SINGAPORE Prime Minister Lee Hsien Loong recently reported that economic integration among members of the Association of Southeast Asian Nations (Asean) is approaching the final phase of preparations, with 80 percent of the blueprint already crossed off.
Once this integration materializes, foreign peers will have the chance to enjoy and participate in the Philippine market, which has caught the attention of investors overseas for its healthy economic growth in recent years.
Global developments such as the Asean economic integration require reforms like capital build to prepare domestic banks for stiffer competition with the expected entry of foreign players. While it is true that we have the home advantage and the trust of our own people, it still helps when we also have the size to compete. Data from the central bank show that the resources of the Philippine banking system rose by 1.5 percent to P10.6 trillion as of end-June 2014 from the previous quarter.
This development probably prompted the Bangko Sentral ng Pilipinas’ (BSP) decision to increase the capital requirement of banks by as much as P200 million. Regardless of the immediate challenge it poses to banks, it is obviously one of the central bank’s many plans to beef up the country’s banking sector ahead of global developments, so that local banks will not find themselves in a disadvantageous position once foreign competitors come in droves.
The Rural Bankers Association of the Philippines has always been supportive of the BSP in its campaign to strengthen the financial sector, and the move to hike the capitalization of banks is no exception. Although an increase in capitalization initially presents itself as a stumbling block to smaller rural banks, it should be taken positively for its long-term benefits to the industry.
RBAP member-banks also find the new capital levels reasonable and justifiable, considering the industry’s asset growth in recent years.
BSP data show that rural banks’ resources stood at P192.9 billion as of
June of this year. Better capitalization set forth under the new regulation not only ensures banks’ viability as a business, it also protects the welfare of the depositors because it lessens the banks’ and their funds’ vulnerability to shocks.
This new policy should also pave the way for a stronger rural banking industry as it promotes consolidation among players, while those who no longer wish to continue the business are provided a clean exit.
Moreover, RBAP appreciates the central bank’s decision to take into consideration rural and cooperative banks’ size of operations in matching the increase in capitalization rather than using their area of operation as the basis for such an increase.
Moving forward, RBAP shall continuously work hand-in-hand with the government and financial regulators to maintain a sound and stable banking sector to drive inclusive growth nationwide.