More mergers to strengthen Phl banking system – Gesta

While the Philippine financial system is regarded as one of the strongest in Asia, banks on the other hand have to strengthen its competitiveness in the regional landscape, said Cebu Bankers Club (CBC) past president Prudencio Gesta.

Gesta, who is also the first vice president and regional marketing head for the Visayas of the Rizal Commercial Banking Corporation (RCBC) lauded the recent pronouncement of Bangko Sentral Ng Pilipinas (BSP) sewing more mergers and acquisitions (M&As) in the banking industry this year.

According to Gesta, with this development, it is not only the depositors that will be greatly benefited but also the entire banking and financial system in the Philippines, in general.

“The bigger the assets and revenues of the banks, the more they are competitive— regionally, or internationally,” said Gesta.

At present though, Gesta said most Philippine banks are not yet as competitive as other international banks, even in the regional scope. Thus, the system needs more mergers and acquisitions to bloat the financial assets of the banks, making them much stronger.

After the central bank announced last year an enhanced set of incentives to encourage banks to consolidate, BSP Governor Amando Tetangco Jr., earlier said that the regulator now expects several M& As involving small banks, and at least one involving big banks this year.

In 2012, the Ayala-led Bank of the Philippine Islands expressed its interest in taking over Philippine National Bank, which is in the process of completing its merger with Allied Bank.

The central bank strongly encourages consolidation in the banking sector, believing that having fewer but stronger industry players is ideal.

According to a report, the Philippine banking sector is reported to have too many players, mostly small ones.

As of June 2012, BSP data showed that there were 37 universal and commercial banks, 69 thrift banks, and 606 rural and cooperative banks operating in the country.

The number of rural and cooperative banks actually went down from about 700 a few years ago, after the BSP ordered the closure of several establishments. Most small banks fail because of weak capitalization and management problems.

Regulators said that, given the strong financial condition of bigger industry players, they are encouraged to look for acquisition opportunities especially among rural banks.

Likewise, last year in July, BSP launched the Strengthening Program for Rural Banks (SPRB) Plus, under which enhanced incentives are given to banks that will consolidate.

One such incentive allows a bank to put up branches in restricted areas in Metro Manila, while another entails a loan grant to beef up capital of merged entities.

According to BSP Deputy Governor Nestor Espenilla Jr., a few banks are currently in talks for possible consolidation under the SPRB Plus, but he refuses to identify the establishments for the moment.

Gesta said the BSP’s initiative to encourage banks to merge and consolidate is a brilliant move considering that the Philippines is now one of the fast growing economies in Asia Pacific and a country that is being watched out for by investors and economic experts.

“It is very important for our financial and banking system to complement with our strengthening economy, not just compete with each other locally,” Gesta said adding that the Philippine banking system should be ready to face the international banking battle in the borderless economy.