BSP okays BDO takeover of Export Bank

MANILA, Philipines - The Bangko Sentral ng Pilipinas (BSP) has given Banco de Oro Unibank Inc. (BDO) of Henry Sy the greenlight to take over the ailing Export and Industry Bank Inc. (EIB).

BSP Governor Amando M. Tetangco Jr. said the approval of the acquisition was in line with banking consolidation and was consistent with the preservation of the stability of the financial sector.

“This is consistent with preserving financial stability and in line with banking consolidation,” Tetangco stressed.

Under the approval, the BSP chief said BDO would acquire all the assets of EIB but at the same time assume all the liabilities including deposits of EIB.

“The transaction involves the acquisition by BDO of all the assets and its assumption of all liabilities including all deposits of EIB,” he added.

The transaction would also have to be approved by the state-run Philippine Deposit Insurance Corp. (PDIC).

Aside from acquiring the assets of the ailing bank including its 50-branch network, BDO would also buy selected assets and assume about P30 billion in liabilities including P20 billion in deposits as well as the P9 billion in outstanding loans to PDIC.

BDO, which has been very aggressive in its acquisitions, would further cement its position as the country’s biggest bank in terms of assets. In 2009, BDO remained as the country’s largest bank in terms of assets with P815.8 billion, deposit liabilities with P667.6 billion, and gross loans with P469.5 billion.

However, it only ranked second in terms of capitalization with P67 billion. Metropolitan Bank & Trust Co. of taipan George SK Ty emerged as the largest bank in terms of capitalization with P70 billion.

The Sy-led bank has been aggressive in its acquisition with its latest acquisition being GE Money Bank last year. Previous acqusitions include American Express Savings Bank in 2007, Equitable PCI Bank in 2006, United Overseas Bank – Philippines in 2005, First e-Bank in 2002, and Dao Heng Philippines in 2001.

In October 2009, EIB’s board approved a sale to an undisclosed buyer that was later identified as BDO. The ailing bank that has 50 branches has been looking for investors since 2008 after the BSP ordered local banks to beef up their capital.

The trading of shares of stock of EIB at the Philippine Stock Exchange (PSE) has been suspended voluntarily after the bank entered into serious discussions with potential buyers.

Latest statistics from the BSP showed that the number of banking institutions was fewer by 32 to 779 in the first quarter of the year from a year-ago level of 811 indicating the continued consolidation of banks as well as the exit of weaker players. By banking classification, the BSP said banks consisted of 38 universal and commercial banks, 74 thrift banks, and 667 rural banks.

However, the central bank reported that the the operating network including branches of the banking system increased by 188 to 8,663 as of the first quarter of the year from 8,475 during the same quarter last year.

Data showed that the banking system’s total resources increased by 8.5 percent to P6.4 trillion as of end-March from P5.9 trillion as of end-March last year due mainly to the rise in loans and debt securities accounts.

Universal and commercial banks accounted for almost 90 percent of the total resources of the banking system.

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.

The program is aimed at promoting the merger, consolidation and acquisition between or among eligible strategic third party investors and eligible rural banks to create a stronger rural banking system that can more effectively serve the countryside.