"There is concern over the global recession which we expect to get worse in the coming year and we believe that bank consolidations could help the banks to weather the storm," BSP Governor Rafael Buenaventura said.
Buenaventura explained that while he believes banks are generally firmer after a series of mergers following the Asian financial crisis in1997-1998, there is still a need for local banks in particular, to be extra cautious.
"There are some banks that need to watch out and a number could benefit from consolidation and take advantage of our policy for banks to merge," Buenaventura said.
While the banking system of its ASEAN neighbors saw a shakeup at the height of the crisis, especially Thailand, most of the country’s commercial banks, were spared from bankruptcies and closures.
However, the local banking system’s non-performing loans rose to unprecedented levels and with the threat of another prolonged global recession, there is concern that these bad loans could seriously affect banks’ liquidity and profitability. These bad loans were incurred as big corporate borrowers, especially the property sector which collapsed, defaulted on their debts, forcing banks to foreclose on these properties, many of which continue to be idle assets.
The BSP then called on the local banking industry to consolidate or merge. It enforced this policy by raising banks’ capital requirements and imposing stricter measures to ensure banks don’t collapse.
Some of the bank’s that merged during the period were the Bank of the Philippine Islands and the Far East Bank and Trust Co., Equitable Banking Corp. and PCI Bank Corp., Metrobank-PS Bank-Asian Bank. Last year, the Metrobank Group also brought Solid Bank from the Madrigal family and other major stockholders.
Urban Bank which folded up last year, re-opened this year after being bought by the Export and Industry Bank, composed mostly of minority stakeholders of Urban Bank.
On the other hand, there are several proposals to form asset management companies to take over and acquire these bad debts for a discount and resell them to new investors, but none so far, have taken off.
Last year, the central bank further pushed for bank mergers and issued BSP Circular 237 on April 17, 2000, providing additional incentives for mergers and consolidations.
These included temporary relief for full compliance with the prescribed network to risk assets ratio and the provisions of a one-year grace period within which to comply with the ceiling on real estate exposure.
Under the circular, the existing branches and offices of the merged or absorbed institutions may be converted into branches of the new or surviving financial institution.