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THE
Philippine Stock Exchange (PSE) is appealing to
lawmakers to approve a proposed law designed to lessen
credit risks and loan defaults, a move that can
stabilize the stock market amid the turmoil in global
financial markets.
In a
statement Monday, PSE president Francis Lim said the
enactment of the proposed Credit Information System Act
(CISA) will help the country steer clear of a subprime
lending problem now plaguing the US.
Stock
exchanges the world over, including the local bourse,
started suffering from massive sell-offs triggered by
nervous investors, after US lenders noted an increase in
loan defaults among subprime borrowers. The selling
frenzy has wiped out the record-breaking gains this year
of the PSEi, the main barometer of stock price
movements.
“We in
the PSE remain confident that, notwithstanding the
PSEi’s setback, our stock market still stands on solid
macroeconomic ground. Our listed companies remain
profitable; interest rates, along with inflation rates,
remain stable; while the country’s economic growth
forecasts look attainable. So we have no reason to doubt
the strong fundamentals supporting our stock market,”
Lim said.
He also
emphasized the need to implement CISA to make sure that
the financial system can count on an additional layer of
support, or buffer, if global repercussions from the
US
subprime lending problem were to linger.
Authored
by Sen. Edgardo Angara, the proposed CISA is now pending
in the Senate.
Subprime
loans
Subprime
loans represent borrowings of persons with blemished or
limited credit histories. The loans, which carry higher
interest rates, often expose lenders to higher credit
risks.
Late
last month, the
US
stock market experienced the blow from massive sell-offs
due to concerns over the subprime mortgage market
following the collapse of big US hedge funds with heavy
investments in doubtful subprime mortgages.
The
collapse of the hedge funds prompted major credit rating
agencies to downgrade subprime mortgage securities.
“Let me
stress that our financial market does not face a risk
similar to what is confronting our
US
counterpart. Nevertheless, the proposed CISA will lessen
the likelihood of such loan defaults by making the
credit investigation process less tedious, and less
costly, while at the same time, increasing the accuracy
of credit information to a reliable level,” Lim said.
CISA
will create the Credit Information Corp. (CIC) to set
the standards for credit reporting operations. The CIC’s
goal is to improve the availability and cost of credit
to borrowers, while greatly reducing the lender’s credit
risk, resulting in a more stable and consistent
financial system.
“The
cost of borrowed money also increases, if the banks
suffer defaults; because the banks pass on to other
borrowers the cost of their soured loans. If we have the
CISA, companies will be able to save on the cost of
their borrowed money,” Lim said.
An
unreliable credit information system also curbs economic
growth, because it reinforces the sense of distrust of
banks to extend loans.
“But if
the banks are sure that a client is credit-worthy, then
they will not entertain doubts about approving a loan;
and more money will flow to those who need it, creating
more economic activity,” Lim added. |
