These developments were matched by positive indicators pointing to a stronger Philippine banking sector. Bank deposits were up while bank capitalization exceeded both domestic and international standards. Bank lending to most sectors of the economy expanded last year and bank asset quality improved with NPL ratio closer to its single digit, pre-crisis level.
While shock changes to sentiment seem to affect markets more (as exhibited by this heightened volatility), the ability of the market to absorb such events still seems to be intact, but spill-over effects could be more pronounced. Policymakers will have to deal with the increasingly complex nature of various cross-currents that characterise the current environment.