Cecilia C. Borromeo, President and CEO of the Development Bank of the Philippines (DPB), sits down with The Worldfolio to discuss the government’s socioeconomic agenda, the banks’ role in supporting financial inclusion, trade relations with China and Japan, and her view on the current state of the Philippine banking sector, which she describes as ‘sound, stable, and liquid’
What is your expectation of the new administration’s 10-point economic agenda, IPPs and tax reform, and what impact do you think these measures will have on the investment climate?
I have high hopes on the accomplishment of the 10-point economic agenda of the National Government. For instance, we can look forward to the government accelerating infrastructure spending. At present, the Philippines may be trailing its ASEAN neighbors in terms of infrastructure and logistics. But with the government vowing, and already, overhauling the country’s old transportation networks, for instance, I believe we can catch up with the rest of our neighbors soon enough.
The administration’s Investment Priorities Plan (IPP) is really geared at creating new jobs and making more Filipinos benefit from the country’s economic growth. I am particularly excited for the small and medium entrepreneurs based outside Metro Manila because the IPP specifically states a deliberate policy to shift investments to the countryside.
The IPP will also benefit MSMEs that are innovation-driven. In fact, we in DBP have started to work with the Department of Science and Technology for a program that will assist small enterprises that adopt technological innovations to boost their productivity and competitiveness. These are the types of entrepreneurs which I feel will benefit a lot from the 2017 IPP.
The implementation of the comprehensive tax reform program is really very crucial. The success of the administration’s infrastructure program largely rests on it. As Finance Secretary Dominguez has stressed many times, the ongoing infrastructure build-up will be funded mainly by revenue gains from the tax reform. We are, however, very hopeful that this bill will soon be passed by Congress.
How can the banking sector contribute to more social inclusion?
Social inclusion involves the provision of certain rights to all individuals and groups in society, such as employment, adequate housing, health care, education, and the like.
The banking sector is definitely heavily involved in the challenge of promoting social inclusion. At DBP, we are committed to the funding of social services and community development projects. DBP lends to projects for health care, education, housing and community development. The Bank helps provide access to shelter for the poor, while supporting the development of infrastructure and community facilities in cities and municipalities.
At the same time, social inclusion cannot be achieved without financial inclusion. And so, in DBP, we will continue to intensify efforts towards increasing access to a wide range of financial products and services. This is in support of the National Government’s strategy towards a more inclusive financial system.
What impact do you expect to see from deeper regional integration for the Philippines economy and specifically the banking sector?
The deepening relationship with China and Japan is definitely a boon for both countries. China is the Philippines’ second major trading partner, with US$17bn value in total trade. Philippine exports to China amounted to US$6bn in 2015. With the renewed friendship between our countries, the growth potential is high for more trade and investments.
President Duterte’s visits to China have yielded bilateral agreements and investment pledges which include funding for the Subic Clark Railway Project, Bonifacio Global City – Ninoy Aquino International Airport segment of Metro Manila Bus Rapid Transit – EDSA Project, and other real estate and transportation and logistics infrastructure projects. This demonstrates Chinese confidence in the relationship between the two countries.
This economic cooperation opens the doors for broader collaboration with the rest of the region. I understand there is a commitment to further enhance economic relations in priority sectors by capitalizing on mutual interests, while continuously promoting trade, investment, and economic cooperation. These cover a broad range of areas such as trade, tourism, agriculture, security, health, and infrastructure. There is huge opportunity for the Philippines’ trade and investment programs with an ASEAN market of over 1.9 billion people.
Regional integration also occupies a high priority on the banking sector’s agenda with BSP measures towards ASEAN financial integration, considering the signing of an agreement with Malaysia and plans to do the same with Thailand and Indonesia.How will this measure contribute to the competitiveness and the ease of doing business within the Philippines and the entire region?
Regional integration will offer a lot of opportunities for Philippine banks as well as regional banks. First, local banks will gain greater access to the ASEAN financial market, which has more than 600 million people. There’s the opportunity to capture the high amount of savings in the ASEAN.Of course, there is the concern that more foreign banks will threaten local banks but this should also challenge Philippine banks to improve themselves.
The introduction of new technologies and best practices should push local banks to work double time in providing the best products and services to Filipinos.
Why are national banks still hesitant to tap into these foreign markets while international banks have been operating here for years?
This may be due to asset size.Philippine banks are significantly smaller compared to their ASEAN counterparts. In fact, the combined assets of the three largest banks in the Philippines – BDO, Metrobank and BPI – is still smaller compared to the big banks of Singapore, Malaysia, and Thailand, for example.
I think Philippine banks are just being careful and prudent.The setting up of branches or offices abroad can be very difficult and risky. It is more practical for the big Philippine banks to continue to leverage their national presence, and for smaller ones to focus on niche markets and consumer segments.
What is your personal evaluation of the banking sector in the Philippines and how does it compare with the Asian financial centers: Hong Kong, Singapore or Tokyo?
I certainly agree with assessments that the Philippine banking sector remains sound, stable, and liquid with Filipino banks complying with Basel III, and continuing to be a major source of funding for the economy.The banking sector is helping to spur business and industry, creating jobs, and supporting inclusive growth all over the country.
The success of the Philippine banking sector may be attributed to robust economic growth, moderate inflation, improved standards of the banking sector’s asset quality.The sector is expected to continue enjoying strong levels of liquidity, supported by large volumes of deposits and liquid assets.Philippine banks are well-placed to continue to expand lending facilities and credit portfolios.
Compared to the more sophisticated financial centers you mentioned, may I say that there’s more room for growth here in the Philippines.We also have a young and growing population, and making them more financially literate will augur well for the banking sector in the future.