China Bank shuns merger

After denying being engaged in merger talks with Banco de Oro, China Banking Corp. is defying the trend in the banking industry since it is not interested in tying up with other banks, industry sources told The STAR over the weekend.

"According to its principal shareholders, as long as the bank is profitable, there is no need to merge with other banks," sources said. They said stockholders are content with the bank's profitability as it has been posting a return on equity (ROE) of over 10 percent.

ROE is the ratio between net income over total capital. For instance, at a 10 percent ROE, it means that for every P1 peso invested in the bank, it earns 10 centavos.

They said the bank, which has a strong hold on the middle market, particularly among the Filipino-Chinese business community, will continue to focus on trade finance, manufacturing firms and small and medium enterprises.

Monetary authorities have been encouraging local banks to consolidate in the wake of the regional currency crisis. The Bangko Sentral ng Pilipinas (BSP) is pushing mergers and acquisitions by raising the capital requirement of banks on a gradual basis until the end of the this year.

Banks that cannot comply with the higher capital requirements will have to be downgraded.

As of the first quarter of the year, China Bank is the country's 12th biggest bank with total resources of P75.7 billion and capital of P11.4 billion.

There had been reports that China Bank would be merging with Banco de Oro because the two banks have a common shareholder, tycoon Henry Sy Sr. of the Shoemart Group. Sy has a majority stake in Banco de Oro and a 21.5 percent share in China Bank.

Other stockholders of China Bank are the Dee family with 21.03 percent, Yuchengco group, 6.4 percent and the International Commercial Bank of China with 8.-8 percent.

It was also rumored that China Bank would be merging with Yuchengco's Rizal Commercial Bank but this was also denied.

With the BSP's capitalization policy a merger fever has swept the biggest players in the industry starting with Equitable Bank's acquisition of Philippine Commercial International Bank, followed by the integration between Bank of Philippine Islands and Far East Bank & Trust Co. and Metropolitan Bank & Trust Co. which has also acquired several banks including Solid Bank and Asian Bank.