How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series)

 

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people—Friedrich August von Hayek 

In this issue 

How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series)

I. The Absence of Commodity Markets Limits Investment Alternatives and Risk Management

II. Rising Operating Leverage: A Profit Margin Accelerator for Philippine Mines

III. Record-Breaking Gold Prices Spark a Reawakening of Philippine Gold Mining Shares (Exclusive for Substack Readers)

A. Belated Run-Up: Delayed Market Response to Gold’s Rally

B. Market Internals Reveal Vast Underweighting: Low Trading Volume and Limited Institutional Interest

C. Threading Uncharted Waters

D. Philippine Mining Industry: Entering a Bull Market Cycle? Potential for a Multi-Year Uptrend Amid Structural Challenges 

How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series) 

This is the third and final article of our series on gold. How will record gold prices affect the Philippine Mining industry and share prices in the face of many challenges. 

I. The Absence of Commodity Markets Limits Investment Alternatives and Risk Management 

The absence of a robust commodity market in the Philippines limits investment alternatives for both producers and investors, particularly in a resource-rich nation where gold plays a significant economic role. 

Back in 2008, the Bangko Sentral ng Pilipinas (BSP) acknowledged this reality, noting that one reason for holding gold reserves was because "the Philippines is a significant producer of gold." 

This admission reveals a critical gap: instead of fostering investment alternatives for the public, the gold market remains underdeveloped, heavily reliant on physical sales—such as jewelry and ornaments—and the BSP as a major buyer of gold from local producers. 

Unlike other major ASEAN countries, including Indonesia, Thailand, Malaysia, and Vietnam, which have established commodity futures and derivatives exchanges, the Philippines lacks such a market infrastructure. 

These exchanges, accessible via platforms like the Indonesia Commodity and Derivatives Exchange, the Thailand Futures Exchange, the Bursa Malaysia Derivatives, and the Vietnam Commodity Exchange, provide critical benefits for resource-rich nations. 

Commodity markets enhance pricing efficiency by establishing transparent benchmarks, improve the allocation of commodity investments, and reduce the role of intermediaries or middle men, thereby lowering transaction and search costs. 

They enable producers and farmers to hedge against price volatility, access insurance, and secure better prices through competitive bidding, while also matching buyers and sellers more effectively. 

For savers and investors, commodity markets expand the investment universe, offering opportunities to diversify portfolios and achieve better returns by directly tapping into the price movements of commodities like gold, copper, and agricultural products. 

In the Philippines, the absence of such markets not only stifles these benefits but also limits the growth potential of the gold mining sector, leaving investors with few options beyond speculative investments in mining stocks. 

The lack of a commodity market means producers have fewer opportunities to hedge against price volatility, leaving them partially exposed to the risks of a potential global downturn, as discussed in the first article, where gold’s predictive power suggests an impending crisis.

While some Philippine gold producers mitigate this risk by hedging through international markets—such as the London Metal Exchange (LME) or the Chicago Mercantile Exchange (CME)—this approach is costly and less accessible for smaller firms, often requiring sophisticated financial expertise and exposure to foreign exchange risks. 

A local commodity market would provide a more direct and cost-effective hedging mechanism, enabling producers to lock in prices and protect against sudden drops in global demand. 

A crisis, as potentially signaled by gold’s historic highs, could expose gold miners to heightened credit risk, as lenders may tighten financing amid economic uncertainty, leading to critical dislocations in funding for operations and expansion. 

Additionally, such a downturn could reduce export revenues, particularly for the Philippines, where Switzerland and Hong Kong rank as the largest gold export markets (July 2024), accounting for a significant share of the country’s mineral exports.

For other commodity producers, such as those in agriculture or base metals like nickel, a global downturn could similarly dampen demand, disrupt supply chains, and lower export revenues, exacerbating economic vulnerabilities in a nation heavily reliant on commodity exports. 

The absence of a commodity market also limits the broader economic benefits for the Philippines. A well-functioning commodity exchange could channel investment into the mining sector, support infrastructure development—such as roads and processing facilities in mining regions—and create jobs in mining communities, fostering economic growth and reducing poverty in rural areas. 

For investors, it would provide a less speculative avenue to gain exposure to gold, copper and other commodity price movements, reducing reliance on volatile mining stocks and enabling more stable portfolio diversification. 

For listed Philippine gold mining companies, the current surge in gold and copper prices could drive share prices higher as investors seek to capitalize on rising profit margins driven by operating leverage. 

However, the lack of accessible hedging mechanisms increases their vulnerability to price swings, leaving them exposed to the downside risks of a potential crisis, such as a sudden drop in commodity prices or a contraction in global demand. 

II. Rising Operating Leverage: A Profit Margin Accelerator for Philippine Mines 

The current environment of rising commodity prices amplifies the financial dynamics for Philippine mining companies, particularly through operating leverage.

Gold has reached historic highs, as discussed in the first and second series of this article, driven by geopolitical tensions, deglobalization, and central bank buying, while copper prices have also broken into all-time highs, partly influenced by Trump’s tariffs, which have increased demand for domestically sourced metals and disrupted global supply chains.

Figure 1 

The chart of gold and copper prices illustrates this tandem rise, with gold climbing steadily since 2023 and copper following suit, reflecting heightened industrial demand and inflationary pressures. 

For Philippine gold mining companies, which often extract copper as a byproduct due to the geological association of these metals in porphyry deposits, this dual price surge presents a unique opportunity to capitalize on rising revenues, but, again, also underscores the need for accessible commodity markets to manage price volatility and attract broader investment.

Investment in mining companies hinges primarily on their reserves, which represent future earnings potential and determine a mine’s long-term viability.  

Rising commodity prices—particularly gold and copper—amplify the financial benefits for these companies through operating leverage.

Operating leverage measures how sensitive a company’s profit is to changes in revenue, driven by its mix of fixed and variable costs.

In the mining industry, high fixed costs—such as equipment, infrastructure, permits, licensing, labor, and energy—create significant operating leverage. 

This means that small increases in revenue, whether from rising commodity prices or higher output, can lead to disproportionately large boosts in profit margins, as the additional revenue is not offset by proportional cost increases. 

Conversely, if revenues decline due to falling prices or reduced production, profit margins can shrink rapidly since fixed costs remain unchanged, exposing companies to heightened financial risk during downturns.

To illustrate this dynamic, consider the following table of a hypothetical gold mining company, showing the impact of rising gold prices on its operating leverage: 

Figure/Table 2

In this example, as the gold price rises from $1,800 to $2,200 per ounce—a 22.2% increase—revenue grows from $18 million to $22 million. However, because fixed costs remain at $10 million, the operating profit surges from $6 million to $9.6 million, a 60% increase, and the profit margin expands from 33.3% to 43.6%. (Figure 2, upper table)

This demonstrates how operating leverage acts as a profit margin accelerator, making mining companies highly profitable during commodity price upswings.

Another table from Canada highlights B2Gold, a Canadian company listed in Canada, with a mining project in the Philippines provides insights into the country's gold production costs, particularly in terms of cash operating costs and All-in Sustaining Costs (AISC). (Figure 2, lower table)

The same principle applies to copper, where price increases further enhance revenues for Philippine mines that produce both metals, amplifying the financial upside.

However, this high operating leverage is a double-edged sword.

Ceteris paribus, while rising prices boost margins, a downturn in commodity prices can lead to significant losses, as fixed costs remain constant, squeezing profitability. 

Moreover, operating margins also depend on cost discipline—mines that fail to control variable costs, such as energy or labor, may see diminished gains even during price surges. 

For Philippine gold mining companies, the current environment of historic highs in both gold and copper prices offers a window of opportunity to leverage these gains, improve financial stability, and attract investment. 

Yet again, the lack of a local commodity market exacerbates their exposure to global market risks, as they cannot easily hedge against price volatility. 

As global uncertainties mount—driven by geopolitical tensions, deglobalization, and central bank policies—the development of a commodity market in the Philippines becomes increasingly urgent to unlock the full potential of its gold mining sector, mitigate the risks of an impending crisis, and ensure sustainable economic benefits for the nation. 

III. Record-Breaking Gold Prices Spark a Reawakening of Philippine Gold Mining Shares 

A. Belated Run-Up: Delayed Market Response to Gold’s Rally

Despite gold prices achieving a successive winning streak since at least 2022, as highlighted in the first segment, the Philippine Stock Exchange (PSE) largely overlooked these developments until the start of 2025. 

This delayed reaction underscores significant shortcomings in the PSE’s pricing mechanism, reflecting deeper structural issues in the market. 

Please continue reading at substack, press link below:

https://open.substack.com/pub/theseenandunseenbybjte/p/how-surging-gold-prices-could-impact?

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls

 

Deficits add up. Debt needs to be refinanced. And the larger the cost of servicing past spending, the less is available for the present. This is inherently and obviously a crackpot way to run a nation. It guarantees chaos, inflation, defaults and poverty—Bill Bonner 

In this issue

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls 

In 2024, the Philippines' Savings-Investment Gap continued to widen to a near record, driven primarily by fiscal deficit spending—its effects and potential consequences discussed in two connected articles.

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

II. The Persistent Decline in Savings and the Investment Boom

III. Sectoral Investment Allocation and Bank Lending Trends

IV. Bank Lending Patterns and the Role of Real Estate

V. The SI Gap and the ’Twin Deficits’

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

IV. Public "Investments:" Unintended Market and Economic Distortions

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

 Figure 1

Businessworld, February 28, 2025: In 2024, the country’s savings rate — defined as gross domestic savings as a percentage of gross domestic product (GDP) — grew to 9.3%, reaching P2.47 trillion. Meanwhile, the investment rate was 23.7% of GDP, or P6.27 trillion, resulting in a P3.8-trillion gap. The savings-investment gap (S-I) gap — the difference between gross domestic savings and gross capital formation — shows a country’s ability to finance its overall investment needs. An S-I deficit occurs when a country’s investment expenditures exceed its savings, forcing borrowing to fund the gap. (Figure 1, topmost chart)

The Philippines may be considered one of the poster children of Keynesian economic development.

Given that aggregate demand serves as the foundation of the economy, national economic policies have been designed to stimulate and manage a spending-driven growth model, particularly through investment and consumption.

From a Keynesian perspective, the government is expected to compensate for any spending shortfall from the private sector by increasing its own expenditures.

The Savings-Investment Gap (SIG) serves as a key metric for tracking the evolution of aggregate demand management over time.

However, this ratio may be understated due to potential discrepancies in macroeconomic data—GDP figures may be overstated, while inflation (CPI) may be understated. Or, in my humble view, the actual savings rate may be even lower than indicated.

II. The Persistent Decline in Savings and the Investment Boom

The Philippines’ gross domestic savings rate has been in a downtrend since 1985, but it plummeted after 2018, coinciding with an acceleration in government spending. This trend worsened in 2020, when the pandemic triggered a surge in public expenditures. (Figure 1, middle image) 

From 1985 onward, the persistent decline in savings suggests a rise in household consumption, a "trickle-down effect," supported by accommodative monetary policy and moderate fiscal expansion.

Meanwhile, the investment rate surged between 2016 and 2019, driven by government-led initiatives, particularly the ‘Build, Build, Build’ program.

However, the 2020 collapse—where both savings and investment rates fell sharply—highlighted the government’s aggressive "automatic stabilization" response to the pandemic recession, which relied on RECORD deficit spending and monetary stimulus.

The Bangko Sentral ng Pilipinas (BSP) introduced unprecedented measures, including ₱2.3 trillion in liquidity injections, historic reductions in reserve requirements and policy rates, a managed USDPHP cap, and various financial relief programs.

III. Sectoral Investment Allocation and Bank Lending Trends 

The distribution of investments can be inferred from sectoral GDP contributions and bank lending trends. 

As of 2024, the five largest contributors to GDP were:

-Trade (18.6%)

-Manufacturing (17.6%)

-Finance (10.6%)

-Agriculture (8%)

-Construction (7.5%) (Figure 1, lowest graph) 

However, both manufacturing and agriculture have been in decline since 2000, suggesting that investments have largely flowed into trade, finance, and construction (including government-related projects).

Real estate, once a growing sector, peaked in 2015 and has since been in decline. Nevertheless, it remained the seventh-largest sector in 2024. It trailed professional and business services—which encompasses head office activities, architectural and engineering services, management consultancy, accounting, advertising, and legal services.

The top five GDP contributors accounted for 62.25% of total output, down from 66.06% in 2020, primarily due to the contraction in manufacturing and agriculture. 

IV. Bank Lending Patterns and the Role of Real Estate

Figure 2

While the real estate sector's share of real GDP declined, its share of bank lending expanded significantly. (Figure 2, topmost window) 

From 2014, real estate-related borrowing rose sharply, peaking in 2021, before moderating below 2022 levels. Nevertheless, real estate remained the largest client of the banking system in 2024, accounting for 19.6% of total loans. (Figure 2, middle diagram) 

That is—assuming banks have reported accurate data to the BSP. The reality is that banks often lack transparency regarding loan distribution and utilization (where the money is actually spent). 

Given that many retail investors (mom-and-pop borrowers) are very active in real estate, it is likely that actual exposure is understated, as banks may structure their reporting to circumvent BSP lending caps on the sector—it extended the price cap during the pandemic. 

In the meantime, the share of consumer lending has seen the most significant growth, surging after 2014 and becoming the dominant growth segment of bank credit. 

Meanwhile, the share of loans to the trade industry declined marginally, and manufacturing loans saw a steep drop—reflecting its GDP performance. 

Lending to the financial sector peaked in 2022 but has since declined, whereas credit to the utilities sector increased from 2014 to 2020 and has remained stable since. 

V. The SI Gap and the ’Twin Deficits’ 

The sharp decline in manufacturing underscores the structural imbalances reflected in the SI Gap, which in turn has contributed to the record "twin deficits" (fiscal and external trade). (Figure 2, lowest chart) 

As both consumers and the government spent beyond domestic productive capacity, the economy became increasingly reliant on imports to satisfy aggregate demand. 

Although the deficits have slightly narrowed from their pandemic peaks, they remain at ‘emergency stimulus levels’, posing risks to long-term stability. (see discussion on fiscal health below) 

These deficits have been—and will continue to be—financed through both domestic (household) and foreign (external debt) borrowing.

Figure 3 

The widening SIG has coincided with a decline in M2 savings growth, while the M2-to-GDP ratio surged, reflecting both credit expansion and monetary stimulus (including BSP’s money printing operations). (Figure 3, upper pane) 

External debt has also reached an all-time high in 2024, adding another layer of vulnerability. 

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability 

The Philippines' growing S-I gap and declining savings rate reflect deep-seated structural imbalances that raise concerns about long-term economic stability. 

A shrinking domestic savings pool limits capital accumulation, increase dependence on external financing, and expose the economy to risks such as debt distress and currency fluctuations. 

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks 

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls 

Inquirer.net, February 28: "The Marcos administration posted a smaller budget shortfall in 2024, but it was not enough to contain the deficit within the government’s limit as unexpected expenses pushed up total state spending. Latest data from the Bureau of the Treasury (BTr) showed that the budget gap had dipped by 0.38 percent to around P1.51 trillion last year. As a share of gross domestic product (GDP), the deficit improved to 5.7 percent last year, from 6.22 percent in 2023. But it still indicated that the government had spent beyond its means, requiring more borrowings that pushed the state’s outstanding debt load to P16.05 trillion by the end of 2024." (bold added)

Now, let us examine the performance of the so-called "public investment" in 2024.

Officials hailed the alleged improvement in the fiscal balance. One remarked, "This is the lowest since 2020 and shows the good work of the administration's economic team."

Another noted that "the drop in the deficit was ‘better than expected,’" implying that "the government no longer needs to borrow as much if the budget deficit is shrinking."

From my perspective, manipulating popular benchmarks—whether through statistical adjustments or market prices—as a form of political signaling to sway depositors and voters—is what I call "benchmark-ism."

While both spending and revenues hit their respective milestones, the 2024 fiscal deficit only decreased marginally from Php 1.512 trillion to Php 1.51 trillion. (Figure 3, lower image)

The so-called "improvement" mainly resulted from a decline in the deficit-to-GDP ratio, which fell from 6.22% in 2023 to 5.7% in 2024—a reduction driven largely by nominal GDP growth rather than actual fiscal restraint.

Authorities credit this "improvement" primarily to revenue growth.

While it's true that fiscal stimulus led to a broad-based increase in revenues, officials either deliberately downplayed or diverted attention from the underlying reality.

Figure 4

Despite record bank credit expansion in 2024, tax revenue only increased 10.8%, driven by the Bureau of Internal Revenue’s (BIR) modest 13.3% growth and the Bureau of Customs’ (BoC) paltry 3.8% rise. Instead, the real driver of revenue growth was an extraordinary 56.9% surge in NON-tax revenues, which pushed total public revenues up 15.56%. (Figure 4, middle image) 

As a result, the share of non-tax revenues spiked from 10.3% in 2023 to 14% in 2024—its highest level since 2007’s 17.9%! (Figure 4, topmost diagram) 

The details or the nitty gritty tell an even more revealing story. According to the Bureau of Treasury (February 27): "Total revenue from other offices (other non-tax, including privatization proceeds, fees and charges, grants, and fund balance transfers) doubled to PHP 335.0 billion from PHP 167.2 billion a year ago and exceeded the P262.6 billion revised program by 27.56% (PHP 72.4 billion) primarily due to one-off remittances." (bold added)

To emphasize: ONE-OFF remittances!

Revenues from "Other Offices" doubled in 2024, with its share jumping from 4.4% to 7.6%.

If this one-time windfall hadn’t occurred, the fiscal deficit would have exploded to a new record of Php 1.84 trillion! 

Despite the minor deficit reduction, public debt still surged. 

Public debt rose by 9.82% YoY (Php 1.435 trillion) in 2024—higher than 8.92% (Php 1.2 trillion) in 2023. (Figure 4, lowest graph) 

Was the increased borrowing in 2024 a response to cosmetically reducing the fiscal deficit? 

And that’s not all.

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

Figure 5

For the sixth consecutive year, the government exceeded the ‘enacted budget’ passed by Congress. The Php 157 billion overrun in 2024 was the largest since the post-pandemic recession in 2021, when the government implemented its most aggressive fiscal-monetary stimulus package. (Figure 5, topmost chart)

More importantly, this repeated breach of the "enacted budget" signals a growing shift of fiscal power from Congress to the executive branch.

Looking ahead, 2025’s enacted budget of Php 6.326 trillion represents a 9.7% increase from 2024’s Php 5.768 trillion.

The seemingly perpetual spending growth has been justified on the assumption of delivering projected GDP growth. 

While some "experts" claim the Philippines is becoming more ’business-friendly,’ the growing expenditure-to-GDP ratio tells a different story:

-The government is increasingly centralizing control over economic resources.

-This trend began in 2014, accelerated in 2016, and peaked in 2021 at 24.1%—the first breach of the enacted budget. After marginally declining to 21.94% in 2023, it rebounded to 22.4% in 2024. (Figure 5, middle image)

However, these figures only account for public spending. When factoring in private sector funds allocated to government projects, the true extent of government influence could easily exceed 30% of economic activity.

Of course, this doesn’t come for free. Government spending is funded through taxation, borrowing, and inflation. 

The more the government "invests," the fewer resources remain for private sector growth—the crowding out effect. 

This spending-driven economic model has distorted production and price structures, evident in: 

-The persistent "twin deficits"

-A second wave of inflation (Figure 5, lowest visual) 

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

Figure 6

And surging public debt is just one of the consequences of crowding out the private sector. 

Public debt-to-GDP rose from 60.1% in 2023 to 60.7% in 2024—matching 2005 levels. (Figure 6, topmost diagram) 

More strikingly, debt service (interest + amortization) as a share of GDP surged from 6.6% in 2023 to 7.6% in 2024—its highest since 2011.

In fact, both debt-to-GDP and debt service-to-GDP in 2024 exceeded pre-Asian Crisis levels (1996-1997). 

Rising debt service costs imply that: 

1 Government spending will increasingly be diverted toward debt payments or rising debt service costs constrain fiscal flexibility, leaving fewer resources for essential public investments

2 Revenues will suffer diminishing returns as debt servicing costs spiral (Figure 6 middle window)

3 Growing risks of inflation (financial repression or the inflation tax)—as government responds with printing money

4 Mounting pressures for taxes to increase 

The principal enabler of this debt buildup has been the BSP’s prolonged easy money regime. (Figure 6, lowest chart)

Figure 7

The banking system has benefited from extraordinary BSP political support, including: Official rate and RRR cuts, liquidity injections, USDPHP cap and various subsidies and relief measures 

The industry has also functioned as a primary financier of government debt via net claims on central government or NCoCG), with banks acquiring government debt—reaching an all-time high in 2024. (Figure 7, topmost window)

IV. Public "Investments:" Unintended Market and Economic Distortions

This policy stance of propping up the banking system comes with unintended consequences. 

Bank liquidity has steadily declined—the cash-to-deposit ratio has weakened since 2013, mirroring the rising deficit-to-GDP ratio. (Figure 7, middle graph) 

Market distortions are also evident in declining stock market transactions and the PSEi 30’s prolonged bear market—despite interventions by the so-called "National Team." (Figure 7, lowest chart)

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

So, what’s the bottom line? 

Government "investment" is, in reality, consumption. 

It has fueled economic distortions, malinvestment, and ballooning public debt—ultimately crowding out private sector investment and jeopardizing fiscal sustainability. 

Political "free lunches" remain popular, not only among the public but also within the “intelligentsia” class or the intellectual cheerleaders of the government.

As we warned last December: 

"Any steep economic slowdown or recession would likely compel the government to increase spending, potentially driving the deficit to record levels or beyond. 

Unless deliberate efforts are made to curb spending growth, the government’s ongoing centralization of the economy will continue to escalate the risk of a fiscal blowout. 

Despite the mainstream's Pollyannaish narrative, the current trajectory presents significant challenges to long-term fiscal stability." (Prudent Investor 2024)

 ___

References: 

Prudent Investor, Debt-Financed Stimulus Forever? The Philippine Government’s Relentless Pursuit of "Upper Middle-Income" Status December 1, 2025

 

 

Mounting Cracks in the PSEi 30: How Structural Imbalances Are Amplifying Market Stress

True confidence does not come from “you can trust us if we screw up because someone else will bail you out” but from “you can trust us because it is demonstrably in our interest to make sure we don’t screw up”. Deposit insurance is an inferior confidence product – one might even say, a confidence trick—Kevin Dowd 

In this issue

Mounting Cracks in the PSEi 30: How Structural Imbalances Are Amplifying Market Stress

I. The PSEi 30’s February and 2025 Performance

II. PSE’s Market Internals Remain Bearish

III. Is This a Regional Trend? Emerging Signs of Asian Financial Crisis 2.0?

IV. PSEi 30’s Mounting Market Imbalances

V. Symptoms of Capital Consumption: Despite Surging Credit Expansion, Falling Liquidity and Diminishing Returns

VI. Share Buybacks as Panacea?

VII. The Path to Full-Fractional Reserve Banking and Deposit Insurance Expansion: A False Sense of Security? 

Mounting Cracks in the PSEi 30: How Structural Imbalances Are Amplifying Market Stress 

The erosion of a major rally this February following January’s selloff reveals the underlying structural fragilities and operating dynamics of the Philippine Stock Exchange.

I. The PSEi 30’s February and 2025 Performance

Figure 1

Echoing January’s 4.01% end-of-month selloff, the final trading day of February saw a similar 2.06% pre-closing plunge, erasing nearly half of the recovery gains the PSEi 30 had posted for the month. (Figure 1, upper and lower images)

While it may be convenient to attribute this last-minute market move to portfolio rebalancing, it primarily reflected underlying trend weakness and growing fragility in the PSEi 30.

A portion of January 2025’s selloff was driven by changes in PSEi membership.

In contrast, February’s decline was largely fueled by massive foreign money outflows.

Despite this, the headline index ended February up 2.31% month-over-month (MoM), yet remained down 13.63% year-over-year (YoY) and was still 8.13% lower year-to-date (YTD) in 2025.

II. PSE’s Market Internals Remain Bearish

Why do internal market activities signal a bearish backdrop?

Figure 2

1. Weak Volume Trend

Despite a 7.6% improvement in the PSE’s two-month gross volume, it marked the third-lowest level since 2012, reinforcing a volume downtrend that has persisted since 2015. The 2021 volume spike—an anomaly fueled by the Bangko Sentral ng Pilipinas (BSP)’s Php 2.3 trillion historic injections into the financial system—merely highlighted the short-lived effects of the banking system’s pandemic-era rescue. (Figure 2, topmost diagram)

2. Broad-Based Selling Pressure

The two-month selling spree has been widespread. Market breadth, as measured by the advance-decline spread, recorded its second-worst performance since the pandemic crash of March 2020. (Figure 2, middle graph)

3 Persistent Foreign Outflows

In 2025, foreign outflows accounted for the third-largest capital exodus since 2012. Foreign trade made up 50.8% of gross volume, highlighting that selling pressure in the PSEi 30 was exacerbated by weak local investor support. Foreign capital has played the role of the marginal price setter, and its exit underscores the lack of domestic buying power or the dearth of local savings. (Figure 2, lowest chart) 

III. Is This a Regional Trend? Emerging Signs of Asian Financial Crisis 2.0?

Figure 3

The sustained foreign money outflow suggests that the phenomenon extends beyond the Philippines.

In 2025, the PSEi 30 ranked as the third-worst-performing equity benchmark in Asia. (Figure 3 topmost and middle graphs)

More broadly, the four largest ASEAN indices have exhibited pronounced weakness since Q3 2024.

If this trend continues, it could lay the groundwork for a potential Asian Financial Crisis 2.0. 

IV. PSEi 30’s Mounting Market Imbalances 

A deeper look at the PSEi 30 reveals intensifying distortions: 

The Financial Index/PSEi 30 has surged to consecutive all-time highs, reflecting massive outperformance since the BSP's historic banking sector rescue during the pandemic recession. (Figure 3, lowest pane) 

Conversely, the Property Index/PSEi 30, representing banks’ largest clients, has plunged to its lowest level since 2012. In other words, most of the selling pressure in the PSEi 30 has emanated from this sector.

Figure 4

The cumulative free float shares of the three largest banks have hit all-time highs as of February 28, suggesting that without intervention from the so-called “national team,” the PSEi 30 would have been substantially lower. (Figure 4, topmost image)

V. Symptoms of Capital Consumption: Despite Surging Credit Expansion, Falling Liquidity and Diminishing Returns

Despite back-to-back record highs in systemic leveraging—measured by the combined growth of universal commercial bank loans and public debt in pesos—the PSEi 30 continues to suffer from diminishing YoY returns. (Figure 4, middle image) 

This is also reflected in the banking system’s all-time low cash-to-deposits ratio, a key liquidity measure. (Figure 4, lowest window) 

The broader implication is clear: massive liquidity injections via credit expansion have led to capital consumption rather than productive investment. This is evident in the declining productivity rate of the economy and diminishing returns on stock market investments. 

It is also misleading to blame the PSE’s underperformance on local investors shifting to foreign assets such as offshore stocks or cryptocurrencies. While it may be true for some, the more pressing issue is the depletion of domestic savings.

VI. Share Buybacks as Panacea?

So, how does the establishment help resolve this predicament? While they might claim their shares are "undervalued"—indicating a perceived 'market failure'—Metro Pacific, for instance, opted to delist.

Figure 5

SM Investments made a similar claim while observing their diminishing clout, reflected by their declining share of the free float capitalization in the PSEi 30. 

In response, they recently launched a P60 billion share buyback program, "the largest ever announced by a Philippine corporation," aimed at purchasing an estimated 77 million shares, or 6% of the company's outstanding shares. 

Could this, however, signal a panic reaction? 

Some listed companies use their shares as collateral for loans or as currency in the context of mergers, often with price floors stipulated in their covenants. 

VII. The Path to Full-Fractional Reserve Banking and Deposit Insurance Expansion: A False Sense of Security? 

This fragility dilemma is further aggravated by the BSP’s recent reserve requirement ratio (RRR) cuts—and strikingly, the central bank is now proposing a transition to FULL fractional reserve banking, with plans to lower the RRR to ZERO. 

We previously discussed it here. 

The Philippines is NOT the U.S., which can afford zero RRR rates due to its deep and diversified capital markets. 

In contrast, systemic risks in the Philippines are being amplified as banks have increasingly monopolized the nation’s total financial resources, leaving the economy vulnerable to liquidity shocks and credit misallocation 

Meanwhile, the Philippine Deposit Insurance Corporation (PDIC) has doubled its maximum deposit insurance coverage. However, this comes at a time when the rate of qualified deposits continues to decline.

Figure 6 

As of Q3 2024: 

-Total insured deposits had been trending downward since 2011, reaching just 18.3% of total deposits. (Figure 6, upper chart) 

-Of this, only 9.83% were fully insured, while 8.4% were partially insured. 

Although this decline is attributed to aggressive bank credit expansion, which has inflated deposit levels, it has barely delivered a proportional increase in deposits. 

As an aside, it is unclear how much in assets the PDIC has to support such claims. 

VIII. In Summary: Intensifying Imbalances and Amplified Volatility; Opportunity? Mining Index 

The PSEi 30’s performance in 2025 reflects worsening structural imbalances, manifested through magnified volatility. 

To be sure, while fierce bear market rallies can occur, this does not mean that rising prices will eliminate these risks. 

Here’s what we’re watching: one key development has been gold’s record-breaking surge. 

If this trend continues, it could help provide a boost to the mining index, which has been quietly gaining upside momentum at the margins. (Figure 6, lowest pane) 

This represents a fringe (or niche) opportunity with potential. 

Nota bene: This article offers market insights but does not constitute a recommendation or call to action. 

BSP’s Aggressive RRR Cuts: A High-Stakes Gamble?

 

If there is one common theme to the vast range of the world’s financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels and make banks seem more stable and profitable than they re­ally are. Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short term and needs to be constantly refinanced—Carmen Reinhart and Kenneth Rogoff 

In this issue

BSP’s Aggressive RRR Cuts: A High-Stakes Gamble?

I. Decline in 2024 Bank Non-Performing Loans Amidst Record-High Debt Levels and a Slowing Economy

II. Deepening Financialization: Financial Assets Surge in 2024 as Banks Drive Industry Monopolization

III. Viewing Bank’s Asset Growth Through the Lens of the PSE

IV. March 2025 RRR Cuts and the Liquidity Conundrum: Unraveling the Banking System’s Pressure Points

V. Liquidity Drain: Record Investment Risks and Elevated Marked-to-Market Losses

VI. Despite Falling Rates, Bank’s Held-to-Maturity Assets Remain Near Record High

VII. Moral Hazard and the "COVID Bailout Playbook"

VIII. The Bigger Picture: Are We Headed for a Full-Blown Crisis?

IX. Conclusion: RRR Cuts a High-Risk Strategy? 

BSP’s Aggressive RRR Cuts: A High-Stakes Gamble?

The BSP announced another round of RRR cuts in March amid mounting liquidity constraints. Yet, the reduction from 20% in 2018 to 7% in 2024 has barely improved conditions. Will this time be different?

I. Decline in 2024 Bank Non-Performing Loans Amidst Record-High Debt Levels and a Slowing Economy

Inquirer.net, February 14, 2025: Soured loans held by Philippine banks as a ratio of total credit eased to their lowest level in a year by the end of 2024 as declining interest rates and softer inflation helped borrowers settle their debts on time. However, a shallower easing cycle might keep financial conditions still somewhat tight, which could prevent a big decline in bad debts this year. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the gross amount of nonperforming loans (NPLs)—or credit that is 90 days late on a payment and at risk of default—had cornered 3.27 percent of the local banking industry’s total lending portfolio as of December, down from November’s 3.54 percent. That figure—also known as the gross NPL ratio—was the lowest since December 2023, when bad loans accounted for 3.24 percent of banks’ total loan book.

An overview of the operating environment 

In any analysis, it is crucial to understand the operating environment that provides context to the relevance of a statistic in discussion.

The Bangko Sentral ng Pilipinas (BSP) initiated its ‘easing cycle’ in the second half of 2024, which included three rate cuts and a reduction in the reserve requirement ratio (RRR). Meanwhile, inflation (CPI) rebounded from a low of 1.9% in September to 2.9% in December. Additionally, the BSP tightened its cap on the USDPHP exchange rate. Fiscal spending over the first 11 months of the year reached an all-time high.

Yet, there are notable contradictions.

Despite record-high bank lending—driven largely by real estate and consumer loans—GDP growth slowed to 5.2% in the second half of 2024 primarily due to the weak consumer spending. The employment rate was also near an all-time high.

Figure 1

Meanwhile, real estate prices entered deflationary territory in Q3, with the sector’s real GDP growth falling to its lowest level since the pandemic-induced recession. Its share of total GDP also dropped to an all-time low. 

Notably, the real estate sector remains the largest borrower within the banking system (encompassing universal, commercial, thrift, and rural/cooperative banks). (Figure 1, topmost chart) This data depends on the accuracy of the loans reported by banks. 

However, despite recent rate cuts and significant reductions in RRR, the sector remains under pressure. Additionally, sluggish GDP growth suggests mounting risks associated with record levels of consumer leverage. 

Upon initial analysis, the decline in non-performing loans (NPLs) appears inconsistent with these economic developments. Gross NPLs dropped to one-year lows, while net NPLs reached levels last seen in June 2020. (Figure 1, middle window) 

Ironically, the BSP also announced another round of RRR cuts this March.

II. Deepening Financialization: Financial Assets Surge in 2024 as Banks Drive Industry Monopolization

Let's now turn to the gross assets of the financial system, also known as Total Financial Resources (TFR).

The BSP maintained its policy rate this February.

Ironically, BSP rates appear to have had little influence on the assets of the bank-financial industry. 

In 2024, TFR surged by 7.8% YoY, while bank resources jumped 8.9%, reaching record highs of Php 33.78 trillion and Php 28.255 trillion, respectively. 

Why does this matter? 

Since the BSP started hiking rates in April 2022, TFR and bank financial resources have posted a 9.7% and 10.9% compound annual growth rate (CAGR), respectively. In short, the growth of financial assets has accelerated despite the BSP’s rate hikes. 

Or, the series of rate hikes have barely affected bank and financial market operations. 

By the end of 2024, TFR stood at 128% of headline GDP and 152% of nominal GDP, while bank resources accounted for 107% and 127%, respectively. This reflects the increasing financialization of the Philippine economy—a growing reliance on credit and liquidity—as confirmed by the Money Supply (M series) relative to GDP. (Figure 1, lowest image)

Banking Sector Consolidation

Figure 2

More importantly, the rate hikes catapulted the bank's share of the TFR from 82.3% in 2023 to an all-time high of 83.64% in 2024, powered by universal and commercial banks, whose share jumped from 77.6% to 78.3%! (Figure 2, topmost diagram) 

Effectively, the banking industry—particularly UCBs—has been monopolizing finance, leading to greater market concentration, which translates to a build-up in systemic concentration risk. 

As of December 2024, bank assets were allocated as follows: cash, 10%; total loan portfolio (inclusive of interbank loans and reverse repurchase agreements), 54%; investments, 28.3%; real and other properties acquired, 0.43%; and other assets, 7.14%. 

In 2024, the banking system’s cash reserves deflated 6.01% YoY, while total loans and investments surged by 10.74% and 10.72%, respectively. 

Yet over the years, cash holdings have declined (since 2013), loan growth has been recovering (post-2018 hikes), and investments have surged, partially replacing both. (Figure 2, middle image) 

Notably, despite the BSP’s historic liquidity injections, banks' cash reserves have continued to erode. 

The catch-22 is that if banks were profitable, why would they have shed cash reserves over the years? 

Why the series of RRR cuts? 

III. Viewing Bank’s Asset Growth Through the Lens of the PSE 

During the Philippine Stock Exchange Index (PSEi) 30’s run-up to 7,500, Other Financial Corporations (OFCs)—potentially key players in the so-called "national team"—were substantial net buyers of both bank and non-bank equities. 

BSP, January 31, 2025: "The q-o-q rise in the other financial corporations’ domestic claims was attributable to the increase in its claims on the depository corporations, the other sectors, and the central government. In particular, the other financial corporations’ claims on the depository corporations grew as its holdings of bank-issued debt securities and equity shares increased.  Likewise, the sector’s claims on the other sectors grew as its investments in equity shares issued by other nonfinancial corporations and loans extended to households expanded. The growth in the OFCs’ domestic claims was further supported by the rise in the sector’s investments in government-issued debt securities" (bold added)

The OFCs consist 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.

In Q3 2024, claims on depository corporations surged 12% YoY, while claims on the private sector jumped 8%, both reaching record highs in nominal peso terms.

Meanwhile, the PSEi and Financial Index surged 15.1% and 23.4%, respectively. The Financial Index hit an all-time high of 2,423.37 on October 21st, and as of this writing, remains less than 10% below that peak. The Financial Index, which includes seven banks (AUB, BDO, BPI, MBT, CBC, SECB) and the Philippine Stock Exchange (PSE) as the sole non-bank component, has cushioned the PSEi 30 from a collapse. (Figure 2, lowest chart)

Figure 3

It has also supported the PSEi 30 and the PSE through the private sector claims. (Figure 3, topmost pane)

The irony is that OFCs continued purchasing bank shares even as the banking sector’s profit growth (across universal-commercial, thrift, and rural/cooperative banks) materially slowed (as BSP’s official rates rose)

In 2024, the banking system’s net profit growth fell to 9.8%, the lowest in four years. (Figure 3, middle chart)

Meanwhile, trading income—despite making up just 2.2% share of total operating income—soared 78.3% YoY. 

The crux is that the support provided to the Financial Index by the OFCs may have enabled banks to increase their asset base via their ‘investment’ accounts, while simultaneously propping up the PSEi 30. 

Yet, this also appears to mask the deteriorating internal fundamentals of Philippine banks. (Figure 3, lowest graph) 

There are several possibilities at play: 

1. The BSP’s influence could be a factor;

2. Banks may have acted like a cartel in coordinating their actions

3. The limited depth of Philippine capital markets may have forced the industry’s equity placements into a narrow set of options.

But in my humble view, the most telling indicator? Those coordinated intraday pumps—post-recess "afternoon delight" rallies and pre-closing floats—strongly suggest synchronized or coordinated activities.

The point of this explanation is that Philippine banks and non-bank institutions appear to be relying on asset inflation to boost their balance sheets. 

Aside from shielding banks through liquidity support for the real estate industry, have the BSP's RRR cuts also been designed to boost the PSEi 30?

IV. March 2025 RRR Cuts and the Liquidity Conundrum: Unraveling the Banking System’s Pressure Points 

Philstarnews.com, February 22, 2025: The Bangko Sentral ng Pilipinas (BSP) surprised markets yesterday as it announced another major reduction in the amount of deposit banks are required to keep with the central bank. The BSP said it would reduce the reserve requirement ratios (RRR) of local banks, effective March 28, to free up more funds to boost the economy.  “The BSP reiterates its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments. Reducing RRRs will lessen frictions that hinder financial intermediation,” the central bank said…The regulator slashed the RRR for universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions (NBQBs) by 200 basis points, to five percent from the current level of seven percent. 

The BSP last reduced the reserve requirement ratio (RRR) on October 25, 2024. With the next cut taking effect on March 28, 2025, this marks the fastest and largest RRR reduction in recent history.

In contrast, the BSP previously cut RRR rates from 18% to 14% over an eight-month period between May and December 2019.

Why the RRR Cuts if NPLs Are Not a Concern?

Figure 4

BSP’s balance sheet data from end-September to November 2024 shows that the RRR reduction led to a Php 124.5 billion decline in Reserve Deposits of Other Depository Corporations (RDoDC)—an estimate of the liquidity injected into the system. The downtrend in bank reserves since 2018 reflects the cumulative effect of these RRR cuts.  (Figure 4, topmost image)

Yet, despite the liquidity injection, the banking system’s cash and due-from-bank deposits continued to decline through December. It has been in a downtrend since 2013. (Figure 4, middle pane)

Cash reserves dropped 6% in 2024, marking the third consecutive annual decline. The BSP’s 2020-21 historic Php 2.3 trillion injection has largely dissipated.

Since peaking at Php 3.572 trillion in December 2021, cash levels have fallen by Php 828 billion to Php 2.743 trillion in December 2024—essentially returning to 2019 levels.  (Figure 4, lowest chart)

Figure 5

The BSP’s other key liquidity indicator, the liquid assets-to-deposits ratio has also weakened, resonating with the cash reserve trend. This decline, which began in 2013, was briefly offset by the BSP’s historic Php 2.3 trillion liquidity injection but has now resumed its downward trajectory. (Figure 5, topmost diagram) 

Other Factors Beyond Cash and Reserves

The slowdown isn’t limited to cash reserves. 

Deposit growth has also decelerated since 2013, despite reaching record highs in peso terms. Ironically, a robust 12.7% rebound in bank lending growth (excluding interbank loans and repos) in 2024, which should have spurred deposit growth, failed to translate into meaningful gains. Peso deposits grew by just 7% in 2024. (Figure 5, middle pane) 

The question arises: where did all this money go? 

This brings attention back onto the BSP’s stated goal of "enabling banks to channel funds more effectively toward productive loans and investments." This growing divergence between total loan portfolio growth and peso deposit expansion in the face of RRR cuts—20% before March 2018, now down to just 7% last October—raises further questions about its effectiveness in boosting productive lending and investment.

A Deeper Liquidity Strain: Rising Borrowings

Adding to signs of the increasing liquidity stress, bank borrowings hit an all-time high in 2024, both in gross and net terms. (Figure 5, lowest graph)

Figure 6

Total borrowings surged by Php 394.5 billion, pushing outstanding bank debt to a record Php 1.671 trillion.

More importantly, the focus of borrowing was in bill issuance, which accounted for 65% of total bank borrowings in 2024 (!)—a strong indicator of tightening liquidity. (Figure 6, topmost image)

If banks are highly profitable and NPLs are not a major issue, why are they borrowing so aggressively and requiring additional RRR cuts?

The liquidity squeeze cannot be attributed solely to RRR levels alone—otherwise, the 2018–2020 cut from 20% to 12% should have stemmed the tide.

V. Liquidity Drain: Record Investment Risks and Elevated Marked-to-Market Losses

There’s more to consider.

Beyond lending, bank investments—another key bank asset class—also hit a record high in peso terms in 2024.

Yet, despite lower fixed-income rates, banks continued to suffer heavy losses on their investment portfolios: Accumulated investment losses stood at Php 42.4 billion in 2024, after peaking at Php 122.85 billion in 2022. (Figure 6, middle diagram)

Banks have now reported four consecutive years of investment losses.

These losses undoubtedly strain liquidity, but what’s driving them?

The two primary investment categories—Available-for-Sale (AFS) and Held-to-Maturity (HTM) securities—accounted for 40% and 52.6% of total bank investments, respectively.

Accumulated losses likely stem from AFS positions, reflecting volatility in equity, fixed-income, foreign exchange, and other trading activities.

VI. Despite Falling Rates, Bank’s Held-to-Maturity Assets Remain Near Record High

Interestingly, despite easing fixed-income rates, HTM assets remained close to their all-time high at Php 3.95 trillion in December 2024, barely below the December 2023 peak of Php 4.02 trillion.

Since January 2023, HTM holdings have hovered tightly between Php 3.9 trillion and Php 4 trillion.

Government Financing and Liquidity Risks

Yet, this plateau may not persist.

Beyond RRR cuts, the banking system’s Net Claims on Central Government (NCoCG) surged 7% to a new high of Php 5.541 trillion in December 2024.

Per BSP: "Net Claims on CG include domestic securities issued by, and loans extended to, the central government, net of liabilities such as deposits."

While this is often justified under Basel III capital adequacy measures, in reality, it functions as a quasi-quantitative easing (QE) mechanism—banks injecting liquidity into the financial system by financing the government.

The likely impact?

The losses in government securities are categorized as HTMs, effectively locking away liquidity.

BSP led Financial Stability Coordination Council (FSCC) noted in their 2017 Financial Stability Report in 2018 that: "Banks face marked-to-market (MtM) losses from rising interest rates. Higher market rates affect trading since existing holders of tradable securities are taking MtM losses as a result. While some banks have resorted to reclassifying their available-for-sale (AFS) securities into held-to-maturity (HTM), some PHP845.8 billion in AFS (as of end-March 2018) are still subject to MtMlosses. Furthermore, the shift to HTM would take away market liquidity since these securities could no longer be traded prior to their maturity" (bold mine) 

Curiously, discussions of HTM risks vanished from BSP-FSCC Financial Stability Reports after the 2017 and 2018 H1–2019 H1 issues.

VII. Moral Hazard and the "COVID Bailout Playbook"

Although NCoCG has been growing since 2015, banks accelerated their accumulation of government securities as part of the BSP’s 2020 pandemic rescue package. 

Are banks aggressively lending to generate liquidity solely to finance the government? Are they also using government debt to expand the collateral universe for increased lending? Government debt is also used as collateral for interbank loans and repo transactions. 

Have accounting regulations—such as HTM—transformed into a silo that shields Mark-to-Market losses? 

The growth of HTM has aligned with NCoCG. (Figure 6, lowest chart)

While this may satisfy Basel capital adequacy requirements, ironically, it also exposes the banking system to investment concentration risk, sovereign risk, and liquidity risk.

This suggests that reported bank "profits"—likely inflated by subsidies and relief measures—are overshadowed by a toxic mix of trading losses, HTM burdens, and potentially undeclared or hidden NPLs. 

These pressures have likely forced the BSP to aggressively cut RRR rates.

As anticipated, authorities appear poised to replicate the COVID-era bailout playbook, which they view as a success in averting a crisis.

The likely policy trajectory template includes DIRECT BSP infusions via NCoCG, record fiscal deficits, further RRR and policy rate cuts, accelerated bank infusions NCoCG, a higher cap on the USD/PHP exchange rate, and additional subsidies and relief measures for banks.

This is unfolding before us, one step at a time.

VIII. The Bigger Picture: Are We Headed for a Full-Blown Crisis?

Given the moral hazard embedded in this bailout mindset, banks may take on excessive risks, exacerbating "frictions in financial intermediation". Debt will beget more unproductive debt. "Ponzi finance" risks will intensify heightening liquidity constraints that could escalate into a full-blown crisis. 

Further, given the banking system’s fractional reserve operating framework, riskier bank behavior, whetted by reduced cash buffers, heightens the risks of lower consumer confidence in the banking system—which translates to a higher risk of a bank run. 

The Philippine Deposit Insurance Corporation (PDIC) reportedly has funds to cover 18.5% of insured deposits, or P3.53 trillion, as of 2023. 

So, with the RRR cuts, is the BSP gambling with this?

IX. Conclusion: RRR Cuts a High-Risk Strategy?

BSP’s statistics cannot be fully relied upon to assess the true health of the banking system.

1. The decline in non-performing loans (NPLs) is inconsistent with slowing economic growth and the deflationary spiral in the real estate sector. Likewise, falling NPLs contradict the ongoing liquidity pressures faced by banks.

2. Evidence of these liquidity strains is clear: bank borrowings have surged to record levels, with bill issuances dominating the market. The BSP’s RRR cuts only reinforce the mounting liquidity constraints. 

3. Beyond lending, banks have turned to investments to strengthen their balance sheets—including supporting the Philippine Stock Exchange (PSE), even as asset prices have become increasingly misaligned with corporate earnings.

4. In a bid to further boost systemic liquidity, implied quantitative easing (QE) spiked to an all-time high in December, which will likely translate into a higher volume of Held-to-Maturity (HTM) assets.

Through aggressive RRR cuts, is the BSP taking a high-risk approach merely to uphold its statistical narrative?