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Tuesday, February 27, 2024

Banking sector to get stronger

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The banking sector is about to get stronger and become more transparent in fulfilling its role in economic development.

The government recognizes the vital role the banking industry plays for the sustainable growth of the economy. Banks extend loans to different sectors of the economy to be used for productive activities.

A few days after he took office, President Rodrigo Duterte said he would push for the amendments to the Bank Secrecy Law. He supported amendments to the New Central Bank Act that created Bangko Sentral ng Pilipinas as an independent entity in 1993.

The New Central Bank Act is also known as Republic Act 7653, while the Secrecy of Bank Deposits Law is Republic Act 1405.  The Senate has been doing public hearings on these two bills.

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Duterte believes that easing the bank secrecy law could be one of the measures that will increase tax collections of the government. He conceded his proposal to reduce income taxes would result in lower revenues for the government.

“… measures to strengthen our fight against tax evasion will be pursued [such as] the relaxation of Bank Secrecy Law, while the Anti-Money Laundering Act will be amended to make tax evasion a predicate crime to money laundering,” Duterte said in a budget message.

Senator Francis Escudero said relaxing the Bank Secrecy Law would allow authorities to investigate highly suspicious bank accounts.

Bangko Sentral Governor Amando Tetangco Jr. said the Philippines and Lebanon were the two remaining countries in the world with stringent bank secrecy laws.

Tetangco reiterated that a relaxed bank secrecy law could prevent the entry of dirty money in the financial system, like the one that occurred in February involving $81 million.

“… The concern is really that since many countries have already lifted their bank secrecy regulations, the Philippines might attract dirty money or laundered money because of the existence of strict bank secrecy laws here. That was the concern,” Tetangco said at the sidelines of a Senate hearing of the committee on banks, financial institutions and currencies.

He said after a fraud was committed, the proceeds of the crime would normally be deposited in a bank account. Once that happens, Bangko Sentral could no longer pursue its investigation because it could not look into those bank accounts.

RA 1405 in 1955 was enacted to encourage people to deposit their money in banking institutions, and to discourage private holding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country.

Tetangco

Under this law, all deposits are strictly confidential and may not be inquired or looked into except upon the permission of the depositor; in cases of impeachment; upon order of a competent court in cases of bribery or dereliction of duty; and in cases where the money deposited or invested is the subject matter of litigation.

Senator Panfilo Lacson said in his own proposal that unfortunately, this provision of the law prohibiting the disclosure of or inquiry to bank deposits had been exploited time and again to hamper and stall investigations of government officials and employees suspected of enriching themselves while in public office.

Lacson said government officials and employees, whether elected or appointed, thus, should be excluded from the coverage of the Bank Secrecy Law “so that law enforcement authorities will be equipped with the tools needed to go after crooks in the government.”

All these efforts of lawmakers in Congress run parallel with President Duterte’s promise of a “clean government.”

Bangko Sentral Deputy Governor Nestor Espenilla Jr. said these bills, if enacted, would accelerate the development of the banking system.

Amendment bills

Escudero introduced on Aug. 16, 2016 in the 17th Congress Senate bill 1027, whose main purpose is to amend RA 7653 or the Central Bank Act. Senator Ralph Recto has his own version, Senate bill 859 filed on July 21, 2016, and Senator Frankin Drilon’s Senate bill 16 filed on June 30, 2016.

Lacson introduced on June 30, 2016 Senate bill 47 that aims to amend Section 2 of RA 1405, exempting government officials and employees from the prohibition against disclosure of or inquiry into deposits with any banking institutions and for other purposes.

There is also Senate bill 115 filed by Senator Aquilino Pimentel III and Senate bill 196 of Senator Leila de Lima for the same purpose. These bills are currently pending in the Senate’s banks, financial institutions and currencies committee.

In 1993, the Philippine Congress enacted RA 7653 that created the Bangko Sentral ng Pilipinas as an independent central monetary authority. Bangko Sentral replaced the old Central Bank of the Philippines, which was established by RA 265 in 1948.

Twenty years later, the economic landscape in the country has significantly changed, globalization has increased the integration of financial markets, and the scope of operations of financial institutions has evolved.

Escudero said there is undoubtedly a need to respond to contemporary challenges by amending RA 7653 so that Bangko Sentral would remain effective in its conduct of monetary policy and supervision of entities within the financial system.

“… This bill proposes to strengthen the tools which the BSP excercises in performing is mandates, supplement the mechanisms in protecting savings of depositors and in ensuring the smooth flow of transactions in the financial system as well as to enhance the corporate viability of the BSP… ,” Escudero said

Escudero is particularly batting for the restoration of BSP authority to obtain data from private persons or entities for purposes of statistical and policy development, as well as ascertaining compliance with laws and banking regulations, and authority to issue negotiable certificates of indebtedness even during normal times, both of which were powers granted to the old Central Bank of the Philippines.

Escudero also wants Bangko Sentral to have stronger financial stability functions, enhanced prudential supervision function, and corporate and financial viability. Escudero, Drilon, and Recto support Bangko Sentral’s earlier call for an additional capitalization of P150 billion, on top of the existing P50 billion, for it to function more effectively.

Deterrent against scams

Recto in his bill said Bangko Sentral’s supervisory powers must include credit card companies, e-money issuers, remittance agents and institutions doing similar functions. In including these financial institutions under the supervision of Bangko Sentral, Recto might have taken note of the fact that the recent $81-million money laundering scam that rocked the domestic banking industry in February could have been prevented had the Bangko Sentral already been exercising supervisory powers over remittance agents.

Senate investigations in May this year found out that the $81 million was stolen by cyber thieves from the account of Bank of Bangladesh in the Federal Reserve in New York. The dirty money entered the domestic banking industry through a branch of Rizal Commercial Banking Corp. on Jupiter Street in Makati City. 

The illegal funds later found its way into local casinos where it was laundered by a number of individuals. One of the conduits in the transfer of funds was Philrem Services Corp., a remittance company.

Tetangco said in a Senate hearing early this month that the regulator “only requires registration” of remittance companies but it has no supervisory powers over them. However, Philrem’s involvement in the money laundering scam gave enough reason for Bangko Sentral to revoke its license in May 2016.

Tetangco assured in previous statements that the domestic banking industry remained solid and strong in the wake of the biggest money laundering scam that happened in the country. In fact, he said foreign banks continued to show interest to expand here to take advantage of the more liberalized banking industry.”©Positive outlook

The Philippine banking system remains one of the strongest in the region. From 2012 to 2014 alone, global debt watcher Moody’s Investors Service singled out Philippine banks, giving them a positive outlook from all the jurisdictions it rates.

Despite their strength, Tetangco said local banks must continue findings ways on how to further solidify their operations amid the threats posed by foreign banks taking advantage of the more open banking industry.

Latest Bangko Sentral data showed banks’ total deposits as of the first half of 2016 grew 12 percent to P9.638 trillion from P8.585 trillion a year ago.

Of the total, peso accounts reached P8.005 trillion, higher than P7.150 trillion a year ago. Foreign currency-denominated accounts, meanwhile, increased to P1.632 trillion from P1.434 trillion a year ago.

Total resources of the country’s financial system as of end-June 2016 reached P15.834 trillion, an increase of P212.8 billion from P15.621 trillion a month ago.

Universal and commercial banks accounted for the bulk or around P11.568 trillion, significantly higher than P11.365 trillion as of end-May. There are 41 universal and commercial banks in the system.

Total resources of thrift banks stood at P1.065 trillion, higher than P1.056 trillion a month ago. Resources of rural banks, meanwhile, remained unchanged at P220 billion.

On the other hand, non-bank financial institutions had total resources of P2.979 trillion as of end-June.

Last year, total resources of the banking system grew by 7.6 percent to P12.4 trillion as of end-December 2015 from the P11.5 trillion a year ago. As a percent of gross domestic product, total resources stood at 93.4 percent.

Banks also remained well capitalized amid tighter capital requirements. The industry’s capitalization was predominantly composed of common equity Tier 1, the highest quality among instruments eligible as bank capital.

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