BSP to cap banks’ property lending: New policy will cut loan value to 60% of collateral

Local banks will soon be ordered to cap real estate loans at 60 percent of their collateral values, down from the average of 80 percent at present, as banking regulators try to head off the formation of a property bubble in the country.

The move is part of a broad measure of reforms that the Bangko Sentral ng Pilipinas (BSP) is set to roll out in the coming weeks to further buttress the Philippine banking system from the effects of market volatility.

More importantly, the new policy is expected to tighten the flow of as much as P200 billion worth of bank credit to the real estate sector, according to industry sources. On the short-term, the tighter credit policy will also translate to higher interest rates as banks demand higher returns to compensate for their higher risk exposure to real estate loans.

“Banks will still be able to lend above the 60 percent collateral value cap, of course,” said one banker, speaking on condition of anonymity because the policy has yet to be announced by regulators.

“But what BSP is saying is that, if the loan goes bad, the bank’s books are only insulated to the extend of 60 percent of collateral value,” he explained. “If they had lent more than that amount, they would have to set aside [loan loss] provisions immediately to cover that gap.”

That new policy of requiring immediate loan loss provisions—as opposed to today’s more lenient provisioning schedules—will have a direct impact on the capital levels of banks hit with bad real estate loans, the official said.

At present, banks have the flexibility to lend as much as 90 percent of a collateral’s value, depending on the asset class. The new policy, however, will cap loanable values across the board at 60 percent.

BSP will give banks a two-year adjustment period to comply fully with the regulation once the circular is released.

This policy shift—which has already been approved by the Monetary Board, but has yet to be formalized by BSP Governor Amando Tetangco Jr. through a circular—was confirmed over the weekend by a ranking BSP official, who explained that regulators wanted to coax banks away from their traditional collateral-based lending mindset.

“That’s how crises happen,” the official explained. “Banks lend based on the value of their real estate collateral which everybody thinks is worth a certain amount today, but is suddenly worthless the following day.”

Instead, the central bank will implement a system where lenders will have to scrutinize more closely the ability of borrowers—whether large corporations, small or medium enterprises, or individual borrowers—to pay off the loan based on the sustainability of their incomes.

“We want banks to focus more on the cash flow of the borrower, and not just the collateral,” the official said. “You can still have collateral as a lending consideration, but only as a backup.”

At the end of June 2014, the local banking system held almost P1 trillion worth of loans to the real estate sector, comprising 18.3 percent of the financial system’s total loan portfolio, according to BSP data.

Of this amount, P27.2 billion or 2.95 percent, were classified as past due, while P24.4 billion or 2.64 percent were booked as nonperforming loans—both still low, relative to the levels seen during real estate bubble-induced financial crises.

BSP officials have repeatedly—albeit gently—cautioned lenders about the ill effects of speculative lending to the high-end property sector, as it tries not to stunt the property sector’s growth by causing undue alarm among buyers.

source:  Inquirer

The Philippines Challenges India’s Call Center Dominance

EMPLOYMENT in the business process outsourcing (BPO) industry in the Philippines hit an all-time high in August, following a decade of phenomenal growth that has seen revenues and employment expand ten-fold since 2004.

The expansion of a number of companies will continue to drive growth in the BPO sector, after employment recently hit the 1 million milestone, rising from 930,000 in first quarter of 2014 and from 101,000 in 2004, said the IT and Business Process Association of the Philippines (IBPAP) in August. IBPAP’s CEO, Jose Mari Mercado, told local media that the 2014 target of 1.04 million would likely have been reached when end-September figures were published.

With the country a well-established global leader in BPO, other nations are feeling the impact. India, in particular, has seen its share of BPO activity eroded in the wake of unprecedented growth in the Philippines. However, with the global BPO industry potentially shifting away from pure voice services towards a multi-channel delivery model, technological innovation has joined human resources gaps and churn rates as a challenge to the long-term growth prospects.

GOVERNMENT INCENTIVES
The BPO sector is a major growth industry in the Philippines, expanding by an average of 20% annually. Although it accounted for just 2% of total employment in 2012, the run-off effects of the industry have had a positive impact on the real estate, telecoms and retail sectors. Export revenues from BPO have increased ten-fold over the past decade, growing from $1.3 billion in 2004 to $13.3 billion in 2013. IBPAP estimates the sector generated $15 billion in total revenues last year, and expects that figure to reach $18 billion in 2014 and $25 billion in 2016.

The government has been a key promoter of the industry over the past decade. The Philippine Development Plan, which runs from 2011 to 2016, has highlighted BPO as one of 10 high-potential and priority development areas. The Training for Work Scholarship Programme enabled the IT industry to provide training for BPO applicants, while investors are afforded a number of benefits including tax holidays, tax exemptions on imported capital equipment, simplified export and import procedures, and freedom to employ foreign nationals.

CHALLENGING INDIA
As a result of its expansion strategy, the Philippines has become a major rival to India, the world’s global BPO leader. In 2013, the Associated Chambers of Commerce and Industry of India (Assocham) announced that India had lost over 50% of BPO industry to foreign competitors, with the job migration costing India about $25 billion. The majority of lost business relocated to the Philippines, where an estimated 30% of graduates are employable, compared to just 10% in India. Graduates’ fluency in English, and their Western accents, have added to the country’s draw, and most of the world’s larger providers of BPO services have call centers in the Philippines, including Accenture and Convergys, which together employ over 60,000 people, as well as Teleperformance, Teletech, Stream and Sykes.

A ranking of the top 100 BPO destinations, published by consultancy Tholons in 2014, listed Manila as the second most important BPO destination worldwide, pushing Mumbai to third place. Although India’s southern city of Bangalore remains the top BPO destination, Philippine cities are rising. Seven Philippine cities made Tholons’ top 100 list, including two in the top 10, with Cebu ranked eighth. In a joint report with KPMG, India’s Assocham has projected that as much as 70% of incremental call center and voice business will be lost to foreign competitors.

“It is estimated that in the ongoing decade, India might lose $30 billion in terms of foreign exchange earnings to the Philippines, which has become the top destination for Indian investors,” said Assocham secretary general D S Rawat, quoted in Indian media.

LONG-TERM CHALLENGES
While this has given the Philippines’ BPO industry a positive long-term forecast, challenges remain. Aegis recently relocated 600 call center positions from the Philippines to India due to Indian workers’ success in sales and upselling, a technique whereby a seller induces the customer to purchase more expensive items or upgrades. The Philippines’ BPO industry also struggles with a staffing gap. The Commission on Higher Education estimated that BPO jobs created in 2012 -- around 137,000 -- represented more than 25% of graduating college students. In addition, the challenges of stressful, late-night work have resulted in a churn rate of over 50%, while high levels of emigration have exacerbated issues with workforce retention.

At the same time, the industry is increasingly shifting from pure voice services to multi-channel offerings, which combine voice, e-mail and online chat services, using sophisticated delivery models such as Platform BPO and the cloud-based Business Process as a Service (BPaaS). With pure voice services accounting for 62% of total BPO revenues in the Philippines in 2013, stakeholders have called for the industry to increase its technological uptake in order to maintain a competitive edge.

In an August editorial published in a local daily, Mark Lwin, CEO of AIG Philippines Insurance, said that while the Philippines will likely retain much of its voice business, lower-value voice services represent an increasingly smaller proportion of the American BPO market. The former head of the AIG Property Casualty BPO delivery center in Alabang noted that India’s establishment of “centers of excellence” offering e-mail, text and chat are putting pressure on the local BPO market. Shifting delivery models to meet changing demand will thus be critical for stable, long-term growth. 

source:  Investor Relations Office

The future of the Philippines’ KPO industry

IN recent years, the Philippines has shot to elite status in the global outsourcing stage, overtaking India specifically in the voice segment. The country’s business process outsourcing (BPO) industry began in the 1990s and has, since then, become a significant contributor to our export revenues and economic growth.

According to the Information Technology Business Process Association of the Philippines (IBPAP), our IT-BPO sector registered revenues of $15 billion in 2013, which was about 17% higher than the $13.2 billion generated in 2012. Overall, full-time employment at the end of 2013 reached 900,000 versus 777,000 from the previous year, and has already reached the one million mark in mid-2014, up 11% from 2013.

It is estimated that the IT-BPO industry’s revenues will increase by 16% to $18 billion in 2014, putting the industry on track to attain its 2016 target work force of 1.3 million and revenues of $25 billion.

IBPAP estimates that call center or voice operations make up two thirds of the industry, with the rest accounted for by software development and business services, among others. This projected growth is partly due to the increasing demand for BPO services from English-speaking industrialized countries such as the United States, Australia, United Kingdom and New Zealand.

Since most global companies are still focused on cost reduction and operational efficiency, it is expected that they will continue to tap our BPO providers for competitive labor costs and the huge pool of college-educated and English-speaking professionals. However, as these companies expand and strive to be more competitive, there has been a growing thrust for more value-added services. This demand may bring about the development of other non-voice services, in particular, Knowledge Process Outsourcing (KPO).

The KPO concept is reported to have gained prominence in India in the 1980s as technology increased the worldwide reach of multinationals. It saw wide acceptance in the early 2000s when global companies like General Electric set up captive research and analytics, and third-party knowledge services from offshore facilities in countries with knowledge capabilities. KPO is described as the outsourcing of core data-based business activities to another company, which plays an important part of a company’s value chain by providing highly specific expertise. Besides the cost savings, KPOs are also viewed as adding value. Some of the core processes served by the KPO sector include: market research, fraud analytics, equity research and investment banking, insurance and actuarial, engineering services, animation, web development, data integration, project management, remote education, research and development, radiology, medical transcript preparation and legal processes.

Unlike the traditional BPO, where the focus is on process expertise, KPO utilizes knowledge expertise. This requires service providers to possess advanced technical, interpretation, and analytical skills. It also requires more customized tools and a more predictive response modeling. In terms of talent, KPO firms need people with highly specialized skills, requiring superior educational qualifications and extensive training. For example, KPO services for the financial sector, such as insurance and banking, may require personnel who have acquired graduate degrees and certifications, such as being a Chartered Financial Analyst.

The KPO industry is highly prominent in India and Europe. Globally, it is expected to grow exponentially in the next few years. According to TechNavio’s analysts, the global KPO market will grow at a compounded annual growth rate of 23.12% from 2013-2018. This is expected to be due to the demand from developed western economies, such as the US, UK and other European nations where the availability of highly trained and specialized professionals is diminishing. This is particularly true for knowledge-intensive sectors, such as engineering, IT, design and finance, among others.

In the Philippines, the “Philippine IT-BPO Roadmap 2016: Driving to Global Leadership” report commissioned by IBPAP notes that non-voice services are not yet as visible as the more mature BPO voice sector. At the beginning of 2014, local BPO industry analysts predicted that with favorable economic conditions for investment, we can expect further entry of higher-value KPO services. Our local BPO industry indicated a shift in the kind of outsourced services -- from the usual contact center to more knowledge-intensive services the fields of IT, research, accounting and engineering. In fact, recent industry reports appear to validate this for the first half of 2014, indicating that non-voice BPO (which includes the KPO sector) is slowly catching up with the voice segment, with voice services dropping to around 60% from 65% of the Philippine outsourcing industry. In addition, the mid-2014 report from IBPAP showed that it is expecting non-voice services, including KPO and engineering services, to grow at about 20%. Some of the higher value KPO and finance and accounting outsourced services providers thriving in the Philippines today include Wells Fargo, Deutsche Knowledge Services, J.P. Morgan, AIG and Thomson Reuters, according to the 2014 report by Tholons, a strategic advisory firm for global outsourcing.

The question now is whether the Philippines can maintain this momentum and actually move up the value chain to become a top KPO destination. Future prospects seem bright, given our huge pool of educated professionals and with the Philippine Government now taking necessary steps to enhance its technology and infrastructure. What is needed now is for companies to identify the primary demand areas for knowledge-based services, and to strengthen capacity-building by focusing or training the available talent pool into areas of core specialization and competency.

Mariecris N. Barbaso is a Partner of SGV & Co.

source:  Businessworld

PHL found still good for the aged

THE PHILIPPINES remains among the Asian countries better suited for growing old in, though its scores in most measures of quality of life and economic well-being for those aged over 60 slipped in this year’s ranking by London-based nongovernment organization HelpAge International.

The Philippines found itself still 44th -- retaining its position in the 2013 inaugural report -- among 96 countries in Global AgeWatch Index 2014, which added Bangladesh, Iraq, Zambia, Uganda and Mozambique to the list.

But it was fifth among 23 Asian countries on the list, holding the same place as in 2013.

Countries were gauged against 13 indicators grouped into four key measures, namely:

• “income security,” which includes existence and coverage of a pension system, poverty rate, and consumption;

• “health status,” which measures how many years a person aged 60 can expect to live;

• “capability,” which measures older people’s education and skills, access to the labor market and therefore their ability to supplement pension income with wages, as well as their access to work-related support networks; and

• “enabling environment,” which covers support from relatives and friends, physical safety and access to public transportation.

The Philippines, the report said, got its highest marks in the “enabling environment” domain (15th from 21st in 2013) “with above average values for all indicators.” Its score of 77.3% in this field is slightly higher than 2013’s 76.3%.

It also ranks a relatively high 18th (though down from 17th in 2013) in the “capability” domain “with above average values in the employment (66%) and educational attainment (49.5%) indicators.” The Philippines scored 50.2% in this area, compared to 58.6% last year.

The country ranks low in “income security” at 73rd (flat from last year), “with low pension income coverage (28.3%) and higher-than-average old age poverty (13.7%) for its region” and an overall score of 41.9% (up from 37.5% in 2013).

“Many low- and middle-income countries introduced contributory pension systems a long time ago... However, with the exception of some countries in Latin America and the former Soviet Union, pension coverage has remained extremely low,” the report noted.

“In low- and middle-income countries, only one in four people over 65 receive a pension. Even in the more affluent countries of Colombia and the Philippines, only around one in five older people are covered.”

It also noted that “[c]ountries such as Bangladesh, Kenya, Peru and the Philippines target social pensions to the very poorest,” but clarified that “[b]y design, such schemes fail to cover those who are neither well-enough off to receive a contributory pension, nor poor enough to be eligible for the social pension.”

The Philippines got its lowest rank in “health status” at 76th (from 70th), with a 31.9% overall score (from 36.9%) due to “below average value of life expectancy indicators,” though it got “above average value for the psychological wellbeing indicator.”

The study estimated that there are 6.6 million Filipinos over the age of 60 this year, a complement that is expected to grow to 9.6 million in 2030 and to 13.7 million in 2050.

Topping the list this year is Norway, which was followed by Sweden, Switzerland, Canada, Germany, the Netherlands, Iceland, the United States, Japan and New Zealand, which rounded up the top 10.

At the bottom 10, in descending order, were Iraq, Zambia, Uganda, Jordan, Pakistan, Tanzania, Malawi, West Bank & Gaza, Mozambique and Afghanistan.

The report said the 96 countries on this year’s list represent 91% or nine out of 10 people aged over 60 across the world.

“Specific policies need to be put in place to address the implications of aging,” said the report, published on Oct. 1 -- the United Nations International Day of Older Persons. -- with AFP

source:  Businessworld

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