04 JULY 2019

51.00
52.00
53.00
54.00
55.00
PESO-DOLLAR RATES
3 JULY 2019
51.16
25700
25200
24700
24200
DOW JONES
3 JULY 2019
69.25
7900
7700
STOCK MARKET
7500
7300 0.92
3 JULY 2019
3 JULY 2019
INDEX SUMMARY
INDEX VALUE CHANGE % CHANGE
PSEi 8,092.68 -0.92 -0.01 ▼
All Shares 4,939.63 -2.08 -0.04 ▼
Financials 1,721.11 -6.70 -0.39 ▼
Industrial 11,921.16 79.09 0.67 ▲
Holding Firms 7,814.47 -3.30 -0.04 ▼
Services 1,698.67 -15.86 -0.93 ▼
Mining and Oil 7,566.59 123.54 -1.61 ▼
Property 4,352.00 9.53 0.22 ▲
B12 BUSINESS
Thursday, 4 July 2019
Daily Tribune
Moving forward with an independent BSP
The independence of the BSP was likewise essential in establishing
the stability of the financial system and providing for a more conducive
environment for both financial intermediation and robust economic activity
By Diwa C. Guinigundo
One of the significant reforms instituted in the
1990s was the passage into law of Republic Act
7653, also known as the New Central Bank Act,
on 10 June 1993. Under this Act, the Philippine
government restructured and recapitalized
the central bank. Fundamental changes were
undertaken, including the adoption of a new
charter and the renaming of the Central Bank
of the Philippines to Bangko Sentral ng Pilipinas
(BSP). Consistent with modern central banking,
the New Central Bank Act established price
stability as the overriding objective of the BSP. 2
An important provision of the new central
bank act was the granting of fiscal and
administrative authority to the BSP. Central
bank independence, in its broadest sense,
implies the independence of the central bank to
define its objectives and policy tools, sans the
influence of the government or an institution
of authority.
Nonetheless, the importance attached to
central bank independence did not gain
ground until the 1970s. The stagflation
experienced during this decade led to
a change in view that governments
must have control not only over fiscal
but also monetary policy. Cukierman
(2006) 3 reasoned that in the absence
of independence, accountability was
unnecessary and, as political entities,
governments and ministries
of finance have
no incentives
to improve
transparency on
the conduct of
monetary policy.
In the midto-the
late
GUINIGUNDO
1960s, the Marcos administration engaged in heavy
deficit spending with the government floating
bonds in substantial volumes for infrastructure
projects. 4 By 1969, the country had to grapple
with the twin problem of fiscal deficit and chronic
balance of payments deficit. The government
sector was massively borrowing from the monetary
system, particularly the central bank, to finance
its expenditures.
In other words, the fiscal challenge was
partially addressed by an accommodative monetary
policy. On hindsight, this was to be expected
from a non-independent central bank and an
extraordinarily strong political leadership. The
CBP was not an independent institution. This was
evident in the composition
of its Monetary Board.
Representatives of
key government
offices constituted
the majority
and with the
exception of
the Governor, all were part-time members of the
Monetary Board. Thus, the requirements of the
National Government in terms of fiscal stimulus
took precedence over the equally important need
of the economy for a sound monetary policy.
An important provision of the new central
bank act was the granting of fiscal and
administrative authority to the BSP.
Argentina, likewise, provides a case in point.
Its national government tried to subvert the
independence of the Central Bank of Argentina. In
2010, Argentina’s President Cristina Fernandez de
Kirchner and Central Bank of Argentina Governor
Martin Redrado had a standoff over the plan of
the government to use $6.5 billion of reserves
to pay the country’s mounting debt. Governor
Redrado adamantly rejected the plan, invoking the
independence of the central bank. However, under
mounting political pressure, Governor Redrado
eventually resigned. The national government
proceeded to ignore the independence of the
Central Bank of Argentina and used its reserves
to finance public spending.
In 2016, former president de Kirchner was
charged with fraudulent administration through
her manipulation of the central bank’s foreign
exchange operation which substantially damaged
the country’s finances. Also charged were her
former economic minister, the governor of the
Central Bank of Argentina who succeeded
Redrado, and the members of the central bank’s
board. Today, Redrado appears to be more than
vindicated given that Argentina continues to
struggle with worsening economic recession
compounded by soaring inflation rates.
Central banks were granted
independence and the
attainment of price stability
became their primary
mandate. Thus, one can
say that the enactment of
the New Central Bank Act
of 1993 actualized the
stipulation of the 1987
Constitution for an
independent central monetary authority. The
BSP Charter formally established the BSP as an
independent central bank. Price stability became
its overarching and primary responsibility.
Private sector representatives constituted
the majority of the Monetary Board and full
instrument independence was accorded to the
monetary authority. 5
Subsequent amendments in 2019 further
strengthened the independence of the central
bank. The increase in BSP’s authorized
capitalization, to be funded by its own declared
dividends, would help ensure that it would not
be dependent on the National Government and
Congress for recapitalization.
The need for central bank independence has
very strong empirical support. Empirical studies
have shown that economies with independent
central banks have experienced lower and more
stable inflation. This has been evident in the case
of the Philippines. 6 Central bank independence
granted the BSP a wider latitude in the pursuit
of its primary mandate of price stability. This,
in turn, has resulted in relatively low and stable
inflation. The independence of the BSP was
likewise essential in establishing the stability
of the financial system and providing for a
more conducive environment for both financial
intermediation and robust economic activity.
2. Other important provisions in RA 7653
included the constitution of a new Monetary
Board (MB) and the transfer of certain assets and
liabilities from the old Central Bank to the BSP. This
was completed on 20 December 1993. Additional
measures were put in place to enhance the
efficiency of and maintain stability in the financial
system including the relaxation of rules governing
the establishment of automated tellering machines
(ATM); reduction in the reserve requirement on
banks’ deposit and deposit substitute liabilities by
an aggregate of three percentage points; lowering
of the liquidity floor requirement on government
deposits/funds with government depository banks
from 75 percent to 50 percent to provide banks
with greater loanable funds for production and
investment as well as to reduce intermediation
costs of banks; and the continued relaxation of
rules and regulations governing the establishment
and relocation/voluntary closure of branches and
other banking offices of commercial and thrift
banks (BSP Annual Report, 1993).
3. Cukierman, A. (2006). Central Bank Independence
and Monetary Policymaking Institutions — Past Present
and Future, Central Bank of Chile, Working Paper 360.
4. Paderanga Jr., C. (2013), “Macroeconomic Policy
Regimes in the Philippines,” Paper presented at the
BSP-UP Centennial Professor of Money and Banking,
29 November.
5. While the 1949 Charter filled up the Monetary
Board with public officials starting with the Finance
Secretary who once headed it, subsequent amendments
(PD 72 and PD 1771) and legislations (RA 7653, RA
11211) assigned and continued, respectively, the
chairmanship of the Monetary Board to the Governor
of the BSP. This is of singular, critical and strategic
importance to the effective discharge of independent
monetary policy. This was further strengthened with
the charter provision to appoint the majority of the
Members of the Monetary Board as full-time members.
6. For instance, Cukierman, Webb and Neyapti,
1992; Alesina and Summers, 1993; Eijffinger and
Schaling, 1998; de Haan and Kooi, 2000.
Metrobank secures P11.25B from bond sale
The bank has earmarked P4 billion for capital expenditures this
year alone, half of which will go to information technology as it
ramps up digital transformation
By AJ Bajo
Ty-led Metropolitan Bank & Trust Co.
(Metrobank) raised P11.25 billion from its
public offer of two-year peso bonds, which
will fund its lending activities and diversify
its funding sources.
The oversubscribed bonds carry a
coupon rate of 5.5 percent to be paid
quarterly, and were issued and listed on
the Philippine Dealing Exchange on 3 July.
The offer is the fourth tranche out
of Metrobank’s P100-billion bond and
commercial paper program approved
by the lender’s board of directors in
September 2018. The lender will time
its fund-raising activity in keeping with
market conditions.
“To accommodate robust demand from
institutional, high net worth and retail
clients, Metrobank’s initial target of P5
billion was upsized to P11.25 billion,” the
country’s second largest bank in terms
of assets said in a disclosure to the stock
exchange.
Metrobank said it has raised an
aggregate amount of P56.75 billion peso
bonds since November last year.
Metrobank’s first quarter net income
rose 15 percent to P6.8 billion from P5.9
billion in the same period last year owing
to loan growth and margin expansion.
The lender’s consolidated assets have
reached an all-time high on March at P2.3
trillion, with equity of P289 billion.
Its shares were sold for P71.50 apiece
as of Wednesday, down 1.24 percent.
On Tuesday, Metrobank also launched
a new campaign underlining technological
innovation and financial literacy targeted
towards a “purpose-driven” market.
The country’s second largest lender
in terms of asset said the campaign aims
for clients of all demographic to “save,
manage, invest, upgrade and grow” with
the bank.
“The way that we can step up our
‘you’re in good hands’ promise is to express
the way we would like to deliver banking
in the future for these purpose-driven
go-getters,” Metrobank chief marketing
officer Digs Dimagiba said during the
campaign launch at the Bonifacio Global
City on 2 July.
The bank has earmarked P4
billion for capital expenditures
this year alone, half of
which will go to information
technology as it ramps up digital
transformation.
He said the campaign is also
directed towards improving the bank’s
electronic services in line with the
rising number of users preferring to
transact online.
Dimagiba said one in three customers
prefer to do their bank transactions
digitally, with the number seen to grow
at a double-digit annual rate.
A SIGN of JPMorgan Chase Bank is seen in front of the headquarters tower in Manhattan, New York, the United States. The Chinese market
will soon witness the first joint venture firm where a foreign company will take an absolute controlling stake as part of the deeper opening
up of the country's financial sector.
CHINA DAILY
The Bangko Sentral ng Pilipinas in its
latest State of Financial Inclusion in the
Philippines reported that the number of
deposit accounts in the country rose 6.8
percent to 57.1 million in 2017 from 53.5
million in 2016.
Alongside the accelerating number of
banked Filipinos, Dimagiba said there is
still work to be done to expand the number
of the financially literate.
A 2014 report by World Bank indicated
that only 25 percent of Filipino adults
were literate in basic finance, far from
the global average of 33 percent.
In line with the goal, Metrobank will
launch a website by the end of July or
early August, dubbed ‘Earnest,’ which
will feature user-friendly content on
a broad range of financial lessons.
The lender will also be launching a
new range of co-branded debit cards
(Mastercard) tailored-fit to clients of
different lifestyles.
The bank has earmarked P4 billion for
capital expenditures this year alone, half
of which will go to information technology
as it ramps up digital transformation.
Metrobank registered a 15 percent
increase in net income in the first three
months of the year, to P6.8 billion from
P5.9 billion in the same period of 2018 on
the back of consistent loan growth and
margin expansion.