THRIFT banks are well placed to support countryside development going forward, but the industry should raise its game and prepare for challenges from increased competition and from a rapidly changing operating environment, the country’s central bank governor said.
In his keynote speech at the Chamber of Thrift Banks (CTB) 2017 Convention held in Makati City on Tuesday, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the thrift banking sector “continues to support growth of the banking system.”
He said the industry’s consolidated assets breached the P1-trillion mark for the first time last year, with capitalization having increased 6 percent and deposits growing by a robust 9.7 percent.
Asset quality is also better than the average in the last five years, he said, while profitability has improved as net income for 2016 reached P13.9 billion, up 17.8 percent from end-2015, while return on equity improved to 10.5 percent.
But Tetangco pointed out that thrift banks should be ready for competition from the larger banks that are expanding their networks into thrift banks’ traditional market of consumer finance, and also from the entry of foreign banks.
“If you recall, the local banking industry has been opened up to foreign competition with the enactment of Republic Act 10641 in 2014. So far, two foreign banks acquired existing domestic thrift banks following the passage of the said law. While these forces may put pressure on thrift banks, competition creates more options for the consumers and raises economic welfare in general,” he said.
The BSP chief stressed that thrift banks should view competition such as this as an impetus for raising their game, noting that it certainly “cannot be business as usual” for the industry.
“In this increasingly integrated and globalized financial environment, it is important for thrift banks to be guided by the tenets of effective risk management and sound governance standards,” he said.
“Thrift banks should fully prepare to address the risks and challenges that will come with growth opportunities in this rapidly changing business environment,” he added.
Cornerstone of growth
Tetangco said there are many opportunities for thrift banks to help develop the countryside, particularly in catering to the micro, small and medium enterprises (MSMEs).
“The MSME sector is a cornerstone of economic growth. We are seeing how successful MSMEs are in liberating people from poverty by creating jobs and serving as catalyst for growth in their communities. This is the rationale behind the BSP’s continued collaboration with the industry and other agents of the government to create an enabling regulatory environment for increasing access to finance, particularly for MSMEs,” he said.
He said a study is now being conducted to expand this framework to cover the MSME value chain.
“In particular, we are looking into potential regulatory incentives to further encourage MSME financing. All these are being laid down so the thrift banks can help meet the financing needs of MSMEs and the agricultural sector in support of countryside development. This could be for investments or working capital or for business expansion,” he stressed.
“This remains relevant during this period when the Fed is broadly expected to proceed with its next steps toward interest rate normalization,” he said.
Rate hike expected
The BSP governor said he expects a US rate hike of 25 basis points when the Federal Reserve meets Wednesday and Thursday (Manila time).
“The probability is close to 100 percent. So I think the markets have started to slowly price this in since this has been expected for some time already, given the pronouncements of different Fed governors as well as the chairperson [Janet Yelen] herself,” he said.
“While you’ve heard me say that the BSP will not move necessarily in sync with the Fed and that our courses of action will remain data dependent, you must be mindful of heightened volatility in the foreign exchange market during this transition to Fed normalization,” he added.
He said that once the Fed hikes rates, it is going to remove at least one source of uncertainty in the market. In
the process of normalization, some volatility in the markets, particularly in the foreign exchange and stock markets, will continue to be observed, he added.
“We just have to manage our own markets here in such a way that we don’t experience destabilizing moves or sharp fluctuations in market prices,” he stressed.