Sale of family-owned banks to spur mergers, says BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the decision of families to relinquish control of their valued family enterprises could spur another wave of mergers and consolidation activities in the banking industry.

In a report, the BSP said that the next wave of merger and consolidation activities across banking groups would be forthcoming, albeit not as pronounced or dramatic as prior industry consolidation activities.

The central bank pointed out that some of the top tier players are still digesting their recent acquisitions while some predominantly family-owned players are still exhibiting a wait-and-see attitude on the wisdom of reliquishing control of their valued family enterprises to “outsiders.”

The report showed that the top five banks in terms of assets last year were Banco de Oro-Equitable PCIBank Inc. of retail magnate Henry Sy with P815.8 billion for a market share of 14.9 percent, Metropolitan Bank & Trust Co. of taipan George SK Ty with P691.4 billion or 12.6 percent, Ayala-controlled Bank of the Philippine Islands with P595.1 billion or 10.9 percent, Land Bank of the Philippines with P510.6 billion or 9.3 percent, and Development Bank of the Philippines with P292.1 billion for a market share of 5.3 percent.

The report stated that private domestic banks in the top five except for the government-run Landbank and DBP were all products of merger and consolidation activities since 1999. 

It added that the top five banks last year accounted for 46.9 percent of the total resources of the banking system.

As of end-December, there were 38 universal and commercial banks with 4,482 branches, 73 thrift banks with 1,260 branches as well as 674 rural and cooperative banks with 2,093 branches.

Major players include Allied Bank and Philippine National Bank of airline and tobacco magnate Lucio Tan, Asia United Bank, Bank of Commerce of diversified conglomerate San Miguel Corp., China Bank, East West Bank, Philippine Bank of Communications of the Luy and Nubla families, RCBC of taipan Alfonso Yuchengco, Philippine Trust Co. of publisher Emilio Yap, Security Bank, among others.

Earlier, BSP Deputy Governor Nestor Espenilla Jr. said studies showed that there are still too many universal and commercial banks considering the size of the country’s economy.

“In fact you wouldn’t say that the banking industry in the Philippines is very concentrated to begin with. Lending agencies even say that the industry is fragmented because for the size of the economy, there is still too many commercial banks at 38,” Espenilla stressed.

The BSP and state-run Philippine Deposit Insurance Corp. (PDIC) have launched a P5-billion incentive scheme to spur mergers and consolidations in the country’s rural banking industry under its Strengthening Program for Rural Banks (SPRB).

The PDIC has been pushing for the immediate liquidation of closed banks instead of undergoing rehabilitation as only four out of 511 closed banks have successfully been rehabilitated.

PDIC is currently managing 511 closed banks under receivership and liquidation of which only four have been rehabilitated. Of the 81 banks that were ordered closed by the Monetary Board, 27 applied for rehabilitation but failed since 2005.

Furthermore, PDIC earlier expressed concern that of the total 700 rural banks about 179 were under the central bank’s prompt corrective action scheme. On the other hand, 103 rural banks were lacking in capital.

This early, the BSP said it is open to the idea of increasing the P5-billion fund to spur mergers and consolidations in the country’s rural banking industry.

The BSP would contribute P2.5 billion to the common fund while the other half would come from the PDIC.

The fund would be used to extend financial assistance to qualified investors through a combination of subscription to preferred shares, to provide additional capital to reinforce the capital position of the strategic third party investor, and as direct loans.