Announcement of Philippines to Strengthen its Financial System on May 8, 1989

FOR IMMEDIATE REL[ASL World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 89/59 Contact: Leandro V. Coronel (202) 477-3641 PHILIPPINES TO STRENGTHEN ITS FINANCIAL SYSTEM WASHINGTON, May 8, 1989 -- The Philippines will strengthen its financial sector, particularly the commercial banking system, through a reform program supported by a $300 million loan from the World Bank. The government, through this financial sector adjustment program, will strengthen the supervision and regulatory framework for commercial banks, improve institutional arrangements to protect depositors, and implement new policies to improve the framework for mobilizing and providing long-term credit. The financial sector adjustment program aims at enhancing confidence in the banking system, improving efficiency, and lowering costs of services which would in turn provide an impetus to overall economic development and growth. The largest component of the Philippine financial sector is the banking system, accounting for more than half of the sector's total assets. The system comprises commercial banks, thrift institutions, rural banks and specialized government banks. Commercial banks dominate the banking system, accounting for 83 percent of the system's total assets. Non-banks include insurance companies, pension funds, investment institutions and trust operations. The World Bank loan will be disbursed in two equal installments of $150 million; the first as soon as the loan becomes effective and the second after agreed actions are completed by the government. The loan will help finance essential imports required during the program's implementation period. The Philippines has been carrying out an overall economic reform program designed to revise policies on trade, taxes and the agricultural sector and to revamp some government agencies. These reforms are expected to stimulate private-sector initiative and activity. These reforms have been supported by the World Bank with a $300 million economic recovery loan, approved in March 1987, and cofinanced with $540 million from the OECF and the Japan Exim Bank. The World Bank followed up its support with a $200 million loan, approved in June 1988, for a reform program for government corporations. The new World Bank loan is for 20 years, including five years of grace, with a variable interest rate, currently 7.65 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.75 percent on the undisbursed balance. NOTE: Money figures are expressed in U.S. dollar equivalents.