New BSP capitalization rule seen to spur consolidations

MANILA, Philippines - The new planned higher capital requirements for banks may spur consolidation activities in the industry, a Bangko Sentral ng Pilipinas official said yesterday.

“Consolidation is just one option available to the market player,” BSP Deputy Governor Nestor A. Espenilla Jr. told reporters, adding the bank may also raise more capital or bring in more investors.

The BSP has been studying imposing higher minimum capitalization requirement for banks to ensure the risks they take are equivalent to the structure of their balance sheets.

“What we’re saying is, the economy has grown… It’s time to set the bar higher for market players,” Espenilla said.

“It is a good time and opportunity to put in essential reforms that we believe will provide resiliency in the future,” he added.

Maybank ATR Kim Eng, in a research note last week, said universal banks may be required a minimum capital of P20 billion, four times the current P4.95 billion, while commercial banks may need to increase their minimum capital to P10 billion from P2.4 billion.

Thrift banks, whose capital requirements depend on the location of their head offices, may need to keep a P2-billion capital. Thrift banks in Metro Manila currently have a minimum capital requirement of P325 million, while those in other areas are required to maintain a P52 million capital.

This increase in capital, Maybank ATR Kim Eng said, may require a number of banks – big and small – to raise more capital to meet the new requirements.

Espenilla said the central bank is allowing market forces to dictate any mergers or consolidations in the industry as it only creates a supportive regulatory environment for the lenders to operate.

“We’re letting market forces to play a role here rather than dictating who will survive… We’re clearly saying what the rules of the game are, the expectations, [and] the competitive environment, and on that basis… markets will decide,” Espenilla said.

Lorenzo Tan, president of Rizal Commercial Banking Corporation, said in a separate interview the local banking industry may need more consolidations to create stronger institutions.

“BDO [Unibank] is just the size of the fifth largest bank in Thailand. We have to bulk up,” Tan told reporters, noting BDO is already the largest Philippine bank in terms of assets and other metrics.

“We have 36 UKBs (universal and commercial banks), it’s too crowded. In our neighboring countries, the top 4 to 5 banks corner 80 percent of the industry,” Tan pointed out.