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    IMF Reports on 2019 Article IV Consultation with Japan and Philippines

    February 10, 2020

    IMF published reports under the 2019 Article IV consultations with Japan and Philippines. The IMF reports assess, among other areas, the soundness of financial sectors in these countries. For Japan, the IMF staff recommends strengthening of the crisis management and resolution framework for banks and introduction of an economic-value-based solvency regime for insurers. For Philippines, the key recommendations are related to the macro-prudential policy measures.

    Staff and selected issues reports on Japan. IMF Directors stressed the need to proactively strengthen the resilience of the banking sector in Japan. They encouraged the authorities to consider tightening macro-prudential policies and stand ready to activate the countercyclical capital buffer (CCyB). They also recommended continued efforts toward further improving financial sector supervision and regulation, the risk assessment process, and the macro-prudential policy toolkit. Directors were encouraged by progress made in implementing the 2017 Financial Sector Assessment Program (FSAP) recommendations. The report recommends that the Financial Services Agency in Japan, or JFSA, should implement some key outstanding recommendations of the 2017 FSAP:

    • As the financial cycle matures, the Authority should continue to strengthen its financial sector supervision and regulation, by intensifying the risk assessment process and completing the macro-prudential policy toolkit, to better identify and mitigate the build-up of systemic risk. 
    • The Authority should strengthen its crisis management and resolution framework, by extending the coverage of total loss-absorbing capacity requirements to all domestic systemically-important banks (D-SIBs). 
    • It should also continue to take steps toward introducing an economic-value-based solvency regime for the insurance sector. 
    • Also recommended is the continued strengthening of the oversight of virtual asset service providers by ensuring that they are subject to Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) supervision, in line with the international standards.

    Staff and selected issues reports on Philippines. The main banking sector risks in the country relate to possible loan quality risks after a period of high credit growth episodes, external shocks, and concentrated exposures because of broader interlinkages among large borrowers not covered by standard large exposure limits under the Basel framework. The IMF assessment highlights that macro-prudential policy response should be proactive if risks of, and from, high credit growth increase again. BSP should timely activate the CCyB if risks of broad-based rapid credit growth reemerge; develop targeted macro-prudential measures, such as loan-to-value and debt-to-income caps; and tighten the macro-prudential measures if high credit growth risks are more sector-specific―for example, in the real estate sector. 

     

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    Keywords: Asia Pacific, Japan, Philippines, Banking, D-SIBs, FSAP, Article IV, Macro-Prudential Policy, CCyB, Systemic Risk, IMF

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