The ever-changing banking environment

It is generally agreed that in the years 2000 to 2007 the banks focused the most on growth, on increasing volume and profits.

The gut-wrenching global crisis immediately following that evoked a morbid realization that change is the only permanent thing in the world, and that change is always stressful.

Pronto, the banks had to undertake reforms touching on capitalization, more intensive risk management attention and better corporate governance.

Almost parallel to that came rapid change engulfing the banking industry. These include disruptions in the use of technology and the rise of virtual currencies. Then came the challenge and the opportunity presented by the evolving Asean integration and the interaction between inflation and interest rate.

But necessity, as they say, is the mother of invention. The banking customer has transformed into a fast-paced entity with little time and patience to spend inside banks. He has also become more demanding: wants connectivity, a here-and-now relationship with banks and is a mobile lot. Digitization provided the answer.

Late-2017 the Bangko Sentral ng Pilipinas (BSP) also established the National Retail Payment System that could lead to the digitization of 20 percent of the total retail transactions in the country. Heretofore, 99 percent of payment transactions have been through the traditional cash and check method.

This year the BSP will implement intrapay automated clearing, which will be good for e-commerce with real-time, low-value push electronics. The Securities and Exchange Commission-registered Philippine Payments Management Inc. will begin operations this year. It a self-governing body designed to put order to the retail payment system.

Only about 40 percent of the population own deposit accounts. The rest would likely end up denied the lending facilities of the banks. Heretofore, loans were approved on the basis of audited financial statements or anchored on salary-based decisions even as the underground economy remains robust but under-the-surface.

For this incongruence, the BSP supports a biometric-based identification system and may open up new lending markets.

Virtual currencies will continue to attract the attention of the BSP. While they facilitate and lower the cost of fund transfers, they can be used for money-laundering activities and lead to pyramid types of investments. Its main character, the Bitcoin, has increased its transactions threefold in the recent past and the BSP likely forced to make a Solomonic decision on what to do with this runaway train.

The year 2017 was a year replete with fraud, mainly cyber-based. The BSP is thus arming banks with technology training of best practices to combat this modern-menace the right way. On the other hand, the Asean Integration continues to present opportunities for expansion and problems from the competition as expected.

Internally, banks have suffered losses due to the intervention of man rather than a weak system and from sweetheart deals involving loans and asset sales. The BSP has boosted the risk-management capability and the good-governance profile of banks.

Reviews are done regularly to measure the various risks of banks. The BSP has trained banks intensely in matters touching on risk-based supervision. More and better qualified independent directors are now required in banks to ensure responsible bank behavior against known international standards.

Fortunately, the Philippine banking system, though not the biggest has remained one of the strongest in the region—thanks to a very proactive management policy of the BSP. Past due loan levels have been managed well with strengthened banking surveillance systems and enhanced analytical tools to timely identify financial-stability risks.”

Moreover, the banking industry has been more than compliant with respect to capitalization based on Basel II global standards.

From the nationalist view, the banks with much liquidity and stability is in a position to make a difference and contribute to the financial inclusion of the many who are less privileged, and enable them to step in cadence with the nation’s healthy GDP growth.

It is not helped, however, by credit allocation mandates, such as the agri-agra law that orders banks to parcel out a fixed percentage of their total loan portfolio to help agriculture—an amount that far exceeds the total productive financial requirements of the industry.

But thankfully, our banks always resurface time and again no matter the ebb and flow of the economy and the adoption of wrong policies.


 Dejaresco, a former banker, is a financial consultant, media practitioner and book author.

He is a Finex Lifetime Member and chairman of Broadcast Media. His views here, however, are personal and do not necessarily reflect those of Finex.



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