BSP moves to push banking sector consolidation

MANILA, Philippines—Wanting to trim the number of players in the banking industry, the Bangko Sentral ng Pilipinas said lenders that would undergo mergers or acquire smaller players would be allowed to branch out or put up more branches in “restricted” areas in Metro Manila.

Because banks are eager to get bigger shares of the urban markets, the incentive of branching out in these key areas is expected to help encourage consolidation in the industry.

Areas currently restricted for bank branching include the cities of Quezon, Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig and San Juan.

The BSP believed there were already too many players in the banking sector and that having fewer but stronger players would be beneficial for the whole industry.

Data from the central bank showed that as of the end of the first semester, there were 712 players in the banking industry. Of these, 37 were universal and commercial banks, 69 were thrift banks and 606 were rural and cooperative banks.

The total “banking network” (head offices and bank branches) stood at 9,207. The central bank said it wanted the banking network to grow, but the growth should come from branch expansion of existing players rather than the entry of new ones.

Under Circular No. 771, which was issued earlier this month, the BSP institutionalized the granting of branching privileges to qualified banks that will undertake mergers and acquisitions.

According to BSP Deputy Governor Nestor Espenilla Jr., the central bank had granted such privilege in the past on a case-to-case basis. With the circular, he said, the branching incentive and the other perks were institutionalized.

“There is branching restriction (in key areas of Metro Manila), but we are willing to grant branching incentives to encourage consolidation,” Espenilla said.

The release of the circular came following the issuance in July of the updated implementing guidelines of the “Strengthening Program for Rural Banks (SPRB) Plus,” which grants the same branching incentive to banks that will acquire weak rural banks.

The push for consolidation in the Philippine banking sector earlier raised the question on whether that direction was prudent, given the reported failure of several big financial conglomerates in the United States.

BSP officials said the case of the Philippine banking system was different from those of western countries. They said that in the Philippines, there were too many small industry players.

Consolidating them will help create banks with bigger capitalization and ability to provide more financial services to the public, they added.