Healthy banks

IF there is one institution that every segment of society from billionaires to paupers can comfortably criticize, it is The Banks.

“I do not think you can trust bankers to control themselves. They are like heroin addicts.”—Charlie Munger, vice chairman of Berkshire Hathaway and partner of Warren Buffett.

However, the banking system was the first financial institution after humans gave up their reliance on hunting and gathering of foods in favor of agricultural practices around 14,000 years ago. This shift to cultivation created more economic stability and the financing of both farming and trade become vital. Merchants, which traded goods between cities, provided loans—or effectively “cash advances”—to the farmers and traders who needed bridge financing until they could sell their goods. This was the precursor of “letters of credit.”

While there are many ways to help measure the financial soundness of an economy and a country, the strength to weather adversity and continued economic prosperity can be found by examining the banking system.

As a company, a bank—and therefore the banking system—is different from any other type of business. Banks even require a completely different set of accounting rules and practices to understand if they are “healthy.” Ultimately that evaluation comes down to the capitalization of the bank and then its loan portfolio.

Bank capital is the difference between a bank’s assets and its liabilities, and it represents the net worth of the bank. Because banks serve an important role in the economy, the banking industry and the definition of bank capital are heavily regulated. While each country can have its own requirements, the most recent international banking regulatory accord of Basel III (an internationally agreed set of measures) provides a framework for defining regulatory bank capital.

There had been some concern that Philippine banks were too small. However, local banks met Basel III standards before most other nations.

“It is an axiom nowadays that no bank fails for lack of capital; unprofitable lending is always the underlying cause.”—James Grant, Grant’s Interest Rate Observer. “Banks get in trouble for one reason: They make bad loans.”—Carl Webb, Ford Financial Fund.

Local banks’ “non-performing loans as percent of all bank loans” has always been below global averages, as have all the Asean members. Even mass defaults as happened in 1997 did not cause a banking system failure here as in the West because local banks have always been very conservative and tight with their collateralization requirements.

Bad loans that can severely impact the banks usually are real estate mortgages, as evidenced by bad lending practices in 2008. Oxford Economics recently published their “Banking Sector Risk” assessment, using a composite index of 35 key macroeconomic and financial indicators. Oxford says that seven of 45 major economies have an 18 to 20 percent probability of suffering a housing crisis in the next three to five years. The historic risk average is only 2 percent.

The top five most vulnerable economies are Iceland, Canada, the Netherlands, Sweden, and Denmark. Emerging market banking systems are much less vulnerable to housing crises than those of advanced economies. Their households are less indebted and there was less property market boom and bust.

The “top five” of those with the lowest risk are Indonesia, Mexico, Philippines, Malaysia, and Japan. Healthy loans means healthy banks, and that’s good for everyone.

AI, ChatGPT and your job

Rising Sun

IN a recent workshop, I heard a graphic designer participant lament about how free-to-use graphic design tools have affected her income negatively. Clients are now opting to use free apps instead of hiring artists like her. The launching of ChatGPT is also fueling the same fear among knowledge workers, content creators, artists, and similar workers.

Incidents like what we are experiencing now with the dawn of AI and chatbots are not new. Looking at history, we have seen how technological changes and developments have always disrupted labor markets. When steam power and electricity were discovered up to the time of computers and the Internet, the same pattern has been observed as far as job disappearance is concerned. Some form of pain usually accompanies progress. People have been asking ques- tions like, Will AI take over my job? Or, what career would be safe from the negative impacts of these technological changes? Will there be job losses because of ChatGPT (and other similar developments)? How can I protect my livelihood? These are all very valid questions, and very timely too considering the economic upheavals many countries are currently experiencing. AI is here and it is rapidly improving, which means it is inevitable. We might as well learn to deal with it and to thrive alongside it. Tech experts have advised workers to stay informed so they can stay ahead. Preparation is, indeed, crucial. Once we understand the potential of new technologies and the possible changes they could bring into our lives, we can plan better and position ourselves such that we can keep up.

AI is here and it is rapidly improving, which means it is inevitable. We might as well learn to deal with it and to thrive alongside it. Tech experts have advised workers to stay informed so they can stay ahead. Preparation is, indeed, crucial. Once we understand the potential of new technologies and the possible changes they could bring into our lives, we can plan better and position ourselves such that we can keep up.

While AI can accomplish remarkable tasks, it is far from perfect. It can generate false information or wrong analogies, plagiarize content, and come up with shallow ideas or text that lack substance, among other limitations. And so it is true what they say that the machines will still need the input of humans and that it may take some time before AI can perform highly specialized tasks that only humans, at the moment, are capable of. Aside from this, the new technologies will most likely generate new types of jobs. I suppose what we should also guard against in the coming months would be over-reliance on apps like ChatGPT since it may be risky and even harmful to many if we are careless about the content it generates. Institutions and education agencies or bureaus must set policies and guidelines on the use of large language models in consideration of fairness and human skills development. We can’t rely on bots and lose important skills like writing, reading, analysis, and critical thinking. Presently, many of our students and workforce already have limited capabilities. Let us bridge the gaps rather than let the robots do the work for us.

Six decades of debt-driven economic governance: What is the scorecard?

Laborem Exercens

Part One

THe Filipino millennials (born 1982-1994) and post-millennials (born 1995 upward) may not be aware that the Philippine government has been relying on borrowing as the main instrument in managing the economy since the 1960s. The economy has become a debt-driven one for around six long decades. This is equivalent to three generations.

The first major borrowing of the Philippines happened in 1962, when President Diosdado Macapagal applied for a $300 million stabilization loan from the International Monetary Fund. The IMF readily agreed. However, it imposed the following policy conditionalities: devaluation of the peso and lifting of the foreign exchange and import “controls.”

These “controls” were used by Central Bank Governor Miguel Cuaderno in promoting “new and necessary industries” under the overall “importsubstituting industrial” (ISI) policy. These ISI-oriented controls helped fuel double-digit industrial growth for the country in the 1950s up to the early 1960s.

In 1972, President Ferdinand E. Marcos launched a “revolution from the center” by declaring martial law industrial (EOI) policy. adjustment loans” (SALs), or loans aimed at strengthening the EOI program and making the economy more open or outward-looking. The SALs formally enthroned in economic governance the following neo-liberal “structural adjustment programs” (SAPs): trade/investment liberalization, deregulation of various sectors of the economy, and privatization of government corporations, assets and services. with the promise of robust economic growth for all under an envisioned “new society.” To fulfil this grand ambition, the martial-law government forged a development alliance with the World Bank, which declared the Philippines as an “area of concentration.” Together with the IMF, the World Bank formed a “Consultative Group” of bilateral and multilateral lending agencies whose primary purpose was to provide “development finance” for the various infrastructure, institutional and other projects of the government such as the Green Revolution in rice production. The Consultative Group became the ally of the National Economic and Development Authority (Neda) in pushing for a shift in industrial policy, from ISI to labor-intensive export-oriented

In the early 1980s, the national debt became unpayable due to the collapse of commodity prices for Philippine exports (e.g., minerals, sugar and coconut), oil price shock, banking crisis, political crisis triggered by the Ninoy Aquino murder, rising loan service payables, and yes, failure of the EOI program to deliver growth and jobs.

The 1962 IMF stabilization loan was followed by a series of IMF loans, with the accompanying “Letters” of Intent detailing the commitments of the Philippines to IMF-favored policies such as new peso devaluation and belt-tightening in fiscal expenditures. There was a surge too in government borrowings from the World Bank-led Consultative Group of Creditor Countries for the Philippines. As a result, the country’s external debt rose from around $2 billion in 1972 to $20 billion in 1980.

In the early 1980s, the national debt became unpayable due to the collapse of commodity prices for Philippine exports (e.g., minerals, sugar and coconut), oil price shock, banking crisis, political crisis triggered by the Ninoy Aquino murder, rising loan service payables, and yes, failure of the EOI program to deliver growth and jobs. The IMF-WB tandem came to the rescue by offering new loans packaged as “structural

In the succeeding periods, from President Corazon Aquino to the Rodrigo Duterte administration, the accumulation of new debts continued. And so is the overall EOI-SAP economic program. There has been no contestation within the Executive branch on the appropriateness or relevance of the EOI-SAP program in place. The battle cries of Neda’s economists have remained dominant in the economic policy corridors: tear down the “protectionist” tariff walls, liberalize the entry of FDI, go export-oriented, deregulate all sectors, privatize government-owned and -controlled corporations, sell government assets, privatize the delivery of public services (e.g., power, water, etc.) and privatize infra development. To