Monthly Archives: July 2014

A twin benefit awaits Al Amanah Islamic Investment Bank future owner

Here’s a golden opportunity for a foreign investor to get into the Philippine banking industry as well as have first mover advantage in widening the Islamic banking market in the Philippines. Let’s see how we can find a suitable opportunity to make this happen.

 

BusinessWorld Philippines

July 28, 2014

Islamic bank eyes new life after years of struggle

A PEACE plan, a lifting of foreign ownership limits and the drafting of new Islamic banking rules in the Philippines could help breathe new life into one of the world’s oldest Islamic finance institutions.

Since 1974, Makati-based Al Amanah Islamic Investment Bank has been the only lender in the country offering financial products that obey religious principles such as a ban on interest and gambling.

But while Islamic banks around the globe enjoy rapid growth rates and bumper profits, Al Amanah has failed to post a profit for years, and was ultimately forced to offer conventional banking products just to keep afloat.

The case of Al Amanah highlights the challenges that Muslim minorities face in accessing interest-free banking services outside of Islamic banking’s core centers in the Middle East and Southeast Asia.

Lacking scale and Islamic banking expertise have meant Al Amanah has struggled despite a five-year rehabilitation plan started in 2009 by its parent, the Development Bank of the Philippines (DBP).

In 2012, Al Amanah posted a loss of 30.6 million pesos ($706,400), although it was an improvement from 2008 when it posted a loss of 124.3 million pesos. This could change as a landmark peace deal between the Philippine government and Muslim rebels helps revive the country’s south, after a 40-year conflict that displaced two million and stunted economic growth.

The agreement, brokered by the Malaysian government, will give the Muslim-majority region known as Mindanao wider powers to control their economy and culture. In line with the agreement, the central bank is preparing dedicated Islamic banking rules.

Earlier this month, the government allowed foreign banks to take full control of local lenders, replacing a cap of 60% on foreign ownership.

All these factors are rekindling interest from potential buyers for Al Amanah, said Francis Nicolas Chua, officer in charge of investment banking at DBP.

“Since last year, we have received a number of proposals from across Asia, Middle East and Europe, to partner or inquire on a sale.”

These have come from both full-fledged Islamic banks and universal banks with Islamic units, said Mr. Chua, who did not identify the parties.

“As far as Al Amanah, the government is currently in review of the whole process. The Government wants to ensure the framework is in place before privatizing.”

Mr. Chua said any potential buyer would have to make a public bid for Al Amanah, as DBP’s policy is to go through an open bid process for any sale.

Al Amanah has courted buyers for years not just to inject capital but also to introduce new products and reverse the use of interest-bearing products in the bank’s portfolio.

Islamic scholars allow such a practice under the concept of darura, or extreme necessity.

So far, however, no Islamic banks have made their intentions public.

Last week, local media reported that Malaysia’s CIMB Group Holdings, parent of CIMB Islamic Bank, was planning to take a stake, but when approached by Reuters a spokesperson at CIMB denied the bank was pursuing such an acquisition.

A source at Al Amanah said a Malaysian group did make a bid in 2006 but this was conditional on the government developing a regulatory framework for Islamic banking within a two-year time frame. “That didn’t happen so they backed away from the bid,” said the source who declined to be identified as the matter is not public, although the new developments could encourage new interest.

“Maybe the right people haven’t come in yet.” — Reuters

Article location : http://www.bworldonline.com/content.php?section=Finance&title=Islamic bank eyes new life after years of struggle&id=91693

LGUs now coming to the PPP party

First it was Pasay city partnering with SM to reclaim land from Manila Bay. Although this has been stalled for other issues, it looks like the floodgates are open for other LGUs to do a similar approach to meet their community needs. The current one is Valenzuela where JVs are being encouraged. I hope there will be a strong governance process present in all these PPP the LGUs will do and not another opportunity for graft and corruption. Hopefully, better services will be provided as a result too.

 

From BusinessWorld Philippines

July 27, 2014

Valenzuela issues JV guide

THE CITY of Valenzuela has issued guidelines it hopes would spur private sector investments that could help prod development.

Ordinance No. 140, series of 2014 — signed into law last July 14 by Mayor Rexlon T. Gatchalian and published in a newspaper last July 21 — outlined requirements and procedures for joint ventures (JV) between the city and private sector partners.

The city cited the need for such a local law since “a joint venture is not a variant under Republic Act (RA) No. 6957, as amended by RA 7718 — popularly known as the Build-Operate-Transfer law — and does not involve procurement as defined under RA 9184 or the Government Procurement Act” and because “joint ventures by local government units are excluded from the coverage of the 2013 and 2008 Joint Venture Guidelines issued by the National Economic and Development Authority (NEDA)”.

The law — titled “The Joint Venture Ordinance of Valenzuela City” — also noted that the Justice as well as Interior and Local Government departments, in separate opinions in 2012 and earlier this year, confirmed “the absence of a detailed statute and framework on local government unit joint ventures…”

Sought for comment, Mr. Gatchalian said in a telephone interview last July 21: “We enacted this because we wanted to keep our options open and unlock the potential value of PPPs (public-private partnerships), of partnering with the private sector for the city.”

“We went to the PPP Center and NEDA recently and what we have now is patterned after the template of guidelines they gave us,” Mr. Gatchalian added.

According to the ordinance, the city government may enter into joint ventures with private sector partners for projects within city limits, and even outside this boundary provided projects concerned help city inhabitants.

The local law also specifies modes of participation by the city government in joint ventures with the private sector, as well as sources of funding like its Internal Revenue Allotment — or its share in national government tax collections — as well as Special Education Fund when the project is education-related and Calamity Fund when disaster response is involved.

Projects covered should involve infrastructure, other development as well as service-related projects “which are traditionally or not traditionally provided or supplied by the City”. The list, the ordinance said, includes power plants including hydroelectric projects; dams; highways; airports and sea ports; canals; drainage systems; water supply; sewerage; irrigation; telecommunications; railways; other transport systems; land reclamation; dredging; industrial estates or townships; housing; buildings; tourism projects; markets; slaughterhouses; solid waste management; information technology networks and database infrastructure; education and school facilities; prisons; hospitals and health services; memorial parks and services; parking structures and traffic management; material testing; zoos, parks and plazas; sports, leisure gaming and recreational facilities; cockpits; theaters; as well as “any of the devolved activities under Section 17 of the Local Government Code of 1991”.

It added that private sector proponents, and the facility operator if it is separate, must be at least 60% Filipino-owned in case projects require public utility franchise, but clarified that those that do not require such franchise may be majority foreign-owned.

Joint venture projects will undergo auction or, in the case of an unsolicited proposal, Swiss Challenge under which the city will invite other interested parties to submit comparative proposals.

The city will resort to direct negotiations in case an auction yields only one complying bidder.

The ordinance also set the deadlines for pre-qualification of interested parties; pre-bid conference; recommendation, decision and notice of award; as well as execution, submission and ratification of joint venture agreements, besides defining requirements for prequalification, for technical proposals, and for bid submission, among others.

It also set bid security to be specified in technical proposals at 3% of project cost if less than P100 million; 2.5% of project cost or P3 million — whichever is higher — if cost is P100 million to less than P500 million; 2% of project cost or P12.5 million — whichever is higher — for P500 million to less than P1 billion; 1.5% of project cost or P20 million, whichever is higher, for P1 billion to less than P5 billion; and 1% of project cost or P75 million, whichever is higher, for those worth at least P5 billion.

The mayor, “upon recommendation of the Bids and Awards Committee, may issue” implementing rules and regulations for the ordinance, which itself takes effect 15 calendar days after publication in at least two newspapers.

Article location : http://www.bworldonline.com/content.php?section=Economy&title=Valenzuela issues JV guide&id=91630

 

URC expands business in NZ with purchase of local business worth NZ$700 Million

John Gokongwei Jr, the founder of this company is a well known Chinese businessman who even during the early stages of the business shown boldness and daring. While his company was known to Filipinos to offer their own version of junk food by producing snack products branded Jack N Jill, he also challenged the dominance of Nestle in coffee by offering its own Great Taste brand coffee. Its recent brand achievement was introducing C2 for ready to drink tea drinks competing with Lipton and again Nestle. But even outside his business, he sought bigger aspirations by seeking for a board seat in San Miguel Corporation at the time the Sorianos run the company. Viewed as a competitor, the Sorianos made it illegal for him to do this. One reason he gave in seeking for the seat was he can add value by providing strong governance inside the company by raising questions on why San Miguel has to pay management fees to a Soriano controlled company given its huge business size to manage its own affairs. At the end of the day, the Sorianos no longer control San Miguel while Mr John’s business is even bigger than ever. Thinking about the person and the company, I should not be surprised URC goes global by buying New Zealand’s leading snack food company worth NZ$700 million (over US$600 million) . Imagine a Philippine company buying  a business in a developed country. And unlike another recent acquisition made by First Pacific (headed by Manny Pangilinan) of Goodman Fielder, it funded the entire purchase solely doing it without any partners.  Bold and daring.

 

From Businessworld Philippines

July 21, 2014

URC buys overseas rival for NZ$700M

THE MAIN food and beverage unit of the Gokongwei family has taken over New Zealand’s leading snack food firm for NZ$700 million in a bid to be a “significant regional player.”

In a statement attached to a disclosure, Universal Robina Corp. (URC) yesterday said it was buying 100% of NZ Snack Food Holdings Ltd. (NZFHL), through wholly owned offshore unit URC International Company Ltd., from Pacific Equity Partners (PEP).

URC International will immediately pay NZ$100 million in cash and the remainder upon the closing of the transaction, which will have to be approved by New Zealand’s Overseas Investment Office.

NZFHL is the holding firm of Griffin’s Foods Ltd., the market leader in the New Zealand’s biscuit segment and a major supplier of retailer branded products in Australia. It sells to more than 20 countries and URC, a unit of conglomerate JG Summit, Inc., said it “intends to expand on these export opportunities.”

“We believe Griffin’s is a natural strategic fit to our existing snack foods portfolio given its strong brand heritage in New Zealand — a country trusted worldwide in having high credibility when it comes to food quality, safety and authenticity,” URC President and Chief Executive Officer Lance Y. Gokongwei was quoted in a separate statement as saying.

URC said the proposed acquisition would “transform” Griffin’s international growth strategy as it will benefit from URC’s existing distribution networks.

“In addition, the acquisition complements URC’s product portfolio, leveraging its distribution strength to sell a premium range of products in its home and international markets,” it said.

URC, which currently has operations in Vietnam, Thailand, Indonesia, Malaysia, Singapore, Hong Kong and China, plans to expand “soon” in emerging markets like Myanmar, Laos and Cambodia.

“The Griffin’s board believes URC’s significant experience in developing its own export markets makes it the ideal partner to take Griffin’s forward as it embarks on this next exciting stage of growth,” Griffin’s Executive Chairman Ron Vela said in the statement.

PEP, Australia’s largest buyout firm, has been taking advantage of booming demand for Australian and New Zealand food suppliers as offshore rivals tap strong demand for quality food to feed Asia’s growing middle class.

“We’re confident the [Griffin’s] growth story will continue under the ownership of [URC], facilitating further growth into ASEAN markets,” PEP Managing Director David Brown said in a statement, referring to the Association of Southeast Asian Nations where Universal has business.

The sale would be the second for PEP during a period of strong interest in makers of high-quality food products needed to satisfy the demand of Asia’s growing middle class.

In May, PEP sold Australian ice-cream maker Peters Food Group Ltd. to Britain’s R&R Ice Cream PLC for a reported A$450 million, doubling its investment in two years.

PEP’s latest sale of Griffin’s — whose brands of snacks include Eta, Huntley & Palmers and Nice & Natural — would yield a similar return after having bought the company from France’s Danone SA 2006 for NZ$385 million.

The sale is part of a major asset selldown at PEP, which so far this year has listed cleaner-caterer Spotless Group Ltd. and sanitary products maker Asaleo Care Ltd.

But it is Australasian food assets that have drawn particular international attention in recent months.

In May, China’s Wilmar International Ltd. and Hong Kong’s First Pacific Co. Ltd. agreed to buy baker and dairy company Goodman Fielder Ltd. for A$1.32 billion ($1.24 billion).

In January, Canada’s Saputo Inc. fended off eight other international suitors in a protracted bidding war for control of Warrnambool Cheese and Butter Factory Company Holdings Ltd.

In the same month, China’s state-owned Bright Food Group Co. Ltd..bought yoghurt and cheese maker Mundella Foods for an undisclosed sum, three years after paying A$530 million for 75 percent of Manassen Foods.

Trading in URC shares was suspended yesterday. The shares have gained 40% so far this year compared with a 16% rise in the benchmark PSE Composite Index. — Daphne J. Magturo and Reuters

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=URC buys overseas rival for NZ$700M&id=91289

Opening ourselves to opportunities of Islamic finance

A friend of mine who used to work for a Malaysian based financial institution shared with me the information of the huge opportunities in Islamic finance. Being a Catholic, I never got to know how huge the demand of this market given the huge number of Muslims not only in the country but in the entire world. So its nice to know the Philippine Stock Exchange has made an effort of developing a list of publicly listed stocks that are compliant to this type of finance.

From BusinessWorld Philippines

July 07, 2014

PSE trims list of Shariah-compliant companies

THE NUMBER of listed firms found compliant with the principles of Islamic law has narrowed following a quarterly review by the Philippine Stock Exchange (PSE).

An updated list of Shariah-compliant securities, uploaded on the bourse’s web site on Monday, named 51 out of 296 listed firms, down from the 61 cited in April.

DoubleDragon Properties Corp.; Easycall Communications Philippines, Inc.; Victorias Milling Company, Inc. and Vitarich Corp. were new entrants.

Rounding up the latest list were:

• Abra Mining and Industrial Corp.;

• Apex Mining, Inc.;

• Araneta Properties Inc.;

• Asian Terminals, Inc.;

• ATN Holdings, Inc. “A”;

• ATN Holding, Inc. “B”;

• Bogo-Medellin Milling Company, Inc.;

• Calapan Ventures, Inc.;

• Centro Escolar University;

• Chemrez Technologies, Inc.;

• Cirtek Holdings Philippines, Inc.;

• Concepcion Industrial Corp.;

• D&L Industries, Inc.;

• Da Vinci Capital Holdings, Inc.;

• DMCI Holdings, Inc.;

• EEI Corp.;

• Far Eastern University, Inc.;

• Forum Pacific, Inc.;

• Globalport 900, Inc.;

• Holcim Philippines, Inc.;

• iPeople, Inc.;

• IRC Properties, Inc.;

• Island Information & Technology, Inc.;

• Jollibee Foods Corp.;

• Lafarge Republic, Inc.;

• Liberty Flour Mills, Inc.;

• Mabuhay Vinyl Corp.;

• Manila Bulletin Publishing Corp.;

• Manila Electric Co.;

• Marcventures Holdings, Inc.;

• Minerales Industrias Corp.;

• Nickel Asia Corp.;

• Now Corp.;

• Oriental Peninsula Resources Group, Inc.;

• Pepsi-Cola Products Philippines, Inc.;

• Philex Miing Corp.;

• Philex Petroleum Corp.;

• Philippine Long Distance Telephone Co.;

• Semirara Mining Corp.;

• SPC Power Corp.;

• Starmalls, Inc.;

• STI Education Systems Holdings, Inc.;

• Swift Foods, Inc.;

• United Paragon Mining Corp.;

• Universal Robina Corp.;

• Vulcan Industrial & Mining Corp.; and

• Wellex Industries, Inc.

The 14 who were dropped were: Aboitiz Equity Ventures, Inc.; Aboitiz Power Corp.; Dizon Copper Silver Mines, Inc.; Federal Resources Investment Group, Inc.; Greenergy Holdings, Inc.; Ionics, Inc.; iRipple, Inc.; ISM Communications Corp.; Jolliville Holdings Corp.; Millennium Global Holdings, Inc.; MRC Allied, Inc.; NiHAO Mineral Resources International, Inc.; Pacifica, Inc.; and Vivant Corp.

In April, 25 companies were added and 12 removed from the list.

San Francisco-based Islamic finance specialist IdealRatings, Inc. screened the listed firms using standards set by the Accounting and Auditing Organization for Islamic Financial Institutions.

To be Shariah-compliant, a firm’s primary business should not be involved in conventional interest-based lending, insurance, mortgage and leasing, derivatives, pork, alcohol, tobacco, arms and weapons, embryonic stem cell research, hotels, gambling, casinos, music, cinema and adult entertainment.

It can be involved in these activities but the corresponding revenues should not exceed 5% of the total.

Moreover, interest-bearing debt and interest on deposits/investments should not exceed 30% against the company’s 12-month average market capitalization.

Also, accounts receivables should not exceed 67% against the 12-month average market capitalization. — Claire-Ann Marie C. Feliciano

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=PSE trims list of Shariah compliant companies&id=90511

The Path of Our Lives

The Path of Our Lives.

For those of us who want to make a difference and change the world, please enjoy reading this article from Steve Blank.

The gates of Philippine Banking open to foreigners August 1 2014

Wow. I must had been sleeping when this legislation was been passed in Congress. The law liberalizing the banking sector is currently pending with the President. By 30 July, if its not signed, it lapses into law. And the wheels are in motion for the BSP to issue the implementing circulars for the law. Let’s hope Australian banking institutions consider and use the opportunity to enter a 100 million population market. ANZ Banking Group was one of the first in the mid-1990 when 10 foreign banks were allowed in. Let’s see what we can do here to promote this opportunity down under to the 3 banks here.

From BusinessWorld Philippines

July 06, 2014

BSP ready for further industry liberalization

THE BANKING industry could be opened to more offshore financial institutions within the year once a measure permitting full foreign ownership is enacted, a senior Bangko Sentral ng Pilipinas (BSP) official said.

With the bill liberalizing the entry and scope of foreign banks in the Philippines “a done deal,” central bank Deputy Governor Nestor A. Espenilla, Jr. said the BSP was prepared to craft the implementing rules.

“It’s just waiting for the signature of the President. [The BSP] has 90 days to make the implementing rules. We’re ready to do that,” Mr. Espenilla told reporters last week.

“If all goes well, by the end of July, it’s either signed or it lapses into law. Before the end of the year, we open ourselves already to foreign investments.”

The Senate last June 9 approved on third and final reading Senate Bill 2159, a measure that amends Republic Act (RA) 7721 or “An Act Liberalizing the Entry of Foreign Banks in the Philippines,” which was enacted in 1994.

SB 2159 seeks to expand the participation of qualified foreign banks in the Philippine financial sector. It allows foreigners to own up to 100% of domestic banks and permits the entry of “established, reputable and financially sound foreign banks.”

Current limits to the number of foreign banks operating in the country will likewise be eliminated. RA 7721 allows the entry of only up to 10 banks fully owned by foreigners to operate in the country.

A counterpart bill to SB 2159 — House Bill (HB) 3984 — was approved by the House of Representatives in May. The two bills were approved as reconciled last June 11 and sent to the Office of the President for signature and approval last June 26.

The BSP has thrown its support behind the measure, noting that it will help the banking sector become more competitive in the wake of regional integration.

“The needs of the economy are growing, our firms are growing. By having additional players, there are more sources of credit that can support the growth of business,” Mr. Espenilla said.

“Competition also promotes better prices, better services and better access. Everybody wants to remain attractive to customers so they improve.”

The liberalization of the industry will also attract more foreign direct investments, the BSP official added.

“Foreign banks … have established relationships with the companies in their own countries and of course as a foreign direct investor you want to deal with firms you are familiar with. So once a foreign bank is here … there’s synergy there. There is a strong connection between those foreign banks and the entry of foreign investments coming from the home country of those banks.”

Meanwhile, Mr. Espenilla said the BSP was likewise eyeing to implement by yearend more stringent capital rules for “too big to fail” banks in line with its financial stability mandate.

“It’s ready. We’re programming it,” he said when asked about the status of a framework covering domestic systemically important banks (DSIB).

“But Basel III just took effect, so maybe we should take it slowly. It’ll be hard to implement these all at once. Possibly by the end of the year. It’s actively being discussed,” Mr. Espenilla said.

“We’re also reviewing the credit risk manual for banks, their credit risk management policies … but that’s under consultation. It’s not yet ready. We’re also preoccupied with implementing the potential foreign bank entry. There are a lot of things happening so we have to manage these changes.”

The Bank for International Settlements (BIS) Basel Committee, which sets guidelines for banking regulations around the world, has mandated that a framework on DSIBs be implemented by 2016.

Part of the framework will require DSIBs to have higher capital adequacy ratios (CAR) compared to smaller banks, which means big banks will be classified depending on their importance to the financial system.

The CAR is one of the main indicators of financial health. It indicates how much capital a bank has in relation to its risk-weighted assets, such as money lent out to clients or holdings of debt instruments.

Big banks are currently required to maintain a CAR of 10% under Basel III guidelines.

BSP data showed that at end-2013, the CAR of universal and commercial banks on a solo basis stood at 16.5%, slightly lower than the 17.51% recorded three months earlier. On a consolidated basis, big banks’ CAR averaged 17.65% at end-December, also lower than the 18.62% registered the previous quarter.

Capitalization on a solo basis covers a bank’s head office and its branches, while the consolidated basis includes its subsidiaries.

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=BSP ready for further industry liberalization&id=90434

Open the doors and let them in

The opportunity of opening the doors to foreigners to own 100% of a local bank has already started with foreign institutions taking a closer look at the local market and search for suitable candidates for acquisition. Let’s hope the proposed legislation becomes law and allows this to happen.

From BusinessWorld Philippines

July 03, 2014

Foreign suitors woo local banks ahead of deregulation

SINGAPORE/MANILA — A planned law allowing foreign firms to take full control of Philippine lenders is drawing eager suitors to the sector, including Japan’s Mitsubishi UFJ Financial Group and Malaysia’s CIMB Group Holdings, bankers familiar with the matter say.

The attraction also lies in the Philippines’ emergence as one of Southeast Asia’s most rapidly growing economies — one that has sharply boosted personal incomes and demand for loans — while the banking sector is highly fragmented and underdeveloped, making it ripe for consolidation.

Others scoping out acquisition opportunities are private equity firms such as TPG as well as Taiwanese banks, the bankers said, adding that targets include Rizal Commercial Banking Corp. (RCBC).

“The Philippines’ banking sector is an attractive market for foreign banks and PE funds because it offers the perfect mix of fast growth in individual wealth and investability,” said Keith Pogson, Asia financial services leader at accounting and consultancy firm EY.

By contrast, China, Indonesia and Malaysia place limits on foreign investment in banks.

The Philippine law would replace a cap of 60% on foreign ownership and abolish previous rules that allowed just 10 foreign banks in the country. Already passed by Congress, it awaits the approval of President Benigno S. C. Aquino III, who has flagged this is likely to come soon.

It is one of a slew of economic reforms led by Mr. Aquino that follow the Southeast Asian nation’s long sought attainment of an investment grade credit rating last year, and brings the Philippines in line with countries like Australia and Japan which allow banks to be wholly owned by foreign firms.

Gaining full control of a local bank, as opposed to just 60%, will allow foreign banks to merge a Philippine lender’s operations with their own — a strategy that makes it easier for them to capitalize on regional trade flows and serve companies in their home countries that want to invest in the Philippines.

The latter motivation is particularly true of Japanese banks like Mitsubishi UFJ, sources said.

“All the heavy industries and construction companies from Japan see a huge amount of infrastructure spending in the Philippines,” said a M&A banker at a European bank.

“The Japanese banks want to be there … so they can fund these companies. If you step back further, there is also a strong political desire on the part of the Japanese leadership to have strong ties with ASEAN.”

An executive at a large Japanese bank said they were looking to acquire a Philippine lender but added it had yet to narrow down any targets. The planned law was also discussed by Mr. Aquino and Japanese Prime Minister Shinzo Abe during Mr. Aquino’s trip to Japan last month, with Mr. Abe expressing approval.

Representatives for Japan’s top three banks — Mitsubishi UFJ, Sumitomo Mitsui Financial Group and Mizuho Financial Group — did not respond to requests for comment.

The potential for growth in retail banking may also appeal to some foreign banks. Over the last 10 years, the growth rate for individual wealth has averaged 12% — Asia’s highest, according to data from EY and Credit Suisse, yet 80% of Filipino households still do not have a bank account.

Among other lenders, Malaysia’s CIMB said in May it is looking at mid-tier banks after efforts to buy 60% of San Miguel Corp.’s unlisted banking unit fell through.

Singapore’s DBS has said it would consider an opportunity in the Philippines if it fits its strategy. Last year it walked away from Indonesia’s PT Bank Danamon after changes in ownership limits prevented it from taking majority control.

TPG and CVC Capital Partners are among buyout firms looking at potential acquisitions, bankers said. They declined to comment.

On one hand, the outlook for loan demand in the Philippines is robust, accounting for the industry’s forward 12-month price-to-earnings ratio of 14, the highest among banks in Asia-Pacific.

Aggregate bank loans are expected to climb between 10-15% this year, according to Standard & Poor’s Ratings Services. Central bank data also show loans for producing goods and project financing were up 19% in May from a year earlier while consumer loans were up 11%.

But the industry in its entirety is small. Singapore’s DBS has nearly 1.5 times more assets than the combined assets held by the Philippine banking sector.

It is also overcrowded with 700 banks. Indonesia, with more than twice the population, has 120. And many lenders are truly minnows, with the top seven of 36 commercial banks controlling two-thirds of the industry’s assets.

That has made a compelling case for consolidation, particularly ahead of new capital rules and the planned law has the backing of both the Philippines’ central bank and its banking association.

“We’ve been sending the signal that if you are below a certain scale, sub-scale or your operations are not economical and competitive — so you have options, either you level up or you combine or you sell out,” Nestor A. Espenilla, Jr, the central bank’s deputy governor, told Reuters.

The government is in the process of selling United Coconut Planters Bank, which has drawn interest from Philippine National Bank and may attract foreign bidders, people familiar with the matter said. Ranked 12th in the Philippines, it has assets of around P265 billion ($6 billion).

But bankers note that the most appealing targets are also the least likely to be interested in accepting a full takeover, although they may be open to selling a stake.

Two of the most attractive targets may be Philippine National Bank, the country’s 5th largest lender, and RCBC, ranked No. 8, said Lexter Azurin, head of equity research at Unicapital Securities Inc. The two banks trade at price-to-book ratios of 1.4 and 1.1, respectively, cheaper than the industry average of 1.7.

PNB CEO Reynaldo A. Maclang said his bank was not considering a merger with a foreign lender and RCBC CEO Lorenzo V. Tan said the bank may consider a non-controlling capital infusion.

East West Banking Corp., the nation’s 14th biggest lender, says it has fielded interest from foreign bidders.

CEO Antonio C. Moncupa, Jr. said the bank might be open to partnerships or a stake sale, but not a takeover. “If we think it will take the bank higher, then we will consider,” he told Reuters. — Reuters

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=Foreign suitors woo local banks ahead of deregulation&id=90349

The Ying and Yang of the Rural Banking Industry in the Philippines

The opportunities present with the opening to foreign investment up to 60% ownership, we have a chance to revolutionise the smallest part of the Philippine banking system. I would think whatever challenges the industry currently faces will be slowly addressed as the capital, technology and management expertise available from abroad come to revive a banking system focused on countryside development.

From BusinessWorld Philippines

July 02, 2014

Rural banks said facing ‘greater’ challenges

THE COUNTRY’s rural banks are in a “struggle” to maintain their relevance, an industry leader said Tuesday, noting that management and regulatory compliance issues continue to hound the sector now bracing for stiffer competition.

“Rural banks continue to operate in a challenging environment. We continue to suffer from poor reputation brought about by a large number of rural banks being closed,” newly inducted Rural Bankers Association of the Philippines (RBAP) President Jose Misael B. Moraleda said in his inaugural speech Tuesday night.

“The efforts and costs in order to survive, compete, and meet the demands of the market — including the regulatory requirements — are greater than before,” Mr. Moraleda said.

“More and more of us find it difficult to compete with the superior products and efficiency being offered by bigger banks,” he admitted.

“Today, as the country goes through a positive economic transition, we find ourselves in a constant struggle to prove our relevance in the societies we serve.”

At the sidelines of the event, Mr. Moraleda said in an interview that challenges facing rural banks include obstacles to management professionalization.

“There are rural banks that are professionally run already, but some are still in the process,” Mr. Moraleda said.

“Right now, there are some practices that BSP (Bangko Sentral ng Pilipinas) is promoting. Let’s say the oversight of the board: the board has to be active, management has to be guided with a lot of policies and guidelines,” the industry leader noted.

“Some rural banks, as they transition, are not yet used to it,” Mr. Moraleda said.

“But right now, because these are regulatory requirements, we are actually forced to adapt to the new and prudent ways in running the banks, so it is really a challenge. It’s either we address this or we face some of the penalties.”

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. gave the same picture.

“Rural banks face increasingly stiffer competition. This is coming from both smaller and bigger players,” Mr. Tetangco said in his own speech.

“More cooperatives and NGOs (nongovernment organizations) now operate in the countryside, with relatively lower cost than most rural banks… these entities may acquire portions of your market,” the central bank governor told his audience, composed of leaders in the sector.

“We also see the increasing presence of larger financial institutions in various municipalities,” he added.

“Furthermore, the passage of legislation allowing the infusion of foreign equity in rural banks is bound to be a game-changer.”

In August last year, the BSP issued Circular No. 809, meant to support the goals Republic Act No. 10574 that amended the Rural Banks Act of 1992.

The measure allows infusion of foreign equity in rural banks. Foreign individuals, banks or non-bank corporations can now own or control up to 60% of the voting stock of a rural bank.

Previously, foreign individuals and non-banks could take up only a 40% stake in universal, commercial and thrift banks, while foreign banks could acquire 60%.

Nevertheless, Mr. Tetangco reported that the rural banking industry is still growing.

“The Philippine rural banking sector continues to grow and expand, as indicated by key performance indicators, including consolidated assets, deposits, and loans,” the central bank chief said.

“As of March this year, the total resources of rural banks stood at P209.4 billion, representing a year-on-year growth of 8.8%,” he said.

“At the same time, total loan portfolio increased by 6.5% to P138 billion, while deposits climbed 10.6% to P145 billion.”

In his address, Mr. Tetangco also touted BSP’s own initiatives to support the sector.

“Another program tailor-fit for rural banks is the Strengthening Program for Rural Banks (SPRB), a joint undertaking of BSP and PDIC (Philippine Deposit Insurance Corp.),” Mr. Tetangco said.

“Launched in 2010 to strengthen rural banks and to minimize bank closures, the program has been extended as SPRB+ until December 2014 to encourage more mergers, consolidations, and acquisitions of eligible rural banks and thrift banks by strategic third party investors,” the governor explained.

“As of June 30, 2014, seven merger consolidation applications involving 15 banks have been approved by the PDIC and are being processed by the BSP,” Mr. Tetangco said. “In addition, there are five other applications for consolidation and acquisition that are in the pipeline.”

But rural banks’ fortunes are not dependent just on upsizing to stay competitive, as difficulties of regulatory compliance remain pronounced.

“There is a credit risk rating that we have contend with, but right now, because of the constant dialogue with the BSP, we see to it that rural banks realistically comply with it,” Mr. Moraleda commented on banking regulations concerning mandated lending.

The Magna Carta for MSMEs law requires lending to micro and small business to account for 8% of all banks’ total loan portfolio and 2% for medium enterprises.

The agri-agra law, meanwhile, mandates all lenders to set aside at least 25% of their total fund for the agriculture and fisheries sectors, with 10% of that just for agrarian reform beneficiaries.

Apart from this, also high on rural bankers’ minds is compliance with the soon-to-be operational Credit Information Corp. (CIC), the country’s credit bureau established by law in 2008.

“We will look into the information that needs to be presented [to CIC],” Mr. Moraleda said, noting some rural banks now furnish the Bankers Association of the Philippines with information on bank customers with bad credit history.

“Now, some banks are still hesitant… to give away (information on) the good clients, because they fear that if the good clients list is readily available to all banks, they might lose these customers to larger banks.”

As of June 6, 2014, the BSP listed 559 rural and cooperative banks in its directory. — Raymund Luther B. Aquino

Article location : http://www.bworldonline.com/content.php?section=Finance&title=Rural banks said facing ‘greater’ challenges&id=90227

Is the ship sinking?

What? Just as everybody has been told the country is smelling all roses and where we eagerly wait who will be chosen to have the President’s blessings to carry on the Daang Matuwid we get this report. Where to now? I guess we just have to roll out our sleeves and work harder to address the issues raised. There is no escape. Let’s all join hands to continue the work needed to make a better country for ourselves, our children and for the rest of the world who wish as well.

From Businessworld Philippines

July 02, 2014

Fragile: Survey shows how precarious the Philippine state still is

THE PHILIPPINES is one of the top 10 most worsened — not most improved — states, both by score and by rank. This result contradicts the picture painted by Malacañang that the Philippines is improving in the area of good governance.
The Fund for Peace put the Philippines as the 52nd most fragile (used to be “failed”) state with a score of 85.3 (a score closer to 1 is better). The score put the Philippines on the index’s “very high warning” for fragility, the fourth-worst on the scale, which ranged from the worst (“very high alert”) to the best (“very sustainable”).

This year, Sudan, with a score of 112.9, was deemed the most fragile state while Finland, with a score of 18.7 points, was deemed the most sustainable.

What’s the significance of the Fragile State Index (FSI)?

“Weak and failing states pose a challenge to the international community. In today’s world, with its highly globalized economy, information systems and interlaced security, pressures on one fragile state can have serious repercussions not only for that state and its people, but also for its neighbors and other states halfway across the globe,” according to the Fund for Peace.

The FSI is based on the Fund for Peace’s proprietary Conflict Assessment System Tool (CAST) analytical platform. It distills millions of pieces of information into a form that is relevant, easily digestible, and informative.

Millions of documents are analyzed every year. By applying highly specialized search parameters, scores are apportioned for every country based on 12 key political, social and economic indicators: demographic pressures; refugees and internally displaced people or IDPs; group grievance; human flight and brain drain; uneven development; poverty and income decline; legitimacy of the state; public services, human rights and rule of law; security apparatus; factionalized elites; and external intervention. These are the result of years of painstaking expert social science research.

The 2014 FSI results suggest that the Philippines, compared to its neighboring countries and the rest of the world, has a long way to go before it becomes truly competitive globally.

Looking at countries closest to home, the Philippines has remained the most fragile among ASEAN-6 countries. This bloc includes Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The ranking among ASEAN-6 countries has not changed since four years ago: Singapore first, the Philippines last.

This poor ranking is especially true in terms of poverty and income decline and public services. The latter includes public infrastructure.

“Poverty and economic decline strain the ability of the state to provide for its citizens if they cannot provide for themselves and can create friction between the ‘haves’ and the ‘have nots,’” the Fund for Peace notes.

This economic indicator includes pressures and measures related to economic deficit, government debt, unemployment and adult unemployment. It also measures purchasing power, the gross domestic product (GDP) per capita, GDP growth and inflation.

On poverty and economic decline, the numbers suggest rising misery rather than improving happiness for Filipinos. In 2010, the Philippines’ score for poverty and economic decline was 5.8; in 2014 it was 5.7 points, or practically unchanged. With population growing rapidly (approximately two million Filipinos are born yearly) and with income inequality worsening, no wonder many Filipinos do not see their personal welfare improving, despite the two consecutive years of above normal growth in 2012 and 2013.

The warning to policymakers is unmistakably clear: non-inclusive growth is not sustainable. Strong growth accompanied by rising poverty might lead to social conflict that could disrupt future growth.

On public services, it is clear that the state is responsible for the provision of health, education, and sanitation services, among others.

This indicator measures things related to policing, criminality, education provision, literacy, water and sanitation, and infrastructure. It also includes quality of health care, telephony, Internet access, energy reliability, and roads.

Among ASEAN-6 economies, the Philippines has the lowest score in public services (6.9 in 2014 from 5.0 in 2010), and the highest erosion of score (1.9) from 2010 to 2014. This is due to lack of focus and commitment on the part of policy makers to improve public services.

Why is the Philippines one of the top 10 biggest losers?

The short answer: the government needs to be more caring, more focused, and abler.

The FSI is based on 12 primary social, economic and political indicators of the Fund’s Conflict Assessment System Tool methodology. The Philippines lost a lot of ground in refugees and IDPs (1.2 points), demographic pressure (0.7), external intervention (0.7), public services (0.5) and group grievance (0.4).

On the other hand, it made slight gains in human flight and brain drain (-0.3), legitimacy of the state (-0.3), and human rights and rule of law (-0.3).

By rank, the Philippines lost seven places — from 59 in 2013 to 52 in 2014.

The indicator “refugees and IDPs” refers to “pressures associated with population displacements. This strains public services and has the potential to pose a security threat.” The deterioration in the Philippines’ score in refugees and IDPs may be attributed largely to the government’s mishandling of the Zamboanga conflict.

Demographic pressure refers to “pressures on the population such as diseases and natural disasters that make it difficult for the government to protect its citizens or demonstrate a lack of capacity or will.” The sharp drop in the Philippines’ score in democratic pressure may be attributed largely to the government’s uncaring and niggardly response to the super typhoon Yolanda.

The significant drop in the government’s score in public services is due to serious underspending in social services and public infrastructure.

The Philippines has become a more fragile state, compared to where it was a year ago. This suggests that it has a lot of catching up to do with its ASEAN neighbors. It’s bad enough that the country has regressed in many aspects of governance. Worse, while its ASEAN competitors continue to move forward, the Philippines continues to stall and, occasionally, backslide.


Source For All Charts: Fund For Peace

Benjamin E. Diokno is a former secretary of Budget and Management.

bediokno@gmail.com

Article location :http://www.bworldonline.com/content.php?section=Opinion&title=Fragile: Survey shows how precarious the Philippine state still is&id=90234

 

A community of the rich, the middle class, the lower classes and the disabled.

 

Its interesting to read that the rich from other Asian countries are buying property in the Philippines presumably because of the high returns. I wonder if, they will consider living in them. Or better yet have them rented out, hopeful on more reasonable terms to other people in dire need for a home since they will still gain more with the capital appreciation of their investment. At the same time, from all this growth in high price property, the property developers will find some good intentions to spread the wealth by incorporating some units for the middle and lower income classes and even maybe the disable and handicap. In Australia, local government council require any new property development to allocate a percentage of their residential units for use by lower income groups and the disable. At the end of the day, it takes all sorts of people to live within a community.

From Businessworld Philippines

July 02, 2014

Rich Asians buy into Manila’s luxury condominiums

SWEATING UNDER their hard hats, renowned Polish architect David Libeskind and interior designers from Italy’s Armani trooped to a construction site in sweltering, Metro Manila, to perform the ground breaking for a new tower in the Philippine capital.

Marketed to attract buyers wealthy enough to own luxury apartments, most likely in more than one country, the 60-storey office and residential project, dubbed Century Spire, is being built in Makati.

Featuring an angular glass shaft with an asymmetrical triple summit, the Spire is due to be completed in four years, but two-thirds of the space is already sold, with many of the apartments taken by rich Asians living elsewhere in the region.

At the ground breaking ceremony in May, Mr. Libeskind — whose other landmark buildings include the Jewish Museum in Berlin and the Denver Art Museum — said the Spire would “make a bold and optimistic statement about the future of the Philippines.”

Manila’s changing skyline reflects the Philippines’s increasing wealth, with many similarly stylized high-rises sprouting up across the capital of a country that was once regarded as one of the region’s economic basket cases.

Yield-hungry investors from Malaysia to Japan now buy Philippine condominium space in bulk, rotating money from favorites Hong Kong and Singapore as the authorities there have acted to cool real estate prices, property managers and consultants said.

“There has never been this strong foreign interest in the Philippines,” said David Young, Philippines managing director with consultancy and brokerage Colliers International.

Typically, 40% of space in newer condominiums is owned by foreigners, the maximum they are allowed. Foreigners cannot own land in the Philippines, but they are allowed to hold condominium titles as long as 60% of the development’s total floor area is owned by Filipinos.

“The fact that you have all these developers maximizing the foreign limit is becoming very common,” said David Leechiu, Philippines country manager with property manager and advisory Jones Lang LaSalle, Inc.

He said foreigners buy into Metro Manila’s gleaming new towers for capital gains, or to rent to a growing Filipino middle class and expatriate population.

Rising prices and the influx of foreign money have sowed fears of an asset bubble, but there are no signs of a slowdown. Real estate prices are still below rates seen before the global financial crisis despite a steady increase, brokers say.

In revising rules to banks’ real estate exposure this month, the central bank maintained that there is “no clear evidence” of bubbles forming in the sector.

Only as a precaution were banks told to maintain higher capital buffers if they want to lend more for real estate purposes, the central bank said.

With supply steadily meeting demand, property investors and brokers remain bullish.

Manila’s condominiums offer yields between 7-9%, nearly double those in most other Asian cities, a premium seen lasting for at least five more years, brokers say.

Residential condominium rent in the main business districts on average rose around 5% annually in recent quarters, while office rent is up over 5%, Colliers data showed.

A report by the US-based Urban Land Institute and PricewaterhouseCoopers ranked Manila as fourth best in the Asia-Pacific region for property investments this year after Tokyo, Shanghai and Jakarta, saying operating cash flow returns in the Philippine capital could be in the mid-teens.

Rich Singaporeans, Chinese, Japanese, Koreans and Malaysians bought the most condominiums among foreigners in the past 18 months, officials from developers Ayala Land, Inc., Megaworld Corp., and Century Properties Group, Inc (CPG) told Reuters.

“Purchase levels can go from one unit to a couple of floors,” said Jaime Ayala, Ayala Land CFO.

Jericho Go, first vice-president with Megaworld, said foreigners “buy residential condominium units in bulk, while others group together and pool funds to buy a tower in a development.”

Aided by strong foreign demand, domestic developers have enjoyed bumper sales in recent quarters.

Ayala Land, the second most valuable listed property firm, has increased international sales — including purchases by Filipinos living overseas — by 64% year on year in 2013, the company disclosed to Reuters.

Megaworld’s international sales were up 52% last year, while Century Spire developer CPG’s overseas sales increased 15%, Reuters estimated from sales data.

Asians usually buy apartments worth as much as $550,000 per unit, CPG managing director Robbie Antonio said.

Brokers also noted rising interest in office space on bets that commercial leasing prices will skyrocket as more foreign firms outsource in the country.

The action remains concentrated in Manila, brokers said, although it is slowly spilling over into “new wave cities” in central and southern Philippines, which host business process outsourcing firms.

Top property developers use globally known luxury brands to attract overseas demand.

Other than Armani, CPG has tapped Versace and American socialite Paris Hilton to design interiors.

The surge in overseas pre-sales also keeps top property firms awash with cash to fund projects and fatten their land bank.

Jones Lang’s Mr. Leechiu said top developers brush off private equity and sovereign wealth funds seeking discounts as they foresee sustained strong demand from retail buyers.

“If they ask for too much discount we won’t agree. We don’t need the money,” Mr. Go said. —Reuters

Article location : http://www.bworldonline.com/content.php?section=TopStory&title=Rich Asians buy into Manila’s luxury condominiums&id=90261

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