The Balance Sheet Approach (BSA) is a presentation of the country’s sectoral accounts on a from whom-to-whom (WTW) basis using the aggregate balance sheet data of each sector of the economy.1 It is a financial stability surveillance tool developed by the International Monetary Fund (IMF) that is used to better monitor the potential vulnerabilities of economic sectors and their relationships with one another.2 The BSA is also useful in identifying the possible emergence of a financial crisis, specifically those arising from asset-liability mismatches and increasing balance sheet interlinkages. The highlights of the Q42018-Q42019 Philippine BSA compilation are summarized as follows:
External Exposure. The Philippines posted a lower net external liability position of ₱1.7 trillion in Q4 2019 compared to the ₱2.2 trillion in the previous year. The 24 percent improvement in the country’s net debtor position against the rest of the world (ROW) is attributed to the expansion in the domestic economy’s external financial assets. In Q4 2019, financial claims of the domestic economy on the ROW rose by 9.8 percent from ₱9.3 trillion to ₱10.2 trillion, outpacing the 3.3 percent growth in its external liabilities from ₱11.5 trillion to ₱11.9 trillion.
Net financial position. The household (HH) sector recorded the highest net financial asset position at ₱8.1 trillion from ₱7.4 trillion in Q4 2018 due mostly to its sustained accumulation of deposits. This was followed by the other depository corporations (ODCs) with ₱1.6 trillion from ₱1.3 trillion a year ago. The ODCs’ net claims were mostly in the form of deposits with the CB and loans extended to non-financial corporations (NFCs). The central bank (CB) and the other financial corporations (OFCs) posted lower net financial asset positions at ₱583.6 billion and ₱490.2 billion compared with ₱680.4 billion and ₱578.7 billion in Q4 2018, respectively. Meanwhile, the NFCs and general government (GG) remained net debtors at ₱7.7 trillion and ₱4.7 trillion from ₱8.1 trillion and ₱4.2 trillion in 2018, respectively.
Gross Financial Asset Position. The domestic economy’s total financial assets expanded 8.9 percent year-on-year to reach ₱57.7 trillion from ₱53 trillion in 2018, comprised mainly of currency and deposits, loans, debt securities, and equity and investment fund shares. The ODCs posted the highest asset position, accounting for one-third of the domestic economy’s financial assets, at ₱19.5 trillion from ₱17.8 trillion recorded a year ago. As financial intermediaries, loans represented the biggest share in the ODCs’ gross financial assets at 58.6 percent. Loans to NFCs and HH accounted for 55.5 percent and 26 percent of the ODCs’ total loan portfolio, respectively. The HH’s financial assets was also sizable at ₱13 trillion, which were predominantly in the form of currency and deposits, from ₱11.8 trillion in the previous year. The HH sector accounted for the bulk of the ODCs’ deposit base. The NFCs and OFCs’ financial assets amounted to ₱8.5 trillion and ₱8 trillion from ₱7.6 trillion and ₱7.5 trillion in Q4 2018, respectively. The CB’s financial assets rose to ₱5 trillion from ₱4.8 trillion, which were mostly in the form of loans and debt securities against the ROW. The GG recorded the lowest financial asset position at ₱3.6 trillion from ₱3.5 trillion in the previous year.
Gross Liability Position. The domestic economy’s financial liabilities grew 7.6 percent year-on-year from ₱55.2 trillion to ₱59.4 trillion in Q4 2019, which were mainly in the form of currency and deposits, loans, and equity and investment fund shares. The ODCs recorded the largest liabilities at ₱17.9 trillion, constituting 30.2 percent of the domestic economy’s total liabilities, from ₱16.5 trillion in 2018. Currency and deposits made up 80.9 percent of the ODCs’ liabilities as deposits remained the sub-sector’s primary source of funding. The NFCs liabilities reached ₱16.3 trillion from 15.7 trillion in the previous year, consisting mainly of loans from the ODCs and equity and investment fund shares held by non-residents. The GG’s liabilities increased from ₱7.7 trillion to ₱8.3 trillion, which were mostly in the form of debt securities and held primarily by the financial corporations and ROW. The OFCs and the HH’s gross liabilities rose to ₱7.5 trillion and ₱4.9 trillion from ₱6.9 trillion and 4.4 trillion, respectively. Loans made up almost 90 percent of the HHs’ outstanding liabilities. Moreover, most HH loans were from ODCs, making HHs highly indebted to ODCs. Lastly, the CB’s liabilities aggregated ₱4.4 trillion from ₱4.1 trillion in 2018. Of which, about 90 percent of which was in currency and deposits that were held almost entirely by the ODCs and HH.
1 IMF (2015), Balance Sheet Analysis in Fund Surveillance, p.5.
2 Allen, M., Rosenberg, C., Keller, C., Setser, B. and Roubini, N. (2002), A Balance Sheet Approach to Financial Crisis, IMF, p. 64.
Source: Bangko Sentral ng Pilipinas (BSP)