Merge with other banks to stay competitive: officer

MERGE with other local banks and even foreign banks to keep up with the competition in the banking industry, Cebu Bankers Club president Gino Gonzales told smaller local banks.

A new law recently allowed full foreign ownership of banks in the Philippines.

“Foreign banks are interested to operate and open branches here. The implication of that for local banks is either you merge with bigger (local) banks if you’re quite small or you can merge with foreign banks (…) If you’re small and you don’t have the technology, merge with them.” Gonzales said.

Under Republic Act 10641 or “An Act Allowing Full Entry of Foreign Banks in the Philippines,” foreigners can own up to 100 percent of domestic banks. The law also grants locally-incorporated subsidiaries of foreign banks the same banking privileges as domestic banks of the same category.

This is a revision of the 20-year old RA 7721 which only allowed the entry of foreign banks 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.

“Considering that 100 percent ownership is already allowed, so the option (for foreign banks) is buy (local) banks because these have existing networks. This is the easy way around,” Gonzales said.

The move to make the country’s banking industry more open to others is in line with the economic integration of the Association of Southeast Asian Nations, where a common banking framework will be implemented in 2020.

The Asean Banking Integration Framework in the next five years will allow qualified Asean banks to operate within the region’s jurisdictions on equal terms as domestic banks, “subject to certain prudential and governance standards.”

The Bangko Sentral ng Pilipinas (BSP) has said that the new ruling will make local banks competitive by offering new products and services that will benefit the consumers.

However, some banking players like Philippine Business Bank’s Alfredo Yao, also the chairman of the Philippine Chamber of Commerce and Industry, pointed out in a report the adverse impact of the foreign ownership saying it will “put the country’s (small) banks at the mercy of giant banks of other Asean countries” and the “lack of scale of local banks.”

For his part, Gonzales believes that the Philippines is a huge potential market for foreign banks, citing the country’s improving economy and investment ratings.

In 2014 alone, the banker cited the positive performance of the economy. Although the gross domestic product was at 5.8 percent in the first nine months, lower than last year’s 7.2 percent, the economy was still performing well.

Other positive performances last year also include the drop of unemployment rate, minimal changes in the peso to dollar exchange rate, increasing overseas Filipino workers’ remittances, collapsing crude oil prices, and the inflation rate of 4.3 percent which was kept within the BSP target of three to five percent.

The good trust rating of President Benigno S. Aquino III, he said, has also helped the economy with businessmen and investors pouring in more investments in the country.

Gonzales also quoted a Pulse Asia Survey saying that 88 percent of Filipinos believe that they will have a good year ahead, which he hoped will reflect in the whole year of 2015. JOG
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