January 14, 2009

Special Economic Report: BSP forecast more bank mergers

The Central Bank is expecting further consolidation among local banks, with Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. sticking to his goal of five to six local banking groups dominating the sector.

"I still think five to six local banks plus the branches of foreign banks holding about 70% of the total banking system’s assets would be ideal," Mr. Tetangco told reporters in an e-mail.

"The BSP’s role is to create a working environment that would encourage banks, through market-based policies, to take advantage of opportunities to consolidate or expand as would suit their risk and profit appetite as well as their own overall assessments of the economy," he added.

Central bank data as of September last year showed there were 18 head offices of universal and commercial banks, three subsidiaries of foreign banks and 14 branches of foreign banks. There were also three government bank head offices.

Data also showed that universal and commercial banks continued to corner around 90% of the banking system’s assets at the time.

Since he took the helm of the central bank in 2005, Mr. Tetangco has been supportive of mergers among major banks, saying the BSP would rather have less but stronger banks.

The local banking sector saw a series of mergers and acquisitions in the past few years, among them the Ayala-led Bank of the Philippine Islands-Prudential Bank merger in 2005, the International Exchange Bank-Union Bank of the Philippines merger in 2006 and the China Banking Corp.-Manila Banking Corp. merger in 2007.

The merger between Sy-led Banco de Oro Universal Bank and Equitable PCI Bank, also in 2007, was hailed by industry observers as a landmark transaction as this created the country’s largest bank in terms of assets.

The industry is now awaiting the merger of two Lucio Tan-controlled banks, Philippine National Bank and Allied Banking Corp., which would create the fourth largest bank. — Gerard S. dela Peña

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