BANK M&As
Clash of the Giants

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. has pledged to pursue his predecessor’s policy of encouraging bank mergers to strengthen the financial system. He expects fewer but stronger banks to emerge after a series of bank consolidations. As of end-2004, the country had 6 large domestic banks out of 893 financial institutions.

Tetangco believes mergers will allow banks to either maintain or improve their position in the market. Monetary authorities are ready to help banks in the consolidation process through appropriate incentives provided by existing regulations.

The Ayala group’s Bank of the Philippine Islands, the country’s 2nd-largest bank in terms of assets, kicked off the recent round of bank mergers. BPI acquired Prudential Bank, the Philippine’s 18th-largest bank, from the Santos family for P6.13 billion on 26 July.

Shortly after, 8th-largest Banco de Oro Universal Bank and SM Investments Corporation announced the acquisition of the 24.76% interest of the Go family in 3rd-biggest Equitable PCI Bank for P10.2 billion. Aside from taking control of Equitable PCI, BDO acquired 66 branches of the Singapore-listed United Overseas Bank for P600 million last May.

Although Henry Sy’s group has majority control of 11th-largest China Banking Corporation, a four-way merger (BDO, Equitable PCI, UOB, and CBC) is currently out of the picture. But if it does come to pass, the merged entity could easily outrank Metrobank and BPI as the country’s biggest bank.

Meanwhile, the Lucio Tan group of Allied Bank also gained 67% of 6th-largest Philippine National Bank on 18 August for P8.1 billion. Citibank N.A., the 6th-largest bank, and GE Capital are also active players in the mergers and acquisitions scene this year with their recent acquisitions of Insular Savings Bank and Keppel Bank, respectively.

Also being considered for a merger are two government banks, 4th-largest Land Bank of the Philippines and 9th-largest Development Bank of the Philippines. The Land Bank board recently approved a plan to merge the bank with either another government bank, a privately owned bank, or a multilateral financial institution.

Dollar Earners
From Chips to People

Electronics products are the country’s chief dollar-earning export. But a few months ago, the National Economic Development Authority proposed a change in the country’s export mix due to electronics products’ recent declining performance. For instance, electronics exports in February, March, May, and June of this year were lower than their 2004 levels. This brought overall merchandise export growth for the first seven months to only 4.6% and hampered the government’s prospects of meeting its 10% export target for the year. The slowdown in electronics products imports is also expected to curb export performance for the rest of the year as the country’s electronics products are heavily dependent on imported materials. Purchases of imported parts and supplies used in the manufacture of some 60% of key electronics products from January to July has dropped 13.5% to US$11.4 billion from US$13.1 billion a year ago.

If payments for electronics imports from January to July are deducted from electronics exports amounting to US$15.0 billion, the net amount brought in by electronics exports would be about US$4.4 billion only. This amount pales in comparison with dollar remittances by overseas Filipino workers. The Bangko Sentral ng Pilipinas reports that OFW remittances for the past seven months reached a record US$5.8 billion dollars, up 22.1% over last year and 61% higher than electronics exports receipts. However, the figure, which can be traced to increased deployment and increasing average incomes, just counts remittances that pass through the official banking system. Some estimates place total OFW remittances at double the reported figure. Unfortunately, it is difficult to assess how much is being sent through informal channels.

During the first half of the year, about 541,201 OFWs, both hires and rehires, were deployed to countries like Saudi Arabia, Hong Kong, United Arab Emirates, Japan, and Taiwan.

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