Weekend Economic Report

Local Mining industry made some headlines these weekend as foreign investors pulled-out some projects in an attempt to mitigate their losses from the onslaught of the worldwide meltdown in industrial metals. After a mining company decided to shut their mining operation in Northern Luzon, another foreign company prepares for take-over from a local mining giant Philex Mining corporation.

Publicly listed Philex Mining Corp. said Friday it now has full control over the Bongoyan copper-gold project in Surigao after it bought out partner Anglo American Plc. in the venture.

In a statement to the local bourse, Philex said it has acquired the 50 percent stake of Anglo American in the mine project through 81-percent owned subsidiary, Philex Gold Philippines Inc.

The acquisition was done via a share and asset purchase agreement covering the purchase by Philex of the shares of Anglo in the joint venure companies, Silangan Mindanao Mining Co. Inc. and Silangan Mindadao Exploration Co. Inc., as well as the acquisition of various assets, receivables and obligations of Anglo in the project for a total consideration of $55 million.

"(The transaction) paves the way for the continued development of Boyongan and the adjacent areas expeditiously and for the best interest of Philex," said Renato Migriño, Philex vice president for finance.

Philex and Anglo American earlier argued about the viability of the Boyongan project. A previous study conducted by the latter showed the mine would not produce an acceptable rate of return.

The 25,184-hectare Boyongan project was estimated by the government to have ore reserves of 300 million tons.

Philex said production at Boyongan could start by 2012.

Another sector is currently facing a major crisis at this moment, as more people are now starting to question the stability of their pre-need plans. "Despite the Security And Exchange Commission claiming to have loosen their policy on pre-need firms, they cannot guarantee that we will still get our money from the bankrupt company!" one policy holder commented.

Philippine Deposit Insurance Corporation (PDIC) conducted a depositor's forum in front of more than a thousand depositors from Cebu City who were affected by various bank holidays of the bankrupt Legacy Group of Companies at the Mandaue City Sports Complex.

The PDIC panel was composed of Ferdinand Beluan of Receivership and Liquidation Dept., Atty. Elaine Deticio- AVP for Claims Processing Dept., Teresita Gonzales- Recounting and Liquidation Group, and other PDIC Executives.

More than 130,000 depositors in Central Visayas were affected by the bank holiday, 25,000 of whom are from Cebu depositors in 5 banks under the Legacy Group of Companies.

During the forum, PDIC announced the schedule of claims, where depositors with deposits 100,000 and below can claim their P 250,000 insurance starting February 13.

Depositors with deposits above P 100,000 can start claiming their insurance starting March 1, 2009.

Depositors are reminded to bring the original Pass Book, an ID issued by the government and the accomplished claim form.

On the good side, inflation dropped further in January to 7.1 percent year-on-year from 8 percent in December, the lowest since March last year. Lower prices of fuel and transportation and communication services, and slower increases in the prices of most commodity groups accounted for the continued slowdown of inflation in January. Core inflation, which excludes certain specific food and energy items to obtain an underlying measure of generalized price pressures, was also lower at 6.9 percent year-on-year in January from 7.3 percent in December. Meanwhile, month-on-month headline inflation turned positive in January at 0.3 percent after being negative for four consecutive months. --- quotes courtesy of www.abs-cbnnews.com

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Philippine Bullion Report: Gold pass $900, Silver overtakes $12

LOCAL NEWS

Price of precious metals leap as investors shift their gears toward tangible investments. Gold climb to $900 while silver make it to the $12 mark as major currencies particularly the sterling dive in one of its lowest level against the dollar. The Russian ruble lost 40% of its value, while massive job cuts have been declared in a record as soon as President Obama took office.

The world economy was hit by a massive wave of job cuts on Monday with companies announcing plans to lay off tens of thousands of workers as US President Barack Obama warned of a crisis that could become "dramatically worse."

East West Bank have announce that it bought the local subsidiary of AIG, Philam Savings Bank, while report that pre-need firms are in jittery waters as more firms as expected to default on claims.

Meanwhile, the electronic and manufacturing industry announced that it would lay off around 40, 000 workers this year due to the slowing demand on consumer electronics and tech gadgets. Intel already declared that it would shut their plant located in Cavite, as well as other plants located in Malaysia as the effect of the global financial crisis deepens in the local economy.

Despite the PHISIX rise and the peso's better performance against the dollar, the Philippine economy has witnessed the threat of the global financial crisis to the local economy.

INTERNATIONAL NEWS

Dutch electronics giant Philips and banking group ING announced job cuts totaling 13,000 worldwide.

The announcements by the two Dutch companies came ahead of confirmation that Europe's second-biggest steelmaker, Indian-owned Corus, said it would cut more than 3,500 jobs around the world, most of them in Britain.

Philips said it would eliminate 6,000 jobs to cope with the global slowdown, which had pushed its results into the red and eroded sales.

The company said it suffered a net loss of 186 million euros (242 million dollars) for 2008 after a fourth-quarter loss of 1.47 billion euros, largely owing to an adjusted valuation of its Lumileds diode light unit.

For 2008, sales were down 1.5 percent to 26.39 billion euros.

French banking giant BNP Paribas was also caught up in the maelstrom, announcing a fourth quarter loss of 1.4 billion euros, its first time in the red for some 10 years. It expected a 2008 net profit of three billion euros, compared with a net profit of 7.8 billion euros the previous year.

However, shares in British bank Barclays, which has been hit by the crisis, surged by 75 percent after the group said it expected pre-tax profit for 2008 to exceed 5.3 billion pounds (5.6 billion euros, 7.1 billion dollars) despite writedowns of eight billion pounds.

In Britain unions were due to meet Corus management during the day Monday.

But workers arriving early Monday were gloomy about their prospects. "People feel gutted. I have already had to take a 10 percent pay cut," said 45-year-old Douglas Mayhill, a worker at a Corus plant in Port Talbot, southern Wales.

"I was told on Friday I have a choice -- either accept a 10 percent pay cut or take redundancy -- that is no choice."

The US Congress was meanwhile due to begin debate this week on Obama's 825-billion-dollar stimulus bill designed to haul the US economy out of a paralyzing recession.

In his first presidential radio address at the weekend, Obama raised the specter of double-digit unemployment, a massive erosion of family incomes and an entire generation losing its potential if Congress did not act on the stimulus bill. -AP

LOCAL BULLION REPORT

Meanwhile, some investors flock at local coin shops trying to seal some deals on bullion coins before the precious metals hit another rally. Last year, Citigroup made a prediction that Gold will hit a record of $2000 this year despite its downward performance.

"The price of silver and gold at the black market is very low, but supply is very scarce. Some of them have been either ordered in advance or have been reserved by their buyers so only few reach the open market or shops," a local coin buyer explained.

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Ilocos Norte residents warn on P1-coin hoax

The Bankers’ Association in Ilocos Norte are warning the public not to believe rumors that a one-peso coin could be exchanged for a higher amount of cash.

The bankers’ advisory came out as rumors spread in the area that a one-peso coin dated 2004 could be exchanged in banks for P20.

Ronald Mandac, Bankers’ Association director, said that there were many who believed in the rumor and flocked to banks asking how their coins can be exchanged. He also said there was no directive from Bangko Sentral ng Pilipinas on the supposed exchange issue.

Mandac said however that he believes the issue is related to another rumor which said that the 2004 one-peso coin supposedly contains silver and bronze.

Authorities claimed that not only a few residents of Laoag City collected 2004 one-peso coins hoping that it would be exchanged for the higher amount of cash.

Similar rumors have been spreading most likely in the rural areas not only of the present day one-peso denomination. Rizal head peso minted during the time of President Marcos, known to many as "The Large Peso" has its own version of myth.

Some says that Marcos hid his gold on these coins, the reason why the coin has its yellowish color. Most likely, they added "it can be found in coins dating 1971", which is actually a non-existent date.

Even the 10-peso is not spared from the series of gossips. Some speculate that the core of the coin has gold in it, and the metal is abundant only in the coin minted in the year 2000.

The millennium peso is scarce though, but BSP officials assure that there is no gold in it.

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Anti-counterfeit Campaign: BSP Revised Reward System "Bayani ka na, magkakapera ka pa!"

The BSP Reward System, launch Anti-Counterfeiting campaign that, encourages the populace to furnish information on person/groups responsible for the manufacture/passing of counterfeits. This nefarious activity can be more effectively suppressed with the cooperation of the public.

There is a Committee on Rewards who shall determine the amount of reward in accordance with certain rules and regulation as approved by the Monetary Board.

Any person who voluntarily gives definite and sworn information leading to the the arrest/prosecution of a person or group of persons engaged in counterfeiting/passing of Philippine notes and coins or foreign notes and coins acceptable to BSP may qualify for the reward except however, officers or employees of the BSP or any intelligence or law enforcement agencies such as NBI, PNP, BIR, Bureau of Customs, including their relatives within the 3rd degree of consanguinity or affinity.
Recent introduction of counterfeit coins and notes have resulted to major changes in the production of coins and upgrade of the security features of the local currency especially high denomination notes such as 200-piso, 500-piso, and 1000-piso.

"The latest printing technology and other high end software have enabled counterfeiters and forgers to produce more complicated counterfeits. That is why the BSP has required its departments to harness all available resources to halt further damage to our monetary system." a BSP official explained.

"We don't want to experience the same setback when we first encountered the fake 5-piso and 10-piso coins which were only detected when much have been already introduced to the local economy. We did not anticipate such incident because we thought only coins of higher exchange rate such as the dollar, euro, and yen are vulnerable for counterfeiting. We have underestimated the intrinsic value of our own coins." He added.

Any person who has information on counterfeiting activities, may call the Investigation Staff, Cash Department at Telephone Nos. 926-5092 or 929-7071 local 618.

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BSP tightens regulations to prevent more bank failures

The Bangko Sentral Ng Pilipinas will release new regulations aimed to penalize and restrain “aggressive banking" tactics.

Besides setting clear definitions of “aggressive banking," the Bangko Sentral ng Pilipinas (BSP) will issue a circular that will impose harsher penalties on banks who plan to cheat their depositors.

“The new guidelines clearly define instances or acts of unsafe and unsound banking practices so that there can be no doubt the regulations have been violated and the banker punished," BSP deputy governor Nestor A. Espenilla said.

The new set of rules define “aggressive banking" as giving loans to borrowers that have poor credit histories by extending their interest rates without much protection for such risks.

Operational standards – as set under the new rules – will make “aggressive banking" extremely difficult since off-market interest rates are going to be defined as more than 50 percent of the median market rate.

“The guidelines in past circulars were implicit. In the new guidelines the rules are now clearly spelled out," Espenilla said.

Aiming to prevent a repeat of recent rural bank failures that have disenfranchised thousands of depositors, new central bank rules have disallowed banks from offering deposit and loan rates that are too high and accepting risky borrowers.

The Monetary Board last week approved Circular 640, which amends a directive issued in 2002. The latter, Circular 341, contains the implementing guidelines of Section 56 — “Conducting Business in an Unsafe or Unsound Manner" — of Republic Act 8791 or the General Banking Law of 2000. Its annex, which Circular 640 amended, lists the activities considered as unsafe and unsound banking practices.

The old annex listed “excessive reliance on large, high-interest or volatile deposits/borrowings" as one of these practices. The amendment restates this to “excessive reliance on large, high-cost or volatile deposits/borrowings to fund aggressive growth that may be unsustainable."

The Monetary Board defines “high-cost" as an effective interest rate on deposits or borrowings that is 50 percent higher than the prevailing market median for similar banks.

Aside from high interest rates, the Bangko Sentral ng Pilipinas (BSP) will examine how deposits were obtained, in particular if a bank resorted to offering noncash incentives worth more than the deposits or if the bank accepted the money outside its premises without central bank authorization.

Last year,PDIC seized 13 rural banks belonging to or affiliated with the Legacy conglomerate on account of unsafe and unsound banking practices, insufficient assets to cover liabilities, and poor liquidity. The Legacy banks had been known to lure depositors with a 20 percent interest.

Recently, heavy withdrawals by panicky depositors brought down two Pampanga-based rural banks this month. All 15 banks have since been placed under the receivership of the Philippine Deposit Insurance Corp. (PDIC).

Rural Bankers Association of the Philippines (RBAP) President Tomas S. Gomez IV said the organization “fully supports" the latest BSP circular.

“It further strengthens depositor protection and is consistent with the BSP’s mandate of prudential regulation. Coupled with PDIC charter amendments ... the revised circular will further strengthen the Philippine banking system," he said.

Circular 640 also expands the list of circumstances that comprise “hazardous lending and lax collection."

One is a high incidence of spurious loans because of poor risk management systems. Another is a high number of borrowers with poor credit histories or a high number of loans that are either unsecured or backed with minimum collateral values. A third is high loan rates designed to compensate for the risks attendant to these type of borrowers and loans. “High" is defined as effective interest rates that are 50% higher than the prevailing market median.

Also, “operating in a way that produces a deficit in net operating income without adequate measures to ensure a surplus in net operating income in the future" constitutes an unsafe and unsound banking practice.

Circular 341 allows the Monetary Board to issue cease and desist orders to banks and to impose a fine of not more than P30,000 per day per transaction, among other sanctions.

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Peso seen to decline futher this week

The peso is seen to be sliding further to the dollar as the inauguration of the newly elected president Barack Obama draws near.

Analysts see the peso's downward trend this week despite the declaration of a unilateral ceasefire of the Israeli forces on its offensive on Hamas that should be favorable to our workers working in the region.

"[Our bias is still towards] a weaker peso," a trader said.

Remittances from overseas Filipino workers (OFWs) have not been enough to sustain the peso’s rise, he added.

"Due to the financial crisis, many OFWs are being threaten by massive layoffs, meaning there will be less dollar remittances in the succeeding months," he added.
The peso hit an intraday high of P47.09 and a low of P47.28 before ending at P47.20 last Friday.

Constantino B. Bombais, first vice-president and treasurer of the Philippine Business Bank, expects the peso to trade between P47.20 and P47.50 to the dollar this week.

He added that the inauguration of US president-elect Barack Obama on Jan. 20 would impact Asian currencies.

"I think the inauguration of Barack Obama will have an effect on all Asian currencies, but that will come in later," Mr. Bombais said.

The newly elected president, he said, is expected to work on measures to stimulate the US economy.

"I think the US will keep the dollar’s strength intact and push it stronger. For the Philippines, that would mean a weaker peso," Mr. Bombais explained.

However, Philippine based exporters favor the current trend as they compensate from their setbacks from the low orders they received last season. Mostly affected were craft and furniture makers who have already felt the effect of the current global financial crisis.

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Special Economic Report: BSP forecast more bank mergers

The Central Bank is expecting further consolidation among local banks, with Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. sticking to his goal of five to six local banking groups dominating the sector.

"I still think five to six local banks plus the branches of foreign banks holding about 70% of the total banking system’s assets would be ideal," Mr. Tetangco told reporters in an e-mail.

"The BSP’s role is to create a working environment that would encourage banks, through market-based policies, to take advantage of opportunities to consolidate or expand as would suit their risk and profit appetite as well as their own overall assessments of the economy," he added.

Central bank data as of September last year showed there were 18 head offices of universal and commercial banks, three subsidiaries of foreign banks and 14 branches of foreign banks. There were also three government bank head offices.

Data also showed that universal and commercial banks continued to corner around 90% of the banking system’s assets at the time.

Since he took the helm of the central bank in 2005, Mr. Tetangco has been supportive of mergers among major banks, saying the BSP would rather have less but stronger banks.

The local banking sector saw a series of mergers and acquisitions in the past few years, among them the Ayala-led Bank of the Philippine Islands-Prudential Bank merger in 2005, the International Exchange Bank-Union Bank of the Philippines merger in 2006 and the China Banking Corp.-Manila Banking Corp. merger in 2007.

The merger between Sy-led Banco de Oro Universal Bank and Equitable PCI Bank, also in 2007, was hailed by industry observers as a landmark transaction as this created the country’s largest bank in terms of assets.

The industry is now awaiting the merger of two Lucio Tan-controlled banks, Philippine National Bank and Allied Banking Corp., which would create the fourth largest bank. — Gerard S. dela Peña

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Special Economic Report: 4 Rural Banks in Pampanga went on holiday 2 days before New Year

Sta. Rita Rural Bank went on Holiday

The public has not yet fully recovered from the bank closures earlier this month, another wave of another bank closures happened two days before the News Year begins. Just this December alone, 10 banks have been seized by the Philippine Deposit And Insurance Corporation (PDIC), 8 which are owned by the Legacy Group who is also the owner of the Legacy Plans that ceased operation in the middle of this month.

All of the rural bank branches that recently went on holiday are located in Pampanga. As the Global Financial Crisis unfolds in the coming year, many analyst foresee that the worst is yet to come to the banking and financial industry.

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