Confidence in the Philippine capital market remains a critical concern for investors, even as regulatory bodies such as the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) have taken steps to strengthen corporate governance. A recent in-depth assessment by the Organization for Economic Cooperation and Development (OECD) underscores both the progress and the persistent challenges faced by the market.
The OECD report, launched Wednesday, revealed that while the Philippine corporate governance code includes key provisions, enforcement remains weak. The multilateral agency highlighted that many of the country’s largest conglomerates still own and control their own banks, a practice that introduces financial risks and complicates governance structures. “Although the Philippine corporate governance code provides key provisions, enforcement is weak. Moreover, the SEC has a wide mandate, limiting resources available for supervision and enforcement,” the report noted.
The OECD stressed that regulatory bodies must be equipped with additional resources and a clearer mandate to enforce rules related to board independence, audit committees, and related-party transactions. These issues, it argues, are critical to enhancing transparency and fostering investor confidence.
The report also pointed to the sluggish pace of listings in the Philippines, noting that the country’s IPO activity is among the lowest within the Association of Southeast Asian Nations (ASEAN). “The listing process is long and suffers from organizational challenges, with requirements being less flexible than in peer countries,” the OECD explained. “Meanwhile, a substantial number of large, unlisted companies meet the criteria for listing and outperform those that are publicly traded.”
For smaller firms, the situation is even more concerning. The OECD found that the Small and Medium Enterprises (SME) board hosts only 10 companies, and the private equity market remains in its infancy. The report also identified high listing fees and a complex fee structure as deterrents for potential IPOs, with the presence of taxes like the IPO tax and stamp duty further dampening the attractiveness of public offerings.
The OECD suggested the Philippine authorities consider implementing minimum payout ratios and providing incentives for companies to enhance shareholder returns, which could spur more listings and better align with global best practices.
This study, conducted at the request of the SEC in late 2023, sought to provide an objective, third-party analysis of the Philippine capital market. The OECD developed its recommendations through consultations with a wide range of stakeholders, including government officials, industry groups, investors, and financial advisors.
SEC chairman Emilio B. Aquino welcomed the report, emphasizing that it provides valuable insights into the challenges and opportunities facing the Philippine market. “The report serves as a helpful guide for the SEC and affirms some of the priority areas that we have identified in order to bring us at par with our Asian peers,” Aquino said. “We remain committed to fostering a robust and dynamic capital market, consistent with our goal of becoming one of the best in Southeast Asia.”
OECD director for Financial and Enterprise Affairs Carmine Di Noia expressed optimism about the Philippines’ economic momentum. “I am optimistic that there is a clear momentum in the Philippine economy, that many important reforms already in the works will also support capital markets and that there is a genuine will to address perceived areas for improvement,” Di Noia said.
As the Philippine market navigates these challenges, the focus will likely remain on strengthening governance structures, streamlining the listing process, and creating incentives for more companies to go public, with the aim of fostering a more dynamic and investor-friendly market.
