A central bank for the poor

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Finally, a central bank governor for the poor.

Nestor  “Nesting” Espenilla Jr., 58, is the 11th governor of the Bangko Sentral ng Pilipinas or central bank.  He took over July 2, Monday, to begin a six-year term.

A product of Ateneo (economics), UP (MBA), and Japan’s Institute of Policy Science (masters), he is a veteran banking regulator and an economist. He is a devoted husband and father of three. He is expected to be different from the mold of previous governors. 

In the past, the Bangko Sentral allowed only four to five families to have exclusive control of the banking industry.

The result has been an oligopoly of banking. The top banks have the same banking hours—9 a.m. to 4 p.m. (although this practice was later broken by Henry Sy’s BDO, which is open even on Sundays).

The banks charge the same fees and slap the same penalties. Their credit cards have uniformly onerous practices—high interest rates (3 to 3.5 percent per month) and penalties (5 percent); the use of average daily balance (meaning if you miss the cutoff date for paying the previous month’s bill, you are slapped 8.5 percent monthly interest applied not only on the amount that was due last month but also on purchases you just did this morning). How can something that you bought today be penalized, also today? Only Philippine credit cards.

The BSP has required only one-day clearing for checks, meaning you deposit your check today, you use the cash that goes with it—today. However, the top three commercial banks have refused to comply, claiming their system cannot handle one-day check clearing. As a result, you are denied, for three days, the free use of your own money. How much is three-day money? Well, the banks have easily P3 trillion (3,000 billion pesos) in checking accounts. Divide that by 365 days. It’s P8.2 billion a day. Multiply that by three days—P24.6 billion—the amount of free money, your money, the banks help themselves with every three days. No wonder, eight of the 10 richest Filipinos are bankers.

In his inaugural speech Monday, Espenilla used rather high-sounding words to describe his mission of making the central bank relevant.   He said:

“Yes, the Philippines’ continues to experience strong economic performance amidst a stable macroeconomic and financial environment. But such growth, to be truly meaningful, needs to be inclusive, to create jobs, and to improve welfare.”

“The BSP has been promoting reforms in the macroeconomic and financial sectors, but we know that these are not enough. We have to push the envelope further. This is why the BSP has been passionate in its pursuit of its financial inclusion advocacy.”

“We need to work on bringing central banking operations closer to the people. This would entail strengthening our commitment to advance our financial inclusion, financial education, and consumer protection agenda to ensure that no one is left behind.”

In 2015, the BSP, Espenilla recalled, “embarked on an ambitious journey towards modernizing the retail payment system in the country. The National Retail Payment System project defines the principles and critical elements to bring about a safe and efficient digital payment system. “This can potentially transform our economy by enabling greater access to financial services. A well-designed payment system serves as a key pillar of an inclusive and expansive digital finance ecosystem—one that is able to meet the diverse needs of all users in a manner that is convenient, sustainable, affordable, and reliable.”

He declared: “Our policy agenda is therefore geared towards a truly inclusive, strong and dynamic financial system that is fully responsive to the needs of the domestic economy in line with the Government’s medium-term development plan and the AmBisyon Natin 2040.”

How does Espenilla intend to achieve financial inclusion?

About 577 towns have no banks and 80 million Filipinos have no bank accounts.  The governor wants to ease the requirements for opening a bank branch in missionary areas.  He will also lower, if not remove, the maintaining balance for deposits kept by ordinary mortals.   He will remove penalties for maintaining deposits below the amount the banks want.  The know-your-client (KYC) rules will be eased for small borrowers and depositors.  So-called dormant accounts will not be allowed by BSP—meaning if a depositor does not make any transactions in his bank account for a year, the bank cannot penalize the depositor for allegedly maintaining a “dormant account”.  “There is no such thing as a dormant account,” says Espenilla.

For small and medium businesses, heavy penalties will be slapped on banks who fail to meet their quota of loans for SMEs.

Espenilla says  he will push for legislation for  a Financial Inclusion Consumer Protection Law.    He will also strengthen the BSP’s consumer protection bureau headed by Pia Roman Tayag.

As for loan documents, a borrower cannot be forced to sign documents without dates and with blank entries.  A borrower will have to be told the exact and effective interest he must pay for his loan.

Under BSP rules, banks must ensure that “offering documents of products and services contain the information necessary for customers to be able to make an informed judgment of the product or service and, in particular, meet the full disclosure requirements specified under existing laws or regulations.”

“All key features and risks of the products should be highlighted prominently in a succinct manner. Where a product is being offered on a continuous basis, its offering documents should be updated in accordance with the requirements set out in the regulations.”

Banks must readily and consistently “make available to the customer a written copy of the Terms and Conditions (T&C) that apply to a product or service. The contents of the T&C must be fully disclosed and explained to financial customers before initiating a transaction. Where and when warranted, reference to the T&C should be made while transacting with the consumer and before consummating the transaction, if such reference is material to the understanding of the consumer of the nature of the product or service, as well as its benefits and risks.”

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