Why Most Of Institutional Banks Are At The Brink Of Bankruptcy And How Will It Affect The Philippines?
Most of major banks today suffer impairment of loans due to the fact that majority of oil companies are being financed by these banks thru syndicated loans. These oil companies suffer great losses since the oil price per barrel slumped to it's lowest price early this year. Exploration cost is higher than the FMV of the crude oil exposing greater loss. Bank's cash flow will be definitely be affected due to probable default and major changes in the future cash flows of these oil companies. Banks are highly regulated by the central banks, it has to maintain certain liquidity as part of compliance. If there will be change in the inflow, definitely outflow will be also limited and would mean less opportunities for other businesses to avail loans or if can be availed but with higher borrowing cost. This will bring shock waves to all businesses which can also bring under performance or limited capacity.
The fall of oil price is brought about by many factors, the economic slowdown of China, the war in the Middle East, and overproduction of supply. Well, all has direct impact in the equity market. Most of the institutional banks like Deutsche, CitiBank, HSBC and Credit Suisses are all investment banks. They are the biggest players in the equity market. Indices are unstable, which will bring the unrealized losses into the books of the investment banks.
Global economies have already felt the economic recession and slowdown. Last year Canada recognized that they are already in recession. France just last month declared state of economic crisis. China is also at its slowdown. Who could forget the PIIGS of the euro-zone causing the initial instability of EURO. Russia and Brazil are also in recession.
Will these affect us in the Philippines? Yes, somehow we are just a small time player in the global but, our country remains to be the one of the resilient economies. We have unique kind of economy. Fundamentals are so strong that even at times of crisis, it can withstand.
In economics, we have this what we call the demographic window. This shows the age of the population, the younger the population the better since they can contribute more to the growth of the country. Most analysts, fear that China will start to age first before it becomes rich.
Let me quote an excerpt from Inquirer published last January 5, 2016.
"Asian Century Institute’s John West sees this as a long-term trend. He in fact declares that we are now in the midst of the “Great Asian Slowdown” that is being driven by aging populations and by the failure to compensate this with productivity-boosting structural reforms. He observes how China, due in part to its decades-old one-child policy, saw its working age population peak in 2012 and begin declining since. While China recently decided to shift from a one-child policy into a two-child policy, West sees it as “too little, too late” and unlikely to have an impact for at least two decades. This could in fact have a negative effect in the near term, as additional children impose a burden on public finances. “In contrast to Japan, China faces the risk of becoming old before it becomes rich,” he notes, adding that the average income of the Chinese is only one-fifth that of Americans."
But for the Philippines, we just entered the the demographic window. We have the youngest population among the ASEAN Nation.
Here's another excerpt from the article.
"But defying these demographic trends are the Philippines, Indonesia, Bangladesh and India, where large youth bulges are now entering the labor market. But this could be either a demographic dividend or time bomb, West asserts, depending on whether or not these economies invest enough in the productivity of their youth and undertake structural reforms that will generate the jobs to employ them."
Philippines will continue to grow no matter what or who will be our next president. Economic foundations are laid by our previous presidents so strong. Growth is already there. Take advantage of the things happening to us. Not all will suffer the economic crisis, some will emerge from the ashes of the others.
I tell these to all of you take time to think of your future and start planning now.
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