BSP gets P10B add’l capital from gov’t

The government will infuse P10 billion as additional capital to the Bangko Sentral ng Pilipinas (BSP), raising its current P50 billion to P60 billion authorized capitalization, but still short of the P200 billion it should have under the law.

BSP Governor Felipe M. Medalla said this is new money but he did not say when the National Government (NG) will transfer the capital to the BSP. As of end-October 2022, the BSP still listed P50 billion as its capital.

Meanwhile, BSP Deputy Governor Eduardo G. Bobier, who is in charge of the BSP Corporate Services Sector, said that the fresh capital is coming.

Medalla said: “The timing of that is, at this point, unimportant.” He also said that whether it is coming or not, is not an issue — “because we will need that badly (only) if the peso appreciates very quickly.”

Medalla reiterated that the independent central bank has no urgent need for fresh capital. For one, he explained that with a relatively stable exchange rate market – and this was mainly because of BSP’s policy rate hikes and US dollar selling in 2022 — the central bank’s financial condition is also stable.

“In reality, a well-behaved central bank needs capitalization when the currency is appreciating. And because of the pivot of the US towards higher interest rates, the US dollar is appreciating and all other currencies are depreciating. That’s what I meant when I said we don’t really need capital infusion at this time,” said Medalla.

The BSP’s profitability has become news lately because of the proposed Maharlika Investment Fund (MIF) and its intention to siphon off BSP’s 100 percent dividend payments for the first two years of the wealth fund. In the succeeding years, the BSP will remit 50 percent of its declared dividends to the fund while the remaining 50 percent will go to the NG until the increase in the BSP capitalization has been fully paid. Thereafter, the BSP will remit 100 percent of its declared dividends to the fund.

While this postpones the BSP’s P200 billion recapitalization by at least 14 years, Medalla during a Senate hearing on the MIF said the BSP can handle this because balance sheets are on the strong side. As of end-October 2022, the BSP has net profits of P88 billion.

Medalla said they could work with the existing capitalization for as long as they could manage a stable exchange rate, currently at P54-P55 level vis-à-vis the US dollar.

Under the revised New Central Bank Act, amended in 2019, the BSP has a higher capitalization of P200 billion versus its old 1993 charter which only allowed for P50 billion.

The new BSP law however states that the additional P150 billion will come from its own dividends. Since the proposed MIF law will divert these dividends, the BSP only has P50 billion capitalization, plus the expected P10 billion additional funds.

It will be recalled that in 1993, when BSP was created from its former version as Central Bank of the Philippines which became insolvent, the NG was supposed to provide a P50 billion capitalization to the BSP. It took the BSP 20 years to fully receive the P50 billion capitalization from the government which initially remitted P10 billion when the new central bank charter was approved into a law.