The Evolving Role and Relevance of PhilEXIM and Asian EXIM Banks - Path to 2020

1. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • CREATION of the CORPORATION • In 1974, the Philippine government felt the need to supplement the then existing domestic financial resources with borrowings from abroad for economic development requirements • Foreign obligations contracted by the private sector had and have to be adequately guaranteed by government financial institutions • Presidential Decree No. 550 dated 11 September 1974, created the Philippine Foreign Loan Guarantee Corporation (PhilGUARANTEE) to guarantee said foreign borrowings • In January 1978, Presidential Decree No. 1080 established the Trade and Investment Development Corporation of the Philippines (TIDCORP) - a wholly owned government corporation which carries the full faith and credit of the Government of the Republic of the Philippines

2. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • Pursuant to Presidential Decree No. 1080, guarantee facilities had been expanded to cover not only approved foreign loans of local corporations but also loans granted by domestic and foreign financial institutions to exporters and manufacturers of export products as well as service and construction contracts abroad • Many guaranteed construction and service contracts in the Middle East were not successful which compelled the National Government to assume the Corporation’s liabilities in 1989 • Notwithstanding the losses which the Corporation sustained due to the said failures, the overseas contracting and service exporting sector contributed substantial economic benefits to the country

3. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • In 1980 and subsequent years the Corporation entered into guarantee arrangements, through what we called the Master Guarantee Agreement, with the various domestic banks and financial institutions • A strategy to expand its assistance to Small and Medium-scale Exporters (SMEs), including indirect exporters • SMEs with meager resources had difficulties in meeting the collateral requirements of commercial banks even when their operations proved to be viable • The usual collateral necessities were waived, except when a prudent banking would warrant a secured credit

4. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • Nineteen ninety seven (1997) - year of the Asian currency turmoil • Steep depreciation of currencies in the region took its toll on the Philippine currency • High bank lending rates increased collateral requirements and the preference for prime clients disqualified or discouraged many SMEs from availing of new loans, causing many exporters to default on their existing loans • The adoption of a tight lending policy by the banks caused a slow down in loan availments from exporters and the Corporation lost its opportunity to service more exporters through its guarantee programs

5. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • Direct lending window was made open to the SMEs and the Corporation did its best to equally emphasize it as one of its major mandates • In 1998 the raison d’ etre for the creation of TIDCORP was clarified and its functions were further expanded under RepublicAct No. 8494 • The law declared that “it shall be the policy of the State to encourage and promote the expansion of Philippine exports and to establish a strong and credible export credit institutions which shall be dedicated to the provision of export financing facilities and services to support the country’s export sector” • Significant changes to TIDCORP’s functions include the deletion of the nationality requirement resulting in the widening of its client base from domestic entities majority owned by Filipinos to any entity organized or licensed to do business in the Philippines and to extend investment guarantee and insurance to its clients

6. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • In 2002, TIDCORP was designated under Executive Order No. 85 of the President of the Philippines as an export-import credit agency to effectively respond to the economic requirements of the country • To complement TIDCORP’s own lending programs, the Corporation then, together with other Government Financial Institutions (GFIs) embarked upon and actively participated in programs of the national government which supported the growth of the SMEs like the SME Unified LendingOpportunities for National Growth (SULONG) • Objective - for the sustainable growth and development of SMEs by extending loans at a lower interest rate and a GFI-member will not decline a loan only on the basis of inadequate collateral

7. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • Wholesale LendingProgram - to provide short term working capital to SMEs, through conduits such as rural banks, thrift banks, cooperative rural banks, development finance firms and exporters’ organization which will undertake retail lending directly to exporters and subcontractors • Portfolio Guarantee Program – intended for existing portfolio • To optimize PhilEXIM’s leveraging capability that will benefit the banks in their effective and efficient use of their capital resources • Assures the lenders the ability to re-deploy their funds created from freed-up regulatory Capital Adequacy Ratio (CAR) provisions considering that our sovereign guarantee carries a zero- risk weight • BSP requires banks to set aside 11% of their resources, - 10% capital charge and about 1% loan loss provisioning • PhilEXIM - the new program helps in obtaining a critical mass in reaching out to the SME market

8. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • In addition to its guarantee and lending programs, it extended to its SME clients the Export Credit Insurance (ECI) program wherein insurance coverage is extended to exporters against non-payment by foreign buyers of export shipments on credit arising from political or commercial risks • Pursuant to its mandate, the Corporation continued to support priority projects of the government • For the past ten (10) years, it heightened its role in assisting the information and technology sector, especially the development of ICT zones and software development, growth of agro-modernization, particularly on integrated farm production and post harvest system, tourism related projects like hotels, resorts, eco-tourism and sports –leisure complex, as well as power generation/renewable energy projects • PhilEXIM is a responsible advocate of clean energy promotion in the country, hence it supported firms engaged in solar cell production and wind farms

9. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • EVOLUTION AND CHALLENGES • Association of Development Financing Institution in Asia and the Pacific (ADFIAP) cited and recognized PhilEXIM for its development financing assistance to environment and alternative energy related projects • Infrastructure has always been included as a priority project, whether civil works or horizontal developments, supply-related like steel manufacturing, etc. • Mining as a strategic sector for growth, PhilEXIM helped in the rehabilitation efforts of some mining companies which virtually jumpstarted a favorable climate for mining investments in the country

10. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM TODAY and NEAR FUTURE • For 2014-2017, PhilEXIM’s policy directions and guidelines are anchored on strategies to stabilize the business with sufficient capacity, create a responsive and sustainable organization and remain relevant as a self-sufficient, profitable and professionally-run agency, strongly supportive of key development priorities of the government. • Some of its strategic activities are as follows: • Providing primarily guarantees to large enterprises in strategic industries i.e., tourism, agri-oriented exports and import substitution, infrastructure including key supply-side sector, export and import substitution oriented manufacturing and other priority sectors, and limited direct lending on meritorious case • Providing not only direct lending or extending guarantees to strategic SMEs but also comprehensive approach to their development and growth thru capacity-building in such areas as financial management, financial reporting/recording, business development and management as well as closer evaluation, monitoring and management of accounts to facilitate development and faster transition into bankable and profitable entities

11. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM TODAY and NEAR FUTURE • Giving strong support for high account prospects that will generate more jobs, export and import substitutes particularly those that can easily be replicated thru regions outside of the National Capital Region • Accounts will undergo proactive evaluation, strict monitoring and management to ensure that the business will continuously remain viable and the accounts remain in good standing • PhilEXIM will consider arranging with lenders and/or directly grant short-term credit facility, on purely meritorious cases, to prevent or cure temporary setbacks/defaults or ensure sustainable viability of the business of guaranteed accounts

12. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • NEEDS FOR FUTURE GROWTH • Additional Capital for Expanded Capacity • PhilEXIM has still a subscription receivable of PHP4.5 Billion (US$100M) • There is high hope, based on the on-going talks with the National Government, that the PhP 4.5 Billion subscription receivable will be realized • Depending on the extent of utilization by the Corporation of the said amount, PhilEXIM will request and work for eventual increase of its capital stock

13. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PERFORMANCE EVALUATION • In the past the annual performance of the organization or the members of the Board of Directors, officers and other employees was measured based on agreed commitments and outputs at the beginning of each evaluation period, in accordance with the sets of rules and guidelines approved by the Board • With the creation of the Governance Commission for Government Owned or Controlled Corporations (GCG) in 2011, it prescribed the process of appraising the accomplishments of Government Owned or Controlled Corporations (GOCC) • Each GOCC prepares its own “Performance Scorecard”, which consists of a set of measures, targets and initiatives that facilitate the achievement of breakthrough results and performance, subject to the approval by the GCG

14. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PERFORMANCE EVALUATION • For PhilEXIM’s Performance Scorecard in one rating period, we had committed several Major Final Outputs like – 1. Resource Allocation Strategy to priority sectors by industry and by programs which indicate the volume of Risk Weighted Assets and the amount of financing to the supply-side sectors 2. Development Contribution Efforts to the Government which include the number of firms assisted and number of jobs created thru PhilEXIM programs 3. Portfolio Acquisition Strategy which indicates the volume of SME portfolio under the Wholesale Guarantee, and 4. Organizational Transformation Strategy which reflects the level of per capita productivity and capital expenditures for automated related programs. Every indicator is given a % weight

15. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PERFORMANCE EVALUATION • For the Members of the Board, the components of their performance evaluation are as follows: • Performance of the Corporation - 60% • Director Performance Evaluation - 20% 1. Self Appraisal Rating - 6% 2. Peer Appraisal Rating - 14% • Member’s Attendance Score - 20% TOTAL SCORE - 100%

16. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM and the AEBF UP TO 2020 & BEYOND • Given adequate funding and support from the National Government, PhilEXIM will continue to be a vital arm in the country’s goals of development • PhilEXIM’s mandate of financial intermediation, will grow much more relevant given today’s shifting and future economic landscape, risk appetite in business and prevailing financial and market volatility • Philippines, as a developing country is banking on its fundamental growth resources – key industries that are propelled by enterprises and entities and yet the economic corridors like manufacturing, industry and services continue to require development assistance • The banking sector is a regulated domain which is believed that it will continue as such, where financing, while made available, may remain highly inaccessible by small and medium-scale enterprises and to a certain extent, even large projects with economic potentials but inherently risky

17. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM and the AEBF UP TO 2020 & BEYOND • Nonetheless, with its sovereign guarantee, PhilEXIM’s function of intermediating gives a substantive level of comfort for banks and other financial institutions to proceed in extending credits to their clients • The continued presence of a development financing institution like PhilEXIM will result into the government’s goal of attaining much needed employment generation and other significant activities • Every project supported by PhilEXIM’s financing programs redounds to addressing the twin goals of inclusive economic growth and poverty alleviation • With its designation as an Export Credit Agency (ECA) more than a decade ago, thereby enhancing Philippine’s representation in the global affairs of development financing, export-import trade and export credit, there is the compulsive need to invigorate its role as a global economic contributor

18. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM and the AEBF UP TO 2020 & BEYOND • As a pioneering member of good standing at the Asian Export Banks Forum (AEBF), PhilEXIM has a shared responsibility towards the continued relevance of this prestigious organization • With the onset of the ASEAN Economic Community (AEC) by 2015 which aims to create a single market and production base by ensuring free flow of goods, services, investments, capital and skilled labor thereby creating the expectation that this will boost investments, job creation, and incomes in ASEAN region, PhilEXIM and the other members of the organization need to come together as one and be an instrument towards the realization of the said objective • As the Philippines hopes that the integration will encourage investments among the members of the Community, policies and actions must be geared towards complementation rather than competition

19. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • PhilEXIM and the AEBF UP TO 2020 & BEYOND • AEBF members, thru bilateral or multilateral arrangements can share ideas, ways and means and resources as well to prepare their respective SMEs, for instance, for the opportunities and challenges that will come with the opening up of economies under the AEC • Since global trade regime is dominated and controlled by the industrialized countries and there is a perception that they are the ones imposing policies to the weak and powerless states, thru the WTO, the AEBF, as a coalition, can express the members’ concerns and take deliberate actions to resolve predicaments insofar as WTO policies are concerned

20. THE EVOLVING ROLE AND RELEVANCE OF PhilEXIM and ASIAN EXIM BANKS - PATH TO 2020 - • CONCLUSIONS: • AEBs and the AEBF will continue to be relevant and remain effective even beyond 2020 • AEBs will keep on facing and resolving challenges but they will be able to manage well their sustainability and growth • PhilEXIM shares the vision that as an institution, AEBF will remain to be a strong organization of allies and partners for economic development and prosperity of the region