The Philippines: The two sides of Nestor Espenilla
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Southeast Asia

The Philippines: The two sides of Nestor Espenilla

Nestor Espenilla was a surprise choice as governor of the Philippines central bank – but probably the right one. Tough on financial rule breakers and devoted to financial inclusion, he gives the impression of being good in a crisis.

Nestor Espenilla, Philippines Central Bank

Nothing about Nestor Espenilla is quite what you expect. Bump into him in a coffee shop and you might assume he was an actuary, or perhaps a social worker. There is something comforting about his presence – a feeling that if a crisis broke out, he’d be the calmest and probably the sanest person in the room.

That’s probably a good thing given his job. For Espenilla – known as Nesting to his friends – has been governor of the Bangko Sentral ng Pilipinas (BSP), the Philippines central bank, for just 14 days when Asiamoney interviews him, having succeeded his old friend and mentor, the much-loved and universally regarded Amando Tetangco.

So how was, it, wandering into a building that has been his second home for the past 36 years, and heading not for the office marked deputy governor, his last position at the BSP, but the big room down the hall? 

He laughs at the question. “Well, I haven’t been here that long. My predecessor was doing a big countdown to his last day. I’m doing a count-up, and I’m, what? now entering week three.

It must have been strange though, wandering past all those lacquered etchings of former governors hanging quietly on the wall, and seeing his face up there?


Each of his predecessors faced crises, sometimes of paralysing proportions, regularly. 

Tetangco’s 12 years in office coincided with the global financial crisis. His predecessor, Rafael Buenaventura, saw the BSP through some truly turbulent times, clinging to his job in the face of immense political pressure. And before him came Gabriel Singson, a surprise pick to head the BSP on its formation in 1993; he had to deal with the 1997 Asian financial crisis, the echoes from which still reverberate around the region.

So, what will be Espenilla’s crisis? 

“That’s a tough question,” he says. “We all face challenges. They just take on a different form when it’s your turn.” 

He points to quantitative easing, and how the process of unwinding QE will play out. “The big challenge before my term was how to deal with huge inflows of institutional capital in a manner that didn’t create speculative bubbles in the short term or a real crash further on. That was the reality that Tetangco faced. For me, the immediate challenge at this point in time is that the world is moving away from a QE era and a lot of the liquidity is flowing back to advanced economies.”

Does he feel pressure, making the step up to the top job?

“Of course I do,” he replies. “It’s a much bigger responsibility; though when I was overseeing the banking sector [his primary role as deputy governor], it was in many ways more intense, as I had to go very deep into the areas under my supervision. 

“Now, I have a more strategic role, managing teams and making sure I have the right people doing the right things, and with the intensity that I had. I have to trust them. But I also have to make the effort to ensure that they are trustworthy and have the ability to meet expectations.”

This is where the Espenilla you expect departs from the one you meet. 

He is by all accounts a thoroughly pleasant man. His colleagues love working with and for him, and, having joined the central bank way back in 1981, fully 12 years before the BSP was formed, he’s clearly doing something right. 

Those who know him well say he is “not a political animal at heart”, though that can equally be said for his predecessors. (Singson was a lawyer and a banker before taking up his role, while Buenaventura started his working life as a credit investigator.)


Rather, his success has stemmed in large part from his rigour; his focus on keeping Philippines banks sound and stable won approval from the big ratings agencies. 

In its 2017 outlook for Asia-Pacific banks, Fitch kept its stable rating sector outlook, noting that the Philippines was one of only two Asean nations (the other being Vietnam) with “stable [banking] sector outlooks”.

Faced with errant lenders as deputy governor, Espenilla could be pitiless, fining rule breakers and, when necessary, shutting down financial institutions. When he talks about that aspect of his former job, his eyes narrow and darken, his cheeks lose some of their ruddy, pinkish hue. 

“When the banks [look at me], they see the heavy hand of regulation,” he says. “We go hard at those who misbehave and impose action against those who need to receive it.”


This subtle back-and-forth shifting of mood, hard to distinguish at first, becomes more discernible as the conversation develops. It’s clear that Espenilla takes himself and his job seriously – woe betide anyone who mistakes him for a jolly bumbler.

 When a stray reference to him as a libertarian – unearthed before our meeting from an old magazine story – is rolled out, he bridles.

“I didn’t say I was libertarian,” he says. “I did describe policies that I would term market-friendly in an interview. But I saw that comment, and it made me squirm. Where did it come from? I don’t know.” 

What clearly gets him up in the morning, and continues to motivate him, is the central bank’s role as a font of stability, but also a driver and an enabler of innovation and social change.

The economy Espenilla inherited is unusually perky – a pleasant change from the old days, when central bank chiefs were faced, as soon as their feet were under the desk, with a dizzying array of debt crises, currency crises and growth crises. The country’s fiscal deficit is manageable; inflation is under control, though it is slowly ticking up, from 1.1% at the start of 2016 to 3.3% at the end of June 2017.

The IMF expects growth to hit 6.8% in 2017 and 6.9% in 2018, making this one of the fastest-growing economies in Asean and the emerging world, yet too little of that growth trickles down to the middle class, let alone to the poor. 

More than a quarter of all Filipinos live below the poverty line, according to 2016 data from the CIA World Factbook, and that fact just doesn’t sit comfortably. 

“We have done many good things [in recent years] to make our macro sector and our financials more solid,” Espenilla says. “Yet this is not enough. The growth we create is not experienced universally – the improvements are created in pockets,” rather than spread evenly across society.

“I put financial inclusion very high on my agenda,” he adds. “I want to leverage the stability we currently enjoy, to deliver financial services to the [millions of people] traditionally excluded by mainstream financial institutions. It’s important for a central bank in a place like the Philippines to embrace this challenge.”


Financial inclusion is a hard issue to force. Local bankers sigh and wring their hands when asked about the need to bank the unbanked, and to draw more people into the financial mainstream. Just 31% of Filipinos had access to any sort of a bank account at the end of 2014, according to World Bank data, while only 15% had access to a savings account.

“We cannot solve this problem in the near term,” says Jose Sio, chairman of the board at SM Investments, a finance-to-property group that controls BDO Unibank and China Banking Corporation. 

Cezar Consing, president and chief executive of the Bank of the Philippine Islands (BPI), the country’s second-largest lender by assets, says: “The governor is very big on financial inclusion, [but] what more will he do to encourage it? You can’t really force financial inclusion – the only way it works is by creating the right conducive conditions.”

Consing points to the merit of reducing bank reserve ratios, which at 20% are the highest in the world. “If the governor does what he [has promised], and reduces reserve ratios, that would give banks more capacity to lend. And if they are smart, domestic banks will make lending decisions that are financially inclusive.” 

A few hours after being sworn in as the new head of the central bank on July 3, Espenilla said he wanted to see reserve ratios cut by the end of 2017, without setting a new target level.

Cezar Consing, BPI

And the BSP chief does, it seems, agree with mainstream lenders on this issue. 

“I also do not subscribe to the idea of forcing [banks] to lend to markets they have not decided to serve or to provide financial services they do not want to offer,” he says. “That is unsustainable and could create risks in certain financial services firms. The first initiative is to look at the rules and to see which ones make sense, and which create unnecessary barriers.”

Like many of his peers, Espenilla talks often and with genuine relish about the opportunities presented by digital and mobile banking, in particular the chance to accelerate financial inclusion in distant regions with patchy banking networks. “We are pretty progressive in terms of [passing regulations that] deliver better and more innovative financial services to the traditionally underserved.”

And there’s a sense that financial inclusion is on the rise, thanks to several factors: encouragement from the central bank (which unveiled a special steering committee in June 2016 comprised of 15 government agencies and 107 programmes), an improving economy, the relaxation of rules that define where banking services can be provided (allowing lenders to offer basic banking services in, say, malls), and, last but not least, an influx of new foreign lenders.

Espenilla is quick to underline the importance of that final factor. 

“Our big banks traditionally focused on the capital and big regional cities,” he says. “Until recently, very few of them offered banking services in smaller municipalities. So when we liberalized the rules in 2014, giving foreign banks full access to the market – and many of them came in, 10 in total now – it forced our big lenders, whether BDO Unibank or Bank of the Philippines Islands, to think harder.”

Many, he adds, open branches in parts of the country “well beyond their original comfort zone, either directly, via subsidiaries, or by acquiring rural and thrift banks that serve [traditionally underbanked] markets.” 

Examples of this are now legion: take Security Bank’s thriving thrift division, Security Bank Savings, or BDO’s acquisition in 2015 of the country’s fastest-growing rural lender, One Network Bank, with 105 branches in poorer regions. “By opening up the financial sector to more competition, we forced the incumbents to work harder,” he says.


Espenilla’s introduction to the high-octane world of leading a central bank – the first few days of his ‘count-up’ – has gone smoothly, but with time, something will surely go wrong, presenting him with the chance to prove his steadiness under fire. It might come from a China slowdown, political instability in the US or Europe, or even (as this was written in September) a horrible miscalculation with North Korea.

Then there’s the possibility that the next Filipino crisis will come, as so many have before, from within. Rodrigo Duterte is responsible for elevating Espenilla to the helm of the central bank, choosing him over a raft of qualified candidates, including former president Gloria Macapagal-Arroyo. Duterte, analysts say, liked Espenilla’s position on financial inclusion and his willingness to stare down rich, powerful and entitled lawbreakers.

But Duterte is unpredictable, a loose cannon. His tax-reform and spending plans could put a rocket under growth, boost inclusivity and job creation, and give the country the infrastructure it needs. Or the hot-headed populist could push things too far, pledge tax revenues the state doesn’t have, and send the economy sliding backward. 

“There’s a good chance Duterte will be good news in the long run,” says one Manila banker. “And there’s a good chance he won’t.” 

If Duterte gets his sums wrong, Espenilla’s job could turn out to be just like that of many of his predecessors and get very tough indeed.

But you sense when meeting Espenilla that he wouldn’t mind one way or the other, that he’d be just as happy in a crisis as he is without one. 

Before we part, talk turns to an audacious $81 million heistthat cost the governor of Bangladesh Bank his job in March 2016. Some of the capital was laundered in Manila casinos, with the rest siphoned through accounts at Rizal Commercial Banking Corporation, which was fined P1 billion ($19.5 million) for its laxity by the then-deputy governor.

Espenilla frowns hard at the memory, and again his mood shifts, from cuddly bear to Tony Soprano. He notes that in May 2017, the Duterte administration, despite heavy lobbying from the gaming industry, approved an amendment to a money-laundering law to cover gambling. That forced casinos to report accumulated bets of more than P3 million to the Anti-Money Laundering Council, a government agency that Espenilla chairs, within 24 hours.

“Cybercrime is a challenge that threatens everyone,” he says. “It’s a cross-border crime, so what do you do? You make yourself into a hard target. We set standards that elevate governance. We make our defences stronger. We roll out regulations that promote resilience, so even if you are breached, you should be able to identify the threat, contain it and survive.”


This is a good time to be governor of the Bangko Sentral ng Pilipinas – it’s certainly hard to remember a more benevolent operating climate. Manila has mended fences with China. It has a president who is dogmatic and domineering – but who also has a vision for a better and more inclusive country. There is growth aplenty, inflation is under control, and incomes are on the rise.

At the centre of it all stands the career central banker, who joined the BSP at the tender age of 22. If his mentor Tetangco succeeded in navigating the Philippines through the rocky shoals of the global financial crisis, keeping local banks sound, the peso and inflation stable, and growth on the right track, what does he want to achieve?

He mulls the question for a brief moment. “Digitalization of the financial sector is one [ambition]. Deeper money market and capital markets is another.” 

Espenilla has talked of working closely with the Securities and Exchange Commission and the Bureau of Treasury to promote capital markets reforms.

Then he turns to future shocks. “The fundamental challenge in terms of a small and open developing economy is keeping that openness while maintaining stability. It’s a long journey and it isn’t linear – there are always going to be shocks along the way. Every central bank governor is faced with some kind of challenge – I will be.” 

He smiles, just a little, in anticipation. 

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