An Overview of the Philippine Banking Industry
The Philippine banking industry has always played a substantial role in sustaining the pace of growth of the country’s economy. The entire banking sector is supervised by the Central bank of the Philippines, Bangko Sentral ng Pilipinas, while the overall industry is segmented and variegated as under:
45 Commercial and Universal banks together hold around 90% of the total market share of banking industry in the Philippines. In 2017, there were 40 commercial and universal banks. These banks claim a lion’s share of the total deposits available to whole banking industry. Their area of services ranges from wholesale, retail and corporate banking to treasury, trade, underwriting and investment advisory. Some top commercial and universal banks (on the basis of available assets) in the Philippines are: Metropolitan Bank and Trust, Land Bank of the Philippines, Banco de Oro Unibank, Philippine National Bank and Bank of the Philippine Islands.
There are 406 Rural and Co-operative banks in the Philippines. These banks are responsible for development of rural areas and their economies by providing basic financial services to rural populace. The major difference between rural and co-operative banks is the nature of their ownership. Rural banks are owned by the private individuals while co-operative banks are under the ownership of co-operative societies. Notably, the number of rural and co-operative banks is down from 479 in 2017. It would be interest to attempt to establish a plausible relationship between the decline in this number with the GDP growth in rural areas.
Thrift banks in the Philippines number 43, down from 57 in 2017. These banks are further categorized into Private development banks, Savings and mortgage banks, Loan associations, stock savings and microfinance saving banks. Their major activities include collection of deposits from small savers and investing them into profitable portfolios. These banks are also engaged in providing trade services to small and medium-sized enterprises and individual entrepreneurs.
Emerging business segments in banking industry include:
A form of partnership or association between a financial institution and an insurance company; where banks offer insurance products through their platform to their customers. In recent years, the Bangko Sentral ng Pilipinas has received numerous applications both from local and foreign banks seeking approval for provision of Bancassurance services through their platforms.
Mobile banking or Branchless banking: a relatively new form of service where banks or financial institutions allow their customers to conduct financial transactions through their mobile devices. Mobile banking can be carried out in collaboration with telecom industry and is far away from the traditional brick-and-mortar banking structure.
Retail Wealth Management: Wealth management services and Retail investment advisory is provided to young or new investors showing interest in mutual fund units and other such financial products.
Microfinance: This is one of the fastest growing business not only in the Philippines but is also attracting the whole world’s admiration. As per the latest report of the Central bank, there are more than 200 microfinance institutions working in the country, that has lent around $250 million to 1 million borrowers.
The Covid-19 pandemic has brought to question the sustainability of current micro-finance practices — prudence in credit has given way to predatory lending that has found its way unbeknownst to those who had no option, were uninformed, and were led to the debt trap spiral perpetuated by a system that were stacked against them.
Takeaways:
The marked difference in growth trends of universal and commercial banks vis-a-vis those of the rural, co-operative and thrift banks point to incontestable realities. Notably, bank processes in credit initiation that affect portfolio quality are clearly dependent on a bank’s internal resources to institute best practices.
Options for SME borrowing must include risk-based lending insights that entails proper examination of the 5 Cs of credit. There are no shortcuts.
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