools, institutions, and civic groups. With our EFLC, we
have created a one-stop center where researchers, students, visitors, and BSP s
taff may access data and information produced and acquired by the Bangko Sentral
in the areas of central banking, economics and finance. We have a briefing room
here where we can host various visitor groups. Incorporating todays technology,
the EFLC will provide information not only through conventional books and magazi
nes, but also in various electronic formats such as CDs, digitized books, and in
teractive learning modules. EFLC will coordinate with other sectors and departme
nts at the Bangko Sentral to consolidate materials for our economic and financia
l education program under this one-stop center. This will include digital archiv
es of BSP video materials to make them accessible to the public. Visitors may al
so buy Bangko Sentral publications and commemorative items here at the EFLC. Thr
ough the interactive modes of learning, including computer-based games and multi
-media learning tools, EFLC should inspire and excite visitors to learn more abo
ut economics and finance. It is possible, some of our visitors may even decide t
o become central bankers. But beyond the books and multi-media resources here, w
e envision EFLC to serve as a regular forum for intellectual discourse that will
inspire higher learning in the field of economics and finance. Ladies and gentl
emen. I am pleased to inform you that this EFLC is just the first of a series; o
ur plan is to set up EFLCs at Bangko Sentrals regional offices and branches. This
is to provide equal opportunity for our people in the countryside equal access t
o our material and resources. Actually, work has already started in operating th
e regional centers but we will expand their scope and services in the form of tr
aveling exhibits and operation of regional hubs to ensure that our electronic re
sources are accessible to our visitors in the regions. Expanding our network and
enhancing regional facilities will ensure that timely economic and financial le
arning benefit those in the countryside as well. Ladies and gentlemen. I cannot
overemphasize the importance of ensuring the success and sustainability of our e
conomic and financial education program. If we are effective in teaching saving
and money management to our 12 million public school pupils, we would be on trac
k to raise a new generation of financially-independent Filipinos who will lift o
ur country from its traditional deficit-spending mode. If we are able to educate
our public to recognize legitimate investment vehicles from pyramiding scams, t
hen we can truly harness public savings to finance productive ventures. If we ar
e able to inspire Filipinos to save, invest more, or to become entrepreneurs, th
en we have done our country a great service in terms of sustaining its growth an
d development. I hope therefore that we will continue to work together on our ec
onomic and financial education program. Finally, I congratulate the EISG headed
by Marah Angka and her staff for finally getting the EFLC off the ground. Let us
give them our full support and cooperation. And so, ladies and gentlemen, let u
s now begin our tour of the EFLC. Mabuhay ang EFLC! Mabuhay ang Bangko Sentral n
g Pilipinas! Thank you all and enjoy the rest of the day.
Recent Market Developments: Impact on Banking and Finance Sector

Venue: Grand Ballroom of the Hotel Intercontinental Manila, Makati City

Occasion: Joint Membership Meeting of MART, TOAP, ACI and IHAP
Distinguished officers and members of the Money Market Association of the Philip
pines (MART), Trust Officers Association of the Philippines (TOAP), Association
Cambiste Internationale (ACI) Philippines, the Financial Markets Association, In
vestment House Association of the Philippines (IHAP), esteemed guests, ladies an
d gentlemen, good evening. Thank you for inviting me to be your guest speaker at
tonights joint general membership meeting. Its always good to engage the prime mo
vers of the countrys financial markets in an open discussion such as this. But es
pecially during these times of great financial turmoil in major markets overseas
. I would certainly welcome the questions and your comments during the open foru
m after my brief talk. As you are well aware, the BSPs approach to supervision an
d reform has always been consultative. About the same time last year, if you rec
all, I was also your guest speaker at your general membership meeting At that tim
e, I spoke about the increase in global liquidity and the temptations that it in
troduced. I alluded to the changing nature of financial risk and how in this era
of financial globalization, risks have transcended national borders. I also sai
d that the international rules of the game are changing. Ah the time we live in i
s indeed interesting, isnt it? The rules of the game are further evolving. This t
ime around, there seems to be a crunch in global dollar liquidity as the US mark
et has rapidly de-leveraged. And events are showing that the magnitude of financ
ial risks that have crossed national borders has been beyond most market partici
pants and regulators expectations. Stunningly, we are witnessing rapid turnover in
some of the marquee names in the global financial stage. In fact, the market de
velopments are moving so fast that the observations that I will be sharing with
you tonight are not the same as those that I would have shared with you, had I d
elivered my talk on Tuesday as was originally scheduled. But I want to assure al
l of you here tonight, that my overarching message remains the same that is, Fir
st, our financial system is fundamentally sound and relatively insulated given i
ts more largely domestic orientation, Second, our exposure to the troubled forei
gn financial institutions is minimal and quite manageable from a capital and liq
uidity standpoint, and Third, our past investments in banking and other financia
l reforms have helped shield us from catastrophic fallouts that the other jurisd
ictions have seen. How did I come to these conclusions? Let me quickly run throu
gh the following points with you : a) What has just happened? b) Hows our banking
system faring? c) Is our macro stability sustainable? d) What are the BSPs thrus
ts going forward? I. Recent Market Developments We are all in the market, althou
gh coming from different perspectives, so I wont delve too much into the details
of the events since mid-September. We have all witnessed that our domestic marke
ts have followed, albeit somewhat mutedly, the movements in the global financial
markets. What is interesting to note, however, is that our markets reactions hav
e at times merely been knee-jerk. On quite a few days over the last 2 weeks, we sa
w the peso and the stock market, for instance, recovering most of any days tradin
g losses by the close of the days trading session. What I would like to highlight
with you, is this The rules of the game are changing. 1) Financial markets have b
ecome very closely interrelated allowing for contagion to be easier and speedier
; 2) The financial transactions that we thought would diversify risk may be the
very same ones that have led to unhealthy risk concentrations; 3) Information is
most critical, when you are least mindful of it ; and 4) As much as many would
not want to believe it, regulation and markets must coexist -- the trick is to c
raft good regulations that would allow markets to work. Financial integration ha
s allowed the movement across borders not only of goods but also of funds. The f
unds market has indeed become global. Yield-seeking by investors as well as capi
tal raising activities of users of funds ceased to be confined to their own bord
ers because of globalization. So called "securitization structures have made it e
asier to transfer traditional on-books risks of banks to off-books accounts, the

refore freeing up capital which allowed banks to lend more. Structured products ha
ve also allowed the enhancing of yield on traditional investment instruments. Wi
th these financial innovations, the objectives of the investors and the users of
funds were therefore seemingly happily married. But alas, the party has abruptly
ended and the music has stopped playing. In the flurry of these financial innova
tions, the value of transparency seemed to have been understated or even casuall
y brushed aside. And as the market in the US was largely deregulated, the market
grew larger and larger. Some are predicting that what we may see, as an afterma
th of this turmoil, is a highly concentrated and increasingly regulated financia
l system in the major economies. Policy makers and regulators in emerging market
s, including in the Philippines, will then have to evaluate their own market str
uctures to see how they can best position themselves in this changing environmen
t. II. The Philippine Banking System Against the backdrop of recent events, how
have our banks fared? You have heard me say that our banks collective exposure to
the failed Lehman Brothers was 0.3-0.4 percent of the banking systems total asse
ts. We hope that there will be no other Lehmans type problems down the road, and
this seems to be a fair hope given that US and even European authorities have no
w boldly stepped in to rescue the other large and potentially systemic financial
institutions in their jurisdictions. Nonetheless, our latest survey of banks sh
ows the exposure of Philippine banks to potentially at risk international financia
l institutions is only around 1 percent of total assets at most. And this level
of exposure by a few banks is definitely well within the ability of these banks
to absorb should they become actual losses given their strong capital base and l
iquidity. Our monitoring of banks activities continues to reveal no abnormal acti
ons by or against banks. In addition, the interbank market continues to function
in an orderly manner given fairly stressed global conditions. Where we have see
n some friction is in the swap market, possibly in step with tightness in global d
ollar liquidity. But as I understand it, that has abated in the last couple of t
rading days. Ladies and gentlemen, our banking system remains fundamentally soun
d. Capital is still well above both the BSP 10% minimum prudential requirement a
nd the BIS standard of 8%. Asset quality is as close to the lowest level seen si
nce the Asian Crisis as it has ever been. Return on equity has also been improvi
ng. And there is ample liquidity system-wide. This stable banking system has bee
n critical in underpinning a stable macroeconomic environment. And sustained sta
bility in our macroeconomic environment in the last few years has also avoided t
he build up of dangerous imbalances that could have led our banking system astra
y. III. Macroeconomic Stability Now, a question that may be in your minds is thi
s -- Is the macroeconomic stability that we have so far enjoyed in danger, given
the global financial turmoil further threatening world economic growth? You cant
have a more direct question than that, can you? Well, I will also try to be as
forthright. As you aware, we have lowered our growth expectations to a range of
4.4 to 4.9 percent. I believe that given the unfolding environment, such a range
would still be decent. On inflation, our base scenario for a hump-shaped inflat
ion path remains. The inflation peak may be nearing, if we havent yet seen it. Af
ter that, we see some leveling off, then entry into single digit territory by Q1
2009. Now, if the downtrend in global oil and non-oil commodity prices is susta
ined, we should see the leveling off period shorter, and inflation being within
the target range before the end of 2009. We are cognizant that the global slowdo
wn could further weaken our exports but possibly tempered by lower oil prices an
d other commodity imports. Remittances actually are very strong and above foreca
sts so far, but they may also be eventually affected. Prolonged risk aversion co
uld also change the direction of capital flows. However, we are also keenly awar
e that the global economies are not all slowing down at the same rate. In additi
on, not all the economies are seen to grind to a halt. There will continue to be
opportunities for growth. There will always be value investors, given all the l
iquidity that will have been shored up because of the ensuing clean up in the fina
ncial turmoil. We are thus expectant that markets such as the Middle East and Ch
ina will be resilient. We see these markets as taking up much of the slack that
will be created by the slowdown in the US and Europe. We therefore still conside
r our $2 billion BOP surplus target this year as reasonable and doable. Given al
l these and as we sustain the reform effort, I believe our macroeconomy stands a
n excellent chance of maintaining its stable course. IV. BSP Thrusts going forwa
rd What can you expect from the BSP going forward? We will remain focused on our
mandate of price stability. We believe that inflation at manageable levels is e
ssential to ensuring sustainable economic growth. We will maintain our policy of
a market-determined exchange rate, with official action only to keep volatiliti
es at bay. We will stick to the policies that have allowed us to sustain a stron
g external position. We will continue to review our banking reform agenda. The b
anking system strength that we have seen thus far has been made possible by the
reforms that we have put in place. We will continue to enhance risk management s
tandards, improve corporate governance and accelerate compliance with Basel 2 pr
inciples. The recent events in the financial markets highlight the critical impo
rtance of efficient price discovery, transparency and investor protection. In li
ne with this, our issuance of regulations aimed at further broadening the array
of financial products available in the market will continue to include a review
of existing rules to ensure that appropriate risk disclosure and client suitabil
ity procedures are in place for new risk-taking activities. In addition, the BSP
will continue to work together with the private sector and other government age
ncies to further enhance both the infrastructure and the regulatory framework fo
r capital market transactions to further promote efficiency in trading, settleme
nt and delivery of government securities. Finally, we will pursue our legislativ
e agenda. As you must be aware, the Credit Information System Act and the Person
al Equity and Retirement Account Act have both recently been approved. These are
two very important pieces of legislation, particularly as we face the challenge
s brought about the current financial turmoil. The CISA will help address the la
ck of comprehensive and credible credit-related information. This will in turn i
mprove access to credit and reduce its cost. PERA, on the other hand, is expecte
d to promote voluntary savings and therewith provide a new base for stepping up
capital market development. It is also expected to be complementary to our publi
c pension system. The BSP will continue to work with Congress on key legislation
that would further enhance protection for investors, improve BSPs oversight capa
bilities and minimize costs of resolutions. CONCLUDING REMARKS Ladies and gentle
men, the challenges that we face are enormous. Although much has already been re
vealed in terms of the problem areas of the global financial market turmoil, we
are very much aware that more could be forthcoming. I said earlier, the rules of
the game are changing. Fortunately, at the UAAP, the rules have not changed, the
best still prevails. I can almost hear some of you say underneath your breaths - if indeed that is the case, then we should throw the playbook out the window. My
advice to all of you -- instead of doing that, be watchful. At this critical po
int, it is more important that we remain focused on the strategy and the reform
agenda that have so far allowed us to be resilient. On the part of the BSP, we w
ill remain vigilant in our assessment of developments. We will ensure that we ar
e flexible to promptly and decisively take action when necessary. We will be for
thright in our communication to our stakeholders. To steer the market from a fur
ther and deeper impact of this turmoil, the BSP continues to look to the active
cooperation and support of all of you in the market. As they say, we are in this
game together. I take note of the passionate and unwavering support pledged her
e by all the associations present tonight. In order for all of us to finish the
course we laid out, we must work together as a team. Magandang gabi po sa inyo,
at maraming salamat. Mabuhay tayong lahat!
Recent Market Volatility: Implication for Philippine Economy and Banking System
Venue: NA
Occasion: Public Hearing of Senate Committee on Banks

Mr. Chairman, members of the Committee, Senators. Good morning. The Bangko Sentr
al ng Pilipinas is thankful for the opportunity to discuss what is undoubtedly t
he most talked-about issue in the world today. Indeed, the international financi
al architecture has been irrevocably remodeled by events over the past two years
. To understand what all of these events mean and to situate the Philippines in
all these, it is quite important that we undertake a clinical diagnosis of what
exactly has transpired and outline a roadmap, if you will, of where the drifts o
f change may take us. In todays briefing Mr. Chairman, we share with your Committ
ee our analysis, beginning with a brief discussion of the events that led to wha
t is now euphemistically referred to as the Sub-prime mortgage crisis. After pre
senting the broad outline of the current turmoil, we go directly to how all thes
e are affecting the Philippines. It is in this section, Mr. Chairman, that we re
iterate our earlier pronouncements that our exposures are limited and that our h
ard-earned financial market stability continues. At the request of the Chairman,
we have also prepared a separate short presentation of the more technical detai
ls of the typical transactions and the financial instruments involved. The Genes
is of the Current Financial Difficulties in the US Market Allow me Mr. Chairman
to raise 4 themes that in our view give context to what is currently transpiring
in the market The Great Moderation, Market Psychology, Financial Innovation and
Globalization. The Great Moderation refers to the period where there was low vola
tility in inflation and output. By the early part of this decade, this was suppo
rted as well by an environment of low interest rates. This is an essential devel
opment since it fueled the boom in mortgages, aided no doubt by the traditional
market psychology that real estate prices -- particularly housing values -- woul
d perpetually rise. The same market psychology encouraged investors to seek new
avenues to enhance portfolio yields within this low interest rate environment. T
he financial market responded to this by introducing so-called structured produc
ts. These instruments are designed to repackage the traditional risks related to
mortgage out of the balance sheet of banks while providing newer means to handl
e the financing of the mortgage. These structured products were made available t
o a wide spectrum of investors across different jurisdictions allowing for new o
pportunities in a more diversified portfolio. Unfortunately, Mr. Chairman, when
mortgage defaults became prevalent, the same links that diversified risks to a b
roader web of stakeholders are precisely the very same links through which we fi
nd some contagion effect that is now reflected by the present difficulties. The
role of information, Mr. Chairman, in all of these simply cannot be understated.
When times are good, there is the overwhelming tendency to ride the bandwagon,
oftentimes sacrificing the need to validate all information as prudence dictates
. However, when times are bad, it is precisely the dearth of information that dr
ives institutions and the general public towards panic. To see this in better de
tail, we begin with what is arguably one of the most followed market rate, the E
ffective Fed Funds rate. Soon after the onset of the new millennium, the Effecti
ve Fed Funds rate was moving downwards, eventually reaching its lowest levels in
the 3rd quarter of 2003. The low interest rate regime was intended to spur lend
ing and indeed one sector that benefited was the mortgage markets. Housing price
s were experiencing a pronounced appreciation and the low interest rate regime s
erved to further fuel a boom in mortgages. In ages past, banks simply took the t
enor mismatch of short-term liabilities funding long-term assets such as mortgag
es. This business model however exposes the bank to considerable long-term risks
. Under the Basel Accord framework --- the de facto international best practice
for bank supervision --- these risks must be mitigated by corresponding capital
charges. It is the long-term nature of the mortgage that makes it relatively expe
nsive to maintain from the standpoint of allocating a fixed amount of bank capita
l. The process of securitization offers an alternative since US financial instit
utions could take out much of the traditional mortgage-related risks from their
balance sheet. Essentially, this is what occurred as housing equity loans (HELs)
were securitized, providing FIs both fresh funds and balance sheet leeway to ex
tend new loans, particularly mortgages. The securitized HELs became what is refe
rred to as mortgage-backed securities (MBS) and, with further structuring, event
ually fed into another instrument which is called Collateralized Debt Obligation
s or CDOs. The conversion of mortgages into Mortgage-backed securities (MBS) and
Collateralized Debt Obligations (CDOs) may seem complicated but in reality thes
e are fairly straightforward transactions. To provide the Committee a rough sche
matic, we start with those who take out amortizing housing loans from banks. For
the bank, this is a long-term asset which ties up resources and is prone to mar
ket and credit risks. To mitigate these risks, the bank may pool the amortizatio
ns expected from the mortgage and create a security which can be sold to investo
rs. The coupon payment of the new security is funded by the amortizations of the
housing loan. This security is referred to as the MBS and the transaction is of
tentimes is handled through a Special Purpose Vehicle. To the bank, the effect i
s an improvement in the asset quality of its balance sheet because the tradition
al mortgage risks are mitigated. Investors welcome this because it affords them
another instrument that they can consider for their portfolio. The SPV earns fro
m being a conduit while the mortgagor is unaffected because he/she has already r
eceived the proceeds from the original loan. Taking this a step further, Collate
ralized Debt Obligations may also be created and likewise offered to investors.
There are technical differences between CDOs and MBS but for purposes of situati
ng the current market conditions, it is perhaps sufficient to suggest that the t
wo instruments are similar in that they pool underlying assets and sell an instr
ument that represents these underlying assets. The Effective Fed Funds rate subs
equently reversed course. Housing prices also began to fall significantly and mo
rtgage defaults began to rise. Since the home was typically the collateral of th
e mortgage, falling housing prices also eroded the value of the collateral suppo
rting the loan. In the past, a loan default would have simply meant foreclosing
on the home. However, since the mortgage was already converted into a security (MB
S and CDOs) held by investors worldwide, the combination of rising mortgage defa
ults and falling collateral values translated into losses for the MBSs and the C
DOs (either through outright defaults, missed coupon payments and loss in market
value of the security) These factors sparked the widespread dilemma that we now
find ourselves in. If memory serves us right, it was in February 2007 that the
term subprime mortgage was publicly alluded to in a disclosure by an international
financial institution. The subprime difficulties began to take explicit shape a
s mortgage institutions take their losses into their financial books. In April 2
007, New Century Financial files for Chapter 11 protection and less than a year
after, Bear Stearns is acquired with Fed support. The Philippine Situation You m
ay wonder Mr. Chairman what this unfortunate situation has to do with a small ar
chipelagic economy half-way across the globe. If they are affected, why are we?
The answer to that Mr. Chairman is the realities of macro-financial economics. T
he funds market is indeed global; investors seek the most competitive terms with
out necessarily being confined within national borders while issuers are free to
raise capital across different jurisdictions and under different currencies. Ex
change rates are always bilateral in nature but eliminating arbitrage requires t
hat adjustments are inevitable once bilateral rates are linked, i.e., from euro
to pound to dollar to peso. On top of this, there is our longstanding economic t
ies with the US and this would easily manifest itself in many of our mainstream
economic indicators such as the BOP (both current and financial accounts), infla
tion, employment and OFW remittances. It is also important to bear in mind Mr. C
hairman how innovation plays a role here. With funding markets more global than
any other point in history, new products and new transactions are routinely deve
loped to address evolving needs. We earlier provided a schematic that essentiall
y converted housing loans from long-term illiquid assets held by banks and into
marketable securities held by the investing public. Without altering the basic c
ash flows (i.e., the amortization of the loan), the market has altered the chara
cter of the instrument and allowed the product to be available to the public. Th
is is intrinsic to the changes in the market landscape and as we will see later,
is essential to understanding how our own banks became involved with Lehman Bro
thers exposures. The Extent of Exposure of Philippine Banks Going to the actual
exposures of Philippine based banks to Lehman Brothers, we have already stated p
ublicly that the magnitude is roughly 0.3 percent to 0.4 percent of total assets
. In other words, the extent is less than one-half of 1 percent of total assets.
This marginal exposure is spread over a limited number of banks and involves tr
ansactions arising from Special Purpose Vehicles as well as the direct investmen
t in Lehman-issued financial instruments. Banking Market Remains Stable Apart fr
om the limited exposure, we find that our markets reaction has been contained as
well. The Peso, for example, depreciated when talk of Lehmans difficulties took c
enter stage. This is evident the day after Lehman filed for bankruptcy protectio
n as market uncertainty set in. Yet in the same vein, that uncertainty abated an
d the peso appreciated once the rescue plan of the US Fed and Treasury was annou
nced. Looking at check clearing activity for that particular week, we find no ev
idence of either abnormal or sharp reactions. In fact among universal and commer
cial banks, there was a net check deposit of roughly Php970 million on the 16th
and 17th of September --- the period of Lehmans filing for Chapter 11 --- followe
d by a net check withdrawal of basically the same amount on the 18th. In effect,
resources were not withdrawn on balance as a result of Lehmans difficulties and
commercial/universal banks even closed the week with further additions. Over at
the interbank market, average rates remained relatively the same as well through
out the same period. Where the market response was most evident was in the prici
ng of the credit risk. One can see from the chart that the EMBI+ indices, both G
lobal and for the Philippines, rose immediately after September 16. The same pat
tern is evident in our 5-year Credit Default Swaps, suggesting that it became mo
re expensive to hedge against the possibility of a Philippine default. However,
we would like to stress that those spikes have likewise abated, again once the m
arket absorbed the information on the rescue plan. Assessing Our Market Landscap
e What we are suggesting Mr. Chairman is that our own markets reaction has been r
elatively subdued despite the otherwise historic developments offshore. We attri
bute this to our own structural make-up specifically . . . A banking system wher
e institutions are well-capitalized relative to the risks they take on their bal
ance sheet. Our latest Capital Adequacy Ratio (CAR) for universal and commercial
banks is practically 50 percent higher than our prudential standard of 10 perce
nt which is itself higher than the international standard of 8 percent set forth
by the Basel Accord. The continued asset clean-up of banks, accomplished throug
h market-oriented schemes and without the use of public funds, has boosted the b
anking systems overall asset quality. The banking systems NPL ratio is now closer
to the pre-crisis level of around 4.0 percent. Furthermore, Return to Equity con
tinues to improve, currently at 10.8 percent as of end-2007 Investing in Banking
Reforms These strengths have been made possible because we have invested in pre
vious reforms. While recognizing that change is itself difficult, we have noneth
eless moved forward in putting in place a risk-based supervisory approach where
minimum prudential standards are set, behavior and conduct are monitored but the
day-to-day strategic & operational decisions are clearly vested on the banks in
the context of their fiduciary responsibilities and their governance mandate as
good corporate players. We have earlier shown the committee Mr. Chairman the ca
pital adequacy position of our universal & commercial banks, setting the bar hig
her than the Basel Accord. Over and above that, we now have a core of dedicated
specialists who are individually assigned to oversee specific institutions and h
ave the technical expertise & training required for this critical function. We a
re instituting a new reportorial system --- the FRP --- that is fully compliant
with International Accounting Standards. Perhaps most critically, we have regula
r and open discussions with our stakeholders so that issues can be thoroughly ve
ntilated and a common understanding reached. The Broad Overlying Issues All of t
hese developments on the ground eventually mesh with the broad overlying issues.
We have strengthened ourselves internally because we recognize that funding mar
kets are irrevocably global where ups and downs necessarily cascade to everyone.
The market no longer distinguishes where perturbations emanate; it only appreci
ates how the contagion may be transmitted. In this respect, the current problems
in the United States are certainly not an isolated US issue. There is no other st
ronger proof of this than the fact that various central banks have been working
in concert to provide the necessary liquidity to prevent systemic dislocations.
Moving forward though, information will always remain to be the key ingredient s
o that appropriate measures can be calibrated for differentiated difficulties. I
nformation though is a two-way street: we will continue to oversee covered-insti
tutions based on our risk-based supervisory framework while stakeholders need to
remain faithful to the tenets of transparency and disclosure. Macro-economic La
ndscape We would like to reiterate that the countrys macro fundamentals remain so
und and the economy has proven to be resilient. Despite a general slowdown world
wide and skyrocketing oil prices, we continue to generate growth. Our inflation
numbers have indeed moved upwards and we recognize the difficulties that this br
ings. However, based on present commodity market conditions, we may soon see som
e relief. Our international reserves continue to rise, reaching $36.7 Billion as
of end-August. This represents 6 months worth of imports and the payments of go
ods and services, doubling our previous norm. And considering all the external v
olatilities, our Balance of Payments position still shows encouraging news with
a surplus of $2 Billion after the first 8 months. All these Mr. Chairman auger w
ell for us. The Bangko Sentral ng Pilipinas fully appreciates the historic impli
cations of the most recent shock but we also note the very marginal exposures fr
om our end. The good news then is not only the limited exposures but perhaps mor
e so that it validates our prior collective investments in macro-financial refor
ms. This could only suggest that the financial stability that we have achieved c
an be expected to further continue. Legislative Landscape On this note, we thank
the Senate for its support and the passage of the PERA and CISA bills. These ar
e essential tools as we move further in developing the capital market and instit
utionalizing credit information. If there is a lesson from the current turmoil t
hough, it must certainly be that markets are constantly evolving and that pruden
tial oversight must likewise keep in step. Given the vast array of possible infl
uences that bear upon market conditions, the general public must be afforded gre
ater protection which is itself possible through more effective means of supervi
sion. With the support of the Senate, we would like to move forward on existing
proposals so that we can effectively institute the principle of consolidated sup
ervision. Among others, the market conditions provide a compelling reason to con
sider the regulators ability to direct existing shareholders to infuse additional
capital, accept new investors or consolidate with qualified financial instituti
ons when deemed necessary. This pro-active move would certainly minimize potenti
al resolution costs. These, as well as others, are provided for in the proposed
amendments to Republic Act No. 7653. Other legislative initiatives such as the C
orporate Recovery Act, the Payments System Act and the Collective Investment Sch
emes Law are also essential in our on-going efforts to strengthen our market as
well as in the light of the current market issues. Mr. Chairman, the Bangko Sent
ral ng Pilipinas thanks you, the Committee and the Senate for this opportunity t
o provide our views and analysis on the issues at hand. We trust that we have co
mprehensively addressed your concerns and we look forward to our continuing coll
aboration to ensure that our financial market sustains its development.
The Philippines: Addressing the Challenges. Staying the Course

Venue: Makati Shangri-La, Makati City
Good morning. Thank you for joining us in this mid-year economic briefing. I am
pleased to speak before you on the developments in the monetary, external and ba
nking sectors. After providing you with an overview of recent economic developme
nts, I will discuss the outlook for the next two years which takes into account
the challenges that our economy is facing. Then, I will walk you through how the
BSP has responded to these challenges. I will close with the BSPs policy thrusts
going forward. Let me start with the latest price developments. Inflation avera
ged 8.8 percent for the first 8 months of the year, rising to 12.5 percent in Au
gust from 4.9 percent in January 2008. Core inflation, which measures the underl
ying trend in inflation by excluding specific food and energy prices, climbed to
7.0 percent year-on-year in August, from 3.4 percent in January. Price pressure
s have been building up since early this year. Initially the price increases wer
e due to supply-side factors, specifically from elevated international oil and n
on-oil commodity prices. However, second round price pressures subsequently beca
me apparent, as evident in the rise in core inflation and the adjustments in the
pricing of services as well as wages. These have resulted in a more challenging
inflation environment. Meanwhile, the countrys external payments profile remains
a major source of strength for the economy. The BOP remained in surplus for the
first eight months of 2008 at US$2.0 billion. Remittances from overseas Filipin
os continued to boost the BOP, reaching US$9.6 billion for the first seven month
s of 2008, higher by 18.2 percent relative to the year-ago level. The sustained
BOP surplus resulted in the continued build-up of the countrys gross internationa
l reserves (GIR), which stood at US$36.7 billion as of end-August 2008. At this
level, the GIR is equivalent to 6.0 months worth of import cover, 2.9 times the c
ountrys short-term external debt based on residual maturity. The strong external
position has allowed both the public and private sectors to prepay some of their
FX obligations, resulting in further improvements in the countrys external debt
ratio. As of end March 2008, the external debt ratio stood at 35.6 percent, less
than half its level in 2001 of 72.9 percent. The peso has weakened in recent mo
nths. On a year-to-date basis, the peso depreciated against the US dollar by 12.
3 percent as it closed at P47.09/US$1 on 15 September 2008. This is on account o
f rising risk aversion due to worries over global economic slowdown and credit t
ightening. Concerns over rising inflation further added pressure against the pes
o. For the period 2001-2008 (to-date), the peso appreciated by 9.1 percent, gene
rally in tandem with most currencies in the region. The Philippine peso has been
generally competitive against our major trading partners and competitors in rea
l terms. If we take 2001-2002 as the comparator period given both good GDP and i
nflation numbers, coupled with the manageable external payments position, the en
d points remain broadly on the same level. On the financial sector, the banking
system remains generally sound and stable. The banking systems asset base has bee
n expanding steadily. The continued asset clean-up of banks, accomplished withou
t the use of public funds, has enhanced asset quality, bringing the NPL ratio cl
oser to the pre-Asian crisis level of around 4.0 percent. Banks remained capital
ized at levels above both the BSP-regulatory requirement and the BIS standard. O
wing to reforms earlier instituted, the Philippine banking system has not been s
ignificantly affected by the financial stresses experienced from the US subprime
mortgage market. Furthermore, the Philippine domestic banks exposure to structur
ed products, such as CLNs and CDOs, issued by investment houses like Lehman Brot
hers has been limited and are well cushioned by banks capital base. However, we c
ontinue to closely monitor developments in the global financial markets, includi
ng further risk aversion against emerging markets including the Philippines, as
these may adversely impact the growth of the banking sector. Where are we headin
g? The inflation path is expected to be hump-shaped, with the peak around Sept/O
ct this year, after which we expect a gradual leveling off. We expect to see the
single-digit level again by late Q1/early Q2 next year. Nevertheless, the forec
asts still indicate that inflation could exceed the 2008 and 2009 targets. The B
OP surplus by end 2008 is estimated at around US$2.0 billion. This would result
in a GIR level of US$37 billion by the end of 2008. What are the challenges that
we face as we try to achieve these projections? The Philippines like many emerg
ing countries is faced with the challenge of rising inflation and slower economi
c growth. The slowdown in US and global growth could result in a deceleration of
Philippine export growth and a decline in foreign investments. While global com
modity prices have started to show some easing, world oil prices are expected to
remain volatile due to low global production capacity and rising demand in emer
ging economies. Non-oil commodity prices may take longer to unwind because of st
rong demand from growing consumption of emerging countries and as inputs for bio
fuel production. The risk of high inflation remains present. Meanwhile, the stra
ins in global financial markets continue to persist and have heightened risk ave
rsion. While emerging markets, including the Philippines, have been fairly resil
ient to the global credit turmoil, they could face greater risks because of high
er borrowing costs and reversals in capital flows How has the BSP addressed thes
e? Consistent with our primary mandate, we have responded through policies appro
priately aimed at sustaining price stability. We believe this is essential in en
suring sustained long-term economic growth. As I mentioned earlier, the BSP note
d that the spikes in prices in early 2008 were supply-side in origin. These had
mainly global roots and were expected to be largely transitory. As is well accep
ted, such supply-side shocks are best addressed by non-monetary measures. Acknow
ledging that the impact of monetary policy under that scenario would be limited,
the BSP followed a prudent approach by accommodating these first-round effects.
In other words, BSP treated the resulting rise in prices as a shift in relative
prices, and allowed it to go through. Thus, BSP kept its policy settings steady
during our March and April meetings. Subsequently, however, we noted changes in
the inflation dynamics. First, inflation expectations were rising. More specifi
cally, consumer and business expectations surveys began to show more respondents
expecting headline inflation to go up in the coming months. BSPs survey of priva
te sector economists/analysts showed higher inflation forecasts for both 2008 an
d 2009. Moreover, the term spreads on secondary market yields for government sec
urities were on the rise, reflecting market sentiment for a continued rise in th
e future. Second, real interest rates continued to be in negative territory. Thi
s would pose some complications to making decisions on savings, investment and p
roduction, which over time could weigh down on capital flows, exchange rate and
ultimately, inflation. Given the new information, the BSP responded with a combi
nation of policy rate hikes and careful communication of BSPs inflation-fighting
resolve. During its policy meetings in June, July and August, the BSP gradually
raised its policy rates from 5 percent to 6 percent. The cumulative 100 basis po
ints hike was a recognition that it was necessary to act promptly and preemptive
ly to: 1) address price pressures that were coming more evidently from second-ro
und effects; 2) guide inflationary expectations, to arrest self-perpetration int
o higher actual inflation; and 3) rein in inflation and allow it to fall within
the target range over the policy horizon. Latest indicators show that inflation
is losing speed but risks remain. Global commodity prices are now starting to sh
ow some easing. However, we still need to remain cautious given the inherent vol
atility in commodity prices. The BSP remains confident that its current monetary
policy stance could be accommodated by resilient demand conditions. The buoyanc
y of domestic demand suggests room for measured interest rate action without cau
sing serious effects on the real sector. Meanwhile, we have continued to institu
te reforms to further strengthen the banking system and deepen the domestic capi
tal market. These reforms are focused on further enhancing the regulatory framew
ork through the continued implementation of the BASEL II framework; accelerating
the implementation of risk-based supervision; improving corporate governance, i
ncluding by promoting compliance with international accounting and financial rep
orting standards; continuing to promote microfinance lending to improve small bu
sinesses access to credit; and supporting the deepening of the domestic capital m
arket. What can you expect from the BSP going forward? The policy thrusts of the
BSP are aimed at ensuring that the headway that we have achieved in nurturing a
resilient economy and a sound banking sector will continue even in the face of
the challenges we all face. First, monetary policy will continue to be sufficien
tly cautious and vigilant to the emerging balance of risks. It will continually
reassess the evolving situation as price pressures show initial signs of slowing
down and as demand conditions moderate. This will ensure a responsive conduct o
f appropriate monetary policy. In the external sector, our policies will continu
e to be directed at maintaining a market-determined exchange rate with scope for
occasional official action to address sharp volatilities in the exchange rate;
maintaining a comfortable level of reserves as self-insurance; and ensuring the
sustainability of our external debt. These policies will continue to promote str
ong fundamentals that will help reduce the economys vulnerability against global
economic risks and support the needs of a more dynamic and globally integrated e
conomy. In the financial sector, we remain firmly committed to sustain key refor
ms that will lead to greater efficiency, effective risk management, stronger cap
ital base and improved corporate governance standards in the banking system. The
se financial and banking sector reforms will continue to raise savings and help
boost financing for productive activities. In summary, let me assure you that th
e BSP is prepared to take all necessary action to address the threat of high inf
lation and promote price stability. We stress here that high inflation erodes th
e communitys purchasing power, reduces their consumption expenditure and slows do
wn economic growth. We are therefore mindful of the impact of our monetary polic
y action on the economys growth momentum. The resiliency of our economy allows us
to have greater flexibility in responding to the challenges that come our way.
Thank you very much.
Strengthening Our Fight Against Money Laundering & Terrorist Financing

Occasion: Closing ceremonies of the EU-RP Anti-Money Laundering Project-Philippi
nes
Ambassador Alistair MacDonald; Congressman Jaime Lopez; Anti-Money Laundering Co
uncil Members SEC Chairman Fe Barin and Insurance Commissioner Eduardo Malinis;
Honorable Members of the Monetary Board and the Judiciary, Honorable Members of
the European Commission, Members of the Diplomatic Corps, Representatives from o
ur multilateral partners including the IMF/ World Bank and the ADB, Dr. Ferdinan
do Buffoni, fellow workers in government, special guests, good morning. Today, w
e celebrate a significant milestone: the successful completion of the joint prog
ram of the Philippine Government and the European Commission in strengthening ou
r capacity to fight money laundering. Two years, ten months and six days ago, we
launched the Training the Trainers Program. I am pleased to announce that the eva
luation indicated that this program accomplished its objectives of strengthening
the institutional capacity of agencies and institutions involved in the impleme
ntation of AML/CFT strategies and of raising the awareness of the Philippine civ
il society on AML/CFT issues. My understanding is that the participants took ful
l advantage of this training program and lived up to its challenges. Altogether,
we have 20 successful trainers from the Bangko Sentral ng Pilipinas, the Securi
ties and Exchange Commission, the Insurance Commission, the Anti-Money Launderin
g Council Secretariat, the Philippine National Police, the Court of Appeals and
the Regional Trial Court. May I request all the participants to the Training the
Trainers Program to stand up and be recognized. Ladies and gentlemen, let us give
them a well-deserved round of applause! Congratulations program participants! Y
ou have completed the first step. The next challenge is to use the training skil
ls you have acquired in sharing the knowledge you have gained with the stakehold
ers tasked to implement AML/CFT measures. The objective is to empower them to fu

lly respond to evolving challenges in our fight against money laundering and ter
rorist financing. I am also impressed by the stronger cooperation that has taken
root among the agencies of government represented in the program: from the supe
rvisory authorities to the judicial and law enforcement agencies. For us at the
Anti-Money Laundering Council, training and educational programs are important i
nitiatives under the Philippines AML/CFT regime. The Anti-Money Laundering Act of
2001, as amended, mandates the AMLC to develop educational programs on the harm
ful effects of money laundering, the methods and techniques used in money launde
ring, the viable means of preventing money laundering and the effective ways of
prosecuting and punishing offenders. Ladies and gentlemen. The Philippines has b
een making big strides in having a robust legal AML/CFT framework. Following the
enactment by our legislators of the Anti Money Laundering Act, we have : crimin
alized money laundering created the Anti-Money Laundering Council as the Philipp
ines Financial Intelligence Unit established the mandatory obligations for covere
d institutions relative to the requirements on customer due diligence, record ke
eping, and the reporting of covered and suspicious transactions enforced mutual
legal assistance and cooperation; and finally, instituted a civil forfeiture sys
tem In addition, the Supervising Authorities have issued circulars and guideline
s to covered institutions regarding correspondent banking, politically exposed p
ersons, wire transfers, alternative remittance systems, as well as cross border tr
ansportation of currency, and UN Security Council resolutions on designated terr
orist individuals and organizations. As of today, we have one successful money l
aundering conviction and 37 money laundering cases pending before the Regional T
rial Courts, the Ombudsman, and the Department of Justice. And there are other c
harges we are preparing to file in our courts. However, we do face new challenge
s from globalization and the internationalization of money laundering and terror
ist financing techniques. In addition, new and evolving technologies and financi
al systems are being used by money launderers to weave a complex trail that is d
ifficult to find and unravel. As money launderers continue to refine their techn
iques and find new avenues for their illicit operations, so must we work togethe
r to fortify our defenses to prevent. or stop them. Otherwise, we risk having a t
hreat to the reputation and viability of our financial system. It is in this con
text that we have been proactive in the Philippines. The Anti Money Laundering C
ouncil, which I chair, has taken important initiatives to broaden the Philippine
s AML/CFT strategy, to intensify its position as a partner of the global communit
y in the fight against money laundering and terrorist financing, and to align ou
r AML/CFT regime with the international standards of the FATF. On the other hand
, as the international watchdog on AML/CFT issues, the Financial Action Task For
ce, has issued the FATF 40 + 9 Recommendations.. and continuously monitors AML/CF
T compliance by its member countries through peer reviews and assessments. Accor
dingly, the Anti Money Laundering Council submitted for consideration of the Con
gressional Oversight Committee which Representative Jaime Lopez co-chairs propos
ed amendments to the AMLA in line with the Revised FATF 40 recommendations and 9
Special Recommendations on Terrorist Financing. These amendments, intended to g
ive more teeth to the Anti Money Laundering legislation, are as follows: the add
ition of more predicate crimes such as trafficking in persons, bribery, counterf
eiting, frauds and other illegal exactions, malversation, forgery, environmental
crimes and terrorism and its financing; the inclusion of an appropriate regime
for designated non-financial businesses and professionals, such as casinos, real
estate agents, dealers in precious metals and stones, lawyers, and accountants;
provision for a system of incentives and rewards; and retention by the AMLC of
a percentage of civilly forfeited funds. I am pleased to report that our House o
f Representatives is similarly proactive in terms of strengthening our fight aga
inst money laundering. There are now two pending bills on proposed AMLA amendmen
ts: House Bill 3053 sponsored by Representative Rufus Rodriguez; and House Bill
4784 sponsored by Speaker Prospero Nograles and Representative Jaime Lopez, who
is the Chairman of the Committee on Banks and Financial intermediaries and the C
o-Chairman of the Congressional oversight Committee on anti-money laundering. La
dies and gentlemen. Another important event in our fight against money launderin
g is going to take place in a few days. From September 22 to October 6, 2008, th

e Philippines AML/CFT regime will be assessed by the World Bank and the Asia Paci
fic Group on Money Laundering (APG). When the assessment is finalized, we will k
now how we rate in terms of implementing our AML/CFT regime. In preparation for
this, the AMLC has been conducting meetings and consultations with relevant gove
rnment agencies and financial institutions to ensure that the Assessment Team is
provided with necessary information for its on-site mission. The completion of
our program on Training the Trainors therefore. comes at a most opportune time. Imp
lemented with technical assistance provided by the European Commission, this pro
gram underscores the trust and confidence of our European allies in our country
as a capable, reliable, and enduring partner in the increasingly challenging war
against crimes and its financing. Of course, declaring war against money launde
ring and terrorist financing is only the beginning. To win this war, we must be
united, committed, focused, and vigilant. We are fighting for security, peace, a
nd stability of our nations., the safety of our people, and the future of our chil
dren. The stakes are simply too high; losing is definitely not an option. This i
s the one big fight we should invest in to win. On behalf of my colleagues at th
e Anti Money Laundering Council therefore, I thank the European Commission repre
sented by Ambassador MacDonald (let us give them a big hand) for their valuable
support. And once again, let us congratulate all the participants to the Training
for Trainors Program for their commitment to broaden the network of people fight
ing money laundering and terrorist financing in our country. Together, let us co
ntinue to broaden support and fortify our position in the fight against money la
undering and terrorist financing. Thank you all and good day. Maraming salamat a
nd Mabuhay!
The Credit Surety Fund: Sustaining Economic Growth Through Increased Credit Flow
s
Venue: Trece Martirez City, Cavite
Occasion: Launching of the Credit Surety Fund Program
Members of the Monetary Board, fellow central bankers, good afternoon. During la
st year s planning session in Baguio, we agreed to adopt the Scorecard as our me
ans of setting targets and measuring performance. This is therefore our first mi
d-year organizational performance review.. using the commitments forged last year
as basis for our assessment. I trust that you find it a useful and effective ga
uge of where we stand relative to our mission, how our stakeholders perceive us,
and how our business, learning and growth processes fared in terms of respondin
g to our desired results. The question is.how exactly did we fare, over all? Well
, I am sure everyone here has an answer to this question. The way I look at it,
we did well, ..all things considered. If you recall, we set our commitments last
year at a time when our economy was on its way to hitting its best GDP growth ra
te in 31 years and inflation eventually averaging out at 2.8%, the lowest annual
rate in 21 years. At that time, we used the word benign to describe inflation.
How fast things changed: in July 2008, inflation rate hit 12.2%, the highest in
17 years. As Cyd described it, Asia is at the epicenter of the surge in inflatio
n. Nevertheless, ours is far better than inflation rates of over 20% in other As
ian countries. While we have our share of detractors, it is a fact that the Bang
ko Sentral continues to be recognized for its ability to temper inflation despit
e severe supply shocks. In the field of banking, we continue to reap the benefit
s of remaining faithful to our reform agenda. In fact, Philippine banks have eme
rged stronger and better-capitalized, at a time when even global financial giant
s are crippled by severe losses from the continuing turmoil in the financial mar
ket. This is the result of political willon the part of the Monetary Board and th
e rest of the Bangko Sentral to ensure that our banks adhere to prudential standa
rds. Comprehensive and thorough examination reports prepared by our examiners pr
ovide solid underpinnings for our decisions and actions and they are able to prod
uce such, even when they are being subjected to pressures and threats. Indeed, w
e are fortunate to have world-class and courageous central bankers -- people of
integrity. I will say this again: while there are still many areas for improveme
nt at the Bangko Sentral, our circles of excellence continue to expand and grow,
at MSS, at SES, at RMS, at SPC and at the EMS. I hope this positive trend will
continue. at a more accelerated pace. If we accomplish this, then we can serve ou
r public better. Among others, the results of NSOs public perception survey on th
e BSP provide us useful guides on where we can further improve our services, usi
ng the regional breakdown as starting point. Indeed, continuously finding better
ways of doing things is one attribute we should nurture at the Bangko Sentral.
The CPO is one such example. This year, it added a new dimension to our environm
ental assessment: a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysi
s with a "twist"...the Strategy Cafe. Helen characterized it as a series of "no
holds barred" conversations around specific questions that were formulated to ge
nerate fresh perspectives on where we are and the way we do things. For me, ther
e were two things that stood out from Helens recounting of the highlights of the
Strategy Caf discussions. First, the consensus among the participants that the be
st asset of the BSP is its people; and Second, that we are making progress in ad
dressing long-standing concerns including slow hiring and procurement. We should
communicate these improvements to our people and stakeholders, so that percepti
on and reality will be aligned. Of course, even as we continue to make progress,
our work never really ends.as the environment where we operate is never static;
rather, it is dynamic and constantly changing. At times like this, doing more of
the same does not cut it. We need to be strategy-focused and results-oriented. I
know there is so much work we have to do. That you and your staff sometimes. or m
any times forego family time because of work. We should be able to discern which
process or strategy works.and discard those that have become a burden. Nurture th
e spirit of teamwork and collaboration. Of solidarity. Together, set clear prior
ities. By doing so, we also protect the well-being of our people, our most impor
tant resource. Let us foster a supportive working environment in the BSP that is
based on trust and collegial respect, grounded on the conviction that everyone
has something to contribute to the organization. At the same time, let us always
be mindful of protecting and strengthening our institution through risk based m
anagement and ensuring efficient resource management, among others. We should wo
rk on strengthening our financial position so we can pursue our mandate more eff
ectively. The RMS sector under Andy Suratos has led the way by implementing a ba
nkwide energy conservation program for which we have been awarded a five-star ra
ting of 97%. Think BSP. Fellow workers at the Bangko Sentral. You have within you
, we have within us, the capacity to make things better for our institution and
for our country. Our mandate empowers us to serve through responsive monetary an
d banking policies. Let us therefore remain united in working on our vision of a
better life for all Filipinos. Finally, on behalf of the Members of the Monetar
y Board, I thank all of you for a job well done in the first half of the year, a
ll things considered. Let us also congratulate and thank CPO for organizing this
insightful midyear organizational performance review session, and acknowledge a
ll the other departments and offices that have provided support to this undertak
ing. Mabuhay ang Bangko Sentral! Mabuhay ang ating bansang Pilipinas! Maraming s
alamat sa inyong lahat! Lets enjoy the rest of the evening.
Closing Remarks

Venue: NA
Occasion: BSPs Mid-year Organizational Performance Review Session
Governor Ayong Maliksi, distinguished Board Members of the Sangunihang Panlalawi
gan ng Cavite and other officials from Cavites local government units mga Mayors
at Vice Mayors, officers and members of Cavites cooperatives, our partners from t
he Micro, Small, and Medium Enterprises Sector or what we call MSMEs, representa
tives from the Industrial Guarantee Loan Fund, representatives from the banking
sector, fellow workers in government, special guests. Magandang umaga po sa inyo
ng lahat! Kami po sa Bangko Sentral ng Pilipinas ay natutuwa dahil ngayon ang pa
nimula ng isang mahalagang programa na tinatawag nating Credit Surety Fund. At d
ahil mahalaga ito, karamihan sa mga opisyal ng Bangko Sentral ay nandirito ngayo
n. Ipakikilala ko po sila, umpisa sa mga miyembro ng ating Monetary Board: Kasam
a po natin si Monetary Board Member Alfredo Antonio, dating Chairman ng Developm
ent Bank of the Philippines; at si Monetary Board Member Ignacio Bunye, dating P
ress Secretary at Presidential Spokesman. Kasama ko rin po ang management team n
g Bangko Sentral, kabilang si Deputy Governor Diwa Guinigundo, si Assistant Gove
rnor & General Counsel Juan de Zuiga, Jr., at si Assistant Governor Rene Carreon,
at iba pang mga opisyal ng BSP. The level of our participation in this event sp
eaks volumes about the way we at the Bangko Sentral ng Pilipinas value our MSMEs
. The MSME sector represents the backbone of our economy as 99 per cent of regis
tered firms belong to this sector. A recent report of the International Finance
Corporation of the World Bank Group indicated that loans to MSMEs comprise twent
y-five percent (25%) of the total loans of the banking system. Malaking bahagi p
o ito ng pautang ng ating mga bangko. Kaya masasabi natin na mahalaga rin ang MS
MEs sa banking sector. Kaya lamang, kulang pa rin ito sa tutuong panga-ngailanga
n ng ating MSMEs. Estimates indicate that roughly 60% of the credit needs of MSM
Es remain unserved. Simple ang dahilan nito: Marami sa ating MSMEs ay walang coll
ateral na maiharap para maka-utang sa mga bangko, maliban sa kanilang proven tra
ck record as successful and responsible small entrepreneurs. Dito po pumapasok a
ng Bangko Sentral at ang Credit Surety Fund. Sa ilalim po ng Credit Surety Fund
Program ay mapapabilis ang pagbibigay ng pautang sa ating mga MSMEs dahilan sa p
ag-tutulungan ng LGUs led here in Cavite by Governor Ayong Maliksi, ng ating mga
kooperatiba, at ng IGLF na itatag ang Credit Surety Fund. With this as underlyi
ng surety, MSME entrepreneurs without collateral can now borrow from the banks.
This program therefore directly addresses the MSMEs lack of collaterals. In other
words, the program will democratize access to bank credit and help level the pl
aying field for our MSMEs. Ito pong Credit Surety Fund ang magiging susi ng atin
g MSMEs para maka-utang sa mga bangko. At the heart of this program is the spiri
t of BAYANIHAN. To our mind, the foundation and success of the program will depend
ultimately on the cooperation and collaboration of all the participants in this
multi-sectoral program: the national government through IGLF, the local governm
ent led by its Governor, MSMEs under the cooperatives, the banks that will provi
de the loans, and the Bangko Sentral which will provide rediscounting for up to
80% for the MSME loans. Later, we shall have an audio-visual presentation that w
ill explain the rationale, the process, and the objectives of this important pub
lic-private sector collaboration. Sa ngalan po ng Bangko Sentral, binabati po na
min ang lalawigan ng Cavite sa pamumuno ni Gobernor Ayong Maliksi (talaga pong m
agaling at maliksi ang inyong gobernador! ) dahil kayo po ang first province na
nag-launch ng groundbreaking program na ito. Kaya po mahalaga ang inyong malakas
na suporta sa credit surety fund program at sa pagtatayo ng Cavite Coopreneurs
Surety Fund. Your pioneering efforts to implement the program will be the challe
nge to other provinces in the Philippines for them to establish their very own s
urety fund. On the part of the BSP, you can be assured that we will continue to
advocate and make room for future innovations that will further benefit our entr
epreneurs and help uplift the lives of our people. Sana po ay magka-isa tayo sa
pag-sulong ng ating bansa sa pamamagitan ng ating credit surety fund program. Ma
buhay ang Cavite! Mabuhay ang ating bansang Pilipinas! Maraming salamat po sa in
yong lahat.
Building a Stronger Economy Through Microfinance

Venue: Asian Development Bank
Occasion: Conference on Microfinance: Powering Innovations in Microfinance
Microfinance Council of the Philippines President Rolando Victoria, ADB Vice Pre
sident Lawrence Greenwood, ADB ED Marita Magpili Jimenez, Mr. Barry Hitchcock, o
ther officers of ADB, fellow advocates and workers in microfinance, distinguishe
d participants, representatives from the banking community, special guests, good
morning. This two-day conference organized around the theme Powering Innovations
in Microfinance is truly a special event. Ten years ago, one would not associate
the words power and innovations with microfinance in the Philippines. While som
e of todays leading microfinance NGOs were already around at that time, microente
rprises did not have access to formal financial services and had to resort to in
formal lenders with very high cost of funds. Formal financial institutions were
cautious of this market due to high credit risk and transaction costs. What a di
fference a decade makes! Today, microfinance is no longer a mere buzzword but pa
rt of the financial mainstream, with 229 banks actively engaged in the sector. A
s of December 2007, these banks had an outstanding loan portfolio of P6 billion,
extended to nearly 800,000 clients or an average of 7,500 pesos per borrower. S
ignificantly, our micro-borrowers have also become net savers; as of end 2007, t
heir combined deposits with banks have reached close to 2 billion pesos. Indeed,
microfinance has firmly established a track record across our country for nurtu
ring successful microentrepreneurs who have attained financial security for them
selves and their families. Equally important, microentrepreneurs serve as cataly
st for development in their respective communities. What triggered the mainstrea
ming of microfinance in our country? Well, to put it briefly, it resulted from t
he convergence of the need to find ways to liberate millions of our entrepreneur
ial poor from the cycle of poverty; innovations, of course; and the willingness
of key stakeholders to adopt new ways of doing business. I will now share the st
ory of Bangko Sentral and how we responded to the challenge of mainstreaming mic
rofinance within our financial system. The Bangko Sentral was mandated by the Ge
neral Banking Law of 2000 to recognize microfinance as a legitimate banking acti
vity. As a start, we studied the practice of microfinance around the world and e
ngaged practitioners in many discussions. Next, we set in place regulations that
recognized and built on best practices; this included using group support or li
ability, cash flow-based lending, and providing for frequent amortizations . We
also created an environment that allowed for new entrants into the market, parti
cularly microfinance-oriented banks which are licensed as regular banks but dedi
cate at least 50% of their loan portfolio to microfinance. This became an ideal
vehicle for microfinance NGOs that wanted to transform into a formal financial i
nstitution. In addition, we liberalized branching regulations and paved the way
for innovations in products and service delivery using information and communica
tion technology (ICT) and other similar means. I should emphasize that even as w
e make room for innovations in the banking system, we make a point to balance th
is by instituting prudent standards for the conduct of microfinance operations.
Among others, this includes prescribing the use of portfolio-at-risk to monitor
and measure portfolio quality. Likewise, we have instituted reporting requiremen
ts for banks with microfinance operations. This enabling policy and regulatory e
nvironment has allowed microfinance to flourish within the banking sector. Today
, banks are considered one of the main players in the countrys microfinance indus
try. This commercialization is a reflection of global trends. Today, global fina
ncial giants are setting up dedicated offices for microfinance. We also know of
some microfinance institutions that are publicly listed. And loan portfolios are
being securitized. The range of players involved in the industry is also becomi
ng more diverse. Private equity firms, commercial banks, and even cement and rea
l estate companies are investing in microfinance institutions around the world.
Even mobile phone manufacturers are looking at microfinance as a means to increa
se mobile phone penetration in several countries . The entry of new players into
the sector should drive the introduction of even more new products and services
, as well as new ways of doing business. At present, we see microfinance institu
tions offering a whole menu of services that covers not only microcredit but als
o microsavings to microinsurance. This is definitely a significant leap from ins
titutions previously offering only microcredit. The technology and methodology o
f microfinance has also been used to provide financing needs in the areas of agr
iculture and housing, among others. In the Philippines, practitioners have devel
oped the Micro-Agri Product and more recently the breakthrough Housing Microfina
nce Product which the Bangko Sentral recognizes as variations of a microfinance
loan. Indeed, we continue to innovate because the financing needs of microfinanc
e clients go beyond simple business loans. With more appropriately designed loan
products, microfinance institutions are now able to respond to the varied needs
of their clients, diversify their portfolios, and reduce the risk of business l
oans applied to agriculture or housing. Parallel to the development of products
offered by microfinance institutions, significant changes are also taking place
in their delivery channels. Microfinance institutions are increasingly recognizi
ng how information and communication technology can provide revolutionary channe
ls to better serve existing clients or an opportunity to reach new ones. These n
ew channels such as mobile phones, automated teller machines (ATMs) and point of
sale (POS) card readers have also brought with them significant improvements in
efficiency and convenience, while lowering costs for both the microfinance inst
itutions and their clients. In the Philippines, for instance, rural banks have t
ied up with mobile phone companies to facilitate microfinance loan payments, dep
osits, and withdrawals through a simple SMS or text message. In other words, the
microfinance landscape in our country continues to evolve in step with client ne
eds and innovations in technology and the regulatory framework. The challenge be
fore us is to further broaden and deepen the reach of microfinance in the Philip
pines. At the Bangko Sentral, we accept this challenge and commit to uphold an e
nabling policy and regulatory environment that will allow microfinance to flouri
sh further. We will continue to monitor the many developments and innovations ta
king place in the world of microfinance so that we can maximize the benefits we
can derive from it. To strengthen our capacity in this regard, we have organized
a special unit which we call Inclusive Finance Advocacy, to explore and facilit
ate the development of new options to improve and increase access to financial s
ervices of our people. We have also created a MicroSME Finance Specialist Group
in our Supervision and Examination Sector for banks with significant exposure to
Micro and SME lending. This group has been trained on risk-based supervision an
d the peculiarities of lending to the MSME sector. I should add that these initi
atives of the Bangko Sentral toward broader financial inclusion will continue to
be guided by a high-level Microfinance/ Inclusive Finance Committee. Actually,
our objective to have a more inclusive financial system is embedded in the other
policy initiatives of the BSP. We are continuously working on reforms for a mor
e robust banking sector. We are also working toward increasing the scale and sco
pe of bank operations to support the needs of the market, particularly those in
the countryside. What is clear is that banks now have more opportunities to prov
ide a wider range of services and products to their clients on the basis of the
following: a liberalized branching regime; Bangko Sentrals receptiveness to vario
us product and technological innovations in banking services; Bangko Sentrals sup
port to further improve bank efficiencies by allowing, among others, the outsour
cing of some functions; and the expanded range of services and opportunities tha
t qualified rural banks can undertake, such as foreign currency deposit accounts
and equity investments in ATM networks. Through these initiatives, we envision
stronger banks with a broader geographical presence providing competitively-price
d and well-designed products for all market segments, including the previously u
nserved. With these in place, I am confident that we will continue to see furthe
r innovations toward greater financial inclusion. In this context, I am reminded
of Bill Gates who once said that Never before in history has innovation offered
promise of so much to so many in so short a time. It is in this spirit that I ask
all of you who are participating in this conferenceand other microfinance practit
ioners as well to continue to take advantage of the opportunities innovations bri
ng, to broaden and sustain the liberating and empowering force of microfinance in
improving the lives of our entrepreneurial poor and their families. Finally, on
behalf of the Bangko Sentral ng Pilipinas, I thank all of you for your continui
ng support as we move forward to build better lives and a solid bedrock for a st
ronger economy through microfinance. Thank you and I wish you all a fruitful and
successful conference. Mabuhay ang microfinance!
Remarks
Venue: NA
Occasion: Foreign Correspondents Association of the Philippines (FOCAP)
Ladies and gentlemen of the Foreign Correspondents Association of the Philippine
s, special guests, good morning. Thank you for inviting me again to speak before
you today. The last time I was here in February, I discussed with you the chall
enges that the Philippine economy would be facing this year. These challenges in
clude the US economic slowdown, the global financial market turbulence and the r
ising and volatile prices of oil and other commodities. Since we are now in the
middle of the year, allow me to provide you with an update of how the economy is
doing in the midst of an admittedly more difficult global environment. Indeed t
he economic environment has turned more challenging for reasons that are well-kn
own. Global growth has decelerated as a result of a weak US economy, the credit
crunch, and the high and unstable oil and food prices. Official statistics on 1s
t quarter GDP of the US showed a 1 percent expansion, higher than previously exp
ected but still below par. Meanwhile, the strains in global financial markets ha
ve persisted and are likely to continue for some time. The coordinated credit op
erations by the major central banks and the policy rate cuts by the US have help
ed ease market tensions, but wider problems in the financial system have remaine
d. This makes the operating environment difficult. The main problem is uncertain
ty. First, there is continued uncertainty about the size of losses from defaults
on US subprime mortgages that the global financial system will eventually have
to absorb. Second, there is uncertainty about where these exposures will end up.
Third, this lack of information breeds fear of ratings downgrades, of steep sel
l-offs, and of other unknown consequences. The biggest and most immediate challe
nge is the sharp spike in global oil and food prices. World oil prices continue
to be volatile at elevated levels. Global food prices remain high though the inc
reases have moderated. These concurrent and interrelated shocks to the economy h
ave contributed to the acceleration of domestic inflation. As a result, as with
most if not all countries, the domestic inflation environment has become more ch
allenging. In June 2008, inflation stood at 11.4 percent compared to 2.3 percent
in the same period last year, bringing the average inflation for the first six
months of 2008 to 7.6 percent. Of late, we have started to see stronger signs of
second-round effects, with core inflation rising and inflation expectations tre
nding upwards. To prevent these inflation pressures from further feeding into th
e price- and wage-setting behavior of economic agents, we raised our policy rate
s by 25 basis points on 5 June and 50 basis points on 17 July. In both instances
, the BSPs baseline inflation forecasts showed more elevated inflation numbers fo
r 2008 and 2009. Sustained high inflation can unseat inflation expectations and
potentially create a repeating cycle of lingering inflation and wage pressures t
hat could prove costly to the economy. In response, we believe that the series o
f policy adjustments will help in steering inflation towards its desired path fo
r the medium term. It is important to note that the challenges facing us are lar
gely external in origin. A key issue therefore is the Philippines ability to weat
her these shocks. On the upside, the country was able to build up cushions that
serve as sources of resilience for the economy against potential shocks. Let me
cite some of these buffers and how exactly these have insulated the economy from
external risks. First, the Philippine economy continued to grow notwithstanding
the tougher operating environment. In the first quarter of 2008, GDP grew by 5.
2 percent, led by the strong performance of services on the production side, and
by consumption spending, on the expenditure side. The strong growth of net fact
or income from abroad (NFIA) pushed GNP to grow by 7.3 percent. There is resilie
nce here because growth is broad-based and notwithstanding the difficult times,
the magnitude of growth is quite respectable. Second, the banking sector has bec
ome stronger as a result of the reform measures that have been implemented over
the past years. There is resilience here because our major financial intermediar
ies have remained strong enough to continue channeling savings into investment,
and therefore supporting production and more sustainable employment. The Philipp
ine banking systems asset base has grown steadily. The overall asset quality of b
anks continued to improve as well, with the NPL ratio now moving closer to the p
re-crisis level of around 4 percent. With healthier balance sheets, banks have b
een able to post a steady growth in lending. The banking systems overall capital
adequacy ratio remained strong, shored up by the increased issuance of hybrid fi
nancial instruments to bolster their capital base. The average CAR of the bankin
g system was maintained well above regulatory and international standards despit
e some decline caused by the new requirements of the revised capital framework w
hich is patterned after the Basel 2 Accord. The revised framework is considered
a more risk-sensitive measure of a banks solvency position. However, we continue
to closely monitor developments, particularly on the spillover effects from the
slowdown in the US and the global economy as well as higher risk aversion brough
t about by the financial market turmoil in the West. These could pose downside r
isks to output growth that could impact negatively on the banking systems growth.
Lastly, the countrys external payments profile remains a major source of strengt
h for the economy. For the first six months of 2008, the BOP surplus has been su
stained at US$1.9 billion. There is resilience here because the existence of a B
OP surplus provides space to accommodate the volatilities of both the export and
investment markets. We acknowledge that there are risks given the increase in t
he trade deficit but remittances and income receipts from services coming from a
vibrant BPO industry should provide the needed support. For the first quarter o
f 2008, the current account remained in surplus of about 3 percent of GDP despit
e a wider merchandise trade deficit due to higher oil and food costs. The stabil
ity of the current account is due to the sustained expansion in remittances. Lat
est data show remittances for Jan-May 2008 totaled US$6.8 billion, growing yearon-year by 14.7 percent from the comparable period a year ago. As a result of th
e BOP surplus, our gross international reserves (GIR) increased further to US$36
.7 billion as of end-June 2008. At this level, the GIR is equivalent to 6.0 mont
hs worth of import cover and 2.9 times short-term external debt based on residual
maturity. The external debt ratio has also improved. With the build-up in the G
IR, the BSP, together with the National Government as well as private corporatio
ns, were able to prepay some obligations. This has led to the appreciable declin
e in the countrys total external debt to 35.5 percent of GDP as of end-March 2008
from 72.9 percent in 2001. What is the outlook in the near-term? Reflecting the
impact of the slowdown in the US economy and the higher oil and food prices, ec
onomic targets have been revised. The government now projects GDP to grow by 5.7
-6.6 percent while the forecast for inflation is at 9-11 percent. The BOP surplu
s will reach US$2.5 billion. Exports are seen to grow by 5 percent while imports
will expand by 10 percent due to higher prices of oil and food imports. What ca
n you expect in terms of the BSPs policy thrusts? The policy thrust of the BSP is
aimed at ensuring that the headway that we have achieved in nurturing a resilie
nt economy and a strong banking sector will continue. The BSPs key monetary polic
y thrust will remain focused on promoting price stability. In its latest policy
move, the BSP recognized the need for a more decisive monetary action to reduce
the risks to inflation expectations and the long-term cost to output growth from
prolonged high inflation. So our eye is on inflation because price stability is
critical to sustained, durable economic growth. In the external sector, our pol
icies will continue to be directed at maintaining a market-determined exchange r
ate with scope for occasional official action to address sharp volatilities in t
he exchange rate; maintaining a comfortable level of reserves as self-insurance;
and ensuring the sustainability of our external debt. In the financial sector,
we remain firmly committed to institute key reforms that will lead to greater ef
ficiency, effective risk management, stronger capital base and improved corporat
e governance standards in the banking system. Given these reforms, we expect to
see the continued expansion of bank resources and capital, as well as a further
improvement in bank asset quality. We also envision a stronger and more resilien
t banking system as banks improve their ability to anticipate, price and manage
risks. We will also continue to push for the passage of key legislations intende
d to develop a deep and efficient capital market as a complementary source of fu
nds. This will make credit more accessible to a broader set of users and ensure
a more efficient mobilization of resources. In summary, the BSP is prepared to t
ake all necessary actions to address the threat of high inflation and promote pr
ice stability. We also continue to be mindful of the impact of any policy action
on the economys growth momentum. The resiliency of our economy allows us to have
greater flexibility in responding to the challenges that come our way. I am now
ready to discuss the issues of particular interest to you. Thank you.
Turning Challenges into Opportunities: The Key to Sustainable Growth

Venue: Makati Shangri-La
Occasion: BAIPHILs Induction of Officers, Directors and Committee Chairpersons an
d General Membership Meeting
Distinguished officers and members of BAIPHIL (led by outgoing President Dolly Y
uvienco and incoming President Lydia King), fellow bankers, co-workers in the BS
P, special guests, good afternoon! I am pleased to join BAIPHIL today on the ind
uction of its new set of officers. I do welcome the opportunity to meet BAIPHILs
officers and members, as you count among the partners of the Bangko Sentral ng P
ilipinas in our continuing pursuit of reforms for a strong and vibrant banking s
ystem. In addition, BAIPHIL has emerged as one of the Bangko Sentrals consistent
partners in corporate social responsibility projects that directly benefit our m

arginalized sector. Among others, I remember that BAIPHIL organized other financ
ial industry associations in providing financial support, as well as sweat equit
y, for the BSP-St. Paul GK Village in Paranaque City. You will be happy to know
therefore that over the weekend, we turned over 16 GK units to new homeowners in
our Paranaque GK village. For this, ladies and gentlemen of the BAIPHIL, you al
l deserve a long round of applause! Salamat sa inyong tulong. To the newly induc
ted officers, directors and committee chairpersons, I offer my congratulations!
We at the Bangko Sentral ng Pilipinas look forward to working with you as our ba
nking sector deals with domestic and global challenges. In my previous meetings
with members of the financial community early this year, I discussed the outlook
for the economy and the banking sector in 2008. I remember having said that the
Philippine economy is headed for a more challenging environment one that is fra
ught with headwinds. Indeed, our economy has to contend with rough patches emanati
ng primarily from the turbulence in global financial markets, the slowdown in th
e US and other economies, and the unprecedented rise in global food and energy p
rices. While we continue to see challenges and risks arising from adverse global
developments, we remain optimistic and confident that we can ride out this turb
ulence and sustain the economic gains achieved in recent years. Why do I say thi
s? Well, because we do our homework; together, we have built up domestic buffers
that should continue to help us withstand headwinds which are mainly external i
n origin. Let me cite some of these buffers and how exactly these have insulated
the economy from external risks. First, we have fortified our domestic financia
l system. In terms of resources, for instance, the Philippine banking systems ass
et base has grown steadily from P3.4 trillion in 2001 to P5.1 trillion as of the
first quarter of 2008 on the back of sustained increases in deposits and capita
lization. This is equivalent to a 50% increase. In addition, overall asset quali
ty of Philippine banks has made a dramatic turnaround, with the NPL ratio droppi
ng from 16.9 percent in 2001 to 5 per cent as of March 2008. Meanwhile, banks cap
ital adequacy ratio on both solo and consolidated bases remained well above the
regulatory minimum of 10 percent and the international benchmark of 8 percent. W
e also have in recent years put in place structural reforms in the banking syste
m, such as the adoption of international accounting standards and the enforcemen
t of stricter corporate governance standards, which have made it more resilient
and able to withstand volatilities in financial markets. Ladies and gentlemen, a
ll these indicators point to a fundamentally sound banking system. Yet another s
trong buffer we have going for us. is the countrys favorable external position. Am
ong others, our first quarter 2008 balance of payments yielded a surplus of US$1
.7 billion. This is 20.8 percent higher than our surplus in the same period last
year, as both the current and the capital and financial accounts continued to p
ost surpluses. While the merchandise trade deficit widened due to higher oil and
food costs, the current account was in surplus of about 3 percent of GDP mainly
as remittances sustained their expansion. Based on the latest figures, in May t
his year, remittances amounted to $1.4 billion or a 15.6 percent increase year-o
n-year. Total remittances for the first five months of 2008 reached $6.8 billion
or 14.7 percent up from the same period last year. As a result of the BoP surpl
us, the countrys gross international reserves (GIR) continued to reach peak level
s, hitting a new record high of US$36.7 billion in June this year. At this level
, our GIR can cover 6 months of imports of goods and payments of services, way a
bove the global standard. Similarly, the countrys major external debt ratios have
been improving, an indication of the countrys enhanced capacity to service its m
aturing foreign obligations. These positive indicators make us confident about t
he prospects for our economy in general and our banking sector in particular. Mo
reso, if we are to continue our efforts to strengthen the banking sector and our
economy. It is in this context that I find BAIPHILs theme for this occasion as a
most appropriate rallying point: Turning challenges into opportunities. I believe
we are in a position to continue to fortify our buffers by remaining proactive
in our response and deeply committed to pursue our reform agenda. In this connec
tion, our key policy thrusts at the Bangko Sentral ng Pilipinas are as follows:
First, our monetary policy will continue to focus on our core mandate of maintai
ning stable prices. We will keep our eye on the inflation ball, being mindful th
at as we do this, we are able to foster an environment conducive to sustained ec
onomic growth. In recent months, we have seen inflation moving up steadily on ac
count of record high oil and food prices, hitting 11.4% in June this year, the h
ighest in more than 14 years. This brought the year-to-date average inflation to
7.6 percent. Although this is still consistent with the BSPs view of a hump-shap
ed path for inflation in 2008 and 2009, we cannot afford to underestimate this o
ld adversary of central banks. Inflation is at the very top of the BSPs policy pr
iorities. We will continue to intensify environmental scanning and surveillance
of key macroeconomic developments to ensure that our assessments of the inflatio
n outlook and the risks to inflation remain fresh. The Monetary Board will take
the necessary and decisive action to address the threat of high inflation. Secon
d, on the external sector, our policies will be geared toward ensuring the susta
inability of the countrys external debt and maintaining a comfortable level of re
serves. In recent months, we have witnessed a depreciation in the pesos value. Th
is has not been unexpected, given the significant upmove last year and the chang
ing environment we operate in this year. We believe that the current exchange ra
te levels reflect a healthy correction in the market, and market players should
take advantage of this. As we expect to still have a surplus in the balance of p
ayments for the year, the peso should be supported, particularly in the last qua
rter of this year when remittances are traditionally strong. Third, reforms in t
he financial sector will continue to be directed toward maintaining a strong ban
king system and a robust domestic capital market. Specifically, we will focus on
: further enhancing the regulatory framework through the implementation of the B
ASEL II roadmap; improving corporate governance by promoting compliance with int
ernational accounting and financial reporting standards; accelerating the implem
entation of risk-based supervision technology; and continuing support for the de
velopment of a deep and efficient capital market, including support for necessar
y legislative reforms. Moving on, another priority for the BSP is our continuing
efforts to broaden access to credit of micro, small and medium enterprises or w
hat we call MSMEs. BSPs recent reform initiatives toward this end include liberal
ized branching; expansion of foreign currency deposit unit (FCDU) and trust lice
nses to include qualified rural banks; the re-opening of quasi-banking license;
and the introduction of the breakthrough housing microfinance product. We will a
lso continue to work on a sound market infrastructure that will promote secure a
nd timely completion of transactions, thereby minimizing systemic risk and enhan
cing the integrity of financial transactions. This is being implemented through
the promotion of progressive policies on e-commerce and payments system innovati
on. Summing up, the critical task ahead of us is to preserve the momentum for ec
onomic reforms. This way, we can be assured of the economys sustained growth in t
he long run. As in the past, we will continue to rely on BAIPHILs steadfast suppo
rt in terms of providing training assistance to bank professionals to ensure tha
t they are better skilled and equipped to handle the demands of a sophisticated
and competitive financial arena. Ladies and gentlemen, equal measures of challen
ges and opportunities abound in the banking sector. I am confident that with you
r newly- elected officers and directors, BAIPHIL is in a strong position to take
on the challenges upfront and turn these into opportunities that will benefit y
our respective banks and the economy as a whole. Together, we can pursue a highe
r growth path for the economy, even in the face of formidable challenges. Again,
my congratulations to BAIPHIL and its new set of officers led by its President
Lydia King Mabuhay ang BAIPHIL! Mabuhay ang ating mahal na bansang Pilipinas! Ma
raming salamat sa inyong lahat.
Keynote Address

Occasion: 2008 Awarding Ceremony for BSP Stakeholders
Distinguished partners from the private and the government sectors, special gues
ts, good morning! On behalf of the Members of the Monetary Board, I thank all of
you for joining us today as we honor our partners who continue to support the B
angko Sentral ng Pilipinas in its various initiatives. Ladies and gentlemen. We
cannot overemphasize the value of your support and cooperation. Inflation target
ing, which serves as framework for the formulation of our monetary policies, is
information intensive. Information from our partner institutions in government a
nd the private sectors are key inputs when we assess the economy and decide on t
he most appropriate monetary policy stance, moving forward. It is imperative the
refore that the information you provide us is comprehensive, accurate, and timel
y. The insights from our collaboration, coupled with the information from our su
rveys and other available statistics have helped sharpen the basis of our policy
decisions. This is important in ensuring we make well-grounded decisions, so to
speak. These are challenging times.given strong inflationary pressures from reco
rd high oil and food prices. We need to forge stronger links of cooperation amon
g different segments of our economy to ride out the rough patches. Let me be spe
cific. The BSPs business and consumer expectations surveys help us assess the cur
rent and near-term prospects of the economy. Even if the information you provide
can be considered indicative and directional, they are important and valuable.
In essence, BES data provide up-to-date qualitative indicators of economic perfo
rmance in real time; this facilitates prompt and precisely calibrated monetary p
olicy actions on our part. For instance, inputs regarding business and spending
plans have enhanced the forward-looking flavor of inflation targeting in our cou
ntry. On the other hand, our surveys pertaining to external sector statistics pr
ovide key economic indicators for the Bangko Sentral, particularly in relation t
o our balance of payments position. Ladies and gentlemen. Exponential growth in
cross-border economic and financial transactions has resulted from continuing in
novation, deregulation, and globalization. As a result, we need to continually c
onduct surveys such as the Cross Border Transactions Survey, the Foreign Direct
Investment Survey, the Coordinated Portfolio Investment Survey, and more recentl
y, the Survey on IT- and IT-enabled Services, to help us better capture the broa
d picture of current developments. Our Department of Economic Statistics has use
d these surveys to more effectively monitor our transactions with the rest of th
e world. This, in turn, has enabled the Bangko Sentral to assess current and pro
spective developments in both capital flows and exchange rate movement, as well
as the countrys vulnerability to possible external shocks. On the other hand, uni
versal and commercial banks remain our reliable partners in monitoring foreign e
xchange transactions, including remittances, that pass through their channels. F
inally, we also acknowledge our partners who provide valuable support to our var
ious advocacy programs on financial literacy for microfinance entrepreneurs as w
ell as overseas Filipinos and their families. At the end of the day, our economy
stands to benefit from our fruitful partnership the same partnership that helps
us keep the Philippine financial system resilient in the midst of global financ
ial turmoil and economic slowdown. Let us therefore resolve to find new ways to
enhance and strengthen our partnership. so that together, we can further improve
the quality of Philippine statistics that provide the basis for national policie
s and programs. On behalf of the Bangko Sentral, I thank all of our respondents
and stakeholders who have been our faithful partners through these years. All of
you can rightfully claim that you have also served our people and our country b
y sharing your time and information with us. With your support, the Bangko Sentr
al will continue to craft and implement responsive monetary and banking policies
. Maraming salamat po and congratulations to all awardees! Mabuhay ang Pilipinas
!
Keynote Address
Venue: Sofitel Hotel Manila
Occasion: Inaugural reception of RBAP Board of Directors and Officers
Secretary Arthur Yap, Mr. Tomas Gomez IV, board of directors and officers of the
Rural Bankers Association of the Philippines (RBAP), our friends in rural banki
ng, good evening. I am delighted to have this opportunity to keynote the inaugur
ation of the new directors and officers of the RBAP. It is, indeed, an auspiciou
s new day for the rural banking industry. Seeing the new set of directors and of
ficers at RBAPs helm, I am certain that you will provide the impetus needed for t
he rural banking sector to once again forge ahead. Rural banks have an important
and challenging role in our countrys economic development. In the law that creat
ed rural banks, they were envisioned to be catalysts for comprehensive rural dev
elopment, channels of equitable distribution of opportunities and wealth, and su
pport for expanded productivity in rural communities. The end goal was to raise
the quality of life for all, especially the underprivileged. This task of great
magnitude is relevant today, as it was then. In fact, with the shifts in the eco
nomic landscape, the increasingly changing needs of the market, the advent of ne
w technologies and channels, it may be said that the demand on rural banks today
is even greater than it was then. Rural banks must commit to continuously upgra
de their capacity, efficiency and sustainability. Rural banks must uphold good g
overnance and management practices to ensure that they are sound and well manage
d. Finally, rural banks must be dynamic and progressive to keep in step with the
se changes and developments. I am happy to note, that by all measures, the rural
banking sector has geared up to face the challenges and to seize the economic o
pportunities they present. Year on year, rural banks are exhibiting robust asset
growth and strong capital build-up. As of end 2007, the sectors total assets rea
ched PhP 149.5 Billion, an 18% increase from the previous year. Total capital ac
counts have also shown double digit growth of 13.4% from PhP 18.4 Billion in 200
6 to PhP 20.9 Billion in 2007. The Capital Adequacy Ratio (CAR) has remained abo
ve the minimum 10% required by the Bangko Sentral at 15.7%. The business of rura
l banking has also continued to show viability and profitability. Net Income Aft
er tax (NIAT) increased by 20% from PhP 2.3 Billion in 2006 to PhP 2.8 Billion i
n 2007. Return on Assets and Equity also continue to increase. Savings mobilizat
ion and lending activities have also been on an uptrend. Deposit liabilities in
2007 were at PhP 108.1 Billion, a 21.5% increase from the previous year. Similar
double digit increases were seen in the sectors lending activities. Total loan p
ortfolio of rural banks increased to PhP 93.3 Billion from only PhP 77.1 Billion
in 2006. While lending activities expanded, the high quality of the portfolio w
as maintained. As of the 4th Quarter of 2007, the Non Performing Loans (NPL) Rat
io was 9.67% which is an improvement from the 11.11% for the same period for the
previous year. Using these indicators, rural banks are faring equally or even b
etter than its universal, commercial and thrift bank counterparts while remainin
g true to its core mission of serving the needs of the countryside. Rural banks
alone cover around 80% of the total municipalities in the Philippines with nearl
y 730 banks and over 2,000 branches nationwide. The real value added of rural ba
nks, however, does not lie solely on their broad geographical presence but just
as importantly on their deep understanding of the character, peculiarities and n
eeds of the rural customers. At the Bangko Sentral, we have no doubt that rural
banks are the ideal partners in invigorating local economies. Toward this end, w
e are working assiduously to ascertain that abundant opportunities are available
for rural banks to ensure their institutional viability, expand their businesse
s and more importantly improve their products and services. The issuance of the
revised branching guidelines last December 2005 (Circular 505) aimed to enhance
competition in the banking system and maximize the delivery of financial service
s especially in underserved areas. The new guidelines enable existing banks to f
urther increase the depth and breadth of their outreach and better serve more an
d more clients both in the rural and urban areas. The benefits of such policy to
the rural banking sector are immediately evident. As of end 2007, number of rur
al and cooperative bank offices increased to 2,133 offices from 2,075 in the pre
vious year. While the number of banks decreased by 12, the number of branches an
d other offices increased by 58 from end 2006 to end 2007. What we are seeing is
a consolidation of the sector where we are seeing stronger rural banks confiden
tly expanding their operating networks. To complement the liberalized branching
regime, the Bangko Sentral has provided further opportunities for rural banks to
expand their outreach beyond the brick and mortar structure of their head offic
es and branches. In 2007, we issued Circular 563 which granted rural banks the a
uthority to invest in ATM networks. As of end 2007, the number of rural banks wi
th ATMs reached 83 from 73 units in 2006 and just five ATMs in 2005. In addition
, rural banks may provide electronic banking services, particularly mobile phone
banking. As a result, a number of rural banks have already ventured into electr
onic banking to beef up their delivery of financial services. As of end 2007, a
total of 46 rural banks started offering e-banking services such as cash card an
d mobile banking. Again, this is a significant increase from no rural banks with
electronic banking in 2005. What I am happy to see is that rural banks are not
just simply using these new virtual networks and branches, as they are now avail
able to them. They are going the extra mile in finding ways that are practical,
as they are innovative, to make these new channels more attuned to the needs of
their rural clients. Some banks are using available technology to place ATMs in
hard to reach areas that do not even have telephone lines. Other banks, through
a partnership with RBAP-Microenterprise Access to Banking Services (MABS) and GCash, have taken mobile phone banking to another level. The participating rural
banks are now using the electronic cash platform in delivering financial service
s like deposits, withdrawals and loan payments. Indeed, mobile phone banking has
the unique opportunity to reach a wider spectra of clients and tap those who ar
e traditionally marginalized and unbanked- the lower income segments of the popula
tion. The successful experience, thus far, of the rural banks, mobile phone comp
anies and the BSP have caught the attention of the international community who a
re lauding our efforts in using technology to increase access to finance. The BS
P will continue to keenly monitor and support these innovations with a dynamic r
egulatory environment. The Bangko Sentral is also expanding the products and ser
vices that rural banks can competitively provide. In 2006, through Circular 522,
the BSP granted rural banks the authority to operate FCDUs. Rural banks have a
distinct advantage to compete in the remittance business at the final mile by vi
rtue of their close contact with countryside customers. In addition, recent prod
uct approvals of the BSP such as the Micro-Agri Product and the Housing Microfin
ance Product provide rural banks with opportunities to expand the range of servi
ces they can provide to their clients. In particular, rural banks with microfina
nce operations are now provided with the opportunity to complement their present
microfinance operations by offering these new products, to further diversify po
rtfolios and reduce the risk of business loans being applied to agriculture or h
ousing. Further, by recognizing the microfinance component of these loans, they
will now enjoy the same benefits of microfinance such as no collateral requireme
nts or the acceptance of collateral substitutes, cash flow and character based l
ending, small and frequent amortizations as well as simple documentary requireme
nts. In the last two years, qualified rural banks were further granted the autho
rity to engage in a wider range of activities. Through Circular 583, issued in 2
007, rural banks may engage in limited trust activities. Just this year, rural b
anks have been allowed to participate in selected derivative activities. With th
e revised rules governing derivative activities of banks under Circular 594, rur
al banks that want to transact as end-user may apply for a Type 3 or Limited Use
r Authority. Meanwhile, those rural banks that wish to facilitate derivative tra
nsactions of customers may apply for a Type 4 or Special Broker Authority. Just
two weeks ago, the Monetary Board approved the abolition of some fees charged fo
r the participation in the Philippine Payments and Settlements System (PhilPaSS)
. The abolition of the annual license fee collected from the non-SWIFT members b
anks for the use of the Philippine Payment System Front End System (PPS-FES) and
the monthly access fee for the third party systems providers will allow free an
d open participation in PhilPaSS, by rural banks. By inter-connecting, rural ban
ks may more readily participate in clearing with the Philippine Clearing House C
orporation (PCHC), managing its government securities investments, participating
in the exchange market, as well as participating in ATM networks and in the int
erbank market. Rural banks will also be able to instruct their depository bank t
o augment their demand deposit accounts (DDA) maintained in the BSP through Phil
PaSS. Truly the potential for rural banks to be mainstreamed in the countrys paym
ent system is being realized. Our policy stance is a clear indication that we co
nsider rural banks to be ready, effective and important channels for economic de
velopment. We also recognize the crucial role that rural banks play in building
a truly inclusive financial system. A system where there is not just universal a
ccess to financial services, but one where financial institutions provide respon
sive and competitively priced products and services to all, including those who
were previously unbanked. Access to such services can invigorate local economies
and improve the overall quality of life. This cuts to the heart of why rural ba
nks were established. It is indeed a gargantuan task. But with an enabling polic
y and regulatory environment, strong rural banking fundamentals, and a new and v
ibrant RBAP board of directors and officers, I am confident that it can be achie
ved. Good evening and more power!
15th Anniversary Remarks

Venue: Assembly Hall, 3rd Floor, Bangko Sentral ng Pilipinas
Occasion: BSP 15th Anniverary
Magandang umaga sa inyong lahat! Fellow central bankers, on behalf of the Moneta
ry Board, I greet all of you a happy 15th anniversary! By any measure, this is a
milestone we should celebrate and be proud of. Why do I say this? Well, you and
I know that the first 15 years of the Bangko Sentral ng Pilipinas has been frau
ght with challenges. As an institution starting afresh, we had to reorganize and
align our policies in accordance with the clear mandate given to the Bangko Sen
tral: to stabilize prices and ensure a sound banking system. Soon after, we had
to contend with the fallout from the Asian financial crisis, political upheavals
, natural calamities, and the threats,..as well as opportunities., that globalizat
ion brings. Nevertheless, we always pulled through and emerged the better for it
. In the process, we have been able to provide stability to the economy and the
country through responsive monetary and banking policies. For this we thank all
of you ladies and gentlemen of the Bangko Sentral ng Pilipinas. Let us therefore
give ourselves a well-deserved round of applause. Once again, let us acknowledg
e the contributions of former MB Members Dr. Vicente Valdepenas,Jr. and Atty. Ra
ul Boncan by giving them a big hand. Lets also give a round of applause for our p
resent MB members: Secretary Romulo Neri; former Finance Secretary Juanita Amato
ng; Atty. Nelly Favis-Villafuerte; Mr. Alfredo Antonio; and our brand-new MB mem
ber .. Atty. Ignacio Bunye. Palakpakan din po natin ang dalawang na-unang goberno
r ng Bangko Sentral ng Pilipinas: si Governor Gabriel Singon .. at si Governor Raf
ael Buenaventura! Ladies and gentlemen. The collective efforts of central banker
s, past and present, have generated recognition for Governor Singson, Governor B
uenaventura and myself..and most of all, for our beloved institution the Bangko S
entral ng Pilipinas. These are well-deserved recognition that we should be proud
of. In fact, 2007 was a banner year for the Bangko Sentral as we were able to t
ame inflation to 2.8%, the lowest in 21 years, even as high global oil prices we
re hitting record high levels. That we achieved this low rate of inflation rate
as the economy posted its best growth rate in three decades made for an ideal co
nvergence of high growth and low inflation. We also ended 2007 with record high
gross international reserves, balance of payments surplus, higher foreign invest
ments, and a strong peso that emerged as one of Asias top performing currencies.
And even as a strong peso had an adverse effect on our income last year, we rema
in financially strong and solid. Our capital base is now roughly 15 times the P1
0 billion we started out with 15 years ago. Thus, while imported inflation from r
ecord high food and oil prices has started to affect local prices this year, we
are still able to anchor expectations. We are take pride in the fact that we wer
e able to nurture our banking system back to health from the depths of the Asian
financial crisis. without the massive government bailouts that other countries i
n the region resorted to. Our solution: to improve the quality of supervision an
d implement far-reaching structural reforms in cooperation with the Executive an
d Legislative branches of government. Today, bank profits are better and capital
base deeper, while NPA and NPL ratios are nearly back at pre-crisis levels. As
a result, our banking sector is recognized as strong and able to withstand the f
allout from the global financial turmoil. Furthermore, banks are consolidating i
nto stronger institutions even as their delivery of banking services and new fin
ancial products now extend well beyond urban centers and deep into the countrysi
de and islands. A stable, secure and efficient payments and settlements system i
s another source of pride for us. In addition, we are happy that our advocacy in
sustainable microfinance has energized smaller banks, especially rural banks, i
nto bringing in more people within the banking system, not just for a working ca
pital loan, but also for deposits and remittances. In fact, we are leading the w
ay for central banks in product innovation for microfinance and garnering intern
ational recognition for it in the process. We have also made much progress in br
oadening available alternatives for overseas Filipinos in sending remittances to
their beneficiaries. Greater competition has led to lower remittance cost, bett
er accessibility, quicker delivery, and generally better services that facilitat
es the inflow of remittances into the economy. We also continue to register gain
s in our economic and financial education program for the general public. Our go
al is to provide economic empowerment and to protect them from financial frauds.
Ladies and gentlemen. I have given you the broad picture of the impact of the B
angko Sentral ng Pilipinas on our economy and on our peoples lives. No doubt abou
t it: we have a crucial and critical role in improving the lives of Filipinos. A
nd so far, we have been doing quite well. However, the challenges ahead are incr
easingly complex. Oil price has breached $140 and central banks all over the wor
ld are concerned about inflation. We do need to exert more effort to be even bet
ter. For this, we need to strengthen cooperation within our institution, we need
to work closer, to unite.. as One Dynamic Team! Tama ba? . Very good! Now, let us
ask the different sectors: MSS under DG Diwa Guinigundo, are we one dynamic tea
m? RMS under DG Armando Suratos, are we one dynamic team? SES under DG Nestor Es
penilla, are we one dynamic team? EMS, are we one dynamic team? May video stream
ing nga pala na ginawa ang ITSS kaya napapanuod din tayo ng live sa SPC at sa re
gional offices and branches natin. Kumusta kayo? Tatanungin ko rin kayo ha at ir
ereport ni Asst. Gov. Eve Avila at ni Managing Director Pete Tordilla kung malak
as din ang sagot ninyo. SPC, are we one dynamic team? RMSS, are we one dynamic t
eam? Now, everybody, is the BSP Family one dynamic team?!!! OK! Fellow central b
ankers, we need to continue to re-invent ourselves and position our personnel fo
r all the challenges that may lie ahead. The first 15 years of our journey has l
ed us to reorganize ourselves; upgrade employee compensation and benefits; stren

gthen our strategic planning and budgeting process; improve our facilities and e
quipment; align our training programs to world-class standards; send our best an
d brightest staff to the best universities; unveil progressive wellness programs
; and open our doors to recruitment of fresh talents. Moving forward, you can be
sure, we will continue to invest in our people. Afterall, at the end of the day
, good central banks are all about having good people. And you ladies and gentle
men of the Bangko Sentral ng Pilipinas -- you are our most valuable assets. Mabu
hay ang Bangko Sentral! Mabuhay ang Pilipinas! Happy anniversary to all.
Bangko Sentral ng Pilipinas @15

Venue: NA
Occasion: Anniversary Dinner
Senator Angara, Representative Jaime Lopez, fellow bankers, co-workers in govern
ment, members of the media, special guests, good evening. On behalf of the Membe
rs of the Monetary Board, I welcome. and thank all of youfor joining us in celebra
ting this important milestone: the 15th anniversary of the Bangko Sentral ng Pil
ipinas. As central banks go, you may say that at age 15, we belong to Generation
Y. But youthful as we are.. as an organization, we are really standing on the s
houlders of our richly experienced forerunner that is the Central Bank of the Ph
ilippines. This enables us to leverage the freshness of our eyes with a vantage p
oint progressively built from accumulated experience. In other words, we have th
e vitality of youth as well as the stability and resiliency that come with maturit
y. This represents a remarkable combination of strengths we can draw from as we f
ace the ever-changing.and never-ending challenges that are the burdens of honor o
f a central bank. As the central bank in a developing country where millions of
people still live in poverty, the Bangko Sentral ng Pilipinas is fully cognizant
of its crucial empowering role in improving lives of Filipinos.through the formu
lation and implementation of responsive monetary and banking policies. As we can
all sense from the anxious urgency of todays headlines, we will need all that st
rength and agility as we once againgird for battle against an old adversary of cent
ral banks. INFLATION. As you are aware, its underpinnings are complex.and the dime
nsions global. This is not the occasion to discuss this looming challenge in dep
th, however. What is clear . is that we can ill-afford the luxury of underestimat
ing this problem. What I will say at this time is that we stand ready to engage i
t with quiet confidence. We do have a track record of performance to back us up.
Our first 15 years has given us the opportunity to help strengthen our economic
foundation even as we build up institutional capacity, reputation, and credibil
itythrough sound policy-making and effective implementation. We will be the first
to say ours is not a perfect 15 years; but we can tell you that the source of o
ur collective confidence in our ability to face up to the challenges ahead. Firs
t, we have financial strength. We hold international reserves of more than 36 bi
llion dollars, a historic high. Our capital base is now over P150 billion versus
the original P10 billion we started out with when the Bangko Sentral was create
d 15 years ago. Our balance sheet is strong with most of our foreign debts paid
up. We enjoy a successful track record of solid contributions to macroeconomic s
tability. as evidenced by a lengthening record of relative monetary stability, ba
lance of payments surplus, and meaningful economic growth. We have nurtured the
banking system back to health from the depths of the fallout from the Asian fina
ncial crisis in the late 1990s without the massive government bailouts that chara
cterized other countries in our region. We did it by improving the quality of su
pervision and instituting far-reaching structural reforms in cooperation with th
e Legislative, represented here tonight by Sen. Angara and Cong. Lopez, and the
Executive Branches of Government. Today, bank profits are higher, capitalization
deeper, and NPA and NPL ratios down to nearly pre-1997 crisis levels. Banks are
consolidating into stronger institutions even as branch networks and other deli
very channels expand well-beyond urban centers and deep into the countryside and
islands. We have also witnessed the unveiling of new financial products to meet
the growing need and sophistication of the public from the wide array of credit
cards, cash cards, to structured investment products, to unit investment trust
funds, to tailor fitted loan products. Products that cater to the top end of the
market and all the way down to microfinance customers. We are especially proud
of our advocacy in sustainable microfinance that has energized our smaller banks
, particularly the rural banks, to bring more people within the reach of a banki
ng system.. not just for a working capital loan, but also for deposits and remitt
ances. And among central banks, we lead in microfinance advocacy and regulation.
This has led to creative product innovation..as well as international recognitio
n. We have also made much progress in broadening the array of alternatives avail
able to overseas Filipinos in sending their remittances back home to their benef
iciaries. Greater competition has led to lower remittance cost, broader access,
quicker delivery, and generally better services. It has also facilitated the inf
low of remittance into the economy that now amount to approximately $16 billion
per year and grows at double-digit growth rates. Our desire to develop a more in
clusive financial system that caters to all sectors of society has also led us t
o yet another major advocacy that of promoting financial learning down to the gr
ass roots level. If you recall, our Tulong Barya Para sa Eskuwela Program was su
ccessful because we had the banking sector with us as partners.. led by the Chamb
er of Thrift Banks, Rural Bankers Association of the Philippines, the Bankers As
sociation of the Philippines, as well as the Philippine Retailers Association pa
rticularly SM and Robinsons, ABSP-CBN and GMA7 among others. Many of you are her
e and we take this opportunity to thank you again. I also wish to invite you to
support this program which is being launched in partnership with the Department
of Education. We also thank our partner-banks who share our goal of teaching our
12 million public elementary students regular lessons on saving and money manag
ement. Our screen is now flashing the banks who are now on board with us for the
integration of financial lessons in the elementary curriculum. We are keeping t
he doors open for other banks and institutions to support this breakthrough proj
ect. For your information, the Bangko Sentral has a comprehensive financial educ
ation program that covers schoolchildren to college students to adults, includin
g overseas workers and their dependents. We are also setting up economic & finan
cial literacy centers in Bangko Sentrals regional offices and branches across the
country because we believe that education is a powerful empowering means for de
veloping responsible and productive citizens. In this connection, we are also pl
eased to announce that the Bangko Sentral is expanding its scholarship program t
o include deserving students in urban centers and in the provinces for courses a
ssociated with economics and banking. Ladies and gentlemen.The last 15 years has
provided us the opportunity for introspection and to re-invent ourselves as wel
l as our institution for the challenges that lie ahead. You who are here tonight h
ave been with us in our journey. We thank you for this. It is in this spirit tha
t the Monetary Board approved the scrapping of certain fees of the Bangko Sentra
ls real time gross settlement system the PhilPass. You may get more details about
this from Deputy Governor Andy Suratos who is here with us. I also take this op
portunity to remind you that we at the Bangko Sentral stand ready to continue ou
r dialogue with you so that we can identify more areas of concern, formulate sol
utions, and thereby move forward.together. Ladies and gentlemen. The Bangko Sentr
al is a work-in-progress. And, as always, much remains to be done. The journey a
head is bound to be challenging, and inspiring. As we gear up for this, let us c
ontinue to nurture the ties that bind us in our common search for a better futur
e for our people, our economy, and our country. Mabuhay ang Bangko Sentral ng Pi
lipinas! Mabuhay ang mahal nating bansang Pilipinas! Thank you all for accepting
our invitation. Enjoy the rest of the evening.
Microentrepreneur of the Year (MOTY) Awards 2008 Launch

Occasion: Microentrepreneur of the Year (MOTY) Awards 2008 Launch
Fellow workers and advocates in microfinance, special guests, good morning. On b
ehalf of the Members of the Monetary Board, I welcome all of you to the Bangko S
entral ng Pilipinas for the launching of the 2008 Microentrepreneur of the Year
Awards. Ladies and gentlemen. This is the sixth year we are mounting this search
for the best microentrepreneurs in our country. Through all these years, I have
felt that the role of the judges in selecting the winners have become increasin
gly difficult. Dont get me wrong; I am not complaining! The difficulty lies in th
e fact that there are now so many inspiring success stories in the microfinance
sector to choose from. This tells me that we are successful in providing a nurtu
ring environment for microenterpreneurs. Today is therefore a happy occasion as
friends and colleagues involved in microfinance come together once again. Let us
therefore take this opportunity to thank our partners for making the MOTY a muc
h-anticipated event. Friends, let us give a big hand to Citi Philippines and Cit
i Foundation under Mr. Sanjiv Vohra, the Microfinance Council under Mr. Rollie V
ictoria and Mr. Ed Garcia, as well as the members of the National Selection Comm
ittee. During the first five years of the MOTY, we met exceptional microentrepre
neurs who proved access to responsive microfinance services can empower them to
break out of poverty and build a better life for themselves, their families, and
even their communities. We are happy that our past winners continue to shine an
d to be a source of inspiration. For instance, 2004 winner Leticia Rosas, a hand
loom weaver from Marinduque, had the unique experience to address a big crowd of
microfinance practitioners in the historic halls of the Malacanan Palace. 2006
winner Jennilyn Antonio, a former factory worker turned peanut butter manufactur
er, now supplies SM Supermarkets, the countrys largest retail chain. We of course
thank one of our committed judges, Mrs. Tessie Sy-Coson, for this. And just rec
ently, we learned that one of our winners was able to access a 2 million peso lo
an from the Development Bank of the Philippines. without collateral. Other winner
s have become newsworthy celebrities, invited to guest in television and radio p
rograms or featured in newspapers and magazines. Clearly, MOTYs value goes beyond
the incentives it provides deserving microentrepreneurs; it has also evolved as
a vehicle for showcasing microfinance as a potent tool for poverty alleviation
and microentrepreneurs as responsible, accountable and creditworthy bank clients
. Ladies and gentlemen. These milestones are the results of the collective and c
oordinated efforts of many institutions and individuals, the key movers of which
are represented here today. Indeed, MOTY is one tangible example of successful
and meaningful cooperation among different institutions working toward a shared
goal. Today, as our countrys poor grapple with the challenges of rising prices of
basic commodities, the call for coordinated efforts to fight poverty has never
been stronger. Let us therefore resolve to work more closely together to build s
tronger financial institutions that provide responsive service to microenterpris
es, sow the seeds of entrepreneurship, nurture local enterprises, and build pros
perity in our country through microfinance development. I am confident this can
be done. I say this on the basis of our track record. Before the year 2000, for
instance, there were only a handful of banks into microfinance. Since then, this
has grown significantly. Today, 229 banks are into microfinance with a total cl
ient base of 780,000 and loans outstanding of 6 billion pesos. Significantly, ou
r micro-borrowers have also become net savers; their deposits with banks as of D
ecember 2007 have reached close to 2 billion pesos! Not only have they been libe
rated from the cycle of poverty, they are attaining financial security for thems
elves and their families. Let us therefore resolve to continue to work together
to nurture and expand our base of microenterpreneurs all over the country. Thank
you all. Mabuhay ang microfinance!
Housing Microfinance Product Launch

Occasion: Housing Microfinance Product Launch
DBP SVP Brillo Reynes, HUDCC Assistant Secretary Celia Alba, fellow workers in g
overnment, representatives from the microfinance and the housing sectors, specia
l guests, good morning. On behalf of the Monetary Board, I welcome all of you to
the Bangko Sentral ng Pilipinas. Today is a busy day for the microfinance secto
r. Earlier this morning, we launched the 2008 Microentrepreneur of the Year Awar
ds to kick off our search for the countrys outstanding microentrepreneurs. Now, w
e are launching the housing microfinance product. This coming together of housin
g finance and microfinance has been cited by practitioners as a development brea
kthough that combines the best practices and principles of microfinance with the
peculiarities of housing finance. Ladies and gentlemen. These two events unders
core the holistic approach that we are adopting in addressing social and economi
c objectives through microfinance. Housing as a shelter is a necessity. And as a s
ector, it has the potential to generate employment across its supplier groups an
d keep the economy growing. It is important therefore that we support it. Howeve
r, the housing sector has yet to reach its full potential. Housing backlog persi
sts due to lack of available and affordable housing. especially for those who are
not members of pension funds. With todays launching of housing microfinance, our
3 million entrepreneurial poor will have access to housing finance under this p
ioneering program. This pioneering program started when Vice President Noli De C
astro, concurrent chair of HUDCC led the crafting of this program with the Devel
opment Bank of the Philippines with assistance from Asian Development Banks socia
l housing and community development program the Development of Poor Urban Commun
ities Sector Project. This was subsequently presented to the Bangko Sentral. Aft
er careful consideration, and bearing in mind its positive impact on the countrys
social and economic objectives, the Monetary Board approved housing microfinanc
e products as a type of microfinance loan. As approved, the maximum loanable amo
unt for home improvement loans is 150,000 pesos, while the maximum for house con
struction and acquisition is 300,000 pesos. The approval of the housing microfin
ance product as a type of microfinance loan is important as it will enjoy the sa
me incentives as regular microfinance loans. Among others, housing microfinance
does not require collateral and documentary requirements are much simpler. In ot
her words, this housing microfinance addresses the usual barriers that the poor
face in accessing housing finance. There are also built-in incentives for credit
or banks. For instance, housing microfinance loans are eligible as alternative c
ompliance to mandatory credit allocation to agrarian reform and other agricultur
al credit. In addition, housing microfinance loans shall have an assigned risk-w
eight of as low as 0% (zero) when guaranteed by the Home Guarantee Corporation o

r a 50% risk-weight if it is not guaranteed. Nevertheless, even as we work to pr
omote housing microfinance, risk management features are embedded in the product
design for banks follow. This includes the use of cash flow analysis to determi
ne the clients ability to pay and requiring a good track record as a microfinance
client. In this connection, the BSP entered into a Memorandum of Agreement with
HUDCC last month to set the standards and criteria for the accreditation of ban
ks that can go into housing microfinance. Under this MOA, banks that wish to par
ticipate in this particular housing microfinance should first be accredited by H
UDCC and the DBP to confirm if they are following the features approved by the B
SP. Other banks that want to provide housing microfinance under a different sche
me should get BSPs prior approval. The ideal market for this product are microfin
ance clients who have proven their creditworthiness to their banks. With about t
hree million active micro-borrowers, the market for housing microfinance looks p
romising indeed. I am confident therefore that we will see a significant increas
e in affordable housing finance that caters to the needs of the poor. in a sustai
nable and non-subsidized manner. Let us therefore congratulate those who worked
with dedication on this housing microfinance product that will empower microentr
epreneurs to improve their quality of life and productivity through affordable h
ousing. On this happy note, I thank all of you for joining todays launching of th
e housing microfinance. Mabuhay ang microfinance housing program for the poor! M
araming salamat sa inyong lahat.
RCBC: Banking on Emerging Corporates

Venue: 47th Floor, RCBC Plaza, 6819 Ayala Avenue, Makati City
Occasion: RCBCs re-launching of its program for Small and Medium Enterprises
Ambassador Yuchengco, Chairman Dee, President Tan, other officers and staff of R
CBC, special guests, good evening. In many countries, including the Philippines,
small and medium enterprises constitute the backbone of the economy. As such, i
nitiatives that provide meaningful support to SMEs represent welcome news indeed
. It is in this context that I view RCBCs re-launch of its SME Lending Program. T
hrough the years, consolidated lending of the banking sector to SMEs has shown c
onsiderable growth. In 1991, the year Republic Act No. 6977 or the Magna Carta f
or Small Enterprises took effect, credit to SMEs amounted to P17 billion. By Dec
ember 2007, or 16 years later, total loans extended to SMEs have reached P352 bi
llion. This is roughly 21 times more than the 1991 total. We at the Bangko Sentr
al ng Pilipinas acknowledge the banking sectors commitment to support SMEs. As a
whole, the banking sector has consistently exceeded the mandatory credit allocat
ion for SMEs under the Magna Carta for Small Enterprises. Although this law laps
ed in August last year, Congress has already ratified the bill extending and enh
ancing the SME law. We expect this to be signed into law in the very near future
. In the meantime, the Bangko Sentral ng Pilipinas encourages banks to continue
supporting SMEs. It is in this light, that we commend RCBC for taking a leadersh
ip role in promoting and allocating resources for its SME lending Program. As on
e of the major banks in our country, RCBC is bound to influence others to take a
similar stance. To me, support for SMEs translates directly to a vote of confid
ence for our people and our country. Recognized as the biggest employers in our
country, SMEs account for about 80% of employment generation. If, therefore, we
are able to keep the SME sector on a consistent growth track, we would be able t
o accomplish broad-based and sustained growth for our country. Equally important
, we would have a strong domestic economy that is less vulnerable to global econ
omic shocks. Ladies and gentlemen. Last year our economy posted the best GDP gro
wth in 31 year. One of the reasons for this is strong investor confidence in our
country, as a viable emerging economy. This was coupled with the 2.8 average in
flation rate in 2007, which was the lowest in 21 years. Other indicators likewis
e exhibited stronger economic positions such as the countrys balance of payments,
which posted a record surplus of USD 8.6 billion in 2007 and our all-time high
level of international reserves. As for the banking sector, it remains fundament
ally sound with the average capital level well above the minimum regulatory requ
irement and the NPL ratio that is now almost back to the 1997 pre-crisis level o
f around 4.0 percent. The RCBC group in particular, has shown marked improvement
in performance as it posted a net income for the year ended 2007 which was 50 p
ercent better than the previous years level. Further, we take the Banks recent iss
uance of P7 billion worth of Unsecured Subordinated Debt as a sign of banks commi
tment to further strengthen its capital base as it assumes new risk exposures. R
CBCs SME Lending Program is anchored on the theme Banking on Emerging Corporates. T
his signals the belief and confidence of RCBCs leadership in the future of SMEs t
o become growth drivers of the Philippine economy. I believe you are on the righ
t track. I hope this will steer the tempo of competition in the banking industry
as it opens diversification of possible sources of income for banks. Indeed, th
e challenge of setting a footprint on SME lending is a milestone RCBC and other
banks should take, as its contribution in providing a strong foundation for sust
ained and broad-based economic growth for our country. Again, my congratulations
to RCBC. Mabuhay!
Remarks
Occasion: ILF MOA Signing Ceremony
Members of the Monetary Board, Undersecretary Roberto Tan, BAP President Ramon S
y, Mr. Paul Favila, fellow bankers, special guests, good morning. I am glad we n
ow have this Memorandum of Agreement for the Enhanced Intraday Liquidity Facilit
y. This MOA will help the Philippine banking sector adapt and respond better and
faster . to increasingly dynamic and challenging developments in the financial m
arkets. Congratulations are therefore in order to all those involved in the proc
ess that has led to this MOA signing today. Let us give everyone a well-deserved
round of applause. Indeed, operational adjustments in the ILF provide participa
nts greater flexibility in the use of their securities. For instance, instead of
earmarking the securities for ILF use for the whole week, participants can now
make daily changes in their securities pool. In addition, availments will be mad
e only when the need arises. Furthermore, availment costs have been reduced to e
ncourage more participation to the ILF. Ladies and gentlemen. These are challeng
ing times. and now, more than ever, we need to close ranks to address the issues
that concern the banking sector..in a coordinated and comprehensive manner. On ou
r side at the Bangko Sentral, we assure you that our lines of communication are
kept open at all times for discussions and consultations. I expect the same from
your end, particularly when it concerns programs that will benefit the financia
l system in particular and our economy in general. I will be the first to say th
at we have done a lot to strengthen our banking sector. This has been validated
and repeatedly acknowledged here and overseas. However, we should continue our r
eform agenda to keep in step with global developments. Let us choose innovation,
over stagnation. United, we can make further improvements in our banking sector
as well as our payment and settlements system to make it stronger, more efficie
nt, and consistently aligned with world-class standards. Mabuhay ang Philippine
banking sector! Maraming salamat sa inyong lahat.
On the Road to Sustaining Economic Stability and Growth

Venue: Hotel Inter-Continental Manila
Occasion: Management Association of the Philippines Economic Briefing
MAP President Edgar Chua, MBC, other distinguished officers and members of the M
anagement Association of the Philippines and the Makati Business Club, friends,
ladies and gentlemen, good afternoon. It is a pleasure to join you on the occasi
on of the induction of MAPs new members and Joint Economic Briefing. To the newly
inducted members of MAP, congratulations! While you look forward to breaking ne
w ground within this organization, the Philippine economy appears to be moving t
oward a more challenging environment One, which on several occasions, I have cha
racterized as fraught with headwinds. The rough patches that surfaced in the sec
ond half of last year, appear to have intensified. You may have heard it asked: C
an the Philippines ride out these rough patches and push past the headwinds? Our
assessment at the BSP is that, NOW more than at any other time in at least a dec
ade, the Philippine economy COULD. Quite a number of analysts, rating agencies, m
arket players.even Ciel himself (or shall I say, ALSO Ciel). agree with the BSP on
this. 2007 was a remarkable year for the Philippines. Can we do a repeat? With
the patchy road ahead, we may not see the same highs (and lows), but we certainly ha
ve built up buffers that would allow us to press on the road ahead of us. Let me q
uickly run through some of the patches or challenges that I see ahead of us First,
further turbulence in global financial markets. SUBPRIME. There is probably none h
ere in this room who hasnt yet heard of the term. You were all witnesses to the v
olatilities it created in the second half of 2007. I wont go into the genesis of
the problem, but clearly, what began as a home-grown housing mortgage market pro
blem in the US has become a global problemand what was first manifested as diffic
ulties in the financial market is starting to seep into the real economy. The co
ordinated credit operations by the major central banks and policy rate cuts have
helped ease credit tensions, but wider problems in the financial system still p
ersist. At the heart of this problem is uncertainty. First, there is continued u
ncertainty about the size of losses from defaults on US subprime mortgages that
the global financial system will eventually have to absorb. Second, there is unc
ertainty about where these exposures will end up. Third, this lack of informatio
n breeds fear of ratings downgrades, of steep sell-offs and of other unknown con
sequences. In sum, the global financial turbulence stoked by the subprime mortga
ge problem in the US has intensified and is expected to be protracted. While the
Philippines has limited direct exposure to CDOs, none of which have subprime mo
rtgages as underlying assets, we do not expect a significant direct impact on th
e local financial system. However, the ongoing global financial volatility could
affect the market via a rise in risk aversion. A general retreat from risks by
global investors could affect the direction of capital flows. The second challen
ge is the slowdown in the US economy. The current tightening of credit condition
s in the US due to risk reassessment in financial markets and the sharp decline
in the US real estate market threaten to exert further downward pressure on inve
stment, consumption, and, consequently, output growth. Many economists have adju
sted their US growth forecasts for 2008 downward. Some have made downward adjust
ments by as little as 0.4 percentage point or as much as 2.4 percentage points.
What is unknown, really, is the length and depth of this slowdown. Some have cha
racterized this is possibly SHORT and SHALLOW, others SHORT and SHARP. Nonethele
ss, we continue to monitor developments in the global growth picture as the weak
ening of domestic demand in the US and other advanced economies could create sig
nificant spillovers into developing and emerging economies such as the Philippin
es. There are at least two channels through which a sharper-than-expected slowdo
wn in the US could directly affect the domestic economy. One, through the trade
channel. The prospect of decoupling from the US is not clear cut. Even as our de
pendence on the US has diminished as shown by the drop in our direct exports to
the US in recent years, and that trade with China, India and other emerging mark
ets has increased, we must remember that portion of our increased exports to the
se new markets is really re-exported to the US. Thus, as economic activity slows
in the US, our exports would possibly show a decline also. One significant miti
gant, however, is if, indeed, as expected by many analysts, the domestic demand
in emerging markets holds up. This situation could result in the country maintai
ning or even increasing the level of our exports to these markets. Such could th
us prop up the overall exports. Remittances is a second important channel throug
h which a slowdown in the US economy could impact on the domestic economy. Lates
t data show that 1/3 of our land-based overseas Filipinos are in the US. The div
ersification in deployment in terms of destination and quality of skills could,
however, temper any slowdown in remittances. Let me now turn to the third major
risk that we face: the rise in global food and energy prices. Food prices have g
one up as a result of strong demand from China, India, and other emerging market
economies that are experiencing rising incomes Poor harvests due to adverse weat
her conditions and increased biofuel production have also ratcheted demand for c
ertain related food items Furthermore, just recently we saw oil price breach the
$100-a-barrel level..Geopolitical tensions in the Middle East, refinery bottlenec
ks, speculative activity, the weak US dollar, and the continued strong demand fo
r crude oil all exerted an upward pressure on global oil prices. However, as glo
bal growth slows, we may see commodity price volatilities abate in the second ha
lf of the year. With these risks that I have just described being primarily glob
al and largely not directly within our control, why do we believe that the Phili
ppine economy will be able to ride out these patches? The short answer is. we hav
e built up domestic buffers. What are these? One, we have built up buffers in ou
r domestic financial system. The Philippine banking systems asset base has grown
steadily over the last 6-7 years. The overall asset quality of banks continued t
o improve as well, with the NPL ratio now moving closer to the pre-crisis level
of around 4 percent. Banks overall capital adequacy ratio was also maintained wel
l above regulatory and international standards, shored up by the increased issua
nce of hybrid financial instruments to strengthen their capital base. Last year,
we rolled out two reform packages aimed at improving the systems ability to mana
ge risks and competitiveness in a more globally integrated market environment he
re I refer to the further liberalization of our FX market and the new derivative
s circular. Amid the heightened risks in the global financial markets last year,
the banking sector has showed resilience. Two, the fiscal picture has improved
considerably. The National Government posted a P9.4 billion budget deficit in 20
07 equivalent to less than 1 percent of GDP, its lowest in ten years. Moreover,
for the first time in more than a decade, the consolidated public sector financi
al position registered a surplus in 2006. This has continued on in the first thr
ee quarters of 2007 with the surplus reaching P52.7 billion. Gains brought about
by the governments fiscal consolidation efforts were also evident in the materia
l reduction in the public debt burden. Three, our external position is strong, m
aking us less vulnerable to external shocks. The countrys balance of payments pos
ted a record surplus of US$8.6 billion in 2007, buoyed by strong inflows of over
seas remittances, higher net services receipts, and direct and portfolio investm
ents. This has allowed us to build up the countrys gross international reserves t
o record highs. Consequently, we were able to prepay external debt. In fact, in

the BSP, we have prepaid all that we could. The NG, other GOCCs and the private
sector have all taken advantage of our strong BOP and prepaid external debt. Thu
s, the countrys external debt and debt service burden have also gone down. At the
same time, the steady inflow of foreign exchange has kept the peso firm, broadl
y maintaining its competitiveness in real effective terms over this period, and
providing a mitigating effect on inflation. Finally, the sturdier policy framewo
rk and broad-based structural reform that we have put in place, have helped prom
ote a more coordinated and productive economic environment. This is evidenced by
the economy achieving in 2007 the highest GDP growth rate in 31 years of 7.3 pe
rcent against a backdrop of low and stable inflation. The 2007 full year average
inflation of 2.8 percent was the lowest in 21 years. This combination has allow
ed market interest rates to generally trend downward. Those, in brief, ladies an
d gentlemen, are our buffers How can we further build these to ensure that we can
ride out any unforeseen bumps in the road? Well, my friends, like any good driv
er, we must keep our eyes on the road and follow the map that we have set out on
. This brings me to the BSPs policy thrust for 2008. The BSPs monetary policy thru
st will involve a balancing act between managing the risks to inflation and infl
ation expectations, and seeing to it that the economys growth momentum continues
over the policy horizon. We will continue to focus on our core mandate of promot
ing price stability. This will require intensified environmental scanning and co
ntinuous surveillance of key macroeconomic developments, particularly those that
indicate emerging risks to the inflation outlook. Relative the external sector,
our policies will be geared toward: ensuring the sustainability of the countrys
external debt; maintaining a market-determined exchange rate, with scope for occ
asional action to keep orderly market conditions; and maintaining a comfortable
level of reserves as market opportunities will allow. Reforms in the financial s
ector will be aimed at maintaining a strong banking system and a vibrant capital
market. Specifically, we will focus on: further enhancing the regulatory framew
ork through the implementation of the BASEL II roadmap; improving corporate gove
rnance by promoting compliance with international accounting and financial repor
ting standards; accelerating the implementation of risk-based supervision techno
logy; and continuing support for the development of a deep and efficient capital
market, including by supporting necessary legislative reforms. In sum, we will
continue to be focused on our primary mandate. More of the same is what you may hav
e heard me say before. More of these which have served us well in the past. On th
e basis of these policy directions, the outlook for the macroeconomy continues t
o be favorable. Although we are seeing a hump-shaped inflation path in the first
half of 2008, whereby monthly inflation rates are expected to rise to around th
e top end of the target range, we forecast full year average inflation to be wit
hin target in both 2008 and 2009. The volatility in world oil prices and uptrend
in non-commodity prices remain the key risks to the inflation outlook. Neverthe
less, the emerging scenario is for commodity prices to taper towards the end of
this year. This within-target outlook will allow us to maintain a low interest r
ate environment. We expect the BOP to continue to be in surplus, although at a l
evel that is smaller compared to the previous year. The liquidity impact of the
external surplus will have to be managed such that the amount of money in the sy
stem remains consistent with the inflation objective. Ladies and gentlemen, the
Philippine economy has travelled a remarkable distance in recent years. Responsi
ble economic policies and purposeful reforms have resulted in significant econom
ic dividends for the country. But equally significant patches are now threatenin
g the sustainability of the gains we have achieved thus far. Yes, we have built
up buffers, but we cannot afford to be complacent. Much is yet to be known about t
he size and depth of the patches that lie on the road ahead. The critical task f
or us now is to preserve the momentum for economic reforms so as to ensure susta
ined growth in the long run. Just as important to sustaining growth is deliverin
g growth that casts a wider net. These require focus as well as commitment. To t
his end, it is my hope that the MAP and MBC community will continue to be our pa
rtner in the thrusts and the reform agenda that I had outlined. I look forward t
o your support as together we tread the road to sustained economic growth. Thank
you and good day to all!
Recent Economic Developments: Challenges and Policy Implications

Venue: NA
Occasion: Fund Managers Association of the Philippines Induction of Officers
President PJ Garcia, other officers and members of the Fund Managers Association
of the Philippines, friends, ladies and gentlemen, good afternoon. I am pleased
to join you today during your general membership meeting. The FMAP has a unique
role in mobilizing investments of institutional investors, particularly at this
time of ample liquidity in the system. The BSP continues to look forward to you
r support in helping to channel these resources to funds that will support econo
mic development. I also welcome from you initiatives that would enhance and prom
ote professional standards of fund management in ensuring that the funds are man
aged in accordance with the tenets of fairness, accountability and transparency.
As fund managers, you play a significant role in the development of the domesti
c capital market. I have been requested to share with you today our macroeconomi
c outlook for 2008. In the process, I will try to provide policy insights on the
current domestic and global developments, what their implications are for the B
SPs monetary policy, and how these will affect the countrys economic outlook. Rece
nt Economic Developments 2007 was marked by what I have called as the convergence
of high growth and low inflation. The Philippine 7.3 percent growth rate for 200
7 is the highest growth achieved in 31 years. At the same time, this broad-based
economic expansion was realized in an environment of low and stable inflation,
with full year inflation at 2.8 percent, the lowest in 21 years. Meanwhile, fore
ign investment was strong due to upbeat investor sentiment on the countrys improv
ing macroeconomic fundamentals. There was also positive news coming from the ext
ernal sector. The countrys balance of payments posted a record surplus of US$8.6
billion in 2007, buoyed by the sustained strong remittance of overseas Filipinos
as well as higher net services receipts, and capital inflows. The countrys gross
international reserves (GIR) also continued to post record highs. At the end of
January 2008, it amounted to US$34.4 billion, which could cover 6.0 months worth
of imports of goods and payment of services and income. The external debt situa
tion has likewise improved and remained manageable. The peso remains firm, provi
ding a mitigating effect on inflation, while broadly maintaining its external co
mpetitiveness. The banking sector has remained fundamentally sound. The banking
system sustained a steady asset expansion for the last seven years supported by
continued growth in deposit base. The continued asset clean-up of banks, accompl
ished through market-oriented schemes and without the use of public funds, boost
ed the banking systems overall asset quality. The banking systems NPL ratio is now
closer to the pre-crisis level of around 4.0 percent. Banks also remained capit
alized at levels above both the BSP-regulatory requirement and the BIS standard.
The banking systems capitalization is expected to improve further with banks incr
eased issuance of hybrid financial instruments to strengthen their capital base.
As a footnote to banking performance last year, I would like to mention that th
e banking system was not significantly affected by US subprime mortgage market p
roblems. First, because Philippine bank exposure to the CDO market was only 0.2
percent of total bank assets as of mid 2007, and none of these have subprime mor
tgages as underlying assets. Second, the country has been less dependent on exte
rnal borrowing and has, therefore, become less vulnerable to external shocks. Th
ird, there is ample liquidity in the system and hence, any credit squeeze could
be manageable. The fiscal sector likewise performed well, with the National Gove
rnment posting a P9.4 billion budget deficit in 2007, its lowest in ten years. T
his was achieved through enhanced revenue collections and privatization efforts.
Moreover, for the first time in more than a decade, the consolidated public sec
tor financial position registered a surplus in 2006. This continued on in the fi
rst nine months of 2007 with the public sector posting a surplus of P52.7 billio
n. Gains brought about by the governments fiscal consolidation efforts were evide
nt in the material reduction in the public debt burden. All in all, one could sa
y, 2007 has been marked by an auspicious alignment of the stars what should be g
oing up, went up, what should go down, went down.. Key Challenges Ahead While we
have implemented in recent years prudent macroeconomic policies and structural r
eforms, which allowed us to achieve these important milestones in the previous y
ear, the Philippine economy continues to face challenges from both the global an
d domestic fronts. These include: (1) the US economic slowdown; (2) further disr
uptions in the global financial markets; and (3) continued volatility in oil pri
ces and the uptrend in non-oil commodity prices. One of the major challenges is
the slowdown of the US economy. There is consensus that the US economy is poised
for a downturn in 2008. The current tightening of credit conditions in the US c
ould exert downward pressure on investment and consumption. The sharp decline in
US real estate market could also weigh in on consumption via wealth effects. Wh
at does this mean for the Philippine economy? A slowdown of the US economy could
directly impact the Philippines via two key areas: (1) the countrys export recei
pts; and (2) remittances from overseas Filipinos. The Philippines is not immune
to a US slowdown, although there are factors that may limit any adverse impact.
For instance, although the US is still one of the countrys top trading partners,
US dominance in Philippine trade has diminished. The share of Philippine exports
to the US decreased from 30 percent in 2000 to 17 percent in 2007. The IMF has
also found that the sensitivity of Philippine growth to US growth has declined o
vertime. However, the sensitivity is still palpable. The IMF estimates that a 1
percentage point reduction in US growth reduces Philippine growth by 0.5-0.6 per
centage points. Moreover, the persistent reliance of the Asian region on US trad
e and the increasing relative dependence of the Philippines on Asian trading par
tners, indicate the absence of full decoupling. The net impact of a US downturn
on Philippine growth will depend on how the Philippines other major trading partn
ers are affected by developments in the US. Remittances are another important ch
annel through which the US economic slowdown could manifest itself in the Philip
pines. Latest data show that about 1/3 of our land-based workers are in the US.
The diversification in deployment in terms of destination and quality of skills,
could temper any expected slowdown in remittances from a weakening of the US ec
onomy. A second major concern for us is the possibility of further global financ
ial market turbulence. The IMF has noted that while coordinated credit operation
s by the major central banks, together with rate cuts, have helped ease liquidit
y tensions, wider problems in the financial system still persist. These include
problems in the valuation of complex products, credit deterioration, counterpart
y mistrust, and balance sheet pressures. Of great concern, however, is that a po
ssibly deeper economic slowdown in the US or elsewhere could serve to widen the
crisis beyond the subprime sector. Problems in the financial sector have started
to spill over to the real sector via reduction in domestic demand particularly
in the advanced economies. The third key challenge is the continued volatility i
n oil prices and the uptrend in non-oil commodity prices. The elevated price of
oil, particularly if this continues for a protracted period of time, would be a
concern as this could threaten our currently within-target inflation outlook. Ho
wever, crude oil price forecasts indicate a moderate downtrend in prices in 2008
-2009, albeit to levels higher than the average seen in 2007. In addition to the
forecast of tapering oil prices in the second half of this year, a more structu
ral shield against a surge in high oil prices is the countrys reduced dependency
on imported oil. Our dependence on imported oil has steadily declined from over
50 percent in the mid-1990s to 37.3 percent of the total energy consumption as o
f 2006. Meanwhile, the increase in global food prices could continue due to a nu
mber of factors, such as the rising incomes in China, India, and other emerging
market economies that could drive up further the demand for food products, and i
ncreased biofuel production. Implications for Monetary Policy Against these risk
s, monetary policy will need to maintain the right balance in order to address i
nflationary risks while allowing the economys growth momentum to continue. With t
he BSPs adoption of the inflation targeting framework, the achievement of price s
tability becomes its ultimate objective in the conduct of monetary policy. An in
flation-targeting central bank, therefore, should not be bound by multiple objec
tives unless these are necessary to achieve the goal of price stability. Nonethe
less, the BSP is firmly committed to promoting price stability that is conducive
to a balanced and sustainable economic growth. In particular, monetary policy n
eeds to be watchful of the emerging risks to inflation and inflation expectation
s. The BSP needs to be on the lookout for second-round effects of supply-side pr
essures, particularly on wages, utility rates and transport fares. BSPs Policy Th
rusts Against these major developments and challenges, the BSP will continue to
pursue initiatives aimed at maintaining sound macroeconomic fundamentals support
ive of a vibrant economy. We will, thus, remain focused on our inflation target.
As you are aware, a low and stable price environment allows economic agents to
plan better. It also allows us to maintain a low interest rate environment that
would help support domestic demand. Relative to the external sector, our policie
s are: to ensure the sustainability of the countrys external debt; maintain a mar
ket-determined exchange rate with scope for occasional action in cases of extrem
e movements in the exchange rate; maintain a comfortable level of reserves; and
improve further the foreign exchange environment. On the financial sector, our p
olicy thrust shall be to continue our reform efforts towards further strengtheni
ng the banking system. Our banking sector reforms shall focus on: further enhanc
ing the regulatory framework through the implementation of the BASEL II roadmap;
improving corporate governance by promoting compliance with international accou
nting and financial reporting standards; accelerating implementation of risk-bas
ed supervision technology; encouraging the development of the domestic capital m
arket; and strengthening ties with other financial regulators. In line with thes
e thrusts, you may recall that towards the end of last year, the BSP approved tw
o important reform packages: The further liberalization of outward investments o
f residents. Highlights that may be relevant to the FMAP are: (1) allowance of o
utward investments by residents funded with foreign exchange purchased from the
banking system not exceeding US$30 million per year no longer need prior BSP app
roval; and (2) qualified investors may now apply for a higher annual outward inv
estment limit. QIs include, among others, insurance and pre-need companies, coll
ective/pooled funds such as mutual funds, unit investment trust funds and variab
le insurance. The amendments to BSP regulations governing derivatives activities
of banks and trust entities, including guidelines on risk management and sale a
nd marketing of derivatives. Both these reform packages are intended to help mak
e the domestic market more able to quickly adapt to any further changes in the g
lobal financial markets. Philippine Economic Outlook On the basis of these polic
y directions, the outlook for the macroeconomy continues to be favorable. Averag
e inflation is expected to be within target in 2008 and 2009. The volatility in
world oil prices and uptrend in non-commodity prices remain the key risks to the
inflation outlook. Nevertheless, these potential risks to inflation are seen to
be tempered by some downside risks such as the firm peso and reduced dependence
on imported energy sources. Meanwhile, the fiscal positions of the National Gov
ernment and the entire public sector are expected to continue to improve, taking
off from their performance in 2007. Finally, we expect the BOP to continue to b
e in surplus although at a level that is smaller compared to the previous year.
The liquidity impact of the external surplus will have to be managed such that t
he amount of money in the system remains consistent with the inflation objective
. Concluding Remarks Ladies and gentlemen, the Philippine economys current fundam
entals are at the strongest they have been over the past two - three decades, pr
oviding us reasons to be optimistic about the future. But there are headwinds, m
ainly coming from external developments. This time around, we believe that the P
hilippines is better able to withstand the shocks due to the following reasonsbuff
ers as I would like to refer to these: the underlying growth momentum due to impr
oving fundamentals; we have a stronger external liquidity position; we have gain
ed dividends from our structural reforms in the areas of fiscal policy, power, b
anking, and capital market; and we have better information disclosure, which enc
ourages markets to look at Philippine-specific risks and not be prone to herding
behavior. But we cannot afford to be complacent. Even as we have built up buffer
s, we must continue to be mindful of the potential risks, particularly the possib
ility of unforeseen ones that could impede our path to further progress. The pri
mary task ahead of us is to focus on strengthening the economy while also preser
ving the momentum for economic reforms to ensure sustained growth in the long ru
n. The implementation of appropriate reforms by the government and active partic
ipation of the private sector, in promoting economic development will be powerfu
l forces in the fulfillment of this challenging task. In this endeavor, the BSP
looks forward to FMAPs continued support. Maraming salamat at magandang hapon sa
inyong lahat!
REMARKS FOR THE FOCAP FORUM

Venue: Mandarin Hotel, Makati
Occasion: FOCAP Forum
Ladies and gentlemen of the Foreign Correspondents Association of the Philippine
s, special guests, good morning. I have been requested to discuss current econom
ic issues this morning. Since you monitor our economy very closely, by the minut
e in some cases, I will not bore you with the details. Instead I will present th
e big picture, so to speak, so you will understand where I am coming from. Then
I shall focus on the monetary and banking policies of the Bangko Sentral ng Pili
pinas. As you know, the Philippine economy chalked up impressive gains on variou
s fronts in 2007. Our GDP growth was the highest in three decades while our infl
ation rate was the lowest in twenty years. As I have said, we achieved the ideal
convergence of high growth amidst 20-year low inflation in 2007. We also had a
healthy external position, ending 2007 with record high gross international rese
rves and unprecedented balance of payments surplus. At the same time, our bankin
g system is stronger, with record high resources and deposits as well as capital
ization way above the standards set by the Bangko Sentral and the Bank for Inter
national Settlements. As a result, we are experiencing a very stable macroeconom
ic environment that is validated by market confidence in the Philippines. This i
s the big picture. Let me now discuss the challenges that the BSP faces in the p
ursuit of its mandate of ensuring stable prices and a sound banking system. The
first challenge is the anticipated US economic slowdown. There is a consensus am
ong multilateral institutions, investment banks and credit rating agencies that
the US economy will slow down in 2008. However, there is no consensus yet on whe
ther the recent problems in the US subprime markets will push the US economy int
o a mild slowdown or usher in a recession. Either way, a weaker US economy is ex
pected to slow down global growth, although growth in emerging markets could tem
per this. In the case of the Philippines, the projected US slowdown is not seen
to have a significant immediate impact. However, we recognize that a longer-than
-expected US recession could take its toll on the economy. Given this, the BSP w
ill continue to monitor global developments to ensure that appropriate measures
are implemented, when warranted. The second challenge is global risk emanating f
rom high and volatile international prices of oil. In the absence of a change in
OPECs quota policies or a major global slowdown, international oil prices are li
kely to remain high due to continued geopolitical and supply risks coupled with
strong global demand and continuing speculation in the futures prices of oil. Fo
r the Philippines, prolonged high oil prices is a threat to our inflation outloo
k. The third challenge is the global financial market turbulence that could resu
lt in increased risk aversion towards emerging markets like the Philippines. We
saw in the third quarter last year that -- as a result of subprime problems in t
he United States -- the reassessment, repricing and adjustment of risk positions
affected not only the US market, but also equity bond and exchange markets acro
ss the globe. Although the global financial markets appear to have stabilized, t
he full impact of the US subprime mortgage market woes has yet to be felt. This
could affect the Philippines in two ways. First, growth in the export sector cou
ld soften as the US economy, a major trading partner of the Philippines, slows d
own. Second, movements in economic prices, e.g., exchange and interest rates, co
uld result from further risk aversion against emerging markets, including the Ph
ilippines. The fourth challenge for the Bangko Sentral is a possible resurgence
in domestic liquidity from sustained strong capital inflows on account of our fa
vorable macroeconomic performance. While domestic liquidity growth has declined
to more manageable levels after our policy action in May, we still foresee stron
g foreign exchange inflows in 2008. Since this may threaten our inflation target
, the Bangko Sentral will need to continue to monitor this and ensure that the l
iquidity level is consistent with the inflation objective. At first blush, these
challenges may seem formidable. Yet, the Philippine economy has time and again
shown its resilience. I believe therefore that these challenges are, ultimately,
manageable. On the whole, Bangko Sentrals main policy thrusts in 2008 and beyond
will focus on maintaining sound macroeconomic fundamentals and a strong financi
al system that is flexible, innovative, and globally competitive. A key priority
is to maintain our inflation target by maintaining a prudent monetary policy st
ance supportive of non-inflationary growth. Average inflation is expected to set
tle within the target of 4 percent 1 percentage point in 2008 and within 3.5 per
cent 1 percentage point in 2009. The external payments position is expected to r
emain a source of strength for the economy over the near term. Dollar inflows fr
om remittances and foreign investments are expected to remain robust. This shoul
d enable us to further build up our cushion of international reserves. On the ex
ternal sector, our policies will be geared toward: (1) ensuring sustainability o
f the countrys external debt; (2) maintaining a market-determined exchange rate w
ith scope for occasional official action in cases of extreme movements in the pe
so; (3) maintaining a comfortable level of reserves; and (4) improving the forei
gn exchange environment further through forex deregulation. Reforms in the finan
cial sector will be geared toward maintaining a strong banking system and a vibr
ant capital market. The BSP remains committed to strengthening the banking syste
m through structural reforms and speedier disposition of non-performing assets.
At the same time, continuing asset clean-up of banks should help spur credit and
investments, thereby generating support for more sustainable economic activity
in the medium term. Other regulatory reforms will be aimed at the further streng
thening of corporate governance, risk management, and capitalization through a m
ore effective and efficient enforcement of standards and codes. In particular, p
rudential regulations shall continue to be aligned with international standards
and best practices. To further develop the domestic capital market, the BSP will
continue to work actively with other government agencies and the private sector
to complete critical market infrastructure that will enhance system integrity a
nd overall market confidence. We will continue to push for the passage of key le
gislations intended to accelerate the development of the domestic capital market
. In particular, we shall push for the implementation of a centralized credit in
formation bureau to improve the quality of financial information to investors, e
xpand private sector access to credit, minimize risks exposure of financial inte
rmediaries, and lower borrowing costs. Ladies and gentlemen. On the basis of the
se policy directions, the outlook for the monetary, external, and banking sector
s continues to be favorable. I am now ready to discuss the issues of particular
interest to you. Thank you.
The Philippines: MACROECONOMIC OUTLOOK FOR 2008

Venue: NA
Occasion: Oath-taking of the officers and directors of the Economic Journalists
Association of the Philippines
President Donna Gatdula, other distinguished officers and members of the Economi
c Journalists Association of the Philippines, special guests, friends, good even
ing. It is a great pleasure for me to address this induction ceremony and this g
athering of highly informed watchers of the Philippine economy. As economic jour
nalists, you continue to be a major channel for transparency and provider of key
economic information for the business community. From the point of view of the
BSP, you have also played a vital role in our efforts to communicate the basis a
nd implications of monetary policy to the markets and the general community. I a
m doubly pleased because I see many familiar faces, including the relatively new
reporters on the beat and those I met long before I became governor. But dont wor
ry I will not disclose how long ago that was. Instead, I will focus on the topic
you have asked me to discuss tonight: the macroeconomic outlook for 2008. To pu
t things in perspective and to provide context for our outlook, I will begin my
presentation with a review of the past years. Economic Developments I am sure yo
u have read or heardin fact some of you have written that the Philippines is now
experiencing the most stable economic environment in more than two decades. This
is not just a tale.The numbers support this story. The Philippine economy grew at
the highest GDP growth rate of 7.3 percent in three decades in 2007. This growth
rate was above the Governments target of 6.1 6.7 percent set for 2007. This was
boosted by the expansion of services and the impressive performance of both agri
culture and industry. On the demand side, growth was driven by government consum
ption and investments. This strong growth was achieved in a period of benign inf
lation. Headline inflation last year stood at 2.8 percent, the lowest in 20 year
s. This is now comparable to developed economies. In turn, low inflation has res
ulted in lower interest rates, again the lowest in 21 years. This has brought do
wn the cost of money for borrowers, whether personal or corporate. In this respe
ct, we achieved a good convergence of high growth and low inflation. In addition
, our external position was at its best in 2007. The overall BOP position closed
2007 with a surplus of US$8.6 billion, the highest on record. This reflects imp
roved market sentiment as evidenced by higher foreign investment as well as cont
inued vibrancy of overseas remittances and other services receipts. This helped
raise the countrys gross international reserves (GIR) to a record high of $34.4 b
illion as of end-January 2008. And with the weakening dollar, the peso emerged a
s one of Asias stronger currencies. These developments were matched by positive i
ndicators pointing to a stronger Philippine banking sector. Bank deposits were u
p while bank capitalization exceeded both domestic and international standards.
Bank lending to most sectors of the economy expanded last year and bank asset qu
ality improved with NPL ratio closer to its single digit, pre-crisis level. Anot
her positive development on the domestic front was the solid gains in the Nation
al Governments fiscal consolidation program. Revenue collections improved while d
eficit and debt levels dropped. Indeed, by many performance measures, 2007 was a
most auspicious year for the Philippine economy. Outlook and Challenges Looking
forward, can we sustain this positive momentum? What do we see in 2008 and beyo
nd? Well, we expect economic growth to continue, driven by a broad-based expansi
on led by the services sector as well as robust growth in aggregate demand. In f

act, as reckoned by the Development Budget Coordination Committee (DBCC), GDP li
kely to grow at a healthy pace of about 6.3-7.0 percent in 2008. On the monetary
front, emerging BSP forecasts continue to indicate a manageable inflation path.
We expect to see average inflation settling within the 2008 target of 4 percent
, plus or minus one percentage point. This target is supported by slowing growth
in domestic liquidity, a strong peso, moderate risks to agricultural production
, and well-anchored inflation expectations. For 2009, we see inflation within th
e 3.5 percent plus or minus one percent point range. Likewise, the external paym
ents position is expected to remain a source of strength for the economy over th
e near term. In particular, dollar inflows from remittances and foreign investme
nts are expected to remain strong. This should enable us to further build up our
cushion of international reserves. We also expect to see a stronger banking sys
tem in 2008 as banks further increase their capitalization and improve their abi
lity to anticipate and manage risks. Ladies and gentlemen of EJAP, this general
outlook is dependent of course on how we manage the challenges that we face. The
first is slower world economic growth. This emanates from expectations of subdu
ed growth in the US due to difficulties in the mortgage market and weaker consum
ption spending stemming from high energy prices and falling house prices. For th
e Philippines, this could mean weaker exports and lower remittance receipts. How
ever, we expect that sustained strong domestic demand and increased investments
will help temper the impact of the global slowdown. The second is volatile and h
igh global prices of oil and other commodities. If these commodity prices remain
high for a protracted period of time, it could threaten our inflation outlook.
The third is the global financial turbulence. Although the global financial mark
ets appear to have stabilized, we have yet to see the full impact of the US subp
rime mortgage crisis. Its impact on the Philippines has been limited; however, a
n economic slowdown in a major trading partner such as the US could adversely af
fect our export sector, while movements in interest rates could generate risk av
ersion against emerging markets including the Philippines. So far, there has bee
n limited impact on the Philippines but we need to keep watch of these developme
nts. The fourth is plentiful domestic liquidity from sustained strong foreign ex
change inflows. While liquidity growth has slowed down as a result of the Bangko
Sentrals efforts to siphon off excess funds from the market, emerging trends in
monetary aggregates still need to be checked, in line with expectations of susta
ined foreign exchange inflows. Policy Directions These are serious challenges th
at we face: the first three are beyond the control of domestic policy while the
last can be influenced by both monetary and fiscal policies. Nevertheless, we be
lieve that, ultimately, they are manageable. On the part of the Bangko Sentral o
ur policies will be focused on the following: A. Monetary policy will remain foc
used on managing the risks to inflation such as the likelihood of second-round e
ffects and closely monitoring developments in liquidity conditions. B. On the ex
ternal sector, our policies will be geared toward: ensuring sustainability of th
e countrys external debt; maintaining a market-determined exchange rate with scop
e for occasional official action in cases of sharp movements in the peso; mainta
ining a comfortable level of reserves; and improving the foreign exchange enviro
nment further through forex deregulation. C. Banking policy, on the other hand,
will continue to focus on three main objectives: promoting a stronger and more s
table financial system; developing the domestic capital market to make it more s
upportive of investments growth; and providing easier access to funds by small a
nd medium-sized businesses as well as micro enterprises. In addition, the Bangko
Sentral will continue to foster an environment that will facilitate further dis
posal of banks non-performing assets. Other key financial reforms will be focused
on aligning prudential regulation of the banking system with international stan
dards and best practices, enhancing our payments system, as well as strengthenin
g corporate governance standards and market discipline mechanisms. Meanwhile, mi
crofinance shall continue to be the BSPs program for poverty alleviation, with co
llateral-free loans providing the entrepreneurial poor (e-poor) with much needed
capital to start a micro enterprise. The BSP will also continue to push for the
passage of key legislative bills to accelerate the development of the local cap
ital market and further strengthen the regulatory authority. In particular, we s

hall push for the implementation of a centralized credit information bureau to i
mprove the quality of financial information to investors, expand private sector
access to credit, minimize exposure to risks of financial intermediaries, and lo
wer cost of borrowing. We will likewise work actively with other government agen
cies and the private sector for the completion of critical market infrastructure
to enhance system integrity and overall market confidence. At the same time, we
will intensify our economic and financial education program so that Filipinos c
an participate in, and benefit from, our economic gains. In this advocacy, I ear
nestly ask for your support. Other Filipinos can participate in opportunities th
at economic development brings if such are brought to their attention and they ar
e made to understand its potential. This is the reason why we have been conducti
ng nationwide lectures on investment options for Overseas Filipinos and their de
pendents. And starting June this year, 11 million public elementary students wil
l be taught lessons on money management to help them develop the habit of saving
and investing. With this, I hope we can nurture a new generation of financially
literate Filipinos. Conclusion Ladies and gentlemen, let me close this message
by saying that the Philippine economy is likely to weather the challenges it fac
es, both domestic and external. I believe that with the fundamental strength of
the economy backed by the governments firm commitment to continue to pursue neede
d reforms, there exists a sound basis for a sustained non-inflationary growth in
the country. Finally, I congratulate EJAP for its continuing program to profess
ionalize business reporting in our country. I hope your efforts to develop and u
pgrade the skills of your members will be successful. In this regard, you can co
unt on us at the Bangko Sentral for support. Doris, in her introduction of me, r
eferred to my Chinese zodiac signso let me now complete that by wishing you all a
Happy New year of the Earth Rat!.... It is my understanding that the 2008 Rat b
egins a new 12-year cycleas such it promises change, new beginnings and new attit
udes.... On behalf of the Bangko Sentral, therefore, I wish all the new officers
of EJAP, as you face a new year, a fruitful and successful term. Mabuhay ang EJAP
! Thank you all and good night.
Breakthroughs and Break Through

Venue: New World Renaissance Hotel
Occasion: Bank Marketing Summit & Induction of BMAP of Officers
The officers and members of the Bank Marketing Association of the Philippines (B
MAP), colleagues in the banking industry, special guests. Good morning! I am ple
ased that BMAP has chosen a challenging and exciting theme for this years Bank Ma
rketing Summit: Breakthroughs & Break Through. To me, this signifies a strong co
mmitment to raise the bar of service to bank clients; to set the pace for respon
sive and responsiblemarketing; to be more innovative and efficient in the way you
communicate.and LISTENto your clients; and to incorporate social responsibility ob
jectives in your marketing programs. You must realize that I have high expectati
ons insofar as the BMAP is concerned. I will explain why. Ladies and gentlemen o
f the BMAP. 2007 represents a significant turning point for our economy, with ou
r economic fundamentals described as the best in two decades. In fact, our econo
my as measured by GDP is the best we had in three decades! Inflation has been ma
intained at a low level; so have interest rates. At the same time, the banking s
ector had one of its best years in 2007. That we achieved this in the face of ma
ny challenges including record high oil pricesmakes this economic breakthrough tru
ly exceptional. Of course this did not happen overnight. I will not go into deta
ils because as responsible bankers I am sure you keep abreast of economic developm
ents. I will therefore focus on the breakthroughs we have achieved in the bankin
g sector. The Bangko Sentral in close coordination with banks and other institut
ions continued to work on key reforms to ensure adherence to the tenets of good
governance for fairness, accountability and transparency; we continued to align
our practices with global standards, including international accounting and fina
ncial reporting; we started implementing Basel II prescriptions for risk-based c
apitalization; and we continued to expand the reach of our banking system to mak
e it accessible and meaningful to the unbanked. The Bangko Sentral has also rela
xed the rules governing derivatives activities of banks. The aim is to provide a
framework where banks and trust entities could expand opportunities for financi
al risk management and investment diversification through prudent use of derivat
ives. This is consistent with the BSPs continuing thrust to give banks greater fl
exibility to respond to changing market opportunities and allow them to take ris
ks so long as they demonstrate the ability to manage and price for those risks.
As members of a key organization in the banking community, your work as marketin
g professionals.as front liners. is vital to the continuity of our financial refor
m agenda. It is important to remember this. For even as we achieved a significan
t breakthrough in our economy, with Moodys validating this with an upgrade in our
outlook from stable to positive, there will always be challenges we have to dea
l with. The global economy for instance continues to be adversely affected by th
e lingering effects of the sub-prime mortgage crisis and an economic slowdown in
the US, the worlds biggest economy. This year, therefore, we expect BMAP to be m
ore deeply involved in building on these reforms to further enhance the risk man
agement process, corporate governance, disclosure standards, and capital adequac
y. One of our continuing priorities is to broaden access of SMEs and the microfi
nance sector to credit. BSPs recent reform initiatives toward this end include li
beralized branching; expansion of FCDU and trust license to include qualified ru
ral banks; and the re-opening of quasi-banking license. We also continue to work
on a sound market infrastructure to ensure secure and timely completion of tran
sactions, thereby minimizing systemic risk and enhancing the integrity of financ
ial transactions. This is being implemented through the promotion of progressive
policies on e-commerce and payments system innovation. You can expect that our
policy thrusts will remain geared toward acceptable risk management practices th
at enable financial industry participants to better assess and manage risks with
out unduly hampering the ability to innovate. The BSP will also continue to take
a proactive role in accelerating development of the domestic capital market. Wh
ile we have made significant strides in speeding up the reform process, there is
still a lot of work to do. The biggest challenge right now is to make the domes
tic capital market a truly potent alternative source of funding and outlet for i
nvestments for corporates and other entities. The synergy between the banking sy
stem and a vibrant capital market should create much more opportunities for serv
ice and product innovation. Another crucial challenge that we face, and for whic
h I earnestly request your support, is to help ensure that we improve our econom
y by actually promoting and extending credit! This is the way, I believe, that t
he PROBLEM of PLENTY -- strong dollar inflows, for instance -- which you have ti
me and again heard me say. would no longer be a problem of plenty, but be a POT o
f PLENTY for the MANY. In other words, ladies and gentlemen of the BMAP, there i
s so much going on in the banking sector and you are in a position to help your
respective banks and our economy benefit from it. Nevertheless, I must remind yo
u that even as you get involved in the sometimes complex details of these reform
s. you must not forget your customers. I mean, the basic requirements of your cus
tomers. I remember that I have asked BMAP before to take the lead in informing t
heir ATM customers of their service fees. Sure, there has been compliance, but I
wish there would be more active and visible compliance. My other request is for
BMAP to initiate the posting of the contact details of their high level officer
s who can receive customer feedback that are often overlooked at the branch leve
l. I hope to see more bank premises with this simple guide. As it is, the Bangko
Sentral continues to receive complaints about bank services. This tells us that
some of your customers are not getting the attention they need and they do not
know the bank officers they can call or e-mail. Again, this is a challenge that I
am sure BMAP can manage quite effectively. Finally, I invite all of you to parti
cipate actively in our financial education program. Our financial education prog
ram targets our key stakeholders, including overseas Filipinos and their depende
nts, students, and the general public. I know that BMAP officers have been meeti
ng with our Corporate Affairs Office on how they can support this important advo
cacy. In particular, a joint program of the Bangko Sentral and the Department of
Education calls for the incorporation of lessons in saving and money management
for all elementary students from Grade I to Grade VI starting this June, for sc
hool year 2008-2009. I call on all of you, therefore, to help make this a succes
s. You can do this by helping print the materials we have developed to ensure it
s widespread dissemination. You can also help by developing parallel campaigns t
hat will develop the habit of saving and investing. For your information, we hav
e about 14 million students in the elementary levels, 12.8 million of whom are i
n public schools. This is a big and solid critical mass! This also represents a
big base of potential customers for your banks. Equally important, if we are suc
cessful, we shall be on the right path to nurturing a new generation of Filipino
s who are adept in managing their own resources and in strengthening the countrys
financial system. Let us cooperate therefore in implementing this breakthrough
program. Indeed, it should be another busy year for all of us. I therefore call
on the officers and members of BMAP to assist the Bangko Sentral in ensuring the
successful implementation of these reforms and advocacies. We will again count
on your support and commitment to these programs. Together, let us forge an even
stronger partnership as we continue to foster stability in the financial system
and secure more sustainable and higher growth path for our economy. Finally, I
thank your outgoing officers led by Bobby Banaag -- for a job well done and cong
ratulate the new set of BMAP officers headed by Mike Villareal -- on the success
ive breakthroughs they will set during their term. Mabuhay ang BMAP! Mabuhay ang
Pilipinas! Maraming salamat sa inyong lahat!
Moving the Economy Forward to a Higher Growth Path

Venue: Fort San Antonio Abad, BSP Complex, Manila
Occasion: Bankers Reception
Honorable Justices of the Supreme Court, Honorable Members of the Philippine Con
gress, Members of the Cabinet, leaders of the Philippine banking sector, represe
ntatives of our partner organizations, fellow workers in government, special gue
sts.good evening. On behalf of the Members of the Monetary Board, I welcome all o
f you to our traditional Annual Reception for the Banking Community. Ladies and
gentlemen. As you have noticed, while we hold this event for the banking communi
ty, we do invite representatives from other sectors. This is in recognition of t
he important role the banking industry and these sectors play in moving our econ
omy forward. While we decide and act independently of each other, at the end of
the day,.our policies, programs, and activities are bound to affect the others. I
n other words, no one acts in a vacuum; we are interrelated. It is in this spiri
t that we bring you together within the storied and historic walls of our Fort S
an Antonio Abad. And now, let me give you a brief overview of how our economy pe
rformed in 2007, our common report card in other words and how our future is shap
ing up, 2008 in particular. I am pleased to report that 2007 was indeed a remark
able year for the Philippine economy, as it showed its resilience and ability to
sustain its growth momentum, in the face of severe volatilities in global finan
cial markets and record world oil prices. Our economy, as measured by GDP, turne
d in its best performance in 30 years by expanding at a faster-than-expected rat
e of 7.1 percent in the first three quarters last year. There are indications th
at this strong performance was carried through the fourth quarter last year, bas
ed on preliminary reports on agricultural output as well as the services sector
which includes telecommunications and tourism. Noteworthy is the fact that we ac
hieved in 2007.the ideal convergence of high economic growth with low inflation,
which at 2.8% is our lowest in 20 years. In turn, low inflation kept interest rat
es on a downtrend, led by the bellwether 91-day T-Bill rate which averaged 3.4%
in 2007, the lowest level ever. For our business sector, including banks, this g
enerally meant lower cost of doing business. As an industry, our banks continued
to gain strength, achieving faster growth in terms of resources, capitalization
, and profitability in 2007. At the same time, our external position continued t
o be strong, with our gross international reserves at end December registering a
n all-time high of $33.7 billion, while our Balance of Payments for the first el
even months of 2007 a surplus of $7.8 billion, also a record high level. As such
, the peso ended stronger versus the weakened US dollar in 2007, claiming once a
gain the distinction as one of Asias best performing currency. This effectively m
inimized the impact of record-high oil prices on our economy and generated billi
ons of pesos in savings for the government in terms of debt service. We know tha
t the 18.8% appreciation of the peso against the dollar in 2007 adversely affect
ed many exporters and overseas Filipinos. What I can say is that the Bangko Sent
ral and other agencies of government are addressing this concern, as we do recog
nize the vital contributions to the economy of these two important sectors. In t
he financial sector, our reform efforts in 2007 remained directed towards buildi
ng a resilient banking system and promoting a vibrant domestic capital market. O
n other key fronts, the BSP continued to adopt measures to further broaden acces
s of SMEs and the microfinance sector. And in support of the full development of
the domestic capital market, we have taken an active role in creating a sound m
arket infrastructure that will enhance system integrity and promote overall mark
et confidence. In retrospect, our much-improved economic conditions are the resu
lt of significant structural and policy reforms implemented in recent years by t
he institutions represented here tonight. Now, after hearing our good macroecono
mic and banking performance, you may be thinking,. what does 2008 hold in store f
or the banking system, for the economy, for each of us? What is the forecast? Cl
ear? Sunny? Partly sunny? Partly cloudy? What do you think? I think, sunny with p
atches of thunderstorms. Why do I say this? Well, with the reform agenda - which
we crafted over the last three, four years- in full swing and our macroeconomic
fundamentals at their strongest in 2 decades, I believe that we are now better e
quipped to handle disturbances than we were, say, ten, even five years ago. And
as we continue on the reform path, I am confident we can look to sunny skies but
that is not to say that it will always be sunny for I see patches of clouds nearb
y. I see potential financial disturbances from the yet unfolding subprime mortga
ge problem in the US, the now-growing consensus for a deeper-than-first-expected
slowdown in the US, as well as the elevated and more volatile oil and commodity
prices. These risks, although essentially out of our control, are real and coul
d threaten our outlook. We therefore need to build on what we have so far achiev
ed. We will continue to sharpen our tools for implementing sound monetary policy
. We will also continue to reinforce sound structural reforms in the banking sys
tem to ensure its overall safety and efficiency as well as its adaptability and
inclusiveness, as evidenced by our substantial strides in propagating sustainabl
e microfinance in increasingly innovative forms. Moreover, with the infrastructu
re and instruments of the domestic capital market now mostly in place, our chall
enge is to make the capital market a truly potent alternative source of funding
and investments for domestic industry. We are already seeing growing evidence of
this. And in support of the financial reform agenda, we will continue to cooper
ate with institutions concerned on the passage of key legislations such as the a
mendment of the BSP Charter, the PERA Bill, and the CISA. I believe we all agree
that the creation of a comprehensive and reliable credit information system is
key to unlocking credit flows at more affordable rates that will benefit the mic
ro, small and medium enterprises that dominate our economy and employ most of ou
r people. One crucial challenge that we face, and for which I earnestly request
your support, is to help ensure that we improve the economys absorptive capacity
--- either through improving access to credit, by providing better risk manageme
nt products and tools that would allow for project financing to flourishand, ladi
es and gentlemen. by actually extending credit! This is the way, I believe, that
the PROBLEM of PLENTY, which you have time and again heard me say, would no long
er be a problem of plenty, but be a POT of PLENTY for the MANY. Indeed, our resp
onsibility to the community extends beyond ensuring that the macroeconomy is sta
ble, and that the banking community is sound. In this context, we believe that p
art of our role is to enhance financial literacy and education as well. Hence, w
e have partners and collaborators beyond the circle of banks and financial insti
tutions. Our financial education program targets our key stakeholders, including
overseas Filipinos and their dependents as well as students, starting with our
Grade I pupils. In this regard, we are inviting our banks and other institutions
to join our financial education program by reproducing the materials we have de
veloped to ensure its widespread dissemination. For your information, the ground
breaking joint program of the Bangko Sentral and the Department of Education cal
ls for the incorporation of lessons in saving and money management for all eleme
ntary students from Grade I to Grade VI starting this June, for schoolyear 20082009. I call on all of you, therefore, to help make this a success. We believe t
hat through this program, we shall be on the right path to nurturing a new gener
ation of Filipinos who are adept in managing their personal. as well as their cou
ntys finances. Ladies and gentlemen, these reforms and initiatives will continuous
ly propel our economy forward to ever higher growth paths. With your strong supp
ort and cooperation, we can continue to fortify the economy, making it more resi
lient to ride out unpredictable winds of change and able to deliver another produ
ctive year. Together, let us continue to lay a solid and strong foundation for o
ur countrys future. Thank you all. And now, let us offer a toast to a better and
strong year for our economy and the Philippines as a whole. Mabuhay!
BSP Expectations For Business and the Economy

Venue: EDSA Shangri-La
Occasion: Breakfast Meeting for the Tuesday Club
I would like to greet everyone at this breakfast meeting a happy, though perhaps
a more challenging, new year! As we move over to this new year, let me take a g
eneral stock of our positive achievements in the past year, which ended with the
economy experiencing one of the best macroeconomic fundamentals in two decades.
We achieved the ideal convergence of high growth and low inflation: GDP growth
rate of 7.1% in the first three quarters last year, the highest in 30 years, whi
le inflation rate remained at low levels (3.2% as of November 2007), comparable
to those in developed economies. The Philippine peso continued to rise against t
he US dollar, thereby shielding the economy from the inflationary impact of reco
rd high oil prices and generating significant savings for government in terms of
debt service. We also had a healthy external position with GIR at an unpreceden
ted high level of $33.7 billion as of December 2007, as well as the highest reco
rded BOP surplus at $7.8 billion for January to November 2007. Interest rates re
mained on a generally downward trend, with the 91-day T-Bill full-year average r
ate at its lowest ever. Equally important, our banking system continued to be so
und with record high resources and deposits. What do we foresee for 2008? We ant
icipate some headwinds, but they are likely to be manageable. Given the current
relative strength of our economy, the primary risks emanate from external develo
pments including 1) the ongoing sub-prime related financial market turbulence; 2
) the continued surge in foreign capital inflows; and 3), the elevated prices of
world crude oil and other non-oil commodities. Let me quickly go through each o
f these. The global financial markets appear to have stabilized from their gyrat
ions in the third quarter last year. Still, the full impact of the US subprime m
ortgage market woes on the real sector has yet to be felt. This could affect us
in two ways: 1) on the trade side: as the US economy, which still accounts for a
bout 18 percent of our total foreign trade, slows down, and; 2) on movements in
economic prices, e.g., exchange and interest rates: as the response of the US an
d other major central banks to the expected global economic slowdown unfolds. Th
e latter could result in further risk aversion against emerging markets, includi
ng the Philippines. The second challenge emanates from continued strong capital
inflows to the country as a result of an important pull factor: the Philippines f
avorable macroeconomic performance. You may have heard me refer to this as the p
roblem of plenty. I would like to emphasize that while these inflows provide an
opportunity to boost long-term growth, they also pose substantial short-term mac
roeconomic challenges. It is the lag between the inflow of foreign exchange and
corresponding domestic liquidity infusion and its eventual utilization that is c
ritical. How that lag is managed could spell the difference between an inflation
ary situation and a manageable one. A further challenge is finding the appropria
te mix of measures so this liquidity is channeled to more productive investments
, particularly into infrastructure. Lastly, the high and volatile international
prices of oil, particularly if they remain high for a protracted period of time,
continue to be a challenge. Given the headwinds in the global arena, the challe
nge for policymakers is to craft sound macroeconomic policies that will further
strengthen the domestic economy. On the part of the BSP, our policy thrusts in 2
008 are to maintain a stable macroeconomic environment that is supportive of a g
rowing economy, and to build a more resilient financial system that is flexible
in the face of growing global competition and innovation. Managing risks to infl
ation and inflation expectations remains a key policy priority of the BSP. On th
e external front, our policies will be geared toward: (1) ensuring sustainabilit
y of the countrys external debt; (2) maintaining an essentially market-determined
exchange rate with scope for occasional official action to smoothen sharp movem
ents in the rate; (3) maintaining a comfortable level of reserves; and (4) furth
er improving the foreign exchange environment through FX deregulation. Reforms i
n the financial sector will be geared toward maintaining a strong banking system
and a vibrant capital market. The BSP remains committed to strengthening the ba
nking system through continued structural reforms and speedier disposition of no
n-performing assets. The asset clean-up of banks should help spur credit and inv
estments, and contribute in providing the basis for more sustainable economic ac
tivity in the medium term. To further develop the domestic capital market, the B
SP will continue to work actively with other government agencies and the private
sector for the completion of critical market infrastructure to enhance system i
ntegrity and overall market confidence. We will continue to push for the passage
of key legislations intended to accelerate the development of the domestic capi
tal market. In particular, we shall push for the implementation of a centralized
credit information bureau to improve the availability and the quality of financ
ial information to investors, expand private sector access to credit, and minimi
ze exposure to risks of financial intermediaries. On the basis of these policy d
irections, and looking ahead, the outlook for the monetary, external and banking
sectors continues to be favorable. Average inflation fell below the target of 4
-5 percent in 2007. It is expected to settle within the target in 2008 of 4 perc
ent 1 percentage point. The external payments position is expected to remain a s
ource of strength for the economy over the near term. Dollar inflows from remitt
ances and foreign investments are expected to remain robust and will continue to
provide support for the peso. This should enable us to further build up our cus
hion of international reserves. On the banking system, we expect to see a furthe
r expansion of bank assets and capitalization, as well as a further improvement
in bank asset quality. These are the broad strokes of the economic picture of th
e year just past and for 2008. I am now ready for a discussion of specific quest
ions and issues of interest to you.
The Bangko Sentral ng Pilipinas in 2008 - One Dynamic Team (New Years Message to
BSPers)
Venue: BSP Complex, Malate, Manila
Occasion: BSP Flag Raising Ceremony
Magandang umaga at maligayang bagong taon sa inyong lahat! Fellow central banker
s. I am very pleased that I am the first speaker this year for our traditional w
eekly flag-raising ceremony. Alam po ninyo, gusto ko pong magpasalamat muli sa i
nyong lahat.dahil talagang maganda ang naging resulta ng 2007 para sa atin sa Ban
gko Sentral ng Pilipinas. We were able to keep inflation at low and stable rates
, our banking system is stronger, we have record high international reserves, re
cord high balance of payments surplus, and our peso is the best performing curre
ncy in Asia. For this, let us give ourselves a well-deserved round of applause!
If you recall, the Monetary Board improved our salary scheme and incentives prog
ram in 2007 in recognition of our good performance. Kaya ba nating ulitin ito?!!
! Kaya!!! I agree with you; especially if we resolve individually. and collective
lyto find even better ways of doing things in our respective sectors. While we ha
ve been performing well in terms of our mandate, you and I know there is always
room for improving our performance. It can be as simple as using recycled paper
for our draft reports, completing our assignments well ahead of time, conserving
water and electricity, finding more cost-effective ways of doing our work, sett
ing higher standards for the quality of work we do, and contributing to the over
all effort to transform the Bangko Sentral ng Pilipinas into a world-class monet
ary authority. Fellow BSPers. The months and years ahead hold a lot of challenge
s that demand new and better ways of doing things. Our operating environment con
tinues to evolve and change. Therefore, it is not feasible to remain static and
continue to depend on old systems and procedures. Thus, while we have become goo
d inflation targeters, we still continue to seek third party expert evaluation o
f the tools we use to craft and implement responsive monetary policies. The Mone
tary Stability Sector will also implement more streamlined cash management opera
tions system this year, among others. At the same time, we are reorganizing our
Supervision and Examination Sector to adopt to a rapidly changing environment an
d implement reforms that will make our banking system stronger, more efficient,
at par with international standards, and more responsive to the needs of our eco
nomy and our people. The Resource Management Sector, on the other hand, will ens
ure that BSPers are properly equipped with the appropriate skills and expertise
required by our institution. 2008 also marks our shift to a more meaningful appr
aisal system in accordance with our merit system for salary adjustments and prom
otions. Even the way we estimate and produce our currency requirements at the Se
curity Plant Complex is undergoing review to make it more efficient and responsi
ve to the needs of the economy. Indeed, change is happening around us. Now, more
than ever, we need to be open to change, to be flexible to be dynamic to achieve
the goals we have set under our Medium Term Development Program. Nevertheless, e
ven as we welcome change, we should, at all times, remain faithful to the five c
ore values of our institution, which are: patriotism, integrity, excellence, dyn
amism and solidarity. These core values should serve as our enduring and lasting
guides as we deal with the opportunities and challenges ahead of us. Ladies and
gentlemen of the Bangko Sentral ng Pilipinas. By tradition, this is the time of
year when we commit to do better through what we call. New Years resolution. As o
ur joint New Years resolution therefore, let us commit to be guided by our core v
alues, at all times, wherever we may be. Muli sa ngalan po ng ating Monetary Boa
rd at nang aking pamilya kasama na ang aking maybahay na si Elma at tatlong anak
, ako po ay nagpapasalamat sa inyong lahat.. at humihiling na sana ay maging masa
ya, malusog, masagana, at matagumpay ang 2008 para sa ating lahat, at sa ating m
ga kababayan! Mabuhay ang Bangko Sentral! Mabuhay ang Pilipinas!
Pushing Ahead Through Headwinds

Venue: NA
Occasion: Regular membership meeting of the Rotary Club of Manila
Distinguished officers and members of the Rotary Club of Manila led by your Pres
ident Benny Laguesma, my colleagues from the Bangko Sentral led by Monetary Boar
d Member Raul Boncan, friends from the media, ladies and gentlemen, good afterno
on. Thank you for this opportunity to address your group on your first Membershi
p Meeting in 2008. I know it is customary, having just moved into a new year, to
begin a speech like this by looking back at the year past and taking stock of t
he positive outcomes that we had achieved. But for todays remarks, I thought I wo
uld begin by considering instead the year ahead and anticipating the challenges
we face amidst the uncertainty in the global arena. I liken this beginning to ho
w one would probably wish to commence a round of golf on a course one has never
played before. (I hope you would pardon my reference to golf. But I know many he
re share my passion for the game.) Know your course...What hazards are around the
corner?...At midday, in which direction does the wind blow? etc, etc. In other w
ords, lets first consider the lay of the land ahead of us. Then, after a quick revi
ew of these challenges, which I see to be manageable, let me put forward reasons
why I believe the Philippine economy would be able to ride out the headwinds th
at threaten to confront us and the steps we have taken and intend to take toward
this end. Challenges Since the third quarter of last year, a good deal of atten
tion has been focused on the turmoil in the financial markets in the US and Euro
pe and the sudden plunge in credit market confidence triggered by the US sub-pri
me mortgage crisis. Since then portions of the underlying forces at work have be
en revealed -- the complex nature of derivatives used, the high degree of levera
ging on poor (or even absent) collateral, the underestimation of risk that had b
een prevalent in the financial markets and the surprisingly sizeable exposures o
f large financial institutions to some of the debt instruments and derivatives i
n question such as CDOs. Much, however, still needs to be uncovered for the gene
ral public to appreciate the full import of these recent events. What has been e
vident so far, however, is that this crisis has been more financial than macroec
onomic in character and effect. Let me illustrate. In the US, despite all the co
ncern with the subprime woes, the real GDP growth in 2007 looks to be 2.6%, the
same as in 2006. In Asia (ex India and China), the region is expected to grow at
5.9 % in 2007 compared to 5.7% in 2006. And in the Philippines, as you know, we
are expecting 2007 full year GDP growth to be around 7 percent, our highest rat
e in three decades. The financial impact of the crisis, on the other hand, has b
een increased volatilities in ALL the equity markets and spread widening ACROSS
credit markets. Nonetheless, more market analysts now believe that the risks are
tilted to an outcome in 2008, particularly in the US, wherein the financial mar
ket volatilities would begin to more noticeably filter through to the non-financ
ial portion and non-housing portion of the economy. As the real sector becomes a
ffected, this is an event that could prove to be critical to the Asian growth st
ory. The region has become less dependent on the US, but it is still not immune
to a US slowdown. Clearly, intra-Asian trade has grown, but most of the growth i
n intra-Asian trade has been an increase in trade with China and India, a portio
n of whose imports from the region are also re-exported to the US. The success o
f the US, and the other major economies, in avoiding a prolonged economic slowdo
wn therefore becomes of particular importance to Asia. The concern goes beyond m
erely whether the major economies succeed in containing the slowdown, but also t
he speed and manner in which this is accomplished whether this is done through m
arket prices or through structural reforms. Which instruments are chosen could,
in turn, impact whether there would be an orderly adjustment in capital flows an
d exchange rate movements as well as the behavior of asset and equity prices. As
you must be aware, the region, including the Philippines, has been grappling wi
th the impact on exchange and interest rates of the tipping of liquidity into ou
r region. In the Philippines, the BSP had to put in place our own policy package
(that includes the build up of reserves, prepayment of external debt and the li
beralization of the foreign exchange system) to contain the impact on the peso o
f the strong foreign exchange inflows into the country. A further challenge from
the global front is the elevated price of oil and other non-oil commodities. Se
veral market analysts share the belief that inflation this year would be higher
than in 2007, primarily because of volatilities in global commodity prices due t
o supply constraints. Impact on the Philippine Economy The unraveling of the imp
act of subprime on financial markets, the growing prospect for a slowdown in the
US and other major economies, the uncertainty of how monetary authorities will
react to arrest the economic slowdown, volatilities in oil and commodity prices.T
hese are just a few of the potential challenges that could determine the complex
ion of macroeconomic policies in the Philippines this year. The manner by which
we will calibrate our response to these challenges will define how much the econ
omy will grow, how much we will be able to limit inflation and up to what extent
we can maintain the stability of our financial markets. Are we up to these task
s? I certainly believe we are. For two reasons. First, while the challenges appe
ar staggering and mainly beyond our control, the Philippines is in the best macr
oeconomic shape it has been in two decades as a result of the significant struct
ural and policy reforms undertaken over the recent years, making it more resilie
nt in the face of global challenges. Inflation has been on a trend decline, with
average headline inflation for the first 11 months of 2007 at 2.7%, way below l
ast years 6.2% as well as the target of 4-5%. The external position is in substan
tial surplus of around $8.5 billion, more than double last years level, due mainl
y from the continued strength of the current account. The GIR, at an all-time hi
gh of $32.7 billion, remains adequate and within internationally accepted benchm
arks. The peso, supported by the strong external position, has been one of the t
op performing Asian currencies. The banking sector in the meantime continues to
improve as evidenced by near pre-crisis NPL and NPA ratios, double-digit growth
in assets and profitability, and capital adequacies way above the international
standards, even after we implemented Basel II in July last year. Economic Outloo
k Is the recent performance a short-term phenomenon? Is the countrys reduced vuln
erability a passing episode? I dont believe so. Our model on the Philippine busin
ess cycle shows that the downward phase of the countrys business cycle reached it
s turning point in the last quarter of 2006. Thus, we are now in the continuing
upward phase of the business cycle, as validated by the strong growth of the eco
nomy posted in the first three quarters of 2007. Moving forward and barring any
unforeseen risks, economic growth is expected to continue. This will be driven b
y the combined acceleration of the industry and services sectors on the producti
on side and consumption and investments, both private and government, on the exp
enditure side. Average inflation was below the target of 4-5 percent in 2007, is
projected to fall within the 4 percent 1 percentage point target for 2008 and w
ithin the 3.5 percent 1 percentage point target for 2009. This benign inflation
outlook would in turn allow us to maintain an environment of low interest rates.
The external payments position is seen to remain as a source of strength for th
e economy over the near term. Dollar inflows particularly from remittances and f
oreign investments are likely to remain robust. This should enable us to further
build up our cushion of international reserves, and continue to provide support
to the peso. We also envision a more resilient and profitable banking system as
banks improve their ability to anticipate and manage risks, perform their funct
ions of intermediating funds to the broadest set of users, and providing alterna
tive investment vehicles to savers. Policy Directions This brings me to the seco
nd reason why I am convinced we are up to the task Ladies and gentlemen, we are
focused on our reform agenda. The BSPs main policy thrusts in 2008 will involve n
urturing a resilient economy by ensuring that this is anchored on sound macroeco
nomic fundamentals and building a strong financial system that is flexible in th
e face of growing global integration and innovation. Managing risks to inflation
and inflation expectations will remain the key policy priority of the BSP. In t
his regard, the BSP will maintain an appropriately prudent monetary policy stanc
e supportive of non-inflationary growth. This will require relentless environmen
tal scanning, continuous surveillance of key macroeconomic variables and regular
sharpening of our inflation forecasting models. On the external front, our poli
cies will be geared toward: (1) ensuring sustainability of the countrys external
debt, (2) maintaining a market-determined exchange rate, with scope for occasion
al official action in cases of sharp movements in the peso, and (3) maintaining
a comfortable level of reserves as market opportunities will allow. Reforms in t
he financial sector will be aimed at maintaining a strong banking system and a v
ibrant capital market, with the support of other government agencies and the pri
vate sector. This should help spur credit and investments, and contribute in pro
viding the basis for a more sustainable economic activity in the medium term. I
am confident that when the National Government goes full swing into the implemen
tation of its Ready to Go infrastructure projects, the banks would be at the cente
r of that endeavor. We will also continue to push for the passage of key legisla
tions intended to develop a deep and efficient capital market, including the Cre
dit Information Systems Act. This will make credit more accessible to a broader
set of users and ensure a more efficient mobilization of resources. Ladies and g
entlemen, the biggest challenge before us is to sustain the countrys strong econo
mic performance. And we will be able to do this by continuing to focus on our re
form agenda, while at the same time ensuring that this agenda remains relevant i
n the face of the changing global landscape. We are aware that headwinds from th
e uncertainties in how the global financial market volatilities would unravel st
ill remain. To help contain these, the Monetary Board approved, just last month,
two important reform packages. First, the second phase of reforms in the foreig
n exchange regulatory framework, aimed at promoting greater integration with int
ernational capital markets and enhancing risk diversification in support of an e
xpanding economy with global linkages. The idea is to ensure that both corporate
s and individuals are given more latitude in accessing foreign exchange and expa
nding their portfolio of options. By making the FX environment more open, some o
f the pressure on the exchange rate could also be alleviated. The other set of r
eforms approved by the Board covers the amendments to BSP regulations governing
derivative activities of banks and trust entities, including the guidelines on r
isk management and sale and marketing of derivatives. The amendments seek to pro
vide a framework whereby banks could expand opportunities for financial risk man
agement and investment diversification through the prudent use of derivates. It
would also help promote growth in the domestic capital market by expanding the r
ange of available derivatives which a bank can originate, distribute or use, wit
hout need for prior BSP approval. Both these reform packages are intended to hel
p make the domestic market more able to quickly adapt to any further changes in
the global financial markets. Concluding Remarks In closing, our experience in t
he past year has demonstrated that sound monetary and fiscal policies, complemen
ted by key structural reforms, have a salutary effect on the economy. Today, the
Philippine economy stands on solid fundamentals that have been strengthened in
recent years. These will serve us well in withstanding the pockets of vulnerabili
ty coming from the global financial markets. The key challenge will be to lock in
the recent gains while steering the economy in riding out the current uncertain
ties, and then moving on to a higher and more sustainable growth path. The commi
tment to fiscal prudence and appropriate monetary policies and the intention to
tackle policy challenges boldly through purposeful reforms should ensure that th
is path is sustained. This we hope to eventually translate to a reduction in pov
erty and improvement in the living standards of our people. I began these remark
s by saying that a good strategy in playing a golf course for the first time is
to know the lay of the land. But information about it is not sufficient to ensure
that you win the game. To secure victory, you must play well. Nay, you must play
consistently and hopefully, better than others. All winners know that to have a
consistently good golf swing, there are two important things to remember 1. kee
p your eye on the ball, and, 2. follow through. Dont lose sight of your objective
and make sure you execute a good follow through to deliver a successful outcome
. Do this throughout the game and you could guaranty a victory (or at least a pl
easing outcome). 2006 was a good year, 2007 was an even better year. What do we
foresee in 2008? I predict that we will continue to push ahead, despite signific
ant headwinds. We have shored up an ample buffer in terms of our sound macro fun
damentals and stable banking system that we are now more resilient and able to m
eet challenges. In the last few minutes, I hope I have been able to show you our
roadmap for the new year and into the medium term. We hope to ride out this rou
te together with you, confident that with solid economic fundamentals, we will p
revail in our journey to a higher ground. Thank you and good day.
Sustaining the Countrys Economic Gains through Monetary Stability

Venue: Ballroom, Dusit Hotel Nikko
Occasion: ACI Phils-IHAP-Mart-TOAP Joint Gen. Assembly
I. Introduction Distinguished officers and members of The Financial Markets Asso
ciation (ACI Phils), Investment Houses Association of the Philippines (IHAP), Mo
ney Market Association of the Philippines (MART), and the Trust Officers Associa
tion of the Philippines (TOAP), Colleagues from the Bangko Sentral, friends from
media, ladies and gentlemen, good evening. I thank ACI, IHAP, MART and TOAP for
this invitation to speak at your joint general membership meeting on the topic S
ustaining the Countrys Economic Gains through Monetary Stability. Its an interesti
ng topic as it suggests movement, evokes a sense of continuous motion in the rig
ht direction. Indeed, the economy has chalked up impressive gains this year and
the Philippines is experiencing its most stable macroeconomic environment in a d
ecade. II. Current State of Economic Gains Let me begin by having a few cracks a
t describing the headway that has been made in consolidating macroeconomic gains
this year. The economy has been expanding quite briskly. In the second quarter
of 2007, GDP expanded by a faster-than-expected rate of 7.5 percent, outperformi
ng the 5.5 percent growth achieved in the same quarter in 2006 and bringing the
first semester 2007 growth to 7.3 percent. This strong growth has been achieved
against a generally benign inflation environment. The headline inflation rate wa
s 2.7 percent in September, bringing the average inflation rate for the first ni
ne months to 2.6 percent, lower compared to the 6.8 percent recorded during the
same period last year. Lower inflation meantime has allowed interest rates to de
cline. The average 91-day T-bill rate was at 3.3 percent in September, lower by
2 percentage points compared to its year-ago figure. The NPL ratio of U/KBs at 5
.18 percent (July 2007) has been in single-digit territory since June 2005 and i
s close to the pre-1997 crisis level of 4 percent. (For banks, the latest NPL ra
tio for July was at 5.6 percent.) Essentially, Id say, so far, so good. Which brin
gs to my mind Newtons First Law of Motion: Does anyone recall? Every object in a
state of uniform motion tends to remain in that state of motion unless an extern
al force is applied to it. This is often termed simply the "Law of Inertia". We
are all hopeful that our macro fundamentals will continue to be in the same stat
e That is, that our fundamentals would remain sound, with all the indicators poi
nting in the right direction, and the economy experiencing steady growth But, man
y of you have been in the market long enough a quick sweep of the room tells me I
am correct indeed, many of you have been around long enough to know that markets
are never really at inertia for very long periodsthere are always agents who are
constantly looking for opportunities, driven by what Adam Smith called animal sp
irits(although these days, the politically appropriate characterization for this i
s that there is always an incentive to do better for oneself.) In addition, there h
ave recently been events in the global arena which, as they continue to unfold,
pose risks to any steady and uniform pace of economic growth and decelerating in
flation which we may wish for or be envisioning Let me extend the analogy to Newt
ons second law of motion, by suggesting that these global events could be the for
ces (F), which could alter the velocity of the moving object. Recall that Newtons
second law states that F = ma, where m is mass, and Force F and acceleration a
are vectors that go in the same direction. By extension, we can say that any ext
ernal force that is applied to a moving object could alter the latters direction
to coincide with that of the force. In our analogy, this force could alter the p
ath of an economic variable, such as inflation. There are several of these recen
t global forces. Tonight, however, allow me briefly to talk only about two of th
ese: 1. the increase in global liquidity, and 2. the changing nature of financia
l risk. III. Increase in global liquidity Over the last few years, a significant
contributor to global growth has been the expansion in the real GDP of the Emer
ging Market Economies . The large surpluses generated by the phenomenal growth i
n emerging markets, particularly in Asia, have contributed to the rise in global
liquidity. In Asia alone, foreign reserves excluding gold have risen from just
over $680 billion at end 1997 to almost $3.4 trillion as of latest available 200
7 data. Add to this, the dramatic increase in both trade and financial integrati
on in the Asian region. Intra-regional trade in Asia has gone up from 43 percent
in 1990 to over 55 percent in 2005. Together, these have facilitated cross bord
er flows in the region. At the same time, halfway around the globe, the Fed (and
the other major economies) set out on an easing mode. This, coupled by greater
global financial integration caused the movement of capital across borders, rais
ing global liquidity. Recently, moves of major central banks to help stabilize t
he markets during the height of the subprime mortgage problem in the US, have al
so served to further increase global liquidity. These official moves seem to hav
e produced their intended effects by halting further sell-offs in the markets, w
hich subsequently showed a recovery. At the same time, we also know that, what I
sometimes refer to as liquidity upon liquidity or the rising wall of liquidity, m
ay eventually find its way again into emerging economies as investors search for
higher yields, causing the cycle to continue. Further, we need to watch out for
the scenario when this wall of liquidity would have risen to the point that it
begins to negatively impact on inflation in the US and other countries. How the
Fed and other major central banks would deal with that scenario; more precisely,
the speed and extent of any change in their monetary policy stances, would defi
nitely have an impact on liquidity and interest rates in the rest of the world.
A possible slowdown in the US would also affect global liquidity. On the one han
d, a slowdown could trigger a further round of easing from the Fed, which could
again raise liquidity. On the other hand, it could also cause a slump in demand
for goods from this part of the world, depressing current account surpluses here
. A study by the ADB, however, shows that the impact of a downturn or recession
in the US is likely to be modest and short-lived. This is expected to trim growt
h in developing Asia by 1-2 percentage points. Nevertheless, economic policy mak
ers have to closely monitor any potential impact of the financial turmoil on the
growth of the real economy. Given the Philippines improved macro fundamentals, t
he upshot of the dramatic increase in global liquidity for our country has been
a strong external position, which has allowed us to build up our international r
eserves to an all-time high of $30.7 billion as of end September and, consequent
ly prepay over US$3 billion in debt in 2006 and the first half of 2007. This has
also resulted in an appreciation of the peso, which in turn has helped to tempe
r inflation. The challenge brought about by strong foreign exchange inflows, how
ever, is the increase in domestic liquidity which, if unchecked, could undermine
the inflation process including inflation expectations of agents. Capital inflo
ws are often seen as a mixed blessing. Foreign direct investments provide an oppor
tunity to boost long-term growth and portfolio flows may allow a global diversif
ication of risk. Hot money flows, however, are prone to sudden reversals, especi
ally in the short-term when the changing conditions of perceived risk reversal c
ould outweigh the fundamentals of the recipient economy. Central banks of emergi
ng economies, including the BSP, should therefore find the appropriate mix of me
asures to maximize the benefits and minimize the costs brought by these capital
inflows. IV. Changing Nature of Financial Risk Let me now go to the second force I
wish to discuss. In this era of financial globalization, risks transcend nation
al borders. The international rules of the game are changing. Financial innovati
on, for instance, has created credit risk transfer instruments that allow banks
to offload credit risk without affecting their relationship with borrowers. Bank
s no longer have to keep in their books loans which they originated. These can n
ow be offloaded to final investors, depending on investors risk appetite. The com
plexity of some, if not many of these, new credit instruments, however, renders
the assessment of their riskiness rather complicated. Blurred risk pricing, enve
loped by complacency and topped by the need for greater and greater yield is the
perfect combination for the cycle to feed on itself. Clear examples are the fin
ancial products that evolved because of the growth of the subprime mortgage mark
et in the US. As the issues surrounding the subprime market unraveled, and risk
had to be repriced, aversion towards other higher-yielding and less transparent
issues/credit increased. It is important to realize that just because banks and
other financial agents are able to offload risk, doesnt mean that the overall ris
k in the market has diminished. The risk is just redistributed to those who are
willing, and hopefully, equally able to take on such risk. Market discipline bec
omes very important for the orderly unwind of not just a few of these structures
and to avoid widespread contagion to other markets. Effective risk management,
therefore, now requires a better understanding of risks by the borrower and lend
er, the recipient and investor, as well as the supervisor. V. BSPs Policy Respons
es These global forces necessitate action from central banks. This leads me to N
ewtons third law of motion, which states that For every action there is an equal a
nd opposite reaction. A. Monetary Policy For the Philippines, the first of the tw
o forces I mentioned, i.e., increased global liquidity, poses a risk to BSPs infl
ation target. If a force is threatening to alter the course of a variable under
the BSPs control, in this case, inflation, it is incumbent upon the BSP to act in
order to keep inflation in check and the publics inflation expectations well-anc
hored. Let me briefly trace our monetary policy action during the course of this
year, to see how we have responded to our assessment of the risk of global liqu
idity. The period December 2006 to May 2007 was marked by six consecutive months
of domestic liquidity growth of more than 20 percent y-o-y. Continued foreign e
xchange inflows from export receipts, foreign investments and OF remittances fan
ned the surge in domestic liquidity. Understanding that if unchecked domestic li
quidity growth could stoke inflation, the BSP implemented additional liquidity m
anagement tools in May this year. These included the expansion of the coverage o
f entities that could access our SDA window. Indicators show that these tools ar
e producing the desired effects as M3 growth has slowed down to below 20 percent
in the last three months, with the latest figure at 14.9 percent as of August.
To improve the transparency of our monetary tools, the BSP implemented, in July,
two complementary moves which effectively kept the monetary policy stance neutr
al. The tiering system on placements with the BSP was lifted and the BSPs key pol
icy interest rates were adjusted to 6.0 percent for the overnight borrowing or r
everse repurchase (RRP) rate and 8.0 percent for the overnight lending or repurc
hase (RP) rate. Just last week, the Monetary Board decided to reduce key policy
rates by 25 basis points effective October 5, 2007. With the risk coming from li
quidity moderating, benign inflation readings over the policy horizon provided r
oom for a reduction in policy rates. The continued appreciation of the peso, mea
nwhile, provides a buffer against rising global commodity prices, including food
and oil. The move can also be expected to help support domestic demand, increas
e lending to productive activities, and shield the economy from any potential sl
owdown in global output growth that could occur as a result of the correction in
the global financial markets. Earlier moves by the BSP were also geared toward
coping with the surges in capital inflows as well as easing the pressure on the
exchange rate. These included the liberalization of the foreign exchange regulat
ions to allow the markets greater access to foreign exchange for outward investm
ent and over-the-counter transactions. B. Financial Sector Reform With regards t
he second global force, that of the changes in the nature of financial risk, we
believe that our suite of banking and financial sector reforms would equip the b
anking system to better appreciate, monitor and mitigate risks. Among the most c
ritical of these, are: 1. The continued drive towards speedy asset clean-up; 2.
The implementation of the Basel II capital adequacy framework, with the steady e
nhancements from the standardized approach to the use of internal models; 3. The
adoption of international accounting standards; 4. the enhancement of corporate
governance structures, particularly in developing oversight capacity of the Boa
rd of Directors to promote proper risk management environment; 5. The enhancemen
t of the transparency of the system through improved disclosure requirements; 6.
The implementation of risk-based supervision and continuous capacity building.
We will also continue to support the development of the financial markets, inclu
ding the derivatives market, and we will be unwavering in our push for legislati
ve reforms, particularly the Credit Information System. An important lesson that
could be learned from recent crises, including the risk aversion that resulted
from the subprime mortgage fall out in the US, is that in order to minimize cont
agion, transparency is a key principle. When markets become frantic and fear dom
inates, the absence of transparency could foster a herd behavior and could consi
derably magnify the initial impact of the disturbance. VI. Conclusion: I have on
ly briefly touched upon two of the risks that challenge the sustainability of ou
r economic gains. To address these as well as the other challenges we face, the
BSPs policy thrusts will remain as follows: 1) To nurture a resilient economy by
ensuring this is anchored on sound macroeconomic fundamentals; in particular, we
will stay focused on achieving our inflation target while maintaining a policy
of flexible exchange rates; 2) To build a strong financial system that is flexib
le in the face of global competition and innovation; in particular, we will cont
inue to ensure that the banking system is adequately capitalized, well-governed,
profitable and efficiently managing its risks. Let me end by answering the ques
tion, can the countrys economic gains be sustained? The answer is YES. Our macroe
conomic fundamentals are sound. We have undertaken significant macroeconomic, fi
scal, banking and financial sector reforms which make the economy more resilient
to domestic and global uncertainties. We are mindful though that there are risk
s to this outlook. Thus, even as our assessments show that the risks are managea
ble and moderating, we continue to monitor these carefully. Going forward, the c
hallenge lies in continuing the reform process to sustain the growth momentum an
d improve the countrys competitiveness. I continue to look to all of you, our par
tners in this endeavor, for your support as we move this country forward. Thank
you very much.
The Constellation of Monetary Challenges and Responses

Venue: Makati Shangri-la
Occasion: Philippine Economic Briefing Speech
I. The Current Economic Constellation Both the domestic and international busine
ss communities affirm that the Philippines is now experiencing the most stable m
acroeconomic environment in a decade. The inflation rate has been low and stable
, with the outlook for inflation benign.. This has allowed monetary authorities t
o maintain interest rates at low and stable levels also. Our balance of payments
remains in surplus, bolstered by the current account, which is also in surplus,
in fact for four (4) consecutive years now. We have built up our international
reserves to a record-high of $30.3 billion, adequate to more than cover our shor
t-term liquidity requirements. Our strong external position enabled the BSP and
the NG to prepay foreign debts amounting to US$ 2.1 billion in 2006 and another
$0.9 billion in the first half of 2007. These have markedly improved our externa
l debt ratios. Included in these payments was the prepayment in full of the coun
trys outstanding obligations to the IMF in December 2006, a milestone in the Phil
ippines relationship with the IMF since it effectively ended the countrys use of I
MF resources after nearly four and a half decades. Our banking system is growing
at double digit rates in both asset size and deposit base, improving in profita
bility and continues to be capitalized well-above international standards. Inves
tor attention and responses to the current constellation of economic data have b
een significantly positive as evidenced by the following developments, particula
rly during the first half of the year: The stock market reached seven-year highs
The peso appreciated on account of strong export earnings and sustained oversea
s remittances. Our sovereign credit spreads compressed. Yields on domestic secur
ities fell to record lows. The questions, however, that may be in your minds now
are: Can these gains be sustained? Will the economic momentum be able to weathe
r the recent domestic and global market adjustments and volatilities? My quick a
nswer is yes. Our macroeconomic fundamentals are sound. Because our underlying f
undamentals are the result of the fiscal, macroeconomic, banking and financial s
ector reforms that have been undertaken vigorously and continue to be pursued, I
believe we are resilient and therefore less vulnerable to domestic and external
uncertainties. II. The Challenges to Monetary Policy Formulation On the part of
the BSP, we formulate monetary policy against an assessment of global and domes
tic economic issues and developments. We are mindful of the range of circumstanc
es in recent times which draws important challenges for Philippine monetary poli
cy. Plentiful global liquidity. The strong foreign exchange inflows into Asia. Th
e build-up of international reserves. The marked appreciation of regional curren
cies against the US dollar. Financial innovations. Yield-seeking activities of a
gents, and now more recently, a reassessment of risk appetite and repricing of r
isks. A possible further tightening of global credit conditions. The fragility o
f US growth. Volatile oil and commodity prices. All these challenge us as we end
eavor to provide a sound monetary policy environment, while advancing reforms th
at promote growth and respond to changes in global financial conditions. Our res
olve to follow good governance and international best practices in our reform ag
enda has provided us the discipline necessary to craft appropriate responses and
avoid steps that could distort rational market behavior. III. The Courses of Ac
tion Let me put forward three essentials in response to these challenges. One, w
e will remain focused on achieving our inflation target. Our monetary policy wil
l continue to be responsive and forward-looking. Our inflation targeting approac
h has proven to be effective as a monetary anchor and provides us with an array
of policy tools against turbulent economic and financial conditions. Two, we wil
l maintain our market-determined exchange rate policy, while complementing this

with a liberalization of our foreign exchange regulations to allow greater acces
s to foreign exchange for outward investments. We have already put out the first
wave of FX liberalization measures, a second wave will be implemented before the en
d of the year. Third, we will continue to undertake steps to strengthen the dome
stic financial system and help manage risks attendant to financial market develo
pments. In the banking sector, we are focused on good governance, asset-clean up
, capital build-up and industry consolidation. We want to see stronger, well-gov
erned, better-capitalized banks that would be effective channels of monetary pol
icy. In other words, stable financial institutions that perform the intermediati
on function between the sources and users of funds, fully cognizant of the risks
attendant to this role. As driven by the changing profit dynamics brought about
by our adoption of international accounting and the Basel II capital adequacy s
tandards, we are encouraging banks to look for ways to capture economies of scal
e. This would make them more capable of investing in the required technologies (
i.e., risk-based technologies) thereby making them more competitive in an increa
singly challenging local and global environment. These and other long-term struc
tural reforms will continue to support a favorable investment climate and enhanc
e productivity through investments in our growth sectors. IV. The Clever Respons
e from You We are aware that the core investor is always in search, not just of
higher and higher returns, but rather of quality returns. We are also aware that c
ountries with good governance frameworks, wide-ranging structural reforms and ap
propriate macroeconomic policies are always on such investors shortlist in their
search for high effective returns. I believe, the Philippines macroeconomic funda
mentals as well as the reforms that have been instituted in the banking sector m
ake us a clear choice for the core investor. The recent volatilities related to
the US subprime mortgage market are not likely to have a direct significant impa
ct on our banking system. Philippine banks exposure to the CDO market is a minusc
ule 0.2 percent of the total banking systems assets, none of which have subprime
mortgages as underlying assets. Apart from this, sufficient liquidity in the dom
estic financial system, as well as the increased tapping by corporates of long-t
erm domestic funding for their expansion needs, will help reduce the influence o
r effects of external developments on our markets. As always, should there be ne
ed for more liquidity in the system, the BSP will act to maintain order and stab
ility in the markets. As the country pursues further reforms that support growth
and reduce our vulnerabilities to external shocks, I ask investors to focus on
our fundamentals. I am confident that this pattern of strong macroeconomic funda
mentals will be sustained and favor a constellation of bullish opportunities and
expectations for the Philippine economy.
Signing of the MOA on the Interconnection of PDS Settlement Highway (PSH) and BS
P PhilPaSS
Venue: Meeting Room, Executive Business Center, Bangko Sentral ng Pilipinas
Occasion: Signing of the MOA on the Interconnection of PDS Settlement Highway (P
SH) and BSP PhilPaSS
Monetary Board Members; Mr. Vicente Castillo, CEO, Philippine Dealing System
dings Corp; Mr. Ramon Sy, President, Bankers Association of the Philippines;
sts from our partners in the banking sector; BSP officials; our friends from
media; ladies and gentlemen, good afternoon! Todays MOA signing is another
Hol
gue
the
landm
ark in our joint efforts to provide an integrated national payments and settleme
nts system. As partners in the financial reform agenda, we have all vigorously w
orked together to have the various pieces of the payments puzzle be put together
. In the process, we continue to work towards the establishment of the infrastru
cture that would allow the secure and timely completion of transactions to reduc
e systemic risk in the financial markets and thereby enhance the integrity of fi
nancial transactions. In the course of the last five years, the BSPs PhilPaSS has
been interconnected with the check and peso clearing results of the PCHC, the D
elivery vs. Payment of Government Securities transactions of the Bureau of the T
reasury, the ATM transactions of the Megalink member banks, and the Payment vs.
Payment (Foreign Exchange) transactions of the Philippine Dealing Exchange. To d
ate, all the commercial banks and 50% of the thrift and savings banks and some n
on-banks performing quasi-banking operations settle these various transactions i
n the PhilPaSS. With the signing of the Memorandum of Agreement for the Intercon
nection of the Philippine Dealing System Holdings Corporations Settlement Highway
with PhilPaSS, all the payment instructions for transactions that would be done
through the PDS Group could now be transmitted directly to the BSP-PhilPaSS and
effected in the DDAs of the counterparties who are PhilPaSS member banks or thr
ough the DDAs of the PhilPaSS member bank in their capacity as Settlement Banks
for non-PhilPaSS members. These transactions include foreign currency transactio
ns, interbank and interdealer repo transactions, and interbank fund transfers. I
t is also worthy to note that this interconnectivity comes at very minimal cost.
This is because the infrastructure is already in place; all that needed to be d
one was minimal reconfiguration of the existing systems to capture these additio
nal types of financial transactions. The Bangko Sentral ng Pilipinas, in fulfill
ing the third pillar of its mandate, will continue to work to improve the operat
ions of the PhilPaSS to better address all the concerns of our stakeholders. We
are well aware, however, that we cannot do this alone. We look forward to your c
ontinued support and partnership. Thank you!
Promoting the Safety and Efficiency of the Financial System: A Steady Commitment
to Reforms
Venue: EDSA Shangri-La Hotel, Mandaluyong City
Occasion: International Conference on the Safety and Efficiency of the Financial
System
UP College of Business Administration Dean Dr. Erlinda Echanis; banking and fina
nce educators from the University of Limoges, the University of Poitiers and the
University of Birmingham, University of the Philippines; Prime Minister Virata;
other distinguished members of the academe; colleagues from BSP, guests, ladies
and gentlemen: A pleasant morning to all of you! I am deeply honored to be invi
ted to this conference and keynote the discussion on the theme, The Safety and Ef
ficiency of the Financial System. But first, let me commend the conference organi
zers for putting together this event that touches on a broad spectrum of issues
on the financial system. I would also like to give credit to the team of univers
ity professors and researchers representing the four aforementioned universities
who will walk us through the various topics covered in this conference. In fact
, one of them happens to be a BSPer Ms. Thea Josefina Natalia Santos. I would al
so like to acknowledge the presence of the panel of experts led by Bankers Assoc
iation of the Philippines President Mr. Ramon Sy, UP Diliman Chancellor Dr. Sergi
o Cao and First Philippine Consultants, Inc. President Dr. Conchita Manabat all
of whom will join us later in the session. I am certain we can look forward to a
meaningful and engaging dialogue. The promotion of the safety and efficiency of
the financial system forms part of our mandate at the Bangko Sentral ng Pilipin
as to uphold the integrity and stability of banks and other financial institutio
ns that we supervise. Admittedly, this is no simple task, particularly since we
have to contend with the challenges brought about by globalization which has sig
nificantly altered the course of the international financial system. To respond
to this challenge, we have intensified our structural reform efforts to ensure t
hat banks and other financial institutions continue to operate safely and effici
ently. It is this steady commitment to financial reforms that has helped contrib
ute to a stable and resilient financial system. The banking system, in particula
r, has managed to perform creditably amidst a complex and rapidly changing envir
onment. Performance of the banking system In more concrete terms, key financial
indicators as of end-June 2007 reflected overall soundness of the banking system
. Bank resources sustained expansion, posting a growth of 8.6 percent to reach P
4.9 trillion from the end-June 2006 level of P4.5 trillion. Asset expansion was
underpinned by increased deposit mobilization and buildup in capital. Deposit li
abilities grew by 11.0 percent to P3.6 trillion. Capital accounts, on the other
hand, grew by 11.6 percent. The banking systems capitalization remained more than
adequate relative to international norms and the statutory floor. As of end-Dec
ember 2006, the systems capital adequacy ratio (CAR) stood at 16.9 percent on a s
olo basis and 18.1 percent on a consolidated basis. These ratios are well above
the BSPs 10 percent regulatory floor and the international benchmark of 8 percent
. The banking system has achieved notable gains in cleaning up their bad assets,
helping bring down the NPL ratio to 5.7 percent as of end-June 2007 from its pe
ak of around 18 percent at end-December 2001. For universal and commercial banks
, the NPL ratio was recorded at 5.2 percent. This is much closer to the pre-cris
is level of about 4.0 percent. With a healthier balance sheet, banks have also n
ow been able to post a steady uptick in loan growth. As of end-June 2007, total
loans, gross (exclusive of interbank loans) stood at P2.0 trillion (vs. P1.9 tri
llion at end-June 2006) or a growth of 5.1 percent. Profitability is also return
ing to the banking system. Net income after tax (NIAT) increased by an estimated
10.2 percent for the first six months of 2007 over the same period last year. A
nnualized return on equity (ROE) and annualized return on assets (ROA) also reco
vered to a respectable 11.1 percent and 1.3 percent, respectively. Notwithstandi
ng its resilience and efficiency, the Philippine banking system cannot afford to
be complacent and rely on these sound fundamentals alone if it is to continue t
o stand its ground amidst a challenging financial environment. It needs to susta
in the path to reforms. Reforms and policy directions In the pursuit of these ob
jectives, we will carry on with our work in the following areas: reinforce asset
cleanup through asset disposition under the amended SPV Law; improve the risk m
anagement process through effective enforcement of risk-based supervision; promo
te better governance and market discipline; and establish an appropriate capital
adequacy framework for banks. At this point, let me give you an overview of whe
re we are now in the reform process and what still remains to be done. Ongoing a
sset cleanup The asset cleanup process remains a priority. Here, we expect banks
to unload more bad assets under the amended SPV Law. The BSP has so far approve
d Certificates of Eligibility (COE) amounting to P31.7 billion SPV-related trans
actions under phase II of the amended SPV Law. Combined with the P97 billion wor
th of NPAs disposed under Phase I, this brings the total amount of NPAs sold to
roughly P128.7 billion. We expect this to reach up to P200 billion. Full Impleme
ntation of Risk-based Supervision We are also fostering a strengthened environme
nt through full implementation of consolidated and risk-based supervision. To ke
ep pace with the increasing sophistication and complexity of the financial envir
onment, we have directed our policy thrust toward acceptable risk management pra
ctices that enable financial industry participants to better assess and manage r
isks without unduly hampering the ability to innovate. In effect, we have assume
d a more liberal approach to bank supervision in the sense that we do not instru
ct banks to avoid risks that seem too high, which is the way traditional bank su
pervision is done. Instead, the approach being used is to favor assessment of th

e quality of risk management practices by giving banks greater flexibility to re
spond to changing opportunities and allowing them to take risks so long as they
demonstrate the ability to manage and price for those risks. This is being compl
emented with enhanced regulations on risk management as a way of developing appr
opriate standards suited to banks risk-taking activities. More recently, we have
issued general guidelines on supervision by risk, setting forth the broad expect
ations of the BSP with respect to the conduct of risk management by financial in
stitutions under its jurisdiction. We followed this up with the issuance of spec
ific guidelines on technology risk management, one of many envisaged to cover st
rategic areas, which is aimed at ensuring effective management of technology-rel
ated risk by financial institutions. We have since come up with specific guideli
nes on market risk management and liquidity risk management, which set forth BSPs
expectations on the management of these key risks by banks. Another related iss
uance of the BSP is the strengthening of the prompt corrective action (PCA) fram
ework. This was done to compel banks to take pre-emptive action against what may
constitute as emerging threats to their financial viability and thereby, ensure
that they continue to operate in a safe and sound manner. As part of the PCA fr
amework, banks are guided to align capital with actual risk exposures, implement
business improvement measures, and institute corporate governance reforms. Corp
orate Governance and Disclosure To complement the above initiatives, the BSP has
also been keen on promoting a culture of good corporate governance in the banki
ng system. We have correspondingly issued appropriate regulations anchored on ef
fective corporate directorship, sound audit and compliance systems, and enhanced
disclosure in financial reporting. Shift to IFRS/IAS A related initiative is ou
r move toward the adoption of prescribed International Financial Reporting Stand
ards (IFRS) and International Accounting Standards (IAS) in 2005. This was a maj
or step that we had to take in order to firmly establish meaningful and reliable
standards for financial reporting in the banking system. With the implementatio
n of the Philippine Financial Reporting Standards (PFRS) and the Philippine Acco
unting Standards (PAS), we expect to derive benefits in terms of improving the q
uality of financial information to be disclosed to market participants. This sho
uld contribute to enhanced risk disclosure and better market discipline in the b
anking system. Risk-based Capital Adequacy Framework In the time that we are bui
lding on these reform initiatives, we are simultaneously working on strengthenin
g the risk-based capital adequacy framework. Essentially, the shift to risk-base
d capital adequacy framework is much more than the application of mechanical ris
k weighting rules. The real challenge and benefit is actually greater in motivat
ing banks to more deeply understand their risk exposures, develop models to capt
ure the essence of those risks, and, consequently, fine-tune their business mode
ls to manage their risks to maximize value. We expect our domestic banks to rise
to this challenge, particularly now that we are implementing tougher standards
under Basel II. What makes the new Basel II-based framework even more challengin
g is that it will not only focus on the computation of the appropriate level of
capital given a certain level of exposure, but will also underscore the need for
more market disclosures by banks on their risk exposures and management practic
es. The required disclosures to the public of bank capital structure and risk ex
posures are aimed at promoting greater market discipline in line with the so-cal
led Pillar 3 of the Basel II recommendations. This is a challenge that our banks
must not underestimate. We are maintaining the prescribed minimum CAR of 10 per
cent. However, consistent with Basel II recommendations, we have begun implement
ing major methodological revisions to the calculation of minimum capital that un
iversal banks, commercial banks and their subsidiary banks and quasi-banks shoul
d hold against actual credit risk exposures. This significantly amends BSP Circu
lar No. 280 dated 29 March 2001 (for banks) and BSP Circular No. 400 dated 1 Sep
tember 2003 (for quasi-banks). Meanwhile, stand-alone thrift banks, rural banks
and quasi-banks will continue to be covered for now by existing regulations (i.e
., Circular Nos. 280 and 400) insofar as credit risk measurement is concerned. H
owever, we are studying enhancements to make the applicable capital regulations
more attuned to Basel II principles. Moreover, the guidelines for allocating min
imum capital to cover market risk (BSP Circular No. 360 dated 3 December 2002) h
ave also been amended to some extent, primarily to align specific market risk ch
arges on trading book assets with the revised credit risk exposure guidelines. A
completely new feature is the introduction of capital charge for operational ri
sk. This reflects recognition of the potentially significant costs emanating fro
m this critical risk area that actually encompasses all facets of bank operation
s. Complementary reform initiatives On other key fronts, we will also carry on w
ith our task of fostering the development of our financial markets through suppo
rt for various legislative measures, such as the enactment of the Credit Informa
tion System Act (CISA) that will be pivotal in helping establish a reliable and
comprehensive credit information system in the country. We will also continue to
foster the creation of stronger and globally competitive financial institutions
that can be an asset to the financial system. Lately, we have been witnessing a
growing trend toward mergers and consolidations among domestic banks and we exp
ect this to further hasten in the next two years. This is driven in part by the
increasing market competition as a result of liberalization and the adoption of
more stringent global standards. However, we are not discounting the role that s
maller specialist banks play in the evolving financial landscape. Definitely, we
need smaller specialist players that can more effectively cover important niche
markets that have their own unique needs. Under this scenario, the smaller spec
ialist players are able to complement the services offered by bigger banks. Simu
ltaneous with the ongoing process of reform in the banking system, the BSP has a
lso actively engaged in initiatives to promote a deep domestic capital market th
at will complement the presence of a resilient banking system by having an alter
native pillar to cushion against external shocks. We have pursued cooperative ef
forts to (1) improve the market infrastructure, particularly the establishment o
f the FIE to promote efficient and transparent price discovery of debt securitie
s, (2) enhance securities and payment settlement mechanism to achieve DVP/PVP, (
3) develop securities borrowing and lending and repo markets to deepen GS market
, (4) develop the domestic derivatives market especially for interest rate, curr
ency and credit products to support risk management, and redistribution of risk
to those best able to bear them. Final note I have just presented to you the ess
ential items in the comprehensive financial reform package. The BSP will continu
e to take a proactive role in the pursuit of genuine reforms that will reduce vu
lnerability of the financial system in these complex times and contribute to the
overall financial health of the country. As pillars in the academe, you help bu
ild the foundation for excellence and integrity. I challenge you to let this spi
rit transcend to the community outside your own sphere. The academic community c
an make significant contributions in this area, not just in training (which is o
f course very important) but also in research and mass advocacy to broaden finan
cial literacy. A key target for literacy are directors who serve in the boards o
f banks and other FIs. It is important that the culture of risk management be in
stitutionalized at embraced at the corporate governance level. This means going
beyond regulatory compliance and willingly embracing risk management principles
as a value-creating and value-preserving undertaking just as important as earnin
g profits. With your continuing support and that of the other reform-minded prof
essionals in the industry, we can collectively address the most fundamental chal
lenge of achieving and maintaining a strong domestic financial system that can e
ffectively respond to the demands of the times. Thank you!
Providing Critical Support to Disaster-Striken Areas Through the Calamity Assist

ance Program
Venue: Executive Business Center
Occasion: Signing ceremony among members of the Countryside Financial Institutio

ns Enhancement Program Task Force of the MOA to implement the Countryside Financ
ial Institutions-Calamity Assistance Program
Landbank President Gilda Pico, PDIC OIC Imelda Singzon, fellow bankers, co-worke
rs in the BSP, our friends from the media, special guests, good morning. What we
just signed this morning is the P200 million Countryside Financial Institutions
Calamity Assistance Program - a crucial support program for countryside rural b
anks, cooperative banks and thrift banks to help fund early recovery and reconst
ruction activities in calamity-stricken areas. This is a joint initiative of the
Countryside Financial Institutions Program Task Force which counts as members t
he Bangko Sentral ng Pilipinas, Philippine Deposit Insurance Corporation and the
Land Bank of the Philippines. As indicated in our guidelines, qualified banks a
re rural banks, thrift banks or coop banks in areas affected by typhoons, disast
ers and other natural calamities -- as declared by the Office of the President o
r the National Disaster Coordinating Council. Each qualified financial instituti
on can borrow a maximum amount of 90% of its affected existing portfolio or P 5m
illion, whichever is lower, provided the loan amount does not exceed the banks bo
rrowing capacity. The loan is payable in seven years with an interest rate of 9%
and post-dated checks as collateral. The loans may be availed of from Land Bank
branches within one year from the date of the declaration of the calamity by th
e NDCC or the Office of the President. Given our countrys history, this calamity
assistance program will be most helpful to countryside areas where many of our p
oor reside. Among others, the Philippines lies along the Western Pacific Basin which is the world s busiest typhoon belt. We are also part of the circum-Pacif
ic seismic belt ringed by major tectonic plates and volcanoes. In fact, a World
Bank study indicated that calamities which destroy crops, properties and infrast
ructure have been a major cause for poverty, especially in the countryside. We h
ope therefore that this calamity assistance program will empower countryside fin
ancial institutions to help fund early recovery and reconstruction in affected a
reas. The members of the Task Force appeal to all of you to support this program
. Together, let us get this program going! Marami pong salamat sa inyong lahat.
BSPs Tulong Barya Para sa Gawad Kalinga

Venue: NA
Occasion: NA
Magandang hapon po sa inyong lahat! After learning of the results of our Tulong b
arya para sa Gawad Kalinga program..and hearing the messages from the heads of our
partner associations, there is only one message I can say to all of you this af
ternoon: Marami pong salamat sa inyong lahat! And so, ladies and gentlemen, let
us acknowledge the inspiring, and contagious leadership of the BAIPHIL through i
ts President.BSPs Assistant Governor Dolly Yuvienco! It was BAIPHIL through Dolly
and Willy Talastas which got the other associations here with us this afternoon
to similarly support Gawad Kalinga. We also acknowledge MART, the Money Market A
ssociation of the Philippines led by Mr. Sergio Edeza. Let us also thank ACI Phi
ls. led by its President Blue Florescio. Pasalamatan din po natin ang Investment
House association of the Phils o IHAP headed by its President Francis Varela. N
andito rin po ang Bankers Association of the Philippines represented by Mr. Manu
el Batallones. Finally, let us thank the Fund Managers association of the Philip
pines led by Py Garcia. My understanding, is that this is just the first of seve
ral corporate social responsibility projects these organizations will support to
gether with us. Finally, I thank the men and women of the Bangko Sentral ng Pili
pinas for their innate generosity and natural inclination to help the less fortu
nate in our midst. Latest available figure indicates that roughly one-third of o
ur population or nearly 30 million Filipinos live in poverty. It is important th
erefore that we sustain our efforts to help them help themselves. I hope we do n
ot develop donor fatigue. Huwag po tayong magsawang tumulong sa ating kapwa. And
let us remember that when we continue to work together, we generate synergy tha
t allow us to accomplish so much more. This is the reason why we are happy to wo
rk with Gawad Kalinga, the Filipino organization that now serves as a model for
other countries to follow in improving lives for the homeless. Let us therefore
thank our GK representatives hereled by Mr. Boy Montelibano for leading the way i
n providing a beacon of hope for our homeless millions. Bigyan po natin ang gawa
d kalinga ng mainit na palakpakan! We thank GK for helping us produce maximum re
sults from our efforts to serve others who are in need. Let us also congratulate
all the sectors for generously giving their continuing support to Gawad Kalinga
. The next round will be sweat equity! Finally, I invite all of our donors to st
ay the course. Continue being a blessing to others. As Cardinal Rosales reminded
us this afternoon, Kahit maliit, bastat malimit, patungong langit. Congratulations
everyone for a job well done! Marami pong salamat sa inyong lahat. Mabuhay ang
gawad kalinga! Mabuhay ang pilipino!
Strengthening the Bonds of Partnership for Better Education

Occasion: Ceremonial Turn Over to DepEd of Computers under Tulong Barya Para Sa E
skwela and Teachers Guides on Saving & Money Management
Secretary Jesli Lapus, Monetary Board Members Juanita Amatong and Alfredo Antoni
o, Dr. Cielito Habito, our other partners from the Department of Education, fell
ow central bankers..good morning and welcome to our turnover ceremony with the De
partment of Education. I am very pleased that you all took the time to join us i
n this simple.but significant.event. A warm welcome to all! Today, we see, in very
concrete terms, the results of the successful partnership of the Department of
Education and the Bangko Sentral ng Pilipinas. First, we have the symbolic turno
ver of more than 500 brand new computers from Bangko Sentral to public elementar
y schools under the Department of Education. These computers were funded from th
e award-winnning Tulong Barya Para sa Eskwela.. the joint program of the DepEd and
the Bangko Sentral to promote efficient recirculation of our coins by encouragin
g coin donations for public elementary schools. If you recall, schoolchildren we
re at the forefront of the campaign, serving as agents of change in their homes
and communities in the proper appreciation of the value of coins. Over a six-mot
h period, Tulong Barya Para sa Eskwela generated benefits worth P14.88 million: P6
.65 million in cash donations from the public which have been turned over to Dep
Ed and P8.23 million in coin production savings for Bangko Sentral. In recogniti
on of the schoolchildrens role in the successful campaign, the members of our Mon
etary Board unanimously approved the donation of Bangko Sentrals entire savings o
f P8.23 million.through the purchase of computers for public elementary schools.

Ladies and gentlemen, let us thank our schoolchildren and our Monetary Board wit
h a round of applause! Based on our initial estimates, we would be able to donat
e 472 computer units from our savings. But because of the close cooperation of o
ur IT Department, the Corporate Affairs Office, and our Bids & Awards Committee.
we are getting a total of 512 brand new.and branded..computer sets. I understand t
hat this number may go up further to about 540 units if we generate additional s
avings. Let us therefore give these groups as well a well-deserved round of appla
use! But beyond the computers we are turning over to the Department of Education
today, I am so inspired by the change in the public mindset about the barya. Wh
en we started our coin recirculation program, our slogan simply declared: Ang Ba
rya Mahalaga, Huwag Bale-wala-in.gamitin. When we launched Tulong Barya Para sa Esk
wela our slogan changed to Ang Barya Mahalaga, Lalo na Kapag Pinagsama-sama. I beli
eve this national lesson in saving proved to our schoolchildren that every littl
e amount saved adds up. and can be the start of wealth creation. Such is the powe
r of barya! Tulong Barya therefore is a perfect introduction to the integration of
saving and money management into our public elementary school curriculum. I am
pleased to announce that today, we are turning over a total of 104 lesson plans
on saving, money management, and basic economics to be incorporated in three sub
jects: social studies, character education and work education. I understand less
ons on entrepreneurship are featured extensively in the teachers guides for the w
ork education subject. The development of these teachers guides, the first step i
n the integration process, was completed by DepEds lesson exemplar writers from L
uzon, Visayas and Mindanao last April here in Manila..under the collaborative wor
k of Economic Policy Reform and Advocacy or EPRA, Bangko Sentral and the DepEd.
To continue the integration process, the Monetary Board unanimously approved the
budget for the pilot-testing of the teachers guides. Today, try-out teachers wit
h their principals and supervisors are in Mandaluyong to complete a two-day laun
ching and orientation for pilot-testing in Luzon. Similar programs will be held
in the cities of Angeles, Cebu and Davao within the next two weeks. Overall, pil
ot-testing for saving, money management and basic economic concepts will be cond
ucted from August to September and will cover 9 regions, 15 provinces, 18 towns
and cities, 36 schools, 180 teachers and approximately 9,000 pupils. This mornin
g, therefore, we turn over to the Department of Education, 484 copies of teacher
s guides that will be used for the pilot-test phase. From October to November, we
shall be evaluating the results of our pilot lessons, make adjustments if neces
sary, and prepare for the final production of materials.in time for its full laun
ching in the schoolyear 2008-2009. Through this, we hope to raise a new generati
on of savers and financially literate Filipinos. Maraming salamat po. Mabuhay an
g Pilipinas!
Ensuring a Well-Trained Security Force

Occasion: Graduation Ceremony for Basic Security Training
The Members of the Monetary Board, distinguished lecturers and resource persons,
our graduates and their respective families, special guests, fellow central ban
kers, magandang umaga po sa inyong lahat! I have a question for our graduates: M
ahirap ba ang two-month training ninyo?......Parang hindi masyadong maliwanag at
sabay-sabay ang sagot ninyo. Again: Mahirap ba ang training ninyo? Mabuti naman
! Dapat talaga mahirap ang training ninyo. Afterall, your training should prepar
e you to provide the best security for the Bangko Sentral ng Pilipinas. As you a
re aware, the Bangko Sentral was created in accordance with the provisions of th
e 1987 Philippine Constitution to ensure stable prices and a sound banking syste
m. In other words, the Bangko Sentral helps provide a stable environment for our
economy to grow.and provide a better life for Filipinos. Therefore, if the premi
ses and human resources of the Bangko Sentral itself are not stable.safeand secure
, we will not able to serve our country in the best way we can. Your ability to
provide excellent security service to the Bangko Sentral, your fellow central ba
nkers, as well as our guests .. is.therefore.very important! The Basic Security Tra
ining Program you have just completed has been designed to make sure that our se
curity personnel have the appropriate physical, mental and psychological aptitud
e. This is a job meant only for those committed to do excellent security service.
100% of the time. You and I know the times call for vigilance against security r
isks. If you are committed only 99% of the time, a security lapse could happen w
ithin that 1% window when you lower your guard, so to speak. The Greek philosoph
er Aristotle once said that we are what we repeatedly do. Excellence, then, is no
t a singular act, but a habit. I hope therefore that you will focus on your assig
ned task at all times. Mayroon pa akong isang paalala: mahalaga rin na marunong
kayong kumi-latis ng tao at magbigay galang. It is not enough that you have phys
ical stamina, it is also important that you deal with your co-workers and our le
gitimate visitors with courtesy. They should feel safe even in the presence of a
rmed personnel; let them know that you are there to protect them. Always remembe
r to work with vigilance, diligence, intelligence, and courtesy. These are the t
rademarks of excellent security personnel of the Bangko Sentral ng Pilipinas. An
d so, on behalf of the Bangko Sentral, I congratulate all our graduates today fo
r completing their rigorous training. Palakpakan po natin sila! I also congratul
ate the SITD led by Col. Ed Gatumbato, Managing Director Noli Torres, and Deputy
Governor Andy Suratos for contuining these training programs for our security p
ersonnel. Palakpakan din po natin sila! Keep up the good work! Mabuhay ang SITD!
Mabuhay ang Bangko Sentral ng Pilipinas! Maraming salamat sa inyong lahat.
The 2006 BSP Praise Awards: A HARVEST of EXCELLENCE

Occasion: 2006 BSP PRAISE AWARDING CEREMONY
Members of the Monetary Board, Civil Service Commission Field Officer Eva Olmedi
llo, our 2006 Bangko Sentral PRAISE Awardees, fellow central bankers, magandang
umaga po sa inyong lahat! I am very pleased to know from Deputy Governor Andy Su
ratos and Director Dong Asperilla.that this morning we have a total of 460 awarde
es under our 2006 Praise Program. These are awardees who scaled the bar of excel
lence within the Bangko Sentral ng Pilipinas! Ladies and gentlemen, let us congr
atulate and thank our awardees by giving them another well-deserved round of app
lause! Excellence is what we strive for at the Bangko Sentral ng Pilipinas. Exce
llence in the pursuit of our mandate to ensure stable prices and a sound banking
system. Excellence in the way we do things. We should be conscious of this at a
ll times, for our actions here at the Bangko Sentral affect the lives of million
s of Filipinos..Filipinos we have pledged to serve to the best of our abilities.
Arthur Schelesinger,Jr., the American historian and social critic, once said exc
ellence is the eternal quest. We achieve it by living up to our highest intellec
tual standards and our finest moral intuitions. I hope therefore that excellence
will be the constant standard at the Bangko Sentral. While the Bangko Sentral is
consistently regarded as a top performing government agency, you and I know the
re are still many areas we can improve on. This is the focus of our ongoing stra
tegic planning sessions. I challenge our awardees as well to expand the circles
of excellence in their respective areas, to become good role models, and to serv
e as constant inspiration to their colleagues. Never lose sight of what your awa
rds stand for: Bangko Sentrals commitment to excellence in serving the Filipino p
eople. Muli, bigyan po natin ng mainit na palakpakan ang ating mga awardees! Fin
ally, let us acknowledge the significant contributions of the following to the c
ontinuing success of the Bangko Sentral ng Pilipinas with a big round of applaus
e: the members of our Monetary Board including Dr. Vicente Valdepenas, Jr.; Atty
. Raul Boncan, Sr.; Mrs. Juanita Amatong; Atty. Nelly Favis-Villafuerte; Mr. Alf
redo Antonio; and Socio-Economic Planning Secretary Romy Neri. Let us also ackno
wledge our three hardworking Deputy Governors, in alphabetical order Nesting Esp
enilla. Diwa Guinigundo and Andy Suratos; Assistant Governors Jun de Zuiga, Vic Aq
uino, Dolly Yuvienco, Eve Avila, Tessie Hatta; and finally, all the other office
rs and staff of the Bangko Sentral ng Pilipinas! You all make me proud to be a c
entral banker! Marami pong salamat sa inyong lahat! Mabuhay ang Bangko Sentral n
g Pilipinas!
Strengthening the Foundation for Effective Governance

Venue: Hotel Intercontinental, Makati City
Occasion: Induction of Officers and Annual General Membership Meeting of the Ban
kers Institute of the Philippines (BAIPHIL)
The newly elected officers and directors of BAIPHIL led by its President and BSP
Assistant Governor Ms. Ma. Dolores B. Yuvienco, my colleagues at the MB (MBM Va
ldepeas, Boncan, Villafuerte, Antonio) Prime Minister Virata, Gov. Laya, Gov. Cui
sia, SEC Chairman Barin, members of the Institute, bank chairman, vice-chairman,
presidents, other distinguished guests, fellow BSPers, ladies and gentlemen. Fi
rst of all, let me thank you for inviting me to be your inducting officer and gu
est speaker in this years general membership meeting. It is an honor to be here.
I am very pleased to be here today for your annual general membership meeting.for
several reasons. First, we at the Bangko Sentral ng Pilipinas look at the Banke
rs Institute of the Philippines.more popularly known as BAIPHILas our partner in s
trengthening our banking system through research, information exchange and educa
tion. In fact, BAIPHIL is one of only seven institutions accredited by the Bangk
o Sentral to conduct mandatory corporate governance seminars for bank directors.
Second, the theme chosen by BAIPHILs new set of officers and directors for the f
iscal year 2007 to 2008 echoes our own focus at the Bangko Sentral, which is: En
hancing Internal Governancea Continuing Journey. Indeed, good corporate governance
is a must for banking institutions, whether they are privateor government. You c
an say that we at the Bangko Sentralwalk the governance talk. While I will be the
first to say that we are not perfect, it is not for lack of trying. In fact, it
is a continuing topic in our planning sessions. Like BAIPHIL, we at the Bangko
Sentral believe that for as long as the environment where we operate remains dyn
amic, there will always be room to enhance governance; it is a continuing journe
y.with no finish line. We at the Bangko Sentral ng Pilipinas are also pleased tha
t Assistant Governor Dolly Yuvienco has been elected President of BAIPHIL at a t
ime when the banking sector made the crucial transition to Basel II. But before
I go into the details of our ongoing corporate governance reforms, I will give a
n overview of the performance of the banking system before and after the Bangko
Sentral institutionalized the corporate governance framework, to put things in p
roper perspective. Philippine Banking System: An Assessment Prior to the institu
tionalization of corporate governance reforms, the growth rates of key balance s
heet accounts of the banking system were minimal at single-digit levels of about
5 per cent. Bank earnings and returns to shareholders were also moderate. In 20
02, the Bangko Sentral institutionalized corporate governance within the banking
system, beginning with the Mandatory Seminar on Corporate Governance and the is
suance of the Bangko Sentral Handbook on Corporate Governance. Since then, the p
ractice of good corporate governance at individual banks has played a major part
in strengthening the foundations for growth and stability of the Philippine ban
king system. As of May 2007, key performance indicators of the banking system re
flected overall soundness: double-digit growth rates in assets, deposit liabilit
ies and capital accounts. Likewise, asset quality has significantly improved wit
h preliminary NPL/NPA ratios of 5.8 percent and 6.6 percent, respectively, movin
g closer to their pre-crisis levels of 4 percent. If you recall, we had double-d
igit NPL/NPA ratios of 17 percent and 15 percent, respectively, in 2001. It is a
lso worth noting that unlike our neighboring countries, the asset cleanup of our
banking system did not require huge government bailouts. What we had were incen
tives to remove some friction costs. Meanwhile, banks remain well-capitalized wi
th capital adequacy ratio of 18.1 percent (vs. 14.2 percent in 2001), on a conso
lidated basis, still above the BSP regulatory requirement of 10 percent and the
international standard of 8 percent. Banks also sustained their profitability as
annualized consolidated net income after tax stood at P17.3 billion. Higher ban
k profits likewise resulted in bigger returns for banks shareholders as annualize
d Return on Equity stood at 10.4 percent, versus 5.8 percent in 2001. In other w
ords, the Philippine banking system remained resilient and in a much stronger po
sition on sustained implementation of financial sector reforms. With our banks o
n a sound footing, the bigger challenge lies in the sustainability of its growth
momentum. In this area, corporate governance continues to play a crucial role a
nd we, at the BSP, remain committed in working with industry players, industry a
ssociations such as BAIPHIL, and other financial regulators.to further strengthen
the foundation of corporate governance for our supervised financial institution
s. Rationale for corporate governance reforms On a global level, adherence to go
od corporate governance also plays a key role in sustaining the overall health o
f the financial system and ensuring its ability to withstand crises. To recall,
fundamental weaknesses in corporate governance have been identified as among the
factors that triggered the 1997 Asian crisis and other financial catastrophes i
n recent years. In the case of the Asian crisis, financial systems in the region
became vulnerable to external shocks arising from excessive concentration of ri
sk, poor credit policies, and inadequate risk management systems. The internatio
nal response, which emerged as a consensus. was to move toward best practices par
ticularly on corporate governance. On our part, we at the Bangko Sentral rationa
lized the regulatory framework to closely align prudential standards with practi
ces that promote the good governance tenets of transparency, accountability and
fairness. Let me now highlight these initiatives. BSPs Corporate Governance Initi
atives Bangko Sentrals corporate governance agenda is anchored on the practice of
effective corporate directorship, sound audit and compliance systems, and enhan
ced disclosure in financial reporting. In this regard, we have issued several re
gulations intended to reinforce these critical elements of good governance. At t
he core of these regulatory initiatives is the leading role to be played by the
board of directors in the overall corporate governance agenda. Clearly, Board ov
ersight is key to effective bank governance and ultimately, to achieving overall
stability within the organization. Toward this end, we have emphasized the coll
ective responsibility of the banks board of directors and senior management to en
sure the soundness and stability of their respective banks. One way to instill s
uch accountability to the board of directors is through director education. Sinc
e 2002, the BSP has been requiring bank directors and trustees of non-stock savi
ngs and loans associations (NSSLAs) to undergo the mandatory seminar on corporat
e governance to familiarize them with their duties and responsibilities as corpo
rate decision makers. As of end-March 2007, a total of 6,856 directors and trust
ees or 84.7 percent of the 8,094 directors/trustees of banks, quasi-banks and NS
SLAs have attended corporate governance courses. Let me take this opportunity to
remind those who have yet to take the governance course to get their schedule a
s soon as possible. This is mandatory. We have also enforced and strengthened our
fit and proper standards for directors and officers of financial institutions. I
n this regard, we also support continuing director education and training partic
ularly on qualification/disqualification standards (Circular No. 513 dated 10 Fe
bruary 2006). Similarly, we have highlighted the role of independent directors i
n protecting the broader public interest and the creation and empowerment of cri
tical board-level committees on corporate governance, risk oversight and audit.
To promote fairness and transparency further, we have enforced stronger safeguar
ds against connected party transactions. Another related issuance of the BSP is
the revision of the prompt corrective action or PCA framework following the issu
ance of Circular No. 523 dated 23 March 2006. This was done to compel banks to t
ake pre-emptive action against what may constitute as threats to financial stabi
lity and thereby, ensure that they continue to operate in a safe and sound manne
r. As part of the PCA framework, banks are encouraged to align capital with actu
al risk exposures, implement business improvement measures, and institute corpor
ate governance reforms. And in the interest of accountability, we have required
banks to establish a sound compliance system. The aim is to ensure a banks identi
fication of relevant laws and regulations, analysis of risks of non-compliance,
and prioritization of compliance risks. The Bangko Sentral also recognizes the c
ritical role that external auditors play in providing an independent and objecti
ve assessment of financial institutions condition and performance. In connection
with this, we have further rationalized the guidelines governing the selection,
appointment and the reporting requirements for external auditors of banks. As a
further measure, we have issued new guidelines on internal audit function. The s
tandards define the status and scope of the internal audit, prescribe the minimu
m qualifications for bank internal auditors, and highlight the importance of the
audit committee in establishing appropriate mechanisms for reporting financial
improprieties or malpractices. Shift to international accounting standards The B
SP also spearheaded the full adoption by the banking system of prescribed intern
ational financial reporting standards (IFRS) and international accounting standa
rds (IAS) for enhanced risk disclosure and better market discipline. The impleme
ntation of the Philippine Financial Reporting Standards (PFRS) and the Philippin
e Accounting Standards (PAS) is expected to improve the quality of financial inf
ormation to be disclosed to market participants. In relation to this, we have is
sued the new financial reporting package (FRP), in accordance with the provision
s of PFRS/PAS. The new FRP will facilitate an enhanced off-site surveillance by
Bangko Sentral of its supervised entities. Corporate governance and Basel II Mor
eover, improved governance in banks and other financial institutions remains an
integral aspect of our continuing agenda to promote a sound and stable banking s
ystem. This will be highlighted further as we begin to fully implement the revis
ed risk-based capital adequacy framework under Basel II this year. The new Basel
II-based framework will not only focus on the computation of the appropriate le
vel of capital given a certain level of exposure, but will also underscore the n
eed for more market disclosures by banks on their risk exposures and risk manage
ment practices. The required disclosures to the public of bank capital structure
and risk exposures are aimed at promoting greater market discipline in line wit
h the so-called Pillar 3 of the Basel II recommendations. These reform initiativ
es should go a long way in establishing a sound governance regime at the institu
tion level for a more effective and stronger financial intermediation. Ultimatel
y, this will help preserve overall integrity and stability of the banking system
. In fact, there are already a number of success stories on governance at the in
stitution level. Let me briefly highlight some of them. One universal bank was a
ble to exit from its 5-year rehabilitation program, partly due to improvements i
n corporate governance and oversight. This generated positive results, highlight
ed by a reduction in the Banks NPA ratio, strengthening of its capital position a

nd improvement in the Banks profitability and liquidity. Another bank was able to
achieve progress in building up its capital. The bank successfully raised its c
apital through issuance of tier 1 capital (common shares, preferred and hybrid t
ier 1 capital), thereby increasing its CAR from 14 percent as of end-September 2
005. to 27 percent as of end-March 2007! Still another universal bank launched a
major bank-wide initiative designed to restructure its whole credit delivery pro
cess and resolve the increasing volume of its non-performing loans. This program
, embedded under the Banks credit excellence thrust, includes technical infrastruct
ure and system enhancements, policy reviews and credit organization alignment. C
oupled with good governance principles, the Bank was able to achieve a significa
nt decrease in its NPL ratio from 8.68 percent to 3.99 percent in March 2007. It
s risk management system also significantly improved, enabling the Bank to alloc
ate capital among the various businesses more appropriately and building its cap
abilities to engage in derivatives activities. The examples set by these banks d
emonstrate the crucial beneficial role of good corporate governance in ensuring
and sustaining a strong foundation for growth and profitability. I hope their st
ories will inspire other banks to take the path of good governance in word..and i
n deed. In closing, I would like to thank BAIPHIL for its steadfast support for
BSPs reform initiatives, particularly, in championing corporate governance. Congr
atulations to the newly elected officers, directors and committee chairpersons!
I am confident that you will lead BAIPHIL in a professional manner and exemplify
the very ideals of good governance. Thank you all. Mabuhay ang BAIPHIL! Mabuhay
ang Philippine banking sector!
Remarks
Venue: ADB Headquarters, Mandaluyong City
Occasion: Cocktail Reception for the Participants to the APEC-Financial Regulato
rs Training Initiative (FRTI) Regional Seminar on Market Risk Analysis
A pleasant evening to all of you! Welcome to the APEC-Financial Regulators Train
ing Initiative Seminar on Market Risk Analysis. We, at the Bangko Sentral ng Pil
ipinas, are honored to co-host this seminar-workshop with the US Federal Reserve
System, the Asian Development Bank and the Philippine Deposit Insurance Corpora
tion. There are many reasons why we are taking exceptional interest in mounting
risk-based trainings such as this. Foremost is the need to enable financial indu
stry participants to better assess and manage risks. It is a given that the grow
ing sophistication of financial markets inevitably comes with a price. The price
, as we know it, takes the form of risks that we, as supervisors and regulators,
must deal with firsthand. I believe this seminar-workshop hopes to arm particip
ants with the knowledge and the competence to understand and assess market risk,
and to empower them to apply these theoretical skills in a more concrete and ef
fective manner. In a nutshell, this weeklong training provides the platform for
promoting effective supervision and analysis of market risk. As banking supervis
ors, the task ahead of our seminar participants is by no means easy. But with th
e guidance of our distinguished and expert instructors from the US Federal Reser
ve System, as well enriching discussions with your peers, our seminar participan
ts will surely gain better insights on the principles of sound market risk manag
ement and their corresponding application. On our end, the Bangko Sentral has be
en at the forefront of strengthening prudential standards in the Philippine bank
ing system,. specifically those relating to improvements in the risk management p

rocess. Among others, we have incorporated relevant changes in the regulatory fr
amework in accordance with international best practices, to achieve seamless sup
ervision over banks and other financial institutions under our jurisdiction. The
shift to risk-based supervision recently gained further ground with the issuanc
e of the general guidelines on supervision by risk, setting forth our broad expe
ctations with respect to the conduct of risk management by financial institution
s under our jurisdiction. We now have specific guidelines on market risk managem
ent (BSP Circular No. 544 dated 15 September 2006) which set forth BSPs expectati
ons on the management of this type of risk by banks. Under the market risk guide
lines, the BSP shall evaluate a bank or financial institutions market risk manage
ment based on a number of critical factors. such as the major sources of market r
isk exposure. The objective is to ensure that the institution has an effective r
isk measurement system in place, .whose sophistication is commensurate with the n
ature and complexity of the risk assumed. The full implementation of risk-based
supervision is being complemented with the simultaneous reorganization of the Ba
ngko Sentrals supervision and examination sector. The goal is to generate benefit
s particularly in terms of operational efficiency, enhanced competencies, as wel
l as greater value-added to our supervised entities,.through better-focused perfo
rmance and risk assessments. Ladies and gentlemen. Early this month, we read and
heard.media stories recounting the Asian Financial Crisis of ten years ago. Major
ity of the stories also noted how banks in this part of the world have become st
ronger and, therefore, better equipped to handle crisis. I hope therefore that t
his seminar will further enhance the platform for fostering greater cooperation
among bank supervisors and regulators in the region. In turn, this should lead t
o more effective supervisory arrangements and enable us to promote greater stabi
lity in our financial systems. On this positive note, I wish you all a successfu
l and fruitful seminar-workshop. For now, let us enjoy the rest of the evening.
Thank you!
2007 Awarding Ceremony for BSP Stakeholders

Venue: Marco Polo Hotel, Davao City
Members of the Monetary Board, distinguished guests, fellow bankers, maayong hap
on sa inyong tanan! We thank all of you for joining us this afternoon, as we tha
nk and honor the companies who regularly participate and respond to the Business
Expectations Survey of the Bangko Sentral ng Pilipinas. We thank you -our respo
ndents - as you are part of the reason why the Bangko Sentral ng Pilipinas conti
nues to be successful in implementing its mandate to stabilize prices through re
sponsive policies and programs. As you are aware, we have been able to tame infl
ation at low and stable levels comparable to those in developed countries, even a
s we face record high oil prices. With our survey respondents providing timely a
nd accurate data, the Bangko Sentral is able to craft sound policy decisions. In
other words, our policy response is anchored on solid ground because we are pro
perly guided by timely and accurate survey results. You can imagine how difficul
t.and dangerous it would be to navigate a ship when you have wrong coordinates! Th
is is the reason why our theme for todays Awarding Ceremony for our Business Expe
ctations Survey Stakeholders is Sustaining Partnership for Progress. Indeed, with
the cooperation of our many partners -- including our survey respondents all ove
r the country-- we have been able to quell inflationary pressures, keep interest
rates at low levels, and maintain orderly conditions in the foreign exchange ma
rket, even as we continue to experience solid and broad-based economic growth. T
o our present and past awardees therefore, we say thank you and congratulations.
The trophies you receive from the Bangko Sentral symbolize our appreciation of
our successful partnership in fostering a better economic environment for our pe
ople. Again, to all our stakeholders and our special guests today, we thank you
for the support you continue to extend to the Bangko Sentral ng Pilipinas. With
our continuing partnership, we should be able to ensure sustained and balanced e
conomic growth for our country from Luzon, Visayas and Mindanao! Mabuhay ang Pili
pinas! Daghan salamat sa inyong lahat.
Leading the Way Toward Growth and Development

Venue: One Network Bank in Sasa, Davao City
Occasion: Inaugural Blessing of the newest branch of One Network Bank in Sasa, D
avao City
Archbishop Capalla, Mayor Duterte, the officers and staff of One Network Bank (O
NB), fellow bankers, special guests, Maayong gabi-i sa inyong tanan! On behalf o
f the Bangko Sentral ng Pilipinas, I congratulate ONB on the inaugural of its He
ad Office Branch, the 65th in its network of branches within Mindanao. These 65
branches exclude the five new branches that have just been approved by the BSP.
Now a leading rural bank, ONL has positioned itself as a catalyst for economic g
rowth in Mindanao, with a presence bigger than other private banks. One Network
Bank: Making a Difference in Mindanao In particular, ONBs support for the agricul
ture sector including small farmers is most commendable. I understand that ONBs loa
n exposure to agriculture is among the highest in the industry and it continues t
o grow: it was P1.1 billion in March 2006 and by March this year it had reached P
1.5 billion! We also recognize the Banks contribution in financing the developmen
t of the education, health and services sectors in Mindanao through credit facil
ities that are made available to various institutions such as schools, hospitals
, and local government units. In addition, ONB has responded positively to Bangk
o Sentrals policy to encourage technological innovations that translate to more e
fficient and convenient ways of facilitating access to banking services. For ins
tance, ONB paved the way for the investments by rural and cooperative banks in A
utomated Teller Machines. In addition, ONBs focus to expand its remittance servic
es resulted in partnerships with commercial banks and money transfer companies.
ONB has also applied for its own FCDU license. This is aligned with Bangko Sentr
als policy to encourage more overseas workers to transact through the banking sys
tem. The Way Forward Indeed, judging from its involvement in countryside banking
, ONB has become a model among rural banks in terms of both financial soundness
and social responsibility. Tonight, therefore, I ask the men and women of ONB to
sustain ONBs performance and enhance the banks status as an agent of economic gro
wth. Ladies and gentlemen. The BSP has been fostering a more liberal regulatory
environment, built on strong prudential supervision foundation to promote a more
inclusive and accessible financial system. Among others, we have liberalized br
anching to boost the efficient delivery of financial services, including microfi
nance, to areas with minimal access to banking services. Altogether, these regul
atory measures should give rural banks scope to participate more fully in econom
ic development. Now, more than ever, we shall be relying on the collective suppo
rt of industry players in working toward a stronger and more efficient rural ban
king system one that is fully capable of mobilizing savings for a robust rural e
conomy. To achieve this, let us work together to continue the reforms we have st
arted to create greater confidence in the integrity and dependability of the cou
ntrys banking system. Let us therefore resolve to strengthen our partnership for
a more efficient, competitive and resilient banking system as a service to our p
eople and our country. Again, our congratulations to the officers and staff of O
NB! Daghan Salamat sa inyong tanan.
Improving Lives Through Better Access to Credit

Venue: Marco Polo Hotel, Davao City
Occasion: Launching of E-Rediscounting in Mindanao
Maayong udto sa inyong tanan! Honrable Members of the Monetary Board; fellow ban
kers; business leaders of Mindanao as represented by the Chamber of Commerce and
Industry, the Small and Medium Enterprise Development Council and Micro-finance
Council; special guests; government officials who are here today, Mayor Lobriga
t; my colleagues at the Bangko Sentral ng Pilipinas; friends; Ladies and Gentlem
en- I am very pleased to lead the launching here today of the BSPs Electronic or
e-Rediscounting System. Only a few weeks ago . . . at the Mindanao Peace and Sec
urity Summit in Cagayan de Oro City . . . the President identified two key prior
ity programs for Mindanao, which is particularly relevant to our program today.
The first priority is to increase the funding for key government economic progra
ms in Mindanao. The second . . . is to strengthen the institutions of government
to promote economic prosperity in the region. Given this, the launching of the
Bangko Sentrals e-Rediscounting System here in Mindanao is indeed very timely...
and appropriate. With this electronic loan refinancing facility, we expand and f
acilitate access to credit of countryside areas in Mindanao where there are micr
o, small and medium enterprises, as well as exporters. This should stimulate eco
nomic activities in the local communities here. So far, the seven-month track re
cord of our e-rediscounting system has been positive. Since its initial launchin
g in Manila in December, the number of participating banks in our e-Rediscountin
g System has increased from 88 to 129 while the total loans processed and releas
ed during this period has reached an unprecedented level of over P14 billion. Th
e importance that the Monetary Board attaches to this initiative is clearly demo
nstrated by the presence of our Monetary Board members in this launching today a
nd let me acknowledge them: First, MBM Vicente Valdepeas, Jr., MBM Raul Boncan, M
BM Juanita Amatong, MBM Alfredo Antonio, and earlier today MBM Nelly Favis-Villa
fuerte was also here. The BSP Top Management is here with us as well today we hav
e DG Diwa Guinigundo, DG Armando Suratos, DG Nestor Espenilla, Jr. and General C
ounsel and Asst. Governor Juan de Zuiga, Jr. What makes e-Rediscounting attractiv
e to banks? Well, as an online rediscounting facility, banks file loan applicati
ons through the Internet and -- if their application is approved -- receive the
loan proceeds within minutes, through their demand deposit accounts with the Ban
gko Sentral. In other words, they same time, incur lower transaction costs and a
re spared the inconvenience of physically filing their applications and going th
rough manual processing. On the other hand, bank customers can look forward to l
ower borrowing costs when their banks start sharing the cost benefits of e-redis
counting. At this point, let me also take the opportunity to acknowledge the ded
ication of the officers and staff of the pilot and participating banks who made
their resources available for the success of this project. We also wish to thank
the officials and staff of the BSP, particularly from the Department of Loans a
nd Credit and the Information Technology Sub-sector. Of course, we would also li
ke to acknowledge the assistance and participation of the Davao Regional Office.
Let me assure our colleagues from the banking community and the business sector
here in Mindanao that we shall continue to explore ways to enhance our operatio
ns so as to facilitate the greater flow of credit in the countryside. In line wi
th this strategy, the BSP has approved a new project that will compliment the erediscounting system. We call this project the Collateral Information and Manage
ment System or CIMS. The CIMS is envisioned as a system by which the BSP can mon
itor, control and manage collaterals submitted by banks as security for their lo
ans. The CIMS is expected to enable authorize users to electronically obtain inf
ormation on the status of collateral documents particularly the collateral posit
ions of borrower banks and end-user borrowers. This system will also further fac
ilitate loan processing as well as ensure the BSPs protection against potential c
redit risk. Phase I of the CIMS is targeted for completion by the end of this ye
ar. Indeed, the Monetary Board and the Bangko Sentral are committed to continuou
sly find better ways of serving our country through the delivery of fast, adequa
te, and affordable credit, particularly to small- and medium-sized borrowers fro
m the countryside. We hope therefore that our partners from the banking communit
y and the business sector will continue to work closely with us in ensuring sust
ained and balanced growth of our economy. Together, let us create more economic
opportunities that will liberate our people from poverty and make our country a
better place for all Filipinos. Daghan Salamat sa inyong lahat, Mabuhay ang Pili
pinas!
The ING-FINEX Search for CFO of the Year Award: A Search for Inspiring Leadershi
p
Venue: Rizal Ballroom A, Shangri-La Hotel Makati
Occasion: Launching of the ING-FINEX Search for CFO of the Year Award
Good evening ladies and gentlemen. I am pleased to be here at the launching of t
he ING-FINEX Search for CFO of the year. It is a matter of public knowledge that
the Philippines breeds world-class finance executives. Through their vision and
leadership in financial management, they create wealth for their institutions a
nd stakeholders. This award program therefore will identify role models who can
inspire and motivate financial executives to do better. In the process, we can l
ook forward to generating an even wider pool of dynamic, internationally competi
tive. and highly ethical.chief financial officers in our country. For an instituti
on such as the Bangko Sentral ng Pilipinas. which fosters the development of a dy
namic, professional and healthy financial system for sustained economic growth..t
he launching of the CFO of the Year Award is welcome news indeed. Ladies and gen
tlemen. The magazine Institutional Investor said there is now growing appreciati
on for CFOs who transcend the traditional number-crunching, cost-controlling rol
e and embrace responsibility for improving operations, driving revenue growth an
d executing big acquisitions. CFOs more and more have been called on to analyze
the potential risks and returns of strategic decisions so companies can avoid cr
itical mistakes. And as companies have sought to become leaner and less centrali
zed, many have eliminated the position of chief operating officer, opening the d
oor for CFOs to assume some of these critical responsibilities. This is no small
matter. It is time therefore that we honor the best CFOs in our midst. On behal
f of the Bangko Sentral therefore, I congratulate the organizers of this program
: FINEX, ING, the AIM-Gov. Jose B. Fernandez Jr. Centre for Banking & Finance, I
AFEI, the CFA Society of the Philippines. Let us give them a big hand! Let us al
so thank the media groups who share our belief in the significance of this award
program, in alphabetical order now: ANC Business Channel of the ABS-CBN Group,
Business World, Philippine Daily Inquirer and Philippine Star. Personally, I am
already looking forward to meeting the first awardee of the ING-FINEX CFO of the
Year! Who will it be? Is she.or he in this room? A member of FINEX or not? Lets wa
it and see. Again, congratulations to FINEX and ING! Thank you all and good even
ing. Mabuhay po ang bansang Pilipinas!
Keynote Address
Venue: Shangri-La Hotel, Makati
Occasion: Second IMF Regional Seminar on Central Bank Communications
Mr Ariyoshi, Mr. Reza Baqir, members of the BSP Monetary Board, distinguished sp
eakers, fellow central bankers around the region, other officers of the IMF, goo
d morning. On behalf of the Bangko Sentral ng Pilipinas, I bid our guests a warm
welcome to our country! You have traveled far for this Second IMF Regional Semi
nar on Central Bank Communications. This conveys, in very strong terms, the sign
ificance you attach to the role of communication in ensuring effective central b
anking. No doubt, the sea changes in global finance and markets as well as in th
e domestic macro-economy have posed significant effects in the conduct of moneta
ry policy. In particular, we have seen the rapid evolution of monetary policy to
wards increased transparency. I share the general observation that secrecy or de
liberate obfuscation are no longer the buzzwords in central banking circles.1 In
sharp contrast to the past practice of reticence among monetary authorities, gr
eater emphasis on effective communication is now a best-practice policy among ce
ntral banks around the world. In fact, in the last two decades or so, we were wi
tness to an expansion in disclosure mechanisms employed by central banks. Moreov
er, there has been a dramatic change in the nature and quality of information th
at monetary authorities are now willing to disclose. This morning, I will share
some of my thoughts on central bank communication in general and provide you with
an overview of the communication strategy that we employ at the Bangko Sentral,
with focus on our framework for communication with other government agencies. I
. The Importance of Central Bank Communication The move toward greater transpare
ncy is a key element of good corporate governance. Central banks have become inc
reasingly independent so there is scope for greater accountability. After all, a
central bank is a public office whose policy decisions have an important bearing
on the direction of the economy. Thus, the central bank should be able to clear
ly define its goals and provide a compelling explanation behind its policy actio
ns. In turn, transparency allows for an honest assessment of central bank perfor
mance, given the goals it has pledged to achieve. The emphasis on better transpa
rency practices also recognizes the idea that transparency makes monetary policy
generally more effective, in part by ensuring that market expectations are form
ed efficiently. As central bankers, we are aware that the potency of monetary po
licy actions can be strengthened if markets understand the overall intention beh
ind the central banks policy decision and the results it expects to achieve. Inde
ed, the emergence of open mouth operations as a policy tool outside of the traditi
onal channels of monetary policy has been recognized by central bankers. As poin
ted out by Ehrmann and Fratzccher (2005): Central banks have direct control over
a single interest rate, usually the overnight rate, while their success in achie
ving their mandate requires that they are able to influence asset prices and int
erest rates at all maturities . In the case of the Bangko Sentral, we typically a
djust our overnight policy rate, when necessary, by increments of as low as 25 b
asis points. If we really think about it, we do not expect that such a marginal
adjustment in a very short-term instrument will do the job for us. Rather, we re
ly on the markets to interpret our signals properly and allow for appropriate adj
ustments in the prices of financial assets that really matter, including the lon
ger-term tenors. In general, central banks now avoid surprising the market since
this could generate unwarranted volatility. This is where communication comes i
n: it increases the predictability of policy decisions and helps the market anti
cipate how the central bank might react to a particular situation, event or deve
lopment. Indeed, good transparency practices promote greater market efficiency F
or an inflation targeting central bank such as the Bangko Sentral, communication
is crucial in anchoring inflation expectations. To help guide public expectatio
ns, it is incumbent upon an inflation targeting central bank to disclose its out
look for future inflation. Managing the expectations channel is, therefore, crit
ical. Apart from influencing the market with its policy actions, communication a
lso allows the central bank to obtain useful feedback from its stakeholders, whi
ch in turn is an important input to policy formulation Given these arguments in
favor of communication, the next critical issue is the extent of transparency Ho
w transparent should central banks be? My view is that central banks should take
a pragmatic approach to communication. While transparency is a good policy, exc
essive transparency could hamper the effectiveness of monetary policy and potent
ially harm market stability. Specifically, extensive disclosure requirements abo
ut internal policy discussions on money and exchange market operations might dis
rupt markets, constrain frank discussion by policymakers, or prevent adoption of
contingency plans. In other words, good transparency practices should allow for
flexibilityto take into account country-specific circumstances. After all, there
is no one-size-fits-all formula for central bank communication. II. Communicati
on between the Central Bank and Other Government Agencies Let me now turn to the
importance of communication between the central bank and other government agenc
ies. While most central banks enjoy independence from other branches of governme
nt, continuing coordination with other government agencies for macroeconomic pol
icy formulation remains an imperative. Inter-agency arrangements should be in pl
ace to ensure consistent and coherent economic policies. After all, monetary and
fiscal policies, along with other government policies, are interlocking element
s of the countrys overall macroeconomic strategy. The consensus among economists
and policymakers is that well-coordinated policies are integral to durable, broa
d-based and strong economic growth. As such, fiscal and monetary authorities, as
well as other economic managers in government, should share information and be
aware of their agencies respective policy intentions and decisions. A silo approa
ch to government policy formulation, where one agency formulates policy on its o
wn without consultation, does not and will not work. In fact, the absence of coor
dination among policymakers could undermine the credibility of the countrys macro
economic policy. As Worrell (2000) argued in his paper: the invariable consequenc
e of any appearance of conflict among the authorities is an increase in uncertai
nty in financial markets, a loss of credibility of macroeconomic policies and an
increased probability of price and output instability . Thus, good communication
with other economic managers is of prime importance in macroeconomic management
. The same principle applies in the field of financial supervision. Even in cent
ral banks with financial supervision functions such as the Bangko Sentral, juris
diction over the financial sector is often shared with other government supervis
ory agencies. In the Philippines, for instance, supervision over non-bank financ
ial institutions without quasi-banking functions is shared by the Bangko Sentral
, the Securities and Exchange Commission and the Insurance Commission. This unde
rscores the need to maintain close coordination among these agencies to ensure c
onsistency of policies, as well as access to timely and accurate information. An
important caveat in communication between the central bank and other government
agencies is the responsibility to respect the confidentiality of sensitive info
rmation being shared. III. The BSPs Communication Strategy The Bangko Sentral, li
ke many other central banks, continues to enhance its communication strategy to
reach all its stakeholders. Our adoption of inflation targeting in 2002 served a
s an additional stimulus for us to work on improving our transparency practices.
In dealing with the press and the market, the Bangko Sentral employs a wide ran
ge of disclosure mechanisms. One of these mechanisms is the BSP website which ca
rries our press statements, statistical releases and our advocacies In the area
of monetary policy, a press statement is issued immediately after each monetary
policy meeting. Typically, each policy statement contains the reasons behind the
Monetary Board decision, along with a brief discussion on the outlook for futur
e inflation. The highlights of our policy meetings are also made public after a
predetermined lag of four weeks. The highlights were initially published with a
lag of six weeks but we shortened it to four weeks, beginning July last year, to
further improve transparency in monetary policy-making. We also publish a quart
erly Inflation Report to document the rigorous economic analysis behind the cond
uct of monetary policy and inform the public of the overall thinking behind our
decisions. The release of the Inflation Report for each quarter is accompanied b
y a briefing for the media and market analysts. In cases of a breach of the infl
ation target, the BSP issues an open letter to the President to account for the
reasons behind it and to outline the actions that will be undertaken to bring in
flation back to the target range. Further, we conduct public information campaig
ns across the country to foster better understanding and support for the central
banks policies and programs. The Bangko Sentral also conducts regular dialogues
with the press and periodic engagements with its various constituencies. In the
Philippines, the generation of macroeconomic assumptions and formulation of gove
rnments medium-term budget strategy is done by the Development Budget Coordinatin
g Committee, which is composed of the Department of Budget and Management, and t
he Department of Finance, the National Economic and Development Authority and th
e Office of the Executive Secretary. The BSP used to be a member of this committ
eebut, in recognition of its administrative and fiscal autonomy, was re-assigned
as a resource institution. Under the inflation targeting framework, the inflatio
n targets are set by the Committee in coordination with the BSP. This effectivel
y commits the Government as a whole to the inflation target. Equally important,
this ensures that our monetary policy actions remain consistent with the Governm
ents economic policy agenda, even as we maintain our independence. In the field o
f financial supervision, the Bangko Sentral has cooperative arrangements with ot
her financial regulators. Among others, the Bangko Sentral chairs the Financial
Sector Forum which includes the members of the Securities and Exchange Commissio
n, the Insurance Commission and the Philippine Deposit Insurance Corporation It
focuses on three broad areas: harmonization of supervisory and regulatory polici
es in the Philippine financial system; information exchange; and consumer educat
ion or financial literacy. In addition, the Bangko Sentral is in various stages
of negotiations with foreign supervisory authorities for the adoption of minimum
ground rules on information sharing involving cross-border financial institutio
ns under their supervision . Through this initiative, we hope to strengthen coop
erative arrangements with our foreign counterparts. Another important dimension
of our interface with the government is our interaction with the Executive and L
egislative branches of Government. As mandated in our charter, we submit regular
reports to the President and both houses of Congress. These include a report on
economic and financial conditions, a report on the central banks financial condi
tion, and a review on the state of the Philippine financial system. The BSP is a
lso required by law to report to the President and Congress any unusual movement
s in monetary aggregates, credit and price levels, as well as the remedial measu
res undertaken by the Bangko Sentral to correct them. In addition, the Bangko Se
ntral engages in a variety of informal interactions with the other branches of g
overnment through appearances in committee hearings in both houses of Congress a
nd its participation in various government inter-agency committees and working g
roups. In other words, we invest time and resources to communicate our policies
and programs with other branches of government. IV. Concluding Remarks This IMF
seminar, therefore, comes at an opportune time when central bank communication h
as emerged as a potent policy tool, rather than a mere channel to transmit infor
mation. As an institution that recognizes the significance of communication in m
aking our operations more effective, we at the Bangko Sentral are pleased to cohost this Second IMF Regional Seminar on Central Bank Communication. This semina
r should build on the IMFs initiative, which started in Mumbai, to provide a foru
m to discuss emerging issues in central bank communications and gain insights fr
om one anothers experiences. We thank the IMF and their representatives who are h
ere with us this morningfor setting up this forum for central bank communication
in this region Finally, I wish this seminar on central bank communication will b
e fruitful and highly successful, not only in terms of generating fresh perspect
ives but also in fostering regular exchange and cooperation among the participan
ts. Have a wonderful stay in our country. Thank you and Mabuhay! _______________
_________________________ 1 See for example: Blinder, Alan, Charles Goodhart, Ph
ilipp Hildebrand, David Lipton and Charles Wyplosz (2001) How Do Central Banks T
alk? Geneva Reports on the World Economy 3, Geneva: International Center for Mon
etary and Banking Studies
2007 Awarding Ceremony for BSP Stakeholders

Members of the Monetary Board, distinguished guests; heads, chief executive offi
cers and personnel of our partner firms; my colleagues at the BSP; ladies and ge
ntlemen: Magandang umaga po sa inyong lahat! On behalf of the members of the Mon
etary Board as well as the men and women of the Bangko Sentral ng Pilipinas, I t
hank all our stakeholders, the media, and other special guests for joining us th
is morning. Today, we give recognition to our partners from the business and gov
ernment sectors who regularly invest time and effort to provide complete and rel
iable information to us. These are vital statistics and information that guide t
he Bangko Sentral ng Pilipinas in formulating appropriate and timely policies an
d programs. Indeed, one cannot overemphasize the importance of having complete a
nd accurate information as basis for making decisions that can significantly aff
ect a big number of our people. In fact, the cornerstones of a thriving economy
are reliable, timely and complete information. Otherwise, it would be garbage in
, garbage out. Gaining public recognition for the importance of statistics and i
nformation that we produce, monitor and disseminate therefore is a continuing un
dertaking with you.as our information providers. I am pleased to report that the
dividends from our partnership have been highly encouraging. Among others, this
partnership has allowed the Bangko Sentral to be forward-looking and information
-intensive in the formulation of monetary and financial policies. As a result, w
e have been doing quite well insofar as our monetary policy is concerned. In fac
t, even as oil prices are hitting historic high levels, we manage to tame inflat
ion at low and stable rates: in June 2005, for instance, our inflation rate was
7.6%; last May, it had dropped to 2.4%, a level comparable to those in developed
countries. It is also significant to note that even as we continue to experienc
e solid and broad-based economic growth, we have been able to keep the lid on in
flation, maintained interest rates at low levels, and the peso stronger. Meanwhi
le, the Bangko Sentral this year gave a grant of P50 million to the export secto
r to enhance its competitiveness; this is our second grant to the export sector.
I am also pleased to report that our banking system continues to strengthen, wh
ile our domestic capital market continues to develop and deepen as a result of o
ur reform agenda. Ladies and gentlemen, these happened because your cooperation
as information providers empowers the Bangko Sentral to craft responsive policie
s. that, in turn, benefit you as well. In other words, we have good synergy at wo
rk here. For this reason, we are committed to elevate our partnership with you t
o a deeper engagement, to include consultations on your needs, both as data prov
iders and users of official statistics. This is the fourth year of our Stakehold
ers Awards Program which rewards best respondents to BSP surveys such as the: 1)
Business Expectations Survey; 2) Cross Border Transactions Survey; 3) Foreign D
irect Investment Survey; and 4) Coordinated Portfolio Investment Survey. Our Awa
rds Program also recognizes exporters that generate significant net foreign exch
ange earnings, as well as commercial banks that facilitate the reporting and inf
low of overseas Filipinos remittances. This year, the BSP will start giving award
s to institutional partners that provide valuable information support for the BS
Ps analysis on monetary developments and policies. I am also pleased to report th
at two survey respondents who are three-time awardees will be elevated to the Ha
ll of Fame. They become our first Hall of Famers. Our awardees will receive trop
hies, aptly given the name Ambition, that symbolize our partnership and joint comm
itment to foster a better economic environment for our country. To the awardees,
our congratulations. To all our stakeholders, we thank you for your continuing
support and cooperation for the Bangko Sentral ng Pilipinas and our economy. Rem
ember, our partnership is a critical element in weaving the success story of our
countrys balanced and sustained economic growth. Marami pong salamat. Mabuhay an
g Pilipinas!
Layon: Money as Vision of a Nation

Venue: BSP Money Museum
Occasion: opening of the Layon Exhibit
Monetary Board Members, officers and directors of the Philippine Numismatic and
Antiquarian Society, Mr. and Mrs. Angel Cacnio, Mrs. Fely Asuncion and other mem
bers of the Asuncion family, fellow central bankers, ladies and gentlemen, good
morning. The 14th anniversary of BSP finds us celebrating on several fronts we h
ave new facilities, an exciting exhibit at our main building lobby, and the gran
t of support for various social projects. Another cause for celebration is the co
ming home, so to speak, of the designs for Philippine currency that were proposed
in the 1940s to the 1950s. These never reached Philippine shores, had never bee
n in private hands, and were seen by the public only for the first time when the
se were included in the catalogue of the American auction house H. R. Harmer. In
terestingly enough, it was Dr. Benito Legarda, the Central Bank official who sta
rted the Money Museum, who called our attention to the auction. I therefore ask
all of you to join me in acknowledging Dr. Legarda by giving him a round of appl
ause. While Dr. Legarda cannot join us today, we are assured he is celebrating t
his moment with us as well. Dr. Legarda retired from the Central Bank more than
two decades ago, but the central bank remains close to his heart. As they say, o
nce a central banker, always a central banker. The Monetary Board was quick to r
ealize the significance of these pieces in the history of the BSP and indeed, of
our country, and readily approved our participation in the auction. I therefore
ask all of you to join me in thanking the Members of the Monetary Board here wi
th us today by giving them a round of applause. Canadian numismatist Douglas And
rews describes the pieces as stunning in their use of proposed color schemes, vig
nettes, and different designs, many of which look contemporary even by present s
tandards. He considers the bound volume containing an assortment of 3,500 differe
nt trial and proof notes from the late nineteen-forties and early fifties as the
largest single offering of color proof notes ever. Other currency designs in th
is exhibition are those made by Italian company Istituto Poligrafico dello Stato
as well as by Filipino artists Angel Cacnio and Rafael Asuncion. They prove tha
t the artistic talent of the Filipino is indeed world class, as their works join
the foreign works in this exhibition. Mr. Cacnio allowed us to reproduce his de
signs for the exhibition, and we thank him, especially as he joins us today with
his wife Mrs. Amelia Cacnio. On the other hand, Mr Asuncion has passed on, but
we thank his wife Mrs. Fely Asuncion and her family for lending his works and fo
r joining us today. The exhibition conceptualized by museologist Ino Manalo prop
oses that currency design embodies the vision and aspirations of a nation and it
s leaders. We can see in the proposed designs for instance the focus on power ge
neration, the importance of agriculture, and excitement over the development of
Mindanao. Layon, the exhibition title, refers in our native language to objectiv
es, goals and visions. But I understand that it can also mean the deep part of t
he river, referring to the role of money as currency, as a current that flows th
rough our economy and our lives. Through this exhibit, let us explore the conver
gence of art and the economy that is established by currency design; the relatio
nship between currency design and the vision of national economic development. T
hank you all and good morning.
The BSP @ 14: Moving with the Power of One in the Service of the Filipino People
Venue: Bangko Sentral ng Pilipinas Complex
Occasion: BSP 14th Anniversary
Members of the Monetary Board, fellow central bankers, special guests. Magandang
umaga po at maligayang anibersaryo sa inyong lahat! We are celebrating the 14th b
irthday of our institution. Kaya naman, dapat bati-in muna natin ang Bangko Sent
ral ng Pilipinas ng malakas at masayang. Happy Birthday!!! Ladies and gentlemen of
the Bangko Sentral, there are, indeed, many reasons why we should be happy. Ang
pinaka-mahalaga po dito. ay ang matagumpay nating pagtupad sa ating tungkulin bil
ang central bankers ng ating bansang Pilipinas! To be objective about it, let us
evaluate how we performed on the basis of each of the three pillars of central
banking. First, on monetary policy. Did we have a responsive and effective monet
ary policy? In the last two years, we sharpened our inflation targeting framewor
k and stayed true to our mandate to maintain price stability. We enhanced our ca
pacity to analyze information, increased transparency in our communication with
markets, and aligned our policy framework with international norms. By any stand
ard, we did quite well insofar as our monetary policy is concerned. In fact, eve
n as oil prices breached record high levels, we managed to tame inflation at low
and stable rates: In June 2005, our inflation rate was 7.6%; last May, it had d
ropped to 2.4%, a level comparable to those in developed countries. Second, on b
anking supervision. As the central monetary authority of the country, our respon
sibility is to provide pro-active leadership to bring about a strong financial sy
stem conducive to a balanced and sustainable growth of the economy. Effective ban
king supervision as well as responsive policies and programs are key to this tas
k. Overall, we continue to perform well in this regard. The banking system has b
een projecting overall soundness: better capitalization; lower non-performing lo
ans; steady expansion in deposits; and better profitability resulting from more
efficient bank operations. For instance, return on equity of banks moved up to 1
0.6% in 2006, compared to 8.8% in 2005. In addition, bank lending is now expandi
ng at double-digit rates. Beyond banking reforms, the BSP has also actively prom
oted the development of the domestic capital market to provide alternative and m
ore diversified funding sources for the economys growth requirements. Our efforts
to promote microfinance also continues to bear fruit. Latest available data ind
icate that outstanding loans of banks engaged in microfinance have reached P4 bi
llion spread out to around 650,000 microentrepreneurs. Even more uplifting is th
e fact that industrious microentrepreneurs have become bankable, transforming in
to savers that have accumulated more than P1.4 billion in bank savings! Third, o
n our payments and settlements system. The Bangko Sentral has been operating a r
eal-time gross settlements system - which we call PhilPass - that continues to e
fficiently serve the countrys growing financial system. The value of transactions
handled by PhilPaSS was P54 trillion in 2005, doubled to P122 trillion in 2006,
and is set to reach a new record this year,..if the first quarter figure of P48
trillion is annualized. Our PhilPass therefore is a vital infrastructure for ens
uring the credibility and continuous development of our financial sector. In oth
er words, fellow central bankers, in spite of some lapses and omissions,we did qui
te well.overall,. in terms of our principal mandates. In addition, continuing prof
its allowed us to remit, as of May 31 this year, P2.5 billion in cash dividends
to the National Government. Of course, all these did not happen by chance. We we
re successful because we maintained our focus, .we were committed to do our best,
..and we were united in serving our key stakeholder the Filipino people. Such is
the Power of One. Fellow central bankers, let us therefore give a big round of
applause to the members of our Monetary Board! ..the Executive Management Sector!
.. the Monetary Stability Sector! .the Resource Management Sector & the Security
Plant Complex! . and, finally, the Supervision and Examination Sector! Ladies and
gentlemen of the Bangko Sentral. Our economy continued to grow in 2006. and expa
nded by 6.9% in the first quarter of this year, the highest in 17 years! This re
cord growth was accompanied by a strong peso. as well as historic low inflation a
nd interest rates. We can rightfully claim, therefore, part of the credit for ou
r sustained economic growth. In fact, the positive performance of the Bangko Sen
tral ng Pilipinas has been rightly recognized and commended by third parties. Am
ong others, the Bangko Sentral continues to top the Makati Business Club survey
of top performing government agencies; the GSIS gave us an award to recognize Ba
ngko Sentrals pioneering advocacy of good governance; the International Associati
on of Business Communicators gave us an award for communications management for
our advocacy program Tulong Barya Para sa Eskwela; and in the annual assessment of
central bank governors by Global Finance of New York, we received a rating of A
minus, .. one of only six given an A rating. These are clear milestones. Neverth
eless, this should not give us cause for complacency; rather, this should inspir
e us to work on our goal to become a world-class monetary authority so that we ca
n provide even better service to our country and our people. But how do we get t
here? The answer to this question was forged at the Strategic Planning Conferenc
e held two weeks ago. We agreed to set strategic objectives and key targets on h
ow we can best respond to the needs of our stakeholdersthe Government, banks and
other financial institutions, business firms, foreign investors and creditors, a
s well as households. In the process of setting these objectives, we matched our
central banking pillars with what is relevant to our stakeholders. Addressing t
he first pillar, we shall continue to implement a forward-looking monetary polic
y anchored on credible forecasts and risk assessments. With inflation targeting
as our framework, we shall keep sharpening our forecasting capability through fu
rther enhancements of our inflation forecasting models and understanding better
the transmission mechanism for monetary policyin a world marked by globalization
and financial innovation . For the second pillar, our thrust is proactive regula
tion and effective supervision of banks as well as other supervised and regulate
d industries. We will continue with risk-based and consolidated supervision, whi

le maintaining a flexible and responsive regulatory framework. We will also prom
ote healthy competition in the delivery of banking and other financial services
to have a wide array of financial products and services accessible to the public
. We will also foster competition among banks to reduce remittance charges as we
ll as transparency to encourage overseas Filipinos to use the banking system. We
will continue to push for the development of the capital market, the expansion
of microfinance, and the promotion of financial literacy. In this regard, we wil
l continue to work on legislation that are important to the Bangko Sentral inclu
ding amendments to our charter and the Credit Information System Act. For the th
ird pillar, we will continue to ensure that our PhilPass remains a safe, sound,
reliable, and efficient payments system. We have also set strategic objectives t
o address BSPs operational efficiency and maintain the publics trust and confidenc
e. We are of course aware of the challenges facing us on our way to achieving ou
r objectives. For instance, inflation risks remain, in part due to relatively hi
gh liquidity growth, as remittances remain strong and growing confidence in the
economy brings with it a steady inflow of foreign investments. This is the same p
roblem of plenty that faces other countries in Asia. To address this, we need to
be creative and use non-traditional instruments. Last May, for instance, we adop
ted preemptive measures to absorb liquidity. While it is too early to assess the
effect of these measures, initial results are encouraging, and the inflation ou
tlook remains benign even as the economy continues to power ahead. There is also
no let-up in our campaign to encourage banks to strengthen their balance sheets
through asset cleanup, capital buildup, and consolidation. This month, in paral
lel with other countries, the Bangko Sentral starts implementing Basel II, which
requires that regulatory capital reflect the risks the banks are exposed to. We
will also continue to innovate and adapt to the changing environment. For insta
nce, electronic rediscounting has reduced processing time for credit application
s of banks, including fund releases, from 3 to 5 days.to just 5 minutes. We will
also continue to implement our economic and financial literacy program to educat
e and empower more Filipinos to benefit from the opportunities economic developm
ent brings. Our program aims to cover millions of our entrepreneurial poor throu
gh our microfinance advocacy; millions of students through the integration of sa
ving and money management in our elementary curriculum in cooperation with the D
epartment of Education; millions of OFWs and their families on growing their mon
ey through investments or entrepreneurship; and the general public through a net
work of economic and financial literacy centers that the Bangko Sentral shall se
t up. Later today, we will have the symbolic launch of our first economic and fi
nancial center at the lobby of our Five-Storey building. Indeed, we at the Bangk
o Sentral ng Pilipinas have a long list of things we need to do in the service o
f our people. But beyond central banking, I am particularly proud of the men and
women of the Bangko Sentral who have always been generous with their time and r
esources to help others who are in need. One central banker who exemplified this
generosity of spirit and genuine concern for others was Governor Rafael Buenave
ntura. To honor him and the qualities that make a good BSPer, the Monetary Board
has approved a donation of P5 million to the Rafael B. Buenaventura Foundation
which will support early detection and treatment of indigent cancer patients. Th
e generosity of the men and women of the Bangko Sentral is also the reason why,
this morning, we are able to turn over to the Gawad Kalinga more than P3 million
in donations from the hearts and pockets of BSPers. And because you have been a
blessing to the Bangko Sentral ng Pilipinas, to our country, and to our people,
I will now give you the good news you have been waiting for! First, we now have
new facilities for BSPers and a new exhibit at our Money Museum. Please take ti
me to enjoy all these. Second, I am pleased to announce that yesterday, the Mone
tary Board approved the institutionalization of an annual Performance and Salary
Review in lieu of the Merit Increase Award starting 2007, with two components:
Component 1 annual one step adjustment in the salaries of all employees and offi
cials with performance rating of at least Satisfactory in previous year effective
January 1 of the year. Component 2 Performance bonus in the form of a one-time c
ash award for those with at least Commendable rating in the previous year. In addi
tion, the Monetary Board also approved the grant of two steps adjustment in sala
ry effective 1 January 2007, in addition to Component 1 of the Performance and S
alary Review, limited to the year 2007 grant. I suggest you call your friendly H
R personnel to help in your computation. Ladies and gentlemen of the Bangko Sent
ral ng Pilipinas. One thing I can say is this: the Monetary Board and senior man
agement will always be fair in terms of granting the compensation and benefits y
ou deserve..as central bankers imbued with the values of patriotism, integrity an
d excellence. Keep the faith in your management.
Global Awareness of the Philippine Market

Occasion: Reuters reception to showcase Philippine market data
Ladies and gentlemen, good evening. I am pleased to join you tonight in an event
that showcases Philippine market data. Efforts such as this to increase global
awareness of the Philippine market contribute to the development of more transpa
rent and efficient local capital markets. I am sure you all agree that reliable,
accurate and timely information is a key ingredient in the development and smoo
th functioning of capital markets. In particular, this initiative of Reuters hig
hlighting the performance of the Philippine market couldnt be more timely. The ye
ar 2006 has seen a vibrant Philippine economy and 2007 appears to offer a more r
obust and sustainable economic growth. Our first quarter GDP growth was at a hig
h of 6.9 percent; inflation remains low at 2.7 percent for the first five months
of the year; our gross international reserves is at a record high level of P25.
8 billion as of May; NPL ratios of our banks are, on the whole, at manageable si
ngle-digit levels; and bank lending is growing at double-digit rates. In other w
ords, our key indicators are pointing toward the right direction. The good news
is that positive sentiment on our economy is shared not only by domestic players
but by the international investment community as well. For instance, our net fo
reign portfolio investment inflows in the first five months this year amounted t
o $1.7 billion, over two and half times the figure in the same period last year.
Latest news reports also reveal major foreign investments that will be made in
the Philippines. Global Awareness In this regard, we wish to thank our partners
in the global information industry for their continued market coverage of the Ph
ilippines. The publication of economic fundamentals, market technical factors an
d related news, such as the Country Overview page and the new Philippine Gateway m
odel available in Reuters, helps increase global awareness of the Philippine mar
ket. By increasing global awareness of the Philippine market, we reveal our inve
stment prospects to a wider audience. This is crucial for the development of our
domestic capital markets. Reliable, accurate and timely information about the P
hilippine market enhances market transparency, improves the price-discovery proc
ess and helps market participants make more informed decisions. The Bangko Sentr
al is an ardent advocate for efficient dissemination of information in accordanc
e with the good governance practice of market transparency. Among others, the BS
P, along with other market regulators and participants, is supporting the develo
pment of a market infrastructure that improves dissemination and disclosure of i
nformation related to securities trading. Likewise, the BSP recently issued valu
ation guidelines specifying the benchmark or reference prices to be used in mark
ing-to-market securities. This is consistent with BSPs previous issuances of rule
s and regulations governing accounting for investments in debt and equity securi
ties. Overall, these rules and regulations are in accordance with BSPs policy to
align local financial accounting standards with the International Accounting Sta
ndards to promote full transparency and disclosure, which in turn would strength
en market discipline, encourage sound risk management practices and stimulate th
e domestic capital markets. Concluding Remarks In conclusion, we believe that th
e success of reform initiatives cannot be achieved without the participation and
support of market players. The spotlight Reuters has given to the Philippines,
therefore, is indeed most welcome. Clearly, our growing economy needs support fr
om local and foreign investments. We are optimistic that with the cooperation of
the private sector, particularly prestigious organizations such as Reuters, we
can achieve balanced and sustainable economic growth for our country. Thank you
all and good evening.
Launching Program for the BSP e-Rediscounting System (ERS) in La Union

Venue: La Union Convention Center
Occasion: Launching Program for the BSP e-Rediscounting System (ERS) in La Union
Members of the Monetary Board, distinguished officers of the various association
s of rural banks, other bankers, staff of the participating banks coming from La
Union and other parts of Regions I, II, III and the Cordillera Administrative R
egion (CAR), colleagues at the BSP, distinguished guests, friends from media, la
dies and gentlemen, good morning. It is indeed a great pleasure for all of us fr
om the BSP to be here in La Union today. The members of the Monetary Board are h
ere to witness the launch of the e-Rediscounting System and allow me to acknowle
dge them (again): MBM Vicente Valdepeas, Jr., MBM Raul Boncan, MBM Juanita Amaton
g (who was introduced earlier), MBM Nelly Villafuerte and MBM Alfredo Antonio, A
lternate Member Marge Songco. Aside from this launching of the e-Rediscounting S
ystem, the Monetary Board will also be holding its regular meeting here this aft
ernoon. We likewise have our senior management with us: DG Diwa Guinigundo (who
was introduced earlier), DG Armando Suratos, DG Nestor Espenilla, Jr. and Gen. C
ounsel/Asst. Gov. Juan de Zuniga, Jr. Our presence here shows the importance tha
t we attach to understanding and getting better appreciation of local conditions
so that we can respond more appropriately and effectively to the needs and requ
irements of the community. So lets all take advantage of this opportunity, wed app
reciate any suggestion or feedback that you might wish to give us, perhaps over
lunch. Since the unveiling of the BSPs e-Rediscounting System in Manila in Decemb
er 2006, then in Cebu City in March 2007, the banking industry and the business
community have responded positively to this online, internet-based system. Indic
ative of their strong interest to participate, a total of 112 banks consisting o
f 21 commercial banks, 9 thrift banks and 82 rural banks have already qualified
and participated in the e-Rediscounting System in just about five (5) months sin
ce the initial unveiling in Manila. We expect to expand the number of participat
ing banking institutions by 7 more banks today here in La Union and by an additi
onal 11 banks in Davao when we launch this system next month. These should bring
the overall number of participating entities to 130 banks. In terms of volume o
f e-rediscounting loans (as of 31 May 2007), we are pleased to report that loans
released by the BSP Head Office in Manila already amounted to P10.6 billion. In
addition, the BSP Regional Offices had released some P700.5 million e-rediscoun
ting loans during the period. Todays launch of the BSPs e-Rediscounting System her
e at the La Union Convention Center is expected to break new ground in BSP lendi
ng. The introduction of a real-time loan refinancing facility to help banks in L

a Union and in the neighboring areas of Regions I, II, III and the CAR is expect
ed to scale up their lending capability and help pump-prime the local economy. I
n the process, this innovation in refinancing technology is expected to signific
antly improve the credit access for exporters and small, medium, and micro-enter
prises in this part of the country. These liberalized rediscounting guidelines,
together with the requirement under the Electronic Commerce Act of 2000 for gove
rnment offices to integrate electronic data documents and processes in their tra
nsactions, provided the basis for the development of the e-Rediscounting System.
The preparatory work for the paperless rediscounting scheme began in March 2006
, with the issuance of BSP Circular No. 515. Aligned with the objective of maint
aining price stability, new policy guidelines were established under the circula
r towards a more consistent, transparent, and efficient BSP rediscounting facili
ty. The main objective of the e-Rediscounting System is the simplification, stan
dardization, and automation of loan processes and payment procedures. The frontend system of e-Rediscounting allows qualified banks to conduct their rediscount
ing transactions with the BSP through the Internet. The back-end system automate
s the processing of loan applications, crediting of loan proceeds, debiting of t
he demand deposit accounts of banks with BSP for loan payments and generating ac
count entriesall in less than 10 minutes. This paperless rediscounting facility a
llows banks to file or send loan applications and payments with the BSP on a rea
l-time basis, and is a landmark improvement from the manual system which takes a
t least three days to process before the loan proceeds are released to borrowerbanks. At this point, let me take this opportunity to thank the officers of the
pilot and participating banks. They have made their resources available in the c
onduct of the test runs of the system and have provided us important information
in the process. Equally essential in the smooth operations of the e-Rediscounti
ng System is the participation of the officials and staff from the BSP, particul
arly from the Department of Loans and Credit and the Information Technology Subsector. Ultimately, our shared vision is to deliver fast, adequate, and affordab
le credit to the public, particularly to our small- and medium-sized borrowers f
rom the countryside. I am confident that this vision is now more attainable with
the help of the business and banking sectors as collegial partners of the BSP.
Working together towards the realization of this vision, we become more mindful
of our common goal, which is to promote the sustained and robust growth of the e
conomy. This we endeavor to attain by empowering each and every Filipino as ente
rprising and dynamic agents of overall economic growth. Thank you and good day.
RBAP-MABS: Providing Wider and Deeper Access to Microfinance

Venue: Manila Hotel
Occasion: Celebration of the Rural Banking Industrys 10 Years of Success in Micro
finance under the RBAPs MABS Program
Hon. Secretary Cerge Remonde, Ambassador Kristie Kenney, General William Hotchki
ss, members of the Rural Bankers Association of the Philippines, fellow central
bankers, special guests, good morning. On behalf of the Bangko Sentral ng Pilipi
nas, I congratulate the rural banks, the USAID, and other enabling institutions
represented here today as we celebrate ten years of success in providing microfi
nance services under the Microenterprise Access to Banking Services Program. Ind
eed, the RBAP-MABS partnership is a successful empowering program that continues
to bring much needed financial services to clients in the countryside. For a co

untry like ours where roughly 99% of total enterprises are micro, small and medi
um enterprises or MSMEs, which in turn employ about 70% of our workforce, a succ
essful program such as MABS is bound to have a significant impact. Beginning wit
h the first loan disbursed by the Rural Bank of Sto. Tomas ten years ago, MABS b
anks have since disbursed more than a million loans to over 350,000 borrowers, ..
spurring the growth and development microenterprises and, in the process, transf
orming lives and communities for the better. Surely, we should celebrate milesto
nes such as this. At the same time, this ten-year milestone compels us to assess
how we can deliver appropriate microfinance services in an even better and more
cost-efficient manner to more of our countrys entrepreneurial poor. Fortunately,
recent developments in the industry are opening new opportunities and presenting
us with interesting possibilities that can lead to revolutionary ways of provid
ing better microfinance services. First among these developments is the changing
face of microfinance itself. Gone are the days when microfinance was synonymous
only to microcredit or small loans. Today, microfinance institutions are provid
ing a wide range of financial services to their clients such as savings, remitta
nces, transfers and, increasingly, micro-insurance. In addition, microfinance in
stitutions are also capitalizing on proven technologies and methodologies of mic
rofinance to conceptualize, design and deliver other types of financial products
. One example of such product is the micro-agri product, or MAP, which was desig
ned and pioneered by the MABS member banks present here today. You recognized th
e possibility of combining the best practices of microfinance with the salient f
eatures of agricultural finance, to develop a product that is responsive to the
needs of the agriculture sector, specifically the poor farming households. The B
angko Sentral supported this innovation and, after a thorough product evaluation
, allowed micro-agri loans to be classified as microfinance loans. In so doing,
micro-agri loans today enjoy the same benefits as microfinance loans including no
collateral requirements, cash flow and character based lending, small and frequ
ent amortizations, as well as simple documentary requirements. Through MAP, ther
efore, we have addressed the hurdle typically faced by small farmers when access
ing financial services to grow their production and expand their economic activi
ties. Advances in technology are also providing new vehicles for the delivery of
microfinance services. The use of mobile phones in select microfinance transact
ions is a specific example. Once again, our rural banks are at the forefront of
this undertaking, developing a revolutionary solution for low value payments tha
t characterize microfinance loans, through linkage with electronic cash platform
s of telecommunication companies. In fact, as of end March 2007, there were alre
ady 43 rural and cooperative rural banks offering electronic banking services pa
rticularly mobile phone banking. This lowers transaction costs, increases produc
tivity, minimizes cash-on-hand risk, and increases over all accessibility of fin
ancial services. In a country like ours where mobile phone usage is one of the h
ighest in the world relative to population, the potential for revolutionizing el
ectronic banking in the countryside could be dramatically significant. In fact,
a concept paper of the MABS and Globe Telecom outlining the expansion and rollou
t of mobile banking applications to microfinance clients of MABs participating b
anks has been selected for support under the Consultative Group to Assist the Po
or Technology Program. The President of the Global Development Program at the Bi
ll and Melinda Gates Foundation said that by supporting pilots with new technolog
ies that have the power to dramatically change the business model of delivering
financial services, we can help expand access to financial services for hundreds
of millions of poor people. As proposed, the mobile phone banking applications w
ill convert mobile phones into virtual wallets for receiving and paying loans, dep
ositing and withdrawing money, sending and receiving remittances, purchasing and
selling goods and services and making bills payments. The MABS-Globe Telecom pr
oposal was one of nine selected from more than 70 projects submitted from 38 cou
ntries. Nevertheless, even as the Bangko Sentral is responsive to these new deve
lopments and technological innovations, it continues to ensure that attendant ri
sks are properly managed. Thus, the Bangko Sentral has set in place the necessar
y regulations and procedures that cover electronic banking risk management, secu
rity procedures, internal controls, anti money laundering regulations, know your
client requirements, as well as consumer protection. We have even created, with
in our Supervision and Examination Sector, a Core Information Technology Supervi
sory Group (CITSG) to keep abreast with the latest developments in electronic ba
nking. In parallel with the BSPs liberalized branching regime, these technologica
l innovations should enable banks to widen and deepen its reach to unserved and
underserved bank clients in both rural areas and urban centers. There are other
products using microfinance methodologies and technologies that are gaining inte
rest. In our case, we at the Bangko Sentral ng Pilipinas are reviewing the provi
sion of housing microfinance, which can boost the financing needs of the low cos
t housing sector. Finally, we recognize the increasing participation of large co
mmercial players in the microfinance industry. We are seeing commercial banks an
d social investors providing loans, equity or assistance to retail microfinance
institutions. These new linkages and partnerships should lead to a wider range o
f products, broader distributions systems, development of local currency capabil
ity and ability to hedge foreign currency by MFIs, local capital market developm
ent for microfinance, and finally put microfinance in the economic mainstream. A
t the BSP, we are looking at various ways through which these partnerships can b
e fortified. We have conducted networking meetings between commercial banks and
retail institutions; we have also responded positively to requests from various
interested parties to learn more about the intricacies of microfinance operation
s. And late last month, we issued Circular 570 which recognizes microfinance loa
ns of commercial banks to non-bank microfinance institutions as alternative comp
liance to the mandatory credit allocation of 6% to small enterprises. This is an
important incentive for banks to provide more wholesale loans that will increas
e the microfinance operations of retail institutions. Indeed, exciting developme
nts are happening in the microfinance sector. I am pleased to note in particular
that MABS banks have kept in step with the dynamism that has characterized this
industry in the last decade. Together, you have achieved much; but you should n
ot rest on your laurels. We still have a long way to go in terms of reaching out
to many more of our entrepreneurial poor. The challenge for rural banks, theref
ore, that are at the forefront of our microfinance movement, is to further widen
and deepen the reach of microfinance to liberate our industrial entrepreneurial
poor from poverty. This challenge can be surmounted by strong and vibrant banks
that are committed to continuously upgrade their capacity, uphold performance s
tandards, and adhere to best practices at all times. Key areas of governance, ef
ficiency, risk management, sustainability and quality of operations should be co
ntinuously developed and strengthened. This should lead to sound and well-manage
d institutions that can take advantage of market opportunities while adequately
managing associated risks. In this regard, MABS banks seem well positioned to ta
ke on this challenge. Anchored firmly on your commitment to sustainable microfin
ance, we have seen how your policy of zero tolerance to delinquency, emphasis on
adequate internal controls and investments in systems and human capacities have
resulted in positive gains for your member banks. On the part of the BSP, we wi
ll continue to look at ways in which banks can have a wider scope for their micr
ofinance operations. We will remain responsive to the changing demands of the in
dustry by maintaining a positive enabling policy and regulatory environment for
microfinance. In addition, we will continue with our major reforms toward a more
robust financial system and in fostering greater competition aligned with inter
national standards within our banking sector. Our regulations will continue to f
ocus on critical areas of strengthening board and institutional governance, impr
oving banks balance sheets and upgrading risk management systems. We at the Bangk
o Sentral look forward to continuously working with RBAP to achieve our common g
oal of local economic development by creating opportunities for entrepreneurship
, nourishing local enterprises and building prosperity in the countryside throug
h microfinance. Thank you all and good morning. Mabuhay ang microfinance!
Opening Remarks
Occasion: Eighth Environmental Scanning Exercise: Basel II and Risk Management
Members of the Monetary Board, distinguished speakers, colleagues at the Bangko
Sentral, good afternoon. This is the 8th in our series of Environmental Scanning
Exercises (ESEs). For the information of our guests, it may be helpful to note
that we have been holding ESEs since 2004. I would like to begin by expressing m
y appreciation for our speakers who will share with us their insights on the top
ic of Basel II and Risk Management. The implementation of Basel II is expected t
o have significant implications on the stability of the banking system as well a
s the conduct of monetary policy. In particular, the new capital adequacy standa
rds under Basel II should lead to enhanced financial stability as banks are able
to: (1) provide capital commensurate to their risk-taking activities; (2) prope
rly assess the risks they are taking while supervisors should be able to evaluat
e the soundness of these assessments; and (3) appropriately disclose pertinent i
nformation. In turn, the greater resiliency in the banking system is expected to
increase the credit and lending activities of banks and thus contribute to a mo
re efficient transmission of monetary policy actions. Our discussion today is me
ant to provide inputs for the assessment of policies that could help improve the
banking systems risk management processes and efficiency as well as provide a le
verage to stimulate the diagnosis of, and improvements in, the supervisory frame
work. I take a special interest in todays topic for two main reasons. The first r
eason is that next month will mark the beginning of the process of aligning our
existing supervisory framework with the standardized approach of Basel II by Phi
lippine banks, which is a shift in bank capitalization standards approved by the
Monetary Board in June 2006. This makes true our expressed commitment to be amo
ng the countries that are expected to implement Basel II between 2007 and 2010 1
. The implementation of Basel II sets a new dimension in the supervision of the
financial system. This is a major step in the groundwork for the revision of ris
k-based capital adequacy framework of the BSP, some of the initial preparations
of which started even before the Asian financial crisis. Moreover, we are aware
that our effectiveness as supervisor of banks is as important as the skills avai
lable in the banks to implement Basel II 2. Hence, we have invested heavily in e
nhancing our supervisory capacity to keep up with the task. This we have done co
ntinuously and in line with international best practices. Second, this new frame
work is relevant to our aim of promoting and maintaining monetary and financial
stability in the country. As I have stated earlier, Basel II strengthens the lin
k between regulatory capital and risk management as it will help us ensure that
banks will maintain capital appropriate to their risk-taking activities. Banks a
re also expected to properly assess and manage the risks. Moreover, banks would
be required to disclose pertinent information necessary to enable market mechani
sms to complement the BSPs supervisory oversight function. These intensified effo
rts to deepen and accelerate the evaluation, measurement, and disclosure of risk
s under Basel II are expected to strengthen the financial system. In this regard
, risk management is consistent with the greater transparency and forward-lookin
g nature of Inflation Targeting (IT), which is the monetary policy framework tha
t the BSP has been using since 2002. As in the IT approach, a wider set of infor
mation and disclosure requirements are used to enhance risk management. There is
also more emphasis on anticipation of risks over a longer horizon and on greate
r sensitivity to market views. As a major channel for monetary policy, a stable
financial system is a necessary condition for inflation targeting to work well i
n this country. Let me now pose some questions that our experts may want to cons
ider for discussion. 1. What are the key challenges encountered by commercial ba
nks in their preparations? 2. What are the implications of the new supervisory f
ramework on intermediation activities of banks and their financial stability, go
vernment borrowing, investment and capital flows, and the conduct of monetary po
licy? 3. Will Basel II increase procyclicality as there are arguments that adopt
ers may tighten credit standards in response to rising capital requirements in t
he event of a deterioration in credit conditions? Will current developments such
as reserve accumulation and rising liquidity in Asia affect the adoption of Bas
el II in the country? 4. Will the change in the supervisory framework lead to fu
rther restructuring of the banking system through mergers and consolidations? 5.
How extensive will be its impact on bank lending for the country, and for devel
oped and emerging economies? The implementation of Basel II underscores the BSPs
commitment to deep and far-reaching reforms to promote the stability and soundne
ss of the banking system. It also reflects our confidence in the ability of the
banking industry to adapt to new operating standards. The challenges posed by th
ese new standards will allow for the transformation of bank practices over time,
and thus, provide greater financial resiliency and sustainability in the econom
y. I am confident that banks will, beyond compliance, remain supportive in their
stance to facilitate a more collaborative implementation of Basel II as we both
continue to learn and adapt. The issues tabled for discussion for todays environ
mental scanning exercise are varied. I am certain that we all look forward to a
fruitful discussion and exchange of insights with our speakers. Thank you. _____
___________________________________ 1 This was according to Chris Matten of Pric
e Waterhouse Coopers in Basel II: Latest Developments and Their Implications 2 S
ource: Chris Matten of Price Waterhouse Coopers in Basel II: Latest Developments
and Their Implications
Keynote Address
Occasion: PSA Summer Conference, Theme: OFWs: Bagong Bayani, Ilan Ba Talaga Kayo?
PSA President Isidoro David, MBM Valdepeas, other officers and members of the Boa
rd of Directors of PSA, Heads of the various statistical agencies, Resource Pers
ons and Reactors, my colleagues in BSP and fellow workers in government, sponsor
s, ladies and gentlemen, good afternoon. The Bangko Sentral ng Pilipinas is plea
sed to co-host with the Philippine Statistical Association (PSA) this years summe
r conference on the theme: OFWs: Bagong Bayani, Ilan Ba Talaga Kayo?. Over the pas
t few decades, OFW deployment has had a profound impact on our economic and soci
al dynamics. Research and statistics pertaining to OFWs are becoming increasingl
y indispensable in establishing and assessing these effects. It is thus critical
that various agencies and institutions and producers and users alike of OFW-rel
ated statistics are convening today: first, to clarify the official headcount of
OFWs, given various sets of data; and second, to provide accurate measures of O
FW remittances. The best way to start our consultation today is to recognize tha
t the onset of globalization has heightened trade and investments across countri
es. Equally important, labor migration and cross-border employment have also inc
reased. As a result, both the issues of migration and cross-border remittances h
ave attracted growing attention from a greater number of policymakers, academici
ans, international organizations, and market practitioners, over the years. At t
his stage, however, there is still a lot of ground to cover on the statistical f
ront. We have yet to update and strengthen our database to fully satisfy the nee
ds of policy and program formulators . How important is the information? . We ne
ed to regularly monitor overseas employment as basis for policy and program form
ulations for advancing the cause of protecting our overseas workers and enhancin
g their welfare and of their families. Another key issue is the impact of intern
ational movement of persons on our demographic structures, expenditure patterns,
social structures and poverty levels. Likewise, we recognize the importance of
overseas employment in helping ease the pressure of unemployment and in boosting
the national economy by helping increase the foreign exchange reserves. There a
re of course second-order effects of higher foreign exchange inflows, including
the impact on the domestic currency and external competitiveness. But to me, it
is fundamental to first address the current challenges and measurement issues th
at have very important analytical and policy bearings. This conference will hope
fully help pave the way to clarify such issues. First, let us look at the statis
tics on the number of OFWs. Our theme for today, OFWs: Bagong Bayani, Ilan Ba Tal
aga Kayo?, suggests that we are not yet certain exactly how many are our OFWs, an
d more generally, how many Filipinos are overseas. Accuracy in this aspect may r
eally be a challenge because what we want to monitor are people who are always o
n the move. At present, there are various agencies producing OFW-related statist
ics. The Philippine Overseas Employment Administration (POEA), the Overseas Work
ers Welfare Administration (OWWA) and the Commission on Filipinos Overseas (CFO)
, on the one hand, maintain statistics based mostly on administrative records as
an offshoot of their functions. On the other hand, the Bureau of Labor and Empl
oyment Statistics and the National Statistics Office, have data based on labor f
orce surveys and census of population and housing. We need to understand how the
se data from various agencies are interrelated. The first key question is: is th
ere a uniform definition of what an OFW is?. For instance, in the Census of Popu
lation of Housing, overseas workers are defined as those who had been away for n
ot more than five years from date of last departure. Do the other agencies produ
cing OFW statistics adopt the same definition?. Is it possible to integrate and
reconcile these sets of data from various sources to come up with one, uniform,
comparable set of data on OFWs and overseas Filipinos?. The next question is: ho
w are the definitions linked or reconciled with definitions in other macroeconom
ic statistical frameworks such as the 1993 System of National Accounts (1993 SNA
) and the 5th edition of the balance of payments manual (BPM5), which adopt a on
e-year residency criterion for determining who are the residents of a particular
economy?. What are the implications of adopting different sets of definition in
our economic statistics and in economic analysis?. While there are efforts in t
he Inter-Agency Technical Working Group (TWG) on Overseas Filipino Statistics to
formulate the operational framework, concepts and definitions for overseas Fili
pinos, this conference could clarify the differences in the sets of data current
ly available. Second, on the remittance data. We have already seen the size of O
FW remittances doubling within the last five years. With its growing importance
to our economy, we need to place emphasis on its accurate measurement. We are aw
are that remittances are by themselves already inherently difficult to measure,
since they are composed mostly of numerous small, frequent transactions, carried
out by a multitude of transactors through a complex structure of originating an
d delivering agents here are also other measurement concerns including appropria
tely capturing remittances of non-resident OFWs which are invested in financial
instruments or physical assets such as real estate. Moreover, a certain amount o
f remittances still flow through informal channels, which should be measured to
determine the amount of global remittances. Given the present range of remittanc
e channels, and the expected increased complexity of the structure of service pr
oviders in the near future, accurate measurement of remittances remains a challe
nge for statisticians. We therefore need to collectively consider and design the
best approach that will measure remittances in the most accurate and timely man
ner, going forward. This will not necessarily be an easy task. Even at the inter
national level, the conventional wisdom is that there is no unique best source of
data, or collection approach, due to the complexity of the phenomenon. Therefore
, from a purely technical standpoint, a reasonable strategy would be to appropri
ately combine different sources and methods, e.g., bank reports data, household
surveys, other administrative-based data, even econometric and demographic model
s, that will allow for integration, cross-checks and reciprocal confirmations. M
oreover, data on remittances should not be considered in isolation from data on
stock of workers and deployment of overseas workers, as well as wage rates, wage
increases and inflation in host countries. At the end of the day, there have to
be reasonably explainable patterns and links among these variables that will al
low for more informed economic analysis, decision making and policy-making by th
e government. On this note, highly commend the Philippine Statistical Associatio
n for organizing this conference on the subject. We hope that this forum will se
rve as a catalyst for further statistical research and studies on the OFW phenom
enon. We also thank the sponsors of this conference for their support. For its p
art, the Bangko Sentral ng Pilipinas remains committed to its objective of impro
ving the remittance environment for the benefit of our OFWs particularly by faci
litating the reduction of remittance costs in the Philippines and in host countr
ies, and by helping channel foreign exchange savings to microenterprises and oth
er investment opportunities. The BSP also fully supports the statistical improve
ment efforts that will help ensure that the government will formulate its policy
decisions based on solid statistical ground. Maraming salamat po, at magandang
hapon sa inyong lahat.
The 5th Microentrepreneur of the Year Awards

Venue: Century Park Sheraton Hotel, Manila
Occasion: Launching of the Microentrepreneur of the Year Awards Program
Magandang umaga po sa inyong lahat! Ladies and gentlemen. The video we just watc
hed and the inspiring message of our 2006 National Winner Ms. Jennilyn Antonio. s
erve as further validation of the power of microfinance to liberate people from
poverty and to transform them into industrious and self-reliant microentrepreneur
s. These are microentrepreneurs who overcome challenges to become employers them
selves and in the process become agents for economic development in their respec
tive communities. Again, let us give them a big hand! Todays event is special the
refore as this is a gathering of our microentrepreneurs and advocates of microfi
nance, including the members of the board of judges of the Citi Microentrepreneu
r of the Year Awards, representatives from the Microfinance Council of the Phili
ppines headed by Ms. Mila Mercado-Bunker, executives of Citi - Mr. Sanjiv Vohra
and Mr. Robert Morse, fellow central bankers, my colleagues at the Monetary Boar
d, our guests from the media, and other special friends of the microfinance sect
or. This is the fifth Microentrepreneur of the Year Awards (MOTY) and the third
time I am participating as co-Chairman of the National Selection Committee. Toge
ther with the other members of the board of judges, I have had a front row seat,
so to speak, in watching microenterprises evolve and develop in various ways, i
n the different parts of our country. I have also seen this Awards program evolv
e and improve in accordance with its objectives of recognizing outstanding micro
entrepreneurs and highlighting the role of microfinance and entrepreneurship in
poverty alleviation and economic development. Now, we have higher prize awards,
more nominees, wider geographical representation and new award categories. Credi
t for this goes to Citi, the Citi Foundation, the Microfinance Council of the Ph
ilippines and the Bangko Sentral ng Pilipinas. Friends, lets give them a well-des
erved round of applause! Much like this Awards program, the microfinance industr
y in the Philippines also continues to evolve, grow and break new grounds. At th
e Bangko Sentral, the challenge is for us be responsive to the changing demands
of the industry, specifically in areas of policy, supervision and regulation. La
st year, for instance, the Bangko Sentral approved the Micro-Agri Product (MAP)
to address the financing needs of small farmers. Under this program, banks with
microfinance operations are allowed to extend credit to clients with small agric
ultural activities using microfinance methodologies. In effect, these micro-agri
loans are given the same regulatory treatment as microfinance loans, including
the no-collateral provision. Nevertheless, while the Bangko Sentral is open to i
nnovations, it continues to be prudent as the agriculture sector has its own uni
que intricacies and risk profile. Accordingly, we have set in place certain para
meters. to ensure that risks associated with agriculture finance are properly man
aged. There is also growing interest in providing housing microfinance and even
micro-insurance, using microfinance methodologies and technologies. For instance
, one of the countrys leading microfinance institutions - the Center for Agricult
ure and Rural Development or CARD - has formed a Mutual Benefit Association whic
h offers micro-insurance to over 300,000 clients. This is yet another tool that
minimizes vulnerabilities from poverty. I have been informed that the Insurance
Commission has recognized CARD for its significant contribution in increasing th
e number of insured Filipinos. In addition to product development, the microfina
nce industry is also working on more efficient delivery channels to lower costs
and increase its reach. One delivery channel that is gaining much interest is th
e use of mobile phones for selected microfinance transactions. Through electroni
c cash platforms --- such as Smart Money and Globe G Cash-- mobile phones are ab
le to make payments and transfers, send remittances, or make purchases. This bea
rs much potential for a country like ourswhere the mobile phone sector serves pra
ctically all income groups and where the number of mobile phone users and usage
are among the highest in the world. New technologies present a unique opportunit
y to reach a wide range of clients including the lower income segments of our po
pulation, who are traditionally marginalized and unbanked. For instance, the Rural
Bankers Association of the Philippines- Microenterprise Access to Business Serv
ices (RBAP-MABS) has a joint project with Globe Telecom to provide banking servi
ces using the G-cash platform. At present, select banks are offering products su
ch as Text A Payment and Text A Deposit. These products allow clients to pay the
ir microfinance loan amortizations and make deposits without going to the bank b
ranch or waiting for the field collectors. Indeed, this is a revolutionary solut
ion for low value payments which has dramatically lowered transaction costs for
both the bank and the client, increased the productivity of account officers, de
creased cash-on-hand risk, and increased access to financial services. Through a
ll these innovations, the regulatory focus of the Bangko Sentral is to ensure th
e underlying soundness of banks with appropriate risk management measures. In th
is regard, the Bangko Sentral has set in place the necessary regulations and pro
cedures that cover electronic banking risk management, security procedures, inte
rnal controls, anti money laundering and consumer protection. We have even creat
ed, within our Supervision and Examination Sector, a Core Information Technology
Supervisory Group to keep abreast of the latest developments in electronic bank
ing. Together with the BSPs liberalized branching regime, these technological inn
ovations should enable banks to widen their reach to unserved and underserved cl
ients in both rural areas and urban areas. Another positive development is the i
ncreasing participation of large commercial players in the microfinance industry
. More and more commercial banks and social investors are seriously looking at p
roviding loans, equity, or assistance to retail microfinance institutions. These
new linkages and partnerships should lead to a wider range of products, broader
distribution systems, development of local currency capability and ability to h
edge foreign currency by MFIs, capital market development for microfinance, and
finally put microfinance in the economic mainstream. At the Bangko Sentral, we c
ontinue to explore ways to strengthen and sustain these partnerships. Among othe
rs, we conduct networking meetings between commercial banks and retail instituti
ons. And just two weeks ago, the Monetary Board approved the classification of c
ommercial banks microfinance loans to non-bank microfinance institutions. as alter
native compliance to the mandatory credit allocation of 6% to small enterprises.

This is a significant incentive for banks to provide wholesale loans that will
increase the microfinance operations of retail institutions. Indeed, exciting de
velopments are happening in the Philippine microfinance sector, indicative of th
e dynamism and creative energy that have characterized it in the last few years.
Those of us who have seen the microfinance sector evolve and grow, are justifia
bly proud of where it is today. We have witnessed hope grow in the midst of pove
rty, seen lives change for the better, and communities grow in the process.throug
h the transformative power of microfinance. I am pleased to report to you that a
s of December 2006, total outstanding loans of 212 banks to more than 650,100 mi
crofinance borrowers had exceeded P4 billion. Also as of December last year, the
se borrowers had accumulated modest savings averaging P2,000 (two thousand pesos
) each or a total of about P1.4 billion! But, ladies and gentlemen, you and I kn
ow there is still so much more that needs to be done. Millions of Filipinos stil
l live in poverty, without access to financial services that could empower them
to better their lives. There is therefore an urgency to sustain our momentum, to
bring microfinance to where it is needed the most, and thereby make a differenc
e in uplifting the quality of life of our entrepreneurial and industrious poor.
In this regard, we thank all those involved in the Microentrepreneur of the Year
Awards for providing our future microentrepreneurs the hope, and the inspiratio
n, that they, too . can have better lives with their families and with other memb
ers of their community.. through microfinance. Mabuhay ang Microfinance! Marami p
ong salamat sa inyong lahat.
Harnessing Credit for a Better Life for All

Venue: Manila Hotel, Manila
Occasion: 75th anniversary of Credit Management Association of the Philippines
Senator/Governor/Sec. Joey Lina, President Marlo Cruz, ladies and gentlemen of t
he Credit Management Association of the Philippines, special guests. Good mornin
g. On behalf of the Bangko Sentral ng Pilipinas, I congratulate the Credit Manag
ement Association of the Philippines on its diamond anniversary. There are few o
rganizations that can claim such longevity. This is, indeed, admirable! And whil
e your organization may be old, your members definitely are not. I believe that
your longevity is due to a clear vision of what your organization can.and should
do. As President Marlo earlier mentioned, your organization was officially incor
porated as the Association of Credit Men (Phils.) Inc. in 1932, exactly seventyfive years ago today, ..when our country was still under American rule, and our p
opulation was roughly about 15 million. Since then, the Philippines has won its
independence; your association has changed its name to the Credit Management Ass
ociation of the Philippines a recognition of the equally important role women pl
ay in credit management; while our population has multiplied 5 times to 84 milli
on! Through all these changes, CMAPS reason for being has remained constant: cred
it information exchange. It is a tribute to your founding fathers vision that the
y identified this vital cooperative undertaking very early in our economic histor
y. With the significant growth of our economy since then, and the associated dem
and to finance it, effective credit management has become todays imperative to su
stain our countrys development. For this, we need a comprehensive and unified app
roach to credit information. This is the reason why the Bangko Sentral ng Pilipi
nas is a strong supporter of the proposed legislation that would create a centra
lized credit information bureau that will provide comprehensive information on c

redit histories. As envisioned, this centralized credit information bureau will
improve the quality of financial information available to creditors; enhance cre
dit access of institutions and individuals; lower interest rates and facilitate
loan processing particularly for borrowers with good credit record; minimize exp
osure to risks of financial intermediaries; and lower intermediation costs that
will benefit both the creditors and the borrowers. A recent World Bank study cov
ering 51 countries showed that having a credit bureau resulted in the following:
First, a marked increase in the volume of lending, particularly to previously e
xcluded sectors like the micro, small and medium enterprises. It said that with
a credit bureau, the probability of a small firm obtaining a bank loan increased
from 28% to 40%; and Second, lower default rates from stronger credit disciplin
e. In Brazil, for instance, complete reporting of credit information lowered def
ault rates from 3.37 percent to 1.84 percent. In the Philippines, a centralized
credit bureau could further reduce non-performing loans, which as of last Februa
ry stood at 5.6 percent for universal and commercial banks. Clearly, a credit in
formation system that will generate such benefits will boost our countrys economy
and our global competitiveness. I find it fitting therefore that the theme for
your 27th National Credit Congress is Credit Management: Key to Philippine Global
Competitiveness. Ladies and gentleman. As of February this year, total outstandi
ng loans of commercial banks, thrift banks and rural banks have reached P1.97 tr
illion. Compared to a year ago, this is higher by 7.7 percent. Considering that
our countrys economy, as measured by Gross Domestic Product, is targeted by the g
overnment to increase by 6.1% - 6.7% this year, it is likely that demand for loa
ns will continue to rise as well. Economic growth drivers are expected to be exp
orts, agriculture and the services sectors. Relatively low borrowing rates shoul
d also spur demand for loans, housing included. Access to credit is an important
element of economic development. The Bangko Sentral therefore is committed to t
he democratization of credit to ensure fair access to credit by all sectors of our
economy --- from blue-chip companies, to the man on the street, to start-up mic
ro-enterprises. Ladies and gentlemen. One of the challenges before us is to ensu
re that our microenterprises gain more access to credit. Already, we have made b
ig strides in encouraging banks to do microfinance. Today, more than 200 banks a
re providing microfinance services to over 650,000 micro borrowers, with a total
loan portfolio of over P4 billion. If we factor in the microfinance activities
of cooperatives and NGOs, nearly two million Filipino households now enjoy acces
s to microfinance services. Nevertheless, with millions of Filipinos still livin
g in poverty, we have to work harder and faster in terms of empowering our entre
preneurial poor . There is one important lesson we have learned from microfinanc
e: our borrowers may be poor, but they have good paying habits! Repayment rates
for microfinance loans in the Philippines are hitting as much as 98%! Nobel Peac
e Price awardee Muhammad Yunus of Bangladesh is another case in point. If you re
call, Mr. Yunus parlayed his microfinance model into the successful Grameen Bank
, with a total loan portfolio of $6 billion for 7 million borrowers. In other wo
rds, he has proven repeatedly that the entrepreneurial poor are bankable. He said
: Conventional banks look for the rich; we look for the absolutely poor. All peop
le are entrepreneurs, but many don t have the opportunity to find that out. Provi
ding credit access to SMEs is another challenge. According to the UPS survey of
SME competitiveness in Asia, Philippine SMEs consider access to funding and work
ing capital as obstacles to their competitiveness. I hope therefore that CMAP wi
ll find ways to help address these concerns. On our part, we at the Bangko Sentr
al ng Pilipinas have launched electronic rediscounting to spur lending activitie
s down to the countrysideand also to lower transaction costs of banks. With eRedi
scounting, banks may conduct their rediscounting transactions with the BSP in an
online, real-time basis.from their own bank premises. At the same time, the syst
em allows BSP to process rediscounting applications within 10 minutes, release l
oan proceeds on line, and accept online payments for banks rediscounting obligati
ons. In addition, the BSP is advocating the passage of the Corporate Recovery Ac
t to update the Insolvency Law by putting in place procedures for liquidation, a
nd thereby strengthen the framework for quick resolution of financially-distress
ed enterprises. This should balance the rights of creditors vis--vis debtors. I h

ope CMAP will support this as well. Another area for cooperation with CMAP is fi
nancial education. In this regard, I am pleased to inform you that the Bangko Se
ntral and the Department of Education are principal partners in the incorporatio
n of money management in elementary curriculum. The earlier children can learn a
bout money management, the better. The Bangko Sentral is also conducting money m
anagement seminars for OFWs and their dependents. We believe that learning the b
asics of money and credit management can help Filipinos make smart decisions tha
t will transform them into net savers and investors, fostering in the process, a
more self-reliant and more efficient economy. I hope therefore that consumer ed
ucation will be an important agenda item in CMAPs program as well. Ladies and gen
tlemen. CMAPs celebration of its diamond anniversary, brings to mind how diamonds
have evolved into symbols of wealth, strength and staying power. It is my hope
that CMAP will take on these characteristics of diamonds so that it will continu
e to play a pivotal role in helping bring about a better life for our people, in
our country. Again, our congratulations! Mabuhay ang CMAP! Mabuhay ang Pilipino
!
Nurturing Financially Literate Filipinos

Venue: Meeting Area, Executive Business Center
Occasion: MOA signing on the DepEd-BSP-EPRA Financial Literacy Project
Secretary Jesli Lapus, Dr. Cielito Habito, our partners from the Department of E
ducation and EPRA, special guests from the Bankers Association of the Philippine
s and the Chamber of Thrift Banks, fellow central bankers. Magandang umaga po sa
inyong lahat! On behalf of the Members of the Monetary Board, I thank our partn
ers at the Department of Education and EPRA for sharing our goal to teach money
management to our elementary students and to transform them into net savers. Spe
cifically, our program involves the incorporation into the elementary curriculum.
lessons in saving and money management, as well as the values of pagka-masinop (
prudence/avoiding waste), pagka-matipid (thrift), and pag-iimpok (saving). A sur
vey indicating that less than 5% of our youth regularly save moneylends urgency t
o our program. If we can turn the tide with our present crop of elementary pupil
s, this will have long-term benefits for them and, ultimately, our country. Add
to this the potential influence they can wield in their homes and in their commu
nities as change agents. Actually, there are other initiatives that are underway
under our Economic and Financial Literacy Program. In particular, the Bangko Se
ntral is at the forefront of a money management program for OFWs and their famil
ies; microfinance for the entrepreneurial poor; continuing economic and financia
l education for journalists; and consumer protection for bank customers. We are
also set to establish economic and financial literacy centers in BSP offices in
the province. Of course nurturing a new generation of savers and financially lit
erate adults entails a lot of work and unflagging commitment from all of us. For
this, we need all the help we can get. This is the reason why we at the Bangko
Sentral are very pleased that no less than the heads of our principal partners a
re here with us this morning. Ladies and gentlemen, let us give a big hand to th
e Honorable Secretary of Education Jesli Lapus who is known for his ability to t
ransform institutions and their human resources into models of excellence! Let u
s also give a round of applause to our other hardworking partners from the Depar
tment of Education! Bigyan din po natin ng masayang palakpakan si former Socioec
onomic Planning Secretary Dr. Ciel Habito who continues to be deeply involved in
making our country a better place! Palakpakan din po natin ang ibang EPRA repre
sentatives who are here. We are also pleased that we have with us today represen
tatives from the Chamber of Thrift Banks headed by Executive Director Suzanne Fe
lix; and the Bankers Association of the Philippines represented by its Executive
Director Topper Coronel. Let us also give our banker guests a big hand for they
continue to work with us closely on our economic and financial literacy program
s, including our successful and award-winning Tulong Barya Para sa Eskwela project
. Ladies and gentlemen. Tulong Barya Para sa Eskwela generated more than P6.5 mill
ion in cash donations for public elementary schools and savings of more than P8
million for the Bangko Sentral. This national lesson in savingproved beyond any d
oubt to our school children, that every little amount we can save will eventuall
y add up and even be the start of wealth creation! As our slogan says: Ang Barya
Mahalaga, Lalo na Kapag Pinagsama-sama. With the incorporation of money managemen
t into the elementary curriculum, we move to the next step and formalize the edu
cation of our children on this vital subject. Indeed, today marks a high point i
n our continuing program to educate and inform our people on basic economic and
financial concepts. Again, thank you to all our partners and to all others with
us today who share our commitment to economic and financial literacy programs. T
ogether, let us help Filipinos manage their personal finances well, transform th
em into net savers and help them identify options that can ultimately lead to we
alth creation. Maraming salamat po sa inyong lahat! Mabuhay ang mga Pilipino!
Trust Reforms: Positioning the Business for Growth

Venue: Hotel Intercontinental Manila
Occasion: First General Membership Meeting of the Trust Officers Association of
the Philippines (TOAP) for the year 2007
Distinguished directors and members of the Trust Officers Association of the Phi
lippines; fellow bankers, special guests, friends. Good evening. The invitation
of TOAP President Ma. Lourdes de Vera declared that you are adopting the Hawaiia
n theme tonight. I was also advised that if I chose to come in my usual business
attire, I will be given a lei. Naturally, I became curious. I remembered this w
ise woman who said: When a man brings his wife flowers for no reason, theres a reas
on. Tonight, you chose to bring the full bloom of flowers to this ballroom. Clea
rly, this is a celebration! Well, if the practitioners in our trust and fund manag
ement industry are celebrating, then we at the Bangko Sentral are here to congra
tulate you. TOAP has been and continues to be a dependable partner of the Bangko S
entral in promoting the development of our financial systemand in upgrading the q
uality and variety of financial services to the public. This is the reason why I
readily accepted your invitation for me to join you in your first general membe
rship meeting this year. In particular, I appreciate the fact that our trust pra
ctitioners specifically requested that I discuss banking reforms as they relate
to the trust industry. But first, I shall give you an overview, so that you can
appreciate the context of our reform agenda. Economic Prospects and Financial St
ability We are all witnessing a markedly more positive sentiment on our economy
as manifested in higher investment flows from abroad into both direct equity and
portfolio securities. Not surprisingly, domestic investor activity has likewise
perked up. These developments have re-energized our domestic financial markets.
To a major extent, the phenomenon is being driven by global liquidity condition
s, relatively benign global capital markets and generally stable world economic
conditions. These factors have made international investors more willing to look
at a broader array of investment opportunities, outside of the traditional favo
rites. But it is also true that smart money does not get into markets if the fun
damentals are not right. So, what are the positive things that investors are see
ing in the Philippines today? Well, you and I know that foremost of these is the
sea-change in our fiscal management. Fiscal discipline, prudence and political
will.have made a fiscal turnaround possible and a balanced budget attainable with
in two years. Investors also appreciate our ability to keep the lid on inflation
and maintain expectations well anchored.even in the face of challenges posed by
volatile oil prices, unpredictable weather conditions affecting food supply, and
periodic shifts in global market sentiment. Already, headline inflation has dro
pped to less than 3 percent, boosting our credibility to achieve our medium-term
inflation targets in a consistent manner. The significant strides in micro-leve
l structural reforms have also not gone unnoticed in such critical sectors as po
wer, transport and communications, agriculture, and of course, services includin
g banking and financial services. In banking, much progress has been made to cle
an up the stock of non-performing assets that built up since the 1997 Asian fina
ncial crisis. and banks have stepped up the pace in their re-capitalization effor
ts. Operational improvements have likewise been introduced to strengthen risk ma
nagement processes and to achieve more efficient operations. As a result, domest
ic bank balance sheets are stronger than they have ever been since 1997 and prof
itability has been restored. All of these developments are generating a positive
chemistry that goes hand-in-hand with windfall gains from our ever-growing remi
ttance flows and robust merchandise exports. This combination has resulted in un
precedented surplus in both the current account and overall balance of payments,
record-setting international reserve levels, and. external debt pre-payments. If
we continue to play our cards right, I believe there is a good chance that we c
an sustain this happy convergence. For BSP, the emerging challenge to monetary m
anagement and prudential supervision is the steady delivery of financial stabili
ty, even as domestic liquidity growth may temporarily accelerate under benign fu
ndamentals that we now have. We realize that the economy itself is undergoing st
ructural change. Therefore, we are conscious that our policy reaction should not
be dogmatic. The financial community that watches every move of the BSP must un
derstand this evolving dynamic, carefully analyze the situation, and not irratio
nally contribute to any potential instability. Having said that, there are guide
posts that remain clear. One is the principle of avoiding conditions of prolonge
d negative real interest rates that distort investment and consumption signals.
The BSP is very focused on this issue and is committed to adjust its policy sett
ings, its instruments, and its tactics with agility as circumstances warrant. I ho
pe these general remarks on emerging economic prospects and the challenges they
pose to BSP. are useful to your own decision-making processes. As professional ma
nagers and advisers to the public on the management of their steadily growing st
ock of financial savings, you play critical economic roles, in your own right. A
s interest rates moderate to lower level equilibrium, they will be in search of
alternative ideas with acceptable return. versus risk profile. This is apparent i
n the way deposits have grown vis--vis trust accounts in the last five years: a g
rowth rate of 47% for trust accounts versus 61% for deposits. As of end-2006, ba
nks reported P3.8 trillion deposits liabilities vs. P860 billion trust accountab
ilities. In that sensitive role, you share the responsibility to educate the inv
esting public on the nature of their potential choices and to uphold the integri
ty and stability of our evolving domestic financial markets. After all, this is
the ultimate foundation of investor confidence in these markets. This brings me
to the subject of the reform agenda that we believe can move the trust industry
to even greater heights. and allow it to take its rightful place in our financial
system. The harsh lessons of the bond and equity market sell-off in May 2006 th
at hit hard UITFs should not be so readily forgotten. Yes.there has been signific
ant recovery since then, for those who held their ground as markets rebounded as
expected,. but it cannot be denied that investors who panicked got hurt from tha
t unfortunate episode. On hindsight, the initial rapid expansion of UITFs amid t
he exuberance of the time.swept in investors who were not prepared for the higher
attendant risks that are the natural corollary of higher returns. Yes, all the
essential warnings were there both in regulations and in customer documents that
were duly signed. But it is equally clear, we still have some work to do in wea
ning investors from a depositor mind set and form more realistic expectations.if we
are to develop the domestic capital market as the second major pillar of our fi
nancial system. Recent developments make us more confident of a bright future fo
r our domestic capital market and the important role to be played by the trust i
ndustry. This includes the final approval by Congress of the long-awaited PERA b
ill which provides generous tax incentives to encourage individuals to voluntari
ly set-aside long-term savings: up to a maximum of P50,000 per year over their w
orking life, up to at least age 55 to supplement their retirement income. This i
s a great opportunity and challenge for the trust industry to design product cho
ices that conform faithfully to the laudable objective of this new law. Further,
the improving economic prospects also set the stage for progressive liberalizat
ion of our foreign exchange regime to allow for greater flexibility in overseas
investing. This should provide professional fund managers the necessary room to
maneuver the diversification of their portfolios and to access a richer variety
of qualified assets. for the benefit of their customers. Ladies and gentlemen. Th
e reform agenda must be pursued vigorously. if we are to secure the opportunities
. At the financial market level, the BSP is closely collaborating with key marke
t players through their respective industry associations, as well as with our fe
llow regulators particularly the SEC..to achieve more transparent and investor-fr
iendly markets. It is in this context, that we welcome the recent launch of the
new government securities benchmark system that can promote fair price discovery
, more effectively. We expect the trust industry to work within this new system
so we can achieve full transparency and comparability of performance. The new be
nchmark should also assist in properly valuing debt securities and other financi
al products like derivatives, repos, as well as securities borrowing and lending
arrangements and thus promote their acceptability to the market. As the galaxy o
f available domestic capital market assets expands and the market deepens.it is t
he trust industry that will be a clear winner. We are also working hard to const
antly improve the payments and securities settlement systems. It is basic that w
e aspire to fully achieve efficient DVP settlement in all securities transaction
s. in line with global standards in the area. This is critical to both investor p
rotection and market stability. We also need to work closely to reform the trust
industry itself. In that spirit, we are devoting dedicated resources at the Ban
gko Sentral through our newly formed trust supervision groupto work closely with T
OAP. Their priorities include (1) basic trust department operating standards; (2
) risk management guidelines; (3) trust department rating system; (4) specialize
d examination procedures; and (5) improvements to UITF regulations. At a more fu
ndamental level, we are also reviewing the basic governance arrangements of the
trust department.as an entity within the bigger banking organization.to minimize p
otential conflicts of interest, while preserving natural business synergies. Thi
s includes a closer look at the composition of the trust committee and a clearer
articulation of their duties and responsibilities for good governance. Also in
scope are the qualifications of trust officers and the proper definition of thei
r duties and responsibilities. The basic operating standards are designed to ens
ure consistency in the administration and operation of trust and other fiduciary
business and investment management activities to better promote investor protec
tion. The standards cover significant areas of trust operations and set forth th
e minimum array of procedures from account acceptance to termination, aimed at f
urther professionalizing business conduct across all practitioners. On the other
hand, the risk management guidelines will be formulated to identify, manage, an
d control specific risks in the trust business. In tandem with the basic standar
ds, the risk management guidelines will enjoin trust entities total adherence to
the cardinal principles of prudence and utmost care. A rating system for the tru
st unit analogous to the CAMELS rating system for bank proper....is being formula
ted to independently assess their performance, given their special fiduciary res
ponsibilities. To tie everything up, new specialized examination procedures are
being drafted for trust operations. to basically align these with the risk-based
approach and to incorporate compliance with the basic standards and risk managem
ent principles. Finally, the UITF regulatory framework will be reinforced to cov
er the following: (1) improved certification program for UIT marketing personnel
; (2) additional guidelines to standardize UIT performance reporting for marketi
ng purposes; (3) enhanced risk disclosures and client suitability profiling; (4)
updating of major template documents like the declaration of trust to incorpora
te amendments to the regulatory framework; and (5) corporate governance structur
e of UITs such as the possible separation of trustee and fund manager functions
or alternatively, the strengthening of present combined function arrangement.as t
hese matters have evolved in global best practice. Ladies and gentlemen. All the
se trust reforms are building blocks that should help us nurture a truly competi
tive and dynamic trust industry that is responsive and supportive of a growing e
conomy. This we owe to our country and our people. Let us therefore take heart t
hat even as we continue to face challengesthe opportunities ahead give much promi
se, especially to those who will adhere faithfully to the tenets of good governa
nce. Remember: fairness, accountability and transparency. On this upbeat note, I
greet you all. Aloha! Thank you all and good evening.
Migration, Remittances, Economic Development and the Role of Banks

Venue: Sofitel Philippine Plaza Manila
Occasion: 13th Meeting of the World Savings Bank Institute Asia-Pacific Regional
Group
Distinguished organizers led by Mr. Jose Antonio Olavarrieta Arcos of the World
Savings Bank Institute, WSBI Asia Pacific Group President Mr. Asvinvichit, Mr. D
e Noose, Chairman of the Management Committee, Undesecretary Jun Paul of the Dep
artment of Finance, guests and participants to the 13th Meeting of the WSBI Asia
-Pacific Regional Group, good morning and to our foreign guest, welcome to the P
hilippines! I must say that the decision of WSBI to hold this years meeting in ou
r country is most timely indeed, given the conference theme Economic Development
and Migration: A new Challenge for Savings Banks. I therefore congratulate the Ph
ilippine Postal Savings Bank headed by its Chairman, Justice Lapea, and its Presi
dent & CEO Rolando Macasaet for taking the lead in hosting this event. Indeed, m
igration and remittances are significant factors in our economy. According to th
e World Bank, the Philippines ranks fifth globally in terms of remittances recei
ved from its overseas workers. The World Bank report was based on 2004 figures,
with India reported to have received $22 billion, China $21 billion, Mexico $18
billion, France $13 billion and the Philippines $10 billion. Latest available da
ta from the Bangko Sentral ng Pilipinas indicate that in 2006, remittances of ov
erseas Filipino workers coursed through banks reached a record high level of $12
.8 billion. Another $1.2 billion was estimated to have been remitted through inf
ormal channels. The total amount is equivalent to 10.9% of our Gross Domestic Pr
oduct! This is a huge resource that offers a lot of opportunities. The increase
is due mainly to higher deployment of Filipino workers, abroad more and more in
the skilled and professional categories, and a more aggressive campaign to encou
rage a greater number of overseas workers to channel their remittances through o
ur banking system. To our banking sector in general and savings banks in particu
lar, remittances averaging $1 billion a month from our 8 million overseas Filipi
nos represent tremendous opportunities. As of Sept 2006, for instance, the count
rys 85 thrift banks had total deposits of roughly $6.1 billion, up 19.8% from the
year ago level. This is about 15% of consolidated deposits of the banking secto
r. If our savings bank can capture more deposits, it will have more funds for le
nding, and have better opportunities to improve its profitability. The first cha
llenge for our banks, therefore, is to find innovative and more cost-efficient w
ays to provide financial services as well as to expand their network and upgrade
their infrastructure to reach an even greater number of our workers and their b
eneficiaries. Most of our workers remittances come from the United States, Saudi
Arabia, Canada, Italy, the United Kingdom, Japan, the United Arab Emirates, Hong
Kong, Singapore, and Taiwan. So far, so good. Banks and non-bank remittance com
panies have been heeding our challenge to have faster, safer and more efficient
remittance delivery. In fact, the Philippines is credited to have launched one o
f the worlds first mobile phone-based remittance service. Specifically, we now ha
ve improved platform for remittances through the adoption of advanced systems an
d new technologies such as internet/on-line banking, phone banking and through s
hort messaging. Furthermore, we now have enhanced and expanded financial product
s and services including bills payment arrangements, international money/cash ca
rds, remittance network expansion, as well as new correspondent remittance agree
ments with host countries. To promote the efficient delivery of competitively-pr
iced remittance services by banks and other remittance service providers, the BS
P issued a circular requiring banks and non-bank financial institutions to post
the charges for their various remittance products, including classification of c
osts. This disclosure requirement also provides the necessary information for th
e worker or his/her beneficiary to make a more informed decision in bank selecti
on. The OFWs as bank clients also benefited from the improvements in the countrys
payments and settlement systems, such as the full interconnection of the three
major automated teller machine (ATM) networks; and the continuing approval by th
e Bangko Sentral of alternative mechanisms for sending money, such as SMS-based
applications for remittances. The interconnection of the three networks facilita
tes greater accessibility as more ATMs can now serve the withdrawal needs of dep
ositors. More importantly, it reduces the cost of transactions since it eliminat
ed fees associated with the use of international switch to connect the three netwo
rks. Moving forward, our goal is to have further improvements so that we will ha
ve a remittance system based on transparency, efficiency, security and fair pric
es. The second challenge for our banks is to help in the national effort to enco
urage overseas workers and their beneficiaries to channel a higher percentage of
their money to deposits and other productive activities possibly linking this t
o microfinance and small enterprise lending. As other speakers mentioned earlier
, there is a full range of banking services that can be offered to overseas work
ers and their families. In line with its ongoing advocacy programs, the Bangko S
entral is undertaking a nationwide financial literacy campaign to help channel r
emittances to development activities and to promote a culture of saving among OF
Ws and their families. The financial literacy program emphasizes the importance
of savings and introduces the participants to alternative opportunities for thei
r remittances, such as placements in financial instruments and investments in bu
siness ventures. In summary, the Philippine central banks initiatives to further
improve the environment for overseas Filipino workers (OFWs) remittance flows wil
l continue to be anchored on five principles, namely: 1. enhancing transparency
and promoting competition in the remittance market to lower remittance charges;
2. improving the countrys payments and settlement systems to facilitate faster, s
afer and more efficient transfer of funds to beneficiaries; 3. improving access
to financial services; 4. encouraging OFWs and their families to increase saving
s and investments; and 5. promoting advocacy programs to cultivate financial lit
eracy among OFWs and their families. Ladies and gentlemen. The BSP recognizes th
e valuable contribution of OFWs in expanding the foreign exchange available for
meeting the economys requirements, as well as the efforts of institutions that he
lp improve the remittance environment, including remitting banks, private remitt
ance companies, and other government agencies. We are therefore looking forward
to a fruitful exchange in this meeting of the WSBI to help us provide better, fa
ster and more cost-efficient services to our overseas workers who have helped em
power our countries to grow at a healthy rate, on a more sustained basis. May yo
u have a successful conference and a happy stay in our country. Thank you all an
d Mabuhay!
Remarks
Venue: Heritage Hotel
Occasion: Regional Experts Consultation Meeting "Overcoming Obstacles to Agricul
ture Microfinance in Southeast Asia"
President Corazon Aquino Dr. Balisacan, distinguished resource persons, special g
uests, and participants to the Regional Experts Consultation Meeting on "Overco
ming Obstacles to Agricultural Microfinance in Southeast Asia." Good morning. It
is a distinct honor to be part of this Consultation Meeting to discuss and iden
tify strategies to accelerate the development of agricultural microfinance in ou
r part of the world. In a region like ours where the agriculture sector continue
s to have a significant impact on our economy and the lives of our people, this
Consultation Meeting is indeed most welcome, and necessary. In the Philippines,
the agriculture sector accounts for 20% of our Gross Domestic Product, employs a
round 40 percent of our country s labor force, and provides most of the food req
uirements of our total population of 86 million. Given its importance, policies
and programs continue to be crafted and implemented to support and transform our
agriculture sector into a modern, productive, efficient, and competitive sector
. In 1975 for instance, Presidential Decree 717 was issued to ensure the flow of
credit to the agriculture sector. In particular, it mandated banks to set aside
25% of their loanable funds for agricultural agrarian reform credit. For a numb
er of years, bank compliance to this law exceeded 25% of their loan portfolio. T
his changed with the implementation of the Agrarian Reform Program, as the profi
le of farm land ownership shifted from vast tracts of land held by a few owners,
to many small landholdings owned by numerous farmers. Thus, while the number of
credit transactions increased with more farm owners, the size of the loans was
significantly smaller. For small farm owners, as well as landless agricultural w
orkers, microfinance is the key to acquiring much-needed working capital. In the
Philippines, microfinance services are provided mainly by banks, NGOs and coope
ratives. The national framework for regulation, which encompasses all types of m
icrofinance institutions, focuses on portfolio quality, outreach, efficient and
sustainable operations, and transparent information. The basic premise of the fr
amework is that all deposit-taking institutions, particularly banks and cooperat
ives, are subject to prudential regulation, while microfinance NGOs which collec
t savings greater than the compensating balance should be subject to regulation
and supervision. Circular 272 issued January 2001 by the Bangko Sentral ng Pilip
inas provided the enabling policy and regulatory framework for microfinance in t
he banking sector. Parallel to this, Bangko Sentral mounted capacity building pr
ograms and sustained information campaigns. Microfinance has flourished since th
en. Today, 223 banks are involved in microfinance with a combined loan portfolio
of about P4 billion lent out to over 660,000 borowers. Nevertheless, there is s
till much more that we can do. It is fitting therefore that we are addressing th
e obstacles to gaining access to agricultural credit through microfinance, a met
hodology and technology that has been proven successful. It is important to reme
mber that the success of microfinance is anchored on the following fundamental p
rinciples: First, microfinance is typically linked to households and their micro
enterprises. The household is seen as one with diverse activities and multiple s
treams of income and expenditures. Microfinance therefore looks at the regular c
ash flow of the household and the microenterprise - not the loan use, in determi
ning the size, term and repayment structure of the loan. As a result, microfinan
ce loans are primarily short term loans with frequent repayments. Second, microf
inance loans are characteristically used for additional capital to grow an exist
ing business. The loan amounts are not very large. Some microfinance institution
s even use a growth-loan process where the clients start off with a very small l
oan and can only access larger loans incrementally after showing a good repaymen
t record. This has been proven successful in mitigating risks and in establishin
g credit discipline among the borrowers. There are several other basic principle
s of microfinance, but I have focused on these 2 characteristics as they are the
features that seem fundamentally incongruent to the financing needs of the agri
culture sector. In particular, cash flow lending and frequent repayments do not
fit the seasonal nature of agricultural incomes. In addition, short term financi
ng, as well as the relatively small loan amounts, result in a lack of term finan
cing which is important to particular types of agricultural activities. The risk
s for both types of financing are also very diverse. Agriculture finance bears u
nique risks such as price and yield risks. Having said this, it does not mean we
are dismissing the possibility of combining some of the best practices of micro
finance with salient features of agriculture finance to create a product that ad
dresses the needs of the agriculture sector, specifically the poor farming house
holds. Definitely, there is room for complementation. First, many clients of mic
rofinance are also engaged in agriculture activities. In the Philippines, it has
been proven that those who are involved in small agricultural activities also m
anage other forms of enterprises. These agricultural workers usually maintain mi
croenterprises to meet consumption needs and other short term expenses of the ho
usehold. In this regard, microfinance may be extended to this worker, with some
modifications on the proven methodology and technology of microenterprise lendin
g. For instance, traditional client selection using character and cash flow anal
ysis may be supplemented by technical criteria relating to the particular agricul
tural activity. This way, the selection process is more attuned to the intricaci
es of the household, its microenterprise, as well as its agricultural activity.
Second, the basic feature of flexibility in microfinance can be similarly applie
d to agriculture finance. Flexibility in terms of repayment schedules, delivery
channels and even collateral requirements is very important. Some microfinance i
nstitutions that have successfully catered to the agriculture market have create
d flexible repayment schedules and payment options that attract a wide range of
agricultural activities. Clients are still expected to have frequent repayments
with the option of having a certain percentage of the loan as bulk payment. Whil
e these schedules take the crop cycle and produce sales into consideration, they
still emphasize that repayment is expected regardless of the results at the end
of the crop cycle. Flexibility in delivery channels can also be very beneficial
for agriculture finance. Microfinance institutions, both in the bank and non-ba
nk sector, continue to expand their branching networks, thereby enhancing access
to finance. Innovations in technology are also increasing delivery channels for
microfinance. In the Philippines, for instance, the development of mobile phone
banking and electronic cash platforms have provided the opportunity for both en
hanced access and lower costs. Finally, flexibility insofar as collateral requir
ements is also an option for agriculture finance. Microfinance institutions have
proven that collateral substitutes such as group guarantees, peer pressure or e
ven the use of personal property have been effective in reducing reliance on tra
ditional capital and in ensuring repayment. This may be studied further to see w
hat arrangements could be flexible, yet prudent enough for agriculture loans. Ri
sk mitigating factors that are applied by microfinance institutions such as port
folio diversification, inclusion of savings and insurance products may also be e
ffective for agriculture finance. It is important that we remain innovative and
open to new ideas to see where we can introduce further refinements that we coul
d apply for the agriculture sector. Nevertheless, it is equally important that w
e continue to be prudent in the use of microfinance in the agriculture sector wh
ich has its own intricacies, uniqueness and particular risk profile. The Bangko
Sentral approved the Micro-Agri Product last year is a case in point. With this,
we have allowed banks with microfinance operations to extend credit to those wi
th small agricultural activities using microfinance methodologies. In doing so,
these micro-agri loans are given the same regulatory treatment as microfinance l
oans, even as we set parameters to ensure that risks associated with agriculture
finance are properly managed. With this initiative, we expect to see more banks
serve the unmet needs of small farmers. Indeed, we at the Bangko Sentral ng Pil
ipinas continue to find more and better ways of providing access to credit to ou
r agricultural farmers and workers. We are therefore looking forward to the succ
ess of this Consultation Meeting so that our respective countries will be able t
o facilitate the growth and development our agriculture sector. In this manner,
we shall meet the food requirements of our people and uplift the quality of life
of our agricultural workers. Thank you and good morning to all of you.
Fiscal and Debt Sustainability: Developments and Policy Implications

Venue: Peninsula Hotel
Occasion: Management Association of the Philippines Economic Briefing
Introduction Distinguished officers and members of the Management Association of
the Philippines, ladies and gentlemen, good afternoon. It gives me considerable
pleasure to once again have this opportunity to touch base with you and share m
y thoughts on how the economy is progressing and how we can help ensure the sust
ainability of the favorable macroeconomic environment. Around this time last yea
r, I spoke before the MAP community and gave an account of the significant devel
opments in as well as the future prospects of the Philippine economy. I am glad
to say that I was then, as I am today, delivering a positive message, in fact, q
uite a positive one. Economic overview Allow me to start with the highlights of
recent economic developments to provide some perspective against which to better
appreciate the fiscal and debt developments. The Philippine economy sustained i
ts upward momentum in 2006 on the back of continued prudent macroeconomic polici
es and purposeful reforms. GDP expanded by 5.4 percent, outperforming the 5 perc
ent growth achieved in 2005. The expansion in economic activity was sustained wi
thout fueling inflation. Inflation is on a downtrend underpinned by easing oil p
rices, a stronger peso and generally stable food prices. Market interest rates h
ave trended lower, and the pace of bank lending activity has started to accelera
te. The external sector is a source of strength for the economy, with the balanc
e of payments for 2006 in surplus, amounting to US$3.8 billion, higher by 56 per
cent than the year-ago level. The BOP performance found good support from strong
er exports growth, the steady inflow of OFW remittances and improved foreign inv
estment flows. This has provided an opportunity for the BSP to build a more comf
ortable international reserve cushion, at US$23.7 billion as of end-January 2007
, enhancing the economys resilience against external shocks. The rapid increase o
f foreign exchange inflows also provided strong support for the peso, which has
strengthened appreciably. Fiscal and debt situation I now turn to the topic that
I was requested to discuss: the countrys debt and fiscal situation. These two is
sues have received considerable attention of late, particularly as credible refo
rms in these areas have contributed to the significant improvement in market and
investor sentiment. Fiscal developments will certainly continue to be in the fr
ont and center of market perception about how strongly the economy can progress
over the medium term. As a central banker, particularly in an environment where

there is central bank independence from the government, I may not be in the best
position to discourse on the issue of public finance. Fiscal policy, however, h
as significant implications on the macroeconomy. It therefore can be said that f
iscal policy the current stance as well as past fiscal actions influences the en
vironment in which other macroeconomic policies including monetary policy are fo
rmulated and carried out. Allow me then to discuss briefly the state of the fisc
al sector. For much of the past two decades, the National Government fiscal purs
e was in the red, except in the years 1994 to 1997 when the economy registered s
urpluses, primarily as a result of the asset privatization initiatives pursued d
uring this period. Since then, the countrys fiscal deficit as a percentage of GDP
escalated to sizeable levels, peaking at 5.3 percent in 2002. To avert the grow
ing fiscal imbalance, the government embarked on a fiscal consolidation strategy
that involved revenue reforms, intensified tax administration and expenditure r
ationalization. The broad and comprehensive package of fiscal consolidation meas
ures undertaken so far, the most notable of which was the implementation of the
reformed VAT law, has been yielding significant dividends. From P210 billion in
2002, the National Government budget deficit narrowed to P62 billion in 2006. As
a ratio of GDP, this represented a steep decline from 5.3 percent to just 1 per
cent. All eyes continue to be on the deficit meter and the target is to achieve
a balanced budget for the National Government by 2008. Meanwhile, for the first
time in more than a decade, the consolidated public sector financial position re
gistered a surplus of P9 billion as of September 2006, accounting for 0.2 percen
t of GDP. A balanced consolidated public sector position is envisaged over the m
edium term on the back of improved performance by the GOCCs and social security
institutions. While expenditure rationalization and compression helped improve t
he fiscal account, gains in revenue collection were also behind the improved fis
cal picture. Quite telling was the rise in the revenue-to-GDP ratio to 16.3 perc
ent in 2006 from 14.6 percent in 2002. This, in turn, reflected mainly the incre
ased tax revenue effort from 12.8 percent in 2002 to 14.3 percent in 2006. Reven
ue from the recent VAT reform has contributed strongly to the uptrend in tax col
lection. The Governments fiscal consolidation efforts were also evident in the ma
terial reduction of the public debt burden. From a peak of almost 79 percent in
2004, the total stock of National Government debt as a percentage of GDP went do
wn to 67 percent as of end-September 2006. In addition, the consolidated public
sector debt has gone down to just 88 percent of GDP as of June 2006. Over the pa
st ten years, it was only starting in 2005 that the ratio registered below the 1
00 percent mark. Contributing to the reduction in public debt stock were debt pr
epayments made by the Government last year. Economic implications of the favorab
le fiscal performance What do these favorable fiscal developments and the improv
ed debt conditions imply for the Philippine economy, in general, and monetary po
licy, in particular? Efforts to improve the fiscal health has had a salutary eff
ect on the economy. Progress toward fiscal consolidation has provided a much-nee
ded boost to market and business confidence as evident in strong investor intere
st and as made manifest in the strengthening of the external payments position.
The sharp fall in the countrys sovereign bond spreads as well as the upgrade in t
he rating outlook by Fitch Ratings, Standard and Poor s and Moodys from negative
to stable attest to the improvement in the countrys creditworthiness. This, i
n turn, has resulted in the lower cost of borrowing for the government and corpo
rates wanting to tap foreign financing. The better fiscal performance and the mo
re favorable debt dynamics have lessened the economys dependence on external fina
ncing. The countrys outstanding external debt was down to US$54.1 billion as of e
nd-September 2006 from the US$55.5 billion level during the same period in 2005.
As a percentage of GDP, this represented a steep decline from 58.6 percent to 4
8.5 percent. In addition, the countrys external debt profile is characterized by
the following features that bespeak of prudent debt management: (1) there are no
bunching of maturities; (2) medium- to long-term loan maturities are well sprea
d out over an average of 17 years; and (3) short-term debt accounts for only 10.
5 percent of total external liabilities. As a result, the economys vulnerability
to the vicissitudes of global economic conditions and global market sentiment ha
s been reduced. In particular, lower external debt means lower rollover risks an
d lower exchange rate risks. Fiscal rectitude has also allowed the government to
borrow domestically at substantially lower costs and thus pare down interest ex
pense. Consequently, there is more fiscal space to finance the governments infras
tructure and social development programs. In 2006, 30 percent of the incremental
revenue receipts from the VAT reform was dedicated to infrastructure and social
services spending. This allocation is set to be increased to 35 percent in 2007
or by 5 percentage points each year up to a level wherein half of the RVAT reve
nues are allocated for capital expenditures and social projects. As the governme
nt ratchets up public investment in infrastructure and funnels more funds to soc
ial programs such as housing, social services, health and education, all segment
s of the population can benefit in lock step from the economys growth. Well-targe
ted increases in social spending will help reduce marginalization, allowing broa
der-based and more meaningful participation in the economy. Better infrastructur
es will make the economy more competitive, create job opportunities and lift gro
wth. Related to this, the government is considering measures to enhance the effi
ciency of public spending as fiscal space is built up. This should help efforts
to improve the governments ability to absorb and utilize additional resources for
capital outlays and accelerate project implementation. The improvement in the f
iscal performance has also had a palpable effect on the macroeconomy as is evide
nt in the trends in economic prices. Interest rates have gone down considerably,
partly as the government has reduced its borrowings from the domestic market an
d as inflation has gone down. Treasury bills are now at historic lows, with the
benchmark 91-day T-bill rate declining to 2.885 percent in the latest auction. L
ow interest rates stimulate both consumption spending and investment, providing
a boost to the economy. The positive sentiment over the countrys fiscal performan
ce is also a major factor behind the continued strength of the peso. The peso st
rengthened appreciably by 8.3 percent in 2006, and by 1.3 percent in 2007 to dat
e. From a monetary policy perspective, the program of restoring the countrys fisc
al health is integral to the promotion of price stability. Fiscal policy affects
inflation insofar as it impacts on aggregate demand. At the same time, fiscal a
ctions will have a bearing on monetary policy via its impact on interest rates,
the exchange rate, and interest spreads as well as inflation expectations. Under
the current environment, prudent and sound fiscal policy has helped lessen the
risks to price stability, which is critical to sustained and robust growth. Stra
tegies to lessen the countrys dependence on debt Let me now turn to the other top
ic of interest, which are the strategies that should be undertaken to lessen the
countrys dependence on debt. While there has been significant headway made in ac
hieving a more sustainable debt position, the government is committed to further
reducing its debt through a combination of continued fiscal discipline and soun
d debt management. It is important to note that incurring debt in itself is not
necessarily bad governance as long as it is kept at manageable levels. Borrowing
is one form of smoothening behavior engaged in by economic agents, including th
e public sector, to minimize volatilities across business cycles. The problem oc
curs if debt is at a level that is considered unsustainable. A principal solutio
n to reducing debt reliance lies in expanding the revenue effort by sustaining f
iscal reforms. Fiscal consolidation will require further decisive actions to str
engthen tax administration, contain the deficits of public enterprises and broad
en the tax base. Well aware of this, our fiscal authorities continue to build on
their efforts to improve the efficiency of tax administration. Stronger fiscal
oversight is also being exercised over GOCCs, including through the close review
of their financial performance and operations. A fundamental improvement in the
governments long-term revenue-mobilizing capacity is also contingent on expandin
g the tax base. In this regard, the government is considering the rationalizatio
n of fiscal incentives, which seeks to harmonize various incentive laws. Efforts
to improve the revenue base and thus ensure debt sustainability are also contin
gent on the expansion in the size of the economic pie. The prevailing low intere
st rate environment should perk up demand for loans from the banking system, whi
ch, in turn, would help encourage greater domestic investment and lead to a more
vibrant economy. The steady flow of foreign investments would also be instrumen
tal in lifting the economys growth prospects. For this reason, the continued purs
uit of macroeconomic discipline and market-friendly strategies that enhance the
business climate will be crucial. A prudent debt management strategy is also at
the heart of the fiscal agenda. The government continues to strengthen cash flow
and liability management, including through bond exchanges, to reduce borrowing
costs, stretch debt maturities, build a more diversified institutional base and
help further develop the capital market. Greater reliance is also being placed
on domestic borrowing relative to foreign borrowing to enhance the economys flexi
bility in withstanding external shocks. Concluding remarks The fiscal reforms un
dertaken thus far have considerably buoyed up market sentiment and translated to
significant economic gains, including an improvement in the countrys debt trajec
tory. An important point to remember is that fiscal reforms should be accompanie
d by broad-based structural reforms to pave the way for a sustainable and higher
level of growth. This means that fiscal consolidation efforts are best undertak
en within the larger context of a comprehensive structural reform agenda that wi
ll help guarantee the continued growth of the economy over the medium term. This
would include the acceleration of capital market reforms, specially the passage
of key legislations aimed at deepening the capital market. Measures to enhance
the business climate, including through better governance, are part and parcel o
f this wider agenda. Ladies and gentlemen, we have every reason to be more optim
istic about the future. At the same time, we should be mindful of the challenges
, particularly of the need to ensure that the favorable economic performance can
be sustained for the long haul. This requires focus as well as commitment. This
also requires that both the government and the private sector discharge their s
hared responsibilities in meeting the development aspirations of our people. Mar
aming salamat po sa inyong lahat.
Opening Remarks
Occasion: Launching of local fixed income benchmarks at the 1st Monthly General
Membership meeting of the Fund Managers Association of the Philippines (FMAP)
Good afternoon, ladies and gentlemen. Thank you for inviting me to the launching
of the local fixed income benchmarks. I understand this effort was spearheaded
by the Fund Managers Association of the Philippines, in collaboration with Hongk
ong and Shanghai Banking Corporation. The launch of the fixed income benchmark i
s indeed a timely event, in light of the current economic opportunities for savi
ngs growth and the need for more transparent capital markets. The BSP recognizes
the important role of contractual savings vehicles, such as pension funds and i
nsurance companies, in mobilizing personal savings and deploying these funds to
support economic development. In particular, OFW remittances can significantly c
ontribute to the growth of such contractual savings pools. Indeed, the role of t
he OFW in our economy has gained significance over the past few years as the rem
ittances coursed through the banks have continued to grow, with the December fig
ure hitting the highest monthly remittance level ever recorded. Channeling a por
tion of these remittances to pension accounts or other contractual savings vehic
les will give a significant boost to personal savings and can grow into a huge p
ool of long-term capital to finance economic growth via the capital markets. In
this regard, the BSP has supported legislative measures such as the Personal Equ
ity and Retirement Account (PERA) that establishes a legal and regulatory framew
ork for retirement plans comprised of voluntary personal savings and investments
. Of course, channeling funds into savings vehicles and mobilizing these savings
to eventually fund economic development requires deep, transparent and efficien
t capital markets. Toward this end, the BSP has continued its capital market ref
orms, particularly in the development of market infrastructure. The creation and
launch of the local fixed income exchange and the formation of the self-regulat
ory organization (SRO) provides a market-based mechanism for oversight which pro
motes a more disciplined market conduct. We have also seen improvements in the t
rading platform which allows the efficient execution of orders. These include th
e interconnection of the different phases of securities trading process via the
straight-through processing (STP) formalized among BSP, PDEX and the Bureau of T
reasury which eliminates the need for the manual encoding of settlement transact
ion. On the regulatory front, we have worked through the Financial Sector Forum
to strengthen our financial governance structure by aligning our framework with
current global standards or best practices. Specifically, we have taken steps to
enhance coordination among regulators to ensure effective and consistent applic
ation of regulatory oversight and consumer protection. The BSP itself has been a
dopting globally-accepted standards in carrying out its mandate of setting polic
y direction. Our supervision and examination sector is reinventing itself throug
h a major reorganization. We have created specialist examination units to segreg
ate certain core competencies into separate units where examiners are selected t
o develop advanced technical skills. For example, our Capital Markets Specialist
Group and Trust Examination Group provide technical support to the supervision
and examination sector, and are tasked to coordinate with other regulatory bodie
s, SROs, and industry associations in the promotion of capital markets growth an
d investor protection. Meaningful headway has been made. However, we believe tha
t the success of reform initiatives cannot be achieved without the participation
and support of market players. We therefore welcome initiatives from FMAP to pr
omote market transparency by providing present and prospective investors with me
aningful information that can aid them in making sound investment decisions. An
independent and well-published total return fixed-income index can provide inves
tors with objective measures in which to compare a fund managers performance rela
tive to the market. We also believe that benchmarks are important tools that aid
in the planning, implementation and review of a portfolios investment policy. Co
nsistent with the adoption of a performance index, we hope that the industry wil
l likewise consider adopting fund performance calculation and presentation stand
ards and other initiatives that promote market transparency. Standards for fund
performance measurement and presentation help make performance results more read
ily comparable among fund managers and facilitate a meaningful dialogue between
fund managers and prospective clients. We hope that the industry shall continue
to maintain the index in accordance with market conventions for pricing underlyi
ng government securities. I understand that the fixed income index currently use
s bid-side prices for marking to market securities as prescribed in current valu
ation guidelines. With the move towards the adoption of the done prices-based va
luation for government securities, we look forward to a consistent application i
n the fixed income performance benchmark. In conclusion, I believe that benchmar
king portfolio performance is one step towards aligning local investment managem
ent practices with global standards. The need to adopt international best practi
ces by the asset management industry has never been greater. The year 2006 was a
good year for our economy and the current economic environment provides great o
pportunities for the development and growth of our capital markets and we expect
fund managers will play a significant role. We look forward to your continued s
upport. Moreover, we hope that the BSP and the fund management industry can buil
d a strong and successful partnership in the implementation of reforms that are
geared towards capital markets development and investor protection. Thank you an
d a pleasant day to all.
Inspirational Message
Venue: Meeting Room, Executive Business Center, Bangko Sentral ng Pilipinas
Occasion: Induction of ARBEX Officers
Fellow Central-Bankers, good afternoon! I am pleased to be your inducting office
r and guest speaker on this important occasion. First of all, let me congratulat
e the incoming officers of ARBEX led by Mr. Alexander G. Cera. I commend the sus
tained united efforts of your Association in promoting goodwill and understandin
g among bank examiners as well as in enhancing the well-being and dignity of you
r members. Noteworthy also are your initiatives aimed at spearheading developmen
t programs and activities directed towards the active support of good governance
and other related programs for nation building. Let me also take this opportuni
ty to encourage you to continue to face with vigor and passion the challenges th
at we all have to face in the rapidly changing supervisory and regulatory landsc
ape. Being the primary supervisor and regulator of banks, we continue to promote
safety and soundness of the financial system by providing effective and efficie
nt bank supervision and regulation. This is consistent with our policy objective
of maintaining a stable and efficient financial system. We are now in the mid-t
o-end-stream of transition from the traditional approach to the new globally acc
epted best practice risk-based approach to supervision and examination of financ
ial institutions, which is designed to sharpen the supervisory focus on areas th
at pose the greatest risk to banks. The shift will allow for a more effective as
sessment and evaluation of the adequacy and effectiveness of the risk management
system of the banks. You, as examiners, therefore, are challenged to further ra
ise the level of your knowledge in risk-based supervision and improve your skill
s in conducting risk-focused examination. Rest assured that the Management is do
ing its part by providing adequate technical trainings like the structured train
ing for the examiners and other trainings being offered through the BSP Institut
e to equip you with sufficient knowledge and skills in performing your job. The
regulatory reforms in central banking are inevitable across all categories of ba
nks. While these reforms look overwhelming, with your dynamic support, we will b
e able to attain our objectives. Moreover, with the commitment of the ARBEX lead
ership and cooperation of all the members, you will be better equipped to face t
he challenges ahead. As you strive to enhance the well-being and dignity of your
members and improve their professional status, you also magnify the values esse
ntial in attaining the BSP vision and mission. Let us therefore join hands as we
embrace the changes in the way world-class central bankers perform their tasks!
Thank you and good day!
A tipping point and a rising tide is lifting up the Philippine economy

Venue: Rizal Ballroom, Makati Shangri-la Hotel, Makati City
Thank you Rene. Ladies and gentlemen, welcome and good afternoon. Last year, the
Government set out to make things happen and in the end, as you all know, it did.
Many positive things happened. And while I wish I could be publicly swept up by
what former Fed Chairman Alan Greenspan famously called "irrational exuberance,
" in my button-down role as Central Bank Governor, I have to settle for "rationa
l exuberance" instead! I ll leave any irrational comments to others who feel les
s constrained but let me say this 2006 was a good year, and 2007 promises to be ev
en better. I believe our economy has reached a tipping point and, to mix metapho
rs, the rising tide will lift up, not capsize, our boat. With some of the most s
table macroeconomic fundamentals we have seen in a decade, including a much impr
oved fiscal position, single digit rate of inflation with a downward trajectory
- despite volatility in oil prices - a healthy external position, a strong peso
and a substantial level of foreign exchange reserves, the rising tide of economi
c and fiscal reforms paired with sound monetary and external sector policies wil
l continue to lift the boat of the Philippine economy. Last year, these efforts
earned us five credit rating outlook upgrades, double digit growth in portfolio
and foreign direct investment and new heights for investor confidence. Most impo
rtantly, it is a clear sign that we are on our way to achieving further economic
progress that will benefit domestic and foreign investors alike. But the tide h
as not been raised enough to benefit all sectors of our economy. Our goal for 20
07 is to build on our macroeconomic strengths to allow a broader base of the eco
nomy to experience the positive impact of our economic gains. But the Governments
efforts alone are not enough. As reflected in the theme of this years economic b
riefing, ensuring the sustainability of economic momentum is a shared responsibi
lity between the public and private sectors. This collaboration should focus on
the exchange of new ideas to propel our economy forward, which is why we have in
vited business leaders to join us today in an open discussion to explore the are
as where we can work together to build a stronger nation. But actions speak loud
er than words. We call on the Philippine business community to take a bigger sta
ke in the countrys development. Build on the reform platform and favorable economi
c environment that we have worked hard with the Government to create by taking t
he next steps where entrepreneurial dynamism drives greater economic gains. In s
ummary, economic and fiscal achievements in 2006 have created a positive momentu
m for our country. A consistent implementation of reform measures by the Governm
ent, particularly in the area of revenue generation and debt and expenditure man
agement, coupled with a stable monetary environment and healthy banking sector,
will support the governments fiscal, growth and other macro and microeconomic tar
gets for 2007. The tide is rising and I believe it will continue to do so for so
me time. Now we must all row together in the same direction to ensure steady pro
gress and a forward direction, even if the currents try to move us in a differen
t direction or hinder our forward progress. We have a unique opportunity to make
sure the tipping point lifts the boat, not tips it over. I am confident we are
sailing in the right direction. Thank you.
BSP & BMAP: Continuing Partnership for a Stronger Banking System

Venue: Mandarin Oriental Hotel
Occasion: Induction of the Board of Directors and General Membership Meeting of
the Bank Marketing Association of the Philippines (BMAP)
Distinguished board of directors, officers and members of the Bank Marketing Ass
ociation of the Philippines (BMAP), colleagues in the banking industry, friends,

ladies and gentlemen: Good evening! First, I wish to congratulate the BMAP boar
d of 2006 for a job well done. As your President reported, much was accomplished
during the year, even as you had fun as well. Let us therefore give all of you
a well-deserved round of applause. I especially thank BMAP members for your supp
ort for the National Coin Recirculation Program of the Bangko Sentral ng Pilipin
as and the Tulong Barya Para sa Eskwela campaign. Clearly, it was a successful cam
paign as both the public and your banks are now more conscious of recirculating
our barya. We also thank the BMAP members who provided promotional support for t
he campaign. Equally important, banks cooperated fully by accepting millions of
coin donations and by making direct contributions to Tulong Barya. If we are to co
mbine the donations raised and the production savings of the Bangko Sentral ng P
ilipinas, Tulong Barya generated benefits worth P13 million for our public element
ary schools! Let us therefore give another round of applause for this successful
partnership between the Bangko Sentral ng Pilipinas and the BMAP! Moving forwar
d, I am very pleased to know that the 2007 Board of BMAP is unique, and possibly
a trendsetter, insofar as representations are concerned: you have universal ban
ks (Metrobank and RCBC), commercial banks (Security Bank, PBCOM, Phil. Veterans)
, a thrift bank (World Partners Bank), a government bank (DBP) a private develop
ment bank (Plantersbank), an ATM consortium (Bancnet) and, for the first time, a
rural bank (Green Bank in Mindanao)! I am confident therefore that BMAP, in 200
7, will be able to implement its programs in a more comprehensive and responsive
manner. To us at the Bangko Sentral ng Pilipinas, this is good news indeed. As
one of several core organizations in the banking sector, BMAPs continuing advocac
y for banking reforms and for strengthening consumer information and protection.i
s certain to strengthen our partnership in working toward a responsive and globa
lly competitive banking system. With the economy on the rise and savings rate on
the upswing, this is the perfect time for BMAP members to take the lead in ensu
ring that marketing of bank products and services are done in accordance with th
e good governance tenets of fairness, accountability and transparency. You and I
know a bad egg can unfairly spoil and soil the well-guarded reputation of banks
. It is imperative therefore that BMAP does its share in policing its own ranks
in accordance with the standards set in your brainchild that is the Service Code
for Consumer Banking in the Philippines. This is the only way we can sustain publ
ic confidence in the banking system. As BMAP itself said: bank-client relationshi
p is based on mutual trust, and fair banking practices produce optimum results f
or both parties. Therefore, adherence to high service standards remains to be th
e primary concern of members of the banking industry. I hope therefore that BMAP
will sustain its efforts in providing truthful, useful information, and responsi
ve service to its clients. I am pleased to note that some of our recommendations
are being implemented by some banks. For instance, several ATM machines now ind
icate its fees before a transaction is initiated. I hope that within the year, w
e would see all ATM machines doing the same. As a public service, I also recomme
nd that all banks and its branches prominently display in their premises the nam
es and contact details of bank officers they can call or write to for concerns t
hat remain unattended. I say this because the Bangko Sentral ng Pilipinas has be
en receiving more and more complaints against banks which do not respond to thei
r queries or request for clarification. Ladies and gentlemen of the banking comm
unity. Listen to your clients.take care of themfulfill the promise of service you
gave them when you marketed your products and services. You have it in you to fa
cilitate the deepening of our capital markets by nurturing public confidence in
the banking system. Economic Trends To anchor your marketing efforts, I will giv
e you a brief overview of our economy in general and our banking sector in parti
cular. As you all know, our economy continues to expand, with the services secto
r, to which banks belong, remaining as the main engine of growth, supported by t
he agriculture and the manufacturing sectors. On the demand side, resilient hous
ehold spending and robust exports were the key drivers of growth. Other positive
indicators are the strengthening peso; the steady decline in inflation- 3.9% as
of January 2007; and generally stable food prices. Fundamental improvements in
the fiscal sector resulting from higher revenue collections and prudent spending
have been instrumental in shaping this much better economic picture. The extern
al sector likewise significantly improved, with overall balance of payments (BOP
) yielding a surplus of US$3.7 billion in 2006. In addition, gross international
reserves (GIR) rose to a new record-high level of US$23 billion as of end-Decem
ber 2006 on the back of strong dollar inflows from overseas Filipino workers rem
ittances and from foreign investments. Banking system performance These positive
economic trends augured well for the sustained growth and stability of the bank
ing system. Financial indicators as of end-November 2006 revealed key strengths
of the banking system: double-digit growth in resources and deposit base; strong
capital position; and enhanced profitability. We also achieved positive results
in the ongoing asset cleanup in the banking system. The level of non-performing
loans (NPLs) in the banking system as of November 2006 was at P171 billion, an
almost 50 percent reduction from its peak of P306 billion in December 2001. Cons
equently, NPL ratio of the banking system further improved to 7.3 percent. Meanw
hile, non-performing assets (NPAs) have dropped to 7.8 percent after peaking at
14.6 percent in December 2001. This improvement in asset quality was complemente
d by a steady increase in provisioning for probable losses, demonstrating banks r
esolve to strengthen their balance sheets. We also saw an expansion in lending a
ctivity in 2006, with total loan portfolio increasing by 8.4 percent year-on-yea
r to P2.0 trillion as of end-November 2006. Given its intrinsic function as an i
ntermediary of funds, the banking system should continue to be at the forefront
of channeling resources to the productive sectors of the economy that can, in tu
rn, provide a solid basis for a more balanced and sustainable economic growth. W
ith these sound fundamentals as base, we can look forward to brighter prospects
for the banking system in 2007. Nevertheless, let me emphasize that these prospe
cts also rely heavily on the banking systems sustained ability to rise to the cha
llenge of a rapidly changing financial landscape. While the profitability of the
banking sector has been on the rise, these are not exactly easy times for the b
anking industry. Given an increasingly integrated financial world, the banking s
ystem is up against a scenario that, on the one hand, holds fresh opportunities
and on the other, presents a myriad of complex challenges. Policy Directions Lad
ies and gentlemen of the BMAP. This year, the banking systems flexibility to adap
t to market changes will again be put to the test. That means you have a lot of
work to do. We are in for another hectic agenda as we move onward with our task
of implementing substantial reforms that would ensure basic safety and soundness
and promote greater efficiency of the banking system. Foremost in our agenda is
the ongoing asset cleanup in the banking system. We are now implementing the se
cond phase of the cleanup process as an aftermath of the approval of the two-yea
r extension of the SPV Law in May 2006. To date, asset disposition under SPV II
has reached 31 billion, involving the sale/transfer of NPAs to SPVs. In the comi
ng months, we expect more transactions to be completed as an estimated P51 billi
on of applications are now in the pipeline. Equally important in our reform agen
da is our continuing initiative to upgrade domestic prudential standards in line
with international best practices, specifically in the areas of corporate gover
nance, risk management and capital adequacy. A highly anticipated development is
the forthcoming transition to Basel II in July 2007. Unlike the existing BSP ri
sk-based capital adequacy framework, the new Basel II-based framework will not o
nly focus on the computation of the appropriate level of capital given a certain
level of exposure, but will also highlight the need for more market disclosures
by banks on their risk management exposures and practices. Preparatory regulati
ons have been laid down to ensure a smoother implementation of the Basel II fram
ework. Another major policy thrust of the BSP is to foster a strengthened enviro
nment with the full implementation of consolidated and risk-based supervision. T
he aim is to provide a more comprehensive assessment of the policies, processes,
personnel, and control systems of banks rather than on regulation compliance au
dit. We believe this is a more dynamic and forward-looking approach that is more
compatible with modern banking practices. This is being complemented with enhan
ced regulations on risk management as a way of developing appropriate standards
suited to banks risk-taking activities. These include: (1) guidelines for the dev
elopment and implementation of banks internal credit risk rating systems; (2) gui
delines on the supervision by risk; (3) guidelines on technology risk management

; and (4) guidelines on market risk management and liquidity risk management. An
other related issuance of the BSP is the revision of the prompt corrective actio
n (PCA) framework. The aim is to encourage banks to take early action to align c
apital with actual risk exposures, implement business improvement measures throu
gh better risk management and strengthen corporate governance. We will also carr
y on with our task of fostering the development of our financial markets through
support for various legislative measures, such as the creation of a centralized
credit information system. A centralized credit information system will further
strengthen our efforts to improve the quality of financial information availabl
e to investors, enhance private sector access to credit, and minimize exposure t
o risks of financial intermediaries. On other key fronts, the BSP will also give
priority to the development of the domestic capital market, in partnership with
the private sector and other government agencies. We will continue to work towa
rd creating a sound market infrastructure, enhancing transparency and market dis
cipline mechanisms, promoting greater investor protection, and supporting the pa
ssage of key legislative measures. As supervisor of the banking system, the BSP
is also deeply committed to ensure there is adequate consumer protection when it
comes to banking and other related financial services. In fact, we remain stead
fast in promoting financial literacy nationwide. Our primary objective is not on
ly to enhance awareness of the basic consumer rights but also the inherent respo
nsibilities of all market participants. Hence, we have been conducting briefings
for special interest groups and local authorities in selected provinces. Let us
therefore work together on more projects to promote financial literacy. Meanwhi
le, our internal capacity building initiatives included the creation of a Consume
r Affairs Unit in our Supervision and Examination Sector to have a more focused,
efficient and consistent handling of consumer complaints. However, to more direc
tly address the problems, we strongly encourage banks to strengthen their custom
er care efforts and be more responsive to your clients in dealing with their iss
ues. After all, goodwill is the long-run key to your success as financial instit
utions. As bank marketing professionals, we will be relying on your continued as
sistance in promoting greater consumer protection and upholding financial litera
cy in the banking system. As the umbrella organization of bank marketing profess
ionals, BMAP is expected to be at the forefront of these initiatives. These refo
rms all form an integral part of the BSPs continuing reform agenda geared toward
further strengthening the financial sector and improving overall confidence in t
he banking system. Ladies and gentlemen of the BMAP, we are counting on your sup
port in reaching this goal. We can do no less in ensuring the continuous develop
ment of our country and in improving the quality of life of all Filipinos. Again
, my congratulations to BMAP. Maraming salamat po sa inyong lahat. Mabuhay!
The BSP and the Banking Community: A Partnership for a Better Year in 2007
Venue: Fort San Antonio Abad, BSP Complex, Manila
Occasion: Annual Reception for the Banking Communit
Distinguished members of the banking community, special guests, friends, ladies
and gentlemen. On behalf of the Monetary Board, I welcome all of you to our Annu
al Reception for the Banking Community. We at the Bangko Sentral ng Pilipinas al
ways look forward to this yearly event because it gives us, central bankers, the
opportunity to interact with you at the social level andmore importantlybecause w
e have you as a captive audience as we deliver the banking sectors report card fo
r the past year, as well as our roadmap to the future. To put these in perspecti
ve, I will review our economic performance in 2006, share our views on how the e
conomy will perform in 2007, and what these imply for the monetary and banking p
olicies of the Bangko Sentral ng Pilipinas. Ladies and gentlemen. In plain langu
age, 2006 was a good year for the economy. We saw GDP continue a pattern of broa
d-based expansion, with the services sector, to which banks belong, recording th
e strongest performance. Fiscal reforms and governments prudent management of its
resources continue to yield strong dividends, with revenue growth outpacing spe
nding. At the same time, monetary and banking policies generated positive result
s: slower inflation, declining interest rates, a stronger peso, and gross intern
ational reserves at an all-time high on the back of strong inflows from export r
eceipts, OFW remittances, and foreign investments. It is noteworthy that even wi
th supply shocks from record-high domestic oil prices and the value-added tax re
forms, we managed to grow the economy without fueling inflation. It is equally n
oteworthy that in 2006, the consolidated assets of the Philippine banking sector
reached a record high level, even as asset quality continued to improve with th
e implementation of the SPV Law. In fact, as of November 2006 and for the first
time since the 1997 Asian crisis, the benchmark non-performing loan ratio of com
mercial banks dropped to less than seven per cent; similar trends are being obse
rved in thrift and rural banks. Let us therefore give the banking sector a welldeserved round of applause. Moreover, the capital adequacy ratio of the banking
system stands strong at about 16% in 2006, even as the banking system increased
provisioning levels and made the transition to the demanding new international a
ccounting standards. I also wish to commend the banking sector for its growing s
upport for microfinance, our special advocacy for alleviating poverty in our cou
ntry. Latest data indicate that there are more than 200 banks providing microfin
ance services to 630,000 micro-borrowers with total loan portfolio of P3.7 billi
on. The average is P11,600 per borrower, more than double the 2006 figure of abo
ut P5,000 for each borrower. Let us thank these banks for their support through
another round of applause! Market reforms continued to take root in 2006 includi
ng the development of market infrastructure. Among others, we saw the full imple
mentation of the third-party custodian system and the fixed income exchange. Ano
ther is the interconnection of the Bangko Sentrals real-time gross settlement sys
tem or Philippine Payments and Settlements System with the Philippine Dealing Sy
stem and the Bureau of Treasury in line with the Delivery-versus-Payment settlem
ent of government securities. The BSP capped the year with the prepayment of $1.
4 billion in loans, including all its obligations to the International Monetary
Fund (IMF). This ended 4 decades of continuous borrowing from the Fund. This sen
ds a clear signal to the international community that the structural reform proc
ess and macroeconomic prudence in the Philippines have firmly taken root and tha
t Philippine authorities can independently craft and pursue a credible and stron
g policy framework and reform program for sustaining the countrys economic growth
. The year 2006 also saw the BSP implementing the following enhancements in our
monetary and banking policies: Refinements in our inflation targeting framework
to align it with practices in other inflation targeting countries . Streamlined
access to our rediscounting facilities, one of our instruments for conducting mo
netary policy. In particular, we launched electronic rediscounting facility to e
nsure wider and faster delivery of credit to SMEs in the countryside. Continued
alignment of domestic prudential standards with international benchmarks and bes
t practices, particularly in upgrading the quality of corporate governance and d
isclosure as well as risk management. Issuance of guidelines on banks internal cr
edit rating systems, technology risk management, as well as market and liquidity
risks management The adoption of the prompt corrective action framework which p
rovides a time bound setting to deal with problem banks. Adopted measures to imp
rove access of SMEs to financing through lower reserve requirements and relaxedbu
t still prudentregulations on bank branching, risk weights, single borrowers limit
, connected lending and documentation. Indeed, the continuing partnership betwee
n the BSP and the banking sector has produced very positive results in 2006. Eco
nomic and monetary policy outlook Moving forward, let me share with you our view
s on the likely economic prospects for 2007. With resilient personal consumption
, strong exports performance and robust services and industry output, GDP growth
is expected to rise to 5.7-6.5 percent for 2007. If our fiscal position continu
es to improve, we can look forward to stronger, more sustained long-term growth.
Inflation is seen to continue to slow down in 2007, with the government target
of 4-5 percent likely to be achieved, in the absence of new shocks. Nevertheless
, there are certain risks to inflation that need to be carefully monitored and a
ssessed, including oil prices, possible impact of El Nino on agricultural output
, wage adjustments, and possible liquidity expansion. The BSP will continue to k
eep a vigilant eye on these risks so that it could move pre-emptively against th
reats to price stability. On the external front, dollar inflows from OFW remitta
nces and foreign investments are expected to remain strong. This should continue
to boost our external payments position and enable us to further build up our i
nternational reserves. These conditions, in turn, underpin our expectations of a
strong peso in 2007. In fact, we are now our reviewing foreign exchange regulat
ions, with further liberalization as our goal. Going forward, we will continue t
o support various legislative initiatives to foster the development of our finan
cial markets, including the creation of a centralized credit information bureau
system to improve the quality of financial information available to investors, e
nhance private sector access to credit, and minimize exposure to risks of financ
ial intermediaries. We are hopeful that the bill will be approved by the Bicamer
al Committee and signed into law by the President as soon as possible. The BSP w
ill also continue to support additional legislative initiatives to hasten the de
velopment of the Philippine capital market, including the amendments to the BSP
charter, Corporate Recovery Act, Revised Company Investment Act, and the Persona
l Equity Retirement Act. In the banking sector, we expect further expansion of b
ank resources, improvement in banks asset quality through NPL disposal, and impr
oved capitalization. We should also see a stronger banking system resulting from
more mergers and acquisitions. This should make banks better financial intermed
iaries and risks managers. Ladies and gentlemen. Improved macroeconomic conditio
ns, accumulating banking reforms, and robust improvements in banks profitability,
set the stage for an even stronger performance of the Philippine banking system
in 2007. Finally, I wish to thank all the bank associations and all our partner
s in the retail and the business sector, including our media friends, for their
support in making our joint program Tulong Barya Para sa Eskwela a resounding succ
ess! Clearly, the combined donations/savings of around P12.5 million which we ge
nerated sends a clear signal that coins are indeed valuable; that ang barya, maha
laga. This should convince our schoolchildren to start saving up with their coins
. Let us therefore give everyone who participated in Barya Para sa Eskwela a welldeserved round of applause. Salamat po sa inyo. We look forward to your continui
ng support for the nationwide implementation of our economic and financial liter
acy program in cooperation with the Department of Education which should transfo
rm each child into regular savers. Concluding remarks Friends. 2006 was a good y
ear for the economy and the banking sector. We are therefore primed for an even
better and stronger performance in 2007. While mindful of the challenges ahead,
we at the Bangko Sentral ng Pilipinas are determined to move forward in partners
hip with the banking community. And so, ladies and gentlemen, may I offer a toas
t to a strong and successful partnership between the Bangko Sentral ng Pilipinas
and the banking sector. May we become a truly potent enabling force in moving t
he country forward and providing a better life for all Filipinos. Cheers!!! Than
k you everyone and enjoy the rest of the evening.
Delivered by Solidarity at the BSP: The Power of One

Occasion: BSP Christmas Party

The power of one! Fellow central bankers, this is our new mantra. The call for e
veryone to unite and together pursue the mandate entrusted by the Philippine Cons
titution to the Bangko Sentral ng Pilipinas! Tayo ba ay nagkakaisa?!! Tila hindi na
gkaka-isa ang pagsagot. Ulitin po natin. Tayo ba ay nagkakaisa?!!! Ladies and gen
tlemen of the Bangko Sentral ng Pilipinas. Events taking place in our country.and
in the international arena. Tell us that world peace continues to elude us. Conf
lict continues to inflict damage on infrastructure.on economies .and on people. Ka
payapaan. Pagkaka-isa. Bigyang kahulugan po natin ito sa Bangko Sentral. This is
not to say that we discourage free exchange of ideas. Free and open discussions
are importantas these give us 360-degree perspective that leads to good judgment
and decisions. What is important is that we respect opinions different from our
s. Alam naman po natin na para sa bansa ang trabaho natin sa Bangko Sentral. At t
he end of the day, our choice simply boils down to evaluating which options avai
lable to the Bangko Sentral will generate the most benefit for our country and o
ur people. It is also important to remember that once a decision is made, we, as
professional Central Bankers, should then work together to support it. I know t
his is easier said than done, but this is the only way if we are to remain respo
nsive and effective in the manner we pursue our mandate. For your information, t
he Bangko Sentral ng Pilipinas now has 4,826 employees! Imagine the number of id
eas and opinions our employees can generate! Alam naman ninyo, para sa Bangko Se
ntral, this is both a challenge. And a blessing. Peace advocate Mahatma Gandhi on
ce said that Unity to be real, must stand the severest strain without breaking. We
ll, the people of the Bangko Sentral have been through crisis many times before a
nd we have not buckled under. Instead, we came out stronger.more focused.and more
committed to ensure adherence to good governance. A case in point was the suspen
sion of former Governor Paeng Buenaventura. In other central banks, it could hav
e triggered widespread demoralization. However, in our case, the men and women o
f the Bangko Sentral reacted spontaneously by declaring.in words and in deeds. The
ir solid support for the Governor. And the cause of good governance. Kaya palakpa
kan po natin tayong lahat sa Bangko Sentral ng Pilipinas! Indeed, when it matter
s, we naturally come together and move as one. Nevertheless, given our hectic sc
hedules, it is important that we always remember each of us can do our share to
make Bangko Sentral an even better institution. As was said earlier, the true ch
allenge that lies before each of us is to change...to transform... The Bangko Se
ntral into one institution made even stronger and more effective by the solidari
ty of its people. This, we can achieve when the power of manybecomes the power of
one. Finally, on behalf of the monetary board, I take this opportunity to thank
all of you for a job well done in 2006. Palakpakan po natin ang mga central ban
kers ng ating bansa! Take pride in our accomplishments by showing your family an
d friends the Christmas lights display at the Bangko Sentral head office. Most o
f all, I commend all of you at the Bangko Sentral for being a blessing, as alway
s, to others. Your generous support for both Gawad Kalinga and the Tulong Barya
Para sa Eskwela advocacy program are solid testaments of this. Indeed, you have
shown admirable solidarity in responding to the needs of our less fortunate coun
trymen. I believe we continue to be blessed because we generously share our bles
sings. On behalf of the Monetary Board, I wish all of you.the men and women of th
e Bangko Sentral.a wonderful Christmas and a new year that is full of joy and pro
sperity. Marami pong salamat at maligayang pasko!
Remarks

Occasion: BSPOCI Christmas Party
Officers and Directors of the Board - BSP Officers Club, fellow members, good ev
ening. I note with pleasure the accomplishments of the BSPOCI this year, which h
ave contributed quite a lot to the BSP, especially in the performance of its cor
porate social responsibility. The association has donated to the Gawad Kalinga P
rogram, as well as other outreach programs in PGH and other areas. The education
al assistance for children of BSP employees has benefitted BSP employees. Lets no
t forget your development of BSP talents in the performing arts through your sea
rch for the BSP Idol. As well, you have focused on encouraging professional grow
th and holistic development of the BSPOCI members through your breakfast forums.
I understand that todays Christmas Party is an example of the spirit of sharing
you espouse, as you have given the BSPOCI members the opportunity to share their
blessings with two groups of carolers, the Childrens Joy Foundation and the Mins
trels of Hope. I urge you to continue undertaking projects which help improve th
e quality of life of our fellow Filipinos. I know you are all looking forward to
a night of dancing and merriment, so let me end by wishing all of you a Christm
as filled with joy and love, and a new year marked by happiness and fulfillment.
Maligayang Pasko sa inyong lahat!!!
Keynote Address
Venue: AIM Conference Center, Makati City, Metro Manila, Philippines
Occasion: Quarterly Risk Management Forum
Good afternoon, and thank you for inviting me to speak in this quarters risk mana
gement forum organized by the Gov. Jose B. Fernandez, Jr. Center for Banking and
Finance (JBF Center), in cooperation with the Professional Risk Managers Interna
tional Association (PRMIA). My remarks this afternoon will focus on BSPs initiati
ves to strengthen risk management practices in banks under our supervision. Sinc
e banks still dominate the financial landscape in our country, the BSP as the ba
nking supervisor has to be at the forefront of the development of better risk ma
nagement practices in the country. Although this is a very challenging role to p
lay given the pace of development in the field of risk management, I do believe
that the BSP is up to the challenge and has been proactive judging by the number
of initiatives we have put in place starting in the mid-90s. It is my pleasure
to share with you our experience on the implementation of these initiatives, but
before that let me highlight the risk profile of the Philippine banking system,
which dictated the direction and pace of these regulatory actions. Risk profile
of the Philippine banking system As of end-June 2006, total on-balance sheet as
sets of the banking industry amounted to P4.5 trillion, of which about 89 percen
t are accounted for by the dominant commercial banking segment. Additionally, of
f-balance sheet notional accounts consisting of derivatives, trust and trade-rel
ated contingent exposures amounted to P2.3 trillion. In terms of risk-weighted as
sets or RWA which is a supervisory measure of banks risk exposures to credit risk
and market risk only commercial banks exposures are made up of 90 percent credit
risk and 10 percent market risk. With the addition of operational risk in the r
isk-based capital adequacy framework of the BSP on 1 July 2007, our simulations
show that commercial banks RWA will be made up of 77 percent credit risk, 8 perce
nt market risk, and 15 percent operational risk. As primary buffer against these
risk exposures, Tier 1 capitalization of the banking system, which includes hyb
rid Tier 1 capital stood at P433 billion as of end-March 2006 . Our banks have a
lso issued P79 billion in Tier 2 capital as allowed under our regulations consis
tent with international practices. CAR (capital adequacy ratio) stood at 19.4 pe
rcent as of end-March 20061 while loss provisions, which serve as cushion for ex
pected losses have been significantly boosted from just 1.44 percent of total as
sets in end-December 1997, to 2.72 percent as of end-June 2006. BSPs risk managem
ent initiatives Now, let me guide you through the important historical highlight
s of BSPs risk management initiatives. In 1995, the BSP recognized the greater ri
sk exposure in the system brought about by derivatives activities. To mitigate t
his, the BSP issued Circular No. 102 prescribing the minimum standards for risk
management of derivatives. This was probably the first BSP regulation that speci
fically focused on banks market risk taking activities and risk management practi
ces. Prior to this, risk management regulations were largely confined to basic c
redit risk management and to internal control issues. In 1997, the thrust of ban
k supervision started to shift its focus towards a more forward-looking view of
risk management and whether a bank has the infrastructure to manage its own risk
s, instead of just mainly performing financial audit and compliance review. The
objective was to address weaknesses in management and internal controls before f
inancial performance suffers rather than being satisfied with identifying what w
ent wrong after the fact. The BSPs effort to focus on risk management is ultimate
ly intended to give banks greater flexibility to respond to changing opportuniti
es and challenges in the face of global competition under a more deregulated env
ironment and at a time of rapid technological advances. Traditional bank supervi
sion tended to micromanage banks to avoid risks that seem too high. The new appr
oach to supervision is now more focused on the assessment of the quality of risk
-management practices and generally allows banks to take on greater risks so lon
g as the banks demonstrate the ability to identify, measure, manage and price fo
r those risks. This more liberal approach to supervision, which allows banks mor
e opportunities for success, entails that the BSP emphasize the responsibility o
f the banks board of directors and senior management to ensure the soundness and
stability of their respective banks. The regulators role is primarily to evaluate
the quality of oversight and management provided by these critical actors that
is, the quality of corporate governance. Strengthening banks corporate governance
has thus been the theme of a number of BSP regulations. In June 1997, Circular
No. 130 requiring the board of directors of banks to, among others, adopt and ma
intain adequate risk management policy was issued. A few months after, or in Oct
ober 1997, the BSP also issued Circular No. 145 requiring banks to develop and i
mplement a compliance system and to appoint/designate a compliance officer to ov
ersee its implementation. In September 2001, the BSP issued Circular No. 296 whi
ch implemented the fit and proper standards for directors and officers of banks
and non-banks as mandated by the General Banking Law (GBL) of 2000. The same Cir
cular also prescribed a mandatory orientation program on corporate governance fo
r banks board of directors. Moreover, the BSP issued in October 2003 Circular No.
410 which provided the accreditation guidelines for banks external auditors. In
2004, the BSP continued to issue a number of guidelines that aimed to further en
hance governance practices in banks. Earlier that year, the BSP issued the guide
lines for the management of banks large exposures (Circular No. 414). This was fo
llowed by the strengthening of rules on connected party transactions or DOSRI by
expanding both the coverage of transactions and the definition of related inter
ests (Circular No. 423). The BSP also issued Circular No. 429 that year which ai
med to further strengthen banks compliance function. The BSP also issued that yea
r the guidelines for the development and implementation of banks internal credit
risk rating systems (Circular No. 439) in anticipation of Basel II. The guidelin
es strongly emphasize the oversight function of the board of directors over thes
e systems. Before 2004 ended, BSP issued Circular No. 456 amending the provision
s on the specific duties and responsibilities of the board of directors in the M
anual of Regulations for Banks. The said Circular created three board-of-directo
r-level committees, namely; audit committee, corporate governance committee, and
risk management committee. This year, the BSP pushed forward with its shift to
risk-based supervision by issuing the guidelines on the supervision by risk, set
ting forth the expectations of the BSP with respect to the conduct of risk manag
ement by financial institutions under its jurisdiction. This was followed closel
y by the issuance of the guidelines on technology risk management, which is aime
d at ensuring effective management of technology-related risks by financial inst
itutions. Just recently, the BSP issued broad guidelines on market risk manageme
nt and liquidity risk management, which set forth BSPs expectations on the manage
ment of these risks by banks. BSPs risk-based capital initiatives While the BSP h
as been trying to enhance banks risk management practices, it is also simultaneou
sly working on improving the risk-based capital adequacy framework as empowered
under the GBL of 2000. We responded swiftly once the legal framework was put in
place. In March 2001, the BSP adopted Basel I-type framework through Circular No
. 280. This Circular provided the guidelines for the computation of risk-based c
apital for credit risk. The BSPs risk-based capital adequacy framework was furthe
r enhanced with the issuance of Circular No. 360 in December 2002. Circular No.
360 incorporated market risk into the framework. In 2005, the focus was on prepa
ring the implementing regulations for the eventual implementation of Basel II in
the Philippines. At the time, preparatory works on Basel II implementation were
already at an advanced stage globally. The discussions during international for
a had already become complex and rather extended. For our part, the approach to
implementation has been more calculated. Certain elements of the Basel II approa
ches such as those pertaining to risk weights for corporates and NPLs, were grad
ually incorporated in existing regulations to pave the way for a smoother implem
entation of the whole new framework in 2007. Meanwhile, in response to heightene
d appetite and growing exposure of banks to structured products and in preparati
on for the envisaged take-off of the domestic securitization market following th
e approval of the Securitization Act of 2004, the BSP pre-emptively issued in 20
05 the risk-based capital treatment of banks exposures to structured products and
securitization structures. In support of major policy objectives of enhancing c
redit access and expediting the clean-up of bad assets from the system, the BSP
likewise advanced lower credit risk weightings for high grade corporate debt exp
osures and micro and SME exposures, but also increased the risk weighting on non
-performing loans. This year, the BSP has issued the much-awaited Basel II imple
menting guidelines for the Philippines. The BSPs Task Force on the Implementation
of Basel II has just concluded their series of briefings both within and outsid
e of the BSP in preparation for the parallel run that will be conducted starting
end this year until mid next year. Unlike the existing BSP risk-based capital a
dequacy framework, the new Basel II-based framework does not only focus on the c
omputation of the appropriate level of capital given a certain level of risk exp
osure, but it also highlights the need for more market disclosures by banks on t
heir risk management exposures and practices. This is fully consistent with Base
l II Pillar 3 recommendations, as well as the new International Financial Report
ing Standards or IFRS which we fully adopted since 2005. The rationale is that t
he market itself contains disciplinary mechanisms that can reinforce the efforts
of supervisors by rewarding banks that manage risk effectively and penalizing t
hose whose risk management is inept or imprudent through their patronage or nonpatronage. Basel II and risk management As we move into implementation of Basel
II, industry reaction is both revealing and interesting. On one hand, the commot
ion it is causing with banks doubling their efforts in improving their risk mana
gement systems to meet the requirements of the advanced approaches is a very pos
itive development as far as the BSP is concerned. On the other hand, it is rathe
r disappointing that it takes regulatory pressure for many banks to finally star
t investing in a sound risk management system. I understand that there are certa
in problems that now face banks as they aim to improve their own risk management
systems. . A survey of emerging market central banks conducted by the BIS revea
ls the three main difficulties faced not just by you, but by banks in emerging m
arkets in general, in implementing more sophisticated risk assessment techniques
. These are: 1. Data problems. . Modern techniques of risk assessment in Basle I
I involve estimation of probabilities of default on the lenders portfolio, as wel
l as of loss-given-default. . Foreign banks get around by relying on data from t
heir home country operations, but these data may not be applicable in the emergi
ng markets they operate in. . Many emerging markets are however taking steps to
improve data availability. . For example, Malaysia and Thailand have respectivel
y established centralized credit registry for households and corporations and a
credit information bureau. 2. Lack of suitable techniques for designing and cali
brating models to evaluate alternative scenarios. 3. Large human resources and i
nfrastructure (IT and other) costs of implementing advanced techniques for risk
assessment. . But improvements in risk management have inherent value to banks b
y avoiding major costs, including potentially catastrophic costs that can break
a bank. Thus they should be pursued with or without regulatory requirements. Tho
se of you who are sports fans can relate to this. As you know, success in many s
ports today relies on a solid defense that is always there whether the breaks ar
e with you or not. Sophisticated risk management systems should be put in place
because the bank sees the need to, and not just to impress, or perhaps intimidat
e the supervisors. The latter I guarantee is highly unlikely to happen because o
ur supervisory personnel have also been doing their homework. Indeed, we have no
t just strengthened the regulatory framework. No less important, the BSP has inv
ested heavily in the last few years in enhancing our supervisory capacity in lin
e with the new demands. These efforts have ranged from individual skills enhance
ment through world class in-house structured training program to acquisition of
relevant international certification, to creation of highly trained special team
s, and currently a wholesale re-engineering and reorganization of the whole supe
rvision and examination set-up. I assure you, we will be up to the task. We prac
tice what we preach. Wrong motivations for improving banks risk management system
s may obscure the ultimate aim for such actions i.e., to make banks shareholders
and other stakeholders, NOT the regulators, happy by safeguarding and enhancing
the value of their investments. On our part, BSPs interest in promoting better ri
sk management is motivated more by macro considerations that is, a safe and soun
d banking system is crucial to economic growth and to the stability of financial
markets. Concluding remarks Let me now sum up. If you notice, the BSP initiativ
es I have mentioned are geared towards simultaneously promoting sound risk manag
ement practices in banks, and strengthening the risk-based capital adequacy fram
ework. This is because both robust risk management and strong capital positions
are critical in ensuring that individual banks operate in a safe and sound manne
r, which in turn enhances the stability of the financial system. In addition, st
rong capital helps banks absorb unexpected shocks and reduces moral hazard assoc
iated with the regulatory safety nets. Finally, let me reiterate BSPs commitment
to the identification, assessment, and promotion of sound risk management practi
ces in the financial system, which it considers as central elements of good supe
rvisory practice. But of course the BSP can only do this with the invaluable hel
p of our allies from the academe and the industry, such as the JBF Center and PR
MIA. Before I end, let me just quote Captain James Kirk of the Star Trek Enterpr
ise: Risk is our business. Thats what this starship is all about. Thats why were abo
ard her. Indeed, the same can be said of banking . Thank you very much and good d
ay to all of you.
Keynote Address
Venue: Bangko Sentral ng Pilipinas (BSP) Assembly Hall
Occasion: 15th Philippine Statistics Quiz (PSQ) National Finals

Dr. Isidoro P. David, President of the Philippine Statistical Association; Dr. R
omulo A. Virola, Secretary-General of the National Statistical Coordination Boar
d; Honorable Carmelita N. Ericta, Administrator of the National Statistics Offic
e; our distinguished judges and guests; regional finalists and their teachers an
d parents; fellow workers in the government; ladies and gentlemen, good afternoo
n. We, at the Bangko Sentral ng Pilipinas, warmly welcome this opportunity to on
ce again host the Philippine Statistics Quiz National Finals. The BSP has always
been supportive of these kinds of activities that give due recognition to the v
ital role of statistics in national development. As the countrys central monetary
authority and as the supervisor and regulator of the banking system, we formula
te policies on the basis of statistical information that we produce, collect and
compile, as well as monitor, assess and review. Statistics are important not on
ly for the stories they tell but also because they provide the basis for sound,
sensible policies going forward. Timely, relevant and reliable information provi
de sound guideposts that enable us to make informed choices and, ultimately, for
m an educated stand on issues that affect our nations future. With statistics per
meating the different facets of life, the BSP, together with other statistical a
gencies, is confronted with the challenge of going beyond the production of stat
istics and moving toward upgrading the level of statistical literacy in the coun
try. It is in this light that we commend the Philippine Statistics Quiz (PSQ) St
eering Committee for its efforts to promote and enhance awareness of the value o
f statistics in the school environment. This initiative of the PSQ is laudable a
s it helps demystify statistics as a science. Statistics has long been perceived
by many as a complex and even perhaps mysterious field of study. Fora, such as
this, however, can display how fascinating and practical this subject can be, as
students tackle problems that show the interconnection between statistics and t
he real world. The BSP welcomes every opportunity to help nurture young minds wi
th a view to strengthening the human resource base of our nation. I challenge ou
r young college freshmen here to develop their love and enthusiasm for statistic
s, for with this goes the development of their critical thinking. On this note,
the BSP unites with the Philippine statistical community and the academe in hono
ring this years finalists and in congratulating the winners and their mentors. Th
ank you very much.
Opening Statement for the FOCAP Meeting

Venue: Manila Mandarin Hotel
Occasion: Foreign Correspondents Association of the Philippines (FOCAP) Forum
I am pleased to address you in this forum organized by the Foreign Correspondent
s Association of the Philippines. Your continued interest in the Philippine econ
omy has greatly helped in shaping the quality of information provided to the int
ernational community. Fora such as this offers us an excellent opportunity to en
gage various stakeholders in policy dialogue. My short remarks today will focus
on the BSPs core mandate of promoting price stability and financial stability and
how the institution has responded to the challenges facing it. As Fed Chairman
Bernanke aptly puts it monetary policy is most effective when it is coherent, con
sistent, and predictable, while at all times leaving full scope for flexibility
and the use of judgment as conditions may require. This highlights the fundamenta
l role of transparency and communication in inflation targeting. The more that t
he public understands the logic of our policy framework and decisions, the more
we are able to better manage inflation expectations and the more their behavior
will facilitate the achievement of the price stability objective. An encouraging
development is that inflation has been on a decelerating trend beginning the se
cond quarter of this year, much earlier than expected. What is BSPs view on the i
nflation outlook ?. In our Third Quarter Inflation Report, released in October,
we noted that our short run prognosis points to subdued supply pressures and une
ven demand conditions. Subsequently, on November 2, the monetary board decided t
o maintain the BSPs key policy rates. At the same time, the tiering scheme on ban
ks placements with the BSP under the RP/RRP and special deposits accounts windows
was restored. This measure is intended to encourage banks to seek alternatives
to placing their excess funds with the BSP such as lending to the public. Lookin
g ahead, the BSP is fully aware that it still has to contend with the obvious da
nger to inflation posed by oil prices and the potential surge in liquidity growt
h from strong foreign exchange inflows. As risks to inflation are judged to rema
in tilted on the upside, the BSP will continue to keep a close watch on incipien
t inflationary pressures, especially those emanating from the demand side, and w
ill stand ready to undertake the necessary monetary action. Addressing supply-si
de risks also remains a key policy priority. Toward this end, the BSP actively p
ursues stronger representation with relevant government agencies in support of s
upply-side intervention measures that seek to maintain stability of basic food s
upplies. Targeting inflation does not mean being indifferent to exchange rate mo
vements. The exchange rate plays an important role in the transmission of moneta
ry policy because of its direct impact on prices of traded goods and its indirec
t impact on aggregate demand. While the BSP leaves the determination of the valu
e of the peso to market forces, there is scope for occasional BSP action to damp
en excessive volatility in the exchange rate that could potentially undermine th
e price stability objective. On the external front, we expect that the balance o
f payments (BOP) will remain strong. Current projections indicate a surplus that
will be sustained by continued inflows from OFW remittances and strong exports
of goods and services. Improving investor sentiment is also expected to boost th
e capital and financial accounts. Turning now to the Philippine banking system,
the system remains fundamentally stable and sound. This owes in large part to ef
forts to enhance financial intermediation and improve risk management by banks.
We also continue to improve upon the core aspects of banking operations and enha
nce the regulatory framework for the effective conduct of banking supervision. S
pecifically, our focus is on realigning local regulations with international sta
ndards, particularly those pertaining to corporate governance, financial reporti
ng and capital adequacy. We are gearing up for Basel II, which calls for the ado
ption of risk-based capital for banks. As a first step towards Basel II, higher
risk-weightings on NPLs have been introduced. The upshot of this is that banks a
re now compelled to adopt more formal procedures for quantifying risk and collec
ting information. The realignment has affected the BSP as well. We have moved fr
om a compliance-based supervision to a risk-based approach to supervision. The B
SP also continues to advance its reform initiatives to develop the capital marke
t infrastructur. Some important measures have been taken to create a better mark
et infrastructure, enhance transparency and instill market discipline. The full
implementation of the third-party custodian system that ensures proper delivery,
accounting and monitoring of all securities sold was also actively pursued. We
are also actively supporting various legislative initiatives that are intended t
o foster financial market development. Notable among these is the proposed creat
ion of a centralized credit information bureau system to improve the quality of
financial information available to investors, enhance private sector access to c
redit, and minimize exposure to risks of financial intermediaries. I deliberatel
y planned to keep my remarks short to have a longer Q & A session. I look forwar
d therefore to a productive, open, and stimulating discussion.
Keynote Address
Occasion: Corporate Planning Society of the Philippines
ship Meeting and Christmas Party
2006 4th General Member

Ladies and gentlemen of the Corporate Planning Society of the Philippines, fello
w workers in government, special guests. Good afternoon and welcome to the Bangk
o Sentral ng Pilipinas. I am delighted that the Bangko Sentral is hosting your a
ssociation s 4th general membership meeting. This provides us the opportunity to
directly share with you our insights on vital inputs you need to firm up your p
lans for the coming years; after this, we can have a free-wheeling discussion so
that we can also hear from you, learn about your concerns, and clarify certain
issues. This is our way of supporting the cause of strategic planning in our cou
ntry, the critical and essential function of creating a road map to achieve inst
itutional goals that.taken together.sustain a nation s growth and development. Fir
st, I will discuss the highlights of our economic performance over the past year
and our expectations, moving forward. I will also touch on the key challenges a
head and how this will influence the policy direction of the Bangko Sentral. The
Economy in Perspective Well, as you are aware, our key economic indicators have
been telling us that 2006 is bound to be one of our best years.as positive resul
ts have been broad-based. In fact, analysts have been describing 2006 as a defin
ing moment for our economy, as it has turned around negative perceptions. and rai
sed investor confidence in our country. Overall, our economy continues to grow,
buoyed by the vibrant performance of key sectors notably manufacturing, trade an
d finance as well as the resurgence of agriculture, fishery and forestry. In fac
t, real Gross Domestic Product (GDP) accelerated to 5.5 percent during the first
half of 2006 from 4.8 percent in the previous year. Significantly, we were able
to keep inflation at single-digit levels.even as our economy grew and absorbed r
ecord high domestic oil prices. In fact, we have been seeing a steady decline in
inflation from a high of 7.6% in March this year to 5.4% last October, the lowe
st level since June 2004. Please note that this is within the Bangko Sentral s f
orecast range of between 5 to 5.7%. As the institution mandated to stabilize pri
ces, the Bangko Sentral is satisfied with this trend. Essentially, the continued
softening of fuel prices and the strengthening of the peso supported the furthe
r deceleration in inflation in October. Latest forecasts of the Bangko Sentral c
ontinues to indicate a generally declining path for inflation, with average infl
ation for 2007 expected to fall within the 4-5 percent target, barring unforesee
n adverse shocks of course. As a result, the Monetary Board, in its last policy
meeting on November 2, kept the Bangko Sentral s benchmark policy rates unchange
d, but reinstated a tiering of interest rates on bank placements with the BSP to
encourage further bank lending. Treasury bill (T-bill) rates also declined acro
ss the board in early November, due primarily to the improved fiscal position of
the National Government, manageable outlook for inflation and ample liquidity.
On the external front, the overall balance of payments position for the first si
x months of 2006 recorded a surplus of $2.04 billion, an improvement from the US
$1.98 billion surplus recorded in the same period in 2005. The improvement resul
ted from higher inflows in current transfers, particularly from remittances of o
verseas Filipino workers (OFWs), higher exports and investment inflows. During t
he first nine months this year, OFW remittances reached US$9.1 billion, up 14.4
percent from the same period last year as more Filipinos found work overseas and
banks became more aggressive in offering remittance services to OFWs. Based on
this trend, we expect total OFW remittances in 2006 to set a new record and appr
oximate $12 billion. I am also pleased to inform you that our country s gross in
ternational reserves (GIR) reached a new record-high level of US$22.3 billion in
October this year. Given the sustained uptrend in our international reserves, w
e have in fact pre-paid some of our foreign loans. Likewise, these developments
on the external front continue to sustain the appreciation of the peso versus th
e US dollar. I am sure you are all aware that the peso hit P49.60 to one US doll
ar yesterday, its highest level since 2002, as market sentiment continues to be
positive. Better-than-expected fiscal performance is a key factor in this regard
, as government spending remains restrained even with higher revenues generated
from the Revised and the Expanded Value Added Taxes. To summarize, ladies and ge
ntlemen, we have better macroeconomic fundamentals as inflation continues to dec
elerate, the peso remains strong against the US dollar, and our fiscal position
continues to improve, with actual surpluses posted in four months so far this ye
ar. As the Government adheres to the implementation of its economic reform progr
am, we should see more positive developments, moving forward. The Financial Sect
or Reform Agenda Similarly, our financial reform agenda has been generating posi
tive results. In particular, the resources of the Philippine banking system reac
hed record high levels as banks continued to register modest growth in deposits
and capital accounts. This is significant as banks account for more than 95% of t
he assets of the Philippine financial system. Inasmuch as our economy depends pr
actically on the banking sector for its financial needs, it is imperative that b
anks are kept sound, healthy and responsive to the needs of its customers. For y
our information, the Bangko Sentral supervises 41 operating universal and commer
cial banks with 4,277 branches, 84 thrift banks with 1,209 branches, and 754 rur
al and cooperative banks with 1,305 branches. These figures are as of June 30, 2
006. With the series of mergers and consolidations that are taking place as bank
s seek to comply with more stringent capitalization requirements under Basel 2 a
nd international accounting standards, we should see fewer, but stronger banks i
n the coming years. The BSP remains steadfast in its efforts to help clean up ba
nks balance sheets to stimulate lending activity. So far, we have seen the nonperforming loan (NPL) ratio of universal and commercial banks drop from a high o
f 17.4% in 2001.to 8.5% in December 2005. and further to 7.43% last September. Agg
regate capitalization of the banking sector using the new and more stringent ris
k-based framework indicates that the banking industry s capital adequacy ratio (
CAR) continues to exceed the statutory level set by the BSP at 10 % and the glob
al standard of 8% set by the Bank for International Settlements. Parallel to thi
s positive development, outstanding loans of commercial and universal banks incr
eased by 6.1 % year-on-year in September to P1.597 trillion, the highest growth
rate since May 2005. While these may be modest compared to levels reached in the
previous years and by international standards, the numbers nevertheless indicat
e the overall soundness of the Philippine banking system on account of continuin
g reforms in recent years. These include, among others, adherence to internation
al best practices and the good governance tenets of fairness, accountability, tr
ansparency and social responsibility. Capital market reform to broaden the fundi
ng sources of the economy, as well as to ease the vulnerability of banks to econ
omic downturns, remains a priority for Bangko Sentral. In collaboration with oth
er government agencies and the private sector, the Bangko Sentral worked for the
completion of needed infrastructure that would enhance financial system integri
ty and overall market confidence. The operation of the fixed income exchange (FI
E) and the implementation of the third-party custodian scheme are part of these
initiatives to provide viable and sustainable alternative sources of funds. The
Challenges Ahead In the years ahead, the Bangko Sentral ng Pilipinas will remain
focused on its mandate of ensuring price stability by adhering to its inflation
target ; ensuring that the banking sector remains sound and able to meet the fi
nancial requirements of the economy; and ensuring the stability of the Philippin
e payments system to minimize or prevent systemic risks. To pursue its price sta
bility mandate, the Monetary Board, the policy-making body of the Bangko Sentral
, will continue to rely on the following basic instruments: policy rates which a
re set every six weeks and influence the interest rates at which banks transact
with their clients; reserve requirements or the share of depositors money that
banks must set aside to meet withdrawals; open market operations which allow the
Bangko Sentral to influence the level of money circulating in the economy throu
gh the purchase or sale of government securities; and rediscounting which encour
ages banks to finance priority economic activities such as exports and microfina
nce. The Bangko Sentral uses inflation targeting as a framework to maintain pric
e stability. Under this strategy, the BSP calibrates its policy actions to achie
ve the rate of inflation agreed upon with other economic agencies of government.
Adopted in 2002, this approach has served us in good stead. The challenge for u
s is to keep our forecasting tools on the money so that our policy rate decision
s will generate the desired outcome when its full impact is absorbed by the econ
omy 18 to 24 months down the road. Yes, ladies and gentlemen; this is the lag ti
me we have to contend with in measuring the effectiveness of our policy response
to ensure stable prices. As the sole issuer of Philippine currency, the Bangko
Sentral must also ensure that there is just enough money in circulation to meet
the requirements of the country. The amount of money in circulation must not be
too low that it could lead to higher interest rates and slower economic growth.
On the other hand, money supply must not be too high that it will be inflationar
y and reduce the purchasing power of the peso. This is a complex and challenging
balancing act. As mentioned before, it is imperative that the banking sector re
mains sound and healthy as it provides the funding requirements of the economy,
using essentially money entrusted to it by the people. In fact, funding for more
than 70% of the resources of the banking system come from deposits which, as of
June 2006, had reached P3.2 trillion. Ensuring the stability of our payments an
d settlements system is equally important. As the bank of banks, the Bangko Sent
ral serves as an effective clearing house for high value inter-bank transactions
as it holds cash balances of the banks. For this purpose, the Bangko Sentral op
erates a real-time gross settlement system which we call the Philippine Payments
and Settlements System or PHILPASS which processes about 2,000 transactions wit
h a total value of about 300 billion pesos.daily. This is therefore a vital servi
ce as it minimizes settlement risks for high value transactions that may adverse
ly affect the stability of the financial system. I hope that you will continue t
o support Bangko Sentral s policies and programs; in the same manner, you can de
pend on our support.if there is convergence on what our respective institutions w
ant to accomplish. Indeed, with appropriate programs of cooperation and compleme
ntation, the government and the private sectors can unleash the synergy which co
uld sustain growth and development of our economy; jobs and income for the man o
n the street; as well as peace and prosperity for our country. Let us therefore
work together to sustain our growth momentum and continue to implement our refor
m agenda. Remember, in the face of increasing global competition and millions of
Filipinos who remain mired in poverty, we either innovate.or stagnate. Let us ch
oose to innovate together. Maraming salamat sa inyong lahat.
Strengthening Partnerships for a More Resilient Banking System

Venue: Ayala Museum
Occasion: Thanksgiving Dinner hosted by the AIG Philam Savings Bank, Inc.
Thank you Ched. Former Central Bank Governor and now Philamlife President and CE
O Jose Cuisia, Jr., Mr. Ridha Wirakusumah of AIG Asia, other officers and staff
of the Philamlife-AIG family, fellow bankers, special guests. Good evening! I am
glad I am here to witness what you call the gala premier to celebrate the merge
r of Philam Savings Bank and AIG Credit Card Company Philippines which gives bir
th to AIG Philam Savings Bank. To us in the banking sector, this strategic move
by the Philamlife Group and AIG to consolidate their consumer finance businesses
will further strengthen the banks financial position and boost its competitive e
dge. Ultimately, this should translate to a more efficient and reliable delivery
of financial products and services to the public. To central bankers like me wh
o are responsible for keeping the banking sector sound, healthy, and responsive
to the needs of the economy, this is welcome news indeed. My former boss, former
Central Bank Governor Joey Cuisia, will attest to this. In fact, it has been th
e policy of the Bangko Sentral ng Pilipinas to encourage mergers and consolidati
on.so that we will have stronger and more globally competitive banks. Thus, those
keeping track of developments in the banking community will realize that the AI
G Philam Savings Bank is the latest outcome in a series of mergers that have bee
n taking place as our banks gear up for increasing competition. In this period o
f global convergence where competition is the norm and banks are measured agains
t rigorous standards, one strategy that enhances the likelihood of survival and
sustained viability is to go the way of mergers and consolidation. In this regar
d, we foresee a scenario of fewer but more financially powerful universal and co
mmercial banks that are better able to compete in a world of more open borders.
However, this is not to say that there will be no place in the evolving financia
l environment for smaller banks such as thrift and rural banks. In fact, smaller
specialist banks cover important niche markets that have unique needs; for inst
ance, consumer trade and microfinance come to mind. Under this scenario, the sma
ller banks complement the services of the bigger banks, thus ensuring the availa
bility of financial services to the entire market spectrum. In the case of thrif
t banks, their areas of specialization lean toward consumer lending, housing loa
ns, small business loans, agri-business loans. This is a vital role that the thr
ift banking industry, AIG Philam Savings Bank included, should fully serve. In p
articular, AIG Philam Savings Banks considerable experience in consumer banking a
nd its commitment to deliver quality service to a broader clientele will certain
ly add value to the development of local financial services. I am certainly look
ing forward to AIG Philam Savings Bank taking a more active role in financial li
teracy to fully realize the growth potential of your market. Indeed, providing c
onsumers with adequate, timely and relevant information about financial products
and services is a necessary prerequisite to ensuring the growth of your market.
Alongside our aim to promote a more efficient and competitive banking system is
our initiative to implement major structural reforms for enhanced transparency
and accountability, improved risk management, and stronger capital position of b
anks and other financial institutions. I am happy to report to you that such ref
orms continue to take root within the banking industry. Over the years, we have
stepped up the reform process in the banking system to keep pace with market cha
nges and international best practices in the areas of corporate governance, risk
management and capital adequacy. In the months ahead, we can look forward to ev
en more challenging and exciting developments as we move closer to full complian
ce with Basel II, the global capital standards for banks. Preparation is crucial
; by now, for instance, banks should have established a sound risk management sy
stem. Given the financial strength and leadership of its parent companies, I am
positive AIG Philam Savings Bank will be up to the challenge and emerge as a maj
or thrift bank player whose brand of service will raise the bar for bank custome
rs. On this optimistic note, I thank the Philamlife Group and AIG for its abidin
g faith in the future of our economy in particular and our country in general, a
nd for joining the Bangko Sentral ng Pilipinas in its drive to strengthen the ba
nking system. Finally, on behalf of the Bangko Sentral ng Pilipinas, I extend ou
r best wishes to all the officers and staff of AIG Philam Savings Bank. May you
serve your customers well, adhering at all times to the good governance tenets o
f transparency, fairness and accountability. Good luck and congratulations! Mabu
hay!
Innovative And Efficient Delivery Channels For Banking Services

Venue: Makati Shangri-la Hotel, Makati City
Occasion: Launching of GlobeQUEST TouchPoint
Mr. Gerry Ablaza, Mr. Gil Genio, the officers and staff of Globe Telecom and Inn
ove Communications, fellow bankers, special guests, good evening. As head of the
Bangko Sentral ng Pilipinas, the institution that oversees the banking sector,
I am truly gladefforts to develop innovative and efficient delivery systems for b
anking services continue..in many fronts. Tonight, we witness the unveiling of G
lobequest Touch Point which, I understand, is a completely integrated electronic
or e-banking package. In other words, it is an end-to-end technology solution:
from hardware to software, to I.T. experts, to data center services, down to net
work infrastructure. For all intents and purposes, it is equivalent to outsourci
ng an e-banking system. This is an exciting proposition that has a lot of growth
potential, moving forward. Today, we have 872 banks, of which only 55 or 6.3% h
ave electronic banking services approved by the Bangko Sentral ng Pilipinas. Ple
ase note that these 872 banks have more than 7,600 branches. What they need ther
efore are efficient and secure communication systems and infrastructure. The eco
nomies of scale that I.T. companies such as Innove offer, therefore, will be par
ticularly valuable to smaller banking institutions that may not have the technol
ogical expertise and enough resources to build their own e-banking facilities. L
adies and gentlemen, it was the advent of automated teller machines or ATMs that
allowed banking services and transactions to continue beyond traditional bankin
g hours. Now, ATMs no longer have this monopoly; new and better electronic banki
ng options allow us to do transactions outside the confines of banks premises an
d beyond regular banking hours. Today, we have Internet banking, mobile banking
or phone banking. Remote access through the Internet and mobile devices has allo
wed banks to provide additional channels to deliver more services to their clien
ts. Mobile banking through the use of cellular phones is now popular as text mes
saging has become a means to remit funds, pay bills and loans, and make deposits
. Accessing a banks web portal through mobile devices is also expected to become
a common occurrence as advances in technology further improve the capability of
mobile devices to rival even current personal computers. It is interesting to no
te that there are also non-bank institutions 1 that deploy ATMs to serve the nee
ds of the depositing public in remote areas of our country. Thus, today, banking
services are within reach of segments of the population that previously had no
access due to geographic and cost constraints. All these have resulted in greate
r convenience to the public who can now choose to bank anytime, anywhere . In th
e same vein, banks have also benefited from these technological advances, as eff
iciencies improve and operational costs are reduced. Indeed, the Philippine bank
ing industry continues to undergo rapid and extensive transformation,due largely
to improvements and innovations in communications and information technology. N
evertheless, even as we mention its upside, we recognize that these technologica
l innovations carry risks, which must closely be monitored, managed and balanced
against the benefits. In response to this need, BSP has undertaken the followin
g: created specialized supervision units such as that for information technology
; issued Circulars to guide the development of electronic banking as well as to
ensure consumer protection and awareness; and adopted international best practic
es to keep us at par with the rest of the world. The increasing interdependencie
s of banking, telecommunications, and information technology, pose a challenge f
or BSP to continuously adapt to a rapidly evolving technological and business en
vironment. Nevertheless, with the support and cooperation of all stakeholders, s
uch as Globe and Innove.I am confident our vision of a globally competitive finan
cial industry will be realized, eventually. Finally, let me conclude by congratu
lating globe telecom and Innove Communications on the launch of Globequest Touch
point. This is indeed a vital empowering solution toward providing the public wi
th anytime, anywhere access to banking services. I hope you will continue to gen
erate even better and more cost-efficient technology solutions. Maraming salamat
po at magandang gabi sa inyong lahat! --------------------------------- 1 Examp
les of private sector ATM deployers are Nationlink and EnCASH. .
Remarks
Venue: Makati Golf Club
Occasion: Launching of Wealth Magazine
Chairman Gerry Geronimo, President Rudy Romero, Editor-in-Chief Dulce Maria Sare
t, respected journalist Mr. Willie Ng, other staff members of Wealth magazine, f
riends, special guests. When Rudy told me about the launching of this magazine o
n business and the economy, I thought finally, here is a group that immediately c
ommunicates what it aspires to achieve: wealth. Wealth for its readers, for itse
lf and for its country. Insofar as the Bangko Sentral ng Pilipinas is concerned,
your timing is perfect. In observance of National Savings Week in the first week
of July, the Bangko Sentral is launching with the Department of Education a camp
aign to develop the habit of saving regularly among school children. This includ
es teaching them to respect coins as currency of value.and incorporating money ma
nagement in the curriculum of elementary students. The program includes a traino
rs training so that teachers can be effective channels for financial literacy. In
other words, we are going to teach elementary students the foundation for wealt
h creation: that of saving regularly. This is particularly important in the ligh
t of a survey conducted two years ago, indicating that less than 5% of children
save money regularly. What is disturbing is that these children prioritize spend
ing for loads or texts on their cell phones, over saving! We have to address thi
s; otherwise, we will be raising a new generation of deficit spenders, the oppos
ite of wealth creators. I am therefore looking forward to Wealth Magazine as a p
arallel medium for adults to learn fromfor developing, growing and protecting ones
wealth. If economic and financial literacy are your subjects, to us at the BSP,
these are priority advocacies. As our partners, we will support you regularly w
ith data requirements to help inform and guide your readers on what is really ha
ppening in our economy in general and in business in particular. And so, I wish
Wealth Magazine and all the people behind it, a truly successful, meaningful and
inspiring first 100 years. Cheers!
Bancnet and Expressnet Interconnection Unified ATM Network Infrastructure Nation

wide

Occasion: Launching of Bancnet-Expressnet Interconnection
Distinguished officers and members, co-workers and friends in the banking commun
ity, ladies and gentlemen: good morning! It is my pleasure and honor to witness
another milestone in the Philippine financial services industry - the unificatio
n of the operations of the country s over 6,000 automated teller machines (ATMs)
. Today s formal launching of the interconnection of BancNet and Expressnet ATM
networks, finally sets one electronic platform for a more expedient, more conven
ient and cost-efficient delivery of financial services nationwide. This sharing
of network infrastructure is a strategic move that is expected to reduce transac
tion cost which, in turn, would ultimately translate to lower service fees for a
ll ATM-related transactions of the over 10 million ATM card holders. Let me ther
efore commend the primemovers of this endeavor, principally for their sustained
responsiveness to our call for reforms. If my memory serves me right, then Gover
nor Buenaventura, my esteemed predecessor, had urged the three ATM networks: Ban
cNet, Expressnet and Megalink, to unite in February last year - that s a turnaro
und time to our call of only 15 months. We have indeed come a long way since the
first ATM consortium was established in 1990. BancNet also pioneered that schem
e. They were the first group of eight banks 1 to form an alliance that consequen
tly established the backbone of the electronic banking operations in the country
. In 1995, Bancnet linked up with Megalink. Megalink and Expressnet subsequently
interconnected two or three years later. We, at the Bangko Sentral, welcome the
se developments and strongly support banks endeavors that aim to harness new te
chnologies and upgrade rhe delivery of banking services to international standar
ds. But while we would want you to seize the opportunities, we also want industr
y participants to be mindful of the inherent risks. Accordingly, we shall be cra
fting relevant regulations that would ensure that risks inherent in electronic b
anking are adequately managed and depositors protected at all times. The establi
shment of appropriate safeguards and mechanisms for managing and controlling ris
ks cannot be overemphasized with the growing sophistication of the conduct of ba
nking operations with the use of new technologies. Just recently, we issued a me
mo advising banks to exercise vigilance in their operations and to educate the p
ublic against fraudulent practices involving ATM transactions. Information is vi
tal if we are to protect the interests of the banking public and maintain their
trust. It is therefore my hope that our partners in the banking industry replica
te the seal and dedication and commitment of BancNet and Expressnet in remaining
true to their shared mission fully connecting all members 2 and of upholding ex
cellence and quality in their services to preserve that trust. Again, congratula
tions to Bancnet and Expressnet! Thank you and pleasant day to all of you! ------------------------ 1/ BancNet commenced operation with eight member banks on i
ts roster namely: Philippine Commercial International Bank (now Equitable-PCI Ba
nk), Security Banking Corporation, China Banking Corporation, RCBC, Allied Banki
ng Corporation, Metrobank, Interbank and Citytrust (now BPI Family). Other finan
cial institutions like Citibank N.A. and Philbank eventually joined the team (So
urce: BancNet website - wwww.bancnet.net) 2/ At present, all BancNet member bank
s are already interconnected with Expressnet. In the case of Expressnet, BPI Gro
up of Banks (BPI, BPI-Family and BPI-Direct) and Landbank of the Philippines (LB
P) are already interconnected, while Banco de Oro (BDO) and HSBC will be interco
nnected before the year ends.
Remarks
Venue: Conservatory of the Manila Peninsul
Occasion: Launching of GE Money Bank, A Savings Bank
Good evening, ladies and gentlemen! It is my pleasure to join all of you tonight
. Congratulations to the officers and staff of GE Money led by CFOs Mr. Mark Too
hey and Mr. Dan Hasano, and President and CEO Mr. Ben Kua for formally launching
GE Money Bank in the Philippines. GE Moneys decision to build up substantial ope
rations across Asia is proof of its strength as a financial institution. This la
test strategic move further boosts GE Moneys competitive edge. We acknowledge GE
Moneys vote of confidence in our countrys growth prospects, particularly in the ba
nking system. Indeed, this is a strong affirmation of business opportunities in
the Philippines. You are now therefore a key partner of the Bangko Sentral ng Pi
lipinas in promoting the sustained growth and stability of the Philippine bankin
g system. The Philippine banking system today remains fundamentally sound. And w
e are sustaining this by deepening the implementation of key reforms. Toward thi
s end, we are seeking to address core aspects of banking operations and enhance
the regulatory framework for the effective conduct of banking supervision. Speci
fically, we are focusing on strengthening corporate governance, risk management,
and capital adequacy in our banks. This will be complemented with effective and
efficient enforcement. We are also moving towards closer alignment of existing
regulations with international standards to make regulatory policies more respon
sive to the growing competitiveness and sophistication of the financial services
industry. GE Money bank can contribute meaningfully to the success of the BSPs c
omprehensive financial reform agenda. With GE Moneys extensive network, I believe
you can also assist us in our efforts to encourage more overseas Filipino worke
rs (OFWs) to transact business through the banking system. Moving on, GE Moneys c
onsiderable experience in consumer banking and its commitment to deliver quality
service to a broader clientele will certainly add value to the development of l
ocal financial services. For our part, the BSP is deeply involved in promoting c
onsumer literacy, in coordination with other regulatory agencies. Our aim is to
equip consumers with adequate, timely and relevant information about financial p
roducts and services, not only for their protection but also for maintaining the
stability of the financial sector. Here, we shall be relying on your expertise
and wholehearted support. I am optimistic that we can forge an enduring partners
hip. On that note, I wish GE Money bank success in all its endeavors. Thank you!
Closing Remarks
Venue: Taal Vista Hotel, Tagaytay City
Occasion: 2006 BSP Strat Planning Retreat
INTRODUCTION With great power comes great responsibility. This is Uncle Bens famous
reminder to his equally famous nephew Peter Parker, better known as Spiderman.
While this may be a line from the silver screen, its message should be loud and
clear. The past two days have been a gathering of decision-makers of this centra
l monetary institution men and women entrusted with the authority to formulate m
onetary policies in support of price stability, and the power to supervise and r
egulate financial institutions to ensure the stability of the financial system.
But, as Uncle Ben rightly said, with power comes responsibilities. Thus, with th
e great authority vested in us comes the responsibility to lead, and to lead wel
l. We are expected To be a step ahead and To show the way. It also means being in th
e forefront of the organization and steering our people in the journey towards o
ur vision. OUR STATE OF GOVERNANCE The central theme of this years planning exerc
ise is governance. But what does it mean and what does it take to govern? Yester
day, we defined corporate governance in three perspectives by finding the answer
s to three questions. First, Is the BSP leadership inspiring? More specifically, d
oes it stir the BSP employees to action, to look beyond themselves, to place pri
mary importance on the accomplishment of our mandate, and to better the lives of
Filipinos through a dedicated and excellent service each day? Do our leaders ha
ve the required competencies to transform our organization? Do we have the neces
sary values system, support policies, structures and processes in place to promo
te the desired change towards making the BSP employees work as a team towards th
e attainment of a common goal? The second question is, How well have we articulat
ed our vision? This relates to our ability to communicate our goals, policies and
programs, as well as our performance to our internal and external stakeholders.
Do we have an organized blueprint, a deliberate policy to make our actions unde
rstandable to the general public? Finally, the third question of Are we able to e
nsure the financial sustainability of the BSP? links to the need to provide adequ
ate financial resources to carry out our mandate and at the same time cover our
operating expenses, another important aspect of corporate governance. A COMPELLI
NG TRANSFORMATION Last Friday, the blueprint for a culture change program in the
Bank was presented to us. Anchored on our vision, the requisite changes in the
way we lead in our management practices, in our systems and structures, and in o
ur values system are expected to propel our organization to become a leading pra
ctitioner in central banking, and be among the best central banks in the region,
or even in the world. Going from where we are now to our desired state in the f
uture compels us to transform our mindsthe way we think, perceive, and react to s
ituations, and our heartsthe way we relate to people we work with and the people
we serve. To lead is to be a catalyst for change and we as leaders of Bangko Sen
tral are expected to lead the process of transforming our organization to one th
at is achievement-oriented. A SENSE OF SOMETHING BEYOND We all agree that the jo
urney of transformation starts with ourselves, as a person and as an organizatio
n. The process of self-introspection is the initial step yet the most crucial an
d difficult. And here there is no new formula. Neither is there a secret formula
. The approach has always been the same, has always been known to us. It require
s two things: one, the humility to accept ones weaknesses and shortcomings; and t
wo, the courage to do what is needed to achieve the desired change. One can say
this is easier said than done. But it is something that has to be done and to be
able to do it is the real challenge. It is also non-transferable; we have to it
ourselves. More importantly, it is the sense of something beyond ourselves that
will carry us through the obstacles and the disappointments. And by working tog
ether, by moving forward as one team, by learning from the geese, this is what w
ill propel and sustain our flight toward our vision as the Bangko Sentral ng Pil
ipinas. At the end of the day, when we have retired from BSP, our legacy will be
defined more by the lives we have touched, in the process of transforming ourse
lves towards achieving a better institution, a better community, a better nation
. The teambuilding workshop held last Friday for the conference participants and
the special session for the Monetary Board held yesterday afternoon, provided a
n excellent opportunity to see ourselves in different dimensions: strengths and
weaknesses, lights and shadows, wounds and wonders. This was a great learning ex
perience that either provided revelations or confirmed what we had somehow known
before, about ourselves, about our processes, about how others perceive us. Thi
s should provide us with the basis for how we can improve the way we do things i
n BSP. I wish to thank all of you for participating in the teambuilding workshop
. I would also like to thank and congratulate everyone for the success of our Pl
anning Retreat. I think, more than the hard work put into the working group pape
rs and the presentations, the humility and courage to face ourselves in the mirr
or is all the more commendable. We are likewise grateful for the assistance rend
ered by our technical staff, our secretariat and support staff for this years pla
nning conference. Lets give everybody a warm round of applause. Tomorrow is a new
day, and it offers new opportunities for us to do better and to become more ins
piring leaders. Let us listen more to our staff because their performance, attit
udes and behavior are a reflection of whether a transformation in their leaders
is indeed taking place. Let us commit to do what is necessary to ensure that our
institution maintains its credibility and relevance. Let us be constantly remin
ded of our higher goal of attaining a better quality of life for the Filipino. O
nce again, thank you to all of you. And to all the male parents here, Happy Fath
ers Day.
Opening Remarks
Venue: Visayas and Mindanao Rooms, Executive Business Center, Bangko Sentral ng
Pilipinas
Occasion: 5th Environmental Scanning Exercise: Bank Lending Trends and Outlook
Honorable members of the Monetary Board, distinguished panel of speakers, my col
leagues at the BSP, good afternoon. Our forum today is the fifth of a series of
Environmental Scanning Exercises (ESEs) that the BSP conducts in line with its e
fforts to broaden the information set for monetary policy setting. This forum wi
ll also allow us to consult with our counterparts outside the BSP on key economi
c issues. Results of past ESEs have helped us to consider a broad range of econo
mic and non-economic issues, and provided useful insights for policymaking . Thi
s afternoon, we will be discussing the trends and outlook on bank lending. We wi
ll be reviewing and interpreting the evidence on the trends of bank lending, and
try to explain the major factors that drive modest bank credit despite ample li
quidity growth, declining non-performing loans, and improving economic outlook.
Bank lending is important because of its established correlation with economic g
rowth, specifically as an indicator of the general condition of domestic demand.
The current state and outlook of domestic demand is one of the major considerat
ions to monetary policy setting. We have observed that despite the continued gen
eral improvement in the asset quality of banks, the growth of bank lending remai
ns modest. Does this indicate a sluggish corporate demand matched by a cautious
stance of banks to lend? Is this cautiousness related to preparations for streng
thening capital base in compliance with the Basel principles? Or is this a conse
quence of structural change in the economy, a shift to the less credit-intensive
services sector away from manufacturing activities? There are various ways of e
xplaining this phenomenon. Having direct links with the real economy, our speake
rs could share their views on the reasons behind the modest growth of bank lendi
ng and suggest ways to address it. In particular, our discussions shall revolve
around the following issues: (1) How do we explain the current behavior of and r
isks in bank lending, and what are the factors affecting its modest growth? (2)
What are the factors influencing the setting of bank lending rates? (3) What act
ions are being employed by banks to encourage lending activity? (4) What are the
sources and changes in fund sourcing by firms and industries? (5) What are the
policy options to improve bank lending? and (6) What is the direction of bank le
nding for the next one to two years? I am confident that todays discussion among
our speakers will be fruitful. Let me thank you in advance for your time and con
tribution in this exercise, which is part of our effort to look at a broad range
of indicators to help shape the course of monetary policy and thus, of economic
development in this country. Thank you.
Welcome remarks
Venue: Metropolitan Museum of Manila, BSP
Occasion: International Finance Corporations 50th Anniversary Cocktails
Secretary Margarito Teves of the Department of Finance, Mr. Javed Hamid, Directo
r of the International Finance Corporation (IFC) for East Asia and the Pacific R
egion, Mr. Vipul Bhagat, Country Manager for Philippines and Thailand, IFC, Mr.
Jaime Augusto Zobel de Ayala II, President and CEO, Ayala Corporation, distingui
shed guests, ladies and gentlemen, good evening. It is my distinct pleasure to w
elcome all of you to our country and the BSP, as we join the world in celebratin
g the 50th anniversary of the International Finance Corporation (IFC). The Phili
ppines is a big part of its history being the first country where IFC establishe
d its foreign office outside of Washington. I believe that our theme for this ga
thering Celebrating 50 years of investing in emerging markets building business a
nd creating opportunities in the Philippines appropriately captures the role of t
he IFC not only in the Philippines but also in most of the developing economies,
now touted as emerging markets, thanks to the IFC which coined the term. Indeed
, since its creation in 1956, IFC has worked to build business and create opport
unities in emerging markets by playing a significant part in promoting private d
irect investments in the developing nations. This provided much-needed support t
o private sector initiatives in these countries, lending credence to the concept
that private enterprise could power the rise of least developed nations. Over t
he years, the IFCs role has evolved from pioneering these foreign direct investme
nts to creating the first equity funds for developing countries and introducing
more advanced products and initiatives, such as local currency bond issues, secu
ritization and carbon emission credits. As a result, IFC stands today as the lar
gest multilateral provider of private sector financing in the developing world.
All of these were done not in search for higher yields but in search of ways to
reduce poverty and address environmental and social challenges. As such, IFC has
been aptly described as the positive face of international capital flows.1 As an
emerging market, we in the Philippines have an active interest in the evolution
and performance of the IFC as an institution. I am pleased to mention that the P
hilippines is ranked among the IFCs 10 largest country exposures worldwide. This
is a testament to the confidence that IFC places in the capacity and ability of
the country to transform these investments into productive endeavors that will h
elp the governments efforts to reduce poverty. I believe that IFCs confidence in t
he Philippines is appropriately anchored on improving economic fundamentals. For
eign investors have been taking a second look at the country and foreign direct
and portfolio investments have been growing significantly since last year. This
positive market sentiment has been spurred by continued economic reforms particu
larly in terms of fiscal consolidation. IFCs role in emerging markets is far from
done. Let me mention that we are celebrating this milestone event amidst an ext
ernal environment which threatens to disrupt capital flows into emerging markets
. For some time now, authorities in emerging economies have kept a close eye on
the pace of monetary tightening in the worlds major economies. Their interest is
understandable: the prospect of higher interest rates in advanced economies has
a crucial impact on capital flows to emerging markets. A sustained hike in inter
est rates in the U.S. And other major economies increase the risk of capital rev
ersal from emerging economies. This development presents a new challenge as well
as a new opportunity for the IFC to be more vigilant in its role of ensuring th
at foreign direct investments continue to flow where they are needed the most. I
ndeed, more milestones are yet to be tracked in the emerging markets. But this e
vening is a time to pause and celebrate a milestone event fifty years of partner
ship between IFC and the emerging markets. We look forward to another fifty year
s of painstaking yet fruitful work. My warmest welcome to all of you. -------------------------------- 1 Quoted from Joseph Yam, Chief Executive of the Hong Ko
ng Monetary Authority during the IFCs 50th Anniversary celebration in Hong Kong.
Press release available at http://www.ifc.org/ifcext/media.nsf/Content/Asia_Futu
re_Emerging_Markets
Welcome Remarks For The Meeting On Restoring TheSierra Madre Range"

Venue: NA
Occasion: Meeting Room, Executive Business Center, BSP
Mrs. Narda Camacho, Dr. Ester Ogena, and Mrs. Cheche Lazaro of the UNESCO Nation
al Commission of the Philippines (UNACOM), other advocates and protectors of the e
nvironment, special guests, ladies and gentlemen. Good afternoon and welcome to
the Bangko Sentral ng Pilipinas. It is our pleasure to host this dialogue on Rest
oring the Sierra Madre range. In particular, we salute this group for taking on t
his very important.and challenging mission. To achieve your goal, you have to con
tend with nature and people in restoring the Sierra Madre which, I understand, h
as the largest contiguous block of forest in our country. You realize it wont be
easy, but you take it on anyway, knowing it is a necessary and crucial undertaki
ng for the country and the next generations of Filipinos. We at the Bangko Sentr
al know exactly how that feels. Our mandate to stabilize prices through responsi
ve monetary policies is clear but the path is fraught with challenges. These incl
ude external factors over which we have no control, such as global oil prices. O
bjectively speaking, we have had some success in meeting our primary mandate. We
know, however, that there were times we could have done better.Just like you, we
are acutely aware that our policies and programs affect peoples lives and that t
heir ripple effects will be felt for years to come. And so, just like you, we tr
ek on in spite of the difficulties we face. Indeed, the protection, preservation
and enhancement of our environment are imperatives we cannot set aside. We hope
therefore that your meeting this afternoon on the restoration of the Sierra Mad
re range will be fruitful and successful And that ultimately, in the years ahead,
you will be able to achieve what you set out to do. May your tribe increase. Ma
buhay po kayo!
Remarks

Occasion: 2nd Quarter Socials of the BSPOCI
Ladies and gentlemen of the Bangko Sentral ng Pilipinas, palakpakan nating muli
ang magagaling na dancers ng ating Officers Club! They remind me of the dance nu
mbers we used to do in schoola few decades ago. Good evening fellow officers at t
he Bangko Sentral, members of our Retirees Club, special guests, friends. First
of all, I want to ask the members of the outgoing board of the BSPOCI under Mada
me President Memeth Manalac to please stand up. Where are you? We thank all of y
ou for your exemplary and remarkable performance in the past two years. Let us g
ive them a round of applause. Not only have you introduced many exciting and fun
programs the BSP Idol comes to mind you have been exceptional as well in harnes
sing the generosity of BSPers to support worthy corporate social projects. I not
e with pride your donations to Gawad Kalinga for two-and-a-half houses, and your
many other outreach programs. Other worthwhile achievements are the assistance
the BSP Officers Club has rendered to our fellow BSP workers by way of the schol
arship program for children of BSP employees and your continuing program for pro
fessional growth of the members through your lecture series. I understand you ha
ve also started furnishing the BSPOCI room, which gives our retiree members a co
mfortable place to congregate in. Thank you for all of these. Of course, the pas
t Board would not have been able to achieve all these without the cooperation an
d hard work of all of the members. As the saying goes, the leaders are only as g
ood as the followers. So I congratulate all of the members, who also deserve a w
arm round of applause. Lets give ourselves a round of applause! I am sure the new
leadership of the BSPOCI Board under President Buddy Silverio will be equally s
uccessful and innovative in organizing meaningfuland fun.events that will enhance
camaraderie and the spirit of cooperation among the officers of the Bangko Sentr
al. I see some hold-overs from the past Board and representatives from the vario
us sectors of the Bank, including retirees. This is good! I am sure the new Boar
d will continue to manifest its concern for our marginalized sector and include
among its beneficiaries our countrymen who continue to live in poverty. The late
st number is one out of five Filipinos are poor. This means more than 16 million
Filipinos continue to suffer in poverty. They need all the help they can get. I
hope that all the members of the BSPOCI will continue to give their full suppor
t to the new board of directors and their projects. No matter how worthy the pro
jects are, if we dont do our share, BSPOCI will not be able to accomplish much. B
eyond BSPOCI, I ask all of you, the members of the BSPs officer corps to work tog
ether in full cooperation and harmony for the continued development and professi
onalism of the BSP workforce, the enhancement of our work ethic, the improvement
of our work performance and the attainment of our mission and vision. Thank you
all and enjoy the rest of the evening.
A message for the Microfinance Sector

Occasion: Launching of the Citigroup Microentrepreneur of the Year Awards 2006
Good morning. On this happy and important event, I congratulate everyone behind
the Microentrepreneur of the Year Awards: the Citigroup of course, led by Countr
y Officer Sanjiv Vohra; the Microfinance Group of the Bangko Sentral ng Pilipina
s; and the Microfinance Council of the Philippines. Together, you have instituti
onalized the annual recognition of the countrys exceptional microentrepreneurs wh
o have become catalysts of growth in their respective communities. And an inspira
tion to others who similarly aspire to improve their quality of life. Ladies and
gentlemen, let us give them a round of applause! We must also acknowledge the b
anking sector which has responded quite well to the microfinance initiatives of
the Bangko Sentral. Today, there are 193 banks engaged in microfinance operation
s reaching over 600,000 clients with an outstanding portfolio of 3.3 billion pes
os. This is equivalent to an average loan of P5,500 per client! Let us also give
our banking sector a round of applause. And of course, we should recognize the
mcroentrepreneurs themselves, represented here today by Virginia Borde they all
deserve a warm round of applause. Now.the challenge before us is to further sprea
d the gospel of microfinanceto uplift millions of our countrymen who still live i
n poverty. We know the many benefits of microfinance. We know that access to a s
avings account, a small loan, and an easy way to send and receive remittances ca
n make a big difference in the lives of the poor how thencan we push the benefits
and gains of microfinance to more and more Filipinos? Let us think about this a
nd commit to work on it together. The second challenge before us is to address t
he need for capacity building on the level of the microentrepreneur, as well as
the microfinance institution. The story of our Mindanao regional winner last yea
r is a case in point. Ms. Teresita Larano, a former manicurist in Manila, went b
ack to her hometown in General Santos to start a small business. Determined to s
ucceed, she hurdled many obstacles and eventually registered remarkable gains for
her business. The microfinance institution serving her the Kabalikat Para sa Ma
unlad na Buhay or KMBI then featured her success story at their website. As a re
sult of this posting, KMBI received an import order from Turkey.for several tons
of Ms. Laranos fish crackers. KMBI tried to help. However, due to the volume, Hal
al requirement, and exporting procedures, they could not meet the order. This re
presents missed opportunity... A pattern that could be happening to other microe
nterprises as well. This is unfortunate, as we now see microfinance not only as
a potent tool for poverty alleviation.but also as a tool for wealth creation. Cle
arly, microentrepreneurs need to develop skills to manage the growth of their bu
siness and to take full advantage of opportunities that come their way. The skil
ls range from basic financial literacy and bookkeeping to product development an
d marketing. When appropriately managed, the growth of these enterprises can gen
erate more jobs in the community and increase overall economic activity. On the
other hand, microfinance institutions need to grow and develop alongside their c
lients. They should stand ready to expand the range of products and services for
microentrepreneurs. This can include, among others, the creation of linkages an
d synergies among the microentrepreneurs they serve. If microentrepreneurs and m
icrofinance institutions live up to this challenge to scale up, they can trigger
progressively bigger positive impact on the community. And ultimately.our economy
. At the Bangko Sentral, we are taking these challenges very seriously indeed. F
irst, we are promoting linkages between large banks and retail financial institu
tions to help broaden the resource base of the microfinance sector; foster innov
ations in service delivery; strengthen institutional partnership models; and dev
elop the local capital market for microfinance. For this reason, we will be host
ing later this month, a networking activity between universal/commercial banks a
nd microfinance institutions in the country. Globally, we are seeing an increasi
ng number of such working partnerships to promote, and cope with, the increasing
scale of microfinance. Citigroup itself has entered into commercial partnership
s with microfinance institutions in Mexico, Peru, Ecuador and India. I understan
d this has paved the way for microfinance institutions in these areas to expand
their operations on a massive scale. Second, the Bangko Sentral will promote lin
kages that will enable microentrepreneurs to increase the scope and scale of the
ir business, possibly to include exports. We note, for instance that around 30-4
0% of our microenterprises are engaged in simple trading activities while these
are important economic activities, its potential for growth is somewhat limited.
We can help them identify alternative business opportunities and link them up w
ith institutions that can support their diversification and expansion. Herein li
es the formula for spreading the benefits of microfinance to a much broader segm
ent of our population. Ladies and gentlemen, once again, I congratulate all the
individuals and institutions who have made the Citigroup microentrepreneur award
s an annual event we look forward to with such high hopes and expectations. Sure,
there will always be challenges for the microfinance industry. But for as long
as we continue to witness microentrepreneurs who do not merely survivebut thriveit
will just be a matter of time before microfinance is transformed from a special
advocacy.to the norm and the mainstream. Thank you all for joining us this morni
ng. Mabuhay ang microfinance!
The state of the Philippine Economy and Policy Directions of the Bangko Sentral
ng Pilipinas
Venue: Manila Polo Club
Occasion: Monthly Meeting of the Association of International Business Executive
s of the Philippines, Inc.
President Julian Lim of the Association of International Business Executives of
the Philippines, distinguished officers and members of the AIBEP board, special
guests, ladies and gentlemen, good evening. I am pleased to join you tonight to
address your regular monthly meeting. We appreciate your continued support ofand
interest inthe Philippine economy. As international stakeholders in business in t
he Philippines, I know all of you closely monitor the outlook on the Philippine
economy as it affects your individual businesses and industries. In consideratio
n of your varied interests, I would like to spend the next few minutes painting
you a picture of the recent developments in the countrys economy as well as its m
onetary, external and financial sectors. I would also like to share with you our
vision of the future and the challenges that we anticipate along the way. Recen
t economic developments The Philippine economy continues to show resilience in t
he face of continued challenges. In 2005, real gross domestic product (GDP) expa
nded over 5 percent on the strength of the services sector on the production sid
e and sustained consumer expenditures on the demand side. This moderate growth o
f the economy helped create more jobs that lowered unemployment rate. Please not
e that the expansion of the economy is being sustained without fueling further i
nflation, even as oil prices continue to climb to record high levels. For instan
ce, headline inflation fell from 8.5% in May 2005 to 6.7% in December. This year
, after the implementation of the VAT rate increase initially pushed prices high
er, we note a softening of prices.with inflation easing from 7.6% in march to 7.1
percent in April. The governments fiscal consolidation efforts are also showing
positive results. The National Government (NG) deficit for the first quarter of
2006 was significantly lower than the programmed ceiling due to strong revenue p
erformance. The fiscal deficit reached P67.6 billion as of March.lower and better
than the programmed ceiling of P71.8 billion. Meanwhile, the banking system con
tinues to show positive trends as well. Loan quality continues to improve, while
the capital adequacy ratio of the Philippine banking system continues to remain
well above the international benchmark: as of September 2005, it stood at 17.6
percent, way above the international benchmark of 8.0 percent. This is indicativ
e of an increasingly sound banking sector that is better able to finance the fun
ding requirements of a growing economy. On the external front, the countrys overa
ll balance of payments position yielded a surplus of US$2.4 billion in 2005, as
foreign exchange inflows benefited from heavy remittances from overseas Filipino
workers and inflows from foreign portfolio and direct investments. In turn, the
se foreign exchange inflows helped raise the countrys gross international reserve
s (GIR) to a record year-end level of $18.5 billion; this rose further to a new
record high of nearly $21 billion as of end April 2006, which provides ample cov
er for over 4 months of imports of goods and payments of services and income. Su
ch strong inflows and the confidence generated by increasing international reser
ves and tax reforms helped support the peso. The peso began to appreciate agains
t the dollar in the last quarter of 2005, eventually ending the year at P53.61,
from P56.18 in December 2004. This year, the peso continues its appreciation. Th
e strong peso has helped moderate inflation in the midst of record high oil pric
es. Monetary and external sector outlook and policy directions As the government
institution mandated to keep prices stable, the BSP has to contend with the eff
ects of the continued rise in oil prices, the surge in liquidity growth from for
eign exchange inflows, and the effects of whatever negative market sentiments on
the exchange rate. To address these risks to inflation and keep inflation expec
tations from spiraling away from our target, calibrated increases in BSPs benchma
rk interest rates were carried out in April, September and October 2005. These r
ate increases were made in tandem with a hike in reserve requirements in July to
keep excess liquidity in check and prevent it from creating additional inflatio
nary pressure. In the second half of 2006, we expect inflation to follow a decel
erating trend as the short-lived impact of the RVAT on prices of goods and servi
ces continues to taper off. Nevertheless, average inflation is expected to tip p
ast the governments target of 4.05.0 percent in 2006 due principally to high oil p
rices. Given these risks and outlook for inflation, the BSP will exert all effor
ts to achieve the inflation target in the medium-term. The BSP will keep a close
eye on incipient inflationary pressures, especially those coming from the deman
d side, and will stand ready to undertake the necessary monetary action. As a co
mplement to monetary action, direct action to address supply-side risks would re
main a key policy priority. To this end, the BSP will intensify further represen
tation with relevant government agencies in support of supply-side intervention
measures, particularly in keeping basic food supplies stable. On the other hand,
the BSPs exchange rate policy will continue to be anchored on our main mandate o
f price stability. Consistent with our inflation-targeting framework for the con
duct of monetary policy, the BSP will continue to leave the determination of the
value of the peso to market forces. Of course, there is some scope for occasion
al BSP action to dampen sharp fluctuations in the exchange rate, principally to
maintain order and stability in the foreign exchange market. This is intended to
mitigate possible adverse effects of significant exchange rate fluctuations on
inflation and inflation expectations. External sector policy and outlook On the
external sector, we expect that the balance of payments (BOP) will remain strong
. Current projections show that our BOP will yield a surplus of US$1.6 billion o
n the back of continued dollar inflows from OFW remittances and foreign investme
nts. Improving investor sentiment will continue to positively impact capital and
financial accounts. On the other hand, remittances of OFWs are expected to grow
by 10 percent in 2006, as the deployment of more workers escalates and as more
high-salaried workers get jobs overseas. We are often asked whether the strength
of the OFW remittances is sustainable. We believe so. In particular, local comm
ercial banks have broadened their reach through establishment of more remittance
centers abroad, tie-ups with foreign financial institutions and introduction of
innovative and faster means of remittance transfers to channel remittances thro
ugh banks. Parallel to these, the BSP is undertaking specific action plans to re
duce remittance costs in the Philippines and in host economies to encourage and
facilitate remittances through formal channels. The BSP has also initiated a nat
ionwide information campaign for OFWs and members of their families on the oppor
tunities for investing their foreign exchange savings in microenterprise activit
ies and other alternative financial instruments. What we want to see is the tran
sformation of our OFW families from being consumers to regular savers, investors
and even entrepreneurs. Banking sector outlook and policy The BSP will continue
to intensify its efforts to strengthen the countrys financial system. For this p
urpose, the BSPs reform strategy is focused on two pillars: a healthy banking sys
tem as well as a deep and efficient capital market that, together, will effectiv
ely mobilize savings to fund economic development. BSPs banking reform strategy i
s focused on the further clean up of the banks balance sheets, aligning prudentia
l regulatory framework with international standards, the further strengthening o
f risk management, adherence to good corporate governance practices, stronger ca
pital base of banks, and continuing enhancements in our payments and settlements
system. The extension of the Special Purpose Vehicle Act should provide banks t
he opportunity to continue to reduce their holdings of non-performing assets (NP
As). Apart from the SPV-related dispositions, the BSP now allows banks to enter
into Joint Venture Agreements (JVAs) with real estate developers as a means to c
onvert idle real estate and other acquired properties into income generating ass
ets. This new regulation should create a favorable impact on the real estate mar
ket. An expedient consolidation of the banking industry is also being encouraged
through the combination of more stringent regulatory regime and international b
enchmarking of financial standards. In addition, the BSPs moratorium on the estab
lishment of new commercial banks continues to be enforced. We also continue to e
nforce our policies of allowing entry of foreign banks only through the acquisit
ion of existing domestic banks. Efforts are now firmly underway for the adoption
by local banks of International Accounting Standards and the implementation of
the Basel II Accord, the new international capital standards reflective of the r
isks banks are exposed to. Our efforts in this regard include training programs
for our personnel and BSP-supervised entities. The BSP likewise continues to enh
ance its supervisory and regulatory authority by pursuing the full implementatio
n of the consolidated and risk-based supervision framework and strengthening its
enforcement of prompt corrective actions on banks and other financial instituti
ons under its jurisdiction. The BSP also continues its reform initiatives to spe
ed up the development of the countrys domestic capital market. Efforts to develop
the needed infrastructure for this purpose were supported by regulatory changes
. Among others, guidelines on investing in various investment products were issu
ed to widen the array of available financial products in the capital market. As
a further incentive to. and protection for investors.the BSP also worked on the fu
ll implementation of the third-party custodian system that ensures proper delive
ry, accounting and monitoring of all securities sold. The BSP also continues to
cooperate with congress on the creation of a centralized credit information bure
au system to improve the quality of financial information available to investors
, enhance private sector access to credit, and minimize exposure to risks of fin
ancial intermediaries. Concluding remarks Ladies and gentlemen, I have just give
n you an update on the financial health of the country as well as an overview of
the direction of the BSP monetary, external and banking sector polices. We are
hopeful that the reform agenda we have embarked upon will help us sustain our gr
owth track. However, you and I know that appropriate policy reforms of governmen
t do not by themselves translate into desired growth in output and incomes. The
success of policymakers efforts to sustain economic growth depends on the support
and cooperation of the private sector. The government cannot do everything on i
ts own. To this end, I would like to see the partnership between industry groups
like the AIBEP and the Bangko Sentral ng Pilipinas develop and prosper. With you
r support and cooperation, we can achieve broad-based growth in the years ahead,
with the fruits of development shared equitably among our people. On this posit
ive note, I wish to thank all of you for inviting me here tonight. Mabuhay po ka
yong lahat!
Message

Occasion: the Graduation Ceremonies of the Course on Foreign Exchange, Money and
Capital Markets with Foreign Exchange Bourse Games
Distinguished guests, co-workers in government, participants to the Course on Fo
reign Exchange, Money and Capital Markets with Foreign Exchange Bourse Games, la
dies and gentlemen, good afternoon. I am delighted to address today this group o
f bright and diligent bourse course participants, who gave up two weekends and o
ne national holiday to attend a rigid eight-day lecture series and a two-and-a-h
alf-day simulated foreign exchange trading game. In an increasingly globalized e
nvironment, we have witnessed and experienced the growth in the size and sophist
ication of financial markets. This growth has brought about considerable benefit
s in terms of increased investment opportunities and improved risk management te
chniques. The course that you have just completed is a very important step towar
ds enhancing your understanding of the financial markets, and your appreciation
of the potential benefits, as well as the paramount dangers, associated with tra
nsactions in these markets. I am sure that you all found the course to be inform
ative, relevant and a challenging experience. The bank invests in such seminars
to ensure that its employees are equipped with the necessary knowledge, skill an
d discipline that will help the bank realize its vision of becoming a world-clas
s monetary authority. The first offering of this kind was held in 1981, a year b
efore the creation of the Treasury Department of the then Central Bank of the Ph
ilippines. Said offering produced our Managing Director for the Treasury Departm
ent, Mrs. Santiago, and three others who went on to become the National Treasure
r of our country. There were also several who now hold key positions in commerci
al banks. This is the 10th offering since then, and we are hoping to hire 10 of
the 22 participants to join BSP in our Treasury Department, that is, if they suc
cessfully pass other requirements for recruitment. These 10 candidates were chos
en out of more than 205 applicants from within and outside of BSP. To these 10 p
articipants, I would like to bring you the good news and congratulate you for su
ccessfully passing the examinations given by the Ateneo-BAP Institute of Banking
, which makes you certified treasury professionals. I hope to see you around in
the bank soon. At this point, I would like to congratulate all the participants
for completing the 13-day lecture series and bourse game. I would also like to c
ommend the participants who have exhibited outstanding performance during the se
minar. To the resource speakers, Mr. Roy Lacsamana and his colleagues from the A
teneo-BAP Institute of Banking, let me extend the banks appreciation for the know
ledge that you have imparted to the participants, as well as for being exception
ally patient (I was told). Finally, I would like to acknowledge the joint effort
s of the Human Resource Management Department, the BSP Institute and the Treasur
y Department for making the seminar a success. Thank you and good afternoon to a
ll.
Ushering the Philippine Financial Sector to Global Best Practices

Venue: Grand Ballroom of the Dusit Hotel Nikko, Makati City.
Occasion: 42nd Anniversary Celebration and First General Membership Meeting of t
he Trust Officers Association of the Philippines

Good evening, ladies and gentlemen. It is a pleasure to join you in celebrating
the 42nd anniversary of the Trust Officers Association of the Philippines (TOAP).
I welcome this opportunity to speak before you as we continue to work together t
o promote the development of a healthy and vibrant trust industry. I understand
that right before this general membership meeting, you have met amongst yourselv
es to elect a new set of officers who, I am sure, will again lead you to new hor
izons, as the BSP continuously revisits the regulatory framework for its supervi
sed financial institutions. Yes, there are major regulatory changes still ahead,
in the spirit of deepening reforms. According to Charles F. Kettering 1, The wo
rld always hates change, yet it is the only thing that has brought progress. Thus
, I hope that you will agree with me when I say that the changes sought to be in
troduced by the BSP are only intended to usher the financial sector into global
best practices. The BSP has been actively implementing reforms in the banking se
ctor. Consistent with our own vision to be a world-class monetary authority, our
reform programs have been geared towards the re-orientation of the banking sect
or from a local to an international outlook. Globalization has made banking and
finance more complex than ever before. And this has been further complicated by
rapid technology advances, which further removed the borders between economies t
hrough the seamless movement of capital through different jurisdictions. Rather
than retreat from all of these changes, we have taken to reinventing ourselves t
o cope with and take advantage of these developments. Consequently, the BSP has
been adopting internationally-accepted standards in carrying out its mandate of
setting policy directions in the area of money, banking and credit. Towards this
end, BSP is implementing the recommendations of standard setters 2 , for the ad
option of international standards, such as the Basel II, Basel 25 core principle
s of effective banking supervision and the International Accounting Standards (IA
S). The most significant change introduced by the Basel Capital Accord is the ado
ption of risk-based capital for banks. This simply means that a banks capital ade
quacy is now measured by the amount of capital available given the riskiness of
its loans, investments and other exposures. For banks, this requires an adoption
of formal procedures of quantifying risk, including the collection of adequate
information. But more importantly, this also means that bank personnel must be p
roperly equipped with skills and know-how to manage the implementation process.
The adoption of International Accounting standards, on the other hand, entails m
ore transparent reporting of financial condition and performance, which will fur
ther spur corporate governance reforms within the industry. Necessarily, trust o
perations 3 , primarily undertaken by banks and financial institutions, are like
wise affected by these changes. Not surprisingly, some banks, in order to cope w
ith these international standards, have considered merger and consolidation to i
ncrease capitalization and realize economies of scale and scope. This realignmen
t has affected not only banks but also the BSP itself. We have moved from a comp
liance-based supervision to a risk-based approach to supervision. Our examiners,
just like your bank personnel, are being continuously trained to keep them in p
ace with the developments in the international market. Our supervision and exami
nation sector is also re-inventing itself to better serve the financial sector t
hrough a major re-organization. We, at the BSP, take pride in taking the forefro
nt in these initiatives towards globalization. We realize that while reforms may
entail pain in the short-run, we strongly believe that the long-term gains will
be much more. The financial sector must re-engineer itself so that it will not
be left behind. As bank supervisor, we also believe that we are here not only to
breathe down on the industry but also to ensure that the interest of the financia
l sector is advanced. For instance, BSP had been a lead advocate for the extensi
on of the Special Purpose Vehicle (SPV) Act, due for signing by the President, whi
ch would extend the availment of tax exemption and privileges under the Act for
2 years from the effectivity of the Amendatory Act 4 . We believe that the exten
sion of the SPV Act will serve as medium for continuing the momentum gained from
the initial period of availment and enable banks to further clean up their bala
nce sheets. The BSP is also continuously looking at its policy on outsourcing. W
e realize that cost efficiency will be crucial for the banking sector in meeting
the increased need to comply with globalized standards. Through recent regulati
ons 5 , we have broadened the scope of services that may be outsourced to third
parties. We are also strongly supporting the early passage of the Credit Informa
tion System Act, which would provide a central and comprehensive database of cre
dit information for the financial sector. The Credit Information System Act is i
ntended to lower borrowing costs and increase volume of lending. This is also in
tended to open up the credit market to the underserved sectors such as the micro
, small and medium enterprises (MICSMEs). Through all these, however, the BSP has
kept itself open to the views and sentiments of the industry. The BSP has alway
s been transparent in the formulation of its rules and regulations and collabora
tes with the industry on matters that affect it. The winds of change will equall
y blow across the trust industry. But rest assured that we will take your positi
on on trust activities, which have been the subject of recent BSP issuances 6. W
e believe that the current set of regulations on trust operations is a work-in-p
rogress. The introduction into the market of new financial products, services an
d arrangements, most of which are hybrid in nature, always poses regulatory issu
es as regards their treatment and the determination of the applicable rules and
regulations. Moreover, considering the level of sophistication of our market, th
e industry must accept a moral obligation to educate investors. After all, the d
egree of the investor markets financial literacy will affect the pace of the trus
t industrys development. Thus, we call upon the industry to be an active partner
in educating investors. The education of customers springs from the proper discl
osure of the nature of the products and services being offered. This can be made
more effective by properly training marketing personnel to ensure the correct p
erception of trust investment products and services as against traditional bank
products. In particular, there should be absolutely no room for misrepresentatio
n on trust products and services, as having principal protection, guaranteed ret
urn, or deposit insurance coverage. I hope that desire for profit and market sha
re will not blind the industry to potentially severe representational risk that
can destroy your institutions. It only takes adverse media coverage or a congres
sional inquiry to start the ball rolling. By properly educating your market, you
create more business opportunities for yourself. And we are prepared to see you
grow in that endeavor. But we will also not hesitate to take strong supervisory
action to safeguard the public. The trust industry plays a crucial role in the
development of the domestic capital market as a major institutional investor. Tr
ust operations have the capacity not only to source but also to pool funds. Reco
gnizing the economic significance of pooled funds, the BSP has opened up Unit In
vestment Trust Funds (UITF), in place of the Common Trust Funds (CTF). As you are al
l aware, UITFs adopt a mark-to-market valuation methodology and require a liquid
and tradable investment portfolio. The UITF concept is intended to align the op
eration of pooled funds by trust entities with international best practices. It
is also meant to clearly differentiate pooled trust funds from bank deposits and
other direct liabilities of the financial institution. We understand that the U
ITFs, are rapidly gaining market acceptance. We are glad to learn that TOAP is e
mbarking on an aggressive advertising campaign to educate investors and promote
the sale of UITF products. I only remind, but remind you very strongly, against
creating any misperception on the real risk and rewards of UITF s. As some of yo
u may be aware, the BSP is consulting international and local experts, in additi
on to our consultation with the industry, to assist in further improving the loc
al regulatory framework of trust operations. This study seeks to strengthen the
Philippine trust regulating regime, by relating local practice and experience in
trust with that of other jurisdictions, particularly the United States of Ameri
ca, from where we have basically derived our trust laws. We will continue to wor
k with the industry to further strengthen the independence of trust departments
from bank proper and to improve the guidelines to separate bonafide trust accoun
ts from de facto deposit substitutes and to treat them accordingly. We want to c
ome up with a comprehensive set of rules and regulations to avoid a piece-meal-ca

t and mouse-chase approach to give the industry very clear directions on how to m
ove forward while simplifying the supervision process. Let me also add that alon
gside an improved regulatory framework, we are building up, as part of our reorg
anization, specialized examination expertise on trust operations. I expect that
the coming year will be marked by more changes that hopefully will see the emerg
ence of a stronger trust industry, I am confident the TOAP will continue to be a
vital partner of the BSP in effecting these changes. Thank you and a pleasant e
vening to all of you. 1 Charles F. Kettering was a man whose life greatly advanc
ed scientific research in the United States. In addition to being an inventor, e
ngineer, and scientist, he was a farmer, schoolteacher, mechanic, social philoso
pher, and super salesman. Charles F. Kettering was a leading researcher for the
automotive industry in the United States. Kettering was a co-holder of more than
140 patents and possessed honorary doctorates from nearly 30 universities. Born
in 1876, he saw the invention of the automobile in his early years. One of his
major contributions was the battery-powered electric starter, which replaced cra
nking the automobile. He is in the National Inventors Hall of Fame. 2 Including,
but not limited to the: Basel Committee for Banking Supervision, International
Accounting Standards Board (IASB) and International Federation of Accountants, a
nd International Monetary Fund. 3 Trust assets over the years have been constant
ly growing at an average growth rate of 23% since 2001 4 Under the SPV extension
, the application for the establishment and registration of an SPV and the entit
lement to tax exemption and privileges shall be extended by 18 months and 2 year
s from the effectivity of the amendatory act, respectively. The provisions of th
e SPV Law, however, shall be applicable to assets becoming NPAS as of 30 June 20
02 (same as that of the original law). 5 Circulars 493 and 488 were issued in Se
ptember and June 2005 to broaden cope of services that may be outsourced 6 e.g.
Circular No. 521 on Living Trust; Memorandum to all Banks and Other Financial In
termediaries Performing Trust, Other Fiduciary Business and Investment Managemen
t Activities prescribing the rules and regulations governing its acceptance, man
agement and administration of trust funds of pre-need companies.
The Outlook for the Philippine Economy and Policy Directions in 2006
Venue: Hotel Intercontinental
Occasion: Regular Membership Meeting of the Rotary Club-Makati Central
Distinguished officers and members of the Rotary Club of Makati Central, friends
, ladies and gentlemen, good afternoon. It is a great pleasure to join your regu
lar membership meeting today and speak on the Philippine economic outlook and it
s implications for the Bangko Sentrals monetary and banking policies. I know we s
hare the same goal of economic prosperity for more of our people, but I also rea
lize that we have different roles to play in meeting that goal. An instructive w
ay to be on the same roadmap is for us to consider together the recent economic
developments and prospects and anticipate potential challenges along the way. Re
cent economic developments There seems to be a general sense of renewed, althoug
I bel
h cautious, optimism about economic prospects for the Philippines at present
ieve this is largely because last year, our economy continued to prove its resil
ience and fundamental strength. We had a respectable output growth of 5.1 percen
t. Although this magnitude compares favorably with what our neighbors in Asia re
corded, I know that this has to be improved to make a dent in combating poverty
in the Philippines. Second, we achieved growth with a relatively subdued inflati

on rate. The emphasis is on subdued. Unlike the other countries, we have stopped
subsidizing the oil industry since 1998. Our consumer basket remains dominated b
y weather-sensitive food commodities. Yet, with real growth of over 5 percent, a
verage inflation rate in the Philippines was kept at 7.6 percent in 2005.
We can
compare this with Indonesia (10.4 percent) and Thailand (4.5 percent). Third, t
he governments overall fiscal consolidation efforts have already shown good resul
ts. The National Government budget deficit stood at P146.5 billion for 2005, wel
l below the target for the period, and certainly lower compared to the year-ago
level. The progress made in fiscal consolidation has continued this year as the
government was able to curb the budget deficit for the first two months of the y
ear. Fourth, our external payments position achieved a big surplus in 2005. This
was made possible by the sustained dollar inflows from OFWs, foreign direct and
portfolio investments, and export receipts. The significant increase in remittan
ces and investments allowed the BSP to build up its international reserves to a
new record high level of US$20.6 billion. At the same time, with all those big cu
rrent and capital inflows, a stronger peso is another natural consequence. Fifth
, the economy continues to improve its external indebtedness picture. Medium- an
d long-term debt liabilities comprise the bulk of the countrys external debt. Key
debt service ratios have also continued to improve, indicating better manageabi
lity and sustainability of the countrys external debt. Finally, another welcome d
evelopment is the sustained improvement in the soundness of our banking system.
Asset quality of banks continued to improve. Bad loans ratio has declined to sin
gle-digit level and is at its lowest in eight years. Outlook and challenges Desp
ite the recent gains in macroeconomic performance and economic reforms, we remai
n conscious of the risks and challenges to the economic outlook. On the part of
the BSP, we will continue to address the challenges attendant to our twin respon
sibilities of conducting sound monetary policy and banking supervision. The BSP
will continue to address the risks to inflation and inflation expectations; stre
ngthen the external position, and sustain the pace of reforms in the financial s
ector. The main challenge for us is to effectively manage inflation and inflatio
n expectations. We see average inflation exceeding the governments inflation targ
et of 4.0-5.0 percent this year given continued upside risks. Oil prices are expe
cted to remain high relative to their historical trend while the implementation
of the additional two percentage points in the vat rate is expected to have a on
e-off impact on prices. In the second half of 2006, we expect inflation to follo
w a decelerating trend as the short-lived impact of the EVAT on prices of goods
and services tapers off. Easing food prices, given improving weather conditions,
should also help tame non-food price pressures. The sustained appreciation of t
he peso owing largely to strong dollar inflows should also help to keep the infl
ation path in check. The continued dollar inflows, however, also imply a risk of
a renewed surge in liquidity growth as inflows are converted into pesos and abso
rbed by the banking system. We will need to monitor this closely, together with th
e expected narrowing of interest differentials, as they can adversely affect inf
lation. All of these risks make monetary policy a difficult task.
But we have done
our homework much earlier. The BSP carefully calibrated monetary policy over th
e past year to be able to establish a balance between price stability and econom
ic growth. Policy rates were adjusted to guide inflation expectations downward. W
e have also fine tuned our existing credit policies to ensure consistency of BSP
credit with monetary policy. Towards this end, we issued new guidelines on the
BSPs grant of rediscount and emergency loans and other advances to banking instit
utions. We likewise continue to improve our early warning systems to effectively
manage risks and ensure macrostability. Monetary policy going forward will proc
eed on a cautious footing. The BSP will keep a close eye on incipient inflationa
ry pressures, especially those coming from the demand side, and stand ready to u
ndertake the necessary monetary action in a timely manner. The public can expect u
s to be vigilant in ensuring that these risks do not undermine economic growth.
As a complement to monetary measures, direct action to address supply-side risks
should remain a key policy priority. To this end, the BSP will intensify furthe
r representation with relevant government agencies in support of supply-side int
ervention measures to: (1) facilitate distribution of basic goods and services t
o final end-users; (2) promote energy conservation and efficiency; and (3) suppo
rt exploration and use of alternative/indigenous energy sources. Going forward,
external sector policy will focus on further sustaining our strong external posi
tion. Specifically, the BSP will focus on maintaining a comfortable level of res
erves and monitoring closely the countrys foreign borrowings. Moreover, we will co
ntinue to support a market-determined exchange rate. We will not lean against the
wind but will address short-term volatilities that will affect the decisions of
economic agents. With respect to the financial sector, we expect the banking in
dustry to be more dynamic, competitive and stable. With the impending extension
of the SPV Law, the BSP aims to further cut down the banks non-performing loans b
y another P100 billion. Over the medium term, we expect the NPL ratio of banks t
o be further trimmed to the pre-Asian financial crisis level of 4 percent as we
continue to foster an environment that will facilitate further disposal of banks
non-performing assets. Just this month, the Monetary Board approved the guidelin
es allowing banks to enter into Joint Venture Agreements (JVA) with real estate
development companies for the disposition of the banks foreclosed real estate pro
perty. The BSP hopes that this initiative will provide banks with effective mean
s of reducing their NPA holdings. the asset clean-up of banks should spur credit
and investments, thereby creating the basis for more sustainable growth in the m
edium term. Beyond asset clean-up, financial sector reforms will be pursued. Refo
rm efforts will focus on further strengthening corporate governance, risk manage
ment and capital adequacy in our banks, aligning prudential regulation with inte
rnational standards and best practices, and enhancing our payments system. With t
hese reforms in place, we foresee further consolidation of banks. Eventually, we
hope to see a banking landscape characterized by a handful of main banks comple
mented by many smaller banks with well-defined market niches. Recently, the Mone
tary Board decided to allow rural and cooperative banks to engage in FCDU operat
ions. The decision was prompted by the boards desire to enhance RBs and CBs ability
to compete in the remittance business and in the buying and selling of foreign
exchange. We will also continue to lobby for the passage of key legislations aim
ed at developing the local capital market. Specifically, we are working closely w
ith Congress on the creation of a centralized credit information bureau system a
nd the establishment of credit rating agencies. These should enhance the quality
of financial information available to investors, enhance private sector access
to credit, and minimize exposure to risks of financial intermediaries. Our goal
for capital market development is to build an environment where, on the one hand
, savers are provided with varied investment alternatives to meet their specific
risk appetites, and on the other hand, borrowers are accorded choices for fundi
ng longer-term productive projects. Concluding remarks There is no doubt that th
e country has made solid economic gains. However, there is still much to be done t
o ensure sustainable growth for the long term. The economic indicators on the past
years performance give us reason to be upbeat about the year ahead. But we need
to continue to work hard. let me assure you that the Bangko Sentral remains commit
ted to its strategic role of keeping inflation low, interest rates at reasonable
levels, the peso broadly stable, and the banking system safe and sound. However
, appropriate policy reforms of government do not by themselves translate into t
he desired growth in output and incomes.
Active participation of the private secto
r is equally important in the growth process. to this end, I would like to see th
at the partnership between industry groups like the rotary club and the Bangko S
entral ng Pilipinas continue to prosper. We go forward in 2006 with greater conf
idence that, with your continuing support and cooperation, we can achieve broadbased growth, with the fruits of development shared equitably among our people.
As one thinker once said, All it takes to open a door of opportunities is to keep
pushing. Let us continue to push until we are convinced all doors of opportuniti
es are opened to us for the taking. Thank you very much.
Transparency and Communication in Central Banking

Venue: Filipinas Heritage Library, Makati City
Occasion: Oah-taking of the officers and directors of the Economic Journalists A
ssociation of the Philippines
President Vicente Lopez of the Economic Journalists Association of the Philippin
es, distinguished offcers and members of EJAP board, special guests, friends, go
od evening. It is always a pleasure to attend gatherings of the media. It is wher
e you hear the stories behind the stories that finally make it to the newspapers
and broadcast stations. It is where you gain clarity as to why certain stories a
re angled in a particular manner. At the same time, attending media gatherings i
s also quite challenging. As they say, communications is a two-way street. Thus, i
f you receive, thou shalt also give. Personally, I have also provided insights b
ehind certain news reportsin some cases, off the record or simply not for attribu
tion. The objective is to ensure that a story is placed in the proper context or
perspective so as not to mislead.or misinform. Mutual respect is essential to mai
ntain a professional relationship. We at the Bangko Sentral ng Pilipinas are for
tunate that our relationship with the media in general and in particular, with th
e members of the BSP Press Corps, past and present, have been cordial and profes
sional. I believe the professional manner by which journalists have been coverin
g and reporting on the Bangko Sentral is partly responsible for the consistent p
ositive ratings we get in surveys of government agencies. We thank you for this.
I have been toldseveral times.that it is not easy to report on the Bangko Sentral
because the language or the jargon we normally use have to be interpreted and la
ymanized, so to speak, to be understood by the general public. A journalist who
was not a business writer, but ended up covering BSP for a day, described the pr
ess statement he gotthat it might as well have been in German or Greek! He couldnt
make heads or tails of it.and therefore could not appreciate the significance of
the announcement. Fortunately, for both of us, he was humble enough to admit he
could not understand itand therefore received an explanation. As a result, he cam
e up with a story that was accurate and easy to understand. At this point, I wan
t to assure all of you that we have been doing our best in making our statements
better and easier to understand and I have to acknowledge that the news stories
I read in the newspapers the next day are generally better written, and easier
to understand. We also appreciate that there is always an attempt to contextuali
ze and provide a perspective on the impact to readers. The challenge for governm
ent agencies like ours is to constantly find better ways of communicating and re
aching out to you. You are our link to the public and it is our responsibility t
o make sure there is proper understanding of our policies, programs, and pronoun
cements. This is the reason why we have been making ourselves accessible to you.
If you have noticed, we have been conducting more regular briefings, responding
promptly to requests for interviews, answering your calls and text messages, an
d at times, even providing written responses to your questions. But beyond these
, we are going to institutionalize a series of briefings on Central Banking 101
and how our policies influence and affect the other sectors our economy and ulti
mately our people. We are also ready to prepare special briefings on particular t
opics you may request, including the new accounting standards, Basel II, inflati
on targeting and understanding the dynamics of foreign exchange. We can make thi
s program available not only to members of the BSP Press Corps but also to other
members of EJAP who wish to be updated. I hope we will have good attendance and
participation in these briefings. A wise Central Bank Governor once said, Good po
litics is good economics, and good economics is good politics. Let me add a third
element that serves as the key to bridging politics and economics: good informat
ion. I understand the EJAP is now twenty years old.

Over this time, the economic c
onsciousness of our people has been raised because of the media in generaland you
, the economic journalists in particular. The members of the EJAP can rightfully
claim that you are instrumental in encouraging economic policy discussions that
have led to the crafting of good policies and programs. Now, we could go into a
debate of what is good economic policy discussion or simply noise. But that I sha
ll leave for a more philosophical conversation at another time. I feel very stron
gly about the role that you, as economic journalists, play in communicating our
policies. As I said earlier, good information translates to good economics. This
is certainly the right forum for me to talk about a topic of growing importance
to central banks Transparency and Communication. Transparency broadly relates to
the openness of a central bank in making explicit its monetary policy decisions
and explaining the reasoning behind them. From a strategic perspective, it also
encompasses clear communication of the longer-run objectives and strategy of mon
etary policy. Through your insightful reporting, you actually help us operationa
lize our communication policy at the BSP. In the past, there has been a general
view that central banks tended to operate with considerable secrecy and mystery.
However, over the past decade or so, most central banks have moved towards incr
eased transparency and greater communication in the conduct of monetary policy.
A brief look at the developments in financial markets and the conduct of central
banking in recent decades will show that this trend developed partly out of nec
essity. What are these developments? First, it has become increasingly clear ove
r the last few decades that central banks need to have a considerable degree of
independence to ensure consistency in the implementation of monetary policy over
time. But along with a high degree of independence, central banks are required
to be transparent to establish accountability. In effect, without transparency, n
obody knows what an unelected bunch of central bankers do or commit to do. There
is no basis for assessing their performance and accountability. As a parenthetic
al remark, let me say here, this principle of independence requiring transparenc
y, leading to accountability, further leading to performance and commitment work
s well even in other areas, including the area of politics. Second, financial ma
rkets have increasingly become globally interconnected such that monetary policy
, whether good or bad, can be rapidly transmitted and thereby, impact on the beh
avior of market participants. it then becomes imperative for central banks to eff
ectively communicate their actions to allow financial markets to figure out poli
cy decisions. This is good for business and macroeconomic planning and promotes
general stability. Finally, inflation targeting, our monetary policy framework,
is forward-looking, and the only way to establish accountability is to be transp
arent about the commitment to promote price stability. Central banks, however, d
id not embrace transparency (and necessarily communication) only because they we
re forced to do so. increased transparency and greater communication have their b
enefits. I t is in a central banks own interest to be transparent in its monetary po
licy actions. Clearly communicating the level of price stability and the strateg
ies to achieve it. Help to anchor the inflation expectations of the business sect
or and the public in general. What is the practice of the BSP in terms of transp
arency and external communication?. In the past four years of the inflation targ
eting framework, the BSP has adopted various disclosure and reporting mechanisms
which you are familiar with. These mechanisms are intended to help the public u
nderstand what the BSP is doing and the reasons for its monetary policy actions.
For instance, we have the: 1) press statement after the meeting of the monetary
board on BSPs monetary policy stance; 2) highlights of the Monetary Board discus
sion which is published in our website after a lag of six weeks; and 3) quarterl
y Inflation Report and the related media briefing. As a bonus, you also get a mon
thly dose of our inflation forecast relative to our annual target. We also hold
public discussions to increase public understanding and ownership of the monetar
y policy process. The public information campaign in various locations around th
e country has helped increase the publics familiarity with inflation targeting and
monetary policy in general. The BSPs communication approach has been aimed at th
e very broadest audience possible, with the policy stance articulated in laymans
terms as much as possible. This approach has generated positive feedback from va
rious quarters and served BSP in good stead. The role of economic journalists In
assessing our performance in the communications front, I believe we are making
good progress and headed in the right direction. We are well aware that earning
the peoples trust in the credibility of the BSP remains an ongoing challenge. We k
now that the familiarity of the general public with the BSP and its functions st
ill needs to be further enhanced. In this regard, economic journalists have a ve
ry important role to play. Along with other forms of media, you have the respons
ibility of informing the public about the BSPs monetary and banking policies. In t
he process you contribute to constructive public dialogue on such policies and n
ot simply noise. The central purpose of journalism is to provide citizens with a
ccurate and reliable information that they need to function in a free society. T
o achieve this, we conduct regular briefings for you and other members of the pr
ess on economic concepts and issues. We hope that you will continue to help us c
onvey to the public the BSPs policies and decisions in a clear, accurate and bala
nced manner. Malaki po ang inyong naitutulong sa pagpapalaganap ng mga layunin n
amin sa bangko sentral. naniniwala po ako, na dahil sa inyong tulong, mas mabilis
na nagiging malinaw sa ating mga mamayan ang mga polisiya ng bangko sentral. Th
e translation into the real sector of monetary policy through the various transm
ission mechanisms then would be swifter and more expeditious. Conclusion In conc
lusion, we at the BSP recognize that central banking and in particular, inflatio
n targeting, is a public trust, much like a newspaper such as the Business World
. We have to continue in our mandate of ensuring price stability and a stable fin
ancial system Without fear or favor just like a Daily Tribune. Transparency and co
mmunication is a crucial part of the job of everyone charged with the management
of the economy. That is why, Malaya kaming nag-issue ng bulletin that mirror th
e news of the times and evolving standard today. And while being a constant inqu
irer, we expect economic journalists such as yourselves to be balanced in your r
eporting. For our part, we will continue to strive to advance in our communicati
on strategy as there remains plenty of room for improvement. In the end, as we a
re guided by The Star, The truth shall prevail. Finally, I congratulate the EJAP f
or its continuing program to improve the craft of its members. As I said earlier,
we at the Bangko Sentral ng Pilipinas stand ready to help you achieve this obje
ctive through regular briefings on relevant and timely economic topics. Again my
congratulations to the new set of officers and the active members of the Econom
ic Journalists Association of the Philippines. May your tribe increase. Maraming sa
lamat sa inyong lahat.
Keynote address
Venue: Baguio Country Club, Baguio City
Occasion: Annual National Convention of the Chamber of Thrift Banks
Good morning! I send my warmest greetings and congratulations to the membership
of the Chamber of Thrift Banks (CTB) on the occasion of your National Convention
, the high point of the annual celebration of the Thrift Banking Week. You have
chosen the theme of responding to the challenges ahead. As both banking supervis
or and monetary authority, we welcome your cooperative and constructive approach
to the many issues confronting the banking system. Indeed, we continue to face
many challenges ahead even as we have also made considerable progress. Assessmen
t of the Thrift Banking System As I survey the thrift banking system today, I be
lieve it has proven its resilience in the face of all the many challenges. In 20
05, total resources of the industry grew by a very respectable 13.3 percent. Dep
osit level also continued to post double-digit growth of 16.8 percent, indicatin
g strong confidence in the industry. Meanwhile, the industry remained adequately
capitalized with capital adequacy ratio (CAR) averaging at 16.8 percent as of e
nd-June 2005. This is well above the prescribed minimum ratio of 10 percent and
more than double the international benchmark of 8 percent. Non-performing loans
(NPL) ratio favorably declined to 8.9 percent as of end-December 2005 from 11.0
percent last year and from a peak of 13.4 percent at end-September 2002. Likewis
e, NPA ratio went down to 12.5 percent from 15.9 percent last year. The industrys
strengthening balance sheet also reflected a steady increase in the loss provis
ioning for bad assets. The industry posted a better NPA coverage ratio of 23.4 p
ercent at end-December 2005 from 17.2 percent the previous year. However, this i
s still much lower than the 42.1 percent total NPA coverage ratio in universal/c
ommercial banks. The whole banking industry should actually be striving for at l
east 50 percent coverage. And the best way to do that is to rapidly get rid of y
our remaining non-performing assets that continue to impose a drag on your perfo
rmance. Indeed, your profitability remained marginal with return on equity and r
eturn on assets ratios at just 0.2 percent and 0.03 percent, respectively. As an
industry, thrift banks continued to be the least profitable. BSP reform agenda
The BSP is determined to pursue a banking reform agenda to shield the banking sy
stem against critical threats that may undermine its stability and integrity. Sp
ecifically, we are intensifying the reform process aimed at addressing core aspe
cts of banking operations and enhancing the regulatory framework for the effecti
ve conduct of banking supervision. First of all, we must bear in mind that high
NPAs are a fundamental threat to the safety and soundness of the banking system.
We must therefore act decisively to remove this threat. So far, we have been su
ccessful in trimming down the stock of NPAs in the banking system especially thr
ough asset disposition under the Special Purpose Vehicle Law (SPV) Law. Conseque
ntly, both NPL and NPA ratios of the banking system are currently at record lows
. The imminent approval of a two-year extension of the SPV Law by congress will
boost the momentum for further disposal of banks NPAs. I hope the industry will n
ow more aggressively utilize this opportunity. This is the last chance. In a rel
ated development, the Monetary Board (MB) also recently approved the guidelines
that would allow banks to enter into Joint Venture Agreements (JVA) with propert
y developers to provide an additional channel for banks to reduce their NPA hold
ings by helping convert bad assets into readily marketable or income producing a
ssets. However, to prevent abuses, certain safeguards were adopted. In the first
place, all JVAs under the program are subject to prior MB approval. Only pre-ex
isting non-performing assets are eligible under the program to guard against pot
ential moral hazard. Banks are also prohibited from providing funds to the joint
venture either as a loan or capital contribution. However, banks may extend fin
ancing to JV partners or to buyers on arms length commercial basis. Lastly, bank
s are not allowed to recognize income out of the properties they contributed to
the joint venture regardless of the agreed valuation of said properties in the J
VA. They are only allowed to recognize income upon receipt of the proceeds from
the sale of the developed properties. Proper accounting is also required. Moving
on, we also continue to seek closer alignment of existing regulations with inte
rnational standards to make regulatory policies more responsive to the growing c
ompetitiveness and sophistication of the financial services industry. In particu
lar, we are focusing on strengthening corporate governance, risk management, and
capital adequacy in our banks. This will be complemented with effective and eff
icient enforcement. In pursuit of this objective, we have recently issued major
regulations covering: The new Financial Reporting Package (FRP); The guidelines
on supervision by risk; The guidelines on information technology (IT) risk manag
ement; and The amendments to the fit and proper rule The prompt corrective actio
n framework. The new FRP effectively amends the Manual of Accounts (MOA) and rev
ises the reportorial requirements for banks, in accordance with the provisions o
f the new Philippine Financial Reporting Standards (PFRS)/Philippine Accounting
Standards (PAS). To the extent possible, we have also integrated into the new FR
P the requirements of the Basel 2 Capital Adequacy Framework. The new FRP will g
reatly promote an enhanced level of financial transparency and also facilitate a

n enhanced off-site surveillance of banks and other financial institutions under
our jurisdiction. Banks are constantly exposed to various risks because of the
increasingly complex financial setting. Rather than constrain product innovation
and operational flexibility, we would rather espouse the adoption of appropriat
e internal risk management mechanisms to ensure that banks and other financial i
nstitutions continue to operate in a safe and sound manner. It is for this purpo
se that we have set out the guidelines on supervision by risks under Circular No
. 510. Mainly, these guidelines specify BSPs expectations on how banks and other
financial institutions should manage their risks. These are also designed to pro
vide guidance on how the risk-focused supervision will be applied to these risks
. Meanwhile, the guidelines on I.T. risk management are intended to communicate
to the banking industry BSPs expectations on how technology-related risks should
be viewed in the context of bank risk management. We all know how pervasive info
rmation technology has become in our banking business. These guidelines will aid
in effectively identifying, measuring, monitoring and controlling banks technolo
gy risk exposure. Building on previous initiatives to raise corporate governance
standards, we recently came out with a stricter fit and proper rule encompassing
all directors and senior officers of banks. This is to ensure that officials tas
ked to manage banks and other financial institutions possess the integrity and c
ompetence required for the job. Very recently, the monetary board approved the P
rompt Corrective Action (or PCA) framework. This basically communicates to the i
ndustry how the BSP will deal with potential problems in bank operations at a ve
ry early stage hopefully to forestall more serious problems from arising that wo
uld necessitate more drastic and painful measures. The key triggers for the init
iation of PCA include substandard capital adequacy ratios and poor Camels perfor
mance. Whenever PCA is initiated, banks will be required to put forward an actio
n plan to immediately correct the situation. The action plan will be in a memora
ndum of understanding to be executed between the bank board of directors and the
BSP. To promote healthy competition in the banking system and allow your greate
r flexibility to respond to market opportunities, we have also allowed the parti
al lifting of the moratorium on bank branching primarily to facilitate the expan
sion of financial services in underserved areas. Likewise, we have opened up out
sourcing possibilities and allowed an increasingly wide array of treasury, consu
mer and wealth management products. All told, you can expect many more meaningfu
l changes in the banking industry this year and in the coming years as we gear u
p for the full adoption of international best practices. I hope you will not see
the recent changes as just more rules to cramp your style. On the contrary, by
shifting to more strategic regulation of corporate governance, risk management,
and capital adequacy, we hope to give banks much greater flexibility to pursue b
usinesses that are consistent with their skill, risk appetite, and capital posit
ion. Banks that are well-managed and well-capitalized will be fully liberated to
pursue their corporate objectives in this evolving environment. In contrast, ba
nks that are poorly run and undercapitalized will find themselves severely under
pressure both from the market and the regulator. We are also continuing our adv
ocacy efforts in Congress for the passage of key legislative measures. Among oth
ers, we are seeking approval of the amendments to the BSP Charter which will mak
e the BSP a more effective monetary authority and banking regulator. Another vit
al piece of legislation is the Credit Information System Act which will pave the
way for the establishment of a truly comprehensive credit information system in
the country. This is expected to lower the cost of credit, provide greater acce
ss to credit in general, and reduce the dependency on collateral-based lending.
Taking the long view, what is the significance behind all these developments in
the banking system? How are they going to affect the thrift banking industry? Es
sentially, these developments would alter the overall banking landscape. The cha
nge will be influenced mainly by the accelerated consolidation process in the ba
nking system that is expected to take place within the next 3 years as a result
of a combination of regulatory enhancements and the exacting standards posed by
an increasingly complex financial environment. The enhanced competition would na
turally favor the stronger, more capable banks and financial institutions. On th
e other hand, the smaller banks would do well to harness their core expertise in
order to better serve their respective market niches. The highly global and com
plex banking scenario leaves no room for complacency for all banking industry pl
ayers. To survive, thrift banks must enhance their financial strength, conform t
o sound corporate governance practices and boost their competitive advantage by
honing excellence in specific target markets. Concluding remarks I would like to
end my keynote speech by calling on all member institutions of the chamber to r
emain supportive of our policies and reform initiatives. The reform agenda that
I have outlined to you today is a work in progress. In the past, you have taken
a proactive role in the pursuit of genuine reforms in the thrift banking system.
Now is the time to reaffirm that commitment. There is a lot of work ahead of us
, but with vision to guide us and with steadfast action, we can be assured of su
ccess in achieving our shared goal of building a stronger, more competitive bank
ing system. Thank you very much and more power to all of you!
Outlook on the Country s Economic Condition and the Role of Information Technolo
gy to Uplift Economic Growth
Venue: Dusit Hotel, Makati
Occasion: Induction of Officers of the Phil. Electronics and Telecommunications
Federation, Inc. (PETEF) and the Information Technology Association of the Phils
. (ITAP)
Good evening, ladies and gentlemen. I am honored and pleased to be a part of ton
ights event - the joint membership meeting and induction of the officers of the P
hilippine Electronics and Telecommunications Federation, Inc. (PETEF) and the In
formation Technology Association of the Philippines (ITAP). Congratulations to a
ll of you. Special thanks should go to Miss Cynthia Mammon, ITAPs indefatiguable
Director and Chair for Events, whose persistence in finding a suitable schedule
for us has caused my being here tonight possible. Your two organizations, under
the leadership of your presidents, Mr. Renato Garcia for PETEF and Ms. Dittas Fo
rmosa for ITAP, together, play a pivotal role in the fulfillment of the governme
nts thrust to harness the benefits of the phenomenal improvements in Information
and Communications Technology or ICT. Information has always played a vital role
in our history. Society has used information to gain a more accurate picture of
any situation it is in, make better decisions for the future, and improve the q
uality of life in general. But never before has information been more accessible
than it is now. To illustrate, let me quote Bill Clinton, the 42nd President of
the United States speaking at the announcement of their Next Generation Initiat
ive in 1996. Mr. Clinton said, When I took office, only high energy physicists ha
d ever heard of what is called the world wide web Now even my cat has its own pag
e!. That, was only a little over 10 years ago. Since then computers have progress
ively become smaller, more powerful, and more affordable. We are now linked by c
ell phones, fiber optic cables, the internet, and and satellites. One can access
information about almost anything (even about Bill Clintons cat) with just the f
lick of a button. Increased accessibility of information as we are now experienc
ing, however, is not the end. Information and the manner in which it is dissemin
ated must be employed for useful, productive purposes and attuned to economic de
velopment. Objective For tonight, I would like to begin by situating us in terms
of the monetary, external and banking sectors of the economy. Then I would like
to make a few suggestions for areas where I believe ICT can be most useful in t
he context of these sectors of the economy. Business outlook Based on the most r
ecent business and consumer surveys of the BSP, both the business sector and the
households continue to be positive on the economy and anticipate better times a
head for us. The sustained appreciation of the peso, lower interest rates and th
e improved fiscal position as well as the favorable employment conditions here a
nd abroad are reasons cited by the business sector for its confidence and Filipi
no household for their heightened willingness to consume more. On the inflation
front -- the February inflation rate of 7.6 percent, although higher than the Ja
nuary figure, is within the BSPs forecast range for the month. Thus, the rate is
still consistent with our projected path for inflation, which shows a decelerati
ng trend beginning the second half of 2006. This and the prevailing conditions i
n the economy have provided a room for the BSP to keep its policy rates steady d
uring last weeks policy rate setting meeting. Now moving on to an area, which I k
now everyone has a keen interest in the peso. Our outlook for that continues to
also be positive, given that the underlying sentiment prevailing in the market r
emains constructive, arising from the sustained healthy economic fundamentals an
d the successful implementation of key economic reforms. These improvements in t
he external sector have allowed us to build up the countrys gross international r
eserves to over USD 20 billion for the first two months of the year, which is su
fficient to cover 4.3 months of imports of goods and payments of services. On th
e banking sector we continue to push towards the clean up of banks balance sheets
. The latest NPL ratio of banks remains at single digit level, 8.4 percent. In a
ddition, we continue to pursue the extension of the SPV Law that will enable ban
ks to further off-load non-performing assets to the market. Role of Information
Technology to uplift economic growth Given this upbeat scenario, what role do I
see for ICT in fostering economic growth? E-reportorial requirements Let me begi
n with the banking sector. Since the enactment of the e-commerce law in 1999, th
e BSP has taken to task the promotion of electronic transations. We began by sim
plifying bank reporting and providing guidelines for the electronic transmission
of the same to the BSP. We have systems in place for the electronic transmissio
n of reports to us not only by the big commercial banks but the thrift and rural
banks as well. In order to better appreciate the reports and data gathered from
the banks and utilize these to supervise them in a more proactive way, the BSP
embarked on a data warehousing project. To fully automate the project, the BSP i
s procuring an integrated financial reporting portal system that will allow BSPsupervised banks to send/upload reports to BSP and retrieve/download processed r
eports from BSP using mutually acceptable secured channels of communication. Rea
ching out to the rural areas An area that your association may be of help to us
in this regard is encouraging through your education campaigns and drives the sm
aller thrift and rural banks to be more e-savvy. There are over 700 rural banks
scattered all over the country but only about half have email facilities and abo
ut the same number have in-house developed systems. You may want to consider e-e
nabling the regional areas as there is already a heavy concentration of applicat
ions in the mega-metro manila area and other major cities. For the BSPs part we d
eveloped the Integrated Regional Information System (IRIS) which allows the branch
es of banks in the countryside to conduct electronic transactions with BSP such
as cash deposit, withdrawal, FX purchase, peso exchange, and rediscounting of lo
ans and payments. IRIS has been implemented in three BSP regional offices and 5
regional units, and is expected to be fully deployed in the remaining BSP branch
es by the 3rd quarter of 2006. IT risk management With the increasing applicatio
ns of technology to banking services comes increased exposure of banks to techno
logy-related risks, including operational, reputational, and strategic risks. To
help mitigate these, the BSP recently put out guidelines for technology risk ma
nagement. The BSP established these guidelines to ensure that the knowledge and
skills necessary to understand and effectively measure, monitor and control thes
e risks are in place. Anti-money laundering efforts In addition to risk manageme
nt, you may also partner with financial institutions in the anti-money launderin
g efforts of the government. Under the Anti Money Laundering Act, as amended (AM
LA), covered institutions, i.e., financial institutions that are supervised by t
he BSP, the SEC and the Insurance Commission, are required to electronically rep
ort to the AMLC all covered and suspicious transactions. While the AMLC has establ
ished its own Monitoring and Analysis Systems (TMAS) to receive, analyze and sto
re all prescribed e-reports to the AMLC, banks still hold all the other necessar
y information on their clients beyond the reporting requirements of AMLC. Covere
d financial institutions may be looking for partners to assist them in developin
g systems that will create an environment which would institutionalize red flag
indicators for suspicious transactions, and thus facilitate not only their repor
ting to AMLC, but also their own internal surveillance requirements. These are j
ust some of the recent undertakings in the banking and financial sector where yo
u may find that your collective expertise as associations could be employed. Bus
iness opportunities: e-marketing I mentioned at the beginning of my talk that th
e BSPs recent surveys show optimism from both the consumer and business sides of
the economy. Your associations should be able to build on that. I sincerely beli
eve that the optimism in these sectors, and in the marketplace in general, is ge
tting more deeply entrenched. And you should harness that. A particular advocacy
of the BSP is micro-finance. Recently, because of the good repayment experience
of banks from micro-finance lending, banks have increased exposure to this segm
ent of borrowers. The extension of loans for micro-finance has ceased to be the
monopoly of thrift and rural banks, as the big commercial banks are now finding
out that lending to micro-finance and SMEs is very profitable. You have a great r
ole to play here. You can connect the artisans and cottage industries to the mar
ket place. An example of this successful use of the ICT as cited by the United N
ations is a Filipino website, Global Echo, which sells not only quilts and blank
ets woven by women in the rural areas, but also teaches other developing countri
es to use the internet to become more self-sufficient and eliminate middlemen in
reaching their markets. There are many other similar applications where you cou
ld partner with financial institutions. Conclusion As I have painted a positive
picture of the economy to you, I challenge you here tonight to maximize the bene
fits of Informtion and Communication Technology, by e-enabling a greater part of
our nation, reaching out not only to the obvious and traditional markets but en
larging your scope. Your associations, more than any other, know that the govern
ment cannot do everything. We need partners that can assist us not only directly
through the areas that I have outlined before, but also indirectly through the
crafting of enabling laws that would foster an environment that would encourage
ICT to flourish positively. Let me end with a quote from noted author, Sir Arthu
r Clarke, Any sufficiently advanced technology is indistinguishable from magic. La
dies and gentlemen, I am excited to see that time when we would have fully seize
d the benefits of information technology, for then it would be truly magical. Once
again, my warm congratulations to the officers of PETEF and ITAP. Magandang gab
i po sa inyo at mabuhay tayong lahat.
One Step Beyond: Making Ourselves Count for Others

Occasion: Launching of Gawad Kalinga - BSP, Bayani Brigade
Fellow workers at the Bangko Sentral ng Pilipinas. The video we just watched was
what you saw for the first time at our Christmas party at the PICC last Decembe
r. If you remember, the theme of our celebration was One step beyond. At that time
, I said that we should all be guided by this mantra in everything that we do: o
f going a step beyondgoing the extra mile in providing excellent public service.
And beyond the borders of Bangko Sentral, to make ourselves count for others.to h
elp improve the lives of the less fortunate in our country. It was also the time
when we turned over to Gawad Kalinga the proceeds of your generosity: P366,340.
57 to be exact, enough to build seven GK homes for seven families. For this, I a
gain commend all of you. Palakpakan po natin ang mga taga Bangko Sentral ng pili
pinas! Now, it is time for us to move a step further and to commit to the spirit
and ideals of Gawad Kalinga as member-volunteers of the Gawad Kalinga BSP, Baya
ni Brigade. Through gk-BSP, we can work together in a coordinated manner to trul
y make an impact in making lives better at GK sites. Gawad Kalinga means to give
care. And caring is not just about giving money. It is paying attention to the
needs of others. At gk-BSP, we can help by sharing what we know. Gk, as a holist
ic program, covers shelter, health, education, environment, livelihood and commu
nity empowerment. There is therefore a whole range of support services we can ge
t involved in. Ladies and gentlemen of the BSP. It is said that at least three o
ut of ten Filipinos live in poverty: this means about 27 million of our countrym
en! There is need therefore to be more proactive in helping improve lives in our
country. Clearly, our government cannot do everything for everyone. As citizens
, let us do our part in accelerating the liberation of Filipinos from poverty. H
ere with us this afternoon is Dylan Wilk, International Coordinator of Gawad Kal
inga. He is an Englishman who has done so much for Filipinos through Gawad Kalin
ga. In fact, he bested other Filipinos in the annual search of ABS-CBN for Pipol
of the Year. Indeed, we can say he is a true Filipino at heart. As a Central Bank
er for over 30 years now, I can say with authority that I know the people of the
Bangko Sentral. And I know that the people here at the Bangko Sentral care as m
uch, if not more, for our country and our people. Tama ba ako? .. I am so glad to
hear that. Here at the BSP,I have seen seemingly ordinary people produce extrao
rdinary results. This has been the strength..the bedrock of BSP. If we can transl
ate this passion, this commitmentto Gawad Kalinga, then we can truly say that the
BSP is living up to its vision of delivering a high quality of life for all Fil
ipinos. I hope therefore that all of you will sign up as member-volunteers of GK
-BSP Bayani Brigade, participate actively and spread the transforming power of G
K among friends and families. On behalf of all of us here at the BSP, I thank Ga
wad Kalinga for helping us become even better Filipinos. I also wish to make spe
cial mention of Chris Sendin of the BSPI, the first BSPer to join GK. Thank you
Chris. Ladies and gentlemen, I will now give the floor to the GK organizers here
with us today. Marami pong salamat sa inyong lahat.
Towards a Shared Vision for Capital Market Reforms

Venue: Taipan Room, Tower Club, Philamlife Tower, Paseo de Roxas, Makati City.
Occasion: Testimonial Luncheon of the AB Capital and Investment Corporation
Distinguished directors, officers and staff of the AB Capital and Investment Cor
poration led by Chairman and Chief Executive Officer Ramon R. Del rosario, Jr.;
President and Chief Operating Officer Francis M. Varela; former President Filome
no G. Francisco; ladies and gentlemen: Good afternoon! Congratulations on your 2
5th year anniversary! It is indeed an honor for me to join all of you today as y
ou celebrate this momentous occasion. For more than two decades, AB Capital and
Investment Corporation has positioned itself as a prominent player in the capita
l market industry. Specifically, you have carved your place in corporate finance
, fixed-income securities dealership, stock brokerage and fund management. You a
lso hold a creditable track record in equity and debt securities underwriting, h
aving acted as issue manager and/or lead underwriter for several of the countrys
most prestigious and most successful debt and equity offerings. Its no wonder you
have earned various local and international distinctions for your financial sav
vy backed by a solid financial standing, as well as for your significant contrib
utions to capital market development. I am positive that you owe much of this su
ccess to the competence and foresight of your leaders and the dedication and zea
l of your workforce. In the pursuit of your institutional aspirations, you also
have significantly contributed to our shared goal of promoting stability and eff
iciency in the Philippine financial system for a sustainable economic growth. In
return, let me take this opportunity to share with you our continuing reform in
itiatives which could be useful guideposts in fine-tuning your chosen path. The
economy at a glance To put things in perspective, let me start with an overview
of the economy. In 2005, the economy proved its resilience and fundamental stren
gth, despite the prevailing difficult macroeconomic conditions. The countrys econ
omic performance is benefiting directly from improving fiscal discipline and sou
nd monetary policies. For 2006, we expect to keep the momentum going. We realize
, of course, that sustaining economic growth over the long term would depend, to
a large extent, on the resilience of the financial system which forms the backb
one of the economy. Thus, we are taking parallel actions on key fronts. The prom
otion of a sound and stable financial system is the centerpiece of this agenda.
Within this framework, the development of the Philippine capital market is being
given high priority alongside the continuous reform of the banking system. Capi
tal market initiatives Already underway is a series of reforms in the Philippine
capital market intended to: create a sound market infrastructure, enhance trans
parency and market discipline mechanisms, promote greater investor protection, a
nd strengthen the legal and regulatory framework. Toward this end, the following
are some of our key contributions: Delivery of securities In July 2003, the BSP
issued regulations mandating the proper delivery of securities by dealer banks
and non-banks to the investor. This is meant to promote transparency and discour
age proliferation of manipulative practices. Accreditation of third party custod
ians The BSP subsequently issued regulations on the pre-qualification criteria f
or banks and NBFIs that will operate as securities custodians and defined the fu
nctions and responsibilities of each. It is important that we develop the custod
ian as an important agent in the capital market that can facilitate the lending
and borrowing of securities. Market infrastructure The BSP also supported privat
e sector-led initiatives to establish a fixed income exchange (fie) intended to
improve the current market infrastructure. The fie centralizes trading of securi
ties for enhanced transparency and efficient price discovery. At present, transp
arent pricing has been achieved for the interdealer market, as quotations are av
ailable on a per security basis, and executions are at the best bid and offer. I
n the future, we hope to see efficient price discovery for the common investor i
n the public market phase, as price and trading data will be made available on a
timely basis. Expansion of the menu of financial products The domestic capital
market remains shallow and underdeveloped. In response, the BSP has issued vario
us circulars diversifying the menu of financial products available in the capita
l market. Traded papers like unsecured subordinated debts (as tier 2 supplementa
ry capital), long-term negotiable certificates of deposits or LTNCDs, documented
repos, and securitization structures create market-oriented opportunities for b
anks and other players and deepen the capital market. Recently, we have issued c
ircular 503, amending the guidelines on risk-based capital framework to include
Hybrid Tier I instruments as part of qualifying capital. Hybrid capital instrume
nts that have equity-like features enable them to absorb losses similar to commo
n equity. However, these instruments must be perpetual and redeemable by the iss
uer subject to prior BSP approval. Moreover, we have also started revitalizing t
he trust business to widen investor base with the gradual phase out of Common Tr
ust Fund (CTF) for a better product called Unit Investment Trust Fund (UITF). Ui
tfs enhance the credibility of pooled funds to investors as the value of investm
ents is mark-to-market, paving the way for long-term investment opportunities. C
redit rating agencies We are encouraging the entry of more rating agencies. Rati
ng agencies play an important role in guiding investors towards informed decisio

n-making and in ensuring the proper disclosure of investment information. Accord
ingly, we have issued circulars which set the criteria for accreditation of dome
stic and international credit rating agencies. To date, the BSP has authorized o
ne domestic credit rating agency to issue ratings for bank supervisory purposes.
Likewise, we have recognized one internationally accepted credit rating agency
with a representative office in the Philippines to undertake local or national c
redit ratings. Legal and regulatory framework We are also advocating the passage
of key legislative measures that will spur the development of the capital marke
t and strengthen the regulatory framework. A key priority is the approval of the
extension of the Special Purpose Vehicle (sPV) law for another two years to com
plete the cleanup of Non-Performing assets (NPAs) in the banking system and rest
ore credit supply to the economy. Following a succession of asset dispositions u
nder SPV I, Bnks NPL/NPA ratios declined to single-digit levels. As of end-Decemb
er 2005, NPL/NPA ratio of the commercial banking system stood at 8.5 percent and
8.6 percent, respectively.[1] We will also continue to lobby for the enactment
of the credit information system act that will establish a central credit inform
ation system for improved discipline in the credit process. Credit bureaus will
be able to serve as a reliable source of information to allow lenders to accurat
ely evaluate risks and select between creditworthy and poor-quality borrowers. A
nother vital legislation is the Revised Investment Company Act (RICA) that will
establish a comprehensive regulatory framework to enable investment companies to
play a key role in capital formation. Moreover, this bill is aimed at protectin
g the interests of the investing public by preventing the misuse of customer fun
ds. Other legislative measures that we would like to see enacted in the near ter
m are the Personal Equity Retirement Account (PERA), the Pre-Need Code and the C
orporate Recovery Act. With these reforms in various stages of implementation an
d others more that are in the pipeline, we can expect better prospects for the g
rowth of the Philippine capital market. Undoubtedly, the continuing support of a
ll financial industry players will ensure for us greater success in this endeavo
r. As a final note, I call on you to assist us in fostering an environment condu
cive to a vibrant domestic capital market. You are, undoubtedly, one of the majo
r players in the capital market today. We will be relying on your experience in
helping provide order and depth in the market. Although the road ahead is consid
erably tough, I am confident that AB Capital armed with vision, a strong resolve
and with sound leadership at the helm will be more than prepared to meet the ch
allenge. Let us all do our share in responding to the call for building a deep,
dynamic and liquid capital market a precondition for achieving sustainable econo
mic growth. Once again, happy anniversary and I wish you all more success in the
years to come! ------------------------------------------------------------------------------- [1] Comparatively lower than the 12.7 percent NPL ratio and 11.
4 percent NPA ratio as of end-December 2004
The Philippine Economy: Developments and Prospects

Venue: Manila Hotel
Occasion: 4th National Convention, Chinese-Filipino Business Club, Inc.
The officers and members of the Chinese-Filipino Business Club, Inc. led by Pres
ident Rufino Ko Pio, special guests, ladies and gentlemen, good afternoon. Thank
you for inviting me to join you at your 4th National Convention. I am truly gla
d for this opportunity to be with you. Chinese-Filipino businessmen represent a

very important segment of the Philippine economy. You have a unique place in our
economy as you personify the convergence of the best from two cultures: the hig
hly admired Chinese work ethic combined with Filipino ingenuity. This formidable
combination has given wings to a strong entrepreneurial spirit that has helped
strengthen the backbone of the Philippine economy. I am pleased therefore to giv
e you an overview of how our economy performed in 2005, the developments that ca
n affect your business and how we at the Bangko Sentral ng Pilipinas see the pro
spects for the Philippine economy. Later, we can have a discussion on economic i
ssues of particular interest to you. Recent economic developments I will now giv
e you a brief overview of recent economic developments. We had to deal with many
challenges in 2005. Among others: we had to grapple with the impact of record h
igh oil prices; slower growth in exports; the El Nino weather phenomenon which s
tunted the growth of agricultural output; credit ratings downgrade; and domestic
political concerns. And yet, in the face of all these, our economy proved its r
esilience and fundamental strength. Our domestic economy, as measured by gross d
omestic product, continued to expand and managed to grow by 5.1%. As businessmen
, you know that achieving such growth, in a year marked with challenges, did not
happen by chance; it resulted from the continuous implementation of a comprehen
sive economic reform program involving both the government and the private secto
r. Part of this reform program is fiscal consolidation, which is now generating
benefits for the country. The combined effects of governments cost cutting progra
ms, improved tax collection efforts, and higher revenues from sin taxes and the
EVAT, brought down the governments fiscal deficit in 2005 to P146.5 billion, subs
tantially lower than the programmed deficit of P180 billion. This has led govern
ment to say that it is now possible for us to have a balanced budget by 2008. Wh
en this happens, our government will no longer be compelled to borrow money to f
inance its regular operations. This is an important step in our effort to reduce
the share of debt payments to the national budget; this will allow us to spend
more for infrastructure that supports economic growth and basic services that im
prove the quality of life of Filipinos. It is also noteworthy that we were able
to keep inflation at single-digit levels in spite of record high oil prices and
sustained economic growth. From 8.4 percent at the beginning of 2005, headline i
nflation fell to 6.6 percent by year-end, due mainly to declining food prices, t
he easing of oil prices from record levels, as well as the appreciation of the p
eso against the US dollar. The countrys external position also strengthened in th
e past year. Overall balance of payments position for 2005 stood at a surplus of
US$2.4 billion, a turnaround from the previous years large deficit. This was mad
e possible by overseas Filipino workers whose remittances in 2005 reached nearly
$11 billion, the highest on record; higher investment inflows also contributed
to this surplus. By December 2005, these dramatic surges in remittances and inve
stments allowed the Bangko Sentral ng Pilipinas to build up its international re
serves to its highest yearend level so far: at $18.5 billion. In January 2006, o
ur international reserves breached $20 billion for the first time ever, with the
addition of proceeds from loans obtained by the National Government and BSPs inv
estment income from abroad. Meanwhile, the countrys external debt as of end-Septe
mber 2005 dropped from the year-ago level, with medium- to long-term debt accoun
ting for almost 90 percent of the total. This indicates better manageability and
sustainability of our external debt. Another positive development is the contin
uous improvement in the soundness of our banking system. As a whole, our banking
sector is well-capitalized, with capital adequacy ratio well above the internat
ional standard. At the same time, asset quality of banks continued to improve wi
th non-performing loans of universal and commercial banks at 8.74 percent as of
November 2005. This is the lowest level in more than seven years. Altogether, th
ese positive economic trends have boosted confidence in the economy, as reflecte
d in an increasingly stronger peso. In fact, our peso emerged as the top perform
ing currency in Asia in 2005. Outlook for 2006 In the light of our better-than-e
xpected economic performance in 2005, we are confident we will be able to achiev
e our targets this year. Among others, we expect our economy to continue to expa
nd at a reasonable pace, led by services, industry, and agriculture sectors. Nev
ertheless, since oil prices continue to be a concern, GDP growth rate, according
to the DBCC, may range between 5.7% and 6.3%. Inflation is seen to rise slightl
y early this year, as a result of high oil prices and the vat rate adjustment. H
owever, the continued stability of the peso should help cushion its impact. In t
he second half of 2006, we expect inflation to follow a decelerating trend as co
st-push pressures subside. Meanwhile, market interest rates are likely to remain
stable during the year, due to improving fiscal position of the government, amp
le liquidity in the financial system and projected modest growth in bank lending
. On the external front, dollar inflows from OFW remittances and foreign investm
ents are expected to remain strong in 2006 as deployment of more workers escalat
e and as more high-salaried workers get jobs overseas. This should boost our ext
ernal position and further build up our gross international reserves. It also un
derpins our expectations of a generally stable peso in 2006. Policy directions F
or the BSP, our principal thrust over the near term will be oriented towards res
ponding to inflationary risks and delivering price stability over the policy hor
izon. The BSP will also intensify its efforts to strengthen the financial system
, further enhance the effectiveness of its supervision and regulation of banks,
and help promote the development of the domestic capital market. We will continu
e to foster an environment that will facilitate further disposal of banks non-per
forming assets. For those of you in the market for real estate, I recommend you
take a look at the non-performing assets of banks that are up for sale. The rate
s are attractive for buyers as banks now conform with the risk-based provisionin
g required by the Bangko Sentral. Our policy is to require banks that take on mo
re risks, to have correspondingly higher capitalization. The asset cleanup of ba
nks should spur credit and investments, thereby creating the basis for more sust
ainable growth in the medium term. Other key financial reforms will focus on ali
gning prudential regulation of the banking system with international standards a
nd best practices, strengthening corporate governance standards as well as marke
t discipline mechanisms, and further enhancements on our payments system. In the
area of capital market development, the BSP will continue its active collaborat
ion with other government agencies and the private sector for the completion of
necessary infrastructure that would enhance system integrity and overall market
confidence. The operation of the fixed income exchange and the implementation of
the third-party custodian scheme are part of the initiatives to accelerate the
development of the domestic capital market. This is a priority program as a deep
, dynamic and liquid domestic capital market will provide a valuable alternative
source of funds with less foreign exchange risk. We will also continue to lobby
for the passage of key legislation aimed at developing the local capital market
and strengthening our regulatory authority. In addition, we are working closely
with Congress on the creation of a centralized credit information bureau system
and the establishment of credit rating agencies. These should enhance the quali
ty of financial information available to investors, enhance private sector acces
s to credit, and minimize exposure to risks of financial intermediaries. The Ban
gko Sentral will also continue to promote microfinance, as its flagship program
for poverty alleviation. The collateral-free loans, ranging from P5,000 to P150,
000 have been effective in providing our entrepreneurial poor, or what we call t
he e-poor, with much needed capital to start a microenterprise. So far, banks ha
ve provided microfinance to more than 750,000 borrowers. Some of you may be surp
rised to know that the average repayment rate of our e-poor on their microfinanc
e loans is 98%! This is so much better than the repayment record of banks from t
heir major borrowers. In fact, microfinance is now a source of profits for many
banks. I hope your organization can also provide support for our microfinance pr
ogram. For instance, you can teach our entrepreneurial poor the basic principles
of running a profitable business, in other words share some of the secrets of y
our success. By doing so, we will be able to liberate more of our countrymen fro
m poverty. I am pleased to inform all of you that the microfinance program of th
e Philippines has already developed a good success record. In fact, no less than
the United Nations gave an award to the Philippines for its institutional appro
ach to microfinance, which makes it responsive to its e-poor clients and ensures
its long-term sustainability. I hope this inspires you to join us in promoting
microfinance to alleviate poverty in our country. Concluding remarks Ladies and

gentlemen of the Chinese-Filipino Business Club, there is no doubt, we have made
solid economic gains; even foreign media have taken notice. For instance, the I
nternational Herald Tribune noted that investors are now looking to the Philippi
nes, often shunned in the past for being "The sick man of Asia." And while there
is still much that we need to fix in our economy, we can do this better and fas
ter if the government and the private sector will cooperate and work more closel
y together in making our economy efficient and more globally competitive. The su
ccess of policymakers efforts to sustain economic growth ultimately depends on th
e support of the private sector; you and I know, government cannot do everything
on its own. In this regard, I commend the tireless efforts of industry groups s
uch as the Chinese- Filipino business club for its role in keeping the economy h
ealthy and buzzing with activity. Moreover, I congratulate your organization for
its spirit of volunteerism in supporting community projects. May your tribe inc
rease. It is my hope that you will become even more proactive in ensuring the lo
ng-term growth of our economy. Finally, I wish the leadership and members of the
CFBCI good health, wealth and good fortune, at all times. Marami pong salamat.
Investor Protection and Market Discipline: A Common Goal

Venue: Filipinas Heritage Library, Ayala, Makati City
Occasion: First Annual Achievement Award, Philippine Dealing Exchange Corp.
Good evening! I would like to thank PDEX, the organizer of tonights event, for th
e opportunity to address the first awarding ceremony for the top five performing
trade participants in the fixed income exchange (FIE). Improving economic lands
cape Allow me to start by rolling out quickly our economic scorecard for 2005 wh
ich is a combination of favorable performance marks in various areas that underp
in our improving economy and stable banking system. Our resilient domestic econo
my grew by 5.1%, inflation slowed down to 6.6%, interest rates continued to ease
and the peso steadily appreciated against the US dollar, buoyed by remittances,
which hit almost 10 billion dollars, and by investment inflows. The banks NPL ra
tio slid to only 8.7%, the stock index grew by about 15%, and our fiscal positio
n started to consolidate favorably with national government efforts to improve r
evenues via additional tax and administrative reform measures. Lastly, many of o
ur reform programs and initiatives to develop the capital market have taken off
the ground. Industry reforms: committing to commit As I have stated time and aga
in, the BSP is committed to champion reforms to see the domestic capital market
develop to its fullest potential, reforms that are anchored on investor protecti
on, transparency, market discipline, stable financial institutions, and the adop
tion of international best practices. We have supported the initiative of the ba
nkers association of the Philippines and other partners to establish this exchan
ge. The vision is that this will lead to efficient price discovery and transpare
ncy in the fixed income market. Investor protection and market discipline How ha
s the development of the exchange progressed so far? First, it has opened its in
ter-dealer platform in March 2005. Second, it has finally achieved connectivity
with the ROSS system of the Bureau of the Treasury. I understand that the testin
g stage for the straight through processing of transactions has been completed.
Soon the exchange is expected to roll out its public order-driven board. As regu
lators, we appreciate the efforts to achieve straight through processing of fixe
d income securities transactions that is compliant with the standards set by the
CPSS-IOSCO to minimize operational and other risks. Once the exchange receives
its self-regulatory organization status, the exchange can more effectively enfor
ce appropriate norms of conduct among its participants in order to achieve bette
r transparency, improved investor protection, and greater discipline among the p
layers a potent combination that will, in the end, promote the integrity of, and
confidence in our financial markets. For the participants enhanced market integ
rity will certainly evoke the highest trust, confidence and appreciation from in
vestors, regulators and other players, here and abroad. For the investors transp
arency in pre- and post-trade data and efficient trade execution will contribute
to efficient price discovery. And if done in tandem with the institutionalizati
on of third party custody systems, our converging advocacies of promoting invest
or protection and empowerment would then see the light of day. For the country t
he success of the exchange in trading government securities could give a boost t
o the development of the corporate securities market. That would increase the op
tions available for those that require funding for long-term projects as well as
those needing long-term investment opportunities. Going forward: a call for uni
ty We are all aware that we still face certain challenges in our pursuit of capi
tal market development. We at the BSP expect that all the issues of the day will
eventually be understood and settled if we set aside individual interests for t
he benefit of the greater number. Given the favorable economic conditions that w
e are currently enjoying, this is the best time to consolidate our efforts and d
raw from each others strengths. The future will only be bright to those who prepa
re for it now. Let us continue to work together to achieve our ultimate goal of
capital market development! Congratulations to all the awardees. Maraming salama
t po at mabuhay tayong lahat! (Note: First Annual Achievement Award, Philippine
Dealing Exchange Corp. on 03 February 2006 at the Filipinas Heritage Library, Ay
ala, Makati City.)
Working Together for a Better Nation

Occasion: General Membership Meeting and Induction of 2006-2007 Officers and Dir
ectors, Bank Marketing Association of the Philippines (BMAP)
Distinguished officers and members of the Bank Marketing Association of the Phil
ippines (BMAP), colleagues and friends in the banking industry, special guests,
ladies and gentlemen: good evening! Thank you for this privilege of once again w
itnessing your first general meeting for the year and the induction of your newl
y elected officers. It is comforting to note that your 2006 officials are mainly
re-electionists, led by your President Mr. Roberto Banaag. Your membership made
a wise decision as this move ensures, among others, continuity and consistency
of your programs and advocacies. We expect this to consequently translate to BMA
Ps sustained support of the priority reforms that we, at Bangko Sentral, continue
to implement for a more stable and dynamic, more efficient, more depositor- and
customer- friendly banking system. BSP reform initiatives The BSP indeed has ta
ken bold and decisive moves. We believe we have already mounted the appropriate
regulatory framework for the prudent conduct of banking business in these challe
nging times through the reforms initiated by my esteemed predecessor. The next t
hing to do is to make this work. Foremost on our must-do-list is the alignment o
f existing regulations with international standards and the promulgation of poli
cies more responsive to the growing competitiveness and sophistication of the fi
nancial services industry. We are now following through on the enhancements of r

egulations to strengthen corporate governance, risk management, and capital adeq
uacy in our banks, which would be complemented with effective and efficient enfo
rcement. In line with these commitments, the Monetary Board (MB) recently approv
ed the issuance of three major regulations covering: The new financial reporting
package (FRP); The guidelines on supervision by risk; and The guidelines on inf
ormation technology (IT) risk management The new FRP effectively amends the Manu
al of Accounts MOA) and revises the reportorial requirements for banks to align
these with the provisions of the Philippine Financial Reporting Standards (PFRS)
/ Philippine Accounting Standards PAS). To the extent possible, we have integra
ted in the new FRP the requirements of the PFRS/PAS and the Basel 2 capital adeq
uacy framework. The new FRP will also facilitate an enhanced off-site surveillan
ce for the BSP on its supervised entities. On the other hand, embodied in the gu
idelines on supervision by risks are BSPs expectations on how banks and other fin
ancial institutions should manage their risks. These are also designed to provid
e guidance on how the risk-focused supervision will be applied to these risks. L
ikewise, the guidelines on I.T. risk management are intended to communicate BSPs
expectation of banks in the area of I.T. risk management process. These would ef
fectively identify, measure, monitor and control banks technology risk exposure.
To ensure healthy competition and promote growth, we have also liberalized certa
in aspects of banking. We have lifted the moratorium on bank branching. We have
opened up outsourcing possibilities and allowed an increasingly wide array of tr
easury, consumer and wealth management products. Many more meaningful changes in
the banking industry can be expected this year and in the coming years as we fu
rther move to fully adopt international best practices. For instance, you will b
e seeing more binding standards on connected party transactions come into force
after a 2-year transition period. There will also be more standards and better e
nforcement of risk disclosure and client suitability to better protect customers
. Moreover, the BSP is coming out with a stricter fit and proper rule to ensure th
at officials tasked to manage banks and other financial institutions possess the
required integrity and competence. These regulatory enhancements will naturally
affect the conduct of banking in our land. Banking prospects in 2006 We envisio
n a banking landscape dominated by a handful of major banks complemented by many
smaller banks that serve various well-defined market niches. We expect an accel
erated consolidation process in the banking industry in the next 3 years that wi
ll be principally driven by: 1. a stronger regulatory framework that will hasten
the exit of weak banks (hopefully on voluntary basis); 2. the increasingly stro
nger competition by existing foreign banks and new foreign investors coming in i
nto existing banks; and 3. the rigorous technical demands posed by modern bankin
g and finance standards. We also see parallel exciting developments in the capit
al market. The BSP will continue its active collaboration with other government
agencies and the private sector for the completion of much-needed market infrast
ructure to enhance system integrity and overall market confidence. In the end, o
ur vision is that all these changes in the capital market will provide: A richer
array of investment opportunities for the public, Greater funding flexibility f
or public as well as for the private sectors; Greater scope for interest rate ri
sk management, and More reliable signaling mechanism for pricing financial asset
s BSPs own transformation process We are complementing the industrys transformatio
n process with our own. In fact, we are in the process of fully adopting a conso
lidated and risk-based supervision approach. International best practice on bank
ing supervision has adopted this approach primarily because of its more forwardlooking orientation rather than the after-the-fact view of traditional supervisi
on. Accordingly, the focus of our attention now is on the most significant risks
within a particular financial institution and within the industry as a whole. C
onsistent with this new approach, we are reorganizing the BSP supervision and ex
amination sector. We expect to generate benefits particularly in terms of operat
ional efficiency, cost efficiencies, as well as greater value-added to BSP super
vised entities through better-focused post-examination recommendations. We are a
lso continuing our lobbying efforts in congress for the amendment of the BSP cha
rter. This will make the BSP a more effective monetary authority and banking reg
ulator. We are likewise strongly advocating for the enactment of the Credit Info
rmation System (CIS) Act, which will pave the way for the establishment of a tru
ly comprehensive credit information system. This is expected to lower the cost o
f credit, provide greater access to credit in general, and reduce the dependency
on collateral-based lending. Toward a seamless supervision of the BSPs supervise
d and regulated entities, we are also further strengthening our ties with our co
-regulators, both here and abroad. I am happy to report that we are making real
progress on various initiatives being undertaken under the umbrella of the finan
cial sector forum (FSF). Discussions during the sixth FSF meeting centered on pr
ograms aimed at deepening consumer literacy and further strengthening of coordin
ating arrangements between and among the member agencies (SEC, BSP, OIC and PDIC
). The Financial Sector Forum, through its Consumer Protection and Education Com
mittee (CPEC), shall mount a consumer protection and education campaign plan. Th
is plan aims to equip consumers with adequate, timely and relevant information a
bout financial products and services, not only for their protection but also for
maintaining the stability of the financial sector. This is a specific area wher
e the expert assistance of BMAP will be most welcome. Actually, we are counting
on BMAP to respond to this campaign with the same vigor and dedication as it did
to our call for the crafting of a consumer code in the Philippines. The BSP att
ributes to BMAPs strong political will the expedient launching of the Service code
for consumer banking in the Philippines in October 2005. (Only 14 months after B
SP challenged the industry to make one for the Philippines). The FSF, through it
s Reporting, Information Exchange and Dissemination Committee (RIED), has also m
oved to supplement its current Memorandum of Agreement (MOA) covering bilateral
information exchange among FSF members. The amendments will allow the establishm
ent of an overall framework for the exchange of relevant reports and/or data whi
ch in turn shall facilitate the development of comprehensive statistics on the f
inancial system. To address cross-border supervisory issues, we have already est
ablished contacts with our foreign counterparts in ten (10) countries where Phil
ippine banks also operate. Two of them, the China Banking Regulatory Commission
and the Nederlandsche Bank, have already made commitments for the exchange of in
formation on areas of common interest as supervisory authorities. Meanwhile, we
are confident that we shall be able to see the fruits of our negotiations for th
e adoption of a minimum set of ground rules for the exchange of similar informat
ion with the remaining eight foreign supervisors [1]. A call for support BMAP, t
ogether with the other captains of the banking industry, has undoubtedly made si
gnificant contributions towards the realization of many of our reform initiative
s. However, we still have a plateful of them to complete. We believe that BMAP r
emains strategically positioned to continue to enlist the support of industry pr
imemovers in these endeavors. You have the power to promote synergy amid a mixtu
re of divergent plans to achieve our shared vision for the banking industry and
for our country. We look forward to another year of closely working with you. On
ce again, congratulations to your officers! Thank you very much. Mabuhay tayong
lahat. ------------------------------------------------------------------------------- [1] Namely: Monetary Authority of Singapore, Hong Kong Monetary Authorit
y, Germanys Federal Financial Supervisory Authority (FFSA), Taiwans Financial Supe
rvisory Commission, UKs Financial Services Authority, Japans Financial Services Ag
ency, and the US Federal Reserve Bank
The Philippine Economy: The Continuing Challenge

Venue: Peninsula, Manila
Occasion: 57th Inaugural Meeting of the Management Association of the Philippine
s (MAP)

Introduction During the BSPs annual reception for the banking and business commun
ity last Tuesday, I had one principal appeal to our friends. To make the best of
our circumstances, achieve progress in our own spheres, so that in the end, the
whole nation will be better off. Distinguished officers and members of the Mana
gement Association of the Philippines led by 2005 President Mon Paterno and 2006
President Evelyn Singson, colleagues from the BSP and the government, distingui
shed guests, friends, ladies and gentlemen, good evening. MAPs theme for this yea
r, Call to action: Country above self, happens to be in accord with my Tuesdays app
eal. We are all convinced that the must-do list for the Philippines is long, som
e of the items are structural while some would require streamlining of policies.
Any and all efforts to address this must-do list are therefore quite crucial. T
he next best thing to do is precisely this take action in your respective sphere
s of influence. As captains of industries described by media as movers and shake
rs of our economy you can truly generate tremendous benefits for our country and
our people. Ladies and gentlemen, what you have selected as guiding theme for t
his year is exactly the mindset we want Filipinos to have: Country above self. I
f you can widen the reach of this message to cover as many Filipinos as possible
, then you would be a part of a chain that seeks to improve the nation. Now, let
me share with you some positive news on the economic front which give us reason
to be more confident about our future. 2005 a most challenging year By most acc
ounts, 2005 was a very challenging year for the Philippines. We had to contend w
ith high oil prices, rising global interest rates, lower farm output, and non-ec
onomic tremors. Yet our economy, as measured by GDP, continued to expand. Sure,
it wasnt at the pace we aimed for, but our economy proved its resilience once aga
in. The expansion in economic activity was achieved amid an easing inflation env
ironment. Inflation has continued to ease since the second half of 2005, support
ed mainly by the softening prices of food and oil, and to some extent the strong
er peso. Headline inflation has fallen to 7.0 percent in the second half of 2005
. The average inflation rate for last year was 7.6 percent. More importantly, co
re inflation, which takes out the impact of volatile food and energy prices on t
he CPI, has steadily trended downwards. The decline in core inflation suggests t
hat the inflationary pressures of the past year were not of a permanent, demanddriven nature. This fact supports the limited and selectively tightening bias of
monetary policy. Another source of optimism is the improving fiscal performance
. Coming from a very difficult period of large and persistent fiscal overhang, t
he government embarked on and succeeded in its initial efforts towards fiscal co
nsolidation, by way of intensified tax administration and vital new tax measures
as well as expenditure control. The National Government budget deficit stood at
P146.5 billion for 2005, well below the target for the period. This figure also
represents the lowest budget shortfall since 2001. as revenue gains continue wi
th the VAT implementation, we stand a good chance of seeing a balanced budget by
2008. The positive investor sentiment over the progress made on the fiscal fron
t as well as healthy inflows from remittances have also strengthened the externa
l position. Latest estimates show that the overall balance of payments (BOP) pos
ition for 2005 stood at a surplus of US$2.4 billion, which is a welcome turnarou
nd from the previous years shortfall. The peso likewise ended stronger against th
e US dollar on the back of the positive market sentiment and strong inflows. The
peso ended 2005 as the top performing currency in the Asian region. This surge
in dollar inflows also allowed the BSP to build up its dollar reserves. At US$18
.5 billion as at end-December 2005, the countrys gross international reserves (GI
R) is significantly higher than the US$17 billion target for the year and is suf
ficient to cover about 4 months worth of imports of goods and services. Meanwhile
, the countrys external debt also narrowed to US$55.5 billion by end-September 20
05. This amount continued to be made up mostly of medium- and long-term liabilit
ies, which ensures that our debt payments remain manageable and sustainable. At
the same time, the Philippine banking system continued to show improving soundne
ss. As of November 2005, commercial banks non-performing loans as a percentage to

total loans registered a single digit level of 8.7 percent. Growth in bank lend
ing, however, continues to be modest (2.1 percent Nov.), but we expect it to reb
ound this year given the substantial progress achieved so far with sustained ass
et clean up. Having said this, I have to admit, the Philippines is not yet total
ly out of the woods. There are risks that we have to face and manage in the year
s ahead. We are sure, however, to move forward if we persevere. For us at the ba
ngko Sentral ng Pilipinas, we are aware of the risks attendant to our primary re
sponsibility of keeping prices stable. The Monetary Board had to respond promptl
y and carefully to these inflationary risks to the inflation target. In the cour
se of 2005, we raised our policy interest rates by a total of 75 basis points an
d increased reserve requirements by 200 basis points. These were modest response
s compared to other jurisdictions where their capacity is nearing to the brim an
d the labor market is stretched to the limit. Yet they were decisive, considerin
g the demand pressures were limited and the second round impact was yet to emerg
e. By the second half of 2005, inflation had started to ease. Improving fundamen
tals, optimism and 2006 What then do we see in 2006. We continue to face uncerta
inties, but I believe the countrys improving economic fundamentals should give us
a reasonable degree of optimism about 2006. Economic activity, for one thing, i
s likely to continue at a reasonable pace, driven mainly by the services and ind
ustry sectors. Nonetheless, the rise in oil prices over the past year is likely
to take its toll on domestic demand, particularly on consumption spending. For t
his reason, the development budget coordinating committee is looking at real GDP
growth in 2006 that is likely to be closer to the lower end of its target at 5.
7 percent. As for inflation, it is expected to be higher in 2006, given the cont
inued upside risks. Oil prices, for example, are expected to remain high relativ
e to their historical trend and the RVAT is likely to exert, at least a short-te
rm, upward pressure on consumer prices. Taking into account the recent easing of
oil prices, as well as the strengthening of the peso, inflation is expected to
hover between 7.5 and 8.1 percent in 2006. Let me point out though that we do ex
pect an easing of inflation in the second half of the year, as the impact of the
RVAT diminishes. Meanwhile, improvements in fiscal performance, ample liquidity
in the financial system, and moderate credit growth are expected to mitigate th
e impact of inflationary pressures on market interest rates. There is also good
reason to expect a strong external position this year. Dollar inflows, primarily
from OFW remittances and investments, are expected to continue to come in. With
healthy inflows, the exchange rate is poised to remain broadly stable in the co
urse of the year. The continuing challenges to monetary and banking policies Whi
le economic performance appears to be on track, we remain watchful of the potent
ial risks and challenges to the economic outlook. These risks include the follow
ing: (1) volatility in world oil prices; (2) a build-up of excess liquidity in t
he financial system; (3) possible exchange rate volatility due to excess liquidi
ty; and (4) adverse shifts in the publics inflation expectations. In the face of
these challenges, the public can count on the BSP to make sure that these risks
do not endanger our path to economic progress. The BSP will stay committed to it
s mandate of promoting low and stable inflation. The BSP is also committed to st
rengthening the financial sector through continued structural reforms. Foremost
of these measures is the clean-up of banks balance sheets of non-performing asset
s. The clean-up will help spur credit and investment activity and create the bas
is for more sustainable growth in the medium term. Other key financial reforms w
ill be focused on: (1) improving the BSPs supervision technology and capacity; (2
) aligning prudential regulation of the banking system with international standa
rds and best practices; (3) strengthening corporate governance standards and mar
ket discipline mechanisms; (4) further developing the domestic capital market; a
nd (5) enhancing the payments system. Efforts are also underway for the implemen
tation of Basel II accord and adoption of international accounting standards by
local banks. These initiatives are designed to bring local banking practices in
line with internationally accepted standards. In the area of capital market deve
lopment, the BSP will continue its active collaboration with other government ag
encies and the private sector for the completion of much-needed market infrastru
cture to enhance system integrity and overall market confidence. We will likewis
e pursue further enhancements in financial information to guide investor decisio
ns. A key effort in this area is the establishment of credit rating agencies. We
are also working closely with congress on the establishment of a centralized cr
edit information system to help private enterprises secure better access to cred
it, reduce borrowing costs, as well as minimize the risk exposures of financial
intermediaries. The BSP also actively seeks to widen the investor base of the lo
cal financial markets through a number of new investment products which would be
tter reflect market prices. These will help encourage more institutional investo
rs such as insurance companies, mutual funds and pension funds to participate in
the capital market. Future reform measures will eventually lead to the introduc
tion of exchange-based products that can further stimulate market activity and d
eepen liquidity. The continuing challenge Let me sum up by saying that the nearterm economic outlook suggests more vibrant economic activity, but there are pot
ential obstacles on the way to sustainable growth. The critical task ahead is fo
r us to focus, not just on macroeconomic stabilization in the short-term, but al
so on preserving the momentum for economic reforms to ensure sustained growth in
the years to come. Consistent with maps marching order, we need to act outside o
f ourselves. Most of the items on the must-do list will take time before these c
ome into fruition. Reforming an economy is an enormous task, one that the govern
ment, even in theory, cannot do by itself. Governments govern, or better still,
guide. But it is the economic and business community that creates commodities an
d services, builds the economy and competes in the global market. I take heart i
n the fact that our business leaders in MAP remain a stalwart partner of the gov
ernment in making economic progress possible. Personally, I am optimistic that o
ur hard work and resourcefulness will allow us to overcome our remaining economi
c problems. As a people, they say Filipinos have a knack for turning adversity i
nto opportunity. My caution is that we should not always welcome adversity to be
able to turn it into opportunity. I believe that by responding to the challenge
s with a deeper sense of purpose, by adhering to country above self as a guiding p
rinciple, we can reach our full potential. By all means, we have what it takes t
o succeed. The outgoing officers and board members of the MAP, congratulations o
n a job well done, and to the new officers, I wish you all the best! Thank you v
ery much. Mabuhay tayong lahat.
New Year Message 2006

Venue: BSP Complex. Manila
Introduction Members of the banking community, special guests from the legislati
ve branch and the judiciary, members of the Cabinet, fellow workers in governmen
t, guests from the media, friends, ladies and gentlemen, good evening. It t has
been a tradition for the Monetary Board to host an annual reception for the bank
ing community. As Chairman of the Monetary Board and Governor of the Bangko Sent
ral ng Pilipinas, I am only one of your seven hosts tonight. Let me therefore in
troduce your six other hosts --- My fellow members at the Monetary Board, by ord
er of seniority of their appointment: 1. Dr. Vicente B. Valdepenas, Jr. He is an
economist, educator, former NEDA Director General and holds the distinction of b
eing a member of the Monetary Board for three terms now; 2. Mr. Raul Boncan A law
yer and former trade & industry Undersecretary, banker, professional manager, an
d businessman; 3. Mrs. Juanita AmatongAn economist, educator, and former Finance

Secretary, the first woman to hold this important post; 4. Mrs. Nellie Favis-Vil
lafuerteA lawyer, prolific writer, and former Undersecretary of Trade and Industr
y; 5. Budget Secretary Romulo Nerieducator and former Director General of the Nat
ional Economic and Development Authority and of the House of Representatives Co
ngressional Planning and Budget Office; and last but not the least; 6. Mr. Alfre
do Antonioa professional manager and banker, former CEO of the Development Bank o
f the Philippines and the Subic May Metropolitan Authority. Ladies and gentlemen
, we are the members of the Monetary Board.and we welcome all of you to our tradi
tional annual reception As you may have noticed, we also have non-banker guests
this is our way of saying thank you to the other sectors of our society who work
with the Bangko Sentral ng Pilipinas in the pursuit of its mandate to ensure st
able prices and a sound banking system . An Overview of 2005 All of you present
here tonight are our stakeholders and we are happy to report to you that. Even in
the face of a challenging year marked by record high oil prices, rising global
interest rates, political tremors and credit rating downgrades, we ended 2005 on
a clearly upbeat note among others: Our economy continued to grow; We contained
inflation at single-digit levels even with runaway oil prices; the cost of doin
g business remained benign with a steady downtrend in interest rates, based on 9
0-day t-bill rates; The peso emerged as best performing currency in asia; Capita
l adequacy ratio of banks remained well above the international benchmark; The a
sset base of the banking sector sustained its growth; Asset quality of banks con
tinued to improve with single-digit non-performing loan ratio; Our poverty allev
iation program through microfinance was recognized as excellent by the united na
tions, making us one of only three asian nations given that distinction; OFW rem
ittances hit their highest level; Foreign investment inflows continued to rise;
A higher-than-expected bop surplus was registered; International reserves hit re
cord-high levels; and The revised value added tax and sin taxes, accompanied by
stronger tax administration efforts are showing positive results. If both fiscal
discipline and higher revenues can be sustained, there is good reason to expect
a balanced budget by 2008 In other words, ladies and gentlemen, we are off to a
good start in 2006 For this, we must also acknowledge the significant contribut
ions of my predecessor. Former Bangko Sentral Governor Rafael Buenaventura. As wel
l as the other members of the Monetary Board during his term friends, Governor P
aeng could not be with us tonight but let us applaud him and his MB members as a
way of saying thank you for their unwavering commitment to initiate necessary r
eforms in our financial sector. Whats in store in 2006 The new year gives us a fr
esh opportunity to do things better, not only for our respective institutions bu
t also for our country Of course, you and I know we have a long way to go before
we can truly say everything is a-ok more than anyone, you know. Our economic fun
damentals: our strong points. As well as other areas requiring more attention In
our case, it is critical for the Bangko Sentral ng Pilipinas to keep an eye on t
he risks to inflation and to make such risks clear to the markets and the genera
l public our main focus is to ensure that we achieve our inflation target, keep
the publics inflation expectations anchored and manage the growth in domestic liq
uidity The Development Budget Coordinating committee is looking at a real GDP gr
owth rate of 5.7 percent for 2006, with growth driven by services, industry, and
agriculture which stands to benefit from better weather conditions. The main ri
sk we see for domestic demand is high oil prices, which have already taken some
of the buoyancy out of consumer spending last year rising oil prices also contin
ue to be the key source of risk to inflation, although the strong peso and the e
asing of food prices should help balance inflationary risks . While inflation ma
y range from 7.5 to 8.2 percent, we see a downward trajectory given expectations
of an easing of oil prices from peak levels in 2005 and a short-lived impact of
the revised vat on prices of goods and services . Market interest rates are als
o expected to benefit from ample liquidity, improving fiscal performance, and be
tter prospects for our sovereign credit rating at the same time, our external po
sition is likely to continue to benefit from dollar inflows from remittances and
investments with healthy inflows, the peso is likely to remain generally stable
in the course of the year . Challenges and strategies In the months ahead, the
task for economic managers will be to strengthen the economy in the short term.an
d to preserve the momentum for economic reforms that will sustain growth in the
long term. At the BSP, our job will be to be more steadfast in fighting inflatio
n and reforming the financial sector . In the area of banking supervision, our f
ocus will be on reducing the stock of non-performing loans with the help of cong
ress in extending the SPV Law; enhancing the prudential regulatory environment o
f the banking system to align it with international standards and best practices
; strengthening corporate governance standards and market discipline mechanisms;
developing the domestic capital market further; enhancing the payments system;
and improving the BSPs supervision technology and capacity . In the pipeline are
the issuances of the guidelines on the implementation of Basel II Accord, and th
e new financial reporting package in line with the adoption of international acc
ounting standards. While there will be initial friction costs related to the tra
nsition, these will strengthen the banking system for the long haul . To speed u
p the development and deepening of the domestic capital market, the BSP will con
tinue to work with other government agencies and the private sector for the comp
letion of critical market infrastructure to further enhance system integrity and
overall market confidence And in response to the need to further enhance financ
ial information critical to investor decisions, BSP will also continue to work o
n the establishment of rating agencies, highlighting their role particularly in
the conduct of banks risk management in addition, we continue to work with Congre
ss on the creation of a centralized credit information bureau system to help pri
vate enterprises get better access to credit, reduce borrowing costs, and minimi
ze the risk exposures of financial intermediaries. Similarly, we will continue t
o work with market players to widen the investor base for domestic financial ins
truments. All these reforms require the support and cooperation of the banking s
ector the BSP therefore takes heart in having in the banking community a respons
ive partner and support force in shaping the future of our financial system . A
special advocacy for the Bangko Sentral ng Pilipinas is our National Coin Recirc
ulation Program. In this regard, we are particularly pleased that tonight, the e
ntire banking sector is expressing its support for this crucial advocacy that st
ands to benefit consumers, retailers, banks, and the BSP In particular, we are h
appy that the Bankers Association of the Philippines, the Chamber of Thrift Bank
s, the Rural Bankers Association of the Philippines, the Bank Marketing Associat
ion of the Philippines, and the Philippine Retailers Association have declared t
heir full commitment to support our Coin Recirculation Program under a Memorandu
m of Agreement for this purpose . We are also pleased that Archbishop Gaudencio
Rosales of the hugely successful Pondong Pinoy, our inspiration for our coin pro
gram, is here with us to sign a Memorandum of Agreement for the servicing of its
coin deposits. Under the adopt-a-parish program of the Bankers Association of t
he Philippines, there are initially three participating banks: Bank of Philippin
e Islands, Metrobank, and Equitable-PCIBank Ladies and gentlemen, this is defini
tely a fine way to start the new year: committing to work together for the great
er good. Indeed, the translation of the final outcome of our reform programs sho
uld be sustainable growth and development to the man on the streets, it is jobs
and income to the nation, peace and prosperity these are goals we should all wor
k for the cooperation of everyone is of utmost importance. With your continuing
support, we are confident of achieving greater gains in reforming and energizing
the economic and financial system, as well as in keeping the transmission mecha
nism of monetary policy in high gear . Finally, on behalf of the Monetary Board
and our co-workers at the Bangko Sentral ng Pilipinas, I wish all of you a fruit
ful, meaningful and a hugely successful new year! Marami pong salamat thank you
all.
Turning Challenges into Opportunities

Venue: Oasis Country Resort, Sevilla, San Fernando City, La Union

Occasion: 50th Anniversary Celebratory Luncheon of Rang-ay Rural Bank, Inc.
Governor Victor Ortega and Mayor Mary Jane Ortega, officers and staff of Rang-ay
Bank led by Chairperson Eufrosina Nisce and Rang-ay President Ives Nisce, co-wo
rkers in the banking sector and colleagues from the government sector, distingui
shed guests, ladies and gentlemen: Naimbag nga malem yo amin (Good afternoon)! I
am indeed honored to be among the witnesses of this momentous occasion. Thank yo
u for this privilege of being with you in celebrating your 50th anniversary. Tod
ay, we all are witnesses to the realization of your founders vision 50 years ago.
And it is certainly one exhilarating experience. This feat has significant impa
ct to the banking industry and most especially to the community that Rang-ay has
been serving for half a century. Thus, I also take this opportunity, to express
Bangko Sentrals appreciation to the entire family of Rang-ay, particularly for b
eing consistently in congruence with all our policy and regulatory reform initia
tives all these years. Rang-ay at 50 Rang-ay Bank has undoubtedly lived up to it
s name. It has been bringing progress or should I say karangyaan to the community
it serves from the first moment it opened its doors as a pioneer private bank in
San Fernando, La Union on January 16, 1956. Today, you understandably have the
right to be proud of your accomplishments. The last time we looked, you are stil
l this regions number one bank and among the top 25 rural banks nationwide in ter
ms of both physical and financial resources. Your strong presence in Region 1 as
well as in the nearby Cordillera Region is made possible by your network of ten
branches (including that of a former affiliate - RB of Burgos). You continue to
enjoy the trust and confidence of over 15,000 depositors[1] whose savings are n
ow close to half a billion. Likewise, you have a relatively strong capitalizatio
n of 120 million. Rang-ays risk-based capital adequacy ratio (CAR) of 18.5 percen
t is also well above industry and regulatory standards. Your total loan portfoli
o is nearly half a billion which accounts to 65.5 percent of your total assets.
Your lending activities have surely provided farmers and other entrepreneurial r
ural folks with wider latitude in accessing credit which translated to better li
ves for the rural community. With your wide array of deposit products and credit
lending programs, you managed to sustain bottom line figures at very good level
s. Rang-ays performance definitely did not go unnoticed as evidenced by the vario
us accolades from financial and non-financial organizations[2], the Bangko Sentr
al included. As such, one can say that rang-ay is poised to further improve its
level of efficiency to ensure continuous market leadership during these challeng
ing but equally rewarding times. Industry outlook Let me therefore take the next
few minutes to outline the banking industry prospects in 2006 to help you firm
up your strategic plans for this year and beyond. We are optimistic that the rur
al banking industry will sustain its positive performance this year and remain i
n the forefront of reforms as catalysts of a broad-based development in the coun
tryside. For our part at the regulatory front, the BSP remains committed to the
continuous implementation of our reform program to sustain financial stability a
nd growth. Specifically, our objective is to have a more stable, more efficient
and a more depositor and friendly banking system. We are still advocating clean
up of banks balance sheets through the expedient and innovative disposition of no
n-performing assets. This is central to restoring the credit supply to the produ
ctive sectors of the economy. Our goal is to bring the banking industrys NPA/NPL
ratio to single-digit level. As of end-June 2005, the rural banking industrys NPA
/NPL ratios stood at 11.9 and 14.7 percent, respectively. This is still double t
he pre-crisis period since the sale of NPAs under the SPV Law only created a sma
ll dent on the inventory of acquired assets arising from soured loans. We, thus,
welcome the approval by the House of Representatives of the extension of the SP
V Law[3] by another two years. We are hopeful that the senate will approve the c
ounterpart bill soonest so that banks can immediately resume the wholesale clean
up of bad assets. We expect that this extension will result in the unloading of
at least another 100 billion in bad assets so that NPL ratio will more or less
be lowered to about 7 percent. We are also studying if Joint Venture Agreements
(JVA) can give greater flexibility to banks to dispose of their bad assets apart
from availment of incentives under the SPV Law. The unloading of foreclosed rea
l estate properties through joint venture agreements[4] (JVAs) that will develop
and enhance the marketability of banks acquired assets, particularly undeveloped
properties, will not only clean up banks balance sheets but also potentially boo
st the housing market and even tourism. Beyond asset clean up, the BSP is follow
ing through with its regulatory reforms aimed at further strengthening corporate
governance, risk management and capital adequacy in our banks through a more ef
fective and efficient enforcement. Last year, we began the changeover to Interna
tional Accounting Standards/Financial Reporting Standards. This would further st
rengthen the current transparency and disclosure requirements in financial repor
ting. The pivotal role of external auditors during this transition period is als
o being given higher importance. Recently, we have issued new regulations on int
ernal audit designed to adopt a code of ethics and establish mechanisms for the
reporting of financial improprieties, malpractices and acts of misconduct (corpo
rate whistle-blowing). We are also sustaining our lobbying efforts in congress f
or the passage of the amendment to the BSP Charter and the enactment of the Cred
it Information System Act. The first will make the BSP a more effective monetary
authority and banking regulator while the other will pave the way for the estab
lishment of a truly comprehensive credit information system that is expected to
lower the cost of borrowing, provide greater access to credit in general and red
uce the dependency on collateral based lending. Beyond regulatory initiatives, t
he BSP is also equally committed in its advocacy to promote a sustainable microf
inance program as a tool to alleviate poverty. The present poverty situation in
the Philippines has given rural financing a new dimension, concretizing the sign
ificant role of rural banks in countryside development[5]. Toward this end, we h
ave recently allowed the selective[6] lifting of moratorium on bank branching to
facilitate the expansion of financial services in underserved areas. Under Circ
ular No. 505, we foresee, among others; the growth of bank microfinancing to ben
efit rural folks with greater access to formal banking services that in turn, mo
bilizes savings and investments. Moreover, we foresee an accelerated consolidati
on process in the banking industry in the next 3 years. This will be brought abo
ut by (1) a stronger regulatory framework that will hasten the exit of weak bank
s, hopefully on a voluntary and market-based basis; (2) the increasingly stronge
r competition by new foreign investors coming in, in existing banks; and (3) the
rigorous technical demands posed by modern banking and finance standards. All t
hese changes will dramatically transform the competitive environment. Down the r
oad, we see a banking landscape characterized by a handful of main banks complem
ented by an abundance of smaller banks that serve various well defined market ni
ches. Final note In closing, let me call on this generation of the family behind
rang-ay bank to transform these reform initiatives into opportunities and furth
er stretch your vision over the next years to come. With your wealth of experien
ce, rang-ay can lead in turning the heavy flywheel of remaining reforms for the
rural banking industry. I trust that rang-ay will harness its core expertise, ge
ographic advantage and strong ties with the community in promoting a safe, sound
and responsive banking system. Let us all work together in keeping the wheels o
f change turning. Agyamannak (thank you) and happy anniversary! ------------------------------------------------------------------------------- [1] To date, th
e Rang-ay Bank has 1 head office, 9 bank branches and 1 affiliate bank (Rural Ba
nk of Burgos, which will be consolidated with Rang-ay, Inc. following the grant
of the certificate of authority to operate by the BSP) [2] Rang-ay received 1 aw
ard from the BSP, 7 awards from other banks, 1 award from Rural Credit and Guara
ntee Corporation and 3 awards from a private non-government organization (NGO).
[3] Target is first quarter of 2006. [4] A proposal is currently under study for
approval of the Monetary Board. Upon approval, this will initially allow U/KBs
to dispose their Real and Other Properties Owned or Acquired (ROPOA)s to various
JVAs with real estate developers. At present, ROPOA still accounts to 46.0 perc
ent of the banking systems overall level of NPAs [5] At present, there are 4 micr
ofinance-oriented rural banks and 158 rural banks engaged in some level of micro
finance with a total loan portfolio of P2.3 billion catering to a total of 441,9
63 borrowers. [6] Prohibition on bank branching remains in the cities of Makati,
Mandaluyong, Manila, Paraaque, Pasay, Pasig and Quezon including the Municipalit
y of San Juan
Philippine Economy: Recent Economic Developments, Outlook and Policy Directions

for 2006; Making the Best of Times
Venue: Makati Shangri-La Hotel, Makati City
Occasion: Meeting of the Rotary Club of Manila
A. Prologue Distinguished officers and members of the Rotary Club of Manila, fri
ends, ladies and gentlemen, good afternoon. Thank you for inviting me to your fi
rst Membership Meeting for 2006. This is also my first speech after the crossove
r to 2006. As in all maiden things of importance, you can expect me to assess th
e year past and to figure out the economic outlook in 2006. Central banking is m
uch more than a strong peso and fast accumulating dollar reserves. I will theref
ore share with you my thoughts on what the economic prospects imply for the mone
tary and financial policies of the Bangko Sentral ng Pilipinas. B. Recent econom
ic developments My first take of the year 2005 is that we were more resilient th
an what the numbers would credit us. In terms of growth, we chalked up an econom
ic performance that is quite remarkable, not for the growth rate itself because
by comparison that is not exactly spectacular, but for the odds that we beat. Th
e challenges were indeed formidable: high oil prices; increasing global interest
rates; political developments and negative credit outlook ratings. What do we h
ave to show? Real gross domestic product (GDP) expanded by 4.6 percent in the fi
rst three quarters of 2005 and by all indications, this is expected to further i
nch closer to 5.0 percent rather than 4.0 percent for the whole of 2005. What sh
ould also be recognized is that the expansion in economic activity was sustained
without fuelling further inflationary pressure. Inflation has continued to ease
, helped mainly by softening prices of food and oil as well as the strong peso o
n the supply side. Headline inflation has fallen to about 7.0 percent in the las
t half of 2005 while core inflation has steadily slowed down. Core inflation is
of key importance to monetary policy. As this is headline inflation net of volat
ile food- and energy-related items, it suggests to us the magnitude of demand-re
lated pressures that must be dealt with. I will discuss later the monetary respo
nse under this very interesting combination of events. My second take of 2005 is
that the seeds of fiscal sustainability, sown during the year, should allow us
to reap some dividends starting 2006. We saw the implementation of two crucial t
ax measures: Sin taxes and the VAT. We also saw the intensification of tax admin
istration efforts. While the VAT is yet to show its full impact, the governments
fiscal consolidation efforts have already shown good results. In the first eleve
n months of 2005, the National Government (NG) deficit declined to P122.8 billio
n, certainly lower compared to the programmed budget gap for the period and the
year-ago level. The NG therefore has good reasons to envision a balanced budget
by 2008. This should lead us to that inflection point at which we should be seei
ng more fiscal surpluses and our debt level becoming more sustainable. My third
take of 2005 is that while the domestic economy shaped up in a number of areas,
the countrys external position also went through a critical phase of consolidatio
n. Estimates for the first eleven months of 2005 show a balance of payments (BOP
) surplus of US$2.2 billion, a reversal from the previous years deficit. Despite
the weak merchandise trade, the BOP surplus was achieved due mainly to two facto
rs: heavy remittances from overseas Filipino workers (OFW) and foreign investmen
ts, both portfolio and direct investments. These foreign exchange inflows helped
raise the countrys gross international reserves (GIR) to US$18.1 billion as of e
nd-November 2005. Our international reserves remained comfortable, providing amp
le cover for 4 months of imports of goods and payment of services and income. Su
ch strong inflows and the confidence generated by increasing international reser
ves and tax reforms helped support the peso, making it the top performing curren
cy in the Asian region. At the end of 2005, the peso was stronger by 6.17 percen
t relative to end-2004. Given our import dependence especially for petroleum, th
e strong peso contributed to moderating domestic inflation. Another development
in 2005 was the reduction of external debt to US$55.5 billion as of end-Septembe
r 2005. More importantly, medium- and long-term debt liabilities (almost 90 perc
ent) comprise the bulk of the countrys external debt. Key debt service ratios hav
e also continued to improve, indicating better manageability and sustainability
of external debt. My fourth take of 2005 is that the banking system continued to
show improving soundness and resiliency. There has been an improvement in loan
quality as commercial banks non-performing loans (NPL) ratio as of end-October 20
05 remained at a single-digit mark. The capital adequacy ratio of commercial ban
ks at 17.46 percent in June 2005 was well above the international benchmark of 8
.0 percent. The challenge in the financial system in 2005 was that lending activ
ity remained sluggish. As of end-October 2005, commercial banks loans outstanding
were only 1.3 percent higher than the year-ago level. This is traceable, in par
t, to the banks cautious lending stance alongside weak corporate credit demand. F
inally, 2005 was a difficult year because of the challenging combination of mone
tary and price conditions. First, there was ample liquidity which pushed interes
t rates lower and fanned inflationary pressures. Second, price pressures also ca
me from the supply side particularly high oil prices and weak harvest in the beg
inning of 2005. Third, lower domestic interest rates contributed partly to excha
nge rate volatility which rendered price stabilization more complicated. Against
this backdrop, the BSP carefully calibrated monetary policy to be able to navig
ate between price stability and economic growth. Our main focus has been on resp
onding to potential breaches of the inflation target, keeping the publics inflati
on expectation anchored and managing the rapid growth in domestic liquidity. We
raised our policy interest rates by a total of 75 basis points and increased res
erve requirements by 200 basis points last year. The fruit of this calibrated ap
proach is the easing inflation starting in the second half of 2005. C. Economic
outlook Looking ahead, let me give you my own idea of what to expect in 2006 by
reiterating that old saying that most of the footprints on the sands of time wer
e made by work shoes. In fact, Winston Churchill went as far as to say that most
of the significant contributions that have been made to society have been made
by people who were tired. Last year, we worked together to achieve positive thin
gs for this country. In a larger sense, we were all tired from the many challeng
es of 2005. You, the Rotarians, also made your mark, in your own fields, taking
great strides for our country and people. We should be able to build upon our la
bor and do better. We should also be able to sustain the policy reforms we put i
n place last year and before, in order to put more solid form and substance to o
ur efforts this year. What do we see this year? Output growth is expected to con
tinue at a reasonable pace and will be driven by services and industry, along wi
th agriculture that stands to benefit from more favorable weather conditions. Ne
vertheless, the rise in oil prices over the past year is likely to exert some im
pact on domestic demand, particularly on consumption spending. Therefore, the em
erging scenario by the Development Budget Coordination Committee (DBCC) for GDP
growth suggests a real increase of 5.7 percent for 2006. Inflation is expected t
o be higher in 2006 but the recent strengthening of the peso and the easing of w
orld oil prices from their peak in 2005 will help counterbalance the effects of
the VAT. Nevertheless, the risks to inflation continue to be mainly on the upsid
e. This is because oil prices are still likely to remain high relative to their
historical trend given limited production capacity. Thus, inflation is expected
to be in the range of 7.5-8.2 percent in 2006. But what is significant is the ex

pected slowdown in inflation in the second half of 2006 as the impact of vat dim
inishes since its implementation took place in the last quarter of 2005. Meanwhi
le, the improving fiscal performance, ample liquidity, moderate credit growth, a
nd prospects for better sovereign credit rating are expected to cushion the impa
ct of inflationary pressures on market interest rates. Thus, it is likely that i
nterest rates will remain stable at current levels during the year. On the exter
nal front, dollar inflows are expected to continue mainly from OFW remittances a
nd investments and these give us reason to expect a strong external position thi
s year. With healthy inflows, the exchange rate would likely remain stable at cu
rrent levels. D. Challenges and strategies In the period ahead, the task for eco
nomic managers is to focus on macroeconomic stabilization in the short term whil
e also preserving the momentum for economic reforms to ensure sustained growth i
n the long term. The BSPs contribution to these efforts will be drawn from its tw
in responsibilities of conducting sound monetary policy and banking supervision.
The bsp will continue to address the risks to price stability and sustain the p
ace of reforms in the financial sector. Monetary policymaking at the bsp will th
erefore be pitched against the following risks: volatility in world oil prices;
build-up of excessive liquidity owing to dollar inflows; possible exchange rate
reaction to narrowing interest rate differentials; and adverse shifts in the pub
lics inflation expectations. The public can expect that the bsp will be thorough
in ensuring that these risks will not be allowed to materialize. The bsp will de
ny any breeding ground for any incipient inflationary pressures especially those
coming from the demand side. In the conduct of effective financial supervision,
the BSP will continue the reform process. We are cognizant of the fact that the
build-up of non-performing loans in the past has dampened bank lending activity
, despite ample liquidity in the system. For the monetary transmission mechanism
to work efficiently, the bsp will continue to help facilitate disposal of banks
non-performing assets. Other initiatives in financial supervision will be focuse
d on: (1) improving the BSPs supervision technology and capacity; (2) enhancing t
he prudential regulatory environment of the banking system to align it with inte
rnational standards and best practices; (3) strengthening corporate governance s
tandards and market discipline mechanisms; (4) developing further the domestic c
apital market; and (5) enhancing the payments system. More specifically, in the
pipeline are the issuances of (1) the guidelines on the implementation of Basel
II Accord, and (2) the new financial reporting package in line with the adoption
of International Accounting Standards. These initiatives will further strengthe
n the banking system by aligning local banking practices with internationally ac
cepted standards. To further develop the domestic capital market, the bsp will c
ontinue to actively work with other government agencies and the private sector f
or the completion of critical market infrastructure to enhance system integrity
and overall market confidence. We recognize the value of enhancing financial inf
ormation to guide investor decisions. We are closely working with congress in th
e creation of a centralized credit information bureau system to help private ent
erprises get better access to credit, reduce their borrowing costs, and also to
minimize the risk exposures of financial intermediaries. We are also working to
widen the investor base for our financial markets through a number of new invest
ment products which would better reflect market prices. These products will help
encourage more institutional investors like insurance companies, mutual funds,
and pension funds to participate in the capital market. Our future reform initia
tives will eventually lead to the introduction of exchange-based products that c
an further stimulate market activity and deepen liquidity. The economic indicato
rs on the past years performance give us reason to be optimistic about the year a
head. Our capacity for hard work makes us doubly optimistic. But nothing comes w
ithout a price. The year ahead will most certainly be challenging. We should mak
e the best of times regardless of circumstances. As Thomas Jefferson once quippe
d, It is wonderful how much can be done if we are always doing. We proved it last
year. We should prove it this year and beyond. Thank you and good day
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A Culture of Inquiry and Evidence

Presented Date: Jul 5, 2016

ncial inclusion and facilitates identification of barriers, crafting evidence-ba

Dynamic Stability Amidst Global Volatility

Presented Date: Jul 4, 2016

Now, multilateral institutions, international credit rating agencies and economi

And we continue to innovate. Last month, we started implementing the interest ra

In this connection, I am glad to note that we now do benchmarking and strategic

the skill of its pilot and external factors.

Fellow BSPers, solidarity is another important core value we must nurture if we

To me therefore, it is an honor and a privilege to be a central banker. Across t

Muli, maraming maraming salamat sa inyong lahat.

Mainstreaming Financial Inclusion as a Strategic Objective

Occasion: BSP-BIS Research Conference of Financial Inclusion and Central Banks

nce services to nearly 1.5 million microentrepreneurs. The outstanding loans to

Rural Banks: Making a Difference in Financial Inclusion

Rural banks and the changing environment

is inevitable. What matters is how we respond to change. Charles Darwin,

Reach and immersion in the countryside

Enabling regulatory environment

In summary, our regulatory environment already offers many opportunities. This i

I wish everyone a fruitful convention. Thank you and good day.

Our motivation is simple. We would like to further strengthen the relationship b

By introducing auction-type instruments, the IRC system is intended to ensure mo

isioned to further support the inflation targeting framework by reinforcing the

As we strive to constantly be better and to build on our strengths, we hope to b

I would challenge our industry associations to undertake your day-to-day liquidi

Keynote Message - Launch of 14th Citi Microentrepreneurship Awards (CMA)

The mentoring is aimed at improving their enterprises by providing support suite

Another is the limited capacity of microenterprises when it comes to financial r

The objective here is encourage microenterprises to build banking relationships

In addition, microfinance institutions (MFIs) and other financial service provid

Mabuhay ang microentrepreneurs! Mabuhay ang ating mahal na bansang Pilipinas! M

Building Inclusive Growth for Migrant Workers through Multi-Sectoral Partnership

SFI: A collaborative platform for financial inclusion

Drafted by 13 government agencies including the Bangko Sentral ng Pilipinas, the

With such partnerships, there is a wealth of complementary experience, expertise

In fact, sustained increases in family and work-related migration of Filipinos h

Financial inclusion and remittances

Another positive development, as indicated by a BSP survey (CES), is the rising

Nevertheless, the challenge and the opportunity is to encourage more investments

When such balance of policy objectives is achieved, it is exciting to imagine th

Ladies and gentlemen. This Summit is a unique opportunity to increase awareness,

Thank you all and Mabuhay!

Let us consider a fundamental tenet in economics Scarcity value determines the p

ELIMINATING THE PERCEPTION OF SCARCITY

Moreover, an estimated 55 Filipinos die every day because of waterborne diseases

We face a parallel challenge as central bankers. How do we enable a greater tri

The BSP has institutionalized financial inclusion following a three-pronged appr

ASEAN integration is another area of opportunity. With the passage of Republic A

THE BACKDROP OF THE ECONOMY

I hope I have encouraged you to consider some opportunities to help us achieve o

The Philippines entered 2016 in a position of relative strength. In 2015, averag

f Philippine growth prospects.

It is incumbent on us to make the connections, technological, mechanical, and re

Thank you and good evening.

Sustaining the Momentum for Inclusive Growth

mass of initiatives to keep us moving towards the goal of inclusive growth. An

OUR CURRENT OPERATING ENVIRONMENT

Certainly, the banking industry remains a clear pillar of strength. According to

I am happy to note that thrift banks continue to contribute to the strength of t

INCLUSIVE GROWTH AND THE ROLE OF THE THRIFT BANKS

Here, your expanding footprint strategy is a critical element. As banking servic