The local banking sector is poised to become more dynamic and competitive with the entry of six foreign financial institutions last year, the Bangko Sentral ng Pilipinas (BSP) chief said.
“The entry of new foreign banks under our liberalized regime should further enhance the quality of competition among our banks and nurture innovations that will ultimately benefit the public, “ central bank Governor Amando Tetangco Jr. said during a reception for the banking community on Tuesday.
The Philippine banking industry was further liberalized with the signing in 2014 of Republic Act 10641, which allows foreign banks to acquire up to 100 percent of the voting stock of an existing domestic bank, removing the 60 percent limit on foreign equity.
Foreign banks can also operate in the Philippines by investing in up to 100 percent of the voting stock of a new banking subsidiary incorporated under local laws or by establishing branches with full banking authority.
At present, six foreign banks have been given the green light to set up a branch in the country, starting with Japanese lender Sumitomo Mitsui Banking Corp. that was granted Monetary Board approval in February last year.
It was followed by South Korea’s Shinhan Bank in March, Taiwan’s Cathay United Bank in April, Industrial Bank of Korea in May and Yuanta Commercial Bank Co. in July. The latest was Singapore-based United Overseas Bank, which secured approval in September.
“The entry of these six banks to the Philippines could catalyze further innovation in our banking sector and we expect more to come in,” Tetangco said.
Geographic representation and complementation are among the factors considered by the Monetary Board in approving entry applications. It also looks into the strategic trade and investment relationships between the Philippines and the country of incorporation of the foreign bank and also studies the demonstrated capacity, global reputation for financial innovations and stability in a competitive environment of the applicant.
The policy-making body should also ensure that reciprocity rights are enjoyed by Philippine banks in the applicant’s country and consider willingness to fully share technology.
The law also states that the Monetary Board should adopt such measures as may be necessary to ensure that control of at least 60 percent of the resources or assets of the entire banking system is held by domestic banks that are majority-owned by Filipinos.
Deputy Governor Nestor Espenilla Jr., who heads the central bank’s Banking Supervision and Examination Sector, said foreign banks were looking at the Philippines because their home markets were stagnant in terms of growth prospects.
“There are very few growth areas in Asia . . . So if they are looking for growth, Philippines is one because we have good prospects,” he said.
The Monetary Board is currently considering an application from an Asian bank, Espenilla said, declining to provide more details.