Phl banks need to brace for tougher competition

CEBU, Philippines - While the larger Philippine banks are currently in "reasonable" shape, a top bank executive said they should be doing more to keep up with the increased competition amid the liberalization of the country's banking industry.

Cezar Consing, president and chief executive of Ayala-led Bank of the Philippine Islands (BPI), said increased domestic competition is going to be the long-term impact of the law allowing 100 percent foreign bank ownership in the Philippines.

Philippine lenders are bracing for stiffer competition amid the integration of South East Asian economies and implementation foreign banks' full ownership in the country.

"I understand there are other more foreign banks that are lining up [to enter the Philippines]," Consing said in an interview at the sidelines of Cebu Bankers Club's induction of officers on Thursday. He was the event's keynote speaker.

Several Asian banks have already expressed interest to do business in the Philippines after the government allowed full entry of foreign lenders starting last year.

Consing cited that the most noticeable foreign entry since the law was passed was the deal between Taiwan's Cathay Life Insurance and the Yuchengco-led Rizal Commercial Banking Corp. (RCBC). The deal involved the proposed sale and transfer of RCBC shares to Cathay.

Consing explained the impact of the law on the industry would depend on the mode of entry into the local market

Under the new rules of Republic Act 10641 (An Act Allowing the Full Entry of Foreign Banks in the Philippines), the modes of entry of foreign bankers include setting up a foreign branch, acquiring existing institutions or incorporating a fully new company.

The chief executive believes "consolidating at home" is one way for Philippine lenders to prepare for greater competition brought by economic integration.

"The opportunities of consolidation cannot be ignored," he said.

"I think consolidation of banks is generally good idea," he alsosaid.

He also explained that it's better to establish a good position in the local market to defend one's turf.

But achieving a stronger banking system highly depends on the expansion of the country's economy. Consing said economic development correlates the growth of the banking sector.

Financial integration

The challenge of financial integration being pushed under Asean Economic Community (AEC) is another thing to face.

Consing believes local banks still have time to prepare because integrating the region's financial system will take time.

"It's fairly early day," he replied when asked where the region now in the financial integration process. "I think people are still taking in terms of policy, parameters."

"I think we have a little bit of time because my suspicion is financial integration will come in stages. It will take a few years so it allows time for everybody to get ready," he noted.

The Asean Banking Integration Framework  suggests the uniformity of rules and regulations of Asean nations in the banking system so that banks in the region can operate as local banks and not as foreign. 

Moving forward, the bank executive is bullish that the Philippine banking industry will continue to grow in the next few years, noting that financial inclusion is going to be significant factor for this growth.

"I think it's going to be bigger and stronger," he said. "It's going to be a lot more vibrant, there's real opportunity to really help financial inclusiveness."

BPI, the country's oldest lender and third largest lender in asset terms, is confident that its dominance in the local market will sustain. (FREEMAN)