Will full entry of foreign banks spur investments in PH?


President Benigno Aquino 3rd recently signed into law a bill allowing the full entry of foreign banks into the Philippines. This new law, Republic Act (RA) 10641 or “An Act Allowing the Full Entry of Foreign Banks in the Philippines,” amends RA 7721, “An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines, and for Other Purposes.”

Under the new law, the Monetary Board may allow foreign banks to operate in the Philippine banking system by acquiring, purchasing or owning up to 100 percent of the voting stock of an existing bank; by investing in up to 100 percent of the voting stock of a new banking subsidiary incorporated under the laws of the country; or by establishing branches with full banking authority.

The old law, RA 7721, only allows foreign banks to own or invest in 60 percent of the voting stock of Philippine finance institutions. The Department of Trade and Industry (DTI) sees the entry of foreign banks to further boost investments and economic growth in the Philippines. At present, about 11 percent of the banking industry is controlled by foreign banks like Citi Philippines, ANZ banking group, Maybank Philippines, HSBC, Deustche Bank, and others.

“With the entry of similar banks in the country, we do not only augment the domestically available financial resources to boost commerce but also ensure the free flow of financing to support the current Administration’s infrastructure projects that will further boost the economy and create more jobs,” DTI Undersecretary Ponciano Manalo said. How? Manalo says with the entry of global banks in the country, it is expected  to offer various commercial opportunities by expanding the financial resources that will be domestically available. This can likewise entice these bank’s corporate clients to transfer or expand their operations in the country.

The Philippine Chamber of Commerce and Industry looks at it otherwise. Its president Fred Yao, who happens to own the Philippine Business Bank, says the situation threatens the viability of smaller local banks. Given the foreign banks’ vast resources, it would be easier for them to put up several branches easily.

That may be true and soon we may witness more mergers and acquisitions. The reality is our banking industry is not as big if you compare it with our Asean counterparts. And BDO President Nestor Tan confirms this as he says that a bank, even with the combined resources of the country’s three biggest banks (BDO, BPI, and Metrobank), will only be comparable to Bangkok Bank.

As a consumer, I welcome this new development especially if it means better service, easier time and less requirements for one to open accounts, and minimal fees to maintain one. As it is, a savings account requires a minimum average balance of P5,000.00 pesos. For micro, small, and medium enterprises, this amount may be a bit too high to maintain. And if they fail, they are slapped with fines of no less than P300 pesos a month. Again, making it prohibitive to maintain an account. I want more service, not more fees. After all, it is my money that helps you keep your business of banking afloat. If not, I will just resort to keeping my little savings the old-fashioned way: in my bamboo piggy bank!

God is Great!


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  1. Gloria M. Kuizon on

    Of course not! Did China and Vietnam give full entry to foreign banks before the nonChinese and nonVietnamese investors sank foreign direct investments in these two communist-partry owned states?

  2. Larry Ebersole on

    This is a double bladed sword that they had aimed upon their heads; New banks as a general rule will follow what is already there if it is more beneficial for them. therefore services and penalties as well as interest rates will stay. They may try to offer some enticements to get patronage but definitely with a hidden catch very much like a credit card. On the other hand this will benefit the upper class as they have more opportunity for investment these new banks can offer…..negative side, local capital flight

  3. The full entry of foreign banks into the Philippines would improve banking services, increase banking products and strengthen banking industry. Would that mean lower interest rates and higher deposit rates? Abangan!

  4. To the extent that foreigners bring net new capital into the banking system, either by opening new banks or taking over existing banks, this additional capital has to be deployed in order to earn. Meaning, it has to be lent out.

    A wider variety of bank owners should also spur competition in deposit-taking and relending. Hopefully, the deposit base will increase and, hopefully, some of the idle billions in the BSP’s Special Deposit Accounts (SDA) could be put to more productive uses in the so-called “real” (vs. financial) economy.

    So, to answer the question that is the title of this article, yes, liberalization of bank ownership should increase, not decrease, the level of investment in this country.

    We should worry more about WHAT investments are being made. One job of the financial sector is to allocate resources to productive uses. We do not want to look back on this exciting time period and have to say, “During the boom, resources were misallocated on a huge scale, and it will take time to move them to new and more productive uses.”

  5. Alfredo Yao of PCCI, who “says the situation threatens the viability of smaller local banks,” happens to also be in talks to sell about 1/4 to 1/3 of his Philippine Business Bank to CIMB Bank of Malaysia. (source: Reuters, Inquirer)

    It is misleading to compare Philippine to Malaysian banks by assets alone. With the development of money markets and bond markets for big clients, banking is more a service than a treasury business. Just consider that Malaysia’s population is only 1/3 the size of Philippines.