Banking in the Philippines : A close-up

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Banking in the Philippines : A close-up

  1. 1. Banking in the Philippines: A Close-up Universal Banking Solution System Integration Consulting Business Process Outsourcing
  2. 2. Just over 7,100 islands covering a land area GDP Growth Rateof about 300,000 sq. km. make up the 8%Philippines, a country that is home to 94 million 7%Filipinos descended from an amalgam of several 6% 5%races. Unfortunately, its geographic location 4%renders it vulnerable to natural disasters, 3% Real GDPespecially earthquakes and typhoons, both of 2% Growthwhich occur frequently. 1% 0%The Philippines has a chequered political history. t 05 06 07 08 09 10 as 20 20 20 20 20 20 ecr foThe end of over 3 centuries of Spanish rule 11 20was followed by about 50 years of U.S. control. Source: Development Research News, Jan-Feb 2011,The country became independent in 1946, and Philippines Institute for Development Studiessince then, has gone through phases of militaryas well as democratic rule. With a political That being said, in 2010, the economy experiencedstructure modeled on that of the United States, its sharpest growth since 1986 thanks to thethe Philippines has a presidential system of remittances sent by Filipinos working overseas,government and bicameral legislature. which fuelled domestic demand.The last election, conducted in May 2010, was Business of Bankingwon by Benigno Aquino III, the son of Corazon The Philippines banking industry weathered theAquino, the Philippines’ first woman President. global financial crisis of 2008-09 reasonably well, owing to a numbers of factors – very littleEconomy Looked up 2010 Onwards exposure to the U.S. sub-prime markets, banks’ inherent resilience and strong balance sheets,It is fair to say that economically, the Philippines conservative risk management and disclosurehas not fared as well as many other countries practices, and regulatory reform. The industry’sin its region and also to its true potential. In the income touched a high in 2007 before the crisislast twenty years, the economy has grown broke, and although it dipped the following year,steadily, but not inclusively; hence, reducing by 2009, even while the crisis was underway,poverty, along with making progress towards Filipino banks registered a healthy performancethe Millennium Development Goals are some of all-around: in lending, capital adequacy andthe key challenges of the present government. profitability. The well-being of the industry isThe Philippines economy, which touched US$ reflected in the 8.6% compounded annual growth189 billion (at market exchange rates) in 2010, in outstanding loans between 2006 and 2010stands out for its dominant services sector, and (latest available data). The outlook remains brightlarge private consumption which has attracted as young, educated, upwardly mobile Filipinosseveral global consumer goods companies to set embrace banking products and services to addup local manufacturing operations. Large-scale to the number of bankable households.domestic unemployment has forced the well- However, some risks prevail. Over the years,educated, English speaking masses to migrate political instability and governance have put aoverseas, and today, foreign remittances dampener on the banking industry’s progress.contribute more than a tenth of GDP. The new government has a clear mandate to ensure stability and root out corruption, themesThe nation’s public finances are straining under that resonate among the youth and promiseits fiscal deficit, which narrowed marginally to hope and optimism in the coming years to this3.7% of GDP in 2010. The government is faced wonderful country.with the tricky problem of reining in this deficit,while increasing much needed expenditure on Not having undergone any significanteducation, healthcare and infrastructure. consolidation, the Philippines banking landscape Banking in the Philippines: A Close-up
  3. 3. is both fragmented and variegated as Number of Banksdescribed below: 700 600• 38 Universal and Commercial Banks together 500 hold nearly 90% of the total resources of the Philippines’ banking system. Similarly, 400 these banks command a lion’s share of the 300 industry’s total deposits. Universal banks 200 comprise private domestic or government 100 owned banks, as well as a few branches of 0 foreign banks. Commercial banks are either Universal and Thrift Banks Rural and private domestic institutions, or the branches Commercial Co-operative Banks Banks or subsidiaries of foreign banks. Source: Bank Savings Climbed by over 10% in end-February—BSP Data, Roderick T. dela Cruz Universal and Commercial Banks offer a wide range of services ranging from retail, Size of Physical Network corporate and wholesale banking to trade, 5000 treasury and investment services. Besides 4500 Commercial Banks these functions, universal banks are also 4000 engaged in underwriting and investment 3500 3000 activities. The top banks by assets are 2500 Banco de Oro Unibank, Metropolitan Bank Co-op Banks 2000 Universal Banks and Trust, Bank of the Philippine Islands, 1500 Land Bank of the Philippines and Philippine 1000 Rural Banks National Bank. 500 0 Universal and Thrift Banks Rural and• The Philippines has 73 Thrift Banks, which Commercial Co-operative Banks Banks could be any of the following: savings and mortgage banks, private development banks, Source: BangkoSentral Ng Pilipinas Statistics stock savings and loan associations and microfinance thrift banks. These institutions are primarily engaged in gathering deposits Emerging Business Segments from small savers and investing them. Thrift banks also provide trade financing to various • Microfinance: As one of the fastest growing small and medium businesses as well as businesses, the Philippines microfinance individual business owners. sector is not only attracting interest and investment but also the world’s admiration.• The nation’s 647 Rural and Co-operative Recently, The Economist Intelligence Unit Banks, as the name suggests, are responsible (EIU) ranked the Philippines’ microfinance for developing the rural economy through regulatory framework as the world’s best, and the provision of basic financial services to the industry’s performance second best in the nation’s majority rural population. The terms of overall business environment. As main difference between these two types per the latest statistics released by the of financial institutions is the pattern of Central Bank, 203 institutions lent nearly ownership – rural banks are privately owned, US$ 226 million to over 930,000 micro- whereas co-operative banks are owned borrowers in 2010. by co-operatives. • Bancassurance: In recent years, the Central• Besides the above, there are a number of Bank has received a number of applications specialized, development banks as well as to conduct Bancassurance from both local non-banks with quasi-banking functions and foreign banks. A 2007 report on the operating in the Philippines. The entire banking banking industry predicted that Bancassurance sector is supervised by BangkoSentral Ng would account for 65% of total insurance Pilipinas, the Central Bank of the Philippines. products sales by 2011. Banking in the Philippines: A Close-up
  4. 4. • Mobile banking: Mobile communication is well Clearly, these are interesting times for banks entrenched in this market, with penetration operating in the Philippines and with the new nearing 80%. Analysts estimate that there government, fresh hope and aspirations the time will be 126 million mobile subscribers in could not better! 2015; one in eight will opt for 3G services. There is a strong demand for mobile money References: services among the unbanked sections. As • BangkoSentral Ng Pilipinas www.bsp.gov.ph/ per different estimates, the number of mobile banking/ bspsup_pbs.asp banking users will rise to 11 million either this • EIU Country Statistics, www.eiu.com year or the next. Besides traditional banking players, telecom companies are also • Philippines Country Profile, AusAID, participating in this opportunity by offering www.ausaid.gov.au/country/country.cfm? several new services. CountryID=31 • The Impact of the Global Financial Crisis• Retail wealth management: With young on the Philippine Financial System – investors showing interest in mutual funds an Assessment, Diwa C Guinigundo, and related products, retail investment www.bis.org/publ/bppdf/bispap54s.pdf advisory and wealth management services are showing signs of growth. • Bank Savings Climbed by Over 10% in end-February—BSP Data by Roderick T. delaCounting on Technology Cruz www.manilastandardtoday.com/inside Business.htm?f=2011/may/17/business5.isxThe Philippines banking sector has been far &d=2011/may/17more open to technology than many of itscounterparts in the region. In fact, the industry is • Philippines Banking Sector Analysis,an early adopter, having upgraded its systems RNCOS, 200810 to 15 years ago to state of the art technology • Philippines: Microfinance Loan Portfolio Nearsof that time. Since then, several banks have P7Billion ($226 million) Malaya Businessrevamped their technology platforms and as a Insight www.microfinancenigeria.com/ other-result, improved customer service, reduced time news/philippines-microfinance-loan-portfolio-to market, created right selling opportunities, nears-p7billion-226-million/and enhanced efficiency etc., on the way to • Philippines Microfinance Cited as Best in thecompetitiveness and profitability. World, Jimmy Calapati, Malaya BusinessThe trend of core banking renewal, which Insight, www.microfinancenigeria.com/ other-started in 2004, prevails even today with maybe news/philippines-microfinance-cited-as-best-30 to 40 percent of universal banks actively in-the-world/considering a change. • 1.54B Mobile Money Users in Emerging Markets by 2015: OvumCurrently, the microfinance industry is propelled www.enterpriseinnovation.net/content/154b-by a solid distribution network of agents and mobile-money-users-emerging-markets-intermediaries; however, as microfinance 2015-ovuminstitutions renew their core banking platformsand consequently enlarge their options of • Philippines Telecommunications Report Q1electronic channels, they could leverage 2011, Business Monitor International, Novtechnology (especially mobile devices) to reach 2010 pdf.marketpublishers.com/755/their services to the last mile. philippines_telecommunications_report_ q1_2011.pdfBanks are also looking at social media withinterest as a channel to engage the country’syounger, technology-savvy generations. In future, Authorbanks may integrate social media with their Mahesh Dutt Kolarregular services to improve customer engagement, Regional Manager - Asia Sales, Finaclerender customer service, draw insight, co-create Infosys Limitedand perhaps even facilitate banking transactions. Banking in the Philippines: A Close-up

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