Central banking in the Philippines: from inflation targeting to

financing development
Joseph Lim

The Philippines’ shift in monetary policy from ‘monetary targeting’ in

the 1980s and 1990s to ‘inflation targeting’ (IT) in 2002 has so far
brought in a more ‘benign’ monetary policy that is more sensitive to
output objectives. This result is mainly due to low inflation rates in the
Philippines following the downward trend of world inflation in recent
years. Whether this ‘benign’ policy will continue faces a critical test if
inflationary pressures were to return. The problem is that both the
monetary and IT regimes are based on a demand explanation of
inflation that blames inflation on overexpansion of money and credit.
The evidence for the Philippines shows the inflation experience had
been mostly a supply‐led and cost–push phenomenon. The paper
documents that, even with a lax monetary policy, the macroeconomy is
still not able to adequately increase lending to the private sector amid
fiscal difficulties; this contributes to lagging investment and
employment creation. Monetary policy is not independent from the
other macro sectors as well as the real and external sectors of the
economy. This paper therefore proposes alternative monetary policies
to IT that take into consideration the bigger and more complex role of
monetary policy in an economy that requires a more development‐
promoting program.

https://www.tandfonline.com/doi/abs/10.1080/02692170701880791
 BANKING LAWS OF THE PHILIPPINES
A TIME FOR REFLECTION

MELENCIO S. STA. MARIA

Banks play a vital role in our economy. They are moneyed institutes
founded to facilitate the borrowing, lending, and safekeeping of money,
and to deal in notes, bills of exchange and credits.' Ideally, they can be
highly efficient financial intermediaries between the providers and the
users of funds, funneling resources into the most beneficial
investments in the economy. The more our people deposit their money
in the banks, the more bants can lend out money to fund business
enterprises. Significantly, banks do not merely deal in, but are actually a
source of, money and credit. Indeed when a commercial bank, for
instance, lends money by crediting the borrowers demand deposits, it,
in elect, augments the country's credit supply. Consequently, an active
banking industry greatly helps in creating a robust and financially active
business climate essential to a thriving and productive economy.

Banking is a business activity highly regulated by the government.

Although transactions are for private profit, the business is of a pre-
eminently public nature? in view of the fact that money in banks
involves large deposits of people from all walks of life. Since funds of a
bank are, in a sense, held in trust, public interest dictates that close
monitoring by the proper state authority should be constantly
conducted in order that money lent by depositors to these banks will
not be carelessly and recklessly invested.

https://heinonline.org/HOL/LandingPage?handle=hein.journals/
ateno35&div=7&id=&page=
Ours is a history of banking for development. With roots that trace back
to the Commonwealth period when the early infrastructure for
development financing was laid by the government, we were formed in
1958 through the re-organization brought about by changes in the
management of government trust funds, assets and resources.
Expanding our facilities and operations to accelerate national
development efforts, we established a network of branches throughout
the country, delivering substantial benefits in capital formation,
employment generation and increased revenues, particularly in the
countryside.

In 1986, we implemented an institutional strengthening program

covering a thorough revision of the credit process and a training
program for the intensive implementation of new lending thrusts,
reopening our lending windows for housing, agriculture, and small-and
medium-scale industries. In 1995, we were granted an expended
banking license and attained universal banking status.

With a permit to operate as an expanded commercial bank granted by

the Bangko Sentral ng Pilipinas on December 20, 1995, we began to
serve the following markets: depositors; borrowers, potential and
existing investors; local government units; private corporations and
businesses; financial institutions and banks,; micro, small and medium
enterprises; and the general public.

Today, we are classified as a development bank that may perform all

other functions of a thrift bank. Our new charter enables us to achieve
our primary objective of providing the best banking services to small-
and medium-scale agricultural and industrial enterprises as well as to
individuals. We give financial assistance to participating financial
institutions for lending to investment enterprises and direct borrowers.
We are also involved in other activities, including investments in
government and private financial instruments.
In line with President Benigno Aquino III’s policy of “Tuwid na Daan,”
we created in 2012 the DBP Corporate Governance Office, a
department dedicated to overseeing our good corporate governance
initiatives. We also hold the distinction of being the first GOCC to be
initiated into the first phase of the Performance Governance System by
the Institute of Corporate Directors in 2012.

Strong Financials
Fulfilling our social and economic purpose does not mean
compromising on profits. Our consistent strong financial performance is
proof that “doing good also pays good dividends.” By creating value for
our stakeholders, our bank is able to attract deposits and build a strong
capital base from which to provide for the credit needs of the sectors
we serve.

In 2013, the bank generated a net income of P5.18 billion. A total of

P112.61 billion went to the financing of infrastructure and logistics,
environment, social services, micro, small and medium enterprises, and
other priority sectors. We continued to remain true to our mandate of
supporting countrywide development with at least 85% of DBP’s loan
portfolio dedicated to developmental projects.

Social Impact
When we evaluate projects for financing, our paramount consideration
is: how they are able to benefit the greatest number of our
countrymen. We regularly examine the positive impact of what we do
on the communities we serve to see how we can further enhance it. In
our efforts to make economic gains felt by more Filipinos, we continue
to reach out and serve the wider spectrum of population, especially the
disadvantaged and underserved sectors.
Sustainable Growth
Widening access to finance is one of the important things we do to help
secure sustainable growth. Nowhere is this more manifest than in our
focus on Micro, Small and Medium Enterprises that serve as the
backbone and growth engine of the economy, as they comprise the
bulk of the country’s industry and trade and contribute the greatest in
generating employment and creating economic opportunity.

Investing in Communities
Though the main impact of our institution stems from our core banking
business, investing in communities remains a vital element for the
sustainability of our business, since it is closely intertwined with the
progress and health of the communities we serve. By ensuring that the
projects we finance benefit the communities we serve, we also ensure
that their interests are likewise served.

https://www.dbp.ph/dbp-transparency-seal-2/dbp-performance-
governance-system/history/