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Cebu Pacific targets Chiang Mai with low-cost strategy

CEBUPACIFICAIR

CEBU PACIFIC said it expects its low-cost pricing strategy to generate a similar market response for Chiang Mai, Thailand, as it did with its Da Nang route in Vietnam.

The budget carrier will be the only airline offering direct flights from Manila to Chiang Mai, Cebu Pacific President and Chief Commercial Officer Alexander G. Lao said during a briefing on Thursday.

The airline will begin operating flights to Chiang Mai three times a week starting Oct. 29.

“We share the anticipation of many Filipino travelers as we prepare to launch the only direct flights between Manila and Chiang Mai,” Mr. Lao said.

In 2023, Cebu Pacific started operating direct Manila-Da Nang flights, with a frequency of three times a week.

“In fact, we were very surprised with the results of Da Nang, and we are actually looking to increase frequencies. I think Filipinos are always looking for newer destinations to explore,” Mr. Lao said.

Cebu Pacific is now hoping that Chiang Mai will yield results similar to those of Da Nang, he said.

“Whenever a low-cost carrier like Cebu Pacific comes in, we offer lower fares, we’re able to stimulate that market normally. So that’s one angle that we look at,” Mr. Lao said.

For the year, the company has initially set a target of 24 million passengers, significantly higher than its 2023 passenger volume.

Last year, Cebu Pacific flew over 20 million passengers and operated more than 140,000 flights, representing increases of about 41% and 30%, respectively, from the previous year.

“With the new routes and destinations, and also more importantly, more available aircraft that are going to be available in the fourth quarter of this year,” he said.

For 2024, Cebu Pacific expects to receive 17 aircraft, six of which have already arrived at Ninoy Aquino International Airport.

Additionally, the company has agreed to purchase up to 152 Airbus aircraft, with the finalization expected by the third quarter. These aircraft are scheduled to be delivered starting in 2028. A.E.O. Jose

Metrobank second-quarter income up by 11.4%

METROBANK.COM.PH

METROPOLITAN BANK & Trust Co. (Metrobank) saw its net income rise by 11.44% in the second quarter as it booked higher net interest earnings amid an expanded loan book and elevated rates.

The Ty-led bank’s attributable net income stood at P11.61 billion in the April-to-June period, up from P10.42 billion in the same period last year, according to its financial statement disclosed to the stock exchange on Thursday.

This brought its net profit for the first semester to a record P23.61 billion, rising by 12.95% year on year from P20.898 billion.

Metrobank’s first-half performance was driven by “robust asset expansion, stable margins, well-managed cost growth and healthy asset quality,” it said.

This translated to a return on average equity of 13.27%, up from 12.89% a year prior. Return on average assets also inched up to 1.48% from 1.46%.

“Our strong capital position and robust asset profile continued to support our expanding core businesses despite market challenges. Prospects of easing inflation driven by government efforts could further spur consumer demand,” Metrobank President Fabian S. Dee said.

“We are firmly on track to meet our medium-term growth aspirations as we support various public and private sector initiatives that continue to drive economic growth,” he added.

Metrobank’s net interest income grew by 13.87% to P29.27 billion in the second quarter from P25.71 billion in the same period last year.

The increase was driven by a 17.7% growth in interest earnings amid higher income on loans and receivables and on investment securities, which partly offset a 25.99% increase in interest and finance charges.

The bank’s net interest margin stood at 3.99% at end-June, slightly higher than 3.93% a year prior.

Meanwhile, other operating income fell by 20.01% to P5.45 billion in the second quarter from P6.81 billion a year ago amid lower net trading, securities and foreign exchange gains and despite a slight increase in fee and miscellaneous income.

Metrobank’s operating expenses climbed by 9.61% year on year to P18.39 billion amid higher manpower and transaction-related costs, among others.

Its cost-to-income ratio stood at 52.3% as of end-June.

The bank’s gross loans climbed 14.9% year on year at end-June on the back of a 15.2% increase in commercial loans and a 13.7% expansion in consumer loans.

“Net credit card receivables surged by 21.4%, while auto loans grew by 16.6%, sustaining the growth momentum in the consumer segment,” it said.

Even as it expanded its loan portfolio, Metrobank’s non-performing loan (NPL) ratio improved to 1.66% at end-June from 1.84% a year prior, while NPL cover was at 162.7% “to provide a substantial buffer against any emerging risks.”

Provisions for credit and impairment losses stood at P472 million in the second quarter, 77.68% less than the P2.12 billion set aside in the same period last year.

On the funding side, total deposits grew by 7.8% year on year to P2.4 trillion as of June, with low-cost current and savings account or CASA deposits making up 58% of the total.

This resulted in a loan-to-deposit ratio of 67.90%, up from 63.72% a year ago.

Metrobank’s consolidated assets expanded by 14.5% year on year to P3.3 trillion as of June.

Total equity stood at P355.09 billion.

Its capital adequacy ratio went down to 16.72% as of June from 17.9% a year prior. Its common equity Tier 1 ratio also dropped to 15.87% from 17.06%. Still, both remained well above the minimum levels required by the central bank.

Metrobank’s liquidity coverage ratio stood at a “substantial” 259.9%.

Its shares dropped by 70 centavos or 1.02% to close at P68 apiece on Thursday. — AMCS

MGen eyes LNG deal financial close by September

MERALCO PowerGen Corp. (MGen), the power generation subsidiary of Manila Electric Co. (Meralco), said it expects to finalize the financial arrangements for its liquefied natural gas (LNG) project with Aboitiz Power Corp. (AboitizPower) and San Miguel Global Power Holdings Corp. (SMGP) by September.

“We are expecting that maybe by the end of September,” MGen President and Chief Executive Officer Emmanuel V. Rubio told reporters after a briefing on Monday, noting that they are awaiting approval from the Philippine Competition Commission (PCC).

In March, MGen entered into an investment agreement with AboitizPower’s subsidiary, Therma NatGas Power, holding 60% and 40% stakes, respectively, in Chromite Gas Holdings, Inc.

Chromite Gas plans to invest in two gas-fired power plants owned by SMGP: the 1,278-megawatt (MW) Ilijan power plant and a new 1,320-MW combined power facility.

MGen and AboitizPower signed a $3.3-billion landmark deal with SMGP, the power arm of San Miguel Corp., to launch an integrated LNG facility in Batangas.

Together with SMGP, the joint venture company will also invest in an LNG import and regasification terminal owned by Linseed Field Corp.

While awaiting PCC approval, Meralco is on standby for approval from the Energy Regulatory Commission (ERC) for its power supply agreements, which is “critical to the consortium.”

In June, the ERC released an order granting provisional approval to implement Meralco’s contract with South Premiere Power Corp. (SPPC), which won the bidding for the 1,200-MW power supply.

However, of the total, the ERC only allowed 910 MW to be covered, pending the commission’s decision on the 290 MW capacity bound by an earlier contract it previously authorized.

Meralco and SPPC filed a joint motion for partial reconsideration, which has yet to be resolved by the ERC.

SPPC, a subsidiary of SMGP, is the administrator of the natural gas-fired power plant in Ilijan, Batangas.

Meralco’s majority owner, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls. — Sheldeen Joy Talavera

Japan-set Filipino drama tackles the realities of healing from grief

THIS YEAR, Jaime Pacena III’s Kono Basho, an entry to the 20th Cinemalaya Independent Film Festival, is aiming to present the possibilities of connection born from loss — be it that of a family member or of a whole community.

The film, set in the tsunami-stricken city of Rikuzentakata in Japan, is centered on two estranged half-sisters, Filipino anthropologist Ella and Japanese painter Reina, who reunite at their father’s funeral. The two end up forging a bond to heal their personal wounds.

Having an artist residency in Rikuzentakata for months at a time allowed for immersion with an admirable community — one that rose from the 2011 disaster in Japan through heroic rebuilding efforts, said Mr. Pacena, a visual artist whose work spans a wide range of media.

The history and daily life of the people ultimately inspired him to make his feature film debut, he told BusinessWorld in a Zoom interview on July 31. “As an artist I explore different materials and techniques, always documenting the things around me. What I captured [there] inspired me,” he said.

Fellow Filipinos and famed directors Dan Villegas and Antoinette Jadaone showed interest in Mr. Pacena’s idea for Kono Basho back in 2019. Their production company, Project 8 Projects, produced the film along with Mentorque Productions in 2023.

Mr. Pacena added that, with their guidance, he got to harness 13 years’ worth of archival photographs and videos into important themes in the film.

“I also saw that Japan and the Philippines are sisters as well, like the two characters Ella and Reina who have an estrangement. Seeing it that way helped me,” he said.

Actresses Gabby Padilla (known for her recent outstanding role in Gitling) and Arisa Nakano (coming from the acclaimed Perfect Days) took on the challenge of showing a complex, subdued sibling relationship.

For Ms. Padilla, being a sister and having lost their father years ago helped her relate to her character, though she pointed out that Kono Basho explores grief, distance, and an unlikely connection with such restraint.

“I think I find this story about siblings interesting and fascinating, especially in terms of the roles they play and the people they become,” she said in the Zoom interview.

“A lot of the inspiration I drew from are my own experiences. That’s why Ella is memorable and relatable in that she felt displaced, like she doesn’t belong. I feel like the best characters are the ones I see myself in.”

Mr. Pacena revealed that, with the work the two actresses have put in to convey the soul of Kono Basho, he hopes the audiences will not see it as just another beautiful, Japan-situated film.

“All parts and locations are carefully thought of. They all have significance to the 2011 tsunami, and to the characters who find solace and connection,” he explained. “I’m used to things that are not moving, like paintings, so the scenes are made in a way that you can contemplate about it.”

Despite having Japanese director Hirokazu Kore-eda’s humanist dramas Monster and Our Little Sister as major influences, the film’s narrative is ultimately a very Filipino one, the director said.

“I like to make sure that what I do communicates authenticity. It just so happens that the story is set in Japan, but it is still a story about Filipinos.”

Kono Basho opens on Aug. 3 at Ayala Malls Manila Bay as an official Cinemalaya feature-length entry.

The Cinemalaya 2024 film festival will have 10 full-length and 10 short films in competition. The festival will run from Aug. 2 to 11 at Ayala Malls Manila Bay in Parañaque City. Counting the other exhibition films, retrospectives, and premieres, the festival’s lineup this year totals 200 films. For more details including the screening schedules, visit the CCP and Cinemalaya websites and social media pages. — Brontë H. Lacsamana

Sun Life bags No. 1 spot in Philippines’ MDRT; sole PH firm in Global Top 50

Sun Life of Canada (Philippines), Inc. (Sun Life) once again bags the number one spot in the Million Dollar Round Table (MDRT) for having the highest number of financial advisors in this exclusive and prestigious organization. Having 540 financial advisors as members of the MDRT last 2023, Sun Life bested the competition, eclipsing the closest contender by 172 members.

MDRT is an association of life insurance agents and financial advisors that aims to promote ethical standards, best practices, and the promotion of the sales profession for life insurance as well as the health and long-term care industry. To become a member, a financial advisor must pass stringent membership requirements. With this, MDRT has become a hallmark of excellence in the life insurance industry and the financial services sector.

Sun Life Philippines CEO & Country Head Benedict Sison

As the only Philippine-based company to land among the top 50 MDRT companies around the world, Sun Life ranks number one in the Philippines and 41st globally for having the most MDRT financial advisor members in the life insurance industry.

Sun Life Chief Distribution Officer Alfonso Quitangon

“Excellence is a cornerstone of Sun Life’s commitment to its clients and the Filipino nation as a whole,” says Alfonso Quitangon, Chief Distribution Officer of Sun Life. “This recognition from such a prestigious and exclusive association inspires us to further outdo ourselves in offering exemplary service and care to our dear Clients.”

Sun Life Philippines CEO & Country Head Benedict Sison likewise lauded the Sun Life advisors who have achieved MDRT status. “They not only bring to life our purpose but do so with such passion and dedication,” he said. “They make us proud and remind us that going the extra mile to help Clients secure their future will always be a rewarding pursuit.”

To know more about Sun Life, visit www.sunlife.com.ph.

 


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Chinabank posts higher earnings

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CHINA Banking Corp. (Chinabank) saw its net income rise by 6% year on year to a record P11.4 billion in the first half on the strength of its core businesses, it said on Thursday.

“Our business performance continued to improve during the first half of the year,” Chinabank President & Chief Executive Officer Romeo D. Uyan, Jr. said in a stock exchange disclosure.

“The continued growth of our core lending and deposit-taking businesses, combined with stable asset credit quality and controlled operating costs, allowed us to register our highest first-half net income to date, solidifying our position as one of the top four banks in the country,” he added.

The bank’s financial statement was unavailable as of press time.

Chinabank’s first-half performance translated to a return on equity of 15.1% and a return on assets of 1.5%.

Its net interest income rose by 19% year on year to P30.4 billion at end-June amid elevated rates, with higher earnings from better loan volume helping offset the increase in interest expense.

Net interest margin was at 4.4%, improving by 25 basis points from the previous year.

Meanwhile, operating expenses increased by 5% to P14.1 billion due to higher volume-related taxes.

Its cost-to-income ratio stood at 49%.

Chinabank’s gross loans rose by 10% year on year to P817 billion as of June on strong demand across market segments, with consumer loans growing by 25% and making up a quarter of its loan book in the period.

Despite the increase in loans, its asset quality remained good as its nonperforming loan (NPL) ratio stood at just 1.9%. NPL coverage was at 141% even as it set aside lower credit provisions of P737 million.

On the funding side, deposits grew by 145% to P1.3 trillion.

Chinabank’s assets stood at P1.5 trillion at end-June, up by 12% year on year.

Total capital was at P152 billion, also rising by 10%. Its common equity Tier 1 ratio was at 14.5% and its total capital adequacy ratio stood at 15.3%.

“This solid financial performance, backed by strong capital and liquidity, reflects CBC’s inherent financial strength, prudent risk management, and sharpened customer focus,” Chinabank Chief Finance Officer Patrick D. Cheng said.

The listed lender has 648 branches and 1,078 automated teller machines (ATM) to date, including the 168 branches and 210 ATMs of Chinabank Savings, Inc.

Chinabank’s shares rose by 40 centavos or 1% to end at P40.40 apiece on Thursday. — A.M.C. Sy

Over 70% of PHL industries hit by cyberattacks in 2023 — report

RAWPIXEL.COM-FREEPIK

MORE THAN 70% of Philippine industrial organizations experienced cyberattacks in their operational technology (OT) environments in 2023, according to a report from cybersecurity firm Palo Alto Networks.

In the 2024 State of OT Security: A Comprehensive Guide to Trends, Risks, and Cyber Resilience report released on Thursday, 76.5% of the surveyed Filipino respondents reported that their organizations had at least one cyberattack in 2023.

Equally alarming is the frequency of these attacks, with about 48.7% of respondents experiencing attacks monthly or weekly, the report said.

Palo Alto Networks surveyed 1,979 OT and IT business leaders across 23 countries, including 51 respondents in the Philippines, in December 2023.

“The growing attacks on industrial operators highlight the urgent need for proactive risk mitigation and system resilience,” Oscar Visaya, Philippines Country Manager at Palo Alto Networks said.

Mr. Visaya said that as industrial operations undergo digital transformation amid the AI (artificial intelligence) era, traditional security measures are “inadequate” against advanced threats.

Instead, he recommended adopting AI-driven defenses to analyze large data sets and detect patterns of impending threats, often before an attack occurs.

About 23.1% of Filipino organizations had to shut down industrial operations in the last year due to a successful attack, the firm said.

Meanwhile, 70.6% of respondents viewed security as a high priority, while 56.9% expected to increase spending on OT cybersecurity in the next two years.

The report also found that more than 70% of respondents identified  AI attacks against OT as a critical issue, but four out of five agreed that AI will be key to stopping OT attacks.

Additionally, 92.2% believed that moving to the cloud would reinforce OT security, but 64.7% said it would also create increased cybersecurity challenges in the next two years. — Aubrey Rose A. Inosante

A lovely collaboration album

By Brontë H. Lacsamana, Reporter

Album Review
AAA
HYUKOH & Sunset Rollercoaster

THE SOUNDS of South Korea and Taiwan have come together in a joint album by two of those countries best indie rock bands.

Seoul-based HYUKOH and Taipei-based Sunset Rollercoaster have long been collaborating. The latter remade the former’s track “Help,” and Korean vocalist Oh Hyuk featured on the Taiwanese band’s track “Candlelight.”

This time, an album of eight songs marks their full collaboration. The title, AAA, refers to an overwhelmingly positive rating as the two groups blur cultural borders to merge their sounds.

HYUKOH, composed of singer-songwriter Oh Hyuk, guitarist Lim Hyun-Jae, drummer Lee In-Woo, and bassist Im Dong-Gun, is known for an eclectic, melancholy indie rock style with references to Korean youth culture.

Sunset Rollercoaster, formed by singer-guitarist Tseng Kuo-Heng, bassist Chen Hung-Li, drummer Lo Tsun-Lung, keyboardist Wang Shao-Hsuan, and saxophonist Huang Hao Ting, rose to fame for their jazz-funk-synth pop sound.

When they collide, it results in an awesome blend of genres.

“Kite War,” the first track, comes out swinging with their voices all singing in chorus, backed by a magnificently rich soundscape of synth keyboards, smooth saxophone, and an explosion of guitar melodies towards the end.

Clocking in at under six minutes, it’s clearly the product of a jam session that led to an amazing stack of vocals and instrumental harmonization.

The second track starts off more subdued. “Y” centers on Oh Hyuk’s vocals as they work with the synth tones that build in intensity.

As the rhythm crescendos, bass beats and guitars join the fray, turning the song into a groovy bop. The sax enters, providing an added layer of instrumentation that pushes up the track to a well-earned spot among other all-time indie rock favorites.

After this, the album mellows out, with Mandarin-language “Antenna” settling into a dreamy ambience. “Glue” follows with an easygoing guitar sound blending with calm vocals and saxophone melodies.

“Young Man” is the fourth track and lead single. Ahead of the album’s release on July 18, it made a strong impression with its upbeat tune, once again sung in chorus. It’s a perfect example of a happy-sounding melody hiding hard-hitting lyrics that echo the youth’s anxiety (a common HYUKOH theme).

Following that is “Do Nothing,” a fun Bossa nova track that showcases the best of both bands. As Oh Hyuk sings of “doing nothing at all,” the instrumentation’s light guitar notes and soft percussion bring to mind a cool summer day out, the sub-tropical vibe that Sunset Rollercoaster is known for.

The last two tracks are fillers, which may disappoint many, but it’s a testament to how the two bands went in with a mindset to explore and enjoy.

“Aaaannnnteeeeennnaaaaaa,” as the title says, is simply the third track “Antenna” drawn out. Mixed down to a ridiculously slow speed, it’s a contemplative piece of music to meditate or fall asleep to. Meanwhile, “2F         ” is an extra tidbit that sounds like a raw rehearsal of “Young Man.”

Perhaps the biggest itch the final track scratches is getting to hear how the band members occasionally communicate with each other in English as they tweak the song’s arrangement and tempo, a quick glimpse of their process.

AAA is a fascinating rundown of South Korean and Taiwanese indie rock sensibilities. The first two songs have amazing rock and jazz arrangements while the rest are calmer and more easygoing, with melancholy themes.

All are lovely products of what sounds like a very natural collaboration between two strong players in the East Asian indie rock scene.

BPI eyes regular bond issuances amid market demand

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BANK of the Philippine Islands (BPI) may issue another peso bond next quarter as it hopes to launch regular offerings amid strong market demand, its top official said.

“We want to do it. It’s something that we’re thinking about. There’s no firm plan because the issue we just did reached about P30-33 billion, so we’re kind of full. But the idea really is to eventually come to a point where we have a regular flow of bonds because the market needs it,” BPI Chief Executive Officer Jose Teodoro K. Limcaoco said at a briefing on Thursday.

Mr. Limcaoco was referring to the bank’s offering of 1.5-year peso-denominated Sustainable, Environmental, and Equitable Development or SEED Bonds, which ended on Thursday.

The bank wanted to raise at least P5 billion from the offer, which ended a day earlier than originally planned amid robust demand.

“When you take a look at the different businesses, a lot of our demand comes from the wealth side. A lot of demand comes from the branches. If it’s cost-efficient, why don’t we do it this way because it’s what the customers want anyway. We can split the cost with them. So, we can get a better yield at a lower cost,” he added.

For his part, BPI Treasurer and Global Markets head Dino R. Gasmen said it would be a challenge to issue bonds regularly as this would also depend on the bank’s current funding needs.

“We might not need funding by the next quarter, so that will stop us from issuing,” Mr. Gasmen said. “So, it’s a plan. It’s a challenge for us. The cost advantage is big, so if we can issue more, the better.”

It would also be difficult to issue sustainability bonds every quarter as “we don’t know if assets will come in as we expect,” he added.

“It’s hard to be short of sustainable assets because it’s just one-and-a-half years. Other bonds are five years. At least those have a longer time to fill up and fulfill the use of proceeds. We don’t want to be short of assets… so, we want to be careful there as well,” Mr. Gasmen said.

NARROWING MARGINS
Meanwhile, Mr. Limcaoco said the bank will continue to increase the share of non-institutional loans in its total loan portfolio to help offset the expected compression of its net interest margin amid the Bangko Sentral ng Pilipinas’ (BSP) upcoming monetary easing cycle.

“I think margins over time will compress. That’s a reality. As rates go down, margins will compress, and we have to make it up by volumes, to shifting your portfolio to loans which are less sensitive to policy rates… Things like auto loans, or mortgages are less sensitive. They react much later. That’s why for us, it’s about shifting more of our portfolio into consumer loans,” he said.

The bank hopes to eventually have 30% of its loan book come from non-institutional clients, Mr. Limcaoco added.

“Maybe two years ago, we were 76% or 77% corporate loans, and now we’re at 26% retail loans and 74% corporate loans. But the goal is to get it to 30%,” he said.

“We all know the economy looks very positive, so the top corporations will also be borrowing. We have to lend a lot more to the consumer side… It’s not an easy job,” he added.

Still, their margins may not narrow by much yet as the BSP is only expected to cut rates by 50 basis points (bps) this year, or two 25-bp deductions this quarter and next, Mr. Limcaoco noted.

BPI’s net income grew by 17.5% year on year to P15.3 billion in the second quarter, driven by higher revenues.

Its shares went up by P3.50 or 2.89% to end at P124.80 apiece on Thursday. — AMCS

Ayala Corp. explores minority stake sale in AC Health — sources

ACHEALTH.COM.PH

SINGAPORE — Ayala Corp., the Philippines’ oldest conglomerate, is exploring selling a minority stake in Ayala Healthcare Holdings (AC Health) in a potential deal that could value its healthcare arm at up to $500 million, two people said. 

Ayala has hired Bank of America to explore the sale of the minority stake AC Health to strategic investors or partners that will help further expand the business of the healthcare arm, the people added.

The people, who have knowledge of the matter, declined to be named as the deliberations were private.

The exact minority stake size to be potentially put on sale was not immediately certain. No final decision has been made on the sale, the people said.

In a response to Reuters on Thursday, Ayala said in a statement AC Health is looking to continue to build its portfolio and has a healthy pipeline of potential targets. 

“With this, AC Health continues to explore all options, including engaging with a partner at different organizational levels, for its next stage of growth,” it added.

Bank of America did not immediately respond to request seeking comment.

Southeast Asian healthcare assets are gaining favor as global investors bet on the region’s growing affluence and aging population and the sector’s ability to weather the current challenging economic environment.

In November, Australia’s Ramsay Health Care and Malaysian conglomerate Sime Darby agreed to sell their stakes in their hospital joint venture, Ramsay Sime Darby Health Care, to Columbia Asia Healthcare for RM5.7 billion ($1.25 billion).

Established in 2015, AC Health has grown steadily and has a portfolio that includes drugstore chains Generika and St. Joseph Drug, and pharmaceutical importer and distributor IE Medica and MedEthix, according to its websites.

It also counts Healthway and QualiMed, a network of multi-specialty clinics, ambulatory centers, and full-service hospitals, and KonsultaMD, a healthcare aggregator app, under its portfolio, its websites showed.

For 2023, AC Health posted a 19% jump in revenue to P8.6 billion ($147.51 million), driven by higher contributions from pharma, clinics, and hospitals businesses, according to the company’s presentation posted on its website. 

AC Health’s core earnings before interest, taxes, depreciation, and amortization, or EBITDA, jumped 23% to P722 million, the presentation showed.

Besides healthcare business, Makati City-headquartered Ayala has interests including in property, banking, telecommunications, and power and is one of the largest conglomerates in the Philippines, its website showed. — Reuters

When cracks start to show

IGOR OMILAEV-UNSPLASH

Call it self-help, “sariling sikap,” or even a regional initiative, but the ASEAN+3 finance and central bank process that culminated in the establishment of an independent regional surveillance unit in 2011 says it all. That surveillance unit is the ASEAN+3 Macroeconomic Research Office (AMRO) based in Singapore which became an international organization in 2016. It was subsequently granted a permanent observer status in the United Nations General Assembly in 2017.

As the Asian Development Bank (ADB, 2021) in “Redefining Strategic Routes to Financial Resilience in ASEAN+3” described it, the Chiang Mai Initiative (CMI) — later upgraded to the Chiang Mai Initiative Multilateralization (CMIM) — was the first regional safety net arrangement pursued within the ASEAN+3 finance and central bank process.

As the region worked hard to recover from the Asian Financial Crisis in 1997, its resilience was amply demonstrated during the 2007-2009 Global Financial Crisis and the following debt crisis in the Euro area. The region has learned its lessons, and learned them well, from the series of financial crises in previous decades. Positive dividends from the fundamental policy and structural reforms are just too great to be ignored.

Based on its own experience of 10 years, the ASEAN+3 region decided to push the envelope. The possibility of seeing another crisis, global or regional, cannot be discounted. It institutionalized surveillance and elevate the regional safety net from bilateral swaps among the ASEAN 10 countries to multilateral swaps including China, Japan, and Korea. A surveillance unit was critical and thus, AMRO had to come about.

AMRO has two core functions. One is to conduct regional surveillance, an activity that has produced the ASEAN+3 Regional Economic Outlook (AREO) and the ASEAN+3 Financial Stability Report (AFSR). If the IMF’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) were to have regional analogues, they would be AMRO’s two surveillance reports. Like the Fund, AMRO also conducts regular annual country visits that produce country reports.

Its other function is to support the implementation of the regional safety net. The activation of such a regional financial arrangement is anchored on the results of its regular regional economic and financial stability surveillance and country reports. With these reports, regional financing would be easy to trigger. In the last few years, in fact, ASEAN+3 finance ministers and central bank governors, have recognized that the “ASEAN+3 financial cooperation forum is playing an increasingly essential role in supporting regional economies to address the risks and challenges.”

What seems to be the most prominent global risk and challenge today?

In the June 2024 issue of the Fund’s Finance and Development Magazine, Adam Posen, president of the Peterson Institute for International Economics, asserted that “geopolitics is corroding globalization.” Geopolitical fragmentation magnifies the vulnerability of all economies to foreign economic shocks with the possible exception of the largest economies in the world. Posen added to the risks the erratic current account balances, disruptions in countries’ access to dollar liquidity and accumulation of unsustainable debt.

What is also alarming is that the IMF itself, including its ability to help member countries, is also being undermined by what Posen called “the increasing politicization of international finance and commerce” by these largest economies namely the United States, China, and the European Union. The Peterson Institute’s president did not mince words when he referred to such actions as exploitative, and his call on the IMF to “get out in front of these dangers.”

Posen expressed the view that the solution is not to broaden the term of reference of the IMF, but to keep stressing its unique role “as a multilateral conditional lender and a truth teller regarding international debt and monetary issues.” Like the AMRO, if the Fund is to be a trusted policy advisor, it should enjoy greater operational independence ala autonomous and independent central banks. He conveyed three central thoughts.

First, it’s not good to have a broad and more discretionary core IMF agenda. Member countries would be more subject of geopolitical machinations of large-economy governments and the market flows they control. This is the clear and present danger we all confront.

Second, there should be more consistency in both substance and process in the IMF’s relationship with member countries regardless of their size and global influence. This is where the Fund’s integrity and legitimacy are anchored on. Inconsistent treatment of member countries favored by the US and other large economies should be avoided by the Fund.

Third, while the issues of climate change, inequality, and poverty could be addressed in other forums, only the IMF could serve as “quasi-lender of last resort and speaker of truth to economic power on debt and monetary issues.” Therefore, the Fund should focus on maintaining its independence when it comes to its core mission of attaining sustainable global growth and prosperity through the promotion of financial stability and financial cooperation.

In practical terms, Posen suggested that the Fund could influence what he called “excessive self-insurance policies of the largest economies.” Even if small incremental changes on these policies are achieved in coordinating cross-border debt and monetary issues, these small wins could actually result in higher IMF credibility and reduction of risks. If the Fund is able to retain and enhance its independence, the more effective it would be in dealing with these big economies.

For instance, the Fund could influence them to avoid their increasingly political and bullying control of access to their home markets and spillovers to the unknowing rest of the world. If this were to continue, emerging markets’ growth prospects would “rise and fall” with the big economies’ arbitrary determination of which countries should produce their imports and which should not.

What Posen is therefore asking the Fund to do is to be even handed in releasing its critique of these big economies — with the same criteria, with the same frequency and through the same public channels. It should be as frank as when they advise impoverished, highly indebted member countries. It serves no global public good when the Fund would simply be conciliatory with the US’s enormous fiscal deficits, China’s incomprehensible exchange rate policy, and the European Union’s untimely austerity programs.

Without doubt, the world economy is not safe, and it would need some financial safety nets, when the largest economies nurture this propensity to link access to their markets to some form of what Posen called “political loyalty tests or side payments.” And markets here could include exports, employment and technical knowledge in high tech and other industries, financial services and liquidity, foreign direct investment in both directions as well as cross-border aid and lending. It’s a paradox but this direction of the global economy today partakes in the same nature and shape of what gave rise to the Bretton Woods institutions 80 years ago.

If they are not cracks in the global economy and finance, we don’t know what they are.

In this context, the decision of the ASEAN+3 finance ministers and central bank governors could not have been timelier and more pertinent. In their meeting in Tbilisi, Georgia on May 3, these principals called for a strengthening of regional financial cooperation. Reforming the ASEAN+3 Regional Financing Arrangement is critical in reinforcing the current regional financial safety net. At this point, the efforts of the ASEAN+3 economies to explore more robust financing structures and develop new facilities to “effectively prevent, mitigate and resolve future crises” could serve as a counterweight to potential risks posed by geopolitical fragmentation.

It looks like the CMIM based on multilateral swaps might give way to the paid-in capital structure that the region’s finance ministers and central bank governors clearly prefer. CMIM suffers from some financing uncertainty, constraints of short-term financing, and fragmented risk management. There is scope for achieving greater operational efficiency and scalability.

On the other hand, a paid-in capital structure is similar to both the IMF and the European Stability Mechanism capital structure which could address most of the handicaps of the current CMIM based on multilateral swap. This could end up as the preferred choice if greater clarity is achieved with respect to the issues of, one, whether the FX contribution could still be recognized as part of the countries’ FX reserves; and, two, the governance and the required capabilities for managing such structure. By 2025, we expect the region to move forward on this new regional financing scheme.

The ASEAN+3 region expressed its seriousness in preempting future crises when they also endorsed the establishment of the Rapid Financing Facility with the possible incorporation of eligible freely usable currencies (FUCs), still within the CMIM umbrella. Other financing facilities may be considered in the future.

When cracks start to show, it’s not good to assume those affected would not take action to mitigate their impact. What the ASEAN+3 is doing is preemptive, it could in fact remediate those cracks. As someone said before, change does not fail when it’s too early but it almost always fails when it’s too late.

 

Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

Venice to limit tourist groups to maximum of 25 people

DAMIANO BASCHIERA - UNSPLASH

ROME — Venice will limit the size of tourist parties to 25 people from Thursday in the latest attempt to reduce the impact of crowds on the lagoon city.

Local authorities will also ban the use of loudspeakers by tourist guides in measures aimed at “protecting the peace of residents” and ensuring pedestrians can move around more freely.

There will be fines ranging from €25 to €500 ($27-541) for those who do not comply with these new measures, which were originally planned to take effect from June but were held over until the start of August.

The restrictions cover the city center and also the islands of Murano, Burano, and Torcello.

In April, Venice became the first city in the world to introduce a payment system for visitors in an experiment aimed at dissuading daytrippers from arriving during peak periods.

The pilot scheme, which has been watched closely by other European tourist hotspots, covered just 29 days and ended in July, opening the way for a period of consultation to decide how to proceed with the project in future.

There are a number of exemptions to the rules on tourist parties. Children up to two years of age are not included in the count and the limitation is waived for visiting students or those on an educational trip. — Reuters