BSP will struggle with its mandate if dividends are allocated to Maharlika Fund, ex-official says

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Metro Manila (CNN Philippines, May 31) — The Bangko Sentral ng Pilipinas (BSP) will have a hard time performing its duties if its dividends are allocated to the proposed Maharlika Investment Fund, a former official said on Wednesday.

“It is the mandate of the central bank to keep prices stable, so when it is necessary, we need to mop up liquidity that will cost money…Second, when the situation gets worse and some of the banks are affected, you need the money again to bail out distressed financial institutions,” former BSP Deputy Governor Diwa Guinigundo told CNN Philippines’ The Source.

“But if the central bank is weak in terms of financial statement and balance sheet then it will have difficulty delivering on its mandate of price stability and banking stability,” he added.

Before the Senate approved the bill early Wednesday morning, Sen. Sherwin Gatchalian proposed to drop the BSP dividends as one of the sources of Maharlika Investment Corporation’s (MIC) capital.

He said he wanted “to ensure that the BSP's increasing capitalization will be fully realized at the earliest possible time, to strengthen the institution given the growth of the banking industry through the years, this is also to maintain the credibility of the BSP.”

Senate Majority Leader Joel Villanueva supported the proposed amendment.

However, it was rejected by the bill’s sponsor Sen. Mark Villar, saying the “BSP has already said that they're willing to defer.”

“The economic team has really expressed that the dividends—it's a priority for them that the dividends received from BSP be used for the MIC,” he added.

Senate President Juan Miguel Zubiri backed Villar’s decision.

Guinigundo emphasized the BSP needs more capitalization to ensure financial stability.

“The central bank plays a very important role in stabilizing the macroeconomy,” he pointed out. “It is important that while, at present the central bank is healthy and robust, it is important not only to maintain it but to further strengthen it.

He also said the government should be risk-conscious and prepare the BSP for the possible occurrence of unfavorable circumstances in the future.

The Landbank of the Philippines and the Development Bank of the Philippines are also fund sources of the Maharlika fund. Guinigindo expressed his concern about this. He said since these government institutions have their own investment and lending operations, funding the MIF may compromise the viability of the two banks.