BPI Family Savings Bank contributes 13%-15% to the bank’s consolidated assets and profits.

Bank of the Philippine Islands’ (BPI) merger with its wholly owned thrift bank subsidiary, BPI Family Savings Bank, will increase its operation efficiency and have a minimal impact in the bank’s credit profile, reports S&P.

The merger is expected to lead to a more seamless customer experience in the bank and eliminate duplication of the bank’s physical network.

“The surge in popularity of mobile and internet banking due to COVID-19 has enhanced focus on having a robust digital infrastructure and rationalize the branch network,” S&P stated in a media note.

S&P added that the merger will likely have a minimal impact on BPI's credit profile, as the thrift bank is already fully consolidated into the banking group's financials.

BPI Family Savings Bank is the largest thrift bank in the Philippines, with an asset base of more than $6.24b (PHP300b); it houses the group's consumer loans. It contributes between 13% to 15% to BPI's consolidated assets and profits.

Meanwhile, BPI's management cited reduction in the gap in regulatory reserve requirements (RRR) between commercial banks and thrift banks as a factor behind the merger. The RRR ratio of Philippine commercial banks is currently 12%, compared with 3% for thrift banks. The corresponding ratios were 18% and 8% at end-2018.

The gap could reduce further as the central bank remains committed to lower commercial banks' RRR to 9% by 2023, whilst the RRR for thrift banks is unlikely to see large cuts.

In regard to mergers in general, S&P does not foresee a wave of consolidation in Philippine’s thrift bank space as yet.

“We do not foresee a wave of consolidation in the thrift bank space yet. The 600-basis-point gap in RRR ratio is still significant for major banks to benefit from having a separate thrift bank subsidiary,” S&P noted.

Banks are likely to continue taking advantage of lower regulatory costs at thrift bank subsidiaries and house riskier loans with them, the ratings agency added.