THE PHILIPPINE banking system is not ready for the financial integration of the Association of Southeast Asian Nations, Bangko Sentral ng Pilipinas Managing Director for International Sub-Sector Wilhelmina Manala admitted.
Manala said that the implementation rate of the Philippines of the Asean Economic Community (AEC) scorecard is still at 86.1 percent.
Although this is the case, she said all other member-countries are also facing the same challenges, averaging 80 percent in the implementation.
“We have all the same objective (to become financially and economically integrated), but we realized that we (the ten-member countries) are not all in the same stage. Therefore, we cannot arrive at the same objective all at once,” Manala said in her presentation during the Entrepreneurship Conference held yesterday at the Cebu City Marriott Hotel.
One of the components of the AEC blueprint, the Asean Financial Integration Framework, stipulates the need to liberalize and integrate financial markets by removing restrictions on capital markets and financial services. This covers banks, insurance companies, investment companies, and financial institutions.
10 more years
Manala explained that this is done to provide better availability of specialized financial services and products in the region.
“It might take even ten years for financial integration to happen,” she said. A BSP Cebu official, who refused to be named, said unlike trade where there is already huge improvements with the free trade agreements, the banking sector is “too complicated” for integration.
In addition, the official who requested anonymity said the small size of the Philippine banks poses a challenge for the country in facing financial market integration. For one, the country’s largest bank, Banco de Oro at $40 billion in assets, ranks only 19th in Southeast Asia.
In a report, BSP said there is still more to be done this year up to year 2020 in advancing financial integration.
Among the actions that are set to be worked on this year include the environment and treatment for qualified Asian banks, or banks that are allowed to operate in other jurisdictions in the region aside from its home base country; the process of financial-services liberalization; capital-market development; and harmonization of payments and settlements system.
Full ownership
Recently, the Philippines has opened doors to foreign banks, allowing 100 percent foreign ownership. Other countries like Indonesia allow a 99 percent foreign equity participation while Thailand allows a 25:49 percent foreign ownership. Malaysia and Singapore, however, impose “no hard limits” subject to some criteria, the official said.
Since RA 10641 was implemented, BSP has already approved four foreign banks. Two of them are Korean banks (Shinhan Bank and Industrial Bank of Korea), one Japanese (Sumitomo Mitsui Banking Corp), and a Taiwanese bank (Cathay United Bank).
Manala also noted that the Philippine banks are among the strongest banks in the region, having a capital adequacy ratio of 16.6 capital adequacy ratio as of January 2014. This means the country’s banks maintain sufficient buffer against unexpected losses that may arise during times of crisis.
Although opportunities abound with the financial integration, Manala also warned that this is subject to risks like the increase of volatility of capital inflows in specific member-states and the possibility that the domestic bank market will be dominated by foreign banks.
“The BSP continues to lead initiatives to ensure that benefits will be realized and risks are well-managed,” she assured local business players.