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LATEST NEWS
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
Networking

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.
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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.
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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
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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
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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
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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.

LOCAL BUSINESS TAX
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.

REAL PROPERTY TAX
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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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
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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.
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Rural banks need new tech to remain relevant
BY MA. LISBET K. ESMAEL ON JULY 14, 2018

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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.”
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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.”
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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.
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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
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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.
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‘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.
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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.
 
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