POGO ban may support PHL exit from ‘gray list’ 

The recent ban on Philippine offshore gaming operators (POGO) would help expedite the country’s exit from a global financial watchdog’s “gray list” of jurisdictions under increased monitoring for money laundering risks, the central bank governor said.

“With the POGO ban, we do see a drop in money laundering, which should help us exit the gray list,” Bangko Sentral ng Pilipinas (BPS) Governor Eli M. Remolona, Jr. told BusinessWorld in a text message.

Last week, President Ferdinand R. Marcos, Jr. ordered a total ban on all offshore gaming operations due to their ties to illicit activities such as financial scams, money laundering, prostitution, and human trafficking.

Mr. Marcos directed the Philippine Amusement and Gaming Corp. (PAGCOR) to shutter all POGO facilities by the end of the year. 

This comes after the Financial Action Task Force (FATF) in June kept the Philippines in its gray list for a third straight year.

The global watchdog said the country still needs to address three remaining action items, one of which is “demonstrating that supervisors are using anti-money laundering and counter financing of terrorism (AML/CFT) controls to mitigate risks associated with casino junkets.”

Mr. Remolona earlier said the Philippines would likely exit the gray list by next year as it still needs to address the remaining deficiencies cited by the FATF.

From 2018 to 2023, the Philippines was among the top five countries in Southeast Asia with money laundering activities added over the five-year period, earlier data from Moody’s showed.

The number of money laundering events added in the Philippines jumped by 45% from 2022 to 2023, it said.

Chester B. Cabalza, founding president of Manila-based International Development and Security Cooperation, said Mr. Marcos’ order to ban POGOs would encourage more “legitimate” investments to enter the country.

“With the expected ban, the Philippines may be relieved with the gray list tag and re-strategize for fulfilling more legal and moral entertainment investments for the inclusive growth of the country,” he said via Facebook Messenger.

Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said the POGO ban would be a “big push” for tourism in the country.

“When POGOs are banned, then gamblers from China will be forced to travel to the Philippines and do their gambling in big casinos,” he said.

Mr. Oplas noted that the POGO ban should not be rushed due to its impact on the property market.

On the other hand, Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said there are still many other sources of money laundering aside from POGOs.

“(POGO) might not even be the main vehicle for money laundering in the Philippines,” he said via Facebook Messenger chat. “POGOs offer online gambling catering to a foreign country, specifically China. But what about online gambling within the Philippines? What about the proliferation of physical casinos in the Philippines? Money laundering thrives in said activities and places.”

Mr. Sta. Ana noted that there are many sectors that are vulnerable to money laundering.

“There are many ways to launder money — real estate, mineral extraction, setting up shell companies, establishing low-key businesses, purchasing artworks, jewelry, luxury automobiles, etc. A major step to get out of the gray list is to lift the strict secrecy rules on bank deposits.”

IMPACT ON BANKS

In a separate report, Fitch Ratings said the Philippine financial system is resilient enough to withstand the spillover effects of the POGO ban.

“The government’s ban on POGOs may hurt Fitch-rated banks’ asset quality and performance, but their loss-absorption buffers will be sufficient to withstand associated losses, which are likely to be limited in scale,” it said.

Banks have ample buffers to “absorb POGO-related losses without pressuring their current standalone viability ratings.”

“Moreover, banks’ record-high margins and higher loan growth — the key drivers of our ‘improving’ sector outlook for Philippine banks — are likely to compensate for higher credit costs associated with potential new impairments from the POGO ban,” it added.

The Philippine banking industry’s net income rose by 2.95% to PHP 92.107 billion at end-March, latest data from the central bank showed.

Separate data showed that bank lending grew by 10.1% in May to PHP 12 trillion, the fastest in 14 months.

Fitch Ratings noted that POGOs’ influence on the property market has waned due to tighter regulations. Travel restrictions also affected the sector, which is heavily dependent on workers from China, it added.

“One property consultant, Colliers, has indicated that POGOs currently occupy 3.5% of Metro Manila’s office stock, down from 10% in 2019, with most large developers’ leasing portfolios having at most a 5% exposure,” it said.

It also said real estate developers have been limiting their exposure to POGOs. The expected vacancies from the ban “may also pressure rental yields, with broader impacts on real estate firms.”

“Most of these large players have diversified real estate portfolios, so these effects could also be offset partially by better residential sales if interest rates fall as we expect in the second half of 2024 and 2025.”

With this, Fitch said banking-asset impairments from real estate companies would be “relatively contained.”

Fitch data showed that the residential mortgage nonperforming loan (NPL) ratio improved to 7% in the first quarter of 2024 from 9.6% in the third quarter of 2021, though this was still higher than pre-pandemic levels.

It said this “reflects in part a fallout from speculative activity and more lax housing loan credit standards during the POGO boom years in 2016-2019.”

“Since then, many banks have become more averse to lending to POGO workers, given high policy risk,” it added.

Property-related losses due to closures from the ban are also not expected to be significant for banks.

“Even in the event of a greater impact than we anticipate, regulations require banks to demonstrate common equity Tier 1 (CET1) and total capital ratios of 6% and 10%, respectively, after writing off 25% of their real estate exposures. This should ensure that loss-absorption buffers are aligned with their exposure to the sector,” it added. – Luisa Maria Jacinta C. Jocson, Reporter