By Abigail Marie P. Yraola, Searcher
MORE than two years since the coronavirus pandemic hit, the country’s banking system has not been spared. Amid geopolitical uncertainties, soaring commodity prices and rising interest rates, a few foreign banks have opted out of the country.
In April last year, Citigroup, Inc. announced that it would sell its retail banking business in the Philippines as well as other Asia-Pacific markets, but would retain its consumer banking presence. companies.
The Manila branch of Dutch bank ING Bank NV also made a similar announcement in June this year, saying it would exit the Philippine retail banking market amid an uncertain global environment that has affected its operations. However, it will retain its wholesale banking unit and global shared services operations in the country.
John Paolo R. Rivera, an economist at the Asian Institute of Management, said the exit of foreign retail banks from the country was most likely a strategic decision.
“There are more productive (profit-generating) ventures that these banks can take using the resources allocated to Philippine operations by simply leaving. These companies can cover upfront costs and accompanying opportunity costs,” Rivera said in an email.
These exits mean less competition, more mergers and acquisitions of operations, a change in user experience for customers who are left behind and choose to stay, he said.
“There will be less exposure of the Philippine banking sector to changes in foreign bank downside risks, more transactions and market growth opportunities for local banks,” Rivera said.
UNIONBANK BUYS CITI DETAIL ARM
The global banking giant has reached an agreement to sell its consumer banking arm to UnionBank of the Philippines. The acquisition will cover Citi’s local credit card, unsecured lending, deposit and investment businesses, as well as Citicorp Financial Services and Insurance Brokerage Philippines, Inc.
The Philippine Competition Commission approved the 55 billion peso takeover in April this year, while the Bangko Sentral ng Pilipinas gave the green light in July.
As of August 1, Citi said it successfully completed the sale of its consumer business to UnionBank.
This transaction should result in capital benefitsIft about $700 million for Citi.
The Philippines’ largest foreign bank, Citi, established its bank in the country in 1902. Its corporate and investment banking platform has helped propel the growth of institutional clients in the country and around the world.
Citi is recognized as the pioneer of business process outsourcing (BPO), providing sales and customer service, and other customer support services to various Citi operations.
“We are now in the top three in terms of spending or credit card usage. More importantly, it has provided us with one of the most diverse loan portfolios in the banking industry,” said the vice-president. Senior Chairman of UnionBank of the Philippines and Head of Corporate Planning and Investor Relations, Carlo I. Eñanosa, in an email.
The bank’s consumer loan portfolio to total grew to 49%, more than double the industry average, he said. Mr. Eñanosa added that the consumer portfolio acquired is very proIftable and further improve our net interest margin.
“We will also grow our retail customer base by nearly one million new banking customers, most of whom are in the middle to upper income segment and we expect to generate additional value through synergies in the merged consumer business,” said Mr. said Eñanosa.
He also underlined that this meant the continuity of business operations and a strengthening of leadership within the organization.
For Mr. Rivera, this shows a bigger market for UnionBank and opportunities to build on what Citi left behind.
The total assets that will contribute to UnionBank amount to nearly one hundred billion pesos, Mr. Eñanosa said. This will be 65 billion pesos in net lending, mostly in the form of credit cards, around 30 billion pesos in cash, as well as other assets like the real estate property that houses their operations.
“With Citi’s consumer business, our recurring revenue will grow significantly. Our current net interest margin is 4.7% and it will increase to 5.5% due to the consumer banking business. of Citi,” Mr. Eñanosa said.
Central banks around the world, including the Philippines, continued to tighten policy rates to temper rising inflation. If this continues, Mr. Eñanosa said, it could impact consumers, except for products for which there is a price cap.
“That said, we think the rate cycle could be approaching its peak,” Eñanosa said.
“There are other factors that banks consider in their pricing, such as the competitive landscape, regulation and market liquidity. This does not mean that as rates increase, we automatically pass the same level of increase on to consumers,” he added.
Rating agency Fitch Ratings said in a report that rising interest rates will put increased pressure on consumers and small businesses.
In its report “Impact of Rising Interest Rates on APAC Banks,” Fitch Ratings said most banks will benefit from higher interest rates and lending rates are expected to adjust faster than deposit rates.
“In more competitive markets, such as Indonesia, the Philippines and Taiwan, banks will have fewer opportunities to pass on higher rates to borrowers, which will limit the upside,” he said.
Going a step further, UnionBank recently launched UnionDigital Bank, Inc., which is among six digital banks granted digital banking licenses by the central bank alongside Overseas Filipino Bank, Tonik Digital Bank, UNO Digital Bank, GOtyme Bank and Maya Bank, Inc. According to BSP regulations, digital banks in the country must have a minimum capitalization of 1 billion pesos.
The launch of UnionDigital complements its strategy to become a major retail bank, Mr. Eñanosa said.
“A large universal bank would probably have less than 10 million customers on average and most banks serve the same customers. This leaves a large segment that remains unbanked or underserved. With UnionDigital, we will be able to expand financial services to this segment because digital has no boundaries in terms of reach,” Mr. Eñanosa added.
UnionDigital makes it easy to open accounts and facilitate financial transactions. Its cost in serving its client is lower compared to a universal bank. UnionDigital has no branch inheritance cost, no relationship manager, lower reserve requirements, and lower license cost per account.
“This means that it is now viable for us to cast a wider net in serving Filipino consumers. Not to mention that it is 100% owned by UnionBank, which means it meets the level of trust that is sometimes a concern of customers when choosing a bank,” Mr. Eñanosa added.
EXIT OF ING BANK MANILA
On June 24, Dutch banking giant ING Bank announced that it would exit the Philippine retail banking market before the end of the year. Nonetheless, it will continue to invest in its wholesale banking business and global shared services operations in the Philippines.
In a statement, ING Bank said its exit was due to an uncertain global macroeconomic situation over the past few years, which led the bank not to expand its activities to other countries, which meant that operations of retail in the Philippines needed to be reassessed for its scalability as a standalone business.
The bank assured its retail customers that there were no changes to their accounts. They can continue to access their funds and accounts at all times and their money remains safe, the bank said.
This exit from the Philippine banking market also reflects the same decision taken by ING in European countries such as France, Austria and the Czech Republic in 2021.
ING was the first bank to go fully digital in the Philippines. He was also popular among savers due to his high interest savings accounts.
Since 1990, ING Bank has served corporate and institutional clients across the country. Its retail bank started operations in late 2018 and has served more than 380,000 customers with savings accounts, checking accounts and consumer loans.
Since launch, the bank has performed well, showing good progress, business momentum and growth potential. Currently, the bank has about 120 employees in wholesale and retail banking.
ING is a Dutch member of the Inter-Alpha Group of Banks, a cooperative consortium of 11 leading European banks. They operate in over 40 countries with its headquarters in Amsterdam.
She also launched ING Business Shared Services, Inc. in 2013, which supports her banking operations across the world.
AIM’s Mr Rivera said the Dutch financial giant exiting the retail banking market was “a strategic move to allow it to fully exploit its revenue and profit potential”.
“I don’t think ING will leave its customers out of it. This is an established bank with a reputable track record. Post-departure systems are in place to ensure consumer welfare,” he added.
UnionBank’s Mr. Eñanosa said the Philippine banking sector will benefit from the unique position in terms of growth prospects given the country’s demographics.
“Our country is made up of a young population at the start of its credit cycle and we have a large population that remains unbanked,” Mr. Eñanosa said.
“Our regulators also continue to support digitalization to promote financial inclusion and accelerate the delivery of financial services to consumers.” he added.