Microfinance:
The Bright Spot in these
Challenging Times
Amando M. Tetangco, Jr.
Governor
Bangko Sentral ng Pilipinas
1
RBAP-MABS National Roundtable Conference
12 May 2009
Manila
Microfinance:
The Bright Spot in these
Challenging Times
Amando M. Tetangco, Jr.
Governor
Bangko Sentral ng Pilipinas
2
RBAP-MABS National Roundtable Conference
12 May 2009
Manila
The Global Crisis Situation
Real flows affected by crisis
Financial losses on trade activities evident
Unemployment in some countries went up
Some OFWs were laid off from work
3
Philippines:
Crisis Resilient
Crisis affects all economies, no one is
immune, but
Countries with sound economic
fundamentals fare better, and
Countries with a history of reform hold up:
The Philippines remains resilient to crisis
4
Within Long Term Trend Output Growth
GDP grew by 4.6% in 2008
year-on-year percent change
8
6
4.6 %
4
GDP
5-year average (2003-2007) = 5.8%
2
10-year average (1998-2007) = 4.4%
0
-2
1998
5
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Moderate Inflation
April 2009 inflation at 4.8%
2009 inflation forecast at 2.5% – 4.5%
14
Headline
12
Core
10
8
6
4
2
0
2000
6
2001
2002
2003
2004
2005
2006
2007
2008
2009
Strong External Liquidity Position
Balance of Payments
1999 – 2008 (in percent of GDP)
4.9
2.5
1.0
18.0
Overseas Filipinos’ Remittances
2004 – Jan-Feb2009(in billion US$)
16.0
Gross International Reserves
2004 – April 2009 (in billion US$)
6.3
45
16.4
40
GIR (lhs)
12.0
35
Import cover
(rhs)
10.0
30
8.0
25
6.0
20
14.0
2.6
4.0
-2.4
39.5
7
6
5
4
3
15
2
2.0
10
0.0
5
1
7
2004
2005
2006
2007
2008
2009
Jan-Feb
0
0
2004
2005
2006
2007
2008
April
Competitive Peso
Real Effective Exchange Rates, Jan 2002 to April 2009
220
200
180
160
140
120
100
80
60
40
20
0
2002
8
Broad
2003
2004
2005
Narrow
2006
MTPs
2007
2008
2009
Stable banking system
2001 – Feb 2009
As of Feb 2009
Levels in PhP Billions
Growth Rate
Levels in PhP Billions
6,000
13.4%
16
P5.8 T
14
12
5,000
10
4,000
8
3,000
6
2,000
4
1,000
Ratios in Percent (%)
LOAN & ASSET QUALITY RATIOS
Ratios in Percent (%)
7,000
ASSET GROWTH
2
0
22
NPL Ratio
18
NPA Ratio
NPA Ratio (UBs and KBs) = 4.5%
NPL Ratio (UBs and KBs) = 3.7%
14
10
6
4
Pre-crisis
Level
2
2003
0
2004
2005
2006
2007
2008
2009
2001 2002 2003 2004 2005 2006 2007 2008 2009
RETURN ON ASSETS (ROA)/RETURN ON EQUITY (ROE)
CAPITAL ADEQUACY RATIO (CAR)
As of end-Sep 2008
2001-Sept 2008
12
10
ROE = 8.71%
8
6
4
2
ROA = 0.99%
0
9
Ratios in Percent (%)
20
14
Consolidated = 15.45%
18
16
Solo = 14.57%
14
12
BSP Regulatory Requirement of 10%
10
International Standard of 8%
8
6
2001 2002 2003 2004 2005 2006 2007 2008
(Sep)
2001
2002
2003
2004
2005
2006
2007 2008
end-Sept
So far, so good.
But we are aware risks remain.
10
BSP’s Preemptive Response to Crisis
Boosted liquidity through:
Enhanced Peso Repo facility
Created a US dollar Repo facility
Increased budget for peso rediscounting
facility
Reduced reserve requirements on
deposits and deposit substitutes
11
BSP’s Preemptive Response to Crisis
Policy rates cut by
a total of 150 basis
points
Rate cut to encourage
more lending activity
Rate setting always
attuned to economic developments
12
BSP’s Proactive Response to Crisis
Banking sector reforms
continually pursued
to achieve:
Greater efficiency
Better risk management
Stronger capital base
Improved disclosure and transparency
practices
Enhanced corporate governance
13
Will Crisis Hit Microfinance?
MFIs’ fund sources limited by scarce
wholesale, commercial credit
Higher borrowing costs stunt MFI loan
portfolios
Higher client delinquencies due to slow
growing small
businesses
Source: USAID Study
(Magnoni and Powers, 2009)
14
Will Crisis Hit Microfinance?
MFIs’ fund sources limited by scarce
wholesale, commercial credit
Higher borrowing costs stunt MFI loan
portfolios
Higher client delinquencies due to slow
growing small
businesses
Source: USAID Study
(Magnoni and Powers, 2009)
15
Will Crisis Hit Microfinance?
No major negative change in profitability or
risk profile of MFIs
Microfinance built on sound foundation
MFIs will remain resilient by serving
untapped but credit worthy clients
Source: CGAP Study
(Littlefield and Kneiding, 2009)
16
Will Crisis Hit Microfinance?
No major negative change in profitability or
risk profile of MFIs
Microfinance built on sound foundation
MFIs will remain resilient by serving
untapped but credit worthy clients
Source: CGAP Study
(Littlefield and Kneiding, 2009)
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Bright Spots in Philippine Microfinance
Risks are more manageable
Banks with microfinance operations
mobilize deposits
less dependent on external funding
less vulnerable to capital and
investment outflows
18
Bright Spots in Philippine Microfinance
Banks with microfinance operations are
committed to:
Institutional strengthening
Prudent risk management
Good quality microfinance portfolio
19
Bright Spots in Philippine Microfinance
BSP support to and advocacy for
microfinance through:
Microfinance-friendly regulatory policies
Liberal branching regime
Receptive attitude towards product and
technology innovations
20
Bright Spots in Philippine Microfinance
BSP support to and advocacy for
microfinance through:
Support for E-Money and related services
Permission to outsource certain bank functions
Approval of RBs’ FCDU and equity investments in
ATM networks
Provision of opportunities to expand RB products
and services
21
Making Bright Spots Brighter
The BSP to keep:
Issuing policies to improve banks’ capital
position and risk managment
Facilitating financial inclusion
Maintaining partnerships with all
stakeholders
22
Making Bright Spots Brighter
The BSP to keep:
Issuing policies to improve banks’ capital
position and risk managment
Facilitating financial inclusion
Maintaining partnerships with all
stakeholders
23
Make Bright Spots Brighter
Banks with microfinance operations to
continue to:
Keep portfolio at risk low
Balance
profitability
with social
service to clients
Maintain strong capital
positions
24
Make Bright Spots Brighter
Banks with microfinance operations to
continue to:
Maintain keep portfolio at risk low
Balance
profitability
with social
service to clients
Maintain strong capital
positions
25
Make Bright Spots Brighter
Banks with microfinance operations to:
Pursue necessary reforms
Further
improve
efficiencies
Strengthen management
and governance
26
Make Bright Spots Brighter
Banks with microfinance operations to:
Diversify funding sources
Commit to
transparency
Increase
consumer protection
Expand client base
27
Delivering Microfinance Through
Sound and Prudent Banking Practices
28
Delivering Microfinance Through
Sound and Prudent Banking Practices
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Thank you…
www.bsp.gov.ph
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