New capital ruling for thrift banks induces further consolidation

MANILA, Philippines - The latest ruling of the Bangko Sentral ng Pilipinas (BSP) increasing the minimum capital requirements for new entrants in the thrift banking sector will stimulate further competition and consolidation.

“There will be less entrants in the industry with the high capital requirement,” Patrick Cheng, president of the Chamber of Thrift Banks (CTB) and chief executive office of HSBC Savings Bank.

Last week, the BSP ruled that new entrants to the thrift banking industry would need a minimum capital of P1 billion (from P325 million) if the head office will be based in Metro Manila, and P500 million (from P52 million) if the head office will be based in the bustling cities of Cebu or Davao.

Likewise, the minimum capital requirement was raised from P52 million to P250 million if the head office of an existing thrift bank will transfer from one area to an area with a higher classification.

Aside from the high capital ruling, competition will also force thrift banks to consolidate in the face of increasing “incursions” by the rural and commercial banking sector into the consumer banking market, once considered the niche of the thrift banks.

After the recent financial crisis, commercial banks entered the consumer market, mainly automobile, property and the small and medium enterprise (SME).

“Independent thrift banks will have to adopt to changing conditions and the growing competition,” the CTB head said. “Commercial banks are entering our niche market.”

Independent thrift banks are banks that are not allied with the country’s conglomerates or with commercial banks. 

However, the leading thrift banks are allied with major commercial banks, or are subsidiaries of foreign banks.

That includes BPI Family Savings Bank (under the Bank of the Philippine Islands), the Philippine Savings Bank (under the Metropolitan Bank & Trust Co.), the RCBC Savings Bank (under the Rizal Commercial Banking Corp.), HSBC Savings Bank (subsidiary of the Hongkong and Shanghai Banking Corp.) and Citi Savings Bank (subsidiary of Citibank NA).

Meanwhile, rural banks are increasingly expanding in reach as well as capital base. The most notable are One Network Bank with resources worth P11 billion and 80 branches throughout Mindanao, GM Bank of Luzon with 35 branches in Region II and III, Green Bank with 36 branches, 43 kiosks and total resources of nearly P2 billion, and Rang-ay Bank, a rural bank with resources of over a billion pesos and an extensive branch network in Region I and II.

These major rural banks are also products of consolidations, or mergers and acquisitions.

These rural banks are not only lending to micro-borrowers but are already competing for deposits and loans in the major cities outside Metro Manila.

Meanwhile, the thrift banking sector reported total assets of P577.8 billion in 2010, or an increase of nearly eight percent from the P536.6 billion in 2009.

The figures represent only 55 thrift banks that are members of CTB. The banking segment actually numbers 73 with the difference coming from savings and loan associations.

Deposit liabilities amounted to P464.88 billion and capital reaching P67 billion.