Biz Buzz: Stubborn banks defy BSP

In any industry, the word of the government regulator is the law. And when the law is laid down, industry players usually fall over themselves in a rush to comply with the new mandate.

This is especially true in the banking industry, where banks and bankers often scramble to comply with regulations set down by the Bangko Sentral ng Pilipinas. Few financial institutions—if any—dare go against the rules.

But that seems to be what’s happening nowadays after the central bank issued Circular 813 recently. In this document, banks were ordered to use the average trading price of any given debt security as the basis in determining how much their portfolios were worth at the end of any given period (the so-called “mark-to-market” procedure).

This effectively revised the old method of using the last traded price of any particular security as the basis in determining the value of that asset.

The BSP’s intention, of course, was for banks to reflect the real value of their portfolios by using the average trading price, instead of the “last done” price (which can easily be manipulated by unscrupulous traders who may want their portfolios to look healthier than they really are).

Now here’s the thing: The compliance rate among banks with the new BSP regulation has been uneven at best. Some were able to comply fully. Some complied partially. But some apparently decided not to comply at all.

Compliance was so uneven that BSP Deputy Governor Nestor Espenilla Jr. recently called a meeting with non-compliant banks to basically ask them: “What’s your problem?”

The bankers gave all sorts of excuses, we’re told. But the bottom line is that complying with the BSP’s directive would have resulted in a decline in banks portfolio values by up to 50 basis points (or half a percentage point). That doesn’t sound like a lot, but when you consider the billions of pesos of securities banks hold in their books, this half-percentage point decline would easily translate to hundreds of millions of pesos. In other words—a very large dent.

More importantly, banks were willing to pay the mandated BSP fine for non-compliance, which is limited by law to P2,500 a day per violation. Peanuts, compared to the millions at stake.

So how does the BSP plan to crack the whip? We’re told that a frustrated Espenilla, during the meeting, had gone to the point of hinting that regulators were just about ready to impose “non-monetary sanctions” on erring bankers. In English, that could mean being tagged under the BSP’s dreaded “fit and proper” rule.

Now that’s something reputation-conscious bankers will probably be afraid of.—Daxim L. Lucas

Mining IPO

Rumors are rife that a mining company in Mindanao will soon go public after its discovery of huge gold and copper reserves in its concession area. It is said that some engineers and other technical people have jumped ship from a leading mining company, drawn by the prospect of the firm’s rapid growth in the years ahead.

According to the grapevine, the initial public offering, or IPO, would probably be in the vicinity of P12 a share although this could very well go higher as everyone is expected to scramble to get a first crack at the company’s enormous mineral reserves. The underwriter who will handle the IPO is the same fellow who successfully launched the Double Dragon issue. The mining company operates in Davao Oriental.—Daxim L. Lucas

SMC’s airport? Clark keeps its cool

As San Miguel Corp.’s (SMC) proposed $10-billion Manila Bay international airport grabbed headlines last week, some wondered what this would mean for Pampanga’s Clark International Airport, which has struggled to draw large volumes of traffic and establish itself as a major gateway to Manila.

Apparently, Clark International Airport Corp. doesn’t seem too bothered by the idea, even as some in the private sector raised their reservations during an impeccably timed Clark Aviation Conference on Friday.

SMC, whose proposal has a clear advantage in terms of distance given that Clark is located an hour and a half away, showed its airport plans to Malacañang just days before.

Victor Luciano, CEO of the CIAC, told Biz Buzz that they were still confident that Clark Airport could forge its own growth path as an air gateway to the North even if the government pursued another international airport to decongest the aging Ninoy Aquino International Airport.

Luciano said they were poised to draw more passengers despite setbacks, like the “temporary” suspension of AirAsia and, more recently, the May 1 suspension of Emirates, partly due to the controversial excise tax on jet fuel, after seven months of operations.

(It may or may not be directly related to Emirates’ suspension but Qatar Airways, the second Gulf carrier operating at Clark, has seen its passenger load rise to 80 percent, the airline announced last week.)

Clark still remained a strong manufacturing hub, meaning increased air cargo traffic, and also a major airplane maintenance center with SIA Engineering of Singapore Airlines poised to build a third hangar by the end of 2014, Luciano said.

Passenger figures, nevertheless, can speak for themselves and Clark Airport, which handles about 1.3 million passengers annually, was operating at about 32 percent of its intended capacity.

Even while sounding very optimistic (maybe it has to do with working in a Freeport Zone), Luciano made a good point when he said plans like SMC’s or a potential proposal involving Sangley Point, Cavite, would still take years given the massive amount of planning and various government approvals.

And during this time, Naia would no longer be able to handle additional traffic (unless that proposed second runway and new terminals are built soon).

“We will still be here,” Luciano quipped.—Miguel R. Camus

Retail footprint

Amid cutthroat competition in the retail space, especially in Metro Manila, the Sy family is not stopping. Apart from continuing the organic growth of businesses already under the publicly listed conglomerate, the country’s richest family is growing other retailing assets that can be injected into SM Investments Corp. in the future.

Note that the retail business currently booked under SMIC only includes mostly business under its departments and multi-format grocery chains. This does not include the foreign retailing brands like Uniqlo, Forever21 and Watsons that are part of the group’s privately held businesses.

Although consolidation is the “in” thing these days, the consolidation of privately held assets is still far ahead but is nevertheless on the horizon. SM chief finance officer Jose Sio said that consolidation of these brands was an option in the future but added that the group would have to wait for the critical mass in terms of scale and profitability.

Meanwhile, the 34-percent stake acquired by SMIC in community mall developer DoubleDragon Properties is likewise a strategic positioning for SM’s retail business particularly in areas of Visayas and Mindanao where SM itself won’t build a new mall.

As DoubleDragon plans to open 100 community malls with a leasable retail area of 700,000 square meters under the “CityMall” brand by 2020, SM Retail expects to corner 20-30 percent of leasable space in each mall for SM food retail segment. SM Retail executive vice president Robert Kwee said the group would mostly open “SaveMore” grocery stores and occupy 2,000 to 3,000 sqm in each CityMall.

Sio added that SM’s banking units Banco de Oro and China Bank would likewise lease space in these CityMalls while other SM retail businesses like appliance and hardware stores could also be brought in.—Doris Dumlao

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