2015 Budget BSP Presentation

DBCC Briefing to the Committee on Appropriations

on the FY 2015 Proposed NG Budget

House of Representatives, 6 August 2014

Staying the Course: Keeping the Economy on Top

Amando M. Tetangco, Jr.

Governor

Bangko Sentral ng Pilipinas

2Key Indicators2002-

2006 Ave

2007-

2011 Ave2012 2013 2014

Resilient output

growthReal GDP growth (%) 5.1 4.6 6.8 7.2 5.7 (Jan-Mar)

Manageable inflation Headline inflation (%) 4.4 4.8 3.2 3.0 4.3 (Jan-Jul)

Modest fiscal deficit Fiscal balance (% of GDP) -3.3 -2.1 -2.3 -1.4 -2.9 (Jan-Mar)

Ample liquidity and

credit supportive of

economic activity

Domestic Liquidity (% of GDP) 43.2 49.4 49.7 60.0 60.0 (Jun)

Domestic Claims (% of GDP) 54.5 50.1 51.2 51.9 54.1 (Jun)

Sound and stable

banking system

Non-performing loans

(% of total loans) U/KBs*11.1 3.2 2.8 2.1 2.2 (May)

Capital Adequacy Ratio

(consolidated basis)** - U/KBs17.8 16.5 18.4 17.7 n.a.

Robust external

profile

Current Account Balance

(% of GDP) ***1.6 3.3 2.8 3.5 3.1 (Jan-Mar)

GIR (in months of imports of

goods and services and primary

income) ***

3.9 8.9 11.5 11.5 11.0 (end-Jun)

External debt (% of GDP) 58.4 31.6 24.1 21.5 21.5 (end-Mar)

External debt service burden

***

(% of exports of goods,

receipts of services & income)

14.7 10.4 7.3 7.6 6.5 (Jan-Apr)

Philippines sustains economic improvements

* Data for 2012 and May 2013 are computed as prescribed under BSP Circular No. 772. Gross NPL represents the actual level of NPL without any adjustment

for loans treated as loss and fully provisioned.

**Computation based on the combined reports of parent bank (head office and branches) and its subsidiaries engaged in financial undertakings but

excluding insurance; also excludes trust department

*** Data for 2002-2006 are based on BPM5 concept while 2007-2014 data are based on BPM6 concept.

3Year Selected Structural/Policy Reforms in the Philippine Economy

1993 Creation of the Bangko Sentral ng Pilipinas

1994 Liberalization of foreign bank entry

1995 Liberalization of the telecommunications industry

1997 Privatization of water services (MWSS)

1998 Deregulation of the oil industry; Adoption of consolidated bank supervision

2000 Passage of the Philippine E-Commerce Act

2001 Liberalization of the power sector (EPIRA)

2002 Adoption by BSP of Inflation Targeting Framework; Passage of the Special Purpose Vehicle Act

2003 Passage of the Government Procurement Reform Act

2004 Passage of the Securitization Act or Republic Act 9267; Adoption of Basel 2

2005 Passage of expanded value-added tax (E-VAT)

2006 Establishment of the Wholesale Electricity Spot Market (WESM)

2007 Full implementation of risk-based bank supervision

2009Privatization of the National Transmission Corporation (TransCo) and National Power

Corporations (NPC) assets

2011Issuance of the guidelines on the adoption of Philippine Financial Reporting Standards (PFRS)

9; Adoption of phased-in migration to Basel III

2013 Implementation of the revised excise tax rates on alcohol and tobacco

2014Liberalization of Entry of Foreign Banks in the Philippines or Republic Act 10641

Implementation of macroprudential measures on real estate exposure

Philippines builds institutions through critical reforms

3

43.1 4.4

2.9 3.65.0

6.74.8 5.2

6.6

4.2

1.1

7.6

3.7

6.8 7.25.7

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Q1

Despite softer output growth in Q1 2014, economy remains resilient

One of fastest growing Asian economies, 3rd after China (7.4%) and Malaysia (6.2%)Real GDP Growth (%) Average: 4.9% (1999-2014)

Output growth in Q1 2014

remains resilient

Source: Philippine Statistics Authority (PSA)

Source: PSA

3.7

6.8 7.25.7

-7

-5

-3

-1

1

3

5

7

9

11

2011 2012 2013 2014Q1

AFF Industry Services GDP

Contribution to Growth: Supplyin percentage points

3.7

6.8

7.2

5.7

-7

-5

-3

-1

1

3

5

7

9

11

2011 2012 2013 2014Q1

Private Consumption Investment

Government Consumption Net Exports

GDP

Contribution to Growth: Demandin percentage points

Source: PSA

50

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Headline

Lower Bound of Target

Upper Bound of Target

4.3%

Jan-Jul 2014

Inflation remains manageable

Headline inflation (%), 2006=100 Inflation is within

target in the last 5

years

Despite upside

pressures, inflation

is projected to

settle within 3-5%

target range in

2014 and 2-4%

target range in

2015 and 2016

4.9%Jul 14

6Policy rates are calibrated appropriately

Effective policy balance

between safeguarding

price stability and

supporting economic

growth

BSP hikes key policy

rates as preemptive

response

SDA rate and RR ratio

are adjusted upwards to

counter price and

financial stability risks

Domestic Interest Rates (in percent)

Jul 14: 3.75%

31 Jul 14:

2.05%0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

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2009 2010 2011 2012 2013 2014

Overnight RRP

364-day T-bill Rates (Secondary

Market Rates)

0

1

2

3

4

5

6

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

21.0

21.5

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2009 2010 2011 2012 2013 2014

Reserve Requirement Ratio (LHS)

SDA Rate (RHS)

Aug 14:

20.0%

Aug 14:

2.25%

Reserve Requirement and SDA Rate

7Credit conditions continue to support economic growth

Commercial Bank Lending (Net of RRP)Growth and Contribution by Sector

(as of June 2014)

8.3

20.5

10.0

8.9

19.3

16.216.4

20.1

-10

-5

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 Jun

2014

In Percent

Agriculture, Hunting & Forestry Trade, Trans, Storage and Communication

Others Electricity, Gas & Water

Households Real Estate, Renting & Bus. Services

Manufacturing Financial Intermediation

KB Lending Growth

Sectors

Forward

Linkages

using

2009

PFSAM

Share to

Total KB

Loans

(Net of

RRP)

Contribution

to KB Loan

Growth (Net

of RRP)

Financial

Intermediation 1.9 8.4 1.7

Electricity, Gas &

Water 2.7 10.3 3.4

Real Estate, Renting

& Bus. Services 3.0 18.33.3

Agriculture, Hunting

& Forestry 3.7 4.80.7

Trade, Trans.,

Storage and Comm. 8.1 20.9 3.4

Manufacturing 8.2 15.8 2.6

Others 3.1 14.0 5.0

Households - 7.4 0.9

Growth of KB Loans

(June 2014) - -20.1Note: Sectoral distribution are estimated based on mapping exercises done to show comparability

with the 2013 data.

8Banking system is sound and stable

0

2

4

6

8

10

12

14

16

18

20

2

0

0

1

2

0

0

2

2

0

0

3

2

0

0

4

2

0

0

5

2

0

0

6

2

0

0

7

2

0

0

8

2

0

0

9

2

0

1

0

2

0

1

1

2

0

1

2

2

0

1

3

Non-Performing Loans (Net) and Non-

Performing Assets Ratios of PH Banking

system, 2001-2013

NPL Ratio

NPA Ratio

6

8

10

12

14

16

18

20

2

0

0

1

2

0

0

2

2

0

0

3

2

0

0

4

2

0

0

5

2

0

0

6

2

0

0

7

2

0

0

8

2

0

0

9

2

0

1

0

2

0

1

1

2

0

1

2

2

0

1

3

Capital Adequacy Ratio (%)

(Philippine Banking System)*

CAR solo CAR consolidated

BSP Standard BIS Standard

*Starting January 2013, figures are computed as prescribed under BSP Circular No. 772. Gross NPL represents the actual level of NPL withoutany adjustment for loans treated as loss and fully provisioned.

Healthy credit and

solid asset growth

Strong capitalization

2.2%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0

1,000

2,000

3,000

4,000

May13

Jun 13 Jul 13 Aug13

Sep13

Oct13

Nov13

Dec13

Jan14

Feb14

Mar14

Apr14

May14

TOTAL LOAN PORTFOLIO and GROSS NPL RATIO : U/KBs, May 2013-May 2014

Total loan portfolio, gross Gross NPL ratio (RHS)

P4,427.9B

9External sector dynamics remains strong,

amid recent global volatilities

Current account for Q1

2014 continues to be

strong

Current account

surplus from resilient

OF remittances, strong

BPO earnings, and

rising tourism receipts

-10

-5

0

5

10

15

Balance of Payments (BPM6)

2005-Q1 2014 (in US$ Bn)Capital & Fin'l Account

Current Account

Balance of Payments

Source: BSP

Q1 14 CA:US$2.0 Bn(3.1% of

GDP)

0

5

10

15

20

25

30

02468

10121416182022

Overseas Filipinos Remittances

Levels and Growth Rates; 2005 May 2014Cash Remittances thru banks (US$ Bn; rhs)

Growth Rate (%; lhs)Jan-May

14:US$9.4 Bn(5.7% g.r.)

Source: BSP

10

Foreign exchange

reserves remain

adequate

Reserves can cover

11 months of

imports; 7.7 times

of short-term

external debt based

on original

maturity, 5.7 times

based on residual

maturity

FX reserves stay ample

18.4922.97

33.75

37.55

44.2462.37

75.30

83.83 83.1980.728

0

2

4

6

8

10

12

14

0

10

20

30

40

50

60

70

80

90

Gross International Reserves

2005 June 2014

GIR (US$ Bn; lhs)

Import Cover (months; rhs)

End-Jun 14

US$ 80.7 Bn

(11.0 months)

11

40

42

44

46

48

50

Local currency regains strength

Peso USD Daily Average Exchange Rate

Jan 2009 Aug 2014

Year-to-Date Changes in Selected Dollar Rates Appreciation/(-Depreciation), In Percent

2008

Jan - 5 Aug 2014*

Cum

2009 2010 2011 2012 2013 2008-2014Thai Baht (Onshore) -2.9 4.1 10.7 -3.9 3.0 -4.6 1.8 8.2

Singaporean Dollar 1.1 1.8 8.7 -0.6 6.1 -2.7 1.5 15.9

Chinese Yuan 7.0 0.0 3.4 4.2 1.0 2.6 -1.9 16.3

Korean Won -25.7 8.2 2.7 -2.0 7.7 1.1 2.1 -5.7

Malaysian Ringgit -4.3 1.2 11.2 -2.9 3.5 -5.5 2.8 6.0

Japanese Yen 23.9 -2.6 14.2 4.0 -10.9 -16.3 2.7 15.0

Philippine Peso -13.1 2.9 5.4 0.9 6.8 -7.0 1.9 -2.4

New Taiwan Dollar -0.9 2.5 9.9 -3.8 4.3 -1.9 -0.6 9.5

Indonesian Rupiah -15.4 18.2 4.7 -0.4 -5.9 -19.1 4.1 -13.8

Indian Rupee -19.2 4.9 3.6 -15.2 -3.1 -11.4 1.8 -38.7

PhP43.57/US$1*(5 Aug 2014)

*Last done deal in the afternoon session.Source: BSP

Source: Bloomberg

12

Sound Fundamentals:

2014-2015 Macroeconomic Outlook

Actual Projections a/

2014 YTD 2014 2015

Headline Inflation (%) 4.3 (Jan - Jul) 3.0 5.0 2.0 4.0

Dubai Crude Oil (US$/bbl) 105.43 (2 Jan - 29 Jul) 100 110 90 110

Exchange Rate (P/US$) 44.26 (2 Jan 5 Aug) 42 45 42 45

364-day T-bill Rate (%) b/ 1.75 (Jan 4 Aug) 1.5 4.0 2.0 4.0

LIBOR, 6 months(%) 0.3286 (2 Jan - 4 Aug) 0.3 1.5 1.0 2.0

Merchandise Exports Growth (%) c/ 6.6 (Jan-Mar) 6.0 8.0

Merchandise Imports Growth (%) c/ 4.1 (Jan-Mar) 9.0 10.0

a/ Based on projections adopted by the FY 2015 Budget of Expenditures and Sources of Funding (2015)b/ Based on primary market ratesc/ Based on BPM6 concept

13

Sound Fundamentals:




2014 YTD 2014 2015








14

Sound Fundamentals:




2014 YTD 2014 2015








15

Challenges ahead

Policy normalization in advanced economies

Geopolitical tensions in Middle East and

Ukraine-Russia

China growth slowdown

Natural disasters and power outages

16

BSP Policy Thrusts

On monetary stability: Safeguard the inflation targets in line

with our primary mandate

On financial stability: Pursue reforms that would strengthen financial

institutions, manage risks, and promote inclusiveness of the financial system

On external sector stability: Support policies that will strengthen resilience to

shocks via market-oriented exchange rate, comfortable level of reserves and

manageable external debt profile

The BSP commits to

DBCC Briefing to the Committee on Appropriations

on the FY 2015 Proposed NG Budget

House of Representatives, 6 August 2014

Staying the Course: Keeping the Economy on Top

Amando M. Tetangco, Jr.

Governor

Bangko Sentral ng Pilipinas

Documents

2015 Budget BSP Presentation