THE PHILIPPINES recorded the fastest bond market growth in emerging East Asia in the last three months of 2018 as regulators relaxed rules for capital raising, the Asian Development Bank (ADB) said.
The March issue of ADB’s Asia Bond Monitor report showed that the Philippines was the fastest-growing bond market in emerging East Asia, particularly among foreign investors. The sub-region consists of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam.
Outstanding bonds issued by the Philippines rose by 5.3% in the fourth quarter from the preceding three months to $116 billion, fueled by a 4.1% increase in government-issued notes to $91 billion and a 9.7% hike in corporate bonds to $25 billion.
On a year-on-year basis, total bonds outstanding in the fourth quarter were up 11.4% — with government papers rising 7.4% and corporate notes increasing by 28.9% — making the Philippine market the third-fastest after China and Indonesia.
“The government took advantage of strong demand and issued more bonds via a tap facility as investor sentiment improved on expectations that the United States Federal Reserve would engage in fewer rate hikes in 2019 and of a pause in rate hikes by the Bangko Sentral ng Pilipinas (BSP),” the ADB said in the report published on Thursday.
“Corporate bonds also helped to boost growth as a number of commercial banks were encouraged to tap the bond market for funding following the relaxation of rules by the BSP for the issuance of bank bonds.”
Last year saw the country return to the samurai and panda bond markets, where it raised $1.39 billion and $230 million, respectively. On top of this, the state also raised $2 billion from its annual dollar bond sale last January.
The multilateral lender said that lower inflation expectations and an expected pause in policy tightening from the central bank “helped boost demand” for local debt papers in the fourth quarter, in turn fueling the appetite of foreign investors to raise their holdings to 7.5% of the total from 4.4% as of end-September.
“The Philippines was also the sole market in the region for which inflows were recorded in all three months of Q4 2018,” the report read.
From a nine-year-high 6.7% inflation in September and October, the year-on-year rate eased sharply to six percent in November and 5.1% in December. This trend was sustained into 2019, affirming BSP’s forecasts that the worst is over for consumer prices.
Also last year, the BSP allowed banks to offer bonds without securing regulatory approval.
Prior to this, banks relied largely on long-term negotiable certificates of deposit to raise additional funding. These entail bigger costs compared to soliciting investments, as these are considered time deposits that come with a high reserve requirement rate.
Bond issuances rose by 43.4% in the fourth quarter, as the Bureau of the Treasury sought to maximize fundraising via the weekly notes offering amid overwhelming demand from market players. The same trend was seen for private issuers, with corporate bond floats reaching $2.5 billion, led by local banks.
Still, the local debt market remains among the smallest in the region, bigger only than Vietnam’s $51 billion. China led the pack with $9.453 trillion, followed by South Korea ($2.014 trillion) and Malaysia ($339 billion).
“In the Philippines, the bond market is expected to grow because of continued demand and moderation of supervision by the Bangko Sentral ng Pilipinas,” the ADB also said in a statement.
Banks continue to offer new debt papers to raise additional funds to meet higher capital requirements set by the central bank as well as to fund expansion plans. — Melissa Luz T. Lopez