BANGKO SENTRAL NG PILIPINAS

The Bangko Sentral ng Pilipinas (BSP) is the independent central monetary authority of the Republic of the Philippines. Established under the New Central Bank Act of 1993, the BSP is primarily mandated by law to ensure the maintenance of price stability conducive to a balanced and sustainable growth of the economy.

Policy-Making The Monetary Board is the highest policy-making body in the BSP. It consists Body of five full-time private sector representatives and two government
representatives, namely, the BSP Governor, who is also the Chairman, and a cabinet secretary.

Frequency of The Monetary Board meets at least once every week. Moreover, the Monetary Meetings Board meets eight (8) times a year, with intervals between meetings ranging
from six (6) to eight (8) weeks, to deliberate, discuss, and decide on the direction and stance of the BSPs monetary policy to keep inflation within the target.

Degree of Under Section 1, Article I of the New Central Bank Act of 1993, it is mandated Independence that the central monetary authority shall function and operate as an independent

and accountable body corporate in the discharge of its responsibilities concerning money, banking and credit. In line with this policy, the BSP, while being a government-owned corporation, enjoys fiscal and administrative autonomy. The BSP is independent of the fiscal sector, even as the government may be represented in the Monetary Board inasmuch as the law allows the President of the Philippines to appoint any cabinet secretary to be the other government representative. The BSP has the independence and flexibility needed in the discharge of its duties. While the BSP has fiscal autonomy, it realises the importance of coordinating closely with the National Government (NG) to support the broad economic goals of the nation. The powers and functions of the BSP are exercised by the Bangko Sentral Monetary Board composed of seven members appointed by the President of the Philippines. The Governor of the BSP is the Chairman of the Monetary Board. The Governor, as the Chief Executive Officer of the BSP, directs and supervises the operations and internal administration of the BSP.

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Under the New Central Bank Act, one of the Government sector members of the Monetary Board must be a member of the Cabinet designated by the President of the Republic of the Philippines, the position of which is currently held by the Secretary of the Department of Finance. The other five (5) Monetary Board members come from the private sector, all of whom serve on a full time basis. All Monetary Board members, including the Governor, serve for a fixed term of six years.1 With the exception of the member of the Cabinet, the Governor and the other members of the Monetary Board may only be removed for cause. The New Central Bank Act establishes certain qualifications for the members of the Monetary Board and also prohibits members from holding positions in other governmental agencies and private institutions that may give rise to conflicts of interest. The New Central Bank Act authorises the Governor of the BSP to appoint up to three Deputy Governors, subject to the approval of the Monetary Board. Action by the Monetary Board requires the affirmative vote of at least four members. The BSP is permitted by law to adopt its own compensation schedule for certain positions independently of the national government sector. To improve transparency regarding the conduct of monetary policy, the highlights of the minutes of the meetings of the Monetary Board pertaining to discussions on monetary policy are published with a lag of four (4) weeks.

Primary The BSP is primarily mandated by law to ensure the maintenance of price Objective and stability conducive to a balanced and sustainable growth of the economy. Thus, Responsibility price stability is considered a necessary complement, rather than an alternative,

to economic growth. The attainment of monetary stability and convertibility of the Philippine peso is also an explicit goal of the Philippines' monetary authority. The BSP also provides policy directions in the areas of money, banking and credit. It supervises the operations of banks and exercises regulatory powers over the operations of finance companies and other non-bank financial institutions performing quasi-banking functions and institutions performing similar functions.

MONETARY STABILITY
On 24 January 2000, the Monetary Board approved in principle the shift to inflation targeting as a framework for conducting monetary policy in the country. Inflation targeting focuses mainly on achieving price stability as the ultimate objective of monetary policy. This approach entails the announcement of an explicit inflation target that the central bank promises to achieve over a given time period. The target inflation rate is set jointly by the BSP and the government through the Development Budget Coordination Committee (DBCC), an inter-agency body comprising the Departments of Finance, Budget and Management, and the National Economic and Development Authority. Although achieving the target rests primarily with the BSP, this joint announcement reflects active government participation in achieving the goal of price stability. The BSP formally adopted inflation targeting as the framework for monetary policy in January 2002.

Based on the provisions of Article II Section 6(c) of the New Central Bank Act, the initial appointment of three of the members of the Monetary Board had a term of six years and the other two had a tenure of three years. BANGKO SENTRAL NG PILIPINAS

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The BSPs shift from a variable annual inflation target in earlier years to a fixed medium-term target for 2012 to 2014 was approved on 9 July 2010 under DBCC Resolution No. 2010-3. The adoption of a fixed medium-term target is intended to help promote a long-term view on inflation, increase the flexibility and predictability of monetary policy, and better anchor inflation expectations. As part of the institutional framework for inflation targeting, staff assessments and forecasts are presented to the Advisory Committee, which is tasked to formally recommend policy actions to the Monetary Board in matters pertaining to monetary policy. The Committee is chaired by the Governor of the BSP and comprises four other members, namely the Deputy Governor of the Monetary Stability Sector, the Deputy Governor of the Supervision and Examination Sector, the Assistant Governor of the Monetary Policy Sub-Sector, and the Assistant Governor of the Treasury Department. The Advisory Committee meets eight times a year (or approximately every six to eight weeks) to deliberate, discuss, and make recommendations to the Monetary Board on issues relating to the formulation and implementation of monetary policy. However, the Committee may also meet in between the regular meetings, whenever it is deemed necessary.

Policy Instruments In the operational conduct of monetary policy, the BSP uses primary and
secondary tools to influence money supply in order to achieve the inflation target for the year. Primary Tool. The BSPs primary monetary policy instruments are the overnight reverse repurchase (RRP) or borrowing rate and overnight repurchase (RP) or lending rate. The BSP sets these key policy rates during the meetings of the Monetary Board on monetary policy to steer inflation towards the target. Secondary Tools. The reserve requirement is used as one of the secondary tools of monetary policy. The reserve requirement is the portion of deposits

and deposit substitute liabilities that banks and quasi-banks are required to set aside to allow the BSP to have greater control over liquidity conditions and to help protect depositors by ensuring that banks have sufficient funds to service withdrawals. The required reserves may be held in the form of deposits with the BSP in demand deposit accounts (DDAs) or the form of reserve-eligible government securities.2 The BSP no longer remunerates reserve deposits with the BSP.3

These securities refer to bonds or other evidences of indebtedness representing direct obligations of the National Government. These securities were qualified as reserve-eligible government securities under the old Central Bank. The BSP discontinued the policy of allowing the use of government securities as part of banks compliance with reserve requirements in February 2005 to simplify monetary management. In 2012, the BSP rationalized its reserve requirement policy with the objective of increasing the effectiveness of reserve requirements as a monetary policy tool, simplifying its implementation, and improving the monitoring of banks compliance. The three operational adjustments which took effect on 6 April 2012 are (1) the unification of the existing statutory and liquidity reserve requirements into a single set of reserve requirements; (2) the non-remuneration of the unified reserve requirements; and the exclusion of vault cash (for banks) and demand deposits (for non-bank financial institutions with quasi-banking functions) as eligible forms of reserve requirement compliance.

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Policy Instruments Another policy tool is the rediscount window, which allows the BSP to manage
the volume of credit in the financial system. Rediscounting is a standing credit facility that the BSP extends to banking institutions to help them meet temporary liquidity needs by refinancing the loans they extend to their clients. Moreover, the BSP maintains a regular peso rediscount budget in order to ensure that the rediscount credits it extends are consistent with its price stability objective. Depending on prevailing liquidity conditions, the BSP adjusts the rediscounting budget to increase or reduce liquidity in the system.4 The BSP currently offers two rediscounting facilities to qualified banks: the peso rediscounting facility and the Exporters Dollar and Yen Rediscount Facility (EDYRF). Special Deposit Accounts (SDAs) complement open market operations in managing liquidity. Banks, including trust entities under BSP supervision, are allowed to place funds with the BSP under the SDA facility. These placements are not collateralized, and they earn various interest rates depending on their tenor. On 13 July 2012, the BSP issued regulations to discourage funds from foreign or non-resident sources from being placed in the SDA facility. 5

Policy Signals What to Look For. The BSP looks at a wide set of indicators of price and output
conditions, including real gross domestic product (GDP) growth, commodity prices, and remittance inflows, among others, in assessing the appropriateness of policy settings. The movements of monetary aggregates such as the levels of reserve money (RM), base money (BM), and domestic liquidity or M3 are also monitored as indicators of monetary conditions. The BSP also follows closely international developments and their potential impact on the local economy. Monetary policy is guided primarily by the inflation outlook as reflected in the BSPs inflation forecasts. Adjustments in the BSPs overnight borrowing or overnight lending rates indicate the stance of monetary policy. The 91-day Treasury bill rate is used as the benchmark reference rate by banks and other financial institutions in the Philippines for the pricing of loans. Other market interest rates also track the movements of the Treasury bill rate. Where to Look At. The BSP has its own Web Page in the Internet (http://www.bsp.gov.ph) where key information about the Philippine economy and the financial system, including the BSPs policy issuances, media releases, selected publications (Annex 1) as well as various economic and financial indicators (Annex 2), are made available. The BSPs Economic Database (EDB) likewise facilitates more timely and accurate processing, analysis and presentation of the statistical series being monitored by the Monetary Policy Sub-sector (MPSS).

The rediscounting budget was increased by P20 billion each in November 2008 and March 2009 to reach P60 billion in response to the global economic slowdown. Amid improved credit and liquidity conditions, the peso rediscounting budget was subsequently reduced by P20 billion each in March and May 2010 to revert to the pre-crisis level of P20 billion. 5 BSP Memorandum No. M-2012-034.

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Other Policy Information Released by the BSP

Changes in the monetary policy stance of the BSP are announced through a press statement issued at a briefing following each monetary policy meeting. In addition, a report on highlights of the MB meeting reflecting the BSPs monetary policy stance is also being made available to the public through the BSP website with a lag of four weeks. Other policy decisions of the Monetary Board are released through circulars, circular letters and memoranda to financial institutions under the BSPs supervision, and through periodic press releases and statements. These decisions include prudential regulations, foreign exchange and other regulations affecting the operation of banks and non-banks supervised/regulated by the BSP and establishment of banks and bank branches. The BSP also publishes a quarterly Inflation Report (IR) that provides an assessment of economic and financial conditions, a review of BSP monetary policy actions and the reasons for these actions as well as a discussion on the outlook for inflation for the policy horizon. Likewise, the BSP conducts quarterly press briefings on the IR, with representatives from the government and private sectors attending. Consistent with the BSPs forward-looking monetary policy framework, the BSP announces every December of each year the inflation target two years in advance.6 For 2012-2014, the governments target for annual headline inflation has been set at 3-5 percent. To ensure accountability in cases where the BSP fails to achieve the inflation target, the BSP Governor issues an Open Letter to the President outlining the reasons why actual inflation did not fall within the target, along with the steps that will be taken to bring inflation towards the target. The quarterly IR and the Open Letter are available on the BSP website along with other policy decisions and regulations.

Philippines-IMF Participation in the Financial Transactions Plan (FTP). In line with its Relations commitment to help address threats to the international monetary system and
given its sufficiently strong balance of payments and reserve position, the Philippines was assessed eligible to participate in the Funds FTP, a currency exchange arrangement between the Fund and its member to finance its lending and borrowing operations. Philippine participation commenced in August 2010 and the country, through the BSP, remains to be an active participant of the FTP. In exchange for the use of the Funds holdings of members currency in loan transfers, the Philippines acquires an equivalent increase of SDR in its reserve tranche position in the Fund altering the composition, but not the level, of its gross international reserves (GIR). As of end-August 2012, the IMF has made a total of SDR184.8 million (about US$283.5 million7) in drawdowns to finance Fund arrangements for six countries. More than half of the funds were disbursed to European countries such as Portugal, Ireland, and Greece indicating the Philippines involvement in the global efforts to address the crisis in the Euro zone area.

On 15 July 2010, the BSP announced the shift from a variable annual inflation target to a fixed medium-term inflation target, as approved by the Development Budget Coordination Committee (DBCC) under Resolution. No. 2010-3. 7 1 USD = SDR 0.651741 (as of 11 September 2012) BANGKO SENTRAL NG PILIPINAS

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Participation in the New Arrangements to Borrow (NAB). On 10 May 2010, the Philippines, along with twelve (12) new participants, were invited to participate in the NAB facility of the IMF. The NAB is a credit arrangement between the IMF and a group of member countries and institutions to provide supplementary resources of up to SDR34 billion (about US$52 billion) to the IMF to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system. On 12 October 2011, the BSP in its letter to the IMF Managing Director notified the Fund that the BSP, in accordance with its laws and with the consent of the Republic of the Philippines as member of the IMF, adheres to the Decision on the NAB and committed a maximum amount of SDR340 million (about US$518 million). As of end-August 2012, the IMF has made a total of SDR36.8 million in drawdowns to finance extended arrangements for Greece and Portugal. Participation in the Bilateral Borrowing Facility. On 24 May 2012, the Monetary Board of the BSP approved the commitment to the Bilateral Borrowing Facility of the IMF amounting to US$1 billion, subject to the concurrence of the President of the Republic of the Philippines. This commitment is indicative of the BSPs strong external position, firm resolution to stand by the IMF, and in support of the needs of the international community to address global financial concerns. The Presidential consent was obtained by the BSP on 18 June 2012 while the modality of the contribution (whether through loan or note purchase agreement) is still being evaluated. Continued support in country surveillance activities by the Fund. IMF surveillance takes the form of regular comprehensive consultations with member nations. The consultations are referred to as Article IV Consultation and are required under the Article IV of the Funds Articles of Agreement. The IMF conducted a Staff Visit to the Philippines on 16-19 July 2012. Staff assessed that the Philippine macroeconomic conditions remain generally sound but is being affected along with other countries in the region by the fragile global economic environment. Staff commended the authorities fiscal and monetary policy management which is supporting confidence and has built up room for a strong response should further negative shocks occur. Meanwhile, the 2012 Article IV Consultation will be conducted in January 2013. The Consultation Mission serves as a venue for policy dialogue between government authorities and Fund experts on the countrys economic situation and outlook. The new Mission Team will meet with authorities and key market players to discuss economic developments and identify key risk areas amidst uncertainties in the global environment.

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FINANCIAL STABILITY
Authorities Responsible for Financial Stability and Supervision of the Financial Sector
The relevant authorities responsible for financial stability and supervision of the financial sector in our economy are the following: a) b) c) d) Bangko Sentral ng Pilipinas (BSP) Insurance Commission (IC) Securities and Exchange Commission (SEC) Philippine Deposit Insurance Corporation (PDIC)

With regards to the promotion of financial stability, the BSP has started laying the groundwork in providing the required institutional support for its financial stability function. A high-level Financial Stability Committee (FSC), composed of senior management and chaired by the Governor, was established within the BSP on 14 September 2010. The Committee is tasked to define BSPs organizational roadmap to adequately mitigate the build-up of systemic risks to the financial system and further advance an enabling financial stability framework in the Philippines. Moreover, an inter-agency body was officially convened during the first meeting of the Executive Board of the Financial Stability Coordinating Council (FSCC) on 13 April 2012. The meeting likewise confirmed the chairmanship of Governor Amando M. Tetangco, Jr. and the membership of the Securities and Exchange Commission (SEC), Insurance Commission (IC), Philippine Deposit Insurance Corporation (PDIC), and the Department of Finance (DOF) to the FSCC.

Institutional The institutional coverage of the following financial supervisory authorities are Coverage of the as follows: Financial Supervisory Bangko Sentral ng Pilipinas Authorities
a. Banks engaged in the lending of funds obtained in the form of deposits classified into: Universal banks (UBs) 8; Commercial banks (KBs); Thrift banks (TBs)9, Rural banks (RBs)10 and Cooperative banks (CBs)11.

b. Non-Bank Financial Institutions (NBFI) with Quasi-Banking Functions12. Quasi-banking functions consist of the following:

Including the government-owned Al-Amanah Islamic Investment Bank of the Philippines as defined in R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines 9 As defined in Republic Act (R.A.) No. 7906, An Act providing for the regulation of the organization and operation of Thrift Banks, and for other purposes, which shall be composed of: (a) savings and mortgage banks, (b) stock savings and loan associations, and (c) private development banks; 10 As defined in R. A. No. 7353, An Act Providing for the Creation, Organization and Operation of Rural Banks, and For Other Purposes 11 As defined in R. A. No. 6938, The Cooperative Code of the Philippines 12 Refers to investment houses, finance companies, trust entities and all other non-bank financial institutions with quasi-banking functions. BANGKO SENTRAL NG PILIPINAS

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(1) Borrowing funds for the borrower's own account; (2) Twenty (20) or more lenders at any one time; (3) Methods of borrowing are issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: i) acceptances; ii) promissory notes; iii) participations; iv) certificates of assignment or similar instruments with recourse; v) trust certificates; vi) repurchase agreements; and vii) such other instruments as the Monetary Board may determine. (4) Purpose: i) relending; or ii) purchasing receivables or other obligations. c. Subsidiaries and affiliates of banks and quasi-banks engaged in allied activities d. Trust entities e. As provided by special laws such as non-stock savings and loan associations and pawnshops Insurance Commission All insurance companies Securities and Exchange Commission Corporations (other than those under the supervision of the BSP and IC) and partnerships Philippine Deposit Insurance Corporation All operating banks in the Philippines are members of the PDIC.

Supervisory The New Central Bank Act or Republic Act No. 7653 provides a legal Framework framework for the BSP as the supervisor of the banking sector. Under the same
law, the BSP supervises and conducts periodic or special examination of banks and quasi-banks including their subsidiaries and affiliates engaged in allied activities. The General Banking Law of 2000 or Republic Act No. 8791, on the other hand, provides for the regulation and organization of banks, quasi-banks and trust entities. Simultaneous with the rationalisation of the legislative and regulatory framework, the BSP is re-aligning its systems and processes in the supervision and examination of banks. The shifting of gears towards a consolidated approach to supervision as well as a risk-based examination of banks has started long before the enactment of the new General Banking Law of 2000. The BSPs supervisory techniques include the following:

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1) Consolidated Supervision The Supervision and Examination Sector of the BSP shifted to a consolidated supervision approach (SE Sector Order No. 11 dated 16 October 1998). This is in line with its initiatives aimed at strengthening the BSP regulatory oversight. 2) Risk-based Approach to Examination The BSP shifted from the traditional checklist approach to a risk-based approach to bank examination (SE Sector Order No. 10 dated 24 November 1997) to include, among others, the evaluation of the risk management systems of banks covering the following: a) Active Board and Senior Management oversight; b) Adequate policies, procedures and limits; c) Adequate risk measurements, monitoring and management systems; and d) Comprehensive internal controls. The BSP approved the guidelines on supervision by risk under Circular No. 510 dated 3 February 2006, setting forth the expectations on the conduct of risk management by financial institutions under its supervision. 3) On-site Examination This refers to an investigation of an institution under the supervisory authority of the BSP to determine compliance with laws and regulations. It includes the determination of whether the institution is conducting its business on a safe and sound basis and requires full and comprehensive examination of the operations and books of institutions. Regular or periodic examinations are done once in every 12 months, with an interval of twelve months from the last date thereof while special examinations may be conducted earlier, or at a shorter interval, when authorized by the Monetary Board by an affirmative vote of five (5) members. 4) Off-site Surveillance System Compliance with the BSP-prescribed prudential norms is monitored in between examination periods based on the periodic reports submitted by banks. In addition to this, the BSP has early warning tools that qualify a bank for close monitoring and when deemed necessary, subjected to a special examination and other related supervisory actions and sanctions. 5) Bank Performance Rating The BSP has adopted the following rating systems: (a) CAMELS (Capital Adequacy, Asset Quality, Management, Earnings and Liquidity) rating system which has been revised to incorporate the banks sensitivity to market risks; (b) Risk Assessment System (RAS), which is

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used to supplement the risk-based examination approach; (c) Risk Management, Operational Control, Compliance and Asset Quality (ROCA) developed and implemented for foreign bank branches; and (d) Strength of Support Assessment (SOSA) rating system that specifically assesses the strength of support of a foreign parent bank to its branches. 6) Trust Rating System The Trust Rating System (TRS) is utilized as an internal supervisory tool that is prepared after each regular examination of the trust entity. This is to effectively supervise the operations of trust departments of banks and non-bank financial institutions authorized to engage in trust, other fiduciary business and investments management activities. 7) Anti-Money Laundering Risk Rating System (ARRS) In order to implement its continued commitment and support of the global fight against money laundering, the BSP pursued a number of initiatives to bring the Philippines' regulatory regime on money laundering closer to international standards. Recently, an AML Risk Rating System (ARRS) was developed to complement the risk-focused examination process (Memorandum to All Banks No. 2012-017 dated 4 April 2012). The ARRS is an internal rating system to be used by BSP to understand whether the risk management policies and practices as well as internal controls of banks and NBFIs to prevent money laundering and terrorist financing are in place, well disseminated and effectively implemented. It also ensures that all covered institutions as defined under Circular No. 706 dated 05 January 2011 are assessed in a comprehensive and uniform manner, and that supervisory attention is appropriately focused on entities exhibiting inefficiencies in Board of Directors and Senior Management oversight and monitoring, inadequacies in their AML framework, weaknesses in internal controls and audit and defective implementation of internal policies and procedures. 8) Manual on Supervision and Examination on Financial Institutions To align supervisory process with international best practice using the risk-based approach, the BSP adopted the Manual on Supervision and Examination on Financial Institutions. The BSP is currently revising the said Manual, particularly on the examination procedures and the content of the Report of Examination to reflect the new developments and regulations in the banking system. 9) Prompt Corrective Action Units As a matter of policy, banks with potential problems are subject to intensive monitoring by specialised prompt corrective action units of the BSP. As problems are confirmed, prompt and corrective actions (PCA) are initiated depending on the severity of deviation from prudential norms, particularly on solvency. The Monetary Board approved the prompt corrective action framework or the PCA Framework for the enforcement of prompt corrective actions on banks and other financial

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institutions with solvency problem, low CAMELS rating and/or serious supervisory concern. Upon PCA initiation, the BSP shall require the bank to enter into a Memorandum of Understanding (MOU) committing to the PCA plan. The MOU shall be subject to approval by the Deputy Governor, Supervision and Examination Sector and confirmation by the Monetary Board (Circular No. 523 dated 23 March 2006, as amended by Circular Nos. 664 dated 15 September 2009 and 729 dated 08 July 2011). 10) Data Warehousing The data warehousing project is a bank-wide initiative to be executed in phases. The first phase will focus on the requirements of the SES with linkages to the Department of Economic Research (DER) and Philippine Deposit Insurance Corporation (PDIC) while the second phase shall cater to the data requirements of other BSP departments. 11) Internal Capacity Building The BSP has also been improving its internal capacity and has set-up performance standards by providing necessary training and logistical support to bank supervisors. In 2005, a structured training programme was developed and implemented to emphasise the assessment of bank risks. 12) Cooperative Arrangements with Foreign Counterpart Regulators In compliance with the then 25 Basel Core Principles for Effective Banking Supervision13, the Monetary Board of the BSP approved on 15 July 2004 the guidelines for the exchange of information between the BSP and its foreign counterpart regulators. This cooperative arrangement gives foreign/home supervisory counterparts access to information and data with supervisory significance apart from the publicly available information of respective foreign-based banks in the Philippines which can be accessed without prior approval from the Monetary Board. For information otherwise publicly not available though, home supervisors are given access to the extent permitted by law and subject to the approval of the Deputy Governor, Supervision and Examination Sector for foreign regulatory agencies with existing Memorandum of Understanding (MoU) on information exchange with the BSP and to the approval of the Monetary Board for home supervisors without an MoU on information exchange with the BSP. The exchange of information will also give access to a wealth of information on international policies on banking regulations for host supervisors.

13 The Basel Committ ee on Banki ng Supervi si on (B CBS) published la st September 2012 t he 29 Core Principle s for Effe ctive Banking Supervi sion which revise s the old frame work originally issued i n 1997.

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13) Cooperative Arrangements with Domestic Counterpart Regulators The BSP has formalized cooperative arrangements with other regulators and government agencies through its membership in the Financial Sector Forum (FSF) since 2004. One of the important elements of the overall supervisory strategy and macro prudential policy14 to promote the stability of domestic financial system is the adjustment of existing prudential regulations to address the changing demands of modern financial services industry. In particular, regulatory enhancements are aimed to make risk-based capital adequacy requirements aligned with the global standards set by the Basel Committee on Banking Supervision.

Plan and Progress for the Implementation of Basel II/III in the Philippines

Initial Basel II take-off Toward this end, the BSP revised its risk-based capital adequacy framework broadly in step with adjustments in international capital standards since 2001 (Basel I regime15 ). The methodologies for quantifying the risks faced by banks and for computing the amount of capital that banks should hold to ensure an effective buffer in case these risks translate to actual losses are set out in BSPs various issuances on risk-based capital adequacy framework. The BSP formally implemented Basel II on 01 July 2007 through the issuance of Circular No. 538 dated 04 August 2006 (Revised Risk-Based Capital Adequacy Framework). The implementing guidelines, which cover all universal and commercial banks and their subsidiary banks and quasi-banks, address Pillar 1 i.e., the computation of capital requirements for credit, market and operational risks using the standardized approaches and Pillar 3 i.e., the disclosure of capital structure and adequacy, and risk management system, including risk exposures and assessments of the Basel II capital framework. Presently, Circular Nos. 538 dated 04 August 2006 and 360 dated 03 December 2002 set out the methodology for determining the capital requirement for credit risk, market risk and operational risk exposures of universal and commercial banks including their subsidiary banks and quasi-banks. The BSP has likewise issued Circular No. 400 dated 1 September 2003, which implemented credit risk CAR for stand-alone quasi-banks. BSP requires that banks and quasi-banks maintain a risk-based CAR of at least 10%. Initial Basel III take-off More recently, the BSP has already laid down the groundwork for the implementation of Basel III through the issuance of Circular No. 709 dated 10 January 2011, as amended by Circular No. 716 dated 25 March 2011, to provide guidelines which define qualifying capital instruments under Basel III standards particularly by adopting the minimum eligibility criteria for inclusion of noncommon equity regulatory capital instruments in qualifying capital. The BSP likewise formally announced that universal and commercial banks will

14 Generally refers to the moni toring of financi al st abil ity with speci al focus on growing i mbal ances and s yste mic ri sk. 15 For the purpose , t he BSP i ssued Ci rcul ar No. 280 dat ed 29 Marc h 2001 but it wa s complete ly s upersede d by Circular No. 538 dat ed 04 August 2006.

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be required to adopt the higher capital standards under Basel III starting 01 January 2014, four years ahead of the full timeline given by the Basel Committee on Banking Supervision (BCBS). This places the Philippines alongside Australia, China, Hong Kong, SAR and Singapore which all similarly announced the countrys intention to adopt the Basel III capital standards earlier than the full BCBS timeline. The broad proposals on the adoption of capital standards of Basel III are contained in Memorandum No. M-2012-002 dated 10 January 2012. Meanwhile, stand-alone thrift, rural and cooperative banks that are not subsidiaries of universal and commercial banks are covered by a modified riskbased capital adequacy framework. The implementing guidelines (Circular No. 688 dated 26 May 2010), which took effect last 01 January 2012, incorporated some elements of Basel 2 to the then existing Basel 1 guidelines. These include, among others, new capital requirements for operational risk, higher capital charge for real and other properties acquired (ROPA) exposures, and enhanced disclosure requirements. Pillar 2 Implementation In line with its commitment to fully adopt Basel II, the BSP has issued the Pillar 2 guidelines on banks Internal Capital Adequacy Assessment Process (ICAAP) and BSPs Supervisory Review Process (SRP) as contained under Circular No. 639 dated 15 January 2009 16. The ICAAP guidelines are applicable to U/KBs on a consolidated or group level. Said banks were required to submit a trial ICAAP Document to the appropriate Central Point of Contact Department of the BSP on 31 March 2009. The guidelines will come into force on 1 January 2011. Thereafter, they shall submit the ICAAP Document on an annual basis every end of January. The SES, thru its central point of contact, developed a phased-in approach in reviewing the soundness of banks ICAAP. The first two phases involve dialogues or meetings between the banks management and the SES personnel composed of central point of contact and examiners. The final phase may necessitate an on-site examination of the banks to verify representations in the ICAAP document. Currently, the BSP is in its second phase of dialogues with the banks regarding the detailed discussions on the assessment of each risk type. The BSP, through the ICAAP guidelines, expects the banks to document in writing their actual capital planning and budgeting practices in view of their business or strategic plans and operating environment. Similarly, banks shall consider in their capital adequacy assessment not only the risks covered by the regulatory capital framework (i.e., credit, market and operational risks) but also the other material risks not covered by the framework and forward-looking factors (e.g., stress testing impact). Moving Forward Full details of the capital adequacy guidelines were contained in a consultation draft released in the first quarter of 2012. Said guidelines will be finalized by the
16

The guidelines covering the ICAAPs of foreign bank branches are outlined under Circular No. 731 dated 28 July 2011. BANGKO SENTRAL NG PILIPINAS

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third quarter of 2012 to allow one full year for the parallel run of the old and new guidelines before the new risk-based capital standards come into force on 1 January 2014. BSPs approach towards leverage will be announced later in the year. Meanwhile, the introduction of a countercyclical capital buffer is subject to further study by the BSP.

CURRENT MONETARY OFFICIALS

(As of 8 October 2012)

Monetary Board Members Chairman

Mr. Amando M. Tetangco, Jr.

Members Mr.Alfredo C. Antonio

Mr. Ignacio R. Bunye Mr. Peter B. Favila Dr. Felipe M. Medalla Mr. Cesar V. Purisima Atty. Armando L. Suratos

Management and Senior Officials Governor Mr. Amando M. Tetangco, Jr. Deputy Governors Mr. Nestor A. Espenilla, Jr.
Supervision and Examination Sector Mr. Diwa C. Guinigundo Monetary Stability Sector Mr. Juan D. De Zuiga, Jr. Resource Management Sector & Security Plant Complex and concurrent General Counsel

Executive Mr. Vicente S. Aquino Director II Anti-Money Laundering Council Secretariat Assistant Governors
Ms. Ma. Ramona Gertrudes D.T. Santiago Treasury Department Mr. Manuel H. Torres Security Plant Complex Ms. Ma. Almasara Cyd N. Tuao-Amador Monetary Policy Sub-sector

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Ms. Ma. Dolores B. Yuvienco Supervision and Examination Sub-sector I

Managing Directors

Mr. Willie S. Asto Comptrollership Sub-Sector Ms. Teresita S. Bulseco Information Technology Sub-sector Mr. Elmore O. Capule Sr. Deputy General Counsel Office of the General Counsel and Legal Services Mr. Enrique C. Domingo Office of the Deputy Governor, Resource Management Sector Bids and Awards Committee Secretariat Ms. Chuchi G. Fonacier Supervision and Examination Sub-sector II Mr. Augusto C. Lopez-Dee Monetary Operations Sub-Sector Ms. Dahlia D. Luna Management Services Sub-sector Director, Project Development and Management Offices Ms. Wilhelmina C. Maalac International Sub-sector Mr. Johnny Noe E. Ravalo Central Supervisory Support Sub-sector Ms. Iluminada T. Sicat Currency Management Sub-sector Ms. Leny I. Silvestre Supervision and Examination Sub-sector III Mr. Gerardo S. Tison Human Resource Sub-sector Ms. Edna C. Villa Office of the Governor

Directors and OICs Ms. Silvina Q. Mamaril-Roxas of Departments/ Administrative Services Department Offices Ms. Lilian S. Gelvezon
Application Systems Management Department Ms. Geraldine C. Alag Asset Management Department Mr. Santiago J. Sales Banknotes and Securities Printing Department Ms. Carlyn A. Pangilinan BSP Institute
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Directors and OICs Ms. Ma. Lux T. Berciles of Departments/ BSP Cebu Regional Office Offices

Mr. Demetrio E. Casipong BSP Davao Regional Office

Ms. Beta A. Cervantes Acting Director BSP La Union Regional Office Ms. Iluminada DJ Catap Cash Department Mr. Francisco G. Dakila, Jr. Center for Monetary and Financial Policy Ms. Judith E. Sungsai Central Point of Contact Department I Ms. Gail U. Fule Central Point of Contact Department II Ms. Fe M. De La Cruz Corporate Affairs Office Ms. Helen P. Montalbo Corporate Planning Office Mr. Antonio A. Grageda Crisis Management Office Ms. Olivia A. Vital Acting Director Currency Issue and Retirement Office Mr. Zeno Ronald R. Abenoja Department of Economic Research Ms. Rosabel B. Guerrero Department of Economic Statistics Mr. Paterson L. Encabo Department of General Services Ms. Rosalinda S. Dumaliang Department of Loans and Credit Mr. Antonio B. Cintura Economic and Financial Learning Center Mr. Restituto C. Cruz Examination Department I Ms. Mary Jane T. Chiong Officer-in-Charge, Examination Department II Mr. Rogelio A. Encinas Examination Department III Mr. Aaron G. Cervantes Facilities Management & Engineering Department

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Directors and OICs Ms. Nenita C. Marcos of Departments/ Officer-in-Charge Offices Financial Accounting Department
Ms. Susan Y. Sison Health Services Office Ms. Elvira E. Ditching-Lorico Human Resource Development Department Ms. Glory Ann P. Simeon-Penaco Officer-in-Charge, Human Resource Management Department Mr. Carlos O. Santos IT Infrastructure & Operations Department Ms. Ma. Belinda G. Caraan Integrated Supervision Department I Mr. Rosilio O. Prado Officer-in-Charge, Integrated Supervision Department II Ms. Lagrimas R. Nuqui Internal Audit Office Ms. Patria B. Angeles International Operations Department Mr. Thomas Benjamin B. Marcelo International Relations Department Mr. Claro P. Fernandez Executive Director I, Investor Relations Office Mr. Nanette A. Ella Officer-in-Charge, Mint and Refinery Operations Department Mr. Benjamin P. Gulapa Head Executive Assistant, Office of the Governor Mr. Vincent Z. Bolivar Deputy General Counsel Office of the General Counsel & Legal Services Ms. Rowena S. Martinez Office of the Secretary, Monetary Board Mr. Alfonso C. Penaco IV Office of Special Investigation Ms. Teodora I. San Pedro Office of Supervisory Policy Development Ms. Bella S. Santos Payments and Settlements Office Ms. Estrellita C. Barbao Officer-in-Charge, Procurement Office Mr. Victor G. Garlitos Provident Fund Office

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Mr. Ruben A. Banog Officer-in-Charge, Regional Monetary Affairs Sub-setor Ms. Regina R. Fajardo Risk Management Office Mr. Edgar C. Gatumbato Security, Investigation and Transport Department Mr. Vicente T. De Villa III Supervisory Data Center Ms. Catherine Pinky B. Regala Systems and Management Office Mr. Alphew T. Cheng Chief Reserve Management Officer, Treasury Department Reserve Management Group Mr. Lorelei S. Fernandez Acting Chief Dealer Treasury Department Financial Market Operations Group Ms. Amor D. Flores Acting Chief Investment Analytics Officer Treasury Department Investment Risk & Analytics Group Ms. Lagrimas G. Cruz Acting Chief Financial Services Treasury Department Financial Services Group

Address: Bangko Sentral ng Pilipinas, A. Mabini Street, Manila, PHILIPPINES Telephone: (632) 708-7701 ; Telex: 62003 CENBANK PN ; Email: bspmail@bsp.gov.ph; Website: http://www.bsp.gov.ph

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Annex 1 Regular BSP Publications Annual Report. Report submitted annually to the President of the Philippines and the Congress highlighting the major developments in the Philippine economy and the key activities, policies and operations of the BSP during the year. Inflation Report. Published quarterly as part of the BSP's transparency mechanism under inflation targeting and to convey to the public the overall thinking and analysis behind the BSP's decision on monetary policy. Balance of Payments Report. Contains a comprehensive analysis of the developments in the Philppines balance of payments including the current account (i.e., trade-in-goods and services, income, and current transfers) and the capital and financial account (i.e., direct, portfolio and other investments). Also included are brief discussions on the Philippines gross international reserves and exchange rate. Business Expectations Report. Report on the results of the quarterly Business Expectations Survey conducted by the BSP to generate indications of overall business sentiment and prospects/outlook. Consumer Expectations Report. The Consumer Expectations Survey captures the economic outlook of consumers as an indication of the nation's future economic conditions. BS Review. Serves primarily as a forum for presenting the research findings of BSP staff; includes analytical and policy-oriented research articles on various economic, financial and statistical issues of interest to the BSP. Status Report on the Philippine Financial System. A comprehensive assessment of major developments in the Philippine financial system during the semester. Quarterly Report on Economic and Financial Development. A quarterly report which outlines the major developments in the real, monetary and fiscal sectors of the Philippine economy. BSP Working Paper Series. The BSP Working Paper Series constitutes studies that are preliminary and subject to further revisions. They are being circulated only for the purpose of soliciting comments and suggestions for further refinements. The views and opinions expressed are those of the author(s) and do not necessarily reflect those of the Bangko Sentral ng Pilipinas. Report on Regional Economic Developments. The report on Regional Economic Developments in the Philippines tracks economic activities in the regions, focusing on the demand and supply conditions, price developments and monetary conditions, as well as the emerging outlook. Analysis of regional trends and developments supplements BSPs analytical tools for monetary policy formulation and financial supervision. Qualitative and quantitative information used in the report are collected from primary and secondary sources and reflect the extensive information gathered by the BSP regional offices and branches.

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BSP Economic Newsletter. The BSP Economic Newsletter aims to provide to the BSP community and the public a readily accessible, up-to-date, concise and reader-friendly compendium of studies on current economic and financial issues. Manual of Regulations. These are compilations of regulations and policies issued by the BSP for banking and other financial institutions under its supervision, including regulations governing foreign exchange transactions. They are available in hard and soft copies, and are convenient references and guides for banks, other financial institutions, and other stakeholders. These include the Manual of Regulations for Banks, Manual of Regulations for Non-Bank Financial Institutions, Manual of Regulations on Foreign Exchange Transactions, and Manual of Regulations for Pawnshops. Philippine Flow of Funds. The Philippine Flow of Funds presents the financial transactions among the different institutions of the economy, and between these institutions and the rest of the world; also shows which institutions are net lenders and net borrowers in the series of transactions. Coordinated Portfolio Investment Survey (CPIS) Results. The Coordinated Portfolio Investment Survey (CPIS) is an annual survey on residents holdings of foreign-issued equities and long- and short-term debt securities. CPIS is a global undertaking spearheaded by the International Monetary Fund (IMF) in coordination with participating countries worldwide to improve statistics on holdings of external portfolio investment assets and promote international data comparability. International Investment Position. The IIP is a companion framework to the Balance of Payments (BOP) statistics. While the BOP is a statistical statement that records the Philippines transactions or flows with the rest of the world for a given period, the IIP summarizes the nations stock of financial claims on and financial liabilities to the rest of the world as of a specific reporting period. Unlike the BOP, which is reported quarterly, the IIP is released annually with a lag of nine months. Directory of Philippine Exporters. A ready reference and easy guide to foreign buyers of Philippine products, local suppliers of exporters, foreign investors, government agencies, commercial banks and the interested public in general. Monthly Selected Philippine Economic Indicators. A monthly compilation of various statistical tables on external accounts, financial system, fiscal, prices, and other real sector accounts.

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Annex 2

Economic and Financial Indicators External Accounts Balance of Payments (BOP) External Debt External Trade Foreign Currency Deposit Units Foreign Direct Investments Net Portfolio Investments OF Remittances Exchange Rates International Reserves International Investment Position Flow of Funds Monetary and Financial System Accounts Monetary Survey Depository Corporations Survey BSP Assets and Liabilities and Statement of Income and Expenses Philippine Financial System/Institutions U/KBs Loans Outstanding Interest Rates Selected Domestic Interest Rates Selected Foreign Interest Rates Fiscal Accounts NG Cash Operations Consolidated Public Sector Financial Position Income and Expenditure Accounts Gross Domestic Product Gross National Product Prices Consumer Price Index (CPI) Inflation Rates General Wholesale Price Index Retail Price Index

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Other Real Sector Accounts Volume/Value of Production Index Producers Price Index Selected Labor and Wage Indicators Stock Volume and Price Indices Stock Market Price-Earning Ratio Population

Economic Indicators of Selected Economies (Asian and Advance Economies) Banking Statistics Number of Automated Teller Machines (ATMs) and Banks with Electronic Banking Regional Distribution of Banking Offices Regional Distribution of Loan Portfolio Regional Distribution of Deposit Liabilities Consolidated Statement of Condition Consolidated Statement of Income and Expenses Consumer Loans Selected Asset Quality Indicators Real Estate Loans Auto Loans Credit Card Receivables Trust and Other Fiduciary Business and Other Management Activities Published Statement of Condition (UKBs and TBs only)

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