BSP bats for further banking consolidation

The Bangko Sentral ng Pilipinas (BSP) said the local banking industry, among the few that weathered the global financial crisis relatively well, is poised to become stronger and more profitable if the consolidation among the top lenders continues. In its report on the Philippine financial system for the second half of 2009, the BSP identified the further consolidation among banks here as one of the keys to further strengthening the country’s financial sector. “First, there is enough room for further industry consolidation to develop stronger and economically viable financial institutions in the Philippine banking system," the BSP said. The Bangko Sentral noted that the combined market shares of the top five lenders in the country as of end-2009 fall short of the scores for industries, where leading players have achieved a high-degree of concentration and therefore more competitive. “As of end-December 2009, the Herfindahl-Hirschman Index (HHI) of top five banks of the system stood at 613.2, which was still way below the 1,000 benchmark for competitive market-place," it said. “These systemically important banks remain competitive players in the banking system. Moreover, the current HHI figure broadly indicates that there is more room for industry consolidation in the Philippines." The BSP pointed out that it had signed a deal with the Philippine Deposit Insurance Corporation last August that aims to speed up the evaluation process for bank mergers and consolidation. Last month, credit watchers Standard & Poor’s Ratings Services and Moody’s Investors Service said the local banking industry remains fragmented, and there should be more mergers among top banks. Both rating agencies, however, said that high-level mergers are unlikely to happen in the near-term since the owners of the top banks are unwilling to cede control of their majority stake. As of end-2009, the Philippines had 18 universal lenders, and 20 commercial banks from 17 and 21 respectively from the previous year, data from the BSP showed. There were 785 banks with 7,835 branches in all last year compared to 818 and 7,030, respectively in 2008. The BSP said Philippine banks’ combined net profits zoomed by 67.7% to P69.5 billion in 2009 due to substantial trading gains in foreign exchange related transactions. It noted that local lenders net income had shrunk by more than a third in 2008. The Bangko Sentral added that banks assets grew by 9.1% to P6.192 trillion as both loans and non-loan financial assets increased by 4.5% to P2.829 trillion and 15.7% to P1.59 trillion, respectively. “Meanwhile, deposit liabilities (75.4%), capital ac-counts (11.1%) and other liabilities (5.7%) were still the three main sources of bank funding for its operations," it added. The BSP said bank deposits grew by 11.4% to P4.671 trillion from last year’s P4.195 trillion, which shows the sustained confidence in the banking system. The Bangko Sentral added that banks remained solvent with an average capital adequacy ratio (CAR) 15.8%, higher than its required level of 10%. The BSP also said the country’s financial sector will benefit from banks continued efforts to improve their corporate governance as a means to increase profitability. The Bangko Sentral added that it plans to do the bank corporate governance survey annually to have an institutionalized system to rate the state of corporate governance practices among BSP supervised institutions. The BSP said there should be more efforts to improve access to financial services, noting that 13 out of 17 regions here still do not meet the average of five banking offices per city or municipality. The BSP added that it had launched several measures to improve financial service access in rural areas by promoting micro-finance, text-based mobile bank-ing and branchless banking among others, adding that as of end-2009, 212 banks engaged in in microfi-nance with a loan portfolio of P6.6 billion and serving 882,692 micro-borrowers. -- Don Gil K. Carreon, BusinessWorld