Home loan market settles (The Brunei Times)

Published in the June 26, 2013 issue of The Brunei Times. Click here for original article

Home loan market settles

Potential home buyers who had held back on buying immediately after the new rates were imposed are now back in the market. Picture: BT file

 

Debbie Too and

Jennee Grace Rubrico

BANDAR SERI BEGAWAN

Wednesday, June 26, 2013

THREE months after the central bank imposed changes in key interest rates, the residential loan market appears to have adjusted to a new normal.

Potential home buyers who had held back on buying immediately after the new rates were imposed are now back in the market, opting to proceed with long-planned purchases in the wake of the changes. Financial institutions, on their part, have factored the new rates into their products and are now back in business after a number imposed a short-lived moratorium on home financing.

"We are still going to go ahead and take up a home financing product," said Rina, a potential home owner who had earlier expressed concern over the impact of the changes in the interest rates on access to home financing.

She said that she and her husband were going to push through with the plan to get home financing since there was "no choice".

The Autoriti Monetari Brunei Darussalam (AMBD) on March 6 imposed new rates with the aim of enhancing the financial infrastructure and inculcating sound financial and debt management among users of credit.

Under the AMBD directive, residential property loans or financing now have a revised maximum effective interest rate or annualised profit rate of not more than 4.5 per cent per annum.

Following the amendment of interest rates, banks -- some of which froze home loans for around a week -- altered their packages to take into account the new interest rate regime.

Among others, banks decreased the amount they would finance for the property to 70 per cent -80 per cent of its value. Subsidies for home loan packages, which can amount to $15,000, were also cancelled.

Indirect impact

In an email interview, Dr Chua Yang Liang, the head of research for Southeast Asia for property consultant Jones Lang LaSalle, told The Brunei Times that the impact of interest rates on housing demand is "not as direct".

"Fundamentally, housing demand can be a consumption or for investment... In Brunei, as the housing market is still largely a domestic play, the rise or fall of interest rate may not change demand as quickly or as dramatically as you would expect," she said.

She also said that Brunei is a "relatively stable market" and added that while Bruneians might change their buying pattern in reaction to the shift in the interest rate, "we do not think that this alone is sufficient to lead to a structural shift to the residential market".

While overall the home financing market seems to be getting back on track, however, there could be changes in banks' share of the market as debtors flock to creditors with the most favourable packages.

Rasidah Haji Abu Bakar, a reporter for The Brunei Times and a home loan applicant, said that she is now opting to purchase property through Standard Chartered Bank (SCB) because the bank gives a longer repayment period compared to HSBC (B) Sdn Bhd, her previous choice.

"They (HSBC) changed their repayment period for home loans to 10 years and I can't afford to repay for a house in 10 years," she said.

She also said that SCB provided her with subsidies for the processing fees and other contractual agreements with the bank. Even with this, however, she is required to shell out more cash for her loans now since additional items such as the mortgage reducing term assurance -- an insurance cover in the event of the applicant's death or permanent disability -- would require a personal loan to pay off.

Cheok Fui Say, general manager of Retail Lending at SCB, said that demand for home loans has continued, but it was not clear if the increased demand was seen as a direct result of the rates revision.

She only said that "with the revised rates, customers are even more advantaged by the fact that all rates are equal and this would save them time from going from bank to bank to 'shop' for the best rates". She added, though, that the bank has seen a surge in applications for refinancing.

HSBC, on the other hand, said in reply to questions sent by The Brunei Times that volumes have gone down.

"(HSBC is) satisfied with the changes it has made on its home loan application, but obviously the volumes have reduced considerably over the past few months as a result of these changes."

HSBC's restructed home loan packages now have a repayment period that was shortened to 10 years, and the bank has told customers that it would only finance properties for up to a maximum of 70 per cent of their value. The bank has also taken away subsidies that used to amount to a maximum of $15,000 and included land valuation, insurance and others.

Other borrowers, meanwhile, opt to take up financing from banks that they have a history with. Rina, for instance, said that she and her husband would probably opt to go to Bank Islam Brunei Darussalam (BIBD) "because it's my husband's bank".

"We haven't met up with the home financing specialist to discuss what our package would be but we heard that financing would be up to 80 per cent only," she said.

A home financing specialist from BIBD said: "At the bank we would handle the financing option, and we offer financing up to 70 per cent of the market value or the selling price, whichever is lower."

She added that on a case-by-case basis the amount being financed could be increased.

Depending on the financial health of the customer, sometimes the subsidies can be included in the total amount for the home financing product, but if they are not eligible, customers may have to opt for a personal loan to pay for the subsidies. Baiduri Bank, for its part, says it has been doing well on the home financing front.

Pierre Imhof, the chief executive officer of Baiduri, said that the amendments to the interest rates did not have much of an impact to the bank's home financing packages as it had already been offering rates that were in line with the new rules prior to their effectivity.

Imhof added that the price that Baiduri grants under its facility is directly linked, or is in proportion, to the risk the bank has to take.

"What we have also seen is that there is a backlog to the access of ownership in Brunei and we definitely believe that a number of people are still keen to come and see us to find the right loan," he said. The Brunei Times

 

 

Asean seeks to boost fund for infrastructure projects

Published in the July 17, 2011 issue of The Brunei Times

Jennee Grace U Rubrico

BANDAR SERI BEGAWAN

THE Association of Southeast Asian Nations (Asean) is hoping to beef up a fund that is being set up for infrastructure projects in the region.

Philippine Finance Secretary Cesar V Purisima told reporters yesterday that the 10-member grouping hopes to entice central banks in the region to invest in the Asean Infrastructure Fund (AIF). The AIF will be a combination of equity contributions from Asean member-states and bond issuances.
Asean member-states have pledged to contribute US$335.2 million ($408.41 million) to the fund.
The Asian Development Bank (ADB) will give a counterpart of US$150 million as well as hybrid capital, amounting to US$162 million, in the form of debt and equity.
"We believe that the AIF is a very good initiative. Our goal is that it becomes so successful that the credit rating becomes very high hopefully in the A's so that the central banks of the region can invest in it so that it can become bigger," Purisima said.
He said that at around US$400 million, current pledges for the fund are "a good start".
"But given the infrastructure needs of the Asean, we really need all the capital to be funneled to that," he added.
The ADB has estimated that the region requires infrastructure investments amounting to US$596 billion from 2006 to 2015, with an average investment of US$60 billion per year.
Purisima said that the central banks in the region have the means to invest in the fund.
"We do have the reserves. Across the region we have substantial foreign exchange reserves. Our challenge is to create the mechanisms for recycling these investments, and AIF can be one of that," he said.
According to the International Monetary Fund, Malaysia had foreign currency reserves of US$120.58 billion while Singapore had foreign currency reserves of US$238.5 billion in May 2011.
The Philippines, meanwhile, had foreign currency reserves of US$59 billion, while Thailand had US$177 billion in the same period.
Asean aims to establish the AIF during the informal Asean Finance Ministers' Meeting in September.
The fund was conceived to provide funding for the huge infrastructure requirements of the Asean. Indicative projects include those in the energy, transport and water sectors.
Based on discussions among the Asean member-states, the AIF will be a corporate entity, with a board that will take the key decisions of selection of projects as well as their implementation.
The AIF will be headquartered in Malaysia and will be administered by ADB on behalf of Asean member-countries.
Malaysia has pledged US$150 million for the fund, while Indonesia said it was giving US$120 million. Laos and Cambodia have pledged US$100,000 each, while Thailand, the Philippines and Singapore pledged to contribute US$15 million.
Asean Secretary-General Dr Surin Pitsuwan, however, had earlier said that the fund was not going to be enough to support the implementation of the Asean Master Plan on Connectivity, pointing out that Asia needs to invest about US$8 trillion in overall national infrastructure between 2010 and 2020.
"In addition, Asia needs to spend about US$290 billion on specific regional infrastructure projects in transport and energy that are in the pipeline," he said. The Brunei Times

Makati Med’s P1-B debt restructuring approved (BusinessWorld)

Published in the May 10, 2007 issue of BusinessWorld

 

BY JENNEE GRACE U. RUBRICO, Sub-Editor

Makati Med’s P1-B debt restructuring approved

Following its rosy financial performance in 2006, the Medical Doctors Inc., the operator of Makati Medical Center, has secured the approval of creditors for the restructuring of some P1 billion in debts.

Makati Med Finance Director Carlito Soliman said in an interview yesterday that the restructuring agreement was signed by the hospital and its creditors on Friday last week.
The signing of the agreement comes two years after the company — which posted a 14-fold increase in its net income in 2006 — asked creditors to extend the maturities of its obligations due to cash flow constraints.
Mr. Soliman said that under the restructuring agreement, the maturities of the company’s short-term and long-term obligations were extended up to eight years. For the first three years, the company will need to make only interest payments. Payment of the principal loan amount will start on the fourth year and will be spread over five years.
"Everything’s going the way it’s planned," Mr. Soliman said.
Medical Doctors operates, manages, and owns Makati Med. It also wholly owns the Remedios T. Romualdez Memorial Schools, Inc. and holds a 60% stake in Computerized Imaging Institute Inc., which maintains a tomography center.
The firm earlier tapped ATR-Kim Eng Capital Partners Inc. to put in place a business plan to address its cash flow constraints.
The company obtained the loans from 1998 to 2004 for additional working capital, as well as for the expansion and upgrading of medical equipment, audited financial statements show.
Of the P370.248 million in short-term obligations, P190 million was secured from Land Bank of the Philippines; P156.65 million was from the Rizal Commercial Banking Corp.; and P23.598 million was from Security Bank and Trust Co.
Meanwhile, of the firm’s long term obligations totaling about P770.586 million, P288.226 million came from the Development Bank of the Philippines, the firm’s biggest creditor. RCBC also has a long-term exposure amounting to P56.25 million. Other long-term creditors are Citibank Savings Inc., with an exposure of P96.649 million, the Medical Docotrs Inc. Retirement Fund, which lent P23.5 million; the Social Security System, which lent P21.05 million, and Deutsche Investitions-Und Entwicklungsgesellshaft mbH, which has an exposure of P284.902 million.
The signing of the restructuring agreement came after Medical Doctors posted a 1,360% surge in its net income last year on controlled costs and non-recurring income.
In its financial report, which was audited by Isla Lipana & Co., Medical Doctors said it posted a net income of P223.121 million last year from P15.279 million in 2005. Although net revenues — derived from the operations of the hospital and the school — were just up 6% P2.475 billion from P2.320 billion in 2005, administrative expenses went down 27% to P353.38 million from P488.597 million in 2005, allowing the firm to record a 414.7% growth in operating profits to P438.745 million from P85.244 million.
"We were able to save on operational cost efficiencies," Mr. Soliman said.
He declined to specify particular measures that the company implemented, saying only that the approach was "across the board."
In the notes accompanying the financial statements, Medical Doctors also said it was able to improve on its financials after it made gains of P1.67 million from the disposal of property and equipment.
Also contributory was the reversal of a P20.67 million provision the company made in 2005 for unusued medical equipment, the notes to the financial statements show.
"In 2005, certain medical equipment was determined by the parent company’s management to be for repair and have not been used for operation.... In 2006, the parent company recorded a reversal of impairment charges on certain medical equipment previously identified as impaired. These pieces of equipment underwent significant repairs and were brought back to good working conditions," Medical Doctors said.
The company also posted smaller losses on write-offs for medical equipment, to P3.997 million from P42.275 million the previous year.
The company’s profit before income tax was at P293.65 million, a reversal from a loss of P7.431 million the previous year.
The firm’s assets increased to P4.859 billion in 2006 from about P4.533 billion in 2005, mainly due to an increase in its cash, receivables, and inventories.
With the strong bottom line, Medical Doctors’ deficit — the accumulation of its losses in the past — was reduced to P133.803 million from P360.716 million.
Mr. Soliman said that the company was optimistic that the deficit would be wiped out in no time.
He noted that occupancy of the hospital went up and that for the first quarter of this year, the firm posted an unaudited net income of P65 million after tax expenses.
"We’re looking at gross revenues of P218 million for April. We’re expecting a net income of P80 million for the four months ending April. That’s not too far off [from the 2006 deficit]," he said.
Sought for comment, KMPG chairman Roberto G. Manabat also said that Medical Doctors could wipe out the deficit this year just from its operations.
"It easy to erase a deficit of P133 million, assuming that the level of expenses is maintained and there is a growth in revenues in the company’s forecast," Mr. Manabat, the former General Accountant of the Securities and Exchange Commission, said.
He added that with the entry of the group of Philippine Long Distance Telephone Co. chairman Manuel V. Pangilinan, "the financial institutions would react positively" to the firm.
Medical Doctors is selling P750 million worth of convertible shares with an option to increase this by an additional P150 million. The securities are currently being offered to existing shareholders, but will later be offered to the Pangilinan group.
The group is reportedly interested in getting at least P600 million worth of shares. As of end-2006, Medical Doctors’ biggest shareholders were: Associated Sugar Inc., with a 5.23% stake; San Miguel Corp., with a 4.31% stake; Raul G. Fores, with a 4.21% stake; Julieta Ledesma, with 2.46%; and Remedios Suntay, with 2.42%.

Necessary complications (BusinessWorld)

Published in New Accounting Standards Credibility Through Transparency (A BusinessWorld Special Report, August 2006)

BY JENNEE GRACE U. RUBRICO, Senior Reporter and JEFFREY O. VALISNO, Reporter

Necessary complications

From the start, government regulators had been aware of the inherent difficulties in adopting new accounting rules. Hence, both the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) chose to implement the 40-plus new rules in batches, starting with the least complicated standards as early as five years ago.

“If companies had problems complying with the earlier rules, they would sure find the last batch of rules more complicated,” SEC consultant Roberto G. Manabat had said in an earlier interview.
True enough, some firms had found it more difficult than others to apply the new standards.
Asian Institute of Management professor Larry Tan cited pre-need firms as examples, saying the rules that govern either the insurance industry or the pension industry may not be applicable to pre-need.
“The pre-need industry is unique to the Philippines and the IAS provisions are not for the industry. Are they going to have to come up with a Philippine Accounting standard just for that [industry]?” he said.

And some rules turned out to be more troublesome than others. Here are samples

Accountants said that of the new accounting standards, IAS 39, which deals with recognition and measurement of financial instruments, required the most drastic changes.

“IAS 39 deals with both assets and liabilities. The change in the rules is that, at the time you acquire the financial instrument, you have to make clear already what your intention is for the instrument,” Mr. Manabat said.

For instance, if a company purchases government or corporate bonds, it is required at the outset to say if it will be holding the financial instruments to maturity, make them available for sale or and loss.”

How these bonds are categorized, Mr. Manabat said, is the basis of how they will be included in the financial statements.

Instruments that are classified as available for sale are measured at fair value — the price of an instrument which both the buyer and the seller find reasonable — and are included in the equity portion  of the financial statement; the instruments would be recorded as cost if their fair value cannot be reliably measured.

 Instruments that are classified as held at fair value through profit and loss, meanwhile, are measured at fair value
and are included in the profit and loss portion of the financials of a company. They are recorded as cost if the fair value cannot be reliably ascertained.

Financial instruments classified as loans and receivables are measured at amortized cost. The same measurement
is used for instruments that are classified as being held to maturity, with the difference between its face value and its cost being amortized over the remaining term of the instrument.

If bonds categorized as held to maturity are used for trading, Mr. Manabat said, companies will be penalized. “Even if not all the bonds that are categorized as held to maturity are reclassified, all the bonds under the classification will be tainted. They will also be reclassified as available for sale,” he said.

Moreover, reclassification will ban the company from using the “held to maturity” category for two years.

Mr. Manabat said financial instruments have been classified this way to prevent abuses on the part of the companies which would put the instruments in whichever category would be favorable for them.

“Measuring at fair value would keep on changing the value of the financial instruments, so many people want to classify the bonds as held to maturity. But now, once you designate, you can no longer keep on changing categories. This was done because many companies have abused this [flexibility],” he said.

Besides the classification of financial instruments, IAS 39 also touches on hedging as well as the measurement of derivative products.

IAS 32 basically requires companies to fully disclose all monetary transactions, and the risks that come with the use of such financial instruments.

Application of IAS 32 and 39 has proven to be very difficult, especially for mining and pre-need companies due to varying interpretations of these standards.
Following the decision of the Supreme Court in 2004 allowing foreign firms to have full ownership in mining firms, the Arroyo administration has been counting on mining to drive economic growth.

While the aim of reporting financial statements on current prices is to promote greater transparency, mining companies have complained that the implementation of the IAS rules might present an opposite picture of their bottom lines.

Since mining firms forge contracts at present based on what they think would be future prices of the minerals that they still have to retrieve, implementing an accounting standard that mandates the use of current prices may be impractical.

For example, if contracts were made on the assumption that prices would be high in the future, and if those prices fall short of projections, the mining company would have to take a loss.

This, despite the fact prices might have “fallen” due to higher-than-projected production.
Another accounting rule that is expected to have made a significant impact on the financials of companies is IAS 19, which governs employee benefits. Under IAS 19, companies must fully finance future benefits due to employees.

Before, companies did not need to disclose in detail how much they allot for mandatory retirement benefits, for example.

Mr. Manabat said IAS 19 requires companies to get the fair value of benefits they committed to their employees.

“The companies are required to book the present value of those promises, based on their experience. For instance, if the employees last for 20 years, this will be booked over 20 years.

“There are a lot of factors — morbidity, turnover, increases in salary. It depends on all of those. These are projected and then the present value is determined,” he said.

He said this standard will weigh heavily on companies because the “past service liability” — a company’s liability which covers the time the trust fund had not yet been formed — used to be amortized over the estimated service life of employees.

“Now, this is no longer the case. You have to include this already in the trust fund asset,” he said.

He added, however, that a five-year transition period has been given wherein companies will be allowed to amortize the past service liability over five years.

“This will mitigate the impact on the profit and loss. Still, if the amortization is from 20 to five years, you’re talking of billions,” he said.

Still another rule governs how companies report the effects of foreign currency exchange rate fluctuations. IAS 21 mandates that impact of foreign exchange changes should be reported immediately in the company’s current operations.

Previous to the rule, companies could spread this cost over a certain period.

For instance, the peso ended at P52.835 to the dollar in 2005, from the P54 levels the previous year. IAS 21 requires companies which imported equipment when the peso was weaker to immediately report the purchase as a loss in their financial statements.

IAS 40 governs investment property, or the properties like land or buildings that a company uses to earn rentals, or for capital appreciation. It does not include properties for the use of the owner, like building that the company owns and occupies. Under the old rule, properties were not segregated on their purpose for the company.

This rule became problematic when it gave companies the option to valu investment property based on either cost (when the property was acquired), or at current prices.

IAS 40 requires companies to be consistent once they decide which method they use to value their investment properties. The option to choose became a concern for pre-need firms, for instance, since variations on how they report their investment properties made it more complicated for one to be compared to its competitor.

“One of the key features of the [new accounting] standards is the overwhelming amount of disclosure requirements.

This has made financial reporting a complex process,” BSP Governor Amando M. Tetangco, Jr. acknowledged in an interview.

“However, looking at the upside of it, these disclosure requirements will empower the stakeholders in making relevant decisions.”