Rizal Commercial Banking Corporation

Strategic Paper

Mark Jilian L. Esteban

MB - 1810030
Banking Industry Background in
the Philippines:
Banking Industry in the Philippines has been growing fast during the last decade.
Based on the BSP report last September 31, 2019. There are already five hundred
fifty two (552) total banks in the Philippines, forty six (46) of it are universal and
commercial banks, fifty one (51) are thrift banks, and four hundred fifty five (455)
are rural and cooperative banks. Back in 2010, there are thirty eight (38) universal
and commercial banks, seventy three (73) thrift banks and six hundred forty seven
(647) rural and cooperative banks. It may be surprising to see the total banks in
2010 was seven hundred fifty eight (758) a huge difference compared from last
year’s report of five hundred fifty two (552). The main reason of this is because
some banks are merging with another banks and some are buying an existing bank
to have a huge capital to become a larger bank.

ASEAN Economic Community (AEC) integration should see foreign participation

increase in the coming years, with the ITA reporting that under the AEC Blueprint,
the Philippines is advancing regional financial service integration, including
legislation to allow the entry of qualified ASEAN banks (QAB) under the ASEAN
Banking Integration Framework. Philippine authorities concluded bilateral
negotiations with Malaysia’s central bank, Bank Negara Malaysia, in April 2017,
establishing QAB guidelines for the first time. Later that month, the government
signed a letter of intent with Thailand to formally launch the same QAB talks. [1]

Porter’s Five Forces Analysis

I. Competitive Rivalry

The banking industry is extremely competitive, because there are so many

players in the industry. The major players in the industry are already dominating
because they’ve already established their brands over the years. The products and
services in the industry are almost the same because it should be aligned with the
policies of the Bangko Sentral ng Pilipinas (BSP). The barriers to exit is also high
because of the high fixed cost, regulatory reports, long term debt instruments and
long term time deposits.

Taken altogether, it can be said that rivalry among the banking industry is high.

II. Threat of New Entrants

If a new player wants to enter the banking industry, they might want to check
the minimum capital requirement for the banks. The lowest minimum capital
requirement in metro manila is one hundred million pesos (Php100,000,000.00) and
it is only for a rural bank which only provide people in rural communities with basic
financial services and if the new player wanted to fight with the giants in the
industry they should have a capital requirement of three billion pesos
(Php3,000,000,000.00) for a head office only, without any branches. The capital
requirement of a universal bank up to ten (10) branches to six billion pesos
(Php6,000,000,000.00). This is a a very high capital requirement and addition to this
are the costs to the licenses, insurances, partnership with BancNet and other
interbank network and other Banking system that is aligned with the BSP. If a new
entrant entered the industry, the major players won’t feel any pressure because all
of the products are closely monitored regulated by BSP. There won’t be a disruptor
that can easily shake the banking industry. Also, the brand loyalty of the people. Of
course, the exposure of a bank is very significant. The consumers can easily
remember the names of the banks that they know because they can see it
everywhere and they know that the major players are not likely to close and they
are all experienced when it comes to the industry compared to the new entrants.

Taken altogether, the threat of a new a new entrant in banking industry is low.

III. Threat of Substitute

Most of the people in the rural areas are scared to open a bank account and
to make any business with the banks. This is where the threat of substitute enters,
the substitute are the “Bumbays” or “5-6”. They are the one who lend the people
without any documents of the debtor, no promissory note and no collaterals. How
does this work? Simply the “Bumbays” will lend the person a money to start their
business or for personal use. Then they collect the interest and principal payments
daily. The interest rates are usually 50-60% that’s why they call it “5-6”. It is very
high but it is very easy to have a money. The “Bumbays” are very aggressive to
lend money. They are going door to door and ask if you want to have a loan. Unlike
the rural banks and cooperatives they are the one who’s very affected to this,
because lending are their main product. Their focus is to lend the people in the rural
areas especially farmers and the people who wants to put up a small business like a
sari-sari store or any food stall in the area. But unlike the “5-6”. Banks needs a
collateral incase of default, identification and other documents for proof of business
as mandated by the BSP.

Taken altogether, the threat of substitute in banking industry is medium.

IV. Bargaining power of buyer

Having a total of five hundred fifty two (552) registered banks in the
Philippines, people can shift from one bank to another if they don’t want the service
of their current bank. They can choose what bank they can deposit, have a loan or
invest. For instance, if a small business or a customer wants a loan, they can choose
from rural bank, thrift or savings bank, commercial or universal bank. They have
easy access to the services especially when they have a complete documents to
support their business. They can bargain with the banks to lower their interest rates
depending on the risk to pay their debts. Also when the client have a large amount
of deposit in the bank, they can offer the person very low interest rate and other
incentives like a free cheque books, waiver of certification fees and free giveaways
from the bank. The services of the banks are mostly alike because it is all regulated
by BSP. This is why the consumers and businesses have the power to choose any of
the banks they want. But there are some restrictions to this, if a client needs to loan
one hundred million pesos (Php100,000,000.00) the rural banks cannot cater this or
some of the savings bank. Why? Because there are some restrictions to the credit
line amount depending on the net worth of the bank. They should not exceed
twenty five percent (25%) of the total net worth of the bank.

Taken altogether, the bargaining power of buyer in banking industry is high.

V. Bargaining power of suppliers

Banking industry focuses in business that provide services. Banks do not

need raw materials to operate their business. The only materials they need are
bond papers, cheque books, card for ATMs and other supplies. The banks can ask
for incentives if they will buy bulk supplies to their suppliers.

Taken altogether, the bargaining power of suppliers in banking industry is

low.

Summary:
I. Competitive Rivalry - high
VI. Threat of New Entrants - low
VII.Threat of Substitute - medium
VIII. Bargaining power of buyer - high
IX. Bargaining power of suppliers - low

Conclusion:

The Banking industry in the Philippines are one of the fastest growing. But it is not
good for the new entrants because of the very tight competition in the existing
players and high power of buyer. It is very good for the existing players because the
people in the Philippines are now aware and already have knowledge with the
products of the banks. Supplier power doesn’t have a huge impact in the industry
since its business is service.

Links and references:

2010 No. Of Banks -
http://www.bsp.gov.ph/banking/pbs_archives/
2010/2.htm

2019 No. Of Banks -

http://www.bsp.gov.ph/banking/pbs_new/2.ht
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[1] -
https://oxfordbusinessgroup.com/overview/sta
ble-expansion-robust-credit-growth-and-
ongoing-reforms-contribute-positive-sector-
outlook