FSCC releases first ‘state of financial stability’ statement

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno issued a statement on the State of Financial Stability in the country.

The Governor released the statement on behalf of the Financial Stability Coordination Council (FSCC) which he chairs. The statement follows the May 18 meeting of the FSCC.

Six of the eleven risk areas being monitored have been classified as under control. These are risks to monetary policy, risks to fiscal policy, contagion risk, concentration risk, liquidity risk and geo-political risk. However, servicing debts and credit-related risks are the primary concerns in the financial market today.

“COVID-19 has created similar problems throughout the world and the loss of incomes is the most common scar from this pandemic-cum-recession,” Governor Diokno noted. “This has left borrowers vulnerable because their capacity to service their debts has been put at risk,” he added.

Early into the pandemic, the financial authorities intervened to ensure adequate liquidity in the financial system, and back-stopped this with other regulatory relief measures. “This is a different crisis and the authorities will not hesitate to think out-of-the-box in order to sustain a well-functioning market,” Governor Diokno indicated.

The FSCC risk statement also highlights the risks that Emerging Markets and Developing Economies (EMDEs) such as the Philippines are facing from the Advanced Economies (AEs).

The FSCC Chairman pointed out that “while every jurisdiction has a scar from COVID-19, the scars differ from jurisdiction to jurisdiction. While all forecasts point to a better year in 2021, the world economy is recovering at multiple speeds and this itself is unfortunately creating spillover risks from the AEs and into EMDEs.”

However, the FSCC clarifies that its market surveillance continues to be active as conditions remain fluid. The FSCC expects to issue quarterly “Statements on the State of Stability” although it is keeping its communication lines open should material market updates arise.

Governor Diokno also took the opportunity to reiterate his strong belief in the power of policy communication. “Regulators may look at many indicators but we act with the public on top of our mind. To ensure that our stakeholders make well-informed decisions, it is incumbent on us regulators to continue our dialogue with our publics,” the FSCC Chairman argued.

“This is where the Council steps in and offers a cross-cutting view of risks. We have a unique vantage point of seeing how all the elements interact and affect the welfare of the system. Everyone is eventually better off with this transparency in place,” he concluded.