FINANCIAL integration within the Association of Southeast Asian Nations through the Asean Economic Community (AEC) opens opportunities for local banks in the Philippines as well as regional banks, a top economist of Manila-based Asian Development Bank (ADB) said Wednesday.
“We see potential to benefit both sides,” Thiam Hee Ng, principal economist at ADB, said at The Manila Times 4th Business Forum held at the Marriott Hotel Manila, in Pasay City.
In a speech titled “The Impact of Integration in Philippine Banks,” Ng said Philippine banks are smaller and may not be able to compete in terms of size against many foreign banks, but they have better knowledge of the local environment.
“They should know the locals… They should have an idea what kinds of products appeal to the customers,” he said.
Foreign banks, on the other hand, bring greater competition and better services to consumers.
“Local banks have an opportunity to tap into partnerships with foreign banks,” Ng said at the forum, whose theme was “Philippine Banking: Does Size Matter.”
Ng said these are just some of the benefits of banking integration. Other benefits are diversified sources of financing, investment channels and broader investor base; product and service innovation in the financial sector; lower transaction costs; and increased risk sharing through portfolio diversification.
In addition, he said the entry of regional banks can ensure funds are channeled toward the most efficient use.
However, Ng said that greater competition in Asean banking integration looms because entrenched incumbents in a saturated market may be hard to dislodge.
Singaporean banks, which are dominant in their highly developed market, will be hard to challenge, he said, because the three largest Singaporean banks control 80 percent of assets in the banking system in the country.
The ADB eco nomist said banks in Indonesia and the Philippines, which have large populations and relatively underdeveloped banking sectors, will likely come under greater competitive pressure from other regional banks.
He noted that the banking systems in Indonesia and the Philippines are also more fragmented. The three largest banks in Indonesia and the Philippines only account for 35 percent and 41 percent of total banking assets, respectively.