• Bank discipline will help prevent feared bubble burst

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    THE result of the Bangko Sentral’s 2014 First Quarter Senior Loan Officers Survey (SLOS) gladdens the BSP officers. It shows that our private sector bankers have become a disciplined lot. The survey shows that Philippine bankers have made it easier for business enterprises and industries to borrow money from them but they have made it more difficult for households and plain consumers to borrow to buy their dream houses and condos and cars.

    Of course consumers who belong to the elite top 1% of the 1% richest people in our population can continue to buy whatever they like. .

    The tightening of credit for the household and consumer sector is good news to those bankers and finance professionals who are afraid that a bubble is about to burst in the Philippine economy, specially in the property sector.

    A speculative bubble, a market bubble, a financial bubble, a price bubble are something unpleasant to investors and the whole economy when they burst. When the bubble bursts the high prices of assets like, say, condominium units or shares of stock, come tumbling down. Some owners of those assets get impoverished.

    The OFWs, who put all their savings into condo units or apartment houses, and the banks that lent them money to buy the assets–with these assets themselves as part of the collateral–will all be in big trouble. For presumably the bubble burst also makes life difficult for the OFWs, who will not be able to pay the loans on time or would have to default. The banks would not be able to recover the funds they lent from the now low-priced condo units they have foreclosed.

    Since 2012–and growing in 2013–fears of an asset bubble bursting in the world economy have been giving sleepless nights to private and central bankers. The bubble bursts in the USA and Western Europe caused the last international financial crisis of 2008. Some people say it ended in 2012. Others, and we in the Times are among these others, believe it has not quite ended because the disrupted economies, including the US and Western Europe, have not yet fully recovered.

    Our economy evaded the crippling effects of the 2008-2012 financial crisis. That was mainly because we were relatively poor and parochial in 2008. Only a few Philippine banks and financial institutions could afford to play the risky global games that their counterparts in the USA and Europe were playing.

    But this time we are among the world’s economic-growth stars. We are, according to global economists, blessed with an economic miracle. Our region, Southeast Asia, is the globe’s most promising engine of global growth. And our country–the home of at least 50 million poor and dirt-poor people–leads the other Asean countries in having the highest GDP growth rate.

    Our GDP growth rate has been phenomenal since the Arroyo presidency. This has continued under President Aquino. But many Filipinos lament that this GDP growth has not helped reduce poverty because this economic success has created very few jobs.

    The private banks’ new tendency to lend more money to enterprises will help create jobs. Their decision to limit consumer loans will help curb inflation, which will help individual households as well as businesses and industries. The latter is obviously the private-sector banks’ way of supporting our central bank’s commendable success in keeping prices stable by pursuing its “Inflation Targeting” monetary policy.

    Some economists, describing our situation in 2013, think our economic miracle is really just a bubble that, God forbid, will burst one day. These signs of our credit bubble that warn of an imminent bubble burst were all magnified in our country in 2013:

    • The BSP-set benchmark interest rate is still very low and therefore allows loans to be made easily. The private bankers responded to that by making loans to consumers more expensive.

    • The Philippines money supply or M3—the broad measure of total money and credit in the economy—is more than double that of 2008. In 2013 it sharply rose and drove interests rates even lower. Did the PDAF scam money reach the streets from the pockets of the senators and congressmen?

    • Consumer spending grew even faster in 2013 than in 2012. Car sales, as indicated by car registrations, increased by 50 percent from 2008 figures.

    • In 2013, our personal savings rate decreased.

    • Domestic consumption now makes up the largest expenditure category of our GDP. It is now 75% of our GDP (but only 63% 10 years ago.)

    • Exports have become an even smaller percentage of our GDP.

    • The job security of our OFWs, the biggest remittances from whom come from the United States and the Middle East, could be undermined by continuing uncertainties in the United States and in the Arab World.

    We hope and pray our OFWs continue to remit massive amounts from their posts abroad. If they don’t the feared property bubble burst will happen.

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    2 Comments

    1. I dont see anyway at all in which you wont get a burst of the property bubble as he supply & demand doesnt apply. Even in countries where it does apply they get bursts but here property just keeps going up. People would rather leave their house empty for years than rent it out & as it starts falling apart the price to buy it still goes up. In the uk if its falling apart you will find it almost impossible to sell & if you want to sell it you have to drop the price. But ehre the government policyies doesnt help in reducing the price as once it has a price they will always tax the sale at a price that is fair & that to them means where it is it should sell for the same price of the houses around it. Now in the uk if for any reason i wanted to sell my hiouse thats lets say worth £250,000 & i sell it for just £100,000 thats what i will be taxed on the £100,000, but here in the philippines no, you will get taxed on a higher ammount. So the government is a ot to blame on this problem & another thing that has increased the value of properties is in ill gotten money & legal money that shouldnt be there. For instance senators salary is P90,000 per month but with allowances & whatever extra money they get it can go up to P1,400,000 per month. That is much much higher than a uk politician gets now tell me that isnt corruption as this is a poor country yet their politicians get paid more than a uk politician & that also funds higher housing as they can afford it. The politicians treat the government money like their own & thats why here you have the wrong people going into politics, they are there for their own gain not for the benefit of the people.

    2. Phylliss Quinn on

      The banks should use this opportunity to persuade applicants for personal and consumer loans to borrow instead for an entrepreneurial project that will create one or two jobs. Better yet, the loan officers should make two or three personal and consumer loan applicants to band together and become partners / co-owners of enterprises that will create some jobs.

      Phylliss Quinn