By Lee Chipongian

The Bangko Sentral ng Pilipinas (BSP) said there is a higher rate of market volatility which needs to be addressed but still finds no evidence of potential crisis that could crack the country’s financial stability.

The BSP, with the rest of the Financial Stability Coordination Council (FSCC), on Tuesday presented the first Financial Stability Report (FSR) which added another layer of empirical data that financial consumers can use in understanding risks – specifically credit risk which the report focused on, after scrutinising markets’ cross-border interconnectedness which if unchecked, gives rise to contagion risk.

“While there is no definitive evidence of a looming crisis, it is also clear that shocks that have caused dislocations of crisis proportions have come as a surprise,” according to the 58-page report. “What is not debatable is that repricing, refinancing and repayment risks are escalated versus last year and this could result in systemic risk if not properly addressed in a timely manner.”

For the 2017 version of the report, it takes a thematic assessment of the various risks that are considered threats to the sustainability of the growth of the local economy and financial system.

The bottomline is that market volatility has escalated and this “requires more active management of repricing, refinancing and repayment risks.” The key message of financial stability is that financial markets represent a complex network of interlinked agents and transactions, the report said. To keep the financial market “well-functioning” the risks arising from the interconnectedness should be recognized and mitigated.

This FSR also includes its view on the impact of globally rising interest rates and weaker currencies against the benchmark US dollar as this relates to the repayment, refinancing and repricing of debt. Potential risks to financial techology or fintech were likewise highlighted.

“On the whole, the state of the markets is much more dynamic than last year. The term VUCA (volatile, uncertain, complex, and ambiguous) – interestingly, originally a military terminology but has since been used in common parlance – epitomizes the collective view of the uncertainties,” the FSR said. “While there may not be any concrete indication yet of a systemic vulnerability in the Philippine financial system, one can reasonably argue that the components that build up into systemic risk are always present.”

BSP Governor Nestor A. Espenilla Jr. said financial stability is not just the responsibility of the central bank, but a collective effort. “It’s not only banking but there are many important factors in the financial system including key financial markets that are outside of the oversight of BSP,” he said.

The FSR, he said, is a communication tool that explores the data gap, as well as provide better data for empirical analysis “to address other policy issues along the way” and also discusses the “cross-cutting risks”.

Espenilla said FSR emphasized on the interconnectedness of markets. The report, which focused on credit, also tackled the capital market which is highly connected with banks as well as insurance companies. They also touched on the property market which Espenilla said “we are very interested” to dissect and understand.

Assistant Governor Johnny Noe E. Ravalo of the Office of Systemic Risk Management, said the FSR’s thematic topics are not fixed and they expect to change and update this every year. “We will survey the market, we normally do a quarterly review of these systemic risks that’s evolving in the market, both internal to the country and external as it affects the country, and internal as it affects the external.”

Ravalo said the FSR is significant in that the BSP is sharing its view to the public to enable them to make better financial decisions.