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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

SEPTEMBER 24, 1999 VOL. 25 NO. 38

'We Have Too Many Banks'
The Philippines' new central banker looks ahead

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Will rising crude-oil prices halt Asia's turnaround?

Property Poker
Malaysia is playing for high stakes as it looks for solutions to a massive real-estate glut

'We Have Too Many Banks'
The Philippines' new central banker looks ahead

Talk about baptism by fire. Soon after Rafael Buenaventura began his six-year term as governor of the Philippine central bank 11 weeks ago, the peso began to wobble. On Sept. 9, the currency weakened to 40.22 to the U.S. dollar, a fall of 5.9% from July 1, before closing at 39.90 Sept. 14. Buenaventura, 61, blames dollar speculators and external shocks such as the East Timor crisis, rising U.S. interest rates and tension between China and Taiwan. Formerly a Citibank senior executive for more than two decades and long-time CEO of Philippine lender PCIBank, the governor brings expertise, experience and contacts -- he was a high school classmate of President Joseph Estrada -- to his new job. He spoke with Asiaweek's Antonio Lopez.

What's happening to the peso?
We have tried to lower interest rates even when global rates moved in the opposite direction. That is encouraging people to shift from peso assets to dollar assets. Second is some degree of regional instability. Spooked foreign fund managers and investors are moving away from the emerging markets of Asia.

So what is a stable and competitive peso-dollar rate?
If the rate were to play right now between 38 to 40, and the Thai baht remains [generally in the same range], then that's a stable rate. For the first six months of 1999, our balance of payments continued to be in surplus, at $2.9 billion, while the current account was at $1.9 billion, also in the black. Such positive balance of payments should lead to a stronger, not a weaker, currency.

How is the Philippine banking system?
It is in reasonably better shape relative to our Asian neighbors. Non-performing loans of commercial banks, at 13.5% as of end-July, remain manageable, principally because the restructuring of loans has leveled off, and there has been growth in [new] loans. Provisioning against loan losses is also adequate, with loan-loss reserves equivalent to 4.8% of total loans as of May 1999. Our [average] capital-adequacy ratio of 17.9% is higher than the minimum statutory requirement of 10% and the 8% standard of the Bank of International Settlements. However, we have too many small banks. Over time, they will have to amalgamate, consolidate, close down. Eventually, I hope there would be only four to six big banks. We also intend to further liberalize the banking environment by working for the entry of more foreign banks, possibly for a limited period. We are also planning to allow foreign players to acquire 100% of local banks.

Is the Asian Crisis over?
The Crisis of 1997 is over. What is dangerous is if reforms that started because of the Crisis are not carried out because recovery is coming. Investors could get the feeling you are backing out of promised reforms. Here in the Philippines, we should continue with tax reforms, trade liberalization and our commitments to the World Trade Organization.

What are the lessons of the Asian Crisis?
One of the most important is cross-currency funding. I hope people don't forget that. Don't borrow in one currency and pay in another. Don't do it unless you hedge or have foreign-exchange earnings.

And beyond the Crisis?
The face of competition in the banking business and in the larger financial-services industry is changing rapidly. This is being driven by two major developments. First, globalization is opening up the legal barriers to cross-border trade. Second, information and communications technology is dramatically reshaping how business is done. Banks will have to develop enough critical mass to make the necessary investments, especially in technology, [if they want to] remain a major player. Or they will have to identify a specific niche that they can serve better than anyone else. How will you compete with, say, DBS [of Singapore] which can transact any business in all its branches around the region? How do you compete with Citibank, whether you are in London or New York? Obviously, that problem is less important to the majority of your clients. But you will have a hell of a time trying to convince your high net-worth clients to stay with you when somebody can offer them global service.

What can the central bank do?
Our foremost responsibility will still be to deliver price and overall financial stability. Historically, macro-economic instability and tolerance of major financial imbalances have often led the way to a banking crisis. Therefore, the central bank must focus its monetary policy toward securing a low-inflation environment. As for banking policy, we will continue strengthening individual banks as a means of ensuring overall systemic soundness. To further improve the regulatory framework, we are seeking to strengthen regulatory oversight, raise prudential banking standards, foster competitiveness in the banking system and enhance central-bank independence.

Can the central bank be pro-poor?
Yes. We provide re-discount facilities to rural banks for them to assist small businesses. We will safeguard deposits placed in rural banks. The central bank is like a string. You let go or pull back as needed.

This edition's table of contents | Asiaweek home

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