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IMF urges BSP not to delay recognition of losses, restructuring of NPLs
Lawrence Agcaoili (The Philippine Star) - April 12, 2021 - 12:00am

MANILA, Philippines — A prompt loss recognition and non-performing loan (NPL) restructuring may help Philippine banks prevent sharp deleveraging and recover faster from the pandemic-induced recession, according to the International Monetary Fund (IMF).

In its latest Financial System Stability Assessment on the Philippines, the multilateral lender said the Bangko Sentral ng Pilipinas (BSP) should now withdraw forbearance measures introduced at the height of COVID-19 outbreak in 2019.

“The central bank should allow forbearance measures to lapse as scheduled and avoid introducing new measures as delayed loss recognition and NPL restructuring could limit credit growth,” the IMF said. The same scenario, it said, was observed during the Asian financial crisis in 1997.

As part of its COVID-19 response measures, the BSP implemented various measures, including time-bound regulatory relief and forbearance measures, although the scale of loan moratoria and credit guarantees has been relatively limited.

“Forbearance does not address the underlying issues in weak banks and hampers banks’ ability to continue providing credit and ultimately may even undermine financial stability,” it said.

Instead, the multilateral lender said the BSP should continue to use the flexibility of tools available in the Basel capital framework, as well as further develop and use macroprudential tools and buffers.

It also said the forbearance measures could undermine their effectiveness by reducing bank capital’s sensitivity to risks as delay keeps bank capital at artificially high levels.

“Stress tests show that while banks can withstand the already severe baseline scenario, they could experience systemic solvency distress if the economic impact of COVID-19 turns out to be severe,” the IMF said.

It warned the economic shock would weigh on corporate earnings and then spill over to banks.

“Bank stress could limit credit supply, reducing economic growth noticeably even more,” the IMF said.

Bank lending in the country contracted by 2.7 percent in February as banks remained risk averse and due to the lack of demand from borrowers.

Based on baseline scenario, the IMF said the capital adequacy ratio (CAR) of Philippine banks could fall to 11.7 percent in 2022 from the current level of 15.6 percent.

It warned the CAR of the local banking industry could fall further to 9.3 percent in adverse scenario and 4.9 percent under severe adverse scenarios, below the required 10 percent.

Under the baseline scenario, the IMF said 185 banks, comprising mainly of rural and cooperative banks, would not be able to meet the required CAR.

The IMF sees the banking sector’s CAR recovering in 2022 as the Philippines recover from the pandemic-induced recession.

Given the significant downside risks, the IMF said monetary authorities should limit bank dividend distributions and the BSP should be ready to take additional measures to strengthen the bank’s capital if risks materialize.
Help for small businesses
By: Joel Ruiz Butuyan - @inquirerdotnet
Philippine Daily Inquirer / 04:06 AM March 29, 2021

We are so overwhelmed with depressing news from all fronts these days. The strain on our mental health must be building up at an unprecedented rate. Even if there are no noticeable changes in our external behavior, the unending stress streaming through our subconsciousness affects us in so many different ways.

In my case, even if my conscious thoughts do not amount to excessive psychological stress, I’ve noticed that I’ve been having lesser hours of sleep, and my blood pressure has been above safe levels recently. While we need to give considerable attention to protocols aimed at protecting ourselves from the virus, we cannot let the pandemic totally control our lives.

The sprouting of so many home-based businesses shows that many of our people are asserting control over their lives, refusing to be at the complete mercy of the virus. While so many of our giant businesses are on the brink of collapse, many homegrown businesses that sprang up because of the pandemic are thriving in our communities. These businesses need to continue thriving for the sake of families whose breadwinners have lost employment. But even after the pandemic, it is in our country’s interest to make them flourish.

These considerations may have been in the minds of the local officials of our small town, Alcala, Cagayan, when they recently met with officials of the Department of Science and Technology (DOST) at its Cagayan Valley regional office. I tagged along because I was curious to find out the kind of government assistance available, and I was looking at putting up a startup enterprise myself. I was so glad I joined the meeting.

I was impressed with the DOST presentation led by regional director engineer Sancho Mabborang and provincial director engineer Sylvia Lacambra. What underlies the DOST programs that were presented to us is the recognition that small and medium enterprises (SMEs) are the true engines of growth in the countryside. With this premise, the DOST has designed various assistance programs to help SMEs in the various aspects of their operations.

The DOST has priority sectors where it concentrates its assistance. These are SMEs involved in processed food, marine and agriculture, furniture, metals, gifts, decor and handicraft, electronics, and health products/services and pharmaceuticals. It was very encouraging to know that the DOST has a roster of scientists and experts who give online technical advice and consultancy services for free to SMEs in making their crops yield more harvest, in manufacturing their food products, in recommending the right equipment and technology, in turning their waste into fuel and fertilizer, in maximizing their profitability, in minimizing their expenses, etc. Private enterprises can go directly to the DOST for assistance.

For food products, the DOST even helps SMEs with their packaging and labeling requirements, food hygiene and food safety protocols, and in providing access to laboratories that will measure the nutritional value and determine the expiry dates of their products. Among the SMEs that I’ve learned have benefited from DOST assistance are a bakeshop, a kamote beer entrepreneur, a peanut product venture, a canned goat meat enterprise, and a citrus farm, among many others.

The DOST also operates OneStore.ph, which is an e-commerce web portal where customers can easily shop from all DOST-assisted SMEs.

Recently, there’s news that our government plans to provide billions of pesos to help giant business conglomerates survive the economic crisis. I hope the government equally allots more funds to help the small businesses that have mushroomed because of the crisis.

The emergence of these small ventures presents to us a crucial chance to recalibrate our economy by redistributing to small enterprises wealth opportunities that have long been monopolized by big conglomerates. The growth of these home-based businesses gives our country a rare opportunity to help stop the decimation of our middle class, and to halt the widening gap between the extremely rich and the rest of us.the government can still reach its target of vaccinating up to 70 million people by the end of the year.
Concepcion: Private sector to fund own vaccine rollout
By CNN Philippines Staff
Published Mar 20, 2021 6:39:35 PM

Metro Manila (CNN Philippines, March 20) — Members of the private sector have agreed to fund their own immunization program as COVID-19 vaccines start to arrive in the country.

"In our town hall meeting last Thursday with the AstraZeneca donors, all companies agreed to fund and pay for the logistics cost of the vaccine rollout," Presidential Adviser for Entrepreneurship and Go Negosyo founder Joey Concepcion said in a statement.

He added this is also to ensure economic recovery that should start in the last quarter, provided no major lockdown is implemented, and the administration of vaccines will be at a "lightning speed."

Concepcion said they already tapped Zuellig Pharmaceutical Corporation as their logistics service provider to ensure effective and efficient rollout of vaccines. A tripartite agreement between the private sector, Zuellig, and the national government will be finalized, he added.

On January 14, the Philippines, through tripartite agreements involving private firms and local government units, was able to procure 17 million doses of AstraZeneca's COVID-19 vaccine, with the first batch expected to arrive by May to June.

"We want to help the government so that we can execute the vaccine rollout in the fastest and most efficient way possible," Concepcion said.

He said they will also pay for logistics costs for the rollout of vaccines for government frontline workers that will be covered by their donations.

"Allowing us to execute, we could focus on the vaccination of our employees, the LGUs could focus on its constituents, and the national government could focus on the rest that are not covered. We need a fast and almost perfect rollout, and the private sector could do this for its employees," he noted.

Currently, the government has received some one million donated doses of Sinovac and AstraZeneca vaccines, which are still not enough to immunize around 1.7 million healthcare workers who are the priority in the vaccine rollout.

Despite this, Vaccine czar Carlito Galvez Jr. said the government can still reach its target of vaccinating up to 70 million people by the end of the year.
Better rice yields raise farmer income by P7,000 per hectare
March 12, 2021 | 6:37 pm

RICE farmers earned an additional P7,000 pesos per hectare two years after the implementation of Republic Act No. 11203 or the Rice Tariffication Law, the Agriculture department said.

Agriculture Secretary William D. Dar in a statement Friday credited increased harvests to the P10 billion-a-year Rice Competitiveness Enhancement Fund (RCEF), which was created under the law.

“Farmers are… averaging 400 kilograms per hectare or roughly eight cavans at 50kg each which is equivalent to an additional income of P7,000 per hectare,” Mr. Dar said.

“This shows that with the use of certified seed, adoption of modern technology, and mechanizing land preparation, crop establishment and harvesting, farmers can attain incremental yields. At least two million rice farmers are now reaping and enjoying the initial benefits of the law,” he added.

Dionisio G. Alvindia, director of the National Integrated Rice program, said the RCEF budget for 2021 is currently scheduled for release.

“To date, the Department of Agriculture (DA) and other implementing agencies have obligated P16.2 billion and disbursed over P7.1 billion from the P20-billion allocation from 2019 to 2020,”Mr. Alvindia said in the statement.

According to Mr. Alvindia, rice farmers using traditional home-saved seed recorded lower yields compared to those using certified inbred seeds.

He said traditional seed produced an average of 3.6 metric tons (MT) per hectare while inbred seed yielded 4 MT per hectare.

“To date, 674,400 farmers have received 1.68 million bags of free certified inbred rice seed. These were planted to 843,000 hectares in 948 RCEF municipalities nationwide, or 98.5% of the targeted 962 towns for seed distribution,” Mr. Alvindia said.

Baldwin G. Jallorina, Philippine Center for Postharvest Development and Mechanization (PhilMech) director, said in a statement that 15,046 units of farm equipment have been procured out of the targeted 23,378 units.

Mr. Jallorina said 13,499 of the procured units have been distributed.

Meanwhile, the DA said P1.58 billion worth of RCEF loans have been disbursed to farmers’ cooperatives and associations. Some P968 million was released by the Land Bank of the Philippines (LANDBANK) and P616 million by the Development Bank of the Philippines (DBP).

It added that 90 farm schools have been established, while 43 were upgraded since the law’s passage.

Passed in 2019, the law allows rice to be imported more freely but the commodity is charged tariffs of 35% on imports from Southeast Asia. Under the law, the tariffs provide P10 billion a year to RCEF to help modernize the rice industry. — Revin Mikhael D. Ochavethat the local banking system will continue to be under pressure in 2021 on account of rising bad loans.
Banks’ resilience clear in indicators–Diokno

BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said recent indicators show that banks remain resilient despite the negative economic effects of restrictions to curb the pandemic.

This is amid the recent assessments of two of the major international credit watchers, saying the Philippine banking system may face increasing pressures in 2021 as travel and movement restrictions are in place and bad loans continue to rise.

In a recent speaking engagement, Diokno said the Philippine banking system remains strong based on three core strengths: capital position, liquidity buffers and expanding asset base.

Diokno said the banking industry’s strong capital position is evidenced by its stable capital adequacy ratios (CAR) at about 15 percent in the past 10 years.

This is well above the 10 percent minimum threshold set by the BSP and 8 percent minimum set by the Bank for International Settlements (BIS).

Moreover, the risk-based CAR of the universal and commercial banking industry stood at 17.2 percent on a consolidated basis as of end-September 2020.

The BSP governor also said the banks’ liquidity buffers remain “ample.” This, Diokno said, enables banks to withstand short-term liquidity shocks and provides them adequate stable funding in the medium term.

As of end-November 2020, the liquidity coverage ratio (LCR) of banks hit 201 percent. This is double the regulatory minimum of 100 percent. The minimum liquidity ratios of stand-alone thrift, rural and cooperative banks also continued to exceed the regulatory minimum requirement.

Diokno also said banks’ assets continued to expand amid the pandemic on the back of increasing deposit liabilities.

As of end-December 2020, the banking system assets grew by 6.1 percent year-on-year to P19.4 trillion.

“All in all, these contributed to the sustained strength and resilience of the banking sector,” the BSP governor said.

Earlier this week, Fitch Ratings put a negative outlook of the Philippine banks’ asset quality, as further deterioration is likely on the back of expected rise in bad loans for the year.

This comes after the S&P Global Ratings recent assessment that the local banking system will continue to be under pressure in 2021 on account of rising bad loans.
BSP sets alternative modes of compliance for agriculture-agrarian loans
Lawrence Agcaoili (The Philippine Star - March 8, 2021 - 12:00am)

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has relaxed the compliance rules for agriculture and agrarian reform loans as Philippines banks continue to fall short of the mandated threshold.

BSP Governor Benjamin Diokno issued Circular 1111 after the Monetary Board approved the revised rules and regulations governing the mandatory credit allocation under Republic 10000, otherwise known as the Agri-Agra Reform Credit Act of 2009.

Banks are required to set aside at least 25 percent of their total loanable funds for agriculture, fisheries, and agrarian reform credit in general, of which at least 10 percent of the total loanable funds shall be made available for agrarian reform beneficiaries (ARBs), ARB households or agrarian reform community.

Under the revised guidelines, Diokno said the excess compliance in the 10 percent agrarian reform credit can be used to offset a deficiency, if any, in the 15 percent other agricultural and fisheries credit, but not vice versa.

Another allowable alternative compliance includes eligible securities such as investments in bonds issued by state-run Development Bank of the Philippines and Land Bank of the Philippines, investments in other debt instruments used to finance activities under Republic Act 8435 or the Agriculture and Fisheries Modernization Act of 1997, as well as paid subscription of shares of stock of accredited rural financial institutions, Philippine Crop Insurance Corp. (PCIC), and companies primarily engaged in agriculture and fisheries activities.

Other modes of compliance include rediscounting facility granted by big banks to other banks, including loans covered by guarantees of the PCIC, loans intended for the construction and upgrading of farm-to-market roads, and provision of post-harvest facilities, loans to agri-business enterprises that maintain agricultural commodity supply-chain arrangements, as well as agricultural value chain financing.

Loans extended by Philippine banks for agriculture and agrarian reform slipped by 2.8 percent to P713.6 billion last year from P733.92 billion in 2019 as the industry continued to fall short of the mandated threshold for the sector.

Total loanable fund generated by the banking industry jumped by 15.7 percent to P7.14 trillion last year from P5.54 trillion in 2019.

However, the loans extended by the banks to the agriculture sector declined by 3.6 percent to P666.69 billion in 2020 for a 9.32 percent compliance ratio or below the required 15 percent.

Big banks or universal and commercial banks registered a compliance ratio of 9.01 percent after extending P608.9 billion to the agriculture sector in 2020, while the ratio of thrift or mid-sized banks only reached 6.4 percent after granting P18.1 billion.

On the other hand, rural banks extended P15.33 billion to the agriculture sector for a compliance ratio of 16.3 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as loans given by banks to the agriculture sector increased by only 5.9 percent to P55.84 billion for a compliance ratio of a measly one percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.88 percent, while that of thrift banks settled at 0.95 percent, as well as rural and cooperative banks with 9.69 percent.
Philippine bank assets up 70% to P20 trillion in 2020
Lawrence Agcaoili (The Philippine Star) - March 2, 2021 - 12:00am

MANILA, Philippines — The domestic banking sector managed to post a 6.9 percent growth in total assets despite the uncertainties brought about by the pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

Total resources of Philippine banks hit a record high of P20 trillion last year, P1.29 trillion higher than the P18.71 trillion recorded in 2019.

The total assets of big banks or universal and commercial banks grew by 7.5 percent to P18.51 trillion in 2020 from P17.22 trillion in 2019, while that of mid-sized banks or thrift banks slipped by about one percent to P1.19 trillion in 2020 from P1.2 trillion in 2019.

The total resources of small or rural bank inched up by 3.4 percent to P301 billion as of end-September last year from P291 billion in the same period in 2019.

The industry’s total resources continued to grow impressively, accounting for more than 90 percent of the country’s gross domestic product (GDP).

Major players in the local banking sector are BDO Unibank, Metropolitan Bank & Trust Co., Bank of the Philippine Islands, Philippine National Bank, China Bank, Rizal Commercial Banking Corp., Union Bank and Security Bank.

State-run Land Bank of the Philippines and Development Bank of the Philippines are also part of the country’s 10 largest lenders in terms of assets last year.

BSP Governor Benjamin Diokno earlier said the country’s banking system is expected to withstand the impact of the pandemic. “While the full impact of the pandemic is still unfolding, the good news is that the Philippine banking system is expected to withstand the impact of the pandemic. The financial system is in a strong position to both weather the significant economic effect caused by the COVID-19 pandemic and support the country’s economic recovery,” he said.

The BSP has implemented reforms over the years, reflecting the lessons learned in the Asian financial crisis in 1997.

Based on the results of the latest Banking Sector Outlook Survey (BSOS), 69 percent of the respondent banks projected a stable banking system as they expect a 10 to 15 percent growth in the industry’s loan portfolio over the next two years.

Bankers are also looking at double-digit growths in net income, as well as deposits for the next two years.

Earnings of Philippine banks slumped to a four-year low after declining by 33 percent to P154.96 billion last year from a record high of P230.67 billion in 2019 as provision for potential loan losses almost quadrupled to P210.89 billion from P52.89 billion.
Duterte signs law creating trust fund for coconut farmers
Published February 26, 2021, 10:19 PM
by Genalyn Kabiling

Under Republic Act No. 11524, the government will dispose of P75-billion worth of coco levy assets in the next five years to establish a trust fund for the benefit of the coconut farmers and development of the industry. The new law, also known as the “Coconut Farmers and Industry Trust Fund Act,” is expected to benefit coconut farmers who own not more than five hectares of coconut farm.

The coconut levy funds refer to the funds generated from the taxes imposed on coconut products and collected from coconut farmers, millers, refiners, exporters, and other end-users decades ago.

The new law mandates the Bureau of Treasury (BTr) to transfer P10 billion to the trust fund in the first year, P10 billion in the second year, P15 billion in the third year, P15 billion in the fourth year and P25 billion in the fifth year.

The trust fund will be maintained for 50 years under the Coconut Farmers and Industry Development Plan that will also be formulated.

“All Coconut Levy Assets in the name of the Philippine Government shall be sold within the period of five years after the effectivity of this Act,” the law read.

“All other coconut levy assets that may hereafter be recovered shall likewise be disposed of within five years from the time it is declared as belonging to the government, and the proceeds shall be transferred to the Trust Fund for the benefit of the coconut farmers,” it added.

The trust fund will be used on the following:

– Development of hybrid coconut seed farms and nursery for planting and replanting (20 percent);

– Training of farmers and their families listed in the coconuts farmers registry on coconut production and processing technologies, sustainable farming methods, financial literacy, among others (8 percent);

– Research, marking, and promotion to be implemented by the Bureau of Micro, Small and Medium Enterprise Development (5 percent);

– Crop Insurance (4 percent);

– Farm improvements through diversification and intercropping with livestock, dairy, poultry, coffee, cacao production (10 percent);

– Shared facilities for processing (10 percent);

– Organizing and empowerment of coconut farmer organization and their cooperatives (5 percent);

– Credit programs through Development Bank of the Philippines and Land Bank of the Philippines (10 percent);

– Infrastructure development in identified coconut producing local government units (10 percent);

-Scholarship program for farmers and their families (8 percent); and,

-Health and medical program for farmers and their families (10 percent)

A committee, composed of the Department of Finance, Department of Budget and Management, and the Department of Justice, will also be created to set the investment strategy of the trust fund. The finance department is designated as trust fund manager.

“All cash Coconut Levy Assets shall be invested in Philippine Government securities and other securities guaranteed by the National Government. On the other hand, the BTr may hold, manage and invest non-cash Coconut Levy Assets, only upon approval of the DOF,” the law read.

Under RA, the Coconut Farmers and Industry Development Plan will also be prepared by the reconstituted Philippine Coconut Authority to increase productivity and income of farmers as well as rehabilitate and modernize the industry. The plan is subject to the approval of the President.

The development must include a national program for community-based enterprises to boost incomes of coconut farmers, social protection for farm workers and their families, coconut farmers organization and development, innovative research projects, and integrated processing of coconut and downstream products.

Under the new law, the PCA will be reconstituted and strengthened to ensure participation of coconut farmers in crafting the Coconut Industry Development Plan. A coconut farmers registry will also be established with annual verification in coordination with local government units and the agriculture department.

The Secretary of the Department of Agriculture will sit as chairman of the PCA board while the Secretary of the Department of Finance serves as vice chair.

The board also includes the Secretaries of the Department of Budget and Management, Department of Science and Technology, and Department of Trade and Industry; administrator of the authority, and three members from the coconut farmers sector representing Luzon, Visayas and Mindanao.

In 2019, President Duterte vetoed a measure creating the coconut farmers trust fund due to concerns about possible violation of the Constitution as well as lack of safeguards “to avoid the repetition of painful mistakes committed in the past.” Duterte claimed then that the proposed trust fund could “disproportionately benefit wealthy coconut farm owners” due to the absence of a limit on the covered land area for entitlement of benefits.
Agri-agra loans slip 2.8% in 2020
Lawrence Agcaoili (The Philippine Star)
February 24, 2021 - 12:00am

MANILA, Philippines — Loans extended by Philippine banks for agriculture and agrarian reform slipped by 2.8 percent to P713.6 billion last year from P733.92 billion in 2019 as the industry continued to fall short of the mandated threshold for the sector.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking system was able to allocate only about 10 percent of its total loanable funds last year, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

The law has retained the mandatory credit allocation in Presidential Decree 717, where 15 percent of banks’ total loanable funds are to be set aside for agriculture while 10 percent should be made available for agrarian reform beneficiaries.

Total loanable funds generated by the banking industry jumped by 15.7 percent to P7.14 trillion last year from P5.54 trillion in 2019.

Loans extended by local banks to the agriculture sector declined by 3.6 percent to P666.69 billion in 2020. The figure was equivalent to a 9.32 percent compliance ratio or below the required 15 percent.

The central bank said big banks or universal and commercial banks registered a compliance ratio of 9.01 percent after extending P608.9 billion to the agriculture sector, while the ratio of thrift or mid-sized banks only reached 6.4 percent after granting P18.1 billion.

Rural banks extended P15.33 billion to the agriculture sector for a compliance ratio of 16.3 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold as banks only extended P55.84 billion for agrarian reform loans equivalent to a compliance ratio of only one percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.88 percent, while that of thrift banks settled at 0.95 percent as well as rural and cooperative banks with 9.69 percent.

BSP Governor Benjamin Diokno earlier said the central bank remains committed to pursue strategies to promote agriculture financing in view of the sector’s critical role in enhancing financial inclusion and broad-based economic growth.

“A more responsive agriculture financing ecosystem is needed to realize its full potential as an engine of inclusive economic development. We need to be deliberate in our bid to create a more inclusive new economy by supporting the development needs of the agriculture sector,” Diokno said.
Banking industry groups welcome FIST law
February 19, 2021 | 12:04 am

BANKING GROUPS welcomed the signing of the Financial Institutions Strategic Transfer (FIST) Act and hope it will spur bolster credit growth as the crisis continues.

“With this measure, banks can gradually recover from non-performing loans (NPLs) that have increased due to the pandemic. As financial institutions utilize the special purpose vehicles, banks may now continue to increase lending activities to help spur economic activity,” the Bankers Association of the Philippines said in a statement on Thursday.

The group said they are waiting for the implementing rules and regulations (IRR) of the new law.

The law covers the transfer of non-performing loans and assets from banks to asset management companies or FIST corporations. Loans and assets classified as non-performing as of Dec. 31, 2022 will be eligible for transfer.

“All those NPLs (non-performing loans) and NPAs (non-performing assets_ that become such on or before Dec. 31, 2022 are eligible, that’s just the cut-off,” Noel Neil Q. Malimban, deputy director at the BSP Office of General Counsel and Legal Services, said in an online briefing on Thursday.

“There’s no distinction as to whether it’s from the start of the lockdown because all of these [NPLs and NPAs] are affected by the pandemic, whether it’s directly due to the lockdown or not. The aim is to help the financial institutions get rid of these bad assets,” he added.

Chamber of Thrift Banks Executive Director Suzanne I. Felix said the FIST law’s enactment was “just in time”, noting credit raters have warned about the industry’s asset quality which will likely deteriorate further this year as the loan moratorium expired in December last year.

Ms. Felix said they also welcome the tax exemption measures in the law and considers it “pain sharing” with the government.

Under the law, exemptions will be applicable for payments of documentary stamp tax, capital gains tax, creditable withholding income taxes and value-added tax (VAT) in relation to the transfer of non-performing assets from a financial institution to the FIST corporation or from a FIST corporation to a third-party buyer or borrowers.

Rural Bankers Association of the Philippines President Elizabeth C. Timbol meanwhile said they are hopeful the law’s implementing rules will be inclusive of the needs of smaller lenders.

“We expect that the IRR would provide simple and efficient procedures that will allow different stakeholders to avail of the benefits and privileges FIST aim to provide specially for rural banks like us,” Ms. Timbol said in a text message.

“We are hoping that this law will not only focus on big loan accounts but also with micro-loans, where a big portion of rural banks’ portfolio is allocated to,” she added.

The banking industry’s NPL ratio stood at 3.61% as of December, higher than the 2.08% a year earlier but still better than BSP’s 4.6% projection.

BSP Governor Benjamin E. Diokno has said the law could trim banks’ non-performing loan ratio by 0.63 to 7 percentage points. He said the IRR for the law is being circulated among industry players to garner sentiments.

Estimates from the National Economic and Development Authority showed the law could free up P1.19 trillion in bad loans from banks’ portfolio, according to a statement from the Department of Finance. — Luz Wendy T. Noble
Banking industry groups welcome FIST law
February 19, 2021 | 12:04 am

BANKING GROUPS welcomed the signing of the Financial Institutions Strategic Transfer (FIST) Act and hope it will spur bolster credit growth as the crisis continues.

“With this measure, banks can gradually recover from non-performing loans (NPLs) that have increased due to the pandemic. As financial institutions utilize the special purpose vehicles, banks may now continue to increase lending activities to help spur economic activity,” the Bankers Association of the Philippines said in a statement on Thursday.

The group said they are waiting for the implementing rules and regulations (IRR) of the new law.

The law covers the transfer of non-performing loans and assets from banks to asset management companies or FIST corporations. Loans and assets classified as non-performing as of Dec. 31, 2022 will be eligible for transfer.

“All those NPLs (non-performing loans) and NPAs (non-performing assets_ that become such on or before Dec. 31, 2022 are eligible, that’s just the cut-off,” Noel Neil Q. Malimban, deputy director at the BSP Office of General Counsel and Legal Services, said in an online briefing on Thursday.

“There’s no distinction as to whether it’s from the start of the lockdown because all of these [NPLs and NPAs] are affected by the pandemic, whether it’s directly due to the lockdown or not. The aim is to help the financial institutions get rid of these bad assets,” he added.

Chamber of Thrift Banks Executive Director Suzanne I. Felix said the FIST law’s enactment was “just in time”, noting credit raters have warned about the industry’s asset quality which will likely deteriorate further this year as the loan moratorium expired in December last year.

Ms. Felix said they also welcome the tax exemption measures in the law and considers it “pain sharing” with the government.

Under the law, exemptions will be applicable for payments of documentary stamp tax, capital gains tax, creditable withholding income taxes and value-added tax (VAT) in relation to the transfer of non-performing assets from a financial institution to the FIST corporation or from a FIST corporation to a third-party buyer or borrowers.

Rural Bankers Association of the Philippines President Elizabeth C. Timbol meanwhile said they are hopeful the law’s implementing rules will be inclusive of the needs of smaller lenders.

“We expect that the IRR would provide simple and efficient procedures that will allow different stakeholders to avail of the benefits and privileges FIST aim to provide specially for rural banks like us,” Ms. Timbol said in a text message.

“We are hoping that this law will not only focus on big loan accounts but also with micro-loans, where a big portion of rural banks’ portfolio is allocated to,” she added.

The banking industry’s NPL ratio stood at 3.61% as of December, higher than the 2.08% a year earlier but still better than BSP’s 4.6% projection.

BSP Governor Benjamin E. Diokno has said the law could trim banks’ non-performing loan ratio by 0.63 to 7 percentage points. He said the IRR for the law is being circulated among industry players to garner sentiments.

Estimates from the National Economic and Development Authority showed the law could free up P1.19 trillion in bad loans from banks’ portfolio, according to a statement from the Department of Finance. — Luz Wendy T. Noble
CitySavings buys stake in Batangas-based thrift lender
February 11, 2021 | 12:02 am

UNIONBANK of the Philippines, Inc. has acquired a majority stake in Batangas-based thrift lender Bangko Kabayan, Inc. (BK) through its own thrift unit, further expanding the Aboitiz group’s banking network.

UnionBank’s subsidiaries CitySavings Bank, Inc. and UBP Investment Corp. bought a combined 70% stake in the thrift bank — 49% for the former and 21% for the latter — making it a part of the group, the listed bank said in a statement on Wednesday.

“BK is a very well-run bank with a decades-long track record of success and service to SMEs (small- and medium-sized enterprises). We are excited to work with them to expand their business and reach,” CitySavings President and Chief Executive Officer Lorenzo T. Ocampo was quoted as saying.

The Batangas lender was established as Ibaan Rural Bank in 1957 and has grown to cover nearby Laguna and Quezon through its 24 branches that provide credit to small merchants and farmers.

“The bank’s focus on grassroots entrepreneurship is aligned with CitySavings’ overall strategy to strengthen its presence in the mass market segment. It hopes to combine its digital capabilities with BK’s foothold in Calabarzon to expand into the micro-, small- and medium-sized enterprise (MSME) business,” the statement said.

“Being part of the UnionBank group gives us access to digital banking solutions that will improve BK’s services with no need for a brick and mortar expansion. We look forward to the technological and capital support from CitySavings and UnionBank to level up BK’s capacity and reach out to more clients faster,” BK President Beatriz B. Romulo said.

CitySavings has 140 branches nationwide. In December, it raised P5 billion from its corporate note issuance to support its asset expansion.

Meanwhile, its parent UnionBank booked a lower net profit of P11.561 billion last year, down by 17.4% from P14 billion in 2019, as the bank increased its loan loss provisions due to the coronavirus crisis.

UnionBank’s shares ended trading at P72 apiece on Wednesday, down by P1.45 or by 1.97% from its previous close. — L.W.T. Noble
More imports vs food price spike eyed
By: Ben O. de Vera - Reporter / @bendeveraINQ
Philippine Daily Inquirer / 04:59 AM February 08, 2021

MANILA, Philippines — Tariff authorities are now looking into proposals to increase the importation of food to stem the rise of prices, which have zoomed past what the government considered last month to be manageable.

“Our priority right now is to ensure that food supply is adequate so that households affected by COVID-19 and the quarantines will not be doubly affected by the increase in food prices,” Karl Kendrick Chua, acting socioeconomic planning secretary, said in a statement on Friday.

The spike in food prices pushed the headline inflation rate to a two-year high of 4.2 percent year-on-year in January, beyond the government’s target range of 2 to 4 percent.

Chua, who heads the state planning agency National Economic and Development Authority, said the Cabinet-level interagency Committee on tariff and related matters has endorsed to the Tariff Commission an increase in the minimum access volume of pork and the temporary decrease in the most favored nation tariff rates of pork and rice.

Tight supplies

Due to tight supplies caused by the African swine fever and the damage caused by typhoons toward the end of 2020, faster price hikes were reported in meat products, especially pork, and vegetables.

Economists also worried that elevated consumer prices may temper consumption at a time when the pandemic-battered economy needed a boost to recover from last year’s gross domestic product (GDP) drop of a record 9.5 percent, the worst post-war recession.

Reduce tariffs

In a webinar on Friday, former socioeconomic planning secretary Cielito Habito, an Inquirer columnist, said the inflation rate would likely average 4 to 5 percent this year, hence a need to ramp up food importation.

“Right now, we are forced to open agriculture—in pork, because of the shortage due to the African swine fever. And this is no longer the time to oppose imports because the reason prices are skyrocketing is the sheer lack of domestic supply,” Habito said.

Roehlano Briones, senior research fellow at the state-run Philippine Institute for Development Studies, said in a position paper submitted to the Senate last week that “rather than rely only on price freezes, we recommend [to] further liberalize private-sector importation by reducing tariffs on meat, fish and vegetables.”

But House Minority Leader Carlos Isagani Zarate on Saturday opposed a looming opening up of the domestic market to an influx of imported goods amid a pandemic-induced recession.
Runaway inflation

“The Duterte administration’s policy of further liberalization of our economy will only aggravate rather than address the runaway inflation,” Zarate claimed in a statement.

But “runaway inflation,” or hyperinflation, is technically defined as rapidly rising and uncontrollable inflation, typically measuring more than 50 percent per month. Inflation rates less than 10 percent are generally considered manageable.
2-year inflation high of 4.2 percent in January driven mainly by pork, veggie prices
By: Ben O. de Vera - Reporter / @bendeveraINQ
Philippine Daily Inquirer / 04:42 PM February 05, 2021

MANILA, Philippines—High prices of food, especially pork and vegetables, pushed headline inflation upward to a two-year high of 4.2 percent year-on-year last January, making it tougher to convince consumers to spend more amid a prolonged recession.

Not only was the rate of increase in prices of basic commodities the highest since January 2019’s 4.4 percent, but it was also already above the government’s target range of 2 to 4 percent—considered manageable inflation—for 2021.

Prices last January further rose by a faster 0.9 percent from levels in December, when month-on-month inflation inched up 0.8 percent amid the Christmas holidays.

The impact of high prices was worse for poor households—inflation for the bottom 30-percent income households climbed 4.9 percent, also the most elevated in two years.

In a report, the Philippine Statistics Authority (PSA) said the surge in inflation among the poor was mainly due to faster price hikes in food and non-alcoholic beverages.

For nationwide inflation, National Statistician Dennis Mapa said meat inflation jumped to 17 percent year-on-year in January from 10 percent in December last year, no thanks to higher pork prices due to the African swine fever (ASF).

The 21.2-percent year-on-year hike in vegetable prices in January also outpaced December’s 19.7 percent. Fruits were more expensive by 9 percent year-on-year also last January, a bigger increase than the 6.3 percent in December.

Fish prices rose 3.7 percent last month.

Besides food, which accounted for almost three-fifths of the headline rate, restaurant and miscellaneous goods and services as well as transport costs contributed to the faster-than-expected January inflation.

Economic officials had said the upward price pressures, which started in October 2020, were only “transitory” as a result of tight pork supply, damaged agricultural produce after a string of strong typhoons and lack of mass transportation amid prolonged COVID-19 quarantine.

But Mapa said the PSA’s survey trends showed the elevated inflation environment could spill over to the coming months as price conditions remained the same.

Private economists had expected inflation breaching the target band this year, but not as early as January. They had warned this may prolong recovery from the pandemic-induced recession due to tempered consumer spending.

Asked if January’s inflation rate would result in stagflation, or a combination of high prices with a drop in gross domestic product (GDP), acting Socioeconomic Planning Secretary Karl Kendrick Chua replied in a text message: “Our [inflation] target is for the whole year, and recessions are defined as two consecutive quarters, so one-month data is not enough to make any conclusion.”

Chua, who heads the state planning agency National Economic and Development Authority (Neda), last week said GDP would likely post year-on-year growth only by the second quarter of 2021 amid a “slow start” in the current quarter, extending economic contraction since the first quarter of 2020 to five straight quarters.

ING Bank’s senior economist for the Philippines Nicholas Mapa called this episode a “slowflation,” while Security Bank Corp.’s chief economist Robert Dan Roces agreed that stagflation was “too early to call.”

“We have to see the other indicators for the period: unemployment and persistent cost-push inflation,” Roces said. The government plans to conduct the labor force survey on a monthly basis starting this year in order to monitor the anticipated return of jobs alongside gradually easing quarantine more frequently than the current quarterly data.

Rizal Commercial Banking Corp.’s chief economist Michael Ricafort said headline inflation “could remain at 4-percent levels” during the coming months mainly due to base effects from last year’s rates.

BDO Unibank Inc.’s chief market strategist Jonathan Ravelas said updated projections showed inflation breaching 5 percent year-on-year starting March, and further rising to 6 percent in September and October, before slowly easing by yearend, although still above 4 percent.

At an online seminar, former socioeconomic planning secretary Cielito Habito said the inflation rate would likely average 4-5 percent this year, hence a need to ramp up food importation.

“Right now, we are forced to open agriculture—in pork, because of the shortage due to the African swine fever. And this is no longer the time to oppose imports because the reason prices are skyrocketing is the sheer lack of domestic supply,” Habito said.
PH will win economic marathon (Part 1)
Published February 2, 2021, 7:00 AM
by Dr. Bernardo M. Villegas

Independent think tanks and financial institutions from abroad rate the Philippine economy as the worst hit in 2020 and is expected to be the slowest to recover in 2021 among the countries in Asia. The average estimate of the GDP decline expected of the Philippine economy for the year just ended is anywhere from a negative 8.5 to 9.5 percent for the whole year. The prospects for 2021 are not much brighter. My most optimistic growth projection for the whole year of 2021 is 4 percent, which will still keep the Philippine GDP below its pre-pandemic level until the last quarter of 2022. Because the Philippine Government has been the least effective in controlling the negative impact of COVID-19 on the economy among the Asian economies, it will surely lose the short-distance race or economic sprint to its neighbors. The good news, however, is that the Philippine economy will be one of the sure winners in the economic marathon if we consider a two to three-year horizon. By 2022, the Philippine GDP growth will be one of the highest growing at anywhere from 8 to 10 percent annually. Already, a London-based think tank—the Centre for Economic and Business Research (CEBR)—has forecasted that among 193 countries, the Philippines will become the 22nd largest economy within the next fifteen years. This is consistent with another long-term projection the Hong Kong Shanghai Bank made more than 15 years ago that by 2050, the Philippine economy will be the 16th largest economy in the world.

This bright long-term forecast of CEBR is only one of the many optimistic prognostications of independent think tanks and financial institutions about the long-term future of the Philippine economy. Within the last year or so, the Philippines was rated by the Oxford Economic Institute to be the second most attractive emerging market in the next decade or so, next only to India and ahead of Indonesia and China in third and fourth places, respectively. It was ranked by The Economist publication as the sixth in financial strength ahead of countries like Vietnam, Thailand and China. The Japan Credit Rating Agency upgraded its credit standing to triple B Plus. These and other long-term projections of a bright prospect for the Philippine economy are based on strong fundamentals that are literally immune to the damage done by COVID-19 whose impact on the Philippine economy will be short-lived.

Two sectors that are expected to bounce back quickly in 2021 are the BPO-IT sector as business enterprises in the developed countries such as those in North America and the European Union struggle to recover profitability by paring down their labor costs through outsourcing of their business services. To be equally benefited will be the export of Filipino manpower to these developed countries (including the Northeast Asian countries suffering from demographic crises) as OFWs find greater opportunities to work abroad, resuming the average growth of foreign exchange remittances to the Philippines of some 3 to 5 percent yearly. In fact, even in the worst year of the pandemic of 2020, the decline of these remittances was limited to less than 2 percent on an annual basis, despite the fact that more than 300,000 OFWs had to return home because they were laid off from their work, especially in the Middle East.

Chances of growing even more rapidly at 10 percent or more, starting 2022 and beyond. will be greater if all sectors cooperate to endow the countryside and the agricultural sector with better farm-market-roads, post-harvest facilities, irrigation facilities, cold storage and other infrastructures needed by the farmers to make their land more productive and to deliver their produce to the market at lower costs. Agribusiness— from farming to storage to logistics to processing to retailing, etc—should attract heavy investments from both the public and private sectors. Every effort should be exerted to make agriculture as a whole to grow at least at 3 percent per annum. The other requirement for faster growth is the amendment of the Constitution to remove the many unreasonable restrictions against Foreign Direct Investments in such areas as public utilities, mining, media and education. We should emulate Vietnam in the way their public authorities have made it easier for foreign direct investors to participate in these sectors in which the Philippines has been ultra-nationalistic in its policies. If these amendments cannot be introduced in the remaining years of the Duterte Administration, it is hoped that the next Administration will give them the highest priority.

The greater growth prospects starting in 2022 will also be made possible by the intensification of the move of economic activities towards regions outside the National Capital Region, which has been lagging in growth even before the pandemic. There are much higher growth prospects in the Southern Luzon area, especially Batangas that is evolving into another metropolitan region spanning the space from Calamba, Laguna to the Batangas seaport, which already has a larger volume of passenger traffic than the Manila ports. The other candidate for replacing Metro Manila as a metropolis is Central Luzon, the so-called Pampanga triangle consisting of Angeles, San Fernando, Clark and Subic. Rapid urbanization and industrialization in this region will be further facilitated by the railroad system that is being constructed by the Japanese from Clark to Bulacan and eventually to Manila. Similar infrastructural developments are expected in the CALABARZON area with a railway extending from Calamba, Laguna to the Batangas seaport, a private cargo international airport in Batangas (similar to the international airport San Miguel Corporation is building in Bulacan) and the doubling of the capacity of the Batangas seaport, which is the natural gateway from Luzon to the Visayas and Mindanao. To be continued.

For comments, my email address is bernardo.villegas@uap.asia
Proposed rice tariff cut a stab in the back of Philippine farmers
By: Raul Montemayor - @inquirerdotnet
INQUIRER.net / 03:53 PM February 01, 2021

The Federation of Free Farmers (FFF) believes the recommendation of the Department of Agriculture (DA) to reduce tariff on imported rice was unwarranted and ill-timed.

Last Jan. 28, the DA asked the Tariff Commission (TC) to reduce tariffs on rice imported from non-Asean countries to only 35 percent from the current 50 percent. The TC will conduct a hearing on Feb. 4 to discuss the proposal.

The FFF questions the basis for the DA petition to the commission mainly because Agriculture Secretary William Dar had repeatedly attested to an ample supply of rice in the Philippines following a record harvest in 2020 that defied a series of typhoons and natural calamities. The group also took note of a move by the DA to suspend the issuance of import clearances late in 2020 to ease a glut in supply resulting from a surge in importation in the middle of the year.

If prices would be the justification, data from the Philippine Statistics Authority (PSA) would show that reducing tariff on imported rice would not be a rational move.

PSA data showed that average retail prices for well-milled rice (WMR) and regular-milled rice (RMR) in 2020 were 2.5 percent lower than their 2019 levels. From July 2020, prices had shown a continuing downtrend an reached their lowest level of P40.75 per kilo for WMR and P36.09 per kilo for RMR in December 2020. Local prices of rice declined despite an increase in prices of rice from other countries, especially Vietnam and Thailand, which are major sources of rice imported by the Philippines.

This sudden proposal of the DA is totally unjustified. It is a stab in the back of our rice farmers, who are still reeling from the drastic fall in farm gate prices caused by excessive imports in the last two years following the enactment of the Rice Tariffication Act. Why encourage more and cheaper imports now when local supply is more than enough and prices are very stable?

Imports from countries, like India and Pakistan, are still cheaper than comparable products from Asean countries, like Vietnam and Thailand, even if they were assessed a higher 50 percent tariff. There is no guarantee that reduced import costs for rice from non-Asean countries due to lower tariffs will translate into lower retail prices for consumers.

The DA proposal will only make importers richer. Those who will now import from India and Pakistan to take advantage of lower prices and tariff are also the ones who import from Thailand and Vietnam. They will sell the rice at the highest possible price and consumers are not likely to benefit from their savings.

The DA proposal to reduce rice tariffs was made with zero consultation with farmers and appears to have been surreptitiously inserted into the petition to reduce tariffs for pork products.

Secretary Dar should live up to his mandate to support the Philippine agricultural sector and small farmers, instead of pandering to the interests of importers under the guise of protecting consumers.

It is lamentable that our own agriculture secretary is bringing harm to the very farmers he is supposed to protect and support.

(Editor’s note: Raul Montemayor is national manager of the group Federation of Free Farmers)
Alternative Economic Scenarios for 2021

There were both good and bad news contained in the report by the Philippine Statistical Authority on the Philippine GDP and its components for the third quarter of 2020. The good news is that the worst is over. The GDP decline for the third quarter of 11.5 per cent was slower than that of the second quarter which had been downgraded from 16.5 to 16.9 percent. Also encouraging was the continuing increase in agricultural output of 1.2 percent, repeating its performance of a positive growth in the second quarter. For me, this is the brightest spot in an otherwise continuing gloomy economic outlook. Before the pandemic, agriculture had always been the laggard, the achilles heel of the economy—a result of decades of neglect and mismanagement. Now there seems to be a light at the end of the tunnel of low agricultural productivity that has been the greatest dampener of economic growth and the most important cause of mass poverty in the country. The pandemic has helped to open the eyes of our leaders—both in the public and private sectors—that food security should be our most important concern as the economy returns to normal after the pandemic. The so-called new normal should not be a return to business as usual as regards the way we manage our agricultural sector. At both the national and local government levels, the most important concern should be to endow the small farmers with all the infrastructural and other support they need to increase their incomes, especially in the coconut regions where poverty incidence is the highest. This has been accentuated by the recent spate of typhoons that have hit the Bicol region the hardest. Bicol is primarily a coconut producing area.

Another encouraging news about the third quarter is that there is evidence that the State is beginning to be the primary engine of growth, which it should be in times of crisis such as we are experiencing. The growth of 5.8 per cent in government spending is reassuring that, despite all the accusations of corruption we hear from Senators and the President himself, especially against health and DPWH officials (with special mention of the regional directors), there is a clear sign that the Government is the lead sector. This will have to be the case at least for the next two years until we see firm signs of a strong recovery of the consumption and private investment sectors. These two sectors dropped by 9.3 per cent and 37.1 percent, respectively during the third quarter. With consumption spending declining, it was inevitable that imports would fall by 21.7 percent. With the whole world economy going into a deep recession, exports took a hit of -14.7 percent.

The bad news was especially concentrated in such job-intensive sectors such as Accommodation and Services (-52.7 percent); Construction (-39.8 percent); Durable Equipment (-34.4 percent) and Transport and Storage (28.1 percent). Two services components, Health and Social Work as well as Wholesale/Retail Trade had only single-digit declines of 4 percent and 5.4 percent, presaging a quicker recovery if the economy can avoid more lockdowns in the future. The huge declines in some key sectors came as a surprise to most analysts who were predicting narrower GDP declines in the third quarter. Before the PSA came out with the final figures, figures as low as 7.1 percent drop were being forecasted. The median forecast was 9.6 percent decline in a Bloomberg poll. Looking forward to the fourth quarter of 2020 and first quarter of 2021, I would be more cautious and project another double-digit GDP decline in the fourth quarter and still negative GDP growth for the first quarter for 2021. From the weather pattern we have seen so far, we should expect more devastating typhoons in the coming months all the way to the end of December. As we have experienced in the past, typhoons that come late in the year (like Ondoy) can do more damage than those early in the rainy season. Already there are estimates that typhoons Roland and Ulysses have taken as much as 1 to 2 percentage points from our GDP. The other worrisome trend is what we are witnessing in very developed countries in Europe as well as the US, i.e. second or even third waves of the Coronavirus with even increased rates of infection as people start discarding safety measures such as wearing masks and social distancing.

Given the threats of more devastating typhoons in the next few months and the possibility of more lockdowns as the Philippines suffers from new waves of the virus, the outlook for the next six to eight months continues to be very uncertain. Since we are at the mercy of the pandemic and the Philippines may benefit from any vaccine most probably only late in 2021, it is highly probable that there will continue to be GDP declines way into the second quarter of 2021. We should already factor into the short run the possibility of the Philippines suffering the same fate of more developed countries experiencing new waves of infection with the subsequent imposition of stricter lockdowns. If the Philippine Government overreacts to these new waves, then we should expect the major engine of growth, consumption, to once again suffer as it did in the second and third quarters of 2020. Until and unless consumption spending recovers and is able to post positive growth rates, we should expect GDP to continue declining. Our only hope is for our Government, both at the national and local levels, to be more realistic in accepting higher rates of infection as a fact of life and refrain from imposing severe lockdowns on the premise that we have already limited the number of deaths and have achieved high rates of recovery from COVID-19. As long as we can get the public to strictly abide with the safety measures (wearing masks, washing hands, and keeping social distance), we should continue to relax movements of people. I believe in the saying that the epidemic of fear is even worse than the virus itself.

Once Filipinos can more easily travel from one province to another and from one island to another, domestic tourism will be a strong vehicle for a large increase of consumption expenditures, including accommodation and related services, travel and transport, dining out, discretionary purchases of tourism-related goods, etc.

This greater freedom of movement should start with the Christmas season of 2020 and sustained through the first quarter of 2021. If this can be done, then we may able to avoid another decline of GDP in the first quarter of 2021. Otherwise, more lockdowns will guarantee the continuation of negative growth rates for GDP and such sectors as accommodation and related services, wholesale and retail trade, and transport and storage. Also, fundamental to attaining growth early in 2021 is the timely passing of the P4.5 trillion budget, despite all the controversy about corruption in DPWH and other government departments. The Philippine government fiscal response to the pandemic is still the weakest in the Southeast Asian region. Since the Government is in a position to borrow more heavily because of its strong fiscal position, there should be an effort to bring the pandemic-related expenditures from its present low level of about 2 per cent of GDP to at least 5 percent. Some of our Southeast Asian neighbors spend as much as 10 percent or more of their GDP in addressing the recession brought about by the pandemic. I, therefore, submit two alternative economic scenarios for 2021: a) continuing GDP declines up to the first quarter of 2021 if the Government overreacts to new waves of the Coronavirus compounded by low rates of expenditures of the Government; or b) a 4 percent increase of GDP in the first quarter of 2021 if the Government refrains from imposing more lockdowns even if there are second or more waves of the virus and if the Government is able to spend a greater percentage of GDP on both relief and stimulus packages during the ongoing recession. For comments, my email address is bernardo.villegas@uap.asia.
BSP caps loans for MSMEs, large firms used for reserves
Lawrence Agcaoili (The Philippine Star) - December 12, 2020 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has imposed a cap on the amount of loans to micro, small and medium enterprises (MSMEs) and to large firms used as alternative compliance with the reserve requirement ratios (RRR) to make sure there is enough liquidity in the financial system to support economic recovery.

BSP Governor Benjamin Diokno said the loan disbursements used by BSP-supervised financial institutions (BSFIs) as alternative compliance to the RRR should not exceed P300 billion for MSMEs and P425 billion for large enterprises severely affected by the pandemic.

Diokno said the limits are calibrated based on different simulations and are meant to ensure that the use of loans as an alternative mode of compliance is in line with domestic liquidity conditions and projected growth.

He said BSFIs are encouraged to continue to avail of the relief measure to sustain lending and financial support to viable MSMEs and large enterprises.

“Access to finance by these businesses will contribute to the recovery of the domestic economy and will help secure our envisioned path of sustainable and inclusive growth,” the BSP chief said.

Preliminary data as of Nov. 12 from the central bank showed the average amount of MSME loans utilized by banks as compliance with the reserve requirements stood at P123.6 billion, while loans to large firms stood at P29.5 billion.

As part of COVID-19 response measures, including the cumulative 200-basis point interest rate cuts, the BSP allowed banks until end-2022 to count loans to MSMEs and large enterprises as part of their compliance to the level of deposits they are required to keep with the central bank.

The BSP requires banks to keep a minimum amount of cash reserves with the central bank determined by the amount of deposit liabilities owed to customers.

It slashed the RRR for universal and commercial banks by 200 basis points last March 30 and for thrift as well as rural and cooperative banks by 100 basis points effective July 31 as part of measures to soften the impact of the COVID-19 pandemic on the economy.
COVID-19 economy: What are we doing wrong?
By: Solita Collas-Monsod - @inquirerdotnet
Philippine Daily Inquirer / 05:06 AM December 05, 2020

How is it that a country like the Philippines, “which by all the usual metrics of having ‘strong macroeconomic fundamentals’ pre-COVID-19, both relative to its own past history and relative to its regional neighbors, would end up having the second-largest contraction in GDP in the second quarter of 2020 and the worst projected economic growth outcome in 2020 in ASEAN+3?” A paper jointly authored by Monsod (Toby Melissa C.) and Bautista (Ma. Socorro Gochoco) that will appear in the next issue of Asian Economic Papers, rather lengthily entitled “Rethinking ‘Economic Fundamentals’ in an Era of Global Physical Shocks: The Philippine Experience with COVID-19,” attempts to answer that question.

Before we go any further, Reader, I must disclose (proudly) that the Monsod referred to above is my daughter, and is a much better economist than I. The two authors are faculty members of the UP School of Economics.

Now, how do they go about answering the question? Well, they created a model for 21 countries in ASEAN+3, developing East Asia and South Asia, as well as Australia and New Zealand to explain the difference in actual 2019 and forecasted (as of October) 2020 GDP growth, and they relate the fall in real GDP growth to four factors: national capacities to detect and respond to acute public health events and emergencies, susceptibility to the disease, dependence on the foreign sector, and a country’s fiscal position.

What did they find? That, everything else remaining the same, stronger national capacities to detect and respond to emerging outbreaks, in particular laboratory capacity, are associated with better short-term economic outcomes. For the Philippines, in particular, better prepared laboratory systems coming into the crisis could have saved up to 3.6 percentage points in lost GDP growth forecasted in 2020.

They also find that “if COVID-19 is not first well-contained—by decisively addressing underlying physical causes of disease and transmission and progression—large fiscal spending aimed at other things could have perverse economic effects.”

Moving forward, their results suggest that a dearth in health system capacity should be prioritized over and above any other type of spending including traditional stimulus (e.g., large-scale infrastructure). Their results also underscore that given physical shocks (including those brought about by climate hazards), efficient and prepared institutions matter. “A macroeconomy is not resilient if these are not.”

The paper (I swear it is easy reading) points out that this is not what our government is doing, as shown by the National Expenditure Program for FY 2021 currently being renegotiated in the bicameral committee (I think). It has done the opposite of what is suggested by the results of the model. It has increased the infrastructure budget by 49 percent, while it has decreased the health sector budget by 28 percent (or P50 billion).

Moreover, I would like to point out that come 2021, our Social Amelioration Program will be no more—that’s P197 billion that was supposed to go to the poor, who have been left mostly to fend for themselves.

WTF? I hope our legislators make major changes in that budget. There is still time. If they had sliced the health budget as a way of showing their dislike of Health Secretary Francisco Duque III, that would be asinine, because they are punishing the Filipino people as well. If they cut it because the department doesn’t have the absorptive capacity, this is where the efficient and prepared institutions issue comes in. An efficient and competent bureaucracy is definitely possible in the Philippines, except for the fact of politics reaching even down to the assistant director level. Only consider the International Monetary Fund’s damning assessment of the Philippines’ fiscal stimulus program: it was “limited or inefficiently implemented.”

Reader, this is not just some academic issue from an ivory tower. I read where Gen. Carlito Galvez Jr. opined that the COVID-19 vaccine would be available to us only in late 2021 or early 2022. That means we have to gear up our national capacity to deal with COVID-19 until at least the end of next year. The MB paper points them out. Example: Our contact tracing system reaches only 4-5 people, where the international standard is 30-37 for urban areas, and 25-30 for rural areas. We don’t hear about contact tracing anymore from the government after the propaganda about adopting the Magalong example in Baguio.
ASEAN pivot to China
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 06:20 AM November 17, 2020

Something momentous happened over the weekend that signals the continuing shift of the world’s economic fulcrum to Asia-Pacific away from North America, dominated by the United States. Fifteen economies comprising about a third of the world’s population and of the global economy signed a trade agreement that formalizes what is now the world’s largest trading bloc.

Initiated by the 10 Asean economies that we are part of, the newly-minted Regional Comprehensive Economic Partnership or RCEP now brings in five of the six “dialogue partners” with which Asean has already had separate free trade deals: Australia, China, Japan, New Zealand, and South Korea. India, the sixth dialogue partner, was originally part of the group, but chose to withdraw late last year on fears of an onslaught of dumped goods from China, among other concerns. RCEP would have been even more formidable with India, bringing the group’s combined population and economic share closer to 40 percent of the entire world. Even without India, RCEP is now bigger than the European Union, and the North American Free Trade Agreement composed of Canada, the United States, and Mexico.

Formal signing of the RCEP agreement is seen as a “victory” for China over the United States, as it certainly gains an advantage over the latter in their ongoing trade war. This is because China, by its sheer size, inevitably dominates the new trade group, and with formalization of the agreement, can assert that (1) it has alternatives to the US market, and (2) it gains the upper hand over the latter in influencing future economic directions in Asia-Pacific.

It was the second concern that had prompted President Barack Obama to champion the Trans-Pacific Partnership (TPP) agreement as a key part of his administration’s “pivot to Asia.” TPP was then seen as a rival to RCEP, as even as it has a much smaller combined population and consumer base, it would have also accounted for 40 percent of the world’s incomes. But Donald Trump chose to pull out of TPP in one of his earliest moves as president, thereby emasculating that grouping. Still, the rest proceeded on a much-downgraded scale and significance, as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP, which they signed in 2018.

Where does our country stand in all this? Trump’s withdrawal from TPP was actually a blessing for the Philippines, because we had not been part of the group forging the TPP, which included the three Asean members Malaysia, Singapore, and Vietnam. Had it gone through with the United States in it, we would have suffered significant diversion of our very prominent trade and investment ties with the United States, especially to Vietnam and Malaysia. Their preferential access to the US market under TPP would have made them preferred sources of products that we export to the United States, and preferred destinations for US foreign investments (which they already had been even without TPP). For that reason, our government had been making a strong pitch to join TPP as well—until Trump came.

In contrast, as a founding Asean member, the Philippines had been part of the RCEP from the very beginning. Trade Secretary Ramon Lopez points out that the RCEP economies accounted last year for half of Philippine exports, 61 percent of our imports, and 11.4 percent of foreign direct investments. The agreement is thus of critical importance to us, especially as we look to our post-COVID-19 economic recovery.

For sure, traditional trade opposers would again be wary of a greater influx of imports due to the trade deal. But we would do well to go beyond defensive concerns and also focus on great opportunities opened up for Filipino producers and workers. In addition to the nine other economies in the Asean Economic Community, they can now look to newer doors opened into the large economies of Australia, China, Japan, New Zealand, and South Korea. And provided we do our homework right—including catch up on infrastructure, fix our tax system for better conformity with our neighbors, and improve confidence in our country’s governance—then RCEP could truly be a critical path to a better post-pandemic economic future for Filipinos.
A porky problem
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:06 AM October 27, 2020

“Pigs don’t vote, but corn farmers do,” an agriculture official declared over three decades ago, as he defended high import barriers then that made corn, a vital feed grain, a much more expensive burden to the livestock and meat industry than could have been. He was half joking, but half serious as well.

The statement exemplified how the Department of Agriculture (DA) then, and through the years thereafter, had been prone to making policy decisions based more on politics than good economics. Since then, livestock and poultry raisers and their downstream industries have constantly clamored for stronger policy and program support from government.

Through the years, they saw the preferential attention government gave to the cereal grains rice and corn in terms of policy, programs, and budgets. Import barriers were kept high for rice and corn, with the effect of significantly raising their domestic prices relative to those overseas.

This reduced the pressure to be effective in improving productivity and competitiveness in our food staples — which indeed stagnated and even declined over time, only recently rising again — all in spite of highly-funded program support. And because the resulting higher price of corn also made costs of livestock and poultry production higher, import barriers for meat also had to be kept high to permit domestic producers to recover their higher costs through their own higher prices shielded from outside competition.

The vocal victims have been the meat processors who faced high raw material costs tracing to expensive corn, thus expensive meat, with their competitiveness impaired by this chain effect of higher costs. (They were later to obtain the concession of lower tariff rates on processing-grade meat, as opposed to table-grade meat, but which led to a new problem with technical smuggling—but that’s another story I will not go into.)

The more important but silent victims were the Filipino poor, whose nutrition status got a double whammy. Not only were their staple cereals more costly and virtually ate up their food budget with hardly any money left for the ulam to meet protein needs; meat, with its resulting higher cost, became even less affordable, too. With hindsight, it figures why stunting due to severe malnutrition affected 45 percent of our children under 5 years old in 1990, meaning nearly one in every two young Filipino children then were damaged for life. These same people are in our labor force today.

Fast forward to 2020, when we have a livestock and poultry industry beleaguered by African swine fever (ASF) and avian flu. ASF is said to be “rampaging through Laguna and Calabarzon,” according to a veterinarian in the know, and has already closed large swine producers in Central Luzon. In a recent meeting with Bureau of Animal Industry (BAI) director Ronnie Domingo, ASF Task Force leader Dr. Sam Castro reported that an estimated one-fourth of our swine population has been decimated by the epidemic. If you’ve bought pork lately, you’d know that its price has been zooming, now even topping P300 per kilo, from the usual P200 and below. Now you know why.

For us, ASF is a particularly big problem, especially because pork is the favorite meat of Filipinos, who on the average eat 16 kilos per year, vs. 12 kilos for chicken meat — and we actually eat more pork than the world eats on average (12 kilos/year). Next to fish, it is the biggest source of protein for Filipinos. BAI has lined up a good “TIGIL ASF” plan to combat the epidemic, which needs a substantial budget for its execution. But Domingo laments that their budget proposal has been slashed in half.

Meanwhile, of the P15.3 billion DA program budget for production support services, rice gets P12.8 billion, a whopping 84 percent of the total, while livestock gets P756 million, a measly 5 percent. Rice similarly hogs (pardon the pun) DA’s other program budgets. But guess what: Livestock and poultry together contribute far more to total agricultural gross value added (27 percent) than rice does (19 percent). Where is our sense of proportion here?

And we wonder why the average Filipino’s diet lacks so much protein.
Bangko Sentral urges thrift banks to leverage 'limitless' potential of digital tech
Posted at Oct 13 2020 12:07 PM

MANILA - Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said Tuesday thrift banks should take advantage of the "limitless" potential of digital technology including cloud banking.

Cloud banking can expand reach and potential of small thrift banks, Diokno said at a convention hosted by the Chamber of Thrift Banks.

Diokno said using the cloud also lower operational costs.

"Thrift banks must change from brick and mortar to embracing the promise of cloud banking. Moreover, the smaller thrift banks can take advantage of this digital tech to lower operational cost. The opportunities are limitless," he said.

At least 20 financial institutions are moving to cloud banking and rural banks have already seen this as an "opportunity," the governor said.

Digital banks are subject to the same risks as normal banks and are therefore covered in the same rules and regulations, Diokno said.

So far, there are 12 thrift banks offering PesoNet and 8 thrift banks offering InstaPay while 4 others provide e-payment systems, Diokno said.

InstaPay, or the instant transfer of funds online and PesoNet, an online fund transfer system used for bigger transactions are part of the BSP's National Retail Payment System launched to push for digitalization of transactions in the country.

The BSP defines thrift banking as composed of savings and mortgage banks, private development banks, stock savings, loan associations and microfinance.
Thrift banks provide short and long-term capital for businesses in agriculture, services, industry and housing and small and medium sized enterprises (MSMEs) and individuals, the central bank said.

-- with a report from Warren de Guzman, ABS-CBN News
Agri-agra loans drop to P696 billion in Q1
Lawrence Agcaoili (The Philippine Star) - October 5, 2020 - 12:00am

MANILA, Philippines — Loans extended by domestic banks for agriculture and agrarian reform slipped by 2.1 percent to P696.35 billion in the first quarter from P711 billion in the same quarter last year as the industry continued to deliver the mandated threshold for the sector.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking system was able to allocate only about 12 percent of total loanable funds from January to March, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

Total loanable funds generated by the banking industry increased by 17 percent to P5.81 trillion in the first quarter from P4.96 trillion in the same quarter last year.

The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries.

The BSP reported the loans extended by the banks to the agriculture sector amounted to P639.82 billion, equivalent to a compliance ratio of 11.02 percent. This was, however, below the required compliance ratio of 15 percent.

The central bank said big banks or universal and commercial or big banks registered a compliance ratio of 11.15 percent after extending P603.08 billion to the agriculture sector, while the ratio of thrift or mid-sized banks only reached 6.61 percent after granting P19.32 billion.

Rural banks extended P17.42 billion to the agriculture sector for a compliance ratio of 16.8 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P56.53 billion for a compliance ratio of less than one percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.84 percent, while that of thrift banks settled at 1.15 percent. The rural and cooperative banks reported a compliance ration of 7.36 percent.

BSP Governor Benjamin Diokno earlier said banks opted to pay P10.3 billion worth of fines to the regulator over the past decade for failing to meet the mandated agri-agra loan threshold.

“Sadly, as noted in the last few years, banks have opted to pay the 0.5 percent penalty for non-compliance, instead of providing agri-agra credit. Banks justified this based on the perceived high risk and high cost of lending to this sector,” Diokno said.
About 45 percent of the total collections are used to beef up the agriculture guarantee fund pool managed by the Land Bank of the Philippines and another 45 percent go to the Philippine Crop Insurance Corp. (PCIC) to sustain its operations.
The remaining 10 percent is left with the BSP to cover administrative costs. The BSP is committed to improving the current state of agriculture financing as the sector which employs 8.7 million Filipinos accounted for 9.8 percent of the country’s gross domestic product (GDP) and 11 percent of total imports.

“We find the present state of affairs unacceptable,” he said.

According to Diokno, a more responsive agriculture financing ecosystem is needed to realize its full potential as an engine of inclusive economic development.

Diokno supports key legislative initiatives such as the warehouse receipts bill and the amendment of the Agri-Agra Law, which aims to expand the range of eligible rural beneficiaries and agricultural activities that can be financed as part of the mandatory credit.
More than stimulus
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:25 AM September 29, 2020

It seems conventional wisdom now that the way out of the COVID-19-induced recession is to throw money — lots of it — at the problem. The term commonly used is “economic stimulus,” which in the current context means government spends unprecedented amounts of money, even if it must borrow big time, to provoke economic activity.

But spending money to revive a frozen economy is not enough; it must also be spent right if we are to get the most overall benefit out of it. Quality of spending, apart from quantity, matters as much. What we need now is spending with maximum multiplier effect via the spending-incomes circular flow that an initial spending in the economy generates. The multiplier is greatest when every round of income is spent on domestic goods and services, production of which creates jobs for Filipinos. This is not the time to spend money on imported goods and services — like a presidential jet, for example — where we completely lose the multiplier effect to the foreign economy to which the money is paid.

The better way to transport the President and his officials at this time is to patronize our domestic air carriers, which are hemorrhaging from lack of business and forced to shed hundreds of prime jobs as they do. To spend billions now in a way that does nothing to support the domestic economy, when there’s an obvious alternative that would, borders on the obscene. It’s no excuse that the purchase had been committed before the pandemic. With aircraft manufacturers facing massive cancellations of orders by airlines for obvious reasons, I don’t see why a government in great need of economic stimulus funds cannot put off buying a private jet. On this basis, that frivolous Manila Bay white beach strip project is arguably better; at least the money stays and circulates within the economy. Still, it’s no less obscene, what with emerging signs of large-scale corruption, severe environmental harm, and outright stupidity (with much of the dolomite sand already washed off by strong waves).

What we really need, and the Vice President had it right, is Kumpiyansa, or Confidence with a capital C, for economic activity to more quickly move back toward its pre-pandemic state. That means confidence that government has a good plan for containing the pandemic, and the plan is being executed and is working, evidenced by declining infection rates (not just declining deaths from it). This leads on to confidence for people to go out and engage in their usual activities that bring life to the economy. But it inspires no confidence when people see a government lacking single-minded focus and competence in containing, controlling, and curing the virus that ails the people and the economy — but instead wandering off into costly distractions like pushing an anti-terrorism law of dubious ends, window-dressing a short strip of Manila Bay seafront, buying a presidential jet, persecuting critics in media, and more. Indeed, not only do these fail to help improve confidence in government; they actually undermine it.

Analyzing vast behavioral data it gathers worldwide, Google has issued Community Mobility Reports over the past months, indicative of people’s confidence to go out and engage in normal activities. Their data show that within the original Asean-5 plus Vietnam, Filipinos remain farthest from restoring pre-pandemic levels of mobility, hence least confident to move about, even as community mobility in Vietnam, Singapore, and Thailand have already gone well beyond pre-pandemic levels.

My Ateneo colleague Dean Nandy Aldaba aptly sums it in a recent article: “Even (with) adequate fiscal stimulus to firms, entrepreneurs, workers and poor households, without the confidence built among them, no economic recovery program will succeed. Firms will not borrow because they are not assured that their market will return. Workers will not commute if their safety will be compromised. They will not report to their factories if health protocols are not in place. Consumers will not go to restaurants or malls if the proper regulations on social distancing are not being implemented….”

All told, stimulus without confidence is like pushing on a string.
CA upholds BSP, PDIC closure of Batangas rural bank
By Benjamin Pulta September 2, 2020, 2:40 pm

MANILA – A ruling by the Court of Appeals (CA) upheld a decision of government banking regulators to shut down a rural bank in Batangas in 2018 for serious lapses in its management.

In a 20-page decision written by Associate Justice Ramon Bato Jr. dated August 25 and made available on Tuesday, the CA's sixth division dismissed the petition filed by Gerardo Castillo, majority stockholder of the Tiaong Rural Bank Inc. (TRBI) against the Philippine Deposit Insurance Corp. (PDIC) and the Monetary Board of the Bangko Sentral ng Pilipinas (BSP).

In August 2018, the BSP issued a resolution prohibiting TRBI from doing business while the PDIC issued a notice of closure against it.

The decision was based on the findings of the BSP's examination department (ED) on the bank, which has eight branches in Calabarzon, during a regular examination in July 2017.

The ED noted several unaddressed weaknesses leading to net losses which continue to deplete TRBI's capital.

It also noted that while TRBI reported that its capital adequacy ratio (CAR) and capital were above the government's requirements, in truth, its adjusted capital was only PHP38.9 million and has a capital deficiency of PHP60.7 million.

The BSP also noted that "there was no express commitment from the stockholders on the required immediate capital infusion."

A special examination by the BSP-ED later showed the bank's precarious financial condition.

It pointed out that TRBI is significantly undercapitalized with a CAR of negative 21 percent and an adjusted capital of negative PHP203.5 million, or deficient by at least PHP300.3 million to meet the 10 percent minimum CAR and the minimum required capital of PHP30 million.

In upholding the BSP's regulatory authority over banks, the CA said "the BSP is not simply a corporate entity but qualifies as an administrative agency created to carry out a particular governmental function, pursuant to a constitutional mandate".

"As the country’s central monetary authority, the Constitution expressly grants the BSP the power of supervision over the operation of banks (and) its finding on matters of bank closure is accorded technical deference and even finality when supported by substantial evidence. Verily, by reason of the special knowledge and expertise of administrative departments over matters falling within their jurisdiction, they are in a better position to pass judgment thereon and their findings of fact in that regard are generally accorded respect, if not finality, by the courts,” the CA said. (PNA)
Thrift, rural banks back proposed tweaks to Agri-Agra credit quotas
September 1, 2020 | 12:03 am

SMALL LENDERS expressed support for the central bank’s proposal to include sustainable financing as part of their compliance with the mandated credit under the Agri-Agra Law as this will help boost the capital of pandemic-hit businesses geared towards sustainability.

Rural Bankers Association of the Philippines (RBAP) President Elizabeth C. Timbol said allowing banks to count green loans as part of their Agri-Agra (agriculture and agrarian) compliance will broaden business opportunities for borrowers and farm owners.

“They will be encouraged to make their farms more productive. Also, by making their farms as tourism sites will help generate employment within their locality,” Ms. Timbol said in a Viber message.

She added the proposal can create a ripple effect in the economy amid job losses among Filipinos here and abroad amid the coronavirus pandemic.

Chamber of Thrift Banks (CTB) Executive Director Suzanne I. Felix also expressed support for the proposal.

“Green financing as a mode of compliance with Agri-Agra is a signal for banks to refocus their strategy towards sectors and activities that support sustainable recovery, and should provide various opportunities for them,” she said in an e-mailed reply to questions.

Ms. Felix said they also support House Bill 6134 which seeks to amend the Agri-Agra Law to include green finance projects as compliance with the credit quota. The bill has been approved by the House of Representatives and was received by the Senate in March.

Meanwhile, Senate Bill 1585 filed on June seeks to amend the Agri-Agra Credit Act by including investments and grants for agriculture activities as part of the mandated credit. It also seeks to remove the distinction between agriculture and agrarian reform lending and to include fishery activities, agriculture mechanization, agri-tourism and green finance projects as part of compliance. The bill is still pending in the Senate.

“We trust that legislation on Agri-Agra lending will continue to be adjusted to realistic levels, for the good not only of the farmers but of the Filipino people. Instead of imposing penalties, we earlier proposed the granting of incentives to encourage banks to lend to the Agri-Agra sector,” Ms. Felix said.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno last week said they are looking at counting financing for green and sustainable projects as compliance with Republic Act 10000 or the Agri-Agra Reform Credit Act.

The law requires banks to disburse 25% of their loanable funds to the agriculture and agrarian reform sector in a bid to boost productivity and growth.

Mr. Diokno said they observed banks would rather pay the 0.5% penalty instead of complying with the agriculture and agrarian reform lending quotas of 15% and 10%, respectively, as these sectors are considered high risk. Banks’ credit to the agriculture and agrarian reform segments were only at 10.8% and 1.09%, respectively, of their total loan book, he added.

In May, the BSP issued Circular No. 1085 which lays out a sustainable finance framework for banks. Lenders will be given three years to streamline their operations in accordance with the framework, which is based on sustainability principles through environmental and social risk management systems.

BSP data showed 10.6% of the banking system’s total loans in 2019 were disbursed to finance projects that are in line with the Sustainable Development Goals of the United Nations. — Luz Wendy T. Noble
Small banks can withstand COVID-19 – BSP
Published August 16, 2020, 9:00 PM
by Lee C. Chipongian

The rural and cooperative banking sector can cope against the adverse impact of the COVID-19 pandemic up to three months, based on the Bangko Sentral ng Pilipinas (BSP) stress tests and simulation exercises.

BSP Governor Benjamin E. Diokno said both simulation exercises and stress tests done on rural and cooperative banks indicated its capability to tolerate write offs and losses due to the public health crisis, even losses of up to 20 percent on their net interest income.

The small banks, he said, can “withstand and assume simultaneous write off of interest income on total loans and non interest income from fees and commissions up to three months and this is expected as banks recorded high pre-shock capital adequacy ratios (CAR).”

Both the rural and cooperative banks have above 10 percent CAR which is the minimum, after being subjected to stress tests, according to the BSP chief.

Diokno said that they did simulations – using end-March 2020 data — on the small banks’ profitability if they incur a five, ten or even 20 percent net interest income losses for the first, second and third lockdown months.

“This scenario is tested against the banks baseline CAR whereas the use of net interest income in this exercise enables us to capture the impact on interest income from both loans and other financial assets as well as on interest expenses from all deposit liabilities and other sources of funding such as bonds payable, bills payable and unsecured subordinate debts, among others,” said Diokno.

He noted that the results of these tests showed the CAR of rural and cooperative banks “remain comfortably above 15 percent over the first, second and third month period of the quarantine even under a 20 percent assumed reduction in net interest income.”

Rural and cooperative banks’ latest CAR was at 19.5 percent, more than the 10 percent minimum. “These banks have profitable operations and ample liquidity,” said Diokno, adding that “rural and cooperative banks are poised to continue supporting rural economic activities as the industry faces the COVID-19 pandemic.”

Based on a BSP survey, small banks were able to return to normal operations after adopting to the requirements of community quarantine restrictions, partly with the help of technology.

At the end of the first quarter, rural and cooperative banks have total assets of P265.7 billion, up 5.9 percent year-on-year. This is about 1.4 percent of total banking resources, with the big banks accounting for 92.7 percent.

Loans and deposits were also up by 6.1 percent and 4.8 percent year-on-year to P188.2 billion and P151.7 billion, respectively. As of end-March, the loan quality also improved as its non-performing loans ratio fell to 11.2 percent from 11.6 percent in 2019.

The BSP has been performing simulations to test for CAR to determine the hits of the pandemic on all banks, specifically the impact of the “Bayanihan to Heal As One Act”.

Generally and so far, results indicate that all banking groups from the large commercial banks, thrift, to rural and cooperative banks have the capability to meet the required minimum CAR of 10 percent.

“COVID-19 may exert pressure on the quality of bank loan portfolio, but we expect the impact to be manageable,” said Diokno.

To help the small banks during the pandemic, the BSP implemented measures such as reducing the reserve requirement ratio (RRR) for rural and cooperative banks by 100 basis points, to increase its lending to micro, small and medium enterprises (MSMEs).

As of July 23, Diokno said 66 rural and cooperative banks have released about P1.5 billion loans to MSMEs as alternative compliance with the RRR.

The BSP is supervising 419 rural banks and 25 cooperative banks as of end-July this year.
Rediscount facility untapped amid BSP’s easing measures
August 11, 2020 | 12:01 am

BANKS did not tap the rediscount facility of the Bangko Sentral ng Pilipinas (BSP) in July as policy easing measures have already boosted liquidity in the market.

“For the period covering Jan. 1 to July 31, total availments under the peso rediscount facility remains at P20.7 billion as there was no availment in July,” the central bank said in a statement on Monday.

Lenders last touched the facility in March and April for peso rediscount loans worth P20.7 billion.

This is lower compared to the P116.574 billion in loans from the facility recorded from January to July 2019.

Banks likewise left the facility untapped from November 2019 to February 2020.

The BSP’s rediscount facility allows banks to get hold of additional money supply by posting their collectibles from clients as collateral.

In turn, the banks may use the cash — in peso, dollar or yen — to disburse more loans for corporate or retail clients and service unexpected withdrawals.

The halt in rediscount availments is a sign of high liquidity in the market, said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

“We know that liquidity has been high recently with the various monetary actions of the BSP since February to address the impact of the COVID-19 pandemic. Demand for the facility may remain subdued as long as liquidity remains high in the coming months,” Mr. Asuncion said in an e-mail.

The BSP slashed the reserve requirement of universal and big banks by 200 basis points (bps) to 12% in April to provide a liquidity boost during the lockdown. The move freed up some P200 billion into the financial system.

The central bank in July also reduced the reserve requirement ratios of thrift and rural banks by 100 bps to three percent and two percent, respectively, releasing about P10 billion in liquidity.

The BSP has also allowed banks’ lending to micro-, small, and medium-sized enterprises as well as to some large enterprises hit by the pandemic to count as reserve compliance.

Meanwhile, for this month, all peso loans, regardless of maturity, will be priced at 2.75%, which is the lending rate of the BSP.

For dollar-denominated loans, applicable rates are at 2.24875% for all tenors.

Yen loans are priced at 1.94483% regardless of maturity. — Luz Wendy
COVID-19 versus hunger: The cruel choice
By: Mahar Mangahas - @inquirerdotnet
Philippine Daily Inquirer / 05:05 AM July 25, 2020

In 2020, the Philippine hunger rate took a sudden, very sad, U-turn.

After falling to only 8.8 percent of families in December 2019, its lowest proportion since 2004, it leaped to 16.7 percent last May, the second month of the pandemic-cum-lockdown, and then rose further to 20.9 percent by July.

The new level is the highest since mid-2014 (SWS July 3-6, 2020 National Mobile Phone Survey-Report No. 5: “Hunger among families climbs to 20.9%,” www.sws.org.ph, 7/21/20).

Hungry families are in the millions. In December 2019, a benign time, about 2.1 million families experienced involuntary hunger. Of these, 1.8 million suffered moderately (hungry only once or else a few times, in the past three months) and 0.3 million suffered severely (often or else always, in that same period).

By early July, the moderately hungry were already 3.9 million families, and the severely hungry reached 1.3 million. Thus, in the new survey, severe hunger is now one-third of total hunger, whereas last December it was only one-seventh.

From 2019 to 2020, the hunger rate rose all over the country. From last May to early July, it rose in the Visayas and also in the Balance of Luzon, was steady in Mindanao, and fell in Metro Manila. However, the composition of hunger turned more severe everywhere, including Mindanao and Metro Manila. Have the social amelioration funds run out?

To estimate the number of hungry individuals, multiply the number of hungry families by 6—not just 5, since poor/hungry families are above average in size. The 5 million hungry families, times 6, implies 30 million hungry Filipinos.

The number of individuals suffering specifically from hunger is what may be compared to the number of individuals afflicted with COVID-19. Other types of suffering caused by hunger, such as illnesses, deaths, and underdevelopment of the mental capacities of malnourished young children, would be additional.

Unlike in the past, the high hunger rate in 2020 is not due to a spike in food prices. Instead, it is due to the radical disruption in very many people’s livelihoods, and hence their general purchasing power, for food and other basic needs. This disruption was brought on by (a) the government-mandated closure of many workplaces, and (b) its shutdown of basic public transportation, preventing workers from going to the workplaces allowed to open. The prolonged grounding of jeepneys has obviously led to hunger among the families of the jeepney drivers.

On the other hand, COVID-19 victims are in the tens of thousands. There’s no getting away from COVID-19 statistics; they are updated daily by the government, and well publicized. The DOH PH COVID-19 Viber group has a national tally of 1,837 deaths, 23,281 recoveries, and 45,646 active cases, as of 7/23/20. The active cases are 8 percent asymptomatic, 91 percent mild, and 0.8 percent severe/critical. These add up to a national total of 70,764 cases, active and inactive.

For every COVID-19 victim, there are of course others that suffer, such as family members, relatives, and friends, who look after the victim, help with the medical care and other needs, and grieve together. They may be counted as well, but it will not make the number of COVID-19 sufferers reach even a million.

Moral hazard in forming policies to cope with COVID-19. I can’t help but be conscious that the politicians and bureaucrats who control the lockdown rules are not the ones who will be too inconvenienced by them. Their posts and reward systems have been unaffected. They have private cars for their personal mobility, and they are “authorized to be outside residence.”

In short, these are people who are quite safe from hunger. Their real worry is that they and their friends and relatives might be infected by COVID-19. Their apparent priority is to prevent the spread of the infection, regardless of the cost to the general public in terms of hunger. Well, what if the membership of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases were expanded to include a fair number of jeepney drivers, factory workers, teachers, and stranded overseas workers?
BSP ready to ease further when needed, awaiting right conditions
July 13, 2020 | 7:12 pm

THE central bank stands ready to ease monetary policy, but views current money supply as ample and is gauging when the financial system can absorb extra liquidity, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

The Monetary Board has slashed 200 basis points (bps) out of the 400 bps it is authorized to reduce this year to add liquidity into the financial system during the pandemic. This has lowered the reserve requirement ratio (RRR) for universal and commercial lenders to 12% while the RRR for thrift and rural banks have been maintained at 4% and 3%, respectively.

“RRR cut, if ever, will be for big banks. The RRR for thrift and rural banks are already low and they would benefit the most from (Monetary Board) policy that considers new lending to MSMEs (micro, small, and medium-sized enterprises) as in compliance with reserve requirements,” Mr. Diokno said in a text message to BusinessWorld Monday.

The central bank has allowed banks to include their lending to small businesses as well as large enterprises as an alternate means of reserve compliance during the pandemic.

So far, the BSP said P45 billion worth of loans to MSMEs has been used by banks, most of which rural lenders, to comply with reserve requirements.

Earlier this month, the Chamber of Thrift Banks said it is pushing for a further 100 basis-point reduction to the sector’s current reserve requirement of 4%, saying that a decrease signifies additional billions of pesos in liquidity that could be utilized to provide credit for embattled sectors.

Mr. Diokno said there is “ample liquidity” in the market currently.

He added the monetary authorities can afford to bring down the reserve requirement for big banks to 10% “if there’s a need for it.”

“We’re just pausing to make sure that the financial sector is able to digest all these monetary easing that we’ve done,” Mr. Diokno said in an interview with ABS-CBN News Channel early Monday.

The central bank has also brought down policy rates to record lows through 175-bps worth of easing this year. Its latest 50-bps rate cut in June trimmed the overnight reverse repurchase, lending, and deposit facilities to 2.25%, 2.75%, and 1.75%, respectively.

The uptick in the savings rate is an indication of improvement in liquidity, according to Security Bank Corp. Chief Economist Robert Dan J. Roces.

BSP data showed the savings growth rate inching up during the pandemic. Savings deposit growth was 13.4% in May from 11.9% in January.

“Money saved is money not spent, so a higher savings rate could also mean less consumption but high liquidity,” he said in a text message.

“For consumers facing uncertainties, the lower interest rates may not necessarily help in the near term and they will opt to save. But since borrowing costs are lower, this should become attractive over the longer term,” Mr. Roces added.

Domestic liquidity or M3 rose 16.6% year on year in May from 16.2% in April. Despite this, growth of outstanding loans growth issued by universal and commercial banks was 11.3% in May, against 12.7% in April. — Luz Wendy T. Noblee hotline at (02) 8-405-7000 or at PLDT Domestic Toll Free 1-800-10-405-7000. (Landbank CDO)
LANDBANK offers loan package for COVID19-affected CFIs
Philippine Information Agency
10 Jun 2020, 18:38 GMT+10

CAGAYAN DE ORO CITY, June 10 - The Countryside Financial Institutions Enhancement Program (CFIEP), a joint program of Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corporation (PDIC) and Land Bank of the Philippines (LANDBANK), is rolling-out a new lending program to assist Countryside Financial Institutions (CFIs) that have been affected by natural calamities, man-made disasters, pests and diseases, and viral infections or outbreaks, including the coronavirus disease (COVID-19) pandemic.

The Countryside Financial Institutions Enhancement Program - 2020 Calamity Assistance Program (CFIEP-2020 CAP) lending program will provide additional working capital to Cooperative Banks, Rural Banks and Thrift Banks. The credit assistance may augment liquidity of CFIs that are affected by extensions or defaults of its borrowers as a result of calamities/disasters/viral infections, and thereby encourage CFIs to continue lending, particularly to the agricultural sector.

"In the first three months of the year alone, our country has been hit by various calamities that have caused unfavorable outcomes to CFIs. We hope that the CFIEP2020 CAP will help them recover from the damages and disruptions in their operations, and enable them to restore operational cash flows, thus, allowing them to continue lending to small farmers," LANDBANK President and CEO Cecilia C. Borromeo said.

The program will be made available by LANDBANK to eligible CFIs at an amount equivalent to 90% of their affected existing portfolio or P10 million per CFI, whichever is lower, provided that the loan amount does not exceed the CFI's borrowing capacity, as per LANDBANK's existing policy.

The loan shall bear an affordable interest rate of 4.5% per annum, fixed for one year and subject to annual repricing thereafter. The loan shall be payable up to a maximum of five (5) years, with up to one year grace period on principal and interest payments.

The CFIs are also expected to relend the fund to their affected end-borrowers at concessional interest rates.

Interested borrowers may contact the nearest open LANDBANK Lending Center or Branch nationwide, or call LANDBANK's customer service hotline at (02) 8-405-7000 or at PLDT Domestic Toll Free 1-800-10-405-7000. (Landbank CDO)
Boosting our farm co-ops
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:06 AM June 09, 2020

The biggest challenge in Philippine agriculture could well be the highly fragmented structure of our farms. Recently, I wrote of how nearly 9 out of 10 farms are under 3 hectares, and those less than a hectare account for the majority (57 percent). The 2012 Census of Agriculture counted 5.56 million farmholdings spanning 7.19 million hectares, averaging a mere 1.29 hectares each.

In a recent dialogue between officers of the Coalition for Agriculture Modernization in the Philippines (CAMP) and Department of Agriculture (DA) Secretary William Dar, CAMP chair Dr. Emil Javier suggested ways on how we can best help farmers under a fragmented farm structure. Javier, a National Scientist who was also former science minister and University of the Philippines president, highlighted the crucial role of farm cooperatives, as already well demonstrated in our more successful neighbors. Even as cooperativism is alive and well in the country, only 1,315 of our 18,065 operating co-ops in 2018 were agriculture or agrarian reform co-ops. In contrast, Vietnam has more than 10,000, while the latest data I could find for Thailand counted 6,712 farm co-ops in 2006. While small farms are also dominant in these two neighbors, they have been far better organized and collectivized, likely explaining why their farm sectors perform far better than ours.

There was a time when we actually taught our now more successful neighbors how to run farm co-ops. The former Agricultural Credit and Cooperative Institute (ACCI) in UP Los Baños, now known as the Institute of Cooperatives and Bio-Enterprise Development (Icoped), was established out of a felt need for such an institution expressed in 1956 by delegates from Cambodia, China, Korea, Thailand, Vietnam, and the Philippines. In the heyday of our Farmers’ Cooperative Marketing Associations or Facomas in the 1960s—still nostalgically remembered by Dr. Javier and agriculturists of his generation—trainees from Korea, Thailand, and other neighbors came to ACCI to seek mentoring on running successful farm co-ops.

Now, over five decades later, our farmers’ cooperatives are struggling, and success stories are few and far between. They have taken on different forms over the decades, from the Facomas of the 1950s and ’60s, the short-lived Marcos-era Samahang Nayon of the ’70s, agrarian reform beneficiaries’ groups in the late ’80s, irrigators’ associations in the ’90s and onwards, and most recently, sugarcane block farms. The general picture is one where Philippine farm co-ops have largely failed.

But CAMP believes that our neighbors’ success in harnessing farm co-ops for agricultural development shows that they continue to be a viable instrument for getting Philippine agriculture moving in step with our neighbors. The only way our agricultural sector can raise productivity to meet our rapidly growing population’s food needs is for them to group together in larger farming units to achieve economies of scale. And the only way government can ever be effective in helping small Filipino farmers is not to have to deal individually with 5.56 million farmers, but with groups of them organized into co-ops and other forms of farm clusters or collectives. And that, Dr. Javier told Secretary Dar, is why we must not give up on farm cooperatives.

Why have Filipino farm co-ops been relatively weak? I noted that time and again, cooperatives have fallen flat with weak leadership, and this is most often the reason most of our farm co-ops are short-lived. Conversely, successful co-ops are those with strong and competent leaders. A neglected public investment we need to boost is for a much stronger cooperatives leadership training system, particularly focused on farm co-op leaders. The National Association of Training Centers for Cooperatives has been very helpful, but the DA must also put in money to achieve a more encompassing and sustained public-private partnership for cooperatives leadership development, well beyond what UPLB-Icoped can currently handle.

South Korea’s system of Saemaul Undong training institutes may hold useful lessons on approach and methods. Maybe it’s time we learned something from them in return.
Creative tax adjustments
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:30 AM May 22, 2020

Governments are now out to find ways to revive their ailing economies in the wake of the pandemic. It’s already a foregone conclusion that the second quarter will show dire economic numbers on the incomes and jobs front. If government statisticians were able to proceed with the regular April round of the quarterly Labor Force Survey in the midst of lockdown, a drastic jump in unemployment (from 5.3 percent last January) up to the double digits is quite likely.

The sobering fact is that many of the local jobs frozen by the lockdown will not return beyond the pandemic. Restaurants are just one example where downscaling of the workforce will be inevitable. Many other types of business where physical distancing forces scaled-down operations will similarly let go of workers, if not close down altogether. On top of that, tens of thousands of our overseas workers are expected to return home, having lost their jobs in their similarly affected host economies. We need to protect existing jobs, but we must create even more for the substantial numbers of displaced workers as well.

This is why government’s ongoing tax reform program has to be part of the effort to protect and create even more jobs. The Department of Finance (DOF) has been quick to make needed adjustments on the major tax proposal now in the legislative mill, known as Citira (Corporate Income Tax and Incentives Rationalization Act). Partly giving in to earlier objections, but mostly in view of the urgent need to revive the battered economy, the DOF is now prepared to forego large revenues for the sake of economic revival—up to P42 billion this year, and P625 billion over the next five years. After all, like most other governments in the world, ours has accepted that it would have to incur a much larger deficit now and effectively absorb a higher level of indebtedness in the face of urgent needs. When the patient is in the sickbed, you first worry about bringing her back to health, before fretting over the hospital bills.

Thus, Citira—previously dubbed Trabaho, for Tax Reform for Attracting Better and High-Quality Opportunities, and before that, as Package 2 of TRAIN or Tax Reform for Acceleration and Inclusion—has undergone yet another name change, this time to CREATE, for Corporate Recovery and Tax Incentives for Enterprises. Even as it aims for the same ultimate tax changes pursued by Citira, the new name reflects its primary motivation, which leads to differences in the timing and manner of achieving the intended outcomes. The essence of the reform lies in two changes: (1) reduce the corporate income tax rate from 30 to 20 percent ultimately, to better align ourselves with the rest of our Asean neighbors, whose current rates range from 17 to 25 percent; and (2) rationalize various tax incentives that have bled the government of massive revenues in past years, many of them having been found unwarranted and unnecessary.

On the first, Citira would have lowered the tax rate yearly by one percentage point for 10 years (presumably to ease government’s revenue losses); CREATE will immediately reduce the rate to 25 percent until 2022, then lower it one percentage point yearly till it reaches 20 percent by 2027. On the second, Citira would have phased out perpetual incentives currently enjoyed by eligible firms within 2 to 7 years; CREATE lengthens that period to 4 to 9 years. Net operating losses incurred in 2020 may also be carried over up to five years, a relief to firms badly hit this year.

An important new feature allows government to offer tailored incentives to targeted major investors, something already done for years by our competing Asean neighbors. Using this strategically, Indonesia has reportedly grabbed a large share of investments exiting China because of both COVID-19 and the US-China trade war. Some worry that this authority could be misused and abused by a corrupt government. But like what I’ve said of the national ID, any good thing in the wrong hands could be used for evil ends. That’s why we need to ensure that we vote responsible leaders into office.

Via tax reforms or otherwise, now indeed is the time to create economic opportunities.
PARC ExCom confirms LBP’s one-year moratorium relief for payment of farmer's amortization
By DAR Published on April 25, 2020

QUEZON CITY, April 25 -- The Presidential Agrarian Reform Council Executive Committee (PARC-ExCom) has affirmed and confirmed the Landbank of the Philippines (LBP) Board Resolution No. 20-256 entitled “Relief Packages for LANDBANK Customers Affected by COVID-19” granting one (1) year moratorium for the payment of the farmer’s amortizations with no write-off on principal and/or interest payments to be allowed through PARC-ExCom Resolution No. 2020-SP-02 dated April 8, 2020.

PARC Council Secretary and DAR Undersecretary for Legal Affairs Office (LAO) Atty. Luis Meinrado C. Pañgulayan said the matter was unanimously supported and approved by the members of the PARC ExCom during its Special Meeting via video conference on April 8, 2020.

He said the PARC ExCom supports the initiatives of the LBP in providing immediate response and relief to the ARBs who were greatly affected by the global pandemic.

Pañgulayan emphasized that the previous PARC ExCom Resolution No. 2016-132-02 provides for the continuing implementation of the moratorium on Agrarian Reform Receivables (ARR)/land amortization payment of ARBs in areas to be affected by natural or man-made calamities.

LBP Board Resolution No. 20-256 signed last March 31, 2020 imposing a one-year moratorium on the amortization payment of agrarian reform beneficiaries (ARBs) was passed to assist the ARBs amidst the economic difficulties as a result of the enhanced community quarantine. This LBP board resolution has now been formally affirmed and confirmed by the PARC ExCom.

PARC is the highest policy-making body of the Comprehensive Agrarian Reform Program (CARP). Based on Republic Act 6657 or the Comprehensive Agrarian Reform Law of 1988, the PARC is composed of the President of the Philippines as Chairman, the Secretary of Agrarian Reform as Vice-Chairman with the Secretaries of the Departments of Agriculture; Environment and Natural Resources; Budget and Management; Local Government: Public Works and Highways; Trade and Industry; Finance; Labor and Employment as members. (DAR)
Speaker Cayetano urges banks to offer loans to MSMEs, farmers affected by COVID-19 pandemic
Published April 22, 2020 11:17am

Speaker Alan Peter Cayetano called on government and private banks to offer loans to micro, small and medium-scale enterprises (MSMEs) as well as farmers whose livelihoods were affected by the ongoing coronavirus disease 2019 (COVID-19) pandemic.

According to Cayetano, the problem of the financial system is how to encourage potential small borrowers to apply for loans from banks.“The purpose is to help people but at the same time keep the financial institutions healthy,” Cayetano said during the virtual meeting of the House Defeat COVID-19 Committee on Tuesday.

He pointed out that small borrowers are "intimidated by the formal banking system."

"Even farmers with land titles who apply for small loans are told the application/approval process is very tedious. They are being dissuaded,” he said.

Cayetano urged the resource persons in the virtual meeting coming from the economic sector to simplify and shorten the loan process and minimize the needed requirements, but without affecting their respective financial institutions.

The resource persons include Finance Secretary Carlos Dominguez III, Bangko Sentral ng Pilipinas Governor Benjamin Diokno, Land Bank president Cecilia Borromeo, and Government Service Insurance System general manager Rolando Macasaet.

Borromeo, in response, said: “Yes, we can strike a good balance of maintaining prudence and the other due diligence processes that we need to undertake before we lend out precious government funds.”

“We did it in the case of the P15,000-loan to farmers, We trimmed down the requirements and shortened the process. One key success factor was that we had a list of beneficiaries identified by Department of Agriculture. So we can do it in the case of small and medium-scale enterprises. We will continue to look for solutions,” she added.

For his part, Diokno said the BSP has already eased the requirement for banks to set aside a part of their funds as reserves.

“We have freed up from P180 billion to P200 billion and we asked banks to lend the money to MSMEs,” he said.

Dominguez, meanwhile, said the government, through the Philippine Export and Foreign Loan Guarantee Corp., would allow for a large portion of loans banks extended to MSMEs to encourage lending to small borrowers.

A measure is currently being proposed in the House to help mitigate the impact of the COVID-19 crisis to the country's economy.

The proposal, introduced by Albay Representative Joey Salceda and Marikina City Representative Stella Quimbo, will be called the "Philippine Economic Recovery Act."

Cayetano said they are still waiting for the executive branch's version of the proposal and the input of the Bangko Sentral ng Pilipinas, but they are also already hearing the measure in a technical working group.

"We'll fast-track all of this and kung merong certificate of urgency ang Malacañang just like the Bayanihan to Heal As One, more time is better," he said.

"Regardless of the new normal, we commit that Congress will be relevant, reliable and responsive," he added.
BSP: Current policy can accommodate ECQ extension
April 20, 2020 | 12:31 amFacebookTwitterLinke

THE central bank’s current policy stance can accommodate the impact of a possible extension or expansion of the enhanced community quarantine (ECQ), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“The BSP’s recent moves are designed to be prospective, given our strong economic fundamentals,” Mr. Diokno said in a text message on Sunday. “We think the BSP is ahead of the curve.”

Presidential Spokesperson Harry L. Roque said in a radio interview on Saturday the ECQ could be extended or modified after April 30. A modified lockdown, according to him, will depend on geographical location, comorbidity or industries.

Earlier, Mr. Roque said a total lockdown could be enforced as the virus has yet to be contained and as cases continue to rise.

Resigned Socioeconomic Planning Secretary Ernesto M. Pernia earlier said extending the lockdown to May would be “difficult” and had suggested a gradual lifting that will allow the partial resumption of public transportation and mall operations.

The coronavirus disease 2019 (COVID-19) has already sickened 6,259 as of Sunday, according to the Department of Health. The death toll has reached 409, while recoveries have risen to 572.

Mr. Diokno said in an interview with ABS-CBN News Channel that its latest move to include lending to micro-, small- and medium-scale enterprises (MSMEs) as part of banks’ compliance with reserve requirements could be equivalent to a cut of more than two percentage points in the reserve ratio.

The move was announced along with the latest 50-basis-point (bp) off-cycle rate cut from the central bank last week, barely a month since it reduced policy rates by the same magnitude in March.

This brought the overnight reverse repurchase, lending and deposit rates to record lows of 2.75%, 3.25% and 2.25%, respectively.

The BSP has already slashed rates by a total of 125 bps for this year, following the 75 bps in cuts in 2019. This means the BSP has completely reversed the 175 bps in hikes done in 2018.

Meanwhile, the central bank also reduced the reserve requirement ratio (RRR) for big banks by 200 bps in early April to 12%. Although it kept RRR for smaller thrift and rural lenders at four percent and three percent, the BSP shaved 400 bps off the minimum liquidity ratio (MLR) of stand-alone thrift, rural and cooperative banks to 16% until end-2020 to provide a liquidity boost for smaller lenders.

According to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, another ECQ extension will take a toll on businesses.

“For the hardest hit business sectors, every two weeks of lockdown extension is equivalent to about four percent of production or income lost on an annualized basis,” Mr. Ricafort said in a text message.

But this is not to say an extension should not be taken into consideration as this is meant to contain the outbreak that could have greater impact on the global economy if left unchecked, he said.

“This is also a dilemma faced by many countries around the world — in whether or not to extend lockdowns,” Mr. Ricafort said.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion is also of the view that a modified quarantine could be the “ideal” way to ensure economic recovery.

“A shift to some form of a modified community quarantine is most ideal to help jumpstart the economy, but a probable extension may prove essential as a form of premature uncoiling of current interventions may result in a resurgence of cases,” Mr. Asuncion said in a text message.

He cited data from the Organization for Economic Cooperation and Development which estimates that countries’ gross domestic product (GDP) could lose 2% for every month in lockdown.

“A total lockdown from March 15 to May 15 is equivalent to four percent GDP decline, much of the average GDP output of the Philippines in recent years. We are not even talking about unemployment here,” he said.

“A careful balance must be adopted to help restrain the virus and jumpstarting the economy.”

The Philippine economy grew 5.9% in 2019. Prior to the outbreak, the government targeted GDP growth of 6.5% to 7.5% this year.

As the pandemic continues, Finance Secretary Carlos G. Dominguez III has said the country may see flat or zero growth or as much as a one percent contraction in GDP. — Luz Wendy T. Noble
ECQ vs economy
By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:04 AM April 21, 2020

It has been said that containment policies like the enhanced community quarantine (ECQ) now on its sixth week “flatten the medical curve, but steepen the recession curve.” The implication is that there is a direct tradeoff between safeguarding public health and saving lives on one hand, and maintaining economic stability and protecting people’s economic well-being on the other. That is, the more we try to save lives from the pandemic, the deeper we are driving the economy down to ruin — and some argue that the cost to human lives could be worse.Economies have indeed been brought to a virtual standstill as most economic activities have been suspended, except for essential goods and services, and people are confined to their homes, allowed only a minimum of movement. The International Monetary Fund swung from an upbeat global economic growth forecast of 3.3 percent in January, down to a dramatically scaled down 0.6 percent, and now to a rather grim -3 percent — all in a matter of weeks, and with a caveat that this may still be too optimistic.

Until this latest pandemic struck, an economic standstill so widespread as to encompass the whole globe was beyond anyone’s imagination, and certainly unprecedented in the lifetimes of those living today. It’s so new and so strange to most of us, that many are still unable to fathom the profound impact it will have on our economy, and our lives. I’m surprised to hear some pundits boldly proclaim that the Philippine economy can still grow this year, even as larger and richer economies had already declared recessions even before the IMF came up with its latest prognosis. While I would love to be wrong on this, I just cannot see how we can still avoid a significant contraction of our economy this year, at the rate things are going. This means that incomes, output, and jobs will fall, and like it or not, a large segment of the Filipino population will suffer increased pain and hardship this year.

How deeply can the COVID-19 crisis impact our economy? I tried to do some quick arithmetic with the available data to get a clearer idea. The relevant questions to ask include: What industries are the main drivers of the economy, and providers of the most jobs, and how badly are these industries hit by the COVID-19 crisis? On the demand side, what and whose expenditures give the biggest impetus to produce goods and services in our economy, and how are these expenditures being hit by the crisis?

On a sectoral level, the top three that together contribute more than half of our GDP are manufacturing (23 percent); wholesale and retail trade and repair services (17 percent); and tourism industries (13 percent). All three are seeing deep declines, with production likely cut by at least half during the ECQ. Similarly hit deeply are construction and land, air and water transport. On jobs, the top five contributors are wholesale and retail trade; agriculture, hunting and forestry; construction; manufacturing; and transport and storage—all together accounting for 28 million jobs, or two-thirds of all workers. All except agriculture are likely to have seen more than half their workers idled, adding roughly 14 million to the 2 million already unemployed beforehand.

On the spending side, the biggest impetus to our GDP is household consumer spending, equivalent to 68 percent of our GDP. Investments on durable equipment make up 16 percent, followed by government consumption spending (12 percent) and construction spending (11 percent). Consumer spending will be dented by the displacement of hundreds of thousands of overseas Filipino workers and the corresponding fall in remittances. Other than government consumption spending that the social amelioration program has given a massive boost, investments in durable equipment and construction are also major casualties of the ECQ.

All told, my rough and conservative calculations point to GDP contraction that could range from -6 to -14 percent, depending on how many quarters inactivity persists. By the looks of it, we could be in for a recession we haven’t seen since the politically turbulent years following the Aquino assassination in the early 1980s. God help us.
BSP eyes ‘deeper’ policy rate cuts
April 13, 2020 | 12:33 am

THE central bank is looking at a “deeper cut” in interest rates to help cushion the economy from the impact of a “once-in-a-lifetime crisis” caused by the coronavirus disease 2019 (COVID-19) pandemic, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said ahead of a policy meeting next month.

He also signaled another cut in the amount of cash that banks need to hold as reserves to boost liquidity in the financial system.

“While BSP has cut the policy rate by 150 bps (basis points) since I assumed office last year, the Philippines is now faced with a once-in-a-lifetime crisis. It is now clear that reverting to where we were in 2018 — policy rate at 3.0% — is no longer an appropriate policy goal,” Mr. Diokno said in a text message to reporters on Sunday.

“A deeper cut is warranted in response to the expected sharp economic slowdown,” he said, noting that inflation is likely to settle closer to the lower end of the BSP’s 2-4% target this year.

The policy-setting Monetary Board (MB) has cut rates by a total of 150 bps since 2019, almost completely unwinding the 175 bps in hikes it implemented in 2018 amid multi-year high inflation.

Its latest move was 50-bp reduction on March 19, which brought the overnight reverse repurchase (RRP) rate — or the key policy rate — to 3.25% and overnight lending and deposit rates to 3.75% and 2.75%, respectively, in a bid to shield the economy from the virus fallout.

Headline inflation eased to 2.5% in March coming from the 2.6% in February and the 3.3% in the same month in 2019, mainly on the back of falling oil prices amid low demand due to COVID-19. This brought the year-to-date average to 2.7%, above the 2.2% expected by the BSP for 2020.

The Monetary Board will meet to discuss policy anew on May 21.

While noting that monetary policy works with a lag and that they will remain “data dependent,” Mr. Diokno said governments worldwide need to ensure a “soft landing” for their economies in the aftermath of the pandemic.

“The monetary authorities’ job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure that economic takeoff begins quickly once the pandemic fades,” he said.

“These new realities call for bolder but appropriate moves on the part of the BSP. The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system,” Mr. Diokno noted.

The central bank chief added that they will cut lenders’ reserve requirement ratio (RRR) further following the 200-bp reduction in universal and commercial banks’ RRR earlier this month as they seek to boost liquidity to support economic activity.

The Monetary Board last month authorized Mr. Diokno to cut RRR by a maximum of 400 bps for the year, with potential cuts in the reserve requirements for other banks and nonbank financial institutions also to be explored.

“[T]he additional 200 bps cut is forthcoming based on available data, the needs of the economy, and the utilization of the additional liquidity,” he said.

Mr. Diokno earlier said the 200-bp cut freed up some P180-200 billion in liquidity.

The reserve ratios of thrift and rural banks are at four percent and three percent, respectively. However, the minimum liquidity ratio for stand-alone thrift, rural and cooperative banks was cut by 400 bps last week to 16% until end-2020 to boost their buffers amid the disruptions caused by the pandemic.

Before the COVID-19 outbreak, Mr. Diokno had vowed to reduce big banks’ RRR to the single-digit level by the end of his term in 2023.

Analysts said a more aggressive reduction in both benchmark interest rates and banks’ RRR will help ensure the country’s recovery after the crisis.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said further monetary easing will be in line with aggressive moves by central banks worldwide amid the pandemic.

“There is no better time than now to further cut interest rates and RRR to also complement the record programs versus COVID-19 to better deal with the economic losses especially in providing aid to vulnerable sectors as well as to prepare the economy for a rebound,” Mr. Ricafort said in a text message.

Security Bank Corp. Chief Economist Robert Dan J. Roces said Mr. Diokno’s signal is a “proactive stance” amid easing inflation that also factors in the transmission lags of monetary policy.

“[I]nflationary tendencies from cuts may be absent on the back of low oil prices which may offset any price repercussions,” Mr. Roces said in a text message. “[W]e can hit the ground running in terms of recovery after ensuring that the economy is adequately capitalized.”

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said lower interest rates will help the economy during this crisis even as he warned that this could take a toll on the peso, noting that adjustments can wait until a “soft landing” is reached.

“The peso has been attractive because of its spread between inflation and the existing policy rate. If the RRP is further cut, the peso may not be the same as it is perceived by the market now,” Mr. Asuncion said in a text message.

“[The] BSP has the careful task of continuing to smoothen the volatility of the peso after further rate cuts,” he said. “It’s a difficult balancing act. We may win or lose, but we do not have many policy choices at this point.”

Finance Secretary Carlos G. Dominguez III said last week the country’s gross domestic product (GDP) will likely post flat growth or even shrink by as much as one percent this year, as economic activities in Luzon remain at a standstill due to the Luzon-wide enhanced community quarantine (ECQ) that will last until April 30.

The estimated 1% contraction in GDP is lower than -0.6% to 4.3% growth range seen by the National Economic and Development Authority (NEDA) prior to the extension of the one-month lockdown.

NEDA last month said the low end of its growth estimate for this year, a contraction of 0.6%, is “still too high” if the ECQ is extended beyond one month “or if the spread of COVID-19 is unabated even after the ECQ.”

This compares to the 5.9% GDP expansion in 2019 and the 6.5-7.5% growth target set by the government for this year.

COVID-19 cases in the country reached 4,648 as of Sunday, with 297 casualties, according to the Department of Health. Recoveries totaled 197. — L.W.T. Noble
Peso gains as BSP boosts small banks’ liquidity
April 8, 2020 | 5:56 pmFacebookTwitt

THE PESO appreciated against the greenback on Wednesday before the Holy Week break on the back of positive sentiment due to the central bank’s move to boost liquidity and amid lower coronavirus disease 2019 (COVID-19) infections in some countries.

The local unit ended trading at P50.585 per dollar on Wednesday, rising by 9.5 centavos from its P50.68 close on Tuesday, according to data from the Bankers Association of the Philippines.

The peso was also stronger by 29.5 centavos versus its P50.88 close last Wednesday and by 13.5 centavos from its Friday finish of P50.72 per dollar.

The currency opened Wednesday’s session at P50.60 per dollar. Its weakest showing was at P50.695 while its strongest was at P50.58 against the greenback.

Dollars traded increased to $521 million from $455.9 million on Tuesday.

A trader said the peso’s strength continued its recent trend of appreciation on the back of the Bangko Sentral ng Pilipinas’ (BSP) announcement of a cut in the minimum liquidity ratio for smaller banks.

“The strengthening was more of a continuation of the trend of peso’s strength. A little bit of risk on for us because there was a recent announcement for liquidity ratio cut for thrift banks so it’s a bit of easing so it’s a positive for peso,” the trader said in a phone call.

The BSP slashed the minimum liquidity ratio (MLR) requirement for smaller lenders to 16% from 20% until end-2020 to boost the war chests of thrift, rural and cooperative banks amid the extended lockdown in Luzon.

“The BSP recognizes that the COVID-19 outbreak and community quarantine implemented to combat the spread of the disease has elevated the liquidity risk exposures of banks arising primarily from higher demand for funds by depositors, borrowers or both,” BSP Governor Benjamin E. Diokno said in a memorandum dated April 7.

Earlier, the central bank cut universal and commercial banks’ reserve requirement ratio by 200 basis points to 12% effective on April 3.

Meanwhile, another trader attributed the peso’s gains to global optimism amid what seemed like a plateau in the number of infections in some virus hotspots, as well as some profit taking before the two-day break.

“The peso appreciated from prevailing market optimism that coronavirus-related cases are already plateauing in major global hotspots. There was also some cautious profit taking ahead of possible coronavirus developments during the Holy Week break,” the second trader said in an e-mail. — LWTN
SRA seeks intervention as sugar price falls
Published April 3, 2020, 10:00 PM
By Madelaine B. Miraflor

The Sugar Regulatory Administration (SRA) had sought interventions from the national government after the price of sugar dropped by P200 per 50-kilogram bag in the span of two weeks.

“We recently saw an abnormal price drop, in some cases as big as P200 in just two weeks, and before this gets worse, we are appealing for immediate intervention from the national government,” SRA Board Members Emilio Yulo and Roland Beltran said in a joint statement.

Yulo represents the planters in the SRA Board, while Beltran represents the sugar millers.

The two officials said Land Bank of the Philippines (LandBank) and other government financial insti-tutions must step in and provide quedan financing to the local sugar industry.

“We are afraid that the drastic drop in sugar prices will cause a disastrous effect in the long term period,” the SRA Board members said.

“We are still at the height of the milling season and with the good weather, many sugar producers are taking this opportunity to harvest their sugar canes but many are afraid that if the trend of prices col-lapsing will continue, the producers will not have anything left to even think of planting for the coming crop year,” they added.

Figures from Victorias Milling Company, one of the major sugar producers in the Philippines, showed that two weeks ago, sugar price was at the ₱1,560 to ₱1,580 per 50-kilogram bag. This week, the price fell to ₱1,375 per 50-kilogram bag, which is just equivalent to the cost of producing the sweetener.

Yulo and Beltran said vast majority of the industry’s stakeholders who are small planters and agrarian reform beneficiaries, which comprise about 92 percent of sugar producers, will not be able to survive this loss, especially during the national health crisis brought about by the coronavirus disease 2019 (COVID-19).

According to them, LandBank, through the intercession of Agriculture Secretary William Dar, should immediately help address this issue through quedan financing at very minimal interest rates.
The other day, SRA pushed for the distribution of financial assistance for sugar mill workers that were displaced due to the lockdown placed over Luzon.

In a resolution signed by Yulo and Beltran, the agency’s management has been requested to draft and present a national COVID-19 plan within a week.

The plan, according to them, must include the allotment of fund for a ‘pantawid’ assistance for the thousands of displaced sugar mill workers to help them tide over the lockdown.

Because of the ECQ, which shutdown public transportation and established police checkpoints in various areas in the region, each sugar mill currently operates with only 25 percent of its workforce.

The word on the street is that SRA Administrator Hermenegildo Serafica has not yet met with the SRA Board for the primary purpose of coming up with measures that would help the industry sector and its players cope with the COVID-19 pandemic.

Meanwhile, Yulo and Beltran’s resolution is also pushing for the procurement of Personal Protective Equipment (PPES), alcohols, and other disinfectants for the use of SRA frontliners as well as donation to centers and hospitals in the sugar producing areas.

The resolution also wants SRA to procure surgical masks for distribution to marginalized farmers, Agrarian Reform Beneficiaries (ARB) communities, marginalized small farmers, and laborers.
BSP outlines additional relief measures for banks

THE CENTRAL BANK is giving additional regulatory to financial institutions, including the imposition of a higher single borrower’s limit (SBL), removing penalties for reserve deficiencies, and providing leeway for some notification requirements amid disruptions caused by the coronavirus disease 2019 (COVID-19).

“The measures ease certain BSP (Bangko Sentral ng Pilipinas) regulatory requirements governing banking operations for the duration of the enhanced community quarantine and one month thereafter,” BSP Deputy Governor Chuchi G. Fonacier said in a memorandum signed on March 19.

“The period of eligibility may be extended depending on the developments related to the COVID-19 situation,” she added.

First of the measures is the hike in big banks’ SBL to 30% from 25% for a period of six months. The SBL helps banks manage their exposure to borrowers.

The BSP will also relax maximum penalty impositions for reserve deficiencies.

According to Ms. Fonacier, the maximum penalty the BSP can impose will be the rate on the overnight lending facility, which is currently at 3.75%, plus 50 basis points.

Banks can be exempt from the maximum penalty “provided that the maximum reserve deficiency of the BSP-supervised financial institution (BSFI) shall be 200 basis points above the reserve requirement.”

The reserve requirement ratio (RRR) of universal and commercial banks is at 14% and four percent and three percent for thrift and rural lenders, respectively.

Ms. Fonacier said they will also give banks some leeway in their notification requirements, such as in letting BSP know of a change in their banking hours and the temporary closure of some of their units in light of the Luzon-wide enhanced community quarantine (ECQ).

“A bank need not to inform the BSP of changes in its banking hours, as required under Section 108 of the Manual of Regulation for Banks, during the ECQ period,” Ms. Fonacier said.

However, BSFIs will be required to submit consolidated reports on the temporary closure of their bank branches on or before June 30.

The BSP will likewise postpone the deadline for required reports from BSFIs that have deadlines from March to May, except for the Financial Reporting Package for Banks, the Consolidated Foreign Exchange Position Report, as well as event-driven report requirements and reserve requirement-related reports.

Moreover, lenders will also be given a grace period to comply with BSP supervisory requirements with deadlines prior to March 8. These reports can be submitted until end-June.

Sought for comment, Rizal Commercial banking Corp. Chief Economist Michael L. Ricafort said the said relief measures will help banks during this period.

“These regulatory relief measures specifically the higher SBL and relaxed maximum penalty for reserve deficiencies will effectively give banks greater leeway to further increase lending to different borrowers such as businesses, consumers, and other institutions,” Mr. Ricafort said in an email. — L.W.T. Noble
Gov’t pulls plug on Land Bank subsidiary formed for agri inputs
By: Ben O. de Vera - Reporter / @bendeveraINQ
Philippine Daily Inquirer / 03:27 PM March 11, 2020

The Governance Commission for Government Owned or Controlled Corporations (GCG) has deactivated the Land Bank of the Philippines’ subsidiary, Masaganang Sakahan Inc. (MSI), while awaiting orders from President Rodrigo Duterte to finally abolish the state-run firm.

The interim deactivation of MSI was approved by GCG Chair Samuel G. Dagpin Jr., Commissioners Michael P. Cloribel and Marites C. Doral, and ex-officio Land Bank officers Finance Secretary Carlos G. Dominguez III and Budget Secretary Wendel E. Avisado last Feb. 20.

MSI’s deactivation meant it cannot enter into any contracts or transactions anymore or receive any corporate operating budget from the national government.

Mandated by Republic Act No. 10149, or GOCC Governance Act of 2011, MSI was “deemed under evaluation for formal abolition.”

The GCG had already recommended MSI’s abolition to the Office of the President in 2017.

In 2017, the GCG deemed MSI was just a duplication of other government agencies and was “not producing the desired outcomes.”

MSI, the GCG continued, is “no longer achieving the objectives and purposes for which it was designed.”

“MSI’s functions and purposes are no longer relevant,” the GCG added. MSI, it said, is “no longer consistent with the national development policy of the state and its activity is best carried out by the private sector.”

The GCG also found MSI to “not cost-efficient and does not generate the level of social, physical and economic returns vis-a-vis the resource inputs.”

Land Bank’s governing board, chaired by Dominguez, in 2019 passed a resolution rendering MSI inactive or nonoperational.

MSI was established in 1974 as a wholly-owned subsidiary of Land Bank. Its main purpose was acquire, operate, maintain, lease, sell and deal in agricultural equipment and farm machinery, implements and tools. MSI was supposed to make these available to farmers and land reform beneficiaries.
Men and machines
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:05 AM March 10, 2020

In January 2012, the Labor Force Survey counted 12.190 million employed Filipino agricultural workers. In January 2019, there were only 8.847 million. Within that seven-year period, the number had gone down successively to 11.049 million in January 2015, and 10.034 million in January 2017. There was, in short, a steady decline in agricultural workers in the country over the past seven years or so. If you’ve heard it said that people don’t want to work in the farms anymore, there’s the clear proof.

It’s not because agriculture declined all through that time. The sector actually grew in those seven years at an average rate of 1.3 percent per year—and yet, the number of workers in the sector declined by 3.343 million. The bright side is that farmworkers have become more productive. Even as the number of workers actually declined by 27.4 percent, farm output grew 11.1 percent within that period. But the bad news is that rural workers are indeed turning away from agriculture in droves, putting to question the future of our farm sector, hence our ability to feed ourselves—unless we can replace the leaving workers with farm machines that could offset the dwindling labor.

But wait—wasn’t the Comprehensive Agrarian Reform Program (CARP) supposed to help farmers own the land that they tilled, so that they could more productively farm it, earn larger incomes for their families, lift themselves out of poverty, and encourage their children to sustain their farms? That was in fact the whole idea, but it seems that things didn’t quite work out that way—and there are many reasons why.

The most important, it seems to me, is that against expectations, owning their farmlands didn’t make it any easier to borrow money from the banks, after all. While the agrarian reform beneficiaries (ARBs) now had their farmlands as a bankable asset, banks refused to take them as loan collateral, again for various reasons, including fear of being “CARPed,” too if they accumulated too much land from loan defaults. And when they ended up holding farmlands from defaulting borrowers, they found the properties very hard to sell, as CARP all but killed rural land markets. There were many restrictions on land disposition by ARBs, while the only people who had the money to buy lands—the original landowners—could not legally buy them back (although that didn’t stop them). Without loans, farmers on their own couldn’t make their farms productive, found themselves constantly in need of cash, and pushed them into occupations that would assure them of some cash every day. That is, in fact, too common a story I am encountering in the countryside: An ARB leases off his land, buys a motorcycle with the proceeds, and chooses to work as a habal-habal or tricycle driver instead—and with him is lost another farmworker.

Machines are indeed slowly but surely taking over our farms. They come in many forms: traditional four-wheel tractors or smaller hand tractors to till the land; “halimaw” combine harvesters that harvest and thresh palay in one operation; reapers that cut sugarcane stalks as they pass through the cane field; mechanical “grabbers” that load cut cane into trucks; and so on. The machines have created demand for a new kind of skill on the farms: that of operating these farm equipment. They have now also added a measure of “glamour” to farm jobs, I am told—and hence help keep those farmworkers from leaving.

But there’s a little problem: There still are not enough of them out there who can readily operate, run and fix the whole array of farm machines we’re now seeing. Apart from helping make farm machinery more accessible via duty-free importation, machinery rental pools to serve smallholder farms, and special equipment loan programs, government can also help with training programs on farm equipment operation and repair. These need not be as rigorous as the usual skills development courses of the Technical Education and Skills Development Authority, and can be easily rolled out in the countryside.

Are we finally at the doorstep of Philippine farm modernization? It’s beginning to feel like it. I just hope that government doesn’t blow it this time.
Gov’t bank launches 7 loan programs to help farmers
Philippine Daily Inquirer / 04:11 AM February 24, 2020

In response to the worsening plight of local rice farmers brought by plummeting palay prices, state-owned Land Bank of the Philippines has introduced seven new agri-lending programs in partnership with the Department of Agriculture (DA).

LandBank president and CEO Cecilia Borromeo said the new lending facilities were the bank’s direct response to the rice crisis and would “help address the specific requirements of the various players in the agriculture sector.”

The new lending programs are: PAlay aLAY sa Magsasaka ng Lalawigan, Expanded Survival and Recovery Assistance Program for Rice Farmers, Rice Farmer Financial Assistance Program, Accessible Funds for Delivery to Agrarian Reform Beneficiaries, Sulong Saka Program, Sustainable Aquaculture Lending Program, and the Greenhouse Farming System Financing Program.

These programs, with varying funding allocations totaling billions of pesos, would assist rice-producing provinces in procuring palay produced by their local farmers as well as in acquiring farm machinery and postharvest facilities.

There will also be conditional cash transfers and credit assistance to farmers tilling one-half to two hectares of land.

As of Feb. 3, 5,822 LandBank cash cards totalling more than P29 million in cash assistance have been distributed to rice farmers in Pangasinan, Ilocos Norte, Neuva Ecija, Zamboanga del Sur, North Cotabato, Bataan and Pampanga.

Three of the new programs will also promote the production of high-value crops, mariculture and aquaculture, and will provide financial assistance to cooperatives and agrientrepreneurs who would like to shift to modern farming by adopting greenhouse farming technologies.

These are on top of the annual P10-billion rice competitiveness enhancement program under the rice tariffication law and complement DA’s own rice programs.

The huge funding for the rice industry came as local rice farmers continued to call on the government for help as palay prices have yet to recover from a major slump that started in January 2019.

In several studies conducted by state-run agencies such as the Philippine Institute for Development Studies and the Philippine Rice Research Institute, they reported that farmers have already lost billions of pesos in palay revenues following the influx of imported rice in the market. —Karl R. Ocampo INQ
Drags and drivers in 2020
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:30 AM February 21, 2020

The year 2020 started with a series of jolts to weigh the Philippine economy down in the very first month. The US-instigated assassination of Iran’s top military leader brought the specter of new volatility in the Middle East, and yet another episode of destabilizing oil price hikes. The British formalized their country’s exit from the European Union, bringing renewed apprehensions on its international economic repercussions. Out of China has come the COVID-19 virus that is poised to crimp growth prospects in our own tourism and manufacturing sectors, among others.

Here at home, Taal Volcano’s eruption has caused substantial damage to crops, livestock and fisheries, and disrupted manufacturing operations in the country’s most industrialized region of Calabarzon. Meanwhile, President Duterte’s intensified attacks on major business entities have sent chills down the spines of domestic and foreign investors at a time when total investment growth in the country had already ground down to a near halt. This follows years of double-digit investment growth, and three years of successive slowing down in the overall economy’s growth.

These first-month jolts came on top of longer-standing drags on our economy that have already been taking a toll in recent years. Our perennially underperforming farm sector has remained sluggish, growing persistently more slowly than our population does, implying that agricultural production per capita has continuously declined over the years. The trade war that US President Donald Trump has waged against China has already severely diminished overall world trade, and slowed global economic growth. While the Philippines’ weak export sector relative to our economic peers has softened the impact of the world slowdown on us, the trade war’s dampening effect on our manufacturing sector’s growth has been unmistakable. Its toll on our human resource exports is also seen in slower growth in deployment of overseas Filipino workers, and similar slowdown in inward income remittances from the rapid growth of yesteryears.

As if the slowing down of foreign exchange inflows through goods and services exports, inbound tourism and remittances were not enough, foreign direct investment (FDI) inflows have actually declined for the second year in a row. Last year’s cumulative decline of 32.8 percent as of October was a far steeper fall than the previous year’s 4.9 percent decline, and yet most of our neighbors continued to enjoy growing FDI inflows. The implication is clear: something of our own doing is making us attract less of those job-creating investments, even as the trade war created a window to attract fleeing investments from China, with neighbors like Vietnam cashing in. Part of the problem could be the demonstrated low absorptive capacity of our government infrastructure agencies tasked to push the ambitious infrastructure buildup that the government has embarked on.

All these notwithstanding, the Philippine economy possesses certain long-standing and recent strengths and opportunities that could be harnessed to help drive growth in the year ahead and beyond. Ours is an abundant and relatively young labor force, an advantage that will persist in coming decades owing to a persistently higher fertility and population growth rate relative to our comparable peers. Coupled with an abundance of human resources is our also peculiar abundance of natural resources: great biodiversity, fertile soils, rich inland and maritime fisheries, and a higher preponderance of minerals in the ground. Our macroeconomic fundamentals are solid, built over past administrations’ careful and skillful monetary and fiscal management. Formalization of the Bangsamoro Autonomous Region in Muslim Mindanao paves the way for potential economic dynamism in the erstwhile lagging region. Opportunities from greater economic cooperation and integration in our part of the world remain largely untapped. And “Build, build, build” can yet be the great economic boost it was meant to be, if and once we sort out the implementation bottlenecks plaguing us.

Our list of drags may dominate our list of drivers, but we enter 2020 hoping for the best.
Cloudy crystal balls
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:05 AM February 04, 2020

With the January 2020 update of its World Economic Outlook, the International Monetary Fund (IMF) officially downgraded its original global economic growth forecast for 2019 for the sixth time in as many quarters. From its original bullish forecast of 3.9 percent for 2019 global GDP growth issued in early 2018, IMF had lowered this to 3.7 percent by October 2018, to 3.5 percent by the start of last year, further down to 3.3 percent in April, 3.2 percent by July and 3.0 percent by October. Now they say it will be only 2.9 percent, a full percentage point below their original forecast — and the jury is still out. It won’t be until April when the actual final figure based on complete 2019 data will come out. If it’s any indication, the final growth figure for 2018 released in April 2019 ended up still lower than their last revised projection in January 2019.

Casual onlookers could easily lose faith in economists’ forecasts, seeing how the otherwise authoritative institution’s crystal ball seemed to be cloudy and unreliable this past year, prompting a changing forecast with every passing quarter. To be fair, unexpected events in 2019 gave even the best-equipped economists a hard time projecting economic growth. The IMF blamed the repetitive downscaling of growth projections on the unpredictability of the US-China trade war, with each move and countermove of the protagonists, hence their global economic implications, extremely difficult to anticipate. In the first place, US President Donald Trump was never guided by solid economic reasoning in waging the war, so economists were not the best predictors of his successive moves in the high-stakes gambit with China.

Americans are far from alone in the unpredictability of their leader and surprise moves he can make with potentially drastic economic consequences, positive or negative. On our side of the ocean, we have a President whose words and actions often also appear to defy logic, while having potentially strong impacts on business and the economy. Misplaced verbal attacks against certain business entities, and threats to retaliate with far-reaching measures for the cancellation of one favored senator’s US visa, are just two recent examples that cloud many an economic forecaster’s crystal ball.

But then again, economic forecasting has never been an exact science. Predicting economic outcomes, especially numbers for economic variables like GDP growth and inflation and unemployment rates, is often little more than educated guesswork. Now, at the start of the year 2020 — ironically a number that connotes clarity of vision — the outlook for the economy is anything but clear, even to the most seasoned economist.

We in the Philippines, in particular, are off to a bad start, having already been buffeted in the first month alone by a succession of external and internal negative events that will exert a drag on the economy in the year ahead: new volatilities in the Middle East triggered by the US assassination of a top Iran military leader, the spread of the novel coronavirus, the final sealing of Brexit, the eruption of Taal volcano, and President Duterte’s chilling diatribes against certain large business entities. There will surely be more as the year unfolds. The magnitude of economic impact of each taken alone is impossible to predict with any accuracy; what more when one considers that interactive forces across the various effects could compound their combined impacts.

What could provide the offsetting upside to the economy in 2020 and beyond? Foremost would be government’s ambitious infrastructure push, to the extent that earlier implementation bottlenecks experienced could finally be overcome. But there remains much uncertainty on this, due to emerging limitations in human and physical resources (e.g., availability of construction materials like cement and steel, and of engineering equipment) so vital to its execution.

What’s in store, then, for the Philippine economy in 2020? I and any economist could give best educated guesses on the numbers for the key indicators. But with the IMF’s own experience last year, I doubt anyone would be willing to bet on them.
50 richest Filipinos: Share-the-wealth challenge
By: Eddie Ilarde - @inquirerdotnet
Philippine Daily Inquirer / 05:01 AM January 26, 2020

Some years back, American economist and former director of The Earth Institute of Columbia University Jeffrey Sachs wrote an article about what he called “the ability to improve the world through transformative philanthropy”—that if today’s billionaires were to pool their resources, “they could outflank the world’s governments in ending poverty and pandemic disease.”

He named John D. Rockefeller, Bill and Melinda Gates, Warren Buffet, Carlos Slim Helu, Lakshmi Mittal and George Soros, among others, who, on their own initiative—by sharing a part of their wealth—have succeeded in fighting disease, poverty and other areas of human concerns such as the “eradication of hookworm in the US, the development of the yellow fever vaccine, elimination of malaria-transmitting strain of mosquito in Brazil, funding the Asian Green Revolution, etc.”

Bill and Melinda Gates, for example, have sufficiently funded “the extension of basic health care to the poorest in the world to end the pandemics of AIDS, TB and malaria, and address the crying need for safe drinking water for 1 billion people.”

There are 2,153 billionaires in the world today.

That includes 50 in this country as named by Forbes magazine, among them Manuel Villar, the Sy siblings, John Gokongwei Jr., Enrique Razon Jr., Jaime Zobel de Ayala, Lucio Tan, the Campos siblings, Ramon Ang, the Consunji siblings, the Ty siblings, etc.

The Sy siblings lead the pack, and Menardo Jimenez is at No. 50. They are in various kinds of businesses: construction, power generation, hotels, restaurants, banking, media, pharmaceutical, insurance, property development, retail, etc.

The SM group, for example, owns the biggest bank in the country and “over 200 companies in the Philippines, including 73 shopping malls plus another six in mainland China.”

Our research is still incomplete as to how many high-rise condominium and office buildings they have and how big their real estate properties are.

It can be mind-boggling when we include the other billionaires’ massive holdings, which can make people suspect that this country’s reputed poverty is fake.

Improving the world through philanthropy has been proven to be doable, with generous rich people willing to share their wealth with the less fortunate.

Can it be done here?

Who among the 50 shall step forward and show courage and magnanimity?

It would be surprising, historic even, if this challenge is accepted, however grudgingly; it shall be an event never seen before in this country—the “callous rich” finally showing sparks of patriotism and concern for the less fortunate through the proposed mechanism below:

A “Philippine Alliance for Humanity” is organized, initially with four founding members—persons of probity and proven honesty—who renounce in writing the will to earn from such an endeavor.

Five additional members from the Big 50 (or their authorized representatives) complete the membership to nine, to form the core of the alliance or foundation.

It is hoped that the rest of the 50 will cast away suspicion and distrust and support the alliance, with monthly donations direct to designated banks.

No one can touch the money as stipulated in the Securities and Exchange Commission-approved papers, except only upon the authority of the majority of the nine members, who shall decide where to spend the money and when the money can be withdrawn.

Depository banks shall post in all their branches or publish weekly the existing balance of the charitable fund.

The initial goal of this social entrepreneurship program is to build: (1) evacuation centers, (2) rain catchment minireservoirs in barangays without safe drinking water, and (3) senior citizens’ health centers, following the lead of President Duterte’s “Build, build, build” program for economic and industrial prosperity.

Thus, the “Philippine Alliance for Humanity’s” money pool is philanthropy that will go to building urgently needed infrastructure for the health, security and safety of the people. How about it, good sirs and madames?

Believe! “Charity shall cover the multitude of sins.” (I Peter 4:8)
Taal’s fury and the economy
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:07 AM January 17, 2020

So early in the year, we are beset with a major natural disaster yet again. Two major typhoons just ruined the Christmas season for large numbers of our fellow Filipinos, and now this—and the disaster isn’t even over. A major explosive eruption is still anticipated from Mt. Taal as of this writing, and based on the nature of the expected “magmatic” versus the recent “phreatic” or steam-induced eruption, it could well be that the worst is yet to come. What do all this hold for Filipinos in general?

The question I tend to get asked as an economist is what impact Taal’s eruption would have on our economy. People seem to be after a number that measures the impact, with interest usually on economic growth, especially given the ups and downs our gross domestic product (GDP) growth has seen in the past year. But it’s actually a misplaced question because GDP is hardly the right yardstick for assessing the cost of calamities, even taking “cost” in its narrow economic sense—and we all know that the negative effects are much more than economic. There’s no question that the economic costs could be staggering. Damage to crops and food production alone would run into the hundreds of millions, possibly billions, of pesos. Earlier this week, the Department of Agriculture put out the number P577.59 million as an estimate (with remarkable precision) of crop damage. But damage to lives, property and infrastructure is likely to be far beyond that, and the orders of magnitude involved are anyone’s guess.

The true extent of economic costs alone cannot be readily seen in the GDP data that official statistics will report later. This is because the GDP data will count the remedial economic activities that will be spurred by the calamities along with those that have been curtailed by it, showing why GDP should never be looked at as a measure of well-being. Higher GDP does not imply more happiness, and more misery can in fact be associated with higher GDP. It’s perfectly possible, even likely, that the value of economic activities in disaster remedial measures would more than offset the reduction in regular economic activities, such that a net positive effect on GDP could actually result. For example, I’ve checked the data for the periods corresponding to past major typhoons “Ondoy” (September 2009) and “Sendong” (December 2011), and the Habagat floods (August 2012). As I suspected, GDP growth actually speeded up in the aftermath of those calamities!

Much of the economic activities spurred by disasters lie within the part of the economy called the informal sector, better known as the “underground economy,” because transactions therein are not captured in official statistics. During such calamities and in their aftermath, many economic activities not seen in more normal times tend to flourish. In past instances of prolonged flooding, for example, “water taxis” and toll footbridges sprouted all over. In the aftermath of Ondoy in 2009, I remember seeing ads for inflatable boats and rafts coming out in the papers, hinting the emergence of a growing industry in small-scale water transport—over floodwaters.

Carpenters and construction workers suddenly find themselves in great demand for home repairs. Enterprising groups and individuals have offered home clean-up and recovery services for hire. I even saw ads for restoration of precious photographs damaged by floodwaters. Vehicle repair services in both the formal or informal sector suddenly find great demand for the thousands of motor vehicles submerged in floodwaters, and now, damaged by ashfall. And then there are the substantial economic activities associated with respiratory and other illnesses and deaths, from sales of common medicines to funeral services. The list goes on and on.

All told, every natural calamity is different, with their own peculiar impacts on the economy and people’s well-being. The last similar disaster we had was the 1991 eruption of Mt. Pinatubo, but the geography of Mt. Taal makes its eruption very different from Pinatubo’s. Putting any number to the economic impact of Taal’s eruption at this time would be nothing more than speculation, even irresponsible.
Widening and narrowing gaps
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:05 AM January 14, 2020

Good news: Inequality among countries has improved, as poor countries have managed to narrow their gap with the rich ones in recent decades. Bad news: Income inequality within individual countries has generally worsened. Good news (for us): The Philippines has been an exception to this, with evidence showing income gaps to have narrowed since 2000. Poverty incidence has also lately declined faster than it has in decades, especially after it actually increased in the last.

The government think tank Philippine Institute for Development Studies’ (PIDS) recent “Understanding the New Globalization” report discusses and documents these trends. While rising average incomes with associated improvement in various measures of health and well-being have been generally observed worldwide, what has been deeply contested, PIDS notes, is the fairness and inclusiveness of humanity’s progress. Since the 1980s and 1990s, disparities in average incomes across countries have been observed to decline, with rapid economic growth in China and India having been dominant drivers of this positive change. However, the pace of catch-up is observed to have faltered after the 2008 global financial crisis.

More disturbing is the way income inequality has been worsening within large or small economies alike. PIDS notes that in 2016, the richest 10 percent of households captured over 40 percent of national income in the case of China, India, Russia, and United States-Canada, while this share was 35 percent or below in all these regions in 1980. Meanwhile, the share of the bottom 50 percent remained unchanged at 9 percent. The report also notes that the share of economic growth captured by the top 10 percent worldwide is 57 percent, whereas the bottom 50 percent of the world population received only 12 percent. All these imply that the richer segments of society have captured the bulk of the gains of economic growth.

What is it about the new globalization that is driving the trend toward greater inequality? PIDS cites four key factors: greater capital mobility, technological change, changing labor market institutions, and financial deepening. The easier flow of capital across borders has made it easy for companies to “export” lower-skilled jobs via foreign direct investments from rich to poorer countries where wages are low, taking jobs away from lower-skilled workers in the origin country. At the same time, machines and increasingly sophisticated software continue to take jobs away from workers everywhere. The resulting labor surpluses have induced greater flexibility in the labor markets, with low-skilled workers put at a disadvantage with greatly reduced bargaining power. Meanwhile, innovations in finance have tended to benefit households already with higher incomes, as there are high transaction costs in dealing with diverse “bottom of the pyramid” households with generally lower levels of education and access to markets.

Interestingly, the Philippines has defied this general trend seen elsewhere. In our case, data show that income distribution has actually been improving, with the share of the richest one-fifth (20 percent) of Filipinos having fallen from 54.8 percent in 2000 to 45.5 percent in 2015. At the same time, the income shares of the lower 80 percent increased from 45.2 percent to 54.5 percent in the same period (look up FIES data). The poorest 30 percent increased their share of national income from 7.9 to 12.5 percent.

Hard to believe? The bulk of this improvement actually happened after 2010, when the economy found new dynamism from a combination of factors that included a more open, hence more competitive, economy; better business confidence that led to hiked rates of job-creating investment; and improved government finances that led to greater economic stability. The gains have transcended the Aquino and Duterte administrations, and show what could be achieved with sustained economic growth, which has averaged 6 percent and above for eight consecutive years now, and counting.

The challenge for us, then, is to sustain our economy’s growth momentum, with more growth coming from agriculture and manufacturing, which could create the most jobs.
Ex-officials of closed rural banks convicted
January 6, 2020 | 12:01 am

OFFICIALS of closed rural banks in Visayas have been convicted on charges filed by the Bangko Sentral ng Pilipinas (BSP).

Former bankers from the defunct Rural Bank of Badiangan (Iloilo), Inc (RBBI). and Rural Bank of Sebaste (Antique), Inc. (RB Sebaste) have been found guilty of fraudulent bank transactions.

“The cases stemmed from a criminal complaint filed by the BSP’s Office of Special Investigation against the three RB Sebaste officers for their participation in the creation of fictitious loans aggregating to about P63 million as of March 2007,” the BSP said in a statement on Friday.

The BSP found that the said bogus loans were included in the lender’s financial statements and reports, making it look as if the bank was in sound financial state.

“The bank, however, was actually incurring huge operational losses and was unable to pay its liabilities as they become due in the normal course of business. The bank also had insufficient assets to meet its liabilities,” the central bank said.

A decision by the Regional Trial Court of Culasi, Antique dated July 9 found former RB Sebaste chairman and president Eugene T. Estrella guilty on eight counts for violating the General Banking Law of 2000 due to fraudulent transactions. Because of this, he was sentenced to two years of imprisonment for each count.
Moreover, Mr. Estrella, together with RB Sebaste’s former director Luis T. Estrella, Jr., were also found guilty by the Municipal Trial Court of Kalibo, Aklan on seven, four, and two counts of falsification of public documents, respectively.

The Kalibo court also sentenced the three bank officials to minimum imprisonment of six months and one day to a maximum of two years, four months, and one day. They were also slammed with fines of P1,000 for each count.

Meanwhile, three officers from RBBI were convicted by the Regional Trial Court of Iloilo City for 20 counts of violation of the General Banking Law of 2000 also on the grounds of fraudulent transactions.

In its decision dated Sept. 18, the court sentenced RBBI’s former chairman, president and manager Bella A. Buscar, as well as Cynthia A. Taconloy and Leni A. Abordaje, who were loans and savings clerks, to imprisonment of two to four years for each count.

It was in 2016 when the BSP filed a criminal complaint against the three persons for defrauding clients by soliciting deposits but willfully omitting said transactions in the books of the bank.

“Investigations revealed that high interest rates were offered to entice the public to make such deposits,” the central bank said.

In Aug. 24, 2007, the Monetary Board placed the RB Sebaste under the receivership of the Philippine Deposit and Insurance Corp. The same fate happened to RBBI on July 5, 2012.

“In line with its mandate to promote financial stability, the BSP continues to foster high standards of governance and risk management among institutions it supervises,” the central bank said. — L.W.T. Noble
Agri-agra loans grow 11% to P714 billion in 9 Months
Lawrence Agcaoili (The Philippine Star) - January 3, 2020 - 12:00am

MANILA, Philippines — Loans extended by Philippine banks for agriculture and agrarian reform recorded a double-digit growth of 10.8 percent to P714.27 billion from January to September 2019 compared to P644.64 billion in the same period in 2018, but the figure remained below the threshold mandated by the law.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed the banking system was only able to allocate 12.9 percent of its total loanable funds during the nine-month period last year, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries.

According to the BSP, the loans extended by banks to the agriculture sector amounted to P653.65 billion, for an 11.8 percent compliance ratio, which is below the required 15 percent.

The central bank said big banks or universal and commercial banks registered a compliance ratio of 11.8 percent after extending P615.92 billion to the agriculture sector, while the ratio of thrift banks only reached 7.23 percent after granting P18.25 billion.

Rural banks extended P19.49 billion to the agriculture sector for a compliance ratio of 22.4 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P60.84 billion for a compliance ratio of 1.1 percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.95 percent, while that of thrift banks settled at 0.93 percent as well as rural and cooperative banks with 10.34 percent.

BSP Governor Benjamin Diokno said the priority legislative measures the central bank is pursuing under the 18th Congress include reforms to agricultural financiing that seek to amend the Agri-Agra Reform Law and allow banks to merge their loan allocation to the farm measure to improve banks’ compliance rate.

Monetary Board member Bruce Tolentino had said fines collected by the BSP from banks that fail to reach the 15 percent agriculture and 10 percent agrarian reform to beneficiaries under the Agri-Agra Reform Law have reached P6 billion.

“Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay. I think over the last two years it has been something like P6 billion in penalties alone,” he said.
S2 courts convict rural bank execs over fraudulent transactions

The Bangko Sentral ng Pilipinas wins in two cases against two shuttered rural banks in Iloilo and Antique over violations of the General Banking Law of 2000

Convicted. The Bangko Sentral ng Pilipinas wins in its two cases against two rural banks' officers over fraudulent transaction. File photo from BSP

Convicted. The Bangko Sentral ng Pilipinas wins in its two cases against two rural banks' officers over fraudulent transaction. File photo from BSP

MANILA, Philippines – Two courts convicted rural banks in Iloilo and Antique in separate violations of Republic Act No. 8791 or the General Banking Law of 2000 due to fraudulent transactions.

In separate statements on Tuesday, December 31, the Bangko Sentral ng Pilipinas announced that 3 officers of the shuttered Rural Bank of Badiangan Incorporated (RBBI) were convicted for 20 counts of violation of RA 8791 due to fraudulent transactions.

In a decision dated September 18, the Regional Trial Court of Iloilo sentenced ex-bank chairman Bella Buscar, ex-loan clerk Cynthia Taconloy, and ex-savings clerk Leni Abordaje to imprisonment of two to 4 years for each count.

In 2012, the Monetary Board placed RBBI under receivership of the Philippine Deposit Insurance Corporation. In December that year, the National Bureau of Investigation Western Visayas filed a criminal complaint of syndicated estafa to a total of 17 bank personalities.

It was later learned that high interest rates were being offered by RBBI to entice the public to make deposits.

In 2016, BSP filed a criminal complaint against the said 3 RBBI officers for defrauding clients by soliciting deposits but said transactions were omitted from the bank's books.
Bangko Sentral requires lenders to disclose strategies for rate risks
December 23, 2019 | 12:04 am

THE CENTRAL BANK’S policy-setting body Monetary Board laid out additional disclosures required under the Risk-Based Capital Adequacy Framework for the Philippine Banking System on interest rate risk in the banking book (IRRBB) for both lenders and quasi-banks (QBs).

Besides the general disclosure requirement, the Bangko Sentral ng Pilipinas (BSP) has also ordered banks to disclose in their annual report their management and mitigation strategies.

In a memorandum signed by BSP Governor Benjamin E. Diokno, strategies cited include the “monitoring of risk measures in relation to established limits, hedging practices, conduct of stress testing, outcomes analysis, the role of independent audit, the role and practices of the asset and liability committee (ALCO), the bank’s practices to ensure appropriate model validation, and timely updates in response to changing market conditions.”

The central bank said in a statement in August that IRRBB refers to the current or prospective risk to capital and earnings that come from big movements in interest rates that affect banking book positions.

Meanwhile, banking book positions pertain to assets that yield interest income which would include loans and investments and liabilities paying out interest such as deposits.

“The guidelines aim to provide clear expectations on how a bank/QB should manage IRRBB and align the BSP’s supervisory framework on interest rate risk with international standards,” the central bank said.

BSP said it expects stand-alone thrift, rural and cooperative banks to look into the impact of a 1-3% movement in interest rates in relation to their net interest income for the succeeding 12-month period. For their part, big banks and QBs are to come up with a wider scope of interest rate shock and stress scenarios where they will test their IRRB exposures.

Aside from a description of their overall IRRBB management and mitigation strategies, banks are also required to disclose the period of the calculation of their IRRBB measures as well as to describe the interest rate shock and stress scenarios they utilized to estimate the difference in the earnings.

The BSP also said banks should present a “high level description of key modelling and parametric assumptions used in IRRBB measurement” as part of their disclosure. — L.W.T. Noble
Poverty rate below 10% by 2022
By: Ben O. de Vera - Reporter / @bendeveraINQ
Philippine Daily Inquirer / 04:19 AM December 09, 2019

Given the faster pace of poverty reduction during the past three years, the country’s chief economist said it was possible for poverty incidence to drop below 10 percent by the time President Duterte steps down from office in 2022.

Socioeconomic Planning Secretary Ernesto M. Pernia told the Inquirer that the poverty incidence rate might further drop to 12 percent by 2021 when the government undertakes the next round of poverty statistics conducted every three years.

Last week, the government reported that the national poverty rate fell to 16.6 percent in 2018 from 23.3 percent in 2015.

The reduction in poverty incidence meant the number of poor Filipinos declined to 17.6 million last year from 23.5 million in 2015.

The 2018 poverty line of P10,727 a month for a family of five also rose from P9,452 in 2015 as incomes of poor households increased due to the availability of better-paying jobs as well as cash grants from the government.

Pernia said he expected that by mid-2022, poverty incidence would ease to 11 percent “or possibly below 10 percent.”

“It would mainly depend on sustained economic growth rate of 6 to 7 percent or better and intensity in family-planning program implementation, especially among poor households who are having more children than they want and can provide for,” Pernia said.

Finance Secretary Carlos G. Dominguez III, who heads the Duterte administration’s economic team, said it was “certainly possible” that the current target of reducing poverty incidence to 14 percent by 2022 would be revised to aspire for an ever lower rate.

Dominguez said that aiming for an even faster poverty-reduction goal would be discussed during the next Economic Development Cluster (EDC) meeting.

“Reforms have been put in place by President Duterte to improve the lives of all Filipinos such as the tax reform, ‘Build, Build, Build,’ rice tariffication, free state universities and colleges tuition, and institutionalization of the 4Ps (Pantawid Pamilyang Pilipino Program) for the poorest households. These economic reforms have clearly resulted in more money in the pockets of the Filipino people, while reducing inflation and creating more jobs,” Dominguez said.

“The government will hit its target of pulling down poverty incidence to 14 percent with further reforms such as the full implementation of universal health care and higher ‘sin’ taxes to ensure sufficient funding for this healthcare program for all Filipinos,” Dominguez added.

“We have advanced a number of the game-changing reforms we set out to accomplish at the start of the Duterte administration. If we pass the rest of the reforms in the zero-to-10 point socioeconomic agenda, we will move even closer to the President’s ultimate goal of a comfortable life for our people,” according to Dominguez. INQ
Burdening depositors with charges and fees on ATM   
Philippine Daily Inquirer / 04:09 AM December 02, 2019

Banks are lobbying to be allowed to increase the charges or fees they impose on transactions via automated teller machines or ATMs. As expected, consumer groups and some legislators have raised a howl of protest at the move.

It is not hard to understand why ordinary depositors are against it. What is difficult to understand is why banks — among the most profitable sectors of the economy — want their customers to finance the cost of improving services using the ATM network.

This is how banks, through their group the Bankers Association of the Philippines (BAP), justify their request to impose higher fees on ATM transactions. The cap on fees that banks could charge on cash machine transactions imposed in 2013 — and lifted earlier this year by regulators — has led to the country falling behind its regional peers in terms of the number of ATMs deployed, it said.

It added that local ATM density in the Philippines stood at only half compared to other Association of Southeast Asian Nations (Asean) countries. The culprit for that? The moratorium on ATM transaction fees since 2013, which has supposedly held back the banks’ optimal performance in servicing and expanding their reach.

“The number of cardholders has been increasing for the past six years,” BAP managing director Benjamin Castillo said in a statement. “Banks need to keep up with the maintenance and innovation of ATMs, as well as expansion of ATM network to accommodate the surge of ATM usage.”

The BAP estimated that only 21,000 ATMs service 58 million cardholders nationwide — equivalent to about 20 ATMs for every 100,000 cardholders. Meanwhile, Thailand has 94, Singapore has 49, Malaysia has 45 and Indonesia has 40 ATMs for every 100,000 cardholders. The BAP, however, didn’t say how much those countries charge for their ATM usage.

The group added that the annual growth rate in ATM deployments averaged 13 percent prior to 2013, but since then has declined to 6.4 percent, while ATM transaction volume has continued to increase from 2014 up to the present.

Aside from the physical ATM deployments, it said there were other expenses that banks incur from operational activities such as loading, servicing, complaints handling, reconciliation, software, capacity expansion and security.

While it is true that expanding the ATM network and servicing it entails cost, these expenses are for the good of the customers that banks are supposed to invest in and nurture. More to the point, don’t banks make money by using the deposits of these ATM users for lending to their corporate clients, even as users of ATM machines, on the other hand — ordinary employees are the majority — hardly earn interest on their deposits?

Besides, haven’t the banks also saved much from the reduction in physical workforce and the man-hours required for over-the-counter transactions, and from other efficiencies brought about by ATM networks?

Now, let’s see how much banks earn as an industry. The net profits of Philippine banks surged 26.4 percent in the first half of 2019 to P109.77 billion from P86.87 billion a year ago due to higher interest and noninterest earnings, according to data from the Bangko Sentral ng Pilipinas. In 2018, earnings of Philippine banks climbed by 6.4 percent to P178.83 billion from P168 billion in 2017 on the back of higher trading gains and interest income.

Economist Cielito Habito also highlighted these figures in an earlier Inquirer column: “In the 15-year period 2004-2018, overall GDP growth averaged an annual rate of 5.8 percent, but financial intermediation (primarily banking and insurance) grew at an average annual rate of 8.7 percent. In the first half of this year, the overall economy grew by a disappointing 5.5 percent, after maintaining 6-7 percent growth over the last eight years. But guess what: The financial sector grew nearly twice as fast, by 9.7 percent. Recently, the country’s top banks have also announced growth in profits ranging from 17-46.8 percent. Interestingly, when our economy nearly ground to a halt at 0.9 percent GDP growth in 2009, financial intermediation actually grew a hefty 7.1 percent.”

BAP has tried to assuage the public’s anger with platitudes.

“We would like to assure the banking public of our commitment to serving them,” it said.

If banks are halfway sincere in that commitment, they should channel part of their prodigious profits to expanding and improving their ATM services — without passing on the cost to their depositors.
AMA Rural Bank gets TRO on closure order by PDIC   
Lawrence Agcaoili (The Philippine Star) - November 29, 2019 - 12:00am

MANILA, Philippines — AMA Rural Bank of businessman Amable Aguiluz has obtained a temporary restraining order (TRO) preventing the Bangko Sentral ng Pilipinas (BSP) and state-run Philippine Deposit Insurance Corp. (PDIC) from further implementing a closure order issued early this month.

The Court of Appeals (CA) issued the TRO last Nov. 26 after major shareholders of the shuttered rural bank questioned the issuance of Resolution 1705D by the Monetary Board on Nov. 7 prohibiting AMA Rural Bank from doing business in the country.

In a statement, PDIC president Roberto Tan said the state-run deposit insurer is now constrained to stop its liquidation operations in the closed rural bank for a period of 60 days.

“We assure our depositing public that the PDIC’s paramount commitment is to expedite the validation of bank records to be able to immediately pay the insured depositors of AMA Bank,” Tan said.

Tan said the agency is now pursuing legal remedies. “We have in fact resorted to alternative procedures to do just that when the TRO was issued. We appeal to the depositors for their understanding,” he said.

Tan said PDIC would advise depositors, creditors and borrowers of AMA Bank of any further developments through announcements made at PDIC’s website and through local media networks such as Facebook.

It would be recalled PDIC took over the assets and affairs of the closed bank last Nov. 8.

However, accountable directors, officers and employees refused to account for, surrender and turn over records under their accountabilities, custody and possession, despite demand.

The PDIC earlier said that the refusal to account for, surrender and turn over records would delay the payment of the claims of AMA Rural Bank’s depositors for insured deposit.

The PDIC has since adopted alternative procedures, although with great difficulty.

Faced with another setback, the TRO prevents the PDIC from further continuing the inventory-taking of bank records during the 60 days of its effectivity.

The management of AMA Rural Bank earlier questioned the closure order, claiming the bank was liquid after shareholders infused an additional P405 million as well as the total deposit due from BSP and other banks amounting to P246 million.

AMA Rural Bank is ranked 15th largest rural bank in terms of assets with P2.83 billion and fifth in terms of capital with P1.04 billion.

The Mandaluyong-based bank with 13 branches has 8,434 deposits accounts with deposit liabilities amounting to P1.4 billion. Of the total amount, about 92.06 percent or P1.3 billion are insured.
BSP sees lag in effects of monetary easing moves  
November 22, 2019

IT MAY TAKE a while before the financial system fully feels the impact of the easing moves implemented by the central bank this year, according to Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, with its decision to hold steady to help it assess how the market is taking past cuts.

“Monetary policy works with lag so ‘di pa namin nakikita yung impact ng ginawa naming rapid fire, 75 basis points (bps) [of key interest rate cuts] tapos 400 basis points dun sa RRR (reserve requirement ratio). (we have yet to see the impact of the rapid fire easing we’ve done — 75 bps in key interest rate cuts and 400 bps in RRR reductions),” Mr. Diokno told reporters at the sidelines of the launch of the EGov Pay Facility and QR PH held at the central bank on Wednesday.

“In fact, you can argue na yung impact nung 175 basis points [hike] pa nagpi-feed (what’s still being felt is the 175 bps hike in policy rates)… So let’s see,” he added.

The BSP hiked interest rates by 175 bps last year as inflation hit multi-year highs. However, it cut key rates by 75 bps earlier this year amid easing prices, partially dialling back its tightening last year.

Rates for overnight reverse repurchase, overnight deposit and lending facilities currently stand at four percent, 3.5% and 4.5%, respectively.

Meanwhile, the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs).

This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent. On the other hand, the reserve ratio of NBQBs will be cut to 14% next month, while the RRR for rural banks will remain at three percent.

Mr. Diokno said it could take six to nine months for the BSP’s policy actions to fully work their way into the financial system.

“Ang monetary policy, ang lag nyan is mga nine months. So dapat talaga monetary policy should be forward-looking (Monetary policy’s lag is about nine months. So monetary policy should really be forward-looking),” he said, adding that RRR reductions may take about six to nine months before these are felt in the market.

“But at the same time, yung (our) pause namin gives us an opportunity to assess the situation. It gives us, in the event of, say, turning for the worst, madami pa tayong bala (we still have shots),” he told reporters.

Asked about when the next RRR cut will be, Mr. Diokno reiterated his goal to bring big banks’ reserve requirement ratio down to single digit by the end of his term in 2023.

“I’m not gonna give you some dates but to give you an idea, sa promise ko (my promise) is by the end of my term, it will be single digit. That could be nine percent. We’re not gonna go to one percent,” he said, adding that the central bank is “not in a hurry.”

“Ini-evaluate din namin yung quality of lending ng banking industry (We’re also evaluating the quality of the banking industry’s lending,” he said.

Mr. Diokno added that he is positive that economic activity will be more robust on the back of the government’s infrastructure program.

“Ang gusto namin yung small and medium industries sila yung manghihiram. (What we want is for small and medium industries to borrow)… So we need more liquidity,” he said.

BSP data showed that domestic liquidity picked up by 7.7% year-on-year in September to P12 trillion, from the 6.3% growth logged in August.

Meanwhile, outstanding loans disbursed by universal and commercial banks grew 10.5% year-on-year in September, unchanged from the August print. Inclusive of reverse repurchase agreements, bank lending rose 10.2% in September, slightly picking up from the 10% seen the previous month. — L.W.T. Noble
Trade war threats  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:07 AM November 19, 2019

When elephants fight, it’s the grass that suffers,” goes an ancient Kenyan proverb. A variation says “when elephants fight, the ants get crushed.” Either way, it means that the bigger casualties in big fights tend to be the small bystanders.

There’s no doubt that the ongoing trade war between the United States and China instigated by US President Donald Trump in mid-2018 is taking a toll on consumers, workers and capitalists in the economies of both protagonists in this battle of giants. But more than that, it is also dragging down the world economy and pushing it to the brink of another global recession, last seen in the aftermath of the world financial crisis 10 years ago. And there are clear signs of the collateral damage being caused on small economies like ours.

In China, economic growth has already slowed down to 6 percent as of the third quarter this year, the lowest it has seen in 27 years (even as it remains among the fastest in the world). In September, China’s exports dropped by 3.2 percent in US dollar terms, while its imports fell 8.5 percent. In the United States, exports to China have declined by 15 percent, with US farm exports being hit the most by the import tariff increases imposed by Beijing on US goods, in retaliation for prior tariff hikes by the United States on Chinese goods. The move has prompted the US government to pay out $28 billion in cash assistance over the last two years to American farmers hard hit by the steep reduction of their exports to China.

The latest reports for US manufacturing output also show a decline since August. A recent Financial Times report suggests that American manufacturers are being hit more than their Chinese counterparts. While the debate rages within the United States on whether Trump’s trade war can ultimately benefit the American people, what is clear is that other major economies around the world are suffering significant declines in trade. For economies like Germany and Japan where exports are a dominant driver of output, incomes and jobs, the trade slowdown threatens economic stability, and the effects permeate to other economies they are linked with through the global value chains.

Here in the Philippines, the trade war’s adverse impact is most visible in recent trends in our foreign trade and their impact on the performance of the manufacturing sector, the dominant source (85 percent) of the country’s exports. Latest data show that our total exports as of the first nine months of the year dropped by 3.4 percent from last year, a complete turnaround from its 11-percent increase in the same period a year ago. This drop was prominently due to the 3.1-percent decline in our exports of electronics components, which accounted for 55 percent of total exports. This dominant component of our exports has been most vulnerable to the global trade slowdown caused by the US-China trade war.

China has been our single biggest trading partner and export destination, for which 56 percent of our exports are electronics products. These electronics exports of ours find their way into the finished consumer electronic products China in turn exports to the United States, now hit by the US tariff hikes. Similarly, electronic products have been our top export to Japan, United States, Korea, Hong Kong, the European Union and Asean—all part of the global value chains for electronic products that have slowed down in the wake of the trade war.

In the domestic economy, electronic products make up one-fifth of total manufacturing output, and its decline has caused overall manufacturing growth to slow down to 3.7 percent, after having grown briskly at 7-8 percent annually in the last eight years. For this reason, the overall quality of jobs has also worsened in the past year, with the share of wage and salary jobs again falling to 63 percent from 65 percent last year, while informal work and unpaid family labor have again been on the rise.

It is heartening to note, though, that manufacturing industries comprising 60 percent of the total output of the sector are still growing faster than the overall economy’s 6.2-percent growth.

From our end, we can only pray that the elephants find a way to stop the fighting.
Pulls and pushes  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:04 AM November 12, 2019

It was welcome news last week that the economy’s growth in the third quarter managed to exceed 6 percent again, after slowing down to 5.6 and 5.5 percent in the first two quarters, respectively. Based on available data so far, this makes us the second fastest-growing economy in the region, behind only Vietnam, with its 7.3-percent GDP growth boosted by opportunistic gains from the US-China trade war. Our growth, on the other hand, is homegrown, driven more by internal domestic demand largely unfazed by a world economic slowdown induced by the same trade war that has exceptionally benefited Vietnam. Not even static exports and falling foreign direct investment inflows could offset surging domestic demand by Filipino consumers and the government, whose combined spending continued to make our economy among the top growers worldwide.

The single biggest swing-around factor that renewed our economy’s erstwhile seemingly dissipating steam was government construction activity. As is now well known, delayed passage of the government’s 2019 budget impeded the push that was to come from the “Build, build, build” thrust, particularly in the first quarter of the year. But an even deeper decline in public construction in the second quarter, when the 2019 budget had already been in place, showed that the delayed budget was not the whole story. It implied that government’s capacity to implement its planned infrastructure projects could be the bigger problem.

The Commission on Audit reported budget disbursement rates for the Department of Public Works and Highways of only 34.1 and 39.7 percent in 2017 and 2018 respectively. The Department of Transportation’s numbers were worse, and even declined from 25.6 percent in 2017 to 23.8 percent in 2018. With all eyes on these main infrastructure agencies of government, it seems they have been pushed to get their acts together. We should see improved budget disbursement rates from these agencies when this year’s numbers get reported next year. We could surmise this from the reversal of the first two quarters’ consecutive deep declines (-8.6 and -27.2 percent) in public construction into double-digit growth (11 percent) in the third quarter.

At the same time, private construction growth nearly doubled last year’s 10.4-percent growth with an impressive 19.1-percent growth this year. As overall construction comprises nearly 12 percent of total GDP, the combined double-digit push clearly helped push GDP growth back to regain its momentum interrupted earlier this year. Lower inflation also helped boost Q3 growth in household consumption to 5.9-percent annual growth, from last year’s corresponding figure of 5.3 percent.

From the production side, it was agriculture and services that drove the uptick in GDP growth, while industry growth slowed down. Corn production, which zoomed by 24.1 percent in the third quarter, was the biggest contributor to growth in agriculture, followed by poultry (with the former providing the feed inputs for the latter). Livestock was also a key contributor, but the recent influx of African swine fever is likely to dampen this in future quarters. In services, trade and repair of motor vehicles gave the strongest boost, consistent with the speedup in household consumption. But as always, financial intermediation (banks and insurance) showed the fastest growth (9.8 percent) among the main services subsectors. As I have previously observed, this is an industry that rides high whether the economy is up or down.

The US-China trade war and the global trade slowdown it has caused weighed down on manufacturing, whose meager 2.4-percent growth was largely due to the 4.3 and 11.3-percent declines in electronics and furniture and fixtures, respectively. Together, these two export products make up 22 percent of total manufacturing output, and their decline was enough to drag down the sector’s growth. The good news is that manufacturing industries representing 60 percent of the sector’s output continued to grow faster than the overall economy did. This tells me that if the trade war could end soon, we could be back on track toward the 7 to 8-percent growth we have been targeting.
Gov’t fully awards 5-year bonds  
October 16, 2019 | 12:02 am

THE GOVERNMENT fully awarded the fresh five-year Treasury bonds (T-bond) it offered during its auction yesterday, even opening its tap facility to accommodate excess demand from investors.

The Bureau of the Treasury (BTr) raised P20 billion as programmed from its T-bond offer on Tuesday, with total tenders reaching P63.2 billion or more than three times the initial offer.

The five-year papers fetched a coupon rate of 4.25%, which was 122.5 basis points (bp) lower compared to the 5.452% average rate fetched during the previous issuance of fresh five-year papers back in March 6, 2018.

This prompted the BTr to open its tap facility for another P10-billion offering following the huge demand from investors, as well as to fill the gap from the bid rejections they made during previous auctions.

“Given the huge demand in today’s auction, we saw that there are a handful of bids unserved at the 4.25% level so we decide to open the tap for P10 billion… And one other reason is we would also like to cover for past rejections just to fill in that hole in the previous auction,” Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction on Tuesday.

The government last offered five-year T-bonds on Nov. 21 last year, where it auctioned off P15 billion in reissued papers with a remaining life of four years and three months. It made a full award of the offer. The bonds, which carry a coupon of 5.5%, were issued at an average rate of 7.003%.

In the secondary market on Tuesday, the five-year notes were quoted at 4.37%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Mr. Sta. Ana said the auction result was expected following the Bangko Sentral ng Pilipinas’ (BSP) announcement of another 100-bp cut in banks’ reserve requirement ratios (RRR), which will take effect in November, as well as the upcoming maturity of government securities worth P197 billion.

“The announcement of an RRR cut on bonds this morning prompted the rally on belly bonds, making the 4.25% rate that the new 5-76 bond fetched attractive relative to the rest of the bond curve,” Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp., said on Tuesday.

The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

Yesterday, the central bank said the Monetary Board approved the reduction in the reserve requirement rate for bonds issued by banks and quasi-banks (QB) to three percent effective next month in a bid to deepen the local debt market.

This rate is lower than the required reserves of other debt instruments issued by banks such as long-term negotiable certificates of time deposits which is currently at four percent.

“The lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to the holders of such securities. The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks/QBs. These initiatives are intended to incentivize banks/QBs to tap the domestic bond market as part of its liquidity management,” the BSP said.

Ms. Dulay added that previous comments from the Treasury that there will be no more issuance of retail Treasury bonds this year prompted players to put their investments in other facilities.

“The recent statement of the BTr regarding their decision not to issue a retail Treasury bond this year also emboldened market participants to put their excess cash to use,” she said.

Meanwhile, Mr. Sta. Ana said the BTr is “on track” with their requests for approvals for its planned offshore and domestic borrowings next year.

“We started the request for approvals so we will be expecting some comments, let’s say from BSP, moving forward. So we are on track with respect to seeking approvals on this, both domestic and foreign,” the official said.

He declined to disclose the volume but said “it’s supposed to cover all foreign commercial borrowings for 2020.”

Asked on the possible offshore markets that they will tap next year, he said they will still consider the usual sources such as the euro, dollar, panda and samurai bond markets, but will remain “flexible” as they look for “new opportunities” from other markets such as the Swiss bond market, among others.

“Basically the same markets that we have been issuing in, and there’s a little bit flexibility if there are new opportunities in other markets. For example, Swiss francs, we may also look at that more closely and other markets, I just cited one but I think there could be other markets,” Mr. Sta. Ana said.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in Treasury bills and P120 billion via T-bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — B.M. Laforga
BSP: Banks now allowed ­to submit reports via AI  
Lawrence Agcaoili (The Philippine Star) - October 15, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas is simplifying the reporting requirements of banks and financial institutions through artificial intelligence (AI) to improve the timeliness, ease, and integrity of data submission.

BSP Governor Benjamin Diokno said the regulator has developed a prototype that allows machine-to-machine link between the BSP’s system and those of its supervised entities for streamlined transmission, processing, warehousing, and analysis of banks’ prudential reports.

“Targeted to go live by the latter part of 2020, this innovation will significantly improve timeliness, ease, and integrity of data submission,” Diokno said.

The BSP chief said the regulator continues to pilot test the use of regulatory technology and supervisory technology including the use of AI, machine learning and application program interface (API) to enhance the timeliness and quality of risk-based decision making.

Diokno added an API system automates the collection, processing and analysis of data from supervised institutions.

He said banks are burdened by an extensive and time-consuming validation process involving more than 240 Excel-based data entry templates with 100,000 plus data points.

“The resulting delays and the scope for human error posed complications on our data and statistical compilation operations. With this modern API system, manual intervention is eliminated since data sorting, sanitation and validation processes are fully automated and secured,” he said.

With the same 7,000 data validation rules still being applied, Diokno said processing time of filed returns was cut to just 10 seconds from more than 30 minutes, thereby streamlining the entire end-to-end process of regulatory reporting and validation.

For the less sophisticated supervised entities that cannot immediately migrate to the API-based reporting, Diokno said the BSP developed a central automated reporting environment referred to as the FI (financial institution) portal.

“The FI portal provides a single electronic platform upon which FIs can submit reports, receive feedback on its acceptability, and exchange correspondences with the BSP on matters related to report submissions. It offers a more secure encrypted process of submission through a web facility where supervised entities can upload their reports instead of sending them via regular email,” he added.

Diokno said an automated chatbot system would also go live by mid-2020 to adequately and efficiently handle consumer concerns using AI and natural language processing.
SEC flags new batch of online lenders  
Iris Gonzales (The Philippine Star) - October 15, 2019 - 12:00am

MANILA, Philippines — The Securities and Exchange Commission (SEC) has flagged another batch of online lenders, ordering them to stop their lending activities.

Last Oct. 10, the SEC slapped cease and desist orders against A&V Lending Mobile, A&V Lending Investor, A.V. Lending Corporation, Cashaku, Cashaso, CashEnergy, Happy Loan, Peso Pagasa, Vito Lending Corp., Phily Kredit, Rainbow-Cash and Rainbowcash.Ph Lending Corp.

In its order, the SEC said these companies should stop advertising their lending business through the internet and to delete or remove promotional presentations and offerings of such lending business from the internet including the lending applications that they operate.

The SEC said these entities are not authorized to implement lending activities.

“Considering that the online lending operators are not incorporated entities or have no Certificate of Authority to Operate as Lending Companies or Financing Companies, the lending activities and transaction are illegal and have to be stopped immediately by this Commission,” the orders said.

“Moreover, the abusive collection practices engaged in by unlicensed online lending companies constitute unfair debt collection practices which the Commission expressly prohibits under SEC Memorandum Circular No. 18, Series of 2019 (Prohibition on Unfair Debt Collection Practices of Financing Companies and Lending Companies) which took effect recently,” the SEC said.

Based on the findings of the SEC Corporate Governance and Finance Department (CGFD), the online lending applications and their operators do not have the necessary papers and permits.

In the case of A&V Lending Mobile, the CGFD found no record of the registration of its purported operator, A&V Lending Investor.

A certain A.V. Lending Corp. turned up in the SEC database, but its registration has already been revoked.

Peso Pagasa and Rainbow-Cash are reportedly operated by Vito Lending Corp. and Rainbowcash.Ph Lending Corp., respectively.

However, no such corporations are recorded in the Commission’s database, the SEC said.

A number of complainants said many of these lending companies engage in abusive collection practices.

According to Section 4 of Republic Act 9474, or the Lending Company Regulation Act of 2007, a lending company must be established only as a corporation.

It further provides that “no lending company shall conduct business unless granted an authority to operate by the SEC.”

Violators will be penalized, the SEC said.
New BSP rule discourages banks from becoming ‘too big to fail’  
By: Daxim L. Lucas - Reporter / @daxinq
Philippine Daily Inquirer / 04:11 AM October 14, 2019

Philippine banks that become too large—large enough to affect the rest of the financial system, in case they run into trouble—will be required to set aside more capital to guard against market volatility, the central bank said.

In a statement released last weekend, the Bangko Sentral ng Pilipinas also said that its newly approved framework for dealing with domestic systemically important banks would have provisions to discourage banks from growing into the so-called too-big-to-fail category.

Apart from requiring these giant financial institutions to have higher capital, they will be “subject to more intensive supervisory approach and will be required to adopt a concrete and acceptable recovery plan that will address the risks they pose to the financial system and the real economy,” the BSP said.

Depending on the degree of systemic importance, identified systemically important banks will be categorized into different higher loss absorbency buckets and will be required to increase their minimum common equity tier 1 capital by 1.5 percent to 2.5 percent of total risk-weighted assets, it said.

The requirement to have higher loss absorbency or additional capital in the form of pure equity aims to bolster the resilience of these systemically important banks.

“This is on top of the existing [minimum equity] levels, capital conservation buffer, and countercyclical capital buffer required from all universal and commercial banks, as well as their subsidiary banks and quasi-banks,” the regulator said.

Large banks classified as posing the highest systemic risk will have a uniform 1.5 percent higher loss absorbency requirement, while those slotted under the less riskier category will have a differentiated requirement (up to a maximum of 2 percent).

A third category with loss absorbency requirement of 2.5 percent will be maintained “to provide incentives for banks to avoid becoming more systemically important,” the regulator said, adding that failure to meet these minimum requirements will be penalized with restrictions on the bank shareholders’ dividend policies.

The BSP said the new rules were approved by its policy-making Monetary Board in line with international standards that aimed to safeguard the stability of the financial system, in line with regulatory changes around the world.

The enhanced framework will cover revisions in the differential weights of categories or indicators and the composition of indicators, including the adoption of threshold level; and calibration of the level of additional capital requirement. These enhancements will be applied on a consolidated basis to all universal and commercial banks as well as their subsidiary banks and quasi-banks, and branches of foreign banks.

Under the revised framework, a bank’s systemic importance is assessed based on pre-defined indicators for size, interconnectedness, substitutability and complexity. Among the four categories, size and interconnectedness bear greater weight as these factors are more critical measures in determining a bank’s systemic importance in the Philippines, taking into consideration the simple structure of the Philippine financial system.

Banks identified systemically important will be individually informed of their designation with details as to the category they belong to and the individual score for each indicator, the BSP added.
Poor Internet connection spurs ‘creative ways’ for digital technology in banking and finance  
By Bianca Cuaresma
October 10, 2019

FROM its early beginnings of traditional brick-and-mortar transactions to the rise in automation as seen in the proliferation of automated teller machines (ATMs), the global banking industry is facing yet another new wave of innovations to make financial management faster and more efficient.

Amid the rise in global connectivity through the Internet, financial innovations are evolving, and financial technology—or the so-called fintech—is becoming the new mode of doing business among banks and financial institutions all over the world.

In recent years, advanced technology providers have diversified into the world of financial services—with two of the largest competing technological giants, Google and Apple, now providing digital wallet services.

Google Pay, for example, describes its electronic wallet service as “a fast, simple way to pay on sites, in apps, and in stores using the cards saved to your Google Account.” Google also says the service “protects your payment info with multiple layers of security and makes it easy to send money, store tickets, or cash in on rewards—all from one convenient place.” Apple Pay, meanwhile, claims that its service “is even simpler than using your physical card, and safer, too.”

Earlier this year, Facebook announced its venture to put up “Libra,” a blockchain digital currency.

In the Philippines, fintech has transformed the delivery of financial services—from branch banking to online banking, paper-based money to electronic money, and face-to-face customer verification to technology-aided know-your-customer process.

The Philippines is positioned to make its own financial technology innovations as Internet penetration continues to expand and the population—which is largely composed of young adults—are now spending a lot of time online. A recent report said that Filipinos spend an average of 10 hours a day on the Internet.

However, poor Internet connection and infrastructure hinder technological advances in the country, which has a great potential to take advantage of huge online business opportunities.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier told the BusinessMirror that good infrastructure and fast Internet connection are crucial for the country to reach its potential when it comes to digital innovations in the financial sector.

“Having a good public infrastructure such as high-quality and affordable Internet connection for the populace would provide a suitable environment for fintech products and services to flourish,” Fonacier said.

Recent data, however, reveal a bleak outlook. Despite high costs, the Philippines’ average connection speed was only at 2.8 Megabits per second (Mbps) in 2015. This is significantly lower than the global average connection speed of 5.1 Mbps, which makes our Internet speed the second slowest in the Asia-Pacific region based on data from the International Telecommunication Union.
Spur of creativity

Amid the growing pains of connectivity in the country, the ability of Filipinos to create, based on what they have, is astounding. The BSP said banks and financial technology companies are increasingly finding ways to deliver new services that only need little connectivity.

“There’s still considerable momentum when it comes to fintech development because fintech players are able to design products and services that can run on low Internet bandwidths,” Fonacier told the BusinessMirror.

“This is also the case for banks and other financial institutions, whereby the design and delivery of products and services primarily takes into account the Internet connection and speed for certain markets/areas,” she added.

A recent example is banking solutions provider PearlPay’s tie-up with a rural bank in Dagupan. PearlPay signed a pilot program agreement with BHF Rural Bank Inc. (BHF) for the use of cloud-based technologies to deliver services to customers.

The agreement allows the bank to access cloud-based technologies such as core banking solutions (CBS), agent banking solutions (ABS), and eWallet solutions—all of which are designed to reach customers with limited or no access to the Internet.

Earlier this year, Philippine-owned business group Transnational Diversified Group (TDG) and Japanese shipping firm NYK Line have joined forces to develop a fintech platform that will allow electronic money transfers without an Internet connection.

The program would allow seafarers and vessels’ masters to make electronic money transactions aboard their ships.

MarCoPay takes its name from “Maritime Community,” and seeks to provide its target market with a quality product that can help them strategically manage their finances. MarCoPay, the brainchild of NYK and TDG, comes in the form of an app, which will be launched in January 2020.

MarCoPay will use QR codes that can be used to complete pre-boarding procedures, receive and convert salaries into digital currency, and this e-money can be used for onboard purchases and for remitting money to their families.
Fintech roadmap

The BSP said it continues to open its doors to innovations through its fintech roadmap. “Likewise, the BSP collaborates with other financial regulators, through the Financial Sector Forum FinTech Committee, to ensure fintech policy consistency, prevent regulatory arbitrage and promote expansion of fintech innovations,” Fonacier said.

“As you know, the BSP is spearheading a number of major initiatives. All of these initiatives necessitate a stable, reliable, affordable and high-quality Internet connection. As such, the BSP remains committed in working with the Department of Information and Communications Technology [DICT] to push the agenda forward,” she added.

“The BSP understands that the DICT is already working on the National Broadband Plan formulated in 2016, which aims to address the longstanding issue of Internet connection quality in the country. The plan will provide Filipinos with wider access to high-speed Internet connection and better services, which can spur economic activity, particularly in the e-commerce and digital space,” Fonacier said.
Banks still expand physical network amid digitalization–BSP  
By Bianca Cuaresma
October 4, 2019

EXECUTIVES of local financial institutions continue to believe in face-to-face delivery of service amid the rise in digital banking, as data from the Bangko Sentral ng Pilipinas (BSP) showed banks continued to expand their physical network as of August this year.

Data from the Central Bank showed local banks have a total network of 12,618 branches as of August this year, adding 191 branches in a span of five months. Universal and commercial banks still dominate the market, with 6,850 total branches as of end-August this year or more than half of the total banking network.

Thrift banks, meanwhile, have a total of 2,606 branches, while rural and cooperative banks have 3,162 branches.

Universal banks and commercial banks, as well as rural and cooperative banks posted solid growth rates in terms of their physical network from March to August this year. Big banks in the country grew their branch network by 190 branches in five months, while rural and cooperative banks added 61 branches to their network in the five-month period.

Thrift banks, however, partially bucked the growth—as their total branches decreased by 60 during the period. By distribution, data available from the BSP showed the National Capital Region still has the lion’s share of bank branches with 3,764 as of June 2019. This is followed by Region 4A or Cavite, Laguna, Batangas, Rizal and Quezon with 1,840 branches and then by Region 3 or Central Luzon with 1,307 branches.

The poorest areas, however, continued to receive little banking presence during the year, with th Autonomous Region in Muslim Mindanao having only 18 branches for the entire region. This is followed by the Cordillera Administrative Region at 193 branches and Region 13 or the Caraga region with 221 branches.
Misguided reversal  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 04:06 AM September 24, 2019

Would imposing “safeguard measures” and doubling tariffs on rice imports be a good solution to current difficulties in our rice sector as it adjusts to the more open trade regime established by the Rice Tariffication Act (RTA)? Appealing as it may sound to many, it is not. It goes against the interests of the wider majority of Filipinos, is unlikely to help the intended beneficiaries of such a move, and to top it all, would reward the very people in the rice business who are instrumental to the current difficulties.

World Trade Organization (WTO) rules permit members to impose temporary emergency restrictions on imports such as higher tariffs to deal with a surge in imports that causes injury to domestic producers. The rules provide that safeguard measures may be applied only after an investigation conducted by competent authorities according to established procedures. Among the topics on which affected parties’ views are required to be sought is whether or not a safeguard measure would be in the public interest.

This is really the crux of the issue: Whether or not the rules allow us to do it, would imposing high import tariffs now, to the point of making them prohibitive (that is, stop imports altogether), actually be in the public interest? This would be tantamount to a complete reversal, albeit temporarily, of the RTA and what it seeks to achieve. Temporary or not, and whether or not WTO rules allow it, this would be an outright violation of the recently enacted law, hence cannot be done without an act of Congress. Let’s face it: Those who are pushing for the so-called safeguard measures are actually still hoping to reverse the law altogether.

As I have constantly argued, it would only mean a return to helping our rice farmers in a glaringly wrong way, via a perverse “shotgun” policy that imposes collateral damage of high rice prices on 104 million rice consumers, in order to help some 2 million rice farmers and their families—even as many of them could actually be competitive and thrive under a more open trading regime. Yet we could give them much more meaningful help in a more focused way. Taking rice trade out of government control was a move that had been overdue for decades, because it would bring domestic rice prices down and induce our rice industry into greater competitiveness. Meanwhile, we penalized our 22 million poor with expensive rice, leaving them little money left to buy other nutrient-rich foods.

It’s no surprise, then, that the incidence of severe malnutrition, especially among our young children, has been unduly higher than in most of our neighbors enjoying lower-priced rice. The result has been impaired brain and physical development in a large segment of our population, condemning them to low productivity and persistent poverty.

What we have long needed, and what RTA should be spurring us to do now, is to use a “rifle”-focused approach to helping our rice farmers. Right now, the rifle solution urgently needed is to give emergency cash support to the farmers badly affected by lower rice farmgate prices. The need for this had always been anticipated, yet we somehow failed to plan ahead for it. Even so, if there’s a will, there ought to be a way.

Moving forward, government must get its act together in helping rice farmers right, to raise productivity and lower their production costs where feasible, or to shift to other lucrative crops where not. There’s tremendous opportunity for this from the large tariff revenues already being collected for rice imports, but we must make sure that our past history of massive agriculture funds finding their way into the wrong pockets will not be repeated. We must also organize government’s technical support for farmers better, by enabling and empowering our provincial governments to coordinate farm support services within their jurisdictions, under close tutelage and supervision by the Department of Agriculture.

Restricting rice trade anew would be ill-advised. Rather than stop the hoarders who have so far arrested the fall in rice retail prices, we would only play into their hands and make them, once again, the big winners in this long mismanaged sector.
FinTech Alliance commits to code of ethics  
Louella Desiderio (The Philippine Star) - September 18, 2019 - 12:00am

MANILA, Philippines — FinTech Alliance.PH, which groups financial technology and digital firms, has committed to promote a code of ethics and adopt a code of conduct for responsible lending following the move of the National Privacy Commission (NPC) to recommend criminal charges against officials of three online lenders for data privacy violations.

FinTech Alliance’s initiative also comes as the Securities and Exchange Commission (SEC) issued a cease and desist order against 19 online lending applications operated by unlicensed persons and entities, amid complaints of invasion of privacy and harassment.

“Technoethics is a framework on the ethical utilization of emerging technologies, protecting consumer against the misuse and abuse of innovations, and adoption of common principles to guide players about new advances in technological development and application to benefit society,” FinTech Alliance chairman Lito Villanueva said.

The initiative involves setting standards for the industry to promote transparency and protect customers from any possible malpractices and other unethical actions of fintech players.

In particular, fintech players would not be allowed to use customer data with the objective of disbursing more loans.

Fintech players’ practice of intimidation to collect from borrowers is likewise prohibited.

Alliance members providing online lending would be required to fully disclose all costs of customers including interest rates, processing fees and fines for late payment.

The alliance decided to adopt the initiative to protect consumers from unscrupulous and abusive online lenders, as well as safeguard industry players with good practices as the NPC earlier this month, recommended criminal charges against the officials of online lending firms Fast Cash Global Lending Inc. (Fast Cash app), Unipeso Lending Co. Inc. (Cashlending), and Fynamics Lending Inc. (PondoPeso) for violations of the Data Privacy Act for their business practice of shaming borrowers by targeting their privacy in order to collect payments.

Complaints received by the NPC include online lending firms’ use of borrowers’ contact list without consent or authority; disclosure of unwarranted or false information to other persons; use of personal information for harassment; and unduly intrusive personal data processing.

Regulators such as the SEC and the NPC welcome the move of the FinTech Alliance and have committed to work closely with the private sector as well as other government agencies like the Bangko Sentral ng Pilipinas and Department of Trade and Industry to promote safety and security of consumers.

In line with the corporate regulator’s commitment, SEC Commissioner Kelvin Lee said a cease and desist order was issued last Sept. 12, against 19 online lending applications such as Instant Pera, QuickPera, Lendmo Philippines, Binixo, CashBus, Cashcat, Cashuttle, Crazy Loan, Flash Cash, Happy2Peso, Hatulong, MeLoan, MoneyTree Quick Loan, Pera Express, Pera4u, Peramart, PesoLending, QuickPeso and Umbrella.

“Based on the findings of the SEC Corporate Governance and Finance Department and Enforcement and Investor Protection Department, the owners and operators of the online lending applications have not secured the required certificates of authority to operate as lending or financing companies. Furthermore, they are not registered as a corporation with the SEC,” he said.

He said SEC decided to conduct investigations on lending activities of the online apps as they received complaints on high interest rates, unreasonable terms and conditions, misrepresentations as to non-collection of charges and fees, as well as violation of right to privacy and other abusive practices such as accessing borrower’s personal information to contact a borrower’s relatives, friends and acquaintances, as well as threatening public shaming and harassment.
Far behind in housing  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:25 AM September 06, 2019

For a country with far less poverty incidence, Singapore’s public housing expenditures (PHE) as a ratio to gross domestic product (GDP) in the 15-year period from 2000 to 2014 was 13 times more (1.6 percent) than that in the Philippines (0.12 percent). Among the original five members of the Association of Southeast Asian Nations (Asean), our country posted the least PHE as a ratio to GDP, with Indonesia spending twice, Malaysia three times, and Thailand five times what we did. Even Bangladesh, with an average income (GDP per capita) only half ours, spent more than twice as much (0.26 percent of GDP) as we did.

The Philippine Development Plan notes that housing has consistently received less than 0.5 percent of our government budget. In 2017, the National Housing Authority and the Social Housing Finance Corp. jointly received P13 billion, or 0.39 percent of the total P3.35 trillion budget. This is a mere “drop in the bucket,” notes the John J. Carroll Institute on Church and Social Issues at the Ateneo de Manila University, given the 1.7 million households targeted for direct housing assistance from 2017-2022. This target is still far less than our people’s actual housing needs.

Figures cited in the housing sector roadmap prepared for the Department of Trade and Industry indicate a projected need of 6.2 million new housing units from 2012 to 2030, 3 million of which are in the socialized and subsidized housing category. Even if only half the minimum cost of a decent housing unit (which I’m very conservatively placing at P300,000) is subsidized by government, this would still require P450 billion over the 19-year period, or about P24 billion annually, which is twice the 2017 allocation. Doubling our annual allocation for public expenditures on housing would only bring us to the level of Bangladesh in relative terms. To match the average in the four other Asean-5 members, we would need to hike our PHE six times.

It’s no surprise, then, that informal settlers have been a persistent and growing problem in our midst. The need for mass housing has always been evident, and should have been seen as urgent all these years. For a country that has had a persistently high poverty incidence, providing for the basic human need for decent housing should be among government’s top priorities, and one for which government must have a creative and proactive strategy. I already explained in my last article why PHE would have a high multiplier effect in the economy, thereby helping generate wider and faster growth in jobs and incomes.Reacting to that piece, a reader wrote: “The government’s attitude toward housing, in spite of the promise of its Build, Build, Build (BBB) program, is disappointing if not disgusting.” He argues that overall infrastructure planning ought to be undertaken with provision for low-cost housing consciously integrated into plan. He has a point. He laments how “the government has not taken the potential of consolidating the various roads and railways projects of the BBB with development programs for low-cost housing. It lost a lot of opportunity in reserving land for low-cost housing along the routes of the MRT 7 and LRT 1 Cavite Extension. It just stood by and watched the greedy real estate developers.”

He wonders if there is any move to reserve and/or expropriate land for the same purpose along the routes of the planned LRT 4 from Edsa/Ortigas to Taytay, Rizal, and LRT 6 from Bacoor to Dasmariñas in Cavite. And noting many old but durable buildings along the 35-year-old LRT 1 heritage line from Baclaran to Monumento that have been idle for anywhere from 10 to 30 years, he asks: “Is it not possible for the government to lease some of them for conversion into dormitories for the students of the several schools along the route? There are dozens if not hundreds of old and usually dilapidated warehouses and manufacturing plants in Metro Manila. Shouldn’t the government try to expropriate them and convert them into medium-rise low-cost apartment buildings?”

Indeed, there could be many creative approaches and solutions to our housing problem, but we have to first overcome what seems to be the foremost obstacle, and that is recognizing that there is one.
More housing in BBB  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:05 AM September 03, 2019

Our continuing overall economic slowdown since 2016 suggests that government’s “Build, build, build” (BBB) program has so far failed to give us the economic stimulus it was meant to provide. Public construction had already slowed down from a 28-percent annual growth in 2016 to 19.7 percent last year, and the budget impasse swung it into negative (-22.1 percent) this year so far. Heaven forbid, but the “Build, build, bust” I expressed apprehension about early on might yet play out, unless we do things differently.

I’ve already written of absorptive capacity issues in our major infrastructure agencies, which appear to be an underlying drag on BBB, with or without budget delays. For this reason, many are urging government to revisit public-private partnerships in infrastructure, which was set aside on the seemingly misplaced premise that government could speed things up. Well, the numbers now belie this, and it matters not whether we point the finger at Congress or the implementing agencies.Apart from the economic boost from improved infrastructure, BBB aimed to directly stimulate our economy via the textbook multiplier effect. That is, a one-off expenditure by government would actually raise total production and incomes by several times the amount of the original spending. If government spends P100 million to, say, build a new road, that same amount becomes incomes received by contractors, engineers, equipment suppliers, construction workers and more. But that’s not the end of it. Those various people now have money to spend or save as they choose. Ignoring taxes, if Filipinos on average save P10 of every additional P100 income they receive, then the original P100 million spent by government turns into a new round of P90 million in spending on various things such as food, clothing, appliances, etc. that those construction industry people would spend their incomes on.

But someone’s spending is someone else’s income, so that second-round spending of P90 million turns into a third round of spending amounting to P81 million, which becomes yet another round of incomes to spur yet another round of spending, and so on and so forth. When it all plays out, the P100 million originally spent by government would have created 10 times as much (P1 billion) total production and incomes. Mathematically, if the saving rate is 10 percent or 0.1, the multiplier works out to be one divided by that, or 10. The lower the saving rate, the higher will be the multiplier effect.

How can government maximize the efficacy of its spending? First, it must spend it on things most beneficial to society — more bridges versus new cars for government officials, more hospitals versus ornamental lampposts. Second, spending it on domestically produced goods and services keeps the multiplier effect within our own economy. If the money is spent to buy trains from China, it’s Chinese incomes that would be multiplied, not ours. Third, it is best spent on activities with widespread linkages to the rest of the domestic economy. For this reason, mass housing is a potent way to spend government money.

Mass housing not only directly responds to a long-standing need of our poorer citizens; it would also have a powerful multiplier effect. First, low-cost housing entails large numbers of construction workers, thereby creating many more jobs than a capital-intensive investment would. The money would circulate more among lower-income and lower-saving individuals, keeping more money moving around in the spending-income cycle and boosting the multiplier effect.

Second, low-cost housing would have much lower import content than other government expenditures (say, hybrid seeds from China), and thus keep the money circulating here at home. Third, housing links on to numerous domestic economic activities: home furnishings, utilities, household supplies and many more. All told, public spending on housing would permeate much more widely and more quickly across various industries and sectors within the Philippines.

I’d say a good way to avert a “Build, build, bust” is to focus more of it on mass housing, where our backlog is huge. It would also bring down poverty much faster.
Crisis-proofing the Philippine financial system  
August 28, 2019 | 12:05 am

IT HAS BEEN MORE THAN A DECADE since the last global financial crisis. The 2008 crisis had started in the US subprime mortgage market, which crept into financial markets and led failing banks to either be rescued by governments or be closed down. However, the Philippine banking system was relatively insulated with bank failures contained within the rural banking sector whose small assets relative to the total sector’s resources posed little to no systemic risk.

Nevertheless, the Bangko Sentral ng Pilipinas (BSP) has been fortifying regulatory standards under the international Basel 3 framework since 2014 to ensure that the country’s financial system remains capable of weathering potential shocks that could spill over to the rest of the economy.

“At the height of the 2008 Global Financial Crisis, the BSP prudently considered opportunities for monetary policy easing and infusion of appropriate levels of liquidity amid the potential tightening of financial conditions. This in turn, helped maintain the efficient functioning of the financial markets and helped avert the shrinkage of domestic markets,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail.

Among these string of reforms include the 10% capital adequacy ratio (CAR), the 5% leverage ratio, and a framework for domestic systematically important banks (DSIBs) among others. The standards imposed by the BSP are well above the minimum standards of 8% for CAR and 3% for the leverage ratio set under the Basel 3 regime.

CAR indicates the banks’ ability to absorb losses from risk-weighted assets while the leverage ratio represents how much capital banks should have in hand to cover non-risk weighted assets.

These reforms will boost buffers maintained by big banks against potential risks, complementing the 6% common equity Tier 1 ratio and the 7.5% Tier 1 ratio imposed by the BSP.
ATM fee hikes can't exceed over-the-counter charges – BSP  
By CNN Philippines’ Melissa Lopez
Published Aug 13, 2019 6:11:55 PM

Metro Manila (CNN Philippines, August 13)— The Bangko Sentral ng Pilipinas (BSP) on Tuesday reiterated it will thoroughly review any bank’s request for an automated teller machine (ATM) fee hike amid concerns from the public and lawmakers.

“Costs declared should be clear, properly supported, and may be validated by the BSP when deemed necessary,” BSP said in a statement.

“Rest assured that the BSP shall examine each request and decide if the increase is warranted to cover the cost of maintaining the ATMs. Should an increase be necessary in order for banks to continue providing ATM services to the banking public, the BSP will ensure that the increase will be reasonable and will adhere to pricing principles provided under BSP Circular No. 980 dated 6 November 2017,” it added.

The central bank noted that should any increase be approved, the charge must be lower than the fees collected from over-the counter transactions.

The BSP in July announced its decision to lift a six-year moratorium on ATM fees, allowing banks and ATM providers to set new fees for machine-based transactions. Bank proposals, however, should first gain the central bank’s approval.

Makati Representative Luis Campos, Jr., through House Resolution 210, on Monday sought for an inquiry on the looming ATM fee increases following the moratorium’s lifting.

Current fees on cash withdrawals range from ₱10 to ₱15 for big banks, while rural lenders are authorized to charge up to ₱46 per transaction, according to BSP's list. Balance inquiries can also go as high as ₱2.50 per request. These charges are slapped on a cardholder who uses another bank's ATM terminal.

The said fees have remained unchanged since 2013.

“The BSP assures the public that its policy on ATM fees is guided by best industry practices and that it is driven with the broader welfare of consumers in mind,” the BSP added.
BSP cautions banks on interest rate risks  
Lawrence Agcaoili (The Philippine Star) - August 10, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has cautioned banks and financial institutions on interest rate risks on their earnings.

BSP Governor Benjamin Diokno said the Monetary Board has issued resolution 1087 last July 19 approving the adoption of the guidelines for managing interest rate risk in the banking book.

The resolution also amended the guidelines on risk management.

In the circular, Diokno said that the central bank recognizes that changes in the structure of banks’ and quasi bank’s balance sheets and movements in interest rates pose risks to earnings and economic value.

In particular, the BSP chief said excessive interest rate risk in the banking book (IRRBB) may result in a reduction in earnings or of capital.

IRRBB refers to the current or prospective risk to capital and earnings arising from adverse movements in interest rates that affect banking book positions.

“In this regard, the BSP expects banks and quasi banks to implement a comprehensive approach to risk management that ensures timely and effective identification, measurement, monitoring and control of IRRBB,” he said.

The guidelines aim to provide clear expectations on how a bank/QB should manage IRRBB and align the BSP’s supervisory framework on interest rate risk with international standards.

Banking book positions refer to assets generating interest income such as loans and investments and liabilities paying out interest such as deposits. IRRBB can manifest through decreased net interest margins for a bank or quasi bank that can ultimately impact its capital.

Hence, the BSP said the framework is expected to bring about prudent management of the risks posed by movements in interest rates to a bank’s or quasi bank’s funds generation and lending activities, which are the predominant business activities of BSP-supervised financial institutions.

The new guidelines set out the minimum requirements on the identification, measurement, monitoring and control of IRRBB as well as the key provisions of the guidelines pertain to the expectations on banks and quasi banks regarding IRRBB measurement, which include obtaining a thorough understanding of the frequency of interest rate changes for certain deposits and loans; quantifying the possible losses under both normal and stressed business conditions; and gauging the impact of IRRBB on earnings or capital.

In developing the guidelines, the BSP likewise took into consideration the profiles and existing practices of banks and quasi banks with respect to the management of IRRBB.

The BSP said stand-alone thrift, rural and cooperative banks are expected to measure and assess the impact of a one, two and three percent movement in interest rates on their net interest income for the succeeding 12-month period.

“These banks should likewise apply stress scenarios specific to them, such as increasing competition within their localities that could result in adjustments in the interest rates that they offer on their loans and deposits,” it said.
Shun the shotgun  
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:20 AM August 02, 2019

A “happy compromise,” the President calls the idea of reimposing, albeit “temporarily,” import controls on rice. But as I explain below, such move promises to be anything but happy, including for rice farmers themselves. To restore a policy aimed at the welfare of a few (rice farmers in this case) but inflicting collateral damage on far greater numbers of poor rice consumers (which include rice farmers, too) is to return to using a shotgun to hit a specific problem that is better shot with a focused rifle.

What prompts the President’s idea and persistent calls for review or even recall of the rice tariffication law is the drop in average farm gate prices of palay to P17.87 per kilo from last year’s P21.61, as reported by the Philippine Statistics Authority (PSA). Prices as low as P12 per kilo have been reported. The price drop is no surprise, both for milled rice at retail and unmilled rice (palay) at the farm gate, as this had always been the intended result of opening up rice trade to greater competition.

What concerns many is how palay farm gate prices have fallen disproportionately more than wholesale and retail prices of milled rice have. PSA data for mid-July report average wholesale and retail prices of well-milled rice of P39.08 and P42.88 per kilo, respectively, from last year’s P42.07 and P44.80. In percentage terms, they fell 7.1 percent (wholesale) and 4.3 percent (retail).

But farm prices had dropped by a much higher rate of 17.3 percent, suggesting that there’s something wrong in the system somewhere. The traditional rule of thumb is that the rice wholesale price is about twice the farm gate palay price. So if palay prices are down P3.74 per kilo since last year, the corresponding drop in the rice wholesale price should be around P7.48, not just P2.99 as observed. What is happening?

I asked Dr. Roehl Briones, expert agricultural economist from government think tank Philippine Institute of Development Studies, who has studied the rice market closely for decades. The P6.5 billion in rice import tariffs reportedly collected by the Bureau of Customs as of mid-July corresponds to about 1.5 million tons of rice imported this year so far. With the price of imported rice being far lower than domestic prices, retail prices should have fallen by much more than the approximate P2 drop seen since last year.

Briones estimates that the 17-percent drop in palay prices should correspond to a 26-percent drop in the rice wholesale price. As this hasn’t happened so far, the only feasible explanation is that substantial rice stocks are being stored somewhere, whereas traders, with those imports in mind, are holding off buying palay from farmers. Call it hoarding or strategic supply management, but this has so far kept consumers from realizing the full benefit of the liberalized rice trade regime. But with a little more patience, it should come, as storing rice is not costless and rice stocks cannot be held indefinitely. Briones expects that once the stored stocks are unleashed into the market, that’s when we would see rice retail prices drop more commensurately with the observed fall in palay prices.

Meanwhile, farmers are bearing the brunt of the situation, and their loss has been far greater than the consumers’ gain so far. This is why analysts who had pushed for rice tariffication had also recommended prompt assistance to affected rice farmers, even in the form of outright cash assistance. This is urgent and necessary, especially because production assistance funded by the Rice Competitiveness Enhancement Fund sourced from the rice import tariff proceeds will be slow in coming, given government’s traditional bureaucratic rigidities.
Philippines’ UnionBank Rolls Out Own Cryptocurrency: The PHX Stablecoin  
Posted on July 30, 2019 by Rehan Yousaf

After last year’s pilot project in collaboration with the Ethereum-based startup ConsenSys, Philippine’s UnionBank now has its own cryptocurrency, reports local news outlet The Philippine Star.

Arvie de Vera, Senior Vice President of UnionBank confirmed that not just the cryptocurrency, in the form of a stablecoin called PHX, has been launched, but PHX transactions have also been enabled across rural banks. Actions of PHX buying, transferring, domestic remittance and redemption transactions with the rural banks were done via a special connection with UnionBank (more on that below).

In addition, de Vera said how PHX would ensure stable, transparent and automatic transactions. This recent development is a step by UnionBank to make efficient and fast transactions available to its users in rural areas. It aims to provide “financial inclusion” by introducing this cryptocurrency.

UnionBank is one of the Philippines’ top ten major banks. Last year it reported $140 million worth of earnings, has become the country’s first bank to implement blockchain technology, and started dispersing crypto ATMs across the country. Since PHX is backed by a conventional asset, it makes it less volatile than regular cryptocurrencies. Also known as a “stablecoin,” such cryptocurrencies are pegged to already existing stable financial assets, which in this case would be the Philippine peso. This makes the digital currency more stable.

Crypto Trafing via Platform Connected to Rural Banks

In the report by Philstar, de Vera stated “Governance is assured by design. Reconciliation challenges of the past are no longer an issue. Meanwhile, audit and compliance are made easier.”

According to him, PHX uses i2i platform to connect listed banks with rural banks; i2i is UnionBank’s clearing system that uses blockchain technology to connect to the rural banks. This network was used to make transactions by three rural banks: Progressive Bank, Summit Rural Bank and Cantilan Bank.

Initially, PHX is only available to i2i users. They can buy the virtual currency by debiting directly from their UnionBank accounts. Users can also easily convert PHX to Philippine’s peso through their bank accounts. In the future, PHX is expected to be used across different platforms and wallets. Its conversion will not be limited to peso but will be able to cater to all global currencies.

Recent developments in the financial realms prove that at least some banking authorities are not against cryptocurrencies. For example, some of Australia’s biggest banks are now experimenting with blockchain technology.

Banks and financial institutions don’t like to give up control. They are against the idea of decentralization by default, which makes digital currency less stable. Once the instability problem is solved, cryptocurrency can revolutionize the banking systems of the world.
Agri-agra loans rise 19% in Q1  
Lawrence Agcaoili (The Philippine Star) - July 9, 2019

MANILA, Philippines — Philippine banks continued to fall short of the mandated threshold for agriculture and agrarian reform lending despite the 18.9 percent increase in the first quarter, data from the Bangko Sentral ng Pilipinas (BSP) showed.

The BSP reported the banking system was able to set aside a total of P711 billion of total loanable funds for agriculture and agrarian reform credit under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 from January to March, higher than the P597.94 billion disbursed in the period last year.

The total loanable funds of the banking industry increased by 15.3 percent to P4.96 trillion as of end-March from P4.3 trillion in end-March last year.

Despite the increase, the combined allocation of loanable funds for agriculture and agrarian reform of 14.33 percent in the first quarter was way below the minimum threshold set by the law.

RA 10000 retained the mandatory credit allocation in Presidential Decree 717 where 25 percent of the banks’ total loanable funds are to be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries.

The BSP reported the loans extended by the banks to the agriculture sector amounted to P652.97 billion for 13.16 percent compliance ratio or below the required 15 percent.

The central bank said big banks or universal and commercial banks registered a compliance ratio of 13.27 percent after extending P617.81 billion to the agriculture sector, while the ratio of thrift banks only reached 7.2 percent after granting P16.21 billion.

Rural banks extended P18.94 billion to the agriculture sector for a compliance ratio of 23.36 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P58.03 billion for a compliance ratio of 1.17 percent.

The compliance ratio of big banks for agrarian reform loans only reached 1.01 percent, while that of thrift banks settled at one percent.

On the other hand, the compliance ratio of rural and cooperative banks reached 11.1 percent.

BSP Governor Benjamin Diokno had said the regulator is pushing for the amendments to the agri-agra law as it continues to punish banks through penalties for failing to meet the thresholds of the mandated lending.

“Amendments to this law will allow banks to merge their loan allocation to the farm sector as a measure to improve banks’ compliance rate,” Diokno said.
Diokno eyes 6% level output for PH economy in Q2 
July 3, 2019
By Joann Villanueva/Philippine News Agency

MANILA — Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is optimistic of at least a six percent growth in the domestic economy in the second quarter of 2019, on the back of stronger public spending and more robust consumption.

In an interview after the launch of the New Generation Currency (NGC) bearing his signature at the central bank Wednesday, the BSP chief explained that consumption slows when inflation goes up and this, he said, also impacts the manufacturing sector.

In the first quarter of the year, growth, as measured by gross domestic product (GDP), slowed to 5.6 percent from quarter-ago’s 6.3 percent.

Government economists traced this to the delay in the approval of the national budget, which hampered government’s spending program.

Relatively, inflation sustained its deceleration down to last April after it peaked at 6.7 percent in September and October in 2018.

It rose to 3.2 percent last May from month-ago’s three percent level but monetary officials believe that this is a one-off situation.

Aside from government spending and consumption, Diokno said growth of investments is also robust, with various companies like Jollibee, McDonalds and 7-11 reporting expansion plans.

He also hopes for the recovery of the banking industry “because of what we’re doing”, referring to the impact of the total of 200 basis points cut in banks’ reserve requirement ratio (RRR).

BSP’s policy-making Monetary Board (MB) slashed universal and commercial banks’ (UKBs), thrift banks’ (TBs) and non-bank financial institutions with quasi-banking function (NBQBs) RRR by a total of 200 basis points on staggered basis effective May 31, 2019 (100 basis points), June 28, 2019 (50 basis points) and July 26, 2018 (50 basis points)

RRR on demand deposits and negotiable order of withdrawal (NOW) accounts of rural and cooperative banks were, in turn, slashed by 100 basis points effective May 31, 2019.

Diokno said deciding on a big cut in banks’ RRR was a “smart move” on the part of the BSP since it allowed the banks to make the necessary adjustments ahead of the full implementation.

He said earlier fears that the cut would negatively impact on the economy and the local currency did not materialize.

“Looking back, I think it was really a smart move to pre-announce the reserve requirement (cut) so that the banking industry can prepare because there will be questions on what will happen next if we only announced a 100 basis points cut,” he said.

Asked if the cuts were able to address earlier concerns on tightness of domestic liquidity, Diokno said industry players have seen that “we are actually addressing their needs.”

Also, the BSP chief cited that the trend of bond issuances among private companies to raise funds for their expansion plans may be reduced now since they can now tap more funds from the banking sector following the RRR cuts.

He said the goal is to bring the RRR to single digit, from the current 16 percent, by the end of his term in 2024 since some countries in the ASEAN has a one percent RRR.

“Plus, we are given by the new law another instrument to control liquidity if necessary so that’s why we are emboldened to do this (RRR cuts) much faster than originally planned,” he added.
Cebuana Lhuillier Rural Bank reaches 1 million Micro Savings account holders; brings Filipinos closer to financial inclusion 
By BusinessMirror - June 21, 2019

Cebuana Lhuillier Rural Bank (CLRB), the banking arm of Cebuana Lhuillier, has reached the 1 million mark for its Micro Savings account holders following its recent launch in late February of this year. This further cements the company’s position in changing the landscape of the microfinance industry by bridging the gap between a savings account and unbanked Filipinos. The Micro Savings product is the flagship offering of CLRB through its cash agent, the 2,500 Cebuana Lhuillier branches nationwide.

“I am elated to see that we have reached 1 million account holders in such a short amount of time, this is a huge step towards financial inclusion and I look forward to banking more unbanked Filipinos.” shared Jean Henri Lhuillier, President and CEO of the P.J. Lhuillier Group of Companies.

The Micro Savings product of CLRB’s is Cebuana Lhuillier’s response to the Bangko Sentral ng Pilipinas’ (BSP) Basic Deposit Framework which eases the process of opening a bank account. Through the circular, more Filipinos can now open a basic deposit account, for an initial deposit of less than PHP100, with no maintaining balance or dormancy charges. To reach out to far-flung communities, the BSP has also allowed the use of cash agents for banks. The move is in line with the agency’s mission of bringing financial inclusion closer to every Filipino.

“When we launched our Micro Savings product, our goal was to tap close to half of the population who understood the importance of savings, but were always hampered by the onerous requirements in opening a savings account. Using the BSP Framework as our guide, we were able to simplify the process of opening an account simply by requiring one valid ID and a 50 pesos initial deposit,” said Dennis Valdes, CLRB president.

Thanks to Cebuana Lhuillier’s close to 2,500-strong network of branches, Cebuana Lhuillier Rural Bank is positive that the product will convert and encourage more Filipinos to become dedicated savings account owners. The launch is just the first step – CLRB will take advantage of the many technological innovations made available by its cash agent Cebuana Lhuillier to increase convenience and greater connectivity. Launching soon is CLRB’s eCebuana app which will allow micro savings users to check their balance and perform money transfers, as well as load prepaid credits to their phones, and pay their bills by integrating it to their micro savings account. Also in the line-up is the migration to an EMV-enabled card accessible through ATMs, plus a debit and credit facility for online and cashless shopping.
Gov’t raises P20B from T-bonds as rate plunges 
June 12, 2019 | 12:05 am

THE GOVERNMENT raised P20 billion as planned via the reissued 20-year Treasury bonds (T-bond) on offer yesterday, as its average yield plunged to two-year lows as participants continued to price in the reduction in lenders’ reserve requirement ratios (RRR) and a possible rate cut from the central bank.

The Bureau of the Treasury fully awarded the 20-year bonds it auctioned off on Tuesday as it received bids totalling P27.292 billion, more than the amount it wanted to raise.

The 20-year debt notes, which carry a coupon rate of 6.75% and have a remaining life of 19 years and seven months, fetched an average rate of 5.17% yesterday, 154.6 basis points (bp) lower than the 6.716% recorded when the bonds were last offered in January.

The average rate was also the lowest for the 20-year tenor in two years or since it fetched 5.035% last June 2017.

At the secondary market, the 20-year IOUs were quoted at 5.241% yesterday, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Following the auction, Deputy Treasurer Erwin D. Sta. Ana said the BTr saw “very good” results yesterday as the rate on the bonds plunged.

“It just shows the trend (is heading towards) declining interest rates,” Mr. Sta. Ana said.

“As already mentioned by the Treasurer, the factors (include) the RRR cut, the possible rate cut from the BSP (Bangko Sentral ng Pilipinas),” he added.

The central bank last month slashed the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.

The BSP earlier estimated that a percentage point cut in big banks’ RRR released P90-100 billion into the financial system, while another P22 billion was seen unleashed due to a 100-bp reduction in reserve requirements for smaller lenders.

Meanwhile, BSP Governor Benjamin E. Diokno earlier said the central bank “has more room” for monetary easing, and that it is a question of when and not if.

Mr. Sta. Ana said another factor considered by investors yesterday was the movement of US Treasuries.

Yields on US debt papers have been declining recently as market players flocked to other instruments due to the simmering trade tensions between the US and countries such as China and Mexico.

“The market continued to track US Treasury yields which saw a mild correction week-on-week as trade concerns eased after the US and Mexico reached an agreement,” Robinsons Bank Corp. peso debt trader Kevin S. Palma said in a phone message.

US President Donald J. Trump decided to cancel an earlier plan to impose a five percent tax on all Mexican imports over the weekend as part of its bilateral deal with Mexico on immigration.

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in Treasury bills and P120 billion in T-bonds.

It is looking to raise some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal
Merger of 3 rural banks Okd 
Lawrence Agcaoili (The Philippine Star) - June 9, 2019 - 12:00am

MANILA, Philippines — Three more rural banks have merged as the industry continued to heed the Bangko Sentral ng Pilipinas’ (BSP) call for mergers and consolidation to further strengthen the country’s financial system.

BSP Deputy Governor Chuchi Fonacier announced the merger among First lmperial Business Bank Inc. (formerly RBG lmperial Bank Inc.), First Midland Rural Bank Inc. and Business and Consumers Bank.

Fonacier said FIBB would be the surviving entity and the merged rural banks would commence operation on June 28.

The Securities and Exchange Commission (SEC) had already approved the amended Articles of Incorporation and by-laws of RBG lmperial Bank including among others, the change in its corporate name to FIBB.

Fonacier said the SEC also approved the plan and articles of merger.
Another troubled bank gets closure order from BSP
Lawrence Agcaoili (The Philippine Star) - June 2, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has closed down another problematic bank, bringing to four the number of financial institutions shuttered last month and seven so far this year.

The central bank’s Monetary Board issued MB Resolution 802 last Thursday prohibiting East Coast Rural Bank of Hagonoy Inc. from doing business in the Philippines and placing it under the supervision of the state-run Philippine Deposit Insurance Corp.

East Coast Rural Bank of Hagonoy is a single-unit rural bank located at HRBI Compound, G. Panganiban St., Brgy. Santo Niño Hagonoy, Bulacan.

Latest available records showed EastCoast Rural Bank of Hagonoy has 1,412 deposit accounts with total deposit liabilities of P122 million as of the end of March, of which 91.36 percent or P111.4million are insured deposits.

PDIC assured depositors that all valid deposits and claims shall be paid up to the maximum deposit insurance coverage of P500,000. Individual account holders of valid deposits with balances of P100,000 and below do not need to file deposit insurance claims, provided they have no outstanding obligations or have not acted as co-makers of obligations.
Other banks closed down in May include the Rural Bank of Guihulungan (Negros Oriental), Rural Bank of Basey (Samar) and Iloilo-based Valiant Bank Inc. Banks also ordered closed by the central bank this year include Puerto Princesa-based Palawan Bank, Rural Bank of Mabitac (Laguna) and Bagong Bangko Rural ng Malabang (Lanao del Sur).

Last year, BSP closed down 12 problematic banks.
The government continues to provide incentives under the Consolidation Program for Rural Banks to encourage mergers and consolidations among small banks, particularly rural banks, to further strengthen and enhance the viability of the banking system.
Demand for TDF drops ahead of reserve requirement reductions
May 30, 2019 | 12:04 am

BIDS FOR term deposits declined further on Wednesday ahead of the first round of cuts to lenders’ reserve requirement ratios (RRR) taking effect this week.

Tenders for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) auction yesterday totalled just P29.155 billion, well below the P40 billion on offer. This was also less than the P39.113 billion in bids seen last week.

Demand for the eight-day papers on offer yesterday stood at P14.98 billion, failing to fill the P20 billion on the auction block and also declining from the P20.455 billion in tenders received for the seven-day tenor last week.

Accepted yields ranged between 4.5% and 4.7679%, slightly below the 4.453-4.76% margin seen the previous week. Thus caused the average rate of the eight-day term deposits to decline to 4.6187% yesterday from 4.6375%.

Meanwhile, total tenders for the 15-day papers amounted to just P6.11 billion yesterday, lower than the P8.286 billion in bids last week for the two-week tenor and also below the P10 billion up for grabs.

Banks asked for returns within 4.5%-4.75%, slightly wider than last week’s range of 4.5-4.7%. The average yield on the 15-day term deposits likewise slipped to 4.591% on Wednesday from the previous week’s 4.5999%.

The 28-day papers, on the other hand, were met with tenders totalling P8.065 billion, down from the P10.372 billion logged a week ago and less than the P10 billion the BSP offered yesterday.

Yields sought by banks for the one-month papers were steady at the 4.5-4.75% range. Still, the average rate dropped to 4.5974% yesterday from 4.638% last week.

The term deposit tenors offered yesterday were adjusted due to the regular public holidays on June 5 and June 12.

The TDF stands as the central bank’s primary tool to shore up excess funds in the financial system and to better guide market interest rates.

Earlier this month, the BSP cut benchmark interest rates by 25 basis points (bp), bringing the interest rate on the central bank’s overnight reverse repurchase facility to 4.5%. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively.

Sought for comment, BSP Monetary Board Member Felipe M. Medalla said in a text message that banks were likely holding on to their funds as they want to deploy these elsewhere.

“They don’t have low appetite (for TDF). They have high needs,” he said. “They plan to deploy the cash that they did not place in the TDF (e.g. make new loans).”

Last week, Mr. Medalla said liquidity in the system was “tight” ahead of scheduled cuts to banks’ reserve ratios.

The BSP will slash the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.

The central bank has said that a percentage point cut in big banks’ RRR will unleash P90-100 billion into the financial system, while another P22 billion is seen to be released due to a 100-basis-point cut in the reserve ratios of smaller lenders.

Further reductions will be implemented after this week’s round of cuts to eventually bring big banks’ RRR to 16% and thrift banks’ ratio to 6% by July.

BSP Governor Benjamin E. Diokno has said he wants to reduce big banks’ reserve requirement ratio to single digits by 2023 to put the rate at par with those being implemented in neighboring countries. — RJNI
BSP rolls out reserve cuts for RB’s
By Melissa Luz Lopez, CNN Philippines
Updated May 23, 2019 5:41:09 PM

Metro Manila (CNN Philippines, May 23) — Shortly after announcing phased cuts to the required reserves for big banks, the Bangko Sentral ng Pilipinas (BSP) rolled out a similar move for thrift and rural lenders.

BSP Governor Benjamin Diokno told reporters on Thursday that the Monetary Board has approved the lowering of the reserve requirement ratio (RRR) for thrift, rural, and cooperative banks. This comes a week after the Monetary Board approved a three-stage reduction in the RRR for the big boys, or the universal and commercial banks.

"The BSP will issue the necessary circular shortly," Diokno said in a text message.

Banks have been calling for a lower RRR, saying that this is effectively a tax on banks as they are forced to keep a substantial portion of deposits intact rather than use them to grant more loans.

The Monetary Board decided to bring down the required reserves for rural and cooperative banks to four percent by May 31. These lenders, who usually cater to small borrowers in the provinces, currently need to keep five percent of total deposits on hand.

Bolder cuts will be rolled out for thrift banks: from the current eight percent RRR, it will be slashed by 100 basis points (bps) by May 31, and by 50 bps in June 28. Another 50 bp reduction will take effect July 26, leaving the required reserves at six percent.

Thrift banks cater to retail clients, mostly for home and car loans. These lenders also charge higher interest rates compared to corporate credit lines.

The phased reduction for thrift banks' RRR mirrors the 200bp cut introduced for big banks, which will settle at 16 percent by end-July.

The BSP said slowing inflation and tempered price expectations made the case for these long-awaited reserve cuts.

"The Monetary Board also expects this adjustment to help mitigate any tightness in domestic liquidity conditions due to limited public expenditure following the budget impasse in the first quarter of the year," the central bank added.

Banks have welcomed recent reserve cuts, saying this will unlock more funds that will fuel business activity.

On May 9, the BSP also reduced the benchmark interest rate by 25bp to 4.5 percent, kicking off an easing cycle for monetary policy.
Bangko Sentral shuts down Rural Bank of Basey in Samar

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) shut down a rural bank in Samar on Monday, May 20, the fifth bank it has closed in 2019.

According to BSP Deputy Governor Chuchi Fonacier, the Monetary Board prohibited the Rural Bank of Basey from doing business in the Philippines, pursuant to Section 30 of the New Central Bank Act.

The bank is now under the supervision of the Philippine Deposit Insurance Corporation (PDIC).

The PDIC will be accepting letters of intent from interested banks and non-bank institutions who seek to purchase the bank's assets and assume its liabilities.

Based on the latest available records, the Rural Bank of Basey has 631 deposit accounts, with deposit liabilities totaling P41.4 million. Of these, 19.7% or P8.15 million were insured deposits.

The BSP has closed 4 other banks this year, so far:

Valiant Bank Incorporated (A Rural Bank), Iloilo
Palawan Bank (Palawan Development Bank) Incorporated, Puerto Princesa City
Rural Bank of Mabitac (Laguna) Incorporated
Bagong Bangko Rural ng Malabang (Lanao del Sur) Incorporated
In 2018, the BSP closed down 12 problematic banks. – Rappler.com
It’s coordination, stupid!
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:05 AM May 21, 2019

Development planning may be seen as an effort to coordinate actions of government, private sector and civil society to uplift everyone’s wellbeing via outcomes that bring about the greatest good for the greatest number. The key word is “coordinate.”

It’s a challenge enough to achieve coordination across the three stakeholder groups of government, private sector and civil society; across economic sectors (agriculture, industry and services); or across industries (say, manufacturing, logistics and power). But when coordination fails even within the same group (say, within government itself, or within agriculture itself), then we really are in trouble.

The National Economic and Development Authority (Neda) recently organized an Agri-Industry Research Forum to take stock of our knowledge base in agriculture and agribusiness. I came out of that forum seeing no lack of research-based knowledge to achieve the level of agri-industrial dynamism already attained by neighbors like Thailand and Vietnam. After all, we can say that these neighbors learned their agriculture from us, having sent many students to the University of the Philippines Los Baños, erstwhile Southeast Asia’s knowledge center for the agricultural sciences. Thus, we know what’s needed to solve our problems in agriculture/agribusiness; we just can’t seem to do things right.

The crux of the problem lies in governance, the focus of the last session in the Neda forum, and research has not been wanting even in that area. Dr. Nerlita Manalili drew her presentation from previous studies on governance and regulatory management in the sector, and lying at the heart of the governance problem is lack of coordination.

Random examples include, among many others: lack of personnel for critical regulatory and accreditation agencies like the Food and Drug Administration (FDA), even as there are inadequate testing facilities/laboratories to examine food and nonfood agricultural products for marketworthiness; conflict of interest in certain agriculture agencies with both regulatory and promotional functions; weak agricultural insurance system contributing to poor credit access by farmers; duplicating or overlapping regulatory requirements; and disjointed policy and program support for the various links in the agricultural value chain.

On regulatory overlaps, a favorite example that used to be cited by former Customs commissioner Sunny Sevilla was the need for importers of Toblerone (or milk chocolate candies with nuts, in general) to obtain prior clearance from the FDA, the Bureau of Animal Industry because the product contains milk, and because it also contains nuts, from the Bureau of Plant Industry as well—when all three could simply coordinate and consolidate their permits into one.

On value chain support, our problem is that the Department of Agriculture (DA) considers anything that happens beyond the farm gate to be the responsibility of the Department of Trade and Industry (for processing), or the Department of Transportation (for logistics).

A long suggested fix for the regulatory issue is to consolidate all agriculture-related regulation functions into one apex regulatory agency within the DA. This would not only address the conflict of interest issue in certain DA bureaus, but would also address the regulatory overlaps and duplication that raise the cost of doing business in our country. I’ve written before of a long suggested solution to address the interdepartment coordination problem that prevents holistic value-chain oriented support for agribusiness, which is to follow the examples of Malaysia, Vietnam and many other countries: Rather than just a Ministry of Agriculture, Malaysia has a Ministry of Agriculture and Agri-based Industries, and Vietnam has a Ministry of Agriculture and Rural Development.

We must also foster industry associations that bring together members from various links in the value chain, rather than have separate associations for farmers, traders, food processors or truckers.

If we are to have tighter coordination in the governance of agriculture/agribusiness in government and in the private sector, these would be good ways to start.
Losing steam?
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:06 AM May 14, 2019

Election years have historically kicked up our economy’s growth by 2-3 percentage points. In the election years of 2004, 2007, 2010, 2013 and 2016, first quarter gross domestic product (GDP) growth was 6.2, 7.0, 8.4, 7.7 and 6.9 percent, respectively, against an average of only 5.0 percent in the nonelection years since then.

For the first time since the turn of the century, we’re seeing an election year start off with the economy slowing down (5.6 percent), the first time in at least two decades it has grown below 6 percent—when we should be seeing a growth upsurge. Why so? Is the economy finally losing steam, after growing above 6 percent for seven years in a row?

A lot of money goes around the economy running up to elections. Much cash comes into circulation out of hidden or unhidden bank accounts held here and abroad. It also comes out of government coffers; from private cash hoards hidden in safes, chests and cartons; or even from illegal money printing machines. A major money counterfeiting operation was actually caught by the National Bureau of Investigation before the 2013 midterm elections.

All that money buys campaign posters, streamers and tarps; radio, TV and newspaper ads; land, sea and air transport services for candidates and their entourage; hotel and other accommodations; T-shirts, caps, fans and umbrellas emblazoned with candidates’ names; show-business personalities’ talent fees; salaries and wages of campaign workers; food and meals consumed and given away during the campaign, and yes—to buy people’s votes directly.

On the government side, the Commission on Elections (Comelec) reportedly budgeted about P16 billion for the conduct of the 2013 midterm elections. Government at both national and local levels also has the tendency to boost infrastructure spending in the run-up to elections, for obvious reasons.

So why is the economy now chugging along with a mere 5.6 percent growth, when it should have been within 7-8 percent based on past election years’ experience? Government points to the delayed passage of the 2019 budget as the main culprit, given that it was already well into the second quarter when the lawmakers’ squabble over the pork barrel was finally resolved. But was it really mainly the delayed budget that slowed things down, when government spending actually accounts for a mere 13 percent of aggregate GDP on the spending side? Or is the economy generally slowing down, with or without the budget delay that slowed down government spending?

Closer examination of the GDP data suggests that there’s much more to the slowdown than the budget delay. Based on sectoral composition, this year’s slowdown from the same quarter last year happened in agriculture, fishery and forestry (from 1.1 percent last year to an even more dismal 0.8 percent this year), and in industry (from 7.7 percent last year to only 4.4 percent this year). The slowdown in agriculture was driven by 4.5 and 2.1 percent contractions in rice and corn, respectively, along with falling production in key export crops like banana, mango, coffee and rubber.

Most disturbing to me is the slowdown in the manufacturing sector, which had grown at an average of 7-8 percent annually since 2010, but whose growth has weakened since the second quarter last year (now 4.6 percent). Food manufacturing, the single largest subsector therein, actually sped up from 5.8 to 10.6 percent, but the next largest subsector composed of electronic equipment and apparatus dramatically slowed from 16 percent growth last year to a mere 1 percent this year. Manufacturing fell in furniture and fixtures, office equipment, nonelectrical machinery, rubber and plastic products, and petroleum refining. Meanwhile, services, the largest sector in the economy comprising 60 percent of total GDP, actually speeded up from 6.8 to 7 percent growth.

Lower government spending alone couldn’t have induced much of those slowdowns and contractions. It’s time that our leadership recognized that bad governance and politics are taking their toll on the economy, and with them, people’s wellbeing. I could only hope that the choices we made in yesterday’s elections would help change that.he Bangko Sentral ng Pilipinas (BSP) and the Agricultural Credit Policy Council (ACPC) have increased the number of its accredited rural financial institutions (ARFI) for agri-agra lending to 35 from 30 last year, according to a circular memo.

The April 16 memo, signed by BSP Deputy Governor Chuchi G. Fonacier, listed nine ARFIs approved by the BSP, and 26 recognized by the ACPC.
defective if a disaccredited RFI is declared and used for compliance with the agri-agra requirement beyond the grace period, said Fonacier approach.

The BSP has amended circulars detailing the rules and regulations of Republic Act 10000 (or the Agri-Agra law) which repealed Presidential Decree 717 in 2011 and listed alternatives for banks for easier compliance such as investments in housing and education/medical bonds and microbusinesses even if these are not agri-agra related.

The amended law has rationalized compliance by banks. It has retained the mandatory requirement of 25 percent that banks will set aside as loanable funds for agriculture and fisheries. Of the 25 percent, 10 percent are for agrarian reform-related loans.
Gov’t expands list of ARFIs for agri-agra lending network
Published April 23, 2019, 10:00 PM
By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) and the Agricultural Credit Policy Council (ACPC) have increased the number of its accredited rural financial institutions (ARFI) for agri-agra lending to 35 from 30 last year, according to a circular memo.

Bangko Sentral ng Pilipinas (BSP) logo

The April 16 memo, signed by BSP Deputy Governor Chuchi G. Fonacier, listed nine ARFIs approved by the BSP, and 26 recognized by the ACPC.

Fonacier again stressed that an accreditation is not an endorsement from the BSP, and that the list of accredited rural banks are for “reference and guidance of lending and/or investing banks” only.

It used to be that BSP will only disclose the seven to 10 rural banks that they have named as ARFIs since 2012 but now includes the ACPC list which was created in 2016.

According to Fonacier in the memo, “under existing rules and regulations, a lending and/or investing bank intending to utilize its exposure to an accredited RFI to comply with the agri-agra report must disclose such exposure in its agri-agra report submitted to the BSP along with the RFls corresponding ARN (accredited reference number). Exposure to the accredited RFI shall be eligible for determining compliance with the agri-agra requirement for as long as the said RFI remains validly accredited until sooner revoked for non-renewal or non-compliance with the qualification requirements prescribed under existing rules and regulations.”

“In the event of disaccreditation,” she added, “the lending/investing bank is allowed to use its exposure to a disaccredited RFI for compliance with the agri-agra requirement for a grace period of only up to the next reporting quarter following the disaccreditation.”

The agri-agra report of the lending/investing bank will then be considered defective if a disaccredited RFI is declared and used for compliance with the agri-agra requirement beyond the grace period, said Fonacier.

The nine rural banks in the BSP list are: Producers Savings Bank Corp.; Rural Bank of Sta. Catalina; Common Wealth Rural Bank; Rural Bank of Bay; Rural Bank of Angeles; New Rural Bank of San Leonardo (Nueva Ecija); First lsabela Cooperative Bank; Rural Bank of San Mateo (lsabela); and Cavite United Rural Bank Corp.

Not in the list but were on it previously were Rural Bank of Kiamba, Rural Bank of Pilar (Bataan), and Rang-Ay Bank, Agri Business Rural Bank, Philippine Resources Savings Bank Corp. and Rural Bank of Gattaran (Cagayan).

ACPC, in the meantime, has accredited five more cooperatives as ARFIs in 2018, bringing the list to 26 from 21 in 2017.

The BSP said the accreditation is only in accordance with the provisions of the Agri-Agra Reform Credit Act of 2009 and should not be viewed as an “endorsement of the soundness” of the ARFIs.

“The accreditation cannot be used for any purpose other than for implementing the provisions of the Agri-Agra Reform Credit Act of 2009 and its relared rules and regulations,” said the BSP.

The RFIs were established as part of the implementation of the Agri-Agra Reform Credit law and the BSP list serves as guide to inform the public of which banks to approach.

The BSP has amended circulars detailing the rules and regulations of Republic Act 10000 (or the Agri-Agra law) which repealed Presidential Decree 717 in 2011 and listed alternatives for banks for easier compliance such as investments in housing and education/medical bonds and microbusinesses even if these are not agri-agra related.

The amended law has rationalized compliance by banks. It has retained the mandatory requirement of 25 percent that banks will set aside as loanable funds for agriculture and fisheries. Of the 25 percent, 10 percent are for agrarian reform-related loans.
Agriculture beyond rice
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 09:05 AM April 23, 2019

Is a Philippine agricultural takeoff finally in the offing? The much-debated rice tariffication law, the main effect of which is to open our rice trade, heralds the possible unleashing of the Philippines’ full agricultural potential, and make it the economic driver it has been for our closest neighbors. For decades, agriculture has been the drag on the Philippine economy, always lagging far behind growth in industry and services—all because too many of us seemed to have the mindset that rice is Philippine agriculture.

One would think that Vietnam, a major rice exporter, would be dominantly focused on that commodity. But as rice area grew by 20 percent in the 1990s, the area under industrial crops increased far more rapidly at 83.4 percent. Like Vietnam, Thailand deliberately pursued agricultural diversification, and while the world’s top exporter of rice has also been a top exporter of rubber, sugar and cassava.

Here, attention and budget have been hogged by rice—and have little to show for it. And so, while we earned only $5 billion from agricultural exports last year, Thailand and Vietnam both got eight times as much from theirs. Thailand’s of natural rubber alone already equal the value of our total farm exports.

Many believe that agrarian reform stifled Philippine agriculture, leading to small farmholdings that have deprived our farm sector of the efficiency and productivity that come with economies of scale. But small farmholdings have not stopped Thailand, Malaysia and Vietnam from achieving much more dynamic agricultural sectors than we have. It is not farm ownership that matters, but farm organization, and our neighbors’ example should guide us on how to proceed with an agriculture expansion push no longer unduly fixated on rice, to the relative neglect of other crops.

It’s ironic that apart from us having trained our neighbors’ agricultural scientists in decades past, key to our neighbors’ agricultural dynamism has been something we actually pioneered in the 1970s. It’s called contract farming, a scheme used by Arbor Acres for poultry production in the United States. San Miguel Corp. applied it in its poultry operations at around the same time agribusiness giant Charoen Pokphand began adopting it in Thailand. In both the Philippines and Thailand, market supply of chicken meat dramatically rose, sharply reducing its price. “For the first time,” wrote Thai agricultural economist Nipon Poapongsakorn, “chicken meat had become the important source of cheap protein for the poor and the lower middle class.”

What is contract farming? The scheme involves small farmers supplying agreed quantities of a crop or livestock product to a large processing company, based on the latter’s quality standards. The company pays a predetermined price, and supports the farmers with assistance in land preparation and provision of inputs and production advice. Coalition for Agri-Fisheries Modernization in the Philippines chair Dr. Emil Javier recently wrote of its virtues: “For small farmers, the arrangement gives them ready access to credit, inputs and modern technologies which they have difficulty obtaining on their own… (and assurance) of market prices designed to make them profitable. In study after study and country after country, contract growers are known to be much better off than their independent, unorganized counterparts.”

Thailand had since expanded contract farming to many other products including pork, sugar, vegetables, pineapple, oil palm, various fruits, potato, dairy, tilapia, shrimp and sea bass. It has been credited for Thailand’s dynamic agricultural sector growth and exports. Vietnam has also embraced the model for its rapid agricultural diversification and growth.

In the Philippines, beyond poultry, we now see it used in oil palm in Mindanao, and by Jollibee Foods to procure onions and calamansi. The scope remains huge, and in an agricultural sector less fixated on rice and targeted at wider diversification like in Thailand and Vietnam, it should be our vehicle to propel Philippine agriculture from being a drag to a driver of the economy—and uplift our farmers’ lives in the process.
Real transformation seen to boost efforts to finance PHL’s agriculture sector
By BusinessMirror
March 21, 2019

NEARLY four decades ago, artist Rody Vera sang about Tano, a farmer victimized by usurious practice that led him to join the enemies of the State. The song popularized by Vera’s group Patatag struck a discordant note in civilized society that the State issued policies addressing usury. The latest among these policies is Republic Act (RA) 10000 or the Agri-Agra Reform Credit Act.

When the 10,000th law was signed in 2009, the government intended to pursue equal access to opportunities for farmers and fishermen, in an effort to promote rural development. The spirit of the law is on enhancing access of the agricultural sector to financial services and programs that increase market efficiency and promote the modernization of the farm sector.

The mandated lending to agriculture and agrarian reform requires banks to allocate 25 percent of their total loan portfolio to the two sectors—10 percent for the agrarian reform credit and 15 percent to other agricultural credit.

The decade-old law, however, has failed to steer the target level of bank funds to the farm sector.
Bank compliance

IN end-September 2018, universal and commercial banks’ compliance to the 10-percent required lending to the agrarian reform sector hit 0.79 percent; their compliance to the 15-percent required lending to the agricultural sector reached only 12.95 percent.

The thrift banking sector follows the universal and commercial banks’ trend, with a 1.2-percent compliance rate against the 10-percent mandate for the agrarian reform sector and 6.19 percent as against the 15-percent mandate for the agricultural sector.

Even rural and cooperative banks—whose major market are composed of farmers and fishermen—are finding it increasingly difficult to comply with the mandatory lending to the agrarian reform and agricultural sector, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Five-year data trend from the BSP showed that while rural and cooperative banks are still the only banking group that is able to comply with the agri-agra lending quotas, their share in this sector has been shrinking over the years.

This is despite the crucial role of agriculture in a country’s overall development.

By end-September of last year, the rural and cooperative banks’ lending to the agrarian reform sector hit 11.79 percent and 24.19 percent for the agricultural sector. This is versus their allocation in end-2013, when these smaller banks were able to allocate 24.53 percent of their total loan portfolio to agrarian reform credit, way above the 10-percent mandate. For the agriculture sector, rural and cooperative banks set 44.59 percent of their loan portfolio to this sector, also exceeding the 15-percent quota.

According to the BSP, providing access to credit to the agriculture sector has significant economic implications especially for a developing country like the Philippines especially in terms of food security, employment and poverty reduction.

Data from the BSP also showed that the nonperforming loan (NPL) ratio of agricultural loans has actually been decreasing along the overall decline in NPLs of the whole banking industry. From an NPL ratio of 4 percent in 2014, the NPL ratio of agri-agra loans dropped to 2.78 percent in 2018 as end-September 2018. However, this is still higher than the NPL ratio of the banking industry, which posted a ratio of 2.3 percent in 2014, 1.7 percent in 2017, and between 1.83 percent and 1.87 percent in 2018.
Implementation challenges

A BSP official who requested to remain anonymous told the BusinessMirror that although mandatory credit quota appears to be a straightforward approach in channeling funds to the agri sector, it does pose serious implementation challenges and financial stability risks.

The BSP has, for years, been vocal in its support to amending the decade-old law, saying that mandated lending is an outdated mode of pushing funding into specific sectors in the economy.

In October 2017, the Inter-Agency Agri Agra Task Force— composed of the BSP, the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR)—submitted to the Senate Joint Committee on Agriculture and Food and Agrarian Reform its report on the state of agriculture financing in the country, as part of the mandated periodic review of the implementation of the mandated credit quota under RA 10000.

The report aims to shift the focus of government efforts to promote sustainable agriculture financing from mandated credit into other strategic interventions around building the necessary financial and data infrastructure, improving capacities of both borrowers and lenders, and other mechanisms.

“We recognize that agriculture is a highly political issue and amending the agri-agra law is—ultimately—the sole discretion of the legislators; stakeholders can simply advocate and support a position,” the BSP official said. “As a financial system regulator, BSP’s main interest in the mandated credit is its potential impact on financial stability and consumer protection.”

The BSP also urged banks to “formalize” their position as a group to provide legislators a better appreciation of their concerns and issues not simply from the perspective of agri-agra compliance but also, and perhaps more importantly, on how they can play a more strategic role in rural development as financing providers.
Absorptive capacity

HOWEVER, the problem of financing the agricultural sector, the BSP official further explained, is not just a banking issue, but an issue that will have to be addressed coherently by multiple sectors of the government.

Although banks are known to be hesitant to lend to the agricultural sector because of the given risks to the sector’s ability to earn, such as seasonality and susceptibility to weather conditions, the BSP argued that not all impediments to the implementation of the agri-agra law are due to financing issues.

“There are many factors affecting the state of agriculture financing and why bank lending to the sector is not at the desired level [at least based on agri-agra quota requirements], including the issue on the productivity and absorptive capacity of the sector,” the BSP official said.

In particular, in terms of loan disbursements by banks to the agriculture sector, it actually grew from P232.7 billion in March 2012 to P598.3 billion in September 2018.

“While compliance rates to the Agri-Agra Law actually fell, the absorptive capacity of the agriculture sector could be a limiting factor as it has been significantly outpaced by the growth of the banking sector’s total loanable funds,” the BSP official said.
New moves

EARLIER, the Asian Development Bank (ADB) funded a comprehensive study on financing agriculture value chains in the country. The draft report prepared and submitted by an ADB consultant in October last year emphasized, among others, the need to build the technical capacity of banks and farmer-based organizations to effectively engage in value chain financing.

In response to the findings of the study, the BSP official told the BusinessMirror that they are—in partnership with the ADB—exploring the possible development of a pilot value chain financing ecosystem that will involve a bank or several banks, and value-chain players and government agencies such as the departments of agriculture (DA), agrarian reform (DAR), trade and industry (DTI) and the Cooperative Development Authority, among others.

“Lessons from this pilot can inform interagency approach to ensure implementation of focused, structured and coordinated efforts to promote AVCF [agriculture value chain financing] in the country,” the BSP official said. “For the BSP in particular, the pilot implementation can provide useful inputs for policy development and interventions to strengthen the technical capacity of banks to engage in value chain financing.”

Such intervention may include development of an AVCF toolkit for banks and design of a training program for agriculture-focused bankers, documents from the BSP revealed.
Compliance rates

FOR the Philippine Chamber for Agriculture and Food Inc. (PCAFI), the problem of how to increase compliance rates could be addressed by guarantee.

To turn around the low compliance rate by commercial banks to RA 10000, PCAFI President Danilo V. Fausto proposes that the government intervene by providing sovereign guarantee.

Fausto told the BusinessMirror that the government used to have the Agricultural Guarantee Fund Pool (AGFP). However, he said the government failed to maximize this scheme that allows farmers to have wider access to credit.

The AGFP, together with other state guarantee funds, was merged with the Philippine Export-Import Credit Agency to become the Philippine Guarantee Corp. (PhilGuarantee). The merger was approved by President Duterte last year.

“It is not attractive to banks to grant loans to the agriculture sector due to risks. And the government could intervene to mitigate risks by providing guarantee to banks,” Fausto said. “In this way, farmers would now have access to credit from banks.”

He added they are hoping that PhilGuarantee would focus on providing guarantee to borrowers from the farm sector. Fausto chided the government’s predilection to provide more guarantee to loans going to the housing sector than to the agriculture sector.

“The guarantee fund for agriculture then was only P5 billion compared to the P180 billion for housing sector. If you just do to the agriculture sector what you did with the housing sector then, for sure, the farm sector would expand by leaps and bounds,” he said.

“So our appeal to the government is to increase the fund for the agriculture guarantee fund. As much as possible put it at the same level as the fund for housing guarantee,” he added.
Anomalous approval

Fausto pointed out that even state-run Land Bank of the Philippines (LandBank) is not able to fully cover the agriculture sector in providing financial credit.

He pointed out that LandBank’s loan exposure to the agriculture sector is only about 30 percent, with 7 percent being directly granted to farmers or producers.

This, according to him, is far from what China, Thailand and other Asian countries’ LandBank-counterpart financial institutions are doing: a 100-percent loan exposure to their farm sector.

“LandBank was built for the agriculture sector,” he said. “Why is it lending to companies such as Hanjin?”

Farmers groups like the Philippine Maize Federation Inc. (PhilMaize) criticized LandBank for being involved in the credit default by Hanjin Heavy Industries and Construction Co.-Philippines (HHIC-Phil).

PhilMaize has written to leaders of both chambers of Congress and even to Duterte to probe the $85-million loan exposure of LandBank to HHIC-Phil.

“The anomalous approval is an outrageous act, a mortal sin and an act of treason to the farming and fishery sector, which [LandBank]’s mandate emanates,” Navarro said in the letter, which was sent to Duterte and other government officials on January 17.

“We must take a closer look on whether [LandBank] granted in haste and on whether it has even granted 50 percent of its loan portfolio to agriculture, its foremost beneficiary,” he added.
Justifiable spending

Fausto also proposes that LandBank employ credit extension officers (CEOs) that would reach out to Filipino farmers, especially those who are financially illiterate.

Duterte has repeatedly pronounced that the LandBank should go to the farmers and not the other way around.

Fausto surmises that LandBank could put five CEOs across all of its branches which he estimates are around 380.

This means that LandBank would hire 1,900 CEOs and, at a conservative estimate of P20,000 monthly wage, the state-run financial institution would only have to spend at least P456 million.

“LandBank earned P14 billion in 2018 and it remitted P7 billion. You are just asking or looking at P450 million to P5000 million to be invested on extension services so that farmers learn how to create business plans, be financial literate and be knowledgeable on credit,” he explained.

“So what is P500 million in relation to their income? That’s nothing, especially the extent of benefits that it would give to farmers,” he added.

“Farmers lack financial literacy, that’s why traders take advantage of them easily,” he added.

Fausto added that the government could tap professors from state universities and colleges to teach financial literacy to farmers.
Acquiring funding

The DA, for its part, has been keen on issuing bonds that would fund the agency’s flagship programs to improve the country’s farm productivity.

Last month, Agriculture Secretary Emmanuel F. Piñol said he had had initial talks with private banks, which have already expressed interest to offer financing of up to P200 billion worth of government agricultural projects.

According to Piñol, the banks include the members of the Chamber of Thrift Banks, the Metropolitan Bank and Trust Co., Bank of the Philippine Islands, EastWest Bank and Sterling Bank of Asia. These banks, he said, also signified interest to fund projects that would be certified compliant to the Agri-Agra law.

“They said they have about P200 billion, which they could use to fund agriculture and agrarian projects to comply with the Agri-Agra law,” he said.

Some of the projects being eyed to be funded by the private banks are DA’s solar-powered irrigation system banner program, farm mechanization and farm-to-market road construction, according to the agriculture chief.

“The banks said they are not avoiding exposure to agriculture. It’s just that they do not know the government’s programs where they can invest in,” he told the BusinessMirror in an interview in February.

“They said it is unfair to them that they pay the fines while the government is not offering any agricultural programs to them,” he added.
Sectoral support

According to the Agricultural Credit Policy Council (ACPC), the total loans granted to the agriculture, fishery and forestry (AFF) sector in 2017 rose by 23.7 percent to P619 billion from the P500 billion recorded in 2016.

The double-digit growth drove the share loans granted to AFF sector to increase to 1.6 percent of the total loans granted by banks to the whole economy, from 1.3 percent in 2017, documents from ACPC showed.

“This may be attributed to the favorable factors affecting the agricultural sector, like favorable weather conditions, ample government interventions, which boosted agricultural production,” the ACPC said in an annual report.

ACPC data showed that the bulk or about 61.68 percent of the loans granted to the AFF sector came from the private banks, with the remaining amount being provided by state-run financial institutions.

In 2017, private banks provided P381.642 billion as loans to the AFF sector, which was 24.50-percent higher than the P306.541 billion the banks lent in 2016, ACPC data showed.

Private commercial banks led the sector in terms of agricultural loans in 2017 as it accounted for 56.47 percent of the total loans granted by the private sector. These banks accounted for 34.83 percent of the loans provided by all financial institutions to the AFF sector.

Agricultural lending by private commercial banks in 2017 rose by nearly 24 percent to P215.524 billion from P173.929 billion in 2016, ACPC data showed.

This was followed by loans extended by thrift banks that reached P123.812 billion in 2017, 31.5 percent over the P94.151 billion thrift banks provided in 2016, according to ACPC documents.

“Rural banks (RBs), on the other hand, whose commitment is to sustain growth in the countryside, barely posed a 10-percent growth in loan releases to agriculture amounting to P42 billion,” ACPC said.

Total agricultural loans by state-run banks in 2017 expanded by 22.58 percent, but their share to the total value shrank to 38.32 percent.

“As the leading government agricultural lending institution, LandBank continues to beef up its lending to priority sectors (i.e., small farmers, [fishermen], microenterprises, small and medium enterprises, among others), posting a 24.57-percent growth in agricultural loans at P202 billion,” ACPC said.

“On the other hand, loans released by the DBP [Development Bank of the Philippines] to the agriculture sector rose by 12.28 from last year’s level amounting to P35 billion,” it added.
Production loans

Likewise, the ACPC observed growth in the agricultural production loans granted by all types of banks in 2017.

Total agricultural production loans in 2017 reached P350.382 billion, which was 29.20 percent higher than the P271.204 billion recorded in 2016, ACPC data showed.

This is the highest value of loans provided directly to farmers since 2012, according to the Philippine Statistics Authority (PSA).

Loans provided directly to farmers accounted for more than half or about 56.62 percent of the total agricultural loans granted during the reference period.

The ACPC noted that the value of government banks’ farm loans expanded by 26 percent to P65.435 billion from P51.896 billion in 2016.

Loans provided by state-run financial institutions to farmers accounted for 18.68 percent of the total agricultural production loans granted in 2017, according to ACPC.

“LBP, as it continued to intensify lending to the agricultural sector, released nearly P62 billion worth of production loans, a 14-percent increase compared to the previous year,” it said.

“On the other hand, DBP showed strong performance as the bank continued to strengthen its assistance to agriculture when its agricultural production loans grew more than double (147 percent) from P1.3 billion to P3.3 billion for the year,” it added.

Loans granted directly to farmers by private banks, which accounted for 81.32 percent of the total value, expanded by nearly 30 percent to P284.947 billion from P219.308 billion in the previous year.
Exposure rate

ACPC data revealed that Philippine banks in 2017 had a total loan exposure of P8.811 trillion, 1.9 percent over P7.473 trillion recorded amount in 2016.

Of the total amount, outstanding loans to agriculture only accounted for 4.6 percent with a value of P405.329 billion.

Nonetheless, the loan exposure to agriculture sector rose by 10.5 percent from P366.824 billion recorded in 2016, ACPC data showed.

“The loan receivables of government banks rose by almost 10 percent amounting to P143 billion,” the report read.

Total loan exposure to agriculture sector by private banks, which accounted for 64.73 percent of the total value, expanded by 11 percent to P262.366 billion from P236.351 billion.

“Meanwhile, among the private banks, only private commercial banks and thrift banks exhibited an increase in their loan exposure to agriculture at 13 percent and 6.5 percent, respectively,” the ACPC report added. On the other hand, total agricultural loans outstanding of rural banks contracted by measly less than 1 percent.”
Real transformation

TO address the issues underlying agriculture financing, the BSP said the country will have to have a clearly laid out and demonstrated commitment to implement a whole-of-nation road map for the agriculture sector.

“We believe that the issues and challenges confronting the Philippine agriculture sector will not be solved by mere allocation and pouring of more credit resources to the sector. What is needed is a real ‘structural transformation’ where resources are directed not only to credit but more importantly to infrastructure development, research and development, training and capacity-building, modern equipment and machineries, and land distribution,” the BSP said.

For the agricultural sector, the BSP said it would be good, especially for the smallholder farmers, if they could gather themselves and form an organized group such as a small farmers’ organization or cooperative. Doing so, their agricultural endeavors could be viewed by banks as something more viable and sustainable.

“Further, as an organized group, they will be able to purchase farm inputs at lower cost, get access to farm machineries and equipment, obtain fair prices for their farm produce and possibly increase their likelihood of getting access to formal credit from banks given the lower risk associated with a larger group vis-à-vis individual smallholder farmers,” it added.

The BSP said it will take more than a whole-of-government approach to get things done.

“All stakeholders, including the private sector and civil society, should work closely together in order to meet the current and future challenges of the Philippine agriculture sector through a combination of policy and market reforms, training and capacity-building, better governance and a stable political environment and improved relations with trading partners,” the Central Bank said.

The BSP, nevertheless, reiterated its commitment to continue pushing for a more sustainable lending environment to the agricultural sector.

“As a regulator, the BSP’s primary goal is to provide an appropriate and enabling regulatory environment that facilitates access to credit and other financial services while ensuring the stability of the financial system as a whole. While we seek to encourage financial innovation and promote innovative financing models in agricultural financing, we also aim to effectively manage any and all ensuing risks that may arise from these activities. Nevertheless, we recognize that agricultural financing, if better understood and with risks properly managed, can have a transformative effect for smallholder farmers, the agriculture sector and the economy as a whole” the BSP said.
How can finance seize digital opportunities?
Anton Ng 06 Mar 2019

Whether it is artificial intelligence, big data, analytics, or cloud technology, technological advances present an opportunity for finance or accounting teams. However, what is the best way to make the most of potential gains: an enterprise-wide solution or a more targeted approach?

Many will attest that investing in technology can bring a competitive advantage, as well as connectivity. However, many companies are hesitant about digital transformation due to lack of knowledge and willingness to invest. This despite the fact that we live in a world shaped by cloud and wireless technologies.

We are on the cusp of a new wave of technology that affects not only customers, but the back office as well. Robotic process automation and machine learning are enabling automation and opportunities to scale up, which were not there before.

Furthermore, analytics and artificial intelligence are creating situations wherein the finance platform can be built on top of the company’s core systems, without having to change or update them. This gives finance and accounting teams the freedom to improve without moving or modifying essential systems usually very expensive to change

Is the Finance department lagging behind?

Finance and accounting teams especially face two main challenges. First, they are often not as aggressive as other functions in seeking investment in the latest systems and technologies. Unfortunately, companies tend to focus on operational and customer-facing technology. The return on investment in finance systems can be extremely quick, but it is rarely articulated.

Second, finance teams lack the capacity to step up and adapt. Such departments often lack the time to focus on special projects, like digital transformation, when ‘business as usual’ comes first. Finance may not have the time for major transformations, but teaching continuous improvement across the organization can make a huge impact.

Don’t be tech-savvy for the sake of it

For mid-sized businesses considering spending on technology, check first if you can maximize current systems. Adding technology is not a magic bullet. Companies can implement new solutions, but if the adoption is poor, because users neither are engaged nor aware of the system’s benefits, they just die out. This leads to resistance to embracing similar projects in the future.

One approach does not fit all

The approach that companies should take depends on the type of organization and its needs. For an enterprise-wide solution, the challenge is the lack of a clear business case for the change.

Management has difficulties with providing robust analysis of business benefits and return on investment. In some cases, however, an enterprise-wide digital transformation is exactly what the organization needs.

A mid-sized business where connectivity between warehouse management, e-commerce, and finance needs an overhaul because investing in technology will enable a company-wide transformation. Alternatively, a specific business case that delivers clear return on investment is sometimes a better and more affordable option.

Plan, plan, plan

Digital transformation can go wrong when there is no proper business case, which explains in detail the financial benefits, work improvements, and project delivery structure.

Sadly, most finance functions sit on massive amounts of interesting data, but they have no time to analyze them, because they are manually downloading data out of the finance system, manipulating them in Excel, reviewing printouts, and then reloading all the information into the finance system through accounting journals.

The significant costs that come with digital opportunities should also not be a roadblock. Instead of looking only at the cost aspect, factor in the return on investment and what can really be achieved.

Keep calm, carry on

There is no harm in embracing technological advances. When considering any kind of digital project, ignore the scars of the past and understand that the rules have changed: technology is very much different these days and it can be done much more quickly and affordably.

CEOs today prioritize innovation, proactive performance management, and government-compliant digital processes. The biggest challenge for the latter is finding sustainable solutions fit for your organization by adding value at the right cost.

As published in The Manila Times, dated on 6 March 2019
BSP eases banks’ liquidity compliance
Published March 10, 2019, 10:00 PM
By Lee C. Chipongian

The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), has extended up to January next year the observation period for subsidiary banks’ compliance with Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to allow more time to adjust to the new metrics.

“This is to give covered banks and quasi banks sufficient time to build up their liquidity position given the combined impact of these liquidity measures,” BSP said in a statement late Friday.

The BSP said the Monetary Board also approved enhancements to the LCR and Minimum Liquidity Ratio (MLR) guidelines after consultations with the banking industry.

As for the LCR and NSFR, the BSP said that during the extended observation period, subsidiary banks and quasi banks will be required to comply with a 70 percent liquidity floor, with the minimum LCR and NSFR requirements still at 100 percent upon effectivity date.

Covered subsidiary banks and quasi banks that are unable to meet the 100 percent LCR and NSFR minimum requirement for two consecutive weeks during the observation period are expected to adopt a liquidity build-up plan even if their said ratios meet the 70 percent floor, said the BSP.

The LCR and NSFR – part of Basel 3 — observation period for subsidiary banks and quasi banks had an end-period of until December 2019 and extended to January next year.

In the meantime, enhancements to the LCR and MLR were adopted. The previous treatment of reporting expected cash flows for each derivative contract in gross amounts has been revised.

Under the new LCR policy, cash inflows and outflows from each derivatives contract are now recognized on a net basis consistent with valuation methodologies for derivatives contracts and the LCR framework, according to the BSP. “This means that derivative contractual payments that the bank will make or deliver to a specific counterparty are netted against derivative contractual payments that the bank will receive from the same counterparty for a derivatives contract,” it said.

The method for computing the MLR was also revised, said the BSP. “The 20 percent MLR aims to ensure that stand-alone thrift, rural and cooperative banks and quasi banks set aside a liquidity buffer that will enable them to withstand liquidity stress events. It relates a bank and quasi banks’ eligible liquid assets to its qualifying liabilities,” said the BSP.

“The revised MLR computation converges with the LCR framework as interbank placements are now counted as eligible liquid assets,” the BSP added. The amount of qualifying liabilities has been adjusted through the application of conversion factors to retail current and regular savings deposits worth P500,000 and below and certain liability accounts.
Push for bank digitization, financial inclusion defined Espenilla’s advocacy
By Bianca Cuaresma
March 8, 2019

SINCE his stint as the deputy governor for the supervision and examination sector, the late Bangko Sentral ng Pilipinas (BSP) governor Nestor Espenilla Jr. has been a champion of pushing reforms for the digitization of the banking sector, and delivering financial access to every Filipino particularly in the countryside.

In his 19 months as BSP Governor, Espenilla initiated a series of reform packages and policies that paved the way for the advancement of his digitization and inclusion agenda—much of which was very much welcomed in the banking community.
Financial inclusion

While he was in office, Espenilla signed and approved two resolutions that allowed banks to easily put up branches in the countryside and to offer simpler, more understandable services to the unbanked citizens of the country.

In December 2017, the monetary board approved the guidelines on the establishment of bank branch-lite units anywhere in the country to facilitate greater access to efficient and competitive financial products and services.

The BSP defines a branch-lite unit as an office or place of business of a bank that performs limited or simpler banking activities. Since these units are limited in the services they are offering, they are also subject to proportionate regulatory framework, which means less strict rules and more flexibility to execute financial strategies and innovations.

In January, the BSP reported that thrift and rural banks took particular advantage of this regulation, with 27 new branch-lite units stemming from thrift banks and 27 new branch-lite units branching from rural and cooperative banks in the third quarter of 2018 alone.

Bulacan, Batangas, Pangasinan and Puerto Princesa were among the top areas where thrift banks established their branch-lite units, while Quirino, North Cotabato and Isabela were the top picks for rural and cooperative banks.

While branch-lite units are particularly attractive for these smaller banks as their main market is the countryside, some big banks also put up their own branch-lite units. The Development Bank of the Philippines (DBP) put up a branch-lite unit in Naga City during the period while LandBank of the Philippines put up a branch in Tuao, Cagayan.

The Philippine National Bank (PNB), meanwhile, put up three branch-lite units during the period, one in Baybay City, one in Hinunangan, Souther Leyte and one in the Island Garden City of Samal.

Espenilla also, during his term, approved the framework for banks to offer a basic deposit account to promote account ownership among the unbanked.

The World Bank Global Findex (2014) estimates that only a third of Filipino adults have formal accounts. The usual barriers include costs, lack of money, lack of documentary requirements, and perceived low utility of a bank account, among others.

The BSP said the basic deposit account framework addresses these observed barriers. The minimum key features of the basic deposit account account include: simplified know-your-customer (KYC) requirements; an opening amount of less than P100; no minimum maintaining balance; and no dormancy charges.

“These features meet the need of the unbanked for a low-cost, no-frills deposit account which they can open even if they do not have the standard identification documents,” the BSP earlier said.

As an incentive for banks, the basic deposit account is granted a preferential 0 percent reserve requirement which lowers their account maintenance cost. This regulatory incentive does not apply to regular bank accounts even if their balances fall below P50,000.

Espenilla’s one and a half years of governorship also saw the establishment of credit surety funds (CSF), particularly in far-flung areas such as Tacurong, Sultan Kudarat; Dinagat Islands; and Digos, Davao del Sur.

The CSF is a credit enhancement program for the Micro, Small, and Medium Enterprises (MSMEs) that cannot access bank credit due to lack of hard collateral and credit history.

It works through pooling monetary contributions from cooperatives, nongovernment organizations, local government units, and partner institutions. This pooled monetary contributions then serve as an alternative security in lieu of the hard collateral required by banks, thereby helping capital-short MSMEs with viable business plans gain access to bank loans.
4th in the world

In November 2018, the Philippines was ranked fourth in the world and first in Asia, together with India, in terms of having a conducive environment for financial inclusion according to the 2018 Microscope, a cross-country study which assessed the enabling environment for financial inclusion in 55 jurisdictions.

The report noted that the Bangko Sentral ng Pilipinas (BSP) “has been ahead of the curve in identifying opportunities and setting guidelines for financial inclusion.” It recognized that the BSP’s focus on “creating a digital finance ecosystem has led to the introduction of a sound payments infrastructure that helps various financial sector players to reduce their costs and further their outreach.”
Tech and digitalization

The late governor believed that one of the keys to advancing financial inclusion in the country is to enhance the operating environment for electronic banking and digital payments for financial consumers.

As such, Espenilla has also been known to champion reforms in the reforms in the financial technology arena.

During his term as governor, he strengthened the implementation of the National Retail Payments System (NRPS) through the establishment of the country’s first two electronic clearing houses.

The Philippine EFT System and Operations Network (PESONet) was the first ACH under the NRPS and was launched November 2017. It is a batch electronic fund transfer (EFT) credit payment scheme, which can be considered an electronic alternative to the paper-based check system. Fund transfers and payment instructions under PESONet will be processed in bulk and cleared at batch intervals

InstaPay, as launched on April 2017, is a real-time low-value EFT credit push payment scheme for transaction amounts up to P50,000. It is designed to facilitate small value payments.

Espenilla’s most recent memorandum was an order to banks to educate its people on the ins and outs of real-time electronic retail payments system in the country.

In its first memorandum of 2019, the BSP said banks must establish “effective mechanisms” to ensure that all its frontline personnel possess adequate information about PESONet and InstaPay so the staff can properly address customers’ concerns regarding the two facilitites.

The late governor also spearheaded cooperation with neighboring central banks to facilitate knowledge sharing to local banks.

In November 2017, the BSP and the Monetary Authority of Singapore (MAS) signed a FinTech cooperation agreement (CA), in an effort to promote innovation in financial services in both jurisdictions.

“The agreement serves as a seal of commitment between BSP and MAS to elevate financial innovation in both jurisdictions. The CA provides avenues for greater collaboration through a more defined structure and referral system for FinTech players between the innovation functions of each authority,” Espenilla said then.

“The BSP looks forward to exciting times ahead as the CA unlocks diverse opportunities for new collaborations to prosper that maximize benefits of innovative technologies. This would ultimately pave the way for a more progressive, modern and inclusive financial system,” the BSP governor added.

Under the agreement, the Philippines and Singapore will be able to refer FinTech firms to each other, share emerging trends on the industry and facilitate work on FinTech projects together.

Towards the grassroots, Espenilla also launched key financial education programs such as financial literacy advocacies for millennials via Facebook and the establishment of key knowledge resource centers across the nation.
BAP’s tribute

In its statement following the governor’s passing, the Bankers’ Association of the Philippines (BAP) applauded Espenilla for “leading the banking industry in the age of financial reforms and digitization.”

“His leadership resulted in progressive reforms that now support a stronger Philippine banking system, iwncluding the enactment of the New Central Bank Act. His focus on creating a safe, inclusive, and reliable payment system for the unbanked was evident with the establishment of the National Retail Payment System,” BAP said.

“He leaves a legacy of a stronger and more inclusive banking system. His devotion to his work and service to the Filipino people will be remembered,” it added.
Cebuana expanding rural bank network
posted March 04, 2019 at 07:10 pm by
Othel V. Campos

The banking unit of Cebuana Lhullier will soon expand its rural bank network from Cavite and Batangas to Northern Luzon and Mindanao.

Cebuana Lhullier Rural Bank president Dennis Valdez said the bank was looking to expand to three to five sites nationwide.

“Expansion will be carried on a small scale. We’re looking at Davao, Cebu, General Santos City and up north in Luzon,” he said.

He noted that the expansion would be based on the population density of an area.

However, plans for the bank’s expansion is dependent in the success of the micro-savings scheme it launched in the last week of February last year.

Through the micro-finance scheme, the bank aims to tap the 70 million unbanked Filipinos, giving special focus on some 10 million active clients of Cebuana Lhullier from a total of 24 million clients nationwide.
Duterte picks Diokno as new BSP chief
March 5, 2019 | 12:35 am

PRESIDENT Rodrigo R. Duterte has chosen Budget Secretary Benjamin E. Diokno to replace the late Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr., who died of cancer last Feb. 23, top administration officials announced on Monday night.

“The Palace wishes to inform [the public on] the appointment of Department of Budget and Management Secretary Benjamin Diokno as the new Governor of Bangko Sentral ng Pilipinas, succeeding the late Governor Nestor Espenilla, Jr.,” Salvador S. Panelo, chief presidential legal counsel and presidential spokesperson, said in a statement sent to reporters via Viber, adding that Mr. Duterte “made this announcement at the start of the 35th Cabinet Meeting on Monday, March 4.”

Executive Secretary Salvador C. Medialdea earlier in the evening confirmed the information in a mobile phone message, while Finance Sec. Carlos G. Dominguez III told reporters via Viber message: “Dr. Benjamin E. Diokno brings together that elusive combination of seasoned technocrat and professional manager.”

“He knows the inner workings of government and industry, and has repeatedly demonstrated the ability to run a large, complex organization with intellectual leadership and a steady hand. All of these will contribute to his successful stewardship of the Bangko Sentral ng Pilipinas as its next governor and chairman of the Monetary Board,” Mr. Dominguez said.

“His competence is unquestionable, owing to his deep expertise in macroeconomics and extensive senior management experience in government and the private sector.”

Mr. Dominguez said Janet B. Abuel, Budget undersecretary in charge of the Local Government and Regional Operations Group, will serve as the Budget department’s officer-in-charge.

Mr. Diokno — who also served as Budget chief under former president-now-Manila Mayor Joseph E. Estrada from 1998 to 2001 and was undersecretary at the same department in 1986-1991 under the late former president Corazon C. Aquino — will serve the remainder of Mr. Espenilla’s six-year term that was to end in July 2023.

Mr. Diokno had been instrumental in making the government spend closer to program last year — through regular meetings with chiefs of line departments that have had a poor disbursement track record — in a bid to spur overall economic growth to 7-8% annually until 2022, when Mr. Duterte ends his six-year term, from 6.3% in 2010-2016 under former president Benigno S.C. Aquino III.

In the process of reforming the national budget to take into consideration the historical spending capacities of state departments, agencies and offices, however — resulting in a slightly smaller proposed P3.757-trillion general appropriations act for 2019 — he ran into opposition at the House of Representatives, whose leaders bared alleged irregularities in the Executive branch’s submitted spending plan.

Consequently, the 2019 national budget failed to be enacted by end-2018, resulting in a reenacted spending plan that left new projects unfunded.

This year’s budget still awaits Mr. Duterte’s signature.

That delay, plus a 45-day ban on public works ahead of the May 13 midterm elections and a brewing El Niño episode that will hit farm production has cast a pall over the country’s economic growth prospects this year.

Mr. Diokno is professor emeritus at the University of the Philippines-Diliman and holds a Bachelor’s Degree in Public Administration (1968) and Masters’ Degrees in Public Administration (1970) and Economics (1974) from the same university. He also earned a Master of Arts in Political Economy (1976) from the Johns Hopkins University, USA and a Ph.D. in Economics (1981) from the Maxwell School of Citizenship and Public Affairs, Syracuse University, USA.

“In his new tour of duty in the BSP, we expect incoming Governor Diokno to spearhead reform initiatives that will align the financial institution’s operations with international best practices and improve its corporate viability, among others, in line with Republic Act No. 11211, which was signed into law by President Duterte just last February 14,” Mr. Panelo said in his statement, referring to The New Central Bank Act that fortifies the central monetary authority.

“With him at the helm of the Bangko Sentral ng Pilipinas, our banking institutions are in good and competent hands.” — with inputs from ALB, KANV and MLTL
How much are we supposed to pay under the amnesty tax?
Marie Fe Fawagan-DangiwanMarie Fe Fawagan-Dangiwan12 Feb 2019

A tax amnesty is an opportunity to start over with a clean slate. Taxpayers with ongoing audits would consider this an opportunity to settle deficiency taxes more efficiently. An audit, even for taxpayers who are compliant, is costly and stressful. To quantify the degree of relief on offer, some tax accountants and managers have computed the savings that can be realized and even prepared position papers to argue the benefits of availing of a tax amnesty, noting that they outweigh the costs.

With legislation transmitted to the Office of the President on Jan. 17, the proposed Tax Amnesty Act (TAA) will either be vetoed, signed or lapsed into law within the next couple of weeks. Assuming it will become law, in whole or in part, the Bureau of Internal Revenue (BIR) must issue implementing rules and regulations (IRR) within 90 days from its effectivity. Taxpayers can avail of the tax amnesty within one year from effectivity of the IRR, except for estate tax amnesty where taxpayers will be given two years to avail.

While we await the signing of the proposed TAA, we can prepare initial computations based on the provisions of the proposed TAA. The TAA covers estate tax, general tax amnesty, and tax amnesty on delinquencies.

For those availing of the general tax amnesty, the proposed TAA provides an option to the taxpayer to pay amnesty tax of either 2% based on total assets or 5% based on net worth as of Dec. 31, 2017. If the computed net worth is negative, the taxpayer may still avail of the benefits of tax amnesty, and pay the minimum amnesty tax of between P75,000 and P1 million.

It might be easy to compute for the 2% and 5% based on the audited financial statement of the taxpayer. However, there are peculiarities on how to compute for the value of assets and liabilities under the proposed TAA. In this regard, some taxpayers planning to avail of the tax amnesty have raised the following questions:

1. Do assets cover all of those in or out of the Philippines, whether or not used in trade or business?

Many foreign individuals and corporations are concerned whether assets outside the Philippines are to be included in the Statement of Total Assets (STA) or Statement of Assets, Liabilities and Net Worth (SALN).

Some expatriates note that most of their foreign assets were purchased from income earned prior to their assignment to the Philippines. In filling out the STA, should the expat identify the assets purchased from income sourced only in the Philippines?

Considering that only citizens and domestic corporations are taxed on their worldwide income, aliens and foreign corporations do not generally declare their foreign assets to the Philippine government. Are we to assume that the same rules will be followed in preparing the STA or the SALN?

On the other hand, are married individuals required to file a joint STA or SALN? If a spouse is availing of the tax amnesty, is he required to declare the assets and/or liabilities of the non-availing spouse or only the assets that are under his name?

2. Real properties shall be accompanied by a description of their classification, exact location, and valued at acquisition cost if acquired by purchase, or the zonal valuation of fair market value as shown in the schedule of values of the provincial, city or municipal assessors at the time of inheritance or donation, whichever is higher if acquired through inheritance or donation.

This means that a taxpayer who bought land at P100 per square meter in 1990s, but with a fair market value (FMV) of P10,000 per square meter in 2017, would happily declare the land in his STA or SALN, thinking he will save a lot of tax. However, he may think otherwise if he came to know that the manufacturing plant or the office built on such land is also valued at cost even though such building is nearly fully depreciated.

The same is true with inherited or donated land and/or buildings. Under the TAA, the said real properties are to be declared based on zonal or FMV at the time of inheritance and/or donation, and not the book value or FMV as of Dec. 31, 2017. As an additional concern for those inherited/donated buildings, the schedule of values of the provincial/city/municipal assessors do not necessarily contain the FMV for all types of buildings. Will the BIR’s IRR provide an alternative source of FMV in this case?

3. Personal property, other than money, shall be accompanied by a specific description of the kind and number of assets, or other investments, indicating the acquisition cost less the accumulated depreciation or amortization.

Corporations with significant receivables might ask whether the allowance for bad debts can be used to reduce the expected receivables. A similar question arises with inventories — can the allowance for damage or decline in value due to obsolescence be deducted from the value of the inventories?

4. Inherited shares of stock are valued at FMV, and assets/cash denominated in foreign currency are converted to pesos at the date of STA or SALN.

This is a tricky provision which requires that the above assets held as of Dec. 31, 2017 are valued at book as of a later date, i.e. date of the STA or SALN, which may result in lower or higher values.

5. All existing liabilities, which are legitimate and enforceable, disclosing or indicating clearly the name and address of the creditor and the amount of corresponding liability.

With the requirement that the name of the creditor be specifically stated, the question arises of whether estimated and/or provisions for future obligations, such as contingencies for warranty or repairs and maintenance to customers, although included in the financial statement of the taxpayer, may be included as liabilities for SALN purposes.

The above calculation clearly shows that asset or net worth in the financial statement may not be the same asset or net worth computed for purposes of tax amnesty. These questions will probably be addressed by the BIR in the implementing rules and regulations for the TAA. While we wait for a clearer interpretation on how the assets and liabilities will be valued or stated, taxpayers thinking of availing of the tax amnesty need to start diligently preparing the STA or SALN based on the proposed tax amnesty act.

Marie Fe F. Dangiwan is a senior manager of the Tax Advisory and Compliance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

As published in BusinessWorld, dated on 12 February 2019
Revisiting the TRAIN Law
15 Jan 2019

Nothing is forever, except change. The wise words of Buddha proclaim the undeniable truth that the only thing constant is change. Life is a process of becoming; thus, we should always keep ourselves abreast with the changing times. After all, progress is impossible without changing the status quo.

For most of us, the beginning of the New Year is a time to restart, reboot, and reassess our personal goals. As the first month of 2019 unfolds, it is high time to revisit the resolutions we’ve set — how far we’ve come and our rooms for growth. For the government, now is the time to reevaluate existing policies or reform laws to meet new exigencies. As taxpayers, it is important to know the recent developments in order to thrive and survive amidst the demands of our dynamic everyday life.

A little more than a year ago — on Jan. 1, 2018 to be exact — the Tax Reform for Acceleration and Inclusion (TRAIN) Act took effect. Being the first package of the Comprehensive Tax Reform Program (CTRP), TRAIN 1 introduced a lot of significant changes. Among its purposes was to raise revenue for the government’s social services and infrastructure programs. TRAIN 1 reduced personal income taxes after 20 long years of non-adjustment of tax rates; but it imposed higher excise taxes on automobiles, petroleum products, tobacco, sugar-sweetened beverages and other non-essential goods. The legislators intended that with the people’s support, all these reforms will ultimately result in lower prices, more job opportunities and a brighter future for each and every Filipino.

Literally and figuratively, the TRAIN came to pass accompanied with much noise. Heated discussions ensued in both chambers of Congress. Some advocates say it arrived as a Godsend and was timed perfectly. Others claimed it was hurriedly enacted, without the ordinary taxpayer being duly informed of its many implications. Being the most recent and comprehensive economic legislation by far, the public sought to better understand the law and its impacts – on take-home pay, prices of goods and services, and consumer spending patterns. As a response, several developmental and business organizations — including professional services firms such as P&A Grant Thornton — organized seminars on the law and the latest implementing regulations from the Bureau of Internal Revenue, to educate Filipinos on the relevant amendments.

Before the implementation of the TRAIN Law, its detractors theorized that the increase in petroleum prices would cause a domino effect and, ultimately, lead to an increase in the prices of goods and services, falling on the shoulders of consumers, especially the poor. Lo and behold, the rise in prices of everyday commodities was very much felt since the beginning of 2018. Burdened by the price shock, there was an uproar from citizens seeking the suspension of the law. While it is true that the TRAIN Law was not all to blame, we cannot discount the inability of ordinary people to afford rice, not to mention softdrinks, alcohol, and cigarettes, and the fuel necessary for daily transportation. For someone who drives almost daily, I could very well imagine how taxi drivers might be dealing with gasoline prices that spiked to a record-breaking P60.87 in October. Mothers and homemakers found themselves on the front lines as their household budgets bought fewer and fewer groceries. Restaurants started skimping on portion sizes or simply charged more.

Although the individual income tax brackets have finally been adjusted and augmented by the TRAIN Law, they were accompanied by a whopping surge in inflation. In October, inflation hit 6.7%, moving even further away from the Bangko Sentral ng Pilipinas’ target range of 2-4% for 2018. Although the causes include world oil prices or other forces, it is clear that the rise in inflation was partly caused by TRAIN. Adding fuel to the fire, whereas the higher excise taxes target the rich, the increase in prices hurt the poor the most. Hence, the wide gap between the rich and the poor remains.

The question now is: Did TRAIN 1 attain its objectives? Or more specifically for the individual: Was the increase in net income due to the decrease in income tax rates enough to counter the higher inflation rate and increase in prices? The answer lies in whether or not there has indeed been an improvement in the effective purchasing power of Filipinos. Purchasing power is an important indicator of the economic condition of the nation. All else being equal, inflation decreases the amount of goods or services one is able to purchase; and reduced purchasing power leads to a decrease in living standards. It is hoped that the tax reforms will produce more benefit than harm, and that such advantages will trickle down to ordinary people sooner. Periodically reviewing the effects of the law is key, along with efficient execution, to ensure that tax collection is indeed put to good use.

Notwithstanding its drawbacks and the appearance to most consumers that the promise of the TRAIN law holds no water, Budget Secretary Benjamin E. Diokno denied a report that the government has failed to reach its target revenue collection for 2018. He ruled out halting the implementation of the TRAIN law, saying that measures are in place to temper the harmful impact of higher prices. Suspension then is out of the question. For most of 2018, Mr. Diokno and President Rodrigo R. Duterte rejected calls to review the controversial tax reform law, saying it is needed for economic growth. Then, there was a change of heart sometime in October. The government announced, albeit with initial reluctance, that the P2-increase in fuel excise tax scheduled in January 2019 will be suspended. At that point, world oil prices noticeably dropped, as global supply outstripped demand. The suspension of the TRAIN Law was lifted.

Now, we welcome the New Year with the second tranche of the TRAIN Law. On Thursday, Jan. 10, the Department of Energy (DoE) announced that 444 retail stations nationwide are now imposing the second wave of excise taxes on petroleum products, as mandated by the TRAIN Law. The DoE expects other gas stations to follow suit in February.

On a more positive note, the Philippine Statistics Authority reported that headline inflation decelerated to 5.1% in December. The peso, which had been weakening against the dollar last year, slightly recovered on the first and second weeks of January. Gasoline prices receded to P45.50 per liter. The performance of the Philippine Stock Exchange improved and reflected growing business and investor confidence.

Let us then choose to be grateful for these recent, positive developments and have faith that the government will remain vigilant in closely monitoring the imposition of taxes vis-à-vis the prices of basic goods and commodities. Let us hope that the President and his economic advisers will act more responsively to address the concerns of the ordinary taxpayer in light of the ever-changing times, especially punctuated by volatile crude oil prices.

It is essential to always know the changes in our tax laws, and the corresponding consequences, not only to ensure compliance and avoid risks, but also to assert our constitutional rights as citizens. And together, let us pray that the tax reforms this year, moving forward, would lead us to a more equitable and fast-growing Philippine economy conducive to a life worth living.

Aleli Carissa D. Gimena is an associate of the Tax Advisory and Compliance Division of P&A Grant Thornton.

As published in BusinessWorld, dated 15 January 2019
The first order of business: Local business tax and real property tax
08 Jan 2019

As we hit the first month of the year, it is time for another round of renewal and compliance. What better way to start the year than to have a clear mind set of what needs to be accomplished.

Businesses are required to renew their business permits with the local government every year, and for 2019, this is due on or before Jan. 21. Companies need to pay the local business tax, real property tax, and other fees and charges. Because the processing period is short, companies should be aware of the requirements to ensure that the process can be completed within the due date.

All entities doing business are required to pay local business tax (LBT), except for those granted exemption under the Local Government Code (LGC) and special laws. The tax can be paid annually, on or before Jan. 20, or quarterly, within the first 20 days of January and of the first month of each subsequent quarter. Failure to pay the LBT, fees, or charges on time will be subject to a surcharge not exceeding 25% of the amount of taxes, fees, or charges not paid on time and an interest at a rate not exceeding 2% per month of the unpaid taxes, fees, or charges, until such amount is fully paid. However, in no case will the total interest on the unpaid amount or portion thereof exceed 36 months. Since local taxes, fees, and charges accrue on the first day of January of each year, interest on late payments shall be computed from Jan. 1, not from the due date for payment. Failure to pay the LBT means the non-renewal of the business registration, which can be a ground for closure of the establishment by local authorities.

The LBT rate will depend on the local tax code or ordinance enacted by the LGU pursuant to the provisions and limitations of the LGC. Most local tax codes prescribe the annual LBT as a fixed amount, depending on the level of gross sales or receipts. Other rates are set at a percentage of gross sales or receipts. The rates vary depending on the business activity. Hence, an entity can be subject to different rates if it is engaged in several lines of business. If there are new or additional activities undertaken in 2018, confirm with the LGU the LBT rate to be applied.

The LBT for 2019 will initially be based on the gross sales or receipts for 2018. Given that the Audited Financial Statements are not yet available at the time the LBT is due, the taxpayer is required to prepare a Sworn Declaration of its gross sales or receipts for the year 2018. Most LGUs also require presenting VAT returns to countercheck the taxpayer’s declarations. If there is a suspected under declaration of gross sales or receipts, the application shall be tagged by the LGU and may be subject to the examination of books and accounts by the local treasurer after the business renewal period.

The Bureau of Local Government Finance (BLGF), in its Memorandum Circular No. 01-001-2017, enumerated the following items that are not to be included in gross sales or receipts: (a) receipts from the sale of real properties or realty assets, unless one is engaged in buying or selling real estate; (b) determinable discounts at the time of sales, sales returns, excise tax, and VAT; (c) passive income, i.e., interest, dividends, and gains from the sale of shares; and (d) receipts from the printing and/or publishing of books and/or other reading materials prescribed by the Department of Education as school text and reference.

BLGF Memorandum Circular No. 01-001-2017 emphasized that the automatic application of 10 to 15% increase on the previous year’s gross receipts as basis for LBT without legal basis is discouraged. Taxpayers, however, must be aware that this is the practice of some LGUs. The LGU of Quezon City does not mandate an increased LBT payment. Instead, it has announced that entities in the city that would be paying 30% or more LBT, as compared to their payment in 2018, would be exempt from audit for the years 2016, 2017, and 2018 pursuant to Ordinance SP-2780 s 2018.

The BLGF Memorandum Circular also states that the following entities are exempt from paying LBT: (a) Business enterprises certified by the Board of Investments (BOI) as pioneer and non-pioneer for six and four years, respectively, from the date of registration; (b) business that produce, manufacture, refine, distribute, or sell oil, gasoline, and other petroleum products; (c) Cooperatives duly registered with the Cooperative Development Authority; and (d) Philippine Economic Zone Authority (PEZA)-registered enterprises and other Special Economic Zones as may be provided for by the specific Republic Act. However, if the PEZA or BoI-registered entity has income from unregistered activities, it may be required to pay LBT on such income.

Entities exempt from LBT payment are still required to secure a Mayor’s Permit. Regional Operating Headquarters, as well as enterprises registered with PEZA, are exempt from securing a mayor’s permit. However, some LGUs require them to secure a business or mayor’s permit and to pay certain regulatory fees. BoI-registered enterprises, meanwhile, must secure a business or mayor’s permit and pay regulatory fees.

As part of the renewal requirements, businesses should secure a comprehensive general insurance policy. Some LGUs require business entities to secure their insurance from accredited insurance companies. Though this is not a requirement under the law, it is best to check with the LGU to ensure a smooth renewal process.

Another obligation of entities with the LGU is the payment of real property tax (RPT) imposed on real property, such as land, buildings, and machinery deemed real property, and other improvements. If you have newly acquired real property, machinery, or additional improvements, file with the Local Assessor’s Office a sworn declaration of the value within 60 days from the acquisition, installation, or completion of the property.

RPT accrues on the first day of January of each year, and may be paid annually in full on or before March 31, or in quarterly installments on or before the last day of each quarter. For advance payments, some LGUs grant a discount of as much as 20% of the annual tax due. Check if your LGU provides this discount, so you can decide between paying in full or on installment.

The RPT is based on the assessed value of the property multiplied by the tax rate. For most cities and municipalities, the RPT rate is 2% and 1% of the assessed value for Metro Manila and the provinces, respectively. The assessed property value is the fair market value multiplied by the assessment level. Some cities may have different tax rates, and so it is best to verify your city’s tax rate with the city treasurer’s office.

Late payments will result in an interest of 2% per month to a maximum of 72% for 36 months. While interest stops on the 36th month, non-payment can result in the foreclosure and auction of the tax-delinquent properties, if the LGU decides to do so.

PEZA-registered enterprises under an income tax holiday (ITH) are not exempt from RPT on land and/or buildings, but are exempt from RPT on machinery (considered real property) for three years from acquisition. A PEZA-registered enterprise that has transitioned to the 5% gross income tax (GIT) regime, in lieu of all national and local taxes, is exempt from RPT on land, buildings, or machinery deemed real property, except for RPT on land owned by an economic zone developer. BoI-registered enterprises do not enjoy exemption from RPT.

Quezon City also announced an amnesty for RPT delinquencies for 2018 and prior years if settled not later than Oct. 30, 2019. You may check with your own LGUs if they are also offering an amnesty to save on interest and surcharge on past due taxes.

Be aware of the dates to avoid penalties and interest charges for late payment, and pay early to avoid long queues.

Ed Warren L. Balauag is a manager of the Tax Advisory and Compliance of P&A Grant Thornton.

As published in BusinessWorld, dated 08 January 2019
Green turns blue
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:18 AM December 07, 2018

This article isn’t about basketball, and the team colors that mark the most prominent rivals in our interuniversity basketball league—otherwise, I would be talking about maroon and blue, denoting the actual finalists in the just-concluded season.

Admittedly, the colors in the prominent basketball rivalry have determined the color-coding of my presentation slides on the economy through the years. As an Ateneo professor for the last 18 years, my slides depict the good news in blue, and bad news in the other color. Even so, I’d tell my audiences that even as I wear a blue shirt, my underwear is maroon. Hence I would have been as jubilant (perhaps more so) if the University of the Philippines had won the recent championship.

While it was not meant to be, it was accomplishment enough that the UP Fighting Maroons made it to the University Athletic Association of the Philippines basketball championship this year. Someone earlier posted a “warning” to the Ateneo Blue Eagles not to let their guard down, as UP had not lost a championship final in 32 years—but that’s because it never made it to one for that long.

Basketball aside, my title really refers to how recent bad news on the economy has finally turned good (and will thus turn blue in my updated presentation slides), just as I had anticipated last week. After accelerating since the beginning of the year, the year-on-year inflation rate has finally slowed down to 6 percent last month, from 6.7 percent in the previous two months. This means that the average P100 expenditure we made a year ago would now cost us P106 (no longer P106.70, as was true in August and September). That is, the accelerating rate of price increases from last year has been arrested for the first time this year.

The drop in the inflation rate doesn’t mean that prices have dropped from a year ago, as I suspect many would still think. I used to be branded a liar by some radio commentators back in the 1990s, when it was part of my job to announce the latest inflation rates. The commentaries would say “How can Habito claim that the inflation rate has dropped, when prices keep on rising?”

It bears constantly clarifying that the word “inflation” itself refers to the rise in prices, and a lower inflation rate means that prices are still increasing, but at a slower rate. Otherwise we would be using the word “deflation.”

The even better news is that prices have actually gone down (yes, deflated) on average, against the previous month. In a recent column, I clarified the distinction between the year-on-year (Y-O-Y) inflation rate that’s widely reported in the news, and the “real time” or month-on-month (M-O-M) rate. Last month, the average price level as measured by the Consumer Price Index actually fell 0.2 percent from the September level. This was driven by price declines in two major spending categories: Food and Non-alcoholic Beverages (-0.7 percent); and Housing, Water, Electricity, Gas and Other Fuels (-0.1 percent).

Taking electricity, gas and other fuels alone, the drop was 0.5 percent, reflecting the significant decline in world crude oil prices that I wrote about recently. Meanwhile, falling food prices have resulted from the easing of supplies due to the (belated) entry of rice imports, and recovery in production of other food commodities.

All together, the latest inflation news signals the commencement of the price slowdown that the Bangko Sentral ng Pilipinas had always anticipated to happen in the latter half of the year. Thus, while the year-to-date average inflation rate has been 5.2 percent, we can anticipate the annual rate to normalize back to around 4 percent next year.

The remaining challenge lies in making overall inflation penalize poorer households less than it does the rest. Areas outside Metro Manila, where the bulk of our poor reside, still see higher Y-O-Y inflation (6.2 percent versus 5.6 percent in the city). Food inflation remains higher than average, at 8 percent. However, food prices actually fell 0.9 percent from the previous month, which is welcome news for the poor, signaling that the cost of food is becoming less of a burden to our poorer households. And that is blue news.
BSP sets process for grant of regulatory relief
October 15, 2018 | 12:04 am
By Melissa Luz T. Lopez, Senior Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) has approved new rules which prescribe a standard process for providing relief to bank branches operating in disaster-stricken areas.

BSP Circular 1017 outlines a “uniform and systematic approach” before the central bank can announce regulatory relief for banks and quasi-banks (QBs) operating in towns or provinces which have been ruined by calamities.

The central bank extends relief measures for banks and quasi-banks following natural calamities and disaster events which disrupt their day-to-day operations.

The fresh rules specifically require that an area needs to be placed under a state of calamity before the BSP can extend relief to bank branches operating there. This may come from a declaration issued by local government units or by the President, as recommended by the National Disaster Risk Reduction and Management Council.

A state of calamity involves mass casualty as well as “major” damage to property, livelihood, roads and to the “normal way of life” of the community due to a natural or human-induced hazard, according to the BSP issuance signed Oct. 10.

Under the relief package, the BSP will allow branches located in the affected areas to extend financial aid to its officers and employees even beyond the set of fringe benefits approved by the regulator for each firm.

To add, thrift, rural, and cooperative banks are allowed to exclude outstanding loans from borrowers in the covered areas in computing their past due ratios, provided that such borrowings are restructured or given relief. The central bank would also not impose penalties even if reserves fall below requirement, while those under rehabilitation may take a pause in settling their monthly dues with the BSP.

No fines will also be imposed for delayed submissions of regulatory reports to the central bank. Lenders which have outstanding rediscount loans with the BSP can also extend the payment period up to five years.

Such arrangements valid for one year following the declaration of state of calamity in the area. Banks must write to the BSP within that period to inform that they will be availing these relief measures.

By providing temporary relief, the central bank effectively relaxes capital and liquidity requirements imposed in order to ease the burden on financial firms and allow them to recover from disrupted services.

“The damages brought about by calamities to people’s resources and livelihood may affect the paying capacity and risk profile of the borrowers/clients of banks/QBs. This may translate to higher past due ratios and inability to meet the legal reserve requirements,” the circular read, as signed by BSP officer-in-charge Deputy Governor Maria Almasara Cyd N. Tuaño-Amador.

The central bank announced in August that relief measures have been made available to banks based in specific towns in Ilocos, the Cordillera Administrative Region, Cagayan Valley, Central Luzon, Calabarzon, Mimaropa and Western Visayas; as well as in Malabon, Marikina, Parañaque, Pasig, Quezon City and Valenzuela which were affected by tropical depression Josie in July.

The new rules may apply to affected banks located in Cagayan Valley, Isabela, Central Luzon, and the Cordillera Administrative Region, which Pres. Rodrigo R. Duterte placed under state of calamity following the wrath of typhoon Ompong (international name: Mangkhut) last month.

The BSP also announced similar measures for lenders based in war-torn Marawi City last January.
BSP approved 45 new bank branches in Q2
Published October 1, 2018, 10:00 PM
By Lee C. Chipongian

Branch-lites approved totaled 75 during the quarter from only 40 previously, according to a BSP circular letter.

The BSP has started listing all non-regular bank branches as “branch lites” this year based on a 2017 BSP circular revision. This means that banks’ extension offices, microbanking offices and other banking offices are now referred to as branch lite units.

Of 45 new regular branches approved, the big banks or the universal/commercial banks have 23 and these are mostly BDO Unibank branches. Thrift banks have seven and rural banks applied for 15.

The thrift banking sector had the most branch lite approvals with 61 and majority BPI Direct BanKo. The big banks have six and rural banks have eight. There are also five new rural banks microfinance branches in the second quarter.

As of end-June, there are also 68 regular branches that were opened – again mostly BDO branches – while 67 branch lites also started operations in the second quarter, bulk of which owned by CARD SME Bank followed by BPI’s thrift bank unit.

The big banks have 38 of the total regular branches, thrift banks have 24 and rural banks have six. Thrift banks have the most branch lites with 45, big banks with five and 17 for rural banks. There are also three microfinance branches opened by rural banks during the quarter.

A regular branch are full-sized banks, mostly traditional brick and mortar branches or contained within a building and offers full banking services. It is a permanent office or place of business other than the head office where a bank may perform activities and provide products and services that are within the scope of its authority and relevant licenses.

A branch lite unit, in the meantime, performs limited banking activities but could provide a wide range of products and services suited for servicing the needs of the market except for sophisticated clients “with aggressive risk tolerance.”

To convert into branch lites, a special licensing fee will cost P5 million if applicant is a universal and commercial bank, P3 million for thrift banks and P300,000 for the smaller rural/cooperative bank.

Licensing fee per branch, in the meantime, is P20 million for big banks, P15 million for thrift banks and P1.5 million for smaller banks.
Banking system ‘sound’; resources grow 10.2% in H1
Published August 25, 2018, 10:00 PM
By Lee C. Chipongian

The banking sector reported combined P16.065-trillion total resources as of end-June this year, up 10.2 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) show.

Banks continue to optimize the use of its resources, earnings and capital. A report from the BSP said the local banking system continue to be sound and lending growth is complemented by adequate capitalization and loan exposure provisioning.

In the first half of 2018, big banks’ resources increased by 10.79 percent to P14.570 trillion from same time last year of P13.150 trillion. Thrift banks, in the meantime, registered a more modest increase of 4.56 percent to P1.236 trillion from P1.182 trillion in 2017.

The BSP’s tally of non-banks and rural banks’ resources have a lag time and are a quarter behind than the universal/commercial and thrift banks. As of end-March, non-banks’ total resources amounted to P3.520 trillion while rural banks have P258.90 billion. Non-banks are investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations.

Overall, the domestic financial system’s total resources amounted to P19.586 trillion as of end-June, which was 8.82 percent more than same time last year of P17.998 trillion.

BSP Governor Nestor A. Espenilla Jr. said the central bank will continue to craft and come out with rules and regulations that will protect financial consumers.

“But more than this, our regulations and policies exist for a higher purpose,” he said in a recent forum. “The idea is that a well-functioning financial system supports productive expansionary business activities and consumption spending, hence, is crucial to promoting economic growth.”

Espenilla said banking and financial reforms in the areas of supervisory policy, banking supervision, financial surveillance and systemic risk “stabilizes and strengthens the domestic financial system and helps grow financial institutions into regionally competitive and economically viable players.”

As of end-June, the industry asset quality “remains satisfactory,” Espenilla said. “There is also continuing build-up in capitalization,” he added. Big banks’ capital adequacy ratio was at 14.48 percent in the first quarter on a solo basis and 15.07 percent on a consolidated basis.
Why can’t we export more?
By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:38 AM August 17, 2018

Among the Asean-5, our export earnings have consistently been the lowest; worse, we’re slipping farther and farther behind. In 2005, we trailed Indonesia by $45 billion (we earned $41 billion against their $86 billion). Last year, the gap was already more than double that, at $100 billion ($69 billion vs. $169 billion). In 2007, our exports ($50.5 billion) still exceeded Vietnam’s ($48.6 billion). Last year, Vietnam made $214 billion, even more than Indonesia, which it had overtaken three years ago.

The latest export data show that we continued to slip even farther behind. In the first quarter, our exports dropped by 5.5 percent, when our neighbors continued to post impressive growth in theirs, from Indonesia’s 8.7 percent to Vietnam’s zooming 25.1 percent. Many have begun to notice this glaring anomaly, and ask: How can we be moving in the opposite direction from our neighbors, and the world? What are we doing so differently, and so wrongly, that our export performance, already bad as it has been, has even turned for the worse?

Indeed, the main reason the peso has been losing value in recent months has been the fact that our foreign exchange inflows via exports are now far outstripped by outflows via imports. Inflows from foreign investments, overseas worker remittances and tourist spending could not make up for the shortfall. We need nothing less than a deliberate strategy and aggressive action plan to dramatically boost our exports in the years ahead.

We could take inspiration from our come-from-behind neighbor Vietnam, which has been posting double digit export growth in recent years, with the growth rate exceeding 20 percent in the last two years.

We could start by examining our recent export performance more closely. In the first half of this year, our total export earnings fell 3.8 percent from last year, even as electronic products, our top export category accounting for 56 percent of all exports, managed to grow by 5.3 percent. But most of our top 10 export products dropped at double-digit rates, including chemicals (-44.4 percent), coconut oil (-28.9 percent), ignition wiring sets (-27.5 percent), and bananas (-13.2 percent).

It’s well worth examining why. For coconuts and bananas, the problem has been traced to large-scale destruction from the “cocolisap” pest and Panama disease (Fusarium wilt), respectively, which agriculture authorities have failed to handle promptly and adequately. For nonfarm exports, we need to study more closely whether the problem has been on the demand or supply side.

In past articles, I’ve pointed to at least two things we may be doing differently from our neighbors that could explain our export gap with them. One, we have traditionally failed to provide enough support to our exportable high value farm products. For one thing, research and development support has been highly inadequate, even for our export mainstays of coconut, bananas and mangoes. For decades, we have lacked a coherent and well-funded national strategic plan for these crops.

In coconut, we have wrangled over the Marcos-era coconut levy for decades, with hardly any concrete movement forward. We have devoted inordinate attention and budget resources in quest of full rice self-sufficiency, even as our neighbors that have never aspired for it rank much higher than we do in food security (and pay much less for rice). I have also called attention to our glaring lack of gamma ray treatment facilities, which our neighbors have used to good advantage to export fresh agricultural produce far more than we can.

Another flaw that I’ve argued to be getting in the way of potentially far more exports by our small and medium enterprise sector is a prevalent “kanya-kanya” or individualistic approach to business. I’ve heard of many missed opportunities in exports when small entrepreneurs were unwilling to team up to meet volume orders from overseas. In the SME sector, more “coopetition” should be the way to go if they are to cash in on wide export opportunities, and government and private sector alike need to work toward this.

It’s time to get really serious about our exports. It’s been long overdue.
BSP’s Monetary Board shuts down Rural Bank of Pagbilao’s operations
August 14, 2018 | 12:03 am

THE CENTRAL BANK has ordered another provincial bank to shut down its operations, marking the eighth lender to fold this year.

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has ordered the closure the Rural Bank of Pagbilao, Inc. last Friday after it was found to be unfit to remain in business.

The Philippine Deposit Insurance Corp. (PDIC) has stepped in as receiver for the lender effective yesterday, it said in a statement.

The Rural Bank of Pagbilao runs three branches within Quezon province. The lender holds P110.05 million worth of deposits spread across 3,324 accounts as of end-June, according to PDIC data.

Of the amount, P95.82 million are considered as insured deposits.

PDIC’s takeover paves the way for the state-run insurer to acquire the bank’s assets in order to pay outstanding liabilities to depositors.

Bank deposits are insured up to P500,000 per depositor, according to the PDIC charter. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC.

Those with personal deposit accounts worth P100,000 or lower can avail of early payment, provided they do not have unsettled dues or other obligations with the fallen lender.

The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit.

The Quezon-based bank is the eighth to be ordered shut this year, more than the seven which the BSP closed down in 2017.

Other lenders which folded this year include the Rural Bank of Sta. Elena, Inc. from Camarines Norte; the Tiaong Rural Bank, Inc., Empire Rural Bank, and Women’s Rural Bank, Inc. from Batangas; Bangko Buena Consolidated, Inc. of Iloilo; the Rural Bank of Initao, Inc. from Misamis Oriental; and the Rural Bank of Loreto, Inc. in Dinagat Islands.

The BSP has been pushing small banks to pursue mergers in order to keep serving their markets while remaining on good footing. State agencies are currently offering a Consolidation Program for Rural Banks until 2019, which targets to fortify the capital and asset base of these small banks via a merger in order to make them more financially sound. — Melissa Luz T. Lopez
Monetary Board orders closure of 2 rural banks

THE BANGKO SENTRAL ng Pilipinas (BSP) has shut down two rural banks last week as the regulator cracks down on more problem lenders.

The policy-setting Monetary Board ordered the closure of the Rural Bank of Sta. Elena, Inc. from Camarines Norte and the Tiaong Rural Bank, Inc. from Sto. Tomas, Batangas during their Aug. 2 meeting.

The Philippine Deposit Insurance Corp. (PDIC) has stepped in as receiver for both lenders effective Friday, it said in a statement.

Rural Bank of Sta. Elena runs one branch and holds P19.6 million of deposits across 744 accounts, according to PDIC data.

Meanwhile, Tiaong Rural Bank operates seven branches, which include two in Laguna, and one each in Cavite and Quezon. Total deposits amount to P891.7 million across 18,471 accounts.

“[U]pon placement of the Bank under liquidation, the powers, functions and duties of the directors, officers and stockholders of the Bank are terminated,” the PDIC said.

PDIC’s takeover paves the way for the state-run insurer to acquire the lender’s assets in order to pay outstanding liabilities to depositors.

Bank deposits are insured up to P500,000 per depositor, according to the law. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC.

Those with deposits worth P100,000 and below can avail of early payment, provided they do not how unsettled dues with these small lenders.

The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit.

The latest closure orders bring the number of shuttered banks to seven this year, matching the 2017 tally.

Other lenders which folded this year include Iloilo’s Bangko Buena Consolidated, Inc., Women’s Rural Bank, Inc., the Rural Bank of Initao (Misamis Oriental), Inc., the Empire Rural Bank and the Rural Bank of Loreto, Inc. in Dinagat Islands.

The central bank has been prodding small banks to pursue mergers in order to keep serving their markets while remaining on good financial footing. — Melissa Luz T. Lopez
Monetary Board orders closure of Bangko Buena
July 30, 2018 | 12:02 am

THE MONETARY BOARD has shuttered a rural bank based in Iloilo, marking the fifth lender to fold this year.

In a circular letter issued on Thursday, the Bangko Sentral ng Pilipinas (BSP) said it has ordered the Bangko Buena Consolidated, Inc. to stop its operations.

As regulator, the BSP can order the closure of problem banks with unhealthy balance sheets and insufficient assets to remain in business. The Philippine Deposit Insurance Corp. (PDIC) has taken over the bank as receiver effective last Friday.

Bangko Buena is run by its president, Cherlyn P. Dela Cruz-Payongayong, based on the BSP’s directory of lenders.

According to PDIC records, the bank runs seven branches in the Visayas. Bangko Buena is headquartered in Iloilo City but also had presence in other towns as well as in nearby Guimaras, Antique, Capiz, and Bacolod.

PDIC’s takeover allows the state-run deposit insurer to acquire the lender’s assets in order to pay outstanding liabilities to depositors. Bank deposits are insured up to P500,000 per depositor, according to the law. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC.

The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit.

Bangko Buena follows the fate of four other small lenders shut down by the central bank this year. These are the Women’s Rural Bank, Inc., the Rural Bank of Initao (Misamis Oriental), Inc., the Empire Rural Bank and the Rural Bank of Loreto, Inc. in Dinagat Islands.

The central bank ordered the closure of six rural banks and one thrift bank last year. In 2016, the regulator closed 22 lenders.

The central bank has been encouraging mergers among small banks in order to fortify their financial footing by dangling a host of incentives for those who pursue such plans. — Melissa Luz T. Lopez
BSP defends response to rising PH inflation
By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 05:20 AM July 18, 2018

The Bangko Sentral ng Pilipinas once more defended its decision to hold off on interest rate hikes early this year, which its critics have blamed for aggravating the country’s stubbornly high inflation rate this year.

In a speech delivered before the Institute of Corporate Directors on Tuesday morning, BSP Governor Nestor Espenilla Jr. said preliminary data indicated that prices of goods and services were being driven by so-called supply side factors against which a tightening of monetary policy would be ineffective.

The central bank chief said, however, that “material changes towards the end of the first quarter and the beginning of second quarter of 2018” finally prompted the Monetary Board to raise its key overnight borrowing rate by two successive 25-basis point hikes in May and June.

By this time, the country’s inflation rate was already at its highest for at least five years.

“On the global front, the attractiveness of the US economy was highlighted by both its fiscal and monetary policy adjustments, including rising interest rates,” Espenilla said, “This caused a migration of portfolio investments seen in the decline in Asean 5 equities markets leading to increased market volatility.”

This phenomenon contributed to more pressure on the local currency, while the continued rise in global oil prices and the price effect brought on by scarcity of rice from the National Food Authority “provided key impetus for higher levels of inflation,” he explained.

“Our two successive rate hikes in May and June were measured and deliberate responses to the evolving economic environment and dynamic market conditions meant to help anchor inflation expectations and temper second-round effects, firmly signaling our commitment to ensuring price stability,” he said.

The BSP’s overnight borrowing rate, on which all banks base their commercial loan rates, currently stands at 3.5 percent. The inflation rate for June stands at 5.2 percent, which is the highest in at least five years. Central bank economists expect the price hikes to peak in October of this year, and return to normal by next year.
Rural banks need new tech to remain relevant

A telecommunications giant on Friday urged rural banks to invest in and adopt new technologies to keep up with the times and remain relevant.

In a statement, Globe Telecom unit MyBusiness said necessary technology solutions “can provide worry-free operations to rural banks and allow entrepreneurs to focus on staying ahead of [the]competition.”

Tony Alcasid, president of the Rural Bank of Taal in Batangas province, agreed, saying these lenders had to improve their systems in delivering services the way commercial banks do.

“I think [that]in order for any financial institution to survive and compete, you definitely have to go digital. Rural banks should be able to step up and work out the connectivity between our offices,” he was quoted as saying in the statement.

Alcasid also said that while everyone was into mobile technology, provinces still lagged behind markets in Manila.

“[W]e have a lot of work to do to keep up,” he added.

Emerito Ramos 3rd, president of Tamaraw Rural Bank and of the Confederation of Southern Tagalog Rural Bankers, said digital banking could propel rural banks’ growth, as it can reach unbanked Filipinos.

“The creation of apps will simplify banking transactions, such as processing of loan applications and money remittances,” he added.

In May, the Department of Finance (DOF) and the Bangko Sentral ng Pilipinas (BSP) encouraged rural banks to embrace new financial technologies (fintech) to reduce the number of unbanked Filipinos.

According to Finance Secretary Carlos Dominguez 3rd, his department, with the help of the BSP and state-owned banks, are finding ways to relax deposit requirements, introduce new financial products, and increase the use of new technologies for electronic payment systems to help rural bankers include more Filipinos in the financial system.
Grumpy old men
By: Manuel L. Quezon III - @inquirerdotnet
Philippine Daily Inquirer / 05:26 AM July 11, 2018

The week began with an analysis in the Financial Times that says the peso is likely to weaken some more, with two trends contributing to this weakening. The first is a slowdown in the growth of remittances from abroad (remittances from the Middle East have actually been decreasing); and, second, a similar slowdown in the growth of the BPO sector.

A weaker peso also drives up the costs of manufacturing, affecting exports, while imports are expected to increase if government manages to embark on the infrastructure it’s promised, widening the trade gap. Companies that borrowed when the peso was stronger, and foreign currency cheaper, now have added interest costs. And if the central bank increases the cost of lending to counter inflation, there’s less credit to be had, slowing down business expansion.

The Financial Times analysis says rising prices has hit the poor the hardest, while the middle class has been “cushioned” from the effects of price increases due to the reduction in income tax under TRAIN 1. But if anecdotal evidence is any guide, talk in business circles of an increase in the repossession rate of cars suggests that this cushioning may be more theoretical than real. What is less a matter of conjecture and more of an observable trend is that investment pledges are down, as expansion plans or new projects are put on hold to see whether TRAIN 2 (which the business community seems to widely oppose, at least in terms of the components that would scrap investor incentives) pans out or not.

As it is, business, which had been interested in political proposals only to the extent that they help or hinder the economy, can’t be too happy about the consultative committee on Charter change appointed by the President. The committee essentially retained the economic provisions that business had wanted scrapped. Without any loosening of the economy, all a new constitution would signal to business is that, aside from the extortions of the national government and mulcting by the local government, a third level—the regions or federal states—would now enter the picture, eager to milk the already sore udders of businessmen large or small.

And this, in fact, is the realization that’s dawning on business people: Where formerly people could discount political risk because it was considered divorced from commercial risk, we’re sliding toward a lose-lose situation where political and commercial risks are increasing.

Over the past couple of years, there used to be a kind of conventional wisdom that was applicable to domestic events. However chaotic, crazy or disruptive the political players seemed to be, the economic managers, according to this conventional wisdom, were prudent, responsible and dedicated to continuity. In other words, this thinking went, the country had the best of both worlds: an administration whose president knew how to play to the gallery, thus maintaining national morale, but who had the fortuitous combination of ignorance and lack of interest in economic matters to leave well enough alone.

This belief began to be shaken when the President began using the economic team to help in his political agenda, and when the economic team incautiously used the President as a blunt instrument to accomplish its plans. Mighty, Mile Long, TRAIN, to name just a few incidents, might still be excusable, except success in these fronts seems to have fostered a sense of infallibility that began to manifest itself in what business considered weird behavior on the part of the economic managers.

A particularly disastrous performance—because unsettling, with its perceived petulance and angry old man unreasonableness—by the secretary of finance in Singapore, combined with similarly blithe, antique behavior on the part of the budget and economic planning secretaries, began to make businessmen think the conventional wisdom all along was wrong. The country is neither prudent, nor all that responsible, nor committed to continuity.

We’re entering uncharted waters, politically and, to a certain extent, economically, under increasingly erratic, geriatric command.
BSP okayed 29 new bank branches in Q1
Updated July 3, 2018, 8:10 AM
By Lee C. Chipongian

The new branch applications included all banks – the universal and commercial banks, thrift and rural banks. This was the first quarter that the BSP is listing the non-regular bank branches as “branch lites”.

Based on the circular letter signed by BSP Deputy Governor Chuchi G. Fonacier, there are 29 regular branch applications and 40 for branch lites. Under a 2017 circular revision, banks’ extension offices, other banking offices and microbanking offices are now referred to as branch-lite units.

During the quarter, big banks only applied for 11 regular branches and opened 48. Only two branch lites were opened.

Thrift banks applied and got approval to set up 15 regular branches and three branch lites. The mid-sized banks, in the meantime, opened 14 regular branches during the quarter and three branch lites.

Rural banks had three regular branch applications and 37 branch lites. There were also 12 new regular branches that were opened during this period, and 52 branch lites by rural banks.

A branch-lite unit performs limited banking activities but could provide a wide range of products and services suited for servicing the needs of the market except for sophisticated clients “with aggressive risk tolerance.”

By comparison, a branch is also a permanent office or place of business other than the head office where a bank may perform activities and provide products and services that are within the scope of its authority and relevant licenses.

To convert into branch-lites, a special licensing fee will cost P5 million if applicant is a universal and commercial bank, P3 million for thrift banks and P300,000 for the smaller rural/cooperative bank. Licensing fee per branch, in the meantime, is P20 million for big banks, P15 million for thrift banks and P1.5 million for smaller banks.

BSP Governor Nestor A. Espenilla Jr. signed BSP Circular No. 987 on December 28, 2017 which rationalizes the “prudential” requirements of banking offices and also contain the guidelines for branch-lite units.

The circular also covers foreign banks’ sub-branches and its limitations. A foreign bank authorized to establish branches in the Philippines is allowed to set up five sub-branches which are considered branch-lite units.
Bangko Sentral hikes rates again amid high inflation
Ralf Rivas
Published 7:45 PM, June 20, 2018
Updated 7:46 PM, June 20, 2018

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) raised interest rates once again after inflation surged to a fresh 5-year high last May.

BSP Governor Nestor Espenilla Jr said on Wednesday, June 20, that the Monetary Board decided to raise the overnight reverse repurchase (RRP) rate by 25 basis points to 3.5%.

The central bank also raised interest rates on overnight lending and deposit facilities to 3% and 4%, respectively.

Raising interest rates encourages people to save up in banks instead of spending their money, and thus helps ease inflation.

Since the banks' interest rates are higher, people may also be discouraged from getting bank loans.

The BSP had implemented its first rate hike in 3 years last May 10.

The central bank previously stated that inflation would normalize even without tweaking monetary policies.

But Espenilla said on Wednesday that the BSP is "prepared to take further policy action as needed to achieve its price and financial stability objectives."

"In deciding to raise the BSP's policy interest rate anew, the Monetary Board noted that inflation expectations remain elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action," he said.

The BSP forecasts 2019 inflation to ease between 2% and 4%.

The same range was set for 2018, but the year-to-date inflation has exceeded expectations by one percentage point.

"Equally important, while latest baseline forecasts have shifted to lower for 2018-2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise," Espenilla said.

Inflation had risen to 4.6% back in May. Meanwhile, the Philippine peso plummeted to P53.45 against the United States dollar on Wednesday. – Rappler.com
Falling peso, rising economy?
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:05 AM June 19, 2018

Is the falling value of the peso a sign of bad management of the economy? Does it signal a worsening economy ahead, and worse conditions for our people, especially the poor?

In the past, the peso-dollar exchange rate would jump when larger-than-usual dollar outflows would result from lumpy foreign payments, as when our oil companies settled their bills with the sources of their crude oil imports. A more steady rise in the exchange rate would be traced to sustained dollar outflows, as when capital exited the country because of push (domestic political trouble) or pull (better yields elsewhere) forces.

So when I started writing my last piece on the history of the falling peso, I sent a message to Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo, a London School of Economics-trained economist, asking which of the above might be behind the latest trends. Given his busy schedule, I would have been happy with a one-liner reply, but even while on an overseas trip, he obliged me with a copious response, which I paraphrase below.

It need not unduly alarm us that the peso is depreciating, he wrote. The latest currency movement simply reflects the fundamentals of our growing economy. The stronger outflow of foreign exchange at this time actually reflects three positive trends.

First, imports continue to surge, feeding the input requirements of our fast-growing economy, including the massive “Build, Build, Build” infrastructure push of the government. Second, Filipinos’ investments abroad are on the rise. Companies like Jollibee and Manila Water, for example, continue to expand their reach overseas, cashing in on moneymaking opportunities in the growing global economy. Third, much of the country’s foreign loans are deliberately being prepaid to avoid rising interest rates.

All these are now exerting additional demand and pressure on the local currency. We should be more scared, he pointed out, when these fundamental forces are not reflected in the movements of the peso (such as if the BSP intervenes too heavily in the market by buying or selling large amounts of dollar reserves). If the exchange rate is artificially insulated from such natural market forces, we run the risk of building up too much pressure to the point of getting large, discrete and destabilizing movements on the rate.

Reading reports of the BSP’s falling (but still very high) levels of foreign reserves, I could tell that it is selling dollars to smoothen currency movements, but not preventing it from following the natural direction dictated by the forces just cited. The bad news, as I’ve written before, is that we’ve been unable to grow our exports like our neighbors are doing; this could otherwise help arrest a longer-term depreciation trend.

Deputy Governor Guinigundo also pointed out that, in assessing the peso situation, the time frame of analysis matters. If we look at recent weekly movements, the peso indeed appears to have bucked the trend of most currencies in the region. But a five-year comparison shows us to be in step with the overall depreciation of regional currencies.

An even more meaningful assessment would consider the real effective exchange rate, tracking the peso’s movement relative to a basket of currencies of our most important trading partners, adjusted for inflation differentials. Based on this measure, he pointed out, the peso has been broadly stable because its nominal depreciation has been coupled with lower inflation in the last few years, thus keeping our exports competitive.

Finally, Mr. Guinigundo said that the pass-through effect of the exchange rate to inflation is now weaker, based on BSP tracking since it shifted to inflation targeting (vs. exchange rate targeting in the 1990s) in 2002. This means that the economy has become more efficient and competitive, thereby moderating the exchange rate movements’ impact on domestic price levels. Thus, while the falling peso helps exporters and their workers, along with families dependent on remittances from abroad, it would not hurt the rest of us as much as it would have before, via higher inflation.

Fear not, then: The falling peso doesn’t mean the economy is falling, too.
Battered peso
Philippine Daily Inquirer / 05:24 AM June 18, 2018

The peso weakened last week to its lowest level in 12 years against the dollar. At more than P53 to $1, the exchange rate has breached the upper limit of the government’s forecast of P50-53 to a dollar for 2018.

While this is welcome news to exporters and Filipinos working abroad (as well as foreign tourists visiting the country), it has a debilitating impact on the broader economy and the cost of living of ordinary Filipinos.

The local currency fell to a low of P53.27 to $1, the weakest since June 29, 2006, when it hit P53.55 to the dollar.

For perspective, official data showed that the peso traded against the dollar at an average of P50.41 in 2017; P47.49 in 2016; P45.50 in 2015; P44.40 in 2014; P42.45 in 2013; P42.23 in 2012; P43.31 in 2011, and P45.11 in 2010.

Economists ascribed the peso’s depreciation to the rising interest rates in the United States that make dollar-denominated investments more attractive to fund managers compared to peso-denominated securities.

This is evident in the net outflow of the so-called “hot money” or foreign funds invested mainly in the local stock market. For the month of May, for instance, $1.2 billion came in, but $1.4 billion went out.

This is exacerbated by the yawning trade deficit as the country spent more dollars to pay for imports than what it earned from exports.

Latest official data showed that the balance of trade in goods was at a deficit of $12.2 billion for the January-April 2018 period.

The Bangko Sentral ng Pilipinas reported that this trade imbalance had already pushed the balance-of-payments (BOP) deficit to $1.5 billion in the first four months of 2018.

(The BOP is an accounting of all transactions the country has with the rest of the world for various goods and services. A surplus means the country is earning more than it is spending, while a deficit represents the opposite.)

The central bank had initially targeted a BOP deficit of $1 billion for the entire 2018.

A weak currency puts pressure on inflation, which has risen to its highest in five years at 4.6 percent last May, as one needs more pesos to buy the same amount of goods and services from abroad.

For example, the Philippines imports nearly all its petroleum requirements. A weaker peso makes crude oil imports more expensive. This, in turn, will raise the cost of generating electricity, as some power plants still run on diesel or bunker

fuel. Transport costs — public buses and jeepneys as well as delivery expenses for nearly all products — will also increase.

Add to this the additional taxes on petroleum products imposed by the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) Act in January — an excise of P3 a liter for kerosene, P2.50 a liter for diesel and bunker fuel, and P1 a kilogram for liquefied petroleum gas. The law also imposed an excise of P7 a liter on gasoline.

The spike in prices of essential goods and services has led to calls for an increase in wages and even a suspension of the TRAIN Law, despite the Department of Finance pointing out that the tax hikes contributed only 0.4 percent to the current inflation rate.

A weaker peso also raises the cost of wheat imports, thus resulting in higher bread prices. It also raises the cost of electricity as power utilities need more pesos to either import fuel or repay their foreign debts.

Manila Water Co. And Maynilad Water Services Inc. have given notice that they are seeking an increase in rates because of the weakening peso.

Economists also predict that the external payments position would likely deteriorate further as increased economic activities fuels demand for imported equipment and consumer goods.

The unfolding events on the economic front — the foreign exchange and inflation picture in particular — will be a major test for the Duterte administration, especially its economic managers.

Ordinary Filipinos would not mind much if prices of mobile phones or smart TVs go up due to the peso weakness. But if transportation fares, electricity and water prices, and expenses for food rise further, that is a different matter altogether.
Beyond ‘PiTiK’
By: Cielito F. Habito - @inquirerdotnet
Philippine Daily Inquirer / 05:09 AM June 12, 2018

My last article dealt on how we have a two-out-of-three batting average on my “PiTiK” test that tracks the essential economic indicators of presyo, trabaho and kita (prices, jobs and incomes), with faster-rising prices being the not-so-good news lately. But other indicators in the economy that the average person probably doesn’t pay much attention to also bear watching, because these ultimately impact on PiTiK, hence the wellbeing of Filipinos in general.

Let’s start with foreign direct investments (FDI), or the investment inflows that actually create jobs, as against those going into portfolio financial investments like stocks or bonds, also called “hot money” because of the ease with which they can be pulled out. Here, there’s both good news and bad news. The good news is that latest data from the Bangko Sentral ng Pilipinas show $1.5 billion in actual FDI inflows in the first two months of this year, a hefty 52.6 percent increase over the comparable figure last year. Of these, new equity placements from overseas, which is the most welcome component, multiplied nearly five times, implying that confidence in the Philippine economy by foreign investors continues to be high.

On the other hand, the Philippine Statistics Authority has just reported that new foreign investments registered with our investment promotion agencies (IPAs) fell by 37.9 percent to P14.2 billion in the first three months of the year. Should we worry? Note that these data reflect intentions rather than actual inflows, and would turn into the latter only within 2-3 years.

Interestingly, even as these data showed significant declines in recent years (-5.5, -31.8 and -10.7 percent in 2013, 2014 and 2016), actual FDI inflows tracked by the BSP had grown consistently from $5.6 billion in 2015 to $8.3 billion in 2016, and on to $10 billion last year.

Why the seeming contradiction? The answer lies in the fact that the IPAs’ data only capture investments that will avail of incentives, even as substantial other investments also come in without them. In the end, what matters are actual FDI inflows, and the data continue to show robust growth. Moreover, data on the sum of domestic and foreign investments continue to show sustained double-digit growth all through the first quarter of this year.

Government finances are also worth watching, as these bear heavily on the stability of the overall economy. Latest data show that the national government deficit (the excess of expenditures over revenues collected) had doubled from P83 billion in the first quarter last year, to P162.2 billion this year. The latter amounts to 4.1 percent of first-quarter GDP, already beyond the 3 percent rule-of-thumb threshold for a sustainable deficit, and reflects government’s aggressive stance on the Build, Build, Build program to “buy” faster economic growth.

It may be of some comfort to know that the United States government is running a deficit that is 10 percent of GDP, on much slower economic growth than ours. But, then again, economic instability in the United States would spell trouble for us as well.

The balance of our foreign exchange inflows vs. outflows shows a worrisome trend: After years of being in surplus, we now have a growing deficit ($2.5 billion in the current account), driven mainly by fast-rising imports in the face of falling exports. This is showing up in the rising foreign exchange rate, which is good news for exporters and families receiving remittances from abroad, but also generally hurts all of us via rising prices. We must strive to further expand exports to fund our fast-growing import bill.

Through all the economic data, what’s most sobering is the comparison with our neighbors. We take pride in being among the fastest-growing economies around, but the fact is, we continue to compare badly with our neighbors in the two other elements of PiTiK: Our inflation and unemployment rates have consistently been nearly twice the average of our neighbors’. Moreover, their exports are growing anywhere from 3.5-25 percent in the past year, while ours have dropped.

The lesson for us ought to be clear: We must keep our eye on the ball, as there’s still a lot of catching up to do.
Banks blamed for poor agri performance
Published May 27, 2018, 10:01 PM
By Madelaine B. Miraflor

Agriculture Secretary Emmanuel Piñol has blamed local banks for the lackluster performance of the agriculture sector as they refused to grant loans to farmers as mandated under the Agri-Agra Reform Law.

Piñol said Philippine banks “cheat” just to get away with the requirements of Agri-Agra Reform Act, which suffers a way too law compliance level.

This was Piñol’s reaction to complaints of some banks about the poor performance of agriculture sector.

“How can you expect an impressive growth in agriculture when the banking institutions [don’t follow] the Agri-Agra law? It’s like milking an ill-fed cattle,” Piñol said.

Agri-Agra Reform Act requires all banks to set aside 25 percent of their loan portfolio to the farming sector — 15 percent of which should go to agriculture-related projects, while the 10 percent must go to agrarian reform beneficiaries.

Exactly nine years since the law took effect, the banking sector still fails to comply, with loans disbursed to agriculture sector only at 13 percent and 1 percent for agrarian reform. Farmers and agri projects are considered high risks and therefore very few banks lend to this sector.

Land Bank of the Philippines President Alex Buenaventura said that as of end-2017, the non-compliance of the total banking system to the law already amounted to R460 billion.

The problem is, according to Piñol, is that “many of these banks are cheating” when it comes to compliance of Agri-Agra law.

Agri-Fisheries Alliance (AFA) Credit Head Danilo Fausto said before that because of the perceived risk in lending to agriculture, banks rather pay the fines worth R5 billion than weaken their balance sheet.

“This is precisely what’s happening. If you are doing anything you could to avoid fulfilling your legal commitments, you just pay fines and cheat, how can you expect agriculture to grow?” Piñol further said.

“They expect so much from the Philippine agriculture but they don’t want to lend,” he added.

For the first quarter of the year, Philippine Statistics Authority (PSA) cited the Department of Agriculture’s (DA) financing program as one of the contributors to the performance of the agriculture sector.

PSA said the financial assistance from the DA and Local Government Units (LGUs) such as the Production Loan Easy Access (PLEA) paved the way for increases in area harvested during the period.

A report showed that during the first three months of the year, the country’s palay production grew by 4.61 percent this year.

PLEA is being implemented by DA’s financing arm, Agriculture Credit Policy Council (ACPC).

Initial reports from ACPC, through PLEA and the Program for Unified Lending in Agriculture (PUNLA), showed repayment rates of 100 percent by vegetable farmers of Cordillera and 96 percent nationwide.

A technical study on the possible amendments of Agri-Agra Reform Act funded by Asian Development Bank (ADB) is now under way.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier said the central bank is open to consolidating the legal requirements of the law.

“The exact percentage distribution between the 15 percent share for agriculture and 10 percent share for agrarian reform beneficiaries is the subject of a study that will soon be concluded,” she said.

Fonacier said that BSP is just waiting for the ADB to come up with the final report on the study it conducted on the Republic Act 10000, or the new Agri-Agra law.
Banks’ liquidity buffer to be required at 1 year
Lawrence Agcaoili (The Philippine Star) - May 30, 2018 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is requiring banks to hold enough liquidity or stable sources of funding for a one-year period starting next year to provide a ready buffer and at the same time further strengthen the industry.

BSP Governor Nestor Espenilla Jr. said the central bank has approved the guidelines on the net stable funding ratio.

“NSFR is basically a regulatory requirement for the banks to generally maintain a liquid position long enough to sustain it for a one year period,” Espenilla said.

He said the NSFR is patterned after the liquidity coverage ratio (LCR) through a phased in period, wherein banks would be given until the end of the year for the observation period before full adoption by January next year.“What will happen is there is an observation period for the rest of the year and it will formally kick in Jan. 1 next year,” Espenilla said.

The latest reform, the BSP chief said, would complement the LCR framework introduced in 2016 that requires universal and commercial banks, as well as foreign bank branches to hold sufficient high quality liquid assets (HQLAs) easily convertible to cash to service liquidity requirements over a 30-day stress period.

This would provide banks with a minimum liquidity buffer to be able to take corrective action to address a liquidity stress event. Banks were required to meet the 100 percent LCR threshold in January.

Both the NSFR and LCR are part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision (BCBS).

“The tools of the BSP are multiple. We are not just moving monetary policy, we are also at the same time complementing what we do with the regulatory policy,” Espenilla said.

The decision of the BSP to further slash the level of deposits banks are required to keep with the central bank to 18 percent is expected to release around P100 billion in additional liquidity into the financial system.

“If we don’t have good rules that compel banks to behave prudently, if you release liquidity to them, the danger is, it will result in excesses in terms of credit which then creates problems down the road,” Espenilla said.

Under a strong regulatory framework, the BSP chief is confident the channels to which the liquidity passes through banks are going to be responsible.

“We do reforms not during a crisis, we do it when people are ready so that we avoid crisis down the road. I think that is also one of the reasons why the economy is doing well because during good times we keep pushing these reforms so that we don’t have to do these emergency actions during crisis,” he said.

The regulator is issuing a four-phased regulatory reform to reinforce the capability of banks in managing liquidity risk.

It has approved last month the guidelines on the LCR, the complementary Minimum Liquidity Ratio (MLR) for thrift and rural banks as well as the NSFR. The fourth phase is the guidelines on the intraday liquidity reporting.

Assets of Philippine banks stood at P15.71 trillion in end-March, 11.3 percent higher than the P14.12 trillion recorded in end-March last year.
Rural banks urged to invest in new technology
Published May 21, 2018, 10:01 PM

To be “strong and dependable delivery channel in the provision of banking services,” the country’s rural banks must further invest on technology as well as expend their agriculture financing.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said this during the 65th Annual Convention and General Membership Meeting of the Rural Bankers Association of the Philippines (RBAP).

“With the digital transformation of the banking system, we, at the BSP, are optimistic that the rural banking industry can emerge as a strong and dependable delivery channel in the provision of banking services. It can do so by taking advantage of available technology,” Espenilla said.

For its part, the Department of Finance (DOF) is now pushing a trio of initiatives to enable the rural banking system to meet the challenge of reducing the number of unbanked Filipinos in the country, given that this sector is at the frontline of the Duterte administration’s efforts to attain financial inclusion. Finance Secretary Carlos Dominguez III said the reality that a majority of Filipinos remain unbanked to this day even when the economy is growing at a fast pace is “not a good indicator,” as this means they have neither access to financial services nor ways to participate in investments.

He said the DOF, with the help of BSP and state-owned banks, are finding ways to relax requirements for deposits, introduce new financial products and increase the use of new technologies for electronic payments systems to help rural bankers in their “urgent” mission of reducing the number of unbanked Filipinos, especially in the countryside.

He said the DOF, with the help of BSP and state-owned banks, are finding ways to relax requirements for deposits, introduce new financial products and increase the use of new technologies for electronic payments systems to help rural bankers in their “urgent” mission of reducing the number of unbanked Filipinos, especially in the countryside.

Right now, almost 97 percent of the industry’s network is spread across provinces. In fact, one in every three banking offices located in Davao Region and in Mindanao is a rural bank.

Still, 554 cities and municipalities, or almost a third of the total, in the country are still unbanked as of December 2017, while the 2017 Global Findex by the World Bank showed that only 34.5 percent of Filipino adults have formal accounts, ranging from bank deposits to e-money accounts.

“The domestic digital money ecosystem certainly needs players, big and small, to meet the exacting demands of this new breed of clients,” Espenilla said.

Nevertheless, he said that one rural bank is now pilot-testing a cloud-based banking solution in managing its day-to-day operation more effectively and serving its clients more efficiently, thereby upgrading its competitiveness.

This, while several banks, including rural banks and non-bank financial institutions, are already utilizing the Lendr platform to facilitate credit origination processes.

Meanwhile, Espenilla said that with an increasing recognition of the necessity for innovation, coupled with proximity to and intimate knowledge of the market, rural banks can now, more than ever, reinvigorate and blaze new trails for agriculture financing in the country.

“Innovations enabled by digital technology and value chain approach can not only make agri-financing more viable but also unlock new opportunities for rural banks to deliver a whole range of financial services catering to the unique needs of farmers and their communities,” Espenilla said.

“Tapping these opportunities and backed by a solid culture of governance, rural banks can evolve into these valuable full-service community banks – a true pillar of countryside development,” he added.
Landbank model
By: Ernesto M. Ordoñez - @inquirerdotnet
Philippine Daily Inquirer / 05:10 AM May 17, 2018

Land Bank of the Philippines (LBP) president Alex Buenaventura has embarked on the correct approach of reaching out to small farmers, instead of waiting for them to submit loan proposals. Consider Rey Almario’s snapshot of the agriculture terrain. Almario is a former banker from the Coalition for Agriculture Modernization in the Philippines, led by some of its key founders—chair Emil Javier and president Ben Peczon.

Agriculture contributes 10 percent of the gross national product, or up to 35 percent if ancillary industries are included. Agriculture workers constitute 28 percent of the workforce, with 30 percent involved in postharvest activities. They have the highest poverty incidence: 34.3 percent for farmers and 34 percent for fisherfolk.

There is an Agri-Agra law designed to help this sector—15 percent of loanable funds must go to agriculture and 10 percent to Agrarian Reform Beneficiaries (ARBs). Unfortunately, only 7 percent and 1.3 percent go to these subsectors, respectively. Banks do not want to lose money by lending for proposals that are not financially viable. They would rather pay the penalty of half of 1 percent for noncompliance, rather than losing the whole loan amount.

It is in this environment that LBP, as the official agriculture bank of the Philippines, is looked upon as a model for other banks to follow. Today, only 2 percent of the banking sector’s loanable funds goes to agriculture.

A model is suggested by Pablito Villegas, who has worked on rural credit in 20 countries as a consultant for organizations such as the United Nations and Asia Development Bank. Here is his suggested model that follows the direction of LBP president Buenaventura, but provides additional details:

LBP should form a network of satellite countryside banking and lending centers at the LGU and community levels. This can start in 20 strategic areas.

LBP should help implement the government’s convergence policy of DA, DENR, DAR, DTI and DOST through integrated area development. This will result in the clustering of competitive enterprises and the aggrupation of core, related, supporting and allied industries that will form the nucleus of a pro-poor, proenvironment and highly inclusive development approach.

LBP should enter into MOAs with LGUs and converge national government agencies for the packaging and financing of projects at the household or cooperative level using value-chain financing schemes.

Buenaventura’s corporative management system demonstrates such profarmer institutional arrangements within the value-chain where the exploitative elements of many existing agriculture supply chains are addressed and resolved.

LBP’s integrated financial delivery and recovery system will be complemented by the coordinated business development, extension and capacity building support from converging NGAs, NGOs, people organizations and agribusinesses.

LBP should fund and organize countryside financing teams (CFTs) with an agro-based business-oriented manager, agriculturists/aquaculturists, and specialists in financing, marketing and information technology. This will be similar to PNB’s Bank-on-Wheels.

If LBP is successful in reaching out rather than waiting for loan proposals to come in, other banks will follow using the LBP model. They will then come closer to complying with the Agri-Agra law. The Monetary Board must formulate and implement guidelines that will make Agri-Agra law compliance more attainable.

For example, it is clear that the 10 percent requirement for ARBs is almost impossible to attain. Today, compliance is only 1.25 percent. There should be enough flexibility so that a large part of the mandated 10 percent can qualify for compliance if the beneficiaries are not necessarily ARBs, but also small farmers.

As for the 15 percent requirement for agriculture, any support for agriculture such as ancillary activities not currently covered should qualify for this requirement. Any incentive that will help agriculture should be given. It is time to reach out, instead of just passively waiting and uselessly hoping that the 2 percent agriculture loan share will improve without reforms.

Such reforms will be discussed in a free, open Agri-Credit Forum from 1-5 p.m. on May 17 at the University of Asia and the Pacific, Pearl Drive, Ortigas Center. Please call 0917-7920848 to preregister.
Another data protection regulation
Renan PiamonteRenan Piamonte 16 May 2018

It’s normal to receive emails on updated terms of service from an online account, such as Facebook. In the past two months alone, I have received similar emails from Microsoft, Google, Yahoo, Airbnb, Facebook, LinkedIn, Twitter, Fitbit, Uber and Paypal. Getting one or two such emails may be a coincidence, but receiving that many is not. The surge in the number of emails from tech companies updating us on their privacy policies is also attention-getting: the normal legalese full of illegible descriptions of terms and conditions was replaced by a clear, easy-to-read style.

All of these are related to the General Data Protection Regulation (GDPR) that comes into effect next week.

The European Union’s (EU’s) new data protection law does not only cover all businesses operating within the EU, but also the companies that trade with EU-based businesses. For many of us, we may not think of individual European countries as significant business partners of the Philippines. However, as an economic bloc, the EU is in the Philippines’ top three largest trading partners for goods and services, even bigger than the United States.

The GDPR, therefore, is not something to be brushed aside as irrelevant, especially since the penalties for non-compliance can be as high as €20 million, or 4 percent of annual sales, whichever is higher.

The good news, though, is that companies complying with the Philippines’ Data Privacy Act (DPA) of 2012 have a very good chance of being ready for the GDPR, since the DPA is largely based on international data privacy frameworks such as the GDPR.

Like the DPA, the GDPR will introduce wide-ranging changes that require thorough understanding, internal stakeholder acceptance, and appropriate preparation and implementation across the whole business. In a recent publication for GDPR issued by Grant Thornton International, the following key changes were highlighted:

> Better rights for data subjects – The largest shift is that individuals will benefit from greatly enhanced rights, such as the right to object to certain types of profiling and automated decision-making. Consent requirements will also be more stringent. Consent must be explicit and affirmative, it must be given for a specific purpose, and it must be easy to retract. Individuals may also request that personal data be deleted or removed if there isn’t a persuasive reason for its continued processing.

> Increased accountability – Organizations will have far more responsibility and obligation. They will need to publish more detailed fair processing notices, informing individuals of their data protection rights, explaining how their information is being used, and specifying for how long. The new regulation also embeds the concept of privacy by design, which means that organizations must design data protection into new business processes and systems.

> Formal risk management processes – Organizations must formally identify emerging privacy risks, particularly those associated with new projects, or where there are significant data processing activities. They must also maintain registers of their processing activities and create internal inventories. For high-risk data processing activities, Data Protection Impact Assessments (DPIAs) will be mandatory. It will also be compulsory to appoint a Data Protection Officer (DPO).

> Significant sanctions – Penalties for noncompliance will rise considerably, up to €10 million, or 2 percent of annual sales (whichever is greater) for minor or technical breaches, and €20 million, or 4 percent of turnover for more serious operational failures. Investments in new tools to protect data have become relatively cheaper.

> Data processing requirements – The regulation also imposes new requirements on data processors, and includes elements that should be addressed contractually between data processors and data controllers.

Assuming that a Philippine company is already compliant with the DPA, there is still a need for continuous improvement to ensure sustained compliance with both the DPA and GDPR. Companies should develop a competent team or appoint a trusted advisor to assess the effectiveness of data protection efforts and perform GDPR and DPA audits. Data risk management should also be integrated into the overall risk management structure. Lastly, data protection training is expected to be a regular feature of both onboarding and annual training programs.

These measures may seem a lot, but they represent the price we have to pay to protect data.

Renan Piamonte is the Risk Management partner of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 21 partners and over 900 staff members. For comments, please email Renan.Piamonte@ph.gt.com or pagrantthornton.marketscomm@ph.gt.com. Visit our website: www.GrantThornton.com.ph; Twitter and Instagram: pagrantthornton, and FB: P&A Grant Thornton.
LandBank’s net income jumped 52% in first quarter
posted May 09, 2018 at 07:40 pm by
Julito G. Rada

State-run Land Bank of the Philippines, the fourth-largest lender in terms of assets, said Wednesday net income jumped 52 percent in the first quarter to P4.26 billion from P2.81 billion a year ago on sustained strength of core businesses.

The bank said in a statement the first-quarter profit also exceeded the target of P3.78 billion for the period by 13 percent.

“This quarter’s performance assures us that we are gaining the momentum to meet our targets this year. The 31-percent growth in our loan portfolio is also a strong indicator of our fervent drive to reach more agribusiness borrowers, especially in the countryside,” LandBank president and chief executive Alex Buenaventura said.

“The bank’s solid financial performance is our source of financial muscle to attain our bigger mission of promoting inclusive growth,” he said.

The first-quarter net profit was brought about by a 47-percent surge in gross revenues to P17.4 billion from P11.8 billion a year earlier.

The bank attributed a big chunk of the increase in net income to higher interest income on loans which grew 25 percent. Outstanding loans grew 31 percent to P694.71 billion from P529.16 billion.

The bank said its return on equity and net interest margin reached 15.74 percent and 3.33 percent, respectively, which were above the latest industry average figures.

Assets rose 19 percent to P1.63 trillion in the first quarter from P1.38 trillion in the same period last year. Deposits expanded 19 percent to P1.44 trillion from P1.22 trillion.

LandBank said total capital went up 22 percent to P108.37 billion from P88.63 billion as of end-March 2017.

Buenaventura said the bank remained aggressive in strengthening lending programs and tailoring new programs to the needs of clients, especially the priority sectors.

LandBank said it remained the biggest lender to the agricultural sector, especially small farmers, fishers, microenterprises and SMEs.
Net incomes of big banks up 17.85% to P39.77 billion in first quarter – BSP
Published May 8, 2018, 10:00 PM
By Lee C. Chipongian

The country’s big banks reported combined cumulative net profits of P39.768 billion in the first quarter this year, up 17.85 percent from same period in 2017 of P33.745 billion, data from the Bangko Sentral ng Pilipinas (BSP) show.

Including thrift banks and rural/cooperative banks, the banking sector had combined net profits of R47.623 billion at the end of March, 22.87 percent higher year-on-year from P38.759 billion

The universal and commercial banks’ interest income which comes from lending and deposits grew by 14.40 percent in the first quarter or to P98.037 billion from P85.691 billion. Non-interest income from securities trading, other service charges and fees increased by 31.60 percent to P36.066 billion from P27.407 billion.

The entire banking sector’s net interest income was up 27.20 percent to P132.515 billion from P104.176 billion while non-interest income rose by 43.87 percent to P46.874 billion from P32.581 billion.

Banks spent more in the first quarter 2018 compared to the previous year in terms of operating income, it went up by 18.57 percent year-on-year to P134.103 billion. Industry-wide total operating income was up by 31.17 percent year-on-year to P179.389 billion.

The SM Group’s BDO Unibank, Inc. is still the country’s biggest bank followed by Metropolitan Bank and Trust Co. (Metrobank) and Bank of the Philippine Islands (BPI). The other big banks are China Banking Corp. (Chinabank), Philippine National Bank (PNB), Land Bank of the Philippines, Security Bank Corp., Development Bank of the Philippines, Union Bank of the Philippines and Rizal Commercial Banking Corp. (RCBC).

Fitch Ratings which rates BDO, BPI, Metrobank, Chinabank, PNB and RCBC said local banks have adequate support to sustain profits but the debt watcher cautions against rapid expansion.

“Rapid expansion places a greater demand on banks’ risk frameworks, systems and balance-sheet buffers, and increases the risk of credit misallocation which may only become clearer later on,” Fitch said in a special report: “Peer Review: Philippine Privately Owned Banks”.

However, Fitch said broad indicators “suggest that aggregate leverage in the Philippines remains moderate – with banking system credit at around 52 percent of GDP.”
Bank resources grow 12% in Feb. to P14 trillion – BSPre it!
Updated May 1, 2018, 10:23 PM
By Lee C. Chipongian

The country’s banking system has a higher total resources of P15.59 trillion as of end-February this year, up 11.67 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) show.

This includes large lenders or the universal and commercial banks, thrift banks, and rural and cooperative banks. Including non-banks, the total financial system resources grew by 9.30 percent to P18.95 trillion.

The big banks accounted for 90 percent of total banking resources with P14 trillion, up 12.19 percent from end-February, 2016’s P12.49 trillion.

Thrift banks registered a 6.79 percent increase year-on-year, from P1.13 trillion to P1.21 trillion. The central bank data on rural and cooperative banks combined, as well as non-banks, usually is a quarter behind in the tally. As of December, 2017, rural and cooperative banks have resources amounting to P256.5 billion, 10.82 percent more than 2016, while non-banks – these are investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations — have P3.46 trillion, up four percent year-on-year.

At the end of 2017, the banking sector’s total resources is equivalent to 98.1 percent of gross domestic product. Savings and demand deposits remain the primary sources of funds for the banking system.

BSP Governor Nestor A. Espenilla Jr. said the country’s “healthy financial system has continued to fuel the growth momentum,” citing adequate domestic liquidity to fund the requirements of a strong economy and the “solid demand for loans across key economic sectors.”
Banks tightening on household loans
By: Daxim L. Lucas - Reporter / @daxinq
Philippine Daily Inquirer / 05:09 AM April 23, 2018

Local banks became more cautious in granting consumer loans during the first quarter amid a general increase in risk aversion in the local financial system, the latest survey of the central bank showed.

In a statement, the Bangko Sentral ng Pilipinas said that lending to households reflected a “net tightening” in the first three months of the year based on one survey method, reflecting the imposition of higher credit standards.

“In particular, credit standards for housing loans and personal or salary loans tightened due mainly to respondent banks reduced tolerance for risk,” the central bank said, citing the results of its quarterly survey on banks’ senior loan officers.

In terms of specific credit standards, the overall net tightening of credit standards for household loans was reflected in the stricter loan covenants for housing loans and shorter loan maturities for personal or salary loans, it explained.

Most banks indicated that credit standards for loans to enterprises were maintained during the quarter using the modal approach. The unchanged credit standards for business loans was largely attributed to the banks’ steady outlook for the economy as a whole and for major industries, as well as their unchanged tolerance for risk and stable profile of borrowers.

Responses to the survey on loan demand indicated that the majority of the respondent banks continued to see stable overall demand for loans from both enterprises and households, while a second method revealed a net increase in loan demand across all firm sizes and all types of household loans.

“The net increase in loan demand for firms was attributed by banks to their customers’ higher working capital requirements and banks’ attractive financing terms, among others,” the BSP said. “Meanwhile, respondent banks attributed the net increase in loan demand from households to low interest rates, more attractive financing terms offered by banks, and increased household consumption.”

Overall, however, the results of the Senior Bank Loan Officers’ Survey for the first quarter showed that most banks continued to maintain their credit standards for loans.
BDO shelves ONB deal with TPG
Philippine Daily Inquirer / 05:08 AM April 23, 2018

The country’s largest lender BDO Unibank has deferred a deal to sell a 40-percent stake in Davao-based rural bank One Network Bank (ONB) to a unit of US-based global private investment firm TPG.

“The fund that was supposed to invest got used up. So they’ll have to find another fund and we decided that maybe we should not pursue it at this time because we want to move quickly. If we were to get another fund, we will wait for them again and it will delay our expansion,” BDO Unibank Nestor Tan said in a briefing on Friday.

TPG Growth, the middle market and growth equity investment platform of TPG, signed a deal in 2016 to acquire a 40-percent stake in ONB while BDO would keep a 60- percent ownership.

“It’s deferred and at some point it may push through, or it may be scrapped,” Tan said, adding that BDO had not set a timeframe on this transaction.

Asked whether BDO is looking for another strategic partner for ONB, Tan said the bank was still in touch with TPG and working with its people but is keen on moving faster into the micro, small and medium enterprise (MSME) lending business faster through ONB, a leading lender in Mindanao.

“We need to move from A to B. It’s either we start at A and B or we look at the whole thing once we get to B. In between, it’s not wise to make a move and we are in between [those points],” Tan said.

BDO acquired ONB from the Consunji family in 2015 for some P6.67 billion. This rural bank has over 100 branches and offices.

The vision for ONB is to expand MSME penetration.

“We have big ambitions for most of our businesses but we can’t be too ambitious. We have to take it one step at a time to make sure that we are able to fund our expansion,” he said.

For its part, TPG has partnered with more than 15 financial services companies across Asia. In 2008, TPG worked with Bank Tabungan Pensiunan Nasional (BTPN) of Indonesia to open more than 550 new branches and create a microloan business that grew the bank’s customer base to more than two million group lending program clients and 250,000 MSMEs.

Across its platform, TPG has invested in a wide variety of financial services companies throughout Asia, including Indonesian financial institution BFI; Janalakshmi, India’s largest microfinance institution; the Shenzhen Development Bank in China; and Union Bank of Colombo in Sri Lanka. —DORIS DUMLAO-ABADILLA
BSP eyes risk-based pricing for bank loans
By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) is reviewing guidelines that will improve banks’ credit assessment of potential borrowers and to better assign risk levels for certain types of loans.

BSP Governor Nestor A. Espenilla Jr. said when adopted, borrowers with good credit standing can access higher loan limit with lower interest rates.

“To differentiate risks among bank borrowers, we are currently studying adoption of the risk-based pricing framework for bank loans,” Espenilla said. “This will encourage good borrowers to avail of more loans because of the lower interest on account of their good credit standing.”

The proposal, the BSP chief added, should “reduce potential systemic risk from competitive pressures that may result in lower interest rates even for customers with poor credit quality.”

The BSP, to monitor banks’ lending behavior, conducts a quarterly survey to assess credit activity. Using the results of the Senior Bank Loan Officers’ Survey or SLOS, it watches credit demand conditions as well as conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy.

The survey questions loan officers’ perceptions on the condition of their respective banks’ overall credit standards, and the issues that affect the supply of and demand for loans to both enterprises and households, explained the BSP.

Based on the latest SLOS report which covered the last quarter of 2017, banks have not changed the way they review and assess credit standards for the past 35 quarters or since mid-2009 amid steady loan demand.

The BSP utilizes two models to review the survey results, the modal approach and the diffiusion index or DI approach.

On a quarter-on-quarter analysis, about 88.9 percent of banks surveyed said they did not change the credit standards for loans to enterprises in the last quarter of 2017 using the modal approach.

Under the DI review however, there was a slight net easing of credit standards for business loans because of “improved profitability and liquidity of respondent banks’ portfolios.” The BSP also noted that a favorable outlook on the economy and banks’ increased tolerance for risk, among others, contributed to the net easing.
‘Branchless’ banking app needs special license, BSP says
By Jun Vallecera -
February 25, 2018

The Bangko Sentral ng Pilipinas (BSP), considered as one of the most dynamic regulators in the monetary universe, requires banks to obtain a special license for the use of an app that allows them to branch out at the fraction of the cost of a bricks and mortar branch.

This was learned from the app developer whose backers include the SBI Group headquartered in Tokyo and the Dutch development bank FMO.

The product requiring a special license is called Bank-Genie, one that allows lenders to branch out anywhere at the cost of a $200 tablet, a $40 card reader and a $60 printer, tops.

This compares with bricks and mortar branches that typically cost in excess of P10 million per branch, based on information obtained from private banks. Such upfront costs also typically take five years to recover and only then do those branches begin to make money for shareholders, the bankers said.

Already, the developer headquartered in Singapore is in the advanced stages of negotiation with some of the largest universal and commercial lenders in the country, although its founder and CEO, Ramkumar Sarma, would rather that thrift and rural lenders get the app for themselves and give the big banks a run for their money.

Sarma said banks everywhere have to contend with accelerating competition coming from the financial-technology (fintech) sector that in the Philippines is represented by the telecommunications firms offering so-called electronic wallets, such as G Cash by Globe Telecom and Smart Money by Smart Communications.

Even ride-sharing firms Grab and Uber allow patrons to top up their e-wallets that some in the financial sector claim is an activity technically a deposit-taking activity that needs a license from the BSP.

But Sarma said the whole point to offering the banks the app is consistent with the financial-inclusion advocacy for which the BSP is known and supports in full. Sarma himself comes from India where small traders and craftsmen without bank accounts take out a loan of 5 rupees in the morning and pay back with six rupees by day’s end.

He said he had been shown data showing 67 percent of Filipinos without bank accounts, effectively barred access to the formal financial system that helps perpetuate their state of penury.

“These people need to be brought in. If excluded, they will remain poor,” Sarma said.

BSP Deputy Governor Diwa C. Guinigundo said banks intending to use the app need to have a license that could prove temporary to ensure against fly-by-night developers and to protect the interest of the banking public against such issues as fraud and security of transactions, among others.

“That’s the essence of the regulatory sandbox,” he said by a text message.

He would not disclose which local banks have taken interest in the product that may be paid for with a one-time fee or alternately, one in which there is no upfront cost but the app developer gets a fraction of the cost of each transaction.

Sarma said Bank-Genie was first introduced in Africa, where millions do not have access to the formal financial services and whose requirements fall far below the minimum dispensed by regular lenders.

“After our study, it became apparent that the Philippines is the right location for our [proposed] global customer support center for our growing client base. It offers a number of considerable advantages, such as the availability of well-trained and hard working talent,” he said.
Combined bank resources grow 13% to P14.96 T in Oct.
Published January 11, 2018, 10:00 PM
By Lee C. Chipongian

The country’s banking sector increased its total resources to P14.96 trillion as of end-October 2017, up 13.16 percent from the same period of the previous year, data from the Bangko Sentral ng Pilipinas (BSP) show.

The universal and commercial banks’ total resources amounted to P13.52 trillion which was higher by 13.56 percent year-on-year or from P11.90 trillion.

Thrift banks reported P1.199 trillion, up 10.40 percent from P1.086 trillion same period in 2016.

The entire financial sector had total resources of P18.193 trillion as of end-October last year, more than the previous year’s P16.444 trillion. These includes the data on non-banks and the smaller rural and cooperative banks, however the data on these sectors have lagged time of three to four months and are based on the submitted consolidated statement of condition.

The BSP-supervised non-banks as of end-June had total resources of P3.229 trillion while the rural and cooperative banks have P244 billion. Non-banks include investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations.

The banking sector’s total resources is equivalent to almost 97 percent of gross domestic product. Savings and demand deposits remain the primary sources of funds for the banking system.

In a report recently, the BSP said the Philippine banking system continue to perform solidly and is resilient with stable growth in lending which was “accompanied by adequate bank capitalization and loan exposure coverage.”

The BSP also noted that banks’ balance sheets, particularly the big banks, reflect steady growth in assets and deposits. As of end-third quarter, the industry reported deposits growth of 14.3 percent year-on-year to P8.8 trillion.

According to the central bank, banks continued to dominate the financial sector, with universal and commercial banks accounting for about 90 percent of banks’ total resources. In terms of the number of head offices and branches/agencies, non-bank financial intermediaries maintained its relatively wide physical network, consisting mainly of pawnshops, it said.
FBRB | Federation of Batangas Rural Bankers
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