Merger wave seen among local banks

By Jerry Maglunog 

A wave of mergers is expected to engulf local banks after integration has become the norm, with the establishment of the Asean Economic Community (AEC) last December. 

The local banks are also expected to accept more foreign partners, according to bankers.

So far, two unibanks have accepted foreign partners. Both banks gave a minority stake to their foreign partners and, according to Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla Jr., this was “a sign that investors have trust in local banks.”

The two banks are Rizal Commercial Banking Corp., which sold 20 percent of its shares to Cathay Life Insurance Co. of Taiwan, and Security Bank, which sold the same number of shares to Bank of Tokyo-Mitsubishi UFJ Ltd.

The investment by Cathay Life at RCBC, which raises P7.95 billion (approximately $179 million) of new Core Equity Tier 1 (CET1) capital for the local unibank, is part of RCBC’s current capital-raising strategy in order to comply with the more stringent capital-adequacy rules under the new Basel III framework. It is expected to enable RCBC to be comfortably above the minimum CET1 requirements of the BSP.

“More similar deals are expected this year,” a banker said.

Espenilla said the entry of many foreign banks was an offshoot of President Aquino’s signing of a law that allows full ownership of any local bank.

Republic Act 10641 allows foreigners to own up to 100 percent of domestic banks and facilitate the entry of established, reputable and financially sound foreign banks in the Philippines. It also grants locally incorporated subsidiaries of foreign banks the same banking privileges as domestic banks of the same category.

The same law is expected to give the Philippines an edge in the economic integration of the Association of Southeast Asian Nations (Asean), where a common banking framework will be carried out.

The Asean Banking Integration Framework, to be implemented by 2020, will allow qualified Asean banks (QABs) to operate within Asean jurisdictions on equal terms as domestic banks, subject to certain prudential and governance standards.

The number of foreign banks entering the country through merger with local counterparts should have been more had CIMB (?) been allowed to own a substantial stake at the Philippine National Bank, the fifth biggest lender in the Philippines.

As banks expand credit in the domestic economy, the sector enjoys a period of rapid catch-up growth, the BSP added.

Peso deposits have more than doubled since 2008, rising from P3.2 trillion to P6.6 trillion in September 2014, according to the BSP.

This has helped bring down inflation even as the BSP has expanded the monetary base. Bank lending has risen nearly as quickly, but at P5.5 trillion in September 2015 was equal to just over 43.5 percent of GDP.

That is about half the level in Thailand and a third of the level in Malaysia, leaving considerable room for further expansion. A changing financial climate in 2014 brought both benefits and risks.

PNA