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 Santos, Bank of Cebu, Legaspi Savings Bank in Bicol, Opportunity Microfinance Bank in Antipolo, and two cooperatives.

http://www.philstar.com/philstar/NEWS200703120709.htm 

 

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.

http://www.philstar.com/philstar/NEWS200703120716.htm 

 

Standard Chartered eyeing SMEs

By Leah B. del Castillo

Special Projects Editor

A TOP official of the international bank Standard Chartered on Thursday said it may venture into SME banking in the Philippines if the much-awaited credit bureau were to be finally set up. In a gathering with editors in Makati City on Thursday, Standard Chartered Philippines chief executive officer Eugene Ellis said the London-based bank would tap small and medium-sized enterprises as a market for their products “only after the credit bureau is up and running.” 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 Philippines—credit cards, personal loans and mortgages. 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.

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 Hong Kong. The local bank, of course, guarantees in full this dollar placement.

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 Quezon City. Well, not just one of them, but THE ONE.

Dr. Bernardino, Cocoy to her friends, is the Philippines’ first Pediatric and Adolescent Gynecologist. She specializes in babies’ and teenagers’ gynecology problems, a niche previously unheard of and unfilled until recently. Teenagers can have serious problems in their reproductive system as well, regardless of their tender years, and these were previously referred to general OB-Gyns, lumped together with more mature mommies because no one specialized in pediatric gynecology before Cocoy did.

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

http://www.philstar.com/philstar/NEWS200703170709.htm 

 

BSP tells banks to ease up on ID requirement

By Jun Vallecera

Reporter

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.

 

http://www.businessmirror.com.ph/03202007/headlines07.html

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) Why IFRS

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 Philippines has followed a fragmented approach in the supervision and regulation of financial institutions but there is now a push towards integrating these agencies into one institution for the sake of simplification and efficiency.

"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."

 

http://www.philstar.com/philstar/NEWS200704190706.htm

BSP lures GFIs' extra funds

MONETARY BOARD FINDS WAY OUT OF POLICY RATES DILEMMA

By Jun Vallecera

Reporter

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 Philippines and the trust units they represent have their prayers answered. 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'

By Max V. de Leon

Reporter

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, Dee added. 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

By Rommer Balaba

Reporter

STANDARD Chartered Bank upgraded its growth forecast for the Philippines this year to 5.1 percent from 4.7 percent on expectations of strong overseas remittances and a buoyant services sector. 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 US slowdown.

 

http://www.businessmirror.com.ph/0420&212007/headlines09.html

Financial co-ops get technical assistance

By Jun Vallecera

Reporter

LOCAL authorities are getting help from abroad to put financial order in the chaotic world of financial cooperatives around the country that take the depositor’s money but is rarely held accountable for it. The president of the nongovernment organization called Emerge said Thursday that some 28,000 financial cooperatives receive money from the public. Mario B. Lamberte, team leader for banking and capital markets at Emerge, said in an interview the danger lies in the fact that financial cooperatives are rarely held to account for themselves when making financial transactions. “Financial cooperatives are the least regulated among institutions and those that are actually examined fail to meet even the most basic of prudential standards,” he said. Help comes in the form of a technical assistance from the United States Agency for International Development (USAID) worth $500,000 or P24 million at the current rate of exchange. The money will help fund the training of personnel of the Cooperatives Development Authority on the basics of financial operations and responsibility that comes with lending money. “This money is for a complete regime change and help convert a very weak agency into an effective and efficient regulator,” Lamberte said. The bulk of CDA’s time and resources is spent on the settlement of disputes rather than enforcing regulatory standards deposit-taking institution are expected to observe, the former executive at the Philippine Institute for Developmental Studies, a government think tank, said. The CDA merely registers applicant institutions and rarely ever takes the time to read what the institutions have written on the blank spaces, according to Lamberte. This was why cooperative executives often engage in self-dealing transactions or in so-called DOSRI loans with the CDA none the wiser for it, he said. And because cooperatives get away with financial murder by remaining under loose CDA supervision, there was no incentive for them to upgrade to the level of banks where tight Bangko Sentral ng Pilipinas supervision keeps the industry on its toes 24/7, according to Lamberte.

 

http://www.businessmirror.com.ph/0420&212007/economy04.html

Market Files: GSIS's index fund

GSIS’s index fund

A planned stock index fund the Government Service Insurance System (GSIS) announced over the weekend could signal a new beginning for the Philippines’ stock market as it could immediately bring added benefits in terms of breadth in investment choices. This fund is long overdue and it could widen the market’s reach and bring heretofore wary investors into the market. The GSIS plan could even start a planned financial-literacy campaign for overseas Filipino workers who still are at a loss for investment instruments that could further their family’s lot. Several government agencies have tried and failed to introduce new offerings in the financial market as a way to induce the rate of savings in the country. There were attempts before by the Securities and Exchange Commission (SEC), for instance, in the early ’90s, to set up an options market as a way to add to the suite of financial products that were available in the market then. Jardine Fleming made the presentation before the SEC at that time, explaining the put-and-call option and a bigger derivatives market. In the early ’80s, the Manila Stock Exchange introduced a dollar trading board but it did not catch fire. It was then meant to woo into the market the dollar inflows, mostly unregistered, and thereby benefit the country’s dollar hoard. Also, it was intended to smoothen the wide disparity between the official peso-dollar rate and the so-called black market for dollars. This also failed and with it the planned increase in savings rate. But the plan of GSIS, as announced by its president and general manager, Winston Garcia, for a stock index fund that would track the Philippine Stock Exchange index could be what the market has been waiting for. The planned index fund, said to be set up with a P15-billion to P20 billion start-up, is seen to interest investors, especially those who do not have the time to look at each individual stock. This solves the government’s problem on educating the OFWs, whose remittances account for much of the strength of the peso and the uptick in the local economy. As it is, the bulk of the OFWs’ remittances go toward consumption expenditures that do not have as much economic impact as the investment-driven growth that could accrue from the increase in savings. Thus, the GSIS stock index fund brings with it a different investment perspective. Any OFW could purchase a participating unit in the GSIS stock index fund and benefit from the surge in the Philippine market. Investment savvy, it is said, could add to the number of entrepreneurs who create jobs and chip in to the government’s revenue take. Mr. Garcia’s bold move can be considered trailblazing. It also provides the pension fund an opportunity to lock in its gains from its stock market investments following the sale of its stake in San Miguel Corp., Equitable Bank and other listed issues. The GSIS earned P9.7 billion from its initial sale of its holdings and this is expected to hit P15 billion when the year ends. That effectively stretches the actuarial life of the pension fund from just 33 years to 100 years, according to news reports. This means continued benefits for pensioners. The plan sets a new benchmark for GSIS as it moves from being a passive investor to that of a market mover. According to Mr. Garcia, the pension fund’s “strategy since December has been to cash in [on our investments] by disposing of our stocks.” Now, that stock index fund sets a precedent not only for the pension fund but for the stock market as well. When it pushes through, the OFWs and their families will have a new financial instrument to dabble in outside of the certificates of time deposits that now pays under 3 percent. Although late in the game for the local stock market—as all over the world the new trend is the so-called exchange-traded fund—the GSIS plan, when it pushes through, would establish Mr. Garcia as a market visionary and bring in a fresh impetus for a market whose investors failed to appreciate the dollar trading board in the ’80s and the put-or-call option in the ’90s. Clearly, Mr. Garcia would be able to bring the Philippine Stock Exchange to the 21st century.   E-mail:hugagni@yahoo.com

http://www.businessmirror.com.ph/0420&212007/opinion04.html

Euro moves closer to record high vs dollar

April 20, 2007
Updated 11:39:35 (Mla time)

Agence France-Presse

TOKYO -- The euro edged up towards its all-time high against the dollar in Asian trade Friday as the market focused on the Chinese economy and this weekend's French presidential first-round vote, dealers said.

They said market players remained cautious after the yuan rose to fresh highs against the dollar amid concern about faster-than-expected Chinese economic growth.

The euro gained to 1.3617 dollars in Tokyo morning trade from 1.3607 late Thursday in New York, approaching its 2004 record high of 1.3666.
The single European currency rose to 161.54 yen from 161.14 while the dollar climbed to 118.61 yen from 118.50.

"Players are tending to hold the euro as the market became (more) sensitive about China's currency and its economy," said Hironobu Hagi, deputy general manager of Shinsei Bank's capital markets division.

"It may take some time before the euro revisits its record high against the dollar but that is now certainly in many market players' sights," he said.

On Thursday, the yuan rose to 7.7165 to the dollar, its highest level since Beijing relaxed its forex regime in July 2005 after news that China's economy expanded a robust 11.1 percent year-on-year in the first quarter.

The Chinese currency was hands at 7.7217 to the dollar in early Asian trade on Friday, down slightly from Thursday levels.

The United States has long pressured China's authorities to allow the yuan to appreciate more rapidly, arguing that the currency is undervalued, thereby giving Chinese exports an unfair advantage on world markets.

The market was looking ahead to a meeting of eurozone finance ministers in Berlin later Friday amid speculation they may voice growing concerns about the strength of the euro, dealers said.

The outcome of Sunday's first round of voting in the French presidential elections could also influence the outlook for the euro, with rightwing candidate Nicolas Sarkozy tipped to come out in pole position, dealers said.

"The commitment of the winner to far reaching economic reforms should be key to investors," Barclays Capital analyst Laurence Boone wrote in a research note.

"A Sarkozy victory will likely be positive for the euro and is one of the reasons for our bullish view on the currency. By contrast, if he did not win, or if (far-right leader) Jean-Marie Le Pen reached the second round, we think it would be euro-negative," Boone added.

http://services.inquirer.net/express/07/04/20/html_output/xmlhtml/20070420-61512-xml.html

BSP maintains key rates, acts to contain inflation

By Des Ferriols
The Philippine Star 04/20/2007

The Bangko Sentral ng Pilipinas (BSP) decided yesterday to take steps to arrest the rapid growth in money supply, setting moves to mop up liquidity from the system by luring government deposits away from banks.

The Monetary Board (MB) decided to keep all its monetary policy settings unchanged, opting instead to impose new measures to address the rapid growth in domestic liquidity.

The new measures, according to the BSP, are expected to ultimately slow down the growth in domestic liquidity to below 20 percent, a level that the central bank said it considered "sustainable and not inflationary".

BSP Governor Amando M. Tetangco Jr. announced after the MB meeting that the overnight borrowing rate would stay at 7.5 percent and its overnight lending rate at 9.75 percent. The tiering scheme on bank placements with the BSP was also retained.

"We think that all our policy settings at this time are still appropriate," Tetangco said. "The recent price developments are consistent with the BSP’s and the market’s expectations of a generally benign inflation outlook."

However, Tetangco said the MB is still concerned over the strength of monetary growth which could build up inflationary pressures over the medium term.

To address the potential risks, Tetangco said the MB has decided to encourage government owned and controlled corporations especially the Government Service Insurance System (GSIS) and the Social Security System (SSS) to deposit their funds with the BSP.

GOCCs normally use government depository banks but Tetangco said the BSP is willing to offer them better terms for their deposits than they would normally get from banks.

"We still have to determine what rate we will offer them, we will be looking at the rates," Tetangco said.

In addition to luring GOCC deposits away from banks, the BSP also decided it would allow trust department of banks to deposit with the BSP and allow the Special Deposit Accounts (SDAs) of banks to be counted as alternative compliance with the liquidity floor requirements for government deposits.

This way, Tetangco said banks could use their SDA placements when calculating their liquidity floor compliance for government deposits. Normally, banks buy government securities to comply with this requirement.

 

http://www.philstar.com/philstar/NEWS200704200702.htm

RP, 3 Asian countries vulnerable to new currency crisis - study

The Philippine Star 04/20/2007

BANGKOK, Thailand (AP) — Four Asian nations including the Philippines hit hard by the 1997-98 financial crisis face renewed vulnerability to sudden capital outflows that could cause a currency crisis, the United Nations said in a report yesterday.

Despite the rapid economic growth of the region, Indonesia, South Korea, Thailand and the Philippines have recently showed some cracks in their economies that should be closely monitored, according to the UN’s Economic and Social Commission for Asia and the Pacific, or UNESCAP.

In particular, the report said managing exchange rates would pose a challenge to Asian countries this year, given that many currencies appreciated significantly against the US dollar last year and are expected to gain strength this year despite intervention from central banks.

The 1997 collapse hit Thailand, Indonesia and South Korea hardest, setting off an avalanche of bankruptcies, wiping out thousands of jobs and shaking the foundations of the region’s economies.

While the region has since bounced back strongly, the report warned that "crisis-affected countries, except for Malaysia, are displaying renewed vulnerability in 2006."

It highlighted the appreciation of their exchange rates driven by short-term capital inflows — and the risk of a sudden reversal of capital flows — and greater inflationary pressures caused by higher oil prices.

"Although growth is expected to remain quite robust, there are some downside risks for the region," UNESCAP’s principle officer Raj Kumar told a press conference in Bangkok. Those risks include "a potential oil price shock, a disorderly unwinding of global imbalances and economic overheating in China."

The UN predicted that economies across Asia would continue to grow rapidly, though slow slightly this year to 7.4 percent from 7.9 percent last year, partly due to a slowdown in the US economy, a major market for Asian exports.

To assess a country’s vulnerability to a currency crisis, UNESCAP devised an index that looks at the level of foreign exchange reserves to cover short-term debts, private domestic credit levels and exchange rate appreciation.

In the years leading up to the July 1997 crisis, which was triggered by a plunge in the Thai baht, the index steadily declined.

After a period of relative stability from 2000 to 2004, the index has started to deteriorate again in 2006 in crisis-affected countries except for Malaysia, the report showed.

Thailand now faces greater risks due to a decline in the ratio of foreign reserves to short-term debt and an increase in short-term capital inflows.

It advised countries against imposing capital controls as Thailand did in December, saying such interventions to keep currency weak is not a long-term solution and has hurt overall investment climate.

"It is a situation that South East Asian economics in particular can not afford," after a steady decline in investment share in GDP since the 1997 crisis, said the report, titled "Economic and Social Survey of Asia and the Pacific 2007."

It suggested, instead, that countries allowed greater exchange rate flexibility.

"It is also important to develop hedging instruments to manage risks and further strengthen and deepen financial markets to manage currency volatility," Kumar said.

 

http://www.philstar.com/philstar/NEWS200704200704.htm