BSP chief sees need for more bank strengthening

MANILA, Philippines - The Bangko Sentral ng Piipinas (BSP) stressed the need for Philippine banks to shape up amid intense competition from the entry of foreign banks into the country and economic integration in the region.

BSP Governor Amando Tetangco Jr. said banks operating in the country need to beef up and strengthen their operations to survive intense competition from regional banks.

 “In an increasingly integrated regional setup, there is wisdom for further beefing up, given current size of our banks and the system as a whole,” he said.

Tetangco also cited the entry of more foreign banks into the Philippines after President Aquino signed RA 10641 in July last year amending the foreign banks law by removing the limit of foreign banks in the country. 

Foreign banks under the new law have also been allowed to own as much as 100 percent of any local bank, removing the previous cap of 60 percent.

“As we’ve liberalized entry of foreign banks, we can expect more competition. Our local banks will have to review their business models to see where they can continue to have comparative advantage,” he said.

The BSP has so far allowed six foreign banks to set up shop in the Philippines. These include Shinhan Bank of South Korea, Sumitomo Mitsui of Japan, Cathay United Bank of Taiwan, the Industrial Bank of Korea, Yuanta Bank of Taiwan, and United Overseas Bank Limited (UOB) of Singapore.

He explained Philippine banks need to improve on how they do business such as being smart in choosing their target markets and products as well as leveraging off technology.

“As I have said in the past, even as we allowed foreign banks in, our local banks have the home course advantage. There will continue to be a place for both the bigger universal/commercial banks and the smaller regional/rural banks,” he added referring to home course advantage as a term in golf.

According to Tetangco, the BSP has already put in place several regulations so banks could expand, downsize, or consolidate without sacrificing soundness and safety.

“We have laid out the basic parameters, the rules of the game if you may,” he said.

These include the universal cap for foreign bank ownership of 40 percent of the banking system assets; the minimum standards for governance and compliance, for consumer protection, for information technology risk; as well as the standards for concentration, credit, liquidity, and leverage.

The central bank together with the Land Bank of the Philippines and state-run Philippine Deposit Insurance Corp. (PDIC) are offering incentives to consolidating and merging banks through the Strengthening Program for Rural Banks Plus and the Consolidated Program for Rural Banks.

In the Status Report on the Philippine Financial System for the first semester, the BSP said the banking system accounted for more than 80 percent of the country’s financial system amid structural shifts in the global and domestic financial landscape.

Total resources of the Philippine financial system expanded by nine percent to P11.2 trillion.

The capital stock of banks increased 13.3 percent to P661.6 billion in end June, allowing the industry to maintain its capital adequacy ratio (CAR) well above the regulatory minimum.

The CAR of universal and commercial banks stood at 16.1 percent in end March compared to Indonesia’s 19.9 percent, Thailand’s 16.3 percent, Singapore’s 15.9 percent, and Malaysia’s 15.3 percent.