5 foreign banks shut down Philippine offices

American Express Bank and four other foreign institutions have shut down their offices in the Philippines as the financial woes in the United States and Europe prompted them to sell off their offshore assets.

The Bangko Sentral ng Pilipinas said the asset sale was meant to help the financially troubled parent firms generate liquidity.

In a circular notifying the local banking industry, the BSP said the five foreign banks have already packed up and left. Apart from American Express Bank, the others were Societe General, Union Bank of California N.A., First International Bank and Fortis Bank.

Societe Generale is based in Paris, while First International Bank is based in North Dakota. Fortis Bank is a subsidiary of BNP Paribas, which operates mainly out of Belgium.

“The closure of the offices in the Philippines is a case of deleveraging that is happening now in the West,” BSP Deputy Governor Nestor Espenilla Jr. told the Inquirer. “Because of the financial problems of the parent firms, they decided to sell some assets.”

He said the concerned banks were engaged mostly in the business of foreign-exchange lending in the Philippines.

The banks were making profit here, Espenilla explained, but their parent firms were pressed for resources.

“I had a chance to talk to the head of one of the five foreign banks. He told me he was sad about closing the bank’s Philippine office because it was actually making money,” Espenilla said.

He said the closure of the Philippine offices of the five foreign banks is consistent with the ongoing trend of deleveraging in the United States and Europe.

Troubled banks in the West are now disposing their assets in foreign countries as a means to shore up capital.

Espenilla said the Philippine banking sector would not be significantly affected by the decision of the five foreign banks to leave. He said the five banks accounted for an insignificant portion of the total assets of the Philippine banking sector.

Also, there are several strong universal and commercial banks in the Philippines that can serve the loans and other financial services needs of the business sector and consumers, he added.

The sale of assets now seen among Western banks was brought on not only by financial problems, but by the imposition of tighter capitalization rules worldwide.

Because of the latest global financial crisis, where many advanced economies went through recession, regulators all over the world decided to raise their supervisory standards.

To prevent another crisis, which was triggered by unsound investment banking practices in the West, regulators have started to impose tighter capitalization rules. Under the new rules, any risky investment activity must be adequately covered by capital.

But observers have noted that the tighter capital rules are only making it more difficult for the already troubled Western banks to meet their liquidity requirements.