Bank of America sees sustained growth in Philippines

Amid election spending, rate cuts

MANILA, Philippines — Global banking giant Bank of America (BofA) has maintained its strong growth outlook for the Philippines, although slightly below government expectations, on the back of spending boost from election and further monetary policy easing from the central bank.

BofA country head Vincent Valdepeñas said the bank is projecting that gross domestic product (GDP) for the Philippines will settle at six percent for 2024 and 2025.

The six-percent expectation is at the lower end of the government’s target for 2024 but below the 6.5 to 7.5-percent assumption for next year.

“I think it’s already a strong outlook. And we do not see a lot of countries growing this high,” Valdepeñas said.

BofA, one of the world’s largest financial institutions, emphasized that expansion would be driven by both consumer spending and government expenses.

Valdepeñas said GDP growth would get a lift from the upcoming midterm polls in May 2025.

“There will be a lot of spending during this time and that will push the numbers within the range of six percent,” Valdepeñas said.

Apart from election-related spending, GDP growth is also seen benefitting from the continued policy easing of the Bangko Sentral ng Pilipinas (BSP) as inflation pressures dissipate.

On Oct. 16, the BSP brought down its target reverse repurchase rate to six percent from 6.25 percent in its second straight easing after four years.

This is not expected to be the last reduction for the year as BSP Governor Eli Remolona said another one of the same magnitude is likely in December.

For 2025, a 100-basis-point cut is also on the table.

“If they probably cut more, then it could help some percentage boost. I think the government is a bit more dovish. That could also change the projections a bit in terms of where the interest rates are,” Valdepeñas said.

Despite headwinds such as geopolitical risks, the BofA official maintained that there are growth opportunities given consumer spending and a lot of investors going in.

BofA sees strength in the business process outsourcing sector which the government targets to grow further into a nearly $40-billion industry.

The bank likewise projects interest in the semiconductors and electronics space.

“I think given the China Plus One Strategy and the Philippines being one of the countries that has been doing this semiconductors and electronics manufacturing already in the past, we still see a lot of opportunity and a lot of investors growing in this market,” Valdepeñas said.

Further, BofA noted that infrastructure developments and renewable energy plans have great potential as well.

Given the growth opportunities that it is seeing in the Philippines, BofA relaunched its fixed income currencies and commodities (FICC) segment in the Philippines after more than 20 years.

“Given that Bank of America is one of the biggest banks in the world with a global platform, we want to be able to service where our clients are and a lot of them are in the Philippines,” Valdepeñas said.

The FICC business is where all the sales and trading activities of the bank are done. BofA previously had this segment before it was closed in 2000 when BofA and NationsBank Corp. merged, marking the first coast-to-coast merger in the US.

At the time, the strategy was to focus on the integration works in the US, thereby pulling back from a lot of Asian markets, including the Philippines.

Shah Jahan Abu Thahir, BofA head of global markets for Southeast Asia, said now is an interesting opportunity for the bank to complete its offering in Manila after being in the capital for 77 years.

With the FICC, BofA will be tapping three major client segments including multinationals, large local corporations and financial institutions.

“This is going to be a phased approach. We’re starting with foreign exchange then we’re going to start developing the fixed income and all the other products as we continue to invest and the market continues to develop and grow here,” he said.

He noted that forex is a big opportunity for BofA considering that there is about $300 billion in volume of forex conversion or forex hedging in the country.

For example, a big US company has invested in Manila and needs to manage the dollar-peso risk, BofA can come in and do the hedging. The bank can also service those paying wages from the US to the Philippines.

“The FICC business is really to complement our overall business in Manila. Forex is a key critical part of day-to-day activities, from payroll to hedging and all the operational expenses they have to either remit to their headquarters or they have to remit back here to pay their people. So we want to be able to service them,” Abu Thahir said.

“We want to complete the franchise. I think that’s the key component here. And of course it helps that the macro environment is good and given the Philippines’ big history with the US,” he said.