Crisis in the banking system
Successive bank mergers in the Philippines indicate the deep crisis in the banking system. The previous year saw mergers among some of the country's biggest banks. The first among the big mergers was that between the Philippine Commercial International Bank (PCIB) and Equitable Bank. This was followed by Metropolitan Bank and Trust Co.'s (Metrobank) purchase of the Philippine Banking Corporation (Philbank) in August. In November, the merger Bank of the Philippine Islands (BPI)-Far East Bank and Trust Co. (FEBTC) wrested from Metrobank the position of being the biggest bank. Metrobank once more took the lead with its purchase of Asian Banking Corp. and Solidbank.
Banks raked in huge profits with the economic "development" bubble in 1994-96 highlighted by the sale of their overvalued stocks, stock trading and financial speculation in the stock market, extension of credit to speculative real estate businesses and funding of ambitious corporate expansion schemes. Bank profits further ballooned with the influx of foreign capital, the latter reinforcing the growing stock market bubble that temporarily and artificially inflated the country's financial system. | WHEN THE SPECULATIVE- FOREIGN- CAPITAL- DRIVEN ECONOMIC BUBBLE BURST IN MID-1997, THE FUNDAMENTAL WEAKNESS OF THE PHILIPPINE BANKING SYSTEM WAS EXPOSED ALONG WITH ITS ROLE AS THE FINANCIAL BASE OF THE COMPRADOR BOURGEOISIE IN THE COUNTRY. |
Alongside and prior to this, banks benefited immensely from the accelerated local borrowing of successive reactionary regimes since Aquino to cover the national budget deficit, salvage losing public corporations and pay foreign debts. In the last two years of the Ramos government, banks were the primary financiers of the program to privatize state-owned corporations and the build-operate-transfer schemes of private corporations and the government.
When the speculative-foreign- capital-driven economic bubble burst in mid-1997, the fundamental weakness of the Philippine banking system was exposed along with its role as the financial base of the comprador bourgeoisie in the country.
Values of stocks and bank assets took a nosedive. Excessive lending of capital to speculative businesses and companies was exposed, especially in real estate. Anomalous deals regarding the use of depositors' savings to finance bankrupt businesses were bared.
Many banks, especially the smaller ones, were forced to close down when depositors went on a bankrun. The latter led to a depletion of capital, especially since only 20% of banks' overall resources is allocated for daily transactions with individuals. The banks also found it difficult to liquidate the assets of businesses they had foreclosed. Investors fled the country and bigger banks and companies capable of saving smaller ones turned conservative. The Bangko Sentral ng Pilipinas (BSP) was forced to salvage the remaining capital of smaller banks and close down a number of them.
Banks' exposure to bad loans grew severalfold as they poured billions into companies and businesses that went bankrupt and/or closed down. Up till the last quarter of 1999, 14.61% (or P217.6 billion) of overall bank loans were bad loans; meanwhile, in August 1999, 34.95% of thrift banks' total credit exposure were bad loans.
The rate of bad loans grew when banks refused to increase their total loan portfolio in reaction to the continued shrinkage of their capital, to companies' and government's dwindling capacity to pay and to the plummeting economy. New loans extended by banks have been decreasing since 1998-99 from a peak 41-percent growth rate in 1996. The amount continues to dwindle in the first months of 2000, contrary to claims by the BSP and the Estrada government.
To address the banking crisis, the International Monetary Fund (IMF), through the BSP, has been directing and coordinating bank mergers. It is estimated that only four, from a previous 10-15, would end up as the biggest banks in the country. The IMF has been insisting on this tack on the bankrupt notion that concentrating the banking system in the hands of a few would stabilize the Philippine financial system.
In truth, the financial system's instability proceeds from the fundamental issue of the absence of basic industries in the Philippines' deformed economy. Only industry can create new value or wealth that is tranformed into money and organized by the financial system.
The Philippine economy is in chronic crisis. Even at the height of the speculative capital-driven bubble in 1994-96 that caused the artificial inflation of the banking and service sectors, the manufacturing and agricultural sectors continued to decline.
Under a semicolonial and semifeudal system, the financial sector is divorced from production and is merely an arena for gambling by big foreign speculators and the big comprador bourgeoisie who rake in millions of dollars from stock market transactions and currency speculation. The 1997 flight of speculative capital brought in during the 1994-96 period has resulted in the sudden collapse of the financial sector from which it has been unable to recover.
The instability of the financial system is also brought about by the government's all-out borrowing to pump-prime the dwindling economy. In 1999, for instance, the overall deficit covered through local and foreign borrowings reached P111 billion. In the main, the big local banks are big bourgeois comprador businesses and serve the interests of big foreign capitalists. Their mergers can only mean the tightening of foreign control on the Philippine banking system and therefore, greater foreign capability to direct the pattern of investments and expenditures in the country.
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