License to keel
Perhaps it’s none of my business, but I have a couple of little questions on the new policy of the Bangko Sentral, or the BSP, regarding bank branches.
Reports said the BSP already threw away its policy that restricted banks from opening new branches. Yes, finally, the BSP just allowed banks to put up as many branches as they want, provided of course they have the capital for those. In short, the banks must be able to afford having those branches.
For the past 20 or so years, the country’s biggest banks, which incidentally are the members of the influential Bankers Association of the Philippines, or the BAP, lobbied for the lifting of the BSP ban on new bank branches.
Here is one little question that is none of my business: How much does the BSP charge the banks for a license to open a branch? One figure making the rounds in business is something like P20 million per branch. Which leads me to the next little question: Is the so-called liberalization another money-making venture of the central bank?
Actually, the new policy signals a change in the strategy of the BSP. Reports said that the BSP even conducted a survey and found out that more than 80 percent of the entire population of this country did not have bank accounts. That should translate to more than 70 million people who do not deal with banks in any way. Surely more than 40 million of those are the economic class classified as “poor,” and they have no need for bank services, even if they live outside the bank branches in makeshift homes made of discarded carton boxes.
Let us say that only 10 million to 20 million of that “unbanked” portion of the population have the means, plus the need, for banking services. The banks thus must be foregoing billions of pesos worth of business. To make banking services available to those millions of people, the BSP seems to be encouraging banks to put up more branches, preferably in the provinces.
In the past few years, after all, the BSP has ordered the closure of numerous “rural banks,” which incidentally were really located at built-up areas that we could hardly call as “rural” at all. I remember that in just one week sometime in 2010, the BSP ordered the wholesale closure of 10 rural banks one after the other. Today perhaps the BSP wants the bigger banks, the commercial and the thrift banks, to fill up the vacuum left behind by those wayward rural banks.
And so by directing the banks to widen their coverage, a bigger portion of the population may be folded into the formal banking sector, as they have access to consumer and housing loans, for instance, instead of going to loan sharks.
In the past, the BSP restricted banks from opening new branches, believing that the country was “overbanked.” The central bank then believed that the situation was dangerous for the banking system. If the banks would spend a lot of depositors’ money on branches, there would just be too many of them in one place, so many that they would not be able to recover the cost of operating those branches. The thinking behind the restrictive policy really sounded like good economics at that time.
But underneath such a seemingly genuine concern for the welfare of the banks, and thus the depositing public, was a supposition that by telling the banks what was good for them, the central bank was also playing god. It was as if the banks were so stupid that they open up branches with abandon, unmindful of the effects on their profitability. In reality, before banks would open a single branch, their people conduct volumes of studies on its viability. For one single branch!
The result of the restrictive BSP policy, whether intentionally or not, was the wave of bank mergers in the past 20 years. To widen its market reach for expansion, a bank must acquire another bank, if only for the branch licenses. At that time the prevailing policy dictum in banking was that bigger should be better. I am not sure that such thinking is still the uncontested wisdom in banking, as we saw in the past years the collapse of the banking heavyweights in the United States and in Europe. The bigger they were, the harder they fell.
Here in the Philippines, we were lucky that the recent failures involved quite small banks such as Export Industry Bank (EIB), which used to be owned partly by the Indonesian conglomerate called Lippo, and by the group of Alfredo Yao, which owns Zest Air, the former Asian Spirit and the “Zesto” brand of drinks.
Word is also going around that an Indonesian company with investments here in the Philippines made the fatal mistake of depositing a huge amount with the EIB just the day before the closure. Word was that it amounted to $10 million. And the bank accepted the deposit, knowing fully well that it was about to go out of business?
Another bank that was closed down by the BSP recently was the resuscitated Banco Filipino, which the central bank already closed down in the 1980s, only to be reopened upon order of the courts. By the way, one of the victims of the BF closure was a foundation that funded the college education of some 500 students in San Juan, known as the JVE Foundation, organized by the city’s Rep. Jose Victor Ejercito, the son of former President Estrada, who by the way is already set on running for mayor of Manila, as word goes around that 28 out of the 36 councilors of the city, plus the incumbent Vice Mayor Isko Moreno, are switching sides to join the political party of Estrada.
Anyway, back to my little question on the license fee charged by the BSP, I must say that on second thought, it is really the business of the guys down here in my barangay. Again the figure I heard was P20 million per branch. This means that Banco de Oro, for instance, which has the biggest branch network in the country with more than 700, would have to pay some P1.4 billion for those branches, technically, if it were to open them today. And so if banks must spend so much money for branch licenses, how do you think they would try to recover the costs? Let me guess: They will tend to keel toward their clients—depositors and borrowers alike. Meaning, higher interest on loans, and lower interest on deposits!
Today, mind you, banks are giving interest rates on savings deposits that are less than 1 percent. If I am not mistaken, it is not even half a percent. To be sure, such low rates are not encouraging people to save.
