Branching out to where no bank has gone before

In a bid to widen people’s access to banking services and support the growing funding needs of the economy, the Bangko Sentral ng Pilipinas has issued regulations that will effectively allow banks to open more branches.

According to the central bank, the time has come to allow more competition among banks to meet the twin objectives of meeting the rising demand for banking services in wealthy cities and encouraging banks to put up branches in lower-income areas to help spur economic activities there.

No more restricted areas

Under the first regulation, the BSP lifted the restriction to put up branches in the eight highest-income-earning cities in Metro Manila: Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig, Quezon and San Juan.

The lifting of the restriction comes in two phases. Under the first phase, universal and commercial banks with less than 200 branches as of end-2010 may expand in the eight cities. Under the second phase, which starts on July 1, 2014, all universal, commercial and thrift banks may put up branches in the same areas.

BSP Governor Amando Tetangco Jr. said the move is in response to the growing needs of the eight key cities for more banking services as economic activities in these areas increase.

The previous restriction on bank branching was meant to avoid excessive competition among banks, which had a tendency to concentrate on high-income areas to take advantage of income opportunities.

But Tetangco said that, as local economies expand further, so should the supply of banking services.

In areas where more and more businesses are being put up and economic activities are rising, there must be more banks to meet the demand for loans and other financial services.

He said it’s time to allow more competition.

“Liberalization will further improve the competitive environment, which should translate to better financial services to the public. The new policy also aims to encourage banks to further scale up and improve their operations in order to be competitive,” Tetangco said.

Liberalization for rural banks

Under the second regulation, rural banks, which are mandated to provide services in the countryside, are now allowed to put up more than one branch in Metro Manila to cater to the growing demand for microfinance services in urban areas.

According to regulators, while there are quite a number of large banks operating in urban areas, they do not cater to the funding needs of microenterprises. Most commercial banks tend to focus on large companies and small and medium enterprises (SMEs).

The BSP believes that, to sustain robust growth of the economy, it will be necessary to boost the micro-business sector, which accounts for bulk of the number of enterprises in the country.

Providing microenterprises with adequate financial and technical support is one of the most effective ways to reduce poverty incidence, which has remained significant even though the economy has been growing over the past decade.

It appears that only the middle-and high-income earners are the ones benefiting from the economic upturn to the detriment of the poor.

The BSP said that with more rural banks providing financial services to microenterprises, it would be easier to attain the goal of broad-based growth of the economy.

More countryside services

The move of the BSP to allow rural banks to expand to urban areas is complemented by its move to encourage large banks to operate in rural communities.

Under the third regulation, the central bank has cut by half the processing fee charged on universal/commercial banks or their subsidiary thrift banks to put up branches in third-to sixth-class municipalities.

Industry players welcome the liberalization of bank branching, saying that this will give them opportunities to take advantage of the growing economy and generate more income.

Alex Buenaventura, president of One Network Bank, one of the biggest rural banks in the country based in Mindanao, said the liberalization would encourage rural banks to expand outside their usual areas of operation.

He said rural banks would appreciate a level playing field, gaining the chance to serve not only microenterprises but bigger corporate clients.