April 23, 2014

S&P says PH banks not ready for ASEAN integration

The Philippine Daily Inquirer today quotedan S&P report which cited that Philippine banks are not yet prepared for the tougher competition that would arise from ASEAN integration.

The article quoted an S&P report as saying that although local banks are profitable and stable, they are smaller in scale to their regional counterparts. Further, the S&P report opined that the large number of banks has prevented banks from scaling up, resulting to further risk of overcrowding.

Our take: Local banks are indeed much smaller than their ASEAN counterparts. However, the wide branch networks of local banks and the deep relationships that they have formed with their clients will be a tough barrier to overcome for ASEAN banks looking to set shop in the Philippines.

We therefore disagree with the S&P report as we do not believe that the resulting competition from the early years of the ASEAN integration will be detrimental to local banks. However, local banks will have to monitor how the prospective new entrants would behave in order to guard against potential risks, if any, from competition. – WealthSec