Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap

But the boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances—Ludwig von Mises 

In this issue

Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap

I. Introduction: The Banking System’s Wile E. Coyote Moment

II. NPL Benchmarks Unveil Minskyan Fragility and the Wile E. Coyote Moment

III. Diminishing Returns: Policy Stimulus-Backstop Backlash

IV. Banks’ Drift Toward Consumers: Credit Cards and Salary Loans Power NPLs Higher

V. Stagflation Signals and the Death Knell of Benchmark-ism: Labor Frailty Meets Inflation’s Third Leg

VI. The Wile E. Coyote Dynamic in Bank Investments via Available For Sale (AFS) Assets

VII. AFS Surge and Recession-Grade Financial Losses

VIII. Benchmark-ism and the Illusion of Confidence

IX. Velocity or Collapse: The Wile E. Coyote Reckoning

X. BSP’s Tacit Pivot: From Sovereign Risk to Banking Backstop

XI. Conclusion: The Velocity Charade Meets Its Limits 

Minsky's Fragility Cycle Meets Wile E. Coyote: The Philippine Banking System’s Velocity Trap

The Wile E Coyote velocity game—credit expansion, AFS bets, and central bank lifelines—keeps Philippine banks afloat, but the stability it projects is an illusion

I. Introduction: The Banking System’s Wile E. Coyote Moment 

Inquirer.net, September 06, 2025: Bad debts held by the Philippine banking system rose to their highest level in eight months in July, as lenders—facing slimmer margins from declining interest rates—may have leaned more on riskier retail borrowers in search of yield. Latest data from the Bangko Sentral ng Pilipinas showed that nonperforming loans (NPL), or debts overdue by at least 90 days and at risk of default, accounted for 3.40 percent of the industry’s total loan portfolio. That marked the highest share since November 2024, when the NPL ratio stood at 3.54 percent. 

Time and again, we’ve detailed the escalating challenges facing the Philippine banking system—chief among them, its role in financing the government deficit amid elevated rates. 

This has led to record levels of held-to-maturity (HTM) securities, mounting investment losses from mark-to-market exposures, and potentially unpublished credit delinquencies buried in loan accounts. 

Together, these forces have contributed to the system’s entropic liquidity conditions: a slow, grinding erosion of institutional health masked by policy choreography. 

But recent developments take the proverbial cake. While NPLs remain elevated, their apparent ‘containment’ has served as public reassurance—an illusion of stability. 

Beneath that veneer, banks have shifted into a "velocity game" to preserve KPI optics: record-high credit expansion running in tandem with record-high NPLs. 

This statistical kabuki masks growing stress but sets the system on a path to its own Wile E. Coyote moment. 

While this sustains confidence in the short term, the moment loan growth slows, the cliff edge becomes visible—and the entire charade unravels. 

II. NPL Benchmarks Unveil Minskyan Fragility and the Wile E. Coyote Moment

Figure 1

Since the second half of 2022, Philippine banks have seen a structural uptrend in gross nonperforming loans (NPLs), with nominal levels breaching all-time highs by April 2024 and reaching a record Php 535 billion in July 2025. (Figure 1, topmost chart) 

Though the industry’s NPL ratio remains at a deceptively flat at 3.4 percent, this apparent stability is largely the effect of the ‘denominator illusion’: total loan growth (+11 percent) has been fast enough to offset the rise in bad loans.  (Figure 1, middle window) 

This accelerates procyclical risk-taking—banks extend more credit, often to riskier retail borrowers, to maintain headline ratios. 

Neo-Keynesian economist Hyman Minsky famously proposed that financial instability evolves in stages—from hedge finance to speculative finance, and finally to Ponzi finance—where borrowers can no longer generate sufficient cash flows to service debt and must rely on refinancing, rollovers, or asset sales to stay afloat (see references) 

But Minsky’s framework has a counterparty: the lender. 

In the Philippine case, banks have become enablers of this drift. To keep overleveraged firms and households solvent, they must sustain ever-faster credit expansion—rolling over weak loans, extending new ones, and deferring recognition of losses. 

This is the Minskyan drift on the supply side: not just borrower pathology, but lender complicity. 

A banking system whose apparent stability depends on pyramiding credit to increasingly marginal borrowers, refinancing delinquent accounts, and chasing yield into riskier consumer segments—exacerbating the very fragility it was meant to manage. 

The result is a velocity-dependent equilibrium—one that demands constant motion to avoid collapse. 

When the sprint falters or bad debts surge, the NPL ratio will spike—mechanically, inevitably—unveiling the proverbial skeletons long buried beneath the benchmark gloss. 

The system confronts its Wile E. Coyote moment: suspended mid-air, legs still spinning, gravity imminent. Once credit growth slows, the ground disappears—and the fragility long masked by velocity is fully revealed. 

III. Diminishing Returns: Policy Stimulus-Backstop Backlash 

This Minskyan drift is unfolding despite a full-spectrum easing cycle from the Bangko Sentral ng Pilipinas: reserve requirement cuts, interest rate reductions, the USDPHP softpeg regime, doubled deposit insurance, and lingering regulatory relief. 

Layered atop record fiscal stimulus, these measures were designed to cushion the system—but they now reveal diminishing returns. 

The irony is sharp: instead of stabilizing credit dynamics, these policies have parlayed into rising risks—encouraging yield-chasing behavior and masking stress through refinancing. 

And to maintain the illusion of stability, authorities have upped the ante on benchmark-ism—using statistical bellwethers to project ‘resilience’ while embellishing markets to fit the narrative. 

As nominal NPLs climb and consumer credit deepens, the central bank faces an unenviable dilemma: tighten policy and risk triggering defaults, or deploy unprecedented, pandemic-style liquidity injections to preserve appearances even as the system runs out of runway. At the same time, banks themselves may be compelled to conserve liquidity and pull back on credit expansion, exposing the system’s velocity game for what it is. 

Needless to say, whether in response to BSP policy or escalating balance sheet stress, banks may begin pulling back on credit—unveiling the Wile E. Coyote moment, where velocity stalls and gravity takes hold. 

IV. Banks’ Drift Toward Consumers: Credit Cards and Salary Loans Power NPLs Higher 

This fragility is no longer confined to institutional (supply side) exposures—it’s now bleeding into the household sector. 

The banking system’s transformational pivot toward consumer credit—particularly credit card loans—has deepened latent risks, building a larger stock of eventual loan portfolio losses. 

While aggregate nominal consumer loans (including real estate) hit a record high in Q2 2025, non-performing loans also sprinted higher from their December 2022 bottom. Gross consumer NPLs now sit just 4.7% below their Q2 2021 peak. (Figure 1, lowest graph) 

Though recent increases have been broad-based, the lag in consumer credit delinquencies reflects delayed stress transmission—especially in motor vehicle and real estate segments.

Figure 2

Crucially, the share of consumer loans to banks’ total loan portfolio (net of interbank) reached an all-time high of 22.34% in Q2 2025. Year-on-year growth in consumer NPLs has accelerated from single digits in 2024 to double digits in the last two quarters. (Figure 2 topmost pane)  

As noted earlier, surging NPLs have accompanied blistering growth in credit card loans—both hitting record highs in Q2. (Figure 2, middle image) 

But it’s not just credit cards: salary loan NPLs also spiked to a record, juxtaposed against all-time high disbursements. (Figure 2, lowest graph)

Figure 3

Strikingly, even as bank lending hits new highs, consumer real estate NPLs have climbed over the past two quarters. This uptick comes despite previously stable delinquency rates—a counterintuitive anomaly given the record and near-record vacancy levels observed in Q1 and Q2 2025, potentially a product of sustained refinancing. (Figure 3, topmost diagram)  

These pressures are permeating into the demand side of the economy—further evidence of a consumer squeezed by inflation, debt, and the slow erosion of repayment capacity. 

Taken together, weak household balance sheets, rising camouflaged NPLs, and a slowing economy raise systemic risks that extend well beyond macro fundamentals—threatening institutional health and reaching deep into the financial sector’s core, even as headline growth continues to mask the underlying fragility. 

V. Stagflation Signals and the Death Knell of Benchmark-ism: Labor Frailty Meets Inflation’s Third Leg 

Credit risk pressures should intensify with the July labor market data, which unexpectedly exposes the labor market’s underlying frailty. 

The unemployment rate (5.33%) and unemployed population (2.59 million) surged to pandemic-era highs (August 2022: 5.3%, 2.681 million), while the labor participation rate fell to 60.7%—slightly above July 2023’s 60.1%. (Figure 3 middle and lowest images) 

Stunningly, despite a 1.51% YoY increase in population, the non-labor force swelled to 31.45 million, the highest level since at least 2021. 

Combined, the unemployed and non-labor force accounted for a staggering 42.5% of the 15-and-above population in July 2025—a July 2023 high. 

Ironically, authorities amusingly blamed the weather. 

For banks, a looming storm is brewing: fragile household balance sheets, concealed loan delinquencies, and a deteriorating labor market set the stage for increased NPL formation in Q3 2025, with potentially systemic consequences

Figure 4

There’s more. 

Authorities also reported that despite rice price controls and the 20-peso rollout, headline CPI jumped to 1.5% in August—exposing the likely anomalous 0.9% dip in July. More concerning is the CORE CPI breakout, rising from 2.3% to 2.7%, the highest since December 2024. (Figure 4, topmost visual) 

Historically, a negative spread—where CORE CPI exceeds headline—has signaled cyclical bottoms for headline inflation. 

History rhymes. Peak CPI in October 2018 marked the launchpad for the record run in gross NPLs, which climaxed in October 2021 before slowing. (Figure 4, second to the highest image) 

Likewise, February 2023’s peak CPI became the springboard for the recent all-time highs in gross NPLs—records now eclipsed or obscured by the Wile E. Coyote velocity game. 

The pattern is clear: Each cycle shows how households use credit to bridge spending power losses during inflation surges, only to leave borrowers delinquent in its wake. 

The fatal cocktail of surging unemployment and a potential third leg of the inflation cycle—stagflation—could be the coup de grâce for NPL benchmark-ism. The illusion of resilience may not survive the next impact. 

VI. The Wile E. Coyote Dynamic in Bank Investments via Available For Sale (AFS) Assets 

There’s another aspect we’ve barely touched—yet it has become a critical factor in the banking system’s health challenges, now showing symptoms of the Wile E. Coyote dynamic: investment assets. 

First, the distribution of bank assets reveals a transformational shift—from safeguarding liquidity to an entrenched addiction to leverage. This seismic rebalancing is evident in the rising share of investments and, more recently, the rebound in loan activity, both at the expense of cash reserves. (Figure 4, second to the lowest graph) 

Since the BSP’s historic rescue during the pandemic recession, the cash share of bank assets has plunged to an all-time low of 6.93% as of July 2025. 

Second, as we’ve repeatedly noted, the pandemic-level fiscal deficit has driven the banking system’s net claim on central government (NCoCG) to a record Php 5.547 trillion (up 7.12% last July). This is mirrored in Held-to-Maturity (HTM) assets, which rose 2.15% to a record Php 4.1 trillion. Today’s deficit is not just a macro concern—it’s manifesting as a liquidity squeeze across the banking system. And that’s before accounting for the adverse effects of crowding out. (Figure 4 lowest graph) 

Third, the very investments that carried the banking system through the pandemic—buoyed by the historic BSP cash injections—have now become a source of friction. 

The need for sustained liquidity from the BSP to keep asset prices afloat has morphed into a Trojan Horse for inflation and a fuel source for increasingly speculative risk-taking engagements. 

To stave off asset deflation, the BSP must inject liquidity—primarily via bank credit expansion—yet this comes at the cost of spiking inflation risk.

Figure 5

This dynamic is most evident in Available-for-Sale (AFS) assets, which now constitute 41% of gross financial assets, fast catching up to HTMs at 52%. (Figure 5, topmost window) 

VII. AFS Surge and Recession-Grade Financial Losses 

The record build-up of AFS assets has heightened exposure to mark-to-market shocks, transmitting valuation swings directly into capital accounts and investor sentiment. 

The impact is already visible: In Q2, Philippine banks suffered an income contraction of (-) 1.96%, driven largely by a surge in losses on financial assets totaling Php 43.782 billion—the largest since December 2020, at the height of the pandemic recession. Let it be clear, these are recession-grade losses. (Figure 5, middle chart) 

With fixed income rates falling and bond prices rallying, the source of these losses becomes clear by elimination: deteriorating equity positions and bad debt. This is reinforced by the all-time high in banks’ allowance for credit losses (ACL)—a supposed buffer against rising delinquencies that signals institutional awareness of latent stress. (Figure 5, lowest diagram) 

Yet, like NPLs, these record ACLs are statistically suppressed by spitfire loan growth.

VIII. Benchmark-ism and the Illusion of Confidence

Figure 6

Nonetheless, this structural shift helps explain the growing correlation between AFS trends and the PSE Financial Index. (Figure 6, topmost window) 

In this light, banks—alongside Other Financial Corporations (OFCs)—may well represent a Philippine version of the stock market “National Team”: pursuing benchmark-ism or, perhaps, reticently tasked with pumping member-bank share prices within the Financial Index to choreograph market confidence. 

Patterns of coordinated price actions—post-lunch ‘afternoon delight’ rallies and pre-closing pumps—can often be traced back to these actors. 

Whether by design or silent coordination, the optics are unmistakable. 

IX. Velocity or Collapse: The Wile E. Coyote Reckoning 

The implication is stark: even as banks expanded their AFS portfolios —ostensibly for liquidity and yield, they deepened their exposure to volatility and credit deterioration. 

Equity-linked losses began bleeding into financial statements, and provisioning behavior revealed a system bracing for impact. 

The liquidity strain was hiding in plain sight—concealed by statistical optics and benchmark histrionics.

Compounding this is the shadow of large corporate exposures—most notably San Miguel Corporation, whose Q2 profits were largely driven by asset transfers, shielding its Minskyan Ponzi-finance model of fragility 

For instance, if banks hold AFS equity stakes or debt instruments linked to SMC, any deterioration in valuation or repayment capacity would surface as mark-to-market losses or provisioning spikes. 

Alas, like Wile E. Coyote, banks now require another velocity game—pumping financial assets higher to sustain investment optics. 

Without it, they risk compounding their liquidity dilemma into a full-blown solvency issue.

X. BSP’s Tacit Pivot: From Sovereign Risk to Banking Backstop 

The drain in the banking system’s cash reserves appears to be accelerating. 

Following June’s 11.35% jump (+Php 224.78 billion), July posted a 12.8% contraction (–Php 281.87 billion), fully offsetting gains of June, and partly last May (+Php 66.11 billion). Nonetheless, cash and due from banks at Php 1.923 trillion fell to its lowest level since at least 2014. 

And July’s slump signifies a continuum of long-term trend. However, from the slomo erosion, the depletion appears to be intensifying. 

So, despite interim growth bounce of deposits and financial assets, net (excluding equities), the cash-due banks to deposit and liquid-assets-to-deposit ratios resume their respective waterfalls.  In July, cash to deposit ratio slipped to all-time lows, while liquid assets-to-deposit fell to pre-pandemic March 2020 lows! (Figure 6, middle chart) 

Ironically, July’s massive cash drain coincided with the implementation of CMEPA. 

Importantly, banks drew a massive Php 189 billion from the central bank’s coffers as shown by the BSP’s claims on other depository corporations (ODC). (Figure 6, lowest diagram) 

This wasn’t a routine liquidity operation—it was a balance sheet pivot, redirecting support away from direct government exposure and toward the banking sector itself. The implication is clear: the system is leaning harder on central bank liquidity to offset deepening reserve depletion.

Figure 7

By shrinking its net claims on the central government (NCoCG) while expanding its claims on ODCs, the central bank has effectively told the Treasury to park its funds at BSP, while opening its own balance sheet wider to banks. This reduces BSP’s exposure to sovereign credit, but leaves banks more dependent on central bank lifelines to cover liquidity shortfalls. (Figure 7, topmost visual)  

In practice, this means banks are now forced into a double bind. On one hand, they must absorb more government securities and expand credit to keep up the optics of balance-sheet strength. 

On the other, they rely more heavily on BSP’s injections to plug holes in cash reserves. This rebalancing masks systemic strain—liquidity looks managed on paper, but the underlying dependence on continuous velocity (credit growth, AFS positioning, and central bank drawdowns) signals fragility. 

Far more crucial, what emerges is a structural shift: the BSP’s balance sheet is less about backstopping fiscal deficits and more about propping up the banking system. Yet this is not a permanent fix—if banks stumble in their velocity game or government borrowing intensifies, the pressure could quickly return in the form of crowding-out, valuation losses, and even solvency fears. In short, the pivot may buy time, but it also deepens the Wile E. Coyote dilemma: run faster, or fall.

With the BSP pivoting towards a backstop, bank borrowing growth decelerated to 8.9% YoY or fell by 14% MoM in July to Php Php 1.58 trillion—about 17% down from the record Php 1.907 trillion last March 2025. (Figure 7, middle image) 

This deceleration underscores the limits of the velocity game: even with central bank support, banks are struggling to sustain credit expansion without exposing themselves to deeper asset and funding risks. 

XI. Conclusion: The Velocity Charade Meets Its Limits 

The deepening Wile E. Coyote dynamic—where velocity props up optics of loans and investments—is unsustainable. (Figure 7, lowest cartoon) 

Surging NPLs and rising latent loan losses belie the façade of credit expansion. 

Accelerated exposure to AFS assets injects mark-to-market volatility, while HTMs tie banks to the unsparing race of public debt. 

There is no free lunch. Policy-induced fragility is no longer theoretical—it is compounding and irreducible to benchmark-ism or statistical optics. 

The illusion of managed liquidity is cracking. Each policy lifeline buys time—but only deepens the fall if velocity fails. 

Yet banks and the political economy have locked themselves in a fatal trap:

• Deposit rebuilding is punished by state policy,
• Recapitalization is constrained by fiscal exhaustion,
• Capital markets are dominated by overleveraged elites,
•  Hedge finance is crowded out by Ponzi rollovers,
• Tax and savings reform is politically dead under “free lunch” populism 

In short: a trap within an inescapable trap. 

___

References: 

Hyman P. Minsky, The Financial Instability Hypothesis, The Jerome Levy Economics Institute of Bard College, May 1992 

Prudent Investor Newsletter Substack Archives: 

-Goldilocks Meets the Three Bad Bears: BSP’s Sixth Rate Cut and the Late-Cycle Reckoning August 31, 2025 (substack) 

-Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility August 7, 2025 (substack) 

-Liquidity Under Pressure: Philippine Banks Struggle in Q1 2025 Amid a Looming Fiscal Storm May 18, 2025 (substack) 

-BSP’s Fourth Rate Cut: Who Benefits, and at What Cost? April 13, 2025 (substack) 

CMEPA 

The CMEPA Delusion: How Fallacious Arguments Conceal the Risk of Systemic Blowback July 27, 2025 (substack)

The Seen, the Unseen, and the Taxed: CMEPA as Financial Repression by Design July 20,2025 (substack) 

  

Goldilocks Meets the Three Bad Bears: BSP’s Sixth Rate Cut and the Late-Cycle Reckoning

 

Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence—especially in cases in which large short-term debts need to be rolled over continuously—is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!, confidence collapses, lenders disappear, and a crisis hits—Carmen Reinhart and Kenneth Rogoff 

In this Issue 

Goldilocks Meets the Three Bad Bears: BSP’s Sixth Rate Cut and the Late-Cycle Reckoning

I. The BSP’s Sixth Cut and the Goldilocks-Sweet Spot Illusion

II. Data-Driven or Dogma-Driven? The Myth of Low-Rate Growth

III. The Pandemic Rescue Template Returns, The MSME Credit Gap

IV. Fintech’s Limits, Financial Concentration: Banking Cartel by Design

V. Treasury Market Plumbing: Who Really Benefits?

VI. Crowding Out: Corporate Issuers in Retreat

VII. The Free Lunch Illusion: Debt and Servicing Costs

VIII. Banks as the Heart of the Economy: Palpitations in the Plumbing

IX. Q2 2025 Bank Profit Plummets on Credit Loss Provisions

X. Conclusion: Goldilocks Faces the Three Bad Bears 

Goldilocks Meets the Three Bad Bears: BSP’s Sixth Rate Cut and the Late-Cycle Reckoning 

The Bangko Sentral ng Pilipinas’ latest rate cut is a "Goldilocks" illusion masking a late-cycle reckoning driven by crowding out, surging leverage, and mounting stress in the financial system 

I. The BSP’s Sixth Cut and the Goldilocks-Sweet Spot Illusion 

Reinforcing its "easing cycle," the Bangko Sentral ng Pilipinas (BSP) cut policy rates last week—the sixth reduction since August 2024. Officials claimed they had reached a “sweet spot” or “Goldilocks level”—a rate neither inflationary nor restrictive to growth, as the Inquirer reported. 

We’ve used “sweet spot” before, but not as a compliment. In our framing, it signals ultra-loose monetary policy—part of a broader “Marcos-nomics stimulus” package that fuses fiscal, monetary, and FX regimes into a GDP-boosting mirage. A rescue narrative sold as reform. 

II. Data-Driven or Dogma-Driven? The Myth of Low-Rate Growth 

The idea that “low rates equal growth” has calcified into public gospel. 

But if that logic holds, why stop at 5%? Why not abolish interest rates altogether—and for good measure, tax 100% of interest income? By that theory, we’d borrow and spend our way to economic utopia. In short: Such (reductio ad absurdum) logic reduces policy to absurdity: prohibit savings, unleash debt, and expect utopia.

Figure 1

The BSP insists its decisions are data-driven. But have they been? Since the 1998 Asian Crisis, rate cuts have been the default posture. 

And since the 2007–2009 Global Financial Crisis, each successive cut has coincided with slowing headline GDP—through the pandemic recession and beyond. The decline was marginal at first, barely noticed. But post-pandemic, the illusion cracked. (Figure 1 upper pane)

A historic rescue package—Php2.3 trillion in injections, rate cuts, RRR reductions, a USD-PHP soft peg, and sweeping relief measures—combined with unprecedented deficit spending, triggered a temporary growth spike. This extraordinary intervention, combined with global reopening, briefly masked structural weaknesses. 

But since 2021, GDP has resumed its downward drift, with the deceleration becoming conspicuous through Q2 2025. Inflation forced the BSP to hike rates, only to restart its easing cycle in 2024. 

So where is the evidence that low rates boost the economy?

III. The Pandemic Rescue Template Returns, The MSME Credit Gap 

Today’s “sweet spot” eerily mirrors the pandemic-era rescue template—minus the direct injections and relief measures. For now. 

Meanwhile, over half the population still self-identifies as borderline or poor (self-rated poverty surveys—SWS and OCTA). 

GDP, as a measure, fails to capture this disconnect—possibly built on flawed inputs, questionable categorization and assumptions, as well as politically convenient calculations. 

Meanwhile, the BSP’s easy money regime and regulatory bias have allowed banks to monopolize the financial system, now accounting for 83% of total financial assets as of Q2 2025. (Figure 1, lower graph) 

Yet MSMEs—the backbone of employment at 67% (as of 2023, DTI)—remain sidelined. 

Ironically, Republic Act No. 9501 mandates banks to lend 10% of their portfolio to MSMEs (8% to micro and small, 2% to medium enterprises).

Figure 2

But compliance has collapsed—from 8.5% in 2010 to just 4.63% in Q1 2025. (Figure 2, topmost image) 

Banks, unable to price risk appropriately, prefer paying penalties over lending to the sector. The result: the credit boom inflating GDP primarily benefits 0.37% of firms—the large enterprises that employ only a third of workers. 

While RA 9501 mandates banks to allocate 10% of their loan portfolio to MSMEs, BSP regulations restrict risk-based pricing—directly through caps on consumer and financing loans (BSP Circular 1133) and indirectly in MSME lending through microfinance rules (Circulars 272, 364, 409, and related issuances).   

Again, unable to fully price in higher default risks, banks often find it cheaper to pay penalties than to comply. 

IV. Fintech’s Limits, Financial Concentration: Banking Cartel by Design 

At the same time, banks are aggressively expanding into consumer credit, while the unbanked majority continues to rely on the informal sector at usurious or punitive rates. 

Fintech e-wallets have gained traction, but they remain mostly transactional platforms. Banks, by contrast, are custodial institutions. Even if convergence is inevitable, bridging the informal credit gap will remain elusive unless rates reflect real distribution and collection risks.

This convergence may democratize leverage—but banks still dominate credit usage, reinforcing a top-heavy system. 

Deepening concentration, paired with price restrictions, resembles a cartel. A BSP-led cartel. 

And the first beneficiaries of this low-rate regime? Large enterprises and monied consumers. 

V. Treasury Market Plumbing: Who Really Benefits? 

And like any cartel, it relies not only on market power but also on control of the pipes—the very plumbing of the financial system, now evident in the Treasury market 

The Bangko Sentral ng Pilipinas has dressed up its latest rate cut as part of a “Goldilocks easing cycle,” but the bond market tells a different story.

Even before the policy shift, the Philippine BVAL Treasury yield curve had been flattening month after month, with long rates falling faster than the front end.  (Figure 2, middle and lower charts) 

That is not a picture of renewed growth but of markets bracing for a slowdown and disinflation. 

The rate cut simply ratified what the curve had preemptively declared: that the economy was softening, and liquidity needed to be recalibrated.

Figure 3

From the Treasury market’s perspective, the real beneficiaries weren’t households or corporates—they were institutional actors navigating a crowded, distorted market. 

Trading volumes at the Philippine Treasury market raced to all-time highs in August, just before and during the cut! (Figure 3, topmost diagram) 

This wasn’t retail exuberance—it was plumbing. 

BSP’s direct and indirect liquidity injections, coupled with foreign inflows chasing carry (data from ADB Online) amid global easing and macro hedges created a bid-heavy environment. The rate cut amplified this dynamic, lubricating government borrowing while sidelining private credit. (Figure 3, middle visual) 

VI. Crowding Out: Corporate Issuers in Retreat 

Meanwhile, the collateral damage is clear: corporate bond issuance has been trending downward, regardless of interest rate levels—both in nominal terms and as a share of local currency debt. (Figure 3, lowest window) 

This is evidence of the crowding-out syndrome, which suggests that BSP easing isn’t reviving private investment—it’s merely accommodating fiscal expansion. 

In the cui bono calculus, the winners of rate cuts are clear: the state, the banks, and foreign macro hedgers. 

The losers? Domestic firms, left behind in a market—where easing no longer means access. 

VII. The Free Lunch Illusion: Debt and Servicing Costs

Figure 4

The deeper reason behind the BSP’s ongoing financial plumbing lies in social democracy’s favorite illusion: the free lunch politics. 

Pandemic-era deficit spending has pushed public debt to historic highs (Php 17.27 trillion in June), and with it, the burden of debt servicing. (Figure 4, topmost chart) 

July’s figures—due next week—may breach Php 17.4 trillion. 

Even with slower amortizations temporarily easing the burden in 2025, interest payments for the first seven months have already set a record.

Rising debt means rising servicing obligations—even at the zero bound. The illusion of cheap debt is just that: an illusion. 

Crowding out isn’t just theoretical. 

It’s visible in the real economy—where MSMEs and half the population (per self-poverty surveys) are squeezed—and in the capital markets, where even the largest firms are feeling the pinch. 

The entropy in financial performance among PSE-listed firms, especially the PSEi 30, underscores that the spillover has reached even the politically privileged class. (see previous discussion—references) 

Monthly returns of the PSEi 30 similarly reflect the waning impact of the BSP’s cumulative easing measures since 2009. (Figure 4, middle image) 

In a world of scarcity, there is no such thing as a permanent free lunch. 

VIII. Banks as the Heart of the Economy: Palpitations in the Plumbing 

If the government is the brain of the political economy, banks are its heart. And the pulse is showing increasing signs of palpitations.

The banking system’s books reveal the scale of the plumbing, most visible in the record-high net claims on central government (NCoCG) held by the banking system and Other Financial Corporations (OFCs). 

Bank NCoCG surged 7.5% YoY to an all-time high Php 5.591 trillion in Q2 2025, pushing Held-to-Maturity (HTM) assets up 1.8% YoY to a milestone Php 4.075 trillion. (Figure 4, lowest graph)

Figure 5 

OFCs saw an even sharper jump—14.7% in Q1 to a record Php 2.7 trillion! (Figure 5, topmost diagram) 

According to the BSP, OFCs are composed of non-money market investment funds, other financial intermediaries (excluding insurance corporations and pension funds), financial auxiliaries, captive financial institutions and money lenders, insurance corporations, and pension funds. 

Yet despite these massive reallocations—and even with banks drawing a staggering Php 189 billion from their freed-up reserves (Claims on Other Depository Corporations) after March’s RRR cut—liquidity remains tight. (Also discussed last August, see references) (Figure 5, middle chart) 

Cash reserves continue to decline. Though cash-to-deposit ratios bounced in June from May’s all-time low, the trend remains downward—accelerating even as RRR rates fall to 5%. (Figure 5, lowest image) 

Liquid assets-to-deposit ratios have slumped to levels last seen in May 2020, effectively nullifying the supposed benefits of the BSP’s Php 2.3 trillion pandemic-era injections. 

This strain is now reflected in bank stocks and the financial index—dragging down the PSE and the PSEi 30. 

Goldilocks, eh? 

After the rate cut, the BSP immediately floated the possibility of a third RRR reduction—“probably not that soon.” Highly doubtful. Odds are it lands in Q4 2025 or Q1 2026. 

But even if the BSP dismantles the Reserve Requirement entirely, unless it confronts the root cause—the Keynesian dogma that credit-financed spending is a growth elixir—the downtrend will persist. 

At zero RRR, the central bank will run out of excuses. And the risk of bank runs will amplify.

IX. Q2 2025 Bank Profit Plummets on Credit Loss Provisions

Figure 6 

The toll on banks is already visible—profits are unraveling. From +10.96% in Q1 to -1.96% in Q2.  (Figure 6, upper visual) 

The culprit? 

Losses on financial assets—driven by surging provisions for credit losses, which ballooned 89.7% to Php 43.78 billion in Q2. That’s pandemic-recession territory—December 2020. (Figure 6, lower graph) 

X. Conclusion: Goldilocks Faces the Three Bad Bears 

The cat is out of the bag. 

The “stimulative effect” is a political smokescreen—designed to rescue banks and the elite network tethered to them. It’s also a justification for continued deficit spending and the rising debt service that comes with it. 

But “sweet spots” don’t last. They decay—subject to the law of diminishing returns. 

Paradoxically, under the Goldilocks fairy tale, there were three bears. In our case: three ‘bad’ bears:

• Crowding out and malinvestments
• Surging systemic leverage
• Benchmark-ism to sanitize worsening fundamentals 

Even the Bank for International Settlements has quietly replaced Philippine real estate pricing bellwethers with BSP’s version—one that paints booming prices over record vacancies. 

Nonetheless, the bears are already in the house. The porridge is cold. And the bedtime story is over. What remains is the reckoning—and the question of who’s prepared to face it without the comfort of fairy tales 

All signs point to a late-stage business cycle in motion. 

___

references 

Prudent Investor Newsletters, Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong, August 24, 2025 Substack 

Prudent Investor Newsletters, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 Substack

 

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

A lack of transparency results in distrust and a deep sense of insecurity — Dalai Lama 

In this issue

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

I. PSEi 30 Q2 2025: The Illusion of Resilience

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

IB. Structural Downtrend and Policy Transmission Breakdown

IC. Real Value Output in Decline, Political Optics and GDP Credibility

ID. Meralco’s Electricity Consumption Story: A Broken Proxy

II. Real Estate: The Recovery That Wasn’t

IIA. Overton Window vs. Market Reality

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

III. Retail and Food Services: Mixed Signals

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration

IV. Banking Revenues and Income: A Stalling Engine

IVA. Banking Sector: Credit Surge, Revenue Stall

V. The PSEi 30 Net Income Story

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation?

VB. SMC’s Financial Engineering? Escalating Systemic Risk

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

____

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong 

Beneath headline growth lies a fragile mix of policy stimulus, rising leverage, and mounting stagnation—masking systemic fragility. 

I. PSEi 30 Q2 2025: The Illusion of Resilience 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on same year index members; may include revisions to past data

1B: Historical comparison; includes only members present during the end of each respective period; based on unaudited releases

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

Q2 GDP at 5.5%?   

On paper, that should have translated into strong corporate earnings—especially when juxtaposed with the financial pulse of the PSEi 30. 

Yet that headline growth masks a deeper dissonance: These firms, positioned as frontline beneficiaries of BSP’s easing cycle and historic deficit spending, should have reflected the policy tailwinds.

Figure 1

Instead, the disconnect is glaring: while nominal GDP surged 7.2% in Q2 and 7.4% in H1, aggregate revenues of the PSEi 30 contracted by 0.3% in Q2 and barely budged at 1.7% for the first half. (Figure 1, upper graph) 

IB. Structural Downtrend and Policy Transmission Breakdown 

More troubling, this isn’t a one-off anomaly. 

2025’s performance merely extends a structural downtrend that peaked in 2022—raising uncomfortable questions about transmission mechanisms, institutional fragility, and the real beneficiaries of expansionary policy. 

Consider this: Universal bank credit hit a historic high in June 2025, with 12.63% growth, the fastest pace since 2022. Yet PSEi 30 revenue growth in H1 limped to just +1.7%. The juxtaposition is telling. (Figure 1, lower window) 

Rather than fueling productive consumption or corporate expansion, credit appears channeled into asset churn and balance sheet patchwork—rolling debt, patching liquidity gaps, gaming duration mismatches. It’s a kinetic mirage, where velocity substitutes for vitality—hallmarks of overleveraging and diminishing returns. 

The very tools meant to stimulate growth now signal policy transmission failure, where liquidity flows but impact stalls. 

IC. Real Value Output in Decline, Political Optics and GDP Credibility 

Worst still, when adjusted using the same deflators applied to GDP, the PSEi 30’s real output doesn’t just stagnate—it slips into quasi-recession. Both Q2 and H1 figures turn negative, ≈ -2% and -.4%, exposing a structural rot beneath the nominal gloss. (Note 1)

Figure 2 

And this isn’t a statistical fluke. 

A full third of the index—10 out of 30 firms—posted revenue contractions, led by holding firms San Miguel, Alliance Global, and Aboitiz Equity. These aren’t fringe players—they’re positional market leaders. (Figure 2, upper table) 

As a side note, AGI’s revenue decline was partly driven by the deconsolidation of Golden Arches Development Corp, following its reclassification as an associate in March 2025 (Note 2) 

The gap is too wide, too persistent a trend, to be dismissed as cyclical noise. 

Was the PSEi 30 shortfall simply papered over by government spending, with a boost from external trade? 

Or was GDP itself inflated for political ends—to justify lower interest rates, defend the proposed Php 6.793 trillion 2026 budget (+7.4% YoY), and tighten the administration’s grip on power? 

Most likely, the truth lies in some combination of both. 

ID. Meralco’s Electricity Consumption Story: A Broken Proxy 

That’s not all. 

Meralco’s electricity sales volume contracted −0.33% YoY in Q2, dragging H1 growth down to a mere +0.51%. This isn’t just a soft patch—it’s historic: 

• First Q2 contraction since Q1 2021,
• First negative H1 since 2020, —both periods marked by pandemic-induced recession. 

More tellingly, Meralco’s quarterly GWh chart—once a reliable proxy for real GDP—has broken correlation. The divergence, which began in Q1 2024, has now widened into a chasm. (Figure 2, lower chart) 

To compound this, peso electricity peso sales shrank by 1.74% in Q2, and Meralco’s topline declines—both in pesos and GWh—dovetailed with the 8% sales slump in aircon market leader Concepcion Industries Corporation, as we discussed in an earlier post. (see references) 

When electricity consumption decouples from GDP, it raises uncomfortable questions: 

• Is real consumption being overstated? 
• Are headline figures engineered to justify policy optics—lower rates, ballooning budgets, and political consolidation? 

The numbers suggest more than statistical noise. They hint at a manufactured narrative, where growth is declared, but not felt. 

II. Real Estate: The Recovery That Wasn’t 

IIA. Overton Window vs. Market Reality 

There’s more. The public has recently been bombarded with official-consensus messaging about a supposed real estate ‘recovery.’ 

 The BSP even revised its property benchmark to show consistently rising prices—curiously, at a time of record vacancies. (see references) By that logic, the laws of supply and demand no longer apply. 

To reinforce the recovery echo chamber, authorities published modest Q2 and H1 NGDP/RGDP figures of 5.7% and 5.4%, respectively. 

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain 

Figure 3

Yet the hard numbers tell another story: stagnation gripped the top 5 publicly listed property developers—SMPH, ALI, MEG, RLC, and VLL—whose aggregate Q2 revenues grew by a paltry 1.23% YoY. (Figure 3 topmost image)

Adjusted for GDP deflators, that’s a real contraction. In effect, published rent and real estate sales may be teetering on the brink of recession.

The relevance is clear: these five developers accounted for nearly 30% of the sector’s Q2 GDP, meaning their results are a critical proxy for actual conditions—assuming their disclosures are accurate.

Yet, if there’s one metric that’s consistently rising, it’s debt.

Published liabilities surged 5.5% or Php 53.924 billion, reaching a record Php 1.032 trillion in Q2. Meanwhile, cash reserves plunged to their lowest level since 2019. (Figure 3, middle chart)

And yet, net income rose 11.15% to Php 35.4 billion—a figure that invites scrutiny, given flat revenues, rising leverage, and tightening liquidity.

In reality, developers appear forced to draw down cash to sustain operations and patch liquidity gaps, a fragile foundation to prop up the GDP consensus.

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

Worse, the sector’s downstream segment remains mired in doldrums.

Sales of publicly listed market leaders in home improvement and construction supplies—Wilcon and AllHome—fell -1.95% and -22.1% in Q2, respectively. Both chains have been struggling since Q2 2023, but the latest data are striking: despite no store expansion, AllHome reported a -28% collapse in same-store sales, while Wilcon’s growth lagged despite opening new outlets in 2024–2025, underscoring weak organic demand and the record vacancies. (Figure 3, lowest visual)

Strip away the official spin, and the underlying pattern emerges: insufficient revenues, surging debt, and shrinking liquidity. Overlay this with record-high employment statistics, historic credit expansion and fiscal stimulus—what happens when these falters? 

Consumers are already struggling to sustain retail and property demand. Yet, embracing the ‘build-and-they-will-come’ dogma, developers continue to expand supply, worsening the malinvestment cycle: supply gluts, strained revenues, debt build-up, and thinning cash buffers—a crucible for a future real estate debt crisis. 

III. Retail and Food Services: Mixed Signals 

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot 

It’s not all bad news for consumers. 

Some segments gained traction from the “sweet spot” of easy money and fiscal stimulus—manifested in record bank credit and near all-time high employment rates. 

Figure 4

The most notable beneficiaries were non-construction retail chains, where expanded selling space (malls, outlets, stores) lifted revenues. The combined sales of the six listed majors—SM, Puregold, Robinsons Retail, Philippine Seven, SSI, and Metro Retail—rose 8.6% in Q2, their strongest showing since Q2 2023. (Figure 4, topmost graph) 

Still, signals remain mixed. In Q2, retail NGDP slipped to its lowest level since Q1 2021, while real consumer GDP bounced to 5.5%, its highest since Q1 2023. 

Company results reflected this divergence:

• SM: +8.9% YoY (best since Q4 2023)
• PGOLD: +12.3%
• RRHI: +5.9%
• SEVN: +8.6%
• SSI: −1.6%
• MRSGI: +6.6%

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends 

Interestingly, while Philippine Seven [PSE: SEVN] continues to boost headline growth via new store openings, same-store sales have operated in negative territory from Q4 2024 to Q2 2025. This divergence reveals how money at the fringes conceals internal vulnerabilities—weakening demand paired with oversupply. Once the benefit of new outlets erodes, excess capacity will magnify sales pressure, likely translating into eventual losses. (Figure 4, middle pane) 

Even as listed non-construction retail firms outpaced retail NGDP (6.8%) and RGDP (6.15%), their performance only partially resonates with the real GDP dynamic. 

Yet, the embedded trend across retail sales, consumer GDP, and retail NGDP remains conspicuously downward. 

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration 

The food service industry echoes this entropy. Jollibee’s domestic sales grew 10.13% in Q2, pulling aggregate revenue growth of the four listed food chains—JFC, PIZZA, MAXS, FRUIT—to 9.6%, still below the 10.7% NGDP and 8.34% RGDP for the sector. The growth trajectory, led by JFC, continues to decelerate. (Figure 4, lowest diagram) 

Notably, JFC accounted for 86% of aggregate listed food service sales, yet only 54% of Q2 Food Services GDP—a testament to its PACMAN strategy of horizontal expansion—an approach I first described in 2019—enabled by easy-money leverage in its pursuit of market dominance (see references) 

Unfortunately, visibility on the sector is now diminished. Since AGI reclassified Golden Arches (McDonald’s Philippines) as a non-core segment, its performance is no longer disclosed. For reference, McDonald’s sales plunged 11.5% in Q1 2025. 

Losing this datapoint is regrettable, given McDonald’s is Jollibee’s closest competitor and a critical indicator of industry health. 

IV. Banking Revenues and Income: A Stalling Engine 

IVA. Banking Sector: Credit Surge, Revenue Stall 

Finally, despite all-time high loan volumes, bank revenues slowed sharply in Q2—an unexpected deceleration given the credit surge. The top three PSEi 30 banks—BDO, BPI, and MBT—posted a modest 7.02% revenue increase, dragging 1H growth down to 7.99%. For context, Q1 2025 revenues rose by 9%, while Q2 2024 saw a robust 21.8% jump. Full-year 2024 growth stood at 20.5%, making Q2 2025’s performance less than half of the prior year’s pace. 

We dissected the worsening conditions of the banking sector in depth last week (see reference section) 

V. The PSEi 30 Net Income Story 

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation? 

For the PSEi 30, if revenue stagnation already stands out, net income tells a similar story.

Figure 5 

Q2 2025 net income rose by 11.5% (Php 28.7 billion), pulling down 1H income growth to 13.8% (Php 68.6 billion). While Q2 gross net income was the highest since 2020, its marginal increase and subdued growth rates marked the second slowest since 2021. (Figure 5, upper chart) 

The devil, of course, lies in the details. 

The biggest contributor to the PSEi 30’s net income growth in Q2 and 1H 2025 was San Miguel Corp. Its net increase of Php 18.7 billion in Q2 and Php 53.19 billion in H1 accounted for a staggering 65.2% and 77.54% of the total PSEi 30 net income growth, respectively—despite comprising just 8.5% and 11.8% of the index’s gross net income. (Figure 5, lower table) 

In effect, SMC was not merely a contributor but the primary engine behind the index’s earnings rebound.

Yet this dominance raises more questions than it answers.

Despite a sharp revenue slowdown and only marginal improvements in profit margins—still below pre-pandemic levels—SMC reported a substantial jump in cash holdings and a deceleration in debt accumulation. But this apparent financial strength stems not from operational resilience, but from non-core gains: fair value revaluations, FX translation effects, and dividends from associates.

The result is a balance sheet that appears healthier than it is, with cash levels inflated by accounting maneuvers rather than organic surplus.

VB. SMC’s Financial Engineering? Escalating Systemic Risk

Beneath the surface, SMC’s debt dynamics resemble quasi-Ponzi finance—borrowing Php 681 billion to repay Php 727 billion in 1H 2025, while plugging the gap with preferred share issuance and asset monetization. The latter includes the deconsolidation and valuation uplift of its residual stakes in the Ilijan power facility and Excellent Energy Resources Inc. (EERI), as well as the $3.3 billion LNG deal with Meralco and AboitizPower in Batangas. Though framed as strategic partnerships, these transactions involved asset transfers that contributed heavily to the surge in reported profits.

The simulacrum of deleveraging—from Php 1.56 trillion in Q4 2024 to Php 1.506 trillion in Q2/1H 2025—appears to be a product of financial engineering, not structural improvement. This disconnect between reported profitability and underlying liquidity mechanics raises concerns about transparency and sustainability.

In a market where banks, corporates, and individuals hold significant exposure to SMC debt (estimated at 4.3% of June 2025’s total financial resources), the company’s accounting-driven cash buildup may signal escalating systemic fragility—a risk that the recent equity selloff seems to be pricing in ahead of the curve.

Stripped of SMC’s potentially inflated income, Q2 and H1 net income for the PSEi 30 would rank as the second-lowest and lowest since 2021, respectively—underscoring the fragility behind the headline performance.

At the same time, and with curious timing, SMC announced its intent to undertake large-scale flood control across Metro Manila and Laguna—"at no cost to the government or the Filipino people". Whether this reflects a genuine civic gesture or a strategic bid to accumulate political capital remains unclear. But the optics are unmistakable: as SMC’s earnings distort the index’s headline strength, it simultaneously positions itself as a public benefactor.

Yet, is this narrative groundwork for a future bailout, or a preemptive reframing of corporate rescue as national service?

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap 

Finally, let us move on to the PSEi 30’s liquidity metrics: debt and cash. 

If there’s one structurally entrenched dynamic in the PSEi 30, it’s borrowing.

Figure 6

Published short- and long-term debt of the non-financial PSEi 30 surged to an all-time high of Php 5.95 trillion in 1H 2025—up 7.66% year-on-year. (Figure 6, topmost chart) 

The net increase of Php 423 billion amounted to 74.7% of the gross net income and a staggering 617% of the YoY net income increase. 

Including the bills payable of the four PSEi 30 banks—Php 859.7 billion, excluding bonds—total leverage rises to Php 6.8 trillion—with net borrowing gains of Php 760.5 billion, overshadowing declared net income of Php 566.7 billion. 

In short, the PSEi 30 borrowed Php 1.34 to generate every Php 1 in profit—assuming SMC’s profits are genuine. 

And this borrowing binge wasn’t isolated. Among the 26 non-financial firms, 18 increased their debt in 1H 2025. 

On average, debt now accounts for 27% of assets—or total liabilities plus equity. 

SMC, once the poster child of corporate borrowing, ceded the title this period to Meralco, Ayala Corp, and Aboitiz Equity Ventures. (Figure 6, middle table) 

Notably, MER and AEV’s borrowing spree coincides with their asset transfer deals with SMC. Whether this reflects strategic alignment or a quiet effort to absorb or ‘share’ SMC’s financial burden to deflect public scrutiny—such optics suggest a coordinated dance. 

If true, good luck to them—financial kabuki always yields to economic gravity. 

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure 

The thing is, transparency remains a persistent concern, especially in periods of mounting financial stress or pre-crisis fragility. 

First, there’s no assurance that published debt figures reflect full exposure. Some firms may be masking liabilities through other liabilities (leases, trade payables) or off-balance sheet arrangements. 

Second, asset valuations underpinning declared balance sheets may be unreliable. Accounting ratios offer little comfort when market liquidity evaporates—see the 2023 U.S. bank crisis or China’s ongoing property implosion. 

Despite historic borrowing and declared profits, PSEi 30 cash reserves barely budged—up just 0.96% YoY, with a net increase of Php 14.07 billion following two years of retrenchment. Cash levels have been on a steady decline since their 2020 peak. We suspect that recent upticks in cash are not in spite of borrowing, but because of it. 

This growing debt-income-revenue mismatch explains the establishment’s increasingly desperate calls for “MOAR easing” and declarations of a real estate “recovery.” 

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

The PSEi 30’s revenue stagnation belies the optics of headline GDP growth. Even in the supposed “sweet spot”—BSP easing, FX soft-peg subsidies, and record stimulus—consumer strain cuts across sectors.

Stimulus may persist, but its marginal impact is fading—manifesting the law of diminishing returns. The disconnect between policy effort and real economy traction is widening.

Q2 and H1 income growth seem to increasingly reflect on balance sheet theatrics driven more by financial engineering and accounting acrobatics than by operational reality.

When earnings are staged rather than earned, the gap between corporate performance and macro reality doesn’t just widen—it exposes a deepening structural mismatch. 

Deepening leverage also anchors the PSEi 30’s fundamentals. On both the demand and supply sides, debt props up activity while cash thins. The same fragility echoes through the banking system and money supply mechanics. 

This is not resilience—it’s choreography. And when liquidity recedes, the performance ends. 

As Buffett warned: "when the liquidity tide goes out, we’ll see who’s been swimming naked" We might be hosting a nudist festival. 

___ 

Notes: 

Note 1 While GDP measures value-added and corporate revenues reflect gross turnover, applying the same deflators provides a reasonable proxy for real comparison. 

Note 2: Alliance Global 17 Q August 18, 2025: Effective March 17, 2025, GADC was deconsolidated and ceased to be a business segment as it becomes an associate from that date, yet the Group’s ownership interest over GADC has not changed p.2 

References 

Prudent Investor Newsletter, Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum, June 01, 2025 (Substack) 

Prudent Investor Newsletter, Concepcion Industries Cools Off—And So Might GDP and the PLUS-Bound PSEi 30 (or Not?) July 28, 2025 

Prudent Investor Newsletter, The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility, July 13, 2025(Substack) 

Prudent Investor Newsletter, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy March 3, 2019 

Prudent Investor Newsletter, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 (Substack)