Banks urged to consolidate to weather crisis

MANILA, Philippines - Local banks should further consolidate in order to shield them from the impact of the global financial turmoil, a top banking industry official said yesterday.

“There are just too many banks,” said Philippine Savings Bank president and CEO Pascual Garcia III, who is also president of the 82-member Chamber of Thrift Banks (CTB).

Garcia said there are too many banks that may not have the scale to cope with the crisis, the demands of the banking public, and the new regulatory environment.

“One of the challenges confronting the thrift bank industry, in scenarios like that, is the fact that there are too many banks. Too many banks that do not have the scale,” he said.

Garcia pointed out that the global crisis and the accompanying impact on the Philippine economy may likely lead to a large number of defaults in debt payments, much like what had happened during the 1997 Asian financial crisis.

These defaults will require banks to set aside provisioning for losses that may eat into the capital or reserves of a bank. Unfortunately, a large number of banks are not well capitalized to deal with defaults, he noted.

There are also the provisioning related to the Basel II global framework, regulatory requirements of the Anti-Money Laundering Council, of the risk-weighted capital requirements, and the rest of the operating expenditures that go with banking activities, including adopting to the rapid advances in information technology.

Garcia said in the case of smaller banks, those allied with conglomerates or larger commercial banks are well provisioned and capitalized, thus more capable in dealing with defaults.

The big losers when a bank goes under are the banking public and the government. The customers lose their money and the public sector has to pay for the insured deposits from reserves coming from taxpayers’ money and the banks themselves.

Garcia said the CTB would like to encourage their members to move towards consolidation or initiate mergers, although acquisitions have been more attractive lately.

Rizal Commercial and Banking Corp. (RCBC), for example, acquired Merchant Savings and Loan Association in 2007.

Recently, East West Banking Corp., a commercial bank, acquired AIG Philam Savings Bank, a thrift bank.

Sterling Banking Corp., a highly-capitalized thrift bank, meanwhile is in the market for a small or medium-sized commercial bank.

Rural banks are also consolidating as in the case of One Network Bank and GM Bank. Both rural banks are products of consolidations and mergers, thus bringing it to a scale equivalent to most thrift banks.