Philippine bond market growth fastest in East Asia in Q2—Asia Bond Monitor

MANILA, Philippines—The Philippines registered the fastest-growing corporate bond market among emerging East Asian economies in the second quarter, as firms took advantage of substantial domestic liquidity by selling more fixed-income securities to fund their investment requirements.

According to the latest issue of the Asia Bond Monitor, a quarterly publication of the Asian Development Bank, the corporate bond market in the Philippines remained active in the three months to June, in fact beating all its counterparts in the region, as demand for and supply of peso-denominated corporate funds were strong.

Data showed that the outstanding peso-denominated corporate bonds amounted to a dollar equivalent of $12 billion by the end of the second quarter, up by 22.2 percent from nearly $10 billion as of the same period in 2011.

According to Saby Mitra, economist at the Office of the Regional Economic Integration at the ADB, the robust growth in corporate bond issuances was partly due to the lack of flexibility of firms to tap more funds from banks, which have been required to observe the single borrower’s limit (SBL) imposed by Bangko Sentral ng Pilipinas. In particular, banks are supposed to keep their lending to a single borrower up to a maximum amount equivalent to 25 percent of the lenders’ net worth.

“Some of the big companies are limited by the SBL. That is why they go to the bond market to raise funds,” Mitra said in a phone interview with the Philippine Daily Inquirer.

He also said that some enterprises manifested preference to sell bonds in their own countries’ markets rather than offshore. This is because the prolonged crisis in the eurozone has resulted in an increase in spreads for debt papers issued in the international market by corporate entities from emerging economies, according to Mitra.

Over the near term, the economist added, the trend seen among Asian corporate entities of going for domestic rather than international bond issuances would likely continue. The projection is anchored on expectations that the eurozone crisis will remain, thereby causing some jitters in the international bond market.

The Asia Bond Monitor also reported that the market for Philippine government bonds likewise grew by a robust pace in the second quarter. Outstanding peso-denominated Philippine government bonds amounted to a dollar equivalent of $75 billion as of the end of June, up by 14.8 percent from about $66 billion as of the same period last year.

The Asia Bond Monitor said bond markets in the emerging East Asian region were generally vibrant during the period, as almost all of them, except for Indonesia, registered positive growth rates in year-on-year terms.

The $87 billion worth of total outstanding peso-denominated bonds—both government and corporate—marked a 15.7-percent increase from $75 billion.

The entire emerging East Asian bond market grew by 7.3 percent, as total outstanding Asian currency-denominated bonds reached a dollar equivalent of $5.93 trillion by the end of June from $5.53 trillion as of same period last year.

Mitra said that over the near term, regulators in emerging East Asian economies might be confronted with problems related to financial market volatility as economic problems outside the region persist.

He said that on one hand, East Asian markets may face risk aversion resulting from the prolonged debt crisis in the eurozone. On the other, East Asian markets could also witness a surge in foreign portfolio investments that may result from stimulus measures to be implemented in the eurozone.

Mitra said Asian policymakers must be prepared to implement appropriate measures to prevent the ill-effects of financial market volatilities on their domestic economies.