Nestlé seals deal to market Starbucks coffee globally

August 29, 2018 | 12:04 am

ZURICH — Nespresso maker Nestlé on Tuesday said it has sealed a deal to market the products of US coffee giant Starbucks around the world, outside of its cafes.
Swiss food giant Nestlé, which also produces Nescafé instant coffee, had announced in May it would pay $7.15 billion (6.13 billion euros) for the rights to market Starbucks coffee globally.
Under the deal, some 500 Starbucks employees in the United States and Europe will join Nestlé, the Swiss company said in a statement.
“With Starbucks, Nescafé and Nespresso we bring together the world’s most iconic coffee brands,” Nestlé CEO Mark Schneider said.
“The outstanding collaboration between the two teams resulted in a swift completion of this agreement, which will pave the way to capture further growth opportunities,” he added.
According to the statement, the deal will significantly boost Nestlé’s portfolio in North America.
Bloomberg News said Nestlé has struggled in the US for years.
Under Schneider’s leadership, Nestlé has made coffee a key priority in its growth strategy, particularly in the US.
Since the CEO took over in January 2017, the group has bought a majority stake in California-based high-end brand Blue Bottle Coffee and acquired Texan brand Chameleon Cold Brew.
Starbucks CEO Kevin Johnson said his firm is also set for a major boost under the deal.
“Bringing together the world’s leading coffee retailer, the world’s largest food and beverage company, and the world’s largest and fast-growing installed base of at-home and single-serve coffee machines helps us amplify the Starbucks brand around the world while delivering long-term value creation for our shareholders,” Mr. Johnson said. — AFP

Three new prizes added to the Ateneo Art Awards 2018

August 29, 2018 | 12:03 am

THREE new awards were added to the roster of prizes given by The Ateneo Art Awards 2018, two for visual arts and one for the art criticism section.
The prizes were given during the annual recognition of visual art exhibits by young Filipino artists (Fernando Zobel Prizes for Visual Arts) and art critics (Purita Kalaw Ledesma Prizes in Art Criticism), on Sunday at the Ateneo de Manila’s Areté Art Gallery.
Mars Bugaoan’s Becoming received one of the new art awards — the People’s Choice award, which was tallied based on votes submitted by Areté museum goers.
Becoming, which was on view at Art Informal gallery, had the artist turn trash into art by reshaping and restructuring plastic bottles and bags into prints, sculptures, and installations.
Another new art award — the Purchase Prize — was bagged by Jel Suarez’ exhibit Traces By Which We Remember which was shown at West Gallery. The artist constructed collages using layers of textures and images — for the artist, the layering of frames or stacking stones is a form of remembering. Her artwork will be permanently displayed at the office of the Embassy of Italy in the Philippines, which initiated the Purchase Prize award.
Meanwhile, the three main prize winners for the Ateneo Art Awards-Fernando Zobel Prizes for Visual Arts were KoloWn’s Low Pressured Area, Johanna Helmuth’s Makeshift, and Ronson Culibrina’s Talim. The three have been awarded art residencies at La Trobe Art Institute in Australia, the Artesan Gallery + Studio in Singapore, and the Liverpool Hope University in United Kingdom, respectively.
The art group KoloWn’s Low Pressured Area was a site-specific art at the Cultural Center of the Philippines where installations critiqued how people view spaces and signs.
Culibrina’s Talim and Helmuth’s Makeshift — both of which were shown at the Blanc Gallery in Katipunan, Quezon City — were both reflections of the neighborhoods where the artists grew up and their perception of the world around them.
Talim was inspired by Talim Island in Laguna de Bay where industrial developments were juxtaposed with the lakeside environment. Makeshift was inspired from the artist’s neighborhood where pedicabs were not only a source of livelihood but also a makeshift home for the driver and his family at night.
The Ateneo Art Awards-Fernando Zobel Prizes for Visual Arts received 89 nominations from gallery, curators, artists, museum directors, and art educators, and this list was narrowed down to 12. The nominations are open to exhibits by artists under 36 years old.
Meanwhile, the Ateneo Art Awards-Purita Kalaw-Ledesma Prizes in Art Criticism also gave an additional prize to this year’s two winners. Besides writing for the Philippine Star and Art Asia Pacific magazine, the two winners will also contribute to the Embassy of Spain and Instituto Cervantes’ annual journal, Perro Berde, where pieces in English are translated into Spanish, and vice versa.
The two writer winners are Alec Madelene Abarro, who wrote the essay “An Organized Chaos: Navigating the Looban” about Rodel Tapaya’s Urban Labyrinth exhibit at the Ayala Museum; and Mary Jessel Duque, who wrote the essay “Pacita Abad: A Million Times a Woman” about the exhibit Pacita Abad: A Million of Things to Say which was on view at the Museum of Contemporary Art and Design.
Ms. Abarro will contribute to Philippine Star while Ms. Duque will write for Art Asia Pacific magazine.
Meanwhile the only essay written in Filipino which was submitted, “Sinehan sa isang museo: Karatula o Obra?” by Maria Lourdes Garcellano, received a special citation and was published in the Philippine Star’s Arts and Culture special edition.
Ada Mabilangan, daughter of Purita Kalaw-Ledesma, said during the ceremony that the award-giving body is “constantly trying to expand the scope” of the prize, including considering publications that print Filipino and other languages.
BusinessWorld previously reported about Ms. Garcellano’s work which was the very first essay in Filipino submitted for consideration by the Ateneo Art Awards-Purita Kalaw-Ledesma Prizes in Art Criticism. (A problem of language and art http://www.bworldonline.com/a-problem-of-language-and-art/)
The works of past and present winners and short listed writers can be read at the new blog site, “Vital Points: Essays from the Purita Kalaw Ledesma Prizes in Art Criticism.” — Nickky Faustine P. de Guzman

ISM Communications sells 30% of shares to Singapore fund

August 29, 2018 | 12:03 am

ISM Communications, Inc. is selling around 30% of its shares to a Singapore-based fund management firm for P1.22 billion, a few weeks after it sold a controlling stake in the company to businessman Dennis A. Uy.
In a disclosure to the stock exchange on Tuesday, ISM said its executive committee has approved Accion Common Development Fund SPC’s purchase of 841.95 million treasury shares in the company at P1.45 apiece. This represents 30.07% of the company’s resulting outstanding capital.
The company said a fourth of the acquisition price will be paid upon purchase. ISM’s executive committee mandated that the sale and purchase documents be executed no later than the end of September. The remaining 75% will be paid by the end of the year.
ISM described Accion as a special purpose company owned, controlled, and managed by Accion Management Pte. Ltd. The Accion group invests mostly in growth, mature, or near mature companies in several industries such as technology, health care, natural resources-related services, infrastructure, education, logistics, hospitality and lifestyle, and consumer-related.
The group’s portfolio includes companies based in Indonesia, China, Australia, Malaysia, and Singapore.
Earlier this month, Mr. Uy also acquired 883.73 million unissued common shares of ISM at P1.45 each, equivalent to 45.13% of the company’s outstanding total stock. The acquisition was valued at P1.28 billion.
In an earlier disclosure, ISM said the proceeds of the share issuances will be used to finance investment opportunities currently being pursued by the company.
Incorporated in 1925 as a mining company under the name Itogon-Suyoc Mines, Inc., ISM transformed itself into a company engaged in information technology, multimedia communications, and other similar industries in the early 2000s.
The Securities and Exchange Commission then granted the company’s application to change its primary purpose to that of a holding firm back in 2016.
ISM has a 32% stake in German firm Acentic GmbH, which provides internet connectivity and inter-room entertainment solutions for the hospitality industry. It also owns 37.1% of the Philippine Bank of Communications.
The company widened its net loss attributable to the parent to P17.2 million in the second quarter of 2018, after posting no attributable profit in the same period a year ago. Gross revenues reached P60,000 in the same quarter.
Year-to-date, ISM’s net loss attributable to the parent stood at P12.2 million, on the back of P120,000 in revenues.
ISM’s market capitalization stood at P3.26 billion at the end of trading on Tuesday. Shares in the company gained 14 centavos or 4.62% to close at P3.17 each at the stock exchange. — Arra B. Francia

Gov’t to tap yen, yuan bond markets anew

August 29, 2018 | 12:03 am

THE GOVERNMENT is set to return to Chinese and Japanese bond markets within 12-18 months as part of its financing program for next year.
At the sidelines of the second Economic Journalists Association of the Philippines forum in Manila City, Finance Secretary Carlos G. Dominguez said the government will offer renminbi-denominated “panda” bonds and yen-denominated “samurai” papers in the next 12-18 months to maintain its presence at the said markets.
“As I mentioned to the [Bureau of the] Treasury (BTr), I don’t want to be absent from any major market. The renminbi is the first issue we had… We probably will go back within 12 or 18 months. The same with Japan,” Mr. Dominguez told reporters yesterday.
He said issuing offshore bonds every year or 18 months “should be good for us” since the government had a hard time during its samurai bond issuance earlier this month.
“We learned that it’s very difficult to get back into a market if you are absent for eight years. We were not in the Japanese bond market for eight years and it was a little difficult.”
The Philippines raised a total of P154.2 billion, or about $1.39 billion, worth of samurai bonds. Broken down, the government borrowed P107.2 billion in three-year papers with a 0.38% coupon, P6.2 billion in five-year debt that fetched 0.54% and P40.8 billion in 10-year notes that fetched 0.99%.
Yen-denominated papers were last sold in 2010, when the government raised P100 billion worth of 10-year papers, fetching a 2.32% coupon.
Prior to this, the country raised 1.46 billion renminbi (RMB), or about $214 million, from its maiden panda bond sale in March. Fetching a 5% coupon rate, the three-year debt papers was more than six times oversubscribed at 9.22 billion RMB.
In January, the country also returned to the global bond market after four years, offering 10-year dollar-denominated global bonds worth $2 billion couponed at 3%.
Mr. Dominguez added that the government still does not have the offer amount for the bond issuances. “We have already done what we need to do and our plans for this year are already finished so we will see what goes on next year.”
National Treasurer Rosalia V. De Leon confirmed the Finance chief’s statement, saying the planned issuance will be part of the 2019 financing program.
“[The bond issuance] would be next year so that would again be part of the financing program for next year. So we will issue,” Ms. De Leon told reporters following yesterday’s Treasury bills auction, adding that the papers will also be “subject to the usual” market conditions.
The government plans to borrow up to P1.1989 trillion in 2019 to help fund its finance plan. This is 33.85% more than the P888.23 billion initially programmed for this year.
Of next year’s total, P891.7 billion will be sourced locally and P297.2 billion from external creditors. The Development Budget Coordination Committee in its July 2 meeting finalized a 65-35 borrowing ratio in favor of domestic sources for 2018, and a 75-25 ratio for 2019 to 2022.
Aside from panda and samurai bonds, Ms. De Leon said that the government is looking at entering the euro bond market as “a potential source of financing.”
“But of course, we have to watch out for the euro that [European Central Bank] might already start to taper the [quantitative easing] and might also begin the possible rate hikes,” the National Treasurer added.
Also planned some time in the future is a maiden offer of Islamic sukuk bonds.
“We are also looking at the sukuk. There would still some regulatory challenges there,” Ms. De Leon told reporters in July. — K.A.N. Vidal

Financial market volatility to continue in Q3

August 29, 2018 | 12:03 am

RATTLING developments at home and abroad sent local financial markets on a downtrend in the second quarter, leading analysts to expect that this will carry over into the next three months.
The domestic financial markets remained in a precarious position in the second quarter, primarily due to rising domestic inflation and inflation expectations, which exerted more pressure for monetary authorities to raise interest rates.
During the quarter, the pace of the increase in consumer prices accelerated beyond market expectations with headline inflation rate at 4.8%, faster compared to the first quarter’s 3.8% and 2.8% in the second quarter of 2017. This brought the average inflation to 4.3% in January to June, breaching the national government’s (NG) 2-4% target band for 2018.
Even as month-on-month inflation showed signs of decelerating, worries among market players remain unabated. The second half of the year opened with July’s inflation rate surging to a multi-year high at 5.7% versus the 5.2% recorded in June and 2.4% in July 2017 according to government data. This was near the midpoint of the 5.1-5.8% estimate range provided by the BSP’s Department of Economic Research and the 5.5% median market forecast for that month.
In an e-mail to BusinessWorld, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said that supply-side factors were mostly to blame, citing the rising food prices caused by adverse weather conditions; the higher excise tax on sweetened beverages; the scheduled increase in excise taxes on tobacco products; the increasing power generation charges and water rates; and the approved provisional increase in minimum jeepney fares in some regions.
However, Mr. Espenilla explained that the central bank does not have control over fixing problems in the supply-side, noting that monetary policy can only influence demand-driven price pressures as well as managing inflation expectations.
Nonetheless, the BSP remains vigilant of supply-side factors and would act against early signs of second-round effects, which include minimum wage adjustments and transport fare hikes. For this reason, the BSP raised policy interest rates by 25 basis points (bp) each in the May and June Monetary Board meetings while another “aggressive” move was made in the August meeting with a 50-bp hike.
Aside from these second-round effects, Mr. Espenilla pointed at potential price pressures from “excessive volatility in the foreign exchange market” that would affect inflation expectations. The peso continued to depreciate at an average P52.43/US$1 during the second quarter, from an average of P51.43/US$1 in the first quarter.
“Sustained pressures on the peso could adversely affect inflation expectations, which would warrant a monetary policy response,” he said.
The BSP Governor clarified that the decision to whether or not raise rates will be dependent on their “comprehensive and rigorous assessment of all relevant data and forecasts.”
Meanwhile, an analyst from a major commercial bank said that the deceleration in inflation would follow an overall economy slowdown “should the BSP opt to continuously address inflation with rate hikes.”
“The BSP would best be served by keeping the powder dry and hike only to address second round effects emanating from cost push inflation on top of anchoring inflation expectations,” the analyst said.
The analyst added: “The real goal of monetary authorities to addressing cost push inflation would be in the realm of containing inflation expectations, which can be done with a mix of policy rate hikes and deft and firm policy statements. As such, reigning in inflation expectations may be more important than actually hitting your target.”
EXTERNAL HEADWINDS
The “faster-than-expected” monetary policy normalization in advanced economies, which includes the policy tightening by the US Federal Reserve (Fed), contributed to the dampening on local market sentiment.
“Monetary policy normalization in advanced economies could generate capital flow volatility and bouts of financial market turbulence. Moreover, faster-than-expected policy normalization in the US and other advanced economies could lead to tighter global liquidity conditions and a re-pricing of risks, resulting in potential reversals in capital flows in emerging markets and depreciation pressures on the peso,” Mr. Espenilla said.
The Fed implemented a series of aggressive monetary policy tightening amid rising inflation expectations due to higher oil and steel prices. In June, the US central bank hiked its policy rates by 25 bps, while pointing to two more hikes — which could bring a total of four increases this year.
Mr. Espenilla noted that while the ongoing trade disputes between the US and China had no significant impact on Philippine exports, these “geopolitical tensions” are still seen as external risks.
“Prolonged trade frictions can still affect overall investment sentiment towards the Philippines and increasing uncertainty in global growth prospects could take a toll on [the local economy]… with effects transmitted through weaker-than-expected trade flows as well as lower demand for overseas Filipino workers and services-related activities,” he said.
For Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (LANDBANK), the trade war has caused foreign investors to dump Philippine assets.
“Fundamentally, the trade war between the US and China has not yet crippled the Philippine economy. Our fundamentals are strong enough to help us weather the initial onslaught of the tit-for-tat tariff imposition between the world’s two largest economies,” he said.
“However, even as the Philippines’ economic core remains solid, its outer surface has received some battering due to constant foreign portfolio outflows as a result of increased geopolitical risk. Local financial markets have been quite volatile as well because of the never-ending political noise from the US and China.”
For Ruben Carlo O. Asuncion, economist at the Union Bank of the Philippines (UnionBank), the immediate impact of the trade war may have manifested in the weakening of currencies through the “deteriorating of prospects on trade growth and the strengthening of the US dollar as investors flock to more stable assets.”
MORE VOLATILITY AHEAD
The domestic financial markets will continue to react on key local and external developments, BSP’s Mr. Espenilla said.
“In the domestic front, markets are looking at inflation outturns, trajectory for growth, fiscal performance and borrowing activity of NG, corporate earnings results and portfolio investments, as well as progress on infrastructure spending of the NG,” he said.
“On the external side, the unwinding of accommodative monetary policy in advanced economies as well as trade and geopolitical tensions could affect market sentiment,” he added.
For LANDBANK’s Mr. Dumalagan, domestic inflation is expected to “taper back” to the central bank’s inflation target by 2019, but that the weakness of the peso and possible second-round effects are expected to exert “upside price pressures,” which could reduce growth in domestic demand.
“Secondly, the progress of the government’s infrastructure program needs to be monitored as well. This program of the government is highly correlated with the present administration’s tax reform initiative, which is currently experiencing some delays. If funds cannot be sustained due to delays in the tax reform program, investors may begin to recalibrate their highly optimistic view of an infrastructure-led growth,” he added.
As far as monetary policy is concerned, economists expect the BSP to raise policy rates further, on expectations of continued peso depreciation and inflation remaining elevated.
“[The] BSP is expected to aggressively respond to inflation pressures and to re-anchor inflation expectations,” ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng said, adding the possibility of another 25-bp rate hike later in the year.
For UnionBank’s Mr. Asuncion, there might be another 25-bp hike in the third quarter, followed by another by the end of the year.
“Even if the inflation starts to ease at the end of the year, inflation expectations will take longer to adjust. We expect inflation to average at 5.1% this year, hence another policy rate hike necessary. The BSP’s decision to hike rates by 100 bps in 3 months indicate their intention of bringing inflation back within 2-4%,” he said.
EQUITIES MARKET
The country’s stock market took a beating in the second quarter as the benchmark Philippine Stock Exchange index (PSEi) plunged 11.1% quarter-on-quarter to average 7,618.99 points.
The local bourse opened the second quarter on a positive note, up 0.74% or 59.62 points to close at 8,039.45 on April 2. This rally, however, was short-lived when the PSEi dropped below the 8,000 level within the same week.
In May, the local bourse recovered, as optimism lured investors back to buy local index stocks at low prices after the BSP’s decision to raise rates for the first time in nearly four years. At that time, local stocks surged to close above the 7,700 levels.
The rate hike in June was another story. In June 21, local equities entered the bear market territory with the PSEi down 21.6% from its January peak to close at 7,098.15.
The index sank further to an 18-month low in June 25 to close 6,986.88 while ending the quarter at 7,193.68 on the back of window dressing alongside gains made in international markets.
Michael L. Ricafort, head of Rizal Commercial Banking Corp.’s (RCBC’s) Economic and Industry Research Division, expects the benchmark index to retest the 8,000-level in the third quarter: “PSEi could go up… amid healthy upward correction from the [intraday] low of 6,923.67 posted on June 22, 2018, especially if bargain-hunting/net foreign buying is sustained.”
Meanwhile, the rising domestic inflation, the US Fed rate hikes, and geopolitical concerns abroad, may cause local stocks “to show indecisive moves,” LANDBANK’s Mr. Dumalagan said.
On the other hand, UnionBank’s Mr. Asuncion expects a recovery in the equities market “in a short amount of time.”
“Economic growth of the Philippines remains strong despite the inflationary pressures. The market will be advanced by the strong earnings of domestic companies and the strength of US and Chinese corporations,” he said.
To recall, the Philippine economy grew by 6% in the second quarter — its slowest in three years. This compares to the 6.6% growth posted in the same period in 2017.
FIXED-INCOME MARKET
Investor demand for government securities (GS) stayed strong based on oversubscriptions in the Bureau of the Treasury’s auctions during the quarter. For the April-June period, total demand reached P321.4 billion, almost twice the P195.0 billion total offered amount. The oversubscribed amount of P126.4 billion was higher compared to the P59.2-billion figure in the first quarter.
Meanwhile in the secondary market, GS yields rose save for the seven-year debt papers. On the average, yields were 52.2 bps higher with a range of 48.9 bps for the seven-year Treasury bonds to 139.9 bps for the one-year T-bills compared to rates in the first quarter. Compared to rates in end-June 2017, average yields were up by 145.02 bps.
The higher yields were primarily attributed to investors remaining on the sidelines amid hawkish comments made by the BSP governor, which fueled expectations of another rate hike in the works.
Economists expect domestic yields to remain higher.
ING’s Mr. Cuyegkeng: “Yields would likely move sideways to higher depending on inflation, inflation expectations, monetary policy and [the] government’s financing requirement for the rest of 2018 and for 2019.”
Angelo B. Taningco, economist at Security Bank Corp.: “For the third quarter, I expect local fixed income yields to move up due to expectations of another US rate hike, BSP’s rate hike in August, and higher Philippine inflation.”
RCBC’s Mr. Ricafort: “Yields could go up slightly in 3Q 2018 amid expectations of further local policy rate hike due to elevated inflation beyond the inflation target and on possible further Fed rate hike. However, inflation is expected to reach the peak around August and could start to ease due to higher base effects after [this month].”
LANDBANK’s Mr. Dumalagan: “Domestic yields are still expected to trend higher in the third quarter, especially since the US Federal Reserve remains on track to hike rates again in September and December this year. The rise in local inflation may also contribute to higher domestic interest rates.”
Unionbank’s Mr. Asuncion: “The upward pressure on yields is mainly due to inflation expectations by the market. The level of prices is expected to remain elevated and will consequently keep upward pressure on yields.”
FOREIGN EXCHANGE MARKET
The same three months brought the value of the peso down 1.91% with the currency averaging P52.43-to-a-dollar in the second quarter compared to the previous quarter’s P51.43/$1, according to BSP data.
The second-quarter average also depreciated by 4.91% from P49.86/US$1 average in the same period in 2017.
Mr. Espenilla noted that while the country’s economic fundamentals remain solid, “sustained pressures” on the peso could add up to inflation expectations, warranting a policy response.
“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,” said Mr. Espenilla.
ING’s Mr. Cuyegkeng: “We would likely see fresh 12-yr lows for [the peso] as imports continue to increase and the trade gap remains unfunded from structural inflows. An aggressive monetary tightening cycle would moderate such weakness.”
Security Bank’s Mr. Taningco: “I expect peso-dollar exchange rate to move up to around 53.50 by the end of the [third] quarter.”
RCBC’s Mr. Ricafort: “The US dollar/peso exchange rate could correct lower in 3Q 2018 due to stronger signals to further tighten policy rates. Resumption of net foreign buying at the Philippine stock market for the final week of July 2018 (after 25 straight weeks of net foreign selling) could also support the healthy downward correction in the US dollar/peso exchange rate.”
LANDBANK’s Mr. Dumalagan: “The peso may also show sideways movement above the P53/$1 level, as geopolitical tensions could reduce the local currency’s attractive versus the safer greenback. The gradual rate hike of the US Federal Reserve could limit the possibility of a strong peso correction.
Rajiv Biswas, APAC chief economist at IHS Markit: “The PHP has already depreciated from around P50 per USD at the beginning of 2018 to around P53.4 by mid-August. Further PHP depreciation to P54.5 per USD is expected by the end of 2018.”
UnionBank’s Mr. Asuncion: “The peso is expected to depreciate due to widening trade deficit, more capital investments and the massive infrastructure development program of the Duterte administration.” — Carmina Angelica V. Olano

Security with salary loans: A Security Bank Q&A

August 29, 2018 | 12:02 am

By Lourdes O. Pilar, Researcher
“YOU DESERVE BETTER.”
This was the tag line that Security Bank Corp. (SBC) adopted as part of its rebranding campaign to build up its retail banking business four years ago. Prior to that, the Bank had been more known for its wholesale banking and financial markets businesses.
The Bank has come a long way since then. In April, Singapore-based banking magazine The Asian Banker named SBC as the “Best Retail Bank” in the country for 2018, surpassing the bigger banks that had bigger retail banking presence. The magazine noted the Bank’s efforts in building up its consumer banking business “as a strong third business pillar” alongside wholesale banking and financial markets.
Security Bank, the publication noted, stood out among its competitors in how it “strategically positioned itself as an innovative and customer-centric retail bank” by leveraging on technology and analytics, noting initiatives such as the Human Switch Kit and Online Account Application in removing barriers to entry and on-boarding new customers like requiring physical branch visits, completing numerous requirements and tedious processes.
Also noted was the Bank’s introduction of the Salary Advance (SALAD) loan facility. Launched in 2017, the lending scheme allowed employees of accredited companies to avail of short-term loans with affordable installments, which are not usually available from alternative lenders that offer risky terms of payment and higher interest rates.
With this in mind, BusinessWorld sat down with Abigail Marie D. Casanova, Security Bank’s Senior Vice President and Consumer Business & Operations Group Head, to discuss her in-depth knowledge about the new SALAD product, how it was started, and how the employee and the Bank would benefit from it.

SBC has been known to cater to corporate clients (i.e. wholesale lending and treasury), but in the recent years, it has made its presence known to the retail/consumer market. Why make such a move?
The Bank wanted a third pillar of business, and what else to complement and fit its current business if not retail. The retail business complements the Bank’s increasing depositor base where it can benefit from a strong consumer demand, better margins and a stable income revenue stream.
What was the motivation behind the Bank’s Salary Advance (SALAD) loan facility? What made the Bank want to enter into such a venture?
It started when we were studying the profile of our payroll clients. If you look at our payroll clients, the income levels are diverse. For the higher-income employees, it is very easy to cross-sell. But how do we reach out to the rest of them? That is where we thought of lending to the lower-income segment where options to borrow from formal institutions are less.
This segment usually goes to informal lenders or loan sharks whose interest rates are so high.
Why do they do it? They do it because there is ease of transacting. You don’t have to bring a lot of documents and then get disapproved. That’s not the case when they apply for unsecured or personal loans with banks or other formal lending institutions. We thought of giving them a better choice: a short-term loan with the same ease of transacting as the informal lenders but with lower interest rates compared to the loan sharks. We thought of removing the barriers to borrowing while mitigating our risks because we can deduct the loan amortization from their payroll. While the risk of lending goes to the Bank, the employer or the accredited company enjoys the hassle-free loan benefit for their employees.
The opportunity to help the lower-income, higher-risk segment is big. This endeavour is a double bottom line, meaning it is not only helping the Bank in terms of revenue. It also lets us serve a market that will lead to the financial inclusion of a marginalized segment.
I want to add that because of these efforts, we were recognized and awarded by two international publications: the Asian Banking and Finance and the Retail Banker International for Best Initiative and Product Offering in Financial Inclusion.
In relation to the previous question, were there external conditions that made the Bank want to provide salary loans?
Prior to offering SALAD, we already had a corporate salary loan product but this was processed in the usual way: you apply, you sign, you give some documents. But imagine a security guard with no time to go to their centralized Human Resources Department even if they have a salary loan facility. Imagine a BPO (business process outsourcing) agent who has different time shifts. Or a factory worker who stays in the factory eight hours a day. Those were the conditions or the pain points that we saw from this market that we wanted to solve. From these pain points, we conceptualized a product that is fully digital, straight through and without the common barriers of applying and getting a loan. We wanted to be the “Bale ng Bayan.”
How does the Bank attract customers in using SALAD over other banks’ salary loan facilities?
I can say that we are the only bank that offers a truly digital, straight through and 24/7 loan facility so this one tops the way the other banks process. We only require a one-time enrollment. Once the employee is enrolled, we send an SMS (short message service) that says: ‘You are now ready to avail.’ The employee can then text the loan amount and the loan term and within 10 minutes, he or she receives the loan proceeds into his her payroll account. So how convenient would that be? I think that’s the edge we have.
What are the terms of repayment for employees once they avail of the said salary loan? How many months is the loan payable and at what interest rate?
The repayment is through salary deduction, which makes it all the more convenient for the employee and the Bank. On the loan term, we can lend at a minimum of one month to a maximum of three months, but we are working to make it longer of up to six months or even a year. Interest rate is at 3.5% per month.
If you look at it in terms of a normal bank personal loan, the rate will be a little higher. Meanwhile, the rate of SALAD is similar to that of a credit card with all the convenience. But if you compare that to the informal lenders, or even the fintechs who are into lending (Financial Technology firms) or loan sharks, our rates are way lower.
What are the advantages in using SALAD as against borrowing from other “instant loans” providers? How does the Bank differentiate itself from other banks having a similar product?
On the banking competitors, we are the only one offering this kind of salary loan. The advantage is that it is fully digital, it is straight through. There is no documentary requirement needed and once enrolled, employees of accredited companies receive an SMS saying that their application is 100% approved. To top that, re-availment is also very easy because once their term ends, there will again be an SMS saying that they can re-avail and everything is done through mobile. On the other “instant loan” providers, our advantage is that our interest rates are much lower and credit risk is mitigated because amortization is automatically deducted.
How does the Bank, the employer, and the employee gain from such an arrangement?
I will start with the employee first. Whether the employee wants to avail of a loan or not, once enrolled, an instant loan is available that can be used for personal or emergency purposes. The convenience and the sure approval are the benefits that most employees appreciate.
So what’s in it for the employer? The employer outsources loan administration to Security Bank. Hence, no more processing of loans for employees and improved cash flow as they no longer need to lend to their own employees. And for some, this is like a retention strategy. We saw this especially for some BPO companies that are our clients.
As for the Bank, this is our business: we earn and we also help. We believe that it is not only the margins that we get but it is also the customers that we gain. Soon, we can actually introduce other products and services to them.
Similar to the previous question, will there be reward or incentives for employees of accredited companies who keep on using the loan facility and have a good credit history? If so, what are these?
Right now, we are working on our system limitation. We currently give discounts on processing fee and rates on a tactical or promo level. In the future, if we have enough data and system capability, we will definitely do dynamic pricing, term extension and higher loan amount. That is what we are looking at in the next few months.
On a similar note, how would the risks be spread amongst the three parties? Who would bear the most risk? The lesser risk?
The risk of default is all Security Bank’s. If the employee resigns and there is a balance to collect, the employer notifies the Bank. For some, the employer also remits the last pay of the employee. But mostly, it is the Bank’s responsibility to collect the remaining balance.
What are the considerations that the Bank usually looks in accepting companies that are looking for accreditation?
Normally, we look at companies that are established, have at least a hundred employees to avail of the salary loan facility, and also at the number of years in business. Our requirements are not so stringent. As long as the business exists, is legitimate and has its business papers, they can be accredited.
How is the traction for this loan facility in terms of adoption? How many companies (and employees) have applied for accreditation/availed of salary loans?
I can’t tell you the exact number but I can say that the adoption and the support has been very good. Year-on-year portfolio growth is at 200% whereas booking growth versus same time last year is at 265%. Now, we have seen triple the number of companies asking for accreditation. We have a lot of employees in our pipeline who continue to avail.
How big would you say is SALAD going to contribute in terms of the Bank’s earnings? How much does the Bank expect this to grow this year? What about in the next three to five years?
The plan of the retail segment as the pillar of business that will contribute a third of the Bank’s revenues is almost there. Within retail, SALAD is one of the important products that really bring in revenue stream. That’s as far as I can say.
Where does SALAD fit in terms of the Bank’s growth strategy and efforts to expand its consumer product offerings?
SALAD is right smack in the Bank’s strategy to do mass lending. If you follow SBC’s niche, it is the mass affluent that we target in terms of deposits and loans. However, when we started with SALAD, we saw that there was demand and there was a very good segment into mass lending.
What are other consumer products that the Bank is looking at right now especially in connection to promoting financial inclusion?
SBC has a fully-owned subsidiary called SB Finance, which is now poised to do mass lending. Through this subsidiary, we would really like to expand, especially in unsecured loans to the higher risk segments or to the customers not traditionally entertained or marketed to by Security Bank. We are planning to partner with telcos and fintechs to further understand this market so that we can offer financially-inclusive products and services.
Factoring in inflation, rising interest rates and the weak peso, how do you see the Bank’s retail expansion going forward? How about your outlook for the Philippine consumer market?
As far as the Bank’s retail expansion is concerned, I can say that it will be as aggressive as when we started. I don’t see any slowing down especially in consumer lending because the demand is strong. There may be a temporary increase in the cost of funds which will affect the margin but we will still continue to find better ways to deliver our products and services in the most consistent and cost-efficient manner so that we do not have to raise the cost of transacting or the interest rates for our customers.

Joanna Ampil cast as Jenna in Waitress

August 29, 2018 | 12:02 am

JOANNA Ampil returns to the Philippine stage in Atlantis Theatrical Entertainment Group’s production of Waitress. The local production of the hit-Broadway musical will be staged in November. It tells the story of Jenna who finds comfort from disillusionment through baking.
Ampil has performed on London’s West End in musicals such as Miss Saigon, Les Miserables, Jesus Christ Superstar, and Avenue Q, to name a few, and continues to perform as Grizabella in the World Tour of Cats.
Most recently she won the URIAN award for Best Actress for her work in the film musical Larawan.
“I heard that people were dying to play this part in Manila. After doing some research on the role, I realized that this woman is ultimately a survivor and manages to cope with whatever life throws her way. I suppose I can somehow relate to that. It will be an exciting challenge,” she was quoted as saying in a press release.
“But the idea of being directed by Bobby [Garcia] once again truly excites me. I had a wonderful experience working with him on The Bridges of Madison County and this new show came as a wonderful gift and surprise.”
The musical’s director, Bobby Garcia, was quoted as saying, “I always wanted Joanna to play Jenna, but I wasn’t sure that we would be able to get her as she is still touring the world in Cats. But once again, the universe conspired to give us what we wanted and we were able to work out getting her to Manila in time for rehearsals. Joanna is one of the finest musical theater performers we have in the country. And it is always a joy to come into rehearsals and work with her on creating a character and telling a story. I suspect she will be, once again, be unforgettable.”
Also in the cast of Waitress are Bituin Escalante and Maronne Cruz. Waitress continues to play to sold out audiences on Broadway.
Waitress opens on Nov. 9 at the Carlos P. Romulo Auditorium, RCBC Plaza, Makati. For tickets, contact TicketWorld at (632) 891-9999 or visit www.ticketworld.com.ph.

Unilever Philippines expands paternity leave, introduces domestic partner policy

August 29, 2018 | 12:02 am

UNILEVER Philippines on Tuesday said it has introduced new benefits for its employees, such as expanded paternity leave, adoption leave, and recognition of same-sex partners as eligible beneficiaries.
In a statement, Unilever Philippines said its parent company had implemented three weeks of paid paternity leave for its employees around the world.
For the Philippines, Unilever employees can avail of 20 days of paid paternity leave, which is more than the seven-day paternity leave mandated by law. This complements Unilever’s 120-day expanded maternity benefit which implemented in 2017.
“We recognize the roles that both mothers and fathers play in the upbringing of their children, which is why we have expanded the paternity leave for the fathers in our workforce,” Unilever Philippines Chairman and CEO Benjie Yap was quoted as saying in the statement.
The company also introduced a new Domestic Partner Policy, “wherein same-sex partners of employees can now be enrolled as beneficiaries who will have access to health care benefits, as well as be eligible for maternity and paternity leave.”
Unilever Philippines is also giving paid leave to employees, who are adopting a child aged six months and below, “to foster familiarization and bonding as a family similar with the newborn child.”
“Diversity is an essential requirement in the today’s workforce, as it lends to new ideas, energies, and solutions. As we are a company driven by people with purpose, it is equally important for us to support our employees, recognizing the varying unions and families that they may be part of,” Mr. Yap said.
“This is fundamental to our sustainability strategy, as we move toward becoming an even more inclusive workplace, where every employee is valued and empowered to share their best work with the rest of the team and with our stakeholders,” he added.

Offer of Treasury bills awarded fully

August 29, 2018 | 12:02 am

By Karl Angelo N. Vidal, Reporter
THE GOVERNMENT fully awarded the Treasury bills (T-bill) it auctioned off on Tuesday even as rates climbed across all tenors amid strong liquidity in the market.
The Bureau of the Treasury (BTr) borrowed P15 billion as planned at its T-bills auction yesterday using the new National Registry of Scripless Securities settlement system.
The offer was more than twice oversubscribed as demand from investors totalled P35.7 billion, although lower than the P43.1 billion logged at last week’s offering.
Broken down, the government made a full award of the 91-day papers, accepting P4 billion out of total tenders amounting to P8.135 billion. Its average yield climbed 1.5 basis points (bp) to 3.218% from the 3.203% tallied in the previous auction.
For the 182-day T-bills, the Treasury accepted P5 billion as planned out of the P12.525 billion offered by banks and other financial institutions. The average rate likewise rose by 0.6 bp to 4.07% from the 4.064% quoted in the previous offering.
The government also fully awarded the 364-day papers, borrowing P6 billion as planned versus the total offers totalling P15.039 billion. The average yield likewise rose by a basis point to 4.879% from last week’s 4.869%.
At the secondary market prior to the auction, three-month and six-month papers were quoted at 3.1496% and 4.18%, respectively, while one-year securities fetched a 5.0732% yield.
At the close of trading, the debt papers rallied to fetch lower rates across all tenors. The 91-day T-bills fetched 3.1471%, the 182-day papers were quoted at 4.0460% and the 364-day securities finished the session at 4.8357%.
National Treasurer Rosalia V. De Leon said the government saw “very healthy demand” at yesterday’s auction.
“The rates were 0.6-1 bp higher than the previous auction so it is aligned with our estimates according to our model. At the same time, we saw a very healthy demand also for our T-bill auction,” Ms. De Leon told reporters following the auction.
She added that there was liquidity in the market due to maturing government debt.
“Again there is a liquidity because we had a redemption of about P86 billion last Aug. 18. And then of course we have about P9 billion also maturing this week.”
Ms. De Leon noted that the hawkish stance of the US Federal Reserve regarding its gradual rate hike pace was also factored in by the market.
Fed chair Jerome Powell defended on Friday the US central bank’s stance to gradually raise rates.
Speaking at a research symposium in Jackson Hole, Wyoming, Mr. Powell said that “further gradual increases in the target range for the federal funds rate will likely be appropriate” as the economy remains strong.
Meanwhile, a trader said the auction result yesterday was within expectations as demand is still seen in the short end.
“Actually, the demand in the short end will be there for long because so far the market preference is still less than one year. Even six months below,” the trader said in a phone interview.
The Treasury is raising P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.

Lungs is a breath of fresh air amidst the jukebox musicals

August 29, 2018 | 12:01 am

AFTER HAVING produced the successful musical, Eto na! Musikal nAPO!, 9 Works Theatrical is teaming up with Sandbox Collective for its next production, which is the total opposite of its jukebox musical: a straight play without props, costume changes, scene transitions, and intermission, and with only two actors on stage.
Lungs is a quiet but strong piece written by British playwright Duncan Macmillan. An Olivier Award-nominated writer and director, Macmillan is best known for the stage adaptation of George Orwell’s 1984. He also wrote Every Brilliant Thing, and People, Places, and Things.
Sandbox Collective’s managing artistic director Toff de Venecia said he chose Lungs “because of the quality of its text.” He learned of MacMillan, “a little known playwright,” he said, when he was scouting for stories to stage next.
Originally produced in 2011, Lungs is a timely tale of two lovers, M and W, who are trying to conceive a baby amidst a world that is crumbling, no thanks to climate change. Is it worth it to have a child in this day and age?
The straight play runs for 90 minutes with non-stop dialogue between M and W.
M is patient and a musician while M is neurotic, intelligent, and a PhD candidate. The couple has been together for six years when they start their dialogue, and their exchanges will last until they are in their 70s. Lungs will traverse through time.
“Macmillan said outright that the play is to be really simple. So the challenge is to find ways to convey the story without being dependent on the usual devices we normally use, but [focusing on] the characters themselves. Text is really the heart of the show,” said director Andrei Nikolai Pamintuan at a press conference at Privato Hotel on Aug. 8.
The director said the production will include some Filipino language and Pinoy references.
Performing for the first time on stage, TV personality Jake Cuenca will play as M, while W will be played by Sab Jose, who will be performing in a straight play for the first time. She is currently working in the musical, Eto na! Musikal nAPO!
While this is the first time that both leads will be performing in a straight play in the Philippines, they are not newbies. The two have studied theater abroad — he at the Lee Strasberg Theatre and Film Institute in New York, while she at the Guildford School of Acting in England — and the two exchanged notes on how to deal with their characters and chemistry.
“We may have different backgrounds, but we talk about the techniques and the methods we studied from our schools. It helps with our character work,” Ms. Jose said.
Lungs may be fiction but it captures perfectly the anxieties of our society and the pressures of “adulting,” said Ms. Jose.
“I used to think that I wanted to have a baby at 25 and now that I’m 30, I’m like ‘Oh wait! pressure.’ I don’t want to say that most women hinge their worth on motherhood, but that’s what happens, motherhood defines you. I will get there, but for now I am embracing my womanhood through my career,” she said.
Lungs, besides highlighting relationships, parenthood, responsibilities, and anxiety, takes its shape against a background of climate change.
“The takeaway of the story is that sometimes we tend to forget about our environment that we walked on. The characters, on the other hand, are hyper-aware that everything must be politically correct. It teaches us to balance and don’t make those things deterrents to how we live. When you let things bog you down, you tend to forget to just breathe,” said Mr. Pamintuan.
Lungs will have performances at the Power MAC Center Spotlight, Circuit Makati from Sept. 22 to Oct. 7. — Nickky Faustine P. de Guzman

Leighton bags NLEX Harbor Link exit project

August 29, 2018 | 12:01 am

NLEX Corporation awarded Leighton Asia the contract to build the North Luzon Expressway (NLEX) Harbor Link Segment 10 — R10 exit ramp project, the latter’s parent company CIMIC Group said on Tuesday.
In a statement, CIMIC said the project will generate around A$140 million in revenue for Leighton Asia, which is under CIMIC Group’s construction company CPB Contractors.
The company said construction work includes a 2.6-kilometer dual, elevated tollway that will connect the existing NLEX Segment 10 Road to the R10 road, as well as ramps, roadworks, electrical and mechanical works, and landscaping.
The Harbor Link Segment 10 — R10 exit ramp project is targeted to be completed by late 2019.
CIMIC Group Chief Executive Officer Michael Wright noted Leighton Asia has been part of the NLEX project’s development since its first phase of construction in 1998.
“The award of this further work reflects our productive and enduring relationship with both Metro Pacific Tollways Corporation (MPTC) and its subsidiary, NLEX Corporation, and is a testament to the high-quality transport infrastructure solutions we provide,” Mr. Wright was quoted as saying in a statement.
Leighton Asia is also working with MPTC subsidiary MPCALA Holdings, Inc. to build the 28-kilometer, four-lane Cavite-Laguna Expressway (CALAx).
MPTC is the tollways unit of Metro Pacific Investments Corp. (MPIC). MPIC is one of three key Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.

Outlook on bank stocks mixed amid Q2 letdown

August 29, 2018 | 12:01 am

By Jochebed B. Gonzales, Senior Researcher
MARKET volatility has sent shares of bank stocks tumbling in the second quarter as earnings fell below estimates.
The Philippine Stock Exchange index (PSEi) reached the 7,800-level in early June, recovering slightly from its first-quarter slump. However, local equities entered bear market territory when the decline from its January peak reached more than 20%. For the quarter, the PSEi posted a 9.85% loss with 7,193.68 as the market closed for the second quarter.
Data by the Bangko Sentral ng Pilipinas (BSP) show the aggregate net incomes of universal and commercial banks (U/KBs)growing by 7.7% in the first half. Net interest margin of 3.11% during the period was slightly higher than 3.09% previously.
But the general increase in earnings in the UK/B category did not reflect in the stock performance of listed banks. The Philippine Stock Exchange financials index — which included the banks — went down by 14.85% in the second quarter compared to a 6.04% decline in the first quarter.
The so-called “big three” banks in asset terms, which are BDO Unibank, Inc., Metropolitan Bank & Trust Co., and Bank of the Philippine Islands, were not spared from the sector’s plunge. Among this group, BPI posted the biggest decline in the second quarter at 24.35% to P88.50 per share from P117 per share in the first quarter. Meanwhile, MBT and BDO suffered second quarter losses of 14.45% (to P73.40/share from P85.80/share) and 9.71% (P125.50/share from P139/share), respectively.
Other listed banks also saw a decline in their stock prices with Rizal Commercial Banking Corp. (RCB) posting a 38.66% fall in the second quarter, followed by East West Banking Corp. (EW, -25.19%), Security Bank Corp. (SECB, -16.67%), Philippine National Bank (PNB, -10.58%), China Banking Corp. (CHIB, -4.55%), Union Bank of the Philippines (UBP, -2.78%), and Asia United Bank Corp. (AUB, -0.34%).
On a quarter-on-quarter basis, market capitalization, which is equal to the stock’s share price at a point in time multiplied by the number of shares outstanding, of the 10 listed UK/Bs were down 14.87% as compared to the 6.43% fall during the first quarter. Banks that underperformed compared to the sector average were RCB (-34.18%), EW (-25.19%), BPI (-22.22%), and SECB (-16.67%).
“Bank stock prices are down year to date due to the broad market downturn,” Zoren Philip A. Musngi, research analyst at Mandarin Securities Corp. said.
“There was some optimism when Metrobank first reported strong earnings, but it quickly died down as BDO and BPI successively reported disappointing earnings against consensus.”
Rens V. Cruz II, senior equity analyst at Regina Capital Development Corp., concurred, saying that the banking industry slipped in terms of valuation with its price-to-earnings ratio of 15.15 times versus the PSEi’s 19.40 times on account of pressures of continued foreign fund outflows due to “macroeconomic concerns.”
“With the exception of a few names, the banking industry in general missed estimates for the quarter, with earnings pressured heavily by non-interest based income despite decent loan growth, solid margin expansion, and a healthy asset quality,” he said.
“The banking sector greeted 2018 with the best rallies so it is understandable why the industry was also the worst hit following this disappointing earnings period,” he added.

‘DISAPPOINTING’
For analysts, the listed banks either “disappointed” or “underperformed” when it comes to their second-quarter earnings.
“Many analysts were expecting bank earnings to benefit from the strong momentum in industry loan growth and net interest margins improvements as loans reprice due to higher interest rates. However, lower trading gains and one-off items have offset these,” said Mandarin Securities’ Mr. Musngi.
COL Financial Group, Inc.’s John Martin L. Luciano was of the same opinion: “Most banks underperformed versus our forecast… In general, higher interest rates caused the banks’ funding costs to increase. Likewise, this also caused most banks to book poor trading performance.”
For Regina Capital’s Mr. Cruz: “[E]ven if interest-based earnings account for about 60% to 80% of a bank’s total income, the weakness in these non-interest receipt still made considerable dent to the bottom line.”
Meanwhile, other analysts blame the less-than-expected earnings results on rising operating expenses (opex), most particularly on the doubling of the documentary stamp tax (DST) on bank checks, certificates of deposit, and similar financial instruments from the Tax Reform for Acceleration and Inclusion (TRAIN) Law that took effect this year.
“A general slowdown in lending in the midsized banks coupled with higher opex resulted in mixed net earnings performances for the banks,” noted Arabelle C. Maghirang, deputy research head at Papa Securities Corp.
Ms. Maghirang added that inflation was “not much of an issue,” saying that in terms of cost, it was still the increased DST that drove up operating costs. “The rate hikes, coupled with regulatory requirements on the funding side, kept interest expenses elevated,” she said.
STOCK PICKS
“We recommend sticking to the big banks: MBT, BPI, and BDO,” AP Securities, Inc. Research Analyst Rachelle C. Cruz said.
“With the big three having the deposit franchise in the industry, they are also the best beneficiaries of the BSP’s rate hikes amid tighter liquidity in the system.”
Meanwhile, MBT is the top pick for COL Financial’s Mr. Luciano: “We continue to like Metrobank as it is expected to be one of the major beneficiaries of the growing demand for loans given its size, and highly liquid and healthy balance sheet.”
Mandarin Securities’ Mr. Musngi recommended BPI shares as a “buy” on account of its “industry-leading” return on equity (ROE) and cost efficiency ratios as well as its robust loan growth and its current price-to-book (P/B) valuation that is “very much below historical averages.”
Also on Mr. Musngi’s buy list is BDO, citing the lender’s core lending performance in the first two quarters while dismissing second-quarter earnings drag as “one-off.”
“We expect the [BDO] to hit its P31-billion net income guidance as lending in the teachers’ segment resumes. We also take into account in our ‘buy’ rating on BDO’s position as the largest bank in terms of assets, its large branch network, and membership in the [PSEi],” he said.
The analyst was referring to the suspension last November of the Department of Education’s (DepEd) Automatic Payroll Deduction System, which catered to the salary loans of public school teachers. The suspension was implemented as DepEd worked on new guidelines.
Aside from BDO, EW and UBP also have considerable exposure to these types of loans.
“We have a HOLD on UBP and EW as its earnings in Q1 2018 have been largely hit by the issues in teachers’ loans, given their large exposures to this segment,” said Mr. Musngi.
“There was uncertainty on whether they can continue lending to the segment, but recent data show that lending to the segment have resumed,” he added, expecting earnings of BDO, UBP, and EW to recover in the third quarter.
SECB has a “hold” rating with the mid-tier bank trading closer to its analysts’ target price.
“[SECB’s] transition towards retail lending seems to be taking long due to their concern of immediately gaining back their double-digit ROE. Competition is also intense in the corporate and middle market segment, where bulk of SECB’s loan book is,” said AP Securities’ Ms. Cruz.
She also gave PNB a “hold” rating for its “choppy non-core income” which contributes to volatility in its earnings: “[it’s] too early to assess sustainability of core income,” she said.
OUTLOOK
The rising interest rate environment may be favorable for the banks’ core lending segments, but the strain in the trading of securities and funding costs may extend through the third quarter.
“While the 1% rate hike year to date bodes well for 3Q18 net interest margin improvement, we are wary of its impact on funding cost as well which may limit the positive impact to the bottom line,” said Papa Securities’ Ms. Maghirang.
“We expect core lending (net interest income) growth to further accelerate on the back of increasing interest rates and the 50-bp hike done by BSP [in August],” said Ma. Katrina Patricia G. Mercado, equity research analyst at First Metro Securities Brokerage Corp., adding that liquidity is “not as ample as before” and could drive up funding costs.
“We would also be looking at the performance of the capital markets, as we have seen sluggish fee income growth by the banks in 1H18 due to lack of capital market deals,” Ms. Mercado said.
For COL Financial’s Mr. Luciano, the long-term outlook for the banking sector continues to be positive.
“However, in the short term, the sector’s performance may be weighed down by the continued rise in interest rates. Note that industry Loan to Deposit Ratio has risen gradually since January 2017 from 69.1% to 73.1% in May 2018, indicating tighter liquidity in the system. We believe that this caused banks to raise deposit rates to attract funding, increasing the funding costs of most banks,” he explained
“Likewise, the higher interest rates also drag the trading performance of banks. However, these risks should be tempered as loans gradually re-price.”
Giving a more upbeat projection this quarter, Mr. Musngi of Mandarin Securities said: “In Q3, we expect prices of banks to recover as they report better earnings and as sentiment for PHL equities generally improve.”
“Bank valuations are currently attractive, with P/B ratios below 3-, 5-, and 10-year averages. We also expect banks to benefit from the expected passage in the TRAIN Package 2, which the government targets to pass by end of this year,” he said, referring to the second package of the tax reform program that aims to reduce corporate income taxes alongside the rationalization of tax incentives. — with a report from MMMR

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