2014 Annual Report for the Layman

2014 Annual Report for the Layman

2014 Annual Report for the Layman

CONTENTS

BSPVisionandMission

AbouttheBSP

TheNewBSPLogo

Foreword

TheBSPsThreePillarsofCentralBanking

FirstPillar:PriceStability

SecondPillar:FinancialStability

ThirdPillar:EfficientPaymentsandSettlementsSystem

TheBSPsVariousResponsibilities
BankerofBanks
ManagerofInternationalReserves
OverseerofExchangeRatePolicy
IssuerofPhilippineBanknotesandCoins
MainBanktothePhilippineGovernment

FinancialInclusionPrograms
Microfinance
EconomicandFinancialEducation
FinancialEducationforSchoolchildren
ConsumerProtection

FinancialConditionoftheBSP

BSPAwards

FinancialStatements

2014 Annual Report for the Layman

Vision
TheBSPaimsto bea worldclassmonetary
authority and a catalyst for a globally
competitive economy and financial system
that delivers a high quality of life for all
Filipinos.

Mission
The BSP is committed to promote and
maintain price stability and provide
proactive leadership in bringing about a
strong financial system conducive to a
balanced and sustainable growth of the
economy.Towardsthisend,itshallconduct
sound monetary policy and effective
supervisionoverfinancialinstitutionsunder
itsjurisdiction.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

ABOUTTHEBSP

The Congress shall establish an independent central monetary authority (which) shall
providepolicydirectionintheareasofmoney,bankingandcredit.Itshallhavesupervision
overtheoperationsofbanksandexercisesuchregulatorypowersasmaybeprovidedbylaw
over the operations of finance companies and other institutions performing similar
functions.

Section20,ArticleXII,1987PhilippineConstitution

TheStateshallmaintainacentralmonetaryauthoritythatshallfunctionandoperateasan
independent and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary authority
established under this Act, while being a governmentowned corporation, shall enjoy fiscal
andadministrativeautonomy.

Section1,Article1,Chapter1
RepublicActNo.7653(TheNewCentralBankAct)

THENEWBSPLOGO

The new BSP logo is a perfect round shape in blue that features three gold stars and a
stylizedPhilippineeaglerenderedinwhitestrokes.Thesemainelementsareframedonthe
left side with the text inscription Bangko Sentral ng Pilipinas underscored by a gold line
drawninhalfcircle.Therightsideremainsopen,signifyingfreedom,openness,andreadiness
oftheBSP,asrepresentedbythePhilippineeagle,tosoarandflytowarditsgoal.Puttingall
theseelementstogetherisasolidbluebackgroundtosignifystability.

TheBSPadoptedthenewlogoon18June2010incompliancewiththeNewFlagActof1998,
whichprohibitsanyobjectstohangoverthePhilippineflag.Intheoldlogo,thepictureofthe
flagisbelowthemountainsandthesun.Thenewlogoisthefourthsealforthecentralbank
sinceitsinception66yearsagoin1949.

ii

2014 Annual Report for the Layman

Foreword

TheBSPs2014AnnualReportfortheLaymanisthestoryofhowtheBSP
carriedoutitsmandateduringtheperiod20122014.Itiswrittenwiththe
Filipinolaymaninmindtohelpincreasethepublicsawarenessoftherole
thatBSPplaysinthePhilippineeconomy.

To help better appreciate what the BSP does, this Report has been
structured following the three pillars of central banking. These are Price
Stability, Financial Stability and Efficient Payments and Settlements
System.

TheBSPsprimaryresponsibility,underSection3ofRepublicAct(RA)7653
or the New Central Bank Act, is to maintain stable prices conducive to a
sustainablegrowthofthePhilippineeconomy.Itusesinflationtargetingas
its framework for conducting monetary policy. The BSP adjusts its policy
rateandotherrelevantinterestratestoinfluencethecostofmoneyand
ensure the stability of domestic inflation. Using other monetary instruments, the BSP also influences the
volumeofmoneyincirculationforgreatermonetarystability.DuringtheperiodcoveredbythisReport,the
BSPwasabletomaintaintheaverageinflationratewithinthetargetrangesetbytheNationalGovernment.

TheBSPisalsoresponsibleforensuringthatthebankingsystemissoundandstable.TheBSPfulfillsthisrole
byputtinginplacebankingpoliciesandregulationsthathelpguidethebanksinconductingtheirbusiness
safely.Ifthepublicseesthatbanksaremanagedwell,itsconfidenceinthebankingsystemimprovesanditis
encouraged to put its money in banks. In turn, the banks are able to lend these funds to businesses and
otherborrowersforproductiveuses.OvertheperiodcoveredinthisReport,thebankingsystemsresiliency
wasmaintaineddespitechallengesinotherpartsoftheworld.

The BSP also operates the PhilPass, which is the national electronic system that settles funds among local
banksandfinancialinstitutions.TheBSPimplementspoliciesthatensurethatthesepaymentsareprocessed
ontimeinasecuredenvironment.

ThisReportalsodescribestheBSPseffortstopromotefinancialinclusioninthecountry.ItsharestheBSPs
leadingroleintheareasofimprovingaccesstofinancialproducts,enhancingfinancialconsumerprotection
anddeepeningeconomicandfinancialeducation.TheReportalsoshareshowtheBSPaspirestostrengthen
itsinstitutionalframeworkwhileensuringitscorporateviability.

WetrustthatafterreadingthisReport,thereaderwillbeabletoappreciatehowtheFilipinopeopledirectly
benefitfromtheBSPsefforts.

It is our hope that by raising the publics awareness and understanding of the BSP and its role in the
economiclifeoftheFilipinopeople,thegeneralpublicandtheBSPwillfurtherstrengthentheirpartnership
innationbuildingthroughthepromotionofasoundmacroeconomyandastableandsafebankingsystem.

AMANDOM.TETANGCO,JR.
Governor
May2015

iii

2014 Annual Report for the Layman

first

TheBSPsThreePillars
ofCentralBanking

The Bangko Sentral ng Pilipinas (BSP) is the

Philippines central bank. Its predecessor, the
Central Bank of the Philippines (CBP), was
founded in 1949 but ceased operations in 1993.
That same year, the BSP was established by
CongresspursuanttoRepublicAct(R.A.No.)7653
ortheNewCentralBankAct.

TheBSPsnewlogo,adoptedin2010,featuresthe
Philippine eaglewhich symbolizes the BSPs
aspirationtosoartowardbecomingaworldclass
monetary authority. It has three stars
representingthethreepillarsofcentralbanking.

The first pillar is PRICE STABILITY. This entails

keeping inflation low and stable to encourage
higherlevel of savings andinvestments, promote
greaterproductiveactivitiesandjobopportunities
andintheprocess,helpimprovethewellbeingof
Filipinos.ThisistheprimarydutyoftheBSP.

ThesecondpillarisFINANCIALSTABILITY.TheBSP
seeks to maintain the health of the banking
system so that it can effectively promote better
consolidation of savings and grant of credit. The
BSPenforcesrulesandregulationstoensurethat
banks conduct business in a safe and sound
manner.

The third pillar is an EFFICIENT PAYMENTS AND

SETTLEMENTSSYSTEM.Thishelpsensurethesafe,
timely and accurate payment and settlement of
financialtransactions.

pillar

PriceStability

TheprimaryobjectiveoftheBSP,asmandatedby
R.A. No. 7653, is to maintain price stability.
Throughitsmonetary,bankingandcreditpolicies,
theBSPmaintainsstablepricesbyinfluencingthe
cost and volume of money circulating in the
economy.

Inflationistherateofincreaseintheprices
ofgoodsandservices.

Highinflationhurtsnearlyeveryone,exceptthose
who are wealthy and have the capacity to buy
assets that appreciate faster than the increase in
thepriceofgoodsandservices.Italsoincreases
uncertainty and reduces capital expenditures
which are necessary for future production and
employmentgrowth.Moreover,wheninflationis
high, policies that must be undertaken to reduce
it inevitably result in lower growth in both
productionandemployment.

Too little money and credit will reduce demand,

and consequently, reduce productive activities.
Whencreditisscarceandpeoplehavelessmoney
tospend,theywilltendtodemandlessgoodsand
services which will have a dampening effect on
the production of goods and services. On the
otherhand,toomuchcreditandexcessivemoney
supply growth, will increase demand, and
consequently will result in higher inflation and
might result in less than prudent lending by
banks. The BSP does its best to make sure that
thereisneithertoomuchnortoolittlecreditand
moneyincirculation.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

Stable prices are necessary to create an

environment conducive to a balanced and
sustainable economic growth. Unstable prices
distort decisions we make about consumption,
investment,savingandproduction.

Conductofmonetarypolicy

To achieve its primary objective, the BSP

implements monetary policy that supports non
inflationary growth, or economic growth that does
not lead to higher inflation. Since 2002, the
Monetary Board (MB), the policymaking body of
theBSP,hasusedinflationtargetingasaframework
forconductingmonetarypolicy.

With this approach, the BSP announces an explicit

inflation target and promises to achieve it over a
given period. Meeting the inflation target (to
achieve price stability) becomes the main goal of
monetary policy. All other indicators (e.g., foreign
exchange rate, interest rate, etc.) are monitored as
to their effect on the inflation outlook or forecast.
Given its forwardlooking framework, the BSP uses
monetarytoolstokeeptheinflationoutlookwithin
the target range. These tools either promote an
appropriatelevelofinterestrateorregulatemoney
supplytoalevelthatisenoughtomeettheneedsof
anexpandingeconomy.

Monetary policy decisions of the BSP, and its

outlook for future inflation, are communicated to
the public. For an inflationtargeting central bank
such as the BSP, communication and credibility are
crucialinanchoringinflationexpectations.IftheBSP
is credible as a central bank, its monetary policy
decisionswillinfluencethepublicsexpectationsina
way that boosts confidence that inflation will be
keptwithintargetorwillbebroughtinlinewiththe
target.In turn, lenders will settle for lower long
term interest rates, and producers of goods and
servicesandpeoplewholeaseoutpropertyareless
likely to demand large increases in the prices and
rent that they charge if they have wellanchored
expectations that inflation will be within BSPs
target.

The interest rates for the BSPs overnight reverse

repurchase (RRP) and overnight repurchase (RP)
facilitiessignalthemonetarypolicyandserveasthe
Banks primary monetary policy instruments. (RRP
and RP transactions have maturities ranging from
overnight as well as two weeks to one month.)

InanRRPtransaction,theBSPborrowsmoneyfrom
banksusinggovernmentsecuritiesascollateral(the
borrowing rate is referred to as the RRP rate). The
BSPs borrowing has a contractionary effect on
liquidity or money supplyremoving the money
from the banks and parking it with the BSP.
Conversely, in an RP transaction, the BSP lends
money to banks with government securities as
collateral (the lending rate is referred to as the RP
rate). Money parked at the BSP is moved to the
banks and, eventually, to the public. This has an
expansionaryeffectonmoneysupplyandcredit.

To contract or expand the money supply in the

financialsystem,theBSPcanalsodothefollowing:

increaseordecreasethereserverequirement
(the mandatory deposits that banks need to
maintainwiththeBSP);

increase or decrease the interest rate on the

specialdepositaccount(SDA)facilitybybanks
and trust entities of BSPsupervised financial
institutions;

increase or decrease the rediscount rate on

loans extended by the BSP to banking
institutions on a shortterm basis against
eligiblecollateralsofbanksborrowers;and

conductoutrightsales/purchasesoftheBSPs
holdingsofgovernmentsecurities.

WhatisSDA?

TheSDAisafixedtermdepositaccountopentobanks
and trust entities under BSP supervision. It was
introduced in November 2008 to enable the BSP to
expand its toolkit in the management of money
supply. Both RRP and SDA serve as the BSPs
monetary tools in promoting appropriate level of
money in the local economy and help achieve price
stability.

2014 Annual Report for the Layman

InitialResultsofInflationTargeting

In 2012, a decade after the BSP first adopted

inflation targeting, inflation averaged 3.2 percent
well within the official target range of 35 percent
thatyear.In2013,inflationevensloweddownto3.0
percent, which is the low end of the target range,
owing largely to lower electricity rates and slower
priceincreasesforgasolineanddiesel.

In 2014, inflation quickened by 4.1 percent due to

higher food inflation. The higher prices of food
itemsparticularlyrice,meat,fishandvegetables
werebroughtaboutbyproblemsindomesticsupply
(e.g.,weatherrelatedproductiondisruptions,failed
bidding in rice imports, and port congestion and
changing transportation policies) during the first
three quarters of the year. Despite the increase,
inflation remained within the governments 2014
target range of 35 percent. This was also the sixth
consecutiveyearthattheaverageinflationratewas
keptwithinthegovernmenttarget.

Having
more money in circulation could lead to higher
inflation,
which adversely affects all Filipinoswhether

an
exporter,
overseas worker or domestic producer. To

ensure
continued
low and stable inflation, the BSP

implementsmeasurestoremovetheseexcesspesosfrom

thefinancialsystem.

The BSP monetary stance is based on several

factors, particularly the BSPs inflation outlook and
its assessment of both the global and domestic
economies.In2012,theMBcutpolicyinterestrates
by a total of 100 basis points. The decision was
based on its assessment of a benign inflation
outlook, as weaker global growth prospects were
expected to temper the rise in commodity prices.
By bringing the rates for the overnight borrowing
(RRP) and the overnight lending (RP) down to 3.5
percentand5.5percent,respectively,theBSPaimed
at stimulating spending and other economic
activities.

Withamanageableinflationenvironmentin2013,
the MB was able to keep policy rates steady (RRP
and RP at 3.5 and 5.5 percent, respectively)
throughouttheyear.

In 2014, the MB brought up its policy rates to

manage inflation expectations with the 2015
inflation at risk of going above the target range.
Withhigherinterestrates,peoplewilltendtospend
less and save more, putting downward pressure on
inflation. As of endDecember 2014, the RRP rate
stood at 4.0 percent, while the RP rate was at 6.0
percent.

Whatareinflationexpectations?

Inflation expectations refer to peoples expectations

orforecastsofratesofincreaseinthepricesofgoods
and services in the future. Measures of inflation
expectations include surveybased consumer and
business expectations of inflation and inflation
forecastsofprivateanalysts,amongothers.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

second

pillar FinancialStability

Bankingis a business that thrives on public trust.

Banks have an obligation to prudently manage
deposits entrusted to them by the public. To
protecttheinterestofthepublicandimprovethe
financial system of the country, the BSP is also
mandatedbylawtosuperviseandregulatebanks
andquasibanks.

Whatisquasibanking?

Quasibankingreferstotheactofobtainingfunds

from the public other than deposits, through the

issuance, endorsement or acceptance of debt
instruments for the borrowers own account for
the purpose of relending or purchasing of
receivablesandotherobligations.

The Philippine banking system remained resilient

in20122014,againstabackdropoffragileglobal
economic environment. Significant challenges in
major advanced economies (e.g., uneven global
growthprospects,withtheeconomicmomentum
intheUnitedStatestakingrootasopposedtothe
slowrecoveryintheeuroareaandJapan)andthe
softening of economic activity in key emerging
marketssuchasChinaandIndiaduetostructural
bottlenecks and relatively tight financial
conditions added uncertainty to global economic
prospects.

Healthy growth rates were sustained in deposits,

lendingandprofitability.FromP4.5trillionin2012
and P6.1 trillion in 2013, the banking systems
totaldepositsincreasedtoP6.7trillionasofend
December2014.Theexpansionindeposits,which
remainedthebanksprimarysourceoffunds,was
indicativeofsustaineddepositorconfidenceinthe
bankingsystem.

Outstandingloansofcommercialbankscontinued
to expand, posting a 16.2 percent yearonyear
growthasofendDecember2012,16.4percentin
2013, and 19.9 percent in 2014. The continued
growth in bank lending, particularly in the
productive sectors, supported the growth
momentumoftheeconomy.

The Philippine banking systems gross non

performing loans (GNPL) ratio continued to
improve. From 3.4 percent as of endDecember
2012, it sustained its downward path in the next
two yearseasing to 2.8 percent as of end
December 2013 and 2.3 percent as of end
December 2014. Banks initiatives to improve
asset quality along with prudent lending
regulationshelpedinkeepingtheratiobelowpre
Asiancrisislevels.

WhatisNPL?

Anonperformingloan,alsocalled

abaddebtorasouredloan,

isaloanthathasremainedunpaidfor30days

ormoreaftertheduedate.

Thebankingsystemreflectsastrongloan

qualityifithaslowNPLs.LowNPLsareessential

insustainingtheviabilityofindividualbanks

andinmaintainingtheoverallstabilityofthe

domesticfinancialsystem.

Thebankingsystemscapitaladequacyratio(CAR)
of over 15 percent remained comfortably above
the BSPs and the Bank for International
Settlements (BIS) minimum requirements of 10
percent and 8 percent, respectively. As of end
June 2014, the average CAR of universal and
commercial banks (U/KBs) under the Basel III
framework stood at 15.9 percent on solo basis
(the parent bank or quasibank only) and at 16.7
percent on consolidated basis (parent bank or
quasibankplussubsidiariesandaffiliates).

2014 Annual Report for the Layman

WhatisCAR?

Capitaladequacyratio(CAR)isanindicatorofabanks

ability to absorb a reasonable amount of loss. The

minimum
CAR requirement is a means to protect a

banksdepositorsandpromotestabilityinthebanking
at the same time. The BSP requires banks to
system

maintain
capital that is at least 10 percent (the

international
benchmark is 8 percent) of the risk
weightedvalueoftheirriskassets,composedmainlyof

loanreceivables.

The negative impact of global developments on

bankswaslimitedasreformsimplementedinthe
past helped cushion the financial system against
external and domestic shocks. The BSP has
continued to pursue reforms to align its
regulatory and supervisory frameworks with
internationallyaccepted standards and best
practices. For example, the BSP has required
U/KBs to adopt the capital adequacy standards
under Basel III beginning 1 January 2014. While
the Basel Committee on Banking Supervision
(BCBS) had allowed a staggered implementation
of Basel III until end2018 to enable
internationallyactive banks to raise capital
internally, the BSP decided to accelerate the
implementationexhibiting the strength of
Philippine banks visvis international banks in
strugglingpartsoftheglobe.

WhatisBaselIII?

In December 2010, the Basel Committee on Banking

Supervision (BCBS) introduced a set of reforms
otherwise known as the Basel III. The standards
include strengthening the definition of regulatory
capital and introducing capital buffers to enable
bankstowithstandeconomicandfinancialshocks.

Key issuances in 2014 include the further

alignment of regulations to current Basel
requirements; strengthening of corporate
governance;introductionofmeasurestopromote
banking stability; provision of the implementing
rules and regulations of the law allowing the full
entryofforeignbanksinthePhilippines(Republic
Act No. 10641); adoption of a consumer
protection framework to protect the welfare of
financial consumers (see section on Consumer
Protectionfordetails);enhancementoftheBSPs
operational efficiency to keep prudential reports
reflective of the amendments to regulations;
sustained
consultations
with
industry
associations, other regulators and government
agencies, and global and regional partners to
ensure the responsiveness of the BSPs reform
agenda; and improvement in its supervision of
financialinstitutions.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

third

pillar EfficientPayments

andSettlementsSystem

Onevitalservicebanksrendertotheircustomers
is their handling of payments, ranging from the
settlement of regular monthly bills to the
settlement of large amounts for various
obligations. In 2002, the BSP launched the
PhilPaSSinlinewithitsobjectivetolimitsystemic
risks,orrisksthataffectourpaymentssystemasa
whole, and align it with international best
practices. PhilPaSS is an automated facility that
settles fund transfers between participant banks
and financial institutions that maintain deposits
withtheBSP.Itusesarealtimegrosssettlement
system (RTGS) that allows payments and
settlements to be processed and posted as they
happen.Thissystemminimizesrisksinhighvalue
paymentsbetweenbanksbecausetransactionsdo
notrequireexchangeofactualcash.

The PhilPaSS also serves as a settlement arm for

overseas Filipinos (OFs) to ensure the safe and
immediate transfer and settlement of their
remittances from banks and remittance agencies
abroadtotheirbeneficiariesaccountsmaintained
inPhilippinebanks.

Transactions processed and settled in PhilPaSS in

20122014werebroadlysteady:from1.33million
in 2012, they increased to 1.36 million in 2013,
thendroppedslightlyto1.35millionin2014.The
value of transactions, which exceeded P300
trillion each year during the review period,
likewise showed a similar pattern: from P349.6
trillion in 2012, it increased to P351.8 trillion in
2013,thendroppedtoP337.8trillionin2014.The
lower volume of RP/RRP/SDA transactions
contributed significantly to the decrease in the
number and value of PhilPaSS transactions in
2014.

While the volume and value of PhilPaSS

transactionsshowedmixedtrends,totalrevenues
from transaction fees declined over the review
period from P164.2 million in 2012 and P154.9
millionin2013toP145.3millionin2014.

TheBSPsVariousResponsibilities

Asidefrommaintainingpricestability,supervising
all banks, and ensuring a smooth payments and
settlements system, the BSP has other
responsibilities: as the banker of banks, manager
of international reserves, overseer of exchange
rate policy/framework, issuer of Philippine
banknotes and coins, and main bank to the
Philippinegovernment.

BankerofBanks

The BSP is the banker of banks. As the lender of

last resort, it can provide loans and financial
assistancetobankswhennecessary.

The total loans granted by the BSP during the

review period significantly decreased from P53.8
billion in 2012 to P22.6 billion in 2013 andP1.9
billionin2014.Mostloanswerereleasedthrough
theBSPsrediscountingfacility.

Whatisrediscounting?

Rediscounting is a facility where banks may borrow

funds from the BSP, in return for depositing eligible
collaterallikeloansbackedbyrealestate,tradebills,
governmentsecurities,andcommercialpapersissued
by toprated corporate names. It helps banks meet
temporary liquidity needs by refinancing the loans
theyextendtoclients.Rediscountingisalsooneofthe
BSPstoolstoregulatemoneysupply.

In2013,theBSPrationalizedtheguidelinesonits
rediscounting facility. Two rediscounting
windows were established, one for U/KBs and
another for thrift (TBs), rural (RBs), and
cooperative(CBs)banks,withhigherlendingrates
applicable to the first window. The second
windowwillcloseafterfiveyearsforTBsandafter
10 years for RBs and CBs (only the first window
willremainthereafter).1

Upon its effectivity on 15 November 2013, Circular No. 806 has given TBs
until15November2018toaccessRediscountingWindowII,whileRBsand
CBs have been given until 15 November 2023. By 16 November 2013, all
banksshallaccessonlyRediscountingWindowI.

2014 Annual Report for the Layman

Following the rationalization of the rediscounting
facility, the profile of borrowers shifted. While
U/KBsweregrantedthebulkoftheloansin2012
and 2013almost 80 percent and 76 percent,
respectivelyTBs got most of the loans in 2014
(about61percent).

ManagerofInternationalReserves

Foreign exchange is needed to pay for the

countrysimportsandforeigndebts.Tobeableto
meet these obligations when they fall due, there
should be enough foreign exchange or other
foreign/externalassetsthatarehighlymarketable
andreadilyconvertibletoforeignexchange.These
arecalledinternationalreserves.

Since international reserves have been

traditionallylinkedwithimports,themostfamiliar
measure of adequacy of international reserves is
import cover. Import cover refers to the months
ofimportsofgoodsandpaymentofservicesand
income that could be covered by the countrys
international reserves. An import cover of three
(3) months is the ruleofthumb benchmark of a
comfortablereserveadequacy.

The countrys gross international reserves (GIR)

remained ample to cover foreign obligations
during 20122014. Import cover at the end of
2012was12months,withGIRatUS$83.8billion.
In 2013, import cover remained at 12 months,
with GIR at US$83.2 billion. The end2014
reserves level, which stood at US$79.5 billion or
an import cover of 10.4 months, was lower than
thelevelattheendofthepreviousyearmainly
due to payments by the NG of its maturing
obligations, revaluation adjustments, and the
BSPsforeignexchangeoperations.

The BSP is responsible for maintaining enough

international reserves that are needed to pay
maturing external debt. It monitors not just the
timetable of the maturity of existing foreign
exchangeobligations,butalsotheimpactofnew
debtonsuchtimetable.

The level of foreign debt is a sensitive issue to

some sectors of society. But what is more
important is that debts should be used for

worthwhile andintended purposes and that they

arepaidwhentheyfalldue.

Externaldebtcontinuedtobemanageableduring
the threeyear review periodfrom US$79.9
billion in 2012 and US$78.5 billion in 2013, it
further decreased to US$77.7 billion in 2014.
These figures are based on a new reporting
frameworkforexternaldebtdata.

OverseerofExchangeRatePolicy

Asitistaskedtomaintaintheconvertibilityofthe
peso,theBSPsetsthecountrysforeignexchange
rate policy. A marketoriented foreign exchange
policycontinuedtobemaintainedthroughoutthe
reviewperiod20122014asinthepreviousyears.
Under this policy, the BSP allows market forces,
basicallysupplyanddemandforforeignexchange,
to determine the exchange rate, stepping in only
tosmoothensharpfluctuations.

From a relatively strong peso in 2012, which

averaged P42.20 to a dollar, it depreciated over
the next two years to an average of P42.45 to a
dollarin2013andP44.40toadollarin2014.The
peso started to weaken in 2013 on prolonged
concerns over the euro zones debt crisis, the US
budget impasse, and the timing and phasing of
the tapering of the US Feds bond purchases
program. This trend continued in 2014 amid
divergingglobalgrowthprospects.

Migrantworkersandtheirfamilies,whohavealot
atstakeintheprevailingexchangerate,learnways
on how to productively manage their remittances
throughtheBSPsFinancialLearningCampaignfor
OverseasFilipinosandtheirBeneficiaries.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

IssuerofPhilippineBanknotesandCoins

The most popular function of the BSP, currency

issuance, is also a major operation. A whole
complex, the Security Plant Complex (SPC), was
setupmorethanthreedecadesagospecificallyto
help discharge this function. It produces
banknotes and coins, as well as refines gold. The
facilities and operations of the SPC are world
class.

Consistent with its role of regulating money

supply, the BSP oversees the production,
issuance, distribution, and retirement of
banknotesandcoins.WhiletheSPCproducesthe
countrysbanknotesandcoins,theBSPsCurrency
Management SubSector (CuMSS) issues,
distributes and eventually retires these
currencies.

Production of banknotes and coins steadily

increased from 20122014. Banknotes produced
increased from 1,167.4 million pieces in 2012 to
1,455.2millionpiecesin2013and1,511.5million
pieces in 2014. Coins produced increased from
1,400.5 million pieces in 2012 to 1,646.1 million
piecesin2013and2,049.9millionpiecesin2014.

The BSP issues notes and coins for circulation in

the Philippines, as well as commemorative notes
and coins that could also be used in ordinary
financial transactions. However, currency
production (including outsourced) is not equal to
currency issuance. Production for the year is not
meant to supply only that years requirement. If
production is more than issuance, the balance
increasesBSPsbufferstockofunissuedcurrency.
Ifissuanceismorethanproduction,thedifference
willcomefrom,andtherebyreduce,thebuffer.

Issuance of banknotes and coins also steadily

increased from 2012 to 2014. Banknotes issued
increased from 2,864.4 million pieces in 2012
(worthP741.4billion)to3,178.9millionpiecesin
2013 (worth P827.1 billion) and 4,085.7 million
pieces in 2014 (worth P1,128.0 billion). Coins
issued increased from 19,427.6 million pieces in
2012 (worth P22.6 billion) to 21,085.5 million
pieces in 2013 (worth P25.0 billion) and 22,729
millionpiecesin2014(worthP26.7billion).

Howiscurrencyissuedtothepublic?

TheSPCdeliversnewBSPbanknotesandcoinstothe
CurrencyIssueandIntegrityOffice(CIIO),aunitunder
CuMSS, for issuance to the Cash Department (CD),
also of CuMSS, and the Regional Monetary Affairs
SubSector (RMASS). While CD services bank
withdrawals of notes and coins in Metro Manila,
RMASS takes charge of banks cash requirements in
the regions through the BSPs 22 Regional
Offices/Branches. Currency notes and coins are
eventually issued to the public when the publicas
depositors and clientswithdraw their deposits (or
receivetheirloanproceeds)frombanks.

MainBanktothePhilippineGovernment

The BSP is the banker, financial advisor, and

official depository of the Philippine government.
As such, the cash balances of the national
government(NG)aredepositedwiththeBSP.On
the other hand, when the government needs to
repay its foreign debts or release money to pay
expenses,itwithdrawsfromitsdepositswiththe
BSP.

Since these government funds form a significant

portion of the total deposits in the financial
system, coordinating the timing of government
deposits and withdrawals is a key factor in the
BSPsoverallmanagementofmoneysupply.

It is for this same reason that all government

entities, including the NG, need to secure the
concurrence of the BSP before availing foreign
loans or guaranteeing the same. In the case of
domestic loans, at the very least, prior opinion
from the BSP regarding the loans monetary
implicationsisrequired.

2014 Annual Report for the Layman

FinancialInclusionPrograms

In addition to the three pillars of central banking

and its other roles and responsibilities, the BSP
has implemented financial inclusion programs in
theareasofmicrofinance,economicandfinancial
education for the public, and consumer
protection. Financial inclusion is a state wherein
there is effective access to a wide range of
financialservicesforall.

The BSP is presently spearheading the crafting of

a National Strategy for Financial Inclusion to
coordinate efforts of all stakeholders for better
results.

Microfinance

Microfinance is the provision of a broad range of

financialservicessuchasdeposits,loans,payment
services,moneytransfersandinsuranceproducts
to the poor and lowincome households for their
microenterprises and small businesses, to enable
them to raise their income levels and improve
their living standards. Microfinance is not charity
or doleout; it is good business when conducted
properly. Helping the poor help themselves is
theessenceofmicrofinance.

The Philippines has been recognized globally for its

microfinance and financial inclusion initiatives. For
five years in a row (20092013), the Economist
Intelligence Units global survey has ranked the
Philippines as number one in terms of policy and
regulatoryframeworkformicrofinance.

Asitsflagshipprogramtoalleviatepoverty,theBSP
provided a conducive environment for the
developmentofmicrofinanceinthebankingsector.

Regulations were refined during the review period

to better address the needs of the entrepreneurial
poor.In2013,refinementsincludedredefininglow
income households and improving procedures in
the approval of housing microfinance loans and
microagri loans. In 2014, the general features of
microinsurance products were aligned with the
provisions of the new Insurance Code and
microfinancereportingrequirementswereamended
todistinguishmicrofinanceloansfromsmalland
mediumenterprise(SME)loans,andmicrodeposits
fromothertypesofdepositstoimprovethecapture
of data on microfinance. Regulations affecting the
general banking system, but with particular impact
on microfinance and financial inclusion, were also
issued, including those amending the guidelines on
sound credit risk management practices and salary
loans, and the implementation guidelines on the
issuanceofEuropay,MastercardandVisa.

As of endSeptember 2014, there were 179 banks

with microfinance operations. These banks served
1.2 million borrowers with an outstanding loan
portfolioofP9.4billion.

From2009to2013,thePhilippineswasconsistently
ranked as the best in the world in terms of
regulatory environment for microfinance. In the
broader field of financial inclusion, the Philippines
was named by the Economic Intelligence Unit (EIU)
asthetopcountryinEastandSouthAsiaandthird
in the world with the most conducive environment
foritsdevelopmentin2014.

Aside from being a regulator, the BSP also plays

the role of facilitator in linking SMEs with credit
providers.
The
BSP
spearheads
the
implementationoftheCreditSuretyFund(CSF),a
fund generated from: 1) contributions of well
capitalized and wellmanaged cooperatives/ non
government organizations (NGOs); 2) a
counterpart contribution from the local
governmentunit(LGU)intheprovincewherethe
contributing cooperatives/ NGOs are operating;
and 3) voluntary contributions from donor
institutions.

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

15 May 2012. BSP Deputy Governor Diwa C. Guinigundo and City

MayorDarleneMagnoliaR.AntoninoCustodioledthesigningofthe
MOA and the launching of the 22nd CSF in the country at the
Executive Ballroom of Family Country Hotel and Convention Centre,
MateoRoad,Lagao,GeneralSantosCity.

TheCSF is usedto provide a maximum of 80 percent

suretycoverforloansgrantedbybankstofinancially
challenged entrepreneurs, who would otherwise find
it difficult to access such credit facilities due to
insufficient collateral, limited credit history, or
inadequatefinancialrecords.

As of endDecember 2014, 37 CSFs have been

organized in different provinces all over the
country.

EconomicandFinancialEducation

Through its Economic and Financial Learning

Program (EFLP), the BSP continued to promote
inclusive and proactive economic and financial
education among its stakeholders. In 20122014,
theEFLPwasconductedin19cities/municipalities
in various provinces nationwide. In addition,
FinancialEducationExposwerealsoconductedin
twoothercitiesin2012.

FinancialEducationforSchoolchildren

The BSP continued to take an active role in

promotingthehabitofsaving,particularlyamong
schoolchildren.

In 2012, the BSP hosted the Asia and the Pacific

Regional Meeting for Child and Youth Finance in
Manila in partnership with the Child and Youth
Finance International (CYFI), an organization
whichisattheforefrontof theglobalmovement
to promote saving among schoolchildren. The
meetingattractedparticipantsfrommorethan20

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countries and provided an avenue for sharing

lessonslearnedandbestpracticesthathavebeen
developedbasic ingredients for crafting a
regional agenda that would provide child and
youth finance education and access to financial
services.

The CYFI has described the BSPs program with

DepEd as an international best practice model
which institutionalizes finance education in
schools. The organization also praised the
developmentofaffordableandchildfriendlybank
products through the Kiddie Account Program by
selectedbanks.

The BSP partnered with the Department of

Education (DepEd) in the yearly search for best
financial education teachers in public elementary
schools, called Gantimpala para sa Ulirang
Pagtuturo ng Pagiimpok at Araling PanSalapi
(Guro ngPagAsa). Startedin 2012, the program
recognizesthebestteacherswhohaveintegrated
lessons on savings, money management, and
basic entrepreneurship in the elementary
curriculum. Elementary teachers use teaching
guides on financial literacy (selected subjects)
developedbyBSPandDepEd.

The BSP also partnered with the Bank Marketing

AssociationofthePhilippines(BMAP)topromote
the Kiddie Account Program which makes it easy
forchildrentoopenbankaccounts.

The Kiddie Account Program encourages children to

opentheirownaccountswithaninitialdepositofonly
P100 (or less than US$2.50). The Kiddie Account
Program has 12 participating banks that own about
halfofthebankbranchesinthecountry.

2014 Annual Report for the Layman

ConsumerProtection

FinancialConditionoftheBSP

TheBSPcontinuedtoprovideanaccessiblevenue
for consumer assistance and redress through the
Financial Consumer Protection Department
(FCPD), which attends to complaints on BSP
supervised institutions and their products or
services.

In its more than eight years of operation

(including the time when FCPD was not yet a
Department), it has been assisting in resolving
complaints, inquiries and requests from financial
consumers. This is in line with the BSPs
commitment to protect the rights and welfare of
financialconsumers.

In2012and2013,theBSPsoughttoimprovethe
implementation of the Truth in Lending Act (R.A.
No. 3765) to ensure that consumers make
informeddecisionswhentheyavailofloans.Aside
from requiring the full disclosure of all bank fees
andchargesrelatedtotheextensionofcredit,the
BSPalsorequiredallcreditgrantinginstitutionsto
use a standard and simple format of disclosure.
This would ensure that borrowers are provided
with the information they need to better
understandtheirloantransactions.

In2013,withtechnicalassistancefromtheWorld
Bank,theBSPparticipatedinreviewingconsumer
protection in the banks. The review assessed
whether existing legal, regulatory, and
institutional systems and practices pose
significant barriers to effective consumer
protection. Subsequent actions to further
improve the BSPs consumer protection policies
andprogramshavebenefittedfromtheresultsof
thisreview.

In 2014, the BSP institutionalized consumer

protection as an integral component of banking
supervision in the country through the adoption
oftheFinancialConsumerProtectionFramework,
which sets standards on: 1) disclosure and
transparency;2)fairtreatment;3)respect
of clients privacy; 4) financial education and
awareness;and5)effectiverecourse.

The BSPs assets reached P3,976.4 billion as of

endDecember2012,increasedtoP4,202.1billion
asofendDecember2013,andsettledatP4,087.5
billion as of endDecember 2014 (unaudited).
Lowerinternationalreservesaccountedforlower
assetsin2014.

TheBSPsliabilitiesreachedP3,911.1billionasof
endDecember2012,increasedtoP4,161.3billion
as of endDecember 2013, and settled at
P4,043.2 billion as of endDecember 2014
(unaudited).Lowerliabilitiesin2014weremainly
due to lower bank placements in the BSPs SDA
facility.

The BSPs net worth, or assets less liabilities,

reached P65.3 billion as of endDecember 2012,
decreased to P40.8 billion as of endDecember
2013, and increased to P44.4 billion as of end
December2014(unaudited).Networthincreased
in 2014 due to the P10billion capital infusion of
theNGduringtheyear.

The BSP registered declining losses from

operations during the review period: losses went
downfromP95.0billionin2012toP25.1billionin
2013andP11.3billionin2014(unaudited).Lower
interest expense due to lower interest rates on
the SDA facility and lower SDA placements
contributedtothelowerlossesin2014.

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The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

Fromnumerousrecognitionsonitsstellar
performanceasacentralbank,toaccoladesonits
variousadvocacyprograms,theBSPhasproven
timeandagainthatitisindeedworldclass.

1. 2013 Child and Youth Finance International Country Award

2. 2012 Lingkod Bayan Award for PhilPaSS REMIT System
3. Best Macroeconomic Regulator Award, 2013
Asian Banker Leadership Awards
4. Finalist, Department of Healths Search for Outstanding Healthy Lifestyle Advocacy Awards 2013
5. Grand Champion, Civil Service Commissions 2013 Government Chorale Competition

12

2014 Annual Report for the Layman

10
7

6. Management Excellence: Financial Inclusion Award, 2013

BizNews Asia
7. Best Conduct of Business Regulator Award in Asia Pacific, 2013
15th Asian Banker Summit
8. Maya Declaration Award and AFI Honorary Award for the BSP Governor, 2014
Alliance for Financial Inclusion
9. Global recognition for best practices on financial inclusion, 2014
10. BSP Governor Amando M. Tetangco, Jr.
One of the Worlds Best Central Bankers
Global Finance, 2013

13

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

FinancialStatements

14

2014 Annual Report for the Layman

15

The BSP in the Economy:

The Three Pillars of Central Banking in the Philippines

16

2014 Annual Report for the Layman

The Bangko
Sentral ng Pilipinas
Monetary Board

2
3

MBMemberDeZuigatookhisOathofOfficeon24July2014
MBMemberAranetatookhisOathofOfficeon30July2014
RetiredasmemberoftheMonetaryBoardeffective15February2014
RetiredasmemberoftheMonetaryBoardeffective03July2014

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