Reforms benefited big banks but not thrift, rural banks, says IMF

THE Philippines has had eight years of financial-sector reforms that benefited mostly the large commercial banks, but not enough of them for the smaller thrift and rural banks, the International Monetary Fund (IMF) said in a report published this month.

That report credited the Philippines for its resilience in weathering the global financial crisis as its banks proved well-capitalized and liquid, and the quality of its assets very high.

“Stress tests suggest that the 10 largest banks are resilient to a wide range of credit, market and liquidity risks. However, the quality of thrifts, cooperatives and rural banks is weaker and provisions are low,” the IMF said in its Financial System Stability Assessment Update report.

The same report urged legislators to adopt proposed amendments to the New Central Bank Act and the General Banking Act giving the Bangko Sentral ng Pilipinas (BSP) power to set prudential rules without changing the letters of the law, set additional capital and other limits depending on a bank’s risk profile, among other reforms.

The IMF acknowledged that considerable progress had been made since the Philippines adopted financial-sector reforms in 2002, particularly in banking.

But progress was seen as “patchy” in such areas as capital market and insurance supervision, which, in the view of the IMF, remain compliance-oriented.

“The legal framework and supervisory agencies in these sectors need further strengthening, [and] there is a plethora of overlapping and distortionary government policies in the financial sector [and that] legal protection of supervisors, though improved, remains weak,” the IMF said.

Its laundry list of key recommendations extended beyond banking and capital-market issues to also include housing finance, especially the one urging the application of BSP rules on loan provisioning to public-housing loans.

It also urged the government to rationalize its housing credit-subsidy policy and the role of public-housing finance institutions.

As for the insurance industry, the IMF said the minimum capital requirement for insurers should be the same for local and foreigners alike.

There should also be adjustments in risk-based capital rules that reflect local conditions while increasing intervention thresholds and rationalizing asset and investment requirements.

According to the IMF, the government should also strengthen and enhance the minimum liability valuation rules for life insurance even as it should also start risk assessment, internal rating, risk-focused interventions and targeted inspections. –Jun Vallecera / Reporter, Businessmirror