BSP’s Fourth Rate Cut: Who Benefits, and at What Cost?

 

A country does not choose its banking system: rather it gets a banking system consistent with the institutions that govern its distribution of political power—Charles Calomiris and Stephen Haber

In this issue

BSP’s Fourth Rate Cut: Who Benefits, and at What Cost?

I. Introduction: BSP’s Easing Cycle, Fourth Interest Rate Cut

II. The Primary Beneficiaries of BSP’s Policies

III. The Impact of the BSP Monetary Policy Rates on MSMEs

IV. The Inflation Story—Suppressed CPI as a Justification? Yield Curve Analysis

V. Logical Contradictions in the Philippine Banking Data

VI. Slowing Bank Asset Growth

VII. Booming Bank Lending—Magnified by the Easing Cycle

VIII. Economic Paradoxes from the BSP’s Easing Cycle

IX. Plateauing Investments and Rising Losses

X. Mounting Liquidity Challenges in the Banking System

XI. Conclusion: Unmasking the BSP’s Easing Cycle: A Rescue Mission with Hidden Costs 

BSP’s Fourth Rate Cut: Who Benefits, and at What Cost? 

As part of its ongoing easing cycle, the BSP cut rates for the fourth time in April 2025. The key question: who benefits? Clues point to trickle-down policies at work. 

I. Introduction: BSP’s Easing Cycle, Fourth Interest Rate Cut 

The Bangko Sentral ng Pilipinas (BSP) initiated its easing cycle in the second half of 2024, implementing three rate cuts and reducing the banking system’s Reserve Requirement Ratio (RRR) in October 2024. 

This was followed by a second RRR reduction in March 2025, complemented by the doubling of deposit insurance by the Philippine Deposit Insurance Corporation (PDIC), a BSP-affiliated agency, in the same month. 

The latter was likely intended to boost depositor confidence in the banking system, given the rapid decline in banks’ reserves amid heightened lending and liquidity pressures. (previously discussed) 

Last week, the BSP announced its fourth rate cut—the first for 2025—bringing the policy rate to 5.5%. 

The BSP justified this latest cut by citing the easing of inflation risks and a "more challenging external environment, which could dampen global GDP growth and pose downside risks to domestic economic activity." 

But who truly benefits from these policies? 

Or, we ask: Cui bono? 

The answer naturally points to the largest borrowers: the Philippine government, elite-owned conglomerates, and the banking system. 

Let’s examine the beneficiaries and question whether the broader economy is truly being served. 

II. The Primary Beneficiaries of BSP’s Policies 

The BSP’s easing measures disproportionately favor the following:

Figure 1

A. The Philippine Government: Public debt surged by Php 319.26 billion to a record PHP 16.632 trillion in February 2025.  Debt-to-GDP ratio increased to 60.72% in 2024, up from 60.1% in 2023. (Figure 1, topmost image) 

While debt servicing data for the first two months of 2025 appears subdued, it accounted for 7.64% of nominal GDP in 2024—a steady increase from its 2017 low of 4.11%. Between 2022 and 2024, the debt servicing-to-GDP ratio accelerated from 5.87% to 7.64%, reflecting the growing burden of rising debt.

Lower interest rates directly reduce the government’s borrowing costs, providing fiscal relief at a time of record-high debt, but they also encourage more debt-financed spending, a key factor contributing to this all-time high.

B. Elite-Owned Conglomerates: Major corporations controlled by the country’s elites have also seen their debt levels soar. 

For instance, San Miguel Corporation’s 2024 debt increased by Php 154.535 billion to a record Php 1.56 trillion, while Ayala Corporation’s debt rose by PHP 76.92 billion to PHP 666.76 billion. 

Other member firms of the PSEi 30 have yet to release their annual reports, but Q3 2024 data shows that the non-financial debt of the PSEi 30 companies grew by Php 208 billion, or 3.92%, to PHP 5.52 trillion—equivalent to 16.6% of Total Financial Resources (Q3).

These conglomerates benefit from lower borrowing costs, enabling them to refinance existing debt or fund expansion at cheaper rates, but similar to the government, their mounting loan exposure diverts financial resources away from the rest of the economy, exacerbating credit constraints for smaller firms. 

C. The Philippine Banking System: The banking sector itself is a significant beneficiary. 

In February 2025, aggregate bonds and bills payable surged by Php 560.2 billion—the fourth-highest increase on record—pushing outstanding bank borrowings to PHP 1.776 trillion, the second-highest level ever, just below January 2025’s all-time high of PHP 1.78 trillion. (Figure 1, middle pane)

Ideally, lower rates and RRR cuts provide banks with cheaper funding and more lendable funds, boosting their profitability while easing liquidity pressures. But have they? 

These figures reveal the primary beneficiaries of the BSP’s policies: the government, elite conglomerates, and the banking system.

III. The Impact of the BSP Monetary Policy Rates on MSMEs

But what about the broader economy, particularly the micro, small, and medium enterprises (MSMEs) that form its backbone?

Republic Act 9501, the Magna Carta for MSMEs, mandates that banks allocate at least 8% of their total loan portfolio to micro and small enterprises (MSEs) and 2% to medium enterprises (MEs), based on their balance sheets from the previous quarter.

However, a recent report by Foxmont Capital Partners and Boston Consulting Group (BCG), cited by BusinessWorld, highlights a stark mismatch: despite MSMEs comprising 99.6% of all businesses in the Philippines, generating 67% of total employment, and contributing up to 40% of GDP, they accounted for only 4.1% of total bank lending in 2023—a sharp decline from 8% in 2010.

As of Q3 2024, the BSP reported a total compliance rate with the Magna Carta for MSMEs stood at just 4.6%. (Figure 1, lower graph)

Despite a boom in bank lending, many banks opt to pay penalties for non-compliance rather than extend credit to MSMEs.

This underscores a harsh reality: bank lending remains concentrated among a select few—large corporations and the government—while MSMEs continue to be underserved.

All told, the BSP's policies have minimal impact on MSMEs, highlighting their distortive distributional effects

The report further echoes a "trickle-down" monetary policy critique we’ve long emphasized: the Philippine banking system is increasingly concentrated. Over 90% of banking assets are held by just 20 large banks, while more than 1,800 smaller institutions, primarily serving rural areas, collectively control only 9% of total assets!

Figure 2

This concentration is evident in the universal and commercial banks’ share of total financial resources, which stood at 77.7% in January 2025, slightly down from a historic high of 77.9% in December 2024. (Figure 2, topmost diagram)

If the BSP’s policies primarily benefit the government, banks, and elite conglomerates rather than the broader economy, why is the central bank pushing so hard to continue its easing cycle? And what have been the effects of its previous measures?

IV. The Inflation Story—Suppressed CPI as a Justification? Yield Curve Analysis

One of the BSP’s stated reasons for the April 2025 rate cut was a decline in the Consumer Price Index (CPI), with March headline CPI at 1.8%.

However, authorities have done little to explain to the public the critical role that Maximum Suggested Retail Prices (MSRPs)—essentially price controls—played in shaping this decline.

First, the government imposed MSRPs on imported rice on January 20, 2025, despite rice prices already contracting by 2.3% that month. (Figure 2 middle chart)

The second phase of rice MSRPs was implemented on March 31, despite rice prices deflating.

Second, pork MSRPs were introduced on March 10, 2025.

Pork inflation, which peaked at 8.5% in February, slipped to 8.2% in March, despite a reported compliance rate of only 25% in the National Capital Region (NCR).

Notably, pork sold in supermarkets and hypermarkets was exempt from these controls, revealing an inherent bias of policymakers against MSMEs. Were authorities acting as tacit sales agents for the former?

Third, since the introduction of these quasi-price controls, headline CPI has declined faster than core CPI (which excludes volatile food and energy prices), which printed 2.2% in March. (Figure 2, lowest window)

Food CPI, with a 34.78% weighting in the CPI basket, has likely been a significant driver of this decline, more so than core CPI.

This divergence suggests that price controls artificially suppressed headline inflation, masking underlying price pressures.

Meanwhile, the falling core CPI points to weak consumer demand, a concerning trend given the Philippines’ near-record employment rates.

Figure 3

Finally, the Philippine treasury market appears to challenge the BSP’s narrative of controlled inflation at 1.8% in March 2025.

Yield data shows a subtle flattening in the mid-to-long section of the curve: yields for 2- to 5-year maturities dipped slightly (e.g., the 5-year yield fell by 2.8 basis points from February 28 to March 31), while the 10-year yield rose by 6.75 basis points, and long-term yields, such as the 25-year, declined by 3.15 basis points. (Figure 3, topmost image)

This flattening—driven by a narrowing spread between medium- and long-term yields—may reflect market concerns about economic growth and banking system liquidity.

Despite this, the overall yield curve remains steep last March, signaling that the market anticipates inflation risks in the future.

This suggests that Treasury investors doubt the sustainability of the BSP’s inflation management.

We suspect that authorities leveraged price controls to justify the rate cut, using the suppressed CPI as a convenient metric rather than a true reflection of economic conditions.

This raises questions about the BSP’s transparency and the real motivations behind its easing cycle.

V. Logical Contradictions in the Philippine Banking Data

When you make a successful lending transaction, you get back not only your capital but the interest with it. Less costs, this income represents your profits and adds to your liquidity (savings or capital).

When you make a successful investment transaction, you get back not only your capital but the dividend or capital gains with it. Less costs, this income also represents your profits and adds to your liquidity (savings or capital).

Applied to the banking system, under these ideal circumstances, declared profits should align with liquidity conditions, but why does this depart from this premise?

Let us dig into the details. 

VI. Slowing Bank Asset Growth 

Bank total assets grew by 8% year-over-year (YoY) in February 2025 to PHP 26.95 trillion, slightly below December 2024’s historic high of PHP 27.4 trillion.  (Figure 3, middle pane)

Despite the BSP’s easing cycle, the growth in bank assets has been slowing, a downtrend that has persisted since 2013. This decline in the growth of bank assets has mirrored the falling share of cash reserves.

The changes in the share distribution of assets illustrate the structural evolution of the Philippine banking system.

As of February 2025, lending, investments, and cash represented the largest share, totaling 92.6%, broken down into 54.5%, 28.8%, and 8.8%, respectively. (Figure 3, lowest visual)

Since 2013, the share of cash reserves has been declining, bank loans broke out of their consolidation phase in July 2024 (pre-easing cycle), while the investment share appears to be peaking.

VII. Booming Bank Lending—Magnified by the Easing Cycle

The Total Loan Portfolio (inclusive of Interbank Loans (IBL) and Reverse Repurchase Agreements (RRP)) grew by 12.3% in February 2025, slightly down from 13.7% in January.

Since the BSP’s historic rescue during the pandemic recession, bank lending growth has been surging, regardless of interest rate and Reserve Requirement Ratio (RRR) levels. The recent interest rate and RRR cuts have only amplified these developments.

Figure 4

Notably, bank lending growth has become structurally focused on consumer lending, with the Universal-Commercial share of consumer loans rising to an all-time high as of February 2025. (Figure 4, topmost graph)

This shift is partly due to credit card subsidies introduced during the pandemic recession. This evolution in the banks’ business model also points to an inherent proclivity toward structural inflation: producers are receiving less financing (leading to reduced production and more imports), while consumers have been supplementing their purchasing power, likely to keep up with cumulative inflation.

In short, this strategic shift toward consumption lending underlines the axiom of "too much money chasing too few goods."

The rising loan-to-deposit ratio further shows that bank lending has not only outperformed asset growth, but ironically, these loans have not translated into deposits. (Figure 4, middle chart)

Total deposit liabilities growth slowed from 6.83% in January to 5.6% in February, driven by a slowdown in peso deposits (from 6.97% to 6.3%) and a sharp plunge in foreign exchange (FX) deposit growth (from 6.14% to 2.84%). (Figure 4, lowest window)

Peso deposits accounted for 82.7% of total deposit liabilities. Ironically, despite the USD-PHP exchange rate drifting near the BSP’s ‘upper band limit’ or its ‘Maginot Line’, FX deposit growth has materially slowed.

VIII. Economic Paradoxes from the BSP’s Easing Cycle 

Paradoxically, despite near-record employment levels (96.2% as of February 2025) and stratospheric loan growth propelled by consumers, the GDP has been stalling, with Q3 and Q4 2024 underperforming at 5.2% and 5.3%, respectively.

Real estate vacancies have been soaring—even the most optimistic analysts acknowledge this—and Core CPI has been plunging (2.2% in March 2025, as mentioned above).

Figure 5

Meanwhile, social indicators paint a grim picture: SWS hunger rates in March have hit near-pandemic milestones, and self-rated poverty, affecting 52% of families, has rebounded in March after dropping in January 2025 to 50% from a 21-year high of 63% recorded in December 2024. (Figure 5, topmost image) 

In a nutshell, where has all the fiat money created via loans flowed? What is the black hole consuming these supposedly profitable undertakings? 

IX. Plateauing Investments and Rising Losses 

The plateauing of investments is highlighted by their slowing growth rates. 

Total Investments (Net) decelerated from 5.85% in January to 4.86% in February 2025. This slowdown comes in the face of elevated market losses, which remained at PHP 26.4 billion in February, down from PHP 38.1 billion a month ago. (Figure 5, middle diagram) 

Held-to-Maturity (HTM) securities accounted for the largest share of Total Investments at 52.22%, followed by Available-for-Sale (AFS) securities at 38.5%, and Financial Assets Held for Trading (HFT) at 5.6%. 

Despite the CPI’s sharp decline, backed by the BSP’s easing, elevated Treasury rates—such as the 25-year yield at 6.3%—combined with losses in trading positions at the PSE (despite coordinated buying by the "national team" which likely includes some banks—to prop up the PSEi 30 index) have led to losses in banks’ trading accounts. 

Clearly, this is one reason behind the BSP’s easing cycle.

Yet, HTM securities remain the largest source of bank investments.

In early March 2025, we warned that the spike in banks’ funding of the government via Net Claims on Central Government (NCoCG) would filter into HTM assets: 

"Valued at amortized cost, HTM securities mask unrealized losses, potentially straining liquidity. Overexposure to long-duration HTMs amplifies these risks, while rising government debt holdings heighten banks’ sensitivity to sovereign risk. 

With NCoCG at a record high, this tells us that banks' HTMs are about to carve out another fresh milestone in the near future. 

In short, losses from market placements and ballooning HTMs have offset the liquidity surge from a lending boom, undermining the BSP’s easing efforts." (Prudent Investor, March 2025)

Indeed, the NCoCG spike to a record PHP 5.54 trillion in December 2024 pushed banks’ HTM holdings above their previous high of PHP 4.017 trillion in October 2023, breaking the implicit two-year ceiling of PHP 4 trillion to set a fresh record of PHP 4.051 trillion in February 2025. (Figure 5, lowest pane) 

This increase raised the HTM share of assets from 14.7% in January to 15.03% in February. 

X. Mounting Liquidity Challenges in the Banking System

Figure 6

This new all-time high in HTM securities led to a fresh all-time low in the cash-to-deposit ratio, meaning that despite the RRR cuts, cash reserves dropped more than the slowdown in deposit growth would suggest. (Figure 6, topmost chart)

The banking system’s cash and due from banks fell 2.94% in February to PHP 2.37 trillion, its lowest level since June 2019, effectively erasing all of the BSP’s unprecedented PHP 2.3 trillion cash injection in 2020-21. (Figure 6, middle graph)

Moreover, the liquid assets-to-deposits ratio, another bank liquidity indicator, dropped to June 2020 levels. (Figure 6, lowest visual)

The BSP cut the RRR in October 2024, yet liquidity challenges continue to mount. What, then, will the March 2025 RRR cut achieve? While the BSP notes that bank credit delinquency measures—such as gross non-performing loans (NPLs), net NPLs, and distressed assets—have remained stable, it’s doubtful that HTM securities are the sole contributor to the liquidity challenges faced by the banking system.

Improving mark-to-market losses are part of the story, but with record credit expansion (in pesos) and an all-time high in financial leverage amid a slowing GDP, it’s likely that the banks’ unpublished NPLs are another factor involved.

Figure 7

Additionally, banks have increasingly relied on borrowing, with bills payable accounting for 67% of their outstanding debt. (Figure 7, upper graph)

Though banks have reduced their repo exposure with the BSP, interbank repos set a record high in February 2025, providing further signs of liquidity strains. (Figure 7, lower chart)

Banks have been aggressively lending, particularly to high-risk sectors such as consumers, real estate, and trade, to raise liquidity to fund the government.

However, this has led to a build-up of HTM securities and sustained mark-to-market losses for HFT and AFS assets.

Additionally, lending to high-risk sectors like consumers and real estate increases the risk of defaults, particularly in a slowing economy, which can strain liquidity if these loans become non-performing.

Moreover, this lending exacerbates maturity mismatches—for instance, when short-term deposits are used to fund longer-term real estate loans—amplifying the liquidity challenges as banks face immediate funding demands with potentially impaired assets.

While the BSP’s “relief measures” may understate the true risk exposures of the industry, the mounting liquidity challenges and the increasing scale and frequency of their combined easing policies have provided clues about the extent of these risks.

Borrowing from our conclusion in March 2025:

"The BSP’s easing cycle has fueled a lending boom, masked NPL risks, and propped up government debt holdings, yet liquidity remains elusive. Cash reserves are shrinking, deposit growth is faltering, and banks are borrowing heavily to stay afloat.

...

As contradictions mount, a critical question persists: can this stealth loose financial environment sustain itself, or is it a prelude to a deeper crisis?" (Prudent Investor March 2025)

Under these conditions, the true beneficiaries of the BSP’s easing cycle become clear: it is primarily a rescue of the elite owned-banking system. 

XI. Conclusion: Unmasking the BSP’s Easing Cycle: A Rescue Mission with Hidden Costs 

The BSP has used inflation and external challenges to justify its fourth rate cut in April 2025, part of an easing cycle that began in the second half of 2024. 

The sharp decline in the March CPI rate to 1.8%—potentially understated due to price controls through Maximum Suggested Retail Prices (MSRPs)—may have provided a convenient rationale. 

However, the data suggests a different story: increasing leverage in the public sector, elite firms, and the banking system appears to be the real driver behind the BSP’s easing cycle, which also includes RRR reductions and the PDIC’s doubling of deposit insurance. 

The evidence points to a banking system under strain—record-low cash reserves, a lending boom that fails to translate into deposits, and economic paradoxes like stalling GDP growth despite near-record employment. 

When the BSP cites a "more challenging external environment, which would dampen global GDP growth and pose a downside risk to domestic economic activity," it is really more concerned about the impact on the government’s fiscal conditions, the health of the elite-owned banking system, and elite-owned, too-big-to-fail corporations. 

This focus comes at the expense of the broader economy, as MSMEs remain underserved and systemic risks, such as unpublished NPLs and overexposure to government debt, continue to mount. 

As the BSP prioritizes a rescue mission for its favored few, one must ask: at what cost to the Philippine economy, and can this trajectory avoid a deeper crisis?

 

 

 

Marcos-Nomics Stimulus Update: August Budget Deficit Narrows, Strong Peso Reduces Public Debt, and Amortization Payments Reach All-Time High!

 

Lowering rates is a tool to rescue the government, but it will also make the Treasury add more debt in the next few months. If you make it easy for governments to borrow, they will gladly do it and continue printing currency, leading to the currency’s slow decline—Daniel Lacalle 

In this issue

Marcos-Nomics Stimulus Update: August Budget Deficit Narrows, Strong Peso Reduces Public Debt, and Amortization Payments Reach All-Time High!

I. A Growing Dependence on Non-Tax Revenue Growth? Or, Padding the Government’s Top line?

II. August’s Decline in Public Spending Due to Technicalities, Robust Pre-Election LGU Spending

III. Eight-Month Amortization Payments Hit All Time, Debt Servicing Cost at Annual 2023 Levels!

IV. Mounting Neo-Corporatism/Fascism Policies: Privatize Profits, Socialize Costs

V. Strong Peso Resulted in Lower Public Debt Last August

VI. Conclusion

Marcos-Nomics Stimulus Update: August Budget Deficit Narrows, Strong Peso Reduces Public Debt, and Amortization Payments Reach All-Time High! 

The "Marcos-nomics Stimulus" remains intact. Though deficit spending "narrowed" and public debt fell in August, technicalities and political agenda like pre-election spending points to the government’s deferred actions. 

GMA News, September 25, 1965: The Philippine government yielded a narrower fiscal shortfall in August amid growth in state collections and contraction in expenditures during the period. Data released by the Bureau of the Treasury on Wednesday showed the national government’s budget deficit stood at P54.2 billon last month, lower by 59.25% than the P133-billion fiscal gap seen in August 2023. “The lower deficit was brought about by the 24.40% growth in government receipts alongside a minimal 0.68% contraction in government expenditures,” the Treasury said. August’s fiscal balance brought the year-to-date budget shortfall to P697 billion, down 4.86% from the P732.5-billion deficit in the same period last year. 

Since the government has shifted VAT collections to an end-of-quarter basis, and given that the majority of public spending is typically programmed for the end of the quarter, the essence of the government’s balance sheet scorecard will be most relevant at the end of each quarterly period. 

In any case, we’ll do a short analysis. 

I. A Growing Dependence on Non-Tax Revenue Growth? Or, Padding the Government’s Top line?

Figure 1 

Although it is true that the fiscal deficit improved in August—largely due to a combination of decreased expenditures (-0.7% YoY and -9.4% MoM) amidst a mixed performance in revenues (+24.4% YoY and -15.5% MoM)—the most significant aspect is that the year-to-August deficit dropped from the third highest to the fourth highest in the Treasury's records. 

Nonetheless, nominal figures suggest that August's performance aligns with the exponential trendline for both variables. Additionally, the general uptrends in revenues and spending remain intact. (Figure 1, topmost pane) 

As such, since peaking in 2020, 8-month financing by the Bureau of Treasury has slowed compared to last year. The Treasury remains liquid, with approximately Php 504 billion in cash, marginally lower than Php 509 billion last year. (Figure 1, second to the highest chart) 

But the thing is, non-tax revenues have anchored a substantial segment of the progress in revenue collections. Non-tax revenues rocketed 252% year-over-year last August and soared 58.9% year-to-date compared to the same period in 2023. This growth spike pushed up the segment’s share of revenue to 17.12%—its sixth consecutive month of double-digit representation. In the eight months of 2024, the non-tax revenue pie swelled to 14.53%—the highest since 2015 (Figure 1, second to the lowest and lowest graphs) 

According to the Bureau of Treasury: Income collected and generated by the Bureau of the Treasury (BTr) rose to P16.5 billion in August, more than twice its collections in the same period a year ago. The increase was primarily driven by PSALM’s P10.0 billion settlement of guarantee fee arrears, alongside increased PAGCOR income. Compared with January-August 2023’s actual collections of P150.1 billion, BTr’s YTD income for the current year has similarly improved by 33.46% (P50.2 billion) to P200.3 billion, largely due to higher dividend remittances, interest on advances from GOCCs, guarantee fee collections, and the NG share from PAGCOR income. Collections of other offices (other non-tax, including privatization proceeds, fees and charges, and grants) in August surged to P49.6 billion, nearly quadrupling last year’s outturn. (BTR, September 2024) [bold mine] 

Has the government been padding their revenue numbers partly by inflating the non-tax revenue component? Or are they becoming dependent on it? Unlike previous episodes where non-tax revenues spiked in a month or two, this marks the first time the share of this segment has been in double digits for six consecutive months 

II. August’s Decline in Public Spending Due to Technicalities, Robust Pre-Election LGU Spending 

The next item is expenditure.

Figure 2

Although decreases of .68% year-over-year (YoY) and 9.4% month-over-month (MoM) and year-over-year (YoY) were recorded in August, the expenditure for the first eight months grew by 11% YoY to a record Php 3.69 trillion. (Figure 2, topmost window)

The decline in August was primarily due to a -3.7% YoY and -4.1% MoM contraction in the National Government’s disbursement, even though spending by local government units (LGUs) remained vigorous at +9.34% YoY and -4.3% MoM.

But authorities explained the reasons behind this.

Again from the BTR: This can be partly attributed to the lower total subsidy releases to government corporations, and the sizeable outstanding checks recorded in various departments, such as the Department of Public Works and Highways (DPWH), the Department of Social Welfare and Development (DSWD), and the Department of Health (DOH), during the period. Outstanding checks represent payments made by line departments for the delivery of goods/services but are not yet presented for encashment at the banks by the concerned contractors or payees. These remain under the accounts of spending agencies in authorized government depository banks and are not yet considered as actual disbursements in the Cash Operations Report. [bold mine]

In short, the most recent uncashed disbursements from the National Government will be reflected in upcoming data.

As it stands, the brisk growth of spending by local government units (LGUs) likely signifies the pre-election (mid-term) spending.  The cumulative data for the first eight months (+9.65% YoY) reached its second highest level since the record set in 2022, which, coincidentally, was the year of the Presidential Elections. (Figure 2, lower window)

This trend is expected to be sustained as we approach the 2025 elections.

III. Eight-Month Amortization Payments Hit All Time, Debt Servicing Cost at Annual 2023 Levels!

Lower interest payments accounted for yet another reason behind the decrease in expenditures last August.

Interest payments fell by 33.6% month-over-month (MoM) but surged by 23.7% year-over-year (YoY).

Despite this, the cumulative interest outlays for the first eight months increased by 31.1% YoY, reaching an all-time high of Php 509.44 billion. Its share of allotment rose from 11.72% in 2023 to 13.81% in August, representing the highest level since 2009! (Figure 2, lowest chart)

That’s not all.

Figure 3

In peso terms, the amortization expenditures from January to August surpassed last year’s high, setting a new record! (Figure 3, topmost image) 

Strikingly, amortization expenditures for 2024 amounted to Php 1.041 trillion, which is 6.7% above the 2023 annual total of Php 975.3 billion.

While interest and amortization levels (in peso terms) reached milestone highs, the cumulative debt servicing costs for the first eight months amounted to Php 1.55 trillion—just 0.33% (Php 53.432 billion) lower than last year’s annual debt servicing cost of Php 1.604 trillion! (Figure 3, middle diagram)

Despite this data being publicly available, there has been little coverage by the mainstream media or commentary from the establishment.

More than anything else, do you see the reason driving the Bangko Sentral ng Pilipinas (BSP) to cut interest rates and reserve requirements (RRR)?

It’s all about an implicit government bailout through the provision of liquidity support and the lowering of debt servicing costs!

Net claims on the central government (NCoCG) by universal-commercial banks have risen in tandem with public debt. (Figure 3, lowest image)

Figure 4

These measures are part of the 2020 pandemic rescue template, which includes various regulatory accommodations (such as relief measures and subsidies) as well as direct interventions (liquidity injections) from the Bangko Sentral ng Pilipinas (BSP).

Even now, the BSP’s net claims on the central government (NCoCG) have mirrored the monthly oscillations in public spending. (Figure 4, upper visual)

Furthermore, considering the political economy's structure derived from trickle-down policies, these rescue efforts are not only designed to benefit the government; they also serve the interests of politically connected elites.

Fundamentally, the BSP provides elite-owned banks with benefits through favorable policies and implicit bailouts. In return, these primary financial institutions partially complying with capital requirement rules provide liquidity to the Philippine treasury markets.

Has the narrowed deficit been engineered to address this? We argue that it has not.

IV. Mounting Neo-Corporatism/Fascism Policies: Privatize Profits, Socialize Costs

Haven’t you noticed that this administration has been gradually appointing members of the elite circle to higher echelons of political power?

While the intention may be to create a "business-friendly" environment, this situation reeks of "pro-big business" rent-seeking cronyism.

How will MSMEs thrive in the face of the onslaught of inflation, taxes, and regulations being imposed?

For instance, due to mandates and new taxes, major online eCommerce platforms have required SME sellers to register with the government, comply with new regulations, and pay new taxes.

In response, an influx of aspiring online entrepreneurs has led to a significant surge in business registrations, which both the media and the government are celebrating as a boom!

But how many of these businesses will survive the sustained rise in inflation and the increase in compliance and transaction costs?

How many of these hopeful entrepreneurs—whether driven by necessity due to a lack of jobs or insufficient income—will be able to employ people, especially with recent increases in minimum wages?

Yet, who benefits from the reduction of competition? SMEs or the elites?

We read that some elites have partnered with the government to embark on initiatives to promote MSMEs.

While partnerships like these may seem ideal, how do raising barriers to entry actually promote entrepreneurship?

These initiatives, which the public perceives as beneficial political "do something" actions, are, in fact, a display (smack) of hypocrisy largely intended for election-related public relations.

Moreover, some proponents have advocated for the privatization of certain infrastructure institutions.

While this may seem beneficial in "simple" theory, without competition, tax relief, and the easing of regulatory and administrative obstacles, such privatization is likely to result in the privatization of costs while socializing losses, or could deepen the embrace of neo-fascism, corporatism, or crony capitalism.

V. Strong Peso Resulted in Lower Public Debt Last August 

Apart from inflation, the surge in debt servicing costs represents a secondary symptom of deficit spending, with the direct effect manifested through public debt.

From the Bureau of Treasury (BTR): National Government’s (NG) total outstanding debt stood at P15.55 trillion as of the end of August 2024, reflecting a 0.9% or P139.79 billion decrease from the end July 2024 level…Meanwhile, NG external debt amounted to P4.76 trillion, a decrease of 3.6% or P178.25 billion compared with the end of July 2024 level. The decline was brought about mainly by peso appreciation, which trimmed P194.90 billion, as well as net repayments of P4.17 billion, although stronger third-currencies added P20.82 billion in valuation effects (BTR, October 2024) [bold added]

As the BTR admitted, the revaluation effects stemming from a rare 3.9% appreciation spike in the Philippine peso, based on their data, contributed to a marginal reduction in Philippine debt. 

Breaking down the data: external debt decreased by 3.6% month-over-month (MoM) but rose by 4.4% year-over-year (YoY). Meanwhile, domestic debt increased by 0.4% MoM and 10.22% YoY. (Figure 4, middle image) 

As a result, the spike in the Philippine peso pulled down the percentage share of external debt relative to the total, which has been rising since its trough in March 2021. 

Although the narrowing of the budget deficit from July to August, driven by a slowdown in public spending, may alleviate some pressure to increase borrowings, it is likely that the government has merely deferred its spending pressures to the end of the quarter and the end of the year.  (Figure 4, lowest image) 

Second, the government announced that it raised USD 2.5 billion last August. 

Figure 5

This addition will contribute to the external debt stock, which reached an all-time high in Q2 2024 and is expected to increase further in Q3. (Figure 5, topmost graph)

External debt has now surpassed the Gross International Reserves (GIR), even though part of these borrowings is counted as part of the GIR. For instance, when the National Government raised USD 2 billion last May, the proceeds were incorporated into the June GIR: "The month-on-month increase in the GIR level reflected mainly the National Government’s (NG) net foreign currency deposits with the Bangko Sentral ng Pilipinas (BSP), which include proceeds from its issuance of ROP Global Bonds." (bold added) (Figure 5, second to the highest chart) 

Make no mistake: borrowed reserves require payment, and treating them as retained earnings or savings misrepresents actual reserves. 

Third, it is doubtful that the recent appreciation of the Philippine peso is sustainable. 

In contrast, the rising trend of the USD-Peso exchange rate partly reflects the "twin deficits" as a consequence of the government’s deep embrace of Keynesian policies that posit spending will lead to economic prosperity. (Figure 5, second to the lowest and lowest graph) 

These deficit spending policies, which depend on an easy money regime favoring the elite, have led to a record savings-investment gap that must be funded by a domestic population constrained by low savings, making it increasingly reliant on overseas savings. 

In summary, the widening savings-investment gap—partially expressed through the BSP-Banking system's funding of historic deficit spending via record-high public debt—has contributed to the weakness of the Philippine peso.

Therefore, the current decline in public debt due to the peso appreciation represents an anomaly (a bug, not a feature) rather than a trend. 

With this context in mind, one must ask: who will bear the rising costs of ever-increasing public debt and its servicing—through higher taxes and inflation? 

Is it the elites, with their army of accountants and tax lawyers, shielding themselves from their direct obligations? Is it the elites who employ financial experts and, indirectly, the government, which allocates resources to benefit from inflationary policies? 

Or is it the average Mario and Juan, who have little means for protection? 

VI. Conclusion

The "Marcos-nomics stimulus" measures remain intact.

The recent cut in the official interest rate, along with an expected series of further cuts and adjustments to reserve requirements, indicates a sustained trend of deficit spending, point to an expansion of monetary easing aimed at jolting the private sector economy and achieving political agendas through spending on pre-election, the war economy, infrastructure, welfare, bureaucratic expansion and etc., in addition to boosting GDP for financing purposes.

____

References 

Bureau of Treasury, August 2024 NG Budget Deficit Down to P54.2 Billion, treasury.gov.ph, September 25,2024

 

Bureau of Treasury, National Government Debt Recorded at P15.55 Trillion as of End-August 2024, treasury.gov.ph, October 1, 2024

Adding to the SWS Mangahas’ Critique of Trickle-Down Economics: The Philippine Banking System’s Intrinsic Bias Against SMEs

  

The man in whose power it might be to find out the means of alleviating the sufferings of the poor would have done a far greater deed than the one who contents himself solely with knowing the exact numbers of poor and wealthy people in society—Vilfredo Pareto 

In this issue

Adding to the SWS Mangahas’ Critique of Trickle-Down Economics: The Philippine Banking System’s Intrinsic Bias Against SMEs

I. The Disconnect Between Economic Data and Public Sentiment: Adding to the SWS Mangahas’ Critique of Trickle-Down Economics

II. The Trickle-down Policy: The Philippine Banking System’s Intrinsic Bias Against SMEs

III. Banks' Preference for Government Securities Crowds Out the SMEs

IV. How Trickle-Down Policies Gutted the Magna Carta for MSMEs and Stunted Philippine Capital Market Growth

V. How Trickle-Down Policies Amplify Concentration and Contagion Risks

VI. Trickle-Down Policies: How HTMs Exacerbate Balance Sheet Mismatches

VII. Rising Non-Performing Loans: Moving from the Periphery to the Core?

VIII. More Crowding Out: Banks Magnify Borrowing from Savers Focusing on Short-Term Bills

IX. More Impact of the Trickle-Down Effect on Banks: Mark-to-Market Losses

Adding to the SWS Mangahas’ Critique of Trickle-Down Economics: The Philippine Banking System’s Intrinsic Bias Against SMEs

SWS’ Dr. Mahar Mangahas recently highlighted the failure of trickle-down economics by pointing to the disconnect between government data and public sentiment. Bank data on MSME lending reinforces his position. 

I. The Disconnect Between Economic Data and Public Sentiment: Adding to the SWS Mangahas’ Critique of Trickle-Down Economics

Figure 1 

I believe in rating economic progress by listening to what the people as a whole say about their own progress, rather than by listening to the international banks, big business, politicians, the diplomatic corps, and all others who point to how the aggregate value of production is growing. Counting the number of people who have gotten better off, and comparing it with the number who have gotten worse off, is the oldest survey question in the book. It has now been surveyed 152 times at the national level: annually in 1983-85, semi-annually in 1986-91, and then quarterly since 1992. The finding of more losers than gainers in 126 of those 152 surveys—despite persistent growth in real gross national product per person, coupled with stagnation of real wages—is the clearest proof of the failure of trickle-down economics in the last four decades. (Mangahas, 2024) [Figure 1, topmost quote]

While most don’t realize it, this quote offers a striking opposition or critique of the nation’s adaptive "trickle-down" political-economic framework. Given its dissenting nature, this theme should be unpopular among the establishment.

For starters, we are skeptical of surveys because they are susceptible to manipulation, social desirability bias, or social signaling, rather than reflecting genuine (demonstrated/revealed) preferences. Interestingly, surveys form the basis of much government data.

To illustrate why the CPI is considered the MOST politicized economic data, consider the following example—from the Philippine Statistics Authority (PSA) (bold mine).

CPI allows individuals, businesses, and policymakers to understand inflation trends, make economic decisions, and adjust financial plans accordingly. The CPI is also used to adjust other economic series for price changes. For example, CPI components are used as deflators for most personal consumption expenditures in the calculation of the gross domestic product.  Moreover, it serves as a basis to adjust the wages in labor management contracts, as well as pensions and retirement benefits. Increases in wages through collective bargaining agreements use the CPI as one of their bases. (PSA, FAQ)

In short, the CPI is the basis where economic policymakers…make economic decisions…and adjust financial plans…calculate the GDP…adjust wages in labor-management contracts…in CBA (or minimum wages) …and influence the calculation of pensions (mainly SSS and GSIS) and retirement benefits (also other welfare programs as Philhealth, Pagibigm, etc).

And so, the lowering of the CPI (e.g., by rebasing it from 2006 to 2012 to 2018) bloats the GDP, minimizes payouts for pensions and retirements, and distorts labor-management contracts. Most of all, it helps the government access cheaper savings from the public.

Yet, the (quality-of-life) survey referenced by the author reflects public sentiment rather than a discourse on economic theories or statistics.

The crux of the matter is that public sentiment contradicts the landscape authorities aim to achieve, which is far from its desired state. 

Ironically, this occurs despite the daily onslaught or barrage of news promoting rosy concepts like achieving "upper middle-class status," a "sound" banking system, "reasonable" inflation, a jump in FDIs, and more. 

It demonstrates the blatant disconnect of political economic metrics such as per capita GNP and GDP from grassroots perceptions. 

Simply put, GDP does not equate to the economy. A 

The disparity between the government figures and sentiment reflects the inequality of economic outcomes. 

Or, as much as the CPI does not represent the inflation of the average Juan or Maria, neither does the GDP. Yet, who benefits from it? Cui bono? 

Though we opine a different perspective from the author, the question is, why should government spending be considered a cornerstone of prosperity when it diverts and limits the private sector from fulfilling its primary role of satisfying consumer needs and wants? 

Does historical (public and private) leveraging and near-record deficit spending, which redistributes income and wealth opportunities to the government and the politically connected, contribute to the goal of achieving "upper middle-class status?"   

Based on 2023 (annualized) data, to what extent can the economy sustain this level of debt buildup under the savings-investment gap paradigm? Won't the sheer burden of debt, beyond interest rates, stifle the real economy?  What if interest rates rise along with the debt burden? Debt servicing-to-GDP and debt-to-GDP have been way above the 1997-98 Asian Financial Crisis levels. (Figure 1, middle charts and lowest graph)

Is this economic paradigm pursued because it is driven by the "trickle-down" ideology, which posits that (indiscriminate) spending drives the economy, or because it favors the centralization of the economy, benefiting a few? 

Yes, the article confirms my priors, but it also suggests that there are others who, in their own ways, share similar perspectives. 

On the other hand, although the author's motivations are unclear, it is uncertain whether they are driven by a political bias. 

Still, given the harsh realities of the prevailing censorship and disinformation in the incumbent political environment, it is unlikely that "analytical independence" could persist. 

II. The Trickle-down Policy: The Philippine Banking System’s Intrinsic Bias Against SMEs

The dispersion of bank credit expansion serves as a prime example of the inefficiencies inherent in the 'trickle-down' economics. 

The government's bank lending data provides valuable insights into the reasons behind its flaws.

Businessworld, June 14, 2024: PHILIPPINE BANKS failed to meet the mandated quota for small business loans in the first quarter, data from the Bangko Sentral ng Pilipinas (BSP) showed. Loans extended by the banking industry to micro-, small-, and medium-sized enterprises (MSMEs) amounted to P474.922 billion as of end-March. This made up only 4.41% of their total loan portfolio of P10.77 trillion, well-below the mandated 10% quota. Under Republic Act No. 6977 or the Magna Carta for MSMEs, banks are required to allocate 10% of their total loan portfolio for small businesses. Of this, 8% of loans should be allocated for micro and small enterprises, while 2% should go to medium-sized enterprises. However, banks have long opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small businesses. (bold mine)

How can the government achieve its "upper middle-class status" goal when the backbone of the economy – small and medium-sized enterprises (SMEs) – has diminished access to lower-priced formal credit?

Figure 2 

SMEs dominate the economy. 

As noted by the DTI in 2022: "The 2022 List of Establishments (LE) of the Philippine Statistics Authority (PSA) recorded a total of 1,109,684 business enterprises operating in the country. Of these, 1,105,143 (99.59%) are MSMEs and 4,541 (0.41%) are large enterprises. Micro enterprises constitute 90.49% (1,004,195) of total establishments, followed by small enterprises at 8.69% (96,464) and medium enterprises at 0.40% (4,484)." (Figure 2, topmost pane) 

SMEs also have the largest share of employment. 

Again, the DTI stated: "MSMEs generated a total of 5,607,748 jobs or 65.10% of the country’s total employment. Micro enterprises produced the biggest share (32.69%), closely followed by small enterprises (25.35%), while medium enterprises lagged behind at 7.06%. Meanwhile, large enterprises generated a total of 3,006,821 jobs or 34.90% of the country’s overall employment." (Figure 2, middle image)  

The lack of access to formal credit leads to informal or shadow lenders, such as family, friends, local money lenders, NGOs, loan sharks, or '5-6' entities, filling the void. This inefficient means of financing results in higher costs for businesses, which in turn reduces the competitiveness of SMEs compared to large firms. 

The former president initially campaigned to ban '5-6' lending, which would have further stifled SMEs. Since the policy failed to gain traction, it can be inferred an undeclared policy failure.

The uneven effects of inflation via the Cantillon Effect—that the first recipient of the new supply of money has an arbitrage opportunity of being able to spend money before prices have increased—also pose an obstacle to MSMEs.(river.com). (Figure 2, lowest diagram)

In other words, the Bangko Sentral ng Pilipinas' (BSP) inflation targeting policy benefits large firms because they have access to new money from bank credit before prices increase, while SMEs are disadvantaged (as price takers): a reverse Robin Hood syndrome.

The lack of access to formal credit and the Cantillon Effect forge a 'protective moat' that favors large firms over SMEs.

This explains the innate inequality expressed by public sentiment.

It also weighs on the BSP’s other ambition to expand financial inclusion—a politically correct goal or a euphemism for the "war on cash."

Naturally, why would the SME universe enroll, when the formal financial system constrains their access to livelihood credit?

Figure 3

Yes, there may be improvements in many metrics of financial inclusion, but they remain distant from reaching upper middle-class levels. 

Participation rates in the banking system by the general populace remain dismal (BSP, Financial Inclusion) (Figure 3, topmost table) 

See the inequality at play? 

III. Banks' Preference for Government Securities Crowds Out the SMEs

Moreover, why would the formal financial system prefer to follow the BSP's policies rather than repricing credit higher to accommodate the higher risks associated with grassroots collections?

Repricing credit would likely raise the cost of financing government debt. Banks function as intermediaries in raising funds for the government, which represents the bulk of the bond markets. 

With a higher cost base, any institutional outlier would risk losing market share in the formal credit market. 

Intuitively, the formal financial system would rather pay the penalties associated with missing the 10% government quota than invest in a system that would reflect the higher cost of risks and transactions with SMEs. 

The spread between the average bank lending rate and the BSP's overnight repo rate (ON RRP) dropped to its lowest level in February 2023 and has barely bounced back from there. (Figure 3, middle chart) 

Therefore, there is hardly any motivation by the formal financial institutions to "go outside the box" or defy the convention. 

See how this perpetuates inequality? 

IV. How Trickle-Down Policies Gutted the Magna Carta for MSMEs and Stunted Philippine Capital Market Growth

Since banks have failed to adhere to the law and have resorted to a workaround, this translates to the fiasco of the Magna Carta legislation in its entirety. 

The restricted constellation of the formal credit system can also be found in the limited exposure to the insurance industry and capital markets. Insurance premiums signify a paltry 1.7% of the GDP. (Figure 3, lowest table) 

Figure 4 

It is barely understood that it is not the trading platform (G-stocks or other touted online alternatives) that constrains the PSE's volume, but rather the lack of savings or increases in disposable income. 

The PSE’s volume woes are equally reflected in the banking system’s cascading cash-to-deposit ratio, which eroded further last April to multi-year lows. (Figure 4, topmost chart) 

Why is this the case? 

Because the inflationary "trickle-down" policies pose a financial barrier to the general public, they also drain savings and redistribute resources to cronies and the government. 

Consequently, the paucity of penetration levels in formal institutions has also been reflected in the capital markets (fixed income and stocks). The lack of volume and breadth also characterizes the Philippine bond market, which is one of the most underdeveloped in Asia. (Figure 4, middle image) 

As previously discussed, the BSP seems misguided in thinking that the exclusion of the Philippines from the global market has been due to "foreigners don’t like us." 

Everything starts organically: rather, it’s the lack of local depth, which is a function of the failure of "trickle-down" policies. 

See how it magnifies the mechanisms of inequality? 

V. How Trickle-Down Policies Amplify Concentration and Contagion Risks

But there’s more. 

If banks have jettisoned the SMEs, then this means that they’ve been amassing intensive loan exposure on economic agents at the upper hierarchy.

As a result, this has led to an unprecedented buildup of concentration risks.  

While the mainstream views the record Total Financial Resource (TFR) and its growth positively, there is little understanding that this asset growth has primarily accrued in universal banks.

Despite April’s TFR slipping from historic March levels, it remains at an all-time high, even as the BSP’s official rates stay at a 17-year high. The rapid expansion of universal bank assets, which now constitute 78.2% of the TFR, has propelled the banking system’s aggregate share to 83.4%. Both their % shares declined in April from the unparalleled levels of March. (Figure 4, lowest graph) 

The banking system's exposure to heavily leveraged non-financial firms, such as San Miguel Corporation [PSE: SMC], is concerning. SMC's debt have reached a staggering record high of Php 1.44 trillion in Q1 2024, accounting for a significant 4.6% of the TFR in the same period.

The extent of this exposure raises questions about the potential risks to the financial system. Specifically, how much of the banking system's assets are tied up in SMC's debt? What happens within SMC will affect SMC alone? Really? 

VI. Trickle-Down Policies: How HTMs Exacerbate Balance Sheet Mismatches 

Figure 5

Banks have been funding the government through net claims on central government (NCoCG), much of which has been concentrated in Held-to-Maturity (HTM) assets. 

Once again, the BSP has acknowledged the liquidity-constraining effects of HTMs. 

The HTM component continues to be significant. Financial assets classified as HTM continued to increase in 2023. From 45.6 percent of financial assets at the beginning of 2021, its share is now nearly 58.8 percent as of November 2023 data. Taken at face value, this suggests that the banks remain defensive against potential MTM losses created by the higher market yields. Invariably, however, the threat of MTM losses can be mitigated by holding the tradable security to maturity. This though comes at the expense of liquidity. (bold original, italics mine) [BSP, FSR 2023] 

HTMs accounted for 55.56% of financial assets last April and 15.7% of the banking system’s total assets. (Figure 5, topmost chart)

Strikingly, the BSP highlighted further concerns in the 2023 Financial Stability Report (FSR), citing the US banking crisis as an example where HTMs created a false illusion of profits while significantly understating risks. 

A case to be highlighted is the phenomenon during the pandemic when the sizable allocation to HTM securities buoyed profits but had a significant impact on some banks’ liquidity during the reversal of interest rates, e.g., the case of SVB. While government securities (GS) are indeed High-Quality Liquid Assets, their liquidity can be further qualified depending on the RORO regime. A Risk-Off environment – when there are significant uncertainties and/or with sharp interest rate hikes – can freeze GS trading as banks would prefer safety. Yet, the difficulties may become too acute that they have to liquidate securities, even those classified as being held to their original maturity. There must be a way to assess the market value of the HTM assets during these periods. (italics mine) [BSP, 2023]

The extent of these maladjustments, partly revealed by balance sheet mismatches, determines the level of volatility.

Although the BSP aims to address this issue, they are hindered by the "knowledge problem," which is precisely why such imbalances exist in the first place—resulting from the policies they implement. 

Simply, if the BSP can do what it wishes to do, then markets won’t be required—a haughty pipe dream. 

VII. Rising Non-Performing Loans: Moving from the Periphery to the Core? 

Next, historic credit expansion suggests that credit delinquencies may arise due to excess exposure to unproductive debt. 

As previously noted, non-performing loans (NPLs) from credit cards and salary loans have not only increased but accelerated in Q1 2024. The relatively stable performance of motor vehicle and real estate loans has slowed down the overall growth of NPLs in consumer loans. 

The total banking sector's fixation with financing unproductive consumer spending opens a Pandora's Box of credit risks. The % shares of consumer loans and production loans are at historic opposite poles! (Figure 5, middle graph) 

Yet, problems are mounting at the periphery of the banking system. 

Net NPLs have increased significantly in government and commercial banks through April 2024. (Figure 5, lowest graph) 

One possible explanation is that government bank lending has been less prudent due to political objectives, which differs from those of the private sector. 

Notably, NPLs at commercial banks, the smallest segment, have also been increasing. Foreign banks have also seen a gradual increase in NPLs. However, there was a slight decrease in NPLs at foreign banks in April. 

A presumption here is that for these sectors to stay afloat against their largest competitors, the universal banks, commercial and foreign banks lent aggressively, and now the chicken has come home to roost. 

What happens when this reaches critical mass? 

Could this indicate signs of risks transitioning from the periphery to the core? 

VIII. More Crowding Out: Banks Magnify Borrowing from Savers Focusing on Short-Term Bills

As deposit growth has been insufficient to cover the liquidity shortfall from HTMs and NPLs, the Philippine banking system has increased its borrowings from local savers. 

Figure 6

Further signs of mounting liquidity deficiency include banks increasingly borrowing from the more expensive capital markets. (Figure 6, topmost chart) 

The focus of their financing has been on short-term securities, as evidenced by significant increases in bills payables. (Figure 6, second to the highest image)

So far, though aggregate bank borrowings have risen to near-record highs, the banking system's share of liabilities remains on the lower spectrum. 

However, increasing competition among banks, the government, and non-financial firms is likely to put upward pressure on interest rates. 

As the giants scramble for financing, this crowding out comes at the expense of SMEs. 

Do you see why the inequality persists?

IX. More Impact of the Trickle-Down Effect on Banks: Mark-to-Market Losses 

Finally, HTMs, NPLs, and the crowding out are not only the growing sources of the bank's liquidity deficits; mark-to-market losses will compound their problems as well. 

In addition to dwindling cash reserves, banks have relied on investments and the revival and acceleration of lending to bolster their assets. (Figure 6, second to the lowest chart) 

However, even when 10-year bond yields have been turned sideways, banks' mark-to-market losses have escalated. (Figure 6, lowest diagram) 

Therefore, mainstream banks are likely to conserve their resources at the expense of small and medium-sized enterprises (SMEs). 

There you have it: a litany of reasons why the Magna Carta for MSMEs failed and the reasons behind the divergence between public sentiment and mainstream statistics. 

In essence, when it comes to the interests of the Philippine version of Wall Street versus Main Street, policymakers tend to favor rescuing big money.

The infamous fugitive Willie Sutton famously explained why he robbed banks, "Because that's where the money is."

In the local context, "trickle-down" policies manifest the stark realities of political-economic inequalities, perpetuating income disparities and social exclusion. 

____

References: 

Mahar Mangahas, Independence from GNP Inquirer.net, June 16, 2024

Philippine Statistics Authority, Frequently Asked Questions, PSA.gov.ph

River Learn, Cantillon Effect, river.com

Bangko Sentral ng Pilipinas, Financial Inclusion in the Philippines Dashboard As of Third Quarter 2023, bsp.gov.ph

FINANCIAL STABILITY COORDINATION COUNCIL, 2023 FINANCIAL STABILITY REPORT, December 2023, (pp. 29 and 31), bsp.gov.ph