Foreign, local banks bat for Philippine capital market development, fixed income exchange

Foreign financial institution Deustche Bank and the Chamber of Thrift Banks (CTB) has openly thrown their support to the launching of the country’s first ever fixed income exchange (FIE).

Both entities explained that the FIE will allow the Philippines to generate funds for national development locally, thus freeing itself from high costs of paying for foreign currency-based borrowings.

Deutsche Bank head of Asian Fixed Income and Credit Research Martin Hohensee said the development of a strong peso-denominated debt capital market would help to mitigate currency risk and should also reduce financing costs over the medium term, both for the national economy as well as the local and multinational companies.

Martin Hohensee, Head of Asian Fixed Income and Credit Research at Deutsche Bank, said the development of a strong peso-denominated debt capital market would help to mitigate currency risk and should also reduce financing costs over the medium term, both for the Republic and local and multinational companies.

"The development of a fixed income exchange, and more significantly, a bond switch auction program – designed to replace small illiquid issues with larger liquid ones – could have a substantial positive impact on debt dynamics and offshore credit spreads," Hohensee noted. He added: "A deep and liquid domestic bond market is critical to a healthy financial system as it reduces the associated currency risk of offshore issues, develops a platform for risk management and interest rate hedging, and helps to allocate resources efficiently among the government, corporates and financial institutions."

According to the Asian Development Bank (ADB), Asian local currency bond markets doubled in size between 1997 to 2002, and the total outstanding amounts are now valued at 50 percent of the region’s gross domestic product (GDP).

Deutsche Bank, one of six financial institutions accredited to act as third-party custodians, believes development of the onshore bond market is a natural step forward from the active offshore sovereign market which attracted over $3.5 billion in the eight international bond transactions of the Republic of the Philippines (ROP) in 2004. This interest continued in 2005, with the January $1.5 billion 25-year ROP sovereign being met with strong investor interest.

The foreign bank said that the recent huge offshore flows we are seeing from US, London and Asia into the ROP bond market was unparalleled. "The latest Republic of Philippines bond was very well received – it was the longest-dated and largest Philippines sovereign ever issued," Mark Leahy, Deutsche Bank head of Debt Syndicate, said.

Deutsche Bank is the top ranked G3-issuer in the Philippines, and a major player in developing the local bond markets.

Meanwhile, CTB president Benjamin J. Yambao said that development of the capital markets particularly the FIE will boost the local financial markets and domestic economies. Thrift and development banks can become channels for small and medium enterprises (SMEs) and other businesses located outside Metro Manila seeking financing through bond or debt and commercial paper issues. Yambao said that that would improve the local economies resulting in a more robust national economy. – TPT