June 19, 2012, Manila Bulletin

by Lee Chipongian


MANILA, Philippines — Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. has reiterated his call to the banking community to fund major infrastructure projects and release a significant portion of resources to jumpstart economic expansion.

“(I) encourage our banks (to) seriously consider channeling liquidity to productive investments, such as the PPP (public-private partnership) program, instead of simply placing funds in financial instruments or engaging, even indirectly, in activities like shadow banking,” Tetangco told participants of The Asset-FINEX forum in Makati. “Communication lines, roads, bridges and airports… these are the kinds of investments that affect the quality of growth and define our competitiveness.”

Tetangco emphasized the sufficient domestic liquidity system and brushed aside concerns of what might a “deleveraging” in Europe mean to the Philippines.

For one, as the eurozone deleverages, capital funds will shift to the region however if core Europe deleverages absolutely, the BSP chief said this will result to a liquidity squeeze for Asia and the rest of the globe. Capital flows impact exchange rates, interest rates, trading volumes and future demands on currency withdrawals.

“These are not small concerns, as these can quickly become the stimuli for systemic risk. The BSP is thus always watchful,” he said.

Still, Tetangco is fairly confident that there are not enough reasons to start worrying yet.

“As I see it (the) issue of a liquidity squeeze and contraction of trade credits because of deleveraging in Europe is not our primordial concern. The strength of the Philippine banking system at the height of the global financial crisis was precisely the ability to source deposits, create loans while at the same time continuously improving the quality of the credit portfolio.”

“There is always of course that temptation to deploy funds to cover costs,” he added. “Ultimately, it is an issue of credit underwriting for banks. So, I say to our banks, now is not the time to put our avowed strength at risk.”

It continues to be a comfortable period for the financial sector despite the current concerns in Europe and the US. Tetangco said financial stability remains strong and the economy is on the right path to further growth. “Through the crisis, we managed continued real GDP growth because our financial markets were broadly in order. This is why financial stability is now the overarching policy issue. Instead of looking at growth only as a higher number, we need to go beyond the bottom line and the balance sheet.”