Capable BSP

by Ernesto F. Herrera
from The Manila Times

The Philippine economy is already seeing the effects of a global economic slowdown through a decrease in foreign investments flows.

The Bangko Sentral ng Pili–pinas (BSP) reported that net foreign direct investments from January to July dropped 60.2 percent and was less than half the $2.41 billion generated during the same period last year.

As reported in this paper yesterday, Philippine banks have turned cautious about lending money to the public.

We’re still lucky though. Because of the local focus of a lot of banks here in the Philippines, credit crises conditions felt all over the world are not as severe here.

We’re also lucky to have a capable BSP regulating the banking industry. Over the years we have seen a number of regulatory reforms that have strengthened banks’ risk management, increased transparency and improved capitalization. The BSP has also encouraged consolidation in the banking system.

Recently, the BSP put up a dollar repurchase agreement facility to ease the tightness in the dollar market. It relaxed the rules on the establishment of bank branches, even as they raised the mandatory credit allocation to micro and small enterprises.

After the 1997 Asian financial crisis, banking supervision has been strengthened and prudential regulations are in place to limit banks’ exposures. The BSP also has strict loan classifications and provisioning guidelines. Prudential regulations place conservative limits on the liquidity ratios of banks.

Also, accounting standards have been brought into line with international best practices, with the introduction of the Basel II framework this year.

Again, and most importantly, the level of transparency is very high. This, I think, is the primary reason why banking remains sound and asset quality has been improving in the Philippines.

The country is lucky to have a (I hate to use an overused term but) proactive and competent regulator in the BSP, especially under the helm of Amando Tetangco Jr.

I mentioned transparency. Some people have been asking me, why are you and the Trade Union Congress of the Philippines (TUCP) picking on the Government Service Insurance System (GSIS)?

I didn’t realize we were. In fact, I flatly deny it. Our recent calls for transparency—which we’re favorably considered in the end—were not meant to be a crusade against anyone or against any institution.

People work hard to have a little security in their retirement. Our pension system, as it is, provides an insufficient income for most of our seniors. Only those who work for big corporations are lucky enough to retire comfortably because of their workplace-defined pension plans. Most are not so lucky. And few are able to save enough money to secure a decent retirement.

So what little they have in pensions coming their way, we ought to protect. What’s wrong with asking for a good accounting of where workers’ money goes?

Like I said, in the end, our pra-yers were answered, and we even lauded the GSIS when it finally bared the details of its P26.54-billion ($565 million at P47: $1) worth of foreign investments.

In two-page paid newspaper advertisements Friday, the GSIS listed the details of its GIP, to include P10.456 billion of investments in “global fixed income” instruments, P4.127 billion in “global equities,” P3.08 billion in “global property securities” and P8.875 billion in “cash, short-term notes and other investments.”

While the GSIS did not provide the exact amounts that it invested in every type of instrument, we nonetheless welcomed the listing. The GSIS should later on post the same list on its website, to include the exact amounts invested in every bond, note, common stock and currency swap, at cost.

Based on our cursory review of the stated investments, we consider the pension fund’s overseas portfolio to be generally safe, balanced and sound.

The GIP appears to be fairly balanced in terms of exposure, with 40 percent of the portfolio in fixed-income instruments, mainly in absolutely safe sovereign bonds or treasury notes issued by the governments of the United States, Germany, Canada, France, Japan, Italy, Spain and the United Kingdom.

Around 15 percent of the GIP is invested in common stocks of publicly traded foreign equities, 11 percent in property securities and 34 percent in cash, short-term notes and other investments, including currency swaps.

The GSIS reported owning common stocks in at least four American banks—Bank of America Corp., Citigroup Inc., Fifth Third Bancorp and US Bancorp.

The pension fund also reported fixed-income investments in notes (corporate IOUs) issued by three US investment banks or banks—The Goldman Sachs Group Inc., JP Morgan Chase & Co. and Merrill Lynch & Co. Inc.

None of the banks listed are particularly at risk of collapsing. The GSIS may have suffered temporary losses on account of the sharp decline in the prices of these bank stocks due to the worsening global financial crisis, but these losses are temporary. Once the prices of these bank stocks recover, the portfolio should also recover.

Again, we are not out to make things difficult for the GSIS. We just wanted absolute transparency and full disclosure that are consistent with good governance and public accountability. And now we have it. This is good that the GSIS has finally decided to come clean.

GSIS members and pensioners can now sleep better at night.

ernestboyherrera@yahoo.com