FRI 25 SEP 2020

Top Stories:
Banking Sector: BSP caps credit card interest rates at 2% per month
CICT: Converge ICT’s IPO gets SEC approval

Other News:
MAC: Cavite government approves request for extension on Sangley project
Economy: Consumer confidence turns pessimistic for 3Q and 4Q20, but more upbeat for the next 12 months
Economy: Business confidence turns pessimistic for 3Q20 and less optimistic for 4Q20, next twelve months

COVID-19 update:
Infected Count Death Toll Total Recovered
Philippines 296,755 (+2,180) 5,127 (+36) 231,928 (+580)
USA 7,182,385 (+43,349) 207,460 (+900) 4,426,496 (+38,987)
Worldwide 32,392,347 (+309,072) 987,010 (+5,791) 23,900,120 (+242,528)

Market Summary:
The local equities market retreated, tracking the weak regional market, as investors continued to remain cautious.

The PSEi fell 46.92 points or 0.79% to close at 5,845.80. The main drags were JGS (-3.74%), FGEN (-3.43%), MEG (-2.68%), SECB (-
2.39%), and SMPH (-2.24%). On the other hand, these were partially offset by gainers such as BLOOM (+2.68%), PGOLD (+2.17%),
ICT (+2.09%), URC (+1.20%), and AP (+1.17%).

Value turnover declined to Php4.1Bil from Php4.5Bil in the previous session. Meanwhile, foreigners remained net sellers for the ninth
straight day, disposing Php292.8Mil worth of shares.
Top Stories:
Banking Sector: BSP caps credit card interest rates at 2% per month

The BSP is imposing a 24% cap on the annual interest rate or 2% per month on all credit card transactions starting November 3 to ease
the financial burden of consumers and small enterprises amid the COVID-19 pandemic. The new issuance prescribes a separate
interest rate ceiling for credit card installment loans. For these transactions, credit card issuers may only charge monthly add-on rates
up to a maximum of one percent. According to the central bank, the imposition of the cap on interest rate is in line with the current low
interest rate environment. The rates will be reviewed every 6 months.

We view the new interest rate cap on credit cards negatively as this will cause the banks’ loan yields to decline. Note that banks are
currently charging interest rate of 3.0-3.5% per month, depending on type of credit card of the consumer. Although credit card
transactions may increase as a result of the lower rates, this likely won’t fully offset the lower yields. In addition, increasing the volume
will also require more capital to achieve the same level of net interest income. Going forward, we think that banks may also opt to lower
the credit card limit of consumers with lower credit rating in light of the lower yields.

While all banks will be negatively affected, some banks will be more vulnerable given the larger share of credit cards in their loan
portfolio. In particular, EW and RCB have the highest exposures at 12.6% and 7.0% of total loan portfolio, respectively.

Exhibit 1: Credit cards as % of total loan portfolio

14%
12.6%
12%

10%

8% 7.0%
5.8%
6% 5.0%
4.5%
4% 3.1%
2.4% 2.6%
2%
0.2%
0%
BDO MBT BPI PNB CHIB SECB RCB UBP EW
Source: Banks, COL estimates

CICT: Converge ICT’s IPO gets SEC approval

Converge ICT Solutions, Inc.’s (CICT) initial public offering (IPO) has received approval from the Securities and Exchange Commission.
The internet provider is planning to offer up to 1.7Bil shares at an offer price of up to Php24.0/sh. The offer will consist of 480.8Mil shares
for primary offering, 1.0Bil shares for secondary offering, and 225.8Mil shares as an overallotment option. If fully subscribed, proceeds
would reach around Php11.1Bil from the primary offering and Php41.6Bil from the total offering. However, note that the company will not
receive any portion of the proceeds from the sale of secondary shares and the overallotment option.

Approximately 90% of the proceeds from the IPO will be used to accelerate the company’s nationwide fiber network rollout. CICT plans
to expand its network outside Luzon by 2021. The IPO offering’s tentative offer period is from October 13 to 19 while the listing date is
expected to be on October 26.

Other Stories:
MAC: Cavite government approves request for extension on Sangley project

The Provincial Government of Cavite approved MAC’s request for an extension on the Sangley Point International Airport Project. Due
to the pandemic’s impact on air travel, MAC will be given an extension of 90 days immediately after commercial air travel resumes
between the Philippines and China to comply with all conditions of the Notice of Selection and Award (NOA). The provincial government
will only confirm the acceptability of the documents after the MAC-CCCC consortium has fully complied with all prescribed requirements
and complete review. Note that this is the consortium’s third extension after they failed to complete all requirements before the September
9 deadline.

Economy: Consumer confidence turns pessimistic for 3Q and 4Q20, but more upbeat for the next 12 months

According to the BSP, the country's consumer outlook for 3Q20 turned more pessimistic with the overall confidence index (CI) dropping
to a record low of -54.5%. Broken down, consumer confidence recorded declines across major components such as on the consumer's
financial situation, family income, and the overall economic situation. Furthermore, the declines were observed across all income classes
with the low-income group reporting the weakest CI. Aside from the pandemic situation, respondents of the consumer survey cited the
high unemployment rate and less working family members, reduced incomes, and faster hikes in the prices of goods as some of the
reasons for the more pessimistic outlook. These are also anticipated by consumers to continue into 4Q20; hence, overall CI for 4Q20
moved to negative territory of -4.1%.

Meanwhile, expectations for the next twelve months are more upbeat at positive 25.5% versus the previous survey result of 19.9%,
underpinned by expectations of the end of the pandemic, the availability of more jobs, higher incomes, and stable prices of goods. Other
notable data from the consumer survey include 1) buying sentiment for big ticket items remain weak in 3Q20 and even for the next twelve
months, 2) the percentage of households with savings in 3Q20 dropped to 24.7% from 37.8% in 1Q20, c) more OFW households have
allotted their remittance proceeds to food expenses and debt repayments. (Source: BSP)

Economy: Business confidence turns pessimistic for 3Q20 and less optimistic for 4Q20, next twelve months

According to the BSP, the country's business confidence on the economy turned pessimistic for 3Q20, ending 43 consecutive quarter of
optimism. This is as the overall confidence index (CI) turned -5.3% in 3Q20 from 22.5% in 1Q20. The main reason for the respondents'
pessimism includes the impact of COVID-19 and community quarantine restrictions, decrease in orders, sales, and income, the temporary
shutdown of operations, and concerns of the government's mitigation measures being insufficient.

Business sentiment for the next quarter or 4Q20 remained weak with the CI showing less optimistic results at 16.8% from previously
42.3%. This was primarily due to expectations that the negative impact of the pandemic on orders, operations, and the overall economy
would continue. Similarly, businesses were less upbeat for the next twelve months with the CI declining to 37.5% from 55.8%. Broken
down across different firms, importers and domestic-oriented firms were more pessimistic, while exporters and dual-oriented firms were
less upbeat on their business outlook. Average capacity utilizations declined to 66.2 in 3Q20 from 74.9% in 1Q20. There were also less
firms with business expansion plans. The outlook on employment turned negative during the third quarter, suggesting more layoffs could
continue in 4Q20 and in the next twelve months. (Source: BSP)