POGO ban may support PHL’s exit from ‘grey list’

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE RECENT BAN on Philippine offshore gambling operators (POGO) would help accelerate the country’s exit from the global economy FAccording to the central bank governor, the financial watchdog is on the “grey list” of jurisdictions under enhanced money laundering supervision.

“With the POGO ban, we are seeing a drop in money laundering, which should help us exit the gray list,” Bangko Sentral ng Pilipinas (BPS) Governor Eli M. Remolona, ​​Jr. told reporters. Business in a text message.

Last week, President Ferdinand R. Marcos Jr. a total ban on all oFcoastal gambling operations due to their links to illegal activities such as financial fraud, money laundering, prostitution and human traffickingfficken.

Mr. Marcos gave the Philippine Amusement and Gaming Corp. (PAGCOR) order to close all POGO facilities by the end of the year.

This comes after the Financial Action Task Force (FATF) in June kept the Philippines on the gray list for the third year in a row.

The global watchdog said the country still needs to address three remaining action items, one of which “demonstrates that regulators are using anti-money laundering and counter-financing of terrorism (AML/CFT) controls to reduce the risks associated with casino limit junkets.”

Mr. Remolona earlier said the Philippines is likely to leave the gray list next year as the country still needs to address remaining shortcomings cited by the FATF.

From 2018 to 2023, the Philippines was among the top five countries in Southeast Asia with money laundering activities emerging over time. Fperiod of five years, according to previous data from Moody’s.

The number of added money laundering events in the Philippines increased by 45% between 2022 and 2023, the report said.

Chester B. Cabalza, founder and president of the Manila-based International Development and Security Cooperation, said Mr. Marcos’ order banning POGOs would encourage more “legitimate” investments to enter the country.

“With the expected ban, the Philippines can move away from the gray list and set a new strategy for fulfilling more legal and moral entertainment investments for the country’s inclusive growth,” he said via Facebook Messenger.

Bienvenido S. Oplas Jr., chairman of a research consultancy and the think tank Minimal Government Thinkers, said the POGO ban would be a “big boost” for tourism in the country.

“If POGOs are banned, gamblers from China will be forced to travel to the Philippines and gamble in major casinos,” he said.

Mr Oplas notes that the POGO ban should not be implemented hastily due to its impact on the real estate market.

On the other hand, Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said there are still many other sources of money laundering besides POGOs.

“(POGO) may not even be the main vehicle for money laundering in the Philippines,” he said over the Facebook Messenger chat. “POGOs offer online gambling catering abroad, especially China. But what about online gambling in the Philippines? What about the increase in the number of land-based casinos in the Philippines? Money laundering thrives in these activities and places.”

Mr. Sta. Ana noted that there are many sectors that are vulnerable to money laundering.

“There are many ways to launder money: real estate, mineral extraction, setting up shell companies, setting up small-scale businesses, buying works of art, jewelry, luxury cars, etc. An important step to get out of the gray list is to lift the strict confidentiality rules for bank deposits.”

IMPACT ON BANKS
In a separate report, Fitch Ratsaid the Philippine financierThe system is resilient enough to withstand the overflow eFconsequences of the POGO ban.

“The government’s ban on POGOs may harm the asset quality and performance of Fitch-rated banks, but their loss absorption buffers will be sufficient to absorb associated losses, which are likely to be limited in magnitude,” the report said.

Banks have ample buffers to “absorb POGO-related losses without putting pressure on their current standalone viability ratings.”

“Additionally, banks’ record high margins and higher credit growth – key drivers of our ‘improving’ sector outlook for Philippine banks – are likely to offset higher credit costs associated with potential new impairment charges resulting from the POGO ban,” it added to it.

The Philippine banking sector’s net income rose 2.95% to P92.107 billion at the end of March, the latest central bank data showed.

Separate data showed that bank lending grew 10.1% to 12 trillion euros in May, the fastest growth in 14 months.

Fitch Ratings noted that POGOs’ influence on the real estate market has declined due to stricter regulations. Travel restrictions also aFIt has hit the sector, which is heavily dependent on workers from China.

“One real estate consultant, Colliers, has indicated that POGOs currently occupy 3.5% of Metro Manila’s areaffice stocks, down from 10% in 2019, with most major developers’ leasing portfolios having a maximum of 5% exposure,” the report said.

It also said real estate developers have limited their exposure to POGOs. The expected vacancy resulting from the ban “could also put pressure on rental yields, with wider consequences for real estate companies.”

“Most of these major players have diversified real estate portfolios, so these effects could also be partially offset by better home sales if interest rates fall as we expect in the second half of 2024 and 2025.”

With this, Fitch said impairments on bank assets by real estate companies would remain ‘relatively limited’.

Fitch data showed that the non-performing loan ratio for residential mortgages improved from 9.6% in the third quarter of 2021 to 7% in the first quarter of 2024, although this was still higher than pre-pandemic levels .

It said this “reflects in part the impact of speculative activity and laxer lending standards for home loans during the POGO boom years in 2016-2019.”

“Since then, many banks have become more reluctant to provide loans to POGO workers, given the high policy risk,” it added.

Also, real estate-related losses due to closures due to the ban are not expected to be significant for banks.

“Even in the event of a larger impact than we expect, the regulations require banks to demonstrate common equity Tier 1 (CET1) and total capital ratios of 6% and 10% respectively, after writing down 25% of their real estate exposures. This should ensure that loss absorption buffers are in line with their sector exposure,” the report said.