THE BANKING SECTOR remains robust following “sound and strategic” reforms by the central bank and cooperation from lenders, according to the 2020 Fiscal Risks Statement (FRS) prepared by the Development Budget Coordination Committee.

“The Philippine banking system sustained its growth trajectory and continued to operate in a safe and sound manner due to the sound and strategic reforms the Bangko Sentral ng Pilipinas (BSP) has implemented through the years, involving prudent regulations, risk-based supervision, and earnest cooperation from the banking sector,” the FRS said.

Early this year, the Republic Act No. 11211, an Act Amending Republic Act No. 7653, or the New Central Bank Act was signed into law, updating the central bank’s Charter as well as strengthening its monetary and regulatory functions.

Among the reforms included are the higher fines on banks and financial firms who violate regulations, as well as the authority of the central bank to suspend or revoke licenses of financial firms.

The new law also restored BSP’s authority to issue debt papers which gives it “greater flexibility” in deciding the timing of monetary operations.

“Several regulatory measures have been put in place to improve corporate governance and risk management standards, including the adoption of Basel reforms, promotion of the integrity and transparency of the financial system, and advancement of the financial inclusion agenda,” the statement added.

Meanwhile, domestic consumption is expected to remain as the main driver of expansion next year amid easing inflation and global oil prices.

Household spending in the second quarter still accounted for the bulk of the 5.5% gross domestic product (GDP) expansion, the FRS said. GDP growth in the April-June period slowed from the previous quarter’s 6.1%.

“In real terms, GDP is targeted to grow by 6.5 to 7.55% in 2020, with domestic demand seen to remain as the country’s main driver of economic growth. Household consumption is deemed to recover in the near term, as inflation is anticipated to revert back to the 2.0 to 4.0% target of the government,” it said.

Construction by both public and private sectors is likewise seen to boost investment while government spending is also expected to pick up next year, it said.

The FRS also said the Foreign Investment Act will allow the government to open up the economy and further boost investments next year.

“Reforms in the area of public utilities and retail trade should be prioritized. The amendment of the Foreign Investment Act is likewise important to increase foreign investments in both domestic- and export-oriented enterprises,” it said.

The FRS aims to present risks to the government’s fiscal position and aid in the formulation of necessary policies and plans of action.

It outlines the country’s exposure to fiscal risks stemming from various channels such as the projections used for budgetary purposes, public debt dynamics, operations of local governments and government corporations as well as public-private partnerships, contingent liabilities and the mechanics of the financial sector. — B.M. Laforga