Online sales? Maybe one day, says Chanel

November 27, 2017 | 12:01 am

PARIS — France’s Chanel has no immediate plans for online sales of its coveted outfits or handbags, a senior executive said on Friday, making it one of the fashion world’s last hold-outs as rivals experiment with websites to win over new clients.

The label, known for its tweed suits and $4,300-plus quilted leather bags, already sells perfumes online, like its Chanel No. 5, as well as eyeglasses and beauty products.

But it will draw the line there for the foreseeable future, said Bruno Pavlovsky, president of fashion at Chanel.

“If you give everything to everyone straight away, I think you lose that exclusivity,” Pavlovsky told a Vogue conference in Paris. “I‘m not saying we won’t try it one day, but if we do it will be because we’ll really think there’s some added value.”

Luxury goods brands were slow to develop e-commerce sites as they worried that making products too widely available would erode their cachet.

But most have now taken the plunge. Conglomerate LVMH, parent to Louis Vuitton, hired a former Apple executive and recently launched a site hosting multiple labels, though its online strategy at each of its brands still varies wildly.

Web sales will make up some 10% of revenues in the luxury goods market this year, according to consultancy Bain, which projects they could reach 25% by 2025.

But Chanel’s out-of-step attitude was not a drag on the business, Pavlovsky said, adding that the label, founded by Gabrielle “Coco” Chanel in 1910, was reaching an increasingly young audience and had waiting lists for best-selling bags.

Controlled by secretive billionaires Alain and Gerard Wertheimer, Chanel does not regularly release financial results.

According to figures filed with the Amsterdam exchange, Chanel’s net profit fell nearly 35% in 2016 and sales dropped 9% to $5.7 billion.

Most major rivals have enjoyed a sales bounce in 2017.

Chanel is no stranger to digital marketing, however, showing images on media like Instagram and Twitter from its extravagant catwalk shows and collections by designer Karl Lagerfeld.

But buyers want to try on the clothes, Pavlovsky said, adding that the business would look into providing “e-services” to allow buyers to reserve items online or make store appointments.

“Every time I‘m in China I meet clients who come and say, ‘whatever you do don’t do e-commerce. The day you do it for us this won’t be exclusive anymore,’” Pavlovsky said. — Reuters

Domestic news lifts local financial markets

November 27, 2017 | 12:01 am

By Christine Joyce S. Castañeda,
Senior Researcher

LOCAL financial markets performed well for the most part in the third quarter, buoyed by positive news at home amid a slew of uncertainties abroad.

That period saw the peso depreciate against the greenback by 7.44% on a year-on-year basis according to data by the Bangko Sentral ng Pilipinas (BSP), breaching to as low as the P51-per-dollar mark last August – its weakest since a P51.05 finish on Aug. 29, 2006. Traders that time attributed the peso’s depreciation largely to two things: the worsening tensions between the United States and North Korea that have sent investors running for cover away from most Asian currencies and the anticipation of increase in US key rates by the US Federal Reserve.

“Developments in both the external and domestic markets weighed in on the Philippine financial markets in the third quarter. Upbeat global macroeconomic outlook coupled with the reduced expectations of monetary tightening in the US propelled financial markets around the world, including the Philippines,” said BSP Deputy Governor Diwa C. Guinigundo. “On the other hand, heightened geopolitical tensions in mid-August, relating to the US-North Korea dispute and terror attack in Barcelona, Spain, caused some temporary spike in volatilities across financial markets, tempering gains during the quarter.”

The peso’s downtrend was in contrast to the performance of Asian currencies, which appreciated during the three-month period, BSP data showed. Even so, the peso’s volatility was lower compared to currencies such as the Korean Won, Chinese Yuan, Thai Baht, and the Singaporean Dollar among others.

Mr. Guinigundo noted that even with the peso breaching the P51 mark, the local currency was able to rebound slightly to P50.85:$1, or a depreciation of 2.15% year to date by end-September.

Whether or not the Fed would increase key rates yet again this year would largely depend on US economic data, which remain mixed for the most part. Nonfarm payrolls, an indicator closely watched by the Fed in deciding monetary policy, showed a drop by 33,000 jobs in September, posting the first decline in seven years as twin hurricanes that hit the country led to temporary unemployment or delayed hiring, particularly in the leisure and hospitality sector.

However, there were silver linings in that closely watched report. The unemployment rate hit a more than 16-1/2-year low of 4.2% and annual wage growth accelerated to 2.9%, leading analysts to conclude that a rate hike by yearend is still possible.

Likewise affected by external developments were the fixed income markets where BSP’s Guinigundo said “were at their tightest level.”

“The country’s five-year sovereign credit default swap spreads stood at 66 basis points (bps) as of end-September 2017. Long-term sovereign bond yields likewise continued to remain low,” he said.

At the primary bond market, market players preferred short-tenored debt papers. Meanwhile, in the secondary market, yields were lower by 8.71 bps on average with a range of 6.1 bps for the 10-year Treasury bonds to 78.89 bps for the 91-day Treasury bills compared to rates in the second quarter. On the other hand, average yields were up across-the-board by 94.08 bps during the reference period.

A bond trader interviewed by BusinessWorld said that the bond market took its cue from movements in US Treasuries, which in turn, was driven from developments surrounding US President Donald J. Trump’s tax reform plan and his spat with North Korean leader Kim Jong Un as well as the market’s anticipation on the replacement for incumbent Fed Chair Janet L. Yellen, whose four-year term will end in February next year.

The bond trader also noted that the fixed-income market was affected by inflation and supply risk.

SOLID MACROECONOMIC FUNDAMENTALS
The Fed kept interest rates unchanged during its Oct. 31-Nov. 1 meeting. However, policy makers still felt that a rate increase “was likely to be warranted in the near term.”

Despite this, positive developments at home had helped lift investor sentiment, with Mr. Guinigundo citing “solid macroeconomic fundamentals” as shown by manageable credit growth and increased household and government spending.

“At the local front, optimism over the country’s growth prospects contributed to the positive reversals across markets. The likely passage of the government’s tax reform package in Congress along with the rising expectations of positive third-quarter corporate earnings likewise supported the risk-on sentiment among investors.”

The stock market breached the 8,200 levels during the quarter with the Philippine stock exchange index closing to what was then an all-time high of 8,294.14 on Sept. 18, gaining as much as 21% year to date.

Stock valuations remained high during the period, with price-to-earnings ratio being consistently above 20 times, “indicating continued appetite for local shares,” Mr. Guinigundo said.

The quarter also saw the Philippine gross domestic product (GDP) grow by 6.9% — the fastest clip in 12 months though slightly slower than the 7.1% on the back of sustained strong growth in exports and public spending. The reading fueled year-to-date GDP growth to 6.7%, already above the lower end of the government’s 6.5%-7.5% full year for 2017.

The market remained optimistic about the government’s ability to deliver on its promise to spend more than its predecessor. In the last quarter, infrastructure and capital outlays was 15.4% bigger than what was spent in the same period last year. In terms of total expenditures, state spending was 6.97% more albeit slower compared to the 14.44% growth it registered the year prior.

Meanwhile, inflation was kept in check, averaging 3.2% as of October and matching the BSP’s forecast average for the year. Even so, analysts still expect inflation to rise further in the last three months of the year but that the possibility of a local rate hike this year remains highly uncertain.

Asked about the possible global developments that are likely to impact the country’s economic performance in the fourth quarter, analysts cited the anticipated December rate hike accompanied by the new appointment of US Federal Reserve officials and tax reform programs at home and the US.

Analysts also shared their views on the possible effect of the administration’s “Build, Build, Build” program on financial markets.

Ildemarc C. Bautista, vice-president and head of research at Metropolitan Bank & Trust Co., said the program is expected to benefit financial markets.

“We expect that this can push economic growth above 7% on a sustained basis,” he said, adding that the expected amount of imports of capital goods and raw materials amid increased domestic demand may be “potentially inflationary” given a weak peso and would put pressure on interest rates.

However, these higher interest rates, in turn, “will be supportive of the peso and take the edge out of inflationary pressures, keeping inflation expectations well anchored,” Mr. Bautista said.

Meanwhile, the same bond trader interviewed said that the effect would depend on how the program will be funded.

“If TRAIN [Tax Reform for Acceleration and Inclusion Act] kicks in and spending continues as planned, we may see marginal effects on market interest rates,” the bond trader said. “If [instead], TRAIN is watered down or not passed and ‘Build, Build, Build’ continues as scheduled, we may see rates rise with the BTr [Bureau of the Treasury] needing to fund the [country] via issuances.”

For BSP’s Mr. Guinigundo: “Once President Duterte’s “build, build, build” program gains traction, there would be a positive impact on business expectations. Firms would expect a rise in productivity and effective productive capacity, which would translate to higher confidence to invest in more productive activities.”

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

PESO
Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank): “The peso is expected to remain weak against the dollar, although it might recover slightly after this year’s plunge. The peso’s recovery may be heavily influenced by the progress on the government’s infrastructure program.”

Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (UnionBank): “I expect the peso to continue to fall against the US dollar due to the upcoming surge in imports led by the infrastructure push of the Duterte administration. Other factors that would likely contribute to the continuous depreciation of the peso are the US central bank’s continuous interest rate hike and global uncertainties. However, it should be noted that the peso depreciation is not necessarily bad as it promotes the export sector. The impact of the weak peso may be muted at this point with domestic demand continuing to grow.”

Bond Trader: “[FX market will be] pressured higher by offshore players and onshore demand as imports sustain healthy rise.”

STOCKS
Landbank’s Mr. Dumalagan: “Fundamentally speaking, outlook on equities is brighter next year than this year, assuming that the infrastructure program of the government will be rolled out smoothly. However, given that local stocks right now are a bit pricy, we might probably see some downward correction early next year before the index resumes its upward trend.”

UnionBank’s Mr. Asuncion: “Although there are political uncertainties in the Philippines and external political and economic uncertainties, investors are likely to ignore those noise and remain positive on the overall outlook of the stock market. Investors will bank on the implementation of the Tax Reform for Acceleration and Inclusion Act (TRAIN) and will remain optimistic on the Philippine economic growth. Also, the investors are anticipating that the Fed is going to increase rates one more time before 2017 ends.”

Bond Trader: “[The stock market is] down for now but wait for TRAIN to kick in.”

FIXED INCOME
Landbank’s Mr. Dumalagan: “Demand might still be skewed towards short- to medium-dated securities, as investors might still shy away from long-term notes amid rising interest rates.”

Bond Trader: “[The market will be pressured] on rising Treasury yields and local inflation concerns.”

Gunning for a win

November 27, 2017 | 12:01 am

It’s a testament to Tiger Woods’ continued pull that he was the subject of multiple pressers at the Australian Open over the weekend. Never mind that he wasn’t part of the field, or that he hasn’t wielded a club in competition since February. As far as all and sundry were concerned, he remained extremely relevant; even as a tournament was at stake, the state of his game drew interest, in no small measure because of the questions on his progress from a fourth back surgery in April.

To be sure, Woods has earned the benefit of the doubt. True, he has made multiple comebacks over the last half decade, and suffered from setbacks more frequently than not. On the other hand, his unparalleled body of work invariably elicits optimism regarding his future. Forget that he’s about to turn 42, that his body is more brittle than majority of players on the Champions Tour, and that the sport’s fickle nature makes hitting the ground running difficult.

And so Woods will tee off at the Hero World Challenge in the Bahamas later this week with all eyes on him, and most everybody save for his staunchest critics hoping against hope that he will redeem himself with sterling scores. The conditions certainly benefit him; he faces just 17 others in a silly-season event he hosts for his foundation, so there should be little to no pressure for him to exert himself beyond limitations set forth by doctors monitoring his convalescence. It also helps that he didn’t rush back from his latest brush with the knife; he didn’t get to swing his driver until last month, in full compliance with orders.

That said, Woods will aim to do his best this weekend. He always does. And though he won’t say it out loud, he’ll be gunning for a win. Nobody expects him to, but nobody will count it out, either. After all, he is who he is, a great in golf’s past out to prove that he has a place in its future.

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is the Senior Vice-President and General Manager of Basic Energy Corp.

How PSEi member stocks performed — November 24, 2017

November 27, 2017 | 12:00 am

Here’s a quick glance at how PSEi stocks fared on Friday, November 24, 2017.

Are productivity incentive schemes benefits considered De minimis or other benefits?

November 27, 2017 | 12:00 am

As we approach the end of the calendar year, employees’ excitement builds as bonuses and incentives such as collective bargaining agreement (CBA) and productivity incentives are expected to be paid out. But for most companies providing these bonuses and incentives, tax questions arise, like what are the applicable tax rules if the CBA and productivity incentive schemes exceed the de minimis ceiling?

The Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 5-2011, as amended, providing a specific list of de minimis benefits, e.g. rice subsidy, uniform and clothing allowance, laundry allowance, medical cash allowance to dependents, actual medical assistance, etc. each with specific tax exemption ceilings. De minimis benefits are facilities and privileges of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of its employees. It also indicates that if the employer pays more than the ceiling amount for de minimis benefits, the excess shall be considered taxable income. This excess, however, is still taken into account in an individual’s personal tax exclusion threshold as indicated below.

In January 2015, the BIR issued RR No. 1-15, which provided additional tax-exempt de minimis benefits to employees by virtue of a CBA and productivity incentive schemes. These are exempt from withholding tax on wages (WTW) or fringe benefits tax (FBT), provided that the combined annual monetary value received from both the CBA and productivity incentive schemes does not exceed P10,000 per employee per taxable year.

Regarding personal tax exclusions, Section 2.78.1 (B) (11) of RR No. 2-98, as amended by RR No. 3-15, provides that the 13^th month pay of private and government employees (including government-owned or -controlled corporations), and any other benefits, such as Christmas bonuses, productivity incentive bonuses, loyalty awards, gifts in cash or in kind and other benefits of similar nature paid or accrued during the year, are considered income payments exempt from income tax, and consequently, withholding tax, provided that the total amount shall not exceed Php 82,000 pursuant to Republic Act (RA) No. 10653. Hence, any amount in excess of P82,000 shall be subject to income tax, and consequently, to WTW/FBT. Any excess de minimis payments beyond the ceilings specified in RR No. 5-2011, as amended would be considered here, and if still below the P82,000 threshold, remain tax exempt pursuant to the rules laid out in RR No. 8-2000.

These BIR issuances were later followed by BIR Ruling No. 293-2015 dated Aug. 27, 2015, which defined the productivity incentive scheme as benefits given by management to labor that incentivize performance of an employee for certain economic factors, i.e., increase in productivity, etc. with the establishment.

Based on the foregoing, the following rules on benefits arising from CBA and productivity incentive schemes may apply:

• The benefits are exempt from WTW to the extent of P10,000.

• The excess of the benefit over P10,000 is exempt from WTW to the extent of Php 82,000 when considered together with other benefits.

• The benefit in excess of the P10,000 and the Php 82,000 when considered together with other benefits is subject to WTW (for rank-and-file employees) or to FBT (for non-rank-and-file employees).

While it is clear that CBA and productivity incentives are now among those considered de minimis benefits if these fall under the ambit of the definition under RR No. 1-15 and BIR Ruling No. 293-2015 and the amount is within the ceiling of P10,000, an important question to address is whether the CBA and productivity incentive schemes that exceed the de minimis ceiling will still qualify as de minimis or considered as “other benefits”?

In BIR Ruling No. 293-2015 (August 2015), the BIR was requested to clarify the treatment of amounts over the income tax exempt de minimis Collective Negotiation Agreement (CNA) benefits received by employees in the public sector, in relation to the increase in the exempt 13^th Month Pay and other benefits brought about by RA No. 10653. The BIR ruled that any CBA or productivity incentives scheme benefits shall only be exempt as “de minimis” benefits if the total amount thereof does not exceed P10,000 per taxable year. Otherwise, it shall be treated as “other benefits,” the gross of which, not exceeding P82,000, shall be excluded from gross compensation income of the employee receiving the same. Otherwise, it shall be subject to normal income tax rates.

What this means is that if CBA/CNA benefits under a productivity incentive scheme is below the P10,000 ceiling, it is considered a tax-exempt de minimis benefit. However, if the incentive exceeds the ceiling, the ENTIRE amount does not qualify as a de minimis benefit and is then treated as “other benefits” and is then tested to the P82,000 threshold to determine its taxability

Given the above, it would seem that the application of the rules on the taxability of CNA/CBA benefits and productivity incentive scheme benefits under BIR Ruling No. 293-2015 appear to deviate from the earlier rules presented under RR No. 8-2000, as amended.

Considering that BIR Ruling No. 293-2015 is the current interpretation of the BIR with regard the tax treatment on the excess of the CNA/CBA benefits and productivity incentive scheme benefits over the de minimis ceiling, this prompts the question on whether such an interpretation would prevail in determining the tax treatment for all other de minimis benefits exceeding their respective tax exempt ceilings.

For example, if an employee’s rice subsidy were to exceed the ceiling of P1,500 or one (1) sack of 50 kg. of rice per month amounting to not more than P1,500, would it disqualify this from being considered a de minimis benefit and thus have to fall under the “other benefits” category? Or only the excess beyond the de minimis ceiling of P1,500?

In this regard, since the clarification in BIR Ruling No. 293-2015 was specific to CNA/CBA benefits and productivity incentive schemes, it can be argued that such a rule is to be applied only to CNA/CBA benefits and productivity incentive scheme benefits and should not be made as a basis for the tax treatment for the rest of de minimis benefits.

Towards the year end, employees’ performance results (on which most productivity incentive schemes are based) are expected to be reported and the year-end annualization of compensation benefits will most likely take place. When that happens, we hope that the above clarification on the limited impact of BIR Ruling No. 293-2015 would be taken in consideration.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Hentje Leo L. Leaño is a Tax Partner of SGV & Co.

How do select Asia-Pacific economies fare in ease of paying taxes?

November 27, 2017 | 12:00 am

Outlook still rosy for bank stocks despite slowdown

November 27, 2017 | 12:00 am

GROWTH in banking stocks this quarter slowed down compared to the preceding quarter albeit still on a par with expectations, analysts said. They also gave a rosy outlook for the rest of the year as the upcoming holiday season is seen to boost stock prices by way of increased household spending.

The Philippine Stock Exchange index (PSEi) breached the 8,100 level for the third quarter, which, at that time, analysts attributed to the Senate’s approval of the tax reform bill that is expected to increase consumers’ purchasing power. The local bourse finished at 8,171.43, higher by 328.27 points or 4.19% from second quarter’s closing.

“Banking stocks performed much better in the second quarter as the Financials Index rose by 6.45%. The PSE-listed banks, on the other hand, posted an average return of 12.22%,” said Joseph James F. Lago, PCCI Securities Brokers Corp.’s head of research.

To compare, the Financials sub-index – which included banks – grew only by 1.2% in the third quarter.

For Carlo B. Tiu, equity analyst at the First Resources Management & Securities Corp., banking stocks “performed fairly” relative to the PSE index.

“If we are to compare the second and third quarter performance of banking stocks, the second quarter turned better as it had a 5.63% incline through April 30 until June 30, compared to the 0.77% incline for the third quarter. The slowdown occurred as the major stocks consolidated its movement after it had reached new highs,” he said.

Nevertheless, analysts have said that these figures are within expectations.

“The Financial sector went up 18% year to date, while the PSEi is up by 20%. Looking at the numbers, the financial sector is catching up with the rise of the PSEi,” said Justino B. Calaycay, Jr., Philstocks Financial, Inc.’s senior research analyst

Among banks, stock price movements of mid-tiered banks outpaced that of their top-tiered peers. Among the big-three listed banks, only BDO Unibank, Inc. (BDO) stocks recorded growth at 5.40% albeit lower than the 5.44% posted in the previous quarter. On the other hand, Metropolitan Bank & Trust Co. (MBT) and the Bank of the Philippine Islands (BPI) saw their stock prices decline by 1.14% and 4.38%, respectively.

“For the third quarter, EastWest Banking Corp. (EW) outperformed its competitors if we are to measure performance via stock price,” First Resources’ Mr. Tiu said.

The Gotianun-led bank posted the highest upswing for the quarter with 14.26% growth in its stock price though it was a slowdown from second quarter’s 37.86%. Security Bank Corp. (SECB) followed suit with a stock price growth of 12.07%, Asia United Bank (AUB) by 6.46%, Union Bank of the Philippines (UBP) by 1.76%, and Philippine Business Bank (PBB) by 0.77%.

On the flip side, Rizal Commercial Banking Corp. (RCB), which was the previous quarter’s top stock price performer, shed 15.26% by the third quarter’s close to P49.6 from P58.5 after acquisition rumors were denied by BDO and BPI in separate disclosures to the PSE last Sept. 6. Prior to these disclosures, much of the stock’s increase was based on this assumption.

Other banks that saw their stock prices decline were Philippine National Bank (PNB) by 11.39%, China Banking Corp. (CHIB) by 3.68%, Philippine Trust Co. (PTC) by 0.71%; and Philippine Savings Bank (PSB) by 0.17%.

In terms of market capitalization, which is equal to the stock’s share price at a point in time multiplied by the number of shares outstanding, banking stocks – which numbered 14 – were up by a mere 0.5% during the quarter as compared to the 8.6% growth in the second quarter. Banks that outperformed the sector average were EW (14.3%), SECB (12.1%), AUB (6.5%), BDO (5.4%), UBP (1.8%) and PBB (0.8%).

IMPROVED EARNINGS
In terms of corporate earnings, third quarter figures were “much better” than the second quarter “due to improved or preserved net interest income,” said Regina Capital Development Corp.’s managing director Luis A. Limlingan.

Most banks posted higher earnings for third quarter driven by their continued expansion of their loan portfolios, particularly the consumer loans which lifted net interest incomes of the mid-tier banks.

For Rachelle C. Cruz, research analyst at AP Securities, Inc., banks did not perform badly during the quarter. “We believe this is mainly because of sustained credit demand, evidenced by an 18% growth in the first eight months in terms of industry gross loans as disclosed by the Bangko Sentral ng Pilipinas (BSP).

For PCCI Securities’ Mr. Lago, consumer loans are the “acknowledged higher margin loans.”

“[T]hus all listed banks are taking a deliberate effort to optimize its share in its loan portfolio. It is the basic reason why EW still enjoys an above-industry net interest margin (NIM). Other banks are increasing their loan portfolio allocation to power and infrastructure for higher yields,” he said.

NIM, the difference between interest paid and interest received, is a net of provisions for loan losses and is a metric commonly used to compare banks’ performance.

For the third quarter, EW’s NIM stood at 7.8%, higher than the industry average of 6.1% on account of higher consumer loans which grew 29%, and constitutes 72% of its total loans.

Regina Capital’s Mr. Limlingan said that EW’s figures were in-line with expectations “only because we expected it to have good results.”

“This is not the first time this year that EW reported industry-leading results,” Mr. Limlingan said, citing its first quarter net income growth at 54% and 60% in the first months of the year.

Another highlight, Mr. Limlingan, noted, was that of MBT which “surprised the market” with an almost 10% bottom-line expansion during the quarter.

“The previously laggard of the big 3, MBT now outpaced top 1 BDO after posting a 9% increase in profit for the third quarter, reaching P4.52 billion from the P4.1 billion the previous year. This is driven by a 17% growth in the net interest income for the period, as well as the 31% growth in the non-interest income segment.”

SEEN CREDIT DEMAND TO BE SUSTAINED
Looking forward, analysts pinned their hopes on the seasonal demand brought by the holidays that would increase bank bottom-lines as well as the continuation of the modest Philippine economic growth.

“We are bullish for the banking sector for the fourth quarter of 2017 until 2018, specifically as we see continued sustained demand for credit in anticipation of the government’s tax reform and build, build, build program,” AP Securities’ Ms. Cruz said. “Some opportunities that we see will be the potential increase in policy rates by next year which should help in the repricing of loan books translating to more room for NIM upside, foreign exchange liberalization, and possible cut in the reserve requirement ratio from 20% to 10%.”

Risks, she said, would be a slow-down in credit demand from the real estate sector if the BSP will raise key rates and the delays in the government’s tax reform and infrastructure programs.

Even with high valuations seen in some bank equities, Ms. Cruz recommends MBT, BPI, EW, and UBP as their “top buys” for this quarter.

“We also like BDO due to its aggressive branch expansion program, while SECB continues to post strong earnings growth trajectory following its merger with the Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU),” she said.

Last January 2016, SECB has taken in BTMU, the largest bank in Japan as a foreign strategic partner after the latter acquired a 20% stake in the former.

For PCCI Securities’ Mr. Lago bank stocks are still worth holding on or buying “as their leading key valuations are at a discount to PSEi’s averages.”

“Higher benchmark rates moving forward means higher spreads or NIMs for them, which in turn, will improve their core business’ profitability,” he said.

Likewise, First Resources’ Mr. Tiu is still bullish towards banks: “There is a material increase in loan activities due the rapid expansion and development that the country is undergoing.”

“BDO, for example, confirms this assessment. BDO had released its third quarter earnings report bragging a 16.99% increase in net income due to improved net interest income. We believe that numerous banks would report positively as well.”

Regina Capital’s Mr. Limlingan, on the other hand, holds a neutral position: “Most of the bank stocks have already reached their full value at this point.”

Nevertheless, analysts concurred that the retail lending segment will likely drive banks’ corporate earnings for the last quarter of the year.

“The increase in remittances of Overseas Filipino Workers (OFWs), plus increase consumption activity due to the holiday season would boost the revenue and AUM (asset under management) through higher withdrawal and short term loan activities”, said First Resource’s Mr. Tiu.

He cautioned, however, that the continued depreciation of Philippine peso against the US dollar may “substantially affect banks negatively.”

For PCCI Securities’ Mr. Lago, share prices would likely “be higher” in the fourth quarter as investors will be taking portfolio positions based on next year’s earnings and valuations. — Arianne Kristel R. Pelagio

Nation at a Glance — (11/27/17)

November 27, 2017 | 12:00 am

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

BSP paves way for start of repurchase mart

November 25, 2017 | 12:31 am

THE BANGKO SENTRAL ng Pilipinas’ (BSP) Monetary Board has approved a zero-percent reserve requirement on repurchase (repo) transactions ahead of the start of organized market operations on Monday, the BSP said in a statement on Friday.

Circular No. 983, signed by BSP Governor Nestor A. Espenilla, Jr. on Nov. 23, amended the Manual of Regulations for Banks to assign a zero percent rate of required reserves for deposit substitutes under repo arrangements from four percent currently. The circular takes effect on Nov. 27.

“In support of the comprehensive initiative to develop the domestic local currency debt market, the Monetary Board approved the issuance of a circular assigning a zero-percent reserve requirement on repurchase transactions under the Government Securities Repo Program,” the statement read.

“This responds to the industry request to minimize the friction cost on repo transactions that conform to international best practices,” it added.

“This complements the earlier issuance of the Bureau of Internal Revenue providing exemption of repo transactions under the program from documentary stamp tax.”

This latest reform measure is expected to enhance liquidity and deepen the domestic debt market, according to the BSP and the November issue of the Asian Bond Monitor which the Asian Development Bank (ADB) released on Friday.

Under a repo agreement, one party sells peso-denominated debt papers like Treasury bills and bonds to another with the promise to buy these back at a set price and a future date. In the process, the seller gets hold of short-term liquidity to hand out fresh loans and service client withdrawals, among other uses.

The repo market forms part of the government’s road map for capital market reform that will deepen the local debt market — a plan that will be implemented in phases over the next 18 months.

“The BSP believes that the establishment of an organized inter-dealer repo market will aid the development and deepening of the domestic financial market,” the central bank said in its statement, adding that this latest move is designed to enhance price transparency and market liquidity.

“At the same time, the BSP strongly encourages industry participants to adopt prudent governance standards in line with international best practices pertaining to trading and settlement, documentation, accounting, and market and regulatory disclosures as well as to establish appropriate safeguards to address risks such as counter-party and settlement risks.”

A STEP FORWARD
ADB said in its Asian Bond Monitor that the BSP has been amending its regulations to “provide greater flexibility in tapping the capital market as an alternative funding source” and took note of the central bank’s announcement in October of the rollout of the bank repo market. The BSP, ADB recalled, had said the financial reforms it will implement over the year and a half ahead will start with “improving benchmark markets as this is critical for pricing risk assets and other capital instruments”.

Moreover, the Treasury bureau has been reviewing the performance of government securities eligible dealers in the primary and secondary markets in order to establish market-makers entrusted with facilitating securities trading. The bureau will announce the first batch of market-makers and launch the enhanced government securities eligible dealers program early next year.

The Philippines’ local currency (LCY) bond market continued to expand in the third quarter, though slowing from the preceding three months, with anticipation of an impending US interest rate hike keeping investors cautious in the latest period in review, according to the latest Asian Bond Monitor.

It noted that outstanding Philippine LCY bonds increased by 0.8% quarter-on-quarter and by 8.5% year-on-year to P5.21 trillion ($102 billion) in the three months to September, with government and corporate bonds making up 80.8% (P4.212 trillion, barely changed from the preceding quarter but 6.5% more on the year) and 19.2% (P998, 4.2% up on the quarter and 18.1% more year-on-year), respectively, of the total.

Those increases, however, were smaller than the quarterly 4.6% and the annual 10.2% clocked in the second quarter, which had been boosted by a retail Treasury bond (RTB) sale.

Yields of debt papers with maturity of up to one year fell by an average of 2.1 basis points (bps), while those of bonds falling due between two and 20 years rose by an average of 19.1 bps — except for the five-year and 20-year tenors that fell by 7.8% and 0.8 bps, respectively.

CAUTIOUS
“The decline in yields at the short end of the curve and the rise in yields of most long-tenor bonds suggest that market participants are being cautious ahead of widely expected interest rate hike from the United State Federal Reserve in December,” ADB explained in its report, noting that “[i]nvestors buying long-term government securities are bidding for higher yields and are being more cautious in taking positions along that segment of the yield curve”.

The government sold a total of P270.2 billion worth of debt in the third quarter, lower than in the preceding three months. Treasury bonds issued totaled some P75 billion, falling short of a P90-billion program, while Treasury bill issuance totaled some P95.2 billion against a P105-billion program for the same three months, though more than in the second quarter “as a result of more auctions”.

“Market players expect that the government’s ambitious infrastructure plan will increase the supply of local government bonds in the market, given the need to borrow more to fund these projects,” the report read.

Much, it said, depends on the ability of the Executive to make sure tax reforms that come out of Congress retain enough revenue-generating provisions — despite populist pressures on lawmakers — so that “the government may not need to borrow more as its revenue will already be augmented, thus limiting the impact of infrastructure development on the local bond market”.

The report noted that the corporate bond market grew faster than the government counterpart on both quarter-on-quarter and year-on-year basis, with the property sector continuing to hog the biggest share of the total at 28.4%, followed by banks’ 27.7% and holding firms’ 21.1%.

Corporate bond issuers raised a total of P49.8 billion in the third quarter — “less than the amount issued in the second quarter” — led by BDO Unibank, Inc. which sold P11.8 bilion worth of six-year bonds carrying a 3.63% coupon rate.

Ayala Land, Inc. occupied the top spot in terms of outstanding bonds with P91.6 billion, up from P87.3 billion in the second quarter.

The Philippines, which together with Vietnam had “the smallest LCY government bond markets in the region”, saw the biggest drop in issuance in Asia — with declines of 31.9% quarter-on-quarter and 13.5% year-on-year to $6 billion in the third quarter — “primarily due to a high base in the second quarter when the government issued P181 billion worth of retail Treasury bonds” last Mar. 28-Apr. 6.

The Treasury bureau last Nov. 20 launched this year’s second RTB offer, scheduled to end on Nov. 29, involving some P30 billion worth of five-year debt papers. It issued P130 billion worth of RTBs with a 4.625% coupon on that first day. — Elijah Joseph C. Tubayan and K. A. N. Vidal

Aguirre issues orders to investigate DAP, other controversies during Aquino’s term

November 25, 2017 | 12:07 am

THE Department of Justice (DoJ) issued on Friday, Nov. 24, a series of department orders (DOs) dated Thursday directing an investigation into a number of controversies from the previous administration of Benigno S.C. Aquino III.

DO 749 read in part: “The National Bureau of Investigation (NBI), through Director Dante A. Gierran, is hereby directed and granted authority to investigate the complaint filed by Coalition for Investigation and Prosecution Rep. Greco (B.) Belgica, et al. against former President Benigno S. Aquino III, et al. for Malversation under Art. 217 of the Revised Penal Code,as amended.”

In his press briefing on Friday, Justice Secretary Vitaliano N. Aguirre II said that particular complaint is in connection with the controversial Disbursement Acceleration Program under Mr. Aquino.

“DAP. Kasi yung malversation yung (Because malversation pertains to) less than (P)50 million,” Mr. Aguirre said.

In a statement also on Friday, Mr. Belgica said: “DAP is a crime that has been decided almost 4 years ago. Its investigation and the prosecution of its perpetrators have been blocked since then by those who committed it and with many of those who still remain in power.”

“DOJ and NBI can now can use our template to build up cases against all culprits regardless of political affiliation and verify what we submitted. All our evidences have been submitted to DOJ,” Mr. Belgica added.

Other DOs issued Friday were No. 751, on conducting an “investigation and creation of special task force in connection with the Disbursement Acceleration Program (DAP) anomalies,” and No. 752, also directing an investigation and creation of a special task force in connection with the Priority Development Assistance Fund (PDAF) anomalies.

Sought for comment, Ramon C. Casiple, executive director of the Institute for Political and Electoral Reform, said in a text message that these planned inquiries are still “up in the air.”

Mr. Casiple said: “Investigation is far from filing a case. Much farther is a possible conviction. At this point, this is still up in the air. Let us see if there is substance.”

“It is interesting to note that there are dissenting SC (Supreme Court) opinions that Aquino, et al. may be liable for DAP,” he added, in reference to a high court ruling at the height of the DAP controversy in 2014.

Apart from the DOs issued Friday, Mr. Aguirre also issued a statement that day “on the discovery of an alleged criminal syndicate involved in the Php 8.7 billion right of way scam during the Aquino administration and the admission into the witness protection program of a witness who was personally involved in the scam.”

“The National Bureau of Investigation (NBI) informed me that they have a witness who is personally involved in a criminal syndicate which was purportedly involved in defrauding our government of around P8.7 billion from a road right of way (RROW) scam in General Santos City,” Mr. Aguirre said in the statement which he read in his Friday press conference.

“Based on the initial reports submitted to me by the NBI, this criminal syndicate purportedly submitted fake titles in the name of non-existent persons to allow them to claim from the Department of Public Works and Highways (DPWH) the just compensation from the expropriation of land which will be supposedly occupied by government projects,” he added.

“From 2009 when the syndicate started to operate, the members of this syndicate were able to process more than 300 folders containing fake road-right-of-way amounting to more or less P8.7 billion.”

“I was also informed that for the syndicate to accomplish these apparently criminal acts, several public officials from the Department of Public Works and Highways, Bureau of Internal Revenue, the City Assessor’s Office of General Santos, the Registry of Deeds, the Commission on Audit and the Regional Trial Courts have been identified by the said witness as having participated in the processing, approval and eventual release of payments to cover these dubious claims,” Mr. Aguirre said.

Mr. Aguirre, however, mentioned several public officials under the Aquino administration who may be involved in the said scam.

He added: “Consequently, I have instructed the NBI to continue its case build-up in order to further strengthen the case which most likely will include several high ranking officials of the Aquino administration.”

Mr. Aguirre pointed out that “based on their signatures in the documents submitted to the NBI and on the sinumpaang salaysay (sworn testimony) of our witness, some high ranking officials of the previous administration may have potential liabilities like former DPWH Secretary Rogelio (L.) Singson who apparently approved and requested the release of payment of fake RROW claims.”

“Former Budget Secretary Florencio (B.) Abad who apparently approved the release of payment for illegal RROW claims as requested by DPWH Secretary Rogelio Singson may also face potential criminal liability,” he added.

Mr. Abad for his part said on Friday: “The accusation is baseless and therefore not true. I and the Department of Budget and Management (DBM) were never part of the negotiations for that transaction. The DPWH will be in the best position to shed light on the issue. If I’m not mistaken, that case is already pending with the Omb(udsman).”

Mr. Singson, for his part, said: “Am so sorry I don’t know what it is about and so I cant comment yet.”

The Aquino camp was also sought for comment but has not responded as of this reporting. — Andrea Louise E. San Juan

Senate retains VAT privileges of PEZA locators, mass housing

November 25, 2017 | 12:06 am

THE Senate has voted down a proposed tax reform amendment by Sen. Panfilo M. Lacson seeking to limit zero-Value Added Tax (VAT) entitlements to direct exporters.

The Senators who rejected the amendment Thursday cited risks to some industries, including the Business Process Outsourcing (BPO) industry.

The Tax Reform for Acceleration and Inclusion (TRAIN) bill is undergoing an amendment period. Of the 18 senators present, 12 voted against Mr. Lacson’s proposal.

The amendment sought to lower the VAT rate to 10% from 12% and to reduce the 143 exempt categories to 65, including the zero-VAT privileges enjoyed by industries located in industrial zones controlled by the Philippine Economic Zone Authority (PEZA).

“My proposed amendments are premised on the sad reality that while the Philippines has the highest VAT rate at 12% among all ASEAN neighbors, we also have the most number of exemptions,” Mr. Lacson said, adding that “all these countries including Thailand with 35 exemptions, Vietnam (25), and Malaysia (14), their combined total will only be 111” compared to the Philippine total of 143 exemptions.

“Assuming that we do away with the exemptions, the government could collect P1.4 trillion from VAT alone,” Mr. Lacson said.

Sen. Juan Edgardo M. Angara, the sponsor of the TRAIN bill, said: “The country is not yet ready for this kind of amendment. I think in a year or two, we will be ready.”

“We are transitioning from a system where we are used to giving exemptions and slowly we are repealing those exemptions,” Mr. Angara added.

Mr. Angara also said that with the “current condition of the refund system, exporters will (be forced out of business).

Mr. Angara said the VAT refund process is a significant burden on the finances of companies applying for them, saying that at committee level he sought to prod the Bureau of Internal Revenue (BIR) “to reach a certain level of performance. They must be able to process VAT refunds in 90 days. They must ensure that all VAT refunds are paid.”

“We are also protecting the BPOs and the PEZA zone,” Mr. Angara said, adding, “The industries approached us to make a provision not to touch the zero rating on ecozones, because ecozones are a separate customs territory.”

Senator Ralph G. Recto, who backed Mr. Lacson’s proposal, said: “Zero-rated treatment (is reserved for) direct exporters of goods.”

The Senate also retained the VAT exemption of mass housing units worth up to P2 million for projects outside Metro Manila.

The original proposal of the Department of Finance (DOF) sought to remove the VAT exemption of both socialized housing priced at P450,000 and below, and of low-cost housing, as part of its move to broaden the VAT base.

The P2-million price ceiling for mass housing projects is in line with the policy direction of the Duterte administration to disperse economic growth and opportunities to areas outside of Metro Manila.

According to data from the Housing and Urban Development Coordinating Council (HUDCC), 5.91 million units out of the 6.58 million-unit backlog covers areas outside Metro Manila.

The Housing Industry Roadmap of the Philippines 2012-2030 estimates that 60% of the housing backlog is in the economic housing segment, priced between P450,000 and P1.7 million.

The Senate likewise retained the VAT exemption of senior citizens, persons with disabilities, and cooperatives, as well those of raw food and agricultural products, health and education. — Arjay L. Balinbin

Termination of talks with Reds now official with proclamation

November 25, 2017 | 12:06 am

PRESIDENT Rodrigo R. Duterte has formally declared the termination of talks between the Government of the Philippines and the National Democratic Front-Communist of the Philippines-The New People’s Army (NDF-CPP-NPA) through Proclamation No. 360 issued Thursday, Nov. 23.

The proclamation, issued on Friday, noted in part that, “in spite of the best efforts exerted by this Administration, the NDF-CPP-NPA failed to show its sincerity and commitment in pursuing genuine and meaningful peace negotiations as it engaged in acts of violence and hostilities, endangering the lives and properties of innocent people.”

“Now, therefore, I, Rodrigo Roa Duterte, President of the Republic of the Philippines, by virtue of the powers vested in me by the Constitution and existing laws, do hereby declare the termination of peace negotiations with the NDF-CPP-NPA and all its adjuncts and organizational units,” the proclamation also read.

The Office of the Presidential Adviser on the Peace Process and the Government of the Republic of the Philippines (GRP) Panel for Peace Talks with the CPP-NPA-NDF were accordingly directed “to cancel all peace talks and meetings with the NDF-CPP-NPA.”

Late night on Thursday, Presidential Spokesperson Harry L. Roque Jr., announced the proclamation after Presidential Adviser on the Peace Process Jesus G. Dureza made a statement a day earlier on the cancellation of talks.

“We find it unfortunate that their members have failed to show their sincerity and commitment in pursuing genuine and meaningful peaceful negotiations,” Mr. Roque said of the NDF-CPP-NPA.

‘NO. 1 TERRORIST’
Peace talks between the GRP and the NDF-CPP-NPA started early this year but a fifth round of talks was canceled following reports of NPA rebels attacking government forces.

On Wednesday, Mr. Duterte said he will order the arrest of the rebels as they were already categorized as terrorists. He also said even their “legal fronts” could be arrested as they worked together to topple down the government.

“The President, as we all know, has always wanted to leave a legacy of peace under his administration. He has, in fact, walked the extra mile for peace. Rest assured that he will continuously pray that we may all find the peace that we seek for our beloved country in the fullness of God’s time,” Mr. Roque said.

For his part, NDF chief political consultant Jose Maria Sison branded Mr. Duterte as “the No. 1 terrorist in the Philippines,” and as “a mass murderer, political swindler, a sycophant to foreign powers and a corrupt bureaucrat.”

“The Filipino people and revolutionary forces waging the people´s democratic revolution have no choice but to intensify the people´s war through an extensive and intensive guerrilla warfare in rural areas and partisan or commando operations in urban areas,” Mr. Sison also said.

“Duterte is now worried to death by his own fear that anti-Duterte officers within his own army and police are inclined to act in the name of the people and unite with the broad opposition and mass movement in order to end the Duterte regime in the same manner that the Marcos and Estrada regimes were ended,” he added.

Mr. Sison’s wife, Julieta de Lima, in her statement as chairperson of the NDFP Reciprocal Working Committee on Social and Economic Reforms lamented that Mr. Duterte’s “latest scuttling of the talks comes at a time when unprecedented advances have already been achieved in forging agreements on urgently needed socio-economic reforms to alleviate mass poverty and resolve the roots of the armed conflict.”

‘US INTERVENTION’
Although the proclamation stopped short of declaring the rebels as terrorists, ACT Teachers Rep. Antonio Tinio said in response to the proclamation: “Sa tingin ko, among others, magbubukas ito sa isang mas malala na direktang intervention ng US military sa counter-insurgency operations. The same way na ‘yung US ay deeply involved sa giyera kontra sa Maute kasi ISIS daw ‘yan, terrorist group. So kinikilala ng US government na terrorist group ito, therefore may pahintulot na manghimasok sa mga counter-terrorist operation ng Armed Forces of the Philippines.” (I think this will open the way to a worse direct intervention by the US military in counter-insurgency operations. The same way the US was deeply involved in the war against Maute because they were deemed ISIS, a terrorist group. So the US government recognizes [the communist rebels] as a terrorist group, therefore this gives them room to be involved in the counter-terrorist operation of the Armed Forces of the Philippines.)

Rep. Carlos Isagani T. Zarate of Bayan Muna party-list for his part said: “Unfortunately, mukhang nagiging tindig ngayon ng administrasyon ay pasukuin na lamang ang mga rebolusyonaryong grupo at magkaroon ng pangmatagalang ceasefire na hindi ina-address ‘yung root causes of the armed conflict…” (Unfortunately, it appears the administration’s stand now is to force the surrender of the revolutionary group and enforce a cease-fire that will not address the root causes of the armed conflict.)

Rep. Sarah Jane I. Elago of the Kabataan party-list said Mr. Duterte’s proclamation was tantamount to an “all-out war” against the rebels.

But Rep. Jericho Nograles of the Pwersa ng Bayaning Atleta (PBA), on the other hand, said in a statement that “Duterte is right to tag CPP-NDF-NPA as ‘terrorists.’”

“The negotiations between the Government and the CPP-NDF-NPA have been going nowhere for years. In fact, it has been simply a ‘hearing commission’ more than a true negotiation for peace,” Mr. Nograles said.

He added that based on Republic Act 9372 or the Human Security Act of 2007, NDF-CPP-NPA are thus defined as terrorists.

“They act like terrorists so it’s only correct to classify them as terrorists,” Mr. Nograles said.

For his part, Senator Francis N. Pangilinan in his statement as Liberal Party president said in part: “The Party expresses serious concern over the President’s cancellation of peace talks with the National Democratic Front. Both sides have already endured enough, and cancelling the peace talks would only mean further suffering for all, especially civilians who are caught between the seemingly endless arms struggle.”

“We need to have a continuous dialogue about dealing with the civil unrest. We need to continue talking about land reform, improving and ensuring workers’ rights, protecting indigenous peoples, and alleviating the injustices long felt by our country’s working class,” Mr. Pangilinan also said. — Rosemarie A. Zamora with Minde Nyl R. dela Cruz

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