BSP chief urges domestic banks to become more competitive

DOMESTIC BANKS must become more competitive in the face of the entry of more foreign players as well as ongoing regional integration and changes in the global environment, the chief of the Bangko Sentral ng Pilipinas (BSP) said.
“Today, the Philippines is an attractive proposition to regional players given its stable economy, sound financial system, and growing consumer market, central bank Governor Amando M. Tetangco, Jr. said in a speech to members of the banking community last Friday.

“Foreign banks may enter our country to facilitate investments from abroad or to take a stake in our retail market,” he added, an apparent reference to Republic Act 10641, or “An Act Allowing the Full Entry of Foreign Banks in the Philippines,” that was signed into law three days earlier.

The central bank chief also noted that economic and banking integration within ASEAN — a market of 600 million consumers — was likewise bound to heighten pressures on domestic banks.

“However one views this, there is one clear conclusion: those already operating in our banking industry face increased competition,” Mr. Tetangco said.

Banking standards, he noted, are likewise evolving, especially with the country’s adoption of several reforms under the Basel Accord.

“I cannot overemphasize how much capacity-building all these will require but we have to start doing these now … Some sectors actually ask what banks must precisely do to overcome challenges. From a realistic standpoint, there is only one thing that banks must do — and, that is to become better banks,” he said.

“We need to develop new skills and scale up even as we continue to foster integrity, fairness and accountability on the ground.”

Three things, Mr. Tetangco said, will help banks make their mark in the changing financial landscape: risk management, good governance and consumer protection.

“I believe that our banks have a fairly good chance of becoming a standout in the critical area of risk management. This is a result of the deliberate program of our banking industry to set the bar higher and be accountable as such,” he said.

“[B]ecoming bigger in balance sheet size is not the only game in town. A better approach for banks is to differentiate themselves through effective risk management … Given this, we can see that the game is less about increasing size, and more about finding the right size.”

This will go hand in hand with high governance standards, with leadership quality doubly critical in the banking industry’s development.

“[W]hat separates a good bank from the rest is often the ability of its board and senior management to apply good judgment on risk-return choices,” Mr. Tetangco noted.

“As we have emphasized on many occasions, good governance dovetails into consumer protection. As we begin to enforce the Consumer Protection Framework that the Monetary Board has approved, the interaction between governance and consumer protection will become seamless,” he added.

The BSP, Mr. Tetangco said, will continue to pursue its reform agenda in order to help banks become better institutions.

“Today, the Philippine banking sector is sound, well-capitalized, stable, profitable, liquid and able to support the funding needs of our growing economy,” he said.

“There is no doubt the banking industry continues to move forward.” — Bettina Faye V. Roc