With the bill liberalizing the entry and scope of foreign banks in the Philippines “a done deal,” central bank Deputy Governor Nestor A. Espenilla, Jr. said the BSP was prepared to craft the implementing rules.
“It’s just waiting for the signature of the President. [The BSP] has 90 days to make the implementing rules. We’re ready to do that,” Mr. Espenilla told reporters last week.“If all goes well, by the end of July, it’s either signed or it lapses into law. Before the end of the year, we open ourselves already to foreign investments.”
The Senate last June 9 approved on third and final reading Senate Bill 2159, a measure that amends Republic Act (RA) 7721 or “An Act Liberalizing the Entry of Foreign Banks in the Philippines,” which was enacted in 1994.
SB 2159 seeks to expand the participation of qualified foreign banks in the Philippine financial sector. It allows foreigners to own up to 100% of domestic banks and permits the entry of “established, reputable and financially sound foreign banks.”
Current limits to the number of foreign banks operating in the country will likewise be eliminated. RA 7721 allows the entry of only up to 10 banks fully owned by foreigners to operate in the country.
A counterpart bill to SB 2159 — House Bill (HB) 3984 — was approved by the House of Representatives in May. The two bills were approved as reconciled last June 11 and sent to the Office of the President for signature and approval last June 26.
The BSP has thrown its support behind the measure, noting that it will help the banking sector become more competitive in the wake of regional integration.
“The needs of the economy are growing, our firms are growing. By having additional players, there are more sources of credit that can support the growth of business,” Mr. Espenilla said.
“Competition also promotes better prices, better services and better access. Everybody wants to remain attractive to customers so they improve.”
The liberalization of the industry will also attract more foreign direct investments, the BSP official added.
“Foreign banks … have established relationships with the companies in their own countries and of course as a foreign direct investor you want to deal with firms you are familiar with. So once a foreign bank is here … there’s synergy there. There is a strong connection between those foreign banks and the entry of foreign investments coming from the home country of those banks.”
Meanwhile, Mr. Espenilla said the BSP was likewise eyeing to implement by yearend more stringent capital rules for “too big to fail” banks in line with its financial stability mandate.
“It’s ready. We’re programming it,” he said when asked about the status of a framework covering domestic systemically important banks (DSIB).
“But Basel III just took effect, so maybe we should take it slowly. It’ll be hard to implement these all at once. Possibly by the end of the year. It’s actively being discussed,” Mr. Espenilla said.
“We’re also reviewing the credit risk manual for banks, their credit risk management policies … but that’s under consultation. It’s not yet ready. We’re also preoccupied with implementing the potential foreign bank entry. There are a lot of things happening so we have to manage these changes.”
The Bank for International Settlements (BIS) Basel Committee, which sets guidelines for banking regulations around the world, has mandated that a framework on DSIBs be implemented by 2016.
Part of the framework will require DSIBs to have higher capital adequacy ratios (CAR) compared to smaller banks, which means big banks will be classified depending on their importance to the financial system.
The CAR is one of the main indicators of financial health. It indicates how much capital a bank has in relation to its risk-weighted assets, such as money lent out to clients or holdings of debt instruments.
Big banks are currently required to maintain a CAR of 10% under Basel III guidelines.
BSP data showed that at end-2013, the CAR of universal and commercial banks on a solo basis stood at 16.5%, slightly lower than the 17.51% recorded three months earlier. On a consolidated basis, big banks’ CAR averaged 17.65% at end-December, also lower than the 18.62% registered the previous quarter.
Capitalization on a solo basis covers a bank’s head office and its branches, while the consolidated basis includes its subsidiaries.