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Common legislative agenda approved by LEDAC

MALACAÑANG and Congress last Monday agreed on 28 legislative priorities for the term of President Rodrigo R. Duterte that ends in mid-2022, the National Economic and Development Authority (NEDA) said in a statement yesterday. Read the full story.

Palace, Congress agree on target bills

Bounty Fresh assures its chicken products are safe

BOUNTY FRESH Food, Inc. on Wednesday assured the public its chicken products are safe, following the government’s completion of its culling operations to contain the avian influenza outbreak.

“We at Bounty Fresh, for one, are focused on the strict implementation of biosecurity measures in all our facilities, ensuring that all critical control points in its value chain are covered,” said Vicente Manalo, Jr., senior vice-president for contract growing of Bounty Fresh Food in a statement on Wednesday.

“Also, the level of hygiene and sanitation that we employ in the farms are consistently above industry standard. We keep these facilities isolated from other poultry facilities and strictly enforce visit/movement restrictions,” he added.

Bounty Fresh added that it has expanded its laboratory’s capacity to actively screen for the disease.

Following the Department of Agriculture’s announcement an outbreak of avian influenza in a poultry farm in San Luis, Pampanga — the first in the country for decades — farm product suppliers and restaurant operators since scrambled to reassure the public that their products remain free from the disease.

The Bureau of Animal Industry has officially completed the culling of infected chickens and other fowls in San Luis, Pampanga.

Also, government veterinarians will soon finish work on culling birds in San Isidro and Jaen in Nueva Ecija as well.

Just last week, the agency said the strain was tested positive for N6 which makes it transferable to humans but the local government assured that risk of transmission is low. — Janina C. Lim

Seeing the future by overturning conventional wisdom

People today take automobiles for granted. In the early 1900’s, people thought it was a remarkable thing to replace the horse and buggy. Today, the constant iteration of technological advancement even threatens to do to man, what it did to the horse more than 100 years ago.

While the technology has experienced limited adoption in the United States and in Europe, all users of automobiles will see their view of the world impacted profoundly by highly autonomous vehicles.

The impetus for the commercialization of the technology, aside from the profit motive, arises from the benefits seen from using driverless car technology. Google has invested major funding in driverless car technology to mitigate safety issues.

Self-driving cars don’t fall asleep, don’t get drunk, don’t get distracted by text messages or phone calls. Developing this technology is thought to be an opportunity to dramatically reduce car incidents that are caused by human error.

Beyond safety, some other advantages to the technology include increased mobility for the elderly, disabled, and for people who can’t currently drive. Other benefits include reduced fuel consumption, greenhouse gas emission reductions, better land use in cities by the elimination of parking garages, convenience, and saving time.

The insurance industry also stands to benefit from widespread adoption of driverless cars. Knowledgeable industry insiders project that as damage claims decrease because of better safety performance, claims will decrease and insurance premiums may drop. Some insurance industry players are already adjusting pricing based on the adoption of advanced safety features found in self-driving cars.

A compelling argument exists for capitalizing fully on the benefits (higher safety, increased mobility for certain stakeholders, lower fuel use, decreased emissions, repurposing real estate, convenience, productivity, decreased insurance claims, and lower premiums) from using driverless car technology.

In the non-life insurance industry, the anticipated drop in premiums due to reduced accident rates will mean that insurers will have to find new sources of revenue to shore up their automobile lines. Pressure to maintain profitability and market share in this area may lead to horizontal mergers among insurers.

The real estate industry may receive a welcome boost. For the most part, private cars are inefficient because they spend more than 80% of their time parked. The land used for parking remains mostly unproductive, and the rental yield, minimal.

As usage of autonomous cars increases, the impetus for car ownership may decline as people choose to pay for utility. This means that cars will become the mobility fleet for the future, as utilization rates may increase dramatically.

This means that the demand for parking will decrease and the supply of real estate for more productive usage will increase. We can imagine better usage of open space, better living and commercial spaces, which will increase the value of real estate and the quality of life in the city. Because of this, we may see real estate companies engage in a form of urban land banking as they seek to consolidate land in the city for redevelopment.

The business models of automobile companies may undergo a significant transformation. As individual ownership declines, the value proposition of selling to individuals may lose commercial momentum. Automobile manufacturers may choose to transform themselves into personal service logistics companies.

The capacity rental model has profound implications for logistics companies too. Logistics companies may also transform themselves into pure service companies; completely eliminating significant ownership of hard assets. They will choose to compete based on pure differentiation — and they may find themselves partnering with competition to reduce costs to customers.

Fast-moving consumer goods producers contend that they compete on the shelf, and not in the truck. New distribution models facilitated by the capacity rental framework will mean much lower logistics costs for all.

The implications of the widespread disruption across industries likely to be caused by driverless cars mean that corporate strategists, and company managements, will have to work harder to get ahead of the competition. The multi-industry disruption described here will occur in other situations as technological advances enable greater human creativity and inventiveness.

For the corporate strategist, there are two powerful questions that allow one to re-imagine a possible future state, given the current industry landscape. These involve turning conventional wisdom upside down.

“What does the consensus say is true, but is actually false? What does the consensus say is false, but is actually true?” Answering those questions may provide new insight on how an industry, or a business model, is evolving in the present.

People used to say that it was unsafe to get into a car with a stranger at night. Now with transport network vehicle companies, that myth has been dispelled.  How has this changed personal transportation?

The consensus used to say that a driverless car would be unsafe; but a change in the consensus indicates that the same technology is demonstrably safer compared to a human driver. How will this impact the automobile and peripheral industries?

The challenge then, is to try to answer those questions as they apply to your industry, and see how one can compete effectively going forward.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Raoul A. Villegas is a Director from the Deals and Corporate Finance group of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 845-2728

raoul.a.villegas@ph.pwc.com

China’s $2 trillion of shadow lending turns focus on smaller banks

REGIONAL BANKS in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group AG.

Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad  loans and circumvent lending restrictions, the study by analyst Jason Bedford said.

Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report.

By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates.

“This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.”

Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.

By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding. Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges.

Authorities have renewed their campaign against financial leverage since the beginning of April to rein in risks associated with China’s $28 trillion debt pile, with a focus on unraveling interconnectedness among institutions and curbing shadow financing.

Signs have emerged in recent months that smaller banks have been harder hit by the campaign and their shares have underperformed as a result.

Banks with high levels of shadow loans would be most exposed to any drastic regulatory changes that could lead to a surge in bad-debt recognition. The transfer of shadow credit into formal credit could cause borrowers to breach loan covenants and single borrower limits, eventually leading to “a significant recapitalization of a large swath of the banking sector,” Bedford wrote.

To be sure, the analyst isn’t expecting any sudden changes. He’s of the view that regulation combined with economic reforms, particularly of state-owned enterprises, and continued deleveraging are needed to reduce risks.

In that light, investors should be wary of banks with “material” shadow loan exposure, Bedford said. UBS recommends investors buy shares of Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. Shadow loans at both firms accounted for less than 1% of total assets at the end of 2016, according to Bedford’s report.

ASSET QUALITY
Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report.

Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said. Bank of Tangshan representatives didn’t respond to an email seeking comment.

Shadow loans can be used to circumvent regulations capping loans to a single borrower at 10% of a bank’s assets, or 15% in the case of a group company and its subsidiaries, according to Bedford. For example, he said that Baoshang Bank, an Inner Mongolia lender, has extended shadow loans equivalent to 126% of its net assets to one borrower.

Calls to Baoshang Bank’s general lines and board office in Baotou city weren’t answered.

CONTAGION RISK
Shadow-loan risk is most prevalent in China’s rust belt — the once-proud steel and metal-producing provinces in the country’s northeast, which have declined in growth and importance as the government shifts its economic focus away from industrial output to the higher-end consumer and services industries.

To jump-start declining profits, some rust-belt banks have turned to the informal banking sector to help them get around rules restricting them to lending just in their home provinces — by investing in loans extended by banks in more prosperous regions to higher-quality borrowers. Questions have arisen in the event of a default as to which bank bears the credit risk associated with the soured loan, leading to various court disputes, Bedford wrote.

“Shadow loans pose potential contagion risk between banks,” he said. — Bloomberg

How PSEi member stocks performed — August 30, 2017

Here’s a quick glance at how PSEi stocks fared on Wednesday, August 30, 2017.

Local stocks rebound as North Korea fears ease

LOCAL EQUITIES bounced back on Wednesday as investor concerns over ongoing geopolitical tensions with Japan, North Korea, and the US eased. 

The bellwether Philippine Stock Exchange index rose 0.10% or 8.34 points to close at 7,956.73 yesterday, slightly recovering from Tuesday’s drop following North Korea’s launching of a missile over Japan.

The broader all-shares index likewise inched up by 0.02% or 1.32 points to 4,722.

“Stocks shrugged off the North Korean missile launch and regained their footing to close higher on Wednesday,” Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a mobile phone message.

“I think what happened [on Tuesday] was a knee-jerk reaction because it surprised everyone even the big developed countries like the US. But at the end of the day it was nothing that created a panic or a crisis… The market accepted the situation and now is back to its sideways behavior,” Summit Securities, Inc. President Harry G. Liu said in a phone interview.

“So now the market is just waiting for a fundamental catalyst that will kick up 8,100 which I think in due time it’s more an upside market before the year ends,” Mr. Liu said.

Major US stock indexes also ended higher after recovering from steep early losses triggered by fears that hostilities in the Korean Peninsula could escalate.

Overnight, the Dow Jones Industrial Average rose 56.97 points or 0.26% to 21,865.37; the S&P 500 gained 2.06 points or 0.08% to 2,446.3 and the Nasdaq Composite added 18.87 points or 0.3% to 6,301.89.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose half a percent, taking cue from Wall Street’s higher close, as concerns about North Korea and Japan ebbed.

“Asian bourses may see some further stabilization if not recovery today as the risk-off concerns fade a little,” OCBC Bank said in a note.

Back home, four sectoral counters ended in the green, led by services, which booked an increase of 0.98% or 16.79 points to 1,714.89. The mining and oil sub-index followed, climbing 0.26% or 34.24 points to 13,152.79; holding firms rose 0.18% or 14.67 points to 7,852.15; and industrials gained 0.05% or 6.28 points to close at 11,025.13.

On the other hand, the financials counter declined by 0.47% or 9.37 points to 1,978.42 and property dropped 0.14% or 5.31 points to 3,728.29.

Value turnover stood at P5.87 billion yesterday, with 1.29 billion issues changing hands, down from Tuesday’s P6.87 billion.

“Volume was low moving into a US Labor Day Holiday,” Regina Capital’s Mr. Limlingan said.

Decliners outnumbered advancers, 101 to 91, while 53 names were unchanged.

Net foreign selling widened to P55.91 million on Wednesday from the P19.37 million recorded the previous day. — Arra B. Francia with Reuters

The benefits of working for a small company

According to our data, Filipino applicants—millennials included—aim for big, renowned companies. Salary plays a part here, but it is also the prestige of an established corporation (versus the relatively unknown name of a small or medium‑sized enterprise) that lures young ones in. Who wouldn’t want to soak up the honor?

But we digress.

The up‑and‑coming generation has so much more to achieve when employed in the sector that’s quickly rising to be the up‑and‑coming lifeblood of the Philippine economy. The small fish that is the lone millennial looking for a job will considerably do well in a small pond rather than gambling it all in a mad dash to get to the big, open sea. Here’s why:

More opportunity for growth

With the small size of SMEs, it is only natural that the company will try to utilize the talents of all its employees. That means more opportunities for professional growth for millennials. They can learn a plethora of new skills from seasoned supervisors and can also expect to handle more and more responsibility as their time with the company lengthens.

Also, once the company grows, the employees who remain can have a larger chance to be promoted to positions of leadership, eventually making them supervisors of their own teams.

A smaller team means more leeway

For some, more responsibility might mean more chances to mess up, but for the risky and courageous generational cohort (a.k.a. the millennials) this means more chances of trying out the techniques and tricks that they learned while at school or while interning, and also an opportunity to learn new skills.

In big corporations where the hierarchy is clearly defined and not easily scalable, new innovative ideas are often ignored at best or scorned at worst. The decision-making ultimately rests in the hands of seasoned, but sometimes out-of-touch, supervisors that are so far up the corporate food chain. Not wanting to upset an established work model, new business ideas ultimately languish and the millennial employee, discouraged and sometimes disheartened too, stews in the background.

A chance to do something worthwhile

Also, as the most socially conscious generation, millennials have this urge to do something worthwhile, to find an opportunity to do meaningful work. While it’s true that most of them immediately tend to act with their feet, leaving a company when they’re not happy anymore or they feel that they and their talents lie unappreciated, it is also a known fact that Millennials stick to their guns in a manner of speaking.

Working with SMEs will give them just that: a shot at creating something truly unique and totally new, whether this be a product or a campaign. Also, since SMEs are still on the process of developing a company culture, millennials can influence this creation to be more in line with their ideals and stand on pressing social issues.

Small companies tend to be more flexible

With a small staff, rules and regulations tend to be fewer when it comes to SMEs. There’s much room for flexibility between the company and its millennial employees. Those who want to pursue further studies can do so, those who prefer to work from home can probably negotiate this especially if the company is fully digital, and most importantly, with the loose hierarchy, millennials will be inclined to be more forward with their ideas and suggestions.

There will be real mentoring

While mentoring regularly happens in big corporations, it tends to be impersonal and usually involves several mentees and one mentor. When it comes to SMEs, mentoring is more personal in nature because of the size of the company and the necessity. The mentoring process also tends to be more of a two-way street, in which the mentor and the mentee exchange ideas and new learnings with each other.

Mentoring sessions in big companies tend to be more of a “sage on the stage” type while those in SMEs are more of the “guide on the side” variety. While those two are both with merit, the mentee ultimately learns more on the latter.

The vast ocean is inviting, yes, but at the same time, its vastness might be its biggest flaw. Predators abound, distances seem immeasurable, and prey seems to be getting fewer and fewer. On the other hand, it would look really nice on a fish’s resume and perhaps, the almostߛDarwinian competition is what the little fish needs to grow. Or maybe not.

For millennials wanting to see their marks, to prove their skills and their worth, ultimately, a small company is the place to start. After all, the smaller the body of water, the bigger the ripple of a single fish will be.

About JobStreet.com

JobStreet.com is a leading online job board presently covering the employment markets in Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia and Vietnam. JobStreet.com currently services over 230,000 corporate hirers and over 15 million jobseekers in its database. To view jobs, click this link.

For more information about this article, or to schedule an interview with JobStreet.com Philippines, please call Mark Nichol Turija, Content Marketing Specialist, at 286-6222.

Agnes Locsin: Like no other

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Project bonds not needed ‘for now’

By Melissa Luz T. Lopez
Senior Reporter

THE GOVERNMENT is not keen on offering bonds to fund big-ticket infrastructure projects, National Treasurer Rosalia V. De Leon said yesterday, noting that the country continues to have enough money to support public spending plans.

National Treasurer-Rosalia de Leon
National Treasurer Rosalia V. De Leon — BW FILE PHOTO

“For now, we are not really looking into project bonds because these are really focused on financing for a particular project… That’s something that we can explore, but the cost structures would have to be evaluated to ensure that these are cost-effective [compared] to what we are getting from our general issuances,” Ms. De Leon said during a webinar hosted by BPI Capital Corp.

The government generates fresh funds from the sale of Treasury bills and bonds every other week, as part of the P727.64-billion borrowing plan for 2017.

Ms. De Leon assured investors that the Philippines is in “a position of strength” with ample resources and healthy debt profile to support the government’s P8.44-trillion 2017-2022 infrastructure spending plan under the “Build, Build, Build” initiative of the administration of President Rodrigo R. Duterte.

The fiscal balance is expected to be maintained with the budget deficit projected to remain within three percent of gross domestic product (GDP) annually despite bigger spending, Ms. De Leon added, as the Treasury’s fund-raising and fresh revenues from tax reforms provide fresh liquidity.

“The financing comes as a secondary issue because what’s important is to get these projects off the ground,” Ms. De Leon said.

“Fortunately for us, we have the resources and the fiscal wherewithal to be able to build, build, build, so it’s not an issue for us anymore.”

The government will tap some $1.81 billion in official development assistance (ODA) in 2018 alone, Ms. De Leon said, noting that loans secured via Chinese and Japanese ODA come with below-market interest rates, hence, providing more “cost-efficient” funding sources.

BPI Executive Vice-President Dennis Gabriel M. Montecillo said banks will not necessarily run out of opportunities to take part in the infrastructure boom despite the government’s preference for foreign grants, saying that they can still lend to suppliers and real estate developers apart from private construction firms.

Ferdinand A. Pecson, executive director of the Public-Private Partnership (PPP) Center, added that PPPs still have a role to play in the infrastructure story particularly through operation and maintenance (O&M) contracts, as the government seeks to tap the expertise of companies in running day-to-day work in new facilities.

The O&M contract for Clark International Airport in Pampanga will be the first to be offered to private-sector investors under the Duterte administration’s hybrid PPP model, Mr. Pecson added.

NEW ISSUES
Plans to float specialized debt papers remain on the table as the Bureau of the Treasury readies paperwork in this regard, Ms. De Leon said.

She told reporters on the sidelines of yesterday’s Treasury bill auction that her office has yet to take up with the Department of Budget and Management (DBM) the planned offering of long-term bonds that would raise funds for the multi-year rehabilitation of Marawi City, which is currently experiencing the fourth month of battle between government forces and Islamic State-inspired militants.

“We will be discussing with Secretary (Benjamin E.) Diokno regarding the authority, because we need the authority in terms of where it will be spent,” she explained, adding that the tenor, among other details, is being determined.

Earlier this month, Finance Secretary Carlos G. Dominguez III said he was considering the issuance of P30 billion in “patriotic” bonds to support the recovery of war-torn Marawi.

The DBM had previously said that the government will release at least P15 billion for the city’s rehabilitation in the next two years, on top of the Chinese government’s donation worth P15 million and the Japanese government’s $2 million.

At the same time, Ms. De Leon said the Treasury is also preparing documents for the maiden issuance of panda bonds — yuan-denominated debt papers to be sold to Chinese investors — as the government looks for a “clear market” and opportunity to proceed with the plan.

In April, Mr. Dominguez had said he wants these papers offered by the “third or fourth quarter” this year, worth $200 million and with tenors of three and five years.

The government plans to secure a fifth of its borrowings from foreign sources this year, while 80% will be borrowed from the domestic market in an effort to limit the country’s exposure to external shocks.

PSE further hikes stake in fixed-income exchange

THE PHILIPPINE Stock Exchange, Inc. (PSE) has further increased its stake in the country’s fixed-income bourse with the acquisition of Investment House Association of the Philippines’ (IHAP) shares in the Philippine Dealing Systems Holdings Corp. (PDSHC) for P11.663 million.

PSE
BW FILE PHOTO

The PSE disclosed on Tuesday that it signed a share purchase agreement with IHAP on Aug. 25 to acquire for P320 apiece the latter’s 36,446 shares in PDSHC, equivalent to an additional 0.5831% stake.

The latest tranche brought PSE’s ownership in the fixed-income exchange to a total of 53.36%.

The price is based on PDSHC’s equity value of P2 billion.

A total of P10.72 million will be paid at the closing of the deal, while the remaining P946,303.07 will be held in escrow, according to the disclosure.

The agreement will still be subject to regulatory approvals of the Securities and Exchange Commission and Bangko Sentral ng Pilipinas.

PDSHC owns the Philippine Dealing & Exchange Corp., the Philippine Securities Settlement Corp., and the Philippine Depository & Trust Corp., the country’s sole depository for equities and fixed-income securities.

The acquisition is part of PSE’s long-standing efforts to take over the fixed-income bourse to achieve synergies in the two capital markets.

Last July, the PSE managed to get a majority ownership of the PDSHC after acquiring Whistler Technologies Services, Inc.’s eight percent stake for P160 million.

Prior to the deal with Whistler Technologies, the PSE also inked a deal with the Bankers Association of the Philippines and its affiliate companies to buy their cumulative 23.8% stake for P476.45 million.

The PSE had said in March that the goal was to own up to 67% of the PDSHC. This may include the buyout of other stakeholders led by The Singapore Exchange Ltd. with 20%, San Miguel Corp. and Philippine American Life and General Insurance Co. each with four percent, as well as the Financial Executives Institute of the Philippines Research and Development Foundation and the Development Bank of the Philippines, each with 3.08%, among others.

To proceed with the merger, the PSE has also been told by the SEC to bring down broker ownership in the bourse to 20% from 27.9% currently. Earlier this month, the PSE said it had given 52 inactive trading participants until the end of September to signify their intention to operate or else be declassified. Of these brokers, 14 hold shares in the PSE. Should the trading participants be declassified, broker ownership will be brought down to 23-24%.

The PSE has also announced plans to sell up to 11.5 million common shares out of the unissued portion of its authorized capital stock through a follow-on offering. This move is estimated to further bring down broker ownership to the SEC’s requirement.

PSE shares lost P3 or 1.25% to end P237 each yesterday. — Arra B. Francia

Approved PEZA investment pledges nearly double

THE Philippine Economic Zone Authority (PEZA), which contributes about a third of the country’s total committed investments, registered what it called an “unprecedented performance” as new approvals in the seven months to July reached P132.66 billion, up 89.4% from P70.03 billion in 2016’s comparable period.

“As to number of projects, we have as of July… 363 new projects. This means new ecozones and new industry locators. So we grew by 17.86% compared to last year’s performance,” PEZA Director-General Charito B. Plaza said in a press briefing yesterday at the agency’s main office in Taguig City.

She attributed the improvement to aggressive marketing and promotion efforts, among others. She also cited investors’ sentiment about “a better and more credible government.”

Employment generation as of June, according to the latest available data, hit 1,357,684 new jobs within the economic zones, 6.4% more than the 1,275,842 recorded in the same period last year. The figures represent the comparative periods as of June.

“PEZA usually multiplies this (employment figure) by eight… because we also create indirect employment like drivers, janitors, construction workers, concessionaires… all that will be built to respond to the needs of the workers of the industries and the ecozones,” Ms. Plaza explained.

“So we have 8 million jobs directly and indirectly created.”

Also as of midyear, export revenues generated by the ecozones hit $22.05 billion, up 12.4% from a year ago. “PEZA registers 80% of the total export income of the country,” Ms. Plaza said.

In terms of industrial sectors, ecozone development took the lead with approved investments of P75.41 billion, an increase of 95.2% from P38.64 billion previously.

Manufacturing came next with P21.55 billion, up 26.9% from P16.998 billion a year ago. Of this, electronics and semiconductors accounted for nearly half at P10.97 billion, an increase of 29.6% from P8.46 billion in the same period last year.

In contrast, investments in information technology — largely made up of business process outsourcing (BPO) firms and contact centers — fell by 33.4% to P8.14 billion from P12.22 billion.

“Most of our BPOs and call center locator industries are American companies,” which Ms. Plaza said were awaiting for “a clearer policy” US President Donald Trump on his policy to keep jobs home.

“Nevertheless none of those existing BPOs and call centers pulled out. They stayed and some even took the risk of still expanding by putting up new branches in different parts of the country.”

In the same press conference, Ms. Plaza brought in representatives from a Chinese entity, which is reportedly behind the proposed First Pangasinan Industrial Corp. (FPIC), a 60% Philippine-owned and 40% Taiwanese and Singaporean entity. The company is said to be also urging foreign entities to set up offices in its proposed economic zone in Pangasinan.

“After lengthy deliberation, the PEZA board had resolved to grant a pre-qualification clearance to FPIC’s Philippine-Chinese industrial economic zone,” she said.

Another prospective locator — Chinese entity Xianglu Dragon Group (XDG) — courted controversy after the Taipei Economic Cultural Council issued statements to the Philippine government and to media alleging that its chairman, Chen YouHao, embezzled money from Taiwan and fled to Xiamen, China.

Leonelle M. Infante, the Philippine legal counsel of XDG, denied the allegation.

“To set the record straight, Chairman Chen YouHao’s roots are from Xiamen, China. He had long been a well-respected and successful businessman in China, more than a decade before the Taiwanese government even filed a case against him in the year 2000, instigated by imprisoned Taiwanese President Chen Sui Bien, a ranking member of the current ruling DPP party of Taiwan, who was convicted of corruption,” Ms. Infante said.

“At that time, Chairman Chen was already considered one of the biggest investors in China, when he was forced to flee Taiwan due to political persecution.”

She also denied claims that XDG failed to make tax payments in China, saying that companies under it are among the biggest taxpayers in Xiamen.

“It is not true that the company is losing money. This can be easily proven by the audited financial statements presented to our government agencies,” she said.

“Again, I have to emphasize the facts that the projects in Pangasinan will not borrow any funds from the local Philippine financial institutions,” she said. “All the investment capital will be funded overseas.”

Ms. Plaza said the applicant’s pre-qualification has not yet been submitted to the Office of the President, which will issue the proclamation declaring FPIC as an ecozone qualified to receive government perks. — Victor V. Saulon

Robust growth continues

By Leo Jaymar G. Uy
Senior Researcher

GROWTH in assets of the country’s biggest banks continued to be robust last quarter, fuelled by these lenders’ aggressive loan expansion.

BusinessWorld’s 2nd Quarter Banking Report shows the combined assets of universal and commercial banks (U/KBs) operating in the country growing 13.93% to P14.01 trillion from P12.3 trillion the past year.

The latest asset growth pace is faster than the 13.41% year-on-year increase in the first quarter of this year and quicker than the 6.5% expansion of the country’s gross domestic product (GDP) in the second quarter. GDP, which is the amount of final goods and services produced in the country, measures the country’s economic performance for a period.

Fuelling asset growth in the second quarter of this year was the 18.38% year-on-year increase in bank loans to P7.116 trillion from last year’s P6.011 trillion. Loans comprise around half of the big banks’ assets.

But banks’ ability to absorb losses eased slightly as their median capital adequacy ratio (CAR) went down to 18.45% in the second quarter from 18.66% in the preceding three-month period. Nevertheless, the ratio remains well above the regulatory minimum of 10% set by the Bangko Sentral ng Pilipinas (BSP) as well as the international standard of eight percent. CAR, which is a measure of a bank’s solvency, indicates its ability to absorb losses without having to imperil funds entrusted by depositors.

In terms of profitability, the median return on equity (RoE) of U/KBs improved to 4.7% in the second quarter of this year from 4.27% in the first three months of 2017. RoE measures the amount that shareholders make on every peso invested in a company.

Asset quality edged down somewhat as the non-performing loan (NPL) ratio of the biggest banks increased to 1.74% in the second quarter from the first quarter’s 1.64%. This, as total bank borrowings increased 4.87% on a quarter-on-quarter basis.

The second quarter marks the last three months under the watch of former BSP chief Amando M. Tetangco, Jr., who was succeeded last July by current BSP Governor Nestor A. Espenilla, Jr.

Since 1987, BusinessWorld has been tracking the quarterly performance of the country’s largest lenders based on their published statements of condition.

The newspaper’s quarterly banking report ranks banks in terms of the size of their balance sheets. Apart from asset size, the report provides other key ratios to measure bank performance like capital adequacy, earnings and liquidity — all key components of the CAMELS (capital adequacy-assets-management capability-earnings-liquidity- sensitivity) system used internationally in evaluating a lender’s health.

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