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BAIPHIL Market Watch – 25 Aug 2017

Page 2 of 13

Wednesday. Bank of the Philippine Islands lead economist Emilio Neri Jr. noted the "sustained struggles of Donald Trump in Washington." The dollar remained sluggish after Trump said he would be willing to risk a government shutdown to secure funding for a wall along the US-Mexico border, a report by Reuters said. The report added that Trump's threats to end the North American Free Trade Agreement (NAFTA), after the first-round talks that ended on Sunday failed to bridge differences, also undermined the US currency. Land Bank of the Philippines market economist Guian Angelo Dumalagan said Trump's NAFTA comments helped buoyed the peso.

FOREIGN BUSINESSES are looking forward to helping the Philippines reach the next level of development by helping it diversify

away from economic pillars like business process outsourcing (BPO) by boosting agriculture, among other sectors. The Joint Foreign Chambers of Commerce of the Philippines (JFC) said the sixth year of its Arangkada Philippines Forum will focus on “Implementing the 10-Point Agenda.” The forum is set for Sept. 14, where foreign businesses are expected to come up with policy recommendations for the government. In a news conference yesterday, the JFC said that it will take on issues like opening up foreign investment, boosting value-added merchandise exports, incentivizing agriculture growth, tourism, infrastructure, mining, as well as the expansion of the BPO industry. The basis for economic growth is currently narrow, according to Julian H. Payne, president of the Canadian Chamber of Commerce of the Philippines, as its drivers remain to be the BPO industry and overseas remittances. “To join the ranks of all the industrialized countries, you’re going to have to diversify the economy considerably. That means really picking up agriculture, really picking up manufacturing, and diversifying it geographically,” he said. “The BPO industry has enabled the middle class to rise. Why would you not support that? I think what the country needs is more BPOs. It has the potential to grow. If we don’t address these issues, we give those points away to China and India,” said European Chamber of Commerce of the Philippines (ECCP) President Guenter Taus, speaking in the context of President Rodrigo R. Duterte’s anti-Western statements, threatening Western investments here. Benjie Garcia, executive director of the Australia-New Zealand Chamber of Commerce Philippines, Inc. (ANZCHAM) for his part, said that the Philippine BPO sector has reached maturity, raising the need to attract new investors and retain those currently here. “BPO and shared services should be willing to focus on these two current developments, or be less competitive compared to India and China. We need to strengthen some incentives for this industry.” They added that BPO firms should also look into developing capacity in the non-voice and knowledge sector, noting increasing competition within the region. Mr. Taus raised concerns over the aging population in the agriculture sector noting the median age of farmers in the country is around 57. “If we continue this way in 10 years, we will not have any farmers. So there needs to be some programs also to entice people to get back into farming again,” he said. Mr. Payne for his part called for increased infrastructure and technology to accommodate small-scale family farms and help them evolve to more efficient commercial operations. “I don’t think we’re going to be able to make huge progress in agriculture without addressing the need for larger, more efficient farming operations with appropriate infrastructure,” Mr. Payne said. The business groups also said that backward and forward integration is the “key to success” in the mining industry, and urged the government to open refineries that will process extracted minerals, enabling the industry to capture more value added. “If you want to develop mining, you have to develop in parallel an open environment to foreign investments to manufacturing, and encourage manufacturing,” Mr. Payne said. ANZCHAM meanwhile said that it will be sharing best practices and experiences with the Philippines, given its technologically advanced mining companies that comply with international standards. Moreover, foreign businesses also view tourism as a priority sector, but the infrastructure gap will remain as a longstanding challenge in attracting more foreigners to come. However, the effect of the infrastructure shortfall is not exclusive to tourists. Ho Ik Lee, president of the Korean Chamber of Commerce of the Philippines, said that South Korean firms have been planning to leave the Philippines, due to high logistics costs, which is about three times that of Vietnam. Most South Korean companies located in economic zones are leaving the Philippines, and moving to Vietnam. “The costs are killing the manufacturing [industry],” he said. The forum in September will have panel discussions on the infrastructure gap; industrialization; agribusiness, the creative industries, and tourism; disruptive technologies; and the future of the work force. “We mustn’t look at each one just alone. We have to look at the combined impact, in what it means in terms of the long-term industrialization of this country, so it becomes one of the industrialized countries, which is what we are all looking for in the end.” said Mr. Payne.

COMPANIES are racing to identify infrastructure opportunities at the local government level to satisfy their thirst for growth after the government decided to take on the development of big-ticket projects. First Metro Investment Corp. (FMIC) Executive Vice-President Justino Juan R. Ocampo said in an interview that more companies will increasingly pursue public-private partnership (PPP) projects with local government units (LGU) that will deliver basic services to the public. “The private sector has to be creative,” Mr. Ocampo said. Conglomerates, which have actively participated in the previous administration’s PPP program, have turned to unsolicited proposals after the government opted to shoulder the funding for key infrastructure projects and bid out the operation and maintenance contracts later on to the private sector. With the status of these proposals to national government agencies still up in the air, firms like Metro Pacific Investments Corp. and Ayala Corp. are teaming up with LGUs in line with President Rodrigo R. Duterte’s thrust to spread the country’s wealth beyond Metro Manila and foster inclusive growth. “There might still be opportunities in the provinces. The government is keen on doing these big projects that are critical and immediately needed like airports and rail roads, but I think there might be opportunities elsewhere. We just have to do the studies,” Joseph M. Yap, president of Gotianun-led Cyberzone Properties, Inc., told reporters. MPIC is leading the charge when it comes to teaming up with LGUs for infrastructure projects. Among these projects are the 42-megawatt waste-to-energy facility in Quezon City, the P27.9-billion Cebu-Cordova Link Expressway and a number of bulk water supply deals, the latest of which is a P2.8-billion project in Cagayan de Oro sealed earlier this month. MetroPac Water Investments Corp., MPIC’s unit focused on business development outside Metro Manila, continues to evaluate several prospective water supply deals. “We’re looking all over, but I can’t divulge where because both us and Manila Water (Company, Inc.) might be looking at the same market,” Maynilad President Ramoncito S. Fernandez said in a phone interview, referring to the Ayala-led concessionaire for Metro Manila’s east service zone. In selecting the areas for expansion, Mr. Fernandez said the company takes into account “which of the LGUs need us most,” its willingness to partner with the private sector and if it will make efficient use of its resources. What also makes a PPP with an LGU attractive is less red tape. “For the Cebu-Cordova bridge, we dealt with the municipality of Cordova, the city of Cebu and the province — unlike if it is a national government (project), it concerns a lot of people [but] this one is smaller,” said Mr. Fernandez, who was the president of MPIC unit Metro Pacific Tollways Corp. when it made an unsolicited proposal to the local government. World Bank Country Director Mara K. Warwick told reporters the private sector can find some revenue-generation opportunities in water supply, waste water management, electricity and transportation at the local level. “Through a planning system including the local level, the work that is done to prepare plans also helps to make sure that what is being proposed is efficient and effective, and this provides the private sector the opportunity to invest in projects that are grounded in good analysis,” Ms. Warwick said. The PPP Center, in an e-mail, said that LGUs are working with the agency and the Department of Interior and Local Government to build up their capacity to develop their own infrastructure projects in response to the growing interest of the private sector in local projects. Makati City Mayor Mar-len Abigail S. Binary said in a forum organized by the National Competitiveness Council (NCC) on Wednesday last week that she considers the PPP scheme a “lynchpin” to improve the digital infrastructure of the city after signing five technology contracts with the private sector. “LGUs can fund some projects on their own, but if they need private investments and partners, they can go down the PPP route,” Guillermo M. Luz, private sector co-chairman of the NCC, said in an interview. The PPP Center said the unsolicited proposal process for both national government agencies and LGUs is provided by Republic Act No. (RA) 7718, the country’s build-operate-transfer law, while RA 7160, or the Local Government Code of 1991, authorizes

  

BAIPHIL Market Watch – 25 Aug 2017

Page 3 of 13

LGUs to enact their own joint venture codes. Still, the private sector taking on the government’s role in infrastructure development could have its trade-offs. “A public highway will need to be a toll gate in order to recuperate a company’s investment. You have to reconcile the profit-driven agenda of the corporation against the public good motive of an LGU,” Rens V. Cruz II, analyst at Regina Capital Development Corp., said in a telephone interview.

THE GOVERNMENT saw the third straight month of deficit in July, with revenues recovering from the previous month’s fall and

spending maintaining its double-digit pace, the Treasury bureau reported yesterday. July saw a P50.5-billion fiscal deficit that was steady from a year ago, compared to gaps amounting to P33.4 billion in May and P90.9 billion in June. Revenues recovered from June’s seven-percent fall to grow 14% to P194.6 billion in July from the year-ago P170.3 billion. Tax collections alone picked up 16% to P174.5 billion in July from P150 billion a year earlier, with the Bureau of Internal Revenue (BIR) making up 79% at P138.2 billion, 18% more than P117.4 billion previously and the Bureau of Customs (BoC), which contributed a fifth, collecting 13% more at P35 billion from P31 billion. Expenditures maintained their double-digit growth, though it was the slowest in three months at 11%, compared to May’s 20% and June’s 28%. State spending totaled P245.1 billion in July against a year-ago P220.9 billion. Interest payments, which made up 18% of total spending, increased by 12% to P44.6 billion in July from P40 billion a year ago, while non-interest expenditures grew 11% to P200.5 billion from P180.9 billion. Taking out interest payments from expenditures nearly halved the primary deficit to P5.9 billion from P10.6 billion a year ago. The government’s fiscal performance in July widened the budget gap by a fifth to P205 billion in the first seven months from the P171 billion seen in 2016’s comparable period. Total revenues increased by eight percent to P1.371 trillion from P1.271 trillion, with tax collections alone growing by 10% to P1.244 trillion from P1.132 trillion. BIR collections rose nine percent to P986.1 billion from P900.9 billion, while BoC’s take went up by a faster 11% to P245.3 billion from P221.5 billion. Total state expenditures increased by nine percent to P1.576 trillion from P1.442 trillion. The seven months to July yielded an P8.8-billion primary deficit that was a reversal from the year-ago P22.7-billion primary surplus. Sought for comment, Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said in an e-mail that “revenues must continually grow as expenditure plans are ambitiously huge moving forward,” referring to state plans to progressively increase spending, especially on infrastructure. Under the government’s 2017-2022 “Build, Build, Build” plan to spend a total of P8.44 trillion on infrastructure, expenditures will rise from P847.22 billion, equivalent to 5.32% of gross domestic product (GDP) this year, to P1.17 trillion or 6.68% in 2017 and to P1.899 trillion or 7.45% by the end of the program period. Mr. Asuncion cited an International Monetary Fund study that states “deficit-financed increases in public investment lead to higher borrowing costs that constrain output increases over time, underscoring the importance of revenue mobilization.” “For the Philippines case, what is being pointed out here is that deficits are good but only for a period of time,” he explained. “It means that, sooner or later, further revenue mobilization should be improved or risk higher costs of borrowing money for subsequent infrastructure developments crucial to the Philippines.”

The Department of Transportation (DOTr) is cutting its ties with Busan Universal Rail Inc. (BURI), the maintenance service provider of the Metro Rail Transit Line-3, amid allegations of purchasing and installing fake train safety equipment for the mass rail system. "The Office of the Undersecretary for Railways (OUR) has already signed a position paper that calls for the termination of contract with BURI," Transportation Undersecretary for Railways Cesar Chavez told a House of Representatives panel during a briefing on DOTr's proposed 2018 budget of P73.8 billion. "Another position paper was signed and prepared by the OUR terminating the signaling system," he said. PBA party-list Representative Jericho Nograles has filed a resolution seeking investigation into allegations of the fake train safety equipment. BURI Spokesperson Charles Mercado declined to comment, noting that the company has yet to receive any communication from DOTr. "There is a procedure to be followed in that. We have not received any order from the department regarding termination. Wala pa kaming narerecieve," he said. "That has legal implications. We don't want to react to something unofficial. Paulit ulit lang naman sinasabi nila 'yan. There is a procedure to be followed regarding termination of government agencies," he added. On November 28, 2016, BURI purchased from Diamond Pearl Manufacturing P4 million worth of supposedly fake train safety equipment, which have been installed in the train coaches, according to the resolution. Diamond Pearl Manufacturing, however, was not an authorized supplier and distributor of proprietary parts from Bombardier Transportation Signal Ltd., the maker of MRT-3 safety components for signaling system. In filing the resolution, Nograles noted that a cause of service interruptions of the MRT-3 was the signaling system or safety system – with 21 incidents reported between January 2016 and July 2017. Citing data from the MRT Control Center, Nograles noted that the mass transport system experienced the most number of service interruptions – 58 under BURI – in 2016. "As far as the MRT-3 and the OUR, we've been coordinating with the Office of the Undersecretary for Legal and provided them with the necessary information," Chavez said during the budget briefing. In case the contract with BURI gets canceled, a maintenance transition team will be created, Chavez said. "The maintenance transition team will be composed of the DOTr and MRT-3, the employees of BURI, where most of them were all employees of the past maintenance service provider," he said. "In the event the maintenance transition team is created, immediately we will procure the next service provider. But this time, under the leadership of Secretary Tugade, it's a matter of policy that all kinds of procurement should be very transparent," he added. Early this year, Transportation Secretary Arthur Tugade was supposedly infuriated upon learning that – based on an investigation report – BURI was irresponsible in handling the MRT.

POISED to lose their exemptions from Value-Added Tax (VAT), Government Owned and Controlled Corporations (GOCC) will be given a subsidy from the P19 billion tax expenditures fund under the General Appropriations Act of 2018, the Senate proposed. The proposal was put forward on Wednesday during the 15th public hearing by the Senate Committee on Ways and Means focusing on value-added tax provisions under the Tax Reform for Acceleration and Inclusion Bill. Under the proposed Tax Reform, GOCCs will no longer be exempted from VAT. Among the organizations that will receive subsidies from the GAA are the Girl Scouts of the Philippines, Boy Scouts of the Philippines, Philippine Post Office, National Health Insurance Corp., National Dairy Authority, the Government Service Insurance System, the Civil Aviation Authority of the Philippines, the Philippine Deposit Insurance Corp., and the Veterans Federation of the Philippines, among others. In earlier hearings, senators had opposed the lifting of the VAT exemption on GOCCs. According to Senate Ways and Means chair Juan Edgardo M. Angara, the shift from VAT exemption to GAA subsidy was a fair solution. “The advantage there is that the government can book it as revenue,” he said, noting that it is just like putting money from “one pocket to another.” However, Mr. Angara said that there is still much to be discussed. On Thursday, the committee will continue its deliberations on sugar-sweetened beverages and its earmarking to health promotion fund. “There is still a lot of debate,” said Mr. Angara on the proposed tax on sugar-sweetened beverages. He added: “There’s no consensus yet on what will take the place of a volume-based tax. The consensus is the volume tax is a not a very targeted system. It tends not to distinguish between sweeter and less sweet beverages. The right incentives from manufacturers are not present in that system. We want to craft a system where manufacturers and consumers are incentivized to have a healthier lifestyle.”

THE SENATE committee on ways and means is eyeing a multi-tiered excise tax based on sugar content, but capped at P5 per liter instead of the Finance department’s volume-based P10 per liter. During the Senate hearing on the sugar-sweetened beverage tax measure under the Tax Reform for Acceleration and Inclusion (TRAIN) yesterday, Senator Juan Edgardo M. Angara floated the idea of the multi-tiered tax pegged on a beverage’s sugar levels to make the tax more targeted. The TRAIN proposal imposes a flat rate of P10 per liter on sugar-sweetened beverages regardless of the sugar content. “It does not distinguish between beverages (with varying sugar

  

BAIPHIL Market Watch – 25 Aug 2017

Page 4 of 13

content). So it’s a bit blunt if it’s not targeted to those sweetened ones. We might look into the possibility of specifying sugar levels, to distinguish between sweeter beverages and those which are not so sweet,” said Mr. Angara, who chairs the ways and means committee. “We want to get the consensus where the levels will be set, but for the senators, they’re okay with three tiers, as long as the maximum level does not exceed P5 per liter,” said Mr. Angara. He said that this approach would incentivize beverage manufacturers to lower their sugar content, “so you can reward those who put less sugar in their beverages.” Federation of Philippine Industries President Jesus L. Arranza however said that the multi-tiered proposal may be anti-competitive. For its part, the Department of Finance (DoF) said that it will let the Department of Health (DoH) decide on the taxation structure of sugar-sweetened beverages, as the program is primarily intended as a health measure. “I will defer to the DoH,” Finance Undersecretary Karl Kendrick T. Chua told reporters yesterday on the sidelines of the hearing. “[The proposals] have pros and cons. It now depends on which one will deliver the best health impact because its really a health measure… so we will meet that objective before the revenue,” he said. The Finance department’s volume-based flat P10 rate is more attractive from a fiscal perspective as it is easier to administer. DoH Undersecretary Mario C. Villaverde however backed the original Finance department proposal, but said he is open to studying the health benefits of the multi-tiered system. “Our position is to support the house bill version… It’s much simpler, easier to enforce and administer because of the simplicity of the mechanism,” he said. Mr. Villaverde also defended the P10 proposal to burden the rich more rather than the poor, as they consume bulk of the sugar-sweetened beverages. As for the proposed P5 cap, Mr. Villaverde said that it would not be enough to discourage consumers to shift away from sugar-sweetened beverages. “Generally it should be around 20% additional tax. P5 is only around 10%.” Industry representatives also proposed before the committee to include non-caloric and artificial sweeteners, but this approach has yet to be studied by the panel. However Mr. Villaverde noted that artificial sweeteners have no direct link to the development of diabetes. “Its effect is more on the taste buds. People get a taste for sweets and crave sweetened food and beverages and that means craving more sugar. That’s the downside of it,” he said. “The consumption of the rich is already high. So the growth of consumption will only be marginal because they are the number one consumers. But among the poor, their consumption is increasing, and we would want to prevent them from consuming more. So the additional tax would become preventive, before their consumption increases,” added Mr. Villaverde. As for the effect on the beverage manufacturers, audit firm KPMG R.G. Manabat & Co. reported that businesses will take between 6.1 years to 15.8 years to recoup their forgone revenue from the imposition of the sugar-sweetened beverage tax. It also said that an average small store will lose about P300 in daily revenue, noting that 40% of store sales are from such beverages.

THE Department of Energy (DoE) has gained the backing of the Department of Finance (DoF) for its request to amend the terms of the contract relating to electric tricycles (e-trikes) and allow private sector participation in the costly project that has remained without takers. “(DoF’s) internal legal (experts) have already approved our amendments,” said DoE Assistant Secretary Leonido J. Pulido III on Wednesday on the sidelines of the DoE’s budget hearing at the Senate. He earlier said that the DoE had asked the Asian Development Bank (ADB) to tweak the terms of the loan to revive the project, but on a significantly scaled-down basis. The DoF and the ADB are the signatories of the contract. The program, initiated by the previous DoE leadership, was originally designed for the use of local government units, but they were reluctant to buy the vehicles because of their cost and the process involved in the acquisition. After much delay, the present DoE officials decided to roll out 3,000 e-trikes out of the original 100,000, lowering the project cost to P1.73 billion from P21.672 billion. The funding was sourced by the past administration through a loan from the ADB. The new contract terms seek to expand the project to make it available to the private sector. “We’re hoping to sign the amendments of the loan agreement within a week or two,” Mr. Pulido said. “The DoE is not a partner to those contracts. The signatories of the contract are the DoF and the ADB. But since the DoE is the implementing and executing agency, we were the ones who first essentially realized that the deployment model is flawed and it has to be modified,” he said. He previously said that although the cost of the vehicle remains the same, the private sector has more leeway and can be more flexible in adopting a business model that can work.

THE Energy Regulatory Commission (ERC) has asked the Supreme Court to lift the temporary restraining order (TRO) on the rules governing retail competition and open access (RCOA) that put uncertainty on transactions involving retail electricity suppliers. “We filed a motion to reiterate our plea for the TRO to be lifted by the Supreme Court,” said Gloria Victoria C. Yap-Taruc, one of four ERC commissioners, adding the pleading was filed three weeks ago. Rules governing RCOA are meant to give power users whose consumption has reached a pre-set threshold the “power of choice” to buy electricity from ERC-licensed retail electricity suppliers (RES). That power was questioned as the rules made mandatory the switch from being a captive customer of a distribution utility to one that can choose to forge a power supply contract with a licensed RES. “They’re the ones who issued the TRO. It’s impacting on the industry and our hands are tied so we have to seek guidance from them [on] how we can move forward,” said ERC Commissioner Alfredo J. Non. Republic Act No. 9136, the law that restructured the energy industry and privatized the government’s power generation assets, called for the passage of rules on retail competition. Regulations issued by the ERC and the Department of Energy on RCOA have been on hold after several entities sought and secured a TRO earlier this year. The Supreme Court issued the TRO days before Feb. 26, 2017, when the switch was to become mandatory for consumers with an average monthly consumption of at least 1 megawatt. It also put on hold the lowering of the threshold on June 26, 2017, which would have made the switch mandatory for those consuming 750-999 kilowatts (kW). Retail electricity suppliers say they offer electricity at a much lower rate than that offered by distribution utilities. ERC officials said they asked the court to allow the commission to lower the threshold to 750 kW while TRO is pending. They also asked to be allowed to issue licenses to retail electricity suppliers.

THE PHILIPPINE banking industry is expected to continue growing this year and next, driven by the sector’s low interest rates, improved asset quality, solid profitability, boosted by the country’s strong economic growth, an economist at S&P Ratings Services said. S&P credit analyst Ivan Tan said Philippine banks are expected to continue expanding in 2017 and 2018, with loan growth seen to hit a 15% to 17% in the next two years, higher than end-2016’s actual 16.5% increase. “We believe that the credit cycle in the Philippines has further to run,” Mr. Tan was quoted saying in an Aug. 23 report titled Philippine Banks To Continue To Ride Robust Economic Growth. “Most of the factors that drive credit cycles — corporate profits, low interest rates, and abundant liquidity — still look very much in place,” he added. Data from the Bangko Sentral ng Pilipinas (BSP) bared domestic liquidity or M3 expanded by 13.2% in June to P9.878 trillion on the back of strong appetite for credit, which in turn, fuelled growth in money supply. M3 growth, which is the broadest measure of money in an economy, picked up from the downward-revised 11.3% in May and is the fastest pace seen in a year or since a 13.4% rise in July 2016. It grew 1.8% month-on-month. Loan growth among Philippine banks is expected to remain strong compared to its regional peers for the next two years amid S&P’s view of sustained expansion, and with borrowing costs and interest rates remaining low “by historical standards” and banks still having excess liquidity to lend. “Credit penetration is moderately low, with private sector credit-to-GDP (gross domestic product) ratio of about 50%, and with room to rise,” Mr. Tan said in the report. The global debt watcher also noted that the country’s robust economic fundamentals will support the banking sector’s borrower repayment. S&P added that the government’s proposed tax reform “could reinforce the positive credit cycle, in our view.” “The proposals could lead to higher disposable incomes and consumer spending. Lower personal income tax rates could boost the spending power of wage earners while the reduced corporate income tax rate could encourage investments. By broadening the revenue base and raising revenue from new sources, the government may be able to increase spending on much-needed infrastructure and human capital to drive economic growth,” Mr. Tan

  

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said in the report. Amid strong economic and financial fundamentals, the global credit rater said it has a stable outlook for the sector, citing the industry’s capital adequacy ratio (CAR) of 15.3% by end-March which is “comfortably above regulatory minimum.” S&P had kept its 6.4% economic growth forecast for the country after GDP grew by 6.5% in the second quarter, slightly faster from first quarter’s 6.4% but easing from the year-ago’s 7.1% reading, which was boosted by expenditures related to the May 2016 general elections. This brought first-half growth to 6.45%, slightly up the government’s 6.5-7.5% growth projection for end-2017. The tax plan, which is expected to be in place by 2018, will raise the excise duties on oil, cars and sugar-sweetened beverages and reduce exemptions to the value-added tax, coupled with a reduction in personal income tax rates. Despite its outlook of a positive credit cycle for the sector, S&P noted it sees consumer lending a weak spot, noting: “Consumer lending, however, is a relatively unfamiliar territory and the availability of consumer data is limited.” “Philippines’ consumer loans segment has considerable potential for growth, in our view. However, the high branching costs to reach customers in this large archipelago is a hindrance. Banks are also justifiably cautious, given the lack of comprehensive consumer data and the high reported consumer NPLs (non-performing loans),” Mr. Tan said. At end-2016, consumer non-performing loans made up 3.9% of banks’ lending business versus the sector’s overall 2% NPL ratio. Nonetheless, S&P said the full rollout of the country’s national credit information database in the first quarter of 2018 would “improve information availability and help banks make better lending decisions.” State-run Credit Information Corp. expects the centralized credit information system to go live by January 2018, but had noted of some system issues which may delay the process. The Philippines holds a “BBB” rating with a “stable” outlook from S&P, one notch above minimum investment grade, which was affirmed last April, with the view that domestic conditions remain conducive for sustained economic growth. A stable outlook means that the state’s ratings are unlikely to change over the next year.

Yields under the central bank’s term deposit facility (TDF) moved sideways yesterday despite tepid demand, as banks opted to hold on to their funds as they anticipate bigger cash requirements ahead of another long weekend. Term deposits on offer fetched P158.171 billion in total bids on Wednesday, posting a slight pickup from the P153.379 billion the previous week but still settled below the P180 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block. The seven-day tenor attracted a mere P40.836 billion in total tenders, just a tad above the central bank’s P40-billion offering and down from P50.051 billion a week ago. Despite the weaker demand, the average yield sought by banks even slipped to 3.3124%, lower than the 3.3241% tallied during the Aug. 16 auction. The lenders asked for returns ranging from 3.28-3.35% as they parked their extra funds at the BSP. Meanwhile, bids for the 28-day term deposits recovered to P117.335 billion, up from last week’s P103.328 billion but still logged below the P140 billion auctioned by the central bank. The average interest rate steadied at 3.4958%, unchanged from last week’s yield and logging just below the 3.5% ceiling set by the BSP. The TDF has been the central bank’s main tool to capture excess money supply in the financial system, where banks can park idle funds for a small return. “We expect this turnout based on the trend of banks’ preference to increase their lending to both their individual and corporate clients,” BSP Deputy Governor Diwa C. Guinigundo said in a text message to explain this week’s auction results. “The 7-day TDF remains oversubscribed but fetched lower rates on account of the steady and limited offering of P40 billion plus the increased cash requirements for the long weekend,” the BSP official added, noting that the turnout for the 28-day tenor also reflected higher demand for loans and for additional liquidity ahead of another long weekend. Financial markets including banks will be closed on Monday after Malacañang declared a public holiday for National Heroes’ Day. This is the second long weekend following the Aug. 21 commemoration of Ninoy Aquino Day. Mr. Guinigundo said bank interest rates are increasingly becoming more market-oriented via the TDF, as the weekly auctions “reflect the fluidity of cash operations” of banks against the BSP’s liquidity forecasts which then determines the interbank rates at a given time. For next week, the BSP decided to keep the auction volume steady at P180 billion, divided into P40 billion under the week-long term and P140 billion for the month-long tenor.

THE CENTRAL BANK has issued fresh guidelines that require risk management protocols of banks and other financial firms, as well as their subsidiaries. Bangko Sentral ng Pilipinas (BSP) Circular No. 971 requires such companies to adopt policies that enhance risk identification, mitigation and monitoring, covering both parent firms and their units. “The risk governance framework shall consider the entities in the conglomerate and shall be applied on a group-wide scale,” according to the Aug. 22 circular. “In case of group structures, there should be a board-approved policy that defines the risk management framework that shall apply to entities across the group,” it read. “The policy shall provide the structure that shall be adopted by the group, either to establish the risk management function centrally at the parent bank or in each of the identified subsidiaries.” The new guidelines require each company to adopt a risk appetite statement that will spell out risks it is “willing to assume” to achieve its business objectives. “The degree of sophistication of the risk management and internal control processes and infrastructure shall keep pace with developments in the BSFI (BSP-supervised financial institution),” the central bank said. Relevant factors to consider include balance sheet, revenue growth, increasing complexity of the business, operating structure, geographical expansion, mergers and acquisitions, introduction of new products or business lines, as well as business environment and industry practice, among others. As a general rule, risk assessments done by banks and non-banks are expected to observe accuracy, integrity, completeness, timeliness and adaptability. The BSP also requires that a risk management function be incorporated in the corporate structure and not entrusted to an external service provider. Universal and commercial banks must appoint chief risk officers to oversee their risk-taking. Separately, Circular No. 972 outlined the internal structure for enhanced risk management, including the adoption by the board of directors of a charter or any other formal document that spells out requirements for compliance with the new guidelines, establishment of a board-level committee led by a non-executive director to oversee compliance and appointment of a chief compliance officer, among others. “The compliance risk management system shall be designed to specifically identify and mitigate risks that may erode the franchise value of the BSFI such as risks of legal or regulatory sanctions, material financial loss, or loss to reputation, a BSFI may suffer as a result of its failure to comply with laws, rules, related self-regulatory organization standards and codes of conduct applicable to its activities,” the circular read. “Said risk may also arise from failure to manage conflict of interest, treat customers fairly, or effectively manage risks arising from money laundering and terrorist financing activities.”

The body overseeing state-run corporations has endorsed for President Duterte’s approval Land Bank of the Philippines’ acquisition of Philippine Postal Savings Bank (Postbank). Landbank president Alex V. Buenaventura told the Inquirer yesterday that the Governance Commission for Government-Owned or -Controlled Corporations (GCG) last Tuesday approved the purchase agreement between the state-run lender and Postbank. “The GCG recommended the issuance of an executive order by President Duterte on the 100-percent transfer of shares of Philippine Postal Corp. and the Bureau of the Treasury to Landbank,” said Budget Secretary Benjamin E. Diokno, an ex-officio member of the GCG. The GCG also approved the conversion of Postbank to Overseas Filipino Bank after obtaining the approval of the Bangko Sentral ng Pilipinas, Diokno added. Last week, Buenaventura said Landbank was aiming for a 25-percent share of the remittance business by 2022 as it planned to open the first so-called Overseas Filipino Bank in Dubai next year. Once the acquisition is approved by President Duterte, Landbank will infuse P1 billion in fresh capitalization to Postbank and convert it to the Overseas Filipino Bank, he said. The former Postbank will just be a remittance marketing subsidiary of Landbank to service overseas Filipinos, he said. Overseas Filipino Bank will sell Landbank’s remittance products to OFWs and tap the latter’s existing remittance system, according to Buenaventura. By January next year, the first Overseas Filipino Bank will be piloted in Dubai, to be housed in the consular office there.

  

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The Philippine Competition Commission (PCC) aims to level the playing field in the land transportation sector by look into regulatory issues troubling the transport network vehicle services (TNVS) industry and ride-sharing companies. "We have reached out to the LTFRB (Land Transportation Franchising and Regulatory Board) ... for us to inject a competition lens into the discussion," PCC chairman Arsenio Balisacan told GMA News Online on the sidelines of the Senate finance committee hearing on the commission's proposed budget for 2018. Balisacan said the PCC will help the LTFRB draft a regulatory framework for the app-based ride-sharing sector. The draft will likely be completed in September. "As of now they are crafting rules that we don't know exactly how those new rules will impact competition. And that's where we want to come in, because, if we see there are competition issues, we will need to discuss it with them," the PCC chief said. "The objective is to promote safety as a regulator, and our objective is to promote public welfare through competition," he added. The PCC is mandated to ensure fair market competition through regulation of anti-competitive practices in various sectors. Republic Act 10667 or the Philippine Competition Act is now in full force after the two-year transitory grace period lapsed on August 9, giving the antitrust commission the authority to pursue its mandate and impose stricter measures against anti-competitve practices. Asked if the PCC will review Grabe and Uber for supposed unfair competition as alleged by some taxi drivers and operators, Balisacan said, "as of now we are viewing this as a regulatory issue. "If they are seeing specific cases, they can actually file a verified complaint before the PCC. In this case, if they have strong ground or basis, they can file ... and then we can take it from them," he said.

AYALA LAND, Inc. (ALI) is ramping up its expansion outside Metro Manila with the allocation of P46 billion to fund two estates in the Visayas and Mindanao regions. In a statement on Wednesday, the listed property giant said it will be spending P26 billion to develop a 17-hectare estate in Mandaue City called Gatewalk Central. Located inside the Cebu Business Park, the integrated mixed-use development is being developed in partnership with AboitizLand, Inc. ALI is also allotting P20 billion for the Azuela Cove, a 25-hectare development in Davao City in partnership with the Alcantara group. The company is pouring in an initial P8 billion for the first phase of the project. “For economic growth to be truly felt by more people, real estate developments should expand beyond Metro Manila. We see this shift as a positive development and Ayala Land is committed to contribute to the transformation and progress through its projects in the Visayas and Mindanao,” ALI Visayas-Mindanao Chief Operating Officer and Aniceto V. Bisnar, Jr. was quoted as saying in a statement. Mandaue City’s Gatewalk Central will include office buildings, residential developments, retail projects, as well as an Ayala Mall. ALI’s residential brand Avida Land will be the first development to rise in the estate, which will target young professionals and families. The Ayala Mall in Gatewalk Central is slated to open in 2019 and will feature a business process outsourcing office building on top of it. Aside from Gatewalk Central, ALI will soon launch a 14-hectare estate in Mactan in partnership with the Gaisano Group. Meanwhile, Azuela Cove is being developed as a waterside lifestyle, business, and residential district in Lanang, Davao City. The estate will be divided into three zones: an urban gateway park, a central valley park, and a waterfront park. The first phase will feature Ayala Land Premier — ALI’s high-end residential segment — St. Luke’s Hospital, a retail center, an events tent that can hold up to 2,000 people, as well as an interim sports facilities area. Gatewalk Central and Azuela Cove are two of eight projects by ALI located in the Visayas-Mindanao region. Nationwide, the property arm of the Ayala group has a total of 22 estates. Shares in ALI shed 40 centavos or 0.94% to P42.2 each on Wednesday.

SOLAR PHILIPPINES Power Project Holdings, Inc. advanced by about a year the target installation date of the 2,000 megawatts (MW) the company announced when it disclosed plans last year to build a solar panel manufacturing plant in Sto. Tomas, Batangas. “Last year, when we announced our plan to put up solar manufacturing, we gave a target in three years of 2 gigawatts (2,000 MW). We have achieved the 800 MW in 2017 and will be able to achieve the 2,000 MW one year ahead of schedule in 2018,” Solar Philippines President Leandro L. Leviste told reporters on Wednesday on the sidelines of the launch of the company’s manufacturing plant. President Rodrigo R. Duterte inaugurated the Batangas plant, which Solar Philippines claims to have established the country as “a major player in the global renewable energy revolution.” “Three assembly lines of 800 MW annual capacity, we have spent… mga (about) P750 million for the direct cost of the solar panel facility. However, the materials of the factory once fully operating will be around P1 billion per month,” Mr. Leviste said. The plant, which makes solar panels accessible to the Philippines, translates into a 30% reduction in the cost of electricity, he said. The company previously challenged the P3.50 per kilowatt-hour (kWh) price offered by a competitor to distribution utility Manila Electric Co. (Meralco). On Wednesday, he said he could offer electricity at a price P2.99 per kWh. This compares to the P9.68/kWh subsidized rate offered by the government to early developers of solar farms in 2013 — or even the reduced P8.69/kWh rate in 2015 — under the country’s feed-in-tariff (FiT), a system that has since been discontinued for solar energy. “We are expecting over P10 billion worth of exports to come from this factory over the next 12 months and this is first under our OEM or original equipment manufacturing contracts with Chinese suppliers, some of whom are here with us today, and secondly for our domestic projects,” Mr. Leviste said. “For our domestic projects, we are now supplying local solar installers, hindi lang sa(not only in) Metro Manila, (but) Luzon, Visayas, Mindanao,” he said. The current capacity of the Batangas plant will be divided among the company’s internal solar panel requirements, sale to third parties and for exports. “Thus we estimate that we will need to put up an additional factory by mid part of next year to address all of this demand,” Mr. Leviste said. He said the company is looking for the space to accommodate the plant expansion, and that the company needs 5 hectares more. “But please expect 2,000 MW of manufacturing capacity in the Philippines by the middle of next year, which will make the Philippines one of the largest solar manufacturing hubs in the world. The entire United States, solar manufacturing capacity is less than the capacity that will be in this factory this year,” he said. Mr. Leviste said the plant will create up to 50,000 jobs for the solar industry — from manufacturing to installation. Solar Philippines entered solar manufacturing after a US solar company closed two of its factories in the country.

American children’s television network Nickelodeon said Wednesday it had abandoned plans for a themed resort on an island known as the Philippines’ last ecological frontier following a backlash from environmentalists. Nickelodeon said in January that it would build an “undersea attraction and resort” on Palawan island that would let fans “interact with the brand and the iconic characters they love,” including SpongeBob SquarePants and Dora the Explorer. The announcement triggered fierce criticism from environmental campaigners who said it would destroy the area’s world-famous marine ecosystem, and an online petition calling for the project to be scrapped attracted more than 260,000 signatures. Viacom International Media Networks, which owns Nickelodeon, said Wednesday it had abandoned the project. “(Viacom) and Nickelodeon will no longer be involved with this proposed development,” the company said in a statement sent to AFP. Viacom said the decision was “mutually agreed” with its Philippine partner, Coral World Park. The statement did not say why Viacom had pulled out and its regional spokeswoman would not elaborate when contacted by AFP. Viacom’s initial statement in January promoted the project as its first resort in Southeast Asia that “would give a significant business opportunity for our partners across multiple platforms.” However, Viacom and Coral World Park also highlighted the project’s “ocean conservation focus” and plans for a giant marine sanctuary. Environmental group Greenpeace on Wednesday hailed Viacom’s decision as a victory. “We commend Viacom for heeding the call of more than 200,000 online petitioners and the offline community campaign,” Vince Cinches of Greenpeace Southeast Asia told AFP. “They were able to dodge the bullet that has a huge reputational backlash for Nickelodeon which has been claiming it is children oriented.” The Nickelodeon resort inPalawan was meant to be part of Coral World Park’s 400-hectare (1,000-acre) development. Coral World Park did not immediately to respond to AFP e-mails on whether it would pursue the project following Viacom’s withdrawal. The executive director of environmental group Save Philippine Seas, Anna Oposa, told AFP the campaign against the development would not let up. “Our position and strategy will not change: we’ll continue to call on the local government of Coron and provincial government of

  

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Palawan to reject the project,” she said.

The Philippines anti-trust monitor said Thursday it approved the strategic partnership between Globe Telecom's Mynt and Ant Financial of Chinese internet billionaire Jack Ma. Philippine Competition Commission Chairman Arsenio Balisacan said it took some time before the body decided on the deal because it had to look at Globes businesses to make sure competition laws are not violated. The partnership, which marks Ma's first investment in the Philippines, was announced last February. Analysts said the deal would infuse fresh capital into Globe Fintech Innovations Inc. (Mynt), which operates GCash and Fuse Lending. Ant Financial's parent company, Alipay, and Ayala Corp. agreed to subscribe to new shares of Mynt. The investment demonstrates the company's confidence in Mynt and its management team to upgrade digital financial services in the region, Ant Financial earlier said.

Property, retail and banking tycoon Henry Sy continues to retain his title as the country’s richest for 10 consecutive years,

according to the 2017 Forbes Philippines Rich List. "His net worth has surged to $18 billion, up from $13.7 billion previously, making him the biggest gainer in dollar terms," Forbes said in an emailed statement on Thursday. The No. 2 richest, with a net worth of $5.5 billion, is John Gokongwei Jr., founder of JG Summit, who saw his fortune fall by $1.3 billion from $6.8 billion last year. "Enrique Razon Jr. (No. 3, $4.3 billion), chairman of International Container Terminal Services, saw his wealth rise by $800 million from $3.5 billion last year," Forbes said. "Seven of the ten biggest dollar gainers have sizable interests in construction and property development," it said. "These include construction tycoon David Consunji (No. 6, $3.68 billion), chairman of DMCI Holdings, and Ramon Ang (No. 10, $2.3 billion) of San Miguel, who nearly doubled his wealth due largely to a favorable IPO by his cement company, Eagle Cement," Forbes. Fifty Filipino magnates made it to 2017 list. Forbes named GMA Network CEO and Chairman Felipe Gozon as the 41st biggest gainer in dollar terms. Apart from surpassing its year-end target, the broadcasting company posted optimistic ratings in the first six months of 2017. As of the August 14 close on stock prices and exchange rates, Forbes stressed that seven out of the ten biggest earners in the country had "sizable interests" in construction, putting them on the right track towards President Rodrigo Duterte's infrastructure-driven goals.The brisk economic growth in the Philippines – nearly 7 percent this year – is expected to carry into 2018, profiting tycoons involved in a wide business reach, Forbes said. The infrastructure push by the Philippines has been favorable for construction and property development tycoons on the 2017 Forbes Philippines Rich list.

ASIA-PACIFIC

  Japan's Nikkei share average fell to a 3-1/2-month low on Thursday, dragged down by Wall Street losses, a stronger yen and steel

makers after reports that the country's biggest producer was cutting prices. Bucking gains elsewhere in Asia, the Nikkei ended the session 0.4 percent lower at 19,353.77 points. It slid to 19,351.92 at one point, its lowest since May 2. The broader Topix shed 0.5 percent to 1,592.20. Shares on Wall Street fell overnight after a threat from U.S. President Donald Trump to shut down the government if Congress fails to fund a Mexico border wall. The buoyant yen amid a weaker dollar also soured the mood. U.S. political uncertainty was seen keeping the Nikkei capped firmly. "The market is sensitive to Trump's day-to-day comments," said Yoshihiro Okumura, general manager at Chibagin Asset Management. "Uncertainty over U.S. political risks is the market's major concern now." Nippon Steel and Sumitomo Metal, Japan's biggest steel producer, fell 2.5 percent after media reports that it had agreed on a price cut with Toyota due to declining costs of steel making materials like coking coal. The automaker, in turn, was expected to reduce wholesale steel prices for its parts suppliers. Tokyo's iron and steel subsector was down 2.7 percent. Kobe Steel lost 5.4 percent and JFE Holdings fell 4.4 percent. Toyota fell 1.1 percent as the bullish yen weighed on exporters, but Toyota-affiliated parts makers edged up amid the prospect of lower input costs, with Toyota Industries Corp rising 0.2 percent. Mitsubishi Heavy Industries dropped as much as 1 percent to 414.3 yen, the lowest since November 2016, following a report that the MRJ commercial jet the company is developing had engine trouble during a test flight. Development costs for the MRJ jet has been mounting as the aircraft's launch has already been delayed five times. Shizuoka Bank rose as much as 3.1 percent after announcing that it would buy back up to 10 million of its own shares, or 1.65 percent of its shares outstanding. Grilled meat restaurant chain operator Anrakutei Co was down 1.3 percent after reports that some customers were hospitalised and found to have been infected with the O-157 strain of the E.coli bacteria.

Hong Kong stocks followed Asian markets higher and rose for the third session in a row on Thursday, underpinned by robust gains in financial and property stocks. The market resumed trading after a one-day closure for a strong typhoon. The Hang Seng index rose 0.4 percent, to 27,518.60, while the China Enterprises Index gained 0.9 percent, to 11,051.00 points. The market drew support from other Asian bourses that shook off the risk aversion that gripped financial markets overnight after President Donald Trump's threat to shut down the U.S. government. The financial subindex rose 0.7 percent, while that for consumer stocks was up 1.3 percent. The real estate sector also rose strongly, with shares of Chinese developer Guangzhou R&F Properties Co Ltd jumping 7.3 to their highest since July 2009, bolstered by strong earnings growth.

China stocks fell the most in nearly two weeks on Thursday, as China Unicom tumbled after rallying earlier in the week as

excitement over state enterprise reforms cooled. Investors were also cautious as the Shanghai benchmark neared the 3,300-point-mark, a level that has proven to be a stiff hurdle with three failed attempts to breach it over the past nine months. The blue-chip CSI300 index fell 0.6 percent, to 3,734.65, while the Shanghai Composite Index lost 0.5 percent to 3,271.51 points. After a calmer morning session, sentiment soured as China Unicom extended its losses in afternoon trading, down nearly 7 percent at close. The stock spiked by its daily limit of 10 percent on Monday and Tuesday, before slipping 0.9 percent on Wednesday. The surge was triggered by a planned restructuring that would see the listed telecom operator tap a dozen major investors, including Alibaba Group, Tencent Holdings and Baidu, for funds. "State-owned enterprise restructuring remains an attractive investment theme, and we have been looking for the next company that will likely undergo restructuring," said Wu Kan, head of equity trading at Shanshan Finance. Stocks fell across the board, with brokerage stocks pulling back sharply following the previous day's gains.

  

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A consortium that includes Western Digital (WDC.O) is offering 1.9 trillion yen ($17.4 billion) for Toshiba Corp's (6502.T) memory chip business, which the Japanese conglomerate is trying to sell to cover losses from its U.S. nuclear business, sources said on Thursday. Western Digital is set to offer 150 billion yen through convertible bonds and will not seek voting rights in the business, the sources who were familiar with the deal said. The consortium also includes U.S. private equity firm KKR & Co (KKR.N) as well as the state-backed Innovation Network Corp of Japan and Development Bank of Japan, all of which will offer 300 billion yen each for the chip business, the sources said. Under the proposal, Toshiba's lenders including Sumitomo Mitsui Banking Corp and Mizuho Bank would also extend around 700 billion yen in loans, they said. Other Japanese companies will also invest around 50 billion yen to ensure domestic firms hold a combined 60 percent stake, the sources said, adding that Toshiba itself would keep a 100 billion yen stake in the business. Toshiba said it could not comment on discussions with potential suitors for the chips business. Western Digital said it could not comment immediately, while KKR declined to comment. The sources requested anonymity because the talks were confidential. Reuters has reported earlier that the group was offering around 2 trillion yen but it was unclear how much each party in the group was prepared to offer and whether Western Digital would insist on obtaining voting rights. Sources have said that Toshiba wants to reach a deal by the end of the month and close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running. This could result in a delisting from the Tokyo Stock Exchange. Given regulatory approvals could take more than six months, the company has been hoping to reach a deal by the end of the month to ensure it can close the sale in time.

REST OF THE WORLD

  Gains by cyclical sectors helped push European stocks higher on Thursday while heavy losses in Dixons Carphone (DC.L) after

a profit warning dominated trading. The pan-European STOXX 600 was up 0.2 percent at its close, in line with euro zone stocks and blue chips .STOXX50E. Dixons Carphone shares plummeted as much as 29 percent after the mobile phone retailer downgraded expectations for full-year profit, reflecting tougher conditions in the mobile market as customers hold on to handsets for longer. "With the December results some way off and Black Friday week (of retail discounts) looming, Dixons will be under pressure to provide additional detail on today's complex variables in coming weeks," said Stifel analysts. Dixons Carphone was the worst-performing among European retail stocks .SXRP so far this year, even before Thursday's decline wiped nearly a quarter off its market value. The index was down 0.2 percent on the day as Dixons weighed. Bank of America Merrill Lynch European equity strategist Ronan Carr said he didn't favor Europe's retail sector, partly because of its heavy skew towards British companies. In general results this quarter have seen investors punish companies that missed expectations particularly harshly, a trend which analysts put down to slowing macroeconomic momentum. "Expectations caught up with what have been solid fundamentals and we are at a juncture now where some macro indicators have shown signs of topping out," Carr said, pointing to dollar weakness as another headwind to European earnings. "The fundamentals are supportive of continued earnings recovery but there's a challenge from the currency," Carr added. Among individual stocks, shares in Danish biotech firm Genmab (GEN.CO) jumped more than 11 percent after it announced positive topline results in its phase III Alcyone trial. British sub-prime lender Provident Financial (PFG.L) added to a recovery from its sharp falls earlier in the week, jumping 13.2 percent. Sunrise Communications (SRCG.S) gained 7.3 percent after its second-quarter net income more than doubled and Berenberg raised the stock to a "buy". Danish software firm Simcorp (SIM.CO) dropped 9.8 percent after its second-quarter results missed expectations, with order intake down 22 percent year-on-year. "There's a risk that the tech sector could be a little over-owned," said Carr, pointing to tech stocks consistently being an overweight in BAML's monthly fund manager surveys. "And if we start to get negative results, in line with the theme that misses get punished more, I think we could see share price reactions being more severe." The company earnings season in Europe was drawing to a close, with almost 90 percent of MSCI Europe firms having reported. So far, 55 percent have beaten forecasts and 39 percent have missed. By comparison, more than two-thirds of companies reporting in the United States topped expectations.

U.S. stocks dipped on Thursday as political uncertainty in Washington kept investors cautious ahead of comments on monetary policy from central bankers gathered for their annual meeting in Jackson Hole, Wyoming. Speeches by Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi on Friday will be scrutinized for hints on the path of monetary policy, but neither of them is expected to give fresh guidance. The focus on central bankers' views will be a departure from the past two weeks, when the stock market was roiled by concerns over geopolitics, mayhem in Washington, and President Donald Trump's controversial comments. President Donald Trump picked a new fight with fellow Republicans whose support he needs to advance his policy agenda, saying congressional leaders could have avoided a "mess" over raising the U.S. debt ceiling if they had heeded his advice. U.S. House of Representatives Speaker Paul Ryan later said Congress will pass legislation to raise the federal debt ceiling and lawmakers have a number of options for avoiding default. "There are two stories that play out in Washington these days and to a degree it does impact the market - can the President have any success with the overall Washington agenda, whether it is the debt ceiling or tax reform - so far it seems like that is not going to be simple," said Phil Blancato, CEO of Ladenberg Thalmann Asset Management in New York. "On the other side, there really is a necessity to see some tax reform to help the greater economy." Recent economic data painted a mixed picture. The number of Americans filing for unemployment benefits rose less than expected last week, while home resales unexpectedly fell in July to their lowest monthly level of the year. The Dow Jones Industrial Average .DJI fell 28.69 points, or 0.13 percent, to 21,783.4, the S&P 500 .SPX lost 5.07 points, or 0.21 percent, to 2,438.97 and the Nasdaq Composite .IXICdropped 7.08 points, or 0.11 percent, to 6,271.33. Oil prices slipped amid concerns over demand. U.S. Gulf Coast refineries shut operations as Hurricane Harvey was forecast to turn into a major hurricane. Consumer staples .SPLRCS, down 1.3 percent, were the worst performing of the 11 major S&P sectors, led lower by a 9.5 drop in J.M. Smucker (SJM.N) after its posted disappointing results and lowered its earnings forecast. The group also lost ground after Amazon.com Inc (AMZN.O) said it plans to complete its $13.7 billion acquisition of Whole Foods Market Inc (WFM.O) on Monday after winning antitrust approval from U.S. regulators. The announcement weighed on grocery store stocks such as Kroger Co (KR.N), off 8.10 percent, and Wal-Mart Stores Inc (WMT.N), down 2.03 percent. Dollar Tree (DLTR.O) advanced 5.6 as one of the best performers on the S&P 500 after the retailer's profit and comparable sales beat estimates. Signet Jewelers (SIG.N) surged 16.7 percent after the company issued results and said it would buy an online jeweler. Advancing issues outnumbered declining ones on the NYSE by a

  

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1.02-to-1 ratio; on Nasdaq, a 1.47-to-1 ratio favored advancers. About 5.27 billion shares changed hands in U.S. exchanges, below the 6.08 billion daily average over the last 20 sessions.

The world's top central bankers gather in Jackson Hole, their confidence bolstered by a sustained return to economic growth that may eventually allow the European Central Bank and the Bank of Japan to follow the Federal Reserve in winding down their crisis-era policies. Yet in one key area, none of the world's central banks has found the answer. Inflation remains well below their two percent targets, stoking a debate about whether they are missing signals of a less than healthy economy and the need for a slower path of "rate normalization", or that they simply don't understand how inflation works in a globalized world. In Japan, officials have researched behavioral causes, wondering whether businesses and families are just slower to react to economic signals than thought. European officials have blamed slow-moving union wage contracts and online shopping, while U.S. policymakers have cited a lengthy sequence of "one-offs" in pricing from oil to cellphones to prescription drugs. In each case the response of policymakers has been the same: wait it out and talk confidently about inflation's return, as the Fed has put it since 2013, over "the medium term". "Yes, our models aren't perfect... Certainly the fact that we have had some low inflation readings is something that we take very seriously," said Cleveland Fed President Loretta Mester. Yet Mester is convinced the problem is not a weakening economy, but changes in how businesses set prices - a supply side issue she says leaves her comfortable pressing ahead with slow but steady interest rate increases. Not everyone is convinced by Mester's approach. Concerns over the significance of a recent slide in inflation have renewed questions about whether a global tightening of monetary policy can proceed, with U.S. investors betting the Fed will have to hold off on more rate changes until later next year. Fed Chair Janet Yellen will have a chance to address the issue on Friday, as does European Central Bank President Mario Draghi, who is laying plans to scale back some of the bank's crisis-era programs even as expected progress on inflation has receded into 2018 and 2019. The Bank of Japan's horizon for meeting its inflation target is around 2020. Fed officials have not yet caved on inflation even though pricing in financial markets has shifted expectations of the next rate hike back to the middle of 2018 versus Fed forecasts of another increase this year. "But the debate has grown more active of late and uncertainty is elevated," TD Securities said of the outlook for inflation in a report ahead of Jackson Hole. "The risks are for a slower pace.” The use of inflation targeting has been an important innovation in central banking, rooted in theories of how public expectations, central bank communication and other factors shape economic behavior. It was a recognition that how policymakers talked about inflation, and what households believed, would in part determine the outcome. But the developed world's alignment around a two percent target has become a headache as much as a policy guide, with central banks trying to estimate and regulate something they acknowledge they don't fully understand. Bank of Japan consultants have puzzled over whether people shop and save as if they fully see the future, or whether they look at the past and only slowly adapt to change. If the latter, then what central banks say is less important. Have a globalized supply chain, globalized wage rates, and frictionless markets anchored inflation for good? If so, then Fed officials relying on tight labor markets to lift wages and prices through resource competition will be disappointed. Failure to meet inflation targets has prompted calls for an overhaul of policy, with suggestions of a new goal linked to growth in gross domestic product, for example. Fed researchers recently conjectured that the central bank should convince the public it was shooting for 3 percent in order to get two percent. Others like San Francisco Fed President John Williams have suggested just raising the target. For the moment, though, the current target looks likely to stick -- and the global waiting game to continue. "Look, inflation is hard to forecast," Mester said in an interview with Reuters, noting that the most elaborate models don't do much better than simply saying inflation will be two percent and leaving it at that.

The Italian government faces a paper loss of more than 30 percent on its 3.85 billion euros ($4.54 billion) rescue of troubled lender Monte dei Paschi di Siena (BMPS.MI), according to grey-market trading in the bank's new shares. The world's oldest lender has not formally traded on the Milan bourse since December when the bank failed to raise enough capital to remove the threat of collapse. In July, Rome bailed it out, paying 6.49 euros per share for a controlling stake. Traders and fund managers said on Thursday that Monte dei Paschi's shares were fetching between 4.14 and 4.35 euros in the grey market, where shareholders can sell them over-the-counter ahead of the resumption of trade on the exchange. Italy's fourth-largest lender has not set a date for lifting the trade suspension, but says it will be in the autumn. The bank was brought low by years of ill-judged acquisitions and mismanagement. A price of 4.14 euros would represent a paper loss of about 1.39 billion euros for Rome on the first phase of its bailout. It has pledged to later buy out retail holders of bank bonds for 1.5 billion euros, taking its stake to as much as 70 percent. The government, though, has said it plans to hold its shares with a long-term aim of making a profit on its investment. However, some institutional investors are already looking to sell their stock on the grey market, hedging against the risk that its value could sink even further ahead of resumed trade. In the rescue, institutional investors who held subordinated bonds in Monte dei Paschi were forced to take losses. Their holdings were canceled and instead they received shares. The grey-market share price is also supported by the credit default swap market, according to traders of default swaps. Monte dei Paschi last traded at 16.05 euros per share, having lost 90 percent of its market value in 2016. This last-traded price, however, cannot be compared to the grey market price given the bailout represents a complete overhaul of the bank's balance sheet.

U.S. gasoline prices surged to a three-week high on Thursday as Hurricane Harvey moved across the Gulf of Mexico and threatened to strike the heart of the country's oil refining industry when it comes ashore in Texas this weekend. Communities in the path of the quickly strengthening storm began evacuating and energy firms shut refineries and offshore oil and gas platforms. Just under 10 percent of offshore U.S. Gulf of Mexico crude output capacity was shut down on Thursday, government data showed. Harvey is forecast to come ashore as a Category 3 hurricane, the U.S. National Hurricane Center said, the third most powerful on the Saffir–Simpson scale, which would make it the strongest to hit the U.S. mainland in 12 years. Such storms pack maximum sustained winds of up to 129 miles (208 km) per hour and Harvey would be the first Category 3 hurricane to make land in the United States since Hurricane Wilma struck Florida in 2005. The NHC expects Harvey to move slowly over Texas and linger over the state for days, dumping as much 30 inches (76.2 cm) of rain on some areas. "With this system's intensity and slow motion, it is the worst of both worlds," said John Tharp, a forecaster with Weather Decision Technologies in Norman, Oklahoma. "There will be major impacts along the coast and inland with periods of prolonged rain." Harvey will cause a storm surge that will flood parts of the Texas coast as it makes landfall, the NHC said in an advisory. The mayor of Texas coastal city Corpus Christi warned on Wednesday that flooding was his biggest concern and urged people to evacuate from low-lying areas.

  

BAIPHIL Market Watch – 25 Aug 2017

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Advanced Excel Training for Bankers – 25 August 2017 Basic Course on Corporate Governance for Savings & Loan Associations, Rural Banks and

Cooperatives - 25 & 26 August 2017 Tax Insights – Understanding the Key Issues and Trends Affecting Banks and Other Financial

Institutions – 26 August 2017 Basics of Financial Math – 26 August 2017 Basics of Fixed Income Securities – 02 September 2017 BSP Cir. No. 706 as Amended by BSP Cir. No. 950, AMLA Law and the AML Risk Rating System

(Board of Directors) – 08 September 2017 – 1:00 to 5:00pm Bond Duration – 09 September 2017 Updated Guidelines on Sound Credit Risk Management (Includes BSP Cir. No. 908: Agricultural

Value Chain Financing Framework and BSP Cir. No. 941: Amendments to the Regulations on Past Due and Non-Performing Loans) – 09 September 2017

Basic Leadership and Effective Supervision Seminar (BLESS Program) for Bank Supervisors – 14 & 15 September 2017

BSP Cir. No. 706 as Amended by BSP Cir. No.950, AMLA Law & the AML Risk Rating System – 15 September 2017

Preparing for PFRS 9 Compliance by Philippine Banks – 16 & 23 September 2017 IT Security & Auditing – 23 September 2017 Spot, Forwards and FX Swaps – 23 September 2017 Macros Training for Bankers – 28 & 29 September 2017 Operational Risk Management Guidelines – 29 September 2017 Related Party Transactions – 29 September 2017 Overview of Business Continuity Management ISO 22301: Aligning to BSP Cir. No. 951 – 30

September 2017 Interest Rate Swaps – 30 September 2017 Training the Bank Trainers – 05 & 06 October 2017 A Regulatory Perspective on Trust Activities and Administration – 06 & 13 October 2017 Updated Guidelines on Sound Credit Risk Management (Includes BSP Cir. No. 908: Agricultural

Value Chain Financing Framework and BSP Cir. No. 941: Amendments to the Regulations on Past Due and Non-Performing Loans) – 07 October 2017

Bootstrapping – 07 October 2017 Currency Swaps / Forward Rate Agreement – 14 October 2017 BSP Circ. No. 706 as Amended by BSP Cir. No.950, AMLA Law & the AML Risk Rating System –

20 October 2017 Supervisory Expectations on the ICAAP – 20 October 2017 Financial Options – 21 October 2017 Project Management Framework – 21 October 2017 Code of Champions (A Leadership Effectiveness Program for Bankers) – 27 October 2017 Fraud Risk Management – 28 October 2017 Professional Selling Skills – 09 & 10 November 2017 Operational Risk Management Guidelines – 10 November 2017(CEBU CITY) Related Party Transactions – 11 November 2017(CEBU CITY) BSP Circ. No. 706 as Amended by BSP Cir. No.950, AMLA Law & the AML Risk Rating System –

17 November 2017 BSP Supervisory Process and CAMELS Rating System – 17 November 2017 Signature Verification & Forgery Detection – 18 November 2017 Accounting for Non-Accountants with Financial Statement Analysis – 23 & 24 November 2017 Fraud Risk Management – 25 November 2017 BSP Circ. No. 706 as Amended by BSP Cir. No.950, AMLA Law & the AML Risk Rating System –

01 December 2017 How to Spot fake IDs and money Mules – 02 December 2017

For details, please contact BAIPHIL via telephone (853‐4457/519‐2433) or email (training@baiphil.org).

  

BAIPHIL Market Watch – 25 Aug 2017

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AUGUST 16-31

18 Jennifer Joy C. Poblete – BAIPHIL Secretariat 22 Alice P. Rodil - Associate Life Member 19 Matalie G. Alcid – BAIPHIL Secretariat 23 Manolo M. Martinez - CARD SME Bank, Inc 19 Carolina G. Diangco – Past President 24 Evelyn S. Magno - JP Morgan Chase Bank 19 Sheryll K. San Jose – Equicom Savings Bank 26 Imelda S. Singzon - PDIC

19 Cecille Marie H. Bernardo – Optimum Development Bank 27 Ben Venardo I. Cual - BAIPHIL Secretariat

20 Frederick M. Arellano - Rizal Bank, Inc. 29 Rhoneil S. Fajardo - Deutsche Bank 21 Michelle Y. Lopinto - RCBC Savings Bank 30 Maria Teresa M. Copo - Asia United Bank 21 Adams Ko - MEGA ICBC 31 Cynthia B. Baledo - CARD SME Bank, Inc. 21 Cherry A. Boncajes - CARD SME Bank, Inc

 

  

BAIPHIL Market Watch – 25 Aug 2017

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FORWARD CONTRACT - A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging. Unlike standard futures contracts, a forward contract can be customized to any commodity, amount and delivery date. A forward contract settlement can occur on a cash or delivery basis. Forward contracts do not trade on a centralized exchange and are therefore regarded as over-the-counter (OTC) instruments. While their OTC nature makes it easier to customize terms, the lack of a centralized clearinghouse also gives rise to a higher degree of default risk. As a result, forward contracts are not as easily available to the retail investor as futures contracts.

Wi-FI - Wi-Fi is a wireless networking technology that allows computers and other devices to communicate over a wireless signal. It describes network components that are based on one of the 802.11 standards developed by the IEEE and adopted by the Wi-Fi Alliance. Examples of Wi-Fi standards, in chronological order, include:

802.11a

802.11b

802.11g

802.11n

802.11ac Wi-Fi is the standard way computers connect to wireless networks. Nearly all modern computers have built-in Wi-Fi chips that allows users to find and connect to wireless routers. Most mobile devices, video game systems, and other standalone devices also support Wi-Fi, enabling them to connect to wireless networks as well. When a device establishes a Wi-Fi connection with a router, it can communicate with the router and other devices on the network. However, the router must be connected to the Internet (via a DSL or cable modem) in order to provide Internet access to connected devices. Therefore, it is possible to have a Wi-Fi connection, but no Internet access. Since Wi-Fi is a wireless networking standard, any device with a "Wi-Fi Certified" wireless card should be recognized by any "Wi-Fi Certified" access point, and vice-versa. However, wireless routers can be configured to only work with a specific 802.11 standard, which may prevent older equipment from communicating with the router. For example, an 802.11n router can be configured to only work with 802.11n devices. If this option is chosen, devices with 802.11g Wi-Fi chips will not be able to connect to the router, even though they are Wi-Fi certified. NOTE: The name "Wi-Fi" is similar to "Hi-Fi," which is short for "High Fidelity." However, "Wi-Fi" is

not short for "Wireless Fidelity," but is simply a name chosen by the Wi-Fi Alliance.

 

  

BAIPHIL Market Watch – 25 Aug 2017

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REFERENCE COMPILED AND PREPARED BY: RESEARCH AND INFORMATION COMMITTEE FY 2017-2018

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star GMA News ABS-CBN News Philippine Stock Exchange  Philippine Dealing System  Reuters Financial Times

Bloomberg CNN / CNBC SCMP / Japan Times Wall Street Journal Investopedia Goodreads TechTerms IT Information Exchange Life Hacks

Director: Maria Teresita R Dean (ChinaBank Savings) Chair: Carlota A. Bacani (ANZ Bank)  Members: Sheryll K. San Jose (Equicom Savings Bank) Rachelle A Fajatin (Equicom Savings Bank)

DISCLOSURE: The BAIPHIL Market Watch (BMW) is for informational purposes only. The content of the BMW is sourced from third party websites and may be subject to change without notice. Although the information was compiled from sources believed to be reliable, no liability for any error or omission is accepted by BAIPHIL or any of its directors, officers or employees, and BAIPHIL is not under any obligation to update or keep current this information

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