CORPORATE BOND markets need to serve as the Philippines’ “spare tire” during crises that strike the banking system, the Bangko Sentral ng Pilipinas (BSP) said.
Speaking at a joint general assembly of financial market organizations on Oct. 23, BSP Governor Eli M. Remolona, Jr. said the market must be an alternative source of funding if banks fail to meet their financial obligations, as happened during the 1998 financial crisis.
“In 1998, in the wake of the Asian crisis, Alan Greenspan said the crisis turned out so badly because the financial systems in Asia had no spare tire,” Mr. Remolona said. “What he meant was we had banks, but we had no corporate bond market. When banks run flat, we need other sources of financing, like the corporate bond market.
He cited the need to emulate Thailand, whose corporate bond market is much larger than that of the Philippines.
Mr. Remolona noted that 96% of the country’s corporate bond issuers have an “AAA” rating.
“We are told that this is a sign of a strong market. But actually as we all know, it is a sign of a thin market,” he added.
On the other hand, Mr. Remolona said although 58% of Thailand’s corporate bond issuers hold an “A” rating, with only 6% rated “AAA,” its corporate bond market relative to gross domestic product is five times bigger than that of the Philippines.
“I think that is the kind of market Greenspan had in mind,” he added
“We need a real spare tire,” he said. “Indeed, deeper money and bond markets will help us steer the economy and keep it going when things get tough.”
Among the organizations present during the assembly were ACI Philippines, the Fund Managers Association of the Philippines, Inc., the Investment House Association of the Philippines, the Money Market Association of the Philippines, the National Association of Securities Broker Salesmen, Inc. and the Trust Officers Association of the Philippines. — Katherine K. Chan