More mergers, consolidations seen in 2010

MANILA, Philippines - Another round of mergers, acquisitions and consolidations is expected to occur in 2010, albeit not as grand as the previous years.

Gone are the days of the dramatic acquisition, such as the Banco de Oro Unibank Inc. (BDO) and Equitable PCI Bank experience, which saw an otherwise average player swallow a huge commercial bank.

This time, both external and internal forces are conspiring to force banks to strengthen its capital base, asset quality, client base and reach strategic alliances, among others.

2010 will be characterized by a financial system challenged by stiffer competition within each sector, new international banking standards, extensive use of technology, and regional and international treaties.

“The industry will not experience the technical consolidation of previous years, but there will be consolidations nonetheless,” Nestor V. Tan, president and chief executive officer of BDO, said.

BDO is reportedly in discussion with the Philippine Bank of Communications (PBCom). But this time, the universal bank of the SM Group of Companies is said to be interested only in good assets.

Another chief executive said that asset quality and capital is the name of the game for the next decade, instead of costly acquisitions.

“At the end of the day, it is all about capital,” Arthur Ty, president of the Metropolitan Bank & Trust Co. (Metrobank), said. A huge capital base allows for flexibility, adoption to stiff domestic and international banking standards, and expansion.

The capital-rich Bank of the Philippine Islands (BPI) has, among others, taken full use of technology to expand its influence in the market place.

BPI has not only fully embraced mobile banking technology, it has even gone to the extent of establishing a thrift bank devoted to branchless banking for microfinance.

BPI Globe Savings Bank (BanKo) targets the country’s unbanked or under-banked population, through microfinance and mobile banking technology with the help of Globe Telecommunications Co. (Globe).

It may well be the first technology-driven branchless thrift bank that would eat up into the market of thrift and rural banks.

Meanwhile, other major thrift banks are aware of advantages of having capital to strengthen asset quality and undertake expansion.

The Philippine Savings Bank (PSBank) has raised funds from the capital markets or stock rights offering. In turn, it has invested heavily on technology, bloated its lending chest, and expanded its branch network.

A number of major rural banks are looking to consolidate with smaller ones, with a preference for quality partnerships over costly acquisitions. Regulators confided that half of the rural banking sector is poorly capitalized, and a quarter of that group may actually be dormant.

In fact, monetary authorities are encouraging consolidations within the banking system versus receivership and bank closures by government.

The Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC) has set up a P5-billion financial assistance and regulatory support facility. The facility allows the so-called white knight or acquiring bank financial flexibility in making a buy.

The PDIC likewise established a help desk to match banks in search of a good acquisition, and banks in search of partners or buyers.

Meanwhile, the BSP will be fully implementing the Basel II framework on risk weighting and capital for the thrift and rural banking systems.

And if that is not enough, the Bank for International Settlement (BIS) will be introducing new proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The reform package hopes to improve the banking sector’s ability to absorb shocks, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy.

When finalized, the new proposals on liquidity and capital will be in force by 2012.

And by 2015, trade barriers will be lifted within the member nations of the Association of Southeast Asian Nations (Asean) under the Asean Free Trade Agreement (AFTA).

That situation will allow foreign bank and non-bank financial institutions access to the Philippine market, and vice versa.