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| By Jun Vallecera |
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| RESPONDING to an International Monetary Fund warning, Bangko Sentral ng Pilipinas governor Amando Tetangco Jr. said he will make openness and continuing reform the main defense against any more economic shocks, domestic or external. He added the IMF warning on certain “pockets of vulnerabilities”, cited in its most recent World Economic Outlook report, in emerging markets like the Philippines may be valid on certain economies but that the bank’s strong commitment to reform could mitigate or even negate these vulnerabilities as reforms put in place the past few years have done. “On the BSP side, we have maintained a flexible exchange rate policy, allowing market forces to essentially determine the exchange rate with occasional scope for BSP presence in the market only to smoothen excessive volatility. We continue to build up foreign currency reserves and have prepaid our foreign debt to reduce our vulnerability to external or exogenous shocks.” He added, “We have also recently liberalized foreign exchange regulations particularly those aimed at facilitating current and capital account transactions. These will help ensure that capital can freely flow to its most efficient uses. The latest foreign exchange liberalization makes the regulatory environment more responsive to the needs of an expanding, more dynamic economy that has become increasingly integrated with global markets.” The strong influx of overseas remittances and foreign investments has allowed the central bank to double the allowable forex purchases without need for documentary support—to $10,000—and removed the antisplitting rule that banks have used since 1997 to circumvent previously strict dollar transaction guidelines. The BSP also doubled the allowable dollar remittance cap sent overseas without prior BSP approval to $12 million, even as countries like Tetangco said these and many more reforms in the financial sector will ensure a healthy financial system. “A sound financial system is a critical pillar of an efficient economy [because] it aids in financial intermediation, investor protection, and overall confidence building. A stronger financial system also enhances the ability of the BSP to use the various instruments at its disposal to influence monetary policy.” |
Friday, December 14, 2007
Tetangco says reforms best buffer vs. shocks
Debt prepayment won't hurt financing for infra, Neri insists
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| By Rommer M. Balaba |
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| THE government’s decision to retire some of its debt would not affect expenditures on infrastructure and services inasmuch as the Bureau of Treasury’s latest move means the country is longer “finance-starved,” Socioeconomic Planning Secretary Romulo L. Neri said on Monday. “It means we now have many funding options available with a lot of dollars coming in,” Neri added. Treasury officials early this month reported the planned purchase of $126 million in Brady bonds ahead of maturity on May 1, which represents final payment on a 1992 debt restructuring program. The purchase would mean net savings of $12.6 million and the freeing up of collateral worth $82.3 million in the form of US treasury bonds. “We will have no problem on expenditures since what it [Treasury] intends to do is pure treasury play and has nothing to do with revenues. In fact I would encourage them, even the Bangko Sentral ng Pilipinas to do it,” Neri said. Neri commented the government could tap on the high savings rate of Filipinos to finance productive activities. Government data put the savings –to-GDP (gross domestic product) ratio last year at 30.3 percent, which roughly is the average for the East Asian region. “It is a matter of spending [funds] on productive capacities… It is just a matter of having the right investment climate,” Neri said, to stimulate these savings to be poured into investments. And creating a conducive investment climate means working out on soft and hard reforms, which means clearing out risks of regulatory capture and putting the needed infrastructure, respectively, he added. |
Hard-living youngsters drive Philippine outsourcing
By Karen Lema
Reuters
Last updated 05:13pm (Mla time) 03/02/2007
MANILA, Philippines -- The Philippines' outsourcing industry is generating billions of dollars in revenues but executives fear employees are turning to caffeine, cigarettes and booze to deal with unsociable hours and demanding customers.
"I worry when I go to the call centers that we are spawning a generation of chain smoking, coffee addicts or worse, chain smoking beer drinkers,” Rosalie Montenegro, senior vice president of the Call Centre Business Group under Philippine Long Distance Telephone Co. (PLDT) told Reuters on Friday.
"It is a reality, because the social support has not kept up with the growth of job creation."
Around 200,000 people are employed in the Philippines' outsourcing sector, many of them hired straight out of college.
Quick access to a monthly salary -- entry level wages have risen as much as 69 percent since 2003 -- and an open office plan full of twentysomethings creates a hectic social life.
But the strange working hours -- 9 pm till 6 am to cater for the US market -- is wearying and going for a post-shift drink to unwind means boozing at daybreak.
Aside from modern offices, Montenegro said investments must be made in what she calls "social infrastructure" to promote the well being of the industry's employees, who are often spotted nabbing a quick cigarette outside their offices.
"We need to invest in social wellness of our kids because the next generation should be the highest focus going forward," she said.
COUNTRY CLUB
Montenegro said PLDT, the country's biggest phone company and a medium-sized player in the outsourcing sector, was considering building a country club for its call center agents.
Montenegro said she hoped other outsourcing companies would support such a facility.
She said health and wellness providers, like spas, gyms and fitness centers should also be encouraged to extend their operating hours to cater to the needs of stressed workers.
The Philippines, with a large pool of English speakers and a strong cultural affinity with the United States, is developing as a viable alternative to India in the global outsourcing market.
It earned $3.6 billion from outsourcing in 2006, up 50 percent from the previous year. The government estimates revenue could jump to $12.1 billion by 2010 as the industry diversifies.
Big outsourcing players from the United States such as Sykes Enterprises Inc., Convergys Corp., PeopleSupport Inc., Accenture Ltd. and eTelecare Global Solutions Inc. already have branches in the Philippines.
Last year, the world's largest maker of personal computers, Dell Inc., opened its first call center in the country and recently opened a second contact center.
"The Philippines is working very hard to achieve it's '10-10-10' vision of $10 billion dollars, 10 percent market share by 2010 and this is not going to happen by dreaming about it but by having a solid strategy," Montenegro said.
http://business.inquirer.net/money/breakingnews/view_article.php?article_id=52550
Editorial: Making pain worthwhile
Editorial:
Making pain worthwhile
GIVE Socioeconomic Planning Secretary Romulo Neri “A” for candor. Even his worst critics would have to grant that the head of the National Economic and Development Authority (Neda) sounds completely sincere when he concedes that amid the steady barrage of reports on “economic gains,” much of the basis of the bullishness are the positive financial indicators—not necessarily the indicators that signal flesh-and-blood issues like jobs, poverty and gaps in education and health care.
“We are trying to see how we can break out of this development impasse. It is hard to get anything done because of this, how to create more jobs. Many of the indicators are still finance-based. . . . the money market [is bustling], interest rates are down, the stock market is on all-time high, the deficit is down, the debt to GDP is down. All the indicators are good, but these are all financial indicators, so we have to convert these . . . into real benefits,” said the Neda director general.
Coming from an agency that should be the fulcrum of policy setting and planning in government, this brings hope that government officials are not living in two separate universes—one group obsessed only with meeting financial and monetary goals; and the second, with delivering avowed services to people. At the very least, Neda is signaling that it would help find a way for allowing these two sets of targets to intersect and give flesh to the government’s ultimate—and, truth to be told, its only goal, really—vision of helping people attain a better quality of life. Absent this marriage of goals, and we’re stuck in the same development debacle that has plagued the Third World since the ’80s.
This year, which GMA alternately calls the “boom year” and the “social payback year,” is actually the best time for pushing the envelope as far as enforcing the State commitment to its citizens is concerned. That is why Secretary Neri’s open acknowledgment of his angst provides some hope.
Year 2007 is a good time for compelling government—and even those in the private sector that benefit from cushy policies—to make good on the implicit promise to translate more gain into less pain. The Filipino people have faithfully borne the burden of expanded value-added taxes, along with the pain of other tax reforms: so faithfully in fact that Malacañang boasted on Wednesday that Singapore is loudly contemplating copying some of these reforms. One’s tempted to raise one’s eyebrows and ask sarcastically, “Oh, really?”
And yet, on second thought, this is a believable notion, considering the success with which the government’s EVAT ran a steam roller over our wallets to squeeze out additional revenues that it now says have made it awash in cash. While this was happening, our eight million migrant brother Filipinos kept a steady stream of dollars flowing into the country, thus bolstering the external sector so much so that this government also triumphantly announced prepayment of a substantial portion of the debt.
Indeed, the faithful adherence to the tough fiscal and monetary standards set by outsiders has borne fruit for the country—yielding savings in debt payment budgets as a result of lower rates; keeping inflation steady at modest levels; and getting upgrades on credit rating and better outlook reports that, in turn, are supposed to trigger inflows of investments.
And yet, at the end of the day, as Mr. Neri so humbly acknowledges, all of this would only have complete meaning if they translate into more tangible benefits for the people. The very same people whom Mrs. Arroyo said deserve some payback.
But a word of caution: payback is not to be simply equated with a barrage of infrastructure by a government claiming it is making up for underspending in the past few years of obsessing with fiscal balance. Especially in an election year. Payback must not spell mindless spending on “services” that are, truly, just ill-conceived scams from which to skim money for political campaigns or for lining some people’s pockets.
Payback means well-calibrated, well-planned programs and projects that not only fill the gap in infrastructure and services, but move toward a coherent, wholistic development plan for the most underserved areas, while boosting those with the most potential for attracting private investment.
Payback means a government or bureaucrats looking at every possible means for helping people maximize their meager assets or expand opportunities for bettering their lives without requiring so much state subsidy or encouraging mendicancy.
For instance, we are told one reason why finance and central bank officials were frowning on the grant of special subsidies for exporters reeling from the effects of an appreciating peso was that the government, basically, wasn’t doing the same for that other sector boosting the peso, i.e., the OFWs.
A simple example of how the government can show it cares is what happened in last year’s war between Israel and the Hezbollah in Lebanon. As a service, the central bank bought back a few thousand Lebanese pounds held by OFWs, which would have been impossible to convert at the height of the war last summer.
If it were truly so minded, there is no limit really to what a sincere government can do to translate at every turn possible a macro gain into a micro booster; transform a people’s sacrifice into some form of delayed gratification; and show people how to connect the dots between genuine reform and a better quality of life. That is, if it were truly so minded. One hopes Mr. Neri’s concern reaches epidemic proportions.
Saturday, April 28, 2007
BSP allows rural banks to invest in ATMs
By Des Ferriols
The Philippine Star 03/12/2007
The Bangko Sentral ng Pilipinas (BSP) said rural banks are now allowed to invest in automated teller machines (ATMs), a move that would further expand the network of smaller banks in the countryside.
The BSP explained over the weekend that there were no clearly-defined rules for rural bank investments in ATMs since the market had no demand for them in the past.
According to BSP Deputy Governor Nestor Espenilla Jr., however, the magnitude of remittances to families of overseas Filipino workers had created a market for funds that are easier to access.
"Now, we have decided that rural banks should be allowed to make investments in the physical network of automated teller machines," Espenilla said. "If they can make such investments, they are now allowed."
The new BSP policy would boost the network of rural banks, thrift banks, cooperative banks and non-government organizations under Nationlink that was already being used as tax collection points for local government units.
Although significantly smaller than the three other major bank networks Bancnet, Megalink and Expressnet, Nationlink catered mainly to areas not served by major commercial banks and otherwise had no access to any of the networks.
Nationlink earlier said that it’s target was to link at least 100 rural banks, thrift banks, cooperative banks and cooperatives in the rural areas.
Nationlink is supported by international and local partners led by telephone giant PLDT, chip maker Intel, American ATM maker Diebold, and Microsoft.
Nationlink was already concentrated in the Visayas and Mindanao area after the network entered into an alliance with the Enterprise Bank in Mindanao, Asian Hills in Bukidnon, Peninsula Bank in General
Investment basics: Asset allocation
PHILEQUITY CORNER By Ignacio B. Gimenez
The Philippine Star 03/12/2007
Remember the old adage about not putting all your eggs in one basket? It applies just as appropriately to investments. In financial parlance, it is called Asset Allocation. Simply put, asset allocation is a way of spreading your investments across various asset classes such as cash, bonds and stocks.
Asset allocation is a crucial part of the investment decision-making process and it serves two general purposes. First, it provides variety to one's portfolio and thereby helps spread the risks. This is also called diversification. Second, it also allows one to take advantage of opportunities and favorable conditions involving a particular asset class.
| Define your investment profile |
Before embarking on asset allocation, one should set or characterize his investment profile. To do this, one should determine certain factors such as the following:
1. Investment horizon. This refers to the period in which you intend to achieve a financial goal such as saving for college expenses, buying a house, or retirement. In most cases, we may need to set several goals simultaneously. Therefore, be realistic. More goals mean saving (and investing) more and possibly over a longer time frame. In this case, it would be advisable to start early.
2. Risk profile. This refers to one's willingness to take a certain degree of risk. As a basic maxim, targeting high returns entails taking equally high risks. Also, the younger you are and the earlier you start investing, the higher risk that you can tolerate because you have more time and opportunity to recover should your portfolio yield poor returns initially. Furthermore, you can also afford to be more aggressive and allocate more of your funds into riskier but potentially more rewarding investments. The opposite is also true: the older one gets, the lower would be his risk tolerance as there might be little time and opportunity left to recover from initial poor investment yields. In this regard, it is more prudent for them to keep their funds into "safer" investment instruments.
| Research on fundamentals |
Aside from defining your investment profile, you will also need to consider current economic circumstances and which asset class they favor. It is on this note that we once again emphasize the value of research and the need to focus on economic and research fundamentals.
For instance, in a high interest rate scenario, it would be prudent to allocate more of your resources in cash and near-cash investment vehicles such as deposit instruments and Treasury bills/notes and less on bonds and stocks. The reverse is also true: a low interest rate regime would favor stocks and bonds.
In the event that you need to allocate part of your funds in stocks, do intensive research on the companies that you will be investing in. Consider the earnings and growth prospects, credibility and integrity of management, extent or possibility of dividend yields (see our article Stock market 101, Philippine Star Nov. 20, 2006 issue). A conservative stance would be to keep your stock investments on high-quality companies (blue chips). In a more aggressive positioning, one can consider smaller but promising companies which are likely to post strong earnings growth and can potentially become blue chip companies.
| Stocks and mutual funds |
In doing your research, you can also consult your broker's research group. In case you don't have a broker or the time and resources to do intensive research, you can shorten the process by investing in mutual funds. Mutual funds, such as Philequity, are usually backed by strong research groups which help fund managers make informed investment decisions.
At any rate, you still need check on the track record of the mutual fund and the qualifications of its fund managers (see our article Basics of mutual fund investing, Philippine Star, Nov. 27, 2006 issue). Have a clear idea as to how such mutual funds performed under both good and bad market conditions. For new investors, mutual funds can substitute for stocks until they become more familiar with stock investing. For professionals and businessmen who are too busy to research on stocks, equity mutual funds can be a good alternative.
| Setting allocations and portfolio rebalancing |
After having a clear grasp of your investment profile and market fundamentals, you can now set an initial allocation. For illustrative purposes, below is a sample of an asset allocation.
Asset Class Weight
Cash 10%
Government bonds 20%
Dollar bonds/RoPs 20%
Mutual funds 20%
Stocks 30%
Prudence dictates that we should keep a close watch on the performance of our portfolio and continue monitoring market fundamentals. If there are changes in the latter, we should be ready to do some reallocation or rebalancing on our portfolio and put more weight in asset classes which are benefiting from prevailing market conditions. This needs to be done from time to time in order to take advantage of market opportunities and ensure optimum portfolio performance.
| Recent market fall: A good time for asset allocation |
The recent market fall has made stock valuations become more reasonable. It also provides a good opportunity for asset allocation or rebalancing. Banks, for instance, which have long been keeping much of their investments in cash instruments, should now find a good window to consider equities investments. On the other hand, those who have put too much weight on stocks should have learned their lessons on the need for diversification and the reality of market corrections. Many individuals who missed on the current bull run and who were mainly in fixed income instruments can now take advantage of this correction. They will now have a chance to have an equity component in their portfolio by slowly accumulating stocks or by buying into an equity mutual fund.
We advocate that one should play for the long-term. For one, this is to match the long-term nature of most financial goals. For another, short-term investing or punting significantly raises one's risk of being whipsawed amid market volatilities. Lastly, a long-term outlook gives us a better perspective on the market and enables us to view market downturns not as setbacks but buying opportunities.
For inquiries and comments, you can email us at gime10000@yahoo.com or research@philequity.net or call Jerome Gonzalez or Ricardo Puig at 634-5038.
Standard Chartered eyeing SMEs
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| By Leah B. del Castillo |
| Special Projects Editor |
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| A TOP official of the international bank Standard Chartered on Thursday said it may venture into SME banking in the In a gathering with editors in A credit bureau provides lending institutions with information on the creditworthiness and credit history of specific consumers and businesses that intend to borrow monies. The enabling law for the creation of a credit bureau has not taken definite shape at the country’s legislature, with the two houses of Congress approving different versions of the bill—and divergent provisions on the ownership structure of the credit bureau. The legislature has gone on recess, and will resume sessions in June this year. At present, Standard Chartered is engaged in three businesses in the The Bangko Sentral ng Pilipinas has supported the creation of a centralized credit bureau, as it protects the financial system from fraud and promotes credit discipline. In turn, banks are able to make better decisions on loan approvals. “With a credit bureau, there would be less bad debts,” said Ellis. In addition, the Standard Chartered executive said that another advantage of having available information from a credit bureau is that lenders would be able to give different rates to different borrowers, based on their creditworthiness. He explained that under the current set-up, borrowers—often regardless of their paying capacity and credit history—pay the same rates for their loans. In the last Treasury bills auction on March 5, the 91-day T-bill which banks typically use as a benchmark for their lending closed at 2.935 percent. These days, many banks impose a minimum of close to 2-percent interest on personal loans, and some 11 percent to 15 percent-interest on home mortgages. Ellis stressed that SMEs would actually do better if actual SME lending were available to them. What usually happens to start-up entrepreneurs in the country, he said, is that they use their personal credit cards and avail themselves of personal loans in order to finance their businesses. “SMEs need working capital,” he said. For them to avail themselves of “straight loans is a mistake.” Aside from personal loans not being cost-effective in funding a business, Ellis said that in the unfortunate event of default or delinquency, litigation of unpaid loans is around 22 percent of the actual value of the loan. |
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http://www.businessmirror.com.ph/0316&172007/companies03.html
Know your banking products
BUSINESS & LEISURE By Ray Butch Gamboa
The Philippine Star 03/17/2007
Most of us don’t even bother with those monthly updates we get from the bank. The savings we have scrimped and scraped over the last few years are safely tucked away in the bank. Safe, yes, but are we maximizing the potential of our money?
About the safest and most secure way of keeping our money in the bank is through the bank’s time deposit schemes. They are guaranteed by the bank, covered by a certificate, and even partly covered by the PDIC. The high yield placements, tied up with volatile commercial papers, the choice of which is dependent on your investment officer, are not guaranteed by the bank. As such, your investments are at great risk. My banker friend got out in the nick of time, but not without losing a small percentage of her capital investment, actually her husband’s retirement money. That was still lucky — some risk takers end up losing their whole investments entirely, and you can’t run after the bank because, if you read the fine print of the bank documents, it is clear that the bank does not extend its guarantees to such placements. And we are talking of well-established global banking institutes here, not just some rural bank or small savings bank.
Let’s take three banking institutions, factual examples, which are among the most respected in the country. Banks A and B are among the top three in the land, and Bank B has a subsidiary, a savings bank which is also among the top banks here. Spreading out your funds among the most secure and reputable banks is a good idea, precisely because of the limited insurance PDIC gives to the banking clients. However, your time deposits with Bank B, for example, will not yield as much as with their subsidiary because commercial banks’ interest rates are not quite as high as savings banks’ interest rates. They are, in fact, almost 50 percent less. For commercial banks, interest rates for medium-sized investments are at a low of 1.2500 percent per annum. For savings banks, the rate is double at 2.5000 percent per annum.
Also, there is a world of a difference when you go for the short term (32-35 days) versus the longer terms (six months, one year, two years, five years) I remember about two decades ago, PCI Bank offered an attractive package where you could double your money in five years. A similar scheme was adopted by BPI Family Savings Bank several years ago. They have since discarded the idea and just waited until the last maturity date of these deposits because the scheme was found to be unviable for the bank, but quite profitable for the clients. Now the scheme, I think, is down to 50 percent, meaning you can only realize interest gains representing half of your capital investments.
Bank A is another top commercial bank, just as reputable and secure as Bank B. Both banks’ interest rates are competitive, with Bank A just a few points higher, negligible if your deposits are not in the seven digit mark. But they have recently offered new banking products which are interesting. They now have one year, two-year and five-year placements with very good rates. As expected, the most popular and in demand term is the two-year one and the slots for this are always filled up. Interest rate for the two-year term is almost 50 percent higher than the savings bank rates, which is pretty good for a commercial bank.
Bank C is an international bank, one of the very few offering checking accounts for your dollar account. They also have the lowest interest rates in town for your deposits. For over two decades, we have been banking with them, and I was aghast that they were only offering one percent interest per annum. Last year, they sent out a circular announcing that they were bringing down the rates to 0.50 percent per annum. Half percent a year? It’s a ridiculous rate, especially considering that, if you use their credit card, you could get slapped with penalty charges of as much as three percent to four percent a month for late payment. This could really mean big bucks for credit card companies, not just this one, as credit card receivables in this country reached an unprecedented P99.6 billion last year, even higher than banks’ receivables.
Bank A, though they do not yet have dollar checking accounts, offers a much more viable product for your dollar placements. If you do not foresee spending your dollars in the next two years, they are offering a 3.375-percent interest rate that is guaranteed interest, if placed for a minimum of two years with their bank. Minimum amount acceptable for this scheme is $15,000, and the funds are securely tied up with their subsidiary bank in
What a world of difference between Bank A and Bank C.
So, know your banking products, and stick with reputable, conservative banks that will guarantee your investments.
| A proud Pinoy and St. Luke’s too |
Dr. Ma. Socorro Cruz Bernardino is one of the Ob-Gyne doctors at the prestigious St. Luke’s Hospital in
Dr. Bernardino, Cocoy to her friends, is the
Today, she is St. Luke’s pride, having the distinction of being the first Asian Fellow in the International Federation of Pediatric and Adolescent Gynecology-Europe. It does seem that Cocoy revels in being a "first" in many facets of her professional career. Her mother, Amy Cruz Bernardino, was a medical student herself, until love and marriage beckoned. Her Dad, just recently deceased, was also a medical doctor.
She adds to the short list of "Proud Pinoys" that have decided to stay put and utilize the Lord’s blessings for her countrymen.
Mabuhay!!! Be proud to be a Filipino.
For comments: e-mail to: businessleisure-star@stv.com.ph
BSP tells banks to ease up on ID requirement
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| By Jun Vallecera |
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| FOR the nameless thousands oppressed by bank front liners at one time or another for not having enough proof of identification, despair no more. The Bangko Sentral ng Pilipinas is cutting down on the proofs of identification demanded by banks. Bangko Sentral governor Amando Tetangco Jr. said on Monday the necessary IDs will be reduced to only two from the four to five IDs demanded by banks. When this will become effective, he did not say. Banks requiring multiple proofs of identification from clients to do business with them have been known to deny service to anyone who fails to come up with four or even five identification documents. Company or school IDs, driver’s licenses, passports, tax identification cards, voter’s ID, marriage licenses, GSIS or SSS IDs, and others are the banks’ acceptable proof of identification. “Under the new circular, any two combination of IDs should now be sufficient.” Tetangco said the new rule “was prompted by the need to simplify and standardize the identification of bank customers.” He did not say it but long-time bank industry observers said it may also have been prompted by numerous complaints and stories of the tribulations of people who wanted to transact business with the banks, especially families of workers abroad. One big bank, for instance, once demanded that a party cashing a check but without an account in that bank present four ID cards. When the man ran out of ID cards to show, he presented his passport, but he was told it must be an “unused” passport, meaning, without any immigration stamps yet. The man protested that a “used” passport is better because it signals that it’s not fake, having undergone scrutiny by immigration authorities here and abroad. The bank insisted on its requirement, but could not explain the logic behind it. |
Conversion to International Financial Reporting Standards: The Philippine experience
Conversion to International Financial Reporting Standards: The Philippine experience
K BIZ By Roberto G. Manabat
The Philippine Star 03/20/2007
| (First of three parts) |
A lot has been said and written about the international accounting standards which have been gradually phased into our financial reporting system since the late 1990s and which were fully adopted in 2005, with certain transitional relief, as Philippine Financial Reporting Standards (PFRS) based on equivalent International Financial Reporting Standards (IFRS). The adoption of these "harmonized" standards was meant to offer greater reliability, transparency and comparability of financial information for the benefit of investors.
Companies, especially those dealing with the investing public, now face greater scrutiny resulting from stricter regulatory and IFRS requirements. IFRS requires a lot more disclosures to be presented in financial reports. The modern CFO has to ensure that adequate technical knowledge resides in his people for the proper implementation of these standards. Going forward, he needs to ensure that such knowledge will be updated as IFRS is dynamic. The Code of Corporate Governance applicable to public companies now requires the CFO and auditors to have a lot more interaction with the audit committee and the Board of Directors as these bodies now assume a greater degree of responsibility over financial reporting. And since the Chairman and CEO are required by the Securities and Exchange Commission (SEC) to issue a statement assuming management responsibility for the financial statements, it is but natural for them to ask more questions before they sign the certification.
| Ifrs implementation issues in the Philippines Fair value determination |
Since IFRS gives more importance to the balance sheet, fair values rather than historical costs are now used for many assets and liabilities. The biggest problem in implementing IFRS in the Philippines, as in other developing countries, is determining fair values where there is no active market or where market data is unreliable. Of course, assets such as listed stocks and bonds where price discovery is easy are marked-to-market. Other assets whose price discovery is difficult are marked to a model. Determining the proper financial model as well as the assumptions/factors to be used is not easy. Under IFRS, the basis of estimates and assumptions must be disclosed. The users of the financial statements (FS) will see the reasonableness of those assumptions and estimates. If they are unrealistic, the users will be able to see through the FS figures. The external auditors who have to sign off on the FS, have to be convinced about the reasonableness of the factors and assumptions used in the model as their reputation is on the line.
| Segment reporting disclosures |
There is also an issue on segment reporting which is required for public companies. Some listed companies have complained that their competitors are not public companies and therefore are not required to do segment reporting. Their competitors will therefore gain undue advantage as they can access the segment disclosures of the listed company which includes the profitability of its major business units. Being a listed company, its FS and other regulatory filings are considered public records. Unfortunately, the corporate regulator had to insist that the segment disclosures stay as this is the price to pay for being a public company. It was agreed however, to liberalize on the segment disclosure by allowing the listed company to make more general categorization of the various Profit and Loss items and groupings of business units. This treatment ensured that the spirit of the segment standard was still followed.
| Volatility of pension benefit liability |
Recently, questions have been raised relating to the reasonableness of the basis used in discounting pension benefit obligations. In 2005, the first year implementation of PAS 19, Employee Benefits, companies generally used the rate of return on Philippine government issued bonds in discounting pension benefit obligations. However, in 2006, the rate of return on these bonds significantly declined.
PAS 19 prescribes that the rate for discounting pension benefit obligations should be based on current market conditions. The discount rate should reflect the market yields (at the balance sheet date) on bonds with an expected term consistent with the term of the obligations. Given the extent of the fluctuation of the rate of return on the Philippine government issued bonds from year to year, the corresponding fluctuation in the discount rate will likely cause volatility in the related financial statement accounts of the companies. For example, a one percent change in the discount rate could cause a fluctuation in the pension benefit obligations by as much as 20 percent. (To be continued)
(Roberto G. Manabat is the chairman and CEO of Manabat Sanagustin & Co., CPAs, a member firm of KPMG International, a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG international or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. For comments and inquiries, please email manila@kpmg.com.ph or rgmanabat@kpmg.com)
Proposal to transform BSP into a superbody nixed
By Des Ferriols
The Philippine Star 04/19/2007
The Bangko Sentral ng Pilipinas (BSP) nixed the idea of being transformed into a superbody that would regulate all financial institutions, saying that Congress could instead formalize the Financial Sector Forum (FSF) into an overseer.
The initial consensus emerged following a series of discussions between the BSP, the Insurance Commission, the Securities and Exchange Commission, the Philippine Deposit Insurance Commission, the Capital Market Development Council and other regulatory agencies supervising various financial institutions.
The focus group discussion was convened by economist Mario Lamberte for the Economic Policy Reform and Advocacy (EPRA) Group to discuss the initiative to integrate the functions of country’s supervisory and regulatory bodies.
Lamberte said that the
"Right now, there are several gaps in our regulatory regime that has led to problems like the UrbanBank fiasco and recently, the controversy over the unit investment trust funds," Lamberte said. "We want to find out if it would make sense for us to integrate to close all these gaps."
The group presented its initial findings yesterday and according to BSP Deputy Governor Nestor Espenilla Jr., there was a consensus that critical policies need to be in place before talks of integration could start.
"There are certain pre-conditions that have to be met, beginning with the need to strengthen the regulatory powers of the existing institutions," Espenilla said.
"If integration will happen, it should do so in the course of the natural evolution of the regulatory regime," Espenilla said. "In the meantime, we have the FSF which could be transformed into an official and legal entity that would have the authority to harmonize existing regulations."
The BSP’s position was largely shared by most of the agencies but insurance commissioner Evangeline Escobillo said the process could happen even sooner.
"I don’t think we should wait for the thing to evolve," Escobillo said. "I think it should be made to happen a lot sooner. We are agencies that are already operating and we are capable of integrating."
Escobillo said the omnibus legal framework could be put in place for Congress to consider and the relevant agencies could be integrated to eventually work on harmonizing rules on corporate governance, prudential regulations and market conduct.
"I don’t mean we will collapse existing agencies," Escobillo said. "These agencies need to continue existing because they have the expertise for their respective areas of operation. We only have to integrate all the rules and regulations."
BSP lures GFIs' extra funds
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| MONETARY BOARD FINDS WAY OUT OF POLICY RATES DILEMMA |
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| By Jun Vallecera |
| Reporter |
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| THE monetary authorities could neither raise policy rates nor move them down without sending the wrong signal, but they resolved the dilemma on Thursday with the introduction of new measures designed to encourage financial institutions to place excess funds with the Bangko Sentral ng Pilipinas. Raising the so-called overnight rates of the central bank is a virtual admission that inflation and its outlook was a threat going forward, experts explained. Moving it down, on the other hand, sends the signal the BSP was not concerned at all that peso liquidity levels are rising steadily and at a pace considered inflationary if allowed to persist over a 12-month stretch. Since it could not adopt one in favor of the other, BSP Governor Amando M. Tetangco Jr. and six other members of the policymaking Monetary Board adopted the next best thing: get the previously non-BSP depositors to place their money with them. The target institutions include the Government Service Insurance System, the Social Security System, the various government-owned or -controlled corporations and the trust units of banks. Tetangco said enticing the GFIs, GOCCs and the state-owned pension funds is a matter of giving them interest rates so attractive they have no choice but to bring their money to the BSP and solve its problem of rising liquidity sloshing around the system—and possibly creating inflation troubles down the line. “Pricing will be discussed with the GSIS and the SSS to encourage them to come,” he said, without elaborating what rates are considered attractive. The Monetary Board also finally gave in to the long- standing request of the various trust units to allow them to deposit some of their funds with the BSP. Beginning May 10 when all three measures take effect, the Trust Officers Association of the At the moment, trust units are not allowed to make placements at the multibillion-peso overnight market where one generates returns as high as 7.5 percent in just 24 hours. Additionally, the Monetary Board also now recognizes the special deposits accounts of banks as alternative compliance to the strict requirements on minimum peso liquidity levels that each bank must maintain. SDAs are cash deposits banks make with the BSP, and treating them as alternative liquidity compliance ensures the money stays safely with the BSP and does not create liquidity havoc. Needless to say, the BSP kept its overnight borrowing rate frozen at 7.5 percent and its overnight lending rate still at 9.75 percent. |
http://www.businessmirror.com.ph/0420&212007/headlines01.html
'Separate trade and industry'
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| By Max V. de Leon |
| Reporter |
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| NOTING there is “glaring conflict of interest” between traders and manufacturers, the Federation of Philippine Industry is seeking the separation again, as in the old setup, of the Department of Trade and Industry into a Department of Industry and a Department of Trade to ensure that both sectors get equal treatment and protection from government. Federation president Jesus Arranza said this separation is needed at this time because of heightened globalization, adding that they are now drafting a legislative proposal for this purpose. “We are now finishing our study on this and we will furnish the Congress with a copy.” Since other countries have such separate agencies for the two sectors, they have also “sought the help of the different embassies to come up with the data and comparison.” Philippine Chamber of Commerce and Industry chairman Donald Dee, however, does not buy the idea of splitting the DTI, saying it should be the department that should balance the interests of the traders and the manufacturers. “They are just being protectionists. They believe that they cannot survive if we continue opening up. But that is not how the world works now. We have the World Trade Organization and we are signing free trade agreements.” Instead of clamoring for protection, domestic industries should strive to be more competitive and not seek government interventions to keep the local manufacturers afloat through tariff protection, The two departments were fused into one in the 1970s by then-President Ferdinand Marcos. The conflict became apparent when President Corazon Aquino issued Executive Order 413 to bring down the tariffs across-the-board, he added. Obviously, manufacturers want tariff protection while traders want lower tariffs. Arranza said even the PCCI could not come up with a united stand then on the issue because some members of the group were traders and the others were manufacturers. Because of that, Arranza said some members of PCCI bolted out of the group to challenge the Aquino EO at the Supreme Court. Today, he said the problem persists, just like in the issuance of the safeguard duties on the imported raw material for detergents. “As Trade Secretary, you cannot escape getting accused of being biased for one group and of neglecting the other sector with the current setup. So we want two departments, one to protect the domestic industries and the other to facilitate trade and commerce.” Rene Ofreneo, co-convenor of the Fair Trade Alliance, agreed with Arranza so that the country can properly focus industrialization strategy. “We need an all-out mobilization and support for our industry. Right now, we are the only country in the region that has a shrinking industrial sector.” Arranza said with two departments, the conflicting interests will be presented and debated better and there will be a thorough reading of the situation. But if the administration does not want another layer of bureaucracy, Arranza said it should look at creating separate divisions for trade and for industry under the department, with the secretary “as the referee.” |
http://www.businessmirror.com.ph/0420&212007/headlines02.html
Stanchart forecasts 5.1% GDP growth
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| By Rommer Balaba |
| Reporter |
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| STANDARD Chartered Bank upgraded its growth forecast for the In its latest economic update, the Bank likewise indicated limited inflationary effects despite an expected temporary weakening of the peso because of the oncoming May elections. The government is targeting a GDP growth range of 6.1 percent to 6.7 percent this year after last year’s 5.4-percent expansion. “The domestic economy started the year on a firm note, with overseas workers remittances rising strongly . . . the labor market is broadly supported by the buoyant services sector. These should cushion the impact of slowing exports and keep economic growth solid,” the update added. Bank economist Frances Cheung in a briefing Thursday night noted the Philippine economy remains resilient because of domestic strength, coupled with a sustainable Japanese economy and growing intra-Asian trade, which will offset the mitigation of a |
http://www.businessmirror.com.ph/0420&212007/headlines09.html