ADB OKs $200-M loan for PHL financial reforms

The Asian Development Bank (ADB) on Tuesday said it will give the Philippine financial sector a $200-million loan for reforms including maintaining stability and increasing the efficiency and liquidity of markets. The Manila-based bank said the money will also help strengthen the regulatory environment in the wake of the global economic crisis. ADB's board of directors approved the loan Tuesday under Phase 2 of the Financial Market Regulation and Intermediation Program. “Capital markets in the Philippines have matured, but to support the government’s growth and poverty reduction targets under its Medium Term Development Plan, the investor base needs to be broadened, and market access improved to mobilize savings," ADB said in a statement. “This requires stepping up the level of intermediation between savers and investors," the bank added. The global financial crisis highlighted weaknesses in the Philippine financial sector, which are addressed in the policy actions for Phase 2 of the program, according to the bank. “These include measures by the central bank to boost stability, such as providing additional liquidity to the banking system, and the doubling of the deposit insurance ceiling for bank account holders. To encourage industry consolidation, a program of incentives to encourage weaker rural banks to merge with stronger ones has been launched," ADB added. “The crisis demonstrated the importance of maintaining financial sector stability, as well as the need to maintain sound and well-coordinated regulatory oversight to reduce vulnerabilities," said Stephen Schuster, senior financial sector Specialist of ADB’s Southeast Asia Department. Philippine fiscal and monetary authorities have taken steps to beef up regulatory oversight. “The enforcement powers of the Philippine Deposit Insurance Corporation have been strengthened, and the Security and Exchange Commission's (SEC) market surveillance capacity has been increased, while measures to improve coordination amongst regulators have also been taken," according to ADB. To develop an efficient and liquid secondary securities market, the SEC has laid down the framework for over-the-counter trading, including a central trade reporting system, as well as listing requirements and rules, which will pave the way for trading in corporate bonds on the fixed income exchange. “All these actions will lead to a deeper, more diversified and resilient system, resulting in improved access to finance and a greater contribution to growth and poverty reduction from the financial sector," Schuster said. To maintain the reform momentum, ADB and the Philippine government have also agreed to a two-year post program monitoring framework to gauge the impact of actions taken to date, and to push ahead with further measures to improve the regulatory environment and enhance public debt management. The loan from ADB’s ordinary capital resources has a 15-year term with a grace period of three years and an annual interest rate based on ADB’s LIBOR-based lending facility. The Department of Finance is the executing agency for the full program, which is due for completion in October 2011. — VS, GMANews.TV