PHL reforms pushing renewable power growth, Bloomberg research arm says

November 28, 2018 | 12:03 am

THE PHILIPPINES has achieved a “turnaround” in sourcing power from renewable sources with policy innovations that have helped bring down the cost, putting the country sixth among developing nations in the Climatescope 2018 ranking compiled by Bloomberg New Energy Finance Ltd. (BNEF).
The Philippines scored 2.29 points, enough for sixth on the rankings, amid surging electricity demand, decreasing technology costs, and innovative laws.
“It’s been quite a turnaround. Just a few years ago, some argued that less developed nations could not, or even should not, expand power generation with zero-carbon sources because these were too expensive. Today, these countries are leading the charge when it comes to deployment, investment, policy innovation and cost reductions,” said Dario Traum, senior associate of BNEF and project manager of Climatescope in a statement Tuesday.
BNEF said reforms introduced by the Electric Power Industry Reform Act (EPIRA), or Republic Act 9136, and the Renewable Energy Act (RE), or RA 9513, fueled the growth of the renewable energy sector.
In September, the Department of Energy also issued a circular detailing its intent to identify competitive renewable energy zones (CREZ), where renewable sources are deemed feasible for development.
The government has also moved to give energy developers the right to sign power supply agreements (PSAs) directly with customers. Meanwhile, the Green Energy Option program authorizes utilities to supply customers opting for renewable energy.
BNEF also noted the country’s target for renewable capacity of 15.3 gigawatts (GW) by 2030.
BNEF said the negatives include targets to increase coal energy capacity by up to five times the current level. It said that while additins to coal-fired capacity fell to their lowest levels in over a decade in 2017, actual power generated by coal plants rose 4% year-on-year.
The top five in the BNEF ranking were Chile at 2.63 points, India (2.57), Jordan (2.54), Brazil (2.52), and Rwanda (2.31). China, which claimed the top spot last year, finished seventh. — Vincent Mariel P. Galang

SEC, PNP arrest 12 people behind investment scam

November 28, 2018 | 12:03 am

THE Securities and Exchange Commission (SEC) and the Philippine National Police (PNP) cracked down on a group called GDM Finance Sarl, which the corporate regulator found to be soliciting investments illegally.
On Nov. 24, operatives of the SEC’s Enforcement and Investors Protection Department (EIPD) and the PNP arrested 12 people, namely Hen Yanchao, Josephine Delgado Maranan, Milany Peligro Cabrera, Nanette Diaz Tongco, Joy Camille Andaya Pural, Anita Egana Armada, Virgilio S. Castillo, Denmark V. Salazar, Jacinto Lucio P. de Catalina, Jay Nasayao Moral, Gerald Lansangan Samson, and Venancio Gacus Mendoza.
They also identified a Pastor Benny Cabrera who managed to escape the authorities.
Those arrested were found to be conducting an investment-solicitation session in Holiday Inn, Pasig City under GDM Finance Sarl, an investment firm based in Switzerland. They supposedly encouraged attendees to investment in the firm, promising a weekly interest of 2.5-4.5% from the money that will be invested in preferred shares at the New York Stock Exchange.
“The SEC-EIPD in its initial investigations, found that GDM Finance Sarl had not been issued a Certificate of Authority to Operate as Lending Company or a Financing Company,” the SEC said.
The commission noted that such violations could carry a maximum penalty of P5 million, or imprisonment of 21 years or both at the court’s discretion, as per Section 28 of the Securities Regulation Code (SRC).
The SEC-EIPD said it has already filed criminal charges against the arrested persons for violating the SRC. — Arra B. Francia

Offering a lending hand to agribusiness: A DBP Q&A

November 28, 2018 | 12:03 am

By Marissa Mae M. Ramos
THE Development Bank of the Philippines (DBP) has been designated as the government’s infrastructure financing bank. Since then, it saw a double-digit expansion in its loan portfolio, with outstanding credit standing at P250.59 billion as of the first half this year. Of that amount, around 33% (P82.88 billion) was lent to the infrastructure and logistics sector.
But their portfolio in the agriculture sector continues to be sizeable, with the sector receiving loans totaling around P40 billion or around 16% during the same period.
The Bank’s involvement in financing agriculture is perceived to be vital to the sector’s growth as one of their mandates is to serve the needs of agriculture enterprises in the countryside.
One such program is the Sustainable Agribusiness Financing Program (SAFP), which provides funding up to a maximum of 90% of the total cost in projects engaged in agribusiness. Under the SAFP are two sub-programs geared towards lending to the broiler poultry (Broiler Contract Growing Program, or the BCGP) and dairy farmers (SAFP-Dairy).
In addition, the Bank had further ventured on adopting advancements in better serving its clients. With technology refining the ease of doing business, DBP sees fresh opportunities to bolster projects of Filipino agripreneurs.
For this quarter, BusinessWorld interviewed DBP President and Chief Executive Officer Cecilia C. Borromeo to walk us through the new light they are crossing to serve the agriculture sector.

DBP President and Chief Executive Officer Cecilia C. Borromeo

DBP has been more known on lending primarily to infrastructure projects in agriculture. What measures were taken to have your programs intended for Filipino entrepreneurs in the micro, small, and medium enterprises (MSMEs) become more well-known?
One major measure was to partner and work closely with the Department of Trade and Industry (DTI), the main agency which deals with MSMEs nationwide. DTI invites DBP to many relevant initiatives and projects for MSMEs including the following:
•Policy-related matters — DBP is a member of the MSME Development Council, which provides primary direction for the promotion and development of MSMEs in the country; ensure compliance with the Magna Carta for MSMEs; and craft strategy to ensure that the MSME is integrated in all Philippine development plans.
• Business development and SME capacitating events — DBP has committed to be a resource for DTI’s Kapatid Mentor ME (KMME) program where the DBP had a memorandum of agreement with DTI.
• Active participation to trade events like the Sikat Pinoy Food Fair last March 14-18, [and] the 2018 National MSME Summit in Pampanga last July 9, among others.
• Constant exposure through Negosyo Centers — DBP is often invited to visit DTI’s Negosyo Centers, hubs of DTI’s SME development and marketing activities.
• Program development — recently, DTI has also requested DBP’s assistance to craft a special program for the revival of the local shoe industry with majority of shoe businesses being MSMEs.
Other measures not related to DTI include the following:
• Making available MSME programs in the DBP website where an online loan application is also made available;
• Promptly and comprehensively answering queries from potential borrowers;
• Putting up booths and distributing program brochures in MSME-related marketing events like trade fairs and expos;
• Providing brochures, relevant MSME-related materials, and technical and advisory services on MSME programs through DBP’s 22 lending centers and through lending groups across the country;
• Cooperating with relevant MSME trade associations like Chinese Filipino Business Club, Inc. and different chapters of the Philippine Chamber of Commerce and Industry (PCCI), among others.
In regard to this, one of your programs that was available for MSMEs was the SAFP. How has it been implemented since its launch? Would you say that it is meeting its objectives?
Yes, it has contributed to the government’s objective on food security. The Bank has already approved P3.2-billion for 182 borrowers with released amount of P2.3-billion as of September 2018.
What can you say was the advantage of SAFP in delivering assistance to entrepreneurs in the agricultural sector compared to similar programs offered by other banks?
Except for DBP and Land Bank of the Philippines, the remaining eight of the top banks in the country do not offer any specific agricultural program. Traditionally, banks view agricultural projects as high risk and consequently, would rather pay the penalty of not complying with the agri-agra law than to lend to agricultural projects.
Compared to other banks, DBP emphasizes supporting agricultural projects with post-harvest and or infrastructure facilities which all add value to agricultural products versus mere production which generates raw agricultural materials. In effect, DBP looks into the whole value chain from production to consumption.
In addition, DBP considers the nature of each unique agricultural project, including the business plan, the cash conversion cycle, through its operations, backward and forward linkages when granting loans.
Finally, DBP is willing to fund novel agricultural projects for as long as it is viable and sustainable. One example is funding the integrated farm development of a business that developed the first tropical Philippine peking duck variety in the country.
How does the Bank attract customers to use this program over other government programs?
The bank employs several means to promote the use of SAFP to complement other government programs including the following:
• Partnering and or collaborating with other relevant stakeholders in the agricultural sector including both the public and private sector. Government agencies include the Department of Agriculture, Department of Agrarian Reform, Department of Environment and Natural Resources, and DTI; integrators like San Miguel Foods, Inc., Bounty Fresh Food, Inc., Charoen Pokphand Foods Philippines Corp., Cargill Philippines, Inc., and others; and agricultural supplies, etc. in reaching out to farmer’s and fisher folk groups.
• Targeting specific value-adding networking and marketing events in agriculture including investment fora, technical working groups, senate and house hearings and public consultations, among others, wherever these may be.
• Promptly replying to both email and phone queries on agricultural projects.
SAFP seems motivated by the eligibility of the projects that borrowers apply to the program, while commercial, thrift, rural, and cooperative banks were qualified borrowers. In that case, how do these banks apply for the program?
SAFP can be accessed through DBP’s wholesale lending operations by different banks following the standard bank policy, processes, and practice for wholesale lending.
Wholesale borrowers were qualified to apply for the program given at least a year of profitable operation. Can you describe how the bank perceive or handle the risk?
The Bank can lend to wholesale institutional borrowers with at least three year track record of profitable operations. The participating financial institution (FI) should also have a good credit risk management system. FIs will also have to undergo an accreditation process for them to access the funds of the bank for their on-lending operations.
How was the repayment for rate for the program?
As of September 2018, collection efficiency is around 80%.
Were there rewards or incentives for good payers?
If the borrowers pay on time, it improves their credit risk ratin. A good credit rating will translate to lower interest rate.
What was the motivation of DBP in offering the SAFP sub-programs targeted for select industries (such as SAFP-DAIRY and BCGP)?
As the country’s premiere development policy bank, DBP supports the national agenda. One of the important programs that we supported was the improvement of the country’s dairy industry. Hence, we signed a Memorandum on Agreement with the National Dairy Authority (NDA) to craft a program for the local dairy industry, which resulted in the creation of SAFP-Dairy. Moreover, DBP supports the vision of NDA to provide a good quality of life for dairy farmers and ensure safe and quality milk and milk products to consumers by 2020. This, in turn, will hopefully contribute to building a nation of healthier children, wealthier dairy farmers while expanding agribusiness expansion, and creating more jobs in agriculture.
How would SAFP contribute to Agri-Agra law to improve the status of farm production in the country?
SAFP is DBP’s generic lending program for agriculture. The program allows us to lend to the whole value chain of an agricultural project including production, harvesting, post-harvest processing, and marketing-related activities for crops; livestock and poultry; fisheries and aquaculture projects. All loans extended for agricultural projects under SAFP can form part of the Bank’s compliance with the Agri-Agra law.
DBP has recently partnered with Lendr to increase your presence in credit assistance. Which programs were offered through this partnership? Do you have plans to add more programs through this channel, particularly your programs for agripreneurs?
One of DBP’s newest lending programs, the Small Business Puhunan Loan Program (SBPLP) will be marketed under FINTQnologies’ online platform, Lendr. The SBPLP requires fewer documentary requirements, and significantly faster turn-around time for loan processing. It covers the financing of permanent working capital up to a maximum of P1 million, which is payable up to two years.
One of our pilot sub-programs under the SBPLP is the Cignal Dealer’s Financing Program, which aims to finance the short and long-term inventory requirements of top Cignal dealers.
DBP hopes to see [that] through the partnership with Lendr, we can significantly contribute to the Bank’s MSME portfolio. DBP may opt to offer more programs under Lendr as it grows the MSME portfolio under such platform.
How do you see the bank’s involvement in agri-business ventures in shaping the economic development in the agricultural sector?
In the short term, DBP desires to showcase to other banks that under the right conditions, the agricultural sector is worth supporting for a variety of reasons. We believe in helping the sector to increase agricultural productivity as a means to achieve food security and self-sufficiency, eradicate extreme poverty and hunger, and improve the sector’s competitiveness compared to other countries while preserving the environment and promoting innovation. Achieving all these lofty goals will ultimately benefit DBP by keeping the Bank relevant and viable while contributing to the socio-economic agenda of the government and the Sustainable Development Goals.
One good example of this is the BCGP, a SAFP sub-program which supports large-scale tunnel ventilated poultry projects. These projects ultimately produce chicken meat, which is still the cheapest source of meat in the country. These projects take advantage of economies of scale, automation, and climate control technologies for better cash conversion cycles. One can grow and harvest broiler chickens in about 28 to 32 days.
These projects provide employment too, and oftentimes also offer CSR (Corporate Social Responsibility) programs to local communities, including scholarships and alternative livelihood opportunities, among others.
Finally, facilities built under this program are durable and build to last since they were designed to withstand wind speed of up to 250 kilometers-per-hour. There is also little waste since manure is easy to consolidate and sell to farmers and fertilizer producers.
In line with the Bank’s Vision 2040 to be catalyst for a progressive and prosperous Philippines, in the long-term, DBP would like the Philippines to be an agricultural powerhouse like our neighboring Asian countries. If increasingly more banks prudently support good agricultural projects then everyone will ultimately benefit — the agripreneurs, the banking system, the private and government sectors, and the Filipino people in general.

BIR studying ‘workaround’ to health insurance tax issue

November 28, 2018 | 12:03 am

THE BUREAU of Internal Revenue (BIR) said it is reviewing the taxability of health insurance premiums, with a decision possibly released within the week.
Deputy Commissioner Marissa O. Cabreros said that the BIR was reviewing the measure even before it was raised by Senator Juan Edgardo M. Angara on Sunday.
“There’s a workaround to be done, (which is) to issue a clarification. I can not discuss it right now, but within the week we’ll come out with something to clarify the issue for the taxpayers, since they are affected,” she told reporters in a chance interview on Tuesday.
“We will issue a statement,” she added.
The concern stemmed from BIR Revenue Memorandum Circular 50-2018 BIR containing frequently asked questions on the implementation of income and withholding tax provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) law. It states that premiums paid by employers to health maintenance organizations (HMO) are included in the P90,000 tax-exempt threshold of bonuses together with the 13^th month pay.
Total bonuses exceeding the threshold will be taxed a 35% fringe benefits tax, which was increased from 32% before the TRAIN law was implemented.
Mr. Angara said that the BIR violates a 1998 Revenue Regulation stating that health card premiums are not taxable, and should not be included in the computation of gross bonuses to be subject to the tax-exempt threshold.
“Many are asking about that. But even before it was raised, we were studying it,” Ms. Cabreros said. — Elijah Joseph C. Tubayan

Senate resolution seeks stiffer money-laundering rules for casinos

November 28, 2018 | 12:02 am

SENATOR Leila M. de Lima has filed a resolution seeking to reexamine casino and online gaming regulations to safeguard against the use of gaming companies as fronts for money laundering or fraud.
Senate Resolution No. 953 urged the Senate committee on games and amusement, chaired by Senator Panfilo M. Lacson, to review the regulation of the industry.
Ms. De Lima warned that current policy on monitoring the casino resorts and online gamine sites may make the country susceptible to money laundering, fraud, and other illegal activities.
The senator cited a bribery scandal involving Bureau of Immigration (BI) officials last year as well as the number of Chinese gambling companies and Chinese gamblers in the country.
She said the Philippine Amusement and Gaming Corp. (PAGCOR) has authorized the operation of 57 foreign gaming companies, also referred to as Philippine Offshore Gaming Operators (POGOs).
Ms. De Lima said the Senate needed to review the effects of the Philippine gambling industry “from multiple perspectives” to help make policy towards the industry more comprehensive.
She also expressed concerns that dealers, including Filipino women, may be placed at even more risk of sexual harassment and exploitation by online gaming.
She also noted the rise in rents which is crowding out Filipino residents because a number of Chinese workers are taking up residency near POGO offices.
“Apart from its purported positive economic impacts, there are nevertheless lingering questions regarding the social costs of the influx and proliferation of integrated casino entertainment resorts and POGOs within the country,” she said.
“A comprehensive policy that seeks to address these issues should be of utmost importance if this industry is to truly benefit the Filipino people,” she added. — Camille A. Aguinaldo

Grab expands taxi services to Subic

November 28, 2018 | 12:02 am

GRAB Philippines (MyTaxi.PH, Inc.) said on Tuesday it has started offering its GrabTaxi services at the Subic Bay Freeport Zone, the 12^th city in the Philippines where it operates.
In a statement, the ride-hailing firm said 120 taxi drivers in Subic are already registered with Grab.
“With GrabTaxi now in place, locals and tourists will now have a more convenient, safer, and faster way of commuting,” Grab Philippines country head Brian P. Cu said in the statement.
Aside from Subic, Grab is also present in Manila, Cebu, Davao, Pampanga, Cagayan de Oro, Bacolod, Baguio, Bataan, Naga, Iloilo and Tacloban.
Subic Bay Metropolitan Authority (SBMA) chairman and administrator Wilma T. Eisma said having Grab’s services in the city will help improve connectivity for the thousands of employees in the area.
“GrabTaxi can make a difference in the lives of locals and tourists in Subic,” she was quoted as saying. — Denise A. Valdez

Financial markets outlook mixed for the rest of 2018

November 28, 2018 | 12:02 am

By Christine Joyce S. Castañeda, Senior Researcher
THE weaker-than-expected economic growth, coupled with persisting domestic inflation concerns and geopolitical tensions continue to send local financial markets on a spin in the July-September period, with local and foreign headwinds providing a mixed outlook on financial markets moving forward.
In the third quarter, the peso averaged P53.54:$1, depreciating 2.1% from the previous quarter’s average of P52.43:$1, Bangko Sentral ng Pilipinas (BSP) data showed. Year on year, the peso depreciated against the greenback by 5.1% from the P50.84:$1 average in the same period last year.
The period also saw the peso breaching to as low as P54.33 per dollar last Sept.26 — the weakest in nearly 13 years since it closed at P54.43 on Nov. 22, 2005.
Meanwhile, in the secondary bond market, yields on the 91-day Treasury bills and 10-year bonds were up by 40.23 basis points (bps) and 81.31 bps, respectively, during the quarter, according to data from the Philippine Dealing & Exchange Corp.
For equities, the Philippine Stock Exchange index (PSEi) closed the July-September period at 7,276.82, up by a mere 1.2%, which is a reversal from the previous quarter’s 9.9% loss. Year to date, the PSEi was down by 16.6%.
The BSP cited external and local factors that affected the financial markets in the third quarter.
“On the external front, uncertainty over the pace, timing and magnitude of the US Fed’s path to normalization have affected emerging markets including the Philippines,” BSP said in an e-mail to BusinessWorld.
According to the central bank, these factors resulted in capital flows, currency depreciations and inflationary pressures.
The BSP also added that the “increasing threats of inward-looking or protectionist policies (specifically, US policies towards China) as well as geopolitical risks” affected emerging markets, including the Philippines, last quarter.
“On the domestic front, rising inflationary pressures amid a booming economy, increase in excise tax and global oil price hikes were likewise seen as significant contributors to market sentiment during the quarter,” the BSP said, adding that adverse weather conditions affected inflation expectations and market sentiments last quarter.
For his part, Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK), classified the factors that affected the performance of local financial markets last quarter into three main areas: domestic growth, geopolitics, and monetary policy.
Mr. Dumalagan noted that at the start of the third quarter, market players were positive that the economy will accelerate this year, brought by the administration’s “Build, Build, Build” program. However, concerns over domestic inflation “intensified,” resulting in weaker-than-expected economic growth and downward revisions in growth prospects.
“Likewise, geopolitics also influenced market movements in the third quarter. Majority of these conflicts were US-related, such as the conflict between Turkey and the US about the release of a detained Evangelical Christian pastor,” the economist said, referring to the spat between Washington and Ankara over an American pastor accused of participating in a failed coup two years ago, the Syrian civil war, and other diplomatic issues.
The economist also cited the US-China trade talks which caused “massive global volatility” and caused fears of a global growth slowdown. Monetary policy was also attributed as a “top market-mover.”
During the quarter, the BSP raised policy rates by 100 bps — with an increase of 50-bps apiece in its August and September meetings. The central bank again raised rates for the fifth consecutive time this year last Nov. 15 by a softer 25 bps. For the year, rates increased by 175 bps.
Aside from the BSP, the US Federal Reserve also raised its policy rates by 25 bps in its September meeting, leaving intact plans to gradually tighten policy there.
For Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (UnionBank), the factors that weighed in on local financial markets in the third quarter were “rising domestic inflation and inflation expectations, peso depreciation, the BSP rate hike, ‘faster-than-expected’ monetary normalization in advanced economies, and geopolitical tensions abroad.”
Meanwhile, Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), added the wider local budget deficit as one of the major catalysts last quarter.
Data from the Philippine Statistics Authority (PSA) showed that the economy grew to its slowest pace in three years last quarter due to tempered household spending. Gross domestic product (GDP) grew by 6.1% year on year, slower than the previous quarter’s revised 6.2% and the 7.2% recorded in the same period in 2017.
GDP growth averaged 6.3% in the first three quarters, slower compared to the 6.8% posted in the same period in 2017, and is below the government’s downward-adjusted 6.5-6.9% target range for 2018.
Meanwhile, inflation for the July-September period averaged 6.3%, faster than the previous quarter’s 4.8% and the 2.7% in 2017’s comparable period.
On the other hand, the government’s fiscal deficit widened to P378.2 billion in the first nine months of the year, Bureau of the Treasury data showed. This was 78% higher than the P213.1 billion shortfall in 2017’s comparable period.
GDP AND INFLATION OUTLOOK
Analysts believe it would not be easy to reach the government’s growth target this year. To reach the lower end of the government’s target, the economy needs to expand by at least 7% in the final quarter of the year.
ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa said growth will “likely fall short” despite the administration’s rapid spending.
“[C]onsumption may provide less of a punch after consumers wilt under the double whammy of inflation and elevated borrowing costs,” Mr. Mapa added. “The export sector’s anemic performance despite supposed gain in competitiveness from a weaker currency will also keep a lid on our growth outlook.”
Meanwhile, RCBC’s Mr. Ricafort expects growth to be at 6.5%-6.7% this quarter saying that the chance of meeting this year’s goal is low due to the elevated inflation and local interest rates which could slow down economic growth.
For his part, UnionBank’s Mr. Asuncion said growth could be at 6.6% this quarter. The chief economist also showed concerns that the target may not be hit due to higher-than-expected inflation, weakening currency and rising global oil prices.
“Moreover, delays in the massive infrastructure projects will not push the growth of the country,” Mr. Asuncion added.
Meanwhile, for LANDBANK’s Mr. Dumalagan, with expectations of slower increase in the price of widely-used goods in the remaining months of the year, consumer spending might accelerate and an improvement in capital formation may also be seen. He expects GDP to grow by at least 6.3% in the last quarter of 2018.
Asked about the factors that might affect economic performance this quarter and next year, the BSP cited the “stagnant output in agriculture; natural hazards (e.g. typhoons); high inflation and second-round effects; delays in the implementation of inflation-related mitigating measures, infrastructure and reconstruction projects, and delay in legislation of priority bills; legislation of restrictive employment protection; policy uncertainty in mining and; security risks.”
As for the external factors, the central bank said the “slower global growth, escalation of trade tensions, policy normalization in advanced economies, contagion risks from selected emerging economies, increase in global oil prices and build-up of financial sector risks and excessive credit growth” could impact the country’s performance.
For inflation, the BSP adjusted its 2018 full-year inflation forecast to 5.3% from 5.2% previously due to the increase in transport fares. By next year, inflation is seen to settle at 3.5% from 4.3%. For 2020, BSP expects prices to rise by 3.3% from 3.2%.
“[T]he forecast for 2019 was lower due mainly to the impact of the suspension of the excise tax on oil, impact of rice tariffication, decline in global crude oil prices and the monetary adjustment by the BSP, which resulted in a stronger peso and slower domestic liquidity growth,” the BSP said.
Below are the outlooks for each of the key markets:
EQUITIES MARKET
BSP: “Investors’ bullish outlook over the country’s economic growth and corporate earnings following the enactment of the TRAIN law in December 2017 and anticipation of higher government infrastructure spending due to the “Build, Build, Build” program is expected to provide further support to the main index. Furthermore, the planned integration of the fixed income exchange and equities market, a step to make domestic capital market more efficient and cost effective, is expected to make domestic financial markets more robust and more attractive to both foreign and local investors throughout the rest of 2018.”
UnionBank’s Mr. Asuncion: “A recovery in equities market is expected when inflation starts to ease. The market will be advanced by the strong earnings of domestic companies and the strength of US and Chinese corporations.”
LANDBANK’s Mr. Dumalagan: “Local stocks may bounce back in the fourth quarter, as investors’ risk appetite might improve following the rebound in domestic growth and the deceleration in local inflation. Rate hike concerns, however, may limit potential gains.”
ING’s Mr. Mapa: “[P]ositive as growth still seen above 6% and inflation slowing”
RCBC’s Mr. Ricafort: “PSEi could seasonally rise towards the end of 2018 (accounting year-end when there could be some window-dressing activities) and some bargain-hunting after recently trading near two-year lows, partly inspired by prospects of easing inflationary pressures that could fundamentally improve corporate earnings, valuations, and overall economic growth.”
FIXED-INCOME MARKET
BSP: “The Philippine government is expected to continue to source its borrowings from the local sector at about 80%, while the remaining 20% will be from external sources. This allows the government to take advantage of the liquidity in the Philippine financial markets and at the same time reduce the exposure to the risk of foreign interest rate movements.
With regard to bond yields, the Development Budget Coordination Committee (DBCC) maintained its 364-day T-bill rate assumptions at 2.5% to 4.0% in 2018. It also maintained the foreign interest rate assumptions as indicated by the six-month London Interbank Offered Rate (LIBOR) at 1.5% to 2.5% for the same period. In terms of credit spreads, volatility will be sensitive to domestic and external developments in the short term.”
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.”
Mr. Dumalagan: “Domestic yields are expected to show some downward correction amid easing local price pressures and safe-haven buying amid lingering concerns about global trade. The drop in yields, however, might be short-lived due to the rate hikes of the BSP and the US Federal Reserve.”
Mr. Mapa: “May see yields move lower and inflation seen to taper off.”
Mr. Ricafort: “Local interest rates could continue to ease, after sharply rising to near-decade highs in the third week of October 2018, amid easing inflationary pressures (lower prices of food/rice amid increased importation, harvest season, and other non-monetary measures to increase supply and lower food/rice prices; lower oil/petroleum prices with huge rollbacks as global oil prices sharply declined in [the fourth quarter of] 2018 to near eight-month lows; stronger peso exchange rate among the best in three months in view of the seasonal increase in the conversion of OFW remittances for Christmas-related spending and tuition payments for [the fourth quarter of] 2018.
Most local interest rates have already eased by about -0.50 from their highs posted in the third week of October 2018 and still up by near +300 basis points since the start of 2018 and still up by about +500 basis points from the lows two years ago.
Proposed tariffication of rice imports and planned suspension of further hike on fuel/petroleum excise taxes scheduled in January 2019 (under the TRAIN Law) could help ease inflation, especially in 2019.”
FOREIGN EXCHANGE MARKET
BSP: “In the midst of challenging developments in the external sector (trade and capital flows) and the global market uncertainty (e.g., trade policy uncertainty, Brexit negotiations, geopolitical developments, and normalization in the US and other advanced economies), financial markets in Q4 2018 are expected to be broadly stable. In the foreign exchange (FX) market, the BSP continues to adhere to a market-determined FX rate policy wherein the value of the exchange rate and relative value of the peso is determined by the supply and demand of FX in the market. The BSP ensures there is orderly price discovery in the foreign exchange market. When warranted, the BSP stands ready to provide liquidity and ensure that legitimate demands for foreign currency are satisfied.”
Mr. Asuncion: “The peso is expected to start stabilizing due to surging remittance, although depreciation may still persist due to widening trade deficit, more capital investments and the massive infrastructure development program of the Duterte administration.”
Mr. Dumalagan: “The peso might move sideways against the dollar in the remaining months of the year, as improving local conditions may somewhat soften the impact of global trade concerns and the steady rate hike of the US Federal Reserve. Positive local developments may come in the form of easing price pressures, stronger fourth-quarter GDP growth, and more competitive interest rates on account of the BSP’s aggressive rate adjustments this year.”
Mr. Mapa: “[S]een to benefit from both structural flows (remittances and BPO) in tandem with capital flows (FDI, ROP issuance) but external environment will be the wild card”
Mr. Ricafort: “The widely expected seasonal increase in the conversion of OFW remittances to pesos in [the fourth quarter] for Christmas-related spending and some tuition payments could still lead to seasonal gains in the peso as well into the Christmas season.”
“Other emerging market currencies have corrected/strengthened vs. the US dollar recently after some weakness in the earlier part of 2018. This could also support similar gains in the peso.”

RCBC merger with thrift arm to be completed by July 2019

November 28, 2018 | 12:02 am

RIZAL COMMERCIAL Banking Corp. (RCBC) expects to absorb the operations of its thrift arm by the second half of 2019, which will provide the lender a bigger retail base while reducing operating costs.
In a plan of merger posted on the local bourse on Tuesday, the Yuchengco-led RCBC said its merger with RCBC Savings Bank (RSB) shall become effective on July 1, 2019, with the former assuming all assets and liabilities of the latter.
After the effective date, “RSB shall cease to exist and its legal personality shall be terminated,” with RCBC as the surviving company.
“Any net income earned by RSB from 1 January 2019 until the Effective Date shall be declared and paid as dividends to RCBC and any net loss incurred by RSB during the same period shall be absorbed and for the account of RCBC,” it said in a statement.
The plan of merger shall be subject to the approval of the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp., as well as the Bureau of Internal Revenue.
In September, the universal bank announced it will absorb RSB for “more efficient capital deployment” and “operational cost efficiencies.” In particular, RCBC said consolidating the two entities would mean “more efficient compliance with the Basel 3 liquidity ratios” set by the central bank.
The thrift bank is wholly owned by RCBC, with paid-up capital worth P3.19 billion.
In a separate disclosure, RCBC said it will hold a special stockholders meeting on Feb. 6, 2019 for the approval of the merger and the terms and conditions stipulated in the plan of merger.
The consolidation comes ahead of higher capital and liquidity requirements in line with global standards imposed on big banks which will take effect in January 2019.
RCBC posted a P3.2-billion net profit in the first nine months, down 5.9% from a year earlier. The country’s 10th biggest bank runs 509 branches and 1,593 automated teller machines nationwide as of end-September.
On the other hand, RCBC Savings is the third-biggest thrift lender with at least 154 branches and lending centers.
Shares in RCBC rose 1.77% to P25.70 apiece in Tuesday trading. — Karl Angelo N. Vidal

Hamilton’s Christine Allado, PPO headline Pen’s 35th holiday concert

November 28, 2018 | 12:02 am

FOR THE 35^th anniversary of its annual Christmas concert, The Peninsula Manila will be featuring Hamilton star Christine Allado, the Philippine Philharmonic Orchestra (PPO), and the UST Singers, among several other performers.
The concert will be held on Dec. 9, 5 p.m., at The Lobby.
The PPO will perform with guest conductor Ruggero Barbieri. The 2018 line-up stars Ms. Allado who has guest starred as Andrea Bocelli’s pop artist in his Cinema World Tour in Europe and Asia and is currently in HAMILTON: An American Musical in London’s West End; opera singers soprano Rachelle Gerodias (who is also Aliw Hall of Fame for Best Female Classical Performer) and tenor Arman Ferrer (an Aliw Awards nominee for 2017 Best Male Actor in a Musical for Binondo: A Tsinoy Musical).
Also performing is the University of Santo Tomas Singers, the only two-time winner of the Luciano Pavarotti Choir of the World trophy prize (1995 and 2010) at the Llangollen International Musical Eisteddfodd in Wales, United Kingdom.

Other guest artists are Benjamin Angeles who will perform the Marimba Rhapsodic Fantasie and the Pundaquit Virtuosi, a string orchestra established by Coke Bolipata that is composed of children of fisherfolk and farmers from San Antonio, Zambales.
“Our holiday musical program offers an opportunity for the public to enjoy music of the festive season by some of the world’s greatest composers like Vivaldi, Beethoven, Gounod, Rossini, Verdi, Bizet, and Tchaikovsky,” says The Peninsula Manila General Manager Mark J. Choon.
Freddie Santos directs the concert.
There will be a P2,200 consumable fee (inclusive of taxes) with selections from a festive season merienda menu. Table reservations for parties of 10 at The Lobby are also accepted at P30,000 (inclusive of taxes) that comes with a set festive merienda menu for 10 and two bottles of Moët & Chandon Champagne. Booking dates are until Dec. 8.
Concert proceeds raised will be partially donated to the continuing efforts of the Hope for the Philippines fund that benefits the educational and livelihood projects of the families living in The Peninsula — Gawad Kalinga (GK) Village in Tanauan, Leyte.
For inquiries call 887-2888, extension 7410, e-mail diningpmn@peninsula.com, or visit the website peninsula.com.

BSP updates rules on client identification, dirty money

November 28, 2018 | 12:01 am

THE BANGKO SENTRAL ng Pilipinas (BSP) has updated its rules for validating client identity by accepting the national ID and the use of technology for verification.
Circular 1022 issued by BSP Governor Nestor A. Espenilla, Jr. likewise tightens rules to improve guards versus dirty money deals.
The 17-page issuance now puts in the manual of banks the recognition of the Philippine Identification System (PhilSys) ID card as an official document for financial transactions. This is on top of documents issued by other government agencies and school ID for students.
The PhilSys will assign a unique 12-digit number to Filipinos and resident aliens to serve as their digital identity across multiple platforms, while the ID is expected to replace most of the government-issued cards to simplify access to public and financial services.
The central bank has also included a person’s PhilSys number as part of the minimum information to be collected by financial players before carrying out a transaction, alongside one’s name, date and place of birth, address, contact number, nationality, and specimen signature or biometric for individual users.
To add, the BSP also included the use of information and communication technology (ICT) to “capture and record” personal data of customers, on top of the traditional modes of collection via photocopying or scanning of documents as well as the manual recording of information.
“The use of ICT in the conduct of face-to-face contact and/or interview may be allowed: Provided, that the covered person has measures in place to mitigate the ML/TF (money laundering/terrorist financing) risks and that the entire procedure is documented,” the central bank said.
Prior to this, the BSP required banks be “in possession of” identification papers from a prospective client.
The central bank previously approved the use of electronic know-your-customer procedures that allow banks and financial players to use online channels like video calls and geocoding to verify a client’s identity. This is expected to ease the burden on customers by making it more convenient to get bank accounts and transact.
The circular also requires a more comprehensive strategy for financial firms to combat dirty money. The central bank prescribed lenders to have a “group-level” Money Laundering and Terrorist Financing Prevention Program, which should be under the watch of senior management.
On a broader scale, the new rules also require players to comply with relevant resolutions made by the United Nations Security Council in conducting due diligence among customers, especially on the “prevention, suppression and disruption” of the use of weapons of mass destruction and its financing.
These changes come just as the Philippines is going through its third mutual evaluation carried out by the Asia Pacific Group on Money Laundering, and inter-governmental body which assesses whether safeguards installed by governments are sufficient to combat illicit money flows.
Last week, President Rodrigo R. Duterte issued Executive Order 68 forming a multi-agency coordinating body that will enforce the National Anti-Money Laundering and Countering the Financing of Terrorism Strategy 2018-2022. — Melissa Luz T. Lopez

Airlines move flights to New Panglao airport

November 28, 2018 | 12:01 am

LOCAL airlines on Tuesday are moving flights to the new Bohol (Panglao) International Airport following the closure of the Tagbilaran Airport, which used to be the main gateway to the Bohol island.
Following the inauguration of the new airport on Tuesday, the Civil Aviation Authority of the Philippines (CAAP) said in a notice to air men it is shutting down the Tagbilaran Airport and moving all official flight operations to Panglao starting Wednesday (Nov. 28) at 6 a.m.
AirAsia Philippines landed its first flight using the Airbus A320 at the new airport yesterday, when it sent CAAP officials to the inaugural event.
Philippine Airlines (PAL) and Cebu Pacific said in separate statements yesterday they will start operations at the Panglao Airport today.
PAL said it will give passengers a three-week transition period to adjust to the Panglao Airport — which is 40 minutes away from the old one — and will keep its ticketing office at the Tagbilaran Airport open until Dec. 15.
Cebu Pacific said it flies three times daily to and from Manila and Tagbilaran. Its subsidiary Cebgo flies once a day from Tagbilaran to and from Cagayan de Oro and Davao.
By Dec. 15, Cebu Pacific said it will start daily flights between Clark and Tagbilaran.
The new Panglao Airport was designed to handle 2 million passengers every year. It stands on a 220-hectare land, 10 times the lot size of the Tagbilaran Airport which occupies a 22-hectare area. — Denise A. Valdez

Bank stocks back on the menu after 3Q selloff

November 28, 2018 | 12:01 am

By Mark T. Amoguis, Researcher
WITH THE LOCAL stock market showing signs of recovery, investors may consider bank stocks as banks gradually reprice their loan portfolios following the successive interest rate hikes from the central bank.
The barometer Philippine Stock Exchange index (PSEi) gained 1.2% in the third quarter, a reversal from the 9.9% decline posted in the second quarter albeit slower than last year’s 4.2%.
On the other hand, the financials sub-index — which included the banks — continue to drop by 8.9% in the July-September versus the 1.2% growth notched in the third quarter last year. This was, however, slower than the 14.9% slump recorded in the previous quarter.
As of end-September, the sub-index slipped by 27.7% compared to the 18.4% growth recorded in the same nine months last year.
This gloomy downtrend was reflected the listed banks’ share prices during the July-September period with only two of the 14 listed banks registering quarter-on-quarter gains: Philippine Trust Co. (ticker symbol: PTC, 4.2%) and Philippine Bank of Communications (PBC, 2.3%).
Union Bank of the Philippines (UBP) saw the biggest drop in share price during the third quarter at 23.4%, followed by Security Bank Corp. (SECB, -23.0%), China Banking Corp. (CHIB, -14.1%), Philippine National Bank (PNB, -10.8%), and East West Banking Corp. (EW, -10.6%).
Rizal Commercial Banking Corp. likewise shed its share price by 9.6% as well as Metropolitan Bank & Trust Co. (MBT, -8.7%), Bank of the Philippine Islands (BPI, -5.9%), BDO Unibank, Inc. (BDO, -4.5%), Philippine Business Bank (PBB, -3.4%), Philippine Savings Bank (PSB, -3.0%), and Asia United Bank (AUB, -0.5%).
While the banks’ stock prices tumbled for the quarter, they managed to eke out earnings during that time.
Universal and commercial banks booked a cumulative P116.07-billion net income as of September. This was 9.2% higher than the P106.26 billion recorded in the same nine months of 2017, data from the BSP showed.
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 3.15% in the third quarter from 3.11% in the second quarter and 3.06% in the same three months to September last year.
Higher interest rate environment that pushed banks’ funding costs was the main culprit for the quarter’s disappointing performance among bank stocks.
The Bangko Sentral ng Pilipinas (BSP) decided to tighten its policy rates to rein in inflation expectations early this year. The BSP’s Monetary Board hiked its rates by 25 basis points (bps) each in May and June followed by a back-to-back 50-bps increases in August and September. It then fired off a softer 25-bps increase in November. Benchmark rates now range between 4.25% and 5.25% starting Nov. 16.
“Investors dumped banks stocks for the most part in Q3 due to fears that higher market interest rates would be detrimental for banks’ margins, as most expected that funding costs would rise faster than the repricing in loans,” said Zoren Philip A. Musngi, research analyst at Mandarin Securities Corp.
“Most were also disappointed by the quarterly earnings, as banks saw lower trading gains due to the difficult economic and market environment,” he added.
“In general, higher interest rates caused the banks’ funding costs to increase. Likewise, this also caused most banks to book poor trading performance,” said John Martin L. Luciano, senior research analyst at COL Financial Group, Inc.
Rachelle C. Cruz, research analyst at AP Securities, Inc., shared the same view: “In Q3, improvement in lending yields and sustained loan demand are the positive factors, while lower trading gains and fee-based income due to languid performance of the capital markets as well as impact of higher policy rates resulted to decline in income from non-core business.”
Still, analysts remained bullish on the banking sector, believing that a recovery will be seen by next year on the back of gradual loans repricing due to soaring interest rates.
“Our long-term outlook for the banking sector continues to remain positive,” COL’s Mr. Luciano said, but added that the banking sector’s performance in the near term may be weighed down by continued policy rate tightening.
“Higher policy rate and tighter liquidity in the system will cause banks to raise deposit rates to attract funding, increasing the funding costs of most banks. Likewise, the higher interest rates will drag the trading performance of banks. Nevertheless, these risks should be tempered as loans gradually reprice,” he said.
For her part, AP Securities’ Ms. Cruz saw recovery in earnings per share towards next year.
“This is as we expect loan demand to still settle at the low- to mid-teens growth, while lending rates is expected to trend up as banks gradually reprice their loans,” she said.
“The negatives on trading portfolio were already recognized this year — thus, we see more sustainable earnings growth from banks next year as core lending business will be driving the recovery.”
RCBC Securities, Inc. Research Head Raul P. Ruiz was “overweight” on the banking sector.
“Profit growth is expected to accelerate for most banks because NIMs have been rising sequentially quarter-on-quarter. We expect this to continue until next year as the BSP has guided on further rate hikes. Consumer loans will accelerate as some banks resume lending to public school teachers and car purchases pick up after slowdown this year,” he said.
Justino B. Calaycay, Jr., research and engagement head at Philstocks Financial, Inc., was also bullish on bank stocks, especially on the so-called big three and those which are well-positioned to expand in this “elite group.”
“Government’s continued push for its projects and the easing of inflation concerns, and hopefully, more stability in domestic rates, should allow banks to operate in a lending/borrowing conducive environment,” he said.
Emeterio “Jojo” D. Gonzales III, president, managing director, and head of research at Philippine Equity Partners, Inc., was also optimistic: “We think the drag on earnings would be largely confined to 2018.”
BANKS: THE GOOD AND THE BAD
Despite being bullish on the sector, analysts noted the different performances among banks during the quarter.
“Negative standout was SECB that posted single-digit loan growth in 3Q of just 8%,” said Arabelle C. Maghirang, deputy research head at Papa Securities Corp.
“SECB was the most challenged by negative factors among our covered banks, with much of the weakness coming from higher funding costs, absence of trading gains, and increase in effective tax rate,” AP Securities’ Ms. Cruz said.
AP Securities’ Ms. Cruz saw some “green shoots” on BDO and BPI as net interest income grew strongly on the back of higher asset yields, with their respective current account and savings account ratios protecting NIMs.
She said that the growth of Ty-led MBT, whose net income attributable to the parent company surged by 55.5% in the third quarter, was due to a “low base” in the same period last year following a big jump in provisions.
“Otherwise, (MBT’s) earnings were just in line with our estimates,” Ms. Cruz said.
Meanwhile, Mandarin Securities’ Mr. Musngi said that smaller banks such as EW, UBP, and SECB were the ones that saw sizable declines in their performance due to weaker-than-expected earnings, affected by their higher exposures in teachers’ salary loans, difficult trading environment, and reliance on high-cost deposits.
He said despite being a big bank, SECB “saw a large drop in their stock due to the significant miss in earnings, which was driven by their outlook for lower net interest margins.”
“This was caused by the bank having a relatively weak deposit franchise, considering they have just recently ventured into the consumer business,” he said.
Papa Securities’ Ms. Maghirang said that positive standouts mainly were BDO, which was boosted by trading gains, and MBT, on the back of less provisioning costs.
For Mr. Ruiz of RCBC Securities, he said that one of the quarter’s best performer was PNB which reported its sharpest profit hike because of a P3-billion gain on the sale of real and other properties acquired.
On the other hand, he noted EW’s third-quarter net income, which fell 13% year on year, reflecting the suspension of salary loans to public school teachers in the first semester of the year, which reduced both its interest income and fee income.
OUTLOOK
Moving forward, analysts said that fourth-quarter earnings will provide additional boosts to the banks on the back of holiday spending as well as moderating interest rate hikes from the BSP.
“An expected upsurge in spending — including on credit — by both businesses as they beef up inventories for the holiday season, and for consumers as the cheer gets into higher gear should translate to increased activity for banks,” Philstocks’ Mr. Calaycay said, as this could help these institutions sustain the momentum of the first three quarters for “decent-to-impressive” results for the full year that could provide impetus to its share prices.
“We can see consumer lending and commercial lending as the drivers with fair contributions from trading and investments allowing for wider margins both at the top and bottom lines,” he said.
“I think overall investor sentiment and inflation expectations would play a large part in bank stock performance,” Mandarin Securities’ Mr. Musngi said.
“Bank stocks typically lead the market in a rally/rebound and in the scenario that [domestic] inflation shows convincing signs of slowing down. [I]t may prompt the BSP to tone down their rate hikes and pause their tightening,” he said.
“We anticipate banks with stronger/established deposit bases (such as BDO and BPI) to have an edge in this market environment, as they continue to post NIM improvements due to their asset-sensitive balance sheets.”
Mr. Luciano of COL Financial expects net interest income and fees to continue to drive earnings growth for banks toward the end of the year.
“I think 4Q would be more of the same…slowing loan growth, improved deposit growth, NIM expansion may be clearer as banks reprice loans in the wake of rising interest rates,” Philippine Equity Partners’ Mr. Gonzales said.
AP Securities’ Ms. Cruz expects the banking sector to post mid to high teens earnings-per-share growth in the final quarter led by the big three banks, which include BDO, MBT, and BPI.
“With the current interest rate environment, most of the growth is expected to come from the core lending business as banks take advantage of higher yields to increase their spread,” she said.
Papa Securities’ Ms. Maghirang was of the same view: “4Q earnings should be in line with consensus estimates, driven by core lending income and some potential boost from trading gains.”
She said that moderating interest rates could provide for trading gains in the quarter ending in December and further lift valuations.
“Potential cut in the BSP’s reserve requirement (now at 18%) could also raise stock prices,” Ms. Maghirang said.
RCBC Securities’ Mr. Ruiz said: “Investors will start to be more confident about earnings momentum of banks, which will be seen in quarterly net income results,” which will be buoyed by lending business primarily driven by small and medium enterprises and consumers.

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