Amando Tetangco, the outgoing chief of the Philippine central bank, was never going to be an easy man to replace.
After 12 years at the helm, he had become the longest serving governor of Bangko Sentral ng Pilipinas. His experience running the institution through the administrations of Gloria Macpagal Arroyo, Benigno Aquino III and, most recently, Rodrigo Duterte underscored the political neutrality of the central bank.
But most importantly of all, his stewardship of the institution helped usher in a boom period for the Philippine economy. The country's 6.8% economic growth in 2016 made it one of the fastest-growing countries in Asia Pacific.
The Philippine press bandied around many names for his replacement, including Antonio Moncupa, the president of East-West Bank. But in the end, the man who most impressed Duterte and finance minister Carlos Dominguez was Nestor Espenilla, a detail-oriented career central banker whose most recent job was strengthening the rules governing the banking system — and occasionally cracking the whip on those who break them.
Espenilla, who takes the governor job on July 3, is in charge of bank supervision and examination at the BSP, and his team has been behind a series of high-profile cases over the last decade. This included the forced closure of banks owned by the Legacy Group in 2008, Banco Filipino in 2011, and ExportBank in 2012.
But although he admits these high-profile cases are what he is best known for, Espenilla told FinanceAsia his personal highlights were “the quiet ones”, including improving access to bank and non-bank financial institutions for the millions of Filipinos who still struggle with insufficient access to banking.
“We have enacted a whole set of reforms to enable the banking system to use financial technology to reach out to large sections of the unbanked population in the Philippines,” he said. “Alternative delivery channels have enabled us to reach more and more people with regulated financial services.”
Many analysts have described Espenilla as a “continuation” governor, broadly carrying on the policies and approach of Tetangco. He does not quibble with this, saying that in his first interview after the news broke he described himself as “continuity-plus-plus”.
Those plus points should give investors a sense of his priorities. One is further push for innovation in the banking system. This includes the national retail payments system, a joint clearing and settlement programme between a variety of Philippine banks that would help increase the digitisation of banking in the Philippines.
The other 'plus' that Espenilla talked to FinanceAsia about was continuing to pursue broader financial market reforms, whether in the foreign exchange market or in the capital markets. In part, this is because he sees improving currency and capital market infrastructure as a good way to improve the transmission mechanism — the way in which the actions of the central bank feed through to the wider economy.
Espenilla said one of the priorities for the central bank was strengthening governance and risk oversight among Philippine banks. But the BSP is unlikely to go it alone in this regard. Instead, Espenilla paints the move to strengthen Philippine banks as part of the global strengthening of bank regulations under Basel III.
Espenilla is taking the reins at a potential tipping point for Bangko Sentral Ng Philipinas. The central bank has requested a raft of amendments to its charter, including the ability to print its own debt instruments, increased oversight over banks and non-banks alike, and a capital injection that would give it more freedom to manoeuvre as the Philippine economy continues to grow.
The amendments have already passed a second reading in the House of Representatives, and are going through committee discussion in the Senate. Espenilla, who is careful and deliberate when discussing matters of policy, said the central bank was “reasonably confident” the amendments would pass. There is a chance that could happen by the end of the year, he said.
Although Espenilla's appointment is the biggest news for economists, executives and bankers watching the country, a raft of other high-profile changes will come alongside it.
The monetary policy board will be reconstituted on July 3, when Espenilla takes the top job. Three other slots on the board will become vacant, as will the deputy governor position that Espenilla himself held. The new board will vote on a replacement deputy governor.