As the 31st in a long line of presidents and managing directors of the 165-year-old Bank of the Philippine Islands (BPI), the country’s oldest bank, Cezar P. Consing likes to say he has a simple job. “You have to understand how we have always thought in this bank,” says the 55-year-old CEO who is an avid runner. “It’s a relay race. My job is just to make sure when I hand this off to my successor, it’s in better shape than when I got it. It’s simple as that.”

But it never really is, as Consing himself is the first to admit. Amid unprecedented growth in lending since 2013 when he was appointed BPI president, the banks’ profit margins are being squeezed. In just three years, the bank’s loan book almost doubled from Php500 billion in 2012 to almost Php900 billion last year.

“You have all this growth and yet banks have been under some pressure,” Consing says as he sums up the challenge facing the bank, the country’s third largest by asset size. “The growth rate is one thing but if you look at returns of equity of banks, globally and locally, they have been trending down.” The bank’s return on equity fell to 12.3% last year from 18.1% three years ago.

Another sign of the pressures weighing on banks’ return on capital is the modest growth in banks’ market capitalization compared with other companies in recent years. “I think other industries took advantage of (the recent growth) probably more than the banks.”

Indeed, while banks’ market capitalization rose by 16.7% between 2012 and 2015, the value of holding firms surged by 54.6% during the same period, growing at least three times faster. Property companies’ market capitalization also grew by 41.3%, or almost two and a half times faster than banks.

Consing cites three factors behind the banks’ narrowing return on capital: the huge increase in liquidity in the aftermath of quantitative easing by the world’s major central banks; tighter regulation of banks, including higher capitalization requirements; and the emergence of fintech companies that are competing with banks in their traditional turfs such as payments, fund transfers and even lending.

The surge in liquidity in the form of more foreign funds coming into the country translated into narrower net margins for banks. “They have shrunk by 40%” he estimates. “They used to be 5% or so. Now, it’s more like three.”

Tougher banking regulations to prevent asset bubbles and excessive lending entailed higher capitalization requirements. “That forced banks to basically have more capital or do less with the capital that they have,” he explains.

Similarly, the rise of fintech, though still in its early days in the Philippines, represents another long-term threat. “When you look at fintech companies around the world, what they’re doing is they are attacking businesses of banks that are unregulated.”

One of the ways Consing is responding to the rapid growth and narrowing margins is to pay more attention to lending to small businesses – a hitherto underdeveloped segment of banks’ operations. Officially referred to as micro enterprises (for those employing nine or less people); small (10 employees to 99 employees); and medium (100 employees to 199 employees), these businesses make up 99.6% of the total economic enterprises in the Philippines. They account for almost two-thirds of total jobs in the country.

Despite the MSMEs’ significant contribution to employment, banks have found it difficult to lend to small businesses, which are seen to have a riskier credit profile. Indeed, the Bangko Sentral ng Pilipinas has to compel banks to lend to the sector by requiring them to allocate a minimum proportion of their loan portfolio to MSMEs.

Consing says less than 25% of BPI’s loan book is allocated to small businesses and he is keen to make that bigger. Though he has yet to set a target, “all I know is it’s less than one-fourth of our loan book, it’s small. It’s too small. It has to be bigger just to recognize where this country is going.”

Cezar P. Consing on his job: “it’s a relay race.”

This may sound like big business paying the usual homage to “inclusive growth” but Consing says there is a business case for paying attention to small businesses. “Given the way our economy is growing, SMEs will soon be the biggest component of the economy. They will become too big to ignore. They will become too important.”