The Philippine financial system remained sound and stable in the first semester of 2016 as the pursuit of continuing reforms supported the sustained growth, the Bangko Sentral ng Pilipinas (BSP) says in a recent statement.
“With the banking system at its core, the financial system continued to provide needed funding to a growing economy,” the central bank says.
During the review period, the BSP issued additional Basel III reforms aimed at improving banks’ liquidity standards, in particular the Liquidity Coverage Ratio (LCR) and its disclosure standards under Circular No. 905 dated March 10.
The regulator also mentioned its mitigating systemic risk through the recovery plan on domestic systemically important banks (DSIBs), its continuing enhancement in risk management oversight and corporate governance standards, and strengthening prudential rules on connected lending and related party transactions.
The PH banking system posted an annual asset growth of 12.2 percent to P12.5 trillion supported by double-digit credit expansion. Banks also maintained an improved loan quality of 2.2 percent, positive bottom line of P78.9 billion and capital adequacy ratio (CAR) of 16.1 percent, based on preliminary data on a consolidated basis as of end-June.
Funding remained largely sourced from retail and peso deposits of residents, the BSP says. Meanwhile, foreign currency deposit liabilities comprised 21.6 percent of total deposit liabilities. Banks were generally compliant with the required asset and liquid asset cover ratios of 100 percent and 30 percent, respectively.
Total resources of the trust industry stood at P2.8 trillion, closer to its P3.0 trillion level recorded at end-June 2013. It is the peak for the five-year review period (end-June 2012 to end-June 2016), prior to the effectivity of Memorandum No. M-2013-021.
That memo constrained the access of trust accounts to the BSP’s Special Deposit Account (SDA) facility, allowing only the access for Unit Investment Trust Funds (UITF). This led to the shift to deposit in banks and investments in financial assets from cash and due from BSP, which boosted the asset expansion.
Other non-bank financial institutions similarly exhibited prudence in their overall risk-taking activities and provided sufficient capital buffer against unforeseen shocks from their operating environment i.e., rising interest rates, the BSP says.
Notwithstanding the sustained positive performance of the financial system, the BSP continues to carefully monitor potential sources of vulnerabilities and implement timely and calibrated reforms address potential risks. This is in line with the BSP’s objective of promoting greater financial stability.
Rules on dormant deposits and bank fees enhanced
In another development, the Monetary Board has enhanced the rules governing dormant deposit accounts and the fees charged by banks on their retail products and services in line with the BSP Consumer Protection Framework.
Under the reform initiative, the imposition by banks and NSSLAs (non-stock savings and loans associations) of dormancy fee has been subject to more stringent conditions.
A monthly dormancy fee, not exceeding Php 30, can only be imposed if there is no deposit or withdrawal from the account for five years; if the deposit is below the minimum monthly average daily balance; and if the depository bank or NSSLA has complied with the notification requirements.
The new rules also require banks to give three notices pertaining to dormant accounts: (1) potential dormancy prior to the commencement of the dormancy period; (2) charging of dormancy fee; and (3) escheat of account pursuant to the Unclaimed Balances Act.
To comply with the notification requirements, a depositor must be notified through postal mail, courier delivery, email, telephone or other means at least 60 days before the deposit becomes dormant; and at least 60 days prior to the charging of dormancy fees.
Depositors shall also be notified at least 60 days before the start of proceedings for escheat or the transfer of unclaimed dormant deposits to the National Treasurer. There will be a permanent retention of records of escheated accounts for purposes of tracing of deposits, the Board says.
NSSLAs are required under the new rules to notify its members of the dormancy and the possible imposition of a dormancy fee at least 60 days prior to the dormancy of the account and 60 days prior to the imposition of the dormancy fee.
To enable financial consumers to compare fees, the amended policy also requires banks to post their fees on retail deposit, remittance and loan products or services in their official website and in conspicuous places in all banking units.
Banks shall publicly notify clients of any amendments in the terms and conditions of retail bank products or services. Complementary individual notices to a client, however, shall be sent if the amendments pertain to or will result to fees to be paid or charged on the account of the client.
Clients are granted the opportunity to manifest objection to amendments to fees’ terms and conditions and the right to exit the contract without penalty.
The new regulations provide that fees for domestic fund transfers or remittances should be charged only to the sender. This enables determination of the exact amount to be received by the beneficiary and allows consumers to decide on the most cost-efficient means for remitting money. Currently, both the remitter and recipient/beneficiary pay for the remittance transaction.
Under the enhanced rules, banks shall also adopt a policy for the fees charged on financial products and services and a fee structure as a measure of Fair Treatment of its clients. The enhanced rules shall be effective six months from publication in a newspaper of general circulation.
However, the notification requirements and record retention of accounts subject to escheat (the reversion of properties to the state) shall be effective 15 days after publication to cover the next round of escheat in January 2017.
The BSP fosters a robust consumer regulatory environment to enable citizens to make wiser financial decisions and to contribute actively to the promotion of Financial Stability.