SINCE SETTING UP shop in 1990 as a representative office, ING Bank has always believed in the country’s growth potential. With the Philippine economy growing at a steady and robust pace, the local branch of the Dutch global financial giant expects its businesses to expand along with the trend.
The bank cemented its reputation for being a trusted advisor in corporate finance, particular in mergers and acquisitions (M&A). The bank has consistently won in the banks category of the Top 5 Corporate Issue Managers/Arrangers award since 2011.
And this has continued to show.
Last year, the bank was tapped to arrange the deal as one of the selling agents of the first tranche of the Bank of the Philippine Islands’ (BPI) P30-billion LTNCD (long-term negotiable certificates of time deposit) last year. ING was also one of the arrangers of San Miguel Corp.’s P30-billion fixed rate bond issuance this March. So far, ING has arranged 87 M&A transactions amounting to around $26 billion as well as 117 capital market transactions of more than $28 billion.
Last year also saw a change in leadership with former Philippine Stock Exchange chief Hans B. Sicat taking the helm as the bank’s new country manager, replacing Consuelo “Zondy” D. Garcia, who served 26 years in the bank.
With this in mind, BusinessWorld sought out Mr. Sicat’s thoughts on the future of ING Bank in the Philippines. Also in the interview was the Bank’s senior economist, Jose Mario “Joey” I. Cuyegkeng, who gave his inputs on the banking sector and the Philippine economy. — Ranier Olson R. Reusora
Below are excerpts of the interview:
Mr. Sicat: First of all, I must say I’m very delighted to be a part of the ING family. It’s a great platform.
And what’s happening is that ING, from a strategy perspective, has said that Asia (in particular, Southeast Asia) is a growth region and therefore, they will be putting more resources and focus in growing the franchise.
We call ourselves the Wholesale Bank originally, but we’re also trying to expand our interface with corporates by bringing in not just more names that we cover, but also diversifying what we send in terms of products and services.
I think it’s also important to say that from a global perspective, we are growing our shared services office here, which probably is a little bit later than others… but that not only provides jobs for Filipinos, but more importantly, is helping a lot of the processes we have in ING globally… such as processing financial markets’ trades analysis as well as trying to give support to the global ING franchise.
How big is the bank’s presence in the Philippines in terms of its business segment? Which is considered to be the bank’s bread and butter?
Mr. Sicat: We’ve always been a bank that is focused on, among others, the financial market, which is one of our strengths… We’ve been strong in our corporate banking and investment banking franchise. Corporate finance business focuses primarily on corporate advisory, which includes M&As. We are also big historically in terms of our debt capital markets’ presences… doing [transactions on] bonds, CDs (Certificates of Deposit) and the like, for many types of institutions.
I think our coverage has been extremely stable when we talk about the large conglomerates and we do have some lending as well although that is not a very big part of our activity portfolio.
How were the bank’s financials in 2017? Which segments drove growth for the year?
Mr. Sicat: I think it is driven equally by what I would call our financial markets and corporate finance activities. Those two probably accounted for, I would say, about 80% of our overall revenue as a bank [which were] reflective of the growth of the economy as well.
What about the laggards?
Mr. Sicat: I won’t say that there are laggards. I would say that… direct lending is not a very big part of our portfolio right now… In fact, we do a lot of project finance-related stuff or structured finance-related lending. Perhaps, less in terms of direct lending to clients wherein, for example, [it involves] clean loans.
That’s the type of thing that a lot of the local banks are very good and are more competitive in peso terms, but it’s something we’re obviously trying to figure out how to increase that size of the platform.
How was the bank’s investment banking sector last year in terms of its capital-raising activities?
Mr. Sicat: Quite good. If you classify a lot of our capital raising activities, I think a lot of them would fall under what we call our financial institutions sector, which means that we’re covering banks and financial institutions.
So there’s a lot of debt capital market fund-raising… for local banks, primarily, and then a few corporates including the supranational banks like the Asian Development Bank.
Can you share to us some high profile transactions during that time?
Mr. Sicat: For fund raising, probably the largest transaction was when we helped BPI (Bank of the Philippine Islands) do their P20-billion LTNCD (long-term negotiable certifications of time deposits) transaction. That was very good for BPI who we consider to be a partner. [The transaction] was also high profile, in a sense that, at that time, was the largest LTNCD issue that was done.
It proved that markets, in fact, can take that type of size, even for that specific product type.
With the bank being in the country since 1990, what is its view on the consolidation moves made by local banks and the entry of foreign banks?
Mr. Sicat: To a certain extent, [the consolidation] is a reaction to a lot of the regulatory motivation. When I say that, [it means] increases in capital reserve requirements and then on one end, plus regulatory demands on a particular institution.
I think the way to compete among financial institutions is that you require larger critical mass for an institution to efficiently provide the returns to its own shareholders because even the cost of running financial institutions, whether it’s a bank or insurance company, has also increased due to a lot of the monitoring required by the regulators. So you will notice that there’s a lot of discussion that a large part of manpower is not geared to hiring compliance legal risk managers.
With that, it means that to keep your cost-to-income ratios at the reasonable level, you need to have a critical mass. One of the ways to do it is via partnerships, the other is via consolidation. So, to a certain degree, it also is a reaction to the policy motivations, wherein you want slightly larger institutions to withstand, meaning having higher capital to withstand the downturns in the, I would say the market conditions, and of course now and then you will find downturns in the market.
Mr. Cuyegkeng: Well as the economy grows, the demand from the banking sector also increases significantly, and the only way to address that, and to also be in line or be compliant with the new regulations, is to consolidate. This means raising your capital base, while at the same time, competing head-on against new players like foreign banks, especially in the upscale market or the wholesale banks. It’s a natural development that banks consolidate and satisfy the requirements of the growing economy.
Where do you see the local branch of ING Bank in all of these developments?
Mr. Sicat: For us, we’ll be very much present in terms of advising… As I mentioned earlier, corporate finance activity which include advisory on mergers and acquisitions (M&As) is one of our strengths so we’ll be quite active in that space as we have been — that’s number one.
Number two, I think, is that the economy is growing quite a bit, probably at record-highs now for quite some time. That actually opens up a lot of opportunities for us in terms of straight fund-raising for institutions where we would be looking at some specific projects whether it’s a project finance- or structured finance-type of transaction.
All of these, by the way, leads us to our other strength, which is our strength in financial markets products wherein we’re able to provide, for example, hedging products for cross currency situations, interest rate protection as well as basic financial markets flows.
So, in a way, the growing economy and the strength of ING will allow us to utilize our own strengths against the growing opportunity sets…
What opportunities do you see in the Philippines do you feel the bank could capitalize on?
Mr. Sicat: The [opportunity would be] the growth of the economy where you have a lot of these infrastructure projects. Now, obviously, there’s one set of projects which the government is driving at. But there’s also a whole set of other projects which are either complementary… or projects that are not solicited by the government, but will definitely have similar impact.
For example, there’s been a lot of talk of all these proposals to upgrade NAIA (Ninoy Aquino International Airport) as well as building another airport and all that… and these are megabillion-peso projects so that creates opportunities for institutions like ourselves to help the project proponents and raise financing or help them with structures and then raise financing.
I think for the government projects, the government will probably start out and do it on their own, but there will be complementary projects that the private sector will bid on.
For example, if you find the government creating the Mega Manila subway, obviously, that would lead to a lot of development around stations… That creates activity and opportunity for us… [where] all of these conglomerates are kind of busy bidding for almost everything under the sun, so to speak.
Again, that gives rise to structuring advisory and then fund-raising for ING to participate in.
In the same vein, what are the risks?
Mr. Cuyegkeng: The risk, of course, is the developments in the financial markets. We continue to look at the higher cost, including the weaker exchange rates. So projects which have a foreign financing are maybe at risk in terms of how the exchange rate moves so we’re looking in to a lot of this risk… [T]hat’s from the macro standpoint. Of course, competition within the industry continues to be quite stiff… so creating a niche is quite challenging for bank like ING.
What is the bank’s position/views on cryptocurrency?
Mr. Cuyegkeng: We’ve stayed away from it. It’s something eventually that would affect markets, but so far, our client base continues to be focused on the normal financial market products. That’s where we are at the moment.
Mr. Sicat: Just to add to that — As an asset class, we’re not actively engaged in it, nor are we, let’s call it, actively selling it to clients per se in terms of either as a funding option or as an investment option.
I think the institutional view is that cryptocurrency maybe needs some more time to develop and figure out exactly what the institutional relevance is outside of, maybe, the interest and the current speculative nature of it.
What we are interested in, and what the bank is actively involved in, is more on the technology behind cryptocurrency that is the distributed ledger technology, or blockchain in popular parlance.
[I]n fact, we have a very recent experience of doing one particular deal… wherein one of the applications of blockchain is to create a very specific contract, which in this case, is a commodity contract. So we are in that space as far as the advantages of what the blockchain offers.
[T]here are many things I know that are being reviewed on the payment system applications of this technology. Is it a replacement for the SWIFT [system]? Is it a replacement for the current way that we move money around? — Things like that. There are many companies trying to figure this out.
What is your outlook on the Philippine capital market?
Mr. Sicat: Well, we’re quite bullish because of many things. I think the first thing is that the underlying economy is strong… [D]espite short-term gyrations in the markets, whether internal or external, that is not likely to change the trend of growth… which continued to show in corporate earnings.
Mr. Cuyegkeng: I fully agree that we look at capital markets in bullish perspective. [T]he kind of reforms that are being implemented by regulators of the central bank, the SEC (Securities and Exchange Commission) and so forth create a lot of opportunities not only for banks like us, but also for corporations taking advantage of financing options. So yes, it looks like the economy and the capital markets are in for another good year.
What is your outlook on the Philippine economy as a whole?
Mr. Cuyegkeng: As mentioned, we are bullish in the Philippine economy. We expect growth to match up in terms of the trend growth from 6% of the previous administration. We are looking close to 7% or around 6.7% for this administration at least for the next five years.
There will be, of course, ups and downs and so forth, but at the end of the day, we probably see a trend growth that is higher than what we’ve seen over the past 20 to 30 years. Largely, it will be domestically driven with the fiscal stimulus that the government is implementing right now, not just with infrastructure spending but also the actual government headline spending growth, are all going to spur economic activity. Combine that with steady growth in household and the accelerating business spending… [g]rowth in the next few years should be quite favorable and we expect that to outpace the others in the Asian region, at least.
Where do you see the bank in a few years’ time in terms of market position and growth?
Mr. Sicat: I hope that our operational and strategic plans will be larger in terms of our own revenue base, larger in terms of our core client base, and even in terms of the activities that we are present in right now.
So, I think in a reversal from what we saw about eight to ten years ago where, along with many institutions, we actually lowered out footprints in the Philippines, I think we’re now back to a growth mode. Hopefully, both the numbers in our presence in the ground will be even more visible this year and the next year. With the pace of growth of the economy, we hope that our level of growth outpaces that 6.7% that Joey [Cuyegkeng] had predicted.