A.

General Environment

Political, Legal and Government Aspects

According to Republic Act No. 8791 or the General Banking Law of 2000, in its

Declaration of Policy, it recognizes the fiduciary nature of banking that requires the highest standards of

integrity and performance. This is why it is upon the State to promote and maintain a stable and

efficient banking and financial system by creating and upholding laws not only intended for the

supervision of banking and financial institutions but also for the protection and benefit of the clients of

such banks and financial institutions.

The banking industry is an industry that is imbued with public interest that requires

itself to be regulated by the government. Mainly, the General Banking Act of 2000 governs all banking

institutions through the Bangko Sentral ng Pilipinas and its Monetary Board. It is imposed in the

Monetary Board, the governance, supervision, authority over such banking and financial institutions as

well as to provide policy direction. Aside from BSP Circulars, the banking industry is protected by the

Philippine Deposit Insurance Corporation. Being an industry generally involved with money,

capitalization requirements are specific and must strictly be followed. As well as managerial

requirements especially for universal and commercial banks.

Economic Developments

In 2016, the Philippines had earned roughly P11,546,104,000,000 as its Gross Domestic

Product according to National Statistics Coordination Board. From the year 2014, the country’s GDP

continually increases. It is in 2016 that the Philippine Economy expanded by 7.2%. There were boosts in

several sectors, especially in the service sector. However, there were also slow downs in certain sectors
such as imports and construction. Also contributing to these slow downs are the impact of typhoons

that hit the country, which may have reduced the GDP growth.

Philippine financial markets experienced large volatilities as investors responded to the

tapering of the United States’ stimulus program, wherein stock and bond prices fell significantly.

However, monetary and fiscal policy supported growth. While government finances continue to improve

due to tax improvements and efficient spending. On the other hand, remittances and export of services

were more or less unaffected by the slow growth in advanced economies. Cash remittances increased by

6.4% in the previous year, along with the increasing demand for skilled Filipino workers.

The services sector remained the main source of growth which expanded by 7.1%. This

explains the resilient growth of financial intermediation and other business activities. Manufacturing

grew by 10.5% due to the strong domestic demand for food, chemical products, communication

products, basic metals, etc. While agriculture barely contributed to the growth as several decline in the

production of corn, coconut, sugarcane and banana occurred.

One major economic change to be seen is the preparation and the actual integration in

2018 of the ASEAN community. This movement unifies the markets of Southeast Asian nations into one.

Aligning each member country to another through political and economic measures. The banking

industry is one of the sectors that is predicted to be affected by such integration as the Philippines

opens its doors to foreign investors. However, foreign competitors will be on the prowl as well.

Nonetheless, there has been no indication regarding a change the General Banking Law and the

guidelines and requirements in establishing banks in the Philippines, thus saving the local banking

industry from penetration.

Socio-cultural, Demographic, Lifestyle Changes

 The Philippines is a society that is confronted by many socio-cultural challenges, such a

rapid population growth, ethnic, religious and poverty problems. The Philippines, being under the rule of

Western powers for centuries, has left a mark which had become a part of the Filipino identity. Over the

years, the country had been witness to many cultural and lifestyle trends that have influenced the

banking industry.

The Philippines has a dense population but with an uneven distribution. It has an

estimated population of 101,112,799 Million and fifty percent of which is urban, especially in Metro

Manila, which has the highest density. For the last quarter of 2017, it was recorded that the Philippines

had a 6% unemployment rate, making the employment rate at 94%. With, the large percentage of

Filipinos who are employed, this contribute to the growth of the banking industry. Their profit indicates

the ability to engaged in banking and financial activities.

Lifestyle and business trends affect the banking industry. Aside from young adults to the

elderly, banking trends for the young have been prevalent recently. Junior savings accounts, jumpstart

accounts and other savings plan for children. Also, an increase in the number of universities and colleges

partner up with banks in the collection process of tuition fees.

Technological Developments

The banking industry is not easily swayed by technological trends, however, when such

a trend does, it leaves a huge impact. Banks are developing new branch formats that consist of sturdier

alternatives to the traditional bank branch. Banking customers also now handle their banking

transactions via smartphones and tablets than through other channels. This makes the mobile banking

channel a key element in earning customer loyalty. Mobile banking is coupled with transactions with

other banking channels so as to deliver seamless service. There was a reported rise in the use of a bank’s
mobile banking application by 19% in the previous year. Despite the large patronage of mobile banking,

there is still a decline in the usage of bank branches, ATM’s and even online banking.

However, there is an increase in omnichannel consumers. Omnichannel means

accessing with more than one banking channels. Despite mobile banking rising to mass appeal, clients

still prefer combining digital and physical channels in banking. Bain and Company, Inc. sees that this is

critical for effective service, marketing and selling, because customers expect to be able to hop from one

channel to another. Said company also provided that banks that pull ahead in loyalty by investing

heavily in mobile to better experience will reap financial benefits. While banks that lag investing in such

advantage will miss reaping the financial benefits as well as fall behind in investment.

Behind this advantage, however, comes a small problem: hidden defection. These small

hidden defects that result to lesser customer satisfaction which may result to bank switching. Banks that

fail to respond against these defects risk profits. Aside from defection, which is an entirely internal

concern, there also exist a threat of security breaches and attacks. Several causes of which is the

crumbling personal relationships between managers and customers and a reputation for security, also

the increase of digital assets in the banking and financial institutions.

B. Industry and Competitor Analysis

Porter’s Five Forces Model

Rivalry among competitors High

Threat of substitutes Medium

Threat of new entrants Low

Bargaining power of suppliers Low

Bargaining power of consumers Medium

Rivalry Among Competitors

The banking industry, being as it is, an industry that is difficult to penetrate as the

government regulates the establishment and organization of banks in the country. This implies

that there are not so many banks operating in the Philippines. Competition in the banking

industry is very tight.

As for rivalry among competitors based on the differentiation of products, rivalry

is also tight. Most banks offer the same financial services; lending, credit card services, foreign

exchange, insurance, remittances, etc. Most banks usually differ in its rates and on the manner

of delivery, nonetheless, services offered are relatively same. With respect to strategies, the

competition is also high. Each bank has its own strategy to outperform another.

Threat of Substitutes

Considering the difficulty in entering the banking industry and the competitive

rates and charges, there remains a possibility of substitutes to cater clients who are not able to

transact with banks. The business of lending extends to pawnshops and lending houses which

may be a become a substitute. Even pawnshops now have remittances services. Nonetheless,

the threats are still relatively low to medium because not all banking services can be substituted

by other channels such as the credit card services. Although the switching from a primary

bank’s services to avail of another is another kind of threat of substitute is due to the differences

in service rates and interests caused by the competitive pressure brought about the tight

competition in the banking industry.

Threat of New Entrants

 Being imbued with public interest and its nature being fiduciary, the banking

industry requires itself to be regulated. The law provides for strict compliance in the

requirements for the establishment of banks in the Philippines. Capitalization requirements is

relatively high so as to keep banks liquid in its operations. Such requirement is necessary so as

to protect to who invest and transact with banks and so as to prevent frequent cessation of

banks. As for brand loyalty, most customers prefer more established banks which have proven

themselves through the test of time.

There is also the scarcity of important resources. Capital is not the only element

that gives banks the ability to operate. Technology and qualified and expert staffing are also

important. High switching costs for customers especially in terms of long term contracts and

transactions hinders the threat of new banking institutions. Considering these factors, it is easily

said that the threat of new entrants is low.

Bargaining Power of Suppliers

Such bargaining power is low. The services provided by the banking industry

cannot be easily substituted. While differentiation of services are also limited. There is also the

possibility of forward integration. Taking all these factors it shows that suppliers have little power

the banking industry. Banks high capitalization gives them the ability or at least the possibility of

control over its suppliers.

Bargaining Power of Consumers

The consumers’ bargaining power is a major force which affects the level of

competition in the banking industry. However, their bargaining power is only medium. There

may be stiff competition in banks, nonetheless, their services cannot be easily replaced or

substituted. Consumers do not have much power in controlling banks and their services.
Moreover, the governments’ regulation also hinders banking in constantly changing and

updating their services without compliance with the requirements.

COMPETITORS

BDO BPI METROBANK

Critical Success
Weighted Rate WS Rate WS Rate WS
Factors

Financial Position .30 4 1.20 4 1.20 4 1.20

Customer Loyalty .12 3 .36 3 .36 3 .36

Customer Service .22 4 .88 4 .88 3 .66

Market Share .16 4 .64 3 .48 4 .64

Innovation .08 4 .32 4 .32 2 .16

Management .12 4 .48 4 .48 4 .48

TOTAL 1.00 3.88 3.72 3.50

Ratings: 4 = Major strength, 3 = Minor strength, 2 = Minor weakness, 1 = Major

weakness

Metropolitan Bank & Trust Co. was incorporated on September 5, 1962 by a group of Filipino

businessmen principally to provide financial services to the Filipino-Chinese community. It is

one of the largest banking and financial institutions in the Philippines. It is engaged in banking,

financing, leasing, real estate and stock brokering services. It is a multi-awarded bank with a

solid track record for over fifty years. The bank offers its full range of services to large local and

multinational corporations, middle market, small market entrepreneurs, high net worth

individuals and retailers.

Bank of the Philippine Islands, Inc. is a commercial banking institution in the Philippines.

BPI offers a wide range of services such as corporate banking, insurance, securities distribution,
consumer banking and lending and foreign exchange. The bank is also known as the oldest

bank in Southeast Asia. BPI is also a high-rated and multi-awarded bank.

The Banking industry generally considers financial position, customer loyalty, customer

service, market share, innovation and management. Financial position is given the heaviest

weight seeing as that the banking industry is primarily in the business of circulating, saving,

lending, investing money and securities. A stable financial position of a bank is a must.

Banks are regulated by the Government through the Bangko Sentral ng Pilipinas whose

powers emanate from the General Banking Act of 2000. The Act mandates that establishing

universal and commercial banks require high capitalization. With such capitalization, equates to

profit. BDO, BPI and MTC are ranked equally based on their respective profits for the previous

year which is roughly 18,000-22,000 (in Million PHP). Moreover, the financial position of a bank

is what appeals to clients usually when choosing, because such financial position, will in turn,

affect the bank’s capability to serve its clients.

Customer service received the second heaviest weight seeing as that the services

provided by the bank attracts the clients. These banking and financial services are the lifeblood

of the bank, without such services, there will be no business - no service to be acquired by the

clients. A bank with a wide range of services is preferable for clients to so as to save the hassle

of transacting with different banks to accommodate their needs. BDO and BPI, with such wide

range of services and, further, the accessibility of such services play as a major strength against

its competitors. Whereas, MTC has lesser services and lesser accessibility than both BDO and

BPI.

Bank assets are also critical success factors. BDO and MTC’s market share are

relatively higher than that of BPI’s thus receiving a higher rating. Such ranking contemplated the

bank’s receivables and deposits.

 COMPETITORS

BDO BPI METROBANK

Market Share, 2013 P4,919 P3,404 P3,466

In Billion PHP

Customer loyalty and management are given similar weight seeing that the way how the bank is

being managed affects its clients. Client satisfaction with the bank’s services and its

management contributes to the clients’ retention and loyalty with the bank. All three banks

received equal ratings for both factors.

Lastly, innovation in the banking industry is a critical success factor due to the fact that

technology has been integrated in banking and financing solutions such as mobile and online

banking. Further innovations that suit and adapt to social trends and clients’ needs also

contribute to client retention. BDO and BPI are rated higher than MTC considering their services

such as e-Banking, mobile banking, online banking and phone banking; and remittance

services.

C. Summary and Conclusion

The Philippine economy is buoyant but it is projected to have a slowdown due to

threatening crisis. Although GDP and GNP increased drastically in the past years due to the

appreciation of peso against the US dollar and a huge surge of OFW remittances, the Philippine

economy will feel the domino effect of the crisis in the upcoming months. Mass layoffs,

decrease in consumer spending, withdrawal of investments and deposits. With the decrease in

spending of households, the industry will take a sudden turn. With every country feeling the

effect of the sudden turn of events, very few businessmen will invest in our country to conduct

business. In this matter, capital sources will drastically decrease. A strong peso, increase in
remittances, and slight improvement of GDP-GNP will give the economy a shield to lessen the

impact of the ‘tsunami’ crisis. The improving technological conditions brought about a change in

the lifestyles of Filipinos. As a result, this brings an increase in production which provides for a

higher capital and higher borrowings. While bottom line numbers may not be as impressive, the

industry is clearly building for the future, putting a lot of emphasis on asset quality, governance

and transparency, and sound business strategies with clear accountabilities.

External Factor Evaluation Analysis

The unification and integration of markets in the Southeast Asian Region in the

2018 Economic Integration gives the banking industry a platform and motive for product and

market development. Seeing as there will be new markets, a development of products is an

opportunity for gaining potential foreign customers as well as to adapt to future trends and

remain competitive with other banks come the integration. The change is necessary, thus,

development is relatively possible. This is why Opportunity 5 has the greatest weight in the

matrix.

Opportunity 1 has been given the same great weight in the matrix. Aside from

the future integration, the adaptation of the people of mobile banking continues to rise. Banking

customers now handle more of their banking interactions, on average, via smartphones and

tablets than through any other channel and the mobile channel has become a key element in

the bid to earn customer loyalty as Bain and Company, Inc. reports. In line with this, it gives

BDO the opportunity to make most of the new mobile capabilities, especially when not all banks

are not capable of such services yet.

 Omnichannel means accessing with more than one banking channel. Despite

mobile banking rising to mass appeal, clients still prefer combining digital and physical channels

in banking. Bain and Company, Inc. sees that this is critical for effective service, marketing and

selling, because customers expect to be able to switch from one channel to another. It gives

BDO the chance to access more clients by focusing on Omnichannel customers, thus it is given

the second heaviest weight in the matrix.

The Philippine economic condition also had provided probable opportunities to

the banking industry. As the service sector remains strong, banks and its services continue to

remain strong. Moreover, the increase in demand for skilled Filipino workers abroad in turn give

an increase in remittances.

This rise in mobile banking is also susceptible to threats. There is this hidden

defection of customers who go to another provider for additional products. As well as

dependence on mobile banking reduces customer and bank managers interaction and

relationship. ATM usage will also be threatened to decrease, as increase in mobile banking

continues. Most of these threats are interrelated that is why their weights are also in close

ranking with the others. However, the greatest weight in threats is given to Threat 5, wherein the

scope of mobile banking continuous widening, the susceptibility of the bank’s information and

client database to security breaches also increased.