Within Reach Weekly

Within Reach Weekly is a publication of the Bangko Sentral ng Pilipinas

Issue No. 2 17 January 2022

“The strong performance of the banking system amid this crisis

is due to its strong fundamentals supported by deep financial
sector reforms.”

—Governor Diokno

Banking system still strong

amid the pandemic
B
anks in the Philippines have remained generally
sound and stable despite the global health
crisis, supported in part by the continued trust
and confidence of depositors and other customers of
banking products and services.
• Growth in deposits. Banks are able to extend loans
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin
E. Diokno said the strength of the banking system
was also aided in part by regulations issued by the BSP
to help banks cope with the impact of the COVID-19
pandemic and extend assistance to their customers.
enterprises, investments, and acquired properties—
reached P20.4 trillion as of end-November 2021, up
by 7.0 percent from the same period of the previous
year.
and invest in various instruments using primarily the
deposits gathered from the public. Data show that
deposits reached P15.8 trillion as of end-November
2021, up by 9.2 percent from the same period of the
previous year.

The following are some key indicators of the favorable
performance of the banking system:
• Growth in assets. Total assets of banks in the
country—which include loans to consumers and
• Increase in credit activity. Loans extended by banks
to consumers and businesses rose by 4.3 percent
as of end-November 2021, reversing a 0.1 percent
contraction a year ago. This is a favorable indicator
of rising consumption and investment activities.

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 • Manageable bad loans. For various reasons, some borrowers
are not able to pay loans on time. But data show that “non-
performing loans” (NPLs)— broadly defined as loans that
have remained unpaid for at least 90 days since due date—
remain manageable.

As of end-November 2021, the NPL ratio—or the share of

NPLs to total outstanding loans of banks—settled at a
manageable figure of 4.3 percent, an improvement from the
previous month’s 4.4 percent.

The Financial Institutions Strategic Transfer Act, a law

enacted last year that allows banks to sell NPLs and other
bad assets, will help banks manage their bad loans moving
forward.

• Sufficient capital and liquidity buffers. Bank are required

to set aside capital to cover unexpected losses, such as in
times of crisis.

Even throughout the pandemic, banks have remained

adequately capitalized, with their capitalization levels
exceeding the minimum requirement of the BSP and what
international standards prescribe.

As of end-September 2021, the capital adequacy ratio (CAR) of

universal and commercial banks stood at 16.9 percent. If their
subsidiaries are included, the figure (the “consolidated” CAR)
is even better at 17.4 percent. Both figures are higher than the
10-percent minimum requirement of the BSP and the 8 percent
prescribed by the Bank for International Settlements (BIS).

Banks also enjoy sufficient liquidity, with universal and

commercial banks’ liquidity coverage ratio reaching 197.5
percent as of end-October 2021. This means highly liquid assets
of banks are more than enough to cover their cash outflows.

Gov. Diokno vows to continue BSP’s reform agenda to ensure a sound and resilient financial system that supports the country’s recovery
during the “GBED Talks” press chat on 13 January 2022.

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 Central banking made easy

Understanding a bank’s health through

the capital adequacy ratio

A bank’s capital adequacy ratio, or CAR, is the ratio of its capital in relation to its risk-weighted
assets. Simply put, CAR is the measure of a bank’s ability to pay liabilities and to respond to credit,
market, and operational risks.

CAR reflects a bank’s financial stability. It determines if the bank’s capital is enough to cushion losses
before facing the risk of insolvency. As CAR represents the soundness of a bank’s health, a higher
CAR suggests that a bank is well-capitalized and has ample capacity to absorb shocks. Conversely, a
lower CAR indicates lesser ability of a bank to absorb potential losses, and thus exposing the bank to
greater insolvency risk and loss of depositors’ money.

After the 2008 financial crisis, central banks and financial regulators have set stricter CAR requirements
to standardize a ratio level that will help ensure depositors’ protection and promote stability across
financial systems.

In the Philippines, the BSP sets a 10-percent regulatory requirement for the CAR of universal and
commercial banks.

Throughout the COVID-19 pandemic, the banks remain well-capitalized with CAR levels above the
minimum. As of end-September 2021, the CAR of the universal and commercial banks improved to
16.9 percent and 17.4 percent on solo and consolidated bases respectively. These figures are well-
above the BSP’s 10 percent requirement and the Bank of International Settlement’s 8 percent.

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 Big data tapped to boost
policymaking

T
he Bangko Sentral ng Pilipinas (BSP) has BSP implemented reforms to the country’s foreign
embraced “big data” for research, analysis, and exchange regulations with the issuance of Circular
policy formulation. No. 1124 on 10 August 2021. With it, foreign exchange
rules and requirements have been eased and further
Big data is characterized by high volume, velocity, streamlined to better facilitate e-commerce or digital
or variety of data that cannot be processed using transactions of the public.
conventional tools and software and, therefore,
require specific technology and analytical algorithms Currently, one big data indicator that the BSP is
for its transformation into value for mission-critical developing is a “news sentiment index,” which will be
processes. based on online economic and financial news. The
index aims to gauge consumer and business sentiment
According to Gov. Diokno, the use of big data against the prevailing economic environment.
technology is expected to enhance the capacity of the
BSP in economic research and analyses, formulation
of monetary and financial stability policies, statistical
compilation, as well as financial regulation and
supervision.

Uses

As early as June 2020, BSP enhanced its monitoring of

economic and financial developments and the impact
of COVID-19 on the economy by using high-frequency
mobility indicators to analyze behavioral changes
under different lockdown scenarios. Big data roadmap

“At a time when official surveys and traditional data The BSP and experts from the University of the
collection methods were hampered by strict quarantine Philippines developed the BSP big data roadmap in
restrictions, these indicators proved to be very useful 2019.
as they provided up-to-date and critical information on
the prevailing environment,” explained the Governor. In implementing this roadmap, the BSP is modernizing
its IT infrastructure and enhancing the skills of its
Using non-traditional data, the BSP was able to assess personnel to support the continued use of big data in
the applicability and responsiveness of the existing its operations.
policies to developments in the economy.
The BSP is also working on entering into data-sharing
For instance, after observing a notable increase in the agreements with other government agencies to
use of online transactions during the pandemic, the increase its big data sources.

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 Ask Gov Ben
Q: How do you address concerns that big data analysis
violates principles of privacy, particularly on issues
involving the manipulation of customer records?

A: The BSP is committed to protecting the data privacy rights of its data subjects.
In December 2019, the BSP developed a Data Governance Policy and Manual to ensure that the treatment
and handling of data, both structured and unstructured, or more commonly known as big data, across
the bank, is uniform and compliant with the domestic laws and is consistent with best practices, where
applicable.

We also defined the roles of those involved in the data life cycle. These are the data owner; data producer;
data consumer; the functional or business data steward, who ensure that the interests of all functional
or business stakeholders are considered in the data governance policy development; and technical data
stewards, who are our information technology professionals. The definition of roles is crucial to the
efficient handling of data.

I would also like everyone to know that our Data Governance Policy is actually part of our Enterprise
Risk Management Framework. This holistic framework was developed to ensure that reasonable and
appropriate controls are in place to secure the confidentiality, integrity, and availability of personal data
or information during collection, storage, transit, and until disposal.

The reason why I am explaining the BSP’s data governance and risk structure in some detail is to allay any
fears of mishandling of all data, which includes personal or private data that may be obtained from Big
Data. We all know that for an enterprise or country to function at the highest possible level, the policies
and operational guidelines must be encompassing, clear, and actionable.

In practice, and in compliance with Sec. 23 of the BSP Charter, the BSP always protects its data sources
by publishing aggregated data only. For example, we say the assets and liabilities of households and not
of Juan dela Cruz. Finally, as I have mentioned, the BSP defined the roles of the data owners, consumers
and so on.

As such, if one Department, for example, the Department of Economic Statistics, is the data owner of
private data, it is incumbent upon the DES to seek the necessary management approvals and anonymize
and mask personally identifiable information before the data is released to the data consumer.

Within Reach Weekly is published weekly by the Bangko Sentral ng Pilipinas.

For queries, please e-mail communicationoffice@bsp.gov.ph.

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