(Or “Why CIMB is buying a bank in the Philippines”)
Brokers have upgraded their full-year economic growth forecast for the Philippines after the government announced a surprising 6.4% growth in the first quarter (better than other countries in the region)
Example– Nomura now expects the economy to expand by 5.1% this year from an earlier 4.6%.
“[First quarter] GDP soared to 6.4%… beating expectations. This was led by high public sector spending and still-robust private consumption … We upgrade our 2012 GDP growth forecast to 5.1% from 4.6% as we believe these drivers will not only persist, but will also be augmented by faster increases in private investment owing to on-going reforms.”
Nomura noted that the country is also expected to improve its position in an annual competitiveness ranking, “The Philippines has fallen two spots to 43rd due to a weak ranking in the economic performance criterion, which we think is related to last year’s under spending by the government.”
As the Economist wrote a few weeks ago: Future prospects are indeed enticing: besides the unexploited mineral resources, business-process outsourcing is booming, already employing some 600,000 people. Remittances from all those Filipinos overseas have remained strong through economic crises. As costs rise in China, the Philippines is among places manufacturers eye as an alternative. Tourism has huge potential, recognised by the government’s nicely pitched campaign: “It’s more fun in the Philippines.”
The government has also started making some important reforms. In an effort to raise its revenues—at present a paltry 12% of GDP—it wants to jack up “sin” taxes on alcohol and tobacco. The bill enacting this made important progress in May when it passed a House of Representatives committee—a triumph over powerful tobacco and alcohol lobbies. It still has to pass the full House and the Senate, however.
But it remains sceptical: In fact, the Aquino administration has little concrete to show for its two years in power. The centrepiece of its programme, public-private partnerships to tackle the inadequate infrastructure which is such a hindrance to all the nation’s economic hopes, is only now stuttering to life after just one of the ten projects scheduled for approval last year saw contracts awarded. The pursuit of Mrs Arroyo and the chief justice is a distraction as well as a mission. Securing Mr Corona’s conviction might entail so many promises to senators that the point of the exercise—enhancing the government’s clean image—is lost.
Well CIMB for one is bullish. In early May, CIMB agreed to buy just under 6o% of the Philippines’ Bank of Commerce (BOC) for 12.2 billion pesos (M$881 million) in cash, a move analysts said gives it early mover advantage in a market with high-growth banking potential.
It got in into Indonesia on the cheap in 2002 before the ang mohs rediscovered Indonesia yet again. It bot into the government’s recapitalisation of a major local bank (Bank Niaga) that was nationalised after the 1997/1998 financial crisis.
The PBOC could be an encore.