"The governor’s answer to that conundrum: Just keep being optimistic."
The COVID-19 pandemic is primarily a health crisis.
So says Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno. Yet, the central bank chief has single-handedly poured more money into the economy and into people’s hands than any government official in the country today.
Why did he do it?
“The measures to contain (the pandemic) have significant economic and financial impact,” explains Ben Diokno, who is an economist by training but a socialist by attitude.
“The extent of the pandemic’s impact has forced central banks globally to implement measures to ensure sufficient liquidity, restore market confidence, ease financial market stress, and support economic activity,” the BSP chief told the nation during Monday’s (April 26) pre-SONA forum to report on the country’s progress since the worst pandemic in 100 years.
Accordingly, here is what Diokno did to help the economy and the people:
“Since the onset of the pandemic, the BSP has infused over P2 trillion ($43 billion) in liquidity to the financial system, equivalent to 11 percent of the economy’s output.
“The BSP’s COVID-response measures fell under three categories: First were measures to boost market confidence on availability of credit resources, such as cuts in the policy rate and the reserve requirement (RR).
“Lower policy rate was meant to influence banks to slash their own lending rates, thereby promoting credit-taking activities.
“The lower reserve requirement—or the proportion of deposits banks must keep as reserves in the BSP— increased the volume of loanable funds.
“Second were extraordinary liquidity measures.
“These include provisional advances to the National Government to help fund COVID-response measures. After previous ones were settled, the latest loan from the BSP was the P540 billion granted last January. The loan has been extended, following its original maturity dated end-March.
“Another extraordinary liquidity measure is the BSP’s purchases of government securities in the secondary market, which helped financial markets run smoothly despite the crisis.
“Third were regulatory and operational relief measures to maintain stability of the financial system and ensure public access to financial services.
“We counted loans to MSMEs as compliance to the reserve requirement, increased the single borrower’s limit (or the limit on loans a bank may extend to a single borrower), and raised the ceiling for real estate loans.
“We excluded some loans from the “past-due” and “non-performing” classification and allowed a grace period for loan settlement and restructuring of rediscounted loans. Such moves provided relief to banks and their borrowers.
“The BSP’s interventions helped calm the market and ease domestic liquidity conditions.
“CDS declined from the levels during the hard lockdown in the second quarter last year, reflecting return of market confidence on the country’s ability to service debts.”
Despite Ben’s herculean efforts, the economy still collapsed.
The economy declined by a historic 9.6 percent in 2020. Growth projections for 2021 have progressively been reduced, from 7.5 percent (government projection) and now, the latest (by ADB), just 4.5 percent growth.
With 4.5 percent inflation and 1.8 percent population growth rate, a 4.5 percent economic growth translates into negative growth this year for most people.
Ben’s answer to that conundrum: Just keep being optimistic.
While the Philippines is currently the worst performing in Asia, Diokno notes that: One, the peso remains strong, which is in line with the country’s economic fundamentals, which are strong; two, the country has the fiscal and monetary space to cope with the pandemic challenges, which means it can borrow more “without going into a debt problem nor causing long-term damage to our economic fundamentals”; three, regulatory reforms over the past 20 years have made the Philippine banking system resilient to shocks and thus, banks are adequately capitalized, have low bad debt exposure, and can support the small and medium businesses; and four, reserves are $110 billion, enough to buy 12 months worth of imports and pay in full the country’s $98.5 billion foreign debts.
And don’t worry about inflation. It will average 4.2 percent this year, slightly above the 2-4 target. “This is due to supply-side pressures, including the impact of the African swine fever on supply of meat products and the increase in international oil prices,” Diokno explains. “The slightly above-target inflation will be transitory, as we see consumer prices easing to 2.8 percent next year.”
As for the banks, key performance indicators remain sound. They have enough money to cover debts due in one year—a 197 percent cover (almost triple debts) as of December 2020. Banks’ capital can cover P16.80 for every P100 of obligations. Bad loans are just 3.6 percent of total loans, much lower than the 17.4 percent NPL after the 1997 Asian Financial Crisis.
In this connection, the Financial Institutions Strategic Transfer (FIST) bill was signed into law last February. “This allows banks to dispose of their bad assets via asset management companies. We estimate that the law can help slash NPL ratio of banks by 0.63 to 0.71 percentage points,” Diokno points out.
As for you people with no money, Diokno suggests going digital—get a cellphone, connect to the internet, do online banking, so you can transact or get money or pay debts, without lining up at your overbusy, overstressed bank branch.
To do those things though, you need money to start with. Frankly now, that is your problem.