Financial Crime World

Large Banks Dominate Financial System in Philippines

The International Monetary Fund (IMF) has released a report highlighting that large domestic banks dominate the financial system in the Philippines. The report reveals that these banks hold around 94% of the banking sector’s assets, with the top five banks accounting for 60% of the total.

Key Findings

  • Bank credit is relatively low in the country, with only about 50% of GDP being held as loans.
  • Access to financial services is limited, particularly outside of major cities, and informal financing methods such as pawnshops are still widely used.
  • Seven out of the ten largest banks in the country are related to local family-owned mixed conglomerates, which hold around 60% of the banking sector’s assets.

Conglomerates Play Key Role

The report highlights the significant role played by local family-owned mixed conglomerates in the financial system. These conglomerates pose a risk to the stability of the financial system due to their interconnectedness with other financial institutions.

Fintech Ecosystem Remains Nascent

The report finds that the fintech ecosystem in the Philippines is still in its early stages of development. Digital payments are not widely used, with only about a quarter of adults making or receiving digital payments in the past year. The report attributes this to expensive bank charges and barriers to establishing IT and communication infrastructure in the archipelago.

Financial System Exposed to International Spillovers

The report notes that the financial system in the Philippines is indirectly exposed to international spillovers, primarily through non-financial corporations’ (NFCs) international borrowing, trade, and declines in financial asset prices. The country’s banking sector has a low direct cross-border exposure of around 10% of bank assets and liabilities.

Recovery from COVID-19

The report notes that the Philippines was severely affected by the COVID-19 pandemic, with real GDP contracting by 9.5% in 2020. However, the economy is now recovering, driven by easing containment measures and economic policy support. The IMF projects a real GDP growth rate of 6.6% for 2021.

Conclusion

Overall, the report highlights the need for the Philippines to further develop its financial system, including increasing access to financial services and strengthening regulation and supervision to mitigate risks.