Wick Veloso, HSBC's CEO for the Philippines, talks to FinanceAsia about the country's latest capital market trends and how Asean integration is set affect the local banking industry.
What will drive capital markets activity in the Philippines in the next six months?
The government recently unveiled public private partnership plans for various infrastructure projects in the Philippines. President Benigno Aquino III plans to establish around 80 public-private partnerships by 2016, with total investment capital of about $17.9 billion. This is aligned with the president’s campaign for long-term, inclusive growth. If you put together all the infrastructure projects to be awarded soon, we are confident this will drive a lot capital market activity. The Philippines has seen a 7% GDP growth [rate] fuelled by consumer demand and there are 95 million Filipinos with a 2% population growth rate. There is a need for power and water and the government has identified infrastructure as an area that is lacking. It has already started building public schools and refurbishing hospitals. We expect most companies will tap the market through long-term syndicated loans but there could also be project finance loans and bonds. Due to growing consumption, we also expect a lot of financing activity among food and beverage companies.
The public private partnership projects have been slow to be awarded in the past. Has anything changed?
That was probably a valid comment six months ago or even three months ago. But we have spoken to the director of public private partnerships and she said these are going to be resolved soon. The mandate of the president is to proceed. We are optimistic that projects will be awarded soon.
Which projects are first off the block?
There are a lot of projects but I am not sure if they have been officially released. But some of the projects the government has been sounding the market on include a possible underground transportation system that will link the old district and the new district of Manila. This could be the first subway to be constructed in the Philippines and connect the Makati Central business district to Bonifacio Global City.
What is HSBC’s strategy in the Philippines?
The strategy is simple: to provide tailor-fit financing to partners in the business that we have targeted. We want to provide coverage not only in the debt capital markets but also want to develop the bank’s equity capital market capabilities in the Philippines.
HSBC sold its retail bank in Thailand a couple of years ago. Are there any plans to do the same in the Philippines?
Definitely not. We remain committed to the Philippine market. Nonetheless, we are targeting a more premium customer base and there is a higher minimum entry for our bank compared to other Filipino banks. We have 95 million Filipinos and 65% of the population is bankable. But we can’t service all these customers. We are very focused on the higher-income market segment, on credit cards and on wealth management.
How will the upcoming Asean financial integration impact Philippine banks?
For Philippine banks, it means greater competition. However, banks that plan to enter the Philippines also face challenges. They will be competing with about 30 commercial banks and 300 thrift and rural banks that already exist. They need to be able to differentiate themselves. Clearly, though, it is an opportunity for Asean banks as they will be able to open up branches in the Philippines as long as they set up local subsidiaries.
Is the Philippines attracting more interest due to its investment-grade status?
A lot of investors can only invest in investment-grade paper and with Philippines entering the investment-grade space, it has seen renewed interest from investors during its last non-deal road show. Many of these investors participated aggressively in its latest bond issue.