The financial system remains stable, even as it reacts to the continued uncertainty from the coronavirus crisis and global recession. — REUTERS

DESPITE continued uncertainty, the local financial market is not as volatile as it was at the onset of the crisis in March, according to the Financial Stability Coordination Council (FSCC).

This as the FSCC assured the health of the financial markets is a top concern for policy makers amid the pandemic.

“We are not as volatile as what we used to be two months ago, but there is some level of elevation (of risks) that we need to focus on,” Bangko Sentral ng Pilipinas (BSP) Assistant Governor Johnny Noe E. Ravalo said in an online briefing.

“Unlike the global financial crisis in 1997, Asian financial crisis, or the 1929 Great Depression, COVID is not a hit on the financial market, but straight to the real economy,” he added.

In March, the stock market saw increased volatility amid the coronavirus disease 2019 (COVID-19) outbreak. The Philippine Stock Exchange Index (PSEi) plunged by 13.34% on March 19, but has since recovered. On Tuesday, the PSEi closed 0.78% lower at 6,297.78.

The FSCC, composed of regulatory bodies as well as key institutions such as the BSP and the Department of Finance, released its latest Financial Stability Report on Tuesday.

“We want to ensure the sustained health of the financial system to serve the financial needs of the public as well as be an anchor for our ongoing recovery efforts,” FSCC Chairman and BSP Governor Benjamin E. Diokno said in an online briefing.

In its report, the FSCC acknowledged the macroeconomic difficulties and strain on the health infrastructure faced by the Philippines amid the pandemic.

“Yet despite this and the commensurate increase in risk premiums and heightened risk aversion, there is no reason to believe that the local financial market is in a state of instability. Not yet,” it said.

“The caveat is offered because one cannot tell yet how the public health issue will be resolved and how the corresponding stress points of eroded incomes and suspended business activities will be handled… Risk pressures will continue to build because debts will be increasingly difficult to service, banks will find it harder to source new deposits, and risk perceptions draw in further risk perceptions.”

In the medium term, the FSCC said macroprudential network stress tests should be institutionalized, alongside the completion of the Systemic Risk Crisis Management Framework.

“The former provides a periodic check-up, covering both financial institutions and (non-financial corporations), in testing for vulnerabilities in the system. The latter is a pre-emptive initiative to organize the handling of future outbreaks of systemic risks so that the authorities respond rather than react to the emerging vulnerabilities,” it said.

Mr. Diokno said the crisis management framework should not be taken as a sign of “imminent vulnerability.”

“We fully understand that the best use of crisis management framework is when it is not in use, but we will be fully prepared when the times call for it,” he said.

As the national government takes on massive relief programs to cushion the impact of the pandemic, the FSCC noted this “will certainly mean higher debts, much less fiscal space.”

“Ultimately though, taxes will have to adjust intergenerationally to make up for the gap. This is a policy issue that, for the moment, is pushed down the road but is unlikely to be avoided,” it added. — Luz Wendy T.Noble

RELATED ARTICLESMORE FROM AUTHOR