Erle Frayne D. Argonza
Good day to you fellow global citizens!
The world reels anarchic over the geological ramblings in Japan-New Zealand-China and the tumult of the Arab peoples. These events cast veils on the clarity of the economic boom now going on in Asia, and so let me be among those who will project the boom side every now and then. Among such good news is the readiness of Asian banks for the bigger economic battles ahead, a trend that includes the Philippines’ banks.
Do recall that the Asian financial meltdown came in ’97, triggering recessions, mass lay-offs, manufacturing slumps, and heightened poverty. The policy environment then was one of free trade in the movements of finance and money across borders, which enticed portfolio capital to swamp Asia. Regulators were therefore caught off guard by the currency attacks fomented by the Anglo-European oligarchs fronted by the Quantum Group of George Soros.
Asia’s banks, monetary authorities, and financial stakeholders all learned precious lessons from that economic catastrophe. Short of establishing capital and monetary controls (such as what Mahathir did for Malaysia), Asian banks did institute quasi-regulatory reforms such as to raise banks’ reserve requirements, mop up excess liquidities when situation demands so, and finally fix caps on the asset requirements for banks.
The reforms instituted across the last fourteen (14) years since the meltdown paid off very handsomely for the commercial and universal banks in particular, as well as for strengthening central banks. It is important to ensure stabilization mechanisms in the said banks first of all, a pattern that will snowball in the thrift banks and rural banks.
As far as the Philippine republic is concerned, the latest situational reports do indicate very clearly the compass of a healthy banking overall. Total aggregate assets of commercial & universal banks exceeded P6 Trillions, deposits breached the P2.5 Trillions, and trust funds skyrocketed to past the P4 Trillion mark. Needless to say, our banks here are prepared for the big challenges, inclusive of financing big ticket Private-Public Partnership or PPP projects.
The same banks are very much prepared too for the latest regulatory requirements imposed by the BIS or Bank for International Settlements. The BIS adjustments are actually coming late in the day, as the said bank has been too Euro-centric for a long time. Were it not for the fiasco of the USA and European banks from 2007 through 2010, the BIS couldn’t have acted appropriately.
Western banks ought to admit it that they are learning the new adjustments from their Asian counterparts. And the lessons being shared by the Asian banks are the ones being considered strongly today by the BIS itself, which as one can see has been commending Asia’s central bank bosses for jobs well done in their respective backyards.
There are more reforms that must be instituted however, which means that the earlier reforms should only be the start of a series of long-term changes in the banking and monetary systems. I subscribe to a global effort to ban banks from participating in portfolio investments so as not to repeat the catastrophe that hit certain big US banks that disappeared overnight during the height of the recent Great Recession there.
The more efficacious management of bankruptcies should also be put into order. We are right now witnessing a bank run in the Bangko Filipino, which seems to repeat old patterns. More stringent regulations ought to be put into place, as it is getting tiresome now to see bank runs every now and then.
Essential corporate governance reforms are among those that need to be accelerated in the banking and monetary systems. Bank mismanagements and hostile take-over of smaller banks by bigger ones are spooky phenomena within the banking community, which pose as challenges to regulators.
Let the banks and regulators keep tab of the gaps in the system and address them accordingly. Meantime, with a healthy banking situation now in place, banks can clearly become stakeholders in creating the boom situation in the Philippines, ASEAN, and the whole of Asia.
[Philippines, 17 March 2011]
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