Recession imperils PHL banks’ stability–S&P By Bianca Cuaresma @BcuaresmaBM
R
ECESSION in the loca l economy is posing a bigger risk to the banking sector’s stability in the coming months, an international credit watcher said. In its most recent global assessment of the banking sector, S&P Global Ratings listed four major risks to banks’ recovery across the globe. These are: worse or longer economic disruption from Covid-19, longer-term overhangs from short-term support to banks and borrowers, surge in leverage and anticipated higher corporate insolvencies and problems in the property market. Among these four, the first one
is the largest threat to the Philippine financial sector, S&P said. “As Covid-19 pushes the economy into deep recession, the economic risk trend for Philippine banks is negative, in our view. We expect the Philippine economy to shrink by 9.5 percent in 2020 owing to strict lockdown measures and subdued consumer spending,” S&P Primary Credit Analyst Nikita Anand said. Anand said economic contraction and tough employment conditions are expected to weaken banks’ asset quality, earnings, and capitalization. S&P’s expectations for the local banking sector include elevated credit costs at 1 to 2 percent of its gross loans over this year up until
the next. This is a jump from the Philippine banking sector’s 0.4 percent credit costs in the last five years. “The consumer, micro, and SME portfolios will contribute to higher nonperforming loans [NPLs] in the coming quarters. Large conglomerates, with their strong business profiles by domestic standards and good access to liquidity, are better placed to weather the storm,” Anand said. “We expect high credit costs and downward pressure on margins to weigh on the sector’s profitability in 2020 and 2021,” she added.
Further economic depression bad for banks
While S&P noted that Philippine banks entered the pandemic from
a position of strength, Anand said a longer or deeper recession than S&P’s forecast could result in substantially higher credit losses. The S&P analyst also said further cuts in banks’ regulatory reserve requirement could partly mitigate the downward pressure on the banks’ margins. “If the recession is longer or deeper than our forecast, this could set off sharper asset quality deterioration for banks, due to potential stress in large corporate books,” she said. The Philippine economy has been contracting by the double digits for two quarters now—it shrank by 16.9 percent in the second quarter, and by 11.5 percent in the third quarter of this year. See “Recession,” A2
CUSTOMS EYES P15.4-B RICE TARIFFS THIS YEAR
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Wednesday, November 18, 2020 Vol. 16 No. 41
P25.00 nationwide | 2 sections 20 pages |
Amla tweaks will boost PHL credit score–experts
By Bernadette D. Nicolas
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@BNicolasBM
HE Bureau of Customs (BOC) is now aiming to collect at least P15.4 billion in rice tariffs by the end of this year, boosting hopes that over P5 billion could be allocated by government as assistance to farmers under the rice trade liberalization law.
During the Senate hearing on the 2021 budget of the Department of Finance, it was revealed that the BOC has so far collected P13.6 billion in rice tariffs this year, which has not yet included the P630 million it collected in October alone. Responding to the interpellation of Senator Francis Pangilinan, Finance Committee Chairman Juan Edgardo Angara said the BOC expects to collect also about P630 million each for the months of November and December. Should this be realized, at least P1.8 billion in rice tariffs will be collected for the last quarter of the year. Sought by this paper to confirm that they are expecting to collect P15.4 billion this year, Customs Assistant Commissioner and spokesman Vincent Philip Maronilla said: “We aim to achieve that figure or even more.”
Excess tariff yield
During the hearing, Pangilinan pointed out that this scenario would yield a possible excess of P5.4 billion in annual tariff revenues.
By Tyrone Jasper C. Piad
A
Bureau of Fire Protection personnel conduct a clean-up drive at Marikina City Hall premises after the city was devastated by Typhoon Ulysses last week. NONOY LACZA
‘HIKE COVID, CALAMITY RESPONSE FUNDS’ By Jovee Marie N. dela Cruz @joveemarie
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ITH the economy projected to lose P3.4 trillion this year due to the impact of Covid-19 and recent calamities, Congress was urged to adjust accordingly the proposed response in the 2021 national budget, which was deemed insufficient for the economy to recover from these adverse events. House Economic Cluster cochairman and Marikina Rep. Stella Luz
Quimbo, said the 2021 General Appropriations Bill which authorizes a total spending of P4.506 trillion is based on the assumption that the economy will contract at only 5.5 percent. “The 2021 national budget—being a Covid budget, includes Covidrelated spending that is presumed to sufficiently address an expected 5.5-percent contraction of the economy. Per my computation, in order to attain just a 5.5-percent contraction in 2020, our GDP must grow in the fourth quarter by 6.5 percent. This
is impossible because of the recent typhoons Rolly, Quinta, Siony, and Ulysses, which have an estimated damage of P100 billion,” she said in a privilege speech on Monday. “A more realistic forecast is what various international groups have projected: an 8 to 10-percent decline in the 2020 GDP.... And since the contraction is likely to be deeper than expected, the proposed Covid response in its current shape in the 2021 GAB, is simply insufficient,” she explained.
According to Quimbo, moving from 5.5-percent contraction of GDP to a 10-percent contraction means losing an additional P900 billion, adding:“So, from an expected P2.4-trillion loss, we now stand to lose P3.3 trillion. But if we include the damage from typhoons it could read P3.4 trillion,” she said. Quimbo also said the total amount of Covid-19 response in the 2021 GAB is only P248 billion and not P838.4 billion, as claimed by the Department of Budget and Management.
Continued on A2
S the Philippines seeks to secure more “A” credit ratings, experts see passage of the amendments to the Anti-Money Laundering Act (Amla) immediately as crucial to this campaign. UnionBank Chief Economist Ruben Carlo O. Asuncion said the changes to Republic Act 9160 can bode well for the financial system of the country as these can strengthen the safeguard against dirty money transactions. “In a country seeking the illusive A credit rating, passing the significant amendments to the Amla would be a great compliment,” he said. Economic managers earlier prepared a road map aimed at achieving an “A” rating from one of the major credit watchers, including Moody’s Investors Services, Fitch Ratings and S&P Global Ratings, by 2022. The Philippines received its first “A” rating in June from the Japan Credit Rating Agency. “If the Philippine government financial house is in order and its sovereign debt can be very trusted, an enhanced credibility of the domestic financial system would further provide benefits and advantages,” Asuncion said. “Otherwise, it will be lost opportunity to strengthen our institutions and the infrastructures that support them.” RCBC Chief Economist Michael L. Ricafort said that amending Amla can put the Philippines’s regulations on a par with its neighbors in the Association of Southeast Asian Nations (Asean).
See “Customs,” A2
PESO exchange rates n US 48.1690
@Tyronepiad
See “Amla,” A2
n japan 0.4607 n UK 63.5831 n HK 6.2126 n CHINA 7.3175 n singapore 35.8027 n australia 35.2501 n EU 57.1043 n SAUDI arabia 12.8437
Source: BSP (November 17, 2020)