BSP expects more bank mergers

MANILA, Philippines - The country may see mergers and alliances in the coming years as local banks prepare for financial sector integration in the region, a Bangko Sentral ng Pilipinas (BSP) official said.

“We have been signalling to the community that this is in the horizon so (they need to) plan for it, (and) prepare,” central bank deputy governor Nestor A. Espenilla Jr. told reporters.

“If they feel they are not big enough, they should have combined or they should have formed alliances. The way to respond to it is not only through mergers and consolidations, they can (also) form strategic alliances,” he continued.

The Association of Southeast Asian Nations (ASEAN) Banking Integration Framework (ABIF), eyed to be achieved by 2020, aims to harmonize principles in the region’s financial sector. 

The integration will give the region’s banks a bigger market and more opportunities for investments, although domestic banks may encounter difficulties when foreign banks enter their home markets.

Espenilla explained that mergers done in the banking community involve two strategic partners eyeing to scale up their businesses, or one strong bank acting as a white knight injecting capital to a weaker bank.

But such will be market-driven, he stressed.

“The BSP does not really intervene in shaping the industry. It’s a competitive environment: those who want to merge, merge; those who want to exit, exit,” Espenilla said.

“It’s a business decision basically and the Philippines is an archipelago, it’s not contiguous, so there are reasons why market logic has shaped many players in multiple markets,” he added.

He further said: “In the end, market forces will decide how many should be there but we do have regulatory standards.”

The ABIF is only one leg of the ASEAN economic community integration that will be launched 2015.

As early as today, Espenilla recounted a number of foreign banks have already expressed interest in penetrating the country’s financial market.

“Some of them are interested in our market. We have a fairly attractive market [largely] because we are big in population size,” he noted.

But the Philippines is still far from being ready for the regional banking integration as Republic Act No. 7721 will first need to be amended, Espenilla said.

This is because the Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes only allows the entry of 10 foreign banks in the country and these slots are fully taken up today.

Local banks have already undertaken aggressive expansion plans as they try to cover bases in the country, seen part of their preparation for the regional banking integration.

“Banks need to think how they should be responding to that potential competition but now you can see the response is pretty aggressive,” Espenilla said.

“In addition to boosting capital, they are already branching out covering all bases basically. You’ll notice our big banks are expanding in the cities and moving out to provinces... so they’ll be in a good position by the time competition enters,” he continued.