JAPAN’S second largest bank Sumitomo Mitsui Banking Corp. and at least six other banks in Asia are poised to enter the Philippines, a result of a new law that recently liberalized foreign ownership restrictions in the banking industry.
In a report, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr, said two foreign applications have been filed with BSP. He added that he is expecting more to file “soon.”
Sumitomo, meanwhile, already received an approval from BSP in Feburary to open its first branch in Makati City, the first foreign bank to penetrate the Philippines after the implementation of Republic Act 10641 or “An Act Allowing Full Entry of Foreign Banks in the Philippines.”
Under the law, foreigners can own up to 100 percent of domestic banks. It also grants locally-incorporated subsidiaries of foreign banks the same banking privileges as domestic banks of the same category.
BSP, however, refused to name the other foreign banks that have expressed plans to enter the domestic market, but a report from Reuters, quoting business insiders, said Taiwan’s Cathay United Bank and Taiwan Cooperative Bank, alongside South Korea’s Shinhan International Bank, Woori Bank and Busan Bank will expand in the Philippines.
On the part of Sumitomo, it will open this summer with 40 to 50 employees who will handle basic services, such as deposits, loans, and foreign currency trading, as well as trade financing and cash management services.
For Cebu Bankers Club, the entry and interest of foreign banks in the Philippines is a reflection of the positive economic climate of the country in the sight of global players.
“The entry of foreign banks into our country is an indication of the international finance community’s confidence in the Philippine market, notwithstanding our being the second fastest growing economy for 2014. They see that our economic gains will provide them long term opportunities by investing in the country,” said CBC president Gino Gonzales in an e-mail to Sun.Star Cebu.
Under the law, modes of entry among foreign banks include: acquiring, purchasing, or owning up to 100 percent of the voting stock of an existing bank, given that they are publicly listed in their home country; investing in up to 100 percent of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines for new entrants; or through establishing branches with full banking authority.
While the entry could be seen as advantageous to foreign banks, which will get a share of the Philippine’s growing economy, the CBC official noted an “increased competition” in an already very competitive banking industry in the Philippines.
“Banks will have to be more aggressive to maintain their market share with more product offerings and better client servicing. They could expand their markets to other areas where competition is lesser, which would mean banking services would now be made available to these areas, where before only rural banks or financing companies have been catering to,” Gonzales raised.
Banking clients, meanwhile, will have more options where to bring their business in, the official added. They can also expect more competitive rates from banks like lower loan rates which will further encourage more businesses to borrow for the expansion of their operations.
“It is also possible that there will be mergers and acquisitions among banks,” Gonzales added.
Previously, under the 20-year old law RA 7721, the entry of foreign banks could only be done 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.