Philippine money market group says banks cautious of trade risks

President Donald Trump’s ever-changing tariff onslaught is overshadowing the Philippines’ sound economic fundamentals and will likely keep banks selective in deploying funds, according to the head of the group representing fixed-income traders. 

“I haven’t seen this level of uncertainty,” Justin Robert Ladaban, president of the Money Market Association of the Philippines, said in an interview late Monday.

“Unlike in the pandemic where responses were pretty much similar across jurisdictions, it’s not the case now.”

Investors on edge

Global markets saw intense volatility last week, with multiple markets posting record losses and gains as the Trump administration rolled out tariffs, pared them back for most countries and ended up hiking them dramatically for China.

The flip-flops have been keeping investors on edge as they seek assets that can hold out against the unprecedented shocks to global trade.

Still, for the Philippines, the 17% threatened tariff on its exports to the US was lower than for Southeast Asian neighbors like Vietnam, Thailand and Indonesia. 

During the Covid-19 pandemic, it made more sense for banks to buy bonds than to lend to consumers, said Ladaban, who’s also the head of trading at Philippine Bank of Communications.

“Now the play is really for the spreads rather than the trading gains,” he said.

“That’s also why we’ve seen some bias towards lending,” he said, noting the preference to put funds into activities that will generate less volatile income.

Growth in personal incomes can help fuel demand for consumer loans, Ladaban said, noting that the country’s “relatively subdued inflation” makes consumer lending attractive “given the spreads that we see.”

BSP resumes rate easing

The Bangko Sentral ng Pilipinas last week resumed easing, cutting its key interest rate by 25 basis points to 5.5% and signaling more to come, thanks to restrained price pressures. 

“Like the rest of the world, we’re looking at slower growth, but unlike the rest of the world, we’re looking at lower inflation,” Governor Eli Remolona said at an April 10 briefing in Manila.

Ladaban expects the central bank to continue easing. 

“We’ve been seeing a relatively weak dollar these last couple of weeks,” he said. The peso has gained roughly 1.6% against the dollar this year. “If that persists and inflation remains under control, I don’t see why the BSP would consider a halt in cutting its key rates.”

Citing the prospect of trade wars, Governor Remolona last month said uncertainty indexes are close to their levels at the start of the Covid-19 pandemic and exceed those during the global financial crisis. 

In its financial stability report, the BSP said high household borrowing, including unsecured consumer loans, raises concerns over bad debts and liquidity stress.

As matters stand, banks have high capital buffers and ample liquidity, which would allow the financial system to absorb potential losses and support economic activity, it said.

Meanwhile, the money market group head said the nation’s capital market is bound to further develop as the economy grows.

Among the initiatives pushed by the group and other industry associations, is the inclusion of non-bank financial institutions in the market for bond repurchase agreements.

It’s also pushing for the group’s status as a self-regulatory organisation for the Philippine repo market and for the extension of repos’ maximum tenor from the current 90 days, Ladaban said.