Reality Check: Jollibee’s Easy Money Financed Pacman Strategy Backfires

A free society cherishes nonconformity. It knows that from the non-conformist, from the eccentric, have come many of the great ideas of freedom. Free society must fertilize the soil in which non-conformity and dissent and individualism can grow. — Henry Steele Commager (1902-1998) Historian and author

In this issue

Reality Check: Jollibee’s Easy Money Financed Pacman Strategy Backfires

-Popular High Expectations and The Limits of Credit Finance Pacman Strategy

-As Foreign Assets Take Center Stage, JFC Now More Vulnerable to External Forces

-JFC Reaffirms a Saturated Domestic Market and the Peter’s Principle

Reality Check: Jollibee’s Easy Money Financed Pacman Strategy Backfires

Popular High Expectations and The Limits of Credit Finance Pacman Strategy

At the acme of its stock prices or before its share price meltdown, last March*, I wrote about the dramatic structural shift in Jollibee’s business model, which from my purview, had been laden by hazards.

Instead of pursuing organic growth in the market where it specialized in, the retail food chain boldly expanded overseas by devouring its competition.

The company’s monumental shift in its business strategy had been an outcome of the Bangko Sentral ng Pilipinas (BSP) low-interest regime, which encouraged the aggressive use of credit financing for its acquisitions. (bold and italics original)

In the recent past, JFC has expanded aggressively through horizontal integration. That is, JFC bought out and tacked into its fold, its domestic competitors.  That’s JFC’s Pacman Strategy.

Now the thrust has been to expand also horizontally but externally.

JFC’s external recourse may be about the weak peso. As a means or a strategy to hedge against this, the company engaged in foreign FDI. However, JFC may be venturing into the unknown or to unfamiliar markets, where its competitive advantage may be deficient. It may not possess the same quality of knowledge and expertise in dealing with foreign consumers.

…

Jollibee’s aggressive use of credit seems to undergo a similar path. By aggressively taking on debt, not only does it remove the firms’ margin of safety, but it takes on unnecessary risks. JFC operates with little room for error.

          …

And as I have been pointing out repeatedly, not only does artificially low-interest rates subsidize big debtors at the expense of the savers, but it also crowds out debtors of lesser degree. Firms with liberal access to credit can buy out competing firms, and therefore, result in the concentration of the industry.

          …

And JFC’s monopolistic behavior, via its Pacman strategy, has been consistent with this.

The transformation of the firm’s operating model, from organic growth to a credit financed acquisition expansion, I named the ‘Pacman Strategy’.

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

Last May**, Jollibee surprisingly announced a steep drop in earnings, which sent its stocks in a downward spiral. Media attributed this shortfall to its recent acquisition of US-based burger chain Smashburger. Yet, a slowdown in domestic sales, as a result of the tight liquidity environment, was responsible for most of the damage.

Sorry, but domestic sales, which accounted for 73% of JFC’s top line, did most of the damage to its 1Q performance. Smashburger only exacerbated it.

But it comes as a surprise that mostly cash-based Jollibee’s sales had been affected more by the March collapse in consumer credit rather than retail enterprises dependent on credit cards.

The deterioration of JFC’s top line has massive implications on the consumer’s spending capacity. The impact from the ongoing liquidity crunch has begun to impact more on the middle and lower class.

Given Jollibee’s relentless overseas expansion, I warned…

Such point to JFC’s rapidly growing international exposure even when its competitive moat is here.

If JFC’s gambit of an aggressive credit financed external expansion should turn out to be unsuccessful, then it is likely to have a severe impact on the company’s balance sheets.

**Jollibee’s Domestic Growth Sales Fell to the Lowest in Recent History! PSYEi 30 Firms Borrowed Php 9.23 For Every Peso of Net Income in 1Q 2019! May 27, 2019

Smashburger wasn’t the only major acquisition in its campaign to expand internationally, an American coffee chain, The Coffee Bean & Tea Leaf, was added into the Jollibee’s portfolio last July, which deal was completed in September.

As Foreign Assets Take Center Stage, JFC Now More Vulnerable to External Forces

Figure 1

So in 9-months, while domestic sales still dominate, despite the downtrend, with a 73.26% share, the share of Philippine-based assets has shrunk to 42.84%! That is to say, because of the preeminence of foreign assets, foreign sales will have more impact on Jollibee’s balance sheet! (Figure 1)

That said, JFC has now become more exposed to foreign forces than where it specializes: the home market. Not only are developed markets intensely competitive that should place pressure on profits, but also, the external socio-political-economic environment may be more mercurial that could amplify the fragility of their investments.

To be sure, the company’s business risk most likely emanates from its aggressive acquisition side than promoting its organic (Jollibee) brand overseas to tap their captive markets: Filipino immigrants and OFWs.

Figure 2

As proof, the total sales growth of Jollibee’s 3Q and 9-month has plummeted to its lowest levels since at least 2012. 3Q sales growth was only at 7.01%, while 9-month revenue growth clocked in at 9.06%. (figure 2, upper window)

Interestingly, such lackadaisical sales growth occurred amidst JFC’s massive store expansions. Total stores grew by 34.7% as a consequence of the 7.83% growth in domestic stores and 94.4% in foreign outlets. Foreign outlets now account for 45% of the JFC’s aggregate stores of 5,863 as of September.

That said, like Shakey’s***, there was barely any growth from same-store sales.

***3Q CPI Fall to 42-Month Low as Divergences in Component CPIs Widen; Flawed CPI—the Shakey’s Pizza Evidence November 10

And speaking of domestic sales, since the preponderance of transaction payments in its retail outlets has been in cash, JFC’s 7.57% growth in domestic sales have almost resonated with the growth rate in the BSP’s cash in circulation, which has likewise tumbled to 2012-level. With a time lag, tightening bank and financial liquidity conditions have percolated into Jollibee’s domestic retail sales. (figure 2, lower window) 

Figure 3

Dismal domestic sales growth was consistently seen in all three quarters of 2019: in pecking order 7.21%, 7.33%, and 8.3%. (figure 3, upmost window)

And here’s the thing. While the inclusion of Smashburger boosted international sales from 2018 into the 1Q 2019’s 19.31%, the pace of growth dropped substantially to 5.2% in the 2Q and 3.75% in the 3Q! (figure 3, middle window) Remember, because of the shift in the balance sheet weighting towards foreign assets, foreign sales would have more impact at the present.

Strikingly too, after the smoothing out of data to include the acquisition, Smashburger’s sales haven’t boosted its aggregate overseas revenues!

And with the slowdown in both domestic and international sales, JFC posted the lowest total sales growth in the 2Q’s 6.72% and 3Q’s 7.01% with 1Q’s 10.15% sales outperforming slightly 2015’s 9.5%. (figure 3, lowest window)

JFC Reaffirms a Saturated Domestic Market and the Peter’s Principle

To preserve its high-income growth expectations, JFC opted for the overseas campaign foray in the hope of attaining scale in revenues and or maintain its profit and operating margins.

Unfortunately, hardly any of these expectations have borne fruit for now. Both gross profit and operating margins suffered significant declines in the 9-months of 2019, the lowest since 2012. (figure 4, upmost window)

Figure 4

And of course, the tilt in the balance sheet towards the foreign exposure has been due to the unmatched surge in leverage used to finance the acquisition of US food chains.

The repercussion of which has been to swell interest expenditures to unprecedented rates. Interest expenses flew by 69.2% in 2019, in a follow up to 2018’s 102.12%, rates eclipsing the top and bottom line. (figure 4, middle window)

So in the face of a record pileup of debt, debt servicing has likewise been rocketing, adding immensely to JFC’s financial burdens!

And the interesting part, Jollibee has been undertaking such a bold expansion overseas campaign at a time when the global economy seems to teeter on the edge of a recession!

Oh by the way, a reminder from the BSP-led Financial Stability Coordinating Council’s 2018 Financial Stability Report (p.13): “Based on the audited financial statements of the 148 Philippine Stock Exchange (PSE)-listed non-financial corporations (NFCs), the growth of interest expense (IE) has outpaced the rise of earnings before interest and taxes (EBIT)…The same companies have also reported lower profitability with respect to return on assets”

Rings a bell?

And based on demonstrated preferences through the company’s actions, and subsequently, its performance, Jollibee reaffirms the growth limitations of the Philippine market.

As noted in August****:

And the “home market is getting saturated”? Well, has this been so hard to notice? JFC has been aggressively expanding horizontally through Mergers and Acquisition (M&A) financed by debt, benefiting from the BSP's easy money regime. And aside from falling margins, perhaps they have come to realize that the pockets of Filipino consumers have limits, and so the overseas M&A gambit.

****An Update of Jollibee’s PacMan Strategy: In the Lens of 2Q and 1H Financial Performance August 25, 2019

That said, net income grew by 4.5% in 3Q but hemorrhaged 22.2% in the 9-months (figure 4, lowest window)

JFC would have to pray that the USD peso firms up significantly to cushion their setback.

Peter’s Principle—where people tend to rise to their level of incompetence—appears to have plagued Jollibee.

Here’s a prediction: should such dicey overseas projects fail to work out, because of an unstable economic environment (e.g. recession) or the inability to transpose their expertise abroad or unwieldy growth of debt burden or a combination of these, JFC will cut loses by selling some these investments.

Figure 5

And a reality check, for a stock which has been priced to perfection, can be harsh. Newton’s law has been emphatically asserting and spreading its presence at the PSE.

And yes, JFC confirms the old axiom, “Past performance does not guarantee future results”!

But who knows, a twist of fate may occur if JFC manages to pull rabbits out of the hat!

Powered by Speculative Frenzy and Asset Inflation, 3Q and 9M Bank Profits Zoomed! Cash Reserves Rise on RRR Cuts

Wisdom isn't about understanding things (& people); it is knowing what they can do to you—Nassim Nicholas Taleb

In this issue

Powered by Speculative Frenzy and Asset Inflation, 3Q and 9M Bank Profits Zoomed!  Cash Reserves Rise on RRR Cuts

-Jekyll And Hyde: BSP’s Financial Reporting

-3Q, 9-Month Bank Report Card: Profits Boomed as Revenues and Margins Fell

-Speculative Frenzy, Higher Asset Prices and Accounting Magic Boosted Banks Profits!

-Cash Reserves Posted First Increase in 21-Months as RRR Cuts Helped!

-Peso Deposits Bounced, Foreign Currency Deposit Hits 5-year Low as Peso Savings Deposit Flat

-Banks Chase Prices through Available for Sale Securities (AFS) as NPLs Slip in September

-Total Asset Growth in Downtrend, Bank’s Panic Borrowing Sustained in September; The Likely Impact of the Next RRR cuts

Powered by Speculative Frenzy and Asset Inflation, 3Q and 9M Bank Profits Zoomed!  Cash Reserves Rise on RRR Cuts

Jekyll And Hyde: BSP’s Financial Reporting

As pointed out here several times, the Bangko Sentral ng Pilipinas (BSP) publishes Janus-faced reports customized to the variable preferences and whims of their audiences.

When preaching in front of the local audience, perched on the ironclad pantheon of stability is the domestic banking system.

Here is a sample*: “The latest outlook on the Philippine banking system remained positive based on the bullish projections of banks in terms of growths in assets, loans, deposits and net income over the next two years. Liquidity will remain as the key strength of the Philippine banks.” (bold mine)

*BSP, Report on the Philippine Financial Statement (p.2)

But this aura of impregnability dissipates when reporting to their contemporaries at the Bank for International Settlements.

From the BSP-led 2018 Financial Stability Report: “There are also signs that credit, tenor and liquidity risks may have become concerns. If economic growth slows further, these risks will be magnified. Capital market financing is thus increasingly no longer just a developmental issue but more so a systemic risk mitigant. It can alleviate brewing pressures in the banking books but the potential gain from this alternative finance is predicated on available funding liquidity, continuous price discovery and a well-diversified investor base.” (p.1) (bold mine)

And the FSR’s conclusion: “If there are risk issues to raise, it will have to be the prospects of managing liquidity. Aside from simply having more loans versus deposits, using liquid assets as a source for funding more earning assets needs our attention. However, the bigger issue will be that continuing on the path of being a bank-based financial market means that the provision of credit will require taking on mismatches in tenor and in liquidity. As more credit is dispensed, such mismatches will only increase. Certainly, the banking industry has been able to sustain itself despite these mismatches but moving forward, there is value to providing other avenues to alleviate the pressures on the banking books.” P19 (bold mine)

See the irony or contradiction? The fundamental strength of Philippine banks has morphed into an object of concern!

And because the BSP has a complete rein of the system, in spite of the decaying data, implied in the Pollyannaish report has been 'move on, nothing to see here’. And the mismatches in credit tenor have likewise vanished in the same report.

Projected similarly has been the BSP’s RRR cuts. 

Instead of saying such measures were taken in reaction to alleviate the ongoing liquidity strains in the financial system, through technical adjustments, this has been presented to enhance efficiency.

Projected similarly has been the BSP’s RRR cuts.  Instead of such measures taken in reaction to alleviate the ongoing liquidity strains in the financial system, through technical adjustments, enhancing operational efficiency has become its stated goal.

3Q, 9-Month Bank Report Card: Profits Boomed as Revenues and Margins Fell

The condensed story of the September or the 3Q performance of the banking system are as follows:

Taking advantage of the boom in domestic Treasuries from the suppressed CPI, strains in financial liquidity, the historic amassment of cash by the National Government and the global bond boom, the banking system saw a notable shift from their core operations of lending towards asset speculations that boosted the industry’s profits.

Meanwhile, the impact from the early 2019’s 2000 bps RRR cuts finally surfaced with a jump in the system’s cash reserves as deposit growth remains significantly constrained.

Figure 1

In the 1H, only the PSYEi banks benefited from the NG’s subsidy, as the rest of the listed peers stagnated. Such propitious conditions spread to the industry in the 3Q. Bank profits rocketed 45.13% in the 3Q, buoying 9-month earnings growth to 29.17%. Non-PSEi banks dramatically outperformed their biggest contemporaries, posting a fantastic 59% growth in the 3Q! (figure 1, upper table)

Ironically, as bank profits swelled in the 3Q, total revenues (interest income) decelerated substantially (+24.16%) to drag lower the 9-month (+29.81%).

Margins from Net Interest Income likewise dropped 12.18%, mostly from contractions of non-PSEi banks (-13.6%). BDO and Security Bank were the only banks to post a slight increase in margins in 3Q. At any rate, the intensity of declines in margins has decreased for the industry.

The tables provide a breakdown of the various categories: Total, PSYEi banks, Financial Index (F), and non-headline index banks.

If revenues slowed and margins reduced, the exemplary profits have emanated from where?

The short answer: asset speculation!

Speculative Frenzy, Higher Asset Prices and Accounting Magic Boosted Banks Profits!

First some definitions.

Interest Income, is defined by the BSP**, as interest earned and/or actually collected from the following financial assets: (a) Due from BSP, (b) Due from Other Banks, (c) Financial Assets HFT, (d) Financial Assets DFVPL, (e) AFS Financial Assets, (f) HTM Financial Assets, (g) UDSCL, (h) Loans and Receivables, (i) LRARA, (j) Derivatives with Positive Fair Value Held for Hedging, (k) Sales Contract Receivable, and (l) Others

Interest Expense, on the other hand,  refers to payments and/or monthly accruals of interest on the following financial liabilities: (a) Financial Liabilities HFT, (b) Financial Liabilities DFVPL, (c) Deposits, (d) Bills Payable, (e) Bonds Payable, (f) USD, (g) Redeemable Preferred Shares, (h) Derivatives with Negative Fair Value Held for Hedging, (i) Finance Lease Payment Payable, and (j) Others

**BSP Glossary and Abbreviations

Figure 2

Since the 1Q of 2018, the growth rate of interest expense has been outpacing interest income with the gap accelerating of late.  In 1Q 2019, interest expense growth almost tripled that of income with a rate of 89%, an all-time high relative to interest income's 36.13%. This gap narrowed in the 3Q with interest expense growth at 67.9% versus 29.02% for interest income. (Figure 2 upper window)

But because of the sharp reduction in the provisions for losses on accrued interest income on Financial Assets, the BSP’s net interest income has been on an uptrend since 2015! Talk about how to goose up profits by accounting magic!

As noted above, interest income, according to the BSP’s definition, includes gains from asset prices.

However, ever since peaking in 2Q 2017 at 78.04%, profit (interest income) margins have headed south. It hit a 9-year low in 2Q 2019 at 65.79% before bouncing higher in the 3Q 2019 to 66.71%.

And the steep fall of the total loan portfolio (TLP gross) went alongside the vastly reduced margins.  TLP growth climaxed in 3Q 2017 at 19.66% and has been downhill since. 3Q 2019 TLP growth at 8.9% had similarly signified a 9-year low! (figure 2, middle pane)

Descending growth in loan issuance and tumbling margins don’t exactly herald growth in the banking system’s core operations.

By the way, to access links on the BSP’s banking system data on balance sheets, income statements, and selected performance indicators, please click on their respective links.

After reaching its growth apogee in 1Q 2019 at 18.88%, net income growth stumbled in the last two quarters to register a still bristling 15.93% in 3Q 2019.  Net interest income has a 75.5% share of the banking system’s operating income over the same period. (figure 2, lower window)

On the other hand, non-interest income growth, consisting of dividend income, fees and commission, trading income, and other income, almost doubled in 3Q at 25% from 12.43% a quarter ago. Trading income constituted 38.74% share of non-interest income.

Trading income growth zoomed 68.04% almost a fourfold expansion from last quarter’s 15.05%, which has mainly been from stunning gains in the trading sale/redemption (601% YoY), FX transactions (821.73%) and from Non-Trading Financial assets and Liabilities (487.32%). These categories hold a 57.2% share of trading income.  (figure 3, upper window)

Figure 3

Though fees and commission accounted for most (51%) of the share of non-interest income, speculative trading by banks eclipsed its 3Q growth of 10.13%.

Pressed to deliver a steady stream of income, banks have been lobbying the raising ATM fees from the BSP.

Also, pressured by liquidity, banks have instead embraced risk appetite to gamble with asset price fluctuations.

What if the artificial blessings from the NG’s subsidies fade?

Cash Reserves Posted First Increase in 21-Months as RRR Cuts Helped!

The RRR cuts seem to have weaved its magic in September.

After 21-months of shrinkage, the banking system’s cash reserves recorded its first increase in September. Cash and due banks jumped 5.22% to Php 2.526 trillion or an increase of Php 125.403 billion YoY. (figure 3, middle window)

The three-staged 200 bps Reserve Requirement Ratio (RRR), which freed about Php 200 billion from regulatory shackles ended in July, has been instrumental for this.

A back of the envelope calculation shows that aside from the Php 200 billion infusions, the banking system’s 3Q profits of Php 58.5 billion (QoQ) should have contributed at least Php 258.5 billion increase quarter on quarter. However, cash reserves grew by only Php 167.6 billion, showing a reduction of Php 90 billion or about Php 30 billion a month. In other words, despite the RRR and profit boom from asset market speculations, the liquidity seepage hasn’t stopped.

This assumption excludes the contribution to the cash reserves from the banking system’s massive bond borrowing.

As a side note, BSP’s systemwide profits growth spiked 28.83% YoY (or by Php 37.92 billion) accounted for the largest % increase since the 4Q 2013.

Those RRR cuts merely provided a cosmetic facelift to the banking system’s liquidity challenges.

That said, in spite of the deluge in profits and RRR downside adjustments, the BSP’s liquidity indicators, cash reserves to deposits, and liquid assets to deposits barely show material improvements.(figure 3, lowest window)

That’s because deposits, while showing marginal increases in September, continues to post significant shortfalls.

Peso Deposits Bounced, Foreign Currency Deposit Hits 5-year Low as Peso Savings Deposit Flat

  

Figure 4

Total deposits eked out a 5.8% gain YoY following last month’s 5.4% growth clip falling to a 7-year low.  (figure 4, upper window)

Peso Deposits growth bounced 106 bps to 6.57% in September from 5.5% a month ago, also a 7-year low but was still slightly lower than July 2019’s 6.68%.

Growth in Demand and Now accounts and Time deposits more than offset growth rate declines of savings deposits and contraction in LTNCD. Demand deposits vaulted 11.12% from 7.98% a month ago while Time deposits increased to 15.08% from 12.24%. On the other hand, LTNCD shriveled by .21% easing from August’s 6.4% shrinkage.

Savings deposit growth posted .19% a historic low, confirming the M2’s savings (-.06%) deflation in the same month. (figure 4, middle pane)

Foreign deposits growth, meanwhile, more than halved to 2.08% in September, a 5-year and 10-month low, from August’s 4.9%. Demand deposits deflated 5.03% from a contraction of 5.51% in August. Both savings and Time deposit growth plummeted 1% and 3.64%, from 2.47% and 8.09% in the last quarter.

It isn’t clear what fueled the sharp increase in peso Demand deposits (checking accounts) when production loans have stagnated in September. Have the NG been responsible for this?

Bumper real yields may have a factor, but a small one, to the possible shift to time deposits from savings deposits. When real yields turned positive in 2015, savings deposits posted increases in growth rates. It’s been a year since real yields have turned positive, but still, savings deposit growth rates continued to plunge. Time deposits grew by double-digit rates starting only this May. (figure 3, lower pane)

Banks Chase Prices through Available for Sale Securities (AFS) as NPLs Slip in September

Here’s the thing.

When viewed from the investment allocations, the banking system’s asset speculation has been pronounced.

While Held to Maturity investments (HTM) remain the most dominant of the assets with 64.39% share of gross financial assets (GFA), the September growth rates tumbled to a single digit of 4.74%. (figure 5, upmost window)

Available For Sale (AFS) assets ramped up by 49.5% in September to take a 29.3% share of GFA. Held For Trading assets, which has a 6.2% share of GFA, moderated to 19.5%

Palpably sloughing off its conservative or defensive practices, banks have engaged in chasing prices to boost profits and liquidity.

And price chasing is supposed to be signs of durability and stability? Or are they instead indications of desperation?

Figure 5

Not only have soaring profits and RRR adjustments added to liquidity, but banks published a lower NPL in September following a record high in August.

After surging to multi-year highs of 1.18% in August, published net Non-performing Loans (NPL) slipped in September to 1.11% August.

Paradoxically, this comes amidst a slowdown in TPL growth and an unimpressive rally in M3 last September.

Have NPLs truly dropped? Or have banks used such surplus cash to plug them?

Total Asset Growth in Downtrend, Bank’s Panic Borrowing Sustained in September; The Likely Impact of the Next RRR cuts

Figure 6

The booster in cash reserves last September barely offset the slowdown in bank lending and marginally lower net investments, hence, the banking system’s total assets growth rates registered an increase of 9.7% from a 3-year low of 8.97% in August. Though peso based assets are at a record high, its growth rate has been in a downtrend since 2013, with its rate of decrease intensifying since August 2017. (figure 6, upmost pane)

Also, the bailout from RRR downside adjustments and profits haven’t been the only source of cash; the banking system continues to indulge in a borrowing binge. Because the growth of bonds payable remains in a three-digit pace, up 143.6% in September from 195.43% a month back, its share to total liabilities zoomed to a record 3.36%.

Banks borrowed from the bond markets some Php 304.9 billion YoY, and Php 94.2 billion quarter on quarter, when the RRR took full effect. (figure 6, middle pane)

And it’s doesn't end here.

Bills payable also expanded by a hefty 34% in September, to post eight straight months of over 30% growth rate. Or, banks borrowed in bills some Php 233 billion YoY, and Php 14.1 billion quarter on quarter last September, again after the RRR took full effect. As such, the bills payable share of total liabilities have increased to 5.96%.

That is to say, the scale of the liquidity vacuum has been far more than the earlier back of the envelope calculation I earlier presented.

Banks raised a total of Php 366.7 billion (bonds, bills, RRRs, and profits) quarter on quarter, but got only Php 167 billion in surpluses. That means the liquidity vortex drained some Php 199 billion from the system.

Therefore, the RRR downside adjustments in November and December, which should inject another torrent of Php 200 billion to the banking system, represents the BSP’s shock and awe approach towards remedying the systemic liquidity deficiency. With September’s showing, this should substantially boost cash reserves in the coming months.  But whether banks can preserve the stack of spare or not remains the all-important question.

The September cash data likewise reveals the reluctance by the BSP to add the present streak of easing by trimming overnight policy rates. The BSP kept rates steady last week.  They may be concerned that the Php 200 billion injection could be used to fire up the credit engines, and money supply that would spike up inflation rates, and consequently, their policy rates, thereby ending the current interest rate subsidies to both NG and the banking system.

And should the domestic yield curve have a material influence on the margins of the banking system’s interest incomes (figure 6, lowest window), while a sustained uptick in the may improve bank margins, its trade-off may be of higher street prices and borrowing rates, again putting an end to the current interest rate subsidies.

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