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Complement, not compete: Fintech and the road to a cash-lite Philippines

By Melissa Luz T. Lopez, Senior Reporter

For decades, banks have been the kings of the financial system.

And they remain dominant to this day.

After all, deposits and assets held by lenders account for over 80% of industry resources in 2017, serving as the main source of funding, payments, and credit.

But that’s about to change.

Financial technology (fintech) firms have sneaked in, offering alternatives to the traditional banking model. These players cater to a new breed of consumers, particularly digitally adept millennials which make up a sizeable chunk of the Philippine population.

Despite their financial strength, banks have been shaken up by these online-based platforms, which have been catapulted to popularity in just a matter of years. Growth in this space has been exponential, enough for some traditional players to perceive them as a threat.

But these tech start-ups aren’t the ones to blame, Angelito M. Villanueva, chairman of the newly formed FintechAlliance.ph, said.

“The ones disrupting the landscape are not the fintech players. The disruptors are the consumers themselves, because they will be the ones to dictate what they want,” Mr. Villanueva said in an interview with BusinessWorld.

The Bangko Sentral ng Pilipinas (BSP) was quick to recognize the potential of digital platforms — particularly those using mobile channels — in attracting more Filipinos to join the formal financial system and away from predatory lending.

The central bank rounded up banks and fintechs to work together for a common goal: financial inclusion. Simply put, the monetary authority wants industry players to get as many Filipinos into their platforms and out of the underground economy.

To this end, the BSP unveiled the National Retail Payment System (NRPS) initiative in 2015.

The move aims to steer financial transactions gradually away from cash and checks towards electronic fund transfers (EFT).

It also entails setting up automated clearing houses to allow same-day and even real-time fund transfers across accounts and e-wallets maintained under different banks and mobile money agents.

As a result, sellers and suppliers will be able to collect payments quickly (thereby allowing them to bolster their working capital faster) and employees will receive their salaries either through their automated teller machines or mobile wallets on their phones.

Easier access to money is seen to spur increased economic activity, which will further lift local prospects.

In November last year, industry players gathered to roll out the Philippine EFT System and Operations Network (PESONet), which serves as a clearing house that will conduct daily batch processing for online transactions.

The PESONet now stands as the litmus test for the push towards e-payments. The road has been long and rough but the players are inching closer towards the goal.

GETTING THERE
Of the 42 signatories to the PESONet agreement, more than half — at 38 — already offer same-day interbank fund transfers as of Feb. 15, John Cary L. Ong, head of the PESONet steering committee, said.

The PESONet is the industry’s first attempt at rapid interbank transfers, which leapfrogs from the Philippine Clearing House Corp. (PCHC)’s system for bank checks to now include e-wallets.

The PCHC has already trimmed the check clearing process to just one day from three, but the NRPS is pushing for an even faster process. In fact, the PESONet is envisioned to wipe out checks for good.

Currently, players do one batch run per day. As transaction volumes grow, the firms are looking at multiple clearing and settlement sessions to keep up with demand.

It wasn’t smooth-sailing at first, but moral suasion from the regulator convinced players to finally sit down and talk.

“We have to give credit where credit is due: I think the one who really marshalled everyone to a single beat is really the BSP,” Mr. Villanueva said, even as he admitted that several industry meetings became tension conventions.

“Of course there were some birth pains along the way because you are setting up one system. Some banks would flex its own muscle. Some would question: ‘why reinvent the wheel?’” he recalled. “I think the issue here is really more on how we can leverage on each other’s strengths and how we can, at the end of the day, provide better services and better efficiencies to our customers.”

Despite these issues, several banks have started offering the interbank transfer service since the platform was unveiled late last year, PESONet’s Mr. Ong said.

Players, however, are bound by two standards: they have to credit the money on the same day they receive it, and transaction fees can only be imposed on senders.

“The first thing we wanted to make sure is that everyone understands the rule. Not everyone can offer it through all their channels in terms of sending, but the important thing is that every bank does its job in terms of receiving,” the bank official said.

Whether the players want to charge transaction fees for money senders is fully their decision. Mr. Ong, who also serves as senior vice president at the Union Bank of the Philippines, said interbank transfers made through their channels are free. Fees imposed by other banks vary, with some charging as much as P100 per transfer.

Mr. Ong, however, said e-money issuers are still outside this loop pending some technical kinks which need to be resolved. This is because these players do not maintain deposit accounts with the central bank and the Philippine Payments and Settlements System (PhilPASS) which hosts the electronic clearing house.

“They have to be sponsored in the settlement by one of the participant banks. That agreement is still being finalized by the PPMI (Philippine Payment Management, Inc.), by lawyers, and by the BSP,” Mr. Ong said.

ENOUGH BUSINESS FOR ALL
By now, the central bank and financial players have accepted that going digital is inevitable with the race now shifting away from speed towards efficiency and convenience.

Business rivalry has also taken a back seat as banks and fintechs have come to realize that there’s more than enough to go around for all of them.

“The approach of the universal and commercial banks is they (fintechs) are going to eat all our lunch — no. There’s enough business, you just need to make sure that everything is lubricated so that money flows freely and then electronic payments will be ubiquitous,” Mr. Ong said.

In fact, some banks have set up their own units focusing on digital services. UnionBank launched their EON online debit card, while the Rizal Commercial Banking Corp. tied up with eCurrency Mint Ltd. for its own digital money product, to name a few.

The BSP has set an ambitious goal to bring the share of e-payments to 20% of all financial transactions by 2020, coming from a measly one percent share back in 2013.

“There’s always something for each player,” FintechAlliance.ph’s Mr. Villanueva added. “We don’t want to compete, we complement.”

“In a country like the Philippines which is archipelagic, having a brick and mortar set-up won’t work because covering the entire 7,107 islands will not happen in the next two to five years.”

Mr. Villanueva also sits as managing director of FINTQnologies, Inc., which operates the online Lendr platform for consumer credit. Their firm also set its own financial inclusion goal to get 30 million Filipinos into using formal financial channels.

Both industry officials perceive these inclusion goals as challenging but doable, while admitting that the country has a long way ahead.

There is strong potential for digital platforms with e-money accounts numbering 11.4 million as of end-2017. This compares to the 44.8 million Filipinos with bank deposit accounts as of end-September, according to latest available central bank data.

FINTQnologies Corp. forms part of Voyager Innovations, which is PLDT, Inc.’s digital innovations unit. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls.

Blockchain and Bitcoins: More than a trading opportunity

By Mark T. Amoguis, Researcher

IMAGINE this: What if someone invented a currency that is free from any government scrutiny, that is accessible to all, and most importantly, is readily available on your Internet-linked handheld device(s)?

Enter cryptocurrencies, which include the likes of Ethereum, Litecoin, and Ripple and perhaps the most popular, Bitcoins.

The latter’s origins can be traced to the wreckage of the 2007-2008 Global Financial Crisis when Satoshi Nakamoto, a pseudonym of an anonymous programmer (or a group of programmers) wrote a white paper that year outlining the mathematical theory of a peer-to-peer currency, which in 2009, eventually evolved into what we now know as the Bitcoin software.

These Bitcoins rely on strong cryptography to create them as well as to keep them secure (hence the term cryptocurrency). They are also open-source, meaning no one controls or owns them and that anyone can monitor every transaction through their own computers.

Initially, Bitcoin was a plaything by cryptography geeks, but it ultimately gained traction when some of them started trading it in 2010.

However, trading cryptocurrencies tends to be volatile.

From near $0 in its early years, Bitcoin’s value went up over the years, reaching its peak in December last year at almost $20,000 apiece. Its value has later fallen about 70% and below the $10,000 mark amid concerns of increased regulation in developed economies such as South Korea and China. Since then, its price hovered around $10,000 apiece.

John Miguel T. Bailon, co-founder and chief executive officer at Philippine-based SCI Global Ventures, Inc., noted the increasing awareness of the cryptocurrency in the Philippines for investment and trading opportunities: “To me more than anything, it opens up the Filipinos to the concept of investing. Because Bitcoin is such a buzzword right now, people look into it as a speculative instrument,” he said.

“When people come into our office and they would say, ‘I’m saving some money. I want to buy P50,000 worth of Bitcoin,’ what we usually do is we try to scare them off not because we don’t want their business, but because we want to make sure that they understand that what we’re doing is a risk. And that this is an investment that you should understand the downsides,” he said.

SCI is the local company behind Bitcoin-related products such as Rebit (remittance service using Bitcoins), Bitbit (Bitcoin wallet), and Buybitcoin (Bitcoin exchange), among other things.

On the flipside, Mr. Bailon said that the buzz surrounding Bitcoin opens up prospective investors in the concept of passive income which include safer and relatively less volatile instruments such as equities: “So, I think in a more general view, Bitcoin has shown light onto this whole concept of investing. It’s like, ‘Oh, I can make money just by holding onto Bitcoin, but wait, there’s also stocks that are less risky, and there’s bonds, and there’s funds that I can get my money into.’ So it’s opening up people into this new avenue of passive income,” he said.

“Add to that is the financial inclusion,” said SCI’s co-founder and chief community officer, Miguel Antonio C. Cuneta, adding that “somehow people are able to access financial services that they weren’t able to do before because they didn’t meet the standards.”

A FORCE OF DISRUPTION
SCI’s Mr. Bailon, however, noted while most people have heard of Bitcoin, it is actually blockchain, the technology behind it that was the “most important breakthrough” and not the cryptocurrencies themselves.

“Blockchain is the best way to record digital transactions of anything not just money. It can be information, it can be land titles… anything that you need to track in a secure manner. Blockchain is the best technology for these,” he added.

Blockchain is a distributed ledger technology (DLT) where all confirmed transactions (in chronological order) can be verified and being maintained by numerous computers all around the world. It is enforced with cryptography to keep it secure.

This implies that the blockchain technology is “disruptive” in nature as almost all of financial services nowadays are trusted third parties: “[B]lockchain removes the need for these trusted third parties,” SCI’s Mr. Cuneta said.

Mr. Bailon agreed, adding that core banking infrastructure could be improved by the blockchain technology.

“With the recent fiasco of BDO (BDO Unibank, Inc.) and BPI (Bank of the Philippine Islands) and all these human errors affecting settlement, the truth here is that those can be easily fixed by blockchain technology,” he said.

In June last year, some 1.5 million BPI account holders reported incorrect balances involving transactions made between April 27 and May 2, forcing the bank to shut down its electronic channels for almost two days. BPI said it was due to data processing error, which resulted in some P46 million mistakenly withdrawn from the bank accounts.

Not long after, BDO said that its automated teller machines (ATMs) were compromised, with several of its clients reporting losses. It was revealed in a Senate hearing that seven of 3,700 ATMS were tapped into using skimming devices that stole client data.

The “positive side effect,” Mr. Bailon noted was that transactions can be done in real-time unlike in traditional banking where banks settle at the end of each banking day.

“With blockchain technology, you make transactions in real-time. Once you move money within its core system, it’s already recorded unlike before where it ends up in a sort of like a limbo and gets applied at the end of the day,” he explained.

PRACTICAL USES
Besides trading opportunities, Bitcoins and other cryptocurrencies do have some “practical” uses. In the case of the Philippines, some have been using the virtual currency for remittances as well as payments, taking advantage of low fees for as low as 1% per transaction.

“Since remittances facilitated through cryptocurrencies or virtual currencies (VCs) are relatively more convenient, faster, and cheaper compared to traditional remittance schemes, this is where an average Filipino stands to benefit the most,” said Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. “Further, the entry of VC exchanges enhances competition in the remittance market which may further redound to lower transaction costs and improved service offerings.”

Luis Enrique A. Buenaventura II, chief technology officer at BloomSolutions, Inc., shared this view: “If you think about it, cryptocurrency itself is remittances,” he said during the Manila leg of Blockchain and Bitcoin and Conference last January.

“It doesn’t matter where you are in the world, you could be right in front of me or you could be half a world away and the amount of energy that’s spent is the same,” he said.

For SCI’s case, the main users are split between buyers and sellers in its Bitcoin exchange platform and its remittance partners serving the overseas Filipino workers (OFWs) in countries like South Korea, Mr. Cuneta said.

“OFWs do not have to directly know how to use Bitcoin and [other] cryptocurrencies because our platform allows them to send money home through our on-ramp partners who use blockchain technology to transact with us,” he said.

In addition, the BSP noted blockchain’s uses in the financial services industry: “At present, some BSFIs (BSP-supervised financial institutions) and industry associations are already in varying stages of exploring the use of blockchain technology for cross-border remittances, payment transactions and KYC (know-your-customer) process via blockchain-powered digital IDs,” BSP’s Mr. Espenilla said.

Should banks implement blockchain technology into their systems, the risks posed by the new technology are the same as with any technology introduced into the system, said SCI’s Mr. Bailon.

“I don’t really see much risk on how it can be used by banks. Maybe the risk will be that [of] the implementation because it’s such a new thing…” Mr. Bailon said. “In fact, all of the hacks [happened] not because of blockchain technology; it’s because of other technologies that are securing the system.”

SCI’s Mr. Bailon foresees blockchain to be utilized by banks in the near future.

“I think it will be embraced rapidly. You’ll see blockchain creeping into banks in the next two years, I think. And the beauty here is that the customer facing side of things will not really change. Maybe it will improve. But behind the scenes, blockchain is being implemented right now in some banks and I’m sure most banks will move towards it in the next two to three years,” he said.

Despite acknowledging blockchain’s benefits, the BSP’s Mr. Espenilla said that the technology “is not foreseen to radically change existing financial and market infrastructures in the industry.”

“While the new technology brings a lot of innovation and promise, industry players are more likely to integrate DLT [distributed ledger technology] into the mainstream platforms to facilitate certain areas in the sector,” Mr. Espenilla said.

“DLT shall take an evolutionary rather than revolutionary track. DLT is still in its early stages and has not yet been proven robust for wide-scale implementations,” he added.

CRYPTOCURRENCY REGULATION, PHILIPPINE EDITION
Jimmy Nguyen, CEO of nChain Group in the US, said during the January Bitcoin conference that the Bitcoin network can’t be regulated because it’s decentralized, but that “sensible” regulation must still be introduced.

He outlined two things for a sensible regulation for cryptocurrencies: (1) regulations should define the cryptocurrencies limitations or exemptions and (2) that the countries should ensure and recognize cryptocurrencies as legal form of payment and tender.

The latter point, in particular, was realized when Japan in April last year became the first country to formally recognize Bitcoin as legal tender, enacting regulations that mandated its virtual currency (VC) exchanges to register and comply with KYC and anti-money laundering requirements and maintain capital reserves.

For S&P Global Ratings, it said that if the cyptocurrencies like Bitcoins become an asset class, the impact financial service firms will be more “gradual.”

“[W]e believe that their future success will largely depend on the coordinated approach of global regulators and policy makers to regulate and enhance market participants’ confidence in these instruments,” S&P said in a report entitled “The Future of Banking: Cryptocurrencies will need some rules to change the game.”

In the Philippines, the BSP introduced in February last year Circular No. 944, regulating VC exchanges — not the cryptocurrencies themselves — by requiring them to be registered and to install internal controls against money laundering.

Although the central bank does not endorse any cryptocurrency as a legal tender as it is not backed by any company or commodity, it seeks to keep track of transactions, which could help combat money laundering and terrorist financing, while upholding consumer protection.

So far, it has authorized two cryptocurrency exchanges in the country: Betur, Inc. (operating as Coins.ph) and SCI’s wholly owned subsidiary Rebbitance, Inc. last year. The central bank is also studying applications from 12 new players looking to set up VC exchanges in the country as of end-2017.

According to the BSP, citing information from the two registered VC exchanges, the combined Bitcoin transactions in the Philippines in 2015 were estimated at $2 million per month. The total value more than doubled in 2016 and 2017, where the combined Bitcoin transactions averaged $6.9 million and $8.8 million per month, respectively.

ING Bank: Expanding presence in the PHL capital market since 1990

SINCE SETTING UP shop in 1990 as a representative office, ING Bank has always believed in the country’s growth potential. With the Philippine economy growing at a steady and robust pace, the local branch of the Dutch global financial giant expects its businesses to expand along with the trend.

The bank cemented its reputation for being a trusted advisor in corporate finance, particular in mergers and acquisitions (M&A). The bank has consistently won in the banks category of the Top 5 Corporate Issue Managers/Arrangers award since 2011.

And this has continued to show.

Last year, the bank was tapped to arrange the deal as one of the selling agents of the first tranche of the Bank of the Philippine Islands’ (BPI) P30-billion LTNCD (long-term negotiable certificates of time deposit) last year. ING was also one of the arrangers of San Miguel Corp.’s P30-billion fixed rate bond issuance this March. So far, ING has arranged 87 M&A transactions amounting to around $26 billion as well as 117 capital market transactions of more than $28 billion.

Last year also saw a change in leadership with former Philippine Stock Exchange chief Hans B. Sicat taking the helm as the bank’s new country manager, replacing Consuelo “Zondy” D. Garcia, who served 26 years in the bank.

With this in mind, BusinessWorld sought out Mr. Sicat’s thoughts on the future of ING Bank in the Philippines. Also in the interview was the Bank’s senior economist, Jose Mario “Joey” I. Cuyegkeng, who gave his inputs on the banking sector and the Philippine economy. — Ranier Olson R. Reusora

Below are excerpts of the interview:

Mr. Sicat: First of all, I must say I’m very delighted to be a part of the ING family. It’s a great platform.

And what’s happening is that ING, from a strategy perspective, has said that Asia (in particular, Southeast Asia) is a growth region and therefore, they will be putting more resources and focus in growing the franchise.

We call ourselves the Wholesale Bank originally, but we’re also trying to expand our interface with corporates by bringing in not just more names that we cover, but also diversifying what we send in terms of products and services.

I think it’s also important to say that from a global perspective, we are growing our shared services office here, which probably is a little bit later than others… but that not only provides jobs for Filipinos, but more importantly, is helping a lot of the processes we have in ING globally… such as processing financial markets’ trades analysis as well as trying to give support to the global ING franchise.

How big is the bank’s presence in the Philippines in terms of its business segment? Which is considered to be the bank’s bread and butter?

Mr. Sicat: We’ve always been a bank that is focused on, among others, the financial market, which is one of our strengths… We’ve been strong in our corporate banking and investment banking franchise. Corporate finance business focuses primarily on corporate advisory, which includes M&As. We are also big historically in terms of our debt capital markets’ presences… doing [transactions on] bonds, CDs (Certificates of Deposit) and the like, for many types of institutions.

I think our coverage has been extremely stable when we talk about the large conglomerates and we do have some lending as well although that is not a very big part of our activity portfolio.

How were the bank’s financials in 2017? Which segments drove growth for the year?

Mr. Sicat: I think it is driven equally by what I would call our financial markets and corporate finance activities. Those two probably accounted for, I would say, about 80% of our overall revenue as a bank [which were] reflective of the growth of the economy as well.

What about the laggards?

Mr. Sicat: I won’t say that there are laggards. I would say that… direct lending is not a very big part of our portfolio right now… In fact, we do a lot of project finance-related stuff or structured finance-related lending. Perhaps, less in terms of direct lending to clients wherein, for example, [it involves] clean loans.

That’s the type of thing that a lot of the local banks are very good and are more competitive in peso terms, but it’s something we’re obviously trying to figure out how to increase that size of the platform.

How was the bank’s investment banking sector last year in terms of its capital-raising activities?

Mr. Sicat: Quite good. If you classify a lot of our capital raising activities, I think a lot of them would fall under what we call our financial institutions sector, which means that we’re covering banks and financial institutions.

So there’s a lot of debt capital market fund-raising… for local banks, primarily, and then a few corporates including the supranational banks like the Asian Development Bank.

Can you share to us some high profile transactions during that time?

Mr. Sicat: For fund raising, probably the largest transaction was when we helped BPI (Bank of the Philippine Islands) do their P20-billion LTNCD (long-term negotiable certifications of time deposits) transaction. That was very good for BPI who we consider to be a partner. [The transaction] was also high profile, in a sense that, at that time, was the largest LTNCD issue that was done.

It proved that markets, in fact, can take that type of size, even for that specific product type.

With the bank being in the country since 1990, what is its view on the consolidation moves made by local banks and the entry of foreign banks?

Mr. Sicat: To a certain extent, [the consolidation] is a reaction to a lot of the regulatory motivation. When I say that, [it means] increases in capital reserve requirements and then on one end, plus regulatory demands on a particular institution.

I think the way to compete among financial institutions is that you require larger critical mass for an institution to efficiently provide the returns to its own shareholders because even the cost of running financial institutions, whether it’s a bank or insurance company, has also increased due to a lot of the monitoring required by the regulators. So you will notice that there’s a lot of discussion that a large part of manpower is not geared to hiring compliance legal risk managers.

With that, it means that to keep your cost-to-income ratios at the reasonable level, you need to have a critical mass. One of the ways to do it is via partnerships, the other is via consolidation. So, to a certain degree, it also is a reaction to the policy motivations, wherein you want slightly larger institutions to withstand, meaning having higher capital to withstand the downturns in the, I would say the market conditions, and of course now and then you will find downturns in the market.

Mr. Cuyegkeng: Well as the economy grows, the demand from the banking sector also increases significantly, and the only way to address that, and to also be in line or be compliant with the new regulations, is to consolidate. This means raising your capital base, while at the same time, competing head-on against new players like foreign banks, especially in the upscale market or the wholesale banks. It’s a natural development that banks consolidate and satisfy the requirements of the growing economy.

Where do you see the local branch of ING Bank in all of these developments?

Mr. Sicat: For us, we’ll be very much present in terms of advising… As I mentioned earlier, corporate finance activity which include advisory on mergers and acquisitions (M&As) is one of our strengths so we’ll be quite active in that space as we have been — that’s number one.

Number two, I think, is that the economy is growing quite a bit, probably at record-highs now for quite some time. That actually opens up a lot of opportunities for us in terms of straight fund-raising for institutions where we would be looking at some specific projects whether it’s a project finance- or structured finance-type of transaction.

All of these, by the way, leads us to our other strength, which is our strength in financial markets products wherein we’re able to provide, for example, hedging products for cross currency situations, interest rate protection as well as basic financial markets flows.

So, in a way, the growing economy and the strength of ING will allow us to utilize our own strengths against the growing opportunity sets…

What opportunities do you see in the Philippines do you feel the bank could capitalize on?

Mr. Sicat: The [opportunity would be] the growth of the economy where you have a lot of these infrastructure projects. Now, obviously, there’s one set of projects which the government is driving at. But there’s also a whole set of other projects which are either complementary… or projects that are not solicited by the government, but will definitely have similar impact.

For example, there’s been a lot of talk of all these proposals to upgrade NAIA (Ninoy Aquino International Airport) as well as building another airport and all that… and these are megabillion-peso projects so that creates opportunities for institutions like ourselves to help the project proponents and raise financing or help them with structures and then raise financing.

I think for the government projects, the government will probably start out and do it on their own, but there will be complementary projects that the private sector will bid on.

For example, if you find the government creating the Mega Manila subway, obviously, that would lead to a lot of development around stations… That creates activity and opportunity for us… [where] all of these conglomerates are kind of busy bidding for almost everything under the sun, so to speak.

Again, that gives rise to structuring advisory and then fund-raising for ING to participate in.

In the same vein, what are the risks?

Mr. Cuyegkeng:   The risk, of course, is the developments in the financial markets. We continue to look at the higher cost, including the   weaker exchange rates. So projects which have a foreign financing are maybe at risk in terms of how the exchange rate moves so we’re looking in to a lot of this risk… [T]hat’s from the macro standpoint. Of course, competition within the industry continues to be quite stiff… so creating a niche is quite challenging for bank like ING.

What is the bank’s position/views on cryptocurrency?

Mr. Cuyegkeng: We’ve stayed away from it. It’s something eventually that would affect markets, but so far, our client base continues to be focused on the normal financial market products. That’s where we are at the moment.

Mr. Sicat: Just to add to that — As an asset class, we’re not actively engaged in it, nor are we, let’s call it, actively selling it to clients per se in terms of either as a funding option or as an investment option.

I think the institutional view is that cryptocurrency maybe needs some more time to develop and figure out exactly what the institutional relevance is outside of, maybe, the interest and the current speculative nature of it.

What we are interested in, and what the bank is actively involved in, is more on the technology behind cryptocurrency that is the distributed ledger technology, or blockchain in popular parlance.

[I]n fact, we have a very recent experience of doing one particular deal… wherein one of the applications of blockchain is to create a very specific contract, which in this case, is a commodity contract. So we are in that space as far as the advantages of what the blockchain offers.

[T]here are many things I know that are being reviewed on the payment system applications of this technology. Is it a replacement for the SWIFT [system]? Is it a replacement for the current way that we move money around? — Things like that. There are many companies trying to figure this out.

What is your outlook on the Philippine capital market?

Mr. Sicat: Well, we’re quite bullish because of many things. I think the first thing is that the underlying economy is strong… [D]espite short-term gyrations in the markets, whether internal or external, that is not likely to change the trend of growth… which continued to show in corporate earnings.

Mr. Cuyegkeng:   I fully agree that we look at capital markets in bullish perspective. [T]he kind of reforms that are being implemented by regulators of the central bank, the SEC (Securities and Exchange Commission) and so forth create a lot of opportunities not only for banks like us, but also for corporations taking advantage of financing options. So yes, it looks like the economy and the capital markets are in for another good year.

What is your outlook on the Philippine economy as a whole?

Mr. Cuyegkeng: As mentioned, we are bullish in the Philippine economy. We expect growth to match up in terms of the trend growth from 6% of the previous administration. We are looking close to 7% or around 6.7% for this administration at least for the next five years.

There will be, of course, ups and downs and so forth, but at the end of the day, we probably see a trend growth that is higher than what we’ve seen over the past 20 to 30 years. Largely, it will be domestically driven with the fiscal stimulus that the government is implementing right now, not just with infrastructure spending but also the actual government headline spending growth, are all going to spur economic activity. Combine that with steady growth in household and the accelerating business spending… [g]rowth in the next few years should be quite favorable and we expect that to outpace the others in the Asian region, at least.

Where do you see the bank in a few years’ time in terms of market position and growth?

Mr. Sicat: I hope that our operational and strategic plans will be larger in terms of our own revenue base, larger in terms of our core client base, and even in terms of the activities that we are present in right now.

So, I think in a reversal from what we saw about eight to ten years ago where, along with many institutions, we actually lowered out footprints in the Philippines, I think we’re now back to a growth mode. Hopefully, both the numbers in our presence in the ground will be even more visible this year and the next year. With the pace of growth of the economy, we hope that our level of growth outpaces that 6.7% that Joey [Cuyegkeng] had predicted.

How Repertory’s Silent Sky shouts women’s empowerment

REPERTORY PHILIPPINES’ production of Silent Sky comes at an opportune time when more and more Filipinas find themselves silenced and reduced to being the butt of “jokes” by the highest government official, with his spokesman describing women who complain of this treatment as “OA” or over-acting.

To claim one’s voice as a woman and a person, one who has purpose will never be OA. Silent Sky has the same message: silence the noise and pursue a passion.

In celebration of the Women’s Month in March, Silent Sky is a story of empowerment.

The play tells us how far feminism come — not far enough it seems as the story, set in the early part of the 20th century, still resonates today. Society, then and now, favors men in the work force, and women are still expected to stay at home to take care of the kitchen and the children. But the play’s heroine, Henrietta Levitt, rises above these challenges.

Silent Sky tells the true story of astronomer Henrietta Levitt who literally reached for the stars in the 1920s when her pioneering work led to the discovery of galaxies other than our own. Levitt’s work paved the way for “better known” male astronomers like Edwin Hubble, who is said to have discovered the cosmos.

Lauren Gunderson’s Silent Sky, then, is a tribute to women who search for recognition in a patriarchal world.

“I want them to see the power of a woman — anybody actually — but more so of a woman, especially when she takes her own chance when people don’t give it to her. She’ll take it anyway. I want to bring the value of passion even if women are [suppressed]. The power of passion over what you want to do and what you are doing,” said Rep’s artistic director Joy Virata, who directs the play, during a rehearsal that was opened to the press.

“And I also want them to know about astronomy, but not in a lecture-y way,” she added, smiling.

Ms. Virata said she’s always liked the playwright Gunderson, so choosing Silent Sky for this season’s repertoire was a no-brainer.

“I like the author. I’ve liked her for three years. She wrote a nice piece on why theater is important to children. I printed it. So when I saw Silent Sky and her name, I read it and I liked it a lot,” she said.

Silent Sky stars Cathy Azanza as Henrietta, Caisa Borromeo as Henrietta’s sister Margie, Topper Fabregas as Henrietta’s love interest Dr. Peter Shaw, and Naths Everette and Shiela Francisco as Henrietta’s colleagues at the Harvard Observatory College.

Since the play features a small cast of veteran actors, Ms. Virata said that the challenging part became working without a set. The play features a stark stage, empty save for a stairway and the two tables where Henrietta does her astronomical studies. The play will span 30 years, with music and lighting signalling the passage of time.

John Batalla is the lighting designer and Jethro Joaquin is the sound designer.

Silent Sky will run from March 2 to 25 at Onstage, Greenbelt 1, Ayala Center in Makati City. For show schedules and tickets (P1,200 and P1,500), visit TicketWorld (www.ticketworld.com.ph). — Nickky Faustine P. de Guzman

Alveo records P45.6B in sales

ALVEO LAND Corp. reported P45.6 billion in sales take-up in 2017, breaching its initial target of P40 billion for the year, boosted by the robust take-up for residential lots and condominium units.

The wholly owned unit of Ayala Land, Inc. (ALI) said this is 20% higher than the P38-billion sales take-up recorded in 2016.

“The market segment is still very robust. There’s a lot of resources in terms of cash, domestically. So there’s a lot of confidence there in the market… The demand will continue to be there,” Alveo Land President Jennylle S. Tupaz said in a press briefing on Tuesday.

The company saw the fastest growth in sales for residential lots at 29% to P8.2 billion. The fastest-selling among Alveo Land’s projects were residential lots inside The Residences at Evo City, ALI’s mixed use estate in Kawit, Cavite. It was able to sell out all of the 395 lots, priced at an average of P9.7 million each, in one day.

Condominium units, meanwhile, made up bulk of the company’s sales for the year at P26.3 billion, up 24% from the P21.3-billion sales recorded a year ago. Offices also grew 7% to P10.8 billion.

Alveo Land started 2017 with an inventory or P25.8 billion, supplementing it with P33.2 billion in launches, for a total inventory of P59 billion for the year. Of the total take-up for 2017, P29.2 billion came from its sustaining inventory, while P16.4 billion came from new launches.

Most of the properties sold were located in Makati City, which the company attributed to the performance of ALI’s mixed-use estate in the area called Circuit Makati. Alveo Land’s projects in the 21-hectare estate include residential buildings Solstice and Callisto, and an office project called The Stiles Enterprise Plaza.

“For 2017, Alveo actively marketed several residential and office projects in Makati, Pasig, Quezon City, and South Luzon. In terms of overall take-up, Makati continues to be a preferred location by both local and foreign markets,” Ms. Tupaz said in a statement.

International sales, meanwhile, accounted for 26% of total sales for the year, led by China, Hong Kong, and North America. The company said investor confidence in the economy is attracting foreigners to purchase property here.

This year, Alveo Land looks to launch over P40 billion worth of projects consisting of around 6,000 units. This is double the number of units the company launched in 2017, as it pursues more horizontal projects outside Metro Manila.

The company will be entering two new areas this year — Bulacan and Cagayan de Oro — where it will sell residential lots.

Asked for the company’s target sales take-up for the year, Ms. Tupaz said it wants to “stay at that level or even higher than that.”

“We have to source our growth not just in the CBDs (central business districts) where land is limited so we’re really gonna have to go out and tap new markets. And it’s good, maganda ang economy ngayon (the economy is doing well),” Ms. Tupaz said. — Arra B. Francia

CCP, UP honor National Artist Napoleon Abueva

By Susan Claire Agbayani

ADA LEDESMA-MABILANGAN remembers when she was five years old and growing up in the family home where she was surrounded by works of artist Esabelio Napoleon “Billy” Veloso Abueva. They were found at the front door, the terrace, and, inside the house along Dewey Blvd. (now Roxas Blvd.) in Baclaran, Parañaque City, were his paintings such as Rice Planting, which won for Abueva first place at the Art Association of the Philippines (AAP) contest in 1952.

In time, Abueva’s studio was in Tierra Verde, a property in Quezon City which was developed by the Kalaw-Ledesmas in the 1970s.

“Billy (Abueva) was family,” Ms. Mabilangan said during the program in honor of the late National Artist for Visual Arts at the Cultural Center of the Philippines (CCP) last Sunday, Feb. 25. Ms. Mabilangan is the daughter of art patron Purita Kalaw-Ledesma — the founder of the AAP — and one of the country’s main proponents of the modern art movement.

Ms. Mabilangan noted that the families of the Kalaw-Ledesmas and Abuevas go back a long way. “My grandmother, Pura Villanueva-Kalaw, and Billy’s mother, Purificacion Veloso-Abueva, both worked for women’s suffrage,” she said.

After the Second World War, Ms. Kalaw established a scholarship fund for young writers. Although Ms. Mabilangan’s grandmother “preferred writers” (like Andres Cristobal Cruz), she acceded to her daughter Purita’s request because “my mother believed in the talent of Billy.”

“It was the first scholarship Abueva got. It was his big break, and he never forgot,” Ms. Mabilangan said.

MEMORIES OF AN ARTIST, FRIEND
“My kids call him lolo (grandfather),” glass sculptor Ramon Orlina said of Abueva.

The two artists celebrated their birthdays a day apart, Abueva on the 26th of January, and Orlina on the 27th. Last month, they celebrated their birthdays at Abueva’s hospital room with champagne, and with Gilopez Kabayao playing his violin.

Unknown to many, Mr. Orlina was trained to be an architect and was a practitioner until 1973. He then shifted to art, eventually focusing on glass. He studied glass art in Czechoslovakia, and had his first art exhibit in 1975.

Reminiscing about his friend during the tribute at the CCP, Mr. Orlina said that Mr. Abueva was “a carpenter, a mason, and a (frustrated) welder, and architect.”

“He was always supportive and generous. He gave me uplifting words of praise. He was kind in lending equipment,” Mr. Orlina recalled.

His voice breaking, the teary-eyed Mr. Orlina addressed the coffin of his friend as he lay in state on the CCP Main Theater stage: “You believed in me. It’s a joy and honor to have [had] you in my life. I’ll cherish your memory.”

It’s not just the Kalaw-Ledesma-Mabilangans and Orlinas who considered Abueva family. During the CCP tribute, Jorge A. Consunji, president and chief executive officer of DM Consunji, Inc. (DMCI), remembered the “sumptuous Filipino spreads, breakfasts in the house, birthday dinners…” as well as the many collaborations between the artist and DMCI, one of which was the crucifix and the altar at the center of the church of the Parish of the Holy Sacrifice at UP Diliman, in the mid-1950s.

Mr. Consunji fondly remembered the artist “combing for materials in our motor pool for hours and hours, for different modes of fabrications.”

He said that Abueva “lived 88 years… with much love in art, appreciated by many…”

Fellow National Artist for Literature Virgilio Almario pointed out how Mr. Abueva has 1,200 known works. He also noted that “the vanguard of modern sculpture” holds the record of having been the youngest person to have been conferred the National Artist award at age 46 in 1976; even if Mr. Abueva once jokingly said that most national artists were seniors who were “in the pre-departure era.”

Mr. Almario said that his fellow National Artist brings with him to his grave, “our highest respect.” He also quipped that Mr. Abueva’s pension was well worth it for the Philippine government.

“Billy was a playful artist,” noted National Artist for Literature F. Sionil Jose. “This playfulness was very much reflected in his work. He was surrounded by ‘junk.’ These were once trees; beautiful living things given new shape. Beauty is what binds us together as a fractured people by brave and caring hands,” Mr. Jose said.

The late artist’s brother Jose “Pepe” Abueva, who once was president of the University of the Philippines, expressed his gratitude to both CCP and the National Commission for the Culture and the Arts (NCCA) for the honors they gave his brother.

THE UP COMMUNITY
A tribute was also given by the community of UP Diliman, at the chapel where one of his best known works is showcased.

Art historian, UP professor, and author Santiago “Jack” Pilar recalled having recently watched the film Ben Hur when he met Mr. Abueva for the first time many decades ago. And he thought that in a way the artist resembled Charlton Heston, and described him as “a man of few words.”

“Billy had a crush on all of us (his classmates at UP College of Fine Arts), until (his wife) Cherry came along,” recalled artist Araceli Limcaoco Dans, best known for her still life paintings featuring calado fabric.

During the tribute, Ms. Dans mentioned Mr. Abueva’s sculptures made entirely of sugar and salt, and how he slept at museums to polish these works during a biennale in Europe (the exact city of which, she no longer recalls).

Mr. Dans introduced to the audience Tito Sanchez — Abueva’s mentee who had been a recipient of two consecutive outstanding sculpture art awards. Ms. Sanchez expressed his sincerest gratitude to the man for what he has achieved, “[Salamat sa] taus-pusong pagtulong, malayo ang [aking] narating (Thaks to his full-hearted help, I have gone far).”

Former dean Florentina Penaranda Colayco, now president of the Metropolitan Museum of Manila said that although she didn’t come from the ranks of College of Fine Arts, “he was very supportive” when she became dean.

Both women noted Mr. Abueva’s penchant for giving ladies (from colleagues to canteen staff) red roses.

“He’s an artist worth his salt. He’s petmalu, lodi and werpa, all rolled into one,” remarked former UP officer for Initiatives in Culture and the Arts Ruben Defeo, using recent slang for “tough,” “idol,” and “power.”

Indeed, as UP Chancellor Michael Tan said: “UP is not UP if not for the sculptures of Abueva.” He cited some of these — the gateway as one enters the university via University Ave., Siyam na Diwata ng Sining at the Faculty Center which survived the recent fire, and Magdangal at the UP College of Arts and Letters. He is also known for Kaganapan, Kiss of Judas, 30 Pieces of Silver, The Transfiguration at the Eternal Garden Memorial Park, the Sunburst at The Peninsula’s lobby, the bronze figure of T.M. Kalaw in front of the National Library, and marble murals at the National Heroes Shrine in Mt. Samat, Bataan.

At the UP tribute to her father, Mr. Abueva’s only daughter Amihan remarked, “UP was his spiritual home. We lived and were nurtured here (at Area 17).” She recalled how he would drag a stone or a boulder wherever he could find it; how he would have wanted a sculpture garden where the boat (Fredesminda 2) was located.

“Pakiusap lang, sana maalagaan, para rin makilala siya ng mga susunod na henerasyon (May we just make a request that these art works be taken care of, so that the succeeding generations would know him),” Amihan Abueva said.

As if to return his generous gesture to all the people he met and touched during his lifetime, as the ceremony ended at the CCP, his “vessel” to the afterlife was surrounded by hundreds of red roses.

More capital-raising activities expected in 2018

CAPITAL RAISING in the Philippines is seen to increase this year as companies continue to tap investment banks in building their war chests.

Capital raising, which includes equity and fixed-income issuances, amounted to P724 billion in 2017, up from the P382 billion raised in 2016. Almost 80% or P586 billion were from fixed-income issues and P138 billion were from equity issues. Meanwhile, four new companies debuted on the local bourse last year -— Wilcon Depot, Inc., Eagle Cement Corp., Cebu Landmasters, Inc. and Chelsea Logistics Holdings Corp.

And this amount is seen to increase this year.

For one, First Metro Investment Corp. (FMIC) expects capital raising to accelerate this year by 29% to P934 billion from 2017’s P724 billion. Of the almost P1 trillion to be raised this year, P687 billion would come from fixed-income issues while P247 billion is expected to originate from equity issues, Head of Investment Banking Group Jose Pacifico E. Marcelo said in a briefing last month.

The year 2017 was a good year for China Banking Corp. (China Bank) with its investment house subsidiary China Bank Capital Corp. (CBCC) posting a 25% earnings growth from increased participation in capital market deals.

“China Bank Capital saw a significant spike in the number and size of deals that we handled or participated in,” said Ryan Martin L. Tapia, president of CBCC. “We were particularly very active in the capital markets space, where we continue to be one of the top domestic bond houses, and where we expanded our presence in public equity offerings,” he added.

CBCC’s net income stood at P195 million in the January to September period, China Bank’s disclosure to the stock exchange last Nov. 16 showed. It was higher than the P95 million in the same period in 2016. CBCC’s total assets reached P1.501 billion, up from the P620 million in 2016’s nine-month period.

Meanwhile, BDO Capital & Investment Corp. (BDO Capital) was one of the largest contributors of income among BDO Unibank, Inc.’s (BDO) subsidiaries according to BDO Capital President Eduardo V. Francisco.

BDO’s investment banking segment’s net profit for the January-September period reached P687 million, up from the P396 million in 2016’s comparable period, BDO’s disclosure to the stock exchange as of September 2017 showed. BDO Group’s January-September net profit stood at P20.386 billion, up from 2016’s P19.321 billion.

FMIC, along with CBCC, and BDO Capital had been active in capital-raising activities in the last quarter of 2017.

Among the notable deals in the fourth quarter include the Vista Land and Lifescapes, Inc.’s $350-million seven-year bonds offer with the final order book totaling $1.7 billion. That deal saw the CBCC as the domestic manager while HSBC (Philippines) Ltd., and DBS Bank Ltd. were tapped as joint lead managers and bookrunners.

Meanwhile, BDO Capital, FMIC, and CBCC were among the five firms along with BPI Capital Corp. and SB Capital Investment Corp. that acted as joint issue managers for the government’s offer of five-year retail Treasury bonds (RTBs) last November. In the RTB sale, the government raised P255.4 billion — with P125.4 billion worth of five-year RTBs issued during the Nov. 20-27 offer period in addition to the P130 billion issued in the auction on the first day. These RTBs carry a 4.625% coupon rate and will mature in 2022.

BDO Capital and CBCC were also tapped by canned fruit manufacturer Del Monte Pacific Limited (DMPL) as joint lead underwriters for its Series A-2 preferred shares offer last year, raising $100 million from the process which includes $20 million from the oversubscribed shares. BDO Capital was the sole issue manager and sole bookrunner.

Asked on last year’s performance, BDO Capital’s Mr. Francisco noted the intensifying competition among investment banks, resulting in shrinking fees.

“That means we have to work on more deals to make the same amount of revenue than previous years,” he said.

Mr. Francisco added that there were “less project finance deals in general” as the country’s power supply is deemed sufficient for the next few years given that most of the large power plant projects have already been completed and given the government’s focus on Official Development Assistance as the main mode of financing projects.

“The volume of capital market issues has gone up in 2017 due to the increase in Retail Treasury Bond Issues which reached an all-time high of P437 billion in two tranches,” said FMIC President Rabboni Francis B. Arjonillo.

“With minimal fees from government issues, total fees for debt capital markets remained the same for 2017. Mergers and Acquisitions, on the other hand, had a lower volume for 2017, consequently giving lower fees. However, First Metro benefitted from a few deals that provided hefty fees in this space. The Wilcon IPO (initial public offering) lead the way for all IPOs introduced by the market in 2017 and contributed significantly to First Metro’s bottom line,” he added.

2018 A BETTER YEAR FOR CAPITAL RAISING
Nevertheless, 2018 should be a good year for capital raising with investment banks expressing optimism due to expectations of more bond sales and IPOs.

“We see several big IPOs this year,” BDO Capital’s Mr. Francisco said, citing the planned P16-billion IPO of Del Monte Philippines, Inc. this year as a basis for his upbeat outlook.

BDO Capital has been tapped as issue manager, sole global coordinator, and sole bookrunner in the Del Monte IPO, which is set to offer a total of 559.464 million shares to the public or about 20% of its outstanding shares according to a disclosure to the stock exchange earlier this month. This would be the country’s largest IPO in 15 months and Southeast Asia’s largest for a food and beverage firm in nearly six years, according to data by Reuters.

For CBCC’s Mr. Tapia, there would be “more than a handful of IPOs” this year as well as an increase in follow-on offerings.

“We expect conglomerates to continue to be active given the spate of expansion and new projects being considered. These companies would be more cautious about their SBLs [single borrower’s limit] with their lending institutions. In their effort to preserve banking lines, these corporates will turn to debt and equity capital markets to augment their funding requirements,” he said.

For FMIC’s Mr. Arjonillo: “The overall fixed income issues are expected to increase by 17% for 2018 where a 68% increase in total corporate bond issues (P126 billion to P212 billion) is anticipated.”

“Additionally, a 79% increase in common equity issues is expected for 2018 (P138 billion to P247 billion).   All things equal, we see a more robust market issuance in 2018, in both debt and equities markets,” he added.

For BDO Capital’s Mr. Francisco: “There will be several more big-ticket items this year that we expect but we will wait for the client to announce this at due course. Bond issuances will also continue as the clients want to tap the markets in ahead of the several Fed [Federal Reserve] increases expected this year.”

Besides the Del Monte IPO, another notable deal this year would be San Miguel Corp.’s P30-billion fixed rate bond issuance this March of which CBCC, FMIC, and BDO Capital were among the seven banks tapped to arrange the offer.

Meanwhile, BDO Capital and FMIC were tapped by the Philippine Stock Exchange (PSE) to arrange its P3.16-billion stock rights issuance of which the funds raised will be used in the acquisition of the Philippine Dealing System Holdings Corp., the country’s fixed-income exchange operator. Originally planned this month, the PSE pushed back the planned stock rights offering to March in light of the volatility in global markets.

“We will definitely see more bond sales this year as more issuers will utilize their shelf registration, preserve banking lines, diversify their funding source, and widen their retail investor base,” CBCC’s Mr. Tapia said.

“Furthermore, we expect to see more maiden fixed-income issuers as companies look to expand their investor base and diversify their funding sources from just the usual bank loans. Given these trends, we expect a large volume of fixed-income issuances from repeat and maiden issuers alike,” he added.

Asked on the possible impact of the newly implemented Tax Reform for Acceleration and Inclusion (TRAIN) law on their businesses, CBCC’s Mr. Tapia said: “From our perspective, the DST [documentary stamps taxes] rate hike is the most relevant in terms of deal flow, as this increases the cost of doing debt or equity issuances.”

“That said, we do not foresee any material impact on our business as corporates will still have funding requirements to bridge,” he added.

For FMIC’s Mr. Arjonillo: “[T]he TRAIN law will affect First Metro’s business insofar as stock trading and funds generation activities are concerned, due to higher stock transaction tax and DST of 20% and 0.125%, respectively. But this is just in the short-term and may be short-lived.”

“For as long as the conditions exist to increase the absorptive capacity of the economy, i.e., infrastructure projects remain on track, a global economic recovery continuing that will spur our exports, domestic consumption strong, manufacturing activity growing, imports are mostly in capital goods, and corporate profits showing an upward trajectory — all these evidenced by   robust macroeconomic numbers — the additional taxes will serve as a catalyst, rather than as a deterrent, to economic growth,” he added. — Christine Joyce S. Castañeda

Air21 to upgrade trucks for food delivery

AIR21 is looking at upgrading its trucks to suit the logistics demand of the food industry, especially in the countryside where the lack of commercial produce to deliver to Manila is costing the company in maximizing its fleet.

The firm’s Regional Business Development Head Maria Rhona R. Begonia said the company is looking at upgrading its fleet for this shift in strategy, a move which will “definitely” require a “big expense for the company.”

“Most SMEs (small and medium enterprises) are farmers. Right now, we’re in the process of reflecting our trucks because we want it temp[erature]-controlled for food-grade because we want to be of service to the farmers,” Ms. Begonia said in an interview on the sidelines of the Ureka Forum on Monday at the Philippine Trade Training Center in Pasay City.

Air21 currently has 600 trucks. About 300 are stationed in provincial hubs and the remaining 400 in the National Capital Region. Of the total, about 270 are eyed to initially undergo upgrading, with the company planning to upgrade more of its trucks in the future.

“The message we’re trying to get across is that we are preparing the company to serve the local industries, especially food logistics,” she added.

The move is being piloted with products that are not highly perishable such as virgin coconut oil, among others. Delivering fresh vegetables and fruits will be next. The firm has also established a provincial division to focus on addressing the low utilization rate in deliveries from Manila to the provinces.

Ms. Begonia said that currently, Air21’s trucks are fully utilized from Metro Manila out to the provinces, but for the return trips, the utilization rate is just at 10% to 20%.

At present, about 80% of the firm’s total manpower is concentrated in the National Capital Region, while the remaining account for the provincial work force. Ms. Begonia is looking at striking a balance between the manpower allocation in the next few years as Air21 shifts its focus to rural areas.

To bolster efforts in its shift to the provincial areas, Air21 signed in December 2017 a memorandum of understanding with the Department of Trade and Industry and Department of Science and Technology in the Cagayan Valley Region. The province has become active in adopting the services of Air21 to send agriculture-based products to Metro Manila.

Air21 is set to sign a similar pact with the same agencies in the Mimaropa (Mindoro, Marinduque, Romblon and Palawan) region next week. — J.C. Lim

Risks ahead for financial markets in 2018

THE LAST THREE MONTHS of 2017 were, for the most part, a good quarter for local financial markets amid strong economic growth, stock market record-highs, and the passage of the first package of the tax reform program.

Last month, the Philippine Statistics Authority reported the Philippine economy expanding in the fourth quarter by 6.6%. While the fourth quarter turnout was slightly lower than market expectations, it was enough to bring the full-year performance to 6.7%, which is within the government’s 6.5-7.5% target range. To compare, the Philippine economy last year was among the fastest-growing economies in Asia after China’s 6.9% and Vietnam’s 6.8%.

Growth in government spending for the year continued to be high at 7.3% albeit slower than 2016’s 8.4% according to the government’s national accounts. Bucking the trend was spending in the fourth quarter, which accelerated to 14.3% compared to 4.5% in the fourth quarter of 2016.

In a separate data by the Department of Budget and Management, infrastructure and capital outlays reached P95.3 billion, which is 28.8% higher than the P74 billion in the 2016’s comparable two months.

Another highlight, and perhaps the most noteworthy, of the quarter was the passage of the first package of the Tax Reform for Acceleration and Inclusion (TRAIN) act. Package 1 of TRAIN reduces the income taxes of almost all of the country’s taxpayers starting this year. On the other hand, additional taxes were raised on products that include sugar-sweetened beverages, tobacco, fuel and cars to make up for the foregone revenue in income tax cuts.

The passage of TRAIN and the “massive” infrastructure program led Fitch Ratings to upgrade the country’s credit rating from BBB- to BBB with a “stable” outlook. The new rating marks the first major upgrade secured under the Duterte administration with the last upgrade being on September 2015.

“The approval of the first package of TRAIN partly improved sentiment on the local financial markets, as lower tax rates for individual taxpayers lead to higher consumer incomes and consumer spending power that could lead to higher sales and income of consumer-related companies,” said Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC).

In the local bond market, investor demand for local government securities (GS) was robust based on oversubscriptions in the Bureau of the Treasury’s auctions during the quarter. In the primary bond market, the Treasury fully awarded the Treasury bills (T-bills) it offered in the October auctions, while partially awarding those of the 364-day T-bills. Following the P255-billion issuance of the five-year retail treasury bonds, however, the government rejected all bids for the 91-, 182- and 364-day T-bills during the Nov. 27 and Dec. 11 auctions given the weak market appetite and the government already having a healthy cash position. Meanwhile, GS yields at the secondary market were up 54 basis points on the average quarter on quarter.

For equities, the rosy expectations stemming from tax cuts pushed the Philippine Stock Exchange (PSE) index to close the year at 8,558.42 points — then a record-high. The PSE likewise reported an 18% increase in earnings to P825 million with a 3% increase in average turnover to P8.06 billion in 2017.

On the other hand, US interest rates rose during the fourth quarter following the interest rate hike by the US Federal Reserve (US Fed), and the passage of a tax reform bill reducing income taxes for US individuals and corporates.

“The rise in global interest rates as a result of the hawkish hints from these two major central banks pushed domestic yields higher and weakened the peso,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), referring to the US Fed and the European Central Bank (ECB).

In the fourth quarter, the peso averaged P50.93:$1, depreciating 0.19% from the previous quarter’s average of P50.84:$1, according to data by the Bangko Sentral ng Pilipinas (BSP). In October, the peso averaged P51.34:$1, depreciating by 0.65% from the P51.01:$1 average in September following market expectations of a better third quarter US GDP growth. Also contributing to the pressure was the strengthening of the dollar against the Euro amid the ECB’s decision to prolong its bond-buying program that time. At one point during the month, the peso weakened to an 11-year worst P51.95:$1.

Meanwhile, the peso rebounded in November and December, appreciating 0.6% and 1.28% from their previous months’ averages, respectively. At this time, lending support to the peso include, among others, the expectations of a stronger third quarter Philippine GDP growth; the market perception of a more hawkish Fed under Jerome Powell, replacing Janet Yellen as US Fed chair; and the legislation of the TRAIN bill into law.

WHERE DO WE GO FROM HERE?
Even before the passage of the TRAIN bill, analysts were already expecting the BSP to raise key rates to keep inflation in check. A month after the law’s passage, inflation in January increased to its fastest pace in more than three years at 4% — the high-end of the BSP’s 2-4% target band for the year and surpassing market forecasts.

Despite this, the BSP kept policy rates unchanged during its monetary board meeting last Feb. 8. Instead, the central bank announced the reduction of the reserve requirement ratio (RRR) by one percentage point to 19% effective March 2.

“The reduction in ultra-high reserve requirements to a level more comparable with other ASEAN countries, is part of a broader strategy by the BSP to shift towards the use of more market-based monetary instruments for managing liquidity in the financial system,” said BSP Governor Nestor A. Espenilla, Jr., referring to the Association of Southeast Asian Nations.

The BSP requires Philippine banks to set aside a fifth of their total deposit base with the BSP even as they don’t generate any returns. But Mr. Espenilla, who personally wants to see the RRR at single-digit levels, has long suggested of the cut since last year, describing the current 20% level as an “inefficiency to the financial system.”

However, lessening the Philippines’ bank reserve requirements — one of the highest in the world — does not necessarily mean a shift in policy stance, according to the central bank governor.

“[F]orthcoming reductions in RRR should not be mistaken as a change in monetary policy stance,” Mr. Espenilla said earlier this month. “Rather, it should be viewed as part of ambitious financial market reforms that BSP is currently implementing.”

The BSP, along with some of the country’s economic managers, maintained that the fiscal reform’s upside influence on prices is “one-off” and is “not considered as unduly inflationary.”

“The recently approved tax reform program of the NG (National Government) may have some inflationary impact in the short term although a monetary policy response may not necessarily be warranted particularly if there is limited evidence of significant demand-side pressures or a disanchoring of inflation expectations,” Mr. Espenilla said.

For analysts, raising the interest rates this year would not be surprising given market developments.

“While average inflation this year is still expected to fall within the BSP’s target range, the local central bank might take a proactive approach by hiking rates sooner rather than later, considering the natural time lag of monetary policy,” said Landbank’s Mr. Dumalagan.

Mr. Dumalagan added that the BSP, US Fed and the ECB are seen to be less accommodative: “These three central banks are expected to tighten their monetary policy settings this year, potentially hurting stocks and bonds, whose prices move inversely with interest rates,” he said.

“It could also cause volatility in the foreign exchange market, as there might be a push and pull on the peso given that hawkish moves from the BSP are beneficial to the peso while hawkish actions from the Fed serve to reduce the local currency’s attractiveness against the dollar.”

Cheuk Wan Fan, HSBC Private Banking Head of Investment Strategy and Advisory in Asia, shared the same view: “Currently, we only expect one interest rate hike in the Philippines. We expect one 25-basis point interest rate hike in the second quarter of this year.”

For Chidu Narayanan, economist at Standard Chartered, the country’s strong credit growth could prompt the BSP to increase rates this year: “We are a little worried about credit growth. Credit growth has been high among households and corporates.”

For now, the BSP sees inflation hovering slightly higher than expected.

“Taking into account the latest available information, the baseline forecasts of the BSP show that inflation will average slightly above the high end of the target range for 2018 and above the midpoint of the target range for 2019,” noted the central bank governor.

For RCBC’s Mr. Ricafort: “Major catalysts include the second package of the tax reform measures (i.e. reduction in corporate income taxes, rationalization of fiscal incentives), as well as other tax reform measures such as those that pertain to capital market development.”

Below are analysts’ outlooks for each of the key markets:

EQUITIES
Gov. Espenilla, BSP: “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 the local bourse more robust and attractive to both foreign and local investors.”

Mr. Dumalagan, Landbank: “Equities are expected to remain strong, assuming that the Build, Build, Build program and the tax reform of the government would unfold as planned, without unexpected delays. Else, we could see a downward correction in the local index, especially since higher interest rates are generally bad for stocks.”

Mr. Ricafort, RCBC: “Consumer-related companies/industries that benefit from higher consumer incomes and spending in terms of higher incomes and sales could lead to higher valuations. However, companies/industries whose costs will significantly increase as a result of higher taxes on oil/petroleum, sweetened beverages, tobacco, vehicles, coal, mining, local oil/petroleum exploration may be adversely affected in terms of narrower margins, lower sales/net income, and valuations.”

Ms. Fan, HSBC: “Within Asia, Philippine stock market is relatively expensive as compared with the regional average. Currently, the 12-month forward P/E (price-to-earnings ratio) of the Philippine stock market is around 19 times as compared with the regional average of 13 times. This underpinned our relatively neutral view on the upside potential of the Philippine market as compared with its regional peers.”

FIXED-INCOME
Gov. Espenilla, BSP: “The Philippine government is expected to source 80% of its 2018 borrowing program domestically while the remaining 20% will be from external sources. Moreover, to support the funding requirements of the administration’s infrastructure push, the NG is planning to increase gross domestic borrowings by 30% in 2018.”

Mr. Dumalagan, Landbank: “Yields are expected to rise due to inflationary pressures and tighter policy settings domestically and abroad. Higher yields would mean lower bond prices. In relation to US monetary policy, it is also critical to monitor the progress of the US tax reform, as it could potentially defer or accelerate the pace of US interest rate normalization. Political noise concerning the exit of Britain from the Euro zone and the North Korean missile program need to be observed as well, as it could potentially result in some volatility in the financial markets.”

Mr. Ricafort, RCBC: “Local interest rates could continue its gradual upward trend, fundamentally supported by higher inflation, stronger Philippine economic growth, weaker peso exchange rate, and the rising trend in US/global interest rates. The US Federal Reserve is widely expected to continue raising its key short-term interest rates in 2018 (three to four Fed rate hikes of +0.25 each), as well as the tapering of the Fed’s balance sheet.”

FOREIGN EXCHANGE
Gov. Espenilla, BSP: “The Philippine peso relative to the US dollar is expected to remain broadly stable. The expected growth in foreign exchange inflows from overseas Filipino remittances and BPO (business outsourcing processing) revenues (in 2018 by 4% and 10%, respectively); and sustained inflows from foreign investments, tourism receipts, as well as the ample level of the country’s gross international reserves, are expected to support the peso.”

Mr. Dumalagan, Landbank: “The peso is still expected to remain weak, at least for this year, primarily because of the continuous rate hike of the US Federal Reserve, which is pulling foreign portfolio investments outside of the country. The local currency’s depreciation, however, might be tempered by the country’s improving macroeconomic fundamentals.”

Mr. Ricafort, RCBC: “Record high trade deficits have led to some weakness in the peso exchange rate vs. the US dollar. However, relatively weaker US dollar vs. global/Asian currencies since 2017 could mitigate/limit this.”

Divya Devesh, Asia FX Strategist at Standard Chartered Bank: “We expect the dollar to be broadly weaker in 2018. Inflation expectations in the US still remain quite low. Global growth has become synchronized, which means that US assets on a relative basis are not as attractive.”

“We expect dollar peso to be largely range-bound for most part of 2018. We’re looking dollar peso at P50.5 by the end of this year. I think it is important to note that we are expecting dollar peso to remain relatively stable even in a weaker dollar environment. That should mean that the Philippine peso will continue to underperform relative to its peers in [emerging markets] and in Asia.” — J.B. Gonzales

Artist Betsy Westendorp marks her 90th birthday with a book launch

CHATTER FILLED the lobby of the Metropolitan Museum of Manila on Feb. 22. A giant diptych of Betsy Westendorp’s signature clouds greeted guests, along with two large tables on which guests skimmed through hardcover books filled with her portraits and landscapes. The artist arrived dressed elegantly in her signature color — white. All the artist heard was the buzzing as the venue was a full house. It was her 90th birthday.

Spanish painter Betsy Westendorp celebrated her birthday with the launch of a two-volume coffee-table book focusing on her art — portraits, landscapes, the Malacañang collection, Taal lake scenery, her flowers and her clouds. A project of the De La Salle University (DLSU) Publishing House, the book was edited by art critic Cid Reyes, designed by Spanish graphic designer Iñigo Cerdan, and includes Spanish text by art critic Elena Flórez.

The production of the book — called simply Betsy Westendorp — was initiated by museum administrator and writer Rita Ledesma who inquired about the possibility of working on it with the publishing house.

“The goal of the publication is to chronicle the life and work of Betsy Westendorp and give this the best package we can come up with, in order to tell the world (so to speak) of the distinct achievement of an artist and, specifically, a Spanish artist who is also a Filipino,” DLSU Publishing House Executive Publisher Dr. David Bayot told BusinessWorld in an e-mail about the book’s content and goal.

At the launch, Mr. Bayot said the works included in the books were carefully chosen by Ms. Westendorp.

“We have been offering complimentary copies to various units (e.g. Metropolitan Museum and libraries) in order to fulfill our goal for this publication — to tell the people about the life and art of Betsy Westendorp,” he told BusinessWorld.

BETSY’S WORDS
Ms. Westendorp still paints every day and considers it a form of meditation. “If I start painting when I have a problem, after a few hours, I don’t have worries anymore. They disappear,” she told BusinessWorld during the launch.

Ms. Westendorp started her career painting portraits and later explored landscape painting. “I started [with] portraits, I enjoy[ed] it so much. First, I painted my family and then continued until I had commissions. I enjoyed it so much. I loved to do it,” she said.

Her favorite painting is the one she made of her grandson Ian and daughter Isabel (Portrait of Isabel with Ian). “The painting I did out of a photograph of my grandson who died when he was 26 years old — I had a picture taken of him and my daughter by a window in my house in Madrid. They were sitting by the window [and] a glass and then there was a pool outside.” And my grandson, I loved him so much. He was so happy with his mother and enjoying the moment… I painted it. I enjoyed so much painting his face. Remembering how it was and [you know], if you know a person very well, it’s easy to paint,” she said.

“[Painting portraits] is special. A portrait painter is not made, [he/she] is born. There are many people who would like to do portraits, but they can’t get the likeness, so, that means they don’t have it. They can be painters. They can paint anything, but they can’t get the likeness of a person,” she explained, referring to American portrait artist John Singer Sargent’s statement: “A portrait is a picture in which there is just a tiny little something not quite right about the mouth.” Ms. Westendorp agreed saying that in portraiture, “the mouth is the most difficult [thing] to paint.”

The artist continued by saying that portrait painters eventually tire from what they do. “But all portrait painters, [there] is a time when we get tired. It happens to all of them… There is no freedom in portraiture. [Because] no matter what, I’m going to paint whatever I like, but you get influenced… There is a time that you really get tired. And there are so many beautiful things in nature, why waste your time? And besides, it is discouraging. People are not attracted to portraits in auctions.

“I will not consider doing anything that I enjoy but painting… I’m so lucky that I have good health although I’m very old. But I don’t want to think about years. As long as I feel like painting, I will do it, and that’s what inspires me,” she said.

Copies of the two-volume book will soon be available for sale at the De La Salle University Publishing House and museums in Metro Manila. The set is priced at P7,500. — Michelle Anne P. Soliman

Combined assets of the Philippines’ biggest banks reach a record-high P14.9 Trillion in 2017

FOURTH-QUARTER growth in the assets of the country’s biggest banks continued to post double-digit growth from the previous year, with loans increasing by nearly a fifth and asset quality still above regulatory minimum levels. Read the full story.
Biggest Banks

FINTQ eyes partnerships in inclusion push

FINTQnologies Corp. (FINTQ), the financial technology arm of Voyager Innovations, Inc., is eyeing to forge partnerships with cooperatives and associations in line with its objective to include more Filipinos in the formal financial system.

In an interview with BusinessWorld, FINTQ managing director Angelito M. Villanueva said the firm is looking to tap more cooperatives and associations to improve financial inclusion in the country.

“Right now, we are cornering the cooperative sector. Lendr will [be partnering with cooperatives through] shared services agreement wherein we’re covering the entire 26,000 registered cooperatives nationwide,” Mr. Villanueva said, referring to its digital lending platform.

By doing this, Mr. Villanueva said FINTQ will be able to tap 14 million Filipinos and introduce formal financial services to them.

“When you talk of sectors, like senior citizens, the youth, overseas Filipinos, they would have at least associations. Once you can capture them through [associations], then you can easily entice them to become part [of the system].”

Aside from associations, Mr. Villanueva said the firm would like to tap the transport sector, particularly groups of jeepney, taxi and tricycle operators and drivers.

By doing the “wholesale approach” or by tapping the said groups, FINTQ will move closer to achieving its goal to help have 30 million Filipinos financially included by 2020.

“We aim that by 2020, unbanked and underserved Filipinos will at least get on board basic financial services: an electronic wallet for payments and remittance, and a microsavings account,” FINTQ said in its second Inclusive Digital Finance Report released last month.

“We want them to build their financial footprint through our retail products so that they could eventually become fully banked with the power to access more sophisticated forms of financial services.”

Currently, FINTQ has partnered with 32 non-government and people’s organizations.

Meanwhile, the company is set to launch a microinsurance platform under its KasamaKA initiative, allowing partner insurers to offer insurance products for as low as P20.

Mr. Villanueva added that the firm will also launch microsavings and microinvestment platforms “this year.”

Voyager Innovations is PLDT, Inc.’s digital innovations unit. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Karl Angelo N. Vidal

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