Increased M&As in PH banking industry seen

MANILA, Philippines–Local banks are facing increased financial strain as regulators mull over a hike in capital requirements—a move that seeks to further strengthen the industry ahead of Southeast Asia’s regional integration.

The move, one banker said, may trigger more mergers and acquisitions as smaller players struggle to comply with the new regulation.

“It has been a long while since the last change, especially for universal and commercial banks,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr. said on Wednesday.

“We are now evaluating industry comments to our initial proposal,” he told the Inquirer in a text message.

Under the draft regulation recently “exposed” to the industry, the minimum amount of capital required for universal and commercial banks would be increased to P20 billion, from a floor of only P4.95 billion. The major banks corner about 90 percent of the banking system in terms of assets and resources.

For smaller thrift banks, many of which are subsidiaries of universal and commercial lenders, the requirement would be increased to P10 billion from the current P2.4 billion.

Banks will be given five years to comply with the new regulations.

The last time minimum capital requirements were increased was 15 years ago, and the banking sector has grown by about five times since then, which means the new rule would be in line with the industry’s expansion.

Earlier this year, the banks’ capital adequacy ratio (CAR)—which measures the amount of a lender’s capital relative to the size of its portfolio—was also increased in line with global regulatory efforts to make banks more resilient to financial stresses.

Bankers Association of the Philippines (BAP) president Lorenzo Tan, head of Rizal Commercial Banking Corp., declined to issue a comment on the BSP proposal, saying he had yet to see it.

At the end of July, the banking sector had about P1.2 trillion in capital, with nearly P1.1 trillion held by the country’s 36 universal and commercial banks.

Commenting on the news, brokerage firm Maybank ATR KimEng, a subsidiary of Malaysian giant Maybank, said it estimated that at least three universal and commercial banks would have trouble putting up the P20 billion that would be required of them.

In the meantime, 51 thrift banks are also seen struggling to meet the P10 billion minimum requirement.

“The need for more capital will intensify industry consolidation,” the firm said in a statement.

Apart from the draft rules, Maybank KimEng said the recent law allowing the entry of more foreign banks into the country, as well as the Association of Southeast Asian Nations (Asean) banking integration slated for 2015, would induce more mergers in the coming months.