By Richard Vines, Bloomberg
WOLFGAT seats just 20 diners in a tiny cottage in a fishing village more than two hours’ drive from Cape Town, South Africa.
And it is the most exciting place on the planet to eat. Good luck getting a table.
Booking opens a maximum of three months in advance. But no tables are available.
The World Restaurant Awards last week handed the top accolade — Restaurant of the Year — to chef Kobus van der Merwe, who opened Wolfgat in his parents’ 130-year-old property in September 2016. He traveled to Paris from Paternoster (pop. 1,971) in the Western Cape without even knowing he’d won. Now he is already having to try to reckon how to handle the sudden acclaim.
“I’m incredibly proud of my team,” he said in an interview. “They have no formal food background and now they are recognized on a world stage.”
What is so special about Wolfgat? Well, Van der Merwe works with a tiny team of local people who go foraging together, cook together and serve together. They even do the washing up together. There are just six of them in total, and they learned on the job.
“We don’t have a distinction between front of house and the kitchen,” he says. “We serve a small tasting menu of seafood enhanced by seasonal wild herbs and succulents and seaweed that we pick around the village.”
Guests must give a day’s notice they are coming, and then the team picks sufficient ingredients to serve that number. There’s no waste. Van der Merwe sometimes will try to squeeze in 24 diners.
The cost? It’s 850 rand ($60), which would barely buy you a starter in the gastronomic temples of Paris.
Van der Merwe was born in the Northern Cape and went to culinary school in Stellenbosch, where he grew up. He didn’t want to be a chef.
“My first love was going to be classical music or fine arts,” he says. “Culinary school was kind of a fallback and I didn’t think it was for me so I didn’t finish my course.”
Stints as a music critic and web editor at Eat Out, a restaurant guide, followed.
“And that’s where I realized I missed, I felt like I was on the wrong side of the industry,” he said. “Wolfgat is the result of that: It’s a fine-tuned, slightly more considered next project for us.”
The accolade was announced on the night of Feb. 18 at the inaugural World Restaurant Awards in Paris. The judging panel included some of the biggest names in the culinary world, including chefs Elena Arzak (Arzak), Massimo Bottura (Osteria Francescana); David Chang (Momofuku); Hélène Darroze (Hélène Darroze) Daniel Humm (Eleven Madison Park); Rene Redzepi (Noma); and Clare Smyth (Core). I am one of several journalists on the panel but wasn’t involved in the selection of Wolfgat.
The awards are owned by IMG, the multinational entertainment concern behind everything from Fashion Week to the Frieze Art Fair.
Other winners included Vespertine, Los Angeles (Atmosphere); La Mère Brazier, Lyon (Enduring Classic); Mugaritz, San Sebastian (Forward Drinking); and Le Clarence, Paris (Original Thinking.)
The selection of Wolfgat was made by a smaller group of 12, led by the awards’ creative director, Joe Warwick.
“Wolfgat is sustainable and it’s in Africa, which is not a continent that gets a great amount of attention for its food and its restaurants,” he said. “It was the perfect restaurant for us.” Richard Vines is chief food critic at Bloomberg.
By Carmina Angelica V. Olano Researcher Vijay Manoharan, CEO of CIMB Bank Philippines
LAST MONTH saw the Malaysian-lender CIMB Bank formally launching its operations in the Philippines, more than a year after it received the central bank approval to establish banking operations in the country.
Prior to entering the Philippine market, CIMB Group has a network of branches in over 1,000 locations in Southeast Asia. By setting up shop in the Philippines, CIMB has completed its presence in the region.
Aside from Southeast Asia, the Bank also has coverage in China, Hong Kong, India, South Korea, Sri Lanka, the United Kingdom, and the United States.
The Malaysian giant is positioning to be the first “all-digital mobile-first” bank in the Philippines. Last Feb. 5, CIMB Bank Philippines, Inc. has formally launched its mobile application OCTO, to which local users can now open a deposit account without going to a physical branch. The bank has also partnered with retail and financial firms such as 7-Eleven, DragonPay, Visa and Bancnet to serve as touchpoints where clients can withdraw or deposit funds. Through these partnerships, the bank also aims to capture 100,000 retail clients within six months.
With these in mind, BusinessWorld sought out CIMB Philippines’ Chief Executive Officer Vijay Manoharan for his thoughts on the future of its full-mobile banking facility in the Philippines and how consumers will benefit from it. Below are excerpts of the interview. What are the factors you considered in choosing to enter the Philippine market?
We looked at the demographics, the digital adoption, the maturity of banking and the whole combination of the young and old population. The [Philippine] population is very digitally inclined. There is a high level of Facebook and social media users, as well as its smartphone penetration growing in double digits.
We found that the banking landscape has not yet evolved to meet the needs of the digital segment. We found that coming here and doing a digital proposition will sort of be able to cater to the population that is looking for a different way of banking… And we hope to fulfill that missing space.
So we found that there is an opportunity to do something different. We also found that there is a segment of customers looking for something different from their banks. And we hope to fulfill that missing space.
In terms of digital adoption, majority of people carry a smartphone…So there is this affinity to use their mobile phones in their day to day lives. Similarly, people are getting more comfortable to transact in e-commerce, to book a ride, [and] to book services online. So we felt that they are probably ready to do their banking in their mobile phones.
We strongly feel that we are the first all-digital bank in the country. Our entire business model, our entire business proposition [is fully digital]. That is unique in this country. The Philippine financial market is dominated by institutionalized brick-and-mortar banks, what is your strategy in establishing the CIMB brand in the country?
We just want to be known as the bank that offers the way consumers want to bank. For us, it is really giving the customer the experience that they want… [s]imple, easy, 24/7 providing them the best products, the best rates, having no fees [and] having easy access in their bank accounts…The way we want consumers to associate with CIMB is one that makes their banking experience simple, easy and convenient. We want them to think of us…as a brand that has transformed banking.
Based on our research, we found that… the market is ready given the smartphone adoption and the young population. We see the pain points consumers go through every day in doing day-to-day banking, having to go to a branch, park their vehicles, stand in line, and go through traffic. So why not create a new experience whereby you can do everything that you want but enable that in your smartphone 24/7. In this day and age where time is obviously limited, everyone values convenience, access and the ability to control their lives. We are trying to give it back. This is a different way of how you can do your banking.
In terms of reach, because we do not have to be present in a certain location, consumers can connect with us almost anywhere. By just downloading the app, they are able to open an account remotely in 10 minutes. So our banking products and services are accessible almost anywhere in the country… provided there is data connectivity or internet.
In addition, we have a network of partners that is present all over the country. This network of partners will also be able to facilitate banking transactions on our behalf. What is your edge in operating as a digital bank?
The experience is our edge. The experience on how we are able to get you on boarded, have an account established and manage your account in a manner of few clicks. So our edge is really giving an unmatched experience in making banking so simple, intuitive, and easy for the consumer. This is what we would like to believe the consumers are looking for.
Our products offer the best interest rates in town, we do not charge any fees, and have no maintaining balance. All that to really make banking simple, less stressful, and less intimidating. Hopefully, the consumer will say now there is a bank that is really trying to simplify almost every element of traditional banking experience.
Through digital, we are able to do this. It is like back in the days if you book a flight ticket: you go to a travel agent, sit down book a travel ticket, work with someone to look at the schedules, look at the flight details, etc. These days you just go online and book a ticket. So digital enables a lot of stuff that are previously not accessible.
Of course, going digital does not necessarily means less costs. There is a huge amount of investments that we make to have a robust digital platform. But definitely, we are expecting to save on other things, like… not having traditional, brick-and-mortar branch presence across the Philippines.
Every investment we make in technology, we know it will pay back in the long run because it would give us that cutting edge experience. Experience is our differentiator. Our opinion is that consumers want to move away from going to a branch… We intend to invest where the future is going to. Henceforth, we are planting the seed to be well positioned in the future. Do you plan to introduce next generation technologies (i.e. artificial intelligence, internet of things, biotechnology) in your banking processes?
We must always re-calibrate banking and look where the Philippines is set. Right now, the starting point is we are at the very basic levels of technology advancements and digital adoption. We definitely have a road map to introduce artificial intelligence, big data, and chat functionalities using bots. We want to introduce them, but are mindful to do it at the right time. We do not want to shock the system.
I think the consumers need to first get comfortable to do their banking online. To get security right, to make them feel that banking on their mobile phone is safe and secure. That is the most important thing, before we think about next generation technologies. The first stumbling block is to make consumers feel that banking with their mobile app is just as safe, if not safer, than walking into a branch and dealing with a banker. By going digital, who are your target markets?
Anyone who has a smartphone… no matter how young or old you are. If you are a consumer that values your time and convenience, and you want to get more from your bank, you should come and bank with us. The common thinking is that we only appeal to the young or below 30 years old. That is a bit of a fallacy.
We look at mobile users, smart- phone users as our early adopters. We talk to a broad base segment. Our early indications tell us that not just the young segment are attracted to us, even the older ones are open to banking with us.
With e-commerce transactions growing leaps and bounds, people are becoming more comfortable to transact online. All these will need consumers to be more confident to do more things online. Banking is right there, the rest will follow. How would you describe a seamless digital banking experience? What should be the capabilities of a bank in order to provide such?
Our DNA is to get everything done in 10 minutes. For us seamless is: everything is in your fingertips… Everything is intuitive, which means you on your own can self-navigate and self-learn.
You have to have a lot of focus on consumer experience. To achieve this, you really must see it from the outside. You must develop your processes, design capabilities exactly to what the consumers are asking from you. It is very easy to fall in the trap of designing the way the bank wants… but it is really to design a process and experience that is for the consumer. Sometimes, you co-develop them with the consumer.
Through market research, we engage consumers formally and informally, through focused groups, through various means and methods to understand the pain points, what they are looking for, and to understand how they feel. And we try to solve these. How does your collaborations and partnerships work?
We partnered with various companies for various purposes. Some of these partners give us the reach and convenience for customers. For example, customers will need to cash in, make a payment, and do withdrawals. These partners will enable them to do so. [Although] we are an all-mobile bank, we understand that consumers still need cash. We partnered with Bancnet so they can withdraw from all ATMs across the nation for free. With 7-Eleven, customers can cash in or deposit their funds. With Visa, we are able to issue debit cards, which allows customers to make cashless payments in any terminals, both domestic and international.
Through our partners, we are able to provide that added convenience. For CIMB customers, we do not usually charge them anything if they deal with our partners. Why did you choose to partner with FINTQnologies Corp. (FINTQ)? What are the advantages brought by this collaboration?
To drive the digital agenda. We work with them to look into new technologies, to avail our products and services, and to reach more consumers. We want to promote digitization in the Philippines so we work together on how we can align our visions to help the consumers. It is more of a strategic partnership. Aside from FINTQ, do you have other local partners? How does your collaborations work? What are your objectives in each partnership?
We have a list of partners that we had advance negotiations with, it will be communicated in the coming weeks and months.
We are constantly being approached as well as approaching potential partners in the Philippines. Many people are excited with the first all-digital bank. They see that we can bring significant value to their business and customers. What are the products you offer in the local market? How different are they from existing banking products in the country? What are the benefits your users can enjoy when they open an account with CIMB?
For our deposit accounts and debit cards, we do not have fees; we pay super high rates (through its UpSave account which offers a yearly interest rate of 2%); and have no minimum maintaining balance. Plus, customers can easily access us through our network of partners. These are all value-back for consumers. It is a completely free account.
Similarly, we have enabled domestic fund transfers, as well as interbank transfers using Pesonet. In 2019, what other products and services should we look forward to?
You can expect us to introduce a variety of loan products. We are looking to offer two types of personal loans by March to April, with a lending facility that allow clients to borrow funds up to P25,000, and another with a maximum of P1 million.
We are looking at other products but it is very early to say. We want to do a few things and do it really well. We have a product roadmap that we are currently evaluating on the subsequent products that will be relevant to the market. In terms of cybersecurity, what are the measures you employ to protect your customers from online theft? How about your system, what are your measures to prevent data breach?
In CIMB, we operate across ASEAN, hence we are regulated by multiple central banks. So we comply with the highest standards of data, fraud and information security.
In terms of the technology, we constantly update, keep track of the latest and the best technology out there in order to ensure customer transactions are safe and secure. We are constantly looking for ways to improve.
If you want to transfer funds, you will be required a one-time password. You can set the limits of how much you will allow transfers. There are also other features like ensuring one app is tied to one device. So you cannot have the same username and password used in multiple phones. To deactivate a device, just call our call center.
Our data center is world class. There is an army pf people that protects the bank and our operations in 10 or more markets. We centralized our operations so we take the best practices and apply it to local markets. In the Philippines there are still a lot of unbanked population, especially in rural areas. Do you also plan to tap them?
Yes, eventually. We will get to them, but in a phased approach.
We believe that we are a better option [for those who chose to remain unbanked because of previous bad experiences]. We are making banking so simple, easy and convenient, as well as free. This may give these people a moment to think about. Maybe they did not like the fees, the maintaining balance, and the low interest rates… we offer the complete opposite. So maybe they would think they would be better off banking with us because we provide what they are looking for.
MASS HOUSING developer 8990 Holdings, Inc. has tapped engineering conglomerate Megawide Construction Corp. to build its horizontal housing project in Meycauayan, Bulacan.
In a statement issued Wednesday, 8990 Holdings said it has signed an agreement with Megawide for the construction of about 5,000 townhouses as part of the firm’s 41-hectare project called Deca Homes Meycauayan in Barangay Saluysoy.
The project is 8990 Holdings’ second in Bulacan, following its 14-hectare project that houses a mix of townhouse units and medium-rise buildings.
The agreement extends 8990 Holdings’ partnership with Megawide, which is also building two of its largest projects in Metro Manila. This includes Urban Deca Homes Manila, a 13-building, mid-rise condominium complex catering to the affordable market.
Megawide is also constructing Urban Deca Homes Ortigas, which consists of 25 mid-rise buildings along Ortigas Extension, Pasig City.
Megawide uses structural precast technology for low-cost housing projects. During the signing ceremony for Urban Deca Homes Ortigas in 2017, Megawide President Edgar Saavedra said they are working with Japanese and German technical engineers to create a “structurally resilient design.”
The listed property developer noted the growing popularity of Bulacan as a choice for families looking for a home, given the major infrastructure projects seen to link the province to Metro Manila in the next few years.
It cited the completion of the Metro Rail Transit Line 7 in 2020, which could shorten travel time from North Avenue in Quezon City to San Jose del Monte, Bulacan to 30 minutes, compared to the current two-hour travel time.
The province is also an hour away from Clark International Airport. At the same time, there is currently a proposal to build an international airport in Bulacan.
Shares in 8990 Holdings jumped 3.57% or 42 centavos to close at P12.20 each at the stock exchange on Wednesday. — Arra B. Francia
AS RETAIL casualties such as Sears or Toys ‘R’ Us kept piling up, costly real estate often got the blame for traditional retailers’ struggle to keep up with e-commerce rivals.
Yet last US holiday shopping season showed stores may offer retailers a rare competitive advantage as they scramble to fend off the challenge from e-commerce giant Amazon.com and other online retailers.
Enter “click and collect.”
Sales where customers order goods online and pick them up at a nearby store soared 47% in November and December compared with a year earlier, outstripping 16.5% growth in online sales, according to Adobe Analytics.
Among those reporting big increases in such sales are chains such Best Buy Co. Inc., Target Corp., Walmart Inc. and Home Depot Inc.
The experience of the 2017 holiday season when bad weather and a late surge in online orders overwhelmed shipping firms and led to delays is likely to have contributed to the surge in store pickups last season, retail experts say.
Yet even as UPS and FedEx largely avoided a repeat of such problems this time, analysts say store pickups, when handled right, offer enough benefits for consumers and retailers alike to keep gaining importance.
The numbers bear that out. According to retail research and consulting firm GlobalData Retail, store pickups accounted for nearly a third of US online sales last November and December. That compares with about 22% a year earlier and just over 17% during the 2016 holiday season.
The method “brings together the benefits of the digital shopping experience…with the instant gratification of same-day store pickup and easy returns,” said Jeff Sylvester a senior analyst at Foresee, a company that studies customer experience.
Shoppers, on their part, avoid shipping costs and the agony of waiting for the delivery and can get help from store staff if any issues come up.
Steve Molloy, a web designer who shuttles between Sydney, Los Angeles and San Francisco, said a 3-1/2-week delay in delivery of a pair of Nikes he ordered online during the 2016 holiday season made him switch to in-store pickup.
“It feels like you have a little bit of control,” he said.
Retailers save on packaging and delivery costs as they have items on sale in their in-store backrooms rather than a distant warehouse.
Foresee’s Sylvester estimates it costs retailers about $5.60 in packaging, labor and fuel to deliver goods ordered online.
Factoring in other costs, retailers stand to make a 25% gross profit on a shipment of $82, the size of an average online order during the 2017 holiday season. The store pickup option raises that margin to at least 33%, he said.
It also helps bring in additional sales.
More than a third of customers who come to collect their orders end up buying something else, said Tom McGee, chief executive of International Council of Shopping Centers, a global trade association. During the holidays that number increases to 86%, he said.
US retailers are some years behind their European peers in adopting “click-and-collect” and it has not yet reached a scale where it could pose a significant challenge to Amazon, analysts say. Yet already now, the model helps retailers better cope with the downward pressure on margins from online competition.
“Buy online pickup in store is every CEO’s nirvana,” said Ted McCaffrey, a retail strategy consultant with SensorMatic, a Johnson Controls company.
Making it work, however, takes careful planning and money.
It comes down to how fast an employee can fulfill multiple orders and if retailers can pull workers away during rush hours since long wait times can discourage customers who chose the service to save time, retail consultants say.
Creating dedicated space for order collection also requires investment, which can be substantial particularly in urban areas where stores tend to be smaller and real estate more expensive.
Among retailers that so far have made biggest strides in the United States is home improvement chain Home Depot, Adobe Analytics’ group manager Nate Smith said.
Adobe Analytics’ data showed that customers picked up nearly half of their online orders in Home Depot stores during the holidays last year and a fifth of those customers bought additional items doing so.
Smith said Home Depot had remodeled some stores to create separate pickup areas with lockers that customers can unlock with a government identification and an order number.
Home Depot did not comment on the subject citing its quiet period ahead of its quarterly earnings report.
Walmart said it has added hundreds of ‘pickup towers’ in stores, while Target’s ‘Order Pickup’ and ‘Drive Up’ options in stores grew 60% during key holiday months last year, and accounted for a quarter of the company’s overall digital sales, the company said.
Similarly, Best Buy told Reuters that more than 40% of its online sales involve in-store pickups. The electronics chain also provides dedicated parking spaces for such customers.
“Store pickup is certainly convenient as 70% of Americans live within 15 minutes of a Best Buy store and millions of people drive past one of our stores each day on their way to and from work,” Best Buy spokesman Jeff Shelman said. — Reuters
PHILIPPINE NATIONAL Bank (PNB) issued P8.22 billion worth of long-term negotiable certificates of deposit (LTNCD), which will be used to extend the lender’s maturity profile.
At the ceremonial listing on Wednesday at the Philippine Dealing & Exchange Corp. (PDEx) in Makati City, the Lucio C. Tan-owned lender said it raised P8.22 billion from the peso-denominated issuance.
The notes will mature in 5.5 years and carry an interest rate of 5.75% to be paid quarterly until 2024.
The issuance marks the first tranche of PNB’s P20-billion LTNCD program approved by the Bangko Sentral ng Pilipinas in October 2018.
Proceeds from the LTNCD program will be used to extend the lender’s maturity profile, comply with liquidity ratios, and gain long-term funds for general corporate purposes, the bank said in January.
Like regular time deposits offered by banks, LTNCDs offer higher interest rates. However, LTNCDs cannot be pre-terminated but can be sold on the secondary market, making them “negotiable.”
PNB President and Chief Executive Officer Jose Arnulfo A. Veloso said yesterday that the proceeds of the capital raising activity will be used to support its long-term funding.
“[The important thing here is] we’ll take a look into our fund, and we don’t want our funding to only be short-term. We also want to have a long-term funding profile in the domestic currency,” Mr. Veloso told reporters Wednesday.
Mr. Veloso previously said the LTNCD issuance is a “strategic exercise” for PNB as it continues expanding its loan portfolio.
“Raising long-term funding at attractive levels offers our investors an opportunity to support our goals, while allowing us to also provide cost-competitive loans to our clients who would like to grow alongside our strong Philippine economy,” he said in a Feb. 21 disclosure to the local bourse.
Last month, the bank announced its plan to raise as much as P100 billion in fresh funds through a series of bond offerings this year following the approval of the creation of a peso bond and commercial paper program.
This follows the $300 million which PNB raised through medium-term notes in April 2018.
Global banks HSBC and ING Bank N.V. were tapped as joint lead arrangers for the transaction. They also acted as selling agents alongside PNB, First Metro Investment Corp. and the Multinational Investment Bancorporation.
PNB’s listing brings the total volume of outstanding securities listed at the PDEx to P1.104 trillion, floated by 50 companies.
This also brings the total volume of outstanding instruments issued by banks to P370.31 billion.
PNB, the fifth-largest universal bank in the country in asset terms, booked a P7.5-billion net income in the nine months ending September, 67% higher from the a comparable period in 2017. Total loans were at P550.7 billion at end-September, while deposits stood at P692.8 billion.
Shares in PNB closed at P51.30 apiece on Wednesday, climbing 15 centavos or 0.29% from its previous close. — Karl Angelo N. Vidal
“[WE’VE ANSWERED] their prayers,” a McDonald’s Philippines executive told reporters, referring to the addition of four new limited edition items inspired by popular menu items in Japan to its Philippine menu starting today, Feb. 27.
“People would actually find us on Facebook or Instagram showing us all the photos of what they ate [in McDonald’s] in other countries. So we said, ‘why don’t we introduce it this year?’” Christina D. Lao, marketing director of Golden Arches Development Corp., the local franchisee of McDonald’s in the Philippines, said shortly after the launch of the new items on Feb. 26 at the McDonald’s branch in Frontera Verde, Pasig City.
The company said the new items, collective called “Flavors of Japan,” were introduced to coincide with the blooming of the sakura, cherry blossoms, in Japan from March to April.
The four menu items are the Ebi burger (P125), a shrimp patty coated in tempura (a batter composed of potato starch, flour, and egg) and topped with a sweet, mayonnaise-based sauce and lettuce all between a black- and white-sesame seed bun; the Teriyaki burger (P125), a burger dipped in teriyaki sauce with mayonnaise and lettuce encased in the same sesame seed bun; Nori Shake Shake Fries (P65) which is a salty, umami, and somehow sweet take on McDonald’s fries; and the Strawberry Sakura McFloat (P35), a strawberry and cherry-flavored soda topped with vanilla ice cream.
A Sakura meal (P194) includes a choice between the two burgers, the nori (seaweed) fries and the sakura float though they do offer a regular meal (P149) which includes regular fries and a drink with any of the two burgers.
The Strawberry Sakura McFloat tasted like a strawberry cream soda once you mix the ice cream into the drink. The Nori Wasabi fries was also very good, with one writer saying that it tasted like “sour cream and onion but without the sour,” although the salt is undercut by the smattering of nori flakes (this writer would want more of those to get the really fishy yet umami flavor).
The Teriyaki burger has a good balance of sweetness and savoriness and the Ebi burger is light yet filling.
Ms. Lao said that before they added these items to the regular menu, they had to adjust them to suit the Filipino palate: they added strawberry syrup to the sakura float because Filipinos love their sweets, they decided to use a tempura batter instead of the panko breadcrumbs of the original because their tests showed customers preferred the tempura batter, and they had to adjust the teriyaki sauce so the balance between sweet and salty is perfect because “Filipinos love a festival of flavors.”
So it may not be exactly what you’d get in Japan or Singapore (Singapore also offers the shrimp burger) but “you don’t have to go far to get to taste [country-specific] menu items,” she explained.
She added that this is a first in a series where they will be bringing the world to the Philippines.
The Japanese menu items will only be available through April or until stocks last and are available in all McDonald’s stores nationwide. — Z.B. Chua
THIS RICE COOKER is probably smarter than this writer.
Chef Jonas Ng, a brand ambassador of the Tefal small domestic appliances division in the Philippines, recalled a moment when the Tefal Optimal Rice Cooker figured out that a user was lying, when a friend of his placed ingredients not meant for steaming inside the pot and pressing the steam button. The machine’s AI (artificial intelligence) shook its figurative head “no” and rejected the order.
During a demo earlier this week the rice was evenly cooked and may have felt slightly fluffier. Good rice is a luxury these days, and getting rice of that consistency is a must: after all, it did come from a machine that cost P10,995.
The inside is shaped like a claypot (as in, our traditional palayok), which enables more even cooking. It has 3D heating; not just at the bottom, as in traditional rice cookers. The pot is nonstick, as expected from Tefal, and has 35 cooking programs. Julie Lim, Vice-President for Business Development of Collins International Trading Corp. (which distributes the Small Domestic Appliances by Tefal), said that her helper uses the rice cooker for slow cooking. The 35 programs include various settings for rice variety (brown, white, glutinous are just some), texture (soft, normal, hard, crispy), and even settings for soup, and dessert. The machine’s AI enables it to discern what ingredients are in the pot, and figure out the appropriate setting. BusinessWorld made a moist chocolate cake with it, while Mr. Ng said that he has tried cooking beef shanks in it, and during a cooking demo, made a one-pot dish with brown rice, mushrooms, and tofu.
According to Ms. Lim, it also helps make the food more nutritious. Vitamins and minerals aren’t lost in the fog of steam, as it stays inside the machine, and the non-stick pan really helps in cutting down fat consumption.
“Cooking now becomes very convenient and versatile,” she said. I think that’s the thrust of Tefal… always multifunctional.” — JLG
ECONOMISTS expect local financial markets to rebound this year following a challenging 2018 even as uncertainties both at home and abroad remain.
“In the last three months of 2018, financial markets were weighed down on the domestic front by: rising domestic inflation and interest rates; the moderation in the Philippine economic outlook; and expectations of the delayed approval of Philippine Government’s budget. At the same time, on the external front, slowing global growth due to fresh geopolitical tensions and normalizing US [Federal Reserve] monetary policy also helped dampen investor sentiments,” the Bangko Sentral ng Pilipinas (BSP) said in an email to BusinessWorld.
In the fourth quarter, the peso averaged P53.26:$1, appreciating 0.52% from the previous quarter’s average of P53.54:$1, BSP data showed. Meanwhile, a separate data by the Department of Finance showed the peso depreciating by 5.43% to the US dollar by yearend to P52.56, marking the fourth-worst performance among 12 Asian currencies after India’s rupee (9.23%), Indonesia’s rupiah (6.16%) and China’s yuan (5.69%), and faring worse than a 3.03% average depreciation among the currencies covered.
Meanwhile, in the secondary market, government debt yields for all maturities increased in December 2018 by a range of 175 bps for the 25-year tenor to 301.5 bps for the one-year paper compared to the same period in 2017, according to data from the Philippine Dealing & Exchange Corp.
For equities, the Philippine Stock Exchange index (PSEi) closed the fourth quarter at 7,466.02, up 2.6% from the third quarter and an improvement from the third quarter’s 1.2% gain.
The PSEi opened the quarter on a downtrend as it reflected global trends that were mostly driven by the ongoing US-China trade war and subdued global economic growth. A slight rally was observed in November but was tempered following concerns of a reenacted national budget. Local shares finally rebounded in December on news of slowing domestic inflation and the cooling off of trade tensions between the world’s two biggest economies.
The national government has been operating under a re-enacted budget with the latest spending plan yet to be signed by President Rodrigo R. Duterte, since Congress ratified the 2019 budget only last Feb. 8 following months of bicameral bickering over alleged irregular fund insertions. This has left new programs and projects unfunded at least for the first quarter – which would likely hurt growth for the period.
At the external front, the last three months of 2018 saw the US Fed raise its benchmark interest rate by a quarter-point – the fourth time in 2018 and the ninth since it began normalizing rates in 2015. The US central bank forecasted two more rate hikes this year, lower than the three rate hikes that was previously expected.
Lingering geopolitical risks also continue to affect the market. “The continued trade tensions between the US and China, fresh geopolitical tensions between the US and several other counties like Iran, North Korea, and Syria weighed on markets,” the BSP said.
“In December, rising optimism over possibly warmer trade relations between the United States and China following their decision during the G20 Summit to suspend the imposition of new tariffs until January next year and positive comments made by President Trump on reaching a trade deal with China provided a boost to markets in the last month of the year,” the BSP added. WORST IN DOMESTIC INFLATION ALREADY SEEN
Last year saw inflation picking up for nine straight months, peaking at a nine-year-high 6.7% in September and October before easing to 6% in November and 5.1% in December. This brought the full-year 2018 average at 5.2% against the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target range for 2018 and was the fastest since 2008’s 8.2%.
This easing trend prompted central bank officials to keep interest rates steady in their Dec. 13 meeting with expectations that inflation will decelerate over the next two years. Likewise, the market expects inflation to be on its downward trend amid dropping world crude oil prices as well as normalizing food prices.
Prior to the December decision, the BSP raised interest rates five consecutive times since May, with two straight hikes worth 50 basis points (bps) launched in August and September as inflation surged followed by a 25-bps increase in its Nov. 15 meeting.
For 2018, benchmark interest rates have risen by a total of 175 bps, with the key policy rate now at 4.75% — the highest in nine years.
Economists are in agreement that inflationary pressures would ease this year.
“Average inflation is projected to revert to the target range in 2019 at 3.2% (from 3.5%) and 2020 at 3% (from 3.3%),” the BSP said.
The central bank attributed the downward adjustment primarily to the decline in global crude oil prices, the lower-than-expected inflation in November last year, the approved rollback in jeepney fares, and the monetary policy adjustments that led to a stronger peso and slower domestic liquidity growth.
Dubai crude, which is the benchmark for local fuel prices, averaged $66.70 per barrel (/bbl) in the fourth quarter, 9.9% down compared to the previous quarter’s $74.03/bbl average. The last three months saw the oil price peak at $83.95/bbl in Oct. 3 before settling at $53.02/bbl by the last day of 2018.
ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa said that aside from easing oil prices, inflation will likely slow down on base effects and lower food prices through the rice tarrification law: “All in all, we expect inflation back within target by early second quarter 2019,” he said.
For Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort, “the worst in inflation has already been seen.”
When inflation was rising in the early part of 2018, the local financial markets posted declines in terms of price. Now that inflation has already sustained its declining trend, the local financial markets have already bottomed out and led to further price gains,” he added.
For Mr. Ricafort, the inflation rate could go down to average 3.5% or even lower once the tariffication law takes effect in the early part of 2019.
“With the sustained decline in inflation rate, local interest rates could fundamentally continue to go down as well, leading to lower bond yield, higher prices of equities, and a stronger peso,” he said.
President Rodrigo R. Duterte signed into law the rice tarrification bill earlier this month. The law effectively liberalizes the import process for rice while taking away the role in importing of the National Food Authority. In place of the old system, private importers will pay a tariff of 35% on grain shipped from Southeast Asia, raising revenue for the government and also funding a rice industry competitiveness fund.
Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands (BPI) said that with the possibility of inflation returning to the BSP target and with sustained economic growth, the central bank has “little reason” to adjust key rates throughout this year.
“We think that reducing the policy rate is still premature considering the uncertainties abroad which could lead to a sharp peso depreciation. The current level of rates allows the central bank to prevent foreign exchange volatility while it rebuilds its foreign reserves,” he said.
The BPI economist said that the BSP will “likely pick low hanging fruits” before cutting policy rates. Among these include cutting the reserve requirement ratio (RRR) by two percentage points or more this year and non-sterilized purchases of foreign currencies in the spot foreign exchange market.
“Even without a premature cut in the BSP’s policy rate, we expect benchmark interest rates to drop to more accommodative levels in 2019 given the RRR cut and GIR (gross international reserves) purchases of the BSP. This should allow both the public and private sectors to carry on with their much needed expansion projects to help the Philippines catch up with its richer ASEAN neighbors,” Mr. Neri said, referring to the Association of Southeast Asian Nations.
“The biggest risk to the rates outlook could come from a significant breach of the government’s fiscal deficit target of 3% and the resulting surge in its borrowing activity,” he added.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. echoed this sentiment: “With the latest US Fed’s very dovish policy stance, BSP is expected to hold policy rates for the first six months this year before considering to cut RRP (reverse repurchase) rates. It seems the priority of BSP is addressing market liquidity while securing price stability after the challenges of 2018.”
The central bank has slashed the RRR in two moves last year and now require universal and commercial banks to hold on to just 18% of their deposits from 20% previously, leaving them with more or less an additional P200 billion which they can lend to borrowers.
This is in line with the late BSP Governor Nestor A. Espenilla, Jr.’s long-term goal to bring back the reserve standard to single-digits by 2023 – around the time his six-year term as central bank chief ends.
The BSP has long clarified that any RRR cut signifies an “operational” change rather than a shift in their policy stance, although market players view it as an easing. Nevertheless, the central bank has put further reserve cuts in the back burner following the surge in consumer prices, which led to the five rate hikes last year. GDP GROWTH STILL ROBUST, BUT EXPECTATIONS MIXED
The Philippine economy expanded 6.1% in the fourth quarter of 2018 — a pace slower than expectations. For 2018, economic growth averaged 6.2%, missing the downward-revised 6.5%-6.9% government growth target for 2018.
While economists expect economic growth to remain robust this year, their expectations on whether or not the government target of 7%-8% will be met is mixed.
For BPI’s Mr. Neri, growth is expected to grow by at least 6.5% in 2019: “With inflation now in a downtrend, the economy has the opportunity to return to the sweet spot of low-inflation and high growth just as election spending boosts overall demand…,” he said, noting that growth is usually faster in election years.
“The expected decline in long term market interest rates due to lower inflation and the forthcoming [RRR] cuts of the BSP would also support capital expenditures.”
UnionBank’s Mr. Asuncion looks at 2019 economic growth to clock in at 6.8% driven by increased government spending and election-related spending while tagging agriculture and net exports as primary drags to growth.
Meanwhile, RCBC’s Mr. Ricafort looks at the economy growing at 6.5%-7% on account of easing inflation, lower interest rates, higher government spending on infrastructure projects amid plans to exempt these from the election ban and election-related spending, among others.
ING’s Mr. Mapa said that the economy breaching the growth target is possible, but only if the economy “fires on all cylinders” through both monetary and fiscal stimuli.
“[G]iven that economic growth does appear to be losing some steam and with inflation returning back to target, perhaps the BSP can look to afford the economy some breathing space with their price stability mandate safeguarded,” ING’s Mr. Mapa said.
“The budget delay and the election ban may throw a monkey wrench into the fiscal boost and we might have to hope that the economy can quickly absorb the likely ‘back-loaded’ fiscal push in the second half,” he said.
Monetary policy stimulus can help boost consumption and private investments, the ING economist added.
“If it remains in its current not so accommodative state, we can only expect the recent aggressive tightening to continue to feed into the economy and slow it down further given its 9-12 month lag effect,” he added.
The national government has been operating under a re-enacted budget with the latest spending plan yet to be signed by President Rodrigo R. Duterte, since Congress ratified the 2019 budget only last Feb. 8 following months of bicameral bickering over alleged irregular fund insertions. This has left new programs and projects unfunded at least for the first quarter – which would likely hurt growth for the period.
“Without the infrastructure budget of close to about P1 trillion in 2019, the implementation of the ‘Build, Build, Build’ program is expected to slow down. This delay will be detrimental to the nation’s growth performance and likely temper investor sentiments,” the BSP said.
With these developments, how would local financial markets perform in the coming months? Below are the outlooks for each of the key markets. EQUITIES MARKET
• BSP: “Investor sentiments at the start of 2019 appeared more optimistic. Easing domestic inflation, lower crude oil prices, election-related spending and continued ramping up of infrastructure and capital goods spending point toward stronger domestic demand and earning prospects, providing impetus for a rebound in the equities market in the first quarter of 2019. However, potential challenges to the uptick of local shares include: the late approval of Philippine Government’s budget; the late approval of the US Federal Government budget that resulted in a partial US government shutdown; continuing tensions between the US and China; and the likelihood of further US Fed rate hikes than the two originally forecasted for the year.”
• ING’s Mr. Mapa: “Positive, but with signs of slowing growth both onshore and globally, it will be hard to see the [PSEi] push much further unless we see some form of stimulus, from abroad (Fed turns extremely dovish) or domestically (BSP rate cuts and or strong data).”
• RCBC’s Mr. Ricafort: “Easing inflation and consistent net foreign buying of Philippine stocks since the start of 2019 would support further upside for the local stock market. Lower inflation increases corporate profits and reduces borrowing/financing costs of companies, thereby leading to higher valuations, assuming all other factors are the same.”
• UnionBank’s Mr. Asuncion: “If the inflation continues to ease, a recovery in equities market is expected. The market will be advanced by the strong earnings of domestic companies and the strength of foreign corporations.”
• BPI’s Mr. Neri: “The local stock market may outperform its regional counterparts this quarter given the foreign inflows brought by lower inflation.” FIXED-INCOME MARKET:
• BSP: “The Philippine bond market is expected to be influenced mainly by issuances of government securities. It is further expected that the government will continue to favor domestic borrowings from foreign sources to limit the country’s exposure to foreign exchange risks.”
“Meanwhile, some corporations might tap the debt securities market to support their funding requirements. This may be limited as we remain a bank centric economy where it is easier and less costly to avail bank financing than to issue bonds.”
“It may be noted that there have been continuing efforts to further develop the Philippine capital markets. For example, the BSP issued Circular 983 that set a zero-percent reserve requirement ratio on repo transactions to encourage more players and in turn enhance price discovery and liquidity in the market. This complements the decision of the Bureau of Internal Revenue (BIR) to exempt repo transactions under the program from documentary stamp tax (DST). These initiatives will reduce transaction costs for the repo market and encourage debt issuances by corporations.”
• ING’s Mr. Mapa: “Likely still to be positive, but rally appears to be past its peak.”
• RCBC’s Mr. Ricafort: “[The] sustained decline in inflation [and a] more dovish US Federal Reserve amid the US-China trade war… would correspondingly lead to the continued easing trend in bond yields, provided that the peso exchange rate remains relatively stable or stronger. Possible cut in banks’ RRR and key policy rates especially if inflation goes back to the 2%-4% target range in the coming months of 2019 could lead to further declines in bond yields.”
• UnionBank’s Mr. Asuncion: “High interest rates tend to encourage investors to invest them in fixed-income securities like bonds. The upward pressure on yields is mainly due to inflation which consequently keeps upward pressure on yields.
• BPI’s Mr. Neri: “Local [government securities’] yields may decline modestly especially on the long end of the [yield] curve because of lower inflation expectations. However, upward pressure may come from the borrowing activities of the government, especially if the [Bureau of the Treasury] does a huge [Retail Treasury Bond] issuance that could tighten liquidity. The yield curve may remain flat this [first] quarter, but it may steepen slightly in the succeeding months once inflation is within target.” FOREIGN EXCHANGE MARKET
• BSP: “Over the next few months, the peso’s flexibility can partly reflect external developments that may relatively affect local market sentiment. These include: i) shift towards protectionism; ii) faster-than-expected monetary policy normalization in the US; iii) aggressive rollback in financial regulations in the US; iv) greater-than-expected slowdown in China; v) weak demand, low inflation and weak balance sheet in advanced economies; and vi) non-economic factors including geopolitical concerns.“
“However, over the policy horizon, the peso is expected to be broadly stable and reasonably flexible to reflect changing demand and supply conditions in the foreign exchange market. The expected growth in foreign exchange inflows from overseas Filipino (OF) remittances and Business Process Outsourcing (BPO) revenues in 2019 of 3.0 percent and 8.0 percent, respectively; the sustained inflows from foreign direct investments, tourism receipts; the ample level of the country’s gross international reserves; and most importantly, the country’s firm macroeconomic fundamentals are expected to provide support to the peso. Likewise, the credit rating upgrades that the country earned over the last few years and reaffirmed in recent months are expected to sustain market confidence towards the Philippine financial markets and provide stability to the local currency.”
• ING’s Mr. Mapa: “Peso is seen to move sideways with a weakening bias as portfolio inflows are unable to offset current account woes.”
• RCBC’s Mr. Ricafort: “Lower inflation increases the purchasing power of the peso exchange rate versus the US dollar. Consistent net foreign portfolio investment inflows since the start of 2019 [would] also support the peso… This partly offsets the effects of a relatively wider trade deficit.”
“On external factors, a more dovish US Federal Reserve… amid the lingering US-China trade war and the record 35-day US government shutdown that both resulted to slower US economic growth prospects, supported the recent declines of the US dollar versus major global currencies.”
• UnionBank’s Mr. Asuncion: “The peso will continue to depreciate due to this huge infrastructure development. Seasonal and intermittent strengthening periods are anticipated due to the inflows of personal remittances from overseas Filipinos, and service sectors (such as BPO and Tourism).”
• BPI’s Mr. Neri: “[Peso-to-US dollar exchange rate] may trade within the P52:$1 to P53:$1 range in the near term with peso support coming from foreign buying in the local stock market. However, we expect the peso to depreciate in the medium term as fundamentals remain the same, i.e., the country’s substantial trade deficit would continue to drive the depreciation of the peso.” – Marissa Mae M. Ramos
ZURICH — Swatch Group has filed a complaint against Samsung Electronics Co. and Samsung Electronics America Inc., saying the two companies infringed upon its trademark on designs for downloadable smart watch faces.
The Swiss watchmaker said the South Korean companies’ watch faces “bear identical or virtually identical marks” to the trademarks it owns and uses on its brands which include Longines, Omega, Swatch, and Tissot.
“This unabashed copying of the Trademarks can have only one purpose — to trade off the fame, reputation, and goodwill of the Swatch Group Companies’ products and marks built painstakingly over decades,” Swatch Group said in a filing to the US District Court for the Southern District of New York.
Swatch has demanded a trial in the complaint which also alleges unfair competition and unfair business practices, and is seeking more than $100 million in damages.
It said it had launched the action in the United States because that was where its trademarks were registered and where apps for Samsung’s Gear Sport, Gear, S3 Classic and Frontier watches could download watch face designs that infringed its trademarks.
“This is a blatant, wilful and international violation of our trademarks by Samsung,” a Swatch spokesman said.
“The affected brands are worth billions. Our claim for compensation? Triple digits in millions.”
Samsung declined to comment. — Reuters
ACER Philippines, Inc. targets sales volume to grow 10% from last year, slower than the previous year amid the absence of big government projects to supply schools with gadgets.
“We are projecting maybe 10% growth,” Acer Philippines Sales and Marketing Director Sue C. Ong-Lim told reporters on Tuesday in Taguig City.
The target is slower than the 14% annual growth recorded in 2018 when about 490,000 units was sold in the Philippines.
The latest Philippines PC Market Overview report by market research firm Intelligence Development Corp. (IDC), presented on Tuesday showed that Philippine personal computer (PC) imports rose 16.6% to 2.4 million units in 2018, the highest since at least 2014, with Acer leading the growth with a 20% share.
However, for this year, IDC projects the country’s overall PC imports to narrow by 8% due to the lack of processors from Intel.
For its part, Acer Philippines expects to end this year on a positive note.
“Actually, IDC’s forecast don’t take into consideration the big government projects… For example, in 2018, there was really a huge bid for the Department of Education (DepEd). They didn’t take that into account for 2019 because wala pa talagang final. But I think 2019 will end still at the positive,” Ms. Ong-Lim said.
Ms. Ong-Lim said Acer Philippines continues to bank on the government’s ambition to bring computers to public schools nationwide.
She said the DepEd is expected to start putting up computer labs in elementary and high schools this year, although no awards have been made.
Of Acer’s sales last year, 92% were computer desktops, and the rest were notebooks.
Acer Philippines is the exclusive distributor of Acer products in the country. — Janina C. Lim
THE BANK OF Japan (BoJ) may resort to its least preferred tool to expand stimulus next time the yen jumps: more government bond purchases.
That’s according to Takahide Kiuchi, a former BoJ policy board member who said the central bank’s favored option — deepening negative interest rates — would face opposition from Prime Minister Shinzo Abe’s administration because it would be unpopular among the public. Japan’s currency could quickly appreciate past the 100 mark against the dollar from around 110 now if the global economy deteriorates, he warned.
Speculation for BoJ action has grown since Governor Haruhiko Kuroda said last week that he might undertake fresh easing if the yen’s movement hurts the economy and inflation. In an Asahi newspaper interview, Kuroda outlined four options including targeting the monetary base through government bond purchases — a policy that the BoJ moved away from in 2016.
One possibility is that a strengthening yen prompts the government to increase spending to defend the nation’s export-reliant economy, and the BoJ chimes in by purchasing more bonds, Kiuchi said in an interview in Tokyo. ‘HELICOPTER MONEY’
“The government will issue bonds to pay for economic measures, meaning that it will be happy if the BoJ buys more government debt,” said Kiuchi, who supported Kuroda’s first round of quantitative easing in 2013 before becoming a dissenter until his term expired in 2017. “That will be close to helicopter money. I’m totally against it, but it is possible.”
BoJ board member Goushi Kataoka said Wednesday that it’s vital for fiscal and monetary policy to work in tandem to boost inflation expectations. The central bank should try to widen the gap between supply and demand by ramping up its easing measures in pursuit of 2% inflation, he said in a speech in Kagawa, western Japan.
Expanding the amount of cash in the banking system through Japanese government debt purchases is the BoJ’s least desired approach and could make the nation’s debt market less liquid without benefiting the economy, Kiuchi said. While the BoJ would prefer to target negative rates, moving deeper below the current minus 0.1% risks hurting voter sentiment in an election year by suggesting that the economy is in trouble, he said.
The yen surged almost 4% against the dollar in the last quarter of 2018 as investors sought a haven from falling stock markets and expectations for more US Federal Reserve rate increases waned. It has since weakened almost 1% as markets recovered.
Japan’s currency breaking 100 would hurt exporters by lowering the value of repatriated profits at a time when global demand for their products is slowing, said Kiuchi, now executive economist at Nomura Research Institute Ltd. in Tokyo.
Political pressure could prompt the BoJ to reintroduce the monetary base target at an unprecedented 100 trillion yen ($900 billion) a year, Kiuchi said. Currency issues have gripped debate in parliament recently, and Abe’s ruling Liberal Democratic Party faces local-government polls in April and upper-house elections in Japan’s summer.
Kuroda used to seek an annual 80-trillion yen increase in the monetary base to reach the 2% inflation goal, which remains out of sight. But in September 2016, the BoJ introduced so-called yield curve control, which targets a short-term rate and the 10-year yield, and its bond buying is now mainly done to manage those rates. CLO WARNING
Kiuchi also sounded a warning for banks that have been buying investment products abroad in search of returns that have diminished because of the BoJ’s massive easing.
Norinchukin Bank, a lender to Japanese farmers and fishermen, is among financial institutions that have been piling into securities made up of bundled US corporate loans — a practice that Moody’s Investors Service says carries little risk of large losses because the bank only buys top-rated products.
But according to Kiuchi, if the world economy slips into a recession, companies may struggle to stay in business and holders of even the highest-rated collateralized loan obligations (CLO) could suffer. He sees a one-in-three chance of a global recession by 2020, posing a test for the CLO market, which has yet to see a default on AAA securities.
“It is possible that CLOs will suffer damage, including their highest-quality portions,” Kiuchi said. “Just because things have been fine so far, doesn’t mean they will stay fine.” — Bloomberg
By Carmina Angelica V. Olano Researcher
WITH THE DOWNTREND in inflation allowing room for the central bank to retain or cut key interest rates, analysts remain bullish on bank stocks this year as they expect banks’ to net higher earnings and at the same time, lower funding costs.
The barometer Philippine Stock Exchange index (PSEi) gained 2.6% in the fourth quarter, higher than the 1.2% increase posted in the third quarter albeit slower than last year’s 4.7%. This was, however, slower than the 13.7% increase recorded the previous year.
By end of last year, the sub-index dipped by 20.6% versus the 34.6% growth recorded in 2017.
This rebound was reflected in the listed banks’ share prices during the October-December period with eight of the 14 listed banks registering quarter-on-quarter gains: Metropolitan Bank & Trust Co. (ticker symbol: MBT, 20.8%), Philippine Trust Co. (PTC, 16.2%), Bank of the Philippine Islands (BPI, 12.8%), Rizal Commercial Banking Corp. (RCB, 12.6%), BDO Unibank, Inc. (BDO, 9.2%), Philippine Business Bank (PBB, 4.2%), Security Bank Corp. (SECB, 0.6%), and Asia United Bank (AUB, 0.2%).
On the other hand, Philippine Savings Bank saw the biggest drop in share price during the period at 25.8%, followed by China Banking Corp. (CHIB, -6.1%), East West Banking Corp. (EW, -5.9%), Union Bank of the Philippines (UBP, -4.6%), Philippine Bank of Communications (PBC, -1.2%), and Philippine National Bank (PNB, -0.6%).
Despite higher funding costs due to tightening liquidity during the quarter, banks managed to outpace their earnings last year compared to 2017.
Data from the Bangko Sentral ng Pilipinas (BSP) showed the country’s universal and commercial banks booking a cumulative P159.93-billion net income last year, 9.3% higher than the P146.33 billion in 2017.
Net interest margin (NIM) — the ratio that measures banks’ efficiency in investing their funds by dividing annualized net interest income to average earning assets — improved to 3.17% in the fourth quarter from 3.15% in the third quarter and 3.04% in the same three months to December in 2017.
For the quarter, the BSP raised key policy rates in its November 15 meeting by 25 basis points (bps). Benchmark interest are currently at the 4.25-5.25% range, with its key overnight reverse repurchase at 4.75%, the highest in nearly a decade. To recall, the central bank implemented five consecutive rate hikes from May to November totaling 175 bps amid surging consumer prices.
The last three months of the year also saw headline inflation showing signs of deceleration. From its 6.7% peaks in September and October, the rate of consumer price increases eased to 6% in November and 5.1% in December.
Despite a high interest rate environment, analysts remained optimistic on the banks’ fourth quarter earnings, expecting the lenders’ loan portfolios to have expanded. They also noted the easing inflation during the quarter, which may indicate a break in the central bank’s move to increase key rates in the near future.
“During the fourth quarter, the slowdown in inflation bolstered the stock prices of the biggest players in the banking sector. Expectations on margin expansion due to policy rate hikes in 2018, as well as strong business loan growth, had helped stock prices to continue trending up,” said Timson Securities, Inc. trader Jervin S. De Celis.
For COL Financial Group, Inc.’s senior research analyst John Martin L. Luciano: “[I]n general, we expect the re-pricing of loans to continue during the fourth quarter, partially offset by higher funding cost. This will result to an improvement in NIMs quarter-on-quarter and year-on-year.”
“In addition, banks may have also booked modest trading gains in the fourth quarter in light of the downward shift in yield curve,” he added.
Rachelle C. Cruz, research analyst at AP Securities, Inc., was of the same view, adding that the drop in 10-year government bond yields from the peak of 8.2% in the third quarter and the recovery of the equities market “should lead to recovery in banks’ treasury income.”
“For BDO, MBT, BPI, and RCB, we expect a jump in provisioning related to the [Hanjin Heavy Industries and Construction Philippines, Inc.’s] debt,” AP Securities’ Ms. Cruz said, referring to the Subic-based shipbuilder that filed for corporate rehabilitation and has around P20 billion in debt with the country’s big banks.
For Charlene Ericka P. Reyes, officer-in-charge of trading and research at First Resources Management and Securities Corp., the Philippines’ strong “macroeconomic fundamentals” continue to bring optimism in the banking sector despite concerns on tightening liquidity.
“[The] [i]nflation rate in our country was also expected to ease by fourth quarter of the year, which translates to a potential slowdown in interest rate hikes. Additionally, the strong influx of remittances due to the holiday season also contributed to the overall performance of the local market,” Ms. Reyes said.
Cash remittances brought by overseas Filipino workers reached $2.849 billion that month, up 3.9% from the $2.741 billion inflows recorded in December 2017, BSP data showed. Full-year inflows were up 3.1% to $28.943 billion from 2017’s $28.060 billion — a little past the BSP’s three-percent growth projection. BULLISH ON BANK STOCKS
Analysts remained bullish on the banking sector, despite expectations of a slower loan growth and higher funding costs amid high interest rates in the fourth quarter.
“We have earlier expected a slowdown in loan growth for the banks as the rise in interest rates may have affected consumer behavior on borrowing, and with the average lending yields rising already by around 100 bps. Our loan growth assumption remains to low-to-mid teens which could affect the net interest income growth of banks,” said First Resources’ Ms. Reyes.
Similarly, Mandarin Securities, Inc. research analyst Zoren Philip A. Musngi said they are “generally bullish on bank stocks” despite a downward revision in loan and deposit growth.
“Even though the economic environment remains uncertain and bank lending are showing signs of slowing down, we are still optimistic banks would weather through and show year-over-year growth as they manage their exposures and risks,” Mr. Musngi said.
“Bank stock valuations are quite attractive relative to other industries and to historical averages. As for forecasts, we have lowered growth assumptions for loan and deposit growth and also calibrated interest rate assumptions (i.e., no hike/cut in 2019 as opposed to previous assumption of 1 to 2 rate hikes in 2019),” he added.
For her part, AP’s Ms. Cruz is still “overweight” on the sector, but downgraded their forecasts based on loan growth and credit cost.
“The 175-bps rate hike made by the BSP should temper loan growth to low-teens this year, while the increased focus on growing the higher-yielding SME and consumer loans may lead to an uptick in NPLs, and consequently credit costs,” she said.
For Timson’s Mr. De Celis: “I remain bullish on the banking sector provided that the inflation slows down further to BSP’s target range. A possible reserve cut and shift to higher-yielding loan segments can also drive continued growth especially for the firms that are well positioned in this business such as Metrobank, BDO, and BPI.” HOW BANKS FARED
Even as most banks saw their stock prices rise, analysts noted the differences in banks’ financial figures during the quarter.
“The aggressive monetary policy decision delivered by the BSP was seen to put BPI at an advantage due [to] the favorable loan re-pricing, which was reflected in their sustained double-digit growth in net income for the third quarter of the year, and with the increase in its interest income from loans by 24% despite being affected by lower trading gains,” First Resources’ Ms. Reyes said.
She added: “Loan re-pricing also had an impact on the net interest income of BDO, which resulted to an increase of 20.6% year-on-year, at the back of expansion in net interest margin supported by loan growth, which offset the increase in funding cost.”
For Timson’s Mr. De Celis, BDO, MBT and PNB “are in a better spot to yield better numbers in terms of revenue.”
He cited PNB’s lower operating expense and credit costs, which can boost the company’s earnings per share by 5%-6% for 2018, while its sales may reach P35.5 billion compared to 2017’s P27.7 billion.
On the other hand, Mr. De Celis said that BDO and MBT could possibly incur higher credit costs due to higher provisions for their exposure to Hanjin.
“Metrobank’s stronger capital position may allow more room for loan growth while BDO’s growth may be fuelled by its wider margin from business lending which may be offset partially by the slower consumer loans. BDO is estimated to earn P146 billion in revenues versus the P128 billion in 2017 while Metrobank may record P93.7 billion in sales versus the P82.4 billion in 2017,” he said. OUTLOOK
Moving forward, analysts expect first-quarter earnings to improve further given potential reductions on funding costs due to a possible rate cut by the BSP amid decelerating inflation.
COL Financial’s Mr. Luciano said that the potential cut in reserve requirement ratio of the BSP this year could reduce banks’ funding costs pressures.
“Based on our estimates, NIMs would improve by an average of 5 bps for every 1 percentage point drop in the reserve requirement,” he said.
The analyst also expects earnings growth of these banks to be driven by higher net interest income and fees this year: “While we forecast slower loan growth of low to mid-teens (versus 15.6% in December) for the year… we believe that this is still a healthy pace of growth for banks going forward,” Mr. Luciano said.
“In addition, we expect the NIM expansion will continue in 2019 as asset yields continue to re-price.”
For Timson’s Mr. De Celis: “I think the loan segments of the big players in the banking sector will remain as the driver for growth in the first quarter especially when the BSP cuts the bank reserves. Decelerating inflation may also urge the BSP to delay or cut rates. Lower borrowing costs may spur further demand for consumer and business loans that may drive profits higher for the first quarter.”
For Mandarin’s Mr. Musngi: “We expect [first quarter] 2019 earnings to be somewhat better… as banks may likely book some trading gains due to the recovery in equity market and the peso [to] see some margin benefit as inflation expectations have lowered considerably. However, these gains may be diminished by the slowdown in lending, which was likely driven by the current high interest rate environment.”
AP’s Ms. Cruz had a similar outlook as she expects earnings to grow at the mid-teens in the first three months of 2019.
“Last year was a low-base for banks due to lower interest rates and [the] absence of large trading gains. We expect the 175-bps rate hike made by the BSP to continue feeding through banks’ lending rates this year. Moderating inflation should also temper pressure on deposit rates,” she said.
“Overall, we still expect core lending business to drive earnings growth, while trading income should also recover as the Philippine capital market rebounded starting January due to a spike in dollar inflows.”
For her part, First Resources’ Ms. Reyes said: “We are expecting that the slower NIM growth due to the higher funding cost could impact the banks’ earnings for the first quarter of the year, especially on banks with a lower CASA (current account and savings account) base,” she said.
She added that demand in bank stocks would most likely be boosted by the release of the full-year earnings for 2018, “especially if banks will report higher-than-expected growth despite the softer credit demand assumption.”
