Report Summary
Positive Outlook For Increased Growth The Philippine economy looks set to grow above 5.0% for the fourth consecutive year, having expanded 5.4% in 2006. Following years of cutting back on expenditure, the government has decided to buck this trend in order to give a much needed boost to infrastructure, and the PHP142bn set out for this purpose will help to accelerate economic growth. Alongside this, strong remittance inflows from Filipinos working overseas and robust FDI and portfolio inflows will also support solid growth, although we are slightly more conservative than the government about the country's growth prospects. Official estimates put growth at 6.1-6.7% this year, whereas we are forecasting growth of 5.5%. Overall however, we maintain our positive outlook for Philippine economic growth.
Although still awaiting final results from May's congressional elections, it looks as though the opposition will extend their majority in the Senate, although Arroyo will be comforted by the fact that she is in a strong position to extend her majority in the lower house. This should not only provide greater political stability in the country, but allow Arroyo's reformist agenda to move forward with renewed pace. With a larger majority in the House of Representatives, the only real obstacle Arroyo faces is from the opposition-led Senate. However, with a number of Senators harbouring presidential ambitions, we should see a much more cooperative upper house than in recent years.
The Commercial Banking Sector In an attempt to improve the banking sector, the government has introduced stricter banking regulations under the Basel II accord. The accord, which was implemented in July 2007, will help to ensure that financial institutions have enough capital against risky ventures to prevent bank failures. In addition to the implementation of such measures, there is a high degree of discipline relative to other Asian countries in the lending practice of the central bank.
Overall, however, the financial services industry has remained stagnant. At December 31 2006, total assets, loans and deposits amounted to US$87.1bn, US$37.2bn and US$62.4bn, respectively. All three measures indicate that the Philippines' banking sector is still very small and one of the smallest amongst the countries surveyed by BMI. In local currency terms, asset growth was 11.2% over the preceding year.
By this measure, the Philippines was the 48th ranked country of the 59 for which we have compiled information this quarter. Loan growth was very low at -0.5%; by this measure the Philippines was the smallest country in our survey. Deposit growth was also quite low, at 16.8%; by this measure, the Philippines was the 31st largest country in our survey. Deposits per capita currently amount to only US$690.
At December 31 2006, the loan/deposit, loan/asset and loan/GDP ratios were 50.1%, 35.8% and 26.5%.
Relative to the corresponding ratios in other countries, all three are fairly low. Of the 59 countries for which we have compiled information, the Philippines has the 56th highest loan/deposit ratio, the 52nd highest loan/asset ratio and the 50th highest loan/GDP ratio. These ratios imply that the banks are expecting weak performance in the corporate sector.
Philippine banks appear, collectively, to hold bonds worth US$24.1bn; it seems that the banks' bond holdings rose by 5.7% over the year to December 31 2006. The banks' bond holdings amount to about 24.1% of total assets. This is a high ratio of bonds, suggesting that bank lending is being heavily directed towards the government rather than the commercial sector.
Press Reports Recent reports in the Philippine and international press have generally reflected two key issues, both to do with the steady recent growth of the Philippines' economy. Firstly, commentators have noticed the increasing value of remittances sent back to the Philippines by its vast army of overseas workers - estimated to be around US$12.3bn last year, and the proportional increase in the value these remittances are adding to the Philippines' economy. Estimates put the number of Filipino workers abroad at over 10mn, with another 1mn departures in 2006. Workers are increasingly likely to take up skilled and semiskilled posts in areas such as engineering and nursing, raising the value of remittances flowing back into the economy. Additionally, many foreign workers are starting putting their money to work, investing in housing and real estate ventures for example.
This has been helped by what commentators agree is the emergence of the Philippines' commercial banking sector from a difficult period of characterised by regulatory changes, recapitalisation programmes, high inflation, political instability and other pressures. Mergers within the sector have resulted in new, larger domestic banks, better able to meet foreign competition. Recapitalisation programs are beginning to bear fruit, and are being assisted by an increased demand for remittances, as well as for long term loans for low-end properties, such as from overseas workers. These have helped banks consolidate after meeting new financial regulations, namely the International Accounting Standards (IAS) and Basel II.
Contents
Executive Summary
Key Issues
Changes To The Commercial Banking Forecast
Philippines Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Business Environment:
Economic Activity
Industry Forecast Scenario
Comment on Forecasts
Comment On Trends
Bank's Bond Portfolios
Competitive Landscape
Market Protagonists
Methodology
“Philippines Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00475
