The Bangko Sentral ng Pilipinas (BSP) has come out with the exposure draft to implement a phased liberalization of bank branching policy. Various industry players such as the Bankers Association of the Philippines (BAP), the Chamber of Thrift Banks (CTB) and the Rural Bankers Association of the Philippines (RBAP), and other interested parties are invited to comment. The proposed branching rules may be accessed at the BSP website. Comments may be directly submitted to the Director of the BSP Office of the Supervisory Policy Development (email@example.com) on or before November 30, 2005.
The moratorium on the establishment of branches and other banking offices was considered an essential component of the broader strategy on strengthening the banking system. Since late 1999, establishment of branches were allowed only: (1) in cities and municipalities where there are no existing banking offices; (2) as incentive to merged/consolidated banks; (3) for microfinance-oriented branches of regular banks or branches of microfinance-oriented banks; and (4) for branches that will cater primarily to the credit needs of Barangay Micro Business Enterprises (BMBEs).
An in-house study of the Philippine Banking System showed that the total number of banking offices declined during the six (6) year period from June 1999 to June 2005 due to mergers, closures and conversions. This, despite the steady, though moderate growth in per capita GDP.
The ever-expanding ATM network being put up by banks in malls and other strategic places to reach the consumer 24/7, together with such touch points like telephone and internet banking that provide customer convenience and improve cost efficiency may have mitigated the moratorium on branching in Metro Manila and other urban areas but have not obviated the need for the establishment of more full-service branches in other areas. Many studies show that face-to-face interaction with a bank representative or customer relations officer is still the most effective way of generating business, despite the associated costs and the development of alternative distribution channels.
The BSP is now open to the idea of easing the moratorium in areas where there is demonstrated need for banking services. Greater access to formal banking services will encourage residents to become part of the financial mainstream and help stimulate the local economy by enhancing access to capital by local entrepreneurs and encouraging savings and investments.
Under the new guidelines, for banks that meet the qualification requirements, branches may now be opened anywhere in the Philippines except in the Cities of Makati, Mandaluyong, Manila, Pasay, Parañaque, Pasig, Quezon and the Municipality of San Juan, Metro Manila. Branches of microfinance-oriented banks, microfinance-oriented branches of regular banks and branches that will cater to Barangay Micro Business Enterprises (BMBEs) may be established anywhere, subject to compliance with the minimum capital requirements.
This incentive will allow even microfinance-oriented rural banks and thrift banks with head offices outside Metro Manila to expand their operations in the NCR, provided their unimpaired capital is at least equivalent to the minimum capital requirement for a thrift bank with head office located in the NCR.
However, there are regulatory checkpoints that banks need to hurdle such as compliance with the minimum capital requirements, risk-based capital adequacy ratio of not lower than 12%, CAMELS composite rating of “3” with Management score of “3”, appropriate risk management system in place and no major supervisory concerns on safety and soundness.
The servicing and the servicing and solicitation of deposits outside bank premises shall likewise be allowed subject to compliance with the following requirements:
a) The minimum capital requirements are met.
b) Effective operational controls are in place.
c) No major supervisory concerns affecting safety and soundness.
d) The area of operations shall be within one (1) normal travel time from any head office or branch, except in remote areas.
One (1) branch application at a time may be processed on a first-come, first serve basis, except for banks with at least 100 million unimpaired capital which may be allowed a maximum of five (5), including approved but unopened branch applications, at any time. The proposed branch should be at least 200 meters away from an existing banking office. However, this distance requirement shall not apply in shopping malls or commercial centers. A maximum of two (2) banking offices shall be allowed in 4th to 6th class municipalities.
To guard against overbanking under the more liberalized rules, the BSP may decide to disapprove an otherwise qualified branch application if in its determination such branch application will lead to an overbanking situation in the specific market. However, such decision is subject to confirmation by the Monetary Board.
“A more liberal bank branching policy is being proposed primarily to improve competition and the quality and accessibility of banking services to the public. We are particularly keen to encourage efficient delivery of microfinance to the enterprising poor and expanded banking services to SMEs all over the country. If this initial proposal is approved and is found to be actually beneficial, then there should be scope to roll out further liberalization,” Deputy Governor Nestor A. Espenilla, Jr. said.