Saturday, May 26, 2007
Philippine Bank Consolidation
Bank mergers are over the horizon with the merging of two big commercial banks in the country, Banco de oro and Equitable PCI bank switched the other big banks namely Metro Bank and Bank of the Philippine Islands (BPI) into acquisition mode. Looking into smaller banks that they could acquire so they could match BDO-EPCI mega merger. Banks have the option to merge or consolidate with other banks especially since BSP is beefing up the capital requirement with the Basel 2 capital adequacy framework. Basel 2 is a revision of the existing framework which is referred to as Basel 1 which helped to strengthen the soundness and stability of the international banking system as a result of the higher capital ratios that it required. Basel 2 aims to make the framework more risk-sensitive and representative of modern banks' risk management by providing incentives for firms who improve upon their practices. The new framework aims to leave the overall level of capital held by banks collectively and broadly unchanged.
In the process of consolidating bank concentration is expected to increase. But will the consolidation of our banking industry be good for us consumers? When banks merge, their assets are pooled together so they become stronger financially overall, that makes it safer for us to bank with them and greatly reduces the risk of a bank run. And I believe they will be able to provide faster services as well as cheaper interbank fees particularly in the ATM which, I am sure all of us would agree that ATM fees are unreasonable to some extent with ridiculous fees in which some ATM fees whether you withdraw money or just inquire your balance is computed in dollars. But we loose diversity if the dust settles and only a few mega banks remain. But I got to admit that in my view, banks in the Philippines are already saturated with many banks offering basically the same products and services. the difference I believe is in service and this what banks use to win clients from each other. Banks that uses high interest rate to get customers are often not that financially stable or has plans to expand and needs capital. For such banks just make sure they are PDIC insured and your deposit with them is around at maximum of 250k per depositor name.