GREATER fiscal accountability has allowed the Association of Southeast Asian Nations (Asean) to withstand the shockwaves created by recent global developments, according to the Bangko Sentral ng Pilipinas (BSP).
In the Gala Seminar of the 2023 ASEAN Chairmanship of Indonesia on Wednesday, BSP Governor Felipe M. Medalla said fiscal discipline that sprung from the 1997-1998 Asian Financial Crisis (AFC) has made the region’s banking sector resilient.
“When you look at all these countries, they’ve got problems and they have long memories and they have learned from the past. They do not have this attitude that money grows on trees,” Medalla said in an open forum on Wednesday.
“And there is, I think, rising accountability because the middle class is growing. That I think in itself will make this region even better,” he added.
This was Medalla’s response to a question on how Asian banks have shown resilience amid the banking turmoil experienced by advanced countries like the United States and Europe.
Memory of Asian crisis
Medalla noted that in the case of the Philippines, most of those who now run Philippine banks still have a good memory of the AFC which makes them more prudent in crafting and implementing banking policies.
He said many of those who are now the top executives in Philippine banks were once Vice Presidents and Managing Directors of financial institutions that were around during the AFC.
“The people running the banks were probably the Vice Presidents or the Managing Directors in 1997. So they all knew the memory of the Asian Financial Crisis,” Medalla said in his speech.
Apart from this, Medalla noted that ASEAN central bank governors were prudent in maintaining adequate reserves that served as the buffer of countries.
He explained that prudence can go a long way in avoiding the ill effects of populism on a country’s finances. Medalla said every country in the world had a “favorite subsidy” and populism sometimes prevents countries from collecting taxes to finance these subsidies.
However, Asean countries have been vigilant in keeping fiscal authorities well-run, which prevents central banks from falling under pressure to finance shortfalls.
No impact
Earlier, Medalla told reporters that recent developments such as the collapse of some banks in the United States as well as the recent acquisition of Credit Suisse Group (CSG) AG by UBS Group AG through a “government-brokered deal” will not have an impact on the global economy, including the Philippines.
Medalla also gave assurances that the BSP will closely monitor these developments as well as “assess their impact on the banking system and respond accordingly.”
The BSP chief assured the President that the banking sector can “withstand possible shocks” that could emanate from the collapse of Silicon Valley Bank (SVB) and Signature Bank.
Medalla also said losses of Philippine banks from rising interest rates are smaller relative to their counterparts in the United States.
He noted that the interest rate hikes of the US Federal Reserve were larger. The US Fed has already raised key policy interest rates by 450 basis points (bps).
The BSP Overnight Reverse Repurchase Rate is currently at 6 percent from 2 percent on May 19, 2022, or 400 bps rate hike over the same policy horizon.
