MANILA, Philippines–Large foreign banks have made steps to start operating in the Philippines, bringing with them deep pockets and new, competitive technologies and services to win over the millions of Filipinos who still hide cash under their beds.
Philippine banks should welcome them with open arms.
According to think tank Pinnacle, the entry of more foreign banks in the Philippines, to add to the 13 already operating mostly out of Manila, will benefit consumers and help fuel economic growth.
“There should be ‘no worries’ about the foreign bankers at the gate and these ‘barbarians’ can be welcomed with open arms and bring benefits to the Philippines’ economy,” said Pinnacle, a local real estate consulting firm.
“There is plenty of pie and it’s getting bigger so this could be a great benefit,” the firm said.
Congress’ decision to liberalize foreign participation in the local banking industry opened the floodgates for new banks in the Philippines.
Since the start of the year, three Asian banks, all giants in their respective markets, have been given the green light to set up shop in the country.
These are Taiwan’s Cathay United, Japan’s Sumitomo Mitsui and South Korea’s Shinhan Bank.
Local policymakers cite increased cross-border lending, which could facilitate a higher level of investments in the country, as one of the driving forces for the liberalization.
The amount of bank loans in the Philippines relative to the size of the economy also remains low compared to neighbors in the region.
At 29.1 percent of gross domestic product (GDP), credit in the Philippines is near the bottom of the pack in Asia.
Lending in China reached 219.5 percent of GDP in 2013. Singapore’s debt to GDP stands at 128.9 percent, while Malaysia’s is at a similarly high 123.9 percent.
Under the new law passed last year, foreign banks are allowed to corner as much as 40 percent of the sector’s total assets. Latest data showed their footprint was at 9.9 percent, Pinnacle said.
“Foreign banks have some way to go to hit the regulatory ceiling,” the firm said.
Apart from increased lending, having more foreign banks could also bring down money transfer costs in the country, benefiting families that receive remittances from the eight to 10 million Filipinos working overseas.
Last year, remittances to the Philippines reached $24.3 billion, 5.8 percent higher than the level posted in 2013. Remittances accounted for 8.5 percent of GDP.