Powering the capital markets for inclusive growth
Published in Business Mirror last September 21, 2017
A lot has been accomplished in reforming the Philippines’ capital markets over the past decade, from the diversification of financial institutions’ offerings, to the introduction of more corporate debt securities to investors. Yet there remain a lot of opportunities to further develop the markets for a more liquid, more sound, and more resilient economy. According to Bank of the Philippine Islands (BPI), growing and strengthening the local investor base is vital to developing the capital market as an engine of inclusive economic growth in the Philippines.
“Philippine capital markets are growing and evolving, but there are still many opportunities in both the equity and debt spaces that we should consider, to further grow the sector,” says Reginaldo Cariaso, BPI Capital Corporation’s Senior Managing Director and Co-Head. “As the country’s bank with the longest heritage, we have been giving expert advice, and helping continue the reform of the capital markets by encouraging the participation of more local investors, providing alternative sources of funds to growing companies, and promoting financial inclusion.”
Deepening the capital market
Cariaso notes that the capital market underrepresents the overall Philippine economy, with only about 300 companies listed on the Philippine stock exchange, and over 80% of the total volume in the Philippine Deals & Exchange Corporation (PDEx) issued by the top 20 corporations. This, he points out, only underscores the need to deepen the equity and bond markets.
“We need more participants in the markets. Foreign institutions still dominate trading in the equity markets, so the market tends to dry up when foreign funds leave the Philippines,” he adds. “We need to strive for a market where retail investments are strong and there is increased domestic trading that can support liquidity even when markets are down.” I am confident we will eventually get there and hopefully sooner than later.
While more foreign investment is good for the Philippines, capital markets should be driven more by the domestic market. “Becoming less dependent on foreign fund flows will benefit the country two-fold: we can continue to execute domestic deals even when global markets are volatile, and with strong domestic liquidity, the market would be more conducive to foreign investments. Healthy liquid domestic markets will lead to stability, which will, in turn, attract more committed investors who make a market deep,” he emphasizes.
Providing funding to growth drivers
In the last two years, BPI supported and completed the equity debuts of Century Pacific Food, SSI Group, IMI, Max’s Group, Metro Retail Stores Group, Pilipinas Shell, and most recently Cebu Landmasters.
Approximately 95% of small and medium enterprises (SMEs) in the country are owned by families, and many of them are looking to compete in the Philippines and in ASEAN.
“Unlike traditionally structured corporations, the situation is different for family-run businesses. We have spoken with our clients and they get emotional when it’s about how to carry on their legacy and keep their company relevant in the market. This is where our expertise comes in, and we are honored that our clients trust us with their most important financial transactions,” Cariaso explains.
He adds that banks should also support the growth of asset-light projects such as SMEs, which are one of the major sectors fueling the economy. “Banks’ traditional lending practices make it difficult for these companies to get credit because they don’t have as many assets for collateral. If we are moving into newer economies, we need to help these companies find access to longer-term capital without them having to provide significant collateral,” he says.
Promoting financial inclusion
A fundamental way to increase local participation in the capital markets is by promoting financial inclusion. “Filipinos need to feel that they are participants in the growth of the Philippines, and we need to have strong, robust domestic institutions that will provide easier access, trusted advice and customized services to more Filipinos,” Cariaso says.
“BPI has been working to cater to the unbanked and underbanked Filipinos by boosting their access to finance and providing microfinance and SME credit,” he shares. “With increased access to bank’s services, more Filipinos can participate in driving the markets and be more active participants in the Philippines’ growth story.”
BPI also aims to better equip the local investor base with the right knowledge and tools to know the different types of opportunities available to them in the market. “We have a lot of talent and we should nurture them by opening them up to funding through risk capital. Investors, on the other hand, need to be able to differentiate the risk-adjusted returns of different companies and business models, which could bring more entrepreneurship and innovation in the Philippines,” he shares.
“With a wider and stronger local investor base, the Philippines’ capital markets can be developed into a more sustainable one amidst global economic volatility and shocks. Moreover, a sustainable capital market will drive entrepreneurship and allow companies to have a more level playing field at achieving growth. BPI is at the forefront of empowering more Filipinos, both in retail and institutional, to play a bigger, more active role in the capital markets to drive the country’s economic development,” Cariaso says.