THE main risk to Philippine financial system is the global economic slowdown, according to the inter-agency Financial Stability Coordinating Council.
In its Financial Stability Report reviewing the events of the second half of 2018 and the first half of 2019, the council identified slowing economic expansion as the “principal risk” to financial stability, and the effects of the slowdown are starting to become apparent in the ASEAN region.
“The effect of the slowdown will be seen through the changes in market prices. And those market price changes will then affect the banking and capital market sectors,” according to Johnny Noe E. Ravalo, the central bank’s Assistant Governor at the Office of Systemic Risk Management and the Head of the FSCC Technical Secretariat, who was speaking at a media.
The FSCC’s members are the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DoF), Philippine Deposit Insurance Corp. (PDIC), and the Securities and Exchange Commission (SEC).
He said unlike previous financial crises, no region is expected to be immune from the impact of the slowdown.
“We’ll see that in terms of (lower) incomes, and therefore also ability to repay outstanding obligations, and the changes in the currency markets,” Mr. Ravalo said.
The effects on the Philippines have led the BSP to cut rates by a total of 50 basis points (bps) this year — lowering by 25 bps each on May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for the overnight deposit rate, partially dialing back the 175-bp worth of rate hikes triggered by the 2018 inflation crisis, which helped bring rates to a nine-year high.
Despite the global slowdown, Mr. Ravalo said Philippine growth is only “moderating.”
“Unlike the rest of the world (which is) probably growing at close to two and a half to 3%, the Philippines is still growing at 6%. So if there’s going to be a slowdown, we do have a little bit of a buffer,” Mr. Ravalo said.
As of March, the government projects gross domestic product (GDP) in 2019 to come in at 6-7%.
The FSR’s multi-period coverage allows the council a more complete view of the system’s performance, according to BSP Governor Benjamin E. Diokno.
“The fluidity of evolving issues H1 2019 made it imprudent to limit ourselves to 2018 issues only, and thus, we cover the first semester of 2019 as well. This better represents how market volatility has changed, not just between more versus less but also between volatility heading upwards versus volatility heading the other way,” the central bank chief said at the launch of the FSR. — Luz Wendy T. Noble