How will industry consolidation challenge the Philippine banks?

The Central Bank allowed more incentives on banks' mergers and consolidations - check out what Standard & Poor's has to say.

According to a report, the Philippine Central Bank revised its rules and allowed more incentives on banks’ mergers and consolidations. What will be the implications of the revised rule to the Philippine banking landscape?

According to Ivan Tan, Director of Financial Institutions Ratings at Standard & Poor's, the Philippine banking system is fragmented, with 38 commercial banks and about 685 thrift and rural banks. He adds that the existence of numerous small and financially weak players undermines the viability of the system and burdens supervisory resources.

"We believe industry consolidation will produce stronger and more competitive institutions, but it will be a challenging process. The commercial banks are heavily concentrated in Metro Manila. They have overlapping branch networks and target the same corporate customers. This duplication limits the potential synergy that the buyer would otherwise realize from a merger. However, consolidation can yield efficiency gains at the system level," says Tan.