More mergers among small banks expected

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) expects a rise in mergers and acquisition among small and medium-size banks as the unresolved financial crisis weeds out weaker institutions.

But central bank officials said authorities are not planning to offer incentives to trigger further consolidation in the banking sector.

BSP Deputy Governor Nestor Espenilla told reporters that there are already mergers and acquisitions among small and medium-sized banks.

Espenilla is head of the BSP’s Supervision and Examination Sector, the BSP department dealing directly with banks to ensure compliance with banking rules and regulations.

“It’s part of the natural process of adjustments in the industry,” Espenilla said. “A lot of what we are seeing are mergers among small banks.”

Espenilla said the BSP is not expecting any more mergers between the larger commercial banks until the system has absorbed the impact of the most recent mergers.

“A couple of big banks made those big moves a couple of months ago,” Espenilla said. “It may take time for the industry to digest those moves.”

Espenilla said other banks have not made moves towards further consolidation but said more mergers are not unlikely in the coming months. “They haven’t moved yet but I wouldn’t be surprised if they do.”

But Espenilla said the BSP is not inclined to put more incentives for banks to consolidate, saying it is better if banks did this on their own.

“We are not putting any artificial incentives to mergers because to us a merger has a greater chance of succeeding if it is driven by the mutual business interests of the parties,” Espenilla said.

“So what we want to do is to encourage rather than artificially push them to it,” Espenilla added.

BSP Governor Amando Tetangco Jr said banks should take advantage of opportunities to consolidate as the banking sector braces against the impact of global recession.

Tetangco earlier said the developing environment is ripe for improving efficiency.

“BSP’s role is to create a working environment that would encourage banks, through market-based policies, to take advantage of opportunities to consolidate or expand,” Tetangco said.

Tetangco said it would depend on the banking institution’s risk and profit appetite, as well as their own overall assessments of the economy. 

“I still think five to six local banks plus the branches of foreign banks holding about 70 of the total banking system’s assets would be ideal,” Tetangco said, adding that consolidation was market-driven with no regulatory pressure.

Tetangco, however, possible mergers and acquisitions in the pipeline are not likely to be as large as previous transactions that have significantly consolidated the banking industry.

In 2008, the Philippine National Bank (PNB) and Allied Banking Corp. (AB)—both owned by the Lucio Tan Group—announced their long-speculated merger last week.

The merger of the two institutions left the PNB as the surviving entity, becoming the fourth biggest bank in the country in terms of resources and the third in terms of network.

According to Tetangco, the BSP had already created a regulatory environment that would encourage banks to operate more efficiently and up to par with international standards.

“I believe mergers and acquisitions should largely be market-driven,” he said. “For our part, what we have done is create environment that would encourage banks to improve their capital base.”