Foreign banks awaiting IRR of new banking law

CEBU, Philippines - At least two to three foreign banks are expected to enter the Philippine market upon the implementation of the new banking law allowing 100 percent foreign ownership in the country.

President Benigno S. Aquino III has signed into law a bill allowing 100 percent foreign bank ownership into the Philippines in time for the 2015 ASEAN regional economic integration or the Asean Economic Community. The new law, Republic Act 10641 or “An Act Allowing the Full Entry of Foreign Banks in the Philippines,” amends RA 7721, “An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines.”

Bankers Association of the Philippines past president Alberto Villarosa said that these foreign banks are just waiting for the release of Implementing Rules and Regulation, and they're ready to enter the Philippines.

While the passage of the law is expected to make market competition a tad harder, Villarosa said local banks have also prepared for this development and bracing to face global competition right in their own turf.

As foreign banks are expected to take a sizeable share of the Philippine banking market in the next few years, Villarosa maintains optimism that local banks will sustain and even thrive amid the competition, adding that "they (foreign banks) still play the same ground rules as local banks."

Villarosa, who is the president and chief executive officer of Security Bank added that it is understandable that the Philippines is one of the hottest expansion site for global bankers, the Philippines is vital to their positioning as an international player.

Making money or not, serious and big global banking companies have to make presence in the Philippines, as the country is considered as the "missing link" to their international presence.

This is because the Philippines has already gained its strength as one of the top emerging economies in the world. "The Philippines is critical component of the ASEAN region."

Meanwhile, the Philippine Chamber of Commerce and Industry has warned of an adverse impact on the full liberalization of the banking industry as this move will put the country’s banks, which are considered small, at the mercy of the giant banks of other Asean countries.

In a report, PCCI chairman Alfredo Yao questioned such haste in opening the domestic banking industry to 100 percent foreign ownership.

Yao, who also owns a bank – Philippine Business Bank – stressed that Philippine banks do not have the scale of the huge banks of other Asean countries.

The BSP, however, said that allowing 100 percent foreign ownership in the domestic banking industry will make local banks competitive, offer new products and services that will benefit the consumers.

But Yao, chairman of the diversified conglomerate Yao Group of Companies, stressed that aside from the lack of scale of the local banks, this industry does not need any further liberalization because it is already a mature industry.

Under the old law RA 7721, foreign banks are allowed to enter the local market either through ownership of up to 60 percent of the voting stock of an existing domestic bank or of a new banking subsidiary or establishment of branches with full banking authority.

The new law, RA 10641, now allows foreigners to own up to 100 percent of domestic banks and facilitate the entry of established, reputable and financially sound foreign banks in the Philippines. It also granted locally incorporated subsidiaries of foreign banks the same banking privileges as domestic banks of the same category.

The law aims to give the Philippines advantage in the economic integration of the Asean, where a common banking framework will be implemented.

The Asean Banking Integration Framework, to be implemented by 2020, will allow qualified Asean banks to operate within ASEAN jurisdictions on equal terms as domestic banks, subject to certain prudential and governance standards. — (FREEMAN)