Consolidation of banking system to persist this year

MANILA, Philippines - Consolidation is still the name of the game for the Philippine banking sector in 2016, particularly in rural areas.

According to the Oxford Business Group, the Bangko Sentral ng Pilipinas (BSP) which has been actively working to create a less fragmented banking environment and foster greater financial inclusion, is on top of the situation.

The total number of banks operating in the Philippines fell to 635 in September 2015, down 2.6 percent, according to a report issued by the BSP at the beginning of January.

Rural and cooperative banks topped the list of closures, with their numbers dropping from 547 to 529. Universal and commercial banks, meanwhile, edged up by one to 37, and the number of thrift banks operating remained unchanged at 69.

The BSP sees consolidation as an essential tool for strengthening lenders’ balance sheets and operational capacity, while also reducing structural weaknesses and exposure to risk.

In line with its broader plans for bolstering the sector, the monetary regulator ordered the closure in early January 2016 of 14 rural lenders whose operations had been placed under the supervision of the Philippine Deposit Insurance Corp. (PDIC) last year.

The BSP stepped up its drive to promote mergers last July with the unveiling of its Consolidation Program for Rural Banks (CPRB).

The program, which was launched in cooperation with the PDIC and Land Bank of the Philippines, contains a series of measures and incentives aimed at reducing the number of small-scale lenders.

To be eligible for the CPRB’s merger scheme, banks must have at least five branches, preferably in the same region; must post a 12-percent capital adequacy ratio (CAR); and must have combined unimpaired capital of P100 million (roughly $2.1 million) or greater.

A total of P25 million ($525,000) has been set aside to fund the initiative, which is scheduled to run through to 2017.

BSP Deputy Governor Nestor Espenilla said consolidation would enable rural banks “to improve their financial strength, enhance their viability, strengthen management and governance, generate synergies and economies of scale and expand market reach.”

Measures introduced broadened the scope of permissible activities at micro-banking offices (MBOs) to include the introduction of an end-to-end process for customers to open accounts at MBOs – something that had previously necessitated a trip to a branch or head office.

According to the BSP, 11 out of 19 previously unbanked municipalities now have a banking presence as a result of MBOs, while the remaining eight saw formal banking offices open in 2014.

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia and Latin America.