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Philippines lenders will likely maintain their profitability until 2025 even as economic growth is expected to ease, according to S&P Global Ratings. 

The profitability of Philippine banks will “hold up” for the next three years despite slower gross domestic product (GDP), the debt watcher said in an Oct. 18 report written by Nikita Anand, associate director at S&P Global Ratings.

Philippine banks’ return on average assets will likely stay at around the 1.4-1.6% levels until 2025, it said.

The Philippine banking industry recorded a higher net profit in the first half of the year as the cumulative net income grew by 27.7% to P182.76 billion from P143.12 billion in the same period in 2022, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Other measures of profitability, such as return on assets (RoA) and return on equity (RoE), also improved in the first quarter of the year.

The banking industry’s RoA stood at 1.5% in the January-to-March period, higher than the 1.2% recorded in the comparable year-ago period.

Meanwhile, RoE inched up to 12.6% from 9.6% in the first quarter of 2022.

Credit losses among Philippine banks will stay flat for the next three years, while strong deposits from households will provide stable funding, S&P Global Ratings noted.

Latest data from the BSP showed the banking sector’s gross nonperforming loan (NPL) ratio slipped to 3.42% as of end-August from 3.43% at end-July and from 3.53% in the same month last year.

The NPL ratio in August was the lowest in four months or since 3.41% in April.      

Bad loans declined by 5.9% year on year to P442.9 billion as of end-August. However, it was 0.6% higher than P440.1 billion seen at end-July.

The debt watcher also maintained its stable credit outlook for Asia-Pacific financial institutions, including Philippine banks. 

The debt watcher sees the Philippine economy growing by just 5.2% this year, below the government’s target of 6-7% for 2023 and slower than the 7.6% GDP expansion in 2022.

S&P sees Philippine growth at 6.1% in 2024 and at 6.2% in 2025. — Keisha B. Ta-asan

SHANGHAI/SINGAPORE — Investors are making a tentative return to China’s beaten-down stock markets as the government opened the stimulus taps, including pressing a national fund for support, but they remain mindful the economy and sentiment are still fragile.

China’s benchmark CSI300 Index staged a moderate rebound from 4-1/2-year lows this week, after state fund Central Huijin Investment started buying exchange-traded funds (ETFs) on Monday, adding substance to the central bank’s pledge over the weekend to fend off financial risks.

Investors were also excited by Tuesday’s approval of an additional one trillion yuan (USD 136.76 billion) of sovereign bond issuance.

Drawing investors back into China’s USD 10.5-trillion stock market, particularly the foreign buyers that have fled in droves this year, would stem further slides in a market which fell to its lowest since 2019 earlier this week.

The policy efforts could also halt capital outflows and ease the yuan’s depreciation and a stronger market could help fund a rejuvenation of the world’s second-largest economy.

The fiscal stimulus “is injecting some confidence to an extremely pessimistic market that saw no hope in the economy,” said Huang Yan, fund manager of Shanghai QiuYang Capital Co.

QiuYang added some positions this week for short-term bets, but remained defensive as “the market needs time to find bottom,” Huang said.

Still, the rebound in China stocks was modest and trading remained thin, underlining Beijing’s challenge in reviving confidence dented by a stop-go economic recovery, a deepening property crisis, and heightened geopolitical tensions.

Huang is also wary of another selloff since further falls in stock prices could force leveraged investors to sell when they face margin calls.

The CSI300 index is down 18% from its peak this year in January while China’s currency is down nearly 6% so far in 2023.

This weekend the government gave a clear sign of market support when People’s Bank of China Governor Pan Gongsheng said China would prevent risk contagion in the stock, bond and foreign exchange markets, and ensure stability.

“China’s central government is endorsing the stock market,” said Qi Wang, chief investment officer of UOB Kay Hian’s wealth management division in Hong Kong.

“We see tactical opportunities” over the next few months, he said, citing some improvements in China’s economy, the Sino-US relationship, and fresh stimulus. But “I dare not say we are already at the bottom.”

Enlisting Huijin underscored the Chinese government’s seriousness about propping up the market after earlier piecemeal measures such as a cut in the stamp duty, reductions in trading fees, short-selling restrictions and curbs on share sales by listed companies’ large shareholders.

That support showed in markets this week as several ETFs, including the PB CSI 300 ETF and E Fund CSI300 Index ETF saw heavy inflows after Huijin announced its purchases in a statement, adding it would continue to do so.

China Asset Management Co. (AMC) said Huijin bought an estimated 10 billion yuan (USD 1.37 billion) of ETFs on Monday, and continuous buying would “effectively ease liquidity shortage and help stabilise markets.”

Huijin last bought ETFs during the 2015 stock market crash, and during the money market liquidity crunch in 2013. “The Shanghai stock indices were higher by more than 20% in three months both times,” analysts at Singapore’s United Overseas Bank wrote.

Even without the policy moves, some overseas investors are slowly coming back to Chinese stocks.

UK-based M&G Investments, which manages about USD 385 billion for individual and profession investors, is adding to its Chinese investments and likes sectors including automotive, renewable and shipping, said Fabiana Fedeli, M&G’s global CIO for equities, multi-asset, and sustainability.

“We do find opportunities in China, and opportunity is created by the fact that this market has been unloved for some time,” Fedeli said.

Still, China’s stock markets have to overcome earlier heavy selling from foreigners, burnt by Xi’s previous crackdowns on internet companies and other sectors, and its earlier stringent zero-COVID policy.

Goldman Sachs estimates forex outflows from China rose to USD 75 billion in September, 80% higher than in August and the biggest monthly amount since 2016. — Reuters

THE NATIONAL Government’s (NG) budget gap ballooned in September as revenues declined and expenditures rose, the Bureau of the Treasury (BTr) said.

Data from the BTr on Wednesday showed that the fiscal deficit widened by 39.6% to PHP 250.9 billion from PHP 179.8 billion a year ago.

“The fiscal outturn for the period was underpinned by an 8.06% year-over-year acceleration in expenditures coupled with an 11.57% decrease in government receipts,” the Treasury said.

In September, revenues fell by 11.57% to PHP 255.4 billion from PHP 288.8 billion a year earlier.

The bulk of revenues came from taxes, which dropped by 8.43% year on year to PHP 233.5 billion.

The Bureau of Internal Revenue (BIR) collected PHP 152.2 billion, slumping by 12.36% from PHP 173.6 billion a year ago. Collections by the Bureau of Customs (BoC) dipped by 0.47% to PHP 78.9 billion.

Meanwhile, nontax revenues fell by 35.22% to PHP 21.9 billion as revenues from other offices plunged by 47.34% to PHP 14 billion.

“The downturn (in revenues from other offices) was due to the base effect of last year’s one-off inflows from the return of PHP 7.3 billion in unutilized funds of the Unconditional Cash Transfer Program and the PHP 2.6-billion Philippine Charity Sweepstakes Office mandatory contribution to the Universal Health Care Program,” the BTr said.

BTr income rose by 8.79% to PHP 7.9 billion from PHP 7.3 billion a year ago due to “higher interest earnings on NG deposits and NG share from Philippine Amusement and Gaming Corp. (PAGCOR) income.”

On the other hand, government expenditures jumped by 8.06% to PHP 506.3 billion in September from PHP 468.8 billion a year ago.

The BTr attributed this to health and social protection programs, as well as public works projects.

Primary spending, which refers to spending net of interest payments, increased by 6.42% to PHP 434.9 billion. Interest payments jumped by 19.28% to PHP 71.4 billion.

“There was a stark pickup in spending versus a steep drop in revenues. Despite the acceleration in spending, we believe the economy is still in much need of support,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said persistent inflation could have slowed spending. Inflation accelerated for a second straight month in September, rising to 6.1% from 5.3% in August.

“The budget deficit also widened after government expenditures grew faster amid some catch-up spending by the National Government, especially on infrastructure, after some underspending earlier in 2023 that partly slowed down economic growth; as well as higher interest rates and a weaker peso exchange rate since 2022 that increased the debt servicing costs of the National Government,” he added.

NINE-MONTH DEFICIT

In the first nine months, the NG’s budget deficit narrowed by 2.89% to PHP 983.5 billion from PHP 1.01 trillion a year ago. This was 11% lower than the PHP 1.106-trillion program for the January-to-September period.

“The year-to-date NG deficit figure is only 66% of the PHP 1.5-trillion full-year program due to higher revenue and lower expenditure performance than programmed for the period,” the BTr added.

Government revenues rose by 6.79% to PHP 2.84 trillion in the January-to-September period. This was also 2.98% higher than the PHP 2.76-trillion revenue program.

As of end-September, revenue collections already accounted for 76.1% of the PHP 3.7-trillion full-year program.

Tax revenues increased by 6.38% to PHP 2.54 trillion, although 2.09% lower than its PHP 2.6-trillion program for the period.

Collections from the BIR rose by 7.25% to P1.86 trillion, but 3.89% lower than its PHP 1.93-trillion target.

Customs revenues went up by 3.43% to P660.4 billion, also exceeding its PHP 644.2-billion program by 2.52%.

Meanwhile, nontax revenues rose by 10.47% to PHP 296.5 billion, nearly double its PHP 160.1-billion target for the nine-month period.

BTr income climbed by 21.84% to P158 billion, nearly triple its PHP 53.7-billion program due to higher receipts from dividend remittances, interest income from its managed funds, and the NG’s share from profits of PAGCOR and Manila International Airport Authority.

Revenues from other offices slipped by 0.16% to PHP 138.5 billion, but 30% above the PHP 106.5-billion target.

For the nine months ending September, state spending rose by 4.12% to PHP 3.82 trillion from PHP 3.67 trillion a year ago. It missed its nine-month PHP 3.86-trillion target by 1.06%.

“The robust disbursement performance for the third quarter helped trim down government underspending to PHP 40.9 billion or 1.06% of the program for the first nine months of the year. This compares with the PHP 170.5-billion underspending recorded during the first semester, representing 6.6% of the program for the period,” the BTr said.

The weaker-than-expected 4.3% gross domestic product (GDP) growth in the second quarter was partially attributed to the contraction in government spending. This prompted the Finance department to order agencies to come up with catch-up spending plans.

In the third quarter alone, the BTr said disbursements reached PHP 1.4 trillion, up by 11.12% from a year ago. It also exceeded its program for the period by 10.13% “on account of the continued acceleration of infrastructure expenditures.”

For the nine-month period, primary expenditures went up by 2.78% to PHP 3.36 trillion, while interest payments jumped by 15.04% to PHP 460.1 billion.

Mr. Ricafort said the narrower deficit in the nine-month period was due to continued economic reopening and increased business operations, which contributed to higher tax collections.

This year, the government has set a budget deficit ceiling of PHP 1.499 trillion, equivalent to 6.1% of the gross domestic product. The program consists of PHP 3.729 trillion in revenues and PHP 5.228 trillion in disbursements. – Luisa Maria Jacinta C. Jocson, Reporter

FURTHER RATE HIKES may not be necessary to address rising consumer prices, as inflation remains driven by supply-side factors, according to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan.

“I am not a member of the Monetary Board, and I respect their wisdom, but I think the source of inflation is more supply side and not the demand side, which requires a monetary policy cure,” Mr. Balisacan told reporters on the sidelines of the 12^th Arangkada Forum on Wednesday.

This was after BSP Governor Eli M. Remolona, Jr. on Tuesday said the Monetary Board was considering an off-cycle rate hike as early as today (Thursday), amid upside risks to inflation. Its regular policy-setting meeting is scheduled for Nov. 16.

The BSP has maintained a hawkish stance in recent months, even as it kept the benchmark interest rate at a near 16-year high of 6.25% at its last four straight meetings.

Mr. Remolona earlier signaled a possible 25-bp rate hike, saying high interest rates have not affected economic growth prospects.

However, Mr. Balisacan said high interest rates could have long-term effects on the economy and discourage new investments. “That’s why we have to be very careful,” he added.

Mr. Balisacan is hopeful that October inflation would ease from the 6.1% print in September.

“I would be very surprised if rice inflation will (still) have (the same) rate that we saw in September, because the harvest season (has started),” he said. “World prices have declined a bit in the past couple of weeks, so that should have tempered the pressure for upward prices.”

Mr. Balisacan also said retail rice prices have adjusted quickly to market conditions following the lifting of the rice price ceiling earlier this month.

“With current availability of supplies and timely arrival of imports, I think that we should see less of those (price) pressures,” he said.

While global rice prices have been declining in recent weeks, prices remain elevated. The impact of the El Niño phenomenon on production is still considered an upside risk to inflation.

“At least for the Philippines, our agriculture people are telling us that there’s good production and recovery from the recent floods and typhoons. (We will) likely have a good harvest, and harvest is now ongoing, so that might reduce the pressure on domestic prices,” he said.

The NEDA chief noted that domestic oil prices are also at risk of rising again.

“We hope that these problems in the Middle East will not spill to the wider areas that could affect supply chain, particularly to the prices of oil. But so far, I think these increases will not be as (bad) hopefully,” he said.

Fuel retailers on Tuesday raised pump prices by PHP 0.95 for gasoline and by PHP 1.30 a liter for diesel. Year-to-date price adjustments as of Oct. 24 stood at PHP 13.75 a liter for gasoline, PHP 11.70 a liter for diesel, and PHP 6.24 a liter for kerosene.

But even with further rate hikes, Mr. Balisacan is optimistic that the Philippines can achieve its 6-7% gross domestic product (GDP) growth target.

“We are upbeat in the development community. The multilateral institutions are upbeat on the prospects of the Philippines for 2023 and 2024 and we want to ensure that optimism remains,” he said.

“That’s why we’re saying we have to work harder to get the investment climate as favorable as possible.”

The Philippine economy expanded by 4.3% in the second quarter, its slowest growth in over two years. For the first half, GDP averaged 5.3%, lower than the government’s 6-7% target.

However, Mr. Balisacan said inflation, government underspending, and geopolitical conflicts are risks to growth prospects.

“Inflation reduces households’ purchasing power and puts upward pressure on wages and interest rates, potentially dampening investment and growth prospects. Second is public underspending, which leads to gaps or delays in implementing programs and projects,” he said.

“Geopolitical conflicts in many regions are a third factor that may result in supply bottlenecks and financial shocks,” he said.

Mr. Balisacan said that the Development Budget Coordination Committee will hold a special meeting soon, but there would be a regular meeting after the local statistics agency releases the third-quarter GDP data on Nov. 9.

“Then we should be able to examine if our assumptions are on point,” he added.

Meanwhile, Nomura Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles said the BSP may hike by 25 bps to 6.5% at its Nov. 16 meeting.

“A weakening in FX (foreign exchange) would only add to the impetus for BSP to hike and raise the risk of further hikes than in our baseline if balance of payments pressures persist due to heightened external risks,” he said in a note.

Mr. Paracuelles noted emerging shocks such as the El Niño weather event and rising oil prices amid geopolitical tensions could add risks to the inflation outlook.

“When these risks materialize, we think BSP will likely tighten further, fearing that absent a decisive response, inflation expectations could become unanchored,” he said. — Keisha B. Ta-asan

THE NATIONAL Government (NG) plans to borrow PHP 225 billion from the domestic market in November, the Bureau of the Treasury (BTr) said.

The BTr released on Wednesday its borrowing plan for next month which is 50% higher than the PHP 150-billion program in October.

It will also be 58.8% more than the actual PHP 141.641 billion raised by the government this month.

In November, the BTr plans to borrow PHP 75 billion in Treasury bills (T-bills) and PHP 150 billion in Treasury bonds (T-bonds).

The government will offer PHP 5 billion worth of 91-day, 182-day and 364-day T-bills on Oct. 31, Nov. 6, 13, 20, and 28.

For next week, the T-bill auction is scheduled for Oct. 31 (Tuesday) after Oct. 30 (Monday) was declared a holiday for the Barangay and Sangguniang Kabataan Elections.

The T-bill auction will also be held on Nov. 28 (Tuesday), since Nov. 27 (Monday) was declared a holiday. Proclamation No. 90 moved the Bonifacio Day holiday to Nov. 27 from Nov. 30 (Thursday).

For the long-term tenors, the BTr will auction off PHP 30 billion in five-year bonds on Oct. 31, seven-year debt on Nov. 7 and 10-year bonds on Nov. 14.

It will also offer PHP 30 billion in 15-year bonds on Nov. 21 and six-year bonds on Nov. 28.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said there are more planned borrowings in November since there are more auction dates compared with October.

“With the government indicating it would be spending to support sagging economic growth, the BTr appears to be ensuring funding for such spending,” he said in a Viber message.

The BTr scheduled fewer auction dates in October as it also launched its retail dollar bond offer. The government raised $1.26 billion from its first retail dollar bond offer under the Marcos administration.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government had frontloaded the borrowing requirements before the seasonal lull in borrowings in December.

Higher interest rates and bond yields since July would justify the hedging of the government’s borrowing requirements, he said.

The gross domestic borrowing program this year is set at PHP 1.654 trillion, composed of PHP 54.1 billion in T-bills and PHP 1.6 trillion in fixed-rate T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 6.1% of the gross domestic product this year. – Keisha B. Ta-asan, Reporter

Inflation in the Philippines is driven by supply-side factors, and does not warrant a monetary policy response, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said on Wednesday.

“I think that the source of inflation is the supply side and not demand side that requires a monetary policy cure,” Mr. Balisacan told reporters.

Mr. Balisacan said he is hopeful of improving inflation numbers in the coming months, and that third-quarter economic growth was likely better versus a year ago as the government addresses underspending.

Mr. Balisacan, who is not a member of the central bank’s policymaking monetary board, earlier this month said raising interest rates further ” can hurt ” the economy and consumers.

The Philippine central bank is considering an off-cycle hike in its benchmark rate, as early as Thursday, before its regular rate-setting meeting on Nov. 16, to anchor inflation expectations. — Reuters