Bankers Institue of the Philippines, General Membership Meeting
Good morning.
I would like to thank the Board of Directors of the Bankers Institute of the Philippines for inviting me to be the guest speaker to your general membership meeting. I am honored to be given the opportunity to address the members of this very prestigious organization of professional bankers.
I commend the BAIPhil leadership for adopting the theme “Moving Towards Global Banking Compliance” for the year 20062007. As a Government Financial Institution, the Pag-IBIG Fund contributes to building a foundation for a strong Philippine economy. Economic growth can only be a possible with a stable financial sector, and the adherence to international regulatory standards being advocated by your organization is an important step towards maintaining such a stability.
I cannot claim to be an expert on the more profound, esoteric aspects of banking regulations. On that matter, you are the Yodas, I’m just an apprentice Jedi. So today I would like to talk to you about something in which I have the advantage of familiarity over you—the PagIBIG Fund, and its place in the housing and real estate sector. Given the magnitude and impact of PagIBIG’s accomplishments, I firmly believe that its story deserves the spotlight.
LEADING THE WAY IN HOUSING
Today the housing and real estate industry is said to be booming. This is evident in the growing number of residential projects being developed in various parts of the country. In Metro Manila, where the scarcity of land makes it impossible to put up new subdivision projects, the housing boom is taking the form of vertical developments. There are numerous condominium projects now in various stages of completion, trying to outdo each other in terms of location, amenities and pricing. Some of these projects are funded by Pag-IBIG through our Medium/High Rise Building Program, or MHRB.
On the financing side, and this is something you know firsthand, the banks are trying to outdo each other in offering housing loans to consumers. You open the newspapers and you will see several pages of advertisements where banks vigorously try to sell their housing loan products almost as aggressively as mobile phone companies advertise their latest promo.
The banks have been so aggressive, in fact, that even some of our own private developer partners who have funding commitment lines with Pag-IBIG have turned to the banks for their mortgages.
This was not the case a few years ago.
At that time, banks were staying away from housing. Even the other GFIs were very timid, to say the least, in taking part in housing (they continue to be shy till today by the way). In fact I have been warned by colleagues in the other GFI that the Fund is courting trouble by investing heavily in housing. They instead suggested that we put our money in other investments that are easier to manage. We went ahead anyway.
Our resolve was fuel by the knowledge that the government alone cannot fully address the supposed 3.5 million housing backlog. This is a great task, and one that would require more than a trillion pesos, which government simply cannot provide.
Any meaningful effort to address the housing backlog must therefore include, and even be led by, the private sector. Thus, we took on the task of leading the way for the private banks to come in.
We took some very bold steps that have contributed to the vibrant mortgage market we are seeing today. We adopted the lowest of interest rate in the market. We increased our loanable amounts to a maximum of P2 million. We reduced equity requirements of borrowers, end even eliminated them altogether in the lower housing loan packages. We streamlined the process to make takeouts faster for our developers.
As a result of our efforts, the PagIBIG Fund’s housing loan program took off and managed to reach previously unattained levels of accomplishment.
Our consistently high performance in this area has brought the PagIBIG Fund to the forefront as the single biggest provider of housing loans in the country. Let me repeat that. We are today the biggest provider of housing finance in the entire economy.
By the end of 2005 for instance, Pag-IBIG accounted for 36.68% of mortgage financing in the country, ahead of all the other government financial institutions (GFIs), and all the private banks. Not one single institution came close to even half of what we had financed.
But apart from our dominant position in mortgage financing today, we have also succeeded in accomplishing our goal of paving the way for greater private sector participation in housing.
This is what we set out to do around six years ago. We set out to prove and show that housing was not a charity but a viable program. And if managed well, coupled with the discipline of dealing only with legitimate and responsible developers, it can also be profitable.
Very few people give credit to the Pag-IBIG Fund for its major role in drawing the banks back into housing. But I am convinced that the bold steps we took six years ago have contributed to the vibrant mortgage market we have today.
While we are not exactly elated that our previous 35% annual growth in mortgages may not be repeated again, we are really excited about the substantial increase in participation by the private banks. The banks have substantially increased the housing finance pie. We are witnessing today a rejuvenated role by the banking sector in housing finance.
FUND PERFROMANCE
Our position as the leading source of home financing in the country today is only one of the bright spots in Pag-IBIG’s recent history. The truth is, our performance in housing has gone hand in hand with the remarkable growth of our assets and revenues.
The Pag-IBIG Fund’s asset base has been growing consistently in the last five years. As of December 2006, we have already built up our total assets to P191.55 billion.
I would like to point out that in 2000, the Fund’s total assets reached only P113.77 billion, and that was built up over the Fund’s first 20 years of existence. Today we are already close to doubling that amount, after a span of only six years. In short, what took our predecessors 20 years to do, we are close to duplicating in only 6 years.
I mentioned before that we had set out to prove that housing can be profitable. Our proof of that can be seen in our strong income growth since 2000. In 2005, our net income reached a record high, surpassing the record we have set the previous year. We do not have the final numbers yet for 2006, but we are confident that our income would be even better.
Let me stress that the fund’s success is not the fact that we have been making income in the past five years. Rather, it is the fact that we have had a positive income growth over the past 6 years. From being a virtual cellar dweller among Philippine corporations in its earlier years, Pag-IBIG in fact rose to being sixth and ninth in 2002 and 2003, respectively, in terms of net income.
It has been a consistent six-year growth for Pag-IBIG. This has been given independent confirmation by the Philippine Ratings Services Corporation, or Philratings, when it granted the Fund a “Aaa” credit rating. This is the highest rating that has been given to a government agency today. It recognizes Pag-IBIG’s performance as a consistently profitable company, with a well-managed investment portfolio and with a highly-assured liquidity to meet all of its obligations to members and conditions alike.
The Fund has been going through quarterly rating confirmation proceedings, and I am glad to say that we have maintained our standing.
So we have not only taken the lead in housing and shown the way for the private sector. We have also managed to transform a quiet and unheralded government agency into a consistently strong financial institution.
And we have managed to do all these despite the limitations inherent in the Pag-IBIG Fund.
First is the fact that our employees are earning less than their counterparts in the private sector and other GFIs because of the salary standardization law, which we are subject to.
Secondly, the bulk of our employees are contractual hires.
Thirdly, we are not a tax-exempt corporation.
And lastly, we have been collecting only P100 a month from every member, plus the employer’s share, since 1980.
And yet despite all these, we have managed to do very well for a government agency. I’d like to think that this is also our share in restoring the people’s flagging faith in government.
FOCUS ON LOW INCOME EARNERS
Now, despite the greater participation banks have been showing the past two years, the Fund continues to enhance its shelter financing programs. This time around, we are putting a stronger focus on low income earners.
Upon the direction of our chairman, Vice President Noli De Castro, the Pag-IBIG Fund management studied the feasibility of further lowering the interest rates for our most affordable housing loan packages. Last December our Board of Trustees approved the new housing loan guidelines with the new interest rates.
For loan packages up to P300,000 we have brought down the interest rate from 9% to only 6%. For loans exceeding P300,000 up to P500,000 we have lowered the interest rate from 10% to only 7%.
For loans over P500,000 to P1 million, the old interest rate of 11% has been decreased to 10.5%. Over P1 million up to the maximum of P2 million, the interest rate has been reduced from 12% to 11.5%.
The maximum payment period has also been increased to 30 years. These changes effectively lower the monthly amortizations so that even minimum wage earners and government employees in the lower salary grades can afford our housing loans.
For a housing loan of P300,000, for instance, the monthly amortization is only P1,798. For a P500,000 housing loan, our borrowers would only have to pay P3,326.
This does not mean we are competing more aggressively against the banks for a greater share of the mortgage financing market. Far from it. Like I said earlier, we have a huge housing backlog in the country. There is plenty of room for the banks to participate. What we are doing is focusing more on the P500,000 or lower segment of the market, giving access to affordable housing to people who otherwise might never consider themselves capable of buying a house. We are positioning ourselves more in socialized and lowcost housing, leaving the more lucrative middleclass housing an open field.
Sa amin na yung mga teachers, security guards at government employees na gustong magkabahay. Sa inyo yung mga managers, junior executives at call center agents.
Also, to raise additional Funds for our housing programs, we will be floating P2 billion worth of Housing Bonds this year.
The Housing Bonds shall be issued at par, with a term of up to five years from issue date. For this issue, the coupon rate will be a fixed interest rate based on the prevailing market rate at the time of issuance. This will be tax-exempt. The bonds will be secured by an HGC guaranty up to the amount of Principal and Interest. We are opening the bonds to retail investors, with a minimum participation of P10,000. A unique feature of our Housing Bonds is the raffle promo, where eligible bondholders may win a house and lot worth up to P1 million in our annual raffle draws.
This is part of our continuing efforts to boost the housing sector and provide shelter financing services to even more Filipinos.
Our economy is on an upswing. 2006 proved to be a very good year for the Philippines as far as the economy is concerned, and 2007 is looking good as well. I think you will agree that the housing and real estate sector, which is recognized for its high multiplier effect, has contributed to this positive state of affairs. In fact it is one of the important sectors of the country’s economy and one of the indicators of its economic health. Services generated from the real estate industry form part of the services sector, which is one of the fastest growing industry sectors of the economy.
Housing has played a key role in jumpstarting the economy and realizing the gains that we are seeing now. To sustain this, we need greater participation of the private sector, especially the private banks, without disregarding the need for prudent investment policies, of course.
The Bankers Institute of the Philippines plays an important role as one of the guardians of the banking sector’s stability, soundness and productivity. While your organization’s main focus for this year is on compliance with global standards, I hope that you will also lend support to our call for more investments in housing.
Thank you very much.