The Philippines is looking at a banking revolution. Looming ASEAN integration and an increasingly banked population is fostering the need for banking innovations as well as broad, industry M&A in order to bolster the sector against the capacity and experience of foreign actors.
The Rizal Commercial Banking Corporation (RCBC) is one of the country’s leading banks with about $10bn in assets and more than six million account holders. Licensed for commercial and investment banking, the firm has gone from strength to strength in recent years, looking to accommodate a broad range of customers and grow its business in order to meet demand from new markets and an increasingly competitive domestic sector.
Having migrated to the core-banking platform Finacle in 2012, the bank has launched a series of ‘smarter solutions’, which refers to the wide range of products and services that it is now able to offer to its clients. After RCBC migrated to the modern and sophisticated IT system, the bank has introduced new innovations that not only cater to the daily banking requirements of its customers but, more importantly, anticipate their banking needs.
“RCBC is the first bank in the Philippines to migrate to a scalable, nimble and one-of-its-kind core banking platform. RCBC can now capitalise on a unified system to deliver consistent and superior services, better and new products, with faster time-to-market rollout, improved operations and administration processes with the cost greatly being reduced,” RCBC’s Head of Corporate Planning Gerald Florentino told World Finance.
$10bn
RCBC assets
“Given RCBC’s emphasis on electronic banking options for its clients, the bank is able to serve its customers’ needs through alternative channels, without them having to physically go to a traditional bricks-and-mortar branch. This saves customers precious time, money and effort. Electronic banking also allows them to transact and go paperless, which is, obviously, a friendlier option in conserving environmental resources,” explained Florentino.
Diverse product range
Since the migration to the new platform two years ago, RCBC has increased its daily transaction volume by 53 percent, from 980,000 in 2012 to 1.5 million in 2013, suggesting that customers have taken well to the new series of online and mobile products. The range is diverse and seeks to cater to everyone from high-net-worth individuals to SMEs to entrepreneurial women. Its product range accommodates corporate needs such as automated payrolls and an electronic payment processing solution, while other products, such as internet banking via RCBC AccessOne provide customers with 24-hour banking access.
A key offering in the corporate business area is RCBC’s Retail Employee Savings Plan launched in 2012. The plan pools together employee contributions for collective investment and reinvestment in RCBC’s Rizal Peso Money Market Fund and is designed to make investing in Rizal Unit Investment Trust Funds affordable and convenient for company employees. This product encourages employees to increase their personal savings by regularly setting aside funds from their monthly payroll to augment their retirement needs.
In addition, with the growing number of sophisticated investors looking for further diversification, RCBC Trust is set this year to provide its high-net-worth individual customers and big corporate accounts a facility to invest in offshore equities via direct investment in global equities listed in selected exchanges or via global equity feeder fund. Through these new products, offshore investing becomes easier and more convenient for RCBC’s clients, as they need not open accounts and deal with various foreign brokers to achieve global diversification.
Interestingly, the bank has also launched a product aimed exclusively at women. The RCBC e.Woman Savings Account is the country’s first deposit account specially designed for women, where depositors can enjoy perks and privileges such as free life or accident insurance and discounts from relevant partner merchants across the Philippines. With banking customers becoming increasingly picky and looking for personalised service, the e.Woman account comes at a crucial time for the industry. Its specially designed chequebook, chequebook holder, passbook and ATM card currently has a total of 50,000 account holders and numbers continue to grow as the demand for such products keeps increasing.
Unprecedented competition
Having a strong product range that can accommodate many different customers is crucial at a time when the Philippine banking industry is facing major changes that could provide local banks with unprecedented competition.
Current President Benigno Aquino is expected to sign into law amendments that will significantly change the country’s Foreign Banks Liberalisation Act. What’s more, the upcoming ASEAN economic integration by the end of 2015 and the ASEAN Banking Integration Framework by 2020 will have implications for loans, investments, and other business exposures for banks. As part of the integration, the Bankers Association of the Philippines has been backing legislation that would further allow the entry of more foreign banks into the country. Since Philippine banks are relatively smaller in size and scale, further opportunities for mergers and acquisitions are being encouraged across the industry, as a means to adapt to increased competition coming from other ASEAN member countries.
To bolster these efforts and ensure the local sector against future financial crisis, The Bangko Sentral ng Pilipinas (BSP) has required banks to do stress tests through the Internal Capital Adequacy Process framework. The BSP has also further liberalised foreign exchange rules, especially on forex outflows, to adapt to the requirements of the growing economy and the upcoming regional integration. What’s more, the lifting of the 15-year moratorium on opening new bank branches in eight restricted areas in Metro Manila starting July 1 2014 is expected to result in an improved quality of service for customers, as well as allowing banks to cross-sell financial products (e.g. bancassurance, debit/credit cards) to provide additional service to clients.
This opening and bolstering of the Philippine banking sector has increased the difference in size between commercial banks significantly, with the top three banks (BDO, BPI, and Metrobank) growing markedly. This has prompted banks like RCBC to remain engaged in their opportunistic acquisition activity.
“To quote our President and CEO, Lorenzo V Tan, RCBC is optimistic about the opportunities to partner with foreign banks and securities houses such as Japan’s Resona Bank, Saitama Resona Bank, Kinki Oska Bank, Okasan Securities, and Bank of East Asia (HK-China). These strategic partnerships aim to further extend the bank’s reach to multinational corporate and investor clients and expand our capabilities via transfer of technology and best practices. These new partnerships brought us 32 new Japanese corporate clients in a span of 24 months and institutional Japanese investors buying Philippine Equities through RCBC Securities,” said Florentino, adding that RCBC will continue to seek opportunities for partnerships with non-financial institutions for credit and debit card co-branding in order to expand the firm’s reach beyond the bricks-and-mortar.
Bolstering finances
By diversifying its business, RCBC has set the bar high for coming years. According to Florentino, this has been necessary in order to meet recent regulatory requirements. Notably, local banks in the Philippines are working hard to comply with Basel III requirements, which are more stringent in the way they’ve been implemented in the Philippines. For instance, the local total capital adequacy ratio requirement of 10 percent is higher than the international standard of eight percent and was implemented earlier compared to other countries. As a result some banks needed to raise additional capital to comply with this regulation. Having grown customer numbers and assets significantly in recent years, RCBC has made strides in bolstering its financial strength, but according to Florentino, the work isn’t over yet.
“In spite of the numerous remarkable achievements that RCBC already accomplished over the past five years, the bank continues to set ambitious goals that it aims to achieve in the next five years. We want to achieve higher shareholder value close to a return on equity of 15-20 percent, foster a deeper relationship with our customers, ensure that each customer is using five of our products within the next five years, expand and increase usage in our electronic distribution channel in order to achieve a 4:1 ATM-to-branch ratio, improve our operational efficiency, and finally, diversify our portfolio so it is oriented towards actuarial risk vs. wholesale risk, through i.e. a 50 percent focus on corporate, 30 percent consumer and 20 percent SME,” explained Florentino.
With the Philippine banking industry having posted significant growth and total bank assets having doubled in five years to PHP 10trn, the local banking industry is without a doubt in the midst of booming growth. On the verge of a new competitive era, diversification, technological innovation and a solid bank balance such as RCBC is without a doubt a strong offence that will meet the needs of Philippine banking customers.
