Our Members Banco ng Masa Batangas Rural Bank for Coop., Inc. Bolbok Rural Bank, Inc. Classic Rural Bank, Inc. Limcoma Rural Bank, Inc. Lipa Bank, Inc. ( A Rural Bank) Malarayat Rural Bank, Inc. Mount Carmel Rural Bank New Rural Bank of Agoncillo, Inc. Progressive Rural Bank, Inc. Rural Bank of Alitagtag, Inc. Rural Bank of Calaca, Inc. Rural Bank of Cuenca, Inc. Rural Bank of Lipa Rural Bank of Padre Garcia, Rural Bank San Antonio Sunrise Rural Bank, Inc.  Summit Rural Bank of Lipa City, Inc. Utility Bank   RURAL BANK UPDATES   SUSTAINABLE FINANCE FRAMEWORK      SPONSORS            LATEST NEWS Transaction fees worse than usury COMMONSENSE - Marichu A. Villanueva - The Philippine Star November 6, 2024 | 12:00am This year’s All Saints’ and All Souls’ Days that fell on Friday and Saturday, respectively, gave us another long weekend. To give us all Filipinos lead time to plan ahead on where to spend our non-working days with our families, Malacañang Palace released last week the list of official holidays and other special non-working holidays for 2025. After all, this will promote the “holiday economics” as a policy that President Ferdinand “Bongbong” Marcos Jr. (PBBM) reinstituted in our country. The holiday economics became a government policy in 2007 when then president Gloria Macapagal-Arroyo signed Republic Act (RA) 9492, allowing the Chief Executive to move holidays that fall on a Wednesday or Sunday to the closest Monday. While this had become acceptable to most sectors, workers who are not permanently employed who fall under the labor laws on no-work, no-pay were not happy about it. Thus, the holiday economics policy was scrapped after the late president Benigno Simeon “Noynoy” Aquino III assumed office in June 2010. In the aftermath of the COVID-19 pandemic in March 2020, former president Rodrigo Duterte signed a proclamation declaring fewer non-working days in 2021 supposedly to boost the economy that hit negative growth due to lockdowns. In his Proclamation, Nov. 2 (All Souls’ Day), Dec. 24 (Christmas Eve) and Dec. 31 (New Year’s Eve), which had been special holidays in the past, were declared as special working days. “For the country to recover from the adverse impact of the COVID-19 pandemic, there is a need to encourage economic productivity by, among others, minimizing work disruption and commemorating some special holidays as special (working) days instead,” the Duterte proclamation stated. In 2022, PBBM reintroduced holiday economics when he issued Proclamation 90 that declared the regular holidays and special non-working days for 2023. Issued on Nov. 11, 2022, PBBM’s proclamation likewise invoked the need to boost the domestic tourism industry that was impacted by the COVID-19 pandemic and related lockdowns. Under Proclamation No. 727 signed by Executive Secretary Lucas Bersamin “by the authority of the President” issued last week, the regular holidays for 2025 included the anniversary of the EDSA People Power Revolution on Feb. 25 which falls on a Tuesday next year. The 38th anniversary of the EDSA Revolution was not included in the list of this year’s holidays. Malacañang explained its exclusion was because the date fell on a Sunday. Also, the assassination of the late senator Benigno “Ninoy” Aquino (Aug. 21), which will fall on a Thursday, is among the “special non-working days” for 2025. Incidentally, PBBM issued a separate Proclamation No. 729 that declared July 27, 2025, the founding anniversary of Iglesia ni Cristo (INC), as a “special non-working day” nationwide. While the Philippines struggles to get a large chunk of the global tourism and travel market, holiday economics provide the much-needed shot in the arm from our own people, who are encouraged to visit our own country. When Filipinos themselves get enough time to visit and go to these places, why not? That is, if we have enough money to spend for these out-of-town trips and travels. Naturally, banks also observe no work during these holidays, especially in cases of emergency when one might need extra cash. But no worries. There are a lot of automated teller machines (ATMs) available to withdraw cash from our bank accounts. The only problem is when an ATM conks out due to a glitch, or its dispenser runs out of cash due to heavy withdrawals. That’s exactly what happens whenever long weekend holidays spur domestic spending. If an ATM conks out, a depositor can use another bank’s ATM terminal. But when a bank suffers “off-line” glitch, then it becomes a problem because all ATM terminals of that bank cannot be accessed. Still, there is a solution because all Philippine banks are connected through inter-bank ATM transactions, either MegaLink or BancNet. But if you use another bank’s ATM terminal to withdraw cash, be ready to pay fees or charges for specific transactions. Once the ATM processes it, a transaction fee of P18 is automatically debited or deducted from your bank account. If you use other ATM networks in the Philippines, transaction limit is P10,000 – although some banks allow as high as P20,000 maximum withdrawal per transaction. But all of them impose “corresponding charges” or transactions fees that banks collect from non-depositors using their ATM terminal. Imagine the dismay of a recipient of the government’s monthly cash subsidy, popularly called “ayuda,” that may soon be downloaded in ATMs. Checking at the ATM if the P500 “ayuda” is already deposited to his bank account, he is charged automatically a P2 transaction fee for balance inquiry. For a Juan dela Cruz depositor, whether it’s P2 or P18 per transaction, the fee is too much of a deduction. Such a transaction fee hurts a lot the pockets of small depositors. This is not to mention these banks automatically deduct 20 percent withholding income tax on interest earnings on our savings deposits. No wonder banks make a lot of money even during COVID-19 pandemic and disasters and crises. Like any other business, banks take advantage of us consumers, despite being their own customers. Know-your-client and abuse them. But the most usury-like transaction fee is the “cash-in” being now a popular mobile electric wallet service. It offers and allows subscribers/users to send and receive money, pay bills, buy load and shop online. It also offers a variety of other features, such as investment products and borrowing cash or emergency loans. One e-wallet service provider charges as much as two percent transaction fee on cash-ins that exceed the monthly limit of P8,000. So if you are supposed to receive P10,000, you will get only P9,702 because P198.00 was automatically deducted from your cash-in. And yet all these banks and financial institutions have been digitalized supposedly to make transactions less costly but more convenient, efficient and fast. But obviously, the banks and other financial intermediaries are only too eager to pass on the cost of digitalization to their consumers and customers. _______________________________________________________________________________________ Fixing financing failures By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:05 AM October 29, 2024 For the longest time, our financial system has been lopsided against the poor. I’ve long believed that a key reason poverty is more prevalent and persistent in the Philippines compared to most of its neighbors is the failure of our financial system to make credit and finance widely accessible to those who need it most. And these are our small farmers, the bulk of whom are poor, and small businesses, for whom lack of financing for startup and working capital is consistently cited as the top hurdle to sustaining, let alone growing, their farm or business. Years ago, a top businessman borrowed hundreds of millions of pesos from a state bank, collateral-free, to buy that same bank’s shares in a corporation, then turned around and sold the shares for a fabulous profit. No ordinary Juan dela Cruz, no matter how trustworthy, can similarly borrow a far smaller amount from a bank to grow the money via such opportunities the financial markets might offer, much less to buy inputs for a small farm or firm, promising as it may be. It’s a lopsided picture indeed. We widely lament how agriculture has failed in this country and there are many reasons why. Foremost is our age-old failure to finance small farmers. Our scientists spend entire careers developing technologies to make farming more productive and lucrative. But for the farmer to adopt these, he needs money to buy better seeds and productive inputs like fertilizers and equipment. Often, he resorts to borrowing from the same traders to whom they are obliged to sell their produce come harvest time, at prices lower than they could otherwise get. Without access to cheap formal credit, he sticks to his old ways and is unable to stand up to competing imports produced more cheaply with the same technologies he does not have the money for. So he demands that government keep those imports out, and the latter obliges, believing it’s the right way to help the farmer—and forgetting that allowing food costs to stay high hurts all Filipinos, especially the hungry poor who far outnumber (and also include) the farmers it thinks it is helping. There’s another way failure in finance is killing our agriculture. Rural folk appear to be turning away from farming and shifting to other occupations like construction or informal public transport (especially motorcycle taxis or “habal-habal”), and the reason goes back to finance. There is international evidence that the poor frequently prefer jobs that provide a steady cash flow over even higher-paying options but with irregular income. This is because, in the absence of savings or credit, they need predictable funds to meet their daily needs, minimize debt, and maintain financial stability. Danielle Guillen, in her 2008 doctoral thesis for the University of Tsukuba, noted how habal-habal drivers in Davao preferred their occupation over farming or other regular work where earnings are not received on a daily basis. Nobel Prize 2019 laureates Abhijit Banerjee and Esther Duflo, in their 2011 book “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty,” observed that many low-income people in developing countries prefer small-scale, daily-paying occupations like vending or laboring, over seasonal or contract work that could pay more but is unpredictable. Jonathan Morduch and Rachel Schneider in 2017 documented in “The Financial Diaries: How American Families Cope in a World of Uncertainty” how low-income American families tend to prefer even lower-paying jobs with regular income because they need cash to cover frequent expenses and avoid debt. They found that sporadic income can lead to financial stress, leading people to seek jobs that provide predictable income. This seemingly irrational preference for lower incomes would not happen if credit were readily accessible to smoothen cash flows across irregular but potentially higher income streams (including from farming), and more families could potentially be lifted out of poverty. And Filipino farmers and their children could be less likely to shun farming. “Financial inclusion” has become a buzzword in development circles, and is a major thrust of the Bangko Sentral ng Pilipinas. It means making financing accessible to all and starts with promoting wide financial literacy and education. Other needed changes include strengthening the rural banking network; creating more streamlined, accessible lending processes for rural folk; establishment of government-backed credit guarantee programs for agriculture; widening government farm insurance programs, and harnessing digitalization of financial services to reduce financial barriers, spread financial services to underserved regions, and ensure that the rural poor have access to affordable, reliable credit sources. On all these, Thailand, Taiwan, and South Korea have rich lessons to share. We only need to pay closer attention, study them well, and yes, copy what they’ve done. —————- cielito.habito@gmail.com _______________________________________________________________________________________ BSP eyeing to remove fees on small transfers October 1, 2024 | 12:33 am THE BANGKO SENTRAL ng Pilipinas (BSP) wants to remove transaction fees for person-to-person electronic fund transfers and payments to small businesses, based on a draft circular. The central bank is eyeing to amend the Manual of Regulations for Payment Systems (MORPS) to “provide for the elimination of fees on electronic fund transfers for personal transactions, up to a specified threshold on the number of transactions, and on payments for micro-merchants,” according to an exposure draft of the circular posted on its website. BSP Governor Eli M. Remolona, Jr. earlier said the regulator has been employing moral suasion to influence the banking industry to permanently remove charges for small-value person-to-person online transactions. The BSP has been encouraging banks since last year to formalize the removal of these fees to help boost digital payments. The central bank said micro-merchants are end-users that avail of merchant payment acceptance activities and that fall under the definition of microenterprises in the Magna Carta for Micro, Small, and Medium Enterprises. Micro-merchants have monthly aggregate gross receipts that do not exceed P250,000, it said. “This includes end-users who utilize either merchant or personal accounts to facilitate acceptance of electronic fund transfers,” the BSP added. Meanwhile, the proposed circular defines personal transactions as fund transfers “involving persons, which can either be a remittance or lending of funds, done for personal, family, or household purposes and not conducted in the ordinary course of business.” “An end-user is considered using his account for personal transactions when the number of person-to-person electronic fund transfers from his account does not regularly exceed 10 times a week,” the BSP said. The proposed circular seeks to amend MORPS Section 201, which contains rules on the fees imposed on transactions performed under the National Retail Payment System (NRPS) Framework, to say that personal transactions “shall be provided at no cost to consumers.” “Accordingly, person-to-person electronic fund transfers shall be offered free of charge for personal transactions; provided, that transactions beyond the threshold set in the definition are still allowed subject to fees,” the BSP added. The draft rules also seek to amend MORPS Section 503, which contains guidelines for Operators of Payment Systems-Merchant Acquisition License (OPS-MAL) to remove transaction fees for payments to micro-merchants. “Notwithstanding the consumer pricing rules under the NRPS Framework and subsequent relevant issuances, OPS-MAL shall adopt a pricing mechanism whereby merchant fees may be charged to merchants availing of merchant payment acceptance activities; provided, that such fees shall be waived for those that are classified as micro-merchants,” the central bank said. “The pricing mechanisms for merchants that are not covered by the exemption shall be reasonable, transparent, market-based, and proportional to the cost of the services offered in order to sustain the business operations of the parties involved,” it added. Data from the central bank as of end-August showed that transfer fees through digital channels currently range from as low as P8 to as high as P200 for individual InstaPay or PESONet transactions. The only BSFIs that do not impose any transfer fees for InstaPay or PESONet transactions are CIMB Bank Philippines, Inc.; Tonik Digital Bank, Inc.; UNOBank, Inc., and Own Bank, the Rural Bank of Cavite City, Inc. Several other banks are currently offering small fund transfers free of charge for a limited period. Sought for comment, Bank of the Philippine Islands (BPI) President and Chief Executive Officer Jose Teodoro K. Limcaoco said the draft rules are a welcome development. “For BPI, I’m okay with the circular. There are some edits and clarifications that I’d like to make, but in general, the concept is (on) the right track,” Mr. Limcaoco told reporters on the sidelines of a briefing on Monday. If the circular is approved, payment service providers (PSPs) will need to comply with the amended rules by April 1, 2025. The draft circular also proposes to lift the moratorium on the increase of fee for InstaPay and PESONet transactions for PSPs upon the implementation of the circular. Data from the BSP showed that the value of transactions done through InstaPay and PESONet climbed by 34.6% to P9.45 trillion in the January-July period from a year ago. The combined volume of transactions coursed through the automated clearing houses jumped by 64.6% to 786.2 million year on year. — Luisa Maria Jacinta C. Jocson _______________________________________________________________________________________ PH bankers' outlook remain optimistic for 2024-2025 By Anna Leah Gonzales September 26, 2024, 1:32 pm MANILA – The banking industry's outlook for the next two years remains optimistic despite macroeconomic challenges, results of the 2023 Banking Sector Outlook Survey (BSOS) released on Thursday showed. The BSOS gathers the sentiments and outlook of presidents, chief executive officers, and country managers of Philippine banks over a two-year horizon. The BSP said 147 banks responded out of the 173 banks surveyed across banking groups. The total assets of these respondent banks accounted for 97.7 percent of the total assets of the country's banking system as of December 2023. "Overall, respondent banks expect double-digit growth in their assets, loans, deposits, and net income, as well as plan to maintain robust capital and liquidity positions to maintain institutional stability," the BSP said. Survey results showed that 64.6 percent of the respondent banks expect a stable banking system in the next two years, while 34.7 percent project a stronger banking system. The BSP said 70.1 percent of the respondent banks also project double-digit growth in their assets. The results also point to improvement in the banks’ expectations on the quality of their loan portfolio as fewer respondent banks (48.7 percent from 52.4 percent in the 2022 BSOS), anticipate a non-performing loan (NPL) ratio of above 5 percent in the next two years. "Across banking groups, most foreign banks and universal and commercial banks are optimistic, with the former anticipating a less than 1 percent NPL ratio while the latter foreseeing their NPL ratio to settle within the range of 1 to 5 percent," the BSP said. Survey results, however, showed that smaller banking groups are more pessimistic as the majority of thrift, rural, cooperative, and digital banks expect their NPL ratio to be over 5 percent. In terms of loan loss provisions, the majority of respondent banks plan to maintain a high NPL coverage ratio, ensuring adequate coverage of potential losses in their loan portfolio. The BSP said restructured loans are projected to be at 2 percent of total loans for most respondent banks. In terms of priorities, the BSP said most respondent banks indicate that they will continue to focus on corporate and retail lending, providing financial support to sustainable and green projects, including key sectors such as micro, small, and medium enterprises, real estate, and households. More than half of respondent banks also plan to invest in digital transformation to enhance their financial products and services. Respondent banks, meanwhile, said credit, operational, and macroeconomic risks continued to be the primary concern of respondent banks, as such they are actively enhancing their risk governance to safeguard interest of their depositors, and investors, as well as maintain the safety and soundness of their institutions. (PNA) _______________________________________________________________________________________ BSP eyes changes to external auditor selection rules September 18, 2024 | 12:01 am THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to issue a revised framework for the BSP-supervised financial institutions’ (BSFIs) selection of external auditors. “The BSP considers the external auditing profession as a partner in promoting the safety and soundness of BSFIs,” it said in a draft circular posted on its website. “In this light, the BSP is issuing the framework for the selection of external auditors of BSFIs pursuant to Section 58 of the Republic Act No. 8791, otherwise known as the ‘General Banking Law of 2000,’ as amended.” The central bank defined an external auditor as an audit firm, partner or individual/sole practitioner in public practice. External auditors conduct audits and opinions rendered on audited financial statements, it added. These auditors “contribute to enhancing corporate governance and empowering the public and investors to make informed financial decisions.” The proposed circular revises the classification system for external auditors to include digital banks. BSFIs must engage the services of an external auditor that is included in the list of selected external auditors, the BSP said. “In this respect, a BSFI shall only appoint an external auditor belonging to the same category or from categories higher than the category of the BSFI concerned as provided in this section,” it added. External auditors will be classified into three categories, namely: Group A (universal and commercial banks, foreign banks and branches or subsidiaries of foreign banks, digital banks and trust departments and trust corporations); Group B (thrift banks, non-bank financial institutions with quasi-banking license, virtual asset providers and credit card issuers/acquirers); and Group C (rural and cooperative banks, non-stock savings and loans associations, pawn shops and remittance and transfer companies, money changers, and foreign exchange dealers). The classification will be based on the external auditors’ track record and the BSP’s assessment of their eligibility. External auditors must also adhere to the qualification and documentary requirements set by the BSP. Inclusion in the list of selected external auditors for BSFIs will also be valid for a period of five years or possibly shorter depending on the BSP. “The Monetary Board may require the BSFI to appoint an external auditor from higher categories as part of the BSP’s supervisory action on the BSFI; or at the expense of the BSFI, require the external auditor to undertake a specific review of a particular aspect of the BSFI’s operations/transactions,” it added. The central bank may also “deploy its range of supervisory enforcement actions to promote adherence to the requirements outlined in this section and bring about timely corrective actions.” “The BSP may downgrade the external auditor’s category, shorten the period of validity of inclusion, suspend, or delist the external auditor from the List of Selected External Auditors for BSFIs based on the result of its assessment of the quality of the AFS and compliance with the provisions of this section,” it added. Under the draft rules, sections of the Manual of Regulations for Banks and Manual of Regulations for Non-Bank Financial Institutions will also be amended. These include the sections regarding the guidelines on the suspension or delisting of external auditors in the list of selected external auditors.The draft rules also introduce a section on the disqualification and watch-listing of directors and officers. In terms of audit engagement and reportorial requirements, the external auditor’s assessment of the continuing compliance with provisions on long association, including rotation of partner, shall also be made available to the BSP upon request. — Luisa Maria Jacinta C. Jocson _______________________________________________________________________________________ RBAP & RBRDFI Board of Directors and Trustees celebrate the Rural Banking Consciousness Week with the theme "Rural Banks: Empowering Rural Communities through Inclusive Banking." _______________________________________________________________________________________ Geopolitical tensions keep Philippine CEOs up at night, but optimism prevails Sep 10, 2024 6:05 PM PHT Lance Spencer Yu MANILA, Philippines – The geopolitical uncertainty dominating the world today — from conflicts in Europe and the Middle East, to the possibility of another Trump presidency — is what worries most leaders of Philippine companies. Asked what keeps them awake at night as business leaders, 62% of Philippine chief executive officers named “geopolitical uncertainty” as a concern, according to the 2024 Philippine CEO Survey of PwC and the Management Association of the Philippines (MAP). The survey specifically highlights the Russia-Ukraine war and the Israel-Hamas war, two conflicts which have resulted in casualties in the tens of thousands and directly decimated the economies of the countries at war. But in today’s globalized and interconnected world, the effects of regional conflicts can go far beyond their own borders. “Aside from the billions of dollars needed to rebuild the war-torn countries, economies across the globe have been directly and indirectly affected through fluctuating energy prices, supply chain issues, and inflation,” the survey explained. Rene Almendras, MAP president and former government official under Benigno Aquino III’s Cabinet, explained that these wars can disrupt supply chains moving oil, wheat, and other goods. “Geopolitical tensions may happen on the other side of the world, but it will affect your business because of supply chain,” Almendras said on the sidelines of the MAP International CEO Conference on Tuesday, September 10. “If the war in the Middle East escalates, we all know what’s going to happen. We worry about fuel prices.” Even port giant International Container Terminal Services Incorporated or ICTSI, one of the Philippines’ biggest companies, is keeping an eye on “continuing economic and geopolitical uncertainty,” warning that the Russia-Ukraine and Israel-Hamas conflicts could “disrupt businesses and institutions and pose threats to world trade and economies, in general.” Aware of the potential impact on trade and economic relations, Philippine CEOs are also watching the US presidential elections in November 2024 with bated breath as Democratic nominee Kamala Harris faces off against Republican rival Donald Trump in what could be a tight race. “Many fear the prospect of another four-year Trump presidency, as he might impose tariffs on European and Chinese products. He may also cut support to Ukraine and withdraw from several foreign institutions,” the survey said. China, POGOs, and other worries Closer to home, the brewing tensions between the Philippines and China remain a concern. MAP was among the 17 business groups that issued a joint statement in June condemning the “harassment” of Philippine troops after another clash in the West Philippine Sea. Businesses have a reason to worry about what rising Philippine-China tensions could mean. In 2023, China was by far the Philippines’ largest supplier of imported goods and its second largest export trading partner behind the United States. On top of the troubles in the West Philippine Sea, MAP president Almendras also said the shady workings of Philippine offshore gaming operators (POGOs) could be bad for business. For one, it exposes the weaknesses in the government’s regulatory capacity, which has been stringent enough to hurt the ease of doing business in the country, yet loose enough to allow illegal POGO activities and related criminal operations to thrive. “It’s how businessmen will feel. Ito kami, bantay-sarado ng regulator (Here we are, with the regulator watching us closely) here and there, and yet a person can move in and out of the country just like that?” Almendras said, referring to POGO-linked Alice Guo, who was recently recaptured after fleeing the country. “Trade sanctions here, tariffs there, and yet you realize your border is porous. It’s not that safe.” Besides geopolitical uncertainty, business leaders also listed their other top concerns as follows: Uncertain economic growth (39%) Uncertain revenue growth (38%) Workforce issues (38%) Environmental concerns (27%) Social instability (23%) Capital constraints (23%) Others, such as politics and artificial intelligence (24%) Optimism prevails However, despite these concerns, Philippine CEOs still remain quite optimistic about their business prospects. Most leaders (86%) are confident about their industry’s prospects for the next 12 months. Likewise, 86% of CEOs believe that their company will experience revenue growth in the next three years. According to PwC Philippines deals and corporate finance partner Trissy Rogacion, this is the highest level of optimism since the pandemic. Asked about key growth drivers in the Philippine economy, the CEOs pointed to infrastructure development (59%), domestic consumption (51%), foreign direct investments (41%), government spending (39%), the BPO and services sector (33%), OFW remittances (32%), manufacturing and industry (21%), and tourism (20%). “This optimism is driven largely by our country’s incredible economic resilience and sound macroeconomic fundamentals,” PwC chairman and senior partner Roderick Danao said during Tuesday’s conference, pointing out the Philippines’ higher second quarter gross domestic product growth rate and slower August inflation rate. The 2024 MAP CEO survey ran from July 8 to August 9 and includes insights from 168 respondents across various sectors, with majority of respondents representing large corporations. – Rappler.com _______________________________________________________________________________________ PBBM: Sign the “Anti-Agricultural Economic Sabotage Act” asap By: Jake J. Maderazo - @inquirerdotnet INQUIRER.net / 05:00 AM August 20, 2024 Agricultural smugglers are very active again. Over 300 tons of smuggled vegetables were seized by the Department of Agriculture in cold storage facilities in Navotas city. The first raid confiscated 132 tons of white onions estimated at P21.2M while the second netted almost 90 tons of smuggled carrots worth P13.4M. The operation also seized 360 kilos of tomatoes, 10 kilos of enoki mushrooms and 92.25 tons of imported white onions in a container van. In a statement, Agriculture Secretary Francisco Tiu Laurel said the order of President Ferdinand Marcos Jr. is clear: “Go after these smugglers without let up,”. He also ordered the Bureau of Plant Industry to suspend import permits of these vegetables. Earlier in June, Laurel revealed four agricultural companies , two of which are in fishery products, one in sugar and one in rice , will be blacklisted by his department for involvement in smuggling activities. Up to this point, he has not divulged the names of these companies. Laurel also admitted some companies attempted to bribe him just so he would allow their smuggled goods to enter the country. “ They bribed me initially at P200,000 per container, then they increased it to P1 million per container, but we burned all of them” . (Sinuhulan ako ng initially P200,000 per container, umakyat ng P1 million per container, sinunog namin lahat”) “You will see in the next few months, marami akong iba-blacklist na kumpanya, mga smugglers, kahit kaibigan ko iba-blacklist ko,” Laurel said. (I will blacklist several companies , and smugglers, and even if they are my friends, I will do so). I remember in January last year, the House of Representatives identified alleged big time agricultural smugglers. DA secretary Laurel was appointed only came in November 3 last year and surely, he was unaware of these revelations. The ten names tagged by Sultan Kudarat 2nd district Rep. Horacio Suansing in a congressional hearing , are allegedly involved in large-scale agricultural smuggling in different points of entry in the country. They are Michael Ma, Lujene Ang, Andrew Chang, Beverly Peres, a certain “Aaron”, Manuel Tan, Leah Cruz, Jun Diamante, Lucio Lim, and Gerry Teves. Suansing also wants to investigate the alleged “consignees” of these people. These 10 personalities were slated to appear in a subsequent Jan. 30 hearing, but it was canceled at the last minute. Investigation of the smugglers were then transferred from the Committee on Ways and means to the House committee on Agriculture and Food. _______________________________________________________________________________________ Small banks lend P6.5 billion to MSMEs BY Lee C. Chipongian Aug 12, 2024 02:12 PM Micro, small and medium enterprises (MSMEs) borrowed P6.5 billion from thrift and rural banks as of end-May this year, part of the central bank program allowing banks to lend to MSMEs as alternative compliance with the reserves requirement (RR). The latest data did not include small banks’ loans to eligible large enterprises as alternative RR compliance. The entire P6.5 billion are for MSMEs, accounting for 0.5 percent of the total required reserves for the affected reserve week. Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP. These funds cannot be used for lending. Reservable liabilities include demand, savings, time deposit and deposit substitutes. The BSP relief measure on the use of new or refinanced loans to MSMEs and eligible large enterprises as alternative compliance with the RR is only available to thrift and rural banks as of July 2023. The big banks or the universal and commercial banks are no longer part of the pandemic-related reprieve. However, the small banks which can still utilize their outstanding loans to MSMEs as alternative compliance with the RR can only do so until such loans are fully paid, but not later than Dec. 31, 2025. Meanwhile, both thrift and rural as well as cooperative banks’ outstanding MSME and large enterprises’ loans as of June 2023 that are past due or non-performing or are extended, renewed, or restructured are no longer eligible as alternative compliance with the RR. The BSP removed the temporary relief measure for big banks to coincide with the reduction in the RR ratios last June 30, 2023. The BSP reduced the RR ratios for big banks, thrift, rural, digital and non-banks. The latest data on big banks’ RR-compliant loans before its cancellation was P283 billion as of end-May 2023. This includes the smaller banks’ loans under the relief measure. Last year, the BSP cut both banks and non-banks’ RR ratios to single-digit levels by as much as 250 basis points (bps) for selected banks. The lower ratios apply to the local currency deposits and deposit substitute liabilities of banks and non-banks. At the moment, big banks’ RR ratio as well as non-banks with quasi-banking functions is 9.5 percent, while digital banks’ RR ratio is six percent. Thrift banks’ RR ratio was cut to two percent from three percent, while rural and cooperative banks have an RR ratio of one percent. Since changes in RRs have a significant effect on money supply in the banking system, the BSP is expected to reduce the RR ratio to a low of five percent over time. BSP Governor Eli M. Remolona Jr. said it himself that the BSP will eventually reduce the RR ratio to five percent within the course of his six-year term as governor or until 2029. He even noted that the ideal ratio is actually a zero rate. In Asia, the Philippines’ RR ratio is considered one of the highest. Big banks’ RR ratio was at its peak at 20 percent in 2014, and at the time, it was the highest in the region. _______________________________________________________________________________________ Philippine financial resources nearing P32 trillion BY Lee C. Chipongian Jul 29, 2024 01:19 PM The country’s total financial system resources are poised to exceed P32 trillion around the last quarter of 2024 amid the continued growth of bank deposits, capital and in anticipation of the central bank’s rate cuts. Based on Bangko Sentral ng Pilipinas (BSP) data, banks accounted for P26.463 trillion of the total resources as of end-May which was 12.3 percent higher year-on-year. This brought the total financial system resources to P31.787 trillion during the period, up 10.7 percent from same time last year of P28.716 trillion. Financial resources are held by banks and non-banking financial institutions (NBFIs) as funds and assets. The BSP said the banking sector as the core of the financial system continues to be resilient and stable with a strong balance sheet, profitable operations, sufficient capital and liquidity buffers, as well as ample provision for probable losses. By banking group, the big banks or the 44 universal and commercial banks accounted for bulk of total banking resources. Meanwhile, the country’s 42 thrift banks accounted for P1.102 trillion which was 9.76 percent higher compared to last year’s P1.004 trillion. As of end-June this year, there are 364 rural banks and 22 cooperative banks which contributed P458 billion to total resources, up 13.36 percent from P404 billion same time in 2023. The six digital banks held P105 billion of total resources from P79 billion same period last year. NBFIs, on the other hand, accounted for P5.323 billion of total resources versus P5.151 trillion in 2022. NBFIs are investment houses, finance companies, investment companies, securities dealers/brokers, pawnshops and lending investors. Non Stocks Savings and Loan Associations (NSSLAs), credit card companies under BSP supervision, private insurance firms, Social Security System and the Government Service Insurance System are also classified as NBFIs. Presently, the BSP is supervising 1,526 NBFIs without quasi-banking function. These are investment firms, NSSLAs and pawnshops. Only five NBFIs have quasi-banking function which means they can borrow funds from 20 or more lenders. These include investment houses with trusts business, financing companies, among others. To ensure the close monitoring of industry capital health and asset quality, the BSP has started its regular Systemic Risk Review (SRR) as part of enhancements to its overall systemic risk surveillance and analysis. In a report, the BSP said it has been conducting SRR for the Financial Stability Coordinating Council (FSCC) as a “reference in crafting recommended courses of action.” The SRR included new studies, enhanced methods, and “refined analytics that improved systemic risk analysis, identification of contagion channels, and assessment of conglomerate risks in the financial system.” It also covered key analyses and relevant notes related to the pension system, the payments network, and the risk price benchmark. In 2023, the BSP conducted the second phase of the Macroprudential Stress Test. This is a test that captured new sets of data and improved methodology to detect vulnerabilities that affect credit risk in the financial system by analyzing leverage, liquidity, contagion, and concentration risks under different macroeconomic scenarios, it explained. The BSP has been improving its systemic risk management models, metrics, and policies. _______________________________________________________________________________________ BSP issues rules on e-payment pricing BY LEE C. CHIPONGIAN May 27, 2024 12:56 PM The Bangko Sentral ng Pilipinas (BSP) has approved the guidelines on the pricing of electronic payments or e-payments to be adopted by both banks and non-banks to ensure “transparent, fair, and competitive pricing” of payment services. BSP Deputy Governor Mamerto E. Tangonan, who signed Memorandum No. M-2024-015 last May 24, has recommended e-payments pricing practices to be implemented by BSP Supervised Institutions (BSls). These are pricing structures of e-payment services to end-users. The BSP has also started to conduct a survey on BSIs' pricing structure.According to the memo, the guidelines are “consistent with the regulatory requirement of a Board-approved policy on pricing, in line with the principles outlined (in previous circulars)” which the BSP has classified into three general categories: reasonable and fair market-based pricing; responsible pricing; and transparent pricing. Tangonan said the guidelines on e-payments pricing were based on the 2017 Circular No. 980 on the adoption of the National Retail Payment System (NRPS) Framework and the 2022 Circular No.1160 on the regulations on Financial Consumer Protection to implement Republic Act No. 11765, otherwise known as the "Financial Products and Services Consumer Protection Act." The memo included details in pricing governance, on the reasonable and fair market-based pricing, responsible pricing, and transparent pricing. Under pricing governance, the BSP said BSIs will adopt a policy on fees of retail e-payment transactions, including the basis and quantitative support for the setting of fees or charges, and rationalization of the fee structure or amount. Such pricing policy will require monitoring, reporting and periodic review. To ensure reasonable and fair market-based pricing, BSI's pricing policies should emphasize the importance of avoiding price-fixing agreements, adopting competitive fair pricing strategies, and ensuring reasonable cost recovery, said the BSP. The BSP also noted that to have responsible pricing, a BSI should follow the recommendations in the memo and to provide e-payment services “in a manner that is affordable for clients and sustainable for the BSl.” “BSls may also opt to have their product governance mechanism assess whether algorithms that influence or determine pricing may be unfairly biased toward certain groups of people, especially vulnerable segments,” said the BSP. As to transparent pricing, the BSP said “transparency in pricing is mainly achieved through appropriate fee disclosure to end-users and regulatory reporting.” In December 2023, the BSP announced that it will continue to impose a cap on interbank money transfer fees by InstaPay and PESONet and bans an increase in fees until such time when all banks and non-banks implement zero rates on small e-payment transactions. The BSP first imposed a moratorium on the automated clearing houses’ fees on Dec. 28, 2021, and ordered all BSP supervised financial institutions with InstaPay and PESONet not to increase their current fund transfer fees until 40 percent of all retail payments have migrated into digital or e-payments. Since as of end-December 2022, 42.1 percent of all payment transactions have shifted to digital form, the BSP said that subject to a review, the moratorium on InstaPay and PESONet fees will only be lifted “when zero fees for small e-payment transactions have been implemented by the payments industry.” Based on BSP data as of end-March this year, the value transactions of banks and non-banks via the PESONet and InstaPay reached P3.81 trillion, up 33 percent from same time last year of P2.87 trillion. The combined volume of both PESONet and InstaPay in the first three months of the year increased by 70 percent to 309.3 million versus 182.4 million in 2023. InstaPay is a real-time, low-value digital payments facility that substitutes for cash transactions. PESONet is a batch electronic funds transfer service that provides a viable alternative for checks and recurring payments. Currently, there are 86 InstaPay participating banks and non-banks of which 22 are big banks; 20 are thrift banks; 18 are rural banks; five are digital banks; and 21 are non-bank financial institutions (NBFIs) as e-money issuers. As for PESONet, there are 109 participating banks and non-banks, of which 40 are big banks; 38 are rural banks; 18 are thrift banks; five are digital banks; and eight are NBFIs. The BSP has targeted to migrate 50 percent of all payment transactions into digital form by the end of 2023 and it looked like this goal has been achieved, according Tangonan. The report will be released in July this year as the BSP is still finalizing the data. _______________________________________________________________________________________ Department of Agriculture chief completes ‘dream team,’ biggest in agency history Bella Cariaso - The Philippine Star May 27, 2024 | 12:00am MANILA, Philippines — The “dream team” of Agriculture Secretary Francisco Tiu Laurel Jr. is already complete, with 26 undersecretaries and assistant secretaries, the biggest number in the history of the Department of Agriculture (DA). In an interview, Agriculture Assistant Secretary and spokesman Arnel de Mesa said that the last official to be appointed to complete the dream team was Assistant Secretary for administration Allen Kristopher Anarna. “According to Secretary (Tiu Laurel), his team is already complete. The last to join was Assistant Secretary Anarna,” De Mesa said. At least 13 were appointed as undersecretaries and 13 officials were designated as assistant secretaries. De Mesa said that the last appointment for the undersecretary post to be issued by the Office of the President was Undersecretary for policy, planning and regulations Asis Perez. “We were waiting for his (Asis appointment paper), it already came out,” he added. Aside from Asis, the other undersecretaries are Roger Navarro (operations), Christopher Morales (rice industry development), Allan Umali (administration), Nora Oliveros (finance), Drusila Esther Bayate (fisheries), Zamzamin Ampatuan (Bangsamoro Autonomous Region in Muslim Mindanao), Mercedita Sombilla (bureaus), Agnes Catherine Miranda (attached agencies and corporations), Deogracias Victor Savellano (livestock), Jerome Oliveros (special concerns and official development assistance), chief of staff Alvin John Balagbag (inspectorate and enforcement) and Cheryl Marie Natividad-Caballero (high value crops). _______________________________________________________________________________________ Harsh solar realities, i.e. opportunities for bankers CTALK - Cito Beltran - The Philippine Star May 22, 2024 | 12:00am I attended my first solar power trade show last Monday and like the glare from the sun, the trade show was a harsh reality for an idealist like me. With family and brother-in-law in tow, we trooped over to the SMX Convention Center and were pleasantly surprised to see such long lines of Filipinos eager to attend and learn from the “Solar & Storage” event even before 9 a.m. At the very least, it proved that Filipinos want to learn and believe that solar energy can be beneficial to their daily lives. In terms of profile, those who attended were mostly middle to lower middle-class individuals in search of affordable or cheaper alternatives for electricity. Judging from reactions and conversations, the show was technical nosebleed and overwhelming, with 95 percent of the booths and displays presenting solar panels, inverters, frames and cables, construction accessories, batteries, etc., almost all from China. In fact, the presence of Chinese suppliers and companies was so much that you felt you were attending an exposition in China, not SMX. It was more of a supplier’s festival than a consumer event, unless the intended consumers were installers and service providers. Many participants were targeting companies, business establishments and others were casting for potential dealers or local representatives. As I eavesdropped on the queries, the sentence often mentioned was “It’s too expensive” or “The minimum orders are too high, and the market is still undeveloped.” Sadly, the trade show occupied two levels of the SMX Convention Center but only a small area of about 50 square meters was dedicated to information and education, where about five speakers each got 40 minutes to give a talk on “An introduction to photovoltaic solar panel installation,” “How to design a solar PV system,” “Creating a balanced inverter and component system,” “What is a hybrid inverter and storage system,” etc. All those helpful information were provided by members of the Association of Solar Installers of the Philippines, but the space was so jampacked it was difficult to stand for hours, so we left. What we thought was going to be a one-day excursion lasted only two hours as the technical nosebleed and disconnect got worse. In terms of takeaways, we observed that there was only one bank that participated in the event, which was BPI or Bank of the Philippine Islands. We literally rushed to their booth on the ground floor to find out what programs they had for financing solar power system installation, but that too was disappointing because BPI simply provided a minimum funding of P400,000 under a “Housing Loan” category. I figured that whoever came up with the loan package must have talked to several installers or colleagues in the bank who had installed solar power set-ups in their homes. As I mentioned in a previous column, providers we asked in the past averaged their estimates at P500K per house. So, the system under consideration is for big houses and those in the A/B economic bracket, not for middle or lower middle class, farmers, producers or ordinary households, many of whom have asked online about systems that are in the P100,000 to P200,000 range. I still choose to commend BPI for dipping a toe into the event because it may have helped to convince them that there is a large potential at the consumer level if they get out of the A/B rich enclave cluster. Incidentally, we did see an “American” promoting his version of “rent to own” solar power set-up in the Visayas. The idea, as he explained it, was they would get the history of electric consumption and payments of an applicant, do the computations and if it fits, the homeowner will simply pay the average amount saved via solar power towards the installation and equipment. Afterwards, someone I spoke with recalled the Agri-Agra Law that Senator Cynthia Villar, Congressman Junie Cua and former secretary Ben Diokno crafted and passed into law in 2022. The revised law requires banks to allocate 25 percent of available loans to agriculture and fisheries operations or cashflow. I’m guessing that the law creates a more beneficial platform than the standard “housing loan” or “personal loan” which probably have higher interest rates and equity. The problem with the Villar-Cua law is that it does not cover the households and backyard farms that provide the bulk of goods and services in agriculture. The law is excluding producers and contributors who could re-channel electricity payments to capital or goods as well as provide their own water distribution or irrigation needs. Perhaps Senator Cynthia Villar might want to lead a movement for barangay communities to become independent solar power producers instead of being captive to fossil fuel generated electricity that is inefficient and extremely expensive. Many provincial barangays have large open spaces or can be interconnected as a community grid and be direct beneficiaries. Still on the topic, conversations also touched on the discrepancy or imbalance in terms of incentives and legislated support. Someone pointed out that power generators and cooperatives all benefit from “system loss” support, Feed In Tariff or FIT that funds alternative sources of energy. But nothing has been done to incentivize or reduce costs for acquisition of consumer level alternative power generation. While the government and politicians drag their feet on helping Filipino households and farmers, they are supporting big corporations and businesses to get a huge head start on solar energy development and eventually gain control of market and pricing yet again! As harsh as the learning may have been, we managed to hook up with the installers group and we have resolved to go solar! _______________________________________________________________________________________ Agriculture loans surge to P3.2 trillion Keisha Ta-Asan - The Philippine Star May 15, 2024 | 12:00am In a report on the Philippine financial system for the second semester of 2023, the central bank said the level of compliance with the mandatory agriculture, fisheries and rural development (AFRD) financing under Republic Act 11901 sharply improved. It said banks allocated 37.7 percent of their total loans for AFRD financing as of June 2023, higher than the 10.3 percent allocated for agri-agra credit in the same period a year earlier. “This shows that key enhancements under Republic Act 11901, or ‘The Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022’ have enabled banks to contribute to the development of the AFRD sector,” the BSP said. Pursuant to Section 13 of the AFRD Law, RA 11901 lapsed into law on July 2, 2022 and became effective on Aug. 1, 2022. The latest law repealed RA 10000 or the Agri-Agra Law and abolished the distinction between the 10 percent agrarian reform and the 15 percent agricultural credit, making the credit quota more inclusive to the entire agricultural value chain. Monetary Board member Bruce Tolentino earlier said reforms made on loans extended to the agriculture sector, through RA 11901, are now generating positive results in the banking system. “We’ve had the reform for one year, and in that year, loans to farmers and agriculture have quadrupled,” Tolentino has said, adding that the penalties paid by banks to the BSP have been cut down by six times. According to Tolentino, the banks opted to pay the penalties since it was “cheaper” than lending to the farmers prior to the passage of RA 11901. He also said that lending to the agriculture sector is better done through an entire value chain approach instead of just being limited or targeted to farmers. For the BSP’s part, the central bank rolled out a report template for the mandatory AFRD Financing Act to monitor banks’ compliance with the AFRD financing requirement. The BSP also issued Circular 1159 on Nov. 4, 2022, which recognized sustainable finance as an eligible form of compliance with the minimum requirement for AFRD financing. “(The BSP) will also capture data that can be used to assess the effectiveness of the provisions of the law and inform policymaking,” the central bank said. The BSP will also adopt targeted initiatives to ensure that smaller banks can cater to agriculture, fisheries and rural communities. It said that small banks should be equipped to provide suitable financial products and services to these clients amid a competitive digital financial environment. _______________________________________________________________________________________ Banks to ramp up lending to agriculture sector Keisha Ta-Asan - The Philippine Star May 12, 2024 | 12:00am MANILA, Philippines — Banks are looking to increase lending to the agriculture sector this year amid better economic conditions, higher demand for agricultural loans and consolidation of government programs that would boost banks’ agricultural loan portfolio. The results of the survey jointly conducted by the Bangko Sentral ng Pilipinas (BSP) and the Department of Agriculture showed that 72 percent of respondent banks were planning to raise their loan volumes to the agri sector. “The proportion of those expecting to increase agricultural loan volume vary by type of banks with rural and commercial banks (around 76 percent) being the most bullish with government banks following closely at around 73 percent,” the BSP said in the 2022 Countryside Bank Survey baseline report. The proportion of banking units who saw growth in agricultural lending this year stood at 74 percent in 2024 for thrift banks, while universal and commercial banks were at around 38 percent. “There is scope to consider that universal and commercial banks may be implementing a form of division of labor with agricultural lending being assigned to affiliated thrift bank and rural bank subsidiaries,” the BSP said. Excluding digital banks, 42.6 percent of Philippine banks are looking to increase their agri loan volumes by up to 10 percent in 2024 while 15.3 percent of lenders plan to raise agri lending by 11 to 20 percent. Around 7.5 percent of banks said they would ramp up agricultural loan volumes by more than 20 percent this year. Broken down, 13.6 percent were rural and commercial banks, followed by thrift banks (11.3 percent), government banks (4.1 percent) and big banks (1.2 percent). Meanwhile, 23 percent of respondent banks said there would be no change in lending stance and one percent replied that they would lower loan volume to the agricultural sector. According to the survey, banks want to target new borrower segments by expanding their agricultural loan volume this year. Other factors that are encouraging banks to increase lending to the agriculture sector include improving economic conditions favorable to agricultural financing and higher demand for agricultural loans, the BSP said. According to respondent banks, there is a need for more integration of government programs that could help optimize lenders’ agricultural loan portfolio this year. But in order for banks to increase lending to the agriculture sector, respondents said there are necessary activities, programs, products or services that are crucial in expanding agricultural loans. Banks also specified improvements in their current offerings. This includes increasing credit lines for borrowers with no collateral but with good track record, removing collateral requirement, lowering interest rate and aligning loan maturity with project life. Lenders could also offer incentives for good loan repayment performance, streamline loan processes with the use of technology, educate borrowers and improve the skills of bank staff on agricultural lending. “All in all, banks are refining their approach in lending to the agricultural sector in order to cater to more agricultural borrowers and further expand their agricultural loan portfolio,” the BSP said. Data showed that the share of agriculture loans and services granted by the banking sector went up to 18.1 percent in 2022 from 17.6 percent in 2021. Likewise, the total value of agriculture loans surged by 36.7 percent to P213.1 billion from P155.9 billion. _______________________________________________________________________________________ Producers Savings Bank acquires Leyte rural bank Keisha Ta-Asan - The Philippine Star April 23, 2024 | 12:00am MANILA, Philippines — Producers Savings Bank Corp. has completed its merger with one more rural bank, bolstering the bank’s assets and profit growth via its branch network expansion. BSP Deputy Governor Chuchi Fonacier issued Circular Letter 2024-022 announcing that the merger of Producers Bank with Rural Bank of Maasin Inc. has taken effect on April 1. Fonacier said the Securities and Exchange Commission (SEC) approved the plan and articles of merger executed between the two banks on July 3, 2023. Producers Bank, the surviving entity, will absorb all the assets and liabilities of the rural bank located in Southern Leyte. The country’s eight largest thrift bank in terms of assets earlier said that expanding its network of branches allowed the bank to reach out to unbanked and underserved areas in the countryside where its products and services are needed by its target markets. Earlier in 2021, the bank acquired five banks namely Bangko Carrascal Inc., Peoples Bank of CARAGA Inc., Rural Bank of San Quintin Inc., PBCOM Rural Bank Inc. and Masuwerte Rural Bank Inc. The number of branches brought about by the mergers in 2021 totaled 41, bringing its branch network as of end-2021 to 249 branches spread over 14 regions and 50 provinces in the country. The thrift bank continued its branch expansion in 2022, opening its 260th branch in Benito Soliven, Isabela in December 2022. The BSP approved the Rural Bank Strengthening Program (RBSP) in March 2022 to help boost the operations, capacity and competitiveness of rural lenders in recognition of their role in promoting development in the countryside and financial inclusion. As part of the RBSP, the central bank raised the minimum capital requirement for rural banks to at least P50 million to further strengthen the industry. Under the new capital structure, the minimum capitalization of rural banks will be P50 million for those with a head office and only up to five branches, P120 million for those with six to 10 branches, and P200 million for small banks with more than 10 branches. Other banks gobbled up by Producers Bank include Rural Bank of Bustos Inc. Rural Bank of Sto. Domingo (Nueva Ecija) Inc., Rural Bank of Rosales in Pangasinan, New Rural Bank of Victorias in Negros Occidental, Iloilo City Development Bank, Rural Bank of Cainta in Rizal, Rural Bank of Tayabas in Quezon, Tower Development Bank in Bulacan, and Rural Bank of San Fabian in Pangasinan. It also acquired Rural Bank of Pamplona (Camarines Sur) Inc., Rural Bank of President Quirino (Sultan Kudarat) Inc., Bangko Rural ng Pasacao (Camarines Sur) Inc., Bangko Rural ng Magarao (Camarines Sur) Inc., Rural Bank of San Fernando (Camarines Sur) Inc., Rural Bank of Barotac Nuevo Inc. and Rural Bank of Sibalom (Antique) Inc. _______________________________________________________________________________________ BSP approves 15 new banking offices in Q4 2023 BY LEE C. CHIPONGIAN Apr 3, 2024 03:52 PM Based on a circular letter (CL-2024-001) signed by BSP Deputy Governor Chuchi G. Fonacier on March 26, 2024, only the Sy-led BDO Unibank Inc. of the universal and commercial banks applied for one BLU in Angeles City. Meanwhile, 14 were applications submitted by rural and cooperative banks, of which one was for a regular branch and 13 for BLUs. The rural banks were as follows: Card MRI Bank, a microfinance bank; Country Builders Bank; Rang-ay Bank; and Rural Bank of San Narciso. The BSP has been approving less and less regular branches of banks and more of the streamlined units with limited banking services. The new approval brought to a total of 29 new regular branches that opened in the last quarter last year and 32 BLUs in the same period. Among the big banks, BDO opened five regular branches in Nueva Vizcaya and Batangas, and one BLU in IloiIo City. Land Bank of the Philippines opened a BLU in Liloan, Cebu, while Maybank Philippines has a new one in Legazpi CityFor the regular branches, Metropolitan Bank & Trust Co. opened one regular branch in Rosario, La Union, while Security Bank Corp. opened seven regular branches in different parts of the country include in Bataan, Cagayan de Oro City, Cebu City and Iligan City. Regular branches are full-sized banks, mostly traditional brick-and-mortar branches or contained within a building and offers full banking services. The difference between regular branches and BLUs is that the latter have 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. As of end-February this year, the BSP is supervising 44 big banks, 42 thrift banks, and 388 rural and cooperative banks. Presently, there are 12,877 bank branches in the country, of which 7,152 are operated by the big banks, 2,560 by thrift banks, and 3,165 by rural and cooperative banks. Since the pandemic and the rise of digital banking including e-wallet and other online-only or mobile financial transactions in the last three years, the banking industry has reorganized, streamlined and consolidated their traditional brick-and-mortar branches, and opted to digitalized more of its products and services. Based on the BSP's Banking Sector Outlook Survey, the digitalization of banking products and services continued to be identified as a top strategic priority by all banks. _______________________________________________________________________________________ Failed modernization By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM March 19, 2024 Over 26 years ago, Congress passed Republic Act No. 8435, known as the Agriculture and Fisheries Modernization Act or Afma. One would expect that two and a half decades later, we should be seeing palpable improvement and modernization in our farm and fisheries sector. But a recent assessment by the country’s foremost think tank, the Philippine Institute for Development Studies, asserts that our agriculture and fisheries (AF) sector remains far from modernized. Indeed, not a few Filipinos probably feel that outcomes on farmers’ incomes and welfare, and food availability and accessibility including prices, point to retrogression rather than modernization. It shows that enacting laws is far from enough to achieve their declared lofty goals. And in a country where laws have been cynically described as mere suggestions, Afma feels like a painful joke. Over the weekend, I was at a lunch table with seasoned and venerable figures in Philippine agriculture ranging in age from the 70s to 90s, all of them fellow members of the Coalition for Agriculture Modernization in the Philippines (Camp). They all studied at the University of the Philippines Los Baños (UPLB), indisputably the country’s knowledge capital in agriculture, and devoted decades of their professional lives to pursuing the sector’s modernization. I posed to them the question: “Is Philippine agriculture now modern?” Not one answered in the affirmative. National Scientist Dr. Emil Q. Javier clarified that there are “pockets of modernization” out there, and singled out the pineapple and banana export industries in Mindanao as examples. He was quick to note that our most modern agriculture industries appear to be those where government largely keeps its hands off. In stark contrast, those with the heaviest government intervention, namely rice, coconut, and sugar—all of which have distinct institutions focused on them—are the most backward and troubled. It seems a glaring anomaly that the more government gets involved in an industry, the worse it performs. For his part, biotechnology expert and champion Dr. Ben Peczon doesn’t see a coherent plan guiding our agricultural authorities’ actions. Others retorted that on the contrary, there have been numerous plans. But Camp president Dr. Eufemio Rasco, a major author of the National Agriculture and Fisheries Modernization and Industrialization Plan 2021-2030 or Nafmip, is wondering what happened to it, as nothing is being heard about it now from top agriculture officials. Dr. Mario Labadan, whose company AgriSpecialist Inc. has long successfully put science to good use in industry, lamented how government itself is undermining his substantial missionary investment to commercialize UPLB’s proven Bio-N microbial fertilizer. He asks, “Where is the sense in government pushing farmers to favor imported fertilizers over far environmentally friendlier Bio-N, at three times the cost?” Someone cynically replied that there’s more money to be made (i.e., by less-than-honest officials) from large import procurements than from pushing homegrown inputs, even if demonstrably superior. Unfortunately, the DA’s checkered track record with procurement scandals over the years lends credibility to such naughty suspicions. “How can our agriculture modernize, when the young people who would logically bring about modernization are turning away from the sector?” mused Dr. Fernando Bernardo, founding president of the Visayas State College of Agriculture (now the Visayas State University), and most senior in the group at 94. Rasco observed that young people venturing into technology-enabled agribusiness often are not even children of farmers, whose own offspring have only seen persistent poverty out of their parents’ occupation. But we may yet find hope in those innovative, nonfarm-raised young people who are finding exciting technology applications at all links of the value chain spanning finance (crowdfunding, other financial technologies for farmers); field production (soil sensors, drones, field robots); processing (robotics, artificial intelligence); transport, logistics, and tracking (Grab/Uber-type platforms, blockchain); and marketing (e-commerce, app-based farm-to-customer platforms). All told, the group found consensus on three fundamental must-do’s: (1) consolidate our fragmented farms via cooperatives, contract growing, or even easing land ownership ceilings for agribusiness investors; (2) diversify our farms by shifting more attention and budgets well beyond the disproportionate share of rice; and (3) work through local governments by capacitating, empowering, and funding them to do the needed work on the ground that will lead our farmers into modernization. Even as it seems unlikely to happen within our aging group’s remaining lifetimes, hope always springs eternal. _______________________________________________________________________________________ BSP wants rural banks to consolidate March 7, 2024 | 12:01 am THE Philippine central bank wants the rural banking industry to consolidate to make it more resilient, according to its governor. “What we’re trying to do is consolidate the industry and make it more solid, partly with more capital and by allowing… consolidation,” Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. told a forum on Wednesday. “This is a troubled industry,” he said. “They don’t really lend to agriculture anymore. They are more into consumer lending. They are not serving the purpose which they were established for.” In September 2022, the central bank raised the minimum capital requirement for rural banks to P50 million. It covers small lenders with a head office and as many as five branches regardless of location. Rural banks with six to 10 branches must have a minimum capital of P120 million, while those with more than 10 branches must have a capital of at least P200 million. The industry has raised concern about the capital hike requirement. Rural banks have until 2027 to meet requirements. Remolona said the BSP is studying ways to merge these banks. “We’re trying, we’re looking, we’re analyzing.” Last month, the Asian Development Bank approved $655,000 worth of grants to nine rural lenders and a rural bank consortium to support their digitalization and capacity-building. — Beatriz Marie D. Cruz _______________________________________________________________________________________ Seven-point agriculture agenda By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM February 27, 2024 Shortly before the Marcos administration began, I wrote of “seven deadly sins” in the historically flawed governance of our agriculture sector, our economy’s backbone (”Seven deadly sins,” 6/14/22). I’ve long argued that our agriculture’s sorry state comes not from a lack of knowledge or technology, which we once taught our neighbors. Rather, it traces to our age-old failure to enable our farmers to apply and benefit from that knowledge, due to problematic politics, flawed governance, and weak institutions in the sector. I shared these thoughts in a private meeting with Department of Agriculture (DA) Secretary Francis Tiu Laurel Jr., who asked me to elaborate on how to undo the seven sins. Of course, I have no illusions that my advice has taken any precedence over that of countless others, knowing that I am but one in a cacophony of voices constantly feeding advice, solicited or not, to the good secretary. Those seven sins logically lead to a seven-point agenda, outlined here. Some may not agree with all of them, but I plan to revisit them when this administration ends in 2028, to see what has been done, and assess any significant improvements achieved. One, let provinces lead in managing their farms and fisheries, to reverse the sin of persistent top-down management of the sector despite mandated devolution since 1991. To its credit, the previous administration already rolled out a long overdue province-led agriculture and fisheries extension system or Pafes. For it to work, the DA must limit itself to “steering,” but take full responsibility for capacitating the provinces for the “rowing,” including downloading much of its budget to them as matching grants. Two, consolidate management of small farms into efficient production units, to correct the sin of failure to address loss of economies of scale from farm fragmentation. A Bureau of Agri-Industry and Cooperatives Development must be reestablished in the DA. Congress must lift land ownership ceilings for agri-business investors, who must be attracted with appropriate incentives. Contract growing must be fostered in a wider variety of farm and fishery products like in Thailand, and LGUs must provide longer and more secure leases for aquaculture investors. Three, pursue maximum productivity in our rice lands (and all croplands), but help farmers in marginal rice lands shift to better-suited crops that will raise their incomes. The sin of undue obsession with full rice self-sufficiency only brought us farther from it as it was pursued through excessive trade controls that bred complacency from keeping productivity and cost competitive with our neighbors. Worse, it led to neglect of other crops, which received far less attention and budget. Four, look at the entire value chain and overcome the sin of inordinate focus on production, rather than farmers’ and fishers’ incomes and welfare. Empower farmers and fishers to reap gains from value-adding through participation in transport/logistics and processing via coops. Foster local and foreign investments in agri-based industries and rural transport and logistics via DA’s Agri-Industry Business Corridors program. Five, shift to a function-based structure and budget, away from the traditional commodity-based orientation that proved inefficient, ineffective, and distortive. Recast DA to focus on its central “steering” functions: standards setting; integrated research for development and extension (R4DE); monitoring and evaluation; regulation that is science-based and separate from developmental functions; international relations; and most critically, capacity building for local government units. Six, pursue greater trade openness to reverse the sin of excessive trade protection that removed pressure for both government and producers to pursue higher productivity and competitiveness with our neighbors—and moved up our prices further away from theirs over time. Use transparent tariffs, not trade controls, to provide calibrated protection for domestic producers, while opening trade to wider players to forestall capture by cartels. Ensure that sanitary and phytosanitary requirements are science-based and not used as undue trade barriers. Seven, and possibly most crucial, make financing widely accessible to small farmers and fishers. Study how Thailand and South Korea did it in conjunction with cooperative development. Work with Congress to change regulatory metrics applied to Landbank (and the Development Bank of the Philippines) to let them focus primarily on their mission to finance small farms (and firms). Foster application of innovative financial technologies for small farmers and fishers. We can’t fix Philippine agriculture with tired old approaches that never worked, or by adding more wheels to a defective vehicle moving in the wrong direction. _______________________________________________________________________________________ EDITORIAL Stuck in the gray list The Philippine Star February 26, 2024 | 12:00am While moving heaven and Earth to amend the Constitution ostensibly to attract more foreign investments, the government is taking its sweet time getting out of the so-called gray list of jurisdictions under increased monitoring for money laundering and counterterrorist financing. Being on the gray list of the Paris-based global dirty money watchdog Financial Action Task Force makes it harder to do business in the Philippines. Consequent restrictions on cross-border transactions make it difficult to obtain credit and limit foreign direct investments. Remittances of overseas Filipino workers are also affected. Yet the country has been unable to get out of the FATF gray list since its inclusion in June 2021. At the end of a two-day plenary in Paris last week, the FATF announced that the Philippines would remain on the gray list along with 24 other countries and jurisdictions. While noting “some positive progress” in the Philippine effort, the FATF wants two strategic deficiencies addressed with urgency. One is the money laundering and terrorist financing risk linked to casino junkets. Another is the weak investigation and prosecution of money laundering and terrorist financing cases. The FATF also wants to see effective risk-based supervision of designated non-financial businesses and professions as well as enhancement and streamlining of law enforcement agencies’ access to beneficial ownership information, which must be accurate and up-to-date. Deadlines for implementing action plans to address the strategic deficiencies expired in January 2023. But the Philippines, which has one the world’s strictest bank secrecy laws, has always had problems in meeting anti-money laundering standards set by the FATF. It took a long time for the country, for example, to include corruption and related offenses among the covered transactions under the Anti-Money Laundering Act. There is a National Anti-Money Laundering / Counter-Terrorism Financing / Counter-Proliferation Financing Coordinating Committee to promote a unified approach among relevant agencies in addressing the deficiencies cited by the FATF. Yet the country continues to struggle to get out of the gray list. Some developments even go in the opposite direction, promoting secrecy rather than transparency in government activities. The quality of governance is among the key factors considered by foreign investors in picking destinations for their money. Meeting FATF requirements is a good indication of this factor. _______________________________________________________________________________________ Loans and collection: Key risks for digital banks today BY LEE C. CHIPONGIAN Feb 10, 2024 11:39 PM Taking deposits from the public is no problem for the six online-only digital banks in the country. The challenge lies on how to effectively provide loans to unsecured borrowers and its collection procedures.When asked why digital banks have higher non-performing loans (NPL) compared to other banking categories, the BSP chief said this all boils down to digital banks’ challenge of disbursing the loans. “At least nakaka pahiram. Mahirap magpahiram ng digital kasi – sabi nila – kung sisingil ka, hindi pwedeng digital. Kailangan may tao daw na sisingil. Yun ang experience ng mga digital banks. Pero meron magaling, meron hindi magaling dyan (At least, they can lend to borrowers. They say it’s a challenge to lend because it’s also difficult to collect payments via digital means. A person has to do the job of collecting loan payments. That’s the experience of digital banks here. But then there are digital banks that are effective (when it comes to loans and collection) and some are not,” said Remolona. Based on the latest BSP data, as of December 2023, digital banks’ gross NPL ratio stood at 14.49 percent compared to 3.23 percent industry gross NPL. The peak was 20.25 percent recorded in November 2023. Last year, the six digital banks’ total loan portfolio amounted to P24.706 billion. There is no comparison yet for 2022 data. The data on digital banks’ asset quality ratios only started last May 2023The total NPLs which are unpaid loans for more than 30 days after due date, reached P3.599 billion in December from P4.088 billion in November. Past due ratio or the rate of delinquency was also high at 21.61 percent in December 2023 but the November ratio was even higher at 30.64 percent. Comparably, industry past due ratio was 3.95 percent. Weak asset quality, high costs In a Jan. 30 report, “Philippine Banks Outlook 2024: Better Economic Prospects Will Bolster Sector” the credit rating agency S&P Global Ratings said the asset quality of digital banks in the Philippines is weaker than the rest of the banking sector. “This reflects their heavy exposure to unsecured consumer loans and the largely untested credit profile of their target customers. We expect these banks to continue making losses because of very weak asset quality and high costs,” said S&P credit analyst Nikita Anand. But the report also noted that so far, they have not seen any “irrational deposit pricing in response to the high rates offered by new digital banks.“These banks' operations are nascent and reflect initial struggles, with a market share of just 0.4% of sector deposits,” said S&P Global. S&P Global also said in its report that since their operations are still new, digital banks still have a low market share, on top of weak asset quality and high costs which are “constraining profitability” In addition, digital banks’ loan portfolio is riskier. The “high share of unsecured consumer loans and untested credit profile of target segment is leading to significantly weaker asset quality,” said the credit watchdog. Based on data from the BSP as of end-September 2023, about 64.8 percent of digital banking loans are personal loans, the rest are reverse repurchase agreements at 18.5 percent; other consumer loans at 16 percent; and corporate loans at 0.8 percent. “Digital banks have heavy exposure to unsecured loans,” said S&P Global. Limiting digital banks There are six digital banks in the Philippines: government-owned Overseas Filipino Bank Inc. of Land Bank of the Philippines; Tonik Digital Bank of Tonik Financial Pte Ltd. of Singapore; MAYA Bank of the PLDT Group; UNObank Inc. of Singapore; UnionDigital Bank of Aboitiz-led Union Bank of the Philippines; and GoTyme Bank Corp. of the Gokonwei Group. The BSP has closed the window for digital bank applications for three years, or from September 2021 until the fourth quarter of 2024. As such, only six digital banks were granted digital bank license by the BSP as of Aug. 31, 2021. These banks became fully operational between in late 2022 to 2023. Right now, the BSP is carefully monitoring the six digital banks that were allowed to operate before the moratorium. Remolona said one of the things they are assessing is their business models. The ongoing review will also help regulators to find out just how many more digital banks the industry can accommodate. The establishment of a digital bank require P1 billion minimum capitalization, lower than the required P3 billion to P20 billion depending on the number of branches for big banks. A digital bank is the BSP’s seventh bank category. Digital banks have minimal or zero-reliance on physical touchpoints but it will have to set up one office in the Philippines to receive and address customer complaints or issues. The BSP has limited the number of digital banks to allow them the space to closely monitor the performance and impact of digital banks to the banking system and their contribution to the financial inclusion agenda. However, more than two years since the application window was closed, the BSP is studying its reopening earlier than scheduled. In 2022, the BSP’s policy making-arm, the Monetary Board, approved Circular No. 1154 or the “Prudential Requirements Applicable to Digital Banks” which amended Circular No. 1105 or the “Basic Guidelines in Establishing Banks” issued last December 2020. The circular basically allowed the central bank to consider applications to set up thrift, rural and cooperative banks that have digital bank business models as digital bank license applications. These thrift banks, rural banks and cooperative banks that primarily offer financial products and services that are processed end-to-end through a digital platform or electronic channels under an Advanced Electronic Payments and Financial Services (EPFS) license, will be required to put up P1 billion as capital to be granted a digital bank license Meantime, existing thrift banks, rural banks and cooperative banks with similar digital platform or electronic channels under EPFS license, will be given five years to meet the new minimum capital requirement or P1 billion for a digital bank license BSP Deputy Governor Chuchi G. Fonacier had earlier clarified that the amended circular will not mean that there will be digital bank licenses approved. The window for digital bank license application is still closed for new applicants. Before the BSP released the digital banking framework in 2020, there are already two existing digital banks in the country -- Malaysia’s CIMB and Dutch-owned ING. The two foreign banks, however, did not apply for a BSP digital bank license. _______________________________________________________________________________________ DBP-Landbank merger’s fate Philippine Daily Inquirer / 04:35 AM February 05, 2024 It’s been nearly a year since President Marcos purportedly agreed to the proposed merger of Land Bank of the Philippines and Development Bank of the Philippines (DBP), putting thousands of employees and officers of the two state lenders on edge as they nervously await their fate. The President should now make known his position on the proposed union to ease these fears. A report in this paper’s Bizz Buzz said the President had signified to DBP leadership that he was now in favor of keeping DBP and Landbank as distinct entities, a turnaround from what former finance secretary Benjamin Diokno had announced in March last year. According to Diokno at that time, the President approved the merger during a sectoral meeting in Malacañang and that the merger could happen before the end of 2023. Diokno advanced 10 arguments in favor of the merger of the two state-run banks, foremost of which was that the merger would create a bigger and stronger bank to better serve the country’s development needs. It is worth noting, however, that the US-induced global financial crisis of 2007-2008 has led some policymakers in Washington to argue that limits on bank size were a way to reduce financial instability and excessive risk-taking, prompting regulatory proposals that include caps on bank size as well as incentives for banks to remain small. Best practice Another argument cited by Diokno was that the projected operating cost savings from the merger could reach at least P5.3 billion a year, or more than P20 billion over the next four years. However, he did not say at what cost. Such savings ostensibly will result in part from laying off thousands of government employees in the state banks. Under the merger proposal, 75 percent of DBP’s 3,600 employees would be deemed redundant. Diokno presented other points that may only be partly true, such as the claim that having a single bank remains the best practice in the region. Thailand has the Bank for Agriculture and Agricultural Cooperatives for farmers and the SME Development Bank of Thailand for small entrepreneurs; Malaysia has Agrobank and Bank Perusahaan Kecil and Sederhana Berhad or SME Bank. Indonesia also has four state-owned banks, while the Singapore government has ownership interests in several banks largely held through its sovereign wealth fund. Unintended monopoly The affected banks, however, presented valid points that the President cannot simply dismiss. In a March 22, 2023, position paper submitted to Executive Secretary Lucas Bersamin refuting point by point the justifications laid out by Diokno, DBP president Michael de Jesus and chair Dante Tinga warned of an “unintended monopoly” and concentration of risks arising from the merger. “We think it’s best for the country that both operate separately from each other. The merger is not good. You’re putting all your eggs in one basket,’’ De Jesus said, adding “In the future, in case of mismanagement or corruption, you only have one bank as opposed to having two.” Due to separate single borrower’s limit (SBL), or the limit on total credit commitment to a single industry, DBP also argued in its position paper that both banks complete each other by serving enterprises belonging to common industries simultaneously by having separate industry limits, thus bigger loans to those sectors. On the other hand, a merged entity that may enjoy the benefits of huge capital would still be subjected to SBL and other industry limits. In the absence of a mechanism integrating best practices of the two banks, DBP added that the proposed merger would just be “a consolidation of assets.” More prudent decision In 2016, when Mr. Marcos was running for vice president, he had opposed the proposed merger, arguing that it would deprive farmers of a means to get financial support because they would lose a bank mandated to serve their needs. The President may not have actually changed his position on the issue. Contrary to Diokno’s claim about Mr. Marcos’ approval, some of the officials present in the March 28 meeting last year said he stressed the need to conduct a thorough and meticulous legal study on the proposed merger. With the appointment of former senator Ralph Recto as finance secretary replacing Diokno, the merger’s staunch advocate, a final and more prudent decision on the proposed merger should be made now. While the merger was supposed to provide “better ways of doing things” as Diokno envisioned, a forced marriage between Landbank and DBP may not be the best answer now, considering its impact on thousands of workers and the disruption to agriculture and SME lending that may be caused during their transition to a merger. Besides, bigger does not necessarily mean better, and DBP and Landbank need only to be guided separately into improving their performance insofar as extending loans to farmers and fishermen and to small and medium entrepreneurs is concerned. _______________________________________________________________________________________ DoF chief joins BSP’s Monetary Board January 23, 2024 | 12:34 am By Keisha B. Ta-asan, Reporter NEWLY APPOINTED Finance Secretary Ralph G. Recto took his oath as a member of the Monetary Board on Monday, the Philippine central bank said, taking the last seat in the seven-member policy-making body. Recto is expected to prioritize inflation while pushing stable economic growth, analysts said. “He is responsible for National Government debt and taxes,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said in a Viber message. “He ensures that growth continues by providing inputs to the Monetary Board to help support and stabilize growth. ”Recto, a former lawmaker who was appointed Finance chief last week, will represent President Ferdinand R. Marcos, Jr.’s Cabinet at the Bangko Sentral ng Pilipinas’ (BSP) highest policy-making body. Monetary Board is headed by Governor Eli M. Remolona, Jr., who led Mr. Recto’s oath-taking at the central bank office in Manila, the BSP said in a statement. The board also has five full-time members from the private sector, namely Benjamin E. Diokno, V. Bruce J. Tolentino, Anita Linda R. Aquino, Romeo L. Bernardo and Rosalia V. de Leon. Mr. Diokno is Mr. Recto’s predecessor at the Finance department and Ms. De Leon used to be the national treasurer. Ms. Aquino held key positions at Standard Chartered Bank Manila, Rizal Commercial Banking Corp., Citicorp Investment Bank in Singapore and Citibank N.A. Manila. Tolentino was the deputy director-general of the International Rice Research Institute, served as chief economist and country representative at The Asia Foundation and was senior economic policy adviser at the Asian Development Bank (ADB). Meanwhile, Mr. Bernardo was an analyst for the Philippines at GlobalSource Partners. He used to be a Finance undersecretary and an alternate executive director at the ADB. Mr. Recto would give the Monetary Board a clear perspective on how monetary policy and banking regulation can support economic growth, China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message. priorities should include forming a view on when to cut the policy rate and taking the necessary steps to remove the Philippines from the Financial Action Task Force’s (FATF) ‘gray list,’” he added. Before his appointment to the Finance department on Jan. 15, Mr. Recto served as Batangas representative and was a deputy speaker of the House of Representatives. He was a senator for three terms and held key positions including as a minority leader. He pushed higher value-added taxes (VAT) in the Senate in the early 2000. Luis A. Limlingan, head of sales at Regina Capital Development Corp., said the central bank is already doing a good job in keeping prices stable. It will depend on current economic conditions but generally, Mr. Recto should try to help the economy get back to a lower inflationary environment with tools at his disposal,” he said in a Viber message. The Monetary Board raised borrowing costs by 450 basis points from May 2022 to October 2023. This brought the key interest rate to 6.5%, the highest in 16 years. Despite the high interest rate environment, the Philippine economy expanded by 5.9% in the third quarter, faster than 4.3% in the second quarter. For the nine months ended September, economic growth averaged 5.5%, below the government’s 6-7% full-year goal. Mr. Remolona earlier said it is unlikely for the BSP to start easing policy rates in the first half given risks to inflation. The central bank sees inflation easing to 3.7% this year and to 3.2% in 2025. Inflation in 2023 was 6%, breaching the 2-4% target for the second straight year. The BSP will hold its first policy meeting this year on Feb. 15. The FATF has kept the Philippines under a “gray list” of countries under increased monitoring for money laundering and terrorism financing risks since June 2021. Government officials expect the Philippines to get out of the gray list in October after failing to meet the January deadline. _______________________________________________________________________________________ Loans used as reserves hit P8 billion December 12, 2023 | 12:02 am SMALL BANKS lent out P8.01 billion to micro, small, and medium enterprises (MSMEs) and eligible large enterprises (LEs) as part of their alternative compliance with reserve requirements, the Bangko Sentral ng Pilipinas (BSP) said. “For the reserve week ending Oct. 19, TBs (thrift banks) and RCBs (rural and cooperative banks) allocated an aggregate of P8 billion and P6.5 million loans to MSMEs and LEs, respectively, for compliance with the reserve requirements,” it said in a report on recent trends in the Philippine financial system. The central bank said these accounted for 0.6% and 0.0005% of the total required reserves for the said week. The BSP allowed MSMEs loans to be counted as part of banks’ reserve requirements in a bid to boost lending to the sector, which was hit severely by the coronavirus pandemic. According to the BSP, banks’ availment of the relief measure declined in October this year due to the expiration of its effectivity for universal and commercial banks on June 30. Smaller lenders can still count their loans to MSMEs and LEs as alternative compliance with reserve requirements until they are fully paid, but not later than Dec. 31, 2025. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said MSME and LE loans counted as reserve requirements would allow smaller banks to earn more from their loanable funds. “Given the extension of these regulatory relief requirements for smaller banks, so might as well maximize the returns through these additional MSME and LE loans used as alternative compliance by including the calculation of required reserves while still allowed,” Mr. Ricafort said. In 2022, banks lent P493.5 billion to MSMEs as alternative compliance with reserve requirements. This was 6.6% higher than the P463.1 billion a year prior. By banking group, universal and commercial banks extended P390.9 billion in loans to MSMEs, while rural and cooperative banks lent P52.7 billion. In June, the BSP cut the reserve requirement ratios of big banks by 250 basis points (bps) to 9.5%, by 200 bps to 6% for digital banks, and by 100 bps for thrift banks, and rural and cooperative banks to 2% and 1%, respectively. — Keisha B. Ta-asan _______________________________________________________________________________________ BSP to deploy more digital payment tools Lawrence Agcaoili - The Philippine Star December 1, 2023 | 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is deploying more digital payment tools as it ramps up initiatives to achieve its twin goals under its Digital Payments Transformation Roadmap. BSP Deputy Governor Mamerto Tangonan said they are working closely with the payments industry to offer consumers and businesses the tools to seize opportunities in the digital economy. “Through strategic collaborative efforts with our industry partners, we can expand access to digital payment tools that are truly responsive to businesses’ needs in the new economy,” Tangonan said during a forum held recently. Tangonan said upcoming digital payment initiatives include the request to pay facility and direct debit facility. According to the BSP official, the request to pay facility would empower payees to initiate collections by simply sending a request to pay, while the direct debit facility would enable customers to more efficiently manage recurring payments, such as monthly rentals, loan amortization, and insurance premiums. Tangonan said the central bank digital currency (CBDC) pilot project, dubbed Project Agila, aims to enhance the BSP’s capacity to implement CBDC by enabling fund transfers between select financial institutions, addressing national payment challenges, and exploring 24/7 transaction capabilities. Furthermore, he added that the linkage and enhancement of cross-border payments would also boost the competitiveness of Philippine e-commerce, exports, and the international trade sector. “These initiatives support the BSP’s financial digitalization agenda, consistent with the overarching goal of inclusive economic growth,” he said. The Association of Southeast Asian Nations (ASEAN) continues to ramp up cross-border payments as more central banks join the regional payment connectivity initiative. Central banks in the region, including the Bangko Sentral ng Pilipinas (BSP), Bank Indonesia, Bank Negara Malaysia, the Monetary Authority of Singapore, Bank of Thailand and the State Bank of Vietnam (SBV) have signed the memorandum of understanding (MOU) on cooperation in regional payment connectivity. The initiative was established to strengthen and enhance collaboration on payment connectivity through the development for faster, cheaper, more transparent, and more inclusive cross-border payments. The cooperation encompasses several modalities, including QR (quick response) code and fast-payment based cross-border payments. The goal of the regional payment connectivity is to make inter-country payments more seamless, convenient, and affordable, allowing individuals and businesses to conduct transactions across the ASEAN region with ease. Through cross-border payments, ASEAN member states would be able to increase trade and remittances within the region, helping widen financial inclusion and significantly contribute to the overall advancement of the ASEAN economic community. Under its Digital Payments Transformation Roadmap, the BSP aims to shift 50 percent of total retail transactions to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent before the end of this year. As more Filipinos embraced digitalization during the height of the COVID-19 pandemic, the share of digital payments to total retail transactions further increased to 42.1 percent in 2022 from 30.3 percent in 2021. Likewise, the number of banked Filipino adults further increased to 65 percent in 2022 after almost doubling to 56 percent in 2021 from 29 percent in 2019. _______________________________________________________________________________________ JuanHand partners with SeaBank to pioneer Loans Channeling Financing in the Philippines November 16, 2023 | 2:58 pm The rise of the FinTech industry paved the way to easier financial access, addressing the need for financial inclusion. JuanHand, a leading online lending platform duly licensed by the Securities and Exchange Commission, continues to blaze the trail in serving millions of Filipinos who are credit-worthy yet underserved. To give more financial access to those who need it the most, WeFund Lending Corp., owner of the JuanHand app, recently signed a loan channeling agreement with SeaBank Philippines Inc. (A Rural Bank). With this collaboration, SeaBank plans to provide around 300 million pesos of loan capital to eligible borrowers via the JuanHand app. SeaBank is a duly licensed rural bank by the BSP and is a subsidiary of SEA Limited, one of the largest consumer tech companies in Asia. The agreement was signed last September 20, 2023, by WeFund Lending Corp. President and CEO, Francisco Mauricio and SeaBank Executive Vice President of Operations, Siew Ghee Kung Lim. This marks a milestone as one of the first cross-institution loans channeling financing structures in the country. “We are honored to have been selected by SeaBank Philippines as its one of its first loan channeling partners in the country,” said Francisco Mauricio. “With this partnership, JuanHand will sustain its momentum as the premier fintech loan app providing the easiest way for Filipinos to access cash, leading to a much better financial well-being.” Since the introduction of JuanHand in 2019, it has had over 10 million downloads, over 6 million registrations and has approved close to 3 million loans. JuanHand offers loans from Php 2,000 to up to Php 50,000, payable within 30 to 120 days. JuanHand can approve loans in less than 5 minutes and can disburse cash to the borrower’s bank or e-wallet in less than 45 seconds. JuanHand is a leading fintech platform known among its loyal customers as an easy-to-use app with a friendly and always available customer service team. And with partners like SeaBank, JuanHand continues to fulfill its noble mission of providing financial empowerment to every Juan. The JuanHand app can be downloaded via Google Play or App Store. For more information, visit their website, https://www.juanhand.com/ _______________________________________________________________________________________ PH banking assets grow 9% in first 9 months BY LEE C. CHIPONGIAN Nov 14, 2023 04:31 PM The improving macroeconomy also boosted banks’ deposits, loans and investments during the first three quarters of the year. Bank assets are mainly funded by deposits, loans and investments. Based on the latest Bangko Sentral ng Pilipinas (BSP) data, with total assets growth, total liabilities which are financial and deposit liabilities, also increased by 8.6 percent to P21.036 trillion from P19.369 trillion same time in 2022. For the first nine months, banks’ net loans inclusive of interbank loans receivable and reverse repurchase, totaled P12.592 trillion, up 7.8 percent year-on-year from P11.681 trillion. Net loans have a big contribution to total assets after investments and cash and due from banks. Net investments which are financial assets and equity investments, also grew by 6.68 percent to P6.918 trillion from P6.485 trillion same period last year. Cash and due from banks also increased by 3.75 percent to P2.817 trillion from P2.715 trillion in end-September 2022. Meanwhile, net real and other properties acquired or ROPA went up by 2.91 percent to P104.620 billion versus P101.658 billion same time in 2022. By banking group, the 45 big banks or universal and commercial banks accounted for about 94 percent of total industry assets at P22.528 trillion of the total as of end-September this year. The thrift banks’ assets amounted to P999.935 billion during the same period. As of end-October, there are 42 thrift banks under BSP supervision. The rural and cooperative banks have lagged reporting period but as of end-June this year, it contributed P385.675 billion in total banking assets. There are 390 rural and cooperative banks as of end-October, of which 368 are rural banks. Based on BSP data as of end-June, the SM Group’s BDO Unibank Inc. is the country’s biggest bank in assets size at P3.975 trillion. Government-owned Land Bank of the Philippines is second largest lender with total assets of P3.025 trillion followed by the Ayala-led Bank of the Philippine Islands with P2.655 trillion. The Ty-controlled Metropolitan Bank and Trust Co. with total assets of P2.632 trillion as of end-June is in fourth place while China Banking Corp., a sister company of BDO, has P1.41 trillion assets. The other banks in the top 10 in terms of asset size are the Yuchengcos’ Rizal Commercial Banking Corp. with P1.215 trillion; Lucio Tan Group’s Philippine National Bank with P1.173 trillion; Aboitiz-led Union Bank of the Philippines with P967.729 billion; state-owned Development Bank of the Philippines with P962.886 billion; and Security Bank Corp. with P901.238 billion. _______________________________________________________________________________________ PH financial resources up 7% to P29 T BY LEE C. CHIPONGIAN Nov 13, 2023 00:26 AM Amid inflationary pressures and high interest rates, the total resources of the country’s financial system continued to grow by 6.98 percent to P29.079 trillion as of end-August this year from P27.181 trillion same time in 2022, according to the Bangko Sentral ng Pilipinas (BSP). Financial system resources are held by banks and non-banking financial institutions (NBFIs). These funds and assets are in the form of deposits, capital, and bonds or debt securities. By banking group, the big banks or the universal and commercial banks had the largest share of assets at 94 percent. Banks accounted for P24.046 trillion of total resources, up by 7.95 percent from same time last year of P22.276 trillion. The country’s 45 big banks hold most of the funds and assets at P22.593 trillion as of end-August which was 7.8 percent more than P20.958 trillion in 2022. The 43 thrift banks, meanwhile, has P1.056 trillion of the total, 12 percent higher than same time last year of P943 billion. The 369 rural banks and 22 cooperative banks accounted for P397 billion of total resources based on an end-March data, up 5.86 percent from P375 billion in 2022. Similar with rural and cooperative banks, the BSP also takes its time in reporting NBFIs’ resources. As of end-December 2022, NBFIs accounted for P5.033 trillion of total resources, up 2.58 percent year-on-year. NBFIs are investment houses, finance companies, investment companies, securities dealers/brokers, pawnshops and lending investors. Non Stocks Savings and Loan Associations (NSSLAs), credit card companies under BSP supervision, private insurance firms, Social Security System and the Government Service Insurance System are also classified as NBFIs. There are 1,324 NBFIs without quasi-banking function as of end-August. These are investment firms, NSSLAs and pawnshops. Only five NBFIs have quasi-banking function which means they can borrow funds from 20 or more lenders. These include investment houses with trusts business, financing companies, among others. Based on the BSP Report on the Philippine Financial System for the First Semester of 2023 which was released in October, the banking sector continue to grow in terms of deposits. The banking sector is the core of the financial system and it continues to be resilient and stable with a strong balance sheet, profitable operations, sufficient capital and liquidity buffers, and ample provision for probable losses, said the BSP. Meanwhile, bank deposits funded the key activities of banks such as lending and investing. As of end-June, the total deposits increased 8.1 percent year-on-year to P17.8 trillion. About 84.6 percent or P15.1 trillion of the total deposits were denominated in peso, while 99.1 percent or P17.7 trillion were sourced from resident depositors. The report said banks’ deposit mix provides insulation to the banking system from potentially significant funding withdrawals by investors due to developments in the global financial markets. With adequate resources, deposits and earnings, the BSP said banks remain well capitalized and highly liquid, with a capital adequacy ratio and key liquidity ratios exceeding the BSP regulatory and international standards. Last year, the financial system’s total resources amounted to P28.806 trillion, up by 9.3 percent from 2021’s P26.357 trillion. The BSP in the October report said the Philippine financial system remained resilient and supportive of the country’s financing needs despite high inflation and tightened monetary policy. The BSP target repurchase reverse or target RRP rate is currently at 6.5 percent and it has a tightening bias since the BSP's forward guidance indicate it will remain hawkish for longer as long as inflation is above-target. As of end-October, the country's consumer price index stood at 6.4 percent average, way above the government target of two percent to four percent. The BSP forecasts that inflation will remain above four percent in the first six months of 2024. _______________________________________________________________________________________ Who is Francisco Tiu Laurel Jr., the new DA chief? NOV 3, 2023 11:57 AM After more than a year, President Ferdinand Marcos Jr. relinquishes his agriculture post to fishing tycoon Francisco Tiu Laurel Jr. Get to know the new full-time agriculture chief. Laurel is president of Frabelle Fishing Corporation. The President said he is confident about his appointment of Laurel, who he said, he has known since they were boys and had been one of his campaign donors in the 2022 presidential elections. In a short speech during the announcement in Malacañang grounds, Laurel called Filipino farmers and fisherfolk his brothers and sisters. “Malapit sa puso ko ang mga kapatid nating magsasaka at mangingisda dahil personal kong natunghayan ang mga hirap at pangarap nila,” Laurel said. “Asahan po ninyong laging bukas ang aking tanggapan para sa inyong lahat.”and fisherfolks are close to my heart because I’ve personally witnessed their hardships and dreams. Expect my office to be always open to all of you.) How did Laurel get in familiar terms with the sector? Get to know more about the new agriculture chief here. Hailing from a family-run company Laurel was born in 1966, a year after his parents Francis and Bella Tiu-Laurel established Frabelle as a small trawl fishing company in the Philippines. Now, Frabelle has expanded operations into the Western and Central Pacific regions, where a large share of the world’s tuna can be found. Laurel had helped lead the company extend their market in Asia, Europe, the Middle East, South Africa, and the United States. Frabelle is composed of businesses involved in different stages of the supply chain, including deep-sea fishing, aquaculture, food manufacturing, importation, trading, and cold storage. Besides heading the seafood company, Laurel also serves as president of Agusan Power Corporation and is chairman of World Tuna Purse Seine Organization. This familiarity with the sector, especially in fisheries, was why Marcos said he is confident about having appointed Laurel. Moreover, the President deemed Laurel’s background in the private sector and his connections as beneficial to the DA. Before he was appointed DA chief, Laurel was already a member of the government’s Private Sector Advisory Council. For Laurel, their family-run company is testament to the potential of the Philippines to be a leader in the fishing industry. “Frabelle is a concrete example of how a fisheries-based company operated and managed by Pinoys, can succeed and can become [a leader] in the fishing industry, not only in the Philippines, but in the world,” said Laurel in his commencement address to UP Visayas graduates back in 2019. At sea Even though a seat in the company is already secured because of birth right, Laurel still had to experience work at sea. In a 2016 interview, Laurel said that for five years, he spent an average of 45 days at sea onboard their fishing vessels. He called it a learning experience, where he met the crew and captains, and became acquainted with operations at sea. In the same interview, Laurel said his father made it a point to send him to Japan to learn from experts in the industry. Japan is the world’s largest tuna market. A tall order awaits Expectations of the fishing tycoon are high, as he is taking over the post previously occupied by none other than the Philippine president. Heading a huge agency concerned with feeding its people is a tall order. Marcos himself admitted that there are many things left to do after his first year as DA chief. On Friday, Marcos repeated his marching orders to Laurel, which include the control of agricultural commodities’ prices, recovery from avian flu and African swine fever. He would also have to contend with the alleged cartels that hurt Filipino consumers. Aside from these, Laurel would also have to steer an agency struggling with a problem he would most likely be familiar with: commercial fishing vessels’ resistance against DA’s monitoring measures. – Rappler.com _______________________________________________________________________________________ MSME loans from small banks hit P13 B BY LEE C. CHIPONGIAN Nov 2, 2023 09:21 PM Thrift and rural banks released P13.306 billion loans to micro, small and medium enterprises (MSMEs) and eligible large companies as alternative compliance to the reserve requirements (RR). Based on the latest data from the Bangko Sentral ng Pilipinas (BSP), in the last reserve week of July, MSMEs borrowed P13.3 billion while eligible large companies took out P6.5 million loans from the small banks.The P13.3 billion accounted for one percent of total required reserves for the particular reserve week. The P6.5 million loans from large enterprises accounted for 0.0005 percent of total required reserves. The BSP since June 30 has removed the same privilege for the big banks or the universal and commercial banks, but the thrift and rural banks can still avail of the BSP’s relief measure on the use of new or re-financed loans to MSMEs and eligible large enterprises as alternative compliance with the RR against deposit liabilities and deposit substitutes. The thrift and rural banks will be allowed to utilize their outstanding loans to MSMEs and eligible large enterprises as alternative mode of RR compliance until such loans are fully paid, but not later than Dec. 31, 2025. The use of new or re-financed loans to MSMEs and eligible large enterprises as alternative RR compliance are relief measures implemented by the BSP during the pandemic. The BSP removed the temporary relief measure for big banks to coincide with the reduction in the RR ratios last June 30. The BSP reduced the RR ratios for big banks, thrift, rural, digital and non-banks. Meanwhile, discontinuing RR-compliant loans for the big banks “facilitate the transition” of banks’ compliance with the RR and to help in “managing friction costs related to the policy adjustment,” said the BSP. The latest data on big banks’ RR-compliant loans before its cancellation was P283 billion as of end-May. This includes the smaller banks’ loans under the relief measure. With the continued recovery in the economy, the BSP has started to wind down the relief measures implemented during the Covid-19 crisis except for those that encourage lending to MSMEs. The BSP reduced the RR ratio on June 30, the same day that the relief measure expired. The BSP cut both banks and non-banks’ RR ratios to single-digit levels by as much as 250 basis points (bps) for selected banks. The new ratios apply to the local currency deposits and deposit substitute liabilities of banks and non-banks. The BSP has previously announced to the market that it will reduce the RR ratios before the expiration of the RR-compliant loans. This relief measure was first implemented in March and April 2020 and extended three times. Changes in RRs have a significant effect on money supply in the banking system. The last time the BSP reduced the RR ratios for big banks was March 2020, when Covid-19 was first declared a global pandemic. By August of the same year, the BSP also reduced the RR ratios of thrift and rural banks by 100 bps. Since RRs refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP, these funds cannot be used for lending. _______________________________________________________________________________________ Way out of FATF ‘grey list’ Philippine Daily Inquirer / 04:35 AM October 23, 2023 The government has finally manifested a high-level political commitment to make the Philippines fully compliant with global standards on preventing money laundering and terrorist financing. Last Oct. 16, President Marcos issued Memorandum Circular (MC) No. 37 ordering concerned government agencies, state-owned corporations, and local government units to speed up the implementation of strategies to combat these illegal activities in the country. It specifically cited the “urgent” need to implement a blueprint called the National Anti-Money Laundering, Counter-Terrorism Financing and Counter-Proliferation Financing Strategy (NACS) 2023-2027. This followed the move of the Paris-based global money laundering and terrorist financing watchdog Financial Action Task Force (FATF) to keep the country under its “grey list,” or jurisdictions under increased monitoring, after the Philippines failed to address deficiencies as of the January 2023 deadline. The country has been on this list since 2021. Last June, the FATF said the Philippines remains under the grey list as it has yet to address eight out of the 18 deficiencies in controlling anti-money laundering and combating the financing of terrorism and was given a year or until January 2024 to act on these gaps. Among the remaining deficiencies cited by the FATF is that law enforcement agency objectives were focused on drugs and corruption, and thus did not fully reflect financial crime risks. It also cited insufficient terrorist-financing prosecutions, pointing out that authorities focused on prosecuting terrorist-financing predicate offenses and neglected the main terrorist-financing crimes. It added that there was no targeted financial sanctions framework against proliferation financing, which refers to the act of providing funds or financial services to activities linked to nuclear, chemical, or biological weapons. In January this year, then Bangko Sentral ng Pilipinas Governor Felipe Medalla, who chaired the Anti-Money Laundering Council (AMLC), noted that while the FATF cited gains in legislation against money laundering and terrorist financing in the Philippines, it noted the lack of action on easing the bank secrecy law, as well as on the low number of cases filed against violators of anti-money laundering and terrorist financing and their eventual conviction. The FATF then recommended 18 “action plan items” the government must implement by January next year to exit the grey list. Among these are the supervision of covered persons; access to beneficial ownership information; enhancement in money laundering and financial investigations, prosecutions, and confiscations; enforcement of cross-border declarations, use of targeted financial actions in terrorism, terrorism financing and proliferation financing, and risk-based measures to protect nonprofit organizations. Thus, on July 4, Mr. Marcos issued Executive Order No. 33 adopting the NACS 2023-2027 to enable the Philippines to address the FATF requirements. For instance, it revised the expired NACS for 2018-2022 and included a counter-proliferation financing (CPF) strategy to answer the FATF’s urgent call to implement such measures. It also restructured the National Anti-Money Laundering/Combating the Financing of Terrorism Coordinating Committee (NACC) by adding the National Intelligence Coordinating Agency as a member and granted it new powers to address the FATF’s call for enhanced financial intelligence to support law enforcement investigations on money laundering and terrorism financing. In an effort to meet the January 2024 deadline, MC 37 now puts into action EO 33 by requiring all agency heads to review and assess their deliverables under the action plan, assign focal persons to complete the deliverables by Nov. 30, and establish a mechanism to monitor the progress of each deliverable. The NACC Secretariat was also directed to furnish all concerned agencies with the respective deliverables and office targets under the action plan. The memorandum tasked the AMLC to submit to the Office of the Executive Secretary a comprehensive report on the status of the implementation of the NACS 2023-2027 on or before Dec. 8. Government agencies must act fast as the Philippines has about three months to meet the FATF deadline. Getting out of the grey list is also important for Filipino individuals and entities in their financial dealings with foreign agencies and institutions. While being on the grey list does not merit sanctions, some Philippine individuals and companies have reported unnecessary due diligence requirements that delay their legitimate foreign financial transactions. The Philippines has been in and out of the FATF list of countries not fully compliant with global standards to fight money laundering and terrorist financing and it must now demonstrate it is serious in undertaking the measures through MC 37. Similarly, Congress must do its part and pass the long-languishing bill easing the bank secrecy law to once and for all address a number of the gaps cited by the FATF. _______________________________________________________________________________________ BSP mulls shame campaign against banks on waived fees Lawrence Agcaoili - The Philippine Star September 15, 2023 | 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) wants to shame other major banks that have yet to waive fees for small value transactions, as the BSP continues to ramp up its push for digitalization. According to BSP Governor Eli Remolona Jr., the regulator is set to meet with members of the Bankers Association of the Philippines (BAP) to talk about the payments system in general, as well as discuss the call of the BSP to waive the fees slapped on small transactions. Remolona said three major banks in the Philippines have already removed the fees for small value electronic fund transfers. “For now, three of the major banks have removed fees on small transfers. Up to P1,000, I think, are free for these three major banks and we’re trying to shame the other major banks into following the same policy,” the BSP chief said. Ty-led Metropolitan Bank & Trust Co. (Metrobank) has waived the fees for small InstaPay fund transfers of up to P1,000 via its Metrobank app until the end of the year, while Aboitiz-owned Union Bank of the Philippines is offering free InstaPay fund transfers of below P1,000 until Nov. 11 this year. Ayala-owned Bank of the Philippine Islands (BPI) offered zero InstaPay fees on its new BPI app for transactions up to P1,000 between July 5 and Sept. 30 this year. According to Remolona, the BSP will continue to encourage banks to waive the fees slapped on small value transactions as it continues to implement the Digital Payments Transformation Roadmap that aims to shift 50 percent of total retail transactions to electronic channels and increase the number of banked Filipino adults to 70 percent before the end of this year. With the COVID-19 pandemic serving as catalyst, the share of digital payments to total retail transactions increased further to 42.1 percent in 2022 from 30.3 percent in 2021, while the number of banked Filipino adults almost doubled to 56 percent in 2021 from 29 percent in 2019. “So far yes, it’s moral suasion. It works to a large extent, moral suasion, but we’re formalizing it into a whole payments framework. So we’re talking to the BAP on Friday about payments in general. We have some discussions and out of that we expect something more formal to come out,” Remolona said. _______________________________________________________________________________________ Bayanihan Bank Inc. and Rural Bank of Pozorrubio Inc. Merge Lawrence Agcaoili - The Philippine Star MANILA, Philippines — Two more rural banks have combined forces to enhance their financial stability, aligning with the Bangko Sentral ng Pilipinas (BSP)’s ongoing efforts to enhance risk management in the industry. BSP Deputy Governor Chuchi Fonacier said the merger between Bayanihan Bank Inc. and Rural Bank of Pozorrubio Inc. took effect last Sept. 1 after obtaining the necessary regulatory approvals. Bayanihan Bank would be the surviving entity, while the Pangasinan-based Rural Bank of Pozorrubio would be the absorbed corporation. Quezon-based Bayanihan Bank, established in May 1960, would absorb all the assets and liabilities of the Rural Bank of Pozorrubio. Based on its website, Bayanihan Bank, formerly known as the Rural Bank of Atimonan, was reestablished in 2009 under the leadership of Jose Paolo Palileo after years of stagnation. The BSP’s Monetary Board has so far ordered the closure of six problematic small banks including United Consumers Rural Bank, Bangko Pangasinan – A Rural Bank, Rural Bank of San Juan (Southern Leyte), Binangonan Rural Bank, Rural Bank of San Marcelino, and Rural Bank of San Agustin (Isabela). Last year, the BSP ordered the closure of nine banks. In 2021,the number of problematic banks ordered closed by the central bank almost tripled to 13 from five in 2020 due to the impact of the COVID-19 pandemic. The BSP earlier raised the minimum capital requirements for rural banks to at least P50 million to enhance the operations, capacity and competitiveness of small banks. Under the new capital structure, the minimum capitalization of rural banks would be P50 million for those with a head office and only up to five branches, P120 million for those with six to 10 branches, and P200 million for small banks with more than 10 branches. Branch-lite unit of rural banks are not included in the number of branches. _______________________________________________________________________________________ BSP to monitor credit, equity exposures of small banks Lawrence Agcaoili - The Philippine Star August 31, 2023 | 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to closely monitor the credit and equity exposures of small banks to further strengthen the surveillance and analysis of emerging risks. In a draft circular, the regulator is looking at requiring rural and cooperative banks to also submit comprehensive credit and equity exposures report (COCREE) as early as March next year. The BSP currently requires big banks and mid-sized banks, as well as non-bank financial institutions with quasi-banking functions, trust corporations and digital banks to submit the COCREE. However, the central bank is now set to require universal and commercial banks, thrift banks and non-bank financial institutions with quasi-banking functions to submit an enhanced COCREE by January and February next year. BSP Governor Eli Remolona Jr. said in the draft circular that the enhanced 2021 COCREE expands its data requirements in support of further strengthening the surveillance and analysis of emerging risks in BSP-supervised financial institutions (BSFIs) and the financial system. “Pursuant to such objective, coverage of the enhanced report, referred to as COCREE 2.0, is likewise expanded to all thrift banks, rural banks, cooperative banks, non-bank financial institutions with quasi-banking functions and trust corporations,” Remolona said. The report will be submitted electronically monthly within 15 working days after the end of the reference month. According to the BSP, the 2021 COCREE will no longer be required upon live implementation of COCREE 2.0. “To prepare for the live implementation, BSFIs can pilot test the submission of the COCREE 2.0 in Q4 2023,” it said. The regulator pointed out that penalties for reporting violations of COCREE 2.0 would not be imposed during the pilot period. However, it said the imposition of penalties would be strictly enforced after the grace period of COCREE 2.0’s live implementation. Latest data showed that the assets of the Philippine financial system rose by 7.8 percent to P28.53 trillion in end-May this year from P26.46 trillion a year ago. The resources of Philippine banks grew by 9.1 percent to P23.49 trillion in end- May this year from P21.53 trillion in end-May last year, while that of non-banks stood at P5.03 trillion as of end-December 2022. _______________________________________________________________________________________ Financial system’s resources rise as of May July 17, 2023 | 12:02 am THE TOTAL resources of the country’s financial system continued to rise at end-May, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed. Resources of banks and nonbank financial institutions increased by 7.8% to P28.528 trillion in the first five months of the year from P26.463 trillion in the same period in 2022. According to data from the central bank, banking resources rose by 9.1% to P23.495 trillion at end-May from P21.527 trillion a year prior. Banks include universal and commercial banks, thrift banks, as well as rural and cooperative banks. Broken down, universal and commercial banks held P22.078 trillion of total banking resources, 9.2% higher than the P20.214 trillion logged in the comparable year-ago period. Resources of thrift banks hit P1.008 trillion, inching up by 5% from P954 billion a year ago. Meanwhile, total resources of rural and cooperative banks climbed by 13.6% to P408 billion from just P359 billion in 2022. On the other hand, nonbanks’ resources grew by 1.9% to P5.034 trillion from P4.936 trillion as of end-May 2022. Nonbank financial institutions include investment houses, finance companies, security dealers, pawnshops and lending companies. Institutions such as nonstock savings and loan associations, credit card companies, private insurance firms, the Social Security System and the Government Service Insurance System are also considered nonbanks. — K.B. Ta-asan _______________________________________________________________________________________ Don’t stop at land reform bailout Philippine Daily Inquirer / 04:35 AM July 12, 2023 On one hand, the law enacted by President Marcos last week condoning some P58 billion of soured debts owed by the country’s agrarian reform beneficiaries is good news. With the stroke of a pen, the Chief Executive and Congress gave over 600,000 farmers a fresh start after falling into arrears for the land that the government obtained for them from private owners. On the other hand, this very same law could potentially be a dead end for both the beneficiaries and government if all stakeholders fail to take advantage of the clean financial slate offered by the measure and the farmers end up back in dire straits a few years down the road. Under the agrarian reform system that has been in place since the early 1970s, farmers who have been tilling their plots of land for a certain number of years are entitled to have these properties acquired on their behalf by the government from private landowners. The rationale for this is social justice, meant to break generational cycles that see children and grandchildren of farmers being figuratively chained to the land they work on to pay for the debts incurred by their forebears. Without a support structure, there’s a very real danger that the same challenging economic realities that forced agrarian reform beneficiaries to default on their obligations will once more cause them to fall into debt and perpetuate this vicious cycle despite the fresh start offered by what is essentially a loan bailout. To break this cycle here and now, it is important that policymakers implement a package of measures that will prevent farmers from falling into the same traps that already ensnared them before. Such a package must include a comprehensive program to train these farmers in the latest agricultural science that will improve the yield of their farms, hopefully replacing once and for all the traditional farming methods that are no longer sufficient for the current demands of the market. Agrarian reform beneficiaries (along with all other non beneficiary farmers, in fact) must also be given regular education and guidance on the proper way to handle their finances. This includes training on how to properly use debt to grow their businesses (and how not to abuse it, obviously), as well as how to improve their farm output with the help of various government and private sector programs available for them. For its part, the government must help connect farmers to their markets more efficiently by improving logistics. This will help move agricultural products from farms to end users faster and more cheaply, resulting in higher incomes for farmers and lower prices for consumers.This is even more critical today as Filipino farmers, having been left behind in the use of science and technology, now have to compete with better trained, better funded, better equipped, and better supported rivals from overseas. Make no mistake about it: The loan bailout signed into law by the President is a good first step. But it falls short of addressing the fundamentally flawed structure that made these agrarian reform beneficiaries fall into arrears on their debt in the first place. What will prevent farmer-beneficiaries from trying, for example, to raise additional farming capital by pledging their farms as collateral (which the lender can foreclose once the 10-year ban on transferring these properties lapse)? And without fixing the broken system, what will give these farmers a better chance of avoiding the same debt pitfalls that made the bailout necessary in the first place? On a side note, there is also a question of fairness. The law condones the debt of current beneficiaries on their land, but what about the future agrarian reform beneficiaries who have yet to be awarded their farmlands as of the measure’s cutoff date? Will they be given these lands for free? Or did the law just create a two-tiered agrarian reform program, with one set of farmers receiving their land for free while the other set will have to pay for it? Going forward, it is imperative that the administration does not stop with Mr. Marcos’ act of signing the emancipation measure into law. It must learn from the expensive lessons of the past and put in place support mechanisms that will help farmers avoid falling back into debt defaults and costing the government more precious resources in the future. Without fundamental reforms to the system—if the same structure that caused the farmers to default on their obligations remain in place—it is not farfetched to expect that our agrarian reform beneficiaries will need a second bailout in a few years, alongside those who are yet to become beneficiaries themselves. _______________________________________________________________________________________ PH signs a $600-M loan deal with World Bank for agri modernization 12:31 PM July 10, 2023 MANILA, Philippines — The Department of Finance (DOF) has signed a $600-million loan agreement with the World Bank (WB) for the modernization and industrialization of the agricultural sector, said Malacañang on Monday. Dubbed the Philippine Rural Development Project (PRDP) Scale-Up, DOF signed the deal with WB on July 7. “The Government of the Philippines, through the Department of Finance and the World Bank, signed a US$600-million loan agreement on July 7, 2023, for the Philippine Rural Development Project Scale-Up, which is geared towards transforming agriculture into a modernized and industrialized sector through public infrastructure interventions and strengthening the commodity value chain,” said Palace in a joint statement with DOF. As of July 2023, WB has given the Philippines loans and grants worth $7.94 billion. The project itself amounts to a total of $818 million or P45.01 billion, with the remaining S$218 million to be funded by the national government. According to Malacañang, the initiative is meant to boost the access of local workers to markets, increase income from agri-fishery value chains and improve efficiency in the food supply chain. PRDP will cover 16 regions and 82 provinces. “In a stakeholder meeting last June 6, 2023, President Ferdinand “Bongbong” Marcos, Jr. emphasized the need to develop the agriculture sector, not only in terms of production, but also in ensuring the welfare of farmers and fisherfolks,” said Malacañang. _______________________________________________________________________________________ New BSP governor sees inflation returning to target before year-end July 4, 2023 | 12:33 am THE NEW Bangko Sentral ng Pilipinas (BSP) chief sees inflation returning to the 2-4% target range before the year ends. “Inflation has finally started to come down, and if our models are right, we should be back in our target range even by the end of this year,” BSP Governor Eli M. Remolona said during the turnover ceremony and the BSP’s 30th anniversary event at its head office in Manila on Monday. Mr. Remolona takes over the central bank after his predecessor Felipe M. Medalla led an aggressive monetary tightening campaign to curb inflation. From May 2022 to March this year, the BSP has raised interest rates by 425 basis points to combat inflation. This brought the policy rate to 6.25%, the highest in nearly 16 years. Mr. Medalla, who served 11 years as a Monetary Board member and one year as BSP governor, said the past year “was a year like no other” as the central bank faced unprecedented challenges and fought record-high inflation. “We acted decisively. We also sold foreign exchange as necessary… Combined with non-monetary measures, our actions helped reduce second-round effects and re-anchor inflationary expectations,” he said. Mr. Medalla noted that the Philippines may see 18 straight months of inflation being above the 2-4% target from April 2022 to September 2023. This is three months longer than the longest record of 15 months in 2008 to 2009. “Unless there are new shocks, we should see inflation below 4% before the end of this year,” he said. The BSP sees full-year inflation averaging at 5.4%, before further slowing down to 2.9% in 2024. Also, Mr. Remolona said the country’s banking system remains strong. “Capital and liquidity have been more than adequate. That’s why, in recovering from the pandemic, our banks have been a source of strength, unlike in previous crises, when they were a source of weakness,” he said. Based on central bank data, the combined net profit of Philippine banks rose by 45.6% to P96.62 billion as of end-March from P66.34 billion in the same period in 2022. “The plumbing of our system — our payments and settlement system — has increasingly become digitalized and efficient. We are delivering greater and greater access to financial services for our people,” Mr. Remolona said. The BSP is aiming to have 50% of retail payments done digitally and 70% of adult Filipinos become part of the formal financial system by 2023. The central bank reported that the share of online payments in the total volume of retail transactions in the country stood at 42.1% in 2022, while the country’s banked population was at 56% of all adults in 2021. — KBT _______________________________________________________________________________________ Economic managers welcome Remolona’s appointment at BSP Louise Maureen Simeon - The Philippine Star June 25, 2023 | 12:00am MANILA, Philippines — The economic team of the Marcos administration led by Finance Secretary Benjamin Diokno expects continuity at the Bangko Sentral ng Pilipinas (BSP) with a banker of international stature at its helm. Diokno, who was central bank chief during the Duterte administration, welcomed the appointment of Monetary Board member Eli Remolona as the next chief monetary and banking regulator. Diokno did not say whether Remolona was among the names he endorsed to President Marcos but the Malacañang statement on Friday noted “extensive consultations” with the Department of Finance (DOF). Remolona will replace Felipe Medalla whose term expires on July 2. “Monetary policy is his life. He used to advise central bankers around Asia Pacific so he knows his job,” Diokno told reporters. Diokno was referring to Remolona’s 19-year stint with the Bank for International Settlements where he collaborated with the governors of 12 leading central banks in Asia and the Pacific. “He can definitely do it (serve as BSP chief),” Diokno said. Diokno noted that he “more or less” shares the same views as Remolona in the seven-man Monetary Board, which exercises the powers and functions of the central bank. Meanwhile, Budget Secretary Amenah Pangandaman said Remolona’s extensive experience in both private and international banking will be of great value to the BSP. “The fact that he was also part of the economic mission led by Nobel Prize winner Paul Krugman and Susan Collins of the Boston Fed to advise the Philippine government on structural reforms also guarantees that he has a deeper insight into how best to lead the BSP,” Pangandaman said. “I look forward to working with him in ensuring that we stay on track with our agenda for prosperity,” she said. On the other hand, Diok-no said the appointment of the remaining members of the Monetary Board will be announced in the coming days. With Remolona’s appointment, the Monetary Board will have three vacant seats as the terms of Medalla, Peter Favila and Antonio Abacan Jr. expire. Bruce Tolentino and Anita Linda Aquino continue to serve the remainder of their six-year term. _______________________________________________________________________________________ Maharlika, Kadiwa, Masagana By: Joel Ruiz Butuyan - @inquirerdotnet Philippine Daily Inquirer / 05:06 AM June 22, 2023 In at least three flagship government programs, the Marcos administration has used labels that obviously evoke connections with the 20-year reign of his father, Ferdinand Marcos Sr. These are the Masagana rice program, Kadiwa stores, and the Maharlika Investment Fund (MIF). The Masagana and Kadiwa programs were originally conceptualized by Marcos Sr. to help farmers and consumers, respectively. On the other hand, “maharlika” was a favorite brand word of the old man. Maharlika was the supposed anti-Japanese guerilla unit led by Marcos Sr. during World War II, a claim debunked by historians. Marcos Sr. also renamed to Maharlika the Pan-Philippine Highway which is our country’s transportation link from Luzon to Mindanao. Maharlika is likewise the name that Marcos Sr. attempted to adopt in replacement of “Philippines” as our country’s name. What’s the intention behind the adoption of this series of labels that stir connections with the first Marcos presidency? Is it because President Marcos fervently believes that his father’s programs were excellent ones that need to be reinstated as solutions to our current problems? In other words, is this part of efforts to fulfill the promise of bringing back the “glory days” of the first Marcos administration? Are these old programs being relaunched in modernized forms, stripped of the features that have been fodder for unending criticisms against the first Marcos presidency? Are there other programs to be relaunched which are resurrections of the old administration? If there are such other recycled programs in the pipeline, are these indications of a soft scheme of revisionism, in order to recast the Marcos Sr. administration in a modern and polished light? The three-fold criticisms against a number of social and economic programs of the first Marcos presidency are the following: (1) they were palliative but ineffective solutions that wasted public funds, (2) their implementation were mismanaged resulting in worsened lives for the people, and/or (3) they were laden with corruption. Those who praise the Kadiwa stores of the first Marcos presidency point to the food products sold at low prices by the mobile stores. Those who criticize point to the heavy burden on public funds caused by substantial government subsidy, as well as the token presence of the mobile stores compared to the sizeable number of consumers nationwide. If there’s any bright side that we hear on the revival of the Kadiwa stores, it’s this talk on supporting farmers’ cooperatives and on creating direct links between food producers and end-consumers. But will all these verbiage translate into genuinely laudable implementation efforts? Or will this revived program end up again as palliative but ineffective effort? Those who praise the Masagana rice program of the first Marcos presidency point to the farm machinery and farm inputs support given to farmers. Those who criticize the program point to the heavy loans that bankrupted both farmers and rural banks nationwide. Apart from declaring that the government will promote the use of high yielding rice varieties by farmers, the current Marcos administration has yet to spell out the full details of this revived program. If the current administration does not address the giant syndicates that manipulate palay prices, and the loan sharks that enslave farmers, no amount of tweaking will ever make a Masagana rice program succeed. Those who support MIF point to our government’s need to raise money to fund public projects. Those who criticize point to the fund’s uselessness because our economy allegedly does not produce the kind of surplus capital appropriate for investments. For all intents and purposes, this supposed investment fund is no different from government loans, in the sense that both are intended to finance public projects. No matter how well-intentioned, however, any investment fund will suffer the same scourge as those borne by the behest loans of the old Marcos presidency, if the new Marcos administration fails to address corruption and mismanagement loopholes. Is the new Marcos administration falling for the pitfalls of the old Marcos administration? Or will the old Marcos presidency benefit from absolution because of the reign of the new Marcos presidency? _______________________________________________________________________________________ BSP opens up P852B in loanable funds Jovee Marie de la Cruz June 16, 2023 A game-changer.This is how House Committee on Ways and Means Chairman Jose Ma. Clemente “Joey” S. Salceda described the central bank’s response to his query whether water districts are eligible for loans provided by the Republic Act (RA) 11901. Salceda issued a statement last Thursday profusely thanking Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla for officially clarifying that rural infrastructure projects of water districts qualify as loans under RA 11901, or the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022. Salceda said based on the BSP’s March 2022 estimates, the central bank’s nod would allow local water districts access to some P852 billion in loanable funds from banks. “With just one letter, Gov. Philip [Medalla] makes available P852 billion for rural water services: that could be game changing,” the lawmaker was quoted in the statement as saying. “And what a great parting gift to rural communities as he ends his term in the BSP. Thank you, Governor Medalla.” Salceda said the opportunity was opened in a letter from the BSP chief responding to his request for clarification about the eligibility of water districts for Agri-Agra loans. The lawmaker said Medalla responded that “the BSP will include this clarification in the set of frequently-asked questions on the implementation of RA 11901.” Yearly penalties IN the same BSP letter dated June 9, 2023, Salceda quoted Medalla as saying that “in addition to the loans for construction and upgrading of public rural infrastructure…loans or investments in debt/equity securities for the purpose of financing water and sanitation projects for rural communities may be considered as compliance with AFRD [agriculture, fisheries and rural development] financing.” “That’s very promising. When we get to the point that local water districts issue bonds for their rural water and sanitation projects, subscribing to those bonds will be considered compliance with the Agri-Agra Law,” Salceda said. Under RA 11901, all banks are required to set aside a credit quota, or a minimum mandatory agricultural and fisheries financing requirement of at least 25 percent of their total loanable funds. Otherwise, penalties on noncompliance or under compliance shall be computed at one-half of one percent of noncompliance or under compliance, or at rates prescribed by the Monetary Board. Banks incur around P2 billion in penalties every year for non-compliance with the law. Solving crisis ACCORDING to Salceda, the pronouncement will also help solve the water crisis, a condition recognized by President Ferdinand R. Marcos Jr. earlier this year. The lawmaker attributed much of the crisis “to the unmitigated and lazy use of groundwater resources, which we will eventually deplete.” According to the Gentleman from Albay’s 2nd District, the government has not “developed surface water” and there’s not “much progress in connecting rural communities with surface water.” “Of course, the result is depletion of groundwater resources [that] are, by the way, also more prone to diseases such as cholera,” Salceda said. “That is because these investments can be expensive and financing, until this clarification, was limited.” The lawmaker added that water districts have raised issues about not being able to borrow from banks. “The water districts themselves are not rural beneficiaries so that creates some confusion about whether their projects for rural water services are included under the Agriculture, Fisheries, and Rural Development Financing [Enhancing] Act, or the amended Agri-Agra Law,” Salceda said. He added Medalla’s letter “and the issuances that will spring forth as a result, augur very well for solving the water crisis in the country.” _______________________________________________________________________________________ Independent BSP chief needed Philippine Daily Inquirer / 04:40 AM June 14, 2023 President Marcos is about to make what is arguably the most important economic appointment of his presidency, potentially more important than choosing his finance secretary. And that is choosing the person who will steer the Bangko Sentral ng Pilipinas (BSP) — and, in the process, help determine the value of the money in the wallets of all Filipinos — for the next six years. With the legally mandated term of the current central bank head set to end on July 3, ahead of Mr. Marcos’ second State of the Nation Address, the Chief Executive must contend with aggressive lobbying both from inside and outside his official family. But as he weighs the qualifications of each candidate and the clout of whoever is backing each prospective governor, the President would do well to remember that the job of the central bank is to “take away the punch bowl just as the party gets going’’ as prescribed by William McChesney Martin Jr. who was at the helm of the United States Federal Reserve from 1951 to 1970 — the longest serving chief of the most powerful monetary regulator in the world. What he meant was that central bankers’ key role in any modern economy is to protect citizens’ purchasing power, that is, to help safeguard the value of the money in citizens’ wallets, even to the point of reining in economic growth which, when left unchecked, feeds inflation. For this to happen — for the central bank to play its role of moderating the government’s tendency toward fiscal excess—the BSP and its leadership must remain independent from the executive branch. This is the seed of a lasting legacy Mr. Marcos can plant this early in his presidency: To ensure the independence of the central bank from fiscal and political interference. To his credit, outgoing BSP Governor Felipe Medalla exhibited much of this desired trait when he made it his mission to restore the independence of the BSP, which had been eroded during the previous administration. Medalla also exhibited another desirable trait among central bankers: transparency — transparency in communicating his preferred policy direction, so that the public can plot their financial future with a clear understanding of where the economy is heading. (Unfortunately for him, he may have scuppered his own chance of getting reappointed by being too transparent with his concerns about the early version of the Maharlika Investment Fund, which was a commendable act but which apparently displeased the proponents of the controversial measure.) Meanwhile, Finance Secretary Benjamin Diokno’s advice to the President to exclude bankers from the list of candidates is understandable. Diokno reportedly said in an interview that he preferred an economist as the next BSP governor, saying that a banker would mean “you will be one of the boys.” But being a banker should not be a disqualification. In fact, three of the Philippines’ most successful central bank governors—Jose Fernandez Jr., Gabriel Singson, and Rafael Buenaventura—were bankers. And all three excelled in times of crisis. Diokno may not have been a banker, but during his successful and abbreviated stint as central bank head, he actively engaged with bankers and sought their counsel and inputs on where best to steer the country’s financial system, adopting many of their prescriptions, including on monetary policy. A banker would have done no differently. Amid the barrage of advice and recommendations Mr. Marcos is likely receiving in selecting the country’s next central bank chief, the President must choose a person who will act counterintuitively and countercyclically. Yes, appoint a governor who will lower interest rates when the economy is weak but, more importantly, who will raise them when the economy is strong—one who will “take away the punch bowl” before everyone gets drunk with the good times and end up making fools of themselves. In other words, appoint an adult in the room who will have his own mind, rather than bend to the will of your subalterns. The very first line of the law that created the BSP in 1993 reads: “The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking, and credit.” The New Central Bank Act further says: “The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy and employment.” The framers of the law understood that the central bank cannot be effective in protecting the value of the peso—in helping assure that Filipinos can continue to afford basic goods and services—if they are subservient to the appointing authority or their political backers who value headline-grabbing economic growth over boring inflation statistics. An independent central bank is essential. And a central bank governor independent of padrinos is the key. _______________________________________________________________________________________ The end of revenge spending By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM June 13, 2023 As expected, the economy grew at a significantly slower pace in the first quarter of this year (6.4 percent) than it did a year ago (8.3 percent). There are several reasons for this. On the production or supply side, the industry sector dramatically slowed down to only 3.9 percent year-on-year growth from 10 percent in the same quarter last year, and from a 6.5 percent full-year growth. The bulk of the industry sector is manufacturing, which grew by a mere 2 percent from an upbeat 9.4 percent a year ago, largely explaining the overall sector’s slowdown. While agriculture, fishery, and forestry improved to 2.2 percent from a marginal 0.2 percent annual growth a year ago, it still grew far less than the overall economy did. Furthermore, the sector accounts for less than a tenth of total output and incomes, as measured by the gross domestic product (GDP). The biggest loser among agricultural crops was sugarcane, where full-year production fell by a hefty 17.5 percent in 2022, and further by 17 percent in the first quarter of 2023. There has been so much needless debate and anguish over sugar imports, yet the large production shortfall had been staring us in the face since early last year. Domestic prices of the commodity have remained way above the normal levels we were accustomed to before last year’s fiasco, telling us that importation has been far from enough to close the supply gap. Worse, the manner by which import rights were awarded exclusively to three favored exporters, rather than allow market competition to prevail, ensured that prices would not normalize even with importation, and that the favored importers would make a killing — yet another example of public policymaking at its worst, in complete defiance of basic economics. Given our decades-old history of mismanaging our agricultural sector and allowing it to be the milking cow of a lucky few at the expense of a few million impoverished farmers and even far more impoverished consumers, one might ask: What else is new? Prominent farm product exports such as pineapple, rubber, and cacao were the other major crop losers that saw production declines, while bananas also stagnated at 0.1 percent growth — all reflecting the overall slowdown in export demand worldwide. Indeed, the economy’s slowdown could be better understood from the demand or spending side of the market, where the causes of the slowdown are easier to trace and explain. The biggest part of that demand comes from private consumers or households, accounting for more than three-quarters of total spending for the economy’s goods and services. This has seen a marked slowdown from 10 percent a year ago to only 6.3 percent in the first quarter, and there are two reasons for this. One, the so-called revenge spending that elevated consumer spending growth in the aftermath of the pandemic lockdowns (“Are Pinoys ‘revenge spending’?” 12/21/21) has apparently ended. This has given way to the second factor, i.e., elevated inflation (translation: faster-rising prices) that has spurred more prudent spending. Higher inflation, even as it has slowed in recent months, will continue to bear on household expenditures in the months ahead, making slower growth persist through the rest of the year. The other major spending slowdown comes from the foreigners who buy our export products and services. This spending accounts for the next largest share (28 percent) of total expenditures in our GDP, and has dramatically slowed down to a mere 0.4 percent annual growth from 10.4 percent in the same quarter last year, reflective of a similar “revenge spending” then. And like domestic household spending, consumer spending elsewhere is dampened by higher inflation worldwide caused by global supply chain disruptions due to the Russia-Ukraine war, and bloated money supplies that funded governments’ COVID-19 responses. Meanwhile, our government appears to be ramping up its consumption spending to offset the private spending slowdown, but has been less successful in speeding up infrastructure spending, which slowed to 4.7 percent from last year’s full-year 12.7 percent growth. All told, we’re really in for a slower year ahead. cielito.habito@gmail.com _______________________________________________________________________________________ BSP eyes SBL 25+15% increase for green projects June 12, 2023 | 12:02 am THE CENTRAL BANK is proposing an additional single borrower’s limit (SBL) of 15% for loans meant to finance green projects and a reserve requirement (RR) rate of zero percent for sustainable bonds.The draft rules posted on the Bangko Sentral ng Pilipinas’ (BSP) website amend sections 362 and 251 of the Manual of Regulations for Banks that cover exposure limits to a single borrower and reserves. “This measure aims to support the financing of green and sustainable projects, including transition activities that contribute to the achievement of the National Government’s (NG) climate commitments and sustainable development goals as laid down in the Philippine Development Plan and Nationally Determined Contributions,” the BSP said in the draft circular. The amendments are also part of the BSP’s 11-point Strategy for Sustainable Central Banking, it added. Stakeholders are given until June 23 to give their feedback on the proposed circular. The SBL is a ceiling on the amount of loans, credit accommodations and guarantees a bank or financial institution can extend to one borrower meant to prevent over-concentration of risk. Currently, the SBL of all banks stands at 25%. However, in January, the BSP said it will implement a new framework that will raise the SBL to 30% by July 1. According to the draft, the current SBL of 25% may be increased by an additional 15%, which will only be for loans financing green projects, including the transition activities to decarbonization. The financing should meet the categories laid out in the NG’s Sustainable Finance Framework, Strategic Investment Priority Plan on Green Ecosystems, the country’s Sustainable Finance Guiding Principles, or the sustainable finance taxonomy guidelines. Meanwhile, the bank must ensure that the project does not violate any Philippine laws or any environmental regulations. It will also maintain the standard prudential controls designed to protect creditors’ interests in the grant of financing to sponsors. If approved, the additional 15% for loans for sustainable projects will be in effect until Dec. 31, 2030. The credit risk concentration arising from total exposures to all borrowers for sustainable projects will also be evaluated by the lender in its internal assessment of capital adequacy relative to its overall risk profile and operating environment. “The amount of any new loan, credit accommodation, or guarantee extended as well as the restructured, renewed, and refinanced existing credit exposures, beginning 01 January 2031 shall not exceed the prescribed SBL of 25%,” the BSP said. “Outstanding loans, credit accommodations, or guarantees as of 31 December 2030 that are granted using the additional SBL of 15% may be maintained. The lending bank shall honor the term of such loans or credit accommodations until the maturity period,” it added. Meanwhile, the zero percent reserve requirement rate against green bonds will be effective until Dec. 31, 2025. Sustainable bonds include existing and new issuance of green, social, sustainability and other sustainable bonds as defined by the Securities and Exchange Commission or other international standards acceptable to the market. This may include the issuances of the International Capital Markets Association or endorsement of the ASEAN (Association of Southeast Asian Nations) Capital Markets Forum. — Keisha B. Ta-asan _______________________________________________________________________________________ High capitalization, liquidity to help banks weather crises June 2, 2023 | 12:04 am PHILIPPINE BANKS remain well-capitalized and highly liquid, which will help them withstand credit and market shocks during crises, the Bangko Sentral ng Pilipinas (BSP) said. The BSP has continued to implement structural reforms to ensure the financial strength and safety of its supervised banks, it said in an e-mail to BusinessWorld. “The adoption of sound governance and risk management standards, prudential limits and requirements including the Basel III reforms on capital and liquidity standards — with due regard to proportionality — has enabled banks to maintain their resilience and withstand possible credit and market shocks even during crises,” the central bank said. The regulator has issued principles-based rules for its BSP-supervised financial institutions. This approach is more flexible and risk-based, focusing on providing guidance rather than being prescriptive as banks have varied business models, it said. Latest data from the BSP showed banks’ capital adequacy ratios (CARs) were higher than the regulatory minimum and international standards as of end-2022. The banking system’s solo and consolidated CARs stood at 15.7% and 16.3%, respectively, well above the BSP’s 10% minimum requirement and the 8% set by the Bank for International Settlements. Meanwhile, universal and commercial banks’ solo and consolidated Basel III leverage ratios stood at 8.8% and 9.3% respectively, also higher than the BSP’s 5% requirement and the 3% international standard. “The Basel III LCR requires banks to maintain high-quality liquid assets that can be readily converted to cash at little or no loss of value so that the bank can withstand an assumed 30-day liquidity stress that may arise from run-off of deposits, tightening of funding source, or unscheduled drawdown on the bank’s committed but unused credit and liquidity facilities,” the BSP said. It added that this would give lenders more time to implement structural measures needed to address any emerging or underlying issues. Banks were also able to meet the BSP’s liquidity and funding requirements. The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) of banks were both above the 100% thresholds as of end-2022. The universal and commercial banking industry’s solo and consolidated LCRs stood at 185.7% and 185.4%, respectively. Meanwhile, the NSFR of the sector stood at 137.4% and 138.1% on solo and consolidated bases, respectively, as of end-December 2022. “The NSFR complements the LCR by promoting resiliency over a longer-term time horizon through creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis,” the BSP said. The NSFR also encourages funding stability, limits over-reliance on short-term wholesale funding, and boosts better assessment of funding risk across on- and off-balance sheet items, it said. Standalone thrift banks, rural banks, and cooperative banks likewise maintained adequate proportions of liquid assets against their liabilities, the central bank said. The minimum liquidity ratios of standalone banks as of end-2022 reached 29.9%, 63.7%, and 44.4%, respectively, on a solo basis, all above the 16% minimum requirement. Still, even as the Philippine banking system remains stable and healthy, financial institutions are expected to develop the appropriate systems, disclose liquidity risks, and undergo supervisory assessments to manage and address potential challenges, the central bank said. “To ensure their compliance and effectiveness in managing liquidity risk, banks are expected to establish appropriate systems for measuring and managing liquidity risks, have a robust liquidity risk policy and governance framework, maintain liquidity cushion and contingency plans, report and disclose liquidity risk information, and undergo regular supervisory assessments,” the BSP said. Stress testing is a crucial aspect of banks’ risk management system and capital planning process as it allows lenders to assess the level of liquidity they should hold and construct scenarios that could pose difficulties for specific business activities, it said. “By conducting stress tests, banks can effectively manage risk exposures, promote strong risk governance, and ensure their ability to withstand adverse economic conditions or financial shocks,” it said. Regular meetings with the banks’ management to discuss strategic and recovery plans also allows the BSP to assess the risk appetite and emerging risk exposures of banks. The BSP also has enforcement tools that it can deploy to ensure the stability of the banking system. “As the country recovers and transitions to a post-pandemic economy, the BSP remains committed to adopting prudential standards that will strengthen corporate and risk governance, promote digital transformation, and advance sustainable finance,” the BSP said. “All these are intended to foster a resilient, dynamic, and inclusive financial system that is supportive of sustainable economic growth,” it added. — K.B. Ta-asan _______________________________________________________________________________________ BSP sees significantly lower inflation in May May 30, 2023 | 12:33 am HEADLINE INFLATION in May will be significantly lower than 6.6% in April, putting it on track to return within the 2-4% target by September or October, the Bangko Sentral ng Pilipinas (BSP) said. BSP Governor Felipe M. Medalla on Monday told reporters inflation is rapidly easing year on year due to high base effects. “Year on year, (May inflation) will clearly be significantly lower because of its high base (5.4% in May) last year. So, unless there are new shocks or developments, by October or September, inflation will be below 4%,” he said in mixed English and Filipino on the sidelines of a general membership meeting of the FinTech Alliance. Inflation has been on a downtrend since hitting 8.7% in January. It cooled to 6.6% in April from 7.6% in March, but it was faster than 4.9% a year ago. For the first four months of the year, average inflation stood at 7.9%. This is still higher than the central bank’s 5.5% full-year forecast and 2-4% target. The Philippine Statistics Authority is scheduled to release its May inflation data on June 6. Mr. Medalla said high base effects would likely affect inflation in 2024. “The most extreme will be in January. Inflation may reach below 2% not because prices are low by January next year, but it’s because of the high base. January (2023) was the worst month in terms of month-on-month inflation,” he said. Inflation hit a 14-year high of 8.7% in January, accelerating from 8.1% in December as food prices soared amid supply issues. Month on month, inflation climbed to 1.7%. Mr. Medalla also noted that the impact of supply shocks is beginning to wane, and monetary policy tightening would bring inflation “back to normal.” At its policy meeting on May 18, the Monetary Board kept its benchmark interest rate unchanged at 6.25%. This was after raising policy rates by 425 basis points (bps) since May last year to tame inflation. Meanwhile, MUFG Global Markets Research Senior Currency Analyst Michael Wan said Philippine inflation is expected to ease below 4% by year end, before averaging 5.6% this year and 3.9% in 2024. Both of these forecasts are higher than the central bank’s 5.5% projection in 2023 and 2.8% for next year. “We have likely seen the worst of the domestic food supply constraints, as the administration has shown a greater willingness to import,” Mr. Wan said in a note. President Ferdinand R. Marcos, Jr. has approved imports of up to 150,000 tons of sugar, while the Department of Agriculture is also considering importing more onions this month. “Moving forward, we also expect core inflation components to moderate as we have likely seen the worst of the reopening effects on domestic price pressures,” Mr. Wan said. Core inflation, which discounts volatile prices of food and fuel items, slowed to 7.9% in April, from 8% in March which was the highest since December 2000. However, risks to the inflation outlook are on the upside and inflation might remain sticky in 2024, Mr. Wan said. Further delays in food imports could lead to another spike in food prices, he added. A possible hike in wages and transport fares may also push core inflation higher this year. POLICY AND RRR CUT? MUFG’s Mr. Wan expects the BSP to keep rates on hold at 6.25% before cutting rates by 75 bps starting the fourth quarter of 2023. “(We) think the lower trajectory for headline inflation, coupled with our expectation for the Fed to start cutting rates over the next 12 months, should give BSP policy space to lower its key reverse repo rate starting fourth quarter of 2023. We see the BSP’s policy rate at 5.5% by the first half of 2024, from 6.25% currently,” he said. He also expects the BSP to cut big banks’ reserve requirement ratio (RRR) by 200 bps to 10%, from 12%. “This is in part to offset some of the pandemic loan support to micro, small and medium enterprises that BSP provided through banks, including the utilization of these loans as compliance with reserve requirements,” Mr. Wan said. The RRR for big banks is one of the highest in the region. Reserve requirements for thrift and rural lenders are at 3% and 2%, respectively. The central bank targets to cut the RRR to single-digit levels by the end of the year. — Keisha B. Ta-asan _______________________________________________________________________________________ BSP to extend relief for small banks May 29, 2023 | 12:34 am THE BANGKO SENTRAL ng Pilipinas (BSP) will extend the alternative reserve compliance for small banks to ensure there will be no adverse impact after the relief measure expires on June 30. BSP Governor Felipe M. Medalla said the relief measure is no longer necessary since the economy has clearly recovered from the pandemic, but the central bank will make some considerations for small lenders. “There may be provisions for small banks to allow (the relief measure) to go on until the loans have matured, para ’di sila mabigla (so they won’t be shocked),” he said during a book launch event on Friday. “Pag nag mature na ’yung loans, ’yung bagong loans hindi na (Once the loans have matured, the new loans won’t be counted as reserve compliance).” Mr. Medalla said these considerations will be extended only to thrift banks and rural banks. During the pandemic, the BSP allowed banks to count their lending to micro, small, and medium enterprises (MSMEs) and pandemic-hit large enterprises as part of their alternative compliance with the reserve requirements. The relief measure has been extended three times since it was implemented in April 2020, and is now set to expire on June 30. “It won’t be a complete drop immediately, as long as the original loan, the remaining unpaid principal, will still qualify as reserves until they mature,” Mr. Medalla said. Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lent out. Based on central bank data, banks lent P493.5 billion to MSMEs as alternative compliance with reserve requirements as of December 2022. This is 6.6% higher than the P463.1 billion in the same period a year prior. By banking group, universal and commercial banks extended P390.9 billion in loans to MSMEs, while rural and cooperative banks lent P52.7 billion. RRR CUT Meanwhile, the BSP will cut the reserve requirements for big banks as the relief measure expires by the end of June, Mr. Medalla reiterated. The BSP earlier committed to bringing down the reserve requirement ratio (RRR) of big banks to single digits by 2023. The RRR for big banks is currently at 12%, one of the highest in the region. Reserve requirements for thrift and rural lenders are at 3% and 2%, respectively. However, Mr. Medalla said the BSP will not cut the RRR of big banks during a policy meeting. “We want to always distinguish between policies and operations. Cutting the reserve requirements are operations because we can always offset the effects of the changes in the reserve requirement by increasing or decreasing our borrowings,” he said. A cut in RRR is a move intended to be an operational adjustment to facilitate the BSP’s shift to market-based instruments for managing liquidity in the financial system, particularly the term deposit facility and the BSP securities. Meanwhile, the BSP governor said it is crucial to prioritize the protection of depositors over business owners as 80% of funds lent by banks are from depositors. “In a sense, a banker is almost like a public servant; he’s taking care of the people’s money. That’s why it’s very important that banking laws give regulators great cover when they do their jobs,” Mr. Medalla said in a speech during the launch of Banking Laws of the Philippines – Annotated book on Friday. During the same event, Chief Justice Alexander G. Gesmundo said banking laws in the Philippines have evolved amid the increasing Filipino participation in the banking practice and the growing demands of globalization. “The importance of our banking laws cannot be overstated. To begin with, our banking laws instill in us the sense of trust and confidence in our financial institutions, assuring both individuals and businesses that their hard-earned resources are protected and nurtured,” Mr. Gesmundo said. He said that banking laws create an environment that enables financial institutions to provide accessible financial services to individuals, businesses, and communities, especially in rural communities and agricultural households. The Banking Laws of the Philippines – Annotated is the fourth legal book published by the BSP. — Keisha B. Ta-asan _______________________________________________________________________________________ Are kickbacks why gov’t wants to import rice? GOTCHA - Jarius Bondoc - The Philippine Star May 12, 2023 | 12:00am It’s illegal for government to import rice. Yet the National Food Authority announced last month that it intends to do just that. It even claimed to have secured President Ferdinand Marcos Jr.’s approval. Days later, however, a Department of Agriculture official debunked NFA’s plan. “NFA importation is not possible,” said Usec. Mercedita Sombilla. “We didn’t discuss importation; the President knows that.” Still, anything goes with the DA and attached agencies like NFA. In late February for instance, the Sugar Regulatory Administration set for bidding the importation of 440,000 tons of refined sweetener. Senior Usec. Domingo Panganiban then announced he already chose since January only three importers from a three-page list. “Government-sponsored cartel,” Senator Risa Hontiveros branded that sham bidding. Ignoring her, Panganiban instructed SRA to clear 6,500 tons earlier seized by Customs. Worth P650 million, the contraband was brought in by one of the three favored traders in early February, before SRA even decided the 440,000-ton necessity. Marcos Jr. is secretary of agriculture. As such, he chairs NFA, SRA and other DA affiliates. Subordinates wangle his consent to make the crooked look straight. The 2019 Rice Tariffication Law (RA 11203) forbade government from rice trading. Only private individuals or groups may now import rice at 35 percent duty. NFA is limited to buffer stocking for emergencies like typhoon, earthquake, volcanic eruption, crop failure. It must procure such hedge stock from Filipino farmers, not foreigners. NFA needs 330,000 tons buffer this 2023. It says it may not be able to buy enough from local farmers. Will it spend its P9-billion budget on imports by hook or by crook? That P9 billion is money of the Filipino people meant to benefit Filipino farmers. Importing will enrich traders in Vietnam, Thailand, Cambodia, China and India. Could the reason be kickbacks, commissions, “tong-pats”? Plundering from rice imports is an old racket of NFA, DA, Malacañang officials and spouses. They pocket millions of dollars or billions of pesos. The 330,000 tons is 6.6 million 50-kilo sacks of rice. Usual overprice is $10 or P540 per sack. Crooks can skim $66 million or P3.5 billion. More dirty money is made from the sack itself: $1 or P54 apiece. That’s another $6.6 million or P350 million from the sacks alone. Officials extort millions more pesos from subcontracted cargo handlers, shippers, haulers, truckers to 16 NFA regional warehouses. Alibi for government’s illegal rice import is the sudden rise in retail price. But government itself caused the jump by recently announcing that it expected sellers to add on P5 per kilo. That was a cue for retailers to do just that. A scheme reportedly is being devised for the illegal import. NFA is not to front. Instead, the government-owned Philippine International Trading Corp. could be used. Cartelists will bring in not 25 percent broken but special grains, for sale to hotels at premium price. They will then replace the contraband with low-grade rice to NFA. Megabucks from mega-scam. Four major food producers associations have warned NFA and DA against importing. Don’t break the law, chorused former agriculture chief Leonardo Montemayor of the Federation of Free Farmers, ex-congressman Rafael Mariano of Kilusang Magbubukid ng Pilipinas, Cathy Estavillo of Bantay Bigas and Jayson Cainglet of Samahang Industriya ng Agrikultura. NFA and DA are ignoring their duty. They must help Filipino farmers. Buy domestic produce. Provide irrigation, training, fertilizers, pesticides, fungicides. Mechanize drying and improve milling so that more than a measly 65 percent rice is derived from every 50-kilo sack of palay, aromatic at that. Refrigerate rice at 21 degrees Centigrade to prevent bukbok (weevil). _______________________________________________________________________________________ Easing land conversion By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:25 AM May 09, 2023 Our total farm area has been declining over the years—true or false? For those alarmed over the conversion of farmlands to commercial or residential uses, the instinctive answer would probably be “true.” Many have long feared such conversions to be a threat to our food security, on the premise that our agricultural areas are dwindling due to it. At the individual farm level, our farms are indeed shrinking. Average farm size in the country is down to 1.2 hectares, and still falling. It was 3.6 hectares in 1960 and 2.8 hectares in 1980. It shrank even more since then mainly due to the Comprehensive Agrarian Reform Program, which limited land ownership to 5-7 hectares, worsened by generational partitioning. This has led to the loss of productivity from economies of scale, which could be mitigated by farming the lands more intensively (that is, applying more productivity-raising inputs like better seeds, fertilizers, and farm management). But lack of access to finance, and government’s failure to fill this critical need, kept small farmers from doing so. Instead of emancipating small farmers, they became even poorer. Surprisingly, the fear that we’re losing our farms in the face of land conversions appears to be a myth. World Bank data show that our agricultural area, as a percentage of our fixed total land area, actually kept expanding over time, up to the present. From 25.9 percent in 1961, it grew to 35.6 percent in 1980, 37.7 percent in 2000, 40.6 percent in 2010, and 42.5 percent in 2020. I cross-checked this with the Philippine Statistics Authority’s annual Selected Statistics on Agriculture and Fisheries, which reported total crop area planted at 13.032 million hectares in 2009, 13.229 mha in 2015, and 13.538 mha in 2021. Are fears of dwindling farm areas from land conversion misplaced, then? It would seem so, with our total recorded farm hectarage actually rising! What appears to be happening is that as farmlands are converted, more of our less suitable lands (including forest uplands) are being tilled. Indeed, World Bank data also show that we now cultivate twice more (36 percent of total land area) than our arable land area (18.2 percent of land area). The comparable numbers are 45 vs. 32.9 percent (1.37 times) for Thailand and 32.7 vs. 20.6 percent (1.59 times) for Vietnam. What should concern us, however, is how much of our productive farmlands are being taken out of production much sooner than need be. This is because our rigid land conversion rules, which absolutely prohibit conversion of irrigated lands, induce big developers into “land banking,” where they often take good lands out of production and deliberately destroy irrigation facilities therein. It is now industry practice to accumulate thousands of hectares for future development, holding them idle and unproductive for that long. This is because the land has to be unirrigated and unproductive to be eligible for conversion—usually up to 10-15 years later. A bank branch manager attested to me how he had witnessed developer clients willfully destroy existing irrigation facilities because having them will run counter to what they will want to prove years later. I witnessed the problem firsthand in a depressed Laguna municipality when I led a team in a study on rural poverty a few years ago. Numerous local farmers ended up with no income source after a large property developer bought up hundreds of hectares of their farmlands, rendering them untouchable henceforth. It was a great waste, and a huge lost opportunity to otherwise provide livelihoods to hundreds of farmers and their families, if only they could still lease their former farms and produce food in and earn incomes from them—while the developer also earns lease income. I’ve never believed it realistic or practical to be overly rigid on land conversion. Why ban conversion of irrigated lands, when we can instead impose a condition that for every hectare of land converted, the developer causes the irrigation of two or more hectares of unirrigated land elsewhere? With a little out-of-the-box thinking, we get not only a win-win outcome but a net gain for all concerned. cielito.habito@gmail.com _______________________________________________________________________________________ BSP allows banks to set up eight new branches May 2, 2023 | 12:02 am THE BANGKO SENTRAL ng Pilipinas (BSP) approved eight new bank branches in the fourth quarter of 2022, higher than the same period a year prior, amid an increased number of applications for physical offices. The BSP green-lit eight new regular branches in the period, higher compared with just one regular branch approved in the fourth quarter of 2021, based on a circular letter posted on the central bank’s website signed by Assistant Governor Arifa A. Ala. It also approved 11 new branch-lite units (BLUs) of universal and commercial banks, thrift banks, and rural and cooperative banks. Two of the newly approved regular branches belonged to China Banking Corp. (China Bank), and one regular branch was for Robinsons Bank Corp. The BSP allowed three thrift banks to open regular branches and branch-lite units. Two regular branches were for the First Consolidated Bank, Inc., while Dumaguete City Development Bank, Inc. and Wealth Development Bank Corp. each had one BLU approved. Meanwhile, Rural Bank of Apalit, Inc. was allowed to open three regular branches in Rizal and Bulacan. BINHI Rural Bank, Inc., LifeBank – A Rural Bank and Rural Bank of Bambang Inc. can open a total of seven new BLUs. During the last three months of 2022, 18 banks opened regular branches, BLUs, and microfinance units in the country. This was higher compared with only 13 banks during the same period in 2021. The central bank said there were 15 regular branches that were opened in different locations around the country in the fourth quarter of last year. Four of the newly opened regular branches were owned by BDO Unibank Inc., and one by China Bank in Tanza, Cavite. Land Bank of the Philippines also opened a regular branch in Tayabas City and seven BLUs across the country. Five rural bank regular branches were opened in different areas and 40 rural bank BLUs. Meanwhile, four regular branches and 15 BLUs were set up by thrift banks. Branch-lite units have limited banking activities compared with regular branches, but it could still provide a wide range of products and services suited for the needs of the market except for clients with aggressive risk tolerance. Regular offices are traditional brick and mortar branches operating within a building and offer full banking services. — K.B. Ta-asan _______________________________________________________________________________________ BSP closes one more rural bank Lawrence Agcaoili - The Philippine Star April 30, 2023 | 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has closed down another problematic rural bank, bringing to three the number of institutions shuttered this year as it continues to weed out weak players in the industry. BSP assistant governor Arifa Ala said the central bank’s Monetary Board issued Resolution 536.B last April 27 prohibiting the Binangonan Rural Bank Inc. from doing business in the Philippines pursuant to Section 30 of Republic Act 7653 or the New Central Bank Act, as amended. Ala issued Circular Letter 2023 – 029 stating that state-run Philippine Deposit Insurance Corp. (PDIC) has been designated as receiver with a directive to proceed with the takeover and liquidation of the closed rural bank in accordance with RA 3591 or the PDIC Charter. The PDIC Charter provides that a bank placed under liquidation shall in no case be re-opened and permitted to resume banking business. It also states that banks closed by the Monetary Board shall no longer be rehabilitated. Upon placement of a bank under liquidation, the powers, functions and duties of the directors, officers and stockholders of the bank are terminated. Accordingly, the directors, officers, and stockholders shall be barred from interfering in any way with the assets, records and affairs of the bank. This is the third rural bank ordered closed by the BSP this year. The regulator also ordered the closure of Rural Bank of San Marcelino Inc. last March and Rural Bank of San Agustin (Isabela) Inc. last January. Last year, the BSP closed down nine problematic banks including the Rural Bank of Galimuyod (Ilocos Sur) Inc., Rural Bank of Polomolok (South Cotabato), Banco Rural De General Tinio in Nueva Ecija, Farmers Savings and Loan Bank based in Bulacan, Metro-Cebu Public Savings Bank, Rural Bank of Mahaplag (Leyte) , Rural Bank of Salcedo (Ilocos Sur), Rural Bank of San Lorenzo Ruiz (Siniloan), and Rural Bank of San Nicolas (Pangasinan). In 2021,the number of problematic banks ordered closed by the central bank almost tripled to 13 from five in 2020 as the country has yet to fully recover from the impact of the COVID-19 pandemic. To strengthen the sector, the central bank has rolled out of the Rural Bank Strengthening Program (RBSP) to enhance the operations, capacity, and competitiveness of the industry. The BSP earlier raised the minimum capital requirements for rural banks to at least P50 million to enhance the operations, capacity and competitiveness of small banks. Under the new capital structure, the minimum capitalization of rural banks would be P50 million for those with a head office and only up to five branches, P120 million for those with six to 10 branches, and P200 million for small banks with more than 10 branches. Branch-lite unit of rural banks are not included in the number of branches. _______________________________________________________________________________________ Preparing for El Niño Philippine Daily Inquirer / 05:07 AM April 28, 2023 With the official weather bureau forecasting an 80-percent probability of El Niño in the coming months, pertinent government agencies have no excuse to dawdle on their job and should now speed up preparations for this catastrophic but expected weather phenomenon. According to the Philippine Atmospheric, Geophysical, and Astronomical Services Administration, the probability of an El Niño occurrence has increased from 55 percent to 80 percent in June, July, August, and September, with an El Niño alert set to be issued next month. El Niño, which is caused by the seasonal warming of the Pacific Ocean, upsets normal weather patterns and brings heavy rainfall in some countries, and dry spells and drought in others, including the Philippines. Fishermen from South America first noticed the phenomenon in the 1600s, and noted that it usually occurred toward the Christmas season, hence the name El Niño which refers to the child Jesus. Climate change however has broken that pattern such that El Niño may be expected in other months of the year. This extreme weather condition has been known to cause the outbreak of diseases, heat stress, and respiratory ailments, as well as wreak devastation on agricultural lands that result in lower crop yields and, consequently, longstanding food shortages. Over the past decade, the Philippines has incurred P463 billion in damages from extreme weather events, 62 percent of that in the agriculture sector. The fisheries sector has not been spared, with warm ocean waters dispersing and driving schools of fish into deeper waters and drastically reducing one’s catch. Severe temperatures and lower ocean waters have also exposed and bleached fragile coral reefs, killed plankton, and triggered fish kills. Forest fires, degraded water sources, and other environmental risks can also be expected. While there’s little that humans can do to influence El Niño’s onset, duration, and intensity, its severe effects can be mitigated with sound policy interventions, preemptive government actions, and long-term strategies informed by science. Expected to lead these initiatives is the Department of Agriculture (DA), and its acting secretary, President Marcos himself. So far, the DA has outlined its plans to help the fisheries and agriculture sector cope with El Niño’s effects, including putting up more water-related infrastructure such as hydroelectric power plants, irrigation canals, and diversion dams. Small scale irrigation projects would also be developed or rehabilitated, and made available to farmers. The DA also said that it has already identified hybrid varieties of rice and other high value crops that can be planted during dry spells. All well and good, though it remains to be seen if the agency blamed for spotty policies behind the skyrocketing prices of sugar, rice, and onions could follow through its plans and prove detractors wrong. For his part, the President could have expounded on his announced plan for the government to slowly convert the country’s dependence on water supply from underground to surface water, since conventional wisdom has it that groundwater, being less polluted, is easier and cheaper to treat than surface water. Knowing about the risk of groundwater depletion and the reduction of water in streams and lakes, as well as the deterioration of water quality, should be enough to convince most people to go for it. The plan to help local government units install their own water supply systems should rain prove insufficient is sound, however. As is the executive order that the President said he had signed to create an office to manage the country’s water resources. Just as noteworthy is the mitigation and adaptation plan set up by the Disaster Risk Reduction and Management Unit that includes the promotion of drought-tolerant and early maturing crop varieties, organic fertilizer to increase retention of soil moisture, the adjustment of the planting calendar, and crop shifting. _______________________________________________________________________________________ BSP launches credit scoring model April 26, 2023 | 12:32 am THE BANGKO SENTRAL ng Pilipinas (BSP) has launched a credit scoring model that is expected to enhance credit risk assessment by lenders. The Credit Risk Database (CRD) Scoring Model was developed as part of a technical cooperation program between the BSP and the Japan International Cooperation Agency (JICA). It is expected to serve as an additional tool that lenders can use to analyze the creditworthiness of micro-, small-, and medium-sized enterprises (MSMEs). The CRD utilizes a data-driven approach to boosting lenders’ confidence in financing MSMEs, especially those without credit history or enough collateral, the BSP said. “The CRD scoring model will [not only] contribute to bridging the funding gap to MSMEs, but it will also enhance credit risk management among financial institutions,” BSP Governor Felipe M. Medalla said at the launch event on Tuesday. Sakamoto Takema, chief representative of JICA, said the CRD can contribute to the BSP’s goal of enhancing access to finance under the National Strategy for Financial Inclusion. “The overall goal is to enhance the capacity of credit risk assessment of each financial institution, and to promote risk-based lending rather than collateral based lending. It will strengthen the country’s financial system by expanding and streamlining lending to MSMEs,” Mr. Takema said. Mr. Takema said JICA has agreed to extend the CRD project period for another year and will extend support for phase 2. The CRD project was launched virtually in December 2020 at the height of the pandemic. The project has expanded with the help of 32 participating rural and universal and commercial banks. BSP Deputy Governor Bernadette Romulo-Puyat said the CRD is a tool that may significantly expand credit access of small and medium enterprises. “MSMEs make up 99.6% of business establishments in the country providing 64.7% of employment to the country’s workforce and contribute about 35.7% to the country’s gross domestic product,” she said. Mr. Medalla noted that there is a “one-size-fit-all policy” towards lending to small businesses in the country, citing the Republic Act 6977 or the Magna Carta for MSMEs. “A highly specialized Japanese bank for instance — [which] has less than a hundred employees because they are focused on lending to Japanese firms in the Philippines — are being told to lend to MSMEs and agriculture,” he said, adding that the law becomes a “tax” on foreign investors. Mr. Medalla said that banks have opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small businesses. Lenders are mandated by the Republic Act 6977 or the Magna Carta for MSMEs to allocate 10% of their credit portfolio for small businesses to boost the sector — 8% for micro and small enterprises (MSEs) and 2% for medium-sized enterprises. In April 2020, the BSP allowed MSME loans to be counted as part of banks’ reserve requirements in a bid to boost lending to the sector at the height of the pandemic. — Keisha B. Ta-asan _______________________________________________________________________________________ Suspended for doing duty? Bank staff decry maltreatment GOTCHA - Jarius Bondoc - The Philippine Star April 12, 2023 | 12:00am Philippine National Bank’s board of directors meets with urgency today. Agenda seems but a speck of PNB’s P1.15-trillion assets, P11.4-billion profit, 8,550 personnel and 670 branches. But the speck can inflame the crisis. It concerns the suspension since March of PNB’s administrative staff. They allegedly were not informed of their offenses or afforded a chance to explain. Their suspension came right after they reported an irregular, overpriced aircraft repair. An officer linked to the $3-million expense supposedly instigated their punishment. Top management is in disarray. Initially supportive, superiors of the admin staff purportedly have abandoned them. Two board directors were cited in a March 8 pseudonymous complaint as aware of the events. The suspended staff decried the sudden black mark on their employment records. They may be unable to transfer to other financial institutions. Some have been with the 107-year-old bank before tycoon Lucio Tan bought it from government in 2005. They worry about the suspension’s effect on their retirement. If not resolved fast, the Bangko Sentral, Department of Labor, Philippine Stock Exchange and Bureau of Internal Revenue will swoop in. Already the punishment of the investigators is affecting PNB affiliates Philippine Airlines and Basic Holdings Aviation of the Lucio Tan Group. Mr. Tan, 88, chairs the three firms and the group. Repeated efforts were exerted over two days to contact bank EVP Aida Padilla and corporate fleet VP Clive Kian on their known mobiles – to no avail. Known as a straight-shooter but downed by Covid-19, president Florido Casuela declined an interview. On Oct. 28, 2020 Mr. Tan approved the overhaul of PNB’s King Air executive jet’s two engines. Price: $230,000. Local offeror was Manila Aerospace Products Trading for overhauler Pratt & Whitney of Canada. June 18, 2021 MAPTRA billed PNB $2,958,800.30, including 12-percent VAT for the overhaul. Next day Kian, on a Basic Holdings form, signed the purchase order and payment request. Also on June 19 Kian, on PNB stock requisition form, signed for the same. He is executive assistant to chairman & CEO Mr. Tan, who reportedly is now frail and forgetful from age. Stunned, PNB bosses sought the help of PAL, the country’s largest airline, to check the technicals and possibly haggle down the price. Oct. 25, 2021 PAL specialist officers wrote to Kian: “We cannot help but raise our earnest concern about the costly repair to MAPTRA.” An online check showed that a brand-new King Air engine costs only $845,169, or $1,690,338 for two. After it was questioned for not offering such an alternative, MAPTRA asked P&W to send a quotation for brand-new. On top of P&W’s $1,690,338, MAPTRA tacked on a non-negotiable 15-percent administrative cost of $293,945.58. Add import costs, VAT and supposed “work in progress,” total for brand-new was $3,086,142.24. Overhaul of $2,958,800.30 looked cheaper. Still PAL probers stuck to the $230,000 “duly signed by our beloved Chairman Dr. Lucio C. Tan.” Receiving PAL’s investigation report, PNB’s board deferred payment. Told to probe on its own, the bank admin staff prepared their own report to Casuela for relay to the board. Instead they were investigated by PNB internal auditors. Supposed findings: Habitual tardiness, improper uniform, sharing of passwords, missing furniture and collusion with scrap buyers. The staff decried lack of due process: “If only our beloved Kapitan is made aware of this illegal act, he will not agree to us being insulted and treated this way. Sir Kapitan will surely admonish our officers for failing to protect the interest of the bank and rights of the employees.” PNB doesn’t punish without hearing all sides, Senior VP Claro Fernandez said. Too, it encourages whistle-blowing, even if anonymous, for sustainability and as part of compliance with BSP rules. Though unaware of the issue, Fernandez said “preventive suspension is done to avert purloining of documents. It is obligatory for the president and Human Resources to act on such cases.” _______________________________________________________________________________________ SC affirms injunction on BSP’s closure order on AMA Rural Bank April 3, 2023 | 12:00 am THE SUPREME COURT (SC) has upheld an appellate court ruling that granted the shuttered AMA Rural Bank of Mandaluyong, Inc.’s appeal to stop the Bangko Sentral ng Pilipinas (BSP) from ordering its closure. In a 17-page decision dated March 1 and made public on March 31, the court agreed with the Court of Appeals’ decision that said the BSP failed to provide legal grounds for the bank’s closure. “Indeed, the totality of circumstances reveals the tangible efforts on the part of AMA Bank to comply with the directives of BSP,” the tribunal said. “Thus, under the particular facts of this case, coupled with the public interest involved, the closure of AMA Bank is too harsh.” In a decision dated Nov. 7, 2019, the Court of Appeals ordered the central bank to restore AMA Bank to fully operational status, saying the BSP abused its discretion in issuing the closure order. The central bank in 2016 attained a cease-and-desist order (CDO) to stop a housing loan program of the bank that allegedly approved irregular and questionable loans to borrowers. The order also stopped the recognition of the bank’s income for capitalized interest and penalties. The BSP ordered the bank’s closure in 2019 over alleged unsafe and unsound practices. On Nov. 7, 2019, the Monetary Board issued MB Resolution No. 1705.D, which ordered the Philippine Deposit Insurance Corp. to take over the bank’s liquidation. It said the AMA Bank can continue its business without involving probable losses to its depositors and creditors. As of Sept 30, 2019, AMA Bank’s total assets amounted to P2.8 billion. The High Court said the appellate court had the authority to look into the Monetary Board’s practice of ordering the closure of banks without a prior hearing. Under the law creating the BSP, the Monetary Board can order the closure and liquidation of a local lender if it has suspended payment of its deposit liabilities in the past 60 days, has insufficient realizable assets; cannot continue businesses without involving probable losses to depositors or creditors; and if it has violated a cease-and-desist order. The tribunal said the central bank failed to establish the existence of the said grounds to warrant the closure of AMA Bank. It added that AMA Bank did not “willfully” violate the 2016 cease-and-desist order, adding the bank showed efforts to comply with the CDO. “There being no valid grounds that would justify AMA Bank’s closure, the inevitable conclusion is that MB Resolution No. 1705.D. is void,” it said. — John Victor D. Ordoñez _______________________________________________________________________________________ Bad banker (6) VIRTUAL REALITY - Tony Lopez - The Philippine Star April 4, 2023 | 12:00am A number of senators and even media have joined the growing chorus of objectors to the impending merger of the Land Bank of the Philippines and the Development Bank of the Philippines, the two biggest banks of the government. I am one of the earliest to voice my opposition to the merger. My main reason is that Land Bank has failed miserably in its original mission to finance and develop Philippine agriculture. Because of that failure, we don’t have enough food today. At least 25 percent of our food requirements have to be imported every year. We have today the world’s most expensive plain rice (our cost of production is double the world average), the most expensive onions, potatoes, tomatoes, pepper, aside from having among the most expensive fish and pork. The yearly cost of importing rice alone is $2 billion (P110 billion) – money that could have gone to job-creating economic activities. Or for educating our young people who, by repeated global tests among nations, have been shown to be the most stupid young people on earth. They cannot read and write. If they can read and write, they don’t understand what they are reading. They cannot count beyond 100. They don’t know any science. The result of that collective stupidity is bad governance because stupid people naturally make the wrong choices during elections. Crucially, the food shortage has meant a very unstable society. Food after all is 50 percent of the average budget of Filipino households; 55 percent if you are very poor. This explains why the Philippines’ – and the world’s – longest running communist insurgency is agrarian-based or food-based. So you can say Land Bank indirectly has contributed to the communist insurgency which at one point (in 1987) reached an armed strength of 35,000 regulars, and to the state of mis-governance in this country. The biggest producers of food – our farmers and fishermen – are the poorest of Filipinos. They have been let down and abandoned by the Land Bank, which has gone heavily into commercial and business loans in an operation that will put Shylock to shame. It explains why Land Bank keeps saying it is very profitable but not as profitable as the better-run private banks. All commercial banks are required by law to allocate 25 percent of their loanable funds to agriculture and agrarian reform. Land Bank should lead in that purposeful action. But no. Its ratio of agri-agra lending, 26 percent, is the same, if not lower, than all the other banks’. And LBP hits that ratio by simply buying securities or IOUs peddled by the government as compliance with agri-agra lending. We have about seven million farmers and fishermen. Ask Land Bank how many it has reached out to. Just 10,000 in the case of agrarian reform beneficiaries. We pay with precious dollars for our food importations, money that comes mainly from the hard-earned dollars of our overseas Filipino workers – workers who went abroad precisely because they don’t have adequate income and don’t have adequate food to eat at home. When Land Bank was founded 60 years ago, agriculture was the strongest and largest sector of the economy. We were a rice exporter. Agriculture contributed as much as 30 percent of total annual economic production or GDP and up to 70 percent of total employment. Today, aggie’s GDP share is down to 8.9 percent – the lowest in the last 100 years. The economy has been taken over by call center agents, truck drivers and logistics operators and, of course, by bankers. These are the people who man services or the biggest sector of the economy. The main argument for the merger of LBP and DBP is bigness. Bigness is supposed to be good. That’s a lie. Credit Suisse was Switzerland’s second biggest bank. Last month, CS died, a victim of habitual mismanagement, mission failure, loss of confidence by its depositors and by incompetent regulators. The bank was built as the bank of the world’s richest and hoarders of illicit money, of kings, tyrants and the corrupt. These people know a bad deal when they see one and they vote with their feet. The consolidation of LBP and DBP would create a super bank, the biggest in the Philippines, with assets of P3.796 trillion, deposits of P3.195 trillion and a loan portfolio of P1.681 trillion. In contrast, BDO Unibank, the current No. 1 bank, has total resources of P3.727 trillion (just P69 billion smaller), deposits of P2.947 trillion (P248 billion smaller), loans of P2.523 trillion (P842 billion bigger) and capital of P442.95 billion (P161.392 billion bigger). Land Bank itself has total loans of P1.107 trillion, or just 45.8 percent of its total deposits of P2.416 trillion. BDO’s loans-to-deposit ratio is a remarkable 85.6 percent (P2.253 trillion of loans out of P2.947 trillion of deposits). BDO’s loans-to-deposits ratio is an awesome 85.6 percent – 1.86 times bigger than Land Bank’s 48.5 percent. Meaning Land Bank is only half as diligent and hardworking in doing its lending function as BDO is. In banking, laziness could be a fatal flaw. The new Land Bank (after gobbling up DBP) would still be massively under-capitalized, at P281.55 billion, and would have one of the largest bad loans in the industry, P90.57 billion or 5.4 percent of total loans – three times the industry average. So if the idea is bigness – bigness in shortage of capital and in size and ratio of bad loans, then the merger of LBP and DBP would achieve the bigness purpose. A bank with such a big problem with capital shortage and size of bad loans are a formula for failure. _______________________________________________________________________________________ _______________________________________________________________________________________ ‘Provincializing’ agriculture By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:25 AM February 28, 2023 You know agriculture is in great trouble when so many op-ed columns are being written on the sector, even from writers who don’t normally deal on the subject. The attention is well deserved, as I consider agriculture the backbone of our economy. It stands out as the sector most evenly spread across all regions of the country, unlike services, where only two regions (Metro Manila and Calabarzon) already account for over half of the sector’s gross domestic product (GDP) contribution. In industry, only three regions do (with the addition of Central Luzon). In agriculture, it takes six regions to comprise half its output, and regional contributions are more even. One might say it’s the sector that binds them all together. But agriculture directly accounts for barely a tenth of our GDP now (from about a third in the 1940s). It could, and should, account for more, especially in a country as naturally well-endowed as ours. But it’s time for a new approach to managing the sector, and it hinges on provinces taking primary responsibility to make their farmers and fishers productive, competitive, and profitable. Three observations lead me to this: One: Devolution was a good idea, but badly executed. After the Local Government Code of 1991 became law, municipal agricultural officers (MAOs) were largely left on their own. It seemed that the Department of Agriculture (DA) felt no compulsion to provide them technical supervision as municipal employees. Worse, mayors with little regard for agriculture made them all-around workers, even drivers. Still, the DA continued to work top-down, managing things centrally and prescribing one-size-fits-all programs, even where unsuitable. My favorite field anecdote was when I asked the village chief of a poor upland Mindanao barangay what he would ask of the government if granted one wish. His reply: carabaos (for tilling the idle grasslands around them). I asked what they were getting from government; he said fertilizers and hybrid seeds. So I asked what they did with them. He said they had no use for them, so they simply sold them. When I chided the MAO for not telling the DA of their real need, she replied, “I keep telling them that every year, but they’ve made up their minds to give fertilizers and hybrid seeds.” This incident alone firmly convinced me that recentralizing agricultural extension—like at least one DA secretary wanted—cannot be the way to go. Two: Agriculture needs a much higher budget allocation. Something is wrong when less than 2 percent of our total government budget goes to agriculture when our closest neighbors reportedly allot from 3.4 percent (Indonesia) to 6.5 percent (Vietnam). But it’s hard to justify raising the DA budget when its absorptive capacity is slow, and the quality of its spending is low. For example, it spends more on farm inputs (yes, fertilizers and hybrid seeds) with one-off benefits, when it should be investing more in public goods like irrigation, rural roads, and postharvest facilities with lasting productivity-enhancing effects. DA can leverage more funds for agriculture by downloading their budget to provincial governments via matching grants that give the latter one, two, or more pesos for each peso they spend on agricultural development—with necessary safeguards on fund use. This yields a double dividend of improved DA disbursements (helping them better justify increased budgets), while drawing out even more funds from the units of government closer to the actual problems on the ground, hence more knowledgeable on solving them. Three: Agriculture is everyone’s concern. It is much too important to leave to the DA alone. It must be a joint accountability of the DA and the provincial agricultural offices coordinating the MAOs, along with other institutions like church, academe, and big business. Agriculture outcomes impact food consumers, and that means everyone, especially the poor that counts farmers among them—leading them to food insecurity and malnutrition when productivity is low and food prices high. All have a part to play to address the pervasive and long-term effects of our troubled agriculture sector. And in our suggested playbook, provinces must step up if things are to get better. _______________________________________________________________________________________ BSP warns public anew against virtual asset firms Published February 14, 2023, 2:22 PM by Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) on Tuesday, Feb. 14, has again issued a warning against transacting with virtual asset service providers (VASPs) that are unregistered and domiciled abroad or unknown foreign virtual asset companies. The BSP said there are only 20 registered VASPs with the BSP as of end-January 2023, of which two are not yet operational and two are inactive. Of the registered VASPs, the BSP also listed four that are not operating at the moment. In total, of the 20 that did register with the BSP, only 12 are active and in operation as of end-January. These 12 VASPs are: COEX STAR; Appsolutely; COINS PH; Bexpress; Bloomsolutions; Frenetic; Moneybees Forex; Maya Philippines; Philbit; PDAX; TopJuan; and Zybi Tech. The BSP on Tuesday also reissued an August 17, 2022 public advisory reminding Filipinos that the BSP will not be able to enforce legal recourse or protect consumers such as redress mechanisms for VASPs based abroad. Dealing in virtual assets, said the BSP, are generally considered as high risk activities “which may result in huge financial losses due to price swings.” The BSP highly encourage financial consumers to verify with the BSP if the virtual asset firm or companies they are dealing with is supervised and regulated. Based on a Dec. 7, 2022 memo, the central bank has likewise instructed all registered VASPs not to engage in any business activities other than for the safekeeping of assets. The BSP imposed a three-year ban on VASP licensing beginning on Sept. 1, 2022. The BSP refers to virtual currencies as virtual assets. It issued a circular to govern VASPs in 2017. The VASP regulation expands the BSP’s previous rules on virtual currency exchanges to include businesses that perform an exchange between one or more forms of virtual assets, the transfer of virtual assets and its safekeeping or adminstration. BSP Deputy Governor Chuchi G. Fonacier said in the December 2022 memo that there are persistent threats in the virtual asset world that affect practices and endanger the safety and security of customer funds, such as what happened in the FTX debacle, a cryptocurrency that went bankrupt last year. Fonacier said all VASPs, particularly those providing safekeeping and administration services for virtual assets such as custodians, should ensure that customers’ virtual assets are not being used for any business activities other than for safekeeping on the customers’ behalf. VASPs facilitate the conversion or exchange of fiat currency to virtual assets or vice versa. Fonacier also reminded all VASPs to be especially critical in assessing the risk profile of liquidity providers and check the following: license and registration status; the legal and supervisory framework of the jurisdiction from which the liquidity providers are domiciled; and supervisory/enforcement capabilities of relevant regulatory bodies/enforcement agencies. _______________________________________________________________________________________ What now, Department of Agriculture? By: Meliton B. Juanico - @inquirerdotnet Philippine Daily Inquirer / 04:10 AM February 06, 2023 One of the country’s most pressing needs now is the appointment of a full-time secretary at the Department of Agriculture, where President Marcos Jr. is still the head but does not initiate crucial solutions to our woefully dysfunctional agricultural economic system. The President cannot take his own sweet time in mulling over who to appoint as agriculture secretary, while onion farmers are killing themselves due to government apathy and the poor suffer from hunger amid abnormally high food prices. The neoclassical economists of his administration are singing praises over the country’s high GDP growth rate of 7.6 percent and its consequent P22.02-trillion worth of the economy; however, they should ask themselves if this growth rate has tangibly trickled down to the masses and solved the country’s age-old problems of poverty, inequality, and unemployment. Currently, the most pressing problem lies in the monopsonistic-oligopsonistic distribution system of farm products characterized by the multilayered system of from four to as many as eight middlemen who depress farm gate prices to ensure their own profitability and who are controlled by cartelized urban merchants who dictate the terms of agricultural trading. Based on studies of the Philippine Peasant Institute, the price-setting urban cartel leaders hide behind two masks — one as monopsony traders at the farm gate and another as monopoly traders at the consumer market. They also provide the capital used by agents and traders — capital which ironically comes mostly from government-owned/controlled banks and institutions. Practically the same pattern of cartelization occurs for major farm products and which cannot be dismantled effectively by the government’s interventionist institutions such as the National Food Authority with their limited budgets for stabilizing prices or perhaps with their deliberate connivance with the traders to relinquish control of the market. The cartels’ market control has also been strengthened by market deregulation and easy resort to import liberalization by the government. However, we must remember that importations are always capital leakages that result in the loss of multiplier effects from the national economy. The most effective solution is for farmers to organize themselves into marketing cooperatives and farmers’ nongovernment organizations—an activity that the Cooperative Development Authority should have been pervasively promoting all over the country. Cooperatives interacting solely among themselves can break the control of middlemen and ensure high prices for farmers’ produce. Farmers should also be provided with sturdy vehicles for bringing their produce to good markets, as well as sufficient cold storage and post-harvest facilities for keeping their harvests fresh while waiting for favorable prices—information on which the government should also help provide. The Landbank, Development Bank of the Philippines, and private banks should be proactive in providing easily accessible and low-interest loans. Rampant smuggling in our porous ports that is abetted by conniving customs officials should also be curtailed, as they contribute to the depression of farm gate prices. On a long-term basis, the government should provide a more elaborate system of farm-to-market roads, especially in highland areas where the terrain abets a dendritic road pattern leading to the large urban centers where the controlling cartel leaders are located. Then, of course, on the production side, the government should intensify the provision to farmers of technical, managerial, and accounting support services for increasing agricultural production and raw material processing and for limiting the exodus of farmers’ sons from farm work. The new agriculture secretary has a plateful of challenges awaiting him. He should be one, then, with a deep understanding of our grossly dysfunctional agricultural economic system, i.e., of the ingrained imperfections in the production, distribution, and consumption phases of the grain, vegetable, fruit, fishery, meat, and other sectors of the agricultural economy. And, most importantly, he should have the grit to prosecute cartels, smugglers, and the entrenched cabal of corrupt bureaucrats, and to use the full range of weapons in the enforcement arsenal. _______________________________________________________________________________________ BSP starts consultation of open finance pilot Published February 1, 2023, 3:46 PM by Lee C. Chipongian A year after announcing an open finance pilot program, the Bangko Sentral ng Pilipinas (BSP) is now calling for financial sector participants to standards consultations in 2023. The BSP said on Wednesday, Feb. 1, that the PH Open Finance Pilot will enable a more “responsive, inclusive, and responsible digital financial ecosystem that is characterized by innovation-driven use of consumer data.” “We call on our BSFIs (BSP supervised financial institutions) and third-party providers to proactively take part in the development of technical and operational standards and arrangements and carefully scrutinize the fundamental elements necessary in the establishment of a vibrant open finance ecosystem in the country,” said BSP Governor Felipe M. Medalla. The pilot program is a collaborative project on a voluntary basis, to explore the use of Application Programming Interface (API) technologies in the delivery of financial products and services which will be responsive to the needs of customers. The activities of the PH Open Finance Pilot, which will operate through the support of the International Financial Corporation (IFC), will be governed pursuant to Circular No. 1122, and monitored by the Open Finance Oversight Committee Transition Group (OFOC TG), said the BSP. The BSP said open finance will accelerate financial inclusion by improving access to credit and improving the tools that micro, small and medium enterprises can tap. As defined by the BSP, open finance is the extension of data sharing principles, assigning greater control to customers over their own data and enabling them to allow third party providers access to their data across multiple financial products and services. Basically, open finance promotes consent-driven data portability, interoperability, and collaborative partnerships among entities. It extends the principles of data sharing, security, and privacy across the different financial products. The central bank previousely announced plans to pilot test at least three use cases for its open finance framework such as account opening, direct debit payments and fund transfers. The OFOC TG is currently conducting preparatory activities for this year. They should be able to identify and determine areas of cooperation to enable open finance which is a model based on collaboration and data sharing API. The Open Finance Roadmap 2021 to 2024 outlines priority actions and the adoption of the policy framework as well as the capacity-building for regulation and cooperative oversight. It will lay down the groundwork for the establishment of an open finance ecosystem in the Philippines. The OFOC TG as the interim governing body, will lead the establishment of an open finance ecosystem in the country. and alternate members represent the universal and commercial banks, thrift banks, rural banks, digital banks, e-money issuers, operators of payment systems and financial technology or fintech sector. The members of the OFOC-TG, which will serve for a two-year term, have the responsibility to facilitate the initial policies and standards formulation. They will also support pilot implementations under the open finance regulatory sandbox. _______________________________________________________________________________________ ADB cuts developing Asia's 2023 growth forecast again CLIFF VENZON, Nikkei staff writerDecember 14, 2022 09:00 JSTUpdated on December 14, 2022 17:33 JST MANILA -- Developing Asia's economic expansion next year is expected to be slower than previously projected as a global slowdown and the prolonged war in Ukraine weigh on the region, the Asian Development Bank said in a new report. The ADB trimmed its 2023 growth outlook for developing Asia -- which covers 46 regional members of the bank -- to 4.6% from 4.9%. The region will likely end the current year with a 4.2% expansion, slightly lower than the 4.3% forecast in September. "Three main headwinds continue to hamper recovery in developing Asia: recurrent lockdowns in the People's Republic of China, the Russian invasion of Ukraine, and slowing global growth," the bank said in an update to its Asian Development Outlook publication. The latest downgrades mark the third time this year the ADB has cut its growth estimates for the region, which is also under pressure from elevated inflation partly due to the war and rising interest rates. The ADB marginally reduced its regional inflation forecast for this year to 4.4% from 4.5%, but raised its projection for price increases next year to 4.2% from 4.0%. The ADB said the forecasts were based on information available as of Nov. 30, a week before China began easing its zero-COVID restrictions, which had sparked protests. While the loosening of restrictions in China has the potential to boost economic growth, it could also create new problems. A surge in infections and work absences already appears to be causing labor shortages in some sectors. China's growth forecast for next year has been trimmed to 4.3% from 4.5% amid a slowdown in the U.S. and Europe, the ADB said. The outlook for India, the region's second-largest economy, after China, is unchanged at 7.2%. The ADB upped Southeast Asia's growth forecast for this year to 5.5% from 5.1% on stronger-than-expected domestic consumption. But the region is headed for a slowdown next year with 4.7% growth, from 5.0% in the previous forecast. "Consumer and business confidence are likely to be affected by high inflation and rising interest rates, while government spending may be curtailed under constrained public finances," the bank said. Indonesia, Southeast Asia's largest economy, is expected to grow 4.8% next year, down from the 5.0% forecast in September. Among the sharpest downgrades, the ADB cut Malaysia's growth outlook to 4.3% from 4.7% on subdued external conditions and slashed its forecast for Vietnam to 6.3% from 6.7% on inflationary pressures. _______________________________________________________________________________________ Banks release P281.3-B compliance loans in Sept. Published November 27, 2022, 9:10 PM by Lee C. Chipongian Bank lending as alternative compliance to reserve requirements (RR) totalled P281.3 billion as of September, up by 21 percent from same period last year of P232.4 billion. Based on Bangko Sentral ng Pilipinas (BSP) data, RR-compliant loans to micro, small and medium enterprises (MSMEs) reached P220.1 billion as of the reserve week in late September, 13.1 percent higher compared to same time in 2021 of P194.6 billion. Loans to large enterprises, meantime, rose by 61.9 percent to P61.2 billion this year from P37.8 billion same time in 2021. RR-compliant loans to MSMEs accounted for 13.9 percent of total required reserves during the period while loans to large enterprises was 3.9 percent of total reserves. The aggregate limits for MSME loans is P300 billion and P425 billion for large enterprises. As part of BSP relief measures while there is a pandemic, the BSP allowed banks to use loans to MSMEs and large enterprises that are not affiliated with conglomerates as alternative compliance with the RR against deposit liabilities and deposit substitutes. “Availment of the BSP’s relief measure on the use of new or re-financed loans to MSMEs and eligible large enterprises as alternative compliance with the (RR) continues to be strong,” said the BSP in a report. At the moment, RR ratio is at 12 percent for big banks and 14 percent for non-banks with quasi banking functions. Thrift banks have three percent reserves ratio while rural banks have two percent. The relief measure will lapse on Dec. 29 this year. The policy was first issued on April 24, 2020 for MSMEs and May 29 of the same year for large enterprises. The BSP had intended to reduce the RR ratio before the expiration of the relief measure by end-2022 but with high inflation which had to be dealt with by tightening monetary policy, an RR ratio cut will have the opposite desired effect. To address the excess liquidity that will be released after Dec. 29, the BSP allowed trust units of banks or stand-alone trust companies to buy BSP securities in the secondary market. As the relief measure winds down, the move improves BSP’s ability to control money supply through their open market facilities in particular through the issuance of the 28-day bills. _______________________________________________________________________________________ Two questions for Marcos Jr. By: Segundo Eclar Romero - @inquirerdotnet Philippine Daily Inquirer / 04:25 AM October 25, 2022 Responding to gentle suggestions that he should appoint a full-time agriculture secretary, President Marcos Jr. is adamant that he will hold on to the position, saying he is “still needed there.” He explains that there are things that only a president can do that a secretary cannot. The problems in the agriculture sector are “so difficult that it will take a president to change and turn it around.” The President says that he will appoint a full-time secretary when he has properly institutionalized the functions of the Department of Agriculture (DA) and he has completed the necessary structural changes. The President has been the agriculture secretary for almost four months. In that period, there have been some revealing tests of his caliber as a leader and manager of the agricultural sector. His boast during the elections that he will bring down the price of rice to P20 per kilo is now out of reach. His policy and managerial decision-making in resolving the critical sugar shortage was erratic, causing the resignation of his well-regarded undersecretary, Leaocadio Sebastian, and exposing signs of disarray in his Cabinet. Being agriculture secretary is not a problem if there are functioning, motivated, and self-confident undersecretaries that have the “hand-in-glove” trust and confidence of the President. But no self-respecting competent undersecretary would think of being creative, innovative, and proactive, only to get the “Sebastian treatment.” What remains in DA is undersecretary Domingo Panganiban who served as deputy minister of the Ministry of Food and Agriculture as early as 1984 during the dictatorship of Marcos Sr. Panganiban, at 83, is past his prime for the present challenges in Philippine agriculture. As a matter of prudence, considering that the nation is facing food and energy crises, Filipinos, especially in media, the academe, and policy institutes, should help the President identify the key issues in agriculture and the promising initiatives that might constitute solutions. There are many discussions of agricultural issues happening across the land. For instance, in the Future Earth Philippines Filipino SDG Hour online symposium last Friday, Dr. Ted Mendoza, an agronomist and retired professor of UP Los Baños made a provocative presentation on “Diet Change: The Filipino Answer to Climate Change and Food Shortage.” (https://youtu.be/K7z2XtNlAR0) He suggested that looking at the world situation, the grains fed to animals yearly can supply the food caloric requirements of 8.3 to 10 billion people. Reducing by 50 percent the grains fed to animals can feed 50 to 60 percent of the growing world population by 2050. His recommendation is for Filipinos to shift more toward a plant and fish-based diet for food self-sufficiency, environmental sustainability, and health reasons. His presentation on the Philippine agricultural situation had the audience groping for answers to two imbalances—our rice shortage and the resource-carrying capacity deficit of the Philippines. I thought these questions should properly be directed to Mr. Marcos as agriculture secretary and president, so I coached the questions accordingly: Question 1: With a population of 115 million by 2023, the rice output per hectare to be self-sufficient should be 12.5 tons. The current yield is only 4 tons. This translates into a rice deficit of 17 percent. With the estimated 10 percent reduction in production due to cost-cutting and floods, the deficit is estimated at 27 percent, requiring the importation of 3.5 million tons per year. By 2030, with a projected population of 124 million, the Philippines will be importing 4.8 million tons of rice. What level of rice self-sufficiency should the Philippines aim for by 2030 and what creative feasible strategy would you adopt to attain this? Question 2: Filipinos have always been told that the Philippines is rich in natural resources. If we take our population into account, this is no longer true. With an arable land area of 13.42 million hectares out of our total 30 million hectares, our ideal population should only be 33 million. We reached this threshold around 1965, 57 years ago. We have been in deficit since, and the demands of our population at present exceed threefold the carrying capacity of our land and natural resources. How would you mobilize the Filipino nation and people to redress this fundamental gap between population and resources? Wouldn’t it be reassuring if Mr. Marcos can give us his thoughts on these questions? If he obliges, he might demonstrate he is indeed his best agriculture secretary. _______________________________________________________________________________________ Why can’t we export more? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:35 AM September 06, 2022 We are an outlier among our Asean peers—meaning Indonesia, Malaysia, Thailand, and Vietnam—as far as exports are concerned. The numbers say it all: we averaged $69 billion in annual export earnings between 2017 and 2020. Indonesia got $170 billion, Malaysia $234 billion, Thailand $242 billion, and Vietnam $251 billion. Even if we add our annual services exports today of some $33 billion, and overseas remittances of about the same amount—in both of which we do better than our neighbors—we’d still be far below Indonesia’s goods exports alone. I’ve written before about how our laggard export performance mirrors our similar laggard status in attracting foreign direct investments, and in exporting agricultural and agriculture-based products (“Pathetic laggard,” 9/14/21). Our more dynamic neighbors get most of their export earnings from foreign investors. It also shows us how our neglect of high-value exportable crops has deprived our farmers of the higher incomes they could have been earning, if not for the pervasive dependence on traditional crops that have mired them in poverty. And yet, these are the same crops that got disproportionate attention (and protection) and budgets from the government all these years. But apart from that perverted situation, why else is our export performance so pathetic? We must start by looking at the demand and supply sides of the export markets, as there are drivers and hurdles to export growth on either side. As a small exporting country in the global economy, the demand side of export markets is virtually unlimited from our point of view. Hence, getting higher demand for our exports mainly entails better marketing (via trade missions, participation in trade fairs and exhibitions, etc.), and expanding our market access through preferential trade agreements (PTAs). In both, we are far from our four neighbors. They reportedly spend an equivalent of 2 to 5 percent of their export earnings on market promotion and advertising. Our own Department of Trade and Industry keeps fighting for a much bigger budget for trade and investment promotion, but this falls on largely deaf ears in our budget authorities or in Congress. On PTAs, we are a country seemingly terrified of them. Witness how we can’t even have our Senate ratify the long-signed Regional Comprehensive Economic Partnership agreement. Our four neighbors are part of 15 to 27 PTAs; we have 10. Lagging exports? No surprises here. On the supply side is a far longer list of challenges and impediments, or things that keep us from producing and selling more to the export markets. In a recent analysis done toward the formulation of the Philippine Export Development Plan, the list included the following: lack of private and public investments (the latter in infrastructure, human resource development, and science and technology support); weak access to financing by exporters, especially small ones; fragmented land structure that makes having economies of scale in raw materials production extremely difficult; lack of the needed skills in the workforce; gaps in product value chains (example: we export nickel ore but import batteries in which nickel is the key component); coordination failures across firms, industries, value chain links, government entities, and among government, private sector and civil society; and faulty government policies and processes. Under the last is an even longer list of shortcomings, including taxation and fiscal incentives issues; regulatory burden and red tape; political risk and policy inconsistency; weak interagency coordination; and graft and corruption, to name a few. We must break out of the vicious circle our country is trapped in: Low average incomes and high poverty incidence lead to a limited domestic market. In turn, this limits the growth our producers and our economy, in general, can attain. And this leads us back to low incomes, and we come full circle. The only way to break out of the vicious circle and turn it into a snowballing virtuous circle, thus creating much more jobs and incomes, is to look to the export markets. But as we have seen, we have a lot of homework to do. _______________________________________________________________________________________ Online scams and the elderly By: Randy David - @inquirerdotnet Philippine Daily Inquirer / 05:02 AM September 04, 2022 We who were born in the age of passbooks and real bank tellers will never feel at home in the world of digital banking and automated teller machines (ATMs). This is not a Luddite resistance to all labor-saving machinery. It proceeds rather from a general insecurity we feel when navigating the virtual space created by computers, smartphones, and the internet. Those who venture into cyberspace for the chance to reconnect with long-lost friends, relatives, and classmates tend to confine their presence in that space to a Facebook account. In all other things, especially where it concerns their lifetime savings, they prefer to deal in person with their bank manager or favorite teller. But, alas, transactions essential to everyday life have become increasingly automated and/or conducted online — and there we easily lose our bearings. It is difficult to describe the distress we experience when, in the middle of a task, we no longer know what to do next. In that state of utter frustration, we gladly surrender ourselves to the gracious offer of assistance by another human, albeit a stranger. In doing so, we unwittingly enter uncharted space in which most scams take place. We find ourselves being led into performing online actions whose full meaning we barely understand. “It’s as if I was hypnotized, and all my critical faculties were put to sleep,” a close relative told me after her two bank accounts were emptied by a woman purporting to be a customer relations officer of the bank in which she had kept her hard-earned savings. “I was just so happy to find somebody who was willing to stay with me for hours on the phone to guide me through the maze of digital banking.” It all started with a phone call from that “nice” lady supposedly from the bank. “She said that as a preferred client of the bank, I could redeem my accumulated credit card reward points by converting them into cash, to be transferred to my GCash account, if I had one, or to my existing bank accounts.” The lady then offered to guide her prey, a senior citizen in her late 60s, through the process. This would entail, she told her, opening a digital bank account through which the client could access all her accounts with the bank. For this, the lady caller, supposedly a representative from the bank, needed to get the client’s account numbers, user IDs, and passwords, and, later, the system-generated OTP or one-time passwords that would be sent to the client’s mobile phone to confirm the transaction. It is true that banks have issued advisories telling their clients not to share such information, particularly passwords, with anyone. They warn them against clicking links embedded in emails and text messages purporting to be from the bank. When in doubt, clients are advised to call the manager or visit the bank in person. At the height of the pandemic, however, it wasn’t always easy to do that. Online scammers have so methodically mapped out the process involved in a typical digital banking transaction that they can pinpoint exactly where an intervention by an outside party can plausibly be made. For people who are familiar with the way the digital world works, it may be hard to imagine how anyone could be so trusting as to share sensitive data like usernames and passwords with a total stranger. They have no idea of the kinds of challenges the elderly face when they find themselves in virtual space. I have used personal computers and smartphones since these were first introduced. The complex ways of the virtual world fascinate me as a sociologist. Yet not being a digital native, I cannot presume to know to what possible uses information shared online can be put. With every passing year, I find myself painfully taking more time to complete online transactions, such as buying an airline ticket or booking a hotel room. _______________________________________________________________________________________ ‘Ayuda’ not a waste of money Philippine Daily Inquirer / 05:12 AM August 31, 2022 Let’s assume for the sake of argument that Finance Secretary Benjamin Diokno is correct in describing financial assistance for impoverished Filipinos who were severely affected by the COVID-19 pandemic as “a waste of public funds.” Assume for the moment that the head of the Marcos Jr. administration’s economic team is correct in describing the country’s situation as having “fully recovered” from the worst gross domestic product contraction since the end of World War II. Let us assume further that the Philippines has “limited fiscal space” after having engorged itself with debt during the previous administration, both to fund an infrastructure buildup program, as well as to embark on an emergency spending program at the height of the global public health crisis. Finally, let’s assume that it is a good idea to limit the granting of financial assistance only to those Filipinos who already have their national IDs. Here’s the problem with these assumptions: they have weak legs and cannot stand up independently to well-reasoned counterarguments. Take for instance the national budget. Almost every year since he became a lawmaker, former senator Panfilo Lacson has made it part of his advocacy to point out surreptitious pork barrel insertions that are either unnecessary or prone to graft and corruption. After his retirement, Lacson’s mantle has been passed on to Sen. Ralph Recto, who recently pointed out that as much as P588 billion of the proposed government budget for next year as unprogrammed appropriations, which he described as “gray areas.” Should those funds be lost to graft and corruption—and the government’s track record in this regard does not leave much room for optimism—that will be the classic definition of “a waste of public funds.” Another more appropriate example of a waste of public funds—more appropriate than describing “ayuda” to the poor as such—is the P2.4-billion deal of the Department of Education for 40,000 laptops for school teachers to be used as tools for distance learning. The laptops turned out, unsurprisingly, to have outdated specifications and are worth only a fraction of that price tag if bought off the shelf. That, having supposedly been transacted by a controversial unit of the Department of Budget and Management (DBM), is the classic definition of “a waste of public funds.” More examples? How about the more than P11-billion anomalous contracts for COVID-related medical supplies bagged by Pharmally Pharmaceuticals Corp., again under the auspices of the DBM?How about the kilometer upon kilometer of perfectly good concrete roads in various urban and rural areas nationwide that were ripped up and recemented—concrete “reblocking,” they call it—and, in the process of giving menial jobs to contractual laborers, lined the pockets of contractors? That is the definition of a waste of public funds. Of course, it also bears pointing out that financial assistance to even the most irresponsible of recipients is not wasted when viewed within the framework of helping the Philippine economy regain its footing. Even if, hypothetically, the recipient would spend it on nothing more than booze and other vices, note that the previous administration hiked the tax levies from so-called sin products. Whatever a person spends on alcohol, tobacco, or other unnecessary luxuries finds its way back to the coffers of the state in the form of substantial tax revenues, while the rest helps oil the wheels of the economy, spurring production and creating more jobs. But more realistically, this financial aid is spent on more basic needs like food, clothing, shelter, and utility bills—all of which yield taxes for the government and benefits for the growth of the economy. Finally, Secretary Diokno and the rest of our public servants, both in high government office, as well as those working closer to the people they serve, would do well to remember that the time for condescending “straight talk” is inappropriate toward the people who pay for their salaries with their taxes. We are in a new administration, and hopefully gone is the time when uncouth words and behavior toward Filipinos can be passed off as “telling it as it is.” If nothing else, the people from whom this financial aid will be withheld deserve dignity. No, Mr. Secretary. Helping the poorest of the poor hurdle the worst economic crisis in the country’s history—a pandemic that has pushed millions more below the poverty line—is not a waste of public funds. Doing so is our collective moral and social obligation to those we have neglected for so long. It is—in the face of all the government waste and corruption we have seen in recent years—quite simply, the right thing to do. _______________________________________________________________________________________ Digitalization for greater financial inclusion POINT OF VIEW - Pia Arellano - The Philippine Star August 16, 2022 | 12:00am Digitalization is defined as the use of digital technology to change business models and provide new revenue-producing opportunities. It embraces technology’s capabilities to optimize customer journeys and uses data to enable better business decisions. Digitalization also presents an opportunity for many countries around the world to facilitate greater financial inclusion. Everyone benefits from being a part of the mainstream financial ecosystem and economy. As customers gain access to more financial services, they are better positioned to grow financially – empowering themselves and the communities they belong to. As more people gain access to the financial system and begin to build wealth and access credit, greater financial inclusion serves as a catalyst for investment and spending, which in turn enables economies to flourish. The Philippines is well on the way to achieving greater financial inclusion through the continued growth and development of digital payment innovations. The 2022-2028 National Strategy for Financial Inclusion launched by the Bangko Sentral ng Pilipinas (BSP) places digitalization as an important initiative in broadening access to essential financial products and services. In terms of legislation, House Bill 8992 – also known as the Promotion of Digital Payments Act – is currently pending review. The bill seeks to widen access to digital payment systems to reach Filipinos who have otherwise been excluded from the formal financial system. COVID-19 also had a hand in the country’s rapid push toward digitalization. Social distancing guidelines and movement restrictions prompted businesses and customers to change their behavior, to shift to digital payments and allow wider access to financial products. Many government units also sent financial relief payments through digital channels. According to data from the BSP, over 4 million Basic Deposit Accounts (BDA) were opened since the start of the lockdowns. With a maturing millennial demographic (born 1981-1996) alongside high rates of mobile subscriptions, internet usage, social media penetration and smartphone adoption, the opportunities are present for digitalization to create a more inclusive economy for more Filipinos. The digital divide Digital financial inclusion can be transformational, especially for unserved and underserved members of the population who transact mainly in cash due to the lack of effective access to formal financial services. According to the latest BSP Financial Inclusion Survey, the number of unbanked Filipinos stood at 51.2 million – accounting for 71 percent of the total adult population. Financial exclusion affects a wide range of people. While there is no “one size fits all” solution for the problems of financially excluded people around the world, affordable and accessible digital financial services can go a long way. In a recent TransUnion global study on consumer attitudes towards credit, findings showed that consumers across the globe understand both the benefits and risks of credit and want to maintain control of their finances. In the Philippines, most unserved (51 percent) and underserved (52 percent) consumers surveyed expected their credit needs to increase in the next three to five years. In relation to this, both unserved (39 percent) and underserved (51 percent) consumers plan to apply for credit within the year. Finding ways to meet the needs of this large population of consumers while prudently managing risk represents a significant growth opportunity for lenders. With the right technologies and business strategies, banks and other financial institutions across the country can help bridge the digital divide to promote greater financial inclusion. By reducing barriers to entry with lower-cost digital services, digital financial inclusion offers the promise of reaching new markets that conventional solutions are unable to service. As customers gain familiarity and trust with digital platforms, the data utilized and generated by such platforms enable access to services such as savings, credit and insurance tailored to customer needs. A tech-driven economy Digital financial services also enable economic empowerment by allowing customers to transact in small amounts. This helps increase economic participation by helping individuals with uneven income manage their expenses. BSP data showed that in the first seven months of 2021, the value of transactions made through local e-wallets increased by more than 180 percent. Greater economic participation through digital financial services propels the country further in terms of transitioning towards a technology-driven economy. According to research conducted by economic consultancy firm AlphaBeta, if a technology-driven economy is fully leveraged by 2030, the Philippines can raise up to P5 trillion in economic value. The majority of the total estimated digital opportunity can be generated by technology-led businesses such as e-commerce and mobile retail applications. These platforms facilitate digital transactions, reduce labor requirements, promote inventory efficiencies and cut retail costs, offering productivity gains ranging from six to 15 percent. Digitalization for the future Digital solutions streamline processes. For lenders, effective digitalization can help create a positive consumer experience that potentially brings more consumers into the formal financial system. Additional local findings from the TransUnion global study on consumer attitudes towards credit showed that smooth digital processes can significantly reduce credit application abandonment rates – helping more people become financially included. However, with the presence of bad actors and the emergence of more sophisticated methods of fraud and other forms of cybercrime, banks and other financial institutions must be vigilant in ensuring security. Everyone stands to benefit from being confident in the integrity of digital financial services. Bad experiences can undermine trust, but robust security and an informed consumer base form the blueprint for trust and loyalty. As a global information and insights company, TransUnion Philippines is committed to helping build trust between businesses and consumers. With high smartphone usage rates in the country, solutions such as our updated CreditVision Link Universal Score leverage traditional and alternative credit data to enhance risk decisions and understand consumer trajectory, while digital onboarding technologies increase acquisitions while safeguarding against fraud. Although much has been done to drive broader financial inclusion, there is still much work to be done. While digitalization is an important component in fostering inclusive growth and financial resilience, efforts must be cohesive. Financial institutions must work together with the new government to help increase awareness, promote digital literacy and advance the development of needed infrastructure to ensure greater access to digital finance. With these measures in place, not only can more Filipinos become credit visible, but more families stand to enjoy an improved quality of life across the nation. * * * Pia Arellano has over 25 years of experience in banking, payment solutions, telecommunications and remittance services. She has been instrumental in establishing TransUnion as a risk management and data solutions and insights partner of banks and financial institutions in the Philippines. _______________________________________________________________________________________ Our interconnected crises By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:25 AM August 09, 2022 The human costs of COVID-19 and how we managed it heightened grave threats to the nation’s future that had been looming even before the pandemic. We have a ticking time bomb in our midst that needs to be defused fast with decisive reform and wide collective action. Many are already aware of our stunting problem, wherein one in every three Filipino children 5 years old and below is stunted due to chronic malnutrition, as reported by the Food and Nutrition Research Institute (FNRI). A child is stunted when his/her height is lower than the median (average) height for his/her age by two standard deviations or more. In 2015, incidence among 5-year-olds and younger was 33.4 percent, and had inched down to 28.8 percent in 2019. But the pandemic more than doubled the incidence of forced hunger, based on the Social Weather Stations’ regular survey—and it is quite likely that early childhood stunting has also escalated in turn. I have written before about why our high incidence of stunting, which is among the highest in our part of the world, is a silent crisis in our midst. FNRI describes it as a “silent pandemic.” It’s not the height that is the main problem here; it’s the underdevelopment of the child’s brain that is. It’s a fact that 90 percent of a human’s brain development happens by age 5. Brain scans of healthy and stunted children indeed show that the latter have much less brain tissue or white matter, which is essential to memory, cognitive ability, and overall mental capacity. Thus, a chronically malnourished child who is stunted at age 5 will no longer be able to achieve his/her full physical and mental potential, and is irreversibly damaged for life. Studies have consistently shown that early childhood stunting has adverse long-term effects on individuals and entire societies, including poor cognition and educational performance, low productivity as adults, and consequently, lower earnings or wages. Our other silent crisis is the alarmingly abysmal average performance of our elementary and high school students in international comparisons. It is now well-known that the Philippines ranks at the bottom in reading comprehension and second to the bottom in science and mathematics among 79 participating countries in the 2018 Program for International Student Assessment. Recently, the World Bank released the latest country assessments on learning poverty, which measures the percentage of children who cannot read and understand the simple text by age 10. The Philippines rated a dismally high 90.9 percent, far exceeding Indonesia’s 52.8, Malaysia’s 42, Thailand’s 23.4, Vietnam’s 18.1, and Singapore’s 2.8 percent. And even as our education was already in crisis before COVID-19, the pandemic set us back further with over two years of remote learning that put children from poor families and far-flung areas with no connectivity at an even greater disadvantage. The two crises are closely intertwined. Our serious education crisis is not just about classrooms and teachers but also traces more fundamentally to the silent pandemic of stunting and malnutrition that has afflicted our children for decades. That helps explain why we ranked lowest (with an average of 86) among all 10 Asean countries in average IQ in a cross-country assessment in the early 2000s. Even the best teachers can only do so much for a pupil whose learning has been compromised by early childhood stunting or distracted by hunger pangs in the classroom. School feeding programs are important, but making sure pregnant and lactating mothers are able to eat well is even more critical and urgent. And our overly protective (rather than nurturing and enabling) agricultural policies, which pushed food prices higher than they need to be, ultimately led to the poor’s food insecurity, malnutrition, and poor education outcomes, hence perpetuating their poverty. Until we understand that the Department of Agriculture has as much to do with our education outcomes as the Department of Education does, we may continue finding ourselves at the bottom of many global lists. Our most serious crises are interconnected. And so should our bureaucrats connect across their silos. _______________________________________________________________________________________ PH central bank welcomes passage of new agri financing law By Michael Chen - August 6, 2022 The Bangkok Sentral ng Pilipinas (BSP), the central bank of the Philippines, welcomes the passage of Republic Act (RA) No. 11901 or “The Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022” that provides a comprehensive financing framework for the development of the agriculture and fisheries sector and rural communities. “The BSP is committed to the effective implementation of this law, which aims to enhance access of rural communities and agricultural and fisheries households, including their micro, small, and medium enterprises (MSMEs), to much needed financial services and programs,” said BSP Governor Felipe M. Medalla. The new law broadens activities for agricultural credit and rural development financing to include agri-tourism, digitalization of agricultural activities and processes, public rural infrastructure, programs that promote health and wellness of rural communities, and activities that improve livelihood skills. It also promotes financing toward environmental, social, and governance projects, including green projects that support sustainable and inclusive economic growth. Banks are no longer required to reserve 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities. Instead, this new law provides banks with greater flexibility in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors. Moreover, banks that are unable to directly lend to rural community beneficiaries may contribute through other means, such as investing in debt and equity securities, undertaking agricultural value chain financing, and granting agri-business loans to fund agricultural and community-enhancing activities. In addition, the law provides a mechanism to finance organizational, capacity, and institution-building programs to improve competitiveness and productivity in agriculture and fisheries, as well as rural communities. “The enactment of the new Agri-Agra and Rural Financing law is a timely and positive development since it will assist the sector’s recovery from the impact of the COVID-19 pandemic and other natural calamities through private sector financing,” the Governor emphasized. _______________________________________________________________________________________ BSP widely seen raising interest rates until 2023 Lawrence Agcaoili - The Philippine Star August 6, 2022 | 12:00am MANILA, Philippines — Economists expect the Bangko Sentral ng Pilipinas (BSP) to extend the tightening cycle by hiking interest rates until next year to address soaring inflation. Aris Dacanay, economist for ASEAN at British banking giant HSBC, said in a commentary that the BSP may raise interest rates by another 100 basis points this year and another 50 basis points next year. “The BSP will likely have to hold its ground and keep on hiking to prevent inflationary expectations from being disanchored,” Dacanay said. The BSP has so far raised interest rates by 125 basis points since it started its liftoff last May to curb rising inflationary pressures. Including the back-to-back 25-basis-point increases in May and June as well as the huge 75-basis-point hike during a surprise off-cycle rate-setting meeting last July 14, the benchmark interest rate now stands at 3.25 percent from an all-time low of two percent. Dacanay said HSBC sees the BSP raising interest rates by 25 basis points in the remaining four rate-setting meetings for the rest of the year, bringing the overnight reverse repurchase rate to 4.25 percent by the end of 2022. For 2023, the British banking giant sees the BSP hiking rates by another 50 basis points in the first quarter before pausing for the remainder of the year at 4.75 percent. HSBC raised its inflation forecast to 5.3 percent this year, but retained next year’s projection at 3.7 percent. Inflation averaged 4.7 percent in the first seven months, staying above the BSP’s two to four percent target range, after accelerating to 6.4 percent in July from 6.1 percent in June. “In most cases, month-on-month inflation needs to peak first before year-on-year inflation peaks. Year-on-year inflation can peak at the same time as its month-on-month counterpart, but the latter will need to drop by a considerable amount. In this note, we look closely at the numbers and check where month-on-month inflation will likely tread in the next few months and how y-o-y inflation will follow,” Dacanay said. HSBC sees the peak of year-on-year inflation up ahead, but it seems to be stretched, bumpy, and cloudy. Bank of the Philippine Islands lead economist Jun Neri said the BSP would hike rates until the end of the year as the economy has enough capacity to absorb the ongoing policy normalization. “While a hike toward 4.25 percent by end-2022 will be a slight damper on demand, the contractionary risk of de-anchoring inflationary expectations carries more weight,” Neri said. Neri explained that household consumption accounts for at least two-thirds of the economy, and not getting inflation in check would likely have a more severe impact on consumption and overall demand. According to Neri, the economy managed to grow by 6.3 percent in 2018 and 6.1 percent in 2019 even if the policy rate was above four percent. “Supply disruptions have kept food prices elevated and could be vulnerable to higher transport costs, trade restrictions, and weather disturbances. This, along with sustained peso depreciation due to import expansion and hawkish Fed policy will likely compel the BSP keep up with its adjustments through 2023,” Neri said. ING Bank senior economist Nicholas Mapa sees a more aggressive tightening by the BSP which could bring the reverse repurchase rate to 4.50 percent by the end of the year. “We expect the BSP to remain hawkish with rate hikes in the pipeline,” Mapa said. BSP Governor Felipe Medalla, who earlier signaled a rate increase of 25 or 50 basis points on Aug. 18, said the central bank recognizes the broadening of price pressures amid the emergence of second-round effects, including the approved wage and fare hikes as well as elevated inflation expectations. “The risk to the inflation outlook is tilted on the upside for 2022 and 2023, but is broadly balanced for 2024,” Medalla said. The BSP chief said upside risks over the near-term continue to emanate from the higher global non-oil prices driven by the protracted war between Russia and Ukraine as well as from the potential second-round impact of higher oil prices on the prices of goods and services. Likewise, Medalla said domestic food prices also pose upside risks due to shortages in the supply of several key food items. Meanwhile, Medalla said a slower-than-expected global recovery due to tighter global monetary policy conditions and the continued uncertainty from the pandemic continues to present a downside risk to the outlook. “The upward adjustment in monetary policy rates in May and June and the off-cycle adjustment in July should help moderate inflation expectations,” the BSP chief said. _______________________________________________________________________________________ BSP seen to deliver more rate hikes July 18, 2022 | 12:33 am By Keisha B. Ta-asan THE PHILIPPINE central bank could deliver more aggressive rate hikes in order to support the peso and tame inflation without derailing economic growth, analysts said. The Bangko Sentral ng Pilipinas (BSP) unexpectedly tightened its monetary policy by 75 basis points (bps) on July 14, bringing the benchmark rate to 3.25%. Interest rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively. Deutsche Bank Chief Executive Officer for Asia Pacific Alexander von zur Muehlen said the BSP would likely raise interest rates by another 50 bps in August to support the peso, which recently touched the all-time low. “We think the central bank needs to stabilize the currency and it will take more than (the July 14) move to do that. We still expect a 50-bp rate hike in August and for now will keep the September rate hike at 50 bps too,” Mr. Muehlen said in an exclusive interview with BusinessWorld. Despite policy tightening, the peso remains under pressure. It closed at P56.36 against the US dollar on Friday, weakening by 21 centavos from its Thursday finish. Year to date, the peso depreciated by 10.5% or by P5.36 from its close of P51 versus the dollar on Dec. 31, 2021 “What we’re experiencing right now, is that obviously, a lot of currencies here in our region are looking weaker against the dollar. This is less to do with any individual currency’s weakness, and more to do with a number of macroeconomic drivers pushing up the dollar’s strength,” Mr. Muehlen said. Investors are flocking to the dollar, which is seen as a safe-haven asset, as the US Federal Reserve considers larger rate hikes amid red-hot inflation. BSP Governor Felipe M. Medalla said he would not rule out another interest rate increase in its next policy meeting on Aug. 18. “We still have room to raise depending on the inflation picture,” Mr. Medalla said in an interview with Bloomberg TV on Friday, also citing spillover effects from other countries for last Thursday’s off-cycle decision. Inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeded the central bank’s 2-4% target band for a third straight month. The inflation rate averaged 4.4% in the first six months, still below the BSP’s full-year forecast of 5%. The Philippine Statistics Authority (PSA) is scheduled to release July inflation data on Aug. 5, and second-quarter gross domestic product (GDP) data on Aug. 9. GROWTH OUTLOOK Sanjay Mathur, chief economist for Southeast Asia and India of ANZ research, said the BSP has room to hike rates without hurting economic recovery amid global uncertainties. “The 75-bp rate hike, though unexpected and unexpectedly large, is unlikely to impact growth. Nonetheless, further tightening is also on the cards to reduce inflation,” Mr. Mathur said in an e-mail. “Now the critical point to bear in mind is that the way a monetary tightening cycle works is that it reduces aggregate demand and that in turn, stabilizes or reduces inflation. The same transmission will evolve in the Philippines — aggregate demand ease and that is a prerequisite for lower inflation.” The economy expanded by a faster-than-expected 8.3% in the first quarter. The Development Budget Coordination Committee (DBCC) is targeting 6.5-7.5% GDP growth this year. “On the external developments, we should bear in mind that the Philippines is not a major exporting economy. Nonetheless, even a marginal impact on exports when domestic demand is easing (as discussed above), the overall impact on growth would be apparent,” Mr. Mathur said. The global economic outlook for this year and 2023 is expected to be further downgraded when the International Monetary Fund (IMF) releases its World Economic Outlook Update later this month. “The war in Ukraine has intensified, exerting added pressures on commodity and food prices. Global financial conditions are tightening more than previously anticipated. And continuing pandemic-related disruptions and renewed bottlenecks in global supply chains are weighing on economic activity,” IMF Managing Director Kristalina Georgieva said in a statement. “Moreover, downside risks will remain and could deepen — especially if inflation is more persistent — requiring even stronger policy interventions which could potentially impact growth and exacerbate spillovers particularly to emerging and developing countries,” she added. Meanwhile, Mr. Muehlen expects that countries in the Southeast Asian region would continue their recovery in contrast with the global outlook. “This part of the world is set for growth, we anticipate that ASEAN (Association of Southeast Asian Nations) and large parts of Asia will see its GDP grow by two times versus the rest of the world, in the foreseeable future, and for quite a number of years,” Mr. Muehlen said. “The growth opportunities here are over proportional. And as a consequence, we continue to look very constructively at the future here for us,” he added. _______________________________________________________________________________________ Never underestimate inflation THE CORNER ORACLE - Andrew J. Masigan - The Philippine Star July 13, 2022 | 12:00am It was worrying that President Bongbong Marcos was unaware of (or was in denial of) our current inflation situation. At this point, rising inflation and its toxic effects should be front and center of his concerns. Headline inflation reached a three-year high of 6.1 percent this month, driven by skyrocketing food prices and fuel cost, declared the Philippine Statistics Authority. One peso in 2018 is worth a mere 87 centavos today. Inflation is climbing across the world due to the shortage of oil, natural gas and wheat resulting from the Russian-Ukraine war. Supply chain disruptions owing to China’s COVID-induced lockdown exacerbates the situation. As of this writing, inflation is at 8.6 percent in the US, 8.4 percent in the Eurozone, 7.6 percent in Thailand, 21.3 percent in Pakistan, 78.62 percent in Turkey and a whopping 927 percent in Venezuela. Inflation should never be underestimated as it has the power to impact policies, priorities, politics and poverty across nations. In short, it has the power to change the world order. This was confirmed by the WION news agency. Let me explain. Inflation changes policies. In a period of acute price increases, governments typically shift their policies towards stabilizing prices and securing ample supply of essential goods at home. Hence, policies become more inward looking, more nationalistic and more protectionist. Even now, rising prices has compelled Indonesia to ban the export of palm oil. Argentina banned the export of soybean meal. Iran banned the export of potatoes. India banned the export of wheat and Turkey banned the export of beef. These protectionist policies impact countries like the Philippines which depend on imports for her basic food requirements. Scarcity of food imports has driven prices up and/or lead to food shortages. In Italy, for instance, the price of pasta has increased by 40 percent due to the shortage of wheat flour. Here at home, a 25-kilo sack of good quality rice worth P1,200 last year is now P1,350. As for shortages, chicken and pork are becoming increasingly expensive as importations run low. Inflation causes a shift in global priorities. It took decades to persuade governments to realize the urgency of climate change. Following intense lobbying by environmentalists, the United Nations finally adopted its Framework Convention on Climate Change in 1992. Through successive treaties, governments made nationally determined commitments to reduce their greenhouse gas emissions by a certain percentage until 2030. The Philippine government committed to reduce its emissions by 75 percent. These commitments are now out the window for most. Governments are now more concerned about arresting price increases and generating savings wherever they can get it. As a result, energy derived from fossil fuels is making a comeback. Despite commitments to shift to renewable energy, countries like Austria decided to re-open its coal-fired power plants. In the US, the Supreme Court defanged the Environmental Protection Agency, taking away its powers to regulate emissions from fossil fuel power plants and mandate a shift to renewable energy sources. The world’s priorities have changed. The name of the game is to keep prices down, even at the expense of accelerating global warning. Inflation exacerbates poverty. There are 1.1 billion people living below the poverty line worldwide, of whom 25 million are Filipinos. Poverty sets off a chain reaction of medical consequences including malnutrition, miscarriages, infant morbidities and stunted growth. It breeds social problems such as crime, homelessness and unemployment. Just as the world recovers from the economic effects of the pandemic, here comes festering inflation that erodes purchasing powers across currencies. It will be more difficult for those living in poverty to find relief. Inflation induces political change. Rising prices translates to a discontented population. In severe cases, this could lead to social unrest. A discontented population will always clamor for political change. We’ve seen this happen many times before. In India, despite his popularity, Manmohan Singh lost the parliamentary polls in 2014 due to high inflation during the months leading to elections. In the United States, the last 15 months of Jimmy Carter’s presidency saw prices soar due to an oil crisis brought about by the Iranian revolution. High prices caused Carter to lose his re-election to Ronald Reagan. Today, food prices in the US are up by 10 percent while fuel cost is up by 8 percent. With midterm elections happening in November, we can expect a shake up in the American legislature. The American status quo will be broken. Globally, 50 countries will go to the polls within the next 12 months including Brazil, Israel, Pakistan and Turkey. As inflation rates register all-time highs, experts expect a new cast of global leaders to emerge. With this comes a change in the world order. In the Philippines, President Bongbong Marcos is hard-pressed to bring relief to his constituency, mostly consisting of the marginalized sector. Already battle scarred from COVID, the poor must now deal with stiff price hikes. If President Marcos fails to bring them relief, his popularity will dissipate and his honeymoon period will be cut short. But President Marcos faces a conundrum. Mr. Duterte left him with an economy that operates with huge budget deficits and maturing debts worth P834 billion this year. How can he provide food and fuel subsidies at a time when he needs to tighten belts? Mr. Marcos will have to raise the funds somehow. He must impose new taxes without further burdening a population besieged with high inflation. He must raise funds without acquiring more debts. He must cut spending without choking economic expansion. He must spend on infrastructure and social services without widening the budget deficit. It’s going to be a tough balancing act. We must never underestimate the perilous consequences of inflation. President Marcos will do well to be on top of it and count it as one of his priorities. _______________________________________________________________________________________ Meeting inflation head-on By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM July 05, 2022 In my childhood days in the 1960s, we would watch on our dark Radiowealth TV screen “Da’ Best Show,” a daily early evening variety show that featured comedy skits with veterans Sylvia La Torre, Oscar Obligacion, Ading Fernando, and more. A recurrent skit scene was the family meal where members took turns sniffing on a small piece of meat hanging by a string, before taking a spoonful of rice—their supposed way of coping with not being able to afford “ulam” for everyone. It was funny to most of us then, but perhaps not for the poorest among us for whom even rice is too expensive to buy in sufficient quantity. And the bad news is, its price is set to go up further. Worldwide, a rapid rise in food and fuel prices has been the unwanted fallout from the Russia-Ukraine war, on top of general inflation that had already resulted from massive COVID-19-related spending by countries—much of it financed with unprecedented printing of money even by erstwhile fiscally disciplined governments. The galloping inflation large economies are now reeling under forces them to rein it in with drastic moves to reduce money supply, with central banks raising interest rates and upsetting financial markets worldwide, including our own. Here at home, escalating food and fuel prices, not so much excessive money supply, shapes our inflation outlook. And reduced fertilizer application due to tripled prices of the petroleum-based product will further tighten domestic food supplies. How bad could the price hikes get? What can we do to cope with heightened inflation still to come? One projection from a knowledgeable source has our annualized inflation rate steadily rising and breaching 8 percent by December, for a full-year average exceeding 6 percent. While plausible, it can also still be dampened if we are able to manage the forces pushing our prices up. As I wrote last week, our inflation is not quite the same as the prominently money-supply-induced inflation the big economies are now fighting, and are better dealt with by addressing supply-side problems. These include overcoming African swine fever that has drastically cut domestic pork supplies, improving fisheries output via aggressive aquaculture, reducing post-harvest losses and food wastage, improving rice milling recovery by turning more to healthier unpolished rice, ramping up production and application of nonchemical fertilizer substitutes, and more. On the last, the University of the Philippines Los Baños is already working with the Department of Agriculture to quickly scale up production of its promising fertilizer substitute called Bio-N. This is a microbial-based fertilizer composed of good bacteria that can convert nitrogen from the atmosphere into a form plants can absorb. This is just one example showing that we have the scientific knowledge needed to cope with difficulties like what we now face, but had traditionally fallen short of making it widely accessible to our farmers. Crisis now pushes us to do it right. On unpolished rice, I’ve written before about how we could gain around 10 percent more rice volume by simply consuming more rice in unpolished or “brown” form (“Win-win with brown rice,” 7/17/12)—and actually become healthier in the process. At the household level, there are various ways we could cope with rising food and fuel prices. Many of us turned to grow our own food, especially vegetables, in our backyards or even in hanging receptacles during the pandemic lockdowns; that continues to make much sense. We can plan our errands and trips more efficiently to reduce our transport costs. We can forego or cut down on nonessentials, especially the harmful “sin products” of tobacco and alcohol, and make a conscious effort to conserve energy and water in our homes—and there are many little ways of doing that, which could add up to much savings. And we could take extra effort to keep healthy and fit, through more exercise and avoiding infection risks, thus saving on avoidable medical costs. Inflation expectations can be self-fulfilling, so the more we all do to cope with it, the less likely it will be as bad as we fear. _______________________________________________________________________________________ BSP to invest P25 B for New Clark City facility Published June 26, 2022, 10:10 PM by Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) will spend at least P25 billion for the construction of a new Currency Production Facility (CPF) in its 31.2-hectare complex in New Clark City in Capas, Tarlac. BSP told Manila Bulletin that the budget of “around P25 billlion” for the bigger printing facility has been approved recently. “The actual budget for the component projects will be provided in the procurement documents, as they are filed,” the BSP said in an email. Meanwhile, the BSP said the CPF is currently in its design phase. “(This) is estimated to be completed in the last quarter of this year,” it also said. “After the approval of the detailed designs and plans, the BSP will open the bidding for the general contractor,” the BSP added. After the bidding process, construction could begin as early as the first quarter of 2023. BSP Governor Benjamin E. Diokno said earlier that construction of the new complex will take two to three years. Before the pandemic happened, the BSP was planning to start construction in the first quarter of 2020 and completion of the project is expected three years after. The contract for the winning bidder Aidea Inc. for the architectural and engineering design services of the complex, was only completed in March of this year due to the two-year delay following the Covid health crisis. The New Clark City home for the BSP’s printing, minting and other activity is bigger than its current six-hectare, 44-year old Security Plant Complex (SPC) in Quezon City. The P25-billion approved budget will cover the construction of an “inclusive, green, and smart” office building, the BSP Museum, an academic building, a sports complex, data and command centers, and commercial stalls. Aidea will design all publicly accessible and semi-restricted areas. The Tarlac printing facility once operational is intended to have the full capacity to print all of the country’s banknotes requirement, currently at five billion pieces in all six denominations, including the P20 which will be phased out eventually to give way to its coin version. The central bank has modernized and expanded the SPC from 2014 when the Monetary Board approved a 10-year plan but it was in 2018 when the need for a bigger facility to handle the currency requirements of a growing economy became more apparent. The SPC, built in 1978, has the capacity to produce 3.6 billion pieces of banknotes per year. It has invested over P5 billion to buy two new superline banknotes printer, the first was bidded out in 2011 and the second in 2013. The installation and commissioning was completed in 2017. This raised the central bank’s printing capacity from 1.8 billion pieces of banknotes to 3.6 billion at the end of 2017. The plan to relocate the printing facility was initiated during the time of BSP Governor Nestor A. Espenilla Jr. in 2018, but he passed away in February 2019, leaving it to his replacement, Diokno, to carry out with the proposition. By September of that year, when Diokno led ground breaking ceremonies in New Clark City, he said it was crucial for the BSP to maintain a currency production facility that could “allow sufficient agility to meet the country’s currency requirements” and the “move to the New Clark City will also boost the central bank’s capacity to sustain its operations in times of calamity or natural disaster.” _______________________________________________________________________________________ A bitter pill to swallow Philippine Daily Inquirer / 04:40 AM June 20, 2022 Bangko Sentral ng Pilipinas Governor Benjamin Diokno, who as the finance secretary-designate will be the chief economic manager of the incoming administration, last week announced a six-year fiscal plan to bring the budget deficit back to a manageable pre-pandemic level by 2028. The fiscal consolidation blueprint, which will essentially outline measures to shore up government revenues and perhaps cut public expenditures, will be submitted to President-elect Ferdinand Marcos Jr. within two weeks, or immediately after the new administration takes over on July 1. Such a plan is crucial because of the urgent need to raise revenues to start repaying government debt that has ballooned to P12.7 trillion as of end-March 2022, breaching 60 percent of gross domestic product (GDP) — the threshold of international standards for prudent economic housekeeping. This is projected to reach P13.1 trillion by the end of 2022. Diokno himself indicated that the first item on the agenda when he takes over the finance portfolio will be the sustainability of government debt. “We need a lot of money — first [in order] to continue our [economic] growth momentum and second, to service our higher level of public debt,” he said. The debt problem has been exacerbated by the depreciation of the peso past the P53 to $1 mark, making it more expensive to repay the foreign loans borrowed during the pandemic. The outgoing Duterte administration actually drafted a fiscal plan for the incoming administration. Finance Undersecretary Valery Brion, quoting the Bureau of the Treasury, said that to prevent having to use more borrowings to pay P3.2 trillion in incremental debt due to the pandemic, the government needs to generate at least P249 billion each year in new revenues. Based on the Department of Finance (DOF)’s estimates, a total of P349.3 billion can be raised each year if the Marcos Jr. administration implements three packages of tax reforms starting from 2023 up to 2025. A key DOF proposal is to defer the scheduled reduction in personal income tax rates for 2023-2025 to generate P97.7 billion yearly. The DOF also recommended the removal of many exemptions from the 12-percent value-added tax starting in 2023 to generate P142.5 billion a year. According to Brion, the Philippines’ debt-to-GDP could ease faster from more than 60 percent by year’s end to 59.1 percent in 2023, 57.7 percent in 2024, and 55.4 percent in 2025 if the Marcos Jr. administration pursues this complete fiscal consolidation and resource mobilization plan. The consequence of not acting fast on the debt problem, on the other hand, will be more economic difficulties. “We need to start paying for the debts we incurred during the pandemic, with the first principal payment falling due as early as 2023 … If we do not pursue fiscal consolidation and resource mobilization, there are serious and spiraling consequences to our fiscal and economic health. If no reforms are introduced or the reforms are diluted, there will be two scenarios ultimately leading to the same outcome: a fiscal and economic crisis as a result of higher debt, lower socioeconomic spending, and fewer investments,” Brion pointed out. However, Marcos Jr. and Diokno have on separate occasions frowned upon the imposition of new or additional taxes when the new administration is just starting. During his presidential campaign, Marcos Jr. said that it may not be a good time to immediately introduce new tax measures amid the protracted fight against COVID-19. This is obviously to avoid angering the public, which normally bears the brunt of new taxes. Diokno stressed the need to focus on sustaining economic expansion rather than raising taxes. But the problem is that any economic growth trajectory has been made more difficult by the protracted war between Russia and Ukraine, which has roiled global markets, pushed up oil prices, and disrupted the economic recovery of many nations. There is really nothing wrong with imposing new tax measures, especially since the Philippines needs to repay a swelling debt and avoid the risk of a credit-rating downgrade. The country enjoys investment-grade ratings from the top three debt watchers—Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings. It is important to keep this credit rating, which is a measure of a government’s creditworthiness. Improved ratings will allow the government to demand lower rates when it borrows from lenders, which can translate to lower interest rates for consumers and businesses borrowing from banks, using government-issued debt paper as benchmarks for their loans. “Sometimes you have to take a medicine that tastes lousy — that is bitter and it’s no good, but if you don’t take it, you may even get worse,” outgoing Finance Secretary Carlos Dominguez warned. It will be interesting to see how Diokno’s fiscal consolidation plan will play out. The details — and their subsequent implementation — will determine if the Marcos Jr. administration will be able to control the worsening fiscal situation and address the burgeoning public debt or, failing that, bring the country to a deeper economic malaise. _______________________________________________________________________________________ Seven deadly sins By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM June 14, 2022 I’ve long asserted that agriculture is far too important to be left to the Department of Agriculture (DA) alone. Our farm and fisheries sector is the concern of every Filipino, because on it hinges our ability to feed our people, while also providing important products other than food. Last week, I suggested that getting back to the two basics — our people and our land — should be top priority in planning the nation’s way forward. Having discussed the first, especially in terms of addressing our serious education crisis, I now turn to our land, particularly in maximizing the value and benefits we get from our farms, and coastal and inland waters. Of the three major economic sectors, agriculture is the most evenly spread across the country’s regions. In stark contrast, Metro Manila and Calabarzon alone already account for more than half of our services gross domestic product, while for our industry GDP, more than half comes just from Calabarzon, Metro Manila, and Central Luzon. Agriculture is truly our most inclusive economic sector, and our best bet to achieving inclusive economic development. That the incoming president has been taking his time to name his agriculture secretary suggests that he sees the success of his presidency hinging crucially on the sector’s performance. A reliable source tells me that he would like to see a thorough overhaul and restructuring of the agriculture bureaucracy if Philippine agriculture were to stop lagging far behind those of our neighbors, whose agriculture experts we once mentored. He, thus, needs an agriculture secretary who can effectively preside over such a major house cleaning and renovation. Having studied the sector for decades, I had concluded long ago that what Philippine agriculture most critically needs is fundamental bureaucratic and institutional reform, without which it would simply continue being the drag on our overall economic progress. It’s not a problem of lack of knowledge or technology to raise productivity; we’ve long had that in the University of the Philippines Los Baños and our other agricultural knowledge centers, where we’ve even taught our neighbors since the 1960s. Rather, it’s our persistent inability to have our farmers properly and widely apply and benefit from that knowledge in farms all over the country, because of what I’d call the “seven deadly sins” of our DA. The DA (1) persisted with a largely top-down centralized approach to managing the sector, in spite of the devolution mandated by the Local Government Code of 1991; (2) was unduly obsessed with rice self-sufficiency, to the relative neglect of other crops, both in terms of attention and budgets; (3) inordinately focused on farm production and neglected the rest of the agricultural value chain for a holistic systems perspective; (4) was largely structured and organized according to commodities rather than according to key central functions it must fulfill under the mandated devolved setup; (5) relied primarily on protecting our farmers by closing our domestic markets to foreign competition, to the neglect of nurturing them to shape up so they can well compete and thrive in both our internal and export markets; (6) failed to respond to the fragmentation of our farms from agrarian reform and generational partition, via effective consolidation and clustering schemes that our neighbors had used to good advantage; and (7) neglected to work with public and private financial institutions to ensure farmers ample access to working capital, so they could maximize use of superior technologies and inputs, profit from improved productivity, and thereby raise their families’ incomes and welfare. Furthermore, it’s no secret that much of our agriculture budget has failed to go to its intended uses to benefit farmers, but ends up in the wrong pockets in a bureaucracy that has traditionally been notorious for graft and corruption. I’ve written about suggested solutions to all these “sins” over the last 20 years. But old habits die hard, and we have yet to see substantial reform in the agriculture bureaucracy since then. Meanwhile, Filipino farmers and food consumers continue to suffer from it. _______________________________________________________________________________________ Back to basics By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:35 AM June 07, 2022 As a new administration prepares to take over the reins of government, it needs to firm up its strategy for moving the country forward. Given the state of our country and its people right now, my unsolicited advice is to start with the basics, and these boil down to our two assets needing utmost attention: our people and our land. Let me elaborate. The greatest toll the pandemic has taken on us has been its human cost, in how it severely compromised health and nutrition, and disrupted education, especially among lesser-endowed Filipinos. COVID-19 delivered a debilitating blow to what was already a battered health, nutrition, and education status, especially of our children—the cumulative result of many years of seeming benign neglect. The signs had been staring us in the face: worst rankings worldwide in reading, science, and mathematics; lowest average IQ among all 10 Asean member states; and higher incidence than in most of our Asean neighbors of stunting due to severe malnutrition in children five years old and below. Our progressive deterioration in education started decades ago. When I resumed teaching duties at the University of the Philippines-Los Baños in the mid-’80s after five years of post-graduate studies overseas, I recall feeling shocked at the very discernible general decline in my students’ capabilities. It couldn’t have been due to an easing of UP’s admission standards, and I could only blame a likely decline in the quality of our high school education then. By 1991, Congress saw it fit to create the Joint Congressional Commission to Study and Review Philippine Education (EDCOM) over a 12-month time frame, noting the palpable and continuous decline in the quality of Philippine education. EDCOM noted that (1) school dropout rates were inordinately high, especially in rural areas, probably caused by inadequacy of preparation among young children; (2) government investment in the education system was inadequate, including in teaching materials and learning resources for primary education; (3) the education system was poorly managed; (4) there is a lack of curriculum upgrading; (5) programs and facilities for special education (i.e., for children with special needs) were lacking; and (6) tertiary and technical-vocational education institutions lacked coordination with industry and market focus, leading to job-skills mismatch and poor job placement of graduates. A tangible outcome of EDCOM 1991 was the “tri-focalization approach” that led to the establishment of the Commission on Higher Education and the Technical Education and Skills Development Authority. The former Department of Education, Culture and Sports (DECS) would then focus exclusively on basic education (elementary to high school) and was renamed the Department of Education (DepEd). I recall how then DECS Secretary Isidro Cariño loudly protested the “dismemberment” of his department, predicting disastrous results. Whether that split contributed to it or not, the decline in Philippine education appeared to have continued, leading us to the damning international rankings our educational system is known for now. Three decades since the last EDCOM, our education system again cries out for a long and hard look, hopefully with all of us putting our heads together to chart the right way forward. The group Philippine Business for Education is spearheading the call for a new multisectoral Education Commission participated in by all sectors of society “to analyze the gaps, look for opportunities and pave the ground on which we build our (educational) reform efforts.” Incoming Education Secretary Sara Duterte-Carpio would do well to make it one of her first moves, if we are to inspire confidence in the country’s education future, the same way the appointment of respected new economic managers is doing for the economy. Apart from people, the other basic concern is land, where the imperative boils down to vastly improving the productivity and competitiveness of our agriculture sector. This requires a separate discussion of its own, and in the meantime, we all await with bated breath the choice of the person to lead the sector in the next six years. _______________________________________________________________________________________ BBM test: Debt and taxes Philippine Daily Inquirer / 05:08 AM June 01, 2022 No one enjoys paying taxes. But each administration faces its own unique set of fiscal challenges that require taxes on a variety of goods and services to be raised one way or another, and the incoming one is no different. No different except for one thing: no thanks to the COVID-19 pandemic, the incoming presidency of Ferdinand “Bongbong” Marcos Jr. faces the toughest economic conditions, both globally and locally, since the first half of the 2000s when the country was struggling with a looming crisis brought about by ballooning expenditures and insufficient revenues. Today, the Philippines’ total debt as a percentage to the value of economic output stands at 63 percent, which is slightly higher than the acceptable international threshold for a sustainable level of borrowings of 60 percent for similar emerging markets. In other words, at current levels, the Philippine government is relying more on credit to spend for its operations rather than revenues. Allowing this to continue for an extended period will result in an upward spiral of debt which can only be obtained at higher interest rates, causing borrowing costs for every Filipino to increase in step and, ultimately, stunt economic growth—at the worst possible time for a nation just starting to dig itself out of the deep pandemic hole. Headed by Finance Secretary Carlos Dominguez III, the economic team of the outgoing Duterte administration recognizes this challenge and is leaving behind a fiscal consolidation plan that entails a slew of tax hikes and spending cuts that are necessary to reduce the national debt that now stands at P12.68 trillion while simultaneously — hopefully — prodding the private sector to restore activity to a gross domestic product level that would help the country “outgrow” its debt. That’s the best-case scenario. Naturally, however, Finance Secretary-designate Benjamin Diokno is wary about swallowing all those bitter pills hook, line, and sinker. No one in the incoming Marcos Jr. administration wants to start off on the wrong foot, and launching a salvo of tax increases and austerity measures in the opening months of the new presidency would surely be unpopular. Thankfully, President-elect Marcos Jr. has the popularity to spare thanks to the biggest winning margin for a Philippine chief executive in recent times. Thankfully, too, Mr. Marcos Jr.’s jaw-dropping popularity during the campaign period has required surprisingly few populist promises to the electorate from him (apart from the P20-per-kilo rice price, which is now being walked back as only being “aspirational”). That, together with a solid grip on both chambers of Congress, will allow the next administration to implement what Mr. Diokno describes as the “correct” form of taxes. For now, this means a tax on digital transactions like popular video and audio streaming services, as well as the booming electronic commerce sector. More importantly, the next head of the economic team wants the upper socioeconomic strata of society to bear this added burden while exempting the country’s poor — all digital transactions below P500 — from the new taxes. Implementing it will be challenging, but the incoming finance chief has the requisite experience for this daunting task, having helped the country’s financial system transition to the digital world at the height of the pandemic. This plan will require President-elect Marcos Jr. to expend some political capital. But the judicious application of political capital now, when the challenge is still manageable, will head off bigger economic (and consequently political) problems further on. If implemented properly — and if the Philippine economy does indeed rise at a pace that will allow it to outgrow its debt — further painful tax hikes down the road may not be needed. Indeed, no one enjoys paying taxes. But, provided it is done correctly, the incoming administration can raise the sufficient amount of taxes from the right sectors of society to balance the government’s fiscal position and eventually restore the country’s upward economic growth trajectory. What better legacy can the new Marcos administration leave after six years than a strong Philippine economy that uplifts the life of every Filipino? The hard work to achieve that starts now. _______________________________________________________________________________________ EDITORIAL - A looming food crisis The Philippine Star May 21, 2022 | 12:00am The warning comes from the secretary of agriculture himself, although William Dar was merely echoing similar statements issued by global experts: a food crisis is looming in the second half of the year, due to the lingering COVID pandemic, Russia’s continued invasion of Ukraine and the sustained impact of climate change. In a report last month, the United Nations Task Team for the Global Crisis Response Group said an estimated 1.7 billion people, mostly from developing economies, are expected to suffer from food insecurity, high fuel prices and debt burdens. Aside from the impact of the pandemic, the Russia-Ukraine conflict has pushed up global fuel prices to record highs and disrupted supply chains. The Philippines is now reeling from soaring pump prices and the incoming administration is inheriting a record-high P12.68 trillion debt that the government was forced to incur to finance the pandemic response as the economy nosedived into its worst post-war recession. In a briefing last Wednesday, Dar said that already, fertilizer prices have tripled while the costs of certain poultry feeds have doubled. The country is fully dependent on imports for its fertilizer needs. The agriculture department is seeking an additional P6 billion this year for fertilizer subsidies to boost farm production plus more funding to encourage urban farming. Where to source those funds is a problem when the country is already buried in debt and businesses are just starting to recover from the pandemic. Although Dar says the country still has sufficient supplies of rice, vegetables and fish, he warns that the food crisis may start to be felt by late June or early July. While the government works out the proper responses, he has urged the public, seriously, to try backyard farming and livestock breeding even in urban centers. The looming crisis should provide more impetus to boost agricultural production. The country’s neighbors notably Thailand and Vietnam and even tiny Taiwan have robust local agribusiness enterprises. Dependence on imports to stabilize local supply and prices is unsustainable, and kills the marginalized sectors that depend on agriculture for their livelihood. With the looming food crisis, there should be greater urgency to develop long-term food security anchored on the strength of local agricultural production. _______________________________________________________________________________________ Agriculture’s plea to the new administration By: Ernesto M. Ordoñez - @inquirerdotnet Philippine Daily Inquirer / 05:14 AM May 13, 2022 The new administration must take the imperative of immediately acting on the inadequate Department of Agriculture (DA) budget. Fortunately, we are now on the right track. In the course of 10 days sometime last year, three leading presidential candidates were interviewed by agriculture leaders in a multimedia forum. They discussed a historic document given to them prior to their individual interviews. The candidates were Manila Mayor Francisco “Isko Moreno” Domagoso, Vice President Leni Robredo and former Sen. Ferdinand Marcos Jr. The two-page document was titled: “Transform Agriculture for Food Security, Job Creation, and Balanced Growth.” It contained 12 recommendations, which the current government has failed to do. They were formulated and unanimously agreed by five national coalitions (representing different agriculture-related sectors), which has never happened before. The groups were Federation of Free Farmers, representing farmers and fisherfolk; Philippine Chamber of Agriculture and Food Inc., representing agribusiness; Coalition for Agriculture Modernization in the Philippines, representing science and the academe; Alyansa Agrikultura, a multisector alliance; and Bayanihan sa Agrikultura, representing civil society. Since the new administration will soon be in control of the DA’s 2022 and 2023 budgets, it must focus on both budgets immediately. This will ensure that the directions given during the interviews will be implemented—with the proper budget. For 2022, the Department of Budget and Management (DBM) agreed to only allot P85.8 billion for the DA. This amount is just 1.7 percent of our national budget, less than half of Thailand’s 3.6 percent and Vietnam’s 6.5 percent shares. For 2023, the DBM gave an even lower budget ceiling of P71.7 billion. This is opposite the direction given by the presidential candidates, who suggested to at least double the current budget. Consequently, the proposed budget does not have the components to fund the new directions given by the presidential candidates. The new administration must now adjust the 2022 budget by aligning with the directions provided during the campaign. It should also ensure that the 2023 budget is increased so that the directions provided are also funded. Three directions Three key directions for agriculture transformation will not be implemented unless the needed budget is provided. We basically have a monocrop system in place, such as in the coconut, rice and corn sectors. In the coconut sector, for example, 2 million hectares out of 3 million ha have nothing planted in between trees. This system can only yield an average annual income of P25,000 a hectare. Intercropping products like cacao and coffee can increase this to P300,000 a hectare. Note, however, that high-value crops get only 4 percent of the budget, as compared to rice, which gets 40 percent of the budget. Because we have small fragmented agriculture farms with outdated technologies, we can’t compete against imports nor implement a reasonable export strategy. Contrast this with Thailand, whose emphasis on farm clustering and consolidation to achieve economies of scale and shared technology is found in the name: Ministry of Agriculture and Cooperatives. We have neither a concrete plan nor budget for this. The huge potential of our fisheries and aquaculture, meanwhile, remains untapped. Today, despite its enormous potential, fisheries and aquaculture contributes only 16 percent of our agriculture value added. Furthermore, it gets only 3 percent of the DA budget. A comprehensive plan with an adequate budget should support this sector. Its poverty level at 30 percent is more than double the rural poverty rate of our neighboring countries. The new administration must now ensure the that the new agriculture transformation directions given during the multimedia presidential interviews are implemented. Addressing the DA budget inconsistency is a must. The author is Agriwatch chair, former secretary of presidential flagship programs and projects, and former undersecretary of the DA and the Department of Trade and Industry. Contact is agriwatch_phil@yahoo.com. _______________________________________________________________________________________ Economic agenda to allay fears Philippine Daily Inquirer / 05:08 AM May 12, 2022 The benchmark Philippine Stock Exchange index plummeted by as much as 3.14 percent on the first trading day after the historic May 9 elections that put former senator Ferdinand “Bongbong” Marcos Jr. on the cusp of winning the presidency by a landslide, driven in part by nagging uncertainties over the presumptive incoming administration’s economic agenda. Investors — particularly the foreign ones — reportedly rushed to unload their shares over concerns on how exactly the presumed next president of the Philippines plans to tackle the complex economic issues that need to be immediately addressed, primarily the surging prices of basic commodities, record P12.68 trillion in outstanding debt, and a weakening peso. Marcos Jr. had already been tagged in a Bloomberg survey as “the least favored candidate” by the investor community, thus the lack of a detailed economic program has made a number of nervous investors jittery. “The lack of clarity on Marcos Jr.’s policies is indeed a concern in the short term,” AAA Equities William Matthew Cabangon said in a Nikkei report. As Marcos Jr. had shunned policy debates throughout the presidential campaign and disclosed “little of his vision for the country in substantive policy terms,” as the Economist Intelligence Unit (EIU) puts it, there are hardly any details to calm down jumpy investors. However, it is widely expected that given his close political alignment with outgoing President Duterte, he will “pursue a broadly similar policy course” centering on the “three key pillars of infrastructure upgrade, tax incentives for businesses and the removal of investment barriers.” But for the EIU, the “biggest risk to a Marcos presidency (and the country’s political stability) lies not in the policy agenda but in the competence of the incoming administration to execute it,” thus the growing pressure on the Marcos group to immediately lay out its plans, as well as name the key Cabinet members who will be burdened with the huge responsibility to carry the battered economy forward. As ING senior Philippine economist Nicholas Antonio Mapa stressed, the 2022 economy that Marcos Jr. is inheriting “is not the same” as the fast-growing economy that Mr. Duterte inherited from the late President Benigno S. Aquino III in 2016, given the daunting challenges from within and outside the Philippines that cannot be addressed by simplistic calls for “unity.” Investors want to know how the new administration that will take the government reins on June 30 plans to grow the economy fast enough to overtake rising debt and continue government spending to bankroll ambitious reform and infrastructure programs and help vulnerable Filipinos cope with the lingering effects of the COVID-19 pandemic, as well as the rising prices of basic commodities. The gravity of these myriad economic challenges, indeed, cannot be underestimated and has already prompted American financial services giant J.P. Morgan last Tuesday to downgrade the Philippines to “underweight,” which means that it has advised its clients to lighten up or reduce their exposure to Philippine stocks due to the more risky investment environment. Rising risks have also caused interest rates on the benchmark 91-day treasury bill to jump to 1.531 percent the day after the elections from 1.272 percent last week. The private sector has likewise reverted to a wait-and-see attitude “as a matter of prudence,” holding back on any major investment decisions until Marcos Jr. shares his detailed plans and policies over the next 100 days and names his economic team. Providing some relief to jumpy investors, however, is the disclosure by Finance Secretary Carlos Dominguez III that transition talks with the incoming administration has begun and is proceeding smoothly, although he declined to identify the members of the new economic team. Michael Ricafort, chief economist at Rizal Commercial Banking Corp., underscored the need for a credible and competent economic team as it will be the key to the success of a new president, especially one who will have to hit the ground running at full speed to overtake mounting challenges and fulfill his campaign promise of a better life for Filipinos. If his apparent insurmountable lead is confirmed, Marcos Jr. must do himself—and the country—a favor by immediately presenting his economic team and strategy, and begin to assure Filipinos sharply divided by the bruising election campaign that the seemingly overwhelming mandate for his presidency will not be for naught. _______________________________________________________________________________________ Wild promises and P20 rice By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:35 AM May 03, 2022 Can a presidential candidate credibly promise rice at P20 a kilo? Last week, Ferdinand “Bongbong” Marcos Jr. made a bold statement that he “plans to bring down the price of rice by P20 to P30 per kilo by recommending a price cap on the staple.” In March, regular milled rice sold at a nationwide average of P38.50 per kilo, ranging from P32 (in Cagayan Valley) to P47 (in Eastern Visayas), based on Philippine Statistics Authority (PSA) data. Let’s examine the numbers. Given PSA data, his promised P20-30 per kilo reduction in the staple’s price implies a price in the level of P18.50 to as low as P8.50 a kilo for regular milled rice, the rice grade mostly consumed by lower-income groups. Surely, he wasn’t thinking of a price that low; some reports said he mentioned P20/kilo. He couldn’t have been referring to the highest grade of rice (“special”), which PSA says averaged P50.53 per kilo in March, ranging from P43.25 (in the Zamboanga region) to P59 (in Eastern Visayas) — after all, why subsidize the rich who could well afford more expensive rice? (But then again, could his own lifestyle make it the only grade of rice he knows?) He may not know that as a rule of thumb, the farm gate price of unmilled palay is about half the retail price of milled rice, given milling recovery efficiency, and costs of milling, transport, and logistics through the supply chain. His promised P20 rice price thus implies a farm gate palay price of about P10 per kilo — well below the P12 to P15 farmers cite as their production cost. No wonder farmers’ groups aren’t jumping for joy over his P20 promise. But he also promises to issue an executive order directing the Department of Agriculture and the National Food Authority to procure rice harvests from local farmers “at higher and more competitive prices” (impliedly, beyond their levels now). Good luck. He also seems to forget that the price of rice even in our best rice-growing neighbors is now moving beyond his P20 target, amidst surging fertilizer prices coupled with supply shortages and price hikes in other grains, all due to the Russia-Ukraine war. Hence, promising P20 rice at this time is not only reckless; it’s outlandish. It could only mean that general taxpayers will pay for nearly half the costs of rice farmers! Under a tax system long known to be regressive (one that’s a heavier burden on the poor than on the rich), this subsidy is actually worse than letting everyone pay for higher-cost rice to begin with. At least we’d avoid the massive costs of administering the subsidy, not to mention the money that will go into the wrong pockets in the process. To top it all, he vows to amend the rice tariffication law, implying a return to state-controlled rice imports, which is precisely what allowed our rice prices to move further and further away from and much higher than in our neighbors through the years. Thus, will he negate the Duterte administration’s game-changing reform meant to force us to finally help our farmers right, via nurturing for greater productivity and competitiveness, not insulating and “protecting” them from competition? It’s in fact that same import competition that could be his best bet for moving toward P20 per kilo rice, by forcing us to shape up and work to bring down the production cost of rice closer to it. Marcos Jr.’s numbers and other promised measures give him away on several worrying weaknesses: careless use of numbers that make no sense; being out of touch with realities on the ground; complete disregard for fiscal responsibility and proclivity for massive borrowing to finance ambitious promises (a la Marcos Sr.); lack of understanding of basic economics—including the principle embodied in the very name of this column—which would have come naturally with a genuine Oxford degree; and a penchant for making what the National Federation of Peasant Women describes as “motherhood statements para makakuha ng boto (to gain votes).” What I see here is a mind so confused and out of touch, he knows not what he speaks. In trying to sweet-talk both rice consumers and producers, he will end up helping neither. And that, my friends, would be a dangerous leader. _______________________________________________________________________________________ Copy our neighbors By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:35 AM April 19, 2022 One little piece of advice I have for our government, particularly in steering our agriculture sector toward greater dynamism, is simply to copy our neighbors. Once upon a time, these neighbors were the ones copying us, and sent many students to learn agricultural science at the University of the Philippines in Los Baños, acknowledged then as the best place in the region to learn agriculture. That era is long gone, and the tables have turned. Now, we must humbly accept that our neighbors made much better use of what they learned here than we did, and have since left us lagging far behind. It’s time to copy what they did in return. What they (especially Thailand, Vietnam, and Indonesia) learned from us back then was the science. They went on and harnessed the scientific knowledge with the right governance and institutional environment, management, and attitudes, and achieved far greater mileage from it than we did. Even so, there was also some management and institutional knowledge we shared, including to the South Koreans, who came to Los Baños in the 1960s to learn about our farmers cooperative marketing associations (Facomas), a model to emulate then. They went on to develop a strong agricultural cooperative system that now owns one of the country’s top banks. In contrast, our own experience with farm cooperatives since the glory days of the Facoma has been a checkered one, marred by all-too-common stories of corruption and mismanagement. With our own agricultural performance now trailing that of Indonesia, Thailand, Malaysia, and Vietnam, it’s our turn to find out what they are doing better, and try to copy and adapt them to our own situation. There should be no shame in this, as there is, indeed, so much to learn that could potentially catapult our farm sector to the levels where they are now. Indeed, many of the agricultural imperatives I’ve written on in the past are the subject of such lessons we could learn from our neighbors today. Let’s cite a few. First, look beyond the farm gate. Our Department of Agriculture had traditionally taken the position that anything that happens beyond the farm gate is no longer its concern, but that of the Department of Trade and Industry. Yet, Malaysia calls its agriculture ministry the Ministry of Agriculture and Food Industries; Vietnam calls it the Ministry of Agriculture and Rural Development. They have clearly long understood that agriculture authorities need to look at the farm system holistically with a full value chain perspective—that is, “from field to fork” (I like to add “finance” before “field” as well.) Second, finance small farmers amply. The Asia-Pacific Rural and Agricultural Credit Association reported in 2016 that Thailand’s Bank for Agriculture and Agricultural Cooperatives “now reaches nearly all farmers and villages and, unlike most developing countries, smallholder farmers in Thailand have adequate access to credit.” And as mentioned earlier, Korea’s National Agricultural Cooperative Federation (NACF) owns what has become the country’s third-largest bank (NongHyup Bank). Our own Landbank could probably learn a thing or two on what makes the Thais and Koreans more successful in bringing ample financing to their small farmers through their similar banks. Third, cluster and consolidate farm management. Small average farm size is not unique to us; it is a challenge our neighbors face too. Thailand’s Ministry of Agriculture and Cooperatives indicates how they see farm cooperatives to be central to agricultural development. Korea’s NACF has asserted this for decades, and through coops, their farmers achieve scale economies and participate in higher value-adding all the way to retail. Socialist Vietnam has had long experience with farm collectives, and even with an average farm size of only half a hectare, it is now a strong exporter of a wide variety of farm products. They must have secrets we can copy. Finally, copy how our neighbors devote much more funds to agriculture. The sector only takes up 1.7 percent of our total government budget, while it’s 3.4 percent in Indonesia, 3.6 percent in Thailand, and 6.5 percent in Vietnam. That alone already speaks for itself. _______________________________________________________________________________________ Five ways forward By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM March 15, 2022 In my recent economic briefings, I outline five things we must do as we navigate our way to the post-pandemic global economy from our little corner of the world. I state these as follows: (1) Put people first; (2) Copy our neighbors; (3) Reshape our services; (4) Look outward; and (5) Don’t look back. Let me elaborate. Putting people first must be foremost as it was on human lives that the COVID-19 pandemic took its heaviest toll, with the common Filipinos’ health, nutrition, and education severely impaired. Moving forward, I see at least three important directions to pursue. First is to upgrade our public health system, starting with cleaning up and fixing the corruption-ridden PhilHealth, the very institution primarily tasked with promoting public health. Second, we must reconfigure our food systems and food security strategy, emphasizing food accessibility and affordability, thus ensuring that our food producers are highly productive and internationally competitive. And to address the country’s education crisis that the pandemic further exacerbated, we need a new multisectoral education commission, as convened in the Cory Aquino and Ramos administrations, to plot our post-pandemic education roadmap. We must look to the example of leading countries like Finland and other global models with superior education outcomes. Copy our neighbors particularly pertains to agriculture and agribusiness, which I consider the backbone of the Philippine economy. There is so much we could learn from countries around us, including those who, ironically, we mentored decades ago. Lessons include having our Department of Agriculture look well beyond the farm gate, but concern itself with the entire value chain spanning farms to final consumers. Malaysia has its Ministry of Agriculture and Food Industries, and Vietnam has its Ministry of Agriculture and Rural Development, showing the much wider scope of their agriculture ministries’ concern. Thailand calls it the Ministry of Agriculture and Cooperatives, showing how crucial it is to them to consolidate farm management through agri-industry co-ops along with contract growing schemes to achieve scale economies and higher value-adding (and incomes) for farmers. And one glaring difference we have with our neighbors is our low budgetary allocation for agriculture, taking only 1.7 percent of the total budget, against 3.4, 3.6, and 6.5 percent for Indonesia, Thailand, and Vietnam respectively. Reshaping our services is all about improving the quality of jobs in our most jobs-rich sector, and this entails gearing up for the new digitalized economy in the age of the Fourth Industrial Revolution. New financial technologies are critical to empowering small producers and savers, and low-income households. We must ramp up domestic tourism to make up for slow-recovering foreign tourism, especially highlighting eco- and agritourism potentials that tap the synergy between the farm and services sectors. We must retool and direct our workforce toward technology, creative, and logistics skills, while fostering entrepreneurship by deliberately easing the numerous bureaucratic burdens small Filipino enterprises must hurdle. Looking outward means adopting an aggressive and opportunistic mindset for our producers to look well beyond our limited domestic market, which traps us in a vicious cycle of low incomes and high poverty that perpetuates the limited domestic market. We must chart an aggressive new Philippine Export Development Plan that examines and addresses the entire landscape spanning the macroeconomic environment down to commodity-level strategies and programs. And we must participate actively in trade agreements like the Regional Comprehensive Economic Partnership to tap even wider opportunities to diversify our exports both in products/services and destination markets. Finally, when I say don’t look back, it is to caution against reversing and undoing a whole array of economic reforms that our post-Edsa administrations systematically put into place. We have come a long way from the economic stagnation the Marcos dictatorship led us to. This is no time to lose the momentum by bringing back the discredited old. _______________________________________________________________________________________ The Russia-Ukraine fallout By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:35 AM March 01, 2022 Just when we thought our economy was finally getting over the deep pandemic shock, now comes the Russian invasion of Ukraine, whose shock waves have yet to be clearly understood and assessed. Our direct economic linkages with both countries are actually minimal, but the impact of the conflict’s global repercussions is likely to be the greater threat to our economy and our people. Added to already elevated oil and commodity prices worldwide and financial pressures stemming from high levels of global debt especially in the United States, the ride coming out of the pandemic crisis promises to be anything but smooth. And for small economies like ours, the ride could be even rougher. How would we be directly impacted by the Russia-Ukraine conflict? Based on our official foreign trade statistics, our exports to Russia were a relatively minimal $102.3 million in 2019, or a mere 0.1 percent of our total exports, mostly in the form of office machine parts, electrical transformers, and integrated circuits. But our imports from them were nearly ten times as much in value, at $985.8 million or 0.9 percent of total imports, mostly semi-finished iron, petroleum, and wheat. To Ukraine, we exported a miniscule $4.8 million worth of products, mostly integrated circuits, scrap plastic, and processed fruits and nuts. But we imported 57 times as much from them, amounting to $272.4 million or 0.2 percent of our total imports, mostly wheat, semi-finished iron, and sawn wood. Ukraine was actually the fourth largest source of our total cereal imports in 2020, and the third largest for wheat, while Russia supplies about a sixth of our oil imports. There is hardly any trade in services between the Philippines and these two countries. Our recorded foreign direct investments from them are likewise negligible ($110,000 from Russia and $10,000 from Ukraine in 2019). Last year, remittances amounted to $2.3 million from Russia and $121,000 from Ukraine, with just over 350 Filipinos known to be residing in the latter (and now being evacuated), according to the Department of Foreign Affairs. All told, direct impacts of the invasion owing to disruption of trade, investment, and remittances would appear minimal. However, it is actually the indirect impacts of the Russia-Ukraine conflict, and Western moves in response to it, that could well pose the bigger problem for us through their repercussions on the global economy and markets. With Russia and Ukraine together producing about a quarter of the world’s wheat, this is one commodity whose global flows and prices will be affected by the war-induced disruption of supplies from these two major producers. Thus, even though we might readily source from elsewhere the wheat imports lost from Ukraine suppliers, the likely spike in world wheat prices will raise the price of flour, hence bread and other baked goods. It will also push up the price of animal feeds where wheat is a major ingredient, which will in turn lead to higher meat prices. The world is in for elevated food prices over the following months, which for us had already been happening in the past year due to our own internal problems with steep declines in livestock and fisheries supplies. On top of food, energy costs will rise further than they already have, with crude oil prices feared to go as high as $150 per barrel, especially if Russia’s large supplies of oil and gas are cut off from the market by Western sanctions. For a country like the Philippines that imports virtually all its fossil fuels, there will be major implications for electric power and transport costs. Still another vital commodity whose costs will further rise is nitrogen fertilizers, a by-product of petroleum refining, along with another key fertilizer component potash, of which Russia is a major source—in turn feeding further into surging food prices. And so, even as our inflation has eased in recent months, we must brace ourselves as it turns for the worse yet again as the year unfolds. Our next president would have to hit the ground running, with the unenviable position of taking over the reins of a battered economy about to run through yet another gauntlet. _______________________________________________________________________________________ Racking up debts Philippine Daily Inquirer / 05:08 AM February 03, 2022 It’s bad enough that Filipinos are saddled with a national debt that had risen to record highs ostensibly to help the Philippines recover from the devastation wrought by the lingering COVID-19 pandemic. But what’s making the burden more difficult to bear is the growing likelihood that a part of the borrowings may have been lost to corruption, based on the Senate blue ribbon committee’s report on the questionable P11.5 billion worth of contracts for pandemic supplies won by Pharmally Pharmaceutical Corp. in 2020 and 2021. And those are just the contracts that fortunately caught the attention of the Commission on Audit. How about the rest that had been awarded since March 2020 when the COVID-19 pandemic first hit the Philippines and subsequently triggered unprecedented public health and economic crises from which the Philippines is still struggling to recover? While the extent of the corruption behind the COVID-19-related contracts is a matter of speculation at this point, what is certain is that the Philippines continues to rack up a debt bill that is in danger of going beyond the point that credit rating agencies consider sustainable or manageable. ING Bank Manila senior economist Nicholas Mapa said last year that it was “quite clear that debt watchers are now increasingly concerned about the medium-term growth prospects for the Philippines, suggesting that the so-called ‘solid fundamentals’ are now being questioned.” The Department of Finance reported that as of Jan. 14 this year, total foreign borrowings and grants devoted to COVID-19 response from March 2020 has reached $25.79 billion or P1.32 trillion. This includes the $1.2 billion it borrowed from the World Bank, the ADB, and the China-led Asian Infrastructure Investment Bank in March 2021 to buy vaccines, plus another $800 million from the same three development banks in December to purchase booster and pediatric shots. With the country still firmly in the stubborn pandemic’s grip, especially with the most recent surge in cases caused by the Omicron variant that brought with it a fresh round of mobility restrictions, more will definitely be added to the tally. Only recently, the government already said it would borrow another $400 million from the World Bank to support “policy reforms” for sustainable recovery from the pandemic. At the end of 2021, the Bureau of the Treasury said the country’s outstanding debt already reached P11.73 trillion, 19.7 percent more than the 2020 level. This puts the ratio of debt to gross domestic product or total domestic economic output at 60.5 percent, the highest in 16 years and also the first time it returned to the 60-percent level since 2005. If the ratio will stay above the 60 percent level and the rating agencies conclude that it is unsustainable—Fitch’s outlook on the Philippines already deteriorated to negative from stable—then a downgrade of the Philippines’ sovereign rating may not be far behind and that means it will become more expensive for the Philippines to borrow money to finance needed programs including infrastructure development. The Duterte administration’s economic managers have long argued, however, that the rising debt level was not just manageable but necessary for the country to ably respond to the challenges brought about by the pandemic and put it in a position to rebound from the unprecedented crises it has spawned. As the economic team rightly pointed out, other countries in the region have likewise taken on more debt than usual because of the pandemic. However, while the economies of neighboring countries are firmly on their way back to their pre-pandemic vigor, the Philippines is expected to bring up the rear. It has likewise earned the unwanted distinction of being the most vulnerable to COVID-19 among 56 advanced and emerging markets covered by the January 2022 scorecard of UK-based think tank Oxford Economics. The Philippines was likewise once again ranked the worst in COVID-19 resilience among 53 countries evaluated by Bloomberg, the third time it was named the cellar dweller in just the last five months, raising burning questions over the soundness of the programs that these borrowings are supposed to be for. “Difficulties administering vaccines in remote areas continue to be a vulnerability as the country sees an Omicron surge worse than other Southeast Asian countries like Malaysia, Indonesia and Thailand,” Bloomberg said in its latest report. Fortunately, the worst of the Omicron surge seems to be over, but the debt burden is here to stay and, as Finance Secretary Carlos Dominguez III said, a major issue that the next Philippine president will have to address if the Philippine economy is to return to the pink of health. But more than arguing over the wisdom of taking on more debt, what is more important for pandemic-weary Filipinos is the reassurance that the debt that they will eventually pay for goes to effective pandemic response strategies and will not end up bankrolling failed programs or worse, lining the pockets of unscrupulous government officials and their cohorts. _______________________________________________________________________________________ Huge risks ahead Philippine Daily Inquirer / 04:07 AM January 31, 2022 “The door to recovery is now fully open,” declared Socioeconomic Planning Secretary Karl Kendrick Chua when he presented last week the economic numbers for 2021. Gross domestic product (GDP), a measure of the value of goods produced and services rendered in the economy, expanded by 5.6 percent last year, beating the government’s forecast of 5 to 5.5 percent. The expansion in the fourth quarter was most surprising at 7.7 percent, fueled by what economists described as “revenge spending,” or consumers splurging on purchases for the holidays after being confined to their homes for nearly two years. Chua is confident that return to pre-pandemic levels is imminent despite the Omicron surge, adding that the economy remains on track to hit the more ambitious growth target of 7-9 percent in 2022, as long as restrictions are eased before this quarter ends. He points to the “significant” decline in COVID-19 infections now following the Omicron outbreak this month that placed many areas under the stricter alert level 3. If the downtrend in infection continues, Chua predicts that a shift to the less stringent alert level 2, particularly in Metro Manila and neighboring provinces that account for half of the economy, will not only gain P3 billion a week, but also pave the way to the lowest alert level 1. Not to dampen the economic optimism now pervading the government, there are huge risks ahead, which Chua himself acknowledges. These include rising oil prices, the strong likelihood that the US Federal Reserve Board will raise interest rates, and the dismal performance of the agriculture sector. Brent crude, the international oil benchmark, last week hit $90 a barrel for the first time since 2014. The rising cost of oil, traced to growing geopolitical tensions between Russia and Ukraine and the tight supply when global demand is picking up due to increasing economic activities, is a threat to inflation in emerging economies such as the Philippines. It will raise transport fares, electricity rates, and the prices of basic consumer goods. As consumer sentiment is dampened, the consumption-driven economy will slow down. An increase in US interest rates, on the other hand, will raise debt servicing cost, trigger capital outflows as money always go where it will grow (putting pressure on the peso as demand for dollars for repatriation abroad increases), and generally force local monetary authorities to raise interest rates to remain competitive. This, in turn, has the effect of also dampening domestic business activities. “Emerging economies should prepare for potential bouts of economic turbulence,” the International Monetary Fund warned earlier this month, citing the risks posed by faster-than-expected Federal rate increases predicted to “rattle financial markets and tighten financial conditions globally.” The Philippines is particularly vulnerable since it has amassed a pile of foreign debt. The country’s total pandemic-related foreign borrowings, accumulated since March 2020, have now ballooned to $22.55 billion, or about P1.2 trillion. The country’s total outstanding debt, both external and domestic, swelled to P11.93 trillion as of end-November 2021, from P8.22 trillion as of end-2019, or prior to the pandemic. On the domestic front, there’s the recurring problem about the agriculture sector’s dismal performance. Earlier branded by the Duterte administration’s economic team as the weakest link in the economy, the farm sector shrank by 1.7 percent in 2021, or worse than the previous year’s decline of 1.2 percent. To a large extent, this has been due to the limited attention and development assistance it has been getting from the government for decades now. Finally, there’s the presidential election in May. While such political exercises have the effect of boosting the economy through massive election-related spending, the uncertainties attendant to this year’s polls have already kept investors at bay. Pantheon Macroeconomics senior Asia economist Miguel Chanco cautioned that despite the hefty rebound in private consumption in the last quarter of 2021, other economic sectors “leave little to be desired.” He adds: “In particular, gross investment rose by just 3 percent quarter-on-quarter … This suggests that pre-election uncertainties are settling in much earlier than we expected. We reckon that businesses will remain on the sidelines in the first half of this year, at least until the political dust settles.” The Philippines is not out of the woods yet, but barring the emergence of another deadly COVID-19 variant, the possibility of the US calibrating its rate hikes, and the May elections being credible and peaceful, there’s the real prospect of the economy finding its way back to the pre-pandemic growth path. One thing remains certain at this point: the next administration will have a lot on its plate, economically speaking. _______________________________________________________________________________________ Future proofing the country THE CORNER ORACLE - Andrew J. Masigan - The Philippine Star December 29, 2021 | 12:00am We have a national goal and that is to become an upper income economy by the year 2040, where each Filipino earns $13,000 a year (about P640,000 in today’s money), with zero incidences of poverty. Each Filipino household should have their own home and live their lives with pride, dignity and security. In my column last week, I wrote about how the next administration will inherit a fundamentally weaker economy. There are clear and present threats, not the least of which are alarming debt levels and widening budget deficit. If these are not addressed, the next administration will have to cut spending on infrastructure and social services or worse, devalue the peso. Fortunately, there is a silver bullet solution to our problems – and this is to attract our fair share of foreign direct investments (FDIs). FDIs provide capital infusion to help reduce the budget deficit. A reduced budget deficit will give the government the financial space to spend on infrastructure and social services. FDIs increase economic activity and exports, which will help government cope with debt payments. FDIs infuse new technologies and best manufacturing practices from abroad. FDIs provide competition to local firms, which pushes them to level up. Moving forward, what industries will drive the economy in the next decade and what reforms are needed to maximize their potentials? The IT-KPO industry has been the country’s cash cow for a decade. Annual revenues grew three-fold from $9 billion in 2010 to $27 billion in 2020. However, to maintain our position as the world’s second largest provider of IT-KPO services, we must lessen our dependence on voice-based services and evolve to become a center for excellence in artificial intelligence, animation, game development, information management, robotics, cloud technology and software development. The electronics industry is another strong leg of the economy. It is poised to generate some $44 billion in revenues in 2022. There are 500-plus semiconductor companies operating in the Philippines today. However, the industry is threatened by aging technologies which will soon become obsolete. We are not attracting enough new companies that manufacture next-generation electronics. Again, we must revisit the impediments to attracting FDIs to address this. Mining holds enormous potentials but the sector is plagued by disinformation and stigma. Mining contributes less than one percent of GDP. It’s a shame since the Philippines sits on seven billion metric tons of metallic resources and 50 billion metric tons of non-metallic resources. Our mineral reserves are worth well over a trillion US dollars at today’s prices. Minerals are our God given resource – it is the Philippine equivalent to Saudi Arabia’s oil. Not to leverage mining to solve poverty is a disservice to our people. Three impediments stand in the way of a flourishing mining industry. They are: the ban on open pit mining, the power of LGU’s to enact ordinances banning mining and the excessive zonal ban on mining. These impediments must be lifted for us to benefit from the resources we have been endowed with. Note, open pit mining is already governed by the strictest environmental laws. Agriculture is a perpetual underachiever due to the ill-conceived Comprehensive Agrarian Reform Law and the absence of the Land Use Law. Agricultural output increased by only 20 percent in the last 10 years. It is an embarrassment. This is because the average farm size today is below one hectare, with a maximum holding of five. Industrial farming are few and far between. To unlock the potentials of agriculture, the maximum size of land holdings must be increased to permit industrial farming. The Land Use Law must be passed and budgetary support for the agricultural sector must increase from three percent of GDP to eight percent. There are eight industries in which the Philippines has a competitive advantage and the next administration will do well to develop them. The first are “blue industries.” These include ship building, ports & shipyard management, logistics services, seafarer crewing, maritime financing, aquaculture and offshore energy exploration. Other opportune industries include agro-processing; auto and auto parts; electric vehicles and parts; aeronautics; construction; creative industries and e-commerce. What structural reforms are needed to achieve our national goal by 2040? The economy would need to grow by an average rate of seven percent for 20 years to increase income levels to $13,000. Is it possible? Yes, but only if structural reforms are instituted soon. Congressman Joey Salceda proposed a 20-point reform agenda to enable the economy to achieve this. I concur with his recommendation and hope the next administration puts it to effect. In terms of government reforms: Complete the digital migration in all government units to curtail corruption; leverage on science and technology in all business processes; invest heavily on education and student nutrition; invest in technical skills by uplifting TESDA and Meister schools; professionalize our institutions to one that is rules-based and science-based; invest in rural infrastructure and public transportation; accelerate rural development; migrate to indigenous and renewable energy sources; invest in health care reform; invest in public housing and invest in unemployment insurance. In terms of economic policies: Embark on a second agricultural revolution to achieve food surplus; break down oligopolies by opening industries to foreign competition; develop MSMEs via business incubation, ease in funding and entrepreneurship instruction; establish the basic law for creative industries (the Korean model); expand public-private partnerships beyond infrastructure; digitalize the tax system and foster broader financial and capital markets. In terms of foreign policy: Strengthen ties with the US, India, ASEAN, Australia, South Korea, Japan and Israel while optimizing trade with China. And if I may add, strengthen diplomatic and economic ties with Spain, Mexico, Central and South America; establish a modern and credible national security policy to respond to emerging and unconventional threats. There is a lot to do to future-proof the country and to achieve our national goal. All these will fall on the shoulders of the next president. _______________________________________________________________________________________ 2 SC rulings forewarn ‘alalays’ in corruption Jarius Bondoc - The Philippine Star November 19, 2021 | 12:00am Romulo Neri, former National Economic and Development Authority director general, has lost all leave credits and retirement benefits from the government. He is now barred from public service. The Supreme Court recently upheld the Ombudsman’s findings of sleaze in the 2007 national broadband network project with China’s ZTE Corp. Neri’s “grave misconduct” was affirmed, and the Court of Appeals verdict of “simple misconduct” reversed. “The elements of corruption and clear intent to violate the law are quite patent,” the SC Third Division ruled. “(Neri) actively brokered for ZTE’s bid by using his public position despite knowing the corruption involved in the project. There is no cogent reason to justify the lowering of liability to simple misconduct.” “Petitioner Neri is dismissed from service,” wrote Justice Marvic Leonen, division chairman. “(This) includes the necessary penalties of cancellation of eligibility, forfeiture of leave credits and retirement benefits, and perpetual disqualification from reemployment in the government service.” The verdict dated July 5 was publicized last week. Justices Ramon Paul Hernando, Henri Jean Inting, Ricardo Rosario and Jhosep Lopez concurred. Neri had introduced whistle-blower Rodolfo Lozada Jr. to then-Comelec chairman Benjamin Abalos. The CA found Abalos “highly interested in pursuing a telecommunications project with the government” under then-president Gloria Macapagal-Arroyo. Lozada prepared the NBN-ZTE technicals. Neri next processed the approval amid allegations of a P200-million bribe offer from Abalos. Finding misconduct, the Ombudsman in 2009 suspended Neri for six months without pay. While Neri did not solely approve the deal, he “was deemed to have mediated – through the NEDA – between Abalos and ZTE.” Deemed improper were Neri’s attendance in conferences and golf games hosted by ZTE execs and Abalos. Abalos and Arroyo were indicted for graft at the Sandiganbayan. They were acquitted in May and September 2016, respectively. Dismissed were testimonies of P10-billion kickback in the P17-billion project, and in Abalos and Arroyo’s lunches and golfing at ZTE’s Shenzhen headquarters while the deal was being processed. Arroyo was NEDA chairman and Neri the vice. Before joining the Arroyo Cabinet Neri was head of the powerful Congressional Planning and Budget Office under three successive House Speakers. * * * The Anti-Money Laundering Council has been ordered to divulge bank transactions related to the 2009 sale of used, overpriced helicopters as brand-new to the Philippine National Police. The AMLC records are pertinent to the Sandiganbayan case that former first gentleman Mike Arroyo owned the aircraft. The AMLC had twice refused the Sandiganbayan order to open its files, and ran to the SC. The Third Division dismissed the agency’s petition, seeing no abuse of discretion by the Sandiganbayan. “Instead of avoiding compliance with the subpoena, [AMLC] must firmly perform its mandate as an investigatory body and independent financial intelligence unit,” Justice Leonen ruled. Justices Hernando, Inting, Edgardo delos Santos and Lopez agreed with the February verdict released last week. On trial at the Sandiganbayan are Arroyo and several police generals. Lionair president Archibald Po testified that Arroyo purchased five choppers from him in 2003-2004. He was instructed in 2009 to transfer two units to Manila Aerospace Trading Products, he swore. From records, Maptra then offered the second-hand choppers to the police. Arroyo denied any part. Po said Arroyo deposited partial payment to Lionair’s account with Union Bank. To verify these, the Office of the Special Prosecutor presented a bank official. The latter said that since the account was closed in 2006 and the files discarded, the Sandiganbayan can seek recourse with the Bangko Sentral or AMLC. On the OSP’s request, the Sandiganbayan ordered AMLC Executive Director Julia Bacay-Abad to open the records. Po waived the right to secrecy of Lionair’s account under the Foreign Currency Deposit Act. The AMLC twice moved to quash the subpoena. The Sandiganbayan rejected the motions, prompting AMLC to go to the SC. The AMLC argued that “it is prohibited by law to disclose the relevant bank records of Lionair ... (because) confidential.” Cited was Section 9(c) of the Anti-Money Laundering Act, that “Financial institutions and their officers be prohibited from disclosing covered and suspicious transaction reports, or ‘tipping-off’ that a case is being filed.” The SC found the claim untenable, saying the AMLC is not among the institutions covered by the ban. AMLC is “not merely a repository of reports and information.” “It would be antithetical to its own functions if (AMLC) were to refuse to participate in prosecuting anti-money laundering offenses by taking shelter in the confidentiality provisions of the Anti-Money Laundering Act,” the SC added. More so since Lionair submitted a written permission to open its accounts. _______________________________________________________________________________________ Historic agriculture people power By: Ernesto M. Ordoñez - @inquirerdotnet Philippine Daily Inquirer / 05:24 AM October 29, 2021 Last Oct. 27, Federation of Free Farmers chair Leonardo Montemayor said: “I consider historic the adoption of this agriculture position. It groups together for the first time the thinking of farmers, fishers and rural development organizations (BSA, FFF, and AA); agribusiness (PCAFI), and the academe/science community (CAMP). Montemayor is referring to the document “Transform Agriculture for Food Security, Job Creation, and Balanced Growth.” It has been given to all the presidential candidates to respond to in the forthcoming Halalan sa Agrikultura 2022. This will be a forum where each presidential candidate will speak on a separate day exclusively about agriculture. It will have extensive nationwide coverage through all traditional and social media to inform our citizens of our serious agriculture situation today. In previous elections, the presidential candidates, in general, did not give agriculture a high priority. Consequently, their agriculture programs fell short, lacking focus and detail. As an indication, over a nine-year period, agriculture increased by only 1.6 percent compared to industry’s 6.8 percent. With the new agriculture people power, this will no longer be the case. There are 12 specific recommendations in this document which the presidentiables will study and give their positions, plans and programs for. Which agriculture sectors agreed to these 12 recommendations? These are divided into three categories, with the organizations identified and their founding years: Farmers and fisherfolk: a) Federation of Free Farmers (FFF-1953), a farmer-led nationwide organization with a 68-year track record of commendable service to small farmers. It is led by Leonardo Montemayor; b) Alyansa Agrikultura (AA-2003), a coalition of farmers and fisherfolk with special focus on economic upliftment and social justice for small stakeholders, led by chair Arsenio Tanchuling and executive vice president Elias Jose. Its vice presidents for Luzon, Visayas and Mindanao are heads of national major commodity federations, and c) Bayanihan sa Agrikultura (BSA-2021), a grouping of 99 agriculture-related NGOs (nongovernmental organization) and POs which signed a joint manifesto identifying today’s agriculture main problems and recommendations. Their coordinator is Hazel Tanchuling, Rice Action Watch executive director. Agribusiness: Philippine Chamber of Agriculture and Food Inc. (PCAFI-1999), a business grouping with 44 agriculture commodity champions. It’s president is Daniel Fausto, cited Entrepreneur of the Year by the Department of Agriculture. Science and academe: Coalition for Agriculture Modernization in the Philippines (CAMP-2004), an organization of academicians and scientists from the entire Philippines. It’s chair is National Scientist Emil Javier, former University of the Philippines president and Minister of Science and Technology. The documents’ main premise is stated in its first two paragraphs: “A major development challenge facing the next government is transforming Philippine agriculture into an engine of economic growth, a generator of jobs, a social and economic stabilizer in the countryside, and the cornerstone for the country’s food security. Before COVID-19, the sector had been stagnating. Under the pandemic, agriculture has been weakened further by transport and logistical breakdowns, aimless import liberalization, lack of health facilities to contain the virus spread and poor distribution of amelioration assistance to the rural masses. “We demand a reversal of this situation. Agriculture can and should play a leading role in national economic recovery and, more importantly, in ensuring social and economic development for all. To achieve this, urgent policy reforms must be institutionalized and implemented with decisiveness.” Two of the 12 recommendations are: – Given the immense area and economic potential of our territorial and inland waters, a Department of Fisheries and Marine Resources should be created. Moreover, the government must assert our sovereign rights in the West Philippine Sea. – Genuine representation and involvement of farmers, fishers and other stakeholders must be institutionalized in all levels of planning and monitoring. Sectoral appointees to government agri-fisheries boards, councils and committees must have a proven track record of service. With this historic agriculture people power that started, quo vadis, agriculture? The author is Agriwatch chair, former Secretary of Presidential programs and projects and former undersecretary of DA and DTI. Contact is Agriwatch_phil@yahoo.com. _______________________________________________________________________________________ Former officials of closed bank convicted for DOSRI violation October 20, 2021 | 12:01 am TWO FORMER OFFICIALS of a closed bank in Batangas were found to have violated rules on the internal disbursement of loans, as well as granting fictitious credit, the central bank said. The Bangko Sentral ng Pilipinas (BSP) filed charges versus former officials of closed Synergy Rural Bank, Inc. The respondents are Herman S. Villalobos, its former president and chairman, and former compliance officer Danilo D. Tobias. Mr. Villalobos and Mr. Tobias were found guilty of the violations by regional and municipal trial courts in Lipa City, Batangas. “The criminal cases stemmed from a Directors, Officers, Stockholders and Related Interests (DOSRI) loan granted to Tobias in violation of approval, reportorial and ceiling requirements for DOSRI loans provided under the law, as well as a fictitious loan application which the BSP discovered during its investigation of the bank’s transactions,” the central bank said in a statement on Tuesday. Based on the BSP’s findings, the loans involved amounted to P2.51 million. The former bank officers were found guilty of five counts of violation of the General Banking Law of 2000 in relation to the New Central Bank Act, as amended, and one count of violation of the Revised Penal Code. The regional trial court sentenced Mr. Villalobos to a fine of P200,000. He will also face one year of imprisonment for one case, and another sentence of up to two years and four months in prison for another case, aside from a penalty of P10,000 imposed by the municipal trial court. Meanwhile, Mr. Tobias was slapped with penalties worth P150,000. “The BSP is committed to ensure banks’ compliance with the law while maintaining the soundness of the financial system and protecting public interest through the implementation of good governance practices among its supervised financial institutions,” the central bank said. Local courts in Negros Oriental also found an employee of the closed Rural Bank of Bayawan (Negros Oriental), Inc. for facilitating fraudulent loans, the central bank earlier said. — L.W.T. Noble _______________________________________________________________________________________ BSP proposes 3% RRR on digital banks October 7, 2021 | 12:34 am THE BANGKO Sentral ng Pilipinas (BSP) is proposing to initially align the reserve requirements of digital banks with thrift lenders as both are targeting the same market and offer similar financial products. Under a draft circular released by the BSP, digital banks will generally be subjected to the same standards and prudential requirements imposed on traditional lenders. One of the key provisions is that digital banks will have to keep a reserve requirement ratio (RRR) of 3%, which is similar to the current level for thrift lenders. In comparison, the RRR of big banks and rural lenders is pegged at 12% and 2%, respectively. “The policy proposal is to initially align the RRR of digital banks with those of thrift banks, considering the current similarity in their target markets and the type of financial services they offer,” BSP Assistant Governor Lyn I. Javier said in a Viber message. Ms. Javier said the central bank may adjust the RRR for digital banks “as needed consistent with its price and financial stability objectives.” Under the draft circular, digital banks will be required to comply with all prudential requirements set by the BSP for the conduct of business. These include requirements for corporate governance, risk management (particularly on information technology and cybersecurity), outsourcing, consumer protection, and anti-money laundering, among others. “They will be subject to the same standards and prudential requirements because they are exposed to the same types of risks as any other bank,” Ms. Javier said. The central bank released the digital banking framework last year which differentiated these lenders from universal, commercial, thrift, rural, cooperative, and Islamic banks. These digital banks are required to maintain a minimum capital requirement of P1 billion, which is also stressed in the draft circular. Unlike other banks that need to have brick-and-mortar branches, digital banks do not need to establish branches but only have to have a main headquarters. Based on the proposed regulation, digital banks will be required to have at least one member of its board of directors and a senior management officer to have a minimum of three-year experience and technical knowledge in operating a business in the field of technology or e-commerce. Earlier this week, BSP Governor Benjamin E. Diokno said the central bank will cap the current digital bank licenses at six. Mr. Diokno has said the central bank is likely to keep the application for new digital banks closed for the next three years to assess the development of the new lenders and the competitive landscape. The six digital bank licenses were given to state-owned Overseas Filipino Bank, Tonik Digital Bank, Inc. (Philippines), UNObank, Aboitiz-led Union Digital Bank, GOTyme led by the Gokongwei Group and Tyme, and Maya Bank of Voyager Innovations, Inc. The proposed BSP circular likewise stressed that other banks operating with a different license type are not allowed to represent themselves as digital banks, even if they also offer online services. They are prohibited to describe themselves as digital banks through media, websites, or mobile applications, among others. “Only a bank granted with digital banking license may represent itself to the public as such. The policy draft proposes that banks belonging to other bank categories may represent themselves as a bank offering ‘digital banking products or services’ or other equivalent terms/phrases,” Ms. Javier said, noting these specific provisions are already in line with Circular 1105 that laid down the guidelines for the establishment of digital banks. Prior to the release of the digital banking framework in 2019, some banks with a different license type already allowed its clients to access financial services including bank account opening, deposits, and loans all through an online platform. These include CIMB Bank Philippines, Inc., ING Bank N.V. Manila, as well as the Komo app of East West Banking Corp. Last year, Rizal Commercial Banking Corp. also launched Diskartech app. — Luz Wendy T. Noble _______________________________________________________________________________________ Funding agriculture right By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:06 AM September 28, 2021 Why has the Department of Agriculture (DA) perennially received much less than it asks from the Development Budget Coordination Committee (DBCC) composed of government’s top economic managers, which finalizes the national budget proposed to Congress? Fellow Inquirer columnist Ernie Ordoñez recently noted that in 2020 and 2021, the DA got only 22 and 30 percent, respectively, of what it originally requested, and got even less in 2022. What gives? Don’t the economic managers believe in the importance of agriculture to our economy? I am certain that they do. After all, the secretary of finance, usually considered the primus inter pares among them, was once secretary of agriculture himself under President Cory Aquino. A key member (Dr. Bruce Tolentino) of the Monetary Board of the Bangko Sentral was also undersecretary to then Agriculture Secretary Sonny Dominguez, and Governor Ben Diokno, a seasoned economist, surely sees agriculture’s critical role as well. And Socioeconomic Planning Secretary Karl Chua’s past work as World Bank economist had him leading a multi-year jobs program that had agriculture as a critical focus. So what makes them seem so “harsh” on the agriculture budget? My own informed guess is that they don’t see practical sense in dramatically raising the DA budget when it has perennially failed to demonstrate the absorptive capacity to utilize its budget effectively and efficiently. I had a first-hand sense of this in the 1990s, when as then head of Neda, I would receive reports from my staff that the DA typically managed to spend only about 60 percent of its annual budget by the end of November. And because the DBCC would not entrust a larger budget to those who can’t even spend what they already have, it would be in a mad rush to spend the remainder within the final month of the year—and the easiest way would usually be to grant all sorts of bonuses and “incentive allowances” to employees, to utilize the “savings.” The DA was by no means alone in this, and having been out of government for over two decades now, I couldn’t help wonder if the problem persists to this day. Well, it turns out that it does. I examined the DA’s recent annual audit reports, which anyone can view on the Commission on Audit website (thank God for COA transparency!). I found that the DA managed to spend only 61.2 percent of its allotted budget in 2017, 62 percent in 2018, and 60.4 percent in 2019 (never mind the abnormal year of 2020). At least they outdid the Department of Public Works and Highways, which has consistently managed to spend less than 40 percent of its annual budget since 2017, and even worse, the Department of Transportation, which spent less than 30 percent. Should we then fault our economic managers for finding it hard to believe that the DA can actually spend 3-4 times more than what it has been getting? Still, I’d argue that agriculture needs a far bigger budget than what it has been getting. Ordoñez points out that our agriculture budget’s 2 percent share in the total budget pales in comparison to Thailand’s 3.5 percent and Vietnam’s 5.5 percent. And after decades of a rice-dominated agriculture budget, it’s time to substantially boost budget support to other important farm products, even as we cannot drastically slash the rice budget in the process, especially after liberalizing rice trade. The DA’s limited absorptive capacity need not get in the way if it works through the local government units (LGUs) and actually spends money through them. After all, LGUs must do the rowing while the DA confines itself to steering. The expected LGU “windfall” from the implementation of the Mandanas ruling next year would hardly help, as it will only make up for longstanding “unfunded mandates” passed on to LGUs by the 1991 Local Government Code. I’d like to see Secretary Willie Dar’s resolve to work through provincial LGUs translate into DA funds being passed on via memorandums of agreement to LGUs for program implementation, a mechanism that has already worked well for other agencies. If we can show that such managed devolution could serve our farmers well, then the DA can better convince the DBCC that it deserves the budget boost the sector has always needed. _______________________________________________________________________________________ Banks’ capital health improves in H1 Published September 23, 2021, 4:30 PM by Lee C. Chipongian Big banks in the country remained well-capitalized despite the prolonged pandemic-induced crisis, the Bangko Sentral ng Pilipinas (BSP) said. BSP Governor Benjamin E. Diokno said that big banks’ capital adequacy ratio (CAR), a measure of lenders’ solvency, improved to 17.6 percent in the first six months of the year from 17.1 percent at end-2020. Diokno said the latest CAR is well-above the 10 percent minimum threshold set by the central bank. The universal and commercial banks’ CAR also improved from end March’s 16.9 percent. Despite the pandemic’s impact on borrowers’ ability to pay their loans, Diokno said banks’ risk-taking activities were supported by adequate capital which was mainly composed of common equity and retained earnings. Diokno also cited the latest central bank internal stress test exercises showing most banks are capable of absorbing losses under scenarios of assumed credit impairment because banks are proactive in making sure their credit risks are sufficiently funded. On solo basis, banks’ CAR for the first half of 2021 stood at 17 percent. “Internal stress test exercises show that banks’ capital position is sufficient to withstand assumed credit impairment in bank loans,” Diokno said. Despite the pandemic and increasing bad loans ratio which is expected to reach a peak of 8.2 percent in 2022, Diokno said banks remain profitable with net profits of P122.7 billion in the first half of the year. As for banks’ liquidity, they have maintained sufficient buffers to meet their operating requirements, the central bank chief noted. At end-June, big banks’ liquidity coverage ratio (LCR) was at 198.4 percent and 196.4 percent, respectively. The relatively high LCR indicates banks’ ability to fund requirements during short-term liquidity shocks, said Diokno. The banking industry’s solo and consolidated net stable funding ratio also reached 144.4 percent and 144.5 percent, respectively, during the same period. This means that banks have stable funding to serve their customers in the medium term. “These key metrics show that banks are in a strong position to service the financing requirements of our recovering economy,” Diokno said. On one hand, the 47 universal and commercial banks accounted for the lion’s share of the banking systems’ capital with 91.1 percent. On the other hand, the rural and cooperative banks have 2.2 percent while thrift banks have 6.7 percent share. “The minimum liquidity ratios of stand-alone thrift banks, rural and cooperative banks surpassed the 20 percent minimum at end-June 2021,” Diokno also said. _______________________________________________________________________________________ Big and bad? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:08 AM September 21, 2021 Is big business bad? Is big business dominance in our economy leading us away from inclusive growth and development, the professed goal of the Philippine Development Plan (PDP) for at least three decades now? It may look that way at first glance, but the fact is, there is encouraging evidence that our economy is actually getting more inclusive, especially within the last decade. A study by Dr. Rafaelita Aldaba (now trade and industry undersecretary) found that across Philippine manufacturing industries, the top four firms accounted for an average of 81 percent of total industry output back in 1998. But 10 years before, that “four-firm concentration ratio” was just 71 percent, implying that market concentration rose through that decade. More recently, the Ateneo Policy Center found that in 2012, the top 15 business conglomerates generated the equivalent of 4.7 percent of our total gross value added, aka gross domestic product. By 2018, this share had grown to almost 6 percent. Is the Philippine economy getting more exclusive, then, contrary to the PDP mantra of inclusive development? The principle of economies of scale explains this tendency for increased concentration in a market economy. As the scale of production goes up, unit costs generally go down, giving an inherent cost advantage to larger firms, and allowing them to undercut and drive smaller competitors out of business. Technology is the major driver in economies of scale, and rapid technological advance further reinforces it, making it even harder to resist the seemingly natural trend toward even more concentration. Hence, the pushback to counter this trend so we can achieve a more inclusive economy must necessarily come from either the state and/or big business itself. The good news is that the data show that the Philippine economy has actually become more inclusive, and income distribution has actually improved over time, notably within the last decade. The average income of the richest one-tenth of all Filipinos was 12 times that of the poorest one-tenth in the 1980s, 10.3 times in 2009, and now only 7.6 times as of 2018. The Gini coefficient, which measures income inequality on a scale where 0 denotes perfect equality and 1 is perfect inequality, steadily declined from 0.464 in 2009 to 0.427 in 2018, showing a significant reduction in inequality. Regional disparities have similarly narrowed. The average income in the richest region (Metro Manila) was 3.1 times that of the poorest region (Muslim Mindanao) in 2009, but down to 2.9 times in 2018. These all mean that incomes of the lowest income groups have grown faster than incomes at the top, and incomes in the poorest regions have risen faster than in the traditionally favored areas of Metro Manila and Luzon. Surely, government policies must have been instrumental, like the Magna Carta for Micro, Small and Medium Enterprises of 2008 (MSMEs), the Philippine Competition Act of 2015, and the Board of Investments incentives for inclusive business models. But with large enterprises contributing an estimated 38 percent of total jobs and 64 percent of total incomes, it stands to reason that they too must have had a role in the observed improvement. Conglomerates provide millions of jobs directly, and sustain millions more indirectly within the wider business ecosystems they create through their value chains. Even as big businesses often supplant small ones—as when large retail chains drive small retailers out of business upon entering a locality—they can deliberately choose to be in a symbiotic relationship that benefits both sides. Conglomerates and big businesses need not be rivals or adversaries to MSMEs, especially when the former take their responsibility for inclusive development to heart. We’ve all seen business giants that, by their self-serving actuations, make it easy to believe that being well-intentioned does not come with being well-endowed. But I recently had the pleasure of interviewing four top business tycoons known for their big hearts, for a forthcoming Ateneo book. I will write more about them here in due course, but I was happy to see in them that in business, being big need not mean being bad. cielito.habito@gmail.com _______________________________________________________________________________________ BSP shuts down another rural bank Lawrence Agcaoili - The Philippine Star August 29, 2021 | 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) ordered the closure of the Rural Bank of Datu Paglas Inc. based in Maguindanao, bringing to five the number of problematic banks shuttered this year. BSP Deputy Governor Chuchi Fonacier said the Monetary Board issued Resolution 110.A last Aug. 26 prohibiting the Rural Bank of Datu Paglas from doing business in the Philippines pursuant to Republic Act 7653 or the New Central Bank Act. Fonacier said that state-run Philippine Deposit Insurance Corp. (PDIC) has been designated as receiver with a directive to proceed with the takeover and liquidation of the closed rural bank. This brought to five the number of rural banks ordered closed by the BSP this year. Prior to the closure of the Rural Bank of Datu Paglas, the regulator has ordered the closure of the Rural Bank of Caloocan, Rural Bank of Alimodian (Iloilo) Inc., Palm Tree Bank Inc. based in Cagayan de Oro, and Occidental Mindoro Rural Bank Inc. Last year, the regulator ordered the closure of Providence Rural Bank, Rural Bank of Tibiao (Antique), De La O Rural Bank, San Fernando Rural Bank, and Cooperative Bank of Aurora. PDIC paid P124.11 million worth of insurance claims for 7,072 valid deposit accounts maintained in five banks, or 76 percent of the estimated total deposit accounts of 9,305. BSP Governor Benjamin Diokno earlier announced the launching of the Rural Banking Industry Strengthening Program (RBSP) which aims to strengthen the industry in recognition of its critical role in providing financial services in rural and agricultural communities. “The program is part of the BSP’s broader and continuing efforts to boost the resilience of the rural banking industry, which is a key agent of countryside development as it provides financial services to rural communities, including micro, small and medium enterprises,” Diokno said. Meanwhile, former Monetary Board member Juan de Zuñiga Jr. has been appointed as a member of the PDIC board of directors as one of the private sector representatives that include Rogelio Guadalquiver Eduardo Pangan, and Reynalto Tansioco. He replaced former director Anita Linda Aquino who has been serving as member of the Monetary Board since July last year. _______________________________________________________________________________________ In surprise move, BSP sets 3-year moratorium on new digital banking licenses By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 03:54 PM August 19, 2021 MANILA, Philippines—The central bank will shut the door to new digital banks in the Philippine market for at least three years to preserve a level of competition and quality of service among players while allowing regulators to learn from this relatively new banking phenomenon as well. Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno announced on Thursday (Aug. 19) that the Monetary Board decided to close the window for applications from new digital banks, including converting banks, by Aug, 31, 2021. “The closure of the application window will allow the BSP to monitor the performance and impact of digital banks on the banking system and their contribution to the financial inclusion agenda,” Diokno said at an online briefing. “We need to ensure that the business environment continues to allow healthy competition among banks enabling them to offer innovative and competitive financial products and services to their clients,” he added. Digital bank applications received by the BSP until month’s end will be processed on a first-come, first-served basis and will be assessed for completeness and sufficiency of documentation or information, as well as compliance with the licensing criteria on the establishment of digital banks. Applicants that are able to submit the complete documentation on or before the closure date will be processed by the BSP. The applications received on or before Aug. 31, 2021 with noted documentary deficiencies, or which do not meet the BSP’s pre-qualification criteria, will be returned and will not be subject to further processing. The organizers will be informed that their applications will be deemed closed. After this date, the BSP will no longer entertain or accept new or returned applications. To date, the Monetary Board has already approved the application of five digital banks, including two incumbent banks which have converted their existing licenses to a digital bank license. These include UNObank, UnionDigital Bank and GoTyme, while Overseas Filipino Bank Inc. and Tonik Bank are banks that converted their existing license to digital banks. The Monetary Board approval corresponds to the first of the three-stage licensing process. The BSP is currently processing two other digital bank applications. “As these tech-savvy, customer-centric players introduce innovations in the banking sector, we are confident that the BSP is on track to achieving its digitalization and financial inclusion goals,” Diokno said. _______________________________________________________________________________________ We are not out of recession By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:07 AM August 17, 2021 There was misplaced jubilation over the 11.8 percent second quarter increase in our GDP that the Philippine Statistics Authority (PSA) recently announced, as it gave the wrong impression that the Philippine economy is now out of recession. Unfortunately, it is not. As others have already pointed out, including fellow Inquirer columnist Winnie Monsod and yesterday’s main editorial, the seemingly impressive growth rate was merely the result of what statisticians call the “base effect.” That is, the percentage growth came out of the comparison with a greatly shrunken GDP one year ago, making it illusory and misleading. The economy didn’t grow over the past quarter; the truth is, it actually shrank. Expressed in constant 2018 prices (to eliminate the misleading effect of rising prices) and adjusted for seasonality, our second quarter (April to June) GDP of P4.468 trillion was smaller than the P4.528 trillion posted in the first quarter (January to March). That’s a negative quarter-on-quarter growth rate of -1.3 percent. Our economy’s aggregate output and incomes actually took a turn for the worse in the first half of 2021. It is thus wrong to believe that our economy is out of recession and is seeing rebounding growth. The issue lies in how GDP growth that is measured year-on-year—comparing a quarter’s performance with that in the same quarter a year ago — can be misleading given the highly abnormal situation we had last year due to the pandemic-induced lockdown. More advanced economies typically announce and focus on the annualized quarter-on-quarter, seasonally adjusted growth rate, as it depicts the more current real-time pace of the economy. In our case, the figure always prominently reported is the year-on-year growth rate, hence highly subject to the base effect. But at times like this, it’s a purely arithmetical result of computing the percentage growth on a reference base figure that is unusually low, as it was in Q2-2020. Let’s examine our numbers more closely on this basis. Recall that at the worst of our lockdowns in the second quarter last year, GDP was reported to have been 17 percent lower than in the same quarter of 2019. Against the preceding quarter (Q1-2020) and adjusted for seasonality, the PSA says it was 15.1 percent lower. While the PSA, as always, also reported that number then, hardly anyone took note. Annualized, that translated to a negative 75.51 percent, a huge contraction. No wonder we still feel the effects of that now. The technical definition of a recession is two or more consecutive quarters of negative GDP growth, or falling production and incomes. Our quarterly GDP levels corrected for inflation and seasonality fell in the first and second quarters last year, so we were indeed officially in recession then. But the decline actually ended as early as the third quarter, when our quarterly GDP level turned upward again as lockdowns were eased, and continued rising until the first quarter of this year. It was only in this past second quarter that GDP fell again, as already noted earlier. If the quarterly GDP level continues to drop in the third quarter from where we were in end-June, then we would officially be in recession again. And given how the Delta variant of the COVID-19 virus has led to renewed lockdowns, such quarter-on-quarter drop in GDP is almost a foregone conclusion. We are, in short, in a double-dip recession forming a W-shaped graph. A recent article in Forbes magazine gives a better definition of recession that we could all better relate with. It says that a recession is when “the economy struggles, people lose work, companies make fewer sales and the country’s overall economic output declines.” Indeed, we should be looking well beyond GDP as we assess whether our economy is on a rebound. I use my own “PiTiK” test that focuses on presyo, trabaho, and kita. Are prices regaining stability with a declining inflation rate? Are jobs back on a sustained uptrend? With a resurging pandemic in our midst, it’s quite clear that we cannot declare ourselves out of recession just yet, and that government must move like we’re in the middle of one. cielito.habito@gmail.com _______________________________________________________________________________________ Banks still 'upbeat' but expect bad loans to remain high: BSP ABS-CBN News Posted at Jul 21 2021 07:02 PM The BSP said banking industry leaders view the banking system as stable and expect double-digit growth in assets, loans, investments, deposits, and net income for the next two 2years, based on a central bank survey. “The upbeat expectations of the banking system based on the results of the Banking Sector Outlook Survey (BSOS) for the first semester of 2021 is testament to its confidence in the strong medium-term prospects of the country’s economy,” said BSP Governor Benjamin E. Diokno. Majority of the survey respondents however expect their non-performing loan ratio (NPL) to exceed 5 percent in the next two years, the BSP said. Universal and commercial banks see their NPL ratio settling between 3 percent and 6.5 percent in the next 2 years, it added. In comparison, the bad loan ratio of the banking industry was at 2.16 percent in January last year before the pandemic. "This is, however, accompanied by greater prudence in the management of credit risk by the industry as higher number of banks intend to report NPL coverage ratio of more than 50 percent to 100 percent, the BSP said. BSP Governor Diokno meanwhile said the enactment of the Financial Institutions Strategic Transfer Act will help limit the build-up of NPLs in the financial system. The FIST Act allows banks to offload bad loans to asset management firms. The BSP survey also showed banks see restructured loans ratio to be higher than 5 percent from earlier projections of between 3 to 5 percent of loans. "This reflects continued efforts of banks to grant financial relief to their borrowers through modifications in their loan payment terms," the central bank said. The BSP has kept interest rates at record lows and cut banks' reserve requirements to spur lending. But banks have been reluctant to lend amid worries over the ability of clients to repay their loans. _______________________________________________________________________________________ What happened to jobs? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:08 AM July 13, 2021 Believe it or not, we have more than recovered the number of jobs killed by the pandemic last year. We now have over two million jobs more than there were before the pandemic flattened our economy. The May 2021 Labor Force Survey (LFS) of the Philippine Statistics Authority (PSA) reports that there were 44.72 million employed workers in our economy, as against 42.65 million in January last year. So does this mean that Filipinos are now back on their feet again? Not quite. Before we start thinking that the average Filipino worker and his/her family has gone over the hump, let me summarize what closer scrutiny of the LFS data from May 2021 and January 2020 reveals. The bottom line is this: While there are indeed more jobs now than pre-pandemic levels, there has been a drastic deterioration in the nature and quality of those jobs. This should come as no surprise, knowing that total incomes in the economy, measured by gross domestic product (GDP) and gross national income (GNI, formerly known as GNP), fell by 4.2 and 10.9 percent, respectively, as reported also by PSA last May. The first measures total incomes resulting from production in the domestic economy, whether by Filipinos or foreigners (“Gawa Dito sa Pilipinas”); the latter measures incomes from production by Filipinos wherever they are in the world (“Gawa Ng Pinoy”). That the latter fell by much more tells us that overseas Filipinos lost proportionately more income than those working here at home. How did jobs change domestically? Five key observations emerge. One, most displaced workers turned to trading (buy and sell), agriculture, and construction work. Jobs in the hardest-hit industries of accommodation and food services, transport services, and manufacturing are still 519, 495, and 94 thousand less than pre-pandemic levels, but trading, farming, and construction jobs now exceed pre-pandemic levels by 1.6 million, one million, and 390 thousand respectively. The next highest net job gainers are education (with 154,000 more jobs), government work (87,000 more including 15,000 in the military), and information and communication (73,000 more). Two, much of our skilled workforce have been forced into low-skilled and unskilled work. Topping the job losers were managers (down by half a million), clerical support workers (-200,000) and skilled workers in crafts and trades (-189,000); technicians and associate professionals (-57,000); and plant and machine operators and assemblers (-23,000). They turned to elementary occupations like unskilled farm and non-farm labor (up by 1.8 million), service and sales (up by 754,000), and skilled farm work (up by 279,000). Three, many wage and salary workers have become individually self-employed or unpaid family workers. Wage and salary workers now comprise only 61.8 percent of our total employed labor force, from nearly two-thirds early last year. This has reversed the steady improvement in job quality we had seen with the rising proportion of wage and salary jobs over many years. Worse, 247,000 less jobs in the “self-employed with employees” category compared to pre-pandemic levels shows just how badly micro, small, and medium enterprises have become casualties of the pandemic lockdowns. Four, large numbers of full-time workers have been forced into part-time work. There are now 3.2 million more part-timers (worked less than 40 hours a week) than before the pandemic, and 1.4 million less full-timers. The bulk of new jobs that have emerged are part-time, and most likely inadequate to meet the needs of workers and their families. Five, more of those still without jobs are better educated (with post-secondary education), aged 45 and above, and are women. The last reflects how most workers in the badly-hit retail and food services industries tend to be female. The other two attributes suggest a more severe toll on poverty incidence, as more mature and educated workers (thus probably less poor) have suddenly been rendered without incomes. This all tells us that COVID-19 has left rather deep scars on the Filipino people, and healing them could be a much more protracted process than we may think. _______________________________________________________________________________________ Tell me it ain’t so CTALK - Cito Beltran (The Philippine Star) - July 12, 2021 - 12:00am Recently, “stories” have been popping up in many conversations that suggest that the much awaited full scale vaccination campaign among the private sector companies for the month of July and August won’t be happening as planned and as scheduled because most of the vaccines arriving in the country are being directed to local government units or LGUs, even those that were ordered, paid for and scheduled for delivery to private companies. During the first quarter of the year, many corporations and businesses were totally convinced that the vaccines they ordered would be sufficient to inoculate their staff as well as their immediate family members or dependents, especially since the purchase had a “tucked in” condition called “Buy One – Plus One for donation.” The companies were so sure about the deal that they even invited consultants and external associates to sign up. I myself got offers from two major conglomerates, a church and a government corporation and a hospital for whom I consult for free, to include me and my wife in their program of inoculation. That to me was truly encouraging and much appreciated but in the end, Karen and I were inoculated with Sinovac through the program of Pasig City under Mayor Vico Sotto. In the meantime I monitored how things have gone with the generous organizations that offered to include us in their lists. One of my friends who decided not to go for a Sinovac jab because his company already announced they would get Moderna, recently informed me that his company advised them not to wait for the company bought vaccines and take advantage of LGU vaccinations in their respective barangays or villages because there were no guarantees or schedules when their vaccine would be delivered. When I called on the Communications group of a major conglomerate I was told by the vice president of the group that their vaccines have been held up and very delayed under the IATF that they quietly worked out with LGUs and told their employees to enlist with those LGUs for COVID-19 vaccination. Add to that another friend whose family owns several medium-size businesses and decided early on to spend their own money to order vaccines through the government just to make sure that their employees were all vaccinated. It seems that she also got vaccinated through their local LGU, Taguig City, and not with the Moderna vaccine they had ordered and paid for: “Our shipment is technically here too but the government is the one dispensing it, that is, it’s being farmed out to vaccination centers and even if we got an order in and paid for it we still have to wait our turn which, ironically for me, I got called by Taguig faster than our vaccines which we paid for.” Last Friday, one of my pastor friends told me he was lined up for his second dose of Sinovac courtesy of the Lipa City vaccination center and not the AstraZeneca that he originally thought he would be receiving once his church got the stocks. Come to think of it, one major reason there was initially a low turnout for vaccination in barangays or local governments may be because many employees were waiting for company vaccines, until they could not wait any more or were told by their employers not to wait. Now that those people are signing up, LGUs understandably run out of supplies. Yesterday, a friend from Mindoro Oriental forwarded a long article purportedly from Sen. Leila de Lima labeled as “Dispatch from Crame No:1090 Sen. Leila De Lima on the IATF Practice of Re-appropriating Private Sector Vaccine Purchase.” We tried to verify the article from the staff of Sen. De Lima but failed to get a response in time. The key issue raised in said article goes: “When the vaccines arrived during the expected delivery dates, some companies were frustrated because their allocations were not released to them. Instead of the expected thousands of vaccines for their employees, they received only a few dozen as token releases... “Now because the vaccines they purchased are being withheld by the IATF, their employees had to resort to the LGUs for their much-needed vaccination. Moreover, these companies were deprived of the vaccine brands of their choice, which they purchased with their own money.” The article went on to raise the sanctity of contracts between the private sector and the IATF, the fact that the private sector had to pay double because of the condition “Buy One – Plus one for donation” and suggested that the situation makes it appear that the private sector “got scammed” having to pay double yet getting nothing in return and ending up relying on local governments to inoculate their employees. The article went on to raise issues of accountability, electioneering and the like, but I am using editorial privilege to use parts that are actually substantiated by the private sector alongside the timeliness of the letter relative to the issues raised by friends and employees in the private sector. As the saying goes, “Where there’s smoke, there’s fire.” Right now the smoke is about disgruntled business people who don’t have the vaccines they paid for. What happens then if all their employees are fully vaccinated by LGUs, are companies expected to simply write off the expense as a business “loss” or a campaign contribution? We all hope to get some answers soon. _______________________________________________________________________________________ BSP sees more stable savings, loan associations under tighter rules By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 04:32 PM June 17, 2021 MANILA, Philippines—The Philippine central bank’s strengthened rules governing the country’s savings and loan associations were expected to improve the soundness and stability of these financial institutions, several of which ran into risks associated with weak corporate governance. At an online press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said these enhanced regulations promote the value of a strong board of trustees and board-level committees coupled with effective control functions, with the board expected to oversee the implementation of effective risk governance and management systems. “Effective corporate governance is the foundation of safe and sound business operations, and it embodies the principles of fairness, accountability and transparency,” Diokno said. “It also provides a crucial anchor for sound risk governance practices that enables [savings and loan associations] to be responsive in identifying, understanding, measuring, and managing risks,” he said. “Since corporate powers are exercised through a [savings and loan association’s] board of trustees, the enhanced guidelines aim to ensure that trustees shall hold their office for the best interest of the association,” he said. He said trustees and officers must be fit and qualified for their positions to carry out with “utmost integrity” their business affairs. To promote independence and instill accountability, a percentage of independent trustees are required for these firms, and that the chairperson of the board of a complex savings and loan associations must not have any management position. There are also mandatory board-level committees depending on a savings and loan association’s complexity and size to increase efficiency and allow deeper focus on specific areas. The revised corporate governance guidelines were also seen to promote public trust in the savings and loan industry, which continues to have sound and stable operations and financial condition amid the COVID-19 pandemic. As of March 31, 2021, the industry’s total assets reached P271.2 billion, a 4.3 percent growth from the end-December 2019 level. Savings and loan associations’ total loan portfolio, meanwhile, stood at P238.9 billion at end-March this year, a 5.7 percent increase from the figure recorded at end-December 2019. _______________________________________________________________________________________ EastWest Bank mulls Komo spin-off as digital bank Published June 15, 2021, 5:07 PM by Lee C. Chipongian East West Banking Corp. (EastWest Bank) may apply for digital bank license with the central bank to spin off its digital bank unit Komo, said a member of the Gotianun family who owns the bank. Josephine Gotianun-Yap, president and CEO of Filinvest Land Inc. and director of Filinvest Group’s banking arm, EastWest Bank, said they are assessing the digital banking market and the viability of converting or spinning off Komo as a separate digital bank. “No decision has been made as of now, as far as that is concerned,” Yap told a forum hosted by the Economic Journalists Association of the Philippines on Tuesday, referring to plans to apply for a digital bank license. “I think currently the digital banking service being done by Komo is quite sufficient at this point in time,” she said. Komo is a digital bank operated by subsidiary EastWest Rural Bank. Yap said the bank is “heavily investing in digital initiatives” both on digital banking and EastWest Bank’s digitization efforts. “We’re always assessing developments in the industry including whether Komo will be spun off as a separate entity. We are always open as well to looking at strategic partnerships with the entities that can make the bank become a bigger player in the various fields,” she added. EastWest Bank introduced Komo last May 2020, during the height of the strictest phase of the COVID-19 lockdown. It is an exclusively digital banking service via a mobile app, and since all transactions are done online, it has no physical branches. Komo was launched in the local market before the Bangko Sentral ng Pilipinas (BSP) issued its circular for the establishment of digital banks in November 2020. Based on BSP rules, a digital bank license requires a minimum P1 billion capitalization. This is lower than commercial banks’ minimum capitalization of P2 billion to P15 billion depending on where branches are located. A universal bank license is required a minimum capitalization of P3 billion to P20 billion. But while digital banks’ minimum capital requirement is only P1 billion, the BSP could impose a higher minimum amount and capital ratio based on its assessment of the risk profile of the digital bank. EastWest Bank is 11th of the country’s 46 big banks. As of end-March this year, it posted a lower net income of P2 billion or 10 percent down from same period in 2020 of P2.3 billion. The BSP has granted three digital bank license so far, and is reviewing the application of three commercial banks and one financial company. BSP Governor Benjamin E. Diokno said earlier that he would like to limit the number of digital banks to just five but this is a flexible number that could be increased depending on the condition of the digital banking market at the time of review. _______________________________________________________________________________________ Central bank grants digital banking license to UNOBank June 9, 2021 | 12:01 am UNOBANK has secured a digital banking license from the Bangko Sentral ng Pilipinas (BSP), adding to the roster of lenders offering all-online services. The lender, which is backed by Singapore-headquartered financial technology player DigibankASIA Pte. Ltd., is looking to “bridge the gap” in the Philippine financial inclusion story by offering products that allow Filipinos to “save, borrow, transact, invest, and protect their finances easily, with speed and ease.” “The BSP’s vision and foresight to digitize the local banking industry is future-forward and apt, because ultimately it will help align the Philippines as a modern banking center for the region,” UNOBank Chief Executive Officer Manish Bhai said in a statement. The lender said it is working with technology firms including Amazon Web Services, Backbase, and Mambu to deliver its services. UNOBank aims to help “bridge the financial inclusion gap in the Philippines and eventually Southeast and South Asia,” it said. Some 51.2 million adult Filipinos in the country were unbanked as of 2019, as only 29% had accounts with formal financial institutions. The central bank hopes to bring 70% of the adult Filipino population into the formal financial system by 2023. The central bank defines a digital bank as a lender that mainly offers its products and services through a digital platform instead of brick-and-mortar branches. The BSP in 2019 unveiled a framework which differentiates these lenders from traditional ones such as commercial, thrift, rural, and Islamic banks. In April, the central bank granted the first digital bank license to Overseas Filipino Bank, a unit of the state-owned Land Bank of the Philippines. Tonik Digital Bank, Inc. (Philippines) has also secured a digital banking license from the BSP, it said on Monday. The lender was initially granted a rural bank license by the regulator in 2019. Meanwhile, UnionBank of the Philippines, Inc. in May submitted to the BSP its own application for a digital bank license. Other lenders such as CIMB Bank Philippines, Inc., ING Bank N.V. Manila, EastWest Banking Corp. through its Komo app, and Rizal Commercial Banking Corp. through its Diskartech app are also offering all-online banking services where users can open a bank account, deposit, or loan straight through the banks’ mobile platform, attracting clients by offering deposit rates higher than those of traditional banks. — Luz Wendy T. Noble _______________________________________________________________________________________ Big banks fail to meet MSME credit quota June 1, 2021 | 12:02 am BIG AND thrift banks failed to hit the quota for small business loans required by law in the first three months of 2021, data from the Bangko Sentral ng Pilipinas (BSP) showed. Loans extended by these banks to micro-, small-, and medium-sized enterprises (MSME) amounted to P448.458 billion in the January to March period or just 5.24% of their total loan portfolio of P8.564 trillion. This was also 16% lower than the P534.767 billion in loans they extended to the sector in the same period in 2020. Lenders are mandated by the Republic Act 6977 or the Magna Carta for MSMEs to allocate 10% of their credit portfolio for small businesses to boost the sector — 8% for micro and small enterprises (MSEs) and 2% for medium-sized enterprises. However, banks have long opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small businesses. Broken down, MSE loans extended by banks amounted to P174.925 billion in the first quarter, which was just 2.04% of their total loan portfolio and well below the 8% quota. On the other hand, lending to medium-sized enterprises stood at P273.533 billion in the period, equivalent to 3.19% of these banks’ credit book and beyond the 2% minimum requirement by law. Based on the type of bank, BSP data showed universal and commercial banks disbursed P113.748 billion in credit to MSEs, equivalent to only 1.47% of their P7.719-trillion loan portfolio. Meanwhile, their lending to medium-sized enterprises hit P227.447 billion or 2.95% of their loan book. Thrift banks were also unable to meet the quota for MSE credit as they only extended P31.498% or 4.36% of their P722.079-billion loan portfolio to the sector. However, these lenders went beyond the credit quota for medium enterprises as their loans to the sector hit P32.027 billion or 4.44% of their portfolio. Meanwhile, rural and cooperative banks extended loans worth P29.679 billion to MSEs, equivalent to 24.11% of their P123.077-billion credit book, well above the amount required by law. These banks’ lending to medium enterprises hit P14.059 billion or 11.42% of their loan portfolio. To help prop up the MSME sector during the coronavirus pandemic, the central bank last year allowed banks to count MSME loans as alternative reserve compliance. Loans extended to the sector likewise were also given reduced credit risk weight. The BSP has also been working with the Japan International Cooperation Agency for a credit risk database project meant to help banks evaluate the creditworthiness of small businesses. — L.W.T. Noble _______________________________________________________________________________________ Diokno shrugs off credit downgrades amidst rise in PH liabilities By Joann Villanueva May 20, 2021, 8:02 pm MANILA – Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno is confident that the Philippines will not lose its investment grade credit ratings amidst the jump in its debt because the level of liabilities remains within the international threshold. He said while the debt to gross domestic product (GDP) ratio has risen to 54.6 percent as of end-2020, it remains below the 60 percent threshold “and we’re very careful about that.” Diokno also noted that the Philippines’ debt-to-GDP ratio is better compared to some Asian countries. “And the analysis is that because of the reforms that we have done our borrowing program is sustainable. So, there should be no fear that the rating agencies will downgrade us. In fact, in the sea of downgrades they have affirmed their ratings on the Philippines’ international credit,” he said. As of end-2020, the country’s total external liabilities reached USD98.5 billion, higher than USD83.6 billion in end-2019. This level of foreign debt accounts for around 27.2 percent of the country’s output. Authorities point increase in foreign debt to funding requirements for government programs to address the impact of the coronavirus disease (Covid-19) pandemic as well as general financing requirements. Diokno said debt service ratio (DSR), or the measure of the adequacy of the country’s foreign exchange earnings to meeting maturing foreign debts, is at 6.3 percent. Philippines gross international reserves (GIR) amounted to USD107.25 billion as of end-April 2021, near its record-high USD110.117 billion in December 2020. It is equivalent to 12.3 months’ worth of imports of goods and payments of services and primary income. Diokno said part of the reasons behind the sustainability of foreign debt is the conduct of annual survey on foreign borrowings of both the public and the private sector, the liberalization of foreign exchange regulatory framework, and the implementation of the law on the approval of public sector foreign borrowings. (PNA) _______________________________________________________________________________________ Only 4 bank branches approved in Q4 2020 Published May 18, 2021, 4:28 PM by Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) approved four new banking offices in the last quarter of 2020 compared to 67 new branch applications in the same period in pre-pandemic 2019. Based on a BSP circular letter, there was only one approved regular branch and three branch-lite units (BLUs) in the fourth quarter 2020, and these are all Security Bank Corp. branches. In 2019, there were 23 regular branch applications and 44 BLU applications by four big banks, and nine are BDO Unibank Inc. regular branches. The BSP also noted that by the last three months of 2020, 24 regular branches were opened amid the less severe general quarantine community lockdown, and 54 BLUs were also opened. Rural/cooperative banks likewise opened three microfinance-oriented branches. These numbers are lower compared to 2019’s 71 regular branches, 152 BLUs and six microfinance-oriented branches. Big banks only opened 12 regular branches in the fourth quarter 2020 compared to 44 in the previous year. Thrift banks opened eight regular branches and 10 BLUs compared to 11 and 78, respectively, in 2019. The smaller banks opened 24 regular branches and 54 BLUs versus 71 and 152 in 2019. The BSP is listing all non-regular bank branches as BLUs since 2018. This means that banks’ extension offices, microbanking offices and other banking offices are now referred to as BLUs. The BSP also allows conversion of regular branches into BLUs. The difference between regular branches and BLUs is that the latter have 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; while the former (regular branches) are full-sized banks, mostly traditional brick and mortar branches or contained within a building and offers full banking services. With the COVID-19 public health scare, banks had to close down a lot of their branches while maintaining a skeletal or a minimum number of employees in select branches in compliance with social distancing health protocols. The BSP has no data on how many bank branches are currently in operation while still on lockdown. Since banking operations were affected by the pandemic, at the end of 2020, bank profits declined by 32.8 percent year-on-year to P155 billion, mainly because of increased loan loss provisioning. The BSP in a report said the banking system landscape were streamlined last year due to an ongoing industry consolidation. As of end-December 2020, banking units increased to 13,044 from 12,870 because of new other offices added to the overall network, said the BSP. There were 535 head offices and 12,509 branches compared to end-December 2019’s 547 head offices and 12,323 branches. At the close of 2020, there were 46 big banks or the universal/commercial banks with 6,983 branches, it’s the same number end-2019 but branches were lower at 6,896. The number of thrift banks were reduced to 48 from 50 with end-2020 of 2,637 branches compared to 2,633 in 2019. There were 441 rural/cooperative banks with 2,889 branches by end-2020 versus 451 with 2,821 branches in 2019. _______________________________________________________________________________________ LANDBANK to consider revisiting loan application requirements Published May 17, 2021, 2:02 PM by Madelaine B. Miraflor Amid the pending amendments to the Agri-Agra Reform Credit of 2009 (Agri-Agra Law), the Land Bank of the Philippines (LANDBANK) said it is open to revisiting its existing loan application requirements to make it easier for farmers and fishermen to borrow from the state-run bank. In a statement, LANDBANK said it fully supports the ongoing Senate initiative to amend the provisions of Republic Act. (RA) 10000, otherwise known as the Agri-Agra Law. During a public hearing on the proposed Agri-Agra Law amendments, LANDBANK welcomed the recommendations from legislators to revisit its loan application requirements, specifically for small farmers and fishers, to make it easier for them to access financing. However, the bank claimed that in 2019, even prior to the ongoing Agri-Agra law revisit, LANDBANK already started simplifying its loan processes to make the Bank’s programs more accessible to small farmers and fishers. First, the loan application form was condensed from three documents to just one document and was reformatted with mostly tick boxes for easier completion. Second, the Promissory Note was significantly trimmed from 14 pages to only 1 page. LANDBANK said it has also consistently complied with the number of loans that should be lent to agriculture and agrarian reform. As of December 2020, LANDBANK’s agriculture loans reached 76.95 percent and 11.52 percent for agrarian reform. Overall, LANDBANK’s agriculture lending has been consistently growing from P222.05 billion in 2018, to P236.31 billion in 2019, and P237.62 billion in 2020. Likewise, as of March 31, 2021, LANDBANK’s total loan portfolio to the agriculture sector also grew by 4.8 percent to P229.70 billion from P219.24 billion last February. The increase is primarily attributed to a 9.5 percent rise in loans released to small, medium, and large enterprises. A decade since RA 10000 took effect, the overall banking sector of the Philippines still fails to comply with the law. Last year, President Rodrigo Duterte said during his fifth State of the Nation Address (SONA) that he wants to end the more than a decade of non-compliance of the Agri-Agra Act. Agriculture Secretary William Dar said at the time that it’s good that Duterte brought up during his SONA the proposed laws that would amend the Agri-Agra Act. “That’s a great development. With that law, the penalties that the banks pay for not complying with the Agri-Agra Law will be collected and will be utilized to support farmers,” Dar said. _______________________________________________________________________________________ PH banks’ resources hit P24T Published May 17, 2021, 7:00 AM by Lee C. Chipongian The financial system’s total resources increased to P24.08 trillion as of end-March, up by 5.46 percent from same period last year of P22.84 trillion, based on Bangko Sentral ng Pilipinas (BSP) data. Of the total figure, banks have P20.03 trillion of total resources, up by 6.64 percent year-on-year or from P18.98 trillion. The 46 big banks or universal/commercial banks accounted for 92 percent of the Philippine banking system’s total resources or P18.54 trillion at the end of the first quarter, this was 6.9 percent more than last year’s P17.35 trillion The banking system is the core of the financial system as credit source for economic activities, and its resources come from deposits, bond issuances and capital infusion. The end-March total resources is unchanged from end-2020’s P24 trillion but it still managed to grow during the first pandemic year compared to end-2019’s P22.94 trillion. Thrift banks’ total resources as of end-March reached P1.18 trillion, also up by 2.88 percent or from P1.14 trillion same period in 2020. There are 48 thrift banks as of end-March this year. The BSP data on the 408 rural banks, in the meantime, have a lag time and the latest was still end-December 2020 of P308 billion total resources which was 5.84 percent more than end-December 2019’s P291 billion. The BSP in its latest report on the financial system said funding – despite the pandemic – was still relatively stable with asset expansion principally funded by deposits, bond issuances and capital infusion. It said bank deposits continued to grow as consumers shifted to digital payments. Banks’ lending activities were also mostly funded by deposits which grew by 8.9 percent year-on-year to P14.88 trillion as of end-December 2020, up by 7.1 percent year-on-year. “The growth in total deposits is consistent with the global trend towards precautionary savings, decrease in consumption in view of a highly uncertain economic environment due to the pandemic, and the observable increased usage of digital platforms by the BSP supervised financial institutions in onboarding depositors and investors,” according to the BSP. _______________________________________________________________________________________ IMF urges BSP not to delay recognition of losses, restructuring of NPLs Lawrence Agcaoili (The Philippine Star) - April 12, 2021 - 12:00am MANILA, Philippines — A prompt loss recognition and non-performing loan (NPL) restructuring may help Philippine banks prevent sharp deleveraging and recover faster from the pandemic-induced recession, according to the International Monetary Fund (IMF). In its latest Financial System Stability Assessment on the Philippines, the multilateral lender said the Bangko Sentral ng Pilipinas (BSP) should now withdraw forbearance measures introduced at the height of COVID-19 outbreak in 2019. “The central bank should allow forbearance measures to lapse as scheduled and avoid introducing new measures as delayed loss recognition and NPL restructuring could limit credit growth,” the IMF said. The same scenario, it said, was observed during the Asian financial crisis in 1997. As part of its COVID-19 response measures, the BSP implemented various measures, including time-bound regulatory relief and forbearance measures, although the scale of loan moratoria and credit guarantees has been relatively limited. “Forbearance does not address the underlying issues in weak banks and hampers banks’ ability to continue providing credit and ultimately may even undermine financial stability,” it said. Instead, the multilateral lender said the BSP should continue to use the flexibility of tools available in the Basel capital framework, as well as further develop and use macroprudential tools and buffers. It also said the forbearance measures could undermine their effectiveness by reducing bank capital’s sensitivity to risks as delay keeps bank capital at artificially high levels. “Stress tests show that while banks can withstand the already severe baseline scenario, they could experience systemic solvency distress if the economic impact of COVID-19 turns out to be severe,” the IMF said. It warned the economic shock would weigh on corporate earnings and then spill over to banks. “Bank stress could limit credit supply, reducing economic growth noticeably even more,” the IMF said. Bank lending in the country contracted by 2.7 percent in February as banks remained risk averse and due to the lack of demand from borrowers. Based on baseline scenario, the IMF said the capital adequacy ratio (CAR) of Philippine banks could fall to 11.7 percent in 2022 from the current level of 15.6 percent. It warned the CAR of the local banking industry could fall further to 9.3 percent in adverse scenario and 4.9 percent under severe adverse scenarios, below the required 10 percent. Under the baseline scenario, the IMF said 185 banks, comprising mainly of rural and cooperative banks, would not be able to meet the required CAR. The IMF sees the banking sector’s CAR recovering in 2022 as the Philippines recover from the pandemic-induced recession. Given the significant downside risks, the IMF said monetary authorities should limit bank dividend distributions and the BSP should be ready to take additional measures to strengthen the bank’s capital if risks materialize. _______________________________________________________________________________________ Help for small businesses By: Joel Ruiz Butuyan - @inquirerdotnet Philippine Daily Inquirer / 04:06 AM March 29, 2021 We are so overwhelmed with depressing news from all fronts these days. The strain on our mental health must be building up at an unprecedented rate. Even if there are no noticeable changes in our external behavior, the unending stress streaming through our subconsciousness affects us in so many different ways. In my case, even if my conscious thoughts do not amount to excessive psychological stress, I’ve noticed that I’ve been having lesser hours of sleep, and my blood pressure has been above safe levels recently. While we need to give considerable attention to protocols aimed at protecting ourselves from the virus, we cannot let the pandemic totally control our lives. The sprouting of so many home-based businesses shows that many of our people are asserting control over their lives, refusing to be at the complete mercy of the virus. While so many of our giant businesses are on the brink of collapse, many homegrown businesses that sprang up because of the pandemic are thriving in our communities. These businesses need to continue thriving for the sake of families whose breadwinners have lost employment. But even after the pandemic, it is in our country’s interest to make them flourish. These considerations may have been in the minds of the local officials of our small town, Alcala, Cagayan, when they recently met with officials of the Department of Science and Technology (DOST) at its Cagayan Valley regional office. I tagged along because I was curious to find out the kind of government assistance available, and I was looking at putting up a startup enterprise myself. I was so glad I joined the meeting. I was impressed with the DOST presentation led by regional director engineer Sancho Mabborang and provincial director engineer Sylvia Lacambra. What underlies the DOST programs that were presented to us is the recognition that small and medium enterprises (SMEs) are the true engines of growth in the countryside. With this premise, the DOST has designed various assistance programs to help SMEs in the various aspects of their operations. The DOST has priority sectors where it concentrates its assistance. These are SMEs involved in processed food, marine and agriculture, furniture, metals, gifts, decor and handicraft, electronics, and health products/services and pharmaceuticals. It was very encouraging to know that the DOST has a roster of scientists and experts who give online technical advice and consultancy services for free to SMEs in making their crops yield more harvest, in manufacturing their food products, in recommending the right equipment and technology, in turning their waste into fuel and fertilizer, in maximizing their profitability, in minimizing their expenses, etc. Private enterprises can go directly to the DOST for assistance. For food products, the DOST even helps SMEs with their packaging and labeling requirements, food hygiene and food safety protocols, and in providing access to laboratories that will measure the nutritional value and determine the expiry dates of their products. Among the SMEs that I’ve learned have benefited from DOST assistance are a bakeshop, a kamote beer entrepreneur, a peanut product venture, a canned goat meat enterprise, and a citrus farm, among many others. The DOST also operates OneStore.ph, which is an e-commerce web portal where customers can easily shop from all DOST-assisted SMEs. Recently, there’s news that our government plans to provide billions of pesos to help giant business conglomerates survive the economic crisis. I hope the government equally allots more funds to help the small businesses that have mushroomed because of the crisis. The emergence of these small ventures presents to us a crucial chance to recalibrate our economy by redistributing to small enterprises wealth opportunities that have long been monopolized by big conglomerates. The growth of these home-based businesses gives our country a rare opportunity to help stop the decimation of our middle class, and to halt the widening gap between the extremely rich and the rest of us.the government can still reach its target of vaccinating up to 70 million people by the end of the year. _______________________________________________________________________________________ Concepcion: Private sector to fund own vaccine rollout By CNN Philippines Staff Published Mar 20, 2021 6:39:35 PM Metro Manila (CNN Philippines, March 20) — Members of the private sector have agreed to fund their own immunization program as COVID-19 vaccines start to arrive in the country. "In our town hall meeting last Thursday with the AstraZeneca donors, all companies agreed to fund and pay for the logistics cost of the vaccine rollout," Presidential Adviser for Entrepreneurship and Go Negosyo founder Joey Concepcion said in a statement. He added this is also to ensure economic recovery that should start in the last quarter, provided no major lockdown is implemented, and the administration of vaccines will be at a "lightning speed." Concepcion said they already tapped Zuellig Pharmaceutical Corporation as their logistics service provider to ensure effective and efficient rollout of vaccines. A tripartite agreement between the private sector, Zuellig, and the national government will be finalized, he added. On January 14, the Philippines, through tripartite agreements involving private firms and local government units, was able to procure 17 million doses of AstraZeneca's COVID-19 vaccine, with the first batch expected to arrive by May to June. "We want to help the government so that we can execute the vaccine rollout in the fastest and most efficient way possible," Concepcion said. He said they will also pay for logistics costs for the rollout of vaccines for government frontline workers that will be covered by their donations. "Allowing us to execute, we could focus on the vaccination of our employees, the LGUs could focus on its constituents, and the national government could focus on the rest that are not covered. We need a fast and almost perfect rollout, and the private sector could do this for its employees," he noted. Currently, the government has received some one million donated doses of Sinovac and AstraZeneca vaccines, which are still not enough to immunize around 1.7 million healthcare workers who are the priority in the vaccine rollout. Despite this, Vaccine czar Carlito Galvez Jr. said the government can still reach its target of vaccinating up to 70 million people by the end of the year. _______________________________________________________________________________________ Better rice yields raise farmer income by P7,000 per hectare March 12, 2021 | 6:37 pm RICE farmers earned an additional P7,000 pesos per hectare two years after the implementation of Republic Act No. 11203 or the Rice Tariffication Law, the Agriculture department said. Agriculture Secretary William D. Dar in a statement Friday credited increased harvests to the P10 billion-a-year Rice Competitiveness Enhancement Fund (RCEF), which was created under the law. “Farmers are… averaging 400 kilograms per hectare or roughly eight cavans at 50kg each which is equivalent to an additional income of P7,000 per hectare,” Mr. Dar said. “This shows that with the use of certified seed, adoption of modern technology, and mechanizing land preparation, crop establishment and harvesting, farmers can attain incremental yields. At least two million rice farmers are now reaping and enjoying the initial benefits of the law,” he added. Dionisio G. Alvindia, director of the National Integrated Rice program, said the RCEF budget for 2021 is currently scheduled for release. “To date, the Department of Agriculture (DA) and other implementing agencies have obligated P16.2 billion and disbursed over P7.1 billion from the P20-billion allocation from 2019 to 2020,”Mr. Alvindia said in the statement. According to Mr. Alvindia, rice farmers using traditional home-saved seed recorded lower yields compared to those using certified inbred seeds. He said traditional seed produced an average of 3.6 metric tons (MT) per hectare while inbred seed yielded 4 MT per hectare. “To date, 674,400 farmers have received 1.68 million bags of free certified inbred rice seed. These were planted to 843,000 hectares in 948 RCEF municipalities nationwide, or 98.5% of the targeted 962 towns for seed distribution,” Mr. Alvindia said. Baldwin G. Jallorina, Philippine Center for Postharvest Development and Mechanization (PhilMech) director, said in a statement that 15,046 units of farm equipment have been procured out of the targeted 23,378 units. Mr. Jallorina said 13,499 of the procured units have been distributed. Meanwhile, the DA said P1.58 billion worth of RCEF loans have been disbursed to farmers’ cooperatives and associations. Some P968 million was released by the Land Bank of the Philippines (LANDBANK) and P616 million by the Development Bank of the Philippines (DBP). It added that 90 farm schools have been established, while 43 were upgraded since the law’s passage. Passed in 2019, the law allows rice to be imported more freely but the commodity is charged tariffs of 35% on imports from Southeast Asia. Under the law, the tariffs provide P10 billion a year to RCEF to help modernize the rice industry. — Revin Mikhael D. Ochavethat the local banking system will continue to be under pressure in 2021 on account of rising bad loans. _______________________________________________________________________________________ Banks’ resilience clear in indicators–Diokno By BIANCA CUARESMA MARCH 11, 2021 BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said recent indicators show that banks remain resilient despite the negative economic effects of restrictions to curb the pandemic. This is amid the recent assessments of two of the major international credit watchers, saying the Philippine banking system may face increasing pressures in 2021 as travel and movement restrictions are in place and bad loans continue to rise. In a recent speaking engagement, Diokno said the Philippine banking system remains strong based on three core strengths: capital position, liquidity buffers and expanding asset base. Diokno said the banking industry’s strong capital position is evidenced by its stable capital adequacy ratios (CAR) at about 15 percent in the past 10 years. This is well above the 10 percent minimum threshold set by the BSP and 8 percent minimum set by the Bank for International Settlements (BIS). Moreover, the risk-based CAR of the universal and commercial banking industry stood at 17.2 percent on a consolidated basis as of end-September 2020. The BSP governor also said the banks’ liquidity buffers remain “ample.” This, Diokno said, enables banks to withstand short-term liquidity shocks and provides them adequate stable funding in the medium term. As of end-November 2020, the liquidity coverage ratio (LCR) of banks hit 201 percent. This is double the regulatory minimum of 100 percent. The minimum liquidity ratios of stand-alone thrift, rural and cooperative banks also continued to exceed the regulatory minimum requirement. Diokno also said banks’ assets continued to expand amid the pandemic on the back of increasing deposit liabilities. As of end-December 2020, the banking system assets grew by 6.1 percent year-on-year to P19.4 trillion. “All in all, these contributed to the sustained strength and resilience of the banking sector,” the BSP governor said. Earlier this week, Fitch Ratings put a negative outlook of the Philippine banks’ asset quality, as further deterioration is likely on the back of expected rise in bad loans for the year. This comes after the S&P Global Ratings recent assessment that the local banking system will continue to be under pressure in 2021 on account of rising bad loans. _______________________________________________________________________________________ BSP sets alternative modes of compliance for agriculture-agrarian loans Lawrence Agcaoili (The Philippine Star - March 8, 2021 - 12:00am) MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has relaxed the compliance rules for agriculture and agrarian reform loans as Philippines banks continue to fall short of the mandated threshold. BSP Governor Benjamin Diokno issued Circular 1111 after the Monetary Board approved the revised rules and regulations governing the mandatory credit allocation under Republic 10000, otherwise known as the Agri-Agra Reform Credit Act of 2009. Banks are required to set aside at least 25 percent of their total loanable funds for agriculture, fisheries, and agrarian reform credit in general, of which at least 10 percent of the total loanable funds shall be made available for agrarian reform beneficiaries (ARBs), ARB households or agrarian reform community. Under the revised guidelines, Diokno said the excess compliance in the 10 percent agrarian reform credit can be used to offset a deficiency, if any, in the 15 percent other agricultural and fisheries credit, but not vice versa. Another allowable alternative compliance includes eligible securities such as investments in bonds issued by state-run Development Bank of the Philippines and Land Bank of the Philippines, investments in other debt instruments used to finance activities under Republic Act 8435 or the Agriculture and Fisheries Modernization Act of 1997, as well as paid subscription of shares of stock of accredited rural financial institutions, Philippine Crop Insurance Corp. (PCIC), and companies primarily engaged in agriculture and fisheries activities. Other modes of compliance include rediscounting facility granted by big banks to other banks, including loans covered by guarantees of the PCIC, loans intended for the construction and upgrading of farm-to-market roads, and provision of post-harvest facilities, loans to agri-business enterprises that maintain agricultural commodity supply-chain arrangements, as well as agricultural value chain financing. Loans extended by Philippine banks for agriculture and agrarian reform slipped by 2.8 percent to P713.6 billion last year from P733.92 billion in 2019 as the industry continued to fall short of the mandated threshold for the sector. Total loanable fund generated by the banking industry jumped by 15.7 percent to P7.14 trillion last year from P5.54 trillion in 2019. However, the loans extended by the banks to the agriculture sector declined by 3.6 percent to P666.69 billion in 2020 for a 9.32 percent compliance ratio or below the required 15 percent. Big banks or universal and commercial banks registered a compliance ratio of 9.01 percent after extending P608.9 billion to the agriculture sector in 2020, while the ratio of thrift or mid-sized banks only reached 6.4 percent after granting P18.1 billion. On the other hand, rural banks extended P15.33 billion to the agriculture sector for a compliance ratio of 16.3 percent. Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as loans given by banks to the agriculture sector increased by only 5.9 percent to P55.84 billion for a compliance ratio of a measly one percent. The compliance ratio of big banks for agrarian reform loans only reached 0.88 percent, while that of thrift banks settled at 0.95 percent, as well as rural and cooperative banks with 9.69 percent. _______________________________________________________________________________________ Philippine bank assets up 70% to P20 trillion in 2020 Lawrence Agcaoili (The Philippine Star) - March 2, 2021 - 12:00am MANILA, Philippines — The domestic banking sector managed to post a 6.9 percent growth in total assets despite the uncertainties brought about by the pandemic, according to the Bangko Sentral ng Pilipinas (BSP). Total resources of Philippine banks hit a record high of P20 trillion last year, P1.29 trillion higher than the P18.71 trillion recorded in 2019. The total assets of big banks or universal and commercial banks grew by 7.5 percent to P18.51 trillion in 2020 from P17.22 trillion in 2019, while that of mid-sized banks or thrift banks slipped by about one percent to P1.19 trillion in 2020 from P1.2 trillion in 2019. The total resources of small or rural bank inched up by 3.4 percent to P301 billion as of end-September last year from P291 billion in the same period in 2019. The industry’s total resources continued to grow impressively, accounting for more than 90 percent of the country’s gross domestic product (GDP). Major players in the local banking sector are BDO Unibank, Metropolitan Bank & Trust Co., Bank of the Philippine Islands, Philippine National Bank, China Bank, Rizal Commercial Banking Corp., Union Bank and Security Bank. State-run Land Bank of the Philippines and Development Bank of the Philippines are also part of the country’s 10 largest lenders in terms of assets last year. BSP Governor Benjamin Diokno earlier said the country’s banking system is expected to withstand the impact of the pandemic. “While the full impact of the pandemic is still unfolding, the good news is that the Philippine banking system is expected to withstand the impact of the pandemic. The financial system is in a strong position to both weather the significant economic effect caused by the COVID-19 pandemic and support the country’s economic recovery,” he said. The BSP has implemented reforms over the years, reflecting the lessons learned in the Asian financial crisis in 1997. Based on the results of the latest Banking Sector Outlook Survey (BSOS), 69 percent of the respondent banks projected a stable banking system as they expect a 10 to 15 percent growth in the industry’s loan portfolio over the next two years. Bankers are also looking at double-digit growths in net income, as well as deposits for the next two years. Earnings of Philippine banks slumped to a four-year low after declining by 33 percent to P154.96 billion last year from a record high of P230.67 billion in 2019 as provision for potential loan losses almost quadrupled to P210.89 billion from P52.89 billion. _______________________________________________________________________________________ Duterte signs law creating trust fund for coconut farmers Published February 26, 2021, 10:19 PM by Genalyn Kabiling Under Republic Act No. 11524, the government will dispose of P75-billion worth of coco levy assets in the next five years to establish a trust fund for the benefit of the coconut farmers and development of the industry. The new law, also known as the “Coconut Farmers and Industry Trust Fund Act,” is expected to benefit coconut farmers who own not more than five hectares of coconut farm. The coconut levy funds refer to the funds generated from the taxes imposed on coconut products and collected from coconut farmers, millers, refiners, exporters, and other end-users decades ago. The new law mandates the Bureau of Treasury (BTr) to transfer P10 billion to the trust fund in the first year, P10 billion in the second year, P15 billion in the third year, P15 billion in the fourth year and P25 billion in the fifth year. The trust fund will be maintained for 50 years under the Coconut Farmers and Industry Development Plan that will also be formulated. “All Coconut Levy Assets in the name of the Philippine Government shall be sold within the period of five years after the effectivity of this Act,” the law read. “All other coconut levy assets that may hereafter be recovered shall likewise be disposed of within five years from the time it is declared as belonging to the government, and the proceeds shall be transferred to the Trust Fund for the benefit of the coconut farmers,” it added. The trust fund will be used on the following: – Development of hybrid coconut seed farms and nursery for planting and replanting (20 percent); – Training of farmers and their families listed in the coconuts farmers registry on coconut production and processing technologies, sustainable farming methods, financial literacy, among others (8 percent); – Research, marking, and promotion to be implemented by the Bureau of Micro, Small and Medium Enterprise Development (5 percent); – Crop Insurance (4 percent); – Farm improvements through diversification and intercropping with livestock, dairy, poultry, coffee, cacao production (10 percent); – Shared facilities for processing (10 percent); – Organizing and empowerment of coconut farmer organization and their cooperatives (5 percent); – Credit programs through Development Bank of the Philippines and Land Bank of the Philippines (10 percent); – Infrastructure development in identified coconut producing local government units (10 percent); -Scholarship program for farmers and their families (8 percent); and, -Health and medical program for farmers and their families (10 percent) A committee, composed of the Department of Finance, Department of Budget and Management, and the Department of Justice, will also be created to set the investment strategy of the trust fund. The finance department is designated as trust fund manager. “All cash Coconut Levy Assets shall be invested in Philippine Government securities and other securities guaranteed by the National Government. On the other hand, the BTr may hold, manage and invest non-cash Coconut Levy Assets, only upon approval of the DOF,” the law read. Under RA, the Coconut Farmers and Industry Development Plan will also be prepared by the reconstituted Philippine Coconut Authority to increase productivity and income of farmers as well as rehabilitate and modernize the industry. The plan is subject to the approval of the President. The development must include a national program for community-based enterprises to boost incomes of coconut farmers, social protection for farm workers and their families, coconut farmers organization and development, innovative research projects, and integrated processing of coconut and downstream products. Under the new law, the PCA will be reconstituted and strengthened to ensure participation of coconut farmers in crafting the Coconut Industry Development Plan. A coconut farmers registry will also be established with annual verification in coordination with local government units and the agriculture department. The Secretary of the Department of Agriculture will sit as chairman of the PCA board while the Secretary of the Department of Finance serves as vice chair. The board also includes the Secretaries of the Department of Budget and Management, Department of Science and Technology, and Department of Trade and Industry; administrator of the authority, and three members from the coconut farmers sector representing Luzon, Visayas and Mindanao. In 2019, President Duterte vetoed a measure creating the coconut farmers trust fund due to concerns about possible violation of the Constitution as well as lack of safeguards “to avoid the repetition of painful mistakes committed in the past.” Duterte claimed then that the proposed trust fund could “disproportionately benefit wealthy coconut farm owners” due to the absence of a limit on the covered land area for entitlement of benefits. _______________________________________________________________________________________ Agri-agra loans slip 2.8% in 2020 Lawrence Agcaoili (The Philippine Star) February 24, 2021 - 12:00am MANILA, Philippines — Loans extended by Philippine banks for agriculture and agrarian reform slipped by 2.8 percent to P713.6 billion last year from P733.92 billion in 2019 as the industry continued to fall short of the mandated threshold for the sector. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking system was able to allocate only about 10 percent of its total loanable funds last year, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009. The law has retained the mandatory credit allocation in Presidential Decree 717, where 15 percent of banks’ total loanable funds are to be set aside for agriculture while 10 percent should be made available for agrarian reform beneficiaries. Total loanable funds generated by the banking industry jumped by 15.7 percent to P7.14 trillion last year from P5.54 trillion in 2019. Loans extended by local banks to the agriculture sector declined by 3.6 percent to P666.69 billion in 2020. The figure was equivalent to a 9.32 percent compliance ratio or below the required 15 percent. The central bank said big banks or universal and commercial banks registered a compliance ratio of 9.01 percent after extending P608.9 billion to the agriculture sector, while the ratio of thrift or mid-sized banks only reached 6.4 percent after granting P18.1 billion. Rural banks extended P15.33 billion to the agriculture sector for a compliance ratio of 16.3 percent. Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold as banks only extended P55.84 billion for agrarian reform loans equivalent to a compliance ratio of only one percent. The compliance ratio of big banks for agrarian reform loans only reached 0.88 percent, while that of thrift banks settled at 0.95 percent as well as rural and cooperative banks with 9.69 percent. BSP Governor Benjamin Diokno earlier said the central bank remains committed to pursue strategies to promote agriculture financing in view of the sector’s critical role in enhancing financial inclusion and broad-based economic growth. “A more responsive agriculture financing ecosystem is needed to realize its full potential as an engine of inclusive economic development. We need to be deliberate in our bid to create a more inclusive new economy by supporting the development needs of the agriculture sector,” Diokno said. _______________________________________________________________________________________ Banking industry groups welcome FIST law February 19, 2021 | 12:04 am BANKING GROUPS welcomed the signing of the Financial Institutions Strategic Transfer (FIST) Act and hope it will spur bolster credit growth as the crisis continues. “With this measure, banks can gradually recover from non-performing loans (NPLs) that have increased due to the pandemic. As financial institutions utilize the special purpose vehicles, banks may now continue to increase lending activities to help spur economic activity,” the Bankers Association of the Philippines said in a statement on Thursday. The group said they are waiting for the implementing rules and regulations (IRR) of the new law. The law covers the transfer of non-performing loans and assets from banks to asset management companies or FIST corporations. Loans and assets classified as non-performing as of Dec. 31, 2022 will be eligible for transfer. “All those NPLs (non-performing loans) and NPAs (non-performing assets_ that become such on or before Dec. 31, 2022 are eligible, that’s just the cut-off,” Noel Neil Q. Malimban, deputy director at the BSP Office of General Counsel and Legal Services, said in an online briefing on Thursday. “There’s no distinction as to whether it’s from the start of the lockdown because all of these [NPLs and NPAs] are affected by the pandemic, whether it’s directly due to the lockdown or not. The aim is to help the financial institutions get rid of these bad assets,” he added. Chamber of Thrift Banks Executive Director Suzanne I. Felix said the FIST law’s enactment was “just in time”, noting credit raters have warned about the industry’s asset quality which will likely deteriorate further this year as the loan moratorium expired in December last year. Ms. Felix said they also welcome the tax exemption measures in the law and considers it “pain sharing” with the government. Under the law, exemptions will be applicable for payments of documentary stamp tax, capital gains tax, creditable withholding income taxes and value-added tax (VAT) in relation to the transfer of non-performing assets from a financial institution to the FIST corporation or from a FIST corporation to a third-party buyer or borrowers. Rural Bankers Association of the Philippines President Elizabeth C. Timbol meanwhile said they are hopeful the law’s implementing rules will be inclusive of the needs of smaller lenders. “We expect that the IRR would provide simple and efficient procedures that will allow different stakeholders to avail of the benefits and privileges FIST aim to provide specially for rural banks like us,” Ms. Timbol said in a text message. “We are hoping that this law will not only focus on big loan accounts but also with micro-loans, where a big portion of rural banks’ portfolio is allocated to,” she added. The banking industry’s NPL ratio stood at 3.61% as of December, higher than the 2.08% a year earlier but still better than BSP’s 4.6% projection. BSP Governor Benjamin E. Diokno has said the law could trim banks’ non-performing loan ratio by 0.63 to 7 percentage points. He said the IRR for the law is being circulated among industry players to garner sentiments. Estimates from the National Economic and Development Authority showed the law could free up P1.19 trillion in bad loans from banks’ portfolio, according to a statement from the Department of Finance. — Luz Wendy T. Noble _______________________________________________________________________________________ Banking industry groups welcome FIST law February 19, 2021 | 12:04 am BANKING GROUPS welcomed the signing of the Financial Institutions Strategic Transfer (FIST) Act and hope it will spur bolster credit growth as the crisis continues. “With this measure, banks can gradually recover from non-performing loans (NPLs) that have increased due to the pandemic. As financial institutions utilize the special purpose vehicles, banks may now continue to increase lending activities to help spur economic activity,” the Bankers Association of the Philippines said in a statement on Thursday. The group said they are waiting for the implementing rules and regulations (IRR) of the new law. The law covers the transfer of non-performing loans and assets from banks to asset management companies or FIST corporations. Loans and assets classified as non-performing as of Dec. 31, 2022 will be eligible for transfer. “All those NPLs (non-performing loans) and NPAs (non-performing assets_ that become such on or before Dec. 31, 2022 are eligible, that’s just the cut-off,” Noel Neil Q. Malimban, deputy director at the BSP Office of General Counsel and Legal Services, said in an online briefing on Thursday. “There’s no distinction as to whether it’s from the start of the lockdown because all of these [NPLs and NPAs] are affected by the pandemic, whether it’s directly due to the lockdown or not. The aim is to help the financial institutions get rid of these bad assets,” he added. Chamber of Thrift Banks Executive Director Suzanne I. Felix said the FIST law’s enactment was “just in time”, noting credit raters have warned about the industry’s asset quality which will likely deteriorate further this year as the loan moratorium expired in December last year. Ms. Felix said they also welcome the tax exemption measures in the law and considers it “pain sharing” with the government. Under the law, exemptions will be applicable for payments of documentary stamp tax, capital gains tax, creditable withholding income taxes and value-added tax (VAT) in relation to the transfer of non-performing assets from a financial institution to the FIST corporation or from a FIST corporation to a third-party buyer or borrowers. Rural Bankers Association of the Philippines President Elizabeth C. Timbol meanwhile said they are hopeful the law’s implementing rules will be inclusive of the needs of smaller lenders. “We expect that the IRR would provide simple and efficient procedures that will allow different stakeholders to avail of the benefits and privileges FIST aim to provide specially for rural banks like us,” Ms. Timbol said in a text message. “We are hoping that this law will not only focus on big loan accounts but also with micro-loans, where a big portion of rural banks’ portfolio is allocated to,” she added. The banking industry’s NPL ratio stood at 3.61% as of December, higher than the 2.08% a year earlier but still better than BSP’s 4.6% projection. BSP Governor Benjamin E. Diokno has said the law could trim banks’ non-performing loan ratio by 0.63 to 7 percentage points. He said the IRR for the law is being circulated among industry players to garner sentiments. Estimates from the National Economic and Development Authority showed the law could free up P1.19 trillion in bad loans from banks’ portfolio, according to a statement from the Department of Finance. — Luz Wendy T. Noble _______________________________________________________________________________________ CitySavings buys stake in Batangas-based thrift lender February 11, 2021 | 12:02 am UNIONBANK of the Philippines, Inc. has acquired a majority stake in Batangas-based thrift lender Bangko Kabayan, Inc. (BK) through its own thrift unit, further expanding the Aboitiz group’s banking network. UnionBank’s subsidiaries CitySavings Bank, Inc. and UBP Investment Corp. bought a combined 70% stake in the thrift bank — 49% for the former and 21% for the latter — making it a part of the group, the listed bank said in a statement on Wednesday. “BK is a very well-run bank with a decades-long track record of success and service to SMEs (small- and medium-sized enterprises). We are excited to work with them to expand their business and reach,” CitySavings President and Chief Executive Officer Lorenzo T. Ocampo was quoted as saying. The Batangas lender was established as Ibaan Rural Bank in 1957 and has grown to cover nearby Laguna and Quezon through its 24 branches that provide credit to small merchants and farmers. “The bank’s focus on grassroots entrepreneurship is aligned with CitySavings’ overall strategy to strengthen its presence in the mass market segment. It hopes to combine its digital capabilities with BK’s foothold in Calabarzon to expand into the micro-, small- and medium-sized enterprise (MSME) business,” the statement said. “Being part of the UnionBank group gives us access to digital banking solutions that will improve BK’s services with no need for a brick and mortar expansion. We look forward to the technological and capital support from CitySavings and UnionBank to level up BK’s capacity and reach out to more clients faster,” BK President Beatriz B. Romulo said. CitySavings has 140 branches nationwide. In December, it raised P5 billion from its corporate note issuance to support its asset expansion. Meanwhile, its parent UnionBank booked a lower net profit of P11.561 billion last year, down by 17.4% from P14 billion in 2019, as the bank increased its loan loss provisions due to the coronavirus crisis. UnionBank’s shares ended trading at P72 apiece on Wednesday, down by P1.45 or by 1.97% from its previous close. — L.W.T. Noble _______________________________________________________________________________________ More imports vs food price spike eyed By: Ben O. de Vera - Reporter / @bendeveraINQ Philippine Daily Inquirer / 04:59 AM February 08, 2021 MANILA, Philippines — Tariff authorities are now looking into proposals to increase the importation of food to stem the rise of prices, which have zoomed past what the government considered last month to be manageable. “Our priority right now is to ensure that food supply is adequate so that households affected by COVID-19 and the quarantines will not be doubly affected by the increase in food prices,” Karl Kendrick Chua, acting socioeconomic planning secretary, said in a statement on Friday. The spike in food prices pushed the headline inflation rate to a two-year high of 4.2 percent year-on-year in January, beyond the government’s target range of 2 to 4 percent. Chua, who heads the state planning agency National Economic and Development Authority, said the Cabinet-level interagency Committee on tariff and related matters has endorsed to the Tariff Commission an increase in the minimum access volume of pork and the temporary decrease in the most favored nation tariff rates of pork and rice. Tight supplies Due to tight supplies caused by the African swine fever and the damage caused by typhoons toward the end of 2020, faster price hikes were reported in meat products, especially pork, and vegetables. Economists also worried that elevated consumer prices may temper consumption at a time when the pandemic-battered economy needed a boost to recover from last year’s gross domestic product (GDP) drop of a record 9.5 percent, the worst post-war recession. Reduce tariffs In a webinar on Friday, former socioeconomic planning secretary Cielito Habito, an Inquirer columnist, said the inflation rate would likely average 4 to 5 percent this year, hence a need to ramp up food importation. “Right now, we are forced to open agriculture—in pork, because of the shortage due to the African swine fever. And this is no longer the time to oppose imports because the reason prices are skyrocketing is the sheer lack of domestic supply,” Habito said. Roehlano Briones, senior research fellow at the state-run Philippine Institute for Development Studies, said in a position paper submitted to the Senate last week that “rather than rely only on price freezes, we recommend [to] further liberalize private-sector importation by reducing tariffs on meat, fish and vegetables.” But House Minority Leader Carlos Isagani Zarate on Saturday opposed a looming opening up of the domestic market to an influx of imported goods amid a pandemic-induced recession. Runaway inflation “The Duterte administration’s policy of further liberalization of our economy will only aggravate rather than address the runaway inflation,” Zarate claimed in a statement. But “runaway inflation,” or hyperinflation, is technically defined as rapidly rising and uncontrollable inflation, typically measuring more than 50 percent per month. Inflation rates less than 10 percent are generally considered manageable. _______________________________________________________________________________________ 2-year inflation high of 4.2 percent in January driven mainly by pork, veggie prices By: Ben O. de Vera - Reporter / @bendeveraINQ Philippine Daily Inquirer / 04:42 PM February 05, 2021 MANILA, Philippines—High prices of food, especially pork and vegetables, pushed headline inflation upward to a two-year high of 4.2 percent year-on-year last January, making it tougher to convince consumers to spend more amid a prolonged recession. Not only was the rate of increase in prices of basic commodities the highest since January 2019’s 4.4 percent, but it was also already above the government’s target range of 2 to 4 percent—considered manageable inflation—for 2021. Prices last January further rose by a faster 0.9 percent from levels in December, when month-on-month inflation inched up 0.8 percent amid the Christmas holidays. The impact of high prices was worse for poor households—inflation for the bottom 30-percent income households climbed 4.9 percent, also the most elevated in two years. In a report, the Philippine Statistics Authority (PSA) said the surge in inflation among the poor was mainly due to faster price hikes in food and non-alcoholic beverages. For nationwide inflation, National Statistician Dennis Mapa said meat inflation jumped to 17 percent year-on-year in January from 10 percent in December last year, no thanks to higher pork prices due to the African swine fever (ASF). The 21.2-percent year-on-year hike in vegetable prices in January also outpaced December’s 19.7 percent. Fruits were more expensive by 9 percent year-on-year also last January, a bigger increase than the 6.3 percent in December. Fish prices rose 3.7 percent last month. Besides food, which accounted for almost three-fifths of the headline rate, restaurant and miscellaneous goods and services as well as transport costs contributed to the faster-than-expected January inflation. Economic officials had said the upward price pressures, which started in October 2020, were only “transitory” as a result of tight pork supply, damaged agricultural produce after a string of strong typhoons and lack of mass transportation amid prolonged COVID-19 quarantine. But Mapa said the PSA’s survey trends showed the elevated inflation environment could spill over to the coming months as price conditions remained the same. Private economists had expected inflation breaching the target band this year, but not as early as January. They had warned this may prolong recovery from the pandemic-induced recession due to tempered consumer spending. Asked if January’s inflation rate would result in stagflation, or a combination of high prices with a drop in gross domestic product (GDP), acting Socioeconomic Planning Secretary Karl Kendrick Chua replied in a text message: “Our [inflation] target is for the whole year, and recessions are defined as two consecutive quarters, so one-month data is not enough to make any conclusion.” Chua, who heads the state planning agency National Economic and Development Authority (Neda), last week said GDP would likely post year-on-year growth only by the second quarter of 2021 amid a “slow start” in the current quarter, extending economic contraction since the first quarter of 2020 to five straight quarters. ING Bank’s senior economist for the Philippines Nicholas Mapa called this episode a “slowflation,” while Security Bank Corp.’s chief economist Robert Dan Roces agreed that stagflation was “too early to call.” “We have to see the other indicators for the period: unemployment and persistent cost-push inflation,” Roces said. The government plans to conduct the labor force survey on a monthly basis starting this year in order to monitor the anticipated return of jobs alongside gradually easing quarantine more frequently than the current quarterly data. Rizal Commercial Banking Corp.’s chief economist Michael Ricafort said headline inflation “could remain at 4-percent levels” during the coming months mainly due to base effects from last year’s rates. BDO Unibank Inc.’s chief market strategist Jonathan Ravelas said updated projections showed inflation breaching 5 percent year-on-year starting March, and further rising to 6 percent in September and October, before slowly easing by yearend, although still above 4 percent. At an online seminar, former socioeconomic planning secretary Cielito Habito said the inflation rate would likely average 4-5 percent this year, hence a need to ramp up food importation. “Right now, we are forced to open agriculture—in pork, because of the shortage due to the African swine fever. And this is no longer the time to oppose imports because the reason prices are skyrocketing is the sheer lack of domestic supply,” Habito said. _______________________________________________________________________________________ PH will win economic marathon (Part 1) Published February 2, 2021, 7:00 AM by Dr. Bernardo M. Villegas Independent think tanks and financial institutions from abroad rate the Philippine economy as the worst hit in 2020 and is expected to be the slowest to recover in 2021 among the countries in Asia. The average estimate of the GDP decline expected of the Philippine economy for the year just ended is anywhere from a negative 8.5 to 9.5 percent for the whole year. The prospects for 2021 are not much brighter. My most optimistic growth projection for the whole year of 2021 is 4 percent, which will still keep the Philippine GDP below its pre-pandemic level until the last quarter of 2022. Because the Philippine Government has been the least effective in controlling the negative impact of COVID-19 on the economy among the Asian economies, it will surely lose the short-distance race or economic sprint to its neighbors. The good news, however, is that the Philippine economy will be one of the sure winners in the economic marathon if we consider a two to three-year horizon. By 2022, the Philippine GDP growth will be one of the highest growing at anywhere from 8 to 10 percent annually. Already, a London-based think tank—the Centre for Economic and Business Research (CEBR)—has forecasted that among 193 countries, the Philippines will become the 22nd largest economy within the next fifteen years. This is consistent with another long-term projection the Hong Kong Shanghai Bank made more than 15 years ago that by 2050, the Philippine economy will be the 16th largest economy in the world. This bright long-term forecast of CEBR is only one of the many optimistic prognostications of independent think tanks and financial institutions about the long-term future of the Philippine economy. Within the last year or so, the Philippines was rated by the Oxford Economic Institute to be the second most attractive emerging market in the next decade or so, next only to India and ahead of Indonesia and China in third and fourth places, respectively. It was ranked by The Economist publication as the sixth in financial strength ahead of countries like Vietnam, Thailand and China. The Japan Credit Rating Agency upgraded its credit standing to triple B Plus. These and other long-term projections of a bright prospect for the Philippine economy are based on strong fundamentals that are literally immune to the damage done by COVID-19 whose impact on the Philippine economy will be short-lived. Two sectors that are expected to bounce back quickly in 2021 are the BPO-IT sector as business enterprises in the developed countries such as those in North America and the European Union struggle to recover profitability by paring down their labor costs through outsourcing of their business services. To be equally benefited will be the export of Filipino manpower to these developed countries (including the Northeast Asian countries suffering from demographic crises) as OFWs find greater opportunities to work abroad, resuming the average growth of foreign exchange remittances to the Philippines of some 3 to 5 percent yearly. In fact, even in the worst year of the pandemic of 2020, the decline of these remittances was limited to less than 2 percent on an annual basis, despite the fact that more than 300,000 OFWs had to return home because they were laid off from their work, especially in the Middle East. Chances of growing even more rapidly at 10 percent or more, starting 2022 and beyond. will be greater if all sectors cooperate to endow the countryside and the agricultural sector with better farm-market-roads, post-harvest facilities, irrigation facilities, cold storage and other infrastructures needed by the farmers to make their land more productive and to deliver their produce to the market at lower costs. Agribusiness— from farming to storage to logistics to processing to retailing, etc—should attract heavy investments from both the public and private sectors. Every effort should be exerted to make agriculture as a whole to grow at least at 3 percent per annum. The other requirement for faster growth is the amendment of the Constitution to remove the many unreasonable restrictions against Foreign Direct Investments in such areas as public utilities, mining, media and education. We should emulate Vietnam in the way their public authorities have made it easier for foreign direct investors to participate in these sectors in which the Philippines has been ultra-nationalistic in its policies. If these amendments cannot be introduced in the remaining years of the Duterte Administration, it is hoped that the next Administration will give them the highest priority. The greater growth prospects starting in 2022 will also be made possible by the intensification of the move of economic activities towards regions outside the National Capital Region, which has been lagging in growth even before the pandemic. There are much higher growth prospects in the Southern Luzon area, especially Batangas that is evolving into another metropolitan region spanning the space from Calamba, Laguna to the Batangas seaport, which already has a larger volume of passenger traffic than the Manila ports. The other candidate for replacing Metro Manila as a metropolis is Central Luzon, the so-called Pampanga triangle consisting of Angeles, San Fernando, Clark and Subic. Rapid urbanization and industrialization in this region will be further facilitated by the railroad system that is being constructed by the Japanese from Clark to Bulacan and eventually to Manila. Similar infrastructural developments are expected in the CALABARZON area with a railway extending from Calamba, Laguna to the Batangas seaport, a private cargo international airport in Batangas (similar to the international airport San Miguel Corporation is building in Bulacan) and the doubling of the capacity of the Batangas seaport, which is the natural gateway from Luzon to the Visayas and Mindanao. To be continued. For comments, my email address is bernardo.villegas@uap.asia _______________________________________________________________________________________ Proposed rice tariff cut a stab in the back of Philippine farmers By: Raul Montemayor - @inquirerdotnet INQUIRER.net / 03:53 PM February 01, 2021 The Federation of Free Farmers (FFF) believes the recommendation of the Department of Agriculture (DA) to reduce tariff on imported rice was unwarranted and ill-timed. Last Jan. 28, the DA asked the Tariff Commission (TC) to reduce tariffs on rice imported from non-Asean countries to only 35 percent from the current 50 percent. The TC will conduct a hearing on Feb. 4 to discuss the proposal. The FFF questions the basis for the DA petition to the commission mainly because Agriculture Secretary William Dar had repeatedly attested to an ample supply of rice in the Philippines following a record harvest in 2020 that defied a series of typhoons and natural calamities. The group also took note of a move by the DA to suspend the issuance of import clearances late in 2020 to ease a glut in supply resulting from a surge in importation in the middle of the year. If prices would be the justification, data from the Philippine Statistics Authority (PSA) would show that reducing tariff on imported rice would not be a rational move. PSA data showed that average retail prices for well-milled rice (WMR) and regular-milled rice (RMR) in 2020 were 2.5 percent lower than their 2019 levels. From July 2020, prices had shown a continuing downtrend an reached their lowest level of P40.75 per kilo for WMR and P36.09 per kilo for RMR in December 2020. Local prices of rice declined despite an increase in prices of rice from other countries, especially Vietnam and Thailand, which are major sources of rice imported by the Philippines. This sudden proposal of the DA is totally unjustified. It is a stab in the back of our rice farmers, who are still reeling from the drastic fall in farm gate prices caused by excessive imports in the last two years following the enactment of the Rice Tariffication Act. Why encourage more and cheaper imports now when local supply is more than enough and prices are very stable? Imports from countries, like India and Pakistan, are still cheaper than comparable products from Asean countries, like Vietnam and Thailand, even if they were assessed a higher 50 percent tariff. There is no guarantee that reduced import costs for rice from non-Asean countries due to lower tariffs will translate into lower retail prices for consumers. The DA proposal will only make importers richer. Those who will now import from India and Pakistan to take advantage of lower prices and tariff are also the ones who import from Thailand and Vietnam. They will sell the rice at the highest possible price and consumers are not likely to benefit from their savings. The DA proposal to reduce rice tariffs was made with zero consultation with farmers and appears to have been surreptitiously inserted into the petition to reduce tariffs for pork products. Secretary Dar should live up to his mandate to support the Philippine agricultural sector and small farmers, instead of pandering to the interests of importers under the guise of protecting consumers. It is lamentable that our own agriculture secretary is bringing harm to the very farmers he is supposed to protect and support. (Editor’s note: Raul Montemayor is national manager of the group Federation of Free Farmers) _______________________________________________________________________________________ Alternative Economic Scenarios for 2021 There were both good and bad news contained in the report by the Philippine Statistical Authority on the Philippine GDP and its components for the third quarter of 2020. The good news is that the worst is over. The GDP decline for the third quarter of 11.5 per cent was slower than that of the second quarter which had been downgraded from 16.5 to 16.9 percent. Also encouraging was the continuing increase in agricultural output of 1.2 percent, repeating its performance of a positive growth in the second quarter. For me, this is the brightest spot in an otherwise continuing gloomy economic outlook. Before the pandemic, agriculture had always been the laggard, the achilles heel of the economy—a result of decades of neglect and mismanagement. Now there seems to be a light at the end of the tunnel of low agricultural productivity that has been the greatest dampener of economic growth and the most important cause of mass poverty in the country. The pandemic has helped to open the eyes of our leaders—both in the public and private sectors—that food security should be our most important concern as the economy returns to normal after the pandemic. The so-called new normal should not be a return to business as usual as regards the way we manage our agricultural sector. At both the national and local government levels, the most important concern should be to endow the small farmers with all the infrastructural and other support they need to increase their incomes, especially in the coconut regions where poverty incidence is the highest. This has been accentuated by the recent spate of typhoons that have hit the Bicol region the hardest. Bicol is primarily a coconut producing area. Another encouraging news about the third quarter is that there is evidence that the State is beginning to be the primary engine of growth, which it should be in times of crisis such as we are experiencing. The growth of 5.8 per cent in government spending is reassuring that, despite all the accusations of corruption we hear from Senators and the President himself, especially against health and DPWH officials (with special mention of the regional directors), there is a clear sign that the Government is the lead sector. This will have to be the case at least for the next two years until we see firm signs of a strong recovery of the consumption and private investment sectors. These two sectors dropped by 9.3 per cent and 37.1 percent, respectively during the third quarter. With consumption spending declining, it was inevitable that imports would fall by 21.7 percent. With the whole world economy going into a deep recession, exports took a hit of -14.7 percent. The bad news was especially concentrated in such job-intensive sectors such as Accommodation and Services (-52.7 percent); Construction (-39.8 percent); Durable Equipment (-34.4 percent) and Transport and Storage (28.1 percent). Two services components, Health and Social Work as well as Wholesale/Retail Trade had only single-digit declines of 4 percent and 5.4 percent, presaging a quicker recovery if the economy can avoid more lockdowns in the future. The huge declines in some key sectors came as a surprise to most analysts who were predicting narrower GDP declines in the third quarter. Before the PSA came out with the final figures, figures as low as 7.1 percent drop were being forecasted. The median forecast was 9.6 percent decline in a Bloomberg poll. Looking forward to the fourth quarter of 2020 and first quarter of 2021, I would be more cautious and project another double-digit GDP decline in the fourth quarter and still negative GDP growth for the first quarter for 2021. From the weather pattern we have seen so far, we should expect more devastating typhoons in the coming months all the way to the end of December. As we have experienced in the past, typhoons that come late in the year (like Ondoy) can do more damage than those early in the rainy season. Already there are estimates that typhoons Roland and Ulysses have taken as much as 1 to 2 percentage points from our GDP. The other worrisome trend is what we are witnessing in very developed countries in Europe as well as the US, i.e. second or even third waves of the Coronavirus with even increased rates of infection as people start discarding safety measures such as wearing masks and social distancing. Given the threats of more devastating typhoons in the next few months and the possibility of more lockdowns as the Philippines suffers from new waves of the virus, the outlook for the next six to eight months continues to be very uncertain. Since we are at the mercy of the pandemic and the Philippines may benefit from any vaccine most probably only late in 2021, it is highly probable that there will continue to be GDP declines way into the second quarter of 2021. We should already factor into the short run the possibility of the Philippines suffering the same fate of more developed countries experiencing new waves of infection with the subsequent imposition of stricter lockdowns. If the Philippine Government overreacts to these new waves, then we should expect the major engine of growth, consumption, to once again suffer as it did in the second and third quarters of 2020. Until and unless consumption spending recovers and is able to post positive growth rates, we should expect GDP to continue declining. Our only hope is for our Government, both at the national and local levels, to be more realistic in accepting higher rates of infection as a fact of life and refrain from imposing severe lockdowns on the premise that we have already limited the number of deaths and have achieved high rates of recovery from COVID-19. As long as we can get the public to strictly abide with the safety measures (wearing masks, washing hands, and keeping social distance), we should continue to relax movements of people. I believe in the saying that the epidemic of fear is even worse than the virus itself. Once Filipinos can more easily travel from one province to another and from one island to another, domestic tourism will be a strong vehicle for a large increase of consumption expenditures, including accommodation and related services, travel and transport, dining out, discretionary purchases of tourism-related goods, etc. This greater freedom of movement should start with the Christmas season of 2020 and sustained through the first quarter of 2021. If this can be done, then we may able to avoid another decline of GDP in the first quarter of 2021. Otherwise, more lockdowns will guarantee the continuation of negative growth rates for GDP and such sectors as accommodation and related services, wholesale and retail trade, and transport and storage. Also, fundamental to attaining growth early in 2021 is the timely passing of the P4.5 trillion budget, despite all the controversy about corruption in DPWH and other government departments. The Philippine government fiscal response to the pandemic is still the weakest in the Southeast Asian region. Since the Government is in a position to borrow more heavily because of its strong fiscal position, there should be an effort to bring the pandemic-related expenditures from its present low level of about 2 per cent of GDP to at least 5 percent. Some of our Southeast Asian neighbors spend as much as 10 percent or more of their GDP in addressing the recession brought about by the pandemic. I, therefore, submit two alternative economic scenarios for 2021: a) continuing GDP declines up to the first quarter of 2021 if the Government overreacts to new waves of the Coronavirus compounded by low rates of expenditures of the Government; or b) a 4 percent increase of GDP in the first quarter of 2021 if the Government refrains from imposing more lockdowns even if there are second or more waves of the virus and if the Government is able to spend a greater percentage of GDP on both relief and stimulus packages during the ongoing recession. For comments, my email address is bernardo.villegas@uap.asia. _______________________________________________________________________________________ BSP caps loans for MSMEs, large firms used for reserves Lawrence Agcaoili (The Philippine Star) - December 12, 2020 - 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has imposed a cap on the amount of loans to micro, small and medium enterprises (MSMEs) and to large firms used as alternative compliance with the reserve requirement ratios (RRR) to make sure there is enough liquidity in the financial system to support economic recovery. BSP Governor Benjamin Diokno said the loan disbursements used by BSP-supervised financial institutions (BSFIs) as alternative compliance to the RRR should not exceed P300 billion for MSMEs and P425 billion for large enterprises severely affected by the pandemic. Diokno said the limits are calibrated based on different simulations and are meant to ensure that the use of loans as an alternative mode of compliance is in line with domestic liquidity conditions and projected growth. He said BSFIs are encouraged to continue to avail of the relief measure to sustain lending and financial support to viable MSMEs and large enterprises. “Access to finance by these businesses will contribute to the recovery of the domestic economy and will help secure our envisioned path of sustainable and inclusive growth,” the BSP chief said. Preliminary data as of Nov. 12 from the central bank showed the average amount of MSME loans utilized by banks as compliance with the reserve requirements stood at P123.6 billion, while loans to large firms stood at P29.5 billion. As part of COVID-19 response measures, including the cumulative 200-basis point interest rate cuts, the BSP allowed banks until end-2022 to count loans to MSMEs and large enterprises as part of their compliance to the level of deposits they are required to keep with the central bank. The BSP requires banks to keep a minimum amount of cash reserves with the central bank determined by the amount of deposit liabilities owed to customers. It slashed the RRR for universal and commercial banks by 200 basis points last March 30 and for thrift as well as rural and cooperative banks by 100 basis points effective July 31 as part of measures to soften the impact of the COVID-19 pandemic on the economy. _______________________________________________________________________________________ COVID-19 economy: What are we doing wrong? By: Solita Collas-Monsod - @inquirerdotnet Philippine Daily Inquirer / 05:06 AM December 05, 2020 How is it that a country like the Philippines, “which by all the usual metrics of having ‘strong macroeconomic fundamentals’ pre-COVID-19, both relative to its own past history and relative to its regional neighbors, would end up having the second-largest contraction in GDP in the second quarter of 2020 and the worst projected economic growth outcome in 2020 in ASEAN+3?” A paper jointly authored by Monsod (Toby Melissa C.) and Bautista (Ma. Socorro Gochoco) that will appear in the next issue of Asian Economic Papers, rather lengthily entitled “Rethinking ‘Economic Fundamentals’ in an Era of Global Physical Shocks: The Philippine Experience with COVID-19,” attempts to answer that question. Before we go any further, Reader, I must disclose (proudly) that the Monsod referred to above is my daughter, and is a much better economist than I. The two authors are faculty members of the UP School of Economics. Now, how do they go about answering the question? Well, they created a model for 21 countries in ASEAN+3, developing East Asia and South Asia, as well as Australia and New Zealand to explain the difference in actual 2019 and forecasted (as of October) 2020 GDP growth, and they relate the fall in real GDP growth to four factors: national capacities to detect and respond to acute public health events and emergencies, susceptibility to the disease, dependence on the foreign sector, and a country’s fiscal position. What did they find? That, everything else remaining the same, stronger national capacities to detect and respond to emerging outbreaks, in particular laboratory capacity, are associated with better short-term economic outcomes. For the Philippines, in particular, better prepared laboratory systems coming into the crisis could have saved up to 3.6 percentage points in lost GDP growth forecasted in 2020. They also find that “if COVID-19 is not first well-contained—by decisively addressing underlying physical causes of disease and transmission and progression—large fiscal spending aimed at other things could have perverse economic effects.” Moving forward, their results suggest that a dearth in health system capacity should be prioritized over and above any other type of spending including traditional stimulus (e.g., large-scale infrastructure). Their results also underscore that given physical shocks (including those brought about by climate hazards), efficient and prepared institutions matter. “A macroeconomy is not resilient if these are not.” The paper (I swear it is easy reading) points out that this is not what our government is doing, as shown by the National Expenditure Program for FY 2021 currently being renegotiated in the bicameral committee (I think). It has done the opposite of what is suggested by the results of the model. It has increased the infrastructure budget by 49 percent, while it has decreased the health sector budget by 28 percent (or P50 billion). Moreover, I would like to point out that come 2021, our Social Amelioration Program will be no more—that’s P197 billion that was supposed to go to the poor, who have been left mostly to fend for themselves. WTF? I hope our legislators make major changes in that budget. There is still time. If they had sliced the health budget as a way of showing their dislike of Health Secretary Francisco Duque III, that would be asinine, because they are punishing the Filipino people as well. If they cut it because the department doesn’t have the absorptive capacity, this is where the efficient and prepared institutions issue comes in. An efficient and competent bureaucracy is definitely possible in the Philippines, except for the fact of politics reaching even down to the assistant director level. Only consider the International Monetary Fund’s damning assessment of the Philippines’ fiscal stimulus program: it was “limited or inefficiently implemented.” Reader, this is not just some academic issue from an ivory tower. I read where Gen. Carlito Galvez Jr. opined that the COVID-19 vaccine would be available to us only in late 2021 or early 2022. That means we have to gear up our national capacity to deal with COVID-19 until at least the end of next year. The MB paper points them out. Example: Our contact tracing system reaches only 4-5 people, where the international standard is 30-37 for urban areas, and 25-30 for rural areas. We don’t hear about contact tracing anymore from the government after the propaganda about adopting the Magalong example in Baguio. _______________________________________________________________________________________ ASEAN pivot to China By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 06:20 AM November 17, 2020 Something momentous happened over the weekend that signals the continuing shift of the world’s economic fulcrum to Asia-Pacific away from North America, dominated by the United States. Fifteen economies comprising about a third of the world’s population and of the global economy signed a trade agreement that formalizes what is now the world’s largest trading bloc. Initiated by the 10 Asean economies that we are part of, the newly-minted Regional Comprehensive Economic Partnership or RCEP now brings in five of the six “dialogue partners” with which Asean has already had separate free trade deals: Australia, China, Japan, New Zealand, and South Korea. India, the sixth dialogue partner, was originally part of the group, but chose to withdraw late last year on fears of an onslaught of dumped goods from China, among other concerns. RCEP would have been even more formidable with India, bringing the group’s combined population and economic share closer to 40 percent of the entire world. Even without India, RCEP is now bigger than the European Union, and the North American Free Trade Agreement composed of Canada, the United States, and Mexico. Formal signing of the RCEP agreement is seen as a “victory” for China over the United States, as it certainly gains an advantage over the latter in their ongoing trade war. This is because China, by its sheer size, inevitably dominates the new trade group, and with formalization of the agreement, can assert that (1) it has alternatives to the US market, and (2) it gains the upper hand over the latter in influencing future economic directions in Asia-Pacific. It was the second concern that had prompted President Barack Obama to champion the Trans-Pacific Partnership (TPP) agreement as a key part of his administration’s “pivot to Asia.” TPP was then seen as a rival to RCEP, as even as it has a much smaller combined population and consumer base, it would have also accounted for 40 percent of the world’s incomes. But Donald Trump chose to pull out of TPP in one of his earliest moves as president, thereby emasculating that grouping. Still, the rest proceeded on a much-downgraded scale and significance, as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP, which they signed in 2018. Where does our country stand in all this? Trump’s withdrawal from TPP was actually a blessing for the Philippines, because we had not been part of the group forging the TPP, which included the three Asean members Malaysia, Singapore, and Vietnam. Had it gone through with the United States in it, we would have suffered significant diversion of our very prominent trade and investment ties with the United States, especially to Vietnam and Malaysia. Their preferential access to the US market under TPP would have made them preferred sources of products that we export to the United States, and preferred destinations for US foreign investments (which they already had been even without TPP). For that reason, our government had been making a strong pitch to join TPP as well—until Trump came. In contrast, as a founding Asean member, the Philippines had been part of the RCEP from the very beginning. Trade Secretary Ramon Lopez points out that the RCEP economies accounted last year for half of Philippine exports, 61 percent of our imports, and 11.4 percent of foreign direct investments. The agreement is thus of critical importance to us, especially as we look to our post-COVID-19 economic recovery. For sure, traditional trade opposers would again be wary of a greater influx of imports due to the trade deal. But we would do well to go beyond defensive concerns and also focus on great opportunities opened up for Filipino producers and workers. In addition to the nine other economies in the Asean Economic Community, they can now look to newer doors opened into the large economies of Australia, China, Japan, New Zealand, and South Korea. And provided we do our homework right—including catch up on infrastructure, fix our tax system for better conformity with our neighbors, and improve confidence in our country’s governance—then RCEP could truly be a critical path to a better post-pandemic economic future for Filipinos. _______________________________________________________________________________________ A porky problem By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:06 AM October 27, 2020 “Pigs don’t vote, but corn farmers do,” an agriculture official declared over three decades ago, as he defended high import barriers then that made corn, a vital feed grain, a much more expensive burden to the livestock and meat industry than could have been. He was half joking, but half serious as well. The statement exemplified how the Department of Agriculture (DA) then, and through the years thereafter, had been prone to making policy decisions based more on politics than good economics. Since then, livestock and poultry raisers and their downstream industries have constantly clamored for stronger policy and program support from government. Through the years, they saw the preferential attention government gave to the cereal grains rice and corn in terms of policy, programs, and budgets. Import barriers were kept high for rice and corn, with the effect of significantly raising their domestic prices relative to those overseas. This reduced the pressure to be effective in improving productivity and competitiveness in our food staples — which indeed stagnated and even declined over time, only recently rising again — all in spite of highly-funded program support. And because the resulting higher price of corn also made costs of livestock and poultry production higher, import barriers for meat also had to be kept high to permit domestic producers to recover their higher costs through their own higher prices shielded from outside competition. The vocal victims have been the meat processors who faced high raw material costs tracing to expensive corn, thus expensive meat, with their competitiveness impaired by this chain effect of higher costs. (They were later to obtain the concession of lower tariff rates on processing-grade meat, as opposed to table-grade meat, but which led to a new problem with technical smuggling—but that’s another story I will not go into.) The more important but silent victims were the Filipino poor, whose nutrition status got a double whammy. Not only were their staple cereals more costly and virtually ate up their food budget with hardly any money left for the ulam to meet protein needs; meat, with its resulting higher cost, became even less affordable, too. With hindsight, it figures why stunting due to severe malnutrition affected 45 percent of our children under 5 years old in 1990, meaning nearly one in every two young Filipino children then were damaged for life. These same people are in our labor force today. Fast forward to 2020, when we have a livestock and poultry industry beleaguered by African swine fever (ASF) and avian flu. ASF is said to be “rampaging through Laguna and Calabarzon,” according to a veterinarian in the know, and has already closed large swine producers in Central Luzon. In a recent meeting with Bureau of Animal Industry (BAI) director Ronnie Domingo, ASF Task Force leader Dr. Sam Castro reported that an estimated one-fourth of our swine population has been decimated by the epidemic. If you’ve bought pork lately, you’d know that its price has been zooming, now even topping P300 per kilo, from the usual P200 and below. Now you know why. For us, ASF is a particularly big problem, especially because pork is the favorite meat of Filipinos, who on the average eat 16 kilos per year, vs. 12 kilos for chicken meat — and we actually eat more pork than the world eats on average (12 kilos/year). Next to fish, it is the biggest source of protein for Filipinos. BAI has lined up a good “TIGIL ASF” plan to combat the epidemic, which needs a substantial budget for its execution. But Domingo laments that their budget proposal has been slashed in half. Meanwhile, of the P15.3 billion DA program budget for production support services, rice gets P12.8 billion, a whopping 84 percent of the total, while livestock gets P756 million, a measly 5 percent. Rice similarly hogs (pardon the pun) DA’s other program budgets. But guess what: Livestock and poultry together contribute far more to total agricultural gross value added (27 percent) than rice does (19 percent). Where is our sense of proportion here? And we wonder why the average Filipino’s diet lacks so much protein. _______________________________________________________________________________________ Bangko Sentral urges thrift banks to leverage 'limitless' potential of digital tech ABS-CBN News Posted at Oct 13 2020 12:07 PM MANILA - Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said Tuesday thrift banks should take advantage of the "limitless" potential of digital technology including cloud banking. Cloud banking can expand reach and potential of small thrift banks, Diokno said at a convention hosted by the Chamber of Thrift Banks. Diokno said using the cloud also lower operational costs. "Thrift banks must change from brick and mortar to embracing the promise of cloud banking. Moreover, the smaller thrift banks can take advantage of this digital tech to lower operational cost. The opportunities are limitless," he said. At least 20 financial institutions are moving to cloud banking and rural banks have already seen this as an "opportunity," the governor said. Digital banks are subject to the same risks as normal banks and are therefore covered in the same rules and regulations, Diokno said. So far, there are 12 thrift banks offering PesoNet and 8 thrift banks offering InstaPay while 4 others provide e-payment systems, Diokno said. InstaPay, or the instant transfer of funds online and PesoNet, an online fund transfer system used for bigger transactions are part of the BSP's National Retail Payment System launched to push for digitalization of transactions in the country. The BSP defines thrift banking as composed of savings and mortgage banks, private development banks, stock savings, loan associations and microfinance. Thrift banks provide short and long-term capital for businesses in agriculture, services, industry and housing and small and medium sized enterprises (MSMEs) and individuals, the central bank said. -- with a report from Warren de Guzman, ABS-CBN News _______________________________________________________________________________________ Agri-agra loans drop to P696 billion in Q1 Lawrence Agcaoili (The Philippine Star) - October 5, 2020 - 12:00am MANILA, Philippines — Loans extended by domestic banks for agriculture and agrarian reform slipped by 2.1 percent to P696.35 billion in the first quarter from P711 billion in the same quarter last year as the industry continued to deliver the mandated threshold for the sector. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking system was able to allocate only about 12 percent of total loanable funds from January to March, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009. Total loanable funds generated by the banking industry increased by 17 percent to P5.81 trillion in the first quarter from P4.96 trillion in the same quarter last year. The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries. The BSP reported the loans extended by the banks to the agriculture sector amounted to P639.82 billion, equivalent to a compliance ratio of 11.02 percent. This was, however, below the required compliance ratio of 15 percent. The central bank said big banks or universal and commercial or big banks registered a compliance ratio of 11.15 percent after extending P603.08 billion to the agriculture sector, while the ratio of thrift or mid-sized banks only reached 6.61 percent after granting P19.32 billion. Rural banks extended P17.42 billion to the agriculture sector for a compliance ratio of 16.8 percent. Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P56.53 billion for a compliance ratio of less than one percent. The compliance ratio of big banks for agrarian reform loans only reached 0.84 percent, while that of thrift banks settled at 1.15 percent. The rural and cooperative banks reported a compliance ration of 7.36 percent. BSP Governor Benjamin Diokno earlier said banks opted to pay P10.3 billion worth of fines to the regulator over the past decade for failing to meet the mandated agri-agra loan threshold. “Sadly, as noted in the last few years, banks have opted to pay the 0.5 percent penalty for non-compliance, instead of providing agri-agra credit. Banks justified this based on the perceived high risk and high cost of lending to this sector,” Diokno said. About 45 percent of the total collections are used to beef up the agriculture guarantee fund pool managed by the Land Bank of the Philippines and another 45 percent go to the Philippine Crop Insurance Corp. (PCIC) to sustain its operations. The remaining 10 percent is left with the BSP to cover administrative costs. The BSP is committed to improving the current state of agriculture financing as the sector which employs 8.7 million Filipinos accounted for 9.8 percent of the country’s gross domestic product (GDP) and 11 percent of total imports. “We find the present state of affairs unacceptable,” he said. According to Diokno, a more responsive agriculture financing ecosystem is needed to realize its full potential as an engine of inclusive economic development. Diokno supports key legislative initiatives such as the warehouse receipts bill and the amendment of the Agri-Agra Law, which aims to expand the range of eligible rural beneficiaries and agricultural activities that can be financed as part of the mandatory credit. _______________________________________________________________________________________ More than stimulus By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:25 AM September 29, 2020 It seems conventional wisdom now that the way out of the COVID-19-induced recession is to throw money — lots of it — at the problem. The term commonly used is “economic stimulus,” which in the current context means government spends unprecedented amounts of money, even if it must borrow big time, to provoke economic activity. But spending money to revive a frozen economy is not enough; it must also be spent right if we are to get the most overall benefit out of it. Quality of spending, apart from quantity, matters as much. What we need now is spending with maximum multiplier effect via the spending-incomes circular flow that an initial spending in the economy generates. The multiplier is greatest when every round of income is spent on domestic goods and services, production of which creates jobs for Filipinos. This is not the time to spend money on imported goods and services — like a presidential jet, for example — where we completely lose the multiplier effect to the foreign economy to which the money is paid. The better way to transport the President and his officials at this time is to patronize our domestic air carriers, which are hemorrhaging from lack of business and forced to shed hundreds of prime jobs as they do. To spend billions now in a way that does nothing to support the domestic economy, when there’s an obvious alternative that would, borders on the obscene. It’s no excuse that the purchase had been committed before the pandemic. With aircraft manufacturers facing massive cancellations of orders by airlines for obvious reasons, I don’t see why a government in great need of economic stimulus funds cannot put off buying a private jet. On this basis, that frivolous Manila Bay white beach strip project is arguably better; at least the money stays and circulates within the economy. Still, it’s no less obscene, what with emerging signs of large-scale corruption, severe environmental harm, and outright stupidity (with much of the dolomite sand already washed off by strong waves). What we really need, and the Vice President had it right, is Kumpiyansa, or Confidence with a capital C, for economic activity to more quickly move back toward its pre-pandemic state. That means confidence that government has a good plan for containing the pandemic, and the plan is being executed and is working, evidenced by declining infection rates (not just declining deaths from it). This leads on to confidence for people to go out and engage in their usual activities that bring life to the economy. But it inspires no confidence when people see a government lacking single-minded focus and competence in containing, controlling, and curing the virus that ails the people and the economy — but instead wandering off into costly distractions like pushing an anti-terrorism law of dubious ends, window-dressing a short strip of Manila Bay seafront, buying a presidential jet, persecuting critics in media, and more. Indeed, not only do these fail to help improve confidence in government; they actually undermine it. Analyzing vast behavioral data it gathers worldwide, Google has issued Community Mobility Reports over the past months, indicative of people’s confidence to go out and engage in normal activities. Their data show that within the original Asean-5 plus Vietnam, Filipinos remain farthest from restoring pre-pandemic levels of mobility, hence least confident to move about, even as community mobility in Vietnam, Singapore, and Thailand have already gone well beyond pre-pandemic levels. My Ateneo colleague Dean Nandy Aldaba aptly sums it in a recent article: “Even (with) adequate fiscal stimulus to firms, entrepreneurs, workers and poor households, without the confidence built among them, no economic recovery program will succeed. Firms will not borrow because they are not assured that their market will return. Workers will not commute if their safety will be compromised. They will not report to their factories if health protocols are not in place. Consumers will not go to restaurants or malls if the proper regulations on social distancing are not being implemented….” All told, stimulus without confidence is like pushing on a string. _______________________________________________________________________________________ CA upholds BSP, PDIC closure of Batangas rural bank By Benjamin Pulta September 2, 2020, 2:40 pm MANILA – A ruling by the Court of Appeals (CA) upheld a decision of government banking regulators to shut down a rural bank in Batangas in 2018 for serious lapses in its management. In a 20-page decision written by Associate Justice Ramon Bato Jr. dated August 25 and made available on Tuesday, the CA's sixth division dismissed the petition filed by Gerardo Castillo, majority stockholder of the Tiaong Rural Bank Inc. (TRBI) against the Philippine Deposit Insurance Corp. (PDIC) and the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). In August 2018, the BSP issued a resolution prohibiting TRBI from doing business while the PDIC issued a notice of closure against it. The decision was based on the findings of the BSP's examination department (ED) on the bank, which has eight branches in Calabarzon, during a regular examination in July 2017. The ED noted several unaddressed weaknesses leading to net losses which continue to deplete TRBI's capital. It also noted that while TRBI reported that its capital adequacy ratio (CAR) and capital were above the government's requirements, in truth, its adjusted capital was only PHP38.9 million and has a capital deficiency of PHP60.7 million. The BSP also noted that "there was no express commitment from the stockholders on the required immediate capital infusion." A special examination by the BSP-ED later showed the bank's precarious financial condition. It pointed out that TRBI is significantly undercapitalized with a CAR of negative 21 percent and an adjusted capital of negative PHP203.5 million, or deficient by at least PHP300.3 million to meet the 10 percent minimum CAR and the minimum required capital of PHP30 million. In upholding the BSP's regulatory authority over banks, the CA said "the BSP is not simply a corporate entity but qualifies as an administrative agency created to carry out a particular governmental function, pursuant to a constitutional mandate". "As the country’s central monetary authority, the Constitution expressly grants the BSP the power of supervision over the operation of banks (and) its finding on matters of bank closure is accorded technical deference and even finality when supported by substantial evidence. Verily, by reason of the special knowledge and expertise of administrative departments over matters falling within their jurisdiction, they are in a better position to pass judgment thereon and their findings of fact in that regard are generally accorded respect, if not finality, by the courts,” the CA said. (PNA) _______________________________________________________________________________________ Thrift, rural banks back proposed tweaks to Agri-Agra credit quotas September 1, 2020 | 12:03 am SMALL LENDERS expressed support for the central bank’s proposal to include sustainable financing as part of their compliance with the mandated credit under the Agri-Agra Law as this will help boost the capital of pandemic-hit businesses geared towards sustainability. Rural Bankers Association of the Philippines (RBAP) President Elizabeth C. Timbol said allowing banks to count green loans as part of their Agri-Agra (agriculture and agrarian) compliance will broaden business opportunities for borrowers and farm owners. “They will be encouraged to make their farms more productive. Also, by making their farms as tourism sites will help generate employment within their locality,” Ms. Timbol said in a Viber message. She added the proposal can create a ripple effect in the economy amid job losses among Filipinos here and abroad amid the coronavirus pandemic. Chamber of Thrift Banks (CTB) Executive Director Suzanne I. Felix also expressed support for the proposal. “Green financing as a mode of compliance with Agri-Agra is a signal for banks to refocus their strategy towards sectors and activities that support sustainable recovery, and should provide various opportunities for them,” she said in an e-mailed reply to questions. Ms. Felix said they also support House Bill 6134 which seeks to amend the Agri-Agra Law to include green finance projects as compliance with the credit quota. The bill has been approved by the House of Representatives and was received by the Senate in March. Meanwhile, Senate Bill 1585 filed on June seeks to amend the Agri-Agra Credit Act by including investments and grants for agriculture activities as part of the mandated credit. It also seeks to remove the distinction between agriculture and agrarian reform lending and to include fishery activities, agriculture mechanization, agri-tourism and green finance projects as part of compliance. The bill is still pending in the Senate. “We trust that legislation on Agri-Agra lending will continue to be adjusted to realistic levels, for the good not only of the farmers but of the Filipino people. Instead of imposing penalties, we earlier proposed the granting of incentives to encourage banks to lend to the Agri-Agra sector,” Ms. Felix said. Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno last week said they are looking at counting financing for green and sustainable projects as compliance with Republic Act 10000 or the Agri-Agra Reform Credit Act. The law requires banks to disburse 25% of their loanable funds to the agriculture and agrarian reform sector in a bid to boost productivity and growth. Mr. Diokno said they observed banks would rather pay the 0.5% penalty instead of complying with the agriculture and agrarian reform lending quotas of 15% and 10%, respectively, as these sectors are considered high risk. Banks’ credit to the agriculture and agrarian reform segments were only at 10.8% and 1.09%, respectively, of their total loan book, he added. In May, the BSP issued Circular No. 1085 which lays out a sustainable finance framework for banks. Lenders will be given three years to streamline their operations in accordance with the framework, which is based on sustainability principles through environmental and social risk management systems. BSP data showed 10.6% of the banking system’s total loans in 2019 were disbursed to finance projects that are in line with the Sustainable Development Goals of the United Nations. — Luz Wendy T. Noble _______________________________________________________________________________________ Small banks can withstand COVID-19 – BSP Published August 16, 2020, 9:00 PM by Lee C. Chipongian The rural and cooperative banking sector can cope against the adverse impact of the COVID-19 pandemic up to three months, based on the Bangko Sentral ng Pilipinas (BSP) stress tests and simulation exercises. BSP Governor Benjamin E. Diokno said both simulation exercises and stress tests done on rural and cooperative banks indicated its capability to tolerate write offs and losses due to the public health crisis, even losses of up to 20 percent on their net interest income. The small banks, he said, can “withstand and assume simultaneous write off of interest income on total loans and non interest income from fees and commissions up to three months and this is expected as banks recorded high pre-shock capital adequacy ratios (CAR).” Both the rural and cooperative banks have above 10 percent CAR which is the minimum, after being subjected to stress tests, according to the BSP chief. Diokno said that they did simulations – using end-March 2020 data — on the small banks’ profitability if they incur a five, ten or even 20 percent net interest income losses for the first, second and third lockdown months. “This scenario is tested against the banks baseline CAR whereas the use of net interest income in this exercise enables us to capture the impact on interest income from both loans and other financial assets as well as on interest expenses from all deposit liabilities and other sources of funding such as bonds payable, bills payable and unsecured subordinate debts, among others,” said Diokno. He noted that the results of these tests showed the CAR of rural and cooperative banks “remain comfortably above 15 percent over the first, second and third month period of the quarantine even under a 20 percent assumed reduction in net interest income.” Rural and cooperative banks’ latest CAR was at 19.5 percent, more than the 10 percent minimum. “These banks have profitable operations and ample liquidity,” said Diokno, adding that “rural and cooperative banks are poised to continue supporting rural economic activities as the industry faces the COVID-19 pandemic.” Based on a BSP survey, small banks were able to return to normal operations after adopting to the requirements of community quarantine restrictions, partly with the help of technology. At the end of the first quarter, rural and cooperative banks have total assets of P265.7 billion, up 5.9 percent year-on-year. This is about 1.4 percent of total banking resources, with the big banks accounting for 92.7 percent. Loans and deposits were also up by 6.1 percent and 4.8 percent year-on-year to P188.2 billion and P151.7 billion, respectively. As of end-March, the loan quality also improved as its non-performing loans ratio fell to 11.2 percent from 11.6 percent in 2019. The BSP has been performing simulations to test for CAR to determine the hits of the pandemic on all banks, specifically the impact of the “Bayanihan to Heal As One Act”. Generally and so far, results indicate that all banking groups from the large commercial banks, thrift, to rural and cooperative banks have the capability to meet the required minimum CAR of 10 percent. “COVID-19 may exert pressure on the quality of bank loan portfolio, but we expect the impact to be manageable,” said Diokno. To help the small banks during the pandemic, the BSP implemented measures such as reducing the reserve requirement ratio (RRR) for rural and cooperative banks by 100 basis points, to increase its lending to micro, small and medium enterprises (MSMEs). As of July 23, Diokno said 66 rural and cooperative banks have released about P1.5 billion loans to MSMEs as alternative compliance with the RRR. The BSP is supervising 419 rural banks and 25 cooperative banks as of end-July this year. _______________________________________________________________________________________ Rediscount facility untapped amid BSP’s easing measures August 11, 2020 | 12:01 am BANKS did not tap the rediscount facility of the Bangko Sentral ng Pilipinas (BSP) in July as policy easing measures have already boosted liquidity in the market. “For the period covering Jan. 1 to July 31, total availments under the peso rediscount facility remains at P20.7 billion as there was no availment in July,” the central bank said in a statement on Monday. Lenders last touched the facility in March and April for peso rediscount loans worth P20.7 billion. This is lower compared to the P116.574 billion in loans from the facility recorded from January to July 2019. Banks likewise left the facility untapped from November 2019 to February 2020. The BSP’s rediscount facility allows banks to get hold of additional money supply by posting their collectibles from clients as collateral. In turn, the banks may use the cash — in peso, dollar or yen — to disburse more loans for corporate or retail clients and service unexpected withdrawals. The halt in rediscount availments is a sign of high liquidity in the market, said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion. “We know that liquidity has been high recently with the various monetary actions of the BSP since February to address the impact of the COVID-19 pandemic. Demand for the facility may remain subdued as long as liquidity remains high in the coming months,” Mr. Asuncion said in an e-mail. The BSP slashed the reserve requirement of universal and big banks by 200 basis points (bps) to 12% in April to provide a liquidity boost during the lockdown. The move freed up some P200 billion into the financial system. The central bank in July also reduced the reserve requirement ratios of thrift and rural banks by 100 bps to three percent and two percent, respectively, releasing about P10 billion in liquidity. The BSP has also allowed banks’ lending to micro-, small, and medium-sized enterprises as well as to some large enterprises hit by the pandemic to count as reserve compliance. AUGUST RATES Meanwhile, for this month, all peso loans, regardless of maturity, will be priced at 2.75%, which is the lending rate of the BSP. For dollar-denominated loans, applicable rates are at 2.24875% for all tenors. Yen loans are priced at 1.94483% regardless of maturity. — Luz Wendy _______________________________________________________________________________________ COVID-19 versus hunger: The cruel choice By: Mahar Mangahas - @inquirerdotnet Philippine Daily Inquirer / 05:05 AM July 25, 2020 In 2020, the Philippine hunger rate took a sudden, very sad, U-turn. After falling to only 8.8 percent of families in December 2019, its lowest proportion since 2004, it leaped to 16.7 percent last May, the second month of the pandemic-cum-lockdown, and then rose further to 20.9 percent by July. The new level is the highest since mid-2014 (SWS July 3-6, 2020 National Mobile Phone Survey-Report No. 5: “Hunger among families climbs to 20.9%,” www.sws.org.ph, 7/21/20). Hungry families are in the millions. In December 2019, a benign time, about 2.1 million families experienced involuntary hunger. Of these, 1.8 million suffered moderately (hungry only once or else a few times, in the past three months) and 0.3 million suffered severely (often or else always, in that same period). By early July, the moderately hungry were already 3.9 million families, and the severely hungry reached 1.3 million. Thus, in the new survey, severe hunger is now one-third of total hunger, whereas last December it was only one-seventh. From 2019 to 2020, the hunger rate rose all over the country. From last May to early July, it rose in the Visayas and also in the Balance of Luzon, was steady in Mindanao, and fell in Metro Manila. However, the composition of hunger turned more severe everywhere, including Mindanao and Metro Manila. Have the social amelioration funds run out? To estimate the number of hungry individuals, multiply the number of hungry families by 6—not just 5, since poor/hungry families are above average in size. The 5 million hungry families, times 6, implies 30 million hungry Filipinos. The number of individuals suffering specifically from hunger is what may be compared to the number of individuals afflicted with COVID-19. Other types of suffering caused by hunger, such as illnesses, deaths, and underdevelopment of the mental capacities of malnourished young children, would be additional. Unlike in the past, the high hunger rate in 2020 is not due to a spike in food prices. Instead, it is due to the radical disruption in very many people’s livelihoods, and hence their general purchasing power, for food and other basic needs. This disruption was brought on by (a) the government-mandated closure of many workplaces, and (b) its shutdown of basic public transportation, preventing workers from going to the workplaces allowed to open. The prolonged grounding of jeepneys has obviously led to hunger among the families of the jeepney drivers. On the other hand, COVID-19 victims are in the tens of thousands. There’s no getting away from COVID-19 statistics; they are updated daily by the government, and well publicized. The DOH PH COVID-19 Viber group has a national tally of 1,837 deaths, 23,281 recoveries, and 45,646 active cases, as of 7/23/20. The active cases are 8 percent asymptomatic, 91 percent mild, and 0.8 percent severe/critical. These add up to a national total of 70,764 cases, active and inactive. For every COVID-19 victim, there are of course others that suffer, such as family members, relatives, and friends, who look after the victim, help with the medical care and other needs, and grieve together. They may be counted as well, but it will not make the number of COVID-19 sufferers reach even a million. Moral hazard in forming policies to cope with COVID-19. I can’t help but be conscious that the politicians and bureaucrats who control the lockdown rules are not the ones who will be too inconvenienced by them. Their posts and reward systems have been unaffected. They have private cars for their personal mobility, and they are “authorized to be outside residence.” In short, these are people who are quite safe from hunger. Their real worry is that they and their friends and relatives might be infected by COVID-19. Their apparent priority is to prevent the spread of the infection, regardless of the cost to the general public in terms of hunger. Well, what if the membership of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases were expanded to include a fair number of jeepney drivers, factory workers, teachers, and stranded overseas workers? _______________________________________________________________________________________ BSP ready to ease further when needed, awaiting right conditions July 13, 2020 | 7:12 pm THE central bank stands ready to ease monetary policy, but views current money supply as ample and is gauging when the financial system can absorb extra liquidity, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said. The Monetary Board has slashed 200 basis points (bps) out of the 400 bps it is authorized to reduce this year to add liquidity into the financial system during the pandemic. This has lowered the reserve requirement ratio (RRR) for universal and commercial lenders to 12% while the RRR for thrift and rural banks have been maintained at 4% and 3%, respectively. “RRR cut, if ever, will be for big banks. The RRR for thrift and rural banks are already low and they would benefit the most from (Monetary Board) policy that considers new lending to MSMEs (micro, small, and medium-sized enterprises) as in compliance with reserve requirements,” Mr. Diokno said in a text message to BusinessWorld Monday. The central bank has allowed banks to include their lending to small businesses as well as large enterprises as an alternate means of reserve compliance during the pandemic. So far, the BSP said P45 billion worth of loans to MSMEs has been used by banks, most of which rural lenders, to comply with reserve requirements. Earlier this month, the Chamber of Thrift Banks said it is pushing for a further 100 basis-point reduction to the sector’s current reserve requirement of 4%, saying that a decrease signifies additional billions of pesos in liquidity that could be utilized to provide credit for embattled sectors. Mr. Diokno said there is “ample liquidity” in the market currently. He added the monetary authorities can afford to bring down the reserve requirement for big banks to 10% “if there’s a need for it.” “We’re just pausing to make sure that the financial sector is able to digest all these monetary easing that we’ve done,” Mr. Diokno said in an interview with ABS-CBN News Channel early Monday. The central bank has also brought down policy rates to record lows through 175-bps worth of easing this year. Its latest 50-bps rate cut in June trimmed the overnight reverse repurchase, lending, and deposit facilities to 2.25%, 2.75%, and 1.75%, respectively. The uptick in the savings rate is an indication of improvement in liquidity, according to Security Bank Corp. Chief Economist Robert Dan J. Roces. BSP data showed the savings growth rate inching up during the pandemic. Savings deposit growth was 13.4% in May from 11.9% in January. “Money saved is money not spent, so a higher savings rate could also mean less consumption but high liquidity,” he said in a text message. “For consumers facing uncertainties, the lower interest rates may not necessarily help in the near term and they will opt to save. But since borrowing costs are lower, this should become attractive over the longer term,” Mr. Roces added. Domestic liquidity or M3 rose 16.6% year on year in May from 16.2% in April. Despite this, growth of outstanding loans growth issued by universal and commercial banks was 11.3% in May, against 12.7% in April. — Luz Wendy T. Noblee hotline at (02) 8-405-7000 or at PLDT Domestic Toll Free 1-800-10-405-7000. (Landbank CDO) _______________________________________________________________________________________ LANDBANK offers loan package for COVID19-affected CFIs Philippine Information Agency 10 Jun 2020, 18:38 GMT+10 CAGAYAN DE ORO CITY, June 10 - The Countryside Financial Institutions Enhancement Program (CFIEP), a joint program of Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corporation (PDIC) and Land Bank of the Philippines (LANDBANK), is rolling-out a new lending program to assist Countryside Financial Institutions (CFIs) that have been affected by natural calamities, man-made disasters, pests and diseases, and viral infections or outbreaks, including the coronavirus disease (COVID-19) pandemic. The Countryside Financial Institutions Enhancement Program - 2020 Calamity Assistance Program (CFIEP-2020 CAP) lending program will provide additional working capital to Cooperative Banks, Rural Banks and Thrift Banks. The credit assistance may augment liquidity of CFIs that are affected by extensions or defaults of its borrowers as a result of calamities/disasters/viral infections, and thereby encourage CFIs to continue lending, particularly to the agricultural sector. "In the first three months of the year alone, our country has been hit by various calamities that have caused unfavorable outcomes to CFIs. We hope that the CFIEP2020 CAP will help them recover from the damages and disruptions in their operations, and enable them to restore operational cash flows, thus, allowing them to continue lending to small farmers," LANDBANK President and CEO Cecilia C. Borromeo said. The program will be made available by LANDBANK to eligible CFIs at an amount equivalent to 90% of their affected existing portfolio or P10 million per CFI, whichever is lower, provided that the loan amount does not exceed the CFI's borrowing capacity, as per LANDBANK's existing policy. The loan shall bear an affordable interest rate of 4.5% per annum, fixed for one year and subject to annual repricing thereafter. The loan shall be payable up to a maximum of five (5) years, with up to one year grace period on principal and interest payments. The CFIs are also expected to relend the fund to their affected end-borrowers at concessional interest rates. Interested borrowers may contact the nearest open LANDBANK Lending Center or Branch nationwide, or call LANDBANK's customer service hotline at (02) 8-405-7000 or at PLDT Domestic Toll Free 1-800-10-405-7000. (Landbank CDO) _______________________________________________________________________________________ Boosting our farm co-ops By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:06 AM June 09, 2020 The biggest challenge in Philippine agriculture could well be the highly fragmented structure of our farms. Recently, I wrote of how nearly 9 out of 10 farms are under 3 hectares, and those less than a hectare account for the majority (57 percent). The 2012 Census of Agriculture counted 5.56 million farmholdings spanning 7.19 million hectares, averaging a mere 1.29 hectares each. In a recent dialogue between officers of the Coalition for Agriculture Modernization in the Philippines (CAMP) and Department of Agriculture (DA) Secretary William Dar, CAMP chair Dr. Emil Javier suggested ways on how we can best help farmers under a fragmented farm structure. Javier, a National Scientist who was also former science minister and University of the Philippines president, highlighted the crucial role of farm cooperatives, as already well demonstrated in our more successful neighbors. Even as cooperativism is alive and well in the country, only 1,315 of our 18,065 operating co-ops in 2018 were agriculture or agrarian reform co-ops. In contrast, Vietnam has more than 10,000, while the latest data I could find for Thailand counted 6,712 farm co-ops in 2006. While small farms are also dominant in these two neighbors, they have been far better organized and collectivized, likely explaining why their farm sectors perform far better than ours. There was a time when we actually taught our now more successful neighbors how to run farm co-ops. The former Agricultural Credit and Cooperative Institute (ACCI) in UP Los Baños, now known as the Institute of Cooperatives and Bio-Enterprise Development (Icoped), was established out of a felt need for such an institution expressed in 1956 by delegates from Cambodia, China, Korea, Thailand, Vietnam, and the Philippines. In the heyday of our Farmers’ Cooperative Marketing Associations or Facomas in the 1960s—still nostalgically remembered by Dr. Javier and agriculturists of his generation—trainees from Korea, Thailand, and other neighbors came to ACCI to seek mentoring on running successful farm co-ops. Now, over five decades later, our farmers’ cooperatives are struggling, and success stories are few and far between. They have taken on different forms over the decades, from the Facomas of the 1950s and ’60s, the short-lived Marcos-era Samahang Nayon of the ’70s, agrarian reform beneficiaries’ groups in the late ’80s, irrigators’ associations in the ’90s and onwards, and most recently, sugarcane block farms. The general picture is one where Philippine farm co-ops have largely failed. But CAMP believes that our neighbors’ success in harnessing farm co-ops for agricultural development shows that they continue to be a viable instrument for getting Philippine agriculture moving in step with our neighbors. The only way our agricultural sector can raise productivity to meet our rapidly growing population’s food needs is for them to group together in larger farming units to achieve economies of scale. And the only way government can ever be effective in helping small Filipino farmers is not to have to deal individually with 5.56 million farmers, but with groups of them organized into co-ops and other forms of farm clusters or collectives. And that, Dr. Javier told Secretary Dar, is why we must not give up on farm cooperatives. Why have Filipino farm co-ops been relatively weak? I noted that time and again, cooperatives have fallen flat with weak leadership, and this is most often the reason most of our farm co-ops are short-lived. Conversely, successful co-ops are those with strong and competent leaders. A neglected public investment we need to boost is for a much stronger cooperatives leadership training system, particularly focused on farm co-op leaders. The National Association of Training Centers for Cooperatives has been very helpful, but the DA must also put in money to achieve a more encompassing and sustained public-private partnership for cooperatives leadership development, well beyond what UPLB-Icoped can currently handle. South Korea’s system of Saemaul Undong training institutes may hold useful lessons on approach and methods. Maybe it’s time we learned something from them in return. _______________________________________________________________________________________ Creative tax adjustments By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM May 22, 2020 Governments are now out to find ways to revive their ailing economies in the wake of the pandemic. It’s already a foregone conclusion that the second quarter will show dire economic numbers on the incomes and jobs front. If government statisticians were able to proceed with the regular April round of the quarterly Labor Force Survey in the midst of lockdown, a drastic jump in unemployment (from 5.3 percent last January) up to the double digits is quite likely. The sobering fact is that many of the local jobs frozen by the lockdown will not return beyond the pandemic. Restaurants are just one example where downscaling of the workforce will be inevitable. Many other types of business where physical distancing forces scaled-down operations will similarly let go of workers, if not close down altogether. On top of that, tens of thousands of our overseas workers are expected to return home, having lost their jobs in their similarly affected host economies. We need to protect existing jobs, but we must create even more for the substantial numbers of displaced workers as well. This is why government’s ongoing tax reform program has to be part of the effort to protect and create even more jobs. The Department of Finance (DOF) has been quick to make needed adjustments on the major tax proposal now in the legislative mill, known as Citira (Corporate Income Tax and Incentives Rationalization Act). Partly giving in to earlier objections, but mostly in view of the urgent need to revive the battered economy, the DOF is now prepared to forego large revenues for the sake of economic revival—up to P42 billion this year, and P625 billion over the next five years. After all, like most other governments in the world, ours has accepted that it would have to incur a much larger deficit now and effectively absorb a higher level of indebtedness in the face of urgent needs. When the patient is in the sickbed, you first worry about bringing her back to health, before fretting over the hospital bills. Thus, Citira—previously dubbed Trabaho, for Tax Reform for Attracting Better and High-Quality Opportunities, and before that, as Package 2 of TRAIN or Tax Reform for Acceleration and Inclusion—has undergone yet another name change, this time to CREATE, for Corporate Recovery and Tax Incentives for Enterprises. Even as it aims for the same ultimate tax changes pursued by Citira, the new name reflects its primary motivation, which leads to differences in the timing and manner of achieving the intended outcomes. The essence of the reform lies in two changes: (1) reduce the corporate income tax rate from 30 to 20 percent ultimately, to better align ourselves with the rest of our Asean neighbors, whose current rates range from 17 to 25 percent; and (2) rationalize various tax incentives that have bled the government of massive revenues in past years, many of them having been found unwarranted and unnecessary. On the first, Citira would have lowered the tax rate yearly by one percentage point for 10 years (presumably to ease government’s revenue losses); CREATE will immediately reduce the rate to 25 percent until 2022, then lower it one percentage point yearly till it reaches 20 percent by 2027. On the second, Citira would have phased out perpetual incentives currently enjoyed by eligible firms within 2 to 7 years; CREATE lengthens that period to 4 to 9 years. Net operating losses incurred in 2020 may also be carried over up to five years, a relief to firms badly hit this year. An important new feature allows government to offer tailored incentives to targeted major investors, something already done for years by our competing Asean neighbors. Using this strategically, Indonesia has reportedly grabbed a large share of investments exiting China because of both COVID-19 and the US-China trade war. Some worry that this authority could be misused and abused by a corrupt government. But like what I’ve said of the national ID, any good thing in the wrong hands could be used for evil ends. That’s why we need to ensure that we vote responsible leaders into office. Via tax reforms or otherwise, now indeed is the time to create economic opportunities. _______________________________________________________________________________________ PARC ExCom confirms LBP’s one-year moratorium relief for payment of farmer's amortization By DAR Published on April 25, 2020 QUEZON CITY, April 25 -- The Presidential Agrarian Reform Council Executive Committee (PARC-ExCom) has affirmed and confirmed the Landbank of the Philippines (LBP) Board Resolution No. 20-256 entitled “Relief Packages for LANDBANK Customers Affected by COVID-19” granting one (1) year moratorium for the payment of the farmer’s amortizations with no write-off on principal and/or interest payments to be allowed through PARC-ExCom Resolution No. 2020-SP-02 dated April 8, 2020. PARC Council Secretary and DAR Undersecretary for Legal Affairs Office (LAO) Atty. Luis Meinrado C. Pañgulayan said the matter was unanimously supported and approved by the members of the PARC ExCom during its Special Meeting via video conference on April 8, 2020. He said the PARC ExCom supports the initiatives of the LBP in providing immediate response and relief to the ARBs who were greatly affected by the global pandemic. Pañgulayan emphasized that the previous PARC ExCom Resolution No. 2016-132-02 provides for the continuing implementation of the moratorium on Agrarian Reform Receivables (ARR)/land amortization payment of ARBs in areas to be affected by natural or man-made calamities. LBP Board Resolution No. 20-256 signed last March 31, 2020 imposing a one-year moratorium on the amortization payment of agrarian reform beneficiaries (ARBs) was passed to assist the ARBs amidst the economic difficulties as a result of the enhanced community quarantine. This LBP board resolution has now been formally affirmed and confirmed by the PARC ExCom. PARC is the highest policy-making body of the Comprehensive Agrarian Reform Program (CARP). Based on Republic Act 6657 or the Comprehensive Agrarian Reform Law of 1988, the PARC is composed of the President of the Philippines as Chairman, the Secretary of Agrarian Reform as Vice-Chairman with the Secretaries of the Departments of Agriculture; Environment and Natural Resources; Budget and Management; Local Government: Public Works and Highways; Trade and Industry; Finance; Labor and Employment as members. (DAR) _______________________________________________________________________________________ Speaker Cayetano urges banks to offer loans to MSMEs, farmers affected by COVID-19 pandemic Published April 22, 2020 11:17am By ERWIN COLCOL, GMA News Speaker Alan Peter Cayetano called on government and private banks to offer loans to micro, small and medium-scale enterprises (MSMEs) as well as farmers whose livelihoods were affected by the ongoing coronavirus disease 2019 (COVID-19) pandemic. According to Cayetano, the problem of the financial system is how to encourage potential small borrowers to apply for loans from banks.“The purpose is to help people but at the same time keep the financial institutions healthy,” Cayetano said during the virtual meeting of the House Defeat COVID-19 Committee on Tuesday. He pointed out that small borrowers are "intimidated by the formal banking system." "Even farmers with land titles who apply for small loans are told the application/approval process is very tedious. They are being dissuaded,” he said. Cayetano urged the resource persons in the virtual meeting coming from the economic sector to simplify and shorten the loan process and minimize the needed requirements, but without affecting their respective financial institutions. The resource persons include Finance Secretary Carlos Dominguez III, Bangko Sentral ng Pilipinas Governor Benjamin Diokno, Land Bank president Cecilia Borromeo, and Government Service Insurance System general manager Rolando Macasaet. Borromeo, in response, said: “Yes, we can strike a good balance of maintaining prudence and the other due diligence processes that we need to undertake before we lend out precious government funds.” “We did it in the case of the P15,000-loan to farmers, We trimmed down the requirements and shortened the process. One key success factor was that we had a list of beneficiaries identified by Department of Agriculture. So we can do it in the case of small and medium-scale enterprises. We will continue to look for solutions,” she added. For his part, Diokno said the BSP has already eased the requirement for banks to set aside a part of their funds as reserves. “We have freed up from P180 billion to P200 billion and we asked banks to lend the money to MSMEs,” he said. Dominguez, meanwhile, said the government, through the Philippine Export and Foreign Loan Guarantee Corp., would allow for a large portion of loans banks extended to MSMEs to encourage lending to small borrowers. A measure is currently being proposed in the House to help mitigate the impact of the COVID-19 crisis to the country's economy. The proposal, introduced by Albay Representative Joey Salceda and Marikina City Representative Stella Quimbo, will be called the "Philippine Economic Recovery Act." Cayetano said they are still waiting for the executive branch's version of the proposal and the input of the Bangko Sentral ng Pilipinas, but they are also already hearing the measure in a technical working group. "We'll fast-track all of this and kung merong certificate of urgency ang Malacañang just like the Bayanihan to Heal As One, more time is better," he said. "Regardless of the new normal, we commit that Congress will be relevant, reliable and responsive," he added. _______________________________________________________________________________________ BSP: Current policy can accommodate ECQ extension April 20, 2020 | 12:31 amFacebookTwitterLinke THE central bank’s current policy stance can accommodate the impact of a possible extension or expansion of the enhanced community quarantine (ECQ), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said. “The BSP’s recent moves are designed to be prospective, given our strong economic fundamentals,” Mr. Diokno said in a text message on Sunday. “We think the BSP is ahead of the curve.” Presidential Spokesperson Harry L. Roque said in a radio interview on Saturday the ECQ could be extended or modified after April 30. A modified lockdown, according to him, will depend on geographical location, comorbidity or industries. Earlier, Mr. Roque said a total lockdown could be enforced as the virus has yet to be contained and as cases continue to rise. Resigned Socioeconomic Planning Secretary Ernesto M. Pernia earlier said extending the lockdown to May would be “difficult” and had suggested a gradual lifting that will allow the partial resumption of public transportation and mall operations. The coronavirus disease 2019 (COVID-19) has already sickened 6,259 as of Sunday, according to the Department of Health. The death toll has reached 409, while recoveries have risen to 572. Mr. Diokno said in an interview with ABS-CBN News Channel that its latest move to include lending to micro-, small- and medium-scale enterprises (MSMEs) as part of banks’ compliance with reserve requirements could be equivalent to a cut of more than two percentage points in the reserve ratio. The move was announced along with the latest 50-basis-point (bp) off-cycle rate cut from the central bank last week, barely a month since it reduced policy rates by the same magnitude in March. This brought the overnight reverse repurchase, lending and deposit rates to record lows of 2.75%, 3.25% and 2.25%, respectively. The BSP has already slashed rates by a total of 125 bps for this year, following the 75 bps in cuts in 2019. This means the BSP has completely reversed the 175 bps in hikes done in 2018. Meanwhile, the central bank also reduced the reserve requirement ratio (RRR) for big banks by 200 bps in early April to 12%. Although it kept RRR for smaller thrift and rural lenders at four percent and three percent, the BSP shaved 400 bps off the minimum liquidity ratio (MLR) of stand-alone thrift, rural and cooperative banks to 16% until end-2020 to provide a liquidity boost for smaller lenders. LOCKDOWN EXTENSION TO HIT FIRMS According to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, another ECQ extension will take a toll on businesses. “For the hardest hit business sectors, every two weeks of lockdown extension is equivalent to about four percent of production or income lost on an annualized basis,” Mr. Ricafort said in a text message. But this is not to say an extension should not be taken into consideration as this is meant to contain the outbreak that could have greater impact on the global economy if left unchecked, he said. “This is also a dilemma faced by many countries around the world — in whether or not to extend lockdowns,” Mr. Ricafort said. UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion is also of the view that a modified quarantine could be the “ideal” way to ensure economic recovery. “A shift to some form of a modified community quarantine is most ideal to help jumpstart the economy, but a probable extension may prove essential as a form of premature uncoiling of current interventions may result in a resurgence of cases,” Mr. Asuncion said in a text message. He cited data from the Organization for Economic Cooperation and Development which estimates that countries’ gross domestic product (GDP) could lose 2% for every month in lockdown. “A total lockdown from March 15 to May 15 is equivalent to four percent GDP decline, much of the average GDP output of the Philippines in recent years. We are not even talking about unemployment here,” he said. “A careful balance must be adopted to help restrain the virus and jumpstarting the economy.” The Philippine economy grew 5.9% in 2019. Prior to the outbreak, the government targeted GDP growth of 6.5% to 7.5% this year. As the pandemic continues, Finance Secretary Carlos G. Dominguez III has said the country may see flat or zero growth or as much as a one percent contraction in GDP. — Luz Wendy T. Noble _______________________________________________________________________________________ ECQ vs economy By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:04 AM April 21, 2020 It has been said that containment policies like the enhanced community quarantine (ECQ) now on its sixth week “flatten the medical curve, but steepen the recession curve.” The implication is that there is a direct tradeoff between safeguarding public health and saving lives on one hand, and maintaining economic stability and protecting people’s economic well-being on the other. That is, the more we try to save lives from the pandemic, the deeper we are driving the economy down to ruin — and some argue that the cost to human lives could be worse.Economies have indeed been brought to a virtual standstill as most economic activities have been suspended, except for essential goods and services, and people are confined to their homes, allowed only a minimum of movement. The International Monetary Fund swung from an upbeat global economic growth forecast of 3.3 percent in January, down to a dramatically scaled down 0.6 percent, and now to a rather grim -3 percent — all in a matter of weeks, and with a caveat that this may still be too optimistic. Until this latest pandemic struck, an economic standstill so widespread as to encompass the whole globe was beyond anyone’s imagination, and certainly unprecedented in the lifetimes of those living today. It’s so new and so strange to most of us, that many are still unable to fathom the profound impact it will have on our economy, and our lives. I’m surprised to hear some pundits boldly proclaim that the Philippine economy can still grow this year, even as larger and richer economies had already declared recessions even before the IMF came up with its latest prognosis. While I would love to be wrong on this, I just cannot see how we can still avoid a significant contraction of our economy this year, at the rate things are going. This means that incomes, output, and jobs will fall, and like it or not, a large segment of the Filipino population will suffer increased pain and hardship this year. How deeply can the COVID-19 crisis impact our economy? I tried to do some quick arithmetic with the available data to get a clearer idea. The relevant questions to ask include: What industries are the main drivers of the economy, and providers of the most jobs, and how badly are these industries hit by the COVID-19 crisis? On the demand side, what and whose expenditures give the biggest impetus to produce goods and services in our economy, and how are these expenditures being hit by the crisis? On a sectoral level, the top three that together contribute more than half of our GDP are manufacturing (23 percent); wholesale and retail trade and repair services (17 percent); and tourism industries (13 percent). All three are seeing deep declines, with production likely cut by at least half during the ECQ. Similarly hit deeply are construction and land, air and water transport. On jobs, the top five contributors are wholesale and retail trade; agriculture, hunting and forestry; construction; manufacturing; and transport and storage—all together accounting for 28 million jobs, or two-thirds of all workers. All except agriculture are likely to have seen more than half their workers idled, adding roughly 14 million to the 2 million already unemployed beforehand. On the spending side, the biggest impetus to our GDP is household consumer spending, equivalent to 68 percent of our GDP. Investments on durable equipment make up 16 percent, followed by government consumption spending (12 percent) and construction spending (11 percent). Consumer spending will be dented by the displacement of hundreds of thousands of overseas Filipino workers and the corresponding fall in remittances. Other than government consumption spending that the social amelioration program has given a massive boost, investments in durable equipment and construction are also major casualties of the ECQ. All told, my rough and conservative calculations point to GDP contraction that could range from -6 to -14 percent, depending on how many quarters inactivity persists. By the looks of it, we could be in for a recession we haven’t seen since the politically turbulent years following the Aquino assassination in the early 1980s. God help us. _______________________________________________________________________________________ BSP eyes ‘deeper’ policy rate cuts April 13, 2020 | 12:33 am THE central bank is looking at a “deeper cut” in interest rates to help cushion the economy from the impact of a “once-in-a-lifetime crisis” caused by the coronavirus disease 2019 (COVID-19) pandemic, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said ahead of a policy meeting next month. He also signaled another cut in the amount of cash that banks need to hold as reserves to boost liquidity in the financial system. “While BSP has cut the policy rate by 150 bps (basis points) since I assumed office last year, the Philippines is now faced with a once-in-a-lifetime crisis. It is now clear that reverting to where we were in 2018 — policy rate at 3.0% — is no longer an appropriate policy goal,” Mr. Diokno said in a text message to reporters on Sunday. “A deeper cut is warranted in response to the expected sharp economic slowdown,” he said, noting that inflation is likely to settle closer to the lower end of the BSP’s 2-4% target this year. The policy-setting Monetary Board (MB) has cut rates by a total of 150 bps since 2019, almost completely unwinding the 175 bps in hikes it implemented in 2018 amid multi-year high inflation. Its latest move was 50-bp reduction on March 19, which brought the overnight reverse repurchase (RRP) rate — or the key policy rate — to 3.25% and overnight lending and deposit rates to 3.75% and 2.75%, respectively, in a bid to shield the economy from the virus fallout. Headline inflation eased to 2.5% in March coming from the 2.6% in February and the 3.3% in the same month in 2019, mainly on the back of falling oil prices amid low demand due to COVID-19. This brought the year-to-date average to 2.7%, above the 2.2% expected by the BSP for 2020. The Monetary Board will meet to discuss policy anew on May 21. While noting that monetary policy works with a lag and that they will remain “data dependent,” Mr. Diokno said governments worldwide need to ensure a “soft landing” for their economies in the aftermath of the pandemic. “The monetary authorities’ job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure that economic takeoff begins quickly once the pandemic fades,” he said. “These new realities call for bolder but appropriate moves on the part of the BSP. The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system,” Mr. Diokno noted. The central bank chief added that they will cut lenders’ reserve requirement ratio (RRR) further following the 200-bp reduction in universal and commercial banks’ RRR earlier this month as they seek to boost liquidity to support economic activity. The Monetary Board last month authorized Mr. Diokno to cut RRR by a maximum of 400 bps for the year, with potential cuts in the reserve requirements for other banks and nonbank financial institutions also to be explored. “[T]he additional 200 bps cut is forthcoming based on available data, the needs of the economy, and the utilization of the additional liquidity,” he said. Mr. Diokno earlier said the 200-bp cut freed up some P180-200 billion in liquidity. The reserve ratios of thrift and rural banks are at four percent and three percent, respectively. However, the minimum liquidity ratio for stand-alone thrift, rural and cooperative banks was cut by 400 bps last week to 16% until end-2020 to boost their buffers amid the disruptions caused by the pandemic. Before the COVID-19 outbreak, Mr. Diokno had vowed to reduce big banks’ RRR to the single-digit level by the end of his term in 2023. ECONOMIC RECOVERY Analysts said a more aggressive reduction in both benchmark interest rates and banks’ RRR will help ensure the country’s recovery after the crisis. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said further monetary easing will be in line with aggressive moves by central banks worldwide amid the pandemic. “There is no better time than now to further cut interest rates and RRR to also complement the record programs versus COVID-19 to better deal with the economic losses especially in providing aid to vulnerable sectors as well as to prepare the economy for a rebound,” Mr. Ricafort said in a text message. Security Bank Corp. Chief Economist Robert Dan J. Roces said Mr. Diokno’s signal is a “proactive stance” amid easing inflation that also factors in the transmission lags of monetary policy. “[I]nflationary tendencies from cuts may be absent on the back of low oil prices which may offset any price repercussions,” Mr. Roces said in a text message. “[W]e can hit the ground running in terms of recovery after ensuring that the economy is adequately capitalized.” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said lower interest rates will help the economy during this crisis even as he warned that this could take a toll on the peso, noting that adjustments can wait until a “soft landing” is reached. “The peso has been attractive because of its spread between inflation and the existing policy rate. If the RRP is further cut, the peso may not be the same as it is perceived by the market now,” Mr. Asuncion said in a text message. “[The] BSP has the careful task of continuing to smoothen the volatility of the peso after further rate cuts,” he said. “It’s a difficult balancing act. We may win or lose, but we do not have many policy choices at this point.” Finance Secretary Carlos G. Dominguez III said last week the country’s gross domestic product (GDP) will likely post flat growth or even shrink by as much as one percent this year, as economic activities in Luzon remain at a standstill due to the Luzon-wide enhanced community quarantine (ECQ) that will last until April 30. The estimated 1% contraction in GDP is lower than -0.6% to 4.3% growth range seen by the National Economic and Development Authority (NEDA) prior to the extension of the one-month lockdown. NEDA last month said the low end of its growth estimate for this year, a contraction of 0.6%, is “still too high” if the ECQ is extended beyond one month “or if the spread of COVID-19 is unabated even after the ECQ.” This compares to the 5.9% GDP expansion in 2019 and the 6.5-7.5% growth target set by the government for this year. COVID-19 cases in the country reached 4,648 as of Sunday, with 297 casualties, according to the Department of Health. Recoveries totaled 197. — L.W.T. Noble _______________________________________________________________________________________ Peso gains as BSP boosts small banks’ liquidity April 8, 2020 | 5:56 pmFacebookTwitt THE PESO appreciated against the greenback on Wednesday before the Holy Week break on the back of positive sentiment due to the central bank’s move to boost liquidity and amid lower coronavirus disease 2019 (COVID-19) infections in some countries. The local unit ended trading at P50.585 per dollar on Wednesday, rising by 9.5 centavos from its P50.68 close on Tuesday, according to data from the Bankers Association of the Philippines. The peso was also stronger by 29.5 centavos versus its P50.88 close last Wednesday and by 13.5 centavos from its Friday finish of P50.72 per dollar. The currency opened Wednesday’s session at P50.60 per dollar. Its weakest showing was at P50.695 while its strongest was at P50.58 against the greenback. Dollars traded increased to $521 million from $455.9 million on Tuesday. A trader said the peso’s strength continued its recent trend of appreciation on the back of the Bangko Sentral ng Pilipinas’ (BSP) announcement of a cut in the minimum liquidity ratio for smaller banks. “The strengthening was more of a continuation of the trend of peso’s strength. A little bit of risk on for us because there was a recent announcement for liquidity ratio cut for thrift banks so it’s a bit of easing so it’s a positive for peso,” the trader said in a phone call. The BSP slashed the minimum liquidity ratio (MLR) requirement for smaller lenders to 16% from 20% until end-2020 to boost the war chests of thrift, rural and cooperative banks amid the extended lockdown in Luzon. “The BSP recognizes that the COVID-19 outbreak and community quarantine implemented to combat the spread of the disease has elevated the liquidity risk exposures of banks arising primarily from higher demand for funds by depositors, borrowers or both,” BSP Governor Benjamin E. Diokno said in a memorandum dated April 7. Earlier, the central bank cut universal and commercial banks’ reserve requirement ratio by 200 basis points to 12% effective on April 3. Meanwhile, another trader attributed the peso’s gains to global optimism amid what seemed like a plateau in the number of infections in some virus hotspots, as well as some profit taking before the two-day break. “The peso appreciated from prevailing market optimism that coronavirus-related cases are already plateauing in major global hotspots. There was also some cautious profit taking ahead of possible coronavirus developments during the Holy Week break,” the second trader said in an e-mail. — LWTN _______________________________________________________________________________________ SRA seeks intervention as sugar price falls Published April 3, 2020, 10:00 PM By Madelaine B. Miraflor The Sugar Regulatory Administration (SRA) had sought interventions from the national government after the price of sugar dropped by P200 per 50-kilogram bag in the span of two weeks. “We recently saw an abnormal price drop, in some cases as big as P200 in just two weeks, and before this gets worse, we are appealing for immediate intervention from the national government,” SRA Board Members Emilio Yulo and Roland Beltran said in a joint statement. Yulo represents the planters in the SRA Board, while Beltran represents the sugar millers. The two officials said Land Bank of the Philippines (LandBank) and other government financial insti-tutions must step in and provide quedan financing to the local sugar industry. “We are afraid that the drastic drop in sugar prices will cause a disastrous effect in the long term period,” the SRA Board members said. “We are still at the height of the milling season and with the good weather, many sugar producers are taking this opportunity to harvest their sugar canes but many are afraid that if the trend of prices col-lapsing will continue, the producers will not have anything left to even think of planting for the coming crop year,” they added. Figures from Victorias Milling Company, one of the major sugar producers in the Philippines, showed that two weeks ago, sugar price was at the ₱1,560 to ₱1,580 per 50-kilogram bag. This week, the price fell to ₱1,375 per 50-kilogram bag, which is just equivalent to the cost of producing the sweetener. Yulo and Beltran said vast majority of the industry’s stakeholders who are small planters and agrarian reform beneficiaries, which comprise about 92 percent of sugar producers, will not be able to survive this loss, especially during the national health crisis brought about by the coronavirus disease 2019 (COVID-19). According to them, LandBank, through the intercession of Agriculture Secretary William Dar, should immediately help address this issue through quedan financing at very minimal interest rates. The other day, SRA pushed for the distribution of financial assistance for sugar mill workers that were displaced due to the lockdown placed over Luzon. In a resolution signed by Yulo and Beltran, the agency’s management has been requested to draft and present a national COVID-19 plan within a week. The plan, according to them, must include the allotment of fund for a ‘pantawid’ assistance for the thousands of displaced sugar mill workers to help them tide over the lockdown. Because of the ECQ, which shutdown public transportation and established police checkpoints in various areas in the region, each sugar mill currently operates with only 25 percent of its workforce. The word on the street is that SRA Administrator Hermenegildo Serafica has not yet met with the SRA Board for the primary purpose of coming up with measures that would help the industry sector and its players cope with the COVID-19 pandemic. Meanwhile, Yulo and Beltran’s resolution is also pushing for the procurement of Personal Protective Equipment (PPES), alcohols, and other disinfectants for the use of SRA frontliners as well as donation to centers and hospitals in the sugar producing areas. The resolution also wants SRA to procure surgical masks for distribution to marginalized farmers, Agrarian Reform Beneficiaries (ARB) communities, marginalized small farmers, and laborers. _______________________________________________________________________________________ BSP outlines additional relief measures for banks THE CENTRAL BANK is giving additional regulatory to financial institutions, including the imposition of a higher single borrower’s limit (SBL), removing penalties for reserve deficiencies, and providing leeway for some notification requirements amid disruptions caused by the coronavirus disease 2019 (COVID-19). “The measures ease certain BSP (Bangko Sentral ng Pilipinas) regulatory requirements governing banking operations for the duration of the enhanced community quarantine and one month thereafter,” BSP Deputy Governor Chuchi G. Fonacier said in a memorandum signed on March 19. “The period of eligibility may be extended depending on the developments related to the COVID-19 situation,” she added. First of the measures is the hike in big banks’ SBL to 30% from 25% for a period of six months. The SBL helps banks manage their exposure to borrowers. The BSP will also relax maximum penalty impositions for reserve deficiencies. According to Ms. Fonacier, the maximum penalty the BSP can impose will be the rate on the overnight lending facility, which is currently at 3.75%, plus 50 basis points. Banks can be exempt from the maximum penalty “provided that the maximum reserve deficiency of the BSP-supervised financial institution (BSFI) shall be 200 basis points above the reserve requirement.” The reserve requirement ratio (RRR) of universal and commercial banks is at 14% and four percent and three percent for thrift and rural lenders, respectively. Ms. Fonacier said they will also give banks some leeway in their notification requirements, such as in letting BSP know of a change in their banking hours and the temporary closure of some of their units in light of the Luzon-wide enhanced community quarantine (ECQ). “A bank need not to inform the BSP of changes in its banking hours, as required under Section 108 of the Manual of Regulation for Banks, during the ECQ period,” Ms. Fonacier said. However, BSFIs will be required to submit consolidated reports on the temporary closure of their bank branches on or before June 30. The BSP will likewise postpone the deadline for required reports from BSFIs that have deadlines from March to May, except for the Financial Reporting Package for Banks, the Consolidated Foreign Exchange Position Report, as well as event-driven report requirements and reserve requirement-related reports. Moreover, lenders will also be given a grace period to comply with BSP supervisory requirements with deadlines prior to March 8. These reports can be submitted until end-June. Sought for comment, Rizal Commercial banking Corp. Chief Economist Michael L. Ricafort said the said relief measures will help banks during this period. “These regulatory relief measures specifically the higher SBL and relaxed maximum penalty for reserve deficiencies will effectively give banks greater leeway to further increase lending to different borrowers such as businesses, consumers, and other institutions,” Mr. Ricafort said in an email. — L.W.T. Noble _______________________________________________________________________________________ Gov’t pulls plug on Land Bank subsidiary formed for agri inputs By: Ben O. de Vera - Reporter / @bendeveraINQ Philippine Daily Inquirer / 03:27 PM March 11, 2020 The Governance Commission for Government Owned or Controlled Corporations (GCG) has deactivated the Land Bank of the Philippines’ subsidiary, Masaganang Sakahan Inc. (MSI), while awaiting orders from President Rodrigo Duterte to finally abolish the state-run firm. The interim deactivation of MSI was approved by GCG Chair Samuel G. Dagpin Jr., Commissioners Michael P. Cloribel and Marites C. Doral, and ex-officio Land Bank officers Finance Secretary Carlos G. Dominguez III and Budget Secretary Wendel E. Avisado last Feb. 20. MSI’s deactivation meant it cannot enter into any contracts or transactions anymore or receive any corporate operating budget from the national government. Mandated by Republic Act No. 10149, or GOCC Governance Act of 2011, MSI was “deemed under evaluation for formal abolition.” The GCG had already recommended MSI’s abolition to the Office of the President in 2017. In 2017, the GCG deemed MSI was just a duplication of other government agencies and was “not producing the desired outcomes.” MSI, the GCG continued, is “no longer achieving the objectives and purposes for which it was designed.” “MSI’s functions and purposes are no longer relevant,” the GCG added. MSI, it said, is “no longer consistent with the national development policy of the state and its activity is best carried out by the private sector.” The GCG also found MSI to “not cost-efficient and does not generate the level of social, physical and economic returns vis-a-vis the resource inputs.” Land Bank’s governing board, chaired by Dominguez, in 2019 passed a resolution rendering MSI inactive or nonoperational. MSI was established in 1974 as a wholly-owned subsidiary of Land Bank. Its main purpose was acquire, operate, maintain, lease, sell and deal in agricultural equipment and farm machinery, implements and tools. MSI was supposed to make these available to farmers and land reform beneficiaries. _______________________________________________________________________________________ Men and machines By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:05 AM March 10, 2020 In January 2012, the Labor Force Survey counted 12.190 million employed Filipino agricultural workers. In January 2019, there were only 8.847 million. Within that seven-year period, the number had gone down successively to 11.049 million in January 2015, and 10.034 million in January 2017. There was, in short, a steady decline in agricultural workers in the country over the past seven years or so. If you’ve heard it said that people don’t want to work in the farms anymore, there’s the clear proof. It’s not because agriculture declined all through that time. The sector actually grew in those seven years at an average rate of 1.3 percent per year—and yet, the number of workers in the sector declined by 3.343 million. The bright side is that farmworkers have become more productive. Even as the number of workers actually declined by 27.4 percent, farm output grew 11.1 percent within that period. But the bad news is that rural workers are indeed turning away from agriculture in droves, putting to question the future of our farm sector, hence our ability to feed ourselves—unless we can replace the leaving workers with farm machines that could offset the dwindling labor. But wait—wasn’t the Comprehensive Agrarian Reform Program (CARP) supposed to help farmers own the land that they tilled, so that they could more productively farm it, earn larger incomes for their families, lift themselves out of poverty, and encourage their children to sustain their farms? That was in fact the whole idea, but it seems that things didn’t quite work out that way—and there are many reasons why. The most important, it seems to me, is that against expectations, owning their farmlands didn’t make it any easier to borrow money from the banks, after all. While the agrarian reform beneficiaries (ARBs) now had their farmlands as a bankable asset, banks refused to take them as loan collateral, again for various reasons, including fear of being “CARPed,” too if they accumulated too much land from loan defaults. And when they ended up holding farmlands from defaulting borrowers, they found the properties very hard to sell, as CARP all but killed rural land markets. There were many restrictions on land disposition by ARBs, while the only people who had the money to buy lands—the original landowners—could not legally buy them back (although that didn’t stop them). Without loans, farmers on their own couldn’t make their farms productive, found themselves constantly in need of cash, and pushed them into occupations that would assure them of some cash every day. That is, in fact, too common a story I am encountering in the countryside: An ARB leases off his land, buys a motorcycle with the proceeds, and chooses to work as a habal-habal or tricycle driver instead—and with him is lost another farmworker. Machines are indeed slowly but surely taking over our farms. They come in many forms: traditional four-wheel tractors or smaller hand tractors to till the land; “halimaw” combine harvesters that harvest and thresh palay in one operation; reapers that cut sugarcane stalks as they pass through the cane field; mechanical “grabbers” that load cut cane into trucks; and so on. The machines have created demand for a new kind of skill on the farms: that of operating these farm equipment. They have now also added a measure of “glamour” to farm jobs, I am told—and hence help keep those farmworkers from leaving. But there’s a little problem: There still are not enough of them out there who can readily operate, run and fix the whole array of farm machines we’re now seeing. Apart from helping make farm machinery more accessible via duty-free importation, machinery rental pools to serve smallholder farms, and special equipment loan programs, government can also help with training programs on farm equipment operation and repair. These need not be as rigorous as the usual skills development courses of the Technical Education and Skills Development Authority, and can be easily rolled out in the countryside. Are we finally at the doorstep of Philippine farm modernization? It’s beginning to feel like it. I just hope that government doesn’t blow it this time. _______________________________________________________________________________________ Gov’t bank launches 7 loan programs to help farmers Philippine Daily Inquirer / 04:11 AM February 24, 2020 In response to the worsening plight of local rice farmers brought by plummeting palay prices, state-owned Land Bank of the Philippines has introduced seven new agri-lending programs in partnership with the Department of Agriculture (DA). LandBank president and CEO Cecilia Borromeo said the new lending facilities were the bank’s direct response to the rice crisis and would “help address the specific requirements of the various players in the agriculture sector.” The new lending programs are: PAlay aLAY sa Magsasaka ng Lalawigan, Expanded Survival and Recovery Assistance Program for Rice Farmers, Rice Farmer Financial Assistance Program, Accessible Funds for Delivery to Agrarian Reform Beneficiaries, Sulong Saka Program, Sustainable Aquaculture Lending Program, and the Greenhouse Farming System Financing Program. These programs, with varying funding allocations totaling billions of pesos, would assist rice-producing provinces in procuring palay produced by their local farmers as well as in acquiring farm machinery and postharvest facilities. There will also be conditional cash transfers and credit assistance to farmers tilling one-half to two hectares of land. As of Feb. 3, 5,822 LandBank cash cards totalling more than P29 million in cash assistance have been distributed to rice farmers in Pangasinan, Ilocos Norte, Neuva Ecija, Zamboanga del Sur, North Cotabato, Bataan and Pampanga. Three of the new programs will also promote the production of high-value crops, mariculture and aquaculture, and will provide financial assistance to cooperatives and agrientrepreneurs who would like to shift to modern farming by adopting greenhouse farming technologies. These are on top of the annual P10-billion rice competitiveness enhancement program under the rice tariffication law and complement DA’s own rice programs. The huge funding for the rice industry came as local rice farmers continued to call on the government for help as palay prices have yet to recover from a major slump that started in January 2019. In several studies conducted by state-run agencies such as the Philippine Institute for Development Studies and the Philippine Rice Research Institute, they reported that farmers have already lost billions of pesos in palay revenues following the influx of imported rice in the market. —Karl R. Ocampo INQ _______________________________________________________________________________________ Drags and drivers in 2020 By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:30 AM February 21, 2020 The year 2020 started with a series of jolts to weigh the Philippine economy down in the very first month. The US-instigated assassination of Iran’s top military leader brought the specter of new volatility in the Middle East, and yet another episode of destabilizing oil price hikes. The British formalized their country’s exit from the European Union, bringing renewed apprehensions on its international economic repercussions. Out of China has come the COVID-19 virus that is poised to crimp growth prospects in our own tourism and manufacturing sectors, among others. Here at home, Taal Volcano’s eruption has caused substantial damage to crops, livestock and fisheries, and disrupted manufacturing operations in the country’s most industrialized region of Calabarzon. Meanwhile, President Duterte’s intensified attacks on major business entities have sent chills down the spines of domestic and foreign investors at a time when total investment growth in the country had already ground down to a near halt. This follows years of double-digit investment growth, and three years of successive slowing down in the overall economy’s growth. These first-month jolts came on top of longer-standing drags on our economy that have already been taking a toll in recent years. Our perennially underperforming farm sector has remained sluggish, growing persistently more slowly than our population does, implying that agricultural production per capita has continuously declined over the years. The trade war that US President Donald Trump has waged against China has already severely diminished overall world trade, and slowed global economic growth. While the Philippines’ weak export sector relative to our economic peers has softened the impact of the world slowdown on us, the trade war’s dampening effect on our manufacturing sector’s growth has been unmistakable. Its toll on our human resource exports is also seen in slower growth in deployment of overseas Filipino workers, and similar slowdown in inward income remittances from the rapid growth of yesteryears. As if the slowing down of foreign exchange inflows through goods and services exports, inbound tourism and remittances were not enough, foreign direct investment (FDI) inflows have actually declined for the second year in a row. Last year’s cumulative decline of 32.8 percent as of October was a far steeper fall than the previous year’s 4.9 percent decline, and yet most of our neighbors continued to enjoy growing FDI inflows. The implication is clear: something of our own doing is making us attract less of those job-creating investments, even as the trade war created a window to attract fleeing investments from China, with neighbors like Vietnam cashing in. Part of the problem could be the demonstrated low absorptive capacity of our government infrastructure agencies tasked to push the ambitious infrastructure buildup that the government has embarked on. All these notwithstanding, the Philippine economy possesses certain long-standing and recent strengths and opportunities that could be harnessed to help drive growth in the year ahead and beyond. Ours is an abundant and relatively young labor force, an advantage that will persist in coming decades owing to a persistently higher fertility and population growth rate relative to our comparable peers. Coupled with an abundance of human resources is our also peculiar abundance of natural resources: great biodiversity, fertile soils, rich inland and maritime fisheries, and a higher preponderance of minerals in the ground. Our macroeconomic fundamentals are solid, built over past administrations’ careful and skillful monetary and fiscal management. Formalization of the Bangsamoro Autonomous Region in Muslim Mindanao paves the way for potential economic dynamism in the erstwhile lagging region. Opportunities from greater economic cooperation and integration in our part of the world remain largely untapped. And “Build, build, build” can yet be the great economic boost it was meant to be, if and once we sort out the implementation bottlenecks plaguing us. Our list of drags may dominate our list of drivers, but we enter 2020 hoping for the best. _______________________________________________________________________________________ Cloudy crystal balls By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:05 AM February 04, 2020 With the January 2020 update of its World Economic Outlook, the International Monetary Fund (IMF) officially downgraded its original global economic growth forecast for 2019 for the sixth time in as many quarters. From its original bullish forecast of 3.9 percent for 2019 global GDP growth issued in early 2018, IMF had lowered this to 3.7 percent by October 2018, to 3.5 percent by the start of last year, further down to 3.3 percent in April, 3.2 percent by July and 3.0 percent by October. Now they say it will be only 2.9 percent, a full percentage point below their original forecast — and the jury is still out. It won’t be until April when the actual final figure based on complete 2019 data will come out. If it’s any indication, the final growth figure for 2018 released in April 2019 ended up still lower than their last revised projection in January 2019. Casual onlookers could easily lose faith in economists’ forecasts, seeing how the otherwise authoritative institution’s crystal ball seemed to be cloudy and unreliable this past year, prompting a changing forecast with every passing quarter. To be fair, unexpected events in 2019 gave even the best-equipped economists a hard time projecting economic growth. The IMF blamed the repetitive downscaling of growth projections on the unpredictability of the US-China trade war, with each move and countermove of the protagonists, hence their global economic implications, extremely difficult to anticipate. In the first place, US President Donald Trump was never guided by solid economic reasoning in waging the war, so economists were not the best predictors of his successive moves in the high-stakes gambit with China. Americans are far from alone in the unpredictability of their leader and surprise moves he can make with potentially drastic economic consequences, positive or negative. On our side of the ocean, we have a President whose words and actions often also appear to defy logic, while having potentially strong impacts on business and the economy. Misplaced verbal attacks against certain business entities, and threats to retaliate with far-reaching measures for the cancellation of one favored senator’s US visa, are just two recent examples that cloud many an economic forecaster’s crystal ball. But then again, economic forecasting has never been an exact science. Predicting economic outcomes, especially numbers for economic variables like GDP growth and inflation and unemployment rates, is often little more than educated guesswork. Now, at the start of the year 2020 — ironically a number that connotes clarity of vision — the outlook for the economy is anything but clear, even to the most seasoned economist. We in the Philippines, in particular, are off to a bad start, having already been buffeted in the first month alone by a succession of external and internal negative events that will exert a drag on the economy in the year ahead: new volatilities in the Middle East triggered by the US assassination of a top Iran military leader, the spread of the novel coronavirus, the final sealing of Brexit, the eruption of Taal volcano, and President Duterte’s chilling diatribes against certain large business entities. There will surely be more as the year unfolds. The magnitude of economic impact of each taken alone is impossible to predict with any accuracy; what more when one considers that interactive forces across the various effects could compound their combined impacts. What could provide the offsetting upside to the economy in 2020 and beyond? Foremost would be government’s ambitious infrastructure push, to the extent that earlier implementation bottlenecks experienced could finally be overcome. But there remains much uncertainty on this, due to emerging limitations in human and physical resources (e.g., availability of construction materials like cement and steel, and of engineering equipment) so vital to its execution. What’s in store, then, for the Philippine economy in 2020? I and any economist could give best educated guesses on the numbers for the key indicators. But with the IMF’s own experience last year, I doubt anyone would be willing to bet on them. _______________________________________________________________________________________ 50 richest Filipinos: Share-the-wealth challenge By: Eddie Ilarde - @inquirerdotnet Philippine Daily Inquirer / 05:01 AM January 26, 2020 Some years back, American economist and former director of The Earth Institute of Columbia University Jeffrey Sachs wrote an article about what he called “the ability to improve the world through transformative philanthropy”—that if today’s billionaires were to pool their resources, “they could outflank the world’s governments in ending poverty and pandemic disease.” He named John D. Rockefeller, Bill and Melinda Gates, Warren Buffet, Carlos Slim Helu, Lakshmi Mittal and George Soros, among others, who, on their own initiative—by sharing a part of their wealth—have succeeded in fighting disease, poverty and other areas of human concerns such as the “eradication of hookworm in the US, the development of the yellow fever vaccine, elimination of malaria-transmitting strain of mosquito in Brazil, funding the Asian Green Revolution, etc.” Bill and Melinda Gates, for example, have sufficiently funded “the extension of basic health care to the poorest in the world to end the pandemics of AIDS, TB and malaria, and address the crying need for safe drinking water for 1 billion people.” There are 2,153 billionaires in the world today. That includes 50 in this country as named by Forbes magazine, among them Manuel Villar, the Sy siblings, John Gokongwei Jr., Enrique Razon Jr., Jaime Zobel de Ayala, Lucio Tan, the Campos siblings, Ramon Ang, the Consunji siblings, the Ty siblings, etc. The Sy siblings lead the pack, and Menardo Jimenez is at No. 50. They are in various kinds of businesses: construction, power generation, hotels, restaurants, banking, media, pharmaceutical, insurance, property development, retail, etc. The SM group, for example, owns the biggest bank in the country and “over 200 companies in the Philippines, including 73 shopping malls plus another six in mainland China.” Our research is still incomplete as to how many high-rise condominium and office buildings they have and how big their real estate properties are. It can be mind-boggling when we include the other billionaires’ massive holdings, which can make people suspect that this country’s reputed poverty is fake. Improving the world through philanthropy has been proven to be doable, with generous rich people willing to share their wealth with the less fortunate. Can it be done here? Who among the 50 shall step forward and show courage and magnanimity? It would be surprising, historic even, if this challenge is accepted, however grudgingly; it shall be an event never seen before in this country—the “callous rich” finally showing sparks of patriotism and concern for the less fortunate through the proposed mechanism below: A “Philippine Alliance for Humanity” is organized, initially with four founding members—persons of probity and proven honesty—who renounce in writing the will to earn from such an endeavor. Five additional members from the Big 50 (or their authorized representatives) complete the membership to nine, to form the core of the alliance or foundation. It is hoped that the rest of the 50 will cast away suspicion and distrust and support the alliance, with monthly donations direct to designated banks. No one can touch the money as stipulated in the Securities and Exchange Commission-approved papers, except only upon the authority of the majority of the nine members, who shall decide where to spend the money and when the money can be withdrawn. Depository banks shall post in all their branches or publish weekly the existing balance of the charitable fund. The initial goal of this social entrepreneurship program is to build: (1) evacuation centers, (2) rain catchment minireservoirs in barangays without safe drinking water, and (3) senior citizens’ health centers, following the lead of President Duterte’s “Build, build, build” program for economic and industrial prosperity. Thus, the “Philippine Alliance for Humanity’s” money pool is philanthropy that will go to building urgently needed infrastructure for the health, security and safety of the people. How about it, good sirs and madames? Believe! “Charity shall cover the multitude of sins.” (I Peter 4:8) _______________________________________________________________________________________ Taal’s fury and the economy By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:07 AM January 17, 2020 So early in the year, we are beset with a major natural disaster yet again. Two major typhoons just ruined the Christmas season for large numbers of our fellow Filipinos, and now this—and the disaster isn’t even over. A major explosive eruption is still anticipated from Mt. Taal as of this writing, and based on the nature of the expected “magmatic” versus the recent “phreatic” or steam-induced eruption, it could well be that the worst is yet to come. What do all this hold for Filipinos in general? The question I tend to get asked as an economist is what impact Taal’s eruption would have on our economy. People seem to be after a number that measures the impact, with interest usually on economic growth, especially given the ups and downs our gross domestic product (GDP) growth has seen in the past year. But it’s actually a misplaced question because GDP is hardly the right yardstick for assessing the cost of calamities, even taking “cost” in its narrow economic sense—and we all know that the negative effects are much more than economic. There’s no question that the economic costs could be staggering. Damage to crops and food production alone would run into the hundreds of millions, possibly billions, of pesos. Earlier this week, the Department of Agriculture put out the number P577.59 million as an estimate (with remarkable precision) of crop damage. But damage to lives, property and infrastructure is likely to be far beyond that, and the orders of magnitude involved are anyone’s guess. The true extent of economic costs alone cannot be readily seen in the GDP data that official statistics will report later. This is because the GDP data will count the remedial economic activities that will be spurred by the calamities along with those that have been curtailed by it, showing why GDP should never be looked at as a measure of well-being. Higher GDP does not imply more happiness, and more misery can in fact be associated with higher GDP. It’s perfectly possible, even likely, that the value of economic activities in disaster remedial measures would more than offset the reduction in regular economic activities, such that a net positive effect on GDP could actually result. For example, I’ve checked the data for the periods corresponding to past major typhoons “Ondoy” (September 2009) and “Sendong” (December 2011), and the Habagat floods (August 2012). As I suspected, GDP growth actually speeded up in the aftermath of those calamities! Much of the economic activities spurred by disasters lie within the part of the economy called the informal sector, better known as the “underground economy,” because transactions therein are not captured in official statistics. During such calamities and in their aftermath, many economic activities not seen in more normal times tend to flourish. In past instances of prolonged flooding, for example, “water taxis” and toll footbridges sprouted all over. In the aftermath of Ondoy in 2009, I remember seeing ads for inflatable boats and rafts coming out in the papers, hinting the emergence of a growing industry in small-scale water transport—over floodwaters. Carpenters and construction workers suddenly find themselves in great demand for home repairs. Enterprising groups and individuals have offered home clean-up and recovery services for hire. I even saw ads for restoration of precious photographs damaged by floodwaters. Vehicle repair services in both the formal or informal sector suddenly find great demand for the thousands of motor vehicles submerged in floodwaters, and now, damaged by ashfall. And then there are the substantial economic activities associated with respiratory and other illnesses and deaths, from sales of common medicines to funeral services. The list goes on and on. All told, every natural calamity is different, with their own peculiar impacts on the economy and people’s well-being. The last similar disaster we had was the 1991 eruption of Mt. Pinatubo, but the geography of Mt. Taal makes its eruption very different from Pinatubo’s. Putting any number to the economic impact of Taal’s eruption at this time would be nothing more than speculation, even irresponsible. _______________________________________________________________________________________ Widening and narrowing gaps By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:05 AM January 14, 2020 Good news: Inequality among countries has improved, as poor countries have managed to narrow their gap with the rich ones in recent decades. Bad news: Income inequality within individual countries has generally worsened. Good news (for us): The Philippines has been an exception to this, with evidence showing income gaps to have narrowed since 2000. Poverty incidence has also lately declined faster than it has in decades, especially after it actually increased in the last. The government think tank Philippine Institute for Development Studies’ (PIDS) recent “Understanding the New Globalization” report discusses and documents these trends. While rising average incomes with associated improvement in various measures of health and well-being have been generally observed worldwide, what has been deeply contested, PIDS notes, is the fairness and inclusiveness of humanity’s progress. Since the 1980s and 1990s, disparities in average incomes across countries have been observed to decline, with rapid economic growth in China and India having been dominant drivers of this positive change. However, the pace of catch-up is observed to have faltered after the 2008 global financial crisis. More disturbing is the way income inequality has been worsening within large or small economies alike. PIDS notes that in 2016, the richest 10 percent of households captured over 40 percent of national income in the case of China, India, Russia, and United States-Canada, while this share was 35 percent or below in all these regions in 1980. Meanwhile, the share of the bottom 50 percent remained unchanged at 9 percent. The report also notes that the share of economic growth captured by the top 10 percent worldwide is 57 percent, whereas the bottom 50 percent of the world population received only 12 percent. All these imply that the richer segments of society have captured the bulk of the gains of economic growth. What is it about the new globalization that is driving the trend toward greater inequality? PIDS cites four key factors: greater capital mobility, technological change, changing labor market institutions, and financial deepening. The easier flow of capital across borders has made it easy for companies to “export” lower-skilled jobs via foreign direct investments from rich to poorer countries where wages are low, taking jobs away from lower-skilled workers in the origin country. At the same time, machines and increasingly sophisticated software continue to take jobs away from workers everywhere. The resulting labor surpluses have induced greater flexibility in the labor markets, with low-skilled workers put at a disadvantage with greatly reduced bargaining power. Meanwhile, innovations in finance have tended to benefit households already with higher incomes, as there are high transaction costs in dealing with diverse “bottom of the pyramid” households with generally lower levels of education and access to markets. Interestingly, the Philippines has defied this general trend seen elsewhere. In our case, data show that income distribution has actually been improving, with the share of the richest one-fifth (20 percent) of Filipinos having fallen from 54.8 percent in 2000 to 45.5 percent in 2015. At the same time, the income shares of the lower 80 percent increased from 45.2 percent to 54.5 percent in the same period (look up FIES data). The poorest 30 percent increased their share of national income from 7.9 to 12.5 percent. Hard to believe? The bulk of this improvement actually happened after 2010, when the economy found new dynamism from a combination of factors that included a more open, hence more competitive, economy; better business confidence that led to hiked rates of job-creating investment; and improved government finances that led to greater economic stability. The gains have transcended the Aquino and Duterte administrations, and show what could be achieved with sustained economic growth, which has averaged 6 percent and above for eight consecutive years now, and counting. The challenge for us, then, is to sustain our economy’s growth momentum, with more growth coming from agriculture and manufacturing, which could create the most jobs. _______________________________________________________________________________________ Ex-officials of closed rural banks convicted January 6, 2020 | 12:01 am OFFICIALS of closed rural banks in Visayas have been convicted on charges filed by the Bangko Sentral ng Pilipinas (BSP). Former bankers from the defunct Rural Bank of Badiangan (Iloilo), Inc (RBBI). and Rural Bank of Sebaste (Antique), Inc. (RB Sebaste) have been found guilty of fraudulent bank transactions. “The cases stemmed from a criminal complaint filed by the BSP’s Office of Special Investigation against the three RB Sebaste officers for their participation in the creation of fictitious loans aggregating to about P63 million as of March 2007,” the BSP said in a statement on Friday. The BSP found that the said bogus loans were included in the lender’s financial statements and reports, making it look as if the bank was in sound financial state. “The bank, however, was actually incurring huge operational losses and was unable to pay its liabilities as they become due in the normal course of business. The bank also had insufficient assets to meet its liabilities,” the central bank said. A decision by the Regional Trial Court of Culasi, Antique dated July 9 found former RB Sebaste chairman and president Eugene T. Estrella guilty on eight counts for violating the General Banking Law of 2000 due to fraudulent transactions. Because of this, he was sentenced to two years of imprisonment for each count. Moreover, Mr. Estrella, together with RB Sebaste’s former director Luis T. Estrella, Jr., were also found guilty by the Municipal Trial Court of Kalibo, Aklan on seven, four, and two counts of falsification of public documents, respectively. The Kalibo court also sentenced the three bank officials to minimum imprisonment of six months and one day to a maximum of two years, four months, and one day. They were also slammed with fines of P1,000 for each count. Meanwhile, three officers from RBBI were convicted by the Regional Trial Court of Iloilo City for 20 counts of violation of the General Banking Law of 2000 also on the grounds of fraudulent transactions. In its decision dated Sept. 18, the court sentenced RBBI’s former chairman, president and manager Bella A. Buscar, as well as Cynthia A. Taconloy and Leni A. Abordaje, who were loans and savings clerks, to imprisonment of two to four years for each count. It was in 2016 when the BSP filed a criminal complaint against the three persons for defrauding clients by soliciting deposits but willfully omitting said transactions in the books of the bank. “Investigations revealed that high interest rates were offered to entice the public to make such deposits,” the central bank said. In Aug. 24, 2007, the Monetary Board placed the RB Sebaste under the receivership of the Philippine Deposit and Insurance Corp. The same fate happened to RBBI on July 5, 2012. “In line with its mandate to promote financial stability, the BSP continues to foster high standards of governance and risk management among institutions it supervises,” the central bank said. — L.W.T. Noble _______________________________________________________________________________________ Agri-agra loans grow 11% to P714 billion in 9 Months Lawrence Agcaoili (The Philippine Star) - January 3, 2020 - 12:00am MANILA, Philippines — Loans extended by Philippine banks for agriculture and agrarian reform recorded a double-digit growth of 10.8 percent to P714.27 billion from January to September 2019 compared to P644.64 billion in the same period in 2018, but the figure remained below the threshold mandated by the law. Data released by the Bangko Sentral ng Pilipinas (BSP) showed the banking system was only able to allocate 12.9 percent of its total loanable funds during the nine-month period last year, way below the 25 percent mandated under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009. The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries. According to the BSP, the loans extended by banks to the agriculture sector amounted to P653.65 billion, for an 11.8 percent compliance ratio, which is below the required 15 percent. The central bank said big banks or universal and commercial banks registered a compliance ratio of 11.8 percent after extending P615.92 billion to the agriculture sector, while the ratio of thrift banks only reached 7.23 percent after granting P18.25 billion. Rural banks extended P19.49 billion to the agriculture sector for a compliance ratio of 22.4 percent. Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P60.84 billion for a compliance ratio of 1.1 percent. The compliance ratio of big banks for agrarian reform loans only reached 0.95 percent, while that of thrift banks settled at 0.93 percent as well as rural and cooperative banks with 10.34 percent. BSP Governor Benjamin Diokno said the priority legislative measures the central bank is pursuing under the 18th Congress include reforms to agricultural financiing that seek to amend the Agri-Agra Reform Law and allow banks to merge their loan allocation to the farm measure to improve banks’ compliance rate. Monetary Board member Bruce Tolentino had said fines collected by the BSP from banks that fail to reach the 15 percent agriculture and 10 percent agrarian reform to beneficiaries under the Agri-Agra Reform Law have reached P6 billion. “Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay. I think over the last two years it has been something like P6 billion in penalties alone,” he said. _______________________________________________________________________________________ S2 courts convict rural bank execs over fraudulent transactions The Bangko Sentral ng Pilipinas wins in two cases against two shuttered rural banks in Iloilo and Antique over violations of the General Banking Law of 2000 Convicted. The Bangko Sentral ng Pilipinas wins in its two cases against two rural banks' officers over fraudulent transaction. File photo from BSP Convicted. The Bangko Sentral ng Pilipinas wins in its two cases against two rural banks' officers over fraudulent transaction. File photo from BSP MANILA, Philippines – Two courts convicted rural banks in Iloilo and Antique in separate violations of Republic Act No. 8791 or the General Banking Law of 2000 due to fraudulent transactions. In separate statements on Tuesday, December 31, the Bangko Sentral ng Pilipinas announced that 3 officers of the shuttered Rural Bank of Badiangan Incorporated (RBBI) were convicted for 20 counts of violation of RA 8791 due to fraudulent transactions. In a decision dated September 18, the Regional Trial Court of Iloilo sentenced ex-bank chairman Bella Buscar, ex-loan clerk Cynthia Taconloy, and ex-savings clerk Leni Abordaje to imprisonment of two to 4 years for each count. In 2012, the Monetary Board placed RBBI under receivership of the Philippine Deposit Insurance Corporation. In December that year, the National Bureau of Investigation Western Visayas filed a criminal complaint of syndicated estafa to a total of 17 bank personalities. It was later learned that high interest rates were being offered by RBBI to entice the public to make deposits. In 2016, BSP filed a criminal complaint against the said 3 RBBI officers for defrauding clients by soliciting deposits but said transactions were omitted from the bank's books. _______________________________________________________________________________________ Bangko Sentral requires lenders to disclose strategies for rate risks December 23, 2019 | 12:04 am THE CENTRAL BANK’S policy-setting body Monetary Board laid out additional disclosures required under the Risk-Based Capital Adequacy Framework for the Philippine Banking System on interest rate risk in the banking book (IRRBB) for both lenders and quasi-banks (QBs). Besides the general disclosure requirement, the Bangko Sentral ng Pilipinas (BSP) has also ordered banks to disclose in their annual report their management and mitigation strategies. In a memorandum signed by BSP Governor Benjamin E. Diokno, strategies cited include the “monitoring of risk measures in relation to established limits, hedging practices, conduct of stress testing, outcomes analysis, the role of independent audit, the role and practices of the asset and liability committee (ALCO), the bank’s practices to ensure appropriate model validation, and timely updates in response to changing market conditions.” The central bank said in a statement in August that IRRBB refers to the current or prospective risk to capital and earnings that come from big movements in interest rates that affect banking book positions. Meanwhile, banking book positions pertain to assets that yield interest income which would include loans and investments and liabilities paying out interest such as deposits. “The guidelines aim to provide clear expectations on how a bank/QB should manage IRRBB and align the BSP’s supervisory framework on interest rate risk with international standards,” the central bank said. BSP said it expects stand-alone thrift, rural and cooperative banks to look into the impact of a 1-3% movement in interest rates in relation to their net interest income for the succeeding 12-month period. For their part, big banks and QBs are to come up with a wider scope of interest rate shock and stress scenarios where they will test their IRRB exposures. Aside from a description of their overall IRRBB management and mitigation strategies, banks are also required to disclose the period of the calculation of their IRRBB measures as well as to describe the interest rate shock and stress scenarios they utilized to estimate the difference in the earnings. The BSP also said banks should present a “high level description of key modelling and parametric assumptions used in IRRBB measurement” as part of their disclosure. — L.W.T. Noble _______________________________________________________________________________________ Poverty rate below 10% by 2022 By: Ben O. de Vera - Reporter / @bendeveraINQ Philippine Daily Inquirer / 04:19 AM December 09, 2019 Given the faster pace of poverty reduction during the past three years, the country’s chief economist said it was possible for poverty incidence to drop below 10 percent by the time President Duterte steps down from office in 2022. Socioeconomic Planning Secretary Ernesto M. Pernia told the Inquirer that the poverty incidence rate might further drop to 12 percent by 2021 when the government undertakes the next round of poverty statistics conducted every three years. Last week, the government reported that the national poverty rate fell to 16.6 percent in 2018 from 23.3 percent in 2015. The reduction in poverty incidence meant the number of poor Filipinos declined to 17.6 million last year from 23.5 million in 2015. The 2018 poverty line of P10,727 a month for a family of five also rose from P9,452 in 2015 as incomes of poor households increased due to the availability of better-paying jobs as well as cash grants from the government. Pernia said he expected that by mid-2022, poverty incidence would ease to 11 percent “or possibly below 10 percent.” “It would mainly depend on sustained economic growth rate of 6 to 7 percent or better and intensity in family-planning program implementation, especially among poor households who are having more children than they want and can provide for,” Pernia said. Finance Secretary Carlos G. Dominguez III, who heads the Duterte administration’s economic team, said it was “certainly possible” that the current target of reducing poverty incidence to 14 percent by 2022 would be revised to aspire for an ever lower rate. Dominguez said that aiming for an even faster poverty-reduction goal would be discussed during the next Economic Development Cluster (EDC) meeting. “Reforms have been put in place by President Duterte to improve the lives of all Filipinos such as the tax reform, ‘Build, Build, Build,’ rice tariffication, free state universities and colleges tuition, and institutionalization of the 4Ps (Pantawid Pamilyang Pilipino Program) for the poorest households. These economic reforms have clearly resulted in more money in the pockets of the Filipino people, while reducing inflation and creating more jobs,” Dominguez said. “The government will hit its target of pulling down poverty incidence to 14 percent with further reforms such as the full implementation of universal health care and higher ‘sin’ taxes to ensure sufficient funding for this healthcare program for all Filipinos,” Dominguez added. “We have advanced a number of the game-changing reforms we set out to accomplish at the start of the Duterte administration. If we pass the rest of the reforms in the zero-to-10 point socioeconomic agenda, we will move even closer to the President’s ultimate goal of a comfortable life for our people,” according to Dominguez. INQ _______________________________________________________________________________________ Burdening depositors with charges and fees on ATM    Philippine Daily Inquirer / 04:09 AM December 02, 2019 Banks are lobbying to be allowed to increase the charges or fees they impose on transactions via automated teller machines or ATMs. As expected, consumer groups and some legislators have raised a howl of protest at the move. It is not hard to understand why ordinary depositors are against it. What is difficult to understand is why banks — among the most profitable sectors of the economy — want their customers to finance the cost of improving services using the ATM network. This is how banks, through their group the Bankers Association of the Philippines (BAP), justify their request to impose higher fees on ATM transactions. The cap on fees that banks could charge on cash machine transactions imposed in 2013 — and lifted earlier this year by regulators — has led to the country falling behind its regional peers in terms of the number of ATMs deployed, it said. It added that local ATM density in the Philippines stood at only half compared to other Association of Southeast Asian Nations (Asean) countries. The culprit for that? The moratorium on ATM transaction fees since 2013, which has supposedly held back the banks’ optimal performance in servicing and expanding their reach. “The number of cardholders has been increasing for the past six years,” BAP managing director Benjamin Castillo said in a statement. “Banks need to keep up with the maintenance and innovation of ATMs, as well as expansion of ATM network to accommodate the surge of ATM usage.” The BAP estimated that only 21,000 ATMs service 58 million cardholders nationwide — equivalent to about 20 ATMs for every 100,000 cardholders. Meanwhile, Thailand has 94, Singapore has 49, Malaysia has 45 and Indonesia has 40 ATMs for every 100,000 cardholders. The BAP, however, didn’t say how much those countries charge for their ATM usage. The group added that the annual growth rate in ATM deployments averaged 13 percent prior to 2013, but since then has declined to 6.4 percent, while ATM transaction volume has continued to increase from 2014 up to the present. Aside from the physical ATM deployments, it said there were other expenses that banks incur from operational activities such as loading, servicing, complaints handling, reconciliation, software, capacity expansion and security. While it is true that expanding the ATM network and servicing it entails cost, these expenses are for the good of the customers that banks are supposed to invest in and nurture. More to the point, don’t banks make money by using the deposits of these ATM users for lending to their corporate clients, even as users of ATM machines, on the other hand — ordinary employees are the majority — hardly earn interest on their deposits? Besides, haven’t the banks also saved much from the reduction in physical workforce and the man-hours required for over-the-counter transactions, and from other efficiencies brought about by ATM networks? Now, let’s see how much banks earn as an industry. The net profits of Philippine banks surged 26.4 percent in the first half of 2019 to P109.77 billion from P86.87 billion a year ago due to higher interest and noninterest earnings, according to data from the Bangko Sentral ng Pilipinas. In 2018, earnings of Philippine banks climbed by 6.4 percent to P178.83 billion from P168 billion in 2017 on the back of higher trading gains and interest income. Economist Cielito Habito also highlighted these figures in an earlier Inquirer column: “In the 15-year period 2004-2018, overall GDP growth averaged an annual rate of 5.8 percent, but financial intermediation (primarily banking and insurance) grew at an average annual rate of 8.7 percent. In the first half of this year, the overall economy grew by a disappointing 5.5 percent, after maintaining 6-7 percent growth over the last eight years. But guess what: The financial sector grew nearly twice as fast, by 9.7 percent. Recently, the country’s top banks have also announced growth in profits ranging from 17-46.8 percent. Interestingly, when our economy nearly ground to a halt at 0.9 percent GDP growth in 2009, financial intermediation actually grew a hefty 7.1 percent.” BAP has tried to assuage the public’s anger with platitudes. “We would like to assure the banking public of our commitment to serving them,” it said. If banks are halfway sincere in that commitment, they should channel part of their prodigious profits to expanding and improving their ATM services — without passing on the cost to their depositors. _______________________________________________________________________________________ AMA Rural Bank gets TRO on closure order by PDIC    Lawrence Agcaoili (The Philippine Star) - November 29, 2019 - 12:00am MANILA, Philippines — AMA Rural Bank of businessman Amable Aguiluz has obtained a temporary restraining order (TRO) preventing the Bangko Sentral ng Pilipinas (BSP) and state-run Philippine Deposit Insurance Corp. (PDIC) from further implementing a closure order issued early this month. The Court of Appeals (CA) issued the TRO last Nov. 26 after major shareholders of the shuttered rural bank questioned the issuance of Resolution 1705D by the Monetary Board on Nov. 7 prohibiting AMA Rural Bank from doing business in the country. In a statement, PDIC president Roberto Tan said the state-run deposit insurer is now constrained to stop its liquidation operations in the closed rural bank for a period of 60 days. “We assure our depositing public that the PDIC’s paramount commitment is to expedite the validation of bank records to be able to immediately pay the insured depositors of AMA Bank,” Tan said. Tan said the agency is now pursuing legal remedies. “We have in fact resorted to alternative procedures to do just that when the TRO was issued. We appeal to the depositors for their understanding,” he said. Tan said PDIC would advise depositors, creditors and borrowers of AMA Bank of any further developments through announcements made at PDIC’s website and through local media networks such as Facebook. It would be recalled PDIC took over the assets and affairs of the closed bank last Nov. 8. However, accountable directors, officers and employees refused to account for, surrender and turn over records under their accountabilities, custody and possession, despite demand. The PDIC earlier said that the refusal to account for, surrender and turn over records would delay the payment of the claims of AMA Rural Bank’s depositors for insured deposit. The PDIC has since adopted alternative procedures, although with great difficulty. Faced with another setback, the TRO prevents the PDIC from further continuing the inventory-taking of bank records during the 60 days of its effectivity. The management of AMA Rural Bank earlier questioned the closure order, claiming the bank was liquid after shareholders infused an additional P405 million as well as the total deposit due from BSP and other banks amounting to P246 million. AMA Rural Bank is ranked 15th largest rural bank in terms of assets with P2.83 billion and fifth in terms of capital with P1.04 billion. The Mandaluyong-based bank with 13 branches has 8,434 deposits accounts with deposit liabilities amounting to P1.4 billion. Of the total amount, about 92.06 percent or P1.3 billion are insured. _______________________________________________________________________________________ BSP sees lag in effects of monetary easing moves   November 22, 2019 IT MAY TAKE a while before the financial system fully feels the impact of the easing moves implemented by the central bank this year, according to Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, with its decision to hold steady to help it assess how the market is taking past cuts. “Monetary policy works with lag so ‘di pa namin nakikita yung impact ng ginawa naming rapid fire, 75 basis points (bps) [of key interest rate cuts] tapos 400 basis points dun sa RRR (reserve requirement ratio). (we have yet to see the impact of the rapid fire easing we’ve done — 75 bps in key interest rate cuts and 400 bps in RRR reductions),” Mr. Diokno told reporters at the sidelines of the launch of the EGov Pay Facility and QR PH held at the central bank on Wednesday. “In fact, you can argue na yung impact nung 175 basis points [hike] pa nagpi-feed (what’s still being felt is the 175 bps hike in policy rates)… So let’s see,” he added. The BSP hiked interest rates by 175 bps last year as inflation hit multi-year highs. However, it cut key rates by 75 bps earlier this year amid easing prices, partially dialling back its tightening last year. Rates for overnight reverse repurchase, overnight deposit and lending facilities currently stand at four percent, 3.5% and 4.5%, respectively. Meanwhile, the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs). This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent. On the other hand, the reserve ratio of NBQBs will be cut to 14% next month, while the RRR for rural banks will remain at three percent. Mr. Diokno said it could take six to nine months for the BSP’s policy actions to fully work their way into the financial system. “Ang monetary policy, ang lag nyan is mga nine months. So dapat talaga monetary policy should be forward-looking (Monetary policy’s lag is about nine months. So monetary policy should really be forward-looking),” he said, adding that RRR reductions may take about six to nine months before these are felt in the market. “But at the same time, yung (our) pause namin gives us an opportunity to assess the situation. It gives us, in the event of, say, turning for the worst, madami pa tayong bala (we still have shots),” he told reporters. Asked about when the next RRR cut will be, Mr. Diokno reiterated his goal to bring big banks’ reserve requirement ratio down to single digit by the end of his term in 2023. “I’m not gonna give you some dates but to give you an idea, sa promise ko (my promise) is by the end of my term, it will be single digit. That could be nine percent. We’re not gonna go to one percent,” he said, adding that the central bank is “not in a hurry.” “Ini-evaluate din namin yung quality of lending ng banking industry (We’re also evaluating the quality of the banking industry’s lending,” he said. Mr. Diokno added that he is positive that economic activity will be more robust on the back of the government’s infrastructure program. “Ang gusto namin yung small and medium industries sila yung manghihiram. (What we want is for small and medium industries to borrow)… So we need more liquidity,” he said. BSP data showed that domestic liquidity picked up by 7.7% year-on-year in September to P12 trillion, from the 6.3% growth logged in August. Meanwhile, outstanding loans disbursed by universal and commercial banks grew 10.5% year-on-year in September, unchanged from the August print. Inclusive of reverse repurchase agreements, bank lending rose 10.2% in September, slightly picking up from the 10% seen the previous month. — L.W.T. Noble _______________________________________________________________________________________ Trade war threats   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:07 AM November 19, 2019 When elephants fight, it’s the grass that suffers,” goes an ancient Kenyan proverb. A variation says “when elephants fight, the ants get crushed.” Either way, it means that the bigger casualties in big fights tend to be the small bystanders. There’s no doubt that the ongoing trade war between the United States and China instigated by US President Donald Trump in mid-2018 is taking a toll on consumers, workers and capitalists in the economies of both protagonists in this battle of giants. But more than that, it is also dragging down the world economy and pushing it to the brink of another global recession, last seen in the aftermath of the world financial crisis 10 years ago. And there are clear signs of the collateral damage being caused on small economies like ours. In China, economic growth has already slowed down to 6 percent as of the third quarter this year, the lowest it has seen in 27 years (even as it remains among the fastest in the world). In September, China’s exports dropped by 3.2 percent in US dollar terms, while its imports fell 8.5 percent. In the United States, exports to China have declined by 15 percent, with US farm exports being hit the most by the import tariff increases imposed by Beijing on US goods, in retaliation for prior tariff hikes by the United States on Chinese goods. The move has prompted the US government to pay out $28 billion in cash assistance over the last two years to American farmers hard hit by the steep reduction of their exports to China. The latest reports for US manufacturing output also show a decline since August. A recent Financial Times report suggests that American manufacturers are being hit more than their Chinese counterparts. While the debate rages within the United States on whether Trump’s trade war can ultimately benefit the American people, what is clear is that other major economies around the world are suffering significant declines in trade. For economies like Germany and Japan where exports are a dominant driver of output, incomes and jobs, the trade slowdown threatens economic stability, and the effects permeate to other economies they are linked with through the global value chains. Here in the Philippines, the trade war’s adverse impact is most visible in recent trends in our foreign trade and their impact on the performance of the manufacturing sector, the dominant source (85 percent) of the country’s exports. Latest data show that our total exports as of the first nine months of the year dropped by 3.4 percent from last year, a complete turnaround from its 11-percent increase in the same period a year ago. This drop was prominently due to the 3.1-percent decline in our exports of electronics components, which accounted for 55 percent of total exports. This dominant component of our exports has been most vulnerable to the global trade slowdown caused by the US-China trade war. China has been our single biggest trading partner and export destination, for which 56 percent of our exports are electronics products. These electronics exports of ours find their way into the finished consumer electronic products China in turn exports to the United States, now hit by the US tariff hikes. Similarly, electronic products have been our top export to Japan, United States, Korea, Hong Kong, the European Union and Asean—all part of the global value chains for electronic products that have slowed down in the wake of the trade war. In the domestic economy, electronic products make up one-fifth of total manufacturing output, and its decline has caused overall manufacturing growth to slow down to 3.7 percent, after having grown briskly at 7-8 percent annually in the last eight years. For this reason, the overall quality of jobs has also worsened in the past year, with the share of wage and salary jobs again falling to 63 percent from 65 percent last year, while informal work and unpaid family labor have again been on the rise. It is heartening to note, though, that manufacturing industries comprising 60 percent of the total output of the sector are still growing faster than the overall economy’s 6.2-percent growth. From our end, we can only pray that the elephants find a way to stop the fighting. _______________________________________________________________________________________ Pulls and pushes   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:04 AM November 12, 2019 It was welcome news last week that the economy’s growth in the third quarter managed to exceed 6 percent again, after slowing down to 5.6 and 5.5 percent in the first two quarters, respectively. Based on available data so far, this makes us the second fastest-growing economy in the region, behind only Vietnam, with its 7.3-percent GDP growth boosted by opportunistic gains from the US-China trade war. Our growth, on the other hand, is homegrown, driven more by internal domestic demand largely unfazed by a world economic slowdown induced by the same trade war that has exceptionally benefited Vietnam. Not even static exports and falling foreign direct investment inflows could offset surging domestic demand by Filipino consumers and the government, whose combined spending continued to make our economy among the top growers worldwide. The single biggest swing-around factor that renewed our economy’s erstwhile seemingly dissipating steam was government construction activity. As is now well known, delayed passage of the government’s 2019 budget impeded the push that was to come from the “Build, build, build” thrust, particularly in the first quarter of the year. But an even deeper decline in public construction in the second quarter, when the 2019 budget had already been in place, showed that the delayed budget was not the whole story. It implied that government’s capacity to implement its planned infrastructure projects could be the bigger problem. The Commission on Audit reported budget disbursement rates for the Department of Public Works and Highways of only 34.1 and 39.7 percent in 2017 and 2018 respectively. The Department of Transportation’s numbers were worse, and even declined from 25.6 percent in 2017 to 23.8 percent in 2018. With all eyes on these main infrastructure agencies of government, it seems they have been pushed to get their acts together. We should see improved budget disbursement rates from these agencies when this year’s numbers get reported next year. We could surmise this from the reversal of the first two quarters’ consecutive deep declines (-8.6 and -27.2 percent) in public construction into double-digit growth (11 percent) in the third quarter. At the same time, private construction growth nearly doubled last year’s 10.4-percent growth with an impressive 19.1-percent growth this year. As overall construction comprises nearly 12 percent of total GDP, the combined double-digit push clearly helped push GDP growth back to regain its momentum interrupted earlier this year. Lower inflation also helped boost Q3 growth in household consumption to 5.9-percent annual growth, from last year’s corresponding figure of 5.3 percent. From the production side, it was agriculture and services that drove the uptick in GDP growth, while industry growth slowed down. Corn production, which zoomed by 24.1 percent in the third quarter, was the biggest contributor to growth in agriculture, followed by poultry (with the former providing the feed inputs for the latter). Livestock was also a key contributor, but the recent influx of African swine fever is likely to dampen this in future quarters. In services, trade and repair of motor vehicles gave the strongest boost, consistent with the speedup in household consumption. But as always, financial intermediation (banks and insurance) showed the fastest growth (9.8 percent) among the main services subsectors. As I have previously observed, this is an industry that rides high whether the economy is up or down. The US-China trade war and the global trade slowdown it has caused weighed down on manufacturing, whose meager 2.4-percent growth was largely due to the 4.3 and 11.3-percent declines in electronics and furniture and fixtures, respectively. Together, these two export products make up 22 percent of total manufacturing output, and their decline was enough to drag down the sector’s growth. The good news is that manufacturing industries representing 60 percent of the sector’s output continued to grow faster than the overall economy did. This tells me that if the trade war could end soon, we could be back on track toward the 7 to 8-percent growth we have been targeting. _______________________________________________________________________________________ Gov’t fully awards 5-year bonds   October 16, 2019 | 12:02 am THE GOVERNMENT fully awarded the fresh five-year Treasury bonds (T-bond) it offered during its auction yesterday, even opening its tap facility to accommodate excess demand from investors. The Bureau of the Treasury (BTr) raised P20 billion as programmed from its T-bond offer on Tuesday, with total tenders reaching P63.2 billion or more than three times the initial offer. The five-year papers fetched a coupon rate of 4.25%, which was 122.5 basis points (bp) lower compared to the 5.452% average rate fetched during the previous issuance of fresh five-year papers back in March 6, 2018. This prompted the BTr to open its tap facility for another P10-billion offering following the huge demand from investors, as well as to fill the gap from the bid rejections they made during previous auctions. “Given the huge demand in today’s auction, we saw that there are a handful of bids unserved at the 4.25% level so we decide to open the tap for P10 billion… And one other reason is we would also like to cover for past rejections just to fill in that hole in the previous auction,” Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction on Tuesday. The government last offered five-year T-bonds on Nov. 21 last year, where it auctioned off P15 billion in reissued papers with a remaining life of four years and three months. It made a full award of the offer. The bonds, which carry a coupon of 5.5%, were issued at an average rate of 7.003%. In the secondary market on Tuesday, the five-year notes were quoted at 4.37%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website. Mr. Sta. Ana said the auction result was expected following the Bangko Sentral ng Pilipinas’ (BSP) announcement of another 100-bp cut in banks’ reserve requirement ratios (RRR), which will take effect in November, as well as the upcoming maturity of government securities worth P197 billion. “The announcement of an RRR cut on bonds this morning prompted the rally on belly bonds, making the 4.25% rate that the new 5-76 bond fetched attractive relative to the rest of the bond curve,” Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp., said on Tuesday. The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks. Yesterday, the central bank said the Monetary Board approved the reduction in the reserve requirement rate for bonds issued by banks and quasi-banks (QB) to three percent effective next month in a bid to deepen the local debt market. This rate is lower than the required reserves of other debt instruments issued by banks such as long-term negotiable certificates of time deposits which is currently at four percent. “The lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to the holders of such securities. The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks/QBs. These initiatives are intended to incentivize banks/QBs to tap the domestic bond market as part of its liquidity management,” the BSP said. Ms. Dulay added that previous comments from the Treasury that there will be no more issuance of retail Treasury bonds this year prompted players to put their investments in other facilities. “The recent statement of the BTr regarding their decision not to issue a retail Treasury bond this year also emboldened market participants to put their excess cash to use,” she said. BORROWING APPROVALS ON TRACK Meanwhile, Mr. Sta. Ana said the BTr is “on track” with their requests for approvals for its planned offshore and domestic borrowings next year. “We started the request for approvals so we will be expecting some comments, let’s say from BSP, moving forward. So we are on track with respect to seeking approvals on this, both domestic and foreign,” the official said. He declined to disclose the volume but said “it’s supposed to cover all foreign commercial borrowings for 2020.” Asked on the possible offshore markets that they will tap next year, he said they will still consider the usual sources such as the euro, dollar, panda and samurai bond markets, but will remain “flexible” as they look for “new opportunities” from other markets such as the Swiss bond market, among others. “Basically the same markets that we have been issuing in, and there’s a little bit flexibility if there are new opportunities in other markets. For example, Swiss francs, we may also look at that more closely and other markets, I just cited one but I think there could be other markets,” Mr. Sta. Ana said. The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in Treasury bills and P120 billion via T-bonds. It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — B.M. Laforga _______________________________________________________________________________________ BSP: Banks now allowed ­to submit reports via AI   Lawrence Agcaoili (The Philippine Star) - October 15, 2019 - 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas is simplifying the reporting requirements of banks and financial institutions through artificial intelligence (AI) to improve the timeliness, ease, and integrity of data submission. BSP Governor Benjamin Diokno said the regulator has developed a prototype that allows machine-to-machine link between the BSP’s system and those of its supervised entities for streamlined transmission, processing, warehousing, and analysis of banks’ prudential reports. “Targeted to go live by the latter part of 2020, this innovation will significantly improve timeliness, ease, and integrity of data submission,” Diokno said. The BSP chief said the regulator continues to pilot test the use of regulatory technology and supervisory technology including the use of AI, machine learning and application program interface (API) to enhance the timeliness and quality of risk-based decision making. Diokno added an API system automates the collection, processing and analysis of data from supervised institutions. He said banks are burdened by an extensive and time-consuming validation process involving more than 240 Excel-based data entry templates with 100,000 plus data points. “The resulting delays and the scope for human error posed complications on our data and statistical compilation operations. With this modern API system, manual intervention is eliminated since data sorting, sanitation and validation processes are fully automated and secured,” he said. With the same 7,000 data validation rules still being applied, Diokno said processing time of filed returns was cut to just 10 seconds from more than 30 minutes, thereby streamlining the entire end-to-end process of regulatory reporting and validation. For the less sophisticated supervised entities that cannot immediately migrate to the API-based reporting, Diokno said the BSP developed a central automated reporting environment referred to as the FI (financial institution) portal. “The FI portal provides a single electronic platform upon which FIs can submit reports, receive feedback on its acceptability, and exchange correspondences with the BSP on matters related to report submissions. It offers a more secure encrypted process of submission through a web facility where supervised entities can upload their reports instead of sending them via regular email,” he added. Diokno said an automated chatbot system would also go live by mid-2020 to adequately and efficiently handle consumer concerns using AI and natural language processing. _______________________________________________________________________________________ SEC flags new batch of online lenders   Iris Gonzales (The Philippine Star) - October 15, 2019 - 12:00am MANILA, Philippines — The Securities and Exchange Commission (SEC) has flagged another batch of online lenders, ordering them to stop their lending activities. Last Oct. 10, the SEC slapped cease and desist orders against A&V Lending Mobile, A&V Lending Investor, A.V. Lending Corporation, Cashaku, Cashaso, CashEnergy, Happy Loan, Peso Pagasa, Vito Lending Corp., Phily Kredit, Rainbow-Cash and Rainbowcash.Ph Lending Corp. In its order, the SEC said these companies should stop advertising their lending business through the internet and to delete or remove promotional presentations and offerings of such lending business from the internet including the lending applications that they operate. The SEC said these entities are not authorized to implement lending activities. “Considering that the online lending operators are not incorporated entities or have no Certificate of Authority to Operate as Lending Companies or Financing Companies, the lending activities and transaction are illegal and have to be stopped immediately by this Commission,” the orders said. “Moreover, the abusive collection practices engaged in by unlicensed online lending companies constitute unfair debt collection practices which the Commission expressly prohibits under SEC Memorandum Circular No. 18, Series of 2019 (Prohibition on Unfair Debt Collection Practices of Financing Companies and Lending Companies) which took effect recently,” the SEC said. Based on the findings of the SEC Corporate Governance and Finance Department (CGFD), the online lending applications and their operators do not have the necessary papers and permits. In the case of A&V Lending Mobile, the CGFD found no record of the registration of its purported operator, A&V Lending Investor. A certain A.V. Lending Corp. turned up in the SEC database, but its registration has already been revoked. Peso Pagasa and Rainbow-Cash are reportedly operated by Vito Lending Corp. and Rainbowcash.Ph Lending Corp., respectively. However, no such corporations are recorded in the Commission’s database, the SEC said. A number of complainants said many of these lending companies engage in abusive collection practices. According to Section 4 of Republic Act 9474, or the Lending Company Regulation Act of 2007, a lending company must be established only as a corporation. It further provides that “no lending company shall conduct business unless granted an authority to operate by the SEC.” Violators will be penalized, the SEC said. _______________________________________________________________________________________ New BSP rule discourages banks from becoming ‘too big to fail’   By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 04:11 AM October 14, 2019 Philippine banks that become too large—large enough to affect the rest of the financial system, in case they run into trouble—will be required to set aside more capital to guard against market volatility, the central bank said. In a statement released last weekend, the Bangko Sentral ng Pilipinas also said that its newly approved framework for dealing with domestic systemically important banks would have provisions to discourage banks from growing into the so-called too-big-to-fail category. Apart from requiring these giant financial institutions to have higher capital, they will be “subject to more intensive supervisory approach and will be required to adopt a concrete and acceptable recovery plan that will address the risks they pose to the financial system and the real economy,” the BSP said. Depending on the degree of systemic importance, identified systemically important banks will be categorized into different higher loss absorbency buckets and will be required to increase their minimum common equity tier 1 capital by 1.5 percent to 2.5 percent of total risk-weighted assets, it said. The requirement to have higher loss absorbency or additional capital in the form of pure equity aims to bolster the resilience of these systemically important banks. “This is on top of the existing [minimum equity] levels, capital conservation buffer, and countercyclical capital buffer required from all universal and commercial banks, as well as their subsidiary banks and quasi-banks,” the regulator said. Large banks classified as posing the highest systemic risk will have a uniform 1.5 percent higher loss absorbency requirement, while those slotted under the less riskier category will have a differentiated requirement (up to a maximum of 2 percent). A third category with loss absorbency requirement of 2.5 percent will be maintained “to provide incentives for banks to avoid becoming more systemically important,” the regulator said, adding that failure to meet these minimum requirements will be penalized with restrictions on the bank shareholders’ dividend policies. The BSP said the new rules were approved by its policy-making Monetary Board in line with international standards that aimed to safeguard the stability of the financial system, in line with regulatory changes around the world. The enhanced framework will cover revisions in the differential weights of categories or indicators and the composition of indicators, including the adoption of threshold level; and calibration of the level of additional capital requirement. These enhancements will be applied on a consolidated basis to all universal and commercial banks as well as their subsidiary banks and quasi-banks, and branches of foreign banks. Under the revised framework, a bank’s systemic importance is assessed based on pre-defined indicators for size, interconnectedness, substitutability and complexity. Among the four categories, size and interconnectedness bear greater weight as these factors are more critical measures in determining a bank’s systemic importance in the Philippines, taking into consideration the simple structure of the Philippine financial system. Banks identified systemically important will be individually informed of their designation with details as to the category they belong to and the individual score for each indicator, the BSP added. _______________________________________________________________________________________ Poor Internet connection spurs ‘creative ways’ for digital technology in banking and finance   By Bianca Cuaresma October 10, 2019 FROM its early beginnings of traditional brick-and-mortar transactions to the rise in automation as seen in the proliferation of automated teller machines (ATMs), the global banking industry is facing yet another new wave of innovations to make financial management faster and more efficient. Amid the rise in global connectivity through the Internet, financial innovations are evolving, and financial technology—or the so-called fintech—is becoming the new mode of doing business among banks and financial institutions all over the world. In recent years, advanced technology providers have diversified into the world of financial services—with two of the largest competing technological giants, Google and Apple, now providing digital wallet services. Google Pay, for example, describes its electronic wallet service as “a fast, simple way to pay on sites, in apps, and in stores using the cards saved to your Google Account.” Google also says the service “protects your payment info with multiple layers of security and makes it easy to send money, store tickets, or cash in on rewards—all from one convenient place.” Apple Pay, meanwhile, claims that its service “is even simpler than using your physical card, and safer, too.” Earlier this year, Facebook announced its venture to put up “Libra,” a blockchain digital currency. In the Philippines, fintech has transformed the delivery of financial services—from branch banking to online banking, paper-based money to electronic money, and face-to-face customer verification to technology-aided know-your-customer process. The Philippines is positioned to make its own financial technology innovations as Internet penetration continues to expand and the population—which is largely composed of young adults—are now spending a lot of time online. A recent report said that Filipinos spend an average of 10 hours a day on the Internet. However, poor Internet connection and infrastructure hinder technological advances in the country, which has a great potential to take advantage of huge online business opportunities. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier told the BusinessMirror that good infrastructure and fast Internet connection are crucial for the country to reach its potential when it comes to digital innovations in the financial sector. “Having a good public infrastructure such as high-quality and affordable Internet connection for the populace would provide a suitable environment for fintech products and services to flourish,” Fonacier said. Recent data, however, reveal a bleak outlook. Despite high costs, the Philippines’ average connection speed was only at 2.8 Megabits per second (Mbps) in 2015. This is significantly lower than the global average connection speed of 5.1 Mbps, which makes our Internet speed the second slowest in the Asia-Pacific region based on data from the International Telecommunication Union. Spur of creativity Amid the growing pains of connectivity in the country, the ability of Filipinos to create, based on what they have, is astounding. The BSP said banks and financial technology companies are increasingly finding ways to deliver new services that only need little connectivity. “There’s still considerable momentum when it comes to fintech development because fintech players are able to design products and services that can run on low Internet bandwidths,” Fonacier told the BusinessMirror. “This is also the case for banks and other financial institutions, whereby the design and delivery of products and services primarily takes into account the Internet connection and speed for certain markets/areas,” she added. A recent example is banking solutions provider PearlPay’s tie-up with a rural bank in Dagupan. PearlPay signed a pilot program agreement with BHF Rural Bank Inc. (BHF) for the use of cloud-based technologies to deliver services to customers. The agreement allows the bank to access cloud-based technologies such as core banking solutions (CBS), agent banking solutions (ABS), and eWallet solutions—all of which are designed to reach customers with limited or no access to the Internet. Earlier this year, Philippine-owned business group Transnational Diversified Group (TDG) and Japanese shipping firm NYK Line have joined forces to develop a fintech platform that will allow electronic money transfers without an Internet connection. The program would allow seafarers and vessels’ masters to make electronic money transactions aboard their ships. MarCoPay takes its name from “Maritime Community,” and seeks to provide its target market with a quality product that can help them strategically manage their finances. MarCoPay, the brainchild of NYK and TDG, comes in the form of an app, which will be launched in January 2020. MarCoPay will use QR codes that can be used to complete pre-boarding procedures, receive and convert salaries into digital currency, and this e-money can be used for onboard purchases and for remitting money to their families. Fintech roadmap The BSP said it continues to open its doors to innovations through its fintech roadmap. “Likewise, the BSP collaborates with other financial regulators, through the Financial Sector Forum FinTech Committee, to ensure fintech policy consistency, prevent regulatory arbitrage and promote expansion of fintech innovations,” Fonacier said. “As you know, the BSP is spearheading a number of major initiatives. All of these initiatives necessitate a stable, reliable, affordable and high-quality Internet connection. As such, the BSP remains committed in working with the Department of Information and Communications Technology [DICT] to push the agenda forward,” she added. “The BSP understands that the DICT is already working on the National Broadband Plan formulated in 2016, which aims to address the longstanding issue of Internet connection quality in the country. The plan will provide Filipinos with wider access to high-speed Internet connection and better services, which can spur economic activity, particularly in the e-commerce and digital space,” Fonacier said. _______________________________________________________________________________________ Banks still expand physical network amid digitalization–BSP   By Bianca Cuaresma October 4, 2019 EXECUTIVES of local financial institutions continue to believe in face-to-face delivery of service amid the rise in digital banking, as data from the Bangko Sentral ng Pilipinas (BSP) showed banks continued to expand their physical network as of August this year. Data from the Central Bank showed local banks have a total network of 12,618 branches as of August this year, adding 191 branches in a span of five months. Universal and commercial banks still dominate the market, with 6,850 total branches as of end-August this year or more than half of the total banking network. Thrift banks, meanwhile, have a total of 2,606 branches, while rural and cooperative banks have 3,162 branches. Universal banks and commercial banks, as well as rural and cooperative banks posted solid growth rates in terms of their physical network from March to August this year. Big banks in the country grew their branch network by 190 branches in five months, while rural and cooperative banks added 61 branches to their network in the five-month period. Thrift banks, however, partially bucked the growth—as their total branches decreased by 60 during the period. By distribution, data available from the BSP showed the National Capital Region still has the lion’s share of bank branches with 3,764 as of June 2019. This is followed by Region 4A or Cavite, Laguna, Batangas, Rizal and Quezon with 1,840 branches and then by Region 3 or Central Luzon with 1,307 branches. The poorest areas, however, continued to receive little banking presence during the year, with th Autonomous Region in Muslim Mindanao having only 18 branches for the entire region. This is followed by the Cordillera Administrative Region at 193 branches and Region 13 or the Caraga region with 221 branches. _______________________________________________________________________________________ Misguided reversal   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 04:06 AM September 24, 2019 Would imposing “safeguard measures” and doubling tariffs on rice imports be a good solution to current difficulties in our rice sector as it adjusts to the more open trade regime established by the Rice Tariffication Act (RTA)? Appealing as it may sound to many, it is not. It goes against the interests of the wider majority of Filipinos, is unlikely to help the intended beneficiaries of such a move, and to top it all, would reward the very people in the rice business who are instrumental to the current difficulties. World Trade Organization (WTO) rules permit members to impose temporary emergency restrictions on imports such as higher tariffs to deal with a surge in imports that causes injury to domestic producers. The rules provide that safeguard measures may be applied only after an investigation conducted by competent authorities according to established procedures. Among the topics on which affected parties’ views are required to be sought is whether or not a safeguard measure would be in the public interest. This is really the crux of the issue: Whether or not the rules allow us to do it, would imposing high import tariffs now, to the point of making them prohibitive (that is, stop imports altogether), actually be in the public interest? This would be tantamount to a complete reversal, albeit temporarily, of the RTA and what it seeks to achieve. Temporary or not, and whether or not WTO rules allow it, this would be an outright violation of the recently enacted law, hence cannot be done without an act of Congress. Let’s face it: Those who are pushing for the so-called safeguard measures are actually still hoping to reverse the law altogether. As I have constantly argued, it would only mean a return to helping our rice farmers in a glaringly wrong way, via a perverse “shotgun” policy that imposes collateral damage of high rice prices on 104 million rice consumers, in order to help some 2 million rice farmers and their families—even as many of them could actually be competitive and thrive under a more open trading regime. Yet we could give them much more meaningful help in a more focused way. Taking rice trade out of government control was a move that had been overdue for decades, because it would bring domestic rice prices down and induce our rice industry into greater competitiveness. Meanwhile, we penalized our 22 million poor with expensive rice, leaving them little money left to buy other nutrient-rich foods. It’s no surprise, then, that the incidence of severe malnutrition, especially among our young children, has been unduly higher than in most of our neighbors enjoying lower-priced rice. The result has been impaired brain and physical development in a large segment of our population, condemning them to low productivity and persistent poverty. What we have long needed, and what RTA should be spurring us to do now, is to use a “rifle”-focused approach to helping our rice farmers. Right now, the rifle solution urgently needed is to give emergency cash support to the farmers badly affected by lower rice farmgate prices. The need for this had always been anticipated, yet we somehow failed to plan ahead for it. Even so, if there’s a will, there ought to be a way. Moving forward, government must get its act together in helping rice farmers right, to raise productivity and lower their production costs where feasible, or to shift to other lucrative crops where not. There’s tremendous opportunity for this from the large tariff revenues already being collected for rice imports, but we must make sure that our past history of massive agriculture funds finding their way into the wrong pockets will not be repeated. We must also organize government’s technical support for farmers better, by enabling and empowering our provincial governments to coordinate farm support services within their jurisdictions, under close tutelage and supervision by the Department of Agriculture. Restricting rice trade anew would be ill-advised. Rather than stop the hoarders who have so far arrested the fall in rice retail prices, we would only play into their hands and make them, once again, the big winners in this long mismanaged sector. _______________________________________________________________________________________ FinTech Alliance commits to code of ethics   Louella Desiderio (The Philippine Star) - September 18, 2019 - 12:00am MANILA, Philippines — FinTech Alliance.PH, which groups financial technology and digital firms, has committed to promote a code of ethics and adopt a code of conduct for responsible lending following the move of the National Privacy Commission (NPC) to recommend criminal charges against officials of three online lenders for data privacy violations. FinTech Alliance’s initiative also comes as the Securities and Exchange Commission (SEC) issued a cease and desist order against 19 online lending applications operated by unlicensed persons and entities, amid complaints of invasion of privacy and harassment. “Technoethics is a framework on the ethical utilization of emerging technologies, protecting consumer against the misuse and abuse of innovations, and adoption of common principles to guide players about new advances in technological development and application to benefit society,” FinTech Alliance chairman Lito Villanueva said. The initiative involves setting standards for the industry to promote transparency and protect customers from any possible malpractices and other unethical actions of fintech players. In particular, fintech players would not be allowed to use customer data with the objective of disbursing more loans. Fintech players’ practice of intimidation to collect from borrowers is likewise prohibited. Alliance members providing online lending would be required to fully disclose all costs of customers including interest rates, processing fees and fines for late payment. The alliance decided to adopt the initiative to protect consumers from unscrupulous and abusive online lenders, as well as safeguard industry players with good practices as the NPC earlier this month, recommended criminal charges against the officials of online lending firms Fast Cash Global Lending Inc. (Fast Cash app), Unipeso Lending Co. Inc. (Cashlending), and Fynamics Lending Inc. (PondoPeso) for violations of the Data Privacy Act for their business practice of shaming borrowers by targeting their privacy in order to collect payments. Complaints received by the NPC include online lending firms’ use of borrowers’ contact list without consent or authority; disclosure of unwarranted or false information to other persons; use of personal information for harassment; and unduly intrusive personal data processing. Regulators such as the SEC and the NPC welcome the move of the FinTech Alliance and have committed to work closely with the private sector as well as other government agencies like the Bangko Sentral ng Pilipinas and Department of Trade and Industry to promote safety and security of consumers. In line with the corporate regulator’s commitment, SEC Commissioner Kelvin Lee said a cease and desist order was issued last Sept. 12, against 19 online lending applications such as Instant Pera, QuickPera, Lendmo Philippines, Binixo, CashBus, Cashcat, Cashuttle, Crazy Loan, Flash Cash, Happy2Peso, Hatulong, MeLoan, MoneyTree Quick Loan, Pera Express, Pera4u, Peramart, PesoLending, QuickPeso and Umbrella. “Based on the findings of the SEC Corporate Governance and Finance Department and Enforcement and Investor Protection Department, the owners and operators of the online lending applications have not secured the required certificates of authority to operate as lending or financing companies. Furthermore, they are not registered as a corporation with the SEC,” he said. He said SEC decided to conduct investigations on lending activities of the online apps as they received complaints on high interest rates, unreasonable terms and conditions, misrepresentations as to non-collection of charges and fees, as well as violation of right to privacy and other abusive practices such as accessing borrower’s personal information to contact a borrower’s relatives, friends and acquaintances, as well as threatening public shaming and harassment. _______________________________________________________________________________________ Far behind in housing   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:25 AM September 06, 2019 For a country with far less poverty incidence, Singapore’s public housing expenditures (PHE) as a ratio to gross domestic product (GDP) in the 15-year period from 2000 to 2014 was 13 times more (1.6 percent) than that in the Philippines (0.12 percent). Among the original five members of the Association of Southeast Asian Nations (Asean), our country posted the least PHE as a ratio to GDP, with Indonesia spending twice, Malaysia three times, and Thailand five times what we did. Even Bangladesh, with an average income (GDP per capita) only half ours, spent more than twice as much (0.26 percent of GDP) as we did. The Philippine Development Plan notes that housing has consistently received less than 0.5 percent of our government budget. In 2017, the National Housing Authority and the Social Housing Finance Corp. jointly received P13 billion, or 0.39 percent of the total P3.35 trillion budget. This is a mere “drop in the bucket,” notes the John J. Carroll Institute on Church and Social Issues at the Ateneo de Manila University, given the 1.7 million households targeted for direct housing assistance from 2017-2022. This target is still far less than our people’s actual housing needs. Figures cited in the housing sector roadmap prepared for the Department of Trade and Industry indicate a projected need of 6.2 million new housing units from 2012 to 2030, 3 million of which are in the socialized and subsidized housing category. Even if only half the minimum cost of a decent housing unit (which I’m very conservatively placing at P300,000) is subsidized by government, this would still require P450 billion over the 19-year period, or about P24 billion annually, which is twice the 2017 allocation. Doubling our annual allocation for public expenditures on housing would only bring us to the level of Bangladesh in relative terms. To match the average in the four other Asean-5 members, we would need to hike our PHE six times. It’s no surprise, then, that informal settlers have been a persistent and growing problem in our midst. The need for mass housing has always been evident, and should have been seen as urgent all these years. For a country that has had a persistently high poverty incidence, providing for the basic human need for decent housing should be among government’s top priorities, and one for which government must have a creative and proactive strategy. I already explained in my last article why PHE would have a high multiplier effect in the economy, thereby helping generate wider and faster growth in jobs and incomes.Reacting to that piece, a reader wrote: “The government’s attitude toward housing, in spite of the promise of its Build, Build, Build (BBB) program, is disappointing if not disgusting.” He argues that overall infrastructure planning ought to be undertaken with provision for low-cost housing consciously integrated into plan. He has a point. He laments how “the government has not taken the potential of consolidating the various roads and railways projects of the BBB with development programs for low-cost housing. It lost a lot of opportunity in reserving land for low-cost housing along the routes of the MRT 7 and LRT 1 Cavite Extension. It just stood by and watched the greedy real estate developers.” He wonders if there is any move to reserve and/or expropriate land for the same purpose along the routes of the planned LRT 4 from Edsa/Ortigas to Taytay, Rizal, and LRT 6 from Bacoor to Dasmariñas in Cavite. And noting many old but durable buildings along the 35-year-old LRT 1 heritage line from Baclaran to Monumento that have been idle for anywhere from 10 to 30 years, he asks: “Is it not possible for the government to lease some of them for conversion into dormitories for the students of the several schools along the route? There are dozens if not hundreds of old and usually dilapidated warehouses and manufacturing plants in Metro Manila. Shouldn’t the government try to expropriate them and convert them into medium-rise low-cost apartment buildings?” Indeed, there could be many creative approaches and solutions to our housing problem, but we have to first overcome what seems to be the foremost obstacle, and that is recognizing that there is one. _______________________________________________________________________________________ More housing in BBB   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:05 AM September 03, 2019 Our continuing overall economic slowdown since 2016 suggests that government’s “Build, build, build” (BBB) program has so far failed to give us the economic stimulus it was meant to provide. Public construction had already slowed down from a 28-percent annual growth in 2016 to 19.7 percent last year, and the budget impasse swung it into negative (-22.1 percent) this year so far. Heaven forbid, but the “Build, build, bust” I expressed apprehension about early on might yet play out, unless we do things differently. I’ve already written of absorptive capacity issues in our major infrastructure agencies, which appear to be an underlying drag on BBB, with or without budget delays. For this reason, many are urging government to revisit public-private partnerships in infrastructure, which was set aside on the seemingly misplaced premise that government could speed things up. Well, the numbers now belie this, and it matters not whether we point the finger at Congress or the implementing agencies.Apart from the economic boost from improved infrastructure, BBB aimed to directly stimulate our economy via the textbook multiplier effect. That is, a one-off expenditure by government would actually raise total production and incomes by several times the amount of the original spending. If government spends P100 million to, say, build a new road, that same amount becomes incomes received by contractors, engineers, equipment suppliers, construction workers and more. But that’s not the end of it. Those various people now have money to spend or save as they choose. Ignoring taxes, if Filipinos on average save P10 of every additional P100 income they receive, then the original P100 million spent by government turns into a new round of P90 million in spending on various things such as food, clothing, appliances, etc. that those construction industry people would spend their incomes on. But someone’s spending is someone else’s income, so that second-round spending of P90 million turns into a third round of spending amounting to P81 million, which becomes yet another round of incomes to spur yet another round of spending, and so on and so forth. When it all plays out, the P100 million originally spent by government would have created 10 times as much (P1 billion) total production and incomes. Mathematically, if the saving rate is 10 percent or 0.1, the multiplier works out to be one divided by that, or 10. The lower the saving rate, the higher will be the multiplier effect. How can government maximize the efficacy of its spending? First, it must spend it on things most beneficial to society — more bridges versus new cars for government officials, more hospitals versus ornamental lampposts. Second, spending it on domestically produced goods and services keeps the multiplier effect within our own economy. If the money is spent to buy trains from China, it’s Chinese incomes that would be multiplied, not ours. Third, it is best spent on activities with widespread linkages to the rest of the domestic economy. For this reason, mass housing is a potent way to spend government money. Mass housing not only directly responds to a long-standing need of our poorer citizens; it would also have a powerful multiplier effect. First, low-cost housing entails large numbers of construction workers, thereby creating many more jobs than a capital-intensive investment would. The money would circulate more among lower-income and lower-saving individuals, keeping more money moving around in the spending-income cycle and boosting the multiplier effect. Second, low-cost housing would have much lower import content than other government expenditures (say, hybrid seeds from China), and thus keep the money circulating here at home. Third, housing links on to numerous domestic economic activities: home furnishings, utilities, household supplies and many more. All told, public spending on housing would permeate much more widely and more quickly across various industries and sectors within the Philippines. I’d say a good way to avert a “Build, build, bust” is to focus more of it on mass housing, where our backlog is huge. It would also bring down poverty much faster. _______________________________________________________________________________________ Crisis-proofing the Philippine financial system   August 28, 2019 | 12:05 am IT HAS BEEN MORE THAN A DECADE since the last global financial crisis. The 2008 crisis had started in the US subprime mortgage market, which crept into financial markets and led failing banks to either be rescued by governments or be closed down. However, the Philippine banking system was relatively insulated with bank failures contained within the rural banking sector whose small assets relative to the total sector’s resources posed little to no systemic risk. Nevertheless, the Bangko Sentral ng Pilipinas (BSP) has been fortifying regulatory standards under the international Basel 3 framework since 2014 to ensure that the country’s financial system remains capable of weathering potential shocks that could spill over to the rest of the economy. “At the height of the 2008 Global Financial Crisis, the BSP prudently considered opportunities for monetary policy easing and infusion of appropriate levels of liquidity amid the potential tightening of financial conditions. This in turn, helped maintain the efficient functioning of the financial markets and helped avert the shrinkage of domestic markets,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail. Among these string of reforms include the 10% capital adequacy ratio (CAR), the 5% leverage ratio, and a framework for domestic systematically important banks (DSIBs) among others. The standards imposed by the BSP are well above the minimum standards of 8% for CAR and 3% for the leverage ratio set under the Basel 3 regime. CAR indicates the banks’ ability to absorb losses from risk-weighted assets while the leverage ratio represents how much capital banks should have in hand to cover non-risk weighted assets. These reforms will boost buffers maintained by big banks against potential risks, complementing the 6% common equity Tier 1 ratio and the 7.5% Tier 1 ratio imposed by the BSP. _______________________________________________________________________________________ ATM fee hikes can't exceed over-the-counter charges – BSP   By CNN Philippines’ Melissa Lopez Published Aug 13, 2019 6:11:55 PM Metro Manila (CNN Philippines, August 13)— The Bangko Sentral ng Pilipinas (BSP) on Tuesday reiterated it will thoroughly review any bank’s request for an automated teller machine (ATM) fee hike amid concerns from the public and lawmakers. “Costs declared should be clear, properly supported, and may be validated by the BSP when deemed necessary,” BSP said in a statement. “Rest assured that the BSP shall examine each request and decide if the increase is warranted to cover the cost of maintaining the ATMs. Should an increase be necessary in order for banks to continue providing ATM services to the banking public, the BSP will ensure that the increase will be reasonable and will adhere to pricing principles provided under BSP Circular No. 980 dated 6 November 2017,” it added. The central bank noted that should any increase be approved, the charge must be lower than the fees collected from over-the counter transactions. The BSP in July announced its decision to lift a six-year moratorium on ATM fees, allowing banks and ATM providers to set new fees for machine-based transactions. Bank proposals, however, should first gain the central bank’s approval. Makati Representative Luis Campos, Jr., through House Resolution 210, on Monday sought for an inquiry on the looming ATM fee increases following the moratorium’s lifting. Current fees on cash withdrawals range from ₱10 to ₱15 for big banks, while rural lenders are authorized to charge up to ₱46 per transaction, according to BSP's list. Balance inquiries can also go as high as ₱2.50 per request. These charges are slapped on a cardholder who uses another bank's ATM terminal. The said fees have remained unchanged since 2013. “The BSP assures the public that its policy on ATM fees is guided by best industry practices and that it is driven with the broader welfare of consumers in mind,” the BSP added. _______________________________________________________________________________________ BSP cautions banks on interest rate risks   Lawrence Agcaoili (The Philippine Star) - August 10, 2019 - 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has cautioned banks and financial institutions on interest rate risks on their earnings. BSP Governor Benjamin Diokno said the Monetary Board has issued resolution 1087 last July 19 approving the adoption of the guidelines for managing interest rate risk in the banking book. The resolution also amended the guidelines on risk management. In the circular, Diokno said that the central bank recognizes that changes in the structure of banks’ and quasi bank’s balance sheets and movements in interest rates pose risks to earnings and economic value. In particular, the BSP chief said excessive interest rate risk in the banking book (IRRBB) may result in a reduction in earnings or of capital. IRRBB refers to the current or prospective risk to capital and earnings arising from adverse movements in interest rates that affect banking book positions. “In this regard, the BSP expects banks and quasi banks to implement a comprehensive approach to risk management that ensures timely and effective identification, measurement, monitoring and control of IRRBB,” he said. The guidelines aim to provide clear expectations on how a bank/QB should manage IRRBB and align the BSP’s supervisory framework on interest rate risk with international standards. Banking book positions refer to assets generating interest income such as loans and investments and liabilities paying out interest such as deposits. IRRBB can manifest through decreased net interest margins for a bank or quasi bank that can ultimately impact its capital. Hence, the BSP said the framework is expected to bring about prudent management of the risks posed by movements in interest rates to a bank’s or quasi bank’s funds generation and lending activities, which are the predominant business activities of BSP-supervised financial institutions. The new guidelines set out the minimum requirements on the identification, measurement, monitoring and control of IRRBB as well as the key provisions of the guidelines pertain to the expectations on banks and quasi banks regarding IRRBB measurement, which include obtaining a thorough understanding of the frequency of interest rate changes for certain deposits and loans; quantifying the possible losses under both normal and stressed business conditions; and gauging the impact of IRRBB on earnings or capital. In developing the guidelines, the BSP likewise took into consideration the profiles and existing practices of banks and quasi banks with respect to the management of IRRBB. The BSP said stand-alone thrift, rural and cooperative banks are expected to measure and assess the impact of a one, two and three percent movement in interest rates on their net interest income for the succeeding 12-month period. “These banks should likewise apply stress scenarios specific to them, such as increasing competition within their localities that could result in adjustments in the interest rates that they offer on their loans and deposits,” it said. _______________________________________________________________________________________ Shun the shotgun   By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:20 AM August 02, 2019 A “happy compromise,” the President calls the idea of reimposing, albeit “temporarily,” import controls on rice. But as I explain below, such move promises to be anything but happy, including for rice farmers themselves. To restore a policy aimed at the welfare of a few (rice farmers in this case) but inflicting collateral damage on far greater numbers of poor rice consumers (which include rice farmers, too) is to return to using a shotgun to hit a specific problem that is better shot with a focused rifle. What prompts the President’s idea and persistent calls for review or even recall of the rice tariffication law is the drop in average farm gate prices of palay to P17.87 per kilo from last year’s P21.61, as reported by the Philippine Statistics Authority (PSA). Prices as low as P12 per kilo have been reported. The price drop is no surprise, both for milled rice at retail and unmilled rice (palay) at the farm gate, as this had always been the intended result of opening up rice trade to greater competition. What concerns many is how palay farm gate prices have fallen disproportionately more than wholesale and retail prices of milled rice have. PSA data for mid-July report average wholesale and retail prices of well-milled rice of P39.08 and P42.88 per kilo, respectively, from last year’s P42.07 and P44.80. In percentage terms, they fell 7.1 percent (wholesale) and 4.3 percent (retail). But farm prices had dropped by a much higher rate of 17.3 percent, suggesting that there’s something wrong in the system somewhere. The traditional rule of thumb is that the rice wholesale price is about twice the farm gate palay price. So if palay prices are down P3.74 per kilo since last year, the corresponding drop in the rice wholesale price should be around P7.48, not just P2.99 as observed. What is happening? I asked Dr. Roehl Briones, expert agricultural economist from government think tank Philippine Institute of Development Studies, who has studied the rice market closely for decades. The P6.5 billion in rice import tariffs reportedly collected by the Bureau of Customs as of mid-July corresponds to about 1.5 million tons of rice imported this year so far. With the price of imported rice being far lower than domestic prices, retail prices should have fallen by much more than the approximate P2 drop seen since last year. Briones estimates that the 17-percent drop in palay prices should correspond to a 26-percent drop in the rice wholesale price. As this hasn’t happened so far, the only feasible explanation is that substantial rice stocks are being stored somewhere, whereas traders, with those imports in mind, are holding off buying palay from farmers. Call it hoarding or strategic supply management, but this has so far kept consumers from realizing the full benefit of the liberalized rice trade regime. But with a little more patience, it should come, as storing rice is not costless and rice stocks cannot be held indefinitely. Briones expects that once the stored stocks are unleashed into the market, that’s when we would see rice retail prices drop more commensurately with the observed fall in palay prices. Meanwhile, farmers are bearing the brunt of the situation, and their loss has been far greater than the consumers’ gain so far. This is why analysts who had pushed for rice tariffication had also recommended prompt assistance to affected rice farmers, even in the form of outright cash assistance. This is urgent and necessary, especially because production assistance funded by the Rice Competitiveness Enhancement Fund sourced from the rice import tariff proceeds will be slow in coming, given government’s traditional bureaucratic rigidities. _______________________________________________________________________________________ Philippines’ UnionBank Rolls Out Own Cryptocurrency: The PHX Stablecoin   Posted on July 30, 2019 by Rehan Yousaf After last year’s pilot project in collaboration with the Ethereum-based startup ConsenSys, Philippine’s UnionBank now has its own cryptocurrency, reports local news outlet The Philippine Star. Arvie de Vera, Senior Vice President of UnionBank confirmed that not just the cryptocurrency, in the form of a stablecoin called PHX, has been launched, but PHX transactions have also been enabled across rural banks. Actions of PHX buying, transferring, domestic remittance and redemption transactions with the rural banks were done via a special connection with UnionBank (more on that below). In addition, de Vera said how PHX would ensure stable, transparent and automatic transactions. This recent development is a step by UnionBank to make efficient and fast transactions available to its users in rural areas. It aims to provide “financial inclusion” by introducing this cryptocurrency. UnionBank is one of the Philippines’ top ten major banks. Last year it reported $140 million worth of earnings, has become the country’s first bank to implement blockchain technology, and started dispersing crypto ATMs across the country. Since PHX is backed by a conventional asset, it makes it less volatile than regular cryptocurrencies. Also known as a “stablecoin,” such cryptocurrencies are pegged to already existing stable financial assets, which in this case would be the Philippine peso. This makes the digital currency more stable. Crypto Trafing via Platform Connected to Rural Banks In the report by Philstar, de Vera stated “Governance is assured by design. Reconciliation challenges of the past are no longer an issue. Meanwhile, audit and compliance are made easier.” According to him, PHX uses i2i platform to connect listed banks with rural banks; i2i is UnionBank’s clearing system that uses blockchain technology to connect to the rural banks. This network was used to make transactions by three rural banks: Progressive Bank, Summit Rural Bank and Cantilan Bank. Initially, PHX is only available to i2i users. They can buy the virtual currency by debiting directly from their UnionBank accounts. Users can also easily convert PHX to Philippine’s peso through their bank accounts. In the future, PHX is expected to be used across different platforms and wallets. Its conversion will not be limited to peso but will be able to cater to all global currencies. Recent developments in the financial realms prove that at least some banking authorities are not against cryptocurrencies. For example, some of Australia’s biggest banks are now experimenting with blockchain technology. Banks and financial institutions don’t like to give up control. They are against the idea of decentralization by default, which makes digital currency less stable. Once the instability problem is solved, cryptocurrency can revolutionize the banking systems of the world. _______________________________________________________________________________________ Agri-agra loans rise 19% in Q1   Lawrence Agcaoili (The Philippine Star) - July 9, 2019 MANILA, Philippines — Philippine banks continued to fall short of the mandated threshold for agriculture and agrarian reform lending despite the 18.9 percent increase in the first quarter, data from the Bangko Sentral ng Pilipinas (BSP) showed. The BSP reported the banking system was able to set aside a total of P711 billion of total loanable funds for agriculture and agrarian reform credit under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 from January to March, higher than the P597.94 billion disbursed in the period last year. The total loanable funds of the banking industry increased by 15.3 percent to P4.96 trillion as of end-March from P4.3 trillion in end-March last year. Despite the increase, the combined allocation of loanable funds for agriculture and agrarian reform of 14.33 percent in the first quarter was way below the minimum threshold set by the law. RA 10000 retained the mandatory credit allocation in Presidential Decree 717 where 25 percent of the banks’ total loanable funds are to be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries. The BSP reported the loans extended by the banks to the agriculture sector amounted to P652.97 billion for 13.16 percent compliance ratio or below the required 15 percent. The central bank said big banks or universal and commercial banks registered a compliance ratio of 13.27 percent after extending P617.81 billion to the agriculture sector, while the ratio of thrift banks only reached 7.2 percent after granting P16.21 billion. Rural banks extended P18.94 billion to the agriculture sector for a compliance ratio of 23.36 percent. Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P58.03 billion for a compliance ratio of 1.17 percent. The compliance ratio of big banks for agrarian reform loans only reached 1.01 percent, while that of thrift banks settled at one percent. On the other hand, the compliance ratio of rural and cooperative banks reached 11.1 percent. BSP Governor Benjamin Diokno had said the regulator is pushing for the amendments to the agri-agra law as it continues to punish banks through penalties for failing to meet the thresholds of the mandated lending. “Amendments to this law will allow banks to merge their loan allocation to the farm sector as a measure to improve banks’ compliance rate,” Diokno said. _______________________________________________________________________________________ Diokno eyes 6% level output for PH economy in Q2  July 3, 2019 By Joann Villanueva/Philippine News Agency MANILA — Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is optimistic of at least a six percent growth in the domestic economy in the second quarter of 2019, on the back of stronger public spending and more robust consumption. In an interview after the launch of the New Generation Currency (NGC) bearing his signature at the central bank Wednesday, the BSP chief explained that consumption slows when inflation goes up and this, he said, also impacts the manufacturing sector. In the first quarter of the year, growth, as measured by gross domestic product (GDP), slowed to 5.6 percent from quarter-ago’s 6.3 percent. Government economists traced this to the delay in the approval of the national budget, which hampered government’s spending program. Relatively, inflation sustained its deceleration down to last April after it peaked at 6.7 percent in September and October in 2018. It rose to 3.2 percent last May from month-ago’s three percent level but monetary officials believe that this is a one-off situation. Aside from government spending and consumption, Diokno said growth of investments is also robust, with various companies like Jollibee, McDonalds and 7-11 reporting expansion plans. He also hopes for the recovery of the banking industry “because of what we’re doing”, referring to the impact of the total of 200 basis points cut in banks’ reserve requirement ratio (RRR). BSP’s policy-making Monetary Board (MB) slashed universal and commercial banks’ (UKBs), thrift banks’ (TBs) and non-bank financial institutions with quasi-banking function (NBQBs) RRR by a total of 200 basis points on staggered basis effective May 31, 2019 (100 basis points), June 28, 2019 (50 basis points) and July 26, 2018 (50 basis points) RRR on demand deposits and negotiable order of withdrawal (NOW) accounts of rural and cooperative banks were, in turn, slashed by 100 basis points effective May 31, 2019. Diokno said deciding on a big cut in banks’ RRR was a “smart move” on the part of the BSP since it allowed the banks to make the necessary adjustments ahead of the full implementation. He said earlier fears that the cut would negatively impact on the economy and the local currency did not materialize. “Looking back, I think it was really a smart move to pre-announce the reserve requirement (cut) so that the banking industry can prepare because there will be questions on what will happen next if we only announced a 100 basis points cut,” he said. Asked if the cuts were able to address earlier concerns on tightness of domestic liquidity, Diokno said industry players have seen that “we are actually addressing their needs.” Also, the BSP chief cited that the trend of bond issuances among private companies to raise funds for their expansion plans may be reduced now since they can now tap more funds from the banking sector following the RRR cuts. He said the goal is to bring the RRR to single digit, from the current 16 percent, by the end of his term in 2024 since some countries in the ASEAN has a one percent RRR. “Plus, we are given by the new law another instrument to control liquidity if necessary so that’s why we are emboldened to do this (RRR cuts) much faster than originally planned,” he added. _______________________________________________________________________________________ Cebuana Lhuillier Rural Bank reaches 1 million Micro Savings account holders; brings Filipinos closer to financial inclusion  By BusinessMirror - June 21, 2019 Cebuana Lhuillier Rural Bank (CLRB), the banking arm of Cebuana Lhuillier, has reached the 1 million mark for its Micro Savings account holders following its recent launch in late February of this year. This further cements the company’s position in changing the landscape of the microfinance industry by bridging the gap between a savings account and unbanked Filipinos. The Micro Savings product is the flagship offering of CLRB through its cash agent, the 2,500 Cebuana Lhuillier branches nationwide. “I am elated to see that we have reached 1 million account holders in such a short amount of time, this is a huge step towards financial inclusion and I look forward to banking more unbanked Filipinos.” shared Jean Henri Lhuillier, President and CEO of the P.J. Lhuillier Group of Companies. The Micro Savings product of CLRB’s is Cebuana Lhuillier’s response to the Bangko Sentral ng Pilipinas’ (BSP) Basic Deposit Framework which eases the process of opening a bank account. Through the circular, more Filipinos can now open a basic deposit account, for an initial deposit of less than PHP100, with no maintaining balance or dormancy charges. To reach out to far-flung communities, the BSP has also allowed the use of cash agents for banks. The move is in line with the agency’s mission of bringing financial inclusion closer to every Filipino. “When we launched our Micro Savings product, our goal was to tap close to half of the population who understood the importance of savings, but were always hampered by the onerous requirements in opening a savings account. Using the BSP Framework as our guide, we were able to simplify the process of opening an account simply by requiring one valid ID and a 50 pesos initial deposit,” said Dennis Valdes, CLRB president. Thanks to Cebuana Lhuillier’s close to 2,500-strong network of branches, Cebuana Lhuillier Rural Bank is positive that the product will convert and encourage more Filipinos to become dedicated savings account owners. The launch is just the first step – CLRB will take advantage of the many technological innovations made available by its cash agent Cebuana Lhuillier to increase convenience and greater connectivity. Launching soon is CLRB’s eCebuana app which will allow micro savings users to check their balance and perform money transfers, as well as load prepaid credits to their phones, and pay their bills by integrating it to their micro savings account. Also in the line-up is the migration to an EMV-enabled card accessible through ATMs, plus a debit and credit facility for online and cashless shopping. _______________________________________________________________________________________ Gov’t raises P20B from T-bonds as rate plunges  June 12, 2019 | 12:05 am THE GOVERNMENT raised P20 billion as planned via the reissued 20-year Treasury bonds (T-bond) on offer yesterday, as its average yield plunged to two-year lows as participants continued to price in the reduction in lenders’ reserve requirement ratios (RRR) and a possible rate cut from the central bank. The Bureau of the Treasury fully awarded the 20-year bonds it auctioned off on Tuesday as it received bids totalling P27.292 billion, more than the amount it wanted to raise. The 20-year debt notes, which carry a coupon rate of 6.75% and have a remaining life of 19 years and seven months, fetched an average rate of 5.17% yesterday, 154.6 basis points (bp) lower than the 6.716% recorded when the bonds were last offered in January. The average rate was also the lowest for the 20-year tenor in two years or since it fetched 5.035% last June 2017. At the secondary market, the 20-year IOUs were quoted at 5.241% yesterday, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website. Following the auction, Deputy Treasurer Erwin D. Sta. Ana said the BTr saw “very good” results yesterday as the rate on the bonds plunged. “It just shows the trend (is heading towards) declining interest rates,” Mr. Sta. Ana said. “As already mentioned by the Treasurer, the factors (include) the RRR cut, the possible rate cut from the BSP (Bangko Sentral ng Pilipinas),” he added. The central bank last month slashed the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks. The BSP earlier estimated that a percentage point cut in big banks’ RRR released P90-100 billion into the financial system, while another P22 billion was seen unleashed due to a 100-bp reduction in reserve requirements for smaller lenders. Meanwhile, BSP Governor Benjamin E. Diokno earlier said the central bank “has more room” for monetary easing, and that it is a question of when and not if. Mr. Sta. Ana said another factor considered by investors yesterday was the movement of US Treasuries. Yields on US debt papers have been declining recently as market players flocked to other instruments due to the simmering trade tensions between the US and countries such as China and Mexico. “The market continued to track US Treasury yields which saw a mild correction week-on-week as trade concerns eased after the US and Mexico reached an agreement,” Robinsons Bank Corp. peso debt trader Kevin S. Palma said in a phone message. US President Donald J. Trump decided to cancel an earlier plan to impose a five percent tax on all Mexican imports over the weekend as part of its bilateral deal with Mexico on immigration. The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in Treasury bills and P120 billion in T-bonds. It is looking to raise some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal _______________________________________________________________________________________ Merger of 3 rural banks Okd  Lawrence Agcaoili (The Philippine Star) - June 9, 2019 - 12:00am MANILA, Philippines — Three more rural banks have merged as the industry continued to heed the Bangko Sentral ng Pilipinas’ (BSP) call for mergers and consolidation to further strengthen the country’s financial system. BSP Deputy Governor Chuchi Fonacier announced the merger among First lmperial Business Bank Inc. (formerly RBG lmperial Bank Inc.), First Midland Rural Bank Inc. and Business and Consumers Bank. Fonacier said FIBB would be the surviving entity and the merged rural banks would commence operation on June 28. The Securities and Exchange Commission (SEC) had already approved the amended Articles of Incorporation and by-laws of RBG lmperial Bank including among others, the change in its corporate name to FIBB. Fonacier said the SEC also approved the plan and articles of merger. _______________________________________________________________________________________ Another troubled bank gets closure order from BSP Lawrence Agcaoili (The Philippine Star) - June 2, 2019 - 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has closed down another problematic bank, bringing to four the number of financial institutions shuttered last month and seven so far this year. The central bank’s Monetary Board issued MB Resolution 802 last Thursday prohibiting East Coast Rural Bank of Hagonoy Inc. from doing business in the Philippines and placing it under the supervision of the state-run Philippine Deposit Insurance Corp. East Coast Rural Bank of Hagonoy is a single-unit rural bank located at HRBI Compound, G. Panganiban St., Brgy. Santo Niño Hagonoy, Bulacan. Latest available records showed EastCoast Rural Bank of Hagonoy has 1,412 deposit accounts with total deposit liabilities of P122 million as of the end of March, of which 91.36 percent or P111.4million are insured deposits. PDIC assured depositors that all valid deposits and claims shall be paid up to the maximum deposit insurance coverage of P500,000. Individual account holders of valid deposits with balances of P100,000 and below do not need to file deposit insurance claims, provided they have no outstanding obligations or have not acted as co-makers of obligations. Other banks closed down in May include the Rural Bank of Guihulungan (Negros Oriental), Rural Bank of Basey (Samar) and Iloilo-based Valiant Bank Inc. Banks also ordered closed by the central bank this year include Puerto Princesa-based Palawan Bank, Rural Bank of Mabitac (Laguna) and Bagong Bangko Rural ng Malabang (Lanao del Sur). Last year, BSP closed down 12 problematic banks. The government continues to provide incentives under the Consolidation Program for Rural Banks to encourage mergers and consolidations among small banks, particularly rural banks, to further strengthen and enhance the viability of the banking system. _______________________________________________________________________________________ Demand for TDF drops ahead of reserve requirement reductions May 30, 2019 | 12:04 am BIDS FOR term deposits declined further on Wednesday ahead of the first round of cuts to lenders’ reserve requirement ratios (RRR) taking effect this week. Tenders for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) auction yesterday totalled just P29.155 billion, well below the P40 billion on offer. This was also less than the P39.113 billion in bids seen last week. Demand for the eight-day papers on offer yesterday stood at P14.98 billion, failing to fill the P20 billion on the auction block and also declining from the P20.455 billion in tenders received for the seven-day tenor last week. Accepted yields ranged between 4.5% and 4.7679%, slightly below the 4.453-4.76% margin seen the previous week. Thus caused the average rate of the eight-day term deposits to decline to 4.6187% yesterday from 4.6375%. Meanwhile, total tenders for the 15-day papers amounted to just P6.11 billion yesterday, lower than the P8.286 billion in bids last week for the two-week tenor and also below the P10 billion up for grabs. Banks asked for returns within 4.5%-4.75%, slightly wider than last week’s range of 4.5-4.7%. The average yield on the 15-day term deposits likewise slipped to 4.591% on Wednesday from the previous week’s 4.5999%. The 28-day papers, on the other hand, were met with tenders totalling P8.065 billion, down from the P10.372 billion logged a week ago and less than the P10 billion the BSP offered yesterday. Yields sought by banks for the one-month papers were steady at the 4.5-4.75% range. Still, the average rate dropped to 4.5974% yesterday from 4.638% last week. The term deposit tenors offered yesterday were adjusted due to the regular public holidays on June 5 and June 12. The TDF stands as the central bank’s primary tool to shore up excess funds in the financial system and to better guide market interest rates. Earlier this month, the BSP cut benchmark interest rates by 25 basis points (bp), bringing the interest rate on the central bank’s overnight reverse repurchase facility to 4.5%. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively. Sought for comment, BSP Monetary Board Member Felipe M. Medalla said in a text message that banks were likely holding on to their funds as they want to deploy these elsewhere. “They don’t have low appetite (for TDF). They have high needs,” he said. “They plan to deploy the cash that they did not place in the TDF (e.g. make new loans).” Last week, Mr. Medalla said liquidity in the system was “tight” ahead of scheduled cuts to banks’ reserve ratios. The BSP will slash the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks. The central bank has said that a percentage point cut in big banks’ RRR will unleash P90-100 billion into the financial system, while another P22 billion is seen to be released due to a 100-basis-point cut in the reserve ratios of smaller lenders. Further reductions will be implemented after this week’s round of cuts to eventually bring big banks’ RRR to 16% and thrift banks’ ratio to 6% by July. BSP Governor Benjamin E. Diokno has said he wants to reduce big banks’ reserve requirement ratio to single digits by 2023 to put the rate at par with those being implemented in neighboring countries. — RJNI _______________________________________________________________________________________ BSP rolls out reserve cuts for RB’s By Melissa Luz Lopez, CNN Philippines Updated May 23, 2019 5:41:09 PM Metro Manila (CNN Philippines, May 23) — Shortly after announcing phased cuts to the required reserves for big banks, the Bangko Sentral ng Pilipinas (BSP) rolled out a similar move for thrift and rural lenders. BSP Governor Benjamin Diokno told reporters on Thursday that the Monetary Board has approved the lowering of the reserve requirement ratio (RRR) for thrift, rural, and cooperative banks. This comes a week after the Monetary Board approved a three-stage reduction in the RRR for the big boys, or the universal and commercial banks. "The BSP will issue the necessary circular shortly," Diokno said in a text message. Banks have been calling for a lower RRR, saying that this is effectively a tax on banks as they are forced to keep a substantial portion of deposits intact rather than use them to grant more loans. The Monetary Board decided to bring down the required reserves for rural and cooperative banks to four percent by May 31. These lenders, who usually cater to small borrowers in the provinces, currently need to keep five percent of total deposits on hand. Bolder cuts will be rolled out for thrift banks: from the current eight percent RRR, it will be slashed by 100 basis points (bps) by May 31, and by 50 bps in June 28. Another 50 bp reduction will take effect July 26, leaving the required reserves at six percent. Thrift banks cater to retail clients, mostly for home and car loans. These lenders also charge higher interest rates compared to corporate credit lines. The phased reduction for thrift banks' RRR mirrors the 200bp cut introduced for big banks, which will settle at 16 percent by end-July. The BSP said slowing inflation and tempered price expectations made the case for these long-awaited reserve cuts. "The Monetary Board also expects this adjustment to help mitigate any tightness in domestic liquidity conditions due to limited public expenditure following the budget impasse in the first quarter of the year," the central bank added. Banks have welcomed recent reserve cuts, saying this will unlock more funds that will fuel business activity. On May 9, the BSP also reduced the benchmark interest rate by 25bp to 4.5 percent, kicking off an easing cycle for monetary policy. _______________________________________________________________________________________ Bangko Sentral shuts down Rural Bank of Basey in Samar MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) shut down a rural bank in Samar on Monday, May 20, the fifth bank it has closed in 2019. According to BSP Deputy Governor Chuchi Fonacier, the Monetary Board prohibited the Rural Bank of Basey from doing business in the Philippines, pursuant to Section 30 of the New Central Bank Act. The bank is now under the supervision of the Philippine Deposit Insurance Corporation (PDIC). The PDIC will be accepting letters of intent from interested banks and non-bank institutions who seek to purchase the bank's assets and assume its liabilities. Based on the latest available records, the Rural Bank of Basey has 631 deposit accounts, with deposit liabilities totaling P41.4 million. Of these, 19.7% or P8.15 million were insured deposits. The BSP has closed 4 other banks this year, so far: Valiant Bank Incorporated (A Rural Bank), Iloilo Palawan Bank (Palawan Development Bank) Incorporated, Puerto Princesa City Rural Bank of Mabitac (Laguna) Incorporated Bagong Bangko Rural ng Malabang (Lanao del Sur) Incorporated In 2018, the BSP closed down 12 problematic banks. – Rappler.com _______________________________________________________________________________________ It’s coordination, stupid! By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:05 AM May 21, 2019 Development planning may be seen as an effort to coordinate actions of government, private sector and civil society to uplift everyone’s wellbeing via outcomes that bring about the greatest good for the greatest number. The key word is “coordinate.” It’s a challenge enough to achieve coordination across the three stakeholder groups of government, private sector and civil society; across economic sectors (agriculture, industry and services); or across industries (say, manufacturing, logistics and power). But when coordination fails even within the same group (say, within government itself, or within agriculture itself), then we really are in trouble. The National Economic and Development Authority (Neda) recently organized an Agri-Industry Research Forum to take stock of our knowledge base in agriculture and agribusiness. I came out of that forum seeing no lack of research-based knowledge to achieve the level of agri-industrial dynamism already attained by neighbors like Thailand and Vietnam. After all, we can say that these neighbors learned their agriculture from us, having sent many students to the University of the Philippines Los Baños, erstwhile Southeast Asia’s knowledge center for the agricultural sciences. Thus, we know what’s needed to solve our problems in agriculture/agribusiness; we just can’t seem to do things right. The crux of the problem lies in governance, the focus of the last session in the Neda forum, and research has not been wanting even in that area. Dr. Nerlita Manalili drew her presentation from previous studies on governance and regulatory management in the sector, and lying at the heart of the governance problem is lack of coordination. Random examples include, among many others: lack of personnel for critical regulatory and accreditation agencies like the Food and Drug Administration (FDA), even as there are inadequate testing facilities/laboratories to examine food and nonfood agricultural products for marketworthiness; conflict of interest in certain agriculture agencies with both regulatory and promotional functions; weak agricultural insurance system contributing to poor credit access by farmers; duplicating or overlapping regulatory requirements; and disjointed policy and program support for the various links in the agricultural value chain. On regulatory overlaps, a favorite example that used to be cited by former Customs commissioner Sunny Sevilla was the need for importers of Toblerone (or milk chocolate candies with nuts, in general) to obtain prior clearance from the FDA, the Bureau of Animal Industry because the product contains milk, and because it also contains nuts, from the Bureau of Plant Industry as well—when all three could simply coordinate and consolidate their permits into one. On value chain support, our problem is that the Department of Agriculture (DA) considers anything that happens beyond the farm gate to be the responsibility of the Department of Trade and Industry (for processing), or the Department of Transportation (for logistics). A long suggested fix for the regulatory issue is to consolidate all agriculture-related regulation functions into one apex regulatory agency within the DA. This would not only address the conflict of interest issue in certain DA bureaus, but would also address the regulatory overlaps and duplication that raise the cost of doing business in our country. I’ve written before of a long suggested solution to address the interdepartment coordination problem that prevents holistic value-chain oriented support for agribusiness, which is to follow the examples of Malaysia, Vietnam and many other countries: Rather than just a Ministry of Agriculture, Malaysia has a Ministry of Agriculture and Agri-based Industries, and Vietnam has a Ministry of Agriculture and Rural Development. We must also foster industry associations that bring together members from various links in the value chain, rather than have separate associations for farmers, traders, food processors or truckers. If we are to have tighter coordination in the governance of agriculture/agribusiness in government and in the private sector, these would be good ways to start. _______________________________________________________________________________________ Losing steam? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:06 AM May 14, 2019 Election years have historically kicked up our economy’s growth by 2-3 percentage points. In the election years of 2004, 2007, 2010, 2013 and 2016, first quarter gross domestic product (GDP) growth was 6.2, 7.0, 8.4, 7.7 and 6.9 percent, respectively, against an average of only 5.0 percent in the nonelection years since then. For the first time since the turn of the century, we’re seeing an election year start off with the economy slowing down (5.6 percent), the first time in at least two decades it has grown below 6 percent—when we should be seeing a growth upsurge. Why so? Is the economy finally losing steam, after growing above 6 percent for seven years in a row? A lot of money goes around the economy running up to elections. Much cash comes into circulation out of hidden or unhidden bank accounts held here and abroad. It also comes out of government coffers; from private cash hoards hidden in safes, chests and cartons; or even from illegal money printing machines. A major money counterfeiting operation was actually caught by the National Bureau of Investigation before the 2013 midterm elections. All that money buys campaign posters, streamers and tarps; radio, TV and newspaper ads; land, sea and air transport services for candidates and their entourage; hotel and other accommodations; T-shirts, caps, fans and umbrellas emblazoned with candidates’ names; show-business personalities’ talent fees; salaries and wages of campaign workers; food and meals consumed and given away during the campaign, and yes—to buy people’s votes directly. On the government side, the Commission on Elections (Comelec) reportedly budgeted about P16 billion for the conduct of the 2013 midterm elections. Government at both national and local levels also has the tendency to boost infrastructure spending in the run-up to elections, for obvious reasons. So why is the economy now chugging along with a mere 5.6 percent growth, when it should have been within 7-8 percent based on past election years’ experience? Government points to the delayed passage of the 2019 budget as the main culprit, given that it was already well into the second quarter when the lawmakers’ squabble over the pork barrel was finally resolved. But was it really mainly the delayed budget that slowed things down, when government spending actually accounts for a mere 13 percent of aggregate GDP on the spending side? Or is the economy generally slowing down, with or without the budget delay that slowed down government spending? Closer examination of the GDP data suggests that there’s much more to the slowdown than the budget delay. Based on sectoral composition, this year’s slowdown from the same quarter last year happened in agriculture, fishery and forestry (from 1.1 percent last year to an even more dismal 0.8 percent this year), and in industry (from 7.7 percent last year to only 4.4 percent this year). The slowdown in agriculture was driven by 4.5 and 2.1 percent contractions in rice and corn, respectively, along with falling production in key export crops like banana, mango, coffee and rubber. Most disturbing to me is the slowdown in the manufacturing sector, which had grown at an average of 7-8 percent annually since 2010, but whose growth has weakened since the second quarter last year (now 4.6 percent). Food manufacturing, the single largest subsector therein, actually sped up from 5.8 to 10.6 percent, but the next largest subsector composed of electronic equipment and apparatus dramatically slowed from 16 percent growth last year to a mere 1 percent this year. Manufacturing fell in furniture and fixtures, office equipment, nonelectrical machinery, rubber and plastic products, and petroleum refining. Meanwhile, services, the largest sector in the economy comprising 60 percent of total GDP, actually speeded up from 6.8 to 7 percent growth. Lower government spending alone couldn’t have induced much of those slowdowns and contractions. It’s time that our leadership recognized that bad governance and politics are taking their toll on the economy, and with them, people’s wellbeing. I could only hope that the choices we made in yesterday’s elections would help change that.he Bangko Sentral ng Pilipinas (BSP) and the Agricultural Credit Policy Council (ACPC) have increased the number of its accredited rural financial institutions (ARFI) for agri-agra lending to 35 from 30 last year, according to a circular memo. The April 16 memo, signed by BSP Deputy Governor Chuchi G. Fonacier, listed nine ARFIs approved by the BSP, and 26 recognized by the ACPC. defective if a disaccredited RFI is declared and used for compliance with the agri-agra requirement beyond the grace period, said Fonacier approach. The BSP has amended circulars detailing the rules and regulations of Republic Act 10000 (or the Agri-Agra law) which repealed Presidential Decree 717 in 2011 and listed alternatives for banks for easier compliance such as investments in housing and education/medical bonds and microbusinesses even if these are not agri-agra related. The amended law has rationalized compliance by banks. It has retained the mandatory requirement of 25 percent that banks will set aside as loanable funds for agriculture and fisheries. Of the 25 percent, 10 percent are for agrarian reform-related loans. _______________________________________________________________________________________ Gov’t expands list of ARFIs for agri-agra lending network Published April 23, 2019, 10:00 PM By Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) and the Agricultural Credit Policy Council (ACPC) have increased the number of its accredited rural financial institutions (ARFI) for agri-agra lending to 35 from 30 last year, according to a circular memo. Bangko Sentral ng Pilipinas (BSP) logo The April 16 memo, signed by BSP Deputy Governor Chuchi G. Fonacier, listed nine ARFIs approved by the BSP, and 26 recognized by the ACPC. Fonacier again stressed that an accreditation is not an endorsement from the BSP, and that the list of accredited rural banks are for “reference and guidance of lending and/or investing banks” only. It used to be that BSP will only disclose the seven to 10 rural banks that they have named as ARFIs since 2012 but now includes the ACPC list which was created in 2016. According to Fonacier in the memo, “under existing rules and regulations, a lending and/or investing bank intending to utilize its exposure to an accredited RFI to comply with the agri-agra report must disclose such exposure in its agri-agra report submitted to the BSP along with the RFls corresponding ARN (accredited reference number). Exposure to the accredited RFI shall be eligible for determining compliance with the agri-agra requirement for as long as the said RFI remains validly accredited until sooner revoked for non-renewal or non-compliance with the qualification requirements prescribed under existing rules and regulations.” “In the event of disaccreditation,” she added, “the lending/investing bank is allowed to use its exposure to a disaccredited RFI for compliance with the agri-agra requirement for a grace period of only up to the next reporting quarter following the disaccreditation.” The agri-agra report of the lending/investing bank will then be considered defective if a disaccredited RFI is declared and used for compliance with the agri-agra requirement beyond the grace period, said Fonacier. The nine rural banks in the BSP list are: Producers Savings Bank Corp.; Rural Bank of Sta. Catalina; Common Wealth Rural Bank; Rural Bank of Bay; Rural Bank of Angeles; New Rural Bank of San Leonardo (Nueva Ecija); First lsabela Cooperative Bank; Rural Bank of San Mateo (lsabela); and Cavite United Rural Bank Corp. Not in the list but were on it previously were Rural Bank of Kiamba, Rural Bank of Pilar (Bataan), and Rang-Ay Bank, Agri Business Rural Bank, Philippine Resources Savings Bank Corp. and Rural Bank of Gattaran (Cagayan). ACPC, in the meantime, has accredited five more cooperatives as ARFIs in 2018, bringing the list to 26 from 21 in 2017. The BSP said the accreditation is only in accordance with the provisions of the Agri-Agra Reform Credit Act of 2009 and should not be viewed as an “endorsement of the soundness” of the ARFIs. “The accreditation cannot be used for any purpose other than for implementing the provisions of the Agri-Agra Reform Credit Act of 2009 and its relared rules and regulations,” said the BSP. The RFIs were established as part of the implementation of the Agri-Agra Reform Credit law and the BSP list serves as guide to inform the public of which banks to approach. The BSP has amended circulars detailing the rules and regulations of Republic Act 10000 (or the Agri-Agra law) which repealed Presidential Decree 717 in 2011 and listed alternatives for banks for easier compliance such as investments in housing and education/medical bonds and microbusinesses even if these are not agri-agra related. The amended law has rationalized compliance by banks. It has retained the mandatory requirement of 25 percent that banks will set aside as loanable funds for agriculture and fisheries. Of the 25 percent, 10 percent are for agrarian reform-related loans. _______________________________________________________________________________________ Agriculture beyond rice By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 09:05 AM April 23, 2019 Is a Philippine agricultural takeoff finally in the offing? The much-debated rice tariffication law, the main effect of which is to open our rice trade, heralds the possible unleashing of the Philippines’ full agricultural potential, and make it the economic driver it has been for our closest neighbors. For decades, agriculture has been the drag on the Philippine economy, always lagging far behind growth in industry and services—all because too many of us seemed to have the mindset that rice is Philippine agriculture. One would think that Vietnam, a major rice exporter, would be dominantly focused on that commodity. But as rice area grew by 20 percent in the 1990s, the area under industrial crops increased far more rapidly at 83.4 percent. Like Vietnam, Thailand deliberately pursued agricultural diversification, and while the world’s top exporter of rice has also been a top exporter of rubber, sugar and cassava. Here, attention and budget have been hogged by rice—and have little to show for it. And so, while we earned only $5 billion from agricultural exports last year, Thailand and Vietnam both got eight times as much from theirs. Thailand’s of natural rubber alone already equal the value of our total farm exports. Many believe that agrarian reform stifled Philippine agriculture, leading to small farmholdings that have deprived our farm sector of the efficiency and productivity that come with economies of scale. But small farmholdings have not stopped Thailand, Malaysia and Vietnam from achieving much more dynamic agricultural sectors than we have. It is not farm ownership that matters, but farm organization, and our neighbors’ example should guide us on how to proceed with an agriculture expansion push no longer unduly fixated on rice, to the relative neglect of other crops. It’s ironic that apart from us having trained our neighbors’ agricultural scientists in decades past, key to our neighbors’ agricultural dynamism has been something we actually pioneered in the 1970s. It’s called contract farming, a scheme used by Arbor Acres for poultry production in the United States. San Miguel Corp. applied it in its poultry operations at around the same time agribusiness giant Charoen Pokphand began adopting it in Thailand. In both the Philippines and Thailand, market supply of chicken meat dramatically rose, sharply reducing its price. “For the first time,” wrote Thai agricultural economist Nipon Poapongsakorn, “chicken meat had become the important source of cheap protein for the poor and the lower middle class.” What is contract farming? The scheme involves small farmers supplying agreed quantities of a crop or livestock product to a large processing company, based on the latter’s quality standards. The company pays a predetermined price, and supports the farmers with assistance in land preparation and provision of inputs and production advice. Coalition for Agri-Fisheries Modernization in the Philippines chair Dr. Emil Javier recently wrote of its virtues: “For small farmers, the arrangement gives them ready access to credit, inputs and modern technologies which they have difficulty obtaining on their own… (and assurance) of market prices designed to make them profitable. In study after study and country after country, contract growers are known to be much better off than their independent, unorganized counterparts.” Thailand had since expanded contract farming to many other products including pork, sugar, vegetables, pineapple, oil palm, various fruits, potato, dairy, tilapia, shrimp and sea bass. It has been credited for Thailand’s dynamic agricultural sector growth and exports. Vietnam has also embraced the model for its rapid agricultural diversification and growth. In the Philippines, beyond poultry, we now see it used in oil palm in Mindanao, and by Jollibee Foods to procure onions and calamansi. The scope remains huge, and in an agricultural sector less fixated on rice and targeted at wider diversification like in Thailand and Vietnam, it should be our vehicle to propel Philippine agriculture from being a drag to a driver of the economy—and uplift our farmers’ lives in the process. _______________________________________________________________________________________ Real transformation seen to boost efforts to finance PHL’s agriculture sector By BusinessMirror March 21, 2019 NEARLY four decades ago, artist Rody Vera sang about Tano, a farmer victimized by usurious practice that led him to join the enemies of the State. The song popularized by Vera’s group Patatag struck a discordant note in civilized society that the State issued policies addressing usury. The latest among these policies is Republic Act (RA) 10000 or the Agri-Agra Reform Credit Act. When the 10,000th law was signed in 2009, the government intended to pursue equal access to opportunities for farmers and fishermen, in an effort to promote rural development. The spirit of the law is on enhancing access of the agricultural sector to financial services and programs that increase market efficiency and promote the modernization of the farm sector. The mandated lending to agriculture and agrarian reform requires banks to allocate 25 percent of their total loan portfolio to the two sectors—10 percent for the agrarian reform credit and 15 percent to other agricultural credit. The decade-old law, however, has failed to steer the target level of bank funds to the farm sector. Bank compliance IN end-September 2018, universal and commercial banks’ compliance to the 10-percent required lending to the agrarian reform sector hit 0.79 percent; their compliance to the 15-percent required lending to the agricultural sector reached only 12.95 percent. The thrift banking sector follows the universal and commercial banks’ trend, with a 1.2-percent compliance rate against the 10-percent mandate for the agrarian reform sector and 6.19 percent as against the 15-percent mandate for the agricultural sector. Even rural and cooperative banks—whose major market are composed of farmers and fishermen—are finding it increasingly difficult to comply with the mandatory lending to the agrarian reform and agricultural sector, data from the Bangko Sentral ng Pilipinas (BSP) showed. Five-year data trend from the BSP showed that while rural and cooperative banks are still the only banking group that is able to comply with the agri-agra lending quotas, their share in this sector has been shrinking over the years. This is despite the crucial role of agriculture in a country’s overall development. By end-September of last year, the rural and cooperative banks’ lending to the agrarian reform sector hit 11.79 percent and 24.19 percent for the agricultural sector. This is versus their allocation in end-2013, when these smaller banks were able to allocate 24.53 percent of their total loan portfolio to agrarian reform credit, way above the 10-percent mandate. For the agriculture sector, rural and cooperative banks set 44.59 percent of their loan portfolio to this sector, also exceeding the 15-percent quota. According to the BSP, providing access to credit to the agriculture sector has significant economic implications especially for a developing country like the Philippines especially in terms of food security, employment and poverty reduction. Data from the BSP also showed that the nonperforming loan (NPL) ratio of agricultural loans has actually been decreasing along the overall decline in NPLs of the whole banking industry. From an NPL ratio of 4 percent in 2014, the NPL ratio of agri-agra loans dropped to 2.78 percent in 2018 as end-September 2018. However, this is still higher than the NPL ratio of the banking industry, which posted a ratio of 2.3 percent in 2014, 1.7 percent in 2017, and between 1.83 percent and 1.87 percent in 2018. Implementation challenges A BSP official who requested to remain anonymous told the BusinessMirror that although mandatory credit quota appears to be a straightforward approach in channeling funds to the agri sector, it does pose serious implementation challenges and financial stability risks. The BSP has, for years, been vocal in its support to amending the decade-old law, saying that mandated lending is an outdated mode of pushing funding into specific sectors in the economy. In October 2017, the Inter-Agency Agri Agra Task Force— composed of the BSP, the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR)—submitted to the Senate Joint Committee on Agriculture and Food and Agrarian Reform its report on the state of agriculture financing in the country, as part of the mandated periodic review of the implementation of the mandated credit quota under RA 10000. The report aims to shift the focus of government efforts to promote sustainable agriculture financing from mandated credit into other strategic interventions around building the necessary financial and data infrastructure, improving capacities of both borrowers and lenders, and other mechanisms. “We recognize that agriculture is a highly political issue and amending the agri-agra law is—ultimately—the sole discretion of the legislators; stakeholders can simply advocate and support a position,” the BSP official said. “As a financial system regulator, BSP’s main interest in the mandated credit is its potential impact on financial stability and consumer protection.” The BSP also urged banks to “formalize” their position as a group to provide legislators a better appreciation of their concerns and issues not simply from the perspective of agri-agra compliance but also, and perhaps more importantly, on how they can play a more strategic role in rural development as financing providers. Absorptive capacity HOWEVER, the problem of financing the agricultural sector, the BSP official further explained, is not just a banking issue, but an issue that will have to be addressed coherently by multiple sectors of the government. Although banks are known to be hesitant to lend to the agricultural sector because of the given risks to the sector’s ability to earn, such as seasonality and susceptibility to weather conditions, the BSP argued that not all impediments to the implementation of the agri-agra law are due to financing issues. “There are many factors affecting the state of agriculture financing and why bank lending to the sector is not at the desired level [at least based on agri-agra quota requirements], including the issue on the productivity and absorptive capacity of the sector,” the BSP official said. In particular, in terms of loan disbursements by banks to the agriculture sector, it actually grew from P232.7 billion in March 2012 to P598.3 billion in September 2018. “While compliance rates to the Agri-Agra Law actually fell, the absorptive capacity of the agriculture sector could be a limiting factor as it has been significantly outpaced by the growth of the banking sector’s total loanable funds,” the BSP official said. New moves EARLIER, the Asian Development Bank (ADB) funded a comprehensive study on financing agriculture value chains in the country. The draft report prepared and submitted by an ADB consultant in October last year emphasized, among others, the need to build the technical capacity of banks and farmer-based organizations to effectively engage in value chain financing. In response to the findings of the study, the BSP official told the BusinessMirror that they are—in partnership with the ADB—exploring the possible development of a pilot value chain financing ecosystem that will involve a bank or several banks, and value-chain players and government agencies such as the departments of agriculture (DA), agrarian reform (DAR), trade and industry (DTI) and the Cooperative Development Authority, among others. “Lessons from this pilot can inform interagency approach to ensure implementation of focused, structured and coordinated efforts to promote AVCF [agriculture value chain financing] in the country,” the BSP official said. “For the BSP in particular, the pilot implementation can provide useful inputs for policy development and interventions to strengthen the technical capacity of banks to engage in value chain financing.” Such intervention may include development of an AVCF toolkit for banks and design of a training program for agriculture-focused bankers, documents from the BSP revealed. Compliance rates FOR the Philippine Chamber for Agriculture and Food Inc. (PCAFI), the problem of how to increase compliance rates could be addressed by guarantee. To turn around the low compliance rate by commercial banks to RA 10000, PCAFI President Danilo V. Fausto proposes that the government intervene by providing sovereign guarantee. Fausto told the BusinessMirror that the government used to have the Agricultural Guarantee Fund Pool (AGFP). However, he said the government failed to maximize this scheme that allows farmers to have wider access to credit. The AGFP, together with other state guarantee funds, was merged with the Philippine Export-Import Credit Agency to become the Philippine Guarantee Corp. (PhilGuarantee). The merger was approved by President Duterte last year. “It is not attractive to banks to grant loans to the agriculture sector due to risks. And the government could intervene to mitigate risks by providing guarantee to banks,” Fausto said. “In this way, farmers would now have access to credit from banks.” He added they are hoping that PhilGuarantee would focus on providing guarantee to borrowers from the farm sector. Fausto chided the government’s predilection to provide more guarantee to loans going to the housing sector than to the agriculture sector. “The guarantee fund for agriculture then was only P5 billion compared to the P180 billion for housing sector. If you just do to the agriculture sector what you did with the housing sector then, for sure, the farm sector would expand by leaps and bounds,” he said. “So our appeal to the government is to increase the fund for the agriculture guarantee fund. As much as possible put it at the same level as the fund for housing guarantee,” he added. Anomalous approval Fausto pointed out that even state-run Land Bank of the Philippines (LandBank) is not able to fully cover the agriculture sector in providing financial credit. He pointed out that LandBank’s loan exposure to the agriculture sector is only about 30 percent, with 7 percent being directly granted to farmers or producers. This, according to him, is far from what China, Thailand and other Asian countries’ LandBank-counterpart financial institutions are doing: a 100-percent loan exposure to their farm sector. “LandBank was built for the agriculture sector,” he said. “Why is it lending to companies such as Hanjin?” Farmers groups like the Philippine Maize Federation Inc. (PhilMaize) criticized LandBank for being involved in the credit default by Hanjin Heavy Industries and Construction Co.-Philippines (HHIC-Phil). PhilMaize has written to leaders of both chambers of Congress and even to Duterte to probe the $85-million loan exposure of LandBank to HHIC-Phil. “The anomalous approval is an outrageous act, a mortal sin and an act of treason to the farming and fishery sector, which [LandBank]’s mandate emanates,” Navarro said in the letter, which was sent to Duterte and other government officials on January 17. “We must take a closer look on whether [LandBank] granted in haste and on whether it has even granted 50 percent of its loan portfolio to agriculture, its foremost beneficiary,” he added. Justifiable spending Fausto also proposes that LandBank employ credit extension officers (CEOs) that would reach out to Filipino farmers, especially those who are financially illiterate. Duterte has repeatedly pronounced that the LandBank should go to the farmers and not the other way around. Fausto surmises that LandBank could put five CEOs across all of its branches which he estimates are around 380. This means that LandBank would hire 1,900 CEOs and, at a conservative estimate of P20,000 monthly wage, the state-run financial institution would only have to spend at least P456 million. “LandBank earned P14 billion in 2018 and it remitted P7 billion. You are just asking or looking at P450 million to P5000 million to be invested on extension services so that farmers learn how to create business plans, be financial literate and be knowledgeable on credit,” he explained. “So what is P500 million in relation to their income? That’s nothing, especially the extent of benefits that it would give to farmers,” he added. “Farmers lack financial literacy, that’s why traders take advantage of them easily,” he added. Fausto added that the government could tap professors from state universities and colleges to teach financial literacy to farmers. Acquiring funding The DA, for its part, has been keen on issuing bonds that would fund the agency’s flagship programs to improve the country’s farm productivity. Last month, Agriculture Secretary Emmanuel F. Piñol said he had had initial talks with private banks, which have already expressed interest to offer financing of up to P200 billion worth of government agricultural projects. According to Piñol, the banks include the members of the Chamber of Thrift Banks, the Metropolitan Bank and Trust Co., Bank of the Philippine Islands, EastWest Bank and Sterling Bank of Asia. These banks, he said, also signified interest to fund projects that would be certified compliant to the Agri-Agra law. “They said they have about P200 billion, which they could use to fund agriculture and agrarian projects to comply with the Agri-Agra law,” he said. Some of the projects being eyed to be funded by the private banks are DA’s solar-powered irrigation system banner program, farm mechanization and farm-to-market road construction, according to the agriculture chief. “The banks said they are not avoiding exposure to agriculture. It’s just that they do not know the government’s programs where they can invest in,” he told the BusinessMirror in an interview in February. “They said it is unfair to them that they pay the fines while the government is not offering any agricultural programs to them,” he added. Sectoral support According to the Agricultural Credit Policy Council (ACPC), the total loans granted to the agriculture, fishery and forestry (AFF) sector in 2017 rose by 23.7 percent to P619 billion from the P500 billion recorded in 2016. The double-digit growth drove the share loans granted to AFF sector to increase to 1.6 percent of the total loans granted by banks to the whole economy, from 1.3 percent in 2017, documents from ACPC showed. “This may be attributed to the favorable factors affecting the agricultural sector, like favorable weather conditions, ample government interventions, which boosted agricultural production,” the ACPC said in an annual report. ACPC data showed that the bulk or about 61.68 percent of the loans granted to the AFF sector came from the private banks, with the remaining amount being provided by state-run financial institutions. In 2017, private banks provided P381.642 billion as loans to the AFF sector, which was 24.50-percent higher than the P306.541 billion the banks lent in 2016, ACPC data showed. Private commercial banks led the sector in terms of agricultural loans in 2017 as it accounted for 56.47 percent of the total loans granted by the private sector. These banks accounted for 34.83 percent of the loans provided by all financial institutions to the AFF sector. Agricultural lending by private commercial banks in 2017 rose by nearly 24 percent to P215.524 billion from P173.929 billion in 2016, ACPC data showed. This was followed by loans extended by thrift banks that reached P123.812 billion in 2017, 31.5 percent over the P94.151 billion thrift banks provided in 2016, according to ACPC documents. “Rural banks (RBs), on the other hand, whose commitment is to sustain growth in the countryside, barely posed a 10-percent growth in loan releases to agriculture amounting to P42 billion,” ACPC said. Total agricultural loans by state-run banks in 2017 expanded by 22.58 percent, but their share to the total value shrank to 38.32 percent. “As the leading government agricultural lending institution, LandBank continues to beef up its lending to priority sectors (i.e., small farmers, [fishermen], microenterprises, small and medium enterprises, among others), posting a 24.57-percent growth in agricultural loans at P202 billion,” ACPC said. “On the other hand, loans released by the DBP [Development Bank of the Philippines] to the agriculture sector rose by 12.28 from last year’s level amounting to P35 billion,” it added. Production loans Likewise, the ACPC observed growth in the agricultural production loans granted by all types of banks in 2017. Total agricultural production loans in 2017 reached P350.382 billion, which was 29.20 percent higher than the P271.204 billion recorded in 2016, ACPC data showed. This is the highest value of loans provided directly to farmers since 2012, according to the Philippine Statistics Authority (PSA). Loans provided directly to farmers accounted for more than half or about 56.62 percent of the total agricultural loans granted during the reference period. The ACPC noted that the value of government banks’ farm loans expanded by 26 percent to P65.435 billion from P51.896 billion in 2016. Loans provided by state-run financial institutions to farmers accounted for 18.68 percent of the total agricultural production loans granted in 2017, according to ACPC. “LBP, as it continued to intensify lending to the agricultural sector, released nearly P62 billion worth of production loans, a 14-percent increase compared to the previous year,” it said. “On the other hand, DBP showed strong performance as the bank continued to strengthen its assistance to agriculture when its agricultural production loans grew more than double (147 percent) from P1.3 billion to P3.3 billion for the year,” it added. Loans granted directly to farmers by private banks, which accounted for 81.32 percent of the total value, expanded by nearly 30 percent to P284.947 billion from P219.308 billion in the previous year. Exposure rate ACPC data revealed that Philippine banks in 2017 had a total loan exposure of P8.811 trillion, 1.9 percent over P7.473 trillion recorded amount in 2016. Of the total amount, outstanding loans to agriculture only accounted for 4.6 percent with a value of P405.329 billion. Nonetheless, the loan exposure to agriculture sector rose by 10.5 percent from P366.824 billion recorded in 2016, ACPC data showed. “The loan receivables of government banks rose by almost 10 percent amounting to P143 billion,” the report read. Total loan exposure to agriculture sector by private banks, which accounted for 64.73 percent of the total value, expanded by 11 percent to P262.366 billion from P236.351 billion. “Meanwhile, among the private banks, only private commercial banks and thrift banks exhibited an increase in their loan exposure to agriculture at 13 percent and 6.5 percent, respectively,” the ACPC report added. On the other hand, total agricultural loans outstanding of rural banks contracted by measly less than 1 percent.” Real transformation TO address the issues underlying agriculture financing, the BSP said the country will have to have a clearly laid out and demonstrated commitment to implement a whole-of-nation road map for the agriculture sector. “We believe that the issues and challenges confronting the Philippine agriculture sector will not be solved by mere allocation and pouring of more credit resources to the sector. What is needed is a real ‘structural transformation’ where resources are directed not only to credit but more importantly to infrastructure development, research and development, training and capacity-building, modern equipment and machineries, and land distribution,” the BSP said. For the agricultural sector, the BSP said it would be good, especially for the smallholder farmers, if they could gather themselves and form an organized group such as a small farmers’ organization or cooperative. Doing so, their agricultural endeavors could be viewed by banks as something more viable and sustainable. “Further, as an organized group, they will be able to purchase farm inputs at lower cost, get access to farm machineries and equipment, obtain fair prices for their farm produce and possibly increase their likelihood of getting access to formal credit from banks given the lower risk associated with a larger group vis-à-vis individual smallholder farmers,” it added. The BSP said it will take more than a whole-of-government approach to get things done. “All stakeholders, including the private sector and civil society, should work closely together in order to meet the current and future challenges of the Philippine agriculture sector through a combination of policy and market reforms, training and capacity-building, better governance and a stable political environment and improved relations with trading partners,” the Central Bank said. The BSP, nevertheless, reiterated its commitment to continue pushing for a more sustainable lending environment to the agricultural sector. “As a regulator, the BSP’s primary goal is to provide an appropriate and enabling regulatory environment that facilitates access to credit and other financial services while ensuring the stability of the financial system as a whole. While we seek to encourage financial innovation and promote innovative financing models in agricultural financing, we also aim to effectively manage any and all ensuing risks that may arise from these activities. Nevertheless, we recognize that agricultural financing, if better understood and with risks properly managed, can have a transformative effect for smallholder farmers, the agriculture sector and the economy as a whole” the BSP said. _______________________________________________________________________________________ How can finance seize digital opportunities? Anton Ng 06 Mar 2019 Whether it is artificial intelligence, big data, analytics, or cloud technology, technological advances present an opportunity for finance or accounting teams. However, what is the best way to make the most of potential gains: an enterprise-wide solution or a more targeted approach? Many will attest that investing in technology can bring a competitive advantage, as well as connectivity. However, many companies are hesitant about digital transformation due to lack of knowledge and willingness to invest. This despite the fact that we live in a world shaped by cloud and wireless technologies. We are on the cusp of a new wave of technology that affects not only customers, but the back office as well. Robotic process automation and machine learning are enabling automation and opportunities to scale up, which were not there before. Furthermore, analytics and artificial intelligence are creating situations wherein the finance platform can be built on top of the company’s core systems, without having to change or update them. This gives finance and accounting teams the freedom to improve without moving or modifying essential systems usually very expensive to change Is the Finance department lagging behind? Finance and accounting teams especially face two main challenges. First, they are often not as aggressive as other functions in seeking investment in the latest systems and technologies. Unfortunately, companies tend to focus on operational and customer-facing technology. The return on investment in finance systems can be extremely quick, but it is rarely articulated. Second, finance teams lack the capacity to step up and adapt. Such departments often lack the time to focus on special projects, like digital transformation, when ‘business as usual’ comes first. Finance may not have the time for major transformations, but teaching continuous improvement across the organization can make a huge impact. Don’t be tech-savvy for the sake of it For mid-sized businesses considering spending on technology, check first if you can maximize current systems. Adding technology is not a magic bullet. Companies can implement new solutions, but if the adoption is poor, because users neither are engaged nor aware of the system’s benefits, they just die out. This leads to resistance to embracing similar projects in the future. One approach does not fit all The approach that companies should take depends on the type of organization and its needs. For an enterprise-wide solution, the challenge is the lack of a clear business case for the change. Management has difficulties with providing robust analysis of business benefits and return on investment. In some cases, however, an enterprise-wide digital transformation is exactly what the organization needs. A mid-sized business where connectivity between warehouse management, e-commerce, and finance needs an overhaul because investing in technology will enable a company-wide transformation. Alternatively, a specific business case that delivers clear return on investment is sometimes a better and more affordable option. Plan, plan, plan Digital transformation can go wrong when there is no proper business case, which explains in detail the financial benefits, work improvements, and project delivery structure. Sadly, most finance functions sit on massive amounts of interesting data, but they have no time to analyze them, because they are manually downloading data out of the finance system, manipulating them in Excel, reviewing printouts, and then reloading all the information into the finance system through accounting journals. The significant costs that come with digital opportunities should also not be a roadblock. Instead of looking only at the cost aspect, factor in the return on investment and what can really be achieved. Keep calm, carry on There is no harm in embracing technological advances. When considering any kind of digital project, ignore the scars of the past and understand that the rules have changed: technology is very much different these days and it can be done much more quickly and affordably. CEOs today prioritize innovation, proactive performance management, and government-compliant digital processes. The biggest challenge for the latter is finding sustainable solutions fit for your organization by adding value at the right cost. As published in The Manila Times, dated on 6 March 2019 _______________________________________________________________________________________ BSP eases banks’ liquidity compliance Published March 10, 2019, 10:00 PM By Lee C. Chipongian The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), has extended up to January next year the observation period for subsidiary banks’ compliance with Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to allow more time to adjust to the new metrics. “This is to give covered banks and quasi banks sufficient time to build up their liquidity position given the combined impact of these liquidity measures,” BSP said in a statement late Friday. The BSP said the Monetary Board also approved enhancements to the LCR and Minimum Liquidity Ratio (MLR) guidelines after consultations with the banking industry. As for the LCR and NSFR, the BSP said that during the extended observation period, subsidiary banks and quasi banks will be required to comply with a 70 percent liquidity floor, with the minimum LCR and NSFR requirements still at 100 percent upon effectivity date. Covered subsidiary banks and quasi banks that are unable to meet the 100 percent LCR and NSFR minimum requirement for two consecutive weeks during the observation period are expected to adopt a liquidity build-up plan even if their said ratios meet the 70 percent floor, said the BSP. The LCR and NSFR – part of Basel 3 — observation period for subsidiary banks and quasi banks had an end-period of until December 2019 and extended to January next year. In the meantime, enhancements to the LCR and MLR were adopted. The previous treatment of reporting expected cash flows for each derivative contract in gross amounts has been revised. Under the new LCR policy, cash inflows and outflows from each derivatives contract are now recognized on a net basis consistent with valuation methodologies for derivatives contracts and the LCR framework, according to the BSP. “This means that derivative contractual payments that the bank will make or deliver to a specific counterparty are netted against derivative contractual payments that the bank will receive from the same counterparty for a derivatives contract,” it said. The method for computing the MLR was also revised, said the BSP. “The 20 percent MLR aims to ensure that stand-alone thrift, rural and cooperative banks and quasi banks set aside a liquidity buffer that will enable them to withstand liquidity stress events. It relates a bank and quasi banks’ eligible liquid assets to its qualifying liabilities,” said the BSP. “The revised MLR computation converges with the LCR framework as interbank placements are now counted as eligible liquid assets,” the BSP added. The amount of qualifying liabilities has been adjusted through the application of conversion factors to retail current and regular savings deposits worth P500,000 and below and certain liability accounts. _______________________________________________________________________________________ Push for bank digitization, financial inclusion defined Espenilla’s advocacy By Bianca Cuaresma March 8, 2019 SINCE his stint as the deputy governor for the supervision and examination sector, the late Bangko Sentral ng Pilipinas (BSP) governor Nestor Espenilla Jr. has been a champion of pushing reforms for the digitization of the banking sector, and delivering financial access to every Filipino particularly in the countryside. In his 19 months as BSP Governor, Espenilla initiated a series of reform packages and policies that paved the way for the advancement of his digitization and inclusion agenda—much of which was very much welcomed in the banking community. Financial inclusion While he was in office, Espenilla signed and approved two resolutions that allowed banks to easily put up branches in the countryside and to offer simpler, more understandable services to the unbanked citizens of the country. In December 2017, the monetary board approved the guidelines on the establishment of bank branch-lite units anywhere in the country to facilitate greater access to efficient and competitive financial products and services. The BSP defines a branch-lite unit as an office or place of business of a bank that performs limited or simpler banking activities. Since these units are limited in the services they are offering, they are also subject to proportionate regulatory framework, which means less strict rules and more flexibility to execute financial strategies and innovations. In January, the BSP reported that thrift and rural banks took particular advantage of this regulation, with 27 new branch-lite units stemming from thrift banks and 27 new branch-lite units branching from rural and cooperative banks in the third quarter of 2018 alone. Bulacan, Batangas, Pangasinan and Puerto Princesa were among the top areas where thrift banks established their branch-lite units, while Quirino, North Cotabato and Isabela were the top picks for rural and cooperative banks. While branch-lite units are particularly attractive for these smaller banks as their main market is the countryside, some big banks also put up their own branch-lite units. The Development Bank of the Philippines (DBP) put up a branch-lite unit in Naga City during the period while LandBank of the Philippines put up a branch in Tuao, Cagayan. The Philippine National Bank (PNB), meanwhile, put up three branch-lite units during the period, one in Baybay City, one in Hinunangan, Souther Leyte and one in the Island Garden City of Samal. Espenilla also, during his term, approved the framework for banks to offer a basic deposit account to promote account ownership among the unbanked. The World Bank Global Findex (2014) estimates that only a third of Filipino adults have formal accounts. The usual barriers include costs, lack of money, lack of documentary requirements, and perceived low utility of a bank account, among others. The BSP said the basic deposit account framework addresses these observed barriers. The minimum key features of the basic deposit account account include: simplified know-your-customer (KYC) requirements; an opening amount of less than P100; no minimum maintaining balance; and no dormancy charges. “These features meet the need of the unbanked for a low-cost, no-frills deposit account which they can open even if they do not have the standard identification documents,” the BSP earlier said. As an incentive for banks, the basic deposit account is granted a preferential 0 percent reserve requirement which lowers their account maintenance cost. This regulatory incentive does not apply to regular bank accounts even if their balances fall below P50,000. Espenilla’s one and a half years of governorship also saw the establishment of credit surety funds (CSF), particularly in far-flung areas such as Tacurong, Sultan Kudarat; Dinagat Islands; and Digos, Davao del Sur. The CSF is a credit enhancement program for the Micro, Small, and Medium Enterprises (MSMEs) that cannot access bank credit due to lack of hard collateral and credit history. It works through pooling monetary contributions from cooperatives, nongovernment organizations, local government units, and partner institutions. This pooled monetary contributions then serve as an alternative security in lieu of the hard collateral required by banks, thereby helping capital-short MSMEs with viable business plans gain access to bank loans. 4th in the world In November 2018, the Philippines was ranked fourth in the world and first in Asia, together with India, in terms of having a conducive environment for financial inclusion according to the 2018 Microscope, a cross-country study which assessed the enabling environment for financial inclusion in 55 jurisdictions. The report noted that the Bangko Sentral ng Pilipinas (BSP) “has been ahead of the curve in identifying opportunities and setting guidelines for financial inclusion.” It recognized that the BSP’s focus on “creating a digital finance ecosystem has led to the introduction of a sound payments infrastructure that helps various financial sector players to reduce their costs and further their outreach.” Tech and digitalization The late governor believed that one of the keys to advancing financial inclusion in the country is to enhance the operating environment for electronic banking and digital payments for financial consumers. As such, Espenilla has also been known to champion reforms in the reforms in the financial technology arena. During his term as governor, he strengthened the implementation of the National Retail Payments System (NRPS) through the establishment of the country’s first two electronic clearing houses. The Philippine EFT System and Operations Network (PESONet) was the first ACH under the NRPS and was launched November 2017. It is a batch electronic fund transfer (EFT) credit payment scheme, which can be considered an electronic alternative to the paper-based check system. Fund transfers and payment instructions under PESONet will be processed in bulk and cleared at batch intervals InstaPay, as launched on April 2017, is a real-time low-value EFT credit push payment scheme for transaction amounts up to P50,000. It is designed to facilitate small value payments. Espenilla’s most recent memorandum was an order to banks to educate its people on the ins and outs of real-time electronic retail payments system in the country. In its first memorandum of 2019, the BSP said banks must establish “effective mechanisms” to ensure that all its frontline personnel possess adequate information about PESONet and InstaPay so the staff can properly address customers’ concerns regarding the two facilitites. 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. _______________________________________________________________________________________ Cebuana expanding rural bank network posted March 04, 2019 at 07:10 pm by Othel V. Campos The banking unit of Cebuana Lhullier will soon expand its rural bank network from Cavite and Batangas to Northern Luzon and Mindanao. Cebuana Lhullier Rural Bank president Dennis Valdez said the bank was looking to expand to three to five sites nationwide. “Expansion will be carried on a small scale. We’re looking at Davao, Cebu, General Santos City and up north in Luzon,” he said. He noted that the expansion would be based on the population density of an area. However, plans for the bank’s expansion is dependent in the success of the micro-savings scheme it launched in the last week of February last year. Through the micro-finance scheme, the bank aims to tap the 70 million unbanked Filipinos, giving special focus on some 10 million active clients of Cebuana Lhullier from a total of 24 million clients nationwide. _______________________________________________________________________________________ Duterte picks Diokno as new BSP chief March 5, 2019 | 12:35 am PRESIDENT Rodrigo R. Duterte has chosen Budget Secretary Benjamin E. Diokno to replace the late Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr., who died of cancer last Feb. 23, top administration officials announced on Monday night. “The Palace wishes to inform [the public on] the appointment of Department of Budget and Management Secretary Benjamin Diokno as the new Governor of Bangko Sentral ng Pilipinas, succeeding the late Governor Nestor Espenilla, Jr.,” Salvador S. Panelo, chief presidential legal counsel and presidential spokesperson, said in a statement sent to reporters via Viber, adding that Mr. Duterte “made this announcement at the start of the 35th Cabinet Meeting on Monday, March 4.” Executive Secretary Salvador C. Medialdea earlier in the evening confirmed the information in a mobile phone message, while Finance Sec. Carlos G. Dominguez III told reporters via Viber message: “Dr. Benjamin E. Diokno brings together that elusive combination of seasoned technocrat and professional manager.” “He knows the inner workings of government and industry, and has repeatedly demonstrated the ability to run a large, complex organization with intellectual leadership and a steady hand. All of these will contribute to his successful stewardship of the Bangko Sentral ng Pilipinas as its next governor and chairman of the Monetary Board,” Mr. Dominguez said. “His competence is unquestionable, owing to his deep expertise in macroeconomics and extensive senior management experience in government and the private sector.” Mr. Dominguez said Janet B. Abuel, Budget undersecretary in charge of the Local Government and Regional Operations Group, will serve as the Budget department’s officer-in-charge. Mr. Diokno — who also served as Budget chief under former president-now-Manila Mayor Joseph E. Estrada from 1998 to 2001 and was undersecretary at the same department in 1986-1991 under the late former president Corazon C. Aquino — will serve the remainder of Mr. Espenilla’s six-year term that was to end in July 2023. Mr. Diokno had been instrumental in making the government spend closer to program last year — through regular meetings with chiefs of line departments that have had a poor disbursement track record — in a bid to spur overall economic growth to 7-8% annually until 2022, when Mr. Duterte ends his six-year term, from 6.3% in 2010-2016 under former president Benigno S.C. Aquino III. In the process of reforming the national budget to take into consideration the historical spending capacities of state departments, agencies and offices, however — resulting in a slightly smaller proposed P3.757-trillion general appropriations act for 2019 — he ran into opposition at the House of Representatives, whose leaders bared alleged irregularities in the Executive branch’s submitted spending plan. Consequently, the 2019 national budget failed to be enacted by end-2018, resulting in a reenacted spending plan that left new projects unfunded. This year’s budget still awaits Mr. Duterte’s signature. That delay, plus a 45-day ban on public works ahead of the May 13 midterm elections and a brewing El Niño episode that will hit farm production has cast a pall over the country’s economic growth prospects this year. Mr. Diokno is professor emeritus at the University of the Philippines-Diliman and holds a Bachelor’s Degree in Public Administration (1968) and Masters’ Degrees in Public Administration (1970) and Economics (1974) from the same university. He also earned a Master of Arts in Political Economy (1976) from the Johns Hopkins University, USA and a Ph.D. in Economics (1981) from the Maxwell School of Citizenship and Public Affairs, Syracuse University, USA. “In his new tour of duty in the BSP, we expect incoming Governor Diokno to spearhead reform initiatives that will align the financial institution’s operations with international best practices and improve its corporate viability, among others, in line with Republic Act No. 11211, which was signed into law by President Duterte just last February 14,” Mr. Panelo said in his statement, referring to The New Central Bank Act that fortifies the central monetary authority. “With him at the helm of the Bangko Sentral ng Pilipinas, our banking institutions are in good and competent hands.” — with inputs from ALB, KANV and MLTL _______________________________________________________________________________________ How much are we supposed to pay under the amnesty tax? Marie Fe Fawagan-DangiwanMarie Fe Fawagan-Dangiwan12 Feb 2019 A tax amnesty is an opportunity to start over with a clean slate. Taxpayers with ongoing audits would consider this an opportunity to settle deficiency taxes more efficiently. An audit, even for taxpayers who are compliant, is costly and stressful. To quantify the degree of relief on offer, some tax accountants and managers have computed the savings that can be realized and even prepared position papers to argue the benefits of availing of a tax amnesty, noting that they outweigh the costs. With legislation transmitted to the Office of the President on Jan. 17, the proposed Tax Amnesty Act (TAA) will either be vetoed, signed or lapsed into law within the next couple of weeks. Assuming it will become law, in whole or in part, the Bureau of Internal Revenue (BIR) must issue implementing rules and regulations (IRR) within 90 days from its effectivity. Taxpayers can avail of the tax amnesty within one year from effectivity of the IRR, except for estate tax amnesty where taxpayers will be given two years to avail. While we await the signing of the proposed TAA, we can prepare initial computations based on the provisions of the proposed TAA. The TAA covers estate tax, general tax amnesty, and tax amnesty on delinquencies. For those availing of the general tax amnesty, the proposed TAA provides an option to the taxpayer to pay amnesty tax of either 2% based on total assets or 5% based on net worth as of Dec. 31, 2017. If the computed net worth is negative, the taxpayer may still avail of the benefits of tax amnesty, and pay the minimum amnesty tax of between P75,000 and P1 million. It might be easy to compute for the 2% and 5% based on the audited financial statement of the taxpayer. However, there are peculiarities on how to compute for the value of assets and liabilities under the proposed TAA. In this regard, some taxpayers planning to avail of the tax amnesty have raised the following questions: 1. Do assets cover all of those in or out of the Philippines, whether or not used in trade or business? Many foreign individuals and corporations are concerned whether assets outside the Philippines are to be included in the Statement of Total Assets (STA) or Statement of Assets, Liabilities and Net Worth (SALN). Some expatriates note that most of their foreign assets were purchased from income earned prior to their assignment to the Philippines. In filling out the STA, should the expat identify the assets purchased from income sourced only in the Philippines? Considering that only citizens and domestic corporations are taxed on their worldwide income, aliens and foreign corporations do not generally declare their foreign assets to the Philippine government. Are we to assume that the same rules will be followed in preparing the STA or the SALN? On the other hand, are married individuals required to file a joint STA or SALN? If a spouse is availing of the tax amnesty, is he required to declare the assets and/or liabilities of the non-availing spouse or only the assets that are under his name? 2. Real properties shall be accompanied by a description of their classification, exact location, and valued at acquisition cost if acquired by purchase, or the zonal valuation of fair market value as shown in the schedule of values of the provincial, city or municipal assessors at the time of inheritance or donation, whichever is higher if acquired through inheritance or donation. This means that a taxpayer who bought land at P100 per square meter in 1990s, but with a fair market value (FMV) of P10,000 per square meter in 2017, would happily declare the land in his STA or SALN, thinking he will save a lot of tax. However, he may think otherwise if he came to know that the manufacturing plant or the office built on such land is also valued at cost even though such building is nearly fully depreciated. The same is true with inherited or donated land and/or buildings. Under the TAA, the said real properties are to be declared based on zonal or FMV at the time of inheritance and/or donation, and not the book value or FMV as of Dec. 31, 2017. As an additional concern for those inherited/donated buildings, the schedule of values of the provincial/city/municipal assessors do not necessarily contain the FMV for all types of buildings. Will the BIR’s IRR provide an alternative source of FMV in this case? 3. Personal property, other than money, shall be accompanied by a specific description of the kind and number of assets, or other investments, indicating the acquisition cost less the accumulated depreciation or amortization. Corporations with significant receivables might ask whether the allowance for bad debts can be used to reduce the expected receivables. A similar question arises with inventories — can the allowance for damage or decline in value due to obsolescence be deducted from the value of the inventories? 4. Inherited shares of stock are valued at FMV, and assets/cash denominated in foreign currency are converted to pesos at the date of STA or SALN. This is a tricky provision which requires that the above assets held as of Dec. 31, 2017 are valued at book as of a later date, i.e. date of the STA or SALN, which may result in lower or higher values. 5. All existing liabilities, which are legitimate and enforceable, disclosing or indicating clearly the name and address of the creditor and the amount of corresponding liability. With the requirement that the name of the creditor be specifically stated, the question arises of whether estimated and/or provisions for future obligations, such as contingencies for warranty or repairs and maintenance to customers, although included in the financial statement of the taxpayer, may be included as liabilities for SALN purposes. The above calculation clearly shows that asset or net worth in the financial statement may not be the same asset or net worth computed for purposes of tax amnesty. These questions will probably be addressed by the BIR in the implementing rules and regulations for the TAA. While we wait for a clearer interpretation on how the assets and liabilities will be valued or stated, taxpayers thinking of availing of the tax amnesty need to start diligently preparing the STA or SALN based on the proposed tax amnesty act. Marie Fe F. Dangiwan is a senior manager of the Tax Advisory and Compliance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines. As published in BusinessWorld, dated on 12 February 2019 _______________________________________________________________________________________ Revisiting the TRAIN Law 15 Jan 2019 Nothing is forever, except change. The wise words of Buddha proclaim the undeniable truth that the only thing constant is change. Life is a process of becoming; thus, we should always keep ourselves abreast with the changing times. After all, progress is impossible without changing the status quo. For most of us, the beginning of the New Year is a time to restart, reboot, and reassess our personal goals. As the first month of 2019 unfolds, it is high time to revisit the resolutions we’ve set — how far we’ve come and our rooms for growth. For the government, now is the time to reevaluate existing policies or reform laws to meet new exigencies. As taxpayers, it is important to know the recent developments in order to thrive and survive amidst the demands of our dynamic everyday life. A little more than a year ago — on Jan. 1, 2018 to be exact — the Tax Reform for Acceleration and Inclusion (TRAIN) Act took effect. Being the first package of the Comprehensive Tax Reform Program (CTRP), TRAIN 1 introduced a lot of significant changes. Among its purposes was to raise revenue for the government’s social services and infrastructure programs. TRAIN 1 reduced personal income taxes after 20 long years of non-adjustment of tax rates; but it imposed higher excise taxes on automobiles, petroleum products, tobacco, sugar-sweetened beverages and other non-essential goods. The legislators intended that with the people’s support, all these reforms will ultimately result in lower prices, more job opportunities and a brighter future for each and every Filipino. Literally and figuratively, the TRAIN came to pass accompanied with much noise. Heated discussions ensued in both chambers of Congress. Some advocates say it arrived as a Godsend and was timed perfectly. Others claimed it was hurriedly enacted, without the ordinary taxpayer being duly informed of its many implications. Being the most recent and comprehensive economic legislation by far, the public sought to better understand the law and its impacts – on take-home pay, prices of goods and services, and consumer spending patterns. As a response, several developmental and business organizations — including professional services firms such as P&A Grant Thornton — organized seminars on the law and the latest implementing regulations from the Bureau of Internal Revenue, to educate Filipinos on the relevant amendments. Before the implementation of the TRAIN Law, its detractors theorized that the increase in petroleum prices would cause a domino effect and, ultimately, lead to an increase in the prices of goods and services, falling on the shoulders of consumers, especially the poor. Lo and behold, the rise in prices of everyday commodities was very much felt since the beginning of 2018. Burdened by the price shock, there was an uproar from citizens seeking the suspension of the law. While it is true that the TRAIN Law was not all to blame, we cannot discount the inability of ordinary people to afford rice, not to mention softdrinks, alcohol, and cigarettes, and the fuel necessary for daily transportation. For someone who drives almost daily, I could very well imagine how taxi drivers might be dealing with gasoline prices that spiked to a record-breaking P60.87 in October. Mothers and homemakers found themselves on the front lines as their household budgets bought fewer and fewer groceries. Restaurants started skimping on portion sizes or simply charged more. Although the individual income tax brackets have finally been adjusted and augmented by the TRAIN Law, they were accompanied by a whopping surge in inflation. In October, inflation hit 6.7%, moving even further away from the Bangko Sentral ng Pilipinas’ target range of 2-4% for 2018. Although the causes include world oil prices or other forces, it is clear that the rise in inflation was partly caused by TRAIN. Adding fuel to the fire, whereas the higher excise taxes target the rich, the increase in prices hurt the poor the most. Hence, the wide gap between the rich and the poor remains. The question now is: Did TRAIN 1 attain its objectives? Or more specifically for the individual: Was the increase in net income due to the decrease in income tax rates enough to counter the higher inflation rate and increase in prices? The answer lies in whether or not there has indeed been an improvement in the effective purchasing power of Filipinos. Purchasing power is an important indicator of the economic condition of the nation. All else being equal, inflation decreases the amount of goods or services one is able to purchase; and reduced purchasing power leads to a decrease in living standards. It is hoped that the tax reforms will produce more benefit than harm, and that such advantages will trickle down to ordinary people sooner. Periodically reviewing the effects of the law is key, along with efficient execution, to ensure that tax collection is indeed put to good use. Notwithstanding its drawbacks and the appearance to most consumers that the promise of the TRAIN law holds no water, Budget Secretary Benjamin E. Diokno denied a report that the government has failed to reach its target revenue collection for 2018. He ruled out halting the implementation of the TRAIN law, saying that measures are in place to temper the harmful impact of higher prices. Suspension then is out of the question. For most of 2018, Mr. Diokno and President Rodrigo R. Duterte rejected calls to review the controversial tax reform law, saying it is needed for economic growth. Then, there was a change of heart sometime in October. The government announced, albeit with initial reluctance, that the P2-increase in fuel excise tax scheduled in January 2019 will be suspended. At that point, world oil prices noticeably dropped, as global supply outstripped demand. The suspension of the TRAIN Law was lifted. Now, we welcome the New Year with the second tranche of the TRAIN Law. On Thursday, Jan. 10, the Department of Energy (DoE) announced that 444 retail stations nationwide are now imposing the second wave of excise taxes on petroleum products, as mandated by the TRAIN Law. The DoE expects other gas stations to follow suit in February. On a more positive note, the Philippine Statistics Authority reported that headline inflation decelerated to 5.1% in December. The peso, which had been weakening against the dollar last year, slightly recovered on the first and second weeks of January. Gasoline prices receded to P45.50 per liter. The performance of the Philippine Stock Exchange improved and reflected growing business and investor confidence. Let us then choose to be grateful for these recent, positive developments and have faith that the government will remain vigilant in closely monitoring the imposition of taxes vis-à-vis the prices of basic goods and commodities. Let us hope that the President and his economic advisers will act more responsively to address the concerns of the ordinary taxpayer in light of the ever-changing times, especially punctuated by volatile crude oil prices. It is essential to always know the changes in our tax laws, and the corresponding consequences, not only to ensure compliance and avoid risks, but also to assert our constitutional rights as citizens. And together, let us pray that the tax reforms this year, moving forward, would lead us to a more equitable and fast-growing Philippine economy conducive to a life worth living. Aleli Carissa D. Gimena is an associate of the Tax Advisory and Compliance Division of P&A Grant Thornton. As published in BusinessWorld, dated 15 January 2019 _______________________________________________________________________________________ The first order of business: Local business tax and real property tax 08 Jan 2019 As we hit the first month of the year, it is time for another round of renewal and compliance. What better way to start the year than to have a clear mind set of what needs to be accomplished. Businesses are required to renew their business permits with the local government every year, and for 2019, this is due on or before Jan. 21. Companies need to pay the local business tax, real property tax, and other fees and charges. Because the processing period is short, companies should be aware of the requirements to ensure that the process can be completed within the due date. 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 _______________________________________________________________________________________ Green turns blue By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:18 AM December 07, 2018 This article isn’t about basketball, and the team colors that mark the most prominent rivals in our interuniversity basketball league—otherwise, I would be talking about maroon and blue, denoting the actual finalists in the just-concluded season. Admittedly, the colors in the prominent basketball rivalry have determined the color-coding of my presentation slides on the economy through the years. As an Ateneo professor for the last 18 years, my slides depict the good news in blue, and bad news in the other color. Even so, I’d tell my audiences that even as I wear a blue shirt, my underwear is maroon. Hence I would have been as jubilant (perhaps more so) if the University of the Philippines had won the recent championship. While it was not meant to be, it was accomplishment enough that the UP Fighting Maroons made it to the University Athletic Association of the Philippines basketball championship this year. Someone earlier posted a “warning” to the Ateneo Blue Eagles not to let their guard down, as UP had not lost a championship final in 32 years—but that’s because it never made it to one for that long. Basketball aside, my title really refers to how recent bad news on the economy has finally turned good (and will thus turn blue in my updated presentation slides), just as I had anticipated last week. After accelerating since the beginning of the year, the year-on-year inflation rate has finally slowed down to 6 percent last month, from 6.7 percent in the previous two months. This means that the average P100 expenditure we made a year ago would now cost us P106 (no longer P106.70, as was true in August and September). That is, the accelerating rate of price increases from last year has been arrested for the first time this year. The drop in the inflation rate doesn’t mean that prices have dropped from a year ago, as I suspect many would still think. I used to be branded a liar by some radio commentators back in the 1990s, when it was part of my job to announce the latest inflation rates. The commentaries would say “How can Habito claim that the inflation rate has dropped, when prices keep on rising?” It bears constantly clarifying that the word “inflation” itself refers to the rise in prices, and a lower inflation rate means that prices are still increasing, but at a slower rate. Otherwise we would be using the word “deflation.” The even better news is that prices have actually gone down (yes, deflated) on average, against the previous month. In a recent column, I clarified the distinction between the year-on-year (Y-O-Y) inflation rate that’s widely reported in the news, and the “real time” or month-on-month (M-O-M) rate. Last month, the average price level as measured by the Consumer Price Index actually fell 0.2 percent from the September level. This was driven by price declines in two major spending categories: Food and Non-alcoholic Beverages (-0.7 percent); and Housing, Water, Electricity, Gas and Other Fuels (-0.1 percent). Taking electricity, gas and other fuels alone, the drop was 0.5 percent, reflecting the significant decline in world crude oil prices that I wrote about recently. Meanwhile, falling food prices have resulted from the easing of supplies due to the (belated) entry of rice imports, and recovery in production of other food commodities. All together, the latest inflation news signals the commencement of the price slowdown that the Bangko Sentral ng Pilipinas had always anticipated to happen in the latter half of the year. Thus, while the year-to-date average inflation rate has been 5.2 percent, we can anticipate the annual rate to normalize back to around 4 percent next year. The remaining challenge lies in making overall inflation penalize poorer households less than it does the rest. Areas outside Metro Manila, where the bulk of our poor reside, still see higher Y-O-Y inflation (6.2 percent versus 5.6 percent in the city). Food inflation remains higher than average, at 8 percent. However, food prices actually fell 0.9 percent from the previous month, which is welcome news for the poor, signaling that the cost of food is becoming less of a burden to our poorer households. And that is blue news. _______________________________________________________________________________________ BSP sets process for grant of regulatory relief October 15, 2018 | 12:04 am By Melissa Luz T. Lopez, Senior Reporter THE BANGKO SENTRAL ng Pilipinas (BSP) has approved new rules which prescribe a standard process for providing relief to bank branches operating in disaster-stricken areas. BSP Circular 1017 outlines a “uniform and systematic approach” before the central bank can announce regulatory relief for banks and quasi-banks (QBs) operating in towns or provinces which have been ruined by calamities. The central bank extends relief measures for banks and quasi-banks following natural calamities and disaster events which disrupt their day-to-day operations. The fresh rules specifically require that an area needs to be placed under a state of calamity before the BSP can extend relief to bank branches operating there. This may come from a declaration issued by local government units or by the President, as recommended by the National Disaster Risk Reduction and Management Council. A state of calamity involves mass casualty as well as “major” damage to property, livelihood, roads and to the “normal way of life” of the community due to a natural or human-induced hazard, according to the BSP issuance signed Oct. 10. Under the relief package, the BSP will allow branches located in the affected areas to extend financial aid to its officers and employees even beyond the set of fringe benefits approved by the regulator for each firm. To add, thrift, rural, and cooperative banks are allowed to exclude outstanding loans from borrowers in the covered areas in computing their past due ratios, provided that such borrowings are restructured or given relief. The central bank would also not impose penalties even if reserves fall below requirement, while those under rehabilitation may take a pause in settling their monthly dues with the BSP. No fines will also be imposed for delayed submissions of regulatory reports to the central bank. Lenders which have outstanding rediscount loans with the BSP can also extend the payment period up to five years. Such arrangements valid for one year following the declaration of state of calamity in the area. Banks must write to the BSP within that period to inform that they will be availing these relief measures. By providing temporary relief, the central bank effectively relaxes capital and liquidity requirements imposed in order to ease the burden on financial firms and allow them to recover from disrupted services. “The damages brought about by calamities to people’s resources and livelihood may affect the paying capacity and risk profile of the borrowers/clients of banks/QBs. This may translate to higher past due ratios and inability to meet the legal reserve requirements,” the circular read, as signed by BSP officer-in-charge Deputy Governor Maria Almasara Cyd N. Tuaño-Amador. The central bank announced in August that relief measures have been made available to banks based in specific towns in Ilocos, the Cordillera Administrative Region, Cagayan Valley, Central Luzon, Calabarzon, Mimaropa and Western Visayas; as well as in Malabon, Marikina, Parañaque, Pasig, Quezon City and Valenzuela which were affected by tropical depression Josie in July. The new rules may apply to affected banks located in Cagayan Valley, Isabela, Central Luzon, and the Cordillera Administrative Region, which Pres. Rodrigo R. Duterte placed under state of calamity following the wrath of typhoon Ompong (international name: Mangkhut) last month. The BSP also announced similar measures for lenders based in war-torn Marawi City last January. _______________________________________________________________________________________ BSP approved 45 new bank branches in Q2 Published October 1, 2018, 10:00 PM By Lee C. Chipongian Branch-lites approved totaled 75 during the quarter from only 40 previously, according to a BSP circular letter. The BSP has started listing all non-regular bank branches as “branch lites” this year based on a 2017 BSP circular revision. This means that banks’ extension offices, microbanking offices and other banking offices are now referred to as branch lite units. Of 45 new regular branches approved, the big banks or the universal/commercial banks have 23 and these are mostly BDO Unibank branches. Thrift banks have seven and rural banks applied for 15. The thrift banking sector had the most branch lite approvals with 61 and majority BPI Direct BanKo. The big banks have six and rural banks have eight. There are also five new rural banks microfinance branches in the second quarter. As of end-June, there are also 68 regular branches that were opened – again mostly BDO branches – while 67 branch lites also started operations in the second quarter, bulk of which owned by CARD SME Bank followed by BPI’s thrift bank unit. The big banks have 38 of the total regular branches, thrift banks have 24 and rural banks have six. Thrift banks have the most branch lites with 45, big banks with five and 17 for rural banks. There are also three microfinance branches opened by rural banks during the quarter. A regular branch are full-sized banks, mostly traditional brick and mortar branches or contained within a building and offers full banking services. It is a permanent office or place of business other than the head office where a bank may perform activities and provide products and services that are within the scope of its authority and relevant licenses. A branch lite unit, in the meantime, performs limited banking activities but could provide a wide range of products and services suited for servicing the needs of the market except for sophisticated clients “with aggressive risk tolerance.” To convert into branch lites, a special licensing fee will cost P5 million if applicant is a universal and commercial bank, P3 million for thrift banks and P300,000 for the smaller rural/cooperative bank. Licensing fee per branch, in the meantime, is P20 million for big banks, P15 million for thrift banks and P1.5 million for smaller banks. _______________________________________________________________________________________ Banking system ‘sound’; resources grow 10.2% in H1 Published August 25, 2018, 10:00 PM By Lee C. Chipongian The banking sector reported combined P16.065-trillion total resources as of end-June this year, up 10.2 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) show. Banks continue to optimize the use of its resources, earnings and capital. A report from the BSP said the local banking system continue to be sound and lending growth is complemented by adequate capitalization and loan exposure provisioning. In the first half of 2018, big banks’ resources increased by 10.79 percent to P14.570 trillion from same time last year of P13.150 trillion. Thrift banks, in the meantime, registered a more modest increase of 4.56 percent to P1.236 trillion from P1.182 trillion in 2017. The BSP’s tally of non-banks and rural banks’ resources have a lag time and are a quarter behind than the universal/commercial and thrift banks. As of end-March, non-banks’ total resources amounted to P3.520 trillion while rural banks have P258.90 billion. Non-banks are investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations. Overall, the domestic financial system’s total resources amounted to P19.586 trillion as of end-June, which was 8.82 percent more than same time last year of P17.998 trillion. BSP Governor Nestor A. Espenilla Jr. said the central bank will continue to craft and come out with rules and regulations that will protect financial consumers. “But more than this, our regulations and policies exist for a higher purpose,” he said in a recent forum. “The idea is that a well-functioning financial system supports productive expansionary business activities and consumption spending, hence, is crucial to promoting economic growth.” Espenilla said banking and financial reforms in the areas of supervisory policy, banking supervision, financial surveillance and systemic risk “stabilizes and strengthens the domestic financial system and helps grow financial institutions into regionally competitive and economically viable players.” As of end-June, the industry asset quality “remains satisfactory,” Espenilla said. “There is also continuing build-up in capitalization,” he added. Big banks’ capital adequacy ratio was at 14.48 percent in the first quarter on a solo basis and 15.07 percent on a consolidated basis. _______________________________________________________________________________________ Why can’t we export more? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:38 AM August 17, 2018 Among the Asean-5, our export earnings have consistently been the lowest; worse, we’re slipping farther and farther behind. In 2005, we trailed Indonesia by $45 billion (we earned $41 billion against their $86 billion). Last year, the gap was already more than double that, at $100 billion ($69 billion vs. $169 billion). In 2007, our exports ($50.5 billion) still exceeded Vietnam’s ($48.6 billion). Last year, Vietnam made $214 billion, even more than Indonesia, which it had overtaken three years ago. The latest export data show that we continued to slip even farther behind. In the first quarter, our exports dropped by 5.5 percent, when our neighbors continued to post impressive growth in theirs, from Indonesia’s 8.7 percent to Vietnam’s zooming 25.1 percent. Many have begun to notice this glaring anomaly, and ask: How can we be moving in the opposite direction from our neighbors, and the world? What are we doing so differently, and so wrongly, that our export performance, already bad as it has been, has even turned for the worse? Indeed, the main reason the peso has been losing value in recent months has been the fact that our foreign exchange inflows via exports are now far outstripped by outflows via imports. Inflows from foreign investments, overseas worker remittances and tourist spending could not make up for the shortfall. We need nothing less than a deliberate strategy and aggressive action plan to dramatically boost our exports in the years ahead. We could take inspiration from our come-from-behind neighbor Vietnam, which has been posting double digit export growth in recent years, with the growth rate exceeding 20 percent in the last two years. We could start by examining our recent export performance more closely. In the first half of this year, our total export earnings fell 3.8 percent from last year, even as electronic products, our top export category accounting for 56 percent of all exports, managed to grow by 5.3 percent. But most of our top 10 export products dropped at double-digit rates, including chemicals (-44.4 percent), coconut oil (-28.9 percent), ignition wiring sets (-27.5 percent), and bananas (-13.2 percent). It’s well worth examining why. For coconuts and bananas, the problem has been traced to large-scale destruction from the “cocolisap” pest and Panama disease (Fusarium wilt), respectively, which agriculture authorities have failed to handle promptly and adequately. For nonfarm exports, we need to study more closely whether the problem has been on the demand or supply side. In past articles, I’ve pointed to at least two things we may be doing differently from our neighbors that could explain our export gap with them. One, we have traditionally failed to provide enough support to our exportable high value farm products. For one thing, research and development support has been highly inadequate, even for our export mainstays of coconut, bananas and mangoes. For decades, we have lacked a coherent and well-funded national strategic plan for these crops. In coconut, we have wrangled over the Marcos-era coconut levy for decades, with hardly any concrete movement forward. We have devoted inordinate attention and budget resources in quest of full rice self-sufficiency, even as our neighbors that have never aspired for it rank much higher than we do in food security (and pay much less for rice). I have also called attention to our glaring lack of gamma ray treatment facilities, which our neighbors have used to good advantage to export fresh agricultural produce far more than we can. Another flaw that I’ve argued to be getting in the way of potentially far more exports by our small and medium enterprise sector is a prevalent “kanya-kanya” or individualistic approach to business. I’ve heard of many missed opportunities in exports when small entrepreneurs were unwilling to team up to meet volume orders from overseas. In the SME sector, more “coopetition” should be the way to go if they are to cash in on wide export opportunities, and government and private sector alike need to work toward this. It’s time to get really serious about our exports. It’s been long overdue. _______________________________________________________________________________________ BSP’s Monetary Board shuts down Rural Bank of Pagbilao’s operations August 14, 2018 | 12:03 am THE CENTRAL BANK has ordered another provincial bank to shut down its operations, marking the eighth lender to fold this year. The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has ordered the closure the Rural Bank of Pagbilao, Inc. last Friday after it was found to be unfit to remain in business. The Philippine Deposit Insurance Corp. (PDIC) has stepped in as receiver for the lender effective yesterday, it said in a statement. The Rural Bank of Pagbilao runs three branches within Quezon province. The lender holds P110.05 million worth of deposits spread across 3,324 accounts as of end-June, according to PDIC data. Of the amount, P95.82 million are considered as insured deposits. PDIC’s takeover paves the way for the state-run insurer to acquire the bank’s assets in order to pay outstanding liabilities to depositors. Bank deposits are insured up to P500,000 per depositor, according to the PDIC charter. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC. Those with personal deposit accounts worth P100,000 or lower can avail of early payment, provided they do not have unsettled dues or other obligations with the fallen lender. The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit. The Quezon-based bank is the eighth to be ordered shut this year, more than the seven which the BSP closed down in 2017. Other lenders which folded this year include the Rural Bank of Sta. Elena, Inc. from Camarines Norte; the Tiaong Rural Bank, Inc., Empire Rural Bank, and Women’s Rural Bank, Inc. from Batangas; Bangko Buena Consolidated, Inc. of Iloilo; the Rural Bank of Initao, Inc. from Misamis Oriental; and the Rural Bank of Loreto, Inc. in Dinagat Islands. The BSP has been pushing small banks to pursue mergers in order to keep serving their markets while remaining on good footing. State agencies are currently offering a Consolidation Program for Rural Banks until 2019, which targets to fortify the capital and asset base of these small banks via a merger in order to make them more financially sound. — Melissa Luz T. Lopez _______________________________________________________________________________________ Monetary Board orders closure of 2 rural banks THE BANGKO SENTRAL ng Pilipinas (BSP) has shut down two rural banks last week as the regulator cracks down on more problem lenders. The policy-setting Monetary Board ordered the closure of the Rural Bank of Sta. Elena, Inc. from Camarines Norte and the Tiaong Rural Bank, Inc. from Sto. Tomas, Batangas during their Aug. 2 meeting. The Philippine Deposit Insurance Corp. (PDIC) has stepped in as receiver for both lenders effective Friday, it said in a statement. Rural Bank of Sta. Elena runs one branch and holds P19.6 million of deposits across 744 accounts, according to PDIC data. Meanwhile, Tiaong Rural Bank operates seven branches, which include two in Laguna, and one each in Cavite and Quezon. Total deposits amount to P891.7 million across 18,471 accounts. “[U]pon placement of the Bank under liquidation, the powers, functions and duties of the directors, officers and stockholders of the Bank are terminated,” the PDIC said. PDIC’s takeover paves the way for the state-run insurer to acquire the lender’s assets in order to pay outstanding liabilities to depositors. Bank deposits are insured up to P500,000 per depositor, according to the law. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC. Those with deposits worth P100,000 and below can avail of early payment, provided they do not how unsettled dues with these small lenders. The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit. The latest closure orders bring the number of shuttered banks to seven this year, matching the 2017 tally. Other lenders which folded this year include Iloilo’s Bangko Buena Consolidated, Inc., Women’s Rural Bank, Inc., the Rural Bank of Initao (Misamis Oriental), Inc., the Empire Rural Bank and the Rural Bank of Loreto, Inc. in Dinagat Islands. The central bank has been prodding small banks to pursue mergers in order to keep serving their markets while remaining on good financial footing. — Melissa Luz T. Lopez _______________________________________________________________________________________ Monetary Board orders closure of Bangko Buena July 30, 2018 | 12:02 am THE MONETARY BOARD has shuttered a rural bank based in Iloilo, marking the fifth lender to fold this year. In a circular letter issued on Thursday, the Bangko Sentral ng Pilipinas (BSP) said it has ordered the Bangko Buena Consolidated, Inc. to stop its operations. As regulator, the BSP can order the closure of problem banks with unhealthy balance sheets and insufficient assets to remain in business. The Philippine Deposit Insurance Corp. (PDIC) has taken over the bank as receiver effective last Friday. Bangko Buena is run by its president, Cherlyn P. Dela Cruz-Payongayong, based on the BSP’s directory of lenders. According to PDIC records, the bank runs seven branches in the Visayas. Bangko Buena is headquartered in Iloilo City but also had presence in other towns as well as in nearby Guimaras, Antique, Capiz, and Bacolod. PDIC’s takeover allows the state-run deposit insurer to acquire the lender’s assets in order to pay outstanding liabilities to depositors. Bank deposits are insured up to P500,000 per depositor, according to the law. Funds used to settle valid deposit insurance claims are drawn from the Deposit Insurance Fund managed by the PDIC. The state insurer also collects and resolves loans from borrowers and disposes of the bank’s remaining assets through its regular public biddings and negotiated sale, which will be used to settle claims beyond the P500,000 limit. Bangko Buena follows the fate of four other small lenders shut down by the central bank this year. These are the Women’s Rural Bank, Inc., the Rural Bank of Initao (Misamis Oriental), Inc., the Empire Rural Bank and the Rural Bank of Loreto, Inc. in Dinagat Islands. The central bank ordered the closure of six rural banks and one thrift bank last year. In 2016, the regulator closed 22 lenders. The central bank has been encouraging mergers among small banks in order to fortify their financial footing by dangling a host of incentives for those who pursue such plans. — Melissa Luz T. Lopez _______________________________________________________________________________________ BSP defends response to rising PH inflation By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 05:20 AM July 18, 2018 The Bangko Sentral ng Pilipinas once more defended its decision to hold off on interest rate hikes early this year, which its critics have blamed for aggravating the country’s stubbornly high inflation rate this year. In a speech delivered before the Institute of Corporate Directors on Tuesday morning, BSP Governor Nestor Espenilla Jr. said preliminary data indicated that prices of goods and services were being driven by so-called supply side factors against which a tightening of monetary policy would be ineffective. The central bank chief said, however, that “material changes towards the end of the first quarter and the beginning of second quarter of 2018” finally prompted the Monetary Board to raise its key overnight borrowing rate by two successive 25-basis point hikes in May and June. By this time, the country’s inflation rate was already at its highest for at least five years. “On the global front, the attractiveness of the US economy was highlighted by both its fiscal and monetary policy adjustments, including rising interest rates,” Espenilla said, “This caused a migration of portfolio investments seen in the decline in Asean 5 equities markets leading to increased market volatility.” This phenomenon contributed to more pressure on the local currency, while the continued rise in global oil prices and the price effect brought on by scarcity of rice from the National Food Authority “provided key impetus for higher levels of inflation,” he explained. “Our two successive rate hikes in May and June were measured and deliberate responses to the evolving economic environment and dynamic market conditions meant to help anchor inflation expectations and temper second-round effects, firmly signaling our commitment to ensuring price stability,” he said. The BSP’s overnight borrowing rate, on which all banks base their commercial loan rates, currently stands at 3.5 percent. The inflation rate for June stands at 5.2 percent, which is the highest in at least five years. Central bank economists expect the price hikes to peak in October of this year, and return to normal by next year. _______________________________________________________________________________________ Rural banks need new tech to remain relevant 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. _______________________________________________________________________________________ Grumpy old men By: Manuel L. Quezon III - @inquirerdotnet Philippine Daily Inquirer / 05:26 AM July 11, 2018 The week began with an analysis in the Financial Times that says the peso is likely to weaken some more, with two trends contributing to this weakening. The first is a slowdown in the growth of remittances from abroad (remittances from the Middle East have actually been decreasing); and, second, a similar slowdown in the growth of the BPO sector. A weaker peso also drives up the costs of manufacturing, affecting exports, while imports are expected to increase if government manages to embark on the infrastructure it’s promised, widening the trade gap. Companies that borrowed when the peso was stronger, and foreign currency cheaper, now have added interest costs. And if the central bank increases the cost of lending to counter inflation, there’s less credit to be had, slowing down business expansion. The Financial Times analysis says rising prices has hit the poor the hardest, while the middle class has been “cushioned” from the effects of price increases due to the reduction in income tax under TRAIN 1. But if anecdotal evidence is any guide, talk in business circles of an increase in the repossession rate of cars suggests that this cushioning may be more theoretical than real. What is less a matter of conjecture and more of an observable trend is that investment pledges are down, as expansion plans or new projects are put on hold to see whether TRAIN 2 (which the business community seems to widely oppose, at least in terms of the components that would scrap investor incentives) pans out or not. As it is, business, which had been interested in political proposals only to the extent that they help or hinder the economy, can’t be too happy about the consultative committee on Charter change appointed by the President. The committee essentially retained the economic provisions that business had wanted scrapped. Without any loosening of the economy, all a new constitution would signal to business is that, aside from the extortions of the national government and mulcting by the local government, a third level—the regions or federal states—would now enter the picture, eager to milk the already sore udders of businessmen large or small. And this, in fact, is the realization that’s dawning on business people: Where formerly people could discount political risk because it was considered divorced from commercial risk, we’re sliding toward a lose-lose situation where political and commercial risks are increasing. Over the past couple of years, there used to be a kind of conventional wisdom that was applicable to domestic events. However chaotic, crazy or disruptive the political players seemed to be, the economic managers, according to this conventional wisdom, were prudent, responsible and dedicated to continuity. In other words, this thinking went, the country had the best of both worlds: an administration whose president knew how to play to the gallery, thus maintaining national morale, but who had the fortuitous combination of ignorance and lack of interest in economic matters to leave well enough alone. This belief began to be shaken when the President began using the economic team to help in his political agenda, and when the economic team incautiously used the President as a blunt instrument to accomplish its plans. Mighty, Mile Long, TRAIN, to name just a few incidents, might still be excusable, except success in these fronts seems to have fostered a sense of infallibility that began to manifest itself in what business considered weird behavior on the part of the economic managers. A particularly disastrous performance—because unsettling, with its perceived petulance and angry old man unreasonableness—by the secretary of finance in Singapore, combined with similarly blithe, antique behavior on the part of the budget and economic planning secretaries, began to make businessmen think the conventional wisdom all along was wrong. The country is neither prudent, nor all that responsible, nor committed to continuity. We’re entering uncharted waters, politically and, to a certain extent, economically, under increasingly erratic, geriatric command. _______________________________________________________________________________________ BSP okayed 29 new bank branches in Q1 Updated July 3, 2018, 8:10 AM By Lee C. Chipongian The new branch applications included all banks – the universal and commercial banks, thrift and rural banks. This was the first quarter that the BSP is listing the non-regular bank branches as “branch lites”. Based on the circular letter signed by BSP Deputy Governor Chuchi G. Fonacier, there are 29 regular branch applications and 40 for branch lites. Under a 2017 circular revision, banks’ extension offices, other banking offices and microbanking offices are now referred to as branch-lite units. During the quarter, big banks only applied for 11 regular branches and opened 48. Only two branch lites were opened. Thrift banks applied and got approval to set up 15 regular branches and three branch lites. The mid-sized banks, in the meantime, opened 14 regular branches during the quarter and three branch lites. Rural banks had three regular branch applications and 37 branch lites. There were also 12 new regular branches that were opened during this period, and 52 branch lites by rural banks. A branch-lite unit performs limited banking activities but could provide a wide range of products and services suited for servicing the needs of the market except for sophisticated clients “with aggressive risk tolerance.” By comparison, a branch is also a permanent office or place of business other than the head office where a bank may perform activities and provide products and services that are within the scope of its authority and relevant licenses. To convert into branch-lites, a special licensing fee will cost P5 million if applicant is a universal and commercial bank, P3 million for thrift banks and P300,000 for the smaller rural/cooperative bank. Licensing fee per branch, in the meantime, is P20 million for big banks, P15 million for thrift banks and P1.5 million for smaller banks. BSP Governor Nestor A. Espenilla Jr. signed BSP Circular No. 987 on December 28, 2017 which rationalizes the “prudential” requirements of banking offices and also contain the guidelines for branch-lite units. The circular also covers foreign banks’ sub-branches and its limitations. A foreign bank authorized to establish branches in the Philippines is allowed to set up five sub-branches which are considered branch-lite units. _______________________________________________________________________________________ Bangko Sentral hikes rates again amid high inflation Ralf Rivas Published 7:45 PM, June 20, 2018 Updated 7:46 PM, June 20, 2018 MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) raised interest rates once again after inflation surged to a fresh 5-year high last May. BSP Governor Nestor Espenilla Jr said on Wednesday, June 20, that the Monetary Board decided to raise the overnight reverse repurchase (RRP) rate by 25 basis points to 3.5%. The central bank also raised interest rates on overnight lending and deposit facilities to 3% and 4%, respectively. Raising interest rates encourages people to save up in banks instead of spending their money, and thus helps ease inflation. Since the banks' interest rates are higher, people may also be discouraged from getting bank loans. The BSP had implemented its first rate hike in 3 years last May 10. The central bank previously stated that inflation would normalize even without tweaking monetary policies. But Espenilla said on Wednesday that the BSP is "prepared to take further policy action as needed to achieve its price and financial stability objectives." "In deciding to raise the BSP's policy interest rate anew, the Monetary Board noted that inflation expectations remain elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action," he said. The BSP forecasts 2019 inflation to ease between 2% and 4%. The same range was set for 2018, but the year-to-date inflation has exceeded expectations by one percentage point. "Equally important, while latest baseline forecasts have shifted to lower for 2018-2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise," Espenilla said. Inflation had risen to 4.6% back in May. Meanwhile, the Philippine peso plummeted to P53.45 against the United States dollar on Wednesday. – Rappler.com _______________________________________________________________________________________ Falling peso, rising economy? By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:05 AM June 19, 2018 Is the falling value of the peso a sign of bad management of the economy? Does it signal a worsening economy ahead, and worse conditions for our people, especially the poor? In the past, the peso-dollar exchange rate would jump when larger-than-usual dollar outflows would result from lumpy foreign payments, as when our oil companies settled their bills with the sources of their crude oil imports. A more steady rise in the exchange rate would be traced to sustained dollar outflows, as when capital exited the country because of push (domestic political trouble) or pull (better yields elsewhere) forces. So when I started writing my last piece on the history of the falling peso, I sent a message to Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo, a London School of Economics-trained economist, asking which of the above might be behind the latest trends. Given his busy schedule, I would have been happy with a one-liner reply, but even while on an overseas trip, he obliged me with a copious response, which I paraphrase below. It need not unduly alarm us that the peso is depreciating, he wrote. The latest currency movement simply reflects the fundamentals of our growing economy. The stronger outflow of foreign exchange at this time actually reflects three positive trends. First, imports continue to surge, feeding the input requirements of our fast-growing economy, including the massive “Build, Build, Build” infrastructure push of the government. Second, Filipinos’ investments abroad are on the rise. Companies like Jollibee and Manila Water, for example, continue to expand their reach overseas, cashing in on moneymaking opportunities in the growing global economy. Third, much of the country’s foreign loans are deliberately being prepaid to avoid rising interest rates. All these are now exerting additional demand and pressure on the local currency. We should be more scared, he pointed out, when these fundamental forces are not reflected in the movements of the peso (such as if the BSP intervenes too heavily in the market by buying or selling large amounts of dollar reserves). If the exchange rate is artificially insulated from such natural market forces, we run the risk of building up too much pressure to the point of getting large, discrete and destabilizing movements on the rate. Reading reports of the BSP’s falling (but still very high) levels of foreign reserves, I could tell that it is selling dollars to smoothen currency movements, but not preventing it from following the natural direction dictated by the forces just cited. The bad news, as I’ve written before, is that we’ve been unable to grow our exports like our neighbors are doing; this could otherwise help arrest a longer-term depreciation trend. Deputy Governor Guinigundo also pointed out that, in assessing the peso situation, the time frame of analysis matters. If we look at recent weekly movements, the peso indeed appears to have bucked the trend of most currencies in the region. But a five-year comparison shows us to be in step with the overall depreciation of regional currencies. An even more meaningful assessment would consider the real effective exchange rate, tracking the peso’s movement relative to a basket of currencies of our most important trading partners, adjusted for inflation differentials. Based on this measure, he pointed out, the peso has been broadly stable because its nominal depreciation has been coupled with lower inflation in the last few years, thus keeping our exports competitive. Finally, Mr. Guinigundo said that the pass-through effect of the exchange rate to inflation is now weaker, based on BSP tracking since it shifted to inflation targeting (vs. exchange rate targeting in the 1990s) in 2002. This means that the economy has become more efficient and competitive, thereby moderating the exchange rate movements’ impact on domestic price levels. Thus, while the falling peso helps exporters and their workers, along with families dependent on remittances from abroad, it would not hurt the rest of us as much as it would have before, via higher inflation. Fear not, then: The falling peso doesn’t mean the economy is falling, too. _______________________________________________________________________________________ Battered peso Philippine Daily Inquirer / 05:24 AM June 18, 2018 The peso weakened last week to its lowest level in 12 years against the dollar. At more than P53 to $1, the exchange rate has breached the upper limit of the government’s forecast of P50-53 to a dollar for 2018. While this is welcome news to exporters and Filipinos working abroad (as well as foreign tourists visiting the country), it has a debilitating impact on the broader economy and the cost of living of ordinary Filipinos. The local currency fell to a low of P53.27 to $1, the weakest since June 29, 2006, when it hit P53.55 to the dollar. For perspective, official data showed that the peso traded against the dollar at an average of P50.41 in 2017; P47.49 in 2016; P45.50 in 2015; P44.40 in 2014; P42.45 in 2013; P42.23 in 2012; P43.31 in 2011, and P45.11 in 2010. Economists ascribed the peso’s depreciation to the rising interest rates in the United States that make dollar-denominated investments more attractive to fund managers compared to peso-denominated securities. This is evident in the net outflow of the so-called “hot money” or foreign funds invested mainly in the local stock market. For the month of May, for instance, $1.2 billion came in, but $1.4 billion went out. This is exacerbated by the yawning trade deficit as the country spent more dollars to pay for imports than what it earned from exports. Latest official data showed that the balance of trade in goods was at a deficit of $12.2 billion for the January-April 2018 period. The Bangko Sentral ng Pilipinas reported that this trade imbalance had already pushed the balance-of-payments (BOP) deficit to $1.5 billion in the first four months of 2018. (The BOP is an accounting of all transactions the country has with the rest of the world for various goods and services. A surplus means the country is earning more than it is spending, while a deficit represents the opposite.) The central bank had initially targeted a BOP deficit of $1 billion for the entire 2018. A weak currency puts pressure on inflation, which has risen to its highest in five years at 4.6 percent last May, as one needs more pesos to buy the same amount of goods and services from abroad. For example, the Philippines imports nearly all its petroleum requirements. A weaker peso makes crude oil imports more expensive. This, in turn, will raise the cost of generating electricity, as some power plants still run on diesel or bunker fuel. Transport costs — public buses and jeepneys as well as delivery expenses for nearly all products — will also increase. Add to this the additional taxes on petroleum products imposed by the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) Act in January — an excise of P3 a liter for kerosene, P2.50 a liter for diesel and bunker fuel, and P1 a kilogram for liquefied petroleum gas. The law also imposed an excise of P7 a liter on gasoline. The spike in prices of essential goods and services has led to calls for an increase in wages and even a suspension of the TRAIN Law, despite the Department of Finance pointing out that the tax hikes contributed only 0.4 percent to the current inflation rate. A weaker peso also raises the cost of wheat imports, thus resulting in higher bread prices. It also raises the cost of electricity as power utilities need more pesos to either import fuel or repay their foreign debts. Manila Water Co. And Maynilad Water Services Inc. have given notice that they are seeking an increase in rates because of the weakening peso. Economists also predict that the external payments position would likely deteriorate further as increased economic activities fuels demand for imported equipment and consumer goods. The unfolding events on the economic front — the foreign exchange and inflation picture in particular — will be a major test for the Duterte administration, especially its economic managers. Ordinary Filipinos would not mind much if prices of mobile phones or smart TVs go up due to the peso weakness. But if transportation fares, electricity and water prices, and expenses for food rise further, that is a different matter altogether. _______________________________________________________________________________________ Beyond ‘PiTiK’ By: Cielito F. Habito - @inquirerdotnet Philippine Daily Inquirer / 05:09 AM June 12, 2018 My last article dealt on how we have a two-out-of-three batting average on my “PiTiK” test that tracks the essential economic indicators of presyo, trabaho and kita (prices, jobs and incomes), with faster-rising prices being the not-so-good news lately. But other indicators in the economy that the average person probably doesn’t pay much attention to also bear watching, because these ultimately impact on PiTiK, hence the wellbeing of Filipinos in general. Let’s start with foreign direct investments (FDI), or the investment inflows that actually create jobs, as against those going into portfolio financial investments like stocks or bonds, also called “hot money” because of the ease with which they can be pulled out. Here, there’s both good news and bad news. The good news is that latest data from the Bangko Sentral ng Pilipinas show $1.5 billion in actual FDI inflows in the first two months of this year, a hefty 52.6 percent increase over the comparable figure last year. Of these, new equity placements from overseas, which is the most welcome component, multiplied nearly five times, implying that confidence in the Philippine economy by foreign investors continues to be high. On the other hand, the Philippine Statistics Authority has just reported that new foreign investments registered with our investment promotion agencies (IPAs) fell by 37.9 percent to P14.2 billion in the first three months of the year. Should we worry? Note that these data reflect intentions rather than actual inflows, and would turn into the latter only within 2-3 years. Interestingly, even as these data showed significant declines in recent years (-5.5, -31.8 and -10.7 percent in 2013, 2014 and 2016), actual FDI inflows tracked by the BSP had grown consistently from $5.6 billion in 2015 to $8.3 billion in 2016, and on to $10 billion last year. Why the seeming contradiction? The answer lies in the fact that the IPAs’ data only capture investments that will avail of incentives, even as substantial other investments also come in without them. In the end, what matters are actual FDI inflows, and the data continue to show robust growth. Moreover, data on the sum of domestic and foreign investments continue to show sustained double-digit growth all through the first quarter of this year. Government finances are also worth watching, as these bear heavily on the stability of the overall economy. Latest data show that the national government deficit (the excess of expenditures over revenues collected) had doubled from P83 billion in the first quarter last year, to P162.2 billion this year. The latter amounts to 4.1 percent of first-quarter GDP, already beyond the 3 percent rule-of-thumb threshold for a sustainable deficit, and reflects government’s aggressive stance on the Build, Build, Build program to “buy” faster economic growth. It may be of some comfort to know that the United States government is running a deficit that is 10 percent of GDP, on much slower economic growth than ours. But, then again, economic instability in the United States would spell trouble for us as well. The balance of our foreign exchange inflows vs. outflows shows a worrisome trend: After years of being in surplus, we now have a growing deficit ($2.5 billion in the current account), driven mainly by fast-rising imports in the face of falling exports. This is showing up in the rising foreign exchange rate, which is good news for exporters and families receiving remittances from abroad, but also generally hurts all of us via rising prices. We must strive to further expand exports to fund our fast-growing import bill. Through all the economic data, what’s most sobering is the comparison with our neighbors. We take pride in being among the fastest-growing economies around, but the fact is, we continue to compare badly with our neighbors in the two other elements of PiTiK: Our inflation and unemployment rates have consistently been nearly twice the average of our neighbors’. Moreover, their exports are growing anywhere from 3.5-25 percent in the past year, while ours have dropped. The lesson for us ought to be clear: We must keep our eye on the ball, as there’s still a lot of catching up to do. _______________________________________________________________________________________ Banks blamed for poor agri performance Published May 27, 2018, 10:01 PM By Madelaine B. Miraflor Agriculture Secretary Emmanuel Piñol has blamed local banks for the lackluster performance of the agriculture sector as they refused to grant loans to farmers as mandated under the Agri-Agra Reform Law. Piñol said Philippine banks “cheat” just to get away with the requirements of Agri-Agra Reform Act, which suffers a way too law compliance level. This was Piñol’s reaction to complaints of some banks about the poor performance of agriculture sector. “How can you expect an impressive growth in agriculture when the banking institutions [don’t follow] the Agri-Agra law? It’s like milking an ill-fed cattle,” Piñol said. Agri-Agra Reform Act requires all banks to set aside 25 percent of their loan portfolio to the farming sector — 15 percent of which should go to agriculture-related projects, while the 10 percent must go to agrarian reform beneficiaries. Exactly nine years since the law took effect, the banking sector still fails to comply, with loans disbursed to agriculture sector only at 13 percent and 1 percent for agrarian reform. Farmers and agri projects are considered high risks and therefore very few banks lend to this sector. Land Bank of the Philippines President Alex Buenaventura said that as of end-2017, the non-compliance of the total banking system to the law already amounted to R460 billion. The problem is, according to Piñol, is that “many of these banks are cheating” when it comes to compliance of Agri-Agra law. Agri-Fisheries Alliance (AFA) Credit Head Danilo Fausto said before that because of the perceived risk in lending to agriculture, banks rather pay the fines worth R5 billion than weaken their balance sheet. “This is precisely what’s happening. If you are doing anything you could to avoid fulfilling your legal commitments, you just pay fines and cheat, how can you expect agriculture to grow?” Piñol further said. “They expect so much from the Philippine agriculture but they don’t want to lend,” he added. For the first quarter of the year, Philippine Statistics Authority (PSA) cited the Department of Agriculture’s (DA) financing program as one of the contributors to the performance of the agriculture sector. PSA said the financial assistance from the DA and Local Government Units (LGUs) such as the Production Loan Easy Access (PLEA) paved the way for increases in area harvested during the period. A report showed that during the first three months of the year, the country’s palay production grew by 4.61 percent this year. PLEA is being implemented by DA’s financing arm, Agriculture Credit Policy Council (ACPC). Initial reports from ACPC, through PLEA and the Program for Unified Lending in Agriculture (PUNLA), showed repayment rates of 100 percent by vegetable farmers of Cordillera and 96 percent nationwide. A technical study on the possible amendments of Agri-Agra Reform Act funded by Asian Development Bank (ADB) is now under way. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier said the central bank is open to consolidating the legal requirements of the law. “The exact percentage distribution between the 15 percent share for agriculture and 10 percent share for agrarian reform beneficiaries is the subject of a study that will soon be concluded,” she said. Fonacier said that BSP is just waiting for the ADB to come up with the final report on the study it conducted on the Republic Act 10000, or the new Agri-Agra law. _______________________________________________________________________________________ Banks’ liquidity buffer to be required at 1 year Lawrence Agcaoili (The Philippine Star) - May 30, 2018 - 12:00am MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is requiring banks to hold enough liquidity or stable sources of funding for a one-year period starting next year to provide a ready buffer and at the same time further strengthen the industry. BSP Governor Nestor Espenilla Jr. said the central bank has approved the guidelines on the net stable funding ratio. “NSFR is basically a regulatory requirement for the banks to generally maintain a liquid position long enough to sustain it for a one year period,” Espenilla said. He said the NSFR is patterned after the liquidity coverage ratio (LCR) through a phased in period, wherein banks would be given until the end of the year for the observation period before full adoption by January next year.“What will happen is there is an observation period for the rest of the year and it will formally kick in Jan. 1 next year,” Espenilla said. The latest reform, the BSP chief said, would complement the LCR framework introduced in 2016 that requires universal and commercial banks, as well as foreign bank branches to hold sufficient high quality liquid assets (HQLAs) easily convertible to cash to service liquidity requirements over a 30-day stress period. This would provide banks with a minimum liquidity buffer to be able to take corrective action to address a liquidity stress event. Banks were required to meet the 100 percent LCR threshold in January. Both the NSFR and LCR are part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision (BCBS). “The tools of the BSP are multiple. We are not just moving monetary policy, we are also at the same time complementing what we do with the regulatory policy,” Espenilla said. The decision of the BSP to further slash the level of deposits banks are required to keep with the central bank to 18 percent is expected to release around P100 billion in additional liquidity into the financial system. “If we don’t have good rules that compel banks to behave prudently, if you release liquidity to them, the danger is, it will result in excesses in terms of credit which then creates problems down the road,” Espenilla said. Under a strong regulatory framework, the BSP chief is confident the channels to which the liquidity passes through banks are going to be responsible. “We do reforms not during a crisis, we do it when people are ready so that we avoid crisis down the road. I think that is also one of the reasons why the economy is doing well because during good times we keep pushing these reforms so that we don’t have to do these emergency actions during crisis,” he said. The regulator is issuing a four-phased regulatory reform to reinforce the capability of banks in managing liquidity risk. It has approved last month the guidelines on the LCR, the complementary Minimum Liquidity Ratio (MLR) for thrift and rural banks as well as the NSFR. The fourth phase is the guidelines on the intraday liquidity reporting. Assets of Philippine banks stood at P15.71 trillion in end-March, 11.3 percent higher than the P14.12 trillion recorded in end-March last year. _______________________________________________________________________________________ Rural banks urged to invest in new technology Published May 21, 2018, 10:01 PM To be “strong and dependable delivery channel in the provision of banking services,” the country’s rural banks must further invest on technology as well as expend their agriculture financing. Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said this during the 65th Annual Convention and General Membership Meeting of the Rural Bankers Association of the Philippines (RBAP). “With the digital transformation of the banking system, we, at the BSP, are optimistic that the rural banking industry can emerge as a strong and dependable delivery channel in the provision of banking services. It can do so by taking advantage of available technology,” Espenilla said. For its part, the Department of Finance (DOF) is now pushing a trio of initiatives to enable the rural banking system to meet the challenge of reducing the number of unbanked Filipinos in the country, given that this sector is at the frontline of the Duterte administration’s efforts to attain financial inclusion. Finance Secretary Carlos Dominguez III said the reality that a majority of Filipinos remain unbanked to this day even when the economy is growing at a fast pace is “not a good indicator,” as this means they have neither access to financial services nor ways to participate in investments. He said the DOF, with the help of BSP and state-owned banks, are finding ways to relax requirements for deposits, introduce new financial products and increase the use of new technologies for electronic payments systems to help rural bankers in their “urgent” mission of reducing the number of unbanked Filipinos, especially in the countryside. He said the DOF, with the help of BSP and state-owned banks, are finding ways to relax requirements for deposits, introduce new financial products and increase the use of new technologies for electronic payments systems to help rural bankers in their “urgent” mission of reducing the number of unbanked Filipinos, especially in the countryside. Right now, almost 97 percent of the industry’s network is spread across provinces. In fact, one in every three banking offices located in Davao Region and in Mindanao is a rural bank. Still, 554 cities and municipalities, or almost a third of the total, in the country are still unbanked as of December 2017, while the 2017 Global Findex by the World Bank showed that only 34.5 percent of Filipino adults have formal accounts, ranging from bank deposits to e-money accounts. “The domestic digital money ecosystem certainly needs players, big and small, to meet the exacting demands of this new breed of clients,” Espenilla said. Nevertheless, he said that one rural bank is now pilot-testing a cloud-based banking solution in managing its day-to-day operation more effectively and serving its clients more efficiently, thereby upgrading its competitiveness. This, while several banks, including rural banks and non-bank financial institutions, are already utilizing the Lendr platform to facilitate credit origination processes. Meanwhile, Espenilla said that with an increasing recognition of the necessity for innovation, coupled with proximity to and intimate knowledge of the market, rural banks can now, more than ever, reinvigorate and blaze new trails for agriculture financing in the country. “Innovations enabled by digital technology and value chain approach can not only make agri-financing more viable but also unlock new opportunities for rural banks to deliver a whole range of financial services catering to the unique needs of farmers and their communities,” Espenilla said. “Tapping these opportunities and backed by a solid culture of governance, rural banks can evolve into these valuable full-service community banks – a true pillar of countryside development,” he added. _______________________________________________________________________________________ Landbank model By: Ernesto M. Ordoñez - @inquirerdotnet Philippine Daily Inquirer / 05:10 AM May 17, 2018 Land Bank of the Philippines (LBP) president Alex Buenaventura has embarked on the correct approach of reaching out to small farmers, instead of waiting for them to submit loan proposals. Consider Rey Almario’s snapshot of the agriculture terrain. Almario is a former banker from the Coalition for Agriculture Modernization in the Philippines, led by some of its key founders—chair Emil Javier and president Ben Peczon. Agriculture contributes 10 percent of the gross national product, or up to 35 percent if ancillary industries are included. Agriculture workers constitute 28 percent of the workforce, with 30 percent involved in postharvest activities. They have the highest poverty incidence: 34.3 percent for farmers and 34 percent for fisherfolk. There is an Agri-Agra law designed to help this sector—15 percent of loanable funds must go to agriculture and 10 percent to Agrarian Reform Beneficiaries (ARBs). Unfortunately, only 7 percent and 1.3 percent go to these subsectors, respectively. Banks do not want to lose money by lending for proposals that are not financially viable. They would rather pay the penalty of half of 1 percent for noncompliance, rather than losing the whole loan amount. It is in this environment that LBP, as the official agriculture bank of the Philippines, is looked upon as a model for other banks to follow. Today, only 2 percent of the banking sector’s loanable funds goes to agriculture. A model is suggested by Pablito Villegas, who has worked on rural credit in 20 countries as a consultant for organizations such as the United Nations and Asia Development Bank. Here is his suggested model that follows the direction of LBP president Buenaventura, but provides additional details: LBP should form a network of satellite countryside banking and lending centers at the LGU and community levels. This can start in 20 strategic areas. LBP should help implement the government’s convergence policy of DA, DENR, DAR, DTI and DOST through integrated area development. This will result in the clustering of competitive enterprises and the aggrupation of core, related, supporting and allied industries that will form the nucleus of a pro-poor, proenvironment and highly inclusive development approach. LBP should enter into MOAs with LGUs and converge national government agencies for the packaging and financing of projects at the household or cooperative level using value-chain financing schemes. Buenaventura’s corporative management system demonstrates such profarmer institutional arrangements within the value-chain where the exploitative elements of many existing agriculture supply chains are addressed and resolved. LBP’s integrated financial delivery and recovery system will be complemented by the coordinated business development, extension and capacity building support from converging NGAs, NGOs, people organizations and agribusinesses. LBP should fund and organize countryside financing teams (CFTs) with an agro-based business-oriented manager, agriculturists/aquaculturists, and specialists in financing, marketing and information technology. This will be similar to PNB’s Bank-on-Wheels. If LBP is successful in reaching out rather than waiting for loan proposals to come in, other banks will follow using the LBP model. They will then come closer to complying with the Agri-Agra law. The Monetary Board must formulate and implement guidelines that will make Agri-Agra law compliance more attainable. For example, it is clear that the 10 percent requirement for ARBs is almost impossible to attain. Today, compliance is only 1.25 percent. There should be enough flexibility so that a large part of the mandated 10 percent can qualify for compliance if the beneficiaries are not necessarily ARBs, but also small farmers. As for the 15 percent requirement for agriculture, any support for agriculture such as ancillary activities not currently covered should qualify for this requirement. Any incentive that will help agriculture should be given. It is time to reach out, instead of just passively waiting and uselessly hoping that the 2 percent agriculture loan share will improve without reforms. Such reforms will be discussed in a free, open Agri-Credit Forum from 1-5 p.m. on May 17 at the University of Asia and the Pacific, Pearl Drive, Ortigas Center. Please call 0917-7920848 to preregister. _______________________________________________________________________________________ Another data protection regulation Renan PiamonteRenan Piamonte 16 May 2018 It’s normal to receive emails on updated terms of service from an online account, such as Facebook. In the past two months alone, I have received similar emails from Microsoft, Google, Yahoo, Airbnb, Facebook, LinkedIn, Twitter, Fitbit, Uber and Paypal. Getting one or two such emails may be a coincidence, but receiving that many is not. The surge in the number of emails from tech companies updating us on their privacy policies is also attention-getting: the normal legalese full of illegible descriptions of terms and conditions was replaced by a clear, easy-to-read style. All of these are related to the General Data Protection Regulation (GDPR) that comes into effect next week. The European Union’s (EU’s) new data protection law does not only cover all businesses operating within the EU, but also the companies that trade with EU-based businesses. For many of us, we may not think of individual European countries as significant business partners of the Philippines. However, as an economic bloc, the EU is in the Philippines’ top three largest trading partners for goods and services, even bigger than the United States. The GDPR, therefore, is not something to be brushed aside as irrelevant, especially since the penalties for non-compliance can be as high as €20 million, or 4 percent of annual sales, whichever is higher. The good news, though, is that companies complying with the Philippines’ Data Privacy Act (DPA) of 2012 have a very good chance of being ready for the GDPR, since the DPA is largely based on international data privacy frameworks such as the GDPR. Like the DPA, the GDPR will introduce wide-ranging changes that require thorough understanding, internal stakeholder acceptance, and appropriate preparation and implementation across the whole business. In a recent publication for GDPR issued by Grant Thornton International, the following key changes were highlighted: > Better rights for data subjects – The largest shift is that individuals will benefit from greatly enhanced rights, such as the right to object to certain types of profiling and automated decision-making. Consent requirements will also be more stringent. Consent must be explicit and affirmative, it must be given for a specific purpose, and it must be easy to retract. Individuals may also request that personal data be deleted or removed if there isn’t a persuasive reason for its continued processing. > Increased accountability – Organizations will have far more responsibility and obligation. They will need to publish more detailed fair processing notices, informing individuals of their data protection rights, explaining how their information is being used, and specifying for how long. The new regulation also embeds the concept of privacy by design, which means that organizations must design data protection into new business processes and systems. > Formal risk management processes – Organizations must formally identify emerging privacy risks, particularly those associated with new projects, or where there are significant data processing activities. They must also maintain registers of their processing activities and create internal inventories. For high-risk data processing activities, Data Protection Impact Assessments (DPIAs) will be mandatory. It will also be compulsory to appoint a Data Protection Officer (DPO). > Significant sanctions – Penalties for noncompliance will rise considerably, up to €10 million, or 2 percent of annual sales (whichever is greater) for minor or technical breaches, and €20 million, or 4 percent of turnover for more serious operational failures. Investments in new tools to protect data have become relatively cheaper. > Data processing requirements – The regulation also imposes new requirements on data processors, and includes elements that should be addressed contractually between data processors and data controllers. Assuming that a Philippine company is already compliant with the DPA, there is still a need for continuous improvement to ensure sustained compliance with both the DPA and GDPR. Companies should develop a competent team or appoint a trusted advisor to assess the effectiveness of data protection efforts and perform GDPR and DPA audits. Data risk management should also be integrated into the overall risk management structure. Lastly, data protection training is expected to be a regular feature of both onboarding and annual training programs. These measures may seem a lot, but they represent the price we have to pay to protect data. Renan Piamonte is the Risk Management partner of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 21 partners and over 900 staff members. For comments, please email Renan.Piamonte@ph.gt.com or pagrantthornton.marketscomm@ph.gt.com. Visit our website: www.GrantThornton.com.ph; Twitter and Instagram: pagrantthornton, and FB: P&A Grant Thornton. _______________________________________________________________________________________ LandBank’s net income jumped 52% in first quarter posted May 09, 2018 at 07:40 pm by Julito G. Rada State-run Land Bank of the Philippines, the fourth-largest lender in terms of assets, said Wednesday net income jumped 52 percent in the first quarter to P4.26 billion from P2.81 billion a year ago on sustained strength of core businesses. The bank said in a statement the first-quarter profit also exceeded the target of P3.78 billion for the period by 13 percent. “This quarter’s performance assures us that we are gaining the momentum to meet our targets this year. The 31-percent growth in our loan portfolio is also a strong indicator of our fervent drive to reach more agribusiness borrowers, especially in the countryside,” LandBank president and chief executive Alex Buenaventura said. “The bank’s solid financial performance is our source of financial muscle to attain our bigger mission of promoting inclusive growth,” he said. The first-quarter net profit was brought about by a 47-percent surge in gross revenues to P17.4 billion from P11.8 billion a year earlier. The bank attributed a big chunk of the increase in net income to higher interest income on loans which grew 25 percent. Outstanding loans grew 31 percent to P694.71 billion from P529.16 billion. The bank said its return on equity and net interest margin reached 15.74 percent and 3.33 percent, respectively, which were above the latest industry average figures. Assets rose 19 percent to P1.63 trillion in the first quarter from P1.38 trillion in the same period last year. Deposits expanded 19 percent to P1.44 trillion from P1.22 trillion. LandBank said total capital went up 22 percent to P108.37 billion from P88.63 billion as of end-March 2017. Buenaventura said the bank remained aggressive in strengthening lending programs and tailoring new programs to the needs of clients, especially the priority sectors. LandBank said it remained the biggest lender to the agricultural sector, especially small farmers, fishers, microenterprises and SMEs. _______________________________________________________________________________________ Net incomes of big banks up 17.85% to P39.77 billion in first quarter – BSP Published May 8, 2018, 10:00 PM By Lee C. Chipongian The country’s big banks reported combined cumulative net profits of P39.768 billion in the first quarter this year, up 17.85 percent from same period in 2017 of P33.745 billion, data from the Bangko Sentral ng Pilipinas (BSP) show. Including thrift banks and rural/cooperative banks, the banking sector had combined net profits of R47.623 billion at the end of March, 22.87 percent higher year-on-year from P38.759 billion The universal and commercial banks’ interest income which comes from lending and deposits grew by 14.40 percent in the first quarter or to P98.037 billion from P85.691 billion. Non-interest income from securities trading, other service charges and fees increased by 31.60 percent to P36.066 billion from P27.407 billion. The entire banking sector’s net interest income was up 27.20 percent to P132.515 billion from P104.176 billion while non-interest income rose by 43.87 percent to P46.874 billion from P32.581 billion. Banks spent more in the first quarter 2018 compared to the previous year in terms of operating income, it went up by 18.57 percent year-on-year to P134.103 billion. Industry-wide total operating income was up by 31.17 percent year-on-year to P179.389 billion. The SM Group’s BDO Unibank, Inc. is still the country’s biggest bank followed by Metropolitan Bank and Trust Co. (Metrobank) and Bank of the Philippine Islands (BPI). The other big banks are China Banking Corp. (Chinabank), Philippine National Bank (PNB), Land Bank of the Philippines, Security Bank Corp., Development Bank of the Philippines, Union Bank of the Philippines and Rizal Commercial Banking Corp. (RCBC). Fitch Ratings which rates BDO, BPI, Metrobank, Chinabank, PNB and RCBC said local banks have adequate support to sustain profits but the debt watcher cautions against rapid expansion. “Rapid expansion places a greater demand on banks’ risk frameworks, systems and balance-sheet buffers, and increases the risk of credit misallocation which may only become clearer later on,” Fitch said in a special report: “Peer Review: Philippine Privately Owned Banks”. However, Fitch said broad indicators “suggest that aggregate leverage in the Philippines remains moderate – with banking system credit at around 52 percent of GDP.” _______________________________________________________________________________________ Bank resources grow 12% in Feb. to P14 trillion – BSPre it! Updated May 1, 2018, 10:23 PM By Lee C. Chipongian The country’s banking system has a higher total resources of P15.59 trillion as of end-February this year, up 11.67 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) show. This includes large lenders or the universal and commercial banks, thrift banks, and rural and cooperative banks. Including non-banks, the total financial system resources grew by 9.30 percent to P18.95 trillion. The big banks accounted for 90 percent of total banking resources with P14 trillion, up 12.19 percent from end-February, 2016’s P12.49 trillion. Thrift banks registered a 6.79 percent increase year-on-year, from P1.13 trillion to P1.21 trillion. The central bank data on rural and cooperative banks combined, as well as non-banks, usually is a quarter behind in the tally. As of December, 2017, rural and cooperative banks have resources amounting to P256.5 billion, 10.82 percent more than 2016, while non-banks – these are investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations — have P3.46 trillion, up four percent year-on-year. At the end of 2017, the banking sector’s total resources is equivalent to 98.1 percent of gross domestic product. Savings and demand deposits remain the primary sources of funds for the banking system. BSP Governor Nestor A. Espenilla Jr. said the country’s “healthy financial system has continued to fuel the growth momentum,” citing adequate domestic liquidity to fund the requirements of a strong economy and the “solid demand for loans across key economic sectors.” _______________________________________________________________________________________ Banks tightening on household loans By: Daxim L. Lucas - Reporter / @daxinq Philippine Daily Inquirer / 05:09 AM April 23, 2018 Local banks became more cautious in granting consumer loans during the first quarter amid a general increase in risk aversion in the local financial system, the latest survey of the central bank showed. In a statement, the Bangko Sentral ng Pilipinas said that lending to households reflected a “net tightening” in the first three months of the year based on one survey method, reflecting the imposition of higher credit standards. “In particular, credit standards for housing loans and personal or salary loans tightened due mainly to respondent banks reduced tolerance for risk,” the central bank said, citing the results of its quarterly survey on banks’ senior loan officers. In terms of specific credit standards, the overall net tightening of credit standards for household loans was reflected in the stricter loan covenants for housing loans and shorter loan maturities for personal or salary loans, it explained. Most banks indicated that credit standards for loans to enterprises were maintained during the quarter using the modal approach. The unchanged credit standards for business loans was largely attributed to the banks’ steady outlook for the economy as a whole and for major industries, as well as their unchanged tolerance for risk and stable profile of borrowers. Responses to the survey on loan demand indicated that the majority of the respondent banks continued to see stable overall demand for loans from both enterprises and households, while a second method revealed a net increase in loan demand across all firm sizes and all types of household loans. “The net increase in loan demand for firms was attributed by banks to their customers’ higher working capital requirements and banks’ attractive financing terms, among others,” the BSP said. “Meanwhile, respondent banks attributed the net increase in loan demand from households to low interest rates, more attractive financing terms offered by banks, and increased household consumption.” Overall, however, the results of the Senior Bank Loan Officers’ Survey for the first quarter showed that most banks continued to maintain their credit standards for loans. _______________________________________________________________________________________ BDO shelves ONB deal with TPG Philippine Daily Inquirer / 05:08 AM April 23, 2018 The country’s largest lender BDO Unibank has deferred a deal to sell a 40-percent stake in Davao-based rural bank One Network Bank (ONB) to a unit of US-based global private investment firm TPG. “The fund that was supposed to invest got used up. So they’ll have to find another fund and we decided that maybe we should not pursue it at this time because we want to move quickly. If we were to get another fund, we will wait for them again and it will delay our expansion,” BDO Unibank Nestor Tan said in a briefing on Friday. TPG Growth, the middle market and growth equity investment platform of TPG, signed a deal in 2016 to acquire a 40-percent stake in ONB while BDO would keep a 60- percent ownership. “It’s deferred and at some point it may push through, or it may be scrapped,” Tan said, adding that BDO had not set a timeframe on this transaction. Asked whether BDO is looking for another strategic partner for ONB, Tan said the bank was still in touch with TPG and working with its people but is keen on moving faster into the micro, small and medium enterprise (MSME) lending business faster through ONB, a leading lender in Mindanao. “We need to move from A to B. It’s either we start at A and B or we look at the whole thing once we get to B. In between, it’s not wise to make a move and we are in between [those points],” Tan said. BDO acquired ONB from the Consunji family in 2015 for some P6.67 billion. This rural bank has over 100 branches and offices. The vision for ONB is to expand MSME penetration. “We have big ambitions for most of our businesses but we can’t be too ambitious. We have to take it one step at a time to make sure that we are able to fund our expansion,” he said. For its part, TPG has partnered with more than 15 financial services companies across Asia. In 2008, TPG worked with Bank Tabungan Pensiunan Nasional (BTPN) of Indonesia to open more than 550 new branches and create a microloan business that grew the bank’s customer base to more than two million group lending program clients and 250,000 MSMEs. Across its platform, TPG has invested in a wide variety of financial services companies throughout Asia, including Indonesian financial institution BFI; Janalakshmi, India’s largest microfinance institution; the Shenzhen Development Bank in China; and Union Bank of Colombo in Sri Lanka. —DORIS DUMLAO-ABADILLA _______________________________________________________________________________________ BSP eyes risk-based pricing for bank loans By Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) is reviewing guidelines that will improve banks’ credit assessment of potential borrowers and to better assign risk levels for certain types of loans. BSP Governor Nestor A. Espenilla Jr. said when adopted, borrowers with good credit standing can access higher loan limit with lower interest rates. “To differentiate risks among bank borrowers, we are currently studying adoption of the risk-based pricing framework for bank loans,” Espenilla said. “This will encourage good borrowers to avail of more loans because of the lower interest on account of their good credit standing.” The proposal, the BSP chief added, should “reduce potential systemic risk from competitive pressures that may result in lower interest rates even for customers with poor credit quality.” The BSP, to monitor banks’ lending behavior, conducts a quarterly survey to assess credit activity. Using the results of the Senior Bank Loan Officers’ Survey or SLOS, it watches credit demand conditions as well as conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy. The survey questions loan officers’ perceptions on the condition of their respective banks’ overall credit standards, and the issues that affect the supply of and demand for loans to both enterprises and households, explained the BSP. Based on the latest SLOS report which covered the last quarter of 2017, banks have not changed the way they review and assess credit standards for the past 35 quarters or since mid-2009 amid steady loan demand. The BSP utilizes two models to review the survey results, the modal approach and the diffiusion index or DI approach. On a quarter-on-quarter analysis, about 88.9 percent of banks surveyed said they did not change the credit standards for loans to enterprises in the last quarter of 2017 using the modal approach. Under the DI review however, there was a slight net easing of credit standards for business loans because of “improved profitability and liquidity of respondent banks’ portfolios.” The BSP also noted that a favorable outlook on the economy and banks’ increased tolerance for risk, among others, contributed to the net easing. _______________________________________________________________________________________ ‘Branchless’ banking app needs special license, BSP says By Jun Vallecera - February 25, 2018 The Bangko Sentral ng Pilipinas (BSP), considered as one of the most dynamic regulators in the monetary universe, requires banks to obtain a special license for the use of an app that allows them to branch out at the fraction of the cost of a bricks and mortar branch. This was learned from the app developer whose backers include the SBI Group headquartered in Tokyo and the Dutch development bank FMO. The product requiring a special license is called Bank-Genie, one that allows lenders to branch out anywhere at the cost of a $200 tablet, a $40 card reader and a $60 printer, tops. This compares with bricks and mortar branches that typically cost in excess of P10 million per branch, based on information obtained from private banks. Such upfront costs also typically take five years to recover and only then do those branches begin to make money for shareholders, the bankers said. Already, the developer headquartered in Singapore is in the advanced stages of negotiation with some of the largest universal and commercial lenders in the country, although its founder and CEO, Ramkumar Sarma, would rather that thrift and rural lenders get the app for themselves and give the big banks a run for their money. Sarma said banks everywhere have to contend with accelerating competition coming from the financial-technology (fintech) sector that in the Philippines is represented by the telecommunications firms offering so-called electronic wallets, such as G Cash by Globe Telecom and Smart Money by Smart Communications. Even ride-sharing firms Grab and Uber allow patrons to top up their e-wallets that some in the financial sector claim is an activity technically a deposit-taking activity that needs a license from the BSP. But Sarma said the whole point to offering the banks the app is consistent with the financial-inclusion advocacy for which the BSP is known and supports in full. Sarma himself comes from India where small traders and craftsmen without bank accounts take out a loan of 5 rupees in the morning and pay back with six rupees by day’s end. He said he had been shown data showing 67 percent of Filipinos without bank accounts, effectively barred access to the formal financial system that helps perpetuate their state of penury. “These people need to be brought in. If excluded, they will remain poor,” Sarma said. BSP Deputy Governor Diwa C. Guinigundo said banks intending to use the app need to have a license that could prove temporary to ensure against fly-by-night developers and to protect the interest of the banking public against such issues as fraud and security of transactions, among others. “That’s the essence of the regulatory sandbox,” he said by a text message. He would not disclose which local banks have taken interest in the product that may be paid for with a one-time fee or alternately, one in which there is no upfront cost but the app developer gets a fraction of the cost of each transaction. Sarma said Bank-Genie was first introduced in Africa, where millions do not have access to the formal financial services and whose requirements fall far below the minimum dispensed by regular lenders. “After our study, it became apparent that the Philippines is the right location for our [proposed] global customer support center for our growing client base. It offers a number of considerable advantages, such as the availability of well-trained and hard working talent,” he said. _______________________________________________________________________________________ Combined bank resources grow 13% to P14.96 T in Oct. Published January 11, 2018, 10:00 PM By Lee C. Chipongian The country’s banking sector increased its total resources to P14.96 trillion as of end-October 2017, up 13.16 percent from the same period of the previous year, data from the Bangko Sentral ng Pilipinas (BSP) show. The universal and commercial banks’ total resources amounted to P13.52 trillion which was higher by 13.56 percent year-on-year or from P11.90 trillion. Thrift banks reported P1.199 trillion, up 10.40 percent from P1.086 trillion same period in 2016. The entire financial sector had total resources of P18.193 trillion as of end-October last year, more than the previous year’s P16.444 trillion. These includes the data on non-banks and the smaller rural and cooperative banks, however the data on these sectors have lagged time of three to four months and are based on the submitted consolidated statement of condition. The BSP-supervised non-banks as of end-June had total resources of P3.229 trillion while the rural and cooperative banks have P244 billion. Non-banks include investment houses with trusts businesses, non-stock savings and loan associations, pawnshops, financing companies, security dealers/brokers, and trust corporations. The banking sector’s total resources is equivalent to almost 97 percent of gross domestic product. Savings and demand deposits remain the primary sources of funds for the banking system. In a report recently, the BSP said the Philippine banking system continue to perform solidly and is resilient with stable growth in lending which was “accompanied by adequate bank capitalization and loan exposure coverage.” The BSP also noted that banks’ balance sheets, particularly the big banks, reflect steady growth in assets and deposits. As of end-third quarter, the industry reported deposits growth of 14.3 percent year-on-year to P8.8 trillion. According to the central bank, banks continued to dominate the financial sector, with universal and commercial banks accounting for about 90 percent of banks’ total resources. In terms of the number of head offices and branches/agencies, non-bank financial intermediaries maintained its relatively wide physical network, consisting mainly of pawnshops, it said.

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