MORE mergers and acquisitions (M&As) are expected to happen in the Asia-Pacific region, including the Philippines, amid the coronavirus pandemic and with rising competition due to new digital banks, Moody’s Investors Service said.

“The health crisis and its aftermath have added to pressures banks are already under from compliance costs and rising competition from agile digital newcomers and tech companies, particularly as lockdowns have pushed more customers online,” it said in a report on Tuesday.

Competition from fintech players as well as digital banks is also intensifying and could accelerate M&As, Moody’s said.

“Banks will need to maintain investment in technology upgrades and new digital services to keep pace. More positively, the shift to digital will bring some cost benefits through faster processes and automated services,” it said.

In the Philippines, the framework for digital banks was released by the Bangko Sentral ng Pilipinas (BSP) in 2020. Under this, the BSP granted six digital bank licenses and has said it will not accept any applications for now to monitor developments and ensure healthy competition in the sector.

Entering into mergers and acquisitions will also be an option for banks in areas with weak economic growth, as they are more vulnerable to muted revenue and continued high loan-loss provisioning, the debt watcher said.

“Cost savings will be essential to maintain profitability. That may be a tall order for some banks, given their need to spend more on technology and compliance,” it said.

It noted that Japan’s Mitsubishi UFJ Financial Group, Inc. through MUFG Bank recently acquired stakes in banks within Southeast Asia, including Security Bank Corp.

MUFG Bank’s arm, Thailand-based Bank of Ayudhya Public Co. Ltd, earlier this year also partnered with Security Bank to infuse P3 billion in fresh capital into the latter’s consumer finance subsidiary SB Finance, Inc.

In June, President Rodrigo R. Duterte signed Executive Order No. 142 which approved the merger between state-owned Land Bank of the Philippines and United Coconut Planters Bank, with the former as the surviving entity upon the transaction’s completion in December. LANDBANK has earlier said the merger will result in combined assets worth P3 trillion by by end-2021.

Meanwhile, Ayala-led Bank of the Philippine Islands (BPI) and BPI Family Savings Bank, are also in process of completing a merger, which is expected to be finished by 2022. BPI will be the surviving entity.

The Philippine banking industry’s net income as of end-June reached P122.7 billion, higher by 43% from the P85.85 billion booked in the same period of 2020. 

The central bank has said the sector has remained stable and well-capitalized despite the weaker asset quality due to the pandemic’s impact on borrowers’ ability to repay their debts. — Luz Wendy T. Noble

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