Financial Institutions’ Risk Management in Philippines Faces Challenges
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The Philippine financial system, despite being a dynamic economy, faces significant challenges in risk management, particularly for non-bank financial institutions and capital markets.
Banking System Dominance
Banks dominate the financial landscape, with total assets amounting to 126 percent of GDP. However, bank credit is limited, accounting for only around 50 percent of GDP, with most going towards non-financial corporates. This concentration of banking assets poses risks to stability and access to finance.
Challenges in Financial Inclusion
Only a third of adults in the country have formal bank accounts, highlighting the significant gap in financial inclusion. Non-bank financial institutions and capital markets, including bond markets, are underdeveloped compared to banks. This lack of access to formal banking services contributes to the vulnerability of the system.
Fintech Ecosystem Development
The fintech ecosystem is also still in its infancy, which further exacerbates concerns over risk management. The lack of robust risk management practices among non-bank financial institutions and capital markets makes the system vulnerable to shocks and instability.
Stress Testing Exercises Highlights Need for Improved Risk Management
Stress testing exercises conducted by regulatory bodies have highlighted the need for improved risk management practices across all segments of the financial sector. The report recommends that policymakers and regulators take a more proactive approach in promoting risk awareness, enhancing regulation, and improving oversight to mitigate potential risks and ensure financial stability.
Recommendations for Policymakers
- Promote risk awareness among non-bank financial institutions and capital markets
- Enhance regulation and supervision of the financial sector
- Improve oversight of conglomerate ownerships and interlinkages between banks and non-financial corporates
- Support the development of fintech ecosystem to promote financial inclusion