Additional P150 B capital for BSP to enhance operations

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said the P150-billion additional capitalization is crucial in further enhancing the operations of the central bank.

BSP Deputy Governor Diwa Guinigundo said the increase in its capital base to P200 billion from the current P50 billion under the proposed amendments to Republic Act 7653 or the BSP Charter would help the central bank raise more funds through its open market operations (OMO) to help distressed institutions.

“In short, the P150 billion additional capitalization is very critical and it can go a long way in enhancing the operations of the central bank,” Guinigundo said.

OMO is a monetary tool which involves the BSP publicly buying or selling government securities from banks and financial institutions in order to expand or contract the supply of money. By controlling the money supply, the central bank is able to exert some influence on the prices of goods and services and achieve its inflation objectives.

“In case there are certain distressed financial institutions, then depending of course on whether or not the financial institution is qualified, you have more resources to provide support to maintain financial stability,” he said.

The proposed amendments to the BSP Charter was approved by the Senate on third and final reading last Nov. 19 and by the House of Representatives last June.

Aside from raising the BSP’s capital and increasing the number of deputy governors to five from the current three, the bill gives the BSP regulatory and examination powers over quasi-banking operations of non-bank financial institutions, money service businesses, credit granting businesses, and payment system operators.

The BSP is also authorized to require any person and entities, including government agencies, any data for statistical and policy development purposes in relation to its functions and responsibilities, subject to confidentiality laws.

The bill also states only the Supreme Court and the Court of Appeals may issue a temporary restraining order, preliminary injunction or preliminary mandatory injunction against the BSP for any action under its charter.

“We are very pleased that Congress came out with the wording ‘Require public and private entities, whether individual or legal juridical person.’ It is very important now that your foreign exchange regulatory system has been liberalized, trade regime has also been liberalized, while bank reports are limited in terms of their coverage,” Guinigundo said.

He said this would give the central bank more complete information in coming up with new policy decisions.

Likewise, the approved Senate version also calls for the establishment of a BSP reserve fund to mitigate future risks such as impacts of foreign exchange and price fluctuations.

With this provision, Guinigundo said the central bank could balance is operations as it could build up the country’s gross international reserves (GIR).

Lastly, the BSP official said, the proposed tax exemption is also a very important amendment to the BSP Charter.