Regulators eye full bank branch liberalization

Posted at 02/17/14 7:56 AM

MANILA - The Bangko Sentral ng Pilipinas (BSP) said it will push through with the plan of lifting all restrictions in the opening branches in the Philippines come July, both to support the country’s financial inclusion initiatives and to help banks prepare for the upcoming trade and financial integration in the region.

“That is actually part of the strategic thinking of the BSP—to liberalize the branching so that precisely banks can expand,” BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla said.

In a circular letter dated September 10, 1999, then-BSP Governor Rafael Buenaventura imposed an indefinite moratorium on the

establishment of new banks and their branches except in cities and municipalities where there are no existing bank offices.

But six years later BSP Governor Amando M. Tetangco Jr. approved a “phased lifting” of the moratorium by allowing banks to open branches anywhere they like except for eight key cities that were, at that time, said to be “adequately served by existing bank offices.” The “restricted zones” included Makati City, Mandaluyong City, Manila, Parañaque City, Pasay City, Pasig City, Quezon City and San Juan City.

Then in 2012 the central bank allowed banks to undertake branch expansions even in previously

restricted cities. However, banks were required to pay a special licensing fee of P20 million per bank branch approved should they choose to branch out in the eight restricted zones.

In an interview with financial reporters, Espenilla said starting this July the BSP will fully liberalize its bank-branching policy.

This means that all local banks may then open new bank branches anywhere in the country without restriction or special license fees.

“This is in accordance to the time table that we set. We signal all of this to the banking industry,” Espenilla said.

He also said that as a result, banks were to steadily expand in both the Metro Manila region—where the restricted areas were previously assigned—and in the provinces and other rural areas.

“We recognize the need to include more people into the financial system for financial inclusion. That is a key driver. So how do you get to the people who currently have no access? Make the banks near the public. That is why we liberalized banking,” Espenilla said.

“If you are raising capital, you also need to make the money worth so they are deploying and they are

mobilizing more deposits not just on the traditional areas, but also in the provinces they continue to give loans. As of now, we have 16 percent in loan growth, then non-performing loans are going down and capital is rising. These are all signs of a very healthy and competitive banking industry,” he added.

According to the deputy governor, the bank branch liberalization program will help boost the integration process within the Association of Southeast Asian Nations (Asean).

“They need to think on how should they be responding to that potential competition. But now you can see that the response is pretty aggressive. What are the banks doing? Well, in addition to boosting capital, they are already branching out, covering all bases basically. You notice our big banks, they are expanding in the city and they are also expanding into the provinces so they are trying to cover the bases. So they will be in a good position, they will be entrenched by the time competition comes in,” he said.

Espenilla, likewise, said the Asean Banking Integration Forum (Abif), which may not catch on by 2015, is definitely looming over the horizon.

“If you are talking about Abif, it’s not going to happen in 2015. The launching of the integration begins in 2015, but for bank integration we are talking of 2018, 2020. But we are already signaling to the community that this is on the horizon, so plan for it so that when it comes, you won’t be shocked, you won’t panic. Prepare, basically. They should be ready. If they feel that they are not big enough, they should have combined or they should have formed alliances already. The way to respond to it is not just in terms of merger and consolidation; they can also form strategic alliances,” he said.

Asked if he is expecting a spike in the number of mergers and consolidations this year, Espenilla said such is “certainly always a possibility” given the heightening operating standards and the growing competition in the industry.

“Since the market is also growing, for business reasons banks may feel the strategic need to combine to serve markets better. All of that, in our view, is basically market driven,” Espenilla said.

Central bank’s latest data show the approval of 143 bank branch applications as of end-September this year. Of those applications, 102 pertained to universal and commercial bank offices, 21 were thrift banks and 20 were rural and cooperative bank branches.

Taguig City and Cagayan de Oro City had the largest number of new bank branches approved in the third quarter.