DBCC Briefing to the Committee on Appropriations

on the FY 2015 Proposed NG Budget

House of Representatives, 6 August 2014
Staying the Course:
Keeping the Economy on Top
Amando M. Tetangco, Jr.
Governor
Bangko Sentral ng Pilipinas
2
Key Indicators
2002-
2006 Ave
2007-
2011 Ave
2012 2013 2014
Resilient output
growth
Real GDP growth (%) 5.1 4.6 6.8 7.2 5.7 (Jan-Mar)
Manageable inflation Headline inflation (%) 4.4 4.8 3.2 3.0 4.3 (Jan-Jul)
Modest fiscal deficit Fiscal balance (% of GDP) -3.3 -2.1 -2.3 -1.4 -2.9 (Jan-Mar)
Ample liquidity and
credit supportive of
economic activity
Domestic Liquidity (% of GDP) 43.2 49.4 49.7 60.0 60.0 (Jun)
Domestic Claims (% of GDP) 54.5 50.1 51.2 51.9 54.1 (Jun)
Sound and stable
banking system
Non-performing loans
(% of total loans) U/KBs*
11.1 3.2 2.8 2.1 2.2 (May)
Capital Adequacy Ratio
(consolidated basis)** - U/KBs
17.8 16.5 18.4 17.7 n.a.
Robust external
profile
Current Account Balance
(% of GDP) ***
1.6 3.3 2.8 3.5 3.1 (Jan-Mar)
GIR (in months of imports of
goods and services and primary
income) ***
3.9 8.9 11.5 11.5 11.0 (end-Jun)
External debt (% of GDP) 58.4 31.6 24.1 21.5 21.5 (end-Mar)
External debt service burden
***
(% of exports of goods,
receipts of services & income)
14.7 10.4 7.3 7.6 6.5 (Jan-Apr)
Philippines sustains economic improvements
* Data for 2012 and May 2013 are computed as prescribed under BSP Circular No. 772. Gross NPL represents the actual level of NPL without any adjustment
for loans treated as loss and fully provisioned.
**Computation based on the combined reports of parent bank (head office and branches) and its subsidiaries engaged in financial undertakings but
excluding insurance; also excludes trust department
*** Data for 2002-2006 are based on BPM5 concept while 2007-2014 data are based on BPM6 concept.
3
Year Selected Structural/Policy Reforms in the Philippine Economy
1993 Creation of the Bangko Sentral ng Pilipinas
1994 Liberalization of foreign bank entry
1995 Liberalization of the telecommunications industry
1997 Privatization of water services (MWSS)
1998 Deregulation of the oil industry; Adoption of consolidated bank supervision
2000 Passage of the Philippine E-Commerce Act
2001 Liberalization of the power sector (EPIRA)
2002 Adoption by BSP of Inflation Targeting Framework; Passage of the Special Purpose Vehicle Act
2003 Passage of the Government Procurement Reform Act
2004 Passage of the Securitization Act or Republic Act 9267; Adoption of Basel 2
2005 Passage of expanded value-added tax (E-VAT)
2006 Establishment of the Wholesale Electricity Spot Market (WESM)
2007 Full implementation of risk-based bank supervision
2009
Privatization of the National Transmission Corporation (TransCo) and National Power
Corporations (NPC) assets
2011
Issuance of the guidelines on the adoption of Philippine Financial Reporting Standards (PFRS)
9; Adoption of phased-in migration to Basel III
2013 Implementation of the revised excise tax rates on alcohol and tobacco
2014
Liberalization of Entry of Foreign Banks in the Philippines or Republic Act 10641
Implementation of macroprudential measures on real estate exposure
Philippines builds institutions through critical reforms
3
4
3.1
4.4
2.9
3.6
5.0
6.7
4.8 5.2
6.6
4.2
1.1
7.6
3.7
6.8
7.2
5.7
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q1
Despite softer output growth in Q1 2014, economy remains resilient
One of fastest growing Asian economies, 3
rd
after China (7.4%) and Malaysia (6.2%)
Real GDP Growth (%) Average: 4.9% (1999-2014)
Output growth in Q1 2014
remains resilient
Source: Philippine Statistics Authority (PSA)
Source: PSA
3.7
6.8
7.2
5.7
-7
-5
-3
-1
1
3
5
7
9
11
2011 2012 2013 2014Q1
AFF Industry Services GDP
Contribution to Growth: Supply
in percentage points
3.7
6.8
7.2
5.7
-7
-5
-3
-1
1
3
5
7
9
11
2011 2012 2013 2014Q1
Private Consumption Investment
Government Consumption Net Exports
GDP
Contribution to Growth: Demand
in percentage points
Source: PSA
5
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Headline
Lower Bound of Target
Upper Bound of Target
4.3%
Jan-Jul 2014
Inflation remains manageable
Headline inflation (%), 2006=100
Inflation is within
target in the last 5
years
Despite upside
pressures, inflation
is projected to
settle within 3-5%
target range in
2014 and 2-4%
target range in
2015 and 2016
4.9%
Jul 14
6
Policy rates are calibrated appropriately
Effective policy balance
between safeguarding
price stability and
supporting economic
growth
BSP hikes key policy
rates as preemptive
response
SDA rate and RR ratio
are adjusted upwards to
counter price and
financial stability risks
Domestic Interest Rates (in percent)
Jul 14: 3.75%
31 Jul 14:
2.05%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
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2009 2010 2011 2012 2013 2014
Overnight RRP
364-day T-bill Rates (Secondary
Market Rates)
0
1
2
3
4
5
6
16.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
21.5
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2009 2010 2011 2012 2013 2014
Reserve Requirement Ratio (LHS)
SDA Rate (RHS)
Aug 14:
20.0%
Aug 14:
2.25%
Reserve Requirement and SDA Rate
7
Credit conditions continue to support
economic growth
Commercial Bank Lending (Net of RRP)
Growth and Contribution by Sector
(as of June 2014)
8.3
20.5
10.0
8.9
19.3
16.2
16.4
20.1
-10
-5
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 Jun
2014
In Percent
Agriculture, Hunting & Forestry Trade, Trans, Storage and Communication
Others Electricity, Gas & Water
Households Real Estate, Renting & Bus. Services
Manufacturing Financial Intermediation
KB Lending Growth
Sectors
Forward
Linkages
using
2009
PFSAM
Share to
Total KB
Loans
(Net of
RRP)
Contribution
to KB Loan
Growth (Net
of RRP)
Financial
Intermediation 1.9 8.4
1.7
Electricity, Gas &
Water 2.7 10.3
3.4
Real Estate, Renting
& Bus. Services 3.0 18.3
3.3
Agriculture, Hunting
& Forestry 3.7 4.8
0.7
Trade, Trans.,
Storage and Comm. 8.1 20.9
3.4
Manufacturing 8.2 15.8 2.6
Others 3.1 14.0 5.0
Households - 7.4 0.9
Growth of KB Loans
(June 2014) - -
20.1
Note: Sectoral distribution are estimated based on mapping exercises done to show comparability
with the 2013 data.
8
Banking system is sound and stable
0
2
4
6
8
10
12
14
16
18
20
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
Non-Performing Loans (Net) and Non-
Performing Assets Ratios of PH Banking
system, 2001-2013
NPL Ratio
NPA Ratio
6
8
10
12
14
16
18
20
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
Capital Adequacy Ratio (%)
(Philippine Banking System)*
CAR solo CAR consolidated
BSP Standard BIS Standard
*Starting January 2013, figures are computed as prescribed under BSP Circular No. 772. Gross NPL represents the actual level of NPL without
any adjustment for loans treated as loss and fully provisioned.
Healthy credit and
solid asset growth
Strong capitalization
2.2%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
0
1,000
2,000
3,000
4,000
May
13
Jun 13 Jul 13 Aug
13
Sep
13
Oct
13
Nov
13
Dec
13
Jan
14
Feb
14
Mar
14
Apr
14
May
14
TOTAL LOAN PORTFOLIO and GROSS NPL RATIO : U/KBs,
May 2013-May 2014
Total loan portfolio, gross Gross NPL ratio (RHS)
P4,427.9B
9
External sector dynamics remains strong,
amid recent global volatilities
Current account for Q1
2014 continues to be
strong
Current account
surplus from resilient
OF remittances, strong
BPO earnings, and
rising tourism receipts
-10
-5
0
5
10
15
Balance of Payments (BPM6)
2005-Q1 2014 (in US$ Bn)
Capital & Fin'l Account
Current Account
Balance of Payments
Source: BSP
Q1 14 CA:
US$2.0 Bn
(3.1% of
GDP)
0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
18
20
22
Overseas Filipinos Remittances
Levels and Growth Rates; 2005 May 2014
Cash Remittances thru banks (US$ Bn; rhs)
Growth Rate (%; lhs)
Jan-May
14:
US$9.4 Bn
(5.7% g.r.)
Source: BSP
10
Foreign exchange
reserves remain
adequate
Reserves can cover
11 months of
imports; 7.7 times
of short-term
external debt based
on original
maturity, 5.7 times
based on residual
maturity
FX reserves stay ample
18.49
22.97
33.75
37.55
44.24
62.37
75.30
83.83
83.19
80.728
0
2
4
6
8
10
12
14
0
10
20
30
40
50
60
70
80
90
Gross International Reserves
2005 June 2014
GIR (US$ Bn; lhs)
Import Cover (months; rhs)
End-Jun 14
US$ 80.7 Bn
(11.0 months)
11
40
42
44
46
48
50
Local currency regains strength
Peso USD Daily Average Exchange Rate
Jan 2009 Aug 2014
Year-to-Date Changes in Selected Dollar Rates
Appreciation/(-Depreciation), In Percent
2008
Jan - 5 Aug
2014*
Cum
2009 2010 2011 2012 2013 2008-2014
Thai Baht (Onshore) -2.9 4.1 10.7 -3.9 3.0 -4.6 1.8 8.2
Singaporean Dollar 1.1 1.8 8.7 -0.6 6.1 -2.7 1.5 15.9
Chinese Yuan 7.0 0.0 3.4 4.2 1.0 2.6 -1.9 16.3
Korean Won -25.7 8.2 2.7 -2.0 7.7 1.1 2.1 -5.7
Malaysian Ringgit -4.3 1.2 11.2 -2.9 3.5 -5.5 2.8 6.0
Japanese Yen 23.9 -2.6 14.2 4.0 -10.9 -16.3 2.7 15.0
Philippine Peso -13.1 2.9 5.4 0.9 6.8 -7.0 1.9 -2.4
New Taiwan Dollar -0.9 2.5 9.9 -3.8 4.3 -1.9 -0.6 9.5
Indonesian Rupiah -15.4 18.2 4.7 -0.4 -5.9 -19.1 4.1 -13.8
Indian Rupee -19.2 4.9 3.6 -15.2 -3.1 -11.4 1.8 -38.7
PhP43.57/US$1*
(5 Aug 2014)
*Last done deal in the afternoon session.
Source: BSP
Source: Bloomberg
12
Sound Fundamentals:
2014-2015 Macroeconomic Outlook
Actual Projections
a/
2014 YTD 2014 2015
Headline Inflation (%)
4.3 (Jan - Jul)
3.0 5.0 2.0 4.0
Dubai Crude Oil (US$/bbl)
105.43 (2 Jan - 29 Jul)
100 110 90 110
Exchange Rate (P/US$)
44.26(2 Jan 5 Aug)
42 45 42 45
364-day T-bill Rate (%)
b/
1.75 (Jan 4 Aug)
1.5 4.0 2.0 4.0
LIBOR, 6 months(%)
0.3286 (2 Jan - 4 Aug)
0.3 1.5 1.0 2.0
Merchandise Exports Growth (%)
c/
6.6 (Jan-Mar)
6.0 8.0
Merchandise Imports Growth (%)
c/
4.1 (Jan-Mar)
9.0 10.0
a/
Based on projections adopted by the FY 2015 Budget of Expenditures and Sources of Funding (2015)
b/
Based on primary market rates
c/
Based on BPM6 concept
13
Sound Fundamentals:
2014-2015 Macroeconomic Outlook
a/
Based on projections adopted by the FY 2015 Budget of Expenditures and Sources of Funding (2015)
b/
Based on primary market rates
c/
Based on BPM6 concept
Actual Projections
a/
2014 YTD 2014 2015
Headline Inflation (%)
4.3 (Jan - Jul)
3.0 5.0 2.0 4.0
Dubai Crude Oil (US$/bbl)
105.43 (2 Jan - 29 Jul)
100 110 90 110
Exchange Rate (P/US$)
44.26(2 Jan 5 Aug)
42 45 42 45
364-day T-bill Rate (%)
b/
1.75 (Jan 4 Aug)
1.5 4.0 2.0 4.0
LIBOR, 6 months(%)
0.3286 (2 Jan - 4 Aug)
0.3 1.5 1.0 2.0
Merchandise Exports Growth (%)
c/
6.6 (Jan-Mar)
6.0 8.0
Merchandise Imports Growth (%)
c/
4.1 (Jan-Mar)
9.0 10.0
14
Sound Fundamentals:
2014-2015 Macroeconomic Outlook
a/
Based on projections adopted by the FY 2015 Budget of Expenditures and Sources of Funding (2015)
b/
Based on primary market rates
c/
Based on BPM6 concept
Actual Projections
a/
2014 YTD 2014 2015
Headline Inflation (%)
4.3 (Jan - Jul)
3.0 5.0 2.0 4.0
Dubai Crude Oil (US$/bbl)
105.43 (2 Jan - 29 Jul)
100 110 90 110
Exchange Rate (P/US$)
44.26(2 Jan 5 Aug)
42 45 42 45
364-day T-bill Rate (%)
b/
1.75 (Jan 4 Aug)
1.5 4.0 2.0 4.0
LIBOR, 6 months(%)
0.3286 (2 Jan - 4 Aug)
0.3 1.5 1.0 2.0
Merchandise Exports Growth (%)
c/
6.6 (Jan-Mar)
6.0 8.0
Merchandise Imports Growth (%)
c/
4.1 (Jan-Mar)
9.0 10.0
15
Challenges ahead
Policy normalization in advanced economies
Geopolitical tensions in Middle East and
Ukraine-Russia
China growth slowdown
Natural disasters and power outages
16
BSP Policy Thrusts
On monetary stability: Safeguard the inflation targets in line
with our primary mandate
On financial stability: Pursue reforms that would strengthen financial
institutions, manage risks, and promote inclusiveness of the financial system
On external sector stability: Support policies that will strengthen resilience to
shocks via market-oriented exchange rate, comfortable level of reserves and
manageable external debt profile
The BSP commits to
DBCC Briefing to the Committee on Appropriations
on the FY 2015 Proposed NG Budget
House of Representatives, 6 August 2014
Staying the Course:
Keeping the Economy on Top
Amando M. Tetangco, Jr.
Governor
Bangko Sentral ng Pilipinas