## IMF Executive Board Concludes Financial System Stability Assessment with Philippines

_IMF News, April 9, 2021_

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## Bibliographic details
- Published: April 9, 2021

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### Scope and timing
- The Executive Board of the International Monetary Fund (IMF) concluded the Financial System Stability Assessment with the Philippines on March 5, 2021.
- The Financial Sector Assessment Program (FSAP) work was conducted during the COVID-19 outbreak, with the virtual missions concluding on October 20, 2020, and adapted to include immediate risks and vulnerabilities brought up by the pandemic.
- Press Release date: April 9, 2021.

### Economic context and key risks
- Real GDP contracted by 9.5 percent in 2020—a much steeper decline than during the Asian Financial Crisis.
- The economy is recovering, and macroeconomic fundamentals at the onset of the COVID-19 were stronger than in the late 1990s.
- The Financial Action Task Force (FATF) may put the country on the so-called grey list in 2021 without significant reforms on the effectiveness of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regime.
- Significant legislative measures were enacted in early 2021 to address some of the FSAP recommendations.
- The Philippines is vulnerable to increased typhoon risks from climate change owing to its geographical position.

### Stress testing and scenario findings
- Stress tests show that banks can withstand the already severe baseline scenario.
- Banks could experience systemic solvency distress if the economic impact of COVID-19 turns out to be severer.
- Transmission channel: the economic shock would weigh on corporate earnings and then spill over to banks.
- Bank stress could limit credit supply, reducing economic growth noticeably even more.
- Physical risks from climate change are relevant for financial stability, though infrastructure destruction from typhoon wind alone is not systemic unless extreme tail events materialize.
- Higher median and estimated losses were used in the stress testing exercise for severer scenarios.

### Regulatory and supervisory framework
- The Bangko Sentral ng Pilipinas (BSP) has modernized its oversight framework for banks since the 2010 FSAP.
- BSP shows reasonably good compliance with the Basel Core Principles (2020 BCP assessment).
- The BSP plays the central role in the macroprudential policy framework given the dominance of banks in the financial system.
- The 2019 amendments to the BSP charter further strengthened the financial stability policy framework.
- Material gaps remain:
  - BSP’s legal powers related to conglomerate supervision.
  - Bank secrecy laws are limiting the effectiveness of supervision and have wider financial sector implications.
- At the wake of the COVID-19 crisis, the BSP issued time-bound regulatory relief measures, including unusually strong forms of forbearance related to non-performing loan recognition and provisions, subject to prior notification to and approval of the BSP.

### Financial safety net and resolution framework
- Some progress has been made reforming the financial safety net, but a number of issues highlighted in the 2010 FSAP are still relevant.
- Resolution powers are provided to both the Philippine Deposit Insurance Corporation (PDIC) and the BSP, making the resolution process relatively complex.
- The prompt corrective action framework could be enhanced by including more specific escalation procedures.
- The resolution toolkit is largely limited to liquidation and resolution planning.
- Resolvability assessments are not in place yet.

*International Monetary Fund press release, April 9, 2021.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Philippines and the IMF](http://www.imf.org/external/country/PHL/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [2020 BCP assessment](https://www.imf.org/en/Publications/CR/Issues/2020/11/10/Philippines-Financial-Sector-Assessment-Program-Detailed-Assessment-of-Observance-Basel-Core-49874)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/04/09/pr21105-philippines-imf-executive-board-concludes-financial-system-stability-assessment_