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Changing Business Environment in the Philippines
Challenges and Responses of PDIC
DICJ-IADI International Conference February 16, 2017
Tokyo, Japan
Outline Global
New banks moratorium
1999El Niño Basel II 1997-1998 2004
Capital requirement
raised 1998
Asian Financial
Crisis
Financial Crisis
2009
Basel III 2010 Capital
requirement raised;
Full entry of foreign
banks law 2014
KEY QUESTIONS 1998 • What were the changes in the Philippine
business environment? • How were banks affected? • What were PDIC’s responses?
Asian Financial
Crisis
Changes in the business environment
7.0%
GDP growth rate
25%
20%
15%
10%
5%
0%
91-day Treasury bill rate
Dollar to Peso exchange rate 50
40
30
20
10
0
Source: Bangko Sentral ng Pilipinas
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
-1.0%
1995 1996 1997 1998
Immediate effect to Philippine banks
Falling bank asset quality
Rapid decline in bank profitability
Nonperforming loans Return on equity
to gross loans ratio 18%
16%
12%
10% 14%
8% 12%
Rat
io
1995 1996 1997 1998 1995 1996 1997 1998
Rat
io
10%
8%
6%
6%
4%
4% 2%
2%
0%0%
Source: PDIC
Immediate effect to Philippine banks N
um
be
r o
f b
ank
clo
sure
Increasing bank closures
Bank closures
25
20 1
6
1
1 13
16
8 6
Commercial banks
15
Thrift banks 10
5 Rural banks
0 *1995 1996 1997 1998
* Excludes 17 closed rural banks without PDIC takeover due to lapsed terminated insurance status. Source: PDIC
Stress to Philippine banks continued Nonperforming loans Return on equity
5.42%
0%
5%
10%
15%
20%
Rat
io
to gross loans ratio
12.96%
0%
5%
10%
15%
20%
Rat
io
0
10
20
30
40
No
. of
ban
ks Bank closures
Source: PDIC
PDIC response: Financial Assistance (FA)
Banks granted FA
1999
2000
2001
2002
2003
2004
Source: PDIC
PDIC response: Strengthened Coordination among Financial Safety Net Agencies and PDIC
i Information sharing
Institutional strengthening
Raised the maximum deposit insurance coverage by 150% (₱100K to ₱250K)
Financial Sector Forum, 2004
PDIC Charter Amendments, 2004
1
2
Charter Amendment
Coordinate supervision and regulation
Global Financial
Crisis
Changes in the business environment Contributions to GDP by expenditure item
10.0%
5.0%
0.0%
-5.0%
2007 2008 2009
Private consumption Government consumption
Capital formation Net exports
GDP growth rate
Contributions to GDP by industrial origin
10.0%
5.0%
0.0%
-5.0% 2007
Agriculture
2008
Industry Services
2009
GDP
Source: Philippine Statistics Authority
Philippine banks in better position to weather a crisis
Asset quality
NPL 5.4%11.1%
LLP/NPL 36.4% 83.5%
Profitability
ROE5.8% 10.6%
ROA 0.8% 1.3%
Liquidity
QAR41.8% 51.8%
LDR 70.8%97.6%
Source: PDIC
Global response
PDIC response: PDIC Charter Amendment
Raising of maximum deposit insurance coverage (MDIC) by 100% (₱250K to ₱500K)
Flexibility to adjust MDIC when there is a condition that threatens stability
Enhanced depositor protection
Enhanced authorities for enforcement actions, bank resolution, and liquidation
Institutional strengthening Measures to promote market
measures discipline
Financial strengthening measures
PDIC response: Partnership towards Financial Stability
Financial Stability
Coordination Council, 2014
PDIC response: Strengthening Institutional and Financial Capabilities
PDIC Financial Crisis Management and
Resolution Framework, 2016
5.5% - 8.0%
Gearing up against pressures
Increasing competition
Technology growth
Meeting higher capital and other regulatory requirements
Bank closures 40
30
20
10
0
23 29 24 25 23 18 14 14
20
2 2
1 4
1 21
Commercial banks Thrift banks Rural banks
2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: PDIC
Nu
mb
er
of
ban
k cl
osu
re
PDIC response: Investor-Investee Helpdesk
₱ ₱
₱
Investors
PDIC response: Bank Strengthening Initiatives
Consolidation Program
for Rural Banks, 2015 2
1 Strengthening Program
for Rural Banks, 2010
Way forward
Crisis management plans
PDIC Charter implementation
Continuous buildup of the DIF
End Thank you.
DICJ-IADI International Conference
February 16, 2017
Tokyo, Japan
