By Melissa Luz T. Lopez,
Senior Reporter

RAPID CREDIT growth in the Philippines is unlikely to trigger a domestic funding crunch, as it comes alongside upbeat economic activity and as banks stand better positioned 20 years after the Asian Financial Crisis, analysts at S&P Global Ratings said.

The international credit ratings firm did not sound the alarm despite the sustained double-digit growth in bank lending — a trend over the last two years — as the trend merely follows the robust growth in gross domestic product (GDP).

Bank lending grew by 18.7% in May from a year earlier to P6.595 trillion, according to central bank data.

“At the moment, we don’t see that (credit growth) as a big risk mainly because of a few reasons. One is the Philippine financial system remains relatively small compared to the economy, and we’ve seen the economy has been growing quite strongly and steadily for quite a long while. The rate of investment has also picked up so I don’t think it should be too much of a surprise that credit growth is also growing faster than usual,” Kim Eng Tan, S&P’s senior director for sovereign ratings, said in a Wednesday webcast.

S&P hosted a webcast to commemorate the 1997 Asian Financial Crisis, triggered by Thailand floating the baht due to lack of dollar reserves, eventually triggering a series of currency devaluations as the funding crunch spread across neighboring economies.

Two decades since the crash of Asian markets, analysts believe that regulators and corporates in the region have grown more prudent with “improved” governance standards in place, said S&P head of analytics and research Terry Chan. In turn, this leaves a slimmer chance of reckless lending activity that could trigger another crisis.

A steady decline in the share of non-performing loans in the Philippines and strong domestic sources of funding also enhance the resilience of local banks, the credit rater added.

“[B]ecause of our analysis of the overall economic situation, we believe most of this lending will go to investments which are likely to be productive and are able to repay their loan. If not, the systemic impact is unlikely to be big because the financial system is relatively small,” Mr. Tan said.

Limited exposure to foreign funding also gives local players one less thing to worry about, Mr. Tan added: “Most importantly, because we see the financial system as largely financed by domestic sources of funds, it is therefore not exposed to the more flighty kinds of capital, for instance relying on international interbank borrowing.”

Across the region, S&P said reforms taken by central banks and financial regulators have made economies “less vulnerable” to external shocks, although political risks are now “higher.”

The Philippines holds a “BBB” rating with a “stable” outlook from S&P, one notch above minimum investment grade which was affirmed last April.

By Elijah Joseph C. Tubayan,
Reporter

CABINET MEMBERS in charge of the economy and infrastructure met with Japanese officials yesterday evening for the second Philippines-Japan Joint Committee on Infrastructure Development and Economic Cooperation, to prepare Japan-funded infrastructure projects ahead of Prime Minister Shinzo Abe’s visit in November for signing ceremonies.

The Philippine delegation is headed by Department of Finance Secretary Carlos G. Dominguez III, while Dr. Hiroto Izumi, the special advisor to Mr. Abe, will represent Japan.

This is the second meeting of the committee, with the first one in Tokyo in March.

Mr. Dominguez said that the meetings, which started last night and will resume today, will seek to move forward from the previous meeting, where the government presented its proposed priority infrastructure projects to be funded by Japan’s pledged $9 billion worth of Official Development Assistance (ODA).

“Basically we meet with our Japanese counterparts who are funding part of the ‘build, build, build’ program and we have met with them in Tokyo. Now the meeting will be here in Manila. So we will just review the projects that they have offered to fund those projects,” he said during a briefing at Malacañang.

The two countries will sign a memorandum of cooperation this morning at the Bureau of the Treasury, and will be followed by a news conference at 2 p.m.

The Philippines secured the $9-billion ODA commitment during President Rodrigo R. Duterte’s three-day visit to Tokyo in October.

Mr. Dominguez did not provide a full list of projects being put up for Japan ODA financing, but he noted that some of these include the P255-billion Manila-Clark railway project and part of the P230-billion Mega Manila subway that runs to Ninoy Aquino International Airport (NAIA).

“Some of the major projects that they are funding are the Manila to Clark commuter railway system that will also extend down to Los Baños or Calamba. So that will be a total of 127 kilometers,” he said.

“They also expressed interest in funding the subway project which will run from the NAIA through the FTI (the Food Terminal, Inc. site in Taguig) and all the way up to the northern triangle. So those are two large projects that they are funding and their status will be deliberated upon these next few days,” Mr. Dominguez added.

Mr. Dominguez said earlier that the government will prioritize funding from ODA and the budget to fast-track project implementation. Private concessions are estimated to take about 29 months before starting.

Asked whether the government will pitch more projects for Japan ODA financing Mr. Dominguez replied: “No, we want to finish the ones that are in the pipeline first, so that we don’t get distracted.”

According to Budget Secretary Benjamin E. Diokno, who is also part of the economic team, the second meeting will likely iron out the list of the infrastructure projects that will be signed when Mr. Abe arrives in Manila for the Association of Southeast Asian Nations (ASEAN) Summit and other meetings on Nov. 10-14.

“This is preparatory for the arrival of the Prime Minister for the ASEAN (meetings). It’s where they will sign (the project agreements),” Mr. Diokno told reporters on the sidelines of an infrastructure forum yesterday in Makati City.

“…It will tackle specifics. There’s no final signing yet, since usually it is done in front of both heads of state,” he added.

By Imee Charlee C. Delavin,
Senior Reporter

THE Bases Conversion and Development Authority (BCDA) will present to investors by next month the master plan for its flagship Clark Green City project.

The 9,450-hectare development that is expected to be a bigger Bonifacio Global City in the heart of Central Luzon “is now in full swing,” said Vivencio B. Dizon, BCDA president and CEO, and the detailed plan will be presented to attract investment there.

“Our most ambitious project yet is the New City that we want to build in Clark. The master plan is almost done and it will be presented to the business community and the investing community in the next month,” Mr. Dizon said recently.

“[It’s the] first time we’re doing this… I think there were presentations during the past administrations but those were conceptual, this one is already a detailed master plan — where the government centers will be, where the housing will be, how big this [development is],” he added.

The BCDA is developing the area as a new metropolis, part of efforts to decongest Metro Manila, as major thoroughfares suffer gridlock due to vehicular traffic.

“As you see the traffic in Metro Manila is unsustainable and we really need to let the city breathe, the way of doing it is by moving key government offices to some other place outside Metro Manila,” the BCDA official said, noting that the Department of Transportation will lead the move by the end of the month.

BCDA, the entity tasked to transform former US bases and Philippine military camps into commercially viable projects, earlier said Clark Green City at full development would have about 1.12 million residents, 800,000 workers and contribute gross output of around P1.57 trillion per year to the economy or roughly a 4% share of gross domestic product.

The first phase of the project is expected to finish by 2022.

Road works are currently ongoing to improve and rehabilitate some 19.4 kilometers of existing roads leading to and within the Clark Green City, which is crucial to the development of the area. The roads provide access to the first phase of project: the 288-hectare site allotted for the future 70-hectare University of the Philippines campus and other schools. They can also help increase the area’s land value, economic potential and attraction to would-be investors.

BCDA has partnered with Filinvest Land, Inc. for this initial stage.

“We want to promote and develop a green and smart city where we really build around the environment. There will be a commercial center, there will be world class housing. There will be an integrated transport system… there will be an innovation center for high-tech companies, light manufacturing companies such as semiconductor makers,” Mr. Dizon said, noting that there is also plan to move the Philippine Sports Complex to Clark as BCDA offered 100 hectares of land to the Philippine Sports Commission for free to build world-class training facilities and offices.

BCDA has almost 1,000 hectares of property in Luzon.

Clark Green City, which lies in Clark Special Economic Zone, will have fully developed centers of government, business, academics, and agro-forestry research and development; as well as wellness, recreation and eco-tourism districts.

THE Philippine Ports Authority (PPA) said net profit rose 31.90% in the five months to May of 2017 as cargo volume grew 9.36% during the period.

PPA said net profit hit P3.966 billion during the period, against P3 billion posted a year earlier due to the increases in roll-on, roll-off (Ro-Ro) fees, berthing fees and vessel lay-up fees.

Revenue during the period rose 11.63% to P6.05 billion.

“The positive deviation in revenue from last year’s performance is primarily the result of heightened business activity at the ports coupled with the impact of foreign exchange on dollar-denominated tariffs,” PPA said.

Fund Management Income (FMI), however, declined by 6.38% to P34.21 million due to fluctuations in interest rates for special and/or high-yield savings deposits.

FMI represents passive income on investments in Treasury bonds and other temporary or short-term investments placed with PPA’s depository banks.

Total assets rose 0.28% to P122.09 billion, while net worth at the end of May was P113.89 billion, up 1.81%.

PPA noted that it saw continued robust port operations as of end-May with cargo volume rising to 8.864 million metric tons (MMT).

“Increased trade volume was propelled by the sustained robust domestic consumption and improved investment climate, boosting business activities at the country’s gateways,” the state agency said.

Foreign volumes during the period rose by 9.43%, accounting for 5.281 MMT, while domestic cargo saw a rise of 9.27% to 3.582 MMT.

PPA said for the period, export volume was up 2.34%, while import volume expanded 13.9%.

“The foreign import component garnered the largest increase owing primarily to strong private consumption. Exports slightly rose despite weakened regional and global demand as new markets were exploited for the country’s export goods,” it added.

Container volume, PPA said, totaled 351,112 million 20-foot equivalent units (TEUs), up 13.71%, with domestic boxes growing 15.17% to 156,056 TEUs while foreign boxes rose 12.73% to 195,056 TEUs.

Passenger traffic, on the other hand, maintained its upward trend with a 2.60% increase, which it said was steered by the amplified volume of travelers during the observance of the Holy Week in addition to the continuous reliance by the sea-traveling public on Ro-Ro vessels, fast craft, and motorized bancas as modes of transportation for domestic interisland connectivity.

Vessel calls meanwhile fell by 0.58% to 1,064, with domestic vessels accounting for most of the decline.

“The reduced vessel traffic arose from successive cancellation of trips, mostly of motorized bancas and fast craft, due to the impact of the strong southwest monsoon; strong undercurrent water conditions; gale warnings; and routine maintenance of passenger vessels which limited the number of trips,” it said.

PPA earlier said it will prioritize rehabilitation and development of more ports this year in a bid to further push interisland connectivity via Ro-Ro ferry services.

In particular, the agency will rehabilitate the Iloilo port and Abra de Ilog in Mindoro, expand the port in General Santos City, and pursue the ongoing rehabilitation and construction of a passenger terminal building in Cagayan de Oro. — Imee Charlee C. Delavin

THE increasing gravitational pull of Asian technology giants such as Samsung Electronics Co. and Alibaba Group Holding Ltd. has investors concerned the group is developing the same outsized influence on emerging markets as the so-called FAANG group has been exerting on US equities.

Samsung, Alibaba, Tencent Holdings Ltd. and Taiwan Semiconductor Manufacturing Co. together accounted for 32% of total gains in the MSCI Emerging Markets Index this year through Thursday, data compiled by Bloomberg show. Alibaba and Tencent each contributed at least 9%. That’s eerily similar for some to the phenomenon known as FAANG — Facebook, Inc., Apple, Inc., Amazon.com, Inc., Netflix, Inc. and Google parent Alphabet, Inc. — stocks that’ve delivered 50% of the Nasdaq 100 Index’s gains this year.

“Fears of a major emerging-market information technology selloff do exist and are mainly derived from concerns over the US Nasdaq index,” Geoff Dennis, Boston-based strategist with UBS Securities, said in a July 4 report. “Our US strategist is still overweight in tech although he believes the ‘summer squall’ in the sector may have slightly further to run.”

FAANG was seemingly on every market participant’s lips in June as the Nasdaq 100 fell for the first time in eight months, including three of its biggest one-day declines this year, without much in the newsflow to warrant any such slump. The five big tech stocks were seen as a favorite among momentum trades that have been making a comeback even after the strategy suffered one of the worst years on record in 2016.

The “unusual outperformance” of growth versus value stocks for emerging markets, driven by earnings momentum in technology, will reverse in the second half of the year, Dennis said. Still, Tencent and Samsung remain in UBS’ top 40 picks for emerging equities, along with seven other tech companies, he said.

The Asian group is becoming more expensive, especially on a price-to-book-value basis, with a 77% premium to the wider index — a 15-year high, Dennis said. That’s double the long-term average premium of 38%, he said.

Pictet Asset Management Ltd.’s Luca Paolini is also worried that a correction is coming after the MSCI Emerging Markets index’s surge. The gauge beat both the Nasdaq 100 and the MSCI All-World Index in the first half.

“If global equities do indeed witness a correction in the coming weeks, there are grounds to expect that emerging-market stocks’ outperformance will come to an end,” Paolini, London-based chief strategist with Pictet, wrote in a report.

Paolini downgraded Pictet’s view on technology stocks to single positive from double, as earnings momentum appeared to peak in May. He also suggested reducing holdings of emerging-market equities given the outsize technology exposure of the region relative to developed markets.

“For here and now, profit taking in the Nasdaq and profit taking in emerging technology as well is warranted,” said George Boubouras, chief investment officer with Contango Asset Management Ltd. in Melbourne. “Quite clearly over the past 12 and 18 months, the performance of technology has been so strong and significant that to expect the same return one year forward would be an unreasonable expectation.”

BNP Paribas Asset Management’s Guillermo Felices and Lydia Rangapanaiken in a July 4 report also said the rally in emerging-market technology shares is “ overextended” at this point and the lender will wait for lower prices before adding further to their portfolios. — Bloomberg

THE PHILIPPINES saw its score improve on an index measuring social progress, with gains recorded across most indicators.

With 67.10 points, the Philippines placed 68th of 128 countries in the 2017 Social Progress Index (SPI) prepared by Washington-based group Social Progress Imperative. The outcome is an improvement over the 2016 index score of 65.92, which placed the country at the same rank, but among 133 nations surveyed.

The think tank defines social progress as “the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.”

The index — which includes data from 128 countries or 98% of the world’s population — is intended to supplement traditional measures of national performance like gross domestic product (GDP), and also allows social progress comparisons among countries ranked in the same wealth class.

“While quality of life is improving across the globe, world leaders must confront two deeply troubling trends: declining personal rights, personal safety, and tolerance and inclusion, as well as slow and uneven progress worldwide,” the SPI said in its findings.

“The 2017 SPI finds that since 2014, Personal Rights — which includes measures of political rights and freedom of expression — declined in more countries than it improved,” it added.

“The Social Progress Index is the first holistic measure of a country’s social performance that is independent of economic factors. The index is based on a range of social and environmental indicators that capture three dimensions of social progress: basic human needs, foundations of well being, and opportunity … it is designed as a complement to GDP and other economic indicators to provide a more holistic understanding of countries’ overall performance.”

The index measures a country’s social progress based on 12 indicators: nutrition and basic medical care, water and sanitation, shelter, personal safety, access to basic knowledge, access to information and communications, health and wellness, ecosystem sustainability, personal rights, personal freedom and choice, tolerance and inclusion, and access to advanced education.

This year among ASEAN countries, the Philippines was ahead of Indonesia (79), Myanmar (96), Cambodia (98), and Laos (99), and behind Malaysia (50) and Thailand (62). Denmark meanwhile is the top performing country with a 90.57 SPI score, followed by Finland (90.53), Iceland (90.27), Norway (90.27), and Switzerland (90.10).

On the bottom tier were the Central African Republic (28.38), Afghanistan (35.66), Chad (35.69), Angola (40.73) and Niger (42.97) reflecting conditions of extreme poverty and conflict.

The Philippine ranking was above the world average score of 64.85, or 2.6% higher compared to the 2014 score of 63.19.

The Philippines was classified in a tier of 31 countries labeled “upper middle” in terms of social progress — placing in the top half of countries globally — but with more areas for improvement.

“Whereas higher-tier countries have generally eliminated extreme hunger and have near universal access to water and basic education, many upper middle social progress countries still face challenges in these areas,” the 95-page report read.

The Philippines has shown a marked improvement in providing shelter — which includes measures of availability of affordable housing and access to electricity. This has shown the biggest improvement, according to the SPI report, among the 12 sub-categories reported by the index, coming in with an increase of 2.24 points from 2014 to 2017.

This is followed by improvements in the areas of access to advanced education and personal freedom and choice, showing an increase of 2.02 points and 1.67 points respectively over the four-year period.

Other indicators where the Philippines showed relative strength and improvement include access to basic knowledge (92.61) and nutrition and basic medical care (88.65). Access to advanced education (47.56) and the broader measure of opportunity (58.23).

The SPI report said these are areas where the Philippines is “over-performing” as compared with countries with the same GDP PPP per capita.

Areas where the country did not perform as well include tolerance and inclusion (55.38) — particularly discrimination and violence against minorities and religious tolerance — health and wellness (61.04), with both showing a drop of 1.36 points and 0.12 points respectively.

The personal safety index also remained a concern in the country, although the current 58.74 score was better compared to the 2016 finding of 57.10. Particularly, the areas were the country was underperforming are homicide rate (9.9 from 9.31), level of violent crime (unchanged at four), perceived criminality (steady at four) and political terror (3.5 from the 2016 score of four).

Other concerns for the country are quality of electricity (3.99), wastewater treatment (2.58), freedom of assembly (0.65), freedom of religion (four), early marriage (five), years of tertiary schooling (0.70), inequality in the attainment of education (0.12). — Imee Charlee C. Delavin