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UnionBank’s earnings rise by 6% in the first semester

BW FILE PHOTO

UNION BANK of the Philippines, Inc. (UnionBank) booked a net profit of P6.4 billion in the first six months of the year amid growth from its consumer businesses.

The bank said in a statement on Monday that its net income in the first half was up 6% from P6.06 billion as of end-June 2022.

UnionBank’s quarterly report was not available as of press time.

“All our consumer business-engines are running (at) full speed. We now have over 12 million customers. The acquired Citi business is contributing around one-third of our income today. CitySavings continues to be a market leader in providing salary loans. UnionDigital is already profitable and growing fast,” UnionBank President and Chief Executive Officer Edwin R. Bautista said.

“This kind of momentum gives me confidence that UnionBank will achieve its goal of becoming the largest and most profitable retail bank in the Philippines by 2025,” he added.

UnionBank completed its acquisition of Citigroup, Inc.’s Philippine retail banking business in August 2022. The transaction was valued at P55 billion.

City Savings Bank, Inc. is UnionBank’s thrift bank subsidiary, while UnionDigital Bank is the lender’s online bank.

The Bangko Sentral ng Pilipinas (BSP) granted UnionDigital its digital banking license in July 2021. It began operations a year later.

UnionBank’s net revenues rose by 60% year on year to P34.4 billion in the January-June period.

Meanwhile, net interest income increased by 41% to P24 billion from P16.97 billion a year ago on the back of a “43% increase in the bank’s loan portfolio plus better net interest margin.”

UnionBank’s net interest margin stood at 5.2% at end-June, 60 basis points higher than the year-ago level.

“The bank’s strong focus on high-yielding consumer loans more than offsets the impact of the rising cost of funds. The bank’s proportion of consumer loans to total loans improved to 55% this year versus 42% last year,” it added.

Fees and other income increased to P10.5 billion from P4.6 billion, driven by “card-related transactions, digital transactions, and the growing base of the bank’s key subsidiaries.”

Net loans and receivables rose by 43% to P522.2 billion.

On the funding side, total deposits grew by 25% to P693.3 billion.

Meanwhile, operating expenses went up by 82% to P21.8 billion, “on account of one-time integration cost of the acquired Citi consumer business and the establishment of UnionDigital.”

The bank’s total assets grew by 27% to P1.1 trillion at the end of the second quarter.

“We consider this year as a period of investing for our future. Our costs will temporarily be elevated this year, while the integration of the acquired Citi consumer business is ongoing,” UnionBank Chief Financial Officer Manuel R. Lozano said.

“Having said this, we have a healthy earning asset base. We have a well-diversified consumer loan mix and all segments are growing in double digits. As soon as we complete the Citi integration, we expect a substantial reduction in operating expenses that will bring us back to above-industry return on equity we have been known to deliver,” he added.

UnionBank’s shares rose by 25 centavos or 0.33% to close at P76 each on Monday. — Luisa Maria Jacinta C. Jocson

Filigree launches 1001 Parkway Residences

Filigree recently unveiled 1001 Parkway Residences in Filinvest City, Alabang. — COMPANY HANDOUT

LUXURY real estate property developer Filigree recently unveiled its latest residential project, 1001 Parkway Residences in Alabang.
The two-tower high-rise is located in Filinvest City, which is a LEED (Leadership in Energy and Environmental Design) gold-certified neighborhood by the US Green Building Council.

“When we started Filigree, we envisioned it as a brand that represents understated luxury, with particular focus on quality, craftsmanship, and beauty. This vision continues with 1001 Parkway Residences,” said Daphne Mae O. Sanchez, Filigree business head, at the July 26 launch.

Once completed, the residential condominium will have 41 storeys — becoming the tallest residential building in Filinvest City.

There has been an increase in residential buyers after the pandemic, Ms. Sanchez told BusinessWorld. She noted projects in Alabang, in particular, have gained traction over the past year.

The 1001 Parkway Residences is the newest addition to Filigree’s collection of properties, including The Beaufort in BGC, The Enclave Alabang in Daang Hari, Bristol, Botanika Nature Residences Tower 1, and Two Botanika in Filinvest City, and Golf Ridge Private Estate in Filinvest Mimosa+ in Clark, Pampanga.

The new project is marketed towards young, successful individuals and starting families of the upper middle-income bracket.

Each tower will have a total of 382 one- to three-bedroom units, ranging from 50 square meters (sq.m.) to 145 sq.m., and priced from about P14 million to P44 million.

Around 89% of 1001 Parkway Residences is composed of one-bedroom units.

“Compared to other CBDs (central business districts) in Metro Manila, it’s reasonably priced and even offers a sophisticated, cosmopolitan lifestyle,” said Ms. Sanchez. “It takes advantage of its location by seamlessly integrating Filinvest City’s esteemed park system with the indoors.”

Amenities include a Sky Lounge view deck, a 50-meter adult pool and kiddie pool, outdoor and indoor kids play areas, a gym and yoga studio, a dog park, and a pavilion for social gatherings.

“We wanted to combine the charm of nature and the beauty of structure,” Ms. Sanchez added.

The property is scheduled for turnover by 2028. — Brontë H. Lacsamana

Time to chill out about air conditioning’s carbon footprint

FREEPIK

HOW DID the fossil-fuel era begin? With Europeans heating their houses in winter.

The Industrial Revolution would likely never have started if medieval Britain hadn’t turned to coal swept from the beaches of Northumbria to replace firewood from its dwindling forests. One of the world’s first air pollution laws was a 1306 proclamation prohibiting the burning of “sea-coal” in London. We’ve been heating our homes for so long that we take the practice, and its carbon footprint, for granted.

That’s a mistake. With temperatures across the globe breaking record after record in recent weeks, there’s no shortage of alarm about the rising climate impact from the energy we’ll use to cool our homes. People in sweltering developing economies will buy a billion air conditioners by the end of this decade.

Even so, under almost every plausible scenario, the climate in 2050 will be suffering more from heating homes than cooling them. If we want to see an energy transition that addresses human welfare and global inequality, we should be more relaxed about the rise of air conditioning in developing countries, and much more worried about the persistence of conventional heating in rich ones.

The numbers are stark. Globally, heating caused about four times more emissions than cooling last year, according to the International Energy Agency.* Electric heaters alone account for about two-thirds more emissions than every air conditioner on the planet — and that’s the tip of the iceberg, since the majority of domestic heating is done with boilers powered by gas, fuel oil, or coal.

The benefits of this aren’t evenly spread, either. Europe, the former Soviet Union and the Americas, with about a quarter of the world’s population, will account for about 59% of emissions from space heating and cooling in 2025, according to one 2021 study, led by Alessio Mastrucci of Austria’s International Institute for Applied Systems Analysis. Add in China, which has largely hit developed-world standards on this front, and the share rises to 84%.

Why, then, is there so much more concern about the relatively small carbon footprint from cooling?

One factor is that the direction of travel is different. A warmer planet where incomes are climbing fastest in countries close to the equator is one where cooling demand will rise rapidly in the Global South. Meanwhile, milder winters, stagnating population growth, and the spread of insulation and heat pumps should reduce the footprint from heating in the Global North.

Even so, emissions in 2050 from warming homes in Europe, the former Soviet Union, and North America will be greater than the entire world’s cooling footprint, according to Mastrucci’s 2021 study.

There’s good reason for optimism that technology, efficiency, and a warming climate will, indeed, make heating less carbon-intensive over the coming decades — but that’s not happening yet. Over the decade through 2022, it rose by 158 million metric tons of CO2, little less than the 180 million-ton increase in cooling.

It’s true, too, that the rise of air conditioners will pose fresh challenges to the world’s energy systems, quite aside from their climate impact. All those gas and fuel oil boilers mean that home heating doesn’t stress electrical grids the way that AC does.

In Delhi, peak power demand jumped 64% over the decade through 2018, compared to a 42% increase in total electricity consumption, thanks largely to the uptake of air conditioners that often account for half of the city’s energy usage. That peak-and-trough pattern is fiendishly difficult for grid planners to manage, especially as households are more likely to use air-con in the evening and at night, rather than in the middle of the day when solar panels are humming.

The solution to this, however, is not to scold the billions in developing countries who will buy their first cooling units over the coming decade. In many cases, those appliances could literally be life-savers when the temperature rises to levels that strain the limits of survivability. Instead, we should look for ways to give everyone a better standard of living with a lower carbon footprint.

Providing incentives for people to buy the most efficient air conditioners (and fans for periods of less intense heat) would help reduce strains on the grid, emissions, and electricity bills. That could provide a minor boost for fossil fuels, since propane from natural gas might be a more climate-friendly refrigerant than the fluorine compounds that currently predominate.

Building codes should also be introduced, enforced, and tightened. Air conditioners are often just making up for the deficiencies of bad design. Generous shading and floor plans that allow cross-ventilation are the best way to reduce cooling demand in the billions of homes that rapidly urbanizing developing countries will build over the coming decades.

Above all, though, the world should accept that a just energy transition is inevitably going to see poorer countries use more air-con to reach levels of domestic comfort that richer locales take for granted.

Developed nations still struggling to give up their fossil-fired boilers for more efficient heat pumps — let alone turn their thermostats down a degree or two, insulate their roofs and walls, or keep windows closed in the depths of winter — must get their own house in order before they start preaching to the rest of the world.

BLOOMBERG OPINION

* The IEA’s numbers include water heating as well as space heating, but separate data confirms the same picture where space heating’s footprint is vastly greater than that from space cooling.

PhilTower says 250 telco towers now operational

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LOCAL TOWER company PhilTower Consortium, Inc. said on Monday that the 250 towers it acquired from Globe Telecom, Inc. are now fully operational.

The towers are located in Visayas and Mindanao and are part of the 578 towers the tower company acquired in February.

“This is yet another big milestone for us of full operational handover of towers from Globe. PhilTower believes in its organizational pillars such as people, process, technology readiness and a faster way of asset management to achieve takeover in a short span of time,” said Devid Gubiani, chief executive officer of PhilTower.

“We look forward to extending further operational savings to Globe from the establishment of the 24/7 operational capability and distributed field operations teams in the challenging territories of Visayas and Mindanao.”

The first tranche is part of the 1,350 cell sites under a sale and leaseback deal signed by the two companies in September.

In an answer to an inquiry through e-mail, PhilTower said the remaining towers are targeted to be turned over by Feb. 9, 2024.

It also added that the full stand-alone operation of the first batch of 578 towers is targeted by Sept. 30.

In the five months since the delivery of the first 578 towers, the company has been able to establish two regional operational centers.

“The faster and smooth transitioning is achieved through setting up PhilTower’s transitioning project management office of key experts, internal workstreams, outsourcing of field activities, and management support for critical decision alignment,” said PhilTower Chief Operating Officer PT Pawar.

“We appreciate the valuable inputs and support of Globe teams during transitioning, handholding and now, start of stand-alone operation. PhilTower will ensure post-transitioning improvement of network availability,” he said.

Meanwhile, Globe said that it looks forward to operating PhilTower’s sites that it will acquire from the operator.

“We are happy to hear that the first batch of towers we turned over to PhilTower are now fully operational after just five months. This speaks of the smooth transition between the two companies. This level of efficiency is crucial in ensuring undisrupted services to our customers,” said Ernest L. Cu, president and chief executive officer of Globe. — Justine Irish D. Tabile

‘Barbenheimer’ box office sales keep rolling in second weekend

WARNER BROS.’ Barbie showed no signs of slowing down in its second weekend at the box office, and was set to haul in $93 million in ticket sales Friday through Sunday, according to estimates from media analytics firm Comscore.

Director Greta Gerwig’s take on Barbie – the year’s No. 1 movie by first weekend sales, and the highest-grossing opening weekend for a film directed by a woman – has made more than $351 million in the US and Canada since opening on July 21, and nearly $775 million globally, Comscore reported.

The film, which stars Margot Robbie in the titular role, and Ryan Gosling as Barbie’s iconic beau, Ken, sends Mattel, Inc.’s iconic doll on an adventure into the real world. The toy maker last week posted a surprise second-quarter profit in the wake of the movie’s release, with Chief Executive Officer (CEO) Ynon Kreiz telling analysts the company would expand its Barbie-related toys and products in the second half of 2023.

On Barbie’s heels this weekend was Oppenheimer, director Christopher Nolan’s historical tale of the physicist J. Robert Oppenheimer and the making of the atomic bomb, which made an estimated $46.2 million Friday through Sunday in what Comscore analyst Paul Dergarabedian called a “phenomenal second weekend.”

The two films together have been dubbed “Barbenheimer,” a nod to the relative rarity of two blockbusters opening the same weekend. Their combined sales are “absolutely mind blowing,” Dergarabedian said, with second-weekend numbers that “would have been hailed as opening weekend wins.”

Universal’s Oppenheimer has made $174 million in the US and Canada so far, and $400 million worldwide.

The films have seized American moviegoers’ attention at an uncertain time for Hollywood. The Writers’ Guild of America, a labor union representing writers, has been on strike over pay since May, while SAG-AFTRA — the union for artists and actors, including A-list stars like Robbie — went on strike earlier this month. — Reuters

RCBC completes share sale to Sumitomo Mitsui

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RIZAL COMMERCIAL Banking Corp. (RCBC) has completed its sale of shares to Sumitomo Mitsui Banking Corp. (SMBC) that will raise the latter’s stake in the lender.

RCBC said in a disclosure to the local bourse on Monday that it completed the sale of an additional 15.01% stake to SMBC.

SMBC’s stake in RCBC is now at 20% after it acquired a 4.999% stake in 2021.

The P27-billion capital infusion from the commercial banking arm of Sumitomo Mitsui Financial Group as a result of the transaction will boost its corporate, small and medium enterprises (SME), and retail segments, RCBC said.

“Through this partnership, RCBC will once again set the bar higher, adopting global best practices and customer-centric strategies, promoting disruptive banking solutions, and expediting our digital transformation,” RCBC President and Chief Executive Officer Eugene S. Acevedo said in a statement on Monday.

“Closer collaboration will open more business matching opportunities for RCBC’s local customer base and SMBC’s global network. Through this, RCBC and SMBC shall jointly establish a bridge for Philippine businesses and consumers to connect to international markets and vice-versa,” the bank added.

SMBC is the commercial banking arm of Sumitomo Mitsui Financial Group and is one of the largest banks in the world with a presence in about 40 countries.

Meanwhile, RCBC is the fifth-largest private bank in the country with an asset base of P1.17 trillion as of end-June.

RCBC’s attributable net income surged by 69.92% to P3.638 billion in the first quarter amid an increase in its non-interest earnings.

Its shares climbed by P1.80 or 7.76% to close at P25 each on Monday. — AMCS

Lifting moratorium on NCR ecozones seen to boost IT-BPM job creation

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LIFTING the moratorium on new economic zones (ecozones) in the National Capital Region (NCR) is expected to attract new Information Technology and Business Process Management (IT-BPM) companies to the Philippines, according Leechiu Property Consultants (LPC).

This as the Philippine Economic Zone Authority (PEZA) earlier said it expects Malacañang to lift the moratorium within the year.

“Opening up applications for new Metro Manila PEZA locations will encourage new tenants and hasten new employment,” LPC said in a statement.

LPC said the move would help the IT and Business Process Association of the Philippines achieve its target of creating 1.1 million jobs by 2028, as well as another 3.3 million in indirect employment.

Issued by then-President Rodrigo R. Duterte in June 2019, Administrative Order (AO) No. 18 declared a moratorium on the approvals of new ecozones in the NCR in order to boost countryside development.

LPC noted the AO No. 18 “created a barrier to entry for new IT-BPM tenants preferring to locate in Metro Manila.”

“IT-BPM companies have been the primary growth driver of Philippine real estate for more than 20 years. New IT-BPM entrants typically open their headquarters in the National Capital Region, which has about 70% to 75% of the industry headcount as of 2021, and only after will be willing to expand to the provinces,” it said.

The Philippines is one of the few countries experiencing net positive absorption in the office sector, LPC said.

“The Philippines will be further boosting this growth by making available another 2.8 million square meters (sq.m.) of office space in the next 10 years; of which, 1.8 million sq.m. will be in Metro Manila. IT-BPM tenants will likely remain as the primary takers of this office space,” it said.

Year to date, office demand has reached 554,000 sq.m., with LPC projecting another 500,000 sq.m. demand for the second half.

“While office absorption is moving towards pre-pandemic levels, the lifting of the moratorium will bolster further growth benefiting projects in Metro Manila, as well as in the provinces,” LPC said.

Debt service, sustained growth, and the PDE alumni homecoming

During the post-State of the Nation Address (post-SONA) Philippine Economic Briefing (PEB) last week, July 25, at the Philippine International Convention Center, Finance Secretary Benjamin Diokno expressed continued optimism saying that “Higher economic activity and increased investments will bring us to even greater heights. The policy environment for foreign direct investments is the most open and liberal it has ever been.”

On the Maharlika Investment Fund (MIF), Secretary Diokno said “the MIF is expected to widen the fiscal space and reduce reliance on official development assistance (ODA) in funding big-ticket infrastructure projects.” Right on, Sir.

Budget Secretary Amenah Pangandaman was not there as she was presenting the National Expenditure Program (NEP) to President Marcos Jr. that will be submitted to Congress. Then the President flew to Kuala Lumpur for a state visit.

Budget Undersecretary Joselito Basilio took her place at the event and discussed the priority sectors under the FY 2024 proposed budget through the NEP that is anchored on the Philippine Development Plan (PDP) 2023-2028. Economic Planning Secretary Arsenio Balisacan highlighted social services spending in the PDP 2023-2029.

Also last week, the Bureau of the Treasury released the cash operations report including debt service for June 2023. Since the results of the first half (H1) of 2023 are already reported, I have compared the H1 numbers of previous years, 2018-2022. The numbers this year on debt servicing — payment in interest plus amortization for public debt contracted and accumulated for many years under previous administrations — are not good.

One — interest payment this year is already P283 billion, amortization is P626 billion, total debt service is P908 billion or approaching P1 trillion in H1 alone. This is not good.

Two — domestic debt constitutes a rising share of total debt service, especially in fixed rate and retail treasury bonds (see Table 1).

I checked the level of indebtedness of other countries. The gross debt/GDP ratio really jumped in the 2020-2021 lockdown dictatorship period, and began to flatline, or increase/decrease mildly in 2022. For the Philippines though, the jump was steep, from 37% in 2019 to 52% in 2020 then 57% in 2021. The lockdown dictatorship of the previous Duterte administration was really harsh compared to many countries, in Asia and around the world. Recall that Philippines GDP’ contracted 9.5% in 2020 — the worst in Asia, and the worst in Philippine economic history since after World War II.

Vietnam and Taiwan practically did not raise their indebtedness in 2020, they also managed to have GDP growth, not contraction, that year. For big countries in North America and Europe, all of them except Germany experienced debt/GDP ratios of 100% and above (see Table 2).

The above numbers show that lockdowns — shutting down of tax-paying businesses while expenditures remained high, then relying heavily on debt financing — is not good. It will never be good. Economic freedom — allowing people and companies to continue working and leaving healthcare to personal and civil society responsibility, not government lockdown irresponsibility — is the key to balancing economics and healthcare.

And the Maharlika Investment Fund? It is demonized by many individuals and groups concerned with public finance but who have little to zero (sound-of-silence) positions on military and uniformed personnel pension reform, a big public finance issue.

The Maharlika Fund should help finance big infrastructure and projects that were killed by politics (or subject to future political harassment) and hence, reduce fiscal pressure and need for borrowing. Since that new body has government presence and footprint, it can help thwart political harassment from local and National Government bureaucracies, as well as invite sovereign wealth funds from other countries to put their investments here as those projects have vetting and confidence by the MIF.

PDE ALUMNI HOMECOMING
Meanwhile, the Program in Development Economics (PDE) Alumni Association of the UP School of Economics (UPSE) will hold the PDE alumni homecoming on Aug. 19, 4 p.m., at the UPSE auditorium. Before the homecoming program, there will be “A Conversation with Finance and Budget Secretaries on Financing Sustained Growth.” The guest speakers will be Finance Secretary Diokno (PDE batch 7) and Budget Secretary Pangandaman (PDE batch 33).

These two officials are responsible for revenue generation and deficit borrowing and proposing the budget for the entire government to Congress, then manage its disbursement once enacted as appropriations act by Congress. They are key leaders in financing the very important goals of high sustained growth and sustained job creation while reducing the huge public debt accumulated by previous administrations.

PDE graduates from different batches, from the late 1960s to 2023, are encouraged to attend this very important lecture and meeting with their fellow alumni Cabinet Secretaries. This is a by-invitation event only, with some media and friends who are non-PDE alumni also invited to the “Conversation” before the homecoming program starts. Dinner will be served by the Philippine Center for Economic Development (PCED).

For the homecoming program, the PDE Alumni Association officers — including this writer — have solicited donations in kind from some corporations for raffles and give aways to participants. The following firms have expressed their willingness to give: San Miguel Corp., Robinsons Retail, Meralco, Astoria Hotels and Resorts, Nestlé Philippines, Gallerie Joaquin, Japan Tobacco, Inc., iOptions Ventures Corp., Philip Morris Fortune Tobacco Corp., and Alas Oplas & Co. CPAs. Thank you.

Thank you, Ferdie, Robina, Joe, Jeffrey, Arlene, Jack, Robert, Pidro, Noel, and my sister Marycris and their respective companies above. They are mostly my friends and fellow alumni of UPSE plus other friends and my sister.

Last month, this column produced a four-part series on Financing Sustained Growth: MUP pension reform (part 1, June 6), Fiscal discipline and Maharlika fund (part 2, June 13), Tax reforms (part 3, June 15), and NAIA privatization (part 4, June 27).

After the talks and “Conversation” with the two Secretaries, this column will resume another series on Financing Sustained Growth. Tune in, dear readers.

 

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.

minimalgovernment@gmail.com

Upson to open new concept store in August

OCTAGON outlet at SM Megamall — UPSON.COM.PH

LISTED information technology retailer Upson International Corp. said on Monday that it is set to open a new store in SM North Edsa in line with its store network expansion goals.

In a regulatory filing, the company said that it is set to open a new TP-Link concept store by August this year.

“TP-Link has long been known for offering a portfolio of affordable and reliable consumer and business networking products, such as hubs, routers, switches, cables, and more,” President and Chief Executive Officer Arlene Louisa T. Sy said.

“There are still a lot of product models aside from the ones that are popularly sold, and we would like to showcase those in a shopping space that is focused on their discovery,” Ms. Sy added.

As of June 30, the company owns and operates a total of 11 concept stores for Acer, HP, Brother, and Silvertec brands.

“Upson has earned a reputation for integrity and fair dealing. We are eager to collaborate with them. With our shared ambition of enabling digital transformation and deeper customer connectivity, this store will bring an expanded range of TP-Link merchandise including indoor and outdoor wireless and wired systems for small to large enterprise networks,” TP-Link Philippines Country Manager Ben Chen said.

Mr. Chen added that the new location will also feature occasional exclusive models and offers.

Upson said earlier that proceeds from its P1.65-billion maiden offering would be used for its store network expansion.

It planned to open 250 stores from 2023 to 2027, or an additional retail space of 25,000 square meters.

The company offered about 625 million common shares apart from 62.5 million common shares as an over-allotment option. The offer shares are priced at P2.40 apiece.

Meanwhile, the company announced last week that it plans to open six new Acer concept stores beginning July 2023. The company said that it would only display Acer products in the concept stores, which carry the brand’s full collection of PCs, monitors, and other devices.

On Monday, Upson shares fell by 4.23% or P0.09 to close at P2.04 each. — Adrian H. Halili

Hollywood studios considering terminating some deals with writers — Variety

PEDRO MARROQUIN-UNSPLASH

MAJOR Hollywood studios and streaming platforms are considering terminating some of their first-look, overall deals with writers as soon as Aug. 1, Variety reported on Friday, citing sources with knowledge of various term agreements and talks inside the companies.

The deals would be torn up under contractual force majeure clauses, as SAG-AFTRA and the Writers Guild of America continue to strike, the report said. — Reuters

Other financial firms’ domestic claims rise in Q1   

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Domestic claims of nonbank financial firms grew by 12.2% in the first quarter of the year, the Bangko Sentral ng Pilipinas (BSP) said on Monday.   

Data from the BSP’s Other Financial Corporations Survey (OFCS) showed domestic claims of firms climbed to P8.22 trillion in the January-to-March period from the P7.33 trillion seen in the same period a year ago.   

“The growth in the OFCs’ domestic claims in Q1 2023 was due to higher claims on the depository corporations (DCs), the central government and the other sectors,” the central bank said in a statement on Monday.   

The OFCS is an analytical survey of the assets and liabilities of the OFC sector. It uses standardized report forms as required by the International Monetary Fund.

These include individual financial statements from insurance firms, holding companies, government financial institutions, investment companies, and other financial intermediaries, as well as consolidated financial statements from trust institutions.

“In particular, the OFCs’ claims on DCs expanded significantly, owing mainly to the growth in the sector’s deposits in banks and holdings of bank-issued equity shares. Similarly, claims on the central government rose, following OFCs’ increased holdings of government securities,” the BSP said.   

Claims on depository corporations surged by 30.8% year on year to P2.05 trillion and increased by 8.4% from the level seen in the fourth quarter of 2022.

OFCs’ net claims on the central government grew by 19.4% year on year to P1.98 trillion in the first quarter and rose by 5.4% from the prior three-month period.

“Likewise, the OFCs’ claims on other sectors, particularly the private sector, grew slightly, primarily on account of increased loans extended to the households and the nonfinancial corporations,” the BSP said.

By component, the bulk of the OFCs’ domestic claims during the quarter was mainly composed of claims on other sectors — particularly the private sector. This was followed by claims on DCs and the central government.

The private sector includes other nonfinancial corporations, households and nonprofit institutions serving households.   

The other nonfinancial corporations refer to private corporations and quasi-corporations whose principal activity is the production of market goods or nonfinancial services.

Meanwhile, net foreign assets of OFCs rose by 20.8% to P304.3 billion in the first quarter from P251.98 billion in the same period a year earlier. It also grew by 16.5% versus the prior quarter.

“The claims on nonresidents expanded mainly due to the OFCs’ increased investments in debt securities issued by nonresidents. The sector’s liabilities to nonresidents grew slightly due to higher reinsurance payables to nonresidents,” the BSP said.   

Reinsurance liabilities consist of premiums due to reinsurers, which represent premiums payable by the insurance companies to all their reinsurers.

“The expansion in the OFCs’ gross assets was funded mainly by its issuances of shares and other equity to other sectors,” it added.   

Claims of OFCs on nonresidents rose by 12.9% year on year to P477.33 billion. Liabilities to nonresidents inched up by 1.2% year on year to P173.03 billion. — Keisha B. Ta-asan

Commercial real estate investors, banks buckle up for perfect property storm

THE shadow of the Central Park Tower stretches over the west side of Manhattan as seen from the window of the building in New York, US, Sept. 17, 2019. — REUTERS/LUCAS JACKSON

LONDON/SYDNEY — Commercial real estate investors and lenders are slowly confronting an ugly question — if people never again shop in malls or work in offices the way they did before the pandemic, how safe are the fortunes they piled into bricks and mortar?

Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall.

Cyclical downturns rarely prompt fire sales, so long as lenders are confident the investor can repay their loan and the value of the asset remains above the debt lent against it.

This time though, analysts, academics and investors interviewed by Reuters warn things could be different.

With remote working now routine for many office-based firms and consumers habitually shopping online, cities like London, Los Angeles and New York are bloated with buildings local populations no longer want or need.

That means values of city-center skyscrapers and sprawling malls may take much longer to rebound. And if tenants can’t be found, landlords and lenders risk losses more painful than in previous cycles.

“Employers are beginning to appreciate that building giant facilities to warehouse their people is no longer necessary,” Richard Murphy, political economist and professor of accounting practice at the UK’s Sheffield University, told Reuters.

“Commercial landlords should be worried. Investors in them would be wise to quit now,” he added.

WALL OF DEBT
Global banks hold about half of the $6-trillion outstanding commercial real estate debt, Moody’s Investors Service said in June, with the largest share maturing in 2023-2026.

US banks revealed spiraling losses from property in their first half figures and warned of more to come.

Global lenders to US industrial and office real estate investment trusts (REITs), who supplied credit risk assessments to data provider Credit Benchmark in July, said firms in the sector were now 17.9% more likely to default on debt than they estimated six months ago. Borrowers in the UK real estate holding & development category were 4% more likely to default.

Jeffrey Sherman, deputy chief investment officer at $92 billion US investment house DoubleLine, said some US banks were wary of tying up precious liquidity in commercial property refinancings due in the next two years.

“Deposit flight can happen any day,” he said, pointing to the migration of customer deposits from banks to higher-yielding ‘risk-free’ money market funds and Treasury bonds.

“As long as the Fed keeps rates high, it’s a ticking time bomb,” he said.

Some global policymakers, however, remain confident that the post-pandemic shift in the notion of what it means ‘to go to work’ will not herald a 2008-9 style credit crisis.

Demand for loans from euro zone companies tumbled to the lowest on record last quarter, while annual US Federal Reserve ‘stress tests’ found banks on average would suffer a lower projected loan loss rate in 2023 than 2022 under an ‘extreme’ scenario of a 40% drop in commercial real estate values.

Average UK commercial property values have already fallen by around 20% from their peak without triggering major loan impairments, with one senior regulatory source noting that UK banks have far smaller property exposure as a proportion of overall lending than 15 years ago.

But Charles-Henry Monchau, Chief Investment Officer at Bank Syz likened the impact of aggressive rate tightening to dynamite fishing.

“Usually the small fishes come to the surface first, then the big ones — the whales — come last,” he said.

“Was Credit Suisse the whale? Was SVB the whale? We’ll only know afterwards. But the whale could be commercial real estate in the US.”

CUTTING SPACE
Global property services firm Jones Lang LaSalle (JLL) — which in May pointed to a 18% annual drop in first quarter global leasing volumes — published data this month showing prime office rental growth in New York, Beijing, San Francisco, Tokyo and Washington DC turned negative over the same period.

In Shanghai, China’s leading financial hub, office vacancy rates rose 1.2 percentage points year on year in Q2 to 16%, rival Savills said, suggesting a recovery would depend on nationwide stimulus policies succeeding.

Businesses are also under pressure to slash their carbon footprint, with HSBC  among those cutting the amount of space they rent and terminating leases at offices no longer considered ‘green’ enough.

More than 1 billion square meters of office space globally will need to be retrofitted by 2050, with a tripling of current rates to at least 3%-3.5% of stock annually to meet net-zero targets, JLL said.

Australia’s largest pension fund, the A$300 billion AustralianSuper, is among those on the sidelines, saying in May it would suspend new investment in unlisted office and retail assets due to poor returns.

Meanwhile, short-sellers continue to circle listed property landlords the world over, betting that their stock prices will sink.

The volume of real estate stocks lent by institutional investors to support shorting activity has grown by 30% in EMEA and 93% in North America over the 15 months to July, according to data provider Hazeltree.

According to Capital Economics, global property returns of around 4% a year are forecast this decade, compared with a pre-pandemic average of 8%, with only a slight improvement expected in the 2030s.

“Investors must be willing to accept a lower property risk premium,” Capital Economics said. “Property will look overvalued by the standards of the past.” — Reuters

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