1. Recent Philippine Banking Sector Developments 26 May 2005

2. 2 Banking system remains resilient Banks’ aggregate resources higher in February 2005 Banks’ aggregate resources higher in February 2005 Resources of the Banking System in trillion pesos Feb

3. 3 Banking system remains resilient KB’s capital adequacy ratio remained comfortable as of June 2004 KB’s capital adequacy ratio remained comfortable as of June 2004 17.76 KB’s: Capital Adequacy Ratio in percent BIS: 8% Statutory floor: 10% 2002 2003 2004

4. 4 Banking System: NPL / Total Loans in percent 12.1 NPL ratio declines to 12.1% as of February 2005 NPL ratio declines to 12.1% as of February 2005 2004 Banking system remains resilient 2005

5. 5 Bank lending grows steadily KB loans up 5.8 percent in February 2005 KB loans up 5.8 percent in February 2005 Total Loans Outstanding of Commercial Banks Annual Growth Rate (%) 5.8 2001 20022003 2004 2005

6. 6 Recent Banking Sector Reforms Microfinance Program Microfinance Program  BSP sustains support to microfinance program  BSP provides microfinance access to a broad range of financial services such as deposits, loans, payment services, money transfers and insurance

7. 7 BSP initiatives to promote microfinance: BSP initiatives to promote microfinance:  issued guidelines on microfinance loans  partially lifted moratorium on branch licensing for banks engaged in microfinance  issued guidelines for setting up branches of microfinance-oriented banks and branches of banks  opened rediscount facility for microfinance loans Recent Banking Sector Reforms

8. 8 Anti-Money Laundering Initiatives Anti-Money Laundering Initiatives  Anti-Money Laundering Act of 2001  Salient features: Defines and criminalizes money laundering Defines and criminalizes money laundering Introduces mandatory reporting system of suspicious transactions Introduces mandatory reporting system of suspicious transactions Requires customer identification Requires customer identification Creation of Anti-Money Laundering Council Creation of Anti-Money Laundering Council Recent Banking Sector Reforms

9. 9 Special Purpose Vehicle Act of 2002 Special Purpose Vehicle Act of 2002  Rationale: address NPAs  Provides framework for sale of NPAs of banks and financial institutions  Follows a market-based, private sector driven model Private sector: set-up SPVs Private sector: set-up SPVs Government: provide incentives Government: provide incentives Recent Banking Sector Reforms

10. 10 195 COEs have been issued 195 COEs have been issued P56.508 billion NPAs transferred P56.508 billion NPAs transferred Several banks have pending applications for COE for the bulk sale of NPAs to SPVs Several banks have pending applications for COE for the bulk sale of NPAs to SPVs Banks have until 8 April 2005 to sell their NPAs to SPV Banks have until 8 April 2005 to sell their NPAs to SPV A bill has been filed in Congress to extend the effectivity of the privileges under the SPV Law. A bill has been filed in Congress to extend the effectivity of the privileges under the SPV Law. SPV Update: (as of May 2005)

11. 11 Thank you…

12. 12 Web:www.bsp.gov.ph E-mail:bspmail@bsp.gov.ph