Banks need to strengthen for Asean integration

MANILA, Philippines - The only way Philippine banks can prepare for the Asean integration in 2015 is to be a dominant player in its own market, and a key ingredient crucial to achieving dominant position is for the economy to reach greater heights, a top bank executive said.

The Asean is set to forge closer economic ties through integration of economies starting with trade, and the financial sector fully integrated by 2020.

But Bank of the Philippine Islands (BPI) president and chief executive officer Cesar P. Consing prefers to take the “safer” ground by ensuring first that the bank is one of the country’s dominant financial institution, if not the most dominant.

In the past few months, strong regional players have been making inroads into the Asean either through acquisitions or alliances. Aside from the Japanese and Korean banks, Malaysian banks such as CIMB and Maybank, have likewise taken the same route.

Philippine banks are not in the same leverage but are more prone to become subject to regional corporate raids.

BPI has made several acquisitions domestically to strengthen its huge market but it is not inclined to take the route of the Malaysian banks, much less the Japanese institutions.

“BPI is generally open to anything, but the first priority is to build the business at home,” Consing said. “With Asean 2015, the banks that are dominant in their home markets will be in the best position to defend their turf. Then and only then, can local banks look outwards.”

But to build a strong bank, much less a strong banking system, the economy must lay the ground works. Banks have always been one of the beneficiaries of a healthy economy.

The country’s gross domestic product (GDP) has been growing at a tremendous pace of over seven percent in the past four quarters. It is after all in the sweet spot.

But it still trails its more illustrious Asean neighbors.

The country’s per capita income remains just below $2,000 while the rest of the region is over $3,000.

“Bank loans per GDP it is just 35 to 40 percent, so that tells us that there is a whole segment(s) of our population that is still unbanked,” the former partner of The Rohatyn Group, a $3-billion international hedge fund and private equity firm, pointed out.

The more ideal situation is for the economy to grow by over seven percent in a number of years, resulting in possible a GDP per capita in the vicinity of $4,000.

India is over 70 percent, and other Asian countries are over a 100 percent.

The Philippines has one of the highest unemployment level of nearly 30 percent of the workable population. The country’s manufacturing sector has been a laggard for decades after registering over 40 percent of GDP.

That situation has both attracted and discouraged foreign investments.

Lately, Japanese manufacturers and their allied small and medium enterprises (SMEs) have attacked the Philippines, via the export processing zone and industrial estates.

Not far behind their heels, are Japanese financial institutions.

And the dominant domestic banks like BPI have been forging alliances with the same Japanese banks and non-bank financial institutions.

“These corporate combinations or financial alliances are designed to take advantage of the partner’s respective strengths,” the BPI chief executive said.

It is already a de facto limited integration of trade and financial services. How the other regional players like CIMB and Maybank will react to these remains to be seen.

Meanwhile, Consing applauded the various structural reforms already implemented, or is being implemented, under the present administration.

But foreign direct investments (FDIs) in the Philippines is the lowest in the Asean region.

The bank executive said that it may be the natural cautious character of investors in an area that needs more liberalization.

Then there is the nagging problem if the difficulty of doing business in the Philippines.

Policy makers have to understand that while the Philippines has one of the best macro number, it is not matched with policies.

“Administrative reforms must compliment the structural reforms, if the Philippines wants to take advantage of present opportunities,” he added.