Rules on opening up banking sector to foreign players OKd

MANILA, Philippines–Deep-pocketed foreign financial giants may soon be giving local banks a run for their money following the approval of the final guidelines of a law that opens up the industry to more foreign players.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr. said the implementing rules and regulations (IRR) for Republic Act 10641 were approved by the policy-making Monetary Board last Thursday. The completion of these guidelines was the last step to the implementation of the law, which removes most restrictions on foreign banks doing business in the Philippines.

Approved by Congress and signed into law by the President last July, RA 10641 lifts the restrictions limiting the number of foreign banks in the Philippines to 10. Foreign banks may now also control up to 40 percent of the industry’s total resources, up from the previous 30 percent.

Liberalizing foreign participation in the banking sector is expected to raise the level of competition in the industry.

Also, the presence of more foreign banks in the Philippines is expected to facilitate fresh investments in other sectors. Foreign firms, the BSP earlier said, were more comfortable dealing with institutions they were familiar with.

“The economic benefits that can be derived from the further opening of the Philippine banking system to foreign banks are clear,” BSP Governor Amando M. Tetangco Jr. said last July.

Despite posting gains in recent years, the Philippines still lags behind in the region in attracting foreign direct investments (FDI), which are closely linked to capital formation and job generation. Last year, FDIs reached $3.9 billion, lower than Malaysia’s $12.3 billion, Indonesia’s $18.4 billion, and Thailand’s $13 billion, data from the Association of Southeast Asian Nations (Asean) Secretariat showed.

Under the new law, foreign banks, subject to regulatory approval, may now acquire up to 100 percent ownership of a local lender. These investments may be restricted by the BSP to ensure that local banks still hold at least 60 percent of the industry’s total resources.

Currently, foreign banks in the country account for only 11 percent of the industry’s resources.

Under the old rules, only foreign banks that belonged to the top 150 largest banks in the world were allowed to set up shop in the Philippines. These banks also had to be among the top five in their respective home countries.

These restrictions were lifted under the new law, although foreign banks still need to be publicly listed and widely held before entering the Philippines.

The new law paves the way for several major reforms lined up for the banking industry.

More liberalized rules on banking comes ahead of the implementation of the Association of Southeast Asian Nations’ (Asean) planned economic integration, which moves up to a higher gear starting next year.

Part of this integration is the Asean Banking Integration Framework (ABIF), which would pave the way for the region’s lenders to tap new markets that were previously closed off by protectionist policies.