PHILIPPINE banks need to merge to better prepare themselves for new competition as the wave of integration begins next year.
The Malaysian investment bank MIDF Amanah Investment Bank Berhad said the banking sector is fragmented at present, having 680 different bank entities in the country.
“Although profitable and stable, these banks need to merge among themselves to better prepare them with the expected new foreign competition now that the new banking law allows 100-percent ownership,” MIDF researchers said.
Under the new banking law enacted in July this year, foreigners are allowed to own up to100 percent of domestic banks through the acquisition of the voting stock of the banks, capped previously to only 60 percent. Foreign players can set up a new banking subsidiary or establish overseas branches with full banking authority.
But even as foreign interests may now own 100 percent of a bank, they many not own foreclosed real property and are required to sell such assets within five years from acquisition.
The Bangko Sentral ng Pilipinas (BSP) has said the banks not only will be facing foreign competitors but also from within the industry. It said rural banks now see bigger banks moving into their municipalities even as non-governmental organizations (NGOs) are offering cheaper funding to rural industries.
Microloans are important for the Philippines.
However, the rural banks that are the traditional providers are now facing stiff competition from the bigger banks which have penetrated rural areas. At the same time, the nonbank lenders, as well as NGOs are also competing for the same lending space, offering loans at much lower rates.
BSP officials acknowledged the presence of so many banks here and admitted it is time to review the minimum capital requirement for banks.
“Macroeconomic policy management, thus far, is commendable but whether the policy-makers can continue to get the balance right as the economy undergoes the upcoming structural changes remains debatable,” MIDF said. The researchers said the banks’ performance has been improving and remains sound.
Domestic liquidity as a percentage of local output, or the gross domestic product, has been trending upward and hovering at a high of 60 percent in the past one-and-a-half years, but loans-to-deposit ratio has fallen to only 64.3 percent, while nonperforming loan ratio is low at 2.2 percent.
“Having said that, since 2012, 600,000 new accounts have been created, 93 percent of which are below P100,000. That still leaves 37 percent of the population not having any access to bank accounts. With domestic credit still low, at 52 percent, these untapped markets provide huge opportunities for the banking sector,” they added.
BSP also seemed to be less concerned about the high amount of liquidity in the banking system, stating that the amount that was channeled back into the system in the form of credit was much lower.
Loan-to-deposit ratio stood at 66.0 percent as at end-June and NPL averaged 2.11 percent at the end of July and this was on the back of improved performance and higher capital across the banking system.