CEBU CITY, Cebu, May 17 (PIA) -- In light of the current global challenges, particularly to financial stability, the Bangko Sentral ng Pilipinas (BSP), the International Monetary Fund (IMF), and other Asian central banks are working to improve regional systemic risk management.
Systemic risks are disruptions to any part of the financial systems that specifically have the ability to adversely affect the rest of the economy.
Small financial market disruption that can amplify to affect the greater economy can become systemic.
BSP Governor Felipe Medalla, during his keynote address on the 2023 International Conference on Financial Stability in Mactan, Cebu highlighted lessons learned during past crises, namely building up of strategic forex reserves and enhancing rules on bank capitalization, liquidity, and risk management.
“Moving forward, regulators should continue to strike a careful balance between establishing strong institutions while encouraging innovation in the design of tools that would have the requisite safeguards to build-in resilience. This balance would help crisis-proof the system. “It’s finding the middle [where] there’s enough creativity (encouraged) but without thinking in terms of the public cost of mistakes,” Medalla added.
Today’s environment, according to Medalla, poses a different set of challenges for the authorities as well as the market stakeholders.
The conference is then organized to assess how systemic risks are managed and discuss how stakeholders have coped with changing market conditions.
There is likewise a discussion on the challenges of communicating risk issues to the public.
One of the conference highlights is to focus on Asia as a collective body in light of the systemic risk issues affecting the global economy.
The conference revisits the issue of a common approach in light of the latest IMF forecast where Asia contributes around 70 percent of world growth in 2023.
In January 2019, the BSP and the IMF co-hosted the inaugural regional dialogue on Financial Stability which was held in Manila.
Now in 2023, Systemic Risk management is once again front and center as authorities respond to the current challenges and prepare for what lie ahead.
The theme of the conference – “The New Frontier of Financial Stability: Global Problems, Global Solutions, Local Challenges.”
Fourteen central banks and financial authorities from the region, including six regional and global organizations, joined this year’s conference.
There were also 31 private sector groups participants.
During the meeting on May 16, Medalla said the regulatory policies should be understood by the general public as well as financial sector players and regulators.
“The advantage of the general public understanding this is they will be more supportive of the regulations,” he added.
He went on to say that the majority of the current measures for the financial market are based on the lessons learned from the financial crisis in 1997.
This has helped the Philippine banks, among others, survive subsequent crises better.
According to Medalla, the domestic economy contracted by approximately 0.5% following the financial crisis of 1997, and growth in the years that followed was lower by approximately 1%-2%, in part due to the country's low level of foreign reserves.
He mentioned that this situation had been going on for at least seven years.
Then again, with the COVID-19 pandemic, Medalla said the economy had the option to recuperate quicker, somewhat with the assistance of the liquidity support from the national bank, which had the option to expand its unfamiliar stores, to a record-high of USD 110 billion in December 2020.
Gross domestic product (GDP) growth contracted by 0.7% in the first quarter of 2020, marking the first negative reading since the final quarter of 1998, following the start of the lockdowns in March 2020.
The GDP increased by 16.9% over the next three months.
The negative growth print persisted for the subsequent three quarters, but it began to recover in the first quarter of 2022 with a growth of 12%.
Since then, growth has returned to normal, with output of 6.4% in the first quarter of 2023.
Medalla said in spite of the development withdrawal during the pandemic, domestic banks remained strong and gave the option to stretch out advances to assist with lifting the economy.
He stated that the government as well as Philippine financial institutions have been able to become more resilient and lessen the impact of the most recent pandemic as a result of fiscal and monetary reforms implemented following the Asian Financial Crisis. (MYP/PIA7 with reports from Bangko Sentral ng Pilipinas)
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