The Executive Board of the International Monetary Fund (IMF) closed the Financial System Stability Assessment with the Philippines on March 5, 2021.
The work of the Financial Sector Assessment Program (FSAP) was directed during the COVID-19 episode, with the virtual missions closing on October 20, 2020, and adjusted to incorporate the impending dangers and weaknesses raised by the pandemic.
The economy faces both COVID-related and structural dangers. Real GDP shrunk by 9.5 percent in 2020—a lot more extreme decrease than during the Asian Financial Crisis. However, fortunately, the economy is presently bouncing back, and macroeconomic essentials at the beginning of the COVID-19 were more grounded than in the last part of the 1990s.
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Additionally, the Financial Action Task Force may put the country on what they call Grey list in 2021 without critical changes on the adequacy of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) system.
Nonetheless, significant legislative measures were authorized in mid 2021 to address a portion of the FSAP suggestions. The Philippines is also defenseless against expanded hurricane risk from environmental change because of its topographical position.
Tests done show that, while banks can withstand the generally serious standard situation, they could encounter foundational dissolvability distress if the financial effect of COVID-19 ends up being severer. The monetary stun would burden corporate income and afterward spill over to banks.
Bank stress could limit credit supply, reducing economic growth noticeably even more. Physical risks from climate change are relevant for financial stability, though the infrastructure destruction from typhoon wind alone is not systemic unless extreme tail events materialize. Higher median and estimated losses were used in the stress testing exercise for severer scenarios.
The Bangko Sentral ng Pilipinas (BSP) has modernized its oversight structure for banks since the 2010 FSAP and shows sensibly great consistence with the Basel Core Principles ( 2020 BCP evaluation ). The BSP also plays the central role in macroprudential policy framework given the dominance of banks in the financial system.
The 2019 amendments to the BSP charter further strengthened the financial stability policy framework. Nonetheless, material gaps remain on BSP’s legal powers related to conglomerate supervision, and bank secrecy laws are limiting the effectiveness of supervision, but also have wider financial sector implications.
At the wake of the COVID-19 crisis, the BSP issued time-bound regulatory relief measures, including unusually strong forms of forbearance related to non-performing loan recognition and provisions, subject to prior notification to and approval of the BSP.
While there has been some progress with reforming financial safety net, a number of issues highlighted in the 2010 FSAP are still relevant. The resolution powers are provided to both Philippine Deposit Insurance Corporation (PDIC) and the BSP, making the resolution process relatively complex, while the prompt corrective action framework could be enhanced by including more specific escalation procedures. The resolution toolkit is largely limited to liquidation and resolution planning and resolvability assessments are not in place yet.
The Financial Sector Assessment Program (FSAP), set up in 1999, is an exhaustive and top to bottom evaluation of a country’s monetary area. FSAPs give contribution to Article IV conferences and in this manner improve Fund observation. FSAPs are obligatory for the 29 locales with foundationally significant monetary areas and in any case directed upon demand from part nations. The critical discoveries of a FSAP are summed up in a Financial System Stability Assessment (FSSA).
