The Market Monitor Minding the Nation's Business
A study by the Asian Institute of Management (AIM) has practically validated the widespread cynicism over the benefits to ordinary Filipinos of the investment-grade ratings the country has been receiving from various credit watchdogs.
Lack of financial inclusion has limited the effects of these credit upgrades on the economy, the study said, noting that only the country’s biggest conglomerates have been benefitting mainly from the tapping of financial markets as a result of the ratings.
President Aquino often cites ratings from agencies such as Fitch Ratings, Standard and Poors, and Moody’s Investors Service as the results of his administration’s good-government initiatives that have benefitted mostly ordinary Filipinos.
The study, prepared by the AIM’s Rizalino S. Navarro Policy Center for Competitiveness, said one wonders whether—and to what extent—these upgrades contribute to inclusive growth and poverty reduction.
“Despite improving macroeconomic fundamentals, competitiveness rankings, and investors’ outlook, the Philippines lags significantly on some of its poverty-reduction and development goals, including most notably those enshrined in the United Nations’ Millenium Development Goals [MDGs],” the study, titled “Credit Upgrades and Inclusive Growth: Examining the Links,” noted.
It identified financial inclusion as an important ingredient in further boosting economic growth and improving its inclusiveness mainly for poverty reduction.
Conglomerates such as SM Investments Corp. (SMIC), Ayala Corp. and San Miguel Corp. are among the larger firms that are reaping benefits from the ease in obtaining credit with the upgrades, the study noted.
“The combined bank loans of these three firms from 2011 to 2013 are about 113 percent of total outstanding loans to the country’s agriculture sector during the same period,” it noted.
“The amount of bank loans these three corporations received back in 2013 is more than triple the micro-agri loans issued to small farmers for the same year. In 2010, a year after the credit upgrade, total combined bank loans for the three corporations surged to P130.33 billion from P87.13 billion the previous year. That’s a 49.58 percent increase in loans. For the same year, agricultural loans only increased by 13 percent,” it added.
Just in 2014, the Lucio Tan Group borrowed upward of $850 million (P37.578 billion) from a syndicate of banks to finance its reacquisition of Philippine Airlines. That’s almost a fifth of the 2013 outstanding loans to the agriculture sector and centuple the amount of 2014 micro-agri loans, the paper added.
“Suppose farmers only take out micro-agri loans of P75,000 [half of the maximum], a P37-billion loan, the same amount as Tan group’s multibank loan, could have benefitted 500,000 small farmers. This would easily be 10 percent of the country’s total farmers, forestry workers, and fishermen,” the paper added.
Moreover, in 2014, Ayala Corp. unveiled plans to borrow $1.6 billion (P70.927 billion) to fund two major coal-power plants in Luzon and Mindanao. This move will help Ayala Corp. exceed its 1,000-megawatt target for 2018, the paper said.
Real-estate corporations, similar to SMIC subsidiary SM Development Corp. (SMDC), have also greatly benefitted from the more accommodating credit environment.
“Mass-housing builder 8990 Holdings was reported to be raising P9 billion through issuance of debt papers. In August 2014, Century Properties was cleared to sell P3 billion worth of notes to partly finance capital expenditures of over P12 billion for the development of the Boracay and Bahamas towers at Azure Residences; Roxas West, Quirino West and Quezon South at the Residences at Commonwealth in Quezon City; and Century Spire at Century City in Makati,” the study said.
The paper said it is, perhaps, not surprising that the credit upgrades have ushered a very robust building boom in recent years, prompting some concerns that there might be a real-estate bubble brewing.
The paper said that the local credit market remains highly segmented and non-inclusive for the vast majority of small and medium enterprises (SMEs) and low-income households.
It noted that public-sector investments are not yet as strong as could be programmed—leading to possible underinvestment in public goods.
“And because some key public goods can also disproportionally benefit the poor and low-income population, then this also signals a severe disconnect between the credit upgrades and the vast majority of the population that hopes to benefit from them,” the paper noted.
It cited the World Bank’s Doing Business Index’s “ease of getting credit” criteria, which said the Philippines has much room for improvement.
The standard measures the strength of legal rights, depth of credit information, credit registry coverage and credit bureau coverage.
“On this sub-index, the Philippines ranked 104th worldwide in 2014, five spots down from the previous year. This also places the country eighth among Asean [members],” the paper noted. Luis Leoncio