Central bank completes equity infusion

Posted at 01/05/2014 3:18 PM

MANILA -- The Bangko Sentral ng Pilipinas (BSP) has finally received 100% equity infusion from the government, after the Department of Budget and Management (DBM) released the final tranche payment of P10 billion on the last business day of 2013.

In a press release, DBM Secretary Florencio "Butch" Abad announced that the government has completely provided BSP's P50-billion capital requirement, in accordance to Republic Act No. 7653, or The New Central Bank Act.

"Although the first P10-billion equity infusion for Bangko Sentral was made in 1997, the government has since been unable to provide full capital support to the central bank as prescribed by law. Only under the leadership of President Aquino—with guidance from the Administration's fiscal managers—were the equity payments successfully completed. The Bangko Sentral's P50-billion capital requirement is now wholly accounted for," Abad said.

The first tranche of the equity infusion was made in 2001, or four years after the New Central Bank Act was created. However, succeeding administrations were unable to make further payments to support the BSP's capital requirement.

In 2011, under the Aquino administration, the DBM finally released P10 billion to support the second tranche of the equity infusion.

This was followed by another release of P20 billion in 2012 for the third tranche.

According to Abad, the government's budget deficit—which continued to hover below target—allowed the administration to make the final P10-billion payment tranche last month.

"The country grappled with huge losses in the aftermath of major calamities this year, and the administration needed to respond very quickly to the urgent aid requirements in the wake of these disasters. This forced us to briefly defer the release of the last tranche of the equity payment. Nonetheless, the below-the-cap deficit and the government's own prudent management of its resources eventually allowed us to complete the capital infusion to Bangko Sentral, an institution that has performed remarkably well in keeping interest rates low and protecting the Philippine Peso from volatile market forces," he said.

Abad likewise noted the long-term, positive impact of the completed equity infusion on the BSP's policy work and the Philippines' growth prospects.

"In plainer terms, the 100-percent equity infusion will give the central bank the resource legroom it needs. Faced with fewer risks of income loss or balance sheet weakness, the Bangko Sentral can now direct its full attention to refining the country's banking and monetary policies and delivering key services that will further stimulate the economy," Abad said.

"We're now looking at a central bank that's in a much better position to preserve the Philippines' macroeconomic strength and vibrant investment climate, which in turn will influence the Aquino administration's ability to ensure long-term and inclusive growth in the country," he stressed.