Philippines Macroeconomist/Strategist

Jun Trinidad

Macroeconomics

<ul>
<li>Knee-jerk market reaction to the disclosure last Friday (January 11, 2019) of Hanjin’s (Philippines) severe cash flow constraints including the local banks’ loan exposure, was understandable. However, the banks FCDU (foreign currency deposit unit) loan exposure of US$412mn (roughly Php21bn) to Hanjin was modest relative to the banking system’s FCDU (banks Hanjin loan exposure is about 1.1% of FCDU deposits), outstanding bank loans, capitalization ratios, etc. Officials of the big local banks have assured markets and investors of their financial ability to cover potential Hanjin loan losses. Banks consolidated NPL ratio is in the low, single-digit (1.8% in October 2018) that can easily absorb the FCDU hit.  </li>
</ul>
<ul class="">
<li>Will the employment losses from Hanjin’s local subsidiary located in Subic bay, spawn regional demand-side risk particularly for Central Luzon—a key, emerging commercial/industrial hub in Luzon? Against recent regional GDP estimates (2016-17), we failed to detect any severe employment shock during the height of Hanjin’s job shedding. Down to 3,000 workers (peak of more than 30,000 in 2014-15), we have already been through the worst of the jobless impact of Hanjin’s business collapse. Central Luzon’s regional GDP grew by over 9% in real terms in 2017 and 2016 (vs national GDP growth of 6.9% in 2016 and 6.7% in 2017) despite the likelihood of Hanjin’s job losses. Central Luzon’s manufacturing output still managed to rise by 2-digit rates in 2016-17.On a per capita basis, Central Luzon’s per capita real GDP grew by close to 8% in 2016-17 despite perceived regional job market adjustments. Perhaps the fiscal stimulus programs including more infrastructure projects directed at the Central Luzon provinces allayed the worst of Hanjin’s macro shock.</li>
</ul>
<ul>
<li>I believe the Hanjin event risk represents an opportunity to buy risk assets on any sustained adverse market reaction while safeguarding one’s liquidity position.</li>
</ul>


Knee-jerk market reaction to the disclosure last Friday (January 11, 2019) of Hanjin’s (Philippines) severe cash flow constraints including the local banks’ loan exposure, was understandable. However, the banks FCDU (foreign currency deposit unit) loan exposure of US$412mn (roughly Php21bn) to Hanjin was modest relative to the banking system’s FCDU (banks Hanjin loan exposure is about 1.1% of FCDU deposits), outstanding bank loans, capitalization ratios, etc. Officials of the big local banks have assured markets and investors of their financial ability to cover potential Hanjin loan losses. Banks consolidated NPL ratio is in the low, single-digit (1.8% in October 2018) that can easily absorb the FCDU hit.  


Will the employment losses from Hanjin’s local subsidiary located in Subic bay, spawn regional demand-side risk particularly for Central Luzon—a key, emerging commercial/industrial hub in Luzon? Against recent regional GDP estimates (2016-17), we failed to detect any severe employment shock during the height of Hanjin’s job shedding. Down to 3,000 workers (peak of more than 30,000 in 2014-15), we have already been through the worst of the jobless impact of Hanjin’s business collapse. Central Luzon’s regional GDP grew by over 9% in real terms in 2017 and 2016 (vs national GDP growth of 6.9% in 2016 and 6.7% in 2017) despite the likelihood of Hanjin’s job losses. Central Luzon’s manufacturing output still managed to rise by 2-digit rates in 2016-17.On a per capita basis, Central Luzon’s per capita real GDP grew by close to 8% in 2016-17 despite perceived regional job market adjustments. Perhaps the fiscal stimulus programs including more infrastructure projects directed at the Central Luzon provinces allayed the worst of Hanjin’s macro shock.


I believe the Hanjin event risk represents an opportunity to buy risk assets on any sustained adverse market reaction while safeguarding one’s liquidity position.


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

Philippines: The Hanjin Scare