By Melissa Luz T. Lopez, Senior Reporter
THE CENTRAL BANK plans to roll out three new measures in a bid to better manage debt-related risks, at a time rising interest rates and exchange rate movements have been bumping up repayment costs.
The 2017 Financial Stability Report published by the inter-agency Financial Stability Coordination Council (FSCC) said the biggest concern faced by the economy is its rising debt burden, amplified by volatile global financial markets.
“What is clear is that interest rates are rising and emerging market currencies have been depreciating versus the United States dollar,” read the report that was published by the FSCC on Tuesday.
“These must mean that debt servicing is now at a higher cost than in the past, separate from the issue of having more outstanding debt,” it explained.
“This is our central financial stability issue.”
The report of the FSCC — which is composed of the Bangko Sentral ng Pilipinas (BSP), Department of Finance, Insurance Commission, Securities and Exchange Commission and the Philippine Deposit Insurance Corp. — takes stock of financial market risks that could weigh on the country’s growth momentum and overall health of the financial system.
BSP Governor Nestor A. Espenilla, Jr. said rising global interest rates and a weaker peso have repriced debts to be repaid “at higher rates.”
In response, the central bank said it has been crafting new measures to mitigate risks, including to contain debt exposure.
BSP Assistant Governor Johnny Noe E. Ravalo said monetary authorities have been working on the introduction of a debt-to-earnings borrowers test, borrowers’ interconnectedness index and the countercyclical capital buffer (CCyB) as new preventive tools.
The first is a stress test that checks banks’ credit exposure to enterprise and household clients and their ability to pay.
The CCyB will require big banks in the Philippines to accumulate extra capital for use in times of financial stress so that they can keep on lending money.
The central bank has been soliciting industry comments on these planned measures, although Mr. Ravalo said monetary authorities will “try to move forward as quickly as possible” to put them in place.
Pending implementation of these new measures, central bank officials said current debt levels do not appear to be worrisome for now.
“One of the first observations we made is as we entered 2018, the level of cross-border debt actually declined. This means that non-financial corporations as well as banks are actually managing their own debt relative to market pricing,” Mr. Ravalo said in a press briefing.
“On the question of can we sustain the repricing risk, we do not have any indication that will say otherwise.”
The FSCC regards current levels of credit demand of both corporate and retail borrowers as a “clear positive vote” for the country’s economy.

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