4 films to see on the week of July 29-August 5, 2016
How To Be Yours
This romantic comedy-drama from Star Cinema pairs Bea Alonzo and Gerald Anderson — under the direction of Dan Villegas — as two professionally driven people who fall in love and are forced to reassess their goals.
MTRCB Rating: PG
Ignacio de Loyola
Written and directed by Paolo Dy, and produced by Jescom Film Philippines, this biopic tells the tale of the 16th Century Spanish soldier who finds God and eventually helps fond the Jesuits. It stars Andreas Muñoz, Javier Godino, and Julio Perillan.
MTRCB Rating: PG
Sadako Vs. Kayako
Kôji Shiraishi directs this film where two evil queens of Japanese horror battle it out. Woe betide anyone caught between them — particularly ghost hunter Keizo (Masanobu Ando) and his sidekick Tamao (Mai Kikuchi). The film also stars Aimi Satsukawa, Mizuki Yamamoto, and Tina Tamashiro. “Director Koji Shiraishi (The Curse, 2005) is a horror veteran who largely respects the ideas that make up the constituent franchises, which started with Ringu (1998) and Ju-On (2002),” writes John Lui of The Straits Times, but “Keizo’s and Tamao’s characters feel as if they wandered in from a high-school comedy featuring a cool teacher and his magic pet.”
MTRCB Rating: R-13
Nerve
Pressured by friends to join the popular online game Nerve which involves dares, a high school girl decides to sign up for just one dare. She soon finds herself partnered with a stranger caught up in a competition that takes a sinister turn. Directed by Ariel Schulman and Henry Joost, it stars Dave Franco, Emma Roberts, and Juliette Lewis. Entertainment Weekly’s Kevin P. Sullivan writes: “The perils of social media may be ripe for the after-school-special treatment, but less expectedly, they make for a half-decent Hunger Games riff.”
MTRCB Rating: PG
THE RANKS of Filipinos expecting quality of life and the general economy to improve in the next 12 months grew to a record high in late June, according to a Social Weather Stations (SWS) survey that one analyst said reflects optimism that President Rodrigo R. Duterte can count on as he rolls out policy initiatives and reforms this early in his six-year term. Read the full story.
by Josielyn Luna-Manuel, Special Features Editor
It’s not something every fashionista keeps track of.
But it nevertheless is a worldwide trend that fashion retailers keep tabs on.
It’s called fast fashion, referring broadly to upscale brands — “the latest fashion from the catwalk of Milan” — that can be brought, displayed, and hopefully sold by retailers as quickly as possible, said Frances Yu, chief retail strategist at local training and consultancy firm Mansmith & Fielders and former Vice President and Business Unit Head of Rustan’s Supermarket.
Fast fashion “presents a level of competition that the local retail industry has never faced in its history of retailing,” Ms. Yu said in an interview. “[Local retailers] are competing with these international chains that have economies of scale and very excellent supply chain and logistics that can really outperform the locals on all aspects – from assortment to quality to price to speed, so it would be very difficult for the locals to actually survive that onslaught,” Ms. Yu said.
As expected, fast fashion has intensified competition among retailers.
Fast fashion brands such as Zara, UNIQLO, and H&M not only offer competitive prices and target the same customers, but also bring in the latest fashions to their network of stores in just two weeks, Ms. Yu said.
Moreover, inventories of these brands can be replenished every seven days, she explained, adding that previously, luxury brands were brought home by Rustan’s and its retail unit, Stores Specialist Inc. (SSI), the Philippines’ largest specialty retailer.
“Newness drives frequency of visits. If your inventory doesn’t change in six months, why should I go there seeing the same display?” Ms. Yu said.
In one way or another, fast fashion may explain why SSI’s income dropped 54.5% in the first quarter of the year, according to Alexander Adrian O. Tiu, senior equity analyst at AB Capital Securities, Inc.
Based on a BusinessWorld article published last May 14, “the Tantoco-led company netted P121.6 million in the three months ending March, down 54.5% from the P267 million earned in the same period last year.”
The income decline was due to “an increase in competition in the local retail market, given the entry of UNIQLO and H&M,” Mr. Tiu said in an interview in late June.
The cut in SSI’s net profit was also attributable to either a drop in gross profit margin, its high inventory levels, and the change in lifestyle of its customers, Mr. Tiu added.
“For the retailer, high inventory levels require the need to drop prices of products or go on sale just so they can let the inventory out,” Mr. Tiu said.
Despite its financial results, AB Capital still has a “hold recommendation for SSI. We think that the stock is below its fair value,” Mr. Tiu said.
Since foreign brands cannot be stopped dominating and entering the local market, he said that the route should be to focus on other segments that could potentially bring in more revenue.
“What you have to do is try to get another pie which is another segment that’s currently untapped. I think that’s the key for SSI. They’ve been trying to bring in brands from other categories,” he added.
Robust economy boosts retail industry’s outlook
Overall, these challenges have failed to dampen the outlook in the retail industry.
After all, the Philippines continues to become one of the bright spots in the Asia Pacific Region which foreign brands “are looking to tap into…which can help them grow…” said said Euromonitor International, a London-based market research firm, in its Country Report titled, “Retailing in the Philippines,” published in January this year.
The report added that “[r]etailing in the Philippines is expected to significantly grow alongside the continued improvement in the economy. The increasing disposable income of Filipinos will encourage further purchases of products within grocery and non-grocery categories. The constant exposure to various media sources and overseas travel are also expected to further increase sophistication of Filipinos, which will hasten the growth of local and foreign retail brands already present.”
Similar sentiments have also been expressed by consulting firm Cushman & Wakefield.
“The strong economic fundamentals and demographics of the country should drive healthy appetite for retail goods moving forward,” it said in a March 2015 report entitled, “How Global Brands are Shaping the Metro Retailer Landscape.” “Retail competition may tighten as existing brands compete against new retailers for the increasingly sophisticated consumer market and limited available shopping space. However, a healthy shopping mall pipeline and presence of latent demand in other areas of the country should be able to accommodate new retailer entrants to the market.”
Competition to bring out Filipino ingenuity
The healthy increase in retail sales — which reached $134 billion — ranked the Philippines 16th out of the 30 countries listed in the 2016 Global Retail Development Index study titled “Global Retail Expansion at a Crossroads.”
Published by global management consulting firm ATKearney in May, it predicted that the country’s retail industry will soon account for one-fifth of the country’s GDP by 2025.
That wait may already be too long.
After all, Philippine Retailers Association (PRA) Chairman and Duty Free Philippines Corporation Chief Operating Officer Lorenzo C. Formoso said that the sector is estimated to increase its share to the country’s GDP by another five percent to 23-24% this year from 18% last year.
From 2008 to 2014, more than 190 new mid-range and luxury foreign brands entered the country, Cushman & Wakefield said. Of this figure, around 123 new brands covered in its report are western retailers. Asian retailers accounted for around 56 of the 190 new brands in the country.
More retailers and more brands is expected to work to the local sector’s advantage.
Besides promoting dynamic competition, it is also expected to bring out Filipino ingenuity and creativity as well as raise the bar and increase efficiency and performance, according to Mansmith & Fielders’ Ms. Yu.
“It’s only when your under extreme pressure that you’re able to produce innovation. As the saying goes, ‘Necessity is the mother of invention.’ I think for those who will survive, they will find that they have become much better business people or entrepreneurs,” she said.
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Josielyn Luna-Manuel is a journalism graduate from the Polytechnic University of the Philippines. She believes in the power of kind words and happy thoughts.
by Krista Angela M. Montealegre, National Correspondent
President Rodrigo R. Duterte has so far been saying the right things: accelerating infrastructure spending, cutting red tape, and reforming the tax system. The tough-talking leader has made believers out of the business elite, but more work must be done to achieve his goal of reinvigorating the countryside to spread benefits of rapid economic growth.
Speaking before some of the country’s biggest names in business, Finance Secretary Carlos G. Dominguez III said the government aims to accelerate infrastructure development in the rural areas, lining up “quite a number” of projects for implementation either through the public-private partnership (PPP) or government budget methods.
This sentiment was also expressed by Socioeconomic Planning Secretary Ernesto M. Pernia during the BusinessWorld Economic Forum on July 12 at the Shangri-La at The Fort in Taguig City.
“We’ll continue the good macroeconomic policies, but we want to make a big push toward regional and rural development, which was not given too much emphasis in the previous administration,” Mr. Pernia said.
Freshly harvested bananas are processed in Davao del Norte province in Mindanao as shown in this file photo. The country’s second-largest island is expected to become a major food basket under the Duterte government. (AFP)
The next big thing: Mindanao
Under former President Benigno S.C. Aquino III’s watch, the Philippine gross domestic product expanded by an average of 6.2% — the fastest pace since the 1970s — but his failure to make the economic gains felt by majority of the Filipinos has tainted that legacy.
Mr. Duterte — who transformed Davao once notorious for crime into a gold mine for corporates during his 22 years as mayor — plans to lure businesses to far-flung provinces in an effort to lift a fourth of the population out of poverty.
The “big story” within the next six years will be Mindanao, which is envisioned to become the country’s “major food basket,” Mr. Dominguez said.
Decades of under-investment, corruption, and violence have plagued the major southernmost island in the Philippines, leaving most parts of it impoverished.
Developing the necessary power, water, communications and transport infrastructure will be crucial to realize the government’s goal, with the Asian Development Bank (ADB) projecting that the Philippines must invest up to $127 billion in infrastructure from 2010 to 2020.
The Duterte administration intends to continue projects under the public-private partnership program — the cornerstone strategy of his predecessor to boost spending on major infrastructure that would spur economic activity nationwide.
The PPP Center — the central coordinating and monitoring agency for big-ticket infrastructure projects the government is undertaking with private companies — has 53 infrastructure projects in its pipeline, 12 of which cumulatively worth some P217.4 billion have been awarded so far.
First Pacific Co. Ltd. Managing Director Manuel V. Pangilinan said the gaping deficits in the economy such as infrastructure present investment opportunities for local and foreign companies.
Metro Pacific Investments Corp., which has interests in power generation, toll roads, water utility, and hospitals, is one of three Philippine subsidiaries of Hong Kong-based First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc. — a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc. — maintains interest in BusinessWorld through the Philippine Star Group, which it controls.
“We all know there is poverty standing in the way so addressing it must be the business of business, not only of government’s. The optimum approach to poverty is creating jobs,” Mr. Pangilinan said, during the same event.
Vehicles in a traffic jam make their way along a highway in Manila in this photo taken in 2013. Traffic in the metropolis has gotten worse, thanks to economic growth and easy credit, allowing millions to buy cars. (AFP)
Decongesting Metro Manila
Infrastructure woes have come in the way of the Philippines reaching its economic growth potential and the improvement of quality of life, AC Energy Holdings, Inc. President and Chief Executive Officer John Eric T. Francia, who led the Ayala group’s foray into the transport infrastructure and energy sectors.
“We believe this is solvable with the help of the private sector,” Mr. Francia said.
Property developer Megaworld Corp. Senior Vice-President Kevin L. Tan said an expansion to the countryside will provide growth opportunities for the tourism and the business process outsourcing (BPO) industries. The real estate firm plans to unveil two more townships in Mindanao.
“We believe in the vision of the President…The key to decongest Metro Manila is to drive development to rural areas,” Mr. Tan said.
But bringing the private sector out of the lucrative capital may come with several challenges. Companies are chasing returns and the government must provide incentives for businesses to cater to the communities offering lower average revenue per user versus those in urban centers.
“The challenge is basically that there are densities for projects to be viable in these places. Clearly, there is a need for a lot of basic infrastructure such as electricity, water, fixed telephone, and mobile telephone and the only way they are going to develop is for these infrastructure to reach these areas,” said Aboitiz Equity Ventures, Inc. President and Chief Executive Officer Erramon I. Aboitiz.
Globe Telecom, Inc. President Ernest L. Cu said the government must help the private sector build the infrastructure in the marginalized areas to make it viable for businesses to operate there.
Mr. Cu recommended the construction of a fiber optic network in areas such as the Autonomous Region in Muslim Mindanao (ARMM) that telecommunication companies can rent from the government.
“If government builds roads, they should also be building the information highway. It’s as vital as farm to market roads,” Mr. Cu said.
“Our returns are predicated on a much shorter return in terms of time, but the government has a very long period of return and their basis case is not only predicated on the particular fiber optic it will rent [out] but also on the benefits of the community that will be sustained,” he added.
Even the President’s dream project — a major railway in Mindanao that will be linked to Luzon — may face some issues if he decides to undertake it through a PPP.
“It’s going to be missionary in nature. Rail, in itself, is already non-economic on a standalone basis for a private sector investment let alone in Mindanao,” Mr. Francia said.
The government has enabled online filing of income tax returns, reducing queues such as this one shown by a 2006 photo. However, the Philippines’ personal and corporate taxes remain one of the highest in Asia. (AFP)
Red tape, high taxes, and foreign ownership
The government’s focus on streamlining the bureaucracy and reducing the tax burden on companies and individuals will make the Philippines more competitive versus its neighbors in the region, said Rustans Supercenters, Inc. President Bienvenido V. Tantoco III.
“If taxes are more competitive and more efficient, corporations will invest more and consumers will also spend more. There may be a period where things might get worse but on a medium term that will be beneficial for corporations and businesses,” Mr. Tantoco said.
Red tape and high taxes — not the Constitutional limits to foreign ownership — have been the main deterrent for foreign companies to invest here, said Sun Life of Canada (Philippines), Inc. President Rizalina G. Mantaring.
“If you are a company and you want to build a strong industry and strong capabilities for manufacturing, why will you locate in the Philippines when you can operate much more cheaply and efficiently elsewhere?” Ms. Mantaring said.
“Those are the things we need to address because once markets open up, consumers, revenues and investments flow to where it is most efficient,” she added.
At a time of lingering global uncertainty, the Philippines must take advantage of its robust growth momentum to attract more job-generating foreign direct investments — one of the lowest in the region.
“If we’re able to simplify processes, make it easier to do business in the Philippines, then we are setting ourselves up for success,” said Alaska Milk Corp. President Wilfred Steven Uytengsu, Jr.
Vice-President Maria Leonor “Leni” G. Robredo said companies must embrace “business unusual” where shared value — not profit — is the driver of growth.
“As the private sector redefines products and pricing models to turn the swaths of population that have been left out as their new target market, shared value is created. Growth and progress happen at the same time,” Ms. Robredo said.
Citing data from the Organization for Economic Cooperation and Development, Ms. Robredo said rising inequality took away 10 percentage points of growth rates in Mexico and New Zealand, while cumulative growth rates in Italy, the United Kingdom and the United States would have been 6-9 percentage points higher had income disparities not widened.
“We need growth for all, not just for a select few. Progress that benefits only the elite is no progress at all,” she said.
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Krista Angela M. Montealegre (@_kmontealegre on Twitter) has been writing about the corporate scene for nearly a decade, the last few years or so for BusinessWorld.
A woman sits with a pro-Brexit placard as a group of people set up a counter demonstration to a group taking part in a picnic against Brexit organized by the General Assembly in Green Park in London in July 2016. The British government on Saturday formally rejected a petition signed by more than 4.125 million people calling for a second referendum on Britain’s membership of the EU. (AFP)
by Imee Charlee C. Delavin, Reporter
The next few years will be more challenging for Philippine banks amid headwinds from overseas, but the country’s sound macroeconomic fundamentals are seen fueling the local financial sector’s expansion, drawing in more foreign banks that want a piece of Asia’s rising star.
Since the start of the year, local financial markets have been buffeted by the divergence in the fortunes of the world’s biggest economies. In recent weeks, Britain’s decision to pull out of the European Union added to this uncertainty.
“With the exit of Britain from the European Union, investors right now are on a wait-and-see mode, assessing the repercussions of Britain’s decision on the health of the world economy,” Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said.
“Britain could potentially undermine global growth by dampening consumer and business sentiment. Although another worldwide recession is unlikely given the steady pace of the US economy, the separation of Britain could definitely aggravate global economic divergence, resulting in increased volatility in financial markets,” he said.
The divergence among the world’s advanced economies has the US on the one hand raising interest rates to sustain its recovery from the Global Financial Crisis of 2008-2009. Japan and the Eurozone on the other hand are easing monetary policy to prevent their economies from sliding back.
Add to the mix China, which has slowed down in recent years, pulling along with it some emerging economies in Asia that rode on the export boom of the world’s second largest economy.
“Added stimulus would mean that interest rates may remain low, but very volatile, in the next few years,” Mr. Dumalagan said.
“Amid this global economic environment, Philippine banks might find themselves frequently adjusting their portfolios in response to mixed signals from abroad. Volatility offers profit opportunities, although market timing is critical. This could also mean that loan growth might remain strong, as relatively low interest rates could entice firms and households to borrow more,” he added.
Despite global headwinds, Philippine banks remain well-capitalized, the Bangko Sentral ng Pilipinas said. (AFP)
Local lenders remain well-capitalized
Despite the external headwinds, Philippine banks remained well-capitalized, with a 14.91% capital adequacy ratio (CAR) at the end of last year, or well above 10% minimum set by the Bangko Sentral ng Pilipinas’ (BSP) and the 8% floor under Basel III.
Capital buffers also were of high quality, mainly composed of common equity tier 1 (CET1) instruments, which represented 12.37% and 13.33% of risk-weighted assets on solo and consolidated bases, or more than double the minimum 6% share set by the BSP. The share of Tier 1 capital — composed of common equity and qualified capital instruments — also stood at 12.55% and 13.48% at end-2015, higher than the 7.5% requirement.
The banking sector’s total resources stood at P12.52 trillion at end-March 2016, up from the year-ago level of P11.37 trillion, as the public continued to place their savings in banks, thus supporting the industry’s expansion.
Universal and commercial banks’ total resources stood at P11.25 trillion, up from the P10.24 trillion at end-March 2015. Thrift banks had P1.05 trillion at end-December, while rural banks held P213 billion.
This was despite a drop in the number of banks operating in the country. At end-December, the number of lenders declined to 632 from 648 in 2014. However, total bank branches rose to 10,124 from just 9,713the previous year.
Big banks remained profitable in 2015, posting a combined net income of P120.275 billion.
According to the BSP’s assessment, “the Philippine banking system remains resilient as it continued to support long-term economic growth, [adding that] banks’ balance sheets were marked by sustained growth in assets and deposits.”
International credit raters have said the Philippine banking system remains sound and stable, as banks remained well-capitalized against any financial shocks, having been supported by the country’s strong fundamentals and rapid economic growth.
Bangko Sentral Governor Amando Tetangco Jr: ““The projection is that the Philippine economy will continue to grow at a rate above trend over the next few years.” (AFP)
Positive economic outlook
BSP Governor Amando M. Tetangco, Jr. agrees that the country’s solid macroeconomic fundamentals underpin the banking industry’s strength, adding that the positive outlook for the Philippine economy lends support to lenders’ resilience in the near- to medium-term.
“The projection is that the Philippine economy will continue to grow at a rate above trend over the next few years, which would indicate that there would be a need for funding increased economic activity during that period. That would augur well for the banking system,” Mr. Tetangco said.
Despite the global uncertainty, the Philippines’ gross domestic product (GDP) growth has averaged 6.3% annually since 2010. At 1.8 percentage points more than in the previous six years, the recent growth record is a bigger improvement than in any other country in the region, Capital Economics Ltd. earlier said.
Last year, GDP grew by 5.8% on the back of robust domestic demand and private investments, albeit missing a 7-8% target for 2015.
GDP grew by 6.9% in the first quarter of 2016, driven by an uptick in public disbursements, a surge in investments, and robust household consumption, which historically has contributed up to 70% of GDP. This year, the country is seen expanding by 6-7%, down from the initial target of 6.8-7.8%, but still above trend.
Workers stay onsite to fix a flood control project in Metro Manila. Big-ticket projects are expected to boost the expansion of Philippine banks further. (AFP)
Boost infrastructure spending
Seen boosting economic growth in the medium term is increased infrastructure spending — by at least 5% of GDP, going by what President Rodrigo R. Duterte’s economic managers have been saying. This in turn will be a boon to the banking industry.
“It helps that the new economic team has announced that they will ratchet up infrastructure spending. This would create the conditions for more future growth,” EastWest Banking Corp. President and CEO Antonio C. Moncupa, Jr. said.
“And if the campaign against criminality starts to bear fruits and the peace processes take off, these could unleash more upbeat mood and eventually investments and hopefully translate to more job opportunities for our workers,” he said.
Ildemarc C. Bautista, assistant vice-president and head of research at Metropolitan Bank & Trust Co., described as “unprecedented” the Duterte administration’s plan to ramp up infrastructure spending to as much as 7% of GDP.
“[C]onsumer and business loans should pick up on the back of these government stimulus programs and strong consumer spending,” he said, adding that, coupled with low global inflation and high domestic liquidity, “this should prove positive for the demand side.”
Maybank ATR Kim Eng banking sector analyst Katherine Tan said the government’s emphasis on infrastructure, particularly public-private partnership (PPP) projects can address banks’ compressing margins.
“[T]hey are term loans… they are considered as project financing and project financing usually gives you higher rates so more PPPs then that should also help the banks’ margin in the long-term,” Ms. Tan said. “There would be more room for growth for the banking sector in the next six years [as] more PPPs, more project-financing type of loans then that would probably help improve your margins.”
Back to basics
Patrick D. Cheng, first vice-president at China Banking Corp., said banks “should do reasonably well” during the next few years.The government’s PPP projects will boost the expansion of banks as “more conglomerates team up and share the risks and rewards” of such projects, giving local lenders “more capital market deals to attend to,” he said.
“If the country continues to grow by around 6% to 7% per year for the duration of the Duterte administration, then we should expect bank earnings to gain somewhere between 1 and 1.50 times GDP growth,” Mr. Cheng said.
“With interest rates much lower, bank’s trading gains will definitely be muted compared to where they were four to five years ago. It will really be a back to basics for banking. Making good loans… keeping within their respective bank’s risk appetite and generating a good balance of fee income,” he said.
Branch expansion “may be tapering off as banks and clients adapt better to technology and digital banking — non-branch banking — channels,” Mr. Cheng said, adding that this should give banks “some breathing space on operating expenses.”
“These actions if properly executed should allow banks to generate and rebuild net income levels to offset the generally lower trading gains environment,” he added.
A woman walks in front of a signboard of Japan’s Sumitomo Mitsui Banking Corp in Tokyo in this photo taken in 2013. The bank was one of eight that secured approval to operate in the Philippines (AFP).
Entry of more foreign banks
And as success attracts rivals, the Philippine banking industry will be witness to more players from abroad, aided in no small way by the government’s move to liberalize foreign ownership, and by the envisioned ASEAN Banking Integration come 2020.
“An expanding economy is always positive for the banking system,” Mr. Tetangco said, adding that the country’s “strong macroeconomic fundamentals and good economic performance” is luring more foreign banks into the system.
“Given the positive prospects of continued growth and manageable inflation, the entry of foreign investments is expected to increase further, including investments in the banking sector which has actually been liberalized through the passage of RA [Republic Act] 10641 and also the passage of the law allowing higher foreign participation in rural banks,” Mr. Tetangco said.
The BSP has approved the entry of eight foreign banks since the passage of the Act Allowing the Full Entry of Foreign Banks in July 2014. The foreign lenders that got the BSP’s green light to operate in the Philippines are Japan’s Sumitomo Mitsui Banking Corp., South Korea’s Industrial Bank of Korea and Shinhan Bank, Taiwan’s Cathay United Bank and Yuanta Commercial Bank Co. Ltd and the Singapore’s United Overseas Bank Ltd.
This year, Korea’s Woori Bank entered the local market by partnering with Gaisano-led Wealth Development Bank Corp., a thrift lender which targets to serve both Korean tourists and expats. In June, Taiwan’s First Commercial Bank also got the central bank’s approval to set up a branch in Manila.
“There are more applications that are being evaluated right now,” Mr. Tetangco said.
EastWest’s Mr. Moncupa said the outlook for the local banking industry in the next three to six years is “definitely bright,” notwithstanding greater competition.
“[M]ore intense competition… normally happens when the mood is upbeat. Everybody will try to get a piece of the action. While that puts some pressure on bank spreads, it will be good for households and businesses in terms of access to credit, better services, and more competitive pricing,” he said.
Mr. Moncupa said the lower spreads and intense competition would put pressure on mergers and acquisitions, which would create higher efficiencies and economies of scale.
“Overall, the industry will turn positive results although it could be tough for some banks. We expect to see more interest from foreign banks to get into the country. In general, in the next few years we see retail banking to continue to be the realm of local banks. Foreign banks will be mostly in corporate and wholesale banking. Foreign banks may try to get minority stakes in local banks,” he said.
Metrobank’s Mr. Bautista sees tighter competition playing out this way: “The big local banks will continue to leverage their national presence and create economies of scale while the smaller banks will focus on niche markets and consumer segments.”
“Although it looks like new entrants are more amenable to partnerships with local banks instead of going in solo… these foreign entrants will continue to seek partnerships with the mid-tier banks as they focus on niche markets and using technology solutions as a competitive tool,” he said.
Choice of next BSP chief
Lastly, any orderly adjustment by the banking industry to the new realities of broader competition and external volatility would require the steady hand of a central bank. Crucial to the financial sector, if not the entire economy’s mid-term prospects, is the appointment of a new BSP chief by next year when Mr. Tetangco steps down.
Nicholas Antonio T. Mapa, associate economist at Bank of the Philippine Islands (BPI) said one of Mr. Duterte’s most crucial appointees will be his choice for BSP Governor in 2017.
“President [Benigno S.C.] Aquino [III] did well in re-appointing the ace Governor who has earned international acclaim for his astute stewardship of the country’s financial system,” Mr. Mapa said.
“No doubt [Mr.] Tetangco helped keep the economy afloat in rough waters and ensured smooth and safe sailing in the times that the winds were full in our sails. Duterte would need to find a worthy successor to the outgoing Tetangco,” Mr. Mapa said.
The Philippine financial system is “one of the most resilient in the region, if not the world” as it “adheres to stringent standards of risk management to ensure that the business of public trust remains whole and viable for all stakeholders involved,” he said.
One of Mr. Tetangco’s legacies to the Philippine banking system is the implementation of an interest rate corridor system, “which is precisely the framework that can stave off financial market volatility,” Mr. Mapa said.
“Given how quickly global markets can turn from tempest to tranquil and back, the BSP’s investment in such a system affords them the flexibility to deal with rapid changes in market sentiment and to calm the waters when they do get roiled,” he said.
“Their ability to better get hold of liquidity will go a long way to deterring financial stress from the eventual [United Kingdom’s] exit from the European Union, imminent, albeit delayed Fed rate hike cycle and possible renewed concerns about crude oil prices and China’s economy,” Mr. Mapa added.
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Imee Charlee C. Delavin (@charleedelavin on Twitter) covers private banks for BusinessWorld. She loves to travel.
THE COUNTRY’s budget balance swung to a deficit last semester on a double-digit rise in expenditures that, in turn, is expected to have spurred the economy to have grown faster in the second quarter, the Finance department reported yesterday. Read the full story.
