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Tuesday, February 17, 2009


From economic and financial points of view, the year 2008 was the worst in the last 60 years. We saw last year the skyrocketing prices of petroleum products (with gasoline costing as high as P 60 per liter), a precipitous drop in the value of equities and other investment instruments (some $ 14 trillion in equity value in the US alone were wiped out), the closures of banks and investment houses worldwide, and, in Philippines, the unprecedented increase in the price of rice to as high as P 54 per kilo.

This parade of bad news was punctuated, aggravated and mostly eclipsed in prominence by the abuses of our leaders. If we may recall, we saw last year how the GMA administration tried to cover its tracks on the anomalously overpriced ZTE deal. We also saw how Jocjoc Bolante lied through his teeth on the P 728 million fertilizer scam, and the Euro Generals shifting explanation of the P 6.9 million pocket money for foreign junket. And very recently, we saw the closures of 13 rural banks of the Legacy Group, dragging the name of Speaker of the House of Representatives Prospero Nograles. And for the nth time, the name of first gentleman(?) Mike Arroyo is again mentioned in major road projects corruption no less than by the World Bank.

On the local front, the promise of huge investment in shipbuilding, and the job creation and economic activities it would have triggered, was put in doubt when the proponent, Hanjin, decided to shelved it (hopefully temporarily) allegedly due to huge “tongpats.”

It is amidst this background that we need to reflect on what our coop has accomplished in 2008. Let us start with the good news:

1. Total assets continued to grow. Please see graph 1.

While the rate of asset growth decelerated from 25% in 2007 to just 21.7% in 2008, this is still better than 2006’s 18.7% and 2005’s 17.7%. We also need to highlight that the asset growth is internally generated. FICCO has no real external liabilities. The loans reflected in our balance sheet refer to loan against deposits that we obtained from MOCB, a bank that FICCO owns.

Graph 1 - FICCO’s Assets

2. Total deposits are on the upswing, while common stock (share capital) is growing steady. Please see graph 2.

Deposits include savings, time and RS/IS. Our competitive interest rates attracted excess funds of members and this helped our Coop’s strategic moves, e.g. consolidating coop banks, investing in mutual funds, coop and deposit insurance. The steady growth in share capital is the ballast that keeps FICCO very stable.

Graph 2 – Deposits and Common stocks

3. Loan releases also continued growing and topped P 3 billion in 2008. Please see graph 3.

Graph 3 – Annual Loan Releases

FICCO’s contribution to the economy of Mindanao is huge. If we take the economist’s view that for every peso loaned out, as much as P 3 to 5 in economic activities are generated, FICCO’s contribution to the GDP could reach as much as P 10 to 15 billion.

4. Dividend and patronage refunds are still robust at 10.5% and 9%, respectively, despite the lower profitability rate of 44% versus last year’s 45%.

The real measure of efficiency of a financial institution is the margin that it is able to make, i.e., the difference between the effective rate of its loans and the interest it pays for its deposits. FICCO’s effective rate on loans is below 15%, and yet it is still able to pay 10.5% dividend.

Of course, it is not all good news. This includes the following:

a. Membership grew 12.2%, from 103,584 to 116,171, but the rate of growth is lower than 2007’s 16%. (Please see graphs 4 and 4a.) This is due mostly to the economic slowdown that started to bite in the second half of 2008.

Graph 4 – Number of Members, 2003 to 2009

Graph 4a – Rate of Membership Growth

b. Past due loans posted a 17.1% growth, forcing FICCO to book provision for loan losses of P 41.0 million, some 30% over the P 31.6 million budgeted for the year.

Objectively, the minuses are not that serious as to overshadow the pluses.

Be those as they may, the problems that we all face are serious. The on-going recession will translate into business slow-downs, if not closures. This means lay-offs, more unemployment, less purchasing power, and further slow-down in economic activities. It could also mean less taxes collected, less social services, less infrastructure projects and less many more. If ever, the only bright spot we can glimpse is that the “buayas” in government will earn less from the “tongpats” they are quick to collect.

Opportunities, the other side of crisis

But wait! If all of us keep the same gloomy outlook as the economic world, then we too will be caught in the downward pull of the meltdown. The truth is, even in our own small ways, we can buck the trend.

Let us start with the fact that every downturn is always followed by recovery and growth. We can then proceed to do the following:

 The many entrepreneurs among us dealing in basic necessities, your activities will be less affected by the recession. We suggest that, with your entrepreneurial capability, you take a look at other lines of business that are also dealing in basic items. For example, if you are dealing say in vegetables, maybe you can take a look at including fruits. Or if you own a carenderia, you try to explore which items you are now buying from your suppliers (e.g., meat, poultry) that you will produce yourself.

By engaging in new lines of business, you will be employing people and will have in some ways reduced the number of unemployed.

 Those without entrepreneurial skills, but with steady income, borrow and repair that house you own or put-up a new one. If your place is not that far from schools or business establishments, construct pads. This way, you are employing carpenters, masons, plumbers and electricians. You are also providing business to hardwares and suppliers of sand, gravel and hollow-blocks. And the good thing is that prices of construction materials go down during recession. The multiplier effect of your construction and repair is far reaching and is a boon to the economy.

 The “green thumb” among us could plant some more: vegetables, fruit trees, root crops and spices. At the very least, you will save on your grocery budget. Those residing in urban areas with limited land area, try using pots in growing vegetables.

The bottom line to the above suggestions is to find opportunities in this time of crisis. It is often repeated that the Chinese character of the word crisis could also be read as opportunities. So look around and find opportunities. They abound during this time of crisis.

Lastly, we are asking you to use the loan services of FICCO to take advantage of those opportunities. But remember, borrow wisely. Meaning, use that loan proceeds in investing into business enterprises that will augment your income, even as you employ people, pay taxes, buy from suppliers, and help improve the economy. (ibdaba, 9 February 2009)

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