Philippine Markets Newsletter

MONDAY MACRO: Even with the stronger economic recovery, we still need to monitor sources of potential headwinds

December 13, 2021

Two quarters after the Philippines’ 15-month recession, international financial institutions are upgrading their Philippine growth forecasts and various Philippine businesses are announcing future growth plans.

However, even with the growing bullishness, it would be wise for investors to keep an eye out for potential sources of growth headwinds, to see whether or not this optimism has legs.

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The World Bank recently upgraded its 2021 economic growth forecast for the Philippines, from 4.3% to 5.3%.

Prior to the upward revision, the World Bank had an initial growth estimate of 5.5% for 2021, which was downgraded to 4.7% in June and then revised lower to 4.3% in September.

Thanks to a better-than-expected Q3 performance, the Philippines is now expected to recover close to the original forecast.

In addition, 2022 and 2023 are expected to be stronger years for the country, with the World Bank foreseeing 5.8% growth for both.

It seems that PSE-listed companies are also seeing greater growth opportunities.

For instance, fast food chain Jollibee Foods (JFC:PHL) announced its plans to build its first Jollibee stores in Scotland and Kuala Lumpur as part of its international expansion.

Port operator International Container Terminal Services (ICT:PHL) is investing further in Manila International Container Terminal to improve its capacity.

Additionally, internet service provider Converge (CNVRG:PHL) is looking to service more provinces across the country, given that it had just completed its PHP 6 billion subsea cable project.

Then there’s also the recent influx of IPO applicants in the Philippine Stock Exchange (PSE) and how businesses have been seeking to fund their growth initiatives.

However, despite the valid reasons for such optimism, banks’ willingness to keep on lending continues to act as a possible headwind to growth.

While many businesses consider 2021 to be a better year financially than 2020, the same can’t be said of the country’s banking sector. In 2021, Philippine banks seem to have faced greater risk compared to 2020.

One way of measuring such risk is through the Non-Performing Loan (NPL) ratio. 

The NPL ratio is simply the number of non-performing loans relative to the total number of loans that exist.

Since NPLs are loans in which the principal and/or interest have remained unpaid for at least 90 days, it is a useful measure of the financial sector’s health.

A country with a high NPL ratio implies that banks will become more reluctant on giving out loans, as they can potentially incur high credit losses. Meanwhile, a low NPL ratio means that it is safer for banks to lend since only a few are missing their debt payments.

In 2021, the Philippines’ NPL ratio rapidly increased from 3.6% in December 2020 to 4.5% in May 2021.

The NPL ratio has since stabilized, recording 4.4% in October 2021, but Bangko Sentral ng Pilipinas (BSP) Governor Diokno has guided in September that it is still set to peak at 8.2% at some point in 2022.

Although the 8.2% projection is still far from historical highs, it will still impede businesses’ growth plans if it comes to fruition. Borrowing will become more difficult and more expensive.

That said, like the World Bank growth estimate, there is still a likelihood that the NPL ratio forecast is too conservative as we are not yet out of the pandemic. Given the chart’s current trend, it may be setting up for a reversal.

Meanwhile, for PSE-listed companies, a high NPL ratio may not be as much of a problem.

As we’ve highlighted before, PSE-listed companies are still holding large amounts of cash, which can be used to fund their growth as the macro environment becomes safer and more certain.

Nonetheless, the coming months will be crucial to see how the NPL ratio will really pan out.

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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