Philippine business conditions seen headed in right direction

The Philippines is headed in the right direction in terms of becoming a more conducive business environment, the Chandler Institute of Governance (CIG) said.

“The attractive marketplace (pillar) is about the capabilities that the government has to create a conducive business environment,” Kenneth Sim, dean at Chandler Academy of Governance, a Singapore-based public-sector training organization, said in an event organized by CIG and the Eastern Regional Organization for Public Administration.

“Relative to peers, the Philippines doesn’t do as well. But the gap is closing, and in the right direction, which means the Philippines is actually catching up to the global average,” he added, citing comparable economies like Vietnam and Egypt.

Citing results of the Chandler Good Government Index (CGGI) in 2024, Mr. Sim said that the Philippines posted a 0.56 marketplace attractiveness score last year, up from 0.53 in 2023. The global average is 0.58.

“Part of the reason why this is improving is the stable macroeconomic environment, which looks at things like inflation, as well as the other one that has improved, which is logistics competence,” he said.

Some key indicators for an attractive marketplace, like property rights and business regulations, are below the global average.

In particular, the country scored 0.39 in stability of business regulations, against the 0.51 global average. It scored 0.30 in property rights, against the 0.50 global average.

Mr. Sim noted opportunities to improve in the leadership and foresight components of the index.

“Over the years, there has been a decline in the score for the Philippines. It started at just above 0.4 in 2021, and by 2024, the Philippines will have dropped to 0.33. So this means, again, that the gap between the Philippines and the global average has been widening,” he said.

“It is important to point out, however, that even though we call it leadership and foresight, it is not about individual leaders; it is about the ability of the system to develop these capabilities,” he said.

“Of course, leaders play an important role, but this pillar is not about people. It is about the system,” he added.

“The performance of the Philippines in the CGGI in 2024 is somewhere in the middle. 67th out of 113, not the best, but certainly not the worst,” Mr. Sim said.

He added that although the country’s rank has suffered, its score has declined only slightly.

“What this means is that over time, relative to itself, in your own country, you have kept your performance relatively stable, but the rank has fallen, which simply means that more people are joining the index, and others are doing even better,” he said.

“So, staying in place and being patient is not going to help you to improve in ranking,” he added.

He said that the Philippines is stronger in areas like strong institutions and financial stewardship.

Source: Business World

Breaking down life insurance

Ever been approached by an insurance agent who offered you insurance that you never really understood? I'm sure it happens a lot. More often than not, we get insurance because of the following reasons: the insurance agent is a good friend, and we didn't want to turn him down, or we thought it was an investment. So let's try to give the low down on some basic concepts about life insurance.

There are two major types of life insurance: ordinary life (OL) and variable unit linked (VUL).

Ordinary life insurance. There are two types of insurance products that are classified under OL: traditional life insurance and endowment.

For traditional life insurance, living benefits come in the form of cash surrender values and/or dividends. Cash surrender value is the monetary amount that you would get in case you surrender your life insurance before the policy's maturity. Usually cash values start accumulating by the third or fourth year.

Thus, it will take a while before the cash values grow bigger than the total premium you are paying for. Policy owners can also take loans from cash values of their OL policies. Dividends, meanwhile, are the nonguaranteed cash benefits given to policyholders depending on the insurance company's performance.

The cheapest type of traditional life insurance is a term insurance where one is covered for a certain period of time or up to a certain age only. Term insurance has no cash values nor is it participating in any dividends distribution. However, term insurance can be converted to a traditional life insurance.

Aside from the traditional life insurance, endowments are also classified as an OL product. Endowments are different from traditional life insurance in that after paying premiums, you can periodically receive cash benefits after maturity. It is a good tool for forced savings. Returns are guaranteed but interests in the returns are most often lower than inflation.

OL products also have nonforfeiture options in case you'd like to surrender your policy before maturity and different settlement options for claims.

Variable unit linked. VUL insurance products are probably the most famous insurance product these days. A VUL is an insurance product with an investment component. It is like a term insurance and a mutual fund combined into just one product. Similar to OL, there is a fixed minimum death benefit or face amount. However, since VULs have an investment component, the death benefit can grow as your investment grows.

Unlike OL products, VULs don't have cash surrender values nor dividends. In VULs, a portion of your premium buys you units which have equivalent value called the Net Asset Value per Unit (Navpu). The Navpu changes on a daily basis, thus if you multiply your units by the Navpu, you will get the actual value of your investment or the account value.

A policyholder can regularly add to their investments to their VUL on top of the premium they are paying. These additional investments are called top-ups.

Usually, there are three types of funds where you can invest in: equities fund, balanced fund or bond fund.

Since these are investments, the returns you can get are not guaranteed, but you can potentially earn from 4 percent to 15 percent annually from your investment. Policy owners can also withdraw a portion of their investments but can incur withdrawal charges usually within the first five to 10 years depending on the product.

Note though that even if some VULs are considered limited pay, cost of insurance will still be deducted from your account values. It is advised to make regular top-ups so you won't deplete your account values. Once the account value becomes zero, the policy lapses.

For both OL and VUL, one can also have additional coverage that is called riders. Every insurance product can have different riders. These riders can come in the form of additional insurance coverage for death via accidents and disability due to accident, waiver of premiums in case of disability, critical illness coverage and a lot more.

Having insurance is an important aspect of personal finance and understanding the different types of life insurance products is just one step in picking the right one for you. In case you already have one, it might be a good idea to review its features and see what type of insurance you got. In case you're looking for one, remember that the key to picking the best insurance product for you is making sure it addresses your needs and is aligned to your goals.

Source: Manila Times

Bank lending growth hits 2-year high

Bank lending in December expanded at its fastest pace in two years, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks jumped by 12.2% year on year to P13.1 trillion in December from P11.7 trillion in the same period in 2023.

This was the fastest lending growth in two years or since the 13.7% recorded in December 2022.

On a seasonally adjusted basis, big banks’ outstanding loans rose by 1.4% month on month.

Central bank data showed outstanding loans to residents climbed by 12.4% to P12.8 trillion in December, faster than the 11.4% growth in November.

Meanwhile, loans to nonresidents rose by 5.7% to P330 billion during the month, faster than the 3.9% posted in November.

Outstanding loans to residents for production activities expanded by 10.8% to P11.2 trillion in December, faster than 9.8% in the previous month. Loans for production accounted for the bulk (85.4%) of overall lending.

The BSP said the growth was driven by sustained lending in wholesale and retail trade, repair of motor vehicles and motorcycles (10.1%); electricity, gas, steam and air-conditioning supply (14.2%); manufacturing (7.4%); financial and insurance activities (7.4%); and construction (12.6%).

Meanwhile, consumer loans jumped by 25% in December from 23.3% in the previous month. Consumer loan data excluded residential real estate loans.

This was due to the “increase in credit card loans; salary-based general purpose consumption loans and motor vehicle loans,” the central bank said.

BSP data showed credit card loans rose by 29.4% in December from 26.5% a month earlier. Salary-based general purpose consumption loans also picked up by 16.5% in December from 15% in the previous month.

However, growth in loans for motor vehicles eased slightly to 19.5% in December from 19.6% in the previous month.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said loan growth picked up as the BSP began its easing cycle.

The central bank started its rate-cutting cycle in August last year. It reduced borrowing costs by a total of 75 basis points (bps), bringing the key rate to 5.75% by end-2024.

For the coming months, easing inflation well could justify further rate cuts this year and “spur greater demand for loans due to lower financing costs,” Mr. Ricafort said.

BSP Governor Eli M. Remolona, Jr. has said a rate cut is still “on the table.”

For 2025, he signaled the possibility of cutting by a total of 50 bps, noting that 75 bps or 100 bps may be a bit “too much.”

Mr. Ricafort also noted the cut in the reserve requirement ratio (RRR) “could have fundamentally increased the loanable funds of banks.”

The BSP reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, which took effect last October.

Mr. Remolona has said that the Monetary Board is eyeing to again reduce reserve requirements by 200 bps to 5% this year, sometime in the middle of the year.

“The pickup in bank loan growth in recent months could be attributed to improved business and economic conditions, especially in terms of improved data on employment in recent months,” Mr. Ricafort added.

MONEY SUPPLY

Meanwhile, domestic liquidity (M3) grew by 7.7% in December, the same as November.

M3 — which is considered as the broadest measure of liquidity in an economy — increased to P18.8 trillion as of December from P17.4 trillion a year earlier.

Month on month, M3 inched up by 0.2% on a seasonally adjusted basis.

Data from the BSP showed domestic claims rose by 10.4% during the month, though slower than the 10.8% in November.

“Claims on the private sector grew by 12.2% in December from 11.7% in the previous month with the continued expansion in bank lending to nonfinancial private corporations and households,” the BSP said.

The growth in net claims on the central government eased to 7.2% in December from 9.2% in the previous month due to higher National Government borrowings.

Meanwhile, growth in net foreign assets (NFA) in peso terms also eased to 6% from 9.8% in November.

“The BSP’s NFA expanded by 6.8%, reflecting the increase in gross international reserves relative to a year ago. Meanwhile, the NFA of banks declined on account of higher bills and bonds payable,” it added.

Source: Business World