Phl banks lag behind ASEAN counterparts

CEBU, Philippines — The Philippine banking sector is urged to catch up with its ASEAN counterparts as it lags behind in terms of financial deepening, access, and efficiency.

State-owned think tank Philippine Institute for Development Studies (PIDS) in its latest study, observed how much small the banking sector in the Philippines is compared to Malaysia and Thailand, but comparable to that of Indonesia.

Compared to Vietnam, however, the financial sector review discovered that the banking assets of Vietnam starkly increased from 1999 to 2016, although its ratio to GDP was just half of the Philippines in 1999.

The Philippines is facing a problem in terms of financial access by a wide range of households and firms.

According to the report, the Philippines has “significantly lagged behind other comparable ASEAN member-states in terms of access to banking services,” said the PIDS review.

Notably, the Philippines’ number of deposit accounts per 1,000 adults was even lower than Lao PDR’s in 2016, even if it had more bank branches per 1,000 adults than the latter.

On the other hand, the Philippines also trailed its neighbors in accessing mobile money service, especially in the use of debit cards and electronic payments.

The more advanced ASEAN member-states such as Singapore, Malaysia, and Thailand, reported the highest access to digital financial services in 2017, followed by Indonesia, Vietnam, and the Philippines.

As for efficiency, the Philippines came out as having the lowest turnover ratio—defined as the value of domestic shares traded divided by their market capitalization—indicating the thinness of its stock market. Turnover ratio is highest in Thailand in recent years, followed by Vietnam, Singapore, and Malaysia.

The paper explained that the higher the turnover ratio is, the more liquid and efficient the market. Few transactions taking place in a thin market can lead to price volatility and less liquid assets.

Nonetheless, the Philippine banking system fared better with respect to financial stability. In many measures of financial development, Vietnam has also overtaken the Philippines, but the latter has generally performed better than Indonesia.

The study found that Singapore’s banking system is the most stable, followed by the Philippines and Malaysia.

The report noted that the banking sector in the Philippines has proven to be resilient in the face of global financial crises, underpinned by a strong regulatory and supervisory framework.

However, a review of the state of the Philippine financial services sector indicated that there has been no significant transformation over the past three decades.

A review of the financial regulatory framework also showed that key domestic regulations remain restrictive. (FREEMAN)