The Philippine financial system manifested its strength over the past decade, including the period of recent global financial crisis. After significant dislocations in prior crises in the 1980s and 1990s as well as the 1997 Asian Financial Crisis, the system saw a steady improvement in the balance sheet of the banking industry, the issuance and listing of corporate bonds, and the underwriting of insurance contracts. Moving forward, however, the system will need to address concerns about the sustainability of its performance if it is to contribute significantly to development.
Parallel to these, policymakers pursued broad-based financial sector reforms centered on restructuring the banking sector, institutionalizing corporate governance reforms, improving risk management and strengthening the supervisory oversight of financial regulators1 in the early 2000s. Together with improved macroeconomic conditions, the steady inflow of remittances from OFWs, a minimal investment exposure to foreign structured products and a low dependence on exports, these reforms allowed the financial system to avoid the worst difficulties encountered by other economies during the 2007-2008 financial crisis.
The financial system's performance has been positively reviewed by third parties.2 Stress tests conducted on banks also confirm the strength of the banking system's capitalization even with extreme test parameters. For inclusive finance advocacy, local supervisory initiatives have also been repeatedly acknowledged by international institutions.3 These external validations of the improvements in the financial sector culminated in the sovereign ratings or outlook upgrades from some the major ratings firms.
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1 These include the re-establishment Bangko Sentral ng Pilipinas (General Banking Law of 2000 or RA 8791) as the supervisor of the banking sector, Securities and Exchange Commission (Securities Regulation Code of 2001 or RA 8799, as amended) as the supervisor of the corporate sector and domestic capital market, Insurance Commission (PD 612) as the supervisor of the insurance and pre-need industries and Cooperative Development Authority (RA 6939) as the supervisor of cooperatives in the Philippines. The CDA Charter was enacted on March 10, 1990 and subsequent enhancements were similarly pursued in early 2000s but amendments of the Charter are still pending in Congress.
2 This is evident from the Financial Sector Assessment Program (FSAP) report of the International Monetary Fund (IMF) in early 2010.
3 The Economist Intelligence Unit (EIU), for example, has ranked the country's inclusive finance policy framework as the best worldwide.