BSP reforms to help Phl banks compete

MANILA, Philippines - The recent reforms implemented by the Bangko Sentral ng Pilipinas (BSP) should help the local banking system compete with other players in the region amid the economic integration of the Association of Southeast Asian Nations.

“The … financial sector reforms are intended to strengthen the domestic banking system and also help our banks grow into regionally competitive and economically viable players,” BSP Governor Amando M. Tetangco, Jr. told reporters.

The ASEAN members have long been working to create an integrated economic community by end of this year. The ASEAN Banking Integration Framework (ABIF), meanwhile, forms part of this and is being eyed by 2020.

“We have continuously taken steps to liberalize the banking system, strengthen the capital base of banks under the Basel III framework, increase minimum capital requirements, improve credit risk management, and pursued macro prudential reforms such as the implementation of real estate stress test limit along with the host of other prudential reforms generally to prepare (banks) for regional competition and economic integration,” Tetangco said.

The ABIF is seen to increase the availability of financial services in the country, lower the cost of financial intermediation, and deepen capital markets, among others. Risks, however, may include increased volatility of capital flows and greater potential for spillover, the central bank earlier has said.

At the same time, Philippine banks face tougher competition from their peers in the region as their assets are dwarfed by other lenders from the ASEAN. For example, the whole banking system’s assets are only about 70 percent of Singapore’s DBS.

The Philippines in July last year opened up its banking system to more foreign players and the BSP has released the implementing rules and regulations of such law in December.

RA 10641 allows the entry of more foreign banks in the country, earlier capped at only 10. Moreover, this allows foreign banks to buy as much as 100 percent of a local bank, amending a previous provision that only permits them to own up to 60 percent of any Philippine lender’s voting stock.

The measure is expected to make the local banking system better-positioned to face the looming ABIF and increase foreign direct investments to the country.