BSP evaluates concentration of banks in urban centers

The Bangko Sentral ng Pilipinas (BSP) is evaluating the concentration of banks in urban centers, indicating that there could be some refinements in its bank-branching policy.

Bank regulators, however, are careful not to say that the BSP would soon lift the moratorium on bank-branching, particularly in congested areas.

The BSP is currently imposing a moratorium on bank-branching in heavily-congested cities such as Metro Manila, Metro Davao and Metro Cebu.

According to BSP Assistant Governor Nestor Espenilla, however, bank regulators are in the process of studying and refining the definition of "over-banking" with the end view of aligning its regulatory policies accordingly.

"There is an on-going study on over-banking – we want to define exactly what it means when an area is over-banked," Espenilla said.

According to Espenilla, however, the BSP wanted to determine whether there have been substantial changes in economics, demographics and level of sophistication in areas that are considered either over-banked or under-banked.

"We are trying to ask ourselves exactly what is the right way to look at this and how to treat it from the point of regulation," Espenilla said. "We are looking at the latest change in population distribution, economic and income distribution and other key factors."

Espenilla said there are dimensions in bank penetration that regulatory policies have to consider and the result of the on-going review would be a possible revision in the existing bank branching regulations.

"There could be adjustments in how we would deal with over-banking where and if it exists," he said.

Espenilla said that certain urban centers would look congested at first glance but closer examination would reveal speciation in bank operations that would not be reflected in the number of banks operating in the area.

In rural areas, on the other hand, Espenilla said bank practices that would look indicative of over-competition in urban centers would be perfectly normal and even necessary such as solicitation.

"The BSP’s regulatory framework has to address all these dimensions so we want to see if our framework still works in the fast-changing dynamics of the market," he said.

The BSP has adamantly refused to lift its moratorium on bank-branching, telling banks to consolidate and provide a way out of small banks that want to get out of the business.

Last year, the BSP allowed selected banks to open new branches in certain cities but it was applicable only as an incentive to banks merging with other banks.

BSP Governor Rafael B. Buenaventura said the moratorium was intended primarily to encourage successful banks to just buy into other banks instead of opening new branches.

According to Buenaventura, there are banks that want to get out of the business and keeping the moratorium would give value to these banks if owners decide to sell their branches or their license.

"The idea is to foster consolidation and ensure the continued strength of the banking system," the BSP chief said. "Eventually we will lift it."