In the Philippines, ‘Jesus saves alone’

While it is getting a much-needed boost from high domestic consumption, the Philippines needs to shore up savings to avert bouts of current account deficits.

Accounting for just 15.2 percent of the country’s gross domestic product (GDP), the Philippines’ savings rate remains one of the lowest in the region despite a rising per capita GDP.

Propelling the country’s GDP growth of 6.2 percent in 2018—one of the highest rates in Asia for the past 10 years—is the Filipino consumer’s voracious appetite for spending, boosted by overseas workers’ remittances and business process outsourcing income.

On the other hand, World Bank data from 2017 show this savings-to-GDP ratio remained relatively unchanged even as the country enjoyed a climb in per capita GDP to $2,988 from $715 as growth momentum picked up since 2012.

This is in marked contrast with its Asean neighbors like Indonesia and Vietnam, whose savings-to-GDP ratios are almost 10-20 percentage points higher for the same period.

Plugging the gap

As the country enters a new growth stage that is more focused on investments, this consumption-driven economy is not without consequence. We are now seeing how overly strong consumption, thus relatively weak savings, may lead to other challenges. Being a savings laggard can lead to a current account deficit, which results when there is a savings-investment (SI) gap. When we run an SI gap, we become a “net borrower” from the rest of the world. This usually results in a current account deficit as we use more dollars than we earn, which can then put added pressure on the peso to weaken.

However, savings is also consumption—just at a later date. One does not need to consume less to have a good amount of savings to secure further spending in the future. In fact, saving today ensures you can shop, invest and indulge over a longer period of time. With incomes rising, perhaps the Filipino consumer may try setting aside a higher percentage for saving while still enjoying the same level of consumption.

‘Jesus alone saves’

This reminds me of a quip from former International Monetary Fund resident representative to the Philippines Sean Nolan that, “In the Philippines, Jesus alone saves,” in reference to a billboard on one of the country’s major thoroughfares and alluding to the relatively low savings-to-GDP ratio. The government has been encouraging Filipinos to save or set aside funds for investments. The National Treasury has been issuing Retail Treasury Bonds for the past several years with the smallest ticket at P5,000 to make the investment accessible to retail. The Bangko Sentral ng Pilipinas (BSP) has also been promoting a savings culture in the country and the growing use of digital technology.

To date, the BSP has issued licenses to 43 Electronic Money Issuers and there are already 19 e-wallets that the Filipino consumers use, especially for remittances and payments.

The BSP’s 2017 Financial Inclusion Survey, however, shows that 52.8 million Filipino adults have yet to own a savings account, receive salary or pay bills.

With only 31.8 percent of Filipinos with accounts in financial institutions, and 4.5 percent with e-wallet accounts, much still has to be done.

‘Savings alternatives’

The developments in digital banking are opening up opportunities for financial inclusion, as opening accounts and transferring money are now made easier through mobile technology.

One of the banks that have taken advantage of the digital development is ING Bank, a global financial institution with a strong European base, offering banking services through its operating company ING Bank.

The purpose of ING Bank is empowering people to stay a step ahead in life and in business. ING Bank’s more than 51,000 employees offer retail and wholesale banking services to customers in over 40 countries.

Riding on its experience in delivering branchless banking around the world for more than 25 years, ING launched the first all-digital retail banking platform in the Philippines with its initial product, the ING Savings Account, which redefines the role of a savings account.

With no debit card, customers are encouraged to set aside their money and to take advantage of the high interest of 2.5 percent a year for balances of up to P10 million, with no minimum balance and no lock-in period. It also allows customers to transfer funds to any bank in the Philippines with no fees.

On July 10, the BSP awarded ING Bank as this year’s “Outstanding Partner for Innovative Mobile Financial Services” for its all-digital retail banking platform. While it has been operating in wholesale banking in the country since 1990, ING recently entered the retail business through the ING Savings Account to offer a unique and completely mobile experience. It became the first bank the BSP authorized to allow end-to-end electronic onboarding of customers through mobile phones using the latest in facial recognition technology.

More than promoting secure, seamless mobile banking, the all-digital bank aspires to build a true culture of saving among Filipinos.

As ING Bank country manager Hans Sicat put it: “We want to help install a healthy savings mind-set—something that is more doable and practical with our high interest rate, as well as global knowledge base and expertise.”