World Bank Approves Funding to Support Financial Sector Resiliency and Strengthen Recovery in the Philippines
WASHINGTON, January 30, 2023 – The World Bank’s Board of Executive Directors approved financing to support the Philippine government’s efforts to boost the resiliency and sustainability of its financial sector and strengthen economic recovery from the COVID-19 pandemic.
The US$600-million Philippines Second Financial Sector Reform Development Policy Financing provides continuing support to three policy reform areas including strengthening financial sector stability, integrity, and resilience; expanding financial inclusion for individuals and firms, especially micro, small, and medium enterprises (MSMEs); and catalyzing climate and disaster risk finance to help protect Filipino families from the impacts of climate change and natural disasters.
“Policy actions that strengthen the stability of the financial sector – including banks and insurance companies – will help Filipino families, businesses, and investors withstand financial shocks and enhance their resilience by ensuring that problems in these financial institutions are detected at an early stage without severe disruptions to the economy,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
Despite continuing progress, only 51 percent of Filipinos aged 15 and above have a transaction account with a financial institution, which is below the East Asia and Pacific regional average of 80 percent. In the bottom 40 percent of the population, only 34 percent of adults have an account. Supporting reforms for financial inclusion or enhancing Filipinos’ access to financial services is therefore an important part of this financing operation, according to Diop.
“Financial inclusion can be a key enabler to speed up poverty reduction and strengthen recovery from the pandemic,” said Diop. “Filipinos who have accounts with financial institutions like banks will have opportunities to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health of their children, manage risks, and weather financial shocks, which can improve the overall quality of their lives.”
Diop said an equally important part of the new program is developing the catastrophe insurance market in the Philippines to prevent people from falling into poverty following natural disasters. Catastrophe insurance products are designed to protect households, assets, and businesses against natural disasters like floods and earthquakes.
He said increased use of catastrophe insurance will allow the government to focus fiscal resources on supporting people who need them most, for example, through actions such as increasing post-disaster cash transfers and subsidizing insurance premiums for the most vulnerable populations.
To expand access to finance by individuals and firms, the program also supports reforms promoting innovative financial services by harnessing digital technologies, strengthening the framework to build consumer trust in the financial sector, and improving the quality of the credit information infrastructure to support MSME access to finance during the recovery.
Under its strengthening financial sector stability, integrity, and resilience pillar, this DPL series supports reforms aiming to strengthen the legal and institutional framework to improve financial sector oversight and integrity, enhance crisis management and resolution framework in the sector and improve the availability of long-term finance.
Finally, this DPL also supports the financial sector resilience to climate-related shocks by integrating climate and environmental risks in financial institutions' risk management frameworks and mobilizing private sector financing for green investments by encouraging banks to incorporate sustainability principles into their investment activities.
Development policy loans or DPLs provide quick-disbursing assistance to countries undertaking reforms. DPLs typically support policy and institutional changes needed to create an environment conducive to equitable growth as defined by countries’ own development priorities.
*This news release was originally published on World Bank Website. PRESS RELEASE NO: 2023/042/EAP. Link here.