Consumption activities among Filipinos have changed in recent years such that household expenses have become more discretionary than usual as a result of consumers becoming more liquid, according to a study conducted by a lender’s trust unit.
This ramping up of discretionary spending were to benefit sectors in the consumer staples, consumer durables, apparel, media, leisure and entertainment, as well as insurance, banking and telecommunications, analysts at the United Coconut Planters Bank (UCPB)—Trust Group said.
“The proportion spent on basic necessities [have] decreased while the proportion spent on discretionary items such as branded bags and apparel, appliance, car, house and travel and leisure [have] increased,” UCPB analysts said in a note to clients.
“The rise of modern trade in the country, such as groceries and supermarkets versus sari-sari stores and mom-and-pop shops, and the proliferation of foreign brands attest to the rising disposable income of Filipino consumers,” the analysts said.
Filipino consumers now turn to more discretionary spending as incomes rise and further boost the various banks’ consumer-lending business.
The analysts said, with higher disposable income, consumers become more aspirational and more discerning with their tastes and preferences.
“The proportion spent on basic necessities decreases, while the proportion spent on discretionary items, such as branded bags and apparel, appliance, car, house and travel and leisure, increases,” according to the analysts.
One of the indicators often used to show increasing disposable income is vehicle sales. Motor-vehicle sales, for both passenger and commercial vehicles, have increased tremendously, the analysts said.
For property developers, owning a house is still considered a “luxury” in this country, but as incomes improve this luxury has become more affordable.
According to UCPB data, per-capita gross domestic product (GDP) has been rising at an annual compounded rate of 7.6 percent in the past 10 years from 2004 to 2014. This was slightly slower compared to the 8.2-percent growth registered in an earlier 10-year period covering 1994 to 2004.
The main reason for the difference, according to UCPB, was the pace of inflation, which was slower in the latter as compared to the previous years.
“If we strip away the effects of inflation, real per-capita GDP grew at a more modest rate of 3.5 percent from 2004 to 2014 versus 1.8 percent for the period covering 1994 to 2004,” the lender said. In current terms, per-capita GDP grew from P61,567 in 2004 to P127,756 in 2014.
The consumer market is a very profitable segment and Filipinos have started to borrow more for personal consumption, UCPB said.
From 2001 to 2014, loans extended by banks for personal consumption increased from P50 billion to P338 billion or a compounded growth of 15.9 percent per annum.
“A merchant, like a bank, has to balance between prudence and market share. Too much prudence will likely protect the bank’s balance sheet at the expense of market share. On the other hand, emphasizing market share may have consequences in terms of loan delinquency. A difficult balancing act must be made between prudence and market share; between conservatism and growth,” UCPB said of what bankers need to watch out for in the years ahead.
UCPB said the shift from being “poor” to “not poor” is not merely an economic change but a sociological one as well.