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The full impact of the Bangko Sentral ng Pilipinas’ (BSP) aggressive monetary tightening since last year has not yet “run its full course,” the Financial Stability Coordination Council (FSCC) said in a statement on Tuesday.

The interagency body said global growth prospects are more positive compared with several months ago, although pressures from advanced economies are still evident.

“The Council’s Systemic Risk Review highlighted that the growth prospects of the Philippines’ major trading partners are expected to diverge. As market rates have swung from a lower-for-longer to a high-for-now environment, its full impact may not have yet run its full course,” it said.

To tame inflation, the BSP hiked benchmark interest rates by 425 basis points (bps) from May 2022 to March 2023. This brought the key policy rate to 6.25%, its highest level in nearly 16 years.

BSP Governor and FSCC Chairman Eli M. Remolona, Jr. said authorities must continue to be vigilant against risks even if there are no immediate signs of sector-wide pressures among corporates.

“While the high-level indicators are notable, there are many developments that we should still monitor,” he said. “This is where systemic risk surveillance is critical because we need to assess if and how changing conditions in the global and regional markets mesh with our own domestic situation.”

According to the FSCC, the interagency body has approved a broad range of actions to enhance the resiliency of the Philippine financial system to combat systemic risks.

These actions cover communication to the capital and contingent markets, as well as using the right tools and better data to manage possible contagion risks more effectively. 

“In managing systemic risks, we prepare for viable possibilities rather than forecast the most likely outcome,” Mr. Remolona added.

The FSCC is an interagency body composed of representatives of the BSP, the Department of Finance, the Insurance Commission, the Philippine Deposit Insurance Corp., and the Securities and Exchange Commission.

In July 2021, Executive Order 144 institutionalized the FSCC to focus on assessing and implementing policies to prevent systemic risk factors or company- and industry-level events that have the potential to trigger severe instability within entire industries, or even the economy.

The FSCC convenes on a quarterly basis. The regularity of their meetings may be increased “when market conditions warrant.” — Keisha B. Ta-asan

The total assets of the Philippine banking sector rose in the first half of the year compared with a year ago, reflecting the continued recovery of the economy from the impact of the coronavirus pandemic.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed banks’ assets rose by 9.03% to PHP 23.28 trillion as of end-June, from PHP 21.35 trillion in the same period a year ago.

Deposits, loans, and investments mainly support banks’ assets.

The banking industry’s total loans inclusive of interbank loans receivable (IBL) and reverse repurchase (RRP) reached PHP 12.29 trillion as of end-June, 8.6% higher than the PHP 11.31 trillion in the same period in 2022.

Net investments climbed by 9.7% to PHP 6.77 trillion from PHP 6.17 trillion a year ago. These are financial assets and equity investments in subsidiaries.

Cash and due from banks inched up by 0.7% to PHP 2.87 trillion in the first half of 2023 against the PHP 2.85 trillion last year.

Net real and other properties acquired (ROPA) also increased by 1.9% to PHP 101.58 billion from PHP 99.67 billion in the same period in 2022.

Other assets amounted to PHP 1.25 trillion, 36.5% higher than the PHP 916.63 billion last year.

Meanwhile, the total liabilities of the banking system grew by 8.7% to PHP 20.42 trillion in the first semester, from PHP 18.77 trillion in the comparable year-ago period.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the continued growth in banks’ assets and overall business reflect the continued reopening of the economy following the pandemic, even though bank lending slowed due to high prices and borrowing costs.

“Nevertheless, continued growth in overall business/revenues and earnings of banks would further bolster capitalization, amid improved asset quality in terms of relatively lower NPLs (nonperforming loans) amid the economic reopening narrative,” Mr. Ricafort said.

The banking industry recorded a higher net profit in the first half of the year amid increased net interest income and loan growth, separate BSP data showed.

The cumulative net income of the banking system grew by 24.7% to PHP 178.51 billion as of June from PHP 143.12 billion in the same period in 2022.

Meanwhile, the gross NPL ratio of the Philippine banking industry slid to 3.42% in June, from 3.46% in May and 3.6% a year ago. It was the lowest since 3.41% in April. — Keisha B. Ta-asan

The government will extend financial assistance to retailers affected by price ceilings on rice, President Ferdinand R. Marcos, Jr. said on Monday.

The goal is to compensate rice retailers who are expected to lose income due to the price ceilings on regular and well-milled rice, he said in a speech before flying to Indonesia for a summit of Southeast Asian leaders. 

The President said the Agriculture and Trade agencies are now preparing the list of rice retailers and their associations, as well as identify the amount of assistance needed to compensate them for their losses.

An executive order setting a nationwide price ceiling on rice will take effect today, September 5. The order mandates a maximum price of PHP 41 per kilo for regular milled rice and PHP 45 for well-milled rice, as part of government efforts to protect consumers amid a surge in the food staple’s retail prices.

“We’ll have to consider how authorities can first afford to do this and how they will fund the subsidy,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

He said the government needs to ensure that there will be “a clear method for all retailers to enjoy the support and not just a few.”

“If not all retailers receive support, we may see inefficiencies surface anew,” he said.

House Speaker Ferdinand Martin G. Romualdez, Mr. Marcos’ cousin, said he had instructed the Committee on Appropriations to look for ways to allocate PHP 2 billion for the subsidy program.

“Our goal is to ensure that we can extend assistance to rice retailers who may be affected by this rice price ceiling, as it is a directive from our President aimed at protecting consumers,” he said.

Ako Bicol Party-list Rep. Elizaldy “Zaldy” Co, chairman of the House Appropriations panel, said the committee would work with the Department of Budget and Management to expedite the release of the PHP 2 billion.

However, the move to provide subsidies is unsustainable given that there are thousands of small retailers nationwide, said Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños.

“It is inefficient, hard to implement and unsustainable,” he said via Messenger chat, noting that the government should instead lower rice tariffs.

In his departure speech, Mr. Marcos said the Department of Agriculture and other agencies have found no acceptable reasons behind the spike in rice prices, which are now above PHP 50 per kilogram.

He said the government does not want to intervene in the market as much as possible but has been forced to impose price ceilings on rice due to alleged smugglers and hoarders’ disruption of the basic law of supply and demand.

“The people have suffered already, that’s why the government has been forced to impose price controls,” he said in Filipino. “This is a temporary measure; the rice supply will be coming in the second week of September.”

Social Welfare Secretary Rexlon T. Gatchalian described the price control as “a temporary stop-gap measure.”

“We don’t expect it to be long,” he told reporters on the sidelines of the departure ceremony for Mr. Marcos.

He said the department would implement a sustainable livelihood program for small-scale rice retailers.

The imposition of price control has been heavily criticized by economists, who said the order could limit the supply of the food staple and lead to black-market trading.

They also said traders might hesitate to buy rice from farmers, who will be left with no choice but to lower farmgate prices.

Mr. Marcos met with officials of the Trade department and other agencies hours before his departure speech.

The Presidential Communications Office said that aside from assistance, loan programs for rice retailers were also considered during the meeting.

“Instead of using the limited resources, we have to modernize our agricultural production and distribution system, we are going to use funds to give loans to retailers who themselves are embroiled in a messy and inefficient distribution system,” said Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University.

“For what purpose?  To save face after making campaign promises to produce rice at PHP 20 per kilo?” he asked.

The economist reiterated his call for the government to revoke the price control order and “instead, develop systems and mechanisms to reduce transaction costs by matching the needs of farmers and the demands of consumers.”

Earlier, Mr. Lanzona said that if the government sees hoarding and smuggling as the key drivers of the surge in rice prices, it should encourage more players to enter the market, such as micro, small and medium enterprises and farmers, who can transact directly with consumers.

The Palace said the government is also eyeing logistics support “like providing government transportation for transferring sacks of rice from traders to retailers/wholesalers.”

It said programs that could link local rice farmers with supermarket chains and other retailers were also discussed during the Monday meeting.

In a separate statement, the Palace said Trade Secretary Alfredo E. Pascual has ordered the creation of a special task force that will profile and validate the list of rice retailers.

The task force’s official list “shall be the basis for the distribution of financial aid by the Department of Social Welfare and Development as early as next week,” Trade Assistant Secretary Teodoro Uvero said.

He said the task force will conduct visits in warehouses in various locations to ensure that there is enough supply and discourage hoarding.   

“The task force will ensure that consumers are protected and retailers will receive the assistance they need as the executive order takes effect,” he added. — Kyle Aristophere T. Atienza

The Bangko Sentral ng Pilipinas (BSP) will shift to a variable rate format in the auction for the overnight reverse repurchase (RRP) facility starting Friday (Sept. 8), as well as introduce a formal operational target called the “Overnight (ON) RRP Rate.”

Similar to the existing BSP securities facility or the BSP bill auction, the variable rate format for the RRP will have a pre-determined offer volume.

BSP Governor Eli M. Remolona, Jr. in a statement on Monday said  an operational target is a market-determined, short-term interest rate that a central bank can “guide” on a daily basis to reflect the current monetary policy stance.

“For the BSP, the shift to variable rate RRP auction format will yield a market-determined rate for overnight funds, the ON RRP Rate, that conveys the results of the daily RRP auctions,” he said.

The BSP chief noted that the ON RRP Rate is an appropriate operational target due to the regularity of RRP auctions and market players’ familiarity with the instrument.   

Earlier in June, the BSP created the overnight rate as the benchmark for determining short-term interest rates amid the phaseout of the London Interbank Offered Rate (LIBOR).

Meanwhile, Mr. Remolona said that in the shift to a variable rate auction format, the BSP’s monetary policy rate would now be called the “Target RRP Rate.”

He said the BSP would signal its monetary policy stance through the Target RRP Rate. The rate will also be set after each policy review of the Monetary Board, similar to the central bank’s prevailing practices.

The RRP facility will also remain as the BSP’s primary monetary policy instrument, Mr. Remolona said.

“The ON RRP Rate is expected to move closely around the Target RRP Rate. Deviations of the ON RRP Rate from the Target RRP Rate will reflect changes in liquidity conditions from time to time, or when deviations from the liquidity forecasts occur,” he said.

Still, the ON RRP Rate should revert and move in accordance with the policy rate over time, as the RRP auction size is adjusted based on observed demand, he said.

“As the market familiarizes itself with the operational target, the ON RRP Rate will carry useful information on liquidity conditions and how they relate to the prevailing stance of monetary policy,” Mr. Remolona said.

“Thus, the introduction of an explicit operational target will provide monetary authorities an important market-based indicator that can help in assessing the effective stance of monetary policy,” he said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the BSP would now set the Target RRP Rate based on their preferred stance. It will then report a prevailing daily rate that reflects liquidity conditions and demand.

“If the ON RRP Rate is lower than the Target RRP Rate, the BSP may look to increase auction volumes to drain more liquidity that leads to tighter financial market conditions, which would cause rates to rise,” he said. 

“But if the ON RRP Rate is higher than the Target RRP Rate, the BSP may look to downsize auction volumes to allow liquidity buildup, which in turn will push rates closer to the Target RRP.”

The BSP also noted that the changes in the RRP facility are part of the central bank’s set of planned reforms during the adoption of the interest rate corridor (IRC) framework in 2016. 

These changes are largely operational and do not constitute any shift in the BSP’s monetary policy stance, Mr. Remolona said. It will also enhance the transmission of monetary policy.

“The shift to the variable rate auction format will also help strengthen the price discovery process by providing market participants and monetary authorities alike a market-determined interest rate that conveys the prevailing cost of and demand for overnight funds in the financial system,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the changes are part of the development of a credible, market-determined funding rate that will be determined by market forces daily.

“The yield curve (should be) more realistic and credible for market players, instead of being distorted and artificially priced, thereby making the IRC system implemented since 2016 more dynamic and effective,” he said. 

This may also lead to a more effective and transparent transmission of monetary policy rates coursed through banks and financial markets. — Keisha B. Ta-asan

The Philippines debt service burden on its external debt more than doubled as of end-May amid high global interest rates.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the Philippines’ debt service burden on its external debt increased by 160% to USD 6.5 billion from USD 2.5 billion a year ago. 

The debt service burden refers to the amount of money a country needs to pay back to its foreign creditors. It includes both the principal and interest payments on its external debt. 

BSP data showed principal payments climbed by 164.3% to USD 3.7 billion from USD 1.4 billion a year ago.

Interest payments jumped by 145% to USD 2.7 billion in the first five months of the year from USD 1.1 billion a year earlier.

Principal external debt service is mostly fixed medium- to long-term credits, while interest payments are on fixed and revolving short-term credits of banks and nonbanks.

“Increased bond issuance by the National Government, which is part of the borrowing program, may have pushed up the principal payments to USD 3.7 billion,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

He said the recent spike in global interest rates is the likely reason behind the 145% increase in interest payments.

Central banks across the world have tightened monetary policy to curb inflation.

“Higher external debt service burden may be attributed to higher prices/inflation that increased government expenditures, increased budget deficits and foreign borrowings,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said, adding that the weaker peso could also be a factor.

Headline inflation eased to 6.1% in May from 6.6% in April and brought the five-month average to 7.5%. May also marked the 14^th straight month inflation breached the BSP’s 2-4% target.

Based on the latest central bank data, the Philippines’ outstanding external debt rose by 8.25% to USD 118.8 billion as of end-March from the USD 109.75-billion level a year earlier.

External debt refers to all types of borrowings by Philippine residents from nonresidents, following the residency criterion for international statistics.

The external debt as of end-March was equivalent to 29% of gross domestic product, higher than 27.5% from end-December and end-March 2022.

The debt service ratio also increased to 12.9% as of end-March from 4% a year ago. — KBT