Foreign investors seen acquiring local banks

Several European and Asian banks have signified interest in acquiring full ownership of local banks as this is now allowed under the new General Banking Act (GBA) scheduled for signing today at Malacañang, Bangko Sentral ng Pilipinas (BSP) Gov. Rafael Buenaventura said yesterday.

"There are some already, mostly European and Asian banks. American banks are already well represented here," Buenventura said.

President Estrada will sign today the amendments to the 50-year old GBA. Among its major features is a provision allowing foreign banks to buy 100-percent ownership of an existing bank. Previously, foreign banks could own only up to 60 percent of an existing local commercial, rural or savings bank.

The liberalization, the second round after a similar move was made a few years ago to allow 10 foreign banks to set up branches in the country, is expected to result in the entry of more foreign banks buying into smaller and medium-sized banks, particularly those that could not meet the higher capital requirement.

"It (new GBA) liberalizes the entry of foreign banks to allow greater competition. It is important that an equal number of foreign banks come in to provide adequate competition," Buenaventura said.

He said foreign banks can come in, "as many as they want," as long as their share to total resources of the banking system will not exceed 30 percent, the cap set under the new GBA so as not to put local banks in an unfair advantage over their foreign counterparts. Right now, he said foreign banks control only 10 percent of the entire banking system.

More competition, he said, would result in lower lending rates and possibly higher deposit rates. It would also spark the introduction of more banking products that would emphasize quality of service and comfort of the depositors.

Aside from liberalizing the industry, the new GBA would allow banks to raise capital through the flotation of debt instruments, through the "tier-2" definition of capital. At present, banks can raise capital only by issuing new shares or though equities under the so-called "tier-1" definition of capital.

This would give banks an easier time to comply with the higher capital requirements since most shareholders are hesitant to infuse more funds into banks given the difficult economic environment and the weak earnings of financial institutions.

Another amendment to the GBA, he said would require banks to disclose more financial information on their published financial statements as well as higher monetary penalties on bank owners and officers that would violate banking laws. -- Jun Eibias