Finance
for Senior Executives
Asian Institute of Management
February 28- March 17, 2000
Financial Management in the
Philippines
Professor Victor S. Limlingan
Role of Financial Management
Marketing/Operations create value for
customers
Finance supports Marketing/Operations
create value for customers
In so doing, Finance improves financial
security of stakeholders and increases
financial value of shareholders
2
Role of Finance in the
Philippines (The Recent Past)
During the Asian crisis, to establish and
expand the breathing space as companies
reposition to create more appropriate
values for customers through:
Redeployment of Assets
Restructuring of Debts
Rehabilitation of Financial Condition
Revising Financial Policies
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Revising Financial Policies
Debtor’s Priority
Lender’s Curse (Asymmetry of
Information)
Agency Problem
Barter Deals
4
Role of Finance in the
Philippines (The Present)
At present, shield the company from the
adverse effects of the on-going
restructuring of the Philippine Banking
System. Adverse effects can not be
avoided as the Stock Market is down and
the market for Commercial Papers
disappeared with the bankruptcy of
corporate issuers.
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The Philippine Banking
Situation
Non-performing loans at critical levels so banks
become stricter in credit evaluation at a time of
Declining demand for loans and no attractive
alternative for investible funds given the
low interest on Treasury Bills forcing banks to
accept
Result: Diminishing spread on loans
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The Philippine Banking
Situation
Diminishing loan spreads forces banks to
concentrate on fee-based services (clients
resist) and to take forex positions (risk
increased) and so
Downsizing is resorted to and if not
successful consider
Mergers and Acquisitions before
Entry of Foreign Competitors
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Implications for Financial
Managers
Companies must be placed in strong financial
position to qualify for bank financing
Can no longer rely on strength of collateral (the
banks are awash with foreclosed assets)
Once qualified, company is in a strong
bargaining position
especially with respect to the foreign banks
coming into the Philippines
8
Role of Finance in the Philippines
(The Future)
Once the Philippines is integrated into the global
financial system, the role of Finance in the
Philippines will change
Integration can place Philippine companies on an
equal financial footing with international competitors
if financial managers are capable
Integration will occur despite
political situation
capital market situation
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Implications of integration
into Global Financial System
Access to surplus capital from the
Developed Countries
Shift from banks to the capital market
Shift from local to international capital
markets
Increasing use of financial derivatives
10
Implications for Philippine
Companies
Joint ventures/Strategic Alliances with
international companies
Public Listing of Company Shares
Public credit ratings
Public disclosure of financial condition of the
company
Public disclosure of company plans and
projections
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Implications for Financial
Managers
Changes in debt financing (from banks to
the Commercial Paper/Bond markets)
securitization of assets (market judgement
on quality of assets)
block rather than discrete borrowing
refinancing rather than roll-overs
continuous repackaging
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Implications for Financial
Managers
Public listing will enhance shareholder value if
Institutional Investor principles are followed:
Be serious about your projections
Use earnings wisely or return immediately
We are better at diversification than you, so
let us, not you do the diversifying
We will hold your directors, your auditors and
your advisers responsible for company
performance and behavior
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In conclusion
THEN
I have the
capital, I will
choose the
business ideas
NOW
I have the
business idea,
I will choose
the capital
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