Manila, Philippines

PH: Too Many Banks Yet Many Pinoys Still Unbanked

Share the #GYMBFF: published two separate articles months ago (Aug 19), where one talks about where Filipinos prefer to borrow money from and the other, why our biggest banks here in the country remain relatively small. Sharing with you some  quotations and highlights plus my three cents.

  • Banks only account for 2% of preferred fund sources (i.e. loan). 62% prefer to source from family, friends and relatives (of course) while 10% from informal lenders.
  • On average it takes 21 minutes and P43 roundtrip fare to reach cooperatives and e-money agents (some even accessible by walking) while it takes 22-26 minutes to reach the nearest bank and/or ATM, costing P47 to P52. In short, Pinoys find non-bank fund sources to be more accessible and perceived as “affordable”.


Too Few Banks in the Countryside

Banks still have a long way to go to tap the underbanked segments especially the countryside where access is very limited. Case in point is our recent experience in Quirino province, but that’s for another time.

Other sources are perceived to be easily reachable like pawnshops or money remittance business, which have more branches, less costly to put up and some of which even operate 24 hours. Further, even if there is access, banks have relatively stricter lending and documentary criteria so either customers get declined or hesitate to apply to begin with.

We can’t expect BSP to be too aggressive at this front (though they have been relaxing policies for the longest time) since banks use the public’s money to lend. Nonetheless, banks will have to grow further to reach more customers and they have to be more creative on how to grant credit to these new-to-bank customers. Common trend within banks nowadays is to rely on past credit behavior to grant new credit so customer with existing savings and credit facilities (loans, credit cards) from other banks, have higher chances of approval compared to those applying for a bank credit the first time.

Sure, presentation of income documents still help but most of the time, past behavior is deemed more indicative of repayment than demographic info on how much a person supposedly earns. There’s gotta be a game changer somewhere.


So how can those from provinces with no prior credit history borrow from banks then? Collateral? If the collateral is not easily disposable or resellable, then banks will not probably take them. High rates? Meanwhile informal lenders have a more ingrained local (motorized) presence in the countryside. It’s like their suking sari-sari store. They basically know where these people work or live and can easily go to their places daily or weekly to collect.

Interest rates of these lenders are atmospheric but Pinoys don’t usually compute that and compare the rates with banks. They are more concerned with the amortization payments. As long as it fits the daily or weekly budget, gora.

Indeed, banks have a long way to go in terms of penetrating the local market.


Our Bigs are Still Rather Small

Meanwhile, ASEAN integration is fast approaching, and when it goes on full swing, our biggest banks here will even become dwarves relative to other ASEAN banks. Apparently, it is not just in basketball that we lack size (kudos to Gilas 3.0 by the way).

  • Singapore’s DBS is roughly as big as the Philippines entire banking industry. (Wow.)
  • PH bank assets, around PHP11 trillion is around 75% of Philippine GDP. Big enough? Think again. 
  • In Brunei, bank assets  are 365% of its GDP, Cambodia 85%, Malaysia 193.9%, Singapore 575.5%, and Thailand 123%.

BSP has been encouraging banks to do mergers and acquisitions (M & As) with the presumption that even bigger banks will have better reach (to address above article) and better stability. Better competitiveness too upon ASEAN integration. 

This is slowly happening in our rural banks and cooperatives, merging with one another, or the universal banks buying rural banks here and there. Nonetheless, they only comprise 2% of the industry so even if all the rural banks are merged to bigger banks, the real game is still with the bigger ones to do M&A themselves.

But why not? 

So far banks have been very profitable so there’s not much incentive to let go of a lucrative business. A lot are also owned by families and conglomerates. As such, selling to other families is not too enticing, maybe difficult to come up with mutually beneficial terms for both parties, or if even considered, acquisition prices are said to be inflated.

Per the first article, there is still so much room to grow for banks, organic growth that is, to tap the countryside. M & As will significantly accelerate this growth, but among bank owners, this might not be a top priority.

When the ASEAN banks come into the country, will they beat our existing “smaller” players? Maybe not, especially in first few years as we Pinoys have grown to be loyal to these banks of ours. But with much much bigger fire power, who knows what they can do? Maybe they can just buy our big three.

Or maybe they’ll beat our local bigs to the lending race to our Pinoys in the countryside?

Here are the links to the articles:

Happy to Stay Away from Mergers Game

Why Borrowers Prefer Informal Fund Sources

Share the #GYMBFF:

 Filipino Personal Finance

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