The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Tougher competition in the banking sector is expected as more foreign banks and rapidly expanding domestic lenders are seen to open more branches by next year.
The increase in the number of banks in the country is foreseen as business indications point to the Philippines maintaining its role as an emerging investment destination.
“If businesses will go to your country, it only means that more infrastructures will be built,” said Renato Diaz, a veteran investment banker and former lawmaker.
Currently, the country has 34 universal and commercial banks, 72 thrift and savings banks, and 512 rural banks.
“No matter how big a business is, it doesn’t normally spend its own money in expansion. At least some will come from loans and only half is equity,” Diaz said.
When giant conglomerate San Miguel Corp. (SMC) announced that it will be embarking on cement- and power-plant projects instead of food, its president and chief operating officer, Ramon S. Ang, said nearly 30 percent of the $400-million investments needed to divert to cement business would be from loans and only 30 percent will be from SMC equity.
The Bangko Sentral ng Pilipinas (BSP) indicated that at least four big foreign banks have opened branches in the Philippines in the last two months. These are Cathay United Bank, the Industrial Bank of Korea, Shinhan Bank and Sumitomo Mitsui Banking Corp.
A source at the BSP said that come 2016, more foreign banks will open branches or set up offshore banking units in the Philippines.
“The population is a magnet for them. It means more businesses related to money transfer or remittance are seen opening,” a BSP official said.
The reason behind the entry of more foreign banks was the full liberalization of the country’s banking system.
Prior to the enactment of Republic Act (RA) 10641, or “An Act Allowing the Full Entry of Foreign Banks in the Philippines,” there were only 10 fully foreign-owned banks allowed to operate in the Philippines.
The old law, RA 7721, mandated that foreign ownership in a bank was limited to only 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.
But now, under RA 10641, foreigners can own domestic banks and facilitate the entry of established, reputable and financially sound foreign banks in the Philippines.
It also granted locall y incorporated subsidiaries of foreign banks the same banking privileges as domestic banks of the same category.
Sen. Sergio Osmeña III, chairman of the Senate Committee on Banks and Financial Intermediaries, said that allowing full foreign ownership of any bank can help professionalize banking services in the country, especially rural banks (RBs).
Osmeña, a former director of the defunct Republic Bank, a subsidiary of Philippine National Bank, said it’s about time the orientation of many RBs in the country be changed to stop the continuous closure of banks in this classification.