Tax perks, relaxed rules to encourage more bank mergers in RP, says IDC

MANILA, Philippines - In the post-crisis market, the Philippines will most likely maintain its run-rate of 10 bank mergers per year as the industry consolidation will be encouraged by tax incentives and several measures easing merger approvals, according to a new study conducted by research firm International Data Corp. (IDC).

In identifying the merger, consolidation and regionalization trends this year of various countries in the Asia-Pacific region, IDC said in the Philippines, a few pending acquisitions are highly anticipated, given their potential to change ranks in the leader board.

In its report titled “Business Strategy: Banking Consolidation in Asia-Pacific – Which Banks Are Most Likely to Succeed in 2010?” IDC said the region’s banking sector will see a notable increase in mergers, acquisitions and consolidation activities in 2010.

It noted that as signs of recovery from the global financial crisis gather pace, Asia-Pacific banks will become more aggressive in gaining size through inorganic growth and will feel more confident in revisiting regionalization plans.

“The merger and consolidation trends that we expect in 2010 will transform the industry. For one, we will see increasing market share concentration among top-tier institutions. Large banks will get more dominant and have greater pricing advantage. To some extent, it will be difficult for niche banks to thrive,” according to Michael Araneta, senior consulting and research manager at IDC Financial Insights Asia-Pacific.

The report stated that the growing dominance of large banks brings to the fore two issues that gained prominence in the recent crisis: too-big-to-fail and systemic risk.

However, it pointed out that the most concentrated markets in the Asia-Pacific region have remained healthy and have emerged relatively unscathed from the crisis. This supports the case for further size-building and further increases in market share concentration of top-tier banks, the report added.

IDC said in 2010, governments across the region are expected to play prominent roles in banking consolidation, adding that the influence of the government is already seen through recently launched subsidies and tax incentives supporting industry consolidation, new guidelines governing mergers and acquisitions, as well as new financial sector master plans.

“Thailand and Malaysia are coming up with new financial sector master plans soon, but other markets like Taiwan, Vietnam and India are introducing salient changes to rules governing banking competition. These master plans aim to lift the efficiency and competitiveness of the industry typically by encouraging consolidation and by opening up the sector to a greater number of new or foreign players,” Araneta pointed out.

Another important trend to note is the emergence of Asia-Pacific super-regional banks. These banks have become more aggressive despite adverse conditions, and are steadily building a franchise beyond their home markets. The banks’ regionalization strategies, however, rely on regional units that are close in proximity, and limited to one part of the region. The super-regional strategies of ANZ Bank (Australia), Commonwealth Bank of Australia (Australia), OCBC Bank (Singapore), DBS Bank (Singapore), OCBC Bank (Singapore), Maybank (Malaysia) and CIMB Group (Malaysia) are cited in the report.