1. Banking in the Philippines: A Close-up
Universal Banking Solution System Integration Consulting Business Process Outsourcing

2. Just over 7,100 islands covering a land area GDP Growth Rate
of about 300,000 sq. km. make up the 8%
Philippines, a country that is home to 94 million 7%
Filipinos descended from an amalgam of several 6%
5%
races. Unfortunately, its geographic location
4%
renders it vulnerable to natural disasters,
3% Real GDP
especially earthquakes and typhoons, both of 2% Growth
which occur frequently. 1%
0%
The Philippines has a chequered political history.
t
05
06
07
08
09
10
as
20
20
20
20
20
20
ecr
fo
The end of over 3 centuries of Spanish rule
11
20
was followed by about 50 years of U.S. control.
Source: Development Research News, Jan-Feb 2011,
The country became independent in 1946, and Philippines Institute for Development Studies
since then, has gone through phases of military
as well as democratic rule. With a political That being said, in 2010, the economy experienced
structure modeled on that of the United States, its sharpest growth since 1986 thanks to the
the Philippines has a presidential system of remittances sent by Filipinos working overseas,
government and bicameral legislature. which fuelled domestic demand.
The last election, conducted in May 2010, was Business of Banking
won by Benigno Aquino III, the son of Corazon The Philippines banking industry weathered the
Aquino, the Philippines’ first woman President. global financial crisis of 2008-09 reasonably
well, owing to a numbers of factors – very little
Economy Looked up 2010 Onwards
exposure to the U.S. sub-prime markets, banks’
inherent resilience and strong balance sheets,
It is fair to say that economically, the Philippines
conservative risk management and disclosure
has not fared as well as many other countries
practices, and regulatory reform. The industry’s
in its region and also to its true potential. In the
income touched a high in 2007 before the crisis
last twenty years, the economy has grown
broke, and although it dipped the following year,
steadily, but not inclusively; hence, reducing
by 2009, even while the crisis was underway,
poverty, along with making progress towards
Filipino banks registered a healthy performance
the Millennium Development Goals are some of
all-around: in lending, capital adequacy and
the key challenges of the present government.
profitability. The well-being of the industry is
The Philippines economy, which touched US$ reflected in the 8.6% compounded annual growth
189 billion (at market exchange rates) in 2010, in outstanding loans between 2006 and 2010
stands out for its dominant services sector, and (latest available data). The outlook remains bright
large private consumption which has attracted as young, educated, upwardly mobile Filipinos
several global consumer goods companies to set embrace banking products and services to add
up local manufacturing operations. Large-scale to the number of bankable households.
domestic unemployment has forced the well- However, some risks prevail. Over the years,
educated, English speaking masses to migrate political instability and governance have put a
overseas, and today, foreign remittances dampener on the banking industry’s progress.
contribute more than a tenth of GDP. The new government has a clear mandate to
ensure stability and root out corruption, themes
The nation’s public finances are straining under
that resonate among the youth and promise
its fiscal deficit, which narrowed marginally to
hope and optimism in the coming years to this
3.7% of GDP in 2010. The government is faced
wonderful country.
with the tricky problem of reining in this deficit,
while increasing much needed expenditure on Not having undergone any significant
education, healthcare and infrastructure. consolidation, the Philippines banking landscape
Banking in the Philippines: A Close-up

3. is both fragmented and variegated as Number of Banks
described below: 700
600
• 38 Universal and Commercial Banks together
500
hold nearly 90% of the total resources of
the Philippines’ banking system. Similarly, 400
these banks command a lion’s share of the 300
industry’s total deposits. Universal banks 200
comprise private domestic or government
100
owned banks, as well as a few branches of
0
foreign banks. Commercial banks are either Universal and Thrift Banks Rural and
private domestic institutions, or the branches Commercial Co-operative
Banks Banks
or subsidiaries of foreign banks.
Source: Bank Savings Climbed by over 10% in
end-February—BSP Data, Roderick T. dela Cruz
Universal and Commercial Banks offer a
wide range of services ranging from retail, Size of Physical Network
corporate and wholesale banking to trade,
5000
treasury and investment services. Besides 4500
Commercial Banks
these functions, universal banks are also 4000
engaged in underwriting and investment 3500
3000
activities. The top banks by assets are
2500
Banco de Oro Unibank, Metropolitan Bank Co-op Banks
2000 Universal Banks
and Trust, Bank of the Philippine Islands, 1500
Land Bank of the Philippines and Philippine 1000 Rural Banks
National Bank. 500
0
Universal and Thrift Banks Rural and
• The Philippines has 73 Thrift Banks, which Commercial Co-operative
Banks Banks
could be any of the following: savings and
mortgage banks, private development banks, Source: BangkoSentral Ng Pilipinas Statistics
stock savings and loan associations and
microfinance thrift banks. These institutions
are primarily engaged in gathering deposits Emerging Business Segments
from small savers and investing them. Thrift
banks also provide trade financing to various • Microfinance: As one of the fastest growing
small and medium businesses as well as businesses, the Philippines microfinance
individual business owners. sector is not only attracting interest and
investment but also the world’s admiration.
• The nation’s 647 Rural and Co-operative Recently, The Economist Intelligence Unit
Banks, as the name suggests, are responsible (EIU) ranked the Philippines’ microfinance
for developing the rural economy through regulatory framework as the world’s best, and
the provision of basic financial services to the industry’s performance second best in
the nation’s majority rural population. The terms of overall business environment. As
main difference between these two types per the latest statistics released by the
of financial institutions is the pattern of Central Bank, 203 institutions lent nearly
ownership – rural banks are privately owned, US$ 226 million to over 930,000 micro-
whereas co-operative banks are owned borrowers in 2010.
by co-operatives.
• Bancassurance: In recent years, the Central
• Besides the above, there are a number of Bank has received a number of applications
specialized, development banks as well as to conduct Bancassurance from both local
non-banks with quasi-banking functions and foreign banks. A 2007 report on the
operating in the Philippines. The entire banking banking industry predicted that Bancassurance
sector is supervised by BangkoSentral Ng would account for 65% of total insurance
Pilipinas, the Central Bank of the Philippines. products sales by 2011.
Banking in the Philippines: A Close-up

4. • Mobile banking: Mobile communication is well Clearly, these are interesting times for banks
entrenched in this market, with penetration operating in the Philippines and with the new
nearing 80%. Analysts estimate that there government, fresh hope and aspirations the time
will be 126 million mobile subscribers in could not better!
2015; one in eight will opt for 3G services.
There is a strong demand for mobile money References:
services among the unbanked sections. As • BangkoSentral Ng Pilipinas www.bsp.gov.ph/
per different estimates, the number of mobile banking/ bspsup_pbs.asp
banking users will rise to 11 million either this
• EIU Country Statistics, www.eiu.com
year or the next. Besides traditional banking
players, telecom companies are also • Philippines Country Profile, AusAID,
participating in this opportunity by offering www.ausaid.gov.au/country/country.cfm?
several new services. CountryID=31
• The Impact of the Global Financial Crisis
• Retail wealth management: With young
on the Philippine Financial System –
investors showing interest in mutual funds
an Assessment, Diwa C Guinigundo,
and related products, retail investment
www.bis.org/publ/bppdf/bispap54s.pdf
advisory and wealth management services
are showing signs of growth. • Bank Savings Climbed by Over 10% in
end-February—BSP Data by Roderick T. dela
Counting on Technology Cruz www.manilastandardtoday.com/inside
Business.htm?f=2011/may/17/business5.isx
The Philippines banking sector has been far
&d=2011/may/17
more open to technology than many of its
counterparts in the region. In fact, the industry is • Philippines Banking Sector Analysis,
an early adopter, having upgraded its systems RNCOS, 2008
10 to 15 years ago to state of the art technology • Philippines: Microfinance Loan Portfolio Nears
of that time. Since then, several banks have P7Billion ($226 million) Malaya Business
revamped their technology platforms and as a Insight www.microfinancenigeria.com/ other-
result, improved customer service, reduced time news/philippines-microfinance-loan-portfolio-
to market, created right selling opportunities, nears-p7billion-226-million/
and enhanced efficiency etc., on the way to
• Philippines Microfinance Cited as Best in the
competitiveness and profitability.
World, Jimmy Calapati, Malaya Business
The trend of core banking renewal, which Insight, www.microfinancenigeria.com/ other-
started in 2004, prevails even today with maybe news/philippines-microfinance-cited-as-best-
30 to 40 percent of universal banks actively in-the-world/
considering a change. • 1.54B Mobile Money Users in
Emerging Markets by 2015: Ovum
Currently, the microfinance industry is propelled
www.enterpriseinnovation.net/content/154b-
by a solid distribution network of agents and
mobile-money-users-emerging-markets-
intermediaries; however, as microfinance
2015-ovum
institutions renew their core banking platforms
and consequently enlarge their options of • Philippines Telecommunications Report Q1
electronic channels, they could leverage 2011, Business Monitor International, Nov
technology (especially mobile devices) to reach 2010 pdf.marketpublishers.com/755/
their services to the last mile. philippines_telecommunications_report_
q1_2011.pdf
Banks are also looking at social media with
interest as a channel to engage the country’s
younger, technology-savvy generations. In future, Author
banks may integrate social media with their Mahesh Dutt Kolar
regular services to improve customer engagement, Regional Manager - Asia Sales, Finacle
render customer service, draw insight, co-create Infosys Limited
and perhaps even facilitate banking transactions.
Banking in the Philippines: A Close-up