As Non-Bank Financials Hemorrhaged in the 4Q, Borrowing T-Bills Soared to Plug Liquidity Drought!

As Non-Bank Financials Hemorrhaged in the 4Q, Borrowing T-Bills Soared to Plug Liquidity Drought!

It seems that two diametrically opposed realities exist today: dour statistical facts and ebullient media. What’s going on?

The dilemma faced by banks, not a single media and financial soul ever sees them. But these are published on the BSP’s databank.

Now let me add to the quandaries of the domestic financial industry.

In the 4Q, LOSSES of Non-Bank Quasi Bank (NBQB) or Non-Bank Financials swelled by 14.55% from 10.84% in 3Q and 10.99% in 2Q. (figure 1, upper window)

Both sectors, the investments (-55.65%) and financing (-2.67%), bled with losses of the former rocketing.

Figure 1

While net interest income registered positive growth, the rate of growth has been steadily declining (10% in 4Q18, 12.9% in 3Q18 and 24% in 4Q17). (figure 1, lower window)

On the other hand, non-interest income hemorrhaged (-24.4% in 4Q18, -26.5% in 3Q18 and +4.3% in 4Q17)

By the way, BSP’s data of NBQB’s balance sheet and income statement can be found here and here.

Figure 2

Like her banking contemporary, the industry remains starved of liquidity, as revealed by the sustained decline in the rate of change in cash and due banks (-4.14% in 4Q18, +.6% in 3Q18 and +11.5% in 4Q17) [figure 2, upper window-orange line)

Total Asset growth rate also plunged (+8.17% in 4Q18, +9.57% in 3Q18 and +14.25% in 4Q17). [gray line]

Total Loan portfolio growth eased (+15.68% in 4Q18, +15.12% in 3Q18 and +26.14% in 4Q17). [blue line]

Put differently, productivity from the double-digit rate of credit expansion continues to deteriorate.  The sector has now become entirely dependent on leasing income (105% share of operating income). [figure 2, lower window]

While liquidity may be relatively tight, it is still loose compared to the previous years. The question is what happens when tightness of credit spillover to the economy, thereby affecting the sector’s leasing income?

Putting all eggs in one basket? Mounting concentration risks? Signs of macro stability?

Figure 3

Though the sector’s distressed assets improved last 4Q (17.4% in 4Q18, 21.3% in 3Q18 and +17.9% in 4Q17), it remains elevated.

Distressed assets declined in 2015 when the BSP began its QE operations. Now distressed assets are up even as BSP’s QE is at a record!

So how has the Non-Bank Financials survived the profit and liquidity drought, in spite of the emergency measures by the BSP in place (record low interest rate and record QE)?

The answer is, like her banking peers, they have been ramping up short-term borrowings!

The commencement of NBQB’s borrowing binge has been coincidental with the BSP’s lowering of policy rates to 3% in June 2016 under the cover of implementing a corridor system. 

Don’t forget the ugly 4Q performance hasn’t been an anomaly, the NBQB’s decaying balance sheet has been an ongoing trend since 2013.

Will Panglossian talk successfully exorcize a decaying trend of fundamentals?

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