Jimbo Albano / BusinessMirror

THE Bangko Sentral ng Pilipinas (BSP) was created on July 3, 1993, pursuant to the provisions of the 1987 Philippine Constitution and Republic Act 7653 or the New Central Bank Act of 1993.

The BSP took over from the 44-year-old Central Bank of the Philippines, which was established on January 3, 1949. When the BSP was created, it was supposed to have an authorized capital of P50 billion to be provided by the government. Of the P50 billion, P10 billion was supposed to be fully paid upon the effectivity of the New Central Bank Act and the rest, payable within two years.

The P10 billion was released by the government to the BSP all right, but the rest of the money, or P40 billion, never came. The BSP has been asking the government to meet its commitment, but the last three administrations failed to do so.

Now, the BSP needs to collect the money badly to carry out its mandates of managing liquidity in the system and stabilizing consumer prices.

It is eyeing a combination of direct cash infusion of P15 billion from the government and a bond issue to raise P20 billion to P25 billion, with the proceeds going to the BSP. The bonds would be paid in tranches from the national budget and the allocation would be assured by multiyear budgetary allocation from the government.

The direct cash infusion looks dim now, as the government reels from a P250-billion budget deficit. But the bond issue could happen later this year after the mechanics are clarified.

The BSP is also eyeing exemption from taxes, which other central banks enjoy. It is exempted from paying documentary-stamp tax, but not national and local taxes.

Proposed amendments to the BSP charter in Congress would exempt it from income and other taxes—a hefty sum in savings. In 2005 alone, the BSP has P1.2 billion in back taxes.

Also eyed is the restoration of the old Central Bank power to sell bonds, which the Bangko Sentral lost when it took over from the old Central Bank.

BSP Governor Amando Tetangco Jr. has said: “Both the full capitalization of the BSP and its ability to issue bonds would enhance the flexibility of the monetary policy.”

BSP officials have been working with Congress to revise its charter in an effort to be a more responsive, effective and stronger institution in administering the country’s monetary, credit and banking system.

The Bangko Sentral sees itself operating within a constantly changing and evolving financial landscape, where it should not be constricted by a charter crafted 16 years ago. The continuing global financial turmoil has given urgency to the BSP’s charter amendment.

Among other things, the BSP seeks the following amendments in its charter, based on lessons learned in 16 years of operation and on international best practices in other central banks.

• To have an express authority to administer the payments and settlement systems of the country—integral parts of the county’s monetary, credit and banking systems.
• To have stronger supervisory powers over the banking system.

a)         To have authority to pre-approve transfers of substantial bank shares.

b)         To be able to subject substantial stockholders to the “fit and proper rule” so as to evaluate the fitness and integrity of bank owners.

• For BSP examiners to access deposit accounts in the course of bank examinations, on the ground that fraudulent transactions and unsafe/unsound banking practices coursed through deposit accounts have been shielded from BSP examiners. The deposit-secrecy law has stymied the gathering of evidence against fraud.
• For receivers of closed banks, the authority to sell bank assets for purposes of rehabilitation—to enable faster rehabilitation without waiting for the bank to be placed under liquidation.

Most of the amendments sought are based on reasonable grounds, and perhaps lawmakers should pay heed to them when sessions resume.