A new megabank?

The sale of a large chunk of Equitable PCI Bank in the Philippines raises some interesting possibilities.

Presidential impeachments and bank mergers are not usually associated events. But then of course this is the Philippines, and anything's possible there these days.

Very strong rumours have surfaced that the Go family, the Social Security System and the Government Service Insurance System want to sell their combined 65% stake in Equitable PCI, and the most likely buyers are Bank of the Philippine Islands and Metrobank. This would create a Filipino megabank.

According to local sources, BPI publicly confirmed its interest in buying the bank yesterday.

A merged BPI and Equitable PCI would control over 25% of the banking assets in the Philippines.

But why would Go and co want to sell? The reason is simple. Equitable PCI has been embroiled in the Estrada impeachment trial, and negative publicity about Estrada's alleged deposits with the bank have led to a massive loss of confidence. The extent of withdrawals is difficult to confirm but market rumours reckon that Ps30 billion ($573.61 million) of deposits have been withdrawn in recent weeks, although the bank says it is only Ps3.2 billion. Equitable PCI's deposit base has historically been around Ps160 billion.

Ironically enough, the troubled bank used to be run by central bank governor, Rafael Buenaventura. He is quoted in the Philippine Daily Inquirer as saying: "If it were true, then this would result in a further consolidation in the banking industry that would allow the buyer to become a regional player."

Local experts say BPI is the favourite to clinch the merger. That's because BPI – which regularly wins FinanceAsia's Best Bank in the Philippines award – is the biggest and best managed bank. "In a situation like this," said one well connected investment banker, "the buyer has to inspire confidence, since this has obviously been lost. BPI has a reputation for a disciplined management culture and strong controls."

Metrobank – the other most likely merger partner – is run by George Ty, who is a close associate of Estrada. The other candidate is Rizal Commercial Banking Corp, which belongs to the Yuchengco family – but this only has Ps110 billion of assets, compared to BPI's Ps310 billion and Metrobank's Ps300 billion.

Whether or not it would be good to have a megabank in the Philippines is another issue altogether. The impeachment trial has showcased for the world a nation enmeshed in corruption, and having a bank that controls a quarter of the country's loans may not be such a sensational idea.

The other interesting aspect of a BPI-Equitable PCI merger would be that the Ayala family would control the new megabank.

That would make the Ayalas just as powerful as they were in the pre-Marcos era.