Nikkei Asian Review – August 2, 2016 – MANILA — For BDO Unibank, the largest lender in the Philippines, now is the perfect time to team up with Japanese financial institutions. A growing number of Japanese companies are looking to expand into the country, while President Rodrigo Duterte has made wooing foreign investment and creating manufacturing jobs key policy priorities.
On July 13, BDO signed a business alliance agreement with Japan’s Shizuoka Bank in Manila. Under the agreement, BDO will provide Shizuoka Bank’s corporate clients doing business in the Philippines with various services, such as account openings and introductions to potential partners. The tie-up will also allow Shizuoka Bank customers to remit foreign currencies and borrow pesos from BDO.
BDO is hoping the alliance will help expand its customer base among Japanese companies eyeing the Philippines. Shizuoka Bank Deputy President Akihiro Nakamura said he has high expectations for the country’s growth potential, and pointed out that well-known Japanese manufacturers, such as Yamaha Motor and Suzuki Motor, are headquartered in Shizuoka Prefecture.
With a population of more than 100 million and an average age of 23 — the lowest among members of the Association of Southeast Asian Nations — the Philippines is drawing keen attention from manufacturers. Lower labor costs and slower wage growth than neighboring countries are also a plus for the manufacturing industry.
To foster the auto industry, the Philippine government this year started providing automakers with subsidies of about $1,000 per vehicle. Japanese automakers Toyota Motor and Mitsubishi Motors recently became eligible for the subsidies. A stronger auto sector could lure related companies, such as parts makers, to the Philippines.
BDO is also teaming up with Japanese financial institutions in areas other than support for manufacturers. In May, it partnered with Aozora Bank in M&A advisory, allowing BDO representatives to introduce possible partners and buyout targets to customers of the Japanese bank considering entering the Philippines. BDO President and CEO Nestor Tan said his bank wants to focus on M&A activities more seriously than most commercial lenders do.
Room to grow
BDO, the core company of the SM group, the Philippines’ largest retail group, has about 1,000 branches and is well-known in the country. In addition to its banking operations, BDO has also entered the securities business in expectations that a growing middle class will lead to more individual investors. In June 2015, BDO jointly established a brokerage with Nomura Holdings to learn from the Japanese company’s expertise.
The Philippines boasts annual growth of 6% and has a steadily expanding middle class. If government measures to attract manufacturers prove successful, further growth can be expected.
President Duterte, who took office in late June, has placed inviting foreign companies, mainly manufacturers, and creating jobs at the center of his economic agenda. In his July 25 state of the nation speech, Duterte pledged to nurture the manufacturing industry by implementing tax reforms, including cutting corporate tax rates, and improving the overall business environment.
The Duterte administration’s 10-point economic agenda includes such goals as relaxing investment restrictions to attract foreign capital and revitalizing rural areas. Duterte’s home territory of Mindanao, for example, has remained underdeveloped, despite being rich in natural resources, due to long years of armed conflict. While GDP per capita in 2014 was more than $8,000 in Manila, it was just $600 or so in some regions of Mindanao.
The new administration also plans to attract domestic and overseas companies to smaller cities by improving the security situation and providing incentives for investment. San Miguel, one of the most diversified conglomerates in the Philippines, has started constructing a large industrial park in the city of Davao, Mindanao. Undeveloped rural areas will have much room to grow once infrastructure and other aspects of the business environment improve. The country is likely to continue drawing attention of Japanese and other foreign companies.