Banks seek more incentives for mergers

MANILA, Philippines – Rural banks are asking the Bangko Sentral ng Pilipinas (BSP) for additional incentives to encourage the banking system to further consolidate.

It is also asking the monetary regulators to review and update existing regulations for mergers and acquisitions (MAs).

“We are looking to accelerate the natural consolidation of the (rural banking) sector,” Tomas S. Gomez IV, outgoing president of the Rural Bankers Association of the Philippines (RBAP), said. Gomez noted that the consolidation of the country’s banking sector has been going on for the past three years.

For the rural banking system, there have been a number of consolidations albeit not as dramatic as in the commercial banking sector.

The RBAP claims that there are a maximum of eight banks that consolidate or merge every year.

“However, these have been a few and far between,” Gomez said.

In the meantime, 26 rural banks have been closed or put under receivership so far this year. Of the total, 14 rural banks were closed and closely related to the Legacy Consolidated scam. The remaining 12 are considered part of the natural process of attrition.

There are already consolidation and MA program in place offering incentives but have been around for over 10 years.

“But these need to be updated,” the RBAP president said.

BSP Deputy Governor Nestor Espenilla Jr said that existing policies already offers incentives for MAs albeit some are outdated or too broad.

“There are cases when we consider additional incentives as the conditions warrant,” Espenilla told The STAR.

Banks are actually holding talks with the Land Bank of the Philippines, the BSP and other monetary authorities.

The RBAP admitted however that they have started talking with the BSP, LBP and the Philippine Deposit Insurance Co. (PDIC) “to essentially enhance and re-launch existing incentives for mergers and acquisitions, and consolidation.

“Conditions have changed, and you now have a new generation of bank owners and managers who are receptive to change, and change can mean a number of things, like being more aggressive or partnering with other institutions, or basically getting out of the business and have someone else manage it, or buy it,” Gomez explained.

Espenilla revealed that a number of banks have raised funds in preparation for expansion.

Some banks are increasing their branch network, while others are in the market for acquisitions. A handful of banks are looking for alliances with other financial institutions.

BSP Governor Amando Tetangco Jr. encourages the banking system to actively consolidate in the hope that there will be fewer but stronger banks.

“I still think five to six domestic commercial banks plus the branches of foreign banks holding about 70 of the total banking system’s assets would be ideal,” Tetangco said. “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.”

However, the central bank governor admitted that the possible MAs will not be as large and dramatic as seen in the past two years.

The total assets of the commercial and universal banking system is P4.9 trillion as of March this year. The country’s banking system reported assets worth a little over P5 trillion end 2008.

As of end 2008, there were 38 commercial and universal foreign and domestic banks, 80 thrift and development banks, and 726 rural and cooperative banks.