BANGKO SENTRAL NG PILIPINAS

OBJECTIVES

The BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable economic growth.

The BSP also aims to promote and preserve monetary stability and the convertibility of the national currency.

RESPONSIBILITIES

Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective to maintain price stability.

Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins issued by the BSP are fully guaranteed by the Government and are considered legal tender for all private and public debts.

Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.

Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions.

RESPONSIBILITIES

Management of foreign currency reserves. The BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies in order to preserve the international stability and convertibility of the Philippine peso.

Determination of exchange rate policy. The BSP determines the exchange rate policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign exchange rate policy such that the role of Bangko Sentral is principally to ensure orderly conditions in the market.

Other activities. The BSP functions as the banker, financial advisor and official depository of the Government, its political subdivisions and instrumentalities and government-owned and -controlled corporations.

ORGANIZATIONAL STRUCTURE

The Executive Management Services

Monetary Stability Sector

Supervision and Examination Sector

Resource Management Sector

Security Plant Complex

Inflation Target

The government’s inflation target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year.

The inflation targets have been set at 4.5 percent with a tolerance interval of + 1.0 percentage point for 2010 and a 4.0 percent with a tolerance interval of + 1.0 percentage point for 2011

Monetary Policy Instruments 1. Open Market Operations

key component of monetary policy implementation

consist of repurchase and reverse repurchase transactions, outright transactions, and foreign exchange swaps.

Monetary Policy Instruments Repurchase and reverse repurchase

transactions are carried out through the repurchase (RP) facility and the reverse repurchase (RRP) facility of the BSP.

In a repurchase or repo transaction, the BSP buys government securities from a bank with a commitment to sell it back at a specified future date at a predetermined rate. The BSP’s payment to the bank increases the latter’s reserve balances and has an expansionary effect on liquidity.

Monetary Policy Instruments In a reverse repo, the BSP acts as the seller

of government securities and the bank’s payment has a contractionary effect on liquidity.

RP and RRP transactions have maturities ranging from overnight as well as two weeks to one month.

The interest rates for the overnight RRP and RP facilities signal the monetary policy stance and serve as the BSP’s primary monetary policy instruments.

Monetary Policy Instruments Outright transactions refer to the direct

purchase/sale by the BSP of its holdings of government securities from/to banking institutions.

In an outright transaction, the parties do not commit to reverse the transaction in the future, creating a more permanent effect on money supply.

The transactions are conducted using the BSP’s holdings of government securities.

Monetary Policy Instruments When the BSP buys securities, it pays for

them by directly crediting its counterparty’s Demand Deposit Account with the BSP.

The transaction thus increases the buyer’s holdings of central bank reserves and expands the money supply.

When the BSP sells securities, the buyer’s payment (made by direct debit against his Demand Deposit Account with the BSP) causes the money supply to contract.

Monetary Policy InstrumentsForeign exchange swaps refer to

transactions involving the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed on the deal date (the first leg), and a reverse exchange of the same two currencies at a date further in the future (the second leg) at a rate (different from the rate applied to the first leg) agreed on deal date.

Monetary Policy Instruments 2. Acceptance of fixed-term deposits

The BSP also accepts deposits from banks. The Special Deposit Accounts (SDA) facility consists of fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP.

It was introduced in November 1998 to enable the BSP to expand its toolkit in liquidity management.

Monetary Policy Instruments In April 2007, the BSP expanded access

to the SDA facility by allowing trust entities to deposit in the SDA facility in order to better manage liquidity in the face of strong foreign exchange inflows.

Monetary Policy Instruments 3. Standing Facilities The BSP extends discounts, loans and advances

to banking institutions in order to influence the volume of credit in the financial system.

Rediscounting is a standing credit facility provided by the BSP to help banks meet temporary liquidity needs by re-financing the loans they extend to their clients.

Monetary Policy Instruments The rediscounting facility allows a

financial institution to borrow money from the BSP using promissory notes and other loan papers of its borrowers as collateral.

There are two types of rediscounting facilities available to qualified banks: the peso rediscounting facility and the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) which was introduced in 1995.

Monetary Policy Instruments 4. Reserve requirements Reserve requirements refer to the

percentage of bank deposits and deposit substitute liabilities that banks must keep on hand or in deposits with the BSP and therefore may not lend.

Changes in reserve requirements have a significant effect on money supply in the banking system, making them a powerful means of liquidity management.

Money Supply (June 09)

Liquidity Aggregates (Total Liquidity) 4,666,013

Currency and Transferable Deposits [Narrow Money (M1)]

1,064,984

Currency Outside Depository Corporations and Deposits [Broad Money (M2)]

3,527,068

Broad-Money Liabilities {Domestic Liquidity (M3)] 3,599,672

Net Claims on the Public Sector (Domestic Credit to the Public Sector)

1,252,078

Claims on Other Sectors (Domestic Credit to the Private Sector)

2,535,249

Net Foreign Assets 2,189,811

LBC Development Bank

LBC Development Bank, a unit of the LBC Group, has been placed under receivership of the Philippine Deposit Insurance Corp. (PDIC).

As of end-June this year, total deposits amounted to P6.09 billion; P3.73 billion is covered by insurance

Under PDIC’s charter, deposits worth P500,000 or below are covered by insurance. Deposits in excess of the amount may or may not be paid depending on the amount to be raised from the liquidation of a closed bank’s assets.

LBC Development Bank

Owners of deposit accounts worth P10,000 or below need not apply for insurance claims; PDIC will simply mail notices to them and they can withdraw from designated redemption offices, like branches of Land Bank of the Philippines.

The placement of LBC Development Bank under receivership may come as a surprise to the bank’s depositors given the institution’s track record.

LBC Development Bank

LBC Bank was previously awarded the “superbrand” status by Superbrands Philippines Council, which cited it for being one of the most reliable and trusted brands