The Bangko Sentral ng Pilipinas (BSP) is pushing a more liberalized entry of foreign banks in the country in line with its goal to create a competitive banking industry in preparation to the upcoming Association of Southeast Asian Nation (Asean) financial integration.
In a statement over the weekend, the central bank said that its policy-making body Monetary Board (MB) is endorsing to Congress a bill amending the Republic Act (RA) 7721, or An act liberalizing the entry and scope of operations of foreign banks in the Philippines.
Promulgated in 1994, RA 7721 states that the Philippine banking and financial system is liberalized to create a more competitive environment and encourage greater foreign participation through increase in ownership in domestic banks by foreign banks and the entry of new foreign bank branches.
The law allowed the entry of foreign banks either through ownership of up to 60 percent of the voting stock of an existing domestic bank or of a new banking subsidiary or establishment of branches with full banking authority.
The central bank said that the proposed amendments also provide safety nets that ensure that the banking resources continue to be dominantly in the hands of domestic banks.
The BSP added that the current requirement is retained where at least 70 percent of resources must be held by domestic banks which are majority owned by Filipinos.
Also included in the proposed amendments is the power of the MB to suspend the further entry of foreign banks under any or all of the modes of entry as national interest warrants.
Asean qualified banks
The BSP said that it would be appropriate to revisit the 20-year-old law to take advantage of the investment grade status of the Philippines and to prepare for the Asean Banking Integration Framework (abif).
The said framework will qualify an Asean Qualified Banks (Qab) that can operate within Asean jurisdictions on equal terms as domestic banks of that jurisdiction subject to certain prudential and governance standards.
“Our investment grade makes us part of a limited group of sovereigns who are considered to adhere to the high standards of macroeconomic, fiscal and financial governance. Building on its achievement, we must nurture a competitive environment that can address the expanding needs of stakeholders,” BSP Governor Amando Tetangco Jr. said.
The central bank also said that amending RA 7721 would be necessary for the Philippines to take advantage of the opportunities provided by a more holistic region.
However, the BSP said that there will be sufficient governance standards in place within ABIF for Philippine banks to qualify as QABs and for Asean banks to operate in the Philippines as QABs. With this, the central bank noted that it has been consistently introducing reforms—like the Basel III capital requirements—to make the banking industry responsive to the needs of stakeholders and market conditions.
For his part, Deputy Governor Nestor Espenilla Jr., who heads the BSP’s Supervision and Examination Sector, said that the amendment is an opportunity to promote direct investment into the country.
In terms of competition between foreign and domestic banks, Espenilla said that the entry of more foreign banks can be good because it will push domestic banks to develop a better services and better pricing for clients.
“There are good reasons for competition. We are also in the stage that we are quite comfortable in the stability of banking system. We are ready to compete,” he said.