Possible entry of foreign banks excites local banking industry

CEBU, Philippines – A bank executive described the possible entry of foreign banks in Cebu as exciting, prompting local lenders to brace up and position themselves in the market.

Cebu Bankers Club President Maximo Eleccion, however, said he has not yet received any report of a foreign bank mulling to set up shop in Cebu next year, following the amendment of foreign banks law last year.

"That (possible entry) could be exciting. If you can see all our member banks are expanding in the provinces. They have positioned already," Eleccion said in an interview yesterday.

Eleccion said some foreign banks have already started operations in Manila following the enactment of the law further liberalizing the entry of banks from abroad.

Republic Act 10641 or An Act Allowing the Full Entry of Foreign Banks in the Philippines was signed into law in July last year.

It allows more foreign banks, which should be publicly listed in their home country, to operate in the Philippines by acquiring or owning up to 100% of the voting stock of an existing bank.

Another mode of entry is through investing in up to 100% of the voting stock of a new banking subsidiary incorporated under Philippine law.

A third mode is by establishing a branch with full banking authority.

If there will be any foreign bank that will set up branch here, Eleccion said it will probably be in Cebu City.

The CBC official said some local banks have penetrated the provincial areas as a way of market positioning, noting that branches were already opened in the towns of Argao and Moalboal and Bogo City, among others.

"That would be hard for foreign banks to come, I think so, because the market is being penetrated by local banks," he said.

Even with the liberalization of the banking sector, the law still requires that domestic banks, majority owned by Filipinos, must hold at least 60% of the resources or assets of the entire Philippine banking system.

Before this new law was implemented, only 10 foreign banks were allowed operate in the country.

Japan's Sumitomo Mitsui Banking Corp. is the first foreign bank to open a Philippine branch in September this year under the new law. Second is South Korea's Shinhan Bank which started operations in October.

The two are among the several foreign lenders that sought the approval of the Bangko Sentral ng Pilipinas to operate in the country. (FREEMAN)