August 8, 2018

Tapping the Untapped Market in the Philippine Financial Sector

Part 1

The Significant Size and Value Especially for the Philippine Stock Market

Let’s get to the facts first.

It has been reported by the Bangko Sentral ng Pilipinas (BSP) that 86% of Filipino households don’t have bank accounts, and it has been also reported by the Philippine Stock Exchange (PSE) that less than 1% of the Philippine population invest in the stock market.

Worldometers say that as of 2018, there are an estimated 106.7 mn Filipinos. Thus the number of Filipinos without bank accounts is 91.8 mn, and the number of Filipinos not investing in the stock market is 105.6 mn.

Taking this further down to the National Capital Region (NCR) level where according to the Philippine Statistics Authority (PSA) is where 12.8% of the Philippine population resides, there are 11.8 mn Filipinos without bank accounts and 13.52 mn Filipinos not investing in the stock market.

These are staggering numbers that entail us to go further to estimate the value of this rich and untapped market. From March 1981 to March 2018, the Philippine gross savings rate according to CEICData is 17%. The PSA is close and also estimating this at 19%.

This is derived from PSA’s data that the average annual family income in the Philippines is PHP267,000. The average annual family expenditures in the Philippines is likewise PHP215,000 giving an annual savings of PHP52,000 per year. The PSA also estimates six members in one Filipino household.

To derive the annual value of these markets, population is divided by six to make them into households which save PHP52,000 per year. These savings can be deposited into savings accounts or invested in stocks so the respective untapped households are multiplied by PHP52,000.

As a result, the value of the untapped market of Filipinos without bank accounts is PHP795.3 bn, while the value of the untapped market of Filipinos that don’t invest in the stock market is PHP915.5 bn. In the NCR level, the respective values are PHP101.8 bn and PHP117.2 bn.

To a bank, the value of the untapped market of Filipinos without bank accounts is 17% of the Philippine banking system’s savings deposit of PHP4.74 tn as of June 2018. In the NCR level, it is 2%. PHP795.3 bn can generate income of PHP35.5 bn based on the system’s earning assets yield of 4.47% as of June 2018 from the BSP.

To a stockbroker, the value of the untapped market of Filipinos not investing in stocks is 47% of the total value traded of PHP1.95 tn in whole year 2017. In the NCR level, it is 6%. PHP915.5 bn can generate commission income of PHP2.3 bn annually. In NCR, it is PHP293 mn.

Even at a 50% success rate of tapping into these markets, the opportunity losses of both the banking and stock brokerage sectors are huge. This specially stings the latter as there are 131 of them currently fighting over a 1% pie. Only a third of the 131 are significant and with extensive fundamental research capabilities.

These size and values stood throughout the decades, and it is obvious that the techniques used by banks and stock brokerages have been ineffective. The challenge of tapping these markets are rewarding, but these markets require special servicing above than what are given right now.

Disclaimer

This report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report. Pictures in this report cannot be copied or redistributed and are owned by Corpecon Research.