Consolidation to help PH banks compete in region: CCCI president

MERGERS and acquisitions (M&As) in the banking industry will help Philippine banks compete regionally, said a top official of a business chamber.

Outgoing Cebu Chamber of Commerce and Industry president Prudencio Gesta said he supports the advocacy of the Bangko Sentral ng Pilipinas (BSP) in encouraging banks to merge to strengthen the stability of the country’s banking industry.

“Our banks are not only meant to compete domestically but also regionally. M&As are one way our banks can compete with other banks in the Asean region,” Gesta said.

The BSP expects more M&As in the industry this year following release of its incentives to encourage banks to consolidate. It said consolidation will help banks generate bigger capitalization to provide more financial services to the public.

The BSP urged bigger banks to merge with rural banks reported to have weak capitalization and management problems to protect the banking public and ensure the stability of the industry.

Last July, the BSP launched the Strengthening Program for Rural Banks Plus where enhanced incentives are given to banks that will consolidate. The BSP said one incentive allows a bank to put up branches in restricted areas in Metro Manila, while another entails a loan grant to beef up the capital of merged entities.

Gesta, who is also Rizal Commercial Banking Corp.’s first vice president and regional sales and marketing head for the Visayas, said bank consolidation will also encourage the public to avail themselves of services of financial institutions and push them to place their money in banks.

Safety of deposits

He also noted that depositors need not to worry when banks consolidate as they will ensure safety of deposits even if it will go through some transitions. “When banks merge they will see to it that service to depositors will not be compromised,” he
said.

Two large banks controlled by taipan Lucio Tan completed the merging of Philippine National Bank (PNB) and Allied Banking Corp. last month. The BSP said they are expecting several M&As involving small banks and at least one big bank this year.

“Mergers and consolidations will further promote a positive image that we are a country that is financially healthy,” said Gesta.

Although, RCBC still has no firm plans for consolidations, Gesta disclosed that the private sector arm group of World Bank, International Finance Corp. (IFC) has approved $100 million in the common shares of RCBC to shore up the bank’s capital base in anticipation of the implementation of Basel III in 2014 and to increase lending to micro, small and medium enterprises and other underserved communities. Basel III is a global standard on banks’ financial health.

IFC currently owns $50 million worth of shares or 6.7 percent of RCBC.

Confidence

According to Gesta, IFC’s investment reflects its optimism and confidence on the bank as it focuses on expanding its financial products to better serve the community.

Meanwhile, the BSP reported lending by universal and commercial banks eased last January despite the high liquidity in the market.

Big banks’ loans increased by 15.4 percent year-on-year in January but the figure is slower than the 16.2 percent recorded the previous month.

Loans for production activities, which comprised more than four-fifths of the bank’s total loan portfolio, grew 15.6 percent in January, slower than the 16.6 percent logged in December.

Similarly, growth in consumer loans also eased to 12.5 percent in January from 14.1 percent in December, mainly due to the slowdown of credit card receivables and other household loans.

Growth in loan products were driven by increased lending activities in real estate, renting, and business services; financial intermediation; transportation, storage, and communication; wholesale and retail trade; and manufacturing.

Lending to agriculture, hunting, and forestry; mining and quarrying; and in other community, social and personal services decreased.

Despite easing, the BSP said sustained “credit growth is expected to support the momentum of the economy.” It said it will continue to ensure that liquidity and credit conditions will keep at pace with overall economic activity while remaining consistent with the BSP’s price stability objective.