BSP policy body approves liberalization bid

Local banks are set to face stiffer competition as the central bank asks lawmakers to ease certain restrictions to the entry of more foreign players in the industry.

The Bangko Sentral ng Pilipinas (BSP) announced that it has formally approved a proposal to Congress for liberalization, albeit on a limited basis, of the country’s banking sector mainly through the removal of the limit on the number of foreign lenders operating in the country.

This comes ahead of the integration of Southeast Asia’s financial sector, which is in line with the region’s aspirations for tighter economic cooperation.

“Our investment grade (status) makes us part of a limited group of sovereigns who are considered to adhere to high standards of macroeconomic, fiscal and financial governance,” BSP Governor Amando M. Tetangco Jr. said in a statement. “Building on this achievement, we must nurture a competitive environment that can address the expanding needs of stakeholders.”

The BSP’s proposal, which was approved by the Monetary Board last Thursday, involves the removal of the limit on the number of foreign banks in the Philippines. Under Republic Act 7721 passed in 1994, only 10 foreign banks are allowed to set up shop in the country.

Current rules also restrict ownership by foreign financial giants of banks in the Philippines to 60 percent. The BSP’s proposal, if approved, will allow foreign banks to establish wholly owned subsidiaries in the country.

The BSP, however, stopped short of asking for the full liberalization of the banking sector. Under its proposal, an existing provision that constrains foreign banks from holding more than 30 percent of the industry’s total resources would be retained.

The provision aims to protect local players’ dominance over the banking sector despite the presence of more competitors.

BSP Deputy Governor Nestor A. Espenilla Jr. said that only over a tenth of the banking industry’s resources were currently held by foreign banks, noting that even with the restriction, there still remained significant space for growth.

He said opening up the banking sector the more foreign participation was a matter of “national interest” as it would ease the entry of much-needed investments into the country.

He said several foreign banks today chose to set up shop in the Philippines to serve clients from their home jurisdictions, which are mainly investors doing business in the country.