BSP won't budge from capitalization position, despite difficulties ofsome banks

The Bangko Sentral ng Pilipinas (BSP) is not recalling its policy of a higher capitalization requirement even as several banks have experienced difficulty in meeting the BSP's mandate.

According to Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura, the problem is not in meeting the higher capitalization.

The real problem, he said, is in banks realizing just what their capabilities are. A bank that wants to compete and expand has to raise its capital, Buenaventura explains. On the other hand, a bank that realizes that it is only capable of doing so much and wants to stay as a small bank is also allowed to do so.

As such, Buenaventura points out, banks must decide for themselves if they are capable of taking on much more or to remain small players.

In fact, Buenaventura praised a couple of banks that have chosen to remain small and specialize in what they are best at.

He cited Planters Development Bank which is "doing very well" and which had survived a crisis. Planters was one of the banks involved in the Bancorporation (Bancap) government securities scandal in the 1990s.

As a result of that scandal, it suffered some heavy withdrawals but was able to eventually regain the confidence of its depositors and continue performing its development banking role.

Another bank which Buenaventura expressed high regard for its Prudential Bank which, he said, "is a good example, never ambitious enough."

He said "there are many successful rural banks, they go in areas where they stay and have a competitive advantage."

In the case of Urban Bank, which had ambitiously grown over a span of just 15 years from a development bank to a commercial bank then to an expanded bank before faltering and downgrading back to a KB status and was in the process of seeking a reversion back to its original thrift/development bank level, Buenaventura expressed some criticism.

He pointed out that Urban Bank knew when it sought a universal or expanded commercial bank license that there would be required capital increases.

The capitalization hike, the BSP governor said, was "not something I introduced." Urban, Buenaventura noted, decided to ambitiously expand and when the crisis came, it realized that is not yet ready to meet such challenges and its stockholders could also no longer provide it with the necessary capital infusion.

Hence, the request for a downgrade.

Unfortunately, the concept of a downgrade is now being equated by the depositing public as a sign of weakness.

On the contrary, Buenaventura said, smaller banks could and will survive provided that they are efficient and focused.

He lamented the fact that some quarters are criticizing him for continuing to encourage mergers and acquisitions to meet the higher capitalization requirement and at the same time, seemingly discourage downgrades.

The BSP governor explained that while he had expressed the view that in the future there would be about four to six big local banks and foreign banks dominating about 80 percent to 90 percent of the banking system, "it does not preclude that smaller banks would not survive and do well. But they will have to be very efficient and very focused."

Meanwhile, the Philippine Bank of Communications announced that its major shareholders have agreed and the Monetarys Board approved last April 28, an increase in PBCom's capital by P2.629 billion, raising the bank's total capital from P4.7 billion to P7.3 billion. This move makes PBCom not only the highest capitalized commercial bank, but will make it rank No. 10 among the private domestic banks.

The major shareholders of PBCom include the Luy family of International Copra Export Corp., the Nubla family, and the Chung family of La Suerte Cigar & Cigarette Factory.

The Bangko Sentral ng Pilipinas, in a letter issued by Deputy Governor Alberto Reyes on April 28, 2000, certified that PBCom is in a satisfactory financial condition and is in compliance with all the Bangko Sentral rules and regulations especially the capital requirements.

PBCom is the fourth oldest bank in the country, having 60 years of banking history. -