BSP expects more bank mergers

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said there is room for further consolidation among local banks in order to strengthen the capital base, asset quality, and client base of major players in the local banking industry.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that studies showed that there are still too many universal and commercial banks considering the size of the country’s economy.

“In fact you wouldn’t say that the banking industry in the Philippines is very concentrated to begin with. Lending agencies even say that the industry is fragmented because for the size of the economy, there is still too many commercial banks at 38,” Espenilla stressed.

Latest data from the BSP showed that head offices of fell further to 797 as of end-September last year from 804 in end-June indicating the continued consolidation of banks as well as the exit of weaker players in the banking system. By banking classification, the head offices of banks consisted of 38 universal and commercial banks, 73 thrift banks, and 686 rural banks.

On the other hand, operating network including branches of the banking system went up to 7,117 from 7,094 due to the increase in the branches of universal, commercial, and rural banks.

Likewise, the central bank reported that the total resources of the country’s banking sector went up by 7.5 percent to P6.421 trillion last year from P5.973 trillion in 2008 due to the sustained growth in deposits particularly in universal and commercial banks.

Total resources of universal and commercial banks went up by 9.1 percent to P5.694 trillion last year from P5.219 trillion in 2008. The industry accounted for about 88.6 percent of the total resources of the banking industry last year.

Assets of thrift, savings, and rural banks retreated by 3.6 percent to P727.36 billion last year from P754.68 billion in 2008 as reports from other banks have yet to come in. The sector accounted for about 11.3 percent of the total assets of the banking industry.

On the other hand, the assets of non-banks went up by 6.5 percent to P1.532 trillion last year from P1.438 trillion in 2008.

In all, total resources of the country’s financial system increased by 7.3 percent to P7.954 trillion in 2009 from P7.411 trillion in 2008.

Espenilla pointed out that monetary authorities would closely watch bigger banks to make sure that

“We have large banks, but I wouldn’t say that any bank here is too big to fail. But at the end of the day, we tend to watch more closely the bigger banks and that’s part of our risk management because you don’t want large banks getting into trouble because that is potentially more dangerous to the system,” he explained.

According to him, banks should be well ran and should be well capitalized.

The BSP and state-run Philippine Deposit Insurance Corp. (PDIC) have launched a P5-billion incentive scheme to spur mergers and consolidations in the country’s rural banking industry under its Strengthening Program for Rural Banks (SPRB).

The PDIC has been pushing for the immediate liquidation of closed banks instead of undergoing rehabilitation as only four out of 511 closed banks have successfully been rehabilitated.

PDIC is currently managing 511 closed banks under receivership and liquidation of which only four have been rehabilitated. Of the 81 banks that were ordered closed by the Monetary Board, 27 applied for rehabilitation but failed since 2005.

Furthermore, PDIC earlier expressed concern that of the total 700 rural banks about 179 were under the central bank’s prompt corrective action scheme. On the other hand, 103 rural banks were lacking in capital.

This early, the BSP said it is open to the idea of increasing the P5-billion fund to spur mergers and consolidations in the country’s rural banking industry.

The BSP would contribute P2.5 billion to the common fund while the other half would come from the PDIC.

The fund would be used to extend financial assistance to qualified investors through a combination of subscription to preferred shares, to provide additional capital to reinforce the capital position of the strategic third party investor, and as direct loans.

The program is aimed at promoting the merger, consolidation and acquisition between or among eligible strategic third party investors and eligible rural banks to create a stronger rural banking system that can more effectively serve the countryside. –Lawrence Agcaoili (The Philippine Star)