Philippine Markets Newsletter

MONDAY MACRO: Entering 2022, here’s what the credit profile of the largest PSE-listed companies actually looks like

December 20, 2021

As we explore more about the potential growth headwinds coming from bank lending, there’s another reason why banks’ willingness to lend will likely have little impact on PSE-listed companies in the short term.

Today’s chart shows how safe the balance sheets of the country’s top companies continue to be, especially for the largest among them.

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Last week, we discussed how borrowing may become more difficult in 2022, as banks are forecasted to record a higher Non-Performing Loan (NPL) ratio according to the Bangko Sentral ng Pilipinas (BSP).

From 4.4% currently, the BSP estimates the NPL ratio to nearly double to 8.2% in 2022. A higher NPL ratio normally means banks will become more reluctant in lending, making it more difficult for companies to fund their expansion plans.

That said, even if such a situation does come true, PSE-listed companies still hold a significant amount of cash—near historical highs.

A high cash balance means that PSE-listed companies are affected less by a tighter borrowing environment since this group can fund growth initiatives on its own. In addition, the group has more than enough liquidity to service current short-term obligations.

In the chart below, despite having insufficient cash flows (blue line) to meet annual obligations, PSE-listed companies have a large cash buffer (blue dot) that could last until 2023. This suggests that there’s still room for spending on capital projects if needed.

That said, if one still finds the entire Philippine stock market to be too risky, there is another group that has a much safer balance sheet.

The PSE Composite Index (PSEi) aims to track the 30 largest companies in the Philippine stock market. Given the large market capitalization of these 30 constituents, these are usually much safer than the average PSE-listed company and have easier access to credit.

We can see the PSEi’s creditworthiness by looking at its aggregate Credit Cash Flow Prime (CCFP) below. 

By removing companies in the Financial sector and including only those with debt maturities, we see a safer group relative to the entire PSE.

While cash flows each year are also lower than annual obligations, the PSEi has enough cash to meet obligations until 2024. 

If the PSEi were to delay maintenance capex payments (yellow bar) or temporarily suspend dividends (white bars), the group may even have cushion to last until 2025 before it would need to take further action.

As a result, even if corporate borrowing becomes more difficult in the short term, it’s likely it will have a relatively low impact on the entire PSE and an even lower impact on the PSEi.

With no long-term headwinds in terms of bank lending, investing in the PSEi seems positioned to still be a safe bet.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available. 

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data. 

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms. 

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful. 

Stay tuned for next week’s Monday Macro report! 


Angelica Lim
Research Director
Philippine Markets Newsletter
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