The Philippine Commercial Banking System: Structure, Performace and the Impact of the Capital Buildup Program of 1972

Abstract

The article attempts to identify some effects of the Banking Reforms of 1972, specifically the increased capitalization requirements on banks, on the structure performance of the commercial banking industry. It was found that to begin with, the banking industry is a highly concentrated industry and that the size of commercial bank is closely related to its profit performance. The capital buildup program imposed by the Central Bank in 1972 further increased the level of concentration in the commercial banking industry. Specific performance indicators were also found to have been significantly affected by the capital buildup program. The bank profitability increased but so did the leverage and liquidity risk indicators. The Central Bank may have achieved its objective of increasing the capital base of the system and consolidating smaller banks into stronger but fewer institutions. However, the remaining larger banks appear to have increased their market power (to the extent indicating in the higher concentration ratios) and their general financial risk.