Big foreign banks seen entering PH this year

MANILA, Philippines–Foreign banks are preparing their entry into the Philippines following the lifting of ownership restrictions last year, which now opens up the financial system to more global players.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. said regulators were already processing one application by a foreign bank to set up shop in the Philippines.

“Two others have indicated they are putting together their application documents and could be submitting their applications soon enough,” he said in a text message. Espenilla declined to identify the three banks, but said these were “major players.”

These banks may choose to enter the Philippines via one of three possible ways. The first is the establishment of a new foreign bank branch in the country that has its own permanently-assigned capital. They may also acquire a majority stake in existing local banks, or establish a completely new subsidiary in the Philippines.

The entry of more foreign players in the local banking sector is seen by many as beneficial for individual consumers and for the economy as a whole.

“Foreign investment in Philippine banks could help strengthen the banking system, including consolidating local banks, improving operating efficiency in the face of competition, and enhancing their corporate governance practices to align them with international standards,” Fitch Ratings said in a statement late last year.

The rating firm noted that corporate governance has been an issue for Philippine banks as many of them were owned by large local conglomerates that were controlled by families.

“Increased foreign ownership and subsequent sharing of expertise are likely to improve the Philippine banks’ risk management processes, which, in turn, can support improvement in their credit profiles,” Fitch said.

Meanwhile, BSP Governor Amando M. Tetangco Jr. said in previous statements that foreign banks could facilitate the entry of new investors to the Philippines. He noted that foreign firms were often more comfortable dealing with institutions they were familiar with.

Last year, restrictions on foreign ownership in the banking sector were lifted by Congress to attract more investments and to comply with commitments to open certain sectors of the economy ahead of Southeast Asia’s regional integration.

The Philippine banking sector remains one of the pillars that keep the domestic economy standing. Moody’s Investor Service has a “positive” outlook for the Philippine banking industry. The 70 other banking jurisdictions rated by Moody’s were rated at either “stable” or “negative.”

Moody’s noted “significant latent potential for banking sector loans to grow given the low credit penetration rate in the country.” The firm noted that credit-to-gross domestic product (GDP) ratio stood at 43 percent as of June 2014 and consumer credit accounted for only around 7 percent of GDP.

“In that context, we expect the banking system to record loan growth of 15-17 percent,” Moody’s said.