THE PHILIPPINE bond market logged the fastest quarter-on-quarter growth in emerging East Asia in the first three months of the year on increased government borrowings to fund its deficit and pandemic response, the Asian Development Bank (ADB) said on Friday.  

The June issue of the ADB’s Asia Bond Monitor showed the country’s bond market recorded the fastest expansion in the subregion, which is composed of the Philippines, China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Thailand and Vietnam. 

Outstanding bonds grew by 6.5% to $188 billion in the first quarter from $178 billion in the fourth quarter of 2020. This was the fastest rate in the region, which was followed by Indonesia’s 6.2%. 

“Quarterly growth accelerated from 5.3% quarter on quarter in the fourth quarter of 2020, driven entirely by the government segment as the corporate segment saw contraction during the quarter,” the ADB said.  

Meanwhile, the local bond market expanded by 28.4% from the $140 billion recorded the first quarter of 2020. This was the second-fastest print in the region after Indonesia’s 36%. 

Broken down, government bonds made up 82.7% of the total issuances in the first three months of 2021 while corporate bonds accounted for the remaining 17.3%. 

ADB data showed outstanding government bonds reached $155 billion as of March, growing by 8.4% from the $145 billion seen in last three months of 2020. It also climbed by 36.5% from the $109 billion a year earlier.  

“Treasury bills and Treasury bonds primarily drove the increase, as the government continued to heavily borrow from the local market for its COVID-19 (coronavirus disease 2019) relief efforts and to support economic recovery,” the multilateral lender said. 

Meanwhile, outstanding corporate issuances were at $33 billion in the first quarter, slipping by 2% from the $34 billion logged in the previous three-month period.  

“The decline can be attributed to the maturation of bonds offsetting the new issuances during the quarter,” ADB said. 

Year on year, however, corporate bonds inched up by 0.01% from the $31 billion seen in the first quarter of 2020. 

Among industries, the banking industry held the largest share of outstanding corporate bonds at 41.8% of the total, followed by the property sector with 23.8%. 

However, even as it expanded faster than its peers, the Philippine bond market was the second smallest in emerging East Asia in the first quarter, beating only Vietnam’s $71-billion market. 

In contrast, the biggest issuers as of March were China ($15.799 trillion), South Korea ($2.382 trillion), and Thailand ($3443 billion). 

The local currency bond market in emerging East Asia continued to grow in the first quarter to reach $20.3 trillion as of March. This was higher by 2.2% quarter-on-quarter and by 15.9% year-on-year. 

“[The] overall growth of the bond market moderated somewhat in Q1 2021 as governments sought to balance fiscal policy and corporates weighed uncertainty over the economic recovery,” the ADB said. 

“Investor sentiment remained subdued amid looming uncertainties brought about by the COVID-19 pandemic and inflation fears in the United States. This led 

to volatilities in financial markets, especially in March… The COVID-19 pandemic remains the largest downside risk… Another potential risk is the possibility of tightening liquidity conditions globally, specifically that the Federal Reserve might tighten US monetary policy in response to growing inflationary pressure,” it added. — LWTN 

ASIA UNITED Bank Corp. (AUB) targets to grow its net profit by 30% to P4 billion this year on hopes that improving consumer confidence will boost its lending business, it said in a statement on Friday. 

AUB’s net income dropped 38% to P736 million in the first quarter from a year earlier as it boosted its loan loss provisions. In 2020, the bank’s net profit was down by 32% to P3 billion from P4.4 billion in 2019. 

“2021 will definitely be a better year than 2020 as we expect the vaccine rollouts by the government and the private sector to improve consumer confidence and lead to increased economic activity. These, in turn, will boost our commercial and consumer lending business, which remain stable,” AUB President Manuel A. Gomez was quoted as saying. 

“We anticipate the new wave of loan bookings as the economy opens up. We are therefore cautiously optimistic that as the economy normalizes, the asset quality compared to 2020 will significantly improve, not only for AUB but for the entire banking industry,” he said at the bank’s virtual annual stockholders’ meeting on Friday. 

Mr. Gomez said the bank will continue to ramp up spending for its IT infrastructure, which was also its goal in the previous year. 

“That will remain as IT will always be essential in order for us to keep up with the changing environment,” he said.  

Even as he expects economic conditions to improve due to the gradual return of business activities, Mr. Gomez said the banking industry needs to continue to guard against risks that may arise due to the pandemic and the impending tightening of monetary policy measures. 

“We must also be prepared for tightening regulations and increasing credit costs as the Bangko Sentral [ng Pilipinas] tries to stave off inflationary pressures and significant stress on the banking system,” Mr. Gomez said. 

“We have yet to feel the full effects of the pandemic to personal incomes and business viability. We must still brace ourselves for some pockets of turbulence,” he added. 

AUB Chairman and Chief Executive Officer Abraham T. Co, for his part, said the bank will likely mix working from home and from the office as needed moving forward. 

“We have learned a lot how to work differently. Some people work better at home, some people don’t,” Mr. Co said. 

AUB’s shares closed at P43.80 apiece on Friday, down by 20 centavos or 0.45% from the previous day. — LWTN 

THE BANGKO SENTRAL ng Pilipinas (BSP) fully awarded its offering of one-month securities on Friday even as rates went up slightly following the central bank’s higher inflation forecast for the year. 

The BSP awarded P100 billion in the 28-day bills as planned as bids reached P135.73 billion, making the offer oversubscribed by 1.35 times, based on BSP data. However, this week’s tenders were lower than the P140.525 billion in demand logged during last week’s auction. 

Accepted rates for the bills ranged from 1.8% to 1.835%, a narrower band compared to the 1.78% to 1.845% recorded last week. This brought the average rate of the 28-day papers to 1.8158%, inching up by 0.49 basis point from the 1.8109% seen on June 18. 

The BSP bills and term deposits are used by the central bank to mop up excess liquidity in the financial system and to better guide interest rates. 

The uptick in the average yield of the short-term securities was due to the higher inflation forecast of the BSP for 2021, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message. 

The BSP kept its key interest rate at a record low for a fifth straight meeting on Thursday, as it vowed to maintain an accommodative stance to support economic recovery. 

The BSP left the rate on the overnight reverse repurchase facility at 2%, as widely expected by 14 of 16 analysts in a BusinessWorld poll last week. 

Interest rates on the overnight deposit and lending facilities were also kept at 1.5% and 2.5%, respectively. 

Meanwhile, the central bank raised the inflation outlook for this year to 4% from the previous forecast of 3.9%. This matches the upper end of the BSP’s 2-4% target. 

If realized, this would be faster than the 2.6% logged in 2020. 

On the other hand, inflation is expected to average 3% for 2022 and 2023. 

Headline inflation stood at 4.5% in May, For the first five months of the year, it averaged at 4.4%. — L.W.T. Noble 

Lenders from Asia and Europe are interested in establishing digital banks in the Philippines, central bank officials said. 

“We continue to receive expressions of interest or EOI from a number of foreign banks abroad in establishing a digital banking business in the Philippines. We are awaiting submission of complete documentation on their obligations so that BSP can start the assessment process,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in an online briefing. 

“What we can say is at this point is that we received expressions of interest from banks in Europe and in the Asian region,” BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said. 

The central bank last year released a framework differentiating digital banks from traditional lenders. It defined a digital bank as a lender that mainly caters clients’ financial needs via an online platform versus traditional banks’ brick-and-mortar model. 

These all-online lenders are expected to help the BSP achieve its goal to bring 70% of the country’s adults into the formal financial system and have 50% of transactions, in terms of both value and volume, done digitally. 

The BSP this month granted the country’s third digital bank license to UNOBANK, which is the local unit of Singapore-headquartered DigibankASIA Pte. Ltd. Tonik Digital Bank, Inc. (Philippines) has also converted its rural bank license granted in 2019 to an online banking permit, while Overseas Filipino Bank, a subsidiary of the state-owned Land Bank of the Philippines, was granted a license in April. 

CIMB Bank Philippines, Inc. and ING Bank N.V. Manila also have all-online banking platforms that allow customers to transact via their apps. 

“Meanwhile, we’re processing the application for conversion to a digital bank by an existing foreign bank operating in the country,” Mr. Diokno said on Friday. 

The Monetary Board initially said it would only grant up to five licenses after the framework was released, but Mr. Diokno has said they could increase this limit if they see strong demand.  

Mr. Diokno also noted that the country remains a favorable prospect for foreign banks looking to expand despite the impending exit of Citigroup, Inc. from its consumer banking business in the country. 

“We do not see this as becoming a trend among foreign banks. Foreign banks in the country are increasingly focusing their attention on sustainability and mobilizing funds to economic sectors that will contribute to a net zero or low carbon economy,” the BSP chief said.  

Among the 29 foreign banks currently operating in the country, Mr. Diokno said 12 are included in the 2020 list of Globally Systemically Important Banks.  

However, these foreign banks remained stable and well-capitalized despite the pandemic, he said. The capital adequacy ratio of foreign banks in the country stood at 27.5% at end-March. 

“Given their global market expertise, foreign banks can facilitate underwriting of green, social or sustainability bonds or finance infrastructure projects in key sectors such as renewable energy and low carbon transport,” Mr. Diokno said. — LWTN 

THE PESO strengthened versus the greenback on Friday as central bank data showed more foreign funds entered than left the country in May. 

The local unit closed at P48.481 per dollar on Friday, appreciating by 25.4 centavos from its P48.735 finish on Thursday, data from the Bankers Association of the Philippines showed. 

Week on week, however, it weakened by 5.1 centavos from its P48.43 per dollar finish on June 18. 

The peso opened Friday’s session at P48.65 versus the dollar. Its weakest showing was at P48.66, while its intraday best was at P48.45 against the greenback. 

Dollars exchanged decreased to $985.2 million from $1.005 billion on Thursday. 

The peso rose as data showed hot money yielded net inflow last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message. 

Foreign portfolio investments posted a net inflow of $416.74 million in May, data released by the Bangko Sentral ng Pilipinas (BSP) on Friday showed. This is a turnaround from the $1.006-billion net outflow seen in the same month of 2020 as well as the net $373.95 million that left the country in April. 

Meanwhile, a trader attributed the peso’s appreciation the central bank’s revised inflation forecasts. 

“The peso appreciated after the BSP upwardly revised its inflation projections despite keeping policy rates unchanged,” the trader said in an email. 

The BSP kept its key interest rate at a record low for a fifth straight meeting on Thursday, as it vowed to maintain an accommodative stance to support economic recovery. 

The central bank left the rate on the overnight reverse repurchase facility at 2%, as widely expected by 14 of 16 analysts in a BusinessWorld poll last week. 

Interest rates on the overnight deposit and lending facilities were also kept at 1.5% and 2.5%, respectively. 

Meanwhile, the central bank raised the inflation outlook for this year to 4% from the previous forecast of 3.9%. This matches the upper end of the BSP’s 2-4% target. 

If realized, this would be faster than the 2.6% logged in 2020. 

On the other hand, inflation is expected to average 3% for 2022 and 2023. — LWTN