Philippines' ex-central bank head issues caution for future
Longest-serving governor discusses the challenges awaiting his successor
MIKHAIL FLORES, Nikkei staff writer
MANILA The Philippine central bank must address policy uncertainty and cybersecurity risks if it is to maintain economic growth and stability under its new chief, says former Bangko Sentral ng Pilipinas Gov. Amando Tetangco.
Tetangco, who stepped down on July 3, was the longest-serving governor of BSP, having served two six-year terms from 2005 to 2017. During his tenure, the Philippine economy went from being the "sick man of Asia" to a fast-growing tiger.
"For now, an important concern would be the maintenance of price and financial stability in an environment of policy uncertainty, particularly in advanced economies, and also an environment of uneven economic growth across different jurisdictions," Tetangco told the Nikkei Asian Review in an interview on July 5.
The U.S. Federal Reserve in June raised its federal funds rate by 0.25 percentage points, the third increase in six months. The Fed also announced it will be taking steps to normalize its bloated balance sheet.
"On top of the interest rate normalization, you got a reduction of the balance sheet, so these can pose some challenges, particularly in terms of volatility in the financial markets."
Tetangco said the BSP has a "well-articulated policy framework" to address market volatility and is equipped with a set of monetary tools to help it sustain the country's sound macroeconomic fundamentals.
Tetangco added his successor Nestor Espenilla, a veteran central bank official who oversaw the country's banking system, has a "deep understanding of central banking" to ensure stability.
"He's very much aware of the policies, the objectives, as well as the corporate culture of the BSP," Tentangco added.
Espenilla's appointment signals a path of stability and continuity. It is hoped that having a veteran insider lead the BSP will enable the bank to conduct monetary policy independent from political interests.
Last year, the BSP adopted an interest rate corridor framework that includes weekly auctions to better manage excess liquidity and better align market rates with its policy stance. The bank has kept its policy stance unchanged since last June as inflation in the Philippines has remained stable.
ROOM TO IMPROVE Tetangco also urged Philippine banks to beef up their cybersecurity.
"Cyber risks are always there. I think what is important is that the IT systems of banks are robust enough to prevent any penetration into their systems," he said.
Last month, major Philippine banks fell victim to technical troubles and fraud. BDO Unibank, the country's largest lender by assets, said ATM "skimming" at seven terminals compromised the debit card information of nearly 100 clients.
The Bank of the Philippine Islands, meanwhile, had to shut down its online banking services for nearly two days to fix a glitch that resulted in incorrect account balances for its clients. Some account holders reported becoming billionaires overnight as a result of what the bank described as a "misposting."
Tetangco said "Philippine banks are safe" as they are taking appropriate cybersecurity measures but added that there is room for improvement.
The BSP -- an inflation-targeting central bank -- kept consumer price increases in check under Tetangco, while sustaining high economic growth.
In his first term as governor, GDP growth averaged 4.9%, while inflation averaged 5.2%. From 2010 to 2016, economic growth averaged 6.1%, while inflation eased further to an average of 3%.
"We have achieved the desirable combination of robust growth and low and stable inflation," Tetangco said.
On the external front, Tetangco began his term with gross foreign reserves of $18.5 billion, equivalent to four months' worth of imports. As of the end of June this year, the country's reserves stood at $81.4 billion, or nine months of imports.
Tetangco also made it easier for foreign banks to enter the Philippine market, allowing more international lenders to set up shop in a country where 86% of households do not have bank accounts, according to a 2014 central bank survey.
Financial inclusion has also been a key reform under Tetangco. "For development to be meaningful, it has to be inclusive," he said.